What changed in this filing

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Item 1. Financial Statements

2023-05-15 compared with 2022-11-14 · 301 added, 273 removed, 540 unchanged (52% of the section changed)

2 unchanged sentences

INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021

Unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2022 and 2021

Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity (Parent’s Net Investment) for the three and nine months ended September 30, 2022 and 2021

Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021

Unaudited Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022

Unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2023 and 2022

Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2023 and 2022

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022

Notes to Unaudited Condensed Consolidated Financial Statements

1 unchanged sentence

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2022

March 31, 2023

December 31, 2022

6 unchanged sentences

PROPERTY AND EQUIPMENT, NET

Intangible assets

Operating lease right-of-use assets, net

16 unchanged sentences

SHAREHOLDERS’ EQUITY

Preference Shares ($ 0.0001 par value, 10,000,000 shares authorized, no shares issued and outstanding as of September 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 September 30, 2022 and December 31, 2021*)

Parent’s net investment

Preference Shares ($ 0.0001 par value, 10,000,000 shares authorized, no shares issued and outstanding as of March 31, 2023 and 2022)

Ordinary shares ($ 0.0001 par value, 200,000,000 shares authorized, 9,500,000 and 7,000,000 shares issued and outstanding as of March 31, 2023 and 2022)

Additional paid-in capital

2 unchanged sentences

( 1,376,220 )

( 1,396,319 )

Total shareholders’ equity

Total liabilities and shareholders’ equity

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.

2 unchanged sentences

For the Three Months Ended

For the Nine Months Ended

September 30,

COST OF REVENUES

4 unchanged sentences

Total operating expenses

INCOME FROM OPERATIONS

OTHER INCOME (EXPENSES)

(LOSS) INCOME FROM OPERATIONS

OTHER (EXPENSES) INCOME

Interest income

Interest expense

Other income (loss), net

Total other (expenses) income, net

INCOME BEFORE INCOME TAXES

Other (loss) income, net

Total other (expenses), net

(LOSS) INCOME BEFORE INCOME TAXES

PROVISION FOR INCOME TAXES

Total provision for income taxes

OTHER COMPREHENSIVE INCOME

NET (LOSS) INCOME

OTHER COMPREHENSIVE (LOSS) INCOME

Foreign currency translation adjustment

( 1,006,323 )

COMPREHENSIVE INCOME

COMPREHENSIVE (LOSS) INCOME

WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES

EARNINGS PER SHARE

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.

1 unchanged sentence

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’

EQUITY (PARENT’S NET INVESTMENT)

Preference shares

2 unchanged sentences

Balance at December 31, 2021

Net distribution to Parent

( 1,321,028 )

Foreign currency translation adjustments

Balance at March 31, 2021 (Unaudited)

Net distribution to Parent

( 6,109,488 )

Consummation of separation transaction upon completion of reorganization

( 7,549,010 )

Foreign currency translation adjustments

Balance at June 30, 2021 (Unaudited)

Net distribution to Parent

Share-Based compensation

Issuance of ordinary shares upon Initial Public Offering (“IPO”), net

Foreign currency translation adjustments

Balance at September 30, 2021 (Unaudited)

Balance at March 31, 2022

Preference shares

2 unchanged sentences

Balance at December 31, 2022

Consummation of separation transaction upon completion of reorganization

( 1,396,319 )

Share-Based compensation

Issuance of ordinary shares upon Initial Public Offering (“IPO”)

Foreign currency translation adjustments

Balance at March 31, 2022 (Unaudited)

Share-Based compensation

Foreign currency translation adjustments

Balance at June 30, 2022 (Unaudited)

Share-Based compensation

Foreign currency translation adjustments

Balance at September 30, 2022 (Unaudited)

Balance at March 31, 2023

( 1,376,220 )

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile net income to net cash provided by (used in) operating activities

Net (loss) income

Adjustments to reconcile net income to net cash used in operating activities

Depreciation and amortization

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Provision for doubtful accounts

(Reversal of) provision of defective return

( 1,456,022 )

Foreign exchange transaction loss

Adjustment for Right-of-use assets

( 2,552,649 )

Gain on Forgiveness of PPP loan

( 1,680,900 )

Provision of (reversal of) defective return

Foreign exchange transaction gain (loss)

Deferred income taxes

Loss on disposal of property and equipment

Adjustment for Right of use assets

Changes in operating assets and liabilities

Accounts receivable

( 10,444,327 )

( 10,695,034 )

Prepayments and other current assets

( 1,055,788 )

Prepayments and other receivables – related parties

1 unchanged sentence

Other noncurrent assets

( 3,316,292 )

( 1,048,150 )

Right-of-use assets

1 unchanged sentence

( 6,559,270 )

( 8,085,105 )

Accounts payable-related parties

1 unchanged sentence

Accrued expenses and other current liabilities

Net cash used in operating activities

( 1,230,619 )

Net cash provided by (used in) operating activities

( 9,066,727 )

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from disposal of property and equipment

Purchase of property and equipment

Prepayment for purchase of building and sub-lease of land

( 1,295,924 )

Net cash used in investing activities

( 1,350,974 )

CASH FLOWS FROM FINANCING ACTIVITIES

Net proceeds from (repayments of) revolving credit facility

Net (repayments of) proceeds from revolving credit facility

( 1,368,504 )

Net proceeds from issuance of ordinary shares in IPO

Net changes in parent company investment

( 5,550,149 )

Net cash provided by (used in) financing activities

Excess payment over carrying value on long-lived assets acquisition from common-control affiliate

Net cash (used in) provided by financing activities

( 1,368,504 )

1 unchanged sentence

NET CHANGES IN CASH

CASH, BEGINNING OF PERIOD

CASH, END OF PERIOD

( 2,687,216 )

CASH, BEGINNING OF YEAR

CASH, END OF YEAR

SUPPLEMENTAL CASH FLOW INFORMATION

1 unchanged sentence

Cash paid during the period for income taxes

( 1,755,531 )

NON-CASH INVESTING AND FINANCING ACTIVITIES

Net changes in parent company investment

New addition on Right-of-use assets

( 7,444,961 )

27 unchanged sentences

FGI Canada Ltd.

● A Canada company

● A Canadian company

100 % owned by FGI

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● Sales and distribution in UK

FGI Australasia Pty Ltd

● An Australian company

100 % owned by FGI

● Incorporated on September 8, 2022

● Sales and distribution in Australia

Covered Bridge Cabinetry

● A Cambodian company

100 % owned by FGI

Manufacturing Co., Ltd

● Incorporated on April 21, 2022

● Manufacturing in Cambodia

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.

On January 27, 2022, the following reorganization steps were collectively completed:

(i) the incorporation of FGI International, Limited (“FGI International”) and FGI China, Ltd., (ii) FGI Industries, Inc.

(formerly Foremost Groups, Inc.) (“FGI Industries”), which operates the kitchen and bath (“K&B”) sales and distribution business in the United States and, through its wholly-owned Canadian subsidiary, Foremost International Limited, in Canada, distributed 100 % of the outstanding shares of stock of Foremost Kingbetter Food Equipment Inc.

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(iii) Foremost contributed the FKB shares to Foremost Home Inc.

(“FHI”), a newly-

formed wholly-owned subsidiary of Foremost;

and (iv) Foremost contributed 100 % of the outstanding shares of stock of each of FGI Industries, FGI Europe, 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 nine months ended September 30, 2022 and 2021.

(“FHI”), a newly-formed wholly-owned subsidiary of Foremost;

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

Immediately before and after the 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.

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.

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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.

On January 1, 2023, the Worldwide Services Agreement was amended and restated to include additional digital online and related 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.

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.

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The following table sets forth the revenues, cost of revenues and operating expenses that were irrelevant to the K&B Business allocated from FGI Industries to Foremost Home, Inc.

for the three and nine months ended September 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 three months ended March 31, 2023 and 2022, respectively.

For the Three Months Ended

For the Nine Months Ended

September 30,

Cost of revenues

( 9,466,904 )

( 7,756,254 )

( 25,201,282 )

( 36,495,493 )

Selling and distribution expenses

( 1,072,811 )

( 1,293,023 )

( 3,509,028 )

( 3,620,940 )

General and administrative expenses

( 1,144,992 )

Research and development expenses

Income (loss) from operations

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 nine months ended September 30, 2022 and 2021, respectively.

Income from operations

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 three months ended March 31, 2023 and 2022, respectively.

For the Three Months Ended

For the Nine Months Ended

September 30,

Cost of revenues

( 18,586,498 )

( 22,853,884 )

( 74,694,183 )

Selling and distribution expenses

( 1,261,384 )

General and administrative expenses

Research and development expenses

Income (loss) from operations

Income from operations

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.

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Historically, the Company finances its operations through internally generated cash, short-term loans and payables.

As of September 30, 2022, the Company had approximately $ 6.0 million in cash which primarily consists of cash on hand and bank deposits, which are unrestricted as to withdrawal and use.

The current credit facility is expired in December 2022, but expect to be renewed by end of November, please refer to footnote 8 – Short-term loans.

As of March 31, 2023, the Company had approximately $ 7.4 million in cash and cash equivalents, which primarily consists of cash on hand and bank deposits, which are unrestricted as to withdrawal and use.

As further described in Note 8, as of the date of the report, our wholly owned subsidiary FGI Industries Inc.

has obtained an extension for the Corporate Borrower Annual Statements, a U.S.

standalone reporting obligation under the Credit Agreement with East West Bank, which were due by April 30, 2023.

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

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

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

· financial support from the Company’s shareholders.

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Basis of presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.

GAAP”) for interim financial information and Article 8 of Regulation S-X.

Accordingly, they do not include all of the information and footnotes required by U.S.

GAAP for complete financial statements.

Management’s opinion is that all adjustments (consisting of normal accruals) considered necessary for a fair presentation have been included.

Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022.

These financial statements should be read in conjunction with the Company’s consolidated financial statements and accompanying Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) and applicable rules and regulations of the Securities and Exchange Commissions (the “SEC”), regarding financial reporting, and include all normal and recurring adjustments that management of the Company considers necessary for a fair presentation of its financial position and operation results.

Principles of consolidation

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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.

The preparation of unaudited condensed consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented.

Significant accounting estimates reflected in the Company’s consolidated financial statements include the useful lives of property and equipment, allowance for doubtful accounts, inventory reserve, accrued defective return, provision for contingent liabilities, revenue recognition, deferred taxes and uncertain tax position.

Actual results could differ from these estimates.

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.

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 and adopted the United States Dollar (“U.S.

Dollar” or “USD”) as its functional currency.

5 unchanged sentences

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.

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 7.0928 and 6.3762 as of September 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 6.7811 , 6.5595 and 6.4611 , 6.4683 for the three and nine months ended September 30, 2022 and 2021, respectively.

Dollars at the exchange rate on the balance sheet date, which was 6.8770 and 6.9653 as of March 31, 2023 and December 31, 2022, 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 6.8943 and 6.3532 for the three months ended March 31, 2023 and 2022, 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 1.3690 and 1.2697 as of September 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 1.2296 for the three months ended September 30, 2022 and 2021, respectively, and 1.2697 and 1.2494 for the nine months ended September 30, 2022 and 2021, respectively.

Dollars at the exchange rate on the balance sheet date, which was 1.3541 and 1.3541 as of March 31, 2023 and December 31, 2022, 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 1.3541 and 1.2697 for the three months ended March 31, 2023 and 2022, 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 date, which was 1.0274 and 0.8815 as of September 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 0.9770 , 0.9302 and 0.8428 , 0.8317 for the three and nine months ended September 30, 2022 and 2021, respectively.

Dollars at the exchange rate on the balance sheet date, which was 0.9194 and 0.9338 as of March 31, 2023 and December 31, 2022, 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 0.9337 and 0.8887 for the three months ended March 31, 2023 and 2022, respectively.

Reclassification

Certain prior year amounts have been reclassified to conform with the current year presentation, specifically the interest expenses and accrued expenses and other current liabilities in consolidated statements of cash flow.

These reclassifications have no effect on the consolidated balance sheets and results of operations previously reported.

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 September 30, 2022 and December 31, 2021.

The Company did no t have any cash equivalents as of March 31, 2023 and December 31, 2022.

Accounts receivable, net

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If an impairment is identified, the Company would reduce the carrying amount of the asset group to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values.

As of September 30, 2022 and December 31, 2021, no impairment of long-lived assets was recognized.

As of March 31, 2023 and December 31, 2022, no impairment of long-lived assets was recognized.

The Company determines if an arrangement is a lease at inception.

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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.

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Revenue recognition

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 recognized revenue in accordance with Accounting Standards Codification (“ASC”) 606 – Revenue from Contracts with Customers.

Revenues are recognized when control of the promised goods or performance obligations for services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for the goods or services.

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

The Company’s customers’ payment terms generally range from 15 to 60 days of fulfilling its performance obligations and recognizing revenue .

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For the Three Months Ended

For the Nine Months Ended

September 30,

Revenues by product line

Bath Furniture

Shower System

For the Three Months Ended

For the Nine Months Ended

September 30,

Revenues by geographic location

Revenues/ total asset by geographic location

United States

Rest of World

Shipping and Handling Costs

Shipping and handling costs are expensed as incurred and are included in selling and distribution expenses on the accompanying statement of operations.

For the three months ended March 31, 2023 and 2022, shipping and handling expense was $ 103,714 and $ 247,109 , respectively.

Share-based compensation

The Company accounts for share-based compensation in accordance with Accounting Standards Codification (“ASC”) 718, “Compensation — Stock Compensation” (“ASC 718”).

The Company accounts for share-based compensation in accordance with ASC 718, Compensation — Stock Compensation (“ASC 718”).

In accordance with ASC 718, the Company determines whether an award should be classified and accounted for as a liability award or an equity award.

All 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.

All the Company’s share-based awards were

classified as equity awards and are recognized in the consolidated financial statements based on their grant date fair values.

The Company has elected to recognize share-based compensation using the straight-line method for all share-based awards granted over the requisite service period, which is the vesting period.

The Company accounts for forfeitures as they occur in accordance with 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.

The Company accounts for forfeitures as they occur in accordance with ASC 718.

The Company, with the assistance of an independent third-party valuation firm, determines the fair value of the stock options granted to employees.

The Black Scholes Model is applied in determining the estimated fair value of the options granted to employees and non-employees.

The Company recognized share-based compensation $ 119,720 and $ 39,812 for the three months ended March 31, 2023 and 2022, respectively.

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.

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

As of March 31, 2023, the tax years ended December 31, 2019 through December 31, 2021 for FGI Industries, Inc.

remain open for statutory examination by tax authority.

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

2 unchanged sentences

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.

Other comprehensive income refers to revenue, expenses, gains and losses that under US GAAP are recorded as an element of equity but are excluded from net income.

Other comprehensive income consists of a foreign currency translation adjustment resulting from the Company not using the U.S.

Dollar as its functional currencies.

Earnings per share

2 unchanged sentences

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.

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.

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

For the Three Months Ended

Net income attributable to FGI Industries Ltd

Weighted-average number of ordinary shares outstanding — basic

Potentially dilutive shares from outstanding options/warrants

Weighted-average number of ordinary shares outstanding — diluted

Earnings per share — basic

Earnings per share — diluted

Potential ordinary shares that have an anti-dilutive effect are excluded from the calculation of diluted EPS 916,682 and 2,925,000 number of options and warrants, respectively, were excluded from diluted EPS because their effects were anti-dilutive.

Segment reporting

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

Recently issued accounting pronouncements

Recently adopted 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.

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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.

As an emerging growth company, the Company adopted this guidance from January 1, 2023 and did not have an impact on its unaudited condensed consolidated financial statements.

The Company considers the applicability and impact of all ASUs.

2 unchanged sentences

Accounts receivable, net consisted of the following:

September 30, 2022

March 31, 2023

December 31, 2022

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Movements of allowance for doubtful accounts are as follows:

For the Nine Months Ended

For the Three Months Ended

For the Years Ended

September 30,

Beginning balance

1 unchanged sentence

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

For the Nine Months Ended

For the Three Months Ended

For the Years Ended

September 30,

Beginning balance

Addition (Provision)

Addition (Provision), net

( 1,696,263 )

2 unchanged sentences

Inventories, net consisted of the following:

September 30, 2022

March 31, 2023

December 31, 2022

3 unchanged sentences

Movements of inventory reserves are as follows:

For the Nine Months Ended

For the Three Months Ended

For the Years Ended

September 30,

Beginning balance

Addition (Reversal)

Ending balance

1 unchanged sentence

Prepayments and other assets consisted of the following:

September 30, 2022

March 31, 2023

December 31, 2022

2 unchanged sentences

Property and equipment, net consist of the following:

September 30, 2022

March 31, 2023

December 31, 2022

2 unchanged sentences

Furniture and fixtures

Prepayment for purchase of building and sub-lease of land

accumulated depreciation

1 unchanged sentence

( 3,687,511 )

Depreciation expense for the nine months ended September 30, 2022, and 2021 amounted to $ 139,721 and $ 149,256 , respectively, which were included in general and administrative expenses on the unaudited condensed consolidated statements of income and comprehensive income.

* The building is not yet in service.

Depreciation expense for the three months ended March 31, 2023, and 2022 amounted to $ 35,560 and $ 47,615 , 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 September 30, 2022, the Company’s leases have remaining lease terms up to 6.6 years.

Total unamortized cost of leases as of September 30, 2022, and December 31, 2021 amounted to $ 10,851,359 and $ 9,137,045 , respectively.

For the nine months ended September 30, 2022 and 2021, the total lease expenses paid was $ 1,239,911 and $ 1,226,012 , respectively.

As of March 31, 2023, the Company’s leases have remaining lease terms up to 11.9 years.

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

For the three months ended March 31, 2023 and 2022, the total lease expenses paid was $ 417,679 and $ 410,152 , respectively.

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

September 30, 2022

March 31, 2023

December 31, 2022

4 unchanged sentences

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

September 30, 2022

March 31, 2023

December 31, 2022

4 unchanged sentences

As of September 30, 2022, the maturities of operating lease liabilities were as follows:

For the 12 months ending September 30,

For the 12 months ending March 31,

Total lease payments

3 unchanged sentences

Note 8 — Short-term loans

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 .

On September 8, 2022, the line was extended again, with a new maturity date of December 21, 2022.

Our wholly-owned subsidiary FGI Industries, Inc.

(formerly named Foremost Groups, Inc.) (“FGI Industries”) has a line of credit agreement (the “Credit Agreement”) with East West Bank, which is collateralized by all assets of FGI Industries and personally guaranteed by Liang Chou Chen, who holds approximately 49.75 % of the voting control of Foremost.

The current amount of maximum borrowings is $ 18,000,000 and the Credit Agreement has a maturity date of December 21, 2024 .

This is an assets-based line of credit, the borrowing limit is calculated based on certain percentage of accounts receivable and inventory balances.

Pursuant to the Credit Agreement, FGI Industries is required to maintain (a) a debt coverage ratio (defined as earnings before interest, taxes, depreciation and amortization divided by current portion of long-term debt plus interest expense) of not less than 1.25 to 1, tested at the end of each fiscal quarter;

(b) an effective tangible net worth (defined as total book net worth plus minority interest, less amounts due from officers, shareholders and affiliates, minus intangible assets and accumulated amortization, plus debt subordinated to East West Bank) of not less than $ 10,000,000 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 September 30, 2022, FGI Industries was in compliance with this financial covenant.

Furthermore, we are currently renewing our borrowing facility with East West bank with an estimated borrowing base of $ 18,000,000 for two years until December 2024.

This agreement is expected to be fully executed by the end of November 2022.

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 September 30, 2022, and December 31, 2021 was 6.50 % and 3.50 %, respectively.

(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 , tested at the end of each fiscal quarter, on consolidated basis;

As of March 31, 2023, FGI Industries was in compliance with this financial covenant.

FGI Industries is also required to provide the lender with certain periodic financial information,

including annual financial statements of FGI Industries on a non-consolidated basis.

As of the date of report, FGI Industries has obtained an extension to June 30, 2023 for such Corporate Borrower Annual Statements, a U.S.

standalone reporting obligation under the Credit Agreement, which were due by April 30, 2023 .

The loan bears interest at rate equal to, at the Company’s option, either (i) 0.25 percentage points less than the Prime Rate quoted by the Wall Street Journal or (ii) the SOFR Rate (as administered by CME Group Benchmark Administration Limited and displayed by Bloomberg LP) plus 2.20 % per annum (in either case, subject to a minimum rate of 4.500 % per annum) .

The interest rate as of March 31, 2023, and December 31, 2022 was 7.75 % and 7.25 %, respectively.

Each sum of borrowings under the Credit Agreement is deemed due on demand and is classified as a short-term loan.

The outstanding balance of such loan was $ 13,007,649 and $ 14,657,280 as of September 30, 2022 and December 31, 2021, respectively.

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.

The outstanding balance of such loan was $ 8,426,548 and $ 9,795,052 as of March 31, 2023, and December 31, 2022, respectively.

HSBC Canada Bank Loan / Foreign Exchange Facility

FGI Canada Ltd.

has a line of credit agreement with HSBC Canada (the “Canadian Revolver”).

The revolving line of credit with HSBC Canada allows for borrowing up to CAD $ 7,500,000 (US $ 5,538,734 as of the March 31, 2023 exchange rate).

This is an assets-based line of credit, the borrowing limit is calculated based on certain percentage of accounts receivable and inventory balances.

Pursuant to the Canadian Revolver, FGI Canada Ltd.

is required to maintain (a) a debt to tangible net worth ratio of no more than 3.00 to 1.00;

and (b) a ratio of current assets to current liabilities of at least 1.25 to 1.00.

The loan bears interest at a rate of Prime rate plus 0.50 %.

As of March 31, 2023, FGI Canada Ltd.

was in compliance with this financial covenant.

Borrowings under this line of credit amounts to $ 0 as of March 31, 2023, and December 31, 2022.

The facility matures at the discretion of HSBC Canada upon 60 days ’ notice.

FGI Canada Ltd.

also has a revolving foreign exchange facility with HSBC Canada of up to a permitted maximum of US $ 3,000,000 .

The advances are available to purchase foreign exchange forward contacts from time to time up to six months, subject to an overall maximum aggregate USD Equivalent outstanding face value not exceeding $ 3,000,000 .

Note 9 — Shareholders’ Equity

13 unchanged sentences

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.

determined that these Warrants meet the definition of a derivative under ASC 815-40;

Management determined that these Warrants meet the definition of a derivative under ASC 815-40;

however, they fall under the scope exception, which states that contracts issued that both a) indexed to its own stock;

39 unchanged sentences

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 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.

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 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.

2 unchanged sentences

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 98,747 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.

Restricted shares units (“RSU”)

On January 27, 2022, the board of directors approved the issuance of 183,750 restricted share units (“RSUs”) to certain officers and employees under the 2021 Equity Plan as compensation awards.

The fair value for these RSUs was $ 716,625 based on the closing share price of $ 3.90 as at January 27, 2022.

These awards will vest in three equal installments on each anniversary of the grant date over three years .

As of March 31, 2023, no granted shares under this plan are vested.

On April 13, 2022, the board of directors approved the issuance of 8,750 RSUs to an employee under the 2021 Equity Plan as compensation awards.

The fair value for these RSUs was $ 22,050 based on the closing share price of $ 2.52 as at April 13, 2022.

These awards will vest as to one -third of the shares on the one-year anniversary of the grant date.

The remaining shares will vest in a series of 24 successive equal monthly installments upon completion of each additional month of service, commencing on the grant date.

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 are subjected to performance conditions and 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.

As of March 31, 2023, no granted shares under this plan are vested.

On May 11, 2022, the board of directors approved the issuance of 87,611 RSUs under the 2021 Equity Plan to Company officers to incentivize their performance and continue to align their interests with the Company’s shareholders.

All these awards are subjected to performance conditions and 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 are subjected to performance conditions and will vest on December 31, 2024.

compensation cost recognized at any date is at least equal to the portion of the grant date fair value of the equity awards that are vested at that date.

The fair value for these RSUs was $ 198,000 based on the closing share price of $ 2.26 as at May 11, 2022.

If the maximum performance is met, the Company will issue additional 43,805 RSUs per this plan with fair value of $ 99,000 .

As of March 31, 2023, no granted shares under this plan are vested.

On May 17, 2022, the board of directors approved the issuance of 16,363 RSUs to its independent directors under the 2021 Equity Plan as compensation award.

All these awards are subjected to performance conditions and will vest on December 31, 2024.

The fair value for these RSUs was $ 36,000 based on the closing share price of $ 2.20 as at May 17, 2022.

As of March 31, 2023 , no granted shares under this plan are vested.

On March 23, 2023, the board of directors approved the issuance of 96,635 RSUs under the 2021 Equity Plan to Company officers to incentivize their performance and continue to align their interests with the Company’s shareholders.

All these awards are subjected to performance conditions and 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.

The fair value for these RSUs was $ 201,000 based on the closing share price of $ 2.08 as at March 29, 2023.

If the maximum performance is met, the Company will issue additional 48,317 RSUs per this plan with fair value of $ 100,500 .

As of March 31, 2023, no granted shares under this plan are vested.

On March 23, 2023, the board of directors approved the issuance of 17,349 RSUs to its independent directors under the 2021 Equity Plan as compensation award.

All these awards are subjected to performance conditions and will vest on December 31, 2025.

The fair value for these RSUs was $ 36,000 based on the closing share price of $ 2.08 as at March 29, 2023.

As of March 31, 2023 , no granted shares under this plan are vested

The following is a summary of the restricted share granted:

Restricted shares grants

Non-vested as of December 31, 2021

Non-vested as of March 31, 2023

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

Outstanding Restricted Share

Average Remaining

Fair Value per share

Amortization Period (Years)

Share options (“Options”)

On March 24, 2022, the board of directors approved the issuance of 98,747 share options under the 2021 Equity Plan with an exercise price per share of $ 3.07 and a contractual life of 10 years to the Company’s executive officers and directors to incentivize their performance and continue to align their interests with the Company’s shareholders.

The fair value for these options was $ 141,401 determined using the Black-Scholes simplified method at the per option fair value of $ 1.43 .

All these options will vest as to one -third of the options on the one-year anniversary of the grant date.

The remaining options will vest in a series of 24 successive equal monthly installments upon completion of each additional month of service.

As of March 31, 2023, no granted options under this plan are vested.

On April 13, 2022, the board of directors approved the issuance of 97,371 share options under the 2021 Equity Plan with an exercise price per share of $ 2.52 and a contractual life of 10 years to the Company’s employees to incentivize their performance and continue to align their interests with the Company’s shareholders.

The fair value for these options was $ 114,972 determined using the Black-Scholes simplified method at the per option fair value of $ 1.18 .

All these options will vest as to one -third of the shares on the one-year anniversary of the grant date.

The remaining options will vest in a series of 24 successive equal monthly installments upon completion of each additional month of service.

As of March 31, 2023, no granted options under this plan are vested.

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

The fair value for these options was $ 171,462 determined using the Black-Scholes simplified method at the per option fair value of $ 1.07 .

All these options are subjected to performance conditions and 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.

The actual number of options 159,881 shares were determined, no additional options would be granted per performance threshold.

As of March 31, 2023, no granted options under this plan are vested.

On March 23, 2023, the board of directors approved the issuance of 158,976 share options under the 2021 Equity Plan with an exercise price per share of $ 2.08 and a contractual life of 10 years to Company officers to incentivize their performance and continue to align their interests with the Company’s shareholders.

The fair value for these options was $ 201,000 determined using the Black-Scholes simplified method at the per option fair value of $ 1.26 .

All these options are subjected to performance conditions and 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.

The actual number of options were determined, no additional options would be granted per performance threshold.

As of March 31, 2023, no granted options under this plan are vested.

The options granted to employees are measured based on the grant date fair value of the equity instrument.

2 unchanged sentences

Share options outstanding at December 31, 2022

Share options outstanding at September 30, 2022

Vested and exercisable at September 30, 2022

For the nine months ended September 30, 2022 and 2021, the total fair value of options awarded was $ 454,373 and $ 0 , respectively.

Share options outstanding at March 31, 2023

Vested and exercisable at March 31, 2023

For the three months ended March 31, 2023 and 2022, the total fair value of options awarded was $ 628,834 and $ 141,401 , respectively.

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

Fair value of options

The Company used the Black-Scholes simplified method for the nine months ended September 30, 2022.

The Company used the Black-Scholes simplified method for the three months ended March 31, 2023.

The assumptions used to value the options granted to employees were as follows:

For the nine months ended

September 30,

three months ended

For the year ended

Risk-free interest rate

6 unchanged sentences

The expected exercise multiple is based on management’s estimation, which the Company believes is representative of the future.

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

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

For the nine months ended

September 30,

Selling and marketing expenses

For the three months ended

Selling and distribution expenses

General and administrative expenses

Total share-based compensation expenses

As of September 30, 2022, there was $ 1,162,794 in total unrecognized employee share-based compensation expense related to unvested options and RSUs, which may be adjusted for actual forfeitures occurring in the future.

As of March 31, 2023, there was $ 1,335,214 in total unrecognized employee share-based compensation expense related to unvested options and RSUs, which may be adjusted for actual forfeitures occurring in the future.

Total unrecognized compensation cost may be recognized over a weighted-average period of 2.29 years.

2 unchanged sentences

For the Three Months Ended

For the Nine Months Ended

September 30,

Income components

6 unchanged sentences

federal income tax rate and taxes at the Company’s effective income tax rate on earnings before income taxes are as follows:

For the Nine Months Ended

September 30,

For the Three Months Ended

Federal statutory rate

4 unchanged sentences

Deferred rate changes

Foreign dividends and earnings taxable in the United States

Effective tax rate

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

September 30, 2022

March 31, 2023

December 31, 2022

14 unchanged sentences

Deferred tax assets, net of deferred tax liabilities

The deferred tax assets related to the Company’s net operating losses of $ 4,212,179 and $ 5,150,646 for September 30, 2022 and December 31, 2021.

The deferred tax assets related to the Company’s net operating losses of $ 3,192,687 (Federal $ 1,975,734 and States $ 1,216,953 ) and $ 3,174,799 (Federal $ 1,975,734 and States $ 1,199,065 ) as of March 31, 2023 and December 31, 2022, respectively.

The Federal Net Operating losses have no expiration date.

The States Net Operating losses have either 20 years or no expiration date.

The Company had no material unrecognized tax benefits at March 31, 2023 or, December 31, 2022.

The Company has not taken any tax positions for which it is reasonably possible that unrecognized tax benefits will significantly increase within the next 12 months.

Inflation Reduction Act of 2022

On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law.

The IR Act provides for, among other things, a new U.S.

federal 1% excise tax on certain repurchases of stock by publicly traded U.S.

domestic corporations and certain U.S.

domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023.

The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased.

The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase.

However, for purposes of calculating the excise tax, repurchasing corporations

are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year.

In addition, certain exceptions apply to the excise tax.

Department of the Treasury (the “Treasury”) has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax.

Note 12 — Related party transactions and balances

Prepayments — related parties

September 30,

Purchase from a related party – consisted of the following:

For the three months ended March 31,

Name of Related Party

Rizhao Foremost Woodwork Manufacturing Co., Ltd.

An entity under common control

Focal Capital Holding Limited

An entity under common control

Foremost Worldwide Co., Ltd

An entity under common control

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

Prepayments — related parties

Name of Related Party

Focal Capital Holding Limited

Accounts Payables — related parties

September 30,

Name of Related Party

Foremost Worldwide Co., Ltd

An entity under common control

Shared Service and Miscellaneous expenses – related party

FGI Industries, Inc.

is party to the FHI Shared Services Agreement with FHI.

Total amounts provided to FHI under the FHI Share Services Agreement for the three months ended March 31, 2023 and 2022 were $ 244,614 and $ 252,372 , respectively, which were booked under selling and distribution expenses and administration expenses.

FGI is party to the Worldwide Shared Services Agreement with Foremost Worldwide.

Total amounts provided from Foremost Worldwide under the Worldwide Shared Services Agreement for the three months ended March 31, 2023 and 2022 were $ 69,344 and $ 47,895 , respectively.

Other Payables — related parties

September 30,

Name of Related Party

Foremost Xingye Business Consultancy (Shenzhen) Co., Ltd.

F.P.Z FURNITURE (CAMBODIA) CO., LTD.

An entity under common control

Miscellaneous

Foremost Home Inc.

Focal Capital Holding Limited

An entity under common control

Miscellaneous

Foremost Home Inc.

An entity under common control

Shared services and Miscellaneous

Foremost Worldwide Co.,Ltd

An entity under common control

Miscellaneous

( 1,265,013 )

Shared services and Miscellaneous

Property purchase — related party

In July 2022, FGI 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 September 30, 2022, FGI has remitted approximately $ 1.3 million, and remitted the remaining balance in October 2022.

The balance of prepayment for sub-lease of land, in the amount of $ 1.3 million, was included in property and equipment, net on the Company's unaudited condensed consolidated balance sheet as of September 30, 2022 (see Note 6).

In July 2022, FGI entered into a property purchase agreement with a common control related party to purchase a building and sub-leased the land use right with an initial term of 50 years in amount of $ 1,963,521 .

The building and sub-lease the land use right were recorded at historic cost in amount of $ 946,066 and $ 519,450 , respectively.

The excess payment over carrying value $ 498,005 was recorded under shareholders equity statement.

Loan guarantee by a related party

Liang Chou Chen holds approximately 49.75 % 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.

Liang Chou Chen holds approximately 49.75 % of the voting control of Foremost, the Company’s majority shareholder and is a guarantor of the loan obtained by FGI Industries from East West Bank under the Credit Agreement.

See Note 8 for details.

1 unchanged sentence

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash.

The Federal Deposit Insurance Corporation pays compensation up to a limit of USD 250,000 if the bank with which a depositor holds its eligible deposit fails.

As of March 31, 2023, a cash balance of USD 548,039 was maintained at financial institutions in the United States, of which USD 244,784 was subject to credit risk.

The Canadian Deposit Insurance Corporation pays compensation up to a limit of CAD 100,000 (approximately USD 74,000 ) if the bank with which an individual/a company holds its eligible deposit fails.

As of September 30, 2022, a cash balance of CAD 5,904,584 (USD 4,313,063 ) was maintained at financial institutions in Canada, of which CAD 5,804,584 (USD 4,240,017 ) was subject to credit risk.

As of March 31, 2023, a cash balance of CAD 8,125,442 (USD 6,000,621 ) was maintained at financial institutions in Canada, of which CAD 8,025,442 (USD 5,926,771 ) 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 98,000 ) if the bank with which an individual/a company holds its eligible deposit fails.

As of September 30, 2022, an aggregated cash balance of USD 1,412,605 was maintained at financial institutions in Taiwan, of which USD 1,223,658 was subject to credit risk.

While management believes that these financial institutions are of high credit quality, it also continually monitors their creditworthiness.

As of March 31, 2023, an aggregated cash balance of USD 510,344 was maintained at financial institutions in Taiwan, of which USD 233,916 was subject to credit risk.

The European Banking Authority pays compensation up to a limit of EUR 100,000 (approximately USD 109,000 ) if the bank with which an individual/a company holds its eligible deposit fails.

As of March 31, 2023, cash balance of EUR 136,373 (USD 148,329 ) was maintained at financial institutions in Europe, of which EUR 36,373 (USD 39,562 ) was subject to credit risk.

As of March 31, 2023, cash balance of USD 96,613 was maintained at financial institutions in Kingdom of Cambodia, of which USD 96,613 was subject to credit risk.

While management believes that these financial institutions are of high credit quality, it also continually monitors their credit worthiness.

The Company is also exposed to risk from its accounts receivable and other receivables.

2 unchanged sentences

Customer concentration risk

For the three months ended September 30, 2022, two customers accounted for 23.8 % and 19.2 % of the Company’s total revenues, respectively.

For the three months ended September 30, 2021, three customers accounted for 19.9 %, 15.0 % and 10.4 % 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 September 30, 2022 and 2021.

For the nine months ended September 30, 2022, two customers accounted for 22.1 % and 21.1 % of the Company’s total revenues, respectively.

For the nine months ended September 30, 2021, three customers accounted for 24.7 %,

14.0 % and 12.0 % of the Company’s total revenues, respectively.

No other customer accounts for more than 10% of the Company’s revenue for the nine months ended September 30, 2022 and 2021.

As of September 30, 2022, three customers accounted for 30.6 %, 14.6 % and 12.6 % 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 September 30, 2022 and December 31, 2021.

For the three months ended March 31, 2023, two customers accounted for 19.9 % and 18.6 % of the Company’s total revenues, respectively.

For the three months ended March 31, 2022, two customers accounted for 27.8 % and 18.6 % of the Company’s total revenues, respectively.

No other customer accounted for more than 10% of the Company’s revenue for the three months ended March 31, 2023 and 2022.

As of March 31, 2023, three customers accounted for 24.2 %, 16.7 % and 16.6 % of the total balance of accounts receivable, respectively.

As of December 31, 2022, two customers accounted for 36.7 % and 13.6 % of the total balance of accounts receivable, respectively.

No other customer accounted for more than 10% of the Company’s accounts receivable as of March 31, 2023 and December 31, 2022.

Vendor concentration risk

For the three months ended September 30, 2022, Tangshan Huida Ceramic Group Co., Ltd (“Huida”) accounted for 49.9 % of the Company’s total purchases.

For the three months ended September 30, 2021, Huida accounted for 44.2 % of the Company’s total purchases.

No other supplier accounted for more than 10% of the Company’s total purchases for the three ended September 30, 2022 and 2021

For the nine months ended September 30, 2022, Tangshan Huida Ceramic Group Co., Ltd (“Huida”) accounted for 51.4 % of the Company’s total purchases.

For the nine months ended September 30, 2021, Huida accounted for 40.8 % of the Company’s total purchases.

No other supplier accounted for more than 10% of the Company’s total purchases for the nine months ended September 30, 2022 and 2021.

As of September 30, 2022, Huida accounted for 72.4 % of the total balance of accounts payable.

For the three months ended March 31, 2023, Tangshan Huida Ceramic Group Co., Ltd (“Huida”) accounted for 51.0 % of the Company’s total purchases, and another vendor accounted 17.3 % of the Company’s total purchases.

For the three months ended March 31, 2022, Tangshan Huida Ceramic Group Co., Ltd (“Huida”) accounted for 45.3 % of the Company’s total purchases, and another vendor accounted 12.2 % of the Company’s total purchases.

No other supplier accounted for more than 10% of the Company’s total purchases for the three ended March 31, 2023 and 2022

As of March 31, 2023, Huida accounted for 90.1 % of the total balance of accounts payable.

As of December 31, 2022, Huida accounted for 85.5 % of the total balance of accounts payable.

No other supplier accounts for more than 10% of the Company’s accounts payable as of September 30, 2022 and December 31, 2021.

No other supplier accounted for more than 10% of the Company’s accounts payable as of March 31, 2023 and December 31, 2022.

Note 14 — Commitments and contingencies

7 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements