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Founder Group Limited(FGL) - 2024 Q4 - Annual Report

Introduction This section introduces the annual report, presenting audited financial statements for FY2022-2024 and relevant MYR to USD exchange rates16 Exchange Rates Used (MYR to US$1.00) | Rate Type | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | At the end of the year | MYR4.4755 | MYR4.5915 | MYR4.4130 | | Average rate for the year | MYR4.5712 | MYR4.5653 | MYR3.2740 | Part I Item 1. Identity of Directors, Senior Management and Advisers This section is not applicable as per the report Item 2. Offer Statistics and Expected Timetable This section is not applicable as per the report Item 3. Key Information This section outlines key business, operational, financial, and market risks, including internal control weaknesses and PFIC potential Risk Factors Significant risks include project-based revenue volatility, customer/supplier concentration, regulatory issues, and internal control weaknesses - The company's project-based business model, with large-scale solar projects accounting for 76% of total revenue in FY2024, leads to revenue volatility, as shown by 133% growth from 2022 to 2023 followed by a 39% decline from 2023 to 202426 Financial Performance Fluctuation (FY2022-2024) | Metric | FY2022 (RM) | FY2023 (RM) | FY2024 (RM) | Growth (22-23) | Growth (23-24) | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Revenue | 63,509,466 | 148,053,973 | 90,344,588 | 133% | -39% | | Net Income/(Loss) | 3,943,506 | 7,147,068 | (5,150,005) | 81% | -172% | - A significant portion of revenue is derived from a small number of customers, with JS Solar Sdn. Bhd. and Samaiden Sdn. Bhd. contributing 23.25% and 11.55% of total revenue in FY2024, respectively32 - The company faces concentration risk with its supplier, Xiamen Solar First Energy Technology Co. Ltd., which accounted for 14.88% of total purchases in FY2024, and whose exclusive distributorship agreement expired on January 1, 202534 - Material weaknesses in internal control over financial reporting have been identified, specifically a lack of accounting staff with appropriate IFRS and SEC reporting knowledge and deficient internal journal entry procedures, with remediation plans in place76 - Share ownership is highly concentrated, with Director Lee Seng Chi, CFO See Sian Seong, and largest shareholder Reservoir Link Energy Bhd. collectively owning approximately 65.10% of total shares, giving them significant influence over corporate matters74 Item 4. Information on the Company This section details Founder Group Limited's history, structure, IPO, core solar solutions business, competitive strengths, growth strategies, and operational aspects History and Development of the Company Founder Group Limited became the ultimate holding company in June 2023 and completed its Nasdaq IPO in October 2024, raising $4.875 million gross proceeds - The company undertook a corporate reorganization in June 2023, where Founder Group Limited (BVI) acquired 100% of Founder Energy (Malaysia) to become the ultimate holding company109 - On October 24, 2024, the company closed its IPO of 1,218,750 Ordinary Shares at $4.00 per share, raising gross proceeds of $4.875 million and receiving net proceeds of approximately $1.539 million111 Business Overview The company is a Malaysian solar solutions provider specializing in large-scale and C&I EPCC services, with growth strategies focused on regional expansion and diversification Revenue by Segment (FY2022-2024) | Segment | FY2022 (RM) | FY2023 (RM) | FY2024 (RM) | % of Total Revenue (2024) | | :--- | :--- | :--- | :--- | :--- | | Large-scale Solar Projects | 51,761,466 | 131,988,574 | 68,864,991 | 76% | | C&I Projects | 11,748,000 | 16,065,399 | 21,479,597 | 24% | - The company has successfully delivered over 400 MWp of solar power plants in Malaysia since 2021122 - Growth strategies include expanding into other Southeast Asian countries like Vietnam and the Philippines, diversifying EPCC services to include hydropower and biogas (both planned for Q2 2025), and investing in renewable energy assets to generate recurring income131133134 - As of December 31, 2024, the company had 82 full-time employees, a significant increase from 45 in 2023 and 29 in 2022196 Item 5. Operating and Financial Review and Prospects This section analyzes the company's financial performance, liquidity, and capital resources, highlighting a 39% revenue decrease and net loss in FY2024 due to project delays Operating Results Operating results show significant volatility, with a 39% revenue decrease and net loss in FY2024 due to project delays, contrasting with strong growth in FY2023 FY2024 vs. FY2023 Performance (in RM) | Metric | FY2023 | FY2024 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | 148,053,973 | 90,344,588 | (57,709,385) | (39)% | | Large-scale solar | 131,988,574 | 68,864,991 | (63,123,583) | (48)% | | C&I projects | 16,065,399 | 21,479,597 | 5,414,198 | 34% | | Cost of Sales | 130,201,026 | 84,102,118 | (46,098,908) | (35)% | | Gross Profit | 17,852,947 | 6,242,470 | (11,610,477) | (65)% | | Selling & Admin Expenses | 6,698,647 | 11,850,201 | 5,151,554 | 77% | | Net (Loss)/Income | 7,147,068 | (5,150,005) | (12,297,073) | (172)% | - The 39% revenue decrease in FY2024 was mainly due to the completion of several large-scale projects from the previous year and delays in the commencement of newly secured large-scale contracts251252 - Selling and administrative expenses surged by 77% in FY2024, driven by a RM2.37 million impairment loss on contract assets, a RM0.55 million impairment loss on trade receivables, and increased foreign exchange losses263269270 FY2023 vs. FY2022 Performance (in RM) | Metric | FY2022 | FY2023 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | 63,509,466 | 148,053,973 | 84,544,507 | 133% | | Gross Profit | 8,684,366 | 17,852,947 | 9,168,581 | 106% | | Net Income | 3,943,506 | 7,147,068 | 3,203,562 | 81% | Liquidity and Capital Resources The company funds operations through cash flow, borrowings, and equity, with RM13.9 million cash, RM65.4 million credit facilities, and significant capital expenditures for solar assets in FY2024 Cash Flow Summary (FY2023 vs. FY2024 in RM) | Cash Flow Activity | FY2023 | FY2024 | | :--- | :--- | :--- | | Net cash used in operating activities | (17,184,339) | (6,127,677) | | Net cash used in investing activities | (4,286,759) | (5,378,735) | | Net cash provided by financing activities | 15,959,960 | 13,918,726 | - As of December 31, 2024, the company had revolving credit facilities totaling RM65.4 million from various financial institutions349 - Capital expenditures in FY2024 amounted to RM25.5 million, with RM23.9 million dedicated to the acquisition of solar assets to expand the company's ownership portfolio and strengthen recurring income streams368369 Critical Accounting Estimates Critical accounting estimates involve the impairment of trade receivables and contract assets using an ECL model, and revenue recognition for construction services based on estimated total costs - The company uses a simplified approach to estimate lifetime expected credit losses (ECL) for trade receivables and contract assets371 - In FY2024, the company recorded an expected credit loss allowance of RM552,876 for trade receivables and RM2,372,132 for contract assets372 - Revenue from construction services is recognized over time using an input method, based on the proportion of costs incurred to date relative to estimated total costs, which requires significant management judgment373 Item 6. Directors, Senior Management and Employees This section introduces the company's leadership team, board structure, compensation practices, and highly concentrated share ownership Compensation For FY2024, aggregate compensation for executive officers and directors was RM1,051,266, with no pension or retirement benefits set aside - Aggregate compensation for executive officers and directors in FY2024 was RM1,051,266382 Board Practices The Board of Directors consists of five members, including three independent directors who comprise the Audit, Compensation, and Nominating committees, with Marco Baccanello as the audit committee financial expert - The board has three independent directors who comprise the entirety of the Audit, Compensation, and Nominating and Corporate Governance committees384397 - Marco Baccanello serves as the chairperson of the audit committee and qualifies as an audit committee financial expert398 Share Ownership Share ownership is significantly concentrated, with CEO Lee Seng Chi and largest shareholder Reservoir Link Energy Bhd. controlling a substantial portion of the company's shares Beneficial Ownership of Major Shareholders and Management | Shareholder | Number of Shares | Percentage | | :--- | :--- | :--- | | Directors and Executive Officers | | | | Lee Seng Chi (CEO) | 4,832,954 | 24.89% | | See Sian Seong (CFO) | 157,000 | 0.81% | | All directors and executive officers as a group | 4,989,954 | 25.70% | | 5% Shareholders | | | | Reservoir Link Energy Bhd. | 7,650,000 | 39.40% | | Avondale Capital, LLC | 1,750,000 | 9.01% | Item 7. Major Shareholders and Related Party Transactions This section details major shareholders and significant related party transactions, primarily involving sales of renewable energy products/services, advances, and management fees Significant Related Party Transactions (FY2024) | Related Party | Relationship | Nature of Transaction | Amount (RM) | | :--- | :--- | :--- | :--- | | RL Sunseap Energy Sdn. Bhd. | Related to largest shareholder | Sales of renewable energy products/services | (2,629,089) | | Reservoir Link Renewable Sdn Bhd. | Controlled by largest shareholder | Sales of renewable energy products/services | (3,053,327) | | Reservoir Link Energy Bhd. | Largest shareholder | Advances | 2,000,000 | | Lee Seng Chi | CEO & Director | Rental expense | 217,500 | Item 8. Financial Information This section confirms the consolidated financial statements are appended, notes no material legal proceedings, and outlines the company's dividend policy of retaining earnings for growth - The company is not currently a party to any material legal proceedings418 - The company has not declared or paid dividends and does not expect to in the foreseeable future, intending to retain earnings for operational funding and expansion419 Item 9. The Offer and Listing The company's Ordinary Shares have been listed on the Nasdaq Capital Market under the ticker symbol 'FGL' since October 23, 2024426 Item 10. Additional Information This section covers exchange controls, material contracts, and an extensive overview of Malaysian, BVI, and U.S. taxation, including PFIC rules Taxation This sub-section details Malaysian, BVI, and U.S. tax regimes, including the 24% Malaysian corporate tax rate, BVI tax exemption, and PFIC implications for U.S. Holders - The company's Malaysian subsidiaries are subject to a standard corporate income tax rate of 24%434 - The holding company, incorporated in the BVI, is not subject to income or capital gains tax under current BVI law446 - The company does not believe it was a Passive Foreign Investment Company (PFIC) for the 2024 taxable year; however, its status is determined annually and could change, potentially subjecting U.S. Holders to adverse tax rules459 - If the company were a PFIC, U.S. Holders could make a mark-to-market election as the shares are traded on the Nasdaq Capital Market, but the company does not intend to provide information for a qualified electing fund (QEF) election465466 Item 11. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to foreign currency, interest rate, and liquidity risks, with sensitivity analyses showing impacts on profit and an increased debt-to-equity ratio in FY2024 Foreign Currency Risk Sensitivity (Impact on Profit) | Currency (10% change) | FY2023 (RM) | FY2024 (RM) | | :--- | :--- | :--- | | United States Dollar | (276,362) | 86,376 | | Chinese Renminbi | (1,074,491) | (537,591) | - A 50 basis point (0.50%) change in interest rates would impact the company's profit for fiscal year 2024 by approximately RM93,895486 Debt-to-Equity Ratio | Metric | FY2023 | FY2024 | | :--- | :--- | :--- | | Total Debts (RM) | 24,709,116 | 35,039,857 | | Total Equity (RM) | 14,789,662 | 17,121,478 | | Debt-to-Equity Ratio | 1.67 | 2.05 | Item 12. Description of Securities Other Than Equity Securities This section is not applicable as per the report Part II Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds This section details the use of IPO proceeds from October 2024, with approximately $1.55 million net proceeds received and a portion used for Southeast Asia expansion - The company completed its IPO in October 2024, receiving net proceeds of approximately $1.549 million after total expenses of approximately $3.337 million497499 - As of the date of the annual report, the company has used $30,983 of the IPO proceeds for its planned expansion into other Southeast Asian countries499 Item 15. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of December 31, 2024, due to insufficient accounting staff knowledge and deficient journal entry procedures, with remediation efforts underway - Management concluded that as of December 31, 2024, the company's disclosure controls and procedures were ineffective500 - The ineffectiveness was attributed to a lack of accounting staff with appropriate IFRS/SEC knowledge and deficient internal journal entry procedures, with remediation efforts including training and hiring external consultants501 Item 16. Other Information This section covers governance and compliance, including the audit committee financial expert, principal accountant fees, home country governance practices, and cybersecurity risk management - Mr. Marco Baccanello is designated as the 'audit committee financial expert'505 Principal Accountant Fees (FY2024) | Fee Category | Amount (USD) | | :--- | :--- | | Audit fees | 136,000 | | Audit-related fees | 0 | | Tax fees | 0 | | All other fees | 0 | | Total | 136,000 | - As a foreign private issuer, the company follows its home country (BVI) practices, exempting it from certain Nasdaq shareholder approval rules for issuances related to acquisitions, changes of control, and equity compensation plans514515 Item 18. Financial Statements Report of Independent Registered Public Accounting Firm The auditor issued a fair opinion but included a 'Going Concern' paragraph due to net loss and negative working capital, identifying revenue recognition and financial asset impairment as Critical Audit Matters - The auditor's report includes a 'Going Concern' paragraph, citing the company's FY2024 net loss of $1,150,711 and its current liabilities exceeding current assets by $2,275,216 as of December 31, 2024532 - Critical Audit Matters identified were: Revenue and cost recognition, due to significant judgment in estimating total project costs, and Recoverability and impairment of financial assets, due to estimation uncertainty in assessing expected credit losses537541 Consolidated Financial Statements The consolidated financial statements present the company's financial position, performance, and cash flows, showing a net loss of RM5.15 million in FY2024 and increased total assets and liabilities Consolidated Statement of Financial Position (Abridged) | Metric (in RM) | Dec 31, 2023 | Dec 31, 2024 | | :--- | :--- | :--- | | Total Assets | 83,873,519 | 114,292,130 | | Current Assets | 79,258,322 | 84,417,152 | | Total Liabilities | 69,083,857 | 97,170,652 | | Current Liabilities | 68,198,790 | 94,599,881 | | Total Equity | 14,789,662 | 17,121,478 | Consolidated Statement of Profit or Loss (Abridged) | Metric (in RM) | FY2022 | FY2023 | FY2024 | | :--- | :--- | :--- | :--- | | Total Revenue | 63,509,466 | 148,053,973 | 90,344,588 | | Gross Profit | 8,684,366 | 17,852,947 | 6,242,470 | | Net Profit/(Loss) | 3,943,506 | 7,147,068 | (5,150,005) | Notes to Consolidated Financial Statements The notes provide detailed explanations of accounting policies and figures, including the 'Going Concern' issue, increased borrowings, revenue breakdown, and significant customer/vendor concentration - Note 2 (Going Concern): Despite a net loss of RM5.15 million and current liabilities exceeding current assets by RM10.18 million in FY2024, management believes the company can continue as a going concern due to cost reduction efforts and continued financial support from lenders567568 - Note 13 (Borrowings): Total bank borrowings increased to RM35.0 million as of Dec 31, 2024, up from RM24.7 million in 2023, primarily to finance working capital and solar asset investments672 - Note 21 (Concentration of Risk): In FY2024, two customers accounted for 23.25% and 11.55% of total revenue, respectively, and one vendor accounted for 14.80% of the total cost of sales719721724 Segment Gross Profit (in RM) | Segment | FY2022 | FY2023 | FY2024 | | :--- | :--- | :--- | :--- | | Large Scale Solar | 6,385,519 | 15,823,226 | 3,455,338 | | Commercial & Industrial | 2,298,847 | 2,029,721 | 2,787,132 |