Millennium International (MGIH) - 2023 Q4 - Annual Report

Part I Key Information This section presents selected financial data and outlines significant operational, regional, and securities-related risk factors Selected Financial Data Selected financial data shows decreased assets, liabilities, and revenue, a net loss in FY2023, and increased operating cash flow Consolidated Balance Sheet Summary (USD) | Balance Sheet Items | June 30, 2023 | June 30, 2022 | | :--- | :--- | :--- | | Total Current Assets | $44,450,969 | $48,264,582 | | Total Assets | $59,043,137 | $66,009,799 | | Total Current Liabilities | $19,086,343 | $25,774,833 | | Total Liabilities | $19,124,335 | $25,921,760 | | Total Shareholders' Equity | $39,918,802 | $40,088,039 | Consolidated Statement of Operations Summary (USD) | Income Statement Items | FY 2023 | FY 2022 | FY 2021 | | :--- | :--- | :--- | :--- | | Revenues | $45,598,620 | $66,232,757 | $64,565,269 | | Gross Profit | $9,064,262 | $16,270,964 | $17,353,358 | | (Loss) Income from Operations | ($1,082,354) | $5,535,582 | $5,100,234 | | Net (Loss) Income | ($354,111) | $4,077,371 | $3,665,810 | Consolidated Statement of Cash Flows Summary (USD) | Cash Flow Items | FY 2023 | FY 2022 | FY 2021 | | :--- | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $8,109,777 | $2,039,600 | $5,340,755 | | Net Cash (Used in) Provided by Investing Activities | ($216,520) | $2,068,244 | ($1,466,049) | | Net Cash Provided by (Used in) Financing Activities | $1,799,269 | ($5,585,110) | ($7,310,101) | | Net Increase (Decrease) in Cash | $8,129,171 | ($1,822,626) | ($3,435,395) | | Cash at End of Year | $27,576,622 | $19,447,451 | $21,270,077 | Risk Factors Significant risks include China's regulatory environment, operational challenges, and issues with securities and foreign private issuer status - Risks related to doing business in China are prominent, including potential requirements for CSRC approval for future offerings under the new "Overseas Listing Trial Measures," cybersecurity reviews, and the possibility of government intervention that could materially alter operations[27][32][38] - Business risks include dependency on major customers (one customer accounted for 13.9% of revenue in FY2023), competitive pricing pressure, raw material shortages, and substantial fixed costs that make profitability sensitive to sales volume[146][149][150] - Risks related to the company's ordinary shares include potential price volatility, the fact that the company is a "controlled company" with 88.89% ownership by the Chairman and his family, and its status as a foreign private issuer, which allows for exemptions from certain SEC rules[198][228][246] - The company has identified a material weakness in its internal control over financial reporting due to a lack of sufficient accounting and finance personnel with U.S. GAAP experience[187][760] Information on the Company Millennium Group, a family-owned paper-based packaging solutions supplier, offers integrated services across PRC, Hong Kong, and Vietnam History and development of the company Incorporated in the Cayman Islands in 2021, the company's family-owned business history dates to 1978, expanding across Asia - The company is a third-generation family-owned business with a history dating back to 1978, starting with the sale of Corrugated Paper in Hong Kong[261] - The holding company, Millennium Group International Holdings Limited, was incorporated in the Cayman Islands on May 11, 2021[261] Business overview The company provides integrated paper-based packaging solutions, operating two PRC production sites and a Vietnam supply chain business, holding numerous patents - The company operates a one-stop integrated services model covering the entire value chain for paper-based packaging, including design, R&D, procurement, production, and logistics[267][272] - Operations are divided into three main groups: MP Group (offset and flexo printing), Yee Woo Group (corrugated products), and MPG Group (supply chain management in PRC, Hong Kong, and Vietnam)[275] - The company owns two production sites in the PRC with a combined annual maximum production of approximately 300 million units. It also operates an ISTA-certified testing laboratory[269][313] - As of the report date, the company had registered 48 patents and numerous trademarks in China and Hong Kong[329][336][341] Organizational structure A diagram illustrates the corporate structure of Millennium Group International Holdings Limited and its various subsidiaries - A diagram outlines the company's organizational structure, showing the relationship between the Cayman Islands holding company and its subsidiaries in the BVI, Hong Kong, PRC, and Vietnam[486][487] Property, plants and equipment The company owns three properties and leases ten properties in China for its factory and dormitory operations Owned Properties | Location | Area (sq.m.) | | :--- | :--- | | Fourth Industrial Zone, Shuitian Community, Shenzhen | 4,042 | | Fourth Industrial Zone, Shuitian Community, Shenzhen | 21,072 | | Yongda Highway, Maxi Village, Huiyang District | 29,508 | - The company leases ten properties in Shenzhen, China, for its industrial park, dormitory, and canteen facilities[490] Operating and Financial Review and Prospects FY2023 performance reflects a significant revenue decrease, declining gross profit and margin, and a net loss, influenced by economic downturns Consolidated Statement of Operations Summary (USD) | Metric | FY 2023 | FY 2022 | FY 2021 | | :--- | :--- | :--- | :--- | | Revenues | $45,598,620 | $66,232,757 | $64,565,269 | | Gross Profit | $9,064,262 | $16,270,964 | $17,353,358 | | Gross Margin | 19.9% | 24.6% | 26.9% | | (Loss) Income from Operations | ($1,082,354) | $5,535,582 | $5,100,234 | | Net (Loss) Income | ($354,111) | $4,077,371 | $3,665,810 | - The decrease in FY2023 revenue was attributed to a drop in average selling price from $1,850/tonnage in FY2022 to $1,510/tonnage, and a reduction in sales volume from 35,839 to 30,189 tonnages, mainly due to economic downturns in Mainland China[509] Revenue by Product Category (USD) | Product Category | FY 2023 | % of Total | FY 2022 | % of Total | | :--- | :--- | :--- | :--- | :--- | | Packaging products | $23,065,859 | 50.6% | $36,256,189 | 54.7% | | Corrugated products | $16,977,098 | 37.2% | $23,986,957 | 36.2% | | Packaging products supply chain management | $5,555,663 | 12.2% | $5,989,611 | 9.1% | | Total | $45,598,620 | 100% | $66,232,757 | 100% | Revenue by Country of Delivery (USD) | Country | FY 2023 | % of Total | FY 2022 | % of Total | | :--- | :--- | :--- | :--- | :--- | | Mainland China | $33,266,314 | 73.0% | $52,664,829 | 79.5% | | Hong Kong SAR | $3,285,506 | 7.2% | $3,969,151 | 6.0% | | Vietnam | $3,130,339 | 6.9% | $2,689,693 | 4.1% | | Other Southeast Asian countries | $3,364,678 | 7.4% | $2,980,421 | 4.5% | | Other countries | $2,551,783 | 5.5% | $3,928,663 | 5.9% | | Total | $45,598,620 | 100% | $66,232,757 | 100% | Directors, Senior Management and Employees This section details the board, senior management, compensation, board practices, employee statistics, and concentrated share ownership Directors and Management The company's leadership includes Chairman, CEO, and CFO, supported by a seven-member board with four independent directors - The key executive team includes Ming Hung "Matthew" Lai (Chairman), Ming Yan "Ray" Lai (CEO), and Wing Wai "John" Au (CFO)[559][560][562] - The Board of Directors is composed of seven members, including four independent directors: Sun Wai But, Hok Han "Henry" Ko, Hon Wai "Marco" Ku, and Hung Leung "Alan" Tsang[559] Compensation Executive compensation is determined by the Compensation Committee, with specific amounts detailed for the CEO and CFO in FY2023 Executive Compensation Summary (USD) | Name and Principal Position | Fiscal Year | Salary | Bonus | Total | | :--- | :--- | :--- | :--- | :--- | | Ming Yan "Ray" Lai, CEO | 2023 | $80,606 | $5,359 | $85,965 | | | 2022 | $81,764 | $5,574 | $87,338 | | Wing Wai "John" Au, CFO | 2023 | $105,871 | $7,465 | $113,336 | | | 2022 | $107,135 | $7,688 | $114,823 | Board Practices The board comprises seven members, with established Audit, Compensation, and Nominating committees, governed by Cayman Islands law - The company has established an Audit Committee, a Compensation Committee, and a Nominating Committee, each with defined responsibilities and independent members[580][582][583] - Under Cayman Islands law, directors owe statutory, fiduciary (duty to act in the company's best interest, avoid conflicts of interest), and common law (skill, care, diligence) duties to the company[585] Employees As of June 30, 2023, the company had 792 employees, a decrease from the prior year, with most in business operations Employee Breakdown by Function | Function | As of June 30, 2023 | As of June 30, 2022 | | :--- | :--- | :--- | | Administration and Management | 8 | 9 | | Engineering | 6 | 7 | | Research and Development | 63 | 67 | | Sales and Marketing | 51 | 60 | | Business Operations | 664 | 718 | | Total | 792 | 861 | Share Ownership Share ownership is highly concentrated, with YC 1926 (BVI) Limited holding 88.89% of outstanding shares, controlled by the Chairman's family - YC 1926 (BVI) Limited beneficially owns 10,000,000 ordinary shares, constituting 88.89% of the total outstanding shares[601] - The shareholders of YC 1926 (BVI) Limited, who are family members, have a voting concert agreement. In case of a tie, Chairman Ming Hung "Matthew" Lai has the deciding vote[601] Major Shareholders and Related Party Transactions This section details major shareholder ownership, with YC 1926 (BVI) Limited holding 88.89%, and numerous related party transactions - The company's major shareholder, YC 1926 (BVI) Limited, holds 88.89% of the ordinary shares[601][602] - Significant related party transactions occurred in FY2022 and FY2021 with entities controlled by the company's shareholders, including M-GEN Innovation, Wah Tong Paper Products, and Yee Woo Paper Packaging. These involved sales, management fees, advances, and repayments[607][898] - In FY2022, dividends of approximately $7 million were declared and subsequently waived by the Controlling Shareholders, then capitalized as additional paid-in capital. A similar recapitalization occurred in FY2021 with a dividend of $8.4 million[622][627][917] Financial Information This section refers to full financial statements and outlines the dividend policy, noting past recapitalizations but no expected future cash dividends - The company does not expect to pay cash dividends in the foreseeable future, planning to retain earnings to support operations and finance growth[628] - In FY2021 and FY2022, the company undertook recapitalization exercises where dividends were declared to controlling shareholders and subsequently waived and capitalized as additional paid-in capital to optimize the company's capital structure[626][627][629] - Any future dividend payments are dependent on receiving funds from PRC subsidiaries and are subject to PRC regulations, including withholding taxes and statutory reserve requirements[631] Additional Information This section details the company's Cayman Islands incorporation, PRC exchange controls, and taxation summary across multiple jurisdictions - The company is an exempted company incorporated under the laws of the Cayman Islands, which provides certain corporate governance flexibilities compared to U.S. domestic companies[639][667] - PRC regulations impose controls on foreign currency exchange, requiring procedural compliance for current account items (like profit distributions) and approval for capital account items. SAFE Circulars 19 and 16 regulate the use of converted RMB capital[684][686] - The company is not subject to income tax in the Cayman Islands. Its PRC subsidiaries are subject to a 25% Enterprise Income Tax, and dividends paid to foreign investors are subject to a 10% withholding tax (potentially 5% for Hong Kong residents)[697][699] - For U.S. Holders, there is a risk that the company could be classified as a Passive Foreign Investment Company (PFIC), which would result in adverse U.S. federal income tax consequences. The company does not believe it was a PFIC for FY2021 and does not expect to be one in the foreseeable future[713][714] Part II Controls and Procedures Disclosure controls and procedures were ineffective as of December 31, 2022, due to a material weakness in internal control over financial reporting - Management concluded that as of December 31, 2022, the company's disclosure controls and procedures were ineffective[759] - A material weakness was identified in internal control over financial reporting: the company does not have sufficient accounting and finance personnel with U.S.-GAAP experience[760] - The company plans to hire additional personnel with U.S. GAAP experience to remediate the material weakness[761] Corporate Governance As a foreign private issuer, the company follows Cayman Islands corporate governance practices, potentially offering less shareholder protection - The company is a foreign private issuer and follows Cayman Islands corporate governance practices, which may differ from Nasdaq listing standards[770] - Specifically, the company follows home country practice regarding shareholder approval of equity compensation plans, which may offer less protection to shareholders than Nasdaq rules for U.S. companies[770] Part III Financial Statements This section presents the company's audited consolidated financial statements for FY2021-2023, prepared under U.S. GAAP - The financial statements were audited by WWC, P.C., an independent registered public accounting firm, which issued an unqualified opinion[785] - On April 4, 2023, the company closed its initial public offering (IPO) of 1,250,000 ordinary shares at $4.00 per share, raising net proceeds of approximately $4.2 million[803] - The company's revenue is primarily derived from the sale of paper products and the provision of supply chain management solutions, with revenue recognized at a point in time when control of the product is transferred to the customer[842][843]