Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-41207 FGI Industries Ltd. (Exact name of registrant as specified in its charter) Cayman Islands 98-16032 ...

FGI Industries Ltd. (NASDAQ:FGI) Q3 2022 Earnings Conference Call November 10, 2022 8:00 AM ET Company Participants Paul Bartolai - Investor Relations David Bruce - President and Chief Executive Officer Perry Lin - Chief Financial Officer Conference Call Participants Reuben Gardner - Benchmark Greg Gibas - Northland Securities Operator Good morning and welcome to FGI Industries’ Third Quarter 2022 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Paul Bart ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-41207 FGI Industries Ltd. (Exact name of registrant as specified in its charter) Cayman Islands 98-1603252 (S ...

t 10 10 1 TRE III fix th III l t U and and (@@ l t 伊 and t FGI 115 Fire l I I ] I 2008 37 ( [■ R 8 Lucke D DISCLAIMER Certain matters discussed in this presentation contains forward-looking statements concerning our business, operations and financial performance and conditions, as well as our plans, objectives and expectations for our business operations and financial performance and condition. These statements may be preceded by, followed by or include the words "may," "expect," "will," "will likely result ...

FGI Industries Ltd. (NASDAQ:FGI) Q2 2022 Earnings Conference Call August 11, 2022 8:00 AM ET Company Participants Paul Bartolai - Managing Director David Bruce - President and CEO Perry Lin - Chief Financial Officer Conference Call Participants Reuben Gardner - Benchmark Greg Gibas - Northland Securities Operator Thank you for standing by. This is the conference operator. Welcome to the FGI Second Quarter 2022 Earnings Call. As a reminder, all participants are in listen-only mode and the conference is being ...

TRE ITT ric ga VIII III u il h (@@ 1 伊 s 195 @ FGI the Price a I I ] I 2008 37 ( [■ R 8 t and D DISCLAIMER Certain matters discussed in this presentation contains forward-looking statements concerning our business, operations and financial performance and conditions, as well as our plans, objectives and expectations for our business operations and financial performance and condition. These statements may be preceded by, followed by or include the words "may," "expect," "will," "will likely result," "should, ...

Financial Data and Key Metrics Changes - Revenue for Q1 2022 totaled $43.6 million, representing a 20% increase year-over-year, driven by 3% volume growth and a 17% benefit from price mix [26][27] - Adjusted operating income was $0.9 million, down from $2 million in the prior year, due to supply chain issues and inflationary pressures [8][33] - Gross profit margin was 17.3%, down from 20.1% in the prior year, but improved nearly 300 basis points from the fourth quarter [31][32] - GAAP net income was $0.5 million, or $0.05 per diluted share, down from $3 million or $0.42 in the same period last year [34] Business Line Data and Key Metrics Changes - Sanitaryware revenue was $28 million, a 24% increase year-over-year, driven by 3% volume growth and a 21% benefit from price mix [28] - Bath Furniture revenue decreased by 12% to $10 million, impacted by order push-outs due to supply chain challenges [29] - Other revenue surged by 153% to $5.3 million, driven by growth in the Jetcoat Shower Wall System [30] Market Data and Key Metrics Changes - Revenue in the US market increased by 24%, while Canada saw a 29% increase; however, Europe experienced a modest decline [27] - The company noted that approximately 80% of its revenue is tied to the repair and remodel market, which is more stable than new construction [12] Company Strategy and Development Direction - The company aims for above-market growth through product innovation, operational improvements, and efficient capital deployment [16][24] - The BPC strategy (Brands, Products, Channels) is a key driver for organic growth, focusing on expanding into new product categories [19] - The company plans to implement SAP in Q3 or Q4 to enhance operational efficiency [23] Management's Comments on Operating Environment and Future Outlook - Management remains confident in the stability of the kitchen and bath markets despite inflation and rising rates, expecting continued demand for home improvement [10][15] - The company anticipates a flat to modest decline in the industry volume for 2022, but is optimistic about its growth trajectory [38] - Management has baked in a conservative 5% reduction in home improvement spending for 2022, reflecting cautious optimism [43][45] Other Important Information - The company has $8.8 million in cash and cash equivalents and total debt of $16.3 million, with total liquidity of $10.5 million [35][36] - Capital spending needs are expected to remain around 1% of revenue, with a focus on organic growth strategies [37] Q&A Session Summary Question: Trends in US and Canada - Management noted consistent order patterns and confidence in continued demand despite macroeconomic concerns [42][43] Question: Year-over-year price and cost adjustments - Management indicated that approximately 75% of cost inflation has been captured through price adjustments, with further actions planned [47][48] Question: Impact of rising mortgage rates - Management stated that rising rates typically lead to increased investment in home improvements rather than decreased demand [49][50] Question: European market trends - Management explained that order volume in Europe was affected by prior large orders and a shift towards higher-margin products [52][54] Question: Inventory situation in North America - Management reported a recent easing of inventory constraints and expects a return to normal order cadence [56][58] Question: Guidance visibility for the back half of the year - Management expressed confidence in demand visibility for the next 3 to 6 months, with a conservative forecast for volume growth [60][62] Question: Supply chain pressures - Management noted improvements in shipping costs from China and consistent lead times, with expectations for further gross margin improvements [64][68] Question: Future bolt-on opportunities - Management clarified that while there are opportunities for bolt-ons, focus is currently on large organic growth initiatives [70][72]

Revenue Performance - Revenues increased by $7.2 million, or 19.8%, to $43.6 million for the three months ended March 31, 2022, compared to $36.4 million for the same period in 2021[162]. - Sanitaryware sales accounted for 64.7% of total revenues, increasing by 23.6% to $28.2 million for the three months ended March 31, 2022[168]. - Bath Furniture sales decreased by 11.9% to $10.1 million, representing 23.3% of total revenues for the three months ended March 31, 2022[169]. - Revenues from other products increased by 152.9% to $5.3 million, driven by strong sales of Jetcoat Shower wall systems[170]. - For the three months ended March 2022, revenue was $43,575,239, an increase from $36,375,689 in the same period of 2021, representing a growth of approximately 19.1%[211]. Profitability - Gross profit increased by $0.2 million, or 2.8%, to $7.5 million, with gross profit margin decreasing to 17.3% due to higher raw material and freight costs[176][177]. - Income from operations decreased by 63.3% to $690,746 for the three months ended March 31, 2022, compared to $1,883,771 in 2021[162]. - Net income fell by 82.1% to $530,193 for the three months ended March 31, 2022, down from $2,961,414 in the same period last year[162]. - Adjusted income from operations for March 2022 was $923,058, down from $1,999,671 in March 2021, reflecting a decrease of about 53.8%[211]. - Adjusted net income for March 2022 was $804,321, compared to $1,114,714 in March 2021, showing a decrease of around 28%[211]. - Adjusted operating margins fell to 1.6% in March 2022 from 5.2% in March 2021, a decline of 3.6 percentage points[211]. Expenses - Selling and distribution expenses rose by $0.7 million, or 18.7%, to $4.7 million, attributed to increased sales and returning business activities to pre-COVID-19 levels[178]. - General and administrative expenses increased by $0.5 million, or 35.6%, to $1.8 million for the three months ended March 31, 2022, compared to the same period in 2021[179]. - Research and development expenses remained stable and are relatively immaterial to the company's financial statements[180]. - Non-recurring IPO-related compensation and stock-based compensation expense for March 2022 was $232,312, with no such expense reported in March 2021[211]. - COVID one-time expenses were recorded as $115,900 in March 2021, with no such expenses in March 2022[211]. Cash Flow and Debt - Cash and cash equivalents increased to $8.8 million as of March 31, 2022, from $3.9 million as of December 31, 2021[185]. - Net cash used in operating activities was approximately $9.1 million for the three months ended March 31, 2022, primarily due to a decrease in accounts payable of approximately $8.1 million[195]. - Net cash provided by financing activities was approximately $14.0 million for the three months ended March 31, 2022, which includes net proceeds from the IPO of $12.4 million[200]. - Total debt as of March 31, 2022, was represented by a credit facility with East West Bank, with an outstanding balance of $16.3 million[192]. - The interest rate on the East West Bank loan was 3.75% as of March 31, 2022, up from 3.50% as of December 31, 2021[190]. Future Outlook - The company expects to resume margin expansion in the latter half of 2022 as measures to offset supply chain disruptions take effect[156]. - The company may seek additional cash resources in the future for investments, acquisitions, or strategic cooperation[186]. - The tax impact of adjustments for March 2022 was $41,816, compared to a tax impact of $(281,700) in March 2021[211]. - The company recorded an income tax expense of $0.1 million for the three months ended March 31, 2022, down from $0.5 million for the same period in 2021, reflecting a decrease in reported income before taxes of $2.8 million, or 80.7%[182].

Part I [Business](index=8&type=section&id=Item%201.%20Business) FGI Industries Ltd. is a global supplier of kitchen and bath products, focusing on the R&R market with private label and branded offerings, pursuing a "BPC" growth strategy after its 2022 IPO - FGI is a global supplier of bath and kitchen products, with major customers including **The Home Depot**, **Menards**, **Ferguson**, and **Lowe's**, and the majority of its products are sold under customers' **private label brands**[28](index=28&type=chunk) - In January 2022, FGI completed an IPO, raising approximately **$12.5 million** in net proceeds[31](index=31&type=chunk) - The company's **"BPC" growth strategy** focuses on increasing the share of its own Brands, expanding into new Product categories, and growing in key sales Channels like e-commerce and commercial distribution[42](index=42&type=chunk) Net Sales by Product Category (2021) | Product Category | 2021 Net Sales Share | | :--- | :--- | | Sanitaryware | 61.2% | | Bath Furniture | 30.3% | | Other | 8.5% | Net Sales by Customer Channel (2021) | Customer Channel | 2021 Net Sales Share | | :--- | :--- | | Mass Retailers | ~39% | | Wholesalers | ~25% | | E-Commerce | ~23% | | Commercial | ~11% | | Independent Dealers | 2% | [Risk Factors](index=17&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant strategic and operational risks, including high dependence on the R&R market, concentrated customer and supplier base, economic downturns, and control by its majority shareholder - The company's business is **heavily reliant** on residential repair and remodel (R&R) activity, which is sensitive to economic cycles, consumer confidence, and housing market trends[90](index=90&type=chunk)[91](index=91&type=chunk) - Sales are concentrated, with the top ten customers representing over **77%** of net sales in 2021, and The Home Depot alone accounted for approximately **24%** of 2021 net sales[103](index=103&type=chunk) - FGI is **highly dependent** on a single Chinese supplier, Tangshan Huida Ceramic Group Co., Ltd, which accounted for approximately **66%** of its accounts payable balance as of December 31, 2021[104](index=104&type=chunk) - Foremost Groups Ltd. holds approximately **72%** of the voting power of the company's ordinary shares, enabling it to exert **significant control** over corporate decisions[158](index=158&type=chunk)[159](index=159&type=chunk) - The company has limited operations in China but sources many products from there, exposing it to **risks** from changes in Chinese laws, regulations, and political conditions, including potential oversight from the Cyberspace Administration of China (CAC)[120](index=120&type=chunk)[122](index=122&type=chunk) [Unresolved Staff Comments](index=34&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) As a smaller reporting company, FGI Industries Ltd. is exempt from providing information for this item - The company is a **smaller reporting company** and is not required to provide information under this item[182](index=182&type=chunk) [Properties](index=34&type=section&id=Item%202.%20Properties) The company operates its headquarters and warehouses in New Jersey, with additional facilities across the US, Canada, Germany, China, and Taiwan - The company operates from its **headquarters** in East Hanover, NJ, and has additional facilities in the **US** (Indiana, California), **Canada** (Toronto), **Germany** (Dusseldorf), **China** (Tangshan), and **Taiwan** (Taipei)[183](index=183&type=chunk) [Legal Proceedings](index=35&type=section&id=Item%203.%20Legal%20Proceedings) The company is engaged in two significant legal matters: ongoing litigation against Ayers Bath and a new arbitration initiated by supplier Huida regarding an exclusive distribution agreement - FGI USA is involved in **ongoing litigation** related to the bankruptcy of Ayers Bath, seeking to recover damages for breach of an exclusivity agreement with supplier Huida[187](index=187&type=chunk)[188](index=188&type=chunk) - In September 2021, supplier Huida initiated **arbitration proceedings** seeking to determine that the exclusive distribution agreement with FGI USA is not unlimited in duration and should be amended or made terminable[189](index=189&type=chunk) [Mine Safety Disclosures](index=35&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - **Not applicable**[191](index=191&type=chunk) Part II [Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities](index=36&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Shareholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's ordinary shares began trading on Nasdaq in January 2022, with no cash dividends paid or anticipated, and no share repurchases in 2021 - Ordinary shares began trading on **Nasdaq** under the symbol "FGI" on **January 27, 2022**[195](index=195&type=chunk) - The company does **not anticipate paying cash dividends** in the foreseeable future[197](index=197&type=chunk) - **No share repurchases** were made during the twelve months ended December 31, 2021[199](index=199&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In fiscal year 2021, FGI reported significant revenue growth to **$181.9 million** but a decline in gross margin, with net income boosted by PPP loan forgiveness and a covenant waiver obtained [Results of Operations](index=38&type=section&id=Results%20of%20Operations) Fiscal year 2021 saw revenues increase by **34.9%** to **$181.9 million**, driven by strong product line growth, despite gross margin contraction due to cost pressures, resulting in a **67.1%** rise in net income Financial Performance Summary (2021 vs 2020) | Metric | 2021 | 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $181.9M | $134.8M | +34.9% | | Gross Profit | $32.2M | $28.4M | +13.4% | | Gross Margin | 17.7% | 21.1% | -340 bps | | Income from Operations | $7.7M | $6.3M | +22.9% | | Net Income | $7.9M | $4.7M | +67.1% | Revenue by Product Line (2021 vs 2020) | Product Line | 2021 Revenue | 2020 Revenue | Growth (%) | | :--- | :--- | :--- | :--- | | Sanitaryware | $111.3M | $88.4M | +25.9% | | Bath Furniture | $55.1M | $38.2M | +44.3% | | Other | $15.5M | $8.2M | +88.9% | Revenue by Geographic Location (2021 vs 2020) | Geography | 2021 Revenue | 2020 Revenue | Growth (%) | | :--- | :--- | :--- | :--- | | United States | $112.7M | $83.7M | +34.7% | | Canada | $50.4M | $35.0M | +43.9% | | Europe | $18.8M | $16.1M | +16.8% | [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) As of December 31, 2021, the company had **$3.9 million** in cash, relying on operating cash flow and an **$18 million** credit facility, while securing a waiver for a financial covenant non-compliance Cash Flow Summary (2021 vs 2020) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(3.2M) | $5.8M | | Net cash used in investing activities | $(0.1M) | $(0.1M) | | Net cash provided by (used in) financing activities | $3.3M | $(4.3M) | - The company has an **$18 million** line of credit with East West Bank, maturing in September 2022, with an outstanding balance of **$14.7 million** as of December 31, 2021[220](index=220&type=chunk)[221](index=221&type=chunk) - The company was **not in compliance** with a financial covenant at December 31, 2021, but East West Bank provided a **waiver**[220](index=220&type=chunk) - A Paycheck Protection Program (PPP) loan of approximately **$1.68 million** was **fully forgiven** in February 2021[223](index=223&type=chunk) [Non-GAAP Measures](index=49&type=section&id=Non-GAAP%20Measures) The company utilizes non-GAAP measures like Adjusted Net Income, which for 2021 was **$6.3 million**, differing from GAAP primarily due to the exclusion of PPP loan forgiveness Reconciliation of Net Income to Adjusted Net Income (2021) | Metric | 2021 | | :--- | :--- | | Net Income (GAAP) | $7,905,916 | | Adjustments: | | | COVID one-time expenses | $115,900 | | Other income (PPP Loan Forgiveness) | ($1,680,900) | | Tax impact of adjustments | ($56,344) | | **Adjusted Net Income (Non-GAAP)** | **$6,284,572** | [Financial Statements and Supplementary Data](index=50&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for 2021 and 2020, including the auditor's report, balance sheets, income statements, and cash flow statements - The financial statements were audited by Marcum LLP, which issued an **unqualified opinion**[270](index=270&type=chunk)[273](index=273&type=chunk) Key Balance Sheet Items (as of Dec 31, 2021) | Account | Amount | | :--- | :--- | | Total Current Assets | $56.2M | | Total Assets | $69.2M | | Total Current Liabilities | $54.7M | | Total Liabilities | $61.6M | | Total Parent's Net Investment | $7.5M | [Controls and Procedures](index=75&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of December 31, 2021, with no material changes reported, and a management report on internal control is not yet required - Management concluded that as of December 31, 2021, the company's disclosure controls and procedures were **effective**[380](index=380&type=chunk) - A management report on internal control over financial reporting is **not included**, as permitted for newly public companies[381](index=381&type=chunk) Part III [Directors, Executive Officers, and Corporate Governance](index=76&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%2C%20and%20Corporate%20Governance) This section outlines the company's directors and executive officers, including key leadership and the independent audit committee, and notes the adoption of a code of business conduct - The executive team includes **David Bruce (CEO)**, **John Chen (Executive Chairman)**, and **Perry Lin (CFO)**[386](index=386&type=chunk)[387](index=387&type=chunk)[388](index=388&type=chunk) - The Audit Committee consists of **independent directors** Todd Heysse (Chair), Kellie Zesch Weir, and Jae Chung, with Mr. Heysse qualified as an **"audit committee financial expert"**[395](index=395&type=chunk) [Executive Compensation](index=78&type=section&id=Item%2011.%20Executive%20Compensation) This section details the 2021 compensation for named executive officers, including CEO David Bruce's **$346,842** total compensation, and outlines employment agreements and non-employee director remuneration 2021 Summary Compensation Table | Name and Principal Position | Salary ($) | Bonus ($) | All Other Compensation ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | David Bruce, CEO | 237,835 | 96,636 | 12,371 | 346,842 | | John Chen, Executive Chairman | 250,000 | — | 1,151 | 251,151 | | Perry Lin, CFO | 137,245 | 5,000 | 4,051 | 146,296 | - Post-IPO, CEO David Bruce's initial base salary is set at **$300,000**, and CFO Perry Lin's is **$160,000** under their new employment agreements[404](index=404&type=chunk)[405](index=405&type=chunk) - Non-employee directors receive a **$40,000** annual cash retainer and an annual equity award, with additional fees for committee service[409](index=409&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters](index=80&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Shareholder%20Matters) As of March 24, 2022, Foremost Groups Ltd. is the dominant shareholder with **71.8%** ownership, while executive officers and directors hold less than **1%** individually, and equity plans are in place Beneficial Ownership (as of March 24, 2022) | Name | Percentage of Shares Beneficially Owned | | :--- | :--- | | Foremost Groups Ltd. | 71.8% | | Directors and executive officers as a group (9 persons) | < 1% | [Certain Relationships and Related Transactions, and Director Independence](index=82&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) The company engages in various related party transactions with its majority shareholder, Foremost Groups Ltd., covering shared services and product sourcing, and has determined three directors are independent - FGI has entered into **shared services**, **sourcing**, and **purchase agreements** with its parent company, Foremost, and its affiliates, governing administrative support and product procurement[419](index=419&type=chunk)[420](index=420&type=chunk) - A **registration rights agreement** grants Foremost "demand" and "piggyback" rights for the resale of its shares[424](index=424&type=chunk) - The Board of Directors has adopted a written **related party transaction policy** to be overseen by the audit committee[426](index=426&type=chunk) - The board has determined that directors Todd Heysse, Kellie Zesch Weir, and Jae Chung are **independent**[430](index=430&type=chunk) [Principal Accountant Fees and Services](index=84&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) For fiscal year 2021, the company accrued **$456,000** in total fees to its principal accountant, Marcum LLP, entirely for audit services Accountant Fees for Fiscal Year 2021 | Fee Category | Amount | | :--- | :--- | | Audit Fees | $456,000 | | Audit-Related Fees | $0 | | Tax Fees | $0 | | All Other Fees | $0 | | **Total Fees** | **$456,000** | Part IV [Exhibits and Financial Statement Schedules](index=85&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section provides an index of all exhibits filed with the Form 10-K, including corporate governance documents, material contracts, and certifications, with financial schedules omitted - This section contains an **index of all exhibits** filed with the Form 10-K, such as the company's articles of association, warrant agreements, material contracts with related parties, and executive employment agreements[438](index=438&type=chunk)[439](index=439&type=chunk) [Form 10-K Summary](index=86&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is omitted at the company's discretion - The Form 10-K summary is **omitted** at the company's option[440](index=440&type=chunk)