FGI Industries .(US:FGI)2023-11-12 16:00PART I- FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for FGI Industries Ltd as of September 30, 2023 Condensed Consolidated Balance Sheets Total assets and liabilities increased, driven primarily by a significant rise in operating lease right-of-use assets and liabilities Balance Sheet Highlights | Balance Sheet Highlights | Sep 30, 2023 (Unaudited) | Dec 31, 2022 (Audited) | | :--- | :--- | :--- | | Total Current Assets | $47,058,126 | $45,887,608 | | Total Assets | $66,946,951 | $60,366,930 | | Total Current Liabilities | $29,840,835 | $29,775,203 | | Total Liabilities | $43,761,551 | $37,622,520 | | Total Shareholders' Equity | $23,185,400 | $22,744,410 | Unaudited Condensed Consolidated Statements of Income and Comprehensive Income Revenues and net income declined significantly for both the third quarter and the first nine months of 2023 compared to the prior year Income Statement (Q3) | Income Statement (Q3) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Revenues | $29,932,612 | $38,544,062 | | Gross Profit | $7,829,287 | $8,040,610 | | Income from Operations | $481,690 | $1,668,292 | | Net Income Attributable to FGI | $409,535 | $1,272,142 | | Diluted EPS | $0.04 | $0.13 | Income Statement (Nine Months) | Income Statement (Nine Months) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Revenues | $86,284,791 | $129,928,316 | | Gross Profit | $23,041,847 | $23,986,149 | | Income from Operations | $1,059,038 | $4,088,387 | | Net Income Attributable to FGI | $194,641 | $2,972,865 | | Diluted EPS | $0.02 | $0.32 | Unaudited Condensed Consolidated Statements of Cash Flows Net cash used in operating activities improved, but the company's overall cash balance decreased by $4.7 million in the first nine months of 2023 Cash Flow Summary (Nine Months) | Cash Flow Summary (Nine Months) | Ended Sep 30, 2023 | Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(2,595,047) | $(6,331,971) | | Net cash used in investing activities | $(274,971) | $(1,350,974) | | Net cash (used in) provided by financing activities | $(1,832,849) | $10,721,169 | | Net Changes in Cash | $(4,697,481) | $2,097,123 | | Cash, End of Period | $5,369,947 | $5,981,019 | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail accounting policies, financial components, and significant risks such as customer and vendor concentration - The company is a global supplier of kitchen and bath products for the repair and remodeling (R&R) market25 - The company faces significant customer and vendor concentration risk, with two customers accounting for a combined 34% of revenues and one vendor accounting for 54.5% of purchases156159 - A subsidiary holds an $18 million line of credit with East West Bank, with an outstanding balance of $8.0 million as of September 30, 2023100101103 - The company completed its IPO in January 2022, raising net proceeds of approximately $12.4 million113 Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes a significant revenue decline due to weaker demand, offset by improved gross margins from favorable product mix and lower costs Results of Operations Q3 revenue fell 22.3% YoY to $29.9 million, while gross margin improved significantly due to pricing, product mix, and lower freight costs Revenue by Product (Q3 2023 vs Q3 2022) | Revenue by Product (Q3 2023 vs Q3 2022) | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Sanitaryware | $20.7M | $25.5M | (18.6%) | | Bath Furniture | $2.5M | $5.6M | (54.9%) | | Shower System | $4.9M | $5.4M | (9.4%) | | Total | $29.9M | $38.5M | (22.3%) | Revenue by Geography (Nine Months 2023 vs 2022) | Revenue by Geography (Nine Months 2023 vs 2022) | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | United States | $54.9M | $80.9M | (32.1%) | | Canada | $23.1M | $35.4M | (34.7%) | | Europe | $8.2M | $13.3M | (38.5%) | | Total | $86.3M | $129.9M | (33.6%) | - Gross profit margin improved to 26.2% for Q3 2023, up 530 basis points from 20.9% in Q3 2022, driven by a shift to higher-margin products and lower logistics costs185 - Operating expenses increased in Q3 2023, with Selling and Distribution up 7.1% and General and Administrative up 26.1% due to incremental public company and legal costs188189 Liquidity and Capital Resources The company maintains liquidity through cash from operations and credit facilities, with $5.4 million in cash as of September 30, 2023 - As of September 30, 2023, the company had cash of $5.4 million and working capital of $17.2 million197 - The outstanding balance on the East West Bank credit facility was $8.0 million as of September 30, 2023, with no borrowings under the HSBC Canada facility203207 Non-GAAP Measures The company uses non-GAAP measures like Adjusted Net Income to exclude non-recurring expenses for performance evaluation Reconciliation (Q3 2023) | Reconciliation (Q3 2023) | GAAP | Adjustments | Non-GAAP | | :--- | :--- | :--- | :--- | | Income from operations | $481,690 | $121,489 | $603,179 | | Net income | $343,492 | $98,528 | $442,020 | Quantitative and Qualitative Disclosures About Market Risk Disclosure is not provided as it is not required for smaller reporting companies - Disclosure is not required for smaller reporting companies224 Controls and Procedures Management concluded disclosure controls were not effective due to material weaknesses in internal control over financial reporting - Management concluded that disclosure controls and procedures were not effective as of September 30, 2023228 - Identified material weaknesses include issues in the IT security environment, insufficient documentation of financial processes, and inadequate segregation of duties232 - Remediation initiatives include hiring additional accounting personnel, establishing an internal audit function, and forming a cybersecurity committee231 PART II- OTHER INFORMATION Legal Proceedings The company is involved in ongoing litigation against Tangshan Ayers to protect an exclusivity agreement with a key manufacturer - The company is involved in litigation with Ayers Bath (USA) Corporation to protect an exclusivity agreement with manufacturer Huida, with a hearing scheduled for January 18, 2024236237 Risk Factors No material changes to the risk factors disclosed in the 2022 Annual Report on Form 10-K have been reported - No material changes have occurred to the risk factors included in the 2022 Form 10-K238 Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities The company details its January 2022 IPO, which raised net proceeds of approximately $12.4 million with no change in intended use - The company's IPO on January 27, 2022, generated net proceeds of approximately $12.4 million, and the planned use of these proceeds has not materially changed239241