F-1/A: FST Corp. Files Amended Registration for Share Resale and Warrants, Details Business Combination and Financials Amidst Liquidity Concerns

FST Corp. has filed an amended F-1 registration statement to register the resale of up to 35.18 million ordinary shares and the issuance of 14.4 million shares upon warrant exercise, following its business combination and reporting a net loss of $3.24 million in 2024.

Summary

• FST Corp. completed its business combination on January 15, 2025, acquiring Femco Steel Technology Co., Ltd. and merging with Chenghe Acquisition I Co. (renamed FST Ltd.).
• The company is registering up to 14,399,985 ordinary shares issuable upon warrant exercise and 35,184,834 ordinary shares for resale by selling securityholders.
• As of June 10, 2025, the closing price of FST Corp. ordinary shares was US$1.56, significantly below the warrant exercise price of $11.50.
• FST Corp. reported a net loss of $3,235,175 for the year ended December 31, 2024, compared to a net loss of $2,167,611 in 2023.
• Revenue increased by 27.0% to $36,499,644 in 2024 from $28,730,549 in 2023, primarily driven by golf shaft sales.
• Gross profit increased by 16.9% to $15,713,389 in 2024, but gross profit margin decreased to 43.1% from 46.8% due to product mix and lower production volume.
• The company identified material weaknesses in internal controls related to deferred income taxes and initial offering process expenses, and a lack of appropriately skilled resources in U.S. GAAP.
• FST Corp. is managing liquidity challenges, including high leverage and ongoing funding requirements, and plans to explore financing options and potentially sell non-core assets.
• Approximately 78.60% (35,184,834 shares) of the total issued and outstanding ordinary shares (44,766,003) as of the Closing Date were subject to a six-month lock-up period.

Sentiment

Score: 4

Explanation: While revenue growth and strategic brand positioning are positive, the increasing net loss, declining gross margin, significant liquidity challenges, and identified material weaknesses in internal controls present substantial concerns. The low share price relative to warrant exercise price also indicates weak market confidence.

Positives

• Revenue increased by 27.0% to $36,499,644 in 2024, driven by increased golf shaft sales and new software service revenue.
• Opened KBS Taipei Flagship Store in 2024, enhancing customer experience and brand awareness.
• Expanded brand portfolio to offer more high-end product lines.
• Transitioned from OEM to an independent and competitive brand (KBS), with 73 PGA players using KBS shafts and 114 tournament victories as of June 1, 2025.
• Vertically integrated business model with design, production, and marketing capabilities, leading to enhanced profitability and production flexibility.
• Strong R&D capabilities with a dedicated team of 21 full-time staff and two utility patents.
• Utilizes IoT technology for smart manufacturing, enhancing production capacity and energy efficiency.
• Maintains 5-6 months of inventory for products, ensuring sufficient supplies.
• Has unused credit facilities of approximately $8,238,823 as of December 31, 2024.
• Management believes it has sufficient resources to fund operations for at least the next twelve months with existing financing and shareholder support.
• Obtained formal credit approvals for long-term borrowings from two banks.

Negatives

• Net loss increased to $3,235,175 in 2024 from $2,167,611 in 2023.
• Gross profit margin decreased to 43.1% in 2024 from 46.8% in 2023 due to product mix and lower production volume.
• Experienced operating losses and is facing liquidity pressures, requiring additional liquidity to continue as a going concern beyond 12 months.
• Identified material weaknesses in internal controls over financial reporting for 2023, related to deferred income taxes, initial offering process expenses, and lack of U.S. GAAP expertise.
• Current share price of US$1.56 (June 10, 2025) is significantly below the warrant exercise price of $11.50, making warrant exercise unlikely and limiting potential cash proceeds from warrants.
• High leverage and ongoing funding requirements.
• Increased selling expenses by 14.6% and general and administrative expenses by 28.9% in 2024.
• Relies on a single external manufacturer for graphite shafts and a selected number of suppliers for steel shaft raw materials, posing supply chain risks.
• The company does not have its own graphite shaft production line.
• Taiwanese shareholders holding more than 10% of ordinary shares will be subject to Taiwan regulations on investment or technical cooperation in the PRC for PRC investments.
• The company is subject to a trademark dispute in Taiwan, though management views the impact as minimal.

Risks

• Future growth and financial performance depend on the production and sale of current and new golf shaft products on anticipated timelines and within anticipated cost/pricing structures.
• Inability to maintain and enhance the KBS brand or if its reputation is harmed.
• Potential delays in the development, design, manufacture, and commercial release of golf shaft products.
• Reliance on strategic partners as contract manufacturers and for key components/materials.
• Availability and pricing of raw materials and components.
• Inability to accurately forecast demand for golf shaft products, potentially impacting profit margins, leading to excess inventory or supply shortages.
• Higher than expected cost of goods sold (e.g., raw material prices, warranty claims, freight, energy, tariffs).
• Inability to achieve planned cost efficiency savings.
• Negative third-party reviews of new golf shaft products.
• Reduction in the number of rounds of golf played or golf participants.
• Limited opportunities for future growth in golf club shaft sales due to intense competition.
• Unfavorable economic conditions (inflation, geopolitical events) impacting consumer discretionary spending.
• Geopolitical conflicts, tensions, and developments (e.g., U.S.-China trade tensions, Taiwan Strait tensions) affecting operations, business, and profitability, including tariffs.
• Adverse effects on customers' financial condition, business activity, and ability to pay trade obligations due to severe or prolonged economic downturns.
• Intense competition in the golf club shaft market from well-established and well-financed companies.
• Inability to successfully manage the frequent introduction of new products that satisfy changing consumer preferences.
• Loss of a key customer or reduction in purchase levels from key customers.
• Loss of a key supplier or lack of product availability from suppliers.
• Failure to execute growth strategy or manage growth effectively, straining management, operations, and infrastructure.
• Risks associated with acquisitions and dispositions, including integration difficulties, loss of key personnel, and failure to achieve synergies.
• Need for new or additional financing in the future and inability to obtain capital on satisfactory terms.
• Failure to effectively expand sales and marketing capabilities.
• Risks associated with expanding into new markets (e.g., PRC) with limited prior experience.
• Continued operating losses and inability to regain and maintain profitability.
• Inability to maintain engineering, technological, and manufacturing expertise due to changing technology and evolving processes.
• Inaccurate forecasts and projections based on assumptions and internal estimates.
• Significant period-to-period variation in financial results due to operating costs and product introductions.
• Delays in launching and ramping production of products and features.
• Exposure to fluctuations in currency exchange rates (USD, NTD, JPY).
• Inventory risks, including write-offs for excess or obsolete inventory.
• Inaccurate estimates of market opportunity and forecasts of market growth.
• Concentration of ownership among executive officers, directors, and affiliates, potentially preventing new investors from influencing decisions.
• Inadequate insurance coverage strategy for business risks.
• Failure to retain existing senior management or attract qualified new personnel.
• Ineffective internal control over financial reporting, leading to potential misstatements and reduced investor confidence.
• Significant increased expenses and administrative burdens as a public company.
• Uncertainty regarding management estimates in financial statements.
• Legal proceedings or claims against the company being costly and time-consuming.
• Properties being subject to actions and opposition by non-governmental agencies (physical sabotage or public opposition).
• Failure, inadequacy, interruption, security failure, or breach of information technology systems.
• Substantial political risks associated with doing business in Taiwan due to relationship with PRC.
• Lack of requisite approvals, licenses, permits, or filings, or failure to comply with Taiwan laws.
• Restrictions on Femco paying dividends or making other payments to the Company due to Taiwan regulations.
• Foreign exchange control imposed by Taiwan authorities affecting dividend payments and repatriating interest.
• Taiwanese regulations on investment or technical cooperation in the PRC if expanding into that market.
• Volatility of the price of ordinary shares.
• Lack of sustained active trading market for ordinary shares.
• Reliance on equity research analysts and potential decline in share price if expectations are not met.
• Sales of substantial number of securities by existing shareholders causing price to fall, and selling securityholders earning positive returns while public shareholders experience losses.
• Dilution from issuance of additional share capital in connection with financings, acquisitions, or investments.
• No definite timetable for dividend payments, relying on share price appreciation for returns.
• Reduced reporting and disclosure requirements as an emerging growth company making shares less attractive.
• Warrant Agreement designating New York courts as exclusive forum for certain actions, limiting warrant holders' ability to choose forum.
• Company may redeem unexpired warrants prior to exercise at a disadvantageous time, making them worthless.
• Company may amend warrant terms adversely with 65% holder approval or for equity classification.
• Reliance on home country corporate governance practices differing from Nasdaq standards.
• Potential loss of foreign private issuer status, resulting in significant additional costs.
• Uncertainty regarding CFC (Controlled Foreign Corporation) status for U.S. federal income tax purposes.
• Potential PFIC (Passive Foreign Investment Company) status for U.S. federal income tax purposes, leading to adverse tax consequences.

Future Outlook

The company expects full-year revenue to grow steadily based on current customer orders and strong Q1 2025 sales. It plans to continue investing in research and development to maintain a leading position in golf shaft competition. The company is exploring market entry strategies for new geographic markets (PRC, South Korea, Southeast Asia, Europe, Middle East) and plans to open additional KBS Golf Experience stores in the U.S. and Japan. It also intends to acquire know-how and capability to expand into graphite shaft production.

Management Comments

• Management believes that if these plans [to improve liquidity] are successfully implemented, they will address the Company's liquidity needs to enable continuation of operations for the foreseeable future.
• The Company expects full-year revenue to grow steadily.
• The Company believes that the competitiveness of its KBS brand is largely attributable to the Company's unwavering commitment to a player-centric focus in product development.
• The Company believes that it will be able to continue improve the competition positioning by adhering closely to consumer demand, augmented by strong brand development efforts, a comprehensive product line, and online and offline sale touch points.
• The Company is committed to proactively managing its supply chain risks through diversification, strategic partnerships, and continuous improvement.

Industry Context

The global golf equipment market is projected to reach $25 billion in 2024, with an expected annual growth rate of 5.63% through 2028. The industry is highly competitive, featuring established and well-financed companies. Taiwan serves as a leading global golf equipment production hub with a comprehensive supply chain, benefiting from manufacturing orders shifting from the PRC due to recent trade tensions. The company differentiates itself through its vertically integrated business model and strong R&D capabilities.

Comparison to Industry Standards

• The company's KBS brand was ranked among the top 100 businesses in the golf industry by the National Golf Foundation in 2023.
• The company is one of the few Taiwanese manufacturers that markets products globally under its proprietary brand (KBS), which allows for higher gross profit margins compared to typical OEM peers.
• The company competes with major international brands such as True Temper and Nippon Shaft in the premium golf club shaft segment.
• Its production facilities in Taiwan provide a competitive advantage in terms of cost and efficiency when compared to competitors like True Temper (U.S.) and Nippon Shaft (Japan).

Management Changes

Corporate Governance

Legal Proceedings

• The company is not currently a party to legal or government proceedings that are individually or collectively materially adverse to its business.
• An ongoing trademark dispute in Taiwan where a local company filed an opposition in August 2023 to the registration of the company's FST trademarks (Registration Numbers 02307326, 02307516, and 02307578). Management believes this matter will have minimal impact as the company has valid U.S. trademarks and most sales are generated outside Taiwan.

Related Party Transactions

• FST Corp. made non-interest bearing payments on behalf of Femco and its subsidiaries for issuance and formation costs, totaling $36,068 in 2023 and $2,305,610.79 in 2024, with a balance payable of $2,341,678.79 as of December 31, 2024.
• Femco leases land and buildings from Far East Machinery Co., Ltd. (a principal shareholder), with aggregate rent payments of NT$73,920,000 ($2,254,345.84) from January 1, 2021, to the latest lease term. Far East also advanced utility payments, resulting in an account payable of $122,949.92 to Far East as of December 31, 2024.
• Femco leased land and buildings from Chiayi Sports Equipment Co., Ltd. (related to David Chuang) until September 20, 2023, with aggregate rent of NT$14,685,000 ($479,588.50) from January 1, 2021, to termination. Femco purchased these assets for NT$296,000,000 ($9,666,884) in July 2023. Chiayi also advanced utility payments, resulting in an account payable of $181.08 to Chiayi as of December 31, 2024.
• FST provides software services to Factory Automation Technology Co., Ltd. (6.35% owned by FST, 51.59% by Far East), with software service fees totaling $242,396.25 in 2024. As of December 31, 2024, $61,369.99 was due from Factory Automation. FST also purchased machinery from Factory Automation, and FST America purchased equipment for onward sale ($698,600 in 2024).
• FST America leases warehouse space from Peko, LLC (owned by David Chuang), with lease payments of $390,000 in 2024.
• FST sells golf shafts to its subsidiaries FST America and FST Japan, and FST America also sells golf shafts to FST, resulting in intercompany payables and receivables.

Stakeholder Impact

• Shareholders face potential dilution from future equity financings and warrant exercises, and may experience negative returns if the share price remains significantly below the warrant exercise price. They are also impacted by lock-up agreements and potential U.S. federal income tax consequences related to PFIC/CFC status.
• Employees are subject to the new Code of Business Conduct and Ethics and employment agreements with restrictive covenants, while benefiting from the company's pension system.
• Customers may benefit from expanded product lines, new KBS Golf Experience stores, and personalized fitting services, but could be affected by potential production delays or quality issues.
• Suppliers maintain long-term relationships with the company, but the company's flexible order-by-order approach and reliance on limited suppliers for certain materials introduce risks for them.
• Creditors are exposed to the company's liquidity challenges and high leverage, though management plans to refinance short-term obligations or sell non-core assets to meet debt obligations.

Next Steps

• Implement corrective measures to address identified material weaknesses in internal controls (continuous improvement of professional knowledge, engagement of external consultants, optimization of period-end closing and review mechanisms).
• Continue monitoring the effectiveness of internal control remediation efforts.
• Evaluate a range of financing alternatives with financial institutions and other third parties for additional capital beyond the next twelve months.
• Potentially divest certain non-core land assets as a contingency plan for liquidity.
• Continue to invest in research and development for new golf shaft material composition and manufacturing efficiency.
• Explore market entry strategies for new geographic markets (PRC, South Korea, Southeast Asia, Europe, Middle East).
• Open additional KBS Golf Experience stores in the U.S. and Japan.
• Acquire know-how and capability to expand into graphite shaft production, potentially through acquiring small and medium-sized companies with established graphite shaft brands and production lines.
• Continue to diversify sourcing and manufacturing capabilities to mitigate supply chain risks.

Key Dates

Recommendation

Keywords

Golf equipment, Golf shafts, FST Corp, KBS brand, SEC filing, F-1/A, Business combination, Financial results, Corporate governance, Risk factors, Taiwan, Manufacturing, SPAC, Nasdaq, Warrants, Equity, Financial reporting, Supply chain, R&D, International trade, Tariffs, Liquidity, Internal controls, Femco Steel Technology