20-F/A: Jiuzi Holdings Amends Annual Report, Reveals Soaring Losses

Jiuzi Holdings Inc. filed an amendment to its annual report, disclosing a significant increase in net loss to $55.77 million for fiscal year 2024, driven by substantial bad debt provisions and stock-based compensation.

Summary

• The company filed an Amendment No. 2 to its Annual Report on Form 20-F for the fiscal year ended October 31, 2024, primarily to include an inadvertently omitted audit report for the year ended October 31, 2022.
• Net loss increased by 1068.49% to $55,774,506 for the year ended October 31, 2024, compared to $4,773,198 for the year ended October 31, 2023.
• Total revenues for the year ended October 31, 2024, were $1,400,139, with proprietary products contributing $771,917 (55.13%) and resales of sourced equipment and accessories from third parties contributing $628,222 (44.87%). No revenues were reported for 2023 or 2022.
• Cost of revenues for 2024 was $1,328,049, resulting in a gross profit of $72,090 and a gross margin of 5.15%.
• Selling, general, and administrative expenses increased significantly to $13,697,513 in 2024 from $4,463,853 in 2023, primarily due to $12,355,200 in stock-based compensation expense.
• A provision for bad debt of $42,041,954 was recorded for the year ended October 31, 2024, up from nil in 2023, due to uncollectible advances to suppliers for undelivered vehicles.
• Cash and cash equivalents as of October 31, 2024, were $943,435, compared to $665,380 as of October 31, 2023.
• Net cash used in operating activities increased to $50,620,497 in 2024 from $5,475,912 in 2023.
• Net cash provided by financing activities was $51,174,606 in 2024, an increase of 1504.56% from $3,189,322 in 2023, mainly due to stock proceeds.
• The company's auditor noted a 'going concern' issue due to accumulated deficits of $77.8 million and operating losses of $55.8 million in 2024.
• The company disposed of several subsidiaries: Zhejiang Jiuzi New Energy Network Technology Co., Ltd. in August 2023, Hangzhou Jiuyao Bew Energy Automobile Technology Co., Ltd. in January 2024, and Jiuzi (HK) Limited in September 2024 (closed November 2024).
• The company's business strategy focuses on sales of new energy batteries and future expansion into electric two-wheelers, three-wheelers, and slow-speed cars in Southeast Asia.

Sentiment

Score: 2

Explanation: The company reported a massive increase in net loss, significant bad debt provisions, and a 'going concern' warning from its auditor, indicating severe financial distress despite some revenue generation and capital raises. The operational risks and regulatory uncertainties in China further dampen the outlook.

Positives

• The company generated $1,400,139 in total revenues for the year ended October 31, 2024, with $771,917 from proprietary products, marking a new revenue stream compared to zero revenue in prior years.
• Net cash provided by financing activities significantly increased by 1504.56% to $51,174,606 in 2024, primarily from stock proceeds, indicating successful capital raising efforts.
• The company has established a global network and aims to integrate resources and demand, leveraging its publicly listed company platform to reduce channel costs and enhance operational efficiency.
• Jiuzi Holdings has an early market entry and brand recognition in the NEV industry in China, particularly in thirdand fourth-tier cities, and has accumulated substantial resources in the new energy vehicle industry.
• The company benefits from geographical and industrial chain advantages in the Pearl River Delta Region, a significant 'Battery Capital' in China, for its new energy battery business.

Negatives

• Net loss increased dramatically by 1068.49% to $55,774,506 for the year ended October 31, 2024, from $4,773,198 in 2023.
• A substantial provision for bad debt of $42,041,954 was recorded in 2024 due to uncollectible advances to suppliers for undelivered vehicles, indicating significant operational and financial risk.
• Selling, general, and administrative expenses surged by 206.85% to $13,697,513 in 2024, largely driven by $12,355,200 in stock-based compensation.
• Net cash used in operating activities increased significantly to $50,620,497 in 2024 from $5,475,912 in 2023, reflecting substantial cash outflow from core operations.
• The company has an accumulated deficit of $77,793,056 as of October 31, 2024, and the auditor raised 'substantial doubt about the Company's ability to continue as a going concern'.
• The company relies heavily on its collaboration with suppliers, including automakers, auto dealers, and automotive service providers, but agreements typically lack long-term contractual commitments, posing a risk to business continuity.
• Two beneficial owners, who are PRC residents, have not completed the Circular 37 Registration, potentially leading to penalties and restrictions on foreign exchange activities.

Risks

• Uncertainty of interpretation and application of PRC laws and regulations, including limitations on foreign ownership and regulatory review of overseas listings, could materially change financial performance or operations.
• Potential sanctions from PRC regulatory agencies if the company fails to comply with rules and regulations, which could cause securities value to decline or become worthless.
• PRC government's recent regulatory actions and statements, including cybersecurity reviews and anti-monopoly enforcement, create high uncertainty regarding their impact on daily business operations and ability to accept foreign investments or list on U.S. exchanges.
• The Holding Foreign Companies Accountable Act (HFCAA) and Accelerating HFCAA could lead to delisting from U.S. exchanges if the PCAOB is unable to inspect the company's auditors for two consecutive years.
• Restrictions on cash transfers between the Cayman Islands holding company, Hong Kong subsidiary, and PRC subsidiaries due to PRC currency and capital transfer regulations, potentially limiting funding for operations outside of China.
• Reliance on China's automotive industry for revenues and future growth, which is subject to uncertainties from economic conditions, urbanization rates, cost of automobiles, and government policies.
• Dependence on collaboration with suppliers (automakers, auto dealers, automotive service providers) without long-term contractual commitments, posing a risk if relationships are not maintained.
• Market for electric vehicles is still relatively new and subject to fluctuations due to price competition, evolving government regulation, safety concerns (e.g., battery overheating), and limited range/recharging speed.
• Potential operational risks from inability to collect advances paid to suppliers in the event of default, as evidenced by $2,942,315 in write-offs in 2022 and $42,041,954 in 2024.
• Previous contractual arrangements related to PRC Operating Entities may be scrutinized by PRC tax authorities, potentially leading to additional taxes and penalties.
• Loss of ability to use and enjoy assets held by PRC Operating Entities if they declare bankruptcy or become subject to dissolution/liquidation proceedings.
• Uncertainties with respect to the PRC legal system, including enforcement of laws and rapid changes in rules and regulations, could adversely affect legal protections and operations.
• Chinese government intervention or influence over business activities, including potential new policies affecting the industry, could significantly limit or hinder the ability to offer securities to investors.
• Fluctuations in exchange rates (RMB against USD) could adversely affect business and the value of securities, particularly when converting U.S. dollars to RMB for operations or RMB to U.S. dollars for dividends.
• Increases in labor costs in the PRC due to the Labor Contract Law could adversely affect business and results of operations if not passed on to customers.
• Non-compliance by some PRC resident beneficial owners with SAFE Circular 37 registration requirements, potentially leading to penalties and restrictions on foreign exchange activities.
• Exposure to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption law, especially due to independent franchisees not subject to direct control.
• Risk of extreme stock price volatility, including rapid run-ups and declines, unrelated to actual operating performance, financial condition, or prospects, making it difficult for investors to assess value.
• Potential for short sellers to drive down the market price of ordinary shares through negative opinions, leading to significant resource expenditure for investigation and defense.
• As a controlled company and foreign private issuer, the company may rely on exemptions from certain Nasdaq corporate governance rules, potentially affording less protection to shareholders.

Future Outlook

The company intends to retain all available funds and future earnings for the operation and expansion of its business and does not anticipate declaring or paying any dividends in the foreseeable future. It plans to focus on sales and production of electric two-wheelers, three-wheelers, and slow-speed cars in Southeast Asia, and continue brand building and franchise store expansion in key new energy cities across mainland China. The company also aims to establish long-term partnerships with major automakers, seize opportunities in renewable energy, and explore emerging battery applications.

Management Comments

• Management believes that the actions presently being taken to obtain additional funding and implement its strategic plan provides the opportunity for the Company to continue as a going concern.
• Management believes that the Company has sufficient funds to meet its working capital requirements and debt obligations, as they will be due at least 12 months from the date of financial reporting, despite the going concern doubt.

Industry Context

The new energy battery industry is experiencing unprecedented growth, driven by the rapid adoption of electric vehicles and renewable energy development. The global power battery market exceeded $100 billion in 2022 and is projected to grow to over $500 billion by 2030. China is the largest market, accounting for over 50% of the global share. Government policies, such as China's Dual Credit policy and the U.S. Inflation Reduction Act, along with technological advancements and growing environmental awareness, are key driving factors. The industry is expected to see continued market expansion, accelerated technological innovation (e.g., solid-state and sodium-ion batteries), and globalized production layouts, with a focus on circular economy and sustainable development.

Comparison to Industry Standards

• The company's gross margin of 5.15% in 2024 for new energy battery sales is relatively low, especially considering the rapid growth and high demand in the broader new energy battery market, which typically sees higher margins for core technology providers.
• The significant provision for bad debt ($42.04 million) related to advances to suppliers for undelivered vehicles indicates a substantial operational risk and potential weakness in supply chain management or due diligence, which is not typical for well-managed companies in a rapidly growing industry.
• The company's accumulated deficit of $77.8 million and the auditor's 'going concern' warning suggest financial instability, contrasting with the overall robust growth and investment in the new energy battery sector by leading players like CATL, BYD, and LG Energy Solution, which are expanding production and R&D globally.
• While the company is expanding into Southeast Asia for electric two/three-wheelers and slow-speed cars, the filing does not provide specific comparable market data or competitive positioning against established regional players in these segments.

Management Changes

Corporate Governance

Legal Proceedings

• The company has filed civil claim suits against certain vendors for failing to deliver purchased vehicles and is seeking refunds for advances paid and liquidated damages. The collectability of these advances is uncertain, leading to a significant write-off.
• From time to time, the Company is involved in claims and legal proceedings that arise in the ordinary course of business. Management does not believe the ultimate outcome of these matters is likely to have a material adverse effect on financial position, results of operations, or cash flows as of October 31, 2024.

Related Party Transactions

• As of October 31, 2024, the amount due to related parties was $211,630, including $1,630 payable to Shuibo Zhang (shareholder, director, and officer) as an employee payable and an interest-free loan of $210,000 from Tao Li (CEO and director).
• On January 24, 2024, Hangzhou ZhiTongChe (a subsidiary) completed the transfer of its ownership interest in Hangzhou Jiuyao Bew Energy Automobile Technology Co., Ltd. to Mr. Shuibo Zhang (a related party) for approximately $6,000.

Stakeholder Impact

• Shareholders face significant risks due to the company's substantial net loss, accumulated deficit, and the auditor's 'going concern' warning, which could lead to further depreciation of share value.
• Investors are exposed to heightened regulatory risks associated with operating in China, including uncertainties in legal interpretation, capital controls, and potential delisting under the HFCAA.
• Employees may be affected by the company's financial instability, although the company states it maintains good working relationships and complies with social security and employee insurance regulations (except for housing funds in Hangzhou, where it's not mandatory).
• Suppliers face credit risk, as evidenced by the company's significant write-off of advances due to vendor defaults, potentially impacting future business relationships.
• Customers may be impacted by the company's ability to maintain stable operations and product offerings, especially if supplier relationships or financial health deteriorate.

Next Steps

• Establish subsidiaries or operational outlets in key new energy cities across mainland China (e.g., Hangzhou, Guangzhou, Hefei) to enhance brand presence and create a scale effect.
• Establish long-term partnerships with major automakers to become a core battery supplier and focus on niche markets like commercial vehicles and two-wheelers.
• Expand into home energy storage, commercial and industrial energy storage, and grid-level energy storage markets.
• Investigate the potential of batteries in emerging fields such as electric ships, electric aircraft, and drones.
• Collaborate with material suppliers, equipment manufacturers, and recycling companies to build an industrial ecosystem.
• Tailor marketing strategies to local market demands and cultural characteristics when entering international markets.
• Obtain international certifications (e.g., UL, CE) and comply with local standards for global market competitiveness.
• Develop remedial actions to strengthen accounting and financial reporting functions, including hiring additional personnel with US GAAP experience and implementing internal controls over financial reporting.

Key Dates

Recommendation

The company's financial performance for fiscal year 2024 is extremely poor, marked by a massive net loss of over $55 million, a significant provision for bad debt exceeding $42 million, and a substantial increase in operating expenses driven by stock-based compensation. The auditor's explicit 'going concern' warning, coupled with a large accumulated deficit, indicates severe financial distress and a high probability of future operational challenges or even failure. While the company has raised capital, the underlying business performance and significant uncollectible advances to suppliers raise serious questions about management's effectiveness and internal controls. The inherent regulatory and political risks of operating in China, including potential delisting under the HFCAA, further compound the negative outlook. Given these factors, a seasoned investor would likely recommend a strong sell, as the risks far outweigh any potential for recovery or growth in the near to medium term.

Keywords

New Energy Vehicles, EV Batteries, SEC Filing, 20-F/A, China Regulation, PCAOB Inspection, Going Concern, Financial Loss, Capital Raise, Share-based Compensation, Bad Debt, PRC, Nasdaq, Corporate Governance, Subsidiary Disposal