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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2023

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001-41207

FGI Industries Ltd.

(Exact Name of Registrant as Specified in Its Charter)

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​ | ​
Cayman Islands | 98-1603252
(State or Other Jurisdiction of | (I.R.S. Employer
Incorporation or Organization) | Identification No.)
​ | ​
906 Murray Road — East Hanover, NJ | 07936
(Address of Principal Executive Offices) | (Zip Code)

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Registrant’s telephone number, including area code: (973) 428-0400

Securities registered pursuant to Section 12(b) of the Act:

​ | ​ | ​ | ​ | ​
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
​ | ​ | ​ | ​ | ​

​

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities

Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Large accelerated filer | ☐ | Accelerated filer | ☐ | Non-accelerated filer | ☒ | Smaller Reporting Company | ☒
​ | ​ | ​ | ​ | ​ | ​ | Emerging Growth Company | ☒

​

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included
in the filing reflect the correction of an error to previously issued financial statements.☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b).☐

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of June 30, 2023, the aggregate value of the registrant’s common stock held by non-affiliates was approximately $4,407,360, based on the number of shares held by non-affiliates as of June 30, 2023 and the closing price of the registrant’s ordinary shares on the Nasdaq Capital Market on that date. Ordinary shares held by each director or executive officer have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

​

As of March 20, 2024, the registrant had 9,547,607 outstanding ordinary shares.

Documents incorporated by reference:

The information called for by Part III will be incorporated by reference from the Registrant's definitive Proxy Statement for its Annual Meeting of Shareholders to be filed pursuant to Regulation 14A or will be included in an amendment to this Form 10-K.

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TABLE OF CONTENTS

​ | ​ | ​ | ​
​ |  | ​ | Page
PART I | ​ | ​ | ​
​ | ​ | ​ | ​
ITEM 1. | ​ | BUSINESS | 5
​ | ​ | ​ | ​
ITEM 1A. | ​ | RISK FACTORS | 13
​ | ​ | ​ | ​
ITEM 1B. | ​ | UNRESOLVED STAFF COMMENTS | 32
​ | ​ | ​ | ​
I TEM 1C. | ​ | CYBERSECURITY | 33
​ | ​ | ​ | ​
ITEM 2. | ​ | PROPERTIES | 33
​ | ​ | ​ | ​
ITEM 3. | ​ | LEGAL PROCEEDINGS | 33
​ | ​ | ​ | ​
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 | 48
​ | ​ | ​ | ​
ITEM 8. | ​ | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | 49
​ | ​ | ​ | ​
ITEM 9. | ​ | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 79
​ | ​ | ​ | ​
ITEM 9A. | ​ | CONTROLS AND PROCEDURES | 79
​ | ​ | ​ | ​
ITEM 9B. | ​ | OTHER INFORMATION | 81
​ | ​ | ​ | ​
ITEM 9C. | ​ | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS | 81
​ | ​ | ​ | ​
PART III | ​ | ​ | ​
​ | ​ | ​ | ​
ITEM 10. | ​ | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | 82
​ | ​ | ​ | ​
ITEM 11. | ​ | EXECUTIVE COMPENSATION | 82
​ | ​ | ​ | ​
ITEM 12. | ​ | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS | 82
​ | ​ | ​ | ​
ITEM 13. | ​ | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | 82
​ | ​ | ​ | ​
ITEM 14. | ​ | PRINCIPAL ACCOUNTANT FEES AND SERVICES | 82
​ | ​ | ​ | ​
PART IV | ​ | ​ | ​
​ | ​ | ​ | ​
ITEM 15. | ​ | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES | 83
​ | ​ | ​ | ​
ITEM 16. | ​ | FORM 10-K SUMMARY | 85
​ | ​ | ​ | ​
SIGNATURES | 85

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Annual Report on Form 10-K are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created thereby. All statements contained in this Annual Report on Form 10-K other than statements of historical facts, including statements regarding our future results of operations and financial position, our business strategy and plans and our objectives for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “design,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “positioned,” “potential,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. In addition, statements that “we believe” or similar statements reflect our beliefs and opinions on the relevant subject. We have based these forward- looking statements on our current expectations about future events. While we believe these expectations are reasonable, such forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control. Risks and uncertainties that could cause our actual results to differ from those expressed in, or implied by, our forward- looking statements include, but are not limited to:

| ● | the levels of residential R&R activity, and to a lesser extent, new home construction;

| ● | our ability to maintain our strong brands and reputation and to develop innovative products;

| ● | our ability to maintain our competitive position in our industries;

| ● | our reliance on key suppliers and customers;

| ● | macroeconomic uncertainty, including from wars and hostilities, pandemic s or other health emergencies, changes in interest rates and inflation, the impact on domestic and international economic activity, consumer confidence, our production capabilities, our employees and our supply chain;

| ● | the cost and availability of materials and the imposition of tariffs;

| ● | risks associated with our international operations and global strategies;

| ● | our ability to achieve the anticipated benefits of our strategic initiatives;

| ● | our ability to successfully execute our acquisition strategy and integrate businesses that we may acquire;

| ● | risks associated with our reliance on information systems and technology, and our ability to achieve the anticipated benefits from our investments in new technology;

| ● | our ability to attract, develop and retain talented and diverse personnel;

| ● | our ability to obtain additional capital to finance our planned operations;

| ● | regulatory developments in the United States and internationally;

| ● | our ability to establish and maintain intellectual property protection for our products, as well as our ability to operate our business without infringing the intellectual property rights of others; and

| ● | other risks and uncertainties, including those listed under the caption “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K, as well as subsequent reports we file from time to time with the U.S. Securities and Exchange Commission (available at www.sec.gov).

These forward-looking statements are based on management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate, and management’s beliefs and assumptions are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. In light of the significant uncertainties in these forward-looking statements, you should not rely upon forward-looking statements as predictions of future events. Although we believe the expectations reflected in the forward-looking statements are reasonable, the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements may not be achieved or occur at all. You should

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read this Annual Report on Form 10-K and the documents that we reference and have filed as exhibits to this Annual Report on Form 10-K completely and with the understanding that our actual future results may be materially different from what we expect. These forward-looking statements speak only as of the date of this Annual Report on Form 10-K. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

GENERAL

Unless the context otherwise requires, all references in this Annual Report on Form 10-K to the “Company,” “FGI,” “we,” “us” or “our” refer to FGI Industries Ltd.

SUMMARY OF RISKS ASSOCIATED WITH OUR BUSINESS

Our business is subject to numerous risks, as more fully described in the section titled “Risk Factors” in this Annual Report on Form 10-K. You should read these risks before you invest in our securities. In particular, risks associated with our business include, but are not limited to, the following:

Strategic Risks

| ● | Our BPC organic growth strategy (defined under Item 1 below) is focused on capturing higher incremental gross margins by increasing our share of branded products, expanding into new product categories and creating new sales channels, all of which are impacted by a number of economic factors and other factors.

| ● | Prolonged economic downturns may adversely impact our sales, earnings and liquidity.

| ● | Our ability to grow and compete in the future will be adversely affected if adequate capital is not available to us or not available on terms favorable to us.

| ● | We may not achieve all of the anticipated benefits of our strategic initiatives.

| ● | We may not be able to successfully execute our acquisition strategy or integrate businesses that we acquire.

| ● | We could continue to pursue growth opportunities through either acquisitions, mergers or internally developed projects, which may be unsuccessful or may adversely affect our future financial condition and operating results.

Business and Operational Risks

| ● | We recently began as a stand-alone business and have a limited operating history as a stand-alone business.

| ● | Variability in the cost and availability of our raw materials, component parts and finished goods, including the imposition of tariffs, could affect our results of operations and financial position.

| ● | Our top ten customers represent a large portion of our sales. A significant adverse change in such relationships could adversely impact our results of operations and financial condition.

| ● | We are dependent on third-party suppliers and manufacturers, the loss of which could materially impact our business.

| ● | There are risks associated with our international operations and global strategies.

Competitive Risks

| ● | We could lose market share if we do not maintain our strong brands, develop innovative products or respond to changing purchasing practices and consumer preferences or if our reputation is damaged.

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| ● | Our failure to develop new products or respond to changing consumer preferences and purchasing practices could have a material adverse effect on our business, financial condition or results of operations.

| ● | Changes in Cayman Islands or U.S. tax law could adversely affect our financial condition and results of operations.

Technology and Intellectual Property Risks

| ● | We rely on information systems and technologies, and a breakdown of these systems could adversely affect our results of operations and financial position.

| ● | We may not be able to adequately protect or prevent the unauthorized use of our intellectual property.

| ● | We have been and may continue to be subject to cybersecurity attacks, which could adversely affect our results of operations and financial position.

Litigation and Regulatory Risks

| ● | We are currently involved in legal proceedings and may in the future be a party to additional claims and litigation, which could be costly and divert significant resources.

| ● | Compliance with laws, government regulation and industry standards are costly, and our failure to comply could adversely affect our results of operations and financial position.

| ● | We are subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws, and non-compliance with such laws can subject us to administrative, civil and criminal fines and penalties, collateral consequences, remedial measures and legal expenses, all of which could adversely affect our business, results of operations, financial condition and reputation.

Risks Related to Doing Business in China

| ● | We have operations in, and the majority of our suppliers are located in, China. Our or our suppliers’ ability to operate in China may be impaired by changes in Chinese laws and regulations, including those relating to taxation, environmental regulation, restrictions on foreign investment, and other matters.

| ● | We could be subject to regulation by various political and regulatory entities, including local and municipal agencies and other governmental subdivisions.

| ● | W e could become subject to a variety of laws and other obligations regarding cybersecurity and data protection, and any failure to comply with applicable laws and obligations could have an adverse effect on our business operations in China.

| ● | Changes in China’s economic, political or social conditions or legal system or government policies could have a material adverse effect on our business and operations.

Risks Related to Our Securities

| ● | Foremost Groups Ltd. holds a significant majority of the voting power of our ordinary shares, approximately 72%, and will be able to exert significant control over us.

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PART I

ITEM 1. BUSINESS

Our Company

FGI is a global, diversified and reputable supplier of quality bath and kitchen products. With over thirty years of experience, FGI has become a leading business to business supplier of bath and kitchen products to large retail, wholesale, commercial and specialty channel customers around the globe specializing in the home improvement and R&R (Repair & Remodel) markets. Some of our largest customers include The Home Depot, Menards, Ferguson and Lowe’s. Throughout our history, we have achieved consistent and above-industry sales growth each year by executing on our strategic objectives which include offering well-designed, high-quality products, providing service that surpasses our competition and exceeds our customers’ expectations, and managing an efficient and resilient global supply chain.

Our products are typically designed in-house or are created in conjunction with our customer and supplier partners. The majority of our products are sold under our customers’ private label brands, although we expect to continue increasing the share of our own brands over time. Below is an outline of our general business model:

Both private label and FGI’s brands require significant marketing expenditures which we typically incur or share with our customers. We offer industry-leading brands including Foremost®, avenue, contrac®, Jetcoat®™, rosenberg and Covered Bridge Cabinetry®. These brands have continued to grow and represent an increasing share of our total sales in recent years, while the majority of our products are sold under key customers’ private label brands, such as The Home Depot’s “Glacier Bay” brand and Ferguson’s “ProFlo” brand.

Major Developments in our Business

Initial Public Offering

On January 27, 2022, FGI closed an underwritten public offering of 2.5 million units (the “Units”) (consisting of (i) one ordinary share, par value $0.0001 (the “Ordinary Shares”) and, (ii) one warrant to purchase one Ordinary Share (the “Warrants”)) at a public offering price of $6.00 per unit and received net proceeds, after commissions and expenses, of approximately $12.4 million.

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Reorganization

Prior to our initial public offering, we completed the reorganization (the “Reorganization”) of our parent company, Foremost, and its affiliates, pursuant to which, among other actions, Foremost contributed all of its equity interests in FGI Industries, Inc., FGI Europe and FGI International, each a wholly-owned subsidiary of Foremost, to the newly formed FGI Industries Ltd. Foremost was established in 1987 and has become a global leader in kitchen and bath design, indoor and outdoor furniture, food service equipment, and manufacturing. Our business now operates separately from the rest of Foremost’s business units, and we and Foremost believe that operating as a standalone company will allow FGI to more effectively execute its long-term “BPC” growth strategy while focusing more efficiently on its own capital allocation priorities.

Prior to the Reorganization, FGI Industries, Inc., FGI Europe and FGI International operated as business units within Foremost for over thirty years. Foremost continues to be a significant holder of our ordinary shares and supports FGI via global sourcing and manufacturing arrangements. By leveraging Foremost’s long-standing experience in manufacturing and sourcing for certain of our product categories, we believe that FGI maintains a competitive advantage in supplying products that are of good design and high quality. As a standalone business, FGI is a top-tier company in many key product categories within the North American kitchen and bath products markets, with many additional expansion opportunities via existing and adjacent product, sales and geographic channels.

Our Products

As a result of the increased significance of shower systems in our product portfolio in 2023, the Company has

created a standalone “Shower Systems” product category, as detailed below. The “Other” category continues to comprise our kitchen cabinetry and other smaller offerings. The updates were applied retroactively to impacted product categories. Such changes had no impact on the Company's historical consolidated financial position, results of operations or cash flows.

​

We offer a wide variety of products that fall into four categories: Sanitaryware, Bath Furniture, Shower Systems and Other. Our brand and category makeup of our net sales is as follows:

Sanitaryware. Our Sanitaryware category includes a range of bath products, such as toilets, sinks, pedestals and toilet seats. The majority of these products are sourced from third-party suppliers in China and are sold throughout the

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United States, Canada and Europe. Our main owned brands in this category include Foremost®, which is retail-focused, and contrac®, which is wholesale-focused.

Bath Furniture. Our Bath Furniture category primarily includes wood and wood-substitute furniture for bathrooms, including vanities, mirrors, laundry and medicine cabinets and other storage systems. The majority of these products are sourced from Southeast Asia and China and are sold principally in the United States and Canada. We typically sell our bath furniture products under the Foremost brand.

Shower Systems. Our Shower Systems category includes a range of shower-related products such as shower walls, shower doors and shower basins. The majority of these products are sourced from third-party suppliers in China and are sold throughout the United States and Canada. These products are typically sold as private label or under our Craft + Main and Jetcoat brands.

Other. Our Other category includes several smaller categories, most prominently custom kitchen cabinetry brand under our “Covered Bridge Cabinetry” and “Craft + Main Cabinetry” (formerly “Kitchens by Foremost”) lines of products. Our custom kitchen lines represent some of the highest margin, highest quality products that we sell, and are sold primarily through local kitchen and bath dealerships while involving a heavy marketing element with contractors and designers. While custom kitchen cabinetry currently represents less than 3% of our total sales, it is an area where we see significant long term organic growth, gross margin expansion and consolidation possibilities. The majority of our custom kitchen cabinetry and shower products are sourced from Southeast Asia.

In each category, we sell branded and private label products at various price points to attract a wide base of customers and ultimate consumers. We position our products in a “good, better, best” market position, with a variety of price points to address the varying needs of our customer base. However, we typically eschew selling low, or “opening” price point items, and focus primarily on the mid-to-upper price point product categories. We continue to see opportunities to introduce new product categories. Some of our recent product introductions that we expect to drive material sales growth include our Jetcoat-branded shower systems and intelligent (electronic) toilets.

Our Industry

The core bath and kitchen product markets in which we operate principally cater to the R&R markets, consisting of fragmented suppliers and a diffuse network of retailers, wholesalers and independent dealer networks on both national and regional levels. While our sales are principally impacted by the growth of the R&R markets, we are selectively focusing on newbuild markets as well.

According to the National Kitchen and Bath Association, the projected consumer spend for the U.S. bath and kitchen markets is estimated to be approximately $173 billion in 2024, of which approximately half is in product categories that we currently operate within. Outside of extreme recession years in the United States, such as 2007-2009, the R&R markets have experienced consistent 3% to 5% annual growth rates for more than 25 years, providing a predictable and recurring revenue model for the majority of our product lines. The primary drivers of such consistent and above-GDP growth rates are the pace of household formation, home price appreciation, strong housing turnover and the continued aging of the U.S. housing stock in our primary geographic markets.

Our Growth Strategy

Combining our well-developed global business platform with our relatively small revenue base, our aim is to achieve mid-to-high single-digit organic revenue growth rates over the long term. In order to achieve these growth objectives, we pursue a “BPC” growth strategy, focused on Brands, Products and Channels:

| ● | Brands: Branded products typically come with higher gross margins and significantly reinforce our long-term competitive positioning within our product markets. We plan to continue to focus on building our branded-product footprint over the long term while increasing the share of brands as a percentage of our total sales.

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| ● | Products: We have significant “whitespace” opportunities in several product categories within our core kitchen and bath markets. As an example, we believe we are currently significantly under- penetrated in categories such as bath and kitchen fixtures, “behind the wall” plumbing, and acrylic products such as bathtubs. With significant investment opportunities in new materials, sourcing, leading product design and superior customer service, we have vast product expansion opportunities in relation to our relatively small share of the overall market.

| ● | Channels: We feel that we have strong growth potential in key sales channels, including our existing customers, new e-commerce retailers (such as Wayfair) and commercial sales channels (local kitchen and bath product distributors). We believe we have untapped potential in markets outside of the United States, and while we have made significant headway in Canada and Germany in recent years, we believe we have many more growth and expansion opportunities in those two countries as well as other international markets.

In addition, we continue to evaluate opportunities to pursue selective “bolt-on” acquisitions of smaller companies that complement our core competencies in an effort to increase our scale and profitability, as well as to broaden our product offerings, capabilities and resources. We are also seeking strategic partnerships within the United States and internationally with the goal of strengthening the sources of our product supply. Our key criteria for potential acquisitions include looking for well-run organizations (not turnarounds), opportunities that offer tangible synergies within our core kitchen and bath markets, and investments that meet our stringent return on capital criteria.

Our Customers

We serve a large and global customer base that covers five main categories of businesses: mass retailers, wholesalers, commercial, e-commerce channels and independent distributors. As we grow our own brands, we will increasingly focus our investments on creating end-consumer mindshare and awareness, helping to grow sales through our main customer categories.

Mass Retailers

Our products are primarily used by do-it-yourself homeowners, contractors, builders and remodelers for R&R projects. In North America, products for such projects are predominantly purchased through mass retail home centers such as The Home Depot, Lowe’s and Menard’s. Due to the market presence, store network and customer reach of these large home centers, we have developed decades-long relationships with our key retailer partners to distribute our products. Approximately 34% of our net sales in 2023 were to large retailers.

Wholesalers

Our products are sold through some of the largest bath and kitchen product wholesalers in North America including Ferguson, HD Supply (owned by The Home Depot) and Orgill. The large wholesalers are similar in scale to many of our large retail partners, catering to national and local networks of professional contractors, plumbers, property developers and other significant “influencers” within the residential and non- residential construction markets.

In 2023, approximately 34% of our net sales were to our wholesale partners.

Commercial

Our products are sold through numerous smaller-scale local distribution companies which in turn cater to professional plumbers, contractors and property developers. In Canada, we are a leading supplier to market leaders such as Yorkwest Plumbing, and have developed a strong presence in other commercial sales channels as well. Our numerous relationships tend to be quite stable and strong, built on years of mutual trust and understanding among tightly-knit groups of local professionals. We see an enormous market potential in the Commercial channel and are continuously evaluating additional opportunities for market penetration.

In 2023, approximately 13% of our net sales were to our commercial partners.

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E-Commerce

We sell a growing number of our products through the e-commerce channels of our retail partners as well as “e-commerce only” retailers such as Build.com and Wayfair.com, both of which are rapidly increasing market penetration in the home R&R space. Our sales through e-commerce channels and retailers represented about 12% of our net sales in 2023 up from less than 2% in 2010.

Independent Dealers & Distributors

We have historically sold our products through independent (or “mom and pop”) bath and kitchen product specialists. Independent dealers and distributors represented 7% of our net sales in 2023.

Raw Materials, Suppliers and Manufacturing

Many of our sanitaryware products contain ceramics, the major components of which are clay and enamel. Other primary raw materials used in our bath furniture, kitchen cabinetry and shower products include hard maple, oak, cherry and beech lumber and plywood as well as paint, particleboard, medium density fiberboard, high density fiberboard, glass, aluminum, manufactured components and hardware. We have more than one source for these and other raw materials and generally believe them to be readily available. For many of our products, our third-party suppliers have standardized raw material inputs and a number of production processes, which reduces the logistical manufacturing specifications and allows for greater economies of scale in sourcing these inputs.

The majority of our products are outsourced from Foremost-owned manufacturing facilities and several third-party manufacturers, all primarily based in China and parts of Southeast Asia. We own one facility in Southeast Asia to support our custom kitchen cabinetry programs. We have entered into long-term sourcing agreements with Foremost to secure continued use of their facilities. We generally utilize six to seven factories located in China and parts of Southeast Asia. We have long-term agreements in place with the suppliers of our sanitaryware products for terms ranging from one year, renewable, to perpetuity. The geographic distances involved in these arrangements, together with the differences in business practices, shipping and delivery requirements, and laws and regulations add complexity to our supply chain logistics and increase the potential for interruptions in our production scheduling. In addition, prices and availability of these components may be affected by world market conditions and government policies and tariffs.

Tangshan Huida Ceramic Group Co., Ltd (“Huida”) supplies the majority of our sanitaryware products. Huida accounted for approximately 71.4% of the total balance of our accounts payable as of December 31, 2023. No other supplier accounts for more than 10% of our accounts payable as of December 31, 2023.

We regularly evaluate our organizational productivity and supply chains and seek opportunities to reduce costs and enhance quality. We strive to improve quality, speed and flexibility to meet changing and uncertain market conditions, as well as manage cost inflation, including wages and employee medical costs.

FGI and its subsidiaries are party to two shared services agreements with Foremost Groups Ltd., our largest shareholder, or its subsidiaries, pursuant to which the parties provide certain general and administrative services to one another in certain geographies.

Competition

We operate in a highly fragmented industry that is composed of numerous local, regional and national manufacturers. Most of our competitors compete on a local or regional basis, but others, like us, compete on a national basis as well. Our competitors include large national and international brands such as American Standard, Kohler, Masco (Delta), Mansfield, Gerber, Niagara, Ove Decors and Woodcrafters, as well as numerous OEM suppliers and other smaller brands. Due to the highly-differentiated nature of our product categories and the scarcity of industry data, there is little reliable information on precise market shares for our product categories.

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We believe that brand reputation is an important factor in consumer selection, and that competition in this industry is also based largely on product features and innovation, product quality, customer service, breadth of product offerings and price. Our principal means for competition are our breadth and variety of product offerings, expanded service capabilities, geographic reach, competitive price points for our products and affordable quality.

In general, our Sanitaryware product categories tend to be more consolidated and we compete primarily with a small group of large suppliers with a global footprint in any specific product line, including American Standard, Kohler, Toto, Masco (Delta), Mansfield, Gerger and Niagara, and on occasion with numerous regional suppliers. For our Bath Furniture and Other product categories, we compete with dozens of regional suppliers in any given product line, although we believe that relatively few can compete with us on a truly national scale, particularly with regards to our mass retail channels.

Our Competitive Strengths

Trusted by Customers Around the World

The core markets in which we operate tend to be conservative, with an emphasis on stable and durable relationships. FGI is a top-tier supplier of many key North American bath- and kitchen-related product categories. With support from Foremost, we are one of a select number of large market participants with national and international manufacturing and distribution capabilities. Our supply chain network, operating footprint and long-standing customer relationships provide us an ability to service our retail, wholesale and commercial channel customers worldwide and offer a broad set of products to serve our customers across a variety of price points. We believe the scale and breadth of our operations differentiate us and result in a competitive advantage that allows us to provide well-designed, high-quality products with price points and service that exceed our competitors’ offerings and our customers’ expectations.

Deep Relationships with Leading Suppliers

In the markets in which we operate, production and supply chain quality and stability are crucial to success. Our industry is fundamentally stable and conservative, with high barriers for potential new entrants. We have built strong and stable relationships with a base of long-standing suppliers across the globe, all of whom maintain stringent manufacturing standards. We believe our customers value our decades-long experience in the industry and international footprint, which allows us to meet demanding logistics and performance criteria. At the same time, our third-party manufacturing suppliers are reliant on our stable and growing platform in order to effectively utilize their own fixed-asset investments. The importance of these strengths has been highlighted during the outbreak and ongoing spread of the novel coronavirus (“COVID-19”) pandemic, as we believe that we have remained among the most consistent and reliable suppliers in our industry despite the unprecedented challenges which were presented.

Stable Technological and Industry Dynamics

Our core bath and kitchen product markets are generally less prone to fast-paced technological innovation or “fast fashion” consumer trends. We believe this is largely due to the core functionalities of the products we offer, which have tended to evolve gradually over decades, rather than in a few years (or even months, as with certain industries). As a result, we have confidence in our ability to execute our long-term growth plans, while allocating our capital in a patient and thoughtful manner, with relatively high and predictable rates of return.

Commercial and Regulatory Barriers to Entry

The kitchen and bath markets operate under a myriad of international, national, federal, provincial and local codes. This is particularly the case as much of the product markets on which we focus are ultimately related to water and the prevention of water leakage and damage. On a fundamental level, our kitchen and bath products need to pass heavy quality control and regulatory standards, making it difficult for potential new entrants.

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Experienced Management Team

We have assembled an executive team with a deep base of management experience within industrial manufacturing companies. David Bruce, our Chief Executive Officer, Bob Kermelewicz, our Executive Vice President, United States, Jennifer Earl, our Executive Vice President, Canada and Norman Kroenke, our Executive Vice President, Europe each have over twenty years of industry experience. Our Executive Chairman John Chen has more than twelve years of investment management and financial experience. Our team has identified and begun to execute on opportunities for operational improvement, growth and business expansion as a standalone company.

Significant ownership and support from Foremost

Foremost is a family-controlled and privately held holding company. As an approximate 72% owner of FGI’s ordinary shares, Foremost remains committed to supporting FGI’s strategic development and growth plans. For over 30 years, Foremost has built an industry-leading reputation as a reliable manufacturer and supply source for numerous wood and ceramic-based products which form the foundation of many FGI product categories. As a standalone company, FGI continues to benefit from Foremost’s long-standing experience in global manufacturing and sourcing, providing a solid foundation from which to pursue alternate sources of supply for our key product categories as we see fit.

Intellectual Property

We sell many of our products under a number of registered and unregistered trademarks, which we believe are widely recognized in our industry. FGI maintains a significant portfolio of trademarks and copyrights, most notably under our avenue, contrac®, rosenberg and Covered Bridge Cabinetry® brands. We have also acquired rights to the Foremost® brand from Foremost with regards to any Foremost branded products that we continue to sell. We rely on trade secrets and confidentiality agreements to develop and maintain our competitive position.

Environmental Matters and Regulatory Matters

Our operations are subject to national, state and local environmental laws and regulations relating to, among other things, the generation, storage, handling, emission, transportation and discharge of regulated materials into the environment. Permits are required for certain of our operations, and these permits are subject to revocation, modification and renewal by issuing authorities. Governmental authorities have the power to enforce compliance with their regulations, and violations may result in the payment of fines or the entry of injunctions, or both. We may also incur liability for investigation and clean-up of soil or groundwater contamination on or emanating from current or formerly owned and operated properties, or at offsite locations at which regulated materials are located where we are identified as a responsible party. Discovery of currently unknown conditions could require responses that could result in significant costs. We monitor applicable laws and regulations and incur ongoing expense relating to compliance, however we do not expect that compliance with federal, state, local and foreign regulations, will result in material capital expenditures or have a material adverse effect on our results of operations and financial position.

We believe that responsibility does not stop at national borders, which is why FGI is working to protect and sustain our global environment. By designing products that meet Environmental Protection Agency (“EPA”) standards, like our Water Sense qualifying toilets that provide high efficiency waste removal while using 20% less water with every flush, FGI is using innovative engineering to make the most of our resources.

Our bath furniture use California Air Resource Board (“CARB”) Phase II compliant wood products which limit urea-formaldehyde emissions into the environment. We only use wood products from managed forest resources to discourage clear-cut logging and the depletion of global rainforests. We encourage customers to order products using material that is Forest Stewardship Council (“FSC”) certified, ensuring the responsible use of our forest resources and equitable treatment of indigenous people of producing regions.

Environmental responsibility is everyone’s task at FGI, to ensure that we as a company protect our employees, our customers and our planet for this generation and the ones that follow.

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Seasonality

Our business has been subject to seasonal influences, with higher sales typically realized during the second and third calendar quarters, corresponding with the peak season for R&R activity. The costs of our products are subject to inflationary pressures and commodity price fluctuations. We have generally been able over time to recover the effects of inflation, commodity price and currency fluctuations through sales price increases.

Human Capital

As of December 31, 2023, we employed approximately 287 employees, all of which are full-time, with no employees covered by collective bargaining agreements. We believe that our employee relations are good.

We believe that the performance of our company is impacted by our human capital management, and as a result we consistently work to attract, select, develop, engage and retain strong, diverse talent. We are focused on three key strategic talent priorities: leadership, diversity, equity and inclusion, and our future workforce. Our Human Resources Department is responsible for developing and executing our human capital strategy and provides regular updates to our Board of Directors’ Organization and Compensation Committee on our progress toward the achievement of our strategic initiatives. We believe that all of our human capital initiatives work together to assure we have an environment where our employees are engaged, feel a sense of belonging, and can reach their full potential.

The safety of our employees is integral to our company. In support of our safety efforts, we identify, assess and investigate incidents and injury data, and each year set goals to improve key safety performance indicators. We train, promote, consult and communicate with our workforce in this process. In 2020, the COVID-19 pandemic highlighted the importance of employee welfare. We reacted quickly to keep our employees safe through the implementation of policies and safety measures that adhered to best practices from the World Health Organization and the Centers for Disease Control. Despite the ongoing COVID-19 pandemic, we did not experience a material change to our daily operations as we quickly adjusted employee work schedules in alignment with the exigencies of both the pandemic and our business requirements.

Corporate History and Information

We were incorporated in the Cayman Islands on May 26, 2021 in connection with a reorganization (the “Reorganization”) of our parent company, Foremost, and its affiliates, pursuant to which, among other actions, Foremost contributed all of its equity interests in FGI Industries, Inc. (“FGI USA”), FGI Europe Investment Limited, a British Virgin Islands entity (“FGI Europe”), and FGI International Limited, a Hong Kong entity (“FGI International”), each a wholly-owned subsidiary of Foremost, to the newly formed FGI Industries Ltd. Foremost was established in 1987 and has become a global leader in kitchen and bath design, indoor and outdoor furniture, food service equipment, and manufacturing. As Foremost has grown, our business has come to operate separately from the rest of Foremost’s business units.

Prior to the Reorganization, FGI Industries, Inc., FGI Europe and FGI International operated as business units within Foremost for over thirty years. Foremost continues to be a significant holder of our ordinary shares and supports FGI via global sourcing and manufacturing arrangements. By leveraging Foremost’s long-standing experience in manufacturing and sourcing for certain of our product categories, we believe that FGI maintains a competitive advantage in supplying products that are of good design and high quality. As a standalone business, FGI is a top-tier company in many key product categories within the North American kitchen and bath products markets, with many additional expansion opportunities via existing and adjacent product, sales and geographic channels.

Our principal executive offices are located at 906 Murray Road, East Hanover, NJ 07936, and our telephone number is (973) 428-0400. Our website address is www.fgi-industries.com. The information contained on, or accessible through, our website is not incorporated by reference into this Annual Report on Form 10-K, and you should not consider any information contained in, or that can be accessed through, our website as part of this Annual Report on Form 10-K.

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We are a Cayman Islands exempted company. Exempted companies are Cayman Islands companies conducting business mainly outside the Cayman Islands and, as such, are exempted from complying with certain provisions of the Companies Act (2022 Revision) of the Cayman Islands (the “Companies Act”) as the same may be amended from time to time. As an exempted company, we may apply for a tax exemption undertaking from the Cayman Islands government that, in accordance with Section 6 of the Tax Concessions Act (2018 Revision) of the Cayman Islands, for a period of 30 years from the date of the undertaking, no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciations will apply to us or our operations and, in addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax will be payable (i) on or in respect of our shares, debentures or other obligations or (ii) by way of the withholding in whole or in part of a payment of dividend or other distribution of income or capital by us to our shareholders or a payment of principal or interest or other sums due under a debenture or other obligation of us.

Because Foremost holds approximately 72% of the voting power of our ordinary shares, we are considered a “controlled company” under the corporate governance rules of Nasdaq. However, we do not currently rely upon the “controlled company” exemptions.

Available Information

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other filings with the United States Securities and Exchange Commission, or the SEC, and all amendments to these filings, are available, free of charge, on our website at www.fgi-industries.com as soon as reasonably practicable following our filing of any of these reports with the SEC. You can also obtain copies free of charge by contacting our Investor Relations department at our office address listed above. The SEC also maintains a website that contains all the materials we file with, or furnish to, the SEC. Its website is www.sec.gov.

The contents of our website are not incorporated by reference into this Annual Report on Form 10-K or any other document we file with the SEC, and any reference to our website is intended to be an inactive textual reference only.

ITEM 1A.RISK FACTORS

Our business is subject to numerous risks. You should carefully consider the following risks and all other information contained in this Annual Report, as well as general economic and business risks, together with any other documents we file with the SEC. If any of the following events actually occur or risks actually materialize, it could have a material adverse effect on our business, operating results and financial condition and cause the trading price of our ordinary shares to decline.

INDEX TO RISK FACTORS

Strategic Risks | 3
Business and Operational Risks | 3
Risks Related to Doing Business in China | 4
Competitive Risks | 23
Technology and Intellectual Property Risks | 24
Litigation and Regulatory Risks | 25
Risks Related to Our Securities | 28
General Risk Factors | 31

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Strategic Risks

Our BPC organic growth strategy is focused on capturing higher incremental gross margins by increasing our share of branded products, expanding into new product categories and creating new sales channels, all of which are impacted by a number of economic factors and other factors.

Our business relies on residential repair and remodel (“R&R”) activity and, to a lesser extent, on new home and commercial construction activity. A number of factors impact consumers’ spending on home improvement projects as well as new home construction activity, including:

| ● | consumer confidence levels;

| ● | fluctuations in home prices;

| ● | existing home sales;

| ● | inflationary pressures and interest rates;

| ● | unemployment and underemployment levels;

| ● | consumer income and debt levels;

| ● | household formation;

| ● | the availability of skilled tradespeople for R&R work;

| ● | the availability of home equity loans and mortgages and the interest rates for and tax deductibility of such loans;

| ● | trends in lifestyle and housing design; and

| ● | natural disasters, terrorist acts, pandemics, wars or conflicts or other catastrophic events.

The fundamentals driving our business are impacted by economic cycles, and we have been negatively impacted by recent supply chain disruptions, rising interest rates and inflationary pressures. Adverse changes or uncertainty involving the factors listed above or an economic contraction in the United States and worldwide could result in a decline in spending on residential R&R activity and a decline in demand for new home construction and could adversely impact our businesses by: causing consumers to delay or decrease homeownership; making consumers more price conscious resulting in a shift in demand to smaller, less expensive homes; making consumers more reluctant to make investments in their existing homes, including large kitchen and bath R&R projects; or making it more difficult or expensive to secure loans for major renovations, which could have a material adverse effect on our results of operations and financial position.

Prolonged economic downturns may adversely impact our sales, earnings and liquidity.

Our industry can fluctuate with economic cycles. During economic downturns, our industry could experience longer periods of recession and greater declines than the general economy. We believe that our industry, particularly North American home improvement, R&R and new home construction activity, is significantly influenced particularly by housing activity, consumer confidence, the level of personal discretionary spending, demographics, credit availability, inflation and interest rates and other business conditions. Recently, higher interest rates, inflation and general tightening of credit availability have affected these markets. These factors may affect not only the ultimate consumer of our products, but also may impact home centers, builders and our other primary customers. As a result, a worsening of economic conditions, could have a material adverse effect on our sales and earnings as well as our cash flow and liquidity.

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Our ability to grow and compete in the future will be adversely affected if adequate capital is not available to us or not available on terms favorable to us.

The ability of our business to grow and compete depends on the availability of adequate capital, which in turn depends in large part on our cash flow from operations and the availability of equity and debt financing. Furthermore, our existing indebtedness, which was approximately $7.0 million as of December 31, 2023, may adversely affect our financial flexibility and our competitive position in the future. We cannot assure you that our cash flow from operations will be sufficient or that we will be able to obtain equity or debt financing on acceptable terms to implement our “BPC” growth strategy. We may need additional cash resources in the future if we experience changed business conditions or other developments 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. As a result, we cannot assure you that adequate capital will be available to finance our current growth plans, take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our results of operations and financial position.

We may not achieve all of the anticipated benefits of our strategic initiatives.

We continue to pursue our strategic initiatives of investing in our branded products, developing new product categories, and utilizing sales channels positioned for long term growth through the “BPC” strategy, our methodology to drive growth and productivity. These initiatives are designed to grow shareholder value over the long term. Our results of operations and financial position could be materially and adversely affected if we are unable to successfully execute these initiatives or if we are unable to execute these initiatives in a timely and efficient manner. We could also be adversely affected if we have not appropriately prioritized and balanced our initiatives or if we are unable to effectively manage change throughout our organization.

We may not be able to successfully execute our acquisition strategy or integrate businesses that we acquire.

Pursuing the acquisition of businesses complementary to our portfolio is a component of our strategy for future growth. If we are not able to identify suitable acquisition candidates or consummate potential acquisitions within a desired time frame or with acceptable terms and prices, our long-term competitive positioning may be affected. Even if we are successful in acquiring and/or merging with businesses, the businesses we acquire or merge with may not be able to achieve the revenue, profitability or growth we anticipate, or we may experience challenges and risks in integrating these businesses into our existing business. Such risks include:

| ● | difficulties realizing expected synergies and economies of scale;

| ● | diversion of management attention and our resources;

| ● | unforeseen liabilities;

| ● | issues or conflicts with our new or existing customers or suppliers; and

| ● | difficulties in retaining critical employees of the acquired businesses.

Future foreign acquisitions may also increase our exposure to foreign currency risks and risks associated with interpretation and enforcement of foreign regulations. Our failure to address these risks could cause us to incur additional costs and fail to realize the anticipated benefits of our acquisitions and could have a material adverse effect on our results of operations and financial position.

We could continue to pursue growth opportunities through either acquisitions, mergers or internally developed projects, which may be unsuccessful or may adversely affect our future financial condition and operating results.

Although we are not currently considering any specific business combinations, we could pursue opportunities for growth through either acquisitions, mergers or internally developed projects as part of our “BPC” growth strategy. We cannot assure you that we will be successful in integrating an acquired business or that an internally developed project

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will perform at the levels we anticipate. We may pay for future acquisitions using cash, stock, the assumption of debt, or a combination of these. Future acquisitions could result in dilution to existing shareholders and to earnings per share. In addition, we may fail to identify significant liabilities or risks associated with a given acquisition that could adversely affect our future financial condition and operating results or result in us paying more for the acquired business or assets than they are worth.

Business and Operational Risks

We recently began as a stand-alone business and have a limited operating history as a stand-alone business.

The historical financial information we have included does not reflect, and the pro forma financial information included may not reflect, what our financial condition, results of operations or cash flows would have been had we been a stand-alone entity during the historical periods presented, or what our financial condition, results of operations or cash flows will be in the future as an independent entity.

In addition, we have not made pro forma adjustments to reflect many significant changes that will occur in our cost structure, funding and operations as a result of our transition to becoming a public company, including changes in our employee base, potential increased costs associated with reduced economies of scale and increased costs associated with being a publicly traded, stand-alone company.

Variability in the cost and availability of our raw materials, component parts and finished goods, including the imposition of tariffs, could affect our results of operations and financial position.

We purchase substantial amounts of raw materials, component parts and finished goods from outside sources, including international sources, and our products are manufactured outside of the United States. Increases in the cost of the materials we purchase have in the past and may in the future increase the prices for our products, including as a result of new tariffs. There is a risk that additional tariffs on imports from China or new tariffs could be imposed, which could further increase the cost of the materials we purchase or import or the products we manufacture internationally. Further, our production could be affected if we or our suppliers are unable to procure our requirements for various commodities, including, among others, brass, porcelain, wood and engineered wood, or if a shortage of these commodities results in significantly increased costs. Rising energy costs could also increase our production and transportation costs. These factors could have a material adverse effect on our results of operations and financial position.

It can be difficult for us to pass on to customers our cost increases. Our existing arrangements with customers, competitive considerations and customer resistance to price increases may delay or make us unable to adjust selling prices. If we are not able to sufficiently increase the prices of our products or achieve cost savings to offset increased material and production costs, including the impact of increasing tariffs, our results of operations and financial position could be adversely affected. When our material costs decline, we may in the future receive pressure from our customers to reduce our prices. Such reductions could have a material adverse effect on our results of operations and financial position.

We have entered into long-term agreements with certain significant suppliers to help ensure continued availability of our manufactured product supply and to establish firm pricing, but at times these contractual commitments may result in our paying above market prices for manufactured products during the term of the contract.

Our top ten customers represent a large portion of our sales. A significant adverse change in such relationships could adversely impact our results of operations and financial condition.

Our sales are concentrated with ten significant customers who collectively represented over 72% and 76% of our consolidated net sales for 2023 and 2022, respectively, and this concentration may continue to increase. In particular, The Home Depot represented approximately 18% and 22% of our consolidated net sales in 2023 and 2022, respectively. The Home Depot and other home center retailers can significantly affect the prices we receive for our products and the terms and conditions on which we do business with them. Additionally, these home center retailers may reduce the number of vendors from which they purchase and could make significant changes in their volume of purchases from us.

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The loss of one or more key customers, a material reduction in products purchased by them, or our inability to maintain our competitive position in our industries could cause us to experience a decline in net sales, which could adversely affect our results of operations and financial position. In addition, there can be no assurance that such customers will not experience financial difficulties or other adverse conditions which could delay such customers in paying for products on a timely basis or at all. Although other retailers, dealers, distributors and homebuilders represent other channels of distribution for our products and services, we might not be able to quickly replace, if at all, the loss of all or a substantial portion of our sales, and any such loss would have a material adverse effect on our business, results of operations and financial position.

​

We are dependent on a few key third-party suppliers.

We are dependent on third-party suppliers for many of our products and components, and are largely dependent on one large supplier, Tangshan Huida Ceramic Group Co., Ltd, an entity formed and located in China (“Huida”), who accounted for and approximately 71% and 86% of the total balance of our accounts payable as of December 31, 2023 and 2022, respectively, for the majority of our sanitaryware products, and our ability to offer a wide variety of products depends on our ability to obtain an adequate and timely supply of these products and components.

Failure of our suppliers and, particularly, of Huida, to timely provide us quality products on commercially reasonable terms, or to comply with applicable legal and regulatory requirements, or our policies regarding our supplier business practices, could have a material adverse effect on our results of operations and financial position or could damage our reputation. Sourcing these products and components from alternate suppliers, including suppliers from new geographic regions, is time-consuming and costly and could result in inefficiencies or delays in our business operations. Accordingly, the loss of Huida or other critical suppliers, or a substantial decrease in the availability of products or components from our suppliers, could disrupt our business and have a material adverse effect on our results of operations and financial position.

We previously had an agreement with Huida pursuant to which we had an exclusive right to distribute and resell in the United States and Canadian markets any products designed and created by Huida and Huida was not permitted to manufacture or sell any products we designed or created, for which we retained all intellectual property rights, without our prior consent. This agreement was ended in 2022, but Huida remains a key supplier and we believe we maintain a good business relationship. However, it is possible that, in the future, Huida may seek to sell directly into markets in which we operate, which may affect our supplier relationship or negatively impact our sales in such markets.

Additionally, many of the suppliers we rely upon are located in foreign countries, primarily China. The differences in business practices, shipping and delivery requirements, changes in economic conditions and trade policies and laws and regulations, together with the limited number of suppliers, have increased the complexity of our supply chain logistics and the potential for interruptions in our production scheduling. If we are unable to effectively manage our supply chain or if we experience constraints to or disruption in transporting the products or components or we have to pay higher transportation costs for timely delivery of our products or components, our results of operations and financial position could be materially and adversely affected. See “— Risks Related to Doing Business In China” below.

We are dependent on third-party manufacturers.

We are reliant upon Foremost, our former parent company, and other third-party manufacturers to supply the majority of our products. Failure of our manufacturers to timely deliver quality products on commercially reasonable terms, or to comply with applicable legal and regulatory requirements, or our policies regarding our manufacturer business practices, could have a material adverse effect on our results of operations and financial position or could damage our reputation. In addition, we may experience delays, disruptions or quality control problems in our manufacturing operations, over which we have little to no control.

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Natural disasters or other disruptions could have a material adverse effect on our business, financial condition or results of operations.

Our manufacturers and suppliers are located in regions that are vulnerable to natural disasters and other risks, such as earthquakes, fires, floods, tropical storms, hurricanes and snow and ice, which at times have disrupted the local economy and posed risks to our supply chain. In addition, the continued threat of terrorism and heightened security and military action in response to this threat, or any future acts of terrorism, may cause further disruptions to the economies of the United States and other countries. Our redundant, multiple site capacity may not be sufficient in the event of a natural disaster, terrorist act or other catastrophic event. Such disruptions could, among other things, disrupt our manufacturing or distribution facilities or those of our suppliers and result in delays or cancellations of customer orders for our products, which in turn could have a material adverse effect on our business, financial condition and results of operations. Further, if a natural disaster occurs in a region from which we derive a significant portion of our revenue, end-user customers in that region may delay or forego purchases of our products, which may materially and adversely impact our operating results for a particular period.

There are risks associated with our international operations and global strategies.

In each of 2023 and 2022, approximately 36% and 36%, respectively of our sales were made outside of the United States (principally in Canada and Europe) and transacted in currencies other than the U.S. dollar. In addition to our Canadian and European operations, we manufacture products and source products and components from China and parts of Southeast Asia. Risks associated with our international operations include:

| ● | differences in culture, economic and labor conditions and practices;

| ● | the policies of the U.S. and foreign governments;

| ● | disruptions in trade relations and economic instability;

| ● | differences in enforcement of contract and intellectual property rights;

| ● | social and political unrest; and

| ● | natural disasters, terrorist attacks, pandemics or other catastrophic events.

We are also affected by domestic and international laws and regulations applicable to companies doing business abroad or importing and exporting goods and materials. These include tax laws, laws regulating competition, anti-bribery/anti-corruption and other business practices, and trade regulations, including duties and tariffs. Compliance with these laws is costly, and future changes to these laws may require significant management attention and disrupt our operations. Additionally, while it is difficult to assess what changes may occur and the relative effect on our international tax structure, significant changes in how U.S. and foreign jurisdictions tax cross-border transactions could materially and adversely affect our results of operations and financial position. For specific risks associated with operations in China, see “— Risks Related to Doing Business in China” below.

The international scope of our business exposes us to risks associated with foreign exchange rates.

We report our financial results in U.S. dollars. However, a significant portion of our revenues, expenses, assets, indebtedness and other liabilities are denominated in foreign currencies, particularly the Euro, the Chinese Renminbi and the Canadian dollar. Fluctuations in currency exchange rates, including as a result of inflation, central bank monetary policies, currency controls or other currency exchange restrictions have had, and could continue to have, an adverse impact on our financial performance. We may seek to mitigate the risk of such impacts through hedging, but such hedging activities may be costly and may not be effective. In addition, emerging market economies in which we operate may be particularly vulnerable to the impact of rising interest rates, inflationary pressures, weaker oil and other commodity prices, and large external deficits. Risks in one country can limit our opportunities for portfolio growth and negatively affect our operations in another country or countries. Such conditions or developments could have an adverse impact on our operations. In addition, we may be exposed to credit risks in some of those markets.

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Global or regional unrest, conflict, geopolitical disputes or catastrophic events could affect our operations and results of operations.

Our business can be affected by war, large-scale terrorist or other hostile acts, especially those directed against the United States or other major industrialized countries in which we do business or supply products, major natural disasters, long-term periods of drought, or widespread outbreaks of infectious diseases. Such events could impair our ability to manage our business, could disrupt our supply of raw materials, and could affect production, transportation and delivery of products. For example, the U.S.-China trade relations remain uncertain, and if tensions continue to worsen, we may our supply chain, production and delivery of products could be negatively impacted. Further, regional conflicts, such as the Ukraine-Russia and Israel-Hamas conflicts, could escalate and expand, which in turn could have negative impacts on our operations, the global economy and financial markets. Such disruptions of regional or global economic activity can affect consumers’ purchasing power in the affected areas and, therefore, reduce demand for our products.

The long-term performance of our businesses relies on our ability to attract, develop and retain talented and diverse personnel.

To be successful, we must invest significant resources to attract, develop and retain highly qualified, talented and diverse employees at all levels, who have the experience, knowledge and expertise to implement our strategic initiatives. We compete for employees with a broad range of employers in many different industries, including large multinational firms, and we may fail in recruiting, developing, motivating and retaining them, particularly when there are low unemployment levels. From time to time, we have been affected by a shortage of qualified personnel in certain geographic areas. Our growth, competitive position and results of operations and financial position could be materially and adversely affected by our failure to attract, develop and retain key employees and diverse talent, to build strong leadership teams, or to develop effective succession planning to assure smooth transitions of those employees and the knowledge and expertise they possess, or by a shortage of qualified employees.

Failure to effectively monitor and respond to environmental, social and governance (“ESG”) matters, including our ability to set and meet reasonable goals related to climate change and sustainability efforts, may negatively affect our business and operations.

Regulatory developments and stakeholder expectations relating to ESG matters are rapidly changing. Concern over climate change has increased focus on the sustainability of practices and products in the markets we serve, and changes to laws and regulations regarding climate change mitigation may result in increased costs and disruption to operations. Moreover, the standards by which ESG matters are measured are developing and evolving, and certain areas are subject to assumptions that could change over time. If we are unable to recognize and respond to such developments, or if our existing practices and procedures are not adequate to meet new regulatory requirements, we may miss corporate opportunities, become subject to regulatory scrutiny or third-party claims, or incur costs to revise operations to meet new standards.

The outbreak of contagious diseases, such as the COVID-19 pandemic, could disrupt our business and impact our results of operations and financial condition.

Our business could be adversely affected by the effects of a widespread outbreak of contagious diseases, similar to COVID-19, which impacted global, national and local economies, created a number of macroeconomic challenges that impacted our business, including volatility and uncertainty in business planning, disruptions in global supply chains, material, freight and labor inflation, shortages of and delays in obtaining certain materials and labor shortages.

The extent of the impact of a pandemic similar to the COVID-19 pandemic on our business and financial results will depend on numerous evolving factors that we are not able to accurately predict and that all will vary by market, including the duration and scope of the pandemic, the emergence of new variants of the virus and the efficacy of vaccines against such variants, global economic conditions during and after the pandemic, including disruptions in the global supply chain, inflation and labor shortages, government actions that may be taken in the future, in response to the pandemic, and changes in customer behavior in response to the pandemic, some of which may be more than just temporary.

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Risks Related to Doing Business in China

We have limited operations in China, but many of our products are sourced from China. Our ability or the ability of our suppliers to operate in China may be impaired by changes in Chinese laws and regulations, including those relating to taxation, environmental regulation, restrictions on foreign investment, and other matters.

While we are a Cayman Islands exempted company headquartered in the United States and derive no revenue from China, we do have limited sourcing and product development operations in China. As of the date of this report, approximately 27 of our 287 employees are based in China. Moreover, suppliers of a majority of our product materials are based in China.

The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. The central Chinese government or local governments having jurisdiction within China may impose new, stricter regulations, or interpretations of existing regulations, that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. As such, our subsidiaries or our third-party suppliers in the People’s Republic of China (PRC) maybe subject to governmental and regulatory interference in the provinces in which they operate. Our subsidiaries or our third-party suppliers could also be subject to regulation by various political and regulatory entities, including local and municipal agencies and other governmental subdivisions. Our ability, and the ability of our suppliers, to operate in China may be impaired by any such laws or regulations, or any changes in laws and regulations in the PRC. We or our third-party suppliers may incur increased costs necessary to comply with existing and future laws and regulations or penalties for any failure to comply. If our suppliers incur increased costs, they may attempt to pass such costs on to us. Any such increased costs or disruptions to our operations or the operations of our suppliers could adversely impact our results of operations.

We could become subject to a variety of laws and other obligations regarding cybersecurity and data protection, and any failure to comply with applicable laws and obligations could have an adverse effect on our business operations in China.

We are subject to various risks and costs associated with the collection, use, sharing, retention, security, and transfer of confidential and private information, such as personal information and other data. This data is wide ranging and relates to our investors, employees, contractors and other counterparties and third parties. Our compliance obligations include those relating to the Data Protection Act (As Revised) of the Cayman Islands and the relevant PRC laws in this regard. These PRC laws apply not only to third-party transactions, but also to transfers of information between us and our subsidiaries, and other parties with which we have commercial relations. We do not believe the PRC laws have a material impact on our current operations, but these laws continue to develop, and the PRC government may adopt other rules and restrictions in the future. Non-compliance could result in penalties or other significant legal liabilities.

Pursuant to the PRC Cybersecurity Law, personal information and important data collected and generated by a critical information infrastructure operator in the course of its operations in China must be stored in China, and if a critical information infrastructure operator purchases internet products and services that affects or may affect national security, it should be subject to cybersecurity review by the CAC. The Revised Cybersecurity Review Measures, which took effect on February 15, 2022, require critical information infrastructure operators procuring network products and services and online platform operators carrying out data processing activities, which affect or may affect national security, to conduct a cybersecurity review pursuant to the provisions therein. We do not believe that our company constitutes a “critical information infrastructure operator” under the Cybersecurity Review Measures, however, the exact scope of “critical information infrastructure operators” under the current regulatory regime remains unclear, and the PRC government authorities may have wide discretion in the interpretation and enforcement of the applicable laws. Additionally, the PRC Data Security Law took effect on September 1, 2021 and requires data collection to be conducted in a legitimate and proper manner, and stipulates that, for the purpose of data protection, data processing activities must be conducted based on data classification and hierarchical protection system for data security.

We believe we are compliant with these regulations, to the extent they are applicable to us, and we do not believe our business will be materially affected by these measures. However, if we were selected for review, or one of our

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suppliers was selected for review, we or such supplier may be required to suspend operations in China during such review. Cybersecurity review could also result in negative publicity with respect to our company or our suppliers and could divert managerial attention and financial resources. Furthermore, if we or one of our suppliers were found to be in violation of applicable laws and regulations in China during such review, we or such supplier could be subject to administrative penalties, such as warnings, fines, or service suspension.

Pursuant to the PRC Cybersecurity Law, which was promulgated by the Standing Committee of the National People’s Congress on November 7, 2016 and took effect on June 1, 2017, personal information and important data collected and generated by a critical information infrastructure operator in the course of its operations in China must be stored in China, and if a critical information infrastructure operator purchases internet products and services that affects or may affect national security, it should be subject to cybersecurity review by the CAC. Due to the lack of further interpretations, the exact scope of “critical information infrastructure operator” remains unclear. On July 10, 2021, the CAC publicly issued the Measures for Cybersecurity Censorship (Revised Draft for Comments) aiming to, upon its enactment, replace the existing Measures for Cybersecurity Censorship. The draft measures extend the scope of cybersecurity reviews to data processing operators engaging in data processing activities that affect or may affect national security, including listing in a foreign country. PRC Data Security Law, which was promulgated by the Standing Committee of the National People’s Congress on June 10, 2021 and took effect on September 1, 2021, requires data collection to be conducted in a legitimate and proper manner, and stipulates that, for the purpose of data protection, data processing activities must be conducted based on data classification and hierarchical protection system for data security.

We believe we are compliant with these regulations, to the extent they are applicable to us, and we do not believe our business would be materially affected by these recent measures. However, if we were selected for review, or one of our suppliers was selected for review, we or such supplier may be required to suspend operations in China during such review. Cybersecurity review could also result in negative publicity with respect to our company or our suppliers and could divert managerial attention and financial resources. Furthermore, if we or one of our suppliers were found to be in violation of applicable laws and regulations in China during such review, we or such supplier could be subject to administrative penalties, such as warnings, fines, or service suspension.

We could be subject to regulation by various political and regulatory entities, including local and municipal agencies and other governmental subdivisions.

We may incur increased costs necessary to comply with existing and future laws and regulations or penalties for any failure to comply. Outside of general business licenses in the ordinary course, FGI China and FGI International are not required to obtain permission from any Chinese authorities to operate and, as a Cayman Islands entity based in the United States, we are not required to obtain any permission from the China Securities Regulatory Commission, CAC or similar entity in China to issue our ordinary shares. No such permission or business license required for our subsidiaries’ operations has been denied. Recently, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the “Opinions on Severely Cracking Down on Illegal Securities Activities According to Law” (the “Opinions”), which were made available to the public on July 6, 2021. The Opinions emphasized the need to strengthen administration over illegal securities activities and the need to strengthen supervision with respect to overseas listings of Chinese companies.

We believe the Opinions are inapplicable to us, as we are a Cayman Islands entity and our operations in China are limited. However, some of our major suppliers could be affected, and our operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to its business or industry. Additionally, future laws or regulations that adversely affect our suppliers or their ability to source and provide materials to us could have an adverse impact on our operations. Accordingly, the Chinese government’s actions in the future, including any decision to intervene in or influence our operations or the operations of our suppliers at any time may cause our company or our suppliers to make changes to our or their operations.

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Regulatory bodies of the United States may be limited in their ability to conduct investigations or inspections of our operations in China.

From time to time, we may receive requests from certain U.S. agencies to investigate or inspect our operations or to otherwise provide information. While we will comply with requests from these regulators, there is no guarantee that such requests will be honored by those entities that provide services to us or with which we associate, especially for any such entities that are located in China. Furthermore, an on-site inspection of our facilities by any of these regulators may be limited or entirely prohibited. Such inspections, though permitted by our company and our affiliates, are subject to the unpredictability of the Chinese enforcement and other government agencies and may therefore be impossible to facilitate.

Our auditor, Marcum LLP, is a Registered Public Accounting Firm with the PCAOB and is based in New York, New York. Under the Holding Foreign Companies Accountable Act (the “HFCAA”), the PCAOB is permitted to inspect our independent public accounting firm. If the PCAOB later determined that it cannot inspect or fully investigate our auditor for three consecutive years, trading in our securities may be prohibited under the HFCAA, and, as a result, Nasdaq may determine to delist our securities. Moreover, in December 2022, the Accelerating Holding Foreign Companies Accountable Act was enacted and amended the HFCAA to require the U.S. Securities and Exchange Commission to prohibit an issuer’s securities from trading on U.S. exchanges if its auditor is not subject to PCAOB inspection for two consecutive years instead of three, thus reducing the time period before such securities would be delisted.

Changes in China’s economic, political or social conditions or legal system or government policies could have a material adverse effect on our business and operations.

While we have limited sourcing and product development operations located in China through FGI China and FGI International, many of our products are sourced or manufactured in China. Accordingly, our business, financial condition, results of operations and prospects may be influenced to a significant degree by political, economic and social conditions in China generally and by the significant discretion of Chinese governmental authorities. The Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese government also exercises significant control over China’s economic growth through allocating resources, controlling payment of foreign currency- denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies. The increased global focus on environmental and social issues and China’s potential adoption of more stringent standards in these areas may adversely impact us or our suppliers.

Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all and may have a retroactive effect. As a result, we or our suppliers may not be aware of our violation of any of these policies and rules until sometime after the alleged violation. In addition, any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. Further, such evolving laws and regulations and the inconsistent enforcement thereof could also lead to failure to obtain or maintain licenses and permits to do business in China, which would adversely affect us or our suppliers in China. Any such disruption, or if one or more of our Chinese suppliers was prevented from operating, could have an adverse impact on our results of operations and financial condition.

We may be subject to risks that the Chinese government may intervene or influence our operations at any time.

Because we have employees located in China, and source products from Chinese manufacturers, we are subject to the risk that the Chinese government may intervene or influence our operations at any time.

However, because we conduct only limited operations in China with only 27 employees focused on these matters, we do not expect that such intervention or influence would result in a material change in our operations and/or the value of our securities, although in such circumstance, we might experience a disruption in our ability to develop and source product manufacturing within China, which could have a material adverse effect on our results of operations. We also understand that the Chinese government has recently made statements indicating an intent to exert more oversight and control over offerings that are conducted by foreign investment China based issuers. While we are not a China based

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issuer, in such instance, we may still be unable to offer securities in China, which could limit the number of buyers of our securities and cause our securities to trade at a lower price than they would in the absence of the exercise of such oversight and control. If we inadvertently conclude that such approvals are not required, or applicable laws, regulations or interpretations change and we do not receive or maintain such approvals in the future, we may be subject to an investigation by regulators, fines or penalties or an order preventing us from offering securities in China in the future.

Competitive Risks

We could lose market share if we do not maintain our strong brands, develop innovative products or respond to changing purchasing practices and consumer preferences or if our reputation is damaged.

Our competitive advantage is due, in part, to our ability to maintain our strong brands and to develop and introduce innovative new and improved products. Our initiatives to invest in brand building, brand awareness and product innovation may not be successful. The uncertainties associated with developing and introducing innovative and improved products, such as gauging changing consumer demands and preferences and successfully developing, manufacturing, marketing and selling these products, may impact the success of our product introductions. If the products we introduce do not gain widespread acceptance or if our competitors improve their products more rapidly or effectively than we do, we could lose market share or be required to reduce our prices, which could have a material adverse effect on our results of operations and financial position.

In recent years, consumer purchasing practices and preferences have shifted and our customers’ business models and strategies have changed. As our customers execute their strategies to reach end consumers through multiple channels, they rely on us to support their efforts with our infrastructure, including maintaining robust and user-friendly websites with sufficient content for consumer research and providing comprehensive supply chain solutions and differentiated product development. If we are unable to successfully provide this support to our customers or if our customers are unable to successfully execute their strategies, our brands may lose market share.

If we do not timely and effectively identify and respond to changing consumer preferences, including a continued shift in consumer purchasing practices toward e-commerce, our relationships with our customers and with consumers could be harmed, the demand for our brands and products could be reduced and our results of operations and financial position could be materially and adversely affected.

We face significant competition and operate in an evolving competitive landscape.

Our products face significant competition. We believe that brand reputation is an important factor affecting product selection and that we compete on the basis of product features, innovation, quality, customer service, warranty and price. We sell many of our products through home center retailers, online retailers, distributors and independent dealers and rely on these customers to market and promote our products to consumers. Our success with our customers is dependent on our ability to provide quality products and timely delivery. In addition, home center retailers, which have historically concentrated their sales efforts on retail consumers and remodelers, are selling directly to professional contractors and installers, which may adversely affect our margins on our products that contractors and installers would otherwise buy through our dealers and wholesalers.

Certain of our customers are selling products sourced from low-cost foreign manufacturers under their own private label brands, which directly compete with our brands. As this trend continues, we may experience lower demand for our products or a shift in the mix of some products we sell toward more value-priced or opening price point products, which may affect our profitability.

In addition, we face competitive pricing pressure in the marketplace, including sales promotion programs, that could affect our market share or result in price reductions, which could materially and adversely impact our results of operations and financial position.

Further, the growing e-commerce channel brings an increased number of competitors and greater pricing transparency for consumers, as well as conflicts between our existing distribution channels and a need for different

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distribution methods. These factors could affect our results of operations and financial position. In addition, our relationships with our customers, including our home center customers, may be affected if we increase the amount of business we transact in the e-commerce channel.

Our failure to develop new products or respond to changing consumer preferences and purchasing practices could have a material adverse effect on our business, financial condition or results of operations.

We operate in an industry that is subject to changing consumer trends, demands and preferences. The uncertainties associated with developing and introducing new products, such as gauging changing consumer preferences and successfully developing, manufacturing, marketing and selling new products, could lead to, among other things, rejection of a new product line, reduced demand and price reductions for our products. If our products do not keep up with consumer trends, demands and preference, we could lose market share, which could have a material adverse effect on our business, financial condition or results of operations. Moreover, the role of technology is changing rapidly in our industry. We are in the process of introducing certain customer-facing tools powered by artificial intelligence (“AI”) to help promote our product offerings. If these AI products do not work as intended, or if our competitors are better able to effectively integrate these new technologies into their offerings, our competitive position may suffer.

Changes in Cayman Islands or U.S. tax law could adversely affect our financial condition and results of operations.

The rules dealing with Cayman Islands and U.S. federal, state, and local income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department, as well as the regulators in the Cayman Islands. Changes to tax laws (which changes may have retroactive application) could adversely affect us or holders of our securities. In recent years, many such changes have been made and changes are likely to continue to occur in the future. Future changes in Cayman Islands or U.S. tax laws could have a material adverse effect on our business, cash flow, financial condition or results of operations. We urge investors to consult with their legal and tax advisors regarding the implications of potential changes in Cayman Islands or U.S. tax laws on an investment in our securities.

The loss of certain members of our management may have an adverse effect on our operating results.

Our success will depend, in part, on the efforts of our senior management and other key employees. These individuals possess sales, marketing, engineering, manufacturing, financial and administrative skills and know-how that are critical to the operation of our business. If we lose or suffer an extended interruption in the services of one or more of our senior officers or other key employees, our financial condition and results of operations may be negatively affected. Moreover, the pool of qualified individuals may be highly competitive, and we may not be able to attract and retain qualified personnel to replace or succeed members of our senior management or other key employees, should the need arise. The loss of the services of any key personnel, or our inability to hire new personnel with the requisite skills, could impair our ability to develop new products or enhance existing products, sell products to our customers or manage our business effectively.

Technology and Intellectual Property Risks

We have been and may continue to be subject to cybersecurity attacks, which could adversely affect our results of operations and financial position.

Global cybersecurity vulnerabilities, threats and more frequent, sophisticated and targeted attacks pose a risk to our information technology systems and to critical third-party information technology platforms we utilize. We have implemented security policies, processes and layers of defense designed to help identify and protect against misappropriation or corruption of our systems and information and disruption of our operations. Despite these efforts, systems we utilize have been and may in the future be damaged, disrupted, ransomed or shut down due to cybersecurity

attacks by unauthorized access, malware, ransomware, undetected intrusion, hardware failures, or other events, and in these circumstances our disaster recovery plans may be ineffective or inadequate. These attacks have led and could in the future lead to business interruption, production or operational downtime, product shipment delays, exposure or loss of proprietary confidential or financial information or the personal information of our employees, suppliers, customers or

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consumers, data corruption, an inability to report our financial results in a timely manner, damage to the reputation of our brands, damage to our relationships with our employees, suppliers, customers and consumers, exposure to litigation, and increased costs associated with the remediation and mitigation of such attacks. In addition, we could be adversely affected if any of our significant customers, suppliers or service providers experiences any similar events that disrupt their business operations or damage their reputation. Such events could adversely affect our results of operations and financial position.

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We rely on information systems and technologies, and a breakdown of these systems could adversely affect our results of operations and financial position.

We rely on many information systems and technologies to process, transmit, store and manage information to support our business activities, including new AI capabilities. We may be adversely affected if our information systems breakdown, fail, or are no longer supported or if our AI capabilities do not function as intended. In addition to the consequences that may occur from interruptions in our systems, global cybersecurity vulnerabilities, threats and more sophisticated and targeted attacks pose a risk to our information technology systems.

We have implemented security policies, processes and layers of defense designed to help identify and protect against intentional and unintentional misappropriation or corruption of our systems and information and disruption of our operations. Despite these efforts, our systems may in the future be damaged, disrupted, or shut down due to cybersecurity attacks by unauthorized access, malware, ransomware, undetected intrusion, hardware failures, or other events, and in these circumstances our disaster recovery plans may be ineffective or inadequate. In addition, the rapid evolution and increased adoption of new technologies, such as artificial intelligence, may intensify our cybersecurity risks. These breaches or intrusions could in the future lead to business interruption, production or operational downtime, product shipment delays, exposure or loss of proprietary, confidential, personal or financial information, data corruption, an inability to report our financial results in a timely manner, damage to the reputation of our brands, damage to our relationships with our customers and suppliers, exposure to litigation, and increased costs associated with the remediation and mitigation of such attacks. Such events could adversely affect our results of operations and financial position. In addition, we could be adversely affected if any of our significant customers or suppliers experiences any similar events that disrupt their business operations or damage their reputation.

We may not be able to adequately protect or prevent the unauthorized use of our intellectual property.

Protecting our intellectual property is important to our growth and innovation efforts. We own a number of patents, trade names, brand names and other forms of intellectual property in our products and manufacturing processes throughout the world. There can be no assurance that our efforts to protect our intellectual property rights will prevent violations. Our intellectual property may be challenged or infringed upon by third parties, particularly in countries where property rights are not highly developed or protected. In addition, the global nature of our business increases the risk that we may be unable to obtain or maintain our intellectual property rights on reasonable terms. Furthermore, others may assert intellectual property infringement claims against us. Current and former employees, contractors, customers or suppliers have or may have had access to proprietary or confidential information regarding our business operations that could harm us if used by them, or disclosed to others, including our competitors. Protecting and defending our intellectual property could be costly, time consuming and require significant resources. If we are not able to protect our existing intellectual property rights, or prevent unauthorized use of our intellectual property, sales of our products may be affected and we may experience reputational damage to our brand names, increased litigation costs and adverse impact to our competitive position, which could have a material adverse effect on our results of operations and financial position.

Litigation and Regulatory Risks

We are currently involved in legal proceedings and may in the future be a party to additional claims and litigation, which could be costly and divert significant resources.

As noted in Part 1, Item 3, FGI USA, our wholly-owned subsidiary, has been involved in efforts to recover damages from Ayers Bath (USA) Corporation and Tangshan Ayers arising from the Company’s efforts to protect an exclusivity

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agreement with Huida. These proceedings, including the current actions in the bankruptcy court, against Ayers Bath (USA) have been pending for over ten years. We may, from time to time, be involved in various other claims and litigation, including class actions, mass torts and regulatory proceedings, that arise in the ordinary course of our business and that could have a material adverse effect on us. The types of matters may include, among others: competition, product liability, employment, warranty, advertising, contract, personal injury, environmental, intellectual property, product compliance and insurance coverage. The outcome and effect of these matters are inherently unpredictable, and defending and resolving them can be costly and can divert management’s attention. We have and may continue to incur significant costs as a result of claims and litigation.

We are also subject to product safety regulations, product recalls and direct claims for product liability that can result in significant costs and, regardless of the ultimate outcome, create adverse publicity and damage the reputation of our brands and business. Also, we rely on other manufacturers to provide products or components for products that we sell. Due to the difficulty of controlling the quality of products and components we source from other manufacturers, we are exposed to risks relating to the quality of such products and to limitations on our recourse against such suppliers.

We maintain insurance against some, but not all, of the risks of loss resulting from claims and litigation. The levels of insurance we maintain may not be adequate to fully cover our losses or liabilities. If any significant accident, judgment, claim or other event is not fully insured or indemnified against, it could have a material adverse effect on our results of operations and financial position.

For more information about our current legal proceedings, refer to the section of this Annual Report on Form 10-K entitled “Legal Proceedings.”

Compliance with laws, government regulation and industry standards is costly, and our failure to comply could adversely affect our results of operations and financial position.

We are subject to a wide variety of federal, state, local and foreign laws and regulations pertaining to:

| ● | securities matters;

| ● | taxation;

| ● | anti-bribery/anti-corruption;

| ● | employment matters;

| ● | minimum wage requirements;

| ● | environment, health and safety matters;

| ● | the protection of employees and consumers;

| ● | product compliance;

| ● | competition practices;

| ● | trade, including duties and tariffs;

| ● | data privacy and the collection and storage of information, including regulation on data protection and oversight by the CAC in China; and

| ● | climate change and protection of the environment.

The regulatory environment surrounding data privacy and protection is constantly evolving and can be subject to significant change. New data protection laws, including recent California legislation and regulation which affords California consumers an array of new rights, including the right to be informed about what kinds of personal data companies have collected and why it was collected, or increased oversight by the CAC in China, pose increasingly complex compliance challenges and potentially elevate our costs. Complying with varying jurisdictional requirements

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could increase the costs and complexity of compliance, and violations of applicable data protection laws could result in significant penalties. Any failure, or perceived failure, by us to comply with applicable data protection laws could result in proceedings or actions brought against us by governmental entities or others, subject us to significant fines, penalties, judgments and negative publicity, require us to change our business practices, increase the costs and complexity of compliance, and adversely affect our business.

In addition to complying with current requirements and known future requirements, even more stringent requirements could be imposed on us in the future.

As we sell new types of products or existing products in new geographic areas or channels or for new applications, we are subject to the legal requirements applicable to those products or geographic areas. Additionally, some of our products must be certified by industry organizations. Compliance with new or changed laws, regulations and industry standards may require us to alter our product designs, our manufacturing processes, our packaging or our sourcing. These compliance activities are costly and require significant management attention and resources. If we do not effectively and timely comply with such regulations and industry standards, our results of operations and financial position could be materially and adversely affected.

Our failure to maintain acceptable quality standards could result in significant unexpected costs.

Any failure to maintain acceptable quality standards could require us to recall or redesign such products, or pay substantial damages in litigation, any of which would result in significant unexpected costs. We may also have difficulty controlling the quality of products or components sourced from manufacturers, so we are exposed to risks relating to the quality of such products and to limitations on our recourse against such suppliers. Further, any claim or product recall could result in adverse publicity against us, which could decrease our credibility, harm our reputation, adversely affect our sales, or increase our costs. Defects in our products could also result in decreased orders or sales to our customers, which could have a material adverse effect on our business, financial condition or results of operations.

Unauthorized disclosure of confidential information provided to us by customers, employees or third parties could harm our business.

We rely on the Internet and other electronic methods to transmit confidential information and store confidential information on our networks. Any disclosure of confidential information provided by, or concerning, our employees, customers or other third parties, including through inadvertent disclosure, unapproved dissemination, or unauthorized access, our reputation could be harmed and we could be subject to civil or criminal liability and regulatory actions could require us to comply with various breach notification laws and may expose us to litigation, remediation and investigation costs, increased costs for security measures, loss of revenue, damage to our reputation, and potential liability.

We are subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws, and non-compliance with such laws can subject us to administrative, civil and criminal fines and penalties, collateral consequences, remedial measures and legal expenses, all of which could adversely affect our business, results of operations, financial condition and reputation.

We are subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws and regulations in various jurisdictions in which we conduct or in the future may conduct activities, including the U.S. Foreign Corrupt Practices Act (“FCPA”) and other anti-corruption laws and regulations. The FCPA prohibits us and our officers, directors, employees and business partners acting on our behalf, including agents, from corruptly offering, promising, authorizing or providing anything of value to a “foreign official” for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. The FCPA also requires companies to make and keep books, records and accounts that accurately reflect transactions and dispositions of assets and to maintain a system of adequate internal accounting controls. A violation of these laws or regulations could adversely affect our business, results of operations, financial condition and reputation. Our policies and procedures designed to ensure compliance with these regulations may not be sufficient and our directors, officers, employees, representatives, consultants, agents, and business partners could engage in improper conduct for which we may be held responsible.

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Non-compliance with anti-corruption, anti-bribery, anti-money laundering or financial and economic sanctions laws could subject us to whistleblower complaints, adverse media coverage, investigations, and severe administrative, civil and criminal sanctions, collateral consequences, remedial measures and legal expenses, all of which could materially and adversely affect our business, results of operations, financial condition and reputation. In addition, changes in economic sanctions laws in the future could adversely impact our business and investments in our shares.

Our business could be affected by unexpected changes in U.S. and international regulatory standards and laws.

We market and sell our products in the United States, Canada and Europe. We also source and manufacture a majority of our products in Asia. As such, we and our manufacturing partners are subject to the normal risks of doing business abroad. Unexpected changes in government and industry regulatory standards, including labor, environmental and taxation laws, and export and import restrictions could materially and adversely affect our business, results of operations and financial position. Moreover, the failure of our manufacturing partners to comply with such regulations could affect our supply arrangements and materially and adversely affect our business, results of operations and financial position.

Risks Related to Our Securities

Foremost Groups Ltd. holds a significant majority of the voting power of our ordinary shares, approximately 72%, and will be able to exert significant control over us.

Foremost holds ordinary shares that represent approximately 72% of all outstanding voting power, and, as such, may significantly influence the results of matters voted on by our shareholders and could effectively control many other major decisions regarding our operations, capital allocation priorities and corporate governance. In addition, we are reliant upon Foremost for manufacturing and other support. Mr. Liang Chou Chen holds approximately 49.89% of the voting control of Foremost. The interests of Foremost, particularly with respect to change-in-control transactions and election of directors, may conflict with those of our company and/or our shareholders, and Foremost may not always act in the best interest of our company. This significant concentration of share ownership and reliance for support may adversely affect the trading price for our securities because investors may perceive disadvantages in owning shares in companies with controlling shareholders.

The price of our ordinary shares may be volatile.

The market price of our ordinary shares is likely to be highly volatile and may fluctuate substantially due to many factors, including:

| ● | our ability to maintain our strong brands and reputation and to develop innovative products;

| ● | our ability to maintain our competitive position in our industries;

| ● | risks associated with our reliance on information systems and technology;

| ● | product liability claims or other litigation;

| ● | quarterly variations in our results of operations or those of others in our industry;

| ● | changes in governmental regulations;

| ● | changes in earnings estimates or recommendations by securities analysts; and

| ● | general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors.

In recent years, the stock markets generally have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies, including as a result of disruptions and dislocations arising out of the COVID-19 pandemic. Broad market and industry factors may significantly affect the

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market price of our ordinary shares, regardless of our actual operating performance. Due to these risks and the other risks described in this report, investors could lose their entire investment in our company.

In addition, in the past, class action litigation has often been instituted against companies whose securities have experienced periods of volatility in market price. Securities litigation brought against us following volatility in our share price, regardless of the merit or ultimate results of such litigation, could result in substantial costs, which would have a material adverse effect on our financial condition and operating results and divert management’s attention and resources from our business.

Provisions of the currently outstanding warrants could discourage an acquisition of us by a third party.

In addition to the provisions of our amended and restated memorandum and articles of association discussed below, certain provisions of the currently outstanding warrants could make it more difficult or expensive for a third party to acquire us. The warrants prohibit us from engaging in certain transactions constituting “fundamental transactions” unless, among other things, the surviving entity assumes our obligations under the warrants.

We do not intend to pay dividends on our ordinary shares.

We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any future determination to declare dividends will be made at the discretion of our board of directors and will depend on, among other factors, our financial condition, operating results, capital requirements, general business conditions and other factors that our board of directors may deem relevant. Any return to shareholders will therefore be limited to the appreciation in the value of their shares, if any.

If we sell ordinary or preference shares in future financings, shareholders may experience immediate dilution and, as a result, our share price may decline.

We may from time-to-time issue additional preference shares or ordinary shares at a discount from the current trading price of our ordinary shares. As a result, our shareholders would experience immediate dilution upon the purchase of any shares sold at such discount. In addition, as opportunities present themselves, we may enter into financing or similar arrangements in the future, including the issuance of debt securities, preference shares or ordinary shares. If we issue ordinary shares or securities convertible into ordinary shares, our ordinary shareholders would experience additional dilution and, as a result, our share price may decline.

We are an emerging growth company and a smaller reporting company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to “emerging growth companies” or “smaller reporting companies,” this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.

We are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act, and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As a result, our shareholders may not have access to certain information they may deem important. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our ordinary shares held by non-affiliates equals or exceeds $700 million as of the last business day of any second fiscal quarter before that time, in which case we would no longer be an emerging growth company as of the end of such fiscal year. We cannot predict whether investors would find our securities less attractive in the event that we rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise

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would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our ordinary shares held by non-affiliates exceeds $250 million as of the last business day of that year’s second fiscal quarter, or (2) our annual revenues exceeded $100 million during such completed fiscal year and the market value of our ordinary shares held by non-affiliates equals or exceeds $700 million as of the last business day of that year’s second fiscal quarter. To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible.

Because we are incorporated under the laws of the Cayman Islands, you may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited.

We are an exempted company incorporated under the laws of the Cayman Islands. As a result, it may be difficult for investors to effect service of process within the United States upon our directors or officers, or enforce judgments obtained in the United States courts against our directors or officers.

Our corporate affairs are governed by our amended and restated memorandum and articles of association, the Companies Act (as the same may be supplemented or amended from time to time) and the common law of the Cayman Islands. We are also subject to the federal securities laws of the United States. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, the decisions of whose courts are of persuasive authority, but are not binding on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are different from what they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a different body of securities laws as compared to the United States, and certain states, such as Delaware, may have more fully developed and judicially interpreted bodies of corporate law. In addition, Cayman Islands companies may not have standing to initiate a shareholders derivative action in a Federal court of the United States.

We have been advised by Travers Thorp Alberga, our Cayman Islands legal counsel, that the courts of the Cayman Islands are unlikely (i) to recognize or enforce against us judgments of courts of the United States predicated upon the civil liability provisions of the federal securities laws of the United States or any state; and (ii) in original actions brought in the Cayman Islands, to impose liabilities against us predicated upon the civil liability provisions of the federal securities laws of the United States or any state, so far as the liabilities imposed by those provisions are penal in nature. Although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the

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judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman Islands Court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.

As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a United States company.

Provisions in our amended and restated memorandum and articles of association may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for our ordinary shares and could entrench management.

Our amended and restated memorandum and articles of association contain provisions that may discourage unsolicited takeover proposals that shareholders may consider to be in their best interests. These provisions will include a staggered board of directors, the ability of the board of directors to designate the terms of, and issue, new series of preference shares, which may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities.

General Risk Factors

Management’s determination that a material weakness exists in our internal controls over financial reporting could have a material adverse impact on our ability to produce timely and accurate financial statements and could negatively impact our business and the market for our ordinary shares.

The process of designing and implementing an effective accounting and financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain an accounting and financial reporting system that is adequate to satisfy our reporting obligations. Based upon an evaluation conducted in connection with the preparation of FGI’s audited consolidated financial statements as of December 31, 2023, management concluded that our internal controls over financial reporting were not effective due to the material weakness in our internal controls over financial reporting. The material weakness that has been identified represents an inadequate segregation of duties related to certain accounting functions due to the size of the Company’s subsidiaries. In addition, the Company lacks evidence of management review controls activity taking place, such as but not limited to, the review and approval of journal entries and account reconciliations. We believe that the material weakness set forth above did not have an effect on our financial results.

We are evaluating and beginning to implement certain practices and procedures to address the foregoing material weaknesses with plans to complete the remediation of the foregoing deficiencies in the future. We continue to identify and implement actions to improve the effectiveness of our internal controls over financial reporting and disclosure controls and procedures, but there can be no assurance that such remediation efforts will be successful. We also expect to continue to incur or expend, substantial accounting and other expenses and significant management time and resources. Our future assessment, or the future assessment by our independent registered public accounting firm, may reveal additional material weaknesses in our internal controls. Failure to remediate a material weakness or the discovery of any future potential material weaknesses, could result in future misstatements in our financial statements or in documents we file with the SEC and could have a negative impact on our business and the market for our ordinary shares. For more information on our material weaknesses and the status of our remediation efforts, see Item 9A - Controls and Procedures, which includes Management’s Report on Internal Controls Over Financial Reporting.

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We expect to incur significant additional costs as a result of being a public company.

We expect to incur costs associated with corporate governance requirements that are now applicable to us as a public company, including rules and regulations of the SEC, under the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the Securities Exchange Act of 1934, as amended, or the Exchange Act, as well as the rules of Nasdaq. These rules and regulations are expected to significantly increase our accounting, legal and financial compliance costs and make some activities more time-consuming. We also expect these rules and regulations to make it more expensive for us to maintain directors’ and officers’ liability insurance. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. Accordingly, increases in costs incurred as a result of becoming a publicly traded company may have a material adverse effect on our business, financial condition and results of operations.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

We are subject to the periodic reporting requirements of the Exchange Act. We designed our disclosure controls and procedures to provide reasonable assurance that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures, no matter how well those controls and procedures are conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

We are at risk of securities class action litigation.

In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which may have a material adverse effect on our business, financial condition and results of operations.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline.

If a trading market for our ordinary shares or warrants develops, the trading market will be influenced to some extent by the research and reports that industry or financial analysts publish about us and our business. We do not control these analysts. As a newly public company, we may be slow to attract research coverage and the analysts who publish information about our ordinary shares or warrants will have had relatively little experience with us or our business and products, which could affect their ability to accurately forecast our results and could make it more likely that we fail to meet their estimates. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us provide inaccurate or unfavorable research or issue an adverse opinion regarding our ordinary share price, our ordinary share price could decline. If one or more of these analysts cease coverage of us or fail to publish reports covering us regularly, we could lose visibility in the market, which in turn could cause our share price or trading volume to decline and result in the loss of all or a part of your investment in us.

ITEM 1B.UNRESOLVED STAFF COMMENTS

We are a smaller reporting company as defined in Regulation S-K and are not required to provide the information under this item.

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ITEM 1C.CYBERSECURITY

Cybersecurity is an important part of our risk management program for our Board and management. The Company maintains a robust cybersecurity infrastructure to safeguard our operations, networks and data through directory-based identity-related services for operation account security, firewall policies and periodical vulnerability threat scanning for network security and email-layer and endpoint-layer protections for data integrity on systems and user devices.

The Company’s Director of IT is responsible for assessing, identifying, and managing the risks from cybersecurity threats. Our Director of IT has over 15 years of experience in information security positions and holds Master’s degree in computer information systems. We also have constituted a cross-functional Cybersecurity Committee, comprised of Chairman, CFO, Management of Business Operations and Human Resources, which meets regularly to review enterprise-wide cybersecurity matters.

Our Board of Directors oversees management's approach to managing cybersecurity risks. The Board of Directors is charged with overseeing the Company’s risk management program, which includes cybersecurity matters. The Board of Directors routinely engages with relevant management on a range of cybersecurity-related topics, including the threat of environment and vulnerability assessments and policies and practices and receives updates on technology trends and regulatory developments from the Director of IT periodically.

We use a risk-based approach to identify, assess, protect, detect, respond to and recover from cybersecurity threats, derived from COSO framework. Our information security program includes, among other aspects, vulnerability management, antivirus and malware protection, access control, and employee training. Risks identified by the Director of IT and other cybersecurity personnel are analyzed to determine the potential impact on us and the likelihood of occurrence. Such risks are continuously monitored to ensure that the circumstances and severity of such risks have not changed. The Director of IT also routinely discusses trends in cyber risks and our strategy with our Cybersecurity Committee and management on a regular basis, in addition to an annual review and discussion with the full board.

In addition, we endeavor to apprise employees of emerging risks and require them to undergo bi-annual security awareness trainings and supplemental trainings as needed. Additionally, we conduct periodic internal exercises to gauge the effectiveness of the trainings and assess the need for additional training.

Material cybersecurity incidents are required to be reported to the Board of Directors. As of the date of this report, we are not aware of any risks from cybersecurity threats that have materially affected or are reasonably likely to materially affect our business strategy, results of operations, or financial condition.

ITEM 2.PROPERTIES

Our headquarters and a warehouse facility are located in East Hanover, New Jersey. We also operate production and warehouse facilities in Hobart, Indiana, Sacramento, California and Toronto, Canada. We also conduct our European operations from a facility in Dusseldorf, Germany and our Asian operations from a purchase center in Tangshan, China and a global support center in Taipei, Taiwan. Moreover, we own a manufacturing facility just outside of Sihanoukville, Cambodia. All properties, except for the Sihanoukville facility, are leased. We believe that our properties are in good operating condition and adequately serve our current business operations. We also anticipate that suitable additional or alternative space, including those under lease options, will be available at commercially reasonable terms for future expansion, which we intend to evaluate on an ongoing basis in tandem with our “BPC” growth strategy.

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ITEM 3.LEGAL PROCEEDINGS

We may be subject to legal proceedings and claims in the ordinary course of business. We cannot predict the results of any such disputes, and despite the potential outcomes, the existence thereof may have an adverse material impact on us due to diversion of management time and attention as well as the financial costs related to resolving such disputes.

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Ayers Bath Litigation

FGI Industries (formerly known as Foremost Groups, Inc.) (“FGI USA”), our wholly-owned subsidiary, is currently involved in litigation arising from its efforts to protect an exclusivity agreement with sanitaryware manufacturer Tangshan Huida Ceramic Group Co., Ltd. (“Huida”). In 2011, FGI USA filed a complaint against Ayers Bath (USA) Corporation (“Ayers Bath”) in the United States District Court for the Central District of California (the “District Court”) and succeeded in obtaining an injunction barring Ayers Bath from selling, distributing or offering for sale Huida parts and products in the United States and Canada. As a result, Ayers Bath ceased all business activity.

Ayers Bath filed a voluntary chapter 7 petition in the United States Bankruptcy Court for the Central District of California (the “Bankruptcy Court”) on March 22, 2013. FGI USA filed a proof of claim in the Ayers Bath bankruptcy case for an amount not less than $5,265,000, which was deemed allowed, but due to Ayers Bath’s lack of assets, FGI USA only received a distribution of $7,757.24. On January 9, 2014, FGI USA filed a complaint in the District Court against Tangshan Ayers, as Ayers Bath’s alter ego, to recover the balance of its damages. The District Court ultimately referred the litigation to the Bankruptcy Court, whereby FGI USA filed a motion in Bankruptcy Court to add Tangshan Ayers as judgment debtor, thereby allowing FGI USA to recover its proof of claim. A hearing for the motion to add Tangshan Ayers as judgment debtor was held on June 7, 2021. On September 22, 2021, the Bankruptcy Court issued a report and recommendation to the District Court recommending that it deny FGI USA’s motion to amend the judgment. We filed an objection to the report in October 2021, which was overruled by the Bankruptcy Court in September 202 2, but the District Court allowed FGI USA to amend its complaint, which was filed in June 2023. Huida moved to compel arbitration under the amended complaint in June 2023. FGI USA opposed the motion to compel arbitration and in February 2024, the District Court denied that motion.

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Public market for our ordinary shares

Our ordinary shares have been traded on the Nasdaq Capital Market under the symbol “FGI” since January 27, 2022. Our warrant agent is Continental Stock and Transfer and Trust Company.

Holders; Shares Outstanding

We had a total of 9,547,607 shares of our ordinary shares outstanding on March 20, 2024, held by approximately 2 shareholders of record. The actual number of shareholders is greater than this number of record holders, and includes shareholders who are beneficial owners, but whose shares are held in “street name” by brokers and other nominees.

Dividend Policy

We have never paid any cash dividends on our ordinary shares and do not anticipate paying any cash dividends on our ordinary shares in the foreseeable future. We intend to retain future earnings to fund ongoing operations and future capital requirements. Any future determination to pay cash dividends will be at the discretion of our Board and will be dependent upon financial condition, results of operations, capital requirements and such other factors as our Board deems relevant. Further, in the event that we issue any shares of a class or series of our preference shares, the designation of such class or series could limit our ability to pay dividends on our ordinary shares.

Securities Authorized for Issuance Under Equity Compensation Plan

Reference is made to the information in Item 12 of this report under the caption “Equity Compensation Plans,” which is incorporated herein by this reference.

Share Repurchases

During the twelve months ended December 31, 2023, we did not repurchase any ordinary shares.

ITEM 6.[RESERVED]

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ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, this discussion and analysis and other parts of this Annual Report on Form 10-K contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this Annual Report on Form 10-K. You should carefully read the “Risk Factors” section of this Annual Report on Form 10-K to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements.

Overview

FGI is a global supplier of kitchen and bath products. Over the course of 30 years, we have built an industry-wide reputation for product innovation, quality, and excellent customer service. We are currently focused on the following product categories: sanitaryware (primarily toilets, sinks, pedestals and toilet seats), bath furniture (vanities, mirrors and cabinets), shower systems, customer kitchen cabinetry and other accessory items. These products are sold primarily for R&R activity and, to a lesser extent, new home or commercial construction. We sell our products through numerous partners, including mass retail centers, wholesale and commercial distributors, online retailers and specialty stores.

Consistent with our long-term strategic plan, we intend to drive value creation for our shareholders through a balanced focus on product innovation, organic growth, and efficient capital deployment. The following initiatives represent key strategic priorities for us:

| ● | Commitment to product innovation. We have a history of being an innovator in the kitchen and bath markets and developing “on-trend” products and bringing them to market ahead of the competition. We have developed deep marketing skills, leading design capabilities, and product development expertise. A recent example of our innovative product development includes the Jetcoat Shower wall systems, which offer a stylized design option without the fuss of messy grout. We expect to continue to invest in research and development to drive product innovation in 2024.

| ● | “BPC” (Brands, Products, Channels) strategy to drive above-market organic growth. We have continued to invest in its BPC strategy despite the market challenges, which is expected to drive improved organic growth in the longer term. 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. 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 29.2% in fourth quarter of 2023, up from 23.7% in the same period last year owing to the ongoing mix 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 the prior year. During 2024, we expect gross margins to remain consistent with those generated during fiscal year 2023, with operating margin improvement driven by volume leverage.

| ● | 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 $24.4 million at December 31, 2023, 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 also have deep relationships with an established global customer base, offering end-

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|  | to-end solutions to support category growth. While recent supply chain and inflation pressures have been a headwind, our durable partnerships with manufacturing and sourcing partners have helped to mitigate these challenges.

We were incorporated in the Cayman Islands on May 26, 2021 in connection with a reorganization (the “Reorganization”) of our parent company, Foremost Groups Ltd. (“Foremost”), and its affiliates, pursuant to which, among other actions, Foremost contributed all of its equity interests in FGI Industries, Inc. (“FGI Industries”), FGI Europe Investment Limited, an entity formed in the British Virgin Islands, and FGI International, Limited, an entity formed under the laws of Hong Kong, each a wholly-owned subsidiary of Foremost, to the newly formed FGI Industries Ltd. Foremost was established in 1987 and has become a global leader in kitchen and bath design, indoor and outdoor furniture, food service equipment, and manufacturing. 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

Due to changing 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 as 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.

Results of Operations

For the Years Ended December 31, 2023 and 2022

The following table summarizes the results of our operations for the years ended December 31, 2023 and 2022, respectively, and provides information regarding the dollar and percentage increase (decrease) during such periods.

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the Year Ended | ​ | ​ | ​ | ​ | ​
​ | ​ | December 31, | ​ | Change
​ | ​ | 2023 | ​ | 2022 | ​ | Amount | ​ | Percentage
​ |  | USD |  | USD |  | USD |  | %
Revenues | ​ | $ | 117,241,604 |  | $ | 161,718,543 |  | $ | (44,476,939) |  | (27.5)
Cost of revenues | ​ |  | 85,164,322 | ​ |  | 130,209,538 | ​ |  | (45,045,216) |  | (34.6)
Gross profit | ​ |  | 32,077,282 | ​ |  | 31,509,005 | ​ |  | 568,277 |  | 1.8
Selling and distribution expenses | ​ |  | 19,971,912 | ​ |  | 17,533,028 | ​ |  | 2,438,884 |  | 13.9
General and administrative expenses | ​ |  | 8,424,083 | ​ |  | 7,830,023 | ​ |  | 594,060 |  | 7.6
Research and development expenses | ​ |  | 1,376,844 | ​ |  | 1,053,976 | ​ |  | 322,868 |  | 30.6
Income from operations | ​ |  | 2,304,443 | ​ |  | 5,091,978 | ​ |  | (2,787,535) |  | (54.7)
Operating margins | ​ |  | 2.0 | % |  | 3.1 | % |  | (110) | bps | —
Total other expenses, net | ​ |  | (916,655) | ​ |  | (551,428) | ​ |  | (365,227) |  | 66.2
Provision for income taxes | ​ |  | 808,224 | ​ |  | 860,630 | ​ |  | (52,406) |  | (6.1)
Net income | ​ | ​ | 579,564 | ​ | ​ | 3,679,920 | ​ | ​ | (3,100,356) |  | (84.3)
Net income attributable to FGI Industries Ltd. Shareholders | ​ | ​ | 733,604 | ​ | ​ | 3,679,920 | ​ | ​ | (2,946,316) |  | (80.1)
Adjusted income from operations(1) | ​ | ​ | 2,840,401 | ​ | ​ | 5,693,972 | ​ | ​ | (2,853,571) |  | (50.1)
Adjusted operating margins(1) | ​ |  | 2.4 | % |  | 3.5 | % |  | (110) | bps | —
Adjusted net income(1) | ​ | $ | 1,014,226 | ​ | $ | 4,173,555 | ​ | $ | (3,159,329) |  | (75.7)

(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 GAAP comparators.

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Revenues

Our revenues decreased by $44.5 million, or 27.5%, to $117.2 million for the year ended December 31, 2023, from $161.7 million for the year ended December 31, 2022. The decrease in our revenues was primarily by declines in sanitaryware and bath furniture categories. Revenue categories by product are summarized as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | For the Year Ended December 31, |  | Change
​ |  | 2023 | ​ | Percentage | ​ | 2022 | ​ | Percentage | ​ | Percentage
​ |  | USD |  | % |  | USD |  | % |  | %
Sanitaryware | ​ | $ | 75,551,117 |  | 64.4 |  | $ | 104,806,342 |  | 64.8 |  | (27.9)
Bath Furniture | ​ |  | 14,770,376 |  | 12.6 |  | ​ | 29,519,728 |  | 18.3 |  | (50.0)
Shower System | ​ | ​ | 19,997,197 | ​ | 17.1 | ​ | ​ | 21,586,888 | ​ | 13.3 | ​ | (7.4)
Other | ​ |  | 6,922,914 |  | 5.9 |  | ​ | 5,805,585 |  | 3.6 |  | 19.2
Total | ​ | $ | 117,241,604 |  | 100.0 | ​ | $ | 161,718,543 |  | 100.0 |  | (27.5)

​

We derive the majority of our revenues from sales of sanitaryware, which accounted for 64.4% and 64.8% of our total revenues for the years ended December 31, 2023 and 2022, respectively. Revenues generated from the sales of sanitaryware decreased by 27.9% to $75.6 million for the year ended December 31, 2023, from $104.8 million for the year ended December 31, 2022. The revenue decline was due to ongoing inventory de-stocking, primarily in the pro channel, and more muted demand trends. Sanitaryware revenue increased sequentially in the fourth quarter of 2023, the third consecutive quarter of sequential revenue gains, as the pro channel is showing signs of improvement and new customer programs are also beginning to benefit results.

Our revenues from bath furniture sales decreased by 50.0% to $14.8 million for the year ended December 31, 2023 from $29.5 million for the year ended December 31, 2022. Bath furniture sales accounted for 12.6% and 18.3% of our total revenue for 2023 and 2022, respectively as the bath furniture market continues to be impacted by macro headwinds and a trade-down to lower ticket products. Our product mix in bath furniture has been moved heavily focused on higher-end products, which, given the customer trade-downs, was more adversely impacted than other value-focused peers in the space. Based on the ongoing shift in customer demand to more value-priced offerings, we are launching product offerings in the mid-tier category to better address current demand and have already won several key customer awards featuring the new bath furniture.

Revenues from sales of Shower Systems decreased by 7.4% to $20.0 million for the year ended December 31, 2023 from $21.6 million for the year ended December 31, 2022. Shower systems make up approximately 17.1% and 13.3% of our total revenue for 2023 and 2022, respectively. However, our revenues from sales of Shower System have been increasing sequentially since the third quarter of 2023. Recently launched programs are gaining momentum, including the online shower door program with a large Canadian retailer and the shower wall systems roll-out at up to 300 locations of a large U.S. retailer with initial shipments that began in December 2023.

We also generate revenues from sales of Other products (custom kitchen cabinetry and others), which, in the aggregate, accounted for 5.9% and 3.6% of our total revenues for the years ended December 31 ,2023 and 2022. The increase in Other was primarily driven by strong volume growth of custom kitchen cabinetry sales to our expanding network of kitchen cabinetry dealers in the United States. Revenue benefited from continued dealer growth and new product launches. We remain on track to launch our new kitchen cabinetry initiative in the first half of 2024.

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We derive our revenues primarily from the United States, Canada and Europe. Revenue categories by geographic location are summarized as follows:

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the Year Ended December 31, | ​ | Change
​ | ​ | 2023 | ​ | Percentage | ​ | 2022 | ​ | Percentage | ​ | Percentage
​ |  | USD |  | % |  | USD |  | % |  | %
United States |  | $ | 74,572,336 |  | 63.6 |  | $ | 103,255,662 |  | 63.8 |  | (27.8)
Canada | ​ |  | 31,092,989 |  | 26.5 |  | ​ | 41,025,288 |  | 25.4 |  | (24.2)
Europe | ​ | ​ | 11,477,070 | ​ | 9.8 | ​ | ​ | 16,844,015 | ​ | 10.4 | ​ | (31.9)
Rest of World | ​ |  | 99,209 |  | 0.1 |  | ​ | 593,578 |  | 0.4 |  | (83.3)
Total | ​ | $ | 117,241,604 |  | 100.0 | ​ | $ | 161,718,543 |  | 100.0 |  | (27.5)

​

We generated the majority of our revenues in the United States market, which amounted to $74.6 million for the year ended December 31, 2023, and $103.3 million for the year ended December 31, 2022, representing a 27.8% decrease. These revenues accounted for 63.6% and 63.8% of our total revenues for 2023 and 2022, respectively. The decreased in the U.S. market was primarily driven by volume weakness in the bath furniture as customers' de-stocking to adjust inventory level.

Our second largest market is Canada. Our revenues generated in the Canadian market were $31.1 million and $41.0 million for the years ended December 31, 2023 and 2022, respectively, representing a 24.2% decrease. The decrease was primarily driven by volume weakness in both retail and wholesale markets.

We also derive a small portion of our revenue from Europe, which consists primarily of sales in Germany. This amounted to $11.5 million and $16.8 million for the years ended December 31, 2023 and 2022, respectively, representing a 31.9% decrease. The decrease was attributable to decreased demand that was impacted by global supply chain interruptions and inflation issues.

Gross Profit

Gross profit was $32.1 million during year 2023, an increase of 1.8% compared to the prior year, as a result of pricing gains, a more favorable mix, and lower freight costs, despite volume weaknesses. Gross profit margin percentage improved to 27.4% during 2023, up 790 basis points from 19.5% in the prior year, as gross margins continue benefit from a shift in revenue mix towards higher-margin products, lower logistics costs, and the full benefit of pricing actions taken during 2022.

Operating Expenses

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 $2.4 million, or 13.9%, to $20.0 million for the year ended December 31, 2023, from $17.5 million for the year ended December 31, 2022. The increase was a result of participating more sales trade show events and promotions as pandemic restrictions were eased, which caused the increase in marketing, sample and travel related expenses, partially offset by lower commission, sales coop and shipping freight expenses impacted by sales volume loss.

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 $0.6 million, or 7.6%, to $8.4 million for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The increase was primarily attributable to incremental public company costs and legal expenses.

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 consolidated statements of income.

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Other Income (Expenses)

We incurred insignificant other income and expenses during the years ended December 31, 2023 and 2022. Other income and expenses primarily include interest income and expenses, as well as miscellaneous non-operating income and expenses.

Other expenses, net increased by approximately $0.4 million or 66.2%, to $0.9 million for the year ended December 31, 2023, from $0.6 million for the year ended December 31, 2022. This increase was the result of higher interest expenses due to increases in applicable interest rates.

Provision for Income Taxes

We recorded income tax expense of $0.8 million for the year ended December 31, 2023, and $0.9 million for the year ended December 31, 2022. The decrease resulted from the decrease in our reported income before taxes of $2.8 million, or 54.7%.

Net Income

Our net income decreased by $3.1 million, or 84.3%, to $0.6 million for the year ended December 31, 2023, from $3.7 million for the year ended December 31, 2022. This decrease was a result of 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 December 31, 2023, we had cash and working capital of $7.8 million and $18.1 million, respectively. On January 27, 2022, we closed an underwritten public offering of 2.5 million units consisting of Ordinary Shares and warrants and received net proceeds, after commissions and expenses, of approximately $12.4 million.

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. 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. 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 December 31, 2023, FGI’s total outstanding debt is represented by a credit facility with East West Bank.

East West Bank Credit Facility

Our wholly owned subsidiary, FGI Industries (formerly named Foremost Groups, Inc.), has a line of credit agreement (the “Credit Agreement”) with East West Bank, which is collateralized by all assets of FGI Industries and personally guaranteed by Liang Chou Chen, who holds approximately 49.89% of the voting control of Foremost. On November 25, 2022, the line was extended, to a new maturity date of December 21, 2024, and the current amount of maximum borrowings is $18,000,000. This is an assets-based line of credit, the borrowing limit is calculated based on certain percentage of accounts receivable and inventory balances.

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

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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 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 December 31, 2023 and 2022, FGI Industries was in compliance with these financial covenants.

The loan bears interest at 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 December 31, 2023 and December 31, 2022 was 8.25% and 7.25%, 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 $6,959,175 and $9,795,052 as of December 31, 2023 and 2022, respectively.

HSBC Canada Bank Loan

FGI Canada Ltd. 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 December 31, 2023 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. Pursuant to the Canadian Revolver, FGI Canada Ltd. is required to maintain (a) a debt to tangible net worth ratio of no more than 3.00 to 1.00; and (b) a ratio of current assets to current liabilities of at least 1.25 to 1.00. The loan bears interest at a rate of Prime rate plus 0.50%. As of December 31, 2023 and 2022, FGI Canada Ltd. was in compliance with these financial covenants.

Borrowings under this line of credit amounts to $0 as of December 31, 2023 and 2022. The facility matures at the discretion of HSBC Canada upon 60 days notice.

CTBC Bank Credit Line

Subsequent to the year end, FGI International entered into an omnibus credit line (the “Credit Line”) with CTBC Bank Co., Ltd. (“CTBC”). Under the 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 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.

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C ash Flows

The following table summarizes the key components of our cash flows for the years ended December 31, 2023, and 2022.

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the Year Ended December 31,
​ | ​ | 2023 | ​ | 2022
​ |  | USD |  | USD
Net cash provided by operating activities | ​ | $ | 1,389,699 | ​ | $ | 980,265
Net cash used in investing activities | ​ |  | (942,614) | ​ |  | (1,063,823)
Net cash (used in) provided by financing activities | ​ |  | (2,835,876) | ​ |  | 7,010,567
Effect of exchange rate fluctuation on cash | ​ |  | 98,604 | ​ |  | (743,477)
Net changes in cash | ​ |  | (2,290,187) | ​ |  | 6,183,532
Cash, beginning of period | ​ |  | 10,067,428 | ​ |  | 3,883,896
Cash, end of period | ​ | $ | 7,777,241 | ​ | $ | 10,067,428

​

Operating Activities

Net cash provided by operating activities was approximately $1.4 million for the year ended December 31, 2023 compared to $1.0 million for the year ended December 31, 2022. The increase was primarily attributable to a decrease in inventory of approximately $3.4 million, and non-cash items of approximately $2.7 million, a decrease in other noncurrent assets of approximately $0.9 million, an increase in accounts payable – related parties of approximately $0.6 million, and net income for the year of approximately $0.6 million. These drivers were partially offset by an increase in prepayments and other current assets of approximately $2.0 million, plus an increase in prepayments and other receivables - related parties of approximately $2.0 million, a decrease in operating lease liabilities of approximately $1.3 million, an increase in accounts receivable of approximately $1.1 million, and reversal of defective return of approximately $0.9 million.

Net cash provided by operating activities was approximately $1.0 million for the year ended December 31, 2022 which was primarily attributable to a decrease in accounts receivable of approximately $13.5 million, a decrease in inventories of approximately $8.0 million, and net income for the year of approximately $3.7 million, a decrease in other noncurrent assets of approximately $0.9 million, a decrease in right-of-used assets of approximately $0.9 million, an increase in accounts payable-related parties of approximately $0.1 million. These drivers were partially offset by a decrease in accounts payable of approximately $17.3 million, plus an increase in prepayments and other receivables - related parties of approximately $2.5 million, a decrease in accrued expenses and other current liabilities of approximately $1.9 million, a decrease in operating lease liabilities of approximately $1.4 million, a decrease in income taxes payable of approximately $1.2 million and an increase in prepayments, other current assets of approximately $1.0 million, and non-cash items of approximately $0.6 million.

Investing Activities

Net cash used in investing activities was approximately $0.9 million and $1.1 million for the years ended December 31, 2023 and 2022, respectively. We purchased property and equipment of $0.8 million and intangible assets of $0.1 million in 2023, as compared to purchase of property and equipment of $1.1 million in 2022.

Financing Activities

Net cash used in financing activities was approximately $2.8 million for the year ended December 31, 2023, which represented the net repayments of revolving credit facility.

Net cash provided financing activities was approximately $7.0 million for the year ended December 31, 2022, which primarily represents the net proceeds from issuance of units in the IPO of $12.4 million and partially offset by repayment of bank loans of $4.9 million and a decrease of $0.5 million excess payment over carrying value resulted from long-lived assets acquisition from affiliate.

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Commitments and Contingencies

Capital Expenditures

Our capital expenditures were incurred primarily in connection with the acquisition of property and equipment. Our capital expenditures amounted to approximately $0.9 million and $1.1 million for the years ended December 31, 2023, and 2022, respectively. We do not expect to incur significant capital expenditures in the immediate future.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements including arrangements that would affect our liquidity, capital resources, market risk support and credit risk support or other benefits.

Critical Accounting Policies

The consolidated financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements and accompanying notes requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We have identified certain accounting policies that are significant to the preparation of the consolidated financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the portrayal of our financial conditions and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to consolidated financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements included elsewhere in this registration statement, we believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our consolidated financial statements.

Use of estimates and assumptions

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in our consolidated financial statements include the useful lives of property and equipment, allowance for credit losses, inventory reserve, accrued defective return, provision for contingent liabilities, revenue recognition, deferred taxes and uncertain tax position. Actual results could differ from these estimates.

Foreign currency translation and transaction

The functional currencies of our company and our subsidiaries are the local currency of the country in which the subsidiaries operate, except for FGI International which is incorporated in Hong Kong while adopting the United States Dollar (“U.S. Dollar” or “USD”) as its functional currency. The reporting currency of our company is the U.S. Dollar. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect at that date. The equity denominated in the functional currencies is translated at the historical rates of exchange at the time of capital contributions. The results of operations and the cash flows denominated in foreign currencies are translated at the average rates of exchange during the reporting period. Because cash flows are translated based on the average translation rates, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets. Translation adjustments arising from the use of different exchange rates from period to period are included as a separate

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component of accumulated other comprehensive income included in the consolidated statements of changes in parent’s net investment. Transaction gains and losses arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency in the consolidated statements of income and comprehensive income.

For the purpose of presenting the financial statements of subsidiaries using the Renminbi (“RMB”) as functional currency, the Company’s assets and liabilities are expressed in U.S. Dollars at the exchange rate on the balance sheet date, which was 7.1006 and 6.9653 as of December 31, 2023 and 2022, respectively; shareholders’ equity accounts are translated at historical rates, and income and expense items are translated at the average exchange rate during the period, which was 7.0945 and 6.7164 the years ended December 31, 2023 and 2022, respectively.

For the purpose of presenting the financial statements of the subsidiary using the Canadian Dollar (“CAD”) as functional currency, the Company’s assets and liabilities are expressed in U.S. Dollars at the exchange rate on the balance sheet date, which was 1.3246 and 1.3541 as of December 31, 2023 and 2022, respectively; shareholders’ equity accounts are translated at historical rates, and income and expense items are translated at the average exchange rate during the period, which was 1.3541 and 1.2945 for the years ended December 31, 2023 and 2022, respectively.

For the purpose of presenting the financial statements of the subsidiary using the Euro (“EUR”) as functional currency, the Company’s assets and liabilities are expressed in U.S. Dollars at the exchange rate on the balance sheet date, which was 0.9059 and 0.9338 as of December 31, 2023 and 2022, respectively; shareholders’ equity accounts are translated at historical rates, and income and expense items are translated at the average exchange rate during the period, which was 0.9527 and 0.9474 for the years ended December 31, 2023 and 2022, respectively.

Accounts receivable

Accounts receivables include trade accounts due from customers. In establishing the required allowance for credit losses, management considers historical collection experience, aging of the receivables, the economic environment, industry trend analysis, and the credit history and financial conditions of the customers. Management reviews its receivables on a regular basis to determine if the expected credit losses is adequate and adjusts the allowance when necessary. Delinquent account balances are written off against allowance for credit losses after management has determined that the likelihood of collection is not probable.

Inventories, net

Inventories are stated at the lower of cost and net realizable value. Cost consists of purchase price and related shipping and handling expenses, and is determined using the weighted average cost method, based on individual products. The methods of determining inventory costs are used consistently from year to year. A provision for slow-moving items is calculated based on historical experience. Management reviews this provision annually to assess whether, based on economic conditions, it is adequate.

Property and equipment

Property and equipment are stated at cost net of accumulated depreciation and impairment. Depreciation is provided over the estimated useful lives of the assets using the straight-line method from the time the assets are placed in service. Estimated useful lives are as follows:

​

​ | ​ | ​
​ |  | Useful Life
Building | ​ | 20 years
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

​

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Leases

We determine if an arrangement is a lease at inception. Operating leases are included in right-of-use assets (“ROU assets”), accrued expenses and operating lease liabilities — noncurrent on the consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the duration of the lease term while lease liabilities represent our obligation to make lease payments in exchange for the right to use an underlying asset. ROU assets and lease liabilities are measured based on the present value of fixed lease payments over the lease term at the commencement date. The ROU asset also includes any lease payments made prior to the commencement date and initial direct costs incurred and is reduced by any lease incentives received. We review our ROU assets as events occur or circumstances change that would indicate the carrying amount of the ROU assets are not recoverable and exceed their fair values. If the carrying amount of the ROU asset is not recoverable from its undiscounted cash flows, then we would recognize an impairment loss for the difference between the carrying amount and the current fair value.

As most of our leases do not provide an implicit rate, we generally uses our incremental borrowing rate on the commencement date of the lease as the discount rate in determining the present value of future lease payments. We determine the incremental borrowing rate for each lease by using the incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. Our lease terms may include options to extend or terminate the lease when there are relevant economic incentives present that make it reasonably certain that we will exercise that option. We account for any non- lease components separately from lease components.

Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Fair Value Measurement

The accounting standard regarding fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by us.

The accounting standards define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement and enhance disclosure requirements for fair value measures. The three levels of the fair value hierarchy are as follows:

| ● | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.

Financial instruments included in current assets and current liabilities are reported in the consolidated balance sheets at face value or cost, which approximate fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rates of interest.

Revenue recognition

We recognize revenue in accordance with Accounting Standards Codification (“ASC”) 606 – Revenue from Contracts with Customer. Revenues are recognized when control of the promised goods or performance obligations for services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for the goods or services.

We generate revenues from sales of kitchen and bath products and recognizes revenue as control of its products is transferred to its customers, which is generally at the time of shipment or upon delivery based on the contractual terms

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with our customers. Our customers’ payment terms generally range from 15 to 60 days of fulfilling its performance obligations and recognizing revenue.

We provide customer programs and incentive offerings, including co-operative marketing arrangements and volume-based incentives. These customer programs and incentives are considered variable considerations. We include in revenue variable considerations only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the variable consideration is resolved. This determination is made based upon known customer program and incentive offerings at the time of sale and expected sales volume forecasts as it relates to our volume- based incentives. This determination is updated on a monthly basis.

Certain product sales include a right of return. We estimate future product returns at the time of sale based on historical experience and record a corresponding reduction in accounts receivable.

We record receivables related to revenue when it has an unconditional right to invoice and receive payment.

Share-based compensation

We account for share-based compensation in accordance with ASC 718, Compensation — Stock Compensation (“ASC 718”). In accordance with ASC 718, we determine whether an award should be classified and accounted for as a liability award or an equity award. All of our share-based awards were classified as equity awards and are recognized in the consolidated financial statements based on their grant date fair values.

We have elected to recognize share-based compensation using the straight-line method for all share- based awards granted over the requisite service period, which is the vesting period. We account for forfeitures as they occur in accordance with ASU No. 2016-09, Compensation — Stock Compensation (Topic 718): Improvement to Employee Share-based Payment Accounting. Our company, with the assistance of an independent third-party valuation firm, determines the fair value of the stock options granted to employees. The Black Scholes Model is applied in determining the estimated fair value of the options granted to employees and non-employees. The Company recognized share-based compensation $417,978 and $383,572 in 2023 and 2022, respectively.

Income Taxes

Deferred taxes are recognized based on the future tax consequences of differences between the carrying value of assets and liabilities and their respective tax basis. The future realization of deferred tax assets depends on the existence of sufficient taxable income in future periods. Possible sources of taxable income include taxable income in carryback periods, the future reversal of existing taxable temporary differences recorded as a deferred tax liability, tax-planning strategies that generate future income or gains in excess of anticipated losses in the carryforward period and projected future taxable income.

If, based upon all available evidence, both positive and negative, it is more likely than not (more than 50 percent likely) such deferred tax assets will not be realized, a valuation allowance is recorded. Significant weight is given to positive and negative evidence that is objectively verifiable. A company’s three-year cumulative loss position is significant negative evidence in considering whether deferred tax assets are realizable, and the accounting guidance restricts the amount of reliance we can place on projected taxable income to support the recovery of the deferred tax assets.

The current accounting guidance allows the recognition of only those income tax positions that have a greater than 50 percent likelihood of being sustained upon examination by the taxing authorities. The Company believes that there is an increased potential for volatility in its effective tax rate because this threshold allows for changes in the income tax environment and, to a greater extent, the inherent complexities of income tax law in a substantial number of jurisdictions, which may affect the computation of its liability for uncertain tax positions.

We record interest and penalties on our uncertain tax positions in income tax expense.

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We record the tax effects of Foreign Derived Intangible Income (FDII) and Global Intangible Low- Taxed Income (GILTI) related to our foreign operations as a component of income tax expense in the period the tax arises.

Recently issued accounting pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” amending the accounting for the impairment of financial instruments, including trade receivables. Under previous guidance, credit losses were recognized when the applicable losses had a probable likelihood of occurring and this assessment was based on past events and current conditions. The amended current guidance eliminates the “probable” threshold and requires an entity to use a broader range of information, including forecast information when estimating expected credit losses. Generally, this should result in a more timely recognition of credit losses. This guidance became effective for interim and annual periods beginning after December 15, 2019 with early adoption permitted for interim and annual periods beginning after December 15, 2018. The requirements of the amended guidance should be applied using a modified retrospective approach except for debt securities, which require a prospective transition approach. In November 2019, the FASB issued ASU 2019-10 which finalized the delay of such effective date to fiscal years beginning after December 15, 2023 for private and all other companies including emerging growth companies. As an emerging growth company, the Company adopted this guidance from January 1, 2023, and the adoption of the standard did not have an impact on our financial position or results of operation.

Non-GAAP Measures

In addition to the measures presented in our consolidated financial statements, we use the following non-GAAP measures to evaluate our business, measure our performance, identify trends affecting our business and assist us in making strategic decisions. Our non-GAAP measures are: Adjusted Income from Operations, Adjusted Operating Margins and Adjusted Net Income. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles in the United States (“US GAAP”). They are supplemental financial measures of our performance only, and should not be considered substitutes for net income, income from operations or any other measure derived in accordance with GAAP and may not be comparable to similarly titled measures reported by other entities.

We define Adjusted Income from Operations as GAAP income from operations excluding the impact of certain non-recurring expenses, including expenses related to COVID-19 protocols. We define Adjusted Net Income as GAAP net income excluding the tax-effected impact of certain non-recurring expenses and income such as expenses related to COVID-19 protocols, unusual litigation fees and non-recurring compensation expenses related to our IPO. We define Adjusted Operating Margins as adjusted income from operations divided by revenue.

We use these non-GAAP measures, along with U.S. GAAP measures, to evaluate our business, measure our financial performance and profitability and our ability to manage expenses, after adjusting for certain one-time expenses, identify trends affecting our business and assist us in making strategic decisions. We believe these non-GAAP measures, when reviewed in conjunction with U.S. GAAP financial measures, and not in isolation or as substitutes for analysis of our results of operations under U.S. GAAP, are useful to investors as they are widely used measures of performance and the adjustments we make to these non-GAAP measures provide investors further insight into our profitability and additional perspectives in comparing our performance over time on a consistent basis.

​

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The following table reconciles Income from Operations to Adjusted Income from Operations and Adjusted Operating Margins, as well as Net income to Adjusted Net Income for the periods presented.

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the year ended |
​ | ​ | December 31, |
​ | ​ | 2023 |  | 2022 |
Income from operations | ​ | $ | 2,304,443 |  | $ | 5,091,978 | ​
Adjustments: | ​ | ​ |  |  | ​ |  | ​
Non-recurring IPO-related compensation | ​ | ​ | 238,876 | ​ | ​ | 435,028 | ​
IPO and arbitration legal fee | ​ | ​ | 50,000 | ​ | ​ | 221,258 | ​
Anti-dumping penalty(1) | ​ | ​ | — | ​ | ​ | 124,865 | ​
Business expansion expense | ​ | ​ | 247,082 | ​ | ​ | — | ​
Adjusted income from operations | ​ | ​ | 2,840,401 |  | ​ | 5,873,129 | ​
Revenue | ​ | $ | 117,241,604 |  | $ | 161,718,543 | ​
Adjusted operating margins | ​ | ​ | 2.4 | % | ​ | 3.6 | %

​

(1) Represents an additional charge related to one-time anti-dumping/countervailing duty legal fee, as shown in prior periods.

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the year ended
​ | ​ | December 31,
​ |  | 2023 |  | 2022
Net income | ​ | $ | 579,564 |  | $ | 3,679,920
Adjustments: | ​ | ​ | ​ | ​ | ​ | ​
Non-recurring IPO-related compensation | ​ | ​ | 238,876 | ​ | ​ | 435,028
IPO and arbitration legal fee | ​ | ​ | 50,000 | ​ | ​ | 221,258
Anti-dumping penalty(1) | ​ | ​ | — | ​ | ​ | 124,865
Business expansion expense | ​ | ​ | 247,082 | ​ | ​ | —
Total | ​ | ​ | 1,115,522 |  | ​ | 4,461,071
Tax impact of adjustment at 18% effective rate | ​ | ​ | (101,296) |  | ​ | (140,607)
Adjusted net income | ​ | $ | 1,014,226 |  | $ | 4,320,464

​

(1) Represents an additional charge related to one-time anti-dumping/countervailing duty legal fee, as shown in prior periods.

​

​

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined in Regulation S-K and are not required to provide the information under this item.

​

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

FGI INDUSTRIES LTD.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

​ | ​
Report of Independent Registered Public Accounting Firm (PCAOB ID: 688) | 50
Consolidated Balance Sheets as of December 31, 2023 and 2022 | 51
Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2023 and 2022 | 52
Consolidated Statements of Changes in Shareholders’ Equity (Parent’s Net Investment) for the years ended December 31, 2023 and 2022 | 53
Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 | 54
Notes to Consolidated Financial Statements | 55

​

​

​

​

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

​

To the Shareholders and Board of Directors of

FGI Industries Ltd.

​

Opinion on the Financial Statements

​

We have audited the accompanying consolidated balance sheets of FGI Industries Ltd. (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of income and comprehensive income, changes in shareholders’ equity (parent’s net investment) and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

​

Basis for Opinion

​

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

​

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

​

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

​

​

/s/ Marcum llp

​

Marcum llp

​

We have served as the Company’s auditor since 2020.

​

Melville, NY

March 26, 2024

​

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FGI INDUSTRIES LTD.

CONSOLIDATED BALANCE SHEETS

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | As of | ​ | As of
​ | ​ | December 31, 2023 | ​ | December 31, 2022
​ |  | USD |  | USD
​ |  | ​ | ​ | ​
ASSETS | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​
CURRENT ASSETS |  | ​ |  |  | ​ |
Cash | ​ | $ | 7,777,241 | ​ | $ | 10,067,428
Accounts receivable, net | ​ |  | 16,195,543 | ​ |  | 14,295,859
Inventories, net | ​ |  | 9,923,852 | ​ |  | 13,292,591
Prepayments and other current assets | ​ |  | 4,617,751 | ​ |  | 2,588,081
Prepayments and other receivables – related parties | ​ |  | 7,600,283 | ​ |  | 5,643,649
Total current assets | ​ |  | 46,114,670 | ​ |  | 45,887,608
​ | ​ | ​ | ​ | ​ | ​ | ​
PROPERTY AND EQUIPMENT, NET | ​ |  | 1,910,491 | ​ |  | 1,269,971
​ | ​ | ​ | ​ | ​ | ​ | ​
OTHER ASSETS | ​ |  |  | ​ |  |
Intangible assets | ​ |  | 102,227 | ​ |  | —
Operating lease right-of-use assets, net | ​ |  | 15,203,576 | ​ |  | 9,815,572
Deferred tax assets, net | ​ |  | 1,168,833 | ​ |  | 1,265,539
Other noncurrent assets | ​ |  | 1,245,133 | ​ |  | 2,128,240
Total other assets | ​ |  | 17,719,769 | ​ |  | 13,209,351
Total assets | ​ | $ | 65,744,930 | ​ | $ | 60,366,930
​ | ​ | ​ | ​ | ​ | ​ | ​
LIABILITIES AND SHAREHOLDERS’ EQUITY | ​ |  |  | ​ |  |
​ | ​ | ​ | ​ | ​ | ​ | ​
CURRENT LIABILITIES | ​ |  |  | ​ |  |
Short-term loans | ​ | $ | 6,959,175 | ​ | $ | 9,795,052
Accounts payable | ​ |  | 14,524,607 | ​ |  | 14,718,969
Accounts payable – related parties | ​ | ​ | 735,308 | ​ | ​ | 104,442
Income tax payable | ​ |  | 189,119 | ​ |  | 33,350
Operating lease liabilities – current | ​ |  | 1,595,998 | ​ |  | 1,543,031
Accrued expenses and other current liabilities | ​ |  | 4,039,499 | ​ |  | 3,580,359
Total current liabilities | ​ |  | 28,043,706 | ​ |  | 29,775,203
​ | ​ | ​ | ​ | ​ | ​ | ​
OTHER LIABILITIES | ​ |  |  | ​ |  |
Operating lease liabilities – noncurrent | ​ |  | 13,674,452 | ​ |  | 7,847,317
Total liabilities | ​ |  | 41,718,158 | ​ |  | 37,622,520
​ | ​ | ​ | ​ | ​ | ​ | ​
COMMITMENTS AND CONTINGENCIES | ​ |  |  | ​ |  |
​ | ​ | ​ | ​ | ​ | ​ | ​
SHAREHOLDERS’ EQUITY | ​ |  |  | ​ |  |
Preference Shares ($0.0001 par value, 10,000,000 shares authorized, no shares issued and outstanding as of December 31, 2023 and December 31, 2022) | ​ |  | — | ​ |  | —
Ordinary shares ($0.0001 par value, 200,000,000 shares authorized, 9,547,607 and 9,500,000 shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively) | ​ |  | 955 | ​ |  | 950
Additional paid-in capital | ​ | ​ | 20,877,832 | ​ | ​ | 20,459,859
Retained earnings | ​ | ​ | 4,413,524 | ​ | ​ | 3,679,920
Accumulated other comprehensive loss | ​ | ​ | (1,111,499) | ​ | ​ | (1,396,319)
FGI Industries Ltd. shareholders’ equity | ​ |  | 24,180,812 | ​ |  | 22,744,410
Non-controlling interests | ​ | ​ | (154,040) | ​ | ​ | —
Total shareholders’ equity | ​ | ​ | 24,026,772 | ​ | ​ | 22,744,410
Total liabilities and shareholders’ equity | ​ | $ | 65,744,930 | ​ | $ | 60,366,930

​

The accompanying notes are an integral part of these consolidated financial statements.

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FGI INDUSTRIES LTD.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the Years Ended
​ | ​ | December 31,
​ |  | ​ | 2023 |  | ​ | 2022
​ | ​ | ​ | USD |  | ​ | USD
REVENUES | ​ | $ | 117,241,604 | ​ | $ | 161,718,543
​ | ​ | ​ | ​ | ​ | ​ | ​
COST OF REVENUES | ​ |  | 85,164,322 | ​ |  | 130,209,538
​ | ​ | ​ | ​ | ​ | ​ | ​
GROSS PROFIT | ​ |  | 32,077,282 | ​ |  | 31,509,005
​ | ​ | ​ | ​ | ​ | ​ | ​
OPERATING EXPENSES | ​ |  | ​ | ​ |  | ​
Selling and distribution | ​ | ​ | 19,971,912 | ​ | ​ | 17,533,028
General and administrative | ​ |  | 8,424,083 | ​ |  | 7,830,023
Research and development | ​ |  | 1,376,844 | ​ |  | 1,053,976
Total operating expenses | ​ |  | 29,772,839 | ​ |  | 26,417,027
​ | ​ | ​ | ​ | ​ | ​ | ​
INCOME FROM OPERATIONS | ​ |  | 2,304,443 | ​ |  | 5,091,978
​ | ​ | ​ | ​ | ​ | ​ | ​
OTHER INCOME (EXPENSES) | ​ |  | ​ | ​ |  | ​
Interest income | ​ | ​ | 10,543 | ​ | ​ | 3,159
Interest expense | ​ |  | (749,729) | ​ |  | (600,798)
Other (expenses) income, net | ​ |  | (177,469) | ​ |  | 46,211
Total other expenses, net | ​ |  | (916,655) | ​ |  | (551,428)
​ | ​ | ​ | ​ | ​ | ​ | ​
INCOME BEFORE INCOME TAXES | ​ |  | 1,387,788 | ​ |  | 4,540,550
​ | ​ | ​ | ​ | ​ | ​ | ​
PROVISION FOR INCOME TAXES | ​ |  | ​ | ​ |  | ​
Current | ​ | ​ | 711,518 | ​ | ​ | 658,694
Deferred | ​ |  | 96,706 | ​ |  | 201,936
Total provision for income taxes | ​ |  | 808,224 | ​ |  | 860,630
​ | ​ | ​ | ​ | ​ | ​ | ​
NET INCOME | ​ |  | 579,564 | ​ |  | 3,679,920
Less: net loss attributable to non-controlling shareholders | ​ | ​ | (154,040) | ​ | ​ | —
Net income attributable to FGI Industries Ltd. Shareholders | ​ | ​ | 733,604 | ​ | ​ | 3,679,920
​ | ​ | ​ | ​ | ​ | ​ | ​
OTHER COMPREHENSIVE INCOME (LOSS) | ​ |  | ​ | ​ |  | ​
Foreign currency translation adjustment | ​ | ​ | 284,820 | ​ | ​ | (741,587)
​ | ​ | ​ | ​ | ​ | ​ | ​
COMPREHENSIVE INCOME | ​ | ​ | 864,384 | ​ | ​ | 2,938,333
Less: comprehensive loss attributable to non-controlling shareholders | ​ | ​ | (154,040) | ​ | ​ | —
Comprehensive income attributable to FGI Industries Ltd. Shareholders | ​ | $ | 1,018,424 | ​ | $ | 2,938,333
​ | ​ | ​ | ​ | ​ | ​ | ​
WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES | ​ |  | ​ | ​ |  | ​
Basic | ​ | ​ | 9,525,434 | ​ | ​ | 9,335,616
Diluted | ​ | ​ | 9,821,112 | ​ | ​ | 9,341,921
​ | ​ | ​ | ​ | ​ | ​ | ​
EARNINGS PER SHARE | ​ | ​ | ​ | ​ | ​ | ​
Basic | ​ | $ | 0.08 | ​ | $ | 0.39
Diluted | ​ | $ | 0.07 | ​ | $ | 0.39

​

The accompanying notes are an integral part of these consolidated financial statements.

​

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FGI INDUSTRIES LTD.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY (PARENT’S NET INVESTMENT)

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | ​ | ​ |  | ​ | ​ | ​ | ​ | ​ |  | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |  | Accumulated |  | Total FGI |  | ​ |  | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ |  | ​ | ​ | ​ | ​ | ​ |  | Additional |  | Parent's |  | ​ | ​ | Other | ​ | Industries Ltd. | ​ | Non- | ​ | Total
​ | ​ | Preference Shares | ​ | Ordinary Shares | ​ | Paid-in | ​ | Net | ​ | Retained | ​ | Comprehensive | ​ | Shareholders' | ​ | Controlling | ​ | Shareholders'
​ |  | Shares | ​ | Amount |  | Shares | ​ | Amount |  | Capital |  | Investment |  | Earnings |  | Loss |  | Equity |  | Interests |  | Equity
Balance at January 1, 2022 | ​ | ​ | — | ​ | $ | — | ​ | ​ | 7,000,000 | ​ | $ | 700 | ​ | $ | — | ​ | $ | 7,549,010 | ​ | $ | — | ​ | $ | — | ​ | $ | 7,549,710 | ​ | $ | — | ​ | $ | 7,549,710
Consummation of separation transaction upon completion of reorganization | ​ | ​ | — | ​ | ​ | — | ​ | ​ | — | ​ | ​ | — | ​ | ​ | 8,203,742 | ​ | ​ | (7,549,010) | ​ | ​ | — | ​ | ​ | (654,732) | ​ | ​ | — | ​ | ​ | — | ​ | ​ | —
Share-based compensation | ​ | ​ | — | ​ |  | — | ​ | ​ | — | ​ |  | — | ​ |  | 383,572 | ​ |  | — | ​ |  | — | ​ |  | — | ​ |  | 383,572 | ​ |  | — | ​ |  | 383,572
Issuance of ordinary shares upon Initial Public Offering (“IPO”), net | ​ | ​ | — | ​ | ​ | — | ​ | ​ | 2,500,000 | ​ | ​ | 250 | ​ | ​ | 12,370,550 | ​ | ​ | — | ​ | ​ | — | ​ | ​ | — | ​ | ​ | 12,370,800 | ​ | ​ | — | ​ | ​ | 12,370,800
Net income | ​ | ​ | — | ​ |  | — | ​ | ​ | — | ​ |  | — | ​ |  | — | ​ |  | — | ​ |  | 3,679,920 | ​ |  | — | ​ |  | 3,679,920 | ​ |  | — | ​ |  | 3,679,920
Long-lived assets acquisition from affiliate | ​ | ​ | — | ​ | ​ | — | ​ | ​ | — | ​ | ​ | — | ​ | ​ | (498,005) | ​ | ​ | — | ​ | ​ | — | ​ | ​ | — | ​ | ​ | (498,005) | ​ |  | — | ​ |  | (498,005)
Foreign currency translation adjustments | ​ | ​ | — | ​ |  | — | ​ | ​ | — | ​ |  | — | ​ |  | — | ​ |  | — | ​ |  | — | ​ |  | (741,587) | ​ |  | (741,587) | ​ |  | — | ​ |  | (741,587)
Balance at December 31, 2022 | ​ | ​ | — | ​ | $ | — | ​ | ​ | 9,500,000 | ​ | $ | 950 | ​ | $ | 20,459,859 | ​ | $ | — | ​ | $ | 3,679,920 | ​ | $ | (1,396,319) | ​ | $ | 22,744,410 | ​ | $ | — | ​ | $ | 22,744,410
Share-based compensation | ​ | ​ | — | ​ |  | — | ​ | ​ | 47,607 | ​ |  | 5 | ​ |  | 417,973 | ​ |  | — | ​ |  | — | ​ |  | — | ​ |  | 417,978 | ​ |  | — | ​ |  | 417,978
Net income | ​ | ​ | — | ​ |  | — | ​ | ​ | — | ​ |  | — | ​ |  | — | ​ |  | — | ​ |  | 733,604 | ​ |  | — | ​ |  | 733,604 | ​ |  | (154,040) | ​ |  | 579,564
Foreign currency translation adjustments | ​ | ​ | — | ​ |  | — | ​ | ​ | — | ​ |  | — | ​ |  | — | ​ |  | — | ​ |  | — | ​ |  | 284,820 | ​ |  | 284,820 | ​ |  | — | ​ |  | 284,820
Balance at December 31, 2023 | ​ | ​ | — | ​ | $ | — | ​ | ​ | 9,547,607 | ​ | $ | 955 | ​ | $ | 20,877,832 | ​ | $ | — | ​ | $ | 4,413,524 | ​ | $ | (1,111,499) | ​ | $ | 24,180,812 | ​ | $ | (154,040) | ​ | $ | 24,026,772

​

​

​

​

​

​

The accompanying notes are an integral part of these consolidated financial statements.

​

​

​

​

​

​

​

​

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FGI INDUSTRIES LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the Years Ended December 31,
​ | ​ | 2023 | ​ | 2022
​ |  | USD |  | USD
CASH FLOWS FROM OPERATING ACTIVITIES | ​ | ​ | ​ | ​ | ​ | ​
Net income | ​ | $ | 579,564 | ​ | $ | 3,679,920
Adjustments to reconcile net income to net cash provided by operating activities | ​ | ​ | ​ | ​ | ​ | ​
Depreciation and amortization | ​ | ​ | 2,017,502 | ​ | ​ | 218,662
Share-based compensation | ​ |  | 417,978 | ​ |  | 383,572
Provision for credit losses | ​ |  | 78,640 | ​ |  | 261,381
Reversal of defective return | ​ | ​ | (851,554) | ​ | ​ | (1,696,263)
Foreign exchange transaction loss | ​ |  | 185,317 | ​ |  | 7,417
Deferred income tax expense | ​ |  | 96,707 | ​ |  | 213,050
Changes in operating assets and liabilities | ​ |  | ​ | ​ |  | ​
Accounts receivable | ​ | ​ | (1,126,770) | ​ | ​ | 13,489,673
Inventories | ​ |  | 3,368,740 | ​ |  | 7,971,370
Prepayments and other current assets | ​ |  | (2,029,670) | ​ |  | (1,041,458)
Prepayments and other receivables – related parties | ​ |  | (1,956,634) | ​ |  | (2,523,826)
Other noncurrent assets | ​ |  | 883,108 | ​ |  | 860,770
Income taxes | ​ |  | 155,769 | ​ |  | (1,187,589)
Right-of-use assets | ​ |  | — | ​ |  | 858,322
Accounts payable | ​ |  | (194,362) | ​ |  | (17,290,882)
Accounts payable-related parties | ​ |  | 630,866 | ​ |  | 104,442
Operating lease liabilities | ​ |  | (1,324,641) | ​ |  | (1,396,218)
Accrued expenses and other current liabilities | ​ |  | 459,139 | ​ |  | (1,932,078)
Net cash provided by operating activities | ​ |  | 1,389,699 | ​ |  | 980,265
​ | ​ | ​ | ​ | ​ | ​ | ​
CASH FLOWS FROM INVESTING ACTIVITIES | ​ |  |  | ​ |  |
Proceeds from disposal of property and equipment | ​ |  | — | ​ |  | 400
Purchase of property and equipment | ​ |  | (840,387) | ​ |  | (1,064,223)
Purchase of intangible assets | ​ | ​ | (102,227) | ​ | ​ | —
Net cash used in investing activities | ​ |  | (942,614) | ​ |  | (1,063,823)
​ | ​ | ​ | ​ | ​ | ​ | ​
CASH FLOWS FROM FINANCING ACTIVITIES | ​ |  |  | ​ |  |
Net repayments of revolving credit facility | ​ |  | (2,835,876) | ​ |  | (4,862,228)
Net proceeds from issuance of ordinary shares in IPO | ​ |  | — | ​ |  | 12,370,800
Excess payment over carrying value on long-lived assets acquisition from common-control affiliate | ​ | ​ | — | ​ | ​ | (498,005)
Net cash (used in) provided by financing activities | ​ |  | (2,835,876) | ​ |  | 7,010,567
​ | ​ | ​ | ​ | ​ | ​ | ​
EFFECT OF EXCHANGE RATE FLUCTUATION ON CASH | ​ |  | 98,604 | ​ |  | (743,477)
​ | ​ | ​ | ​ | ​ | ​ | ​
NET CHANGES IN CASH | ​ |  | (2,290,187) | ​ |  | 6,183,532
CASH, BEGINNING OF YEAR | ​ |  | 10,067,428 | ​ |  | 3,883,896
CASH, END OF YEAR | ​ | $ | 7,777,241 | ​ | $ | 10,067,428
​ | ​ | ​ | ​ | ​ | ​ | ​
SUPPLEMENTAL CASH FLOW INFORMATION | ​ |  | ​ | ​ |  | ​
Cash paid during the period for interest | ​ | ​ | (749,646) | ​ | ​ | (600,043)
Cash paid during the period for income taxes | ​ |  | (552,163) | ​ |  | (1,835,823)
​ | ​ | ​ | ​ | ​ | ​ | ​
NON-CASH INVESTING AND FINANCING ACTIVITIES | ​ |  |  | ​ |  |
New addition on Right-of-use assets | ​ | ​ | (7,204,742) | ​ | ​ | (2,585,925)

​

The accompanying notes are an integral part of these consolidated financial statements.

​

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FGI INDUSTRIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

​

Note 1 — Nature of business and organization

FGI Industries Ltd. (“FGI” or the “Company”) is a holding company organized on May 26, 2021, under the laws of the Cayman Islands. The Company has no substantive operations other than holding all of the outstanding equity of its operating subsidiaries as described below. The Company is a supplier of global kitchen and bath products and currently focuses on the following categories: sanitaryware (primarily toilets, sinks, pedestals and toilet seats), bath furniture (vanities, mirrors and cabinets), shower systems, customer kitchen cabinetry and other accessory items. These products are sold primarily for repair and remodeling (“R&R”) activity and, to a lesser extent, new home or commercial construction. The Company sells its products through numerous partners, including mass retail centers, wholesale and commercial distributors, online retailers and independent dealers and distributors.

The accompanying consolidated financial statements reflect the activities of FGI and each of the following entities, in each case, as contemplated after the Reorganization, as described below:

​

​ | ​ | ​ | ​ | ​
Name |  | Background |  | Ownership
FGI Industries, Inc. |  | ● A New Jersey corporation |  | 100% owned by FGI
(formerly named Foremost Groups, Inc.) | ​ | ● Incorporated on January 5, 1988 | ​ | ​
​ | ​ | ● Sales and distribution in the United States | ​ | ​
FGI Europe Investment Limited | ​ | ● A British Virgin Islands holding company | ​ | 100% owned by FGI
​ | ​ | ● Incorporated on January 1, 2007 | ​ | ​
FGI International, Limited | ​ | ● A Hong Kong company | ​ | 100% owned by FGI
​ | ​ | ● Incorporated on June 2, 2021 | ​ | ​
​ | ​ | ● Sales, sourcing and product development | ​ | ​
FGI Canada Ltd. | ​ | ● A Canadian company | ​ | 100% owned by FGI Industries, Inc.
​ | ​ | ● Incorporated on October 17, 1997 | ​ | ​
​ | ​ | ● Sales and distribution in Canada | ​ | ​
FGI Germany GmbH & Co. KG | ​ | ● A German company | ​ | 100% owned by FGI Europe Investment Limited
​ | ​ | ● Incorporated on January 24, 2013 | ​ | ​
​ | ​ | ● Sales and distribution in Germany | ​ | ​
FGI China, Ltd. | ​ | ● A PRC limited liability company | ​ | 100% owned by FGI International, Limited
​ | ​ | ● Incorporated on August 19, 2021 | ​ | ​
​ | ​ | ● Sourcing and product development | ​ | ​
FGI United Kingdom Ltd | ​ | ● An UK company | ​ | 100% owned by FGI Europe Investment Limited
​ | ​ | ● Incorporated on December 10, 2021 | ​ | ​
​ | ​ | ● Sales and distribution in UK | ​ | ​
FGI Australasia Pty Ltd | ​ | ● An Australian company | ​ | 100% owned by FGI
​ | ​ | ● Incorporated on September 8, 2022 | ​ | ​
​ | ​ | ● Sales and distribution in Australia | ​ | ​
Covered Bridge Cabinetry Manufacturing Co., Ltd | ​ | ● A Cambodian company | ​ | 100% owned by FGI
​ | ​ | ● Incorporated on April 21, 2022 | ​ | ​
​ | ​ | ● Manufacturing in Cambodia | ​ | ​
Isla Porter LLC | ​ | ● A New Jersey company | ​ | 60% owned by FGI Industries, Inc.
​ | ​ | ● Formed on June 2, 2023 | ​ | ​
​ | ​ | ● Sales and distribution in the United States | ​ | ​

​

Reorganization

On January 27, 2022, the following reorganization steps were collectively completed: (i) the incorporation of FGI International, Limited (“FGI International”) and FGI China, Ltd., (ii) FGI Industries, Inc. (formerly Foremost Groups, Inc.) (“FGI Industries”), which operates the kitchen and bath (“K&B”) sales and distribution business in the United States and, through its wholly-owned Canadian subsidiary, Foremost International Limited, in Canada, distributed 100% of the outstanding shares of stock of Foremost Kingbetter Food Equipment Inc. (“FKB”), which operates a separate furniture line of business, to Foremost Groups Ltd. (“Foremost”), FGI Industries’ sole shareholder;

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(iii) Foremost contributed the FKB shares to Foremost Home Inc. (“FHI”), a newly-formed wholly-owned subsidiary of Foremost; and (iv) Foremost contributed 100% of the outstanding shares of stock of each of FGI Industries, FGI Europe Investment Limited (“FGI Europe”), which, directly and, through its wholly-owned German subsidiary, FGI Germany GmbH & Co., operates the K&B sales and distribution business in Europe, and FGI International, which, directly and through its wholly-owned Chinese subsidiary, FGI China, Ltd., operates the K&B sales and distribution business in the remainder of the world, K&B product development and sourcing of K&B products in China, to the Company (collectively, the “Reorganization”), such that, immediately following the Reorganization, (x) Foremost owns 100% of the equity interests in each of the Company and FHI, (y) the Company owns 100% of the equity interests in each of FGI Industries, FGI Europe and FGI International, which collectively, and through subsidiaries, operate the K&B business worldwide (the “K&B Business”), and (z) FHI owns 100% of the equity interests in FKB.

​

Immediately before and as contemplated by the proposed Reorganization, each of the Companies, FGI Industries, FGI Europe and FGI International, and each of their respective subsidiaries was and is ultimately controlled by Foremost. As such, the accompanying consolidated financial statements include the assets, liabilities, revenue, expenses and cash flows that are directly attributable to the K&B Business (excluded otherwise) before the Reorganization. The consolidated financial statements are presented as if the Company had been in existence and the Reorganization had been in effect for the entirely of each of the periods presented. However, such presentation may not necessarily reflect the results of operations, financial position and cash flows if the K&B Business had actually existed on a stand- alone basis during the years presented before the completion of the Reorganization.

On January 14, 2022, FGI Industries, a wholly-owned subsidiary of the Company, entered into a shared services agreement (the “FHI Shared Services Agreement”) with Foremost Home Industries, Inc., a newly-formed wholly-owned subsidiary of Foremost (“FHI”). Pursuant to the FHI Shared Services Agreement, FGI Industries provides FHI with general and administrative services, information technology systems services and human resources services, as well as warehouse space services and supply chain services in the United States. Under the FHI Shared Services Agreement, FHI will reimburse any reasonable and documented out-of-pocket fees incurred by FGI Industries as well as pay a service fee for each service. For warehouse services, FHI will pay FGI Industries a $500,000 annual fee as well as a fee equal to 4% of gross product sales of all products stored in such warehouses. For all other services provided, FHI will pay a service fee equal to the total costs incurred by FGI Industries for such service generally divided by the number of FHI employees relative to FGI Industries employees. The FHI Shared Services Agreement will have an initial term of one year and will renew automatically unless cancelled by either party upon the giving of at least 60 days in advance of the expiration of the then-current term.

On January 1, 2023 the Company entered into an amended and restated shared services agreement (the “Worldwide Shared Services Agreement”) with Foremost Worldwide Co., Ltd. (“Foremost Worldwide”) pursuant to which Foremost Worldwide will provide FGI Industries with general and administrative services, information technology system services and human resources services, in Taiwan. The terms of the Worldwide Services Agreement as between the service provider and recipient are substantially identical to those of the FHI Shared Services Agreement, including calculation of service fees and termination provisions, with Foremost Worldwide providing services and FGI Industries paying Foremost Worldwide for such services.

The assets and liabilities have been stated at historical carrying amounts. Only those assets and liabilities that are specifically identifiable to the K&B Business are included in the Company’s consolidated balance sheets. The Company’s statements of income and comprehensive income consists all the revenues, costs and expenses of the K&B Business, including allocations to the selling and distribution expenses, general and administrative expenses, and research and development expenses, and which were incurred by FGI but related to the K&B Business prior to the Reorganization.

All revenues and cost of revenues attributable to selling of kitchen and bath products were allocated to the Company. Operating expenses were allocated to the Company based on employees and activities that are involved in the K&B Business. Any expenses that were not directly attributable to any specific business were allocated to the Company based on the proportion of the number of employees of the K&B Business to the total number of employees of both the K&B Business and FHI.

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The following table sets forth the revenues, cost of revenues and operating expenses that were irrelevant to the K&B Business allocated from FGI Industries to Foremost Home, Inc. for years ended December 31, 2023 and 2022, respectively.

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the Years Ended
​ | ​ | December 31,
​ | ​ | 2023 | ​ | 2022
​ |  | USD | ​ | USD
Revenues | ​ | $ | 991,919 | ​ | $ | 34,470,623
Cost of revenues | ​ |  | (768,065) | ​ |  | (27,735,284)
Gross profit | ​ |  | 223,854 | ​ |  | 6,735,339
Selling and distribution expenses | ​ |  | 45,979 | ​ |  | (3,883,799)
General and administrative expenses | ​ |  | — | ​ |  | (322,825)
Research and development expenses | ​ |  | — | ​ |  | (219,346)
Income from operations | ​ | $ | 269,833 | ​ | $ | 2,309,369

​

The following table sets forth the revenues, cost of revenues and operating expenses that were directly related to the K&B Business allocated from Foremost Worldwide Co., Ltd., a wholly-owned subsidiary of Foremost, to FGI International for years ended December 31, 2023 and 2022, respectively.

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the Years Ended
​ | ​ | December 31,
​ | ​ | 2023 | ​ | 2022
​ |  | USD | ​ | USD
Revenues | ​ | $ | — | ​ | $ | 25,022,960
Cost of revenues | ​ |  | — | ​ |  | (22,853,884)
Gross profit | ​ |  | — | ​ |  | 2,169,076
Selling and distribution expenses | ​ |  | — | ​ |  | (517,408)
General and administrative expenses | ​ |  | — | ​ |  | (466,872)
Research and development expenses | ​ |  | — | ​ |  | (27,315)
Income from operations | ​ | $ | — | ​ | $ | 1,157,481

​

Income tax liability is calculated based on a separate return basis as if the K&B Business had filed separate tax returns before the completion of the Reorganization. Immediately following the Reorganization, the K&B Business began to file separate tax returns and report taxation based on the actual tax return of each legal entity.

Management believes the basis and amounts of these allocations are reasonable. While the expenses allocated to the Company for these items are not necessarily indicative of the expenses that would have been incurred if the Company had been a separate, stand-alone entity, the Company does not believe that there is any significant difference between the nature and amounts of these allocated expenses and the expenses that would have been incurred if the Company had been a separate, stand-alone entity.

Note 2 — Summary of significant accounting policies

Liquidity

​

Historically, the Company finances its operations through internally generated cash, short-term loans and payables. As of December 31, 2023, the Company had approximately $7.8 million in cash and cash equivalents, which primarily consists of cash on hand and bank deposits, which are unrestricted as to withdrawal and use. As of the date of the report, FGI Industries is in the process of obtaining extension for Corporate Borrower Annual Statements, a U.S. standalone reporting obligation, which will be due by April 30, 2024. If the condition is not met, East West Bank has the right to close the line of credit, please refer to Note 8 – Short-term loans.

​

If the Company is unable to realize its assets within the normal operating cycle of a twelve (12) month period, the Company may have to consider supplementing its available sources of funds through the following sources:

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​

· other available sources of financing from other banks and financial institutions;

· sales of additional securities to the public or other investors; and

· financial support from the Company’s shareholders.

Based on the above considerations, the Company’s management is of the opinion that it has sufficient funds to meet the Company’s working capital requirements and debt obligations as they become due over the next twelve (12) months.

Basis of presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commissions (the “SEC”), regarding financial reporting, and include all normal and recurring adjustments that management of the Company considers necessary for a fair presentation of its financial position and operation results.

Principles of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant intercompany transactions and balances between the Company and its subsidiaries are eliminated upon consolidation.

Subsidiaries are those entities which the Company, directly or indirectly, controls more than one half of the voting power; or has the power to govern the financial and operating policies, to appoint or remove the majority of the members of the board of directors, or to cast a majority of votes at a meeting of directors.

Use of estimates and assumptions

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in the Company’s consolidated financial statements include the useful lives of property and equipment, allowance for credit losses, inventory reserve, accrued defective return, provision for contingent liabilities, revenue recognition, deferred taxes and uncertain tax position. Actual results could differ from these estimates.

Foreign currency translation and transaction

The functional currencies of the Company and its subsidiaries are the local currency of the country in which the subsidiaries operate, except for FGI International which is incorporated in Hong Kong while adopting the United States Dollar (“U.S. Dollar” or “USD”) as its functional currency. The reporting currency of the Company is the U.S. Dollar. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect at that date. The equity denominated in the functional currencies is translated at the historical rates of exchange at the time of capital contributions. The results of operations and the cash flows denominated in foreign currencies are translated at the average rates of exchange during the reporting period. Because cash flows are translated based on the average translation rates, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets. Translation adjustments arising from the use of different exchange rates from period to period are included as a separate component of accumulated other comprehensive income included in the consolidated statements of changes in shareholders’ equity. Transaction gains and losses arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency in the consolidated statements of income and comprehensive income.

For the purpose of presenting the financial statements of subsidiaries using the Renminbi (“RMB”) as functional currency, the Company’s assets and liabilities are expressed in U.S. Dollars at the exchange rate on the balance sheet

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date, which was 7.1006 and 6.9653 as of December 31, 2023 and 2022, respectively; shareholders’ equity accounts are translated at historical rates, and income and expense items are translated at the average exchange rate during the period, which was 7.0945 and 6.7164 the years ended December 31, 2023 and 2022, respectively.

For the purpose of presenting the financial statements of the subsidiary using the Canadian Dollar (“CAD”) as functional currency, the Company’s assets and liabilities are expressed in U.S. Dollars at the exchange rate on the balance sheet date, which was 1.3246 and 1.3541 as of December 31, 2023 and 2022, respectively; shareholders’ equity accounts are translated at historical rates, and income and expense items are translated at the average exchange rate during the period, which was 1.3541 and 1.2945 for the years ended December 31, 2023 and 2022, respectively.

For the purpose of presenting the financial statements of the subsidiary using the Euro (“EUR”) as functional currency, the Company’s assets and liabilities are expressed in U.S. Dollars at the exchange rate on the balance sheet date, which was 0.9059 and 0.9338 as of December 31, 2023 and 2022, respectively; shareholders’ equity accounts are translated at historical rates, and income and expense items are translated at the average exchange rate during the period, which was 0.9527 and 0.9474 for the years ended December 31, 2023 and 2022, respectively.

Cash

Cash consists of cash on hand and demand deposits placed with banks or other financial institutions that have original maturities of three months or less. The Company did not have any cash equivalents as of December 31, 2023 and 2022.

Accounts receivable, net

Accounts receivables include trade accounts due from customers. In establishing the required allowance for credit losses, management considers historical collection experience, aging of the receivables, the economic environment, industry trend analysis, and the credit history and financial conditions of the customers. Management reviews its receivables on a regular basis to determine if the expected credit losses is adequate and adjusts the allowance when necessary. Delinquent account balances are written off against allowance for credit losses after management has determined that the likelihood of collection is not probable.

Inventories, net

Inventories are stated at the lower of cost and net realizable value. Cost consists of purchase price and related shipping and handling expenses, and is determined using the weighted average cost method, based on individual products. The methods of determining inventory costs are used consistently from year to year. A provision for slow-moving items is calculated based on historical experience. Management reviews this provision annually to assess whether, based on economic conditions, it is adequate.

Prepayments

Prepayments are cash deposited or advanced to suppliers for the purchase of goods or services that have not been received or provided. This amount is refundable and bears no interest. Prepayments and deposits are classified as either current or non-current based on the terms of the respective agreements. These advances are unsecured and are reviewed periodically to determine whether their carrying value has become impaired.

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Property and equipment, net

Property and equipment are stated at cost net of accumulated depreciation and impairment. Depreciation is provided over the estimated useful lives of the assets using the straight-line method from the time the assets are placed in service. Estimated useful lives are as follows:

​

​ | ​ | ​
​ |  | Useful Life
Building | ​ | 20 years
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

​

Intangible assets, net

The Company’s intangible assets with definite useful lives primarily consist of software acquired for internal use. The Company amortizes its intangible assets with definite useful lives over their estimated useful lives and reviews these assets for impairment. The Company typically amortizes its intangible assets with definite useful lives on a straight-line basis over the estimated useful lives of ten years.

Impairment for long-lived assets

Long-lived assets, including property and equipment and intangible assets with definite useful lives, are reviewed for impairment whenever material events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset group may not be recoverable. The Company assesses the recoverability of an asset group based on the undiscounted future cash flows the asset group is expected to generate and recognize an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset group plus net proceeds expected from disposition of the asset group, if any, are less than the carrying value of the asset group. If an impairment is identified, the Company would reduce the carrying amount of the asset group to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values. As of December 31, 2023 and 2022, no impairment of long-lived assets was recognized.

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in right-of-use assets (“ROU assets”), operating lease liabilities — current and operating lease liabilities — noncurrent on the consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the duration of the lease term while lease liabilities represent the Company’s obligation to make lease payments in exchange for the right to use an underlying asset. ROU assets and lease liabilities are measured based on the present value of fixed lease payments over the lease term at the commencement date. The ROU asset also includes any lease payments made prior to the commencement date and initial direct costs incurred, and is reduced by any lease incentives received. The Company reviews its ROU assets as material events occur or circumstances change that would indicate the carrying amount of the ROU assets are not recoverable and exceed their fair values. If the carrying amount of an ROU asset is not recoverable from its undiscounted cash flows, then the Company would recognize an impairment loss for the difference between the carrying amount and the current fair value.

As most of the Company’s leases do not provide an implicit rate, the Company generally uses its incremental borrowing rate on the commencement date of the lease as the discount rate in determining the present value of future lease payments. The Company determines the incremental borrowing rate for each lease by using the incremental

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borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The Company’s lease terms may include options to extend or terminate the lease when there are relevant economic incentives present that make it reasonably certain that the Company will exercise that option. The Company accounts for any non- lease components separately from lease components.

Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Fair Value Measurement

The accounting standard regarding fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company.

The accounting standards define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement and enhance disclosure requirements for fair value measures. The three levels of the fair value hierarchy are as follows:

| ● | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.

Financial instruments included in current assets and current liabilities are reported in the consolidated balance sheets at face value or cost, which approximate fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rates of interest.

Revenue recognition

The Company recognized revenue in accordance with Accounting Standards Codification (“ASC”) 606 – Revenue from Contracts with Customer. Revenues are recognized when control of the promised goods or performance obligations for services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for the goods or services.

The Company generates revenues from sales of kitchen and bath products, and recognizes revenue as control of its products is transferred to its customers, which is generally at the time of shipment or upon delivery based on the contractual terms with the Company’s customers. The Company’s customers’ payment terms generally range from 15 to 60 days of fulfilling its performance obligations and recognizing revenue.

The Company provides customer programs and incentive offerings, including co-operative marketing arrangements and volume-based incentives. These customer programs and incentives are considered variable consideration. The Company includes in revenue variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the variable consideration is resolved. This determination is made based upon known customer program and incentive offerings at the time of sale, and expected sales volume forecasts as it relates to the Company’s volume- based incentives. This determination is updated on a monthly basis.

Certain product sales include a right of return. The Company estimates future product returns at the time of sale based on historical experience and records a corresponding reduction in accounts receivable.

The Company records receivables related to revenue when it has an unconditional right to invoice and receive payment.

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The Company’s disaggregated revenues are summarized as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the Years Ended
​ | ​ | December 31,
​ | ​ | 2023 | ​ | 2022
​ |  | USD |  | USD
Revenues by product line | ​ | ​ |  |  | ​ |
Sanitaryware | ​ | $ | 75,551,117 | ​ | $ | 104,806,342
Bath Furniture | ​ |  | 14,770,376 | ​ |  | 29,519,728
Shower System | ​ | ​ | 19,997,197 | ​ | ​ | 21,586,888
Others | ​ |  | 6,922,914 | ​ |  | 5,805,585
Total | ​ | $ | 117,241,604 | ​ | $ | 161,718,543

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Revenues | ​ | Total assets
​ | ​ | For the Years Ended | ​ | As of
​ | ​ | December 31, | ​ | December 31,
​ | ​ | 2023 | ​ | 2022 | ​ | 2023 | ​ | 2022
​ |  | USD |  | USD | ​ | USD |  | USD
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Revenues/ total assets by geographic location | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
United States | ​ | $ | 74,572,336 | ​ | $ | 103,255,662 | ​ | $ | 38,401,665 | ​ | $ | 38,364,005
Canada | ​ |  | 31,092,989 | ​ |  | 41,025,288 | ​ |  | 17,850,709 | ​ |  | 14,584,946
Europe | ​ | ​ | 11,477,070 | ​ | ​ | 16,844,015 | ​ | ​ | 528,068 | ​ | ​ | 343,946
Rest of World | ​ |  | 99,209 | ​ |  | 593,578 | ​ |  | 8,964,488 | ​ |  | 7,074,033
Total | ​ | $ | 117,241,604 | ​ | $ | 161,718,543 | ​ | $ | 65,744,930 | ​ | $ | 60,366,930

​

Shipping and Handling Costs

Shipping and handling costs are expensed as incurred and are included in selling and distribution expenses on the accompanying statement of operations. For the years ended December 31 2023 and 2022, shipping and handling expense was $711,640 and $842,827, respectively.

Share-based compensation

The Company accounts for share-based compensation in accordance with ASC 718, Compensation — Stock Compensation (“ASC 718”). In accordance with ASC 718, the Company determines whether an award should be classified and accounted for as a liability award or an equity award. All the Company’s share- based awards were classified as equity awards and are recognized in the consolidated financial statements based on their grant date fair values.

The Company has elected to recognize share-based compensation using the straight-line method for all share-based awards granted over the requisite service period, which is the vesting period. The Company accounts for forfeitures as they occur in accordance with ASC 718. The Company, with the assistance of an independent third-party valuation firm, determines the fair value of the stock options granted to employees. The Black Scholes Model is applied in determining the estimated fair value of the options granted to employees and non-employees. The Company recognized share-based compensation $417,978 and $383,572 in 2023 and 2022, respectively.

Income Taxes

Deferred taxes are recognized based on the future tax consequences of the differences between the carrying value of assets and liabilities and their respective tax basis. The future realization of deferred tax assets depends on the existence of sufficient taxable income in future periods. Possible sources of taxable income include taxable income in carryback periods, the future reversal of existing taxable temporary differences recorded as a deferred tax liability, tax-planning strategies that generate future income or gains in excess of anticipated losses in the carryforward period and projected future taxable income.

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If, based upon all available evidence, both positive and negative, it is more likely than not (i.e., more than 50 percent likely) that such deferred tax assets will not be realized, a valuation allowance is recorded. Significant weight is given to positive and negative evidence that is objectively verifiable. A company’s three- year cumulative loss position is significant negative evidence in considering whether deferred tax assets are realizable, and the accounting guidance restricts the amount of reliance we can place on projected taxable income to support the recovery of the deferred tax assets.

The current accounting guidance allows the recognition of only those income tax positions that have a greater than 50 percent likelihood of being sustained upon examination by the taxing authorities. The Company believes that there is an increased potential for volatility in its effective tax rate because this threshold allows for changes in the income tax environment and, to a greater extent, the inherent complexities of income tax law in a substantial number of jurisdictions, which may affect the computation of its liability for uncertain tax positions.

The Company records interest and penalties on our uncertain tax positions in income tax expense.

As of December 31, 2023, the tax years ended December 31, 2020 through December 31, 2023 for FGI Industries, Inc. remain open for statutory examination by tax authority.

We record the tax effects of Foreign Derived Intangible Income (FDII) and Global Intangible Low-Taxed Income (GILTI) related to our foreign operations as a component of income tax expense in the period in which the tax arises.

Non-controlling interests

The Company’s non-controlling interests represent the minority shareholders’ ownership interests related to the Company’s subsidiary, including 40% in Isla Porter LLC. The non-controlling interests are presented in the consolidated balance sheets, separate from equity attributable to the shareholders of the Company. Non-controlling interests in the results of operations of the Company are presented on the consolidated statements of income and comprehensive income as allocations of the net income or loss for the period between non-controlling shareholders and the shareholders of the Company.

Comprehensive income

Comprehensive income consists of two components: net income and other comprehensive income. Other comprehensive income refers to revenue, expenses, gains and losses that under US GAAP are recorded as an element of equity but are excluded from net income. Other comprehensive income consists of a foreign currency translation adjustment resulting from the Company not using the U.S. Dollar as its functional currencies.

Earnings per share

The Company computes earnings per share (“EPS”) in accordance with ASC 260 – Earnings per Share (“ASC 260”). ASC 260 requires companies to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average ordinary shares outstanding for the period. Diluted EPS presents the dilutive effect on a per share basis of the potential ordinary shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential ordinary shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.

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The following table sets forth the computation of basic and diluted earnings per share for the year ended December 31, 2023 and 2022:

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the Year Ended
​ | ​ | December 31,
​ | ​ | 2023 | ​ | 2022
​ |  | USD |  | USD
Numerator: | ​ | ​ | ​ | ​ | ​ | ​
Net income attributable to FGI Industries Ltd. Shareholders | ​ | $ | 733,604 | ​ | $ | 3,679,920
​ | ​ | ​ | ​ | ​ | ​ | ​
Denominator: | ​ |  | ​ | ​ |  | ​
Weighted-average number of ordinary shares outstanding — basic | ​ | ​ | 9,525,434 | ​ | ​ | 9,335,616
Potentially dilutive shares from outstanding options/warrants | ​ | ​ | 295,678 | ​ | ​ | 6,305
Weighted-average number of ordinary shares outstanding — diluted | ​ | ​ | 9,821,112 | ​ | ​ | 9,341,921
​ | ​ | ​ | ​ | ​ | ​ | ​
Earnings per share — basic | ​ | $ | 0.08 | ​ | $ | 0.39
Earnings per share — diluted | ​ | $ | 0.07 | ​ | $ | 0.39

​

Potential ordinary shares that have an anti-dilutive effect are excluded from the calculation of diluted EPS. 355,999 and 2,925,000 number of options and warrants, respectively, were excluded from diluted EPS because their effects were anti-dilutive.

​

Segment reporting

ASC 280, “Segment Reporting”, establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements for detailing the Company’s business segments.

Recently issued accounting pronouncements

In June 2016, the FASB issued ASU 2016 13, “Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” amending the accounting for the impairment of financial instruments, including trade receivables. Under previous guidance, credit losses were recognized when the applicable losses had a probable likelihood of occurring and this assessment was based on past events and current conditions. The amended current guidance eliminates the “probable” threshold and requires an entity to use a broader range of information, including forecast information when estimating expected credit losses. Generally, this should result in a more timely recognition of credit losses. This guidance became effective for interim and annual periods beginning after December 15, 2019 with early adoption permitted for interim and annual periods beginning after December 15, 2018. The requirements of the amended guidance should be applied using a modified retrospective approach except for debt securities, which require a prospective transition approach. In November 2019, the FASB issued ASU 2019 10, which finalized the delay of such effective date to fiscal years beginning after December 15, 2023 for private and all other companies, including emerging growth companies. As an emerging growth company, the Company adopted this guidance from January 1, 2023, and the adoption of the standard did not have an impact on its financial position or results of operation.

The Company considers the applicability and impact of all ASUs. ASUs not listed above were assessed and determined not to be applicable.

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Note 3 — Accounts receivable, net

Accounts receivable, net consisted of the following:

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | As of | ​ | As of
​ | ​ | December 31, 2023 | ​ | December 31, 2022
​ |  | USD |  | USD
​ | ​ | ​ | ​ | ​
Accounts receivable | ​ | $ | 17,184,706 | ​ | $ | 16,330,540
Allowance for credit losses | ​ |  | (244,879) | ​ |  | (438,843)
Accrued defective return and discount | ​ |  | (744,284) | ​ |  | (1,595,838)
Accounts receivable, net | ​ | $ | 16,195,543 | ​ | $ | 14,295,859

​

Movements of allowance for credit losses are as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the Year Ended | ​ | For the Year Ended
​ | ​ | December 31, | ​ | December 31,
​ | ​ | 2023 | ​ | 2022
​ |  | USD |  | USD
​ | ​ | ​ | ​ | ​
Beginning balance | ​ | $ | 438,843 | ​ | $ | 177,462
Addition | ​ |  | 78,640 | ​ |  | 261,381
Write-off | ​ | ​ | (272,604) | ​ | ​ | —
Ending balance | ​ | $ | 244,879 | ​ | $ | 438,843

​

Movements of accrued defective return and discount accounts are as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the Year Ended | ​ | For the Year Ended
​ | ​ | December 31, | ​ | December 31,
​ | ​ | 2023 | ​ | 2022
​ |  | USD |  | USD
​ | ​ | ​ | ​ | ​
Beginning balance | ​ | $ | 1,595,838 | ​ | $ | 3,292,101
Provision | ​ |  | (851,554) | ​ |  | (1,696,263)
Ending balance | ​ | $ | 744,284 | ​ | $ | 1,595,838

​

Note 4 — Inventories, net

Inventories, net consisted of the following:

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | As of | ​ | As of
​ | ​ | December 31, 2023 | ​ | December 31, 2022
​ |  | USD |  | USD
​ | ​ | ​ | ​ | ​
Finished product | ​ | $ | 10,565,858 | ​ | $ | 13,956,121
Reserves for slow-moving inventories | ​ |  | (642,006) | ​ |  | (663,530)
Inventories, net | ​ | $ | 9,923,852 | ​ | $ | 13,292,591

​

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Movements of inventory reserves are as follows:

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the Year Ended | ​ | For the Year Ended
​ | ​ | December 31, | ​ | December 31,
​ | ​ | 2023 | ​ | 2022
​ |  | USD |  | USD
​ | ​ | ​ | ​ | ​
Beginning balance | ​ | $ | 663,530 | ​ | $ | 544,158
Addition |  | ​ | (21,524) |  | ​ | 119,372
Ending balance | ​ | $ | 642,006 | ​ | $ | 663,530

​

Note 5 — Prepayments and other assets

Prepayments and other assets consisted of the following:

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | As of | ​ | As of
​ | ​ | December 31, 2023 | ​ | December 31, 2022
​ |  | USD |  | USD
​ | ​ | ​ | ​ | ​
Prepayments | ​ | $ | 3,953,340 | ​ | $ | 2,026,259
Others | ​ |  | 664,411 | ​ |  | 561,822
Total prepayments and other assets | ​ | $ | 4,617,751 | ​ | $ | 2,588,081

​

Note 6 — Property and equipment, net

Property and equipment, net consist of the following:

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | As of | ​ | As of
​ |  | December 31, 2023 |  | December 31, 2022
​ |  | USD | ​ | USD
​ | ​ | ​ | ​ | ​
Building | ​ | $ | 946,066 | ​ | $ | 946,066
Leasehold Improvements | ​ | ​ | 1,695,361 | ​ | ​ | 1,074,206
Machinery and equipment | ​ |  | 1,613,439 | ​ |  | 2,246,610
Furniture and fixtures | ​ |  | 259,449 | ​ |  | 516,310
Vehicles | ​ |  | 147,912 | ​ |  | 147,913
Molds | ​ |  | 26,377 | ​ |  | 26,377
Subtotal | ​ |  | 4,688,604 | ​ |  | 4,957,482
Less: accumulated depreciation | ​ |  | (2,778,113) | ​ |  | (3,687,511)
Total | ​ | $ | 1,910,491 | ​ | $ | 1,269,971

​

Depreciation expenses for the years ended December 31, 2023 and 2022 amounted to $200,764 and $175,979, respectively, which were included in general and administrative expenses on the consolidated statements of income and comprehensive income.

Note 7 — Leases

The Company has operating leases primarily for corporate offices, warehouses and showrooms. As of December 31, 2023, the Company’s leases have remaining lease terms up to 9.4 years.

The Company also purchased an operating lease land from a common control affiliate for manufacturing purpose, which has remaining lease term up to 50 years and can be extended for another 50 years for $1.

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For the years ended December 31, 2023, and 2022, the total lease expenses was $2,581,542 and $1,239,353 respectively.

The table below presents the operating lease related assets and liabilities recorded on the Company’s consolidated balance sheets:

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | As of | ​ | As of
​ | ​ | December 31, 2023 | ​ | December 31, 2022
​ |  | USD |  | USD
​ | ​ | ​ | ​ | ​
Operating lease right-of-use assets | ​ | $ | 15,203,576 | ​ | $ | 9,815,572
Operating lease liabilities – current | ​ | $ | 1,595,998 | ​ | $ | 1,543,031
Operating lease liabilities – noncurrent | ​ |  | 13,674,452 | ​ |  | 7,847,317
Total operating lease liabilities | ​ | $ | 15,270,450 | ​ | $ | 9,390,348

​

Information relating to the lease term and discount rate are as follows:

​

​ | ​ | ​ | ​ | ​ | ​
​ |  | As of |  | As of |
​ |  | December 31, 2023 |  | December 31, 2022 |
​ | ​ | ​ | ​ | ​ | ​
Weighted-average remaining lease term |  |  |  |  | ​
Operating leases |  | 9.4 years |  | 7.9 years | ​
Weighted-average discount rate |  |  |  |  | ​
Operating leases |  | 5.7% | ​ | 4.7% | ​

​

As of December 31, 2023, the maturities of operating lease liabilities were as follows:

​

​ | ​ | ​ | ​
For the 12 months ending December 31, |  | ​ | ​
2024 | ​ | $ | 2,428,743
2025 | ​ |  | 2,605,218
2026 | ​ |  | 2,669,007
2027 | ​ |  | 2,658,505
2028 | ​ |  | 2,267,101
Thereafter | ​ |  | 7,108,025
Total lease payments | ​ |  | 19,736,599
Less: imputed interest | ​ |  | (4,466,149)
Present value of lease liabilities | ​ | $ | 15,270,450

​

Note 8 — Short-term loans

East West Bank loan

FGI Industries, Inc. (formerly named Foremost Groups, Inc.) (“FGI Industries”) has a line of credit agreement (the “Credit Agreement”) with East West Bank, which is collateralized by all assets of FGI Industries and personally guaranteed by Liang Chou Chen, who holds approximately 49.89% of the voting control of Foremost. On November 25, 2022, the line was extended, to a new maturity date of December 21, 2024, and the current amount of maximum borrowings is $18,000,000. This is an assets-based line of credit, the borrowing limit is calculated based on certain percentage of accounts receivable and inventory balances.

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 on consolidated basis; and (c) a total debt to tangible net worth ratio (defined as total liabilities divided by tangible net

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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 December 31, 2023 and 2022, FGI Industries was in compliance with these financial covenants. As of the date of the report, FGI Industries is in the process of obtaining extension for Corporate Borrower Annual Statements, a U.S. standalone reporting obligation, which will be due by April 30, 202 4. If the condition is not met, East West Bank has the right to close the line of credit.

The loan bears interest at 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 December 31, 2023 and December 31, 2022 was 8.25% and 7.25%, 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 $6,959,175 and $9,795,052 as of December 31, 2023 and 2022, respectively.

HSBC Canada Bank Loan / Foreign Exchange Facility

FGI Canada Ltd. 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 December 31, 2023 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. Pursuant to the Canadian Revolver, FGI Canada Ltd. is required to maintain (a) a debt to tangible net worth ratio of no more than 3.00 to 1.00; and (b) a ratio of current assets to current liabilities of at least 1.25 to 1.00. The loan bears interest at a rate of Prime rate plus 0.50%. As of December 31, 2023 and 2022, FGI Canada Ltd. was in compliance with these financial covenants.

Borrowings under this line of credit amounts to $0 as of December 31, 2023 and 2022. The facility matures at the discretion of HSBC Canada upon 60 days notice.

FGI Canada Ltd. also has a revolving foreign exchange facility with HSBC Canada of up to a permitted maximum of US $3,000,000. The advances are available to purchase foreign exchange forward contacts from time to time up to six months, subject to an overall maximum aggregate USD Equivalent outstanding face value not exceeding $3,000,000.

Note 9 — Shareholders’ Equity

FGI was incorporated in the Cayman Islands on May 26, 2021 in connection with the planned Reorganization, as described in Note 1. The Company was authorized to issue 50,000,000 ordinary shares with a par value of $0.001 per share.

On January 27, 2022, the Company completed the Reorganization upon the consummation of the initial public offering (“IPO”). After the Reorganization and the IPO, the Company’s authorized share capital is $21,000 divided into (i) 200,000,000 Ordinary Shares of par value of $0.0001 each, and (ii) 10,000,000 Preference Shares of par value of $0.0001 each; 9,500,000 ordinary shares were issued and outstanding accordingly. The Company believes it is appropriate to reflect these share issuances as nominal share issuances on a retroactive basis similar to a stock split pursuant to ASC 260. The Company has retroactively adjusted all shares and per share data for all the periods presented.

​

Initial Public Offering

On January 27, 2022, the Company consummated its IPO of 2,500,000 units (“Units”), each consisting of (i) one ordinary share, $0.0001 par value per share, of the Company (the “Shares”), and (ii) one warrant of the Company (the “Warrants”) entitling the holder to purchase one Share at an exercise price of $6.00 per Share. The Shares and Warrants were issued separately in the offering, and may be transferred separately immediately upon issuance. The Units were

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sold at a price of $6.00 per Unit. The Warrants included in the units were immediately exercisable following the consummation of the offering, have an exercise price equal to the initial public offering price, and expire five years from the date of issuance.

For the purposes of covering any over-allotments in connection with the distribution and sale of the Units, the Company granted a 45-day option to the underwriters to purchase (the “Over-allotment Option”), in the aggregate, up to 375,000 ordinary shares (the “Option Shares”) and Warrants to purchase up to 375,000 ordinary shares (the “Option Warrants”), which was exercisable in any combination of Option Shares and/or Option Warrants at the per Share purchase price and/or the per Warrant purchase price, respectively. On January 25, 2022, the underwriters exercised in full their option to purchase up to an additional 375,000 Warrants at the price of $0.01 per Option Warrant. Management determined that these Warrants meet the definition of a derivative under ASC 815-40; however, they fall under the scope exception, which states that contracts issued that both a) indexed to its own stock; and b) classified in shareholders' equity are not considered derivatives. The Warrants were recorded at their fair value on the date of grant as a component of equity.

The aggregated fair value of these Warrants on January 27, 2022 was $4.16 million. The fair value has been estimated using the Black-Scholes pricing model with the following weighted-average assumptions: market value of underlying stock of $1.448; risk free rate of 1.66%; expected term of five years; exercise price of the warrants of $6.00; volatility of 44.00%; and expected future dividends of $0. As of the date of this report, 2,875,000 warrants were issued and outstanding; and none of the warrants have been exercised.

The gross proceeds from the IPO were approximately $15.00 million with net proceeds of approximately $12.4 million, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by the Company. Immediately following the consummation of the IPO, there were an aggregate of 9,500,000 ordinary shares issued and outstanding. As a result of the IPO, the ordinary shares and Warrants now trade on the Nasdaq Capital Market under the symbol “FGI” and “FGIWW,” respectively.

Public Offering Warrants

In connection with and upon the closing of the IPO on January 27, 2022, the Company issued warrants equal to 2% of the Shares issued in the IPO, or 50,000 ordinary shares, to the representative of the underwriters for the IPO. The warrants carry a term of five years, shall not be exercisable for a period of 180 days from the closing of the IPO and shall be exercisable at a price equal to the IPO price per share. Management determined that these warrants meet the definition of a derivative under ASC 815-40; however, they fall under the scope exception, which states that contracts issued that are both a) indexed to its own stock; and b) classified in shareholders' equity are not considered derivatives. The warrants were recorded at their fair value on the date of grant as a component of equity.

The aggregated fair value of these IPO warrants on January 27, 2022 was $0.1 million. The fair value has been estimated using the Black-Scholes pricing model with the following weighted-average assumptions: market value of underlying stock of $1.448; risk free rate of 1.66%; expected term of five years; exercise price of the warrants of $6.00; volatility of 44.00%; and expected future dividends of $0. As of the date of this report, warrants exercisable for 50,000 shares were issued and outstanding; and none of the warrants have been exercised.

​

Note 10 — Share-based compensation

2021 Equity Plan and Employee Stock Purchase Plan

On October 7, 2021, the Board of directors adopted 2021 Equity Incentive Plan (the “2021 Equity Plan”). The 2021 Equity Plan permits the grant of equity and equity-based incentive awards, including non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock awards, stock unit awards and other stock-based awards. The purpose of the 2021 Equity Plan is to attract and retain the best available personnel for positions of responsibility within the Company, to provide additional incentives to them to align their interests with those of the Company’s shareholders and to thereby promote the Company’s long-term business success.

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On October 7, 2021, the Board approved the adoption of the FGI Industries Ltd. Employee Stock Purchase Plan (the “ESPP”). The ESPP was approved by the Company’s stockholders on October 7, 2021, and became effective on the effective date of the Company’s consummation of the IPO of its ordinary shares. The ESPP offers eligible employees the opportunity to acquire a stock ownership interest in the Company through periodic payroll deductions that will be applied towards the purchase of ordinary shares at a discount from the then-current market price.

The board set the maximum aggregate number of ordinary shares reserved and available pursuant to the 2021 Equity Plan at 1,500,000 shares. The number of ordinary shares reserved for issuance under our 2021 Equity Plan will automatically increase on the first day of each year, commencing on January 1, 2022 and ending on (and including) January 1, 2031, in an amount equal to the lesser of (a) 4.5% of the total number of ordinary shares outstanding on December 31 of the immediately preceding calendar year, (b) 600,000 ordinary shares, or (c) such lesser number of shares as determined by the Board. The Equity Plan became effective on September 28, 2021.

The Company believes the options or awards granted contain an explicit service condition and/or performance condition. Under ASC 718-10-55-76, if the vesting (or exercisability) of an award is based on the satisfaction of both a service and performance condition, the entity must initially determine which outcomes are probable and recognize the compensation cost over the longer of the explicit or implicit service period. Because an initial public offering generally is not considered to be probable until the initial public offering is effective, no compensation cost was recognized until the IPO occurred.

Restricted shares units (“RSU”)

On January 27, 2022, the board of directors approved the issuance of 183,750 restricted share units (“RSUs”) to certain officers and employees under the 2021 Equity Plan as compensation awards. The fair value for these RSUs was $716,625 based on the closing share price of $3.90 as at January 27, 2022. These awards will vest in three equal installments on each anniversary of the grant date over three years. As of December 31, 2023, 61,250 of these granted RSUs were vested.

On April 13, 2022, the board of directors approved the issuance of 8,750 RSUs to an employee under the 2021 Equity Plan as compensation awards. The fair value for these RSUs was $22,050 based on the closing share price of $2.52 as at April 13, 2022. These awards will vest as to one-third of the shares on the one-year anniversary of the grant date. The remaining shares will vest in a series of 24 successive equal monthly installments upon completion of each additional month of service, commencing on the grant date. As of December 31, 2023, 4,861 of these granted RSUs were vested.

On May 11, 2022, the board of directors approved the issuance of 87,611 RSUs under the 2021 Equity Plan to Company officers to incentivize their performance and continue to align their interests with the Company’s shareholders. All these awards are subjected to performance conditions through December 31, 2024. The grant date fair value for these RSUs was $198,000 based on the closing share price of $2.26 as at May 11, 2022. As of December 31, 2023, the performance condition was not met, and none of the RSUs were vested.

On May 17, 2022, the board of directors approved the issuance of 16,363 RSUs to its independent directors under the 2021 Equity Plan as compensation award. All these awards are subjected to performance conditions and will vest on December 31, 2024. The fair value for these RSUs was $36,000 based on the closing share price of $2.20 as at May 17, 2022. As of December 31, 2023, none of these RSUs were vested.

On March 23, 2023, the board of directors approved the issuance of 96,635 RSUs under the 2021 Equity Plan to Company officers to incentivize their performance and continue to align their interests with the Company’s shareholders. All these awards are subjected to performance conditions through December 31, 2025. The grant date fair value for these RSUs was $201,000 based on the closing share price of $2.08 as at March 29, 2023. If the maximum performance is met, the Company will issue an additional 48,317 RSUs under these awards with a grant date fair value of $100,500. As of December 31, 2023, none of these RSUs were vested.

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On March 23, 2023, the board of directors approved the issuance of 17,349 RSUs to its independent directors under the 2021 Equity Plan as compensation award. All these awards are subjected to performance conditions through December 31, 2025. The grant date fair value for these RSUs was $36,000 based on the closing share price of $2.08 as at March 29, 2023. As of December 31, 2023, none of these RSUs were vested.

The following is a summary of the restricted share granted:

​

​ | ​ | ​
Restricted shares grants | ​ | Shares
Non-vested as of January 1, 2022 | ​ | —
Granted | ​ | 296,474
Vested | ​ | —
Canceled | ​ | —
Non-vested as of December 31, 2022 | ​ | 296,474
Granted | ​ | 113,984
Vested | ​ | (66,111)
Canceled | ​ | (87,611)
Non-vested as of December 31, 2023 | ​ | 256,736

​

The following is a summary of the status of restricted share at December 31, 2023:

​

​ | ​ | ​ | ​ | ​ | ​
​ | Outstanding Restricted Share
​ | ​ | ​ | ​ | ​ | Average Remaining
​ | Fair Value per share | ​ | Number | ​ | Amortization Period (Years)
$ | 3.90 | ​ | 122,500 | ​ | 1.08
$ | 2.52 | ​ | 3,889 | ​ | 1.25
$ | 2.20 | ​ | 16,363 | ​ | 1.00
$ | 2.08 | ​ | 96,635 | ​ | 2.25
$ | 2.08 | ​ | 17,349 | ​ | 2.25
​ | ​ | ​ | 256,736 | ​ | ​

​

Share options (“Options”)

On March 24, 2022, the board of directors approved the issuance of 98,747 share options under the 2021 Equity Plan with an exercise price per share of $3.07 and a contractual life of 10 years to the Company’s executive officers and directors to incentivize their performance and continue to align their interests with the Company’s shareholders. The grant date fair value for these options was $141,401 determined using the Black-Scholes simplified method at the per option fair value of $1.43. All these options will vest as to one-third of the options on the one-year anniversary of the grant date. The remaining options will vest in a series of 24 successive equal monthly installments upon completion of each additional month of service. As of December 31, 2023, 57,602 of these granted options were vested.

On April 13, 2022, the board of directors approved the issuance of 97,371 share options under the 2021 Equity Plan with an exercise price per share of $2.52 and a contractual life of 10 years to the Company’s employees to incentivize their performance and continue to align their interests with the Company’s shareholders. The grant date fair value for these options was $114,972 determined using the Black-Scholes simplified method at the per option fair value of $1.18. All these options will vest as to one-third of the shares on the one-year anniversary of the grant date. The remaining options will vest in a series of 24 successive equal monthly installments upon completion of each additional month of service. As of December 31, 2023, 54,095 of these granted options were vested.

On May 11, 2022, the board of directors approved the issuance of 159,881 share options under the 2021 Equity Plan with an exercise price per share of $2.26 and a contractual life of 10 years to Company officers to incentivize their

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performance and continue to align their interests with the Company’s shareholders. The fair value for these options was $171,462 determined using the Black-Scholes simplified method at the per option fair value of $1.07. The number of options granted were subject to performance conditions through December 31, 2022, which could have resulted in additional options awarded if maximum performance metrics were met. In addition to the performance criteria, the options vest as to one-third of the shares on the one-year anniversary of the grant date. The remaining options will vest in a series of 24 successive equal monthly installments upon completion of each additional month of service, commencing on the grant date. The options paid out at threshold under the performance metrics, and no additional options were awarded. As of December 31, 2023, 84,382 of these granted options were vested.

On March 23, 2023, the board of directors approved the issuance of 158,976 share options under the 2021 Equity Plan with an exercise price per share of $2.08 and a contractual life of 10 years to Company officers to incentivize their performance and continue to align their interests with the Company’s shareholders. The grant date fair value for these options was $201,000 determined using the Black-Scholes simplified method at the per option fair value of $1.26. All these options are subjected to performance conditions through December 31, 2023, which could result in additional options awarded if maximum performance metrics are met. In addition to the performance criteria, the options will vest as to one-third of the shares on the one-year anniversary of the grant date. The remaining options will vest in a series of 24 successive equal monthly installments upon completion of each additional month of service, commencing on the grant date. As of December 31, 2023, all options were canceled and none of them were vested.

The options granted to employees are measured based on the grant date fair value of the equity instrument. They are accounted for as equity awards and contain service or performance vesting conditions. The following table summarizes the Company’s employee share option activities:

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | ​ |  | ​ |  | Weighted |  | Weighted |  | ​
​ | ​ | ​ | ​ | Weighted | ​ | Average | ​ | Average | ​ | ​
​ | ​ | ​ | ​ | Average | ​ | Grant date | ​ | Remaining | ​ | Average
​ | ​ | Number of | ​ | Exercise | ​ | Fair | ​ | Contractual | ​ | Intrinsic
​ | ​ | Options | ​ | Price | ​ | Value | ​ | Term | ​ | value
​ | ​ | ​ | ​ | USD | ​ | USD | ​ | Years | ​ | USD
Share options outstanding at December 31, 2022 |  | 380,745 | ​ | 2.54 | ​ | 1.19 |  | 9.35 |  | —
Granted |  | 158,976 |  | 2.08 |  | 1.26 |  | 9.75 |  | —
Forfeited | ​ | 183,722 | ​ | — | ​ | — | ​ | — | ​ | —
Exercised | ​ | — | ​ | — | ​ | — | ​ | — | ​ | —
Expired | ​ | — | ​ | — | ​ | — | ​ | — | ​ | —
Share options outstanding at December 31, 2023 |  | 355,999 | ​ | 3.48 | ​ | 1.77 |  | 8.29 | ​ | —
Vested and exercisable at December 31, 2023 |  | 196,079 |  | 2.57 |  | 1.21 |  | 8.29 |  | —

​

For the years ended December 31, 2023 and 2022, the total fair value of options awarded was $628,834 and $454,373, respectively.

The aggregate intrinsic value in the table above represents the difference between the exercise price of the awards and the fair value of the underlying Ordinary Shares at each reporting date, for those awards that had exercise price below the estimated fair value of the relevant Ordinary Shares.

​

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Fair value of options

The Company used the Black-Scholes simplified method for the year ended December 31, 2023. The assumptions used to value the options granted to employees were as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | For the | ​ | For the |
​ | ​ | Year Ended | ​ | Year Ended | ​
​ | ​ | December 31, | ​ | December 31, |
​ | ​ | 2023 | ​ | 2022 |
​ | ​ | ​ | ​ | ​ | ​
Risk-free interest rate |  | ​ | 3.65 | % | ​ | 2.49 - 2.92 | %
Expected volatility range |  | ​ | 63.36 | % | ​ | 40.30 - 45.67 | %
Fair market value per ordinary share as at grant dates | ​ | $ | 2.08 | ​ | $ | 2.26 - 3.07 | ​

​

The risk-free interest rate for periods within the contractual life of the options is based on the U.S. Treasury yield curve in effect at the time of grant for a term consistent with the contractual term of the awards. Expected volatility is estimated based on the volatility of ordinary shares or common stock of several comparable companies in the same industry. The expected exercise multiple is based on management’s estimation, which the Company believes is representative of the future.

The Company has elected to recognize share-based compensation expense using a straight-line method for all the employee equity awards granted with graded vesting based on service conditions, provided that the amount of compensation cost recognized at any date is at least equal to the portion of the grant date fair value of the equity awards that are vested at that date.

The following table sets forth the amount of share-based compensation expense included in each of the relevant financial statement line items:

​

​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the Year Ended
​ | December 31,
​ |  | 2023 | ​ |  | 2022
​ | ​ | USD | ​ | ​ | USD
Selling and distribution expenses | $ | 124,994 | ​ | $ | 108,694
General and administrative expenses |  | 292,984 | ​ |  | 274,878
Total share-based compensation expenses | $ | 417,978 | ​ | $ | 383,572

​

As of December 31, 2023, there was $637,956 in total unrecognized employee share-based compensation expense related to unvested options and RSUs, which may be adjusted for actual forfeitures occurring in the future. Total unrecognized compensation cost may be recognized over a weighted-average period of 1.46 years.

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Note 11 — Income taxes

The source of pre-tax income and the components of income tax expense are as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the Years Ended
​ | ​ | December 31,
​ |  | 2023 |  | 2022
​ | ​ | USD | ​ | USD
Income components | ​ | ​ | ​ | ​ | ​ | ​
United States | ​ | $ | (681,951) | ​ | $ | 991,240
Outside United States | ​ |  | 2,069,739 | ​ |  | 3,549,310
Total pre-tax income | ​ | $ | 1,387,788 | ​ | $ | 4,540,550
Provision for income taxes | ​ |  |  | ​ |  |
Current | ​ |  |  | ​ |  |
Federal | ​ | $ | 27,451 | ​ | $ | 54,504
State | ​ |  | 13,555 | ​ |  | 9,923
Foreign | ​ |  | 670,512 | ​ |  | 594,267
​ | ​ |  | 711,518 | ​ |  | 658,694
Deferred | ​ |  |  | ​ |  |
Federal | ​ |  | 24,622 | ​ |  | 146,843
State | ​ |  | 92,271 | ​ |  | 52,034
Foreign | ​ |  | (20,187) | ​ |  | 3,059
​ | ​ |  | 96,706 | ​ |  | 201,936
Total provision for income taxes | ​ | $ | 808,224 | ​ | $ | 860,630

​

Reconciliations between taxes at the U.S. federal income tax rate and taxes at the Company’s effective income tax rate on earnings before income taxes are as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the Years Ended
​ | ​ | December 31,
​ | ​ | 2023 | ​ | 2022
Federal statutory rate | ​ | 21.0 | % | ​ | 21.0 | %
(Decrease) increase in tax rate resulting from: | ​ |  |  | ​ |  | ​
State and local income taxes, net of federal benefit | ​ | (0.5) |  | ​ | 1.0 | ​
Foreign operations | ​ | 15.1 |  | ​ | (3.3) | ​
Permanent items | ​ | 3.1 |  | ​ | 0.1 | ​
Deferred adjustments | ​ | 16.8 |  | ​ | — | ​
Others | ​ | 2.7 |  | ​ | 0.1 | ​
Effective tax rate | ​ | 58.2 | % | ​ | 18.9 | %

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​

The following is a summary of the components of the net deferred tax assets and liabilities recognized in the consolidated balance sheets:

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | As of |  | As of
​ | ​ | December 31, 2023 | ​ | December 31, 2022
​ | ​ | USD | ​ | USD
​ | ​ | ​ | ​ | ​
Deferred tax assets |  | ​ |  |  | ​ |
Allowance for credit losses | ​ | $ | 58,476 | ​ | $ | 109,713
Other reserve | ​ |  | 61,371 | ​ |  | 144,333
Accrued expenses | ​ |  | 143,823 | ​ |  | 126,992
Lease liability | ​ |  | 1,769,328 | ​ |  | 2,144,348
Charitable contributions | ​ |  | 8,181 | ​ |  | 8,565
Business interest limitation | ​ |  | 242,862 | ​ |  | 385,069
Net operating loss – federal | ​ |  | 310,099 | ​ |  | 414,905
Net operating loss – state | ​ |  | 27,337 | ​ |  | 75,863
Other | ​ |  | 66,063 | ​ |  | 46,005
Total deferred tax assets | ​ |  | 2,687,540 | ​ |  | 3,455,793
Less: valuation allowance | ​ |  | — | ​ |  | —
Net deferred tax assets | ​ |  | 2,687,540 | ​ |  | 3,455,793
Deferred tax liabilities | ​ |  |  | ​ |  |
Fixed assets | ​ |  | 1,728,364 | ​ |  | 2,190,254
Intangibles | ​ |  | (209,657) | ​ |  | —
Total deferred tax liabilities | ​ |  | 1,518,707 | ​ |  | 2,190,254
Deferred tax assets, net of deferred tax liabilities | ​ | $ | 1,168,833 | ​ | $ | 1,265,539

​

The deferred tax assets related to the Company’s net operating losses of $1,836,077 (Federal $1,476,655 and States $359,422) and $3,174,799 (Federal $1,975,734 and States $1,199,065) as of December 31, 2023 and 2022, respectively. The Federal Net Operating losses have no expiration date. The States Net Operating losses have either 20 years or no expiration date. The Company had no material unrecognized tax benefits at December 31, 2023, 2022. The Company has not taken any tax positions for which it is reasonably possible that unrecognized tax benefits will significantly increase within the next 12 months.

​

Inflation Reduction Act of 2022

On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury”) has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax. There was no material impact of the IR Act on the Company’s consolidated financial statements.

​

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Note 12 — Related party transactions and balances

Sales/ Purchase from a related party – consisted of the following:

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | ​ |  | Nature of |  | For the Year Ended December 31,
Name of Related Party | ​ | Relationship | ​ | transactions | ​ | 2023 | ​ | 2022
​ | ​ | ​ | ​ | ​ | ​ | USD | ​ | USD
Focal Capital Holding Limited | ​ | An entity under common control | ​ | Purchase | ​ | $ | 7,003,714 | ​ | $ | 9,850,083
Foremost Worldwide Co., Ltd |  | An entity under common control |  | Purchase | ​ | ​ | 2,308,468 | ​ | ​ | 5,812,457
F.P.Z. FURNITURE (CAMBODIA) CO., LTD | ​ | An entity under common control | ​ | Purchase | ​ | ​ | 575,061 | ​ | ​ | —
Foremost Australasia Pty Ltd | ​ | An entity under common control |  | Purchase | ​ | ​ | 409,777 | ​ | ​ | —
RIZHAO FOREMOST WOODWORK MANUFACTURING CO. LTD | ​ | An entity under common control |  | Purchase | ​ | ​ | 16,026 | ​ | ​ | —
​ | ​ | ​ | ​ | ​ | ​ | $ | 10,313,046 | ​ | $ | 15,662,540

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | ​ |  | Nature of | ​ | For the Year Ended December 31,
Name of Related Party | ​ | Relationship | ​ | transactions | ​ | 2023 | ​ | 2022
​ | ​ | ​ | ​ | ​ | ​ | USD | ​ | USD
Foremost Worldwide Co., Ltd |  | An entity under common control |  | Sales | ​ | $ | — | ​ | $ | 593,578
​ | ​ | ​ | ​ | ​ | ​ | $ | — | ​ | $ | 593,578

​

The ending balance of such transactions as of December 31, 2023 and December 31, 2022, are listed of the following:

Prepayments — related parties

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | As of | ​ | As of
​ |  | December 31, |  | December 31,
Name of Related Party | ​ | 2023 | ​ | 2022
​ | ​ | USD | ​ | USD
​ | ​ | ​ | ​ | ​
Focal Capital Holding Limited | ​ | $ | 6,658,498 | ​ | $ | 3,806,873
Rizhao Foremost Woodwork Manufacturing Co., Ltd. | ​ | ​ | 9,181 | ​ | ​ | —
​ | ​ | $ | 6,667,679 | ​ | $ | 3,806,873

​

Accounts Payables — related parties

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | As of | ​ | As of
​ |  | December 31, |  | December 31,
Name of Related Party | ​ | 2023 | ​ | 2022
​ | ​ | USD | ​ | USD
​ | ​ | ​ | ​ | ​
Foremost Worldwide Co., Ltd |  | $ | 735,308 | ​ | $ | 104,442
​ | ​ | $ | 735,308 | ​ | $ | 104,442

​

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Shared Service and Miscellaneous expenses – related party

FGI Industries, Inc. is party to the FHI Shared Services Agreement with FHI. Total amounts provided to FHI under the FHI Share Services Agreement for the years ended December 31, 2023 and 2022 were $821,864 and $1,122,996, respectively, which were booked under selling and distribution expenses and administration expenses.

FGI is party to the Worldwide Shared Services Agreement with Foremost Worldwide. Total amounts provided from Foremost Worldwide under the Worldwide Shared Services Agreement for the years ended December 31, 2023 and 2022 were $304,103 and $126,745, respectively.

The ending balance as of December 31, 2023 and December 31, 2022, are listed of the following:

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | As of | ​ | As of
​ |  | ​ |  | Nature of |  | December 31, |  | December 31,
Name of Related Party | ​ | Relationship | ​ | transactions | ​ | 2023 | ​ | 2022
​ | ​ | ​ | ​ | ​ | ​ | USD | ​ | USD
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Foremost Home Inc. (“FHI”) | ​ | An entity under common control | ​ | Shared services and Miscellaneous expenses | ​ | ​ | 1,183,612 | ​ | ​ | 1,879,249
Foremost Worldwide Co., Ltd | ​ | An entity under common control | ​ | Shared services and Miscellaneous expenses | ​ | ​ | (251,008) | ​ | ​ | (42,473)
​ | ​ | ​ | ​ | ​ | ​ | $ | 932,604 | ​ | $ | 1,836,776

​

Property purchase — related party

In July 2022, FGI entered into a property purchase agreement with a common control related party to purchase a building and sub-lease the land use right with an initial term of 50 years in amount of $1,963,521. As building and sub-lease the land use right were recorded at historic cost in amount of $946,066 and $519,450, respectively. The excess payment over carrying value $498,005 was recorded under shareholders equity statement.

​

Loan guarantee by a related party

Liang Chou Chen holds approximately 49.89% of the voting control of Foremost, the Company’s majority shareholder and guarantor of the loan obtained by FGI Industries from East West Bank under the Credit Agreement. See Note 8 for details.

Note 13 — Concentrations of risks

Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash. The Canadian Deposit Insurance Corporation pays compensation up to a limit of CAD 0.1 million (approximately USD 0.1 million) if the bank with which an individual/a company holds its eligible deposit fails. As of December 31, 2023, cash balance of CAD 5.8 million (USD 4.4 million) was maintained at financial institutions in Canada, of which CAD 5.7 million (USD 4.3 million) was subject to credit risk. The Taiwan Central Deposit Insurance Corporation pays compensation up to a limit of NTD 3.0 million (approximately USD 0.1 million) if the bank with which an individual/a company holds its eligible deposit fails. As of December 31, 2023, an aggregated cash balance of USD 2.8 million, consisted from four bank accounts, was maintained at financial institutions in Taiwan, of which USD 2.5 million was subject to credit risk. The European Banking Authority pays compensation up to a limit of EUR 0.1 million (approximately USD 0.1 million) if the bank with which an individual/a company holds its eligible deposit fails.

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As of December 31, 2023, cash balance of EUR 0.2 million (USD 0.2 million) was maintained at financial institutions in Europe, of which EUR 0.1 million (USD 0.1 million) was subject to credit risk. As of December 31, 2023, cash balance of USD 28,871 was maintained at financial institutions in Kingdom of Cambodia, of which USD 28,871 was subject to credit risk. While management believes that these financial institutions are of high credit quality, it also continually monitors their credit worthiness.

The Company is also exposed to risk from its accounts receivable and other receivables. These assets are subjected to credit evaluations. An allowance has been made for estimated unrecoverable amounts which have been determined by reference to past default experience and the current economic environment.

Customer concentration risk

For the year ended December 31, 2023, three customers accounted for 17.6%, 16.4% and 10.4% of the Company’s total revenues, respectively. For the year ended December 31, 2022, two customers accounted for 22.2% and 22.1% of the Company’s total revenues, respectively. No other customer accounts for more than 10% of the Company’s revenue for the years ended December 31, 2023 and 2022.

As of December 31, 2023, four customers accounted for 27.2%, 19.0%, 12.0% and 11.1% of the total balance of accounts receivable, respectively. As of December 31, 2022, two customers accounted for 36.7% and 13.6% of the total balance of accounts receivable, respectively. No other customer accounts for more than 10% of the Company’s accounts receivable as of December 31, 2023, and 2022.

Vendor concentration risk

For the year ended December 31, 2023, Tangshan Huida Ceramic Group Co., Ltd (“Huida”) accounted for 54.7% of the Company’s total purchases. For the year ended December 31, 2022, Huida accounted for 51.8% of the Company’s total purchases. No other supplier accounts for more than 10% of the Company’s total purchases for the years ended December 31, 2023 and 2022.

As of December 31, 2023, Huida accounted for 71.4% of the total balance of accounts payable. As of December 31, 2022, Huida accounted for 85.5% of the total balance of accounts payable. No other supplier accounts for more than 10% of the Company’s accounts payable as of December 31, 2023 and 2022.

Note 14 — Commitments and contingencies

Litigation

From time to time, the Company is involved in legal and regulatory proceedings that are incidental to the operation of its businesses. These proceedings may seek remedies relating to matters including environmental, tax, intellectual property, acquisitions or divestitures, product liability, property damage, personal injury, privacy, employment, labor and pension, government contract issues and commercial or contractual disputes. Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including management assessment of the merits of the particular claims, the Company does not believe it is reasonably possible that any asserted or unasserted legal claims or proceedings, individually or in aggregate, will have a material adverse effect on our results of operations, or financial condition.

Note 15 — Segment information

The Company follows ASC 280, Segment Reporting, which requires that companies disclose segment data based on how management makes decisions about allocating resources to each segment and evaluating their performances. The Company has one reporting segment. The Company’s chief operating decision maker has been identified as the chief executive officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company and hence the Company has only one reportable segment.

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Note 16 — Subsequent events

On January 25, 2024, FGI International entered into an omnibus credit line (the “Credit Line”) with CTBC Bank Co., Ltd. (“CTBC”). Under the 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 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 Credit Line is unsecured and is fully guaranteed by the Company and partially guaranteed by Liang Chou Chen.

On March 20, 2024, the board of directors approved the issuance of 529,635 share options under the 2021 Equity Plan with an exercise price per share of $1.50 and a contractual life of 10 years to Company officers to incentivize their performance and continue to align their interests with the Company’s shareholders. The grant date fair value for these options was $447,000 determined using the Black-Scholes simplified method at the per option fair value of $0.84. All these options are subjected to performance conditions through December 31, 2024, which could result in additional options awarded if maximum performance metrics are met. In addition to the performance criteria, the options will vest as to one-third of the shares on the one-year anniversary of the grant date. The remaining options will vest in a series of 24 successive equal monthly installments upon completion of each additional month of service, commencing on the grant date.

On March 20, 2024, the board of directors approved the issuance of 411,548 RSUs under the 2021 Equity Plan to the Company’s directors, officers and employees. All these awards are subjected to performance conditions through December 31, 2026. The grant date fair value for these RSUs was $617,322 based on the closing share price of $1.50 as at March 2 2, 202 4. If the maximum performance is met, the Company will issue an additional 205,774 RSUs under these awards with a grant date fair value of $308,661.

​

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There were no disagreements with Marcum LLP.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Exchange Act, as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2023, our disclosure controls and procedures were not effective.

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Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined under Rule 13a-15(f) under the Exchange Act.

Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

| ● | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

| ● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the board of directors of the Company; and

| ● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or because of declines in the degree of compliance with policies or procedures.

As of December 31, 2023, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in 2013 and SEC guidance on conducting such assessments. Based on such evaluation, the Company’s management concluded that, during the period covered by this Report, internal controls and procedures over financial reporting were not effective. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses. The following material weakness was noted:

We noted that there is an inadequate segregation of duties related to certain accounting functions due to the size of the Company’s subsidiaries. In addition, the Company lacks evidence of management review controls activity taking place, such as but not limited to, the review and approval of journal entries and account reconciliations.

Management’s Remediation Initiatives

As of December 31, 2023, and through the date of this filing we are in the process of implementing segregation of duties and are determining further initiatives to undertake in order to remediate this remaining material weakness and anticipate that these initiatives will be implemented by the end of fiscal year 2024.

Remediation of Previously Reported Material Weaknesses

As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, our management concluded that we did not maintain effective internal control over financial reporting as of December 31, 2022, due to a weakness in our IT security environment, and controls and procedures including a lack of formal IT policies and procedures. We have taken remediation steps to address this material weakness by strengthening IT securities and controls. During the year ended December 31, 2023, we have developed and implemented formal IT policies and procedures, which ensured a structure approach to managing and safeguarding our IT environment. We have also formed our cybersecurity committee and conducted regular cybersecurity training to foster a culture of security awareness throughout our organization. As a result, management has concluded that the identified material weakness

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related to the Company’s IT environment, policies and procedures has been considered remediated as of December 31, 2023.

This annual report does not include an attestation report of the Company’s registered independent public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered independent public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report on Form 10-K.

Changes in Internal Control Over Financial Reporting

Other than as described above, there have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

The information required by this item is incorporated by reference to the 2023 Proxy Statement, which will be filed no later than 120 days after December 31, 2023.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the 2023 Proxy Statement, which will be filed no later than 120 days after December 31, 2023.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

The information required by this item is incorporated by reference to the 2023 Proxy Statement, which will be filed no later than 120 days after December 31, 2023.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated by reference to the 2023 Proxy Statement, which will be filed no later than 120 days after December 31, 2023.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated by reference to the 2023 Proxy Statement, which will be filed no later than 120 days after December 31, 2023

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) | DOCUMENTS FILED AS PART OF THIS REPORT

The following is a list of our financial statements filed in this Annual Report on Form 10-K under Item 8 of Part II hereof:

| 1. | All financial statements. See Index to Consolidated Financial Statements.

| 2. | Financial Schedules.

Schedules are omitted because the required information is included in the footnotes, immaterial or not applicable.

| 3. | Exhibits. See Index to Exhibits below.

(b) | EXHIBITS

​ | ​ | ​
--- | --- | ---
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. (incorporated by reference from Exhibit 4.3 to the Company’s Annual Report on Form 10-K filed on April 17, 2023).
4.4 | ​ | Warrant Agent Agreement, dated as of January 27, 2022, between FGI Industries Ltd. and Continental Stock Trading and Trust Company. (incorporated by reference from Exhibit 4.4 to the Company’s Annual Report on Form 10-K filed on March 31, 2022).
4.5 | ​ | Form of Warrant (included in Exhibit 4.4, as Exhibit A to the Warrant Agent Agreement).
4.6 | ​ | Description of Company Securities (incorporated by reference from Exhibit 4.6 to the Company’s Annual Report on Form 10-K filed on March 31, 2022).
10.2 | ​ | Shared Services Agreement, dated January 14, 2022, by and between FGI Industries, Inc. and Foremost Home Industries, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K filed on March 31, 2022).
10.3 | ​ | Amended and Restated Shared Services Agreement, dated January 1, 2023, by and between FGI Industries Ltd. and Foremost Worldwide Co., Ltd. (incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K filed on April 17, 2023).
10.4 | ​ | Amended and Restated Global Sourcing and Purchase Agreement, dated January 1, 2023, by and between FGI Industries Ltd. and Foremost Worldwide Co., Ltd. (incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K filed on April 17, 2023).
10.5 | ​ | Sales and Purchase Agreement, dated January 14, 2022, by and between FGI International, Ltd. and FGI Industries, Inc. (incorporated by reference from Exhibit 10.5 to the Company’s Annual Report on Form 10-K filed on March 31, 2022).
10.6 | ​ | Sales and Purchase Agreement, dated January 28, 2022, by and between FGI Industries Ltd. and Foremost Worldwide Co., Ltd. (incorporated by reference from Exhibit 10.6 to the Company’s Annual Report on Form 10-K filed on March 31, 2022).

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​ | ​ | ​
--- | --- | ---
Exhibit | ​ | ​
Number |  | Description
​ | ​ | ​
10.7† | ​ | FGI Industries Ltd. Annual Management Incentive Plan (incorporated by reference to Exhibit 10.13 to the Company’s Quarterly Report on Form 10-Q, filed on May 13, 2022).
10.8† | ​ | 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 on October 4, 2021).
10.9† | ​ | FGI Industries Ltd. 2022 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 on October 4, 2021).
10.10† | ​ | 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 on October 4, 2021).
10.11† | ​ | 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 on October 4, 2021).
10.12† | ​ | Form of Performance Based Stock Unit Award (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on August 15, 2022).
10.13† | ​ | Form of Performance Based Stock Option Award (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on November 14, 2022).
10.14† | ​ | 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 on October 4, 2021).
10.15† | ​ | Employment Agreement, dated January 24, 2022, by and between FGI Industries Ltd. and David Bruce. (incorporated by reference from Exhibit 10.12 to the Company’s Annual Report on Form 10-K filed on March 31, 2022).
10.16† | ​ | Employment Agreement, dated January 24, 2022, by and between FGI Industries Ltd. and Perry Lin. (incorporated by reference from Exhibit 10.13 to the Company’s Annual Report on Form 10-K filed on March 31, 2022).
10.17† | ​ | 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).
10.18 | ​ | Business Loan Agreement, by and between East West Bank and FGI Industries, Inc. (f/k/a Foremost Groups, Inc.), effective November 25, 2022 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 1, 2022).
1 0.19 | ​ | Facility Letter by and between HSBC Bank Canada and FGI Canada Ltd., dated December 2, 2021 (incorporated by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-K filed April 17, 2023).
1 0.20* | ​ | General Agreement for Omnibus Credit Lines, by and between CTBC Bank Co., Ltd. and FGI International, Limited
21.1* | ​ | Subsidiaries of Registrant.
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.
97* | ​ | FGI Industries Compensation Recovery Policy, effective November 30, 2023.
101.INS | ​ | XBRL Instance – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH | ​ | XBRL Taxonomy Schema Document
101.CAL | ​ | XBRL Taxonomy Calculation Linkbase Document
101.DEF | ​ | XBRL Taxonomy Definition Linkbase Document
101.LAB | ​ | XBRL Taxonomy Labels Linkbase Document
101.PRE | ​ | XBRL Taxonomy Presentation Linkbase Document
104 | ​ | Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101).

† | Indicates management contract or compensatory plan or arrangement.

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# | Portions of this exhibit (indicated by asterisks) have been redacted in compliance with Regulation S-K Item 601(b)(10)(iv).

* | Filed herewith.

ITEM 16. FORM 10-K SUMMARY

Omitted at the Company’s option.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: March 26, 2024 | ​ | ​
​ | FGI Industries Ltd.
​ | ​ | ​
​ | By: | /s/ David Bruce
​ | ​ | David Bruce
​ | ​ | Chief Executive Officer and President
​ | ​ | (Principal Executive Officer)

​

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David Bruce and John Chen, and each of them severally, acting alone and without the other, as his true and lawful attorney-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K and to file same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature |  | Title |  | Date
​ | ​ | ​ | ​ | ​
/s/ David Bruce | ​ | Chief Executive Officer and Director | ​ | March 26, 2024
David Bruce | ​ | (Principal Executive Officer) | ​ | ​
​ | ​ | ​ | ​ | ​
/s/ Perry Lin | ​ | Chief Financial Officer | ​ | March 26, 2024
Perry Lin | ​ | (Principal Financial and Accounting Officer) | ​ | ​
​ | ​ | ​ | ​ | ​
/s/ John Chen | ​ | Executive Chairman and Director | ​ | March 26, 2024
John Chen | ​ | ​ | ​ | ​
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/s/ Todd Heysse | ​ | Director | ​ | March 26, 2024
Todd Heysse | ​ | ​ | ​ | ​
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/s/ Kellie Zesch Weir | ​ | Director | ​ | March 26, 2024
Kellie Zesch Weir | ​ | ​ | ​ | ​
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/s/ Jae Chung | ​ | Director | ​ | March 26, 2024
Jae Chung | ​ | ​ | ​ | ​

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