Chijet Motor pany(CJET) - 2024 Q4 - Annual Report

Introduction Chijet Motor Company, Inc. is a Cayman Islands holding company engaged in the research, development, production, and sales of new energy vehicles (NEVs) - Chijet Motor Company, Inc. is a Cayman Islands holding company engaged in the research, development, production, and sales of new energy vehicles (NEVs)[17] - The company conducts its operations in mainland China primarily through its majority-owned subsidiaries, Shandong Baoya New Energy Vehicle Co., Ltd. and FAW Jilin Automobile Co., Ltd[17] - The company became public in June 2023 following a reorganization and a business combination with Jupiter Wellness Acquisition Corp. (JWAC)[18] PART I This section provides a comprehensive overview of the company's business, financial performance, governance, and market risks, detailing its operations as a Cayman Islands holding company with PRC subsidiaries Key Information This section details the company's holding structure, significant legal and operational risks from its China-based operations, regulatory landscape including PRC government permissions and cybersecurity reviews, and the implications of the U.S. HFCAA, alongside restrictions on cash and asset flows from PRC subsidiaries - Chijet Motor is a Cayman Islands holding company, not a direct operating company in China, with operations conducted through PRC-based subsidiaries, exposing it to significant risks from PRC laws and potential government intervention[27][28] - The company is subject to PRC regulations on overseas securities offerings, including the CSRC's Filing Rules effective March 31, 2023, and cybersecurity reviews by the Cyberspace Administration of China (CAC) if it possesses personal information of more than one million users[30][32] - The Holding Foreign Companies Accountable Act (HFCAA) poses a risk of delisting from U.S. exchanges if the PCAOB is unable to inspect the company's China-based auditor for two consecutive years, although the PCAOB regained inspection access in December 2022, this status is subject to annual review[34] - Cash and asset transfers from PRC subsidiaries are restricted, with restricted amounts, including paid-up capital and statutory reserves, totaling US$148.31 million as of December 31, 2024[35][36] Inter-company Cash Transfers (in thousands USD) | Description | 2024 (thousands USD) | 2023 (thousands USD) | 2022 (thousands USD) | | :--- | :--- | :--- | :--- | | Cash transferred to subsidiaries from Shandong Baoya | $3,202 | $3,917 | $7,744 | | Cash transferred to Shandong Baoya from its subsidiaries | $1,251 | $4,406 | $9,612 | Risk Factors The company faces substantial risks including operating losses, a going concern warning, loan agreement breaches, operational challenges, evolving PRC regulatory and cybersecurity risks, U.S. HFCAA delisting threats, and financial constraints - The company has a history of significant operating losses and has received an explanatory paragraph from its independent auditor regarding its ability to continue as a going concern[54][55] Net Loss History (in millions USD) | Year Ended December 31 | Net Loss (millions USD) | | :--- | :--- | | 2024 | $69.01 | | 2023 | $98.50 | | 2022 | $111.52 | - The company is in breach of several loan agreements, including failing to meet conditions for two interest-free loans totaling approximately US$95.16 million with a penalty of US$716,781, and subsidiary FAW Jilin defaulting on payments with an outstanding principal and interest of US$189.26 million as of May 15, 2025[64][69][70] - The business is exposed to risks from the Holding Foreign Companies Accountable Act (HFCAA), which could lead to delisting from U.S. exchanges if the PCAOB is unable to inspect its China-based auditor[205][206][208] - Operations are subject to PRC government intervention, evolving cybersecurity laws, and complex regulations for overseas listings, which could materially impact business and share value[209][214][217] Information on the Company This section details Chijet Motor's history, corporate structure, and business operations, including its NEV product lines, technological innovations, manufacturing, sales, R&D, intellectual property, and the complex Chinese regulatory environment History and Development of the Company Chijet Motor, a Cayman Islands holding company, was incorporated in 2022, operates through PRC subsidiaries, completed a business combination with JWAC in 2023, and adopted a dual-class share structure in 2025 - The company was incorporated in the Cayman Islands on June 14, 2022, and operates in China through its majority-owned subsidiaries, Shandong Baoya and FAW Jilin[312][313] - A business combination with Jupiter Wellness Acquisition Corp. (JWAC) was completed in June 2023, making Chijet Motor a public company[321] - In January 2025, the company adopted a dual-class share structure, creating Class A ordinary shares (1 vote per share) and Class B ordinary shares (20 votes per share)[327] Business Overview Chijet develops, produces, and sells NEVs and traditional fuel vehicles, including R7, V80, and T80 models, focusing on innovations like in-wheel motors and solid-state batteries, with sales through distributors and a portfolio of 110 patents - The company's main business includes the design, development, production, and sales of new energy vehicles (NEVs) and traditional fuel vehicles, with passenger vehicles like the R7 SUV and commercial vehicles like the T80 and V80 trucks[332][334][337] Revenue Contribution by Vehicle Model (as % of total vehicle sales revenue) | Model | 2024 (%) | 2023 (%) | 2022 (%) | | :--- | :--- | :--- | :--- | | R7 SUV | 98% | 79% | 76% | | V80 Truck | 0% | 7% | 5% | | T80 Truck | 2% | 9% | 18% | - Key technological innovations in development include in-wheel motors, solid-state batteries, intelligent cockpits, and domain controllers, in collaboration with partners like Yantai University and Beijing Welion New Energy[338][339][340] - As of December 31, 2024, the company holds 110 granted patents in the PRC, including 3 for invention, 76 for utility models, and 31 for appearance[370] - A substantial portion of sales is concentrated among a few key customers, who accounted for 22% of total sales in 2024, 22% in 2023, and 48% in 2022[374] Operating and Financial Review and Prospects This section analyzes the company's financial performance, liquidity, and critical accounting policies, highlighting a 27% revenue decrease, 30% net loss improvement, severe liquidity challenges, and negative operating cash flow Operating Results In fiscal year 2024, revenues decreased by 27% to $6.92 million, while net loss improved by 30% to $69.01 million, driven by significant reductions in R&D and SG&A expenses Consolidated Results of Operations (in thousands USD) | Metric | 2024 (thousands USD) | 2023 (thousands USD) | 2022 (thousands USD) | | :--- | :--- | :--- | :--- | | Total Revenues | $6,915 | $9,483 | $14,961 | | Gross Loss | ($24,826) | ($32,763) | ($38,325) | | R&D Expenses | $1,478 | $8,398 | $13,772 | | SG&A Expenses | $30,864 | $47,281 | $65,324 | | Loss from Operations | ($57,280) | ($88,725) | ($118,263) | | Net Loss | ($69,005) | ($98,501) | ($111,518) | - Revenues decreased by 27% in 2024 compared to 2023, driven by a 17% decline in vehicle sales and a 71% drop in sales of vehicle parts and accessories[526] - R&D expenses decreased by 82% in 2024 to $1.48 million, as some projects were completed in 2023 and spending was adjusted to match financing progress[531] - Net loss decreased by 30% in 2024 to $69.01 million, primarily due to significant reductions in operating expenses[536] Liquidity and Capital Resources The company faces severe liquidity constraints with a $510.89 million working capital deficit and insufficient cash for future operations, raising substantial doubt about its going concern ability - As of December 31, 2024, the company had a working capital deficit of US$510.89 million and cash and cash equivalents of US$3.71 million[549] - Management has concluded that available cash is insufficient to meet working capital and capital expenditure requirements for at least the next 12 months, indicating a need for additional financing[552][553] Summary of Consolidated Cash Flows (in thousands USD) | Cash Flow Activity | 2024 (thousands USD) | 2023 (thousands USD) | 2022 (thousands USD) | | :--- | :--- | :--- | :--- | | Net cash (used in) / provided by operating activities | ($25,464) | ($40,017) | $22,383 | | Net cash (used in) investing activities | ($1,058) | ($1,762) | ($13,245) | | Net cash provided by financing activities | $13,638 | $5,225 | $1,380 | Directors, Senior Management and Employees This section details the company's leadership, compensation, board structure, and employee base, including executive officers, director compensation of $480,853 in 2024, a 2023 Share Incentive Plan, and 1,389 employees with 74% in production - The company's leadership includes founders Mu Hongwei (CEO & Director), Zhang Jiannong (Director), and Wu Lichun (Director)[578] - Aggregate compensation paid to executive officers and directors for the fiscal year ended December 31, 2024, was $480,853, with an additional $41,100 in social benefits for executive officers[599] - In May 2023, the company adopted a Share Incentive Plan, reserving 5% of the aggregate number of ordinary shares issued and outstanding for awards to officers, employees, directors, and consultants[604][607] Employee Breakdown by Function (as of Dec 31, 2024) | Functions | Number | Percentage (%) | | :--- | :--- | :--- | | Research and Development | 85 | 6.12% | | Production | 1,028 | 74.01% | | Sales and Marketing | 42 | 3.02% | | General and Administrative Support | 234 | 16.85% | | Total | 1,389 | 100% | Major Shareholders and Related Party Transactions This section identifies major shareholders, including Euroamer Kaiwan and Chijet Holdings, who collectively control approximately 57% of voting power, and details significant related party transactions, including substantial outstanding and defaulted loans - As of April 22, 2025, executive officers and directors as a group beneficially own approximately 56.99% of the company's voting power, primarily through holdings by Euroamer Kaiwan Technology Company Limited (controlled by director Wu Lichun) and Chijet Holdings Limited (controlled by CEO Mu Hongwei)[644][645] - The company has significant loan agreements with related parties, including an outstanding loan from Yantai Public Transportation Co., Ltd with a principal of US$101.38 million, which has resulted in the freezing of land use rights valued at US$25.64 million[657] - Subsidiary FAW Jilin is in default on loans from FAW Finance Co., Ltd., an affiliate of its non-controlling shareholder, with an outstanding principal of US$157.75 million as of December 31, 2024, secured by assets valued at US$107.53 million[660] - On March 24, 2025, the company issued 1,600,000 Class B shares (20 votes per share) to major shareholders Chijet Holdings Limited and Euroamer Kaiwan Technology Company Limited in exchange for 1,624,910 Class A shares, consolidating their voting control[664] Financial Information This section confirms the inclusion of consolidated financial statements, notes ongoing legal proceedings, states no dividends have been paid, and highlights the planned acquisition of 'Too Express' as a significant subsequent event - The company has never declared or paid any dividends on its Class A ordinary shares and does not anticipate doing so in the future[670] - A significant change is expected in the next six months due to the planned acquisition of "Too Express," a delivery business company, which is intended to create business synergy and improve the company's financial situation starting in 2025[671] The Offer and Listing The company's Class A ordinary shares are listed and traded on the Nasdaq Capital Market under the ticker symbol "CJET", commencing on June 1, 2023 - The company's Class A ordinary shares are listed on the Nasdaq Capital Market under the symbol "CJET" and began trading on June 1, 2023[672] Additional Information This section details the company's corporate structure, dual-class share rights, PRC exchange controls, and comprehensive tax considerations for investors, including risks of being classified as a PRC resident enterprise or a PFIC - The company has a dual-class share structure consisting of Class A ordinary shares (1 vote per share) and Class B ordinary shares (20 votes per share, with 30,887,525 Class A and 1,600,000 Class B shares outstanding as of May 15, 2025)[678][679] - PRC regulations impose strict controls on foreign currency exchange, particularly for capital account items, which may limit the ability to transfer funds out of China for dividends or other purposes[732][733] - There is a risk that the company could be classified as a PRC "resident enterprise" for tax purposes, which would subject it to a 25% tax on its worldwide income and could result in PRC withholding tax on dividends paid to foreign shareholders[742][744] - The company may be classified as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, which could result in adverse tax consequences for U.S. shareholders[287][773] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate risk from floating-rate loans, managed by monitoring debt structure, and inflation risk in China, which could increase future operating costs - The company's market risk exposure is primarily related to interest rate risk from floating-rate loans and inflation risk in China[800][802] - Interest rate risk is managed by monitoring the balance between fixed and floating-rate loans, while inflation has not been a material factor to date but could increase future operating costs[800][802] PART II This section addresses the company's defaults on indebtedness, material modifications to security holder rights, effectiveness of controls and procedures, and corporate governance practices, including cybersecurity risk management Defaults, Dividend Arrearages and Delinquencies As of May 15, 2025, the company was in default on approximately $284.84 million of outstanding indebtedness, including loans by subsidiary FAW Jilin and for the Xiangyang electric vehicle project - As of May 15, 2025, the company was in default on approximately US$284.84 million of outstanding indebtedness[810] - Subsidiary FAW Jilin defaulted on loan payments due on November 1, 2022, 2023, and 2024, with an aggregate outstanding principal and interest of US$189.26 million as of May 15, 2025[814] - The company defaulted on a US$95.16 million loan for its Xiangyang project after missing the July 2022 repayment deadline, resulting in a penalty of US$716,781 and the pledging of assets worth US$37.74 million[814] Material Modifications to the Rights of Security Holders and Use of Proceeds Effective March 24, 2025, the company materially modified security holder rights by implementing a dual-class stock structure with Class B shares carrying twenty votes per share - Effective March 24, 2025, the company implemented a dual-class common stock structure, creating Class A shares (one vote per share) and Class B shares (twenty votes per share)[811] Controls and Procedures Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2024 - Management concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[813] - Based on an assessment using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2024[815][816] Corporate Governance and Other Disclosures This section covers corporate governance, including the change of certifying accountant to Assentsure PAC, adherence to Cayman Islands home country practices as a foreign private issuer, and implementation of a board-overseen cybersecurity risk management program - On January 28, 2024, the company changed its independent registered public accounting firm from UHY, LLP to Assentsure PAC[826] - On February 21, 2025, the company entered into an agreement to acquire 80% of Too Express Group Inc., a delivery business, for 23,255,814 Class A Ordinary Shares valued at US$40 million, with the transaction closing on March 14, 2025[825] - As a foreign private issuer, the company follows certain home country (Cayman Islands) corporate governance practices, exempting it from some Nasdaq requirements, such as certain shareholder approval rules and committee composition standards[831][832][833] - The company has established a cybersecurity risk management framework, with oversight from the board of directors and management-level responsibility for assessing and managing cyber risks[839][842][843] PART III This section presents the company's audited consolidated financial statements, including the independent auditor's report with a going concern doubt, balance sheets, statements of operations, and notes on significant accounting policies and subsequent events Financial Statements This section presents the audited consolidated financial statements, including the independent auditor's report expressing substantial doubt about the company's going concern ability due to a $69.01 million net loss and $510.89 million capital deficiency in 2024 - The independent auditor's report expresses substantial doubt about the company's ability to continue as a going concern, citing a net loss of US$69.01 million for the year ended December 31, 2024, and a capital deficiency of US$510.89 million[859] Consolidated Balance Sheet Highlights (in thousands USD) | Account | Dec 31, 2024 (thousands USD) | Dec 31, 2023 (thousands USD) | | :--- | :--- | :--- | | Total Assets | $470,785 | $536,451 | | Total Current Assets | $62,419 | $90,828 | | Property, plant and equipment, net | $155,818 | $181,377 | | Total Liabilities | $616,271 | $615,325 | | Total Current Liabilities | $573,309 | $525,054 | | Total Deficit | ($145,486) | ($78,874) | - The business combination with JWAC on June 1, 2023, was accounted for as a "reverse recapitalization," with Chijet Motor treated as the accounting acquirer[885] - Subsequent to year-end, the company acquired 80% of Too Express Group Inc. on March 14, 2025, for 23,255,814 Class A shares valued at US$40 million[1104]