HIGHWAY HOLDINGS LTD

Highway Holdings Limited operates in the third-party contract manufacturing industry, producing metal, plastic, electric and electronic components, subassemblies and finished products for original equipment manufacturers (OEMs) and contract manufacturers primarily in Europe, Asia, and to a lesser extent, the United States. The Company first commenced its metal stamping operations for OEMs in China in 1991, and the industry has since become highly competitive with many manufacturers in Shenzhen and other low-cost areas in China and Asia. The Company has responded by restructuring and moving from manufacturing low margin, low-cost individual parts to higher margin, more expensive components, subassemblies and complete units. During each of the past several years, at least 60% of the Company’s revenues are derived from its European customers.

The Company competes against numerous OEMs, including both smaller local companies and large international competitors such as FoxConn, which also operates a major manufacturing facility in Long Hua, Shenzhen. Management believes it principally competes with smaller firms that make up the largest segment of the contract and parts manufacturing industry in China. The Company also competes against contract manufacturing companies in other low cost manufacturing countries. Many of the Company’s competitors have substantially greater manufacturing, financial and marketing resources, and many local competitors in China receive ongoing financial support or subsidies from central and local government authorities. The Company believes its competitive advantages include its German management culture, comparatively low operating costs, ability to consistently manufacture high quality products, expertise in manufacturing at reasonable cost, breadth of manufacturing capabilities, and engineering, design and development capabilities.

The Company generates revenue primarily through the manufacture and sale of metal, plastic and electronic parts, components and products to OEM clients. Revenue is recognized when the customer obtains control of promised goods or receives services provided. The Company has two principal manufacturing segments: metal stamping and mechanical OEM, and electric OEM, with a third segment, Other Services, added in fiscal 2026. The Company’s customer base is highly concentrated, with aggregate sales to its three largest customers accounting for 80.4% ¹ of net sales in fiscal 2026. Most payments are received in U.S. dollars, with some in RMB and Euros. The Company does not have significant recurring revenue from subscriptions or long-term contracts, as customers place orders through purchase orders supported by delivery schedules covering one to two months, and can cancel or amend forecasted orders at any time without penalty.

The Company’s metal stamping and mechanical OEM segment focuses on the manufacture and sale of metal parts and components. For fiscal 2026, net sales of this segment decreased to 56.5% ² of the Company’s net sales, from 60.7% ³ in fiscal 2025, due to changes in product mix. The electric OEM segment focuses on the manufacture and sale of plastic and electronic parts, components and motors, with electronic products assembly sub-contracting services also provided during fiscal 2026. Net sales of the electric OEM segment increased to 43.2% ⁴ of net sales in fiscal 2026 from 39.3% ⁵ in fiscal 2025. The Other Services segment, which includes the operations of SilverAge formed to test the market for products and services to elderly people in China, represented 0.3% ⁶ of net sales in fiscal 2026 and nil in fiscal 2025. SilverAge remained in an early, exploratory stage during fiscal 2026 and did not generate material revenues, with revenue from these services totaling $14 ⁷ for the year.

On March 1, 2026, the Company completed the acquisition of 51% ⁸ of the outstanding shares of Regent-Feinbau Adermann GmbH from LeMALe Beteiligungs-GmbH. The total purchase price was €662,000 ⁹, consisting of €612,000 ¹⁰ paid in cash and €50,000 ¹¹ paid through the issuance of 64,851 ¹² Common Shares to LeMALe. The shares issued may not be sold, assigned, pledged or otherwise transferred until after March 31, 2027 ¹³. LeMALe retained an option to acquire 1% ¹⁴ of the outstanding shares of Regent-Feinbau at the original per-share purchase price under certain conditions. During fiscal 2026, the Company formed SilverAge to test the market for providing products and services to elderly people in China. The Company also extended its leases for its Shenzhen facility until February 28, 2028 ¹⁵. In fiscal 2026, the Company recognized a $125,000 ¹⁶ impairment charge on long-lived assets and right-of-use assets. The Company did not declare any dividends in fiscal 2026 due to net loss of $1,524,000 ¹⁷. On May 1, 2025, the Company granted 20,000 ¹⁸ shares of restricted stock each to Roland Kohl, Tiko Aharonov, Heiko Sonnekalb, Irene Wong Ping Yim, Ringo Tsang, and Alan Chan, and 2,500 ¹⁹ shares each to Annie Leung Hoi Ling and Brian Chu Chong Tat under the 2020 Stock Option and Restricted Stock Plan.

For the fiscal year ended March 31, 2026, net sales decreased by 35.2% ²⁰ from fiscal 2025, primarily due to a general decrease in demand in Europe. Gross profit as a percentage of net sales decreased to 28.4% ²¹ in fiscal 2026 from 33.3% ²² in fiscal 2025. The Company had an operating loss of approximately $2,307,000 ²³ in fiscal 2026 compared to an operating loss of approximately $535,000 ²⁴ in fiscal 2025. Net loss was approximately $1,524,000 ²⁵ in fiscal 2026, compared to net income of approximately $106,000 ²⁶ in fiscal 2025. Cash and cash equivalents decreased to approximately $4,409,000 ²⁷ as of March 31, 2026 from approximately $5,972,000 ²⁸ as of March 31, 2025.

The Company expects the acquisition of Regent-Feinbau to expand its manufacturing capabilities, diversify its customer and geographic base, and create additional growth opportunities in automotive and aviation markets. The Company believes that many of its European customers increasingly prefer to receive deliveries from within Europe, and addressing this demand for localization was one of the principal reasons for the acquisition. The Company believes the acquisition will enable it to serve certain of its major European customers directly from Germany, including by holding inventory sourced from its Asian operations closer to those customers and providing more timely delivery. The Company has begun, through Regent-Feinbau, to offer certain European customers localized inventory holding, key account management and delivery services from within Europe, and initial customer responses have been positive. There can be no assurance, however, that the Company will realize the anticipated benefits of this strategy.

The Company has been developing its own proprietary line of energy saving brushless direct current motors, and has filed for and obtained a utility patent to protect certain rights in these motors. The Company has been developing three motors, the first of which is now being manufactured, marketed and sold to one of its customers, while the other two are still in various stages of design and testing. More recently, the Company has begun research and development of micro servo motors, with the goal of becoming a supplier of the small-sized motors used to operate the hands and fingers of humanoid robots, though these efforts are at an early stage. The Company also formed SilverAge during fiscal 2026 to explore, on a small and exploratory basis, opportunities to provide and sell products and services to elderly people in China, a market the Company believes may present opportunities as China’s population ages. SilverAge remained in an early, exploratory stage during fiscal 2026 and did not generate material revenues, and the Company may modify, scale back or discontinue this initiative at any time.

The Company’s gross profit as a percentage of net sales decreased to 28.4% ²⁹ in fiscal 2026 from 33.3% ³⁰ in fiscal 2025 as a result of a decrease in net sales to certain customers with higher margin products. Selling, general and administrative expenses increased by approximately $668,000 ³¹, or 22.2% ³², in fiscal 2026 compared to fiscal 2025, mainly due to a $125,000 ³³ impairment charge on long-lived assets and right-of-use assets, expenses related to realization of restricted shares from the Regent businesses, and additional $220,000 ³⁴ in expenses from new business segments. The Company’s cost of operating in Shenzhen, China has increased significantly, and the amount of governmental inspections and intrusion have further increased costs and burdens. The Company is trying to offset increasing costs by increasing automation and moving labor-intensive activities to Myanmar, though no assurance can be given that the Company will be able to continue to operate in China and remain viable under new business or regulatory conditions.

The Company’s Shenzhen facility leases were extended in February 2026 until February 28, 2028 ³⁵, with monthly rent of approximately $46,000 ³⁶ at the exchange rate in effect on March 31, 2026. The Company’s Hong Kong office lease expires in March 2029 ³⁷ with aggregate monthly rental cost of approximately $5,400 ³⁸ per month. Regent-Feinbau’s factory lease in Germany expires on August 31, 2028 ³⁹, with monthly rent of €11,000 ⁴⁰ (approximately $12,724.58 ⁴¹ based on the exchange rate in effect on March 31, 2026). Management has determined not to renew the German lease on its current terms due to significant rent increases indicated by the landlord, and the Company has not yet identified a replacement location. The Company’s Myanmar facility operates under a 50-year ⁴² lease with monthly lease payments of 10 million Myanmar Kyat (approximately $3,000 ⁴³ per month). The Company has invested approximately $570,000 ⁴⁴ in refurbishing and constructing buildings at the Myanmar site, and has advanced $950,000 ⁴⁵ as prepayment of rent under the lease, with an additional $123,000 ⁴⁶ advanced during fiscal 2024.The Company declared no dividend payments during the fiscal year ended March 31, 2026. The Company’s policy has been to pay a cash dividend at least once a year subject to profitability and cash position, but no assurance can be given that the Company will pay dividends in the future. The Company has no outstanding bank loans and no bank credit facilities under which it can borrow funds. The Company believes its currently available working capital and funds generated from operations are adequate to support its operations for at least the next 12 months.

The Company faces significant headwinds including the ongoing civil war in Myanmar, which has negatively affected operations. In fiscal 2026, two of the Company’s major customers significantly reduced orders that had been manufactured at the Myanmar facility, leading to reduced manufacturing activity and downsized headcount. The Company’s operations in Myanmar are subject to risks including strikes, potential drafting of employees into the Myanmar military, lack of infrastructure, uncertain rules and regulations, unpredictable access to utilities, and banking restrictions. The Company also faces risks from the increasing costs and burdens of doing business in China, including higher labor costs, increased governmental inspections, and a regulatory environment that disfavors foreign-owned manufacturing facilities. Political or trade controversies between China and the United States could negatively affect the Company’s operations in China and its ability to transact with U.S. customers, although the Company exports less than 8% ⁴⁷ of its products to the U.S.

The Company faces risks from the concentration of its customer base, with aggregate sales to its three largest customers accounting for 80.4% ⁴⁸ of net sales in fiscal 2026 and 88.5% ⁴⁹ in fiscal 2025. Accounts receivable from the three customers with the largest receivable balances represented 74.8% ⁵⁰ and 79.8% ⁵¹ of total outstanding receivables as of March 31, 2026 and 2025, respectively. The Company also faces risks from foreign currency exchange rate fluctuations, as it operates using five different currencies. The Company realized currency exchange gains of approximately $22,000 ⁵² and $124,000 ⁵³ in fiscal 2026 and 2025, respectively. The Company does not hedge its currency exchange risks. Additionally, the Company faces risks related to the Regent-Feinbau acquisition, including integration risks, German labor laws, manufacturing costs, and the potential that LeMALe may exercise its option to acquire 1% ⁵⁴ of Regent-Feinbau shares, which would reduce the Company’s ownership from 51% ⁵⁵ to 50% ⁵⁶.

The Company is highly dependent on a few major customers, with aggregate sales to its three largest customers accounting for 80.4% ⁵⁷ of net sales in fiscal 2026 and accounts receivable from the three largest customers representing 74.8% ⁵⁸ of total outstanding receivables as of March 31, 2026. The ongoing civil war in Myanmar has negatively impacted operations, contributing to loss of business from two major customers in fiscal 2026 and resulting in reduced manufacturing activity and downsized headcount at the Myanmar facility. The Company faces significant risks from the increasing costs and burdens of doing business in China, including higher labor costs, heightened governmental inspections, and a regulatory environment that disfavors foreign-owned manufacturing facilities, which have adversely affected net sales and gross margins. The Company’s leases in China and Germany pose substantial future risks, as the Shenzhen lease expires in February 2028 ⁵⁹ and the German lease expires in August 2028 ⁶⁰, with management having determined not to renew the German lease on current terms and no replacement location identified. The Company also faces risks related to the Regent-Feinbau acquisition, including integration challenges, German labor laws, and the potential that LeMALe may exercise its option to acquire 1% ⁶¹ of Regent-Feinbau shares, reducing the Company’s ownership from 51% ⁶² to 50% ⁶³ and limiting strategic flexibility.

Management’s message in the filing emphasizes the Company’s strategy to navigate a challenging operating environment characterized by decreased demand in Europe, the ongoing civil war in Myanmar, and increasing costs in China. The key themes include the acquisition of Regent-Feinbau to serve European customers directly from Germany, the continued shift of labor-intensive operations to Myanmar despite recent customer order reductions, and the exploratory SilverAge initiative to diversify beyond OEM manufacturing. Management highlights that the Company has begun, through Regent-Feinbau, to offer certain European customers localized inventory holding, key account management and delivery services from within Europe, and that initial customer responses have been positive. The filing states that there can be no assurance that the Company will realize the anticipated benefits of this strategy. Management also notes that the Company is still evaluating the market for products and services to elderly people in China and that there can be no assurance that the Company will realize any benefits from this initiative, which may be modified, scaled back or discontinued at any time.