YSX Tech. Co., Ltd(YSXT) - 2025 Q4 - Annual Report

PART I ITEM 3. KEY INFORMATION This section details significant risks related to the company's PRC operations, business, VIE structure, and Class A Ordinary Shares trading market Risks Relating to Doing Business in the PRC The company faces substantial risks from its PRC operations, including political, economic, legal, and regulatory uncertainties, data security, overseas listing rules, HFCAA, and tax complexities - A substantial amount of the company's assets and operations are in China, making its financial condition highly susceptible to China's political, economic, and social conditions[23] - The Chinese government may intervene in or influence the company's operations at any time, potentially causing material business changes and a significant decline in share value[30][37] - The company faces HFCAA risks, potentially leading to Nasdaq delisting if the PCAOB cannot inspect its auditor for two consecutive years[45][49][55] - As of March 31, 2025, PRC operating entities had estimated outstanding social insurance premiums of $37,943 (plus $15,156 late fees) and housing funds of $56,374 (plus $14,461 late fees) due to inadequate contributions[68] - Under PRC EIT Law, classification as a 'resident enterprise' could subject the company to a 25% enterprise income tax on worldwide income and PRC withholding tax on non-PRC shareholder dividends[79][80] Risks Relating to Our Business The company's business faces significant operational risks, including heavy dependence on a few large customers and vendors, geographic concentration, potential credit losses, reliance on senior management, intense competition, and vulnerability to health epidemics or technology failures Customer Revenue Concentration | Fiscal Year Ended March 31 | Number of Major Customers (>10% of Revenue) | Percentage of Total Revenue from Major Customers | | :--- | :--- | :--- | | 2025 | 4 | 27.8%, 23.5%, 21.6%, 16.0% | | 2024 | 4 | 20.4%, 18.4%, 17.1%, 13.0% | | 2023 | 3 | 16.0%, 14.4%, 13.3% | Vendor Cost Concentration | Fiscal Year | Number of Major Vendors (>10% of Procurement) | Total Percentage of Procurement Costs | | :--- | :--- | :--- | | 2025 | 4 | 69.7% | | 2024 | 4 | 61.2% | | 2023 | 3 | 47.7% | Geographic Revenue Concentration | Fiscal Year | Revenue from Guangdong & Xinjiang Provinces (% of Total) | Revenue from Guangdong Province (% of Total) | | :--- | :--- | :--- | | 2025 | 99.9% | 98.8% | | 2024 | 98.0% | 92.9% | | 2023 | 98.8% | 85.9% | Accounts Receivable and Credit Loss | As of March 31 | Net Accounts Receivable (USD) | Credit Loss Expense (USD) | | :--- | :--- | :--- | | 2025 | 22,987,814 | 653,470 | | 2024 | 12,035,624 | 382,731 | | 2023 | 7,386,526 | 529,003 | Risks Relating to Our Corporate Structure The company's VIE structure in China poses significant risks, including potential invalidation of contractual agreements by PRC authorities, loss of control over operations, conflicts of interest with VIE shareholders, and tax scrutiny - The company controls PRC operations via VIE agreements, not direct ownership, which are subject to PRC authority interpretation and could lead to severe penalties or loss of control if non-compliant[125][126][128] - VIE agreements may be less effective than direct ownership and difficult to enforce in the PRC legal system, potentially leading to loss of business control[130][134] - VIE shareholders may have conflicts of interest with the company, with no specific arrangements to address them beyond legal proceedings or purchase options[135][137] Risks Relating to the Class A Ordinary Shares and the Trading Market Investment in Class A Ordinary Shares carries risks including material weaknesses in internal controls, increased compliance costs, concentrated voting power from a dual-class structure, Nasdaq 'controlled company' exemptions, share price volatility, no dividend policy, and potential PFIC classification - Material weaknesses in internal control over financial reporting include a lack of qualified accounting staff with U.S. GAAP knowledge and insufficient formal internal control procedures for financial reporting and SEC filings[146] - The company's dual-class share structure grants Class B shares five votes, with CEO Jie Xiao controlling approximately 56.50% of total voting rights, providing substantial influence over corporate actions[152] - The company is a 'controlled company' under Nasdaq rules due to majority voting power held by its largest shareholder, allowing exemptions from certain corporate governance requirements like independent director majority[154] - The company may be classified as a Passive Foreign Investment Company (PFIC), leading to adverse U.S. federal income tax consequences for U.S. shareholders, though it was not a PFIC for the current fiscal year[174][176] ITEM 4. INFORMATION ON THE COMPANY This section provides a comprehensive overview of YSX TECH. CO., LTD, detailing its corporate history, VIE structure, business operations, services, strengths, growth strategies, markets, customers, vendors, and intellectual property History and Development of the Company YSX TECH. CO., LTD, incorporated in the Cayman Islands in November 2022, completed a reorganization on December 31, 2022, establishing its VIE structure, and raised approximately $5.75 million gross proceeds from its Nasdaq IPO on December 19, 2024 - The company completed a reorganization on December 31, 2022, establishing YSX Cayman as the ultimate holding company controlling PRC operating entities (Xinjiang YSX and Xihang) via a WFOE and VIE agreements[183][189] - On December 19, 2024, the company closed its Nasdaq Capital Market IPO (ticker: YSXT), raising aggregate gross proceeds of approximately $5.75 million, including the full exercise of the over-allotment option[184][185] Business Overview The company provides comprehensive business solutions, primarily auto insurance aftermarket value-added services, software development, and customized services, to Chinese insurance companies and brokerages, with operations concentrated in Xinjiang and Guangdong provinces Revenue by Service Type (FY2023-FY2025) | Service Type | FY2025 Revenue (USD) | FY2024 Revenue (USD) | FY2023 Revenue (USD) | | :--- | :--- | :--- | :--- | | Auto insurance aftermarket value-added services | 63,398,860 (88.7%) | 45,561,529 (77.8%) | 42,438,636 (86.2%) | | Other scenario-based customized services | 7,437,448 (10.4%) | 11,764,389 (20.1%) | 3,537,667 (7.2%) | | Software development and IT services | 616,428 (0.9%) | 1,220,811 (2.1%) | 3,257,244 (6.6%) | | Total Revenue | 71,452,736 | 58,546,729 | 49,233,547 | - The company's growth strategies include improving market position via organic growth and acquisitions, expanding into new geographic markets like Yunnan, Guizhou, and Sichuan, attracting talent, and investing in in-house technical capabilities[217][218][219][220] Revenue by Geographic Location (FY2023-FY2025) | Province | FY2025 Revenue (USD) | FY2024 Revenue (USD) | FY2023 Revenue (USD) | | :--- | :--- | :--- | :--- | | Guangdong | 70,624,206 (98.7%) | 54,416,093 (92.9%) | 42,271,924 (85.9%) | | Xinjiang | 826,118 (1.2%) | 2,966,294 (5.1%) | 6,390,514 (13.0%) | | Others | 2,411 (0.1%) | 1,164,342 (2.0%) | 571,109 (1.1%) | - As of the report date, the company's operating entities held 6 issued patents, 41 registered trademarks, and rights to use 90 registered software copyrights in China[249] Regulations The company's PRC operations are subject to a complex regulatory framework covering value-added telecommunications, foreign direct investment, overseas listings, data security, foreign exchange, taxation, intellectual property, and labor laws, imposing various restrictions and compliance requirements - Foreign investment in value-added telecommunications services is restricted, generally limiting foreign ownership to 50% in Sino-foreign joint ventures, a key reason for the company's VIE structure[263][269] - The CSRC's Overseas Listings Rules, effective March 31, 2023, require PRC domestic companies seeking overseas listings (direct or indirect) to complete filing procedures with the CSRC[270] - The Cybersecurity Review Measures require network platform operators with over one million users' personal information to apply for a cybersecurity review before foreign listings[278] - PRC foreign exchange regulations, like SAFE Circular 37, require PRC residents to register overseas investment activities through Special Purpose Vehicles (SPVs) with SAFE[288] ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS This section provides management's discussion and analysis of the company's financial condition and operating results for fiscal years 2023-2025, covering revenue, costs, gross profit, expenses, net income, liquidity, capital resources, cash flows, and critical accounting estimates Operating Results Total revenue grew 22.0% to $71.5 million in FY2025, driven by auto insurance aftermarket services, while gross margin declined to 10.3% and net income decreased to $4.0 million due to service mix shifts and rising operating expenses Consolidated Operating Results (FY2023-FY2025) | Metric (USD) | FY2025 | FY2024 | FY2023 | | :--- | :--- | :--- | :--- | | Total Revenue | 71,452,736 | 58,546,729 | 49,233,547 | | Gross Profit | 7,386,588 | 6,962,927 | 7,151,250 | | Gross Margin | 10.3% | 11.9% | 14.5% | | Income from Operations | 4,799,408 | 5,001,713 | 5,663,596 | | Net Income | 4,021,848 | 4,565,968 | 4,904,550 | - Revenue from auto insurance aftermarket value-added services increased by 39.1% in FY2025, driven by a 1,236% surge in vehicle driving risk screening services revenue from new insurance brokerage contracts[335][336] - General and administrative expenses increased by 37.6% in FY2025, primarily due to higher professional and consulting fees related to the IPO and increased expected credit loss expense[364] Liquidity and Capital Resources The company's liquidity improved post-IPO, with cash and equivalents at $7.1 million as of March 31, 2025, and working capital at $28.5 million, despite net cash used in operating activities increasing to $6.5 million in FY2025 due to higher accounts receivable Cash Flow Summary (FY2023-FY2025) | Cash Flow (USD) | FY2025 | FY2024 | FY2023 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | (6,489,483) | (693,959) | 1,029,503 | | Net cash from investing activities | 1,937,084 | (228,183) | (1,980,200) | | Net cash from financing activities | 7,249,130 | 1,990,753 | 482,468 | | Net increase (decrease) in cash | 2,821,291 | 897,408 | (763,651) | - The company received net proceeds of approximately $5.0 million from its December 2024 IPO, significantly strengthening its cash position[380] Contractual Obligations as of March 31, 2025 | Obligation Type | Total (USD) | Less than 1 year | 1-3 years | 3-5 years | | :--- | :--- | :--- | :--- | :--- | | Short-term loans | 4,131,354 | 4,131,354 | — | — | | Long-term loans | 1,860,349 | 578,775 | 1,281,574 | — | | Operating lease obligations | 160,645 | 93,676 | 47,688 | 19,281 | | Total | 6,152,348 | 4,803,805 | 1,329,263 | 19,281 | - As of March 31, 2025, VIE Xinjiang YSX provided credit guarantees for approximately $2.7 million in bank loans for two third-party customers and one related party, which was fully repaid[409][410][411] Critical Accounting Estimates Critical accounting estimates include accounts receivable valuation and credit loss allowance, realizability of advances to vendors, and revenue recognition, particularly determining principal versus agent roles in third-party service transactions, along with asset useful lives, deferred tax asset realization, and lease accounting - The allowance for credit losses on accounts receivable is a significant estimate, totaling $653,470 as of March 31, 2025, based on historical collectability, customer credit quality, and economic conditions[430] - For revenue recognition, the company acts as a principal in auto insurance aftermarket value-added services, being primarily responsible for customer fulfillment, service control, and price establishment[435] - The company periodically reviews advances to vendors for impairment, with no allowance recorded as of March 31, 2025 and 2024, as all balances were deemed fully realizable[431] ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES This section details the company's directors, senior management, and employees, including biographies, compensation, board structure, and committee oversight, noting CEO Jie Xiao's 56.50% controlling voting power classifies the company as a Nasdaq 'controlled company' - The board of directors comprises five members: Jie Xiao (Chairman & CEO), Weiqiang Zheng (Director), Haozhao Lin (Independent Director), Xuanjun Yang (Independent Director), and Meng Cao (Independent Director)[452] - For the fiscal year ended March 31, 2025, aggregate compensation paid to all executive officers and directors totaled $109,234[460] - CEO Jie Xiao beneficially owns approximately 56.50% of the company's aggregate voting power, classifying it as a 'controlled company' under Nasdaq listing rules[459] ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS This section details major shareholders and related party transactions, primarily with Guangzhou Dayong Insurance Agency Co. Ltd. ('Dayong'), which accounts for a substantial portion of revenue, and describes loans and guarantees involving related parties including CEO Jie Xiao Revenue from Related Party (Dayong) | Fiscal Year Ended March 31 | Revenue from Dayong (USD) | % of Total Revenue | | :--- | :--- | :--- | | 2025 | 19,894,638 | 27.8% | | 2024 | 11,927,909 | 20.4% | | 2023 | 7,100,617 | 14.4% | - As of March 31, 2025, accounts receivable from related party Dayong totaled $5,381,535, which has been fully collected as of the report date[486][736] - Related parties, including CEO Mr. Jie Xiao and shareholder Mr. Weiqiang Zheng, have provided guarantees for loans obtained by the company's operating entities[490][741] ITEM 8. FINANCIAL INFORMATION This section confirms the consolidated financial statements are appended, states no material legal proceedings, and outlines the dividend policy of retaining earnings for business expansion, subject to PRC profit repatriation and statutory reserve restrictions - The company does not intend to pay dividends in the foreseeable future, planning to retain earnings to finance business operations and expansion[496] - Dividend payment ability depends on funds from PRC subsidiary (WFOE) and VIEs, which must set aside at least 10% of after-tax profits into a statutory reserve until it reaches 50% of registered capital, non-distributable as cash dividends[499] ITEM 10. ADDITIONAL INFORMATION This section covers supplementary corporate information, including memorandum and articles, material contracts, exchange controls, and a detailed taxation overview for PRC, Hong Kong, Cayman Islands, and U.S. federal income tax consequences for U.S. holders, particularly regarding PFIC risks Taxation The company is subject to PRC, Hong Kong, and Cayman Islands tax regimes, with PRC EIT at 25% and potential dividend withholding tax, while the Cayman Islands has no corporate taxes; U.S. Holders face adverse U.S. federal income tax consequences if classified as a PFIC - The standard PRC Enterprise Income Tax (EIT) rate is 25%, though the company is not expected to be treated as a PRC resident enterprise for tax purposes[510][514] - Dividends from the PRC subsidiary to its Hong Kong holding company are subject to a 10% withholding tax, potentially reducible to 5% under the China-Hong Kong tax treaty[511] - The company, incorporated in the Cayman Islands, currently levies no taxes on profits, income, gains, appreciation, or inheritance/estate duties[519] - For U.S. Holders, classification as a Passive Foreign Investment Company (PFIC) poses a risk, leading to adverse U.S. tax consequences, including special rules for 'excess distributions' and gains on share sales[535][538] ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section outlines the company's exposure to market risks, including interest rate risk, significant credit risk from PRC cash deposits, substantial customer and vendor concentration, and foreign currency risk due to RMB/USD exchange rate fluctuations impacting financial results - As of March 31, 2025, approximately $6.5 million in cash was deposited in PRC financial institutions, with $5.6 million not covered by deposit insurance[557] - For FY2025, four customers accounted for 27.8%, 23.5%, 21.6%, and 16.0% of total revenues, indicating significant customer concentration[562] - For FY2025, four vendors accounted for 23.4%, 23.3%, 13.0%, and 10.0% of total purchases, indicating significant vendor concentration[564] - The company faces foreign currency risk as its functional currency is RMB, reporting in USD; the RMB depreciated by 0.9% against the USD from March 31, 2024, to March 31, 2025[560] PART II ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS This section details the use of approximately $5.75 million gross proceeds from the December 2024 IPO, with $1.65 million net proceeds allocated towards business expansion, R&D, team building, and working capital IPO Proceeds and Use | Item | Amount (USD) | | :--- | :--- | | Gross Proceeds | ~5,750,000 | | Offering Costs | ~4,100,000 | | Net Proceeds | ~1,650,000 | | Use of Net Proceeds (as of report date) | | | Business expansion | 350,000 | | R&D | 250,000 | | Team building | 200,000 | | Working capital | 450,000 | | Remaining for general corporate purposes | 400,000 | ITEM 15. CONTROLS AND PROCEDURES Management concluded the company's disclosure controls and procedures were ineffective as of March 31, 2025, due to material weaknesses including a lack of qualified U.S. GAAP accounting staff and formal internal control procedures, with remediation plans underway - The company's disclosure controls and procedures were concluded to be ineffective as of March 31, 2025[580] - Identified material weaknesses include a lack of qualified accounting staff with U.S. GAAP knowledge and insufficient formal internal control procedures for financial reporting and SEC filings[581] - Remediation plans include hiring qualified accounting personnel, implementing U.S. GAAP training, and engaging an external consulting firm for Sarbanes-Oxley compliance assistance[581] ITEM 16. Corporate Governance and Other Disclosures This section covers corporate governance, including audit committee expertise, code of ethics, principal accountant fees, and the company's status as a foreign private issuer following Cayman Islands practices, which provides exemptions from certain Nasdaq requirements, alongside insider trading policies and cybersecurity risk management systems Principal Accountant Fees (Simon & Edward, LLP) | Fee Category | FY2025 (USD) | FY2024 (USD) | FY2023 (USD) | | :--- | :--- | :--- | :--- | | Audit fees | 249,000 | 296,140 | 252,516 | | Audit-Related fees | 2,826 | 1,241 | 25,510 | | Tax fees | — | 21,133 | — | | All other fees | 2,227,857 | 1,930,191 | 1,494,545 | | Total | 2,479,684 | 2,248,704 | 1,772,571 | - As a foreign private issuer, the company follows Cayman Islands practice, exempting it from certain Nasdaq shareholder approval requirements, such as for issuances of 20% or more of outstanding shares in private offerings or for equity compensation plans[594][595] - The company has established cybersecurity risk management systems and policies, with no material cybersecurity incidents affecting it as of the report date[599] PART III ITEM 18. FINANCIAL STATEMENTS This section indicates that the full consolidated financial statements for YSX TECH. CO., LTD and its operating entities are provided at the end of the annual report - The company has elected to provide full financial statements as required under Item 18[601][602] Consolidated Financial Statements Report of Independent Registered Public Accounting Firm The independent auditor, Simon & Edward, LLP, issued an unqualified opinion on the consolidated financial statements for the three years ended March 31, 2025, identifying the determination of principal versus agent for revenue recognition in insurance value-added services as a critical audit matter - The auditor's report provides an unqualified opinion on the consolidated financial statements[613] - A Critical Audit Matter was identified regarding revenue recognition, specifically the determination of whether the company acts as a principal or an agent in its auto-insurance value-added service arrangements[617][618] Consolidated Financial Statements and Notes This section presents detailed consolidated financial statements, including Balance Sheets, Income and Comprehensive Income, Shareholders' Equity, and Cash Flows for fiscal years 2023-2025, with accompanying notes explaining accounting policies, VIE structure, segment information, related party transactions, debt, and taxes Consolidated Balance Sheet Highlights (As of March 31) | Metric (USD) | 2025 | 2024 | | :--- | :--- | :--- | | Total Assets | 41,101,177 | 27,870,927 | | Total Liabilities | 13,479,281 | 9,236,240 | | Total Shareholders' Equity | 27,621,896 | 18,634,687 | Consolidated Income Statement Highlights (For the year ended March 31) | Metric (USD) | 2025 | 2024 | 2023 | | :--- | :--- | :--- | :--- | | Total Revenue | 71,452,736 | 58,546,729 | 49,233,547 | | Gross Profit | 7,386,588 | 6,962,927 | 7,151,250 | | Net Income | 4,021,848 | 4,565,968 | 4,904,550 | | EPS (basic and diluted) | 0.18 | 0.21 | 0.22 | - The notes to the financial statements confirm the company operates through a VIE structure, with VIE financial results consolidated into the company's statements[637][642] - The company has three reportable operating segments: Auto Insurance Aftermarket Value-added Services, Other Scenario-based Customized Services, and Software Development and Information Technology Services[775]