Highway Holdings(US:HIHO)2023-07-12 16:00Operations and Manufacturing - Highway Holdings Limited operates through five wholly-owned or controlled subsidiaries, with manufacturing facilities in Shenzhen, China, and Yangon, Myanmar[66]. - The company has reduced its manufacturing labor force in Shenzhen to approximately 30 workers by implementing automation, while labor-intensive operations have been shifted to Myanmar[69]. - Highway Holdings Limited owns 84% of Kayser Myanmar, which has been fully transitioned to handle labor-intensive assembly and component manufacturing operations[70]. - Kayser Myanmar entered into a 50-year lease for a 6,900 square meter factory estate in Yangon, which includes upgraded existing factories and a new facility[71]. - The company has focused on manufacturing higher-margin components and subassemblies, with over 70% of revenues derived from European customers[83]. - Highway Holdings Limited has invested in automated and robotic machinery to improve product quality and reduce labor costs, significantly decreasing the number of workers in Shenzhen[87]. - The company’s strategy includes leveraging its manufacturing strengths and upgrading equipment to attract major European customers[84]. - Highway Holdings Limited's operations in Myanmar are subject to risks associated with operating in an underdeveloped country, which may affect customer acceptance of products assembled there[71]. - The company has transitioned from traditional manufacturing to automated processes in Shenzhen, focusing on design, tooling, and engineering activities[68]. - Highway Holdings Limited's manufacturing capabilities include metal stamping, plastic injection molding, and electronic assembly, allowing for the production of complex customized products[78]. - The Company has relocated its manufacturing and assembly operations to Myanmar to reduce costs, benefiting from lower labor costs and preferential customs provisions for European and U.S. customers[88]. Financial Performance - For the fiscal year ended March 31, 2023, net sales to customers by geographic area were 14.7% in Hong Kong and China, 80.7% in Europe, 0.3% in other Asian countries, and 4.3% in North America[104]. - The Company's sales by segments for the fiscal year ended March 31, 2023, were 65.0% from Metal Stamping and Mechanical OEM operations and 35.0% from Electric OEM operations[107]. - Four customers accounted for 94.8% of the Company's net sales in fiscal 2023, indicating a high dependency on a few large customers[109]. - For the fiscal year ended March 31, 2023, net sales decreased by $2,123,000, or 17.2%, compared to the previous fiscal year due to decreased demand in Europe and COVID-19 impacts on production[151]. - Net sales to European customers increased to 80.7% in fiscal 2023 from 70.9% in fiscal 2022, while net sales to North American customers decreased to 4.3% from 11.5%[151]. - The metal stamping and mechanical OEM segment accounted for 65.0% of net sales in fiscal 2023, up from 58.3% in fiscal 2022, while the electric OEM segment decreased to 35.0% from 41.7%[152]. - Gross profit as a percentage of net sales increased slightly to 30.7% in fiscal 2023 from 30.5% in fiscal 2022, but gross profit in dollar terms decreased by $629,000 to $3,141,000[152]. - Selling, general and administrative expenses rose by $415,000, or 13.0%, in fiscal 2023, representing 35.3% of net sales compared to 25.9% in fiscal 2022[153]. - The company reported an operating loss of $477,000 in fiscal 2023, compared to operating income of $567,000 in fiscal 2022[153]. - A net loss of $294,000 was recorded in fiscal 2023, compared to net income of $443,000 in fiscal 2022[154]. Research and Development - The Company has developed a proprietary line of energy-saving brushless direct current motors, with the first motor now being manufactured and sold, while two others are in design and testing stages[116]. - The Company has increased its research and development efforts to design and develop a line of new, lower-cost electric motors, with one model already being sold to an existing customer[130]. - The Company is exploring opportunities to leverage its manufacturing capabilities to develop proprietary products, including brushless DC electric motors[140]. Compliance and Regulations - The Company maintains ISO 9001 quality management system certification in its factories in China and Myanmar, which helps minimize defects and enhance customer confidence[92]. - The Company has maintained compliance with RoHS and REACH regulations, which restrict the importation of products containing certain toxic materials[125]. - The Company is subject to increased labor costs in Shenzhen, with new regulations requiring open-ended employment contracts after two consecutive fixed-term contracts[123]. Financial Position and Cash Flow - As of March 31, 2023, the Company had cash and cash equivalents of $6,952,000, an increase from $6,010,000 on March 31, 2022, and $7,757,000 on March 31, 2021[160]. - The Company generated $809,000 in cash from operating activities in fiscal 2023, attributed to a $794,000 decrease in inventories and non-cash expenses including an expected credit loss of $503,000[162]. - The Company generated $991,000 from investing activities in fiscal 2023, primarily from cash received upon the maturity of time deposits[163]. - Net cash used in financing activities included dividends paid of $1,019,000 in fiscal 2023, compared to $569,000 in fiscal 2022 and $981,000 in fiscal 2021[164]. - The Company had working capital of $6,599,000 as of March 31, 2023, down from $7,140,000 in 2022 and $7,517,000 in 2021, with a working capital ratio of 2.62 to 1[159]. - The Company realized a currency exchange gain of $32,000 in fiscal 2023, compared to an exchange rate loss of $24,000 in fiscal 2022 and a loss of $60,000 in fiscal 2021[169]. - The value of the RMB compared to the U.S. dollar decreased by approximately 8.0% from March 31, 2022, to March 31, 2023, impacting the Company's operating costs[167]. - The Company has no outstanding bank loans and lacks bank credit facilities for additional capital needs, relying on current financial resources[165]. - The Company believes its available working capital and funds generated from operations are adequate to support operations for at least the next 12 months[166]. - The Company does not utilize financial hedging or option instruments to limit exposure to exchange rate fluctuations, which could materially impact future results[170]. Shareholder Information - The Company has issued 300,000 shares of restricted stock to Mr. Kohl under the 2020 Stock Option and Restricted Stock Plan, subject to vesting based on strategic milestones[215]. - The 2020 Stock Option and Restricted Stock Plan allows for the grant of options and restricted shares totaling 500,000 shares, with no options granted to date[223]. - As of July 12, 2023, Roland W. Kohl owns 974,067 Common Shares, representing 22.1% of the total shares[231]. - Peter J. Abrahamson is a significant shareholder with 398,000 Common Shares, accounting for 9.0% of the total shares[231]. - The total number of Common Shares outstanding increased from 4,086,825 on March 31, 2023, to 4,416,825 on July 12, 2023[241]. - The Company declared two dividends during the fiscal year ended March 31, 2023: $0.15 per share on October 7, 2022, and $0.05 per share on January 5, 2023[236]. - Approximately 37.6% of the Company's outstanding shares are owned by non-U.S. shareholders[231]. - The Company has authorized capital of 20,020,000 shares, with 20,000,000 being Common Shares[241]. - As of July 12, 2023, there were 57 record holders of the Company's Common Shares, with 23 residing in the United States[231]. - The last reported sale price of the Company's Common Shares on the Nasdaq Capital Market was $2.365 per share on July 12, 2023[239]. - The Company has not engaged in any related party transactions during the fiscal year ended March 31, 2023[232]. - There have been no significant changes in the percentage ownership held by any major shareholders during the past three years[231]. Corporate Governance - The Audit Committee met three times during fiscal 2023, consisting of independent directors with significant financial knowledge[219]. - The Company has not established a separate Nominating Committee; nominations are made by independent directors[221]. - The Company’s directors serve staggered three-year terms, with one class elected at each annual meeting[217]. - The Company’s employment agreement with Mr. Kohl includes a severance payment equal to three times his annual base salary in the event of a change of control[213]. - The Board of Directors may exchange Rights for Common Shares or Series A Preferred Shares at an exchange ratio of one Common Share per Right[252]. - The Rights can be redeemed at a price of $0.01 per Right, payable in cash or Common Shares, at the discretion of the Board of Directors[254]. - Amendments to the Rights Agreement can be made while the Rights are redeemable, without adversely affecting the interests of Rights holders[255]. - The Board of Directors is divided into three classes, with directors elected for three-year terms at annual meetings[257]. - Shareholders must convene meetings for any actions required, and cannot act by written consent[258]. - A director can only be removed with cause by the Board or a resolution of shareholders holding at least 66.66% of the votes[261]. - The rights of shareholders can only be varied with the affirmative vote of two-thirds of the outstanding Series A Preferred Shares[262]. - The Company can amend its Memorandum and Articles without shareholder approval, which may affect control changes[263].