Jin Med(ZJYL) - 2025 Q4 - Annual Report

Corporate Structure and Regulatory Environment - Jin Med's holding company structure involves a variable interest entity (VIE) in China, with no direct equity ownership, controlling operations through contractual agreements[26]. - The company is subject to significant risks due to regulatory changes in China, which could materially impact operations and the value of its Ordinary Shares[30]. - The PCAOB's ability to inspect auditors in China has been a concern, affecting investor confidence in the financial statements of China-based companies[41]. - The VIE Agreements have not been tested in court, posing risks regarding control over the VIE and potential operational changes[28]. - The company operates through a variable interest entity (VIE) structure, with assets and liabilities of Changzhou Zhongjin treated as its own under U.S. GAAP[95]. - The PRC government may impose severe penalties if the VIE agreements are found non-compliant with regulations, potentially leading to a decline in the value of Ordinary Shares[94]. - The company relies on contractual arrangements with Changzhou Zhongjin, which may not provide effective operational control compared to direct ownership[97]. - The legal environment in the PRC presents uncertainties that could limit the company's ability to enforce contractual arrangements with its VIE[100]. - The company may face delays in using proceeds from offerings due to PRC regulations on loans and capital contributions to its PRC subsidiary[111]. - The Chinese government exerts substantial control over business operations, which could materially change operations and affect the value of securities[136]. - The revised Provisions require domestic companies to obtain approval for disclosing documents containing state secrets before overseas listings, adding compliance complexity[144]. - The company may lose its foreign private issuer status if more than 50% of its Ordinary Shares are held by U.S. residents, which would result in significant additional legal and accounting expenses[203]. Financial Performance and Capital Structure - During the fiscal year ended September 30, 2024, Jin Med transferred approximately $1.3 million to Anhui Zhongjin for capital injection, while no cash transfers occurred in the previous two fiscal years[32]. - Jin Med's ability to distribute earnings to U.S. investors is limited by Chinese regulations, requiring dividends to be paid only from accumulated after-tax profits[33]. - As of September 30, 2024, the company had cash of approximately $8.1 million and short-term investments of $18.6 million, with total current assets of approximately $42.8 million and total current liabilities of approximately $17.2 million[74]. - The company may need to engage in capital-raising transactions in the near future, which could cause substantial dilution to shareholders[74]. - The company does not intend to pay dividends for the foreseeable future, opting to retain earnings for business operation and expansion[204]. - An aggregate of 156,547,100 Ordinary Shares are outstanding as of January 14, 2025, with certain shares classified as "restricted securities" under Rule 144, which may affect market price[206]. - The company closed its IPO on March 30, 2023, offering 1,000,000 Ordinary Shares at $8.00 per share, raising total gross proceeds of $8,000,000[226]. - An additional 47,355 Ordinary Shares were purchased at the IPO price, increasing total gross proceeds to $8,378,840[227]. Operational Risks and Market Conditions - The company faces risks related to potential delisting from Nasdaq if it fails to comply with continued listing requirements, which could limit market access for its shares[50]. - The company has faced significant disruptions due to the COVID-19 pandemic, which materially impacted operations and revenues in 2020, although operations have since recovered to pre-pandemic levels[58]. - The company is exposed to raw material price fluctuations, particularly in aluminum and steel, which have experienced unexpected volatility in recent years[60]. - The company faces intense competition in the wheelchair and living aids markets, particularly in Japan and the PRC, which could impact market share and profitability[54]. - The future impact of COVID-19 on the company's business remains uncertain, with potential negative effects on operations and financial condition[92]. - A severe or prolonged downturn in the global or Chinese economy could materially and adversely affect the company's business and financial condition[110]. Compliance and Internal Controls - The company identified material weaknesses in its internal control over financial reporting, including a lack of qualified accounting staff and formal internal controls[182]. - Remedial measures include hiring qualified accounting personnel and implementing U.S. GAAP training programs[182]. - The company appointed independent directors and established an audit committee to address identified weaknesses[182]. - The company is subject to the Sarbanes-Oxley Act, requiring management to report on internal controls over financial reporting[183]. - Failure to correct material weaknesses could lead to inaccuracies in financial statements and impair compliance with reporting requirements[184]. - The company is a foreign private issuer, resulting in less publicly available information compared to U.S. domestic issuers[185]. Taxation and Financial Liabilities - The favorable tax rate of 15% for Changzhou Zhongjin and Taizhou Zhongjin as New and High-Tech Enterprises could increase to 25% if their certifications are lost, resulting in higher tax liabilities of $651,510, $374,530, and $270,220 for the fiscal years ended September 30, 2025, 2024, and 2023, respectively[71]. - The classification as a "Resident Enterprise" under the EIT Law could result in a 25% enterprise income tax on worldwide income, affecting profitability[120]. - The company may be subject to unfavorable tax consequences if classified as a "Resident Enterprise," including a 10% withholding tax on dividends to non-PRC shareholders[122]. - The PRC tax authorities may challenge related party transactions, potentially resulting in additional tax liabilities that could negatively affect the company's financial results[105]. Management and Governance - The CEO, Mr. Erqi Wang, owns over 50% of the Company's Ordinary Shares, granting him significant control over shareholder decisions and corporate transactions[181]. - The company is dependent on certain key personnel, and the loss of these individuals could materially affect business operations[75]. - The company relies on a longstanding relationship with Nissin, as there is no long-term agreement in place, which poses a risk to revenue stability[55]. Product and Market Development - The company is exploring markets for electric wheelchairs and other living aids products, but has faced regulatory challenges, delaying product rollouts[83]. - The company has approximately 121 patents and has filed approximately 6 additional patent applications with the Patent Administration Department of the PRC[78]. - The company does not carry product liability insurance in Japan and China, which could expose it to significant financial risks from potential claims[65]. - The company relies on third-party logistics service providers for product delivery, and disruptions in logistics may adversely affect business operations[89].