{"url_path":"/sec/hiho/10-k/2026/item-19","section_key":"item-19","section_title":"Item 19 Exhibits.**","topic":"sec","document":{"doc_type":"20-F","doc_date":"2026-07-14","source_url":"https://www.sec.gov/Archives/edgar/data/1026785/0001213900-26-077959-index.html","accession_number":"0001213900-26-077959","cik":"0001026785","ticker":"HIHO","issuer_name":"HIGHWAY HOLDINGS LTD","edgar_url":"https://www.sec.gov/Archives/edgar/data/1026785/0001213900-26-077959-index.html","primary_entity_key":"0001026785","primary_entity_name":"HIGHWAY HOLDINGS LTD"},"word_count":22597,"has_tables":true,"body_markdown":"** **\n\n**Item 19. Exhibits.**\n\n \n\nThe following exhibits are filed as part of this\nannual report:\n\n \n\n1.1\n[Amended and Restated Memorandum and Articles of Association of Highway Holdings Limited (incorporated by reference to Exhibit 1.1 of registrant’s Form 6-K filed on May 11, 2018).](https://www.sec.gov/Archives/edgar/data/1026785/000161577418003647/s110125_ex1-1.htm)\n\n \n \n\n1.2\n[Amendment to Highway Holdings Limited’s Amended and Restated Articles of Association (incorporated by reference to Exhibit 99.2 of registrant’s Form 6-K filed on December 4, 2019).](https://www.sec.gov/Archives/edgar/data/1026785/000121390019025294/f6k112719ex99-2_highway.htm)\n\n \n \n\n2.1\n[Rights Agreement, dated as of May 8, 2018, between Highway Holdings Limited and Computershare Trust Company, N.A., as Rights Agent (incorporated by reference to Exhibit 2.1 of registrant’s Form 6-K filed on May 11, 2018).](https://www.sec.gov/Archives/edgar/data/1026785/000161577418003647/s110125_ex2-1.htm)\n\n \n \n\n2.2\n[Description of Securities (incorporated by reference to the registrant’s annual report on Form 20-F for the fiscal year ended March 31, 2022).](https://www.sec.gov/Archives/edgar/data/1026785/000121390022036273/f20f2022ex2-2_highwayhold.htm)\n\n \n \n\n4.1\n[2010 Stock Option And Restricted Stock Plan (incorporated by reference to the registrant’s annual report on Form 20-F for the fiscal year ended March 31, 2010).](https://www.sec.gov/Archives/edgar/data/1026785/000114420410035590/v189246_ex4-24.htm)\n\n \n \n\n4.2\n[2020 Stock Option And Restricted Stock Plan (incorporated by reference to the registrant’s proxy statement included in the Form 6-K filed on August 30, 2024).](http://www.sec.gov/Archives/edgar/data/1026785/000121390024074017/ea021290201ex99-1_highway.htm)\n\n \n \n\n4.3\n[Restricted Share Agreement, dated May 13, 2023, between the Company and Roland Kohl (incorporated by reference to the registrant’s annual report on Form 20-F for the fiscal year ended March 31, 2023).](https://www.sec.gov/Archives/edgar/data/1026785/000121390023056765/f20f2023ex4-6_highway.htm)\n\n \n \n\n4.4\n[Property Rental Contract between Shenzhen Long Cheng Industrial Ltd. and Nissin Metal and Plastic (Shenzhen) Limited, effective January 23, 2026.#*](ea029719001ex4-4.htm)\n\n \n \n\n4.5\n[Tenancy Agreement of Office No. 1801 on Level 18 of Landmark North, Fanling Sheung Shui Town Lot No. 94, dated February 25, 2026, between Kayser Limited and SHK Sheung Shui Landmark investment Limited.#*](ea029719001ex4-5.htm)\n\n \n \n\n4.6\n[Form of Restricted Share Agreement for employees (incorporated by reference to the registrant’s annual report on Form 20-F for the fiscal year ended March 31, 2025).](https://www.sec.gov/Archives/edgar/data/1026785/000121390025059629/ea024638301ex4-6_highway.htm)\n\n \n \n\n4.7\n[Form of Restricted Share Agreement for directors (incorporated by reference to the registrant’s annual report on Form 20-F for the fiscal year ended March 31, 2025).](https://www.sec.gov/Archives/edgar/data/1026785/000121390025059629/ea024638301ex4-7_highway.htm)\n\n \n \n\n4.8\n[Share Purchase Agreement, dated February 16, 2026, by and among Highway Holdings Limited, Regent-Feinbau Adermann GmbH, and LeMALe Beteiligungs-GmbH*](ea029719001ex4-8.htm)\n\n \n\n66\n\n \n\n \n\n8.1\n[List of all of registrant’s subsidiaries, their jurisdictions of incorporation, and the names under which they do business.*](ea029719001ex8-1.htm)\n\n \n \n\n11.1\n[Code of Ethics (incorporated by reference to the registrant’s annual report on Form 20-F for the fiscal year ended March 31, 2005).](https://www.sec.gov/Archives/edgar/data/1026785/000114420405020342/v020622_ex11-1.htm)\n\n \n \n\n12.1\n[Certifications pursuant to Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*](ea029719001ex12-1.htm)\n\n \n \n\n12.2\n[Certifications pursuant to Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*](ea029719001ex12-2.htm)\n\n \n \n\n13.1\n[Certifications pursuant to Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*](ea029719001ex13-1.htm)\n\n \n \n\n13.2\n[Certification pursuant to Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*](ea029719001ex13-2.htm)\n\n \n \n\n19.1\n[Insider Trading Policy (incorporated by reference to the registrant’s annual report on Form 20-F for the fiscal year ended March 31, 2024).](http://www.sec.gov/Archives/edgar/data/1026785/000121390024061773/ea020920501ex19-1_highway.htm)\n\n \n \n\n97\n[Clawback Policy. (incorporated by reference to the registrant’s annual report on Form 20-F for the fiscal year ended March 31, 2024).](http://www.sec.gov/Archives/edgar/data/1026785/000121390024061773/ea020920501ex97_highway.htm)\n\n \n \n\n101\nFinancial information from registrant for the year ended March 31, 2026 formatted in eXtensible Business Reporting Language (XBRL):\n\n \n \n\n \n(i) Consolidated Balance Sheets as of March 31, 2025 and 2026; (ii) Consolidated Statements of Operations for the Years Ended March 31, 2024, 2025 and 2026; (iii) Consolidated Statements of Changes in Equity and Comprehensive Income (Loss) for the Years Ended March 31, 2024, 2025 and 2026; (iv) Consolidated Statements of Cash Flows for the Years Ended March 31, 2024, 2025 and 2026; (v) Notes to the Consolidated Financial Statements; and (vi) Additional Information - Financial Statement Schedule I.\n\n \n \n\n104\nCover Page Interactive Data File (embedded within the Inline XBRL document).\n\n \n\n*\nFiled herewith\n\n \n \n\n#\nThe agreement is written in Chinese and an English Translation is provided in accordance with Form 20-F Instructions to Exhibits and Rule 12b-12(d) under the Exchange Act).\n\n \n\n67\n\n \n\n** **\n\n**SIGNATURES**\n\n \n\nThe registrant hereby certifies that it meets\nall of the requirements for filing on Form 20-F and has duly caused this annual report to be signed on its behalf.\n\n \n\n \nHIGHWAY HOLDINGS LIMITED\n\n \n \n \n\n \nBy\n/s/ ALAN CHAN\n\n \n \nAlan Chan\n\n \n \n*Chief Financial Officer and Secretary*\n\n \n \n \n\n \nDate: July 14, 2026\n\n \n\n68\n\n \n\n \n\nHIGHWAY HOLDINGS LIMITED\n\n \n\nConsolidated Financial Statements\n\nFor the years ended March\n31, 2024, 2025 and 2026\n\nReport of Independent Registered\nPublic Accounting Firm\n\n \n\n \n\n \n\n \n\nHIGHWAY HOLDINGS LIMITED\n\n \n\nINDEX TO CONSOLIDATED FINANCIAL STATEMENTS\n\n \n\n    Page\n\n     \n\n[Reports of Independent Registered Public Accounting Firm (Marcum Asia CPAs LLP, PCAOB ID: 5395)](#a_035)   F-2\n\n     \n\n[Reports of Independent Registered Public Accounting Firm (ARK Pro CPA & Co, PCAOB ID: 3299)](#a_036)   F-4\n\n     \n\n[Consolidated Statements of Operations for the Years Ended March 31, 2024, 2025 and 2026](#a_037)   F-6\n\n   \n\n[Consolidated Statements of Comprehensive Income (Loss) for the Years Ended March 31, 2024, 2025 and 2026](#a_038)   F-7\n\n      \n\n[Consolidated Balance Sheets as of March 31, 2025 and 2026](#a_039)   F-8\n\n     \n\n[Consolidated Statements of Changes in Equity for the Years Ended March 31, 2024, 2025 and 2026](#a_040)   F-9\n\n     \n\n[Consolidated Statements of Cash Flows for the Years Ended March 31, 2024, 2025 and 2026](#a_041)   F-10\n\n     \n\n[Notes to the Consolidated Financial Statements](#a_042)   F-11\n\n \n\nF-1\n\n \n\n \n\n**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING\nFIRM**\n\n \n\nTo the Shareholders and Board of Directors of\nHighway Holdings Limited\n\n \n\n**Opinion on the Financial Statements**\n\n \n\nWe have audited the accompanying consolidated\nbalance sheets of Highway Holdings Limited (the “Group”) as of March 31, 2025 and 2026, the related consolidated statements\nof operations, comprehensive income (loss), changes in equity and cash flows for each of the two years in the period ended March 31, 2026,\nand the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated\nfinancial statements present fairly, in all material respects, the financial position of the Group as of March 31, 2025 and 2026, and\nthe results of its operations and its cash flows for each of the two years in the period ended March 31, 2026, in conformity with accounting\nprinciples generally accepted in the United States of America.\n\n** **\n\n**Basis for Opinion**\n\n \n\nThese consolidated financial statements are the\nresponsibility of the Group’s management. Our responsibility is to express an opinion on the Group’s consolidated financial\nstatements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United\nStates) (“PCAOB”) and are required to be independent with respect to the Group in accordance with the U.S. federal securities\nlaws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.\n\n \n\nWe conducted our audits in accordance with the\nstandards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the\nconsolidated financial statements are free of material misstatement, whether due to error or fraud. The Group is not required to\nhave, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are\nrequired to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on\nthe effectiveness of the Group’s internal control over financial reporting. Accordingly, we express no such opinion.\n\n \n\nOur audits included performing procedures to assess\nthe risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures\nthat respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the\nconsolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by\nmanagement, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide\na reasonable basis for our opinion.\n\n** **\n\n**Critical Audit Matters**\n\n \n\nThe critical audit matters communicated below\nare matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated\nto the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and\n(2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter\nin any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit\nmatters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.\n\n \n\nF-2\n\n \n\n \n\n*Assessment of impairment of long-lived assets*\n\n \n\nThe Group recognized an impairment loss of $125,000\non certain long-lived assets during the year ended March 31, 2026 as discussed in Note 2(n) to the consolidated financial statements.\nLong-lived assets, including property, plant and equipment with finite lives, and operating lease right-of-use assets, are evaluated for\nimpairment whenever events or changes in circumstances indicate that the carrying amount of an asset or an asset group may not be recoverable\nor that the useful life is shorter than the Group had originally estimated. When these events occur, the Group assesses the recoverability\nof the assets based on the undiscounted future cash flows the assets are expected to generate from the use of the asset plus net proceeds\nexpected from disposition of the asset, if any, are less than the carrying value of the asset. As of March 31, 2026, the Group had incurred\nan operating loss under challenging industry and economic conditions. The Group considered this as indicators that certain long-lived\nassets may be impaired as of March 31, 2026. The Group tested its long-lived assets during the year ended March 31, 2026. The Group’s\nevaluation of long-lived assets assesses estimated future undiscounted cash flows over its remaining term compared to its carrying value.\nThe significant assumptions used in calculating projected future cash flows include revenue projection and revenue growth rates, production\ncosts, and operating expenses.\n\n \n\nAuditing the Group’s impairment assessment\nwas complex and required substantial auditor judgment due to the significant judgment involved in management’s assessment when determining\nthe recoverability of the long-lived assets. Subjectivity and effort are required in performing procedures and evaluating audit evidence\nrelating to the forecasted revenue, production costs, and operating expenses.\n\n \n\n*How We Addressed the Matter in Our Audit*\n\n \n\nAddressing the matter involved performing procedures\nand evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures\nincluded testing management’s process for determining the undiscounted future cash flows the assets are expected to generate, which\nincluded (i) obtained an understanding and evaluated the reasonableness of management’s process for developing the undiscounted\ncash flow of long-lived assets; (ii) testing the completeness, mathematical accuracy and relevance of the key underlying data used in\nthe assessment; (iii) evaluating the reasonableness of the significant assumptions related to the forecasted revenue, production costs,\nand operating expenses used in the assessment by considering (i) the past performance of the asset group; and (ii) the consistency with\nexternal market, economic and industry data; (iv) performing sensitivity analyses over significant assumptions to evaluate the potential\neffect of reasonably possible changes on the impairment measurement; and (v) testing the mathematically accuracy of the impairment model\nand the calculation of the recorded impairment loss of $125,000.\n\n \n\n/s/ Marcum Asia CPAs LLP\n\n \n\nMarcum Asia CPAs LLP\n\nWe have served as the Group’s auditor since 2025.\n\nNew York, New York\n\nJuly 14, 2026\n\n \n\nF-3\n\n \n\n \n\n**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING\nFIRM**\n\n \n\nTo the Shareholders and the Board of Directors of Highway Holdings\nLimited\n\n** **\n\n**Opinion on the Financial Statements**\n\n** **\n\nWe have audited the accompanying consolidated statements of operations,\ncomprehensive loss, changes in equity and cash flows of Highway Holdings Limited and its subsidiaries (the “Group”) for the\nyear ended March 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In\nour opinion, the consolidated financial statements present fairly, in all material respects, the results of its operations and its cash\nflows for the year ended March 31, 2024, in conformity with accounting principles generally accepted in the United States of America.\n\n \n\n**Basis for Opinion**\n\n \n\nThese consolidated financial statements are the\nresponsibility of the Group’s management. Our responsibility is to express an opinion on the Group’s consolidated financial statements\nbased on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)\nand are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules\nand regulations of the Securities and Exchange Commission and the PCAOB.\n\n \n\nWe conducted our audit in accordance with the\nstandards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial\nstatements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged\nto perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding\nof internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal\ncontrol over financial reporting. Accordingly, we express no such opinion.\n\n \n\nOur audit included performing procedures to assess the risks of material\nmisstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those\nrisks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial\nstatements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as\nevaluating the overall presentation of the financial statements. We believe that our audit provide a reasonable basis for our opinion.\n\n \n\n**Critical Audit Matters**\n\n** **\n\nThe critical audit matters communicated below are matters arising from\nthe current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee\nand that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially\nchallenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the\nconsolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate\nopinions on the critical audit matters or on the accounts or disclosures to which they relate.\n\n \n\nF-4\n\n \n\n \n\nAssessment of impairment of long-lived assets\n\n \n\nAs discussed in Note 2(n) to the consolidated\nfinancial statements, the Group reviews its long-lived assets, including property, plant and equipment and operating lease right-of-use\nassets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may no longer be recoverable.\nWhen these events occur, the Group measures impairment by comparing the carrying value of the long-lived assets and ROU assets to the\nsum of the estimated undiscounted future cash flows expected to be generated from the use of the assets and the eventual disposition.\nAn impairment exists when the estimated undiscounted future cash flows are less than the carrying value of the assets being evaluated.\nImpairment loss is calculated as the amount by which the carrying value of the assets exceeds their fair value.\n\n \n\nAs of March 31, 2024, the Group had accumulated\ndeficit and net loss for years. The Group considered these as indicators that certain long-lived assets may be impaired as of March 31,\n2024.\n\n \n\nBased upon the analysis performed, the Group recognized\nimpairment losses of $0.33 million and $0.53 million for property, plant and equipment and operating lease right-of-use assets, respectively,\nfor the year ended March 31, 2024.\n\n \n\nWe identified the evaluation of the impairment\nanalysis for long-lived assets as a critical audit matter because of the significant estimates and assumptions management used in the\nprojections of future cash flows, including the expected production and sales volumes, production costs, operating expenses and discount\nrates applied to these forecasted future cash flows. Performing audit procedures to evaluate the reasonableness of these estimates and\nassumptions required a high degree of auditor judgment and an increased extent of effort.\n\n \n\nAddressing the matter involved performing procedures and evaluating\naudit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included the\nfollowing, among others: (i) evaluating the appropriateness of the valuation model, by reviewing the valuation report and the calculation\nschedules prepared by the management and third party valuation specialists engaged by the Company; (ii) comparing the methodology used\nby the Company, that is, recoverable amount calculations based on future discounted cash flows, to industry practice and testing the completeness\nand accuracy of the underlying data used in the projections; (iii) assessing the reasonableness of the significant assumptions used in\nthe calculations, which comprised of, amongst others, expected production and sales volumes, production costs, operating expenses and\ndiscount rates, by comparing them to external industry outlook reports from a number of sources and by analyzing the historical accuracy\nof management’s estimates; and (iv) involving our valuation specialists to assist us with assessing the appropriateness of the valuation\nmethodologies and the reasonableness of assumptions used, including the discount rates.\n\n \n\n/s/ ARK Pro CPA & Co\n\n \n\nARK Pro CPA & Co\n\nWe served as the Group’s auditor from 2023\nto 2024.\n\nHong Kong, China\n\nJuly 16, 2024\n\nPCAOB ID: 3299\n\n \n\nF-5\n\n \n\n \n\nHIGHWAY HOLDINGS LIMITED\n\n \n\nCONSOLIDATED STATEMENTS OF OPERATIONS\n\n(In thousands of U.S. dollars, except for shares\nand per share data)\n\n \n\n  \nFor the years ended March 31, \n\n  \n2024  \n2025  \n2026 \n\n  \n$  \n$  \n$ \n\n  \n   \n   \n  \n\nRevenue from contracts with customers \n 6,321  \n 7,412  \n 4,805 \n\nCost of sales \n (4,613) \n (4,942) \n (3,439)\n\n  \n    \n    \n   \n\nGross profit \n 1,708  \n 2,470  \n 1,366 \n\nSelling, general and administrative expenses \n (2,477) \n (3,005) \n (3,548)\n\nImpairment of property, plant and equipment \n (335) \n \n-\n  \n (19)\n\nImpairment of right of use assets \n (527) \n \n-\n  \n (106)\n\n  \n    \n    \n   \n\nOperating loss \n (1,631) \n (535) \n (2,307)\n\n  \n    \n    \n   \n\nNon-operating income: \n    \n    \n   \n\nExchange gain, net \n 198  \n 124  \n 22 \n\nInterest income, net \n 248  \n 203  \n 159 \n\nOther income \n 30  \n 22  \n 21 \n\nGain on disposal of property, plant and equipment \n 16  \n 333  \n 75 \n\n  \n    \n    \n   \n\nTotal non-operating income \n 492  \n 682  \n 277 \n\n  \n    \n    \n   \n\n(Loss) income before income taxes \n (1,139) \n 147  \n (2,030)\n\nIncome taxes (note 4) \n 161  \n (38) \n 486 \n\n  \n    \n    \n   \n\nNet (loss) income \n (978) \n 109  \n (1,544)\n\nNet loss (Profit) attributable to non-controlling interests \n 19  \n (3) \n 20\n\n  \n    \n    \n   \n\nNet (loss) income attributable to Highway Holdings Limited’s shareholders \n (959) \n 106  \n (1,524)\n\n  \n    \n    \n   \n\nNet (loss) income per share: \n    \n    \n   \n\n- basic \n (0.22) \n 0.02  \n (0.33)\n\n  \n    \n    \n   \n\n- diluted \n (0.22) \n 0.02  \n (0.33)\n\n  \n    \n    \n   \n\nWeighted average number of shares outstanding: \n    \n    \n   \n\n- basic \n 4,373,236  \n 4,401,825  \n 4,554,360 \n\n  \n    \n    \n   \n\n- diluted \n 4,373,236  \n \n4,401825\n  \n 4,554,360 \n\n \n\nThe accompanying notes are an integral part to these consolidated financial\nstatements.\n\n \n\nF-6\n\n \n\n \n\nHIGHWAY HOLDINGS LIMITED\n\n \n\nCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME\n(LOSS)\n\n(In thousands of U.S. dollars)\n\n \n\n  \nFor the Years Ended March 31, \n\n  \n2024  \n2025  \n2026 \n\n  \n$  \n$  \n$ \n\n  \n   \n   \n  \n\nNet (loss) income \n (978) \n 109  \n (1,544)\n\nOther comprehensive loss, net of tax: \n    \n    \n   \n\nChange in cumulative foreign currency translation adjustment \n (57) \n (17) \n (94)\n\n  \n    \n    \n   \n\nComprehensive (loss) income \n (1,035) \n 92  \n (1,638)\n\nComprehensive loss (income) attributable to non-controlling interest \n 19  \n (2) \n 20\n\n \n    \n    \n   \n\nComprehensive (loss) income attributable to Highway Holdings Limited’s\nshareholders \n (1,016) \n 90  \n (1,618)\n\n \n\nThe accompanying notes are an integral part to these consolidated financial\nstatements.\n\n \n\nF-7\n\n \n\n \n\nHIGHWAY HOLDINGS LIMITED\n\n \n\nCONSOLIDATED BALANCE SHEETS\n\n(In thousands of U.S. dollars, except for shares\nand per share data)\n\n** **\n\n  \nAs of March 31, \n\n  \n2025  \n2026 \n\n  \n$  \n$ \n\nASSETS \n   \n  \n\nCurrent assets: \n   \n  \n\nCash and cash equivalents (note 5) \n 5,972  \n 4,409 \n\nAccounts receivable, net (note 6) \n 1,022  \n 1,023 \n\nInventories (note 7) \n 1,146  \n 1,452 \n\nPrepaid expenses and other current assets, net (note 8) \n 430  \n 253 \n\n  \n    \n   \n\nTotal current assets \n 8,570  \n 7,137 \n\n  \n    \n   \n\nProperty, plant and equipment, net (note 9) \n 94  \n 389 \n\nIntangible assets, net (note 10) \n \n-\n  \n 532 \n\nGoodwill (note 11) \n \n-\n  \n 260 \n\nOperating lease right-of-use assets, net (note 15) \n 784  \n 2,424 \n\nLong-term deposits \n 11  \n 179 \n\nLong-term loan receivable (note 12) \n 95  \n 75 \n\nInvestments in equity method investees (note 13) \n \n-\n  \n \n-\n \n\n  \n    \n   \n\nTOTAL ASSETS \n 9,554  \n 10,996 \n\n  \n    \n   \n\nLIABILITIES AND EQUITY \n    \n   \n\nCurrent liabilities: \n    \n   \n\nAccounts payable \n 613  \n 437 \n\nOperating lease liabilities, current (note 15) \n 623  \n 844 \n\nAccrued expenses and other current liabilities (note 14) \n 1,274  \n 1,509 \n\nCurrent portion of long-term loan payable (note 16) \n \n-\n  \n 162 \n\nIncome tax payable \n 486  \n 162 \n\nDividend payable \n 81  \n 81 \n\n  \n    \n   \n\nTotal current liabilities \n 3,077  \n 3,195 \n\nOperating lease liabilities, non-current (note 15) \n 187  \n 1,742 \n\nDeferred tax liabilities \n \n-\n  \n 190 \n\nLong term accrued expenses (note 14) \n 23  \n 26 \n\nNon current portion of long-term loan payable (note 16) \n \n-\n  \n 407 \n\n  \n    \n   \n\nTotal liabilities \n 3,287  \n 5,560 \n\n  \n    \n   \n\nCommitments and contingencies (note 17) \n \n \n  \n \n \n \n\n  \n    \n   \n\nShareholders’ equity: \n    \n   \n\n  \n    \n   \n\nPreferred shares, $0.01 par value (Authorized: 20,000 shares; no shares issued and outstanding as of March 31, 2025 and 2026) \n \n-\n  \n \n-\n \n\nCommon shares, $0.01 par value (Authorized: 20,000,000 shares; 4,401,825 and 4,626,676 shares as of March 31, 2025 and 2026 issued and outstanding) \n 44  \n 46 \n\nAdditional paid-in capital \n 12,178  \n 12,417 \n\nAccumulated deficit \n (5,437) \n (6,961)\n\nAccumulated other comprehensive loss \n (516) \n (610)\n\n  \n    \n   \n\nTotal Highway Holdings shareholder’s equity \n 6,269  \n 4,892 \n\n  \n    \n   \n\nNon-controlling interests \n (2) \n 544 \n\n  \n    \n   \n\nTotal Equity \n 6,267  \n 5,436 \n\n  \n    \n   \n\nTOTAL LIABILITIES AND EQUITY \n 9,554  \n 10,996 \n\n \n\nThe accompanying notes are an integral part to these consolidated financial\nstatements.\n\nF-8\n\n \n\n \n\nHIGHWAY HOLDINGS LIMITED\n\n \n\nCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY\n\n(In thousands of U.S. dollars, except for shares\nand per share data)\n\n \n\n  \nHighway Holdings Limited’s\nShareholders’ Equity \n\n  \n   \n   \n   \n   \n   \nTotal Highway  \n   \n  \n\n  \nCommon shares,  \n   \n   \nAccumulated  \nHoldings  \n   \n  \n\n  \nissued and  \nAdditional  \n   \nother  \nLimited’s  \nNon-  \n  \n\n  \noutstanding  \npaid-in  \nAccumulated  \ncomprehensive  \nShareholders’  \ncontrolling  \nTotal \n\n  \nShares  \nAmount  \ncapital  \ndeficit  \nloss  \nequity  \ninterests  \nequity \n\n  \nNumber  \n$  \n$  \n$  \n$  \n$  \n$  \n$ \n\n  \n(in thousands) \n\n  \n   \n   \n   \n   \n   \n   \n   \n  \n\nAs of March 31, 2023 \n 4,087  \n 41  \n 12,003  \n (3,396) \n (444) \n 8,204  \n 12  \n 8,216 \n\nExercise of share options \n 30  \n 0  \n 59  \n -  \n -  \n 59  \n -  \n 59 \n\nShare-based compensation \n 300  \n 3  \n 55  \n -  \n -  \n 58  \n -  \n 58 \n\nNet (loss) income \n -  \n -  \n -  \n (959) \n -  \n (959) \n (19) \n (978)\n\nCash dividends ($0.20 per share) \n -  \n -  \n -  \n (660) \n -  \n (660) \n -  \n (660)\n\nTranslation\nadjustments \n -  \n -  \n -  \n -  \n (57) \n (57) \n -  \n (57)\n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nAs of March 31, 2024 \n 4,417  \n 44  \n 12,117  \n (5,015) \n (501) \n 6,645  \n (7) \n 6,638 \n\nShares cancelled \n (15) \n (0) \n -  \n -  \n -  \n (0) \n -  \n (0)\n\nShare-based compensation \n -  \n -  \n 61  \n -  \n -  \n 61  \n -  \n 61 \n\nNet income \n -  \n -  \n -  \n 106  \n \n-\n  \n 106  \n 3  \n 109 \n\nCash dividends ($0.15 per share) \n -  \n -  \n -  \n (528) \n -  \n (528) \n -  \n (528)\n\nTranslation\nadjustments \n -  \n -  \n -  \n -  \n (15) \n (15) \n 2  \n (13)\n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nAs of March 31, 2025 \n 4,402  \n 44  \n 12,178  \n (5,437) \n (516) \n 6,269  \n (2) \n 6,267 \n\nShare-based compensation \n 160  \n 2  \n 180  \n -  \n -  \n 182  \n -  \n 182 \n\nIssuance of common shares\nfor business acquisition \n 65  \n 0  \n 57  \n -  \n -  \n 57  \n 566  \n 623 \n\nNet (loss) income \n -  \n -  \n -  \n (1,524) \n -  \n (1,524) \n (20) \n (1,544)\n\nTranslation\nadjustments \n -  \n -  \n -  \n -  \n (94) \n (94) \n -  \n (94)\n\n  \n    \n    \n    \n    \n    \n    \n    \n   \n\nAs of March 31, 2026 \n 4,627  \n 46  \n 12,417  \n (6,961) \n (610) \n 4,892  \n 544  \n 5,436 \n\n \n\nThe accompanying notes are an integral part to\nthese consolidated financial statements.\n\n \n\nF-9\n\n \n\n \n\nHIGHWAY HOLDINGS LIMITED\n\n \n\nCONSOLIDATED STATEMENTS OF CASH FLOWS\n\n(In thousands of U.S. dollars)\n\n \n\n  \nFor the Years Ended March 31, \n\n  \n2024  \n2025  \n2026 \n\n  \n$  \n$  \n$ \n\nCash flows from operating activities: \n    \n    \n   \n\nNet (loss) income \n (978) \n 109  \n (1,544)\n\nAdjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: \n    \n    \n   \n\nDepreciation of property, plant and equipment \n 159  \n 9  \n 31 \n\nAmortization of operating lease right-of-use assets \n 599  \n 600  \n 687 \n\nLoss on termination of operating lease right of use assets \n \n-\n  \n \n-\n  \n 9 \n\nAmortization of Intangible assets \n \n-\n  \n \n-\n  \n 5 \n\nExpected credit loss (reversal) provision \n (513) \n 66  \n (82)\n\nWrite-down of inventories \n 86  \n 71  \n 106 \n\nImpairment\nof property, plant and equipment \n 335  \n \n-\n  \n 19 \n\nImpairment of operating lease right of use assets \n 527  \n \n-\n  \n 106 \n\nGain on disposal of property, plant and equipment \n (16) \n (333) \n (75)\n\nReversal of income tax provision \n \n-\n  \n \n-\n  \n (496)\n\nShare-based compensation expenses \n 58  \n 61  \n 182 \n\nChanges in operating assets and liabilities: \n    \n    \n   \n\nAccounts receivable \n 1,133  \n 168  \n 338 \n\nDeferred tax \n (107) \n \n-\n  \n \n-\n \n\nInventories \n (272) \n 356  \n 119 \n\nPrepaid expenses and other current assets \n 46  \n (230) \n 210 \n\nAccounts payable \n 36  \n (326) \n (268)\n\nAccrued expenses and other current liabilities \n (118) \n (511) \n 117 \n\nOperating lease liabilities \n (527) \n (576) \n (717)\n\nIncome tax payable \n (59) \n \n-\n  \n 6 \n\nIncome tax recoverable \n 3  \n \n-\n  \n \n-\n \n\nLong-term accrued expenses \n 23  \n (17) \n 3 \n\nLong-term deposits \n \n-\n  \n 193  \n (167)\n\n  \n    \n    \n   \n\nNet cash provided by (used in) operating activities \n 415  \n (360) \n (1,411)\n\n  \n    \n    \n   \n\nCash flows from investing activities: \n    \n    \n   \n\nPurchase of property, plant and equipment \n (118) \n (101) \n (103)\n\nProceeds from disposal of property, plant and equipment \n 16  \n 333  \n 82 \n\nRepayment from a long-term loan \n \n-\n  \n \n-\n  \n 20 \n\nPayment for acquisition of a subsidiary \n \n-\n  \n \n-\n  \n (701)\n\nCash received from the acquired subsidiary \n \n-\n  \n \n-\n  \n 593 \n\n  \n    \n    \n   \n\nNet cash provided by (used in) investing activities \n (102) \n 232  \n (109)\n\n  \n    \n    \n   \n\nCash flows from financing activities: \n    \n    \n   \n\nShare options exercised \n 59  \n \n-\n  \n \n-\n \n\nCash dividends paid \n (616) \n (492) \n \n-\n \n\nLong term loan Repayment \n \n-\n  \n \n-\n  \n (25)\n\n  \n    \n    \n   \n\nNet cash used in financing activities \n (557) \n (492) \n (25)\n\n  \n    \n    \n   \n\nNet decrease in cash and cash equivalents \n (244) \n (620) \n (1,545)\n\nCash and cash equivalents at the beginning of year \n 6,952  \n 6,601  \n 5,972 \n\nEffect of exchange rate changes on cash and cash equivalents \n (107) \n (9) \n (18)\n\n  \n    \n    \n   \n\nCash and cash equivalents at the end of year \n 6,601  \n 5,972  \n 4,409 \n\n  \n    \n    \n   \n\nSupplemental disclosure of cash flow information: \n    \n    \n   \n\nCash paid for income taxes \n 3  \n 38  \n 3 \n\nCash paid for interest expenses \n \n-\n  \n \n-\n  \n 1 \n\n  \n    \n    \n   \n\nNon-Cash investing and financing activities: \n    \n    \n   \n\nOperating lease right-of-use assets obtained in exchange of operating lease liabilities \n \n-\n  \n \n-\n  \n (617)\n\nCommon share issued for business combination \n \n-\n  \n \n-\n  \n 57 \n\n \n\nThe accompanying notes are an integral part to\nthese consolidated financial statements. \n\nF-10\n\n \n\n \n\nHIGHWAY HOLDINGS LIMITED\n\n \n\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\n\n(In thousands of U.S. dollars, except for shares\nand per share data)\n\n \n\n1.ORGANIZATION AND BASIS OF FINANCIAL STATEMENTS\n\n \n\nHighway Holdings Limited\n(the “Company”) was incorporated in the British Virgin Islands on July 20, 1990. It operates through its subsidiaries\noperating in Hong Kong Special Administrative Region (“Hong Kong”), Shenzhen (comprising Long Hua) of the People’s Republic\nof China (“China”), Yangon of the Republic of the Union of Myanmar (“Myanmar”) and Bremen of Federal Republic\nof Germany (“Germany”).\n\n \n\nThe Company and its\nsubsidiaries (collectively referred as the “Group”) are engaged in manufacturing and sale of metal, plastic and electronic\nparts and components. The Group’s manufacturing activities are principally conducted in Shenzhen of China, Yangon of Myanmar and\nBremen of Germany, while its selling activities are principally conducted in Hong Kong.\n\n \n\nAs of March 1 2026,\nthe Group completed the acquisition of a 51% issued share capital in Regent Feinbau Adermann GmbH (“Regent”). Regent is a\nGerman-based certified manufacturing specialist for precision sheet metal components and welded assemblies made of aluminum, steel and\ncopper, from LeMALe Beteiligungs-GmbH (“LeMALe”). The primary purpose of the acquisition was to meet European customers’\ndesire for localization, allowing deliveries from within Europe rather than from overseas.\n\n \n\n2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES\n\n \n\n**(a) Basis of presentation**- The consolidated financial statements of the Group have been prepared in conformity with accounting principles generally accepted\nin the United States of America (“U.S. GAAP”).\n\n \n\n**(b) Principles\nof consolidation -**The consolidated financial statements include the accounts of the Company and include the assets, liabilities,\nrevenues and expenses of wholly owned subsidiaries which the Company exercises control and, when applicable, entity for which the Company\nhas a controlling financial interest or is the primary beneficiary. All inter-company accounts and transactions have been eliminated in\nconsolidation.\n\n \n\nSubsidiary is\nentity in which the Company, directly or indirectly, controls more than one half of the voting power; or has the power to govern the financial\nand operating policies, to appoint or remove the majority of the members of the board of directors, or to cast a majority of votes at\nthe meeting of directors.\n\n \n\nThe Company consolidates\nentities for which the Company is the primary beneficiary if the entity’s other equity holders do not have the characteristics of\na controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional\nsubordinated financial support from other parties.\n\n \n\nF-11\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued\n\n \n\n**(b) Principles\nof consolidation** - continued - Upon loss of control, the Company derecognizes the assets and liabilities of the subsidiary, any non-controlling\ninterests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognized\nin profit or loss. If the Company retains any interest in the previous subsidiary, then such interest is measured at fair value at the\ndate that control is lost. Subsequently it is accounted for as an equity-accounted investee or as cost method investment depending on\nthe level of influence retained.\n\n \n\n**(c) Use of estimates**\n- The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management of the Group to make estimates\nand assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and\nthe reported amounts of revenues and expenses during the reporting period. The Company’s management based on their estimates on\nhistorical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis\nfor making judgements about the carrying value of assets and liabilities that are not readily apparent from other sources. Significant\naccounting estimates reflected in the Group’s consolidated financial statements included revenue recognition, provision for credit\nlosses of accounts receivable, inventories impairment assessment, long-lived assets and right-of-use (“ROU”) assets impairment\nassessment, fair value of business combination measurement and valuation allowance for deferred tax assets. Actual results could differ\nfrom those estimates.\n\n \n\nThe trade controversies\nbetween China and the United States and the political unrest in Myanmar have created and may continue to create significant uncertainty\nin macroeconomic conditions, which may cause further business slowdowns and adversely impact the Group’s results of operations.\n\n \n\nAs a result, during the year ended March\n31, 2026, the Group faced uncertainties around its estimates of revenue recognition, revenue collectability, accounts receivable credit\nlosses, impairment of inventories, impairment of long-lived assets and ROU assets and valuation allowance for deferred tax assets. The\nGroup expects uncertainties around its key accounting estimates to continue to evolve depending on the duration and degree of impact associated\nwith the trade controversies between China and the United States and the political unrest in Myanmar. Its estimates may change as new\nevents occur and additional information emerges, and such changes are recognized or disclosed in its consolidated financial statements.\n\n \n\n**(d) Business combination** - In\ndetermining whether a particular set of activities and assets is a business, the Group assesses whether the set of assets and activities\nacquired includes, at a minimum, an input and substantive process and whether the acquired set has the ability to produce outputs. The\nGroup applies a “screen test” that permits a simplified assessment of whether an acquired set of activities and assets is\nnot a business. The test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable\nasset or group of similar identifiable assets.\n\n \n\nF-12\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued\n\n \n\n**(d) Business combination**- continued\n- Transactions in which the acquired is considered a business are accounted for as a business combination as described below. Conversely,\ntransactions not considered as business acquisition are accounted for as acquisition of assets and liabilities. In such transactions,\nthe cost of acquisition is allocated proportionately to the acquired identifiable assets and liabilities, based on their proportionate\nfair value on the acquisition date. In an assets acquisition, no goodwill is recognized on the acquisition date.\n\n \n\nBusiness combinations are recorded using\nthe acquisition method of accounting. The assets acquired, the liabilities assumed, and any non-controlling interests of the acquiree\nat the acquisition date, if any, are measured at their fair values as of the acquisition date. Goodwill is recognized and measured as\nthe excess of the total consideration transferred plus the fair value of any non-controlling interest of the acquiree and fair value of\npreviously held equity interest in the acquiree, if any, at the acquisition date over the fair values of the identifiable net assets acquired.\nCommon forms of the consideration made in acquisitions include cash and common equity instruments. Consideration transferred in a business\nacquisition is measured at the fair value as of the date of acquisition. Acquisition-related expenses and restructuring costs are expensed\nas incurred.\n\n \n\nWhere the consideration in an acquisition\nincludes contingent consideration the payment of which depends on the achievement of certain specified conditions post-acquisition, the\ncontingent consideration is recognized and measured at its fair value at the acquisition date and is recorded as a liability, it is subsequently\nremeasured at fair value at each reporting date with changes in fair value reflected in earnings.\n\n \n\n**(e) Investments\nunder equity method** - The investments for which the Group has the ability to exercise significant influence are accounted for under\nthe equity method. Under the equity method, original investments are recorded at cost and adjusted by the Group’s share of undistributed\nearnings or losses of these entities, the amortization of intangible assets recognized upon f and dividend distributions or subsequent\ninvestments. All unrecognized inter-company profits and losses have been eliminated under the equity method.\n\n \n\nWhen the estimated amount to be realized\nfrom the investments falls below its carrying value, an impairment charge is recognized in the consolidated statements of operations when\nthe decline in value is considered other than temporary.\n\n** **\n\n**(f) Cash and cash equivalents**\n- Cash and cash equivalents consist of cash on hand and bank deposits which are unrestricted as to withdrawal and use, and which have\nmaturities of three months or less when purchased, and are readily convertible to known amount of cash.\n\n \n\nCash equivalents are\nplaced with financial institutions with credit ratings and quality where the Group considers acceptable.\n\n \n\n**(g) Time deposits** - Time deposits\nare those balances placed with the banks with original maturities longer than three months but less than one year.\n\n \n\nF-13\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued\n\n** **\n\n**(h) Accounts\nreceivable -**From April 1, 2020, the Group adopted ASU No. 2016-13, “Financial Instruments—Credit Losses\n(Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASC Topic 326”), which amends previously issued\nguidance regarding the impairment of financial instruments by creating an impairment model that is based on expected losses rather than\nincurred losses.\n\n \n\nThe Group’s\naccounts receivable, other current assets (note 8) and loan receivables (note 2(i)) recorded in prepaid expenses and other current assets\nare within the scope of ASC Topic 326. Accounts receivable primarily represent amounts due from customers, that are typically non-interest\nbearing and are initially recorded at the invoiced amount. Accounts receivable balances are write-down against the allowance after all\nmeans of collection have been exhausted and the potential for recovery is considered remote. Any off-balance-sheet credit exposure related\nto its customers is assessed the same manner as on-balance-sheet exposure.\n\n \n\nTo estimate expected credit losses,\nthe Group has identified the relevant risk characteristics of its customers and the related receivables, other current assets (note 8)\nand loan receivables which include size, type of the services or the products the Group provides, or a combination of these characteristics.\nReceivables with similar risk characteristics have been grouped into pools. For each pool, the Group considers the past collection experience,\ncurrent economic conditions, future economic conditions (external data and macroeconomic factors) and changes in the Group’s customer\ncollection trends. Other key factors that influence the expected credit loss analysis include customer demographics, payment terms offered\nin the normal course of business to customers, and industry-specific factors that could impact the Group’s receivables. Additionally,\nexternal data and macroeconomic factors are also considered. This is assessed at each quarter based on the Group’s specific facts\nand circumstances. No significant impact of changes in the assumptions since adoption. As of March 31, 2026, the allowance for expected\ncredit loss provision recorded in accounts receivable was $27 (2025: $109).\n\n \n\nThe Group accounts for balance sheet\noffsetting in accordance with ASC 210, Balance Sheet. When all the following conditions are met and when the Group and the counterparty\nboth consent, accounts receivable balances and account payable balances set off each other and the Group presents the asset and liability\nas a net amount on the balance sheet: Each of the two parties owes the other determinable amounts, the Group has the right to set off\nthe amount owed with the amount owed by the other party, the Group intends to set off and the right of set off is enforceable at law.\n\n \n\n**(i) Loan receivables** - Loan receivables\nmainly represent the loans to a non-controlling interest and a director of a subsidiary in Myanmar. The loan periods granted by the Group\nto the staff amounts to 36 months and carries fixed interest rate of 8% per annum. The loan receivables principal and interest are expected\nto be repaid on the expected settlement date. The loan receivables are stated at the historical carrying amount net of allowance for uncollectible\nloan receivables (see (h) above). The loan receivables expected to be settled more than one year as of balance sheet date are classified\ninto long-term loan receivable on the consolidated balance sheets. No impairment was made on the loan receivables for the years ended\nMarch 31, 2024, 2025 and 2026.\n\n \n\nF-14\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued\n\n** **\n\n**(j) Inventories** - Inventories\nare stated at the lower of cost and net realizable value, with cost determined by the first-in-first-out method. Work-in-progress and\nfinished goods consist of raw materials, direct labor and overheads associated with the manufacturing process. Net realizable value is\nthe estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.\nWrite-down of potential obsolete or slow-moving inventories is recorded based on management’s assumptions about future demands and\nmarket conditions.\n\n** **\n\n**(k) Goodwill** - Goodwill represents\nthe excess of the aggregate of the consideration transferred and the fair value of any noncontrolling interest in the acquiree over the\nfair value of the identifiable net assets acquired in a business combination. Goodwill is not amortized but rather tested for impairment\nat least annually. The Company tests goodwill for impairment in March of each fiscal year at the reporting unit level. Goodwill is also\ntested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair\nvalue of a reporting unit below its carrying amount. Goodwill recognized in a business acquisition includes the portion attributable to\nboth the controlling and noncontrolling interests. No impairment of Goodwill was recognized during the years ended March 31, 2026.\n\n \n\n**(l) Intangible Assets**\n\n \n\nIntangible assets\nacquired in a business combination are recognized separately from goodwill and are recorded at their fair value at the acquisition date.\nThe Regent intangible assets consist of customer relationships.\n\n \n\nIntangible assets\nare amortized on a straight-line basis over their estimated useful lives. The customer relationship acquired in the Regent acquisition\nis being amortized over its estimated useful life of 6 years, which represents the period over which the asset is expected to contribute\nto the Company’s future cash flows. Amortization expense is recorded within selling, general and administrative expenses in the\nconsolidated statements of operations.\n\n \n\nThe Company evaluates\nthe remaining useful life of its intangible assets each reporting period to determine whether events and circumstances warrant a revision\nto the remaining period of amortization. Intangible assets are tested for impairment whenever events or changes in circumstances indicate\nthat the carrying amount may not be recoverable.\n\n \n\n**(m) Property,\nplant and equipment** - Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses, if any.\nDepreciation is computed on a straight-line basis with no salvage value over the estimated useful lives of 5 to 15 years for machinery\nand equipment, shorter of the lease term or the estimated useful life for leasehold improvements and 2 to 5 years for other property,\nplant and equipment.\n\n \n\nThe cost and\naccumulated depreciation of property, plant and equipment disposed of or sold are removed from the consolidated balance sheets and resulting\ngains and losses are recognized in the consolidated statements of operations.\n\n \n\nF-15\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued\n\n** **\n\n**(n) Impairment\nof long-lived assets (other than goodwill) -**The Group reviews its long-lived assets and ROU assets for impairment whenever events\nor changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, the Group\nmeasures impairment by comparing the carrying value of the long-lived assets to the sum of the estimated undiscounted future cash flows\nexpected to be generated from the use of the assets and the eventual disposition. An impairment exists when the estimated undiscounted\nfuture cash flows are less than the carrying value of the assets being evaluated. Impairment loss is calculated as the amount by which\nthe carrying value of the assets exceeds their fair value.\n\n \n\nAt each year end as\nof March 31, 2024, 2025 and 2026, the Group has reviewed the long-lived assets for impairment, since there were several indicative events\nand factors identified, including (1) significant adverse changes in the business climate, including the possible negative impact of political\nunrest in Myanmar, (2) operating and/or cash flow losses, and (3) negative impact on business operations as a result of trade controversies\nbetween China and the United States and new global human and environmental rights regulations pending or enacted.\n\n \n\nFor the year ended\nMarch 31, 2025, as a result of the comparisons, management has identified the sum of estimated undiscounted future cashflows of long-lived\nassets and ROU assets are higher than their carrying values. The Group did not recognize any impairment of long-lived assets and ROU assets\nduring the year ended March 31, 2025.\n\n \n\nFor the years ended March 31, 2024 and\n2026, as a result of the comparison, management has identified the sum of estimated undiscounted future cashflow of long-lived assets\nare lower than their carrying values. Accordingly, an impairment loss of $335 and $19 for long-lived assets and an impairment loss of\n$527 and $106 for ROU assets were recognized for the years ended March 31, 2024 and 2026 respectively, which were the amounts by which the carrying values\nof the assets exceeded their fair value.\n\n \n\n**(o) Concentration\nof credit risk** - Financial instruments that potentially expose the Group to the concentration of credit risk consist primarily of\ncash and cash equivalents, accounts receivable, loan receivable, other receivables and prepayments. The Group places its cash and cash\nequivalents with financial institutions with credit ratings and quality where the Group considers acceptable.\n\n \n\nThe risks with respect to accounts receivables\nare mitigated by credit evaluations performed on the customers or debtors and ongoing monitoring of outstanding balances.\n\n \n\nF-16\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued\n\n \n\n**(p) Revenue recognition**- The\nGroup recognizes revenue when its customer obtains control of promised goods or receives services provided in an amount that reflects\nthe consideration which the Group expects to receive in exchange for those goods and services. To determine revenue recognition for the\narrangements that the Group determines are within the scope of Topic 606, the Group performs the following five steps: (1) identify the\ncontract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate\nthe transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance\nobligation.\n\n** **\n\nThe Group’s revenue from contracts with customers is derived\nfrom the sales of metal stamping, mechanical OEM and electric OEM products, from the sub-contracting income from the provision of electronic\nproducts assembly service, from the provision of machinery maintenance services and from the other service of educational services.\n\n* *\n\nThe cash collected from the sales is\ninitially recorded in “contract liability” in the consolidated balance sheets and subsequently recognized as revenues upon\nthe sales completed. There is no significant financing component or variable consideration.* *\n\n* *\n\n*Product revenue recognition –\npoint of time*\n\n \n\nThe Group sell goods to the customer\nunder sales contracts or by purchase orders. The Group has determined there to be one performance obligation for each of the sales contracts\nand purchase orders. The performance obligations are considered to be met and revenue is recognized when the customer obtains control\nof the goods. Revenue is recognized at that point of time. The Group has two major goods delivery channels, included:\n\n \n\n(1)Delivering goods to customers’ predetermined location, the Group has satisfied the contracts’\nperformance obligations when the goods have been delivered and relevant shipping documents have been collected by the Group; and\n\n   \n\n(2)Picking up goods by customers in the Group’s warehouse, the Group has satisfied the contracts’\nperformance obligations when the goods have been picked up and the acceptance document has been signed by the customers.\n\n \n\n*Sub-contracting income recognition – point of time*\n\n \n\nThe Group’s performance obligation\nis to provide sub-contracting services on electronic products assembly to one customer. When the Group satisfies a performance obligation,\nit will recognize as revenue the sub-contracting income it earns from the provision of electronic products assembly service. The Group’s\nrevenue from sub-contracting income was $818, nil and nil for the years ended March 31, 2024, 2025 and 2026 respectively.\n\n \n\nF-17\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued\n\n \n\n**(p) Revenue recognition**–\ncontinued\n\n \n\n*Other service revenue recognition\n– over time*\n\n \n\nThe Group provides services to elderly\npeople, with revenue recognized over time as the services are rendered. For the years ended March 31, 2024, 2025, and 2026, revenue from\nthese educational services was nil, nil, and $14, respectively.\n\n \n\nBreakdown of revenue recognition by\nproduct line is as follows:\n\n \n\n  \nFor the Years Ended March 31, \n\n  \n2024  \n2025  \n2026 \n\n  \n$  \n$  \n$ \n\n  \n   \n   \n  \n\nSale of products \n 5,503  \n 7,412  \n 4,791 \n\nSub-contracting income \n 818  \n \n-\n  \n \n-\n \n\nOther service income \n \n-\n  \n \n-\n  \n 14 \n\n  \n    \n    \n   \n\nTotal revenue from contracts with customers \n 6,321  \n 7,412  \n 4,805 \n\n \n\nBreakdown of revenue recognition at\na point of time / overtime is as follows:\n\n \n\n  \nFor the Years Ended March 31, \n\n  \n2024  \n2025  \n2026 \n\n  \n$  \n$  \n$ \n\n  \n   \n   \n  \n\nRevenue recognized at a point of time \n 6,321  \n 7,412  \n 4,791 \n\nRevenue recognized over time \n \n-\n  \n \n-\n  \n 14 \n\n  \n    \n    \n   \n\nTotal revenue from contracts with customers \n 6,321  \n 7,412  \n 4,805 \n\n \n\n*Return Rights*\n\n \n\nThe Group does not provide its customers\nwith the right of return (except for product quality issue) or production protection. Customer is required to perform product quality\ncheck before acceptance of goods delivery. The Group did not recognize for any refund liability according to the product return on the\nconsolidated balance sheets.\n\n \n\nF-18\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued\n\n \n\n**(p) Revenue recognition**- continued\n\n \n\n*Value-added taxes and surcharges*\n\n \n\nThe Group presents revenue net of VAT\nand surcharges incurred. The surcharge is sales related taxes representing the City Maintenance and Construction Tax and Education Surtax.\nThe Group incurs expenses or pays fees to external delivery service providers, respectively, and records such expenses and fees like shipping\nand handling expenses. Total VAT and surcharges paid by the Group during the years ended March 31, 2024, 2025 and 2026 amounted to $85,\n$77 and $67 respectively.\n\n \n\n*Principals vs. agent accounting*\n\n \n\nThe Group records all product revenue\non a gross basis. To determine whether the Group is an agent or principal in the sale of products, the Group considers the following indicators:\nthe Group is primarily responsible for fulfilling the promise to provide the specified goods or services, is subject to inventory risks\nbefore the specified goods have been transferred to a customer or after transfer of control to the customers, and has discretion in establishing\nthe price of the specified goods.\n\n \n\n*Disaggregation of revenue*\n\n* *\n\nThe Group disaggregates its revenue\nfrom different types of contracts with customers by principal product categories, as the Group believes it best depicts the nature, amount,\ntiming and uncertainty of its revenue and cash flows. See note 25 for product revenues by segment.\n\n \n\n*Contract balances*\n\n \n\nThe Group did not recognize any contract\nasset as of March 31, 2025 and March 31, 2026. The timing between the recognition of revenue and billings issuance is not significant.\n\n \n\nThe\nGroup’s contract liabilities consist of deposits received from customers. As of March 31, 2025 and March 31, 2026, the balances\nof the contract liabilities are $10 and $225 including deposits received from a customer. All contract liabilities as of March\n31, 2026 are expected to be recognized as revenue during the year ending March 31, 2027.\n\n \n\nF-19\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued\n\n \n\n**(p) Revenue recognition**- continued\n\n \n\nMovement of contract liabilities are\nas follows:\n\n \n\n  \nFor the Years Ended March 31, \n\n  \n2025  \n2026 \n\n  \n$  \n$ \n\n  \n   \n  \n\nAt the beginning of the year \n 10  \n 10 \n\nAddition in the period \n 10  \n 282 \n\nRevenue recognized from opening balance of contract liabilities \n (10) \n (10)\n\nRevenue recognized from contract liabilities arising during current period \n \n-\n  \n (57)\n\nAt the end of the year \n 10  \n 225 \n\n \n\n**(q) Retirement and other post-retirement benefits**\n– Contributions to retirement schemes (which are defined benefit and defined contribution plans, see note 14 and 23) are charged\nto the consolidated statement of operations as and when the related employee service is provided.\n\n \n\nAccounting rules covering defined benefit\npension plans and other post-retirement benefits require that amounts recognized in financial statements be determined on an actuarial\nbasis. Management develops the actuarial assumptions used by its international defined benefit pension plan obligations based upon the\ncircumstances of each particular plan. The determination of the defined benefit pension plan obligations requires the use of estimates.\n\n \n\nDuring the year ended March 31, 2024,\nthe Group initially recognizes defined benefit obligation to be made by the Group to its Hong Kong employees upon the termination of services\nunder post-retirement benefits. The cost of providing benefits is measured using projected unit credit method with actuarial valuations\nto determine its present value and service cost. The discount rate is an estimate of the interest rate at which the retirement benefits\ncould be effectively settled. In estimating the discount rate, the Group looks to rates of return on Hong Kong Government Bonds currently\navailable and expected to be available during the period to maturity of the retirement benefits. The net defined benefit liabilities recognized\nin the balance sheet represent the present value of the obligation under defined benefit plan minus the fair value of plan assets. The\nGroup carried out comprehensive actuarial valuation at the end of reporting period. The remeasurement of the net defined benefit liabilities\nduring a period is recognized as cost of defined benefit plan during the period.\n\n \n\nAs of March 31, 2025 and 2026, $23 and\n$26 were recognized as defined benefit obligation in the consolidated balance sheets as “Long term accrued expense”. Upon\ninitiation of the plan during the year ended March 31, 2024, the amount is fully recognized as prior service cost in the consolidated\nstatement of operations under “selling, general and administrative expenses”.\n\n \n\nF-20\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued\n\n \n\n**(q) Retirement and other post-retirement\nbenefits**- continued - The Group also operates a Mandatory Provident Fund (“MPF”) scheme for all qualifying employees\nin Hong Kong. The MPF is a defined contribution scheme and the assets of the scheme are managed by a trustee independent of the Group.\nContributions are made by the Group to the MPF at a rate of 5% based on each employee’s relevant compensation, subject to a cap\nof HK$1,500 (equivalent to $0.19) per month.\n\n \n\nFull time employees of the Group in\nthe PRC participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, medical care, employee\nhousing fund and other welfare benefits are provided to employees. Chinese labor regulations require that the PRC subsidiary of the Group\nmake contributions to the government for these benefits based on certain percentages of the employees’ salaries, up to a maximum\namount specified by the local government. The Group has no legal obligation for the benefits beyond the contributions made.\n\n \n\nThe Group was required registration\nof its employee in Myanmar with the Social Security Board. Contributions are made by the Group to the social security plan at a rate of\n3% based on each employee’s relevant compensation, subject to a cap of 9,000 Kyat (equivalent to $0.004) per month.\n\n \n\nThe Group’s German subsidiaries participate in statutory social\nsecurity schemes constituting defined contribution plans, including statutory pension insurance, statutory health insurance, statutory\nlong-term care insurance, statutory unemployment insurance, and statutory accident insurance/employers’ liability insurance association.\nContributions are made by the Group to the statutory social security schemes based on certain percentage of the employees’ relevant\ncompensation. For statutory pension insurance and statutory unemployment insurance, the cap is 8,450 Euro (equivalent $9,700) per month,\nwhile for statutory health insurance and statutory long-term care insurance, it is 5,813 Euro (equivalent $6,700) per month.\n\n \n\n**(r) Foreign currency\ntranslations and transactions** - The functional and reporting currency of the Company is the United States Dollars (“U.S. dollars”).\nAll transactions in currencies other than functional currencies during the year are remeasured at the exchange rates prevailing on the\nrespective transaction dates. Monetary assets and liabilities existing at the balance sheet date denominated in currencies other than\nfunctional currencies are remeasured at the exchange rates on the balance sheet date. Exchange differences are recorded in the consolidated\nstatements of operations.\n\n \n\nNon-monetary assets\nand liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rates prevailing\non the transaction dates. The transaction date is the date on which the Group initially recognizes such non-monetary assets and liabilities.\nNon-monetary assets and liabilities that are stated at fair value are translated using the exchange rates prevailing at the dates the\nfair value is measured. The resulting exchange differences are recognized in accumulated other comprehensive income/loss.\n\n \n\nThe books and records of the Company’s major subsidiaries\nare maintained in their respective local currencies, the Hong Kong dollars, Myanmar Kyat, Chinese Renminbi and Euro which are also their\nrespective functional currencies. The financial statements of the Group’s entities of which the functional currency is not U.S.\ndollars are translated from their respective functional currency into U.S. dollars. Assets and liabilities denominated in foreign currencies\nare translated into U.S. dollars at the rates of exchange prevailing at the balance sheet date. Equity accounts other than earnings generated\nin current period are translated into U.S. dollars at the appropriate historical rates. Income and expense items are translated into U.S.\ndollars at the average rates of exchange over the year. All exchange differences arising from the translation of subsidiaries’ financial\nstatements are recorded as a component of comprehensive income (loss).\n\n \n\nF-21\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued\n\n \n\n**(r) Foreign currency translations and transactions**\n– continued\n\n \n\nExchange rates used to translate amounts in Chinese Renminbi,\nMyanmar Kyat and Euro into the U.S. dollars, the reporting currency are as follows:\n\n \n\n  \nFor the Years Ended March 31, \n\n  \n2024  \n2025  \n2026 \n\nItems in the consolidated statement of operations: \n   \n   \n  \n\nChinese Renminbi \n 7.15  \n 7.14  \n 7.04 \n\nMyanmar Kyat \n 2,103  \n 2,510  \n 3,536 \n\nEuro \n \n-\n  \n \n-\n  \n 8.91 \n\n \n\n  \nAs of March 31, \n\n  \n2025  \n2026 \n\nBalance sheet items, except for equity accounts \n   \n  \n\nChinese Renminbi \n 7.18  \n 6.88 \n\nMyanmar Kyat \n 3,536  \n 3,536 \n\nEuro \n \n-\n  \n 8.91 \n\n \n\nChinese Renminbi and Myanmar Kyat are not fully convertible\ncurrencies. Any restrictions on currency exchange may limit the Group’s ability to convert Chinese Renminbi and Myanmar Kyat into\nU.S. dollars or Hong Kong dollars or vice versa.\n\n \n\n**(s) Income taxes**\n- Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are determined based on the\ntemporary difference between the financial reporting and tax bases of assets and liabilities, and net operating loss and tax credit carryforwards\nusing enacted tax rates that will be in effect for the period in which the differences are expected to reverse. The Group records a valuation\nallowance against the amount of deferred tax assets that it determines is not more likely than not of being realized. The effect on deferred\ntaxes of a change in tax rates is recognized in income in the period that includes the enactment date.\n\n \n\nThe Group recognizes\nthe effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions\nare measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected\nin the period in which the change in judgment occurs. The Group records interest related to unrecognized tax benefits and penalties, if\nany, within income tax expenses.\n\n \n\nAs a public business\nentity, the Group adopted the standard of ASU 2023-09, Income Taxes (Topic 740) – Improvements to Income Tax Disclosures effective\non April 1, 2025 on a prospective basis on its consolidated financial statements.\n\n \n\nF-22\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued\n\n** **\n\n**(t) Net (loss) income per share**\n- Basic net (loss) income per share is computed by dividing net (loss) income attributable to the Company by the weighted average number\nof common shares outstanding during the year.\n\n \n\nDiluted net (loss) income per share\nis computed similar to basic net income per share except that the denominator is increased to include the number of additional common\nshares that would have been outstanding if all the potential common shares pertaining to stock options and similar instruments had been\nissued and if the additional common shares were dilutive.\n\n \n\nDiluted net (loss)\nincome per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution\nis computed by applying the treasury stock method for the outstanding unvested restricted stock and options, and the if-converted method\nfor the outstanding convertible instruments. Under the treasury stock method, options are assumed to be exercised at the beginning of\nthe period (or at the time of issuance, if later) and as if funds obtained thereby were used to purchase common stock at the average market\nprice during the period. Under the if-converted method, outstanding convertible instruments are assumed to be converted into common stock\nat the beginning of the period (or at the time of issuance, if later).\n\n** **\n\nAnti-dilutive potential ordinary shares\nare not considered in the calculation of the diluted earnings per share. Potential ordinary shares are anti-dilutive when the conversion\nof ordinary shares increases the earnings per share or decreases the net loss per share.\n\n** **\n\n**(u) Comprehensive (loss) income**-\nComprehensive (loss) income includes net (loss) income and foreign currency translation adjustments and is presented net of tax.\n\n \n\nThe Group presents\nthe components of net (loss) income, the components of other comprehensive (loss) income and total comprehensive (loss) income in two\nseparate but consecutive statements.\n\n \n\nF-23\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued\n\n \n\n**(v) Fair value measurement and financial\ninstruments** - The Group applies a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize\nthe use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy\nis based upon the lowest level of input that is significant to the fair value measurement. Under this hierarchy, there are three levels\nof inputs that may be used to measure fair value:\n\n \n\n●Level 1 applies to assets or liabilities for\nwhich there are quoted prices in active markets for identical assets or liabilities.\n\n   \n\n●Level 2 applies to assets or liabilities for\nwhich there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted\nprices for similar assets or liabilities in active markets; quoted prices for identical asset or liabilities in markets with insufficient\nvolume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can\nbe derived principally from, or corroborated by, observable market data.\n\n   \n\n●Level 3 applies to assets or liabilities for\nwhich there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets\nor liabilities.\n\n \n\nDetermining which category an asset\nor liability falls within the hierarchy requires significant judgment.\n\n \n\nThe carrying amounts\nof financial instruments, which consist of cash and cash equivalents, time deposits, accounts receivable, other current assets, accounts\npayable and other liabilities approximate their fair values due to the short-term nature of these instruments.\n\n \n\nThe fair value guidance describes\nthree main approaches to measure the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach.\nThe market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets\nand liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement\nis based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that\nwould currently be required to replace an asset.\n\n \n\nWhen available, the Group uses quoted\nmarket prices to determine the fair value of an asset or liability. If quoted market prices are not available, the Group will measure\nfair value using valuation techniques that use, when possible, current market-based or independently sourced market parameters, such as\ninterest rates and currency rates.\n\n \n\nF-24\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued\n\n \n\n**(w) Non-controlling interest**\n- For the Group’s non-wholly owned subsidiary, a non-controlling interest is recognized to reflect the portion of equity that is\nnot attributable, directly or indirectly, to the Group. Non-controlling interests are classified as a separate line item in the equity\nsection of the Group’s consolidated balance sheets and have been separately disclosed in the consolidated statements of operations\nand statements of changes in equity to distinguish the interests from that of the Group. Cash flows related to transactions with non-controlling\ninterests are presented under financing activities in the consolidated statements of cash flows.\n\n \n\nDuring the fiscal year ended March\n31, 2026, the Group acquired 51% of the issued share capital of Regent on 28 February 2026. As a result, Regent became a majority-owned\nsubsidiary of the Group. The remaining 49% equity interest not held by the Group is presented as a non-controlling interest. In accordance\nwith ASC Topic 805, the non-controlling interest in Regent is measured at its fair value at the acquisition date. The fair value of the\nnon-controlling interest was determined using an income approach based on the discounted cash flow method, with a discount for lack of\ncontrol applied to reflect the minority interest. Goodwill recognized on the acquisition includes the portion attributable to the non-controlling\ninterest. Subsequent changes in the Group’s ownership interest in Regent that do not result in a loss of control are accounted for\nas equity transactions, with any difference between the consideration paid or received and the carrying amount of the non-controlling\ninterest recognized directly in equity attributable to the Group’s shareholders.\n\n \n\n**(x) Stock-based compensation**\n- The Group adopted the provisions of ASC Topic 718 which requires the Group to measure and recognize compensation expenses for an award\nof an equity instrument based on the grant-date fair value.\n\n \n\nThe fair value of each option award\nis estimated on the date of grant using the Black-Scholes Option Valuation Model.\n\n \n\nThe fair value of restricted share units (“RSUs”)\nis determined based on the market price of the Company’s ordinary shares on the grant date.\n\n \n\nThe compensation expense is recognized (a) immediately on\nthe grant date if no vesting conditions are required; (b) for share options or RSUs granted with only service conditions, using the straight-line\nmethod, over the vesting period; and (c) for RSUs granted with performance conditions, over the vesting period only for the portion that\nis reasonably probable to vest based on the annual assessment at each reporting date.\n\n \n\nFurther, ASC Topic 718 requires the\nGroup to estimate forfeitures in calculating the expense related to stock-based compensation. Compensation expenses recognized relating\nto post-vesting cancellation or termination will not be reversed.\n\n \n\nThe expected volatility was based\non the historical volatilities of the Company’s listed common stocks in the United States and other relevant market information.\nThe Group uses historical data to estimate share option exercises and employee departure behavior used in the valuation model. The expected\nterms of share options granted is derived from the output of the option pricing model and represents the period of time that share options\ngranted are expected to be outstanding. Since the share options once exercised will primarily trade in the U.S. capital market, the risk-free\nrate for periods within the contractual term of the share option is based on the U.S. Treasury yield curve in effect at the time of grant.\n\n \n\nF-25\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued\n\n \n\n**(x) Stock-based compensation**\n- continued - Details of grants of restricted shares to non-employee consultants after the effectiveness of ASU 2018-07 -Compensation\n- stock compensation (Topic 718) - Improvements to non-employee share-based payment accounting are disclosed in note 24.\n\n** **\n\n**(y) Leases** - The Group accounts\nfor leases in accordance with ASC 842, Leases (“ASC 842”), which requires lessees to recognize leases on the balance sheet\nand disclose key information about leasing arrangements. The Group elected not to apply the recognition requirements of ASC 842 to short-term\nleases. The Group also elected not to separate non-lease components from lease components, therefore, it will account for lease component\nand the non-lease components as a single lease component when there is only one vendor in the lease contract.\n\n \n\nThe Group determines if a contract contains\na lease based on whether it has the right to obtain substantially all of the economic benefits from the use of an identified asset which\nthe Group does not own and whether it has the right to direct the use of an identified asset in exchange for consideration. Right of use\n(“ROU”) assets represent the Group’s right to use an underlying asset for the lease term and lease liabilities represent\nthe Group’s obligation to make lease payments arising from the lease. ROU assets are recognized as the amount of the lease liability,\nadjusted for lease incentives received. Lease liabilities are recognized at the present value of the future lease payments at the lease\ncommencement date.\n\n** **\n\nLease payments may be fixed or variable,\nhowever, only fixed payments or in-substance fixed payments are included in the Group’s lease liability calculation.\n\n \n\nVariable lease payments are recognized\nin operating expenses in the period in which the obligation for those payments are incurred.\n\n \n\nAs disclosed in note 2(n), the Group\nreviews its long-lived assets and ROU assets for impairment whenever events or changes in circumstances indicate that the carrying amount\nof an asset may no longer be recoverable. The Group recognized an impairment loss of $nil and $106 on ROU assets as of March 31, 2025\nand 2026 respectively.\n\n \n\nThe operating lease is included in operating\nlease right-of-use assets, operating lease liabilities-current and operating lease liabilities-non-current in the consolidated balance\nsheets as of March 31, 2025 and March 31, 2026.\n\n \n\n**(z) Dividends**– Dividends\nare recognized when declared.\n\n \n\nDividends paid on equity-classified\nawards are often subject to the same vesting conditions as the underlying awards. Dividends are forfeited if the award is forfeited. When\nthe dividend is declared, the Group accounts for forfeitures when they occur and recognize a debit to retained earnings and a credit to\ndividend payable for all awards. If an award is ultimately forfeited, that entry is reversed with a debit to dividends payable and a credit\nto retained earnings. The reversal entry would be made in the period in which the forfeitures occur.\n\n \n\nF-26\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued\n\n** **\n\n**(z) Dividends** – continued\n- Dividends recognized for unvested restricted shares for the years ended March 31, 2024, 2025 and 2026 were $44, $36 and $nil, respectively.\n\n \n\n**(aa) Long term loan payable, -**The\nlong term loans are initially recognized at fair value, net of transaction costs incurred. Loans are subsequently measured at amortized\ncost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognized in profit or loss over the\nperiod of the borrowings using the effective interest method.\n\n \n\nThe loans are classified as current or noncurrent based on the contractual\nmaturity date that would require repayment within twelve months of the balance sheet date. (see note 16)\n\n \n\n**(ab) Commitments and contingencies\n-** The Group adopts ASC Topic 450 “Contingencies” subtopic 20, in determining its accruals and disclosures with respect\nto loss contingencies. Accordingly, estimated losses from loss contingencies are accrued by a charge to income when information available\nbefore financial statements are issued or are available to be issued indicates that it is probable that an asset had been impaired, or\na liability had been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. Legal expenses\nassociated with the contingency are expensed as incurred. If a loss contingency is not probable or reasonably estimable, disclosure of\nthe loss contingency is made in the financial statements when it is at least reasonably possible that a material loss could be incurred.\n\n** **\n\n**(ac) Recently adopted accounting\nstandards -** In December 2023, the FASB issued ASU 2023-09, Improvement to Income Tax Disclosure. This standard requires more transparency\nabout income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes\npaid information. This standard also includes certain other amendments to improve the effectiveness of income tax disclosures. ASU 2023-09\nis effective for public business entities, for annual periods beginning after December 15, 2024. For entities other than public business\nentities, the amendments are effective for annual periods beginning after December 15, 2025. Early adoption is permitted. As a public\nbusiness entity, the Group adopted ASU 2023-09 effective on April 1, 2025 on a prospective basis on its consolidated financial statements.\n\n \n\n**(ad) Accounting standards issued\nbut not adopted as of March 31, 2026 -** In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive\nIncome - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires disclosure\nin the notes to the financial statements, of disaggregated information about certain costs and expenses that are included in expense\nline items on the face of the income statement. The requirements of ASU 2024-03 are effective for fiscal years beginning after December\n15, 2026 and interim periods within fiscal years beginning after December 15, 2027 with early adoption permitted. The Group is currently\nevaluating the impact that the adoption of this standard will have on its consolidated financial statements and disclosures.\n\n \n\nF-27\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n** **\n\n3.Acquisition of Regent Feinbau Adermann GmbH\n\n \n\nOn March 1, 2026, the Group acquired a 51% controlling interest\nin Regent. The total consideration transferred for the 51% interest was €662,000 (approximately $758,000), consisting of cash of\n€612,000 (approximately $701,000) and the issuance of restricted shares of the 64,851 Company’s common shares valued at €50,000\n(approximately $57,000).\n\n \n\nPursuant to the Share Purchase Agreement,\nthe Group completed the transfer of the consideration on March 1, 2026, and the acquisition was completed on the same date. Upon completion\nof the transaction, the Group obtained control of Regent through its majority voting rights and, accordingly, accounted for the transaction\nas a business combination in accordance with ASC 805, Business combinations.\n\n \n\nThe acquisition was accounted for as\na business combination by applying the acquisition method. Accordingly, the acquired assets and liabilities were recorded at their fair\nvalue on the date of acquisition. The Group engaged an independent third-party valuation firm to assist with the valuation of assets acquired\nand liabilities assumed in this business combination. The following table summarizes the fair values of the assets acquired and liabilities\nassumed at the acquisition date, including the recognition of the Non-controlling Interest (NCI) at fair value.\n\n \n\nConsideration transferred (51%): \n  \n\nBy cash \n$701 \n\nBy common shares \n$57 \n\nFair value of Noncontrolling Interest (49%)(1) \n$566 \n\nTotal \n$1,324 \n\n  \n   \n\nAllocation of total fair value: \n   \n\n  \n   \n\nProperty, plant and equipment \n 236 \n\nOperating lease right-of-use assets \n 617 \n\nInventories \n 530 \n\nAccounts receivable and others \n 275 \n\nCash and cash equivalents \n 593 \n\nLong-term loan payable \n (594)\n\nOperating lease liabilities \n (617)\n\nTrade payables and others \n (166)\n\nIncome tax payable \n (157)\n\nDeferred income taxes \n (190)\n\nNet assets \n 527 \n\nIntangible asset – Customer relationship(2) \n$537 \n\nGoodwill (residual)(3) \n$260 \n\nTotal \n$1,324 \n\n \n\n(1)The non-controlling interests mainly represent the interests\nallocated to shareholders with 49% equity interest in Regent. The fair value of the non-controlling interest was determined using\nthe income approach, with assistance of an independent appraiser.\n\n \n\nF-28\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n3.Acquisition of Regent Feinbau Adermann GmbH - continued\n\n \n\n(2)The customer relationship was valued using the multi-period\nexcess earnings method under the income approach. The estimated useful life of the customer relationship is 6 years.\n\n \n\n(3)Goodwill primarily represents the expected synergies arising\nfrom the acquisition, including expansion of the Group’s manufacturing capabilities in Germany, access to an established customer\nbase and workforce. Goodwill is not expected to be deductible for tax purposes.\n\n \n\nThe revenue and net loss of Regent since\nthe acquisition date and that were included in the Company’s consolidated statements of operations and comprehensive loss for the\nyear ended March 31, 2026 are $222 and $2, respectively.\n\n \n\nPrior to the acquisition, Regent did not prepare its financial statements\nin accordance with U.S. GAAP and had a different fiscal year end from the Group. In addition, management concluded that the impact of\nthe acquisition is not material to the Group’s consolidated results of operations. Thus the historical financial statement and pro\nforma financial information has not been presented.\n\n \n\n4.INCOME TAXES\n\n \n\nIncome is subject\nto tax in the various countries in which the Group operates.\n\n \n\nThe Group’s\nmanufacturing operations were conducted mainly in PRC and Myanmar during the years ended March 31, 2024, 2025 and 2026. The Group’s\noperating subsidiaries, other than Nissin Metal and Plastic (Shenzhen) Company Limited (“Nissin PRC”), ShenZhen SilverAge\nHealth and Wellness Co., Ltd (“Siverage”), Kayser Myanmar Manufacturing Company Ltd. (“Kayser Myanmar”) and Regent\nFeinbau Adermann GmbH (“Regent”) are all incorporated in Hong Kong and are subject to Hong Kong taxation on income derived\nfrom their activities conducted in Hong Kong.\n\n \n\n**BVI**\n\n** **\n\nUnder the current tax laws of the BVI,\nthe Group is not subject to tax on its income or capital gains. In addition, no BVI withholding tax will be imposed upon the payment of\ndividends by the Company to its shareholders.\n\n \n\n**Hong Kong**\n\n** **\n\nHong Kong Profits Tax has been calculated\nat 16.5% of the estimated assessable profit for the years ended March 31, 2024, 2025 and 2026. As of March 21, 2018, the Hong Kong Legislative\nCouncil passed The Inland Revenue (Amendment) (No. 7) Bill 2017 (the “Bill”) which introduces the two-tiered profits tax rates\nregime. The Bill was signed into law on March 28, 2018 and was gazetted on the following day. Under the two-tiered profits tax rates regime,\nthe first HK$2 million (equivalent to $257) of profits of the qualifying group entity will be taxed at 8.25%, and profits above HK$2 million\nwill be taxed at 16.5%. The profits of group entities not qualifying for the two-tiered profits tax rates regime will continue to be taxed\nat a flat rate of 16.5%. The Group has selected Kayser Limited (“Kayser”) as the qualified entity under two-tiered profit\ntax rates regime and the remaining Hong Kong based subsidiaries are not qualifying under the regime and continue to be taxed at 16.5%.\n\n \n\nF-29\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n4.INCOME TAXES - continued\n\n** **\n\n**PRC**\n\n** **\n\nUnder the Enterprise Income Tax\n(“EIT”) Law in the PRC, the unified EIT rate for domestic enterprises and foreign invested enterprises is 25%, except\nfor available preferential tax treatments. For qualified small and low-profit enterprises, from January 1, 2023 to December 31,\n2027, 25% of the first RMB 3.0 million of the assessable profit before tax is subject to the tax rate of 20%. For the year ended\nMarch 31, 2024, 2025 and 2026, all PRC subsidiaries are qualified small and low-profit enterprises, and thus are eligible for\nthe above preferential tax rates for small and low-profit enterprises.\n\n \n\n**Germany**\n\n** **\n\nDuring the year ended March 31, 2026,\nthe subsidiary in Germany’s primary statutory tax rate was 29.83%, consisting of the German corporate tax rate of 15%, a 5.5% solidarity\nsurcharge on the corporate tax rate, and a trade tax rate of 14%.\n\n \n\n**Myanmar**\n\n** **\n\nStarting from October 1, 2021 onwards,\nincome tax rate for the subsidiary incorporated in Myanmar is 22%.\n\n \n\nThe components of (loss) income before\nincome taxes are as follows:\n\n \n\n  \nFor the Years Ended March 31, \n\n  \n2024  \n2025  \n2026 \n\n  \n$  \n$  \n$ \n\n  \n   \n   \n  \n\nHong Kong \n (346) \n (502) \n (1,929)\n\nPRC \n 39  \n 567  \n 135 \n\nMyanmar \n (832) \n 82  \n (236)\n\nGermany \n \n-\n  \n \n-\n  \n 0 \n\n  \n    \n    \n   \n\nTotal \n (1,139) \n 147  \n (2,030)\n\n \n\nF-30\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n4.INCOME TAXES - continued\n\n \n\nIncome tax (benefit) expense consists\nof the following:\n\n \n\n  \nFor the Years Ended March 31, \n\n  \n2024  \n2025  \n2026 \n\n  \n$  \n$  \n$ \n\nCurrent income tax (benefit) expense \n    \n    \n   \n\nHong Kong \n (59) \n \n-\n  \n \n-\n \n\nPRC \n    \n    \n   \n\n- Current \n \n-\n  \n 38  \n 3 \n\n- Reversal of overprovision in prior year \n \n-\n  \n \n-\n  \n (496)\n\nMyanmar \n 5  \n \n-\n  \n \n-\n \n\nGermany \n \n-\n  \n \n-\n  \n 7 \n\n  \n    \n    \n   \n\nDeferred income tax benefit \n (107) \n \n-\n  \n \n-\n \n\n  \n    \n    \n   \n\nTotal income tax (benefit) expense \n (161) \n 38  \n (486)\n\n \n\nThe reconciliation of differences between the Hong Kong statutory tax\nrate and the effective tax rate for income tax for the years ended March 31, 2024 and 2025 in accordance with the guidance prior to the\nadoption of ASU 2023-09 was as follows:\n\n \n\n  \nFor the Years Ended March 31, \n\n  \n2024  \n2025 \n\n  \n%  \n% \n\n  \n   \n  \n\nProfits tax rate in Hong Kong \n 16.5  \n 16.5 \n\nNon-deductible expenses (non-taxable income)* \n (7.9) \n (50.0)\n\nChanges in valuation allowances \n 10.4  \n 138.3 \n\nOverprovision of profits tax in prior year \n 4.7  \n \n-\n \n\nEffect of different tax rate of subsidiaries operating in other jurisdictions \n (0.4) \n 47.0 \n\nEffect of preferential tax rate \n \n-\n  \n (77.3)\n\nTax effect of tax losses not recognized \n (12.3) \n (52.7)\n\nTax effect of other temporary difference not recognized \n \n-\n  \n (21.8)\n\nProfit tax expense from disposal of PRC property \n \n-\n  \n 26.1 \n\nOthers \n 3.1  \n \n-\n \n\n  \n    \n   \n\nEffective tax rate \n 14.1  \n 26.1 \n\n \n\n*The non-deductible expenses (non-taxable income) are mainly\nincluding the other non-deductible expenses from subsidiaries do not generate assessable, non-deductible entertainment expense, non-taxable\ngain from disposal of PRC property, and non-taxable interest income for the years ended March 31, 2024 and 2025.\n\n \n\nF-31\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n4.INCOME TAXES - continued\n\n \n\nUpon adoption of ASU 2023-09, Improvements to Income Tax Disclosures,\nas described in Note 2, Summary of Significant Accounting Policies, the reconciliation of taxes at the Hong Kong statutory income tax\nrate to the benefit from income taxes for the year ended March 31, 2026 was as follows:\n\n \n\n  \nFor the Year Ended\n\nMarch 31, 2026 \n\n  \n$  \n% \n\nLoss before income tax \n (2,030) \n 100 \n\nComputed income tax benefit at Hong Kong statutory income tax rate \n (335) \n 16.5 \n\nDomestic tax effect \n    \n   \n\n-    Non-deductible expenses from subsidiaries not generating income \n 96  \n (4.7)\n\n-    Non-taxable disposal gain from PRC property transfer \n (13) \n 0.6 \n\n-    Non-taxable interest income \n (26) \n 1.3 \n\n-    Changes in valuation allowance \n 302  \n (14.9)\n\n-    Unrealized intercompany transactions \n (41) \n 2.0 \n\nForeign tax effects \n    \n   \n\nPRC \n    \n   \n\n-    Statutory income tax rate difference between PRC and Hong Kong \n 11  \n (0.5)\n\n-    Preferential tax rate \n (27) \n 1.3 \n\n-    Changes in valuation allowance \n (7) \n 0.3 \n\n-    Reversal of overprovision for income tax expense in prior years \n (496) \n 24.4 \n\n-    Others \n 4  \n (0.1)\n\nMyanmar \n    \n   \n\n-    Statutory income tax rate difference between Myanmar and Hong Kong \n (14) \n 0.7 \n\n-    Changes in valuation allowance \n 62  \n (3.1)\n\nGermany \n    \n   \n\n-    Statutory income tax rate difference between Germany and Hong Kong \n 0  \n 0.0 \n\n-    Others \n (2) \n 0.1 \n\nEffective income tax rate \n (486) \n 23.9 \n\n \n\nF-32\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n4.INCOME TAXES - continued\n\n \n\nUpon adoption of ASU 2023-09, Improvements\nto Income Tax Disclosures, as described in Note 2, Summary of Significant Accounting Policies, cash paid for income taxes, net of refunds,\nduring the year ended March 31, 2024, 2025 and 2026 were as follows:\n\n \n\n  \nFor the Years Ended March 31, \n\n  \n2024  \n2025  \n2026 \n\n  \n$  \n$  \n$ \n\nHong Kong \n \n-\n  \n \n-\n  \n \n-\n \n\nPRC \n \n-\n  \n 38  \n 3 \n\nMyanmar \n 3  \n \n-\n  \n \n-\n \n\nGermany \n \n-\n  \n \n-\n  \n \n-\n \n\nTotal \n \n-\n  \n 38  \n 3 \n\n \n\nThe significant components\nof deferred taxes as of March 31, 2025 and 2026 were as follows:\n\n \n\n  \nAs of March 31, \n\n  \n2025  \n2026 \n\n  \n$  \n$ \n\nDeferred tax assets: \n    \n   \n\nProperty, plant and equipment \n 45  \n 42 \n\nOther social benefits \n 46  \n 35 \n\nLease liabilities \n 52  \n 304 \n\nTax loss carry forwards \n 918  \n 1294 \n\n  \n    \n   \n\nTotal deferred tax assets \n 1,061  \n 1,675 \n\nLess: Valuation allowance \n (995) \n (1,352)\n\n  \n    \n   \n\nTotal deferred tax assets, net of valuation allowance \n 66  \n 323 \n\nNet off against deferred tax liabilities \n (66) \n (323)\n\n  \n    \n   \n\nNet deferred tax assets \n \n-\n  \n \n-\n \n\n  \n    \n   \n\nDeferred tax liabilities: \n    \n   \n\nOperating lease right-of-use assets \n (66) \n (313)\n\nIntangible assets acquired in a business acquisition \n \n-\n  \n (160)\n\nProperty, plant and equipment \n \n-\n  \n (40)\n\n  \n    \n   \n\nTotal deferred tax liabilities \n (66) \n (513)\n\nNet off against deferred tax assets \n 66  \n 323 \n\n  \n    \n   \n\nNet deferred tax liabilities \n \n-\n  \n (190)\n\n \n\nF-33\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n4.INCOME TAXES - continued\n\n \n\nThe changes related to valuation allowance\nfor years ended 2024, 2025 and 2026 are as follows:\n\n \n\n  \nFor the Years Ended March 31, \n\n  \n2024  \n2025  \n2026 \n\n  \n$  \n$  \n$ \n\n  \n   \n   \n  \n\nAt the beginning of the year \n 469  \n 792  \n 995 \n\nAddition \n 323  \n 203  \n 376 \n\nReversal \n \n-\n  \n \n-\n  \n (19)\n\n  \n    \n    \n   \n\nAt the end of the year \n 792  \n 995  \n 1,352 \n\n \n\nAccording to PRC tax regulations, the\nPRC enterprise net operating loss can be generally carry forward for no longer than five years, and HNTE’s net operating losses\ncan be carried forward for no more than 10 years, starting from the year subsequent to the year in which the loss was incurred. Carryback\nof losses is not permitted. Considering the future strategic development, the Group will not re-apply for the HNTE certificate for Nissin\nSZ when the prior certificate expires on December 31, 2024.\n\n \n\nTotal net operating losses (NOLs) carryforwards of the Company’s\nsubsidiary in PRC is $794 as of March 31, 2026. As of March 31, 2026, net operating loss carryforwards from PRC will expire in calendar\nyear 2030, 2031, and 2033, if not utilized. The NOLs carryforwards of the Company’s subsidiaries in Hong Kong is $7,273 as of March\n31, 2026, which can be carried forward without an expiration date. In addition, the NOLs carryforwards of the Company’s subsidiary\nin Myanmar is $310. As of March 31, 2026, net operating loss carryforwards from Myanmar will expire in 2027.\n\n \n\nThe Company considers positive and\nnegative evidence to determine whether some portion or all of the deferred tax assets will more likely than not be realized. This assessment\nconsiders, among other matters, the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of\nstatutory carry-forward periods, the Company’s experience with tax attributes expiring unused and tax planning alternatives. Valuation\nallowances have been established for deferred tax assets based on a more-likely-than-not threshold. Under the applicable accounting standards,\nmanagement has considered the Company’s history of losses and uncertainty of future profitability and concluded that it is more\nlikely than not that the Company will not generate future taxable income to utilize the deferred tax assets. Accordingly, as of March\n31, 2025 and 2026, the valuation allowance of $995 and $1,352 have been established respectively.\n\n \n\nUncertainties\nexist with respect to how China’s current income tax law applies to the Group’s overall operations, and more specifically,\nwith regard to tax residency status. China’s Enterprise Income Tax (“EIT”) Law includes a provision specifying that\nlegal entities organized outside of China will be considered residents for China income tax purposes if their place of effective management\nor control is within China. The Implementation Rules to the EIT Law provides that non-resident legal entities will be considered as China\nresidents if substantial and overall management and control over the manufacturing and business operations, personnel, accounting, properties,\netc. occur within China. The Company does not believe that its legal entities organized outside of China should be treated as residents\nfor the EIT Law’s purposes. Substantially, the Company’s overall management and business operation are located outside\nChina. The Company does not expect any significant adverse impact on the Company’s consolidated results of operations.\n\n \n\nF-34\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n4.INCOME TAXES - continued\n\n \n\nThe Group has made\nits assessment of the level of the tax authority for each tax position (including the potential application of interest and penalties)\nbased on the technical merits and has measured the unrecognized tax benefits associated with the tax positions. As of March 31, 2025 and\n2026, the Group did not have any unrecognized uncertain tax positions. For the years ended March 31, 2024, 2025 and 2026, the Group did\nnot incur any interest and penalties related to potential underpaid income tax expenses. \n\n \n\nIn Hong Kong, an\nadditional assessment may be made by an HKIRD tax assessor if a taxpayer chargeable to tax has not been assessed to tax or has been assessed\nat less than the proper amount. The assessment must be made within the relevant year of assessment or within six years after the end of\nthat year of assessment. The time limit for making additional assessments is extended when a taxpayer either has not been assessed, or\nis under-assessed, due to fraud or willful evasion. In that case, an additional assessment may be made up to ten years after the end of\nthe relevant assessment year.\n\n \n\nIn PRC, according\nto PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational\nerrors made by the taxpayer or withholding agent. The statute of limitations will be extended to five years under special circumstances,\nwhich are not clearly defined (but an underpayment of tax liability exceeding RMB0.1 million is specifically listed as a special circumstance).\nIn the case of a related party transaction, the statute of limitations is ten years. There is no statute of limitations in the case of\ntax evasion.\n\n \n\nIn Myanmar, the\nstatute of limitation to raise an assessment is three years after the financial year-end. It does not apply in cases of fraudulent default.\n\n \n\nIn German, the\nstatutory limitation period for the issue or correction of assessments is four years from the end of the year in which the return was\nfiled. If no return was filed, the period runs from the end of the third year following the end of the year of assessment. The four-year\nperiod is extended to five in cases of taxpayer negligence and to ten in the event of evasion. The statutory limitation period for the\ncollection of tax debts is five years from the end of the year in which payment became due.\n\n \n\nF-35\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n5.CASH AND CASH EQUIVALENTS\n\n \n\nCash and cash equivalents consisted\nof the following:\n\n \n\n  \nAs of March 31, \n\n  \n2025  \n2026 \n\n  \n$  \n$ \n\n  \n   \n  \n\nCash on hand \n 11  \n 9 \n\nBank deposits \n 5,961  \n 4,400 \n\n  \n    \n   \n\nTotal Cash and cash equivalents \n 5,972  \n 4,409 \n\n \n\n6.ACCOUNTS RECEIVABLE, NET\n\n \n\nAccounts receivable, net is analyzed\nas follows:\n\n \n\n  \nAs of March 31, \n\n  \n2025  \n2026 \n\n  \n$  \n$ \n\n  \n   \n  \n\nAccounts receivable \n 1,131  \n 1,050 \n\nLess: allowance for expected credit losses \n (109) \n (27)\n\n  \n    \n   \n\nTotal accounts receivable, net \n 1,022  \n 1,023 \n\n \n\nDetails of the movements of the expected\ncredit loss provision are as follows:\n\n \n\n  \nFor the Years Ended March 31, \n\n  \n2024  \n2025  \n2026 \n\n  \n$  \n$  \n$ \n\n  \n   \n   \n  \n\nAt beginning of year \n 554  \n 43  \n 109 \n\nProvision (reversal) for the year \n (511) \n 66  \n (82)\n\n  \n    \n    \n   \n\nAt end of year \n 43  \n 109  \n 27 \n\n \n\nF-36\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n7.INVENTORIES\n\n \n\nInventories consisted of the following:\n\n \n\n  \nAs of March 31, \n\n  \n2025  \n2026 \n\n  \n$  \n$ \n\n  \n   \n  \n\nRaw materials \n 789  \n 494 \n\nWork in progress \n 138  \n 434 \n\nFinished goods \n 219  \n 524 \n\n  \n    \n   \n\nTotal Inventories \n 1,146  \n 1,452 \n\n \n\nSlow moving inventories amounting to\n$86, $71 and $106 were written off during the years ended March 31, 2024, 2025 and 2026, respectively.\n\n \n\n8.PREPAID EXPENSES AND OTHER CURRENT ASSETS, NET\n\n \n\nPrepaid expenses and other current assets,\nnet consisted of the following:\n\n \n\n  \nAs of March 31, \n\n  \n2025  \n2026 \n\n  \n$  \n$ \n\n  \n   \n  \n\nPrepaid expenses \n 132  \n 140 \n\nPayment in advance \n 4  \n 13 \n\nDeposits \n 207  \n 3 \n\nOther \n 87  \n 97 \n\nLess: allowance for expected credit losses \n \n-\n  \n \n-\n \n\n  \n    \n   \n\nTotal prepaid expenses and other current assets, net \n 430  \n 253 \n\n \n\nDetails of the movements of the expected credit loss provision for\nprepaid expenses and other current assets, net are as follows:\n\n \n\n  \nYears ended March 31, \n\n  \n2024  \n2025  \n2026 \n\n  \n$  \n$  \n$ \n\n  \n   \n   \n  \n\nAt beginning of year \n 2  \n \n-\n  \n \n-\n \n\nProvision (reversal) for the year \n (2) \n \n-\n  \n \n-\n \n\n  \n    \n    \n   \n\nAt end of year \n \n-\n  \n \n-\n  \n \n-\n \n\n \n\nF-37\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n9.PROPERTY, PLANT AND EQUIPMENT, NET\n\n \n\nProperty, plant and\nequipment, net consisted of the following:\n\n \n\n  \nAs of March 31, \n\n  \n2025  \n2026 \n\n  \n$  \n$ \n\nAt cost: \n   \n  \n\nMachinery and equipment \n 11,122  \n 11,878 \n\nFurniture and fixtures \n 79  \n 97 \n\nLeasehold improvements \n 743  \n 700 \n\nMotor vehicles \n 151  \n 151 \n\n  \n    \n   \n\nTotal \n 12,095  \n 12,826 \n\nLess: Accumulated depreciation \n (10,679) \n (11,096)\n\nLess: Accumulated impairment \n (1,322) \n (1,322)\n\nLess: Impairment loss \n \n-\n  \n (19)\n\n  \n    \n   \n\nProperty, plant and equipment, net \n 94  \n 389 \n\n \n\nDepreciation expense\nincurred for the years ended March 31, 2024, 2025 and 2026 were $159, $9 and $31, respectively.\n\n \n\nFor the years ended March 31, 2024 and\n2026, as the estimated undiscounted future cash flows are less than the carrying value of property, plant and equipment, an impairment\nloss of $335 and $19 was recognized respectively. Income approach was used to measure the fair value of assets and liabilities. Impairment\nloss was recognized as the adverse changes in the business climate negatively impacted the Group’s business operations.\n\n \n\nNo impairment of property, plant and\nequipment was recognized during the years ended March 31, 2025.\n\n \n\nDuring the fiscal years ended March\n31, 2025 and 2026, the company sold an apartment located in Shenzhen, China in each year for net proceeds of $333 and $82\nrespectively after transaction taxes.\n\n \n\nAs of March 31, 2026, property, plant and equipment with\nnet carrying amount of $67 were pledged as collateral. (see note 16)\n\n \n\nF-38\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n10.INTANGIBLE AESSETS\n\n \n\nIntangible assets, net is the following:\n\n \n\n  \nAs of March 31, \n\n  \n2025  \n2026 \n\n  \n$  \n$ \n\nAt cost: \n    \n   \n\nCustomer relationship^ \n \n-\n  \n 537 \n\nLess: Accumulated amortization \n \n-\n  \n (5)\n\n  \n    \n   \n\nIntangible assets, net \n \n-\n  \n 532 \n\n \n\nIntangible assets consist of customer\nrelationships acquired in connection with Group’s acquisition of Regent on March 1, 2026. The customer relationship represents\nthe existing contracts and relationships with Regent’s customers as of the acquisition date.\n\n \n\n^Refer to Note 3 – Acquisition for further details regarding\nthe acquisition of Regent Feinbau Adermann GmbH.\n\n \n\nTotal amortization expense for the amortizable intangible\nassets was $nil and $5 during the years ended March 31, 2025 and 2026.\n\n \n\nThe estimated amortization expense for each of the\nnext five years and thereafter is as follows:\n\n \n\n  \nCustomer\nrelationship \n\n  \n$ \n\nYears ending March 31, \n  \n\n2027 \n 90 \n\n2028 \n 90 \n\n2029 \n 90 \n\n2030 \n 90 \n\n2031 \n 90 \n\nThereafter \n 82 \n\nTotal \n 532 \n\n \n\n11.GOODWILL\n\n \n\nGoodwill is the following:\n\n \n\n  \nAs of March 31, \n\n  \n2025  \n2026 \n\n  \n$  \n$ \n\nAt cost: \n    \n   \n\nGoodwill (Regent acquisition)^ \n \n-\n  \n 260 \n\nLess: Accumulated impairment \n \n-\n  \n \n-\n \n\n  \n    \n   \n\nGoodwill \n \n-\n  \n 260 \n\n \n\n^Refer to Note 3 – Acquisition for further details regarding\nthe acquisition of Regent Feinbau Adermann GmbH.\n\n \n\nF-39\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n12.LONG-TERM LOAN RECEIVABLE\n\n \n\nLong-term loan receivable represents\nloans to the managing director of a subsidiary with a fixed interest rate of 8% per annum and loan periods of 36 months, repayable by\nMarch 30, 2027 to March 30, 2029. The loan receivables principal and interest are expected to be repaid on the loan maturity date. Interest\nincome of $8, $8, $7 was receivable for each of the years ended March 31, 2024, 2025 and 2026 respectively. For the year ended March 31,\n2026, the managing director of a subsidiary repaid $20 to the Group.\n\n \n\n13.INVESTMENTS IN EQUITY METHOD INVESTEES\n\n \n\nThe following table\nprovides a reconciliation of the investments in equity method investees in the Group’s consolidated balance sheets as of March 31,\n2025 and 2026 and the amount of underlying equity in net assets of the equity investees:\n\n \n\n  \nAs of March 31, \n\n  \n2025  \n2026 \n\n  \n$  \n$ \n\n  \n   \n  \n\nThe Group’s proportionate share of equity in  the net assets of equity investees \n 5  \n 5 \n\nLess: Accumulated impairment losses recognized \n (5) \n (5)\n\n  \n    \n   \n\nInvestments in equity investees reported in the consolidated balance sheets \n \n-\n  \n \n-\n \n\n \n\nAs of March 31, 2025\nand 2026, investment in equity method investees represented the 50% equity interest in Kayser Technik (Overseas) Inc. (K.T.I) (“Kayser\nTechnik (Overseas)”), a company incorporated in Republic of Panama, which was formerly engaged in the trading of camera batteries,\nfilms, and disposable cameras. Kayser Technik (Overseas) was inactive, and the investment was fully impaired as of March 31, 2025 and\n2026.\n\n \n\n14.Accrued expenses, other current liabilities and LONG TERM ACCRUED\nEXPENSES\n\n \n\nAccrued expenses,\nother current liabilities and long term accrued expenses consisted of the following:\n\n \n\n  \nAs of March 31, \n\n  \n2025  \n2026 \n\n  \n$  \n$ \n\n  \n   \n  \n\nAccrued payroll \n 76  \n 103 \n\nAccrued housing allowance \n 200  \n 194 \n\nAccrued other social benefits \n 486  \n 298 \n\nDefined benefit obligation \n 23  \n 26 \n\nContract liability \n 10  \n 225 \n\nAccrued audit fee \n 179  \n 234 \n\nOthers \n 323  \n 455 \n\n  \n    \n   \n\n  \n 1,297  \n 1,535 \n\n  \n    \n   \n\nLess: Long term accrued expenses \n 23  \n 26 \n\n  \n    \n   \n\nCurrent portion \n 1,274  \n 1,509 \n\n \n\nF-40\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n14.Accrued expenses, other current liabilities AND LONG TERM ACCRUED\nEXPENSES - continued\n\n \n\nAccrued other\nsocial benefits represented the provision of employment termination payments based on management approved restructuring plan for relocating\nits manufacturing facilities based on China’s Labor laws. The restructuring plan is currently in process and expected to be completed\nwithin twelve months from March 31, 2026. The provision amount is reasonably estimated based on China’s Labor laws and management\nestimation of acceptance rate. During the year ended March 31, 2026, an\nadjustment to the liabilities $229 and $10 were recognized in the cost of sales and selling, general and administrative expenses, respectively.\nIt was based on the management reassessment of the number of staffs of the employment termination plan. The Group allocated the amount\nof adjustment to the liabilities $125 and $104 to the two reportable segments Metal stamping and Mechanical OEM and Electric OEM, respectively.\nThe Group allocated the total amount of costs expected to be incurred in the employment termination $5 and $5 to the two reportable segments\nMetal stamping and Mechanical OEM and Electric OEM, respectively.\n\n \n\nAccording\nto note 2(q), defined benefit obligation represented the amounts entitled by Hong Kong employees that have been employed continuously\nfor at least five years in accordance with the Hong Kong Employment Ordinance under certain circumstances. These circumstances include\nwhere an employee is dismissed for reasons other than serious misconduct or redundancy, that employee resigns at the age of 65 or above,\nor the employment contract is of fixed term and expires without renewal. For\nthe eligible employees to be retired, resigned or dismissed before May 1, 2025, defined benefit obligations are calculated based on two-thirds\nof the salary of last month (or average monthly salary over last twelve months) and the reckonable years of service subject to a maximum\namount of HK$390,000 (equivalent to $50). For the eligible employees to be retired, resigned or dismissed on or after May 1, 2025, defined\nbenefit obligations are divided into two portions (i.e. pre-transition portion and post-transition portion). The pre-transition portion\nis calculated based on two-thirds of the salary for April 2025 (or average monthly salary for the twelve months ending April 30, 2025)\nand the reckonable years of service up to April 30, 2025. The post-transition portion is calculated based on two-thirds of the salary\nof the last month (or average monthly salary over the last twelve months) and the reckonable years of service counting from May 1, 2025\nto the last day of employment. The total of the two portions is subject to a maximum amount of HK$390,000 (equivalent to $50).\n\n \n\n15.LEASES\n\n \n\nOn March 21, 2026 , the Group entered\ninto a lease agreement for executive and administrative offices in Hong Kong, under a three-year lease that expire in March 2029.\n\n \n\nOn March 1, 2026, the Group entered\ninto lease agreements for factory space and dormitories located in Shenzhen, China that expire in February 2029.\n\n \n\nOn March 29, 2019, the Group entered\ninto a lease agreement for factory space located in Yangon, Myanmar that expire in March 2069. The lease for the factory space has a term\nof 50 years, Kayser Myanmar has the option to extend the lease term for two consecutive 10-year terms on the same terms and conditions\nas in effect for the initial 50-year period. Kayer Myanmar is obligated under the lease to make monthly lease payment equal to 10 million\nMyanmar Kyat (equivalent to $4.8 per month as of March 31, 2026).\n\n \n\nDuring the year ended March 31, 2019,\nKayser Myanmar has paid Konig Company $950 as prepaid rent under the lease, approximately 12 years of rental payments.\n\n \n\nF-41\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n15.LEASES – continued\n\n \n\nIn January 2024, Kayser Myanmar has\nfurther advanced $123 (equivalent to MMK 259 million) as prepaid rent under the lease, approximately 2 years of rental payments, the Group\nsubsequently measured the lease liability, with an adjustment to the corresponding ROU asset. Accordingly, lease liabilities were decreased\nby $53 and ROU asset was increased by $70.\n\n \n\nAs of March 1, 2026, Regent had\nlease agreements for factory space and equipment, and an electric power system located in Bremen, Germany, originally entered into in\n2018 and 2024 respectively that expire in August 2028. In addition, the Regent had two separate motor vehicle lease agreements, with expiration\ndates in November 2027 and January 2028, respectively.\n\n \n\nFor the years ended March 31, 2024 and\n2026, as the estimated undiscounted future cashflows are less than the carrying value of ROU assets, an impairment loss of $527 and $106\nwas recognized respectively. Income approach was used to measure the fair value of assets and liabilities. Impairment loss was recognized\nas the adverse changes in the business climate negatively impact the Group’s business operations. No impairment of ROU assets was\nrecognized during the year ended March 31, 2025.\n\n \n\n   2024   2025   2026 \n\n   $   $   $ \n\n             \n\nOperating lease cost   696*   689*   725*\n\n                \n\nWeighted Average Remaining Lease Term - Operating leases   8.77 years    8.75 years    5.27\nyears \n\nWeighted Average Discount Rate - Operating leases   8.06%^   8.14%^   5.29%^\n\n \n\n*No unconditional government subsidy received for factory space\nand dormitories located in Shenzhen in 2024, 2025 and 2026.\n\n \n\n^The interest rate used to determine the present value of the\nfuture lease payments is the Group’s incremental borrowing rate (“IBR”), because the interest rate implicit in most\nof the Group’s leases is not readily determinable. The IBR is a hypothetical rate based on the Group’s understanding of what\nits credit rating would be to borrow and resulting interest the Group would pay to borrow an amount equal to the lease payments in a\nsimilar economic environment over the lease term on a collateralized basis.\n\n \n\nF-42\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n15.LEASES – continued\n\n \n\nThe following is a schedule, by years,\nof maturities of lease liabilities as of March 31, 2026:\n\n \n\n  \nOperating leases \n\n  \n$ \n\nYear ending March 31, \n  \n\n2027 \n 906 \n\n2028 \n 914 \n\n2029 \n 715 \n\n2030 \n \n-\n \n\n2031 \n \n-\n \n\nThereafter \n 1,213 \n\n  \n   \n\nTotal undiscounted cash flows \n 3,748 \n\nLess: imputed interest \n (1,162)\n\n  \n   \n\nPresent value of lease liabilities \n 2,586 \n\n \n\n16.\nLONG-TERM\nLOAN PAYABLE\n\n \n\nPrior to the acquisition on March 1,\n2026, Regent had entered into loan arrangements with financial institutions and an unrelated third-party lender to finance its\nworking capital needs and ongoing operating expenses. Interest expense of $1 was paid during the year ended March 31, 2026.\n\n \n\nLong-term loan payable consisted of the following:\n\n \n\n  \nLong-term loan payable \n\n  \n$ \n\nFinancial institutions\n\n \n 460 \n\n- Loan of $34 at interest rate 4.81%, due November 30, 2027 \n   \n\n- Loan of $128 at interest rate 1.54%, due June 30, 2029^ \n   \n\n- Loan of $28 at interest rate 3%, due April 30, 2030 \n   \n\n- Loan of $270 at interest rate 3%, due June 30, 2030 \n   \n\nThird-party lender\n\n \n 109 \n\n- Loan of $109 at interest rate 3%, due August 31, 2027 \n   \n\nTotal \n 569 \n\nLess current portion \n (162)\n\nNon- current portion \n 407 \n\n \n\n^As of March 31, 2026, property, plant and equipment with net\ncarrying amount of $67 were pledged as collateral.\n\n \n\nF-43\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n17.\nCOMMITMENTS AND CONTINGENCIES\n\n \n\nAs of March 31, 2025 and 2026, the Group\ndid not have commitments for capital expenditure contracted for but not provided in the consolidated financial statements in respect of\nthe acquisition of property, plant and equipment.\n\n \n\n18.\nOFF-BALANCE SHEET EXPOSURE\n\n \n\nPursuant to agreements signed in October\n2020 and January 2021, the Group has extended a credit facility of $1,000 to a new customer for 30 months expiring on April 5, 2023. The\nagreement and the credit facility were extended for a further 24 months based on a promissory note signed on May 30, 2023 and that the\noutstanding balance as of March 31, 2023 will be repaid by July 31, 2023. This credit facility is collateralized by the intellectual property\nrights of the customer, personal guarantees of the shareholders of the customer and 10% of the common stock of the customer.\n\n \n\nSubsequently during the year ended March\n31, 2024, the off-balance sheet credit facility was terminated with mutual consent and the credit term was changed to 30 days after invoice\ndate. As of March 31, 2025 and 2026, the Group did not have any off-balance sheet exposure to this customer.\n\n \n\n19.\nDIVIDENDS\n\n \n\nThe Company declared three dividend\npayments during the fiscal year ended March 31, 2025: a dividend of $0.05 per share that was paid on May 3, 2024, a dividend of $0.02\nper share that was paid on October 11, 2024 and a dividend of $0.05 per share that was paid on December 24, 2024. No dividend was paid\nduring the fiscal year ended March 31, 2026\n\n \n\nF-44\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n20.\nCONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS AND SUPPLIERS\n\n \n\nThe Group’s\nfinancial instruments that are exposed to concentrations of credit risk consist primarily of its cash and cash equivalents and accounts\nreceivables.\n\n \n\nThe Group’s\ncash and cash equivalents are high-quality deposits placed with authorized banking institutions. This investment policy limits the Group’s\nexposure to concentrations of credit risk.\n\n \n\nAccounts receivable from the three\ncustomers with the largest receivable balances or customers that individually comprised 10% or more of receivable balance as of March\n31, 2025 and 2026 are as follows:\n\n \n\n  \nPercentage of\n\naccounts receivable \n\n  \n2025  \n2026 \n\n  \n%  \n% \n\n  \n   \n  \n\nCustomer B (note e) \n 21.5  \n 38.2 \n\nCustomer D \n 32.9  \n 24.5 \n\nCustomer E \n \n-\n  \n 12.1 \n\nCustomer C (note f) \n 25.4  \n *** \n\n  \n    \n   \n\nThree largest receivable balances \n 79.8  \n 74.8 \n\n \n\nA substantial percentage of the Group’s\nsales are made to three customers and are typically on an open account basis. Customers accounting for 10% or more of total revenue from\ncontracts with customers in any of the years ended March 31, 2024, 2025 and 2026 are as follows:\n\n \n\n  \nFor the Years Ended March 31, \n\n  \n2024  \n2025  \n2026 \n\n  \n%  \n%  \n% \n\nCustomer B (note a, note e) \n 24.0  \n 31.9  \n 34.7 \n\nCustomer C (note b, note f) \n 34.4  \n 41.2  \n 24.0 \n\nCustomer D (note a) \n 11.2  \n 15.4  \n 21.7 \n\nCustomer A (note c, note d) \n 12.9  \n ***  \n *** \n\nCustomer E (note a) \n 10.7  \n ***  \n *** \n\n  \n    \n    \n   \n\n  \n 93.2  \n 88.5  \n 80.4 \n\n \n\nF-45\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n20.CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS AND SUPPLIERS - continued\n\n \n\nContract liability\nfrom customer(s) that represent 10% or more of the Group’s total contract liabilities:\n\n \n\n  \nPercentage of\n\nContract Liabilities \n\n  \n2025  \n2026 \n\n  \n%  \n% \n\n  \n   \n  \n\nCustomer A (note c, note d) \n ***  \n 90.0 \n\nCustomer F \n 100  \n \n***\n \n\n  \n    \n   \n\n  \n 100.0  \n 90.0 \n\n \n\nNotes:\n\n \n\n(a)Sales\nto these customers were reported in both of the Metal Stamping and Mechanical OEM and Electric OEM operating segments.\n\n \n\n(b)Sales\nto this customer was reported in the Metal Stamping operating segment.\n\n \n\n(c)Sub-contracting\nincome received was reported in Electric OEM operating segment.\n\n \n\n(d)Customer\nA is the same entity as Supplier E below.\n\n \n\n(e)Customer\nB is the same entity as Supplier D below.\n\n \n\n(f)Customer\nC is the same entity as Supplier A below.\n\n \n\n***Represented\nnot reaching 10% threshold in the respective years.\n\n \n\nAccounts payable to suppliers that individually\ncomprised 10% or more of accounts payable balance as of March 31, 2025 and 2026 are as follows:\n\n \n\n  \nPercentage of\n\naccounts payable \n\n  \n2025  \n2026 \n\n  \n%  \n% \n\n  \n    \n   \n\nSupplier E (note g) \n 15.5  \n 11.0 \n\nSupplier A (note h) \n 19.7  \n *** \n\n  \n    \n   \n\n  \n 35.2  \n 11.0 \n\n \n\nF-46\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n20.CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS AND SUPPLIERS - continued\n\n \n\nSuppliers accounting\nfor 10% or more of net purchases for the years ended March 31, 2024, 2025 and 2026 are as follows:\n\n \n\n  \nFor the Years Ended March 31, \n\n  \n2024  \n2025  \n2026 \n\n  \n%  \n%  \n% \n\n  \n   \n   \n  \n\nSupplier C \n ***  \n 16.2  \n 16.7 \n\nSupplier A (note h) \n 10.7  \n 19.3  \n *** \n\n  \n    \n    \n   \n\n  \n 10.7  \n 35.5  \n *** \n\n \n\nNotes:\n\n \n\n(g)Supplier E is the same entity as Customer A above.\n\n \n\n(h)Supplier A is the same entity as Customer C above.\n\n \n\n***Represented not reaching 10% threshold in the respective years\n\n \n\n21.\nFOREIGN CURRENCY EXCHANGE RISK\n\n \n\nThe Group receives\nrevenue primarily in U.S. dollars. Payments are made in U.S. dollars, Hong Kong dollars, Chinese Renminbi, Euro and Myanmar Kyat. Currency\nexchange rate fluctuations affect the Group’s operating costs, and also affect the price the Group receives for the products that\nit sells. Most of the Group’s net sales are to Europe and to the U.S. In order to mitigate the currency exchange rate risks related\nto changes in the value of the U.S. dollar, the Group has requested its European customers to pay in U.S. dollars, and from fiscal 2024,\nsubstantially all of the Group’s European customers did so. In addition, the Group has entered into agreements with certain of its\nlarger European customers that permit the Group’s prices to be adjusted every three months to account for currency fluctuations.\n\n \n\nThe Group does not utilize any form\nof financial hedging or option instruments to limit its exposure to exchange rate or material price fluctuations and has no current intentions\nto engage in such activities in the future.\n\n \n\nF-47\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n22.\nNET (LOSS) INCOME PER SHARE\n\n \n\nThe following table\nsets forth the computation of basic and diluted net (loss) income per share for years indicated:\n\n \n\n  \nFor the Years Ended March 31, \n\n  \n2024  \n2025  \n2026 \n\n  \n$  \n$  \n$ \n\n \n    \n    \n   \n\nNet (loss) income attributable to Highway\nHoldings Limited’s shareholders, basic and diluted \n (959) \n 106  \n (1,524)\n\n  \n    \n    \n   \n\nShares: \n    \n    \n   \n\nWeighted average common shares used in computing basic net (loss) income per share \n 4,373,236  \n 4,401,825  \n 4,554,360 \n\n  \n    \n    \n   \n\nDilutive stock option \n \n-\n  \n \n-\n  \n \n-\n \n\n  \n    \n    \n   \n\nWeighted average common shares used in computing diluted net (loss)\nincome per share \n 4,373,236  \n 4,401,825  \n 4,554,360 \n\n  \n    \n    \n   \n\nNet (loss) income per share, basic \n (0.22) \n 0.02  \n (0.33)\n\n  \n    \n    \n   \n\nNet (loss) income per share, diluted \n (0.22) \n 0.02  \n (0.33)\n\n \n\nFor the years ended March 31, 2024,\n2025 and 2026 stock options to purchase 195,000 shares, nil shares and nil shares of the Company’s stock were excluded respectively\nfrom the EPS calculation, as their effects were anti-dilutive.\n\n \n\nF-48\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n23.\nSTAFF RETIREMENT PLANS\n\n \n\nAs disclosed in note 2(q), the Group initially recognizes\ndefined benefit obligation to be made by the Group to its Hong Kong employees upon the termination of services under post-retirement benefits\nduring the year ended March 31, 2024. An employee employed under a continuous contract for not less than five years is eligible for post-retirement\npayments if the employee retires, resigns or is dismissed under qualifying conditions.\n\n \n\nAs of March 31, 2026, $26 (2025: $23)\nwas recognized as defined benefit obligation. Upon initiation of the plan during March 31, 2024, the amount is fully recognized as prior\nservice cost.- to be update\n\n \n\nThe Group also operates a Mandatory\nProvident Fund (“MPF”) scheme for all qualifying employees in Hong Kong. The MPF is a defined contribution scheme and the\nassets of the scheme are managed by a trustee independent of the Group. The MPF is available to all employees aged 18 to 64 with at least\n60 days of service under the employment of the Group in Hong Kong. Contributions are made by the Group to the MPF at a rate of 5% based\non each employee’s relevant compensation, subject to a cap of HK$1,500 (equivalent to $0.19) per month. Total amounts of such employee\nbenefit expenses, which were expensed as incurred, were approximately $44, $39 and $35 for the years ended March 31, 2024, 2025 and 2026,\nrespectively.\n\n \n\nThe Group’s\nfull-time employees in China participate in a government-mandated multiemployer defined contribution plan pursuant to which certain medical\ncare unemployment insurance, employee housing fund and other welfare benefits are provided to employees. The China labor regulations require\nthe Group to accrue for these benefits based on certain percentages of the employees’ salaries. No forfeited contributions may be\nused by the employer to reduce the existing level of contributions. Total amounts of such employee benefit expenses, which were expensed\nas incurred, were approximately $86, $118 and $134 for the years ended March 31, 2024, 2025 and 2026, respectively.\n\n \n\nUnder the Social Security\nSchemes in Myanmar, the Group was required registration of its employees with the Social Security Board. Contributions are made by the\nGroup to the social security plan at a rate of 3% based on each employee’s relevant compensation, subject to a cap of 9,000 Kyat\n(equivalent to $0.004) per month. Total amounts of such employee benefit expenses, which were expensed as incurred, were approximately\n$3, $3 and $2 for the years ended March 31, 2024, 2025 and 2026, respectively.\n\n \n\nThere is no gratuity/end\nof service/pension entitlements stipulated under Myanmar law for private sector employees. Presently there is no pension plan required\nby Myanmar law compelling private sector employees or employers to make pension contributions. The Group does not provide additional private\npension plans to its employees in Myanmar.\n\n \n\nThe Group’s German subsidiaries participate in statutory social\nsecurity schemes constituting defined contribution plans, including statutory pension insurance, statutory health insurance, statutory\nlong-term care insurance, statutory unemployment insurance, and statutory accident insurance/employers’ liability insurance association.\nContributions are made by the Group to the statutory social security schemes based on certain percentage of the employees’ relevant\ncompensation. For statutory pension insurance and statutory unemployment insurance, the cap is 8,450 Euro (equivalent $9,700) per month,\nwhile for statutory health insurance and statutory long-term care insurance, it is 5,813 Euro (equivalent $6,700) per month. Total amounts\nof such employee benefit expenses, which were expensed as incurred, was approximately $15 for the year ended March 31, 2026 after acquisition\nfrom March 1, 2026.\n\n \n\nThe cost of the Group’s contribution to the staff retirement\nplans in Hong Kong, China and Myanmar amounted to $156, $120 and $141 for the years ended March 31, 2024, 2025 and 2026, respectively.\n\n \n\nF-49\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n24.\nSTOCK OPTIONS AND RESTRICTED SHARES\n\n \n\nOn June 20, 2020, the Group has adopted\nthe “2020 Stock Option and Restricted Stock Plan” (the “2020 Option Plan”). Under the 2020 Option Plan, the Company\nis authorized to grant options, and to issue restricted shares, for a total of 500,000 shares. The 2020 Option Plan is administered by\nthe Compensation Committee appointed by the Board of Directors, which determines the terms of the options granted, including the exercise\nprice, the number of common shares subject to the option and the option’s exercisability. Unless otherwise specified by the Compensation\nCommittee, the maximum term of options granted under the 2020 Option Plan is five years. Upon the approval by the Company’s shareholders\nin the annual general meeting held in October 2024, the total number of shares available under the 2020 Option Plan have been increased\nto 1,000,000 shares.\n\n \n\n*Stock Options Issued to Directors\nand Key Employees*\n\n \n\nNo options were granted\nfor the years ended March 31, 2024, 2025 and 2026 under the 2020 Option Plan.\n\n \n\nA summary of stock option activity during\nthe years ended March 31, 2024, 2025 and 2026 is as follows:\n\n \n\n           Weighted \n\n       Weighted   average \n\n   Number of   average   remaining \n\n   stock   exercise   contractual \n\n   options   price   life (years) \n\n       $     \n\nOutstanding as of March 31, 2023   225,000    1.97    1.36 \n\n                \n\nExercised   (30,000)   \n-\n    - \n\nCancelled   \n-\n    \n-\n    - \n\n                \n\nOutstanding  and exercisable as of March 31, 2024   195,000    1.97    0.36 \n\n                \n\nExercised   \n-\n    \n-\n    - \n\nExpired   (195,000)   \n-\n    - \n\n                \n\nOutstanding and Exercisable as of March 31, 2025   \n-\n    \n-\n    \n-\n \n\n                \n\nOutstanding and Exercisable as of March31, 2026   \n-\n    \n-\n    \n-\n \n\n \n\nAs of March 31, 2025 and 2026, there\nare no share options exercisable.\n\n \n\nF-50\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n24.\nSTOCK OPTIONS AND RESTRICTED SHARES - continued\n\n \n\n*Restricted Shares Issued to Directors\nand Key Employees*\n\n \n\nFor the year ended March 31, 2020, 175,000\nrestricted shares were granted to key employees under the 2010 Option Plan. The restricted shares will vest in five years. In the event\nthat any recipient’s employment with the Group is terminated before August 8, 2024, the Company will have the right to repurchase\nthe restricted shares at a price of $0.01 per share.\n\n \n\nOn January 4, 2021, the Board of Directors\ngranted awards for a total of 15,000 restricted shares at share price $4.12 to three consultants (5,000 restricted shares to each consultant)\nbased in Germany under the 2020 Option Plan. The number of restricted shares to be vested was based on the aggregate amount of qualified\nrevenues brought by the consultants to the Group during the 3-year vesting period from January 4, 2021 to January 4, 2024. Subsequently,\nthe three consultants cannot meet the qualified revenues criteria during the 3-year vesting period ended on January 4, 2024. Expenses\namounted to $45 was reversed fully during the year ended March 31, 2024. Previously, $5, $20 and $20 were recognized as expenses during\nthe years ended March 31, 2021, 2022 and 2023 respectively.\n\n \n\nNo restricted shares were granted for\nthe years ended March 31, 2023 and 2025 under the 2020 Option Plan.\n\n \n\nOn May 1, 2025, total of 160,000 restricted\nshares were granted to the Board of Directors and key employees 2020 Option Plan. The restricted shares will vest in three and five years\nto the Board of Directors and key employees respectively. In the event that any\nrecipient’s employment with the Group is terminated before April 30, 2028 and 2030 respectively, the Company will have the right\nto repurchase the restricted shares at a price of $0.01 per share. On March 1, 2026, 64,851 restricted shares were granted to LeMALe as\npart of consideration in 51% acquisition of Regent.\n\n \n\nOn May 13, 2023, Mr. Roland Kohl, the\nChief Executive Officer of the Company, was granted 300,000 shares of restricted shares under the Group’s 2020 Option Plan. The\nrestricted shares award granted to Mr. Roland Kohl is subject to vesting in tranches upon the Group’s achievement of certain strategic\ntransactions within five years from the date the shares were granted, and any shares not vested by the five-year anniversary of the date\nof grant or upon termination of Mr. Roland Kohl’s employment with the Group shall be forfeited and reconveyed to the Group. For\nthese restricted shares, any cash or stock dividend payable will be deemed to be restricted shares and will be retained by the Group until\nthe unvested shares on which such dividend was paid have vested. The vesting schedule is as follows:\n\n \n\n●100,000 of the restricted shares shall vest upon the establishment by the Company or one of its subsidiaries\nof a first merger and/or acquisition project within five years of the date of grant, subject to the approval of the majority of independent\nboard members.\n\n   \n\n●100,000 of the restricted shares shall vest upon the establishment by the Company or one of its subsidiaries\nof a second merger and/or acquisition project within five years of the date of grant, subject to the approval of the majority of independent\nboard members.\n\n   \n\n●A total 300,000 or whatever balance of restricted shares remains up to the total of 300,000 restricted\nshares shall vest upon the consummation of a reverse merger, approved by the majority of the independent board members, within five years\nof the date of grant.\n\n \n\nAs of March 31, 2026, the Group has\ntook over Regent that the first acquisition project is completed within five years of the date of grant. Accordingly, 100,000 (2024: 100,000)\nof the restricted shares shall vest and compensation expense of $121 (2025: $39) was recognized for the year ended March 31, 2026.\n\n \n\nF-51\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n24.\nSTOCK OPTIONS AND RESTRICTED SHARES - continued\n\n \n\nThe restricted shares granted under\nthe 2010 Option Plan and the 2020 Option Plan resulted in a compensation expense of $58, $61 and $60 for the years ended March 31, 2024,\n2025 and 2026 respectively, which is included in selling, general and administrative expenses.\n\n \n\nAs of March 31, 2024, 2025 and 2026,\nthere were respectively $572, $509 and $581 unrecognized compensation cost related to non-vested restricted shares granted under the 2010\nOption Plan and the 2020 Option Plan. The cost was expected to be recognized over a weighted-average period of 2.73, 3.08 and 2.65 years\nrespectively.\n\n \n\nAs of March 31, 2024, 2025 and 2026,\nthe Company has the right to repurchase 475,000, 300,000 and 460,000 shares respectively at a price of $0.01 per share when restricted\nshares be forfeited and reconveyed to the Company.\n\n \n\nA summary of restricted shares activity\nduring the years ended March 31, 2025 and 2026 is as follows:\n\n \n\n  \n   \nWeighted \n\n  \nNumber of  \naverage \n\n  \nnon-vested  \ngrant date \n\n  \nrestricted\n\nshares  \nfair\n\nvalue \n\n  \n   \n$ \n\n  \n   \n  \n\nOutstanding as of March 31, 2024 \n 475,000  \n 1.95 \n\nVested \n (175,000) \n \n-\n \n\n  \n    \n   \n\nOutstanding as of March 31, 2025 \n 300,000  \n 1.94 \n\nGranted \n 224,851  \n \n-\n \n\n  \n    \n   \n\nOutstanding as of March 31, 2026 \n 524,851  \n 1.70 \n\n \n\n25.\nSEGMENT INFORMATION\n\n \n\nThe Group’s\nchief operating decision maker, who has been identified as the Company’s Chief Executive Officer, evaluates segment performance\nand allocates resources based on several factors, of which the primary financial measure is operating income.\n\n \n\nAs of March 31, 2026, the Group operates\nin three segments, Metal stamping and mechanical OEM segment, Electric OEM segment and Service segment. The Metal stamping and mechanical\nOEM segment focus on manufacturing and sale of metal parts and components. The Electric OEM segment focuses on manufacturing and sale\nof plastic and electronic parts and components. The Service segment focuses on income from the service.\n\n \n\nCorporate represented\nexpenses that are not allocated to reportable segments and other corporate items.\n\n \n\nF-52\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n25.\nSEGMENT INFORMATION - continued\n\n \n\nA summary of the revenue from contracts\nwith customers, profitability information and asset information by segment and geographical areas is shown below:\n\n \n\n  \nMetal\n\nstamping and\n\nMechanical OEM  \nElectric\nOEM  \nOther Services  \nCorporate  \nConsolidated \n\nFiscal year ended March 31, 2026 \n   \n   \n   \n   \n  \n\nRevenues: \n   \n   \n   \n   \n  \n\nSales of products \n$2,713  \n 2,078  \n \n-\n  \n \n-\n  \n 4,791 \n\nSub-contracting income \n \n-\n  \n \n-\n  \n \n-\n  \n \n-\n  \n \n-\n \n\nOther Service income \n \n-\n  \n \n-\n  \n 14  \n \n-\n  \n 14 \n\nTotal revenue \n 2,713  \n 2,078  \n 14  \n \n-\n  \n 4,805 \n\nCost \n 2,010  \n 1,398  \n 31  \n \n-\n  \n 3,439 \n\nGross Profit/(Loss) \n 703  \n 680  \n (17) \n \n-\n  \n 1,366 \n\nOperating expenses: \n    \n    \n    \n    \n   \n\nSelling, general and administrative expenses \n 1,797  \n 1,371  \n 220  \n 160  \n 3,548 \n\nImpairment of property, plant and equipment \n 5  \n 4  \n 10  \n \n-\n  \n 19 \n\nImpairment of operating lease right of use assets \n 60  \n 46  \n \n-\n  \n \n-\n  \n 106 \n\nTotal operating expenses \n 1,862  \n 1,421  \n 230  \n 160  \n 3,673 \n\nSegment loss \n$(1,160) \n (741) \n (246) \n (160) \n (2,307)\n\nReconciliation of segment profit or loss \n    \n    \n    \n    \n   \n\nExchange gain, net \n    \n    \n    \n    \n 22 \n\nInterest income \n    \n    \n    \n    \n 159 \n\nOther income \n    \n    \n    \n    \n 21 \n\nGain on disposal of property, plant and equipment \n    \n    \n    \n    \n 75 \n\nLoss before income taxes \n    \n    \n    \n    \n (2,030)\n\n  \n    \n    \n    \n    \n   \n\nOther segment information: \n    \n    \n    \n    \n   \n\nDepreciation expense \n$18  \n 9  \n 4  \n \n-\n  \n 31 \n\nAmortization expenses \n 5  \n \n-\n  \n \n-\n  \n \n-\n  \n 5 \n\nCapital expenditure \n 50  \n 41  \n 12  \n \n-\n  \n 104 \n\n \n\nF-53\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n25.\nSEGMENT INFORMATION - continued\n\n \n\n  \nMetal\nstamping and\n\nMechanical OEM  \nElectric\nOEM  \nCorporate  \nConsolidated \n\nFiscal year ended March 31, 2025 \n    \n    \n    \n   \n\nRevenues: \n    \n    \n    \n   \n\nSales of products \n$4,500  \n 2,912  \n \n-\n  \n 7,412 \n\nSub-contracting income \n \n-\n  \n \n-\n  \n \n-\n  \n \n-\n \n\nTotal revenue \n 4,500  \n 2,912  \n \n-\n  \n 7,412 \n\nCost \n 3,077  \n 1,865  \n \n-\n  \n 4,942 \n\nGross Profit \n 1,423  \n 1,047  \n \n-\n  \n 2,470 \n\nOperating expenses: \n    \n    \n    \n   \n\nSelling, general and administrative expenses \n 1,749  \n 1,149  \n 107  \n 3,005 \n\nImpairment of property, plant and equipment \n \n-\n  \n \n-\n  \n \n-\n  \n \n-\n \n\nImpairment of operating lease right of use assets \n \n-\n  \n \n-\n  \n \n-\n  \n \n-\n \n\nTotal operating expenses \n 1,749  \n 1,149  \n 107  \n 3,005 \n\nSegment loss \n$(326) \n (102) \n (107) \n (535)\n\nReconciliation of segment profit or loss \n    \n    \n    \n   \n\nExchange gain, net \n    \n    \n    \n 124 \n\nInterest income \n    \n    \n    \n 203 \n\nOther income \n    \n    \n    \n 22 \n\nGain on disposal of property, plant and equipment \n    \n    \n    \n 333 \n\nIncome before income taxes \n    \n    \n    \n 147 \n\n  \n    \n    \n    \n   \n\nOther segment information: \n    \n    \n    \n   \n\nDepreciation expense \n$6  \n 3  \n \n-\n  \n 9 \n\nCapital expenditure \n 62  \n 39  \n \n-\n  \n 101 \n\n \n\nF-54\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n25.\nSEGMENT INFORMATION - continued\n\n \n\n  \nMetal\n\nstamping and\n\nMechanical OEM  \nElectric\nOEM  \nCorporate  \nConsolidated \n\nFiscal year ended March 31, 2024 \n   \n   \n   \n  \n\nRevenues: \n   \n   \n   \n  \n\nSales of products \n$3,474  \n 2,029  \n \n-\n  \n 5,503 \n\nSub-contracting income \n \n-\n  \n 818  \n \n-\n  \n 818 \n\nTotal revenue \n 3,474  \n 2,847  \n \n-\n  \n 6,321 \n\nCost \n 2,719  \n 1,894  \n \n-\n  \n 4,613 \n\nGross Profit \n 755  \n 953  \n \n-\n  \n 1,708 \n\nOperating expenses: \n    \n    \n    \n   \n\nSelling, general and administrative expenses \n 1,158  \n 1,210  \n 109  \n 2,477 \n\nImpairment of property, plant and equipment \n 190  \n 145  \n \n-\n  \n 335 \n\nImpairment of operating lease right of use assets \n 302  \n 225  \n \n-\n  \n 527 \n\nTotal operating expenses \n 1,650  \n 1,580  \n 109  \n 3,339 \n\nSegment loss \n$(895) \n (627) \n (109) \n (1,631)\n\nReconciliation of segment profit or loss \n    \n    \n    \n   \n\nExchange gain, net \n    \n    \n    \n 198 \n\nInterest income \n    \n    \n    \n 248 \n\nOther income \n    \n    \n    \n 30 \n\nGain on disposal of property, plant and equipment \n    \n    \n    \n 16 \n\nLoss before income taxes \n    \n    \n    \n (1,139)\n\n  \n    \n    \n    \n   \n\nOther segment information: \n    \n    \n    \n   \n\nDepreciation expense \n$89  \n 70  \n \n-\n  \n 159 \n\nCapital expenditure \n 65  \n 53  \n \n-\n  \n 118 \n\n \n\nF-55\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n25.\nSEGMENT INFORMATION - continued\n\n \n\n  \nAs of March 31, \n\n  \n2025  \n2026 \n\n  \n$  \n$ \n\nTotal assets: \n    \n   \n\nMetal stamping and Mechanical OEM \n 5,041  \n 6,742 \n\nElectric OEM \n 4,302  \n 4,171 \n\nOther Services \n \n-\n  \n 26 \n\nCorporate \n 211  \n 57 \n\n  \n    \n   \n\nTotal assets \n 9,554  \n 10,996 \n\n \n\n  \nAs of March 31, \n\n  \n2025  \n2026 \n\n  \n$  \n$ \n\nProperty, plant and equipment, net: \n   \n  \n\nMetal stamping and Mechanical OEM \n 57  \n 317 \n\nElectric OEM \n 37  \n 72 \n\nOther Services \n \n-\n  \n \n-\n \n\n  \n    \n   \n\nTotal property, plant and equipment, net \n 94  \n 389 \n\n \n\nFor the year ended March 31, 2026,\nthe Group recognize impairment loss $5 in Metal stamping and Mechanical OEM (2025: $nil), $4 in Electric OEM (2025: $nil), and in Other\nService $10 (205: $nil) respectively.\n\n \n\nF-56\n\n \n\n \n\nHIGHWAY\nHOLDINGS LIMITED\n\n \n\nNOTES\nTO CONSOLIDATED FINANCIAL STATEMENTS - continued\n\n(In\nthousands of U.S. dollars, except for shares and per share data)\n\n \n\n25.SEGMENT INFORMATION - continued\n\n \n\nAll of the Group’s\nsales are coordinated through its head office in Hong Kong. The Group considers revenues to be generated by geographic area based on the\nphysical location of customers. the breakdown by geographic area is as follows:\n\n \n\n  \nYear ended March 31, \n\n  \n2024  \n2025  \n2026 \n\n  \n$  \n$  \n$ \n\nRevenue from contracts with customers: \n   \n   \n  \n\nHong Kong and China \n 906  \n 794  \n 629 \n\nEurope \n 4,214  \n 6,324  \n 3,784 \n\nOther Asian countries \n \n-\n  \n 3  \n 30 \n\nNorth America \n 1,201  \n 291  \n 362 \n\n  \n    \n    \n   \n\nTotal revenue from contracts with customers \n 6,321  \n 7,412  \n 4,805 \n\n \n\nAll of the Group’s\nproperty, plant and equipment are located in Hong Kong, China, Myanmar and Germany. The breakdown by geographic area is as follows:\n\n \n\n  \nAs of March 31, \n\n  \n2025  \n2026 \n\n  \n$  \n$ \n\nProperty, plant and equipment, net: \n   \n  \n\nHong Kong and China \n 83  \n 160 \n\nMyanmar \n 11  \n \n-\n \n\nGermany \n \n-\n  \n 229 \n\n  \n    \n   \n\nTotal property, plant and equipment, net \n 94  \n 389 \n\n \n\nFor the year ended\nMarch 31, 2026, the Group recognize impairment loss of property, plant and equipment $10 in Hong Kong and China (2025: $nil), and $9 Myanmar\n(2025: $nil), respectively.\n\n \n\n26.\nRELATED PARTY TRANSACTION\n\n \n\nThere are no material\nrelated party transactions for the years ended March 31, 2024, 2025 and 2026.\n\n \n\n27.\nSUBSEQUENT EVENT\n\n \n\nTh Group has evaluated events from the year ended March 31, 2026 through\nthe date the financial statements were issued. There were no subsequent events that need disclosure.\n\n \n\n* * * * * 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