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)