FGI Industries Ltd 10-K, filed Mar 31, 2022

FGI Industries Ltd. (FGI)

10-K 2022-03-31 For: 2021-12-31

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Added on April 09, 2026

About this 10-K

FGI Industries Ltd filed this 10-K on March 31, 2022, covering the fiscal year ended December 31, 2021.

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	Cayman Islands			98-1603252
	(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)
	906 Murray Road — East Hanover, NJ			07869
	(Address of Principal Executive Offices)			(Zip Code)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Ordinary Shares, $0.0001 par value	FGI	Nasdaq Capital Market
Warrants to purchase Ordinary Shares, $0.0001 par value	FGIWW	Nasdaq Capital Market

	Page
PART I
ITEM 1. BUSINESS		7
ITEM 1A. RISK FACTORS		16
ITEM 1B. UNRESOLVED STAFF COMMENTS		33
ITEM 2. PROPERTIES		33
ITEM 3. LEGAL PROCEEDINGS		34
ITEM 4. MINE SAFETY DISCLOSURES		34
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES		35
ITEM 6. [RESERVED]		35
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		36
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK		49
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		50
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		74
ITEM 9A. CONTROLS AND PROCEDURES		74
ITEM 9B. OTHER INFORMATION		74
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS		74
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE		75
ITEM 11. EXECUTIVE COMPENSATION		77
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS		79
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE		81
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES		83
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES		84
ITEM 16. FORM 10-K SUMMARY		85
SIGNATURES		86

	Strategic Risks					16
	Business and Operational Risks					18
	Risks Related to Doing Business in China					22
	Competitive Risks					24
	Technology and Intellectual Property Risks					26
	Litigation and Regulatory Risks					27
	Risks Related to Our Securities					29
	General Risk Factors					32

	For the Year Ended December 31,						Change
	2021			2020			Amount			Percentage
	USD			USD			USD			%
Revenues		$	181,943,027		$	134,827,701		$	47,115,326		34.9
Cost of revenues			149,740,619			106,423,061			43,317,558		40.7
Gross profit			32,202,408			28,404,640			3,797,768		13.4
Selling and distribution expenses			17,636,820			15,487,306			2,149,514		13.9
General and administrative expenses			6,194,789			5,820,967			373,822		6.4
Research and development expenses			646,069			814,254			(168,185)		(20.7)
Income from operations			7,724,730			6,282,113
Operating margins			4.2%			4.7%
Total other income (expenses), net			1,142,820			(776,921)			1,919,741		247.1
Provision for income taxes			961,634			774,444			187,190		24.2
Net income		$	7,905,916		$	4,730,748		$	3,175,168		67.1
Adjusted income from operations(1)		$	7,840,630		$	6,282,113		$	1,558,517		24.8
Adjusted operating margins(1)			4.3%			4.7%	40 bps				—
Adjusted net income(1)		$	6,284,572	$4,730,748			$ 1,553,823				32.8

	For the year ended December 31,										Change
	2021			Percentage		2020			Percentage		Percentage
	USD			%		USD			%		%
Sanitaryware		$	111,278,737		61.2			88,392,378		65.6		25.9
Bath Furniture			55,136,664		30.3			38,214,235		28.3		44.3
Other			15,527,626		8.5			8,221,088		6.1		88.9
Total		$	181,943,027		100.0		$	134,827,701		100.0		34.9

			Useful Life
Leasehold Improvements			Lesser of lease term or expected useful life
Machinery and equipment			3 – 5 years
Furniture and fixtures			3 – 5 years
Vehicles			5 years
Molds			3 – 5 years

	2021			2020
	USD			USD
Revenues by geographic location
United States		$	112,725,240		$	83,700,229
Canada			50,391,183			35,008,869
Europe			18,826,604			16,118,603
Total			181,943,027		$	134,827,701

	Report of Independent Registered Public Accounting Firm (PCAOB ID: 688)					51
	Consolidated Balance Sheets as of December 31, 2021 and 2020					52
	Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2021 and 2020					53
	Consolidated Statements of Changes in Parent’s Net Investment for the years ended December 31, 2021 and 2020					54
	Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020					55
	Notes to Consolidated Financial Statements					56

	As of December 31, 2021			As of December 31, 2020
	USD			USD
ASSETS
CURRENT ASSETS
Cash		$	3,883,896		$	4,018,558
Accounts receivable, net			26,350,650			17,338,279
Inventories, net			21,263,961			8,308,342
Prepayments and other current assets			1,546,623			799,724
Prepayments and other receivables – related parties			3,119,822			3,263,136
Total current assets			56,164,952			33,728,039
PROPERTY AND EQUIPMENT, NET			387,655			545,697
OTHER ASSETS
Intangible assets			42,683			128,050
Operating lease right-of-use assets, net			8,087,969			9,311,277
Deferred tax assets, net			1,478,589			1,263,395
Other noncurrent assets			2,989,012			171,003
Total other assets			12,598,253			10,873,725
Total assets		$	69,150,860		$	45,147,461
LIABILITIES AND PARENT’S NET INVESTMENT
CURRENT LIABILITIES
Short-term loans		$	14,657,280		$	11,074,383
Accounts payable			32,009,851			19,510,272
Income tax payable			1,220,939			580,036
Operating lease liabilities – current			1,315,848			1,245,629
Accrued expenses and other current liabilities			5,512,438			3,008,959
Total current liabilities			54,716,356			35,419,279
OTHER LIABILITIES
Operating lease liabilities – noncurrent			6,884,794			8,196,486
Total liabilities			61,601,150			43,615,765
COMMITMENTS AND CONTINGENCIES
PARENT’S NET INVESTMENT
Preference Shares ($0.0001 par value, 10,000,000 shares authorized, no shares issued and outstanding as of December 31, 2021 and 2020)			—			—
Ordinary shares ($0.0001 par value, 200,000,000 shares authorized, 9,500,000 shares issued and outstanding as of December 31, 2021 and 2020*)			700			700
Parent’s net investment			7,549,010			1,530,996
Total parent’s net investment			7,549,710			1,531,696
Total liabilities and parent’s net investment		$	69,150,860		$	45,147,461

	For the Years Ended December 31,
	2021			2020
	USD			USD
REVENUES		$	181,943,027		$	134,827,701
COST OF REVENUES			149,740,619			106,423,061
GROSS PROFIT			32,202,408			28,404,640
OPERATING EXPENSES
Selling and distribution			17,636,820			15,487,306
General and administrative			6,194,789			5,820,967
Research and development			646,069			814,254
Total operating expenses			24,477,678			22,122,527
INCOME FROM OPERATIONS			7,724,730			6,282,113
OTHER INCOME (EXPENSES)
Interest income			37,143			32,244
Interest expense			(411,185)			(418,867)
Other income (expenses), net			1,516,862			(390,298)
Total other income (expenses), net			1,142,820			(776,921)
INCOME BEFORE INCOME TAXES			8,867,550			5,505,192
PROVISION FOR (BENEFIT OF) INCOME TAXES
Current			1,183,282			1,074,928
Deferred			(221,648)			(300,484)
Total provision for income taxes			961,634			774,444
NET INCOME			7,905,916			4,730,748
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustment			59,071			298,106
COMPREHENSIVE INCOME		$	7,964,987		$	5,028,854
WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES
Basic and diluted*			7,000,000			7,000,000
EARNINGS PER SHARE
Basic and diluted*		$	1.13		$	0.68

	Parent’s net investment
BALANCE, January 1, 2020		$	3,620,356
Net income for the year			4,730,748
Net distribution to Parent			(7,117,514)
Foreign currency translation adjustment			298,106
BALANCE, December 31, 2020		$	1,531,696
Net income for the year			7,905,916
Net distribution to Parent			(1,946,973)
Foreign currency translation adjustment			59,071
BALANCE, December 31, 2021		$	7,549,710

	For the Years Ended December 31,
	2021			2020
	USD			USD
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	7,905,916		$	4,730,748
Adjustments to reconcile net income to net cash (used in)provided by operating activities
Depreciation and amortization			287,078			352,471
Bad debt expenses (recovery)			30,825			(10,172)
Provision of defective return			2,073,991			378,248
Foreign exchange transaction loss			234,742			181,599
Interest expenses			411,185			418,867
Gain on Forgiveness of PPP loan			(1,680,900)			—
Deferred income taxes			(215,194)			(322,349)
Loss on disposal of property and equipment			14,825			49,125
Changes in operating assets and liabilities
Accounts receivable			(11,117,186)			(2,033,856)
Inventories			(12,955,619)			985,029
Prepayments and other current assets			(741,286)			154,139
Prepayments and other receivables – related parties			137,700			(3,249,078)
Other noncurrent assets			(2,818,008)			208,333
Right-of-use assets			1,223,307			(543,037)
Income taxes			640,903			632,734
Accounts payable			12,499,578			3,511,223
Accounts payable-related parties			—			(697,500)
Operating lease liabilities			(1,241,473)			592,623
Accrued expenses and other current liabilities			2,092,295			445,612
Net cash (used in) provided by operating activities			(3,217,321)			5,784,759
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of property and equipment			5,949			15,000
Purchase of property and equipment			(57,839)			(76,532)
Net cash used in investing activities			(51,890)			(61,532)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from revolving credit facility			5,263,799			2,867,216
Net changes in parent company investment			(1,946,973)			(7,117,514)
Net cash provided by (used in) financing activities			3,316,826			(4,250,298)
EFFECT OF EXCHANGE RATE FLUCTUATION ON CASH			(182,277)			128,750
NET CHANGES IN CASH			(134,662)			1,601,679
CASH, BEGINNING OF YEAR			4,018,558			2,416,879
CASH, END OF YEAR		$	3,883,896		$	4,018,558
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for interest			(406,859)			(421,393)
Cash (paid) received during the year for income taxes			(545,095)			439,793
NON-CASH INVESTING AND FINANCING ACTIVITIES
Net changes in parent company investment			(1,946,973)			(7,117,514)

Name	Background	Ownership
FGI Industries, Inc. (formerly named Foremost Groups, Inc.)	• A New Jersey corporation • Incorporated on January 5, 1988 • Sales and distribution in the United States	100% owned by FGI
FGI Europe Investment Limited	• A British Virgin Islands holding company • Incorporated on January 1, 2007	100% owned by FGI
FGI International, Limited	• A Hong Kong company • Incorporated on June 2, 2021 • Sales, sourcing and product development	100% owned by FGI
Foremost International Ltd.	• A Canada company • Incorporated on October 17, 1997 • Sales and distribution in Canada	100% owned by FGI Industries, Inc.
FGI Germany GmbH & Co. KG	• A German company • Incorporated on January 24, 2013 • Sales and distribution in Germany	100% owned by FGI Europe Investment Limited
FGI China, Ltd.	• A PRC limited liability company (incorporation of this entity is currently in process) • Sourcing and product development	Expected to be 100% owned by FGI International, Limited
FGI United Kingdom Ltd	• An UK company • Incorporated on December 10, 2021 • Sales and distribution in UK	100% owned by FGI Europe Investment Limited

			Useful Life
Leasehold Improvements			Lesser of lease term and expected useful life
Machinery and equipment			3 – 5 years
Furniture and fixtures			3 – 5 years
Vehicles			5 years
Molds			3 – 5 years

	As of December 31, 2021			As of December 31, 2020
	USD			USD
Beginning balance		$	146,637		$	156,809
Addition (reversal)			30,825			(10,172)
Ending balance		$	177,462		$	146,637

	As of December 31, 2021			As of December 31, 2020
	USD			USD
Beginning balance		$	595,425		$	813,411
(Reversal)			(51,267)			(217,986)
Ending balance		$	544,158		$	595,425

2022	$	1,673,187
2023		1,582,293
2024		1,550,441
2025		1,242,340
2026		1,211,961
Thereafter		2,235,363
Total lease payments		9,495,585
Less: imputed interest		(1,294,943)
Present value of lease liabilities	$	8,200,642

	For the Years Ended December 31,
	2021		2020
Federal statutory rate		21.0%		21.0%
Increase (decrease) in tax rate resulting from:
State and local income taxes, net of federal benefit		(0.8)		(1.0)
Foreign operations		(8.7)		(12.1)
Permanent items		(3.8)		0.9
Deferred rate changes		—		0.1
Foreign dividends and earnings taxable in the United States		(2.4)		5.2
Others		5.5		—
Effective tax rate		10.8%		14.1%

	As of December 31, 2021			As of December 31, 2020
	USD			USD
Finished product		$	21,808,119		$	8,903,767
Reserves for slow-moving inventories			(544,158)			(595,425)
Inventories, net		$	21,263,961		$	8,308,342

	As of December 31, 2021			As of December 31, 2020
	USD			USD
Prepayments		$	1,366,782		$	671,924
Others			179,841			127,800
Total prepayments and other assets		$	1,546,623		$	799,724

	As of December 31, 2021			As of December 31, 2020
	USD			USD
Operating lease right-of-use assets		$	8,087,969		$	9,311,277
Operating lease liabilities – current		$	1,315,848		$	1,245,629
Operating lease liabilities – noncurrent			6,884,794			8,196,486
Total operating lease liabilities		$	8,200,642		$	9,442,115

	As of December 31, 2021	As of December 31, 2020
Weighted-average remaining lease term
Operating leases	5.4 years	6.1 years
Weighted-average discount rate
Operating leases	4.7%	4.7%

	As of December 31, 2021			As of December 31, 2020
	USD			USD
Deferred tax assets
Allowance for doubtful accounts		$	44,368		$	36,472
Other reserve			144,794			92,025
Accrued expenses			134,576			143,735
Lease liability			1,749,430			1,752,546
Charitable contributions			8,565			8,553
Business interest limitation			385,084			370,640
Net operating loss – federal			633,700			536,212
Net operating loss – state			128,569			103,489
Other			60,171			66,636
Total deferred tax assets			3,289,257			3,110,308
Less: valuation allowance			—			—
Net deferred tax assets			3,289,257			3,110,308
Deferred tax liabilities
Fixed assets			1,799,996			1,815,064
Intangibles			10,672			31,849
Total deferred tax liabilities			1,810,668			1,846,913
Deferred tax assets, net of deferred tax liabilities		$	1,478,589		$	1,263,395

Name of Related Party	Relationship	Nature of transactions		December 31, 2021			December 31, 2020
				USD			USD
Rizhao Foremost Woodwork Manufacturing Co., Ltd.	An entity under common control		Purchase		$	415,098		$	1,138,316
Focal Capital Holding Limited	An entity under common control		Purchase			2,670,243			2,098,461
					$	3,085,341		$	3,236,777

Name	Age	Position(s) with the Company
David Bruce	56	Chief Executive Officer and President, Director
John Chen	43	Executive Chairman, Director
Perry Lin	46	Chief Financial Officer
Bob Kermelewicz	59	Executive Vice President, FGI USA
Jennifer Earl	47	Executive Vice President, FGI Canada
Norman Kroenke	59	Executive Vice President, FGI Europe
Todd Heysse	48	Director
Kellie Zesch Weir	41	Director
Jae Chung	54	Director

Name and Principal Position	Fiscal Year		Salary ($)		Bonus ($)		All Other Compensation(1) ($)		Total ($)
David Bruce Chief Executive Officer		2021		237,835		96,636		12,371		346,842
John Chen Executive Chairman		2021		250,000		—		1,151		251,151
Perry Lin Chief Financial Officer		2021		137,245		5,000		4,051		146,296

Plan Category	(a) Number of securities to be issued upon exercise of outstanding options, warrants and rights		(b) Weighted-average exercise price of outstanding options, warrants and rights			(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by shareholders		183,750(1)		$	0(2)		1,816,250(2)
Equity compensation plans not approved by shareholders		—			—		—
Total		183,750			—		1,816,250

Fiscal Year 2021
Audit Fees(1)	$	456,000
Audit-Related Fees	$	—
Tax Fees	$	—
All Other Fees	$	—
Total Fees	$	456,000

	Exhibit Number			Description
	3.1			Second Amended and Restated Memorandum and Articles of Association of FGI Industries Ltd., effective January 27, 2022 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on January 27, 2022).
	4.1			Specimen of Ordinary Share Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Amendment No. 1 to Registration Statement on Form S-1, filed on October 4, 2021).
	4.2			Form of Representative’s Warrant, between FGI Industries Ltd. and the purchaser parties thereto (incorporated by reference to Exhibit 4.2 to the Company’s Amendment No. 1 to Registration Statement on Form S-1, filed on October 4, 2021).
	4.3*			Registration Rights Agreement, dated as of January 27, 2022, between FGI Industries Ltd. and Foremost Groups Ltd.
	4.4*			Warrant Agent Agreement, dated as of January 27, 2022, between FGI Industries Ltd. and Continental Stock Trading and Trust Company.
	4.5*			Form of Warrant (included in Exhibit 4.4, as Exhibit A to the Warrant Agent Agreement).
	4.6*			Description of Company Securities.
	10.1#			Agreement for Co-operations, dated October 20, 2020, by and between FGI Industries, Inc. and Tangshan Huida Ceramic Group Co., Ltd. (incorporated by reference to Exhibit 10.1 to the Company’s Amendment No. 1 to Registration Statement on Form S-1, filed on October 4, 2021).
	10.2*			Shared Services Agreement, dated January 14, 2022, by and between FGI Industries, Inc. and Foremost Home Industries, Inc.
	10.3*			Shared Services Agreement, dated January 14, 2022, by and between FGI Industries Ltd. and Foremost Worldwide Co., Ltd.
	10.4*			Global Sourcing and Purchase Agreement, dated January 14, 2022, by and between FGI Industries Ltd. and Foremost Worldwide Co., Ltd.
	10.5*			Sales and Purchase Agreement, dated January 14, 2022, by and between FGI International, Ltd. and FGI Industries, Inc.
	10.6*			Sales and Purchase Agreement, dated January 28, 2022, by and between FGI Industries Ltd. and Foremost Worldwide Co., Ltd.
	10.7†			FGI Industries Ltd. Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.6 to the Company’s Amendment No. 1 to Registration Statement on Form S-1, filed October 4, 2021).
	10.8†			FGI Industries Ltd. 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.7 to the Company’s Amendment No. 1 to Registration Statement on Form S-1, filed October 4, 2021).

	Exhibit Number			Description
	10.9†			Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.8 to the Company’s Amendment No. 1 to Registration Statement on Form S-1, filed October 4, 2021).
	10.10†			Form of Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.9 to the Company’s Amendment No. 1 to Registration Statement on Form S-1, filed October 4, 2021).
	10.11†			Form of Director Retainer Agreement (incorporated by reference to Exhibit 10.10 to the Company’s Amendment No. 1 to Registration Statement on Form S-1, filed October 4, 2021).
	10.12†*			Employment Agreement, dated January 24, 2022, by and between FGI Industries Ltd. and David Bruce.
	10.13†*			Employment Agreement, dated January 24, 2022, by and between FGI Industries Ltd. and Perry Lin.
	10.14†			Form of Indemnification Agreement by and between FGI Industries Ltd. and its individual directors (incorporated by reference to Exhibit 10.13 to the Company’s Amendment No. 1 to Registration Statement on Form S-1, filed October 4, 2021).
	10.15			Business Loan Agreement, by and between East West Bank and FGI Industries, Inc. (f/k/a Foremost Groups, Inc.), dated April 23, 2012 (as amended) (incorporated by reference to Exhibit 10.14 to the Company’s Amendment No. 2 to Registration Statement on Form S-1, filed November 12, 2021).
	21.1			Subsidiaries of Registrant (incorporated by reference to Exhibit 21.1 to the Company’s Amendment No. 1 to Registration Statement on Form S-1, filed October 4, 2021).
	23.1*			Consent of Marcum LLP, Independent Registered Public Accounting Firm.
	24.1*			Power of Attorney (Included in Signature Page of Form 10-K).
	31.1*			Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal Executive Officer.
	31.2*			Rule 13(a)-14(a)/15(d)-14(a) Certifications of Principal Financial Officer.
	32.1*			Rule 1350 Certifications.

Signature	Title	Date
/s/ David Bruce David Bruce	Chief Executive Officer and Director (Principal Executive Officer)	March 31, 2022
/s/ Perry Lin Perry Lin	Chief Financial Officer (Principal Financial and Accounting Officer)	March 31, 2022
/s/ John Chen John Chen	Executive Chairman and Director	March 31, 2022
/s/ Todd Heysse Todd Heysse	Director	March 31, 2022
/s/ Kellie Zesch Weir Kellie Zesch Weir	Director	March 31, 2022
/s/ Jae Chung Jae Chung	Director	March 31, 2022

COMPANY:
FGI INDUSTRIES LTD.

/s/ David Bruce
David Bruce
Chief Executive Officer

HOLDERS:
FOREMOST GROUPS LTD.

/s/ John Chen
John Chen
Executive Vice President, Corporate Development

	FGI INDUSTRIES LTD.

	By:	/s/ John Chen
	Name:	John Chen
	Title:	Executive Chairman

	CONTINENTAL STOCK TRANSFER & TRUST COMPANY

	By:	/s/ Douglas C. Reed
	Name:	Douglas C. Reed
	Title:	Vice President

Warrant No.: 2022-01	Warrant CUSIP: G3302D111
Number of Shares: 2,875,000

	DTC Participant:
	DTC Number:
	Account Number:
	Date: __________ __,

	FOREMOST HOME INDUSTRIES, INC.

	/s/ Keh-Jean “Jay” Yeh
	Name: Keh-Jean “Jay” Yeh
	Title: CEO


	FGI INDUSTRIES, INC.

	/s/ David Bruce
	Name: David Bruce
	Title: CEO