What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-13 compared with 2024-05-10 · 113 added, 81 removed, 149 unchanged (57% of the section changed)

21 unchanged sentences

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.

We will continue to 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.

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

● Enhanced m argin p erformance.

We generated gross margin of 30.5 % in the second quarter of 2024, up from 27.4 % 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.

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 and sales of higher margin products.

● Efficient capital deployment.

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.

With total liquidity of $17.

4 million as of June 30, 2024, the Company believes it has sufficient financial flexibility to fund its organic growth strategy.

● Deep manufacturing partners and customer relationships.

We have developed strong manufacturing and sourcing partners over the last 30+ years, which we believe will continue to give us a competitive advantage in the markets we serve.

We have developed strong manufacturing and sourcing partners over the last 30+ years, which we believe will continue to give us a competitive advantage in

the markets we serve.

We also have deep relationships with an established global customer base, offering end-to-end solutions to support category growth.

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This discussion, and any financial information and results of operations discussed herein, refers to the assets, liabilities, revenue, expenses and cash flows that are directly attributable to the kitchen and bath business of Foremost before the completion of the Reorganization and are presented as if we had been in existence and the Reorganization had been in effect for the entirely of each of the periods presented.

Recent Trends

Recent Trends and Developments

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 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.

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, which has largely continued through the second quarter of 2024.

The industry outlook remains relatively flat overall with our customers forecasting minimal growth in 2024.

Results of Operations

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

The following table summarizes the results of our operations for the three and six months ended June 30, 2024 and 2023 and provides information regarding the dollar and percentage increase (decrease) during such periods.

For the Three and Six Months Ended June 30, 2024 and 2023

For the Three Months Ended

Cost of revenues

Cost of revenue

Selling and distribution expenses

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Research and development expenses

Loss from operations

Income from operations

Operating margins

Total other income (expenses), net

Benefit of (provision for) income taxes

Net (loss) income

Net income attributable to FGI Industries Ltd.

Adjusted (loss) income from operations (1)

Adjusted operating margins (1)

Adjusted net income (1)

For the Six Months Ended

Cost of revenue

Selling and distribution expenses

General and administrative expenses

Research and development expenses

(Loss) income from operations

Operating margins

Total other expenses, net

Benefit of income taxes

Benefit of (provision for) income taxes

Net loss attributable to FGI Industries Ltd.

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Adjusted operating margins (1)

Adjusted net loss (1)

Adjusted net (loss) income (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 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.

Our revenue increased by $0.2 million, or 0.6%, to $29.4 million for the three months ended June 30, 2024, from $29.2 million for the three months ended June 30, 2023.

For the six months ended June 30, 2024, our revenue increased by $3.8 million, or 6.7%, to $60.1 million from $56.4 million for the same period last year.

The increase in our revenue was primarily driven by increases in Sanitaryware and Shower System sales, partially offset by decreased sales of Bath Furniture.

Revenue categories by product are summarized as follow:

For the Three Months Ended March 31,

For the Three Months Ended June 30,

Bath Furniture

Shower System

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.

For the Six Months Ended June 30,

Bath Furniture

Shower System

We derive the majority of our revenue from sales of Sanitaryware, which accounted for 59.0% and 63.0% of our total revenue for the three and six months ended June 30, 2024, compared to 64.5% and 60.6% for the comparable periods of 2023.

Revenue generated from the sales of Sanitaryware decreased by 7.9% to $17.3 million for the three months ended June 30, 2024 from $18.8 million for same period of 2023.

For the six months ended June 30, 2024, these revenue increased by 10.8% to $37.9 million from $34.2 million for the same period of 2023.

The decrease in revenue for the three months ended June 30, 2024 was due, in part, by our transition to a new enterprise software system and ocean freight disruptions, which resulted in delayed shipments.

Our revenue from Bath Furniture sales accounted for 13.7% and 11.8% of our total revenue for the three and six months ended June 30, 2024, compared to 16.5% and 17.4% for the comparable periods of 2023.

Bath Furniture sales decreased by 16.2% to $4.0 million for the three months ended June 30, 2024, compared to $4.8 million for the same period of 2023.

For the six months ended June 30, 2024, revenue from Bath Furniture sales decreased by 27.2% to $7.1 million from $9.8 million for 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.

Revenue from sales of Shower Systems made up approximately 20.1% and 19.4% of our total revenue for the three and six months ended June 30, 2024, compared to 14.7% and 16.5% for the comparable periods of 2023.

Revenue from sales of Shower Systems increased by 37.4% to $5.9 million for the three months ended June 30, 2024, compared to $4.3 million for the comparable period of 2023.

For the six months ended June 30, 2024, revenue from sales of Shower Systems increased by 25.0% to $11.7 million from $9.3 million for the same period of 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 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.

Our revenue from sales of other products (custom kitchen cabinetry and other small offerings) increased by 66.1% to $2.1 million for the three months ended June 30, 2024, compared to $1.3 million for the same period of 2023.

For the six months ended June 30, 2024, other revenue increased by 13.5% to $3.5 million from $3.1 million for the same period of 2023.

T he increase was primarily driven by volume growth resulting from continued strength in sales of the Covered Bridge custom-kitchen cabinetry businesses.

Revenue Categories by Geographic Location

We derive our revenues primarily from the United States, Canada and Europe.

We derive our revenue primarily from the United States, Canada and Europe.

Revenue categories by geographic location are summarized as follows:

For the Three Months Ended March 31,

For the Three Months Ended June 30,

United States

Rest of World

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.

For the Six Months Ended June 30,

United States

Rest of World

We generated the majority of our revenue in the United States market, which amounted to $18.0 million for the three months ended June 30, 2024, compared to $19.0 million for the three months ended June 30, 2023, representing a 5.2% decrease for the three-month periods.

For the six months ended June 30, 2024, however, revenue from United States market increased by 2.9% to $37.6 million, compared to $36.6 million for the same period of 2023.

Such revenue accounted for 61.4% and 62.6% of our total revenue for the three and six months ended June 30, 2024, respectively, compared to 65.2% and 64.9% for the three and six months ended June 30, 2023, respectively.

Our second largest market is Canada.

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.

Our revenue generated in the Canadian market were $8.6 million for the three months ended June 30, 2024, compared to $7.5 million for the three months ended June 30, 2023, representing a 14.3% increase.

For the six months ended June 30, 2024, revenue from Canadian market increased by 17.4% to $16.5 million, compared to $14.0 million for the same period in 2023.

The increased sales in the Canada market were 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 $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.

This amounted to $2.7 million and $5.9 million for the three and six months ended June 30, 2024, compared to $2.6 million and $5.7 million for the three and six months ended June 30, 2023, representing a 0.8% and 1.9% increase for the three-month and six-month periods, respectively.

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 profit was $9.0 million and $17.4 million for the three and six months ended June 30, 2024, an increase of 11.9% and 14.2% compared to the same periods of 2023.

Gross profit margin improved to 30.5% and 28.9% for the three and six months ended June 30, 2024, up 310 and 190 basis points from 27.4% and 27.0% for the three and six months ended June 30, 2023, respectively.

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

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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 $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.

Our selling and distribution expenses increased by $1.5 million, or 30.4%, to $6.3 million for the three months ended June 30, 2024, from $4.8 million for the three months ended June 30, 2023, and increased by $2.9 million, or 30.3%, to $12.4 million for the six months ended June 30, 2024, from $9.5 million for the six months ended June 30, 2023.

The increase in selling and distribution expenses was largely attributable to 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 $0.1 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.

Our general and administrative expenses increased by $0.4 million, or 16.4%, to $2.6 million for the three months ended June 30, 2024, from $2.3 million for the three months ended June 30, 2023, and increased by $0.5 million, or 11.6%, to $4.9 million for the six months ended June 30, 2024, from $4.4 million for the six months ended June 30, 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 operations and comprehensive loss.

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

Other Income (Expenses)

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 income (expenses) represents interest income and expenses, as well as non-recurring non-operating gains and losses.

Other expenses, net decreased as a result of proceeds received from a settlement agreement and gains from foreign currency transactions.

Provision for Income Taxes

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 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.

We recorded benefit of income taxes of approximately $0.3 million for the three and six months ended June 30, 2024, and income tax expenses $0.2 million for the three and six months ended June 30, 2023.

The benefit was primarily driven by the net operating losses incurred for the three and six months ended June 30, 2024.

Net (Loss) Income

Our net loss increased by $0.1 million and $0.3 million, to approximately $23,000 and $0.6 million for the three and six months ended June 30, 2024, from $0.1 million of net income and $0.2 million of net loss for the three and six months ended June 30, 2023, respectively.

These changes had resulted from 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 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.

As of June 30, 2024, we had cash and working capital of $1.3 million and $13.5 million, respectively.

During the six months ended June 30, 2024, we drew an aggregate of approximately $2.7 million on the Credit Agreement and CTBC Credit Line for working capital replenishment.

We believe our revenue 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.

However, we may need additional cash resources in the future if we experience changes in business conditions or other developments, such as rising interest rates, inflation and increased costs, and may also need additional cash resources in the future if we wish to pursue opportunities for investment, acquisition, strategic cooperation or other similar actions.

For example, from time to time we may provide loans or other operational support to Foremost to assist Foremost in capital expenditures or other efforts related to the manufacturing services that Foremost provides to us, which could limit the assets available for other corporate purposes or require additional resources.

For example, from time to time we may provide loans or other operational support to Foremost to assist Foremost in capital expenditures or other efforts related to the

manufacturing services that Foremost provides to us, which could limit the assets available for other corporate purposes or require additional resources.

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 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).

As of June 30, 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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Pursuant to the Credit Agreement, FGI Industries is required to maintain (a) a debt coverage ratio (defined as earnings before interest, taxes, depreciation and amortization divided by current portion of long-term debt plus interest expense) of not less than 1.25 to 1, tested at the end of each fiscal quarter;

(b) an effective tangible net worth (defined as total book net worth plus minority interest, less amounts due from officers, shareholders and affiliates, minus intangible assets and accumulated amortization, plus debt subordinated to East West Bank) of not less than $10,000,000 for the quarter ended March 31, 2021 and thereafter, on consolidated basis;

(b) an effective tangible net worth (defined as total book net worth plus minority interest, less amounts due from officers, shareholders and affiliates, minus intangible assets and accumulated amortization, plus debt subordinated to East West Bank) of not less than $10,000,000 for the quarter ended June 30, 2021 and thereafter, on consolidated basis;

and (c) a total debt to tangible net worth ratio (defined as total liabilities divided by tangible net worth, which is defined as total book net worth plus minority interest, less loans to officers, shareholders, and affiliates minus intangible assets and accumulated amortization) not to exceed 4.0 to 1, tested at the end of each fiscal quarter, on consolidated basis.

As of March 31, 2023, FGI Industries was in compliance with this financial covenant.

As of June 30, 2023, FGI Industries was in compliance with this financial covenant.

As described in Item 1.

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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 March 31, 2024 and December 31, 2023 was 8.25% and 8.25%, respectively.

The interest rate as of June 30, 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 $9,929,043 and $6,959,175 as of March 31, 2024, and December 31, 2023, respectively.

The outstanding balance of such loan was $8,197,141 and $6,959,175 as of June 30, 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 $5,662,087 as of the March 31, 2024 exchange rate).

The revolving line of credit with HSBC Canada allows for borrowing up to CAD $7,500,000 (US $5,474,453 as of the June 30, 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 March 31, 2024, FGI Canada Ltd.

As of June 30, 2024, FGI Canada Ltd.

was in compliance with this financial covenant.

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

Borrowings under this line of credit amounts to $0 as of June 30, 2024 and December 31, 2023.

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

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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.

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,

Borrowings under this line of credit amounts to $1,495,059 and $0 as of June 30, 2024 and December 31, 2023, respectively.

The following table summarizes the key components of our cash flows for the six months ended June 30, 2024 and 2023.

For the Six Months Ended June 30,

Net cash used in operating activities

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Operating Activities

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.

Net cash used in operating activities was approximately $7.1 million for the six months ended June 30, 2024 and was primarily attributable to an increase in prepayments and other receivables - related parties of approximately $6.1 million, an increase in inventories of approximately $2.9 million, an increase in accounts receivable of approximately $1.9 million, a decrease in operating lease liabilities of approximately $1.0 million, an increase in other noncurrent assets of approximately $0.5 million, and a decrease in income tax payable of approximately $0.4 million.

These drivers were partially offset by non-cash items of $1.5 million, an increase in accounts payable of approximately $2.8 million, and a decrease in prepayments and other current assets of approximately $1.5 million.

Net cash used in operating activities was approximately $ 0.5 million for the six months ended June 30, 2023 and was primarily attributable to an increase in prepayments and other receivables - related parties of approximately $3.0 million, a decrease in accounts payable of approximately $1.9 million, an increase in prepayments and other current assets of approximately $1.

1 million, a decrease in operating lease liabilities of approximately $0.6 million, and net income for the six months of approximately $0.2 million.

These drivers were partially offset by a decrease in inventories of approximately $3.5 million, an increase in accounts payable-related parties of approximately $1.2 million, a decrease in accounts receivable of approximately $0.3 million, a decrease in other noncurrent assets of approximately $0.3 million, an increase in accrued expenses and other current liabilities of approximately $0.2 million, and an increase in income taxes payable of approximately $0.1 million.

Investing Activities

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.

Net cash used in investing activities was $ 1.9 million and $0.

7 million for the six months ended June 30, 2024, and 2023, respectively, which was attributable to the purchases of property and equipment and intangible assets .

Financing Activities

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.

Net cash provided by financing activities was approximately $2.7 million for the six months ended June 30, 2024, which represents net proceeds from bank loans.

Net cash used in financing activities was approximately $1.9 million for the six months ended June 30, 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 $0.6 million and $0.1 million for the three months ended March 31, 2024 and 2023, respectively.

Our capital expenditures amounted to $1.9 million and $0.7 million for the six months ended June 30, 2024 and 2023, respectively.

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

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A discussion of our critical accounting policies and significant accounting estimates is included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2023 Form 10-K.

The preparation of the unaudited condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of some assets and liabilities and, in some instances, the reported amounts of revenues and expenses during the applicable reporting period.

The preparation of the unaudited condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of some assets and liabilities and, in some instances, the reported amounts of revenue and expenses during the applicable reporting period.

Actual results could differ materially from these estimates.

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 three months ended March 31, 2024.

Recently Issued Accounting Pronouncements

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For the Three Months Ended

Loss from operations

For the Six Months Ended

(Loss) income from operations

Non-recurring IPO-related stock-based compensation

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For the Three Months Ended

For the Six Months Ended

Net (loss) income

Non-recurring IPO-related stock-based compensation

2 unchanged sentences

Tax impact of adjustment at 18.9% effective rate

Adjusted net loss

Adjusted net income (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