ILAG(US:ILAG)2025-04-28 20:30Financial Performance - The company reported sales revenues of approximately $7.18 million and $6.54 million for the year ended December 31, 2024 and 2023, respectively, from its subsidiary Xingfa to Hing Fat[36]. - Hing Fat's sales to Kambo Locksets amounted to approximately $7.33 million and $6.31 million for the years ended December 31, 2024 and 2023, respectively[36]. - Total revenue for the year ended December 31, 2024, was $7,506,551, an increase of 16.5% compared to $6,443,357 in 2023[40]. - Operating expenses for 2024 were $5,182,268, up from $4,527,090 in 2023, reflecting a 14.5% increase[40]. - The net loss for 2024 was $3,690,287, compared to a net loss of $3,501,518 in 2023, indicating a worsening financial position[40]. - The company incurred net losses of $3.7 million, $3.5 million, and $1.7 million for the years ended December 31, 2024, 2023, and 2022, respectively[60]. - Negative cash flows from operating activities were approximately $3.0 million, $3.2 million, and $4.1 million for the years ended December 31, 2024, 2023, and 2022[60]. - The company incurred a net cash decrease of $3,202,819 in 2024, compared to a decrease of $4,681,921 in 2023, showing a reduction in cash outflow[40]. Operational Structure - The company’s operational activities are primarily conducted through its wholly owned subsidiaries in Hong Kong and China[34]. - The company’s manufacturing subsidiary in China only supplies products to its affiliates in Hong Kong and does not sell in mainland China[29]. - The company has subsidiaries in Hong Kong and the PRC, including Dongguan Xingfa Hardware Products Co. Ltd., which focuses on manufacturing[187]. - The company currently leases its headquarters in Hong Kong, comprising approximately 300 m², and production facilities in Dongguan, totaling approximately 17,560 m², with lease terms expiring on February 28, 2026[88]. Regulatory Environment - The company is not required to obtain permissions from PRC authorities to issue ordinary shares to foreign investors[32]. - The company has not faced any significant impact from new PRC laws and guidelines as of the date of this report[29]. - The company must comply with PRC regulations regarding cash transfers and funding to subsidiaries, which may limit operational flexibility[38]. - Changes in PRC regulations regarding offshore investment activities may limit the ability of the company's PRC subsidiary to increase registered capital or distribute profits[117]. - The company may face penalties if it fails to complete capital payments within the prescribed time frame, potentially affecting its business license[114]. Market and Competitive Landscape - The company is subject to significant risks related to tariffs and trade policies, which could adversely affect sales and profit margins, particularly in the U.S. market[51]. - The company faces competitive pressures that could lead to market share loss and margin erosion if unable to compete effectively[64]. - The company is investing in marketing to generate customer interest and sales for new smart lock products[57]. - The company plans to launch its Competitive Smart Lock in March 2025, continuing to invest in smart locks and related software[57]. Supply Chain and Raw Materials - The company relies on outside suppliers for major raw materials, including copper, iron, and zinc alloy, and does not maintain fixed supply contracts[65]. - The company has maintained business relationships with suppliers for over 5 years, ensuring a stable supply of raw materials[219]. - The company replaced substantial usage of brass with stainless steel since 2023, indicating a shift in material strategy[214]. - The company does not have long-term purchase contracts but obtains master quotes from at least two suppliers every three months for procurement[214]. Risks and Challenges - Environmental regulations and health epidemics pose additional risks that could disrupt operations and negatively impact financial results[47]. - The company may experience fluctuations in financial results due to various factors, including customer retention, product mix changes, and competitive pressures[74]. - The company may struggle to attract and retain qualified employees due to intense competition for skilled personnel in key areas[90]. - The company is subject to increasing labor costs in China, which are expected to continue rising due to inflation and statutory employee benefits requirements[92]. Corporate Governance - Mr. Bong Lau, the CEO, holds 70% of the voting power, giving him substantial influence over corporate decisions[179]. - The company has a dual-class share structure, with Series A Preferred Shares granting 20 votes per share, concentrating control in the hands of Mr. Bong Lau[180]. - The company operates as a foreign private issuer, exempt from certain provisions applicable to U.S. domestic public companies, leading to less extensive and timely information disclosure[172]. Future Outlook - The company expects to continue expanding its product offerings, which will increase the complexity of inventory management and logistics[77]. - The company has been developing smart locks, with the first batch shipped to the US on March 6, 2025, following a hiatus due to the COVID-19 pandemic[199]. - The company launched its Smart Lock in March 2025, with the first batch shipped to the United States and available on Amazon.com soon[214]. Compliance and Internal Controls - Compliance with Section 404 of the Sarbanes-Oxley Act requires an assessment of internal controls over financial reporting for the year ending December 31, 2023, which may affect investor confidence if not completed effectively[96]. - The company is in the early stages of evaluating its internal controls, and any identified material weaknesses could hinder the assertion of their effectiveness[97]. - The company’s management team lacks public company experience, which may hinder compliance with legal and regulatory requirements[86]. Intellectual Property - The company has registered trademarks in the U.S. and Hong Kong for its self-branded products, indicating a focus on intellectual property protection[221]. - The company relies on know-how for production processes and may face challenges in protecting its intellectual property from unauthorized use[222].