DESWELL INDUSTRIES INC

ITEM 3. KEY INFORMATION

Our Holding Company Structure

Deswell was incorporated in the British Virgin Islands on December 2, 1993. Deswell is not an operating company but rather a holding company conducting its operations through Deswell’s subsidiaries, primarily in Macao and mainland China. This structure involves unique risks to investors and you may never directly hold equity interests in Deswell’s operating entities. You are specifically cautioned that there are significant legal and operational risks associated with being based in or having the majority of operations in China. The legal and operational risks associated with being based in and having operations in mainland China also apply to our operations in Macao and our holdings in Hong Kong. Recently, the PRC government initiated a series of regulatory actions and made a number of public statements on the regulation of business operations in China, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using a Variable Interest Entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding efforts in anti-monopoly enforcement. We do not believe that our subsidiaries in Macao or mainland China are directly subject to these regulatory actions or statements, as we have not carried out any monopolistic behavior and our business does not involve the collection of personal information or implicate national security. However, since these statements and regulatory actions by the PRC government are newly published and detailed official guidance and related implementation rules have not been issued or taken effect, uncertainties exist as to how soon the regulatory bodies in China will finalize implementation measures, and the impacts the modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list the Company’s securities on an U.S. or other foreign exchange. For a detailed description of risks relating to doing business in China, see “ITEM 3. Key Information — Risk Factors — Risks Related to Doing Business in China.”

Deswell is a holding company and its principal administrative office is located in Macao. Our primary manufacturing operations are conducted in China through our subsidiaries, Jetcrown Industrial (Dongguan) Limited, and Dongguan Kwan Hong Electronics Co. Ltd., both of which are located in Dongguan, China. We conduct trading operations in Macao through our subsidiaries, Kwanasia Electronics (Macao Commercial Offshore) Ltd. and Jetcrown Industrial (Macao Commercial Offshore) Limited. Our operating subsidiaries are directly owned by intermediate holding companies located in the BVI and Samoa. Our intermediate holding companies in the BVI include Ideatop Holdings Ltd., Blue Collar Holdings Ltd., Joint Harvest Industries Ltd., Star Peace Ltd. and Rainbow Hill Ltd. Our intermediate holding company in Samoa is Integrated International Ltd.. We do not currently have operations in Hong Kong.

The following diagram illustrates the organizational structure of the Company and its active subsidiaries at March 31, 2025.

The Holding Foreign Companies Accountable Act

The Holding Foreign Companies Accountable Act (the “HFCAA”) enacted in 2020, provides that if the auditor of a U.S. listed company’s financial statements is not subject to Public Company Accounting Oversight Board (the “PCAOB”) inspections for three consecutive “non-inspection” years, the Securities and Exchange Commission (the “SEC”) is required to prohibit the securities of such issuer from being traded on a U.S. national securities exchange, such as NYSE and Nasdaq, or in U.S. over-the-counter markets. On December 29, 2022, U.S. Congress passed and the President of the United Stated signed into law the Consolidated Appropriations Act, 2023, which, among other things, amended the HFCAA to shorten the timeframe from three consecutive “non-inspection” years to two consecutive “non-inspection” years. On December 16, 2021, the PCAOB issued a report to notify the SEC that it was unable to completely inspect or investigate registered public accounting firms headquartered in Mainland China, including our auditor, BDO China Shu Lun Pan Certified Public Accountants LLP, a registered public accounting firm headquartered in Shanghai, China. On August 29, 2022, we were conclusively listed by the SEC as a “Commission-Identified Issuer”

under the HFCAA as having filed audit reports issued by a registered public accounting firm that could not be inspected or investigated completely by the PCAOB in connection with the filing of our annual report on Form 20-F for the fiscal year ended March 31, 2022. On December 15, 2022, the PCAOB issued a report vacating its December 16, 2021 determination and removing Mainland China and Hong Kong from the list of jurisdictions where it is unable to completely inspect or investigate registered public accounting firms, and a statement released from the Chairman of the PCAOB stated that the PCAOB has secured complete access to inspect and investigate such registered public accounting firms headquartered in Mainland China and Hong Kong. For this reason, we do not expect to be identified as a “Commission-Identified Issuer” under the HFCAA after we file this annual report on Form 20-F for the fiscal year ended March 31, 2025.

Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we continue to use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the SEC, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year and the SEC could prohibit our shares from being traded on Nasdaq. The threat of being delisted, may materially and adversely affect the value of your investment. These risks could result in a material adverse change in our operations and the value of our shares, significantly limit or completely hinder our ability to continue to offer securities to investors, or cause the value of such securities to significantly decline or become worthless. For more details, see “ITEM 3. Key Information — Risk Factors — Risks Related to Doing Business in China — Our auditor, like other independent registered public accounting firms operating in China, is now permitted to be subject to inspection by the Public Company Accounting Oversight Board, and as such, investors will no longer be deprived of the benefits of such inspection.” and “ITEM 3. Key Information — Risk Factors — Risks Related to Doing Business in China — We could be delisted if the PCAOB becomes unable to completely inspect and investigate registered public accounting firms in Mainland China and Hong Kong again.”

Permissions and Licenses Required from the PRC government for Our Operations and Overseas Securities Offerings

We are required to obtain certain licenses and permits from relevant governmental authorities in China in order to operate our business, including business certificates, plants safety certificates and pollutant discharge permits. As of the date of this annual report, our subsidiaries in China have obtained business licenses from the PRC government authorities necessary for our business operations in China. We have not relied upon the opinion of PRC counsel in reaching these conclusions and have instead conducted our own analysis of the PRC laws as applied to our operations. We have not been asked to obtain any licenses or approvals from the Cyberspace Administration of China (the “CAC”) or the China Securities Regulatory Commission (the “CSRC”). We may be required to obtain additional licenses, permits, registrations, or approvals for our business operations in the future. We cannot assure you that we or our subsidiaries will be able to obtain, in a timely manner or at all, or maintain such licenses, permits or approvals, and we or our subsidiaries may also inadvertently conclude that such permissions or approvals are not required. Any lack of or failure to maintain requisite approvals, licenses or permits applicable to us or our subsidiaries may have a material adverse impact on our business, results of operations, financial condition and prospects and cause the value of any securities we offer to significantly decline or become worthless. If we fail to obtain or renew any of these approvals, licenses, permits or certifications, it could materially and adversely affect our business and results of operations.

On December 28, 2021, the CAC and other PRC regulatory authorities implemented the Measures for Cybersecurity Review, which became effective on February 15, 2022. According to the Measures for Cybersecurity Review, operators of critical information infrastructure purchasing network products and services, and data processors carrying out data processing activities that affect or may affect China’s national security, are required to conduct a cybersecurity review. Operators, including operators of critical information infrastructure and data processors, who control more than 1 million users’ personal information must report to the Cyber Security Review Office for a cybersecurity review if it intends to be listed in a foreign country. Companies seeking to list their securities on foreign exchanges may be subject to increased scrutiny by the CAC under the Measures for Cybersecurity Review.

We do not believe that our PRC subsidiaries are engaged in the operation of critical information infrastructure and data processors, and we do not control personal information for more than 1 million users. Accordingly, we do not believe that the Measures for Cybersecurity Review apply to us or our PRC subsidiaries. We cannot assure you that PRC regulatory agencies, including the CAC, would take the same view as we do, and we cannot assure you

that we can fully or timely comply with such legal or regulatory requirements. If we become subject to cybersecurity inspection and/or review by the CAC or other PRC authorities or are required by them to take any specific actions, it could cause disruptions to our operations, result in negative publicity regarding our company, and divert our managerial and financial resources. We may also be subject to significant fines or other penalties, which could materially and adversely affect our business, financial condition and results of operations.

On February 17, 2023, the CSRC promulgated Trial Administrative Measures of the Overseas Securities Offering and Listing by Domestic Companies (the “Overseas Listing Trial Measures”), which became effective on March 31, 2023. According to the Overseas Listing Trial Measures, PRC domestic companies that seek to offer and list securities in overseas markets, directly or indirectly, are required to comply with CSRC filing procedures.

Deswell is incorporated under the laws of the BVI, but our PRC subsidiaries are incorporated under the laws of China. The Overseas Listing Trial Measures, as currently written, will deem an offering by Deswell of its securities as an indirect offering by our PRC subsidiaries if: (1) 50% or more of our operating revenue, total profit, total assets or net assets, as documented in our audited consolidated financial statements for the most recent fiscal year, are accounted for by the PRC subsidiaries; and (2) our main business activities are conducted in China, or our main place of business is located in China, or the majority of senior management staff in charge of our business operations and management are PRC citizens or have their usual place of residence located in China.

The CSRC clarified at a press conference that existing domestic companies that have completed overseas offerings before March 31, 2023, such as us, shall not be required to perform filing procedures for the completed overseas securities issuance and listing. However, any of our subsequent securities offering in the same overseas market or subsequent securities offering and listing in other overseas markets may be subject to the filing requirement with the CSRC. We cannot predict whether the Overseas Listing Trial Measures will apply to any follow-on offerings that we may conduct in the future or that we will be able to obtain the required approval or accomplish the required filings or other regulatory procedures in a timely manner. If we fail to comply with the Overseas Listing Trial Measures, the CSRC may subject us to significant fines or other penalties, which could materially and adversely affect our business, financial condition and results of operations. See “ITEM 3. Key Information — Risk Factors — Risks Related to Doing Business in China — Permissions required from the PRC authorities for our operations could change requiring us to obtain additional licenses or abide by new regulations.”

Cash Flows through Our Organization

Deswell, the British Virgin Islands entity listed in the U.S., controls its operating subsidiaries in Macao and mainland China, through a number of British Virgin Islands subsidiaries and a Samoa subsidiary of Deswell (the “Intermediate Holding Companies”). See ITEM 4. “Information of the Company — Organizational Structure” for more details.

The funds of Deswell, the Intermediate Holding Companies and Macao subsidiaries are deposited in banks located in Hong Kong and Macao. The intercompany fund transfer between Deswell, the Intermediate Holding Companies and Macao subsidiaries is not limited by the laws of Hong Kong and Macao.

For the three years ended March 31, 2023, March 31, 2024 and March 31, 2025, Deswell paid dividends of $3.19 million, $3.19 million and $3.19 million respectively to its investors. Deswell expects to pay cash dividends on a semi-annual basis based on the Company’s six-month results. Whether future dividends will be declared will depend upon the Company’s future growth and earnings, of which there can be no assurance. See ITEM 8. “Dividend Policy” for more details. See ITEM 10. “Additional Information — Taxation” for information regarding the tax consequences of the dividends that Deswell pays to its investors.

The dividend of $3.19 million paid in the year ended March 31, 2023 was paid by Deswell from its reserve. The dividends of $3.19 million and $3.19 million paid by Deswell for the two years ended March 31, 2024 and March 31, 2025 were funded by the subsidiary, Kwanasia Electronics (Macao Commercial Offshore) Ltd (“KEMCO”). KEMCO declared dividends to its immediate holding company, Joint Harvest Industries Ltd. (“Joint Harvest”), in the amounts of $3.19 million and $3.19 million for the two years ended March 31, 2024 and March 31, 2025, respectively. KEMCO is subject to Macao Profits Tax (currently at 12%) on its taxable income. The dividends distributed were paid out of after-tax profits, and no additional withholding tax applies under Macao law for dividends paid to non-resident entities (such as Joint Harvest).

Joint Harvest then declared dividends to its immediate holding company, Integrated International Ltd (“Integrated”), in the amounts of $3.19 million, and $3.19 million for the two years ended March 31, 2024 and March 31, 2025, respectively. Joint Harvest, as a holding company incorporated in the BVI, does not incur corporate income tax or withholding tax on dividend distributions.

Integrated then declared dividends to its holding company, Deswell, in the amounts of $3.19 million, and $3.19 million for the two years ended March 31, 2024 and March 31, 2025, respectively. Integrated is an International Company incorporated in Samoa. Under current Samoa law, Integrated is not subject to corporate income tax and withholding taxes on dividend distribution as it has no business operations in Samoa.

For operational efficiency, the physical transfer of funds was executed directly from KEMCO to Deswell, bypassing the intermediate holding companies, Joint Harvest and Integrated. However, the documentation and accounting records properly reflected the dividend declarations and approvals at each entity level, maintaining compliance with corporate governance requirements.

The cross-border transfer of funds from the Intermediate Holding Companies to its Chinese subsidiaries is legal and compliant with the laws and regulations of China. The Intermediate Holding Companies are permitted to provide funding to their subsidiaries in mainland China in the form of shareholder loans or capital contributions, subject to satisfaction of applicable government registration, approval and filing requirements of the respective jurisdiction. There are no quantity limits on capital contributions by the Intermediate Holding Company to the subsidiaries in mainland China under the PRC regulations. Historically, cash proceeds raised from overseas financing activities by Deswell have been first transferred to the Intermediate Holding Companies. Whenever we need to make capital contributions to the PRC subsidiaries by contributing any of such net proceeds, and convert the contributed proceeds into RMB, we will need to increase the PRC subsidiary’s registered capital by registering and/or filing the increase with the Ministry of Commerce or one of its local branches, the State Administration of Foreign Exchange (“SAFE”) or one of its local branches, or an authorized bank.

Current PRC regulations permit our PRC subsidiaries to pay dividends to their holding companies only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. Each of our PRC subsidiaries is required to set aside at least 10% of its after-tax profits after making up previous years’ accumulated losses each year, if any, to fund certain statutory reserve funds until the total amount set aside reaches 50% of its registered capital. In addition, it may allocate a portion of its after-tax profits based on PRC accounting standards to discretionary reserve funds at its discretion. These reserves are not distributable as cash dividends. In addition, if any of our operating subsidiaries incurs debt on its own behalf in the future, the instruments governing such debt may restrict its ability to pay dividends. For more details, see “ITEM 5. Operating and Financial Review and Prospects — Liquidity and Capital Resources — Restricted net assets” To the best of our knowledge, current PRC regulations do not prohibit or limit using cash generated from one subsidiary to fund another subsidiary’s operations. We currently do not have our own cash management policy and procedures that dictate how funds are transferred.

For the years ended March 31, 2023, 2024 and 2025, no dividend or distribution was made to Deswell or the Intermediate Holding Companies by our PRC subsidiaries. Accordingly, no withholding tax was recorded in the corresponding period.

For more details, see “ITEM 3. Key Information — Risk Factors — Risks Related to Doing Business in China — Due to restrictions under PRC law on distributions of dividends by our subsidiaries in the PRC, we may be forced to reduce the amount of, or not be able to pay, dividends to our shareholders.”, “ITEM 3. Key Information — Risk Factors — Risks Related to Doing Business in China — PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from making loans to our PRC subsidiaries or making additional capital contributions to our wholly foreign-owned subsidiaries in China, which could materially and adversely affect our liquidity and our ability to fund and expand our business.” and “ITEM 3. Key Information — Risk Factors — Risks Related to Doing Business in China — Restrictions on the convertibility of RMB into foreign currency may limit our ability to transfer excess funds or dividends to the Company’s subsidiaries outside China.”

Enforceability of Civil Liabilities

We are incorporated under the laws of the BVI. As a result, it may be difficult or impossible to effect service of process on Deswell within the United States or to recover on judgments rendered by United States courts against us. There is currently no arrangement providing for the reciprocal enforcement of judgements between the BVI and the United States. A judgment obtained in United States federal or state courts under which a definite sum of money is payable as compensatory damages may be brought as a separate cause of action to collect a debt in the BVI. The judgment for which enforcement is sought must be final and conclusive and from a foreign court of competent jurisdiction. This means enforcing a judgment rendered by United States courts in the BVI will require a separate cause of action in the BVI, which will lead to additional expenses and delays for the party seeking to enforcement a judgment against us. As a result, there is uncertainty as to the enforceability in the BVI of judgments rendered against us by United States courts.

There is currently no arrangement providing for the reciprocal enforcement of judgements between Hong Kong and the United States. Judgements of United States courts, or any other foreign jurisdiction without a treaty of reciprocity, will not be directly enforced in Hong Kong. However, under common law, a foreign judgment (including one from United States courts) may generally be treated by the courts of Hong Kong as a cause of action in itself and sued upon as a debt between the parties. In a common law action for enforcement of a foreign judgment, the judgment creditor has to prove that (i) the judgment is in personam; (ii) the judgment is in the nature of a monetary award; (iii) the judgment is final and conclusive on the merits and has not been stayed or satisfied in full; and (iv) the judgement is from a court of competent jurisdiction. The defenses available to the defendant in a common law action for enforcement of a foreign judgment include breach of natural justice, fraud and enforcement would be contrary to the public policy of Hong Kong. Enforcing a judgment from United States Courts in Hong Kong will require a separate cause of action in Hong Kong, which will cause both parties to incur additional expenses and lead to additional delays in any recovery on the part of a plaintiff. As a result, there is uncertainty as to the enforceability in Hong Kong of judgments of United States courts of civil liabilities predicated solely upon the federal securities laws of the United States or the securities laws of any State or territory within the United States.

Likewise, there is currently no arrangement providing for the reciprocal enforcement of judgements between China and the United States. There is uncertainty as to whether Chinese courts would enforce judgements of United States Courts against us or our officers and directors located in China.

According to the PRC Civil Procedures Law, courts in China will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC law or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States or any other foreign jurisdiction without a treaty of reciprocity. Under the PRC Civil Procedures Law, foreign shareholders may originate actions based on PRC law against us in China if they can establish sufficient connection to China for a PRC court to have jurisdiction, and meet other procedural requirements. However, it may be difficult for foreign shareholders to establish a sufficient connection to China for a PRC court to have jurisdiction as required under the PRC Civil Procedures Law.

The funds of Deswell, the Intermediate Holding Companies and Macao subsidiaries are deposited in banks located in Hong Kong and Macao. The funds of the PRC subsidiaries are deposited in banks located in China. Additionally, all of our officers and directors are located in, or are citizens of, Hong Kong. As a result, it may be difficult for investors to effect service of process within the United States upon or our officers and directors located in Hong Kong, or to enforce judgments obtained in U.S. courts against us or them, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States. It will also be costlier and time-consuming for investors to effect service of process outside the United States.

Risk Factors

We may from time to time make written or oral forward-looking statements. Written forward-looking statements may appear in this document and other documents filed with the Securities and Exchange Commission, in press releases, in reports to shareholders, on our website, and other documents. The Private Securities Litigation Reform Act of 1995 contains a safe harbor for forward-looking statements on which we rely in making such disclosures. In connection with this “safe harbor,” we are hereby identifying important factors that could cause actual results to differ materially from those contained in any forward-looking statements made by us or on our behalf. Any such statement is qualified by reference to the cautionary statements provided in this ITEM 3.

Summary of Risk Factors

• We are, and have been, dependent on a few major customers, the loss of, or substantial reduction in orders from, which would substantially harm our business and operating results.

• Our gross margins fluctuate from year to year and may be adversely affected by a number of factors.

• If we were a passive foreign investment company in fiscal 2025, or are in later years, U.S. investors could suffer adverse U.S. federal income tax consequences in such years.

• Changes in currency exchange rates have and could continue to influence our financial results significantly.

• If OEMs stop or reduce their manufacturing outsourcing, our business could suffer.

• We could experience credit problems with our customers, which could adversely impact our operating results and financial condition and could adversely reduce our future revenues.

• The failure of any bank in which we deposit our funds could result in a loss of those funds to the extent exceeding the amounts protected and could affect our ability to continue in business.

• Our industry is extremely competitive, with aggressive pricing dynamics, and if we are not able to continue to provide competitive products and services, we may lose business.

• We have no long-term contracts to obtain plastic resins and our profit margins and operating results could suffer from an increase in resin prices.

• Shortages of components and materials used in our production of electronics products may delay or reduce our sales and increase our costs.

• We face inventory risks of obsolescence and impairment charges by providing turnkey manufacturing of electronic products.

• Our insurance coverage may not adequately cover losses related to major accidents, forces of nature or product liability risks.

• Our customers are dependent on shipping companies for delivery of our products and interruptions to shipping could materially and adversely affect our business and operating results.

• Protecting, seeking licenses for, or asserting claims over, intellectual property could be costly.

• We are dependent on customers operating in highly competitive markets and the inability of our customers to succeed in their markets can adversely impact our business, operating results and financial condition.

• Compliance with environmental regulations may be costly and could impact our future operating results.

• We may be required to write down long-lived assets, adversely affecting our future operating results.

• Potential new accounting pronouncements or changes in interpretation by NASDAQ may adversely impact our future financial position and results of operations in the future.

• Our exemptions from certain of the reporting requirements under the Exchange Act limits the protections and information afforded to investors.

• We have identified material weaknesses in our control over financial reporting. We are taking steps to remediate such weakness, but failure to do so, or the development of new material weaknesses in our internal control over financial reporting could result in material misstatements of our financial statements.

• The Chinese government could intervene in or influence our operations at any time and could change its policies toward or even nationalize private enterprise, which could result in the total loss of our investment in that country.

• The Chinese government could intervene in or influence the conduct of our directors or officers with ties to Hong Kong at any time, which could materially impact our results of operations.

• Recent developments in Chinese law related to overseas securities offerings by China-based issuers may hinder our ability to offer or continue to offer our securities to investors and cause the value of our securities to significantly decline or be worthless.

• The enforcement of laws and rules and regulations in China can change quickly with little advance notice. Additionally, the PRC laws and regulations and the enforcement of those that apply or are to be applied to Hong Kong or Macao can change quickly with little or no advance notice.

• The Chinese government may exert more oversight and/or control over our operations in China and Macao, or our holdings in Hong Kong, and in offerings conducted overseas by, and/or foreign investment in, China-based issuers like us.

• Adverse changes in political and economic policies of the PRC government could effect the overall economic growth of China, which could reduce the demand for our services and affect our competitive position.

• There may be a lack of remedies and impartiality under the Chinese legal system that prevents us from enforcing the agreements under which we operate our factories.

• You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in the PRC against the Company, or our officers and our directors based on foreign laws.

• Our financial results, competitiveness and market position could be impaired if our business licenses in China are not renewed.

• The performance and reliability of the internet infrastructure and fixed telecommunication in China may affect our business operations.

• Due to restrictions under PRC law on distributions of dividends by our subsidiaries in the PRC, we may be forced to reduce the amount of, or not be able to pay, dividends to our shareholders.

• PRC regulations may delay or prevent us from making loans to our PRC subsidiaries or making additional capital contributions to our wholly foreign-owned subsidiaries in China, which would leave our PRC subsidiaries without the necessary liquidity to continue operations.

• Permissions required from the PRC authorities for our operations could change, requiring us to obtain additional licenses or abide by new regulations.

• If classified as a “resident enterprise” under China’s EIT Law, we may be subject to PRC enterprise income tax and income tax withholding for dividends we receive from our subsidiaries or pay to our stockholders.

• A finding by PRC tax authorities that any of our China subsidiaries owe additional taxes, late payment interest or other penalties could adversely affect our operating results materially.

• Controversies affecting China’s trade with the United States, including the policies of the new Trump administration, could harm our operations or depress our stock price.

• Heightened tensions in international relations, including trade relations between the United States and China, the Russia-Ukraine war and the Israel-Hamas conflict, may adversely impact our business, financial condition, and results of operations.

• The PRC’s national labor law restricts our ability to reduce our workforce, and increases in labor costs of workers in the PRC, and in the Province where our manufacturing facilities are located, have and can be expected to continue to have a material and adverse effect on our operating results.

• Future relocation of certain manufacturing lines may not be successful.

• Restrictions on the convertibility of RMB into foreign currency may limit our ability to transfer excess funds or dividends to the Company’s subsidiaries outside China.

• Political and economic instability of Hong Kong and Macao could harm our operations.

• Power shortages in China could affect our business.

• China’s U.S. stock market issues may raise investors’ concerns.

• Our auditor is now permitted to be inspected by the PCAOB, and as such, investors will no longer be deprived of the benefits of such inspection.

• We could be delisted if the PCAOB becomes unable to completely inspect and investigate registered public accounting firms in Mainland China and Hong Kong again.

• We depend on our Board of Directors, executive officers, senior managers and skilled personnel.

• The concentration of share ownership in our senior management allows them to control the outcome of matters requiring shareholder approval.

• Our board’s ability to amend our charter without shareholder approval could have anti-takeover effects.

• Legislation enacted in the BVI as to Economic Substance may affect our operations.

• Because our operations are international, we are subject to significant worldwide political, economic, legal and other uncertainties.

• Uncertainty and adverse changes in the economy and financial markets have had, and could continue to have, an adverse impact on our business and operating results.

• We could suffer losses from corrupt or fraudulent business practices.

• We have established processes to safeguard our information technology systems from cybersecurity threats, but if those measures are insufficient to protect our IT systems, our IT systems and daily operations could be adversely affected.

Risks Relating to Our Business and Industry

We are, and have been, dependent on a few major customers, the loss of, or substantial reduction in orders from, which would substantially harm our business and operating results.

Historically, we have depended, currently depend, and expect to continue to depend, on a small number of customers for a significant percentage of our net sales. During the year ended March 31, 2025, we had two major customers, each accounting for more than 10% of our net sales and together for 33.8% of our net sales. If our major customers experience a decline in the demand for their products as a result of the prevailing economic environment or other factors, the products or services that we provide to them could be reduced or even terminated. The loss of any of our major customers or a substantial reduction in orders from any of them would adversely impact our sales and operating results unless and until we were able to increase sales from other existing customers or add sales from new customers.

Our sales are based on purchase orders and we have no long-term contracts with any of our customers and the percentage of sales to any of our customers has fluctuated in the past and may fluctuate in future. We cannot assure you that present or future customers will not cease using us as the source of the injection-molded plastic parts and components we manufacture, for electronic manufacturing services of electrical products and subassemblies or significantly change, reduce or delay the amount of products and services ordered from us.

Our gross margins fluctuate from year to year and may be adversely affected by a number of factors.

The following chart shows, for the years indicated, our gross margins from our two principal operating segments and for our Company as a whole:

Gross Margins Percentage

We expect gross margins generally and for specific products to continue to fluctuate from year to year. Fluctuations in our margins have been affected, often adversely, and may continue to be affected, by numerous factors, including:

• our cost of raw materials, especially our cost of electronic components due to changes in the prices, availability and long lead time of components and parts needed for the manufacturing of electronic products;

• costs of labor, particularly in recent years, when the costs have increased substantially as a consequence of increasing governmental regulation directed at labor practices and policies;

• the appreciation of the exchange rate of the RMB, in which we pay our labor and manufacturing costs, against the U.S. dollar, in which we present our financial statements;

• changes in our customer mix or the mix of higher and lower margin products, or a combination of both in any year;

• price increases for products which, for competitive reasons, we choose to allow as concessions in an effort to maintain our customer base;

• increases in value-added taxes as result of changes in the value-added tax policy of the Chinese government for various categories of export products;

• increased costs to conform our products to consumer and product safety laws and regulations of the various countries in which our products are sold; and

• rising costs due to disrupted global supply resources as a result of the US-China trade tariffs will have pressures on gross margins of our plastic and electronic operations.

If we cannot maintain stability in our gross margins, our operating results could suffer, dividend payments to shareholders may be decreased or eliminated, our financial position may be harmed and our stock price may fall.

We believe we were a passive foreign investment company, or “PFIC,” for our fiscal year ended March 31, 2025 under U.S. income tax laws and may be a PFIC for years after fiscal 2025. If we were a PFIC in fiscal 2025, or are a PFIC in later years, U.S. investors could suffer adverse U.S. federal income tax consequences in such years.

The determination of whether we are a passive foreign investment company, or PFIC, in any taxable year is made on an annual basis after the close of that year and depends on the composition of our income and the nature and value of our assets. Specifically, we will be classified as a PFIC if, after applying relevant look-through rules with respect to the income and assets of subsidiaries, either (i) 75% or more of our gross income for such taxable year is passive income, or (ii) 50% or more of the value of our assets (based on an average of the quarterly values of the assets during such year) is attributable to assets that either produce passive income or are held for the production of passive income (the “PFIC asset test”).

We believe that we were a PFIC for our year ended on March 31, 2025 and may also be a PFIC in subsequent tax years. If we are a PFIC for any year during a U.S. Holder’s holding period of our common shares, then such U.S. Holder generally could be subject to adverse U.S. tax consequences including the requirement to treat any “excess distribution” received on our common shares, or any gain realized upon a disposition of such common shares, as ordinary income and to pay an interest charge on a portion of such distributions or gain.

Because of the complexity of the issues regarding our classification as a PFIC, U.S. investors are urged to consult their own tax advisors for guidance as to our PFIC status. For further discussion of the adverse U.S. federal income tax consequences arising from the classification as a PFIC, please see “United States Federal Income Tax — Passive Foreign Investment Company (PFIC)” in ITEM 10 Additional Information beginning on page 58 of this Report.

Changes in currency exchange rates have and could continue to influence our financial results significantly.

Our sales are mainly in United States dollars and Hong Kong dollars and our expenses are mainly in United States dollars, Hong Kong dollars and Chinese RMB.

The Hong Kong dollar has been pegged to the U.S. dollar at a range between 7.75 and 7.85, and which is relatively stable. The Hong Kong government may not continue to maintain the present currency exchange mechanism, which fixes the Hong Kong dollar at approximately 7.850 to each United States dollar (based on the average exchange rate for June 30, 2025 reported athttp://www.oanda.com/currency-converter) and has not in the past presented a material currency exchange risk. Although announcements by Hong Kong’s central bank indicate its intention to maintain the currency peg between the Hong Kong dollar and the U.S. dollar, if Hong Kong changes its policy and follows China to a floating currency system or otherwise changes the exchange rate system of Hong Kong dollars to U.S. dollars, our margins and financial results could be adversely affected.

Between 1994 and July 2005, the market and official RMB rates were unified and the value of the RMB was essentially pegged to the U.S. dollar and was relatively stable. On July 21, 2005, the People’s Bank of China adjusted the exchange rate of RMB to the U.S. dollar by linking the RMB to a basket of currencies and simultaneously setting the exchange rate of RMB to U.S. dollars, from 1:8.27, to a narrow band of around 1:8.11.

The chart below illustrates the fluctuations in the exchange ratio of the RMB to the U.S. dollar at the end of each of Deswell’s fiscal years from March 31, 2015 to March 31, 2025. Because most of the Company’s labor costs are incurred in China and therefore paid in RMB, the adverse effect on Deswell’s business and financial results from increasing labor costs has in previous years been exacerbated by the appreciation in the exchange rate to the U.S. dollar, especially during 2013 to 2015.

(1) RMB (yuan) to U.S. dollar data presented in this chart are the average exchange rate on March 31 of the year indicated as reported athttp://www.oanda.com/currency-converter.

The appreciation and depreciation in the exchange ratio of the RMB to the U.S. dollar increases and decreases, respectively, our costs and expenses to the extent paid in RMB. Of all of the costs and expenses for the PRC entities, which accounted for 94.1% of the Company total, about 29.6%, 29.9% and 31.8% were in RMB during the years ended March 31, 2023, 2024 and 2025, respectively.

With the PRC government’s enacted reform of its RMB exchange rate regime, the RMB appreciated against the U.S. dollar between 2007 and 2015, resulting in an adverse effect on the Company’s financial results. However, this trend became unstable between 2015 and 2018. The RMB then became depreciated against the U.S. dollar from 2018 to early 2020. The Company’s financial results have benefited from this depreciation trend. Nonetheless, there was the onset of U.S.-China trade war and the outbreak of the COVID-19 virus in 2020. As the virus spread to the rest of the world, China was able to get the situation under control. The COVID-19 outbreak led to global demand for goods, which made China the leader of global exports, resulting in a softening of the depreciation of RMB. However, with the Omicron variant and China’s three-year fight of zero-COVID tolerance policy which led to lockdowns in major Chinese cities, China’s economic activity significantly reduced. This slower growth in China will push down Chinese yields, leading to depreciation of RMB. Additionally, even though China’s exports appear to have rebounded in early 2024, it appears that it is still experiencing weak export orders and its manufacturing sector is struggling. With the recent trade war imposed on Chinese goods and export control restrictions to China by the United States during President Trump’s 2 nd administration, there is further depreciation of the RMB. However, China’s main policy is the stability of the Yuan currency to boost consumer confidence and local purchasing power.

In addition, the war in Ukraine has increased sanctions risks on China and further deteriorated the U.S.-China relationship leading to an abrupt slowdown for foreign inflows to China, which further reduced demand for RMB. It is difficult to predict how the situation between the United States and Chinese government will develop, especially in light of the recent escalation of trade tensions between the United States and China, which in turn affects the exchange rate between the dollar and RMB.

If OEMs stop or reduce their manufacturing outsourcing, our business could suffer.

Our revenues depend on outsourcing by OEMs to us and to other contract manufacturers for which we manufacture end-products or parts and components. Current and prospective customers continuously evaluate our capabilities against other providers as well as against the merits of manufacturing products themselves. Our business would be adversely affected if OEMs decide to perform these functions internally. Similarly, we depend on new outsourcing opportunities to militate against lost revenues arising from the decline in demand for our customers’ products as a consequence of prevailing global economic conditions, and our business would be adversely affected if we are not successful in gaining additional business from these opportunities or if OEMs do not outsource additional manufacturing business.

We could experience credit problems with our customers, which could adversely impact our operating results and financial condition and could adversely reduce our future revenues.

We manufacture and sell injection-molded plastic parts and components and provide manufacturing services for electrical products and subassemblies to companies and industries that have in the past, and may in the future, experience financial difficulty, particularly in light of recent conditions in the credit markets and the overall worldwide economy. For information on the concentration of our credit risk, see Note 15 of Notes to Consolidated Financial Statements included later in this Report.

If our customers experience financial difficulty, we could have problems recovering amounts owed to us from these customers, or demand for our products and services from these customers could decline. If one or more of our customers, particularly customers to which we have extended substantial credit and which have become material account debtors on our accounts receivables, were to become insolvent or otherwise were unable to pay for the products or services provided by us on a timely basis, or at all, our operating results and financial condition could be adversely affected. Such adverse effects could include one or more of the following:

• provision or increased provision for credit losses,

• a charge for inventory write-offs,

• a reduction in revenue,

• decreases in cash, and

• increases in working capital requirements.

Because material amounts of our funds are held in banks where only limited protection on deposit accounts is required, the failure of any bank in which we deposit our funds could result in a loss of those funds to the extent exceeding the amounts protected and could, depending on the amount involved, affect our ability to continue in business.

At March 31, 2025, we had cash on hand of $28.1 million and time deposits with original maturity over three months of $19.4 million, and time deposits with original maturities over twelve months of $2.8 million, which were invested in interest bearing investments at banks or other financial institutions. Of that amount, approximately $12.6 million was held in banks and other financial institutions in Hong Kong, $18.6 million in Macao and $19.1 million in the PRC. The Hong Kong government provides deposit protection up to a maximum amount of HK$800,000 (approximately U.S. $101,915 based on the average exchange rate for June 30, 2025 reported athttp://www.oanda.com/currency-converter) for each depositor in any individual bank in Hong Kong, and the Macao government provides deposit protection up to a maximum amount of MOP$800,000 (approximately U.S. $98,947 based on the average exchange rate for June 30, 2025 reported athttp://www.oanda.com/currency-converter) for each depositor with any individual bank in Macao. We understand that in the event of a bank failure of a bank in the PRC, a PRC-government agency is to provide some, unspecified, protections of deposit accounts to individual depositors. After three interest rate hikes in 2011, there were recommendations in early 2012 from China’s economists that a formal insurance system from China’s central bank is necessary to protect depositors’ assets. The “Deposit Insurance Regulations” in the PRC provide that the maximum protection is up to RMB500,000 (approximately U.S.$69,715 based on the average exchange rate for June 30, 2025 reported athttp://www.oanda.com/currency-converter) (including principal and interest) per depositor per insured financial institution. Depending upon the amounts of funds we have on deposit in a

Hong Kong, Macao or PRC financial institution that fails, our inability to have immediate access to our cash, and the lack of deposit protection in excess of applicable protection limits, could impair our operations, and, if we are not able to access needed funds to pay our suppliers, employees and other creditors, we may be unable to continue in business.

Our industry is extremely competitive, with aggressive pricing dynamics, and if we are not able to continue to provide competitive products and services, we may lose business.

We compete with a number of different companies in production of injection-molded plastic parts and components, electrical products and subassemblies and metallic molds and accessories. For example, we compete with Asian-based manufacturers and/or suppliers of injection-molded plastic parts and components, major global electronic manufacturing services (“EMS”) providers, other smaller EMS companies that have a regional or product-specific focus, and original design manufacturers with respect to some of the services that we provide. We also compete with our current and prospective customers, who evaluate our capabilities in light of their own capabilities and cost structures. Our market segments are extremely competitive, many of our competitors have achieved substantial market share and many have lower cost structures and greater manufacturing, financial or other resources than we do. We face particular competition from Asian-based competitors, including Taiwanese EMS providers which compete in our end markets. If we are unable to provide comparable manufacturing services and improved products at lower cost than the other companies in our market, our net sales could decline.

Uncertainty and adverse changes in the economy and financial markets may also increase the competitive environment in our market segments which could also impact our operating results. In addition, the EMS industry is currently experiencing excess manufacturing capacity and has seen increased competition. To stay technologically competitive, we have replaced some of our existing manufacturing machineries with up to date and advanced ones in order to enhance efficiency, precision, quality as well as productivity.

Nonetheless, the above factors have exerted and will continue to exert additional pressures on pricing for injection-molded plastic parts and components and for our electronic manufacturing services, thereby increasing the competitive pressures in our market segments generally. We may not be able to compete successfully against our current and future competitors, and the competitive pressures we face may have a material adverse effect on us.

We have no long-term contracts to obtain plastic resins and our profit margins and operating results could suffer from an increase in resin prices.

The primary materials used by us in the manufacture of our plastic injection molded products are various plastic resins. The following table shows our cost of plastic resins as a percentage of our cost of plastic products sold and as a percentage of our total costs of goods sold for the years ended March 31, 2023, 2024 and 2025:

We have no long-term contracts with our resin suppliers. Accordingly, our financial performance is dependent to a significant extent on resin markets and the ability to pass through price increases to our customers. The capacity, supply and demand for plastic resins and the petrochemical intermediates from which they are produced are subject to cyclical price fluctuations, including those arising from supply shortages. Consequently, resin prices may fluctuate as a result of changes in natural gas and crude oil prices and the capacity, supply and demand for resin and petrochemical intermediates from which they are produced. Over the past several years, oil prices have experienced significant volatility. In addition, we have found that increases in resin prices are difficult to pass on to our customers. In the past, increases in resin prices have increased our costs of goods sold and adversely affected our operating margins. A significant increase in resin prices in the future could likewise adversely affect our operating margins and results of operations.

Shortages of components and materials used in our production of electronics products may delay or reduce our sales and increase our costs.

From time to time, we have experienced shortages of some of the electronic components that we need and use in our electronics manufacturing market segment. These shortages can result from strong demand for those components or from problems experienced by suppliers. These unanticipated component shortages could result in curtailed production or delays in production, which may prevent us from making scheduled shipments to customers. Our inability to make scheduled shipments could cause us to experience a reduction in sales, increase in inventory levels and costs, and could adversely affect relationships with existing and prospective customers. Component shortages may also increase our cost of goods sold because we may be required to pay higher prices for components in short supply and redesign or reconfigure products to accommodate substitute components. As a result, component shortages could adversely affect our operating results. Our performance depends, in part, on our ability to incorporate changes in component costs into the selling prices for our products.

The US-China trade dispute has, in addition to trade tariffs, extended to non-tariff barriers, such as China’s export controls in critical minerals and the US’s restrictions on the export of advanced technology products. The latter has exerted pressures to our electronic operations in sourcing, purchasing and inventory management of certain critical electronic component parts.

Certain of the electronic products we manufacture, particularly those for customers whose orders are widely spaced at irregular intervals for small lots of customized products, require components from single-source or customer-designated suppliers. Shortages of specific components often result in the suppliers allocating available quantities among their customers based on volume and purchasing history. Generally, we lack sufficient bargaining power with these suppliers to assure a stable supply of needed components. Delays in our obtaining, or our inability to obtain, these materials could slow production, delay shipments to our customers, increase our costs and hamper our operating results.

We face inventory risks of obsolescence and impairment charges by providing turnkey manufacturing of electronic products.

We conduct most of the manufacturing of electronic products for our customers on a “turnkey” basis, where we mainly take care of materials procurement, as well as product design and development for customers’ selection and collaboration. Turnkey manufacturing involves greater resource investment and inventory risk management than consignment manufacturing, where the customer provides the components and materials needed to manufacture the products it orders. If we fail to manage our inventory effectively, we may bear the risk of fluctuations in materials costs, scrap and excess inventory, all of which can have an adverse impact on our business, financial condition and results of operations. In addition, delays, cancellations or reductions of orders by our customers could result in an excess of materials. An excess of components and materials would increase our costs of maintaining inventory and may increase the risk of inventory obsolescence and impairment charges, which may increase our costs and decrease operating margins and otherwise harm our operating results.

Periods in which we receive rapid increases in orders with the lengthening of lead times by suppliers could cause a shortage of materials needed for us to fulfill orders received from customers expecting normal or accelerated delivery. A shortage of materials could lengthen production schedules and costs substantially, particularly for orders from our customers placed for short-term or rapid delivery and could force us to seek and purchase needed components at premium prices, which would increase our costs of goods sold and reduce our operating margins.

Our insurance coverage may not be adequate to cover losses related to major accidents, forces of nature or product liability risks.

Risks associated with our business include risk of damage to our stock in trade, goods and merchandise, furniture and equipment and factory buildings in China. At March 31, 2025, we maintained fire, casualty and theft insurance aggregating approximately $126.0 million covering damages to fixed and movable assets, equipment, manufacturing facilities in China and furniture and fixtures at our facilities. The proceeds of this insurance may not be sufficient to cover material damage to, or the loss of, any of our factories due to fire, severe weather, flood, forces of nature, such as major earthquakes, which are common in China, or other natural disasters. We may experience difficulty or delays in receiving compensation from the insurance companies and may not receive insurance proceeds adequate to compensate us fully for a potential loss. Although we maintain insurance addressing damage to and destruction to our facilities and equipment, we do not have business interruption insurance.

Despite quality assurance measures, there remains a risk that defects may occur in our products. The occurrence of any defects in our products could give rise to liability for damages caused by such defects. They could, moreover, impair the market’s acceptance of our products. At March 31, 2025, we had only limited product liability insurance. Although we have not experienced any product quality claims from significant customers, if future claims do arise, costs to defend, adverse judgments or amounts we may be forced to pay in settlement would increase our expenses. If we incur losses which are not covered under our insurance, or the amount of compensation that we receive from the insurer is significantly less than the actual loss, our financial condition and results of operations could be materially and adversely affected.

Our customers are dependent on shipping companies for delivery of our products and interruptions to shipping could materially and adversely affect our business and operating results.

Some of our products are sold via F.O.B. Hong Kong or F.O.B. China and our customers are responsible for the transportation of products from Hong Kong or China to their final destinations. Our customers rely on a variety of carriers for product transportation through various world ports. A work stoppage, strike or shutdown of one or more major ports or airports could result in shipping delays materially and adversely affecting our customers, which in turn could have a material adverse effect on our business and operating results. Similarly, an increase in freight surcharges due to rising fuel costs or general price increases could materially and adversely affect our business and operating results.

Protecting, seeking licenses for, or asserting claims over, intellectual property could be costly.

We usually rely on trade secrets, industry expertise and the sharing with us by our customers of their intellectual property. However, there can be no assurance that intellectual property that we use in our business does not violate rights in such property belonging to others. We may be notified that we are infringing patents, copyright or other intellectual property rights owned by other parties. In the event of an infringement claim, we may be required to spend a significant amount of money to develop a non-infringing alternative or to obtain licenses. We may not be successful in developing alternatives or in obtaining licenses on reasonable terms, if at all. Any litigation, even without merit, could result in substantial costs and could adversely affect our business and operating results.

Our strategy has been to evaluate trade names and trademarks, and to consider seeking patents, where we believe that such trade names, trademarks or patents would be available and adequate to protect our rights to products or processes that we consider material to our business. To the extent we do seek to obtain trade names, trademarks or patents, we may be required to institute litigation in order to enforce them or other intellectual property rights to protect our business interests. Such litigation could result in substantial costs and could adversely affect sales, financial results and growth.

We are dependent on customers operating in highly competitive markets and the inability of our customers to succeed in their markets can adversely impact our business, operating results and financial condition.

The end markets we serve can experience major swings in demand which, in turn, can significantly impact our operations. Our financial performance depends on our customers’ ability to compete and succeed in their markets, which have been, and could continue to be, affected directly by prevailing global economic conditions. The majority of our customers’ products are characterized by rapid changes in technologies, increased standardization of technologies and shortening of product lifecycles. In many instances, our customers have experienced severe revenue erosion, pricing and margin pressures, and excess inventories during recent years.

Compliance with current and future environmental regulations may be costly and could impact our future operating results adversely.

The laws and regulations related to environmental protection have been tightening in recent years in China and in our end markets, requiring production facilities that may cause pollution or produce other toxic materials to take steps to protect the environment and establish an environmental protection and management system. When an entity fails to adopt preventative measures or control facilities that meet the requirements of environmental protection standards, it is subject to suspension of production or operations and for payment of fines. Compliance with relevant laws and regulations can be costly and disrupt operations.

Our operations create some environmentally sensitive waste that may increase in the future depending on the nature of our manufacturing operations. The general issue of the disposal of hazardous waste has received increasing attention from Chinese national and local governments and foreign governments and agencies and has been subject to increasing regulation. Currently, relevant Chinese environmental protection laws and regulations impose fines on discharge of waste materials and empower certain environmental authorities to close any facility which causes serious environmental problems. Although it has not been alleged that we have violated any current environmental regulations by China government officials, the Chinese government could amend its current environmental protection laws and regulations. Our business and operating results could be materially and adversely affected if we were to increase expenditures to comply with environmental regulations affecting our operations.

In addition, we could face significant costs and liabilities in connection with product take-back legislation, which enables customers to return a product at the end of its useful life and charge us with financial and other responsibility for environmentally safe collection, recycling, treatment and disposal. We also face increasing complexity in our product design and procurement operations as we adjust to requirements relating to the materials composition of electronic products. If our products are not compatible with such requirements, we could experience the loss of revenue, damages to our reputation, diversion of resources, monetary penalties, and legal action. Other environmental regulations may require us to reengineer our products to utilize components that are more environmentally compatible. Such reengineering and component substitution may result in additional costs to us. Although we currently do not anticipate any material adverse effects based on the nature of our operations and the effect of such laws, there is no assurance that such existing laws or future laws will not have a material adverse effect on us.

In the future, we may be required to write down long-lived assets and these impairment charges would adversely affect our future operating results.

As of March 31, 2025, our balance sheet included approximately $23.4 million in long-lived assets. Under applicable accounting rules, we review long-lived assets, such as property, plant, and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Valuation of our long-lived assets requires us to make various assumptions and these assumptions are used to forecast future, undiscounted cash flows. If actual market conditions differ or our forecasts change, we may be required to reassess long-lived assets and could record an impairment charge. If we are required to take substantial impairment charges in future periods, our earnings would be decreased or our losses would be increased in the period or periods in which the charges occur.

Potential new accounting pronouncements or changes in interpretation by NASDAQ may adversely impact our future financial position and results of operations in the future.

We prepare our financial statements in conformity with the generally accepted accounting principles of the United States of America “U.S. GAAP.” A change in these accounting principles and policies, especially as interpreted by the Securities and Exchange Commission and The NASDAQ Stock Market, may have an impact on our future financial position and results of operations. Historically, regulatory changes, such as the requirement of the Financial Accounting Standards Board to expense stock options grants, and other legislative initiatives have increased our general and administrative costs and future changes could have a similar adverse impact on our financial results.

Our exemptions from certain of the reporting requirements under the Exchange Act limits the protections and information afforded to investors.

We are a foreign private issuer within the meaning of rules promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As a foreign private issuer, we are exempt or excluded from certain provisions applicable to United States public companies including:

• the rules under the Exchange Act requiring the filing with the Commission of quarterly reports on Form 10-Q or current reports on Form 8-K;

• the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect to a security registered under the Exchange Act;

• the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and establishing insider liability for profits realized from any “short-swing” trading transaction (i.e., a purchase and sale, or sale and purchase, of the issuer’s equity securities within less than six months); and

• Regulation FD, the SEC’s rules regulating disclosure of information by publicly traded companies and other issuers and requiring that when an issuer discloses material nonpublic information to certain individuals or entities such as stock analysts, or holders of the issuer’s securities who may trade on the basis of the information, the issuer must make public disclosure of that information.

In addition, because we are a “controlled company” under the NASDAQ Marketplace Rules, certain of the corporate governance standards of The NASDAQ Stock Market that are applied to domestic companies having securities included on The NASDAQ Stock Market are not applicable to us. For example, as a controlled company we are exempt from certain corporate governance provisions of sections 5600 et seq. of NASDAQ’s Marketplace Rules. We rely on exemptions from the following NASDAQ Marketplace Rules:

• Rule 5605(b)(1): Our board is not comprised of a majority of independent directors.

• Rule 5605(d): Our board does not have a compensation committee and compensation of our Chief Executive Officer and other executive officers is neither determined nor recommended to the board by a majority of our independent directors. For information regarding why we do not have an independent compensation committee, see the discussion under “Other Committees; NASDAQ Compliance” in ITEM 6 “Directors and Senior Management” of this Report.

• Rule 5605(e): Nominees for appointment as our directors are not selected or recommended by either a majority of our independent directors, or a nominating committee composed solely of independent directors, and we do not have a formal written charter addressing the nominations process.

Because of these exemptions or exclusions, investors are not afforded the same protections or information generally available to investors in public companies organized in the United States and having securities included on the NASDAQ Stock Market.

We have identified a material weakness in our disclosure controls and procedures and internal control over financial reporting. If not remediated, our failure to establish and maintain effective disclosure controls and procedures and internal control over financial reporting could result in material misstatements in our financial statements or a failure to meet our reporting and financial obligations, each of which could have a material adverse effect on our financial condition and the trading price of our common shares.

We have identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The identified material weakness related to the design and maintenance of effective controls over certain information technology general controls for an information system that is relevant to the preparation of our financial statements. Specifically, we did not design and maintain (i) program change management controls to ensure that program and data changes are identified, tested, authorized and implemented appropriately, and (ii) user access controls to ensure appropriate segregation of duties and adequately restrict user and privileged access to appropriate personnel.

The material weaknesses did not result in any misstatements to the consolidated financial statements. However, these material weaknesses could result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected in the future.

The Company is committed to remediating this material weakness as promptly as possible. To do so, the Company intends to take the following measures:

• Engage a third party to assist in designing and implementing controls related to segregation of duties and information technology general controls.

• Design and implement controls to formalize roles and review responsibilities in order to formalize and implement controls over segregation of duties.

• Design and implement information technology general controls, including controls over program change management, the review and update of user access rights and privileges.

There can be no assurance as to when these material weaknesses will be remediated or that additional material weaknesses may not arise in the future. Any failure to remediate the material weaknesses or the development of new material weaknesses in our internal control over financial reporting could result in material misstatements of our financial statements, which in turn could have a material adverse effect on our financial condition and the trading price of our common shares.

Risks Related to Doing Business in China

The Chinese government may intervene in or influence our operations at any time and could change its policies toward or even nationalize private enterprise, which could result in the total loss of our investment in that country and materially and adversely affect the value of our securities.

Our manufacturing facilities are located in China. The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. The Chinese government may intervene or influence the operations of our PRC subsidiaries at any time with little or no advance notice to us. As a result, our operations and assets are subject to significant political, economic, legal and other uncertainties associated with doing business in China. Over the past several years, the Chinese government has pursued economic reform policies including the encouragement of private economic activity and greater economic decentralization. The Chinese government may not continue to pursue these policies or may significantly alter them to our detriment from time to time without notice. Changes in policies by the Chinese government resulting in changes in laws, regulations, or their interpretation, or the imposition of confiscatory taxation, restrictions on currency conversion or imports and sources of supply could materially and adversely affect us. The nationalization or other expropriation of private enterprises by the Chinese government, including our PRC subsidiaries, could result in the total loss of our investment in that country, which could occur quickly and without advance notice to us and would materially and adversely affect our manufacturing capabilities and cause the value of our securities to significantly decline or be worthless.

All of our directors and officers have ties to Hong Kong. The Chinese government may intervene in or influence their conduct or may exert more control over them, which could result in a material adverse change in our operations.

Because all of our directors and officers have ties to Hong Kong, the Chinese government may intervene in or influence or may exert control over them and their conduct as it relates to our business. The Chinese government may interfere with our operations at any time through our directors and officers who have ties to Hong Kong, which could result in a material change in our results of operation. Changes in the policies, regulations, rules, and the enforcement of laws of the PRC government may be adopted quickly with little advance notice and could have a significant impact upon our ability to operate and on the value of our securities.

Adverse changes in political and economic policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could reduce the demand for our services and materially and adversely affect our competitive position.

The PRC economy differs from the economies of most developed countries in many respects, including the amount of government involvement, the level of development, the growth rate, the control of foreign exchange and allocation of resources. Although the Chinese economy is no longer a planned economy, the PRC government continues

to exercise significant control over China’s economic growth through direct allocation of resources, monetary and tax policies, and a host of other government policies such as those that encourage or restrict investment in certain industries by foreign investors, control the exchange between RMB and foreign currencies, and regulate the growth of the general or specific market. Some of the government measures while benefiting the overall Chinese economy, may have a negative effect on and materially and adversely affect our financial conditions, results of operation and our overall competitive position.

While the PRC economy has grown significantly over the past several decades, the growth has been uneven across different periods, regions and among various economic sectors of China, and the rate of growth has been slowing. Any slowdown in the economic growth of China could lead to reduced demand, which could materially and adversely affect our business’s financial condition and results of operations.

There may be a lack of remedies and impartiality under the Chinese legal system that prevents us from enforcing the agreements under which we operate our factories.

We do not own the land on which our factories in China are located. We occupy our manufacturing facilities under land use agreements or under tenancy agreements with the local Chinese government. These agreements may be difficult to enforce in China, which could force us to accept terms that may not be as favorable as those provided in our agreements. Unlike the U.S., China has a civil law system based on written statutes in which judicial decisions have little precedential value. The Chinese government has enacted some laws and regulations dealing with matters such as corporate organization and governance, foreign investment, commerce, taxation and trade. However, their experience in implementing, interpreting and enforcing these laws and regulations is limited, and our ability to enforce commercial claims or to resolve commercial disputes is unpredictable. These matters may be subject to the exercise of considerable discretion by agencies of the Chinese government, and forces unrelated to the legal merits of a particular matter or dispute may influence their determination.

You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in the PRC against the Company, or our officers and our directors based on foreign laws.

We are incorporated in the BVI and have subsidiaries incorporated in the BVI, Macao, Hong Kong, Samoa and China. We conduct substantially all of our operations in China and a substantial portion of our assets are located in China. In addition, many of our executive officers and directors do not reside in the U.S. Some or all of the assets of these persons are not located in the U.S. As a result, it may not be possible for you to effect service of process within the U.S. or elsewhere outside of China upon us or our directors and executive officers, including with respect to matters arising under U.S. federal securities laws or applicable state securities laws.

It may also be difficult or impossible for you to bring an action against us or against our directors and executive officers in the BVI or in China in the event that you believe that your rights have been infringed under the securities laws or otherwise. There is uncertainty as to whether the courts of the BVI or China would (i) recognize or enforce judgments of U.S. courts against us or our executive officers and directors that are predicated upon the civil liability provisions of the securities laws of the U.S. or the securities laws of any state in the U.S., or (ii) entertain original actions brought in the BVI or China against us or our executive officers and directors that are predicated upon the federal securities laws of the U.S. or the securities laws of any state in the U.S. Even if you are successful in bringing an action of this kind, the laws of the BVI and of China may render you unable to enforce a judgment against our assets or the assets of our directors and executive officers.

The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law and other applicable laws, regulations and interpretations based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of written arrangement with the U.S. that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us or our officers and directors if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security or the public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the U.S.

As a result of all of the above, our shareholders may have more difficulty in protecting their interests through actions against our management, officers, directors or major shareholders than would shareholders of a corporation incorporated in a jurisdiction in the U.S.

If our business licenses in China were not renewed, we would be required to move our operations out of China, which would impair our financial results, competitiveness and market position and jeopardize our ability to continue operations.

Our activities in China require business licenses, the scope of which is limited to our present activities, and require review and approval of our activities by various national and local agencies of Chinese government. The Chinese government may not continue to approve our activities, grant or renew our licenses or grant or renew licenses to expand our existing activities. Our inability to obtain needed approvals or licenses could prevent us from continuing to conduct operations in China. If for any reason we were required to move our manufacturing operations outside of China, our financial results would be substantially impaired, our competitiveness and market position would be materially jeopardized and we may not be able to continue operations.

The performance and reliability of the internet infrastructure and fixed telecommunication in China may affect our business operations.

Almost all access to the internet in China is maintained through state-owned telecommunication operators under the administrative control and regulatory supervision of the Ministry of Industry and Information Technology, or the MIIT. Our business operations depend on the performance and reliability of the internet infrastructure and the fixed telecommunication service provided in China. The internet infrastructure in China may not support the demands associated with continued growth in internet usage generally or for our business purposes and we may not have access to alternative networks in the event of disruptions, failures or other problems.

Due to restrictions under PRC law on distributions of dividends by our subsidiaries in the PRC, we may be forced to reduce the amount of, or not be able to pay, dividends to our shareholders.

Under the PRC Income Tax Law and the implementation rules, only distributable profits earned by PRC entities can be distributed. The calculation of distributable profits under accounting principles and financial regulations applicable to PRC enterprises differs in many ways from U.S. GAAP. Our subsidiaries in the PRC are also required to reserve 10% of their profits for future development and staff welfare, which amounts are not distributable as dividends. These rules and possible changes to them could restrict our PRC subsidiaries from repatriating funds ultimately to us and our stockholders as dividends.

Under the unified enterprise income tax law (“EIT Law”), profits of the PRC entities earned on or after January 1, 2008 and distributed to the Company are subject to withholding tax at a rate of 10%, unless the Company is deemed a resident enterprise for tax purposes, or is incorporated in a country which has a tax treaty with PRC that provides for a different withholding arrangement. As a result of this PRC withholding tax, amounts available to us in earnings distributions from our PRC enterprises have been reduced. Since we derive the funds distributed to shareholders from our subsidiaries in the PRC, the reduction in amounts available for distribution from our PRC enterprises could, depending on the income generated by our PRC subsidiaries, force us to reduce, or possibly eliminate, the dividends we have paid to our shareholders historically. For this reason, or other factors, we may decide not to declare dividends in the future. If we do pay dividends, we will determine the amounts when they are declared and even if we do declare dividends in the future, we may not continue them in any future period.

PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from making loans to our PRC subsidiaries or making additional capital contributions to our wholly foreign-owned subsidiaries in China, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

Our manufacturing operations are located in China through our PRC subsidiaries. If we plan to expand the operations in China, we may need to make loans to our PRC subsidiaries subject to the approval from governmental authorities and limitation of amount, or we may make additional capital contributions to our wholly foreign-owned subsidiaries in China.

Any loans to our wholly foreign-owned subsidiaries in China, which are treated as foreign-invested enterprises under PRC law, are subject to PRC regulations and foreign exchange loan registrations. For example, loans by the Company to our wholly foreign-owned subsidiaries in China to finance their activities cannot exceed statutory limits, i.e., the difference between its total amount of investment and its registered capital, or certain amount calculated based on elements including capital or net assets, the cross-border financing leverage ratio and the macro prudential coefficient under relevant PRC laws and the loans must be registered with the local counterpart of the State Administration of Foreign Exchange, or SAFE, or filed with SAFE in its information system.

If we choose to finance our wholly foreign-owned subsidiaries in China by means of capital contributions, the capital contributions must through record-filing procedures from competent administration for market regulation. SAFE issued the Circular on the Management Concerning the Reform of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular 19, which took effect on June 1, 2015. SAFE Circular 19 allows for the use of RMB converted from the foreign currency-denominated capital for equity investments in the PRC provided that such usage shall fall into the scope of business of the foreign-invested enterprise, which will be regarded as the reinvestment of foreign-invested enterprise. In addition, SAFE promulgated the Circular Regarding Further Promotion of the Facilitation of Cross-Border Trade and Investment on October 23, 2019, or SAFE Circular 28, pursuant to which all foreign-invested enterprises can make equity investments in the PRC with their capital funds in accordance with the law. The Circular Regarding Further Optimizing the Cross-border RMB Policy to Support the Stabilization of Foreign Trade and Foreign Investment jointly promulgated by the PBOC, NDRC, the Ministry of Commerce, the State-owned Assets Supervision and Administration Commission of the State Council, the China Banking and Insurance Regulatory Commission and SAFE on December 31, 2020 and effective on February 4, 2021 allows the non-investment foreign-invested enterprises to make domestic reinvestment with RMB capital in accordance with the law on the premise that they comply with prevailing regulations and the invested projects in China are authentic and compliant. In addition, if a foreign-invested enterprise uses RMB income under capital accounts to conduct domestic reinvestment, the invested enterprise is not required to open a special deposit account for RMB capital.

Due to the restrictions imposed on loans in foreign currencies extended to any PRC domestic companies, we may not be able to make such loans to the subsidiaries of our wholly foreign-owned subsidiaries in China.

Because of these restrictions and requirements, we cannot assure you that we will be able to complete the necessary government registrations or record-filings on a timely basis, with respect to any regulated future loans to our PRC subsidiaries or future capital contributions by us to our wholly foreign-owned subsidiaries in China. As a result, uncertainties exist as to our ability to provide prompt financial support to our PRC subsidiaries. If we fail to complete such registrations or record-filings, our ability to use foreign currency to finance our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

The enforcement and extent of oversight of laws and rules and regulations in China, and those that apply or are to be applied to Hong Kong or Macao, or in offerings conducted overseas by, and/or foreign investment in, China-based issuers like us, can change quickly with little or no advance notice.

Our manufacturing operations are located in China through our PRC subsidiaries. Our operations in China are governed by PRC laws and regulations. Our PRC subsidiaries are subject to laws and regulations applicable to foreign investment in China. The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions may be cited for reference but have limited precedential value. The PRC legal system is evolving rapidly, and the interpretation of many laws, regulations and rules may contain inconsistencies and enforcement of these laws, regulations and rules involves uncertainties.

When our PRC subsidiaries encounter business disputes with other parties, we may have to resort to administrative and court proceedings to enforce our legal rights. If our administrative and court proceedings in China are protracted, it may result substantial costs and diversion of management attention. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. These uncertainties may impede our ability to enforce the contracts we have entered into and could materially and adversely affect our business and results of operations. Furthermore, the PRC legal system is based, in part, on government policies and internal rules, some of which are not published in a timely manner, or at

all, but which may have retroactive effect. As a result, we may not always be aware of any potential violation of these policies and rules. Such unpredictability towards our contractual, property and procedural rights could adversely affect our operations.

Permissions required from the PRC authorities for our operations could change requiring us to obtain additional licenses or abide by new regulations.

We conduct our business primarily through our PRC subsidiaries in China. Our operations in China are governed by PRC laws and regulations. As of the date of this annual report, our PRC subsidiaries have obtained the required licenses and permits from the PRC government authorities that are material for the business operations in China, including business certificates, plants safety certificates and pollutant discharge permits. Given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities, we may be required to obtain additional licenses, permits, filings or approvals for our operations in China in the future. We may be adversely affected by the complexity, uncertainties and changes in PRC regulations.

On the other hand, under current PRC laws, regulations and regulatory rules, as of the date of this annual report, Deswell and our PRC subsidiaries (i) are not required to obtain permissions from the CSRC, (ii) are not required to go through cybersecurity review by the CAC, and (iii) have not been asked to obtain or were denied such permissions by any PRC authority.

However, in 2023, the PRC government indicated an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers with the passage of the Overseas Listing Trial Measures. The approval of and filing with the CSRC or other PRC government authorities may be required in connection with our offshore offerings under PRC law, and, if required, we cannot predict whether or for how long we will be able to obtain such approval or complete such filing. If we (i) do not receive or maintain such permissions or approvals or timely make such filings, (ii) inadvertently conclude that such permissions, approvals or filings are not required, or (iii) applicable laws, regulations, or interpretations change and we are required to obtain such permissions or approvals or make such filings in the future, then we may be subject to monetary fines and increased regulatory scrutiny, any follow-on offerings we conduct may be unexpectedly delayed and we may be able to continue to offer our securities to investors, all of which could have a materially adverse effect on our operations and the value of our securities.

Under China’s EIT Law, we may be classified as a “resident enterprise” for PRC tax purposes, which may subject us to PRC enterprise income tax for any dividends we receive from our Chinese subsidiaries and to PRC income tax withholding for any dividends we pay to our non-PRC stockholders.

Under the PRC’s EIT Law, an enterprise established outside of China whose “de facto management bodies” are located in China is considered a “resident enterprise” and is subject to the 25% enterprise income tax rate on its worldwide income.

All of our manufacturing operations are conducted and managed in the PRC. Our corporate structure, illustrating our incorporation in BVI and our ownership of companies inside and outside of China, is set forth on page 2 of this Report. If the PRC tax authorities determine that our holding company structure utilizing companies outside of China is a “resident enterprise” for PRC enterprise income tax purposes, we may be subject to an enterprise income tax rate of 25% on our worldwide taxable income. The “resident enterprise” classification also could subject us to a 10% withholding tax on any dividends we pay to our non-PRC stockholders if the relevant PRC authorities determine that such income is PRC-sourced income. If we are classified as a “resident enterprise” and we incur these tax liabilities, our financial results would be negatively impacted accordingly.

Transactions between our subsidiaries may be subject to scrutiny by the PRC tax authorities. A finding that any of our China subsidiaries owe additional taxes, late payment interest or other penalties could adversely affect our operating results materially.

The PRC’s EIT Law emphasizes the requirement of an arm’s-length basis for transfer pricing transactions between related parties. It requires enterprises with transactions between related parties, such as transactions between our subsidiaries located inside and outside of China, to prepare transfer pricing documentation that includes the basis for determining pricing, the computation methodology and detailed explanations. We could face material and adverse consequences if the PRC tax authorities determine that transactions between our subsidiaries do not represent

arm’s-length pricing and are thereby deemed tax avoidance, or determine that related documentation does not meet the requirements of the EIT Law. Such determinations could result in increased tax liabilities of the affected subsidiaries and potentially subject them to late payment interest and other penalties.

Controversies affecting China’s trade with the United States, including the policies of the new Trump administration, could harm our operations or depress our stock price.

Historically, the United States has been the major or significant geographical area of our product sales in terms of shipping destinations. The United States remains as our fifth largest market in the fiscal year ending March 31, 2025, following the same rank for the fiscal year ended March 31, 2024. See ITEM 4 “Information on the Company — Customers and Marketing” on page 38 of this Report for information regarding our net sales as a percentage of total sales to customers by geographic area. The United States fell out of the top three significant geographical markets of the Company’s products in fiscal year 2020 during the first Trump administration.

While China has been granted permanent most favored nation trade status in the United States, controversies between the United States and China have arisen that threaten the status quo involving trade between the United States and China. These controversies could adversely affect our business by, among other things, causing our products in the United States to become more expensive, which could result in a reduction in the demand for our products by customers in the United States. Recently, political and trade friction between the United States and China has escalated.

On February 1, 2025, President Trump imposed a tariff of 10% on Chinese goods imported into the United States. Then, on February 4, 2025, China’s Ministry of Finance announced it would impose, effective February 10, 2025, a tariff as high as 15% on US goods imported into China.

Between February 1, 2025 and April 12, 2025, China imposed additional tariffs on US goods equal to 148%, while the United States imposed additional tariff rate on Chinese goods equal to 135%. On May 12, 2025, both countries had agreed to a temporary pause on reciprocal tariffs of starting on May 14, 2025. The effective tariff rate on Chinese imports was reduced to 30%, while the Chinese tariff rate on American goods was reduced to 10%.

The trade war has been extended to non-tariff barriers, such as export controls on critical minerals and restrictions on advance technological products or designs. This has created disruptions to global supply of resources leading to delays and higher prices. While the whole world is closely monitoring the status of the US China trade dispute. The two countries once again have come to another meeting and agreed on further pause by 90 days of higher tariffs.

A truce was reached between the United States and China on June 11, 2025. Currently, US tariffs are set at 55% on Chinese goods while China’s tariffs remain at 10%.

The trade controversy between the United States and China is still evolving, and we cannot predict future trade policy. However, future tariffs could cover more or all of our products, resulting in an adverse effect on our operations, including customer demand, or on the prevailing market price of our common shares.

Heightened tensions in international relations, including between the United States and China, the Russia-Ukraine war and the Israel-Hamas conflict, may adversely impact our business, financial condition, and results of operations.

The United States and global markets are experiencing volatility and disruption from the escalation of geopolitical tensions. The Russia-Ukraine war, Israel-Hamas conflict, and other volatility in the Middle East and elsewhere have heightened geopolitical tensions across the world and have led to market disruptions, including significant instability in commodity prices, credit and capital markets, and supply chain disruptions, which has further fueled inflation. There have also been concerns about the relationship between China and other countries, which may have potential economic effects. Economic conditions in China are sensitive to global economic conditions, as well domestic economic and political policies and the expected or perceived overall economic growth rate in China. Sanctions imposed against third-party country suppliers and networks that materially support Russia’s war in Ukraine may further affect potential impacts of the conflict.

Additionally, any future escalation of these conflicts or other volatile situations could affect both diplomatic and economic tensions among various nations. Heightened tensions could reduce levels of trade, investment, technological exchanges, and other economic activities between major economies. Existing tensions, and any future deterioration

in the relationship between the United States and China, may negatively impact the economic, political, and social conditions in both countries. Given our reliance on the Chinese market, this could adversely impact our business, financial condition, and results of operations.

Actual or threatened war, terrorist activities, political unrest, civil strife, and other geopolitical uncertainties could have similar adverse effects. Any one or more of these events may hinder our operations and affect our sales results, potentially for a prolonged period of time, which could materially and adversely affect our business, financial conditions, and results of operations.

The economy of China has been experiencing significant growth, leading to inflation and increased labor costs. Increases in labor costs of workers in the PRC generally, and in the Province where our manufacturing facilities are located particularly, have had and can be expected to continue to have a material and adverse effect on our operating results.

We generate all revenues from sales of products that we manufacture at our facilities located in Dongguan, Guangdong Province, in the PRC. The economy in China has grown significantly over the past 20 years, which has resulted in an increased inflation and the average cost of labor. In recent years, the PRC government has raised interest rates and adjusted deposit reserve ratios for commercial banks and implemented other measures designed to tighten credit and liquidity. These measures have contributed to a slowdown of the PRC economy. According to the National Bureau of Statistics of China, China’s GDP growth rate was 8.1% year-on-year over 2000. Should this slowdown continue or become more expansive, such slowdown could significantly reduce domestic commerce in China.

According to the National Bureau of Statistics of China, the year-over-year percent changes in the consumer price index for December 2021 and 2022 were increases of 1.5% and 1.8% and in 2023 a decrease of 0.3%, the Company’s actual cost of operations has significantly exceeded the overall inflation rate in China. The rapid growth of China’s economy in the past few years has in general increased the Company’s operating costs, including energy prices and labor costs. These increased costs have adversely affected the Company’s cost of operations, caused the Company to increase its prices, and resulted in the loss of some customers.

There is no fixed minimum wage which is applicable to all of China; local governments in China adopt different amounts based on the situation in their area. China’s Guangdong Province, where our manufacturing facilities are located, raised minimum wages by approximately 15% to RMB 1,510 per month effective May 1, 2015. The Provincial Government sets different tiers of minimum wages according to the developmental status of the Province’s urban clusters. In the City of Dongguan, where our manufacturing facilities are located, the minimum wage was raised to RMB 1,720 per month in July 1, 2018. Again, effective December 2021, the Guangdong Provincial Government increased the Province’s statutory minimum wage by around RMB180 per month to RMB 1,900 per month. Since March 1, 2025, the minimum wage in the City of Dongguan, where our manufacturing facilities are located, has been increased to RMB2,080 per month. Regions may want to freeze local wages in order to maintain their economic competitiveness amid the economic slowdown.

In China, regional governments are authorized to set their own minimum wages according to local conditions. Increases in wages also result in increases in our and other employer’s contributions for various mandatory social welfare benefits for Chinese employees that are based on percentages of their salaries. Continuing material increases in our cost of labor will continue to increase our operating costs and will adversely affect our financial results unless we pass on such increases to our customers by increasing the prices of our products and services. The effect of increases in the prices of our products and services would make our products more expensive in global markets, such as the United States and the European Union. This could result in the loss of customers, who may seek, and be able to obtain, products and services comparable to those we offer in lower-cost regions of the world. If we do not increase our prices to pass on the effect of increases in our labor costs, our margins and financial results would suffer.

Future relocation of certain manufacturing lines may not be successful.

The outcome of the trade controversy between the United States and China is not predictable as of this time. In order to mitigate the uncertainties caused by the issue, we have been studying the feasibility of reallocating part of our production to Southeast Asian countries since 2018. In 2022, we engaged an internationally-recognized professional service firm to provide advice and assistance in the completion of required statutory procedures for the incorporation

of a wholly foreign invested enterprise in Vietnam (the “FIE”). However, we were advised that our proposed investment plan might not fulfil the requirement for the application of the certificate of origin in Vietnam, the incorporation procedures in Vietnam were suspended.

We are exploring the possibilities to reallocate part of our production to other Southeast Asian countries. We may face difficulties and possibly be unsuccessful in the future. We may fail to select appropriate manufacturing plants in other Southeast Asian countries. Some of our competent and experienced employees and management may not be willing to relocate and work in other Southeast Asian countries. The quality of the products manufactured and assembled in other Southeast Asian countries may not be accepted by our customers. A new manufacturing plant in other Southeast Asian countries could require significant management attention and could result in a diversion of resources away from our existing business. We may also need to obtain approvals and licenses from relevant government authorities to comply with applicable laws and regulations, which could result in increased costs and delays.

Restrictions on the convertibility of RMB into foreign currency may limit our ability to transfer excess funds or dividends to the Company’s subsidiaries outside China.

Our manufacturing operations are conducted by our subsidiaries located in China and funds are frequently transferred into our subsidiaries in China. Thus, any future restrictions on currency exchanges may limit our ability to transfer excess funds or dividends outside China. Although the PRC government introduced regulations in 1996 to allow greater convertibility of RMB for current account transactions, significant restrictions still remain, including primarily the restriction that foreign-invested enterprises may only buy, sell and/or remit foreign currencies at those banks authorized to conduct foreign exchange business after providing valid commercial documents. The Chinese regulatory authorities may impose more stringent restrictions on the convertibility of RMB, especially with respect to foreign exchange transactions.

Political and economic instability of Hong Kong and Macao could harm our operations.

Our administration and accounting offices are located in Macao, formerly a Portuguese Colony, and some of our customers and suppliers are located in Hong Kong, formerly a British Crown Colony. Sovereignty over Macao and Hong Kong was transferred to China effective on December 20, 1999 and July 1, 1997, respectively. Since their transfers, Macao and Hong Kong have become Special Administrative Regions of China, enjoying a high degree of autonomy except for foreign and defense affairs. Moreover, China’s political system and policies are not practiced in Macao or Hong Kong. Under the principle of “one country, two systems,” Macao and Hong Kong maintain legal systems that are different from that of China. Macao’s legal system is based on the Basic Law of the Macao Special Administrative Region and, similarly, Hong Kong’s legal system is based on the Basic Law of the Hong Kong Special Administrative Region. It is generally acknowledged as an open question whether Hong Kong’s future prosperity in its role as a hub and gateway to China will be diminished. The continued stability of political, economic or commercial conditions in Macao and Hong Kong remain uncertain, and any instability could have an adverse impact on our business.

The PRC’s national labor law restricts our ability to reduce our workforce if we conclude that we need to make future reductions.

In June 2007, the National People’s Congress of the PRC enacted labor legislation, called the Labor Contract Law, and that law became effective on January 1, 2008. The law formalized workers’ rights concerning overtime hours, pensions, layoffs, employment contracts and the role of trade unions. Considered one of the strictest labor laws in the world, among other things, this law requires an employer to conclude an “open-ended employment contract” with any employee who either has worked for the employer for 10 years or more or has had two consecutive fixed-term contracts. An “open-ended employment contract” is in effect a lifetime, permanent contract, which is terminable only in specified circumstances, such as a material breach of the employer’s rules and regulations, or for a serious dereliction of duty. Such employment contracts with qualifying workers would not be terminable if, for example, we determined to downsize our workforce in the event of an economic downturn. Under the 2007 law, downsizing by 20% or more may occur only under specified circumstances, such as a restructuring undertaken pursuant to China’s Enterprise Bankruptcy Law, or where a company suffers serious difficulties in production and/or business operations. Also, if we lay off more than 20 employees or 10% at one time, we have to communicate with the labor union of our Company and report to the District Labor Bureau. Deswell’s entire staff, who are employed to work exclusively within the PRC, is covered by the law. In response to prevailing business conditions, we decreased our workforce further by

127 in the fiscal year ended March 31, 2025 after decreasing our workforce by 20 and 47 in the fiscal years ended March 31, 2024 and 2023, respectively. However, we may incur much higher costs under China’s Labor Contract Law if we are forced to downsize our workforce in the future. Accordingly, this law can be expected to exacerbate the adverse effect of unfavorable economic conditions on our results of operations and financial condition.

Power shortages in China could affect our business.

We consume substantial amounts of electricity in our manufacturing processes at our production facilities in China. In the past, we have experienced a number of power shortages at our production facilities in China, though we are sometimes given advance notice of such power shortages. In relation to these power shortages we have a backup power system. However, there can be no assurance that in the future our backup power system will be completely effective in the event of a power shortage, particularly if that power shortage is over a sustained period of time and/or we are not given advance notice of it. Any power shortage, brownout or blackout for a significant period of time may disrupt our manufacturing, and as a result, may have an adverse impact on our business.

China’s U.S. stock market issues may raise investors’ concerns.

Since 2017, a series of Chinese companies listed on the New York Stock Exchange and NASDAQ saw their share prices substantially drop after going public, as compared to non-Chinese companies. The difference in performance is thought to be due to heightened concerns over standards of corporate governance. The SEC made repeated mention of emerging markets, including China, in a warning to investors over the book-keeping standards of foreign companies listed in the U.S., that there could be substantially great risk that disclosures will be incomplete or misleading.

The recent escalation in trade tensions between the U.S. and China, including new tariffs imposed on Chinese imports by the Trump administration, has led to increased volatility in the share prices of Chinese companies listed on the New York Stock Exchange and NASDAQ.

These issues and the past performances of Chinese companies could make the U.S. stock markets less attractive to all sorts of companies from China or could lead to possible decreases in Chinese concept share valuations. As a result, investors may suffer losses as Deswell’s main operations are located in China.

Our auditor, like other independent registered public accounting firms operating in China, is now permitted to be inspected by the PCAOB, and as such, investors will no longer be deprived of the benefits of such inspection; however, the PCAOB had historically been unable to inspect our auditor.

Our independent registered public accounting firm that issues the audit reports included in our annual reports filed with the SEC, as an auditor of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board (United States), or PCAOB, is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards. Our auditor is located in China, a jurisdiction where prior to December 2022, the PCAOB was unable to conduct inspections without the approval of the PRC authorities. The PRC authorities granted access to the PCAOB to completely inspect and investigate registered public accounting firms operating in China, including our auditor.

Inspections of other firms that the PCAOB has conducted outside of China have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality.

We could be delisted if the PCAOB becomes unable to completely inspect and investigate registered public accounting firms in Mainland China and Hong Kong again.

The HFCAA, which was signed into law on December 18, 2020, states if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit our shares from being traded on a national securities exchange or in the over-the-counter trading market in the United States. On December 2, 2021, the SEC adopted final amendments implementing the disclosure and submission requirements of the HFCAA, pursuant to which the SEC will identify an issuer as a “Commission-Identified Issuer” if the issuer has filed an annual report containing an audit report issued by a registered public accounting firm that the PCAOB has determined it is unable to inspect or investigate

completely, and will then impose a trading prohibition on an issuer after it is identified as a Commission-Identified Issuer for three consecutive years. However, on December 29, 2022, U.S. Congress passed and the President of the United States signed into law the Consolidated Appropriations Act, 2023, which among other things, amends the HFCAA to shorten the timeframe of non-inspection and being identified as a Commission-Identified Issuer from three years to two years. On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in Mainland China and Hong Kong. At that time, the PCAOB identified our auditor as one of the registered public accounting firms that the PCAOB is unable to inspect or investigate completely. On August 29, 2022, we were conclusively listed by the SEC as a Commission-Identified Issuer under the HFCAA as having filed audit reports issued by a registered public accounting firm that could not be inspected or investigated completely by the PCAOB in connection with the filing of our annual report on Form 20-F for the fiscal year ended March 31, 2022. On December 15, 2022, the PCAOB issued a report vacating its December 16, 2021 determinations and removing Mainland China and Hong Kong from the list of jurisdictions where it is unable to completely inspect or investigate registered public accounting firms and a statement released from the Chairman of the PCAOB stated that the PCAOB has secured complete access to inspect and investigate such registered public accounting firms headquartered in Mainland China and Hong Kong. Therefore, even though we are listed as a “Commission-Identified Issuer”, we are not at risk of having our shares subject to a trading prohibition under the HFCAA at this time because the jurisdiction of our auditor is no longer considered to be a “PCAOB-identified jurisdiction.”

If the PCAOB’s complete access to inspect and investigate public accounting firms in Mainland China and Hong Kong is obstructed in the future and the PCAOB determines at that time that it is again unable to completely inspect or investigate registered public accounting firms headquartered in Mainland China or Hong Kong and if under the HFCAA, if the SEC determines at that time that we have filed audit reports issued by a registered public accounting firm that have not been subject to inspection by the PCAOB then the two consecutive year count-down under the HFCAA would begin again and after two-years, the SEC could prohibit our shares from being traded on Nasdaq and other U.S. securities exchanges.

Whether the PCAOB will be able to continue to conduct inspections of our auditor before the issuance of our financial statements on the annual report on Form 20-F after this filing, is subject to substantial uncertainty and depends on a number of factors out of our and our auditor’s control. If our shares are prohibited from trading in the United States, there is no certainty that we will be able to list on additional non-U.S. exchange to facilitate the trading in our securities. Such a prohibition would substantially impair your ability to sell or purchase our shares when you wish to do so, and the risk and uncertainty associated with delisting would have a negative impact on the price of our shares. Also, such a prohibition would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition, and prospects.

Risks Relating to Our Corporate Structure

Because our operations are international, we are subject to significant worldwide political, economic, legal and other uncertainties.

We are incorporated in the BVI and have subsidiaries incorporated in the BVI, Macao, Hong Kong, Samoa and China. Our administrative and accounting office is located in Macao. We manufacture all of our products in China. As of March 31, 2025, approximately 46% of the net book value of our total identifiable assets was located in China. We sell our products to customers principally in China, the United States, Hong Kong, Europe (the United Kingdom, Norway and Holland) and Canada. Our international operations may be subject to significant political and economic risks and legal uncertainties, including:

• changes in economic and political conditions and in governmental policies,

• changes in international and domestic customs regulations,

• wars, civil unrest, acts of terrorism and other conflicts,

• changes in tariffs, trade restrictions, trade agreements and taxation,

• difficulties in managing or overseeing foreign operations, and

• limitations on the repatriation of funds because of foreign exchange controls.

The occurrence or consequences of any of these factors may restrict our ability to operate in the affected region and negatively impact our operations in that region, or as a whole.

We depend on our Board of Directors, executive officers, senior managers and skilled personnel.

Our success depends largely upon the continued services of our Board of Directors, executive officers, as well as upon our ability to attract and retain qualified technical, manufacturing and marketing personnel. Generally, our executive officers and senior managers are not bound by employment or non-competition agreements, and we cannot assure you that we will be able retain them. On June 12, 2023, Richard Pui Hon Lau, our former chairman of the Board of Directors and majority shareholder passed away, and Chin Pang Li, a longtime member of our Board of Directors and prior executive officer of the Company, was appointed as chairman of the Board of Directors and Ben Yiu Sing Poon was appointed as interim director on the Board of Directors until the Company’s subsequent annual meeting. At the Company’s annual meeting on February 6, 2024, Wai Ming Lau was elected to the Board of Directors to replace Mr. Poon, and the Board of Directors subsequently elected Ms. Lau as the Chairman of the Board of Directors on February 19, 2024. The loss of any of our officers or key management personnel could have a material adverse effect on our business and operating results. We do not have key person insurance on our executive officers or members of our Board of Directors. However, Mr. Lau and the Board had taken care over the years to ensure that the Company and its subsidiaries would be prepared to continue in his absence. There will be no changes in the operation of the Company, and at this time Mr. Lau’s shares have been transferred to Ms. Lau. We believe that our future success will depend, in part, on our ability to attract and retain highly skilled executive, technical and management personnel and if we are not able to do so, our business and operating results could be harmed.

The concentration of share ownership in our senior management allows them to control the outcome of matters requiring shareholder approval.

As of June 30, 2025, Wai Ming Lau beneficially owned approximately 61.8% of our outstanding common shares, allowing Ms. Lau to control the outcome of all matters requiring approval by our shareholders, including the election of directors and approval of significant corporate transactions. This ability may have the effect of delaying or preventing a change in control of Deswell, or causing a change in control of Deswell that may not be favored by our other shareholders. As of June 30, 2025, members of our senior management and Board of Directors as a group, including Ms. Lau, beneficially owned approximately 71.2% of our outstanding common shares. There are no agreements, understandings, or commitments among the members of our senior management and Board of Directors to vote their shares in any specific manner, or to vote collectively for or against any matter that may come before the shareholders.

Our board’s ability to amend our charter without shareholder approval could have anti-takeover effects that could prevent a change in control.

As permitted by the law of the BVI, many provisions of our Memorandum and Articles of Association, which are the terms used in the BVI for a corporation’s charter and bylaws, may be amended by our board of directors by resolution of directors without shareholder approval provided that a majority of our independent directors do not vote against the amendment. This includes amendments to increase or reduce the shares we are authorized to issue. Our board’s ability to amend certain provisions of our charter documents without shareholder approval, including its ability to create and issue further common shares, could have the effect of delaying, deterring or preventing a change in control of Deswell, including a tender offer to purchase our common shares at a premium over the then current market price.

Legislation enacted in the BVI as to Economic Substance may affect our operations

The Economic Substance (Companies and Limited Partnership) Act 2018, as revised (the “Act”) has been enacted in the BVI and came into force on January 1, 2019. The Act requires BVI companies and limited partnerships carrying on relevant activities to demonstrate adequate economic substance in the BVI.

BVI companies and limited partnerships are required to provide information to enable the International Tax Authority in the BVI to monitor whether the relevant entity is carrying on relevant activities and, if so, whether it is complying with the economic substance requirements. The information will be uploaded by the entity’s registered agent and integrated into the BVI’s existing Beneficial Ownership Secure Search (BOSS) system. Beginning on or after January 1, 2023, these economic substance requirements were amended and the amendments may affect reporting for companies and limited partnerships which carry on a relevant activity including an immediate parent or ultimate parent of the company.

Penalties will be imposed for failure to provide required information or for operating an entity in breach of the economic substance requirements, which may include substantial fines, imprisonment and eventually the entity may be wound up.

During the year ended March 31, 2025, we have provided the information requested by the BVI registered agent. No further information or follow-up action is requested by BVI registered agent or the International Tax Authority in the BVI as of the date of this Report. We will continue to submit the information requested by the BVI registered agent annually.

If any one of the BVI entities in our Group commences activities which may be considered to be a “relevant activity” under the Act, we will take appropriate advice to ensure that such entity complies with the relevant economic substance requirements with respect to that relevant activity.

General Risk Factors

Uncertainty and adverse changes in the economy and financial markets have had, and could continue to have, an adverse impact on our business and operating results.

With the lingering prolonged effects of the COVID-19 pandemic, inflation, trade conflicts, rising interest rates, and the worsened impact of climate change, the global growth outlook looks weak and is well below the average growth rate in the two decades before the pandemic. The global economy is projected to expand at 2.4% in 2025 and 2.5% in 2026, based on the World Economic Situation and Prospects as of Mid-2025, published by the United Nations on May 15, 2025, compared to the projected growth of 2.9% in 2024 and 2.7% in 2023.

According to the National Bureau of Statistics of China, currently the inflation rate is low and remains subdued. Producer prices have been experiencing deflation, with a 3.3% year-on-year decline in May. This was the fourth straight month of consumer deflation, highlighting challenges from ongoing trade risks with the United States, sluggish domestic demand and concerns over job stability. Although the Chinese government agencies have implemented stimulus measures to boost domestic consumption, their effectiveness in combating deflationary pressures is still being assessed.

The inflation rate for the United States in May was 2.4%, according to the Bureau of Labor Statistics of the United States. May 2025’s inflation rate remains as positive, though with price growth increasing less than expected. With this steady inflation picture, it is expected that the United States Federal Reserve will hold interest rates steady to wait and see how the tariff rates will eventually impact consumer prices and the labor market. The outlook for U.S. inflation in 2025 remains uncertain with mixed forecasts. There are expectations that there is potential rise in inflation, peaking in the latter half of the year, while there is a possibility of a more moderate increase and subsequent slowdown. Either way, the key drivers for the impact are tariff rates and/or export control policy, labor shortages due to immigration restrictions, and the possibility of easing of supply chain disruptions.

China’s consumer price index decreased to 103.00 in May, down by 0.1% year-on-year in May, marking the fourth consecutive month of decline. The decline in CPI was affected by falling energy prices and weak domestic demand. China’s export growth slowed to a three-month low in May as US tariffs impacted shipments. Also, the producer price deflation had further deepened reaching the most significant drop in two years.

Global trade also remains under pressure due to geopolitical tensions, weakening global demand and tighter monetary and fiscal policies. While global inflation has decreased from 5.7% in 2023 to a projected 3.9% in 2024, the global economy is still experiencing local supply disruptions, high import costs, market imperfections, and domestic food inflation is still high in most developing countries, disproportionately affecting the poor. Most commodity prices declined to pre-Ukraine-war levels in 2023, however they remained considerably higher than pre-pandemic levels. Our customers that were affected by commodity exports, in turn, were more conservative in ordering our products and services. There are continuing concerns over price instability, geopolitical issues, availability and cost of credit, stability of financial markets and sovereign nations. Uncertainty or adverse changes in the economy could negatively impact:

• the demand for our customers’ products,

• the amount, timing and stability of their orders to us,

• the financial strength of our customers and suppliers,

• our customers’ and suppliers’ ability or willingness to do business with us,

• our suppliers’ and customers’ ability to fulfill their obligations to us,

• the ability of our customers, our suppliers or us to obtain credit, secure funds or raise capital, or

• the prices at which we can sell our products and services, which, in turn, could adversely affect

• our ability to manage inventory levels effectively or collect receivables,

• our cash flow position,

• our net sales, gross margins and operating results; or

• otherwise adversely impact our results of operations, financial condition and liquidity.

We could suffer losses from corrupt or fraudulent business practices.

Corruption and other fraudulent practices remain a concern in China. We could suffer losses from fraudulent practices if we are not successful in implementing and maintaining preventative measures.

Cybersecurity risks

The Company has established processes for its information technology staff to take security measures to safeguard its IT systems. The Company has implemented procedures to assess, identify and manage threats to sensitive data and unauthorized access to its IT systems. Management has overall responsibility to oversee and periodically review such processes and any risks to the Company’s IT systems, and would engage external IT professionals on an as-needed basis. There have not been any past cybersecurity events identified as threats to the Company’s IT systems. If the Company’s procedures and security measures are insufficient to protect its IT systems, the Company’s IT systems and daily operations could be affected.