20-F: MKDWELL Tech Inc. Navigates Challenges, Reports Annual Results and Outlines Strategic Adjustments

MKDWELL Tech Inc.'s annual report reveals a year of strategic adjustments amid economic headwinds, impacting revenue and profitability.

Summary

• MKDWELL Tech Inc.'s Form 20-F filing provides an overview of the company's operations, financial performance, and risk factors.
• The company experienced a decrease in revenue, primarily due to reduced sales of manufactured electronic products and commissioned processing services.
• The report highlights challenges in the automotive market, dependence on suppliers, and potential disruptions from natural resource scarcity.
• The company is addressing cybersecurity risks and complying with relevant regulations.
• The report also discusses risks associated with doing business in China and Taiwan, including government intervention and cross-strait relations.
• The company is working to regain compliance with Nasdaq listing requirements.
• The company is implementing measures to improve internal control over financial reporting.
• The company is involved in a litigation matter with the previous U.S. legal advisor of Cetus Capital.
• The company entered into debt conversion agreements with creditors to convert debts into equity.
• The company is not expected to pay dividends in the near future.

Sentiment

Score: 3

Explanation: The document presents a largely negative outlook due to declining financial performance, risks associated with operations in China and Taiwan, and challenges in maintaining Nasdaq listing compliance. While there are some positive aspects, the overall tone suggests significant challenges ahead.

Positives

• The company is actively seeking new customers and has established cooperation with new customers.
• The company is implementing measures to improve internal control over financial reporting.
• The company is working to regain compliance with Nasdaq listing requirements.
• The company has obtained all requisite licenses, permits and approvals from relevant authorities that are material to its operations.

Negatives

• The company's revenue decreased by 45.5% from $3.67 million in 2023 to $1.99 million in 2024.
• The company's net loss increased by 52.7% from $2.07 million in 2023 to $3.16 million in 2024.
• The company is working to regain compliance with Nasdaq listing requirements, including the minimum Market Value of Publicly Held Shares (MVPHS) and minimum bid price requirements.
• The company is subject to risks associated with doing business in China and Taiwan, including government intervention and cross-strait relations.
• The company is involved in a litigation matter with the previous U.S. legal advisor of Cetus Capital.
• The company has a working capital deficit of $7.83 million as of December 31, 2024.
• The company is not expected to pay dividends in the near future.

Risks

• A decline in automotive sales could reduce MKD's sales and harm MKD's profitability.
• MKD's projected development goals and business expansion plans may not be achieved in the time frames expected due to unforeseen factors.
• The automotive market is highly competitive, and MKD may not be successful in competing in this industry.
• MKD is dependent on suppliers, and a shortage of materials or components can disrupt the production of MKD's equipment.
• Natural resource scarcity may cause delays in the development and manufacturing of MKD's products.
• The automotive industry and its technology are rapidly evolving and may be subject to unforeseen changes which could adversely affect the demand for MKD's technology or increase MKD's operating costs.
• The discontinuation of, the loss of business with respect to or a lack of commercial success of a particular vehicle model for which MKD is a significant supplier could reduce MKD's sales and harm MKD's profitability.
• Adverse developments affecting one or more of MKD's major suppliers could harm MKD's profitability.
• A significant product liability lawsuit, warranty claim or product recall involving MKD or one of MKD's major customers could harm MKD's profitability.
• MKD is involved from time to time in legal proceedings and commercial or contractual disputes, which could have an adverse impact on MKD's profitability and consolidated financial position.
• Downturns or volatility in general economic conditions could have a material adverse effect on MKD's business and results of operations.
• Delays in initiation of production, implementing new production techniques or resolving problems associated with technical equipment malfunctions could adversely affect MKD's manufacturing efficiencies.
• MKD's facilities are located in Taiwan and mainland China, and any disruption of operations at these facilities could have a material adverse effect on MKD's business, financial condition and results of operations.
• MKD is and will continue to be under continuous pressure from MKD's customers and competitors to reduce the price of MKD's products, which could adversely affect MKD's growth and profit margins.
• New technologies could result in the development of new products by MKD's competitors and a decrease in demand for MKD's products, and MKD may not be able to develop new products to satisfy changes in demand, which could result in a decrease in net sales and loss of market share.
• MKD may be subject to claims of infringement of third-party intellectual property rights or demands that MKD license third-party technology, which could result in significant expense and reduction in MKD's intellectual property rights.
• MKD may fail to attract or retain the qualified technical, sales, marketing and management personnel required to operate its business successfully.
• MKD's business may be adversely affected by obsolete inventories as a result of changes in demand for MKD's products and change in life cycles of MKD's products.
• MKD is subject to foreign currency risk as a result of its operations.
• Disruptions in the supply of raw materials and other supplies that MKD's customers use in MKD's products may adversely affect MKD's profitability.
• MKD's business is impacted by general economic conditions in its markets, and ongoing economic and financial uncertainties may cause a decline in consumer spending that may adversely affect its business, financial condition and results of operations.
• The nature of MKD's business which is tied to demand for camper vans could result in operating losses during downturns.
• Failure to protect personal or confidential information against cybersecurity breaches could subject MKD to significant reputational, financial and legal consequences and substantially harm its business and results of operations.
• The Chinese government may intervene or influence our operations at any time, which could result in a material change in our operations and/or the value of our securities.
• Changes in China's economic, political or social conditions, or policies could materially and adversely affect MKD's business and operations.
• MKD is subject to PRC laws and regulations which may change in the future.
• The Companys securities may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely the Companys auditor.
• MKD may be required to obtain additional licenses in relation to MKD's ongoing business operations and may be subject to penalties for failing to obtain certain licenses with respect to MKD's past operations.
• MKD may be required to complete filing procedures with the China Securities Regulatory Commission (CSRC) in connection with this Business Combination.
• It is unclear whether we will be considered a PRC resident enterprise under the PRC Enterprise Income Tax Law and, depending on the determination of MKD's PRC resident enterprise status, MKD's global income may be subject to the 25% PRC enterprise income tax, which could materially and adversely affect MKD's results of operations.
• PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds from the Business Combination to make loans or additional capital contributions to our PRC subsidiaries in China, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
• Governmental control of currency conversion may limit our ability to utilize our income effectively and affect the value of your investment.
• Failure to make adequate contributions to various employee benefit plans as required by PRC regulations may subject MKD to penalties.
• You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions against us or our management named in the prospectus based on China laws.
• It may be difficult for overseas regulators to conduct investigation or collect evidence.
• Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the relevant PRC plan participants or us to fines and other legal and administrative sanctions.
• If MKD fails to obtain and maintain the requisite licenses and approvals required under the regulatory environment applicable to MKD's businesses in the PRC, or if MKD is required to take actions that are time-consuming or costly, MKD's business, financial condition and results of operations may be materially and adversely affected.
• Any lack of requisite approvals, licenses, permits or filings or failure to comply with any requirements of Taiwan laws, regulations and policies may materially and adversely affect MKD's daily operations.
• Cross-Straits relationship imposes macroeconomic risks which could negatively affect MKD's business.
• MKD is subject to restrictions on paying dividends or making other payments, which may restrict the Companys ability to satisfy the liquidity requirements.
• We may be required to obtain approvals from Taiwan authority for investment in MKD's Taiwan subsidiary if the shareholding of MKD Taiwan reaches the threshold for such approval.
• MKD's Taiwan subsidiary bears product liabilities for damages caused by MKD's products under Taiwan regulations on consumer protection.
• MKD Taiwans insurance coverage may not adequately protect MKD Taiwan and its subsidiary against certain operating and other hazards which may have an adverse effect on their business.
• You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions against MKD's group entities or management in Taiwan.
• The Company may be unable to maintain the listing of its securities in the future.
• There is no certainty that an active trading market will develop for, or of the market price of, the Companys Ordinary Shares they will receive or that the Company will successfully obtain authorization for listing on Nasdaq.
• The Companys share price may be volatile and could decline substantially.
• The Company may issue additional ordinary shares or other equity or convertible debt securities without approval of the holders of the Companys Ordinary Shares, which would dilute existing ownership interests and may depress the market price of the Companys Ordinary Shares.
• The requirements of being a public company may strain the Companys resources, divert the Company managements attention and affect the Companys ability to attract and retain qualified board members.
• Recent market volatility could impact the share price and trading volume of the Companys securities.
• It is not expected that the Company will pay dividends in the near future.
• If securities and industry analysts do not publish research or publish inaccurate or unfavorable research or cease publishing research about the Company, the price and trading volume of the Companys securities could decline significantly.
• The Company is a foreign private issuer within the meaning of the rules under the Exchange Act, and as such it is exempt from certain provisions applicable to domestic public companies in the United States.
• As a BVI business company, the Company is permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from Nasdaq corporate governance listing standards; these practices may afford less protection to shareholders than they would enjoy if the Company complied fully with Nasdaq corporate governance listing standards.
• You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because the Company is a business company incorporated under the laws of the BVI, the Company conducts substantially all of its operations and a majority of its directors and executive officers (or candidates) reside outside of the United States.
• The Companys corporate affairs are governed by the Companys memorandum and articles of association, the Companies Act and the common law of the BVI.
• BVI companies may not have standing to initiate a derivative action in a federal court of the United States.
• Because the Company is incorporated under the laws of the BVI, it may be more difficult for its shareholders to enforce judgments against the Company than it would if they were shareholders of a company incorporated in another jurisdiction.
• The Company is an emerging growth company, as defined under the federal securities laws, and the Company cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make the Companys securities less attractive to investors.
• The Companys warrant agreement designate the courts of the State of New York or the United States District Court for the Southern District of New York as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by holders of its warrants.
• The Company is not subject to the supervision of the Financial Services Commission of the British Virgin Islands and so our shareholders are not protected by any regulatory inspections in the British Virgin Islands.
• Stockholder litigation and regulatory inquiries and investigations are expensive and could harm the Companys and Cetus Capitals business, financial condition and results of operations and could divert management attention.
• The obligations associated with being a public company will involve significant expenses and will require significant resources and management attention, which may divert from the business operations of MKD Technology.
• As a public reporting company, the Company is subject to rules and regulations established from time to time by the SEC regarding its internal control over financial reporting. If the Company fails to establish and maintain effective internal control over financial reporting and disclosure controls and procedures, it may not be able to accurately report its financial results or report them in a timely manner.
• The Company may not be able to generate sufficient cash or raise sufficient funds from external investors to service all of its obligations and indebtedness and may be forced to take other actions to satisfy obligations under its indebtedness, which may not be successful.
• Anti-takeover provisions contained in the Companys memorandum and articles of association, as well as provisions of BVI law, could impair a takeover attempt.
• The market price of the Ordinary Shares is likely to be highly volatile, and you may lose some or all of your investment.
• Volatility in the Companys stock price could subject the Company to securities class action litigation.

Future Outlook

The company's future operations are dependent upon equity or debt financing and its ability to generate profits through operations at an indeterminate time in the future.

Industry Context

The automotive electronics industry is highly competitive, with increasing demand and potential supply chain disruptions.

Comparison to Industry Standards

• The document does not provide enough information to make a detailed comparison to industry standards.
• Comparable companies in the automotive electronics industry include Continental AG, Robert Bosch GmbH, and Denso Corporation.
• These companies have significantly greater financial, technical, manufacturing, marketing, or other resources than MKD.
• Industry benchmarks include product performance and quality, technological innovation, customer experience, brand differentiation, product design, pricing and total cost of ownership, and manufacturing scale and efficiency.

Legal Proceedings

• Our subsidiary MKD Jiaxing and a third-party First Bank International Leasing Co., Ltd. are involved in a financial leasing contract dispute, which has not yet been concluded, and the amount involved is approximately RMB2,773,606.
• An action was commenced against us in December 2024 in the Supreme Court of the State of New York by the previous U.S. legal advisor of Cetus Capital, which became our subsidiary after the closing of the Business Combination, relating to certain legal fees owed.

Related Party Transactions

• The Company has identified Mr. Ming-Chia Huang, Ms. Min-Jie Cui, Mr. Ming-Chao Huang, Mr. Chih-Hsiang Tang, Mr. Chung-Yi Sun and Mr. Jung-Te Chang, its directors and officers, as related parties of the Company.
• After the completion of the Business Combination, Cetus Sponsor LLC and AWinner Limited have been identified as related parties of the Company.
• During the year ended December 31, 2022, MKD Taiwan entered into certain loan arrangements with Ming-Chia Huang who provided loans to MKD Taiwan with annual interest rate at 3.5%.
• In May 2022, Ming-Chia Huang converted the US$336,022 loan balance in exchange for 1,000,000 ordinary shares of MKD Taiwan, with the remaining balance due on December 2023.
• MKD Taiwan also continuously entered into certain loan arrangements with Ming-Chao Huang who provided loans to MKD Taiwan with annual interest rate ranging from 6% to 6.5%.
• In December 2022, Ming-Chao Huang converted US$1,627,729 loan balance as non-controlling interests contribution in exchange of 42% share interest of MKD Jiaxing, with the remaining balance being paid off.
• In November 2020, MKD Taiwan entered into loan arrangement with Chih-Hsiang Tang who provided loans to MKD Taiwan with annual interest rate at 3.5%.
• In May 2022, Chih-Hsiang Tang converted US$33,602 loan balance in exchange for 100,000 ordinary shares of MKD Taiwan, with the remaining balance being paid off.
• During the year ended December 31, 2023, MKD Taiwan entered into certain loan arrangements with Ming-Chia Huang obtaining loans in the total amount of US$277,596 with annual interest rate at 3.5%.
• In July 2023, Ming-Chao Huang and MKD BVI entered into a share transfer agreement to transfer the 42% share interest of MKD Jiaxing to MKD BVI with a total consideration of US$1,627,729, which was offset by the consideration of shares issued to Ming-Chao Huang by MKD BVI.
• On November 1, 2023, MKD BVI lent US$575,000 to Cetus Sponsor LLC with an annual interest of 6.5%.
• During the year ended December 31, 2024, MKD Taiwan entered into certain loan arrangements with Ming-Chia Huang providing loans in the total amount of $616,041 with annual interest rate at 3.5% to MKD Taiwan.
• In June 2024, MKD BVI entered into two loan arrangements with Ming-Chia Huang providing loans in the total amount of $235,000 with annual interest rate at 6.0% to MKD BVI.
• In October 2024, MKD Jiaxing entered into a loan arrangement with Ming-Chia Huang providing a loan in the amount of US$41,100 with an annual interest rate at 10% to MKD Jiaxing.
• During the year ended December 31, 2024, MKD Jiaxing entered into an interest-free loan arrangement with Ming-Chao Huang providing a loan in the amount of US$16,426 to MKD Jiaxing.
• On March 7, 2025, Ming-Chia Huang transferred US$550,000 out of his US$900,000 debt claim against the Company to his spouse, Ms. Ya-Hui Wu.
• On March 19, 2025, loans amounting to $900,000 from Ming-Chia Huang were converted into equity with the Company entering into debt conversion agreements with Ming-Chia Huang and Ms. Ya-Hui Wu to convert the loans totalling amounting to $900,000 into equity.
• On February 1, 2024, MKD BVI lent US$300,000 to Cetus Sponsor LLC with an annual interest of 6.5%.
• In order to finance transaction costs in connection with the Business Combination, Cetus Sponsor LLC and AWinner Limited provided the interest free loans to the Company.

Stakeholder Impact

• Shareholders may experience volatility in the share price and potential dilution.
• Employees may face uncertainty due to cost-cutting measures and potential restructuring.
• Customers may be affected by changes in product pricing and potential supply chain disruptions.
• Suppliers may be impacted by changes in the company's procurement strategies.
• Creditors may face increased risk due to the company's financial difficulties.

Next Steps

• The company intends to actively monitor the closing bid price of the Ordinary Shares and will evaluate available options to regain compliance with the Minimum Bid Price Requirement.
• The company intends to implement various measures, including the hiring of additional accounting personnel to enhance the financial reporting function and the establishment of a financial and system control framework.
• The company is in the process of developing and implementing a set of policies and procedures for period-end financial reporting.

Key Dates

Keywords

MKDWELL Tech Inc, financial results, risk factors, Form 20-F, automotive electronics, China, Taiwan, Nasdaq, cybersecurity, PCAOB, HFCAA, related party transactions, going concern, internal control, debt conversion, share capital, corporate governance