FGI Industries Ltd

Previous wording

the markets we serve. We also have deep relationships with an established global customer base, offering end-to-end solutions to support category growth. While recent supply chain and inflation pressures have been a headwind, our durable partnerships with manufacturing and sourcing partners have helped to mitigate these challenges.

Current wording

•Deep manufacturing partners and customer relationships. We have developed strong manufacturing and sourcing partners over the last 30+ years, which we believe will continue to give us a competitive advantage in the markets we serve. We also have deep relationships with an established global customer base, offering end-to-end solutions to support category growth. While recent supply chain and inflation pressures have been a headwind, our durable partnerships with manufacturing and sourcing partners have helped to mitigate these challenges.

Previous wording

We were incorporated in the Cayman Islands on May 26, 2021 in connection with a reorganization (the “Reorganization”) of our parent company, Foremost Groups Ltd. (“Foremost”), and its affiliates, pursuant to which, among other actions, Foremost contributed all of its equity interests in FGI Industries, Inc. (“FGI Industries”), FGI Europe Investment Limited, an entity formed in the British Virgin Islands, and FGI International, Limited, an entity formed under the laws of Hong Kong, each a wholly-owned subsidiary of Foremost, to the newly formed FGI Industries Ltd. Foremost was established in 1987 and has become a global leader in kitchen and bath design, indoor and outdoor furniture, food service equipment, and manufacturing. This discussion, and any financial information and results of operations discussed herein, refers to the assets, liabilities, revenue, expenses and cash flows that are directly attributable to the kitchen and bath business of Foremost before the completion of the Reorganization and are presented as if we had been in existence and the Reorganization had been in effect for the entirely of each of the periods presented.

Current wording

Investment Limited, an entity formed in the British Virgin Islands, and FGI International, Limited, an entity formed under the laws of Hong Kong, each a wholly-owned subsidiary of Foremost, to the newly formed FGI Industries Ltd. Foremost was established in 1987 and has become a global leader in kitchen and bath design, indoor and outdoor furniture, food service equipment, and manufacturing. This discussion, and any financial information and results of operations discussed herein, refers to the assets, liabilities, revenue, expenses and cash flows that are directly attributable to the kitchen and bath business of Foremost before the completion of the Reorganization and are presented as if we had been in existence and the Reorganization had been in effect for the entirely of each of the periods presented.

Previous 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.

Current wording

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

Previous wording

Our revenue increased by $0.2 million, or 0.6%, to $29.4 million for the three months ended June 30, 2024, from $29.2 million for the three months ended June 30, 2023. For the six months ended June 30, 2024, our revenue increased by $3.8 million, or 6.7%, to $60.1 million from $56.4 million for the same period last year. The increase in our revenue was primarily driven by increases in Sanitaryware and Shower System sales, partially offset by decreased sales of Bath Furniture.

Current wording

Our revenue increased by $6.2 million, or 20.6%, to $36.1 million for the three months ended September 30, 2024, from $29.9 million for the three months ended September 30, 2023. For the nine months ended September 30, 2024, our revenue increased by $9.9 million, or 11.5%, to $96.2 million from $86.3 million for the same period last year. The increase in our revenue was primarily driven by increases in sales of shower system, bath furniture and custom kitchen cabinetry.

Previous wording

We derive the majority of our revenue from sales of Sanitaryware, which accounted for 59.0% and 63.0% of our total revenue for the three and six months ended June 30, 2024, compared to 64.5% and 60.6% for the comparable periods of 2023. Revenue generated from the sales of Sanitaryware decreased by 7.9% to $17.3 million for the three months ended June 30, 2024 from $18.8 million for same period of 2023. For the six months ended June 30, 2024, these revenue increased by 10.8% to $37.9 million from $34.2 million for the same period of 2023. The decrease in revenue for the three months ended June 30, 2024 was due, in part, by our transition to a new enterprise software system and ocean freight disruptions, which resulted in delayed shipments.

Current wording

We derive the majority of our revenue from sales of sanitaryware, which accounted for 59.4% and 61.6% of our total revenue for the three and nine months ended September 30, 2024, compared to 69.3% and 63.7% for the comparable periods of 2023. Revenue generated from the sales of sanitaryware increased by 3.4% to $21.5 million for the three months ended September 30, 2024 from $20.7 million for same period of 2023. For the nine months ended September 30, 2024, this revenue increased by 7.9% to $59.3 million from $54.9 million for the same period of 2023. The increase in revenue was due, in part, by a reversal of delayed shipments in the prior quarter stemming from our transition to a new enterprise software system and ocean freight disruptions.

Previous 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.

Current wording

Our revenue from bath furniture sales accounted for 11.5% and 11.7% of our total revenue for the three and nine months ended September 30, 2024, compared to 8.5% and 14.3% for the comparable periods of 2023. Bath Furniture sales increased by 64.4% to $4.2 million for the three months ended September 30, 2024, compared to $2.5 million for the same period of 2023. For the nine months ended September 30, 2024, revenue from Bath Furniture sales decreased by 8.3% to $11.3 million from $12.3 million for the same period of 2023. Our recently launched mid-tier products to better address the current demand environment of trading down to lower priced offering is gaining traction.

Previous 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.

Current wording

Revenue from sales of Shower Systems made up approximately 19.8% and 19.5% of our total revenue for the three and nine months ended September 30, 2024, compared to 16.5% and 16.5% for the comparable periods of 2023. Revenue from sales of shower systems increased by 44.9% to $7.1 million for the three months ended September 30, 2024, compared to $4.9 million for the comparable period of 2023. For the nine months ended September 30, 2024, revenue from sales of shower systems increased by 31.9% to $18.8 million from $14.2 million for the same period of 2023. Our recently launched programs continue to have a positive impact during the third quarter.

Previous 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.

Current wording

Our revenue from sales of other products (custom kitchen cabinetry and other small offerings) increased by 93.3% to $3.3 million for the three months ended September 30, 2024, compared to $1.7 million for the same period of 2023. For the nine months ended September 30, 2024, other revenue increased by 43.1% to $6.8 million from $4.8 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 generated the majority of our revenue in the United States market, which amounted to $18.0 million for the three months ended June 30, 2024, compared to $19.0 million for the three months ended June 30, 2023, representing a 5.2% decrease for the three-month periods. For the six months ended June 30, 2024, however, revenue from United States market increased by 2.9% to $37.6 million, compared to $36.6 million for the same period of 2023. Such revenue accounted for 61.4% and 62.6% of our total revenue for the three and six months ended June 30, 2024, respectively, compared to 65.2% and 64.9% for the three and six months ended June 30, 2023, respectively. The decrease in revenue for the three months ended June 30, 2024 was due, in part, by our transition to a new enterprise software system and ocean freight disruptions, which resulted in delayed shipments.

Current wording

We generated the majority of our revenue in the United States market, which amounted to $22.2 million for the three months ended September 30, 2024, compared to $18.4 million for the three months ended September 30, 2023, representing a 20.9% increase for the three-month periods. For the nine months ended September 30, 2024, however, revenue from United States market increased by 8.9% to $59.8 million, compared to $54.9 million for the same period of 2023. Such revenue accounted for 61.5% and 62.2% of our total revenue for the three and nine months ended September 30, 2024, respectively, compared to 61.3% and 63.7% for the three and nine months ended September 30, 2023, respectively. The increase in revenue was due, in part, by a reversal of delayed shipments in the prior quarter stemming from our transition to a new enterprise software system and ocean freight disruptions.

Previous 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.

Current wording

Our second largest market is Canada. Our revenue generated in the Canadian market was $9.9 million for the three months ended September 30, 2024, compared to $9.1 million for the three months ended September 30, 2023, representing a 9.2% increase. For the nine months ended September 30, 2024, revenue from Canadian market increased by 14.1% to $26.4 million, compared to $23.1 million for the same period in 2023. The increased sales in the Canada market were primarily driven by stabilized demand from wholesale customers.

Previous 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.

Current wording

We also derive revenue from Europe, which consists primarily of sales in Germany. This amounted to $3.4 million and $9.3 million for the three and nine months ended September 30, 2024, compared to $2.5 million and $8.2 million for the three and nine months ended September 30, 2023, representing a 38.9% and 13.0% increase for the three-month and nine-month periods, respectively.

Previous 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.

Current wording

Gross profit was $9.3 million and $26.7 million for the three and nine months ended September 30, 2024, an increase of 18.9% and 15.8% compared to the same periods of 2023. Gross profit margin was 25.8% and 27.7% for the three and nine months ended September 30, 2024, down 40 and up 100 basis points from 26.2% and 26.7% for the three and nine months ended September 30, 2023, respectively.

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 $1.5 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.

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 $1.7 million, or 37.4%, to $6.3 million for the three months ended September 30, 2024, from $4.6 million for the three months ended September 30, 2023, and increased by $4.6 million, or 32.6%, to $18.7 million for the nine months ended September 30, 2024, from $14.1 million for the nine months ended September 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 $0.4 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.

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 $0.3 million, or 12.2%, to $2.6 million for the three months ended September 30, 2024, from $2.4 million for the three months ended September 30, 2023, and increased by $0.8 million, or 11.8%, to $7.5 million for the nine months ended September 30, 2024, from $6.7 million for the nine months ended September 30, 2023. The increase was primarily attributable to inflation and expenses incurred in connection with newly formed subsidiaries.

Previous 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.

Current wording

We incurred net loss of $0.7 million and net income of $0.3 million for the three months ended September 30, 2024 and 2023, respectively, and net loss of $1.3 million and net income of $0.1 million for the nine months ended September 30, 2024 and 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 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.

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 September 30, 2024, we had cash and working capital of $3.0 million and $12.7 million, respectively. During the nine months ended September 30, 2024, we drew an aggregate of approximately $5.5 million on the Credit Agreement, the Canadian Revolver and the CTBC Credit Line for working capital replenishment.

Previous 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

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 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.

Previous wording

Our wholly owned subsidiary, FGI Industries (formerly named Foremost Groups, Inc.), has a line of credit with East West Bank pursuant to a Business Loan Agreement (the “Credit Agreement”) with East West Bank, which is collateralized by all of the assets of FGI Industries and personally guaranteed by Liang Chou Chen, who holds approximately 49.89% of the voting control of Foremost. On November 25, 2022, the Credit Agreement was amended and restated with a maximum borrowing amount of $18,000,000 and a maturity date of December 21, 2024.

Current wording

Our wholly owned subsidiary, FGI Industries, has a line of credit with East West Bank pursuant to a Business Loan Agreement (the “Credit Agreement”) with East West Bank, which is collateralized by all of the assets of FGI Industries and personally guaranteed by Liang Chou Chen, who holds approximately 49.89% of the voting control of Foremost. On November 25, 2022, the Credit Agreement was amended and restated with a maximum borrowing amount of $18,000,000 and a maturity date of December 21, 2024.

Previous wording

Pursuant to the Credit Agreement, FGI Industries is required to maintain (a) a debt coverage ratio (defined as earnings before interest, taxes, depreciation and amortization divided by current portion of long-term debt plus interest expense) of not less than 1.25 to 1, tested at the end of each fiscal quarter; (b) an effective tangible net worth (defined as total book net worth plus minority interest, less amounts due from officers, shareholders and affiliates, minus intangible assets and accumulated amortization, plus debt subordinated to East West Bank) of not less than $10,000,000 for the quarter ended June 30, 2021 and thereafter, on consolidated basis; and (c) a total debt to tangible net worth ratio (defined as total liabilities divided by tangible net worth, which is defined as total book net worth plus minority interest, less loans to officers, shareholders, and affiliates minus intangible assets and accumulated amortization) not to exceed 4.0 to 1, tested at the end of each fiscal quarter, on consolidated basis. As of June 30, 2023, FGI Industries was in compliance with this financial covenant. As described in Item 1. Note 8, FGI Industries is also required to provide the lender with certain periodic financial information, including annual audited financial statements of FGI Industries on a non-consolidated basis. As of the date of report, FGI Industries has obtained a waiver for such Corporate Borrower’s Audited Annual Statements, a U.S. standalone reporting obligation under the Credit Agreement, which were due by April 30, 2024.

Current wording

Pursuant to the Credit Agreement, FGI Industries is required to maintain (a) a debt coverage ratio (defined as earnings before interest, taxes, depreciation and amortization divided by current portion of long-term debt plus interest expense) of not less than 1.25 to 1, tested at the end of each fiscal quarter; (b) an effective tangible net worth (defined as total book net worth plus minority interest, less amounts due from officers, shareholders and affiliates, minus intangible assets and accumulated amortization, plus debt subordinated to East West Bank) of not less than $10,000,000 for the quarter ended June 30, 2021 and thereafter, on a consolidated basis; and (c) a total debt to tangible net worth ratio (defined as total liabilities divided by tangible net worth, which is defined as total book net worth plus minority interest, less loans to officers, shareholders, and affiliates minus intangible assets and accumulated amortization) not to exceed 4.0 to 1, tested at the end of each fiscal quarter, on a consolidated basis. As of September 30, 2024, FGI Industries was in compliance with this financial covenant. As described in Item 1. Note 8, FGI Industries is also required to provide the lender with certain periodic financial information, including annual audited financial statements of FGI Industries on a non-consolidated basis. As of the date of this report, FGI Industries has obtained a waiver for such Corporate Borrower’s Audited Annual Statements, a U.S. standalone reporting obligation under the Credit Agreement, which were due by April 30, 2024.

Previous wording

The loan bears interest rate equal to, at the Company’s option, either (i) 0.25 percentage points less than the Prime Rate quoted by the Wall Street Journal or (ii) the SOFR Rate (as administered by CME Group Benchmark Administration Limited and displayed by Bloomberg LP) plus 2.20% per annum (in either case, subject to a minimum rate of 4.500% per annum). The interest rate as of June 30, 2024 and December 31, 2023 was 8.25% and 8.25%, respectively.

Current wording

The loan bears interest rate equal to, at the Company’s option, either (i) 0.25 percentage points less than the Prime Rate quoted by the Wall Street Journal or (ii) the SOFR Rate (as administered by CME Group Benchmark Administration Limited and displayed by Bloomberg LP) plus 2.20% per annum (in either case, subject to a minimum rate of 4.500% per annum). The interest rate as of September 30, 2024 and December 31, 2023 was 7.75% and 8.25%, resp ectively.

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 $8,197,141 and $6,959,175 as of June 30, 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 $9,161,641 and $6,959,175 as of September 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 $5,474,453 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.

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 CAD7,500,000 (USD5,474,453 as of September 30, 2024). 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 September 30, 2024, FGI Canada Ltd. was not in compliance with certain financial covenants in the Canadian Revolver related to its debt to tangible net worth ratio. As of the date of this quarterly report, FGI Canada Ltd. has requested a waiver from the lender, which is being processed by the lender. In the absence of an executed waiver, the Company has classified the outstanding balance of the loan as a current liability on the unaudited condensed consolidated balance sheet as of September 30, 2024. The Company has sufficient liquidity to repay the loan in full if immediate settlement were required.

Previous wording

Borrowings under this line of credit amounts to $0 as of June 30, 2024 and December 31, 2023. The facility matures at the discretion of HSBC Canada upon 60 days’ notice.

Current wording

Borrowings under this line of credit amounted to $1,026,392 and $0 as of September 30, 2024 and December 31, 2023, respectively. The facility matures at the discretion of HSBC Canada upon 60 days’ notice.

Previous wording

FGI Canada Ltd. also has a revolving foreign exchange facility up to a permitted maximum of US $3,000,000. The advances are available to purchase foreign exchange forward contacts from time to time up to six months, subject to an overall maximum aggregate USD Equivalent outstanding face value not exceeding the Foreign Exchange Facility Limit.

Current wording

FGI Canada Ltd. also has a revolving foreign exchange facility up to a permitted maximum of USD3,000,000. The advances are available to purchase foreign exchange forward contracts from time to time up to six months, subject to an overall maximum aggregate USD Equivalent outstanding face value not exceeding the Foreign Exchange Facility Limit.

Previous 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.

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 amounted to $2,297,464 and $0 as of September 30, 2024 and December 31, 2023, respectively.

Previous wording

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

Current wording

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

Previous 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.

Current wording

Net cash used in operating activities was approximately $8.0 million for the nine months ended September 30, 2024 and was primarily attributable to an increase in prepayments and other receivables - related parties of approximately $6.0 million, an increase in inventories of approximately $3.9 million, an increase in accounts receivable of approximately $3.8 million, a decrease in operating lease liabilities of approximately $1.4 million, net loss of $1.3 million, a decrease in accounts payable - related parties of approximately $0.7 million, and an increase in other noncurrent assets of approximately $0.6 million. These drivers were partially offset by non-cash items of $2.2 million, an increase in accounts payable of approximately $5.7 million, an increase in accrued expenses and other current liabilities of approximately $1.1 million, and a decrease in prepayments and other current assets of approximately $0.8 million.

Previous 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.

Current wording

Net cash used in operating activities was approximately$2.0 million for thenine months ended September 30, 2023 and was primarily attributable to an increase in prepayments and other receivables - related parties of approximately$5.4 million, an increase in accounts receivable of approximately$1.6 million, an increase in prepayments and other current assets of approximately$1.3 million, a decrease in operating lease liabilities of approximately$0.9 million, and a decrease in accounts payable of approximately$0.7 million. These drivers were partially offset by non-cash items of$0.9 million, a decrease in inventories of approximately$3.7 million, an increase in accounts payable - related parties of approximately$2.4 million, and a decrease in other noncurrent assets of$0.6 million.

Previous 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.

Current wording

Net cash used in investing activities was $2.0 million and $0.9 million for the nine months ended September 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 $2.7 million for the six months ended June 30, 2024, which represents net proceeds from bank loans.

Current wording

Net cash provided by financing activities was approximately $5.5 million for the nine months ended September 30, 2024 which represents net proceeds from bank loans.

Previous 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.

Current wording

Net cash used in financing activities was approximately $1.8 million for the nine months ended September 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 $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.

Current wording

Our capital expenditures were incurred primarily in connection with the acquisition of property and equipment. Our capital expenditures amounted to $2.0 million and $0.9 million for the nine months ended September 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 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.

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 nine months ended September 30, 2024.

Previous wording

We define Adjusted Income from Operations as GAAP income from operations excluding the impact of certain non-recurring expenses, including IPO-related compensation (cash and stock-based), legal fees and business expansion expenses. We define Adjusted Net Income as GAAP net income excluding the tax-effected impact of certain non-recurring expenses and income, such as IPO-related compensation, legal fees and business expansion expenses. We define Adjusted Operating Margins as adjusted income from operations divided by revenue.

Current wording

We define Adjusted Income from Operations as GAAP income from operations excluding the impact of certain non-recurring expenses, including IPO-related compensation (cash and stock-based), legal fees and business expansion expenses. We define Adjusted Net Income as GAAP income before income taxes excluding the impact of certain non-recurring expenses and income, such as IPO-related compensation, legal fees and business expansion expenses, income taxes at historical average effective rate, as well as net income attributable to non-controlling shareholders. We define Adjusted Operating Margins as adjusted income from operations divided by revenue.