EZGO Tech(EZGO)

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EZGO Tech(EZGO) - 2021 Q4 - Annual Report
2022-01-26 16:00
PART I [Key Information](index=5&type=section&id=Item%203.%20Key%20Information) This section outlines the principal risks associated with investing in EZGO Technologies, categorized by business, corporate structure, China operations, and ordinary shares [Risks Related to Our Business and Industry](index=5&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) The company faces significant business and industry risks, including a history of net losses, limited operating history, intense competition, customer concentration, and material weaknesses in internal financial controls Net Income (Loss) Trend | Fiscal Year Ended | Net Income (Loss) | | :--- | :--- | | September 30, 2019 | $2.19 million | | September 30, 2020 | $0.28 million | | September 30, 2021 | ($3.41 million) | - The company is an early-stage entity in the e-bicycle and charging pile business, having started this focus in August 2019, which provides a limited basis for evaluating its future performance[33](index=33&type=chunk)[34](index=34&type=chunk) - The company has a significant customer concentration risk, with three major customers accounting for approximately **52%**, **28%**, and **8%** of lithium battery sales, and **17%**, **11%**, and **9%** of e-bicycle sales revenue in fiscal year 2021[51](index=51&type=chunk)[52](index=52&type=chunk) - Material weaknesses in internal control over financial reporting have been identified, relating to a lack of sufficient personnel with U.S. GAAP and SEC reporting knowledge and a lack of key monitoring mechanisms like an internal control department[63](index=63&type=chunk)[64](index=64&type=chunk) [Risks Related to Our Corporate Structure](index=17&type=section&id=Risks%20Related%20to%20Our%20Corporate%20Structure) The company's reliance on a Variable Interest Entity (VIE) structure due to PRC regulations poses significant risks, including enforcement challenges and potential government non-compliance rulings - The company relies on contractual arrangements with its consolidated VIE and its shareholders to operate its business, as all revenue is attributed to the VIE, posing enforcement risks under the PRC legal system[97](index=97&type=chunk)[98](index=98&type=chunk)[100](index=100&type=chunk) - There is a significant risk that PRC authorities could deem the VIE structure non-compliant with foreign investment regulations, potentially leading to severe penalties or forced restructuring[106](index=106&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk) - The shareholders of the consolidated VIE may have conflicts of interest with the company, potentially leading to actions not in the best interest of EZGO's public shareholders[103](index=103&type=chunk)[105](index=105&type=chunk) [Risks Related to Doing Business in China](index=21&type=section&id=Risks%20Related%20to%20Doing%20Business%20in%20China) Operating in China exposes the company to substantial regulatory, political, and economic risks, including potential delisting under the HFCAA and new CSRC filing requirements - The company's shares may be delisted under the Holding Foreign Companies Accountable Act (HFCAA) if the PCAOB cannot inspect its auditors for two consecutive years, materially affecting investment value[28](index=28&type=chunk)[194](index=194&type=chunk)[195](index=195&type=chunk) - The China Securities Regulatory Commission (CSRC) has released draft rules that, if enacted, would require China-based companies to fulfill filing procedures for overseas listings, potentially hindering securities offerings[131](index=131&type=chunk)[132](index=132&type=chunk)[134](index=134&type=chunk) - The PRC government exerts substantial influence over business activities and may intervene at any time, with recent regulatory crackdowns highlighting the risk of changes impacting operations and share value[126](index=126&type=chunk)[128](index=128&type=chunk)[130](index=130&type=chunk) - PRC regulations on currency exchange and capital outflows may limit the company's ability to transfer funds from its PRC operations to fund business activities outside of China or to pay dividends to shareholders[149](index=149&type=chunk)[151](index=151&type=chunk) [Risks Related to Our Ordinary Shares](index=34&type=section&id=Risks%20Related%20to%20Our%20Ordinary%20Shares) Investment in the company's ordinary shares involves risks such as significant price volatility, potential delisting, no anticipated dividends, and substantial influence from principal shareholders - The trading price of the company's ordinary shares may be volatile due to market factors and company-specific performance, and an active trading market may not be sustained[208](index=208&type=chunk)[209](index=209&type=chunk) - The company does not expect to pay dividends in the foreseeable future, so investors must rely on share price appreciation for any return on investment[225](index=225&type=chunk)[226](index=226&type=chunk) - As of the report date, executive officers, directors, and principal shareholders beneficially own approximately **46.83%** of outstanding ordinary shares, giving them substantial influence over corporate actions[227](index=227&type=chunk)[228](index=228&type=chunk) - As a foreign private issuer, the company is exempt from certain U.S. proxy rules and reporting obligations, following BVI corporate governance practices that may offer less protection to shareholders than U.S. standards[229](index=229&type=chunk)[230](index=230&type=chunk)[234](index=234&type=chunk) [Information On The Company](index=42&type=section&id=Item%204.%20Information%20On%20The%20Company) EZGO Technologies is a BVI holding company operating in China through a VIE structure, focusing on short-distance transportation solutions including e-bicycles, lithium batteries, and smart charging piles [History and Development of the Company](index=42&type=section&id=4.A.%20History%20and%20Development%20of%20the%20Company) This section outlines the company's corporate structure, including its BVI parent, Hong Kong subsidiary, WFOE, and VIE, and highlights the acquisition of Tianjin Jiahao and a registered direct offering in 2021 - The company operates in the PRC through its VIE, Jiangsu EZGO, and its subsidiaries, with control established via contractual arrangements by its WFOE, Changzhou EZGO[258](index=258&type=chunk) - On June 28, 2021, the company acquired Tianjin Jiahao, adding over **35,000 square meters** of factory land and an estimated production capacity of **100,000 e-bicycles**, with potential for expansion[262](index=262&type=chunk)[275](index=275&type=chunk) - On June 1, 2021, EZGO closed a registered direct offering, selling **2,564,102 units** at **$4.68 per unit** and raising gross proceeds of approximately **$12 million**[262](index=262&type=chunk) [Business Overview](index=43&type=section&id=4.B.%20Business%20Overview) EZGO's business focuses on short-distance transportation solutions in China, with e-bicycle and battery pack sales as primary revenue streams, aiming for a 1% market share by 2025 Revenue Breakdown by Source (FY 2019-2021) | Revenue Source | FY 2019 | FY 2020 | FY 2021 | | :--- | :--- | :--- | :--- | | Battery packs sales | 91% | 21% | 18% | | E-bicycles sales | 8% | 73% | 78% | - The company's strategic goal is to become a well-regarded e-bicycle company with at least **1% market share** in China by 2025, targeting an annual sales volume of **500,000 units**[281](index=281&type=chunk) - The product portfolio includes Dilang-brand e-bicycles, Cenbird-brand e-bicycles, the new EZGO-brand e-bicycles, and Hengdian-brand smart charging piles[284](index=284&type=chunk) - The company's rental services revenue decreased by **79%** in FY2021 to approximately **$342,636**, and the business was phased out in the first half of 2021 due to intense competition[311](index=311&type=chunk) [Organizational Structure](index=71&type=section&id=4.C.%20Organizational%20Structure) This section details the company's reliance on a Variable Interest Entity (VIE) structure, where the WFOE controls the VIE through contractual agreements to consolidate financial results - The company controls its primary operating entity, Jiangsu EZGO, through a series of VIE agreements, including an Exclusive Management Consulting and Technical Service Agreement, Equity Pledge Agreement, Exclusive Call Option Agreement, and Proxy Agreement[401](index=401&type=chunk)[402](index=402&type=chunk) - The VIE agreements are designed to provide the WFOE with power, rights, and obligations equivalent to direct equity ownership, allowing for consolidation of the VIE's financial results under U.S. GAAP[401](index=401&type=chunk) VIE Net Income (Loss) Attributable to EZGO Shareholders | Fiscal Year Ended | Net Income (Loss) | | :--- | :--- | | September 30, 2019 | $1,738,123 | | September 30, 2020 | $147,174 | | September 30, 2021 | ($2,279,373) | - In FY 2021, the parent company EZGO transferred funds to its PRC operations via loans to its Hong Kong subsidiary (**$15.85 million**) and WFOE, and the WFOE provided loans of **$13.32 million** to the VIE[426](index=426&type=chunk)[427](index=427&type=chunk) [Property, Plants and Equipment](index=79&type=section&id=4.D.%20Property,%20Plants%20and%20Equipment) As of September 30, 2021, the company owns approximately 35,047.8 square meters of production real estate in Tianjin and leases about 13,080 square meters for other facilities Owned and Leased Properties | Type | Location | Size (sq. meters) | | :--- | :--- | :--- | | Owned | Tianjin | 35,047.8 | | Leased | Various (Changzhou, Tianjin, etc.) | ~13,080 | [Operating And Financial Review And Prospects](index=80&type=section&id=Item%205.%20Operating%20And%20Financial%20Review%20And%20Prospects) In fiscal year 2021, EZGO's revenues increased by 53.7% to $23.4 million, but profitability declined significantly to a net loss of $3.4 million due to lower gross margins and higher operating expenses Consolidated Financial Highlights (FY 2020 vs. FY 2021) | Metric | FY 2020 | FY 2021 | Change | | :--- | :--- | :--- | :--- | | Net Revenues | $15,243,282 | $23,422,006 | +53.7% | | Gross Profit | $1,539,034 | $382,478 | -75.1% | | Gross Margin | 10.1% | 1.6% | -8.5 p.p. | | Operating Expenses | ($1,467,068) | ($4,259,897) | +190.4% | | Net Income (Loss) | $276,922 | ($3,413,644) | N/A | - The increase in revenue was mainly driven by a **63.3% growth** in e-bicycle sales, from **$11.2 million** in FY2020 to **$18.2 million** in FY2021[455](index=455&type=chunk)[456](index=456&type=chunk) - The gross profit margin declined from **10%** in FY2020 to **2%** in FY2021, primarily due to reduced unit prices and sales rebates for e-bicycles to expand market share[460](index=460&type=chunk)[461](index=461&type=chunk) - The company's liquidity position was strengthened by net proceeds of approximately **$10.85 million** from its January 2021 IPO and **$10.88 million** from its June 2021 registered direct offering[469](index=469&type=chunk) - Net cash used in operating activities was **$6.9 million** in FY2021, a significant reversal from the **$3.9 million** provided by operations in FY2020, reflecting the net loss and increased working capital needs[475](index=475&type=chunk)[476](index=476&type=chunk)[478](index=478&type=chunk) [Directors, Senior Management And Employees](index=100&type=section&id=Item%206.%20Directors,%20Senior%20Management%20And%20Employees) This section details the company's leadership, including its five-member board with three independent directors, key executives, and its 115 full-time employees based in China - The company's board of directors consists of 5 members: Jianhui Ye (CEO), Di Wu, and three independent directors: Guanghui Yang, Robert Johnson, and Guanneng Lai[543](index=543&type=chunk)[561](index=561&type=chunk) - Total cash compensation for all directors and senior management was RMB **885,547** (approximately **$136,087**) for the fiscal year ended September 30, 2021[558](index=558&type=chunk) - As of the date of the report, the company had **115 full-time employees** in China, with the largest functions being Business and Marketing (**35**) and Manufacturing (**31**)[571](index=571&type=chunk)[572](index=572&type=chunk) - Directors and executive officers as a group beneficially own approximately **40.1%** of the company's outstanding ordinary shares[577](index=577&type=chunk) [Major Shareholders And Related Party Transactions](index=107&type=section&id=Item%207.%20Major%20Shareholders%20And%20Related%20Party%20Transactions) This section details major shareholders, with CEO Jianhui Ye holding 22.3% ownership, and highlights significant related party transactions including e-bicycle purchases and un-repaid loans to a former chairman Major Shareholder Ownership (as of Jan 26, 2022) | Name of Beneficial Owner | Ordinary Shares Beneficially Owned | Percentage | | :--- | :--- | :--- | | Jianhui Ye (CEO) | 3,034,200 | 22.3% | | Shuang Wu (COO) | 1,462,032 | 10.7% | | Di Wu (Director) | 963,452 | 7.1% | - In FY2021, the company purchased e-bicycles worth **$6,048,053** from Changzhou Cenbird Electric Bicycle Manufacturing Co., Ltd., a related party[585](index=585&type=chunk) - Loans made to former chairman Henglong Chen for personal use violated the Sarbanes-Oxley Act section 402, were not fully repaid by the July 28, 2021 deadline, and are expected to be repaid by December 31, 2022[585](index=585&type=chunk) [Financial Information](index=109&type=section&id=Item%208.%20Financial%20Information) This section refers to the full consolidated financial statements and notes the company's policy of retaining all earnings for business growth, with no anticipated dividends - The company's full consolidated financial statements can be found starting on page F-1 of the report[587](index=587&type=chunk) - The company has never paid a dividend and does not anticipate paying any in the foreseeable future, intending to retain all earnings for business financing and expansion[588](index=588&type=chunk) [Additional Information](index=109&type=section&id=Item%2010.%20Additional%20Information) This section covers the company's BVI corporate governance, PRC exchange controls, and tax implications, including the risk of being classified as a PRC 'resident enterprise' or a Passive Foreign Investment Company (PFIC) - The company is governed by the laws of the British Virgin Islands (BVI), which differ from U.S. corporate laws regarding shareholder suits, mergers, and director's fiduciary duties[604](index=604&type=chunk)[618](index=618&type=chunk)[620](index=620&type=chunk) - Operations are subject to PRC exchange controls, where the Renminbi is not freely convertible, requiring approval from SAFE for capital-account items like direct investments[649](index=649&type=chunk)[650](index=650&type=chunk) - There is a risk the company could be classified as a PRC 'resident enterprise,' which would subject it to a **25%** enterprise income tax on its worldwide income[655](index=655&type=chunk) - The company does not expect to be classified as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, but notes that this is a factual determination made annually and no assurance can be given[668](index=668&type=chunk)[669](index=669&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=126&type=section&id=Item%2011.%20Quantitative%20And%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks include foreign exchange risk due to RMB/USD fluctuations, credit risk from unsecured receivables and uninsured PRC bank deposits, and inflation risk impacting operating costs - The company faces foreign exchange risk as its functional currency is the RMB, while its reporting currency is the USD, meaning a significant revaluation of the RMB against the USD could materially affect reported financial results[686](index=686&type=chunk)[687](index=687&type=chunk) - Credit risk exists with cash deposits in PRC financial institutions, as there is no regulation requiring insurance to cover bank deposits in the event of failure, and accounts receivable are also typically unsecured[687](index=687&type=chunk)[688](index=688&type=chunk) PART II [Material Modifications To The Rights Of Security Holders And Use Of Proceeds](index=127&type=section&id=Item%2014.%20Material%20Modifications%20To%20The%20Rights%20Of%20Security%20Holders%20And%20Use%20Of%20Proceeds) This section details the use of proceeds from the company's two public offerings in 2021, which collectively raised approximately $21.73 million in net proceeds Use of Proceeds from 2021 Offerings | Offering | Closing Date | Net Proceeds | | :--- | :--- | :--- | | Initial Public Offering | Jan 28, 2021 | ~$10.85 million | | Follow-on Offering | June 1, 2021 | ~$10.88 million | [Controls and Procedures](index=128&type=section&id=Item%2015.%20Controls%20And%20Procedures) Management concluded that disclosure controls and procedures were ineffective as of September 30, 2021, due to material weaknesses in financial reporting personnel and monitoring mechanisms, with remediation efforts underway - Management concluded that disclosure controls and procedures were not effective as of the end of the fiscal year 2021[696](index=696&type=chunk) - Two material weaknesses were identified: 1) lack of sufficient personnel with appropriate U.S. GAAP/SEC reporting knowledge, and 2) lack of key monitoring mechanisms like an internal control department[697](index=697&type=chunk) - Remediation efforts include hiring a new CFO with U.S. GAAP experience and working to establish an internal audit department[698](index=698&type=chunk) [Other Information](index=129&type=section&id=Item%2016.%20Other%20Information) This section covers various governance and compliance matters, including the change of independent auditors, the adoption of a code of ethics, and the company's use of BVI home country corporate governance practices - The company changed its independent registered public accounting firm on August 16, 2021, terminating Marcum Bernstein & Pinchuk LLP and appointing Briggs & Veselka Co[707](index=707&type=chunk) - As a foreign private issuer, the company follows its home country (BVI) practices in lieu of Nasdaq rules requiring annual shareholder meetings and shareholder approval for certain securities issuances[709](index=709&type=chunk) Principal Accountant Fees | Fiscal Year Ended | Audit Fees | | :--- | :--- | | September 30, 2020 | $350,000 | | September 30, 2021 | $250,000 | PART III [Financial Statements](index=131&type=section&id=Item%2018.%20Financial%20Statements) This section contains the company's consolidated financial statements for fiscal years 2019-2021, prepared under U.S. GAAP, including auditor reports and notes on accounting policies, segments, and discontinued operations - The financial statements include reports from two independent registered public accounting firms, Briggs & Veselka Co. (for FY2021) and Marcum Bernstein & Pinchuk LLP (for FY2019 and FY2020), due to a change in auditors during 2021[721](index=721&type=chunk)[728](index=728&type=chunk) - The company has retrospectively adjusted its financial statements for all periods presented to reflect the disposal of its battery cell production line and rental business as discontinued operations[858](index=858&type=chunk) Consolidated Balance Sheet Summary (As of Sep 30) | Metric | 2020 | 2021 | | :--- | :--- | :--- | | Total Current Assets | $16,316,861 | $27,679,610 | | Total Assets | $19,817,798 | $42,011,670 | | Total Current Liabilities | $6,672,653 | $9,475,170 | | Total Equity | $13,145,145 | $32,536,500 | - The company operates in two reportable segments: (1) Battery cells and packs, and (2) E-bicycle sales, with e-bicycle sales becoming the dominant segment, generating **$18.2 million** in revenue in FY2021[898](index=898&type=chunk)[902](index=902&type=chunk)
EZGO Tech(EZGO) - 2020 Q4 - Annual Report
2021-02-15 16:00
PART I [Key Information](index=5&type=section&id=Item%203.%20Key%20Information) Presents selected FY2018-2020 financial data, showing revenue growth but declining net income, and outlines key business and ownership risks [Selected Financial Data](index=5&type=section&id=3.A.%20Selected%20Financial%20Data) Net revenues grew significantly from $5.2 million in FY2019 to $16.8 million in FY2020, but gross profit and net income sharply decreased Selected Consolidated Statements of Income Data (Years ended September 30) | Indicator | 2018 | 2019 | 2020 | | :--- | :--- | :--- | :--- | | **Net revenues** | $3,191,560 | $5,194,259 | $16,838,508 | | **Gross profit** | $1,523,736 | $3,179,951 | $1,785,682 | | **Income (loss) from operations** | $1,059,902 | $2,247,878 | ($123,977) | | **Net income** | $633,749 | $2,191,437 | $276,922 | | **Net income attributable to EZGO** | $512,541 | $1,738,123 | $147,174 | | **Net income per ordinary share (Basic and diluted)** | $0.07 | $0.23 | $0.02 | Selected Consolidated Balance Sheet Data (As of September 30) | Indicator | 2018 | 2019 | 2020 | | :--- | :--- | :--- | :--- | | **Cash and cash equivalents** | $5,570 | $3,633,645 | $322,598 | | **Total assets** | $13,700,498 | $19,171,950 | $19,817,798 | | **Total liabilities** | $7,081,518 | $6,840,965 | $6,672,653 | | **Total EZGO shareholders' equity** | $3,652,813 | $8,226,779 | $8,869,462 | [Risk Factors](index=6&type=section&id=3.D.%20Risk%20Factors) The company faces significant risks including potential losses, limited operating history, intense competition, internal control weaknesses, and legal uncertainties from its China VIE structure - The company is an early-stage e-bicycle and charging pile company with a **limited operating history** since shifting focus in August 2019, which may not provide an adequate basis to judge future prospects[22](index=22&type=chunk)[23](index=23&type=chunk) - The company is highly dependent on a few core customers. For FY2020, three major customers accounted for **20%**, **19%**, and **10%** of battery sales, while one customer accounted for **31%** of e-bicycle sales. Three individual sublease agents accounted for **17%**, **13%**, and **9%** of rental revenues[41](index=41&type=chunk)[42](index=42&type=chunk)[43](index=43&type=chunk) - Material weaknesses in internal control over financial reporting have been identified. These include a **lack of sufficient accounting personnel with U.S. GAAP and SEC reporting knowledge**, and a **lack of key monitoring mechanisms** like an internal control department[54](index=54&type=chunk)[55](index=55&type=chunk) - The company relies on a **Variable Interest Entity (VIE) structure** to operate in China. This structure involves contractual arrangements that may not be as effective as direct ownership and are subject to risks from PRC legal and regulatory uncertainties, including the new Foreign Investment Law[76](index=76&type=chunk)[77](index=77&type=chunk) - As a foreign private issuer incorporated in the BVI, the company is permitted to follow home country governance practices, which may offer **less protection to shareholders** than Nasdaq standards for U.S. domestic companies. Judicial precedent regarding shareholder rights is also more limited under BVI law[165](index=165&type=chunk)[166](index=166&type=chunk)[167](index=167&type=chunk) [Information On The Company](index=35&type=section&id=Item%204.%20Information%20On%20The%20Company) Details the company's history, VIE corporate structure, and business overview as a short-distance transportation provider in China, focusing on e-bicycle sales, rentals, and smart charging [History and Development of the Company](index=35&type=section&id=4.A.%20History%20and%20Development%20of%20the%20Company) EZGO Technologies Ltd., incorporated in BVI in January 2019, operates in PRC via subsidiaries and a VIE (Jiangsu Baozhe) controlled by contractual agreements due to foreign ownership restrictions - The company was incorporated in the BVI on **January 24, 2019**, and conducts its business in the PRC primarily through its VIE, Jiangsu Baozhe, and its subsidiaries[192](index=192&type=chunk) - Due to PRC legal restrictions on foreign ownership, the company controls its operating entity, Jiangsu Baozhe, through a series of **VIE agreements**, including an Equity Pledge Agreement, Exclusive Call Option Agreement, and Proxy Agreement, rather than direct equity ownership[195](index=195&type=chunk)[196](index=196&type=chunk) [Business Overview](index=38&type=section&id=4.B.%20Business%20Overview) Positions itself as a short-distance transportation provider in China, focusing on e-bicycle and battery sales/rentals, with e-bicycle sales dominating FY2020 revenue, aiming for 1% market share by 2025 - The company's business model focuses on **e-bicycle sales, battery/e-bicycle rentals, and smart charging piles**, leveraging an Internet of Things (IoT) platform[207](index=207&type=chunk) Revenue Breakdown by Business Line (FY2018-FY2020) | Business Line | FY2018 Revenue % | FY2019 Revenue % | FY2020 Revenue % | | :--- | :--- | :--- | :--- | | Rental Service | 83% | 74% | 9% | | E-Bicycles Sales | 0% | 2% | 66% | | Battery Packs Sales | 17% | 1% | 19% | | Lithium Battery Cell Trading | 0% | 23% | 0% | - Strategic goals for 2021-2025 include achieving at least **1% market share** in China's e-bicycle industry (annual sales of **350,000 units**) and deploying **50,000 smart charging piles**[225](index=225&type=chunk) - The company holds **six registered patents** in China related to battery technology and e-bicycle manufacturing, **nine registered trademarks**, and **12 software copyrights**[48](index=48&type=chunk)[272](index=272&type=chunk)[274](index=274&type=chunk) [Regulations](index=58&type=section&id=Regulations) PRC operations are subject to complex regulations including foreign investment, e-bicycle production, IP, labor, and foreign exchange, with an evolving legal environment creating compliance uncertainties for VIE structures and cross-border data - The PRC's **Foreign Investment Law**, effective **January 1, 2020**, grants national treatment to foreign-invested entities but does not explicitly clarify the status of VIE structures, creating uncertainty[288](index=288&type=chunk)[290](index=290&type=chunk) - E-bicycle production is regulated by mandatory product certification (**CCC**) and must comply with the **"New National Standards" (GB 17761-2018)** which became effective on **April 15, 2019**[296](index=296&type=chunk)[297](index=297&type=chunk) - The PRC Securities Law (**Article 177**) prohibits overseas securities regulators from directly conducting investigations or evidence collection within the PRC, which may hinder regulatory oversight and shareholder claims[333](index=333&type=chunk) [Operating And Financial Review And Prospects](index=66&type=section&id=Item%205.%20Operating%20And%20Financial%20Review%20And%20Prospects) Provides management's analysis of financial performance, highlighting FY2020 revenue surge to $16.8 million from e-bicycle sales, leading to gross margin drop and operating loss, with liquidity supported by operations, shareholder loans, and its January 2021 IPO [Results of Operations](index=67&type=section&id=Results%20of%20Operations) For FY2020, net revenues increased dramatically to $16.8 million from e-bicycle sales, offset by a 58% decrease in rental revenue, causing gross profit margin to plummet from 61% to 11% and leading to an operating loss Revenue Disaggregation (Years ended September 30) | Revenue Source | 2018 | 2019 | 2020 | | :--- | :--- | :--- | :--- | | Rental of lithium batteries and e-bicycles | $2,641,179 | $3,823,058 | $1,595,226 | | Battery cell trading | $0 | $1,186,185 | $0 | | Sales of battery packs | $550,381 | $67,384 | $3,148,156 | | Sales of e-bicycles | $0 | $104,080 | $11,165,290 | | **Total Net Revenues** | **$3,191,560** | **$5,194,259** | **$16,838,508** | - Gross profit margin decreased significantly from **61% in FY2019 to 11% in FY2020**. This was primarily due to the absence of high-margin battery cell trading revenue in 2020 and the shift in revenue mix towards lower-margin e-bicycle sales[368](index=368&type=chunk) - Rental segment revenue decreased by **58% in FY2020** compared to FY2019, mainly due to the impact of COVID-19 and the termination of contracts with major sublease agents[365](index=365&type=chunk) - General and administrative expenses increased by **75% in FY2020 to $1.4 million**, largely due to higher research and development costs for new e-bicycle models[371](index=371&type=chunk) [Liquidity and Capital Resources](index=73&type=section&id=Liquidity%20and%20Capital%20Resources) Historically financed by capital contributions, shareholder loans, and operations, the company held $322,598 cash as of September 30, 2020, and received $9.23 million net proceeds from its January 2021 IPO to support future operations - As of September 30, 2020, the company had cash and cash equivalents of **$322,598** and a working capital of **$9.6 million**[374](index=374&type=chunk) - The company received net proceeds of approximately **$9.23 million** from its Initial Public Offering in **January 2021**, which will be used to fund future operations[373](index=373&type=chunk)[376](index=376&type=chunk) - Net cash provided by operating activities was **$4.0 million in FY2020**, a significant improvement from the **$5.5 million used in FY2019**. This was driven by a decrease in advances to suppliers and an increase in accrued expenses, offset by a large increase in accounts receivable[381](index=381&type=chunk) - Net cash used in investing activities was **$3.3 million in FY2020**, primarily for the purchase of property, equipment, and short-term investments[389](index=389&type=chunk) - Net cash used in financing activities was **$4.0 million in FY2020**, mainly due to the repayment of a **$4.3 million loan** to a shareholder[392](index=392&type=chunk) [Critical Accounting Policies](index=78&type=section&id=Critical%20Accounting%20Policies) Critical accounting policies include U.S. GAAP presentation, VIE consolidation, and estimates, with revenue recognized under ASC Topic 606 for product sales/trading and ASC Topic 840 for rentals, covering discontinued operations - The consolidated financial statements are prepared in accordance with **U.S. GAAP** and include the accounts of the company, its subsidiaries, and its VIE, for which it is the primary beneficiary[402](index=402&type=chunk) - Revenue from product sales (battery packs, e-bicycles) is recognized at a point in time upon customer acceptance. Revenue from battery cell trading is recognized on a net basis as the company acts as an agent. Revenue from rentals is recognized over the rental period[421](index=421&type=chunk)[423](index=423&type=chunk) - The company's previous business of manufacturing battery cells was disposed of in **December 2018** and is accounted for as a discontinued operation in the financial statements[404](index=404&type=chunk)[746](index=746&type=chunk) [Directors, Senior Management And Employees](index=84&type=section&id=Item%206.%20Directors,%20Senior%20Management%20And%20Employees) Provides information on leadership and workforce, listing directors and executive officers, including CEO Jianhui Ye and CFO Jingyan Wu, with a five-member board (three independent), and details executive compensation and significant share ownership - The board of directors consists of **5 members**, including **3 independent directors**. The company has established an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee[461](index=461&type=chunk)[463](index=463&type=chunk) - For the fiscal year ended September 30, 2020, the aggregate cash compensation paid to all directors and senior management was approximately **$24,338**[458](index=458&type=chunk) - As of **February 16, 2021**, directors and executive officers as a group beneficially owned approximately **51.30%** of the company's outstanding ordinary shares, with CEO Jianhui Ye holding **27.99%**[162](index=162&type=chunk)[472](index=472&type=chunk) - As of September 30, 2020, the company had **62 full-time employees**, primarily in business/marketing, administration/finance, and R&D[276](index=276&type=chunk)[277](index=277&type=chunk) [Major Shareholders And Related Party Transactions](index=90&type=section&id=Item%207.%20Major%20Shareholders%20And%20Related%20Party%20Transactions) Details major shareholders, with CEO Jianhui Ye as the largest at 27.99% ownership, and outlines numerous related party transactions including significant e-bicycle purchases and interest-free loans, subject to Audit Committee review - The company's major shareholders include WXYZ Group Ltd. (controlled by CEO Jianhui Ye) with **27.99% ownership** and JKC Investment Holding Co., Ltd. (controlled by Director Di Wu) with **9.81% ownership**[472](index=472&type=chunk) - Significant related party transactions in FY2020 include the purchase of e-bicycles for **$4.54 million** from Changzhou Cenbird Electric Bicycle Manufacturing Co., Ltd. and the repayment of a **$4.29 million interest-free loan** to CEO Jianhui Ye[479](index=479&type=chunk) - The company's operations in China are conducted through a **VIE structure**, which involves a series of contractual arrangements with Jiangsu Baozhe and its shareholders, constituting a significant set of related party agreements[480](index=480&type=chunk) [Financial Information](index=91&type=section&id=Item%208.%20Financial%20Information) Confirms inclusion of consolidated financial statements, discloses two ongoing contract disputes with suppliers totaling $286,000, and states the company has never paid dividends, intending to retain earnings for growth - The company is involved in two contract disputes with suppliers, Anruida and Titans, over alleged defaulted payments totaling approximately **$286,000**[283](index=283&type=chunk)[284](index=284&type=chunk) - The company has never declared or paid dividends and intends to retain all future earnings to finance operations and business expansion[484](index=484&type=chunk) [The Offer And Listing](index=92&type=section&id=Item%209.%20The%20Offer%20And%20Listing) The company's ordinary shares are listed on the Nasdaq Capital Market under "EZGO", with trading commencing January 26, 2021 - The company's ordinary shares began trading on the **Nasdaq Capital Market** on **January 26, 2021**, under the symbol **"EZGO"**[485](index=485&type=chunk) [Additional Information](index=92&type=section&id=Item%2010.%20Additional%20Information) Provides details on the company's BVI corporate structure and governance, outlining shareholder rights, comparing BVI to Delaware law, discussing PRC exchange controls, and summarizing material tax considerations including PFIC risk - The company is incorporated in the **British Virgin Islands (BVI)** and its affairs are governed by its memorandum and articles of association and the BVI Business Company Act[485](index=485&type=chunk) - The company is authorized to issue up to **100,000,000 ordinary shares** with a par value of **$0.001 each**. Each ordinary share is entitled to one vote[487](index=487&type=chunk)[489](index=489&type=chunk) - PRC regulations restrict the conversion of Renminbi for capital-account items, which could affect the company's ability to make direct investments or repatriate funds, although routine current-account transactions like dividend payments are permitted[544](index=544&type=chunk) - The company may be considered a PRC "resident enterprise" for tax purposes if its "de facto management" is in China, which would subject it to a **25% tax** on its worldwide income. There is also a risk of being classified as a **Passive Foreign Investment Company (PFIC)** for U.S. federal income tax purposes, which could have adverse tax consequences for U.S. investors[550](index=550&type=chunk)[563](index=563&type=chunk)[564](index=564&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=109&type=section&id=Item%2011.%20Quantitative%20And%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks, primarily foreign exchange risk (RMB/USD), credit risk (receivables, PRC bank deposits), and inflation risk in China - The company's primary market risk is **foreign exchange risk**, as its operations are in RMB but reporting is in USD. A change in the RMB/USD exchange rate can materially affect reported financial results[579](index=579&type=chunk)[580](index=580&type=chunk) - Credit risk exists from cash deposits held in PRC financial institutions, which do not have insurance rules equivalent to those in the U.S., and from unsecured accounts receivable from customers[581](index=581&type=chunk) PART II [Material Modifications To The Rights Of Security Holders And Use Of Proceeds](index=110&type=section&id=Item%2014.%20Material%20Modifications%20To%20The%20Rights%20Of%20Security%20Holders%20And%20Use%20Of%20Proceeds) The company completed its IPO on January 28, 2021, issuing 2,800,000 ordinary shares at $4.00 each, receiving net proceeds of approximately $9.23 million after expenses - The company's IPO closed on **January 28, 2021**, raising net proceeds of approximately **$9.23 million** after expenses[585](index=585&type=chunk)[586](index=586&type=chunk) [Controls and Procedures](index=110&type=section&id=Item%2015.%20Controls%20And%20Procedures) Management concluded disclosure controls and procedures were ineffective as of September 30, 2020, due to two material weaknesses: insufficient U.S. GAAP/SEC accounting personnel and lack of key monitoring mechanisms, with remediation underway - Management concluded that disclosure controls and procedures were **not effective** as of the end of the fiscal year[587](index=587&type=chunk) - Two **material weaknesses** were identified in internal control over financial reporting: 1) **Lack of sufficient financial reporting and accounting personnel with U.S. GAAP/SEC knowledge**. 2) **Lack of key monitoring mechanisms** like an internal control department[588](index=588&type=chunk) - Remediation efforts include hiring a new Chief Financial Officer on **September 1, 2020**, and working to establish an internal audit department[590](index=590&type=chunk) [Corporate Governance and Other Matters](index=112&type=section&id=Item%2016.%20Corporate%20Governance%20And%20Other%20Matters) Covers corporate governance and compliance, including audit committee financial expert determination, code of ethics adoption, principal accountant fees ($350,000 in FY2019, $200,000 in FY2020), and Nasdaq governance compliance - The board has identified Robert Johnson as an **"audit committee financial expert"**[593](index=593&type=chunk) - A **code of ethics** has been adopted that applies to all executive officers, directors, and employees[594](index=594&type=chunk) Principal Accountant Fees | Fee Type | FY 2019 | FY 2020 | | :--- | :--- | :--- | | Audit fees | $350,000 | $200,000 | PART III [Financial Statements](index=113&type=section&id=Item%2018.%20Financial%20Statements) Contains the company's audited consolidated financial statements for FY2018-2020 by Marcum Bernstein & Pinchuk LLP, including balance sheets, income statements, comprehensive income, equity changes, and cash flows, with notes prepared in U.S. GAAP - The report includes the audited consolidated financial statements for the fiscal years ended **September 30, 2018, 2019, and 2020**[600](index=600&type=chunk) - The independent registered public accounting firm, **Marcum Bernstein & Pinchuk LLP**, issued an opinion stating that the financial statements present fairly, in all material respects, the financial position and results of operations in conformity with **U.S. GAAP**[609](index=609&type=chunk) [Exhibits](index=113&type=section&id=Item%2019.%20Exhibits) Lists all exhibits filed, including governing documents, securities descriptions, various VIE agreements forming its China corporate structure, and CEO/CFO certifications - Key exhibits filed with the report include the company's governing documents, descriptions of securities, and the **full set of VIE contractual agreements**[601](index=601&type=chunk)