CCSC Technology International Holdings(US:CCTG)2025-07-17 20:21PART I Item 3. Key Information This section outlines significant operational, market, and governance risks, particularly those related to its China presence, supply chain, and dual-class share structure Risks Relating to Doing Business in China The company faces substantial risks from its PRC operations, including political, economic, and legal uncertainties, evolving regulations, HFCAA, and tax liabilities - The company's business is significantly influenced by China's political, economic, and social conditions, with a substantial amount of assets and manufacturing conducted through its PRC subsidiary, CCSC Interconnect DG28 - There is uncertainty regarding the enforcement of PRC laws, which can change with little notice. The CSRC's Trial Measures, effective March 31, 2023, may impose additional compliance requirements for overseas listings, although the CSRC notified the company in November 2023 that it did not fall within the scope of filing requirements at that time323443 - The Holding Foreign Companies Accountable Act (HFCAA) poses a risk. If the PCAOB is unable to inspect the company's auditor for two consecutive years, its securities could be delisted from Nasdaq. While the PCAOB vacated its previous negative determination in December 2022, the risk remains if access is obstructed in the future536263 - The PRC subsidiary has not made adequate social insurance and housing fund contributions for all employees, creating a potential liability for back payments, late fees, and fines7274 Outstanding Social Insurance and Housing Fund Contributions (USD) | Fiscal Year End | Outstanding Social Insurance | Outstanding Housing Funds | | :--- | :--- | :--- | | March 31, 2023 | $165,772 | $133,229 | | March 31, 2024 | $167,141 | $116,942 | | March 31, 2025 | $141,068 | $115,668 | Risks Relating to Our Business The company faces risks from intense competition, U.S.-China trade tensions, supplier/customer concentration, raw material price volatility, and AI integration challenges - The company faces significant customer concentration risk. For the fiscal year ended March 31, 2025, three customers accounted for 14.5%, 11.9%, and 10.4% of total revenue115 - The cost of components, particularly copper, represents over 65% of the total cost of sales, making the company's margins sensitive to raw material price fluctuations and supply chain disruptions111116 - The company's PRC subsidiary, CCSC Interconnect DG, benefits from a reduced 15% income tax rate as a High and New-Technology Enterprise (HNTE). Failure to renew this accreditation, which is currently in process for 2025-2027, would result in a higher 25% tax rate, potentially harming operating results138 - The company entered into a strategic cooperation framework agreement with Innogetic International Limited on May 22, 2024, to explore applying AI in manufacturing, which introduces new operational, ethical, and regulatory risks139142 Risks Relating to Our Class A Ordinary Shares Investment in Class A shares carries risks from the dual-class structure, chairman's control, material weaknesses in internal controls, and foreign private issuer exemptions - The company has a dual-class share structure where Class B shares have 50 votes per share versus one vote for Class A shares. The chairman, Dr. Chi Sing Chiu, controls approximately 98.72% of the total voting power, giving him significant influence over corporate matters148179 - Material weaknesses in internal control over financial reporting have been identified, specifically a lack of accounting staff and resources with appropriate knowledge of U.S. GAAP and SEC reporting requirements. Remediation measures are planned but their effectiveness is not guaranteed149596 - As a foreign private issuer, the company is exempt from certain U.S. securities laws, including proxy rules and Section 16 "short-swing" profit recovery provisions, which may result in less publicly available information for shareholders152153 Item 4. Information on the Company This section details the company's history, global interconnect product operations, competitive strengths, growth strategies, and the regulatory environment in PRC and Hong Kong History and Development of the Company The company was incorporated in Cayman Islands, completed its Nasdaq IPO in January 2024, and implemented a dual-class share structure in September 2024 - The company completed its Initial Public Offering (IPO) on January 22, 2024, listing its Class A Ordinary Shares on the Nasdaq Capital Market under the symbol "CCTG"185 - On September 10, 2024, the company implemented a dual-class share structure, re-designating its shares into Class A Ordinary Shares (1 vote per share) and Class B Ordinary Shares (50 votes per share)186193179 Business Overview The company designs and manufactures customized interconnect products globally, leveraging strengths in quality and integration, with growth strategies focused on facility upgrades, market expansion, and R&D Financial Performance Snapshot (USD) | Fiscal Year Ended | Revenue | Net (Loss)/Income | | :--- | :--- | :--- | | March 31, 2025 | $17,631,489 | $(1,410,465) | | March 31, 2024 | $14,748,551 | $(1,295,163) | | March 31, 2023 | $24,059,556 | $2,208,152 | Revenue by Geographic Region (FY2025) | Region | Revenue (USD) | % of Total | | :--- | :--- | :--- | | Northern Europe | 8,547,915 | 48.4% | | ASEAN | 2,025,688 | 11.5% | | Hong Kong | 1,670,446 | 9.5% | | Mainland China | 1,636,832 | 9.3% | | North America | 1,299,799 | 7.4% | | Other | 2,347,849 | 13.9% | | Total | 17,631,489 | 100.0% | - The company holds 71 patents registered with the PRC intellectual property agency and its PRC subsidiary, CCSC Interconnect DG, has been certified as a High and New-Technology Enterprise (HNTE) since 2016196 - Growth strategies include upgrading facilities to increase automation, expanding the customer base in Europe and other regions, accelerating sales and marketing efforts, and pursuing strategic acquisitions203204205207 Regulations The company's operations are subject to complex regulations in the PRC, covering foreign investment, labor, IP, and taxation, as well as Hong Kong's business, trade, and employment laws - PRC regulations on foreign investment, governed by the Foreign Investment Law and a "Negative List," permit the company's interconnect product business as it does not fall into restricted or prohibited categories246248249 - The company is subject to PRC labor laws requiring contributions to social insurance and housing provident funds. The report notes that the PRC subsidiary has not made adequate contributions for all employees277278279 - The CSRC's Trial Measures, effective March 31, 2023, require PRC domestic companies seeking overseas listings to file with the CSRC. The company submitted its IPO materials and was informed it did not fall within the scope of filing requirements at that time311313 Item 5. Operating and Financial Review and Prospects This section analyzes FY2025 financial performance, noting revenue growth to $17.6 million but a widened net loss of $1.4 million due to increased operating expenses, with liquidity supported by cash and IPO proceeds Results of Operations FY2025 revenue increased 19.5% to $17.63 million with improved gross margin, while net loss widened to $1.41 million, contrasting with FY2024's 38.7% revenue decrease and net loss Consolidated Results of Operations Comparison (FY2025 vs. FY2024) | Metric | FY 2025 (USD) | FY 2024 (USD) | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenue | 17,631,489 | 14,748,551 | 19.5% | | Gross Profit | 4,984,202 | 3,922,608 | 27.1% | | Operating Expenses | (6,950,893) | (5,768,797) | 20.5% | | Net Loss | (1,410,465) | (1,295,163) | 8.9% | - The 19.5% revenue increase in FY2025 was driven by a 37.1% rise in sales volume, as customers replenished inventories. This was partially offset by a 12.8% decrease in the average selling price356 Consolidated Results of Operations Comparison (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)% | | Operating Expenses | (5,768,797) | (6,080,163) | (5.1)% | | Net (Loss)/Income | (1,295,163) | 2,208,152 | (158.7)% | - The 38.7% revenue decrease in FY2024 was attributed to a 44.1% drop in sales volume, as customers who had purchased in advance in prior periods reduced new orders amid a stagnant global economy395398 Liquidity and Capital Resources As of March 31, 2025, the company held $3.69 million in cash and $5.18 million working capital, with operations financed by cash flow and IPO proceeds, showing improved operating cash usage in FY2025 Cash Flow Summary (USD) | Cash Flow Activity | FY 2025 | FY 2024 | FY 2023 | | :--- | :--- | :--- | :--- | | Net Cash (Used in)/Provided by Operating Activities | (1,018,153) | (2,528,503) | 3,463,635 | | Net Cash Used in Investing Activities | (890,490) | (3,825,787) | (206,882) | | Net Cash Provided by/(Used in) Financing Activities | - | 4,626,269 | (752,620) | - As of March 31, 2025, the company had working capital of $5.18 million, down from $7.54 million a year prior. Management believes current cash and anticipated cash flows are sufficient for the next 12 months436 - Capital expenditures were $0.89 million in FY2025, a significant decrease from $3.80 million in FY2024, which included a large prepayment for long-term equipment444 Item 6. Directors, Senior Management and Employees This section details the company's board structure, key leadership, $1.08 million aggregate compensation, share incentive plan, and potential 'controlled company' status due to the chairman's voting power - The board is led by founder Dr. Chi Sing Chiu (Chairman) and his son Mr. Kung Lok Chiu (CEO). The board consists of seven directors in total461474488 - For the fiscal year ended March 31, 2025, the aggregate cash compensation paid to executive officers and directors was approximately $1,075,676477 - The company adopted the 2024 Performance Incentive Plan on September 10, 2024, authorizing up to 2,200,000 Class A Ordinary Shares for awards. As of the report date, no awards have been issued under this plan480481 - Dr. Chi Sing Chiu holds approximately 98.72% of the aggregate voting power, making the company a potential "controlled company" under Nasdaq listing standards, which would allow exemptions from certain corporate governance requirements476504 Item 7. Major Shareholders and Related Party Transactions This section details major shareholders and related party transactions, noting the repayment of personal guarantees and a loan to the chairman, with no recent goods transactions and audit committee oversight - The company provided a loan of $433,689 to its controlling shareholder and chairman, Dr. Chi Sing Chiu, which was unsecured, interest-free, and fully repaid in May 2022512 - Dr. Chi Sing Chiu and his wife provided personal guarantees for bank loans and credit facilities. These guarantees were released upon full repayment in June 2023 or cessation of the facilities in May 2024514515 Item 8. Financial Information This section includes consolidated financial statements and outlines the company's dividend policy of retaining earnings for expansion, with future dividends subject to PRC subsidiary regulations and withholding taxes - The company has no present plan to pay cash dividends and intends to retain future earnings to finance operations and expansion519 - Dividend distributions from the PRC subsidiary are subject to PRC regulations, including setting aside statutory reserves and a potential 10% withholding tax (or 5% under the Hong Kong-Mainland tax arrangement)520521 Item 10. Additional Information This section details share capital changes, including the September 2024 dual-class structure, and outlines taxation across Cayman Islands, Hong Kong, PRC (HNTE rate), and U.S. federal income tax, including PFIC risk - On September 10, 2024, the company increased its authorized share capital to 500 million shares and implemented a dual-class structure with 495 million Class A shares and 5 million Class B shares525532 - The company is not subject to income tax in the Cayman Islands. Its PRC subsidiary is subject to a 25% EIT rate but currently enjoys a preferential 15% rate as a certified High and New Technology Enterprise (HNTE)530534764 - 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 could result in adverse tax consequences for U.S. shareholders. The company does not expect to be a PFIC but makes this determination annually556 Item 11. Quantitative and Qualitative Disclosures About Market Risk This section details market risks, including significant customer concentration (three customers accounting for 36.8% of FY2025 revenue), liquidity management, and currency risk from international operations - The company has significant customer concentration risk. In FY2025, three customers accounted for 36.8% of total revenue (14.5%, 11.9%, and 10.4% respectively)577 - The company is exposed to currency risk as its subsidiaries operate using HKD, RMB, and EUR, while its reporting currency is USD. This resulted in a foreign currency translation loss of $161,106 in FY2025581648 PART II Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds This section details the $6.325 million gross IPO proceeds, with $3.62 million net proceeds fully utilized for facility upgrades, marketing, R&D, and general working capital IPO Proceeds and Utilization (USD) | Item | Amount | | :--- | :--- | | Gross Proceeds (incl. over-allotment) | $6,325,000 | | Underwriting Discounts & Expenses | ~$2,710,000 | | Net Proceeds | ~$3,620,000 | | Status | Fully Utilized | Item 15. Controls and Procedures Management concluded disclosure controls were ineffective as of March 31, 2025, due to material weaknesses in U.S. GAAP and SEC reporting expertise, with remediation plans underway - Management concluded that disclosure controls and procedures were not effective as of March 31, 2025594 - A material weakness was identified related to a lack of accounting staff and resources with appropriate knowledge of U.S. GAAP and SEC reporting and compliance requirements596 - Remediation plans include hiring more qualified accounting personnel, implementing U.S. GAAP training, and establishing an internal audit function596597 Item 16. Corporate Governance and Other Matters This section covers corporate governance, including the audit committee financial expert, code of ethics, auditor change to Enrome LLP, foreign private issuer exemptions, and cybersecurity risk management - On November 1, 2024, the company dismissed MarcumAsia and appointed Enrome LLP as its new independent registered public accounting firm606 - As a foreign private issuer, the company follows Cayman Islands practices for certain governance matters, exempting it from some Nasdaq rules, such as the requirement for shareholder approval for certain equity issuances608611 - The company has a cybersecurity risk management program overseen by the board of directors and managed by the IT department. No material cybersecurity threats were identified during the fiscal year ended March 31, 2025616618619 PART III Item 18. Financial Statements This section presents audited consolidated financial statements for FY2023-2025, prepared under U.S. GAAP, including balance sheets, income, equity, and cash flows, with opinions from Enrome LLP and Marcum Asia CPAs LLP Consolidated Balance Sheet Highlights (As of March 31) | Metric (USD) | 2025 | 2024 | | :--- | :--- | :--- | | Total Assets | 15,325,082 | 17,938,031 | | Total Current Assets | 9,017,669 | 11,982,822 | | Total Liabilities | 4,598,986 | 5,640,364 | | Total Current Liabilities | 3,837,903 | 4,442,599 | | Total Shareholders' Equity | 10,726,096 | 12,297,667 | Consolidated Statement of Operations Highlights (Year Ended March 31) | Metric (USD) | 2025 | 2024 | 2023 | | :--- | :--- | :--- | :--- | | Net Revenue | 17,631,489 | 14,748,551 | 24,059,556 | | Gross Profit | 4,984,202 | 3,922,608 | 7,868,571 | | (Loss)/Income from Operations | (1,966,691) | (1,846,189) | 1,788,408 | | Net (Loss)/Income | (1,410,465) | (1,295,163) | 2,208,152 | | Basic and Diluted (LPS)/EPS | (0.12) | (0.13) | 0.22 |