FGI Industries Ltd

Previous wording

Due to ongoing market conditions, we are experiencing, and may continue to experience, lower market demand for certain of our products, particularly in our bath furniture category, as weak demand, customer destock and inventory corrections have had a negative impact on our net sales. As previously noted, we also began experiencing supply chain disruptions and inflationary pressures, which affected operating margins beginning in late 2022. However, we adopted several productivity and pricing measures to offset these headwinds and began to see resumed margin expansion in the second half of 2023. While the demand environment remains uneven with multiple industry forecasters predicting modest declines in home improvement spend in 2024, we expect to generate above-market growth.

Current wording

Due to ongoing market conditions, we are experiencing, and may continue to experience, lower market demand for certain of our products, particularly in our bath furniture category, as weak demand, customer destock and inventory corrections have had a negative impact on our net sales. As previously noted, we also began experiencing supply chain disruptions and inflationary pressures, which affected operating margins beginning in late 2022. However, we adopted several productivity and pricing measures to offset these headwinds and began to see resumed margin expansion in the second half of 2023, which has largely continued through the second quarter of 2024. The industry outlook remains relatively flat overall with our customers forecasting minimal growth in 2024.

Previous wording

The following table summarizes the results of our operations for the three months ended March 31, 2024 and 2023 and provides information regarding the dollar and percentage increase (decrease) during such periods.

Current wording

The following table summarizes the results of our operations for the three and six months ended June 30, 2024 and 2023 and provides information regarding the dollar and percentage increase (decrease) during such periods.

Previous wording

Our revenues from bath furniture sales accounted for 10.0% and 18.3% of our total revenue for the three months ended March 31, 2024 and 2023, respectively. Bath Furniture sales decreased by 37.8% to $3.1 million for the three months ended March 31, 2024, compared to $5.0 million in the same period of 2023. The bath furniture market continues to be impacted by weak demand and a trade down to lower priced offerings. In response, we are launching mid-tier products to better address the current demand environment.

Current wording

Our revenue from Bath Furniture sales accounted for 13.7% and 11.8% of our total revenue for the three and six months ended June 30, 2024, compared to 16.5% and 17.4% for the comparable periods of 2023. Bath Furniture sales decreased by 16.2% to $4.0 million for the three months ended June 30, 2024, compared to $4.8 million for the same period of 2023. For the six months ended June 30, 2024, revenue from Bath Furniture sales decreased by 27.2% to $7.1 million from $9.8 million for the same period of 2023. The bath furniture market continues to be impacted by weak demand and a trade down to lower priced offerings. In response, we are launching mid-tier products to better address the current demand environment.

Previous wording

Revenues from sales of Shower Systems increased by 14.5% to $5.8 million for the three months ended March 31, 2024, compared to $5.0 million for the comparable period of 2023. Shower systems make up approximately 18.7% and 18.5% of our total revenue for the three months ended March 31, 2024 and 2023, respectively. While the shower business experienced some modest inventory de-stocking during 2023, demand trends have remained steady and our recently launched programs had a positive impact during the first quarter. These new programs include the online shower door program with a large Canadian retailer, as well as the new shower wall systems roll-out at up to 300 locations of a large U.S. retailer with initial shipments that began in December 2023.

Current wording

Revenue from sales of Shower Systems made up approximately 20.1% and 19.4% of our total revenue for the three and six months ended June 30, 2024, compared to 14.7% and 16.5% for the comparable periods of 2023. Revenue from sales of Shower Systems increased by 37.4% to $5.9 million for the three months ended June 30, 2024, compared to $4.3 million for the comparable period of 2023. For the six months ended June 30, 2024, revenue from sales of Shower Systems increased by 25.0% to $11.7 million from $9.3 million for the same period of 2023. Demand trends have remained steady and our recently launched programs had a positive impact during the first quarter. These new programs include the online shower door program with a large Canadian retailer, as well as the new shower wall systems roll-out at up to 300 locations of a large U.S. retailer with initial shipments that began in December 2023.

Previous wording

The revenues from sales of other products (custom kitchen cabinetry and other small offerings) decreased by 23.5% to $1.4 million for the three months ended March 31, 2024, compared to $1.8 million in the same period of 2023. Fewer orders were received for our custom kitchen cabinetry during the holiday season in late 2023, resulting in decreased revenue from this product category in the three months ended March 31, 2024 as compared to the same period of last year.

Current wording

Our revenue from sales of other products (custom kitchen cabinetry and other small offerings) increased by 66.1% to $2.1 million for the three months ended June 30, 2024, compared to $1.3 million for the same period of 2023. For the six months ended June 30, 2024, other revenue increased by 13.5% to $3.5 million from $3.1 million for the same period of 2023. The increase was primarily driven by volume growth resulting from continued strength in sales of the Covered Bridge custom-kitchen cabinetry businesses.

Previous wording

We derive our revenues primarily from the United States, Canada and Europe. Revenue categories by geographic location are summarized as follows:

Current wording

We derive our revenue primarily from the United States, Canada and Europe. Revenue categories by geographic location are summarized as follows:

Previous wording

Our second largest market is Canada. Our revenues generated in the Canadian market were $7.9 million for the three months ended March 31, 2024, compared to $6.5 million for the three months ended March 31, 2023, representing a 20.9% increase. Similar to the U.S. market, the increased sales in the Canada market was primarily driven by the recovery of pro channel in our Sanitary category.

Current wording

Our second largest market is Canada. Our revenue generated in the Canadian market were $8.6 million for the three months ended June 30, 2024, compared to $7.5 million for the three months ended June 30, 2023, representing a 14.3% increase. For the six months ended June 30, 2024, revenue from Canadian market increased by 17.4% to $16.5 million, compared to $14.0 million for the same period in 2023. The increased sales in the Canada market were primarily driven by the recovery of pro channel in our Sanitary category.

Previous wording

We also derive a small portion of our revenue from Europe, which consists primarily of sales in Germany. This amounted to $3.2 million for the three months ended March 31, 2024, compared to $3.1 million for the three months ended March 31, 2023, representing a 2.8% increase for the three-month periods. The sales in this market remained relatively stable.

Current wording

We also derive a small portion of our revenue from Europe, which consists primarily of sales in Germany. This amounted to $2.7 million and $5.9 million for the three and six months ended June 30, 2024, compared to $2.6 million and $5.7 million for the three and six months ended June 30, 2023, representing a 0.8% and 1.9% increase for the three-month and six-month periods, respectively. The sales in this market remained relatively stable.

Previous wording

Gross profit was $8.4 million for the three months ended March 31, 2024, an increase of 16.8% compared to the prior-year period, as a result of volume growth. Gross profit margin improved to 27.4% for the three months ended March 31, 2024, up 90 basis points from 26.5% in the prior-year periods. Gross margins continue to benefit from a shift in revenue mix towards higher-margin products and lower logistics costs.

Current wording

Gross profit was $9.0 million and $17.4 million for the three and six months ended June 30, 2024, an increase of 11.9% and 14.2% compared to the same periods of 2023. Gross profit margin improved to 30.5% and 28.9% for the three and six months ended June 30, 2024, up 310 and 190 basis points from 27.4% and 27.0% for the three and six months ended June 30, 2023, respectively. Gross margins continue to benefit from a shift in revenue mix towards higher-margin products and lower logistics costs.

Previous wording

Selling and distribution expenses primarily consisted of personnel costs, marketing and promotion costs, commission, and freight and leasing charges. Our selling and distribution expenses increased by $1.4 million, or 30.1%,

Current wording

Selling and distribution expenses primarily consisted of personnel costs, marketing and promotion costs, commission, and freight and leasing charges. Our selling and distribution expenses increased by $1.5 million, or 30.4%, to $6.3 million for the three months ended June 30, 2024, from $4.8 million for the three months ended June 30, 2023, and increased by $2.9 million, or 30.3%, to $12.4 million for the six months ended June 30, 2024, from $9.5 million for the six months ended June 30, 2023. The increase in selling and distribution expenses was largely attributable to increased personnel costs, marketing and promotion expenses and warehouse expenses as a result of inflation and our initiatives to drive sales growth.

Previous wording

General and administrative expenses primarily consisted of personnel costs, professional service fees, depreciation, travel, and office supply expenses. Our general and administrative expenses increased by $0.1 million, or 6.6%, to $2.3 million for the three months ended March 31, 2024, from $2.1 million for the three months ended March 31, 2023. The increase was primarily attributable to inflation and expenses incurred in connection with newly formed subsidiaries.

Current wording

General and administrative expenses primarily consisted of personnel costs, professional service fees, depreciation, travel, and office supply expenses. Our general and administrative expenses increased by $0.4 million, or 16.4%, to $2.6 million for the three months ended June 30, 2024, from $2.3 million for the three months ended June 30, 2023, and increased by $0.5 million, or 11.6%, to $4.9 million for the six months ended June 30, 2024, from $4.4 million for the six months ended June 30, 2023. The increase was primarily attributable to inflation and expenses incurred in connection with newly formed subsidiaries.

Previous wording

Research and development expenses mainly consisted of personnel costs and product development costs. Our research and development activities remained stable and are relatively immaterial to our unaudited condensed consolidated statements of operations and comprehensive loss.

Current wording

Research and development expenses mainly consisted of personnel costs and product development costs. Our research and development activities remained stable and are relatively immaterial to our unaudited condensed consolidated statements of operations and comprehensive (loss) income.

Previous wording

Our net loss increased by $0.2 million, or 77.3%, to $0.5 million for the three months ended March 31, 2024, from $0.3 million for the three months ended March 31, 2023. This increase was a result of the combination of the changes discussed above.

Current wording

Our net loss increased by $0.1 million and $0.3 million, to approximately $23,000 and $0.6 million for the three and six months ended June 30, 2024, from $0.1 million of net income and $0.2 million of net loss for the three and six months ended June 30, 2023, respectively. These changes had resulted from the combination of the changes discussed above.

Previous wording

Our principal sources of liquidity are cash generated from operating activities and cash borrowed under credit facilities, which we believe provides sufficient liquidity to support our financing needs. As of March 31, 2024, we had cash and working capital of $3.3 million and $16.8 million, respectively. During the three months ended March 31, 2024, we drew an aggregate of approximately $4.5 million on the Credit Agreement and CTBC Credit Line for working capital replenishment.

Current wording

Our principal sources of liquidity are cash generated from operating activities and cash borrowed under credit facilities, which we believe provides sufficient liquidity to support our financing needs. As of June 30, 2024, we had cash and working capital of $1.3 million and $13.5 million, respectively. During the six months ended June 30, 2024, we drew an aggregate of approximately $2.7 million on the Credit Agreement and CTBC Credit Line for working capital replenishment.

Previous wording

We believe our revenues and operations will continue to grow and the current working capital is sufficient to support our operations and debt obligations well into the foreseeable future. However, we may need additional cash resources in the future if we experience changes in business conditions or other developments, such as rising interest rates, inflation and increased costs, and may also need additional cash resources in the future if we wish to pursue opportunities for investment, acquisition, strategic cooperation or other similar actions. For example, from time to time we may provide loans or other operational support to Foremost to assist Foremost in capital expenditures or other efforts related to the manufacturing services that Foremost provides to us, which could limit the assets available for other corporate purposes or require additional resources. If it is determined that the cash requirements exceed our amount of cash on hand, we may seek to issue debt or equity securities, and there can be no assurances that additional financing will be available on acceptable term, if at all.

Current wording

We believe our revenue and operations will continue to grow and the current working capital is sufficient to support our operations and debt obligations well into the foreseeable future. However, we may need additional cash resources in the future if we experience changes in business conditions or other developments, such as rising interest rates, inflation and increased costs, and may also need additional cash resources in the future if we wish to pursue opportunities for investment, acquisition, strategic cooperation or other similar actions. For example, from time to time we may provide loans or other operational support to Foremost to assist Foremost in capital expenditures or other efforts related to the

Previous wording

Each sum of borrowings under the Credit Agreement is deemed due on demand and is classified as a short-term loan. The outstanding balance of such loan was $9,929,043 and $6,959,175 as of March 31, 2024, and December 31, 2023, respectively.

Current wording

Each sum of borrowings under the Credit Agreement is deemed due on demand and is classified as a short-term loan. The outstanding balance of such loan was $8,197,141 and $6,959,175 as of June 30, 2024, and December 31, 2023, respectively.

Previous wording

FGI Canada Ltd. has a line of credit agreement with HSBC Canada (the “Canadian Revolver”). The revolving line of credit with HSBC Canada allows for borrowing up to CAD $7,500,000 (US $5,662,087 as of the March 31, 2024 exchange rate). This is an assets-based line of credit, the borrowing limit is calculated based on certain percentage of accounts receivable and inventory balances. Pursuant to the Canadian Revolver, FGI Canada Ltd. is required to maintain (a) a debt to tangible net worth ratio of no more than 3.00 to 1.00; and (b) a ratio of current assets to current liabilities of at least 1.25 to 1.00. The loan bears interest at a rate of Prime rate plus 0.50%. As of March 31, 2024, FGI Canada Ltd. was in compliance with this financial covenant.

Current wording

FGI Canada Ltd. has a line of credit agreement with HSBC Canada (the “Canadian Revolver”). The revolving line of credit with HSBC Canada allows for borrowing up to CAD $7,500,000 (US $5,474,453 as of the June 30, 2024 exchange rate). This is an assets-based line of credit, the borrowing limit is calculated based on certain percentage of accounts receivable and inventory balances. Pursuant to the Canadian Revolver, FGI Canada Ltd. is required to maintain (a) a debt to tangible net worth ratio of no more than 3.00 to 1.00; and (b) a ratio of current assets to current liabilities of at least 1.25 to 1.00. The loan bears interest at a rate of Prime rate plus 0.50%. As of June 30, 2024, FGI Canada Ltd. was in compliance with this financial covenant.

Previous wording

$2.3 million, with borrowings limited to 90% of FGI International’s export “open account” trade receivables. The CTBC Credit Line will bear interest at a rate of “Base Rate”, which is based on monthly or quarterly Taipei Interbank Offered in effect from time to time, plus 120 base points and handling fees, unless otherwise agreed to by the parties. The CTBC Credit Line is unsecured and is fully guaranteed by the Company and partially guaranteed by Liang Chou Chen. Borrowings under this line of credit amounts to $1,513,608 and $0 as of March 31, 2024 and December 31, 2023, respectively.

Current wording

On January 25, 2024, FGI International entered into an omnibus credit line (the “CTBC Credit Line”) with CTBC Bank Co., Ltd. (“CTBC”). Under the CTBC Credit Line, FGI International may borrow, from time to time, up to $2.3 million, with borrowings limited to 90% of FGI International’s export “open account” trade receivables. The CTBC Credit Line will bear interest at a rate of “Base Rate”, which is based on monthly or quarterly Taipei Interbank Offered in effect from time to time, plus 120 base points and handling fees, unless otherwise agreed to by the parties. The CTBC Credit Line is unsecured and is fully guaranteed by the Company and partially guaranteed by Liang Chou Chen. Borrowings under this line of credit amounts to $1,495,059 and $0 as of June 30, 2024 and December 31, 2023, respectively.

Previous wording

The following table summarizes the key components of our cash flows for the three months ended March 31, 2024 and 2023.

Current wording

The following table summarizes the key components of our cash flows for the six months ended June 30, 2024 and 2023.

Previous wording

Net cash used in operating activities was approximately $8.3 million for the three months ended March 31, 2024 and was primarily attributable to an increase in prepayments and other receivables - related parties of approximately $5.4 million, an increase in inventories of approximately $1.6 million, a decrease in accrued expenses and other current liabilities of approximately $0.6 million, a decrease in income tax payable of approximately $0.4 million, a decrease in accounts payable of approximately $0.7 million. These drivers were partially offset by non-cash items of $1.4 million.

Current wording

Net cash used in operating activities was approximately $7.1 million for the six months ended June 30, 2024 and was primarily attributable to an increase in prepayments and other receivables - related parties of approximately $6.1 million, an increase in inventories of approximately $2.9 million, an increase in accounts receivable of approximately $1.9 million, a decrease in operating lease liabilities of approximately $1.0 million, an increase in other noncurrent assets of approximately $0.5 million, and a decrease in income tax payable of approximately $0.4 million. These drivers were partially offset by non-cash items of $1.5 million, an increase in accounts payable of approximately $2.8 million, and a decrease in prepayments and other current assets of approximately $1.5 million.

Previous wording

Net cash used in operating activities was approximately $1.2 million for the three months ended March 31, 2023 and was primarily attributable to a decrease in accounts payable of approximately $6.6 million, a decrease in accrued expenses and other current liabilities of approximately $0.6 million and net income for the quarter of approximately $0.3 million, an increase in prepayments and other current assets of approximately $0.3 million, a decrease in operating lease liabilities of approximately $0.3 million. These drivers were partially offset by a decrease in inventories of approximately $3.4 million, a decrease in accounts receivable of approximately $1.7 million, plus non-cash items of approximately $0.5 million, and an increase in accounts payable-related parties of approximately $0.5 million, a decrease in right-of-used assets of approximately $0.4 million, a decrease in prepayments and other receivables - related parties of approximately $0.3 million, and an increase in income taxes payable of approximately $0.1 million.

Current wording

Net cash used in operating activities was approximately $0.5 million for the six months ended June 30, 2023 and was primarily attributable to an increase in prepayments and other receivables - related parties of approximately $3.0 million, a decrease in accounts payable of approximately $1.9 million, an increase in prepayments and other current assets of approximately $1.1 million, a decrease in operating lease liabilities of approximately $0.6 million, and net income for the six months of approximately $0.2 million. These drivers were partially offset by a decrease in inventories of approximately $3.5 million, an increase in accounts payable-related parties of approximately $1.2 million, a decrease in accounts receivable of approximately $0.3 million, a decrease in other noncurrent assets of approximately $0.3 million, an increase in accrued expenses and other current liabilities of approximately $0.2 million, and an increase in income taxes payable of approximately $0.1 million.

Previous wording

Net cash used in investing activities was $0.6 million and $0.1 million for the three months ended March 31, 2024, and 2023, respectively, which was attributable to the purchases of property and equipment.

Current wording

Net cash used in investing activities was $1.9 million and $0.7 million for thesix months ended June 30, 2024, and 2023, respectively, which was attributable to the purchases of property and equipment and intangible assets.

Previous wording

Net cash provided by financing activities was approximately $4.5 million for the three months ended March 31, 2024, which represents net proceeds from bank loans.

Current wording

Net cash provided by financing activities was approximately $2.7 million for the six months ended June 30, 2024, which represents net proceeds from bank loans.

Previous wording

Net cash used in financing activities was approximately $1.4 million for the three months ended March 31, 2023, which represents net repayment of bank loans.

Current wording

Net cash used in financing activities was approximately $1.9 million for the six months ended June 30, 2023, which represents net repayment of bank loans.

Previous wording

Our capital expenditures were incurred primarily in connection with the acquisition of property and equipment. Our capital expenditures amounted to $0.6 million and $0.1 million for the three months ended March 31, 2024 and 2023, respectively. We do not expect to incur significant capital expenditures in the immediate future.

Current wording

Our capital expenditures were incurred primarily in connection with the acquisition of property and equipment. Our capital expenditures amounted to $1.9 million and $0.7 million for the six months ended June 30, 2024 and 2023, respectively. We do not expect to incur significant capital expenditures in the immediate future.

Previous wording

A discussion of our critical accounting policies and significant accounting estimates is included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2023 Form 10-K. The preparation of the unaudited condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of some assets and liabilities and, in some instances, the reported amounts of revenues and expenses during the applicable reporting period. Actual results could differ materially from these estimates. Changes in estimates are recorded in results of operations in the period that the events or circumstances giving rise to such changes occur. Within the context of these critical accounting estimates, we are not currently aware of any reasonably likely events or circumstances that would result in different policies or estimates being reported for the three months ended March 31, 2024.

Current wording

A discussion of our critical accounting policies and significant accounting estimates is included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2023 Form 10-K. The preparation of the unaudited condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of some assets and liabilities and, in some instances, the reported amounts of revenue and expenses during the applicable reporting period. Actual results could differ materially from these estimates. Changes in estimates are recorded in results of operations in the period that the events or circumstances giving rise to such changes occur. Within the context of these critical accounting estimates, we are not currently aware of any reasonably likely events or circumstances that would result in different policies or estimates being reported for the six months ended June 30, 2024.