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What changed in FGI Industries Ltd.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of FGI Industries Ltd.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+219 added−219 removedSource: 10-K (2024-03-26) vs 10-K (2023-04-17)

Top changes in FGI Industries Ltd.'s 2023 10-K

219 paragraphs added · 219 removed · 167 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

31 edited+5 added−5 removed71 unchanged
Biggest changeMajor 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.
Biggest changeMajor 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. 5 Table of Contents 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.
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.
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.
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 12 Table of Contents 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.
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.
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 07869, and our telephone number is (973) 428- 0400.
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 Products As a result of the increased significance of shower systems in our product portfolio in 2022, 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.
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.
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 (2021 Revision) of the Cayman Islands (the “Companies Act”) as the same may be amended from time to time.
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.
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. ● Products : We have significant “whitespace” opportunities in several product categories within our core kitchen and bath 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. 7 Table of Contents ● Products : We have significant “whitespace” opportunities in several product categories within our core kitchen and bath markets.
For our Bath Furniture and Other product categories, we compete with dozens of regional suppliers in any given product line, 9 Table of Contents although we believe that relatively few can compete with us on a truly national scale, particularly with regards to our mass retail channels.
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.
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. 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.
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. 11 Table of Contents 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 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 2022, approximately 35% of our net sales were to our wholesale partners.
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.
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 38% of our net sales in 2022 were to large retailers.
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.
Our sales through e-commerce channels and retailers represented about 13% of our net sales in 2022 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.
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.
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 $162.4 billion in 2023, of which approximately half is in product categories that we currently operate within.
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.
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 2022, approximately 9% of our net sales were to our commercial partners.
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.
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. We are a Cayman Islands exempted company.
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. 12 Table of Contents We are a Cayman Islands exempted company.
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.
In 2023, approximately 13% of our net sales were to our commercial partners. 8 Table of Contents 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.
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 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.
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.
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.
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 United States, Canada and Europe. Our main owned brands in this category include Foremost ® , which is retail-focused, and contrac ® , which is wholesale-focused.
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 6 Table of Contents United States, Canada and Europe.
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.
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.
Independent dealers and distributors represented 4% of our net sales in 2022. 8 Table of Contents Raw Materials, Suppliers and Manufacturing Many of our sanitaryware products contain ceramics, the major components of which are clay and enamel.
Raw Materials, Suppliers and Manufacturing Many of our sanitaryware products contain ceramics, the major components of which are clay and enamel.
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 6 Table of Contents sold throughout the United States and Canada.
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.
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.
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. 9 Table of Contents 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.
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.
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 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. 10 Table of Contents Significant ownership and support from Foremost Foremost is a family-controlled and privately held holding company.
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.
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. 7 Table of Contents 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 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.
We have generally been able over time to recover the effects of inflation, commodity price and currency fluctuations through sales price increases. 11 Table of Contents Human Capital As of December 31, 2022, we employed approximately 145 employees, all of which are full-time, with no employees covered by collective bargaining agreements. We believe that our employee relations are good.
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.
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.
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.
Tangshan Huida Ceramic Group Co., Ltd (“Huida”) supplies the majority of our sanitaryware products.
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.
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.
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.
We saw decreased sales in first quarter of 2020 due to the COVID-19 pandemic, however, these decreases normalized over the remainder of the year. The costs of our products are subject to inflationary pressures and commodity price fluctuations.
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.
Removed
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 5 Table of Contents formed FGI Industries Ltd.
Added
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.
Removed
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 Groups, Ltd. before the completion of Reorganization and are presented as if we had been in existence and the Reorganization had been in effect during the years ended December 31, 2022 and 2021.
Added
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 .
Removed
Huida accounted for approximately 85.5% of the total balance of our accounts payable as of December 31, 2022. [We intend to work with Huida to negotiate a new supply arrangement after an arbitration proceeding terminated our previous Agreement for Co-operations (the “Huida Agreement”), dated October 20, 2020, by and between Huida and FGI Industries, our wholly owned subsidiary (“FGI USA”).
Added
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.
Removed
See Item 3. “Huida Arbitration” for more details.] No other supplier accounts for more than 10% of our accounts payable as of December 31, 2022. We regularly evaluate our organizational productivity and supply chains and seek opportunities to reduce costs and enhance quality.
Added
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. 10 Table of Contents Experienced Management Team We have assembled an executive team with a deep base of management experience within industrial manufacturing companies.
Removed
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.
Added
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.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

64 edited+23 added−16 removed184 unchanged
Biggest changePursuant to a certain Agreement for Co-operations (the “Huida Agreement”), dated October 20, 2020, by and between Huida and FGI Industries, our wholly owned subsidiary, so long as we meet certain annual product placement volume requirements, (i) we have an exclusive right to distribute and resell in the United States and Canadian markets any products designed and created by Huida and for which Huida retains all intellectual property rights, and (ii) Huida may not manufacture or sell any products we design or create, for which we retain all intellectual property rights, without our prior consent. 16 Table of Contents We had been involved in arbitration with Huida regarding the scope and duration of the Huida Agreement.
Biggest changeWe 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.
We believe that the material weaknesses 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 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.
However, because we conduct only limited operations in China with only 17 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.
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 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 28 Table of Contents payments not previously approved.
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.
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; 27 Table of Contents ● 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.
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.
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; 13 Table of Contents ● 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.
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.
While we are not a China based 21 Table of Contents 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.
While we are not a China based 22 Table of Contents 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.
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 22 Table of Contents distribution methods. These factors could affect 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 23 Table of Contents distribution methods. These factors could affect our results of operations and financial position.
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. 20 Table of Contents Regulatory bodies of the United States may be limited in their ability to conduct investigations or inspections of our operations in China.
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. 21 Table of Contents Regulatory bodies of the United States may be limited in their ability to conduct investigations or inspections of our operations in China.
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 25 Table of Contents ● climate change and protection of the environment.
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.
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 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.
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 24 Table of Contents 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.
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 judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met.
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 30 Table of Contents judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met.
Liang Chou Chen holds approximately 49.75% 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.
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.
Our compliance obligations 19 Table of Contents 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.
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 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 86% and 66% of the total balance of our accounts payable as of December 31, 2022 and 2021, 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.
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.
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. 31 Table of Contents ITEM 1B.
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.
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 26 Table of Contents official decisions or obtaining or retaining business or otherwise obtaining favorable treatment.
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.
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 14 Table of Contents drive growth and productivity. These initiatives are designed to grow shareholder value over the long term.
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.
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. ​ We expect to incur significant additional costs as a result of being a public company.
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. 31 Table of Contents We expect to incur significant additional costs as a result of being a public company.
In addition, we may experience delays, disruptions or quality control problems in our manufacturing operations, over which we have little to no control. Natural disasters or other disruptions could have a material adverse effect on our business, financial condition or results of operations.
In addition, we may experience delays, disruptions or quality control problems in our manufacturing operations, over which we have little to no control. 17 Table of Contents Natural disasters or other disruptions could have a material adverse effect on our business, financial condition or results of operations.
Broad market and industry factors may significantly affect the 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.
Broad market and industry factors may significantly affect the 28 Table of Contents 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.
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 would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.
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 29 Table of Contents would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.
For more information about the Huida proceeding, 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.
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.
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 76% and 77% of our consolidated net sales for 2022 and 2021, respectively, and this concentration may continue to increase.
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.
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 17 of our 145 employees are based in China. Moreover, suppliers of a majority of our product materials are based in China.
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.
In addition, we could be adversely 23 Table of Contents affected if any of our significant customers, suppliers or service providers experiences any similar events that disrupt their business operations or damage their reputation.
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.
In particular, The Home Depot represented approximately 22% and 24% of our consolidated net sales in 2022 and 2021, 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.
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.
Based upon an evaluation conducted in connection with the preparation of FGI’s audited consolidated financial statements as of December 31, 2022, management concluded that our internal controls over financial reporting were not effective due to the material weaknesses in our internal controls over financial reporting.
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.
Such events could adversely affect our results of operations and financial position. ​ 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.
Such events could adversely affect our results of operations and financial position. ​ 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.
Complying with varying jurisdictional requirements could increase the costs and complexity of compliance, and violations of applicable data protection laws could result in significant penalties.
Complying with varying jurisdictional requirements 26 Table of Contents could increase the costs and complexity of compliance, and violations of applicable data protection laws could result in significant penalties.
INDEX TO RISK FACTORS Strategic Risks 3 Business and Operational Risks 3 Risks Related to Doing Business in China 4 Competitive Risks 22 Technology and Intellectual Property Risks 23 Litigation and Regulatory Risks 25 Risks Related to Our Securities 27 General Risk Factors 30 ​ 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.
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 ​ 13 Table of Contents 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.
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.
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.
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.
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. 32 Table of Contents
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.
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.
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. Our results of operations and financial position are also impacted by changes in currency exchange rates.
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.
Moreover, the standards by which ESG matters are measured are developing and evolving, and certain areas are subject 18 Table of Contents to assumptions that could change over time.
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.
We may be adversely affected if our information systems breakdown, fail, or are no longer supported. 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 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 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.
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.
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.
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.
In addition, Cayman Islands companies may not have standing to initiate a shareholders derivative action in a Federal court of the United States. 29 Table of Contents 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.
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.
Furthermore, our existing indebtedness, which was approximately $9.8 million as of December 31, 2022, may adversely affect our financial flexibility and our competitive position in the future.
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.
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.
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.
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. Many of the suppliers we rely upon are located in foreign countries, primarily China.
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.
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 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.
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.
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.
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. 15 Table of Contents 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.
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.
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 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.
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.
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.
In light of recent events indicating greater oversight by the Cyberspace Administration of China, or CAC, over data security, 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 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.
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. Changes in Cayman Islands or U.S. tax law could adversely affect our financial condition and results of operations.
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.
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.
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. 16 Table of Contents 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.
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 will perform at the levels we anticipate.
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.
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.
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. 27 Table of Contents 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.
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.
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.
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 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.
In each of 2022 and 2021, approximately 36% and 38%, 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 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.
In addition, a loss of brand recognition may have an adverse impact to our competitive position, which could have a material adverse effect on our results of operations and financial position. 24 Table of Contents 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.
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.
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.
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. 14 Table of Contents 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 also expect to continue to incur or expend, substantial accounting and other expenses and significant management time and resources. 30 Table of Contents Our future assessment, or the future assessment by our independent registered public accounting firm, may reveal additional material weaknesses in our internal controls.
Our future assessment, or the future assessment by our independent registered public accounting firm, may reveal additional material weaknesses in our internal controls.
The ongoing COVID-19 pandemic is disrupting our business, and has and may continue to impact our results of operations and financial condition.
The outbreak of contagious diseases, such as the COVID-19 pandemic, could disrupt our business and impact our results of operations and financial condition.
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, including due to the COVID-19 pandemic, could have a material adverse effect on our sales and earnings as well as our cash flow and liquidity.
These factors may affect not only the ultimate consumer of our products, but also may impact home centers, builders and our other primary customers.
Moreover, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if enacted, would amend the HFCAA and require the U.S.
Moreover, in December 2022, the Accelerating Holding Foreign Companies Accountable Act was enacted and amended the HFCAA to require the U.S.
For specific risks associated with operations in China, see “— Risks Related to Doing Business in China” below. The long-term performance of our businesses relies on our ability to attract, develop and retain talented and diverse personnel.
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.
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.
We cannot assure you that we will be successful in integrating an acquired business or that an internally developed project 15 Table of Contents 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.
Removed
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.
Added
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.
Removed
On September 28, 2022, the Company received notice that the arbitrator ruled that the Huida Agreement was not unlimited in duration and was being terminated. Huida remains a supplier of the Company’s sanitaryware products and the Company intends to work towards a new agreement with Huida that complies with the arbitrator’s findings.
Added
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.
Removed
However, there is no guarantee that an agreement can be reached on mutually agreeable terms.
Added
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.
Removed
In addition to our 17 Table of Contents Canadian and European operations, we manufacture products and source products and components from China and parts of Southeast Asia.
Added
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.
Removed
Unfavorable currency exchange rates between the US Dollar and foreign currencies, particularly the Euro, the Chinese Renminbi and the Canadian dollar, have in the past adversely affected us, and could adversely affect us in the future. Fluctuations in currency exchange rates may present challenges in comparing operating performance from period to period.
Added
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.
Removed
Additionally, following the United Kingdom’s exit from the European Union, we could experience volatility in the currency exchange rates or a change in the demand for our products and services, particularly in our European markets, or there could be disruption of our operations and our customers’ and suppliers’ businesses.
Added
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. 18 Table of Contents Global or regional unrest, conflict, geopolitical disputes or catastrophic events could affect our operations and results of operations.
Removed
We operate facilities in the United States and around the world which have been adversely affected by the COVID-19 pandemic, including decreased employee availability and reduced capacity at certain facilities, supply chain disruptions and increases in costs of materials, which has resulted and may continue to result in delays in our ability to produce and distribute our products.
Added
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.
Removed
While many of the market factors from the COVID-19 pandemic are trending towards a “new normal”, current macroeconomic conditions remain very dynamic, including impacts from rising inflation and interest rates, volatile changes in currency exchange rates, political unrest, and legislative and regulatory changes.
Added
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.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

3 edited+1 added−7 removed6 unchanged
Biggest changeAyers 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”).
Biggest changeWe 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. 33 Table of Contents 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.
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.
(“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.
We filed an objection to the report in October 2021, which was overruled by the Bankruptcy Court in September 2022, but the District Court has allowed FGI USA to propose an amendment to its complaint, which is in process. Huida Arbitration As previously disclosed, FGI Industries Ltd.
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.
Removed
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.
Added
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. ​ 34 Table of Contents PART II
Removed
(the “Company”), had been involved in arbitration with Tangshan Huida Ceramic Group Co., Ltd (“Huida”), one of the Company’s largest suppliers. The arbitration, held in the Shenzhen Court of International Arbitration, related to that certain Agreement for Co-operations (the “Co-Operation Agreement”), dated October 20, 2000, by and between Huida and FGI Industries, Inc., our wholly owned subsidiary.
Removed
Huida was seeking a determination that the terms of the Co-Operation Agreement were not unlimited in duration and should be amended or else terminable. 32 Table of Contents On September 28, 2022, the Company received notice that the arbitrator ruled that the Co-Operation Agreement was not unlimited in duration and is being terminated.
Removed
There are no termination fees or penalties payable by the Company as a result of this termination, although the Company did pay certain arbitration fees of Huida.
Removed
Under the Co-Operation Agreement, so long as the Company met certain annual product placement volume requirements, (i) the Company had an exclusive right to distribute and resell in the United States and Canadian markets any products designed and created by Huida and for which Huida retained all intellectual property rights, and (ii) Huida was not permitted to manufacture or sell any products the Company designed or created, for which we retained all intellectual property rights, without the Company’s prior consent.
Removed
Huida remains a supplier of the Company’s sanitaryware products. The Company intends to work towards a new agreement with Huida that complies with the arbitrator’s findings, primarily a more limited duration to the length of the contract. However, there is no guarantee that an agreement can be reached on mutually agreeable terms. ​ ITEM 4.
Removed
MINE SAFETY DISCLOSURES Not applicable. ​ 33 Table of Contents PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeITEM 4. ​ MINE SAFETY DISCLOSURES 33 ​ ​ ​ ​ PART II ​ ​ ​ ​ ​ ​ ​ ITEM 5. ​ MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 34 ​ ​ ​ ​
Biggest changeITEM 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 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeSecurities 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, 2022, we did not repurchase any ordinary shares. ITEM 6. [RESERVED] ​ 34 Table of Contents
Biggest changeSecurities 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] ​ ​ 35 Table of Contents
Holders; Shares Outstanding We had a total of 9,500,000 shares of our ordinary shares outstanding on March 31, 2023, 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.
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.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeResults of Operations For the Years Ended December 31, 2022 and 2021 The following table summarizes the results of our operations for the years ended December 31, 2022 and 2021, respectively, and provides information regarding the dollar and percentage increase (decrease) during such periods. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ ​ ​ ​ ​ ​ December 31, ​ Change ​ ​ 2022 ​ 2021 ​ Amount ​ Percentage ​ USD USD USD % Revenues ​ $ 161,718,543 $ 181,943,027 $ (20,224,484) (11.1) Cost of revenues ​ 130,209,538 ​ 149,740,619 ​ (19,531,081) (13.0) Gross profit ​ 31,509,005 ​ 32,202,408 ​ (693,403) (2.2) Selling and distribution expenses ​ 17,533,028 ​ 17,636,820 ​ (103,792) (0.6) General and administrative expenses ​ 7,830,023 ​ 6,194,789 ​ 1,635,234 26.4 Research and development expenses ​ 1,053,976 ​ 646,069 ​ 407,907 63.1 Income from operations ​ 5,091,978 ​ 7,724,730 ​ (2,632,752) (34.1) Operating margins ​ 3.1 % 4.2 % (110) bps Total other (expenses) income, net ​ (551,428) ​ 1,142,820 ​ (1,694,248) (148.3) Provision for income taxes ​ 860,630 ​ 961,634 ​ (101,004) (10.5) Net income ​ $ 3,679,920 ​ $ 7,905,916 ​ $ (4,225,996) (53.5) Adjusted income from operations (1) ​ $ 5,693,972 ​ $ 7,840,630 ​ $ (2,146,658) (27.4) Adjusted operating margins (1) ​ 3.5 % 4.3 % (80) bps — Adjusted net income (1) ​ $ 4,173,555 ​ $ 6,284,572 ​ $ (2,111,017) (33.6) (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. 36 Table of Contents Revenues Our revenues decreased by $20.2 million, or 11.1%, to $161.7 million for the year ended December 31, 2022, from $181.9 million for the year ended December 31, 2021.
Biggest changeResults 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.
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 and other current assets of approximately $1.0 million, non-cash items of approximately $0.6 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.
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, 2022 for private and all other companies including emerging growth companies.
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.
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 35 Table of Contents the markets we serve. We also have deep relationships with an established global customer base, offering end-to-end solutions to support category growth.
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- 36 Table of Contents to-end solutions to support category growth.
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 2023. ● “BPC” (Brands, Products, Channels) strategy to drive above-market organic growth.
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.
As previously noted, we also began experiencing supply chain disruptions and inflationary pressures, which affected operating margins beginning in late 2021. However, we adopted several productivity and pricing measures to offset these headwinds and began to see resumed margin expansion in the second half of 2022.
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.
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, our assets and liabilities are expressed in U.S.
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.
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, entering 2023: ● Commitment to product innovation.
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.
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. ​ 47 Table of Contents
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. ​ 48 Table of Contents
As an emerging growth company, the Company adopted this guidance from January 1, 2023, and the adoption of the standard will not have an impact on our financial position or results of operation.
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.
The loan bears interest 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 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).
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 ​ Leases We determine if an arrangement is a lease at inception.
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 ​ 44 Table of Contents Leases We determine if an arrangement is a lease at inception.
For the purpose of presenting the financial statements of the subsidiary using the Canadian Dollar (“CAD”) as functional currency, our assets and liabilities are expressed in U.S.
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.
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 with our customers.
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 45 Table of Contents with our customers.
For the purpose of presenting the financial statements of the subsidiary using the Euro (“EUR”) as functional currency, our assets and liabilities are expressed in U.S.
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.
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 44 Table of Contents accordance with ASU No. 2016-09, Compensation — Stock Compensation (Topic 718): Improvement to Employee Share-based Payment Accounting.
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.
We record interest and penalties on our uncertain tax positions in income tax expense. 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.
We record interest and penalties on our uncertain tax positions in income tax expense. 46 Table of Contents 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.
Significant accounting estimates reflected in our consolidated financial statements include the useful lives of property and equipment, allowance for doubtful accounts, inventory reserve, accrued defective return, provision for contingent liabilities, revenue recognition, deferred taxes and uncertain tax position. Actual results could differ from these estimates.
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.
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 parent’s net investment.
Translation adjustments arising from the use of different exchange rates from period to period are included as a separate 43 Table of Contents component of accumulated other comprehensive income included in the consolidated statements of changes in parent’s net investment.
As of December 31, 2022, FGI’s total outstanding debt is represented by a credit facility with East West Bank.
As of December 31, 2023, FGI’s total outstanding debt is represented by a credit facility with East West Bank.
Our capital expenditures amounted to approximately $1.1 million and $0.1 million for the years ended December 31, 2022, and 2021, respectively. We do not expect to incur significant capital expenditures in the immediate future.
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.
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 45 Table of Contents making strategic decisions. Our non-GAAP measures are: Adjusted Income from Operations, Adjusted Operating Margins and Adjusted Net Income.
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.
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 for the quarter ended March 31, 2021 and thereafter, 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.
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 40 Table of Contents 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.
We have identified certain accounting policies that are significant to the preparation of the consolidated financial statements. These accounting 41 Table of Contents policies are important for an understanding of our financial condition and results of operations.
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.
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 $383,572 and $0 in 2022 and 2021, respectively.
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.
East West Bank Credit Facility Our wholly owned subsidiary, FGI Industries (formerly named Foremost Groups, Inc.), has a line of credit with East West Bank pursuant to a Business Loan Agreement (the “Credit Agreement”) with East West Bank, which is collateralized by all of the assets of FGI Industries and personally guaranteed by Liang Chou Chen, who holds approximately 49.75% of the voting control of Foremost.
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.
As of December 31, 2022 and 2021, FGI Canada Ltd. was in compliance with this financial covenant. Borrowings under this line of credit amounts to $0 as of December 31, 2022 and 2021. The facility matures at the discretion of HSBC Canada upon 60 days notice.
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.
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 $5,538,734 as of the December 31, 2022 exchange rate).
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 amounted to $16.8 million and $18.8 million for the years ended December 31, 2022 and 2021, respectively, representing a 10.5% decrease. The decrease was attributable to decreased demand that was impacted by global supply chain interruptions and inflation issues.
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.
These revenues accounted for 63.9% and 62.0% of our total revenues for 2022 and 2021, 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.
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 $41.0 million and $50.4 million for the years ended December 31, 2022 and 2021, respectively, representing a 18.6% 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.
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.
We also generate revenues from sales of Other products (custom kitchen cabinetry and others), which, in the aggregate, accounted for 3.6% and 1.8% of our total revenues for the years ended December 31 ,2022 and 2021.
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.
Financing Activities 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.
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. 42 Table of Contents Commitments and Contingencies Capital Expenditures Our capital expenditures were incurred primarily in connection with the acquisition of property and equipment.
Dollars at the exchange rate on the balance sheet date, which was 1.3541 and 1.2697 as of December 31, 2022 and 2021, respectively; parent’s net investment accounts are translated at historical rates, and income and expense items are translated at the average exchange rate during the period, which was 1.2945 and 1.2549 for the years ended December 31, 2022 and 2021, respectively.
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.
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.
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.
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 Groups, Ltd. before the completion of Reorganization and are presented as if we had been in existence and the Reorganization had been in effect during the years ended December 31, 2022 and 2021.
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.
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 decreased by $0.1 million, or 0.6%, to $17.5 million for the year ended December 31, 2022, from $17.6 million for the year ended December 31, 2021.
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 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 40 Table of Contents 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.
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.
Dollars at the exchange rate on the balance sheet date, which was 6.9653 and 6.3762 as of December 31, 2022 and 2021, respectively; parent’s net investment accounts are translated at historical rates, and income and expense items are translated at the average exchange rate during the period, which was 6.7164 and 6.4543 the years ended December 31, 2022 and 2021, respectively.
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.
The interest rate as of December 31, 2022 and December 31, 2021 was 7.25% and 3.50%, respectively. 39 Table of Contents 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 $9,795,052 and $14,657,280 as of December 31, 2022 and 2021, respectively.
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.
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. ​ We derive our revenues primarily from the United States, Canada and Europe.
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.
Revenue categories by geographic location are summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ Change ​ ​ 2022 ​ Percentage ​ 2021 ​ Percentage ​ Percentage ​ USD % USD % % United States $ 103,255,662 63.9 $ 112,725,240 62.0 (8.4) Canada ​ 41,025,288 25.4 ​ 50,391,183 27.7 (18.6) Europe ​ ​ 16,844,015 ​ 10.4 ​ ​ 18,826,604 ​ 10.3 ​ (10.5) Rest of World ​ 593,578 0.3 ​ — — — Total ​ $ 161,718,543 100.0 ​ $ 181,943,027 100.0 (11.1) ​ We generated the majority of our revenues in the United States market, which amounted to $103.3 million for the year ended December 31, 2022, and $112.7 million for the year ended December 31, 2021, representing an 8.4% 37 Table of Contents decrease.
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.
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.
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.
(“Foremost”), and its affiliates, pursuant to which, among other actions, Foremost contributed all of its equity interests in FGI Industries, Inc., FGI Europe Investment Limited, an entity formed in the British Virgin Islands (“FGI Europe”), and FGI International, Limited, an entity formed under the laws of Hong Kong (“FGI International”), each a wholly-owned subsidiary of Foremost, to the newly formed FGI Industries Ltd.
(“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.
Revenue categories by product are summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, Change ​ 2022 ​ Percentage ​ 2021 ​ Percentage ​ Percentage ​ USD % USD % % Sanitaryware ​ $ 104,806,342 64.8 $ 104,477,568 57.4 0.3 Bath Furniture ​ 29,519,728 18.3 ​ 55,136,664 30.3 (46.5) Shower System ​ ​ 21,586,888 ​ 13.3 ​ ​ 19,116,188 ​ 10.5 ​ 12.9 Other ​ 5,805,585 3.6 ​ 3,212,607 1.8 80.7 Total ​ $ 161,718,543 100.0 ​ $ 181,943,027 100.0 (11.1) ​ We derive the majority of our revenues from sales of sanitaryware, which accounted for 64.8% and 57.4% of our total revenues for the years ended December 31, 2022 and 2021, respectively.
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.
Investing Activities Net cash used in investing activities was approximately $1.1 million and $0.1 million for the years ended December 31, 2022 and 2021, respectively. The increase in cash used was primarily attributable to increases in the purchase of property and equipment.
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.
Dollars at the exchange rate on the balance sheet date, which was 0.9338 and 0.8815 as of December 31, 2022 and 2021, respectively; parent’s net investment accounts are translated at historical rates, and income and expense items are translated at the average exchange rate during the period, which was 0.9474 and 0.8406 for the years ended December 31, 2022 and 2021, respectively. 42 Table of Contents Accounts receivable Bills and trade receivables include trade accounts due from customers.
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.
The decrease in our revenues was primarily by declines in bath furniture sales partially offset by continued growth in Shower System and Other categories.
The decrease in our revenues was primarily by declines in sanitaryware and bath furniture categories.
Gross Profit Gross profit was $31.5 million during year 2022, a decrease of 2.2% compared to the prior-year period, as volume weakness was offset by pricing gains, a more favorable mix, and lower freight costs.
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.
Provision for Income Taxes We recorded income tax expense of $0.9 million for the year ended December 31, 2022, and $1.0 million for the year ended December 31, 2021.
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%.
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.
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.
Other Income (Expenses) Other income (expenses) decreased by $1.7 million, or (148.3)%, to $(0.6) million for the year ended December 31, 2022, from $1.1 million for the year ended December 31, 2021. This decrease was the result of one-time income recognized in 2021 upon the forgiveness of the PPP loan.
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.
In establishing the required allowance for doubtful accounts, 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 bad debt allowance is adequate and adjusts the allowance when necessary.
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.
Delinquent account balances are written off against allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted average cost method, based on individual products.
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.
Our revenues from bath furniture sales decreased significantly by 46.5% to $29.5 million for the year ended December 31, 2022 from $55.1 million for the year ended December 31, 2021. Bath furniture sales accounted for 18.3% and 30.3% of our total revenue for 2022 and 2021, respectively.
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.
Cash Flows The following table summarizes the key components of our cash flows for the years ended December 31, 2022, and 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended December 31, ​ ​ 2022 ​ 2021 ​ USD USD Net cash provided by (used in) operating activities ​ $ 980,265 ​ $ (3,217,321) Net cash used in investing activities ​ (1,063,823) ​ (51,890) Net cash provided by financing activities ​ 7,010,568 ​ 3,316,826 Effect of exchange rate fluctuation on cash ​ (743,478) ​ (182,277) Net changes in cash ​ 6,183,532 ​ (134,662) Cash, beginning of period ​ 3,883,896 ​ 4,018,558 Cash, end of period ​ $ 10,067,428 ​ $ 3,883,896 ​ Operating Activities Net cash provided by operating activities was approximately $1.0 million for the year ended December 31, 2022 compared to cash used in operating activities of $3.2 million for the year ended December 31, 2021.
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. ​ 41 Table of Contents 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 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 the 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.
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.
Our general and administrative expenses increased by $1.6 million, or 26.4%, to $7.8 million for the year ended December 31, 2022, as compared to the year ended December 31, 2021. The increase was primarily attributable to incremental public company costs and a one-time bonus expense related to our IPO.
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.
Net cash used in operating activities was approximately $3.2 million for the year ended December 31, 2021 and was primarily attributable to an increase in accounts receivable of approximately $11.1 million, an increase in inventories of approximately $13.0 million, an increase in other noncurrent assets of approximately $2.8 million, which were partially offset by net income for the year of approximately $7.9 million, plus various non-cash items of approximately $0.7 million, an increase in accounts payable of approximately $12.5 million, and an increase in accrued expenses and other current liabilities of approximately $2.5 million.
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.
On November 25, 2022, the Credit Agreement was amended and restated with a maximum borrowing amount of $18,000,000 and a maturity date of December 21, 2024.
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.
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, ​ ​ 2022 2021 Income from operations ​ $ 5,091,978 $ 7,724,730 ​ Adjustments: ​ ​ ​ ​ Non-recurring IPO-related compensation ​ ​ 255,871 ​ ​ — ​ Arbitration legal fee ​ ​ 221,258 ​ ​ — ​ Anti-dumping penalty (1) ​ ​ 124,865 ​ ​ — ​ COVID one-time expenses ​ ​ — ​ 115,900 ​ Adjusted income from operations ​ ​ 5,693,972 ​ 7,840,630 ​ Revenue ​ $ 161,718,543 $ 181,943,027 ​ Adjusted operating margins ​ ​ 3.5 % ​ 4.3 % ​ (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, ​ 2022 2021 Net Income ​ $ 3,679,920 $ 7,905,916 Adjustments: ​ ​ ​ ​ ​ ​ Non-recurring IPO-related compensation ​ ​ 255,871 ​ ​ — Arbitration legal fee ​ ​ 221,258 ​ ​ — Anti-dumping penalty (1) ​ ​ 124,865 ​ ​ — COVID one-time expenses ​ ​ — ​ 115,900 Other income (PPP Loan) ​ ​ — ​ (1,680,900) Total ​ ​ 4,281,914 ​ 6,340,916 Tax impact of adjustment at 18% effective rate ​ ​ (108,359) ​ 281,700 GILTI high tax re-selection ​ ​ ​ ​ (338,044) Adjusted net income ​ $ 4,173,555 $ 6,284,572 ​ ​ (1) Represents an additional charge related to one-time anti-dumping/countervailing duty legal fee, as shown in prior periods. ​ ​ 46 Table of Contents ITEM 7A.
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. ​ 47 Table of Contents 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.
As of December 31, 2021, FGI Industries was not in compliance with this financial covenant; however, East West Bank provided a waiver for such non-compliance. As of December 31, 2022, FGI Industries was in compliance with this financial covenant.
As of December 31, 2023 and 2022, FGI Industries was in compliance with these financial covenants.
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.
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.
Revenue recognition In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.
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.
The revenue pressure was a result of a more significant inventory correction in the channel combined with some more pronounced end market softness. Revenues from sales of Shower Systems increased by 12.9% to $21.6 million for the year ended December 31, 2022 from $19.1 million for the year ended December 31, 2021.
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.
Gross profit margin percentage improved to 19.5% during year 2022, up 180 basis points from 17.7% in the prior-year period, as measures put in place to mitigate the recent margin headwinds benefitted results.
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.
Removed
We are focused on increasing the mix of Branded products as a percentage of sales, which is expected to result in larger available markets and gross margin expansion. Our owned brands grew to nearly 34% of sales as of year-end 2022, up from less than 1% at the end of 2010.
Added
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.
Removed
We are focused on expanding our position in channels such as e-commerce, providing for additional growth opportunities with existing brick and mortar customers, as well as expanding with e-commerce customers. The e-commerce channel accounted for 13% of sales in 2022, up from only 2% at the end of 2010. ● Drive margin expansion.
Added
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.
Removed
Margin expansion remains a key pillar of our value creation focus. We believe our BPC strategy will support enhanced margins through growth in branded products, new product categories, and new channels.
Added
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.
Removed
Headwinds from supply chain disruptions and inflationary pressures impacted operating margins since 2021; however, we have adopted measures to offset these challenges, and resumed margin expansion in the back half of 2022 as these initiatives took hold. ● Efficient capital deployment. We benefit from a capital-light business model allowing us to generate strong free cash flow conversion.
Added
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.
Removed
We expect to utilize our strong free cash flow to re-invest in the core business and drive growth through existing brand development and new product category expansion. We will also look for selective bolt-on acquisition opportunities, over time, focused within the core kitchen and bath end markets.
Added
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.
Removed
We plan to maintain a disciplined approach to capital deployment, with most material internal investments currently subject to a company-wide 20%+ expected return on capital hurdle rate. ● Deep manufacturing partners and customer relationships.
Added
(“Foremost”), and its affiliates, pursuant to which, among other actions, Foremost contributed all of its equity interests in FGI Industries, Inc.
Removed
While demand for our bath furniture products remains lower than historical levels thus far in 2023, based on discussions with our existing customers and other market factors, we expect demand to pick up in the second half of 2023.
Added
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.

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