MingZhu Logistics(YGMZ) - 2024 Q4 - Annual Report

PART I Key Information This section outlines significant investment risks related to corporate structure, China operations, and business specifics Risk Factors Details specific risks including the VIE structure, customer concentration, PRC regulations, and internal control weaknesses - The company operates through a VIE structure in China, meaning investors hold shares in a Cayman Islands holding company, not the PRC operating entities, which carries significant legal and regulatory risks[36][37] - The Holding Foreign Companies Accountable Act (HFCAA) poses a risk of trading prohibition on U.S. exchanges if the PCAOB cannot inspect the company's auditor for two consecutive years[84][86][90] - The company has identified a material weakness in its internal control over financial reporting due to a lack of sufficient skilled staff with knowledge of U.S. GAAP and SEC reporting requirements[185][700] - A significant portion of revenue comes from a small number of major customers, with the top five accounting for 73.6% of total revenue in fiscal year 2024, indicating increasing concentration risk[122] - The company faces cybersecurity risks and must comply with evolving PRC laws, where failure could result in significant penalties and reputational damage[96][98] Information on the Company Provides an overview of the company's history, diversified business operations, and VIE-based corporate structure History and Development of the Company Details the company's incorporation, IPO, strategic acquisitions, and recent corporate actions like a reverse stock split - Completed its IPO on the Nasdaq Capital Market on October 21, 2020, raising gross proceeds of $12 million[232] - Acquired Yinhua in March 2022 to enter the car owner services market, providing services to insurance companies[238][240] - Acquired Feipeng BVI in December 2022 to expand its regional trucking services, particularly in Xinjiang[242] - Acquired Alliance BVI in May 2023, entering the liquor distribution business in China[243] - On July 1, 2024, the company executed a 1-for-8 reverse stock split of its ordinary shares[247] - In January 2025, the company agreed to sell up to 120 million restricted ordinary shares to non-U.S. persons at $0.40 per share[251] Business Overview Details the company's diversified operations in trucking, car owner services, and liquor distribution within the PRC - The company's business is diversified into three main segments: Trucking Services, Car Owner Services, and Liquor Distribution[255][261] - Trucking services, the core business, operate from terminals in Guangdong and Xinjiang and is accredited as a 4A-grade trucking service provider[263][304] - Car owner services are provided through the VIE Zhisheng, offering value-added services for auto insurance companies[264][265] - Liquor distribution is conducted through the VIE Liquor Alliance, focusing on the wholesale of Baijiu and other Chinese spirits[268] Intellectual Property Portfolio | Type | Count | | :--- | :--- | | PRC Patents | 6 (1 invention, 5 utility) | | PRC Copyrights | 17 (16 software, 1 art-work) | | PRC Trademarks | 1 | | Domain Names | 1 | Organizational Structure Explains the Cayman Islands holding company structure and its reliance on VIE agreements to control PRC operations - The company is a Cayman Islands holding company that controls its key PRC operating entities through VIE agreements rather than direct ownership[354][357] - The VIE structure is subject to significant risks, including potential unenforceability of contracts under PRC law and adverse regulatory changes[358][359][361] - The company controls three main VIEs: Liquor Alliance (liquor distribution), Zhisheng (car owner services), and Feipeng (regional trucking services)[363][382][396] Operating and Financial Review and Prospects Analyzes financial performance, highlighting a significant revenue decrease and net loss in FY2024 due to strategic shifts Operating Results Presents a 54.6% revenue decrease to $40.4 million and a net loss of $6.2 million for fiscal year 2024 Consolidated Results of Operations (2024 vs. 2023) | Metric | 2024 | 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $40,429,750 | $89,002,243 | (54.6)% | | Gross Profit | $792,796 | $3,074,106 | (74.2)% | | Gross Margin | 2.0% | 3.5% | - | | (Loss)/Income from Operations | $(4,034,531) | $848,898 | (575.3)% | | Net (Loss)/Income | $(6,187,511) | $365,091 | (1794.8)% | Consolidated Results of Operations (2023 vs. 2022) | Metric | 2023 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $89,002,243 | $63,515,071 | 40.1% | | Gross Profit | $3,074,106 | $2,715,597 | 13.2% | | Gross Margin | 3.5% | 4.3% | - | | Income/(Loss) from Operations | $848,898 | $(100,052) | n/a | | Net Income/(Loss) | $365,091 | $(58,327) | n/a | - The significant revenue decrease in 2024 was attributed to a decline in revenues from the Guangdong region and a strategic shift to a platform-based logistics company[469] - The increase in revenue in 2023 was primarily attributable to the acquisition of certain subsidiaries and VIEs in 2023 and 2022[479] Liquidity and Capital Resources Details the company's cash position, cash flows, and capital resources, noting reliance on PRC subsidiary distributions Cash and Cash Equivalents by Jurisdiction (As of Dec 31, 2024) | Jurisdiction | Amount (USD) | | :--- | :--- | | Cayman | $240,307 | | BVI | $8,106 | | Hong Kong | $129,128 | | PRC - subsidiaries | $33,264 | | PRC - VIEs | $287,434 | | Total | $698,239 | Summary of Cash Flows (For the year ended Dec 31) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(2,593,308) | $(12,351,357) | | Net cash used in investing activities | $(580,364) | $89,950 (provided) | | Net cash provided by financing activities | $491,084 | $12,037,761 | - The company has not made any dividend distributions to U.S. investors and intends to retain future earnings to finance business expansion[503][506] - The company is involved in two notable legal proceedings, including a contract dispute with a claim of RMB 1.67 million and a loan dispute resulting in a judgment to pay RMB 23.38 million[306][307][510][511] Directors, Senior Management and Employees Provides information on the company's leadership, compensation, board structure, and employee base Executive Officers and Directors | Name | Position | | :--- | :--- | | Jinlong Yang | Chairman of the Board of Directors and Chief Executive Officer | | Jingwei Zhang | Chief Financial Officer, Director | | Mikael Charette | Independent Director | | Zhi Xia | Independent Director | | Jie Zhong | Independent Director | - For the fiscal year ended December 31, 2024, the aggregate cash compensation paid to all directors and senior management was $54,000[537] - The Board has established an Audit, Compensation, and Nominating and Corporate Governance committee, all composed of independent directors[542][543][544] - As of December 31, 2024, the company had 26 full-time employees, primarily in management, administration, and operations[302] - On March 20, 2024, the company adopted the 2024 Incentive Plan to register 5,000,000 ordinary shares for issuance[538] Major Shareholders and Related Party Transactions Details the company's major shareholders and significant transactions and balances with related parties Beneficial Ownership of Executive Officers and Directors | Name | Beneficial Ownership | Percentage of Outstanding Shares | | :--- | :--- | :--- | | Jinlong Yang | 675,000 | 0.88% | | All directors and executive officers as a group (5 individuals) | 675,000 | 0.88% | Related Party Balances (as of Dec 31, 2024) | Type | Amount (USD) | | :--- | :--- | | Amount due from related parties | $1,279,069 | | Amount due to related parties | $6,825,203 | - Related parties have provided significant guarantees and collateral for the company's bank borrowings, totaling approximately $3.3 million in carrying amount as of December 31, 2024[556][961] Financial Information Refers to the full consolidated financial statements and outlines the company's policy of retaining earnings for reinvestment - The company's consolidated financial statements are located at the end of the Form 20-F, beginning on page F-1[560] - The company has never declared a dividend and does not plan to in the foreseeable future, intending to retain earnings for business growth[561] Additional Information Covers details on share capital, material contracts, exchange controls, and key taxation considerations - The company is authorized to issue 100,000,000 ordinary shares with a par value of $0.008 each[571][580] - Material contracts in the last two years include acquisition agreements and several securities purchase agreements for financing[619][621][622][624] - The company is subject to PRC foreign exchange controls, where Renminbi is not freely convertible and fund transfers require government approval[627][628] - There is a risk the company could be classified as a PRC resident enterprise, which would subject its global income to a 25% PRC enterprise income tax[635][636] - 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[207][656] Quantitative and Qualitative Disclosures About Market Risk Details the company's exposure to interest rate, foreign exchange, and liquidity risks - The company is exposed to interest rate risk from its debt; a hypothetical 1% change in interest rates would have affected 2024 profit by approximately $36,000[675] - Significant foreign exchange risk exists as almost all revenues and costs are in RMB, but financial statements are reported in USD[676] - Credit risk is managed through ongoing evaluation of customers, with maximum loss represented by the carrying amount of financial assets[672][678] PART II Material Modifications to the Rights of Security Holders and Use of Proceeds Outlines the use of proceeds from financing activities for strategic acquisitions and general corporate purposes - Net proceeds from the IPO and subsequent offerings were used to fund acquisitions and for general corporate purposes[688][689][690] - As of the date of the annual report, the company had 76,679,065 ordinary shares outstanding[693] Controls and Procedures Discloses that disclosure controls were not effective due to a material weakness in internal control over financial reporting - Management concluded that as of December 31, 2024, the company's disclosure controls and procedures were not effective[695] - A material weakness was identified in internal control over financial reporting due to a lack of sufficient skilled staff with U.S. GAAP and SEC reporting knowledge[700] - Remediation plans include hiring additional experienced accounting personnel and providing regular training[702] Corporate Governance and Other Disclosures Covers governance topics including the audit committee, accountant fees, and reliance on home country practices - Mr. Jie Zhong is designated as the "audit committee financial expert"[706] Principal Accountant Fees (2024) | Fee Category | Amount (USD) | | :--- | :--- | | Audit Fees | $140,000 | | Audit-Related Fees | $30,000 | | Total | $170,000 | - On February 27, 2025, the company dismissed Audit Alliance LLP and appointed Li CPA LLC as its independent registered public accounting firm[714][710] - As a foreign private issuer, the company follows certain Cayman Islands home country practices, exempting it from some Nasdaq corporate governance rules[715][721] - The company has implemented a cybersecurity risk management framework and reported no material incidents for the year ended December 31, 2024[722][723][724] PART III Financial Statements Presents the company's consolidated financial statements and reports from its independent auditors Consolidated Balance Sheet Highlights (As of Dec 31) | Metric (USD) | 2024 | 2023 | | :--- | :--- | :--- | | Total Assets | $90,331,803 | $127,354,302 | | Total Liabilities | $45,578,500 | $82,797,349 | | Total Shareholders' Equity | $44,753,303 | $44,556,953 | Consolidated Statement of Income Highlights (Year Ended Dec 31) | Metric (USD) | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Revenues | $40,429,750 | $89,002,243 | $63,515,071 | | Net (Loss)/Income from Continuing Operations | $(6,187,511) | $365,091 | $(58,327) | | Net (Loss)/Income | $(6,187,511) | $(9,579,760) | $1,896,188 | | Basic EPS (USD) | $(1.31) | $(2.98) | $0.71 | Consolidated Statement of Cash Flows Highlights (Year Ended Dec 31) | Metric (USD) | 2024 | 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(2,593,308) | $(10,079,465) | | Net cash (used in)/provided by investing activities | $(580,364) | $89,950 | | Net cash provided by financing activities | $491,084 | $8,553,064 | | Cash at end of year | $698,239 | $4,004,740 | Notes to the Consolidated Financial Statements Provides detailed explanations of accounting policies, significant events, and financial data composition - On December 30, 2023, the company disposed of its interest in Cheyi BVI, with results reclassified as discontinued operations for all periods presented[768][868] - For the year ended December 31, 2024, the company recorded a credit loss of $2.6 million under the CECL model[814][815] - As of December 31, 2024, goodwill on the balance sheet totaled $41.1 million from acquisitions, with no impairment identified[881][883] - The company's VIEs are consolidated based on contractual agreements that grant effective control and economic benefits despite lacking direct equity ownership[901][902][920][936] - Subsequent to year-end, the company issued 70 million restricted ordinary shares and received a delisting notice from Nasdaq for failing to meet the minimum bid price requirement[1003][1004]