# EDGAR Filing Document

**Accession Number:** 0001825875
**File Stem:** 0001185185-26-001594
**Filing Date:** 2026-4
**Character Count:** 848155
**Document Hash:** af203b9ae455502fce3069d9405efe2d
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001185185-26-001594.hdr.sgml**: 20260429

**ACCESSION NUMBER**: 0001185185-26-001594

**CONFORMED SUBMISSION TYPE**: 20-F

**PUBLIC DOCUMENT COUNT**: 161

**CONFORMED PERIOD OF REPORT**: 20251231

**FILED AS OF DATE**: 20260429

**DATE AS OF CHANGE**: 20260429

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** Erayak Power Solution Group Inc.
- **CENTRAL INDEX KEY:** 0001825875
- **STANDARD INDUSTRIAL CLASSIFICATION:** MOTORS & GENERATORS [3621]
- **ORGANIZATION NAME:** 04 Manufacturing
- **EIN:** 000000000
- **STATE OF INCORPORATION:** E9

**FILING VALUES:**
- **FORM TYPE:** 20-F
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-41568
- **FILM NUMBER:** 26916795

**BUSINESS ADDRESS:**
- **STREET 1:** NO.528, 4TH AVENUE
- **STREET 2:** BINHAI INDUSTRIAL PARK
- **CITY:** WENZHOU, ZHEJIANG
- **STATE:** F4
- **ZIP:** 325025
- **BUSINESS PHONE:** 86-577-86829999

**MAIL ADDRESS:**
- **STREET 1:** NO.528, 4TH AVENUE
- **STREET 2:** BINHAI INDUSTRIAL PARK
- **CITY:** WENZHOU, ZHEJIANG
- **STATE:** F4
- **ZIP:** 325025

?xml version='1.0' encoding='ASCII'?

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 20-F**

**(Mark One)**

☐ **REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934**

**OR**

☒ **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the fiscal year ended December 31, 2025**

**OR**

☐ **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**

**OR**

☐ **SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the transition period from &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**

**Commission file number: 001-41568**

**ERAYAK Power Solution Group Inc.**

(Exact name of registrant as specified in its charter)

**Cayman Islands**

(Jurisdiction of incorporation or organization)

**No. 528, 4th Avenue**

**Binhai Industrial Park**

**Wenzhou, Zhejiang Province**

**People's Republic of China 325025 +86-0571-82651956**

(Address of principal executive offices)

**Lingyi Kong**, ***Chief Executive Officer***

**No. 528, 4th Avenue**

**Binhai Industrial Park**

**Wenzhou, Zhejiang Province**

**People's Republic of China 325025** (Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

---

| | | |
|:---|:---|:---|
| **Title of each class** | **Trading symbol(s)** | **Name of each exchange on which registered** |
| class A ordinary shares, par value $0.22 per share | RAYA | Nasdaq Capital Market |

---

Securities registered or to be registered pursuant to Section 12(g) of the Act: **None**

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: **None**

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report: 854,094 Class A Ordinary Shares and 40,910 Class B Ordinary Shares issued and outstanding as of December 31, 2025 and 978,477 Class A Ordinary Shares and 4,091 Class B Ordinary Shares issued and outstanding as of April 27, 2026

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

☐ Yes ☒ No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

☐ Yes ☒ No

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of "large accelerated filer," "accelerated filer," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ <br> Emerging growth company ☒

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the fi ling reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ☒ International Financial Reporting Standards as issued Other ☐ <br> by the International Accounting Standards Board ☐

If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

☐ Item 17 ☐ Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

☐ Yes ☒ No

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

☐ Yes ☐ No

**Table of Contents**

---

| | | |
|:---|:---|:---|
|  |  | **Page** |
| [**PART I**](#a_001) |  | 1 |
| &nbsp;&nbsp;&nbsp;ITEM 1. | [IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS](#a_002) | 1 |
| &nbsp;&nbsp;&nbsp;ITEM 2. | [OFFER STATISTICS AND EXPECTED TIMETABLE](#a_003) | 1 |
| &nbsp;&nbsp;&nbsp;ITEM 3. | [KEY INFORMATION](#a_004) | 1 |
| &nbsp;&nbsp;&nbsp;ITEM 4. | [INFORMATION ON THE COMPANY](#a_005) | 60 |
| &nbsp;&nbsp;&nbsp;ITEM 4A. | [UNRESOLVED STAFF COMMENTS](#a_006) | 87 |
| &nbsp;&nbsp;&nbsp;ITEM 5. | [OPERATING AND FINANCIAL REVIEW AND PROSPECTS](#a_007) | 88 |
| &nbsp;&nbsp;&nbsp;ITEM 6. | [DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES](#a_008) | 100 |
| &nbsp;&nbsp;&nbsp;ITEM 7. | [MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS](#a_009) | 108 |
| &nbsp;&nbsp;&nbsp;ITEM 8. | [FINANCIAL INFORMATION](#a_010) | 109 |
| &nbsp;&nbsp;&nbsp;ITEM 9. | [THE OFFER AND LISTING](#a_011) | 110 |
| &nbsp;&nbsp;&nbsp;ITEM 10. | [ADDITIONAL INFORMATION](#a_012) | 111 |
| &nbsp;&nbsp;&nbsp;ITEM 11. | [QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](#a_013) | 132 |
| &nbsp;&nbsp;&nbsp;ITEM 12. | [DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES](#a_014) | 132 |
| [**PART II**](#a_015) |  | 133 |
| &nbsp;&nbsp;&nbsp;ITEM 13. | [DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES](#a_016) | 133 |
| &nbsp;&nbsp;&nbsp;ITEM 14. | [MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS](#a_017) | 133 |
| &nbsp;&nbsp;&nbsp;ITEM 15. | [CONTROLS AND PROCEDURES](#a_018) | 133 |
| &nbsp;&nbsp;&nbsp;ITEM 16 | [\[Reserved\]](#a_019) | 134 |
| &nbsp;&nbsp;&nbsp;ITEM 16A. | [AUDIT COMMITTEE FINANCIAL EXPERT](#a_020) | 134 |
| &nbsp;&nbsp;&nbsp;ITEM 16B. | [CODE OF ETHICS](#a_021) | 134 |
| &nbsp;&nbsp;&nbsp;ITEM 16C. | [PRINCIPAL ACCOUNTANT FEES AND SERVICES](#a_022) | 134 |
| &nbsp;&nbsp;&nbsp;ITEM 16D. | [EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES](#a_023) | 134 |
| &nbsp;&nbsp;&nbsp;ITEM 16E. | [PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS](#a_024) | 134 |
| &nbsp;&nbsp;&nbsp;ITEM 16F. | [CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT](#a_025) | 135 |
| &nbsp;&nbsp;&nbsp;ITEM 16G. | [CORPORATE GOVERNANCE](#a_026) | 135 |
| &nbsp;&nbsp;&nbsp;ITEM 16H. | [MINE SAFETY DISCLOSURE](#a_027) | 135 |
| &nbsp;&nbsp;&nbsp;ITEM 16I. | [DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS](#a_028) | 135 |
| &nbsp;&nbsp;&nbsp;ITEM 16J | [INSIDER TRADING POLICIES](#a_029) | 135 |
| &nbsp;&nbsp;&nbsp;ITEM 16K | [CYBERSECURITY](#a_030) | 136 |
| [**PART III**](#a_031) |  | 137 |
| &nbsp;&nbsp;&nbsp;ITEM 17. | [FINANCIAL STATEMENTS](#a_032) | 137 |
| &nbsp;&nbsp;&nbsp;ITEM 18. | [FINANCIAL STATEMENTS](#a_033) | 137 |
| &nbsp;&nbsp;&nbsp;ITEM 19. | [EXHIBITS](#a_034) | 137 |

---

i

[**Table of Contents**](#TableOfContents)

**Conventions Used in this Annual Report**

Unless otherwise indicated or the context requires otherwise, references in this annual report ("Annual Report"):

● "China" or the "PRC" refer to the People's Republic of China;

● "Erayak" refers to ERAYAK Power Solution Group Inc., a Cayman Islands exempted company;

● "Erayak BVI" refers to Erayak Power Solution Limited, a British Virgin Islands company and a wholly-owned subsidiary of Erayak;

● "Erayak HK" refers to Erayak Power Solution Hong Kong Limited, a Hong Kong company and a wholly-owned subsidiary or Erayak BVI;

● "Erayak WFOE" refers to Wenzhou Wenjie Information Technology Co. Ltd., a wholly foreign-owned enterprise ("WFOE") incorporated in the PRC and a wholly-owned subsidiary of Erayak HK;

● "Ruike" refers to Ruike Electronics (Wenzhou) Co., Ltd., a PRC company and a wholly-owned subsidiary of Erayak HK; and

● "Zhejiang Leiya" refers to Zhejiang Leiya Electronics Co. Ltd., a PRC company and a wholly-owned subsidiary of Erayak WFOE;

● "Wenzhou New Focus" refers to Wenzhou New Focus Technology & Electronic Co., Ltd., a PRC company and a wholly-owned subsidiary of Zhejiang Leiya.

● "Class A Ordinary Shares" refers to class A ordinary share, par value $0.22 per share of the Company

● "Class B Ordinary Shares" refers to class B ordinary share, par value $0.22 per share of the Company

● "Ordinary Shares" refers to Class A Ordinary Shares and Class B Ordinary Shares of the Company

Our business is conducted by Ruike, Zhejiang Leiya and Wenzhou New Focus, using Renminbi, or RMB, the official currency of China. Our consolidated financial statements are presented in United States dollars. In this Annual Report, we refer to assets, obligations, commitments and liabilities in our consolidated financial statements in United States dollars. These dollar references are based on the exchange rate of RMB to United States dollars ("$" or "US$"), determined as of a specific date or for a specific period. Changes in the exchange rate will affect the amount of our obligations and the value of our assets in terms of United States dollars which may result in an increase or decrease in the amount of our obligations (expressed in dollars) and the value of our assets, including accounts receivable (expressed in dollars). This Annual Report on 20-F contains translations of certain RMB amounts into U.S. dollar amounts at specified rates solely for the convenience of the reader. The relevant exchange rates are listed below:

---

| | | | |
|:---|:---|:---|:---|
|  | **For the Year<br> Ended**<br>**December 31,<br> 2025** | **For the Year<br> Ended**<br>**December 31,<br> 2024** | **For the Year<br> Ended**<br>**December 31,<br> 2023** |
| **Period Ended USD:RMB exchange rate** | 6.9931 | 7.2993 | 7.0999 |
| **Period Average USD:RMB exchange rate** | 7.1875 | 7.1957 | 7.0809 |

---

We have relied on statistics provided by a variety of publicly-available sources regarding China's expectations of growth. We did not, directly or indirectly, sponsor or participate in the publication of such materials, and these materials are not incorporated in this Annual Report other than to the extent specifically cited in this Annual Report. We have sought to provide current information in this Annual Report and believe that the statistics provided in this Annual Report remain up-to-date and reliable, and these materials are not incorporated in this Annual Report other than to the extent specifically cited in this Annual Report. Except where otherwise stated, all ordinary share accounts provided herein are on a pre-share-increase basis.

ii

[**Table of Contents**](#TableOfContents)

**SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS**

Certain matters discussed in this report may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended (the "Securities Act"), and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by such forward-looking statements. The words "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate," and similar expressions are intended to identify such forward-looking statements. Our actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation, those discussed under "Item 3-Key Information-Risk Factors," "Item 4-Information on the Company," "Item 5-Operating and Financial Review and Prospects," and elsewhere in this report, as well as factors which may be identified from time to time in our other filings with the Securities and Exchange Commission (the "SEC") or in the documents where such forward-looking statements appear. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements.

The forward-looking statements contained in this report reflect our views and assumptions only as of the date this report is signed. Except as required by law, we assume no responsibility for updating any forward-looking statements.

iii

[**Table of Contents**](#TableOfContents)

**PART I**

**ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS**

Not applicable for annual reports on Form 20-F.

**ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE**

Not applicable for annual reports on Form 20-F.

**ITEM 3. KEY INFORMATION**

**Corporate Structure:**

![](image_001.jpg)

Erayak is a Cayman Islands exempted company incorporated on June 14, 2019. We conduct our business in China through our subsidiaries. The consolidation of our Company and our 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.

Erayak BVI was incorporated on June 17, 2019 under the laws of British Virgin Islands. Erayak BVI is a holding company and is currently not actively engaging in any business.

Erayak HK was incorporated on June 26, 2019 under the laws of Hong Kong and is a wholly owned subsidiary of Erayak. The paid in capital was zero as of December 31, 2022. Erayak HK did not have any operations as of December 31, 2022.

Ruike Electronics (Wenzhou) Co., Ltd. was incorporated on December 5, 2023 in People's Republic of China ("China" or "PRC"), and is a wholly owned subsidiary of Erayak HK.

[**Table of Contents**](#TableOfContents)

Wenzhou Wenjie was incorporated on December 11, 2019 in the PRC, and is a wholly owned subsidiary of Erayak HK.

Zhejiang Leiya was incorporated on March 5, 2009 under the laws of the People's Republic of China. The registered principal activities of Zhejiang Leiya are mainly development, production and sales of inverters, chargers and gasoline generators.

Wenzhou New Focus was incorporated on November 21, 2012 in China, and is a wholly owned subsidiary of Zhejiang Leiya. The principal activity of Wenzhou New Focus is mainly the sale of Zhejiang Leiya's products, which involves exports to multiple countries.

Nexora Group Inc. was incorporated on October 7, 2025 under the laws of the State of Nevada, United States, and is a wholly owned subsidiary of Erayak. Nexora Group Inc. serves as the Company's regional headquarters in North America, primarily responsible for localized research and development ("R&D"), brand management, and marketing strategies, as well as sales and logistics operations to support our expansion in the region.

**Implications of Holding Foreign Company Accountable Act**

U.S. laws and regulations, including the HFCAA, may restrict or eliminate our ability to complete a business combination with certain companies, particularly those acquisition candidates with substantial operations in China.

On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the HFCAA. An identified issuer will be required to comply with these rules if the SEC identifies it as having a "non-inspection" year under a process to be subsequently established by the SEC. On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, and on December 29, 2022, the Consolidated Appropriations Act was signed into law by President Biden, which contained, among other things, an identical provision to the Accelerating Holding Foreign Companies Accountable Act and amended the HFCAA by requiring the SEC to prohibit an issuer's securities from trading on any U.S stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three, thus reducing the time period for triggering the prohibition on trading. On September 22, 2021, the PCAOB adopted a final rule implementing the HFCAA, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCAA, whether the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction.

On December 2, 2021, the SEC issued amendments to finalize rules implementing the submission and disclosure requirements in the HFCAA. The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that PCAOB is unable to inspect or investigate completely because of a position taken by an authority in foreign jurisdictions. On December 16, 2021, the PCAOB issued a report on its determinations that it is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong, because of positions taken by PRC authorities in those jurisdictions. On August 26, 2022, the PCAOB announced that it had signed the SOP with the CSRC and the Ministry of Finance of China. The SOP, together with two protocol agreements governing inspections and investigations, establishes a specific, accountable framework to make possible complete inspections and investigations by the PCAOB of audit firms based in mainland China and Hong Kong, as required under U.S. law. On December 15, 2022, the PCAOB announced that it was able to secure complete access to inspect and investigate PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong completely in 2022. The PCAOB Board vacated its previous 2021 determinations that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong. However, whether the PCAOB will continue to be able to satisfactorily conduct inspections of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainties and depends on a number of factors out of our and our auditor's control. The PCAOB continues to demand complete access in mainland China and Hong Kong moving forward and is making plans to resume regular inspections in early 2023 and beyond, as well as to continue pursuing ongoing investigations and initiate new investigations as needed. The PCAOB has also indicated that it will act immediately to consider the need to issue new determinations with the HFCAA if needed.

[**Table of Contents**](#TableOfContents)

Tang Qian & Associates PLLC, our current independent registered public accounting firm for the year ended December 31, 2025 and Fortune CPA, our former independent registered public accounting firm for the years ended December 31, 2023 and 2024, are registered with the PCAOB and subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess Tang Qian & Associates PLLC's and Fortune CPA's compliance with applicable professional standards. Tang Qian & Associates PLLC is headquartered in Dallas, Texas and Fortune CPA is headquartered in Orange, California. As of the date of this Annual Report, neither Tang Qian & Associates PLLC nor Fortune CPA are included in the list of PCAOB Identified Firms in the PCAOB Determination Report issued in December 2021.

However, we cannot assure you whether Nasdaq or regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor's audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements. See "Risk Factors - Risks Related to Doing Business in China - The recent joint statement by the SEC and PCAOB, proposed rule changes submitted by Nasdaq, and the Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offering" on page 35 of this Annual Report.

**PRC Regulatory Permissions**

Our subsidiaries currently have obtained all material permissions and approvals required for our operations in compliance with the relevant PRC laws and regulations in the PRC, including the business license and agency bookkeeping license. The business license is a permit issued by Market Supervision and Administration that allows the company to conduct specific business within the government's geographical jurisdiction. The agency bookkeeping license is issued by the financial department to enterprises, allowing enterprises to accept entrusted bookkeeping business. The business license and agency bookkeeping license are the only two permissions and approvals that our PRC subsidiaries are required to obtain to conduct our business in China. In addition, Erayak BVI and Erayak HK are not required to obtain any permissions or approvals from any Chinese authorities to operate our business as of the date of this Annual Report. However, applicable laws and regulations may be tightened, and new laws or regulations may be introduced to impose additional government approval, license and permit requirements. If we or our subsidiaries inadvertently conclude that such permissions and approvals relating to the operations of our business are not required, fail to obtain and maintain such approvals, licenses or permits required for our business, or fail to respond to changes in the applicable laws, regulations, interpretations and regulatory environment, we or our subsidiaries could be subject to liabilities, monetary penalties and even operational disruption, which may materially and adversely affect our business, operating results, financial condition and the value of our Class A Ordinary Shares, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, or cause such securities to significantly decline in value or become worthless.

On December 28, 2021, the Cybersecurity Review Measures (2021 version) was promulgated and took effective on February 15, 2022, which iterates that any "online platform operators" controlling personal information of more than one million users seeks to list on a foreign stock exchange should also be subject to cybersecurity review by the CAC. The Cybersecurity Review Measures (2021 version), among others, evaluates the potential risks of critical information infrastructure, core data, important data, or a large amount of personal information being influenced, controlled or maliciously used by foreign governments after the overseas listing of an operator. The procurement of network products and services, data processing activities and overseas listing should also be subject to cybersecurity review if the CAC concerns or it potentially poses risks to national security. Our PRC counsel, Gaopeng & Partners, is of the view that the Company is not subject to the cybersecurity review by the CAC for the resale of securities of the Company, since (1) the Company is listed on Nasdaq and does not "seek to list on any other foreign stock exchange"; (2) the Company does not hold personal information of more than one million users in its business operations through its subsidiaries or variable interest entity; and (3) data processed in the Company's business does not have a bearing on national security and thus may not be classified as core or important data by the authorities. As a result, the Company is not subject to a cybersecurity review under the Cybersecurity Review Measures (2021 version). However, there can be no assurance that the PRC authorities may take a view that is not contrary to or otherwise different from the opinion stated above and the changing applicable laws, regulations or interpretations may require us to do so in the future. See "Risk Factors - Risks Related to Doing Business in China."

[**Table of Contents**](#TableOfContents)

In addition, on November 14, 2021, the CAC published the Draft Measures for Network Data Security, which provides that data processors shall apply for cybersecurity review: (i) merger, reorganization or separation of Internet platform operators that have acquired a large number of data resources related to national security, economic development or public interests affects or may affect national security; (ii) overseas listing of data processors processing over one million users' personal information; and (iii) other data processing activities that affect or may affect national security. We are not subject to network data security review by the CAC if the Draft Measures for Network Data Security are enacted as proposed, since we currently do not have over one million users' personal information and do not collect data that affects or may affect national security and we do not anticipate that we will be collecting over one million users' personal information or data that affects or may affect national security in the foreseeable future, which we understand might otherwise subject us to the Draft Measures for Network Data Security.

Accordingly, any future failure to obtain prior approval of the CSRC, CAC, or any other Chinese authorities for the listing and trading of our Class A Ordinary Shares on a foreign stock exchange could have a material adverse effect upon our business. If we or our subsidiaries inadvertently conclude that such approval or permission is not required, fail to obtain and maintain such approval or permission required, we or our subsidiaries may face sanctions by the CSRC, CAC or other PRC regulatory agencies for failure to seek CSRC, CAC approval. These sanctions may include fines and penalties on our operations in China, limitations on our operations in China, delays in or restrictions on the repatriation of the proceeds from our future offshore offering into the PRC, restrictions on or prohibition of the payments or remittance of dividends by our subsidiaries in China, or other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation, prospects, the trading price of our Class A Ordinary Shares, and the ability to offer the securities being registered to foreign investors.

On August 8, 2006, six PRC regulatory agencies jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the "M&A Rules"), which came into effect on September 8, 2006 and were amended on June 22, 2009. The M&A Rules requires that an offshore special purpose vehicle formed for overseas listing purposes and controlled directly or indirectly by the PRC Citizens shall obtain the approval of the CSRC prior to overseas listing and trading of such special purpose vehicle's securities on an overseas stock exchange. Based on our understanding of the Chinese laws and regulations in effect at the time of this Annual Report, we will not be required to submit an application to the CSRC for its approval of this registration statement and the listing and trading of our Class A Ordinary Shares on the Nasdaq under the M&A Rules. However, there remains some uncertainty as to how the M&A Rules will be interpreted or implemented, and the opinions of our PRC counsel summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the M&A Rules. We cannot assure you that relevant Chinese government agencies, including the CSRC, would reach the same conclusion.

The General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the Opinions on Strictly Cracking Down on Illegal Securities Activities, which were made available to the public on July 6, 2021. The Opinions on Strictly Cracking Down on Illegal Securities Activities emphasized the need to strengthen the administration over illegal securities activities, and the need to strengthen the supervision over overseas listings by Chinese companies. Effective measures, such as promoting the construction of relevant regulatory systems will be taken to deal with the risks and incidents of China-based overseas listed companies, and cybersecurity and data privacy protection requirements and similar matters. It is still uncertain how PRC governmental authorities will regulate overseas listing in general and whether we are required to obtain any specific regulatory approvals. Furthermore, if the CSRC or other regulatory agencies later promulgate new rules or explanations requiring that we obtain their approvals for our future offshore offering, we may be unable to obtain such approvals which could significantly limit or completely hinder our ability to offer or continue to offer securities to our investors.

On December 28, 2021, the Cybersecurity Review Measures (2021 version) was promulgated and took effective on February 15, 2022, which iterates that any "online platform operators" controlling personal information of more than one million users seeks to list on a foreign stock exchange should also be subject to cybersecurity review by the CAC. The Cybersecurity Review Measures (2021 version), among others, evaluates the potential risks of critical information infrastructure, core data, important data, or a large amount of personal information being influenced, controlled or maliciously used by foreign governments after the overseas listing of an operator. The procurement of network products and services, data processing activities and overseas listing should also be subject to cybersecurity review if the CAC concerns or it potentially poses risks to national security. Our PRC counsel, Gaopeng & Partners, is of the view that the Company is not subject to the cybersecurity review by the CAC for the resale of securities of the Company, since (1) the Company is listed on Nasdaq and does not "seek to list on any other foreign stock exchange"; (2) the Company does not hold personal information of more than one million users in its business operations through its subsidiaries or variable interest entity; and (3) data processed in the Company's business does not have a bearing on national security and thus may not be classified as core or important data by the authorities. As a result, the Company is not subject to a cybersecurity review under the Cybersecurity Review Measures (2021 version). However, there can be no assurance that the PRC authorities may take a view that is not contrary to or otherwise different from the opinion stated above and the changing applicable laws, regulations or interpretations may require us to do so in the future.

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In addition, on November 14, 2021, the CAC published the Draft Measures for Network Data Security, which provides that data processors shall apply for cybersecurity review: (i) merger, reorganization or separation of Internet platform operators that have acquired a large number of data resources related to national security, economic development or public interests affects or may affect national security; (ii) overseas listing of data processors processing over one million users' personal information; and (iii) other data processing activities that affect or may affect national security. We are not subject to network data security review by the CAC if the Draft Measures for Network Data Security are enacted as proposed, since we currently do not have over one million users' personal information and do not collect data that affects or may affect national security and we do not anticipate that we will be collecting over one million users' personal information or data that affects or may affect national security in the foreseeable future, which we understand might otherwise subject us to the Draft Measures for Network Data Security.

On February 17, 2023, the CSRC announced the Circular and released a set of new regulations which consists of the Trial Measures and five supporting guidelines. On the same date, the CSRC also released the Notice. The Trial Measures came into effect on March 31, 2023. The Trial Measures refine the regulatory system by subjecting both direct and indirect overseas offering and listing activities to the CSRC filing-based administration. Requirements for filing entities, time points and procedures are specified. A PRC domestic company that seeks to offer and list securities in overseas markets shall fulfill the filing procedure with the CSRC per the requirements of the Trial Measures. Where a PRC domestic company seeks to indirectly offer and list securities in overseas markets, the issuer shall designate a major domestic operating entity, which shall, as the domestic responsible entity, file with the CSRC. The Trial Measures also lay out requirements for the reporting of material events. Breaches of the Trial Measures, such as offering and listing securities overseas without fulfilling the filing procedures or engaging in fraudulent filing behavior, may result in legal liabilities borne by the Company, including warning and business rectification, a fine between RMB 1.0 million (approximately $150,000) and RMB 10.0 million (approximately $1.5 million). In cases of serious violations, the relevant responsible person may also be barred from entering the securities market. The Trial Measures increase the cost for offenders by enforcing accountability with administrative penalties and incorporating the compliance status of relevant market participants into the Securities Market Integrity Archives.

According to the Circular, since the date of effectiveness of the Trial Measures on March 31, 2023, PRC domestic enterprises falling within the scope of filing that have been listed overseas or met the following circumstances are "existing enterprises": before the effectiveness of the Trial Measures on March 31, 2023, the application for indirect overseas issuance and listing has been approved by the overseas regulators or overseas stock exchanges (such as the registration statement has become effective on the U.S. market), it is not required to perform issuance and listing supervision procedures of the overseas regulators or overseas stock exchanges, and the overseas issuance and listing will be completed by September 30, 2023. Existing enterprises are not required to file with the CSRC immediately, and filings with the CSRC should be made as required if they involve refinancings and other filing matters. PRC domestic enterprises that have submitted valid applications for overseas issuance and listing but have not been approved by overseas regulatory authorities or overseas stock exchanges at the date of effectiveness of the Trial Measures on March 31, 2023 can reasonably arrange the timing of filing applications with the CSRC and shall complete the filing with the CSRC before the overseas issuance and listing.

In addition, an overseas-listed company must also submit the filing with respect to its follow-on offerings, issuance of convertible corporate bonds and exchangeable bonds, and other equivalent offering activities, within the time frame specified by the Trial Measures. As a result, we will not be required to file with the CSRC within three business days after the resale in connection with this registration statement. However, if we do not maintain the permissions and approvals of the filing procedure in a timely manner under PRC laws and regulations, we may be subject to investigations by competent regulators, fines or penalties, ordered to suspend our relevant operations and rectify any non-compliance, prohibited from engaging in relevant business or conducting any offering, and these risks could result in a material adverse change in our operations, limit our ability to offer or continue to offer securities to investors, or cause such securities to significantly decline in value or become worthless. As the Circular and Trial Measures were newly published, there exists uncertainty with respect to the filing requirements and their implementation. Any failure or perceived failure of us to fully comply with such new regulatory requirements could significantly limit or completely hinder our ability to offer or continue to offer securities to investors, cause significant disruption to our business operations, and severely damage our reputation, which could materially and adversely affect our financial condition and results of operations and could cause the value of our securities to significantly decline or be worthless. See "Risk Factors - Risks Related to Doing Business in China - The filing, approval or other administration requirements of the CSRC or other PRC government authorities may be required in connection with our future offshore offering under PRC law, and, if required, we cannot predict whether or for how long we will be able to complete the filing procedure with the CSRC and obtain such approval or complete such filing, as applicable" on page 16 of this Annual Report.

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As of the date of this Annual Report, according to our PRC counsel, Gaopeng & Partners, other than the aforementioned CSRC Filings that were initiated by us and are under review of the CSRC, no relevant PRC laws or regulations in effect require that we obtain permission from any PRC authorities to issue securities to foreign investors, and we have not received any inquiry, notice, warning, sanction, or any regulatory objection to our future offshore offering from the CSRC, the CAC, or any other PRC authorities that have jurisdiction over our operations.

However, there remains some uncertainty as to how the M&A Rules will be interpreted or implemented in the context of an overseas offering and the opinions summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the M&A Rules. We cannot assure you that relevant PRC government agencies, including the CSRC, would reach the same conclusion as our PRC counsel does, and hence we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from our future offshore offering into China, restrict or prohibit the payments or remittance of dividends by our PRC subsidiaries or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of the shares. It is uncertain when and whether the Company will be required to obtain permission from the PRC government to list on U.S. exchanges in the future, and even when such permission is obtained, whether it will be denied or rescinded.

The PRC government may intervene or influence our operations at any time, which could result in a material change in our operations. For example, the PRC government has recently published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding any industry that could adversely affect the business, financial condition and results of operations of our company. Recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. As confirmed by our PRC counsel, we currently are not subject to cybersecurity review with the CAC, to conduct business operations in China, given that: (i) we do not possess a large amount of personal information in our business operations; and (ii) data processed in our business does not have a bearing on national security and thus may not be classified as core or important data by the authorities. In addition, as confirmed by our PRC counsel, we are not subject to merger control review by China's anti-monopoly enforcement agency due to the level of our revenues which provided from us and audited by our auditor, and the fact that we currently do not expect to propose or implement any acquisition of control of, or decisive influence over, any company with revenues within China of more than RMB 400 million.

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The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, environmental regulations, land use rights, property and other matters. The central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties. See "Risk Factors - Risks Related to Doing Business in China - Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China with little advance notice could adversely affect us and limit the legal protections available to you and us," "Risk Factors - Risks Related to Doing Business in China - Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer our Class A Ordinary Shares to investors and cause the value of our Class A Ordinary Shares to significantly decline or be worthless. The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China," and "Risk Factors - Risks Related to Doing Business in China - We may lose the ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless if the Chinese government may exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers" on pages 22 and 34, respectively, of this Annual Report.

Although we have not received any denial to continue to list on the U.S. exchange or conduct our daily business operation, it is highly uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list our securities on an U.S. or other foreign exchange. For more detailed information, see "Risk Factors - Risks Related to Doing Business in China - The approval of the CSRC may be required in connection with our future offshore offering, and, if required, we cannot predict whether we will be able to obtain such approval" and "Risk Factors - Risks Related to Doing Business in China - We may become subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection. We may be liable for improper use or appropriation of personal information provided by our customers" on page 18 of this Annual Report.

As of the date of this Annual Report, we and our PRC subsidiaries have received from PRC authorities all requisite licenses, permissions or approvals needed to engage in the businesses currently conducted in China, and no permission or approval has been denied. The following table provides details on the licenses and permissions held by our PRC subsidiaries.

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| | | | | |
|:---|:---|:---|:---|:---|
| **Approval** | **Recipient** | **Issuing body** | **Date of grant** | **Validity** |
| Business License | Wenzhou Wenjie Information Technology Co. Ltd. | Wenzhou Market Supervision and Administration Bureau | December 11, 2019 | Until December 10, 2069 |
| Business License | Zhejiang Leiya Electronics Co. Ltd. | Wenzhou Market Supervision and Administration Bureau | April 27, 2009 | Long-term without an expiration date |
| Certificate of customs declaration unit registration | Zhejiang Leiya Electronics Co. Ltd. | Wenzhou Customs of PRC | September 19, 2014 | Long-term without an expiration date |
| Business License | Wenzhou New Focus Technology & Electronic Co., Ltd. | Wenzhou Market Supervision and Administration Bureau | August 12, 2020 | Long-term without an expiration date |
| Certificate of customs declaration unit registration | Wenzhou New Focus Technology & Electronic Co., Ltd. | Wenzhou Customs of PRC | September 7, 2018 | Long-term without an expiration date |
| Business License | Ruike Electronics (Wenzhou) Co., Ltd. | Wenzhou Market Supervision and Administration Bureau | December 5, 2023 | Long-term without an expiration date |

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We have been closely monitoring regulatory developments in China regarding any necessary approvals from the CSRC or other PRC governmental authorities required for overseas listings, including our future offshore offering. As of the date of this Annual Report, we have not received any inquiry, notice, warning, sanctions or regulatory objection to this registration statement from the CSRC or other PRC governmental authorities. However, there remains significant uncertainty as to the enactment, interpretation and implementation of regulatory requirements related to overseas securities offerings and other capital markets activities. If it is determined in the future that the approval of the CSRC, the CAC or any other regulatory authority is required for our future offshore offering, we may face sanctions by the CSRC, the CAC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in China, limit our ability to pay dividends outside of China, limit our operations in China, delay or restrict the repatriation of the proceeds from our future offshore offering into China or take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as the trading price of our securities. The CSRC, the CAC or other PRC regulatory agencies also may take actions requiring us, or making it advisable for us, to halt our future offshore offering before settlement and delivery of our Class A Ordinary Shares. Consequently, if you engage in market trading or other activities in anticipation of and prior to settlement and delivery, you do so at the risk that settlement and delivery may not occur. In addition, if the CSRC, the CAC or other regulatory PRC agencies later promulgate new rules requiring that we obtain their approvals for our future offshore offering, we may be unable to obtain such approval or a waiver of such approval requirements, if and when procedures are established to obtain such approval or a waiver. Any uncertainties and/or negative publicity regarding such an approval requirement could have a material adverse effect on the trading price of our securities.

**Summary of Risk Factors**

Investing in our securities involves a high degree of risk. This summary does not address all of the risks that we face. Please refer to the information contained in and incorporated by reference under the heading "Risk Factors" on page 16 of this Annual Report.

**Risks Related to Doing Business in China**

● The filing, approval or other administration requirements of the Chinese Securities Regulatory Commission (the "CSRC") or other PRC government authorities may be required in connection with our future offshore offering under PRC law, and, if required, we cannot predict whether or for how long we will be able to complete the filing procedure with the CSRC and obtain such approval or complete such filing, as applicable (see "Risk Factors - Risks Related to Doing Business in China- The filing, approval or other administration requirements of the Chinese Securities Regulatory Commission (the "CSRC") or other PRC government authorities may be required in connection with our future offshore offering under PRC law, and, if required, we cannot predict whether or for how long we will be able to complete the filing procedure with the CSRC and obtain such approval or complete such filing, as applicable" on page 16 of this Annual Report).

● We may become subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection. We may be liable for improper use or appropriation of personal information provided by our customers (see "Risk Factors - Risks Related to Doing Business in China- We may become subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection. We may be liable for improper use or appropriation of personal information provided by our customers" on page 18 of this Annual Report).

● If we become directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations, this offering and our reputation and could result in a loss of your investment in our Class A Ordinary Shares, especially if such matter cannot be addressed and resolved favorably (see "Risk Factors - Risks Related to Doing Business in China- If we become directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations, this offering and our reputation and could result in a loss of your investment in our Class A Ordinary Shares, especially if such matter cannot be addressed and resolved favorably" on page 21 of this Annual Report).

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● Changes in China's economic, political or social conditions or government policies could have a material adverse effect on our business and results of operations (see "Risk Factors - Risks Related to Doing Business in China- Changes in China's economic, political or social conditions or government policies could have a material adverse effect on our business and results of operations" on page 21 of this Annual Report).

● Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer our Class A Ordinary Shares to investors and cause the value of our Class A Ordinary Shares to significantly decline or be worthless. The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China (see "Risk Factors - Risks Related to Doing Business in China- Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer our Class A Ordinary Shares to investors and cause the value of our Class A Ordinary Shares to significantly decline or be worthless. The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China" on page 22 of this Annual Report).

● The PRC government may impose restrictions on our ability to transfer cash out of China and to U.S. investors (see "Risk Factors - Risks Related to Doing Business in China- The PRC government may impose restrictions on our ability to transfer cash out of China and to U.S. investors" on page 23 of this Annual Report).

● To the extent cash or assets of our business, or of our PRC or Hong Kong subsidiaries, is in the PRC or Hong Kong, such cash or assets may not be available to fund operations or for other use outside of the PRC or Hong Kong, due to interventions in or the imposition of restrictions and limitations by the PRC government to the transfer of cash or assets (see "Risk Factors - Risks Related to Doing Business in China- To the extent cash or assets of our business, or of our PRC or Hong Kong subsidiaries, is in the PRC or Hong Kong, such cash or assets may not be available to fund operations or for other use outside of the PRC or Hong Kong, due to interventions in or the imposition of restrictions and limitations by the PRC government to the transfer of cash or assets" on page 24 of this Annual Report).

● PRC laws and regulations governing our current business operations are sometimes vague and uncertain and any changes in such laws and regulations may impair our ability to operate profitably (see "Risk Factors - Risks Related to Doing Business in China- PRC laws and regulations governing our current business operations are sometimes vague and uncertain and any changes in such laws and regulations may impair our ability to operate profitably" on page 24 of this Annual Report).

● Substantial uncertainties exist with respect to the enactment timetable and final content of draft China Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations (see "Risk Factors - Risks Related to Doing Business in China- Substantial uncertainties exist with respect to the enactment timetable and final content of draft China Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations" on page 24 of this Annual Report).

● There are uncertainties under the PRC laws relating to the procedures for U.S. regulators to investigate and collect evidence from companies located in the PRC (see "Risk Factors - Risks Related to Doing Business in China- There are uncertainties under the PRC laws relating to the procedures for U.S. regulators to investigate and collect evidence from companies located in the PRC" on page 25 of this Annual Report).

● We rely on dividends, loans and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have. Any limitation on the ability of our PRC subsidiaries to make loans or payments to us could have a material adverse effect on our ability to conduct our business (see "Risk Factors - Risks Related to Doing Business in China- We rely on dividends, loans and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have. Any limitation on the ability of our PRC subsidiaries to make loans or payments to us could have a material adverse effect on our ability to conduct our business" on page 26 of this Annual Report).

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● Fluctuations in exchange rates could have a material adverse effect on our results of operations and the price of our Ordinary Shares (see "Risk Factors - Risks Related to Doing Business in China- Fluctuations in exchange rates could have a material adverse effect on our results of operations and the price of our Ordinary Shares" on page 27 of this Annual Report).

● The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, making it more difficult for us to pursue growth through acquisitions in China (see "Risk Factors - Risks Related to Doing Business in China- The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, making it more difficult for us to pursue growth through acquisitions in China" on page 29 of this Annual Report).

● PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries' ability to increase their registered capital or distribute profits to us or otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC law (see "Risk Factors - Risks Related to Doing Business in China- PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries' ability to increase their registered capital or distribute profits to us or otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC law" on page 30 of this Annual Report).

● If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries' ability to increase their registered capital or distribute profits to us or otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC law (see "Risk Factors - Risks Related to Doing Business in China- If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries' ability to increase their registered capital or distribute profits to us or otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC law" on page 30 of this Annual Report).

● There are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities (see "Risk Factors - Risks Related to Doing Business in China- There are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities" on page 31 of this Annual Report).

● PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies may delay or prevent us from using proceeds from this offering and/or future financing activities to make loans or additional capital contributions to our PRC operating subsidiaries (see "Risk Factors - Risks Related to Doing Business in China- PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies may delay or prevent us from using proceeds from this offering and/or future financing activities to make loans or additional capital contributions to our PRC operating subsidiaries" on page 31 of this Annual Report).

● If we become directly subject to the scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations , share price and reputation (see "Risk Factors - Risks Related to Doing Business in China- If we become directly subject to the scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations , share price and reputation" on page 34 of this Annual Report).

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● The recent joint statement by the SEC and PCAOB, proposed rule changes submitted by Nasdaq, and the Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offering (see "Risk Factors - Risks Related to Doing Business in China- The recent joint statement by the SEC and PCAOB, proposed rule changes submitted by Nasdaq, and the Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offering" on page 35 of this Annual Report).

● Trading in our securities may be prohibited under the HFCAA and as a result an exchange may determine to delist our securities if it is later determined that the PCAOB is unable to inspect or investigate completely our auditor because of a position taken by an authority in a foreign jurisdiction (see "Risk Factors - Risks Related to Doing Business in China- Trading in our securities may be prohibited under the HFCAA and as a result an exchange may determine to delist our securities if it is later determined that the PCAOB is unable to inspect or investigate completely our auditor because of a position taken by an authority in a foreign jurisdiction" on page 37 of this Annual Report).

● Uncertainties in the interpretation and enforcement of Chinese laws and regulations could limit the legal protections available to us (see "Risk Factors - Risks Related to Doing Business in China- Uncertainties in the interpretation and enforcement of Chinese laws and regulations could limit the legal protections available to us" on page 37 of this Annual Report).

● We may be adversely affected by the complexity, uncertainties and changes in PRC regulation of internet-related businesses and companies, and any lack of requisite approvals, licenses or permits applicable to our business may have a material adverse effect on our business and results of operations (see "Risk Factors - Risks Related to Doing Business in China- We may be adversely affected by the complexity, uncertainties and changes in PRC regulation of internet-related businesses and companies, and any lack of requisite approvals, licenses or permits applicable to our business may have a material adverse effect on our business and results of operations" on page 38 of this Annual Report).

● Escalating U.S.-China trade tensions and newly imposed tariffs may adversely impact our business, financial condition, and results of operations (see "Risk Factors - Risks Related to Doing Business in China- Escalating U.S.-China trade tensions and newly imposed tariffs may adversely impact our business, financial condition, and results of operations" on page 39 of this Annual Report).

**Risks Related to Our Business and Industry**

● We are a holding company, and may rely on dividends paid by our subsidiaries for our cash needs. Any limitation on the ability of our subsidiaries to make dividend payments to us, or any tax implications of making dividend payments to us, could limit our ability to pay our parent company expenses or pay dividends to holders of our Class A Ordinary Shares (see "Risk Factors - Risks Related to Our Business and Industry- We are a holding company, and may rely on dividends paid by our subsidiaries for our cash needs. Any limitation on the ability of our subsidiaries to make dividend payments to us, or any tax implications of making dividend payments to us, could limit our ability to pay our parent company expenses or pay dividends to holders of our Class A Ordinary Shares" on page 40 of this Annual Report).

● Our PRC subsidiaries are subject to restrictions on paying dividends or making other payments to us, which may have a material adverse effect on our ability to conduct our business (see "Risk Factors - Risks Related to Our Business and Industry- Our PRC subsidiaries are subject to restrictions on paying dividends or making other payments to us, which may have a material adverse effect on our ability to conduct our business" on page 41 of this Annual Report).

● The considerable uncertainty in Chinese economic growth could hurt demand of our products (see "Risk Factors - Risks Related to Our Business and Industry- The considerable uncertainty in Chinese economic growth could hurt demand of our products" on page 41 of this Annual Report).

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● Tariffs could materially have a negative impact on the demand for our products (see "Risk Factors - Risks Related to Our Business and Industry- Tariffs could materially have a negative impact on the demand for our products" on page 41 of this Annual Report).

● We operate in a competitive industry. If we are unable to compete successfully, we may lose market share to our competitors (see "Risk Factors - Risks Related to Our Business and Industry- We operate in a competitive industry. If we are unable to compete successfully, we may lose market share to our competitors" on page 42 of this Annual Report).

● Competition within the generator industry may adversely affect our ability to sell our products, and excess production capacity in the industry could put downward pressure on generator prices (see "Risk Factors - Risks Related to Our Business and Industry- Competition within the generator industry may adversely affect our ability to sell our products, and excess production capacity in the industry could put downward pressure on generator prices" on page 43 of this Annual Report).

● We traditionally have had substantial customer concentration, with a limited number of customers accounting for a substantial portion of our revenues (see "Risk Factors - Risks Related to Our Business and Industry- We traditionally have had substantial customer concentration, with a limited number of customers accounting for a substantial portion of our revenues" on page 43 of this Annual Report).

● The loss of any of our key customers could reduce our revenues and our profitability (see "Risk Factors - Risks Related to Our Business and Industry- The loss of any of our key customers could reduce our revenues and our profitability" on page 44 of this Annual Report).

● The loss of any of our key vendors could have a materially adverse effect on our results of operations (see "Risk Factors - Risks Related to Our Business and Industry- The loss of any of our key vendors could have a materially adverse effect on our results of operations" on page 44 of this Annual Report).

● We rely on short-term borrowings for our liquidity. Our outstanding and future indebtedness may adversely affect our available cash flow and our ability to operate our business. In addition, we may not be able to obtain additional capital when desired, on favorable terms or at all (see "Risk Factors - Risks Related to Our Business and Industry- We rely on short-term borrowings for our liquidity. Our outstanding and future indebtedness may adversely affect our available cash flow and our ability to operate our business. In addition, we may not be able to obtain additional capital when desired, on favorable terms or at all" on page 46 of this Annual Report).

● We have a high debt to asset ratio, which may put us at high risk of default on our loans (see "Risk Factors - Risks Related to Our Business and Industry- We have a high debt to asset ratio, which may put us at high risk of default on our loans" on page 47 of this Annual Report).

● If we fail to maintain appropriate inventory levels in line with the approximate level of demand for our products, we could lose sales or face excessive inventory risks and holding costs (see "Risk Factors - Risks Related to Our Business and Industry- If we fail to maintain appropriate inventory levels in line with the approximate level of demand for our products, we could lose sales or face excessive inventory risks and holding costs" on page 53 of this Annual Report).

● You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management named in the Annual Report based on foreign laws (see "Risk Factors - Risks Related to Our Business and Industry- You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management named in the Annual Report based on foreign laws" on page 53 of this Annual Report).

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● We are subject to governmental regulations and other legal obligations related to privacy, information security, and data protection, and any security breaches, and our failure to comply with our legal obligations could harm our reputation and business (see "Risk Factors - Risks Related to Our Business and Industry- We are subject to governmental regulations and other legal obligations related to privacy, information security, and data protection, and any security breaches, and our failure to comply with our legal obligations could harm our reputation and business" on page 54 of this Annual Report).

● A severe or prolonged downturn in the Chinese or global economy could materially and adversely affect our business and financial condition (see "Risk Factors - Risks Related to Our Business and Industry- A severe or prolonged downturn in the Chinese or global economy could materially and adversely affect our business and financial condition" on page 54 of this Annual Report).

● We may face risks related to the ongoing Russian invasion of Ukraine, escalating tensions and conflicts in the Middle East (including involving Iran), and any other conflicts that may arise on a global or regional scale, which could adversely affect our business and results of operations. (see "Risk Factors - Risks Related to Our Business and Industry- We may face risks related to the ongoing Russian invasion of Ukraine, escalating tensions and conflicts in the Middle East (including involving Iran), and any other conflicts that may arise on a global or regional scale, which could adversely affect our business and results of operations." on page 55 of this Annual Report).

**Risks Related to our Securities**

● We are an "emerging growth company," and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our Class A Ordinary Shares less attractive to investors (see "Risk Factors - Risks Related to Our Securities- We are an "emerging growth company," and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our Class A Ordinary Shares less attractive to investors" on page 56 of this Annual Report).

● We are a "foreign private issuer," and our disclosure obligations differ from those of U.S. domestic reporting companies. As a result, we may not provide you the same information as U.S. domestic reporting companies or provide information at different times, making it more difficult for you to evaluate our performance and prospects (see "Risk Factors - Risks Related to Our Securities- We are a "foreign private issuer," and our disclosure obligations differ from those of U.S. domestic reporting companies. As a result, we may not provide you the same information as U.S. domestic reporting companies or provide information at different times, making it more difficult for you to evaluate our performance and prospects" on page 56 of this Annual Report).

● The market price of our Class A Ordinary Shares may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the public offering price (see "Risk Factors - Risks Related to Our Securities- The market price of our Class A Ordinary Shares may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the public offering price" on page 59 of this Annual Report).

● There may not be an active, liquid trading market for our Class A Ordinary Shares (see "Risk Factors - Risks Related to Our Securities- There may not be an active, liquid trading market for our Class A Ordinary Shares" on page 59 of this Annual Report).

● If we cannot continue to satisfy the continued listing requirements and other rules of the Nasdaq Capital Market, our securities may be delisted, which could negatively impact the price of our securities and your ability to sell them (see "Risk Factors – Risks Related to our Securities– If we cannot continue to satisfy the continued listing requirements and other rules of the Nasdaq Capital Market, our securities may be delisted, which could negatively impact the price of our securities and your ability to sell them" on page 58 of this Annual Report).

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**A. Selected Financial Data**

Summary of Financial Position and Cash Flows ERAYAK Power Solution Group Inc. and Subsidiaries

The consolidated financial statements included in this Annual Report reflect financial position and cash flows of the registrant, Cayman Islands incorporated parent company, ERAYAK Power Solution Group Inc., together with those of its subsidiaries, on a consolidated basis. The tables below are condensed consolidating schedules summarizing separately the financial position and cash flows of the registrant, a Cayman Islands exempted company, ERAYAK Power Solution Group Inc. ("Parent Company" in the tables below), and its subsidiaries, together with eliminating adjustments:

*Consolidated Statements of Operations Information*

---

| | | | | | | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **As of December 31, 2025** | **As of December 31, 2025** | **As of December 31, 2025** | **As of December 31, 2025** | **As of December 31, 2025** | **As of December 31, 2024** | **As of December 31, 2024** | **As of December 31, 2024** | **As of December 31, 2024** | **As of December 31, 2024** | **As of December 31, 2023** | **As of December 31, 2023** | **As of December 31, 2023** | **As of December 31, 2023** | **As of December 31, 2023** |
|  | **Parent** | **Subsidiaries** | **Subtotal** | **Elimination** | **Consolidated** | **Parent** | **Subsidiaries** | **Subtotal** | **Elimination** | **Consolidated** | **Parent** | **Subsidiaries** | **Subtotal** | **Elimination** | **Consolidated** |
| Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Current assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Cash | 9293 | 427495 | 436788 |  | 436788 | 118057 | 1206753 | 1324809 |  | 1324809 | 2364 | 5876070 | 5878434 |  | 5878434 |
| &nbsp;&nbsp;&nbsp;Accounts receivable, net |  | 13582352 | 13582352 |  | 13582352 |  | 12037136 | 12037136 |  | 12037136 |  | 6253189 | 6253189 |  | 6253189 |
| &nbsp;&nbsp;&nbsp;Accounts receivable, related parties |  | 3178800 | 3178800 |  | 3178800 |  | 1314332 | 1314332 |  | 1314332 |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Inventory |  | 9725561 | 9725561 |  | 9725561 |  | 8836815 | 8836815 |  | 8836815 |  | 7056459 | 7056459 |  | 7056459 |
| &nbsp;&nbsp;&nbsp;Prepaids and other current assets | 4700000 | 6958838 | 11658838 | (4000000) | 7658838 | 4950000 | 8627245 | 13577245 | (4000000) | 9577245 | 5000000 | 1910108 | 6910108 | (4000000) | 2910108 |
| &nbsp;&nbsp;&nbsp;Due from subsidiaries | 9864000 |  | 9864000 | (9864000) |  | 9819000 |  | 9819000 | (9819000) |  | 1569000 |  | 1569000 | (1569000) |  |
| &nbsp;&nbsp;&nbsp;Due from parent |  |  |  |  |  |  |  |  |  |  |  | 21510 | 21510 | (21510) |  |
| &nbsp;&nbsp;&nbsp;Short-term investment |  | 4537044 | 4537044 |  | 4537044 |  |  |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Other current assets |  | 4244138 | 4244138 |  | 4244138 |  |  |  |  |  |  |  |  |  |  |
| Total current assets | 14573293 | 42654227 | 57227520 | (13864000) | 43363520 | 14887057 | 32022281 | 46909337 | (13819000) | 33090337 | 6571364 | 21117336 | 27688700 | (5590510) | 22098190 |
| &nbsp;&nbsp;&nbsp;Property and equipment, net |  | 7102555 | 7102555 |  | 7102555 |  | 2157214 | 2157214 |  | 2157214 |  | 1924975 | 1924975 |  | 1924975 |
| &nbsp;&nbsp;&nbsp;Intangibles, net |  | 2678447 | 2678447 |  | 2678447 |  | 61972 | 61972 |  | 61972 |  | 31853 | 31853 |  | 31853 |
| &nbsp;&nbsp;&nbsp;ROU assets |  | 6032330 | 6032330 |  | 6032330 |  | 6457903 | 6457903 |  | 6457903 |  | 7338505 | 7338505 |  | 7338505 |
| &nbsp;&nbsp;&nbsp;Deferred tax assets |  | 78033 | 78033 |  | 78033 |  | 100994 | 100994 |  | 100994 |  | 32534 | 32534 |  | 32534 |
| &nbsp;&nbsp;&nbsp;Long-term deferred expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Long-term investment |  | 193453 | 193453 |  | 193453 |  | 410998 | 410998 |  | 410998 |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Other non-current assets |  |  |  |  |  |  | 3753785 | 3753785 |  | 3753785 |  | 3859209 | 3859209 |  | 3859209 |
| &nbsp;&nbsp;&nbsp;Investment in subsidiaries | 13295892 | - | 13295892 | (13295892) | - | 4090580 | - | 4090580 | (4090580) | - | 4090573 | - | 4090573 | (4090573) | - |
| **Total Assets** | **27869185** | **58739045** | **86608230** | **(27159892)** | **59448338** | **18977637** | **44965147** | **63942784** | **(17909580)** | **46033203** | **10661938** | **34304412** | **44966350** | **(9681083)** | **35285266** |
| Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Short-term borrowings |  | 8293890 | 8293890 |  | 8293890 |  | 1055828 | 1055828 |  | 1055828 |  | 70424 | 70424 |  | 70424 |
| &nbsp;&nbsp;&nbsp;Accounts payable |  | 6097560 | 6097560 |  | 6097560 |  | 8335266 | 8335266 |  | 8335266 |  | 5689101 | 5689101 |  | 5689101 |
| &nbsp;&nbsp;&nbsp;Accounts payable, related parties |  | 132136 | 132136 |  | 132136 |  |  |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Accrued exp and other current liabilities |  | 6765322 | 6765322 | (4000000) | 2765322 |  | 5450083 | 5450083 | (4000000) | 1450083 |  | 7876981 | 7876981 | (4000000) | 3876981 |
| &nbsp;&nbsp;&nbsp;Tax payables |  | 929213 | 929213 |  | 929213 |  | 1021394 | 1021394 |  | 1021394 |  | 1066569 | 1066569 |  | 1066569 |
| &nbsp;&nbsp;&nbsp;Long-term payable - current portion |  | 778103 | 778103 |  | 778103 |  | 161529 | 161529 |  | 161529 |  | 225383 | 225383 |  | 225383 |
| &nbsp;&nbsp;&nbsp;Due to related parties | 612390 | 1164498 | 1776888 |  | 1776888 | 612390 | 2897775 | 3510165 |  | 3510165 | 161101 | 2122028 | 2283129 |  | 2283129 |
| &nbsp;&nbsp;&nbsp;Due to subsidiaries |  |  |  |  |  |  |  |  |  |  | 21510 |  | 21510 | (21510) |  |
| &nbsp;&nbsp;&nbsp;Due to parent |  | 9864000 | 9864000 | (9864000) |  |  | 9819000 | 9819000 | (9819000) |  |  | 1569000 | 1569000 | (1569000) |  |
| Total current liabilities | 612390 | 34024722 | 34637112 | (13864000) | 20773112 | 612390 | 28740875 | 29353265 | (13819000) | 15534265 | 182611 | 18619486 | 18802097 | (5590510) | 13211587 |
| &nbsp;&nbsp;&nbsp;Deferred revenue |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Long-term payable | - | 3409358 | 3409358 |  | 3409358 | - | 3913204 | 3913204 |  | 3913204 | - | 1871591 | 1871591 |  | 1871591 |
| **Total liabilities** | **612390** | **37434080** | **38046470** | **(13864000)** | **24182470** | **612390** | **32654079** | **33266469** | **(13819000)** | **19447468** | **182611** | **20491077** | **20673688** | **(5590510)** | **15083178** |
| SHAREHOLDER'S EQUITY |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Ordinary Shares, $0.22 par | 19689 | 13295892 | 13315581 | (13295892) | 19689 | 5059 | 4090580 | 4093380 | (4090580) | 5059 | 1200 | 4090573 | 4091773 | (4090573) | 1200 |
| &nbsp;&nbsp;&nbsp;Additional paid in capital | 27837444 |  | 27837444 |  | 27837444 | 18641264 |  | 18641264 |  | 18641264 | 10645122 |  | 10645122 |  | 10645122 |
| &nbsp;&nbsp;&nbsp;Statutory reserve |  | 1244717 | 1244717 |  | 1244717 |  | 1123204 | 1123204 |  | 1123204 |  | 1113170 | 1113170 |  | 1113170 |
| &nbsp;&nbsp;&nbsp;(Accumulated deficit)/retained earning | (600339) | 7150093 | 6549754 |  | 6549754 | (281075) | 8342280 | 8061204 |  | 8061204 | (166989) | 9354204 | 9187215 |  | 9187215 |
| &nbsp;&nbsp;&nbsp;Accumulated other comprehensive income (loss) |  | (385736) | (385736) |  | (385736) |  | (1244996) | (1244996) |  | (1244996) | (7) | (744612) | (744619) |  | (744619) |
| **Total shareholders' equity** | **27256795** | **21304965** | **48561760** | **(13295892)** | **35265868** | **18365247** | **12311068** | **30676315** | **(4090580)** | **26585735** | **10479327** | **13813334** | **24292661** | **(4090573)** | **20202087** |
| **Total liabilities and shareholders' equity** | **27869185** | **58739045** | **86608230** | **(27159892)** | **59448338** | **18977637** | **44965147** | **63942784** | **(17909580)** | **46033203** | **10661938** | **34304411** | **44966349** | **(9681083)** | **35285266** |

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[**Table of Contents**](#TableOfContents)

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| | | | | | | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **For the fiscal year ended December 31, 2025** | **For the fiscal year ended December 31, 2025** | **For the fiscal year ended December 31, 2025** | **For the fiscal year ended December 31, 2025** | **For the fiscal year ended December 31, 2025** | **For the fiscal year ended December 31, 2024** | **For the fiscal year ended December 31, 2024** | **For the fiscal year ended December 31, 2024** | **For the fiscal year ended December 31, 2024** | **For the fiscal year ended December 31, 2024** | **For the fiscal year ended December 31, 2023** | **For the fiscal year ended December 31, 2023** | **For the fiscal year ended December 31, 2023** | **For the fiscal year ended December 31, 2023** | **For the fiscal year ended December 31, 2023** |
|  | **Parent** | **Subsidiaries** | **Subtotal** | **Elimination** | **Consolidated** | **Parent** | **Subsidiaries** | **Subtotal** | **Elimination** | **Consolidated** | **Parent** | **Subsidiaries** | **Subtotal** | **Elimination** | **Consolidated** |
| Cash flows from operating activities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Net income (loss) | (319264) | (1070674) | (1389938) |  | (1389938) | (114086) | (1001890) | (1115977) |  | (1115977) | (167839) | 1386552 | 1218714 |  | 1218714 |
| Adjustment for items not affecting cash |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Depreciation and amortization |  | 574142 | 574142 |  | 574142 |  | 431921 | 431921 |  | 431921 |  | 388002 | 388002 |  | 388002 |
| &nbsp;&nbsp;&nbsp;Loss on PPE disposition |  | 241 | 241 |  | 241 |  |  |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Bad debt (recovery) expense |  | 122847 | 122847 |  | 122847 |  | 224534 | 224534 |  | 224534 |  | 36972 | 36972 |  | 36972 |
| &nbsp;&nbsp;&nbsp;Impairment provision of advance to | 250000 | 129480 | 379480 |  | 379480 | 50000 | 61882 | 111882 |  | 111882 |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Inventory impairment provision |  | (368693) | (368693) |  | (368693) |  | 295907 | 295907 |  | 295907 |  | 81621 | 81621 |  | 81621 |
| &nbsp;&nbsp;&nbsp;Loss on long-term investment |  | 229170 | 229170 |  | 229170 |  |  |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Deferred tax assets |  | 26642 | 26642 |  | 26642 |  | (70346) | (70346) |  | (70346) |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Deferred revenue |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Deferred expense |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Imputed interest expenses |  |  |  |  |  |  |  |  |  |  |  | 17755 | 17755 |  | 17755 |
| &nbsp;&nbsp;&nbsp;ROU |  | 689181 | 689181 |  | 689181 |  | 689922 | 689922 |  | 689922 |  | 514691 | 514691 |  | 514691 |
| Changes in operating assets and liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Accounts receivable |  | (1515112) | (1515112) |  | (1515112) |  | (6261153) | (6261153) |  | (6261153) |  | 3395976 | 3395976 |  | 3395976 |
| &nbsp;&nbsp;&nbsp;Accounts receivable, related parties |  | (1758046) | (1758046) |  | (1758046) |  | (1333255) | (1333255) |  | (1333255) |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Note receivable |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Inventories |  | (119552) | (119552) |  | (119552) |  | (2297437) | (2297437) |  | (2297437) |  | (1091117) | (1091117) |  | (1091117) |
| &nbsp;&nbsp;&nbsp;Advances to suppliers |  | 3133282 | 3133282 |  | 3133282 |  | (6947539) | (6947539) |  | (6947539) |  | (1250467) | (1250467) |  | (1250467) |
| &nbsp;&nbsp;&nbsp;Advances to suppliers, related parties |  | (1250036) | (1250036) |  | (1250036) |  |  |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Prepaid expenses and Other receivable |  | (115571) | (115571) |  | (115571) | (21510) | 1949 | (19561) |  | (19561) |  | (126386) | (126386) | 21510 | (104876) |
| &nbsp;&nbsp;&nbsp;Other current assets |  | (4129347) | (4129347) |  | (4129347) |  |  |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Other non-current assets |  | 3812174 | 3812174 |  | 3812174 |  |  |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Loan receivable |  |  |  |  |  |  |  |  |  |  |  | 163821 | 163821 |  | 163821 |
| &nbsp;&nbsp;&nbsp;Accounts payable |  | (2532280) | (2532280) |  | (2532280) |  | 2644525 | 2644525 |  | 2644525 |  | 1085320 | 1085320 |  | 1085320 |
| &nbsp;&nbsp;&nbsp;Accounts payable, related parties |  | 128562 | 128562 |  | 128562 |  |  |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Accrued expenses and other current |  | 156410 | 156410 |  | 156410 |  | (2498165) | (2498165) |  | (2498165) |  | 6382631 | 6382631 | (4021510) | 2361121 |
| &nbsp;&nbsp;&nbsp;Advances from customers |  | 893482 | 893482 |  | 893482 |  | 284372 | 284372 |  | 284372 |  | (334225) | (334225) |  | (334225) |
| &nbsp;&nbsp;&nbsp;Tax payable | - | (133201) | (133201) | - | (133201) | - | (16269) | (16269) | - | (16269) | - | 246425 | 246425 | - | 246425 |
| Net cash provided by (used in) operating | (69264) | (3096899) | (3166162) | - | (3166162) | (85596) | ########## | ######### | - | (15876639) | (167839) | 10897572 | 10729733 | (4000000) | 6729733 |
| Cash flows from investing activities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Purchases of property, plant and eq |  | (5239108) | (5239108) |  | (5239108) |  | (517813) | (517813) |  | (517813) |  | (684210) | (684210) |  | (684210) |
| &nbsp;&nbsp;&nbsp;Acquisition of intangible assets |  | (2598025) | (2598025) |  | (2598025) |  | (37082) | (37082) |  | (37082) |  | (25689) | (25689) |  | (25689) |
| &nbsp;&nbsp;&nbsp;Fixed deposit |  |  |  |  |  |  |  |  |  |  |  | (3869565) | (3869565) |  | (3869565) |
| &nbsp;&nbsp;&nbsp;Advance payment on oversea land |  |  |  |  |  |  |  |  |  |  | 201354 |  | 201354 | 4000000 | 4201354 |
| &nbsp;&nbsp;&nbsp;Advance payment on LT warehouse |  |  |  |  |  |  |  |  |  |  | (1000000) |  | (1000000) |  | (1000000) |
| &nbsp;&nbsp;&nbsp;Short-term investment |  | (4537044) | (4537044) |  | (4537044) |  |  |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Long-term investment | - | - | - | - | - | - | (417016) | (417016) | - | (417016) | (3900000) | (8010035) | (11910035) | 11910035 | - |
| Net cash provided by (used in) investing | - | (12374177) | (12374177) | - | (12374177) | - | (971911) | (971911) | - | (971911) | (4698646) | (12589499) | (17288145) | 15910035 | (1378110) |
| Cash flows from financing activities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Proceeds from short-term borrowing |  | 10260899 | 10260899 |  | 10260899 |  | 1310576 | 1310576 |  | 1310576 |  | 4653363 | 4653363 |  | 4653363 |
| &nbsp;&nbsp;&nbsp;Repayments on short-term borrowing |  | (3263585) | (3263585) |  | (3263585) |  | (309032) | (309032) |  | (309032) |  | (10231750) | (10231750) |  | (10231750) |
| &nbsp;&nbsp;&nbsp;Proceeds from share issuance | ####### | 407000 | 9272500 |  | 9272500 | ######## | 100 | 8000100 |  | 8000100 |  | 11910035 | 11910035 | (11910035) |  |
| &nbsp;&nbsp;&nbsp;Proceeds from related parties |  | 7403348 | 7403348 |  | 7403348 | ######## | 9644699 | 11725864 |  | 11725864 |  | 16968314 | 16968314 |  | 16968314 |
| &nbsp;&nbsp;&nbsp;Payment to related parties |  | (9338647) | (9338647) |  | (9338647) | ######## | (8780767) | ######### |  | (10410643) |  | (15064679) | (15064679) |  | (15064679) |
| &nbsp;&nbsp;&nbsp;Proceeds from parent |  | 8905000 | 8905000 | ######## |  |  | 8250000 | 8250000 | ####### |  |  | 1570000 | 1570000 | (1547490) | 22510 |
| &nbsp;&nbsp;&nbsp;Payments to parent |  |  |  |  |  |  |  |  |  |  |  | (21510) | (21510) | 21510 |  |
| &nbsp;&nbsp;&nbsp;Proceeds from subsidiaries |  |  |  |  |  |  |  |  |  |  | 21510 |  | 21510 | (21510) |  |
| &nbsp;&nbsp;&nbsp;Payment to subsidiaries | ####### |  | (8905000) | ######## |  | ######## |  | (8250000) | ######## |  | (1570000) |  | (1570000) | 1547490 | (22510) |
| &nbsp;&nbsp;&nbsp;Proceeds from long-term payable | - | 4390957 | 4390957 | - | 4390957 | - | 3846742 | 3846742 | - | 3846742 | - | 6312856 | 6312856 | - | 6312856 |
| Payment on long-term payable | - | (4454868) | (4454868) | - | (4454868) | - | (1782400) | (1782400) | - | (1782400) | - | (9075497) | (9075497) | - | (9075497) |
| Net cash provided by (used in) financing a | (39500) | 14310104 | 14270604 | - | 14270604 | 201289 | 12179918 | 12381207 | - | 12381207 | (1548490) | 7021132 | 5472642 | (11910035) | (6437393) |
| Effect of foreign exchange | - | 381713 | 381713 | - | 381713 | - | (86282) | (86282) | - | (86282) | - | (103044) | (103044) | - | (103044) |
| Net increase (decrease) in cash | (108764) | (1160971) | (1269734) | - | (1269734) | 115693 | (4583036) | (4467343) | - | (4467343) | (6414975) | 5329205 | (1085770) | - | (1085770) |
| Cash, beginning | 118057 | 1206753 | 1324809 | - | 1324809 | 2364 | 5876070 | 5878434 | - | 5878434 | 6417339 | 649908 | 7067247 | - | 7067247 |
| Cash, end | 9293 | 427495 | 436788 | - | 436788 | 118057 | 1206752 | 1324809 | - | 1324809 | 2364 | 5876070 | 5878434 |  | 5878434 |

---

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The parent company, ERAYAK Power Solution Group Inc., does not conduct operations separately from its China-based subsidiaries. Accordingly, the results of operations set forth in the audited consolidated financial statements included in this Annual Report are solely those of the China-based subsidiaries.

**Exchange Rate Information**

Our financial information is presented in U.S. dollars. Our functional currency is Renminbi ("RMB"), the currency of the PRC. Transactions which are denominated in currencies other than RMB are translated into RMB at the exchange rate quoted by the People's Bank of China at the dates of the transactions. Exchange gains and losses resulting from transactions denominated in a currency other than the RMB are included in statements of operations as foreign currency transaction gains or losses. Our financial statements have been translated into U.S. dollars in accordance with Statement of Financial Accounting Standard ("SFAS") No. 52, "Foreign Currency Translation", which was subsequently codified within Accounting Standards Codification ("ASC") 830, "Foreign Currency Matters". The financial information is first prepared in RMB and then is translated into U.S. dollars at period-end exchange rates as to assets and liabilities and average exchange rates as to revenue and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred. The effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive income (loss) in shareholders' equity.

Translation adjustments included in accumulated other comprehensive income (loss) amounted to $859,260 and $(500,376) as of December 31, 2025 and 2024, respectively. The balance sheet amounts, with the exception of shareholders' equity at December 31, 2025 and 2024 were translated at RMB6.9931 and RMB7.2993 to $1.00, respectively. The shareholders' equity accounts were stated at their historical rate. The average translation rates applied to the statement of income accounts for the years ended December 31, 2025 and 2024 were RMB7.1875 and RMB7.1957 to $1.00, respectively. Cash flows are also translated at average translation rates for the periods, therefore, amounts reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheet.

We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or RMB, as the case may be, at any particular rate, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade. We do not currently engage in currency hedging transactions.

**3. B. Capitalization and Indebtedness**

Not applicable for annual reports on Form 20-F.

**3. C. Reasons for the Offer and Use of Proceeds**

Not applicable for annual reports on Form 20-F.

**3. D. Risk Factors**

**<u>Risks Related to Doing Business in China</u>**

***The filing, approval or other administration requirements of the Chinese Securities Regulatory Commission (the "CSRC") or other PRC government authorities may be required in connection with our future offshore offering under PRC law, and, if required, we cannot predict whether or for how long we will be able to complete the filing procedure with the CSRC and obtain such approval or complete such filing, as applicable.***

The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors (the "M&A Rules"), adopted by six PRC regulatory agencies in 2006 and amended in 2009, include, among other things, provisions that purport to require that an offshore special purpose vehicle, formed for the purpose of an overseas listing of securities through acquisitions of domestic enterprises in China or assets and controlled by enterprises or individuals in China, to obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle's securities on an overseas stock exchange. On September 21, 2006, pursuant to the M&A Rules and other PRC laws, the CSRC published on its official website relevant guidance regarding its approval of the listing and trading of special purpose vehicles' securities on overseas stock exchanges, including a list of application materials. However, substantial uncertainty remains regarding the scope and applicability of the M&A Rules to offshore special purpose vehicles.

On July 6, 2021, the relevant PRC government authorities issued Opinions on Strictly Cracking Down Illegal Securities Activities in accordance with the Law. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies. These opinions and any related implementation rules to be enacted may subject us to additional compliance requirement in the future. As of the date hereof, no official guidance or related implementation rules have been issued. As a result, the Opinions on Strictly Cracking Down on Illegal Securities Activities remain unclear on how they will be interpreted, amended and implemented by the relevant PRC governmental authorities. We cannot assure that we will remain fully compliant with all new regulatory requirements of these opinions or any future implementation rules on a timely basis, or at all.

Pursuant to Cybersecurity Review Measures which were issued on December 28, 2021 and became effective on February 15, 2022, network platform operators holding over one million users' personal information must apply with the Cybersecurity Review Office for a cybersecurity review before any public offering at a foreign stock exchange. However, given the Cybersecurity Review Measures were relatively new, there are substantial uncertainties as to the interpretation, application and enforcement of the Cybersecurity Review Measures. It remains uncertain whether we should apply for cybersecurity review prior to any offshore offering and that we would be able to complete the applicable cybersecurity review procedures in a timely manner, or at all, if we are required to do so. In addition, on November 14, 2021, the Cyberspace Administration of China (the "CAC") published the Administration Regulations on Network Data Security (Draft for Comments), or the Draft Measures for Network Data Security, which provides that data processors conducting the following activities shall apply for cybersecurity review: (i) merger, reorganization or separation of Internet platform operators that have acquired a large number of data resources related to national security, economic development or public interests affects or may affect national security; (ii) overseas listing of data processors processing over one million users' personal information; (iii) listing in Hong Kong which affects or may affect national security; (iv) other data processing activities that affect or may affect national security. In addition, the Draft Measures for Network Data Security also require Internet platform operators to establish platform rules, privacy policies and algorithm strategies related to data, and solicit public comments on their official websites and personal information protection related sections for no less than 30 working days when they formulate platform rules or privacy policies or makes any amendments that may have significant impacts on users' rights and interests. The CAC solicited comments on this draft, but there is no timetable as to when it will be enacted.

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On February 17, 2023, the CSRC promulgated Trial Administrative Measures of the Overseas Securities Offering and Listing by Domestic Companies (the "Overseas Listing Trial Measures") and five relevant guidelines, which became effective on March 31, 2023. According to the Overseas Listing Trial Measures, PRC domestic companies that seek to offer and list securities in overseas markets, either in direct or indirect means, are required to fulfill the filing procedure with the CSRC and report relevant information. The Overseas Listing Trial Measures provides that an overseas listing or offering is explicitly prohibited, if any of the following: (1) such securities offering and listing is explicitly prohibited by provisions in laws, administrative regulations and relevant state rules; (2) the intended securities offering and listing may endanger national security as reviewed and determined by competent authorities under the State Council in accordance with law; (3) the domestic company intending to make the securities offering and listing, or its controlling shareholder(s) and the actual controller, have committed relevant crimes such as corruption, bribery, embezzlement, misappropriation of property or undermining the order of the socialist market economy during the latest three years; (4) the domestic company intending to make the securities offering and listing is currently under investigations for suspicion of criminal offenses or major violations of laws and regulations, and no conclusion has yet been made thereof; or (5) there are material ownership disputes over equity held by the domestic company's controlling shareholder(s) or by other shareholder(s) that are controlled by the controlling shareholder(s) and/or actual controller.

According to the Circular, since the date of effectiveness of the Trial Measures on March 31, 2023, PRC domestic enterprises falling within the scope of filing that have been listed overseas or met the following circumstances are "existing enterprises": before the effectiveness of the Trial Measures on March 31, 2023, the application for indirect overseas issuance and listing has been approved by the overseas regulators or overseas stock exchanges (such as the registration statement has become effective on the U.S. market), it is not required to perform issuance and listing supervision procedures of the overseas regulators or overseas stock exchanges, and the overseas issuance and listing will be completed by September 30, 2023. Existing enterprises are not required to file with the CSRC immediately, and filings with the CSRC should be made as required if they involve refinancings and other filing matters. PRC domestic enterprises that have submitted valid applications for overseas issuance and listing but have not been approved by overseas regulatory authorities or overseas stock exchanges at the date of effectiveness of the Trial Measures on March 31, 2023 can reasonably arrange the timing of filing applications with the CSRC and shall complete the filing with the CSRC before the overseas issuance and listing. According to the Circular, we can reasonably arrange the timing for submitting the filing application with the CSRC, and shall complete the filing with the CSRC in accordance with the Trial Measures within three years of the offering. In sum, we are subject to the filing requirements of the CSRC for this offering under the Trial Measures.

At a press conference held for these new regulations ("Press Conference"), officials from the CSRC clarified that the domestic companies that have already been listed overseas on or before March 31, 2023 shall be deemed as existing issuers (the "Existing Issuers"). Existing Issuers are not required to complete the filling procedures immediately, and they shall be required to file with the CSRC upon occurrences of certain subsequent matters such as follow-on offerings of securities. According to the Overseas Listing Trial Measures and the Press Conference, the existing domestic companies that have completed overseas offering and listing before March 31, 2023, such as us, shall not be required to perform filing procedures for the completed overseas securities issuance and listing. However, from the effective date of the regulation, any of our subsequent securities offering in the same overseas market or subsequent securities offering and listing in other overseas markets shall be subject to the filing requirement with the CSRC within three working days after the offering is completed or after the relevant application is submitted to the relevant overseas authorities, respectively. If it is determined that any approval, filing or other administrative procedures from other PRC governmental authorities is required for any future offering or listing, we cannot assure you that we can obtain the required approval or accomplish the required filings or other regulatory procedures in a timely manner, or at all. If we fail to fulfill filing procedure as stipulated by the Trial Measures or offer and list securities in an overseas market in violation of the Trial Measures, the CSRC may order rectification, issue warnings to us, and impose a fine of between RMB1,000,000 and RMB10,000,000. Persons-in-charge and other persons that are directly liable for such failure shall be warned and each imposed a fine from RMB500,000 to RMB5,000,000. Controlling shareholders and actual controlling persons of us that organize or instruct such violations shall be imposed a fine from RMB1,000,000 and RMB10,000,000.

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On February 24, 2023, the CSRC published the Provisions on Strengthening the Confidentiality and Archives Administration Related to the Overseas Securities Offering and Listing by Domestic Enterprises (the "Provisions on Confidentiality and Archives Administration"), which came into effect on March 31, 2023. The Provisions on Confidentiality and Archives Administration requires that, in the process of overseas issuance and listing of securities by domestic entities, the domestic entities, and securities companies and securities service institutions that provide relevant securities service shall strictly implement the provisions of relevant laws and regulations and the requirements of these provisions, establish and improve rules on confidentiality and archives administration. Where the domestic entities provide with or publicly disclose documents, materials or other items related to the state secrets and government work secrets to the relevant securities companies, securities service institutions, overseas regulatory authorities, or other entities or individuals, the companies shall apply for approval of competent departments with the authority of examination and approval in accordance with law and report the matter to the secrecy administrative departments at the same level for record filing. Where there is unclear or controversial whether or not the concerned materials are related to state secrets, the materials shall be reported to the relevant secrecy administrative departments for determination. However, there remain uncertainties regarding the further interpretation and implementation of the Provisions on Confidentiality and Archives Administration.

As of the date of this Annual Report, we and our PRC subsidiaries have obtained the requisite licenses and permits from the PRC government authorities that are material for the business operations of our PRC subsidiaries. In addition, as of the date of this Annual Report, we and our PRC subsidiaries are not required to obtain approval or permission from the CSRC or the CAC or any other entity that is required to approve our PRC subsidiaries' operations or required for us to offer securities to foreign investors under any currently effective PRC laws, regulations, and regulatory rules. If it is determined that we are subject to filing requirements imposed by the CSRC under the Overseas Listing Regulations or approvals from other PRC regulatory authorities or other procedures, including the cybersecurity review under the revised Cybersecurity Review Measures, for our future offshore offerings, it would be uncertain whether we can or how long it will take us to complete such procedures or obtain such approval and any such approval could be rescinded. Any failure to obtain or delay in completing such procedures or obtaining such approval for our offshore offerings, or a rescission of any such approval if obtained by us, would subject us to sanctions by the CSRC or other PRC regulatory authorities for failure to file with the CSRC or failure to seek approval from other government authorization for our offshore offerings. These regulatory authorities may impose fines and penalties on our operations in China, limit our ability to pay dividends outside of China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from our offshore offerings into China or take other actions that could materially and adversely affect our business, financial condition, results of operations, and prospects, as well as the trading price of our Class A Ordinary Shares. The CSRC or other PRC regulatory authorities also may take actions requiring us, or making it advisable for us, to halt our offshore offerings before settlement and delivery of the securities offered. Consequently, if investors engage in market trading or other activities in anticipation of and prior to settlement and delivery, they do so at the risk that settlement and delivery may not occur. In addition, if the CSRC or other regulatory authorities later promulgate new rules or explanations requiring that we obtain their approvals or accomplish the required filing or other regulatory procedures for our prior offshore offerings, we may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties or negative publicity regarding such approval requirement could materially and adversely affect our business, prospects, financial condition, reputation, and the trading price of our Class A Ordinary Shares.

***We may become subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection. We may be liable for improper use or appropriation of personal information provided by our customers.***

We may become subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection. These laws and regulations are continuously evolving and developing. The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting, particularly with respect to foreign laws. In particular, there are numerous laws and regulations regarding privacy and the collection, sharing, use, processing, disclosure, and protection of personal information and other user data. Such laws and regulations often vary in scope, may be subject to differing interpretations, and may be inconsistent among different jurisdictions.

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We expect to obtain information about various aspects of our operations as well as regarding our employees and third parties. We also maintain information about various aspects of our operations as well as regarding our employees. The integrity and protection of our customer, employee and company data is critical to our business. Our customers and employees expect that we will adequately protect their personal information. We are required by applicable laws to keep strictly confidential the personal information that we collect, and to take adequate security measures to safeguard such information.

The PRC Criminal Law, as amended by its Amendment 7 (effective on February 28, 2009) and Amendment 9 (effective on November 1, 2015), prohibits institutions, companies and their employees from selling or otherwise illegally disclosing a citizen's personal information obtained during the course of performing duties or providing services or obtaining such information through theft or other illegal ways. On November 7, 2016, the Standing Committee of the PRC National People's Congress issued the Cyber Security Law of the PRC, or Cyber Security Law, which became effective on June 1, 2017.

Pursuant to the Cyber Security Law, network operators must not, without users' consent, collect their personal information, and may only collect users' personal information necessary to provide their services. Providers are also obliged to provide security maintenance for their products and services and shall comply with provisions regarding the protection of personal information as stipulated under the relevant laws and regulations.

The Civil Code of the PRC (issued by the PRC National People's Congress on May 28, 2020 and effective from January 1, 2021) provides main legal basis for privacy and personal information infringement claims under the Chinese civil laws. PRC regulators, including the Cyberspace Administration of China, MIIT, and the Ministry of Public Security have been increasingly focused on regulation in the areas of data security and data protection.

The PRC regulatory requirements regarding cybersecurity are constantly evolving. For instance, various regulatory bodies in China, including the Cyberspace Administration of China, the Ministry of Public Security and the SAMR, have enforced data privacy and protection laws and regulations with varying and evolving standards and interpretations. In April 2020, the Chinese government promulgated Cybersecurity Review Measures, which came into effect on June 1, 2020. According to the Cybersecurity Review Measures, operators of critical information infrastructure must pass a cybersecurity review when purchasing network products and services which do or may affect national security.

In November 2016, the Standing Committee of China's National People's Congress passed China's first Cybersecurity Law ("CSL"), which became effective in June 2017. The CSL is the first PRC law that systematically lays out the regulatory requirements on cybersecurity and data protection, subjecting many previously under-regulated or unregulated activities in cyberspace to government scrutiny. The legal consequences of violation of the CSL include penalties of warning, confiscation of illegal income, suspension of related business, winding up for rectification, shutting down the websites, and revocation of business license or relevant permits. In April 2020, the Cyberspace Administration of China and certain other PRC regulatory authorities promulgated the Cybersecurity Review Measures, which became effective in June 2020. Pursuant to the Cybersecurity Review Measures, operators of critical information infrastructure must pass a cybersecurity review when purchasing network products and services which do or may affect national security. On July 10, 2021, the Cyberspace Administration of China issued a revised draft of the Measures for Cybersecurity Review for public comments ("Draft Measures"), which required that, in addition to "operator of critical information infrastructure," any "data processor" carrying out data processing activities that affect or may affect national security should also be subject to cybersecurity review, and further elaborated the factors to be considered when assessing the national security risks of the relevant activities, including, among others, (i) the risk of core data, important data or a large amount of personal information being stolen, leaked, destroyed, and illegally used or exited the country; and (ii) the risk of critical information infrastructure, core data, important data or a large amount of personal information being affected, controlled, or maliciously used by foreign governments after listing abroad. The Cyberspace Administration of China has said that under the proposed rules companies holding data on more than 1,000,000 users must now apply for cybersecurity approval when seeking listings in other nations because of the risk that such data and personal information could be "affected, controlled, and maliciously exploited by foreign governments," The cybersecurity review will also investigate the potential national security risks from overseas IPOs. We do not know what regulations will be adopted or how such regulations will affect us and our listing on Nasdaq. In the event that the Cyberspace Administration of China determines that we are subject to these regulations, we may be required to delist from Nasdaq and we may be subject to fines and penalties. On June 10, 2021, the Standing Committee of the NPC promulgated the PRC Data Security Law, which took effect on September 1, 2021. The Data Security Law also sets forth the data security protection obligations for entities and individuals handling personal data, including that no entity or individual may acquire such data by stealing or other illegal means, and the collection and use of such data should not exceed the necessary limits The costs of compliance with, and other burdens imposed by, CSL and any other cybersecurity and related laws may limit the use and adoption of our products and services and could have an adverse impact on our business. Further, if the enacted version of the Measures for Cybersecurity Review mandates clearance of cybersecurity review and other specific actions to be completed by companies like us, we face uncertainties as to whether such clearance can be timely obtained, or at all.

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On July 10, 2021, the Cyberspace Administration of China issued a revised draft of the Measures for Cybersecurity Review for public comments (the "Review Measures"), and on December 28, 2021, the Cyberspace Administration of China jointly with the relevant authorities published Measures for Cybersecurity Review (2021) which took effect on February 15, 2022 and replace the Review Measures, which required that, operators of critical information infrastructure purchasing network products and services, and data processors (together with the operators of critical information infrastructure, the "Operators") carrying out data processing activities that affect or may affect national security, shall conduct a cybersecurity review, any operator who controls more than one million users' personal information must go through a cybersecurity review by the cybersecurity review office if it seeks to be listed in a foreign country.

Under the Data Security Law enacted on September 1, 2021 and the Measures for Cybersecurity Review (2021) implemented on February 15, 2022, since we are not an Operator, nor do we control more than one million users' personal information, we would not be required to apply for a cybersecurity review by the CAC. However, if the CSRC, CAC or other regulatory agencies later promulgate new rules or explanations requiring that we obtain their approvals for this offering and any follow-on offering, we may be unable to obtain such approvals and we may face sanctions by the CSRC, CAC or other PRC regulatory agencies for failure to seek their approval which could significantly limit or completely hinder our ability to offer or continue to offer securities to our investors and the securities currently being offered may substantially decline in value and be worthless.

On August 17, 2021, the State Council promulgated the Regulations on the Protection of the Security of Critical Information Infrastructure, or the Regulations, which took effect on September 1, 2021. The Regulations supplement and specify the provisions on the security of critical information infrastructure as stated in the Cybersecurity Review Measures. The Regulations provide, among others, that protection department of certain industry or sector shall notify the operator of the critical information infrastructure in time after the identification of certain critical information infrastructure.

On August 20, 2021, the Standing Committee of the NPC approved the Personal Information Protection Law ("PIPL"), which became effective on November 1, 2021. The PIPL regulates collection of personal identifiable information and seeks to address the issue of algorithmic discrimination. Companies in violation of the PIPL may be subject to warnings and admonishments, forced corrections, confiscation of corresponding income, suspension of related services, and fines. We had not collected identifiable or sensitive personal information of individual end-users, such as ID card numbers and real names, which means our potential access or exposure to customers' personal information is limited. However, in the event we inadvertently access or become exposed to customers' personal identifiable information, then we may face heightened exposure to the PIPL.

We cannot assure you that PRC regulatory agencies, including the CAC, would take the same view as we do, and there is no assurance that we can fully or timely comply with such laws. In the event that we are subject to any mandatory cybersecurity review and other specific actions required by the CAC, we face uncertainty as to whether any clearance or other required actions can be timely completed, or at all. Given such uncertainty, we may be further required to suspend our relevant business, shut down our website, or face other penalties, which could materially and adversely affect our business, financial condition, and results of operations.

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***If we become directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations, this offering and our reputation and could result in a loss of your investment in our Class A Ordinary Shares, especially if such matter cannot be addressed and resolved favorably.***

Recently, U.S. public companies that have substantially all of their operations in China, have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered around financial and accounting irregularities, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on our Company, our business and this offering. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend the Company. This situation may be a major distraction to our management. If such allegations are not proven to be groundless, our Company and business operations will be severely hampered and your investment in our Class A Ordinary Shares could be rendered worthless.

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***Changes in China's economic, political or social conditions or government policies could have a material adverse effect on our business and results of operations.***

Substantially all of our operations are located in China. Accordingly, our business, prospects, financial condition, and results of operations may be influenced significantly by political, economic, and social conditions in China generally and by continued economic growth in China as a whole.

The Chinese economy differs from the economies of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control of the foreign exchange, and allocation of resources. Although the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese government also exercises significant control over China's economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies.

While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy but may harm us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. In addition, in the past, the Chinese government has implemented certain measures, including interest rate increases, to control the pace of economic growth. These measures may cause decreased economic activity in China, and since 2012, China's economic growth has slowed down. Any prolonged slowdown in the Chinese economy may reduce the demand for our products and services and materially and adversely affect our business and results of operations.

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We may also decide to finance our PRC subsidiaries using capital contributions. The Ministry of Commerce ("MOC") or its local counterpart must approve these capital contributions. On March 30, 2015, the State Administration of Foreign Exchange, or SAFE, promulgated Circular of the State Administration of Foreign Exchange on Reforming the Management Approach regarding the Settlement of Foreign Exchange Capital of Foreign-invested Enterprises, or Circular 19, which expands a pilot reform of the administration of the settlement of the foreign exchange capitals of foreign-invested enterprises nationwide. Circular 19 came into force and replaced previous Circular 142 and Circular 36 on June 1, 2015. On June 9, 2016, SAFE promulgated the Circular of the State Administration of Foreign Exchange on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or Circular 16, to further expand and strengthen such reform. Under Circular 19 and Circular 16, foreign-invested enterprises in the PRC are allowed to use their foreign exchange funds under capital accounts and RMB funds from exchange settlement for expenditure under current accounts within its business scope or expenditure under capital accounts permitted by laws and regulations, except that such funds shall not be used for (i) expenditure beyond the enterprise's business scope or expenditure prohibited by laws and regulations; (ii) investments in securities or other investments than principal-secured products issued by banks; (iii) granting loans to non-affiliated enterprises, except where it is expressly permitted in the business license; and (iv) construction or purchase of real estate for purposes other than self-use (except for real estate enterprises). In addition, SAFE strengthened its oversight of the flow and use of the RMB capital converted from foreign currency registered capital of a foreign-invested company. The use of such RMB capital may not be altered without SAFE's approval, and such RMB capital may not, in any case, be used to repay RMB loans if the proceeds of such loans have not been used. Violations of these circulars could result in severe monetary or other penalties. These circulars may significantly limit our ability to use RMB converted from the cash provided by our offshore financing activities to fund the establishment of new entities in China by our PRC subsidiaries, to invest in or acquire any other PRC companies through our PRC subsidiaries.

In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans to our PRC subsidiaries or future capital contributions by us to our PRC subsidiaries. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds we receive from our offerings to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

***Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer our Class A Ordinary Shares to investors and cause the value of our Class A Ordinary Shares to significantly decline or be worthless. The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.***

The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in August 2006 and amended in 2009, and some other regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex, including requirements in some instances that the MOC be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. For example, the M&A Rules require that MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that impact or may impact national economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-honored brand. Moreover, the Anti-Monopoly Law promulgated by the SCNPC effective in 2008 requires that transactions which are deemed concentrations and involve parties with specified turnover thresholds (i.e., during the previous fiscal year, (i) the total global turnover of all operators participating in the transaction exceeds RMB10 billion and at least two of these operators each had a turnover of more than RMB400 million within China, or (ii) the total turnover within China of all the operators participating in the concentration exceeded RMB 2 billion, and at least two of these operators each had a turnover of more than RMB 400 million within China) must be cleared by MOFCOM before they can be completed.

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Moreover, the Anti-Monopoly Law requires that the MOC shall be notified in advance of any concentration of undertaking if certain thresholds are triggered. In addition, the security review rules issued by the MOC that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise "national defense and security" concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise "national security" concerns are subject to strict review by the MOC, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required approval processes, including obtaining approval from the MOC or its local counterparts may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

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***The PRC government may impose restrictions on our ability to transfer cash out of China and to U.S. investors.***

The PRC government imposes controls on the convertibility of Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. To the extent that our income is received in Renminbi, shortages in foreign currencies may restrict our ability to pay dividends or other payments, or otherwise satisfy our foreign currency denominated obligations, if any. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions, can be made in foreign currencies without prior approval from the State Administration of Foreign Exchange, or SAFE, as long as certain procedural requirements are met. Approval from appropriate government authorities is required if Renminbi is converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may, at its discretion, impose restrictions on access to foreign currencies for current account transactions.

To address persistent capital outflows and the RMB's depreciation against the U.S. dollar in the fourth quarter of 2016, the People's Bank of China and the SAFE implemented a series of capital control measures in the subsequent months, including stricter vetting procedures for China-based companies to remit foreign currency for overseas acquisitions, dividend payments and shareholder loan repayments. The PRC government may continue to strengthen its capital controls and our PRC subsidiaries' dividends and other distributions may be subject to tightened scrutiny in the future. The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, there can be no assurance that the PRC government will not intervene or impose restrictions on our ability to transfer or distribute cash within our organization or to foreign investors, which could result in an inability or prohibition on making transfers or distributions outside of China or Hong Kong and adversely affect our business as well as your investment.

As of the date of this Annual Report, we are not aware of other material restrictions and limitations on our ability to distribute earnings from our businesses, including our subsidiaries, to the parent company and U.S. investors or our ability to settle amounts owed, or on foreign exchange or our ability to transfer cash between entities within our group, across borders, or to U.S. investors.

***We must remit the offering proceeds to China before they may be used to benefit our business in China, and this process may take several months to complete.***

The process for sending the proceeds from this offering back to China may take as long as six months after the closing of this offering.

Any loans to the PRC subsidiaries are subject to PRC regulations. For example, loans by us to our subsidiaries in China, which are foreign-invested enterprises, to finance their activities cannot exceed statutory limits and must be registered with SAFE.

To remit the proceeds of the offering, we must take the following steps:

● First, we will open a special foreign exchange account for capital account transactions. To open this account, we must submit to SAFE certain application forms, identity documents, transaction documents, form of foreign exchange registration of overseas investments of the domestic residents, and foreign exchange registration certificate of the invested company. As of the date of this Annual Report, we have already opened a special foreign exchange account for capital account transactions.

● Second, we will remit the offering proceeds into this special foreign exchange account.

● Third, we will apply for settlement of the foreign exchange. In order to do so, we must submit to SAFE certain application forms, identity documents, payment order to a designated person, and a tax certificate.

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The timing of the process is difficult to estimate because the efficiencies of different SAFE branches can vary significantly. Ordinarily the process takes several months but is required by law to be accomplished within 180 days of application.

We may also decide to finance our subsidiaries by means of capital contributions. These capital contributions must be approved by MOFCOM or its local counterpart. We cannot assure you that we will be able to obtain these government approvals on a timely basis, if at all, with respect to future capital contributions by us to our subsidiaries. If we fail to receive such approvals, our ability to use the proceeds of this offering and to capitalize our Chinese operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business. If we fail to receive such approvals, our ability to use the proceeds of this offering and to capitalize our Chinese operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.

 **

***To the extent cash or assets of our business, or of our PRC or Hong Kong subsidiaries, is in the PRC or Hong Kong, such cash or assets may not be available to fund operations or for other use outside of the PRC or Hong Kong, due to interventions in or the imposition of restrictions and limitations by the PRC government to the transfer of cash or assets.***

 **

The transfer of funds and assets among Erayak, its Hong Kong and PRC subsidiaries is subject to restrictions. The PRC government imposes controls on the conversion of the RMB into foreign currencies and the remittance of currencies out of the PRC. In addition, the PRC Enterprise Income Tax Law and its implementation rules provide that a withholding tax at a rate of 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises, unless reduced under treaties or arrangements between the PRC central government and the governments of other countries or regions where the non-PRC-resident enterprises are tax resident.

As of the date of this Annual Report, there are no restrictions or limitations imposed by the Hong Kong government on the transfer of capital within, into and out of Hong Kong (including funds from Hong Kong to the PRC), except for the transfer of funds involving money laundering and criminal activities. However, there is no guarantee that the Hong Kong government will not promulgate new laws or regulations that may impose such restrictions in the future.

As a result of the above, to the extent cash or assets of our business, or of our PRC or Hong Kong subsidiaries, is in the PRC or Hong Kong, such funds or assets may not be available to fund operations or for other use outside of the PRC or Hong Kong, due to interventions in or the imposition of restrictions and limitations by the PRC government to the transfer of cash or assets.

***PRC laws and regulations governing our current business operations are sometimes vague and uncertain and any changes in such laws and regulations may impair our ability to operate profitably.***

There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations including, but not limited to, the laws and regulations governing our business and the enforcement and performance of our arrangements with customers in certain circumstances. The laws and regulations are sometimes vague and may be subject to future changes, and their official interpretation and enforcement may involve substantial uncertainty. The effectiveness and interpretation of newly enacted laws or regulations, including amendments to existing laws and regulations, may be delayed, and our business may be affected if we rely on laws and regulations which are subsequently adopted or interpreted in a manner different from our understanding of these laws and regulations. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our business.

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***Substantial uncertainties exist with respect to the enactment timetable and final content of draft China Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.***

The Chinese Ministry of Commerce ("MOFCOM") published a discussion draft of the proposed Foreign Investment Law in January 2015 (the "Draft FIL"). The Draft FIL embodies an expected Chinese regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments.

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Among other things, the Draft FIL expands the definition of foreign investment and introduces the principle of "actual control" in determining whether a company is considered a foreign-invested enterprise ("FIE"). The Draft FIL specifically provides that entities established in China but "controlled" by foreign investors will be treated as FIEs, whereas an entity set up in a foreign jurisdiction would nonetheless be, upon market entry clearance, treated as a Chinese domestic investor provided that the entity is "controlled" by Chinese entities and/or citizens. Once an entity is determined to be an FIE, it will be subject to the foreign investment restrictions or prohibitions set forth in a Negative List to be separately issued by the State Council later. Unless the underlying business of the FIE falls within the Negative List, which calls for market entry clearance, prior approval from the government authorities as mandated by the existing foreign investment legal regime would no longer be required for establishment of the FIE.

On December 27, 2021, the NDRC and MOFCOM, jointly issued the Special Administrative Measures for Entry of Foreign Investment (Negative List) (2021 Version), or the Negative List, which became effective and replaced the previous version on January 1, 2022. Pursuant to the Negative List, if a PRC company, which engages in any business where foreign investment is prohibited under the Negative List, or prohibited businesses, seeks an overseas offering or listing, it must obtain the approval from competent governmental authorities. Based on a set of Q&A published on the NDRC's official website, a NDRC official indicated that after a PRC company submits its application for overseas listing to the CSRC and where matters relating to prohibited businesses under the Negative List are implicated, the CSRC will consult the regulatory authorities having jurisdiction over the relevant industries and fields.

Because the Overseas Listing Rules are currently in draft form and given the novelty of the Negative List, there remain substantial uncertainties as to whether and what requirements, including filing requirements, will be imposed on a PRC company with respect to its listing and offerings overseas as well as with the interpretation and implementation of existing and future regulations in this regard. For example, it is unclear as to whether the approval requirement under the Negative List will apply to follow-on offerings by PRC companies engaged in prohibited businesses and whose offshore holding company is listed overseas. If such approval is in fact required and given the NDRC's indication of CSRC's involvement in the approval process, there is also a lack of clarity on the application procedure, requirement and timeline which may not be resolved until the Overseas Listing Rules, which provide for the filing procedures of the overseas offering and listing of a PRC company with the CSRC, is enacted. If the Overseas Listing Rules are enacted in the current form before the completion of our future proposed offerings, we will be required to make a filing with the CSRC in connection with such offerings within three business days after its completion. If the approval requirement under the Negative List applies to follow-on offerings by PRC companies whose offshore holding company is listed overseas, we may be required to obtain an approval for the proposed offerings or we may be required to relinquish our licenses pertaining to prohibited businesses. If we relinquish or are required to relinquish these licenses, while we do not expect our business operation to be materially adversely affected, we are uncertain whether or when the relevant procedures will be completed.

The development, manufacture and sales of construction materials products and manufacturing equipment are not currently subject to foreign investment restrictions set forth in the Catalogue of Industries for Guiding Foreign Investment (Amended in 2017), or the Catalogue, issued by the National Development and Reform Commission and the Ministry of Commerce on June 28, 2017 and became effective on July 28, 2017. The Draft FIL, if enacted as proposed, will not materially impact the viability of our current corporate structure, corporate governance and business operations in many aspects. However, should the development, manufacture and sales of construction materials products and manufacturing equipment become subject to foreign investment restrictions set forth in the Catalogue of Industries for Guiding Foreign Investment then the viability of our current corporate structure, corporate governance and business operations may be materially impacted in many aspects.

***There are uncertainties under the PRC laws relating to the procedures for U.S. regulators to investigate and collect evidence from companies located in the PRC.***

According to Article 177 of the newly amended PRC Securities Law which became effective in March 2020 (the "Article 177"), the securities regulatory authority of the PRC State Council may collaborate with securities regulatory authorities of other countries or regions in order to monitor and oversee cross border securities activities. Article 177 further provides that overseas securities regulatory authorities are not allowed to carry out investigation and evidence collection directly within the territory of the PRC, and that any Chinese entities and individuals are not allowed to provide documents or materials related to securities business activities to overseas agencies without prior consent of the securities regulatory authority of the PRC State Council and the competent departments of the PRC State Council.

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Our PRC counsel, Gaopeng & Partners, has advised us of their understanding that (i) the Article 177 is applicable in the limited circumstances related to direct investigation or evidence collection conducted by overseas authorities within the territory of the PRC (in such case, the foregoing activities are required to be conducted through collaboration with or by obtaining prior consent of competent Chinese authorities); (ii) the Article 177 does not limit or prohibit the Company, as a company duly incorporated in Cayman Islands and to be listed on Nasdaq, from providing the required documents or information to Nasdaq or the SEC pursuant to applicable Listing Rules and U.S. securities laws; and (iii) as the Article 177 is relatively new and there is no implementing rules or regulations which have been published regarding application of the Article 177, it remains unclear how the law will be interpreted, implemented or applied by the Chinese Securities Regulatory Commission or other relevant government authorities. As of the date hereof, we are not aware of any implementing rules or regulations which have been published regarding application of Article 177. However, we cannot assure you that relevant PRC government agencies, including the securities regulatory authority of the PRC State Council, would reach the same conclusion as we do. As such, there are uncertainties as to the procedures and time requirement for the U.S. regulators to bring about investigations and evidence collection within the territory of the PRC.

Our principal business operation is conducted in the PRC. In the event that the U.S. regulators carry out investigation on us and there is a need to conduct investigation or collect evidence within the territory of the PRC, the U.S. regulators may not be able to carry out such investigation or evidence collection directly in the PRC under the PRC laws. The U.S. regulators may consider cross-border cooperation with securities regulatory authority of the PRC by way of judicial assistance, diplomatic channels or regulatory cooperation mechanism established with the securities regulatory authority of the PRC.

***We rely on dividends, loans and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have. Any limitation on the ability of our PRC subsidiaries to make loans or payments to us could have a material adverse effect on our ability to conduct our business.***

We are a holding company and rely on dividends, loans and other distributions on equity paid by our PRC subsidiaries for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders and service any debt or pay any expense we may incur. In the event that our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us. In addition, the PRC tax authorities may require our PRC subsidiaries to adjust their taxable income in a manner that would materially and adversely affect their ability to pay dividends and other distributions to us.

Under PRC laws and regulations, our PRC subsidiaries, as wholly foreign-owned enterprises in China, may pay dividends only out of their respective accumulated after-tax profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund certain statutory reserve funds until the aggregate amount of such funds reaches 50% of its registered capital. At its discretion, a wholly foreign-owned enterprise may allocate a portion of its after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends

Under existing PRC foreign exchange regulations, payment of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from the State Administration of Foreign Exchange, or the SAFE, by complying with certain procedural requirements. Therefore, our PRC subsidiaries are able to pay dividends in foreign currencies to us without prior approval from SAFE, subject to the condition that the remittance of such dividends outside of the PRC complies with certain procedures under PRC foreign exchange regulations, such as the overseas investment registrations by our shareholders or the ultimate shareholders of our corporate shareholders who are PRC residents. Approval from, or registration with, appropriate government authorities is, however, required where the RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. Current PRC regulations permit our PRC subsidiaries to pay dividends to the Company only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In response to the persistent capital outflow and the Renminbi's depreciation against the U.S. dollar in the fourth quarter of 2016, the People's Bank of China and the State Administration of Foreign Exchange, or SAFE, have implemented a series of capital control measures, including stricter vetting procedures for China-based companies to remit foreign currency for overseas acquisitions, dividend payments, and shareholder loan repayments. The PRC government may continue to strengthen its capital controls, and our PRC subsidiaries' dividends and other distributions may be subjected to tighter scrutiny in the future. Any limitation on the ability of our PRC subsidiaries to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

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***Fluctuations in exchange rates could have a material adverse effect on our results of operations and the price of our Class A Ordinary Shares.***

Substantially, our revenues and expenditures are denominated in RMB, whereas our reporting currency is the U.S. dollar. As a result, fluctuations in the exchange rate between the U.S. dollar and RMB will affect the relative purchasing power in RMB terms of our U.S. dollar assets and the proceeds from our future proposed offerings. Our reporting currency is the U.S. dollar, while the functional currency for our PRC subsidiaries is RMB. Gains and losses from the re-measurement of assets and liabilities receivable or payable in RMB are included in our consolidated statements of operations. The re-measurement has caused the U.S. dollar value of our results of operations to vary with exchange rate fluctuations, and the U.S. dollar value of our results of operations will continue to vary with exchange rate fluctuations. A fluctuation in the value of RMB relative to the U.S. dollar could reduce our profits from operations and the translated value of our net assets when reported in U.S. dollars in our financial statements. This change in value could negatively impact our business, financial condition, or results of operations as reported in U.S. dollars. In the event that we decide to convert our RMB into U.S. dollars to make payments for dividends on our Class A Ordinary Shares or for other business purposes, appreciation of the U.S. dollar against the RMB will harm the U.S. dollar amount available to us. In addition, fluctuations in currencies relative to the periods in which the earnings are generated may make it more difficult to perform period-to-period comparisons of our reported results of operations.

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 and China's foreign exchange policies. On July 21, 2005, the PRC government changed its decades-old policy of pegging the value of the RMB to the U.S. dollar, and the RMB appreciated more than 20% against the U.S. dollar over the following three years. However, the PBOC regularly intervenes in the foreign exchange market to limit fluctuations in RMB exchange rates and achieve policy goals. Between July 2008 and June 2010, the exchange rate between the RMB and the U.S. dollar had been stable and traded within a narrow range. Since June 2010, the RMB has fluctuated against the U.S. dollar, at times significantly and unpredictably. Since October 1, 2016, Renminbi has joined the International Monetary Fund (IMF)'s basket of currencies that make up the Special Drawing Right (SDR) and the U.S. dollar, the Euro, the Japanese yen, and the British pound. In the fourth quarter of 2016, the RMB has depreciated significantly in the backdrop of a surging U.S. dollar and persistent capital outflows of China. With the development of the foreign exchange market and progress towards interest rate liberalization and Renminbi internationalization, the PRC government may announce further changes to the exchange rate system. We cannot assure you that the Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future.

There remains significant international pressure on the PRC government to adopt a flexible currency policy. Any significant appreciation or depreciation of the RMB may materially and adversely affect our revenues, earnings and financial position, and the value of, and any dividends payable on, our Class A Ordinary Shares in U.S. dollars. For example, to the extent that we need to convert U.S. dollars we receive from our future proposed offerings into RMB to pay our operating expenses, appreciation of the RMB against the U.S. dollar would adversely affect the RMB amount we would receive from the conversion. Conversely, a significant depreciation of the RMB against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our earnings, which in turn could adversely affect the price of our Class A Ordinary Shares.

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Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited. We may not be able to hedge our exposure adequately. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currency. As a result, fluctuations in exchange rates may have a material adverse effect on the price of our Class A Ordinary Shares.

***PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies may delay or prevent us from making loans or additional capital contributions to our PRC operating subsidiaries and thereby prevent us from funding our business.***

As an offshore holding company with PRC subsidiaries, we may transfer funds to our PRC subsidiaries by means of loans or capital contributions. Any loans to these PRC subsidiaries, which are foreign-invested enterprises, cannot exceed statutory limits based on the difference between the amount of our investments and registered capital in such subsidiaries, and shall be registered with SAFE, or its local counterparts. Furthermore, any capital increase contributions we make to our PRC subsidiaries, which are foreign-invested enterprises, shall be approved by MOFCOM, or its local counterparts. We may not be able to obtain these government registrations or approvals on a timely basis, if at all. If we fail to receive such registrations or approvals, our ability to provide loans or capital to increase contributions to our PRC subsidiaries may be negatively affected, which could adversely affect their liquidity and our ability to fund and expand their business.

***Governmental control of currency conversion may limit our ability to utilize our net revenues effectively and affect the value of your investment.***

The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our net revenues in RMB. Under our current corporate structure, our company in the Cayman Islands may rely on dividend payments from our PRC subsidiaries to fund any cash and financing requirements we may have. Under existing PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. Therefore, our PRC subsidiaries are able to pay dividends in foreign currencies to us without prior approval from SAFE, subject to the condition that the remittance of such dividends outside of the PRC complies with certain procedures under PRC foreign exchange regulation, such as the overseas investment registrations by the beneficial owners of our company who are PRC residents. But approval from or registration with appropriate government authorities is required where RMB is converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies.

In light of China's flood of capital outflows in 2016 due to the weakening RMB, the PRC government has imposed more restrictive foreign exchange policies and stepped up scrutiny of major outbound capital movements. More restrictions and a substantial vetting process are put in place by SAFE to regulate cross-border transactions falling under the capital account. The PRC government may also, at its discretion, restrict access in the future to foreign currencies for current account transactions. In the event that the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders.

***We must remit the offering proceeds to PRC before they may be used to benefit our business in the PRC, and this process may take several months.***

The proceeds of our future proposed offerings must be sent back to the PRC, and the process for sending such proceeds back to the PRC may take several months after the closing of the offering. We may be unable to use these proceeds to grow our business until we receive such proceeds in the PRC. To remit the offering proceeds to the PRC, we will take the following actions:

First, we will open a special foreign exchange account for capital account transactions. To open this account, we must submit to State Administration for Foreign Exchange ("SAFE") certain application forms, identity documents, transaction documents, a form of foreign exchange registration of overseas investments by domestic residents, and foreign exchange registration certificate of the invested company.

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Second, we will remit the offering proceeds into this special foreign exchange account.

Third, we will apply for settlement of the foreign exchange. To do so, we must submit to SAFE certain application forms, identity documents, payment order to a designated person, and a tax certificate.

The timing of the process is difficult to estimate because the efficiencies of different SAFE branches can vary materially. Ordinarily, the process takes several months to complete but is required by law to be accomplished within 180 days of application. Until the abovementioned approvals, the proceeds of our future proposed offerings will be maintained in an interest-bearing account maintained by us in the United States.

***Failure to make adequate contributions to various employee benefit plans required by PRC regulations may subject us to penalties.***

We are required under PRC laws and regulations to participate in various government-sponsored employee benefit plans, including certain social insurance, housing funds, and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances, of our employees up to a maximum amount specified by the local government from time to time at locations where we operate our businesses. The requirement of employee benefit plans has not been implemented consistently by the local governments in China, given the different levels of economic development in different locations. In the event that the local governments deem our contribution to be not sufficient, we may be subject to late contribution fees or fines in relation to any underpaid employee benefits, and our financial condition and results of operations may be adversely affected.

Currently, we are making contributions to the plans based on the minimum standards. However, PRC laws required such contributions to be based on the actual employee salaries up to a maximum amount specified by the local government. Therefore, in our consolidated financial statements, we have made an estimate and accrued a provision in relation to the potential make-up of our contributions for these plans and to pay late contribution fees and fines. If we are subject to late contribution fees or fines in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected.

***The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, making it more difficult for us to pursue growth through acquisitions in China.***

The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in August 2006 and amended in 2009, and some other regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex, including requirements in some instances that the MOC be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. Moreover, the Anti-Monopoly Law requires that the MOC shall be notified in advance of any concentration of undertaking if certain thresholds are triggered. In addition, the security review rules issued by the MOC that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise "national defense and security" concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise "national security" concerns are subject to strict review by the MOC, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from the MOC or its local counterparts, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

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***PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries' ability to increase their registered capital or distribute profits to us or otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC law.***

SAFE promulgated the Circular on Relevant Issues Relating to Domestic Resident's Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, in July 2014 that requires PRC residents or entities to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for overseas investment or financing. In addition, such PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicle undergoes material events relating to any change of basic information (including change of such PRC citizens or residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions. SAFE Circular 37 is issued to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in Financing and Roundtrip Investments via Overseas Special Purpose. Vehicles, or SAFE Circular 75. SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment in February 2015, which took effect on June 1, 2015. This notice has amended SAFE Circular 37 requiring PRC residents or entities to register with qualified banks rather than SAFE or its local branch in connection with their establishment or control of an offshore entity established for overseas investment or financing.

In the event that our shareholders who are PRC residents or entities do not complete their registration as required, our PRC subsidiaries may be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to us. We may be restricted in our ability to contribute additional capital to our PRC subsidiaries. Moreover, failure to comply with the SAFE registration described above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions.

However, we may not be informed of the identities of all the PRC residents or entities holding a direct or indirect interest in our company, nor can we compel our beneficial owners to comply with SAFE registration requirements. As a result, we cannot assure you that all of our shareholders or beneficial owners who are PRC residents or entities have complied with and will in the future make or obtain any applicable registrations or approvals required by SAFE regulations. Failure by such shareholders or beneficial owners to comply with SAFE regulations, or failure by us to amend the foreign exchange registrations of our PRC subsidiaries, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our PRC subsidiaries' ability to make distributions or pay dividends to us or affect our ownership structure, which could adversely affect our business and prospects.

***If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders.***

Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with a "de facto management body" within the PRC is considered a resident enterprise and will be subject to the enterprise income tax on its global income rate of 25%. The implementation rules define the term "de facto management body" as the body that exercises full and substantial control over and overall management of an enterprise's business, productions, personnel, accounts, and properties. In April 2009, the State Administration of Taxation issued a circular, known as Circular 82, which provides certain specific criteria for determining whether the "de facto management body" of a PRC-controlled enterprise incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners like us, the criteria set forth in the circular may reflect the State Administration of Taxation's general position on how the "de facto management body" test should be applied in determining the tax resident status of all offshore enterprises. According to Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its "de facto management body" in China and will be subject to PRC enterprise income tax on its global income only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise's financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise's primary assets, accounting books and records, company seals, and board and shareholder resolutions, are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC.

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We believe none of our entities outside of China is a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities, and uncertainties remain with respect to the interpretation of the term "de facto management body." As substantially all of our management members are based in China, it remains unclear how the tax residency rule will apply to our case. In the event that the PRC tax authorities determine that Erayak or any of our subsidiaries outside of China is a PRC resident enterprise for PRC enterprise income tax purposes, Erayak or such subsidiary could be subject to PRC tax at a rate of 25% on its worldwide income, which could materially reduce our net income. In addition, we will also be subject to PRC enterprise income tax reporting obligations.

Furthermore, if the PRC tax authorities determine that we are a PRC resident enterprise for enterprise income tax purposes, gains realized on the sale or other disposition of our Class A Ordinary Shares may be subject to PRC tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC individuals (in each case, subject to the provisions of any applicable tax treaty), if such gains are deemed to be from PRC sources. It is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC if we are treated as a PRC resident enterprise. Any such tax may reduce the returns on the investment in our Class A Ordinary Shares.

***There are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities.***

We conduct substantially all of our business operations in China, and a majority of our directors and senior management are based in China, which is an emerging market. The SEC, U.S. Department of Justice and other authorities often have substantial difficulties in bringing and enforcing actions against non-U.S. companies and non-U.S. persons, including company directors and officers, in certain emerging markets, including China. Additionally, our public shareholders may have limited rights and few practical remedies in emerging markets where we operate, as shareholder claims that are common in the United States, including class action securities law and fraud claims, generally are difficult to pursue as a matter of law or practicality in many emerging markets, including China. For example, in China, there are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities. Although the local authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, the regulatory cooperation with the securities regulatory authorities in the Unities States has not been efficient in the absence of a mutual and practical cooperation mechanism. According to Article 177 of the PRC Securities Law which became effective in March 2020, no foreign securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. Accordingly, without the consent of the competent PRC securities regulators and relevant authorities, no organization or individual may provide the documents and materials relating to securities business activities to foreign securities regulators.

As a result, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States.

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***PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies may delay or prevent us from using proceeds from this offering and/or future financing activities to make loans or additional capital contributions to our PRC operating subsidiaries.***

In July 2014, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents' Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, which replaces the previous SAFE Circular 75. SAFE Circular 37 requires PRC residents, including PRC individuals and PRC corporate entities, to register with SAFE or its local branches in connection with their direct or indirect offshore investment activities. SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we may make in the future.

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Under SAFE Circular 37, PRC residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments in offshore special purpose vehicles, or SPVs, are required to register such investments with SAFE or its local branches. In addition, any PRC resident who is a direct or indirect shareholder of an SPV, is required to update its registration with the local branch of SAFE with respect to that SPV, to reflect any material change. Moreover, any subsidiary of such SPV in China is required to urge the PRC resident shareholders to update their registration with the local branch of SAFE to reflect any material change. If any PRC resident shareholder of such SPV fails to make the required registration or to update the registration, the subsidiary of such SPV in China may be prohibited from distributing its profits or the proceeds from any capital reduction, share transfer or liquidation to the SPV, and the SPV may also be prohibited from making additional capital contributions into its subsidiaries in China. In February 2015, SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13. Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct investments and outbound direct investments, including those required under SAFE Circular 37, must be filed with qualified banks instead of SAFE. Qualified banks should examine the applications and accept registrations under the supervision of SAFE. We have used our best efforts to notify PRC residents or entities who directly or indirectly hold shares in our Cayman Islands holding company and who are known to us as being PRC residents to complete the foreign exchange registrations. However, we may not be informed of the identities of all the PRC residents or entities holding direct or indirect interest in our company, nor can we compel our beneficial owners to comply with SAFE registration requirements. We cannot assure you that all other shareholders or beneficial owners of ours who are PRC residents or entities have complied with, and will in the future make, obtain or update any applicable registrations or approvals required by, SAFE regulations. Failure by such shareholders or beneficial owners to comply with SAFE regulations, or failure by us to amend the foreign exchange registrations of our PRC subsidiaries, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, and limit our PRC subsidiaries' ability to make distributions or pay dividends to us or affect our ownership structure, which could adversely affect our business and prospects.

Furthermore, as these foreign exchange and outbound investment related regulations are relatively new and their interpretation and implementation has been constantly evolving, it is unclear how these regulations, and any future regulation concerning offshore or cross-border investments and transactions, will be interpreted, amended and implemented by the relevant government authorities. For example, we may be subject to a more stringent review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our financial condition and results of operations. We cannot assure you that we have complied or will be able to comply with all applicable foreign exchange and outbound investment related regulations. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.

As an offshore holding company with PRC subsidiaries, we may transfer funds to our operating entity or finance our operating entity by means of loans or capital contributions. Any capital contributions or loans that we, as an offshore entity, make to our Company's PRC subsidiaries, including from the proceeds of this offering, are subject to the above PRC regulations. We may not be able to obtain necessary government registrations or approvals on a timely basis, if at all. If we fail to obtain such approvals or make such registration, our ability to make equity contributions or provide loans to our Company's PRC subsidiaries or to fund their operations may be negatively affected, which may adversely affect their liquidity and ability to fund their working capital and expansion projects and meet their obligations and commitments. As a result, our liquidity and our ability to fund and expand our business may be negatively affected.

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***We may not be able to obtain certain benefits under relevant tax treaties on dividends paid by our PRC subsidiaries to us through our Hong Kong subsidiary.***

We are an exempted company incorporated under the laws of the Cayman Islands and, as such, rely on dividends and other distributions on equity from our PRC subsidiaries to satisfy part of our liquidity requirements. Pursuant to the PRC Enterprise Income Tax Law, a withholding tax rate of 10% currently applies to dividends paid by a PRC "resident enterprise" to a foreign enterprise investor, unless any such foreign investor's jurisdiction of incorporation has a tax treaty with China that provides for preferential tax treatment. Pursuant to the Arrangement between the Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Double Tax Avoidance Arrangement, such withholding tax rate may be lowered to 5% if a Hong Kong resident enterprise owns no less than 25% of a PRC enterprise. Furthermore, the Administrative Measures for Non-Resident Enterprises to Enjoy Treatments under Tax Treaties, which became effective in August 2015, require non-resident enterprises to determine whether they are qualified to enjoy the preferential tax treatment under the tax treaties and file relevant report and materials with the tax authorities. There are also other conditions for enjoying the reduced withholding tax rate according to other relevant tax rules and regulations. As of December 31, 2025 and 2024, we did not record any withholding tax on the retained earnings of our subsidiaries in the PRC as we intended to re-invest all earnings generated from our PRC subsidiaries for the operation and expansion of our business in China, and we intend to continue this practice in the foreseeable future. Should our tax policy change to allow for offshore distribution of our earnings, we would be subject to a significant withholding tax. We cannot assure you that the relevant tax authority will not challenge our determination regarding our qualification to enjoy the preferential tax treatment. We cannot assure that we will be able to complete the necessary filings with the relevant tax authority and enjoy the preferential withholding tax rate of 5% under the Double Taxation Arrangement with respect to dividends to be paid by our PRC subsidiaries to HK Beach, our Hong Kong subsidiary.

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***Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future.***

The PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of certain taxable assets, including, in particular, equity interests in a PRC resident enterprise, by a non-resident enterprise by promulgating and implementing Notice of the Ministry of Finance and the State Administration of Taxation on Several Issues Concerning the Enterprise Income Tax Treatment on Enterprise Reorganization (Circular 59) and Announcement No. 7 [2015] of the State Administration of Taxation-Announcement on Several Issues concerning the Enterprise Income Tax on Income from the Indirect Transfer of Assets by Non-Resident Enterprises (Circular 7) which became effective in February 2015. Under Circular 7, where a non-resident enterprise conducts an "indirect transfer" by transferring the equity interests of a PRC "resident enterprise" indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise, being the transferor, may be subject to PRC enterprise income tax, if the indirect transfer is considered to be an abusive use of company structure without reasonable commercial purposes. Circular 7 also provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price lower than the fair market value, the relevant tax authority has the power to make a reasonable adjustment to the taxable income of the transaction.

Circular 7 extends its tax jurisdiction to indirect transfers and transactions involving the transfer of other taxable assets through the offshore transfer of a foreign intermediate holding company. In addition, Circular 7 provides clear criteria on how to assess reasonable commercial purposes and has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. Circular 7 also brings challenges to both the foreign transferor and transferee (or other person obligated to pay for the transfer) of the taxable assets. Where a non-resident enterprise conducts an "indirect transfer" by transferring the taxable assets indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise being the transferor, the transferee, or the PRC entity which directly owned the taxable assets may report to the relevant tax authority such indirect transfer. Using a "substance over form" principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacked a reasonable commercial purpose and was established for the purpose of reducing, avoiding, or deferring PRC tax.

According to the "Enterprise Income Tax Law of the People's Republic of China" (adopted on March 16, 2007, first amended on February 24, 2017, and second amended on December 29, 2018), if the business dealings between an enterprise and its affiliated parties do not conform to the principle of independent transactions and thus reduce the taxable income or income of the enterprise or its affiliated parties, the tax authorities have the right to adjust in accordance with reasonable methods. The cost incurred by an enterprise and its related parties in developing and accepting intangible assets or providing and receiving labor services together shall be apportioned according to the principle of independent transaction when calculating taxable income.

If a resident enterprise or an enterprise controlled by a resident enterprise and a Chinese resident and established in a country (region) whose actual tax burden is significantly lower than the tax rate level of China's enterprise income tax, does not allocate or reduce its profits due to reasonable business needs, the portion of the above profits that should belong to the resident enterprise shall be included in the current income of the resident enterprise.

Interest expenses incurred when the ratio of creditor's rights investment to equity investment accepted by an enterprise from its affiliated parties exceeds the prescribed standard shall not be deducted in the calculation of taxable income.

If an enterprise reduces its taxable income or income by implementing other arrangements without reasonable commercial purposes, tax authorities have the right to adjust them in accordance with reasonable methods.

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We face uncertainties on the reporting and consequences on future private equity financing transactions, share exchange, or other transactions involving the transfer of shares in our company by investors that are non-PRC resident enterprises. The PRC tax authorities may pursue such non-resident enterprises with respect to a filing or the transferees with respect to withholding obligation and request our PRC subsidiaries to assist in the filing. As a result, non-resident enterprises in such transactions may become at risk of being subject to filing obligations or being taxed under Circular 59 and Circular 7. They may be required to expend valuable resources to comply with Circular 59and Circular 7 or establish that our non-resident enterprises should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results from operations.

The PRC tax authorities have the discretion under SAT Circular 59 and Circular 7 to make adjustments to the taxable capital gains based on the difference between the fair value of the taxable assets transferred and the cost of investment. Although we currently have no plans to pursue any acquisitions in China or elsewhere in the world, we may pursue acquisitions in the future that may involve complex corporate structures. If we are considered a non-resident enterprise under the PRC Enterprise Income Tax Law and if the PRC tax authorities make adjustments to the taxable income of the transactions under SAT Circular 59 and Circular 7, our income tax costs associated with such potential acquisitions will be increased, which may have an adverse effect on our financial condition and results of operations.

***If we become directly subject to the scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations, share price and reputation.***

U.S. public companies that have substantially all of their operations in China have been the subject of intense scrutiny, criticism, and negative publicity by investors, financial commentators, and regulatory agencies, such as the SEC. Much of the scrutiny, criticism, and negative publicity has centered on financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. On December 7, 2018, the SEC and the PCAOB issued a joint statement highlighting continued challenges faced by the U.S. regulators in their oversight of financial statement audits of U.S.-listed companies with significant operations in China. On April 21, 2020, SEC Chairman Jay Clayton and PCAOB Chairman William D. Duhnke III, along with other senior SEC staff, released a joint statement highlighting the risks associated with investing in companies based in or have substantial operations in emerging markets including China, reiterating past SEC and PCAOB statements on matters including the difficulty associated with inspecting accounting firms and audit work papers in China and higher risks of fraud in emerging markets and the difficulty of bringing and enforcing SEC, Department of Justice and other U.S., including in instances of fraud, in emerging markets generally. As a result of this scrutiny, criticism, and negative publicity, the publicly traded stock of many U.S.-listed Chinese companies sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on us, our business, and our share price. In the event that we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend our company. This situation will be costly and time consuming and distract our management from developing our growth. In the event that such allegations are not proven to be groundless, we and our business operations will be severely affected and you could sustain a significant decline in the value of our share.

***We may lose the ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless if the Chinese government may exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers.***

The recently issued Opinions on Strictly Cracking Down on Illegal Securities Activities emphasized the need to strengthen the administration over illegal securities activities and the supervision on listings by China-based companies in foreign countries, and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to deal with the risks and incidents faced by China-based companies listed in foreign countries, and provided that the special provisions of the State Council on offering and listing by those companies in foreign countries limited by shares will be revised and therefore the duties of domestic industry competent authorities and regulatory agencies will be clarified. As these opinions were newly issued and there are no further explanations or detailed rules and regulations with respect to such opinions, there are still uncertainties regarding the interpretation and implementation of such opinions. And new rules or regulations promulgated in future could impose additional requirements on us.

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In addition, on July 10, 2021, the Cyberspace Administration of China issued a revised draft of the Cybersecurity Review Measures for public comments, according to which, among others, an "operator of critical information infrastructure" or a "data processor", who has personal information of more than one million users and is going to list in foreign countries, must report to the relevant cybersecurity review office for a cybersecurity review. On December 28, 2021, the Cyberspace Administration of China jointly with the relevant authorities formally published Measures for Cybersecurity Review (2021) which took effect on February 15, 2022 and replace the former Measures for Cybersecurity Review (2020). Measures for Cybersecurity Review (2021) stipulates that operators of critical information infrastructure purchasing network products and services, and online platform operator (together with the operators of critical information infrastructure, the "Operators") carrying out data processing activities that affect or may affect national security, shall conduct a cybersecurity review, any online platform operator who controls more than one million users' personal information must go through a cybersecurity review by the cybersecurity review office if it seeks to be listed in a foreign country. Since we are not an Operator, nor do we control more than one million users' personal information, we would not be required to apply for a cybersecurity review under the Measures for Cybersecurity Review (2021).

However, if the CSRC or other relevant PRC regulatory agencies subsequently determine that prior approval is required, failure of obtaining such approval may lead us face regulatory actions or other sanctions from the CSRC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in China, limit our ability to pay dividends outside of China, limit our operations in China, delay or restrict the repatriation of the proceeds from this Offering into China or take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as the Offering of the Shares.

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***The recent joint statement by the SEC and PCAOB, proposed rule changes submitted by Nasdaq, and the Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offering.***

On April 21, 2020, SEC Chairman Jay Clayton and PCAOB Chairman William D. Duhnke III, along with other senior SEC staff, released a joint statement highlighting the risks associated with investing in companies based in or have substantial operations in emerging markets including China. The joint statement emphasized the risks associated with lack of access for the PCAOB to inspect auditors and audit work papers in China and higher risks of fraud in emerging markets.

On May 18, 2020, Nasdaq filed three proposals with the SEC to (i) apply minimum offering size requirement for companies primarily operating in "Restrictive Market", (ii) adopt a new requirement relating to the qualification of management or board of director for Restrictive Market companies, and (iii) apply additional and more stringent criteria to an applicant or listed company based on the qualifications of the company's auditors.

On May 20, 2020, the U.S. Senate passed the Holding Foreign Companies Accountable Act requiring a foreign company to certify it is not owned or controlled by a foreign government if the PCAOB is unable to audit specified reports because the company uses a foreign auditor not subject to PCAOB inspection. If the PCAOB is unable to inspect the company's auditors for three consecutive years, the issuer's securities are prohibited to trade on a U.S. stock exchange. On December 2, 2020, the U.S. House of Representatives approved the Holding Foreign Companies Accountable Act. On December 18, 2020, the Holding Foreign Companies Accountable Act was signed into law.

On March 24, 2021, the SEC announced that it had adopted interim final amendments to implement congressionally mandated submission and disclosure requirements of the Act. The interim final amendments will apply to registrants that the SEC identifies as having filed an annual report on Forms 10-K, 20-F, 40-F or N-CSR with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB has determined it is unable to inspect or investigate completely because of a position taken by an authority in that jurisdiction. The SEC will implement a process for identifying such a registrant and any such identified registrant will be required to submit documentation to the SEC establishing that it is not owned or controlled by a governmental entity in that foreign jurisdiction, and will also require disclosure in the registrant's annual report regarding the audit arrangements of, and governmental influence on, such a registrant.

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On June 22, 2021, the U.S. Senate passed a bill which, if passed by the U.S. House of Representatives and signed into law, would reduce the number of consecutive non-inspection years required for triggering the prohibitions under the Holding Foreign Companies Accountable Act from three years to two, which could reduce the time before our securities may be prohibited from trading or delisted should it be later determined that the PCAOB is unable to inspect or investigate our auditor completely.

On September 22, 2021, the PCAOB adopted a final rule implementing the HFCAA, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCAA, whether the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction.

On December 2, 2021, the SEC issued amendments to finalize rules implementing the submission and disclosure requirements in the HFCAA. The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that PCAOB is unable to inspect or investigate completely because of a position taken by an authority in foreign jurisdictions.

On December 16, 2021, the PCAOB issued a Determination Report which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in: (1) mainland China of the People's Republic of China, because of a position taken by one or more authorities in mainland China; and (2) Hong Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by one or more authorities in Hong Kong. The Company's former auditor, Fortune CPA, was based in Orange, California. The Company's current auditor, Tang Qian & Associates PLLC, is based in Dallas, Texas, and therefore is not affected by this mandate by the PCAOB.

The lack of access to the PCAOB inspection in China prevents the PCAOB from fully evaluating audits and quality control procedures of the auditors based in China. As a result, the investors may be deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of these accounting firms' audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections, which could cause existing and potential investors in our stock to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.

Our former auditor (Fortune CPA) and our current auditor (Tang Qian & Associates PLLC) are not included in the list of PCAOB Identified Firms in the PCAOB Determination Report issued in December 2021.

However, recent developments with respect to audits of China-based companies create uncertainty about the ability of Fortune CPA and Tang Qian & Associates PLLC to fully cooperate with the PCAOB's request for audit workpapers without the approval of the Chinese authorities. We cannot assure you whether Nasdaq or regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor's audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements. In the event it is later determined that the PCAOB is unable to inspect or investigate completely the Company's auditor because of a position taken by an authority in a foreign jurisdiction, then such lack of inspection could cause trading in the Company's securities to be prohibited under the HFCAA ultimately result in a determination by a securities exchange to delist the Company's securities. It remains unclear what the SEC's implementation process related to the above rules and amendments will entail or what further actions the SEC, the PCAOB or Nasdaq will take to address these issues and what impact those actions will have on U.S. companies that have significant operations in the PRC and have securities listed on a U.S. stock exchange. In addition, the above rules and amendments and any additional actions, proceedings, or new rules resulting from these efforts to increase U.S. regulatory access to audit information could create some uncertainty for investors, the market price of our Class A Ordinary Shares could be adversely affected, and we could be delisted if we and our auditor are unable to meet the PCAOB inspection requirement or being required to engage a new audit firm, which would require significant expense and management time.

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***Trading in our securities may be prohibited under the HFCAA and as a result an exchange may determine to delist our securities if it is later determined that the PCAOB is unable to inspect or investigate completely our auditor because of a position taken by an authority in a foreign jurisdiction.***

The HFCAA, was enacted on December 18, 2020. The HFCAA states if the SEC determines that a company has filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit such shares from being traded on a national securities exchange or in the over-the-counter trading market in the U.S.

On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the HFCAA. A company will be required to comply with these rules if the SEC identifies it as having a "non-inspection" year under a process to be subsequently established by the SEC. The SEC is assessing how to implement other requirements of the HFCAA, including the listing and trading prohibition requirements described above.

Despite that we have a U.S.-based auditor that is registered with the PCAOB and subject to PCAOB inspection, there are still risks to the company and investors if it is later determined that the PCAOB is unable to inspect or investigate completely our auditor because of a position taken by an authority in a foreign jurisdiction. Such risks include, but are not limited to that trading in our securities may be prohibited under the HFCAA and as a result an exchange may determine to delist our securities.

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***Uncertainties in the interpretation and enforcement of Chinese laws and regulations could limit the legal protections available to us.***

The PRC legal system is based on written statutes and prior court decisions have limited value as precedents. Since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the legal system in China, including risks and uncertainties regarding the enforcement of laws and that rules and regulations in China can change quickly with little advance notice, and the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involves uncertainties.

Therefore, these risks may result in a material change in business operations, significant depreciation of the value of our Class A Ordinary Shares, or a complete hinderance of our ability to offer or continue to offer our securities to investors. Recently, the Chinese government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using a VIE structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. Since these statements and regulatory actions are new, it is highly uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list on an U.S. or other foreign exchange.

Although we have taken measures to comply with the laws and regulations that are applicable to our business operations, including the regulatory principles raised by the CBRC, and avoiding conducting any activities that may be deemed as illegal fund-raising, forming capital pool or providing guarantee to investors under the current applicable laws and regulations, the PRC government authority may promulgate new laws and regulations regulating the direct lending service industry in the future. We cannot assure you that our practices would not be deemed to violate any PRC laws or regulations relating to illegal fund-raising, forming capital pools or the provision of credit enhancement services. Moreover, we cannot rule out the possibility that the PRC government will institute a license requirement covering our industry at some point in the future. If such a licensing regime were introduced, we cannot assure you that we would be able to obtain any newly required license in a timely manner, or at all, which could materially and adversely affect our business and impede our ability to continue our operations.

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From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy, than in more developed legal systems. Furthermore, the PRC legal system is based in part on government policies and internal rules (some of which are not published in a timely manner or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights, could materially and adversely affect our business and impede our ability to continue our operations.

***We may be adversely affected by the complexity, uncertainties and changes in PRC regulation of internet-related businesses and companies, and any lack of requisite approvals, licenses or permits applicable to our business may have a material adverse effect on our business and results of operations.***

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The PRC government extensively regulates the internet industry, including foreign ownership of, and the licensing and permit requirements pertaining to, companies in the internet industry. These internet-related laws and regulations are relatively new and evolving, and their interpretation and enforcement involve significant uncertainties. As a result, in certain circumstances it may be difficult to determine what actions or omissions may be deemed to be in violation of applicable laws and regulations.

The evolving PRC regulatory system for the internet industry may lead to the establishment of new regulatory agencies. For example, in May 2011, the State Council announced the establishment of a new department, the State Internet Information Office (with the involvement of the State Council Information Office, the MITT, and the Ministry of Public Security). The primary role of this new agency is to facilitate the policy-making and legislative development in this field, to direct and coordinate with the relevant departments in connection with online content administration and to deal with cross-ministry regulatory matters in relation to the internet industry.

The Circular on Strengthening the Administration of Foreign Investment in and Operation of Value-added Telecommunications Business, issued by the MITT in July 2006, prohibits domestic telecommunication service providers from leasing, transferring or selling telecommunications business operating licenses to any foreign investor in any form, or providing any resources, sites or facilities to any foreign investor for their illegal operation of a telecommunications business in China. According to this circular, either the holder of a value-added telecommunication services operation permit or its shareholders must directly own the domain names and trademarks used by such license holders in their provision of value-added telecommunication services. The circular also requires each license holder to have the necessary facilities, including servers, for its approved business operations and to maintain such facilities in the regions covered by its license. If an ICP License holder fails to comply with the requirements and also fails to remedy such non-compliance within a specified period of time, the MITT or its local counterparts have the discretion to take administrative measures against such license holder, including revoking its ICP License.

The interpretation and application of existing PRC laws, regulations and policies and possible new laws, regulations or policies relating to the internet industry have created substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses and activities of, internet businesses in China, including our business. We cannot assure you that we have obtained all the permits or licenses required for conducting our business in China or will be able to maintain our existing licenses or obtain new ones. If the PRC government considers that we were operating without the proper approvals, licenses or permits or promulgates new laws and regulations that require additional approvals or licenses or imposes additional restrictions on the operation of any part of our business, it has the power, among other things, to levy fines, confiscate our income, revoke our business licenses, and require us to discontinue our relevant business or impose restrictions on the affected portion of our business. Any of these actions by the PRC government may have a material adverse effect on our business and results of operations.

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***Escalating U.S.-China trade tensions and newly imposed tariffs may adversely impact our business, financial condition, and results of operations.***

On August 14, 2017, the President of the United States issued a memorandum instructing the United States Trade Representative ("USTR") to determine whether to investigate under section 301 of the United States Trade Act of 1974 (Trade Act) the laws, policies, practices, or actions of the Chinese government that may be unreasonable or discriminatory and that may be harming United States intellectual property rights, innovation, or technology development. Based on information gathered in that investigation, the USTR published a report on March 22, 2018, on the Chinese government's acts, policies, and practices supporting findings that are unreasonable or discriminatory and burden or restrict United States commerce. On March 8, 2018, the President exercised his authority to issue significant tariffs on imports of steel and aluminum from several countries, including China. Subsequently, the USTR announced an initial proposed list of 1,300 goods imported from China that could be subject to additional tariffs and initiated a dispute with the World Trade Organization against China for alleged unfair trade practices. The President has indicated that his two primary concerns to be addressed by China are (i) a mandatory $100 billion reduction in the China/United States trade deficit and (ii) limiting the planned $300 billion Chinese government support for advanced technology industries, including artificial intelligence, semiconductors, electric cars, and commercial aircraft. On July 6, 2018, the United States initially imposed 25% tariffs on $34 billion worth of Chinese goods, including agriculture and industrial machinery, which prompted the Chinese government to initially impose tariffs on $34 billion worth of goods from the United States, including beef, poultry, tobacco, and cars. Since July 2018, the United States imposed tariffs on $250 billion worth of Chinese products and has threatened tariffs on $325 billion more. In response, China imposed tariffs on $110 billion worth of US goods and threatened qualitative measures that would affect US businesses operating in China. In May 2019, the United States raised the tariffs on $100 billion of Chinese products to 25% from 10%. Tariffs were expected to increase further to 30% on October 15, 2019. However, the increase was suspended pending negotiation of a "phase one" trade agreement with China. On August 1, 2019, President Trump announced a new 10% ad valorem duty on additional goods imported from China, which amount was then increased to 15% on August 23, 2019. The new tariff at the rate of 15% became effective on September 1, 2019 with respect to certain categories of goods and was expected to become effective for additional categories of goods on December 15, 2019. On December 13, 2019 the US and China signed a "phase one" trade agreement, which avoided the imposition of additional tariffs. However, there can be no assurances that the US or China will not increase tariffs or impose additional tariffs in the future.

Recently, there have been heightened tensions in international relations, particularly between the United States and China, but also as a result of the war in Ukraine and sanctions on Russia. These tensions have affected both diplomatic and economic ties among countries. Our business is subject to risks associated with international trade policies, particularly those between the United States and China. Tensions between the two countries have led to trade restrictions, sanctions, and tariffs that could materially affect our supply chain, costs, and market access.

Additionally, the U.S. government continues to signal that it may alter trade agreements and terms between China and the United States, including limiting trade with China, and may impose additional tariffs on imports from China and other countries from which we import goods.

These broad trade measures significantly escalate tensions in global trade and supply chains, raising concerns about higher costs for businesses and consumers and potential retaliatory actions from affected countries. These tariffs could increase our costs of materials and components, disrupt our supply chain, and reduce demand from U.S. customers, negatively impacting our business, financial condition, and results of operations.

As a PRC-based power solution products provider, we manufacture and supply a wide range of inverters and generators. If our products become subject to higher U.S. tariffs, this could:

● Increase our costs of exporting to the U.S. market;

● Reduce demand from U.S. customers due to higher prices;

● Force us to absorb additional costs, negatively impacting our profit margins; and

● Disrupt our supply chain.

Moreover, the U.S. and other countries have imposed or proposed additional restrictions on technology exports and investments related to battery technology, energy storage, and electric vehicles. Further regulatory actions, trade barriers, or sanctions could limit our access to key markets, technologies, or raw materials, further affecting our growth and financial performance.

We continue to monitor evolving trade policies and explore alternative strategies, such as diversifying our customer base and adjusting our supply chain to mitigate potential risks. However, given the uncertainty of future trade relations, we cannot assure that further geopolitical developments, tariffs, or regulatory changes will not adversely affect our business, financial condition, or results of operations.

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**<u>Risks Related to Our Business and Industry</u>**

***We are a holding company, and may rely on dividends paid by our subsidiaries for our cash needs. Any limitation on the ability of our subsidiaries to make dividend payments to us, or any tax implications of making dividend payments to us, could limit our ability to pay our parent company expenses or pay dividends to holders of our Class A Ordinary Shares.***

We are a Cayman Islands holding company and conduct substantially all of our business through our subsidiaries in China. We may rely on dividends to be paid by our PRC subsidiaries to fund our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, to service any debt we may incur and to pay our operating expenses. If our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict our PRC subsidiaries' ability to pay dividends or make other distributions to us.

Under PRC laws and regulations, our PRC subsidiaries may pay dividends only out of their accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, wholly foreign-owned enterprises are required to set aside at least 10% of their accumulated after-tax profits each year, if any, to fund a certain statutory reserve fund, until the aggregate amount of such fund reaches 50% of its registered capital.

Our PRC subsidiaries generate primarily all of their revenue in Renminbi, which is not freely convertible into other currencies. As a result, any restriction on currency exchange may limit the ability of any one of our PRC subsidiaries to use its Renminbi revenues to pay dividends to us. The PRC government may continue to strengthen its capital controls, and more restrictions and substantial vetting process may be put forward by SAFE for cross-border transactions falling under both the current account and the capital account. Any limitation on the ability of our PRC subsidiary to pay dividends or make other kinds of payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

In addition, the Enterprise Income Tax Law, or EIT, and its implementation rules provide that a withholding tax rate of up to 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC resident enterprises are incorporated. Any limitation on the ability of our PRC subsidiary to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Double Tax Avoidance Arrangement, the 10% withholding tax rate may be lowered to 5% if a Hong Kong resident enterprise owns no less than 25% of a PRC entity. However, the 5% withholding tax rate does not automatically apply and certain requirements must be satisfied, including, without limitation, that (a) the Hong Kong entity must be the beneficial owner of the relevant dividends; and (b) the Hong Kong entity must directly hold no less than 25% share ownership in the PRC entity during the 12 consecutive months preceding its receipt of the dividends. In current practice, a Hong Kong entity must obtain a tax resident certificate from the Hong Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax authority will issue such a tax resident certificate on a case-by-case basis, we cannot assure you that we will be able to obtain the tax resident certificate from the relevant Hong Kong tax authority and enjoy the preferential withholding tax rate of 5% under the Double Taxation Arrangement with respect to dividends to be paid by our PRC subsidiary to its immediate holding company, Erayak HK. As of the date of this Annual Report, neither Ruike nor Zhejiang Leiya currently has plan to declare and pay dividends to Erayak HK and we have not applied for the tax resident certificate from the relevant Hong Kong tax authority. Erayak HK intends to apply for the tax resident certificate when Zhejiang Leiya or Ruike plans to declare and pay dividends to Erayak HK. When Zhejiang Leiya or Ruike plans to declare and pay dividends to Erayak HK and when we intend to apply for the tax resident certificate from the relevant Hong Kong tax authority, we plan to inform the investors through SEC filings, such as a current report on Form 6-K, prior to such actions.

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***Our PRC subsidiaries are subject to restrictions on paying dividends or making other payments to us, which may have a material adverse effect on our ability to conduct our business.***

We are a holding company incorporated in the Cayman Islands. We may need dividends and other distributions on equity from our PRC subsidiaries to satisfy our liquidity requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders and service any debt we may incur. If our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us.

Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiaries are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of their respective registered capital. Our PRC subsidiaries may also allocate a portion of their respective after-tax profits based on PRC accounting standards to employee welfare and bonus funds at their discretion. These reserves are not distributable as cash dividends. These limitation on the ability of our PRC subsidiaries to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments, or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

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***The considerable uncertainty in Chinese economic growth could hurt demand of our products.***

While China has grown significantly over the past two decades, the growth rate may decrease due to uncertainties with respect to national structural control and other factors. If China's economic condition continues to slow or materially decline, demand for our products might decrease accordingly. Therefore, our business might be adversely affected by the prolonged slowdown in the economic condition, which would negatively affect sales of our products, operations of our company, and our financial conditions.

***Tariffs could materially have a negative impact on the demand for our products.***

Import tariffs, other trade barriers, and protectionist policies could negatively affect various metal and semiconductor prices and our exports to international markets, particularly the United States. Such import barriers adversely affect our company's business by limiting our access to or competitiveness in foreign markets. For example, our company might anticipate a significant increase in the cost of goods for our sales to the United States due to tariffs on metal alloy and other metal products imports imposed by the US government. The US government imposed a 25% tariff on semiconductors from China in July 2018 and a 10% tariff on aluminum imports in March 2018 under "Section 232" from nearly all foreign countries. You should not expect that our sales of products would continue to offset the potential increase in the pricing of the metal and semiconductor products due to any increased tariffs. As a result of increasing costs, our potentially increased pricing could harm our operations and financial conditions.

***Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.***

Pursuant to the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly-Listed Company, promulgated by SAFE in 2012, or SAFE Notices No. 7, PRC citizens and non-PRC citizens who reside in China for a continuous period of no less than one year who participate in any stock incentive plan of an overseas publicly listed company offered to the director, supervisor, senior management and other employees of, and any individual who has labor relationship with its domestic affiliated entities are required to register with SAFE through a domestic qualified agent, which could be a PRC subsidiary of such overseas listed company, and complete certain other procedures. In addition, an overseas entrusted institution must be retained to handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests. We and our directors, executive officers and other employees who are PRC citizens or who reside in the PRC for a continuous period of no less than one year and who have been granted stock options are subject to these regulations. Failure to complete the SAFE registrations for our employee incentive plans after our listing may subject them to fines and legal sanctions, and may also limit our ability to contribute additional capital into our PRC subsidiaries and limit our PRC subsidiaries' ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional incentive plans for our directors, executive officers and employees under PRC law.

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In addition, the State Administration of Taxation, or SAT, has issued certain circulars concerning employee stock options and restricted shares. Under these circulars, our employees working in China who exercise stock options or are granted restricted shares will be subject to PRC individual income tax. Our PRC subsidiaries have obligations to file documents related to employee stock options or restricted shares with relevant tax authorities and to withhold individual income taxes of those employees who exercise their share options or are granted with restricted shares. If our employees fail to pay or we fail to withhold their income taxes according to relevant laws and regulations, we may face sanctions imposed by the tax authorities or other PRC governmental authorities.

***U.S. regulatory bodies may be limited in their ability to conduct investigations or inspections of our operations in China.***

Any disclosure of documents or information located in China by foreign agencies may be subject to jurisdiction constraints and must comply with China's state secrecy laws, which broadly define the scope of "state secrets" to include matters involving economic interests and technologies. There is no guarantee that requests from U.S. federal or state regulators or agencies to investigate or inspect our operations will be honored by us, by entities who provide services to us or with whom we associate, without violating PRC legal requirements, especially as those entities are located in China. Furthermore, under the current PRC laws, an on-site inspection of our facilities by any of these regulators may be limited or prohibited.

***Our business is also affected by global economic conditions.***

As we offer a broad range of products exported to more than twenty (20) countries and regions such as Japan, England, Germany, France, Spain, Switzerland, Sweden, the Netherlands, the U.S., Canada, Mexico, and Australia, our products depend upon factors relating to global economic conditions such as consumers, employment rates, the amounts of consumers' disposable income, business conditions, interest rates, consumer debt, availability of credit, and applicable taxation in regional and local markets where we sell our products. Therefore, changes in global economic conditions and other factors beyond our control, could adversely affect our operations and financial conditions.

***Our revenue will decrease if the industries in which our customers operate experience a protracted slowdown.***

Our products mainly serve as key components in projects and machines operated by our customers in a broad range of industries. Therefore, we are subject to the general changes in economic conditions affecting those industry segments of the economy. If the industry segments in which our customers operate do not grow or a contraction in those industries, demand for our products will decrease. Demand for our products is typically affected by many overarching economic factors, including, but not limited to, interest rates, the availability and magnitude of private and governmental investment in infrastructure projects, and the health of the overall global economy. If there is a decline in economic activity in China and the other markets in which we operate or a protracted slowdown in industries on which we rely for our sales, our products' demand and revenue will likewise decrease.

***We operate in a competitive industry. If we are unable to compete successfully, we may lose market share to our competitors.***

The domestic market in China for power solution products and related products is highly competitive. Our current or potential competitors include major generator manufacturers in China and overseas. Some of our competitors may have greater brand recognition, a larger group of customers or vendors, longer operating histories, and marketing resources than we do. Customers may weigh their experience and resources over us in various ways, increasing our competitor's respective market shares.

You should not expect that we will compete successfully against current or potential competitors. Such competitive pressures may have a material and adverse effect on our business, financial condition, and results of operations. Failure to compete successfully against existing or new competitors may cause us to lose market share, customers, and other business relationships.

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***Competition within the generator industry may adversely affect our ability to sell our products, and excess production capacity in the industry could put downward pressure on generator prices.***

We compete with numerous other power solution producers in various regions of the PRC and, to a lesser extent, generator producers from other countries. This competition affects the prices we can sell our products and our ability to retain or attract customers. In addition, if the currencies of our foreign competitors decline against the RMB, those competitors may be able to offer lower prices to our customers than we can.

In the past, high demand for generators and attractive pricing brought new investors to the generator industry, leading to added production capacity. Subsequent overcapacity in the industry has contributed and may continue to contribute, to lower generator prices. In addition, lower generator prices set by our competitors may also put downward pressure on generator prices.

***Any decline in the availability or increase in the cost of raw materials and energy resources could materially affect our earnings.***

The principal raw materials used to manufacture our products are various grades and forms of glass, ceramic, plastic film, silicon, and metals. Our microchips, field tubes, resistors, and capacitors manufacturing operations depend heavily on the availability of various raw materials and energy resources. Influenced by natural disasters and geopolitics, the prices of raw materials we use in our production fluctuate on a regular basis, which could decrease profit and damage our reputation in our industry. If our raw material and energy costs increase, we may not be able to pass these higher costs on to our customers in full or at all. Any increase in raw materials or energy resources could materially increase our costs and therefore lower our earnings.

Additionally, the increase in price in commodities will also pose a negative effect on our products. After the pandemic, inflation has affected the pricing scale in many commodities, such as products made of copper, aluminum, ferroalloy, and other rare metals. Since our manufacture relies heavily on these materials, this could materially impact our procurement process.

***We traditionally have had substantial customer concentration, with a limited number of customers accounting for a substantial portion of our revenues.***

We did not have any customers that individually accounted for a significant portion (10% or more) during the fiscal year ended December 31, 2025. Significant concentration of accounts receivable included two customers, who accounted for 13.69% and 13.68%, respectively, of total accounts receivable for the fiscal year ended December 31, 2025. During the fiscal year ended December 31, 2024, we sold a substantial portion of products to one customer (21.50% of total revenues), and as of the year-end date, the amount due from this customer included in accounts receivable was $2,109,572, representing 17.16% of total accounts receivable. Other significant concentration of accounts receivable included another customer, who accounted for 14.51% of total accounts receivable for the fiscal year ended December 31, 2024. During the fiscal year ended December 31, 2023, we sold a substantial portion of products to one customer (11.99% of total revenues), and as of the year-end date, amount due from this customer included in accounts receivable was $28,301, representing 0.45% of total accounts receivable. Beside the significant customer, there were other significant concentrations of accounts receivable, which included four customers who accounted for 25.19%, 20.59%, 11.73% and 10.28%, respectively, of the total accounts receivable for the fiscal year ended December 31, 2023. There are inherent risks whenever a large percentage of total revenues are concentrated with a limited number of customers. It is not possible for us to predict the future level of demand for our services that will be generated by these customers or the future demand for the products and services of these customers in the end-user marketplace. In addition, revenues from our top five customers may fluctuate from time to time based on the commencement and completion of projects, the timing of which may be affected by market conditions or other factors, some of which may be outside of our control. Further, some of our contracts with our top five customers permit them to terminate our services at any time (subject to notice and certain other provisions). If any of our top five customers experience declining or delayed sales due to market, economic or competitive conditions, we could be pressured to reduce the prices we charge for our services or we could lose the customer. Any such development could have an adverse effect on our margins and financial position and would negatively affect our revenues and results of operations and/or trading price of our Class A Ordinary Shares.

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***The loss of any of our key customers could reduce our revenues and our profitability.***

We consider our major customers in each period to be those customers that accounted for more than 10% of our revenue in such period. We had zero, one and one such major customers for the fiscal years ended December 31, 2025, 2024, and 2023 , respectively. As most of our revenues are driven by customers' orders for power solution products, there can be no assurance that we will maintain or improve the relationships with customers who do not have long-term contracts with us. Our major customers often change each period based on when a given order is placed. In the event that we cannot maintain long-term relationships with major customers or replace major customers from period to period with equivalent customers, the loss of such sales could harm our business, financial condition, and results of operations.

***The loss of any of our key vendors could have a materially adverse effect on our results of operations.***

We consider our major vendors in each period to be those vendors that accounted for more than 10% of overall purchases in such period. During the fiscal year ended December 31, 2025, one supplier accounted for 10.31% of our total purchases, indicating a concentration of supplier risk. Management monitors this relationship on an ongoing basis to mitigate potential supply disruptions. We had no such major suppliers for the fiscal years ended December 31, 2024, and 2023. We purchase raw materials on the market at prevailing market prices. We believe that currently we can locate replacement vendors readily on the market for prevailing prices and not have significant difficulty replacing a given vendor. However, there is no guarantee that we would not develop significant reliance on certain vendors in the future. Any difficulty in replacing such a vendor could adversely affect our company's performance to the extent it results in higher prices, a slower supply chain, and ultimately less desirable results of operations.

***We have engaged in transactions with related parties, and such transactions present possible conflicts of interest that could have an adverse effect on our business and results of operations.***

We have entered into a number of transactions with related parties, including our shareholders, directors, and executive officers. For example, in January 2018, Zhejiang Leiya entered into a 20-year factory workshop leasing agreement with Wenzhou Ailefu Furniture Tech Limited Company, an entity indirectly 100% owned by Lingyi Kong, our Chief Executive Officer and Chairman. The factory is located at Wenzhou Economic Technological Development Zone, Binghai Fourth Blvd. No. 528. The total rent for the property is RMB 70,489,500, or approximately $10,900,720, which as of December 31, 2020 has been paid upfront, through the lease term ending December 31, 2037. If Wenzhou Ailefu defaults on the leasing agreement, we may lose a portion, or even a substantial portion, of the rent that has been paid upfront.

We may in the future enter into additional transactions with entities in which members of our board of directors and other related parties hold ownership interests. Transactions with the entities in which related parties hold ownership interests present potential for conflicts of interest, as the interests of these entities and their shareholders may not align with the interests of the Company and our unaffiliated shareholders with respect to the negotiation of, and certain other matters related to, our purchases from and other transactions with such entities. Conflicts of interest may also arise in connection with the exercise of contractual remedies under these transactions, such as default.

Our Board of Directors has currently authorized the Audit Committee upon its formation to review and approve all material related party transactions. We rely on the laws of the Cayman Islands, which provide that the directors owe a duty of care and a duty of loyalty to our company. Under Cayman Islands law, our directors owe fiduciary duties to our Company, including a duty of loyalty, a duty to act honestly and a duty to act in what they consider in good faith to be in our best interests. Our directors must also exercise their powers only for a proper purpose. Our directors also owe to our Company a duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. Nevertheless, we may have achieved more favorable terms if such transactions had not been entered into with related parties. These transactions, individually or in the aggregate, may have an adverse effect on our business and results of operations or may result in government enforcement actions other litigation.

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***Any disruption in the supply chain of raw materials and our products could adversely impact our ability to produce and deliver products.***

As to the products we manufacture, we must manage our supply chain for raw materials and delivery of our products. Supply chain fragmentation and local protectionism within China further complicate supply chain disruption risks. Local administrative bodies and physical infrastructure built to protect local interests pose transportation challenges for raw material transportation and product delivery. In addition, profitability and volume could be negatively impacted by limitations inherent within the supply chain, including competitive, governmental, legal, natural disasters, and other events that could impact supply and price. Any of these occurrences could cause significant disruptions to our supply chain, manufacturing capability, and distribution system that could adversely impact our ability to produce and deliver products.

***Our inability to raise capital could have a material adverse effect on our financial condition and the results of operations.***

Our production can be improved with additional production facilities and better equipment within the plant. We will be raising capital through future offerings to grow our business by investing in product research and development, international management and operations, marketing and business development, and automation transformation and production workshop. In the event we are unable to raise capital and is unable to execute our business plan successfully. In that case, our customers may experience a substantial delay in receiving our products, which could have a material adverse effect on our business relationship with them and our financial conditions.

***We will require substantial additional funding in the future. There is no assurance that additional financing will be available to us.***

We have been dependent upon bank loans and proceeds received from shareholders' equity contributions to meet our capital requirements in the past. We may require substantial additional funding in the future to meet our capital requirements for our generator products and high-end product development and to maintain operations and improve financial performance; however, we cannot assure you that we will be able to obtain capital in the future. In the event that we were unable to meet our future funding requirements for working capital and for general business purposes, we could experience operating losses and limit our marketing efforts and decrease or eliminate capital expenditures. In addition, our operating results, our business results, and our financial position would be adversely affected. In the event that adequate additional financing is not available on reasonable terms, we may not be able to undertake our expansion plan or purchase additional equipment for our operations, and we would have to modify our business plans accordingly.

***A rapid expansion could significantly strain our resources, management, and operational infrastructure, impairing our ability to meet increased demand for our products and hurt our business results.***

To accommodate our anticipated growth, we will need to expend capital resources and dedicate personnel to implement and upgrade our accounting, operational and internal management systems and enhance our record-keeping and contract tracking system. Such measures will require us to dedicate additional financial resources and personnel to optimize our operational infrastructure and to recruit more personnel to train and manage our growing employee base. In the event that we cannot successfully implement these measures efficiently and cost-effectively, we will be unable to satisfy the demand for our products, which will impair our revenue growth and hurt our overall financial performance.

***We may encounter problems related to our operational and financial systems and controls during any growth, including quality control and delivery and production capacities.***

Any significant growth in the market for our products or our entry into new markets may require additional employees for managerial, operational, financial, and other purposes. As of December 31, 2025, we have 349 employees. We would also need to continue to expand, train and manage our employees. Continued future growth will impose significant added responsibilities upon our management to identify, recruit, maintain, integrate, and motivate new employees.

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***We may encounter a working capital shortage, as we may need additional funds to finance the purchase of materials and supplies, develop new products, and hire additional employees.***

We will be required to continue improving our operations, management, and financial systems and controls for effective growth management. Our failure to manage growth effectively may lead to operational and financial inefficiencies, which will negatively affect our profitability. We cannot assure investors that we will be able to timely and effectively meet increased demand and maintain the quality standards required by our existing and potential customers.

***We may need to compensate our CEO and CFO at market rate, our results of operations may be negatively affected.***

For the year ended December 31, 2025, our CEO and CFO received $50,139 and $24,601 respectively as compensation. If, in the future, we need to compensate our CEO and CFO at a competitive market rate, our operating results and available cash flow would be negatively impacted accordingly.

***We rely on short-term borrowings for our liquidity. Our outstanding and future indebtedness may adversely affect our available cash flow and our ability to operate our business. In addition, we may not be able to obtain additional capital when desired, on favorable terms or at all.***

Our liquidity relies significantly on short-term borrowings. As of December 31, 2025, we had five outstanding short-term loans provided by three banks totaling RMB58,000,000, or approximately $8.30 million, and as of December 31, 2024, we had three outstanding short-term loans provided by two banks totaling RMB7,706,808, or approximately $1.06 million.

The Company also has bank acceptance notes outstanding with the banks and is required to keep certain amounts on deposit that are subject to withdrawal restrictions. As of December 31, 2025 and 2024, restricted cash was $251,932 and $792,204, respectively. No cash is restricted to assure future credit availability.

However, we need to make continued investments in facilities, hardware, software, technological systems and to retain talents to remain competitive. Due to the unpredictable nature of the capital markets and our industry, there can be no assurance that we will succeed in obtaining renewals on our loans or raise additional capital on favorable terms, if at all, which could significantly increase our future interest expense and adversely impact our business, results of operations, financial condition, and prospects. In the event that we are unable to obtain short-term financing in an amount sufficient to support our operations, it may be necessary to suspend or curtail our operations, which would have a material adverse effect on our business and financial condition. In that event, current stockholders would likely experience a loss of most of or all of their investment.

Further, if we increase our level of indebtedness, in the future, it could:

● require us to dedicate a portion of our cash flow from operations to payments on our indebtedness, which could reduce the availability of cash flow to fund acquisitions, start-ups, working capital, capital expenditures and other general corporate purposes;

● limit our ability to borrow money or sell stock for working capital, capital expenditures, debt service requirements and other purposes;

● limit our flexibility in planning for, and reacting to, changes in our industry or business;

● make us more vulnerable to unfavorable economic or business conditions; and

● limit our ability to make acquisitions or take advantage of other business opportunities.

In the event we incur additional indebtedness, the risks described above could increase.

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***We have a high debt to asset ratio, which may put us at high risk of default on our loans.***

As of December 31, 2025, we had approximately $24.18 million in total liabilities and approximately $59.45 in total assets. We have a high debt to asset ratio and a deficit in working capital, which may put us at high risk of default on our loans under certain circumstances, such as interest rates rising suddenly causing us unable to make our payments to the banks. If we default on our loans, we will be subject to penalties pursuant to our agreements with the banks and our business and financial condition will be materially adversely affected. In that event, our stockholders would likely experience a loss of most of or all of their investment.

***Borrowings guaranteed by related parties mat result in conflicts of interests in the payment of our obligations.***

Our short-term borrowings are guaranteed by our major shareholders, their families and related companies that provide working capitals to us to support our operations when needed. Conflicts of interest may cause us to repay these obligations ahead of other, more important claims, to protect the personal assets of our major shareholders, their families and related companies.

***We cannot assure you that our internal growth strategy will be successful, which may negatively impact our growth, financial condition, results of operations, and cash flow.***

One of our strategies is to grow internally through increasing the development of new products and improve the quality of existing products. However, many obstacles to this expansion exist, including, but not limited to: increased competition from similar businesses; our ability to improve our products and product mix to realize the benefits of our research and development efforts; international trade and tariff barriers; unexpected costs; costs associated with marketing efforts abroad and maintaining attractive foreign exchange rates. Therefore, we cannot assure you that we will be able to successfully overcome such obstacles and establish our products in any additional markets. Our inability to implement this internal growth strategy successfully may negatively impact our growth, future financial condition, results of operations, or cash flows.

***Our business depends on the continued efforts of our senior management. If one or more of our key executives were unable or unwilling to continue their present positions, our business might be severely disrupted.***

Our business operations depend on the continued services of our senior management, particularly the executive officers named in this Annual Report. While we have provided incentives to our management, we cannot assure you that we can continue to retain their services. If one or more of our key executives were unable or unwilling to continue in their present positions, we might not be able to replace them easily or at all. The loss may constrain our future growth and severely disrupt our business. Our financial condition and results of operations may be materially and adversely affected, and we may incur additional expenses to recruit, train and retain qualified personnel. In addition, although we have entered into confidentiality and non-competition agreements with our management, there is no assurance that any member of our management team will not join our competitors or form a competing business. In the event that any dispute arises between our current or former officers and us, we may have to incur substantial costs and expenses in order to enforce such agreements in China or we may be unable to enforce them at all.

***Our business is substantially dependent upon our key research and development personnel who possess valuable skills in our industry, and we may have to compete for their services actively.***

We compete for qualified personnel with other power solution products manufacturing companies. Intense competition for personnel could cause our compensation costs to increase, which could have a material adverse effect on our operations and financial performance results. Our future success and ability to grow our business will depend in part on the continued service of these individuals and our ability to identify, hire and retain additional qualified personnel. If we cannot attract and retain qualified employees, we may not be able to meet our business and financial goals.

***If we fail to protect our intellectual property rights, it could harm our business and competitive position.***

We rely on a combination of patent, trademark, and domain name laws and non-disclosure agreements, and other methods to protect our intellectual property rights. Our Chinese subsidiaries and our Chairman, together, own 68 patents and 13 trademarks. All 68 patents and 13 trademarks have been registered with regulatory agencies such as the State Intellectual Property Office and Trademark Office of China's State Administration for Industry and Commerce ("SAIC"). One trademark has been registered with the United States Patent and Trademark Office ("USPTO") and the Intellectual Property Office of the United Kingdom, effective in Great Britain and Northern Ireland.

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The process of seeking patent protection can be lengthy and expensive, and our existing and future patents may be insufficient to provide us with meaningful protection or commercial advantage. Our patents and patent applications may also be challenged, invalidated, or circumvented.

In accordance with Chinese intellectual property laws and regulations, we will have to renew our trademarks once the terms expire. However, patents are not renewable. Our 61 design patents have only 10 years of protection. Once these patents expire, our products may lose some market share if our competitors copy them. Then, our business revenue might suffer some loss as well.

Implementation of PRC intellectual property laws and regulations has historically been lacking, primarily because of ambiguities in the PRC laws and enforcement difficulties. Accordingly, intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other western countries. Furthermore, policing unauthorized use of proprietary technology is difficult and expensive. We may need to resort to litigation to enforce or defend patents issued to us or to determine the enforceability, scope, and validity of our proprietary rights or those of others. Such litigation and an adverse determination in any such litigation, if any, could result in substantial costs and diversion of resources and management attention, which could harm our business and competitive position.

***Our financial and operating performance may be adversely affected by epidemics, natural disasters, and other catastrophes.***

Our business, financial and operating performance could be materially and adversely affected by the outbreak of epidemics or pandemics, including but not limited to the 2019 novel coronavirus (COVID-19), swine influenza, avian influenza, middle east respiratory syndrome (MERS-CoV), and severe acute respiratory syndrome (SARS-CoV). Any prolonged restrictive measures to control any contagious disease or other adverse public health developments in China or our targeted markets may have a material and adverse effect on our business operations.

Similarly, natural disasters, wars (including the potential of war), terrorist activity (including threats of terrorist activity), social unrest and heightened travel security measures instituted in response, and travel-related accidents, as well as geopolitical uncertainty and international conflict, will affect travel volume and may, in turn, have a material adverse effect on our business and results of operations. In addition, we may not be adequately prepared in contingency planning or recovery capability in relation to a major incident or crisis. As a result, our operational continuity may be adversely and materially affected, which in turn may harm our reputation.

***If we cannot continue to innovate or fail to adapt to changes in our industry, our business, financial condition, and results of operations would be materially and adversely affected.***

The power solution products industry has trends of developing high-end and high-tech products to fulfill the changing customers' demands. Furthermore, our competitors are constantly developing innovations in different generator products to enhance customers' experience. We continue to invest significant resources in our infrastructure, research and development, and other areas to enhance our existing products and introduce new products that will attract more participants to our marketplaces. The changes and developments in our industry may also require us to re-evaluate our business model and adopt significant changes to our long-term strategies and business plan. Our failure to innovate and adapt to these changes would have a material adverse effect on our business, financial condition, and results of operations.

***If we fail to promote and maintain our brand effectively and cost-efficient, our business and results of operations may be harmed.***

We believe that developing and maintaining awareness of our brand effectively is critical to attracting new and retaining existing clients. Successful promotion of our brand and our ability to attract clients depend largely on the effectiveness of our marketing efforts and the success of the channels we use to promote our products. Currently, we promote our brand through print media advertising, video advertising, billboard advertising, and internet promotions. Our future marketing efforts will likely require us to incur significant additional expenses. These efforts may not result in increased revenues in the immediate future or at all, and, even if they do, any increases in revenues may not offset the expenses incurred. If we fail to promote and maintain our brand while incurring substantial expenses successfully, our results of operations and financial condition would be adversely affected, which may impair our ability to grow our business.

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***New lines of business or new products may subject us to additional risks.***

From time to time, we may implement new lines of business or offer new products within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly when the markets are not fully developed. In developing and marketing new lines of business and/or new products, we may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and/or new products may not be achieved, and price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product. Furthermore, any new line of business and/or new products could significantly impact the effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business or new products could have a material adverse effect on our business, results of operations, and financial condition.

***We may evaluate and potentially consummate strategic investments or acquisitions from time to time, which could require significant management attention, disrupt our business, and adversely affect our financial results.***

We may evaluate and consider strategic investments, combinations, acquisitions, or alliances to further increase the value of our products and better serve our clients. These transactions could be material to our financial condition and results of operations if consummated. Even if we can identify an appropriate business opportunity, there is no guarantee that we may be able to consummate the transaction successfully. Even if we do consummate such a transaction, we may be unable to obtain the benefits or avoid the difficulties and risks of such a transaction.

Strategic investments or acquisitions will involve risks commonly encountered in business relationships, including:

● difficulties in assimilating and integrating the operations, personnel, systems, data, technologies, products, and services of the acquired business;

● the inability of the acquired technologies, products, or businesses to achieve expected levels of revenue, profitability, productivity, or other benefits;

● difficulties in retaining, training, motivating, and integrating key personnel;

● diversion of management's time and resources from our normal daily operations;

● difficulties in successfully incorporating licensed or acquired technology and rights into our products;

● difficulties in maintaining uniform standards, controls, procedures, and policies within the combined organizations;

● difficulties in retaining relationships with clients, employees, and suppliers of the acquired business;

● risks of entering markets in which we have limited or no prior experience;

● regulatory risks, including remaining in good standing with existing regulatory bodies or receiving any necessary pre-closing or post-closing approvals, as well as being subject to new regulators with oversight over an acquired business;

● assumption of contractual obligations that contain terms that are not beneficial to us, require us to license or waive intellectual property rights or increase our risk for liability;

● failure to successfully further develop the acquired technology;

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● liability for activities of the acquired business before the acquisition, including intellectual property infringement claims, violations of laws, commercial disputes, tax liabilities, and other known and unknown liabilities; and

● potential disruptions to our ongoing businesses.

We may not make any investments or acquisitions. Furthermore, our future investments or acquisitions may not be successful, benefit our business strategy, generate sufficient revenues to offset the associated acquisition costs, or otherwise result in the intended benefits. In addition, we cannot assure you that any future investment in or acquisition of new businesses or technology will lead to the successful development of new or enhanced products or that any new or enhanced products, if developed, will achieve market acceptance or prove to be profitable.

***A lack of insurance coverage could expose us to significant costs and business disruption.***

We may not have acquired sufficient insurance to cover our business's assets, property, and potential liability. The lack of insurance could leave our business inadequately protected from loss. If we were to incur substantial losses or liabilities due to fire, explosions, floods, other natural disasters or accidents, or business interruption, our results of operations could be materially and adversely affected. So far, we have only purchased insurance with PICC Property and Casualty Company Limited. Our coverage does not expand beyond the need to replace our factory equipment in case of damage.

***If product liability lawsuits are brought against us, we may incur substantial liabilities.***

We face a potential risk of product liability. For example, we may be sued if any of our products allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

● decreased demand for products that we may offer for sale;

● injury to our reputation;

● costs to defend the related litigation;

● a diversion of management's time and our resources;

● substantial monetary awards to trial participants or patients; and

● product recalls, withdrawals or labeling, marketing or promotional restrictions.

We currently do not maintain any product liability insurance. We may obtain product liability insurance in the future. However, there is no guarantee that we will be able to obtain product liability insurance or that such insurance will be affordable or sufficient. If we are unable to obtain or retain sufficient product liability insurance coverage, it could prevent or inhibit the commercialization of products we develop. Even if we obtain product liability insurance in the future, we may have to pay amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts.

***Warranty claims and product recalls could harm our business, results of operations and financial condition.***

We face an inherent business risk of exposure to warranty claims in the event that our products fail to perform as expected or such failure of our products results, or is alleged to result, in bodily injury or property damage (or both). In addition, if any of our designed products are or are alleged to be defective, we may be required to participate in their recall. A successful warranty claim against us in excess of our available insurance coverage, if any, and established reserves, or a requirement that we participate in a product recall, could have material adverse effects on our business, results of operations and financial condition. Additionally, in the event that our products fail to perform as expected or such failure of our products results in a recall, our reputation may be damaged, which could make it more difficult for us to sell our products to existing and prospective customers and could materially adversely affect our business, results of operations and financial condition.

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Since a defect or failure in our product could give rise to failures in the goods that incorporate them (and claims for consequential damages against our customers from their customers), we may face claims for damages that are disproportionate to the revenue and profits we receive from the products involved. To the extent that we are liable for damages in excess of the revenue and profits we received from the products involved, our results of operations and financial condition could be materially adversely affected.

***We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption law.***

In connection with any future offerings, we will become subject to the U.S. Foreign Corrupt Practices Act (the "FCPA"), and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute for the purpose of obtaining or retaining business. We are also subject to Chinese anti-corruption laws, which strictly prohibit the payment of bribes to government officials. We have operations agreements with third parties, and make sales in China, which may experience corruption. Our activities in China create the risk of unauthorized payments.

Although we believe, to date, we have complied in all material respects with the provisions of the FCPA and Chinese anti-corruption law, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants, or distributors may engage in conduct for which we might be held responsible. Violations of the FCPA or Chinese anti-corruption law may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.

***If we fail to implement and maintain effective internal control over financial reporting, our ability to accurately report our financial results may be impaired, adversely impacting investor confidence and the market price of our*** Class A Ordinary Shares*.***

Prior to the consummation of our initial public offering in December 2022, we were a private company with limited accounting personnel and other resources for addressing our internal control over financial reporting. Our management has not completed an assessment of the effectiveness of our internal control over financial reporting, and our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting.

We will implement measures to strengthen our internal control. For example, we have established clear roles and responsibilities for accounting and financial reporting staff to address complex accounting and financial reporting issues. We intend to conduct regular and continuous U.S. GAAP accounting and financial reporting programs and send our financial staff to attend external U.S. GAAP training courses. However, implementing these measures may not fully address any deficiencies we may have in our internal control over financial reporting. We are not able to estimate with reasonable certainty the costs that we will need to incur to implement these and other measures designed to improve our internal control over financial reporting. The process of designing and implementing an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and economic and regulatory environments. We may need to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligations. However, we cannot assure you that we will be able to continue implementing these measures in the future or that we will not identify additional material weaknesses or significant deficiencies in the future.

Furthermore, it is possible that, had our independent registered public accounting firm conducted an audit of our internal control over financial reporting, such firm might have identified additional material weaknesses and deficiencies. Upon completion of our initial public offering in December 2022, we are now a public company in the United States subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, will require that we include a report of management on our internal control over financial reporting in our annual report on Form 20-F. In addition, once we cease to be an "emerging growth company" as such term is defined in the JOBS Act, our independent registered public accounting firm may be required to report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective.

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Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, after we become a public company, our reporting obligations may place a significant strain on our management, operational and financial resources, and systems for the foreseeable future. We may be unable to complete our evaluation testing and any required remediation timely.

During documenting and testing our internal control procedures to satisfy the requirements of Section 404, we may identify other weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented, or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. In the event that we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could, in turn, limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of our Class A Ordinary Shares.

Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior periods.

***Failure to appropriately evaluate the credit profile of our customers and/or delay in settlement of accounts receivable from our customers could materially and adversely impact our operating cash flow. It may result in significant provisions and impairments on our accounts receivable which in turn would have a material adverse impact on our business operations, results of operation, financial condition, and our business pursuits and prospects.***

We had allowance for doubtful accounts in the amount of $247,803 and $259,555 as of December 31, 2025 and 2024, respectively. Our customers include various levels of government and state-owned entities. Due to the nature of the customers and the practice of the industry, the Company generally allows a credit period of 30 days to its customers. However, our customers sometimes still require additional time for payment, depending on their internal cash flow budget or various levels of approvals. For example, the average accounts receivable turnover period was approximately 205 days and 110 days for the fiscal periods ended December 31, 2025 and 2024, respectively. Due to uncertainty of the timing of collection, we established an allowance for doubtful accounts based on individual account analysis and historical collection trends. We established 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 and a provision on historical trends of collections. Based on the 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 an 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. We did not have bad debt write-off during the fiscal years ended December 31, 2025 and 2024.

While we have implemented policies and measures to improve our management of credit risk and have expanded our efforts in the collection of overdue or long outstanding accounts receivable, there is no assurance that our substantial accounts receivable position with respect to our reported revenue (on a net basis) will not persist in the future given the nature of our business. Any deterioration of the credit profile of our customers or any failure or delay in their settlement of our accounts receivable could put tremendous pressure on our operating cash flow and may result in a material and adverse impact on our business operations, results of operations, and financial condition.

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***If we fail to maintain appropriate inventory levels in line with the approximate level of demand for our products, we could lose sales or face excessive inventory risks and holding costs***.

To operate our business successfully and meet our customers' demands and expectations, we must maintain a certain level of finished goods inventory to ensure immediate delivery when required. We are also required to maintain an appropriate level of raw materials for our production. However, forecasts are inherently uncertain. In the event that our forecasted demand is lower than what eventually transpires, we may not be able to maintain an adequate inventory level of our finished goods or produce our products in a timely manner, and we may lose sales and market share to our competitors. On the other hand, we may also be exposed to increased inventory risks due to accumulated excess inventory of our products or raw materials, parts, and components for our products. Excess inventory levels may lead to increases in inventory holding costs, risks of inventory obsolescence, and provisions for write-downs, which will materially and adversely affect our business, financial condition, and results of operations.

To maintain an appropriate inventory level of finished goods and raw materials to meet market demand, we adjust our procurement amount and production schedule from time to time based on customers' orders and anticipated demand. We also carry out an inventory review and an aging analysis on a regular basis. We make provision for the obsolete and slow-moving inventory of raw materials and finished goods that are no longer suitable for production or sale. However, we cannot guarantee that these measures will always be effective and that we will be able to maintain an appropriate inventory level. We may also be exposed to the risk of holding excess inventory, which may increase our inventory holding costs and subject us to the risk of inventory obsolescence or write-offs, which could have a material adverse effect on our business, results of operations, and financial condition. If we cannot maintain an appropriate inventory level, we may lose sales and market share to our competitors.

***You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management named in the Annual Report based on foreign laws.***

We are an exempted company incorporated under the laws of the Cayman Islands, and substantially all of our assets are located outside of the United States. Virtually all of our assets and a substantial portion of our current business operations are conducted in the PRC. In addition, almost all of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons is located outside the United States. As a result, it may be difficult for you to bring an action against us or against these individuals who are not in the United States in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers, including judgments based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, many of whom are not residents in the United States, and whose significant part of assets are located outside of the United States. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC, respectively, would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state. In addition, it is uncertain whether such Cayman Islands or PRC courts would entertain original actions brought in the courts of the Cayman Islands or the PRC against us or such persons predicated upon the securities laws of the United States or any state.

Specifically, regarding judgment enforcement in the PRC against the Company and the directors and officers who are PRC nationals and residents, the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of reciprocal arrangement with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the U.S.

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***Potential disruptions in the capital and credit markets may adversely affect our business, including the availability and cost of short-term funds for liquidity requirements, which could adversely affect our results of operations, cash flows, and financial condition.***

Potential changes in the global economy may affect the availability of business and customer credit. We may need to rely on the credit markets, particularly for short-term borrowings from banks in China, as well as the capital markets, to meet our financial commitments and short-term liquidity needs if internal funds from our operations are not available to be allocated to such purposes. Disruptions in the credit and capital markets could adversely affect our ability to draw on such short-term bank facilities. Our access to funds under such credit facilities depends on the banks' ability that are parties to those facilities to meet their funding commitments, which may be dependent on governmental economic policies in China. Those banks may not meet their funding commitments to us if they experience shortages of capital and liquidity or experience excessive volumes of borrowing requests from other borrowers and us within a short period of time.

Long-term disruptions in the credit and capital markets could result from uncertainty, changing or increased regulations, reduced alternatives, or failures of financial institutions that could adversely affect our access to the liquidity needed for our business. Any disruption could require us to conserve cash until the markets stabilize or until alternative credit arrangements or other funding for our business needs can be arranged. Such measures may include deferring capital expenditures and reducing or eliminating discretionary uses of cash. These events would adversely impact our results of operations, cash flows, and financial position.

***We are subject to governmental regulations and other legal obligations related to privacy, information security, and data protection, and any security breaches, and our failure to comply with our legal obligations could harm our reputation and business.***

Our business involves collecting and retaining certain internal and customer data. For example, we maintain flagship stores on prominent online shopping platforms such as Amazon and JD.com. We also maintain information about various aspects of our operations as well as regarding our employees. The integrity and protection of our customer, employee and company data is critical to our business. Our customers and employees expect that we will adequately protect their personal information. We are required by applicable laws to keep strictly confidential the personal information that we collect, and to take adequate security measures to safeguard such information.

Unauthorized access to our proprietary internal and customer data may be obtained through break-ins, sabotage, breach of our secure network by an unauthorized party, computer viruses, computer denial-of-service attacks, employee theft or misuse, breach of the security of the networks of our third-party service providers, or other misconduct. Because the techniques used by computer programmers who may attempt to penetrate and sabotage our proprietary internal and customer data change frequently and may not be recognized until launched against a target, we may be unable to anticipate these techniques.

Unauthorized access to our proprietary internal and customer data may also be obtained through inadequate use of security controls. Any of such incidents may harm our reputation and adversely affect our business and results of operations. In addition, we may be subject to negative publicity about our security and privacy policies, systems, or measurements. Any failure to prevent or mitigate security breaches, cyber-attacks or other unauthorized access to our systems or disclosure of our customers' data, including their personal information, could result in loss or misuse of such data, interruptions to our service system, diminished customer experience, loss of customer confidence and trust, impairment of our technology infrastructure, and harm our reputation and business, resulting in significant legal and financial exposure and potential lawsuits.

***A severe or prolonged downturn in the Chinese or global economy could materially and adversely affect our business and financial condition.***

Any prolonged slowdown in the Chinese or global economy may have a negative impact on our business, results of operations and financial condition. In particular, general economic factors and conditions in China or worldwide, including the general interest rate environment and unemployment rates, may affect our customer's participation in forex trading. Economic conditions in China are sensitive to global economic conditions. There is considerable uncertainty over the long-term effects of the monetary and fiscal policies adopted by the central banks and financial authorities of some of the world's leading economies, including the United States and China. If present Chinese and global economic uncertainties persist, many of our customers may reduce the service they require from us. Adverse economic conditions could also reduce the number of customers seeking our service, as well as their ability to make payments. Should any of these situations occur, our net revenues will decline, and our business and financial conditions will be negatively impacted. Additionally, continued turbulence in the international markets may adversely affect our ability to access the capital markets to meet liquidity needs.

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General economic, political and social conditions affect the United States, Europe and other global markets and our business. In particular, U.S., European and other global markets, as well as our access to financing, may be affected by factors, including economic growth or its sustainability, persistent inflation, supply chain disruptions, employment levels, work stoppages, labor shortages and labor disputes, labor costs, wage stagnation, energy prices, oil, gas and fuel prices, fluctuations or other significant changes in both debt and equity capital markets and currencies, liquidity of the global financial markets, the growth of global trade and commerce, trade policies, the availability and cost of capital and credit (including as a result of increased interest rates) and investor sentiment and confidence. Additionally, global markets may be adversely affected by the current or anticipated impact of cyber incidents or campaigns, military conflict, including the Iran war, Russia-Ukraine conflict as well as the Hamas-Israel conflict and rising tensions between China and Taiwan and the relationship between China and the United States, or other geopolitical uncertainty and instability. Any sudden or prolonged market downturn in the United States or elsewhere could adversely affect our business, results of operations and financial condition, including capital and liquidity levels.

***We may face risks related to the ongoing Russian invasion of Ukraine, escalating tensions and conflicts in the Middle East (including involving Iran), and any other conflicts that may arise on a global or regional scale, which could adversely affect our business and results of operations.***

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On February 24, 2022, the Russian Federation launched an invasion of Ukraine that has had a significant impact on the global economy, including higher energy prices and increased costs for certain raw materials, goods and services, contributing to inflation in the United States and other countries worldwide. More recently, geopolitical tensions in the Middle East, including conflicts involving Iran and surrounding regions, have further increased volatility in global energy markets, supply chains, and financial markets. These developments have caused, and may continue to cause, disruptions to financial markets and supply and distribution chains for certain raw materials, goods and services on an unprecedented scale.

The impact of sanctions and geopolitical instability has included disruptions to financial markets, challenges in completing financial or banking transactions, restrictions on travel, and difficulties in servicing customers in affected regions. In addition, nation-states involved in these conflicts could resort to cyberattacks or other actions that impact businesses globally, including those without direct exposure to the regions involved. The duration and escalation of these conflicts remain uncertain, and their short- and long-term effects on global financial and business conditions are difficult to predict.

The United States, the European Union and other countries have imposed economic sanctions in response to these conflicts, and may impose additional or expanded sanctions or take further actions if tensions escalate. Multinational corporations have adjusted their operations in affected regions, in some cases exceeding regulatory requirements. While we do not have direct business or financial ties to certain affected regions, the indirect impacts—such as increased energy and raw material costs, inflationary pressures, and disruptions to manufacturing, supply, and distribution chains—may affect our business. We will continue to monitor developments and assess appropriate responses to any direct or indirect impacts on our operations, costs, and demand for our products.

In addition, any deterioration in credit or capital markets resulting from these geopolitical conflicts could limit our ability to obtain external financing to fund operations and capital expenditures. Adverse economic conditions may also increase the risk of credit defaults and losses on accounts receivable. Accordingly, a downturn in the global economy resulting from the Russian invasion of Ukraine, Middle East conflicts, or other geopolitical events could have a material adverse effect on our business, results of operations, and financial condition.

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**<u>Risks Related to our Securities</u>**

***We are an "emerging growth company," and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our*** Class A Ordinary Shares ***less attractive to investors.***

We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act, or the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years, although we could lose that status sooner if our revenues exceed $1.07 billion, if we issue more than $1 billion in non-convertible debt in a three-year period, or if the market value of our Class A Ordinary Shares held by non-affiliates exceeds $700 million as of any March 31 before that time, in which case we would no longer be an emerging growth company as of the following December 31. We cannot predict if investors will find our Class A Ordinary Shares less attractive because we may rely on these exemptions. If some investors find our Class A Ordinary Shares less attractive as a result, there may be a less active trading market for our Class A Ordinary Shares, and our stock price may be more volatile.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until those standards apply to private companies. We have elected to avail our company of this exemption from new or revised accounting standards and, therefore, will be subject to accounting standards that are available to emerging growth companies.

***We are a "foreign private issuer," and our disclosure obligations differ from those of U.S. domestic reporting companies. As a result, we may not provide you the same information as U.S. domestic reporting companies or provide information at different times, making it more difficult for you to evaluate our performance and prospects.***

We are a foreign private issuer, and, as a result, we are not subject to the same requirements as U.S. domestic issuers. Under the Exchange Act, we will be subject to reporting obligations that, to some extent, are more lenient and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxy statements. We will not be required to disclose detailed individual executive compensation information. Furthermore, our directors and executive officers will not be required to report equity holdings under Section 16 of the Exchange Act. They will not be subject to the insider short-swing profit disclosure and recovery regime. As a foreign private issuer, we will also be exempt from Regulation FD (Fair Disclosure) requirements, which, generally, are meant to ensure that select groups of investors are not privy to specific information about an issuer before other investors. However, we will still be subject to the anti-fraud and anti-manipulation rules of the SEC, such as Rule 10b-5 under the Exchange Act. Since many of the disclosure obligations imposed on us as a foreign private issuer differ from those imposed on U.S. domestic reporting companies, you should not expect to receive the same information about us and at the same time as the information provided by U.S. domestic reporting companies.

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***Because we are a foreign private issuer and are exempt from certain Nasdaq corporate governance standards applicable to U.S. issuers, you will have less protection than you would have if we were a domestic issuer.***

Nasdaq Listing Rule requires listed companies to have, among other things, a majority of its board members be independent. However, as a foreign private issuer, we are permitted to, and we may follow home country practice in lieu of the above requirements, or we may choose to comply with the above requirement within one year of listing. The corporate governance practice in our home country, the Cayman Islands, does not require a majority of our board to consist of independent directors. Thus, although a director must act in the best interests of the Company, it is possible that fewer board members will be exercising independent judgment and the level of board oversight on the management of our company may decrease as a result. In addition, the Nasdaq Listing Rules also require U.S. domestic issuers to have a compensation committee, a nominating/corporate governance committee composed entirely of independent directors, and an audit committee with a minimum of three members. We, as a foreign private issuer, are not subject to these requirements. The Nasdaq Listing Rules may require shareholder approval for certain corporate matters, such as requiring that shareholders be given the opportunity to vote on all equity compensation plans and material revisions to those plans, certain ordinary share issuances. We intend to comply with the requirements of Nasdaq Listing Rules in determining whether shareholder approval is required on such matters and to appoint a nominating and corporate governance committee. However, we may consider following home country practice in lieu of the requirements under Nasdaq Listing Rules with respect to certain corporate governance standards, which may afford less protection to investors.

***You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited because we are incorporated under Cayman Islands law.***

We are an exempted company incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and articles of association, as amended and restated from time to time, the Companies Act (Revised) of the Cayman Islands (the "Cayman Islands Companies Act"), and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders, and the fiduciary duties of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman Islands law may not be as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have the standing to initiate a shareholder derivative action in a federal court of the United States.

***Certain judgments obtained against us by our shareholders may not be enforceable.***

We are a Cayman Islands exempted company, and substantially all of our assets are located outside of the United States. In addition, a majority of our current directors and officers are nationals and/or residents of countries other than the United States. All or a substantial portion of the assets of these persons are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of the PRC may render you unable to enforce a judgment against our assets or the assets of our directors and officers. For more information regarding the relevant laws of the Cayman Islands and the PRC.

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***If we cannot continue to satisfy the continued listing requirements and other rules of the Nasdaq Capital Market, our securities may be delisted, which could negatively impact the price of our securities and your ability to sell them.***

Our Class A Ordinary Shares are listed on the Nasdaq Capital Market. In order to maintain our listing on the Nasdaq Capital Market, we are required to comply with certain rules of the Nasdaq Capital Market, including those regarding minimum share price, minimum market value of publicly held shares, and various additional requirements. We may not be able to continue to satisfy these requirements and applicable rules. If we are unable to satisfy the Nasdaq Capital Market criteria for maintaining our listing, our securities could be subject to delisting.

On November 15, 2023, the Company received a letter from the Listing Qualifications Department of Nasdaq notifying the Company that it was not in compliance with Nasdaq Listing Rule 5550(a)(2), which requires a minimum closing bid price of $1.00 per share. The Company was provided an initial 180-calendar day compliance period, through May 13, 2024, to regain compliance. On May 14, 2024, Nasdaq granted the Company an additional 180-calendar day period, through November 11, 2024, to regain compliance. On November 4, 2024, the Company received a letter from Nasdaq confirming that the Company had regained compliance with Listing Rule 5550(a)(2), as the closing bid price of the Company's Class A Ordinary Shares had been at $1.00 per share or greater for ten consecutive business days from October 21, 2024 to November 1, 2024.

On September 3, 2025, the Company received a letter from Nasdaq notifying the Company that it was not in compliance with the Minimum Bid Price Requirement under Nasdaq Listing Rule 5550(a)(2), which requires a minimum closing bid price of $1.00 per share. The Company's Class A Ordinary Shares had a closing bid price below $1.00 per share for 30 consecutive business days. Nasdaq issued a delisting determination, and the Company was provided until September 10, 2025 to request an appeal to the Nasdaq Hearings Panel. The Company timely requested a hearing.

In connection with its plan to regain compliance, on September 8, 2025, the Company's shareholders and Board of Directors approved a 220-for-1 reverse stock split of the Company's Ordinary Shares. The reverse stock split became effective for trading on the Nasdaq Capital Market on September 30, 2025. On October 14, 2025, the Company received a letter from Nasdaq confirming that the Company had regained compliance with the minimum bid price requirement under Listing Rule 5550(a)(2), as the closing bid price of the Company's Class A Ordinary Shares had been at $1.00 per share or greater for ten consecutive business days from September 30, 2025 to October 13, 2025. The scheduled hearing was cancelled.

There can be no assurance that the Company will be able to maintain compliance with the Nasdaq listing requirements in the future.

If the Nasdaq Capital Market subsequently delists our securities from trading, we could face significant consequences, including:

● limited availability for market quotations for our securities;

● reduced liquidity with respect to our securities;

● a determination that our Ordinary Share is a "penny stock," which will require brokers trading in our Ordinary Share to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our Ordinary Share;

● limited amount of news and analyst coverage; and

● a decreased ability to issue additional securities or obtain additional financing in the future.

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***The market price of our Class A Ordinary Shares may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the public offering price.***

The future offerings price for our o Class A Ordinary Shares will be determined through negotiations between the underwriters, investors or the placement agent, and us, and may vary from the market price of our Class A Ordinary Shares following our offerings. If you purchase our Class A Ordinary Shares in our offering, you may not be able to resell those shares at or above the offering price. We cannot assure you that the offering price of our Class A Ordinary Shares, or the market price following our future offerings, will equal or exceed prices in privately negotiated transactions of our shares that have occurred from time to time prior to our subsequent offering. The market price of our Class A Ordinary Shares may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

● actual or anticipated fluctuations in our revenue and other operating results;

● the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;

● actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;

● announcements by us or our competitors of significant services or features, technical innovations, acquisitions, strategic relationships, joint ventures, or capital commitments;

● price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole;

● lawsuits threatened or filed against us; and

● other events or factors, including those resulting from war or incidents of terrorism, or responses to these events.

● In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Stock prices of many companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have filed securities class action litigation following periods of market volatility. In the event that we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.

***We have broad discretion in the use of the net proceeds from our public offering and may not use them effectively.***

To the extent (i) we raise more money than required for the purposes explained in the section titled "Use of Proceeds" or (ii) we determine that the proposed uses set forth in that section are no longer in the best interests of our Company, we cannot specify with any certainty the particular uses of such net proceeds that we will receive from our public offering. Our management will have broad discretion in the application of such net proceeds, including working capital, possible acquisitions, and other general corporate purposes, and we may spend or invest these proceeds in a way with which our stockholders disagree. The failure by our management to apply these funds effectively could harm our business and financial condition. Pending their use, we may invest the net proceeds from our public offering in a manner that does not produce income or that loses value. As of the date of this Annual Report, Management has not determined the types of businesses that the Company will target or the terms of any potential acquisition.

***We do not intend to pay dividends for the foreseeable future.***

We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. As a result, you may only receive a return on your investment in our Class A Ordinary Shares if the market price of Class A Ordinary Shares increases.

***There may not be an active, liquid trading market for*** Class A Ordinary Shares*.***

Prior to our initial public offering taken place in December 2022, there has been no public market for our Class A Ordinary Shares. An active trading market for our Class A Ordinary Shares may not develop or be sustained following our initial public offering. You may not be able to sell your shares at the market price, if at all, if trading in our shares is not active. The public offering price was determined by negotiations between us and the underwriters based upon a number of factors. The public offering price may not be indicative of prices that will prevail in the trading market.

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***We will incur additional costs as a result of becoming a public company, which could negatively impact our net income and liquidity.***

Upon completion of our initial public offering in December 2022, we have become a public company in the United States. As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, Sarbanes-Oxley and rules and regulations implemented by the SEC and the Nasdaq Capital Market require significantly heightened corporate governance practices for public companies. We expect that these rules and regulations will increase our legal, accounting and financial compliance costs and will make many corporate activities more time-consuming and costly.

We do not expect to incur materially greater costs as a result of becoming a public company than those incurred by similarly sized U.S. public companies. In the event that we fail to comply with these rules and regulations, we could become the subject of a governmental enforcement action, investors may lose confidence in us and the market price of our Class A Ordinary Shares could decline.

***We have a limited trading history.***

On December 14, 2022, our ordinary shares began trading on the Nasdaq Capital Market. Prior to that, there was no public market for our ordinary shares. Our trading history might never improve in terms of price or volume. We cannot guarantee that our Class A Ordinary Shares will remain quoted on the Nasdaq Capital Market.

***The obligation to disclose information publicly may put us at a disadvantage to competitors that are private companies.***

Upon completion of our initial public offering in December 2022, we are now a publicly listed company in the United States. As a publicly listed company, we are required to file annual reports with the Securities and Exchange Commission. In some cases, we will also need to disclose material agreements or results of financial operations that we would not be required to disclose if we were a private company. Our competitors may have access to this information, which would otherwise be confidential. This may give them advantages in competing with our company. Similarly, as a U.S.-listed public company, we will be governed by U.S. laws that our competitors, which are mostly private Chinese companies, are not required to follow. To the extent compliance with U.S. laws increases our expenses or decreases our competitiveness against such companies, our public listing could affect our results of operations.

**ITEM 4. INFORMATION ON THE COMPANY**

**4. A. History and development of the company**

**Corporate History**

Erayak is a Cayman Islands exempted company incorporated on June 14, 2019. We conduct our business in China through our subsidiaries. The consolidation of our Company and our 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.

Erayak BVI was incorporated on June 17, 2019 under the laws of British Virgin Islands. Erayak BVI is a holding company and is currently not actively engaging in any business.

Erayak HK was incorporated on June 26, 2019 under the laws of Hong Kong and is a wholly owned subsidiary of Erayak. The paid in capital was zero as of December 31, 2022. Erayak HK did not have any operations as of December 31, 2022.

Ruike Electronics (Wenzhou) Co., Ltd. was incorporated on December 5, 2023 in People's Republic of China ("China" or "PRC"), and is a wholly owned subsidiary of Erayak HK.

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Wenzhou Wenjie was incorporated on December 11, 2019 in the PRC, and is a wholly owned subsidiary of Erayak HK.

Zhejiang Leiya was incorporated on March 5, 2009 under the laws of the People's Republic of China. The registered principal activities of Zhejiang Leiya are mainly development, production and sales of inverters, chargers and gasoline generators.

Wenzhou New Focus was incorporated on November 21, 2012 in China, and is a wholly owned subsidiary of Zhejiang Leiya. The principal activity of Wenzhou New Focus is mainly the sale of Zhejiang Leiya's products, which involves exports to multiple countries.

Nexora Group Inc. was incorporated on October 7, 2025 under the laws of the State of Nevada, United States, and is a wholly owned subsidiary of Erayak. Nexora Group Inc. serves as the Company's regional headquarters in North America, primarily responsible for localized research and development ("R&D"), brand management, and marketing strategies, as well as sales and logistics operations to support our expansion in the region.

**Corporate Information**

Our principal executive office is located at No. 528, 4th Avenue, Binhai Industrial Park, Wenzhou, Zhejiang Province, People's Republic of China. The telephone number of our principal executive offices is +86-577-86829999. Our registered office provider in Cayman Islands is Ascentium (Cayman) Limited. Our registered office and registered office provider in the Cayman Islands are both at 4th Floor, Harbour Place, 103 South Church Street, P.O. Box 10240, Grand Cayman, KY1-1002, Cayman Islands. Our registered agent in the United States is Cogency Global Inc. We maintain a corporate website at www.erayakgenerator.com. We do not incorporate the information on our website into this Annual Report and you should not consider any information on, or that can be accessed through, our website as part of this Annual Report.

The SEC maintains an internet site at http://www.sec.gov that contains reports, information statements, and other information regarding issuers that file electronically with the SEC.

**4. B. Business overview**

ERAYAK Power Solution Group Inc. was incorporated in 2019 under the laws of the Cayman Islands. We conduct business primarily through our wholly-owned subsidiaries, Ruike, Zhejiang Leiya and Wenzhou New Focus in the PRC, ERAYAK Power Solution Group Hong Kong Limited in the Hong Kong, and Nexora Group Inc. in the United States. Our company specializes in the manufacturing, research and development ("R&D"), and wholesale and retail of power solution products. Ruike's business focuses on manufacturing new energy storage and inverter devices. Zhejiang Leiya's product portfolio includes sine wave and off-grid inverters, inverter and gasoline generators, battery and smart chargers, and custom-designed products. Our products are used principally in agricultural and industrial vehicles, recreational vehicles ("RVs"), electrical appliances, and outdoor living products. 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 in 2009, it has grown to be a manufacturer that not only designs, develops and mass produces our own brand of premium power solution products, but has also established e-commerce channels in the retail chain. We, through our PRC subsidiaries, also offer our products in Japan, England, Germany, France, Spain, Switzerland, Sweden, the Netherlands, the U.S., Canada, Mexico, Australia, Dubai, and 9 other countries. Zhejiang Leiya manufactures 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.

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We generated revenue mostly from four types of products: (1) inverters constituted approximately 48%, 46% and 59% of our total revenue for the fiscal years ended December 31, 2025, 2024 and 2023, respectively; (2) chargers, which generated approximately 1.22%, 1.82% and 2.68% of our total revenue for the fiscal years ended December 31, 2025, 2024 and 2023, respectively; (3) gasoline generators generated approximately 42.29%, 32.94% and 32.36% of our total revenue for the fiscal years ended December 31, 2025, 2024 and 2023, respectively; (4) power bank generated approximately 7.50%, 16.39% and 3.96% of our total revenue for the fiscal years ended December 31, 2025, 2024 and 2023, respectively.

Due to our substantial investment in research and development, Zhejiang Leiya was 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, Steren Electronics International, LLC, etc.

Zhejiang Leiya's products are customized and built to order, or BOT. The BOT business model maximizes our flexibility in production scheduling, material procurement, and delivery to meet our customers' unique demands. We have 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 customer, 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.

**Recent Developments**

*Initial Public Offering*

On December 19, 2022, the Company completed its initial public offering. In the initial public offering, the Company issued 3,000,000 Class A Ordinary Shares at a price of US$4 per share. The Company received gross proceeds in the amount of US$12 million before deducting any underwriting discounts or expenses. The Class A Ordinary Shares began trading on December 14, 2022 on the Nasdaq Capital Market under the ticker symbol "RAYA."

*Change of Independent Registered Public Accounting Firm (October 2023)*

 

On October 12, 2023, the Company notified its independent registered public accounting firm, TPS Thayer, its decision to dismiss TPS Thayer as the Company's auditor. On the same day, the Audit Committee and the Board of Directors of the Company appointed Fortune CPA Inc as its new independent registered public accounting firm to audit the Company's financial statements.

*Change of Director*

On November 30, 2023, Ms. Peiling Cheng tendered her resignation as independent director of the Conpany, effective November 30, 2023. On November 30, 2023, approved by the Board of Directors, the Nominating Committee and the Compensation Committee, Mr. Tsang Sheung was appointed as independent director and chair of compensation committee of the Company, effective November 30, 2023.

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*Regulatory Compliance*

On November 15, 2023, the Company received a letter from the Nasdaq Listing Qualifications, indicating that the Company is not in compliance with the minimum bid price requirement for continued listing set forth in Listing Rule 5550(a)(2), which requires listed securities to maintain a minimum bid price of $1.00 per share.

Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), the Company has been granted a 180-calendar day compliance period, or until May 13, 2024, to regain compliance with the minimum bid price requirement. On May 14, 2023, the Company received a written notice from Nasdaq granting the Company an additional 180 calendar day period, or until November 11, 2024, to regain compliance with Nasdaq Listing Rule 5550(a)(2).

On November 4, 2024, the Company received a letter from Nasdaq confirming that the Company regained compliance with the minimum bid price requirement set forth in Rule 5550(a)(2) of the Nasdaq Listing Rules. For ten consecutive business days, beginning from October 21, 2024 to November 1, 2024, the closing bid price of the Company's Class A Ordinary Shares has been at $1.00 per share or greater, and therefore the Company has regained compliance with the minimum bid price requirement.

*Registered Direct Offering (July 2025)*

On July 25, 2025, the Company entered into a securities purchase agreement (the "Purchase Agreement") with certain investors, pursuant to which the Company agreed to issue and sell, in a registered direct offering, (i) 12,396,000 Class A Ordinary Shares at a purchase price of $0.098 per share, and (ii) pre-funded warrants to purchase up to 18,216,246 Class A Ordinary Shares at a purchase price of $0.098 per Pre-Funded Warrant. The Registered Direct Offering closed on July 28, 2025. The Company received approximately $3 million in gross proceeds from the Registered Direct Offering, before deducting placement agent fees and estimated offering expenses. Craft Capital Management LLC acted as the exclusive placement agent in connection with the Registered Direct Offering.

*Registered Direct Offering (August 2025)*

On July 31, 2025, the Company entered into a securities purchase agreement (the "Purchase Agreement") with certain investors, pursuant to which the Company agreed to issue and sell, in a registered direct offering, (i) 32,155,921 Class A Ordinary Shares at a purchase price of $0.065 per share, and (ii) pre-funded warrants to purchase up to 75,536,386 Class A Ordinary Shares at a purchase price of $0.065 per Pre-Funded Warrant. The Registered Direct Offering closed on August 1, 2025. The Company received approximately $7 million in gross proceeds from the Registered Direct Offering, before deducting placement agent fees and estimated offering expenses. Craft Capital Management LLC acted as the exclusive placement agent in connection with the Registered Direct Offering.

*Reverse Stock Split (September 2025)*

On September 8, 2025, the shareholders of the Company approved, at an extraordinary general meeting of shareholders, the authorization of the board of directors to implement a reverse stock split of the Company's issued and unissued Class A Ordinary Shares of par value of $0.0001 each and Class B Ordinary Shares of par value of $0.0001 each, at a ratio of not less than 1-for-120 and not more than 1-for-220, with the final ratio to be determined by the board of directors in its sole discretion at any time prior to the one-year anniversary of the meeting.

On the same day, the board of directors of the Company approved a 220-for-1 reverse stock split of the Company's Ordinary Shares. The reverse stock split became effective upon the commencement of trading on the Nasdaq Capital Market on September 30, 2025. As a result of the reverse stock split, the number of Class A Ordinary Shares outstanding was reduced from 187,892,786 Class A Ordinary Shares of par value of US$0.0001 each to approximately 854,059 Class A Ordinary Shares of par value of US$0.022 each, and from 9,000,000 Class B Ordinary Shares of par value of US$0.0001 each to approximately 40,910 Class B Ordinary Shares of par value of US$0.022 each, with all fractional shares rounded up to the nearest whole share. The authorized capital of the Company be amended from US$50,000 divided into 500,000,000 ordinary shares of par value of US$0.0001 each, comprising of: (i) 450,000,000 Class A Ordinary Shares of par value of US$0.0001 each, and (ii) 50,000,000 Class B Ordinary Shares of par value of US$0.0001 each to US$50,000 divided into 2,272,727.2̅7̅ ordinary shares of a par value of US$0.022 each comprising (a) 2,045,454.5̅4̅ Class A Ordinary Shares of a par value of US$0.022 each and (b) 227,272.7̅2̅ Class B Ordinary Shares of a par value of US$0.022 each. The Company's Class A Ordinary Shares continued to trade on the Nasdaq Capital Market under the symbol "RAYA" under the new CUSIP number G3109F111.

*At-The-Market Offering (Prior Sales Agreement)*

On September 29, 2025, the Company entered into a sales agreement (the "Prior Sales Agreement") with Craft Capital Management LLC as sales agent, pursuant to which the Company was permitted to offer and sell up to US$10,000,000 of Class A Ordinary Shares in an "at-the-market" offering. The Prior Sales Agreement was terminated effective February 26, 2026. In the aggregate, the Company sold 2,683,190 Class A Ordinary Shares pursuant to the Prior Sales Agreement for net proceeds of approximately US$6.23 million.

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*Extraordinary General Meeting (November 2025)*

On November 20, 2025, the shareholders of the Company approved, at an extraordinary general meeting of shareholders, an increase in the Company's authorized share capital from US$50,000 divided into 2,272,727.2̅7̅ ordinary shares of a par value of US$0.022 each comprising (i) 2,045,454.5̅4̅ Class A Ordinary Shares of a par value of US$0.022 each and (ii) 227,272.7̅2̅ Class B Ordinary Shares of a par value of US$0.022 each, to US$220,000,000 divided into 10,000,000,000 ordinary shares of par value US$0.022 each comprising (i) 9,000,000,000 Class A Ordinary Shares of a par value of US$0.022 each and (ii) 1,000,000,000 Class B Ordinary Shares of a par value of US$0.022 each. In connection therewith, the shareholders approved the adoption of the fourth amended and restated memorandum and articles of association of the Company, effective on November 20, 2025.

*Change of Independent Registered Public Accounting Firm (January 2026)*

On January 7, 2026, the Audit Committee and Board of Directors of the Company approved the dismissal of Fortune CPA Inc. as the Company's independent registered public accounting firm and the appointment of Tang Qian & Associates PLLC as its successor, effective January 7, 2026. During the Company's fiscal years ended December 31, 2024 and 2023 and through the date of dismissal, there were no disagreements with Fortune CPA Inc. on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure. For additional information, see "Item 16F. Change in Registrant's Certifying Accountant" in this annual report.

*Extraordinary General Meeting (February 2026)*

On February 5, 2026, the shareholders of the Company approved, at an extraordinary general meeting of shareholders, the authorization of the board of directors to implement one or more share consolidations at a consolidation ratio of not less than 1-for-10 and not more than 1-for-500, with the exact ratio and effective date to be determined by the board of directors in its sole discretion at any time prior to the one-year anniversary of the meeting.

*At-The-Market Offering (New Sales Agreement)*

On March 16, 2026, the Company entered into a new sales agreement (the "Sales Agreement") with Craft Capital Management LLC as sales agent, pursuant to which the Company may offer and sell up to US$20,000,000 of Class A Ordinary Shares, par value US$0.022 per share, from time to time in an "at-the-market" offering. As of March 31, 2026, the Company had issued an aggregate of 1,247,456 Class A Ordinary Shares under the Sales Agreement, resulting in gross proceeds of approximately US$0.72 million and net proceeds of approximately US$0.69 million. As of April 2, 2026, the Company has 4,748,740 Class A Ordinary Shares issued and outstanding.

*Share consolidation (March 2026)*

On March 25, 2026, the board of directors of the Company approved a share consolidation at a ratio of 1-for-10 (the "Share Consolidation"), such that every ten (10) Class A Ordinary Shares of par value of US$0.022 each be consolidated into one (1) class A ordinary share of par value of US$0.22 and every ten (10) Class B Ordinary Shares of par value of US$0.022 each be consolidated into one (1) class B ordinary share of par value of US$0.22, becoming effective on 25 March 2026. As a result, the Company's authorized share capital was amended to US$220,000,000 divided into 1,000,000,000 ordinary shares of par value of US$0.22 each, comprising (a) 900,000,000 Class A Ordinary Shares of par value of US$0.22 each and (b) 100,000,000 Class B Ordinary Shares of par value of US$0.22 each. The Share Consolidation became effective upon the commencement of trading on a post-split basis on the Nasdaq Stock Market LLC on April 20, 2026. The Company's Class A Ordinary Shares continued to trade on the Nasdaq Stock Market LLC under the symbol "RAYA" under the new CUSIP number G3109F129.

**Our Products**

Erayak specializes in the design, manufacturing, and global distribution of power solution products. Our core portfolio covers five strategic categories: Generators, DC-to-AC Inverters, Hybrid Inverter and Energy Storage Systems, Portable Power Stations, and Smart Battery Chargers. These product lines support a wide range of applications including residential backup, outdoor power, mobile energy, and solar integration systems.

Our major products include the following types:

*<u>Inverter Generators</u>*

Inverter generators remain our flagship product line, reflecting the core strength and market leadership of the company. Our Inverter generators, using gasoline as fuel, are smaller and lighter and are easy to use. They are widely used in outdoors, camping, RV and household applications. Inverter generators are divided into gasoline generators, dual-fuel & tri-fuel generators.

[**Table of Contents**](#TableOfContents)

- Inverter Generators: Compact, quiet, and clean power output (1kW to 15kW), optimized for precision electronics in recreational vehicles (RVs), semi-trailers, and mobile workstations.

- Dual Fuel & Tri-Fuel Generators: Designed to run on gasoline, LPG, and natural gas, offering energy security and operational flexibility.

*<u>DC to AC Inverters</u>*

Our inverters convert 12V DC power into 110V/230V AC, covering a range from 100W to 15,000W. Our inverter's frequency conversion technology not only shows highly efficiency, but also automatically adjusts the output power while saving fuel, being environment friendly and noise-free. The unique frequency conversion technology is also the core of quality consistency, ensuring continuous long-term operation and better performance than regular generators of the same power.

- Car Inverters (100W-500W): Ideal for mobile devices and small appliances on the go.

- Portable/Home Inverters (600W-3000W): Power solution for outdoor tools, home use, and solar setups.

- Pure Sine Wave Models: Deliver stable output compatible with high-end or inductive equipment.

*<u>Hybrid Inverters & Energy Storage</u>*

 

As part of our strategic expansion into the energy storage sector, Erayak has developed a new product line of hybrid inverter systems. This is the latest generation of home energy storage solutions, equipped with the latest pure sine wave inverter technology, BMS management technology and high-performance lithium batteries. The system integrates the inverter, MPPT, intelligent charge and discharge system, and extendable lithium battery storage system. Through the intelligent management system automatic from the solar power, battery, or mains energy, users can set mains or solar power priority according to demand in order to achieve clean, efficient, stable, independent home power supply. In addition to home power supply, the energy storage system can be utilized for RVs, yachts, small solar power stations, and gardens. These systems are intended for solar + storage applications, off-grid home use, and light commercial backup.

Some key features: Voltage platforms of 48V / 72V; output range from 3,000W to10,000W; functions including MPPT solar charging, AC bypass, lithium battery compatibility, integrated display.

*<u>Portable Power Stations</u>*

 

Erayak's DBS series portable power stations are lithium-powered, all-in-one AC/DC/USB units built for lightweight mobility. This series can recharge itself and charge up to six devices at the same time for outdoor needs. They are light-weighted and has large battery capacity and long battery life. Their Pure Sine Wave AC outlets deliver stable and safe power. They recharge quickly with AC adaptor at home or through the car outlet. They are also compatible with Erayak solar panel. They are ideal portable power kits for tent camping, overland journey and etc.

Some key features: Pure sine wave output with multi-port connectivity; recharge via wall AC, car outlet, or solar input; ideal for outdoor recreation, remote work, and emergencies.

*<u>Smart Battery Chargers</u>*

 

Erayak's smart battery chargers are available in 6V and 12V configurations with adjustable output from 1A to 12A.The original charging technology, using a high-grade eight-stage charging cycle, can repair lower-voltage batteries. The products have intelligent multi-stage charging with voltage and temperature protection and reverse polarity and overcharge protection

[**Table of Contents**](#TableOfContents)

*Technology Strategy & Future Outlook*

 

High-Quality Power Solutions for Modern Mobile Life: With the increasing sophistication of mobile living and logistics, there is a growing demand for high-quality, stable, and low-harmonic power to protect sensitive electronic equipment. Erayak is strategically focusing its R&D on high-capacity inverter technology (up to 15kW for generators and 15kW for inverters) to provide 'grid-quality' power. These solutions are specifically tailored for users of recreational vehicles (RVs), semi-trailers, and camping vehicles who require reliable electricity for advanced communication, computing, and professional tools in off-grid environments.

Strategic Transition Toward Hybrid and Zero-Emission Technologies: To proactively address increasingly stringent global environmental standards, such as the California Air Resources Board (CARB) SORE (Small Off-Road Engine) regulations and EPA Tier 4 standards, Erayak is accelerating its R&D in next-generation hybrid power systems. Our product roadmap includes the integration of high-density lithium storage with intelligent combustion control, creating a 'Smart Hybrid' generator line. These units are designed to operate in ultra-quiet electric modes for low-load periods while engaging high-efficiency engines only for peak demands, significantly reducing carbon footprints and fuel consumption. By positioning our products at the intersection of traditional reliability and renewable innovation, we aim to capture leadership in the 'Green Power' segment of the North American and European markets, ensuring long-term regulatory compliance and ESG-aligned growth.

Smart Energy Ecosystem and IoT Integration: We are advancing our R&D into proprietary cloud-based energy management platforms. These systems will allow users to monitor power consumption, fuel levels, and battery health in real-time through mobile applications. By leveraging Nexora's presence in the North American market, we aim to integrate localized user data to develop predictive maintenance algorithms, ensuring our high-capacity units (up to 15kW) operate with maximum uptime in mission-critical environments.

Advanced Bi-directional Power Architecture: Our technical roadmap includes the development of V2L (Vehicle-to-Load) and V2G (Vehicle-to-Grid) compatible systems. This will enable our next generation of hybrid generators to serve as integrated hubs that can bridge mobile energy storage with electric vehicle charging and grid stabilization. This initiative is designed to provide seamless energy transitions for professional semi-trailers and nomadic workstations that require high-load synchronization.

High-Efficiency Power Electronics with Advanced Semiconductors: To achieve superior power density and thermal performance, we are exploring the application of third-generation semiconductors, such as Gallium Nitride (GaN) and Silicon Carbide (SiC), in our 15kW inverter architectures. These materials significantly reduce energy conversion loss and heat generation, allowing us to deliver more compact and durable power solutions that meet the extreme reliability standards required by the high-end North American RV and logistics markets.

Modular Power Platform and Ecosystem Expansion: A core component of our technical advantage is the proprietary nature of our modular power platform. Having engineered our high-performance engine and electronic control systems in-house, we possess the unique capability to horizontally integrate this technology into adjacent high-demand markets. Our strategic roadmap includes leveraging this standardized power platform to rapidly launch new product lines, such as gasoline-powered high-pressure washers and high-efficiency water pumps. This platform-based approach allows for significant R&D synergies and economies of scale in manufacturing, enabling us to replicate our technical successes across diverse categories with shortened development cycles. We believe this strategy will further diversify our revenue streams and solidify Erayak's position as a comprehensive provider of outdoor power solutions.

**Research and Development**

We have 45 employees working in the R&D department as of the date of this Annual Report. From concept to finished product, we adopt a multi-step process to ensure that the final product presented to the public not only works optimally, but also endures the test of time.

[**Table of Contents**](#TableOfContents)

During the first step of market research and user data analysis, we summarize the product data gathered through offline communication, market comment summary, user survey, user analysis, and website user behavior data collection. Then we evaluate the market product position by further determining possible customer expectations for the new products, such as product appearance design, basic function requirements, product selling price (from the lowest to average to highest), and the likelihood of other products competing in functions, advantages, disadvantages, and price. During this stage, we also forecast the competitors' necessary supply and research capabilities, as well as set target markets and user groups, strategize sales channels and publicity.

Next, we conduct feasibility studies and analysis for the potential product. Specifically, we analyze cost of research, manufacturing, promotion, and personnel required for the product, and the result report provides information on whether the model can be put through test manufacturing, enter the next configuration process, re-enter research or terminate. The requirements for the personnel involved in the decision-making process are at least 2 people with 1 year experience and the CEO, who will then appoint (i) a person to be in charge of the project development group, (ii) a second person to lead the new research group; and (iii) a third person to promote the development of the new product.

Thereafter, the product will enter the industrial design stage, wherein appearance design, output product appearance through 3D modeling and painting and rendering are conducted. Core technology application, circuit design, size as well as accessory packaging design are also determined at this stage. The 3D printing prototype provides a general idea of the appearance of the future product and tests of the product material in areas, such as water absorption, moisture-proof, fire-proof, corrosion, and wear-resistance, are conducted to determine the product texture.

Next, trial production will be conducted, where the manufacturing process and technology is tested through small batch production, and the products are subjected to destructive tests to verify product performance. Further, actuarial calculations are conducted to estimate the costs and a complete market promotion plan will be proposed before mass production completes. During mass production, a quality control process will be carried out at the same time, wherein the production department issues a production plan, and the quality control department inspects the finished or semi-finished products.

Finally, when the products have been manufactured and introduced to the market, after-sales operations commence, which involve the implantation of daily promotion plans, solving and summarizing after-sales problems, inventory statistics and analysis, and formulation of replenishment plans.

**Sales and Marketing**

Our Customer and Sales

Our customers include large technology companies.

The Company did not have any customers that individually accounted for a significant portion (10% or more) of its revenue during the fiscal year ended December 31, 2025. As a result, the Company is not materially dependent on any individual customer. As at December 31, 2025, accounts receivable from two customers represented 13.69% and 13.68%, respectively, of total accounts receivable, indicating a concentration in receivables at year-end. During the fiscal year ended December 31, 2024, amount due from this customer included in accounts receivable were $2,109,572, representing 17.16%, respectively, of total accounts receivable. Other significant concentration of accounts receivable included another customer, who accounted for 14.51% of total accounts receivable for the fiscal year ended December 31, 2024.

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The Company sold a substantial portion of products to one customer (11.99% of total revenues) during the fiscal year ended December 31, 2023, and as of the year-end date, amount due from this customer included in accounts receivable was $28,301, representing 0.45% of total accounts receivable. Beside the significant customer, there were other significant concentrations of accounts receivable, which included four customers who accounted for 25.19%, 20.59%, 11.73% and 10.28%, respectively, of the total accounts receivable for the fiscal year ended December 31, 2023.

Our Suppliers

During the fiscal year ended December 31, 2025, one supplier accounted for 10.31% of the Company's total purchases, indicating a concentration of supplier risk. Management monitors this relationship on an ongoing basis to mitigate potential supply disruptions.

For the fiscal years ended December 31, 2024 and 2023, there was no significant concentration in suppliers for the Company's raw material purchase.

The Company has numerous suppliers that could be substituted should any of the current suppliers become unavailable or non-competitive.

**Our Competitive Advantages**

We are committed to offering our customers product diversity, quality and reliability. We offer a diversified portfolio of low-noise and low-emission natural power source products to satisfy our customers' specialized needs. We believe we have a number of competitive advantages that will enable us to maintain and further increase our market position in the industry for the market in China. Our competitive strengths include:

● **Safety and Quality.** Based on Amazon customer reviews, our brand has received initial recognition from Amazon customers in terms for quality and performance of our products. We have been tested and certified by Technischer Überwachungsverein, an internationally recognized service company specializing in the inspection of technical systems. Our products also meet the regulatory demands of the United States, Canada, Australia, the European Union, among other countries.

●  ***Manufacturing Capacity.*** Our expertise and facilities enable us to standardized mass production, stabilize shipments, and initiate automated production transformation.

●  ***Technological Superiority.*** We have a specialized technology R&D team that serves as the catalyst for developing new products, increasing our production capacity, and maximizing our efficiency. Through R&D, industrial production, online and offline sales channels, and investment in equipment and corresponding infrastructure, the Company can develop new products to keep up with the changing marketplace. Our ability to upgrade production capacity, maintain operation facilities, and retain a talented management team results in flexible production scale, low mechanization costs, and high efficiency. These benefits substantially boost the Company's competitiveness and profitability. For example, we integrate cutting-edge core power models and high-quality materials for our oil and gas generators. Our efforts strive to achieve a powerful and long-lasting product. As for our inverters, to our knowledge, there are not many competitors on Amazon capable of producing inverters that power over 1000 Watts because of production- and technology-related difficulties.

●  ***Experienced Management Team.*** Our management team has the experience in manufacturing and e-commerce industries. Additionally, our skilled and experienced production team and inspection team ensure efficient operation of the company.

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●  ***Research and Development Autonomy.*** We own the design patents, utility patents, and software copyrights supporting our products. Our investment in research and development also enables us to further develop and refine our product portfolio to match the changing power-solutions landscape

●  ***Efficient Manufacturing Process and Quality Control.*** We believe that our efficient production management system and strong quality control can help us strengthen our position in the domestic and international markets.

●  ***Customized Products.*** The Company offers products that are customized and built to order, or BOT, to meet its customers' unique demands.

●  ***Business Expansion Potential.*** Our products are already available in Australia, Europe, and North America. We also plan on expanding to South America, Africa, and Southeast Asia. Additionally, the Company is involved in both retail and wholesale, which grants us access to a wider range of customers and profit opportunities.

**Our Business Strategies**

Our ideal is to be a go-to brand for enthusiasts of the mobile lifestyle by providing convenient and refined power solution products. Our primary objective is to create value by sustaining growth in earnings and cash flows from operating activities over various economic cycles. To achieve this objective, we strive to improve our cost structure, provide high-quality service and products, expand our product offerings and increase our market share.

*Optimize Our Portfolio and Product Mix to be Responsive to Market Conditions*

We seek to maintain flexibility to adjust our product mix and rapidly respond to changing market conditions. While prioritizing our highest margin products, we regularly evaluate our portfolio of assets to ensure that our offerings are responsive to prevailing market conditions. We will assess and pursue opportunities to utilize, optimize and grow production capacity to capitalize on market opportunities.

*Provide Superior Quality Products and Customer Service*

Our products play a critical role in various construction, infrastructure, equipment, and safety applications. Our emphasis on manufacturing processes, quality control testing and product development helps us deliver a high-quality product to our customers. Our evaluation team must ensure that products under mass-production will be checked randomly and frequently.

Furthermore, during their developmental stage, our products are also repeatedly evaluated and tested to ensure a minimal failure rate. When a product has been developed and before mass-production, we adopt a test production process wherein a small number of products are manufactured to detect any last-minute technical error and refine the production process.

Additionally, during mass-production, groups of quality-control staff are stationed at the end of each process. A portion of products is also sent to withstand the destruction test to evaluate the products' sustainability under extreme circumstances and provide information on further enhancement.

*Focus on Efficient Manufacturing and Cost Management*

We strive for continued operational excellence to provide high-quality products at competitive prices. Our operating personnel continually examine costs and profitability by product, plant, and region. Our goal is to maximize operational benchmarks by leveraging skilled manufacturing and supply chain management processes. To our knowledge, we have achieved lower cost and usage of raw materials in manufacturing while retaining higher quality and efficiency than similar products in the market.

[**Table of Contents**](#TableOfContents)

*Focus on Key Supplier Relationships*

We believe that our relationships with our key suppliers provide a competitive advantage in serving our customers. Our ability to provide our suppliers with accurate information regarding our future demands is critical to this relationship. We are focused on accurate demand planning and have invested in systems to enhance this function.

*Execute Pricing Strategy to Pass-Through Underlying Costs*

We believe we have a track record of managing underlying commodity price exposure through our price negotiation, raw material procurement, and inventory management program.

*Enhance Brand Recognition* 

We utilize our website, Facebook page, Youtube channel and online e-commerce platform flagship store to increase our products' visibility in the European, American, and Chinese markets.

*Cooperation with Online-Stores and Amazon.com, Inc.* 

We have listed our products on Amazon in both European and U.S. markets and are a certified seller. Our inverter and charger products have steadily maintained a top ten position in Amazon Top Sellers at Amazon.de. As a result, our brand's products were selected to participate in Amazon Accelerator projects, a plan devised by Amazon.com, Inc. to contract potential companies and manufacturers to become a part of Amazon's own "platform brand" to enhance the brand's exposure and attract more customers. Brands participating in the plan will be exclusively sold on European sites as well.

Our Company has passed the preliminary screening of the plan and the cooperation has commenced. The Company's R&D and sales channels are expected to enable the Company to bring products to the market faster and more effectively. Through cooperation with Amazon, the Company's new products are expected to receive greater exposure and effectively improve its European presence.

**Intellectual Property**

*Patent*

We currently have 61 Chinese patents issued and are to expire at various times from June 2026 through April 2033. We have exclusive rights to utilize the processes issued patent rights within the valid term. As for other products of us and the related manufacturing processes, since the technical information has been published and is in the public domain, we believe we can utilize such technical information without obtaining any patent license. We do not believe that we are violating the existing patent rights of any other party.

The following table briefly describes the Company's issued Chinese patents, including their respective publication numbers, application filing date, issue date, expiration date, and title.

[**Table of Contents**](#TableOfContents)

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| | | | | |
|:---|:---|:---|:---|:---|
| ***Patent Number*** | ***File Date*** | ***Issue Date*** | ***Expiration<br> Date\**** | ***Title*** |
| 202510013512.X | 2025-01-06 | 4/8/25 | 4/7/35 | A control method and system for emergency generator sets China |
| 202411760250.5 | 2024-12-03 | 3/7/25 | 3/6/35 | A photovoltaic energy storage integrated machine China |
| 202411760248.8 | 2024-12-03 | 3/7/25 | 3/6/35 | A photovoltaic energy storage integrated machine China |
| 202430513126.3 | 2024-08-14 | 3/21/25 | 3/20/35 | Variable frequency generator (3500W) China |
| 202430412760.8 | 2024-07-03 | 2/21/25 | 2/20/35 | Portable generator China |
| 2024303918147 | 2024-06-25 | 1/28/25 | 1/27/35 | Voltage regulator (2000W) China |
| 2024303917854 | 2024-06-25 | 1/21/25 | 1/20/35 | Vehicle-mounted inverter (150W) China |
| 2024303917888 | 2024-06-25 | 1/14/25 | 1/13/35 | Energy storage inverter (6KW) China |
| 2024303917337 | 2024-06-25 | 1/17/25 | 1/16/35 | Energy storage inverter (5KW with ATS function) China |
| 2024303917356 | 2024-06-25 | 1/14/25 | 1/13/35 | Energy storage inverter (5KW) China |
| 202421043198.7 | 2024-05-14 | 12/31/24 | 12/30/34 | A display screen system based on UPS China |
| 202430165526.X | 2024-03-28 | 9/13/24 | 9/12/34 | Power Converter Host (SICU) China |
| 202430165539.7 | 2024-03-28 | 9/13/24 | 9/12/34 | Power converter external line remote control (SICU) China |
| 202430165539.7 | 2024-03-28 | 9/13/24 | 9/12/34 | Inverter (DAU-150YB1) China |
| 202410289279.3 | 2024-03-14 | 1/24/25 | 1/23/35 | A dual-fuel generator with an automatic oil-gas switching system China |
| 202420490677.7 | 2024-03-14 | 10/22/24 | 10/21/34 | Dual-fuel automatic switching system and dual-fuel generator China |
| 202311266113.1 | 2023-09-27 | 3/15/24 | 3/14/34 | A photovoltaic inverter chassis and a photovoltaic inverter China |
| 202311218891.3 | 2023-09-20 | 4/5/24 | 4/4/34 | An outdoor inverter China |
| 202330421621.7 | 2023-07-06 | 12/19/23 | 12/18/33 | Power terminal (PW) China |
| 202330421623.6 | 2023-07-06 | 12/19/23 | 12/18/33 | Inverter (PIC-2000N) China |
| 202330421624.0 | 2023-07-06 | 1/23/24 | 1/22/34 | Inverter (PW） China |
| 202321058183.3 | 2023-05-06 | 4/23/24 | 4/22/34 | Solar charging and energy storage power supply China |
| 202321058165.5 | 2023-05-06 | 2/27/24 | 2/26/34 | Battery pack inverter China |
| 202522041238.1 | 2022-08-04 | 2/14/23 | 2/13/33 | Battery charging system China |
| 202230393396.6 | 2022-06-24 | 12/30/22 | 12/29/32 | Mobile Energy Storage Power Supply (BDS-A) China |
| 202130717007.6 | 2021-11-02 | 4/8/22 | 4/7/32 | Mobile Energy Storage Power Supply (BDS-A) China |

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[**Table of Contents**](#TableOfContents)

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| | | | | |
|:---|:---|:---|:---|:---|
| ***Patent Number*** | ***File Date*** | ***Issue Date*** | ***Expiration<br> Date\**** | ***Title*** |
| 202130664806.1 | 2021-10-11 | 6/7/22 | 6/6/32 | Cigarette lighter China |
| 202130543441.7 | 2021-08-20 | 1/18/22 | 1/17/32 | Inverter (8089Y China |
| 202311266113.1 | 2019-12-05 | 12/27/24 | 12/26/34 | A wireless two-way interconnection and mutual control control system China |
| 201610606712.7 | 2016-07-29 | 9/28/28 | 9/27/38 | Self-cooling multi-functional vehicle inverter China |
| 2021301396990 | 2021-03-16 | 8/10/21 | 8/9/31 | A power converter (DAU-C0) China |
| 2020305621635 | 2020-09-21 | 7/9/21 | 7/8/31 | An open frame generator China |
| 2020217629223 | 2020-08-21 | 7/9/21 | 7/8/31 | A dual fuel generator with separate control device China |
| 2020305092472 | 9/1/20 | 3/2/21 | 3/1/31 | A power converter (DAU-C3) China |
| 2020305092523 | 2020-09-01 | 3/2/21 | 3/1/31 | A power converter (DAU-C2) China |
| 2020305098873 | 2020-09-01 | 3/2/21 | 3/1/31 | A power converter (DAU-C1) China |
| 2020303354729 | 2020-06-28 | 12/22/20 | 12/21/30 | Portable generator (EYG1000) China |
| 2020303354682 | 2020-06-28 | 2/12/21 | 2/11/31 | Portable generator (EYG1000i) China |
| 2020202169180 | 2020-02-27 | 1/12/21 | 1/11/31 | An interlock control display inverter China |
| 2020202169195 | 2020-02-27 | 1/12/21 | 1/11/31 | An integrated low power inverter China |
| 2020202169265 | 2020-02-27 | 1/12/21 | 1/11/31 | An integrated low power inverter China |
| 2019306891357 | 2019-12-10 | 7/3/20 | 7/2/30 | A power converter (DSU-80B1) China |
| 2019306891380 | 2019-12-10 | 7/3/20 | 7/2/30 | A power converter (DSU-3K0XZ) China |
| 2019306891408 | 2019-12-10 | 7/3/20 | 7/2/30 | A power converter (DSU-2K0XZ) China |
| 2019306891465 | 2019-12-10 | 7/3/20 | 7/2/30 | A converter (1038) China |
| 2019306891484 | 2019-12-10 | 7/3/20 | 7/2/30 | A power converter (DSU-300X) China |
| 2019306891516 | 2019-12-10 | 7/3/20 | 7/2/30 | A power converter (DSU-2K0XA) China |
| 2019306896308 | 2019-12-10 | 7/14/20 | 7/13/30 | A power converter (DSU-1K0X) China |
| 2019306896280 | 2019-12-10 | 7/14/20 | 7/13/30 | Inverter remote control (1038) China |
| 2019221950498 | 2019-12-05 | 9/29/20 | 9/28/30 | A wireless two-way interconnection and mutual control system China |
| 201930517241.7 | 9/20/19 | 6/9/20 | 6/8/30 | A power converter (DAU-Z3) China |
| 201930517254.4 | 9/20/19 | 6/9/20 | 6/8/30 | A power converter (DAU-Z2) China |
| 201930517255.9 | 9/20/19 | 6/9/20 | 6/8/30 | A power converter (DAU-Z1) China |
| 201930352280.6 | 7/4/19 | 3/20/20 | 3/19/30 | A power converter (AEG) China |
| 201810276141.4 | 3/29/18 | 3/31/20 | 3/30/30 | An event-driven jet ignition synchronization control method for EFI SI engine China |
| 201630338616.X | 7/22/16 | 1/18/17 | 1/17/27 | A power converter (MSW-1) China |
| 201630029535.1 | 1/27/16 | 6/29/16 | 6/28/26 | An inverter China |
| 201630029529.6 | 1/27/16 | 9/21/16 | 9/20/26 | A generator China |
| 201630338482.1 | 7/22/16 | 12/7/16 | 12/6/26 | A power converter (PSW-1) China |
| 201930352278.9 | 7/4/19 | 3/20/20 | 3/19/30 | A power converter (DSU-Z) China |
| 201930352279.3 | 7/4/19 | 3/20/20 | 3/19/30 | A power converter (DSU-Y) China |

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\* Patent expiration dates are routinely subject to dispute in patent infringement actions. No assurance can be given that third parties infringing our patents will not dispute the expiration dates of our patents or that we will be successful in defending against such disputes.

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*Trademark*

The following table sets forth a brief description of the Company's trademarks, including their respective publication numbers, application filing date, issue date, expiration date and title.

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| | | | | |
|:---|:---|:---|:---|:---|
| ***Trademark Number*** | ***Issue Date*** | ***Expiration Date*** | ***Trademark*** | ***Issue Country*** |
| UK00003191959 | 2014.3.17 | 2027.3.13 | ![](image_002.jpg) | Great Britain and North Ireland |
| 5162364 | 2016.10.19 | 2026.10.18\* | ![](image_003.jpg) | United States |
| 15740889 | 2026.1.7 | 2036.1.6 | ![](image_004.jpg) | China |
| 15810700 | 2026.1.21 | 2036.1.20 | ![](image_005.jpg) | China |
| 16896119 | 2016.7.7 | 2026.7.6 | ![](image_006.jpg) | China |
| 18594673 | 2017.1.21 | 2027.1.20 | ![](image_007.jpg) | China |
| 18742642 | 2017.2.7 | 2027.2.6 | ![](image_008.jpg) | China |
| 20760797 | 2017.9.14 | 2027.9.13 | ![](image_009.jpg) | China |
| 23731087 | 2018.4.14 | 2028.4.13 | ![](image_010.jpg) | China |
| 26054986 | 2018.9.14 | 2028.9.13 | ![](image_011.jpg) | China |
| 26452633 | 2018.10.7 | 2028.10.6 | ![](image_012.jpg) | China |

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**\*** U.S. trademarks do not expire after a set period of time. Trademarks will persist so long as the owner continues to use the trademark. Once the United States Patent and Trademark Office (USPTO), grants a registered trademark, the owner must continue to use the trademark in ordinary commerce.

*Domain*

We have the right to use the following domain registration issued in the PRC.

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| | |
|:---|:---|
| ***Number*** | ***Domain Name*** |
| 1 | www.erayak.com |

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*Copyright*

The following table sets forth a brief description of the Company's copyright in China, including their respective publication numbers, application filing date, issue date, expiration date and title.

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| | | |
|:---|:---|:---|
| ***Number*** | ***Copyright Number*** | ***Issue Country*** |
| 1 | 2018SR916474 | China |
| 2 | 2018SR916512 | China |
| 3 | 2018SR916469 | China |
| 4 | 2018SR916478 | China |

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**Regulation**

This section sets forth a summary of the principal PRC laws and regulations relevant to our business and operations in China.

**Regulation on Product Liability**

Manufacturers and vendors of defective products in the PRC may incur liability for losses and injuries caused by such products. The Civil Code of the People's Republic of China was passed in May 2020 and has be implemented on January 1, 2021.According to The Civil Code of the People's Republic of China, manufacturers or retailers of defective products that cause property damage or physical injury to any person will be subject to civil liability.

In 1993, the Product Quality Law of the PRC (as amended in 2000, 2009 and 2018) and the Law of the PRC on the Protection of the Rights and Interests of Consumers (as amended in 2009 and 2013), were enacted to protect the legitimate rights and interests of end-users and consumers and to strengthen the supervision and control of the quality of products. If our products are defective and cause any personal injuries or damage to assets, our customers have the right to claim compensation from us.

**Regulations on Intellectual Property Rights**

*Patent*. Patents in the PRC are principally protected under the Patent Law of the PRC. The duration of a patent right is either 10 years or 20 years from the date of application, depending on the type of patent right.

*Copyright*. Copyrights in the PRC, including copyrighted software, is principally protected under the Copyright Law of the PRC and related rules and regulations. Under the Copyright Law, the term of protection for copyrighted software is 50 years.

*Trademark*. The PRC Trademark Law has adopted a "first-to-file" principle with respect to trademark registration. Registered trademarks are protected under the Trademark Law of the PRC and related rules and regulations. Trademarks are registered with the Trademark Office of the SAIC. Where registration is sought for a trademark that is identical or similar to another trademark which has already been registered or given preliminary examination and approval for use in the same or similar category of commodities or services, the application for registration of such trademark may be rejected. Trademark registrations are effective for a renewable ten-year period unless otherwise revoked.

*Domain Names*. Domain name registrations are handled through domain name service agencies established under the relevant regulations, and applicants become domain name holders upon successful registration.

**Regulations Relating to Dividend Withholding Tax**

Pursuant to the Enterprise Income Tax Law and its implementation rules, if a non-resident enterprise has not set up an organization or establishment in the PRC or has set up an organization or establishment but the income derived has no actual connection with such organization or establishment, it will be subject to a withholding tax on its PRC-sourced income at a rate of 20%. Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, the withholding tax rate in respect to the payment of dividends by a PRC enterprise to a Hong Kong enterprise is reduced to 5% from a standard rate of 10% if the Hong Kong enterprise directly holds at least 25% of the PRC enterprise. Pursuant to the Notice of the State Administration of Taxation on the Issues concerning the Application of the Dividend Clauses of Tax Agreements, or Circular 81, a Hong Kong resident enterprise must meet the following conditions, among others, in order to enjoy the reduced withholding tax: (i) it must directly own the required percentage of equity interests and voting rights in the PRC resident enterprise; and (ii) it must have directly owned such percentage in the PRC resident enterprise throughout the 12 months prior to receiving the dividends. There are also other conditions for enjoying the reduced withholding tax rate according to other relevant tax rules and regulations.

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According to the Circular on Several Issues regarding the "Beneficial Owner" in Tax Treaties, which was issued on February 3, 2018 by the SAT, effective as of April 1, 2018, when determining the applicant's status of the "beneficial owner" regarding tax treatments in connection with dividends, interests or royalties in the tax treaties, several factors, including without limitation, whether the applicant is obligated to pay more than 50% of its income in twelve months to residents in third country or region, whether the business operated by the applicant constitutes the actual business activities, and whether the counterparty country or region to the tax treaties does not levy any tax or grant tax exemption on relevant incomes or levy tax at an extremely low rate, will be taken into account, and it will be analyzed according to the actual circumstances of the specific cases. This circular further provides that applicants who intend to prove his or her status of the "beneficial owner" shall submit the relevant documents to the relevant tax bureau according to the Announcement on Issuing the Measures for the Administration of Non-Resident Taxpayers' Enjoyment of the Treatment under Tax Agreements.

On October 14, 2019, the State Administration of Taxation issued the Notice on the Administrative Measures for Non-resident Enterprises to Enjoy Contractual Benefits (Circular No. 35 of the State Administration of Taxation in 2019, Circular 35), which was implemented from January 1, 2020. According to Circular 35, non-resident enterprises may enjoy the benefits by way of "self-judgment, declaration and enjoyment, and retention of relevant information for future reference". If a non-resident enterprise judge that it meets the conditions for enjoying the contractual benefits, it may enjoy the contractual benefits at the time of tax declaration or through the withholding agent. At the same time, it shall collect and retain relevant information for reference in accordance with Circular 35, and accept the follow-up management of the tax authorities.

Accordingly, Erayak HK, our Hong Kong subsidiary, may be able to enjoy the 5% withholding tax rate for the dividends they receive from Ruike, Zhejiang Leiya and Wenzhou New Focus, our PRC subsidiaries, respectively, if they satisfy the conditions prescribed under Circular 81 and other relevant tax rules and regulations. However, according to Circular 81, if the relevant tax authorities consider the transactions or arrangements we have are for the primary purpose of enjoying a favorable tax treatment, the relevant tax authorities may adjust the favorable withholding tax in the future.

**Regulations Relating to Foreign Exchange**

***Regulations on Foreign Currency Exchange***

The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, most recently amended in August 2008. Under the PRC foreign exchange regulations, payments of current account items, such as profit distributions, interest payments, and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. By contrast, approval from or registration with appropriate government authorities is required where RMB is converted into foreign currency and remitted out of China to pay capital account items, such as direct investments, repayment of foreign currency-denominated loans, repatriation of investments, and investments in securities outside of China.

In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment, which substantially amends and simplifies the current foreign exchange procedure. Pursuant to this circular, the opening of various special-purpose foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts and guarantee accounts, the reinvestment of RMB proceeds derived by foreign investors in the PRC, and remittance of foreign exchange profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE, and multiple capital accounts for the same entity may be opened in different provinces, which was not possible previously. In addition, SAFE promulgated another circular in May 2013, which specifies that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC must be conducted by way of registration and banks must process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and its branches. On February 13, 2015, SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment, or SAFE Notice 13. After SAFE Notice 13 became effective on June 1, 2015, instead of applying for approvals regarding foreign exchange registrations of foreign direct investment and overseas direct investment from SAFE, entities and individuals may apply for such foreign exchange registrations from qualified banks. Under the supervision of SAFE, the qualified banks may directly review the applications and conduct the registration.

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On March 30, 2015, SAFE promulgated Circular 19, which expands a pilot reform of the administration of the settlement of the foreign exchange capitals of foreign-invested enterprises nationwide. Circular 19 came into force and replaced both previous Circular 142 and Circular 36 on June 1, 2015. On June 9, 2016, SAFE promulgated Circular 16 to further expand and strengthen such reform. Under Circular 19 and Circular 16, foreign-invested enterprises in the PRC are allowed to use their foreign exchange funds under capital accounts and RMB funds from exchange settlement for expenditure under current accounts within its business scope or expenditure under capital accounts permitted by laws and regulations, except that such funds shall not be used for (i) expenditure beyond the enterprise's business scope or expenditure prohibited by laws and regulations; (ii) investments in securities or other investments than banks' principal-secured products; (iii) granting of loans to non-affiliated enterprises, except where it is expressly permitted in the business license; and (iv) construction or purchase of real estate for purposes other than self-use (except for real estate enterprises).

In January 2017, SAFE promulgated the Circular on Further Improving Reform of Foreign Exchange Administration and Optimizing Genuineness and Compliance Verification, or SAFE Circular 3, which stipulates several capital control measures with respect to the outbound remittance of profit from domestic entities to offshore entities, including (i) under the principle of genuine transaction, banks shall check board resolutions regarding profit distribution, the original version of tax filing records and audited financial statements; and (ii) domestic entities shall hold income to account for previous years' losses before remitting the profits. Further, according to SAFE Circular 3, domestic entities shall make detailed explanations of the sources of capital and utilization arrangements and provide board resolutions, contracts and other proof when completing the registration procedures in connection with an outbound investment.

***Regulations on Foreign Exchange Registration of Overseas Investment by PRC Residents***

SAFE issued SAFE Circular on Relevant Issues Relating to Domestic Resident's Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, that became effective in July 2014, replacing the previous SAFE Circular 75. SAFE Circular 37 regulates foreign exchange matters in relation to the use of special purpose vehicles, or SPVs, by PRC residents or entities to seek offshore investment and financing or conduct round trip investment in China. Under SAFE Circular 37, an SPV refers to an offshore entity established or controlled, directly or indirectly, by PRC residents or entities to seek offshore financing or make an offshore investment, using legitimate onshore or offshore assets or interests. An "round trip investment" refers to direct investment in China by PRC residents or entities through SPVs, establishing foreign-invested enterprises to obtain ownership, control rights, and management rights. SAFE Circular 37 provides that, before contributing to an SPV, PRC residents or entities must complete foreign exchange registration with SAFE or its local branch. SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment in February 2015, which took effect on June 1, 2015. This notice has amended SAFE Circular 37 requiring PRC residents or entities to register with qualified banks rather than SAFE or its local branch in connection with their establishment or control of an offshore entity established for overseas investment or financing.

PRC residents or entities who had contributed legitimate onshore or offshore interests or assets to SPVs but had not obtained registration as required before the implementation of the SAFE Circular 37 must register their ownership interests or control in the SPVs with qualified banks. An amendment to the registration is required if there is a material change with respect to the SPV registered, such as any change of basic information (including change of the PRC residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, and mergers or divisions. Failure to comply with the registration procedures set forth in SAFE Circular 37 and the subsequent notice, or making misrepresentation on or failure to disclose controllers of the foreign-invested enterprise that is established through round-trip investment, may result in restrictions being imposed on the foreign exchange activities of the relevant foreign-invested enterprise, including payment of dividends and other distributions, such as proceeds from any reduction in capital, share transfer or liquidation, to its offshore parent or affiliate, and the capital inflow from the offshore parent, and may also subject relevant PRC residents or entities to penalties under PRC foreign exchange administration regulations.

We are aware that our PRC resident beneficial owners subject to these registration requirements have registered with the Beijing SAFE branch and/or qualified banks to reflect the recent changes to our corporate structure.

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**Regulations Relating to Dividend Distributions**

According to the PRC Company Law and Foreign Investment Law, each of our PRC subsidiaries, as a foreign invested enterprise, or FIE, are required to draw 10% of its after-tax profits each year, if any, to fund a common reserve, which may stop drawing its after-tax profits if the aggregate balance of the common reserve has already accounted for over 50% of its registered capital. These reserves are not distributable as cash dividends. Furthermore, under the EIT Law, which became effective in January 2008, the maximum tax rate for the withholding tax imposed on dividend payments from PRC foreign invested companies to their overseas investors that are not regarded as "resident" for tax purposes is 20%. The rate was reduced to 10% under the Implementing Regulations for the EIT Law issued by the State Council. However, a lower withholding tax rate might be applied if there is a tax treaty between China and the jurisdiction of the foreign holding companies, such as tax rate of 5% in the case of Hong Kong companies that holds at least 25% of the equity interests in the foreign-invested enterprise, and certain requirements specified by PRC tax authorities are satisfied.

Under our current corporate structure, Erayak may rely on dividend payments from Ruike, Zhejiang Leiya and Wenzhou New Focus, which is a wholly foreign-owned enterprise incorporated in China, to fund any cash and financing requirements we may have. The principal regulations governing the distribution of dividends of foreign-invested enterprises include Foreign Investment Law of the People's Republic of China and the Company Law of the People's Republic of China. Under these laws, wholly foreign-owned enterprises in China may freely make remittance inward and outward in RMB or foreign exchange of capital contribution, profits, capital yield, income from asset disposal, intellectual property licensing fees, indemnity obtained according to law or income from compensation and liquidation. In addition, wholly foreign-owned enterprises in China must allocate at least 10% of their respective accumulated profits each year as statutory reserve fund, if any, to fund the reserve fund until the statutory reserves fund has reached 50% of the registered capital of the enterprises. Wholly foreign-owned companies may, at their discretion, allocate a portion of their after-tax profits based on PRC accounting standards to optional reserve funds. After making up the losses and allocating reserve funds, the remaining after tax profits of wholly foreign-owned enterprises may be distributed to the shareholders.

**Regulations Relating to Overseas Listings**

On December 24, 2021, the China Securities Regulatory Commission, or the CSRC, issued Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (the "Administration Provisions"), and the Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (the "Measures"), which are now open for public comments.

The Administration Provisions and Measures for overseas listings lay out specific requirements for filing documents and include unified regulation management, strengthening regulatory coordination, and cross-border regulatory cooperation. Domestic companies seeking to list abroad must carry out relevant security screening procedures if their businesses involve such supervision. Companies endangering national security are among those off-limits for overseas listings.

According to Relevant Officials of the CSRC Answered Reporter Questions ("CSRC Answers"), after the Administration Provisions and Measures are implemented upon completion of public consultation and due legislative procedures, the CSRC will formulate and issue guidance for filing procedures to further specify the details of filing administration and ensure that market entities could refer to clear guidelines for filing, which means it will still take time to put the Administration Provisions and Measures into effect. As the Administration Provisions and Measures have not yet come into effect, the Company is currently unaffected by them.

However, according to CSRC Answers, only new initial public offerings and refinancing by existing overseas listed Chinese companies will be required to go through the filing process; other existing overseas listed companies will be allowed a sufficient transition period to complete their filing procedure, which means the Company will certainly go through the filing process in the future, perhaps because of refinancing, or after being given a sufficient transition period to complete the filing procedure as an existing overseas listed Chinese company.

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In August 2006, six PRC regulatory authorities, including the CSRC, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, amended in June 2009. The M&A Rules, among other things, require that if an overseas company established or controlled by PRC companies or individuals, or PRC citizens, intends to acquire equity interests or assets of any other PRC domestic company affiliated with the PRC citizens, such acquisition must be submitted to the MOFCOM for approval. The M&A Rules also require that an overseas special purpose vehicle, or Overseas SPV, formed for overseas listing purposes and controlled directly or indirectly by the PRC citizens shall obtain the approval of the CSRC prior to overseas listing and trading of such Overseas SPV's securities on an overseas stock exchange.

Our PRC legal counsel, Gaopeng & Partners, has advised us that, based on its understanding of the current PRC laws and regulations, our corporate structure and arrangements are not subject to the M&A Rules. However, our PRC legal counsel has further advised us that there are substantial uncertainties as to how the M&A Rules will be interpreted or implemented in the context of an overseas offering, and its opinions summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the M&A Rules.

**Regulations Relating to Employment**

The PRC Labor Law and the Labor Contract Law require that employers must execute written employment contracts with full-time employees. In the event that an employer fails to enter into a written employment contract with an employee within one year from the date on which the employment relationship is established, the employer must rectify the situation by entering into a written employment contract with the employee and pay the employee twice the employee's salary for the period from the day following the lapse of one month from the date of establishment of the employment relationship to the day prior to the execution of the written employment contract. All employers must compensate their employees with wages equal to at least the local minimum wage standards. Violations of the PRC Labor Law and the Labor Contract Law may result in the imposition of fines and other administrative sanctions, and serious violations may result in criminal liabilities.

Enterprises in China are required by PRC laws and regulations to participate in certain employee benefit plans, including social insurance funds, namely a pension plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity insurance plan, and a housing provident fund, and contribute to the plans or funds in amounts equal to certain percentages of salaries, including bonuses and allowances, of the employees as specified by the local government from time to time at locations where they operate their businesses or where they are located. Failure to make adequate contributions to various employee benefit plans may be subject to fines and other administrative sanctions.

Currently, we are making contributions to the plans based on the minimum standards although the PRC laws required such contributions to be based on the actual employee salaries up to a maximum amount specified by the local government. Therefore, in our consolidated financial statements, we have made an estimate and accrued a provision in relation to the potential make-up of our contributions for these plans as well as to pay late contribution fees and fines. If we are subject to late contribution fees or fines in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected. See "*Risk Factors - Risks Related to Doing Business in China - Failure to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties.*"

**Regulations Related to Foreign Investment**

The establishment, operation, and management of companies in China are mainly governed by the PRC Company Law, as most recently amended in 2018, which applies to both PRC domestic companies and foreign-invested companies. On March 15, 2019, the National People's Congress approved the Foreign Investment Law, and on December 26, 2019, the State Council promulgated the Implementing Rules of the PRC Foreign Investment Law, or the Implementing Rules, to further clarify and elaborate the relevant provisions of the Foreign Investment Law. The Foreign Investment Law and the Implementing Rules both took effect on January 1, 2020. They replaced three previous major laws on foreign investments in China, namely, the Sino-foreign Equity Joint Venture Law, the Sino-foreign Cooperative Joint Venture Law and the Wholly Foreign-owned Enterprise Law, together with their respective implementing rules. Pursuant to the Foreign Investment Law, "foreign investments" refer to investment activities conducted by foreign investors (including foreign natural persons, foreign enterprises or other foreign organizations) directly or indirectly in the PRC, which include any of the following circumstances: (i) foreign investors setting up foreign-invested enterprises in the PRC solely or jointly with other investors, (ii) foreign investors obtaining shares, equity interests, property portions or other similar rights and interests of enterprises within the PRC, (iii) foreign investors investing in new projects in the PRC solely or jointly with other investors, and (iv) investment in other methods as specified in laws, administrative regulations, or as stipulated by the State Council. The Implementing Rules introduce a see-through principle and further provide that foreign-invested enterprises that invest in the PRC shall also be governed by the Foreign Investment Law and the Implementing Rules.

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The Foreign Investment Law and the Implementing Rules provide that a system of pre-entry national treatment and negative list shall be applied for the administration of foreign investment. "Pre-entry national treatment" means that the treatment given to foreign investors and their investments at market access stage is no less favorable than that given to domestic investors and their investments. "Negative list" means the special administrative measures for foreign investment's access to specific fields or industries, which will be proposed by the competent investment department of the State Council in conjunction with the competent commerce department of the State Council and other relevant departments, and be reported to the State Council for promulgation, or be promulgated by the competent investment department or competent commerce department of the State Council after being reported to the State Council for approval. Foreign investment beyond the negative list will be granted national treatment. Foreign investors shall not invest in the prohibited fields as specified in the negative list, and foreign investors who invest in the restricted fields shall comply with the special requirements on the shareholding, senior management personnel, etc. In the meantime, relevant competent government departments will formulate a catalog of industries for which foreign investments are encouraged according to the needs for national economic and social development, to list the specific industries, fields, and regions in which foreign investors are encouraged and guided to invest.

Investment activities in the PRC by foreign investors were principally governed by the Catalogue for the Guidance of Foreign Investment Industries, or the Catalogue, which was promulgated and is amended from time to time by the MOFCOM and the NDRC. Industries listed in the Catalogue were divided into three categories: encouraged, restricted and prohibited. Industries not listed in the Catalogue were generally deemed as constituting a fourth "permitted" category. The Catalog was replaced by the Special Administrative Measures for Access of Foreign Investment (Negative List) and the Catalogue of Industries for Encouraging Foreign Investment in 2018 and 2019, respectively. On December 27, 2021, the NDRC and MOFCOM issued the latest Special Administrative Measures for Access of Foreign Investment (Negative List) (2021 Edition) (the "Negative List 2021"), which came into effect on January 1, 2022. The Negative List 2021 sets out the areas where foreign investment is prohibited and the areas where foreign investment is allowed only on certain conditions. Foreign investment in areas not listed in the Negative List 2021 is treated equally with domestic investment and the relevant provisions of the Negative List for Market Access shall apply to domestic and foreign investors on a unified basis. Moreover, according to Negative List 2021, PRC entities which engage in any field forbidden by the Negative List 2021 for access of foreign investment shall be approved by competent PRC authorities when they seek listing offshore, and foreign investors shall not participate in operation and management and their shareholding ration shall be in compliance with PRC laws.

According to the Implementing Rules, the registration of foreign-invested enterprises shall be handled by the State Administration for Market Regulation ("SAMR") or its authorized local counterparts. Where a foreign investor invests in an industry or field subject to licensing in accordance with laws, the relevant competent government department responsible for granting such license shall review the license application of the foreign investor in accordance with the same conditions and procedures applicable to PRC domestic investors unless it is stipulated otherwise by the laws and administrative regulations, and the competent government department shall not impose discriminatory requirements on the foreign investor in terms of licensing conditions, application materials, reviewing steps and deadlines, etc. However, the relevant competent government departments shall not grant the license or permit enterprise registration if the foreign investor intends to invest in the industries or fields as specified in the negative list without satisfying the relevant requirements. In the event that a foreign investor invests in a prohibited field or industry as specified in the negative list, the relevant competent government department shall order the foreign investor to stop the investment activities, dispose of the shares or assets or take other necessary measures within a specified time limit, and restore to the status before the occurrence of the investment described above. The illegal gains, if any, shall be confiscated. In the event that the investment activities of a foreign investor violate the special administration measures for access restrictions on foreign investments as stipulated in the negative list, the relevant competent government department shall order the investor to make corrections within the specified time limit and take necessary measures to meet the relevant requirements. In the event that the foreign investor fails to make corrections within the specified time limit, the provisions above regarding the circumstance that a foreign investor invests in the prohibited field or industry shall apply.

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Pursuant to the Foreign Investment Law and the Implementing Rules, and the Information Reporting Measures for Foreign Investment jointly promulgated by the MOFCOM and the SAMR, which took effect on January 1, 2020, a foreign investment information reporting system shall be established and foreign investors or foreign-invested enterprises shall report investment information to competent commerce departments of the government through the enterprise registration system and the enterprise credit information publicity system, and the administration for market regulation shall forward the above investment information to the competent commerce departments in a timely manner. In addition, the MOFCOM shall set up a foreign investment information reporting system to receive and handle the investment information and inter-departmentally shared information forwarded by the administration for market regulation in a timely manner. The foreign investors or foreign-invested enterprises shall report the investment information by submitting reports including initial reports, change reports, deregistration reports and annual reports.

Furthermore, the Foreign Investment Law provides that foreign-invested enterprises established according to the previous laws regulating foreign investment prior to the implementation of the Foreign Investment Law may maintain their structure and corporate governance within five years after the implementation of the Foreign Investment Law. The Implementing Rules further clarify that such foreign-invested enterprises established prior to the implementation of the Foreign Investment Law may either adjust their organizational forms or organizational structures pursuant to the Company Law or the Partnership Law or maintain their current structure and corporate governance within five years upon the implementation of the Foreign Investment Law. Since January 1, 2025, if a foreign-invested enterprise fails to adjust its organizational form or structure according to applicable laws and go through the applicable registrations, the relevant administration for market regulation shall not handle other registrations for changes and shall publicize the relevant circumstances. However, after the organizational forms or structures have been adjusted, the original parties to the Sino-foreign equity or cooperative joint ventures may continue to process matters such as equity interest transfer, income distribution, or surplus assets as agreed in the relevant contracts.

In addition, the Foreign Investment Law and the Implementing Rules also specify other protective rules and principles for foreign investors and their investments in the PRC, including, among others, that local governments shall abide by their commitments to the foreign investors; except for special circumstances, in which case statutory procedures shall be followed and fair and reasonable compensation shall be made in a timely manner, expropriation or requisition of the investment of foreign investors is prohibited; mandatory technology transfer is prohibited, etc.

**Regulations Relating to Land Use Right and Construction**

Pursuant to the PRC Land Administration Law promulgated in June 1986 with the latest amendment in August 2019 and the PRC Civil Code, any entity that needs land for the purposes of construction must obtain land use right and must register with local counterparts of Land and Resources Ministry. Land use right is established at the time of registration.

According to the Measures for Control and Administration of Grant and Assignment of Right to Use Urban State-owned Land promulgated by the Ministry of Housing and Urban-Rural Development in December 1992, and the PRC Law on Urban and Rural Planning promulgated by the National People's Congress in October 2007 and became effective in January 2008 with the latest amendment in April 2019, the Measures for Administration of Granting Permission for Commencement of Construction Works promulgated by the Ministry of Housing and Urban-Rural Development in June 2014 with the latest amendment in September 2018, the Administrative Measures for Archival Filing on Inspection Upon Completion of Buildings and Municipal Infrastructure promulgated by the Ministry of Housing and Urban-Rural Development in April 2000 with the latest amendment in October 2009, the Provisions on Inspection Upon Completion of Buildings and Municipal Infrastructure promulgated by the Ministry of Housing and Urban-Rural Development, and the Regulations on the Quality Management of Construction Engineering promulgated by the State Council latest amended in April 2019, after obtaining land use right, the owner of land use right must obtain construction land planning permit, construction works planning permit from the relevant municipal planning authority, and a construction permit from relevant construction authority in order to commence construction. After a building is completed, an examination of completion by the relevant governmental authorities and experts must be organized.

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**Regulations Relating to Leasing**

Pursuant to the Law on Administration of Urban Real Estate which took effect in January 1995 with the latest amendment in August 2019, lessors and lessees are required to enter into a written lease contract, containing such provisions as the term of the lease, the use of the premises, liability for rent and repair, and other rights and obligations of both parties. Both lessor and lessee are also required to register the lease with the real estate administration department.

**Regulations Relating to Environmental Protection**

Pursuant to the PRC Law on Environment Impact Assessment promulgated in 2002 and most recently amended in 2018, and the Administrative Regulations on the Environmental Protection of Construction Projects promulgated in 1998 with the latest amendment in July 2017, each construction project is required to undergo an environmental impact assessment, and an environmental impact assessment report must be submitted to the relevant governmental authorities for approval before the commencement of construction. In the event that there is a material change in respect of the construction site, scale, nature, the production techniques employed, or the measures adopted for preventing pollution and preventing ecological damage of a given project, a new environmental impact assessment report must be submitted for approval. Moreover, after the completion of a construction project, the constructing entity is required to obtain a completion acceptance on environmental protection for the project. Failure to comply with the above-mentioned regulations may subject an enterprise to fines, suspension of the construction and other administrative liabilities, and even criminal liabilities under severe circumstances.

**Regulations Relating to Fire Prevention**

The Fire Prevention Law of the PRC, or the Fire Prevention Law, was adopted on April 29, 1998, and amended on October 28, 2008, April 23, 2019, and April 29, 2021. According to the Fire Prevention Law and other relevant laws and regulations of the PRC, the Ministry of Public Security and its local counterparts at or above the county level shall monitor and administer the fire prevention affairs. The fire prevention departments of such public securities are responsible for implementation. The Fire Prevention Law provides that the fire prevention design or construction of a construction project must conform to the national fire prevention technical standards (as the case may be). According to Provisions on the Interim Provisions on the Administration of Fire Protection Design Review and Acceptance of Construction Projects, issued on April 1, 2020, and took effect on June 1, 2020, for those construction projects with more than 500 square meters, the construction entity shall apply to the fire prevention department of a public security authority for fire protection design approval.

For the construction projects other than the conditions foregoing, the construction entity shall, within seven days of obtaining the construction permit of the project, submit the fire protection filing for fire protection design through the website of the fire prevention department of the public security authority at the provincial level or at the service office of the fire prevention department of the public security authority. For a construction project whose investment is less than RMB300,000 or whose construction area is less than 300 square meters, fire protection design approval or filing is not required.

**Regulations Relating to Intellectual Property**

China has adopted comprehensive legislation governing intellectual property rights, including copyrights, trademarks, patents and domain names. China is a signatory to the primary international conventions on intellectual property rights and has been a member of the Agreement on Trade Related Aspects of Intellectual Property Rights since its accession to the World Trade Organization in December 2001.

***Copyright***

On September 7, 1990, the SCNPC promulgated the Copyright Law of the People's Republic of China, or the Copyright Law, effective on June 1, 1991 and amended on October 27, 2001, February 26, 2010, and November 11, 2020, respectively. The amended Copyright Law extends copyright protection to internet activities, products disseminated over the Internet and software products. In addition, there is a voluntary registration system administered by the Copyright Protection Center of China.

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Under the Regulations on the Protection of the Right to Network Dissemination of Information that took effect on July 1, 2006 and was amended on January 30, 2013, it is further provided that an Internet information service provider may be held liable under various situations, including that if it knows or should reasonably have known a copyright infringement through the Internet and the service provider fails to take measures to remove or block or disconnect links to the relevant content, or, although not aware of the infringement, the Internet information service provider fails to take such measures upon receipt of the copyright holder's notice of such infringement.

In order to further implement the Regulations on Computer Software Protection, promulgated by the State Council on December 20, 2001 and amended on January 8, 2011 and January 30, 2013, respectively, the National Copyright Administration issued the Measures for the Registration of Computer Software Copyright on February 20, 2002, which specify detailed procedures and requirements with respect to the registration of software copyrights.

***Trademark***

According to the Trademark Law of the People's Republic of China promulgated by the SCNPC on August 23, 1982, and amended on February 22, 1993, October 27, 2001, August 30, 2013 and April 23, 2019, respectively, the Trademark Office of the SAIC is responsible for the registration and administration of trademarks in China. The SAIC under the State Council has established a Trademark Review and Adjudication Board for resolving trademark disputes. Registered trademarks are valid for ten years from the date the registration is approved. A registrant may apply to renew a registration within twelve months before the expiration date of the registration. If the registrant fails to apply in a timely manner, a grace period of six additional months may be granted. If the registrant fails to apply before the grace period expires, the registered trademark shall be deregistered. Renewed registrations are valid for ten years. On April 29, 2014, the State Council issued the revised the Implementing Regulations of the Trademark Law of the People's Republic of China, which specified the requirements of applying for trademark registration and renewal.

***Patent***

According to the Patent Law of the People's Republic of China, or the Patent Law, promulgated by the SCNPC on March 12, 1984 and amended on September 4, 1992, August 25, 2000, December 27, 2008, and October 17, 2020, respectively, and the Implementation Rules of the Patent Law of the People's Republic of China, or the Implementation Rules of the Patent Law, promulgated by the State Council on June 15, 2001 and revised on December 28, 2002 and January 9, 2010, the patent administrative department under the State Council is responsible for the administration of patent-related work nationwide. The patent administration departments of provincial or autonomous regions or municipal governments are responsible for administering patents within their respective administrative areas. The Patent Law and Implementation Rules of the Patent Law provide for three types of patents, namely "inventions," "utility models," and "designs." Invention patents are valid for twenty years, while utility model patents and design patents are valid for ten years, from the date of application. The Chinese patent system adopts a "first-come, first file" principle, which means that where more than one person files a patent application for the same invention, a patent will be granted to the person who files the application first. An invention or a utility model must possess novelty, inventiveness, and practical applicability to be patentable. Third Parties must obtain consent or a proper license from the patent owner to use the patent. Otherwise, the unauthorized use constitutes an infringement on the patent rights.

***Domain Names***

On May 28, 2012, the China Internet Network Information Center, or the CNNIC, issued the Implementing Rules for Domain Name Registration which took effect on May 29, 2012, setting forth the detailed rules for registration of domain names. On August 24, 2017, the MIIT promulgated the Administrative Measures for Internet Domain Names, or the Domain Name Measures, which became effective on November 1, 2017. The Domain Name Measures regulate the registration of domain names, such as China's national top-level domain name ".CN". The CNNIC issued the Measures of the China Internet Network Information Center for the Resolution of Country Code Top-Level Domain Name Disputes on September 9, 2014, which took effect on November 21, 2014, pursuant to which domain name disputes shall be accepted and resolved by the dispute resolution service providers as accredited by the CNNIC.

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**Regulations Relating to Offshore Special Purpose Companies Held by PRC Residents**

SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment by Foreign Investors and the Supporting Documents on May 10, 2013, which became effective on May 13, 2013 and which specifies that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC shall be conducted by way of registration and banks shall process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and its branches.

SAFE promulgated Notice on Issues Relating to Foreign Exchange Administration over the Overseas Investment and Financing and Round-trip Investment by Domestic Residents via Special Purpose Vehicles, or the SAFE Circular 37, on July 4, 2014, that requires PRC residents or entities to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. In addition, such PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicle undergoes material events relating to any change of basic information (including change of such PRC citizens or residents, name and term of operation), capital increase or capital reduction, transfers or exchanges of shares, or mergers or divisions. SAFE Circular 37 was issued to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in Financing and Roundtrip Investments via Overseas Special Purposes Vehicles.

SAFE further enacted the Notice of the State Administration of Foreign Exchange on Further Simplifying and Improving the Foreign Exchange Management Policies for Direct Investment, or the SAFE Circular 13, which allows PRC residents or entities to register with qualified banks in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. However, remedial registration applications made by PRC residents that previously failed to comply with the SAFE Circular 37 continue to fall under the jurisdiction of the relevant local branch of SAFE. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from distributing profits to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary.

On January 26, 2017, SAFE issued the Notice on Improving the Check of Authenticity and Compliance to Further Promote Foreign Exchange Control, or the SAFE Circular 3, which stipulates several capital control measures with respect to the outbound remittance of profit from domestic entities to offshore entities, including (i) under the principle of genuine transaction, banks shall check board resolutions regarding profit distribution, the original version of tax filing records and audited financial statements; and (ii) domestic entities shall hold income to account for previous years' losses before remitting the profits. Moreover, pursuant to SAFE Circular 3, domestic entities shall make detailed explanations of the sources of capital and utilization arrangements and provide board resolutions, contracts, and other proof when completing the registration procedures in connection with an outbound investment.

**Regulations Relating to Taxation** 

***Income Tax***

According to the Enterprise Income Tax Law of the People's Republic of China, or the EIT Law, which was promulgated on March 16, 2007, became effective as from January 1, 2008, and amended on February 24, 2017, and December 29, 2018, an enterprise established outside the PRC with de facto management bodies within the PRC is considered as a resident enterprise for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. The Implementing Rules of the Enterprise Income Law of the People's Republic of China, or the Implementing Rules of the EIT Law, defines a de facto management body as a managing body that in practice exercises "substantial and overall management and control over the production and operations, personnel, accounting, and properties" of the enterprise. Non-PRC resident enterprises without any branches in the PRC pay an enterprise income tax in connection with their income originating from the PRC at the tax rate of 10%.

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On February 3, 2015, the PRC State Administration of Taxation, or the SAT, issued the Announcement on Several Issues Concerning the Enterprise Income Tax on Indirect Transfer of Assets by Non-Resident Enterprises, or the SAT Circular 7. The SAT Circular 7 repeals certain provisions in the Notice of the State Administration of Taxation on Strengthening the Administration of Enterprise Income Tax on Income from Equity Transfer by Non-Resident Enterprises, or the SAT Circular 698, issued by SAT on December 10, 2009 and the Announcement on Several Issues Relating to the Administration of Income Tax on Non-resident Enterprises issued by SAT on March 28, 2011 and clarifies certain provisions in the SAT Circular 698. The SAT Circular 7 provides comprehensive guidelines relating to, and heightening the Chinese tax authorities' scrutiny on, indirect transfers by a non-resident enterprise of assets (including assets of organizations and premises in PRC, immovable property in the PRC, equity investments in PRC resident enterprises), or the PRC Taxable Assets. For instance, when a non-resident enterprise transfers equity interests in an overseas holding company that directly or indirectly holds certain PRC Taxable Assets and if the transfer is believed by the Chinese tax authorities to have no reasonable commercial purpose other than to evade enterprise income tax, the SAT Circular 7 allows the Chinese tax authorities to reclassify the indirect transfer of PRC Taxable Assets into a direct transfer and therefore impose a 10% rate of PRC enterprise income tax on the non-resident enterprise. The SAT Circular 7 lists several factors to be considered by tax authorities in determining if an indirect transfer has a reasonable commercial purpose. However, regardless of these factors, the overall arrangements in relation to an indirect transfer satisfying all the following criteria will be deemed to lack a reasonable commercial purpose: (i) 75% or more of the equity value of the intermediary enterprise being transferred is derived directly or indirectly from PRC Taxable Assets; (ii) at any time during the one year period before the indirect transfer, 90% or more of the asset value of the intermediary enterprise (excluding cash) is comprised directly or indirectly of investments in the PRC, or during the one year period before the indirect transfer, 90% or more of its income is derived directly or indirectly from the PRC; (iii) the functions performed and risks assumed by the intermediary enterprise and any of its subsidiaries and branches that directly or indirectly hold the PRC Taxable Assets are limited and are insufficient to prove their economic substance; and (iv) the foreign tax payable on the gain derived from the indirect transfer of the PRC Taxable Assets is lower than the potential PRC tax on the direct transfer of those assets. On the other hand, indirect transfers falling into the scope of the safe harbors under the SAT Circular 7 will not be subject to PRC tax under the SAT Circular 7. The safe harbors include qualified group restructurings, public market trades, and exemptions under tax treaties or arrangements.

On October 17, 2017, SAT issued the Announcement on Issues Relating to Withholding at Source of Income Tax of Non-resident Enterprises, or the SAT Circular 37, which took effect on December 1, 2017. According to the SAT Circular 37, the balance after deducting the equity net value from the equity transfer income shall be the taxable income amount for equity transfer income. Equity transfer income shall mean the consideration collected by the equity transferor from the equity transfer, including various income in monetary form and non-monetary form. Equity net value shall mean the tax computation basis for obtaining the said equity. The tax computation basis for equity shall be: (i) the capital contribution costs actually paid by the equity transferor to a Chinese resident enterprise at the time of investment and equity participation, or (ii) the equity transfer costs actually paid at the time of acquisition of such equity to the original transferor of the said equity. Where there is reduction or appreciation of value during the equity holding period, and the gains or losses may be confirmed pursuant to the rules of the finance and tax authorities of the State Council, the equity net value shall be adjusted accordingly. When an enterprise computes equity transfer income, it shall not deduct the amount in the shareholders' retained earnings such as undistributed profits etc., of the investee enterprise, which may be distributed in accordance with the said equity. In the event of partial transfer of equity under multiple investments or acquisitions, the enterprise shall determine the costs corresponding to the transferred equity in accordance with the transfer ratio, out of all costs of the equity.

Under the SAT Circular 7 and the Law of the People's Republic of China on the Administration of Tax Collection promulgated by the SCNPC on September 4, 1992 and newly amended on April 24, 2015, in the case of an indirect transfer, entities or individuals obligated to pay the transfer price to the transferor shall act as withholding agents. In the event that they fail to make a withholding or withhold the full amount of tax payable, the transferor of equity shall declare and pay tax to the relevant tax authorities within seven days from the occurrence of tax payment obligation. The withholding agent does not make the withholding, and the transferor of the equity does not pay the tax payable amount. The tax authority may impose late payment interest on the transferor. In addition, the tax authority may also hold the withholding agents liable and impose a penalty of ranging from 50% to 300% of the unpaid tax on them. The penalty imposed on the withholding agents may be reduced or waived if the withholding agents have submitted the relevant materials in connection with the indirect transfer to the PRC tax authorities in accordance with the SAT Circular 7.

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***Withholding Tax on Dividend Distribution***

The EIT Law prescribes a standard withholding tax rate of 20% on dividends and other China-sourced income of non-PRC resident enterprises which have no establishment or place of business in the PRC, or if established, the relevant dividends or other China-sourced income are in fact not associated with such establishment or place of business in the PRC. However, the Implementing Rules of the EIT Law which reduced the rate from 20% to 10%, became effective from January 1, 2008. However, a lower withholding tax rate might be applied if there is a tax treaty between China and the jurisdiction of the foreign holding companies, for example, pursuant to the Arrangement Between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation on Income, or the Double Tax Avoidance Arrangement, and other applicable PRC laws, if a Hong Kong resident enterprise is determined by the competent PRC tax authority to have satisfied the relevant conditions and requirements under the Double Tax Avoidance Arrangement and other applicable laws, the 10% withholding tax on the dividends that the Hong Kong resident enterprise receives from a PRC resident enterprise may be reduced to 5% upon receiving approval from the tax authority in charge.

Based on the Notice on Relevant Issues Relating to the Enforcement of Dividend Provisions in Tax Treaties issued on February 20, 2009 by the SAT, if the relevant PRC tax authorities determine, at their discretion, that a company benefits from such reduced income tax rate due to a structure or an arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment; and based on the Announcement of the State Administration of Taxation on Issues Concerning "Beneficial Owners" in Tax Treaties, which was promulgated on February 3, 2018 and came into effect on April 1, 2018. If the company's activities do not constitute substantive business activities, it will be analyzed according to the actual situation of the specific case, which may not be conducive to the determination of its "beneficiary owner" capacity, and thus may not enjoy the concessions under the Double Tax Avoidance Arrangement.

***Value-Added Tax***

Pursuant to the Interim Regulations on Value-Added Tax of the People's Republic of China, which was promulgated by the State Council on December 13, 1993, and amended on November 10, 2008, February 6, 2016, and November 19, 2017, and the Implementation Rules for the Interim Regulations on Value-Added Tax of the People's Republic of China, which the MOF promulgated on December 25, 1993, and amended on December 15, 2008, and October 28, 2011, entities or individuals engaging in the sale of goods, provision of processing services, repairs and replacement services or import of goods within the territory of the PRC shall pay value-added tax or the VAT. Unless provided otherwise, the rate of VAT is 17% on sales and 6% on the services. On April 4, 2018, MOF and SAT jointly promulgated the Circular of the Ministry of Finance and the State Administration of Taxation on Adjustment of Value-Added Tax Rates, or the Circular 32, according to which (i) for VAT taxable sales acts or import of goods originally subject to VAT rates of 17% and 11% respectively, such tax rates shall be adjusted to 16% and 10%, respectively; (ii) for purchase of agricultural products originally subject to tax rate of 11%, such tax rate shall be adjusted to 10%; (iii) for purchase of agricultural products for the purpose of production and sales or consigned processing of goods subject to tax rate of 16%, such tax shall be calculated at the tax rate of 12%; (iv) for exported goods originally subject to tax rate of 17% and export tax refund rate of 17%, the export tax refund rate shall be adjusted to 16%; and (v) for exported goods and cross-border taxable acts originally subject to tax rate of 11% and export tax refund rate of 11%, the export tax refund rate shall be adjusted to 10%. Circular 32 became effective on May 1, 2018 and shall supersede existing provisions which are inconsistent with Circular 32.

Since January 1, 2012, the MOF and the SAT have implemented the Pilot Plan for Imposition of Value-Added Tax to Replace Business Tax, or the VAT Pilot Plan, which imposes VAT in lieu of business tax for certain "modern service industries" in certain regions and eventually expanded to nation-wide application in 2013. According to the Implementation Rules for the Pilot Plan for Imposition of Value-Added Tax to Replace Business Tax released by the MOF and the SAT on the VAT Pilot Program, the "modern service industries" include research, development and technology services, information technology services, cultural innovation services, logistics support, lease of corporeal properties, attestation and consulting services. The Notice on Comprehensively Promoting the Pilot Plan of the Conversion of Business Tax to Value-Added Tax, which was promulgated on March 23, 2016, became effective on May 1, 2016 and amended on July 11, 2017, sets out that VAT in lieu of business tax be collected in all regions and industries.

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On March 20, 2019, MOF, SAT and GAC jointly promulgated the Announcement on Relevant Policies for Deepening Value-Added Tax Reform, which became effective on April 1, 2019 and provides that (i) with respect to VAT taxable sales acts or import of goods originally subject to VAT rates of 16% and 10% respectively, such tax rates shall be adjusted to 13% and 9%, respectively; (ii) with respect to purchase of agricultural products originally subject to tax rate of 10%, such tax rate shall be adjusted to 9%; (iii) with respect to purchase of agricultural products for the purpose of production or consigned processing of goods subject to tax rate of 13%, such tax shall be calculated at the tax rate of 10%; (iv) with respect to export of goods and services originally subject to tax rate of 16% and export tax refund rate of 16%, the export tax refund rate shall be adjusted to 13%; and (v) with respect to export of goods and cross-border taxable acts originally subject to tax rate of 10% and export tax refund rate of 10%, the export tax refund rate shall be adjusted to 9%.

**Regulations Relating to Overseas Listing and M&A Rules**

On August 8, 2006, six PRC regulatory agencies, including the CSRC, promulgated the Rules on the Merger and Acquisition of Domestic Enterprises by Foreign Investors, or the M&A Rules, which became effective on September 8, 2006 and were amended on June 22, 2009. The M&A Rules, among other things, require offshore special purpose vehicles formed for overseas listing purposes through acquisitions of PRC domestic companies and controlled by PRC domestic enterprises or individuals to obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle's securities on an overseas stock exchange. In September 2006, the CSRC published on its official website procedures regarding its approval of overseas listings by special purpose vehicles. The CSRC approval procedures require the filing of a number of documents with the CSRC. Our PRC legal counsel has advised us based on their understanding of the current PRC laws, regulations and rules, the CSRC's approval may not be required for the listing and trading of our Class A Ordinary Shares on the Nasdaq in the context of this Annual Report.

However, our PRC legal counsel has further advised us that there remains some uncertainty as to how the M&A Rules will be interpreted or implemented in the context of an overseas offering and its opinions summarized above are subject to any new laws, regulations and rules or detailed implementations and interpretations in any form relating to the M&A Rules, and our PRC legal counsel cannot exclude the possibility that the CSRC or other relevant government authorities might, from time to time, further clarify or interpret the M&A Rules in writing or orally and require their approvals to be obtained for the offering. We cannot assure you that relevant PRC government agencies, including the CSRC, would reach the same conclusion as our PRC legal counsel does. If it is determined that CSRC approval is required for this Annual Report, we may face sanctions by the CSRC or other PRC regulatory agencies for failure to obtain or delay in obtaining CSRC approval. These sanctions may include fines and penalties on our operations in China, limitations on our operating privileges in China, delays in or restrictions on the repatriation of the proceeds from any of our subsequent offerings into the PRC, restrictions on or prohibition of the payments or remittance of dividends by our subsidiaries in China, or other actions that could have a material and adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our Class A Ordinary Shares. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to halt our future offering before the settlement and delivery of the Class A Ordinary Shares that we are offering. Consequently, if you engage in market trading or other activities in anticipation of and prior to the settlement and delivery of the Class A Ordinary Shares we are offering, you would be doing so at the risk that the settlement and delivery may not occur. In addition, if the CSRC or other regulatory agencies later promulgate new rules or explanations requiring that we obtain their approvals for any of our future offerings, we may be unable to obtain a waiver of such approval requirements.

The M&A Rules and other regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex. For example, the M&A Rules require that MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that impact or may impact national economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-honored brand.

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In addition, according to the Notice on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors issued by the General Office of the State Council on February 3, 2011, and which became effective 30 days thereafter, the Rules on Implementation of Security Review System for the Merger and Acquisition of Domestic Enterprises by Foreign Investors issued by the MOFCOM on August 25, 2011, and which became effective on September 1, 2011, mergers and acquisitions by foreign investors that raise "national defense and security" concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise "national security" concerns are subject to strict review by the MOFCOM, and the regulations prohibit any activities attempting to bypass such security review, including by structuring the transaction through a proxy or contractual control arrangement.

**4. C. Organizational structure**

As a holding company with no material operations, Erayak conducts a substantial majority of its operations through its subsidiaries established in the People's Republic of China, or the PRC or China. Our corporate structure is a direct holding structure and do not have variable interest entity (VIE) structure. Erayak is permitted under the Cayman Islands laws to provide funding to our subsidiaries in the PRC and Hong Kong through loans or capital contributions without restrictions on the amount of the funds, subject to satisfaction of applicable government registration, approval and filing requirements.

Below is a chart illustrating our current corporate structure:

**4. D. Property, plants and equipment**

*Equipment*

Our production relies on a wide variety of equipment, including equipment for office use and multiple factory equipment facilitating a complete production cycle. As of December 31, 2024 and 2025, our equipment's total value is around $2,240,129 and $3,152,265, respectively.

Our equipment consists of several categories: (i) factory machinery and equipment, (ii) transportation vehicles, (iii) electronic devices, (iv) construction in progress and (v) office furniture and equipment. The above five groups of equipment are utilized in the production of the manufacture of electronics and factory maintenance. Most of our equipment is devoted to manufacturing, which uses approximately 76% of our factory machinery and equipment.

*Lease commitment*

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 in its entirety. Ailefu provided the leased assets as guarantee for the Company to apply for a bank loan for the lease payment.

**ITEM 4A. UNRESOLVED STAFF COMMENTS**

None.

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**ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS**

**OPERATING AND FINANCIAL REVIEW AND PROSPECTS**

 

*The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear in this Annual Report. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, particularly in "Risk Factors." All amounts included herein with respect to the fiscal years ending December 31, 2025, 2024 and 2023 are derived from our audited consolidated financial statements included elsewhere in this Annual Report. These Financial Statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles, or US GAAP.*

**<u>Overview</u>**

ERAYAK Power Solution Group Inc. was incorporated in 2019 under the laws of the Cayman Islands. We conduct business through our key operating subsidiaries, including Zhejiang Leiya, Ruike, Erayak HK and Nexora. Our company specializes in the manufacturing, research and development ("R&D"), and wholesale and retail of power solution products. Our product portfolio includes sine wave and off-grid inverters, inverter and gasoline generators, battery and smart chargers, and custom-designed products. Our products are used principally in agricultural and industrial vehicles, recreational vehicles ("RVs"), electrical appliances, and outdoor living products. Our primary office is 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 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. In the last three fiscal years, we generated revenue mostly from four types of products: (1) inverters constituted approximately 48%, 46%, and 59% of our total revenue for the fiscal years ended December 31, 2025, 2024, and 2023, respectively; (2) chargers, which generated approximately 1.22%, 1.82%, and 2.68%, of our total revenue for the fiscal years ended December 31, 2025, 2024 and 2023, respectively; (3) gasoline generators generated approximately 42.29%, 32.94%, and 32.36%, of our total revenue for the fiscal years ended December 31, 2025, 2024 and 2023, respectively; and (4) power banks generated approximately 7.50%, 16.39%, and 3.96%, of our total revenue for the fiscal years ended December 31, 2025, 2024 and 2023, 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 grant 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.

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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 modifications. 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 packs and delivers the final product to the customer.

**<u>Key Factors Affecting Our Results</u>**

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.

● Fluctuations in Foreign Currency Exchange - We sell a significant portion of our products in countries outside of China (approximately 39.76% based on 2025 revenues). 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.

**<u>Results of Operations</u>**

The following table summarizes the results of our operations for the years ended December 31, 2025, 2024 and 2023, respectively.

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| | | | |
|:---|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
|  | **2025** | **2024** | **2023** |
| Sales | $22855437 | $30300360 | $20322498 |
| Cost of sales | (17983764) | (26307998) | (15299849) |
| **Gross profit** | **4871673** | **3992362** | **5022649** |
| Operating expenses: |  |  |  |
| &nbsp;&nbsp;&nbsp;General and administrative | (4000311) | (2302809) | (2017868) |
| &nbsp;&nbsp;&nbsp;Selling and marketing | (771176) | (946269) | (962479) |
| &nbsp;&nbsp;&nbsp;Research and development | (1608311) | (1670669) | (1176943) |
| &nbsp;&nbsp;&nbsp;Bad debt expense | (122847) | (224534) | (36972) |
| &nbsp;&nbsp;&nbsp;Inventory reserve (provision) / reversal | 368693 | (295907) | (81622) |
| &nbsp;&nbsp;&nbsp;Advance to suppliers impairment provision | (379480) | (111882) | - |
| **Total operating expenses** | **(6513432)** | **(5552070)** | **(4275884)** |
| **Operating (loss) income** | **(1641759)** | **(1559708)** | **746766** |
| Other income (expenses): |  |  |  |
| &nbsp;&nbsp;&nbsp;Interest income (expenses), net | 48040 | (139441) | (402671) |
| &nbsp;&nbsp;&nbsp;Rental income, net | 153845 | 154471 | 195347 |
| &nbsp;&nbsp;&nbsp;Investment loss | (229170) |  |  |
| &nbsp;&nbsp;&nbsp;Other income, net | 308038 | 362364 | 872519 |
| **Total other income, net** | **280753** | **377393** | **665195** |
| **(Loss) income before income taxes** | **(1361006)** | **(1182315)** | **1411960** |
| Income tax provision | (28931) | 66338 | (193246) |
| **Net (loss) income** | $**(1389937)** | **(1115977)** | $**1218714** |

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***Year ended December 31, 2025 compared to year ended December 31, 2024***

***Revenues***

Revenues decreased by approximately $7.44 million, or 24.57%, to approximately $22.86 million for the year ended December 31, 2025 from approximately $30.30 million for the year ended December 31, 2024. This decline was primarily driven by a significant contraction in consumer purchasing power across major markets, such as Europe and North America. As inflationary pressures persisted, demand for non-essential goods softened, leading overseas distributors and wholesalers to adopt conservative procurement strategies to mitigate inventory risk. Consequently, core customers reduced order volumes and lowered stock levels compared to the prior year. Additionally, heightened global economic uncertainty placed liquidity constraints on certain international clients, resulting in a shift from large-scale, long-term contracts to smaller, fragmented orders. This trend was further exacerbated by increased tariffs and evolving regulatory requirements, such as the EU's Carbon Border Adjustment Mechanism (CBAM). These factors not only increased terminal retail prices - prompting some legacy clients to reduce or suspend purchases - but also necessitated higher compliance and certification costs. In response, the Company strategically declined certain high-cost, low-margin orders to protect its long-term financial health, contributing to the overall reduction in total sales volume.

The following tables present our top five markets by net revenues for the years ended December 31, 2025 and 2024.

---

| | | |
|:---|:---|:---|
| | **December 31, 2025** | **December 31, 2025** |
| <br>**Top Five Markets:** | **Sales<br> Amount<br> (In USD)** | **As %<br> of Sales** |
| China | $13768820 | 60.24% |
| U.K. | 1285829 | 5.63% |
| Mexico | 867476 | 3.80% |
| Poland | 773084 | 3.38% |
| Portugal | 573931 | 2.51% |

---

---

| | | |
|:---|:---|:---|
| | **December 31, 2024** | **December 31, 2024** |
| <br>**Top Five Markets:** | **Sales<br> Amount<br> (In USD)** | **As %<br> of Sales** |
| China | $19575794 | 64.61% |
| France | 1516466 | 5.00% |
| Israel | 909207 | 3.00% |
| Nigeria | 827955 | 2.73% |
| U.K. | 781562 | 2.58% |

---

***Gross profit***

Our gross profit increased by approximately $0.88 million, or 22.02%, to approximately $4.87 million for the year ended December 31, 2025 from approximately $3.99 million for the year ended December 31, 2024. Gross profit margin was 21.32% for the year ended December 31, 2025, as compared to 13.18% for the year ended December 31, 2024. The increase was primarily driven by a strategic shift in product mix. During fiscal year 2025, the Company significantly reduced its proportion of outsourced products, which historically carried lower margins and had a dilutive effect on overall profitability in 2024. By prioritizing self-manufactured goods over these low-margin third-party products, the Company achieved a natural recovery in its consolidated gross margin.

***General and administrative ("G&A") expenses***

General and administrative expenses increased by approximately $1.70 million, or 73.71% to approximately $4.00 million for the year ended December 31, 2025 as compared to approximately $2.30 million for the year ended December 31, 2024. The increase in G&A expenses was mainly primarily driven by a strategic initiative to enhance the Company's internal controls and operational efficiency. Key drivers of this increase included: (1) Personnel Costs - the Company implemented a comprehensive salary adjustment for administrative staff, ranging from 5% to 10%, to remain competitive in the labor market; and (2) Consulting Fees - we expanded our senior leadership team through the appointment of high-level executives from outside the Company, including a Vice President of Administration and specialized experts focused on the integration of business and financial operations.

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General and administrative expenses as of December 31, 2025 and 2024 consisted of the following:

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| | | |
|:---|:---|:---|
|  | **2025** | **2024** |
| Employee compensation and benefits | $1077246 | $927913 |
| Travel and communication expenses | 44842 | 59108 |
| Rent and utilities | 305877 | 287755 |
| Consulting fees | 2148141 | 677556 |
| Insurance | 44493 | 29511 |
| Depreciation and amortization expenses | 193562 | 125395 |
| Bank charges | 16733 | (16458) |
| Donations | 4175 | 11118 |
| Sales tax | 15368 | 17657 |
| Entertainment | 28815 | 27314 |
| Office and miscellaneous | 121061 | 155940 |
| Total | $4000311 | $2302809 |

---

***Selling and marketing expenses***

Selling and marketing expenses decreased by approximately $0.18 million, or 18.50% to approximately $0.77 million for the year ended December 31, 2025 as compared to approximately $0.95 million for the year ended December 31, 2024. The decline in selling and marketing expenses was primarily due to the reduction in total sales volume and the associated decline in variable selling costs. Additionally, the Company optimized its marketing expenditures by participating in fewer trade fairs and exhibitions compared to the prior year, reflecting a more targeted approach to business development amidst shifting market conditions.

Selling and marketing expenses as of December 31, 2025 and 2024 consisted of the following:

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| | | |
|:---|:---|:---|
|  | **2025** | **2024** |
| Employee compensation and benefits | $279549 | $265546 |
| Travel and promotion | 187703 | 267203 |
| Shipping and handling | 173784 | 172465 |
| Insurance | 5593 |  |
| Consulting fee | 16830 | 4495 |
| Inspection and certification fees | 44941 | 97091 |
| Entertainment | 49592 | 91928 |
| Office and miscellaneous | 13184 | 47541 |
| Total | $771176 | $946269 |

---

***Research and development ("R&D") expenses***

Research and development expenses for the fiscal year 2025 remained substantially consistent with the prior year, reflecting a decrease of approximately 3.73% compared to fiscal year 2024.

Research and development expenses as of December 31, 2025 and 2024 consisted of the following:

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| | | |
|:---|:---|:---|
|  | **2025** | **2024** |
| Salaries | $870884 | $701402 |
| Direct input | 681587 | 859540 |
| Utility | 2585 | 2542 |
| Design cost | 8560 | 6254 |
| Contract services |  | 55720 |
| Depreciation | 23522 | 22286 |
| Other | 21173 | 22925 |
| Total | $1608311 | $1670669 |

---

***Interest income (expenses), net***

For the year ended December 31, 2025, the Company recognized net interest income of approximately $0.05 million, compared to a net interest expense of approximately $0.14 million for the prior year. The period-over-period increase of approximately $0.19 million was primarily attributable to interest earned on a RMB 27.4 million fixed deposit held at Minsheng Bank, which carried an annual interest rate of 3.2%.

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***Year ended December 31, 2024 compared to year ended December 31, 2023***

***Revenues***

Revenues increased by approximately $9.98 million, or 49.10%, to approximately $30.30 million for the year ending December 31, 2024 from approximately $20.32 million for the year ended December 31, 2023. The increase in revenues was primarily driven by the increase in demand for our gasoline generators in Europe.

The following table presents our top 5 international markets by net revenues for the years ended December 31, 2024 and 2023.

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| | | |
|:---|:---|:---|
| | **December 31, 2024** | **December 31, 2024** |
| <br>**Top Five International Markets:** | **Sales<br> Amount<br> (In USD)** | **As %<br> of Sales** |
| China | $19575794 | 64.61% |
| France | 1516466 | 5.00% |
| Israel | 909207 | 3.00% |
| Nigeria | 827955 | 2.73% |
| U.K. | 781562 | 2.58% |

---

---

| | | |
|:---|:---|:---|
| | **December 31, 2023** | **December 31, 2023** |
| <br>**Top Five Markets:** | **Sales<br> Amount<br> (In USD)** | **As %<br> of Sales** |
| China | $11005500 | 54.15% |
| Australia | 1558935 | 7.67% |
| Poland | 1318926 | 6.49% |
| U.K. | 1053668 | 5.18% |
| Germany | 1016250 | 5.00% |

---

***Gross profit***

Our gross profit decreased by approximately $1.03 million, or 20.51%, to approximately $3.00 million for the year ending December 31, 2024 from approximately $5.02 million for the year ended December 31, 2023. Gross profit margin was 13.18% for the year ended December 31, 2024, as compared to 24.71% for the year ended December 31, 2023. The decrease in gross profit was mainly due to the increase in sales of our low-margin product – gasoline generators.

***General and administrative ("G&A") expenses***

General and administrative expenses increased by approximately $0.28 million, or 13.81% to approximately $2.30 million for the year ending December 31, 2024 as compared to approximately $2.02 million for the year ended December 31, 2023. The increase in G&A expenses was mainly due to the increased employee compensation and benefits of our current administrative team and new professional manager.

General and administrative expenses as of December 31, 2024 and 2023 consisted of the following:

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| | | |
|:---|:---|:---|
|  | **2024** | **2023** |
| Employee compensation and benefits | $927913 | $526895 |
| Travel and communication expenses | 59108 | 49451 |
| Rent and utilities | 287755 | 83079 |
| Consulting fees | 677556 | 1032197 |
| Insurance | 29511 | 13386 |
| Depreciation and amortization expenses | 125395 | 116451 |
| Bank charges | (16458) | 1324 |
| Donations | 11118 | 4237 |
| Sales tax | 17657 | 76654 |
| Entertainment | 27314 | 23748 |
| Office and miscellaneous | 155940 | 96007 |
| Total | $2302809 | $2023428 |

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***Research and development ("R&D") expenses***

Research and development expenses increased by approximately $0.49 million, or 41.95% to approximately $1.67 million for the year ending December 31, 2024 as compared to approximately $1.18 million for the year ended December 31, 2023. The increase in R&D expenses was mainly due to increased R&D activities on new products.

Research and development expenses as of December 31, 2024 and 2023 consisted of the following:

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| | | |
|:---|:---|:---|
|  | **2024** | **2023** |
| Salaries | $701402 | $525782 |
| Direct input | 859540 | 554892 |
| Utility | 2542 | 2680 |
| Design cost | 6254 | 31115 |
| Contract services | 55720 |  |
| Depreciation | 22286 | 25614 |
| Other | 22925 | 36859 |
| Total | $1670669 | $1176943 |

---

***Interest expenses, net***

Our interest expense (net) decreased by approximately $0.26 million, to approximately $0.14 million for the year ended December 31, 2024, from approximately $0.40 million for the year ended December 31, 2023. The Company repaid short-term borrowings of RMB50,000,000 in December 2023, and therefore the decrease in interest expense was mainly due to less bank borrowings during the 2024 fiscal year as compared to the 2023 fiscal year.

**<u>Cash Flow Summary</u>**

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| | | | |
|:---|:---|:---|:---|
|  | **Year Ended<br> December 31,<br> 2025** | **Year Ended December 31,<br> 2024** | **Year Ended December 31,<br> 2023** |
| Net cash (used in) provided by operating activities | $(3166162) | $(15876639) | $6729734) |
| Net cash (used in) investing activities | (12374177) | (971811) | (1378110) |
| Net cash provided by (used in) financing activities | 14270604 | 12381107 | (6437393) |
| Effect of exchange rate changes on cash and cash equivalents | 381714 | (86282) | (103044) |
| Net increase (decrease) in cash and cash equivalents | $(888021) | $(4553625) | $(1188813) |
| Cash, cash equivalents and restricted cash, beginning of period | 1324809 | 5878434 | 7067247 |
| Cash, cash equivalents and restricted cash, end of period | 436788 | 1324809 | 5878434 |

---

*<u>Operating Activities:</u>*

Net cash used in operating activities for the fiscal year ended December 31, 2025 was approximately $3.17 million, which was primarily attributable to a net loss approximately $1.39 million, adjusted for non-cash items for approximately $1.65 million and adjustments for changes in working capital approximately $3.43 million. The adjustments for changes in working capital mainly included:

&nbsp;&nbsp;&nbsp;&nbsp;(i) increase
in accounts receivable of approximately $1.52 million – our accounts receivable increased primarily due to a significant expansion
in the domestic market, specifically driven by a RMB 16.08 million increase in orders from the Yiwu market. These domestic sales are
typically subject to credit terms ranging from 60 to 90 days;

&nbsp;&nbsp;&nbsp;&nbsp;(ii) advances
to suppliers declined by approximately $3.13 million - this decrease was driven by the fulfillment of 2024 purchase commitments for chips
and profiles, combined with a normalization of procurement levels in 2025. Unlike the prior year, where the Company engaged in proactive
stockpiling to secure raw materials, no similar strategic prepayments were recorded during the current fiscal year;

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&nbsp;&nbsp;&nbsp;&nbsp;(iii) accounts
payable decreased by approximately $2.53 million, primarily reflecting the settlement of outstanding supplier obligations carried over
from the prior fiscal year-end;

&nbsp;&nbsp;&nbsp;&nbsp;(iv) advances
from customers increased by approximately $0.89 million. This increase was primarily driven by a 4.4% growth in export orders from international
customers, who typically provide prepayments upon order placement. While international demand strengthened, the Company experienced a
decline in domestic sales, resulting in a shift in our overall sales mix.

Net cash used in operating activities for the fiscal year ended December 31, 2024 was approximately $15.88 million, which was primarily attributable to a net loss approximately $1.12 million, adjusted for non-cash items for approximately $1.68 million and adjustments for changes in working capital approximately $16.44 million. The adjustments for changes in working capital mainly included:

&nbsp;&nbsp;&nbsp;&nbsp;(i) increase
in accounts receivable of approximately $6.26 million – our accounts receivable increased due to the increase in sales revenue
and the corresponding increased payback cycle in domestic market;

&nbsp;&nbsp;&nbsp;&nbsp;(ii) increase
in inventory of approximately $2.30 million due to our increased raw material inventory for the corresponding increased sales in generators;

&nbsp;&nbsp;&nbsp;&nbsp;(iii) increase
in advance to suppliers of approximately $6.95 million primarily due to the increased purchase of raw materials to support our growing
orders generated from both domestic and international markets;

&nbsp;&nbsp;&nbsp;&nbsp;(iv) increase
in accounts payable of approximately $2.64 million due to increased purchase of raw materials because of the increased sales during the
fiscal year of 2024;

&nbsp;&nbsp;&nbsp;&nbsp;(v) decrease
in other payables and accruals of approximately $2.50 million primarily due to a repayment of funds received from a potential investor.

Net cash provided by operating activities for the fiscal year ending December 31, 2023 was approximately $6.73 million, which was primarily attributable to a net profit of approximately $1.22 million, adjusted for non-cash items for approximately $1.04 million and adjustments for changes in working capital approximately $4.47 million. The adjustments for changes in working capital mainly included:

&nbsp;&nbsp;&nbsp;&nbsp;(i) decrease
in accounts receivable of approximately $3.4 million – the decrease was in line with the decrease in sales;

&nbsp;&nbsp;&nbsp;&nbsp;(ii) increase
in inventory of approximately $1.09 million – to avoid supply issues, we stocked up certain raw materials in order to prepare the
massive production of our new products;

&nbsp;&nbsp;&nbsp;&nbsp;(iii) increase
in advances to suppliers of approximately $1.25 million – we prepaid for raw material and equipment purchase for our new production
line;

&nbsp;&nbsp;&nbsp;&nbsp;(iv) increase
in accounts payable of approximately $1.09 million – the increase was in line with the increase of inventory; and

&nbsp;&nbsp;&nbsp;&nbsp;(v) the
increase in other payables of approximately $2.36 million – the increase was mainly due to a portion of a potential foreign investment
received, which was temporarily included in other payables.

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 is used for the lease payment. Ailefu provided the leased assets as a guarantee for the Company to apply for a bank loan for the lease payment.

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*<u>Investing Activities:</u>*

Net cash used in investing activities was approximately $12.37 million for the year ended December 31, 2025. It was primarily attributable to: (1) acquisition of manufacturing equipment for production needs during the period; (2) acquisition of intangible assets; and (3) a short-term investment.

Net cash used in investing activities was approximately $0.97 million for the year ended December 31, 2024. It was primarily attributable to: (1) acquisition of manufacturing equipment for production needs during the period; (2) acquisition of intangible assets; and (3) long-term investment in a trading company.

Net cash used in investing activities was approximately $1.38 million for the year ended December 31, 2023. It was primarily attributable to: (1) acquisition of manufacturing equipment for production needs during the period; (2) addition of a fixed deposit, which is presented as other non-current assets on the Consolidated Balance Sheet; (3) repayment of the prepaid oversea land and warehouse investment; and (4) prepayment of a potential long-term warehouse investment.

*<u>Financing Activities:</u>*

Net cash provided by financing activities was approximately $14.27 million for the year ended December 31, 2025. It was primarily attributable to (1) net proceeds received from share issuance in the amount of approximately $9.27 million; and (2) net proceeds on short-term borrowings in the amount of approximately $7 million.

Net cash provided by financing activities was approximately $12.38 million for the year ended December 31, 2024. It was primarily attributable to (1) proceeds received from share issuance in the amount of $8 million; (2) net proceeds on short-term borrowings in the amount of approximately $1 million; (3) net proceeds received from related parties with an approximate amount of $1.32 million; and (4) net proceeds on long-term borrowings in the amount of approximately $2.06 million.

Net cash used in financing activities was approximately $6.44 million for the year ended December 31, 2023. It was primarily attributable to (1) net repayment on short-term borrowings with an approximate amount of $6 million; (2) net repayment on long-term borrowings with an approximate amount of $2.35 million; and (3) net proceeds received from related parties with an approximate amount of $1.9 million.

**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 flow from our operating activities is primarily dependent on our sales of converters and power generating products to our customers at margins sufficient to cover fixed and variable expenses.

As of December 31, 2025, and 2024, we had cash and cash equivalents of $436,788 and $1,324,09, including restricted cash of 251,932 and 792,204, respectively. We believe that our current cash, cash to be generated from our operations and access to help from our related parties will be sufficient to meet our working capital needs for at least the next twelve months. Although we do not have any amounts committed to being 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.

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Substantially all our operations are conducted in China and a majority portion of our revenues, expense, cash and cash equivalents are denominated in Renminbi (RMB). RMB is subject to the exchange control regulation in China, and, as a result, we may have difficulty distributing any dividends outside of China due to PRC exchange control regulations that restrict its ability to convert RMB into U.S. Dollars.

***Accounts Receivable***

Accounts receivables are recognized and carried at original invoiced amount less an estimated allowance for uncollectible accounts. 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 due amounts. 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 an 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 and long-term loans provided by a syndicate of banks, as listed in Note 12 and Note 13 under our Consolidated Financial Statements. As of December 31, 2025, we had: five outstanding short-term loans totaling RMB 58,000,000, or approximately $8.29 million. These borrowings have a term of one year and can be renewed; and 14 outstanding long-term loans provided by three banks, totaling RMB 29,283,331 in the aggregate, or approximately $4.19 million. These loans either have a fixed or variable interest rate. We plan to repay the 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 expenditure consists primarily of expenditure on the purchase of fixed and intangible assets in support of our business growth. Our capital expenditure amounted to approximately $7.84 million, $0.55 million, and $0.70 million, for the years ending December 31, 2025, 2024 and 2023, respectively.

***Contractual Obligations***

As of December 31, 2025 and 2024, the Company had two lease agreements, which has been disclosed under right of use lease assets in Note 8 – Leases. There were no other significant contractual obligations and commercial commitments, other than our bank borrowings as disclosed in Credit Facility section, as of December 31, 2025, 2024 and 2023.

**Critical Accounting Policies and Estimates**

***Basis of Presentation and Principles of Consolidation***

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.

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***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 deposits 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 December 31, 2025, 2024, and 2023, restricted cash was $251,932, $792,204, and $1,062, 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 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.

The Company considers customer purchase orders 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 other party is involved in transactions, the Company is a principal.

In determining the transaction price, the Company evaluates whether the price is subject to a 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.

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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 October 2023, the FASB issued Accounting Standards Update ("ASU") 2023-06, Disclosure Improvements—codification amendments in response to SEC's disclosure Update and Simplification initiative which amend the disclosure or presentation requirements of codification subtopic 230-10 Statement of Cash Flows—Overall, 250-10 Accounting Changes and Error Corrections—Overall, 260-10 Earnings Per Share—Overall, 270-10 Interim Reporting—Overall, 440-10 Commitments—Overall, 470-10 Debt—Overall, 505-10 Equity—Overall, 815-10 Derivatives and Hedging—Overall, 860-30 Transfers and Servicing—Secured Borrowing and Collateral, 932-235 Extractive Activities—Oil and Gas—Notes to Financial Statements, 946-20 Financial Services—Investment Companies—Investment Company Activities, and 974-10 Real Estate—Real Estate Investment Trusts—Overall. The amendments represent changes to clarify or improve disclosure and presentation requirements of above subtopics. Many of the amendments allow users to more easily compare entities subject to the SEC's existing disclosures with those entities that were not previously subject to the SEC's requirements. Also, the amendments align the requirements in the Codification with the SEC's regulations. For entities subject to existing SEC disclosure requirements or those that must provide financial statements to the SEC for securities purposes without contractual transfer restrictions, the effective date aligns with the date when the SEC removes the related disclosure from Regulation S-X or Regulation S-K. Early adoption is not allowed. For all other entities, the amendments will be effective two years later from the date of the SEC's removal.

ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, establishes incremental disaggregation of income tax disclosures pertaining to the effective tax rate reconciliation and income taxes paid. This standard is effective for fiscal years beginning after December 15, 2024, and requires prospective application with the option to apply it retrospectively. The Company adopted ASU 2023-09 beginning January 1, 2025. The adoption did not have a material impact on the Company's consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, "Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses", requiring public entities to disclose additional information about specific expense categories in the notes to the financial statements on an interim and annual basis. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2024-03.

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

Management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company's consolidated financial statements.

**Off-balance Sheet Commitments and Arrangements**

We provide financial guarantees to a related party. As of December 31, 2025, the maximum potential amount of future payments we could be required to make is RMB 25,750,000, which is secured by our time deposit of RMB 27,400,000. We have not recorded any liability for these guarantees as the likelihood of payment is considered remote. See Note 11 for further details.

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***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: 0.0% for 2025, 0.2% for 2024, and 0.23% for 2023.

**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 their 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 more than the 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 $1,244,717 as of December 31, 2025.

**Quantitative and Qualitative Disclosures about Market Risk**

***Foreign Exchange Risk***

All our revenues and substantially all 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. 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.

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***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.

**ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES**

**6. A. Directors and Management**

Set forth below is information concerning our directors, director nominees, executive officers and other key employees as of the date of this Annual Report.

---

| | | |
|:---|:---|:---|
| **Name** | **Age** | **Position(s)** |
| Lingyi Kong | 31 | Chief Executive Officer, Chairman of the Board and Director |
| Lanling Gu | 37 | Chief Financial Officer |
| Wang-Ngai Mak\* | 60 | Director |
| Jizhou Hou (1)(2)(3)\* | 50 | Independent Director, Chair of Nominating Committee |
| Jing Chen (1)(2)(3)\* | 60 | Independent Director, Chair of Audit Committee |
| Tsang Sheung (1)(2)(3)\* | 66 | Independent Director, Chair of Compensation Committee |

---

(1) Member
of the Audit Committee

(2) Member
of the Compensation Committee

(3) Member
of the Nominating Committee

\* The individual shall be appointed and consents to be in such position upon Company's listing on the Nasdaq Capital Market.

**Lingyi Kong*, Chief Executive Officer, Chairman of the Board and Director***

In 2018, Mr. Kong graduated from Ningbo University with a Bachelor's degree in Engineering Management. From 2018 to 2019, Mr. Kong served as an international business representative of Zhejiang Real Electronics Company, leading the company's business team to participate in the Dusseldorf Motor Show in Germany, the Berlin Electronics Show in Germany, and the Guangzhou Trade Fair in China. At the same time, Mr. Kong visited Germany, France, Belgium, the Netherlands, and Australia on behalf of the company for business interviews, and successfully obtained OEM contracts with well-known European companies such as AEG, Projecta, Greencell, Einhell, and Duracell, among other well-known North American companies. Mr. Kong has been serving as the Chairman of the Board of ERAYAK International since inception in July 2018.

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**Lanling Gu*, Chief Financial Officer***

Ms. Gu has years of experience in international accounting (IFRS) and USA GAAP reporting and is familiar with preparation of consolidated financial statement. Prior to serving as our CFO in March 2021, Ms. Gu was the director of the Company's accounting department since 2018. Ms. Gu served as an auditor at Zhejiang Oulong Electric Co., Ltd., Ms. Gu participated in the company's IPO due diligence in 2017, conducted audits for the company and independently led a team to complete audit work of accounting subjects, including inspection of accounts and verification of accuracy of financial statements and check of operational procedures. Thanks to years of experience in electronics manufacturing plants, Ms. Gu has a deep understanding of cost control and accounting. Ms. Gu obtained an associate's degree in accounting from Anhui Wuhu Vocational and Technical College in 2011, and a certificate for Intermediate Accountant in 2020 from the China Accounting Online School.

**Wang-Ngai Mak, *Director***

Mr. Mak is currently the Executive Vice President of Barakah Capital Holdings (M) Sdn. Bhd. since 2011, where he is responsible for projects evaluation and business development. Mr. Mak has extensive experience in business strategy, corporate development and management consulting. He served as Vice President, e-Banking, in CITIC Ka Wah Bank (Hong Kong) from January 2000 to July 2003, in charge of the development of the Internet banking and stock trading system. From February 2004 to February August 2009, Mr. Mak was employed at the ITG Systems Sdn. Bad in Malaysia, where he served as the Chief Information Officer that planned, organized, and managed the entire information and data resource systems of the company, and would later be promoted to become the CEO of the company and be in charge of investment appraisal and financing of telecommunications and credit technology projects, and managing project development design and general operations. Mr. Mak worked as Executive Vice President for Daya Bay Zhongnan Industrial Development Corporation from December 2017 to March 2020, a PRC state-owned company, where he handled long-term investment projects such as environmental preservation and sustainable project to meet poverty alleviation requirements in Xichuan County of Henan Provence and Lianping County of Guangdong Provence. Mr. Mak graduated with Honor from The Chinese University of Hong Kong with a Bachelor's degree in Philosophy in 1995.

**Jizhou Hou, *Independent Director and Chair of Nominating Committee***

Mr. Hou is experienced in IoT and artificial intelligence with 20 years of experience. At present, he is Chief Technology Officer of Feilu Cloud Computing Wenzhou Co., Ltd. in Wenzhou in Zhejiang Province. From 2005 to 2009, Mr. Hou worked for Shanghai STMicroelectronics, where he was in charge of the Inner Mongolia Digital TV updating system project. Mr. Hou also worked at BYD Automation as Chief architect of AI application in electric vehicles from 2005 to 2009. He earned a Master's degree in Artificial Intelligence from University of Science and Technology of China.

**Jing Chen, *Independent Director and Chair of Audit Committee***

Since November 2024, Ms. Chen has served as the Chief Financial Officer of Shanxi Yansen New New Energy Co., Ltd. She also has served as an independent director and the chairman of the audit committee on the board of directors of Xinxu Copper Industry Technology Ltd. (Ticker: XXC) since March 2024, ERAYAK Power Solution Group Inc. (Nasdaq: RAYA) since November 2021, Bon Natural Lift Limited. (Nasdaq: BON) since October 2023, and Tibet Jiajialegou Information Technology Co., Ltd., a private company, since February 2017. She is also a shareholder and the legal representative of Qingxing (Beijing) Technology Services Co., Ltd. She Previously served as an independent director of Jin Medical International Ltd. (Nasdaq: ZJYL) from August 2021 to December 2023. She also served as the Vice President of Future Fintech Group Inc. (Nasdaq: FTFT), a FinTech company, where she was responsible for the company's internal control and merger and acquisition from December 2020 to April 2023. From May 2019 to November 2020, Ms. Chen served as the CFO of Future Fintech Group Inc. She served as the CFO of AnZhiXinCheng (Beijing) Technology Co., Ltd. from August 2018 to May 2019. Ms. Chen has also served as an independent director of Hello iPayNow (Beijing) Company Ltd. since April 2019 to March 2021. From August 2017 to July 2018, she served as CFO of Beijing Logis Technology Development Co., Ltd., a company listed on The National Equities Exchange and Quotations Co., Ltd. of China, which is a Chinese over-the-counter stock trading system. From June 2016 to July 2017, Ms. Chen served as Group Chief Financial Officer of Beijing AnWuYou Food Co., Ltd. Ms. Chen also served as Chief Financial Officer of Beijing DKI Investment Management Co., Ltd. from August 2012 to May 2016. Ms. Chen received a Doctorate of Business Administration from Victoria University, Neuchatel, Switzerland and an MBA degree from City University of Seattle in Washington, U.S. Ms. Chen holds Fellow Membership of CPA Australia (FCPA) and is a Member of the Chartered Institute of Management Accountants (CIMA). She is also a Senior Member of the International Financial Management (SIFM) accredited by the Ministry of Human Resources and Social Security of the PRC.

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**Tsang Sheung, *Independent Director and Chair of Compensation Committee***

Mr. Tsang Sheung has served as a director of Fuji (China) Industrial Technology Co., Ltd. in Hong Kong and as the General Manager of Shenzhen Zhongzhi Investment Co., Ltd. since 2009. He started his career at Bank of China (Hong Kong) Limited as a journalist after obtaining his bachelor's degree in law from Jinan University in Guangzhou. Thereafter, he served successively as the director of the human resources, the director and then vice president of the president's office, and the assistant to the president of the management division. Having served as an integral part of the restructuring and merger of Bank of China (Hong Kong) Group, Mr. Sheung has extensive experience in financial services, human resources, and corporate communications.

**Family Relationships**

There are no family relationships among any of our directors, director nominees or executive officers as defined in Item 401 of Regulation S-K.

**6. B. Compensation**

**Director Compensation**

All directors hold office until the next annual meeting of shareholders at which their respective class of directors is re-elected and until their successors have been duly elected and qualified. Officers are elected by and serve at the discretion of the Board of Directors. Employee directors do not receive any compensation for their services. Non-employee directors are entitled to receive an as-yet undetermined cash fee for serving as directors and may receive option grants from our company. In addition, non-employee directors are entitled to receive compensation for their actual travel expenses for each Board of Directors meeting attended.

**Executive Compensation**

The Compensation Committee of the Board of Directors determined the compensation to be paid to our executive officers based on our financial and operating performance and prospects, and contributions made by the officers to our success. And our compensation committee approved our salary and benefit plans. Each of the named officers will be measured by a series of performance criteria by the board of directors, or the compensation committee on a yearly basis. Such criteria will be set forth based on certain objective parameters such as job characteristics, required professionalism, management skills, interpersonal skills, related experience, personal performance and overall corporate performance.

**Summary Compensation Table**

The following table sets forth certain information with respect to compensation for the years ended December 31, 2025 and 2024, earned by or paid to our chief executive officer and principal executive officer, our principal financial officer, and our other most highly compensated executive officers whose total compensation exceeded US$100,000 (the "named executive officers").

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| | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| **Name and<br> Principal<br> Position** | **Year** | **Salary<br> (US$)** | **Bonus<br> (US$)** | **Stock<br> Awards<br> (US$)** | **Option<br> Awards<br> (US$)** | **Non-Equity<br> Incentive<br> Plan<br> Compensation** | **Deferred<br> Compensation<br> Earnings** | **Other** | **Total<br> (US$)** |
| Lingyi Kong, | 2025 | $50139 |  |  |  |  |  |  | $50139 |
| &nbsp;&nbsp;&nbsp;CEO | 2024 | $34743 |  |  |  |  |  |  | $34743 |
| Lanling Gu, | 2025 | $24601 |  |  |  |  |  |  | $24601 |
| &nbsp;&nbsp;&nbsp;CFO | 2024 | $21680 |  |  |  |  |  |  | $21680 |

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**Employment Agreements**

Our employment agreements with our officers generally provide for employment for a specific term and pay annual salary, health insurance, pension insurance, and paid vacation and family leave time. The agreement may be terminated by either party as permitted by law. In the event of a breach or termination of the agreement by our company, we may be obligated to pay the employee twice the ordinary statutory rate. In the event of a breach or termination causing loss to our company by the employee, the employee may be required to indemnify us against loss.

***Compensation Recovery Policy***

On December 1, 2023, our board of directors adopted an executive compensation recovery policy (the "Compensation Recovery Policy"), providing for the recovery of certain incentive-based compensation from current and former executive officers of the Company in the event the Company is required to restate any of its financial statements filed with the SEC under the Exchange Act in order to correct an error that is material to the previously-issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period. Adoption of the Compensation Recovery Policy was mandated by new Nasdaq listing standards introduced pursuant to Exchange Act Rule 10D-1. The Compensation Recovery Policy is in addition to Section 304 of the Sarbanes-Oxley Act of 2002 which permits the SEC to order the disgorgement of bonuses and incentive-based compensation earned by a registrant issuer's chief executive officer and chief financial officer in the year following the filing of any financial statement that the issuer is required to restate because of misconduct, and the reimbursement of those funds to the issuer. A copy of the Compensation Recovery Policy has been filed herewith as Exhibit 97.1.

**6. C. Board Practices**

**Board of Directors and Board Committees**

Our board of directors consists of five directors, three of whom are independent as such term is defined by the Nasdaq Capital Market. We have determined that Jizhou Hou, Jing Chen and Tsang Sheung satisfy the "independence" requirements under Nasdaq Rule 5605.

The directors will be up for re-election at our annual general meeting of shareholders.

A director is not required to hold any shares in our company by way of qualification. A director who is in any way, whether directly or indirectly, interested in a contract or proposed contract with our company is required to declare the nature of his interest at a meeting of our directors. Subject to the Nasdaq Listing Rules and disqualification by the chairman of the relevant board meeting, a director may vote with respect to any contract, proposed contract or arrangement notwithstanding that he may be interested therein, and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of our directors at which any such contract or proposed contract or arrangement is considered. Our directors may exercise all the powers of our company to raise or borrow money and to mortgage or charge its undertaking, property and assets (present and future) and uncalled capital or any part thereof, to issue debentures, debenture stock, bonds and other securities, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party.

The Board of Directors also adopted an insider trading policy that allows insiders to sell securities of the Company pursuant to pre-arranged trading plans.

Effective October 23, 2000, the SEC adopted rules related to insider trading. One of these rules, Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, provides an exemption to the insider trading rules in the form of an affirmative defense. Rule 10b5-1 recognizes the creation of formal programs under which executives and other insiders may sell the securities of publicly traded companies on a regular basis pursuant to written plans that are entered into at a time when the plan participants are not aware of material non-public information and that otherwise comply with the requirements of Rule 10b5-1.

**Board Committees**

We have established three committees under the board of directors: an audit committee, a compensation committee and a nominating committee, and adopted a charter for each of the three committees, effective upon the Company's listing on the Nasdaq Capital Market. Copies of our committee charters have been posted on our corporate investor relations website.

Each committee's members and functions are described below.

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**Audit Committee.** Our audit committee consists of Jizhou Hou, Jing Chen and Tsang Sheung. Jing Chen is the chair of our audit committee. The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things:

● appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors;

● reviewing with the independent auditors any audit problems or difficulties and management's response;

● discussing the annual audited financial statements with management and the independent auditors;

● reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major financial risk exposures;

● reviewing and approving all proposed related party transactions;

● meeting separately and periodically with management and the independent auditors; and

● monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.

**Compensation Committee.** Our compensation committee consists of Jizhou Hou, Jing Chen and Tsang Sheung. Tsang Sheung is the chair of our compensation committee. The compensation committee is responsible for, among other things:

● reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and other executive officers;

● reviewing and recommending to the shareholders for determination with respect to the compensation of our directors;

● reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements; and

● selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that person's independence from management.

**Nominating Committee.** Our nominating committee consists of Jizhou Hou, Jing Chen and Tsang Sheung. Jizhou Hou is the chair of our nominating committee. The nominating committee assists the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nominating committee is responsible for, among other things:

● selecting and recommending to the board nominees for election by the shareholders or appointment by the board;

● reviewing annually with the board the current composition of the board with regards to characteristics such as independence, knowledge, skills, experience and diversity;

● making recommendations on the frequency and structure of board meetings and monitoring the functioning of the committees of the board; and

● advising the board periodically with regards to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to the board on all matters of corporate governance and on any remedial action to be taken.

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**Duties of Directors**

Under Cayman Islands law, our directors owe fiduciary duties to our Company, including a duty of loyalty, a duty to act honestly and a duty to act in what they consider in good faith to be in our best interests. Our directors must also exercise their powers only for a proper purpose. Our directors also owe to our Company a duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association, as amended and restated from time to time. Our Company has the right to seek damages if a duty owed by our directors is breached. In limited exceptional circumstances, a shareholder may have the right to seek damages in our name if a duty owed by our directors is breached.

**Insider Trading Policy**

The Board of Directors also adopted an insider trading policy that allows insiders to sell securities of the Company pursuant to pre-arranged trading plans.

This insider trading policy was put into place because effective October 23, 2000, the SEC adopted rules related to insider trading. One of these rules, Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, provides an exemption to the insider trading rules in the form of an affirmative defense. Rule 10b5-1 recognizes the creation of formal programs under which executives and other insiders may sell the securities of publicly traded companies on a regular basis pursuant to written plans that are entered into at a time when the plan participants are not aware of material non-public information and that otherwise comply with the requirements of Rule 10b5-1.

**Interested Transactions**

Subject to the Nasdaq Listing Rules and disqualification by the chairman of the relevant board meeting, a director may vote in respect of any contract or transaction or proposed contract or transaction notwithstanding that he may be interested therein and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of the directors at which any such contract or transaction or proposed contract or transaction shall come before the meeting for consideration. A director who is in any way, whether directly or indirectly, interested in a contract or transaction or proposed contract or transaction with the Company shall declare the nature of his interest at a meeting of the directors. A general notice given to the directors by any director to the effect that he is a member of any specified company or firm and is to be regarded as interested in any contract or transaction which may thereafter be made with that company or firm shall be deemed a sufficient declaration of interest in regard to any contract so made or transaction so consummated.

**Remuneration and Borrowing**

The remuneration of the directors may be determined by the directors or by an ordinary resolution. The directors shall be entitled to be paid for their travelling, hotel and other expenses properly incurred by them in going to, attending and returning from meetings of the directors, or any committee of the directors, or general meetings of the Company, or otherwise in connection with the business of the Company, or to receive such fixed allowance in respect thereof as may be determined by the directors from time to time, or a combination partly of one such method and partly the other. The compensation committee will assist the directors in reviewing and approving the compensation structure for the directors. Our board of directors may exercise all the powers of the company to raise or borrow money and to mortgage or charge its undertaking, property and assets (present and future) and uncalled capital or any part thereof, to issue debentures, debenture stock, bonds and other securities, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party.

**Terms of Directors and Officers**

The Company may by ordinary resolution appoint any person to be a director. The board may, by the affirmative vote of a simple majority of the remaining directors present and voting at a board meeting, appoint any person as a director, to fill a casual vacancy on the board or as an addition to the board. An appointment of a director may be on terms that the director shall automatically retire from office (unless he has sooner vacated office) at the next or a subsequent annual general meeting or upon any specified event or after any specified period in a written agreement between the Company and the director, if any; but no such term shall be implied in the absence of express provision. Any director whose term of office expires shall be eligible for re-election at a meeting of the shareholders or re-appointment by the board. The office of director shall be vacated, if the director (i) becomes bankrupt or makes any arrangement or composition with his creditors; (ii) dies or is found to be or becomes of unsound mind, (iii) resigns his office by notice in writing to our company, (iv) without special leave of absence from our board, is absent from three consecutive board meetings and our directors resolve that his office be vacated; (v) is prohibited by law from being a director; or (vi) is removed from office pursuant to any other provision of our articles of association.

Our officers are elected by and serve at the discretion of the board of directors.

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**Involvement in Certain Legal Proceedings**

To the best of our knowledge, none of our directors or officers has been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, nor has any been a party to any judicial or administrative proceeding during the past five years that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws, except for matters that were dismissed without sanction or settlement. Except as set forth in our discussion below in "Related Party Transactions," our directors and officers have not been involved in any transactions with us or any of our affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.

**6. D. Employees**

As of December 31, 2025, we have a total of 349 employees in the following departments:

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| | |
|:---|:---|
|  | **As of<br> December 31,<br> 2025** |
| Administration | 44 |
| Research and Development | 45 |
| Manufacture | 244 |
| Business Operations | 16 |
| Total | 349 |

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Our employees are not represented by a labor organization or covered by a collective bargaining agreement. We believe that we maintain a good working relationship with our employees, and we have not experienced any significant labor disputes. We are required under PRC law to make contributions to employee benefit plans at specified percentages of the salaries, bonuses, and certain allowances of our employees, up to a maximum amount specified by the local government from time to time. As required by regulations in China, we participate in various employee social securities plans that local governments organize. We believe we have covered housing provident fund and all five types of social insurance, including, pension insurance, medical insurance, work-related injury insurance, unemployment insurance, and maternity insurance.

**6. E. Share Ownership**

The following tables sets forth information regarding the beneficial ownership of our Ordinary Shares as of the date hereof by:

● each person known to us to beneficially own more than 5% of our Ordinary Shares;

● each of our officers and directors; and

● all of our officers and directors as a group.

Beneficial ownership is determined in accordance with SEC rules and includes voting or investment power with respect to securities. Except as indicated by the footnotes below, we believe, based on the information furnished to it, that the persons and entities named in the table below will have, immediately after the completion of this Annual Report, sole voting and investment power with respect to all stock that they beneficially own, subject to applicable community property laws. All our Ordinary Shares subject to options or warrants exercisable within 60 days of the completion of this Annual Report are deemed to be outstanding and beneficially owned by the persons holding those options or warrants for the purpose of computing the number of shares beneficially owned and the percentage ownership of that person. They are not, however, deemed to be outstanding and beneficially owned for the purpose of computing the percentage ownership of any other person.

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The authorised share capital of the Company is US$220,000,000 divided into 1,000,000,000 ordinary shares of par value of US$0.22 each, comprising (a) 900,000,000 class A ordinary shares of par value of US$0.22 each and (b) 100,000,000 class B ordinary shares of par value of US$0.22 each. Information with respect to beneficial ownership has been furnished by each director, officer or beneficial owner of more than 5% of our Class A Ordinary Shares and/or Class B Ordinary Shares. Beneficial ownership is determined in accordance with the rules of the SEC and generally requires that such person have voting or investment power with respect to securities. The calculations in the table below are based on 978,477 Class A Ordinary Shares and 4,092 Class B Ordinary Shares issued and outstanding as of the date hereof.

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **Named Executive Officers and Directors** | **Amount of<br> Beneficial<br> Ownership<br> (Class A<br> Ordinary<br> Shares)** | **Percentage<br> Ownership<br> (Class A<br> Ordinary<br> Shares)** | **Amount of<br> Beneficial<br> Ownership<br> (Class B<br> Ordinary<br> Shares)** | **Percentage<br> Ownership<br> (Class B<br> Ordinary<br> Shares)** | **Combined<br> Voting<br> Power<br> of Class A<br> Ordinary<br> Shares<br> and Class B<br> Ordinary<br> Shares** | **Combined<br> Voting<br> Power of<br> Class A Ordinary Shares<br> and<br> Class B<br> Ordinary<br> Shares as a<br> Percentage<sup>(3)</sup>** |
| **Directors and Named Executive Officers:** | | | | | | |
| Lingyi Kong, Chief Executive Officer and Chairman<sup>1</sup> | 2728 | 0.279% | 4092 | 100% | 84568 | 7.974% |
| Lanling Gu, Chief Financial Officer |  |  |  |  |  |  |
| Wang-Ngai Mak, Director<sup>2</sup> | 910 | 0.093% |  | 0% | 910 | 0.085% |
| Jing Chen, Independent Director and Chairwoman of Audit Committee |  | 0% |  | 0% |  | 0% |
| Tsang Sheung, Independent Director and Chairman of Compensation Committee |  | 0% |  | 0% |  | 0% |
| Jizhou Hou, Independent Director and Chairman of Nominating Committee |  | 0% |  | 0% |  | 0% |
| **All directors and executive officers as a group (6 persons)** | 3638 | 0.363% | 4092 | 100% | 85478 | 8.06% |
| **5% Beneficial Owners:** |  |  |  |  |  |  |
| ERAYAK International Limited<sup>1</sup> | 2728 | 0.279% | 4092 | 100% | 84568 | 7.974]% |

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(1) Through ERAYAK International Limited. Lingyi Kong is the controlling
person of ERAYAK International Limited and has sole voting and dispositive power over shares beneficially owned by ERAYAK International
limited.

(2) Represents 637 Class A Ordinary Shares directly held by CEC
Science and Innovation Co., Ltd., a company incorporated under the laws of England and Wales, and 273 Class A Ordinary Shares held by
GRAND MERCHANT INCORPORATION LIMITED, a company incorporated under the law of Hong Kong SAR. CEC Science and Innovation Co., Ltd. and
GRAND MERCHANT INCORPORATION LIMITED are beneficially owned and controlled by Wang-Ngai Mak.

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**ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS**

**7. A. Major Shareholders**

Please refer to "Item 6. Directors, Senior Management and Employees - 6.E. Share Ownership." The company's major shareholders do have different voting rights than the other shareholders.

**7. B. Related Party Transactions (FS footnote)**

*1) Nature of relationships with related parties*

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| | |
|:---|:---|
| **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 Leiling Technology Development Co. Ltd. ("Leiling") | An entity with Shengling Xiang as legal representative |
| Shanghai Fushishenye Mechanical and Electrical Equipment Co. Ltd. ("Fushishenye") | An entity with Lingyi Kong as legal rep |
| Zhejiang Rayak Technology Co. Ltd. ("Rayak Tech") | An entity 70% owned by Shengling Xiang and 30% owned by Zhejiang Leiya Electronics Co., Ltd. |
| Chuanlong Lin | Relative of Lingyi Kong; former controlling shareholder of New Focus |
| Shengling Xiang | Executive and legal rep of the Company |
| Lingyi Kong | Controlling shareholder of the Company |
| Chunhua Xiang | Relative of Lingyi Kong |

---

*2) Related party transactions*

The Company leases offices and factory buildings from Ailefu. The nature of the lease is disclosed in Note 8 - Lease. As of December 31, 2025, the Company's balances with Ailefu consisted of a security deposit of $14,300, and prepayments totaling $613,585. The Company purchased raw materials in the amount of $793,744 through Ailefu during the 2025 fiscal year. As of December 31, 2025, the Company had accounts payable of $132,136 to Ailefu.

There were no transactions between the Company and Xiangze, the Company and Leiling, the Company and Chuanlong Lin, and the Company and Chunhua Xiang during the years ended December 31, 2025 and 2024. As of December 31, 2025 and 2024, the Company had no outstanding balances from these entities.

The Company purchased equipment from Fushishenye. As of December 31, 2025, the Company had advance paid to Fushishenye in the amount of $671,200.

The Company periodically manages cash collections and disbursements on behalf of Rayak Tech. For the fiscal year ended December 31, 2025, the Company collected $932,285 and disbursed $417,934 on Rayak Tech's behalf. As of December 31, 2025, the outstanding balance due to Rayak Tech related to these activities was $564,868, which is included in due to related parties. Additionally, the Company sells products to Rayak Tech in the ordinary course of business. During the fiscal year ended December 31, 2025, total sales to Rayak Tech amounted to $2,030,478. As of December 31, 2025, the Company had an outstanding accounts receivable balance from Rayak Tech of $3,178,800.

Shengling Xiang periodically provides working capital to support the Company's operations when needed. During the year ended December 31, 2025, the Company returned working capital of $333,840. During the years ended December 31, 2024 and 2023, Shengling Xiang provided working capital of $349,737 and $2,217, respectively. As of December 31, 2025, 2024 and 2023, the Company had an outstanding balance from this individual of $0, $333,840 and $0 respectively.

Lingyi Kong periodically provides working capital to support the Company's operations when needed. During the years ended December 31, 2025, 2024 and 2023, Lingyi Kong provided working capital of $7,874,134 , $11,374,390 and $16,559,369, respectively. As of December 31, 2025, 2024 and 2023, the Company had outstanding payable due to Lingyi Kong with an amount of $1,212,020, $3,510,165 and $1,877,489, respectively. This represented unsecured, due on demand and interest free borrowings between the Company and Lingyi Kong. For the years ended December 31, 2025, 2024 and 2023, there were notes receivables endorsed by Lingyi Kong with recourse to the Company's suppliers to settle accounts payable in the amount of $4,035,487, $7,255,413 and $6,797,772, respectively.

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Chunhua Xiang periodically provides working capital to support the Company's operations when needed. During the years ended December 31, 2025, 2024 and 2023, Chunhua Xiang provided working capital of $0, $0 and $9,886, respectively. As of December 31, 2025, 2024 and 2023, the Company had no outstanding balance from this individual.

*3) Related party balances*

Net outstanding balances with related parties consisted of the following as of December 31, 2025, 2024 and 2023:

---

| | | | | |
|:---|:---|:---|:---|:---|
| **Accounts** | **Name of related parties** | **2025** | **2024** | **2023** |
| Due to related party | Lingyi Kong | 1212020 | 3176325 | 1877489 |
|  | Shengling Xiang |  | 333840 |  |
|  | Wenzhou Ailefu Technology Co. Ltd. |  |  | 405640 |
|  | Zhejiang Rayak Technology Co. Ltd. | 564868 |  |  |
| **Net due to related parties** |  | $**1776888** | $**3510165** | $**2283129** |

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**Other Related Party Transactions**

During the year ended December 31, 2025, other than disclosed in elsewhere (including the financial statements for the fiscal years ended 2024 and accompanying footnotes), we did not have any other related party transactions.

**ITEM 8. FINANCIAL INFORMATION**

**8. A. Consolidated Statements and Other Financial Information**

Please refer to Item 18.

**Legal and Administrative Proceedings**

Please refer to "Item 6. Involvement in Certain Legal Proceedings."

**Dividend Policy**

We intend to keep any future earnings to finance the expansion of our business. We do not anticipate that any cash dividends will be paid in the foreseeable future.

Under the laws of the Cayman Islands, our company may pay a dividend out of either profit or share premium account; provided that in no circumstances may a dividend be paid out of our share premium if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business.

If we determine to pay dividends on any of our ordinary share in the future, as a holding company, we will depend on receipt of funds from our Hong Kong subsidiary, Erayak HK.

Current PRC regulations permit our indirect PRC subsidiaries to pay dividends to Erayak HK only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our subsidiaries 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 reaches 50% of its registered capital. 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.

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The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, if our subsidiaries and affiliates in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments.

Cash dividends, if any, on our ordinary share will be paid in U.S. dollars. Erayak HK may be considered a non-resident enterprise for tax purposes. Any dividends WFOE pays to Erayak HK may be regarded as China-sourced income and may be subject to PRC withholding tax at a rate of up to 10%.

In order for us to pay dividends to our shareholders, we may rely on payments made from Ruike, Zhejiang Leiya to Erayak WFOE, and the distribution of such payments to Erayak HK as dividends from Erayak WFOE. Certain payments from Ruike, Zhejiang Leiya to Erayak WFOE are subject to PRC taxes, including VAT, urban maintenance and construction tax, educational surcharges. In addition, if Ruike, Zhejiang Leiya or its subsidiaries or branches incur debt on their own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us.

Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Double Tax Avoidance Arrangement, the 10% withholding tax rate may be lowered to 5% if a Hong Kong resident enterprise owns no less than 25% of a PRC project. However, the 5% withholding tax rate does not automatically apply and certain requirements must be satisfied, including without limitation that (a) the Hong Kong project must be the beneficial owner of the relevant dividends; and (b) the Hong Kong project must directly hold no less than 25% share ownership in the PRC project during the 12 consecutive months preceding its receipt of the dividends.

**8. B. Significant Changes**

We have not experienced any significant changes since the date of our audited consolidated financial statements included in this Annual Report.

**ITEM 9. THE OFFER AND LISTING**

**9. A. Offer and listing details**

Our Class A Ordinary Shares have been listed on the Nasdaq Capital Market since December 14, 2022 under the symbol "RAYA."

**9. B. Plan of distribution**

Not applicable for annual reports on Form 20-F.

**9. C. Markets**

Our Class A Ordinary Shares are listed on the Nasdaq Capital Market under the symbol "RAYA."

**9. D. Selling shareholders**

Not applicable for annual reports on Form 20-F.

**9. E. Dilution**

Not applicable for annual reports on Form 20-F.

**9. F. Expenses of the issue**

Not applicable for annual reports on Form 20-F.

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**ITEM 10. ADDITIONAL INFORMATION**

*Founding Transaction*

Upon incorporation of the Company in June 2019, we have an authorized share capital of $50,000 and issued an aggregate of 10,000 ordinary shares of a par value of US$0.0001 per share in the Company to ERAYAK International Limited at par value.

*Share Subdivision*

On November 5, 2021, the Company amended its memorandum and articles of association to effect the sub-division of authorized share capital into 500,000,000 ordinary shares, of a par value of US$0.0001 per share. On the same day, the Company re-designated 500,000,000 authorized and unissued ordinary shares of a par value of US$0.0001 each into (a) 450,000,000 Class A Ordinary Shares of a par value of US$0.0001 per share and (b) 50,000,000 Class B Ordinary Shares of a par value of US$0.0001 per share.

On the same day, the Company reclassified 10,000 ordinary shares held by ERAYAK International Limited as Class B Ordinary Shares, and issued additional 990,000 Class B Ordinary Shares to ERAYAK International Limited. Simultaneously, the Company also issued 6,000,000 Class A Ordinary Shares to ERAYAK International Limited, 600,000 Class A Ordinary Shares to Grand Merchant Incorporation Limited, and 1,400,000 Class A Ordinary Shares to CEC Science and Innovation Co., Ltd.

*Initial Public Offering*

On December 16, 2022, the Company completed an initial public offering pursuant to which it sold 3,000,000 Class A Ordinary Shares to the investors for $4.00 per share for an aggregate offering proceed of $12,000,000. We received net proceeds of approximately $10 million (after deducting underwriting discounts and commissions and other offering fees and expenses) from the offering.

*Private Placement*

On May 20, 2024, the Company entered into securities purchase agreements with certain purchasers in connection with the issuance and sale of (i) an aggregate of 16,000,000 Class A Ordinary Shares and (ii) warrants to purchase an aggregate of 32,000,000 Class A Ordinary Shares at an exercise price of $0.50 per share for an aggregate of purchase price of $8,000,000.

*Registered Direct Offering (July 2025)*

On July 25, 2025, the Company entered into a securities purchase agreement (the "Purchase Agreement") with certain investors, pursuant to which the Company agreed to issue and sell, in a registered direct offering, (i) 12,396,000 Class A Ordinary Shares at a purchase price of $0.098 per share, and (ii) pre-funded warrants to purchase up to 18,216,246 Class A Ordinary Shares at a purchase price of $0.098 per Pre-Funded Warrant. The Registered Direct Offering closed on July 28, 2025. The Company received approximately $3 million in gross proceeds from the Registered Direct Offering, before deducting placement agent fees and estimated offering expenses. Craft Capital Management LLC acted as the exclusive placement agent in connection with the Registered Direct Offering.

*Registered Direct Offering (August 2025)*

On July 31, 2025, the Company entered into a securities purchase agreement (the "Purchase Agreement") with certain investors, pursuant to which the Company agreed to issue and sell, in a registered direct offering, (i) 32,155,921 Class A Ordinary Shares at a purchase price of $0.065 per share, and (ii) pre-funded warrants to purchase up to 75,536,386 Class A Ordinary Shares at a purchase price of $0.065 per Pre-Funded Warrant. The Registered Direct Offering closed on August 1, 2025. The Company received approximately $7 million in gross proceeds from the Registered Direct Offering, before deducting placement agent fees and estimated offering expenses. Craft Capital Management LLC acted as the exclusive placement agent in connection with the Registered Direct Offering.

*Reverse Stock Split (September 2025)*

On September 8, 2025, the shareholders of the Company approved, at an extraordinary general meeting of shareholders, the authorization of the board of directors to implement a reverse stock split of the Company's issued and unissued class A ordinary shares of par value of $0.0001 each and class B ordinary shares of par value of $0.0001 each, at a ratio of not less than 1-for-120 and not more than 1-for-220, with the final ratio to be determined by the board of directors in its sole discretion at any time prior to the one-year anniversary of the meeting.

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On the same date, the board of directors of the Company approved a 220-for-1 reverse stock split of the Company's Ordinary Shares . The reverse stock split became effective on the Nasdaq Capital Market on September 30, 2025. As a result of the reverse stock split, the number of issued and outstanding Class A Ordinary Shares was reduced from 187,892,786 Class A ordinary shares to approximately 854,059 Class A Ordinary Shares, and the number of issued and outstanding Class B ordinary shares was reduced from 9,000,000 Class B Ordinary Shares to approximately 40,910 Class B Ordinary Shares (with fractions rounded up to the nearest whole share). Simultaneously, the par value of each ordinary share was changed from US$0.0001 to US$0.022. The authorized capital of the Company be amended from US$50,000 divided into 500,000,000 ordinary shares of par value of US$0.0001 each, comprising of: (i) 450,000,000 class A ordinary shares of par value of US$0.0001 each, and (ii) 50,000,000 class B ordinary shares of par value of US$0.0001 each to US$50,000 divided into 2,272,727.2̅7̅ ordinary shares of a par value of US$0.022 each comprising (a) 2,045,454.5̅4̅ class A ordinary shares of a par value of US$0.022 each and (b) 227,272.7̅2̅ class B ordinary shares of a par value of US$0.022 each. The Company's Class A Ordinary Shares continued to be listed on the Nasdaq Capital Market under the symbol "RAYA" under the new CUSIP number 29404A209.

*At-The-Market Offering (Prior Sales Agreement)*

On September 29, 2025, the Company entered into a sales agreement (the "Prior Sales Agreement") with Craft Capital Management LLC as sales agent, pursuant to which the Company was permitted to offer and sell up to US$10,000,000 of Class A Ordinary Shares in an "at-the-market" offering. The Prior Sales Agreement was terminated effective February 26, 2026. In the aggregate, the Company sold 2,683,190 Class A Ordinary Shares pursuant to the Prior Sales Agreement for net proceeds of approximately US$6.23 million.

*At-The-Market Offering (New Sales Agreement)*

On March 16, 2026, the Company entered into a new sales agreement (the "Sales Agreement") with Craft Capital Management LLC as sales agent, pursuant to which the Company may offer and sell up to US$20,000,000 of Class A Ordinary Shares, par value US$0.022 per share, from time to time in an "at-the-market" offering. As of March 31, 2026, the Company had issued an aggregate of 1,247,456 Class A Ordinary Shares under the Sales Agreement, resulting in gross proceeds of approximately US$0.72 million and net proceeds of approximately US$0.69 million. As of April 2, 2026, the Company has 4,748,740 Class A Ordinary Shares issued and outstanding.

*Share Consolidation (March 2026)*

On March 25, 2026, the board of directors of the Company approved a share consolidation at a ratio of 1-for-10 (the "Share Consolidation"), such that every ten (10) class A ordinary shares of par value of US$0.022 each was consolidated into one (1) class A ordinary share of par value of US$0.22 and every ten (10) class B ordinary shares of par value of US$0.022 each was consolidated into one (1) class B ordinary share of par value of US$0.22, becoming effective on 25 March 2026. As a result, the Company's authorized share capital was amended to US$220,000,000 divided into 1,000,000,000 ordinary shares of par value of US$0.22 each, comprising (a) 900,000,000 class A ordinary shares of par value of US$0.22 each and (b) 100,000,000 class B ordinary shares of par value of US$0.22 each. The Company's Class A Ordinary Shares continued to trade on the Nasdaq Stock Market LLC under the symbol "RAYA" under the new CUSIP number G3109F129.

**10. B. Memorandum and articles of association** 

The following are summaries of the material provisions of our currently effective memorandum and articles of association and the Cayman Islands Companies Act, insofar as they relate to the material terms of our Ordinary Shares. Copies of our currently effective memorandum and articles of association are filed as exhibits to this Annual Report. As a convenience to potential investors, we provide the below description of the Cayman Islands law and our currently effective memorandum and articles of association.

**General**

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. Class B Ordinary Shares shall not have any economic interest (save for the right to repayment of capital on a winding up) and are not convertible into Class A Ordinary Shares or any other class of shares under any circumstances. Class A Ordinary Shares are not convertible into Class B Ordinary Shares under any circumstances.

On a winding up of the Company:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a. each Class A Ordinary Share shall confer upon the holder thereof
the right to repayment of capital in accordance with the Memorandum and Articles of Association and the right to participate in the profits
or surplus assets of the Company in accordance with the Memorandum and Articles of Association; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b. each Class B Ordinary Share shall confer upon the holder thereof
the right to repayment of capital in accordance with the Memorandum and Articles of Association but shall confer no other right to participate
in the profits or surplus assets of the Company.

Each Class A Ordinary Share confers upon the holder thereof the right to receive dividends as provided for in the Memorandum and Articles of Association. Class B Ordinary Shares do not confer upon the holders thereof any rights to receive dividends.

All of our issued ordinary shares are fully paid and non-assessable. Certificates representing the ordinary shares are issued in registered form. Our shareholders may freely hold and vote their ordinary shares.

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**Listing**

Our Class A Ordinary Shares are listed on the Nasdaq Capital Market under the symbol "RAYA."

**Transfer Agent and Registrar**

The transfer agent and registrar for our Class A Ordinary Shares is VStock Transfer, LLC.

**Dividends**

The Memorandum and Articles of Association provide that subject to any rights and restrictions for the time being attached to any shares, the directors may from time to time declare dividends (including interim dividends) and other distributions on shares in issue and authorize payment of the same out of the funds of the Company lawfully available therefor. In addition, subject to any rights and restrictions for the time being attached to any shares, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. Under the laws of the Cayman Islands, our Company may pay a dividend out of profit and/or share premium account; provided that in no circumstances may a dividend be paid out of our share premium if this would result in our Company being unable to pay its debts as they fall due in the ordinary course of business.

The directors may determine that a dividend shall be paid wholly or partly by the distribution of specific assets (which may consist of the shares or securities of any other company) and may settle all questions concerning such distribution.

No dividend shall bear interest against the Company.

**Voting Rights**

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 shareholders. 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. Votes may be given either personally or by proxy.

An ordinary resolution means a resolution: (a) passed by a simple majority of the votes cast by such shareholders as, being entitled to do so, vote in person or, where proxies are allowed, by proxy or, in the case of corporations, by their duly authorized representatives, at a general meeting of the Company held in accordance with our memorandum and articles of association (in computing the majority regard shall be had to the number of votes to which each shareholder is entitled by our memorandum and articles of association); or (b) approved in writing by all of the shareholders entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of the shareholders and the effective date of the resolution so adopted shall be the date on which the instrument, or the last of such instruments, if more than one, is executed.

A special resolution means a special resolution of the Company passed in accordance with the Cayman Islands Companies Act, being a resolution: (a) passed by not less than two-thirds of the votes cast by such shareholders as, being entitled to do so, vote in person or, where proxies are allowed, by proxy or, in the case of corporations, by their duly authorized representatives, at a general meeting of the Company of which notice specifying the intention to propose the resolution as a special resolution has been duly given; or (b) approved in writing by all of the shareholders entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of the shareholders and the effective date of the special resolution so adopted shall be the date on which the instrument or the last of such instruments, if more than one, is executed.

**Variation of Rights of Shares**

Whenever the capital of our Company is divided into different classes the rights attached to any such class may, subject to any rights or restrictions for the time being attached to any class, only be materially and adversely varied with the consent in writing of the holders of two-thirds of the issued shares of that class or with the sanction of a special resolution passed at a separate meeting of the holders of the shares of that class.

The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, subject to any rights or restrictions for the time being attached to the shares of that class, be deemed to be materially and adversely varied by, inter alia, the creation, allotment or issue of further shares ranking *pari passu* with or subsequent to them or the redemption or purchase of any shares of any class by our Company.

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**Alteration of Share Capital**

The Company may by ordinary resolution:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) increase its share capital by new shares of such amount as
it thinks appropriate;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) consolidate and divide all or any of its share capital into
shares of a larger amount than its existing shares;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) divide its shares into several classes and without prejudice
to any special rights previously conferred on the holders of existing shares attach thereto respectively any preferential, deferred,
qualified or special rights, privileges, conditions or such restrictions which in the absence of any such determination by the Company
in general meeting, as the directors may determine provided always that, for the avoidance of doubt, where a class of shares has been
authorised by the Company, no resolution of the Company in general meeting is required for the issuance of shares of that class and the
directors may issue shares of that class and determine such rights, privileges, conditions or restrictions attaching thereto as aforesaid,
and further provided that where the Company issues shares which do not carry voting rights, the words "non-voting" shall
appear in the designation of such shares and where the equity capital includes shares with different voting rights, the designation of
each class of shares, other than those with the most favourable voting rights, must include the words "restricted voting"
or "limited voting";

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) subdivide its shares, or any of them, into shares of an amount
smaller than that fixed by the memorandum, provided that in the subdivision the proportion between the amount paid and the amount, if
any, unpaid on each reduced share shall be the same as it was in case of the share from which the reduced share is derived; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) cancel any shares that, at the date of the passing of the
resolution, have not been taken or agreed to be taken by any person and diminish the amount of its share capital by the amount of the
shares so cancelled.

The Company may by special resolution reduce its share capital and any capital redemption reserve in any manner authorized by the Cayman Islands Companies Act.

**Calls on Shares and Forfeiture**

Subject to the terms of allotment, our board of directors may from time to time make calls upon shareholders for any moneys unpaid on their shares, and each shareholder shall (subject to receiving at least fourteen calendar days' notice specifying the time or times of payment) pay to the Company at the time or times so specified the amount called on such shares. The joint holders of a Share shall be jointly and severally liable to pay calls in respect thereof. If a sum called in respect of a share is not paid before or on the day appointed for payment thereof, the person from whom the sum is due shall pay interest upon the sum at the rate of eight percent per annum from the day appointed for the payment thereof to the time of the actual payment, but the directors shall be at liberty to waive payment of that interest wholly or in part.

The directors may make arrangements with respect to the issue of partly paid shares for a difference between the shareholders, or the particular shares, in the amount of calls to be paid and in the times of payment.

The Company has a first and paramount lien on every share (whether or not fully paid) for all amounts (whether presently payable or not) payable at a fixed time or called in respect of that share. The Company also has a first and paramount lien on every share registered in the name of a person indebted or under liability to the Company (whether he is the sole registered holder of a share or one of two or more joint holders) for all amounts owing by him or his estate to the Company (whether or not presently payable). Our board of directors may at any time declare a share to be wholly or in part exempt from the provisions of our memorandum and articles of association. The Company's lien on a share extends to any amount payable in respect of it, including but not limited to dividends.

The Company may sell, in such manner as the directors in their absolute discretion think fit, any share on which the Company has a lien, but no sale shall be made unless an amount in respect of which the lien exists is presently payable nor until the expiration of fourteen calendar days after a notice in writing, demanding payment of such part of the amount in respect of which the lien exists as is presently payable, has been given to the registered holder for the time being of the share, or the persons entitled thereto by reason of his death or bankruptcy.

**Unclaimed Dividend**

Any dividend unclaimed after a period of six calendar years from the date of declaration of such dividend may be forfeited by the board of directors and, if so forfeited, shall revert to the Company.

**Forfeiture or Surrender of Shares**

If a shareholder fails to pay any call or instalment of a call in respect of partly paid shares on the day appointed for payment, the directors may, at any time thereafter during such time as any part of such call or instalment remains unpaid, serve a notice on him requiring payment of so much of the call or instalment as is unpaid, together with any interest which may have accrued.

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The notice shall name a further day (not earlier than the expiration of fourteen calendar days from the date of the notice) on or before which the payment required by the notice is to be made, and shall state that in the event of non-payment at or before the time appointed, the Shares in respect of which the call was made will be liable to be forfeited.

If the requirements of any such notice as aforesaid are not complied with, any share in respect of which the notice has been given may at any time thereafter, before the payment required by notice has been made, be forfeited by a resolution of the directors to that effect. A forfeited share may be sold or otherwise disposed of on such terms and in such manner as the directors think fit, and at any time before a sale or disposition the forfeiture may be cancelled on such terms as the directors think fit.

A person whose shares have been forfeited shall cease to be a shareholder in respect of the forfeited shares, but shall, notwithstanding, remain liable to pay to the Company all moneys which at the date of forfeiture were payable by him to the Company in respect of the shares forfeited, but his liability shall cease if and when the Company receives payment in full of the amount unpaid on the Shares forfeited.

A certificate in writing under the hand of a director that a share has been duly forfeited on a date stated in the certificate shall be conclusive evidence of the facts in the declaration as against all persons claiming to be entitled to the share.

**Share Premium Account** 

The directors shall in accordance with the Cayman Islands Companies Act establish a share premium account and shall carry to the credit of such account from time to time a sum equal to the amount or value of the premium paid on the issue of any share.

**Redemption and Purchase of Own Shares**

Subject to the Cayman Islands Companies Act and the Memorandum and Articles of Association, the Company may:

&nbsp;&nbsp;&nbsp;&nbsp;(a) issue shares that are to be redeemed or are liable to be
redeemed at the option of the shareholder or the Company. The redemption of shares shall be effected in such manner and upon such terms
as may be determined, before the issue of such shares, by the board;

&nbsp;&nbsp;&nbsp;&nbsp;(b) purchase its own shares (including any redeemable shares)
on such terms and in such manner and terms as have been approved by the board, or are otherwise authorised by our memorandum and articles
of association, as amended and restated from time to time; and

&nbsp;&nbsp;&nbsp;&nbsp;(c) make a payment in respect of the redemption or purchase of
its own shares in any manner permitted by the Cayman Islands Companies Act, including out of capital.

**Transfer of Shares**

Subject to any applicable requirements set forth in our Memorandum and Articles of Association and provided that a transfer of ordinary shares complies with applicable rules of the Nasdaq, any of our shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer in the usual or common form or in a form prescribed by Nasdaq or in any other form approved by our board of directors, executed by or on behalf of the transferor and if in respect of a nil or partly paid up share, or if so required by the directors, shall also be executed on behalf of the transferee and shall be accompanied by the certificate (if any) of the shares to which it relates and such other evidence as the directors may reasonably require to show the right of the transferor to make the transfer.

The transferor shall be deemed to remain a shareholder until the name of the transferee is entered in the register of members in respect of the relevant shares.

Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which we have a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:

● the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer;

● the instrument of transfer is in respect of only one class of ordinary shares;

● the instrument of transfer is properly stamped, if required;

● in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not exceed four; and

● a fee of such maximum sum as Nasdaq may determine to be payable, or such lesser sum as the board of directors may from time to time require, is paid to us in respect thereof.

If our directors refuse to register a transfer they shall, within two calendar months after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal.

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The registration of transfers may, after compliance with any notice required by the applicable rules of the Nasdaq, be suspended and our register of members closed at such times and for such periods as our board of directors may in their absolute discretion, from time to time determine, provided always that such registration of transfer shall not be suspended nor the register of members closed for more than forty calendar days in any calendar year.

**Inspection of Books and Records**

Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records (save for the memorandum and articles of association, register of mortgages and charges, and the special resolutions passed by shareholders) or to obtain copies of the register of members of these companies. Under Cayman Islands law, the names of current directors of our Company can be obtained from a search conducted at the Registrar of Companies in the Cayman Islands.

Under the Memorandum and Articles of Association, which will be effective immediately prior to completion of this offering, our directors may from time to time determine whether and to what extent and at what times and places and under what conditions or regulations our accounts and books or any of them shall be open to the inspection of shareholders not being directors, and no shareholder (not being a director) shall have any right to inspect any of our account or book or document except as conferred by law or authorised by the directors, provided that the shareholders shall receive the annual audited financial statements of our Company.

**General Meetings**

As a Cayman Islands exempted company, we are not obliged by the Cayman Islands Companies Act to call shareholders' annual general meetings.

The Memorandum and Articles of Association provide that we may (but shall not be obliged to) in each calendar year hold a general meeting as our annual general meeting and shall specify the meeting as such in the notices calling it, and the annual general meeting will be held at such time and place as may be determined by our directors. Each general meeting, other than an annual general meeting, shall be an extraordinary general meeting. The chairman or a majority of the directors (acting by a resolution of the board) may call general meetings. General meetings shall also be convened on the written requisition of one or more of the shareholders holding at the date of deposit of the requisition shares which carry in aggregate not less than one-tenth (1/10) of the total number of votes attaching to all issued and outstanding shares that as at the date of the deposit carry the right to vote at general meetings of the Company, specifying the objects of the meeting and signed by each of the shareholders making the requisition and deposited at the registered office. If there are no directors as at the date of the deposit of the shareholders' requisition, or if the directors do not within twenty-one (21) calendar days from the date of the deposit of the requisition duly proceed to convene a general meeting to be held within a further twenty-one (21) calendar days, those shareholders who requested the meeting or any of them representing more than one-half of the total voting rights of all of them may convene the general meeting themselves, but any meeting so convened shall not be held after the expiration of three calendar months after the expiration of the said twenty-one (21) calendar days.

At least seven (7) clear days' notice shall be given for any general meeting. Every notice shall be exclusive of the day on which it is given or deemed to be given and of the day for which it is given and shall specify, among other things, the place, the day and the hour of the meeting and the general nature of the business. In addition, if a resolution is proposed as a special resolution, the notice specifying the intention to propose the resolution as a special resolution must be duly given. Notice of every general meeting shall be given to (a) all shareholders holding shares with the right to receive notice and who have supplied to the Company an address for the giving of notices to them; and (b) every person entitled to a share in consequence of the death or bankruptcy of a shareholder, who but for his death or bankruptcy would be entitled to receive notice of the meeting.

Subject to the Memorandum and Articles of Association, a general meeting of the Company shall, whether or not the notice has been given and whether or not the provisions of the Memorandum and Articles of Association regarding general meetings have been complied with, be deemed to have been duly convened if it is so agreed by shareholders holding at least 90% of the total voting rights on all the matters to be considered at the meeting.

A quorum shall consist of the presence (whether in person or represented by proxy) of one or more shareholders holding shares which carry in aggregate (or representing by proxy) not less than one-third of all votes attaching to all shares in issue and entitled to vote at such general meeting present shall be a quorum for all purposes.

If within half an hour from the time appointed for the meeting a quorum is not present, the meeting shall be dissolved. The chairman of any general meeting at which a quorum is present may with the consent of the meeting (and shall if so directed by the meeting) adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. When a meeting, or adjourned meeting, is adjourned for fourteen calendar days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. Save as aforesaid it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting.

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**Directors**

Unless otherwise determined by the Company in general meeting, the number of directors shall not be less than two (2) directors, the exact number of directors to be determined from time to time by the board of directors.

The Company may by ordinary resolution appoint any person to be a director. the board may, by the affirmative vote of a simple majority of the remaining directors present and voting at a board meeting, appoint any person as a director, to fill a casual vacancy on the board or as an addition to the board.

The remuneration of the directors may be determined by the directors or by ordinary resolution.

A director shall not be required to hold any shares in the Company by way of qualification.

An appointment of a director may be on terms that the director shall automatically retire from office (unless he has sooner vacated office) at the next or a subsequent annual general meeting or upon any specified event or after any specified period in a written agreement between the company and the director, if any; but no such term shall be implied in the absence of express provision. Any director whose term of office expires shall be eligible for re-election at a meeting of the shareholders or re-appointment by the board..

A director may be removed from office by an ordinary resolution, notwithstanding anything in the Memorandum and Articles of Association or in any agreement between the company and such director (but without prejudice to any claim for damages under such agreement).

The office of director shall be vacated, if the director: (a) becomes bankrupt or makes any arrangement or composition with his creditors; (b) dies or is found to be or becomes of unsound mind; (c) resigns his office by notice in writing to the company; (d) without special leave of absence from the board, is absent from meetings of the board for three consecutive meetings and the board resolves that his office be vacated; (e) is prohibited by law from being a director; or (f) is removed from office pursuant to any other provision of our articles of association.

Each of the compensation committee and the nominating and corporate governance committee shall consist of at least three directors and the majority of the committee members shall be independent within the meaning of the Nasdaq corporate governance rules. The audit committee shall consist of at least three directors, all of whom shall be independent within the meaning of the Nasdaq corporate governance rules and will meet the criteria for independence set forth in Rule 10A-3 or Rule 10C-1 of the Exchange Act.

**Powers and Duties of Directors**

Subject to the provisions of the Cayman Islands Companies Act and the Memorandum and Articles of Association, our business shall be managed by the directors, who may exercise all our powers. No resolution passed by the Company in general meeting shall invalidate any prior act of the directors that would have been valid if that resolution had not been passed.

The directors may delegate any of their powers to committees consisting of such member or members of their body as they think fit; any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may be imposed on it by the directors. Our board of directors have established an audit committee, compensation committee, and nomination and corporate governance committee.

The directors from time to time and at any time may establish any committees, local boards or agencies for managing any of the affairs of the Company and may appoint any natural person or corporation to be a member of such committees or local boards and may appoint any managers or agents of the Company and may fix the remuneration of any such natural person or corporation.

The directors may from time to time and at any time by power of attorney (whether under seal or under hand) or otherwise appoint any company, firm or person or body of persons, whether nominated directly or indirectly by the directors, to be the attorney or attorneys or authorised signatory (any such Person being an "Attorney" or "Authorised Signatory", respectively) of the Company for such purposes and with such powers, authorities and discretion (not exceeding those vested in or exercisable by the directors under the Memorandum and Articles of Association) and for such period and subject to such conditions as they may think fit, and any such power of attorney or other appointment may contain such provisions for the protection and convenience of persons dealing with any such Attorney or Authorised Signatory as the directors may think fit, and may also authorise any such Attorney or Authorised Signatory to delegate all or any of the powers, authorities and discretion vested in him.

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The directors from time to time and at any time may delegate to any such committee, local board, manager or agent any of the powers, authorities and discretions for the time being vested in the directors and may authorise the members for the time being of any such local board, or any of them to fill any vacancies therein and to act notwithstanding vacancies and any such appointment or delegation may be made on such terms and subject to such conditions as the directors may think fit and the directors may at any time remove any natural person or corporation so appointed and may annul or vary any such delegation, but no person dealing in good faith and without notice of any such annulment or variation shall be affected thereby.

Any such delegates as aforesaid may be authorised by the directors to sub-delegate all or any of the powers, authorities, and discretion for the time being vested in them.

The directors may from time to time at their discretion exercise all the powers of the company to raise or borrow money and to mortgage or charge its undertaking, property and assets (present and future) and uncalled capital or any part thereof, to issue debentures, debenture stock, bonds and other securities, whether outright or as collateral security for any debt, liability or obligation of the company or of any third party.

A director who is in any way, whether directly or indirectly, interested in a contract or transaction or proposed contract or transaction with the company shall declare the nature of his interest at a meeting of the directors. A general notice given to the directors by any director to the effect that he is a member of any specified company or firm and is to be regarded as interested in any contract or transaction which may thereafter be made with that company or firm shall be deemed a sufficient declaration of interest in regard to any contract so made or transaction so consummated. subject to the Nasdaq rules and disqualification by the chairman of the relevant board meeting, a director may vote in respect of any contract or transaction or proposed contract or transaction notwithstanding that he may be interested therein and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of the directors at which any such contract or transaction or proposed contract or transaction shall come before the meeting for consideration.

**Capitalization of Profits**

Subject to the Cayman Islands Companies Act, the directors may:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(a)** resolve to capitalize an amount standing to the credit of
reserves (including a share premium account, capital redemption reserve and profit and loss account), which is available for distribution;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(b)** appropriate the sum resolved to be capitalised to the shareholders in proportion to the nominal amount
of shares (whether or not fully paid) held by them respectively and apply that sum on their behalf in or towards:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) paying up the amounts (if any) for the time being unpaid
on shares held by them respectively, or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) paying up in full unissued shares or debentures of a nominal
amount equal to that sum,and allot the shares or debentures, credited as fully paid, to the shareholders (or as they may direct) in those
proportions, or partly in one way and partly in the other, but the share premium account, the capital redemption reserve and profits
which are not available for distribution may, only be applied in paying up unissued shares to be allotted to shareholders credited as
fully paid;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(c)** make any arrangements they think fit to resolve a difficulty arising in the distribution of a capitalised
reserve and in particular, without limitation, where shares or debentures become distributable in fractions the directors may deal with
the fractions as they think fit;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(d)** authorise a person to enter (on behalf of all the shareholders concerned) into an agreement with the Company
providing for either:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) the allotment to the shareholders respectively, credited
as fully paid, of shares or debentures to which they may be entitled on the capitalisation, or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) the payment by the Company on behalf of the shareholders
(by the application of their respective proportions of the reserves resolved to be capitalised) of the amounts or part of the amounts
remaining unpaid on their existing shares, and any such agreement made under this authority being effective and binding on all those
shareholders; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(e)** generally do all acts and things required to give effect to the resolution.

**Liquidation Rights**

If the Company shall be wound up the liquidator may, with the sanction of a special resolution of the Company and any other sanction required by the Cayman Islands Companies Act, divide amongst the shareholders in species or in kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may for that purpose value any assets and determine how the division shall be carried out as between the shareholders or different classes of shareholders. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the shareholders as the liquidator, with the like sanction, shall think fit, but so that no shareholder shall be compelled to accept any asset upon which there is a liability.

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**Register of Members**

Under the Cayman Islands Companies Act, we must keep a register of members and there should be entered therein:

● the names and addresses of our shareholders, a statement of the shares held by each shareholder, and of the amount paid or agreed to be considered as paid, on the shares of each shareholder;

● the date on which the name of any person was entered on the register as a shareholder; and

● the date on which any person ceased to be a shareholder.

Under the Cayman Islands Companies Act, the register of members of our company is prima facie evidence of the matters set out therein (that is, the register of members will raise a presumption of fact on the matters referred to above unless rebutted) and a shareholder registered in the register of members is deemed as a matter of the Cayman Islands Companies Act to have legal title to the shares as set against its name in the register of members. Our register of members has been updated and the shareholders recorded in the register of members should be deemed to have legal title to the shares set against their name.

If the name of any person is incorrectly entered in or omitted from our register of members, or if there is any default or unnecessary delay in entering on the register the fact of any person having ceased to be a shareholder of our company, the person or shareholder aggrieved (or any shareholder of our company or our company itself) may apply to the Grand Court of the Cayman Islands for an order that the register be rectified, and the Court may either refuse such application or it may, if satisfied of the justice of the case, make an order for the rectification of the register.

**Differences in Corporate Law**

The Cayman Islands Companies Act is derived, to a large extent, from the older Companies Acts of England and Wales but does not follow recent United Kingdom statutory enactments, and accordingly there are significant differences between the Cayman Islands Companies Act and the current Companies Act of England and Wales. In addition, the Cayman Islands Companies Act differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of certain significant differences between the provisions of the Cayman Islands Companies Act applicable to us and the comparable laws applicable to companies incorporated in the State of Delaware in the United States.

*Mergers and Similar Arrangements*

The Cayman Islands Companies Act permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies. For these purposes, (a) "merger" means the merging of two or more constituent companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company, and (b) a "consolidation" means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and liabilities of such companies to the consolidated company. In order to effect such a merger or consolidation, the directors of each constituent company must approve a written plan of merger or consolidation, which must then be authorized by (a) a special resolution of the shareholders of each constituent company, and (b) such other authorization, if any, as may be specified in such constituent company's articles of association. The plan must be filed with the Registrar of Companies together with a declaration as to the solvency of the consolidated or surviving company, a list of the assets and liabilities of each constituent company and an undertaking that a copy of the certificate of merger or consolidation will be given to the shareholders and creditors of each constituent company and that notification of the merger or consolidation will be published in the Cayman Islands Gazette. Court approval is not required for a merger or consolidation which is effected in compliance with these statutory procedures.

A merger between a Cayman Islands parent company and its Cayman Islands subsidiary or subsidiaries does not require authorization by a resolution of shareholders. For this purpose a subsidiary is a company of which at least 90% of the issued shares entitled to vote are owned by the parent company.

The consent of each holder of a fixed or floating security interest of a constituent company is required unless this requirement is waived by a court in the Cayman Islands.

Save in certain circumstances, a dissentient shareholder of a Cayman constituent company is entitled to payment of the fair value of his shares upon dissenting to a merger or consolidation. The exercise of appraisal rights will preclude the exercise of any other rights save for the right to seek relief on the grounds that the merger or consolidation is void or unlawful.

Reconstructions and amalgamations may be approved by (i) 75% in value of the members or class of members or (ii) a majority in number representing 75% in value of the creditors or class of creditors, in each case depending on the circumstances, as are present at a meeting called for such purpose and thereafter sanctioned by the Grand Court of the Cayman Islands. Whilst a dissenting member has the right to express to the court his view that the transaction for which approval is being sought would not provide the members with a fair value for their shares, it can be expected that the court would approve the transaction if it is satisfied that (i) the company is not proposing to act illegally or beyond the scope of its corporate authority and the statutory provisions as to majority vote have been complied with, (ii) the members have been fairly represented at the meeting in question, (iii) the transaction is such as a businessman would reasonably approve and (iv) the transaction is not one that would more properly be sanctioned under some other provisions of the Cayman Islands Companies Act or that would amount to a "fraud on the minority". If the transaction is approved, no dissenting member would have any rights comparable to the appraisal rights (namely the right to receive payment in cash for the judicially determined value of his shares), which may be available to dissenting members of corporations in other jurisdictions.

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The Cayman Islands Companies Act also contains a statutory power of compulsory acquisition which may facilitate the "squeeze out" of dissentient minority shareholder upon a tender offer. When a tender offer is made and accepted by holders of not less than ninety percent (90%) in value of the shares affected within four months, the offeror may, within a two-month period commencing on the expiration of such four-month period, require the holders of the remaining shares to transfer such shares to the offeror on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands, but it is unlikely to succeed in the case of an offer which has been so accepted unless there is evidence of fraud, bad faith or collusion.

If an arrangement and reconstruction is thus approved, the dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash for the judicially determined value of the shares.

*Shareholders' Suits* 

In principle, we will normally be the proper plaintiff to sue for a wrong done to us as a company and as a general rule, a derivative action may not be brought by a minority shareholder. However, based on English law authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, the Cayman Islands courts can be expected to follow and apply the common law principles (namely the rule in *Foss v. Harbottle* and the exceptions thereto) so that a non-controlling shareholder may be permitted to commence a class action against or derivative actions in the name of the company to challenge:

&nbsp;&nbsp;&nbsp;&nbsp;(a) an
act which is illegal or ultra vires with respect to the company and is therefore incapable of ratification by the shareholders;

&nbsp;&nbsp;&nbsp;&nbsp;(b) an
act which, although not ultra vires, requires authorization by a qualified (or special) majority (that is, more than a simple majority)
which has not been obtained; and

&nbsp;&nbsp;&nbsp;&nbsp;(c) an
act which constitutes a "fraud on the minority" where the wrongdoers are themselves in control of the company.

*Indemnification of Directors and Executive Officers and Limitation of Liability*

The Cayman Islands law does not limit the extent to which a company's articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our Memorandum and Articles of Association provide that every director (including any alternate director), secretary, assistant secretary, or other officer for the time being and from time to time of our company (but not including our company's auditors) and the personal representatives of the same (each an "Indemnified Person") shall be indemnified and secured harmless against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by such Indemnified Person, other than by reason of such Indemnified Person's own dishonesty, willful default or fraud, in or about the conduct of our company's business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such Indemnified Person in defending (whether successfully or otherwise) any civil proceedings concerning our company or its affairs in any court whether in the Cayman Islands or elsewhere.

This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation. In addition, we intend to enter into indemnification agreements with our directors and executive officers that will provide such persons with additional indemnification beyond that provided in our memorandum and articles of association.

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Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

*Anti-Takeover Provisions in the Memorandum and Articles of Association*

Some provisions of the Memorandum and Articles of Association may discourage, delay or prevent a change in control of our company or management that shareholders may consider favorable, including provisions that authorize our board of directors to issue shares at such times and on such terms and conditions as the board of directors may decide without any further vote or action by our shareholders.

Under the Cayman Islands Companies Act, our directors may only exercise the rights and powers granted to them under the Memorandum and Articles of Association for what they believe in good faith to be in the best interests of our company and for a proper purpose.

*Directors' Fiduciary Duties*

Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director act in a manner he or she reasonably believes to be in the best interests of the corporation. He or she must not use his or her corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interests of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, a director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.

As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company and therefore it is considered that he owes the following duties to the company — a duty to act in good faith in the best interests of the company, a duty not to make a personal profit based on his position as director (unless the company permits him to do so), a duty not to put himself in a position where the interests of the company conflict with his personal interest or his duty to a third party and a duty to exercise powers for the purpose for which such powers were intended. A director of a Cayman Islands company owes to the company a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.

*Shareholder Proposals*

The Cayman Islands Companies Act provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company's articles of association. The Memorandum and Articles of Association allow any one or more of our shareholders holding at the date of deposit of the requisition shares which carry in aggregate not less than one-tenth (1/10) of the total number of votes attaching to all issued and outstanding shares that as at the date of the deposit carry the right to vote at general meetings of the Company to requisition an extraordinary general meeting of our shareholders, in which case the chairman or a majority of the directors (acting by a resolution of the board) may proceed to convene an extraordinary general meeting. As a Cayman Islands exempted company, we are not obliged by law to call annual general meetings.

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*Cumulative Voting*

Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation's certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder's voting power with respect to electing such director. As permitted under the Cayman Islands Companies Act, the Memorandum and Articles of Association do not provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.

*Removal of Directors*

Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under the Memorandum and Articles of Association, directors may be removed by an ordinary resolution, notwithstanding anything in our memorandum and articles of association or in any agreement between the Company and such director (but without prejudice to any claim for damages under such agreement).

*Transactions with Interested Shareholders*

The Delaware General Corporation Law contains a business combination statute applicable to Delaware public corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation or bylaws that its shareholders approve, it is prohibited from engaging in certain business combinations with an "interested shareholder" for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target's outstanding voting stock or who or which is an affiliate or associate of the corporation and owned 15% or more of the corporation's outstanding voting stock within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction, resulting in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target's board of directors.

Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, the directors of the company are required to comply with fiduciary duties which they owe to the company under Cayman Islands laws, including the duty to ensure that, in their opinion, any such transactions must be entered into bona fide in the best interests of the company, and are entered into for a proper corporate purpose and not with the effect of constituting a fraud on the minority shareholders.

*Dissolution; Winding Up*

Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation's outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board of directors.

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Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of its members or, if the company is unable to pay its debts as they fall due, by an ordinary resolution of its members. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so.

*Variation of Rights of Shares*

Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under the Cayman Islands Companies Act and our Memorandum and Articles of Association, whenever the capital of the Company is divided into different classes the rights attached to any such class may, subject to any rights or restrictions for the time being attached to any class, only be materially and adversely varied with the consent in writing of the holders of two-thirds of the issued shares of that class or with the sanction of a special resolution passed at a separate meeting of the holders of the shares of that class.

*Amendment of Governing Documents*

Under the Delaware General Corporation Law, a corporation's certificate of incorporation may be amended only if adopted and declared advisable by the board of directors and approved by a majority of the outstanding shares entitled to vote. The bylaws may be amended with the approval of a majority of the outstanding shares entitled to vote. If so provided in the certificate of incorporation, they may also be amended by the board of directors. Under the Cayman Islands Companies Act, the Memorandum and Articles of Association may only be amended by special resolution of our shareholders.

*Anti-money Laundering-Cayman Islands*

In order to comply with legislation or regulations aimed at the prevention of money laundering, we are required to adopt and maintain anti-money laundering procedures and may require subscribers to provide evidence to verify their identity and source of funds. Where permitted, and subject to certain conditions, we may also delegate the maintenance of our anti-money laundering procedures (including the acquisition of due diligence information) to a suitable person.

We reserve the right to request such information as is necessary to verify the identity of a subscriber. In some cases the directors may be satisfied that no further information is required since an exemption applies under the Anti-Money Laundering Regulations (Revised) of the Cayman Islands, as amended and revised from time to time (the "Regulations"). Depending on the circumstances of each application, a detailed verification of identity might not be required where:

● the subscriber makes the payment for their investment from an account held in the subscriber's name at a recognized financial institution; or

● the subscriber is regulated by a recognized regulatory authority and is based or incorporated in, or formed under the law of, a recognized jurisdiction; or

● the application is made through an intermediary which is regulated by a recognized regulatory authority and is based in or incorporated in, or formed under the law of a recognized jurisdiction and an assurance is provided in relation to the procedures undertaken on the underlying investors.

For the purposes of these exceptions, recognition of a financial institution, regulatory authority, or jurisdiction will be determined in accordance with the Regulations by reference to those jurisdictions recognized by the Cayman Islands Monetary Authority as having equivalent anti-money laundering regulations.

In the event of delay or failure on the part of the subscriber in producing any information required for verification purposes, we may refuse to accept the application, in which case any funds received will be returned without interest to the account from which they were originally debited.

We also reserve the right to refuse to make any redemption payment to a shareholder if our directors or officers suspect or are advised that the payment of redemption proceeds to such shareholder might result in a breach of applicable anti-money laundering or other laws or regulations by any person in any relevant jurisdiction, or if such refusal is considered necessary or appropriate to ensure our compliance with any such laws or regulations in any applicable jurisdiction.

If any person resident in the Cayman Islands knows or suspects or has reason for knowing or suspecting that another person is engaged in criminal conduct or is involved with terrorism or terrorist property and the information for that knowledge or suspicion came to their attention in the course of their business in the regulated sector, or other trade, profession, business or employment, the person will be required to report such knowledge or suspicion to (i) a nominated officer (appointed in accordance with the Proceeds of Crime Act (Revised) of the Cayman Islands) or the Financial Reporting Authority of the Cayman Islands, pursuant to the Proceeds of Crime Act (Revised), if the disclosure relates to criminal conduct or money laundering or (ii) to a police constable or a nominated officer (pursuant to the Terrorism Act (Revised) of the Cayman Islands) or the Financial Reporting Authority, pursuant to the Terrorism Act (Revised), if the disclosure relates to involvement with terrorism or terrorist financing and terrorist property. Such a report shall not be treated as a breach of confidence or of any restriction upon the disclosure of information imposed by any enactment or otherwise.

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**10. C. Material contracts**

We have not entered into any material contracts other than in the ordinary course of business and otherwise described elsewhere in this Annual Report.

**10. D. Exchange controls**

***Regulations on Foreign Currency Exchange***

The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, most recently amended in August 2008. Under the PRC foreign exchange regulations, payments of current account items, such as profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. By contrast, approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital account items, such as direct investments, repayment of foreign currency-denominated loans, repatriation of investments and investments in securities outside of China.

In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment, which substantially amends and simplifies the current foreign exchange procedure. Pursuant to this circular, the opening of various special purpose foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts and guarantee accounts, the reinvestment of RMB proceeds derived by foreign investors in the PRC, and remittance of foreign exchange profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE, and multiple capital accounts for the same entity may be opened in different provinces, which was not possible previously. In addition, SAFE promulgated another circular in May 2013, which specifies that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC must be conducted by way of registration and banks must process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and its branches. On February 28, 2015, SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment, or SAFE Notice 13. After SAFE Notice 13 became effective on June 1, 2015, instead of applying for approvals regarding foreign exchange registrations of foreign direct investment and overseas direct investment from SAFE, entities and individuals may apply for such foreign exchange registrations from qualified banks. The qualified banks, under the supervision of SAFE, may directly review the applications and conduct the registration.

On March 30, 2015, SAFE promulgated Circular 19, which expands a pilot reform of the administration of the settlement of the foreign exchange capitals of foreign-invested enterprises nationwide. Circular 19 came into force and replaced both previous Circular 142 and Circular 36 on June 1, 2015. On June 9, 2016, SAFE promulgated Circular 16 to further expand and strengthen such reform. Under Circular 19 and Circular 16, foreign-invested enterprises in the PRC are allowed to use their foreign exchange funds under capital accounts and RMB funds from exchange settlement for expenditure under current accounts within its business scope or expenditure under capital accounts permitted by laws and regulations, except that such funds shall not be used for (i) expenditure beyond the enterprise's business scope or expenditure prohibited by laws and regulations; (ii) investments in securities or other investments than banks' principal-secured products; (iii) granting of loans to non-affiliated enterprises, except where it is expressly permitted in the business license; and (iv) construction or purchase of real estate for purposes other than self-use (except for real estate enterprises).

In January 2017, SAFE promulgated the Circular on Further Improving Reform of Foreign Exchange Administration and Optimizing Genuineness and Compliance Verification, or SAFE Circular 3, which stipulates several capital control measures with respect to the outbound remittance of profit from domestic entities to offshore entities, including (i) under the principle of genuine transaction, banks shall check board resolutions regarding profit distribution, the original version of tax filing records and audited financial statements; and (ii) domestic entities shall hold income to account for previous years' losses before remitting the profits. Further, according to SAFE Circular 3, domestic entities shall make detailed explanations of the sources of capital and utilization arrangements, and provide board resolutions, contracts and other proof when completing the registration procedures in connection with an outbound investment.

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***Regulations on Foreign Exchange Registration of Overseas Investment by PRC Residents***

SAFE issued SAFE Circular on Relevant Issues Relating to Domestic Resident's Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, that became effective in July 2014, replacing the previous SAFE Circular 75. SAFE Circular 37 regulates foreign exchange matters in relation to the use of special purpose vehicles, or SPVs, by PRC residents or entities to seek offshore investment and financing or conduct round trip investment in China. Under SAFE Circular 37, a SPV refers to an offshore entity established or controlled, directly or indirectly, by PRC residents or entities for the purpose of seeking offshore financing or making offshore investment, using legitimate onshore or offshore assets or interests, while "round trip investment" refers to direct investment in China by PRC residents or entities through SPVs, namely, establishing foreign-invested enterprises to obtain the ownership, control rights and management rights. SAFE Circular 37 provides that, before making contribution into an SPV, PRC residents or entities are required to complete foreign exchange registration with SAFE or its local branch. SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment in February 2015, which took effect on June 1, 2015. This notice has amended SAFE Circular 37 requiring PRC residents or entities to register with qualified banks rather than SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing.

PRC residents or entities who had contributed legitimate onshore or offshore interests or assets to SPVs but had not obtained registration as required before the implementation of the SAFE Circular 37 must register their ownership interests or control in the SPVs with qualified banks. An amendment to the registration is required if there is a material change with respect to the SPV registered, such as any change of basic information (including change of the PRC residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, and mergers or divisions. Failure to comply with the registration procedures set forth in SAFE Circular 37 and the subsequent notice, or making misrepresentation on or failure to disclose controllers of the foreign-invested enterprise that is established through round-trip investment, may result in restrictions being imposed on the foreign exchange activities of the relevant foreign-invested enterprise, including payment of dividends and other distributions, such as proceeds from any reduction in capital share transfer or liquidation, to its offshore parent or affiliate, and the capital inflow from the offshore parent, and may also subject relevant PRC residents or entities to penalties under PRC foreign exchange administration regulations.

We are aware that our PRC resident beneficial owners subject to these registration requirements have registered with the Beijing SAFE branch and/or qualified banks to reflect the recent changes to our corporate structure.

**10. E. Taxation** 

ERAYAK Power Solution Group Inc. is an exempted company incorporated in Cayman Islands. The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty or withholding tax applicable to us or to any holder of our Class A Ordinary Shares. Erayak HK is subject to Hong Kong law. Erayak WFOE, Ruike, Zhejiang Leiya and Wenzhou New Focus are subject to PRC laws. The following sets forth the material Cayman Islands, Chinese and U.S. federal income tax consequences related to an investment in our Class A Ordinary Shares.

**<u>People's Republic of China Enterprise Taxation</u>**

Unless otherwise noted in the following discussion, this section is the opinion of Gaopeng & Partners, our PRC counsel, insofar as it relates to legal conclusions with respect to matters of People's Republic of China Enterprise Taxation below.

The following brief description of Chinese enterprise laws is designed to highlight the enterprise-level taxation on our earnings, which will affect the number of dividends, if any, we are ultimately able to pay to our shareholders. See "Dividend Policy."

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We are a holding company incorporated in the Cayman Islands with limited liability and we gain income by way of dividends paid to us from our PRC subsidiaries. The EIT Law and its implementation rules provide that China-sourced income of foreign enterprises, such as dividends paid by a PRC subsidiary to its equity holders that are non-resident enterprises, will normally be subject to PRC withholding tax at a rate of 10%, unless any such foreign investor's jurisdiction of incorporation has a tax treaty with China that provides for a preferential tax rate or a tax exemption.

Under the EIT Law, an enterprise established outside of China with a "de facto management body" within China is considered a "resident enterprise," which means that it is treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. Although the implementation rules of the EIT Law define "de facto management body" as a managing body that actually, comprehensively manage and control the production and operation, staff, accounting, property and other aspects of an enterprise, the only official guidance for this definition currently available is set forth in SAT Notice 82, which provides guidance on the determination of the tax residence status of a Chinese-controlled offshore incorporated enterprise, defined as an enterprise that is incorporated under the laws of a foreign country or territory and that has a PRC enterprise or enterprise group as its primary controlling shareholder. Although Erayak does not have a PRC enterprise or enterprise group as our primary controlling shareholder and is therefore not a Chinese-controlled offshore incorporated enterprise within the meaning of SAT Notice 82, in the absence of guidance specifically applicable to us, we have applied the guidance set forth in SAT Notice 82 to evaluate the tax residence status of Erayak and its subsidiaries organized outside the PRC.

According to SAT Notice 82, a Chinese-controlled offshore incorporated enterprise will be regarded as a PRC tax resident by virtue of having a "de facto management body" in China and will be subject to PRC enterprise income tax on its worldwide income only if all of the following criteria are met: (i) the places where senior management and senior management departments that are responsible for daily production, operation and management of the enterprise perform their duties are mainly located within the territory of China; (ii) financial decisions (such as money borrowing, lending, financing and financial risk management) and personnel decisions (such as appointment, dismissal and salary and wages) are decided or need to be decided by organizations or persons located within the territory of China; (iii) main property, accounting books, corporate seal, the board of directors and files of the minutes of shareholders' meetings of the enterprise are located or preserved within the territory of China; and (iv) one half (or more) of the directors or senior management staff having the right to vote habitually reside within the territory of China.

Currently, we are not aware of any offshore holding companies with a corporate structure similar to ours that has been deemed a PRC "resident enterprise" by the PRC tax authorities. Accordingly, we believe that Erayak and its offshore subsidiaries should not be treated as a "resident enterprise" for PRC tax purposes if the criteria for "de facto management body" as set forth in SAT Notice 82 were deemed applicable to us. However, as the tax residency status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term "de facto management body" as applicable to our offshore entities, we will continue to monitor our tax status.

The implementation rules of the EIT Law provide that, (i) if the enterprise that distributes dividends is domiciled in the PRC or (ii) if gains are realized from transferring equity interests of enterprises domiciled in the PRC, then such dividends or gains are treated as China-sourced income. It is not clear how "domicile" may be interpreted under the EIT Law, and it may be interpreted as the jurisdiction where the enterprise is a tax resident. Therefore, if we are considered as a PRC tax resident enterprise for PRC tax purposes, any dividends we pay to our overseas shareholders which are non-resident enterprises as well as gains realized by such shareholders from the transfer of our shares may be regarded as China-sourced income and as a result become subject to PRC withholding tax at a rate of up to 10%. We are unable to provide a "will" opinion because Gaopeng & Partners, our PRC counsel, believes that it is more likely than not that the Company and its offshore subsidiaries would be treated as a non-resident enterprise for PRC tax purposes because we are not aware of any offshore holding companies with a corporate structure similar to ours that has been deemed a PRC "resident enterprise" by the PRC tax authorities as of the date of the Annual Report. Therefore, we believe that it is possible but highly unlikely that the income received by our overseas shareholders will be regarded as China-sourced income.

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Our company pays an EIT rate of 25% for WFOE and its subsidiaries. The EIT is calculated based on the entity's global income as determined under PRC tax laws and accounting standards. If the PRC tax authorities determine that we are a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises. In addition, non-resident enterprise shareholders may be subject to a 10% PRC withholding tax on gains realized on the sale or other disposition of our ordinary share, if such income is treated as sourced from within the PRC. It is unclear whether our non-PRC individual shareholders would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders in the event we are determined to be a PRC resident enterprise. If any PRC tax were to apply to dividends or gains realized by non-PRC individuals, it would generally apply at a rate of 20% unless a reduced rate is available under an applicable tax treaty. However, it is also unclear whether non-PRC shareholders of the Company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that the Company is treated as a PRC resident enterprise. There is no guidance from the PRC government to indicate whether or not any tax treaties between the PRC and other countries would apply in circumstances where a non-PRC company was deemed to be a PRC tax resident, and thus there is no basis for expecting how tax treaty between the PRC and other countries may impact non-resident enterprises.

**<u>Hong Kong Taxation</u>**

Entities incorporated in Hong Kong are subject to profits tax in Hong Kong at the rate of 16.5% for each of the years ended December 31, 2025 and 2024.

**<u>Cayman Islands Taxation</u>**

The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to holders of our Ordinary Shares levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or, after execution, brought to or produced before a court of the Cayman Islands. The Cayman Islands is a party to a double tax treaty entered into with the United Kingdom in 2010 but is otherwise not party to any double tax treaties that are applicable to any payments made to or by our company.

Payments of dividends and capital in respect of our Ordinary Shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of our Ordinary Shares, as the case may be, nor will gains derived from the disposal of our Ordinary Shares be subject to Cayman Islands income or corporation tax.

The Cayman Islands enacted the International Tax Co-operation (Economic Substance) Act (Revised) together with the Guidance Notes published by the Cayman Islands Tax Information Authority from time to time. The Company is required to comply with the economic substance requirements from July 1, 2019 and make an annual report in the Cayman Islands as to whether or not it is carrying on any relevant activities and if it is, it must satisfy an economic substance test.

**<u>United States Federal Income</u>**

***Material Tax Consequences Applicable to U.S. Holders of Our Ordinary Shares***

The following sets forth the material U.S. federal income tax consequences related to the ownership and disposition of our Ordinary Shares. It is directed to U.S. Holders (as defined below) of our Ordinary Shares and is based upon laws and relevant interpretations thereof in effect as of the date of this Annual Report, all of which are subject to change. This description does not deal with all possible tax consequences relating to ownership and disposition of our ordinary share or U.S. tax laws, other than the U.S. federal income tax laws, such as the tax consequences under non-U.S. tax laws, state, local and other tax laws.

The following brief description applies only to U.S. Holders (defined below) that hold Ordinary Shares as capital assets and that have the U.S. dollar as their functional currency. This brief description is based on the federal income tax laws of the United States in effect as of the date of this Annual Report and on U.S. Treasury regulations in effect or, in some cases, proposed, as of the date of this Annual Report, as well as judicial and administrative interpretations thereof available on or before such date. All of the foregoing authorities are subject to change, which change could apply retroactively and could affect the tax consequences described below.

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The brief description below of the U.S. federal income tax consequences to "U.S. Holders" will apply to you if you are a beneficial owner of Ordinary Shares and you are, for U.S. federal income tax purposes,

● an individual who is a citizen or resident of the United States;

● a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia;

● an estate whose income is subject to U.S. federal income taxation regardless of its source; or

● a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

**Taxation of Dividends and Other Distributions on Our Class A Ordinary Shares**

Subject to the passive foreign investment company (PFIC) rules (defined below) discussed below, the gross amount of distributions made by us to you with respect to the ordinary share (including the amount of any taxes withheld therefrom) will generally be includable in your gross income as dividend income on the date of actual or constructive receipt by you, but only to the extent that the distribution is paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). With respect to corporate U.S. Holders, the dividends will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from U.S. corporations.

With respect to non-corporate U.S. Holders, including individual U.S. Holders, dividends will be taxed at the lower capital gains rate applicable to qualified dividend income, provided that (1) the ordinary share are readily tradable on an established securities market in the United States, or we are eligible for the benefits of an approved qualifying income tax treaty with the United States that includes an exchange of information program, (2) we are not a PFIC (defined below) for either our taxable year in which the dividend is paid or the preceding taxable year, and (3) certain holding period requirements are met. Because there is no income tax treaty between the United States and the Cayman Islands, clause (1) above can be satisfied only if the Class A Ordinary Shares are readily tradable on an established securities market in the United States. Under U.S. Internal Revenue Service authority, Class A Ordinary Shares are considered for purpose of clause (1) above to be readily tradable on an established securities market in the United States if they are listed on certain exchanges, which presently include the Nasdaq. You are urged to consult your tax advisors regarding the availability of the lower rate for dividends paid with respect to our Class A Ordinary Shares, including the effects of any change in law after the date of this Annual Report.

Dividends will constitute foreign source income for foreign tax credit limitation purposes. If the dividends are taxed as qualified dividend income (as discussed above), the amount of the dividend taken into account for purposes of calculating the foreign tax credit limitation will be limited to the gross amount of the dividend, multiplied by the reduced rate divided by the highest rate of tax normally applicable to dividends. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by us with respect to our Class A Ordinary Shares will constitute "passive category income" but could, in the case of certain U.S. Holders, constitute "general category income."

To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits (as determined under U.S. federal income tax principles), it will be treated first as a tax-free return of your tax basis in your Class A Ordinary Shares, and to the extent the amount of the distribution exceeds your tax basis, the excess will be taxed as capital gain. We do not intend to calculate our earnings and profits under U.S. federal income tax principles. Therefore, a U.S. Holder should expect that all distributions will be treated as a dividend even if a particular distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.

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***Taxation of Dispositions of Class A Ordinary Shares***

Subject to the passive foreign investment company rules discussed below, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of an ordinary share equal to the difference between the amount realized (in U.S. dollars) for the ordinary share and your tax basis (in U.S. dollars) in the ordinary share. The gain or loss will be capital gain or loss. If you are a non-corporate U.S. Holder, including an individual U.S. Holder, who has held the ordinary share for more than one year, you will generally be eligible for reduced tax rates. The deductibility of capital losses is subject to limitations. Any such gain or loss that you recognize will generally be treated as United States source income or loss for foreign tax credit limitation purposes which will generally limit the availability of foreign tax credits.

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***Passive Foreign Investment Company ("PFIC")***

A non-U.S. corporation is considered a PFIC, as defined in Section 1297(a) of the US Internal Revenue Code, for any taxable year if either:

● at least 75% of its gross income for such taxable year is passive income; or

● at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income (the "asset test").

Passive income generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets. We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% (by value) of the stock. In determining the value and composition of our assets for purposes of the PFIC asset test, (1) the cash we raise in our offerings will generally be considered to be held for the production of passive income and (2) the value of our assets must be determined based on the market value of our Class A Ordinary Shares from time to time, which could cause the value of our non-passive assets to be less than 50% of the value of all of our assets on any particular quarterly testing date for purposes of the asset test.

Based on our operations and the composition of our assets we do not expect to be treated as a PFIC under the current PFIC rules. However, we must make a separate determination each year as to whether we are a PFIC, and there can be no assurance with respect to our status as a PFIC for our current taxable year or any future taxable year. Depending on the amount of cash we raise in our future offerings, together with any other assets held for the production of passive income, it is possible that, for our current taxable year or for any subsequent taxable year, more than 50% of our assets may be assets held for the production of passive income. We will make this determination following the end of any particular tax year. In addition, because the value of our assets for purposes of the asset test will generally be determined based on the market price of our Class A Ordinary Shares and because cash is generally considered to be an asset held for the production of passive income, our PFIC status will depend in large part on the market price of our Class A Ordinary Shares and the amount of cash we raise.

Accordingly, fluctuations in the market price of the ordinary share may cause us to become a PFIC. In addition, the application of the PFIC rules is subject to uncertainty in several respects and the composition of our income and assets will be affected by how, and how quickly, we spend the cash we raise in our offerings. We are under no obligation to take steps to reduce the risk of our being classified as a PFIC, and as stated above, the determination of the value of our assets will depend upon material facts (including the market price of our Class A Ordinary Shares from time to time) that may not be within our control. If we are a PFIC for any year during which you hold Class A Ordinary Shares, we will continue to be treated as a PFIC for all succeeding years during which you hold Class A Ordinary Shares. However, if we cease to be a PFIC and you did not previously make a timely "mark-to-market" election as described below, you may avoid some of the adverse effects of the PFIC regime by making a "purging election" (as described below) with respect to your Class A Ordinary Shares.

If we are a PFIC for your taxable year(s) during which you hold ordinary share, you will be subject to special tax rules with respect to any "excess distribution" that you receive and any gain you realize from a sale or other disposition (including a pledge) of the ordinary share, unless you make a "mark-to-market" election as discussed below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for the ordinary share will be treated as an excess distribution. Under these special tax rules:

● the excess distribution or gain will be allocated ratably over your holding period for the Class A Ordinary Shares (in the case of Class A Ordinary Shares obtained through the exercise of warrants, the holding period will include the holding period of the underlying warrants);

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● the amount allocated to your current taxable year, and any amount allocated to any of your taxable year(s) prior to the first taxable year in which we were a PFIC, will be treated as ordinary income earned in the current taxable year; and

● the amount allocated to each of your other taxable year(s) will be subject to the highest tax rate on ordinary income in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.

The tax liability for amounts allocated to years prior to the year of disposition or "excess distribution" cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of the ordinary share cannot be treated as capital, even if you hold the ordinary share as capital assets.

A U.S. Holder of "marketable stock" (as defined below) in a PFIC may make a mark-to-market election under Section 1296 of the US Internal Revenue Code for such stock (but not our warrants) to elect out of the tax treatment discussed above. If you make a mark-to-market election for first taxable year which you hold (or are deemed to hold) Class A Ordinary Shares and for which we are determined to be a PFIC, you will include in your income each year an amount equal to the excess, if any, of the fair market value of the Class A Ordinary Shares as of the close of such taxable year over your adjusted basis in such Class A Ordinary Shares, which excess will be treated as ordinary income and not capital gain. You are allowed an ordinary loss for the excess, if any, of the adjusted basis of the Class A Ordinary Shares over their fair market value as of the close of the taxable year. However, such ordinary loss is allowable only to the extent of any net mark-to-market gains on the Class A Ordinary Shares included in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain on the actual sale or other disposition of the Class A Ordinary Shares, are treated as ordinary income. Ordinary loss treatment also applies to any loss realized on the actual sale or disposition of the Class A Ordinary Shares to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such Class A Ordinary Shares. Your basis in the Class A Ordinary Shares will be adjusted to reflect any such income or loss amounts. If you make a valid mark-to-market election, the tax rules that apply to distributions by corporations which are not PFICs would apply to distributions by us, except that the lower applicable capital gains rate for qualified dividend income discussed above under "- Taxation of Dividends and Other Distributions on Our Class A Ordinary Shares" generally would not apply.

The mark-to-market election is available only for "marketable stock," which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter ("regularly traded") on a qualified exchange or other market (as defined in applicable U.S. Treasury regulations), including the Nasdaq. If the Class A Ordinary Shares are regularly traded on the Nasdaq and if you are a holder of Class A Ordinary Shares, the mark-to-market election would be available to you were we to be or become a PFIC.

Alternatively, a U.S. Holder of stock (but not warrants) in a PFIC may make a "qualified electing fund" election under Section 1295(b) of the US Internal Revenue Code with respect to such PFIC to elect out of the tax treatment discussed above. A U.S. Holder who makes a valid qualified electing fund election with respect to a PFIC will generally include in gross income for a taxable year such holder's pro rata share of the corporation's earnings and profits for the taxable year. However, the qualified electing fund election is available only if such PFIC provides such U.S. Holder with certain information regarding its earnings and profits as required under applicable U.S. Treasury regulations. We do not currently intend to prepare or provide the information that would enable you to make a qualified electing fund election. Therefore, prospective investors should assume that a qualified electing fund election will not be available. If you hold Class A Ordinary Shares in any taxable year in which we are a PFIC, you will be required to file U.S. Internal Revenue Service Form 8621 in each such year and provide certain annual information regarding such Class A Ordinary Shares, including regarding distributions received on the Class A Ordinary Shares and any gain realized on the disposition of the ordinary share. The failure to file IRS Form 8621 could result in the imposition of penalties and the extension of the statute of limitations with respect to U.S. federal income tax.

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If you do not make a timely "mark-to-market" election (as described above), and if we were a PFIC at any time during the period you hold our Class A Ordinary Shares, then such Class A Ordinary Shares will continue to be treated as stock of a PFIC with respect to you even if we cease to be a PFIC in a future year, unless you make a "purging election" for the year we cease to be a PFIC (no such election is available to warrants). A "purging election" creates a deemed sale of such Class A Ordinary Shares at their fair market value on the last day of the last year in which we are treated as a PFIC. The gain recognized by the purging election will be subject to the special tax and interest charge rules treating the gain as an excess distribution, as described above. As a result of the purging election, you will have a new basis (equal to the fair market value of the Class A Ordinary Shares on the last day of the last year in which we are treated as a PFIC) and holding period (which new holding period will begin the day after such last day) in your Class A Ordinary Shares for tax purposes. U.S. shareholders may make a purging election and make a simultaneous qualified electing fund (QEF) election if the foreign corporation remains a PFIC at the time of the purging election.

You are urged to consult your tax advisors regarding the application of the PFIC rules to your investment in our Class A Ordinary Shares and the elections discussed above.

***Information Reporting and Backup Withholding***

Dividend payments with respect to our Class A Ordinary Shares and proceeds from the sale, exchange or redemption of our Class A Ordinary Shares may be subject to information reporting to the U.S. Internal Revenue Service and possible U.S. backup withholding under Section 3406 of the US Internal Revenue Code with at a current flat rate of 24%. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification on U.S. Internal Revenue Service Form W-9 or who is otherwise exempt from backup withholding. U.S. Holders who are required to establish their exempt status generally must provide such certification on U.S. Internal Revenue Service Form W-9. U.S. Holders are urged to consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.

Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the U.S. Internal Revenue Service and furnishing any required information. We do not intend to withhold taxes for individual shareholders. However, transactions effected through certain brokers or other intermediaries may be subject to withholding taxes (including backup withholding), and such brokers or intermediaries may be required by law to withhold such taxes.

Under the Hiring Incentives to Restore Employment Act of 2010, certain U.S. Holders are required to report information relating to our Class A Ordinary Shares, subject to certain exceptions (including an exception for Class A Ordinary Shares held in accounts maintained by certain financial institutions), by attaching a complete Internal Revenue Service Form 8938, Statement of Specified Foreign Financial Assets, with their tax return for each year in which they hold Class A Ordinary Shares.

**10. F. Dividends and paying agents**

Not applicable for annual reports on Form 20-F.

**10. G. Statement by experts**

Not applicable for annual reports on Form 20-F.

**10. H. Documents on display**

We are subject to the information requirements of the Exchange Act. In accordance with these requirements, the Company files reports and other information with the SEC. You may read and copy any materials filed with the SEC at the Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site at http://www.sec.gov that contains reports and other information regarding registrants that file electronically with the SEC.

[**Table of Contents**](#TableOfContents)

**10. I. Subsidiary Information**

Not applicable.

**ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

See "Item 5. Operating and Financial Review and Prospects - Quantitative and Qualitative Disclosures about Market Risk"

**ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES**

**12. A. Debt Securities**

Not applicable.

**12. B. Warrants and Rights**

Not applicable.

**12. C. Other Securities**

Not applicable.

**12. D. American Depositary Shares**

Not applicable.

[**Table of Contents**](#TableOfContents)

**PART II**

**ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES**

We do not have any material defaults in the payment of principal, interest, or any installments under a sinking or purchase fund.

**ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITIES HOLDERS AND USE OF PROCEEDS**

**14. A. - 14.D. Material Modifications to the Rights of Security Holders**

There have been no material modifications to the rights of our security holders.

**14. E. Use of Proceeds**

Not applicable for annual reports on Form 20-F.

**ITEM 15. CONTROLS AND PROCEDURES**

(a) Evaluation
of Disclosure Controls and Procedures.

As of December 31, 2025, the end of the fiscal year covered by this report, our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures. Based on the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2024, our disclosure controls and procedures were ineffective. Such conclusion is due to the presence of material weakness in internal control over financial reporting as described below.

(b) Management's
annual report on internal control over financial reporting.

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. We assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2023. In making its assessment, management used the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the "2013 COSO Framework"). The 2013 COSO Framework outlines the 17 underlying principles and the following fundamental components of a company's internal control: (i) control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. Our management has implemented and tested our internal control over financial reporting based on these criteria and identified certain material weaknesses set forth below. Based on the assessment, management determined that, as of October 31, 2021, we did not maintain effective internal control over financial reporting due to the existence of the following material weaknesses:

● The Company does not have sufficient accounting and finance personnel with U.S.-GAAP experience

As a result, the Company plans to develop remedial actions to strengthen its accounting and financial reporting functions. To strengthen the Company's internal control over financial reporting, the Company plans to put design, implement, and test internal control over financial reporting. In addition to the foregoing efforts, the Company expects to implement the following remedial actions:

● Hire addition personnel with experience in US GAAP financial reporting and control procedures; and

Despite the material weaknesses and deficiencies reported above, our management believes that our consolidated financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented and that this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

(c) Attestation
report of the registered public accounting firm.

Not applicable.

(d) Changes
in internal control over financial reporting.

There have been no changes in our internal controls over financial reporting occurred during the twelve months ended December 31, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

[**Table of Contents**](#TableOfContents)

**Item 16.**

[Reserved]

**ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT**

The Company's board of directors has determined that Jing Chen qualifies as an "audit committee financial expert" in accordance with applicable Nasdaq Capital Market standards. The Company's board of directors has also determined that members of the Audit Committee are all "independent" in accordance with the applicable Nasdaq Capital Market standards.

**ITEM 16B. CODE OF ETHICS**

The Company has adopted a Code of Business Conduct and Ethics that applies to the Company's directors, officers, employees and advisors. The Code of Business Conduct and Ethics is attached as an exhibit to this Annual Report. Copy of the Code of Business Conduct and Ethics is also available on our website at http://m.zjjzxny.cn/.

**ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES** 

Tang Qian & Associates PLLC ("Tang Qian") has been appointed by the Company to serve as its independent registered public accounting firm to audit and review the Company's financial statements for the fiscal year ended December 31, 2025. Fortune CPA Associates Limited ("Fortune") has been appointed by the Company to serve as its independent registered public accounting firm to audit and review the Company's financial statements for the fiscal years ended December 31, 2024 and 2023, which included the examination of the consolidated financial statements of the Company, and services related to periodic filings made with the SEC. TPS Thayer, LLC ("TPS") has been appointed by the Company to serve as its independent registered public accounting firm to audit and review the Company's financial statements for the fiscal years ended December 31, 2022, which included the examination of the consolidated financial statements of the Company, and services related to periodic filings made with the SEC.

**Fees Paid To Independent Registered Public Accounting Firm**

***Audit Fees***

Fortune CPA Associates Limited's fee for the fiscal year ended December 31, 2023 was $160,000.

Fortune CPA Associates Limited's fee for the fiscal year ended December 31, 2024 was $164,800.

Tang Qian & Associates PLLC's fee for the fiscal year ended December 31, 2025 was $140,000

***Audit-Related Fees***

There was no audit-related service fees incurred from Tang Qian & Associates PLLC or Fortune, for the fiscal years ended December 31, 2025, 2024, or 2023.

***Tax Fees***

There was no tax service fees incurred from Tang Qian & Associates PLLC for the fiscal years ended December 31, 2025, and there was no tax service fees incurred from Fortune for the fiscal years ended December 31, 2024 and 2023.

***All Other Fees***

There was no other service fees incurred from Tang Qian & Associates PLLC in fiscal years ended December 31, 2025.There was no other service fees incurred from Fortune in fiscal years ended December 31, 2024 and 2023. There was no other service fees incurred from TPS in fiscal year ended December 31, 2023 and 2022.

***Audit Committee Pre-Approval Policies***

TPS's engagement and Fortune's engagement by the Company to render audit or non-audit services was approved and ratified by the Company's audit committee. All services rendered by TPS and Fortune have been so approved and ratified. Tang Qian's engagement by the Company to render audit or non-audit services was approved and ratified by the Company's audit committee. All services rendered by Tang Qian have been pre-approved by the audit committee.

**ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES**

Not applicable.

**ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS**

Neither the Company nor any affiliated purchaser has purchased any shares or other units of any class of the Company's equity securities registered by the Company pursuant to Section 12 of the Securities Exchange Act during the fiscal year ended December 31, 2025.

[**Table of Contents**](#TableOfContents)

**ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT** 

On January 7, 2026, the Audit Committee and Board of Directors of the Company approved the dismissal of Fortune CPA Inc. ("Fortune CPA") as the Company's independent registered public accounting firm, effective January 7, 2026. Fortune CPA served as the Company's auditor for the fiscal years ended December 31, 2023 and December 31, 2024. During Fortune CPA's engagement as the Company's independent registered public accounting firm and through the effective date of its dismissal, there were no disagreements with Fortune CPA on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of Fortune CPA, would have caused Fortune CPA to make reference to the subject matter of the disagreements in connection with its reports on the financial statements. Fortune CPA did not issue any adverse opinion or disclaimer of opinion, nor did it modify its opinion, with respect to any of the Company's financial statements during its engagement period. On January 7, 2026, the Audit Committee and Board of Directors of the Company approved the engagement of Tang Qian & Associates PLLC ("Tang Qian") as the Company's new independent registered public accounting firm to audit the Company's financial statements for the fiscal year ended December 31, 2025, effective January 7, 2026. During the two fiscal years preceding Tang Qian's engagement, neither the Company nor anyone on its behalf consulted with Tang Qian regarding (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's financial statements, or (ii) any matter that was the subject of a disagreement or a reportable event as defined in Item 16F of Form 20-F.

**ITEM 16G. CORPORATE GOVERNANCE**

As a company listed on the Nasdaq Capital Market, we are subject to the Nasdaq corporate governance listing standards. However, Nasdaq rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the Nasdaq corporate governance listing standards.

As a company incorporated in the Cayman Islands that is listed on The Nasdaq Capital Market, the Pursuant to the home country rule exemption set forth under Nasdaq Listing Rule 5615(a)(3)(A), which provides (with certain exceptions not relevant to the conclusions expressed herein) that a foreign private issuer may follow its home country practice in lieu of the requirements of the Nasdaq Listing Rules 5600 Series, 5250(b)(3) and 5250(d), the Company elected to be exempt from Nasdaq Listing Rule 5635, which sets forth (A) the circumstances under which shareholder approval is required prior to an issuance of securities in connection with: (a) the acquisition of the stock or assets of another company, (b) equity-based compensation of officers, directors, employees or consultants, (c) a change of control, and (d) transactions other than public offerings; (B) general provisions relating to shareholder approval; and (C) the financial viability exception to the shareholder approval requirement.

In 2025, relying on the home country exemption, the Company did not hold an annual shareholder meeting.

**ITEM 16H. MINE SAFETY DISCLOSURE**

Not applicable.

**ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS**

Not applicable.

**ITEM 16J. INSIDER TRADING POLICIES**

We have adopted an insider trading policy to promote compliance with applicable securities laws and regulations, including those that prohibit insider trading. This policy applies to all officers, directors, employees and consultants of our Company (each, an "Affiliate") and extends to all activities within and outside an individual's duties at our Company.

The insider trading policy establishes guidelines and procedures for the following:

 ****

***1. No Trading***: No Affiliate can trade any securities or enter into a trading plan while possessing material non-public information about us. Affiliates in possession of such information must wait for a 48-hour period after public disclosure and the lapse of one full trading day on Nasdaq before trading. Additionally, affiliates cannot trade during limited trading periods, regardless of the possession of material information. All transactions of securities by officers, directors, and key employees must be pre-approved by our compliance officer.

[**Table of Contents**](#TableOfContents)

 ****

***2. Trading Window***: The insider trading policy establishes a trading window for officers, directors, employees, or consultants, during which they can trade our securities or enter into a trading plan. The trading window begins at the close of business on the second trading day following the public disclosure of our financial results for the previous fiscal year or quarter and ends on the last day of each fiscal quarter. Trading during the trading window does not provide a safe harbor, and affiliates must comply with all policies. If in doubt, consult the compliance officer before trading.

***3. No Tipping***: No Affiliate may directly or indirectly disclose any material information to anyone who trades in our securities.

***4. Confidentiality***: No Affiliate may communicate any material information to anyone outside our Company under any circumstances unless approved by the compliance officer in advance, or to anyone within the Company other than on a need-to-know basis.

***5. No Comment***: No Affiliate may discuss any internal matters or developments of our Company with anyone outside our Company, except as required in the performance of regular corporate duties. Unless expressly authorized to do otherwise, if an affiliate receives any inquiries about our group or its securities from any press, investment analyst, investor or other outsiders, or any requests for comments or interviews, they should decline to comment and direct the inquiry or request to the compliance officer or any other office designated by the chief executive officer.

***6. Corrective Action***: If any information that may be considered material information is unintentionally disclosed, any affiliate with knowledge of the disclosure should notify the compliance officer immediately. This allows our Company to determine if any corrective action, such as public disclosure, is necessary.

We are committed to maintaining the highest standards of ethical conduct and have implemented these insider trading policies and procedures to ensure compliance with applicable securities laws and to protect the interests of our shareholders.

**ITEM 16K. CYBERSECURITY**

Our Board of Directors is responsible for reviewing the Company's cybersecurity risk management and control systems in relation to the financial reporting by the Company, including the Company's cybersecurity strategy. We maintain a process for assessing, identifying and managing material risks from cybersecurity threats, including risks relating to disruption of business operations or financial reporting systems, intellectual property theft; fraud; extortion; harm to employees or customers; violation of privacy laws and other litigation and legal risk; and reputational risk, as part of our overall risk management system and processes. We asses and manage our cybersecurity risks though our Information Technologies ("IT") Committee, which is integrated by the Chief Executive Officer and the Chief Financial Officer. The Chief Executive Officer presents to our Board of Directors, on a yearly basis, the work carried out on the identification, categorization, and mitigation procedures put in place in relation to the most relevant risks of the company, including cybersecurity risks. In this sense, risks related to cybersecurity have been categorized as "high relevance" for the Company.

Our IT department is responsible for targeted and regular monitoring of cybersecurity risks. They independently and continuously monitor cybersecurity risks and countermeasures to defend against such threats and, in the event of a cybersecurity threat or cybersecurity incident, inform executive management and our Board of Directors. In addition to the regular meetings between executive management and the individual risk owners mainly consisting out of the various departments' heads, a comprehensive cybersecurity risk analysis for internal and external risks is carried out as appropriate.

According to the priority of the cybersecurity risks as result of the risk evaluation, risks are addressed by concrete actions and, if appropriate and possible, necessary countermeasures. In order to be able to react quickly and flexibly to cybersecurity risks, risk management is integrated into existing processes and reporting channels. Our risk management program considers cybersecurity risks alongside other company risks, and our enterprise risk professionals consult with company subject matter experts to gather information necessary to identify cybersecurity risks and evaluate their nature and severity, as well as identify mitigations and assess the impact of those mitigations on residual risk. We may engage third parties from time to time to conduct risk assessments.

[**Table of Contents**](#TableOfContents)

**PART III**

**ITEM 17. FINANCIAL STATEMENTS**

See Item 18.

**ITEM 18. FINANCIAL STATEMENTS**

Our consolidated financial statements are included at the end of this Annual Report, beginning with page F-1.

**ITEM 19. EXHIBITS**

---

| | |
|:---|:---|
| **Exhibit No.** | **Description** |
| 1.1\* | [Fifth Amended and Restated Memorandum and Articles of Association](erayakex1-1.htm) |
| 2.1 | [Form of Underwriter's Warrants, filed as Exhibit 4.2 to the Form F-1/A filed on September 13, 2022 and incorporated by reference herein](http://www.sec.gov/Archives/edgar/data/1825875/000121390022055651/ea165567ex4-2_erayakpower.htm) |
| 2.2\* | [Description of Securities](erayakex2-2.htm) |
| 4.1 | [Securities Purchase Agreement, filed as exhibit 10.1 to the Form 6-K filed on May 20, 2024 and incorporated by reference herein](http://www.sec.gov/Archives/edgar/data/1825875/000121390024045183/ea020655301ex10-1_erayak.htm) |
| 4.2 | [Employment Agreement between Zhejiang Leiya and Lingyi Kong, filed as exhibit 10.1 to the Form F-1 filed on January 21, 2022 and incorporated by reference herein](http://www.sec.gov/Archives/edgar/data/1825875/000121390022003116/ea154123ex10-1_erayak.htm) |
| 4.3 | [Employment Agreement between Zhejiang Leiya and Lanling Gu, filed as exhibit 10.2 to the Form F-1 filed on January 21, 2022 and incorporated by reference herein](http://www.sec.gov/Archives/edgar/data/1825875/000121390022003116/ea154123ex10-2_erayak.htm) |
| 4.4 | [Employment Agreement between Erayak and Wang-Ngai Mak, filed as exhibit 10.3 to the Form F-1 filed on January 21, 2022 and incorporated by reference herein](http://www.sec.gov/Archives/edgar/data/1825875/000121390022003116/ea154123ex10-3_erayak.htm) |
| 4.5 | [Employment Agreement between Erayak and Jizhou Hou, filed as exhibit 10.4 to the Form F-1 filed on January 21, 2022 and incorporated by reference herein](http://www.sec.gov/Archives/edgar/data/1825875/000121390022003116/ea154123ex10-4_erayak.htm) |
| 4.6 | [Employment Agreement between Erayak and Jing Chen, filed as exhibit 10.5 to the Form F-1 filed on January 21, 2022 and incorporated by reference herein](http://www.sec.gov/Archives/edgar/data/1825875/000121390022003116/ea154123ex10-5_erayak.htm) |
| 4.7 | [Employment Agreement between Erayak and Tsang Sheung, filed as exhibit 10.1 to the Form 6-K filed on December 1, 2023 and incorporated by reference herein](http://www.sec.gov/Archives/edgar/data/1825875/000121390023092039/ea189392ex10-1_erayakpow.htm) |
| 4.8 | [Promissory Note between Lingyi Kong and Erayak Power Solution Group Inc., filed as exhibit 10.7 to the Form F-1 filed on January 21, 2022 and incorporated by reference herein](http://www.sec.gov/Archives/edgar/data/1825875/000121390022003116/ea154123ex10-7_erayak.htm) |
| 4.9 | [Promissory Note among Lingyi Kong, Erayak Power Solution Group Inc. and Wenzhou New Focus Technology & Electronic Co., Ltd., filed as exhibit 10.8 to the Form F-1 filed on January 21, 2022 and incorporated by reference herein](http://www.sec.gov/Archives/edgar/data/1825875/000121390022003116/ea154123ex10-8_erayak.htm) |
| 4.10 | [Form of Loan Agreement between Longwan Rural Commercial Bank and Zhejiang Leiya Electronics Co. Ltd., filed as exhibit 10.9 to the Form F-1 filed on January 21, 2022 and incorporated by reference herein](http://www.sec.gov/Archives/edgar/data/1825875/000121390022003116/ea154123ex10-9_erayak.htm) |
| 4.11 | [Form of Loan Agreement between China Minsheng Bank Corp. and Zhejiang Leiya Electronics Co. Ltd., filed as exhibit 10.10 to the Form F-1 filed on January 21, 2022 and incorporated by reference herein](http://www.sec.gov/Archives/edgar/data/1825875/000121390022003116/ea154123ex10-10_erayak.htm) |
| 4.12 | [Form of Loan Agreement between Zhejiang Chouzhou Commercial Bank and Zhejiang Leiya Electronics Co. Ltd., filed as exhibit 10.11 to the Form F-1 filed on January 21, 2022 and incorporated by reference herein](http://www.sec.gov/Archives/edgar/data/1825875/000121390022003116/ea154123ex10-11_erayak.htm) |
| 4.13 | [Form or Purchase Agreement, filed as exhibit 10.12 to the Form F-1/A filed on February 28, 2022 and incorporated by reference herein](http://www.sec.gov/Archives/edgar/data/1825875/000121390022009765/ea155952ex10-12_erayak.htm) |
| 4.14 | [Factory Lease Agreement between Wenzhou Ailefu Furniture Tech Limited Company and Zhejiang Leiya, filed as exhibit 10.14 to the Form F-1/A filed on July 29, 2022 and incorporated by reference herein](http://www.sec.gov/Archives/edgar/data/1825875/000121390022043009/ea163371ex10-14_erayakpower.htm) |
| 4.15 | [Form of Securities Purchase Agreement, dated July 25, 2025, by and among the Company and the purchasers thereto, filed as exhibit 10.1 to the Form 6-K filed on July 28, 2025 and incorporated by reference herein](http://www.sec.gov/Archives/edgar/data/1825875/000121390025068225/ea025039401ex10-1_erayak.htm) |
| 4.16 | [Form of Placement Agent Warrant, filed as exhibit 4.1 to the Form 6-K filed on July 28, 2025 and incorporated by reference herein](http://www.sec.gov/Archives/edgar/data/1825875/000121390025068225/ea025039401ex4-1_erayak.htm) |
| 4.17 | [Form of Pre-Funded Warrant, filed as exhibit 4.2 to the Form 6-K filed on July 28, 2025 and incorporated by reference herein](http://www.sec.gov/Archives/edgar/data/1825875/000121390025068225/ea025039401ex4-2_erayak.htm) |
| 4.18 | [Securities Purchase Agreement, dated July 31, 2025, by and among the Company and the purchasers thereto, filed as exhibit 10.1 to the Form 6-K filed on August 1, 2025 and incorporated by reference herein](http://www.sec.gov/Archives/edgar/data/1825875/000121390025070628/ea025126301ex10-1_erayak.htm) |
| 4.19 | [Form of Placement Agent Warrant, filed as exhibit 4.1 to the Form 6-K filed on August 1, 2025 and incorporated by reference herein](http://www.sec.gov/Archives/edgar/data/1825875/000121390025070628/ea025126301ex4-1_erayak.htm) |
| 4.20 | [Form of Pre-Funded Warrant, filed as exhibit 4.2 to the Form 6-K filed on August 1, 2025 and incorporated by reference herein](http://www.sec.gov/Archives/edgar/data/1825875/000121390025070628/ea025126301ex4-2_erayak.htm) |
| 4.21 | [Prior Sales Agreement, dated September 29, 2025, by and between Erayak Power Solution Group Inc. and Craft Capital Management LLC, filed as exhibit 10.1 to the Form 6-K filed on September 30, 2025 and incorporated by reference herein](http://www.sec.gov/Archives/edgar/data/1825875/000118518525001312/erayakex10-1.htm) |
| 4.22 | [Sales Agreement, dated March 16, 2026, by and between Erayak Power Solution Group Inc. and Craft Capital Management LLC, filed as exhibit 10.1 to the Form 6-K filed on March 18, 2026 and incorporated by reference herein](http://www.sec.gov/Archives/edgar/data/1825875/000118518526000944/erayakex10-1.htm) |

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[**Table of Contents**](#TableOfContents)

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| | |
|:---|:---|
| 8.1\* | [List of Subsidiaries](erayakex8-1.htm) |
| 11.1 | [Code of Business Conduct and Ethics of the Registrant, filed as exhibit 14.1 to the Form F-1 filed on January 21, 2022 and incorporated by reference herein](http://www.sec.gov/Archives/edgar/data/1825875/000121390022003116/ea154123ex14-1_erayak.htm) |
| 11.2 | [Insider Trading Policy, filed as Exhibit 11.2 to the Form 20-F filed on May 15, 2023 and incorporated by reference herein](http://www.sec.gov/Archives/edgar/data/1825875/000121390023039841/f20f2022ex11-2_erayakpower.htm) |
| 12.1\* | [Certification of Chief Executive Officer Required by Rule 13a-14(a)](erayakex12-1.htm) |
| 12.2\* | [Certification of Chief Financial Officer Required by Rule 13a-14(a)](erayakex12-2.htm) |
| 13.1\* | [Certification of Chief Executive Officer Required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code](erayakex13-1.htm) |
| 13.2\* | [Certification of Chief Financial Officer Required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code](erayakex13-2.htm) |
| 15.1\* | [Consent of Tang Qian & Associates PLLC](erayakex15-1.htm) |
| 15.2\* | [Consent of Fortune CPA Inc.](erayakex15-2.htm) |
| 16.1 | [Letter from Fortune CPA Inc. to the Securities and Exchange Commission, dated January 8, 2026, filed as Exhibit 16.1 to the Form 6-K filed on January 8, 2026 and incorporated by reference herein](http://www.sec.gov/Archives/edgar/data/1825875/000118518526000073/erayakex16-1.htm) |
| 97.1 | [Compensation Recovery Policy](https://www.sec.gov/Archives/edgar/data/1825875/000121390024033441/ea020389601ex97-1_erayak.htm) |
| 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) |

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\* Filed herewith

[**Table of Contents**](#TableOfContents)

**SIGNATURES**

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.

---

| | |
|:---|:---|
| **ERAYAK POWER SOLUTION GROUP INC.** | **ERAYAK POWER SOLUTION GROUP INC.** |
| By: | */s/ Lingyi Kong* |
| Name: | Lingyi Kong |
| Title: | Director and Chief Executive Officer |

---

Date: April 29, 2026

[**Table of Contents**](#TableOfContents)

**ERAYAK POWER SOLUTION GROUP INC.**

**FINANCIAL STATEMENTS**

**TABLE OF CONTENTS**

**ERAYAK POWER SOLUTION GROUP INC AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS**

---

| | |
|:---|:---|
| **Consolidated Financial Statements** |  |
| [Reports of Independent Registered Public Accounting Firm (PCAOB ID: 7080)](#fin_001) | F-2 |
| [Reports of Independent Registered Public Accounting Firm (PCAOB ID: 6901)](#fin_002) | F-3 |
| [Consolidated Balance Sheets as of December 31, 2025 and 2024](#fin_003) | F-4 |
| [Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2025, 2024 and 2023](#fin_004) | F-5 |
| [Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2025, 2024 and 2023](#fin_005) | F-6 |
| [Consolidated Statements of Cash Flows for the years ended December 31, 2025, 2024 and 2023](#fin_006) | F-7 |
| [Notes to Consolidated Financial Statements](#fin_007) | F-8 |

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[**Table of Contents**](#TableOfContents)

**REPORTS** **OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the shareholders and the board of directors of Erayak Power Solution Group Inc.

**Opinion on the Financial Statements**

We have audited the accompanying consolidated balance sheet of Erayak Power Solution Group Inc. and its subsidiaries (collectively, the "Group") as of December 31, 2025, and the related consolidated statements of operations and comprehensive income, changes in shareholders' equity, and cash flows for the year ended December 31, 2025, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2025, and the results of its operations and its cash flows for the year ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.

**Basis for Opinion**

These financial statements are the responsibility of the Group's management. Our responsibility is to express an opinion on the Group's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Group is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Tang Qian & Associates, PLLC

We have served as the Company's auditor since 2026

Dallas, Texas

April 29, 2026

PCAOB ID: 7080

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**REPORTS** **OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Directors and Shareholders

Erayak Power Solution Group Inc.

***Opinion on the Financial Statements***

We have audited the accompanying consolidated balance sheets of Erayak Power Solution Group Inc. ("the Company") as of December 31, 2024 and 2023, and the related consolidated statements of operations and comprehensive loss (income), changes in shareholders' equity, and cash flows for the years then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

***Basis for Opinion***

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

***Critical Audit Matters***

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

We determined that there are no critical audit matters.

/s/ Fortune CPA, Inc

We have served as the Company's auditor since 2024.

Orange, CA

April 23, 2025

PCAOB # 6901

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**ERAYAK POWER SOLUTION GROUP INC.**

**CONSOLIDATED BALANCE SHEETS**

**AS OF DECEMBER 31, 2025 AND 2024**

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

---

| | | |
|:---|:---|:---|
|  | **2025** | **2024** |
| **ASSETS** |  |  |
| Current assets: |  |  |
| &nbsp;&nbsp;&nbsp;Cash and cash equivalents | $184856 | $532605 |
| &nbsp;&nbsp;&nbsp;Restricted cash | 251932 | 792204 |
| &nbsp;&nbsp;&nbsp;Accounts receivable, net | 13582352 | 12037136 |
| &nbsp;&nbsp;&nbsp;Accounts receivable, related parties | 3178800 | 1314332 |
| &nbsp;&nbsp;&nbsp;Inventories | 9725561 | 8836815 |
| &nbsp;&nbsp;&nbsp;Advance to suppliers | 6205921 | 9437740 |
| &nbsp;&nbsp;&nbsp;Advance to suppliers, related parties | 1284785 |  |
| &nbsp;&nbsp;&nbsp;Other receivables | 153832 | 139505 |
| &nbsp;&nbsp;&nbsp;Other receivables, related parties | 14300 |  |
| &nbsp;&nbsp;&nbsp;Short-term investment | 4537044 | - |
| &nbsp;&nbsp;&nbsp;Other current assets | 4244137 |  |
| &nbsp;&nbsp;&nbsp;Total current assets | 43363520 | 33090337 |
| &nbsp;&nbsp;&nbsp;Property, plant and equipment, net | 7102555 | 2157214 |
| &nbsp;&nbsp;&nbsp;Intangible assets, net | 2678447 | 61972 |
| &nbsp;&nbsp;&nbsp;Right-of-use assets | 6032330 | 6457903 |
| &nbsp;&nbsp;&nbsp;Deferred tax assets | 78033 | 100994 |
| &nbsp;&nbsp;&nbsp;Long-term investment | 193453 | 410998 |
| &nbsp;&nbsp;&nbsp;Other non-current assets | - | 3753785 |
| **TOTAL ASSETS** | $**59448338** | $**46033203** |
| **LIABILITIES AND SHAREHOLDERS' EQUITY** |  |  |
| Current liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;Short-term borrowings | $8293890 | $1055828 |
| &nbsp;&nbsp;&nbsp;Accounts payable | 6097560 | 8335266 |
| &nbsp;&nbsp;&nbsp;Accounts payable, related parties | 132136 |  |
| &nbsp;&nbsp;&nbsp;Accrued expenses and other current liabilities | 1191559 | 822014 |
| &nbsp;&nbsp;&nbsp;Advances from customers | 1573763 | 628067 |
| &nbsp;&nbsp;&nbsp;Due to related parties | 1776888 | 3510165 |
| &nbsp;&nbsp;&nbsp;Long-term loans – current portion | 778103 | 161529 |
| &nbsp;&nbsp;&nbsp;Tax payable | 929213 | 1021395 |
| &nbsp;&nbsp;&nbsp;Total current liabilities: | 20773112 | 15534264 |
| &nbsp;&nbsp;&nbsp;Non-current liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;Long-term loans | 3409358 | 3913204 |
| **TOTAL LIABILITIES** | **24182470** | **19447468** |
| **COMMITMENTS AND CONTINGENCIES** |  |  |
| Shareholders' Equity: |  |  |
| &nbsp;&nbsp;&nbsp;Class A shares, 900,000,000 shares authorized; 85,406 shares issued and outstanding as of December 31, 2025; 22,540 shares issued and outstanding as of December 31, 2024\* | 18789 | 4959 |
| &nbsp;&nbsp;&nbsp;Class B shares, 100,000,000 shares authorized, 4,091 shares issued and outstanding as of December 31, 2025; 455 shares issued and outstanding as of December 31, 2024\* | 900 | 100 |
| &nbsp;&nbsp;&nbsp;Additional paid-in capital | 27837444 | 18641264 |
| &nbsp;&nbsp;&nbsp;Statutory reserve | 1244717 | 1123204 |
| &nbsp;&nbsp;&nbsp;Retained earnings | 6549754 | 8061204 |
| &nbsp;&nbsp;&nbsp;Accumulated other comprehensive loss | (385736) | (1244996) |
| **Total Shareholders' equity** | **35265868** | **26585735** |
| **TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY** | $**59448338** | $**46033203** |

---

\* All share and per-share amounts related to the Company's ordinary shares presented in the consolidated financial statements have been retroactively adjusted to reflect the 1-for-10 reverse stock split, or share consolidation, which became effective on April 20, 2026.

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

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**ERAYAK POWER SOLUTION GROUP INC.**

**CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME**

**FOR THE YEARS ENDED DECEMBER 31, 2025, 2024 AND 2023 (IN U.S. DOLLARS, EXCEPT SHARE DATA)**

---

| | | | |
|:---|:---|:---|:---|
|  | **2025** | **2024** | **2023** |
| Sales | $22855437 | $30300360 | $20322498 |
| Cost of sales | (17983764) | (26307998) | (15299849) |
| **Gross profit** | **4871673** | **3992362** | **5022649** |
| Operating expenses: |  |  |  |
| &nbsp;&nbsp;&nbsp;General and administrative | (4000311) | (2302809) | (2023428) |
| &nbsp;&nbsp;&nbsp;Selling and marketing | (771176) | (946269) | (962479) |
| &nbsp;&nbsp;&nbsp;Research and development | (1608311) | (1670669) | (1176943) |
| &nbsp;&nbsp;&nbsp;Bad debt expense | (122847) | (224534) | (36972) |
| &nbsp;&nbsp;&nbsp;Inventory allowance (provision) / reversal | 368693 | (295907) | (81622) |
| &nbsp;&nbsp;&nbsp;Impairment provision of advance to suppliers | (379480) | (111882) | - |
| **Total operating expenses** | **(6513432)** | **(5552070)** | **(4281444)** |
| **Operating (loss) income** | **(1641759)** | **(1559708)** | **741205** |
| Other income (expenses): |  |  |  |
| &nbsp;&nbsp;&nbsp;Interest income (expenses), net | 48040 | (139441) | (402671) |
| &nbsp;&nbsp;&nbsp;Rental income, net | 153845 | 154471 | 195347 |
| &nbsp;&nbsp;&nbsp;Investment loss | (229170) |  |  |
| &nbsp;&nbsp;&nbsp;Other income, net | 308038 | 362364 | 878080 |
| **Total other income, net** | **280753** | **377393** | **670755** |
| **(Loss) income before income taxes** | **(1361006)** | **(1182315)** | **1411960** |
| Income tax provision | (28931) | 66338 | (193246) |
| **Net (loss) income** | $**(1389937)** | **(1115977)** | $**1218714** |
| Other comprehensive income: |  |  |  |
| &nbsp;&nbsp;&nbsp;Foreign currency translation adjustment | 859260 | (500376) | (360677) |
| **Total comprehensive (loss) income** | $**(530677)** | **(1616353)** | $**858037** |
| Earnings per share attributable to common shareholders: |  |  |  |
| &nbsp;&nbsp;&nbsp;Shares\* | 89497 | 22995 | 5455 |
| &nbsp;&nbsp;&nbsp;(Loss) earnings per share\* | $(27.28) | (98.34) | $223.43 |
| Weighted average number of shares outstanding |  |  |  |
| &nbsp;&nbsp;&nbsp;Basic and Diluted\* | 50958 | 11348 | 5455 |

---

\* All share and per-share amounts related to the Company's ordinary shares presented in the consolidated financial statements have been retroactively adjusted to reflect the 1-for-10 reverse stock split, or share consolidation, which became effective on April 20, 2026.

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

[**Table of Contents**](#TableOfContents)

**ERAYAK POWER SOLUTION GROUP INC.**

**CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2025, 2024 AND 2023**

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

**For the fiscal year ended December 31, 2025:**

---

| | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **Class A<br> shares\*** | **Ordinary<br> shares,<br> $0.22 par<br> Amount\*** | **Class B<br> shares\*** | **Amount** | **Additional<br> Paid-in<br> Capital** | **Statutory<br> Reserve** | **Retained<br> Earnings** | **Accumulated<br> Other<br> Comprehensive<br> Income (loss)** | **Total<br> shareholders'<br> equity** |
| **Balance at December 31, 2024** | **22540** | **4959** | **455** | **100** | **18641264** | **1123204** | **8061204** | **(1244996)** | **26585735** |
| Share issuance | 62866 | 13830 |  |  | 8756980 |  |  |  | 8770810 |
| Share issuance |  |  | 3636 | 800 | 439200 |  |  |  | 440000 |
| Foreign currency translation loss |  |  |  |  |  |  |  | 859260 | 859260) |
| Net income |  |  |  |  |  |  | (1389937) |  | (1389937) |
| Statutory reserve |  |  |  |  |  | 121513 | (121513) |  |  |
| **Balance at December 31, 2025** | **85406** | **18789** | **4091** | **900** | **27837444** | **1244717** | **6549754** | **(385736)** | **35265868** |

---

**For the fiscal year ended December 31, 2024:**

---

| | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **Class A<br> shares\*** | **Ordinary<br> shares,<br> $0.22 par<br> Amount\*** | **Class B<br> shares\*** | **Amount** | **Additional<br> Paid-in<br> Capital** | **Statutory<br> Reserve** | **Retained<br> Earnings** | **Accumulated<br> Other<br> Comprehensive<br> Income (loss)** | **Total<br> shareholders'<br> equity** |
| **Balance at December 31, 2023** | **5000** | **1100** | **455** | **100** | **10645122** | **1113170** | **9187215** | **(744619)** | **20202087** |
| Share issuance | 7273 | 1600 |  |  | 7998400 |  |  |  | 8000000 |
| Share issuance related to cashless exercise of warrants | 10267 | 2259 |  |  | (2259) |  |  |  |  |
| Foreign currency translation loss |  |  |  |  |  |  |  | (500376) | (500376) |
| Net income |  |  |  |  |  |  | (1115977) |  | (1115977) |
| Statutory reserve |  |  |  |  |  | 10034 | (10034) |  |  |
| **Balance at December 31, 2024** | **22540** | **4959** | **455** | **100** | **18641264** | **1123204** | **8061204** | **(1244996)** | **26585735** |

---

**For the fiscal year ended December 31, 2023:**

---

| | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **Class A<br> shares\*** | **Ordinary<br> shares,<br> $0.22 par<br> Amount\*** | **Class B<br> shares\*** | **Amount** | **Additional<br> Paid-in<br> Capital** | **Statutory<br> Reserve** | **Retained<br> Earnings** | **Accumulated<br> Other<br> Comprehensive<br> Income (loss)** | **Total<br> shareholders'<br> equity** |
| **Balance at December 31, 2022** | **5000** | **1100** | **455** | **100** | **10645122** | **916912** | **8164759** | **(383942)** | **19344051** |
| Foreign currency translation loss |  |  |  |  |  |  |  | (360677) | (360677) |
| Net income |  |  |  |  |  |  | 1218714 |  | 1218714 |
| Statutory reserve |  |  |  |  |  | 196258 | (196258) |  |  |
| **Balance at December 31, 2023** | **5000** | **1100** | **455** | **100** | **10645122** | **1113170** | **9187215** | **(744619)** | **20202087** |

---

\* All share and per-share amounts related to the Company's ordinary shares presented in the consolidated financial statements have been retroactively adjusted to reflect the 1-for-10 reverse stock split, or share consolidation, which became effective on April 20, 2026.

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

[**Table of Contents**](#TableOfContents)

**ERAYAK POWER SOLUTION GROUP INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2025, 2024 AND 2023 (UNAUDITED, IN U.S. DOLLARS)**

---

| | | | |
|:---|:---|:---|:---|
|  | **2025** | **2024** | **2023** |
| **Cash Flows from Operating Activities:** |  |  |  |
| Net income | $(1389937) | $(1115977) | $1218714 |
| Adjustments to reconcile net income to net cash used in operating activities: |  |  |  |
| &nbsp;&nbsp;&nbsp;Depreciation and amortization | 574142 | 431921 | 388002 |
| &nbsp;&nbsp;&nbsp;Loss on asset disposal | 241 |  |  |
| &nbsp;&nbsp;&nbsp;Deferred tax assets | 26642 | (70346) |  |
| &nbsp;&nbsp;&nbsp;Accounts receivable provision | 122847 | 224534 | 36972 |
| &nbsp;&nbsp;&nbsp;Advance to suppliers impairment provision | 379480 | 111882 |  |
| &nbsp;&nbsp;&nbsp;Inventory impairment (reversal)/provision | (368693) | 295907 | 81621 |
| &nbsp;&nbsp;&nbsp;Imputed interest expenses |  |  | 17755 |
| &nbsp;&nbsp;&nbsp;Loss on long-term investment | 229170 |  |  |
| &nbsp;&nbsp;&nbsp;Right of use lease assets amortization | 689181 | 689922 | 514691 |
| Changes in operating assets and liabilities: |  |  |  |
| &nbsp;&nbsp;&nbsp;Accounts receivable | (1515112) | (6261153) | 3395976 |
| &nbsp;&nbsp;&nbsp;Accounts receivable, related parties | (1758046) | (1333255) |  |
| &nbsp;&nbsp;&nbsp;Inventory | (119552) | (2297437) | (1091117) |
| &nbsp;&nbsp;&nbsp;Advance to suppliers | 3133282 | (6947539) | (1250467) |
| &nbsp;&nbsp;&nbsp;Advance to suppliers, related parties | (1250036) |  |  |
| &nbsp;&nbsp;&nbsp;Prepaid expenses |  |  | (25000) |
| &nbsp;&nbsp;&nbsp;Other receivables | (101658) | (19561) | (79876) |
| &nbsp;&nbsp;&nbsp;Other receivables, related parties | (13913) |  |  |
| &nbsp;&nbsp;&nbsp;Loan receivable |  |  | 163821 |
| &nbsp;&nbsp;&nbsp;Other current assets | (4129347) |  |  |
| &nbsp;&nbsp;&nbsp;Other non-current assets | 3812174 |  |  |
| &nbsp;&nbsp;&nbsp;Accounts payable | (2532280) | 2644525 | 1085320 |
| &nbsp;&nbsp;&nbsp;Accounts payable, related parties | 128562 |  |  |
| &nbsp;&nbsp;&nbsp;Accrued expenses and other current liabilities | 156410 | (2498165) | 2361121 |
| &nbsp;&nbsp;&nbsp;Advances from customers | 893482 | 284372 | (334225) |
| &nbsp;&nbsp;&nbsp;Tax payable | (133201) | (16269) | 246425 |
| &nbsp;&nbsp;&nbsp;**Net cash (used in) provided by operating activities** | (3166162) | (15876639) | 6729734 |
| **Cash Flows from Investing Activities:** |  |  |  |
| &nbsp;&nbsp;&nbsp;Purchases of property, plant and equipment | (5239108) | (517813) | (684210) |
| &nbsp;&nbsp;&nbsp;Purchases of intangible assets | (2598025) | (37082) | (25689) |
| &nbsp;&nbsp;&nbsp;Short-term investment | (4537044) |  |  |
| &nbsp;&nbsp;&nbsp;Long-term investment |  | (416916) |  |
| &nbsp;&nbsp;&nbsp;Fixed deposit |  |  | (3869565) |
| &nbsp;&nbsp;&nbsp;Advance for potential long-term warehouse lease |  |  | (1000000) |
| &nbsp;&nbsp;&nbsp;Advance for potential land purchase |  | - | 4201354 |
| **Net cash used in investing activities** | (12374177) | (971811) | (1378110) |
| **Cash Flows from Financing Activities:** |  |  |  |
| &nbsp;&nbsp;&nbsp;Proceeds from short-term borrowings | 10260899 | 1310576 | 4236750 |
| &nbsp;&nbsp;&nbsp;Repayments on short-term borrowings | (3263585) | (309032) | (10231750) |
| &nbsp;&nbsp;&nbsp;Proceeds from related parties | 7403348 | 11725864 | 16968314 |
| &nbsp;&nbsp;&nbsp;Repayments to related parties | (9338647) | (10410643) | (15064679) |
| &nbsp;&nbsp;&nbsp;Proceeds from share issuance | 9272500 |  |  |
| &nbsp;&nbsp;&nbsp;Proceeds from private placement |  | 8000000 |  |
| &nbsp;&nbsp;&nbsp;Proceeds from long-term loan | 4390957 | 3846742 | 6729469 |
| &nbsp;&nbsp;&nbsp;Repayments on long-term loan | (4454868) | (1782400) | (9075497) |
| **Net cash provided by (used in) financing activities** | 14270604 | 12381107 | (6437393) |
| Effect of exchange rate changes on cash | 381714 | (86282) | (103044) |
| Net decrease in cash and cash equivalents | (888021) | (4553625) | (1188813) |
| Cash and cash equivalents at the beginning of year | 1324809 | 5878434 | 7067247 |
| Cash and cash equivalents at the end of year | 436788 | 1324809 | 5878434 |
| Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheet |  |  |  |
| Cash and cash equivalents | 184856 | 532605 | 5877372 |
| Restricted cash | 251932 | 792204 | 1062 |
| Cash and cash equivalents at the end of year | $436788 | $1324809 | $5878434 |
| Supplemental disclosures of cash flows information: |  |  |  |
| &nbsp;&nbsp;&nbsp;Cash paid for income taxes | $12386 | $178694 | $- |
| &nbsp;&nbsp;&nbsp;Cash paid for interest | $279683 | $148335 | $410922 |

---

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

[**Table of Contents**](#TableOfContents)

**ERAYAK POWER SOLUTION GROUP INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS**

**Erayak Power Solution Group Inc. ("Erayak Group")**

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 1,000,000,000 ordinary shares of a par value of US$0.22 each comprising (a) 900,000,000 class A ordinary shares of a par value of US$0.22 each and (b) 100,000,000 class B ordinary shares of a par value of US$0.22 each. As of December 31, 2025, there were currently 85,406 issued and outstanding Class A Ordinary Shares and 4,091 issued and outstanding Class B Ordinary Shares.

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> Location** | **Date of Incorporation** | **Ownership as of the<br> issuance date of the report** |
| Erayak Power Solution Group Inc. ("Erayak Group") | Cayman Islands | June 14, 2019 | Parent |
| Erayak Power Solution Limited ("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 |
| Ruike Electronics (Wenzhou) Co., Ltd. ("Ruike") | Wenzhou, China | December 5, 2023 | 100% by Erayak HK |
| 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 ("New Focus") | Wenzhou, China | November 21, 2012 | 100% by Leiya |

---

**Erayak Power Solution Limited ("Erayak BVI")**

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 ("Erayak HK")**

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 $12,760,000 as of December 31, 2025. Erayak HK did not have any operations as of December 31, 2025.

**Ruike Electronics (Wenzhou) Co., Ltd. ("Ruike")**

Ruike was incorporated on December 5, 2023 in People's Republic of China ("China" or "PRC"), and is a wholly owned subsidiary of Erayak Power Solution Hong Kong Limited. Ruike is a wholly foreign owned enterprise organized under the laws of the PRC. The paid in capital was RMB 51,097,187.50 as of December 31, 2025.

[**Table of Contents**](#TableOfContents)

**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 $3,900,000 as of December 31, 2025. Wenjie did not have any operations as of December 31, 2025.

**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 33,272,918.37 as of December 31, 2025.

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 10,580,000 as of December 31, 2025.

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 have 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.

**Reclassifications**

Certain prior-period amounts have been reclassified to conform to the current-year presentation. Specifically, for the years ended December 31, 2024, and 2023, operating expenses were adjusted by ($5,340) and $5,560, respectively, to reflect the reclassification of bank charges and charitable donations from non-operating expenses. These reclassifications had no impact on previously reported net income or total equity.

**NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES**

**Basis of Presentation and Principles of Consolidation**

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.

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**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:

---

| | | | |
|:---|:---|:---|:---|
|  | **For the Years Ended December 31** | **For the Years Ended December 31** | **For the Years Ended December 31** |
|  | **2025** | **2024** | **2023** |
| **Period Ended RMB: USD exchange rate** | 6.9931 | 7.2993 | 7.0999 |
| **Period Average RMB: USD exchange rate** | 7.1875 | 7.1957 | 7.0809 |

---

**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 December 31, 2025 and 2024, restricted cash was $251,932 and $792,204, respectively.

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**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 due amounts. 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 an 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 represent prepayments for the purchase of materials or services, which are offset against accounts payable upon receipt of the underlying goods or services. The Company performs periodic evaluations of the financial condition of its suppliers and monitors their ability to fulfill contractual obligations.

The Company maintains an allowance for doubtful accounts for advances to suppliers based on an assessment of the supplier's financial condition and ability to deliver goods or services. When the financial condition of a supplier deteriorates, resulting in an impairment of their ability to perform, the Company records an impairment provision to the allowance. During the fiscal years ended December 31, 2025, 2024 and 2023, there were no direct write-offs to 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:

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| | |
|:---|:---|
|  | **Useful lives** |
| Buildings | 10 - 20 years |
| Machinery and equipment | 3-10 years |
| Transportation vehicles | 4 years |
| Office furniture and equipment | 5-10 years |
| Electronic equipment | 2-5 years |

---

Expenditures on 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.

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**Intangible Assets**

Intangible assets are amortized using the straight-line method with the following estimated useful lives:

---

| | |
|:---|:---|
|  | **Useful lives** |
| Patents | 10 years |
| Trademark | 10 years |
| Software | 10 years |
| Land use rights | 50 years |

---

**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 chosen 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 December 31, 2025, 2024, and 2023.

**Fair Value Measurement**

Fair Value Measurements and Disclosures require 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 input 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.

ASC 820-10 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations for those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.

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For the Company's financial instruments, including cash and cash equivalents, restricted cash, short-term investment, 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 December 31, 2025, 2024, and 2023.

**Value-added Tax ("VAT")**

Sales revenue represents the invoiced value of goods, net of VAT. All 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.

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 other party is involved in transactions, the Company is a principal.

In determining the transaction price, the Company evaluates whether the price is subject to a 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 since no warranty, discount or return policy are documented in the sales agreements, the Company 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.

**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.

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**Government Grant**

Government grants are 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 $161,700, $231,918, and $1,061,274 for the years ending December 31, 2025, 2024, and 2023, respectively, which were included in other income on Income Statement.

**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 $173,784, $172,465, and $191,671 for the years ended December 31, 2025, 2024, and 2023, respectively.

**Advertising Costs**

Advertising costs are expensed as incurred in accordance with ASC 720-35, "Selling and Marketing Expenses-Advertising Costs". Advertising costs were $122,316, $213,972, and $78,305 for the years ended December 31, 2025, 2024, and 2023, 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 the deferred tax assets will not be realized. Current income taxes are provided 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 expenses. All 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. 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.

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**Earnings (loss) 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 are 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 included in diluted EPS during the years ended December 31, 2025, 2024, and 2023.

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.

**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 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 on credit risks consist primarily of cash and cash equivalents, restricted cash, and 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.

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*Risks and Uncertainties*

 

The operations of the Company are 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 following 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 flow from our operating activities is primarily dependent on our sales of converters and power generating products to our customers at margins sufficient to cover fixed and variable expenses.

As of December 31, 2025 and 2024, we had cash and cash equivalents of $436,788 and $1,324,809, respectively including restricted cash of 251,932 and 792,204, 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 being 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 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.

**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 October 2023, the FASB issued Accounting Standards Update ("ASU") 2023-06, Disclosure Improvements—codification amendments in response to SEC's disclosure Update and Simplification initiative which amend the disclosure or presentation requirements of codification subtopic 230-10 Statement of Cash Flows—Overall, 250-10 Accounting Changes and Error Corrections—Overall, 260-10 Earnings Per Share—Overall, 270-10 Interim Reporting—Overall, 440-10 Commitments—Overall, 470-10 Debt—Overall, 505-10 Equity—Overall, 815-10 Derivatives and Hedging—Overall, 860-30 Transfers and Servicing—Secured Borrowing and Collateral, 932-235 Extractive Activities—Oil and Gas—Notes to Financial Statements, 946-20 Financial Services—Investment Companies—Investment Company Activities, and 974-10 Real Estate—Real Estate Investment Trusts—Overall. The amendments represent changes to clarify or improve disclosure and presentation requirements of above subtopics. Many of the amendments allow users to more easily compare entities subject to the SEC's existing disclosures with those entities that were not previously subject to the SEC's requirements. Also, the amendments align the requirements in the Codification with the SEC's regulations. For entities subject to existing SEC disclosure requirements or those that must provide financial statements to the SEC for securities purposes without contractual transfer restrictions, the effective date aligns with the date when the SEC removes the related disclosure from Regulation S-X or Regulation S-K. Early adoption is not allowed. For all other entities, the amendments will be effective two years later from the date of the SEC's removal.

ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, establishes incremental disaggregation of income tax disclosures pertaining to the effective tax rate reconciliation and income taxes paid. This standard is effective for fiscal years beginning after December 15, 2024, and requires prospective application with the option to apply it retrospectively. The Company adopted ASU 2023-09 beginning January 1, 2025. The adoption did not have a material impact on the Company's consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, "Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses", requiring public entities to disclose additional information about specific expense categories in the notes to the financial statements on an interim and annual basis. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2024-03.

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

Management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company's consolidated financial statements.

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**NOTE 3 – ACCOUNTS RECEIVABLE**

Accounts receivable as of December 31, 2025 and 2024 consisted of the following:

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| | | |
|:---|:---|:---|
|  | **2025** | **2024** |
| Accounts receivable | $13956417 | $12296691 |
| Less: allowance for doubtful accounts | (374065) | (259555) |
| Accounts receivable, net | $13582352 | $12037136 |

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The average accounts receivable turnover period was approximately 205 days and 110 days for the years ended December 31, 2025 and 2024, respectively.

Changes of allowance for doubtful accounts for the years ended December 31, 2025 and 2024 were as follow:

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| | | |
|:---|:---|:---|
|  | **2025** | **2024** |
| Beginning balance | $(259555) | $(39280) |
| Provision adjustment for accounts receivable | (103145) | (224534) |
| Exchange difference | (11365) | 4259 |
| Ending balance | $(374065) | $(259555) |

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**NOTE 4 – INVENTORIES**

Inventories as of December 31, 2025 and 2024 consisted of the following:

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| | | |
|:---|:---|:---|
|  | **2025** | **2024** |
| Raw materials | $7322641 | $7118820 |
| Work in process | 1904229 | 1490520 |
| Finished goods | 520088 | 611020 |
| Inventory valuation allowance | (21397) | (383545) |
| Total | $9725561 | $8836815 |

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For the fiscal year ended December 31, 2025, the Company recorded a reversal of the inventory allowance in the amount of $362,148. For the fiscal year ended December 31, 2024, the Company recorded an inventory allowance provision of $291,707.

**NOTE 5 – ADVANCE TO SUPPLIERS AND OTHER**

Advance to suppliers and other as of December 31, 2025 and 2024 consisted of the following:

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| | | |
|:---|:---|:---|
|  | **2025** | **2024** |
| Advance to suppliers | $5702675 | $8548744 |
| Advance payment for potential factory lease | 1000000 | 1000000 |
| Less: allowance for doubtful accounts | (496754) | (111004) |
| Total | 6205921 | 9437740 |

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As of December 31, 2025 and 2024, an advance payment of $1,000,000 had been made in connection with a potential long-term lease of a customized factory intended to support business expansion in the energy storage industry.

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**NOTE 6 – PROPERTY, PLANT AND EQUIPMENT**

Property, plant and equipment as of December 31, 2025 and 2024 consisted of the following:

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| | | |
|:---|:---|:---|
|  | **2025** | **2024** |
| Machinery and equipment | $3152265 | $2240129 |
| Transportation vehicles | 466386 | 443390 |
| Electronic devices | 172923 | 138951 |
| Office furniture and equipment | 94652 | 88050 |
| Construction in progress | 3932974 | 216468 |
| Building | 1611858 | 754321 |
| Total property plant and equipment, at cost | 9431058 | 3881309 |
| Less: accumulated depreciation | (2328503) | (1724095) |
| Property, plant and equipment, net | $7102555 | $2157214 |

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Additions to property and equipment for the years ended December 31, 2025 and 2024 were $5,239,108 and $715,202, respectively. Disposals during these periods were $4,947 and $0, respectively.

Depreciation expenses were $519,185, $426,275, and $385,666 for the years ended December 31, 2025, 2024, and 2023, respectively.

The depreciation expenses included in the cost of sales during the years ended December 31, 2025, 2024, and 2023 were $357,058, $261,090, and $243,284, respectively.

**NOTE 7 – INTANGIBLE ASSETS**

Intangible assets as of December 31, 2025 and 2024 consisted of the following:

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| | | |
|:---|:---|:---|
|  | **2025** | **2024** |
| Intangible assets |  |  |
| &nbsp;&nbsp;&nbsp;Cost | $77123 | $37332 |
| &nbsp;&nbsp;&nbsp;Accumulated amortization | (12438) | (6350) |
| Additions, at cost | 2670247 | 36556 |
| Amortization current period | (56486) | (5566) |
| Intangible assets, net | $2678447 | $61972 |

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The intangible assets include land use rights that the Company acquired during the 2025 fiscal year. The useful life of the land use rights is 50 years. After paying the full acquisition price, the Company secured the land use rights and pledged the property to apply for bank loans. The related bank loan is disclosed in Note 13 – Long-term Loans.

The rest intangible assets represent the ERAYAK trademark, the Company's purchase of patents related to new technologies to produce inverters, and software purchased for internal use.

There were no disposals for the years ended December 31, 2025, 2024, and 2023.

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Five succeeding years of amortization are as follows:

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| | | |
|:---|:---|:---|
| Year | **Amortization** | **Net<br> carrying<br> value** |
| 2026 | $67659 | $2610788 |
| 2027 | 67659 | 2543129 |
| 2028 | 67659 | 2475470 |
| 2029 | 67659 | 2407811 |
| 2030 | 67659 | 2340152 |

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**NOTE 8 – LEASES**

The Company has two related party leases for the land and building where it operates:

Lease #1: A 20-year lease 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 the interest expense on the bank loan. The related bank loan is disclosed in Note 13 – Long-term Loans. Rental income from the sublease is disclosed in Note 23 – Rental Income, Net. Relation between the Company and Ailefu is disclosed in Note 26 – Related Party Transactions.

Lease #2: A two-year lease with option to renew. The Company pays the full rent at the beginning of the lease, and the related transaction is disclosed in Note 26 – Related Party Transactions.

During the 2025 and 2024 fiscal years, the lease expenses were $689,181 and $689,922, respectively. The ending balances of right of use assets were $6,032,330 and $6,457,903 as of December 31, 2025 and 2024, respectively.

**NOTE 9 – SHORT-TERM INVESTMENT**

The Company's short-term investments primarily consist of structured products and money market funds. These investments are recorded at fair value, with changes in fair value recognized in earnings (or other comprehensive income, as applicable).

The following table sets forth the financial instruments, measured at fair value, by level within the fair value hierarchy as of December 31, 2025.

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Balance at December 31,<br> 2025** | **Quoted Prices in Active Market for Identical Assets (Level l)** | **Significant Other Observable (Level 2)** | **Significant unobservable Inputs (Level 3)** |
| Short-term investments: |  |  |  |  |
| Structured Products | 4537044 |  | 4537044 |  |

---

The structured products held by the Company do not have quoted prices for identical assets in active markets and therefore are generally not classified within Level 1 of the fair value hierarchy. The fair values of these wealth management products are primarily determined based on quotes or net asset values provided by the issuing banks, with reference to observable yields, market interest rates, and market inputs for similar products. These inputs are directly or indirectly observable in the marketplace, and the Company does not rely on significant unobservable inputs to estimate their fair values. Accordingly, the Company believes that the fair value measurements of these wealth management products are consistent with the characteristics of Level 2 inputs under the fair value hierarchy and classifies them within Level 2. If, in the future, certain wealth management products lack bank quotes, published net asset values, or other observable market inputs, and their valuations rely primarily on significant unobservable assumptions, the Company will reassess their classification within the fair value hierarchy.

**NOTE 10 – LONG-TERM INVESTMENT**

In July 2024, the Company acquired a 15% equity interest in a privately held entity (the "Investee") for a total purchase price of RMB3 million. Through December 31, 2024, the Company determined it did not possess the ability to exercise significant influence over the Investee and accounted for the investment pursuant to ASC 321, Investments—Equity Securities, using the measurement alternative.

During the fiscal year ended December 31, 2025, the Company determined that it gained the ability to exercise significant influence over the operating and financial policies of the Investee due to representation on the board of directors and participation in policy-making processes. Accordingly, the Company transitioned the accounting for this investment to the equity method in accordance with ASC 323, Investments—Equity Method and Joint Ventures. Under the equity method, the investment is initially measured at the carrying value of the previous investment plus the cost of any additional interest acquired. The Company subsequently adjusts the carrying amount of the investment to recognize its share of the investee's earnings or losses in the Consolidated Statements of Comprehensive Loss.

[**Table of Contents**](#TableOfContents)

For the year ended December 31, 2025, the Company recorded an investment loss of RMB1,647,163, or $229,170 representing its proportionate share of the Investee's net loss. As of December 31, 2025, the carrying value of the investment was RMB1,352,837, or $193,453.

**NOTE 11 – OTHER CURRENT AND NON-CURRENT ASSETS**

As of December 31, 2025, other current assets included a three-year fixed deposit in the amount of RMB 27,400,000, or $3,918,148, in Minsheng Bank, from June 9, 2023, to June 9, 2026, which as of December 31, 2024, was included in other non-current assets. The annual interest rate on the deposit is 3.2%, and early withdrawal before the expiry date is not allowed.

During the fiscal year ended December 31, 2025 and 2024, the Company pledged this fixed deposit and all accrued interest income as collateral to secure bank loan for Zhejiang Rayak Technology Co. Ltd., a related party of the Company.

**NOTE 12 – SHORT-TERM BORROWINGS**

Short-term borrowings from financial institutions consisted of the following on December 31, 2025:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **Bank Name** | **Amount – RMB** | **Amount – RMB** | **Amount – USD** | **Issuance Date** | **Expiration Date** | **Interest** |
| Bank of Wenzhou |  | 11500000 | 1644478 | 2025.10.30 | 2026.10.28 | 4.25% |
| Bank of China |  | 10000000 | 1429981 | 2025.01.17 | 2026.01.16 | 2.70% |
| Huaxia Bank |  | 10000000 | 1429981 | 2025.09.29 | 2026.09.20 | 2.85% |
| Huaxia Bank |  | 20000000 | 2859962 | 2025.09.29 | 2026.09.20 | 2.65% |
| Industrial and Commercial Bank of China |  | 6500000 | 929488 | 2025.03.20 | 2026.03.20 | 2.80% |
| **Total** | **RMB** | **58000000** | $**8293890** |  |  |  |

---

Short-term borrowings from financial institutions consisted of the following on December 31, 2024:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **Bank Name** | **Amount – RMB** | **Amount – RMB** | **Amount – USD** | **Issuance Date** | **Expiration Date** | **Interest** |
| Minsheng Bank |  | 1000000 | 136999 | 2024.06.27 | 2025.01.03 | 3.50% |
| Bank of Ningbo |  | 5000000 | 684997 | 2024.06.13 | 2025.06.13 | 2.80% |
| Bank of Ningbo |  | 1706808 | 233832 | 2024.10.30 | 2025.04.28 | 2.75% |
| **Total** | **RMB** | **7706808** | $**1055828** |  |  |  |

---

The Company's short-term bank borrowings are guaranteed by the Company's major shareholders, their immediate family members, and related companies. For the years ended December 31, 2025, 2024, and 2023, interest expenses on short-term borrowings from financial institutions amounted to $116,349, $47,176, and $165,247, respectively.

[**Table of Contents**](#TableOfContents)

**NOTE 13 – LONG-TERM LOANS**

As of December 31, 2025, the long-term loans consisted of the following:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **Description** | **Amount – RMB** | **Amount – RMB** | **Amount – USD** | **Issuance Date** | **Expiration Date** | **Interest** |
| WeBank Shenzhen |  | 228571 | $32685 | 2025.05.07 | 2027.04.23 | 8.62% |
| WeBank Shenzhen |  | 380952 | 54475 | 2025.04.10 | 2027.04.23 | 12.16% |
| WeBank Shenzhen |  | 380952 | 54475 | 2025.04.10 | 2027.04.23 | 12.16% |
| WeBank Shenzhen |  | 380952 | 54475 | 2025.04.10 | 2027.04.23 | 12.16% |
| WeBank Shenzhen |  | 380952 | 54475 | 2025.04.10 | 2027.04.23 | 12.16% |
| WeBank Shenzhen |  | 380952 | 54475 | 2025.04.10 | 2027.04.23 | 11.16% |
| WeBank Shenzhen |  | 500000 | 71499 | 2025.12.03 | 2027.11.23 | 13.99% |
| WeBank Shenzhen |  | 500000 | 71499 | 2025.12.03 | 2027.11.23 | 13.99% |
| WeBank Shenzhen |  | 500000 | 71499 | 2025.12.03 | 2027.11.23 | 13.99% |
| WeBank Shenzhen |  | 500000 | 71499 | 2025.12.03 | 2027.11.23 | 1399% |
| Longwan Rural Commercial Bank |  | 1200000 | 171599 | 2023.06.02 | 2026.05.30 | 6.60% |
| Longwan Rural Commercial Bank |  | 1750000 | 250247 | 2023.06.02 | 2026.05.30 | 6.60% |
| Minsheng Bank |  | 6200000 | 886589 | 2025.11.14 | 2032.11.14 | 2.70% |
| Minsheng Bank |  | 16000000 | 2287970 | 2025.05.20 | 2034.11.20 | 2.70% |
| Subtotal |  | 29283331 | 4187461 |  |  |  |
| Current portion of long-term loans |  | (5441349) | (778103) |  |  |  |
| **Total** | **RMB** | **23841982** | $**3409358** |  |  |  |

---

As of December 31, 2024, the long-term loans consisted of the following:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **Description** | **Amount – RMB** | **Amount – RMB** | **Amount – USD** | **Issuance Date** | **Expiration Date** | **Interest** |
| WeBank Shenzhen |  | 38095 | $5219 | 2023.04.27 | 2025.04.27 | 6.6528% |
| WeBank Shenzhen |  | 155556 | 21311 | 2024.02.26 | 2026.02.23 | 6.8760% |
| WeBank Shenzhen |  | 214286 | 29357 | 2024.03.29 | 2026.03.23 | 6.8760% |
| WeBank Shenzhen |  | 904762 | 123952 | 2024.07.29 | 2026.07.23 | 6.0400% |
| WeBank Shenzhen |  | 1000000 | 136999 | 2024.09.11 | 2026.09.23 | 5.8300% |
| WeBank Shenzhen |  | 280000 | 38360 | 2024.09.11 | 2026.09.23 | 5.8300% |
| WeBank Shenzhen |  | 200000 | 27400 | 2024.11.04 | 2026.10.23 | 5.8300% |
| Longwan Rural Commercial Bank |  | 1200000 | 164399 | 2023.06.05 | 2026.05.30 | 6.6% |
| Longwan Rural Commercial Bank |  | 1750000 | 239749 | 2023.06.05 | 2026.05.30 | 6.6% |
| Minsheng Bank |  | 10000000 | 1369994 | 2024.08.06 | 2027.07.15 | 3.5% |
| Minsheng Bank |  | 5000000 | 684997 | 2024.08.13 | 2027.07.15 | 3.5% |
| Minsheng Bank |  | 9000000 | 1232995 | 2024.08.16 | 2027.07.15 | 3.5% |
| Subtotal |  | 29742698 | 4074733 |  |  |  |
| Current portion of long-term loans |  | (1179047) | (161529) |  |  |  |
| **Total** | **RMB** | **28563651** | $**3913204** |  |  |  |

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[**Table of Contents**](#TableOfContents)

The long-term bank loans from Minsheng Bank are collateralized by certain assets of the Company. As of December 31, 2025, the collateral consisted of land use rights held by Ruike with a carrying amount of $2,543,916. In the prior year, as of December 31, 2024, the loans were secured by leased property held under a lease agreement with Ailefu (see Note 8 — Leases for additional information).

For the years ended December 31, 2025, 2024, and 2023, interest expenses on long-term loans amounted to $163,333, $101,159, and $245,897, respectively.

**NOTE 14 – ACCOUNTS PAYABLE**

Accounts payable mainly represent the amount the Company owes to its suppliers. As of December 31, 2025 and 2024, outstanding accounts payable amounted to $6,097,560 and $8,335,266, respectively.

**NOTE 15 – ADVANCE FROM CUSTOMERS**

Advance from customers represent the payments from customers for products that have not yet been delivered. As of December 31, 2025 and 2024, advance from customers amounted to $1,573,763 and $628,067, respectively.

**NOTE 16 – TAX PAYABLE**

As of December 31, 2025 and 2024, tax payable consisted of the following:

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| | | |
|:---|:---|:---|
|  | **2025** | **2024** |
| Corporate tax payable | $999741 | $962235 |
| VAT payable (receivable) | (80712) | 48585 |
| Other tax payable | 10184 | 10575 |
|  | 929213 | 1021395 |

---

**NOTE 17 – SALES**

Disaggregated sales by types as of December 31, 2025, 2024, and 2023 consisted of the following:

---

| | | | |
|:---|:---|:---|:---|
|  | **2025** | **2024** | **2023** |
| Inverters | $10864074 | $14074555 | $11893338 |
| Chargers | 278339 | 550919 | 544680 |
| Gasoline generators | 9666380 | 9981895 | 6575406 |
| Power bank | 1714152 | 4966744 | 804268 |
| Other products | 332492 | 726247 | 504806 |
| Total | $22855437 | $30300360 | $20322498 |

---

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

**NOTE 18 – COST OF SALES**

Cost of sales as of December 31, 2025, 2024 and 2023 consisted of the following:

---

| | | | |
|:---|:---|:---|:---|
|  | **2025** | **2024** | **2023** |
| Direct labor | $1719388 | $1940773 | $1600909 |
| Direct materials | 13930350 | 12294288 | 10428628 |
| Direct manufacturing overhead | 1466025 | 1359577 | 1338927 |
| Outsourced products | 868001 | 10713360 | 1931385 |
| Total | $17983764 | $26307998 | $15299849 |

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[**Table of Contents**](#TableOfContents)

**NOTE 19 – GENERAL AND ADMINISTRATIVE EXPENSES**

General and administrative expenses as of December 31, 2025, 2024, and 2023 consisted of following:

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| | | | |
|:---|:---|:---|:---|
|  | **2025** | **2024** | **2023** |
| Employee compensation and benefits | $1077246 | 927913 | $526895 |
| Travel and communication expenses | 44842 | 59108 | 49451 |
| Rent and utilities | 305877 | 287755 | 83079 |
| Consulting fees | 2148141 | 677556 | 1032197 |
| Insurance | 44493 | 29511 | 13386 |
| Depreciation and amortization expenses | 193562 | 125395 | 116451 |
| Bank charges | 16733 | (16458) | 1324 |
| Donations | 4175 | 11118 | 4237 |
| Sales tax | 15368 | 17657 | 76654 |
| Entertainment | 28815 | 27314 | 23748 |
| Office and miscellaneous | 121059 | 155940 | 96006 |
| Total | $4000311 | $2302809 | $2023428 |

---

**NOTE 20 – SELLING AND MARKETING EXPENSES**

Selling and marketing expenses as of December 31, 2025, 2024, and 2023 consisted of the following:

---

| | | | |
|:---|:---|:---|:---|
|  | **2025** | **2024** | **2023** |
| Employee compensation and benefits | $279549 | $265546 | $202992 |
| Travel and promotion | 187703 | 267203 | 125213 |
| Shipping and handling | 173784 | 172465 | 191671 |
| Insurance | 5593 |  | 12233 |
| Consulting fee | 16830 | 4495 | 24725 |
| Inspection and certification fees | 44941 | 97091 | 141729 |
| Entertainment | 49592 | 91928 | 182221 |
| Office and miscellaneous | 13184 | 47541 | 81695 |
| Total | $771176 | $946269 | $962479 |

---

**NOTE 21 – RESEARCH AND DEVELOPMENT EXPENSES**

Research and development expenses as of December 31, 2025, 2024 and 2023 consisted of the following:

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| | | | |
|:---|:---|:---|:---|
|  | **2025** | **2024** | **2023** |
| Salaries | $870884 | $701402 | $525782 |
| Direct input | 681587 | 859540 | 554892 |
| Utility | 2585 | 2542 | 2680 |
| Design cost | 8560 | 6254 | 31115 |
| Contract services |  | 55720 |  |
| Depreciation | 23522 | 22286 | 25614 |
| Other | 21173 | 22925 | 36859 |
| Total | $1608311 | $1670669 | $1176943 |

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[**Table of Contents**](#TableOfContents)

**NOTE 22 – INTEREST EXPENSES, NET**

Interest expenses as of December 31, 2025, 2024 and 2023 consisted of the following:

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| | | | |
|:---|:---|:---|:---|
|  | **2025** | **2024** | **2023** |
| Interest expense | $341685 | $150160 | $490780 |
| Interest income | (389725) | (10719) | (88109) |
| Total interest (income) expense, net | $(48040) | $139441 | $402671 |

---

**NOTE 23 – 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 December 31, 2025, 2024 and 2023 consisted of the following:

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| | | | |
|:---|:---|:---|:---|
|  | **2025** | **2024** | **2023** |
| Rental income | $265755 | 251542 | $411962 |
| Rental expense | (111910) | (97071) | (216615) |
| Total rental income, net | $153845 | 154471 | $195347 |

---

**NOTE 24 – OTHER INCOME, NET**

The following table shows the details of net other income (expenses) for the years ended December 31, 2025, 2024 and 2023:

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| | | | |
|:---|:---|:---|:---|
|  | **2025** | **2024** | **2023** |
| Government grant | $161700 | $231918 | $1061274 |
| Sampling reimbursement | 77119 |  | 21624 |
| Exchange gains | 43692 | 141296 | 5834 |
| Gain on extinguishment of liabilities | 37807 |  |  |
| Miscellaneous income | 6942 | 30754 | 5099 |
| Miscellaneous expenses | (19222) | (41604) | (215751) |
| Total other income, net | $308038 | 362364 | $878080 |

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[**Table of Contents**](#TableOfContents)

**NOTE 25 – 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 did not have any customers that individually accounted for a significant portion (10% or more) of its revenue during the fiscal year ended December 31, 2025. As a result, the Company is not materially dependent on any individual customer. As of December 31, 2025, the Company's accounts receivable was concentrated with two parties: a related party representing 18.61% of the total balance and a single customer representing 13.69%.

The Company sold a substantial portion of products to one customer (21.50% of total revenues) during fiscal year ended December 31, 2024. As of December 31, 2024, the amount due from this customer included in accounts receivable were $2,109,572, representing 17.16% of total accounts receivable. Other significant concentration of accounts receivable included another customer, who accounted for 14.51% of total accounts receivable for the fiscal year ended December 31, 2024.

The Company sold a substantial portion of products to one customer (11.99% of total revenues) during the fiscal year ended December 31, 2023, and as of the year-end date, amount due from this customer included in accounts receivable was $28,301, representing 0.45% of total accounts receivable. Beside the significant customer, there were other significant concentrations of accounts receivable, which included four customers who accounted for 25.19%, 20.59%, 11.73% and 10.28%, respectively, of the total accounts receivable for the fiscal year ended December 31, 2023.

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.

During the fiscal year ended December 31, 2025, one supplier accounted for 10.31% of the Company's total purchases, indicating a concentration of supplier risk. Management monitors this relationship on an ongoing basis to mitigate potential supply disruptions.

For the years ended December 31, 2024 and 2023, 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 26 – RELATED PARTY TRANSACTIONS**

*1) Nature of relationships with related parties*

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| | |
|:---|:---|
| **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 Leiling Technology Development Co. Ltd. ("Leiling") | An entity with Shengling Xiang as legal representative |
| Shanghai Fushishenye Mechanical and Electrical Equipment Co. Ltd. ("Fushishenye") | An entity with Lingyi Kong as legal representative |
| Zhejiang Rayak Technology Co. Ltd. ("Rayak Tech") | An entity 85% owned by Shengling Xiang and 15% owned by Zhejiang Leiya Electronics Co., Ltd. |
| 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 |

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[**Table of Contents**](#TableOfContents)

*2) Related party transactions*

The Company leases offices and factory buildings from Ailefu. The nature of the lease is disclosed in Note 8 - Lease. As of December 31, 2025, the Company's balances with Ailefu consisted of a security deposit of $14,300, and prepayments totaling $613,585. The Company purchased raw materials in the amount of $793,744 through Ailefu during the 2025 fiscal year. As of December 31, 2025, the Company had accounts payable of $132,136 to Ailefu.

There were no transactions between the Company and Xiangze, the Company and Leiling, the Company and Chuanlong Lin, and the Company and Chunhua Xiang during the years ended December 31, 2025 and 2024. As of December 31, 2025 and 2024, the Company had no outstanding balances from these entities.

The Company purchased equipment from Fushishenye. As of December 31, 2025, the Company had advance paid to Fushishenye in the amount of $671,200.

The Company periodically manages cash collections and disbursements on behalf of Rayak Tech. For the fiscal year ended December 31, 2025, the Company collected $932,285 and disbursed $417,934 on Rayak Tech's behalf. As of December 31, 2025, the outstanding balance due to Rayak Tech related to these activities was $564,868, which is included in due to related parties. Additionally, the Company sells products to Rayak Tech in the ordinary course of business. During the fiscal year ended December 31, 2025, total sales to Rayak Tech amounted to $2,030,478. As of December 31, 2025, the Company had an outstanding accounts receivable balance from Rayak Tech of $3,178,800.

From time to time, Shengling Xiang provides working capital advances to support the Company's operations. During the year ended December 31, 2025, the Company repaid $333,840 to Shengling Xiang, while during the year ended December 31, 2024, the Company received advances totaling $349,737. As of December 31, 2025 and 2024, the outstanding balances due to this individual were $0 and $333,840, respectively. These balances represent unsecured, interest-free borrowings that are due on demand.

Lingyi Kong provides periodic working capital advances to support the Company's operations. During the years ended December 31, 2025 and 2024, the Company received advances of $7,874,134 and $11,374,390, respectively. As of December 31, 2025 and 2024, the outstanding balances due to Lingyi Kong were $1,212,020 and $3,176,325, respectively. These borrowings are unsecured, non-interest bearing, and due on demand. Additionally, during the years ended December 31, 2025 and 2024, Lingyi Kong endorsed notes receivable with recourse to the Company's suppliers to settle outstanding accounts payable in the amount of $4,035,487 and $7,255,413, respectively.

*3) Related party balances*

Net outstanding balances with related parties consisted of the following as of December 31, 2025 and 2024:

---

| | | | |
|:---|:---|:---|:---|
| **Accounts** | **Name of related parties** | **2025** | **2024** |
| Due to related party | Lingyi Kong | 1212020 | 3176325 |
|  | Zhejiang Rayak Technology Co. Ltd. | 564868 |  |
|  | Shengling Xiang | - | 333840 |
| **TOTAL** |  | $**1776888** | $**3510165** |
| Accounts payables, related parties | Wenzhou Ailefu Technology Co. Ltd. | 132136 | - |
| **TOTAL** |  | $**132136** | $- |
| Accounts receivables, related parties | ZheJiang Rayak Technology Co., Ltd. | 3178800 |  |
|  | Wenzhou Weidi Technology Co. Ltd. |  | **1314332** |
| **TOTAL** |  | $**3178800** | $**1314332** |
| Advance to suppliers, related parties | Shanghai Fushishenye Mechanical and Electrical Equipment Co. Ltd. | 671200 | **-** |
|  | Wenzhou Ailefu Technology Co. Ltd. | 613585 | **-** |
| **TOTAL** |  | $**1284785** | $- |
| Other receivables, related parties | Wenzhou Ailefu Technology Co. Ltd. | 14300 | **-** |
| **TOTAL** |  | $**14300** | - |

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[**Table of Contents**](#TableOfContents)

**NOTE 27 – SHAREHOLDERS' EQUITY**

**Ordinary shares**

The Company is authorized to issue 1,000,000,000 ordinary shares of par value of $0.22 each, comprising of: (i) 900,000,000 Class A Ordinary Shares of par value of USD0.22 each, and (ii) 100,000,000 Class B Ordinary Shares of par value of USD0.22 each. There are currently 85,406 issued and outstanding Class A Ordinary Shares and 4,091 issued and outstanding Class B Ordinary Shares.

Holders of Class A Ordinary Shares and Class B Ordinary Shares shall always 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, Class A Ordinary Shares and Class B Ordinary Shares shall rank pari passu with one another and shall have the same rights, preferences, privileges and restrictions.

*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.

*Private Placement*

On May 20, 2024, the Company entered into securities purchase agreements (the "Securities Purchase Agreements") with certain purchasers ("Purchasers") in connection with the issuance and sale (the "Private Placement") of (i) an aggregate of 16,000,000 Class A ordinary shares, par value US$0.0001 per share, of the Company (the "Class A Ordinary Shares") and (ii) warrants (the "Warrants," together with the Class A Ordinary Shares, the "Securities") to purchase an aggregate of 32,000,000 Class A Ordinary Shares at an exercise price of $0.50 per share, subject to adjustment as provided therein, for an aggregate of purchase price of $8,000,000. The Warrants will become exercisable for cash or on a cashless basis upon issuance and will expire three years after the issuance date. In November 2024, Purchasers exercised warrants on a cashless basis, and the Company issued 22,588,235 Class A ordinary shares. As of December 31, 2024, all warrants were exercised.

*Registered Direct Offering*

On July 25, 2025, ERAYAK Power Solution Group Inc. (the "Company") entered into a securities purchase agreement (the "Purchase Agreement") with certain investors named thereto (the "Purchasers"), pursuant to which the Company agreed to issue and sell, in a registered direct offering (the "Registered Direct Offering"): (i) 12,396,000 class A ordinary shares (the "Class A Ordinary Shares") of the Company of par value of $0.0001 each (the "Shares"), at a purchase price of $0.098 per share; and (ii) pre-funded warrants to purchase up to 18,216,246 Class A Ordinary Shares (the "Pre-Funded Warrants") at a purchase price of $$0.098 to the purchase price for Shares, less the exercise price of $0.0001 per share. The Registered Direct Offering closed on July 28, 2025. The Company received approximately $3 million in gross proceeds from the Registered Direct Offering, before deducting placement agent fees and estimated offering expenses.

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*Registered Direct Offering*

On July 31, 2025, ERAYAK Power Solution Group Inc. (the "Company") entered into a securities purchase agreement (the "Purchase Agreement") with certain investors named thereto (the "Purchasers"), pursuant to which the Company agreed to issue and sell, in a registered direct offering (the "Registered Direct Offering"): (i) 32,155,921 class A ordinary shares (the "Class A Ordinary Shares") of the Company of par value of $0.0001 each (the "Shares"), at a purchase price of $0.065 per share; and (ii) pre-funded warrants to purchase up to 75,536,386 Class A Ordinary Shares (the "Pre-Funded Warrants") at a purchase price of $0.065 to the purchase price for Shares, less the exercise price of $0.0001 per share. The Registered Direct Offering closed on August 1, 2025. The Company received approximately $7 million in gross proceeds from the Registered Direct Offering, before deducting placement agent fees and estimated offering expenses.

*Share Subscription*

On August 19, 2025, Erayak Power Solution Group Inc (the "Company") consummated a share subscription (the "Share Subscription") with Erayak International Limited. Under the terms of the Share Subscription, the Erayak International Limited purchased 8,000,000 Class B ordinary shares from the Company at a consideration of $0.055 per share, which is the closing pricing on August 18, 2025, for a total consideration of US$440,000.

*Reverse Stock Split*

On September 8, 2025, the shareholders and Board of Directors of the Company approved the 220-for-1 reverse stock split of its ordinary shares in accordance with Cayman law and the corresponding filing of the ratio change, which was duly filed with the Cayman Registrar. As a result of the reverse stock split, the number of ordinary shares outstanding were reduced from 187,892,786 Class A ordinary shares to approximately 854,059 Class A ordinary shares, and from 9,000,000 Class B ordinary shares to approximately 40,910 Class B ordinary shares, subject to rounding up of all fractional shares to the nearest whole share in lieu of such fractional shares.

*Increase in Authorized Share Capital*

 

On November 19, 2025, the shareholders and the board of directors of the Company approved an increase in the Company's authorized share capital from US$50,000, divided into 2,272,727.27 ordinary shares with a par value of US$0.022 each, consisting of 2,045,454.54 Class A ordinary shares and 227,272.73 Class B ordinary shares, to US$220,000,000, divided into 10,000,000,000 ordinary shares with a par value of US$0.022 each, consisting of 9,000,000,000 Class A ordinary shares and 1,000,000,000 Class B ordinary shares.

*Reverse Stock Split*

On March 25, 2026, the board of directors of ERAYAK Power Solution Group Inc., a Cayman Islands exempted company, approved a 1-for-10 reverse stock split of the Company's Class A ordinary shares and Class B ordinary shares. The reverse stock split became effective on April 20, 2026, and the Company's Class A ordinary shares began trading on a post-split basis on the Nasdaq Stock Market LLC on the same date under the current trading symbol "RAYA."

As a result of the reverse stock split, every ten issued Class A ordinary shares with a par value of US$0.022 each were combined into one issued Class A ordinary share with a par value of US$0.22 each, and every ten issued Class B ordinary shares with a par value of US$0.022 each were combined into one issued Class B ordinary share with a par value of US$0.22 each. Any fractional shares resulting from the reverse stock split were rounded up to the nearest whole share. Following the reverse stock split, the Company's authorized share capital was adjusted to US$220,000,000, divided into 900,000,000 Class A ordinary shares with a par value of US$0.22 each and 100,000,000 Class B ordinary shares with a par value of US$0.22 each.

All share and per-share amounts presented in these consolidated financial statements and the accompanying notes have been retroactively adjusted to reflect the reverse stock split for all periods presented, unless otherwise indicated.

**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 subsidiaries. The reserved amount as determined pursuant to PRC statutory laws totaled $1,244,717 and $1,123,204 as of December 31, 2025 and 2024, respectively.

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 are they allowed for distribution except under liquidation.

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**NOTE 28 – 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 a statutory income tax rate of 5%.

Ruike Electronics (Wenzhou) Co., Ltd is established in PRC and has an applicable EIT rate of 5%.

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 an applicable EIT rate of 15%. Wenzhou New Focus Limited has an applicable EIT rate of 5%. As of December 31, 2025, the tax years ended December 31, 2020 through December 31, 2025 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 measures the unrecognized benefits associated with the tax positions. As of December 31, 2025, 2024 and 2023, 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 years ended December 31, 2025, 2024 and 2023, respectively, and does not anticipate any significant increases or decreases in unrecognized tax benefits in the next 12 months from December 31, 2025.

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 years ended December 31, 2025, 2024 and 2023 as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | **2025** | **2024** | **2023** |
| Income before taxes excluded the amounts of loss incurring entities | $328988 | $856301 | $2246230 |
| PRC EIT tax rates | 15% | 15% | 15% |
| Tax at the PRC EIT tax rates | $49348 | $128445 | 312965 |
| Tax effect of R&D expenses deduction | (65281) | (296833) | (148687) |
| Tax effect of accumulated loss |  |  | (4425) |
| Tax effect of non-deductible expenses | 44864 | 102050 | 33393 |
| Income tax expenses | $28931 | $(66338) | $193246 |

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Income taxes for the years ended December 31, 2025, 2024 and 2023 are attributed to the Company's continuing operations in China and consisted of:

---

| | | | |
|:---|:---|:---|:---|
|  | **2025** | **2024** | **2023** |
| Current income tax | $2289 | $4008 | $193246 |
| Deferred income tax | 26642 | (70346) | - |
| Total income tax expense | $28931 | $(66338) | $193246 |

---

The deferred tax assets consisted of the following as of December 31, 2025, 2024 and 2023:

---

| | | | |
|:---|:---|:---|:---|
|  | **As of December 31,** | **As of December 31,** | **As of December 31,** |
|  | **2025** | **2024** | **2023** |
| Deferred tax assets: |  |  |  |
| &nbsp;&nbsp;&nbsp;Opening balance | $100994 | $32534 | $33490 |
| &nbsp;&nbsp;&nbsp;Bad debt | 9240 | 24828 |  |
| &nbsp;&nbsp;&nbsp;Inventory provision | (55304) | 43756 |  |
| &nbsp;&nbsp;&nbsp;Advance to suppliers allowance | 19422 | 9151 |  |
| &nbsp;&nbsp;&nbsp;Effect of exchange rate | 3681 | (9275) | (956) |
| Total | $78033 | $100994 | $32534 |

---

There was no valuation allowance for the deferred tax assets as of December 31, 2025 and 2024. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all 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 that the company will realize the benefits of those deductible differences as of December 31, 2025 and 2024.

**NOTE 29 – COMMITMENTS AND CONTINGENCIES**

As of December 31, 2025 and 2024, the Company had two lease agreements, which has been disclosed under right of use lease assets in Note 8 – Leases. As of December 31, 2025 and 2024, the Company had no material purchase commitments.

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 the December 31, 2025, the Company provides the following guarantee to a related party, with the Bank as the beneficiary:

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **Related Parties** | **Type** | **Currency** | **Guarantee Balance** | **Guarantee Balance** | **Maturity Date** |
| Zhejiang Leiya Technology Co., Ltd. | Pledge | RMB |  | 25750000 | Jun 09, 2026 |

---

The total guaranteed balance is RMB 25,750,000, representing the maximum undiscounted payment obligation the Company could be required to make in the event of default (excluding interest and penalties). The Company hadn't recognized a guaranteed liability as of the December 31, 2025.

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For the pledge guarantee provided to Zhejiang Leiya Technology Co., Ltd., the Company has pledged a as collateral (fair value not reflected in this table).

The guarantee for Zhejiang Leiya Technology Co., Ltd. is secured by a RMB 27,400,000 time deposit certificate; see Note 11 for details.

**NOTE 30 – 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 a single operating entity at a single location, and all the products are electrical products and use similar product line and labor. Based on management's assessment, the Company has determined that it has only one operating segment as defined by ASC 280.

The following tables present revenue for five major markets for the years ending December 31, 2025, 2024 and 2023, respectively.

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| | | |
|:---|:---|:---|
| | **December 31, 2025** | **December 31, 2025** |
| <br>**Top Five Markets:** | **Sales<br> Amount<br> (In USD)** | **As %<br> of Sales** |
| China | $13768820 | 60.24% |
| U.K. | 1285829 | 5.63% |
| Mexico | 867476 | 3.80% |
| Poland | 773084 | 3.38% |
| Portugal | 573931 | 2.51% |

---

---

| | | |
|:---|:---|:---|
| | **December 31, 2024** | **December 31, 2024** |
| <br>**Top Five Markets:** | **Sales<br> Amount<br> (In USD)** | **As %<br> of Sales** |
| China | $19575794 | 64.61% |
| France | 1516466 | 5.00% |
| Israel | 909207 | 3.00% |
| Nigeria | 827955 | 2.73% |
| U.K. | 781562 | 2.58% |

---

---

| | | |
|:---|:---|:---|
| | **December 31, 2023** | **December 31, 2023** |
| <br>**Top Five Markets:** | **Sales<br> Amount<br> (In USD)** | **As %<br> of Sales** |
| China | $11005500 | 54.15% |
| Australia | 1558935 | 7.67% |
| Poland | 1318926 | 6.49% |
| U.K. | 1053668 | 5.18% |
| Germany | 1016250 | 5.00% |

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**NOTE 31 – 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, during the fiscal year ended December 31, 2024, the COVID-19 pandemic continued to spread in China and other parts of the world, and for the full fiscal year of 2025, 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 32 – SUBSEQUENT EVENTS**

As for the date of the issuance of these financial statements, the new long-term borrowings are presented below:

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **Bank Name** | **Amount – RMB** | **Amount – RMB** | **Issuance<br> Date** | **Expiration<br> Date** | **Secured by<br> fixed assets** |
| Minsheng Bank |  | 9648000 | 1/04/2026 | 1/04/2033 | Yes |
| Minsheng Bank |  | 1600000 | 2/03/2026 | 2/03/2033 | Yes |
| **Total** | **RMB** | **11248000** |  |  |  |

---

The above bank loans are collateralized by certain assets of the Company. As of December 31, 2025, the collateral consisted of land use rights held by Ruike with a carrying amount of $2,543,916.

On March 25, 2026, the board of directors of ERAYAK Power Solution Group Inc., a Cayman Islands exempted company (the "Company"), approved a reverse stock split of the Company's Class A ordinary shares and Class B ordinary shares at a ratio of 1-for-10 (the "Reverse Stock Split"), such that (a) every ten (10) issued Class A ordinary shares of a par value of US$0.022 each will be combined into one (1) issued Class A ordinary share of a par value of US$0.22 each, (b) every ten (10) issued Class B ordinary shares of a par value of US$0.022 each will be combined into one (1) issued Class B ordinary share of a par value of US$0.22 each, and (c) any fractional shares will be rounded up to the nearest whole share. As a result, the Company's authorized share capital will be adjusted to US$220,000,000 divided into 900,000,000 Class A ordinary shares with a par value of US$0.22 each and 100,000,000 Class B ordinary shares with a par value of US$0.22 each.

In March 2026, the Company entered into an at-the-market sales agreement with Craft Capital Management LLC, as sales agent, pursuant to which the Company may offer and sell, from time to time, Class A ordinary shares with aggregate gross sales proceeds of up to US$20.0 million. The Company is not obligated to sell any shares under the agreement.

As of March 31, 2026, the Company had issued an aggregate of 1,247,456 Class A ordinary shares under the at-the-market sales agreement, resulting in gross proceeds of approximately US$0.72 million and net proceeds of approximately US$0.69 million after sales agent commissions and offering expenses.

On April 7, 2026, the Company entered into securities purchase agreements with certain non-U.S. investors, pursuant to which the Company issued and sold 5,000,000 Class A ordinary shares at US$0.08 per share, for total gross proceeds of US$0.4 million. The offering closed on April 7, 2026.

The Company has evaluated subsequent events through April 29, 2026. No other matters were identified affecting the accompanying financial statements or related disclosures.

**NOTE 33 – CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY**

Rule 12-04(a), 5-04(c) and 4-08(e)(3) of Regulation S-X require the condensed financial information of the parent company to be filed when the restricted net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. The Company performed a test on the restricted net assets of consolidated subsidiaries in accordance with such requirements and concluded that it was applicable to the Company as the restricted net assets of the Company's PRC subsidiaries exceeded 25% of the consolidated net assets of the Company, therefore, the condensed financial statements for the parent company are included herein.

For purposes of the above test, restricted net assets of consolidated subsidiaries shall mean that amount of the Company's proportionate share of net assets of consolidated subsidiaries (after intercompany eliminations) which as of the end of the most recent fiscal year may not be transferred to the parent company by subsidiaries in the form of loans, advances or cash dividends without the consent of a third party.

The condensed financial information of the parent company has been prepared using the same accounting policies as set out in the Company's consolidated financial statements except that the parent company used the equity method to account for investment in its subsidiaries. Such investment is presented on the condensed balance sheets as "Investment in subsidiaries" and the respective profit or loss as "Equity in earnings of subsidiaries" on the condensed statements of comprehensive income.

The footnote disclosures contain supplemental information relating to the operations of the Company and, as such, these statements should be read in conjunction with the notes to the audited consolidated financial statements of the Company. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S GAAP have been condensed or omitted.

The Company did not pay any dividend for the periods presented. As of December 31, 2025 and 2024, there were no material contingencies, significant provisions for long-term obligations, or guarantees of the Company, except for those which have been separately disclosed in the consolidated financial statements, if any.

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**ERAYAK POWER SOLUTION GROUP INC. PARENT COMPANY BALANCE SHEETS**

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| | | |
|:---|:---|:---|
|  | **December 31,<br> 2025** | **December 31,<br> 2024** |
| ASSETS |  |  |
| **Current assets** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash | 9293 | 118057 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Due from subsidiaries | 9864000 | 9819000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Advance to suppliers | 4700000 | 4950000 |
| **Non-current assets** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investment in subsidiaries | $21304966 | $12311068 |
| &nbsp;&nbsp;&nbsp;Total assets | $35878259 | $27198125 |
| LIABILITIES AND SHAREHOLDERS' EQUITY |  |  |
| LIABILITIES | $612390 | $612390 |
| COMMITMENTS AND CONTINGENCIES |  |  |
| SHAREHOLDERS' EQUITY |  |  |
| Class A shares, 900,000,000 shares authorized; 85,406 shares issued and outstanding as of December 31, 2025; 22,540 shares issued and outstanding as of December 31, 2024 | 18789 | 4959 |
| Class B shares, 100,000,000 shares authorized; 4,091 shares issued and outstanding as of December 31, 2025; 455 shares issued and outstanding as of December 31, 2024 | 900 | 100 |
| &nbsp;&nbsp;&nbsp;Additional paid-in capital | 27837444 | 18641264 |
| &nbsp;&nbsp;&nbsp;Retained earnings | 7794471 | 9184408 |
| &nbsp;&nbsp;&nbsp;Accumulated other comprehensive (loss) gain | (385736) | (1244996) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total shareholders' equity | 35265869 | 26585735 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities and shareholders' equity | $35878259 | $27198125 |

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**ERAYAK POWER SOLUTION GROUP INC. PARENT COMPANY STATEMENTS OF COMPREHENSIVE INCOME**

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| | | | |
|:---|:---|:---|:---|
|  | **For the Years Ended<br> December 31,** | **For the Years Ended<br> December 31,** | **For the Years Ended<br> December 31,** |
|  | **2025** | **2024** | **2023** |
| EQUITY IN EARNINGS OF SUBSIDIARIES | $(1070673) | $(1115977) | $1218714 |
| NET (LOSS) INCOME | (1389937) | (1115977) | 1218714 |
| FOREIGN CURRENCY TRANSLATION ADJUSTMENTS | 859260 | (500306) | (360677) |
| COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO THE COMPANY | $(530677) | $(1616353) | $858037 |

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**ERAYAK POWER SOLUTION GROUP INC. PARENT COMPANY STATEMENTS OF CASH FLOWS**

---

| | | | |
|:---|:---|:---|:---|
|  | **For the Years Ended December 31,** | **For the Years Ended December 31,** | **For the Years Ended December 31,** |
|  | **2025** | **2024** | **2023** |
| CASH FLOWS FROM OPERATING ACTIVITIES: |  |  |  |
| &nbsp;&nbsp;&nbsp;Net income | $(1389937) | $(1115977) | $1218714 |
| &nbsp;&nbsp;&nbsp;Adjustments to reconcile net cash flows from operating activities: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Equity in earnings of subsidiaries | 1070673 | (1115977) | 1218714 |
| &nbsp;&nbsp;&nbsp;Item not involving cash: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provision for advance to suppliers | 250000 | 50000 |  |
| &nbsp;&nbsp;&nbsp;Changes in operating assets and liabilities: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Due from subsidiaries | (45000) | (8250000) | (1569000) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other current liabilities | - | (21510) | 20510 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used in operating activities | (114264) | (8335596) | (1716329) |
| CASH FLOW FROM INVESTING ACTIVITIES |  |  |  |
| &nbsp;&nbsp;&nbsp;Advance for potential land purchase |  |  | 201354 |
| &nbsp;&nbsp;&nbsp;Advance for potential warehouse investment |  |  | (1000000) |
| &nbsp;&nbsp;&nbsp;Long-term investment | (8860000) | - | (3900000) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used in investing activities | (8860000) | - | (4698646) |
| CASH FLOW FROM FINANCING ACTIVITIES |  |  |  |
| &nbsp;&nbsp;&nbsp;Proceeds from registered direct offering | 8865500 |  |  |
| &nbsp;&nbsp;&nbsp;Proceeds from private placement |  | 8000000 |  |
| &nbsp;&nbsp;&nbsp;Proceeds from related party |  | 2081165 |  |
| &nbsp;&nbsp;&nbsp;Repayments to related party | - | (1629876) | - |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided in financing activities | 8865500 | 8451289 | - |
| EFFECT OF FOREIGN EXCHANGE | - | - | - |
| CHANGES IN CASH AND RESTRICTED CASH | (108764) | 115693 | (6414975) |
| CASH AND RESTRICTED CASH, beginning of year | 118057 | 2364 | 6417339 |
| CASH AND RESTRICTED CASH, end of year | $9293 | $118057 | 2364 |

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## Exhibit 1.1

**Exhibit 1.1**

**CERTIFIED EXTRACT OF MINUTES OF THE EXTRAORDINARY GENERAL MEETING OF<br> SHAREHOLDERS OF THE COMPANY HELD ON FEBRUARY 5, 2026**

**ERAYAK Power Solution Group Inc.**

*(incorporated in the Cayman Islands with limited liability)*

 

(the "Company")

I, being a director of the Company, hereby certify that the following is a true extract of minutes of the extraordinary general meeting of shareholders of the Company held on 5 February 2026 (the "Meeting**"**).

**"RESOLUTIONS:**

By an ordinary resolution, to approve (a) one or more share consolidations of the Company's issued and unissued class A ordinary shares and class B ordinary shares, at a ratio of not less than 1-for-10 and not more than 1-for-500, with the final ratio to be determined by the board of directors (the "Board") in its sole discretion at any time after approval by the shareholders (altogether, the "Share Consolidations" and each, a "Share Consolidation"), and authorize the Board to implement such Share Consolidations at the exact consolidation ratio and effective time as the Board may determine in its absolute discretion at any time prior to the one-year anniversary of the Meeting; and (b) in respect of any and all fractional entitlements to the issued consolidated shares resulting from the Share Consolidations, if so determined by the Board in its sole discretion, the directors be and are hereby authorized to settle as they consider expedient any difficulty which arises in relation to the Share Consolidations, including but without prejudice to the generality of the foregoing capitalizing all or any part of any amount for the time being standing to the credit of any reserve or fund of the Company (including its share premium account and profit and loss account) whether or not the same is available for distribution and applying such sum in paying up unissued ordinary shares to be issued to shareholders of the Company to round up any fractions of ordinary shares issued to or registered in the name of such shareholders of the Company following or as a result of the Share Consolidations, and the Board be and is hereby authorized to do all other acts and things as the Board considers necessary or desirable for the purposes of the transactions contemplated by or giving effect to and implementing the Share Consolidations, including instructing the registered office provider or transfer agent of the Company to complete the necessary corporate record(s) and make necessary filing(s) to reflect the Share Consolidations.

By a special resolution, subject to approval by the shareholders of the proposal of the Share Consolidations, and entirely conditional upon the effectiveness of a Share Consolidation with the exact consolidation ratio and the effective date of such Share Consolidation as determined by the Board, the shareholders approve the adoption of an amended and restated memorandum and articles of association (the "New M&A") in substitution for and to the exclusion of, the memorandum and articles of association of the Company in effect immediately prior to effectiveness of such Share Consolidation to solely reflect such Share Consolidation, so long as it is implemented at any time prior to the one-year anniversary of the Meeting (the "Adoption of New M&A upon Each Share Consolidation")."

---

| |
|:---|
| Certified by: |
| /s/ Lingyi Kong |
| Name: KONG Lingyi Director |
| ERAYAK Power Solution Group Inc. |

---

Date: 5 February 2026

---

| | |
|:---|:---|
|  | ![](ex1-1_001.jpg) |
|  | *Filed: 20-Apr-2026 15:55 EST* |
| *www.verify.gov.ky File#: 352596* | *Auth Code: K70082363312* |

---

## Exhibit 2.2

**Exhibit 2.2**

**Description of Rights of Each Class of Securities<br> Registered under Section 12 of the Securities Exchange Act of 1934, as Amended (the "Exchange Act")**

Class A ordinary shares of par value of US$0.22 each ("Class A Ordinary Shares"), of ERAYAK Power Solution Group Inc. ("we," "our," "our company," or "us") are listed and traded on the Nasdaq Capital Market, and in connection with this listing (but not for trading), its Class A Ordinary Shares are registered under Section 12(b) of the Exchange Act. This exhibit contains a description of the rights of the holders of Class A Ordinary Shares.

**Description of Class A Ordinary Shares**

The following is a summary of material provisions of our currently effective fifth amended and restated memorandum of association and articles of association of the Company (the "Memorandum and Articles of Association"), as well as the Companies Act (Revised) of the Cayman Islands (the "Cayman Companies Act") insofar as they relate to the material terms of our Class A Ordinary Shares. Notwithstanding this, because it is a summary, it may not contain all the information that you may otherwise deem important. For more complete information, you should read the entire Memorandum and Articles of Association, which have been filed with the U.S. Securities and Exchange Commission as exhibits to our current report on Form 6-K filed on April 20, 2026.

*Note Regarding Share Consolidation: On February 5, 2026, the shareholders of the Company approved, at an extraordinary general meeting of shareholders, the authorization of the board of directors to implement one or more share consolidations at a consolidation ratio of not less than 1-for-10 and not more than 1-for-500, with the exact ratio and effective date to be determined by the board of directors in its sole discretion at any time prior to the one-year anniversary of the meeting.*

*On March 25, 2026, the board of directors of the Company approved a share consolidation at a ratio of 1-for-10 (the "Share Consolidation"), such that every ten (10) class A ordinary shares of par value of US$0.022 each be consolidated into one (1) class A ordinary share of par value of US$0.22 and every ten (10) class B ordinary shares of par value of US$0.022 each be consolidated into one (1) class B ordinary share of par value of US$0.22, becoming effective on 25 March 2026. As a result, the Company's authorized share capital be changed to US$220,000,000 divided into 1,000,000,000 ordinary shares of par value of US$0.22 each, comprising (a) 900,000,000 class A ordinary shares of par value of US$0.22 each and (b) 100,000,000 class B ordinary shares of par value of US$0.22 each ("Class B Ordinary Shares").*

 

*All share and per share figures in this exhibit reflect the Share Consolidation on a retroactive basis.*

***Type and Class of Securities (Item 9.A.5 of Form 20-F)***

The authorized share capital of the Company is US$220,000,000 divided into 1,000,000,000 ordinary shares of par value of US$0.22 each, comprising (a) 900,000,000 class A ordinary shares of par value of US$0.22 each and (b) 100,000,000 class B ordinary shares of par value of US$0.22 each. The number of Class A ordinary shares that have been issued as of April 27, 2026, is provided on the cover of the annual report on Form 20-F for the Fiscal Year of 2025. Our Class A Ordinary Shares may be held in either certificated or uncertificated form.

***Preemptive Rights (Item 9.A.3 of Form 20-F)***

Our Class A Ordinary Shares are not subject to any pre-emptive or similar rights under the Cayman Companies Act or pursuant to the Memorandum and Articles of Association.

***Limitations or Qualifications (Item 9.A.6 of Form 20-F)***

We have a dual-class voting structure such that our ordinary shares consist of Class A Ordinary Shares and Class B Ordinary Shares. 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. Class B Ordinary Shares shall not have any economic interest (save for the right to repayment of capital on a winding up) and are not convertible into Class A Ordinary Shares or any other class of shares under any circumstances. Class A Ordinary Shares are not convertible into Class B Ordinary Shares under any circumstances.

On a winding up of the Company:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a. each Class A Ordinary Share shall confer upon the holder thereof
the right to repayment of capital in accordance with the Memorandum and Articles of Association and the right to participate in the profits
or surplus assets of the Company in accordance with the Memorandum and Articles of Association; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b. each Class B Ordinary Share shall confer upon the holder thereof
the right to repayment of capital in accordance with the Memorandum and Articles of Association but shall confer no other right to participate
in the profits or surplus assets of the Company.

Each Class A Ordinary Share confers upon the holder thereof the right to receive dividends as provided for in the Memorandum and Articles of Association. Class B Ordinary Shares do not confer upon the holders thereof any rights to receive dividends.

Due to the super voting power of holders of Class B Ordinary Shares, the voting power of the Class A Ordinary Shares may be materially limited.

***Rights of Other Types of Securities (Item 9.A.7 of Form 20-F)***

Not applicable.

***Rights of Class A Ordinary Shares (Item 10.B.3 of Form 20-F)***

*Classes of Ordinary Shares*

The authorized share capital of the Company is US$220,000,000 divided into 1,000,000,000 ordinary shares of par value of US$0.22 each, comprising (a) 900,000,000 class A ordinary shares of par value of US$0.22 each and (b) 100,000,000 class B ordinary shares of par value of US$0.22 each. Holders of Class A Ordinary Shares and Class B Ordinary Shares have the same rights except for voting right, economic right, and conversion rights.

*Dividends*

The Memorandum and Articles of Association provide that subject to any rights and restrictions for the time being attached to any shares, the directors may from time to time declare dividends (including interim dividends) and other distributions on shares in issue and authorize payment of the same out of the funds of the Company lawfully available therefor. In addition, subject to any rights and restrictions for the time being attached to any shares, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. Under the laws of the Cayman Islands, our Company may pay a dividend out of profit and/or share premium account; provided that in no circumstances may a dividend be paid out of our share premium if this would result in our Company being unable to pay its debts as they fall due in the ordinary course of business.

The directors may determine that a dividend shall be paid wholly or partly by the distribution of specific assets (which may consist of the shares or securities of any other company) and may settle all questions concerning such distribution.

No dividend shall bear interest against the Company.

*Voting Rights*

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 shareholders. 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. Votes may be given either personally or by proxy.

*Conversion Rights*

Class B Ordinary Shares shall not have any economic interest (save for the right to repayment of capital on a winding up) and are not convertible into Class A Ordinary Shares or any other class of shares under any circumstances. Class A Ordinary Shares are not convertible into Class B Ordinary Shares under any circumstances.

 

*Calls on shares and forfeiture*

 

Subject to the terms of allotment, our board of directors may from time to time make calls upon shareholders for any moneys unpaid on their shares, and each shareholder shall (subject to receiving at least fourteen calendar days' notice specifying the time or times of payment) pay to the Company at the time or times so specified the amount called on such shares. The joint holders of a Share shall be jointly and severally liable to pay calls in respect thereof. If a sum called in respect of a share is not paid before or on the day appointed for payment thereof, the person from whom the sum is due shall pay interest upon the sum at the rate of eight percent per annum from the day appointed for the payment thereof to the time of the actual payment, but the directors shall be at liberty to waive payment of that interest wholly or in part.

The directors may make arrangements with respect to the issue of partly paid shares for a difference between the shareholders, or the particular shares, in the amount of calls to be paid and in the times of payment.

The Company has a first and paramount lien on every share (whether or not fully paid) for all amounts (whether presently payable or not) payable at a fixed time or called in respect of that share. The Company also has a first and paramount lien on every share registered in the name of a person indebted or under liability to the Company (whether he is the sole registered holder of a share or one of two or more joint holders) for all amounts owing by him or his estate to the Company (whether or not presently payable). Our board of directors may at any time declare a share to be wholly or in part exempt from the provisions of the Memorandum and Articles of Association. The Company's lien on a share extends to any amount payable in respect of it, including but not limited to dividends.

The Company may sell, in such manner as the directors in their absolute discretion think fit, any share on which the Company has a lien, but no sale shall be made unless an amount in respect of which the lien exists is presently payable nor until the expiration of fourteen calendar days after a notice in writing, demanding payment of such part of the amount in respect of which the lien exists as is presently payable, has been given to the registered holder for the time being of the share, or the persons entitled thereto by reason of his death or bankruptcy.

*Unclaimed Dividend*

Any dividend unclaimed after a period of six calendar years from the date of declaration of such dividend may be forfeited by the board of directors and, if so forfeited, shall revert to the Company.

 

*Forfeiture or Surrender of Shares*

 

If a shareholder fails to pay any call or instalment of a call in respect of partly paid shares on the day appointed for payment, the directors may, at any time thereafter during such time as any part of such call or instalment remains unpaid, serve a notice on him requiring payment of so much of the call or instalment as is unpaid, together with any interest which may have accrued.

The notice shall name a further day (not earlier than the expiration of fourteen calendar days from the date of the notice) on or before which the payment required by the notice is to be made, and shall state that in the event of non-payment at or before the time appointed, the shares in respect of which the call was made will be liable to be forfeited.

If the requirements of any such notice as aforesaid are not complied with, any share in respect of which the notice has been given may at any time thereafter, before the payment required by notice has been made, be forfeited by a resolution of the directors to that effect. A forfeited share may be sold or otherwise disposed of on such terms and in such manner as the directors think fit, and at any time before a sale or disposition the forfeiture may be cancelled on such terms as the directors think fit.

A person whose shares have been forfeited shall cease to be a shareholder in respect of the forfeited shares, but shall, notwithstanding, remain liable to pay to the Company all moneys which at the date of forfeiture were payable by him to the Company in respect of the shares forfeited, but his liability shall cease if and when the Company receives payment in full of the amount unpaid on the shares forfeited.

A certificate in writing under the hand of a director that a share has been duly forfeited on a date stated in the certificate shall be conclusive evidence of the facts in the declaration as against all persons claiming to be entitled to the share.

 

*Share Premium Account*

The directors shall in accordance with the Cayman Companies Act establish a share premium account and shall carry to the credit of such account from time to time a sum equal to the amount or value of the premium paid on the issue of any share.

 

*Redemption and Purchase of Own Shares*

Subject to the Cayman Companies Act and the Memorandum and Articles of Association, the Company may:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) issue shares that are to be redeemed or are liable to be redeemed
at the option of the shareholder or the Company. The redemption of shares shall be effected in such manner and upon such terms as may
be determined, before the issue of such shares, by the board;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) purchase its own shares (including any redeemable shares)
on such terms and in such manner and terms as have been approved by the board, or are otherwise authorised by our memorandum and articles
of association; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) make a payment in respect of the redemption or purchase of
its own shares in any manner permitted by the Cayman Companies Act, including out of capital.

*Transfer of Shares*

Subject to any applicable requirements set forth in the Memorandum and Articles of Association and provided that a transfer of ordinary shares complies with applicable rules of the Nasdaq, any of our shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer in the usual or common form or in a form prescribed by Nasdaq or in any other form approved by our board of directors, executed by or on behalf of the transferor and if in respect of a nil or partly paid up share, or if so required by the directors, shall also be executed on behalf of the transferee and shall be accompanied by the certificate (if any) of the shares to which it relates and such other evidence as the directors may reasonably require to show the right of the transferor to make the transfer.

The transferor shall be deemed to remain a shareholder until the name of the transferee is entered in the register of members in respect of the relevant shares.

Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which we have a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:

● the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer;

● the instrument of transfer is in respect of only one class of ordinary shares;

● the instrument of transfer is properly stamped, if required;

● in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not exceed four; and

● a fee of such maximum sum as Nasdaq may determine to be payable, or such lesser sum as the board of directors may from time to time require, is paid to us in respect thereof.

If our directors refuse to register a transfer they shall, within two calendar months after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal.

The registration of transfers may, after compliance with any notice required by the applicable rules of the Nasdaq, be suspended and our register of members closed at such times and for such periods as our board of directors may in their absolute discretion, from time to time determine, provided always that such registration of transfer shall not be suspended nor the register of members closed for more than forty calendar days in any calendar year.

*Capitalization of Profits*

 

Subject to the Companies Act, the directors may:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) resolve to capitalize an amount standing to the credit of reserves (including a share premium account, capital redemption reserve
and profit and loss account), which is available for distribution;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) appropriate the sum resolved to be capitalised to the shareholders in proportion to the nominal amount of shares (whether or not fully
paid) held by them respectively and apply that sum on their behalf in or towards:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) paying up the amounts (if any) for the time being unpaid
on shares held by them respectively, or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) paying up in full unissued shares or debentures of a nominal
amount equal to that sum,and allot the shares or debentures, credited as fully paid, to the shareholders (or as they may direct) in those
proportions, or partly in one way and partly in the other, but the share premium account, the capital redemption reserve and profits
which are not available for distribution may, only be applied in paying up unissued shares to be allotted to shareholders credited as
fully paid;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) make any arrangements they think fit to resolve a difficulty
arising in the distribution of a capitalised reserve and in particular, without limitation, where shares or debentures become distributable
in fractions the directors may deal with the fractions as they think fit;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) authorise a person to enter (on behalf of all the shareholders
concerned) into an agreement with the Company providing for either:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) the allotment to the shareholders respectively, credited
as fully paid, of shares or debentures to which they may be entitled on the capitalisation, or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) the payment by the Company on behalf of the shareholders
(by the application of their respective proportions of the reserves resolved to be capitalised) of the amounts or part of the amounts
remaining unpaid on their existing shares, and any such agreement made under this authority being effective and binding on all those
shareholders; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) generally do all acts and things required to give effect to
the resolution.

*Liquidation Rights*

If the Company shall be wound up the liquidator may, with the sanction of a special resolution of the Company and any other sanction required by the Cayman Companies Act, divide amongst the shareholders in species or in kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may for that purpose value any assets and determine how the division shall be carried out as between the shareholders or different classes of shareholders. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the shareholders as the liquidator, with the like sanction, shall think fit, but so that no shareholder shall be compelled to accept any asset upon which there is a liability. ****

***Requirements to Change the Rights of Holders of Ordinary Shares (Item 10.B.4 of Form 20-F)***

*Variation of Rights of Shares*

Whenever the capital of our Company is divided into different classes the rights attached to any such class may, subject to any rights or restrictions for the time being attached to any class, only be materially and adversely varied with the consent in writing of the holders of two-thirds of the issued shares of that class or with the sanction of a special resolution passed at a separate meeting of the holders of the shares of that class.

The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, subject to any rights or restrictions for the time being attached to the shares of that class, be deemed to be materially and adversely varied by, inter alia, the creation, allotment or issue of further shares ranking *pari passu* with or subsequent to them or the redemption or purchase of any shares of any class by our Company.

***Limitations on the Rights to Own Ordinary Shares (Item 10.B.6 of Form 20-F)***

There are no limitations under the laws of the Cayman Islands or under the Memorandum and Articles of Association that limit the right of non-resident or foreign owners to hold or vote ordinary shares.

***Provisions Affecting Any Change of Control (Item 10.B.7 of Form 20-F)***

*Anti-Takeover Provisions*

Some provisions of our Memorandum and Articles of Association may discourage, delay, or prevent a change in control of our company or management that shareholders may consider favorable, including provisions that authorize our board of directors to issue shares at such times and on such terms and conditions as the board of directors may decide without any further vote or action by our shareholders.

Under the Cayman Companies Act, our directors may only exercise the rights and powers granted to them under our Memorandum and Articles of Association for what they believe in good faith to be in the best interests of our company and for a proper purpose.

***Ownership Threshold (Item 10.B.8 of Form 20-F)***

There are no provisions under the Cayman Companies Act or under the Memorandum and Articles of Association that govern the ownership threshold above which shareholder ownership must be disclosed.

***Differences Between the Law of Different Jurisdictions (Item 10.B.9 of Form 20-F)***

The Cayman Companies Act is derived, to a large extent, from the older Companies Acts of England and Wales but does not follow recent United Kingdom statutory enactments, and accordingly there are significant differences between the Cayman Companies Act and the current Companies Act of England and Wales. In addition, the Cayman Companies Act differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of certain significant differences between the provisions of the Cayman Companies Act applicable to us and the comparable laws applicable to companies incorporated in the State of Delaware in the United States.

*Mergers and Similar Arrangements*

The Cayman Companies Act permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies. For these purposes, (a) "merger" means the merging of two or more constituent companies and the vesting of their undertaking, property, and liabilities in one of such companies as the surviving company, and (b) a "consolidation" means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and liabilities of such companies to the consolidated company. In order to effect such a merger or consolidation, the directors of each constituent company must approve a written plan of merger or consolidation, which must then be authorized by (a) a special resolution of the shareholders of each constituent company, and (b) such other authorization, if any, as may be specified in such constituent company's articles of association. The plan must be filed with the Registrar of Companies together with a declaration as to the solvency of the consolidated or surviving company, a list of the assets and liabilities of each constituent company, and an undertaking that a copy of the certificate of merger or consolidation will be given to the shareholders and creditors of each constituent company and that notification of the merger or consolidation will be published in the Cayman Islands Gazette. Court approval is not required for a merger or consolidation which is effected in compliance with these statutory procedures.

A merger between a Cayman Islands parent company and its Cayman Islands subsidiary or subsidiaries does not require authorization by a resolution of shareholders. For this purpose, a subsidiary is a company of which at least 90% of the issued shares entitled to vote are owned by the parent company.

The consent of each holder of a fixed or floating security interest of a constituent company is required unless this requirement is waived by a court in the Cayman Islands.

Save in certain circumstances, a dissentient shareholder of a Cayman constituent company is entitled to payment of the fair value of his shares upon dissenting to a merger or consolidation. The exercise of appraisal rights will preclude the exercise of any other rights save for the right to seek relief on the grounds that the merger or consolidation is void or unlawful.

Reconstructions and amalgamations may be approved by (i) 75% in value of the members or class of members or (ii) a majority in number representing 75% in value of the creditors or class of creditors, in each case depending on the circumstances, as are present at a meeting called for such purpose and thereafter sanctioned by the Grand Court of the Cayman Islands. Whilst a dissenting member has the right to express to the court his view that the transaction for which approval is being sought would not provide the members with a fair value for their shares, it can be expected that the court would approve the transaction if it is satisfied that (i) the company is not proposing to act illegally or beyond the scope of its corporate authority and the statutory provisions as to majority vote have been complied with, (ii) the members have been fairly represented at the meeting in question, (iii) the transaction is such as a businessman would reasonably approve and (iv) the transaction is not one that would more properly be sanctioned under some other provisions of the Cayman Companies Act or that would amount to a "fraud on the minority". If the transaction is approved, no dissenting member would have any rights comparable to the appraisal rights (namely the right to receive payment in cash for the judicially determined value of his shares), which may be available to dissenting members of corporations in other jurisdictions.

The Cayman Companies Act also contains a statutory power of compulsory acquisition which may facilitate the "squeeze out" of dissentient minority shareholder upon a tender offer. When a tender offer is made and accepted by holders of not less than ninety percent (90%) in value of the shares affected within four months, the offeror may, within a two-month period commencing on the expiration of such four-month period, require the holders of the remaining shares to transfer such shares to the offeror on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands, but it is unlikely to succeed in the case of an offer which has been so accepted unless there is evidence of fraud, bad faith or collusion.

If an arrangement and reconstruction is thus approved, the dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash for the judicially determined value of the shares.

*Shareholders' Suits*

In principle, we will normally be the proper plaintiff to sue for a wrong done to us as a company, and as a general rule, a derivative action may not be brought by a minority shareholder. However, based on English law authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, the Cayman Islands courts can be expected to follow and apply the common law principles (namely the rule in Foss v. Harbottle and the exceptions thereto) so that a non-controlling shareholder may be permitted to commence a class action against or derivative actions in the name of the company to challenge:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) an act which is illegal or ultra vires with respect to the company and is therefore incapable of ratification by the shareholders;

(b) an act which, although not ultra vires, requires authorization by a qualified (or special) majority (that is, more than a simple majority) which has not been obtained; and

(c) an act which constitutes a "fraud on the minority" where the wrongdoers are themselves in control of the company.

*Indemnification of Directors and Executive Officers and Limitation of Liability*

The Cayman Islands law does not limit the extent to which a company's articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our Memorandum and Articles of Association provide that every director (including any alternate director), secretary, assistant secretary, or other officer for the time being and from time to time of our company (but not including our company's auditors) and the personal representatives of the same (each an "Indemnified Person") shall be indemnified and secured harmless against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by such Indemnified Person, other than by reason of such Indemnified Person's own dishonesty, willful default or fraud, in or about the conduct of our company's business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such Indemnified Person in defending (whether successfully or otherwise) any civil proceedings concerning our company or its affairs in any court whether in the Cayman Islands or elsewhere.

This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation. In addition, we intend to enter into indemnification agreements with our directors and executive officers that will provide such persons with additional indemnification beyond that provided in our Memorandum and Articles of Association.

*Directors' Fiduciary Duties*

Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director act in a manner he or she reasonably believes to be in the best interests of the corporation. He or she must not use his or her corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interests of the corporation and its shareholders take precedence over any interest possessed by a director, officer, or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, a director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.

As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company and therefore it is considered that he owes the following duties to the company — a duty to act in good faith in the best interests of the company, a duty not to make a personal profit based on his position as director (unless the company permits him to do so), a duty not to put himself in a position where the interests of the company conflict with his personal interest or his duty to a third party and a duty to exercise powers for the purpose for which such powers were intended. A director of a Cayman Islands company owes to the company a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.

*Shareholder Proposals*

Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. The Delaware General Corporation Law does not provide shareholders an express right to put any proposal before the annual meeting of shareholders, but in keeping with common law, Delaware corporations generally afford shareholders an opportunity to make proposals and nominations provided that they comply with the notice provisions in the certificate of incorporation or bylaws. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.

The Cayman Companies Act provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company's articles of association. The Memorandum and Articles of Association allow any one or more of our shareholders holding at the date of deposit of the requisition shares which carry in aggregate not less than one-tenth (1/10) of the total number of votes attaching to all issued and outstanding shares that as at the date of the deposit carry the right to vote at general meetings of the Company to requisition an extraordinary general meeting of our shareholders, in which case the chairman or a majority of the directors (acting by a resolution of the board) may proceed to convene an extraordinary general meeting. As a Cayman Islands exempted company, we are not obliged by law to call annual general meetings.

*Cumulative Voting*

Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation's certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder's voting power with respect to electing such director. As permitted under the Cayman Companies Act, our Memorandum and Articles of Association do not provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.

*Removal of Directors*

Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under the Memorandum and Articles of Association, directors may be removed by an ordinary resolution, notwithstanding anything in our memorandum and articles of association or in any agreement between the Company and such director (but without prejudice to any claim for damages under such agreement).

*Transactions with Interested Shareholders*

The Delaware General Corporation Law contains a business combination statute applicable to Delaware public corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation or bylaws that is approved by its shareholders, it is prohibited from engaging in certain business combinations with an "interested shareholder" for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target's outstanding voting stock or who or which is an affiliate or associate of the corporation and owned 15% or more of the corporation's outstanding voting stock within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target's board of directors.

Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, the directors of the company are required to comply with fiduciary duties which they owe to the company under Cayman Islands laws, including the duty to ensure that, in their opinion, any such transactions must be entered into bona fide in the best interests of the company, and are entered into for a proper corporate purpose and not with the effect of constituting a fraud on the minority shareholders.

*Dissolution; Winding Up*

Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation's outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board of directors.

Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of its members or, if the company is unable to pay its debts as they fall due, by an ordinary resolution of its members. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so.

*Variation of Rights of Shares*

Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under the Cayman Companies Act and our Memorandum and Articles of Association, whenever the capital of the Company is divided into different classes the rights attached to any such class may, subject to any rights or restrictions for the time being attached to any class, only be materially and adversely varied with the consent in writing of the holders of two-thirds of the issued shares of that class or with the sanction of a special resolution passed at a separate meeting of the holders of the shares of that class.

*Amendment of Governing Documents*

Under the Delaware General Corporation Law, a corporation's certificate of incorporation may be amended only if adopted and declared advisable by the board of directors and approved by a majority of the outstanding shares entitled to vote, and the bylaws may be amended with the approval of a majority of the outstanding shares entitled to vote and may, if so provided in the certificate of incorporation, also be amended by the board of directors. Under the Cayman Companies Act, our Memorandum and Articles of Association may only be amended by special resolution of our shareholders.

***Changes in Capital (Item 10.B.10 of Form 20-F)***

Subject to the Cayman Companies Act, the Company may, by ordinary resolution:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) increase its share capital by new shares of such amount as
it thinks appropriate;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) consolidate and divide all or any of its share capital into
shares of a larger amount than its existing shares;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) divide its shares into several classes and without prejudice
to any special rights previously conferred on the holders of existing shares attach thereto respectively any preferential, deferred,
qualified or special rights, privileges, conditions or such restrictions which in the absence of any such determination by the Company
in general meeting, as the directors may determine provided always that, for the avoidance of doubt, where a class of shares has been
authorised by the Company, no resolution of the Company in general meeting is required for the issuance of shares of that class and the
directors may issue shares of that class and determine such rights, privileges, conditions or restrictions attaching thereto as aforesaid,
and further provided that where the Company issues shares which do not carry voting rights, the words "non-voting" shall
appear in the designation of such shares and where the equity capital includes shares with different voting rights, the designation of
each class of shares, other than those with the most favourable voting rights, must include the words "restricted voting"
or "limited voting";

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) subdivide its shares, or any of them, into shares of an amount
smaller than that fixed by the memorandum, provided that in the subdivision the proportion between the amount paid and the amount, if
any, unpaid on each reduced share shall be the same as it was in case of the share from which the reduced share is derived; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) cancel any shares that, at the date of the passing of the
resolution, have not been taken or agreed to be taken by any person and diminish the amount of its share capital by the amount of the
shares so cancelled.

The Company may by special resolution reduce its share capital and any capital redemption reserve in any manner authorized by the Cayman Companies Act.

**Debt Securities (Item 12.A of Form 20-F)**

Not applicable.

**Warrants and Rights (Item 12.B of Form 20-F)**

Not applicable.

**Other Securities (Item 12.C of Form 20-F)**

Not applicable.

**Description of American Depositary Shares (Items 12.D.1 and 12.D.2 of Form 20-F)**

Not applicable.

## Exhibit 8.1

**Exhibit 8.1**

**SUBSIDIAIRES OF ERAYAK POWER<br> SOLUTION GROUP INC.**

---

| | | | |
|:---|:---|:---|:---|
| **Subsidiaries** | **Place of Incorporation** | **Incorporation Time** | **Percentage<br> Ownership** |
| Erayak Power Solution Limited | British Virgin Islands | June 17, 2019 | 100% |
| Erayak Power Solution Hong Kong Limited | Hong Kong SAR | June 26, 2019 | 100% |
| Wenzhou Wenjie Information Technology Co. Ltd. | People's Republic of China | December 11, 2019 | 100% |
| Zhejiang Leiya Electronics Co. Ltd. | People's Republic of China | March 5, 2009 | 100% |
| Wenzhou New Focus Technology & Electronic Co., Ltd. | People's Republic of China | November 21, 2012 | 100% |
| Ruike Electronics (Wenzhou) Co., Ltd. | People's Republic of China | December 5, 2023 | 100% |
| Nexora Group Inc. | State of Nevada, USA | October 7, 2025 | 100% |

---

## Exhibit 12.1

**Exhibit 12.1**

**CERTIFICATION OF CHIEF EXECUTIVE OFFICER**

**PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302**

**OF THE SARBANES-OXLEY ACT OF 2002**

I, Lingyi Kong, certify that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. I have reviewed this Annual Report on Form 20-F for the fiscal year ended December 31, 2025 of Erayak Power Solution Group Inc.;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

---

| | | |
|:---|:---|:---|
|  | **Erayak Power Solution Group Inc.** | **Erayak Power Solution Group Inc.** |
| Dated: April 29, 2026 | By: | */s/ Lingyi Kong* |
|  |  | Lingyi Kong |
|  |  | Chief Executive Officer |
|  |  | (Principal Executive Officer) |

---

## Exhibit 12.2

**Exhibit 12.2**

**CERTIFICATION OF CHIEF FINANCIAL OFFICER**

**PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302**

**OF THE SARBANES-OXLEY ACT OF 2002**

I, Lanling Gu, certify that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. I have reviewed this Annual Report on Form 20-F for the fiscal year ended December 31, 2025 of Erayak Power Solution Group Inc.;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

---

| | | |
|:---|:---|:---|
|  | **Erayak Power Solution Group Inc.** | **Erayak Power Solution Group Inc.** |
| Dated: April 29, 2026 | By: | */s/ Lanling Gu* |
|  |  | Lanling Gu |
|  |  | Chief Financial Officer |
|  |  | (Principal Financial Officer and<br> Principal Accounting Officer) |

---

## Exhibit 13.1

**Exhibit 13.1**

**Certification by the Principal Executive Officer**

**Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**

I, Lingyi Kong, Chief Executive Officer of Erayak Power Solution Group Inc. (the "Company"), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

&nbsp;&nbsp;&nbsp;&nbsp;a. the Company's annual report on Form 20-F for the fiscal
year ended December 31, 2025 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and

&nbsp;&nbsp;&nbsp;&nbsp;b. the information contained in the Report fairly presents,
in all material respects, the financial condition and results of operations of the Company for the periods presented therein.

---

| | | |
|:---|:---|:---|
| Date: April 29, 2026 | Date: April 29, 2026 | Date: April 29, 2026 |
| By: | */s/ Lingyi Kong* | */s/ Lingyi Kong* |
|  | Name: | Lingyi Kong |
|  | Title: | Chief Executive Officer |

---

## Exhibit 13.2

**Exhibit 13.2**

**CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER**

**PURSUANT TO 18 U.S.C. SECTION 1350**

**AS ADOPTED PURSUANT TO SECTION 906**

**OF THE SARBANES-OXLEY ACT of 2002**

In connection with the Annual Report of Erayak Power Solution Group Inc. (the "Company") on Form 20-F for the fiscal year ended December 31, 2025 as filed with the Securities and Exchange Commission on the date hereof (the "Annual Report"), Lanling Gu, Chief Financial Officer of the Company, certifies, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:

&nbsp;&nbsp;&nbsp;&nbsp;1. The Annual Report, fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

&nbsp;&nbsp;&nbsp;&nbsp;2. The information contained in the Annual Report fairly presents,
in all material respects, the financial condition and results of operations of the Company.

---

| | | |
|:---|:---|:---|
|  | **Erayak Power Solution Group Inc.** | **Erayak Power Solution Group Inc.** |
| Dated: April 29, 2026 | By: | */s/ Lanling Gu* |
|  |  | Lanling Gu |
|  |  | Chief Financial Officer |
|  |  | (Principal Accounting Officer) |

---

## Exhibit 15.1

**Exhibit 15.1**

---

| | |
|:---|:---|
| ![](ex15-1_001.jpg) | **800 Parker Square STE 215C<br> Flower Mound, TX 75028<br> Tel: 214.984.0239<br> Fax: 469.519.1624** |

---

**CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

We consent to the inclusion in this Registration Statement of Erayak Power Solution Group Inc on Form 20-F of our report dated April 29, 2026, with respect to the consolidated balance sheets of Erayak Power Solution Group Inc, and its subsidiaries as of December 31, 2025, and the related consolidated statements of operation and comprehensive loss/income, changes in shareholders' equity and cash flows for the years then ended, and the related notes (collectively referred to as the financial statements), which appears in such Registration Statement. We also consent to the reference to our firm under the heading "Experts" in such Registration Statement.

/s/ Tang Qian & Associates, PLLC

Dallas, Texas

April 29, 2026

## Exhibit 15.2

**Exhibit 15.2**

---

| | |
|:---|:---|
| ![](ex15-2_001.jpg) | 12341 Lewis St Ste 202 Garden Grove, CA 92840<br> Phone (714)-820-3316 Fax (714)-333-4992 |

---

**CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

We consent to the inclusion in this annual report of Erayak Power Solution Group Inc. (the "Company") on Form 20-F of our report dated April 29, 2026, with respect to the consolidated balance sheets of Erayak Power Solution Group Inc. as of December 31, 2024, and the related consolidated statements of operation and comprehensive loss, changes in shareholders' equity and cash flows for the year ended December 31, 2024, and the related notes (collectively referred to as the financial statements), which appears in form 20-F. We also consent to the reference to our firm under the heading "Experts" in such Registration Statement..

Fortune CPA Inc.,

Garden Grove, CA

April 29, 2026