Jiuzi Holdings, Inc. — FY2022 Form 20-F
Business context and reporting period. Jiuzi Holdings franchises and operates Jiuzi-branded NEV retail stores, primarily in lower-tier cities in China, and earns revenue from vehicle sales, franchise fees and royalties. This is an annual report for the fiscal year ended October 31, 2022—not a standalone Q4 report. Financial statements are in U.S. dollars and prepared under U.S. GAAP.
Key financial metrics
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $6.216 million | $9.537 million |
| Gross profit (loss) / margin | $(0.242) million / (3.9)% | $4.627 million / 48.5% |
| Operating loss | $(17.151) million | Operating income of $1.317 million |
| Net income (loss) | $(16.832) million | $0.778 million |
| Basic and diluted EPS | $(0.76) | $0.04 |
| Cash used in operating activities | $8.873 million | $4.811 million |
- FY2022 revenue comprised $5.908 million of NEV sales, $0.284 million of initial franchise fees and $0.024 million of other services. The company reported no royalty revenue.
- At October 31, 2022, cash and cash equivalents were $2.329 million; total current assets were $12.248 million and current liabilities $8.335 million. Total assets were $15.326 million, total liabilities $9.245 million and shareholders’ equity $6.081 million.
- Net loans to related franchisees were $8.293 million, after a $7.310 million allowance for credit losses. Convertible debentures were carried at $2.835 million; taxes payable were $2.653 million.
- Cash, cash equivalents and restricted cash totaled $2.371 million at year-end. Investing activities provided $0.237 million and financing activities provided $3.627 million. The company reported no material defaults on debt payments.
Material changes versus prior year
- Revenue fell 34.8%, while gross margin swung from 48.5% to negative 3.9%. NEV sales rose 309% to $5.908 million, but their gross margin narrowed to 2.7% from 3.0% as procurement costs increased.
- Franchise-fee revenue fell 96.5% to $0.284 million from $8.093 million. Management attributed the decline to COVID-related disruption and a strategy that offered some franchisees zero initial fees in exchange for NEV-sales targets.
- Operating performance deteriorated amid higher general and administrative expenses ($6.692 million, up 124%), a $7.267 million provision for franchisee loan losses and $2.942 million of supplier-advance write-offs. Cash used in operations increased by $4.062 million.
- Cash and cash equivalents declined from $7.373 million to $2.329 million. Financing cash inflows fell from $12.848 million to $3.627 million, which management attributed to lower capital-market funding.
Outlook, risks and unusual items
- Going concern: The auditor’s report includes an emphasis-of-matter paragraph noting substantial doubt about the company’s ability to continue as a going concern, principally in light of its accumulated deficit. Management plans to expand regional sales centers, centralize procurement, broaden NEV brands and pursue additional financing, but states funding success is not assured. No quantified financial guidance is provided.
- Debt and subsequent event: A $1.3 million debenture balance, including accrued interest, was due December 30, 2022. The company and holder extended maturity to June 30, 2023, with monthly cash repayments beginning January 2023, including a redemption premium and interest. The debenture terms also provide for potential repayment from certain financing proceeds.
- Credit and supplier exposure: The company advanced substantial funds to franchisees and suppliers. It increased its franchisee-loan allowance substantially and wrote off supplier advances after vendors failed to deliver vehicles; lawsuits were filed to recover advances and claim damages, but collection is uncertain.
- Operating and market risks: Management cites COVID disruption, NEV procurement costs, franchisee performance and collections, supplier relationships, competition, changing subsidies and other government policies, and consumer adoption of electric vehicles. Many supplier relationships are non-exclusive or lack written long-term commitments.
- Structure and regulation: The VIE arrangements were terminated and Zhejiang Jiuzi became a wholly owned subsidiary of the WFOE on January 20, 2023. The filing describes uncertainty around PRC regulatory requirements, overseas listing filings, currency remittances and the legal environment. Two PRC-resident beneficial owners were reported as not having completed Circular 37 registration.
- Controls and audit: Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end due to a material weakness: insufficient accounting and finance personnel with U.S. GAAP experience. Management planned to hire qualified personnel. The auditor gave an unmodified opinion on the financial statements but did not opine on internal-control effectiveness.
- Management describes plans to expand the franchise network, develop an online-offline platform and reduce operating costs, but gives no specific targets or timetable. The filing gives inconsistent store counts: one section says 31 franchise stores and one company-owned store, while another says 75 and two, respectively.
Most important facts for investors to verify
- Whether the company can fund operations and meet obligations, including the extended debenture repayments, given operating cash burn and the auditor’s going-concern warning.
- Recoverability and aging of franchisee loans and supplier advances, including the status and potential proceeds of supplier litigation.
- The causes and sustainability of the severe margin reversal, franchise-fee decline and substantial credit-loss and administrative charges.
- The accurate number of operating franchise and company-owned stores, and evidence of store activity, franchisee profitability and royalty-generating potential.
- Implementation and effectiveness of planned internal-control remediation, and the status of PRC regulatory filings and the post-January 2023 ownership structure.
- Potential dilution: 24,545,333 shares were outstanding at October 31, 2022, while the cover reports 36,026,309 outstanding as of March 15, 2023; verify the intervening issuances and conversions.