Ostin(US:OST)2025-01-27 21:30PART I Key Information Ostin Technology Group, a Cayman Islands holding company, faces significant risks from PRC regulations, potential U.S. delisting, and restricted cash transfers from its Chinese subsidiaries - The company is a Cayman Islands holding company, not an operating company, with all operations in China, making it subject to complex and evolving PRC laws and operational risks32 - The company's auditor, Audit Alliance LLP, is headquartered in Singapore and is subject to PCAOB inspection, but future PRC regulatory changes could impede PCAOB inspection of audit work in China, posing a delisting risk under the HFCA Act3840124 - Cash transfers from PRC subsidiaries to the parent company are restricted, with dividends payable only from retained earnings after appropriations to statutory reserve funds, totaling $25,958,620 in restricted net assets as of September 30, 202442 - For fiscal years 2022, 2023, and 2024, the parent company, Ostin, provided no funding to its PRC subsidiaries, following a $4,078,600 provision in fiscal year 202244 Risk Factors The company faces substantial risks from PRC government policies, customer/supplier concentration, significant debt, and shareholder concerns including delisting and CEO control - The company is subject to risks from PRC government intervention, uncertain legal interpretations, and new regulations regarding overseas listings (CSRC) and data security (CAC), which could adversely affect operations and share value525973 - Dependence on a few major customers is a key risk, with two customers accounting for 35.3% and 11.3% of total revenue in FY2024, and the company operates on purchase orders rather than long-term contracts130 - The company faces a going concern risk, having incurred a net loss of $10.2 million and an accumulated deficit of $18.5 million as of FY2024, which may impede its ability to secure necessary funding135 - The company's Class A Ordinary Shares faced delisting risk from Nasdaq for failing to meet the minimum bid price requirement, with compliance regained on January 16, 2025, after a 1-for-10 reverse share split185 - The Chairman and CEO, Tao Ling, holds substantial influence, controlling 71.25% of the company's aggregate voting power through his ownership of Class A and Class B shares199 Information on the Company Ostin Technology, a China-based supplier of display modules and polarizers, diversified into IoT products after terminating its VIE structure, facing sales concentration in China and with key customers History and Development of the Company The company's history includes its 2010 founding, termination of its VIE structure in 2022, Nasdaq IPO, and a 2024 reverse stock split to regain compliance - The company fully terminated its VIE arrangements in February 2022, and by June 2022, its primary operating entity, Jiangsu Austin, became a wholly-owned subsidiary219221 - The company consummated its initial public offering (IPO) on April 29, 2022, raising gross proceeds of $15.5 million220 - A 1-for-10 reverse share split was effected on December 31, 2024, to regain compliance with Nasdaq's minimum bid price requirement232 Business Overview Ostin Technology, a China-based supplier of display modules and polarizers, is diversifying into higher-margin end-user IoT products due to declining traditional sales, facing high customer and supplier concentration - The company's primary products are display modules and polarizers, used in consumer electronics, automotive displays, and commercial displays241246 - In response to declining sales, the company is diversifying into end-user products with higher profit margins, such as the all-in-one intelligent conference system and the Pintura wireless photo transmission system243261 Revenue by Geography (FY2022-FY2024) | Regions | FY 2024 Sales | FY 2024 % | FY 2023 Sales | FY 2023 % | FY 2022 Sales | FY 2022 % | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Mainland China | $29,956,914 | 92% | $54,466,044 | 95% | $96,449,118 | 91% | | Hong Kong and Taiwan | $2,395,542 | 7% | $3,059,656 | 5% | $8,948,112 | 9% | | Others | $110,757 | 1% | $- | -% | $19,516 | -% | | Total | $32,463,213 | 100% | $57,525,700 | 100% | $105,416,746 | 100% | - The company has a high concentration of customers, with top customers accounting for 42.44% of total sales in FY2024, and for polarizers, one major customer contributed 95.52% of sales in FY2024265267 - Supplier concentration is also high, with two suppliers accounting for 43.2% and 10.9% of total raw material purchases in FY2024281 Operating and Financial Review and Prospects The company's financial performance deteriorated significantly with declining revenue and net losses in FY2023-2024, facing liquidity challenges and a going concern warning, prompting reliance on financing and new product development Operating Results The company's operating results show severe revenue decline and significant net losses in FY2023-2024, driven by weak demand for display modules and polarizers, despite a slight gross margin improvement Financial Performance Summary (FY2024 vs. FY2023) | Metric | FY 2024 | FY 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Sales | $32,463,213 | $57,525,700 | $(25,062,487) | -44% | | Gross Profit | $1,686,294 | $2,053,603 | $(367,309) | -18% | | Operating Loss | $(9,529,304) | $(10,255,904) | $726,600 | -7% | | Net Loss | $(10,189,391) | $(11,013,966) | $824,575 | -7% | Financial Performance Summary (FY2023 vs. FY2022) | Metric | FY 2023 | FY 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Sales | $57,525,700 | $105,416,746 | $(47,891,046) | -45% | | Gross Profit | $2,053,603 | $12,612,315 | $(10,558,712) | -84% | | Operating (Loss)/Income | $(10,255,904) | $450,421 | $(10,706,325) | -2377% | | Net (Loss)/Income | $(11,013,966) | $112,227 | $(11,126,193) | -9914% | Revenue Breakdown by Product (FY2024 vs. FY2023) | Revenue Category | FY 2024 Sales | FY 2023 Sales | Change (%) | | :--- | :--- | :--- | :--- | | Sales of display modules | $18,146,699 | $27,793,530 | -35% | | Sales of polarizers | $12,137,669 | $27,526,662 | -56% | | Others | $2,178,845 | $2,205,508 | -1% | | Total | $32,463,213 | $57,525,700 | -44% | Liquidity and Capital Resources The company faces significant liquidity pressure with negative operating cash flow and low cash reserves, relying heavily on external financing and recent capital raises to sustain operations despite a going concern warning Consolidated Cash Flow Summary (FY2022-FY2024) | Cash Flow | FY 2024 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | | Net cash (used in)/provided by operating activities | $(4,942,567) | $(2,591,320) | $9,698,283 | | Net cash used in investing activities | $(1,391,395) | $(6,990,948) | $(6,878,518) | | Net cash provided by financing activities | $6,745,697 | $7,720,910 | $11,789 | | Net (decrease)/increase in cash | $182,067 | $(2,649,496) | $3,122,585 | - As of September 30, 2024, the company had $1.34 million in cash and cash equivalents and approximately $18.0 million in outstanding bank loans451452 - In 2024, the company raised capital by issuing a convertible note for $1.36 million and completing a private placement for $980,000 to support liquidity455 Research and Development, Patents and Licenses The company invests in R&D to diversify into new industries and develop proprietary end-user products, holding 104 PRC patents and actively pursuing new applications - The company holds 104 PRC patents and 5 trademarks, with 13 patent applications pending in China and two in the United States485486 - R&D efforts are focused on diversifying product applications and developing proprietary technologies for new end products like the all-in-one intelligent conference system and Pintura wireless photo transmission system481483 Directors, Senior Management and Employees The company is led by controlling shareholder CEO Tao Ling, with a five-member board and 243 employees, 52% of whom are outsourced, and has adopted a clawback policy - The board consists of five directors, including three independent directors: Heung Ming Wong, John Carl Mein, and Qiang He, with standard committees (Audit, Compensation, Nominating)492515 Executive and Director Compensation | Year Ended | Aggregate Compensation | Social & Other Benefits | | :--- | :--- | :--- | | Sep 30, 2024 | $407,861 | $23,248 | | Sep 30, 2023 | $333,383 | $18,977 | - As of September 30, 2024, the company had 243 full-time employees, including 126 outsourced workers, who constitute 52% of the total workforce526 - Chairman and Co-CEO Tao Ling beneficially owns 10.14% of Class A Ordinary Shares and 100% of Class B Ordinary Shares, giving him significant control over the company199533 Major Shareholders and Related Party Transactions The company's controlling shareholder is CEO Tao Ling, with significant related party transactions including unsecured loans and personal guarantees for bank loans from Mr. Ling and his family - The company received significant working capital advances from related parties, borrowing an aggregate of $4.15 million from CEO Tao Ling and $3.08 million from director Xiaohong Yin in FY2024540 - As of September 30, 2024, bank loans totaling $3.28 million were pledged by personal assets owned by CEO Tao Ling and his family members, who charged no guarantee fees542 Additional Information As a Cayman Islands company with a dual-class share structure, the company faces different shareholder protections and significant PRC and U.S. tax risks, including potential PFIC classification - The company has a dual-class share structure, where Class A shares have one vote per share, while Class B shares have 20 votes per share, with no dividends payable on Class B shares558 - As a Cayman Islands company, shareholder rights, particularly regarding derivative suits and access to corporate records, are less developed and established than in U.S. jurisdictions like Delaware200201586 - The company could be considered a PRC resident enterprise for tax purposes if its "de facto management body" is in China, which would subject it to a 25% tax on its worldwide income and potential withholding taxes on dividends paid to foreign shareholders630631 - There is a risk that the company could be classified as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, which would result in adverse tax consequences for U.S. Holders of its shares645647 Market Risk Disclosures The company is exposed to market risks including foreign exchange fluctuations due to RMB operations and USD reporting, credit risk from uninsured PRC bank deposits and unsecured receivables, and potential inflation impact - The company's functional currency is the RMB, but it reports in USD, creating foreign exchange risk where a change in the RMB/USD exchange rate can materially affect reported financial results665666 - Credit risk arises from cash held in PRC financial institutions, which are not insured, and from unsecured accounts receivable from customers667668 Controls and Procedures As of September 30, 2024, management concluded disclosure controls were ineffective, while internal control over financial reporting was effective, with no auditor attestation required as an emerging growth company - Management concluded that disclosure controls and procedures were not effective as of September 30, 2024686 - Management concluded that internal control over financial reporting was effective as of September 30, 2024, based on the COSO 2013 framework687688 - The company is exempt from providing an auditor's attestation report on internal control over financial reporting because it qualifies as a non-accelerated filer and an emerging growth company690 PART III Financial Statements The FY2024 financial statements, audited by Audit Alliance LLP, include a going concern qualification due to negative working capital, net loss, accumulated deficit, and negative operating cash flow, with retroactive adjustments for a reverse stock split - The independent auditor's report for FY2024 includes a going concern qualification due to the company's negative working capital ($20.1M), net loss ($10.2M), accumulated deficit ($18.5M), and negative operating cash flow ($4.9M)734 Consolidated Balance Sheet Summary (As of Sep 30) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Total Current Assets | $20,844,359 | $24,437,682 | | Total Assets | $51,074,949 | $56,548,761 | | Total Current Liabilities | $40,961,435 | $40,531,407 | | Total Liabilities | $43,188,361 | $42,460,629 | | Total Shareholders' Equity | $7,886,588 | $14,088,132 | Consolidated Statement of (Loss) Income Summary (Year Ended Sep 30) | Metric | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Sales | $32,463,213 | $57,525,700 | $105,416,746 | | Gross Profit | $1,686,294 | $2,053,603 | $12,612,315 | | Operating (Loss) Income | $(9,529,304) | $(10,255,904) | $450,421 | | Net (Loss) Income | $(10,189,391) | $(11,013,966) | $112,227 |