20-F: Jiuzi Holdings Inc. Files 20-F, Details Financial Performance and Strategic Outlook

Jiuzi Holdings Inc. released its 20-F filing, outlining its financial results for the fiscal year ended October 31, 2023, and discussing various risk factors and business strategies.

Summary

• Jiuzi Holdings Inc., a Cayman Islands-incorporated company, conducts its business through PRC subsidiaries, franchising and operating retail stores for new energy vehicles (NEVs) in China.
• As of October 31, 2023, the company had 72 operating franchise stores and two company-owned stores.
• The company's revenue streams include NEV sales, initial franchisee fees (RMB 4,000,000 or approximately US$575,500 per store), and ongoing royalties (10% of net income from franchisees).
• For the year ended October 31, 2023, revenue was $5,931,000, cost of revenue was $4,592,471, and the net loss was $9,853,772.
• The company is implementing strategies to expand its franchise network, convert existing 4S stores, develop an online-offline platform, and establish display and distribution centers.
• The company faces risks related to the Chinese automotive industry, dependence on supplier collaborations, consumer adoption of electric vehicles, and PRC regulations.
• The company's internal control over financial reporting was deemed ineffective as of October 31, 2023, due to insufficient accounting and finance personnel with U.S. GAAP experience.
• The company plans to implement remedial actions to strengthen its accounting and financial reporting functions.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While the company is implementing strategic initiatives and has seen some revenue growth, the significant net loss, ineffective internal controls, and various risk factors contribute to a negative sentiment.

Positives

• The company is implementing strategies to expand its franchise network and develop an online-offline platform.
• The company is focused on reducing overall costs through better vehicle sourcing channels.
• The company is strengthening its brand recognition through the Jiuzi New Energy Vehicles Life Club.
• The company is working to improve its internal control over financial reporting.

Negatives

• The company reported a net loss of $9,853,772 for the year ended October 31, 2023.
• The company's internal control over financial reporting was deemed ineffective as of October 31, 2023, due to insufficient accounting and finance personnel with U.S. GAAP experience.
• The company faces risks related to the Chinese automotive industry, dependence on supplier collaborations, and PRC regulations.

Risks

• The company relies on China's automotive industry for its net revenues and future growth, which is subject to uncertainties.
• The company's business is substantially dependent on collaboration with suppliers, and agreements with them typically do not contain long-term contractual commitments.
• The company may be affected by perceptions about electric vehicle quality, safety, design, performance, and cost.
• The company may be affected by the limited range over which electric vehicles may be driven on a single battery charge and the speed at which batteries can be recharged.
• The electric vehicle market development relies on the electric grid capacity and reliability.
• The unavailability, reduction or elimination of government and economic incentives could have a material adverse effect on the company's business.
• The company may fail to successfully grow or operate its franchise business.
• The company depends on certain key personnel, and the loss of these key personnel could have a material adverse effect on its business.
• The company may not be able to hire and retain qualified personnel to support its growth.
• The company may encounter operational risks originating from its inability to collect advances paid to its suppliers in the event of the suppliers default.
• The company is a Cayman Islands incorporated holding company, and investors are cautioned that they are not buying shares of a China-based operating company but instead are buying shares of a Cayman Islands holding company with operations conducted by its subsidiaries.
• The company's current corporate structure and business operations may be substantially affected by the newly enacted Foreign Investment Law.
• The approval or filing requirement of the China Securities Regulatory Commission may be required in connection with any future offing the company may conduct, and, if required, the company cannot predict whether it will be able to obtain such approval or complete such filings.
• 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.
• PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies may delay or prevent the company from using proceeds from the offering and/or future financing activities to make loans or additional capital contributions to its PRC operating subsidiaries.
• Adverse changes in political and economic policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could reduce the demand for the company's products and services and materially and adversely affect its competitive position.
• Under the Enterprise Income Tax Law, the company may be classified as a Resident Enterprise of China.
• The company may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption law.
• Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and that rules and regulations in China can change quickly with little advance notice could adversely affect the company and limit the legal protections available to you and us at any time, which could result in a material change in our operations and/or the value of our securities.
• Governmental control of currency conversion may affect the value of your investment.
• The company is a holding company and it relies on its subsidiaries for funding dividend payments, which are subject to restrictions under PRC laws.
• Our business may be materially and adversely affected if any of our PRC subsidiaries declare bankruptcy or become subject to a dissolution or liquidation proceeding.
• Substantial uncertainties exist with respect to the interpretation and implementation of the PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.
• The Chinese government exerts substantial influence over the manner in which we must conduct our business activities.
• Fluctuations in exchange rates could adversely affect our business and the value of our securities.
• Increases in labor costs in the PRC may adversely affect our business and results of operations.
• Part of our shareholders are not in compliance with the PRCs regulations relating to offshore investment activities by PRC residents, and as a result, the shareholders may be subject to penalties if we are not able to remediate the non-compliance.
• We may become subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection.
• If the custodians or authorized users of our controlling non-tangible assets, including chops and seals, fail to fulfill their responsibilities, or misappropriate or misuse these assets, our business and operations may be materially and adversely affected
• 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, and our reputation and could result in a loss of your investment in our ordinary shares, especially if such matter cannot be addressed and resolved favorably.
• You may face difficulties in protecting your interests and exercising your rights as a stockholder since we conduct substantially all of our operations in China, and almost all of our officers and directors reside outside the U.S.
• Our financial and operating performance may be adversely affected by general economic conditions, natural catastrophic events, epidemics, public health crises, and a downturn in NEV purchase behavior.
• 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.
• 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 approval of the China Securities Regulatory Commission may be required in connection with any overseas offering, and, if required, we cannot predict whether we will be able to obtain such approval.
• Our Chariman of the Board Shuibo Zhang has significant influence over us, including control over decisions that require the approval of shareholders, which could limit your ability to influence the outcome of matters submitted to shareholders for a vote.
• Because we do not expect to pay dividends in the foreseeable future, you must rely on a price appreciation of the ordinary shares for a return on your investment.
• The trading price of the ordinary shares is volatile, which could result in substantial losses to investors.
• We may experience extreme stock price volatility, including any stock-run up, unrelated to our actual or expected operating performance, financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our ordinary shares.
• The sale or availability for sale of substantial amounts of ordinary shares could adversely affect their market price.
• Techniques employed by short sellers may drive down the market price of the ordinary shares.
• If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for the ordinary shares and trading volume could decline.
• Our memorandum and articles of association contain anti-takeover provisions that could materially adversely affect the rights of holders of our ordinary shares.
• We are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reduced reporting requirements.
• We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies.
• There can be no assurance we will not be a passive foreign investment company (PFIC), for any taxable year, which could result in adverse U.S. federal income tax consequences to U.S. investors in our ordinary shares.
• Future sales of our ordinary shares may cause the prevailing market price of our shares to decrease.
• There has been and may continue to be significant volatility in the volume and price of our ordinary shares on the Nasdaq Capital Market.
• To the extent cash or assets in the business is in the PRC or Hong Kong or a PRC or Hong Kong entity, the 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 on the ability of us or our subsidiaries by the PRC government to transfer cash or assets.
• We are a controlled company within the meaning of the Nasdaq listing requirements and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.
• The Financial Action Task Forces Increased Monitoring of the Cayman Islands.
• We have a limited trading history.

Future Outlook

The company aims to build an online-offline operating system, expand its franchise network, convert existing 4S stores, and establish display and distribution centers.

Industry Context

The document provides insights into the competitive landscape of the NEV market in China, highlighting the shift from traditional fuel-driven vehicles to NEVs and the advantages of NEV franchise stores over traditional 4S stores in thirdand fourth-tier cities.

Comparison to Industry Standards

• The document mentions BYD, Geely, and Chery as NEV manufacturers, and Guoxuan Gaoke and Futesi as battery manufacturers, but does not provide specific comparisons to their performance or industry standards.
• The document notes that traditional automobile 4S stores mainly operate single-brand vehicles, while Jiuzi franchise stores provide multi-brands for consumers to choose from at competitive pricing.

Management Changes

Legal Proceedings

• The Company has filed civil claim suits against certain vendors for failing to deliver the purchased vehicles according to the terms of the agreements.

Related Party Transactions

• The franchisees are related parties of the Company due to the nominal, symbolic equity interest ownership in the franchisees.
• Accounts receivable from related franchisees are disclosed.
• Loan to related franchisees is disclosed.
• Accounts payable to related parties franchisees are disclosed.
• Contract liability related party is disclosed.
• Related parties receivables are disclosed.
• Related parties payables are disclosed.

Stakeholder Impact

• Shareholders may face difficulties in protecting their interests and exercising their rights due to the company's operations in China and the location of its officers and directors.
• The company's financial and operating performance may be adversely affected by general economic conditions, natural catastrophic events, epidemics, public health crises, and a downturn in NEV purchase behavior.

Next Steps

• The company plans to continue brand building and franchise store expansion.
• The company plans to convert existing 4S stores to franchise stores.
• The company plans to develop an online-offline technology platform and sales channel.
• The company plans to establish display centers and distribution centers.
• The company plans to reduce overall costs for its operations.
• The company plans to strengthen its brand recognition through the Jiuzi New Energy Vehicles Life Club.

Key Dates

Keywords

Jiuzi Holdings, New Energy Vehicles, Franchise, Financial Results, Risk Factors, China, NEVs, Financials, Electric Vehicles, 20-F Filing