Shenzhen seller files lawsuit after being owed more than $5 million

Shenzhen-based seller Gemtek has filed a major lawsuit against an American company, demanding compensation for overdue payments and losses of more than $5 million. After three consecutive years of losses, Gemtek has turned a profit in the first half of this year, but after encountering overdue payments, it remains to be seen whether the company can get rid of its losses.

JMET sues supplier for overdue payment

Yesterday, Gemet announced that the company had filed a major lawsuit. The plaintiff Gemet required the defendant Incipio LLC to pay overdue payments and compensate for losses, with the amount involved being US$5,120,944.16.

Gemet's lawsuit requests are:

1. Request the court to order Incipio LLC to pay the overdue payment of USD 5,120,944.16 to Gemtek;

2. Request the court to order Incipio LLC to compensate Gemet for all losses caused by breach of contract and unfair competition, including actual losses, special losses, consequential losses, interest, attorney fees and other expenses;

3. To the maximum extent permitted by law, request the court to order Incipio LLC to award punitive damages to Gemtek.

This lawsuit is related to the same matter as the lawsuit previously filed by Gemtek against Incipio Technologies, Inc. (a California company) in the United States District Court, Central District of California.

On December 12, 2016 , Gemet signed a master supplier contract with Incipio Technologies, Inc. Since 2019, Incipio Technologies, Inc. has defaulted on payments to Gemet, and owes a total of $5,120,944.16 to date. Therefore, Gemet filed a lawsuit against Incipio Technologies, Inc., demanding payment of overdue payments and compensation for losses.

On June 15, 2022 , Gemet signed a master supplier agreement with Vinci Brands LLC (a Delaware company). As of now, Vinci Brands LLC owes Gemet a total of US$7,455,761.47 in payments.

In addition, between December 2022 and January 2023, after Gemtek sent a collection letter to Vinci Brands LLC, Vinci Brands LLC canceled several orders, causing Gemtek's material losses totaling $242,000.00. Therefore, Gemtek filed a lawsuit against Vinci Brands LLC, demanding payment of overdue payments and compensation for all losses.

The case was accepted by the court on March 6, 2023, U.S. time , and the court was the United States District Court, Central District of California. The plaintiff was Gemtek, and the defendants were Vinci Brands LLC and Incipio Technologies, Inc.

During the investigation of the above case , Gemtek discovered that the parties involved also included Incipio, LLC, an affiliate of Incipio Technologies, Inc. In order to safeguard the interests of the company and ensure the smooth progress of previous litigation cases, in accordance with the jurisdictional principles of U.S. law, the company filed a separate lawsuit with the Superior Court of California County of Orange (Orange County Superior Court, California, U.S.A.). The defendant is Incipio, LLC , and the court accepted the case on October 11, 2024, U.S. time .

The total amount of overdue payments owed by Incipio Technologies, Inc. and Incipio, LLC to Gemtek was USD 5,120,944.16. However, because the cases involving the two affiliated entities were heard in different courts in California, in order to protect the creditor's rights to the greatest extent, Gemtek filed a lawsuit against Incipio, LLC based on the total amount of USD 5,120,944.16 owed by the two affiliated entities .

The attorneys for this lawsuit are Michael DiNardo and Faye Deng, practicing attorneys in California, USA, and they work for YK Law, LLP. The lawsuit has not yet been heard in court .

According to Gemtek, the impact of this lawsuit on the company's current or future profits cannot be determined. However, according to analysis by industry insiders, this may affect Gemtek's profits this year.

After three consecutive years of losses, Gemtek's profit this year may be affected

In the first half of this year, JMET's net profit turned from loss to profit, achieving a good result of more than 1.6 times. The company achieved operating income of 431 million yuan, an increase of 76.65% over the same period last year ; and achieved a net profit attributable to the parent company of 18.6327 million yuan, an increase of 168.15% over the same period last year.

Founded in Shenzhen in 2006, JMET is engaged in the research and development, design and production of mobile phone accessories. Its core product is mobile phone cases. The company has in-depth cooperation with mobile phone manufacturers such as Huawei, Samsung, and Apple. In August 2020, it entered the capital market on the same day as Anker Innovations and was promoted to a hot seller after listing. It is known as the "No. 1 mobile phone case stock" in China.

Although it entered the capital market on the same day as Anker Innovations, its fate was different from that of Anker Innovations, with its revenue and profits soaring . In the second year of its listing, the company began to make losses, and suffered losses for three consecutive years from 2021 to 2023.

In 2020, its first year of listing, Gemtek's revenue was 855 million yuan and its net profit was 106 million yuan ; in 2021, its revenue dropped to 715 million yuan, with a net profit of only 28.22 million yuan, and its non-net profit was a loss of 5.7 million yuan; in 2022, its revenue was 719 million yuan and its net profit was a loss of 116 million yuan; in 2023, its revenue was 676 million yuan and its net profit attributable to the parent was a loss of 91.6229 million yuan.

In the first half of this year, one of the reasons for JMET's profitability was the increase in orders from downstream customers. The company 's ODM/OEM sector benefited from the increase in orders from downstream customers . ODM/OEM is JMET's main business. In the first half of this year, the company's ODM/OEM business revenue was 372.4604 million yuan, accounting for 86.48% of its revenue, compared with 80.87% in the same period last year.

JMET insists on developing the market by combining ODM/OEM with its own brand, but its own brand is slightly weak.

Among the reasons for its profitability in the first half of the year, Gemtek also mentioned that its own-brand sales were increasing simultaneously. However, Gemtek's own-brand business achieved revenue of 58.2525 million yuan in the first half of the year, accounting for only 13.52% of the total revenue, compared with 19.13% in the same period last year.

In contrast, over the past few years, GMT's own-brand revenue has been declining year by year. In 2020, GMT's own-brand accounted for 34.23% of total revenue, 34.77% in 2021, and 23.21% in 2022.

In terms of profit, the gross profit margin of Gemtek's own brand is much higher than that of ODM/OEM. According to data released by the company, in the first half of this year, the gross profit margin of the own brand was 51.29%. In comparison, the gross profit margin of the ODM/OEM business was 18.26%.

In general, the revenue and gross profit of Gemtek grew simultaneously in the first half of the year. In the first half of the year, the company realized a gross profit of RMB 97.8961 million, an increase of RMB 53.7302 million over the same period last year, with a growth rate of 121.66%.

At a time when many cross-border e-commerce companies are branding , it is particularly important to cultivate consumers' brand awareness and stickiness . For example, Anker , which was capitalized on the same day, has incubated a brand matrix of different products such as Anker, Eufy, NEBULA, Soundcore, etc. The brand has a high degree of recognition in the European and American markets, but the bulk of JMET's revenue still relies on OEM for well-known manufacturers.

Among the reasons for driving profitability, Gemtek announced that it also strengthened refined management and promoted a decrease in the proportion of period expenses to revenue . The company mentioned that it continued to promote management changes, further consolidated the responsibility system and incentive mechanism for business assessment, strengthened cost control, and promoted cost reduction and efficiency improvement.

In October, Gemtek once again released the 2024 restricted stock incentive plan, planning to grant 1.9999 million restricted shares, accounting for about 1.56% of the company's total share capital at the time of the announcement of the draft incentive plan . The total number of incentive targets to be granted for the first time under this incentive plan is 109, and the validity period of the incentive plan shall not exceed 60 months.

JAMET

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