Jowell Global Ltd. — FY2021 Form 20-F
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under U.S. GAAP and reported in U.S. dollars.
Business context
Jowell operates a China-focused e-commerce and retail business selling cosmetics, health and nutritional supplements, and household products through online direct sales, authorized stores, third-party merchants, and live-streaming marketing. The Cayman Islands parent conducts its principal business through a Chinese variable interest entity (VIE) controlled by contractual arrangements.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $170.9 million | $96.9 million |
| Cost of sales | $159.3 million | $86.4 million |
| Gross profit and margin | $11.7 million; 6.8% | $10.5 million; 10.8% |
| Operating income (loss) | $(7.0) million | $5.1 million |
| Net income (loss) | $(6.4) million | $3.6 million |
| Operating cash flow | $(18.0) million | $6.9 million |
| Investing cash flow | $(6.6) million | $(0.1) million |
| Financing cash flow | $27.2 million | $10.8 million |
- Revenue rose 76.4%. Cosmetics revenue grew 321.6% to $78.8 million; supplements increased 7.1% to $56.1 million; household products rose 39.7% to $35.9 million.
- Cash and restricted cash totaled $21.2 million at year-end, including $3.0 million pledged as loan collateral. Working capital was approximately $31.3 million; current assets were $46.3 million and current liabilities $15.1 million.
- Total liabilities were $19.0 million. The company had a $2.7 million short-term bank loan at 4.6%, renewed in March 2022 through March 2023, and $5.3 million of operating lease liabilities.
- Operating cash use reflected working-capital investment, including higher receivables, inventory, and supplier advances. The company reported $12.3 million of net inventory, $5.2 million of supplier advances, and $5.4 million of net receivables at year-end.
Material changes and notable items
- Despite rapid sales growth, profitability reversed: operating expenses rose 93.9% to $177.9 million, exceeding revenue. Marketing expense increased to $9.4 million from $1.0 million, and cost of sales rose faster than revenue, reducing gross margin.
- The 2021 IPO generated approximately $25.7 million in net proceeds. The company also received $2.6 million from short-term borrowing. Year-end cash increased by $3.0 million.
- In July 2021, the VIE invested RMB30 million (approximately $4.6 million) for an 18.96% interest in Hongrun, a lender intended to provide loans to Juhao Best Choice store owners. The company recognized $0.14 million of investment income. The investment involves related-party connections: the CEO chairs Hongrun and Longrich is its largest shareholder.
- Longrich, controlled by the CEO, supplied approximately 45% of purchases in 2021, down from 87% in 2020. Another supplier represented 24% of 2021 purchases. The filing notes no long-term contracts with significant vendors.
- As of March 31, 2022, approximately 70% of year-end receivables had been collected and 49% of supplier advances had been utilized.
Outlook, risks, and controls
- Management stated that cash, restricted cash, and borrowing were expected to cover liquidity and capital needs for at least 12 months from issuance of the financial statements. It also said it would pursue receivables collection and make cautious operating and project decisions. No specific revenue or earnings guidance was provided.
- Management said COVID-19 did not significantly affect 2021 operations, but the filing cautioned that 2022 results could be affected by renewed restrictions, including Shanghai office closures and employees working remotely from March 30, 2022.
- Key risks include the enforceability and regulatory acceptance of the VIE structure; evolving PRC rules affecting overseas listings, cybersecurity, data, and foreign investment; RMB conversion and cash-transfer restrictions; vendor and related-party concentration; competition; product quality and liability; and limited insurance coverage.
- Disclosure controls and procedures were found ineffective as of December 31, 2021 because the accounting function lacked sufficient personnel with U.S. GAAP and SEC-reporting expertise. Management described plans to hire qualified staff and provide training. The company, as an emerging growth company, did not include an auditor attestation on internal controls.
- The auditor issued an unqualified opinion on the financial statements. The filing reported no material legal proceedings and no expected near-term dividends.
Investor verification priorities
- Confirm whether the reduced gross margin and increased marketing and administrative spending are translating into sustainable sales and improved profitability.
- Track operating cash flow, receivables collections, supplier advances, inventory levels, and customer credit terms.
- Review the Hongrun investment’s performance, use of proceeds, governance, and related-party safeguards.
- Assess supplier concentration and the terms and continuity of purchases from Longrich and other major vendors.
- Monitor remediation of ineffective disclosure controls and any material weaknesses identified in subsequent reporting.
- Follow PRC regulatory developments affecting the VIE, data compliance, overseas listings, and the ability to transfer cash out of China.