FGI Industries Ltd. 10-Q

Item 1. Financial Statements . ​ FGI INDUSTRIES LTD. INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ​ Unaudited Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 7 ​ ​ Unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the three and six months ended June 30, 2022 and 2021 8 ​ ​ Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity (Parent’s Net Investment) for the three and six months ended June 30, 2022 and 2021 9 ​ ​ Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 10 ​ ​ Notes to Unaudited Condensed Consolidated Financial Statements 11 - 30 ​ ​ ​ ​ 6 Table of Contents FGI INDUSTRIES LTD. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ As of ​ ​ June 30, 2022 ​ December 31, 2021 ​ USD USD ASSETS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ CURRENT ASSETS ​ ​ Cash ​ $ 3,126,305 ​ $ 3,883,896 Accounts receivable, net ​ 25,068,641 ​ 26,350,650 Inventories, net ​ 18,681,768 ​ 21,263,961 Prepayments and other current assets ​ 2,630,749 ​ 1,546,623 Prepayments and other receivables – related parties ​ 8,638,531 ​ 3,119,822 Total current assets ​ 58,145,994 ​ 56,164,952 ​ ​ ​ ​ ​ ​ ​ PROPERTY AND EQUIPMENT, NET ​ 333,503 ​ 387,655 ​ ​ ​ ​ ​ ​ ​ OTHER ASSETS ​ ​ Intangible assets ​ — ​ 42,683 Operating lease right-of-use assets, net ​ 7,455,006 ​ 8,087,969 Deferred tax assets, net ​ 1,424,193 ​ 1,478,589 Other noncurrent assets ​ 3,102,234 ​ 2,989,012 Total other assets ​ 11,981,433 ​ 12,598,253 Total assets ​ $ 70,460,930 ​ $ 69,150,860 ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND PARENT’S NET INVESTMENT ​ ​ ​ ​ ​ ​ ​ ​ ​ CURRENT LIABILITIES ​ ​ Short-term loans ​ $ 14,690,048 ​ $ 14,657,280 Accounts payable ​ 21,203,868 ​ 32,009,851 Income tax payable ​ 875,797 ​ 1,220,939 Operating lease liabilities – current ​ 1,155,559 ​ 1,315,848 Accrued expenses and other current liabilities ​ 4,485,430 ​ 5,512,438 Total current liabilities ​ 42,410,702 ​ 54,716,356 ​ ​ ​ ​ ​ ​ ​ OTHER LIABILITIES ​ ​ Operating lease liabilities – noncurrent ​ 6,410,859 ​ 6,884,794 Total liabilities ​ 48,821,561 ​ 61,601,150 ​ ​ ​ ​ ​ ​ ​ COMMITMENTS AND CONTINGENCIES ​ ​ ​ ​ ​ ​ ​ ​ ​ SHAREHOLDERS’ EQUITY ​ ​ Preference Shares ($ 0.0001 par value, 10,000,000 shares authorized, no shares issued and outstanding as of June 30, 2022 and December 31, 2021) ​ — ​ — Ordinary shares ( $ 0.0001 par value, 200,000,000 shares authorized, 9,500,000 and 7,000,000 shares issued and outstanding as of June 30, 2022 and December 31, 2021*) ​ 950 ​ 700 Parent’s net investment ​ — ​ 7,549,010 Additional paid-in capital ​ ​ 20,719,024 ​ ​ — Retained earnings ​ ​ 1,700,723 ​ ​ — Accumulated other comprehensive income ​ ​ ( 781,328 ) ​ ​ — Total shareholders’ equity ​ 21,639,369 ​ 7,549,710 Total liabilities and shareholders’ equity ​ $ 70,460,930 ​ $ 69,150,860 * Shares and per share data are presented on a retroactive basis to reflect the reorganization on January 27, 2022. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. ​ 7 Table of Contents FGI INDUSTRIES LTD. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended ​ For the Six Months Ended ​ ​ ​ June 30, ​ June 30, ​ ​ ​ 2022 ​ 2021 2022 2021 ​ ​ USD ​ USD ​ ​ USD ​ USD ​ REVENUES ​ $ 47,809,014 ​ $ 42,490,357 ​ $ 91,384,254 ​ $ 78,866,047 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ COST OF REVENUES ​ 39,388,061 ​ 33,301,420 ​ 75,438,715 ​ 62,360,079 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ GROSS PROFIT ​ 8,420,953 ​ 9,188,937 ​ 15,945,539 ​ 16,505,968 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OPERATING EXPENSES ​ ​ ​ ​ ​ ​ ​ ​ ​ Selling and distribution ​ ​ 4,362,707 ​ ​ 4,088,739 ​ ​ 9,040,059 ​ ​ 8,029,209 ​ General and administrative ​ 2,093,162 ​ 1,623,917 ​ 3,935,969 ​ 2,982,939 ​ Research and development ​ 235,735 ​ 155,356 ​ 549,416 ​ 289,124 ​ Total operating expenses ​ 6,691,604 ​ 5,868,012 ​ 13,525,444 ​ 11,301,272 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ INCOME FROM OPERATIONS ​ 1,729,349 ​ 3,320,925 ​ 2,420,095 ​ 5,204,696 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OTHER INCOME (EXPENSES) ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest income ​ ​ 102 ​ ​ 2,578 ​ ​ 133 ​ ​ 10,778 ​ Interest expense ​ ( 107,440 ) ​ ( 85,983 ) ​ ( 239,192 ) ​ ( 167,295 ) ​ Other income, net ​ ( 66,074 ) ​ ( 101,295 ) ​ 32,771 ​ 1,504,947 ​ Total other (expenses) income, net ​ ( 173,412 ) ​ ( 184,700 ) ​ ( 206,288 ) ​ 1,348,430 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ INCOME BEFORE INCOME TAXES ​ 1,555,937 ​ 3,136,225 ​ 2,213,807 ​ 6,553,126 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ PROVISION FOR INCOME TAXES ​ ​ ​ ​ ​ ​ ​ ​ ​ Current ​ ​ 298,300 ​ ​ 528,571 ​ ​ 469,799 ​ ​ 833,530 ​ Deferred ​ 87,107 ​ 99,753 ​ 43,285 ​ 250,281 ​ Total provision for income taxes ​ 385,407 ​ 628,324 ​ 513,084 ​ 1,083,811 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NET INCOME ​ 1,170,530 ​ 2,507,901 ​ 1,700,723 ​ 5,469,315 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ OTHER COMPREHENSIVE INCOME ​ ​ ​ ​ ​ ​ ​ ​ ​ Foreign currency translation adjustment ​ ​ ( 69,416 ) ​ ​ 325,637 ​ ​ ( 126,596 ) ​ ​ 325,236 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ COMPREHENSIVE INCOME ​ $ 1,101,114 ​ $ 2,833,538 ​ $ 1,574,127 ​ $ 5,794,551 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic* ​ ​ 9,168,508 ​ ​ 7,000,000 ​ ​ 9,168,508 ​ ​ 7,000,000 ​ Diluted* ​ ​ 11,662,293 ​ ​ 7,000,000 ​ ​ 11,662,293 ​ ​ 7,000,000 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ EARNINGS PER SHARE ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic* ​ ​ 0.13 ​ ​ 0.36 ​ $ 0.19 ​ $ 0.78 ​ Diluted* ​ $ 0.10 ​ $ 0.36 ​ $ 0.15 ​ $ 0.78 ​ * Shares and per share data are presented on a retroactive basis to reflect the reorganization on January 27, 2022. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. ​ 8 Table of Contents FGI INDUSTRIES LTD. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (PARENT’S NET INVESTMENT) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Parent’s ​ ​ ​ Other ​ ​ ​ ​ Preference shares ​ Ordinary shares ​ Paid-in ​ net ​ Retained ​ Comprehensive ​ ​ ​ Shares Amount Shares Amount Capital Investment Earnings Income Total Balance at December 31, 2020 ​ — ​ — ​ — ​ — ​ — ​ 1,531,696 ​ — ​ — ​ 1,531,696 Net income ​ — ​ — ​ — ​ — ​ — ​ 2,961,414 ​ — ​ — ​ 2,961,414 Net distribution to Parent ​ — ​ — ​ — ​ — ​ — ​ ( 1,321,028 ) ​ — ​ — ​ ( 1,321,028 ) Foreign currency translation adjustments ​ — ​ — ​ — ​ — ​ — ​ ( 401 ) ​ — ​ — ​ ( 401 ) Balance at March 31, 2021 (Unaudited) ​ — ​ — ​ — ​ — ​ — ​ 3,171,681 ​ — ​ — ​ 3,171,681 Net income ​ — ​ — ​ — ​ — ​ — ​ 2,507,901 ​ — ​ — ​ 2,507,901 Net distribution to Parent ​ — ​ — ​ — ​ — ​ — ​ ( 6,109,488 ) ​ — ​ — ​ ( 6,109,488 ) Foreign currency translation adjustments ​ — ​ — ​ — ​ — ​ — ​ 325,637 ​ — ​ — ​ 325,637 Balance at June 30, 2021 (Unaudited) ​ — ​ — ​ — ​ — ​ — ​ ( 104,269 ) ​ — ​ — ​ ( 104,269 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Parent’s ​ ​ ​ Other ​ ​ ​ ​ Preference shares ​ Ordinary shares ​ Paid-in ​ net ​ Retained ​ Comprehensive ​ ​ ​ Shares Amount Shares Amount Capital Investment Earnings Income Total Balance at December 31, 2021 ​ — ​ — ​ 7,000,000 ​ 700 ​ — ​ 7,549,010 ​ — ​ — ​ 7,549,710 Consummation of separation transaction upon completion of reorganization ​ — ​ — ​ — ​ — ​ 8,203,742 ​ ( 7,549,010 ) ​ — ​ ( 654,732 ) ​ — Share-Based compensation ​ ​ ​ ​ ​ ​ ​ ​ ​ 39,812 ​ ​ ​ ​ ​ ​ ​ 39,812 Issuance of ordinary shares upon Initial Public Offering (“IPO”) ​ — ​ — ​ 2,500,000 ​ 250 ​ 12,370,550 ​ — ​ — ​ — ​ 12,370,800 Net income ​ — ​ — ​ — ​ — ​ — ​ — ​ 530,193 ​ — ​ 530,193 Foreign currency translation adjustments ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ ( 57,180 ) ​ ( 57,180 ) Balance at March 31, 2022 (Unaudited) ​ — ​ — ​ 9,500,000 ​ 950 ​ 20,614,104 ​ — ​ 530,193 ​ ( 711,912 ) ​ 20,433,335 Share-Based compensation ​ ​ ​ ​ ​ ​ ​ ​ ​ 104,920 ​ ​ ​ ​ ​ ​ ​ 104,920 Net income ​ — ​ — ​ — ​ — ​ — ​ — ​ 1,170,530 ​ — ​ 1,170,530 Foreign currency translation adjustments ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ ( 69,416 ) ​ ( 69,416 ) Balance at June 30, 2022 (Unaudited) ​ — ​ — ​ 9,500,000 ​ 950 ​ 20,719,024 ​ — ​ 1,700,723 ​ ( 781,328 ) ​ 21,639,369 ​ The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. ​ ​ ​ 9 Table of Contents FGI INDUSTRIES LTD. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Six Months Ended June 30, ​ ​ ​ 2022 ​ 2021 ​ ​ USD USD CASH FLOWS FROM OPERATING ACTIVITIES ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 1,700,723 ​ $ 5,469,315 ​ Adjustments to reconcile net income to net cash (used in) provided by operating activities ​ ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ ​ 138,213 ​ ​ 142,248 ​ Share-based compensation ​ 144,733 ​ — ​ Provision for doubtful accounts ​ 75,940 ​ 14,749 ​ (Reversal of) provision of defective return ​ ​ ( 637,879 ) ​ ​ 3,108,807 ​ Foreign exchange transaction loss ​ 2,850 ​ 94,316 ​ Interest expenses ​ 239,192 ​ 167,295 ​ Gain on Forgiveness of PPP loan ​ — ​ ( 1,680,900 ) ​ Deferred income taxes ​ 54,397 ​ 233,846 ​ Loss on disposal of property and equipment ​ — ​ ( 3,000 ) ​ Changes in operating assets and liabilities ​ ​ ​ ​ ​ Accounts receivable ​ ​ 1,843,947 ​ ​ ( 1,852,844 ) ​ Inventories ​ 2,582,193 ​ ( 4,366,126 ) ​ Prepayments and other current assets ​ ( 1,470,609 ) ​ ( 175,021 ) ​ Prepayments and other receivables – related parties ​ ( 5,348,158 ) ​ ( 23,294 ) ​ Other noncurrent assets ​ ( 113,223 ) ​ ( 3,841,292 ) ​ Right-of-use assets ​ 632,963 ​ 565,630 ​ Income taxes ​ ( 345,143 ) ​ 598,290 ​ Accounts payable ​ ( 10,805,982 ) ​ 360,438 ​ Accounts payable-related parties ​ — ​ 807,902 ​ Operating lease liabilities ​ ( 634,224 ) ​ ( 581,649 ) ​ Accrued expenses and other current liabilities ​ ( 1,050,269 ) ​ 1,591,062 ​ Net cash (used in) provided by operating activities ​ ( 12,990,336 ) ​ 629,772 ​ ​ ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM INVESTING ACTIVITIES ​ ​ ​ ​ Proceeds from disposal of property and equipment ​ — ​ 3,000 ​ Purchase of property and equipment ​ ( 42,752 ) ​ ( 4,751 ) ​ Net cash used in investing activities ​ ( 42,752 ) ​ ( 1,751 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM FINANCING ACTIVITIES ​ ​ ​ Net proceeds from (repayments of) revolving credit facility ​ 32,768 ​ 6,358,188 ​ Net proceeds from issuance of ordinary shares in IPO ​ 12,370,800 ​ — ​ Net changes in parent company investment ​ ​ — ​ ​ ( 7,430,516 ) ​ Net cash provided by (used in) financing activities ​ 12,403,568 ​ ( 1,072,328 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ EFFECT OF EXCHANGE RATE FLUCTUATION ON CASH ​ ( 128,071 ) ​ 226,359 ​ ​ ​ ​ ​ ​ ​ ​ ​ NET CHANGES IN CASH ​ ( 757,591 ) ​ ( 217,948 ) ​ CASH, BEGINNING OF PERIOD ​ 3,883,896 ​ 4,018,558 ​ CASH, END OF PERIOD ​ $ 3,126,305 ​ $ 3,800,610 ​ ​ ​ ​ ​ ​ ​ ​ ​ SUPPLEMENTAL CASH FLOW INFORMATION ​ ​ ​ ​ ​ Cash paid during the period for interest ​ ​ ( 240,183 ) ​ ​ ( 163,956 ) ​ Cash paid during the period for income taxes ​ ( 808,048 ) ​ ( 251,354 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ NON-CASH INVESTING AND FINANCING ACTIVITIES ​ ​ ​ Net changes in parent company investment ​ — ​ ( 7,430,516 ) ​ ​ The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. ​ 10 Table of Contents ​ FGI INDUSTRIES LTD. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ​ Note 1 — Nature of business and organization FGI Industries Ltd. (“FGI” or the “Company”) is a holding company organized on May 26, 2021, under the laws of the Cayman Islands. The Company has no substantive operations other than holding all of the outstanding equity of its operating subsidiaries as described below. The Company is a supplier of global kitchen and bath products and currently focuses on the following categories: sanitaryware (primarily toilets, sinks, pedestals and toilet seats), bath furniture (vanities, mirrors and cabinets), shower systems, customer kitchen cabinetry and other accessory items. These products are sold primarily for repair and remodeling (“R&R”) activity and, to a lesser extent, new home or commercial construction. The Company sells its products through numerous partners, including mass retail centers, wholesale and commercial distributors, online retailers and independent dealers and distributors. The accompanying unaudited condensed consolidated financial statements reflect the activities of FGI and each of the following entities after the Reorganization, as described below: ​ ​ ​ ​ ​ ​ Name Background Ownership FGI Industries, Inc. ​ ● A New Jersey corporation 100 % owned by FGI (formerly named Foremost Groups, Inc.) ​ ● Incorporated on January 5, 1988 ​ ​ ​ ​ ● Sales and distribution in the United States ​ ​ FGI Europe Investment Limited ​ ● A British Virgin Islands holding company 100 % owned by FGI ​ ​ ● Incorporated on January 1, 2007 ​ ​ FGI International, Limited ​ ● A Hong Kong company 100 % owned by FGI ​ ​ ● Incorporated on June 2, 2021 ​ ​ ​ ​ ● Sales, sourcing and product development ​ ​ FGI Canada Ltd. ​ ● A Canada company 100 % owned by FGI ​ ​ ● Incorporated on October 17, 1997 ​ Industries, Inc. ​ ​ ● Sales and distribution in Canada ​ ​ FGI Germany GmbH & Co. KG ​ ● A German company 100 % owned by FGI Europe ​ ​ ● Incorporated on January 24, 2013 ​ Investment Limited ​ ​ ● Sales and distribution in Germany ​ ​ FGI China, Ltd. ​ ● A PRC limited liability company 100 % owned by FGI ​ ​ ● Incorporated on August 19, 2021 ​ International, Limited ​ ​ ● Sourcing and product development ​ ​ FGI United Kingdom Ltd ​ ● An UK company 100 % owned by FGI Europe ​ ​ ● Incorporated on December 10, 2021 ​ Investment Limited ​ ​ ● Sales and distribution in UK ​ ​ ​ Reorganization On January 27, 2022, the following reorganization steps were completed: (i) the incorporation of FGI Europe Investment Limited (“FGI Europe”), FGI International, Limited (“FGI International”) and FGI China, Ltd., (ii) FGI Industries, Inc. (formerly Foremost Groups, Inc.) (“FGI Industries”), which operates the kitchen and bath (“K&B”) sales and distribution business in the United States and, through its wholly-owned Canadian subsidiary, Foremost International Limited, in Canada, distributed 100 % of the outstanding shares of stock of Foremost Kingbetter Food Equipment Inc. (“FKB”), which operates a separate furniture line of business, to Foremost Groups Ltd. (“Foremost”), FGI Industries’ sole shareholder; (iii) Foremost contributed the FKB shares to Foremost Home Inc. (“FHI”), a newly- 11 Table of Contents formed wholly-owned subsidiary of Foremost; and (iv) Foremost contributed 100 % of the outstanding shares of stock of each of FGI Industries, FGI Europe, which, directly and through its wholly-owned German subsidiary, FGI Germany GmbH & Co., operates the K&B sales and distribution business in Europe, and FGI International, which, directly and through its wholly-owned Chinese subsidiary, FGI China, Ltd., operates the K&B sales and distribution business in the remainder of the world, K&B product development and sourcing of K&B products in China, to the Company (collectively, the “Reorganization”), such that, immediately following the Reorganization, (x) Foremost owns 100 % of the equity interests in each of the Company and FHI , (y) the Company owns 100 % of the equity interests in each of FGI Industries, FGI Europe and FGI International , which collectively, and through subsidiaries, operate the K&B business worldwide (the “K&B Business”), and (z) FHI owns 100 % of the equity interests in FKB. Immediately before and after the proposed Reorganization, each of the Company, FGI Industries, FGI Europe and FGI International, and each of their respective subsidiaries was and remains ultimately controlled by Foremost. As such, the accompanying unaudited condensed consolidated financial statements include the assets, liabilities, revenue, expenses and cash flows that are directly attributable to the K&B Business (excluded otherwise) before the Reorganization. The unaudited condensed consolidated financial statements are presented as if the Company had been in existence and the Reorganization had been in effect during the entirety of the six months ended June 30, 2022 and 2021. However, such presentation may not necessarily reflect the results of operations, financial position and cash flows if the K&B Business had actually existed on a stand-alone basis during the periods presented before the completion of the Reorganization. On January 14, 2022 FGI Industries, a wholly-owned subsidiary of the Company, entered into a shared services agreement (the “FHI Shared Services Agreement”) with Foremost Home Industries, Inc., a newly-formed wholly-owned subsidiary of Foremost (“FHI”). Pursuant to the FHI Shared Services Agreement, FGI Industries provides FHI with general and administrative services, information technology systems services and human resources services, as well as warehouse space services and supply chain services in the United States. Under the FHI Shared Services Agreement, FHI will reimburse any reasonable and documented out-of-pocket fees incurred by FGI Industries as well as pay a service fee for each service. For warehouse services, FHI will pay FGI Industries a $ 500,000 annual fee as well as a fee equal to 4 % of gross product sales of all products stored in such warehouses. For all other services provided, FHI will pay a service fee equal to the total costs incurred by FGI Industries for such service generally divided by the number of FHI employees relative to FGI Industries employees. The FHI Shared Services Agreement will have an initial term of one year and will renew automatically unless cancelled by either party upon the giving of at least 60 days in advance of the expiration of the then-current term. On January 14, 2022, the Company entered into a shared services agreement (the “Worldwide Shared Services Agreement”) with Foremost Worldwide Co., Ltd. (“Foremost Worldwide”) pursuant to which Foremost Worldwide provides FGI Industries with general and administrative services, information technology system services and human resources services, in Taiwan. The terms of the Worldwide Services Agreement as between the service provider and recipient are substantially identical to those of the FHI Shared Services Agreement, including calculation of service fees and termination provisions, with Foremost Worldwide providing services and FGI Industries paying Foremost Worldwide for such services. The assets and liabilities have been stated at historical carrying amounts. Only those assets and liabilities that are specifically identifiable to the K&B Business are included in the Company’s unaudited condensed consolidated balance sheets. The Company’s unaudited condensed consolidated statements of income and comprehensive income consist of all the revenues, costs and expenses of the K&B Business, including allocations to selling and distribution expenses, general and administrative expenses, and research and development expenses, and which were incurred by FGI but related to the K&B Business prior to the Reorganization. All revenues and cost of revenues attributable to selling of K&B products were allocated to the Company. Operating expenses were allocated to the Company based on employees and activities that are involved in the K&B Business. Any expenses that were not directly attributable to any specific business were allocated to the Company based on the proportion of the number of employees of the K&B Business to the total number of employees of both the K&B Business and FHI. 12 Table of Contents The following table sets forth the revenues, cost of revenues and operating expenses that were irrelevant to the K&B Business allocated from FGI Industries to Foremost Home, Inc. for the three and six months ended June 30, 2022 and 2021, respectively. In accordance with SAB Topic 5.z.7, the Company retroactively reflected the Reorganization in its unaudited condensed consolidated financial statements since the spin-off transaction occurred prior to effectiveness of the registration statement. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended ​ For the Six Months Ended ​ ​ ​ June 30, ​ June 30, ​ ​ ​ 2022 ​ 2021 ​ 2022 ​ 2021 ​ ​ USD USD USD USD Revenues $ 8,966,545 $ 16,699,618 ​ $ 20,662,337 ​ $ 33,581,454 ​ Cost of revenues ​ ( 7,081,295 ) ​ ( 13,996,992 ) ​ ( 16,548,199 ) ​ ( 28,739,239 ) ​ Gross profit ​ 1,885,250 ​ 2,702,626 ​ 4,114,138 ​ 4,842,215 ​ Selling and distribution expenses ​ ( 1,249,018 ) ​ ( 1,486,794 ) ​ ( 2,321,830 ) ​ ( 2,327,917 ) ​ General and administrative expenses ​ ( 48,483 ) ​ ( 381,516 ) ​ ( 243,129 ) ​ ( 769,250 ) ​ Research and development expenses ​ ( 28,816 ) ​ ( 127,275 ) ​ ( 160,103 ) ​ ( 313,947 ) ​ Income from operations ​ $ 558,933 ​ $ 707,041 ​ $ 1,389,076 ​ $ 1,431,101 ​ ​ The following table sets forth the revenues, cost of revenues and operating expenses that were directly related to the K&B Business allocated from Foremost Worldwide Co., Ltd., a wholly-owned subsidiary of Foremost, to FGI International for the three and six months ended June 30, 2022 and 2021, respectively. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended ​ For the Six Months Ended ​ ​ ​ June 30, ​ June 30, ​ ​ ​ 2022 ​ 2021 ​ 2022 ​ 2021 ​ ​ USD USD USD USD Revenues $ 4,553,945 $ 27,995,015 ​ $ 24,548,746 ​ $ 49,710,413 ​ Cost of revenues ​ ( 3,868,618 ) ​ ( 23,599,738 ) ​ ( 22,455,116 ) ​ ( 43,128,324 ) ​ Gross profit ​ 685,327 ​ 4,395,277 ​ 2,093,630 ​ 6,582,089 ​ Selling and distribution expenses ​ ( 208,955 ) ​ ( 511,059 ) ​ ( 506,634 ) ​ ( 974,069 ) ​ General and administrative expenses ​ ( 169,911 ) ​ ( 342,517 ) ​ ( 286,874 ) ​ ( 605,026 ) ​ Research and development expenses ​ ( 3,411 ) ​ ( 32,226 ) ​ ( 15,186 ) ​ ( 54,804 ) ​ Income from operations ​ $ 303,050 ​ $ 3,509,475 ​ $ 1,284,936 ​ $ 4,948,190 ​ ​ Income tax liability is calculated based on a separate return basis as if the K&B Business had filed separate tax returns before the completion of the Reorganization. Immediately following the Reorganization, the K&B Business began to file separate tax returns and report taxation based on the actual tax return of each legal entity. Management believes the basis and amounts of these allocations are reasonable. While the expenses allocated to the Company for these items are not necessarily indicative of the expenses that would have been incurred if the Company had been a separate, stand-alone entity, the Company does not believe that there is any significant difference between the nature and amounts of these allocated expenses and the expenses that would have been incurred if the Company had been a separate, stand-alone entity. ​ Note 2 — Summary of significant accounting policies Basis of presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for information pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The results of operations for the six months ended June 30, 2022 are not necessarily indicative of results to be expected for the full year of 2022. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements as of and for the years ended December 31, 2021 and 2020. 13 Table of Contents Principles of consolidation The unaudited condensed consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant intercompany transactions and balances between the Company and its subsidiaries are eliminated upon consolidation. Subsidiaries are those entities which the Company, directly or indirectly, controls more than one half of the voting power; or has the power to govern the financial and operating policies, to appoint or remove the majority of the members of the board of directors, or to cast a majority of votes at a meeting of directors. Use of estimates and assumptions The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in the Company’s unaudited condensed consolidated financial statements include the useful lives of property and equipment, impairment of long-lived assets, allowance for doubtful accounts, provision for contingent liabilities, revenue recognition, deferred taxes and uncertain tax position. Actual results could differ from these estimates. Foreign currency translation and transaction The functional currencies of the Company and its subsidiaries are the local currency of the country in which the subsidiaries operate, except for FGI International which is incorporated in Hong Kong while adopting the United States Dollar (“U.S. Dollar” or “USD”) as its functional currency. The reporting currency of the Company is the U.S. Dollar. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect at that date. The equity denominated in the functional currencies is translated at the historical rates of exchange at the time of capital contributions. The results of operations and the cash flows denominated in foreign currencies are translated at the average rates of exchange during the reporting period. Because cash flows are translated based on the average translation rates, amounts related to assets and liabilities reported on the unaudited condensed consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the unaudited condensed consolidated balance sheets. Translation adjustments arising from the use of different exchange rates from period to period are included as a separate component of accumulated other comprehensive income included in the unaudited condensed consolidated statements of changes in shareholders’ equity. Transaction gains and losses arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency in the unaudited condensed consolidated statements of income and comprehensive income. For the purpose of presenting the financial statements of subsidiaries using the Renminbi (“RMB”) as their functional currency, the Company’s assets and liabilities are expressed in U.S. Dollars at the exchange rate on the balance sheet date, which was 6.6988 and 6.3762 as of June 30, 2022 and December 31, 2021, respectively; shareholders’ equity or 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 6.5443 , 6.4488 and 6.4615 , 6.4720 for the three and six months ended June 30, 2022 and 2021, respectively. For the purpose of presenting the financial statements of the subsidiary using the Canadian Dollar (“CAD”) as its functional currency, the Company’s assets and liabilities are expressed in U.S. Dollars at the exchange rate on the balance sheet date, which was 1.2697 and 1.2697 as of June 30, 2022 and December 31, 2021, respectively; shareholders’ equity or 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 1.2697 and 1.2444 for the three months ended June 30, 2022 and 2021, respectively, and 1.2697 and 1.2593 for the six months ended June 30, 2022 and 2021, respectively. For the purpose of presenting the financial statements of the subsidiary using the Euro (“EUR”) as its functional currency, the Company’s assets and liabilities are expressed in U.S. Dollars at the exchange rate on the balance sheet 14 Table of Contents date, which was 0.9532 and 0.8815 as of June 30, 2022 and December 31, 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 0.9249 , 0.9068 and 0.8325 , 0.8261 for the three and six months ended June 30, 2022 and 2021, respectively. Cash Cash consists of cash on hand, demand deposits and time deposits placed with banks or other financial institutions that have original maturities of three months or less. The Company did no t have any cash equivalents as of June 30, 2022 and December 31, 2021. Accounts receivable, net Bills and trade receivables include trade accounts due from customers. 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. Delinquent account balances are written off against allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. Inventories, net Inventories are stated at the lower of cost and net realizable value. Cost consists of purchase price and related shipping and handling expenses, and is determined using the weighted average cost method, based on individual products. The methods of determining inventory costs are used consistently from year to year. A provision for slow-moving items is calculated based on historical experience. Management reviews this provision annually to assess whether, based on economic conditions, it is adequate. Prepayments Prepayments are cash deposited or advanced to suppliers for the purchase of goods or services that have not been received or provided. This amount is refundable and bears no interest. Prepayments and deposits are classified as either current or non-current based on the terms of the respective agreements. These advances are unsecured and are reviewed periodically to determine whether their carrying value has become impaired. Property and equipment, net Property and equipment are stated at cost net of accumulated depreciation and impairment. Depreciation is provided over the estimated useful lives of the assets using the straight-line method from the time the assets are placed in service. Estimated useful lives are as follows: ​ ​ ​ ​ ​ Useful Life Leasehold Improvements ​ Lesser of lease term and expected useful life Machinery and equipment 3 – 5 years Furniture and fixtures 3 – 5 years Vehicles 5 years Molds 3 – 5 years ​ Intangible assets, net The Company’s intangible assets with definite useful lives primarily consist of software acquired for internal use. The Company amortizes its intangible assets with definite useful lives over their estimated useful lives and reviews these 15 Table of Contents assets for impairment. The Company typically amortizes its intangible assets with definite useful lives on a straight-line basis over the estimated useful lives of ten years . Impairment for long-lived assets Long-lived assets, including property and equipment and intangible assets with definite useful lives, are reviewed for impairment whenever material events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. The Company assesses the recoverability of an asset based on the undiscounted future cash flows the asset is expected to generate and recognize an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. If an impairment is identified, the Company would reduce the carrying amount of the asset to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values. As of June 30, 2022 and December 31, 2021, no impairment of long-lived assets was recognized. Leases The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right- of-use assets, net (“ROU assets”), operating lease liabilities — current and operating lease liabilities — noncurrent on the unaudited condensed consolidated balance sheets. ROU assets represent our right to use an underlying asset for the duration of the lease term while lease liabilities represent the Company’s obligation to make lease payments in exchange for the right to use an underlying asset. ROU assets and lease liabilities are measured based on the present value of fixed lease payments over the lease term at the commencement date. The ROU asset also includes any lease payments made prior to the commencement date and initial direct costs incurred, and is reduced by any lease incentives received. The Company reviews its ROU assets as material events occur or circumstances change that would indicate the carrying amount of the ROU assets are not recoverable and exceed their fair values. If the carrying amount of an ROU asset is not recoverable from its undiscounted cash flows, then the Company would recognize an impairment loss for the difference between the carrying amount and the current fair value. As most of the Company’s leases do not provide an implicit rate, the Company generally uses its incremental borrowing rate on the commencement date of the lease as the discount rate in determining the present value of future lease payments. The Company determines the incremental borrowing rate for each lease by using the incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The Company’s lease terms may include options to extend or terminate the lease when there are relevant economic incentives present that make it reasonably certain that the Company will exercise that option. The Company accounts for any non- lease components separately from lease components. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Fair Value Measurement The accounting standard regarding fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company. The accounting standards define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement and enhance disclosure requirements for fair value measures. The three levels of the fair value hierarchy are as follows: ● Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. 16 Table of Contents ● Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. ● Level 3 inputs to the valuation methodology are unobservable and significant to the fair value. Financial instruments included in current assets and current liabilities are reported in the consolidated balance sheets at face value or cost, which approximate fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rates of interest. Revenue recognition In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. The Company generates revenues from sales of K&B products, and recognizes revenue as control of its products is transferred to its customers, which is generally at the time of shipment or upon delivery based on the contractual terms with the Company’s customers. The Company’s customers’ payment terms generally range from 15 to 60 days of fulfilling its performance obligations and recognizing revenue. The Company provides customer programs and incentive offerings, including co-operative marketing arrangements and volume-based incentives. These customer programs and incentives are considered variable consideration. The Company includes in revenue variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the variable consideration is resolved. This determination is made based upon known customer program and incentive offerings at the time of sale, and expected sales volume forecasts as it relates to the Company’s volume- based incentives. This determination is updated on a monthly basis. Certain product sales include a right of return. The Company estimates future product returns at the time of sale based on historical experience and records a corresponding reduction in accounts receivable. The Company records receivables related to revenue when it has an unconditional right to invoice and receive payment. The Company’s disaggregated revenues are summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended ​ For the Six Months Ended ​ ​ ​ June 30, ​ June 30, ​ ​ ​ 2022 ​ 2021 ​ 2022 ​ 2021 ​ ​ USD USD USD USD Revenues by product line ​ ​ ​ ​ ​ ​ Sanitaryware ​ $ 32,237,144 ​ $ 20,730,408 ​ $ 60,416,339 ​ $ 43,535,821 ​ Bath Furniture ​ 7,711,420 ​ 15,957,226 ​ 17,827,232 ​ 27,439,887 ​ Others ​ 7,860,450 ​ 5,802,723 ​ 13,140,683 ​ 7,890,339 ​ Total ​ $ 47,809,014 ​ $ 42,490,357 ​ $ 91,384,254 ​ $ 78,866,047 ​ ​ 17 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended ​ For the Six Months Ended ​ ​ ​ June 30, ​ June 30, ​ ​ ​ 2022 ​ 2021 ​ 2022 ​ 2021 ​ ​ USD USD USD USD Revenues by geographic location ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ United States ​ $ 29,645,440 ​ $ 29,216,039 ​ $ 56,998,636 ​ $ 51,297,861 ​ Canada ​ 13,597,568 ​ 8,960,495 ​ 25,893,570 ​ 18,518,691 ​ Europe ​ 4,566,006 ​ 4,313,823 ​ 8,492,048 ​ 9,049,495 ​ Total ​ $ 47,809,014 ​ $ 42,490,357 ​ $ 91,384,254 ​ $ 78,866,047 ​ ​ Share-based compensation The Company accounts for share-based compensation in accordance with Accounting Standards Codification (“ASC”) 718, “Compensation — Stock Compensation” (“ASC 718”). In accordance with ASC 718, the Company determines whether an award should be classified and accounted for as a liability award or an equity award. All of the Company’s share- based awards were classified as equity awards and are recognized in the unaudited condensed consolidated financial statements based on their grant date fair values. The Company has elected to recognize share-based compensation using the straight-line method for all share-based awards granted over the requisite service period, which is the vesting period. The Company accounts for forfeitures as they occur in accordance with ASU No. 2016-09, “Compensation — Stock Compensation (Topic 718): Improvement to Employee Share-based Payment Accounting.” The Company, with the assistance of an independent third-party valuation firm, determined the fair value of the stock options granted to employees. The Black-Scholes Model was applied in determining the estimated fair value of the options granted to employees and non-employees. Income Taxes Deferred taxes are recognized based on the future tax consequences of the differences between the carrying value of assets and liabilities and their respective tax bases. The future realization of deferred tax assets depends on the existence of sufficient taxable income in future periods. Possible sources of taxable income include taxable income in carryback periods, the future reversal of existing taxable temporary differences recorded as a deferred tax liability, tax-planning strategies that generate future income or gains in excess of anticipated losses in the carryforward period and projected future taxable income. If, based upon all available evidence, both positive and negative, it is more likely than not (i.e., more than 50 percent likely) that such deferred tax assets will not be realized, a valuation allowance is recorded. Significant weight is given to positive and negative evidence that is objectively verifiable. A company’s three- year cumulative loss position is significant negative evidence in considering whether deferred tax assets are realizable, and the accounting guidance restricts the amount of reliance we can place on projected taxable income to support the recovery of the deferred tax assets. The current accounting guidance allows the recognition of only those income tax positions that have a greater than 50 percent likelihood of being sustained upon examination by the taxing authorities. The Company believes that there is an increased potential for volatility in its effective tax rate because this threshold allows for changes in the income tax environment and, to a greater extent, the inherent complexities of income tax law in a substantial number of jurisdictions, which may affect the computation of its liability for uncertain tax positions. The Company records interest and penalties on our uncertain tax positions in income tax expense. We record the tax effects of Foreign Derived Intangible Income (FDII) and Global Intangible Low-Taxed Income (GILTI) related to our foreign operations as a component of income tax expense in the period in which the tax arises. 18 Table of Contents Comprehensive income Comprehensive income consists of two components: net income and other comprehensive income. Other comprehensive income refers to revenue, expenses, gains and losses that under GAAP are recorded as an element of equity but are excluded from net income. Other comprehensive income consists of a foreign currency translation adjustment resulting from certain of the Company’s subsidiaries not using the U.S. Dollar as their functional currencies. Earnings per share The Company computes earnings per share (“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC 260”). ASC 260 requires companies to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average ordinary shares outstanding for the period. Diluted EPS presents the dilutive effect on a per share basis of the potential ordinary shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential ordinary shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. Segment reporting ASC 280, “Segment Reporting,” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements for detailing the Company’s business segments. Recently issued accounting pronouncements In June 2016, the FASB issued ASU 2016- 13, “Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” amending the accounting for the impairment of financial instruments, including trade receivables. Under previous guidance, credit losses were recognized when the applicable losses had a probable likelihood of occurring and this assessment was based on past events and current conditions. The amended current guidance eliminates the “probable” threshold and requires an entity to use a broader range of information, including forecast information when estimating expected credit losses. Generally, this should result in a more timely recognition of credit losses. This guidance became effective for interim and annual periods beginning after December 15, 2019 with early adoption permitted for interim and annual periods beginning after December 15, 2018. The requirements of the amended guidance should be applied using a modified retrospective approach except for debt securities, which require a prospective transition approach. In November 2019, the FASB issued ASU 2019-10, which finalized the delay of such effective date to fiscal years beginning after December 15, 2022 for private and all other companies, including emerging growth companies. As an emerging growth company, the Company plans to adopt this guidance from January 1, 2023 and is currently evaluating the impact on its unaudited condensed consolidated financial statements upon adoption. In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The adoption of the standard did not have an impact on our financial position or results of operation. The Company considers the applicability and impact of all ASUs. ASUs not listed above were assessed and determined not to be applicable. ​ 19 Table of Contents Note 3 — Accounts receivable, net Accounts receivable, net consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ As of ​ ​ June 30, 2022 ​ December 31, 2021 ​ USD USD Accounts receivable ​ $ 27,976,265 ​ $ 29,820,213 Allowance for doubtful accounts ​ ( 253,402 ) ​ ( 177,462 ) Accrued defective return and discount ​ ( 2,654,222 ) ​ ( 3,292,101 ) Accounts receivable, net ​ $ 25,068,641 ​ $ 26,350,650 ​ Movements of allowance for doubtful accounts are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ As of ​ ​ June 30, 2022 ​ December 31, 2021 ​ USD USD Beginning balance ​ $ 177,462 ​ $ 146,637 Addition ​ 75,940 ​ 30,825 Ending balance ​ $ 253,402 ​ $ 177,462 ​ Movements of accrued defective return and discount accounts are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ As of ​ ​ June 30, 2022 ​ December 31, 2021 ​ USD USD Beginning balance ​ $ 3,292,101 ​ $ 1,218,110 Addition (Provision) ​ ( 637,879 ) ​ 2,073,991 Ending balance ​ $ 2,654,222 ​ $ 3,292,101 ​ ​ ​ Note 4 — Inventories, net Inventories, net consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ As of ​ ​ June 30, 2022 ​ December 31, 2021 ​ ​ USD ​ USD Finished product ​ $ 19,257,188 ​ $ 21,808,119 Reserves for slow-moving inventories ​ ( 575,420 ) ​ ( 544,158 ) Inventories, net ​ $ 18,681,768 ​ $ 21,263,961 ​ Movements of inventory reserves are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ As of ​ ​ June 30, 2022 ​ December 31, 2021 ​ USD USD Beginning balance ​ $ 544,158 ​ $ 595,425 Addition (Reversal) ​ 31,262 ​ ( 51,267 ) Ending balance ​ $ 575,420 ​ $ 544,158 ​ ​ ​ 20 Table of Contents Note 5 — Prepayments and other assets Prepayments and other assets consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ As of ​ ​ June 30, 2022 ​ December 31, 2021 ​ ​ USD ​ USD Prepayments ​ $ 1,823,946 ​ $ 1,366,782 Others ​ 806,803 ​ 179,841 Total prepayments and other assets ​ $ 2,630,749 ​ $ 1,546,623 ​ ​ Note 6 — Property and equipment, net Property and equipment, net consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ As of ​ June 30, 2022 December 31, 2021 ​ ​ USD ​ ​ USD Leasehold Improvements ​ $ 1,043,187 ​ $ 1,043,187 Machinery and equipment ​ 2,268,823 ​ 2,240,263 Furniture and fixtures ​ 510,067 ​ 501,619 Vehicles ​ 147,913 ​ 178,824 Molds ​ 26,377 ​ 26,377 Subtotal ​ 3,996,367 ​ 3,990,270 Less: accumulated depreciation ​ ( 3,662,864 ) ​ ( 3,602,615 ) Total ​ $ 333,503 ​ $ 387,655 ​ Depreciation expense for the six months ended June 30, 2022 and 2021 amounted to $ 95,530 and $ 99,565 , respectively, which were included in general and administrative expenses on the unaudited condensed consolidated statements of income and comprehensive income. ​ Note 7 — Leases The Company has operating leases primarily for corporate offices, warehouses and showrooms. As of June 30, 2022, the Company’s leases have remaining lease terms up to 7 years . Total operating lease cost as of June 30, 2022 and December 31, 2021 amounted to $ 8,678,120 and $ 9,137,045 , respectively. The table below presents the operating lease related assets and liabilities recorded on the Company’s consolidated balance sheets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ As of ​ ​ June 30, 2022 ​ December 31, 2021 ​ USD USD Operating lease right-of-use assets ​ $ 7,455,006 ​ $ 8,087,969 Operating lease liabilities – current ​ $ 1,155,559 ​ $ 1,315,848 Operating lease liabilities – noncurrent ​ 6,410,859 ​ 6,884,794 Total operating lease liabilities ​ $ 7,566,418 ​ $ 8,200,642 ​ 21 Table of Contents Information relating to the lease term and discount rate are as follows: ​ ​ ​ ​ ​ ​ ​ ​ As of As of ​ June 30, 2022 December 31, 2021 Weighted-average remaining lease term ​ Operating leases 5.0 years 5.4 years ​ Weighted-average discount rate ​ Operating leases 4.7 % 4.7 % ​ As of June 30, 2022, the maturities of operating lease liabilities were as follows: ​ ​ ​ ​ ​ For the years ending December 31, ​ ​ 2022 ​ $ 1,669,038 2023 ​ 1,539,771 2024 ​ 1,426,597 2025 ​ 1,194,328 2026 ​ 1,229,925 Thereafter ​ 1,615,538 Total lease payments ​ 8,675,197 Less: imputed interest ​ ( 1,108,779 ) Present value of lease liabilities ​ $ 7,566,418 ​ ​ Note 8 — Short-term loans Bank loan 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 of the assets of FGI Industries and personally guaranteed by Liang Chou Chen, who holds approximately 49.75 % of the voting control of Foremost. For the year ended December 31, 2018 and through September 30, 2019, the Credit Agreement allowed for borrowings up to $ 25,000,000 , which previously included a discretionary loan in the amount of $ 3,000,000 that could only be drawn upon under certain circumstances as described in the Credit Agreement. The discretionary line expired on September 30, 2019. The non-discretionary line of credit was renewed through September 23, 2020 and maximum borrowings were decreased to $ 22,000,000 . On August 13, 2020, the line of credit was renewed with an extended maturity date of September 23, 2022 and maximum borrowings were further decreased to $ 18,000,000 . 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; 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. 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 June 30, 2022, FGI Industries was in compliance with this financial covenant. The loan bears interest at a rate per annum equal to 0.25 percentage points above the Prime Rate quoted by the Wall Street Journal. Under no circumstances will the interest rate on this loan be less than 3.250 % per annum or more than the maximum rate allowed by applicable law. The interest rate as of June 30, 2022 and December 31, 2021 was 4.75 % and 3.50 %, respectively. 22 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 $ 14,690,048 and $ 14,657,280 as of June 30, 2022 and December 31, 2021, respectively. PPP loan On April 9, 2020, Foremost Groups, Inc. entered into a loan agreement in connection with the Paycheck Protection Program (“PPP”) and received proceeds of approximately $ 1.68 million (the “PPP loan”) under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. Interest on the loan accrued at a fixed interest rate of 1.0%. Under Section 1106 of the CARES Act, borrowers are eligible for forgiveness of principal and accrued interest on the loans to the extent that the proceeds are used to cover eligible payroll costs, mortgage interest costs, rent and utility costs, otherwise described as qualified expenses. During the year ended December 31, 2020, Foremost Groups, Inc. used all of the PPP loan proceeds to pay for qualified expenses. 100 % of the PPP loan proceeds were used for payroll related expenses. Under the current provisions of the CARES Act, any recipient of a PPP loan may be subject to an audit by the U.S. Small Business Administration (“SBA”) to confirm it qualifies for the loan and that the proceeds were used for qualified expenses as prescribed by the PPP rules. Foremost Groups, Inc. submitted its application and supporting documentation for forgiveness on December 22, 2020. As of December 31, 2020, the balance of the PPP loan was included in the short-term loan on the consolidated balance sheet. On February 8, 2021, Foremost Groups, Inc. received approval of forgiveness of the PPP loan from the SBA. Upon such approval, the entire balance, including principal and interest, was forgiven and recorded as other income on the Company’s unaudited condensed consolidated statements of income and comprehensive income. ​ Note 9 — Shareholders’ Equity FGI was incorporated in the Cayman Islands on May 26, 2021 in connection with the planned Reorganization, as described in Note 1. The Company is authorized to issue 50,000,000 ordinary shares with a par value of $ 0.001 per share. On January 27, 2022, the Company completed the Reorganization upon the consummation of the initial public offering (“IPO”). After the Reorganization and the IPO, the Company’s authorized share capital is $ 21,000 divided into (i) 200,000,000 Ordinary Shares of par value of $ 0.0001 each, and (ii) 10,000,000 Preference Shares of par value of $ 0.0001 each; 9,500,000 ordinary shares were issued and outstanding accordingly. The Company believes it is appropriate to reflect these share issuances as nominal share issuances on a retroactive basis similar to a stock split pursuant to ASC 260. The Company has retroactively adjusted all shares and per share data for all the periods presented. Initial Public Offering On January 27, 2022 , the Company consummated its IPO of 2,500,000 units (“Units”), each consisting of (i) one ordinary share, $ 0.0001 par value per share, of the Company (the “Shares”), and (ii) one warrant of the Company (the “Warrants”) entitling the holder to purchase one Share at an exercise price of $ 6.00 per Share. The Shares and Warrants were issued separately in the offering, and may be transferred separately immediately upon issuance. The Units were sold at a price of $ 6.00 per Unit. The Warrants included in the units were immediately exercisable following the consummation of the offering, have an exercise price equal to the initial public offering price, and expire five years from the date of issuance. For the purposes of covering any over-allotments in connection with the distribution and sale of the Units, the Company granted a 45 -day option to the underwriters to purchase (the “Over-allotment Option”), in the aggregate, up to 375,000 ordinary shares (the “Option Shares”) and Warrants to purchase up to 375,000 ordinary shares (the “Option Warrants”), which was exercisable in any combination of Option Shares and/or Option Warrants at the per Share purchase price and/or the per Warrant purchase price, respectively. On January 25, 2022, the underwriters exercised in full their option to purchase up to an additional 375,000 Warrants at the price of $ 0.01 per Option Warrant. Management determined that these Warrants meet the definition of a derivative under ASC 815-40; however, they fall under the scope exception, which states that contracts issued that are both a) indexed to its own stock; and b) classified in shareholders' 23 Table of Contents equity are not considered derivatives. The Warrants were recorded at their fair value on the date of grant as a component of equity. The aggregated fair value of these Warrants on January 27, 2022 was $ 4.16 million. The fair value has been estimated using the Black-Scholes pricing model with the following weighted-average assumptions: market value of underlying stock of $ 1.448 ; risk free rate of 1.66 %; expected term of five years; exercise price of the warrants of $ 6.00 ; volatility of 44.00 %; and expected future dividends of $ 0 . As of the date of this report, 2,875,000 warrants were issued and outstanding; and none of the warrants has been exercised. The gross proceeds from the IPO were approximately $ 15.00 million with net proceeds of approximately $ 12.4 million, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by the Company. Immediately following the consummation of the IPO, there were an aggregate of 9,500,000 ordinary shares issued and outstanding . As a result of the IPO, the ordinary shares and Warrants now trade on the Nasdaq Capital Market under the symbol “FGI” and “FGIWW,” respectively. Public Offering Warrants In connection with and upon the closing of the IPO on January 27, 2022, the Company issued warrants equal to 2 % of the Shares issued in the IPO, or 50,000 ordinary shares, to the representative of the underwriters for the IPO. The warrants carry a term of five years , shall not be exercisable for a period of 180 days from the closing of the IPO and shall be exercisable at a price equal to the IPO price per share. Management determined that these warrants meet the definition of a derivative under ASC 815-40; however, they fall under the scope exception, which states that contracts issued that are both a) indexed to its own stock; and b) classified in shareholders' equity are not considered derivatives. The warrants were recorded at their fair value on the date of grant as a component of equity. The aggregated fair value of these IPO warrants on January 27, 2022 was $ 0.1 million. The fair value has been estimated using the Black-Scholes pricing model with the following weighted-average assumptions: market value of underlying stock of $ 1.448 ; risk free rate of 1.66 %; expected term of five years; exercise price of the warrants of $ 6.00 ; volatility of 44.00 %; and expected future dividends of $ 0 . As of the date of this report, warrants exercisable for 50,000 shares were issued and outstanding; and none of the warrants have been exercised. ​ Note 10 — Stock-based compensation 2021 Equity Plan and Employee Stock Purchase Plan On October 7, 2021, the board of directors adopted the 2021 Equity Incentive Plan (the “2021 Equity Plan”). The 2021 Equity Plan permits the grant of equity and equity-based incentive awards, including non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock awards, stock unit awards and other stock-based awards. The purpose of the 2021 Equity Plan is to attract and retain the best available personnel for positions of responsibility within the Company, to provide additional incentives to them to align their interests with those of the Company’s shareholders and to thereby promote the Company’s long-term business success. On October 7, 2021, the board approved the adoption of the FGI Industries Ltd. Employee Stock Purchase Plan (the “ESPP”). The ESPP was approved by the Company’s shareholders on October 7, 2021, and became effective on the effective date of the Company’s consummation of the IPO of its ordinary shares. The ESPP offers eligible employees the opportunity to acquire a stock ownership interest in the Company through periodic payroll deductions that will be applied towards the purchase of ordinary shares at a discount from the then-current market price. The board set the maximum aggregate number of ordinary shares reserved and available pursuant to the 2021 Equity Plan at 1,500,000 shares. The number of ordinary shares reserved for issuance under our 2021 Equity Plan will automatically increase on the first day of each year, commencing on January 1, 2022 and ending on (and including) January 1, 2031, in an amount equal to the lesser of (a) 4.5 % of the total number of ordinary shares outstanding on December 31 of the immediately preceding calendar year, (b) 600,000 ordinary shares, or (c) such lesser number of shares as determined by the Board. The Equity Plan became effective on September 28, 2021. 24 Table of Contents The Company believes the options or awards granted contain an explicit service condition and a performance condition. Under ASC 718-10-55-76, if the vesting (or exercisability) of an award is based on the satisfaction of both a service and performance condition, the entity must initially determine which outcomes are probable and recognize the compensation cost over the longer of the explicit or implicit service period. Because an initial public offering generally is not considered to be probable until the initial public offering is effective, no compensation cost was recognized until the IPO occurred. On January 27, 2022, the board of directors approved the issuance of 183,750 restricted shares to certain officers, directors and employees under the 2021 Equity Plan. These awards will vest on each anniversary over three years following the closing of the IPO. On March 24, 2022, the board of directors approved the issuance of 98,737 stock options under the 2021 Equity Plan with an exercise price per share of $ 3.07 and a contractual life of 10 years to the Company’s executive officers and directors to incentivize their performance and continue to align their interests with the Company’s shareholders. All these options will vest as to one -third of the shares on the one-year anniversary of the grant date. The remaining options will vest in a series of 24 successive equal monthly installments upon completion of each additional month of service, commencing on the grant date. On April 13, 2022, the board of directors approved the issuance of 97,371 stock options under the 2021 Equity Plan with an exercise price per share of $ 2.52 and a contractual life of 10 years to the Company’s employees to incentivize their performance and continue to align their interests with the Company’s shareholders. All these options will vest as to one -third of the shares on the one-year anniversary of the grant date. The remaining options will vest in a series of 24 successive equal monthly installments upon completion of each additional month of service, commencing on the grant date. On April 13, 2022, the board of directors approved the issuance of 8,750 restricted shares to an employee under the 2021 Equity Plan. These awards will vest as to one -third of the shares on the one-year anniversary of the grant date. The remaining shares will vest in a series of 24 successive equal monthly installments upon completion of each additional month of service, commencing on the grant date. ​ On May 11, 2022, the board of directors approved the issuance of 184,627 stock options under the 2021 Equity Plan with an exercise price per share of $ 2.26 and a contractual life of 10 years to the Company’s certain officers to incentivize their performance and continue to align their interests with the Company’s shareholders. All these options will vest as to one -third of the shares on the one-year anniversary of the grant date. The remaining options will vest in a series of 24 successive equal monthly installments upon completion of each additional month of service, commencing on the grant date. On May 11, 2022, the board of directors approved the issuance of 87,611 restricted shares under the 2021 Equity Plan to the Company’s certain officers to incentivize their performance and continue to align their interests with the Company’s shareholders. All these awards will vest as to one -third of the shares on the one-year anniversary of the grant date. The remaining shares will vest in a series of 24 successive equal monthly installments upon completion of each additional month of service, commencing on the grant date. On May 17, 2022, the board of directors approved the issuance of 16,363 restricted shares to our non-employee directors under the 2021 Equity Plan. These awards will vest on December 31, 2024. The Company has elected to recognize share-based compensation expense using a straight-line method for all the employee equity awards granted with graded vesting based on service conditions, provided that the amount of compensation cost recognized at any date is at least equal to the portion of the grant date fair value of the equity awards that are vested at that date. 25 Table of Contents Employees The options granted to employees are measured based on the grant date fair value of the equity instrument. They are accounted for as equity awards and contain service or performance vesting conditions. The following table summarizes the Company’s employee share option activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted Weighted ​ ​ ​ ​ ​ Weighted ​ Average ​ Average ​ ​ ​ ​ ​ ​ Average ​ Grant date ​ Remaining ​ Aggregate ​ ​ Number of ​ Exercise ​ Fair ​ Contractual ​ Intrinsic ​ ​ Options ​ Price ​ Value ​ Term ​ Value ​ ​ ​ ​ US$ per ​ US$ per ​ ​ ​ ​ ​ ​ ​ ​ option ​ option ​ Years ​ US$ ​ (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Share options outstanding at December 31, 2021 — — — — — Granted 380,745 2.54 1.19 10.00 511,413 Share options outstanding at June 30, 2022 380,745 2.54 1.19 10.00 511,413 Vested and exercisable at June 30, 2022 — — — — — ​ ​ The aggregate intrinsic value in the table above represents the difference between the exercise price of the awards and the fair value of the underlying ordinary shares at each reporting date for those awards that had exercise prices below the estimated fair value of the relevant ordinary shares. For the six months ended June 30, 2022 and 2021, the total fair value of options awarded was $ 454,373 and $ 0 , respectively. Fair value of options The Company used the Black-Scholes simplified method for the six months ended June 30, 2022. The assumptions used to value the options granted to employees were as follows: ​ ​ ​ ​ ​ ​ ​ ​ For the six months ended ​ ​ June 30, ​ ​ 2022 ​ 2021 Risk-free interest rate ​ 2.49 ~ 2.92 % — Expected volatility range ​ 40.30 ~ 45.67 % — Fair market value per ordinary share as at grant dates ​ $ 2.26 ~ 3.07 — ​ ​ The risk-free interest rate for periods within the contractual life of the options is based on the U.S. Treasury yield curve in effect at the time of grant for a term consistent with the contractual term of the awards. Expected volatility is estimated based on the volatility of ordinary shares or common stock of several comparable companies in the same industry. The expected exercise multiple is based on management’s estimation, which the Company believes is representative of the future. The following table sets forth the amount of share-based compensation expense included in each of the relevant financial statement line items: ​ ​ ​ ​ ​ ​ ​ ​ For the six months ended ​ ​ June 30, ​ 2022 2021 ​ ​ US$ ​ US$ ​ ​ (Unaudited) ​ (Unaudited) Selling and marketing expenses ​ 46,199 ​ — General and administrative expenses 98,535 — Total share-based compensation expenses 144,734 — ​ ​ 26 Table of Contents As of June 30, 2022, there was $ 1,282,314 in total unrecognized employee share-based compensation expense related to unvested options, which may be adjusted for actual forfeitures occurring in the future. Total unrecognized compensation cost may be recognized over a weighted-average period of 2.70 years. ​ Note 11 — Income taxes The source of pre-tax income and the components of income tax expense are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended ​ For the Six Months Ended ​ ​ ​ June 30, ​ June 30, ​ ​ 2022 2021 2022 2021 ​ ​ USD ​ USD ​ USD ​ USD ​ Income components ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ United States ​ $ 323,934 ​ $ ( 534,054 ) ​ $ 90,200 ​ $ 1,036,967 ​ Outside United States ​ 1,232,003 ​ 3,670,279 ​ 2,123,607 ​ 5,516,159 ​ Total pre-tax income ​ $ 1,555,937 ​ $ 3,136,225 ​ $ 2,213,807 ​ $ 6,553,126 ​ Provision for income taxes ​ ​ ​ ​ ​ Current ​ ​ ​ ​ ​ Federal ​ $ 16,287 ​ $ ( 180 ) ​ $ 16,287 ​ $ — ​ State ​ 4,103 ​ ( 250 ) ​ 8,076 ​ 7,837 ​ Foreign ​ 277,910 ​ 529,001 ​ 445,436 ​ 825,693 ​ ​ ​ 298,300 ​ 528,571 ​ 469,799 ​ 833,530 ​ Deferred ​ ​ ​ ​ ​ Federal ​ 65,991 ​ 106,804 ​ 30,621 ​ 241,767 ​ State ​ 21,116 ​ ( 7,051 ) ​ 12,664 ​ 8,514 ​ Foreign ​ — ​ — ​ — ​ — ​ ​ ​ 87,107 ​ 99,753 ​ 43,285 ​ 250,281 ​ Total provision for income taxes ​ $ 385,407 ​ $ 628,324 ​ $ 513,084 ​ $ 1,083,811 ​ ​ Reconciliations between taxes at the U.S. federal income tax rate and taxes at the Company’s effective income tax rate on earnings before income taxes are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Six Months Ended ​ ​ ​ June 30, ​ ​ 2022 2021 ​ Federal statutory rate ​ 21.0 % 21.0 % ​ (Decrease) increase in tax rate resulting from: ​ ​ ​ State and local income taxes, net of federal benefit ​ 0.6 0.5 ​ ​ Foreign operations ​ 0.1 ( 3.3 ) ​ ​ Permanent items ​ 1.5 ( 9.2 ) ​ ​ Foreign dividends and earnings taxable in the United States ​ — 1.0 ​ ​ Others ​ 0.1 3.3 ​ ​ Effective tax rate ​ 23.3 % 13.3 % ​ ​ 27 Table of Contents The following is a summary of the components of the net deferred tax assets and liabilities recognized in the consolidated balance sheets: ​ ​ ​ ​ ​ ​ ​ ​ ​ As of As of ​ ​ June 30, 2022 ​ December 31, 2021 ​ ​ USD ​ USD Deferred tax assets ​ ​ Allowance for doubtful accounts ​ $ 63,352 ​ $ 44,368 Other reserve ​ 155,156 ​ 144,794 Accrued expenses ​ 126,318 ​ 134,576 Lease liability ​ 1,632,783 ​ 1,749,430 Charitable contributions ​ 8,565 ​ 8,565 Business interest limitation ​ 393,266 ​ 385,084 Net operating loss – federal ​ 568,551 ​ 633,700 Net operating loss – state ​ 112,520 ​ 128,569 Other ​ 49,058 ​ 60,171 Total deferred tax assets ​ 3,109,569 ​ 3,289,257 Less: valuation allowance ​ — ​ — Net deferred tax assets ​ 3,109,569 ​ 3,289,257 Deferred tax liabilities ​ ​ Fixed assets ​ 1,685,376 ​ 1,799,996 Intangibles ​ — ​ 10,672 Total deferred tax liabilities ​ 1,685,376 ​ 1,810,668 Deferred tax assets, net of deferred tax liabilities ​ $ 1,424,193 ​ $ 1,478,589 ​ The deferred tax assets related to the Company’s net operating losses as of June 30, 2022 and December 31, 2021 have no expiration date. ​ Note 12 — Related party transactions and balances Prepayments — related parties ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nature of June 30, December 31, Name of Related Party ​ Relationship ​ transactions ​ 2022 ​ 2021 ​ ​ ​ ​ ​ ​ USD ​ USD Rizhao Foremost Woodwork Manufacturing Co., Ltd. An entity under common control Purchase ​ $ 415,098 ​ $ 415,098 Focal Capital Holding Limited An entity under common control Purchase ​ 8,613,247 ​ 2,670,243 Foremost Worldwide Co.,Ltd ​ An entity under common control ​ Purchase ​ ​ ( 594,848 ) ​ ​ — ​ ​ ​ ​ ​ ​ $ 8,433,497 ​ $ 3,085,341 ​ 28 Table of Contents Other receivables — related parties ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nature of June 30, December 31, Name of Related Party ​ Relationship ​ transactions ​ 2022 ​ 2021 ​ ​ ​ ​ ​ ​ USD ​ USD Foremost Xingye Business Consultancy (Shenzhen) Co., Ltd. An entity under common control Miscellaneous expenses ​ $ — ​ $ 34,481 Foremost Home Inc. ​ An entity under common control ​ Miscellaneous expenses ​ $ 770,077 ​ $ — Foremost Worldwide Co.,Ltd ​ An entity under common control ​ Miscellaneous expenses ​ $ ( 565,043 ) ​ $ — ​ ​ ​ ​ ​ ​ ​ 205,034 ​ ​ 34,481 ​ Loan guarantee by a related party Liang Chou Chen holds approximately 49.75 % of the voting control of Foremost, the Company’s majority shareholder and guarantor of the loan obtained by FGI Industries from East West Bank under the Credit Agreement. See Note 8 for details. ​ Note 13 — Concentrations of risks Credit risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and restricted cash. The Canadian Deposit Insurance Corporation pays compensation up to a limit of CAD 100,000 (approximately USD 79,000 ) if the bank with which an individual/a company holds its eligible deposit fails. As of June 30, 2022, a cash balance of CAD 2,241,729 (USD 1,765,558 ) was maintained at financial institutions in Canada, of which CAD 2,141,729 (USD 1,686,799 ) was subject to credit risk. The Taiwan Central Deposit Insurance Corporation pays compensation up to a limit of New Taiwan Dollar 3,000,000 (approximately USD 105,000 ) if the bank with which an individual/a company holds its eligible deposit fails. As of June 30, 2022, an aggregated cash balance of USD 865,845 was maintained at financial institutions in Taiwan, of which USD 645,912 was subject to credit risk. The Federal Deposit Insurance Corporation pays compensation up to a limit of USD 250,000 if the bank with which an individual/a company holds its eligible deposit fails. As of June 30, 2022, a cash balance of USD 275,776 was maintained at financial institutions in the United States, of which USD 25,776 was subject to credit risk. While management believes that these financial institutions are of high credit quality, it also continually monitors their creditworthiness. The Company is also exposed to risk from its accounts receivable and other receivables. These assets are subjected to credit evaluations. An allowance has been made for estimated unrecoverable amounts which have been determined by reference to past default experience and the current economic environment. Customer concentration risk For the three months ended June 30, 2022, three customers accounted for 21.2 %, 19.3 % and 10.8 % of the Company’s total revenues, respectively. For the three months ended June 30, 2021, three customers accounted for 26.3 %, 18.5 % and 13.1 % of the Company’s total revenues, respectively. No other customer accounts for more than 10% of the Company’s revenue for the three months ended June 30, 2022 and 2021. For the six months ended June 30, 2022, two customers accounted for 23.3 % and 20.0 % of the Company’s total revenues, respectively. For the six months ended June 30, 2021, three customers accounted for 27.9 %, 13.5 % and 13.1 % of the Company’s total revenues, respectively. No other customer accounts for more than 10% of the Company’s revenue for the six months ended June 30, 2022 and 2021. ​ 29 Table of Contents As of June 30, 2022, four customers accounted for 22.1 %, 17.9 %, 13.8 % and 11.2 % of the total balance of accounts receivable, respectively. As of December 31, 2021, four customers accounted for 22.4 %, 14.0 %, 13.1 % and 12.1 % of the total balance of accounts receivable, respectively. No other customer accounted for more than 10% of the Company’s accounts receivable as of June 30, 2022 and December 31, 2021. Vendor concentration risk For the three months ended June 30, 2022, Tangshan Huida Ceramic Group Co., Ltd (“Huida”) accounted for 58.8 % of the Company’s total purchases. For the three months ended June 30, 2021, Huida accounted for 34.8 % of the Company’s total purchases. No other supplier accounted for more than 10% of the Company’s total purchases for the three ended June 30, 2022 and 2021 For the six months ended June 30, 2022, Tangshan Huida Ceramic Group Co., Ltd (“Huida”) accounted for 52.2 % of the Company’s total purchases. For the six months ended June 30, 2021, Huida accounted for 38.3 % and another vendor accounted 10.2 % of the Company’s total purchases. No other supplier accounted for more than 10% of the Company’s total purchases for the six months ended June 30, 2022 and 2021. As of June 30, 2022, Huida accounted for 68.9 % of the total balance of accounts payable. As of December 31, 2021, Huida accounted for 66.1 % of the total balance of accounts payable. No other supplier accounts for more than 10% of the Company’s accounts payable as of June 30, 2022 and December 31, 2021. ​ Note 14 — Commitments and contingencies Litigation From time to time, the Company is involved in legal and regulatory proceedings that are incidental to the operation of its businesses. These proceedings may seek remedies relating to matters including environmental, tax, intellectual property, acquisitions or divestitures, product liability, property damage, personal injury, privacy, employment, labor and pension, government contract issues and commercial or contractual disputes. Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including management’s assessment of the merits of the particular claims, the Company does not believe it is reasonably possible that any asserted or unasserted legal claims or proceedings, individually or in aggregate, will have a material adverse effect on its results of operations or financial condition. ​ Note 15 — Segment information The Company follows ASC 280, “Segment Reporting,” which requires that companies disclose segment data based on how management makes decisions about allocating resources to each segment and evaluating their performances. The Company has one reporting segment. The Company’s chief operating decision maker has been identified as the chief executive officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company, and hence the Company has only one reportable segment. ​ Note 16 — Subsequent events In July 2022, FGI has entered into a property purchase agreement with a related party to purchase building and sub-lease of land for the aggregated amount of approximately $ 1.97 million. As of the date of this report, FGI has remitted approximately $ 0.6 million, and is expected to remit the remaining balance by the end of November 2022 to complete the purchase transactions. ​ ​ ​ 30 Table of Contents