CCSC Technology International Holdings(CCTG) - 2024 Q4 - Annual Report

PART I This section provides a comprehensive overview of the company's business, risks, financial performance, governance, and market exposures Item 3. Key Information This section details the primary risks associated with the company's operations, business, and share ownership Risks Relating to Doing Business in China The company faces significant risks from operating in China, including potential adverse effects from changes in economic, political, or social conditions and government policies - The company's PRC subsidiary, CCSC Interconnect DG, conducts manufacturing in China, making its business highly susceptible to Chinese political, economic, and social conditions[32] - The company was informed by the CSRC in writing on November 6, 2023, that it does not fall within the scope of filing requirements under the Trial Measures at this time, but this could change with new regulations[47][320] - The PCAOB has secured access to inspect audit firms in mainland China and Hong Kong as of December 15, 2022, mitigating immediate delisting risk under the HFCAA However, this access could be revoked in the future[66] Outstanding Social Insurance and Housing Fund Contributions (USD) | Fiscal Year End | Outstanding Social Insurance | Outstanding Housing Funds | | :--- | :--- | :--- | | March 31, 2022 | $140,042 | $179,235 | | March 31, 2023 | $165,772 | $133,229 | | March 31, 2024 | $167,141 | $116,942 | - The company relies on dividends from its PRC subsidiary, which are subject to PRC regulations requiring funds to be set aside for statutory reserves before distribution and a potential 10% withholding tax[83][84] Risks Relating to Our Business The company operates in the highly competitive interconnect products industry and faces risks from competitors with greater resources Major Customer Revenue Contribution | Fiscal Year End | Number of Major Customers (>10%) | % of Total Revenue from Major Customers | | :--- | :--- | :--- | | March 31, 2022 | 1 | 15.5% | | March 31, 2023 | 3 | 12.0%, 10.6%, 10.5% | | March 31, 2024 | 2 | 17.4%, 12.7% | - Copper is a principal raw material, and its price volatility could materially affect business results The company attempts to mitigate this by adjusting selling prices[121][122] - For fiscal year 2024, one supplier accounted for 12.1% of total purchases, indicating a degree of supplier concentration risk[124] - The company's PRC subsidiary, CCSC Interconnect DG, holds a National High Tech Enterprise (HNTE) status, entitling it to a reduced 15% income tax rate through 2024 Loss of this status would increase its tax rate to 25%[145] - The company entered into a strategic agreement with Innogetic International Limited on May 22, 2024, to explore using AI in manufacturing, which introduces new operational, ethical, and regulatory risks[146][149][150] Risks Relating to Our Ordinary Shares Shareholder risks include significant control by the chairman, Dr Chi Sing Chiu, who holds approximately 72.58% of the voting power, allowing him to control director elections and corporate transactions - Dr Chi Sing Chiu, the chairman, controls approximately 72.58% of the total voting power, giving him significant influence over corporate decisions[156] - Material weaknesses in internal control over financial reporting have been identified, including a lack of accounting staff with U.S GAAP/SEC knowledge and inadequate IT access and change management controls[158] - As a foreign private issuer, the company is exempt from certain SEC reporting requirements (e.g., quarterly 10-Q reports, proxy rules) and Nasdaq governance standards, potentially limiting publicly available information[162][163] - The company does not intend to pay dividends in the foreseeable future, retaining earnings to finance business operations and expansion[166] Item 4. Information on the Company This section provides a comprehensive overview of the company, including its corporate history, business operations, products, and regulatory environment History and Development of the Company CCSC Technology International Holdings Limited was incorporated in the Cayman Islands in October 2021 - The company was incorporated in the Cayman Islands on October 19, 2021, and completed a corporate reorganization on March 17, 2022, to become the ultimate holding company[189][192] - The company closed its initial public offering on the Nasdaq Capital Market on January 22, 2024, issuing 1,375,000 Ordinary Shares The underwriters fully exercised their over-allotment option for an additional 206,250 shares on February 8, 2024[193] Business Overview The company designs and manufactures customized interconnect products like connectors, cables, and wire harnesses for diverse industries including industrial, automotive, and medical - The company specializes in customized OEM and ODM interconnect products for a diversified set of industries, with a global customer base in over 25 countries[196][197][198] Key Financial Performance (USD) | Fiscal Year End | Revenue | Net (Loss)/Income | | :--- | :--- | :--- | | March 31, 2022 | $27,169,935 | $2,289,158 | | March 31, 2023 | $24,059,556 | $2,208,152 | | March 31, 2024 | $14,748,551 | ($1,295,163) | - The company holds 71 patents registered in the PRC and its subsidiary CCSC Interconnect DG is certified as a High and New-Technology Enterprise (HNTE)[201][243] Revenue by Geographic Region (FY2024) | Region | Revenue (USD) | % of Total | | :--- | :--- | :--- | | Northern Europe | 6,402,388 | 43.4% | | Hong Kong | 1,895,230 | 12.9% | | ASEAN | 1,570,519 | 10.6% | | Mainland China | 1,372,966 | 9.3% | | North America | 1,377,541 | 9.3% | | Other | 2,129,917 | 14.5% | | Total | 14,748,551 | 100% | - As of the report date, the company had 274 employees, with 136 in manufacturing[248] Regulations The company's operations are subject to a complex set of regulations, primarily in the PRC and Hong Kong - The company's PRC operations are governed by the Foreign Investment Law and are not in industries on the 'Negative List', which restricts or prohibits foreign investment[255][256][260] - The company's PRC subsidiary must comply with environmental laws and has completed its pollutant discharge registration, valid until April 2030[266][268] - Under PRC labor laws, the company is required to make social insurance and housing provident fund contributions for its employees, but has not made them in full[285][286][287] - The M&A Rules and the CSRC's Trial Measures (effective March 31, 2023) establish procedures for overseas listings by PRC domestic companies The company submitted filing materials and was informed it did not fall within the scope of requirements at that time[316][318][320] Item 5. Operating and Financial Review and Prospects This section analyzes the company's financial performance and condition, highlighting a significant revenue decrease and net loss in fiscal year 2024 Operating Results The company's operating results show a significant downturn in fiscal year 2024, with revenue falling 38.7% to $14.75 million and a resulting net loss of $1.30 million Comparison of Results of Operations (FY2024 vs. FY2023) | Metric | FY 2024 (USD) | FY 2023 (USD) | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenue | 14,748,551 | 24,059,556 | (38.7)% | | Gross Profit | 3,922,608 | 7,868,571 | (50.1)% | | (Loss)/Income from Operations | (1,846,189) | 1,788,408 | (203.2)% | | Net (Loss)/Income | (1,295,163) | 2,208,152 | (158.7)% | - The revenue decrease in FY2024 was primarily due to a 44.1% drop in total sales volume, as customers had purchased inventory in advance in prior periods and shifted to just-in-time procurement amid a stagnant global economy[359][363][364] - Gross profit margin decreased from 32.7% in FY2023 to 26.6% in FY2024, mainly due to the increase in fixed cost per unit resulting from the significant decrease in sales volume[374] Comparison of Results of Operations (FY2023 vs. FY2022) | Metric | FY 2023 (USD) | FY 2022 (USD) | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenue | 24,059,556 | 27,169,935 | (11.4)% | | Gross Profit | 7,868,571 | 7,475,904 | 5.3% | | Income from Operations | 1,788,408 | 2,461,929 | (27.4)% | | Net Income | 2,208,152 | 2,289,158 | (3.5)% | - In FY2023, despite an 11.4% revenue decline, gross profit margin increased to 32.7% from 27.5% in FY2022 This was because the 19.8% increase in average selling price outpaced the 15.5% increase in average unit cost[417][351] Liquidity and Capital Resources As of March 31, 2024, the company had $5.73 million in cash and restricted cash and working capital of $7.54 million - As of March 31, 2024, the company held $5.73 million in cash and restricted cash and had working capital of $7.54 million[438][445] - The company raised net proceeds of approximately $3.62 million from its initial public offering in January/February 2024[592] Summary of Cash Flows (USD) | Cash Flow Activity | FY 2024 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | | Net Cash (Used in)/Provided by Operating Activities | (2,528,503) | 3,463,635 | 2,921,616 | | Net Cash Used in Investing Activities | (3,825,787) | (206,882) | (177,639) | | Net Cash Provided by/(Used in) Financing Activities | 4,626,269 | (752,620) | (157,402) | - Capital expenditures were $3.80 million, $0.15 million, and $0.38 million for the fiscal years ended March 31, 2024, 2023, and 2022, respectively[455] Item 6. Directors, Senior Management and Employees This section provides information on the company's leadership and governance structure - The board of directors consists of seven members: Chi Sing Chiu (Chairman), Kung Lok Chiu (CEO), Sin Ting Chiu, and four independent directors (Wai Chun Tsang, Tsz Fai Shiu, Kenneth Wang, Pak Keung Chan)[469][489] - Dr Chi Sing Chiu, the Chairman, is the controlling shareholder, beneficially owning approximately 72.58% of the company's voting power through CCSC Investment Limited[486][504] - For the fiscal year ended March 31, 2024, the aggregate cash compensation paid to executive officers and directors was approximately $1.13 million[488] - The board has established an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee, with independent directors chairing each committee[494][495][496][497] Item 7. Major Shareholders and Related Party Transactions This section details the company's major shareholders and transactions with related parties - The company's controlling shareholder, Dr Chi Sing Chiu, and his spouse, Woon Bing Yeung, provided personal guarantees for a bank loan, which was fully repaid in June 2023, and for other credit facilities, which were released in May 2024[514][515] - The company had a loan receivable from Dr Chi Sing Chiu of $430,582 as of March 31, 2022, which was fully repaid in May 2022[512] - The company had a loan payable to Woon Bing Yeung (spouse of Dr Chiu) of $215,619 as of March 31, 2022, which was fully repaid in May 2022[513] Item 8. Financial Information This section confirms that the full consolidated financial statements are appended to the report - The company has no present plan to pay any cash dividends on its Ordinary Shares in the foreseeable future, intending to retain earnings for business operations and expansion[519] - Dividends from the PRC subsidiary are subject to PRC regulations, including setting aside at least 10% of after-tax profits for a statutory reserve until it reaches 50% of registered capital[520] Item 10. Additional Information This section covers supplementary corporate information, including a reference to the company's memorandum and articles of association - The Cayman Islands, where the company is incorporated, does not levy taxes on profits, income, gains, or appreciation[532] - The company's PRC subsidiary is subject to a 25% Enterprise Income Tax (EIT), but as a qualified High and New Technology Enterprise (HNTE), it enjoys a preferential rate of 15%[535][765] - The company does not expect to be treated as a Passive Foreign Investment Company (PFIC) for U.S federal income tax purposes for the current taxable year or the foreseeable future, but notes that this status is determined annually and is subject to uncertainty[558] Item 11. Quantitative and Qualitative Disclosures About Market Risk This section outlines the company's exposure to various market risks - The company has significant customer concentration risk In FY2024, two customers accounted for 17.4% and 12.7% of total revenue In FY2023, three customers accounted for 12.0%, 10.6%, and 10.5% of total revenue[579] - The company is exposed to currency risk as its subsidiaries operate using HKD, RMB, and EUR as functional currencies, while financial statements are reported in USD This exposure led to a foreign currency translation loss of $523,250 in FY2024 and $728,399 in FY2023[583][584][645] PART II This section details the company's IPO proceeds, internal controls, and cybersecurity risk management practices Item 14. Use of Proceeds The company completed its initial public offering in January 2024, with the underwriters exercising their over-allotment option in February 2024 Initial Public Offering Proceeds (USD) | Item | Amount | | :--- | :--- | | Gross Proceeds | $6,325,000 | | Underwriting Discounts & Expenses | ~$2,710,000 | | Net Proceeds | ~$3,620,000 | Item 15. Controls and Procedures Management concluded that as of March 31, 2024, the company's disclosure controls and procedures were not effective - Management concluded that disclosure controls and procedures were not effective as of March 31, 2024, due to identified material weaknesses[594] - The identified material weaknesses are: (i) a lack of accounting staff with appropriate knowledge of U.S GAAP and SEC reporting, and (ii) a lack of proper IT controls over the financial reporting system[596] - Remedial actions planned include hiring more qualified accounting personnel, implementing continuous U.S GAAP training, and establishing an internal audit function[596][597] Item 16K. Cybersecurity The company has established a cybersecurity risk management program overseen by the board of directors and managed by the executive team and IT department - The company's board of directors has primary responsibility for overseeing cybersecurity risk management, with the IT department handling regular monitoring and reporting to executive management[618][619] - The cybersecurity program includes threat monitoring, vulnerability assessments, firewall implementation, and employee training to safeguard against unauthorized access and data breaches[615][616] - During the fiscal year ended March 31, 2024, no cybersecurity threats were identified that had a material effect on the company's business or financial condition[617] PART III This section presents the company's audited consolidated financial statements and accompanying detailed notes Item 18. Financial Statements This section contains the company's audited consolidated financial statements for the fiscal years ended March 31, 2024, 2023, and 2022 Notes to Consolidated Financial Statements The notes provide detailed information supplementing the consolidated financial statements - The company has one operating segment and reports revenue disaggregated by product category (Cables/Wire Harnesses and Connectors) and geographic region (Europe, Asia, Americas)[791][792] - The company's PRC subsidiary is restricted from transferring a portion of its net assets to the parent company due to statutory reserve requirements As of March 31, 2024, restricted net assets were approximately $1.94 million, or 16% of the company's total net assets[788][790] - A revision was made to prior period financial statements to correct an immaterial error in VAT accounting This resulted in a reduction of prepaid and other current assets and retained earnings by $427,746 as of March 31, 2023, 2022, and 2021[795][796][798] - In June 2024, the company's Serbian subsidiary purchased four lots of agricultural land in Serbia for EUR 482,372 (approximately $524,965)[802]