CCSC Technology International Holdings Ltd 6-K, filed Dec 27, 2024
CCSC Technology International Holdings Ltd (CCTG)
About this 6-K
CCSC Technology International Holdings Ltd filed this 6-K on December 27, 2024.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of December 2024
Commission File Number:
CCSC Technology International Holdings Limited
1301-03, 13/f Shatin Galleria, 18-24 Shan
Mei St
Fotan, Shatin, Hong Kong
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F ☒ Form 40-F ☐
Explanatory Note
On December 27, 2024, CCSC Technology International Holdings Limited (the “Company”) reported its financial results for the six months ended September 30, 2024. The Company hereby furnishes the following documents as exhibits to this report: “Unaudited Condensed Consolidated Financial Statements for the Six Months Ended September 30, 2024”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and “Press Release”.
1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CCSC TECHNOLOGY INTERNATIONAL HOLDINGS LIMITED | ||
| Date: December 27, 2024 | By: |
/s/ Kung Lok Chiu |
| Name: | Kung Lok Chiu | |
| Title: | Chief Executive Officer | |
2
EXHIBIT INDEX
3
Exhibit 99.1
CCSC TECHNOLOGY INTERNATIONAL HOLDINGS LIMITED
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
F-1
CCSC TECHNOLOGY INTERNATIONAL HOLDINGS LIMITED
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Amount in U.S. dollars, except for number of shares)
| As of September 30, 2024 | As of March 31, 2024 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Property, plant and equipment, net | ||||||||
| Intangible asset, net | ||||||||
| Operating right-of-use assets, net | ||||||||
| Finance lease right-of-use asset | ||||||||
| Deferred tax assets, net | ||||||||
| Other non-current assets | ||||||||
| Total non-current assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| Liabilities and Shareholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Advance from customers | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Taxes payable | ||||||||
| Operating lease liabilities – current | ||||||||
| Finance lease liabilities – current | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Operating lease liabilities – non current | ||||||||
| Finance lease liabilities – non current | ||||||||
| Total non – current liabilities | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
| Commitments and Contingencies | ||||||||
| Shareholders’ equity | ||||||||
| Class A ordinary shares, par value of US$ | ||||||||
| Class B ordinary shares, par value of US$ | ||||||||
| Additional paid-in capital | ||||||||
| Statutory reserve | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
| * |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
F-2
CCSC TECHNOLOGY INTERNATIONAL
HOLDINGS LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE LOSS
(Amount in U.S. dollars, except for number of shares)
| For the six months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Net revenue | $ | $ | ||||||
| Cost of revenue | ( | ) | ( | ) | ||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Selling expenses | ( | ) | ( | ) | ||||
| General and administrative expenses | ( | ) | ( | ) | ||||
| Research and development expenses | ( | ) | ( | ) | ||||
| Total operating expenses | ( | ) | ( | ) | ||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other (expenses)/income: | ||||||||
| Other non-operating (expenses)/income, net | ( | ) | ||||||
| Government subsidies | ||||||||
| Foreign currency exchange (losses)/gains | ( | ) | ||||||
| Financial and interest expenses, net | ||||||||
| Total other (expenses)/income | ( | ) | ||||||
| (Loss)/income before income tax expense | ( | ) | ||||||
| Income tax benefit | ||||||||
| Net (loss)/income | ( | ) | ||||||
| Other comprehensive income/(loss) | ||||||||
| Foreign currency translation adjustment | ( | ) | ||||||
| Total comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| (Loss)/earnings per share | ||||||||
| Basic and Diluted | $ | ( | ) | $ | ||||
| Weighted average number of ordinary shares | ||||||||
| Basic and Diluted | ||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
F-3
CCSC TECHNOLOGY INTERNATIONAL HOLDINGS LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS’ EQUITY
(Amount in U.S. dollars, except for number of shares)
| Accumulated | ||||||||||||||||||||||||||||||||||||||||
| Class A Ordinary Shares | Class B Ordinary Shares | Subscription | Additional paid-in | Statutory | Retained | other comprehensive | Total shareholders’ | |||||||||||||||||||||||||||||||||
| Share* | Amount | Share* | Amount | receivable | capital | reserves | earnings | loss | equity | |||||||||||||||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||||||||||
| Capital contribution by shareholder | - | - | ||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||||||||||
| Class A Ordinary Shares | Class B Ordinary Shares | Additional paid-in | Statutory | Retained | other comprehensive | Total shareholders’ | ||||||||||||||||||||||||||||||
| Share* | Amount | Share* | Amount | capital | reserves | earnings | loss | equity | ||||||||||||||||||||||||||||
| Balance as of March 31, 2024 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | ||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2024 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||
| * |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
F-4
CCSC TECHNOLOGY INTERNATIONAL HOLDINGS LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amount in U.S. dollars, except for number of shares)
| For the six months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net (loss)/income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||
| Inventories write-down | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of right-of-use asset | ||||||||
| Loss from disposal of fixed assets | ||||||||
| Deferred tax benefits | ( | ) | ( | ) | ||||
| Foreign currency exchange losses/(gains) | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Other non-current assets | ||||||||
| Accounts payable | ||||||||
| Advance from customers | ( | ) | ( | ) | ||||
| Taxes payable | ( | ) | ||||||
| Accrued expenses and other current liabilities | ( | ) | ( | ) | ||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Financing lease liabilities | ( | ) | ||||||
| Net cash (used in)/provided by operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Purchase of land | ( | ) | ||||||
| Purchase of intangible asset | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FORM FINANCING ACTIVITIES | ||||||||
| Repayments of long-term bank loans | ( | ) | ||||||
| Payment for deferred initial public offering costs | ( | ) | ||||||
| Capital contribution by shareholder | ||||||||
| Net cash used in financing activities | ( | ) | ||||||
| Effect of exchange rate changes on cash and restricted cash | ( | ) | ||||||
| Net change in cash and restricted cash | ( | ) | ( | ) | ||||
| Cash and restricted cash, beginning of the period | ||||||||
| Cash and restricted cash, end of the period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for income tax | $ | $ | ( | ) | ||||
| Cash paid for interest | $ | $ | ( | ) | ||||
| Cash paid for operating lease | $ | ( | ) | $ | ( | ) | ||
F-5
The following tables provides a reconciliation of cash and restricted cash reported within the statement of financial position that sum to the total of the same amounts shown in the unaudited condensed consolidated statement of cash flows:
| September 30, | September 30, | |||||||
| 2024 | 2023 | |||||||
| Cash, beginning of the period | $ | $ | ||||||
| Restricted cash, beginning of period | ||||||||
| Total cash and restricted cash, beginning of period | $ | $ | ||||||
| September 30, | September 30, | |||||||
| 2024 | 2023 | |||||||
| Cash, end of the period | $ | $ | ||||||
| Restricted cash, end of period | ||||||||
| Total cash and restricted cash, end of period | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
F-6
CCSC TECHNOLOGY INTERNATIONAL HOLDINGS LIMITED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 1. | ORGANIZATION AND PRINCIPAL ACTIVITIES |
| (a) | Principal activities |
CCSC Technology International Holdings Limited (“CCSC Cayman” or the “Company”), through its direct wholly-owned subsidiaries, is principally engaged in the manufacturing and sale of interconnect products, including connectors, cables and wire harnesses. The majority of the Company’s products are sold in Europe and Asia. The Company produces both OEM (“original equipment manufacturer”) and ODM (“original design manufacture”) interconnect products for manufacturing companies that produce end products, as well as for electronic manufacturing services (“EMS”) companies, who procure and assemble products on behalf of such companies.
| (b) | Organization |
CCSC Cayman was incorporated as an ultimate holding company in the Cayman Islands on October 19, 2021.
CCSC Cayman owns
CCSC Cayman and CCSC Group are currently not engaged in any active business operations and are merely acting as holding companies.
CCSC Technology Doo Beograd (“CCSC Technology Serbia”), a wholly-owned subsidiary of CCSC Group, was incorporated on February 27, 2024 in Republic of Serbia (“Serbia”).
CCSC Technology Group Limited (“CCSC Technology Group”), a wholly-owned subsidiary of CCSC Group, was incorporated on December 31, 1992 in Hong Kong, China under its former name, Leoco (H.K.) Limited, which was subsequently changed to its current name on December 5, 2019.
CCSC Technology Group has three direct wholly-owned subsidiaries in the PRC and the Netherlands as follows:
| ● | Dongguan CCSC Interconnect Electronic Technology Limited. (“CCSC Interconnect DG”), a company incorporated on June 28, 1993 in Dongguan, China; |
| ● | CCSC Interconnect Technology Limited (“CCSC Interconnect HK”), a company incorporated on July 3, 2007 in Hong Kong, China; and |
| ● | CCSC Interconnect Technology Europe B.V. (“CCSC Interconnect NL”), a company incorporated on March 14, 2016 in the Netherlands. |
A reorganization of the Company’s
legal structure (“Reorganization”) was completed on March 17, 2022. Prior to the Reorganization described below, CCSC
Technology Group was controlled by several individual shareholders. The Reorganization involved the incorporation of CCSC Cayman and CCSC
Group and the transfer of the
Upon the completion of the above Reorganization, the Company became the ultimate holding company of all other entities mentioned above. The Company is effectively controlled by the same group of controlling shareholders before and after the Reorganization; therefore, the Reorganization is considered as a recapitalization of these entities under common control. The consolidation of the Company and its subsidiaries was accounted for at historical cost and prepared on the basis as if the aforementioned transactions had become effective as of the beginning of the first period presented in the accompanying unaudited condensed consolidated financial statements. Results of operations for the period presented comprise those of the previous separate entries combined from the beginning of the period to the end of the period, eliminating the effects of intra-entity transactions.
F-7
| 1. | ORGANIZATION AND PRINCIPAL ACTIVITIES (cont.) |
| (b) | Organization (cont.) |
| Entity | Date of Incorporation | Place of Incorporation | % of Ownership | Major business activities | ||||
| CCSC Cayman | ||||||||
| CCSC Group | ||||||||
| CCSC Technology Group | ||||||||
| CCSC Interconnect HK | ||||||||
| CCSC Interconnect DG | ||||||||
| CCSC Interconnect NL | ||||||||
| CCSC Technology Serbia |
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
| (a) | Basis of presentation |
The accompanying unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”).
| (b) | Principles of consolidation |
The accompanying unaudited condensed consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries. All inter-company balances and transactions are eliminated upon consolidation.
| (c) | Use of estimates |
The preparation of the unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited condensed consolidated financial statements and reported amounts of revenues and expenses during the reporting periods. These estimates are based on information as of the date of the unaudited condensed consolidated financial statements. Significant accounting estimates include, but are not limited to allowance for credit losses, inventory write-down, useful lives of property, plant and equipment and intangible assets, recoverability of long-lived assets, and realization of deferred income taxes. Changes in facts and circumstances may result in revised estimates. Actual results could differ from those estimates.
F-8
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| (d) | Foreign currencies and foreign currency translation |
The functional currency and reporting currency of the Company is the United States Dollar (“US$” or “$” ). The Company’s direct wholly-owned operating subsidiaries in Hong Kong, mainland China, the Netherlands and the Serbia, use their respective currencies, Hong Kong dollar (“HK$”), Renminbi (“RMB”) and Euro (“EUR”), as their functional currencies.
The unaudited condensed financial statements of the Company’s direct wholly-owned operating subsidiaries were translated into the U.S. dollar using the exchange rate as of the balance sheet date for assets and liabilities and average exchange rate for the year for income and expense items. Assets and liabilities denominated in functional currencies at the balance sheet date were translated at the applicable rates of exchange in effect at that date. The equity denominated in the functional currency was translated at the historical rate of exchange at the time of the capital contribution. Because cash flows were translated based on the average exchange rate, amounts related to assets and liabilities reported on the unaudited condensed consolidated statements of cash flows may not necessarily agree with changes in the corresponding balances on the unaudited condensed consolidated balance sheets. Translation adjustments arising from the use of different exchange rates from period to period are included as a separate component of accumulated other comprehensive income/ (loss) included in unaudited condensed consolidated statements of changes in shareholders’ equity. Gains and losses from foreign currency transactions are included in the Company’s unaudited condensed consolidated statements of operations and comprehensive loss.
| September 30, 2024 | March 31, 2024 | September 30, 2023 | ||||||||||
| Period-end spot rate |
Average rate |
Period-end spot rate |
Average rate |
Period-end spot rate |
Average rate | |||||||
| US$ against RMB | US$1=RMB |
US$1=RMB |
US$1=RMB |
US$1=RMB |
US$1=RMB |
US$1=RMB | ||||||
| US$ against EUR | US$1=EUR |
US$1=EUR |
US$1=EUR |
US$1=EUR |
US$1=EUR |
US$1=EUR | ||||||
| US$ against HK$ | US$1=HK$ |
US$1=HK$ |
US$1=HK$ |
US$1=HK$ |
US$1=HK$ |
US$1=HK$ | ||||||
| US$ against RSD | US$1=RSD |
US$1=RSD |
* | * | ||||||||
| * |
| (e) | Cash |
Cash consists of cash on hand and cash in bank. The Company maintains cash with various financial institutions primarily in HK, mainland China, the Netherlands and the Serbia. The Company has not experienced any losses in bank accounts.
| (f) | Restricted Cash |
Restricted cash consists of rental
guarantee deposits and escrow deposits. The rental guarantee deposit for the Company’s office located in the Netherlands cannot
be withdrawn without certain approval or notice. Escrow deposits in the designated escrow account are to cover possible indemnification
claims against the underwriters for a period of 12 months from the closing of the IPO. The amount of designated escrow account was $
F-9
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| (g) | Accounts receivable |
Accounts receivable represents the amounts that the Company has an unconditional right to consideration, which are stated at the original amount less the expected credit losses of accounts receivable. The Company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. The Company usually determines the adequacy of reserves for doubtful accounts based on individual account analysis and historical collection trends. The Company considers many factors in assessing the expected credit losses model, such as size, the age of the accounts, the customer’s payment history, credit-worthiness and other specific circumstances related to the accounts, along with reasonable and supportable forecasts as a basis to develop the Company's expected loss estimates. The provision is recorded against accounts receivables balances, with a corresponding charge recorded in the unaudited condensed consolidated statements of operations and comprehensive loss. Delinquent account balances are written off against the credit losses of accounts receivable after management has determined that the likelihood of collection is remote. The Company adopted ASU 2016-13 from April 1, 2023 using modified-retrospective transition approach with a cumulative-effect adjustment to shareholders’ equity amounting to nil recognized as of April 1, 2023. As of September 30, 2024 and March 31, 2024, there were no credit losses recorded as the Company considers all of the outstanding accounts receivable fully collectible.
| (h) | Inventories, net |
Inventories, primarily consisting of
raw materials, work-in-process, finished goods and inventory in transit, are stated at the lower cost or net realizable value. Net realizable
value is the estimated selling price in the normal course of business less any costs to complete and sell products. Cost of inventory
is determined using the weighted average cost method. The Company reviews its inventories periodically to determine if any reserves are
necessary for potential shrinkage and obsolete or unusable inventory. For the six months ended September 30, 2024 and 2023, write-downs
of inventories to net realizable value, recognized in cost of sales, amounted to $
| (i) | Property, plant and equipment, net |
| Category | Estimated useful lives | |
| Machinery and equipment | ||
| Office equipment, furniture and fixtures | ||
| Leasehold improvements | Lesser of useful life and lease terms | |
| Motor vehicle | ||
| Land |
Cost represents the purchase price of the asset and other costs incurred to bring the asset into its intended use.
Repair and maintenance costs are charged to expenses as incurred, whereas the cost of renewals and betterments that extend the useful lives of property, plant and equipment are capitalized as additions to the related assets. Retirements, sales and disposals of assets are recorded by removing the costs, accumulated depreciation and impairment with any resulting gain or loss recognized in the unaudited condensed consolidated statements of operations and comprehensive loss in other income or expenses.
F-10
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| (j) | Intangible assets, net |
Intangible assets are stated at cost
less accumulated amortization and amortized in a method which reflects the pattern in which the economic benefits of the intangible assets
are expected to be consumed or otherwise used up.
| Category | Estimated useful lives | |
| Software |
| (k) | Impairment of long-lived assets |
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, the Company measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, the Company would recognize an impairment loss, which is the excess of the carrying amount over the fair value of the assets, using the expected future discounted cash flows. There were no impairments of these long-lived assets as of September 30, 2024 and March 31, 2024, respectively.
| (l) | Deferred Initial Public Offering (“IPO”) Costs |
The Company complies with the requirement of the Accounting Standards Codification (“ASC”) 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A — “Expenses of Offering.” Deferred offering costs consist of underwriting, legal, consulting, and other expenses incurred through the balance sheet date that are directly related to the intended IPO. With the completion of the IPO on January 17, 2024, the deferred offering costs have been charged against the gross proceeds of the offering as a reduction of additional paid-in capital. Deferred IPO costs amounted to as of September 30, 2024 and March 31, 2024, respectively.
| (m) | Fair value measurement |
The Company applies ASC 820, Fair Value Measurements and Disclosures (“ASC 820’’). ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 requires disclosures to be provided on fair value measurement.
ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
| ● | Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
| ● | Level 2 — Include other inputs that are directly or indirectly observable in the marketplace. | |
| ● | Level 3 — Unobservable inputs which are supported by little or no market activity. |
ASC 820 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.
F-11
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| (m) | Fair value measurement (cont.) |
Financial assets and liabilities of the Company primarily consisted of cash, restricted cash, accounts receivable, prepaid expenses and other current assets, accounts payable, income tax payable, and accrued expenses and other current liabilities. As of September 30, 2024 and March 31, 2024, the carrying amounts of the Company’s financial instruments approximated to their fair value of the respective assets and liabilities based upon the short-term nature of these assets and liabilities.
The Company believes that the carrying amount of long-term loans, current portion approximate fair value at September 30, 2024 and March 31, 2024 based on the terms of the borrowings and current market rates, as the rates of the borrowings are reflective of the current market rates.
| (n) | Commitments and contingencies |
From time to time, the Company may be a party to various legal actions arising in the ordinary course of business. The Company accrues costs associated with these matters when they become probable and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. For the six months ended September 30, 2024 and 2023, the Company did not have any material legal claims or litigation that, individually or in aggregate, could have a material adverse impact on the Company’s unaudited condensed consolidated financial position, results of operations, and cash flows.
The Company had contractual payment obligations under its operating lease agreements with the landlords.
The Company also had equipment purchase
agreements with two independent third-party vendors, with a future payment of $
| (o) | Revenue recognition |
ASC 606 establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.
To determine revenue recognition for contracts with customers, the Company performs the following five steps:
| Step 1: | Identify the contract with the customer |
| Step 2: | Identify the performance obligations in the contract |
| Step 3: | Determine the transaction price |
| Step 4: | Allocate the transaction price to the performance obligations in the contract |
| Step 5: | Recognize revenue when the company satisfies a performance obligation |
F-12
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| (o) | Revenue recognition (cont.) |
The Company manufactures and sells interconnect products, including connectors, cables and wire harnesses.
The Company recognizes revenue when it transfers its goods to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. The Company accounts for the revenue generated from sales of its products to its customers on a gross basis, because the Company is acting as a principal in these transactions, is subject to inventory risk, has latitude in establishing prices, and is responsible for fulfilling the promise to provide customers the specified goods. All of the Company’s contracts have single performance obligation as the promise is to transfer the individual goods at a fixed price to customers, and there are no other separately identifiable promises or financial component in the contracts.
The Company’s revenue is recognized at a point in time when title and risk of loss passes and the customer accepts the goods, which generally occurs at delivery. The Company’s products are sold with no right of return and the Company does not provide other credits or sales incentives to customers. Revenue is reported net of value added tax (“VAT”).
Disaggregation of Revenue
The Company disaggregates its revenue from contracts by product category and geographic regions, as the Company believes it best depicts how the nature, amount, timing and uncertainty of the revenue and cash flows are affected by economic factors. The Company’s disaggregation of revenues for the six months ended September 30, 2024 and 2023 are disclosed in Note 16 to these unaudited condensed consolidated financial statements.
Contract assets and liabilities
Payment terms are established on the Company’s pre-established credit requirements based upon an evaluation of customers’ credit. Accounts receivable represent revenue recognized for the amounts invoiced and/or prior to invoicing when the Company has satisfied its performance obligation and has unconditional right to the payment. Contract assets represent the Company’s right to consideration in exchange for goods or services that the Company has transferred to a customer. Other than accounts receivable, the Company had no other material contract assets recorded on its unaudited condensed consolidated balance sheets as of September 30, 2024 and March 31, 2024, respectively.
The Company’s contract liabilities
primarily relate to unsatisfied performance obligations when payment has been received from customers before the Company’s products
are delivered, and are recorded as “advance from customers” on the unaudited condensed consolidated balance sheets. Costs
of fulfilling customers’ purchase orders, such as shipping, handling and delivery, which occur prior to the transfer of control,
are recognized in selling, general and administrative expenses when incurred. Advance from customers amounted to $
F-13
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| (p) | Cost of revenue |
Cost of revenue consists primarily of (i) cost of materials (ii) labor costs, (iii) inventory write-down (iv) depreciation and amortization, (v) rental expenses for the factory and employee dormitory. Depreciation and amortization of manufacturing facilities and warehouses attributable to manufacturing activities are capitalized as part of the cost of inventory, and expensed in costs of revenues when the inventory is sold.
| (q) | Selling expenses |
Selling expenses mainly consist of (i) freight fees and transportation fees; (ii) staff costs, rental and depreciation related to selling and marketing functions; and (iii) marketing and entertainment expenses for promotion; and (iv) free sample expenses incurred for obtaining new customers and sales orders.
| (r) | General and administrative expenses |
General and administrative expenses mainly consist of (i) staff costs, rental and depreciation related to general and administrative personnel; (ii) professional service fees; and (iii) other corporate expenses.
| (s) | Research and development (“R&D”) expenses |
Research and development expenses mainly consist of (i) costs of raw material for the research and development activities; and (ii) salaries, welfare and insurance expenses paid to R&D employees and (iii) manufacturing expenses for producing samples related to research and development activities.
| (t) | Government Subsidies |
Government subsidy is recognized when
there is a reasonable assurance that the Company will comply with the conditions attached to it and the grant will be received. Government
grant for the purpose of giving immediate financial support to the Company with no future related costs or obligation is recognized in
the Company’s unaudited condensed consolidated statements of operations and comprehensive loss when the grant becomes receivable.
Government subsidies received and recognized as other income totaled $
| (u) | Employee Defined Contribution Plan |
The Company’s subsidiaries in
the PRC participate in a government-mandated multi-employer defined contribution plan pursuant to which pension, work-related injury benefits,
maternity insurance, medical insurance, unemployment benefits and housing funds are provided to eligible full-time employees. The relevant
labor regulations require the Company’s subsidiaries in the PRC to pay the local labor and social welfare authorities monthly contributions
based on the applicable benchmarks and rates stipulated by the local government. The contributions to the plan are expensed as incurred.
Employee social security and welfare benefits included as expenses in the accompanying unaudited condensed consolidated statements of
operations and comprehensive loss amounted to $
F-14
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| (v) | Leases |
The Company leases premises for factory and offices under non-cancellable operating leases.
On April 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2016-02, Lease (FASB ASC Topic 842). ASC 842 requires that lessees recognize right-of-use (“ROU”) assets and lease liabilities calculated based on the present value of lease payments for all lease agreements with terms that are greater than twelve months. ASC 842 distinguishes leases as either a finance lease or an operating lease on the unaudited condensed consolidated balance sheets that affects how the leases are measured and presented in the statement of operations and statement of cash flows (see Note 10).
Right-of-use (“ROU”) assets represent the Company’s right to use underlying assets including factory, vehicles and production equipment for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange of a consideration. To assess whether a contract is or contains a lease, the Company assesses whether the contract involves the use of an identified asset, whether it has the right to obtain substantially all the economic benefits from the use of the asset, and whether it has the right to control the use of the asset.
The right-of-use assets and related lease liabilities are recognized at the lease commencement date. The Company recognizes operating lease expenses and finance lease amortization expenses on a straight-line basis over the lease term.
Operating lease right-of-use of assets and finance lease right-of-use of assets
The right-of-use of asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and less any lease incentive received. The Company has both operating lease and finance lease.
For operating lease, lease expense is recorded on a straight-line basis over the lease term. The amortization of the right-of-use asset is calculated as the difference between the straight-line lease expense and the interest calculated on the lease liability. For finance lease, the amortization of the right-of-use asset is calculated on a straight-line basis over the lease term.
Operating lease liabilities and finance lease liabilities
Lease liability is initially measured at the present value of the outstanding lease payments at the commencement date, discounted using the Company’s incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise fixed lease payments, variable lease payments that depend on an index or a rate, amounts expected to be payable under a residual value guarantee and any exercise price under a purchase option that the Company is reasonably certain to exercise.
Lease liability is measured at amortized cost using the effective interest rate method. It is re-measured when there is a change in future lease payments, if there is a change in the estimate of the amount expected to be payable under a residual value guarantee, or if there is any change in the Company assessment of option purchases, contract extensions or termination options.
F-15
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| (w) | Income taxes |
The Company accounts for income taxes under ASC 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the unaudited condensed consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The Company records uncertain tax positions in accordance with ASC 740, Income Taxes, on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. The Company records interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying unaudited condensed consolidated statements of operations. Accrued interest and penalties are included on the related tax liabilities line in the unaudited condensed consolidated balance sheets. The Company does not believe that there were any uncertain tax positions as of September 30, 2024 and March 31, 2024, respectively.
The Company’s operating subsidiary
in mainland China is subject to examination by the relevant PRC tax authorities. According to the PRC Tax Administration and Collection
Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or
the withholding agent. The statute of limitations is extended to five years under special circumstances, where the underpayment of
taxes is more than RMB
The Company’s operating subsidiary in Hong Kong are subject to examination by the Hong Kong Inland Revenue Department (the “HKIRD”) if the HKIRD has doubts regarding the source of income, the completeness and accuracy of the tax returns filed by the taxpayers. According to the Inland Revenue Ordinance, the taxpayers are required to keep sufficient records of income and expenditure for a period of not less than seven years to enable the assessable profits to be readily ascertained.
| (x) | Value added tax (“VAT”) |
Sales revenue represents the invoiced value of goods, net of VAT. The Company is subject to VAT and related surcharges on revenue generated from sales of products. The Company records revenue net of VAT. Entities that are VAT general taxpayers are allowed to offset qualified input VAT, paid to suppliers against their output VAT liabilities.
The VAT is based on gross sales price.
The mainland China VAT rate is
F-16
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| (y) | Segment Reporting |
An operating segment is a component of the Company that engages in business activities from which it may earn revenue and incur expenses, and is identified on the basis of the internal financial reports that are provided to and regularly reviewed by the Company’s chief operating decision maker (the “CODM”) in order to allocate resources and assess the performance of the segment.
In accordance with ASC 280, Segment Reporting, operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the CODM or decision-making group, in deciding how to allocate resources and in assessing performance. The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s CODM for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. Management, including the CODM, reviews operating results by the revenue of different services. Based on management’s assessment, the Company has determined that it has one operating segment as defined by ASC 280 (see Note 16).
| (z) | (Loss)/ earnings per share |
The Company computes earnings per share (“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC 260”). ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS are computed by dividing income available to shareholders of the Company by the weighted average Ordinary Shares outstanding during the period. Diluted EPS take into account the potential dilution that could occur if securities or other contracts to issue Ordinary Shares were exercised and converted into Ordinary Shares. As of September 30, 2024 and March 31, 2024, there were no dilutive shares.
| (aa) | Comprehensive loss |
Comprehensive loss consists of two components, net (loss)/income and other comprehensive income/ (loss). The foreign currency translation adjustment resulting from translation of the unaudited condensed consolidated financial statements expressed in RMB and other foreign currencies to US$ is reported in other comprehensive income/ (loss) in the unaudited condensed consolidated statements of comprehensive loss.
| (bb) | Concentration and credit risk |
Financial instruments that
potentially subject the Company to significant concentration of credit risk consist primarily of cash, restricted cash and accounts
receivable. As of September 30, 2024 and March 31, 2024, the aggregate amounts of cash and restricted cash of $
The Company’s exposure to credit risk associated with its trading and other activities is measured on an individual counterparty basis, as well as by a group of counterparties that share similar attributes. Substantially all of the Company’s sales are made to customers that are located primarily in Europe, Asia and the Americas. The Company’s operating results could be adversely affected by government policies on exporting businesses, foreign exchange rate fluctuations, and local market condition changes.
There were three customers who accounted
for approximately
F-17
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| (bb) | Concentration and credit risk (cont.) |
There were two customer who accounted for approximately
There was one supplier who accounted for approximately
There was one supplier who accounted for approximately
| (cc) | Related parties and transactions |
The Company identifies related parties, and accounts for, discloses related party transactions in accordance with ASC 850, “Related Party Disclosures” and other relevant ASC standards.
Related parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Companies are also considered to be related if they are subject to common control or common significant influence.
Transactions between related parties commonly occurring in the normal course of business are considered to be related party transactions. Transactions between related parties are also considered to be related party transactions even though they may not be given accounting recognition. While ASC does not provide accounting or measurement guidance for such transactions, it nonetheless requires their disclosure.
| (dd) | Risks and uncertainties |
The Company has substantial operations in China through its PRC subsidiaries. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by political, economic, and legal environments in the PRC, as well as by the general state of the PRC economy. The Company’s results may be adversely affected by changes in the political, regulatory and social conditions in the PRC. Although the Company has not experienced losses from these situations and believes that it is in compliance with existing laws and regulations including its organization and structure disclosed in Note 1, this may not be indicative of future results.
The Company’s business, financial condition and results of operations may also be negatively impacted by risks related to regional wars, geopolitical tensions, natural disasters, extreme weather conditions, health epidemics and other catastrophic incidents, which could potentially and significantly disrupt the Company’s operations.
The uncertainties associated with the ongoing Russia-Ukraine war may cause the Company’s future revenue and cash flows to underperform due to significant increases in raw material purchase prices and disruptions of the global supply chain. Any potential impact on the Company’s operating results will depend, to a large extent, on future developments and new information that may emerge regarding the duration and the new development of the Russia-Ukraine war, of which are beyond the Company’s control and cannot be reasonably predicted as of the date of this report.
F-18
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) |
| (ee) | Recent accounting pronouncements |
Recently issued accounting pronouncements not yet adopted
In October 2023, the FASB issued ASU 2023-06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.” This ASU incorporates certain U.S. Securities and Exchange Commission (SEC) disclosure requirements into the FASB Accounting Standards Codification. The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. For all other entities, the amendments will be effective two years later. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and will not become effective for any entity. The Company does not expect the adoption of ASU 2023-06 to have a material impact on its unaudited condensed consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Improvement to Income Tax Disclosure. This standard requires more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This standard also includes certain other amendments to improve the effectiveness of income tax disclosures. ASU 2023-09 is effective for public business entities, for annual periods beginning after December 15, 2024. For entities other than public business entities, the amendments are effective for annual periods beginning after December 15, 2025. The Company is in the process of evaluating the impact of adopting this new guidance on its unaudited condensed consolidated financial statement.
Other accounting standards that have been issued by FASB that do not require adoption until a future date are not expected to have a material impact on the unaudited condensed consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on, or are unrelated to, its unaudited condensed consolidated financial condition, results of operations, cash flows or disclosures.
| 3. | ACCOUNTS RECEIVABLE |
Accounts receivable amounted to $
Approximately
| Balance as of | % of | |||||||||||
| September 30, 2024 | Subsequent Collection | subsequent collection | ||||||||||
| Accounts receivable by aging bucket | (Unaudited) | |||||||||||
| Overdue | $ | $ | % | |||||||||
| Not yet due | % | |||||||||||
| Total gross accounts receivable | % | |||||||||||
| Allowance for credit losses | ||||||||||||
| Accounts receivable, net | $ | $ | % | |||||||||
F-19
| 4. | INVENTORIES |
As of September 30, 2024 | As of March 31, 2024 | |||||||
| (Unaudited) | ||||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Inventory in transit (Note A) | ||||||||
| Inventories | $ | $ | ||||||
Note A:
| 5. | PREPAID EXPENSES AND OTHER CURRENT ASSETS |
| As of September 30, 2024 | As of March 31, 2024 | |||||||
| (Unaudited) | ||||||||
| Deductible VAT-Input(1) | $ | $ | ||||||
| Income tax recoverable(2) | ||||||||
| Advances to vendors(3) | ||||||||
| Security deposits(4) | ||||||||
| Others | ||||||||
| Prepaid expenses and other current assets | $ | $ | ||||||
| (1) | |
| (2) | |
| (3) | |
| (4) |
F-20
| 6. | PROPERTY, PLANT AND EQUIPMENT, NET |
| As of September 30, 2024 | As of March 31, 2024 | |||||||
| (Unaudited) | ||||||||
| Machinery equipment | $ | $ | ||||||
| Land(1) | ||||||||
| Office equipment | ||||||||
| Leasehold improvements | ||||||||
| Automobile | ||||||||
| Furniture | ||||||||
| Subtotal | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property, plant and equipment, net | $ | $ | ||||||
| (1) |
Depreciation expense was $
| 7. | INTANGIBLE ASSETS, NET |
| As of September 30, 2024 | As of March 31, 2024 | |||||||
| (Unaudited) | ||||||||
| Software | $ | $ | ||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Intangible asset, net | $ | $ | ||||||
Amortization expense was $
| 8. | Other non-current assets |
| As of September 30, 2024 | As of March 31, 2024 | |||||||
| (Unaudited) | ||||||||
| Prepayment of long-term equipment and mold model (1) | $ | $ | ||||||
| Deposits and others (2) | ||||||||
| Other non-current assets | $ | $ | ||||||
| (1) |
| (2) |
F-21
| 9. | ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES |
| As of September 30, 2024 | As of March 31, 2024 | |||||||
| (Unaudited) | ||||||||
| Accrued payroll and employee benefits(a) | $ | $ | ||||||
| Others(b) | ||||||||
| Total | $ | $ | ||||||
| (1) |
| (2) |
| 10. | LEASES |
At the inception of a contract, the Company determines if the arrangement is, or contains, a lease. ROU assets represent the Company’s right to use an underlying asset over the lease term and lease liabilities represent the Company’s obligation to make lease payments derived from the lease.
Operating lease and finance lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease terms. Rent expense is recognized on a straight-line basis over the lease terms.
On September 1, 2022, the Company renewed a lease for plants with original lease term expired on August 31, 2022 and extended the lease term for another years to August, 2027.
On November 7, 2023, the Company renewed an equipment lease with original leases term expired on August 20, 2023 and extended the lease term for another years to February 19, 2028. The Company will have ownership of the equipment upon maturity of the leases.
On November 23, 2023, the Company renewed office leases by combining
two leases that expired on November 31, 2023 and extending the lease term for another
| As of September 30, 2024 | As of March 31, 2024 | |||||||
| (Unaudited) | ||||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Operating lease right-of-use assets- accumulated amortization | ( | ) | ( | |||||
| Operating lease right-of-use assets, net | $ | $ | ||||||
| Operating lease liabilities, current | $ | $ | ||||||
| Operating lease liabilities, non-current | | |||||||
| Total operating lease liabilities | $ | $ | ||||||
| As of September 30, 2024 | As of March 31, 2024 | |||||||
| (Unaudited) | ||||||||
| Finance lease right-of-use assets | $ | $ | ||||||
| Finance lease right-of-use assets- accumulated amortization | ( | ( | ||||||
| Finance lease right-of-use assets, net | $ | $ | ||||||
| Finance lease liabilities, current | $ | $ | ||||||
| Finance lease liabilities, non-current | | | ||||||
| Total finance lease liabilities | $ | $ | ||||||
F-22
| 10. | LEASES (cont.) |
| As of September 30, 2024 | As of March 31, 2024 | |||||||
| (Unaudited) | ||||||||
| Remaining lease term and discount rate: | ||||||||
| Weighted average remaining lease term (years) | ||||||||
| Operating lease | ||||||||
| Finance lease | ||||||||
| Weighted average discount rate | ||||||||
| Operating lease | % | % | ||||||
| Finance lease | % | % | ||||||
| (1) | The weighted-average discount rate is calculated on the basis of both (i) the discount rate for the lease that was used to calculate the lease liability balance for each lease as of the reporting date; and (ii) the remaining balance of the lease payments for each lease as of the reporting date. The Company’s lease agreements do not have a discount rate that is readily determinable. The incremental borrowing rate is determined at lease commencement or lease modification and represents the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar term and an amount equal to the lease payments in a similar economic environment. |
| For the six months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Operating lease: | ||||||||
| Operating lease expense | $ | $ | ||||||
| Short-term lease expense | ||||||||
| Total operating lease expenses | ||||||||
| Finance leases: | ||||||||
| Amortization expense | ||||||||
| Interest expense | ||||||||
| Total finance lease expenses | ||||||||
| Total lease expenses | $ | $ | ||||||
For the six months ended September
30, 2024 and 2023, cash paid for operating leases are $
| Operating lease | Finance lease | |||||||
| Twelve months ending September 30, | ||||||||
| 2025 | $ | $ | ||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| Total lease payments | ||||||||
| Less: imputed interest | ( | ) | ( | ) | ||||
| Total lease liabilities | $ | $ | ||||||
F-23
| 11. | BANK LOAN and LOAN FACILITIES |
In June 2020, the Company’s
subsidiary, CCSC Technology Group, entered into a bank loan agreement with Bank of China (HK) Limited (“BOCHK”) to borrow
$
In August 2021, the Company’s
subsidiary, CCSC Interconnect HK, obtained certain line of credit approvals from BOCHK, including (1) a revolving export invoice
discounting (“EID”) facility with a maximum borrowing capacity of $
Pursuant to the facilities agreement, the Company should cease to use the BOCHK line of credit including EID facility, revolving credit facility and forex hedging facility when it listed on any stock exchanges. Therefore, the Company ceased using the credit in May 2024 after it listed on the Nasdaq Capital Market on January 2024.
Interest expenses incurred for the
long-term loan, EID facility and revolving loan facility amounted to and $
| 12. | TAXATION |
Cayman Islands and British Virgin Islands (“BVI”)
Under the current laws of the Cayman Islands and the BVI, the Company is not subject to income or capital gains taxes. In addition, dividend payments are not subject to withholdings tax in the Cayman Islands or the BVI.
Hong Kong
According to Tax (Amendment) (No. 3)
Ordinance 2019 published by Hong Kong government, effective April 1, 2019, under the two-tiered profits tax rates regime, the
profits tax rate for the first HK$
Serbia
Our subsidiary, CCSC Technology Serbia,
which was incorporated and operates in the Serbia, is subject to enterprise income tax on its worldwide taxable income, as determined
under the tax laws and accounting standards, at a rate of
Netherlands
CCSC Interconnect NL, which was incorporated
in the Netherlands, is subject to enterprise income tax on their worldwide taxable income, as determined under the tax laws and accounting
standards, at a rate of
F-24
| 12. | TAXATION (cont.) |
Mainland China
Generally, CCSC Interconnect DG is
considered mainland China resident enterprises under the PRC tax law, are subject to enterprise income tax on their worldwide taxable
income, as determined under the PRC tax laws and accounting standards at a statutory income tax rate of
In accordance with the implementation
rules of Enterprise Income Tax Laws of the PRC (the “EIT Laws”), a qualified “High and New Technology Enterprise”
(“HNTE”) is eligible for a preferential tax rate of
The EIT Laws also impose a withholding
income tax of
| For the six months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Current income tax expense | $ | $ | ||||||
| Deferred income tax benefit | ( | ) | ( | ) | ||||
| Total income tax benefit | $ | ( | ) | $ | ( | ) | ||
| For the six months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Income/(loss) before tax | ||||||||
| PRC | $ | $ | ( | ) | ||||
| Hong Kong | ( | ) | ||||||
| Serbia | ( | ) | ||||||
| Other | ||||||||
| Total | ( | ) | ||||||
| Income tax (benefit)/expense | ||||||||
| PRC | ( | ) | ( | ) | ||||
| Hong Kong | ( | ) | ||||||
| Serbia | ( | ) | ||||||
| Total income tax benefit | $ | ( | ) | $ | ( | ) | ||
F-25
| 12. | TAXATION (cont.) |
| For the six months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| (Loss)/income before income tax expense | $ | ( | ) | $ | ||||
| Income tax rate – mainland China | % | % | ||||||
| Computed income tax (benefit)/expense with statutory EIT tax rate | ( | ) | ||||||
| Additional deduction for R&D expenses | ( | ) | ( | ) | ||||
| Effect of preferential tax of PRC subsidiary | ||||||||
| Effect of preferential tax of Hong Kong subsidiary | ( | ) | ||||||
| Changes in valuation allowance | ( | ) | ||||||
| Effect of income tax rate differences in jurisdictions other than mainland China* | ||||||||
| Tax effect of non-taxable income and non-deductible items | ( | ) | ||||||
| Income tax benefit | $ | ( | ) | $ | ( | ) | ||
| * |
| As of September 30, 2024 | As of March 31, 2024 | |||||||
| (Unaudited) | ||||||||
| Deferred tax assets: | ||||||||
| Inventory provision allowance | $ | $ | ||||||
| Net operating loss carried forward | ||||||||
| Total deferred tax assets | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Deferred tax assets, net | $ | $ | ||||||
The Company periodically evaluates
the likelihood of the realization of deferred tax assets and reduces the carrying amount of the deferred tax assets by a valuation allowance
to the extent it believes a portion will not be realized. Management considers new evidence, both positive and negative, that could affect
the Company’s future realization of deferred tax assets, including its recent cumulative earnings experience, expectation of future
income, the carry forward periods available for tax reporting purposes and other relevant factors. As of September 30, 2024 and March 31,
2024, the Company’s subsidiary, CCSC Technology Group, reported a net operating loss of $
As of September 30, 2024 and March 31,
2024, net operating loss carryforwards of our PRC subsidiary amounted to $
F-26
| 12. | TAXATION (cont.) |
| As of September 30, 2024 | As of March 31, 2024 | |||||||
| (Unaudited) | ||||||||
| Balance at beginning of the period | $ | $ | ||||||
| Additions | ||||||||
| Decrease | ( | ) | ||||||
| Foreign currency translation adjustments | ||||||||
| Balance at end of the period | $ | $ | ||||||
As of September
30, 2024 and March 31, 2024, the Company had income taxes payable of $
The Company also had income tax recoverable
of $
The Company evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. As of September 30, 2024 and March 31, 2024, the Company did not have any significant unrecognized uncertain tax positions and the Company does not believe that its unrecognized tax benefits will change over the next twelve months. For the six months ended September 30, 2024 and 2023, the Company did not have any significant interest or penalties related to potential underpaid income tax expenses.
According to PRC Tax Administration
and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the
taxpayer or withholding agent. The statute of limitations will be extended five years under special circumstances, which are not clearly
defined (but an underpayment of tax liability exceeding RMB
| 13. | RELATED PARTY TRANSACTIONS |
Related parties
| Name of Related Party | Relationship to the Company | |
| Dr. Chi Sing Chiu | ||
| Ms. Woon Bing Yeung |
F-27
| 13. | RELATED PARTY TRANSACTIONS (cont.) |
The balance of related parties as of September 30, 2024 and March 31, 2024 was . There were no related party transactions for the six months ended September 30, 2024 and 2023, respectively.
Loan guarantee provided by related parties
In connection with the Company’s long-term loan borrowed from BOCHK and line of credit agreements with BOCHK for the EID facility, revolving loan facility and forex hedging facility, the Company’s controlling shareholder and chairman of the board, Dr. Chi Sing Chiu, and his spouse, Ms. Woon Bing Yeung, jointly provided loan guarantees to the Company’s borrowing from BOCHK (see Note 11).
| 14. | Equity |
Ordinary Shares
On October 19, 2021, the Company
was incorporated in the Cayman Islands and had an initial authorized share capital of US$
On May 5, 2022, the Company’s
authorized and issued shares of par value US$
Immediately following the Subdivision,
pursuant to the director’s written resolutions on May 5, 2022, a total of
On January 17, 2024, the Company completed
its initial public offering and was listed on the Nasdaq Capital Market under the symbol “CCTG”.
On September 10, 2024, the
authorized share capital of the Company was increased from
As of September 30, 2024 and March
31, 2024, the Company’s issued Class A Ordinary Shares were
| 15. | RESTRICTED NET ASSETS |
A significant portion of the Company’s
operations are conducted through its PRC subsidiary. The Company’s ability to pay dividends is primarily dependent on receiving
distributions of funds from its subsidiary. Relevant PRC and regulations permit payments of dividends by PRC subsidiary only out of its
retained earnings, if any, as determined in accordance with PRC accounting standards and regulations, and after an entity has met the
requirements for appropriation to statutory reserves. The Company is required to make appropriations to certain reserve funds, comprising
the statutory surplus reserve and the discretionary surplus reserve, based on after-tax net income determined in accordance with generally
accepted accounting principles of the PRC (“PRC GAAP”). Appropriations to the statutory surplus reserve are required to be
at least
As a result of these PRC laws and regulations,
the Company’s PRC subsidiary is restricted in its ability to transfer a portion of their net assets to the Company. As of September
30, 2024 and March 31, 2024, net assets restricted in the aggregate, which included paid-in capital and statutory reserve funds of
the Company’s PRC subsidiary, that were included in the Company’s consolidated net assets, were approximately $
F-28
| 16. | SEGMENT INFORMATION |
An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, and is identified on the basis of the internal financial reports that are provided to and regularly reviewed by the Company’s chief operating decision maker in order to allocate resources and assess performance of the segment.
In accordance with ASC 280, Segment
Reporting, operating segments are defined as components of an enterprise about which separate financial information is available that
is evaluated regularly by the chief operating decision maker (“CODM”), or decision-making group, in deciding how to allocate
resources and in assessing performance. The Company uses the “management approach” in determining reportable operating segments.
The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for
making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s
CODM has been identified as the chief executive officer (the “CEO”), who reviews consolidated results when making decisions
about allocating resources and assessing performance of the Company. The Company has determined that it only has
Revenue by products
| For the six months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Cable and wire harness | $ | $ | ||||||
| Connectors | ||||||||
| Total | $ | $ | ||||||
Geographic information
The majority of the Company’s
revenue for the six months ended September 30, 2024 and 2023 was generated from product sales to different geographic areas including
Europe, Asia and Americas.
| For the six months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Europe | $ | $ | ||||||
| Asia | ||||||||
| Americas | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
| As of September 30, 2024 | As of March 31, 2024 | |||||||
| (Unaudited) | ||||||||
| Europe | $ | $ | ||||||
| Asia | ||||||||
| Total | $ | $ | ||||||
F-29
| 17. | REVISION |
For the fiscal year 2021 and prior
periods, some suppliers assumed a portion of the VAT as a price discount for certain purchases. For these purchases, the Company improperly
accounted for VAT by calculating the VAT amount based on the inventory value and the statutory VAT rate of
The Company assessed the materiality
of this error and concluded that the error was not material to any of the Company’s previously issued financial statements taken
as a whole. Therefore, the Company revised prior year financial statements to reduce prepaid and other current assets by $
| As of March 31, 2023 | ||||||||||||
| Financial items | As previously reported | Adjustment | As revised | |||||||||
| Retained earnings | ( | ) | ||||||||||
| Total shareholders’ equity | $ | $ | ( | ) | $ | |||||||
| As of September 30, 2023 | ||||||||||||
| Financial items | As previously reported | Adjustment | As revised | |||||||||
| Retained earnings | ( | ) | ||||||||||
| Total shareholders’ equity | $ | $ | ( | ) | $ | |||||||
| 18. | SUBSEQUENT EVENTS |
The Company has performed an evaluation of subsequent events through the date of the consolidated financial statements which were issued, and determined that no other events that would have required adjustment or disclosure in the unaudited condensed consolidated financial statements.
On October 15, 2024, the Company registered
F-30
Exhibit 99.2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in The conjunction with the unaudited financial results and statements of CCSC Technology International Holdings Limited (the “Company,” “we,” “our,” or “us”) for the six months ended September 30, 2024, furnished and included with this report as Exhibit 99.1.
A. Operating Results
Overview
We are a holding company incorporated in the Cayman Islands. As a holding company with no material operations of its own, we conduct our operations through direct wholly-owned operating subsidiaries established in Hong Kong, mainland China, the Netherlands, and Serbia, primarily in the sale, design and manufacturing of interconnect products, including connectors, cables and wire harnesses. We specialize in customized interconnect products that are used for a range of applications in a diversified set of industries, including industrial, automotive, robotics, medical equipment, computer, network and telecommunication, and consumer products. We have a diversified global customer base located in more than 25 countries throughout Asia, Europe, Americas and Australia. Many of our customers are global name-brand manufacturers, such as Linak A/S, Danfoss, Bitzer, Maersk, Universal Robots, Philips, Osram, Flextronics, Harman and Vtech, with whom we have established long-term working relationships.
In a continuous effort to meet various international production and quality manufacturing standards, we have been certified by the International Organization for Standardization (the “ISO”), specifically as to the following: ISO 9001 (quality management), 14001 (environment management), 45001 (occupational health and safety), and 13485 (medical devices quality management). In addition, we have also been certified to the IATF 16949, which is a technical specification for quality management systems in the automotive sector established by the International Automotive Task Force.
For the six months ended September 30, 2024 and 2023, we had total revenue of US$9.22 million and US$7.50 million, respectively, and net loss of US$0.74 million and net income of US$0.41 million, respectively. Revenue derived from cables and wire harnesses accounted for approximately 93.3% and 91.8% of our total revenue for the same periods, respectively. Revenue derived from connectors accounted for approximately 6.7% and 8.2% of our total revenue for the same periods, respectively.
For the six months ended September 30, 2024 and 2023, approximately 61.2% and 61.5% of our revenue was generated from our top ten customers, respectively.
Results of operations
Comparison of Results of Operations for the Six Months Ended September 30, 2024 and 2023
The following table sets forth a summary of our unaudited condensed consolidated results of operations for the periods indicated. This information should be read together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this report. The operating results in any period are not necessarily indicative of the results that may be expected for any future period.
| For the six months ended September 30, | Change | |||||||||||||||
| 2024 | 2023 | Amount | % | |||||||||||||
| (Amounts expressed in U.S. dollars) | ||||||||||||||||
| Net revenue | $ | 9,218,459 | $ | 7,503,520 | $ | 1,714,939 | 22.9 | % | ||||||||
| Cost of revenue | (6,470,715 | ) | (5,223,159 | ) | (1,247,556 | ) | 23.9 | % | ||||||||
| Gross profit | 2,747,744 | 2,280,361 | 467,383 | 20.5 | % | |||||||||||
| Operating expenses: | ||||||||||||||||
| Selling expenses | (752,926 | ) | (473,636 | ) | (279,290 | ) | 59.0 | % | ||||||||
| General and administrative expenses | (2,468,416 | ) | (1,753,179 | ) | (715,237 | ) | 40.8 | % | ||||||||
| Research and development expenses | (332,155 | ) | (338,038 | ) | 5,883 | (1.7 | )% | |||||||||
| Total operating expenses | (3,553,497 | ) | (2,564,853 | ) | (988,644 | ) | 38.5 | % | ||||||||
| Loss from operations | (805,753 | ) | (284,492 | ) | (521,261 | ) | 183.2 | % | ||||||||
| Other (expenses)/income: | ||||||||||||||||
| Other non-operating (expenses)/income, net | (34,766 | ) | 51,628 | (86,394 | ) | (167.3 | )% | |||||||||
| Government subsidies | 138,845 | - | 138,845 | 100.0 | % | |||||||||||
| Foreign currency exchange (losses)/income | (241,996 | ) | 539,844 | (781,840 | ) | (144.8 | )% | |||||||||
| Financial and interest income, net | 7,530 | 35,783 | (28,253 | ) | (79.0 | )% | ||||||||||
| Total other (expenses)/income | (130,387 | ) | 627,255 | (757,642 | ) | (120.8 | )% | |||||||||
| (Loss)/income before income tax expense | (936,140 | ) | 342,763 | (1,278,903 | ) | (373.1 | )% | |||||||||
| Income tax benefit | 191,820 | 70,851 | 120,969 | 170.7 | % | |||||||||||
| Net (loss)/income | $ | (744,320 | ) | $ | 413,614 | $ | (1,157,934 | ) | (280.0 | )% | ||||||
Revenue
We generated revenue primarily from the sales of both OEM and ODM interconnect products, including connectors, cables and wire harnesses, to manufacturing companies and EMS companies, who procure and assemble products on behalf of manufacturing companies. For the six months ended September 30, 2024 and 2023, our total revenue was US$9.22 million and US$7.50 million, respectively. During these periods, we derived all our revenue from sales in Europe, Asia, Australia and the Americas.
Our revenue increased by 22.9%, from US$7.50 million for the six months ended September 30, 2023 to US$9.22 million for the six months ended September 30, 2024. The increase was primarily attributable to a 47.5% increase in the total sales volume from approximately 11.72 million units for the six months ended September 30, 2023 to approximately 17.29 million units for the six months ended September 30, 2024, which was partially offset by a 16.7% decrease of the average selling price of our products from US$0.64 per unit for the six months ended September 30, 2023 to US$0.53 per unit for the six months ended September 30, 2024.
Our revenue generated from sales to our top ten customers increased from US$4.61 million for the six months ended September 30, 2023 to US$5.65 million for the six months ended September 30, 2024, which is consistent with the increase in our total revenue. Many of our major customers are global name-brand manufacturers, such as Linak, Danfoss and Bitzer, and our relationships with many of our major customers date back many years. For the six months ended September 30, 2024 and 2023, sales to our top customers accounted for a significant portion of our total revenue and represented 61.2% and 61.5% of our total revenue, respectively. However, as the Company continues to develop new customers and expand into more markets, such customer concentration might diminish over time.
2
The following table sets forth our revenue by our interconnect products for the indicated periods.
| For the six months ended September 30, | Change | |||||||||||||||||||||||
| 2024 | % | 2023 | % | Amount | % | |||||||||||||||||||
| (Amounts expressed in U.S. dollars) | ||||||||||||||||||||||||
| Cable and wire harness | $ | 8,604,502 | 93.3 | % | $ | 6,887,303 | 91.8 | % | $ | 1,717,199 | 24.9 | % | ||||||||||||
| Connectors | 613,957 | 6.7 | % | 616,217 | 8.2 | % | (2,260 | ) | (0.4 | )% | ||||||||||||||
| Total | $ | 9,218,459 | 100.0 | % | $ | 7,503,520 | 100.0 | % | $ | 1,714,939 | 22.9 | % | ||||||||||||
For the six months ended September 30, 2024, our revenue generated from cables and wire harnesses increased by 24.9%, from US$6.89 million for the six months ended September 30, 2023, to US$8.60 million for the six months ended September 30, 2024. The increase of sales from cables and wire harnesses was primarily attributable to the increase of sales volume, which was partially offset by the decrease of the overall selling prices of our cables and wire harness products. Compared with the six months ended September 30, 2023, our sales volume of cables and wire harnesses increased by 45.6%, from approximately 5.26 million units to approximately 7.66 million units, and our average selling prices decreased by 14.2% from US$1.31 per unit to US$1.12 per unit. The increase in demand was mainly due to that our customers had utilized their inventories previously purchased and increased their orders accordingly.
Our revenue generated from connectors accounted for 6.7% of our total revenue and slightly decreased by 0.4% from US$0.62 million for the six months ended September 30, 2023 to US$0.61 million for the six months ended September 30, 2024. The decrease was primarily attributable to a 33.1% decrease of the overall selling prices of our connector products, and was partially offset by a 49.0% increase in demand for the same reason discussed in the above paragraph.
All of our revenue for the six months ended September 30, 2024 and 2023 was generated from sales of our products to customers located in Europe, Asia and the Americas. The following table sets forth the disaggregation of revenue by regions:
| For the six months ended September 30, | Change | |||||||||||||||||||||||
| 2024 | % | 2023 | % | Amount | % | |||||||||||||||||||
| (Amounts expressed in U.S. dollars) | ||||||||||||||||||||||||
| Europe | $ | 5,626,272 | 61.0 | % | $ | 4,336,284 | 57.8 | % | $ | 1,289,988 | 29.7 | % | ||||||||||||
| Asia | 2,736,289 | 29.7 | % | 2,388,511 | 31.8 | % | 347,778 | 14.6 | % | |||||||||||||||
| Americas | 855,847 | 9.3 | % | 778,725 | 10.4 | % | 77,122 | 9.9 | % | |||||||||||||||
| Other regions | 51 | 0.0 | % | - | 0.0 | % | 51 | 0.0 | % | |||||||||||||||
| Total | $ | 9,218,459 | 100 | % | $ | 7,503,520 | 100 | % | $ | 1,714,939 | 22.9 | % | ||||||||||||
Our revenue generated from Europe significantly increased by 29.7%, from US$4.34 million for the six months ended September 30, 2023 to US$5.63 million for the six months ended September 30, 2024. The increase was primarily attributable to the following: (i) an increase of sales in Denmark of US$0.97 million, from US$3.14 million to US$4.11 million, and (ii) an increase of sales in Bulgaria of US$0.18 million, from US$0.24 million to US$0.42 million.
Our revenue generated from Asia increased by 14.6%, from US$2.39 million for the six months ended September 30, 2023, to US$2.74 million for the six months ended September 30, 2024, which was primarily due to the sales increases in Hong Kong, China of US$0.13 million, and the increase in sales in the Association of Southeast Asian Nations, or ASEAN, of US$0.20 million.
Our revenue generated from the Americas increased by US$0.08 million, from US$0.78 million for the six months ended September 30, 2023 to US$0.86 million for the six months ended September 30, 2024, which was primarily due to a sales increase in Northern America of US$0.08 million.
Our revenue from other regions was mainly derived from Australia.
3
Cost of revenue
Our cost of revenue primarily consists of the following: (i) inventory costs, which primarily include procurement costs for components for the manufacturing of our products, including 1) cables and plastics, including single wires, insulation tubes, standard connectors, plastic fabricated parts, 2) metal parts, including metal shells, metal terminals, metal fabricated parts, and 3) electronic parts, including printed circuit boards, LEDs, resistors, capacitors, transistors, inductors, thermistors, potentiometers, ferrite cores, switches and semiconductors; (ii) labor costs, which consist of salaries and benefits of employees; (iii) rental expenses for the factory and dormitory of employees; (iv) depreciation expenses on our plant, property and equipment used for production; and (v) other expenses that are directly attributable to our principle operations, which primarily include freight charges for materials and components, and electricity and water used for manufacturing.
Our cost of revenue increased by US$1.25 million, or 23.9%, from US$5.22 million for the six months ended September 30, 2023 to US$6.47 million for the six months ended September 30, 2024, which was in line with the increase in total revenue. The increase was primarily due to the following: (i) an increase in our inventory costs from US$3.48 million for the six months ended September 30, 2023 to US$4.44 million for the six months ended September 30, 2024, and (ii) an increase in our labor costs from US$1.21 million for the six months ended September 30, 2023 to US$1.52 million for the six months ended September 30, 2024.
Our inventory costs represented a significant portion of our cost of revenue. For the six months ended September 30, 2024 and 2023, our inventory costs amounted to US$4.44 million and US$3.48 million, respectively, representing 68.6% and 66.7% of our total cost of revenue for the respective period. The increase in our inventory costs was primarily due to a 47.5% increase in the total sales volume from approximately 11.72 million units for the six months ended September 30, 2023 to approximately 17.29 million units for the six months ended September 30, 2024, which was partially offset by a decrease in inventory cost per unit from US$0.30 for the six months ended September 30, 2023 to US$0.26 for the six months ended September 30, 2024.
For the six months ended September 30, 2024 and 2023, our labor costs amounted to US$1.52 million and US$1.21 million, respectively, representing 23.4% and 23.2% of our total cost of revenue for each respective period. The increase of labor costs was primarily due to the increase in production volume as a result of an increase in sales volume.
4
Gross Profit and Gross Profit Margin
Gross profit represents our revenue less cost of revenue. Our gross profit margin represents our gross profit as a percentage of our revenue. For the six months ended September 30, 2024 and 2023, our gross profit was US$2.75 million and US$2.28 million, respectively, and our gross profit margin was 29.8% and 30.4%, respectively.
The following table sets forth the overall gross profit margin of the Company:
| For the six months ended September 30, | Change | |||||||||||||||||||||||
| 2024 | % | 2023 | % | Amount | % | |||||||||||||||||||
| (Amounts expressed in U.S. dollars) | ||||||||||||||||||||||||
| Revenue | $ | 9,218,459 | 100 | % | $ | 7,503,520 | 100 | % | $ | 1,714,939 | 22.9 | % | ||||||||||||
| Cost | (6,470,715 | ) | (70.2 | )% | (5,223,159 | ) | (69.6 | )% | (1,247,556 | ) | 23.9 | % | ||||||||||||
| Gross Profit | $ | 2,747,744 | 29.8 | % | $ | 2,280,361 | 30.4 | % | $ | 467,383 | 20.5 | % | ||||||||||||
The gross profit margin decreased slightly compared to the same period last year, primarily due to the increase in labor costs exceeding the increase in revenue. The Company recruited more workers to cope with the increased sales volume, and the increased labor costs eroded profits, resulting in a decrease in gross profit margin.
Operating Expenses
| For the Six Months Ended | ||||||||||||||||||||||||
| September 30, | Change | |||||||||||||||||||||||
| 2024 | 2023 | Amount | % | |||||||||||||||||||||
| (Amounts expressed in U.S. dollars) | ||||||||||||||||||||||||
| Selling expenses | $ | (752,926 | ) | (8.2 | )% | $ | (473,636 | ) | (6.3 | )% | $ | (279,290 | ) | 59.0 | % | |||||||||
| General and administrative expenses | $ | (2,468,416 | ) | (26.8 | )% | $ | (1,753,179 | ) | (23.4 | )% | $ | (715,237 | ) | 40.8 | % | |||||||||
| Research and development expenses | $ | (332,155 | ) | (3.6 | )% | $ | (338,038 | ) | (4.5 | )% | $ | 5,883 | (1.7 | )% | ||||||||||
| Total | $ | (3,553,497 | ) | (38.5 | )% | $ | (2,564,853 | ) | (34.2 | )% | $ | (988,644 | ) | 38.5 | % | |||||||||
Selling expenses
Selling expenses primarily consist of: (i) freight fees and transportation fees; (ii) staff costs, travelling expenses, rental and depreciation related to selling and marketing functions; and (iii) marketing and entertainment expenses for promotion; and (iv) free sample expenses incurred for obtaining new customers and sales orders.
Our selling expenses increased by 59.0%, or US$0.28 million, from US$0.47 million for the six months ended September 30, 2023 to US$0.75 million for the six months ended September 30, 2024. The increase was a result of combined factors as follows: (i) an increase of US$0.20 million in market development costs to expand to ASEAN market; (ii) an increase of US$0.04 million in freight charges due to the increase in our sales volumes; and (iii) an increase of US$0.07 million in office expenses.
5
General and administrative expenses
General and administrative expenses primarily consist of: (i) salaries and benefits for our administrative personnel; (ii) depreciation and amortization expenses relating to our property, plant and equipment and leased properties used for administrative purposes; (iii) office expenses, expenses for office supplies and consumables; (iv) agent and professional fees related to our initial public offering (“IPO”) in the U.S.; and (v) other expenses, which primarily include utilities, traveling, entertainment, repair and maintenance, rental and other miscellaneous expenses for administrative purposes.
Our general and administrative expenses increased by 40.8%, or US$0.72 million, from US$1.75 million for the six months ended September 30, 2023 to US$2.47 million for the six months ended September 30, 2024, which was primarily attributable to the following: (i) an increase of US$0.61 million in agent and professional fees, primarily consisted of expenses related to compliance requirements as a public company following our IPO in the U.S.; (ii) an increase of US$0.26 million in salaries and benefits, attributed to an increase in the number of our general and administrative personnel, as well as the expenses related to bonuses and celebration for successfully closing our IPO.
Research and development (“R&D”) expenses
Research and development expenses primarily include (i) costs of materials and components for the research and development activities; (ii) salaries, welfare and insurance expenses paid to R&D employees; and (iii) manufacturing expenses for producing samples related to our research and development activities.
Our research and development expenses were US$0.33 million for the six months ended September 30, 2024, which was about same as the same period of 2023 at US$0.34 million .
Other (expenses)/income
Other (expenses)/income primarily consists of: (i) government subsidy; (ii) non-recurring engineering charge paid by customers; (iii) other non-operating (expenses)/income, inclusive of overtime expense compensation and material enhancement compensation paid by customers for early delivery orders, (iv) financial and interest income/(expenses), inclusive of interest income and interest expenses; and (v) gains or losses on exchange rate fluctuations.
Other (expenses)/income, net decreased by US$0.76 from other income of US$0.63 million for the six months ended September 30, 2023 to other expenses of US$0.13 million for the six months ended September 30, 2024, which was primarily attributable to (i) a decrease in foreign exchange gain of US$0.78 million; (ii) an increase of US$0.06 million in donation outlay, and partially offset by an increase of US$0.14 million in government subsidy.
Income tax benefit
Cayman Islands
Our Company was incorporated in the Cayman Islands as an exempted company with limited liability under the Companies Act of the Cayman Islands and accordingly is not subject to income tax from business carried out in the Cayman Islands.
British Virgin Islands
Our subsidiary, CCSC Group Limited, was incorporated under the laws of the British Virgin Islands (“BVI”) as a business company with limited liability under the BVI Business Companies Act and, accordingly, is not subject to income tax from business carried out in the BVI.
Hong Kong
According to Tax (Amendment) (No. 3) Ordinance 2019 published by Hong Kong government, effective April 1, 2019, under the two-tiered profits tax rates regime, the profits tax rate for the first HK$2 million of assessable profits was reduced to 8.25% (half of the rate specified in Schedule 8 to the Inland Revenue Ordinance (IRO)) for corporations and 16.5% on any part of assessable profits over HK$2,000,000. Our subsidiaries, CCSC Technology Group and CCSC Interconnect HK that are considered HK resident enterprises under HK tax law, were subject to Hong Kong profit tax for any period presented as have assessable profit during the periods presented.
6
Netherlands
Our subsidiary, CCSC Interconnect NL, which was incorporated and operated in the Netherlands, is subject to enterprise income tax on their worldwide taxable income, as determined under the tax laws and accounting standards, at a rate of 19% (15% in 2022) for the first EUR 200,000 (EUR 395,000 in 2022) of profits earned by CCSC Interconnect NL, and the remaining profits will be taxed at the existing 25.8% tax rate in 2024 and 2023. For the six months ended September 30, 2024 and 2023, CCSC Interconnect NL was not subject to any income tax as it had no taxable income during these periods.
Serbia
Our subsidiary, CCSC Technology Serbia, which was incorporated and operates in Serbia, is subject to enterprise income tax on its worldwide taxable income, as determined under the tax laws and accounting standards, at a rate of 15%. CCSC Technology Serbia was not subject to any income tax, as it was only established in February 2024 and had no taxable income during these periods.
Mainland China
Generally, our PRC subsidiary, CCSC Interconnect DG, is subject to enterprise income tax on its taxable income in China at a statutory rate of 25%; however, since CCSC Interconnect DG is certified as a National High Tech Enterprise, it is eligible for a preferential enterprise income tax rate of 15%. The enterprise income tax is calculated based on the entity’s global income, as determined under the PRC laws and accounting standards.
Our products are primarily subject to value-added tax at a rate of 13% on sales, in each case less any deductible value-added tax we have already paid or borne. We are also subject to surcharges on value-added tax payments in accordance with PRC laws.
Dividends paid by our PRC subsidiary in China to our Hong Kong subsidiary, CCSC Technology Group, will be subject to a withholding tax rate of 10%, unless the relevant Hong Kong entity satisfies all the requirements under the Double Taxation Avoidance Arrangement and receives approval from the relevant tax authority. If CCSC Technology Group satisfies all the requirements under the tax arrangement and receives approval from the relevant tax authority, then the dividends paid to the Hong Kong subsidiary would be subject to withholding tax at the standard rate of 5%. Effective from November 1, 2015, the above-mentioned approval requirement was abolished, but a Hong Kong entity is still required to file an application package with the relevant tax authority, and settle the overdue taxes if the preferential 5% tax rate is denied based on the subsequent review of the application package by the relevant tax authority.
If we or any of our subsidiaries outside of China were deemed to be a “resident enterprise” under the PRC Enterprise Income Tax Law, the affected entity would be subject to enterprise income tax on its worldwide income at a rate of 25%.
Under the PRC Enterprise Income Tax Law and the Notice on Improvements to Policies of Weighted Pre-tax Deduction of Research and Development Expenses, research and development expenses incurred by an enterprise in the course of carrying out research and development activities that have not formed intangible assets are included in the profit and loss account for the current year. Starting from January 1, 2021, besides deducting the actual amount of research and development expenses incurred, an enterprise is allowed an additional 100% deduction of the amount in calculating its taxable income for the relevant year, the rate of which was 75% before 2021. For R&D expenses that have formed intangible assets, the tax amortization is based on 200% of the costs of the intangible assets。
Our income tax benefit increased from US$0.07 million for the six months ended September 30, 2023 to US$0.19 million for the six months ended September 30, 2024, which was due to the loss of CCSC Interconnect HK Group for the six months ended September 30, 2024.
Net (loss)/income
As a result of the foregoing, our net (loss)/income decreased by 280.0%, or US$1.16 million from net income of US$0.41 million for the six months ended September 30, 2023 to net loss of US$0.74 million for the six months ended September 30, 2024.
7
B. Liquidity and Capital Resources
As of September 30, 2024, we had US$4.00 million in cash and restricted cash, which consisted of (i) cash in mainland China of US$0.72 million; (ii) cash and restricted cash in HK of US$3.02 million; (iii) cash and restricted cash in the Netherlands of US$0.14 million; and (iv) cash in Serbia of US$0.12 million. Under PRC laws, RMB can be converted into U.S. dollars under the Company’s “current account” (including dividends, trade and service-related foreign exchange transactions), rather than the “capital account” (including foreign direct investments and loans, without the prior approval of the SAFE). Payments of current account items, including profit distributions, interest payments, and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior SAFE approval by complying with certain procedural requirements.
As of the date of this interim report, we have financed our operations primarily through cash generated from our operations and the net proceeds raised from our initial public offering in January 2024. We intend to continue relying on these funding sources to support our future operations, and may consider seeking additional financing such as bank loans as needed.
Accounts receivable amounted to US$3.26 million and US$2.75 million as of September 30, 2024 and March 31, 2024, respectively. Approximately 96.7%, or US$ 3.15 million, of the September 30, 2024 accounts receivable balance has been subsequently collected as of the date of this interim report.
As of September 30, 2024, we had a total inventory balance of US$1.97 million, which primarily included raw material of US$1.05 million, to ensure sufficient raw materials were available to meet our production needs, and inventory in transit of US$0.58 million. As of the date of this report, the inventory in transit has since been fully settled when the customers received the products in the subsequent period.
As of March 31, 2024, we had a total inventory balance of US$2.02 million, which primarily included raw material of US$1.37 million, to ensure sufficient raw materials would be available to meet our production needs, and inventory in transit of US$0.34 million. As of the date of this report, the inventory in transit has since been fully settled when the customers received the products in the subsequent period.
As of September 30, 2024, we had working capital of US$6.36 million, as compared to working capital of US$7.54 million as of March 31, 2024. We believe that our current cash and our anticipated cash flows from operations will be sufficient to meet our anticipated working capital requirements, capital expenditures and debt repayment obligations for at least the next 12 months following the date our unaudited condensed consolidated financial statements for the six months ended September 30, 2024 were released.
Cash Flows
Cash Flows Analysis for the Six Months Ended September 30, 2024 and 2023
The following table sets forth a summary of our cash flows for the periods indicated:
| For the Six Months Ended | ||||||||||||||||
| September 30, | Change | |||||||||||||||
| 2024 | 2023 | Amount | % | |||||||||||||
| (Amounts expressed in U.S. dollars) | ||||||||||||||||
| Net cash (used in)/provided by operating activities | $ | (1,121,034 | ) | $ | 197,804 | $ | (1,318,838 | ) | (666.7 | )% | ||||||
| Net cash used in by investing activities | (666,865 | ) | (71,242 | ) | (595,623 | ) | 836.1 | % | ||||||||
| Net cash used in financing activities | - | (400,911 | ) | 400,911 | (100.0 | )% | ||||||||||
| Effects of exchange rate changes on cash and restricted cash | 52,580 | (63,670 | ) | 116,250 | (182.6 | )% | ||||||||||
| Net change in cash and restricted cash | (1,735,319 | ) | (338,019 | ) | (1,397,300 | ) | 413.4 | % | ||||||||
| Cash and restricted cash, beginning of the period | 5,734,747 | 7,717,615 | (1,982,868 | ) | (25.7 | )% | ||||||||||
| Cash and restricted cash, end of the period | $ | 3,999,428 | $ | 7,379,596 | $ | (3,380,168 | ) | (45.8 | )% | |||||||
8
Operating Activities
For the six months ended September 30, 2024, our net cash used in operating activities was US$1.12 million, which was primarily attributable to (i) net loss of US$0.74 million, adjusted by deferred tax benefits of US$0.19 million, an inventory write-down of US$0.11 million, depreciation and amortization of fixed assets and right-of-use assets of US$0.37 million, and foreign currency exchange loss of US$0.19 million; (ii) an increase of US$0.48 million in accounts receivable due to the increase in sales; (iii) an increase in prepaid expenses and other current assets of US$0.22 million due to the increase in deductible value-added tax (“VAT”) input; (iv) a decrease in accrued expenses and other current liabilities of US$0.22 million due to the decrease in accrued payroll and employee benefits; (v) a decrease in operating lease liabilities of US$0.25 million; partially offset by an increase in accounts payable of US$0.34 million due to an increase in material and component purchases and stockpiles.
For the six months ended September 30, 2023, our net cash provided by operating activities was US$0.20 million, which was primarily attributable to (i) net income of US$0.41 million, adjusted by foreign currency exchange gain of US$0.54 million and depreciation and amortization of US$0.37 million; (ii) an increase in accounts payable of US$0.42 million, due to an increase in material and component purchases and stockpiles; (iii) a decrease in inventory of US$0.16 million, mainly due to the decrease in sales demand, and partially offset by an increase in prepaid expenses and other current assets of US$0.22 million due to the increase in deductible VAT input and income tax recoverable.
Investing activities
Our net cash used in investing activities was US$0.67 million and US$0.07 million for the six months ended September 30, 2024 and 2023, respectively. The cash flow for the six months ended September 30, 2024 primarily reflected the purchase of a new land in Serbia of US$0.54 million for manufacturing operations, and purchase of new equipments of US$0.04 million and new software of US$0.08 million for daily office operation. The cash flow for the six months ended September 30, 2023 primarily reflected the purchase of new equipments of US$0.05 million and new software of US$0.02 million for daily office operation.
Financing activities
For the six months ended September 30, 2024, no cash was used in financing activities. For the six months ended September 30, 2023, our net cash used in financing activities was US$0.40 million, which consisted of deferred offering costs of US$0.37 million for the proposed initial public offering in the U.S and repayments of a long-term bank loan of US$0.04 million.
Capital Expenditure
Our capital expenditures were US$0.58 million and US$0.05 million for the six months ended September 30, 2024, and 2023, respectively. Generally, our capital expenditures are used primarily for the purchase of machinery and equipment relating to manufacture of interconnect products.
Tabular Disclosure of Contractual Obligations
The following table sets forth our contractual obligations as of September 30, 2024:
| Payment Due by Period | ||||||||||||||||
| Total | Less than 1 year | 1-3 years | 3-5 years | |||||||||||||
| (Amounts expressed in U.S.$) | ||||||||||||||||
| Lease obligations | $ | 1,596,308 | 296,796 | 1,079,518 | 219,994 | |||||||||||
| Capital commitment | 3,347,331 | 3,347,331 | - | - | ||||||||||||
| Total | $ | 4,943,639 | 3,644,127 | 1,079,518 | 219,994 | |||||||||||
9
Operating lease obligations consist of leases in relation to certain offices and buildings, plants and other property for our sales.
On November 7, 2023, the Company renewed leased equipment with original lease term expired on August 20, 2023 and extended the lease term for another five years to February 19, 2028. The Company will have ownership of the equipment upon maturity of the leases.
On November 23, 2023, the Company renewed office leases by combining two leases that expired on November 31, 2023 and extending the lease term for another two years to November 30, 2025.
The renewed lease caused the increased lease right-of-use assets and liabilities, which was disclosed in Note 10 in our unaudited condensed consolidated financial statements for the fiscal year ended March 31, 2024.
The Company also had equipment purchase agreements with two independent third party vendors, with a future payment of US$2.52 million due by December 2024 and US$0.82 million by November 2024, respectively. The future payment of the equipment purchase agreements had been extended until the completion of the Serbia manufacturing plant.
Other than those shown above, we did not have any significant capital and other commitments, long-term obligations, or guarantees as of September 30, 2024.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet financial guarantees or other off-balance sheet commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our unaudited condensed consolidated financial statements. Furthermore, we do not have any retained or contingent interests in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us.
Risks and Uncertainties
Our headquarters and sales office are located in HK, while we conduct the manufacturing of interconnect products through our PRC subsidiary located in mainland China. For the six months ended September 30, 2024 and 2023, all of our revenue was generated by our HK and PRC subsidiaries collectively. As such, our business, financial condition, and results of operations are subject to risks and uncertainties relating to political, economic, and legal environments in HK and mainland China, as well as the general state of the economy of HK and mainland China. Our financial results may be adversely affected by changes in the political, regulatory and social conditions in HK and mainland China.
The following critical accounting policies rely upon assumptions and estimates and were used in the preparation of our unaudited condensed consolidated financial statements:
Critical Accounting Estimates
We prepare our unaudited condensed consolidated financial statements in accordance with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect (i) the reported amounts of our assets and liabilities; (ii) the disclosure of our contingent assets and liabilities at the end of each reporting period; and (iii) the reported amounts of revenues and expenses during each reporting period. We continually evaluate these judgments, estimates and assumptions based on our own historical experience, knowledge and assessment of current business and other conditions and our expectations regarding the future based on available information, which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application.
When reading our unaudited condensed consolidated financial statements, you should consider our selection of critical accounting policies, the judgment and other uncertainties affecting the application of such policies and the sensitivity of reported results to changes in conditions and assumptions. Our critical accounting policies and practices include the following: (i) revenue recognition and (ii) income taxes. See “Summary of Significant Accounting Policies” under note 2 to our unaudited condensed consolidated financial statements for the disclosure of these accounting policies. We believe the following accounting estimates involve the most significant judgments used in the preparation of our financial statements.
10
Estimates for inventory write-down
Inventories, primarily consisting of raw materials, work in progress and finished goods, are stated at the lower of cost or net realizable value, with net realized value represented by estimated selling prices in the ordinary course of business, less reasonably predictable costs of disposal and transportation. Cost of inventory is determined using the weighted average cost method. Adjustments are recorded to write down the cost of inventory to the estimated net realizable value due to slow-moving, which is dependent upon factors such as historical and forecasted consumer demand. Inventories are written down to estimated net realizable value, which could be impacted by certain factors including historical usage, expected demand, anticipated sales price, new product development schedules, product obsolescence, and other factors. We review our inventories periodically if any reserves are necessary for potential shrinkage and obsolete or unusable inventory. For the six months ended September 30, 2024 and 2023, we recorded $108,257 and $73,643 of inventories write-down from the carrying amount to their net realizable values.
Estimate for the valuation allowance of deferred tax assets
We are required to make estimates and apply our judgements in determining the provision for income tax expenses for financial reporting purpose based on tax laws in various jurisdictions in which we operate. In calculating the effective income tax rate, we make estimates and judgements, including the calculation of tax credits and the timing differences of recognition of revenues and expenses between financial reporting and tax reporting. These estimates and judgements may result in adjustments of pre-tax income amount filed with local tax authorities in accordance with the local tax rules and regulations in various tax jurisdictions. Although we believe that our estimates and judgments are reasonable, actual results may be materially different from the estimated amounts. Changes in these estimates and judgements may result in material increase or decrease in our provision for income tax expenses, which could be material to our financial position and results of operations.
Deferred tax assets and liabilities are recognized for expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carry forwards. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. When we determine and quantify the valuation allowances, we consider such factors as projected future taxable income, the availability of tax planning strategies, the historical taxable income/losses in prior years, and future reversals of existing taxable temporary differences. The assumptions used in determining projected future taxable income require significant judgment. Actual operating results in future years could differ from our current assumptions, judgments and estimates. Changes in these estimates and assumptions may materially affect the tax position measurement and financial statement recognition. If, in the future, we determine that we would not be able to realize our recorded deferred tax assets, an increase in the valuation allowance would decrease our earnings in the period in which such determination is made. As of September 30, 2024 and March 31, 2024, the Company recorded $114,764 and $121,016 valuation allowance for the deferred tax assets.
Recent accounting pronouncements
A list of recently issued accounting pronouncements that are relevant to us is included in Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this annual report.
11
Exhibit 99.3
CCSC Technology International Holdings Limited
Reports Financial Results
for the First Six Months of Fiscal Year 2025
Ended September 30, 2024
Hong Kong, December 27, 2024 /PRNewswire/ – CCSC Technology International Holdings Limited (the “Company” or “CCSC”) (Nasdaq: CCTG), a Hong Kong-based company that engages in the sale, design and manufacturing of interconnect products, including connectors, cables and wire harnesses, today announced its unaudited financial results for the first six months of fiscal year 2025 ended September 30, 2024.
Mr. Kung Lok Chiu, Chief Executive Officer and Director of the Company, commented, “The first six months of fiscal year 2025 has been a remarkable period of growth for our Company. We are proud to report a 22.9% increase in revenue compared to the same period last year, while our gross margin remained stable despite a net loss of $0.74 million in a challenging environment. Furthermore, in January 2024, we successfully completed our initial public offering (IPO) and got listed on the Nasdaq Capital Market under the ticker symbol “CCTG”. Building on the momentum, we launched a plan in May 2024 to establish a new supply chain management center in Serbia, Central Europe. This center will serve as the headquarter of our supply chain operations in Europe to support our operations across the region. As of the date of the report, we have acquired the land plot for our new center and expect to complete this project by the fourth quarter of 2025. Looking forward, we plan to strategically focus on further expanding into high-growth industries, such as new energy, robotics, and medical technologies. By continuing to invest in research and development, we aim to deliver innovative and cost-effective products that meet the evolving needs of our customers. We are committed to delivering high-quality products to our customers and generating long-term value for our shareholders.”
First Six Months of Fiscal Year 2025 Financial Highlights
| ● | Revenue increased by 22.9% to $9.2 million for the six months ended September 30, 2024, from $7.5 million for the same period of last year. |
| ● | Gross profit increased by 20.5% to $2.7 million for the six months ended September 30, 2024, from $2.3 million for the same period of last year. |
| ● | Gross profit margin was 29.8% for the six months ended September 30, 2024, compared to 30.4% for the same period of last year. |
| ● | Net income decreased by 280.0%, to net loss of $0.7 million for the six months ended September 30, 2024, from net income of $0.4 million for the same period of last year. |
First Six Months of Fiscal Year 2025 Financial Results
Revenue
Total revenue was $9.2 million for the six months ended September 30, 2024, which increased by 22.9% from $7.5 million for the same period of last year.
The following table sets forth revenue by interconnect products:
| For the six months ended September 30, | Change | |||||||||||||||||||||||
| 2024 | % | 2023 | % | Amount | % | |||||||||||||||||||
| (Amounts expressed in U.S. dollars) | ||||||||||||||||||||||||
| Cable and wire harness | $ | 8,604,502 | 93.3 | % | $ | 6,887,303 | 91.8 | % | $ | 1,717,199 | 24.9 | % | ||||||||||||
| Connectors | 613,957 | 6.7 | % | 616,217 | 8.2 | % | (2,260 | ) | (0.4 | )% | ||||||||||||||
| Total | $ | 9,218,459 | 100.0 | % | $ | 7,503,520 | 100.0 | % | $ | 1,714,939 | 22.9 | % | ||||||||||||
Revenue generated from cables and wire harnesses increased by 24.9%, to $8.6 million for the six months ended September 30, 2024, from $6.9 million for the same period of last year. Revenue generated from connectors remained essentially unchanged compared to the same period last year.
The increase in revenue was primarily attributable to the increase in sales volume and partially offset by the decrease in the average selling price of products. The increase in demand was mainly due to that customers had utilized their inventories previously purchased and increased their orders accordingly.
The following table sets forth the disaggregation of revenue by regions:
| For the six months ended September 30, | Change | |||||||||||||||||||||||
| 2024 | % | 2023 | % | Amount | % | |||||||||||||||||||
| (Amounts expressed in U.S. dollars) | ||||||||||||||||||||||||
| Europe | $ | 5,626,272 | 61.0 | % | $ | 4,336,284 | 57.8 | % | $ | 1,289,988 | 29.7 | % | ||||||||||||
| Asia | 2,736,289 | 29.7 | % | 2,388,511 | 31.8 | % | 347,778 | 14.6 | % | |||||||||||||||
| Americas | 855,847 | 9.3 | % | 778,725 | 10.4 | % | 77,122 | 9.9 | % | |||||||||||||||
| Other regions | 51 | 0.0 | % | - | 0.0 | % | 51 | 0.0 | % | |||||||||||||||
| Total | $ | 9,218,459 | 100 | % | $ | 7,503,520 | 100 | % | $ | 1,714,939 | 22.9 | % | ||||||||||||
Revenue generated from Europe increased by 29.7%, to $5.6 million for the six months ended September 30, 2024, from $4.3 million for the same period of last year. The increase was primarily due to the increase of sales in Denmark of $1.0 million and Bulgaria of $0.2 million.
Revenue generated from Asia increased by 14.6%, to $2.7 million for the six months ended September 30, 2024, from $2.4 million for the same period of last year. The increase was primarily due to sales increases in Hong Kong, China of $0.1 million, and sales increases in the Association of Southeast Asian Nations, or ASEAN, of $0.2 million.
Revenue generated from the Americas increased by 9.9%, to $0.9 million for the six months ended September 30, 2024, from $0.8 million for the same period of last year. The increase was primarily due to sales increases in Northern America of $0.08 million.
Revenue from other regions was mainly derived from Australia.
Cost of Revenue
Cost of revenue increased by 23.9%, to $6.5 million for the six months ended September 30, 2024, from $5.2 million for the same period of last year, which was in line with the increase of the total revenue.
Inventory costs amounted to $4.4 million for the six months ended September 30, 2024, compared to $3.5 million for the same period of last year. The increase of inventory costs was primarily due to a 47.5% increase in the total sales volume and a 13.6% decrease in the inventory cost per unit.
Labor costs amounted to $1.5 million for the six months ended September 30, 2024, compared to $1.2 million for the same period of last year. The increase of labor costs was primarily due to the increase in production volume as a result of an increase in sales volume.
Gross Profit and Gross Margin
Gross profit increased by 20.5%, to $2.7 million for the six months ended September 30, 2024, from $2.3 million for the same period of last year.
Gross profit margin was 29.8% for the six months ended September 30, 2024, compared with 30.4% for the same period of last year. The gross profit margin was basically consistent with the same period of 2023. The Company recruited more workers to cope with the increased sales volume, and the increased labor costs eroded profits, resulting in a decrease in gross profit margin.
2
Operating Expenses
Operating expenses increased by 38.5%, to $3.6 million for the six months ended September 30, 2024, from $2.6 million for the same period of last year. The expense increase was mainly due to the increases in the selling expenses of $0.3 million, inclusive of $0.2 million in costs relating to market development and expansion to ASEAN market, and general and administrative expenses of $0.7 million, inclusive of $0.6 million in agent and professional fees for expenses related to compliance requirements as a public company following the IPO in the U.S..
Other Income/(Expenses)
Other income/(expenses) decreased by $0.8 million, to other expenses of $0.1 million for the six months ended September 30, 2024, from other income of $0.6 million for the same period of last year, primarily due to the decrease in foreign exchange gain.
Income tax benefit
Income tax benefit increased by 170.7%, to $0.2 million for the six months ended September 30, 2024, from $0.1 million for the same period of last year, which was due to the loss of CCSC Interconnect HK for the six months ended September 30, 2024.
Net (Loss)/Income
Net income decreased by 280.0%, to net loss of $0.7 million for the six months ended September 30, 2024, from net income of $0.4 million for the same period of last year.
Basic and Diluted (Loss)/Earnings per Share
Basic and diluted loss per share was $0.06 for the six months ended September 30, 2024, compared to basic and diluted earnings per share of $0.04 for the same period of last year.
About CCSC Technology International Holdings Limited
CCSC Technology International Holdings Limited, is a Hong Kong-based company that engages in the sale, design and manufacturing of interconnect products. The Company specializes in customized interconnect products, including connectors, cables and wire harnesses that are used for a range of applications in a diversified set of industries, including industrial, automotive, robotics, medical equipment, computer, network and telecommunication, and consumer products. The Company produces both OEM (“original equipment manufacturer”) and ODM (“original design manufacture”) interconnect products for manufacturing companies that produce end products, as well as electronic manufacturing services (“EMS”) companies that procure and assemble products on behalf of such manufacturing companies. The Company has a diversified global customer base located in more than 25 countries throughout Asia, Europe and the Americas. For more information, please visit the Company’s website: http://ir.ccsc-interconnect.com.
Forward-Looking Statements
Certain statements in this announcement are forward-looking statements, including, but not limited to, the Company’s proposed Offering. These forward-looking statements involve known and unknown risks and uncertainties and are based on the Company’s current expectations and projections about future events that may affect its financial condition, results of operations, business strategy and financial needs. Investors can find many (but not all) of these statements by the use of words such as “may,” “will,” “could,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “propose,” “potential,” “continue”, or other similar expressions in this press release. The Company undertakes no obligation to update or revise publicly any forward-looking statements to reflect subsequent occurring events or circumstances, or changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that such expectations will turn out to be correct, and the Company cautions investors that actual results may differ materially from the anticipated results and encourages investors to review other factors that may affect its future results in the Company’s registration statement and other filings with the U.S. Securities and Exchange Commission.
For more information, please contact:
CCSC Technology International Holdings Limited
Investor Relations Department
Email: ir@ccsc-interconnect.com
Ascent Investor Relations LLC
Tina Xiao
Phone: +1-646-932-7242
Email: investors@ascent-ir.com
3
CCSC TECHNOLOGY INTERNATIONAL HOLDINGS LIMITED
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Amount in U.S. dollars, except for number of shares)
| As of September 30, 2024 | As of March 31, 2024 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | 3,789,806 | $ | 5,525,430 | ||||
| Restricted cash | 209,622 | 209,317 | ||||||
| Accounts receivable | 3,256,687 | 2,750,214 | ||||||
| Inventories | 1,967,824 | 2,023,456 | ||||||
| Prepaid expenses and other current assets | 1,737,454 | 1,474,405 | ||||||
| Total current assets | 10,961,393 | 11,982,822 | ||||||
| Non-current assets: | ||||||||
| Property, plant and equipment, net | 681,342 | 198,901 | ||||||
| Intangible asset, net | 103,768 | 38,183 | ||||||
| Operating right-of-use assets, net | 1,441,593 | 1,659,297 | ||||||
| Finance lease right-of-use asset | 15,915 | 17,788 | ||||||
| Deferred tax assets, net | 488,190 | 287,394 | ||||||
| Other non-current assets | 3,733,073 | 3,753,646 | ||||||
| Total non-current assets | 6,463,881 | 5,955,209 | ||||||
| TOTAL ASSETS | $ | 17,425,274 | $ | 17,938,031 | ||||
| Liabilities and Shareholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 2,567,890 | $ | 2,175,974 | ||||
| Advance from customers | 151,594 | 207,293 | ||||||
| Accrued expenses and other current liabilities | 1,333,630 | 1,523,843 | ||||||
| Taxes payable | 27,248 | 24,974 | ||||||
| Operating lease liabilities – current | 517,985 | 506,061 | ||||||
| Finance lease liabilities – current | 4,682 | 4,454 | ||||||
| Total current liabilities | 4,603,029 | 4,442,599 | ||||||
| Non-current liabilities: | ||||||||
| Operating lease liabilities – non current | 961,965 | 1,184,056 | ||||||
| Finance lease liabilities – non current | 11,739 | 13,709 | ||||||
| Total non – current liabilities | 973,704 | 1,197,765 | ||||||
| TOTAL LIABILITIES | $ | 5,576,733 | $ | 5,640,364 | ||||
| Commitments and Contingencies | — | — | ||||||
| Shareholders’ equity | ||||||||
| Class A ordinary shares, par value of US$0.0005 per share; 495,000,000 shares authorized, 6,581,250 shares issued and outstanding as of September 30, 2024 and March 31, 2024* | 3,291 | 3,291 | ||||||
| Class B ordinary shares, par value of US$0.0005 per share; 5,000,000 shares authorized, 5,000,000 shares issued and outstanding as of September 30, 2024 and March 31, 2024* | 2,500 | 2,500 | ||||||
| Additional paid-in capital | 4,855,795 | 4,855,795 | ||||||
| Statutory reserve | 813,235 | 813,235 | ||||||
| Retained earnings | 7,747,463 | 8,491,783 | ||||||
| Accumulated other comprehensive loss | (1,573,743 | ) | (1,868,937 | ) | ||||
| Total shareholders’ equity | 11,848,541 | 12,297,667 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 17,425,274 | $ | 17,938,031 | ||||
*Retrospectively reflect the changes in class of shares effective on September 10, 2024
4
CCSC TECHNOLOGY INTERNATIONAL HOLDINGS LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE LOSS
(Amount in U.S. dollars, except for number of shares)
| For the six months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Net revenue | $ | 9,218,459 | $ | 7,503,520 | ||||
| Cost of revenue | (6,470,715 | ) | (5,223,159 | ) | ||||
| Gross profit | 2,747,744 | 2,280,361 | ||||||
| Operating expenses: | ||||||||
| Selling expenses | (752,926 | ) | (473,636 | ) | ||||
| General and administrative expenses | (2,468,416 | ) | (1,753,179 | ) | ||||
| Research and development expenses | (332,155 | ) | (338,038 | ) | ||||
| Total operating expenses | (3,553,497 | ) | (2,564,853 | ) | ||||
| Loss from operations | (805,753 | ) | (284,492 | ) | ||||
| Other (expenses)/income: | ||||||||
| Other non-operating (expenses)/income, net | (34,766 | ) | 51,628 | |||||
| Government subsidies | 138,845 | - | ||||||
| Foreign currency exchange (losses)/gains | (241,996 | ) | 539,844 | |||||
| Financial and interest expenses, net | 7,530 | 35,783 | ||||||
| Total other (expenses)/income | (130,387 | ) | 627,255 | |||||
| (Loss)/income before income tax expense | (936,140 | ) | 342,763 | |||||
| Income tax benefit | 191,820 | 70,851 | ||||||
| Net (loss)/income | (744,320 | ) | 413,614 | |||||
| Other comprehensive income/(loss) | ||||||||
| Foreign currency translation adjustment | 295,194 | (636,978 | ) | |||||
| Total comprehensive loss | $ | (449,126 | ) | $ | (223,364 | ) | ||
| (Loss)/earnings per share | ||||||||
| Basic and Diluted | $ | (0.06 | ) | $ | 0.04 | |||
| Weighted average number of ordinary shares | ||||||||
| Basic and Diluted | 11,581,250 | 10,000,000 | ||||||
5
CCSC TECHNOLOGY INTERNATIONAL HOLDINGS LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amount in U.S. dollars, except for number of shares)
For
the six months ended | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net (loss)/income | $ | (744,320 | ) | $ | 413,614 | |||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||
| Inventories write-down | 108,257 | 73,643 | ||||||
| Depreciation and amortization | 108,167 | 114,208 | ||||||
| Amortization of right-of-use asset | 259,582 | 251,865 | ||||||
| Loss from disposal of fixed assets | 1,497 | 595 | ||||||
| Deferred tax benefits | (191,820 | ) | (79,198 | ) | ||||
| Foreign currency exchange losses/(gains) | 189,653 | (539,844 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (479,077 | ) | (47,683 | ) | ||||
| Inventories | (10,449 | ) | 164,072 | |||||
| Prepaid expenses and other current assets | (221,742 | ) | (223,354 | ) | ||||
| Other non-current assets | 54,925 | - | ||||||
| Accounts payable | 336,256 | 418,473 | ||||||
| Advance from customers | (56,965 | ) | (60,075 | ) | ||||
| Taxes payable | 1,453 | (4,408 | ) | |||||
| Accrued expenses and other current liabilities | (223,442 | ) | (39,341 | ) | ||||
| Operating lease liabilities | (250,801 | ) | (244,763 | ) | ||||
| Financing lease liabilities | (2,208 | ) | - | |||||
| Net cash (used in)/provided by operating activities | (1,121,034 | ) | 197,804 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment | (44,006 | ) | (52,025 | ) | ||||
| Purchase of land | (539,513 | ) | - | |||||
| Purchase of intangible asset | (83,346 | ) | (19,217 | ) | ||||
| Net cash used in investing activities | (666,865 | ) | (71,242 | ) | ||||
| CASH FLOWS FORM FINANCING ACTIVITIES | ||||||||
| Repayments of long-term bank loans | - | (39,817 | ) | |||||
| Payment for deferred initial public offering costs | - | (366,094 | ) | |||||
| Capital contribution by shareholder | - | 5,000 | ||||||
| Net cash used in financing activities | - | (400,911 | ) | |||||
| Effect of exchange rate changes on cash and restricted cash | 52,580 | (63,670 | ) | |||||
| Net change in cash and restricted cash | (1,735,319 | ) | (338,019 | ) | ||||
| Cash and restricted cash, beginning of the period | 5,734,747 | 7,717,615 | ||||||
| Cash and restricted cash, end of the period | $ | 3,999,428 | $ | 7,379,596 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for income tax | $ | - | $ | (39,402 | ) | |||
| Cash paid for interest | $ | - | $ | (228 | ) | |||
| Cash paid for operating lease | $ | (287,263 | ) | $ | (288,667 | ) | ||
6