FGI Industries .(US:FGI)2024-08-13 20:30PART I — FINANCIAL INFORMATION This section presents the company's financial statements, management's analysis of operations and liquidity, market risk disclosures, and internal controls Financial Statements The company reported a 6.7% revenue increase to $60.1 million for the six months ended June 30, 2024, with a wider net loss and increased assets Condensed Consolidated Balance Sheets Total assets increased to $69.9 million as of June 30, 2024, driven by inventories and receivables, while liabilities rose and equity slightly decreased Condensed Consolidated Balance Sheet Highlights (USD) | Metric | June 30, 2024 (Unaudited) | December 31, 2023 (Audited) | | :--- | :--- | :--- | | Total Assets | $69,878,729 | $65,744,930 | | Cash | $1,307,092 | $7,777,241 | | Inventories, net | $12,804,781 | $9,923,852 | | Total Liabilities | $46,532,698 | $41,718,158 | | Short-term loans | $9,692,200 | $6,959,175 | | Accounts payable | $17,310,270 | $14,524,607 | | Total Shareholders' Equity | $23,346,031 | $24,026,772 | Unaudited Condensed Consolidated Statements of Operations Q2 2024 revenue was flat at $29.4 million, resulting in a net loss due to increased operating expenses, while six-month revenue grew 6.7% to $60.1 million Statement of Operations Highlights (USD) | Period | Revenue | Gross Profit | (Loss) Income from Operations | Net (Loss) Income | Basic EPS | | :--- | :--- | :--- | :--- | :--- | :--- | | Q2 2024 | $29,370,949 | $8,963,302 | ($450,362) | ($23,415) | $0.02 | | Q2 2023 | $29,189,913 | $8,010,402 | $580,275 | $88,481 | $0.01 | | Six Months 2024 | $60,124,468 | $17,376,785 | ($771,296) | ($561,274) | ($0.03) | | Six Months 2023 | $56,352,179 | $15,212,560 | $577,348 | ($214,894) | ($0.02) | Unaudited Condensed Consolidated Statements of Cash Flows Net cash used in operating activities significantly increased to $7.1 million for the six months ended June 30, 2024, leading to a $6.5 million decrease in cash balance Cash Flow Summary for the Six Months Ended June 30 (USD) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | ($7,127,778) | ($511,193) | | Net cash used in investing activities | ($1,859,419) | ($732,203) | | Net cash provided by (used in) financing activities | $2,733,024 | ($1,931,372) | | Net Changes in Cash | ($6,470,149) | ($3,172,666) | | Cash, beginning of period | $7,777,241 | $10,067,428 | | Cash, end of period | $1,307,092 | $6,894,762 | Notes to Unaudited Condensed Consolidated Financial Statements These notes detail the company's business, accounting policies, reliance on credit facilities for liquidity, related-party transactions, and concentration risks - The company is a supplier of kitchen and bath products, including sanitaryware, bath furniture, and shower systems, sold primarily for repair and remodeling (R&R) activities19 - Management believes the company has sufficient funds to meet its working capital requirements and debt obligations for the next twelve months, based on internally generated cash, short-term loans, and potential financing or shareholder support3132 - The company has an $18 million line of credit with East West Bank maturing in December 2024, a CAD $7.5 million revolver with HSBC Canada, and a new $2.3 million credit line with CTBC Bank established in January 2024848789 - For Q2 2024, two customers accounted for 18.4% and 17.2% of total revenue, while one vendor accounted for 57.0% of total purchases132133 Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported a slight Q2 2024 revenue increase to $29.4 million, with improved gross margin but an operating loss due to higher expenses, while liquidity is supported by credit facilities Results of Operations Q2 2024 revenue was flat at $29.4 million, with Shower Systems growth offset by Bath Furniture decline, while gross margin improved but operating expenses led to a loss Revenue by Product Line - Q2 (USD) | Product Line | Q2 2024 Revenue | Q2 2023 Revenue | % Change | | :--- | :--- | :--- | :--- | | Sanitaryware | $17,334,714 | $18,816,220 | (7.9)% | | Bath Furniture | $4,031,120 | $4,813,239 | (16.2)% | | Shower System | $5,889,847 | $4,286,672 | 37.4% | | Other | $2,115,268 | $1,273,782 | 66.1% | | Total | $29,370,949 | $29,189,913 | 0.6% | Revenue by Geographic Location - Q2 (USD) | Geography | Q2 2024 Revenue | Q2 2023 Revenue | % Change | | :--- | :--- | :--- | :--- | | United States | $18,039,583 | $19,033,168 | (5.2)% | | Canada | $8,593,329 | $7,517,459 | 14.3% | | Europe | $2,659,858 | $2,639,286 | 0.8% | | Total | $29,370,949 | $29,189,913 | 0.6% | - Gross profit margin improved to 30.5% for Q2 2024, up 310 basis points from 27.4% in Q2 2023, benefiting from a shift towards higher-margin products and lower logistics costs159 - Selling and distribution expenses increased by 30.4% to $6.3 million for Q2 2024, largely due to increased personnel, marketing, promotion, and warehouse expenses to drive sales growth160 Liquidity and Capital Resources The company's liquidity as of June 30, 2024, is primarily from credit facilities and operations, with $1.3 million cash on hand and $13.5 million working capital - The company's principal sources of liquidity are cash from operations and borrowings under its credit facilities164 - FGI Industries has an $18 million credit facility with East West Bank, collateralized by its assets, with an outstanding balance of $8.2 million as of June 30, 2024167169 - FGI International entered into a new $2.3 million omnibus credit line with CTBC Bank in January 2024, with an outstanding balance of $1.5 million as of June 30, 2024172 Quantitative and Qualitative Disclosures About Market Risk This section is not required for smaller reporting companies, thus no information is provided - Disclosure is not required for smaller reporting companies187 Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of June 30, 2024, due to a material weakness in internal control over financial reporting - The CEO and CFO concluded that as of June 30, 2024, the company's disclosure controls and procedures were not effective190 - A material weakness was identified due to inadequate segregation of duties in certain accounting functions and a lack of evidence of management review controls191 - Management is implementing initiatives to remediate the material weakness, with anticipated completion by the end of fiscal year 2024192 PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, and other general information Legal Proceedings The previously reported Ayers Bath litigation, involving FGI Industries and Huida, was resolved in June 2024 through a settlement agreement - The Ayers Bath litigation involving subsidiary FGI USA and manufacturer Tangshan Huida Ceramic Group Co., Ltd. ("Huida") was settled in June 2024195 - The settlement included a mutual release of all claims, with the amount reflected in 'other income (expenses), net' on the financial statements195 Risk Factors No material changes to existing risk factors, but a new risk factor was added regarding potential Nasdaq delisting due to failure to meet listing requirements - A new risk factor was added regarding the potential for the company's ordinary shares to be delisted from Nasdaq for failing to meet continued listing requirements196 - The company's stock price has fluctuated and been below the $1.00 per share minimum bid price requirement, which could trigger a deficiency notice from Nasdaq197 Unregistered Sales of Equity Securities and Use of Proceeds No material change in the planned use of net proceeds from the company's Initial Public Offering (IPO) on January 27, 2022 - The company closed its IPO of 2,500,000 units on January 27, 2022, with net proceeds of approximately $12.4 million198 - There has been no material change in the expected use of the net proceeds from the IPO as described in the final prospectus199 Defaults Upon Senior Securities The company reported no defaults upon senior securities - None199 Mine Safety Disclosures This section is not applicable to the company - Not applicable200 Other Information No director or executive officer adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the six months ended June 30, 2024 - During the six months ended June 30, 2024, no director or executive officer adopted, modified or terminated a Rule 10b5-1 trading arrangement201 Exhibits This section lists the exhibits filed with the Form 10-Q, including articles of association, CEO/CFO certifications, and Inline XBRL data files