Item 9A. Controls and Procedures
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Exchange Act, as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2022, our disclosure controls and procedures were ineffective and listed in below.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined under Rule 13a-15(f) under the Exchange Act.
Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
● pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
● provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the board of directors of the Company; and
● provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or because of declines in the degree of compliance with policies or procedures.
As of December 31, 2022, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in 2013 and SEC guidance on conducting such assessments. Based on such evaluation, the Company’s management concluded that, during the period covered by this Report, internal controls and procedures over financial reporting were not effective. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.
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Identified Material Weakness
A material weakness in internal control over financial reporting is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected.
Management identified the following material weaknesses during its assessment of internal controls over financial reporting as of December 31, 2022:
● weaknesses in IT security environment, controls and procedures including lack of formal IT policies and procedures;
● lack of sufficient documentation of our existing financial processes, risk assessment and internal controls activities and assessment of effectiveness of internal controls; and inadequate segregation of duties for certain functions due to limited staffs and resources .
Accordingly, the Company concluded that these material weaknesses resulted as there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls.
As a result of the material weaknesses described above, management has concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2022 based on criteria established in Internal Control—Integrated Framework issued by COSO.
Management’s Remediation Initiatives
We are determining the initiatives to undertake in order to remediate the identified material weaknesses and other deficiencies and enhance our internal controls.
We anticipate that these initiatives will be at least partially, if not fully, implemented by the end of fiscal year 2023.
Changes in internal controls over financial reporting
There were no significant changes in our internal controls over financial reporting that occurred during the period covered by this Report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting:
This annual report does not include an attestation report of the Company’s registered independent public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered independent public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
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ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information required by this item is incorporated by reference to the 2022 Proxy Statement, which will be filed no later than 120 days after December 31, 2022.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the 2022 Proxy Statement, which will be filed no later than 120 days after December 31, 2022.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
The information required by this item is incorporated by reference to the 2022 Proxy Statement, which will be filed no later than 120 days after December 31, 2022.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference to the 2022 Proxy Statement, which will be filed no later than 120 days after December 31, 2022.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference to the 2022 Proxy Statement, which will be filed no later than 120 days after December 31, 2022
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
DOCUMENTS FILED AS PART OF THIS REPORT
The following is a list of our financial statements filed in this Annual Report on Form 10-K under Item 8 of Part II hereof:
1. All financial statements. See Index to Consolidated Financial Statements.
2. Financial Schedules.
Schedules are omitted because the required information is included in the footnotes, immaterial or not applicable.
3. Exhibits. See Index to Exhibits below.
(b)
EXHIBITS
Exhibit
Number
Description
3.1
Second Amended and Restated Memorandum and Articles of Association of FGI Industries Ltd., effective January 27, 2022 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on January 27, 2022).
4.1
Specimen of Ordinary Share Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Amendment No. 1 to Registration Statement on Form S-1, filed on October 4, 2021).
4.2
Form of Representative’s Warrant, between FGI Industries Ltd. and the purchaser parties thereto (incorporated by reference to Exhibit 4.2 to the Company’s Amendment No. 1 to Registration Statement on Form S-1, filed on October 4, 2021).
4.3*
Registration Rights Agreement, dated as of January 27, 2022, between FGI Industries Ltd. and Foremost Groups Ltd.
4.4
Warrant Agent Agreement, dated as of January 27, 2022, between FGI Industries Ltd. and Continental Stock Trading and Trust Company. (incorporated by reference from Exhibit 4.4 to the
Company’s Annual Report on Form 10-K filed on March 31, 2022).
4.5
Form of Warrant (included in Exhibit 4.4, as Exhibit A to the Warrant Agent Agreement).
4.6
Description of Company Securities. (incorporated by reference from Exhibit 4.6 to the Company’s
Annual Report on Form 10-K filed on March 31, 2022).
10.1#
Agreement for Co-operations, dated October 20, 2000, by and between FGI Industries, Inc. and Tangshan Huida Ceramic Group Co., Ltd. (incorporated by reference to Exhibit 10.1 to the Company’s Amendment No. 1 to Registration Statement on Form S-1, filed on October 4, 2021).
10.2
Shared Services Agreement, dated January 14, 2022, by and between FGI Industries, Inc. and Foremost Home Industries, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K filed on March 31, 2022).
10.3*
Amended and Restated Shared Services Agreement, dated January 1, 2023, by and between FGI Industries Ltd. and Foremost Worldwide Co., Ltd.
10.4*
Amended and Restated Global Sourcing and Purchase Agreement, dated January 1, 2023, by and between FGI Industries Ltd. and Foremost Worldwide Co., Ltd.
10.5
Sales and Purchase Agreement, dated January 14, 2022, by and between FGI International, Ltd. and FGI Industries, Inc. (incorporated by reference from Exhibit 10.5 to the Company’s Annual
Report on Form 10-K filed on March 31, 2022) .
10.6
Sales and Purchase Agreement, dated January 28, 2022, by and between FGI Industries Ltd. and Foremost Worldwide Co., Ltd. (incorporated by reference from Exhibit 10.6 to the Company’s
Annual Report on Form 10-K filed on March 31, 2022).
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Exhibit
Number
Description
10.7†
FGI Industries Ltd. Annual Management Incentive Plan (incorporated by reference to Exhibit 10.13
to the Company’s Quarterly Report on Form 10-Q, filed on May 13, 2022).
10.8†
FGI Industries Ltd. Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.6 to the Company’s Amendment No. 1 to Registration Statement on Form S-1, filed on October 4, 2021).
10.9†
FGI Industries Ltd. 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.7 to the Company’s Amendment No. 1 to Registration Statement on Form S-1, filed on October 4, 2021) .
10.10 †
Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.8 to the Company’s Amendment No. 1 to Registration Statement on Form S-1, filed on October 4, 2021).
10.11 †
Form of Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.9 to the Company’s Amendment No. 1 to Registration Statement on Form S-1, filed on October 4, 2021).
10.12 †
Form of Performance Based Stock Unit Award (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on August 15, 2022).
10.13 †
Form of Performance Based Stock Option Award (incorporated by reference to Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q filed on November 14, 2022).
10.14 †
Form of Director Retainer Agreement (incorporated by reference to Exhibit 10.10 to the Company’s Amendment No. 1 to Registration Statement on Form S-1, filed on October 4, 2021).
10.15 †
Employment Agreement, dated January 24, 2022, by and between FGI Industries Ltd. and David Bruce. (incorporated by reference from Exhibit 10.12 to the Company ’ s Annual Report on Form
10-K filed on March 31, 2022).
10.16 †
Employment Agreement, dated January 24, 2022, by and between FGI Industries Ltd. and Perry Lin. (incorporated by reference from Exhibit 10.13 to the Company ’ s Annual Report on Form 10-K
filed on March 31, 2022).
10.17 †
Form of Indemnification Agreement by and between FGI Industries Ltd. and its individual directors (incorporated by reference to Exhibit 10.13 to the Company’s Amendment No. 1 to Registration Statement on Form S-1, filed October 4, 2021).
10.18
Business Loan Agreement, by and between East West Bank and FGI Industries, Inc.
(f/k/a Foremost Groups, Inc.), dated October 31, 2022 but effective November 25, 2022
(Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on
December 1, 2022).
10.19*
Facility Letter by and between HSBC Bank Canada and FGI Canada Ltd., dated December 2, 2021.
21.1 *
Subsidiaries of Registrant.
23.1*
Consent of Marcum LLP, Independent Registered Public Accounting Firm.
24.1*
Power of Attorney (Included in Signature Page of Form 10-K).
31.1*
Rule 13(a)-14(a)/15(d)-14(a) Certification of Principal Executive Officer.
31.2*
Rule 13(a)-14(a)/15(d)-14(a) Certifications of Principal Financial Officer.
32.1*
Rule 1350 Certifications.
101.INS
XBRL Instance – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH
XBRL Taxonomy Schema Document
101.CAL
XBRL Taxonomy Calculation Linkbase Document
101.DEF
XBRL Taxonomy Definition Linkbase Document
101.LAB
XBRL Taxonomy Labels Linkbase Document
101.PRE
XBRL Taxonomy Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101).
†
Indicates management contract or compensatory plan or arrangement.
#
Portions of this exhibit (indicated by asterisks) have been redacted in compliance with Regulation S-K Item 601(b)(10)(iv).
*
Filed herewith.
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ITEM 16. FORM 10-K SUMMARY
Omitted at the Company’s option.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: April 17, 2023
FGI Industries Ltd.
By:
/s/ David Bruce
David Bruce
Chief Executive Officer and President
(Principal Executive Officer)
KNOW ALL PERSONS BY THESE PRESENTS , that each person whose signature appears below constitutes and appoints David Bruce and John Chen, and each of them severally, acting alone and without the other, as his true and lawful attorney-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K and to file same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ David Bruce
Chief Executive Officer and Director
April 17, 2023
David Bruce
(Principal Executive Officer)
/s/ Perry Lin
Chief Financial Officer
April 17, 2023
Perry Lin
(Principal Financial and Accounting Officer)
/s/ John Chen
Executive Chairman and Director
April 17, 2023
John Chen
/s/ Todd Heysse
Director
April 17, 2023
Todd Heysse
/s/ Kellie Zesch Weir
Director
April 17, 2023
Kellie Zesch Weir
/s/ Jae Chung
Director
April 17, 2023
Jae Chung
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