CCSC Technology International : Annual Report for Fiscal Year Ending March 31, 2026 (Form 20-F)

About this update from Ccsc Technology International Holdings Limited

OPERATING AND FINANCIAL REVIEW AND PROSPECTS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. See "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under "Item 3. Key Information-D. Risk Factors" and elsewhere in this annual report. 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 Europe, Asia and the Americas. Many of our customers are global name-brand manufacturers, such as Universal Robots, Linak A/S, Flextronics, Maersk, Danfoss, Bitzer, Fideltronic 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 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. In January 2026, we commenced construction of a new European supply chain management center in Merosina, Serbia, which further expands our regional footprint, mitigates regional supply chain risks, and strengthens customer retention and market expansion. The construction project is expected to be completed and ready for operational use in December 2026. We launched eNaviX, a dedicated carbon footprint and energy management system for SMEs featuring patented sustainable cooling architectures, which helps clients standardize ESG reporting, control compliance risks and capture carbon credit benefits. Meanwhile, we acquired an intelligent logistics simulation system and a smart manufacturing platform, which are designed to jointly optimize supply chain planning, inventory management and production processes. These technological enhancements improve operational efficiency, reduce operating costs, enhance product precision and production yields, and we believe they create distinct competitive advantages for our products and services. For the fiscal years ended March 31, 2026, 2025, and 2024, we had total revenue of US$17.30 million, US$17.63 million, and US$14.75 million, respectively, and net loss of US$4.81 million, US$1.41 million and US$1.30 million, respectively. Revenue derived from cables and wire harnesses accounted for approximately 92.4%, 92.9%, and 92.4% of our total revenue for those fiscal years, respectively. Revenue derived from connectors accounted for approximately 7.6%, 7.1%, and 7.6% of our total revenue for those fiscal years, respectively. For the fiscal years ended March 31, 2026, 2025, and 2024, approximately 52.6%, 60.6%, and 61.6% of our revenue was generated from our top ten customers, respectively. Major Factors Affecting our Results of Operations Our revenue is primarily derived from sales of both original equipment manufacturer ("OEM") and original design manufacture ("ODM") interconnect products - including connectors, cables and wire harnesses - which we sell to manufacturing companies and electronic manufacturing services ("EMS") companies in Europe, Asia, and the Americas. Our performance and business outlook are influenced by the following major factors: Our ability to control the costs of raw materials and components The costs of the components we source from suppliers are largely dependent on market forces, such as fluctuations in commodity prices, raw material prices, market supply and demand, and logistics and transport costs. Because the cost of components represents over 65% of our total cost of sales, changes in component costs directly affect our gross margins. Increases in the market price of components typically enable us to raise our selling prices. As our business further grows in scale, we expect to have greater bargaining power and, hence, more favorable terms, including pricing and payment terms, for the sourcing of components. Impact of foreign exchange fluctuation Since we operate internationally, we sometimes purchase products and services in currencies other than those in which we normally conduct our operations. If the exchange rates for such currencies fluctuate in a manner that is unfavorable to us, our cost of sales may increase and we may be unable to pass on such increases to our customers, which could have an adverse effect on our financial performance. Currency exchange rates may fluctuate significantly in the future, which could have a material effect on our results of operations, financial position and cash flows. Our ability to retain existing customers and attract new customers The interconnect product market is highly competitive. We compete on the basis of several factors, including value for money, user experience, breadth of product and service offerings, product functionality and quality, sales and distribution capabilities, supply chain management, and customer loyalty. Factors that may affect our ability to meet customer demands and attract new customers include our ability to (i) design and manufacture products from the perspective of our customers in terms of raw material selection, functional and structural specifications, and technical requirements; (ii) invest in branding, sales and marketing efforts to acquire new customers and maintain long-term business relationships with our key customers; and (iii) attract potential customers through participation in global industry exhibitions, such as the Electronica trade fair. Our technological innovation and product upgrading capabilities We continuously invest in technological innovation and product development to enhance our core competitiveness, address our customers' evolving requirements, and support sustainable business growth. Our ongoing research and development investments and strategic technology acquisitions are designed to optimize our product portfolio, production processes and operational efficiency, which we believe are critical to our market performance and long-term development. Impact of Wars and Geopolitical Tensions Persistent geopolitical tensions and military hostilities between the United States and Iran have historically contributed to prolonged uncertainty across the Middle East. Escalating confrontations, U.S. sanctions expansion, and sustained security disruptions at the Strait of Hormuz - a critical global energy shipping chokepoint - have repeatedly triggered sharp volatility in global crude oil prices, heightened inflationary pressures, and intensified fluctuations in global equity and credit markets. In June 2026, the United States and Iran signed a 14-point framework agreement establishing an immediate ceasefire and lifting naval blockades in the Strait of Hormuz. The framework agreement initiates a 60-day period for negotiating a permanent peace treaty, addressing nuclear concerns, and planning economic reconstruction. While this development represents a significant step toward de-escalation, the framework agreement remains subject to the successful conclusion of permanent peace treaty negotiations, and there can be no assurance that such negotiations will result in a definitive resolution. We cannot predict the ultimate outcome of the ongoing negotiation process, nor the scope of sanctions, military and policy measures that may be implemented or modified by governments and international authorities in response to evolving circumstances. Any failure to reach a permanent peace treaty, a resumption of hostilities, or a re-imposition of sanctions or naval blockades could increase our operating and logistics costs, disrupt global supply chains, weaken market demand and liquidity, and result in adverse exchange rate and asset valuation movements, any of which could materially and adversely affect our business, financial condition and results of operations. Escalating Trade Tensions and Impacts of Tariff Policy Volatility Recently there have been heightened tensions in international relations, particularly between the United States and China. Since 2025, the U.S. government has imposed and modified tariffs and other trade measures affecting imports from various countries and regions, including China, Canada, Mexico, and certain other jurisdictions. In response, certain countries have imposed, or may impose, reciprocal tariffs, trade restrictions, or other retaliatory measures. Additional tariff actions, sector-specific measures, or changes in trade policy may be implemented in the future. While our products are sold globally, our business and operating results have been and will continue to be affected by the total tariff tensions, we remain alert to the potential indirect impacts of evolving trade policies. For instance, increased costs borne by our customers, particularly those with international exposure, could be passed on to us, potentially affecting our revenue and operating margins. The current trade environment is characterized by rapid and unpredictable changes in tariffs and regulations, making long-term planning more challenging. In response, we are strengthening collaboration with our customers and suppliers, evaluating alternative technology solutions, and enhancing the flexibility of our operational model to better respond to external disruptions. While these measures are designed to mitigate potential impacts, there can be no assurance that they will fully shield us from the broader effects of ongoing trade policy shifts. We will continue to monitor developments closely and adapt our business strategy as needed to maintain operational stability and financial performance. Results of operations Comparison of Results of Operations for the Fiscal Years Ended March 31, 2026 and 2025 The following table sets forth a summary of our consolidated results of operations for the periods indicated. This information should be read together with our consolidated financial statements and related notes included elsewhere in this annual report. The operating results in any period are not necessarily indicative of the results that may be expected for any future period. For the fiscal years ended March 31, change 2026 2025 Amount % (Amounts expressed in U.S. dollars) Net revenue $ 17,302,744 $ 17,631,489 $ (328,745 ) (1.9 ) Cost of revenue (12,238,334 ) (12,647,287 ) 408,953 (3.2 ) Gross profit 5,064,410 4,984,202 80,208 1.6 Operating expenses: Selling expenses (2,216,650 ) (1,695,217 ) (521,433 ) 30.8 General and administrative expenses (4,606,701 ) (4,601,637 ) (5,064 ) 0.1 Research and development expenses (1,699,630 ) (654,039 ) (1,045,591 ) 159.9 Total operating expenses (8,522,981 ) (6,950,893 ) (1,572,088 ) 22.6 Loss from operations (3,458,571 ) (1,966,691 ) (1,491,880 ) 75.9 Other (loss)/ income: Foreign currency exchange (loss)/income, net (419,431 ) 67,395 (486,826 ) (722.3 ) Financial and interest (loss)/income, net (21,962 ) 10,538 (32,500 ) (308.4 ) Government subsidy - 207,257 (207,257 ) (100.0 ) Other non-operating income, net 55,968 534 55,434 10,380.9 Total other (loss)/ income (385,425 ) 285,724 (671,149 ) (234.9 ) Loss before income tax (expenses)/benefit (3,843,996 ) (1,680,967 ) (2,163,029 ) 128.7 Income tax (expenses)/benefit (961,565 ) 270,502 (1,232,067 (455.5 ) Net loss $ (4,805,561 ) $ (1,410,465 ) $ (3,395,096 ) 240.7 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, which procure and assemble products on behalf of manufacturing companies. For the fiscal years ended March 31, 2026 and 2025, our total revenue was US$17.30 million and US$17.63 million, respectively. Our revenue decreased by 1.9%, from US$17.63 million for the fiscal year ended March 31, 2025 to US$17.30 million for the fiscal year ended March 31, 2026. During these periods, we derived all of our revenue from sales in Europe, Asia and the Americas. The following table sets forth our revenue by interconnect product type for the periods indicated. For the fiscal years ended March 31, Change 2026 % 2025 % Amount % (Amounts expressed in U.S. dollars) Cables and wire harnesses $ 15,986,501 92.4 $ 16,385,705 92.9 $ (399,204 ) (2.4 ) Connectors 1,316,243 7.6 1,245,784 7.1 70,459 5.7 Total $ 17,302,744 100.0 $ 17,631,489 100.0 $ (328,745 ) (1.9 ) For the fiscal year ended March 31, 2026, our revenue generated from cables and wire harnesses decreased by 2.4%, from US$16.39 million for the fiscal year ended March 31, 2025 to US$15.99 million for the fiscal year ended March 31, 2026. The decrease in revenue from sales of cables and wire harnesses was primarily driven by lower sales volume, which was partially offset by the increase in the overall average selling prices of our cables and wire harness products. Compared with the fiscal year ended March 31, 2025, our sales volume of cables and wire harnesses decreased by 14.8% from approximately 12.77 million units to approximately 10.87 million units, while our average selling prices increased by 14.6% from US$1.28 per unit to US$1.47 per unit. The reduction in demand was principally attributable to a reduction in sales orders from one of our major customers during its transition from discontinued product models to new product models that are still in the development phase, as we are concurrently assisting in the development stage. Our subsidiaries manufacture cables and wire harnesses based on customer-specific orders and do not have a practice of holding excessive levels of inventory related to the customer's discontinued products, and do not have manufacturing assets or production lines that have been established solely for any specific product specification. Accordingly, we concluded that no indicators of inventory obsolescence or asset impairment existed as of March 31, 2026. Our revenue generated from connectors accounted for 7.6% of our total revenue and increased by 5.7% from US$1.25 million for the fiscal year ended March 31, 2025 to US$1.32 million for the fiscal year ended March 31, 2026. The increase was primarily attributable to the increase in the overall average selling prices of our connectors, partially offset by a decrease in sales volume. Compared with the fiscal year ended March 31, 2025, our average selling prices increased by 17.3% from US$0.07 per unit to US$0.08 per unit due to higher raw material costs, while our sales volume of connectors decreased by 9.9% from approximately 18.57 million units to approximately 16.73 million units. We continue to monitor raw material costs and market conditions and intend to adjust selling prices as appropriate. Any future price adjustments could affect sales volume, though the extent of the impact will depend on market conditions and customer demand. All of our revenue for the fiscal years ended March 31, 2026 and 2025 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 region: For the fiscal years ended March 31, Change 2026 % 2025 % Amount % (Amounts expressed in U.S. dollars) Europe $ 10,572,256 61.1 $ 10,991,905 62.3 $ (419,649 ) (3.8 ) Asia 5,573,347 32.2 5,336,247 30.3 237,100 4.4 The Americas 1,157,141 6.7 1,303,337 7.4 (146,196 ) (11.2 ) Total $ 17,302,744 100.0 $ 17,631,489 100.0 $ (328,745 ) (1.9 ) Our revenue generated from Europe decreased by 3.8%, from US$10.99 million for the fiscal year ended March 31, 2025 to US$10.57 million for the fiscal year ended March 31, 2026. The decline stemmed from modest sales decreases in Denmark and Bulgaria, which were partially offset by slight revenue growth in Hungary and the Netherlands. Lower order volumes from certain customers caused the sales downturn in Denmark and Bulgaria, as these customers were transitioning from discontinued products to new product models that are currently under development. Our revenue generated from Asia increased by 4.4%, from US$5.34 million for the fiscal year ended March 31, 2025, to US$5.57 million for the fiscal year ended March 31, 2026. This increase was primarily driven by a sales increase in Mainland China of US$0.65 million and a sales increase in the Association of Southeast Asian Nations, or ASEAN, of US$0.10 million, mainly attributable to higher order volumes allocated by customers to OEMs located in China as a result of our sales efforts in conducting third-party marketing and business development services, and was partially offset by a sales decrease in Hong Kong, China of US$0.52 million. Our revenue generated from the Americas decreased by 11.2%, from US$1.30 million for the fiscal year ended March 31, 2025, to US$1.16 million for the fiscal year ended March 31, 2026, which was primarily due to a sales decrease in North America of US$0.15 million. The decline was largely attributable to higher U.S. tariffs, which led certain customers to gradually shift to local suppliers in order to mitigate their tariff exposure. 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 principal operations, which primarily include freight charges for materials and components, and electricity and water used for manufacturing. Our cost of revenue decreased by US$0.41 million, or 3.2%, from US$12.65 million for the fiscal year ended March 31, 2025 to US$12.24 million for the fiscal year ended March 31, 2026, which was generally in line with the decrease in total revenue. The decrease was primarily due to the following: (i) a decrease in our inventory costs from US$8.58 million for the fiscal year ended March 31, 2025 to US$8.50 million for the fiscal year ended March 31, 2026, and (ii) a decrease in our labor costs from US$3.07 million for the fiscal year ended March 31, 2025 to US$2.77 million for the fiscal year ended March 31, 2026. Our inventory costs represented a significant portion of our cost of revenue. For the fiscal years ended March 31, 2026 and 2025, our inventory costs amounted to US$8.50 million and US$8.58 million, respectively, representing 69.5% and 67.8% of our total cost of revenue for such respective periods. The decrease in our inventory costs was primarily due to an 11.9% decrease in the total sales volume from approximately 31.34 million units in the fiscal year ended March 31, 2025 to approximately 27.61 million units in the fiscal year ended March 31, 2026. This decrease was partially offset by a 12.5% increase in inventory cost per unit from US$0.27 in the fiscal year ended March 31, 2025 to US$0.31 in the fiscal year ended March 31, 2026. For the fiscal years ended March 31, 2026 and 2025, our labor costs amounted to US$2.77 million and US$3.07 million, respectively, representing 22.7% and 24.3% of our total cost of revenue. The decrease in labor costs was mainly attributable to lower production volumes driven by decreased sales and our efforts to reduce labor costs. 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 fiscal years ended March 31, 2026 and 2025, our gross profit was US$5.06 million and US$4.98 million, respectively, and our gross profit margin was 29.3% and 28.3%, respectively. The following table sets forth our overall gross profit margin: For the fiscal years ended March 31, Change 2026 % 2025 % Amount % (Amounts expressed in U.S. dollars) Revenue $ 17,302,744 100.0 $ 17,631,489 100.0 $ (328,745 ) (1.9 ) Cost of revenue (12,238,334 ) (70.7 ) (12,647,287 ) (71.7 ) 408,953 (3.2 ) Gross Profit $ 5,064,410 29.3 $ 4,984,202 28.3 $ 80,208 1.6 The gross profit margin increased slightly compared with the prior fiscal year, primarily due to a reduction in fixed costs per unit as a result of our efforts in reducing labor costs. Operating Expenses For the fiscal years ended March 31, Change 2026 % 2025 % Amount % (Amounts expressed in U.S. dollars) Selling expenses $ (2,216,650 ) (12.8 ) $ (1,695,217 ) (9.6 ) $ (521,433 ) 30.8 General and administrative expenses (4,606,701 ) (26.6 ) (4,601,637 ) (26.1 ) (5,064 ) 0.1 Research and development expenses (1,699,630 ) (9.8 ) (654,039 ) (3.7 ) (1,045,591 ) 159.9 Total $ (8,522,981 ) (49.2 ) $ (6,950,893 ) (39.4 ) $ (1,572,088 ) 22.6 Selling expenses Selling expenses primarily consist of: (i) marketing and business development service fees; (ii) marketing and entertainment expenses for promotion; (iii) staff costs, travelling expenses, rental and depreciation related to selling and marketing functions; (iv) freight fees and transportation fees; and (v) office, utility and other expenses. Our selling expenses increased by 30.8%, or US$0.52 million, from US$1.70 million for the fiscal year ended March 31, 2025 to US$2.22 million for the fiscal year ended March 31, 2026. The increase was primarily due to (i) an increase of US$0.62 million in marketing and business development service fees, which represent external service costs paid to professional service providers to support our market research, distribution channel building, and product promotion in the ASEAN and European markets; partially offset by (ii) a decrease of US$0.18 million in exhibition expenses, as we reduced exhibition activities and instead focused on direct customer outreach to develop the market. General and administrative expenses General and administrative expenses primarily consist of: (i) salaries and benefits for our administrative personnel; (ii) agent and professional fees; (iii) office expenses, expenses for office supplies and consumables; (iv) depreciation and amortization expenses relating to property, plant and equipment and leased properties used for administrative purposes; 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 0.1%, or US$0.01 million, from US$4.60 million for the fiscal year ended March 31, 2025 to US$4.61 million for the fiscal year ended March 31, 2026, which was primarily attributable to (i) an increase of US$0.12 million in office, utility and other expenses, primarily due to higher amortization charges for newly acquired cloud servers; partially offset by (ii) a decrease of US$0.12 million in agent and professional fees. Research and development ("R&D") expenses Research and development expenses related to the creation of new and improved products and processes are expensed as incurred, which mainly include (i) consulting and professional service fees related to R&D; (ii) salaries, welfare and insurance expenses paid to R&D employees; (iii) costs of materials and components for the research and development activities; and (iv) manufacturing expenses for producing samples related to our research and development activities. Our research and development expenses increased by 159.9%, or US$1.05 million, from US$0.65 million for the fiscal year ended March 31, 2025 to US$1.70 million for the fiscal year ended March 31, 2026, primarily due to an increase of US$1.00 million in consulting and professional service fees to advance the development of our production-oriented intelligent control modules and the newly launched eNaviX carbon footprint monitoring system. For the production-oriented intelligent control modules, we partnered with external service providers for customized joint development. Designed to be compatible with our existing interconnect products, this initiative optimizes product performance and enriches our industrial automation product portfolio, further bolstering our competitiveness in the manufacturing industry. For the eNaviX carbon footprint monitoring system, we leveraged external technical resources for its full development. Tailored for small and medium-sized enterprises, this dedicated ESG and energy management solution broadens our service offerings, captures demand in the carbon management market and delivers new growth prospects for us. Other (loss)/income Other (loss)/income primarily consists of: (i) losses or gains on exchange rate fluctuations; (ii) financial and interest (loss)/income, inclusive of interest income and interest expenses; (iii) other non-operating income, net, inclusive of overtime expense compensation and material enhancement compensation paid by customers for early delivery orders; (iv) non-recurring engineering charges paid by customers; and (v) government subsidy. Our other income decreased by US$0.68 million, from other income of US$0.29 million for the fiscal year ended March 31, 2025 to other expenses of US$0.39 million for the fiscal year ended March 31, 2026, which was primarily attributable to (i) a decrease in foreign currency exchange gain of US$0.49 million, and (ii) a decrease of US$0.21 million in government subsidy, resulting from the absence of the one-off "Little Giant" award received in the prior period. Income tax (expenses)/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 Inland Revenue (Amendment) (No. 3) Ordinance 2018 published by the Hong Kong government, effective April 1, 2018, 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% for corporations, while the remaining profits will continue to be taxed at the existing 16.5% tax rate. CCSC Technology Group and CCSC Interconnect HK were subject to Hong Kong profit tax during the periods presented. 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 incurred operating expenses and accumulated tax losses, resulting in no taxable income during these periods. These tax losses are available for carryforward to offset future taxable profits. Netherlands Our subsidiary, CCSC Interconnect NL, which was incorporated and is operated in the Netherlands, is subject to enterprise income tax on its worldwide taxable income, as determined under the tax laws and accounting standards, at a rate of 19% (15% in 2022) for the first EUR200,000 (EUR395,000 in 2022) of profits earned by CCSC Interconnect NL, and the remaining profits will continue to be taxed at the existing 25.8% tax rate in 2026, 2025 and 2024. For the fiscal years ended March 31, 2026 and 2025, CCSC Interconnect NL was not subject to any income tax as it 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 High and New Technology Enterprise, or HNTE, 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. The HNTE accreditation may be renewed every three years. As of the date of this annual report, we enjoy a preferential enterprise income tax rate of 15% for years 2025-2027. 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 any 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. Effective January 1, 2021, in addition to deducting the actual amount of research and development expenses incurred, an enterprise is allowed an additional 100% deduction of such amount in calculating its taxable income for the relevant year, increased from 75% prior to 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 decreased from US$0.27 million for the fiscal year ended March 31, 2025 to income tax expenses of US$0.96 million for the fiscal year ended March 31, 2026, as the prior year benefited from losses incurred by our Hong Kong and PRC subsidiaries, whereas a valuation allowance was recognized against the deferred tax assets of such subsidiaries in the fiscal year ended March 31, 2026. Net loss As a result of the foregoing, our net loss increased by 240.7%, or US$3.40 million, from US$1.41 million for the fiscal year ended March 31, 2025 to US$4.81 million for the fiscal year ended March 31, 2026. Comparison of Results of Operations for the Fiscal Years Ended March 31, 2025 and 2024 The following table sets forth a summary of our consolidated results of operations for the periods indicated. This information should be read together with our consolidated financial statements and related notes included elsewhere in this annual report. The operating results in any period are not necessarily indicative of the results that may be expected for any future period. For the fiscal years ended March 31, Change 2025 2024 Amount % (Amounts expressed in U.S. dollars) Net revenue $ 17,631,489 $ 14,748,551 $ 2,882,938 19.5 Cost of revenue (12,647,287 ) (10,825,943 ) (1,821,344 ) 16.8 Gross profit 4,984,202 3,922,608 1,061,594 27.1 Operating expenses: Selling expenses (1,695,217 ) (1,039,882 ) (655,335 ) 63.0 General and administrative expenses (4,601,637 ) (4,134,394 ) (467,243 ) 11.3 Research and development expenses (654,039 ) (594,521 ) (59,518 ) 10.0 Total operating expenses (6,950,893 ) (5,768,797 ) (1,182,096 ) 20.5 Loss from operations (1,966,691 ) (1,846,189 ) (120,502 ) 6.5 Other income: Other non-operating income/(expenses), net 534 (35,509 ) 36,043 (101.5 ) Government subsidy 207,257 7,255 200,002 2,756.7 Foreign currency exchange income 67,395 425,308 (357,913 ) (84.2 ) Financial and interest income, net 10,538 67,636 (57,098 ) (84.4 ) Total other income 285,724 464,690 (178,966 ) (38.5 ) Loss before income tax benefit (1,680,967 ) (1,381,499 ) (299,468 ) 21.7 Income tax benefit 270,502 86,336 184,166 213.3 Net loss $ (1,410,465 ) $ (1,295,163 ) $ (115,302 ) 8.9 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 that procure and assemble products on behalf of manufacturing companies. For the fiscal years ended March 31, 2025 and 2024, our total revenue was US$17.63 million and US$14.75 million, respectively. During these periods, we derived all of our revenue from sales in Europe, Asia, the Americas, and Australia. Our revenue increased by 19.5%, from US$14.75 million for the fiscal year ended March 31, 2024 to US$17.63 million for the fiscal year ended March 31, 2025. The increase was primarily attributable to a 37.1% increase in the total sales volume from approximately 22.86 million units for the fiscal year ended March 31, 2024 to approximately 31.34 million units for the fiscal year ended March 31, 2025, which was partially offset by a 12.8% decrease in the average selling price of our products from US$0.65 per unit for the fiscal year ended March 31, 2024 to US$0.56 per unit for the fiscal year ended March 31, 2025. Our revenue generated from sales to our top ten customers increased from US$9.08 million in the fiscal year ended March 31, 2024 to US$10.68 million in the fiscal year ended March 31, 2025, which is consistent with the increase in our total revenue. Many of our major customers are global name-brand manufacturers, such as Linak A/S, Danfoss, and Bitzer, and our relationships with many of our major customers date back many years. For the fiscal years ended March 31, 2025 and 2024, sales to our top customers accounted for a significant portion of our total revenue and represented 60.6% and 61.6% of our total revenue, respectively. However, as the Company continues to develop new customers and expand into more markets, such customer concentration may diminish over time. The following table sets forth our revenue by our interconnect products for the indicated periods. For the fiscal years ended March 31, Change 2025 % 2024 % Amount % (Amounts expressed in U.S. dollars) Cable and wire harness $ 16,385,705 92.9 $ 13,626,836 92.4 $ 2,758,869 20.2 Connectors 1,245,784 7.1 1,121,715 7.6 124,069 11.1 Total $ 17,631,489 100.0 $ 14,748,551 100.0 $ 2,882,938 19.5 For the fiscal year ended March 31, 2025, our revenue generated from cables and wire harnesses increased by 20.2%, from US$13.63 million for the fiscal year ended March 31, 2024 to US$16.39 million for the fiscal year ended March 31, 2025. The increase in sales of cables and wire harnesses was primarily attributable to the increase in sales volume, which was partially offset by the decrease in the overall average selling prices of our cables and wire harness products. Compared with the fiscal year ended March 31, 2024, our sales volume of cables and wire harnesses increased by 33.9% from approximately 9.54 million units in the fiscal year ended March 31, 2024 to approximately 12.77 million units in the fiscal year ended March 31, 2025, and our average selling prices decreased by 10.2% from US$1.43 per unit in the fiscal year ended March 31, 2024 to US$1.28 per unit in the fiscal year ended March 31, 2025. The increase in demand was primarily attributable to the fact that our customers had drawn down on their previously purchased inventories, resulting in a subsequent increase in their purchase orders. Our revenue generated from connectors accounted for 7.1% of our total revenue and increased by 11.1% from US$1.12 million for the fiscal year ended March 31, 2024 to US$1.25 million for the fiscal year ended March 31, 2025. The increase was primarily attributable to the increase in sales volume, which was partially offset by the decrease in the overall average selling prices of our connectors. Compared with the fiscal year ended March 31, 2024, our sales volume of connectors increased by 39.4% from approximately 13.33 million units in the fiscal year ended March 31, 2024 to approximately 18.57 million units in the fiscal year ended March 31, 2025, and our average selling prices decreased by 20.3% from US$0.08 per unit in the fiscal year ended March 31, 2024 to US$0.07 per unit in the fiscal year ended March 31, 2025. The increase in demand was primarily attributable to the fact that our customers had drawn down on their previously purchased inventories, prompting a rebound in purchase orders. All of our revenue for the fiscal years ended March 31, 2025 and 2024 was generated from sales of our products to customers located in Europe, Asia, the Americas, and Australia. The following table sets forth the disaggregation of our revenue by region: For the fiscal years ended March 31, Change 2025 % 2024 % Amount % (Amounts expressed in U.S. dollars) Europe $ 10,991,905 62.3 $ 8,523,788 57.8 $ 2,468,117 29.0 Asia 5,336,247 30.3 4,843,082 32.8 493,165 10.2 The Americas 1,303,337 7.4 1,381,681 9.4 (78,344 ) (5.7 ) Total $ 17,631,489 100.0 $ 14,748,551 100 $ 2,882,938 19.5 Our revenue generated from Europe increased by 29.0%, from US$8.52 million for the fiscal year ended March 31, 2024 to US$10.99 million for the fiscal year ended March 31, 2025. The increase was primarily attributable to (i) an increase in sales in Denmark of US$2.02 million, from US$6.04 million for the fiscal year ended March 31, 2024, to US$8.06 million for the fiscal year ended March 31, 2025, (ii) an increase in sales in Bulgaria of US$0.32 million, from US$0.57 million for the fiscal year ended March 31, 2024, to US$0.89 million for the fiscal year ended March 31, 2025, and (iii) an increase in sales in Poland of US$0.11 million, from US$0.16 million for the fiscal year ended March 31, 2024, to US$0.27 million for the fiscal year ended March 31, 2025. Our revenue generated from Asia increased by 10.2%, from US$4.84 million for the fiscal year ended March 31, 2024, to US$5.34 million for the fiscal year ended March 31, 2025. This increase was primarily driven by a sales increase in the Association of Southeast Asian Nations, or ASEAN, of US$0.46 million and a sales increase in Mainland China of US$0.26 million, partially offset by a sales decrease in Hong Kong, China of US$0.22 million. The growth in ASEAN was mainly attributable to rising demand driven by regional economic development, which resulted in higher sales of products such as connectors and cables. The increase in Mainland China was primarily driven by a recovery in customer purchasing activity, as customers had utilized previously procured inventories and subsequently resumed order placements. Our revenue generated from the Americas decreased by 5.7%, from US$1.38 million for the fiscal year ended March 31, 2024, to US$1.30 million for the fiscal year ended March 31, 2025, which was primarily due to a sales decrease in North America of US$0.08 million. Cost of revenue Our cost of revenue primarily consists of the following: (i) inventory costs, which primarily include procurement costs for components for the manufacture 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 principal operations, which primarily include freight charges for materials and components, and electricity and water used for manufacturing. Our cost of revenue increased by US$1.82 million, or 16.8%, from US$10.83 million for the fiscal year ended March 31, 2024 to US$12.65 million for the fiscal year ended March 31, 2025, which was generally 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$7.34 million for the fiscal year ended March 31, 2024 to US$8.58 million for the fiscal year ended March 31, 2025, and (ii) an increase in our labor costs from US$2.49 million for the fiscal year ended March 31, 2024 to US$3.07 million for the fiscal year ended March 31, 2025. Our inventory costs represented a significant portion of our cost of revenue. For the fiscal years ended March 31, 2025 and 2024, our inventory costs amounted to US$8.58 million and US$7.34 million, respectively, representing 67.8% and 67.8% of our total cost of revenue for the respective periods. The increase in our inventory costs was primarily due to a 37.1% increase in total sales volume from approximately 22.86 million units in the fiscal year ended March 31, 2024 to approximately 31.34 million units in the fiscal year ended March 31, 2025. This increase was partially offset by a 14.7% decrease in inventory cost per unit from US$0.32 in the fiscal year ended March 31, 2024 to US$0.27 in the fiscal year ended March 31, 2025. For the fiscal years ended March 31, 2025 and 2024, our labor costs amounted to US$3.07 million and US$2.49 million, respectively, representing 24.3% and 23.0% of our total cost of revenue for the respective periods. The increase in labor costs was mainly attributable to higher production volumes driven by increased sales. 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 fiscal years ended March 31, 2025 and 2024, our gross profit was US$4.98 million and US$3.92 million, respectively, and our gross profit margin was 28.3% and 26.6%, respectively. The following table sets forth the overall gross profit margin of the Company: For the fiscal years ended March 31, Change 2025 % 2024 % Amount % (Amounts expressed in U.S. dollars) Revenue $ 17,631,489 100.0 % $ 14,748,551 100 % $ 2,882,938 19.5 Cost of revenue (12,647,287 ) (71.7 )% (10,825,943 ) (73.4 )% (1,821,344 ) 16.8 Gross Profit $ 4,984,202 28.3 % $ 3,922,608 26.6 % $ 1,061,594 27.1 The gross profit margin increased slightly compared to the prior fiscal year, primarily due to a reduction in fixed costs per unit. This reduction was driven by a 37.1% increase in total sales volume, which rose from 22.86 million units in the fiscal year ended March 31, 2024 to 31.34 million units in the fiscal year ended March 31, 2025. The increase in sales volume was primarily attributable to increased customer orders as previously purchased inventories were depleted. Operating Expenses For the fiscal years ended March 31, Change 2025 % 2024 % Amount % (Amounts expressed in U.S. dollars) Selling expenses $ (1,695,217 ) (9.6 ) $ (1,039,882 ) (7.1 ) $ (655,335 ) 63.0 General and administrative expenses (4,601,637 ) (26.1 ) (4,134,394 ) (28.0 ) (467,243 ) 11.3 Research and development expenses (654,039 ) (3.7 ) (594,521 ) (4.0 ) (59,518 ) 10.0 Total $ (6,950,893 ) (39.4 ) $ (5,768,797 ) (39.1 ) $ (1,182,096 ) 20.5 Selling expenses Selling expenses primarily consist of: (i) marketing and entertainment expenses for promotion; (ii) staff costs, traveling expenses, rental and depreciation related to selling and marketing functions; (iii) freight fees and transportation fees; and (iv) office, utility and other expenses. Our selling expenses increased by 63.0%, or US$0.66 million, from US$1.04 million for the fiscal year ended March 31, 2024 to US$1.70 million for the fiscal year ended March 31, 2025. The increase was primarily attributable to: (i) an increase of US$0.57 million in market development costs for entering the ASEAN, American, and European markets; (ii) an increase of US$0.09 million in freight charges due to the increase in our sales volumes; and (iii) an increase of US$0.07 million in exhibition expenses. General and administrative expenses General and administrative expenses primarily consist of: (i) salaries and benefits for our administrative personnel; (ii) agent and professional fees related to our IPO, including both one-time IPO-related costs and recurring public company compliance expenses; (iii) expenses for office supplies and consumables; (iv) depreciation and amortization expenses relating to our property, plant and equipment and leased properties used for administrative purposes; 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 11.3%, or US$0.47 million, from US$4.13 million for the fiscal year ended March 31, 2024 to US$4.60 million for the fiscal year ended March 31, 2025, which was primarily attributable to the following: (i) an increase of US$0.43 million in agent and professional fees, primarily related to compliance and reporting obligations as a public company following our IPO in the U.S.; (ii) an increase of US$0.34 million in salaries and benefits, primarily attributable to higher compensation for our general and administrative personnel, as well as bonuses and celebration expenses incurred in connection with the successful completion of our IPO, partially offset by a reduction in travel expenses during the fiscal year ended March 31, 2025, due to the absence of non-recurring overseas trips in the prior year for IPO-related activities and business development; and (iii) a decrease of US$0.30 million in entertainment and related expenses, mainly due to the absence of non-recurring IPO celebration events and overseas business trips that contributed to entertainment costs in the prior year. Research and development ("R&D") expenses Research and development expenses primarily consist of: (i) salaries, welfare and insurance expenses paid to R&D employees; (ii) costs of materials and components for the research and development activities; and (iii) manufacturing expenses for producing samples related to our research and development activities. Our research and development expenses increased by 10.0%, or US$0.06 million, from US$0.59 million for the fiscal year ended March 31, 2024 to US$0.65 million for the fiscal year ended March 31, 2025, primarily due to an increase of US$0.07 million in employee salaries, partially offset by a decrease of US$0.01 million in materials and components consumption. Other income Other income primarily consists of: (i) government subsidy; (ii) non-recurring engineering charge paid by customers; (iii) other non-operating income/(expenses), net, 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 income decreased by US$0.17 million from US$0.46 million for the fiscal year ended March 31, 2024 to US$0.29 million for the fiscal year ended March 31, 2025, which was primarily attributable to (i) a decrease in foreign currency exchange gain of US$0.36 million, and (ii) an increase of US$0.20 million in government subsidy, mainly from a "Little Giant" award granted by the Dongguan Municipal Treasury. 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 Inland Revenue (Amendment) (No. 3) Ordinance 2018 published by the Hong Kong government, effective April 1, 2018, 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% for corporations, while the remaining profits will continue to be taxed at the existing 16.5% tax rate. CCSC Technology Group and CCSC Interconnect HK were subject to Hong Kong profits tax during the periods presented. Serbia Our subsidiary, CCSC Technology Serbia, which was incorporated and is operated 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 did not have taxable income during the periods presented. Netherlands Our subsidiary, CCSC Interconnect NL, which was incorporated and is operated in the Netherlands, is subject to enterprise income tax on its worldwide taxable income, as determined under the tax laws and accounting standards, at a rate of 19% (15% in 2022) for the first EUR200,000 (EUR395,000 in 2022) of profits earned by CCSC Interconnect NL, and the remaining profits will continue to be taxed at the existing 25.8% tax rate in 2025, 2024 and 2023. For the fiscal years ended March 31, 2025 and 2024, CCSC Interconnect NL was not subject to any income tax as it 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 High and New Technology Enterprise, or HNTE, 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. The HNTE accreditation may be renewed every three years. As of the date of this annual report, we are in the process of renewing the HNTE accreditation for CCSC Interconnect DG for years 2025-2027. 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, to the extent such expenses have not formed intangible assets, are included in the profit and loss account for the current year. Starting from January 1, 2021, in addition to deducting the actual amount of research and development expenses incurred, an enterprise is allowed an additional deduction of 100% of such amount in calculating its taxable income for the relevant year, increased from 75% prior to 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$0.09 million for the fiscal year ended March 31, 2024 to US$0.27 million for the fiscal year ended March 31, 2025, which was primarily attributable to losses incurred by CCSC Interconnect DG and CCSC Interconnect HK in the fiscal year ended March 31, 2025. Net loss As a result of the foregoing, our net loss increased by 8.9%, or US$0.11 million, from US$1.30 million for the fiscal year ended March 31, 2024 to US$1.41 million for the fiscal year ended March 31, 2025. B. Liquidity and Capital Resources As of March 31, 2026, we had US$4.10 million in cash and restricted cash, which consisted of (i) cash in mainland China of US$1.22 million; (ii) cash in Hong Kong of US$2.15 million; (iii) cash and restricted cash in the Netherlands of US$0.21 million; and (iv) cash in Serbia of US$0.52 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 annual report, we have financed our operations primarily through cash generated from operations and with a portion of the net proceeds raised from our follow on public offering. We intend to continue relying on cash generated from our operations to support our future operations, and may consider seeking additional financing, such as public offering and bank loans, as needed. Accounts receivable amounted to US$2.83 million and US$2.50 million as of March 31, 2026 and 2025, respectively. All accounts receivable balances as of March 31, 2025 have been fully collected as of the date of this annual report. Approximately 99.5%, or US$2.82 million, of the accounts receivable balances as of March 31, 2026 have been collected as of the date of this annual report. As of March 31, 2026, we had a total inventory balance of US$2.30 million, which primarily included raw materials of US$1.38 million, to ensure sufficient raw materials were available to meet our production needs, and inventory in transit of US$0.67 million. The inventory in transit has since been fully settled when the customers received the products in the subsequent period. As of March 31, 2025, we had a total inventory balance of US$1.76 million, which primarily included raw materials of US$0.81 million, to ensure sufficient raw materials were available to meet our production needs, and inventory in transit of US$0.57 million. The inventory in transit has since been fully settled when the customers received the products in the subsequent period. As of March 31, 2026, we had working capital of US$5.69 million, as compared to working capital of US$5.18 million as of March 31, 2025. 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 on which our consolidated financial statements for the fiscal year ended March 31, 2026 were released. Cash Flows Cash Flows Analysis for the Fiscal Years Ended March 31, 2026, 2025, and 2024 The following table sets forth a summary of our cash flows for the periods indicated: For the fiscal years ended March 31, Change 2026 2025 Amount % (Amounts expressed in U.S. dollars) Net cash used in operating activities $ (4,507,975 ) $ (968,808 ) $ (3,539,167 ) 365.3 Net cash used in investing activities (1,423,864 ) (890,490 ) (533,374 ) 59.9 Net cash provided by/ (used in) financing activities 6,295,310 (49,345 ) 6,344,655 N/A Effect of exchange rate changes on cash and restricted cash 46,178 (131,648 ) 177,826 (135.1 ) Net change in cash and restricted cash 409,649 (2,040,291 ) 2,449,940 (120.1 ) Cash and restricted cash, beginning of the year 3,694,456 5,734,747 (2,040,291 ) (35.6 ) Cash and restricted cash, end of the year $ 4,104,105 $ 3,694,456 $ 409,649 11.1 For the fiscal years ended March 31, Change 2025 2024 Amount % (Amounts expressed in U.S. dollars) Net cash used in operating activities $ (1,002,914 ) $ (2,528,503 ) $ 1,525,589 (60.3 ) Net cash used in investing activities (890,490 ) (3,825,787 ) 2,935,297 (76.7 ) Net cash (used in)/provided by financing activities (15,240 ) 4,626,269 (4,641,509 ) (100.3 ) Effect of exchange rate changes on cash and restricted cash (131,647 ) (254,847 ) 123,200 (48.3 ) Net change in cash and restricted cash (2,040,291 ) (1,982,868 ) (57,423 ) 2.9 Cash and restricted cash, beginning of the year 5,734,747 7,717,615 (1,982,868 ) (25.7 ) Cash and restricted cash, end of the year $ 3,694,456 $ 5,734,747 $ (2,040,291 ) (35.6 ) Operating Activities For the fiscal year ended March 31, 2026, our net cash used in operating activities was US$4.51 million, which was primarily attributable to (i) net loss of US$4.81 million, adjusted by depreciation and amortization of fixed assets and right-of-use assets of US$0.81 million, deferred tax expenses of US$0.55 million, foreign currency exchange loss of US$0.36 million and an inventory write-down of US$0.07 million; (ii) an increase of US$0.54 million in prepaid expenses and other current assets due to rising prepayments for professional service fees related to research and development as well as marketing and promotion activities; (iii) an increase of US$0.54 million in inventory due to higher purchases of raw materials to support upcoming sales orders; (iv) a decrease of US$0.54 million in operating lease liabilities; (v) a decrease of US$0.54 million in accrued expenses and other current liabilities primarily due to lower accrued payroll and employee benefits; and partially offset by (vi) an increase of US$0.87 million in accounts payable driven by longer payment terms offered by some of our suppliers. For the fiscal year ended March 31, 2025, our net cash used in operating activities was US$1.00 million, which was primarily attributable to (i) net loss of US$1.41 million, adjusted by an inventory write-down of US$0.13 million, depreciation and amortization of fixed assets and right-of-use assets of US$0.76 million, and deferred tax benefit of US$0.27 million; (ii) a decrease of US$0.53 million in operating lease liabilities; (iii) a decrease of US$0.36 million in accounts payable due to the settlement of prior purchase obligations; (iv) a decrease of US$0.23 million in accrued expenses and other current liabilities due to the decrease in accrued payroll and employee benefits; partially offset by (v) a decrease of US$0.41 million in prepaid expenses and other current assets due to the decrease in deductible value-added tax ("VAT") input and income tax recoverable; (vi) a decrease of US$0.27 million in accounts receivable as a result of the increase in collections; and (vii) a decrease of US$0.26 million in other non-current assets. For the fiscal year ended March 31, 2024, our net cash used in operating activities was US$2.53 million, which was primarily attributable to (i) net loss of US$1.30 million, adjusted by an inventory write-down of US$0.19 million, depreciation and amortization of fixed assets and right-of-use assets of US$0.75 million, and foreign currency exchange gains of US$0.23 million; (ii) an increase of US$0.7 million in prepaid expenses and other current assets due to the income tax prepayments to the Hong Kong tax authority; and (iii) an increase of US$0.5 million in accounts receivable due to the slow economic recovery. Investing Activities Our net cash used in investing activities was US$1.42 million, US$0.89 million, and US$3.83 million for the fiscal years ended March 31, 2026, 2025, and 2024, respectively. The cash flow in the fiscal year ended March 31, 2026 primarily reflected the purchase of property and equipment of US$0.86 million, including production mold and automated equipment, and the purchase of intangible assets of US$0.57 million related to the intelligent production platform for wiring harnesses. The cash flow in the fiscal year ended March 31, 2025 primarily reflected the purchase of land of US$0.52 million and the purchase of new equipment and software of US$0.37 million. The cash flow in the fiscal year ended March 31, 2024 primarily reflected the purchase of new equipment and software of US$0.19 million and prepayment of long-term equipment and mold model of US$3.64 million. Financing Activities For the fiscal year ended March 31, 2026, our cash provided by financing activities was US$6.30 million, representing proceeds from the issuance of 11,766,627 Class A ordinary shares, net of issuance costs. For the fiscal year ended March 31, 2025, our net cash used in financing activities was US$0.05 million, which was attributable to payments for the principal portion of financing lease liabilities. For the fiscal year ended March 31, 2024, our net cash provided by financing activities was US$4.63 million, which consisted of proceeds from issuance of ordinary shares, net of issuance cost of US$4.67 million and partially offset by repayments of long-term bank loans of US$0.04 million. Capital Expenditure Our capital expenditures were US$1.43 million, US$0.89 million, and US$3.80 million for the fiscal years ended March 31, 2026, 2025, and 2024, respectively. Our capital expenditures are used primarily for the purchase of machinery and equipment relating to the manufacture of interconnect products. Tabular Disclosure of Contractual Obligations The following table sets forth our contractual obligations as of March 31, 2026: Payment Due by Period Total Less than 1 year 1-3 years 3-5 years (Amounts expressed in U.S.$) Capital commitment $ 4,979,350 $ 4,979,350 $ - $ - Lease obligations 1,037,339 643,235 384,064 10,040 Total $ 6,016,689 $ 5,622,585 $ 384,064 $ 10,040 Operating lease obligations consist of leases for certain offices, buildings, plants and other property used in our operations. On September 1, 2022, we renewed leased plants whose original lease term expired on August 31, 2022 and extended the lease term for another five years to August 2027. On November 7, 2023, we renewed leased equipment whose original lease terms expired on August 20, 2023 and extended the lease term for another five years to February 19, 2028. We will acquire ownership of such equipment upon maturity of the leases. On December 1, 2025, we renewed the lease for our production plants whose original lease term expired on November 30, 2025, and extended the lease term for another two years to November 30, 2027. On December 24, 2024, we entered into a finance lease agreement for a vehicle with monthly payments through June 20, 2029. Ownership of the vehicle will transfer to us at lease expiration. All renewed leases discussed above resulted in increases in operating and finance right-of-use assets and liabilities, which are disclosed in Note 11 to our consolidated financial statements for the fiscal year ended March 31, 2026. We had certain equipment purchase agreements with four independent third-party vendors, with future payments of US$2.09 million, US$0.82 million, US$0.22 million, and US$0.25 million, respectively. The payments of US$2.09 million and US$0.82 million had been extended until the completion of the Serbia manufacturing plant by December 2026. The US$0.22 million payment relates to the procurement of equipment for the intelligent production demonstration platform and is payable upon confirmation of acceptance of the platform, with payment expected to be made in 2026. The remaining payment of US$0.25 million for production equipment will be paid in installments according to the payment schedule and fully settled within 12 months subsequent to equipment testing and final acceptance, which is expected to be completed in December 2026. In November 2025, we entered into a fixed-price construction contract for the manufacturing plant located in Serbia, with a future payment of US$1.60 million. The construction project is expected to be completed and ready for operational use in December 2026. Other than those shown above, we did not have any significant capital and other commitments, long-term obligations, or guarantees as of March 31, 2026. 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 shareholders' equity or that are not reflected in our 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 fiscal years ended March 31, 2026, 2025, and 2024, 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, which rely upon assumptions and estimates, were used in the preparation of our consolidated financial statements: Critical Accounting Estimates We prepare our 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 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 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. 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 realizable 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 by 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 merchandise, 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 to determine whether any reserves are necessary for potential shrinkage and obsolete or unusable inventory. For the years ended March 31, 2026, 2025, and 2024, we recorded $68,783, $128,241, and $188,268 of inventory write-downs 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 judgments in determining the provision for income tax expenses for financial reporting purposes based on tax laws in various jurisdictions in which we operate. In calculating the effective income tax rate, we make estimates and judgments, 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 judgments may result in adjustments of pre-tax income amounts 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 judgments may result in a 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 March 31, 2026 and 2025, we recorded $1,161,762 and $91,847 valuation allowance for the deferred tax assets, respectively. Recent accounting pronouncements A list of recently issued accounting pronouncements that are relevant to us is included in Note 2 to our consolidated financial statements included elsewhere in this annual report.

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