What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-05-10 compared with 2023-11-13 · 95 added, 132 removed, 135 unchanged (63% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The disclosures in this Quarterly Report on Form 10-Q are complementary to those made in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 17, 2023 (the “2022 Form 10-K”).

The disclosures in this Quarterly Report on Form 10-Q are complementary to those made in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 26, 2024 (the “2023 Form 10-K”).

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing in this Quarterly Report on Form 10-Q as well as our audited financial statements, notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2023 Form 10-K.

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Consistent with our long-term strategic plan, we intend to drive value creation for our shareholders through a balanced focus on product innovation, organic growth, and efficient capital deployment.

The following initiatives represent key strategic priorities for us in 2023:

The following initiatives represent key strategic priorities for us:

● Commitment to product innovation.

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● “BPC” (Brands, Products, Channels) strategy to drive above-market organic growth.

We are focused on increasing the mix of Branded products as a percentage of sales, which is expected to result in larger available markets and gross margin expansion.

Our owned brands grew to nearly 34% of sales as of year-end 2022, up from less than 1% at the end of 2010.

We are focused on expanding our position in channels such as e-commerce, providing for additional growth opportunities with existing brick and mortar customers, as well as expanding with e-commerce customers.

The e-commerce channel accounted for 13% of sales in 2022, up from only 2% at the end of 2010.

● Drive margin expansion.

Margin expansion remains a key pillar of our value creation focus.

We believe our BPC strategy will support enhanced margins through growth in branded products, new product categories, and new channels.

Headwinds from supply chain disruptions and inflationary pressures impacted operating margins in 2021;

however, we have recently adopted measures to offset these challenges, and expect to resume margin expansion in the back half of 2022 as these initiatives take hold.

We have continued to invest in our BPC strategy despite the market challenges, which is expected to drive improved organic growth in the longer term.

We recently announced that we entered into a 5-year licensing agreement that will provide us access to an industry leading overflow toilet technology.

We will market this technology as FlushGuard Overflow Technology.

During the fourth quarter of 2023, we were awarded product placements at several large customers, including two of the largest commercial distributors in North America.

In addition, we continue to focus on our initiatives to expand geographically, with recently signed agreements providing entry into India, Eastern Europe, Australia, and the UK.

● Enhanced Margin Performance.

We generated gross margin of 27.4% in first quarter of 2024, up from 26.5% in the same period last year , owing to the ongoing shift to higher margin products.

For the full year 2023, gross margin was 27.4%, up nearly 800 basis points from the 19.5% gross margin generated in 2022 .

During the remainder of 2024, we expect gross margins to remain consistent with those generated during fiscal year 2023, with operating margin improvement driven by volume leverage.

● Efficient capital deployment.

We benefit from a capital-light business model allowing us to generate strong free cash flow conversion.

We expect to utilize our strong free cash flow to re-invest in the core business and drive growth through existing brand development and new product category expansion.

We will also look for selective bolt-on acquisition opportunities, over time, focused within the core kitchen and bath end markets.

We plan to maintain a disciplined approach to capital deployment, with most material internal investments currently subject to a company-wide 20%+ expected return on capital hurdle rate.

We will continue to prioritize capital deployment in support of organic growth opportunities, while continuing to evaluate strategic M&A opportunities.

With total liquidity of $17.8 million as of March 31, 2024, the Company believes it has sufficient financial flexibility to fund its organic growth strategy.

● Deep manufacturing partners and customer relationships.

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Recent Trends

Due to changing market conditions, we are experiencing, and may continue to experience, lower market demand for certain of our products, particularly in our bath furniture category, as weak demand as customer destock and inventory corrections have had a negative impact on our net sales.

Due to ongoing market conditions, we are experiencing, and may continue to experience, lower market demand for certain of our products, particularly in our bath furniture category, as weak demand, customer destock and inventory corrections have had a negative impact on our net sales.

As previously noted, we also began experiencing supply chain disruptions and inflationary pressures, which affected operating margins beginning in late 2022.

However, we adopted several productivity and pricing measures to offset these headwinds and began to see resumed margin expansion in the second half of 2023.

While demand for our bath furniture products remains lower than historical levels thus far in 2023, we have seen increases in demand quarter over quarter.

Based on discussions with our existing customers and other market factors, we expect demand to continue to pick up during the remainder of 2023 and into early 2024.

While the demand environment remains uneven with multiple industry forecasters predicting modest declines in home improvement spend in 2024, we expect to generate above-market growth.

Results of Operations

As a result of the increased significance of shower systems in our product portfolio in 2022, the Company has created a standalone “Shower Systems” product category, as detailed below.

The “Other” category continues to comprise our kitchen cabinetry and other smaller offerings.

The updates were applied retroactively to impacted product categories.

Such changes had no impact on the Company's historical consolidated financial position, results of operations or cash flows.

The following table summarizes the results of our operations for the three and nine months ended September 30, 2023 and 2022 and provides information regarding the dollar and percentage increase (decrease) during such periods.

For the Three and Nine Months Ended September 30, 2023 and 2022

The following table summarizes the results of our operations for the three months ended March 31, 2024 and 2023 and provides information regarding the dollar and percentage increase (decrease) during such periods.

For the Three Months Ended March 31, 2024 and 2023

For the Three Months Ended

September 30,

Cost of revenues

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Research and development expenses

Income from operations

Operating margins

Total other income (expenses), net

Provision for income taxes

Adjusted income from operations (1)

Adjusted operating margins (1)

Adjusted net income (1)

For the Nine Months Ended

September 30,

Cost of revenues

Selling and distribution expenses

General and administrative expenses

Research and development expenses

Income from operations

Loss from operations

Operating margins

Total other expenses, net

Provision for income taxes

Adjusted income from operations (1)

Benefit of income taxes

Net loss attributable to FGI Industries Ltd.

Adjusted (loss) income from operations (1)

Adjusted operating margins (1)

Adjusted net income (1)

Adjusted net loss (1)

(1) See “Non-GAAP Measures” below for more information on our use of these adjusted figures and a reconciliation of these financial measures to their closest U.S.

generally accepted accounting principles (“GAAP”) comparators.

Our revenues decreased by $8.6 million, or 22.3%, to $29.9 million for the three months ended September 30, 2023, from $38.5 million for the three months ended September 30, 2022.

For the nine months ended September 30, 2023, our revenue decreased by $43.6 million, or 33.6%, to $86.3 million from $129.9 million in the prior year period.

The decrease in our revenues in both periods were primarily by declines in Sanitaryware, Bath Furniture and Shower System.

Our revenues increased by $3.6 million, or 13.2%, to $30.8 million for the three months ended March 31, 2024, from $27.2 million for the three months ended March 31, 2023.

The increase in our revenues was primarily by increases in Sanitaryware and Shower System sales.

Revenue categories by product are summarized as follow :

For the Three Months Ended September 30,

Bath Furniture

Shower System

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Bath Furniture

Shower System

We derive the majority of our revenues from sales of Sanitaryware, which accounted for 69.3% and 63.7% of our total revenues for the three and nine months ended September 30, 2023, compared to 66.1% and 65.1% for the comparable periods of 2022.

Revenues generated from the sales of Sanitaryware decreased by 18.6% to $20.7 million and 35.0% to $54.9 million for the three and nine months ended September 30, 2023, respectively, from $25.5 million and $84.6 million in same period of 2022.

The revenue decline was due to ongoing inventory de-stocking, primarily in the pro channel, and more muted demand trends.

Sanitaryware revenue increased 10.2% sequentially from the second quarter of 2023, the second consecutive quarter of sequential revenue gains, as some customers are beginning to return to more normal order patterns and new customer programs are benefitting results.

Our revenues from bath furniture sales accounted for 8.5% and 14.3% of our total revenue for the three and nine months ended September 30, 2023, compared to 14.5% and 18.0% for the comparable period of 2022.

Bath Furniture sales decreased by 54.9% to $2.5 million and 47.4% to $12.3 million for the three and nine months ended September 30, 2023, compared to $5.6 million and $23.4 million in the same period of 2022.

The broader bath furniture market continues to be more heavily impacted by the recent macro headwinds than other product categories.

Our product mix in bath furniture is more focused on higher-end priced products, which is experiencing more pronounced weakness than lower cost products in the space.

As a result of these recent market trends, we are expanding our product offering in the mid-tier category to better address current demand.

Revenues from sales of Shower Systems decreased by 9.4% to $4.9 million and 20.3% to $14.2 million for the three and nine months ended September 30, 2023, compared to $5.4 million and $17.9 million for the comparable period of 2022.

Shower systems make up approximately 16.5% and 16.5% of our total revenue for the three and nine months ended September 30, 2023, compared to 14.1% and 13.8% for the comparable period of 2022.

However, our revenues from sales of Shower System increased by 15% sequentially from the second quarter of 2023.

While the shower business has experienced some modest inventory de-stocking, demand trends remain steady and recently launched programs are gaining momentum.

We derive the majority of our revenues from sales of Sanitaryware, which accounted for 66.7% and 56.5% of our total revenues for the three months ended March 31, 2024 and 2023, respectively.

Revenues generated from the sales of Sanitaryware increased by 33.6% to $20.5 million from $15.4 million in same period of 2023.

The increase in revenue was primarily driven by the rebounding pro business as a result of stabilized inventory levels and improved order flow.

Our revenues from bath furniture sales accounted for 10.0% and 18.3% of our total revenue for the three months ended March 31, 2024 and 2023, respectively.

Bath Furniture sales decreased by 37.8% to $3.1 million for the three months ended March 31, 2024, compared to $5.0 million in the same period of 2023.

The bath furniture market continues to be impacted by weak demand and a trade down to lower priced offerings.

In response, we are launching mid-tier products to better address the current demand environment.

Revenues from sales of Shower Systems increased by 14.5% to $5.8 million for the three months ended March 31, 2024, compared to $5.0 million for the comparable period of 2023.

Shower systems make up approximately 18.7% and 18.5% of our total revenue for the three months ended March 31, 2024 and 2023, respectively.

While the shower business experienced some modest inventory de-stocking during 2023, demand trends have remained steady and our recently launched programs had a positive impact during the first quarter.

These new programs include the online shower door program with a large Canadian retailer, as well as the new shower wall systems roll-out at up to 300 locations of a large U.S.

retailer during the fourth quarter of 2023.

The revenues from sales of other products (custom kitchen cabinetry and other small offerings) decreased by 13.7% to $1.7 million and increased 17.2% to $4.8 million for the three and nine months ended September 30, 2023, compared to $2.0 million and $4.1 million in the same period of 2022.

This revenue category increased by 35.8% as compared to the second quarter of 2023.

We believe momentum in the business remains strong, as the Company continues to add new dealers to the network and the new kitchen cabinetry initiative is on track for launch in early 2024.

retailer with initial shipments that began in December 2023 .

The revenues from sales of other products (custom kitchen cabinetry and other small offerings) decreased by 23.5% to $1.4 million for the three months ended March 31, 2024, compared to $1.8 million in the same period of 2023.

Fewer orders were received for our custom kitchen cabinetry during the holiday season in late 2023, resulting in decreased revenue from this product category in the three months ended March 31, 2024 as compared to the same period of last year.

Revenue Categories by Geographic Location

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Revenue categories by geographic location are summarized as follows:

For the Three Months Ended September 30,

United States

Rest of World

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

United States

Rest of World

We generated the majority of our revenues in the United States market, which amounted to $18.4 million and $54.9 million for the three and nine months ended September 30, 2023, compared to $23.9 million and $80.9 million for the three and nine months ended September 30, 2022, representing a 23.1% and 32.1% decrease for the three- and nine-month periods.

These revenues accounted for 61.3%, 63.7% and 61.9%, 62.2% of our total revenues for the three and nine months ended September 30, 2023 and 2022, respectively.

The decrease in the U.S.

market was primarily driven by volume weakness in the pro channel in our Sanitary category.

We generated the majority of our revenues in the United States market, which amounted to $19.6 million for the three months ended March 31, 2024, compared to $17.5 million for the three months ended March 31, 2023, representing a 11.8% increase for the three-month periods.

These revenues accounted for 63.7% and 64.5% of our total revenues for the three months ended March 31, 2024 and 2023, respectively.

The increase in the U.S.

market was primarily driven by the recovery of pro channel in our Sanitary category.

Our second largest market is Canada.

Our revenues generated in the Canadian market were $9.1 million and $23.1 million for the three and nine months ended September 30, 2023, compared to $9.5 million and $35.4 million for the three and nine months ended September 30, 2022, representing a 4.4% and 34.7% decrease for the three- and nine-month periods.

The decrease was primarily driven by volume weakness in both retail and wholesale markets.

Our revenues generated in the Canadian market were $7.9 million for the three months ended March 31, 2024, compared to $6.5 million for the three months ended March 31, 2023, representing a 20.9% increase.

Similar to the U.S.

market, the increased sales in the Canada market was primarily driven by the recovery of pro channel in our Sanitary category.

We also derive a small portion of our revenue from Europe, which consists primarily of sales in Germany.

This amounted to $2.5 million and $8.2 million for the three and nine months ended September 30, 2023, compared to $4.8 million and $13.3 million for the three and nine months ended September 30, 2022, representing a 49.3% and 38.5% decrease for the three- and nine-month periods.

The decrease in the first nine months was attributable to customers reducing inventory levels to below historical average.

Gross profit was $7.8 million and $23.0 million for the three and nine months ended September 30, 2023, a decrease of 2.6% and 3.9% compared to the prior-year periods, as volume weakness was offset by pricing gains, a more favorable mix, and lower freight costs.

Gross profit margin improved to 26.2% and 26.7% for the three and nine months ended September 30, 2023, up 530 basis points and 824 basis points from 20.9% and 18.5% in the prior-year periods.

Gross margins continue benefit from a shift in revenue mix towards higher-margin products, lower logistics costs, and the full benefit of pricing actions taken during 2022.

Our gross profit decreased by $0.2 million, or 2.6%, to $7.8 million for the three months ended September 30, 2023, from $8.0 million for the three months ended September 30, 2022.

Our gross profit decreased by $0.9 million, or 3.9%, to $23.0 million for the nine months ended September 30, 2023, from $24.0 million for the nine months ended

September 30, 2022.

The decrease in gross profit was due to revenue decline in major product categories that was partially offset by continued pricing gains and reduction in freight costs.

This amounted to $3.2 million for the three months ended March 31, 2024, compared to $3.1 million for the three months ended March 31, 2023, representing a 2.8% increase for the three-month periods.

The sales in this market remained relatively stable.

Gross profit was $8.4 million for the three months ended March 31, 2024, an increase of 16.8% compared to the prior-year period, as a result of volume growth.

Gross profit margin improved to 27.4% for the three months ended March 31, 2024, up 90 basis points from 26.5% in the prior-year periods.

Gross margins continue to benefit from a shift in revenue mix towards higher-margin products and lower logistics costs.

Operating Expenses

Selling and distribution expenses primarily consisted of personnel costs, marketing and promotion costs, commission, and freight and leasing charges.

Our selling and distribution expenses increased by $0.3 million, or 7.1%, to $4.6 million for the three months ended September 30, 2023, from $4.3 million for the three months ended September 30, 2022, and increased by $0.8 million, or 5.8%, to $14.1 million for the nine months ended September 30, 2023, from $13.3 million for the nine months ended September 30, 2022, respectively.

The increase in first nine months was a result of participating more sales trade show events and promotions as pandemic restrictions were eased, which caused the increase in marketing, sample and travel related expenses, partially offset by lower commission, sales coop and shipping freight expenses impacted by sales volume loss in first nine months of 2023.

Our selling and distribution expenses increased by $1.4 million, or 30.1%,

to $6.1 million for the three months ended March 31, 2024, from $4.7 million for the three months ended March 31, 2023.

The increase in selling and distribution expenses represents increased personnel costs, marketing and promotion expenses and warehouse expenses as a result of inflation and our initiatives to drive sales growth.

General and administrative expenses primarily consisted of personnel costs, professional service fees, depreciation, travel, and office supply expenses.

Our general and administrative expenses increased by $0.5 million, or 26.1%, to $2.4 million for the three months ended September 30, 2023, from $1.9 million for the three months ended September 30, 2022, an increased by $0.9 million, or 16.3%, to $6.7 million for the nine months ended September 30, 2023, from $5.8 million for the nine months ended September 30, 2022, respectively.

The increase was primarily attributable to incremental public company costs and legal expenses.

Our general and administrative expenses increased by $0.1 million, or 6.6%, to $2.3 million for the three months ended March 31, 2024, from $2.1 million for the three months ended March 31, 2023.

The increase was primarily attributable to inflation and expenses incurred in connection with newly formed subsidiaries.

Research and development expenses mainly consisted of personnel costs and product development costs.

Our research and development activities remained stable and are relatively immaterial to our unaudited condensed consolidated statements of income and comprehensive income.

Our research and development activities remained stable and are relatively immaterial to our unaudited condensed consolidated statements of operations and comprehensive loss.

Other Income (Expenses)

We incurred insignificant other income and expenses during the three months ended September 30, 2023 and 2022.

We incurred insignificant other income and expenses during the three months ended March 31, 2024 and 2023.

Other income and expenses primarily include interest income and expenses, as well as miscellaneous non-operating income and expenses.

Other expenses, net increased by approximately $0.2 million or 82.0%, to $0.5 million for the nine months ended September 30, 2023, from $0.3 million for the nine months ended September 30, 2022.

This increase was the result of higher interest expenses due to increases in applicable interest rates.

Provision for Income Taxes

We recorded income tax expense of $0.2 million for the three months ended September 30, 2023, and $0.3 million for the three months ended September 30, 2022.

The decrease resulted from the decrease in taxable income.

We recorded income tax expense of $0.4 million for the nine months ended September 30, 2023, and $0.8 million for the nine months ended September 30, 2022.

We recorded income tax expense of approximately $22,000 for the three months ended March 31, 2024, and $33,000 for the three months ended March 31, 2023.

The decrease resulted from the decrease in taxable income.

Our net income decreased by $0.9 million, or 73.0%, to $0.3 million for the three months ended September 30, 2023, from $1.3 million For the three months ended September 30, 2022, and decreased by $2.8 million, or 95.7%, to $0.1 million for the nine months ended September 30, 2023, from $3.0 million for the nine months ended September 30, 2022, respectively.

This decrease was a result of the combination of the changes discussed above.

Our net loss increased by $0.2 million, or 77.3%, to $0.5 million for the three months ended March 31, 2024, from $0.3 million for the three months ended March 31, 2023.

This increase was a result of the combination of the changes discussed above.

Liquidity and Capital Resources

Our principal sources of liquidity are cash generated from operating activities and cash borrowed under credit facilities, which we believe provides sufficient liquidity to support our financing needs.

As of September 30, 2023, we

had cash and working capital of $5.4 million and $17.2 million, respectively.

On January 27, 2022, we closed an underwritten public offering of $2.5 million units consisting of ordinary shares and warrants and received net proceeds, after commissions and expenses, of approximately $12.4 million.

As of March 31, 2024, we had cash and working capital of $3.3 million and $16.8 million, respectively.

During the three months ended March 31, 2024, we drew an aggregate of approximately $4.5 million on the Credit Agreement and CTBC Credit Line for working capital replenishment.

We believe our revenues and operations will continue to grow and the current working capital is sufficient to support our operations and debt obligations well into the foreseeable future.

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If it is determined that the cash requirements exceed our amount of cash on hand, we may seek to issue debt or equity securities, and there can be no assurances that additional financing will be available on acceptable term, if at all.

As of September 30, 2023, FGI’s total outstanding debt consisted of a credit facility with East West Bank.

As of March 31, 2024, FGI’s total outstanding debt consisted of the Credit Agreement with East West Bank and the CTBC Credit Line with CTBC Bank (each discussed below).

East West Bank Credit Facility

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The loan bears interest rate equal to, at the Company ’ s option, either (i) 0.25 percentage points less than the Prime Rate quoted by the Wall Street Journal or (ii) the SOFR Rate (as administered by CME Group Benchmark Administration Limited and displayed by Bloomberg LP) plus 2.20% per annum (in either case, subject to a minimum rate of 4.500% per annum) .

The interest rate as of September 30, 2023 and December 31, 2022 was 8.25% and 7.25%, respectively.

The interest rate as of March 31, 2024 and December 31, 2023 was 8.25% and 8.25%, respectively.

Each sum of borrowings under the Credit Agreement is deemed due on demand and is classified as a short-term loan.

The outstanding balance of such loan was $7,962,203 and $9,795,052 as of September 30, 2023 and December 31, 2022, respectively.

The outstanding balance of such loan was $9,929,043 and $6,959,175 as of March 31, 2024, and December 31, 2023, respectively.

HSBC Canada Bank Loan

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has a line of credit agreement with HSBC Canada (the “Canadian Revolver”).

The revolving line of credit with HSBC Canada allows for borrowing up to CAD $7,500,000 (US $5,538,734 as of the September 30, 2023

exchange rate).

The revolving line of credit with HSBC Canada allows for borrowing up to CAD $7,500,000 (US $5,662,087 as of the March 31, 2024 exchange rate).

This is an assets-based line of credit, the borrowing limit is calculated based on certain percentage of accounts receivable and inventory balances.

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The loan bears interest at a rate of Prime rate plus 0.50%.

As of September 30, 2023, FGI Canada Ltd.

As of March 31, 2024, FGI Canada Ltd.

was in compliance with this financial covenant.

Borrowings under this line of credit amounts to $0 as of September 30, 2023, and December 31, 2022.

Borrowings under this line of credit amounts to $0 as of March 31, 2024, and December 31, 2023.

The facility matures at the discretion of HSBC Canada upon 60 days’ notice.

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The advances are available to purchase foreign exchange forward contacts from time to time up to six months, subject to an overall maximum aggregate USD Equivalent outstanding face value not exceeding the Foreign Exchange Facility Limit.

The following table summarizes the key components of our cash flows for the nine months ended September 30, 2023 and 2022.

For the Nine Months Ended September 30,

CTBC Credit Facility

On January 25, 2024, FGI International entered into an omnibus credit line (the “ CTBC Credit Line”) with CTBC Bank Co., Ltd.

Under the CTBC Credit Line, FGI International may borrow, from time to time, up to

$2.3 million, with borrowings limited to 90% of FGI International’s export “open account” trade receivables.

The CTBC Credit Line will bear interest at a rate of “Base Rate”, which is based on monthly or quarterly Taipei Interbank Offered in effect from time to time, plus 120 base points and handling fees, unless otherwise agreed to by the parties.

The CTBC Credit Line is unsecured and is fully guaranteed by the Company and partially guaranteed by Liang Chou Chen.

Borrowings under this line of credit amounts to $1,513,608 and $0 as of March 31, 2024 and December 31, 2023, respectively.

The following table summarizes the key components of our cash flows for the three months ended March 31, 2024 and 2023.

For the Three Months Ended March 31,

Net cash used in operating activities

Net cash used in investing activities

Net cash (used in) provided by financing activities

Net cash provided by (used in) financing activities

Effect of exchange rate fluctuation on cash

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Operating Activities

Net cash used in operating activities was approximately $2.6 million for the nine months ended September 30, 2023 and was primarily attributable to an increase in prepayments and other receivables - related parties of approximately $5.4 million, an increase in prepayments and other current assets of approximately $1.9 million, an increase in accounts receivable of approximately $1.6 million, a decrease in operating lease liabilities of approximately $0.9 million, a decrease in accounts payable of approximately $0.7 million, plus non-cash items of approximately $0.5 million.

These drivers were partially offset by a decrease in inventories of approximately $3.7 million, an increase in accounts payable-related parties of approximately $2.4 million, and a decrease in right-of-used assets of approximately $1.3 million, a decrease in other noncurrent assets of approximately $0.6 million, an increase in income taxes payable of approximately $0.2 million, and net income for the nine months of approximately $0.1 million, an increase in accrued expenses and other current liabilities of approximately $0.1 million.

Net cash used in operating activities was approximately $6.3 million for the nine months ended September 30, 2022 and was primarily attributable to a decrease in accounts payable of approximately $18.3 million, an increase in prepayments and other receivables - related parties of approximately $3.9 million, various non-cash items of approximately $3.4 million, a decrease in accrued expenses and other current liabilities of approximately $1.4 million, and plus a decrease in income taxes payable of approximately $1.0 million, which were partially offset by a decrease in accounts receivable of approximately $9.5 million, a decrease in inventories of approximately $5.3 million, and net income for the quarter of approximately $3.0 million, an increase in operating lease liabilities of approximately $1.5 million, a decrease in right-of-used assets of approximately $1.0 million, a decrease in other noncurrent assets of approximately $0.7 million, an increase in accounts payables – related parties of approximately $0.6 million, a decrease in prepayments and other current assets of approximately $0.2 million.

Net cash used in operating activities was approximately $8.3 million for the three months ended March 31, 2024 and was primarily attributable to an increase in prepayments and other receivables - related parties of approximately $5.4 million, an increase in inventories of approximately $1.6 million, a decrease in accrued expenses and other current liabilities of approximately $0.6 million, a decrease in income tax payable of approximately $0.4 million, a decrease in accounts payable of approximately $0.7 million.

These drivers were partially offset by non-cash items of $1.4 million.

Net cash used in operating activities was approximately $1.2 million for the three months ended March 31, 2023 and was primarily attributable to a decrease in accounts payable of approximately $6.6 million, a decrease in accrued expenses and other current liabilities of approximately $0.6 million and net income for the quarter of approximately $0.3 million, an increase in prepayments and other current assets of approximately $0.3 million, a decrease in operating lease liabilities of approximately $0.3 million.

These drivers were partially offset by a decrease in inventories of approximately $3.4 million, a decrease in accounts receivable of approximately $1.7 million, plus non-cash items of approximately $0.5 million, and an increase in accounts payable-related parties of approximately $0.5 million, a decrease in right-of-used assets of approximately $0.4 million, a decrease in prepayments and other receivables - related parties of approximately $0.3 million, and an increase in income taxes payable of approximately $0.1 million.

Investing Activities

Net cash used in investing activities was $0.3 million and approximately $1.4 million for the nine months ended September 30, 2023, and 2022, respectively, which was attributable to the purchases of property and equipment.

Net cash used in investing activities was $0.6 million and $0.1 million for the three months ended March 31, 2024, and 2023, respectively, which was attributable to the purchases of property and equipment.

Financing Activities

Net cash used in financing activities was approximately $1.8 million for the nine months ended September 30, 2023, which represents net repayment of bank loans.

Net cash provided by financing activities was approximately $10.7 million for the nine months ended September 30, 2022, which represents net repayment of bank loans of $1.6 million and net proceeds from issuance of units in the IPO of $12.4 million.

Net cash provided by financing activities was approximately $4.5 million for the three months ended March 31, 2024, which represents net proceeds from bank loans.

Net cash used in financing activities was approximately $1.4 million for the three months ended March 31, 2023, which represents net repayment of bank loans.

Commitments and Contingencies

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Our capital expenditures were incurred primarily in connection with the acquisition of property and equipment.

Our capital expenditures amounted to $0.3 million and $1.4 million for the nine months ended September 30, 2023 and 2022, respectively.

Our capital expenditures amounted to $0.6 million and $0.1 million for the three months ended March 31, 2024 and 2023, respectively.

We do not expect to incur significant capital expenditures in the immediate future.

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Changes in estimates are recorded in results of operations in the period that the events or circumstances giving rise to such changes occur.

Within the context of these critical accounting estimates, we are not currently aware of any reasonably likely events or circumstances that would result in different policies or estimates being reported for the nine months ended September 30, 2023.

Recently Issued Accounting Pronouncements

13 unchanged sentences

For the Three Months Ended

For the Nine Months Ended

September 30,

Income from operations

Non-recurring IPO-related compensation

IPO legal fee

Loss from operations

Non-recurring IPO-related stock-based compensation

IPO and arbitration legal fee

Business expansion expense

Adjusted income from operations

Adjusted (loss) income from operations

Adjusted operating margins

For the Three Months Ended

For the Nine Months Ended

September 30,

Non-recurring IPO-related compensation

IPO legal fee

Non-recurring IPO-related stock-based compensation

IPO and arbitration legal fee

Business expansion expense

Tax impact of adjustment at 18% effective rate

Adjusted net income

Adjusted net loss

Quantitative and Qualitative Disclosures About Market Risk.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis