What changed in this filing

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Item 1. Financial Statements

2023-08-11 compared with 2023-05-15 · 164 added, 132 removed, 709 unchanged (29% of the section changed)

2 unchanged sentences

INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Condensed Consolidated Balance Sheets as of June 30, 2023 (Unaudited) and December 31, 2022 (Audited)

Unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the three and six months ended June 30, 2023 and 2022

Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended June 30, 2023 and 2022

Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022

Notes to Unaudited Condensed Consolidated Financial Statements

FGI INDUSTRIES LTD.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2023

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2023

December 31, 2022

24 unchanged sentences

SHAREHOLDERS’ EQUITY

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)

Preference Shares ($ 0.0001 par value, 10,000,000 shares authorized, no shares issued and outstanding as of June 30, 2023 and December 31, 2022)

Ordinary shares ($ 0.0001 par value, 200,000,000 shares authorized, 9,500,000 shares issued and outstanding as of June 30, 2023 and December 31, 2022)

Additional paid-in capital

9 unchanged sentences

For the Three Months Ended

For the Six Months Ended

COST OF REVENUES

4 unchanged sentences

Total operating expenses

(LOSS) INCOME FROM OPERATIONS

INCOME FROM OPERATIONS

OTHER (EXPENSES) INCOME

3 unchanged sentences

Total other (expenses), net

(LOSS) INCOME BEFORE INCOME TAXES

INCOME BEFORE INCOME TAXES

PROVISION FOR INCOME TAXES

Total provision for income taxes

NET (LOSS) INCOME

OTHER COMPREHENSIVE (LOSS) INCOME

NET INCOME (LOSS)

OTHER COMPREHENSIVE INCOME (LOSS)

Foreign currency translation adjustment

COMPREHENSIVE (LOSS) INCOME

COMPREHENSIVE INCOME (LOSS)

WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES

13 unchanged sentences

Balance at March 31, 2022

Share-Based compensation

Foreign currency translation adjustments

Balance at June 30, 2022

Preference shares

7 unchanged sentences

( 1,376,220 )

Share-Based compensation

Foreign currency translation adjustments

Balance at June 30, 2023

( 1,371,323 )

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

1 unchanged sentence

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31,

For the Six Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES

Net (loss) income

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

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

Depreciation and amortization

Share-based compensation

Provision for doubtful accounts

Provision of (reversal of) defective return

Foreign exchange transaction gain (loss)

Deferred income taxes

Provision for credit losses

Reversal of defective return

Foreign exchange transaction gain

Adjustment for Right of use assets

Deferred income (benefits) taxes

Changes in operating assets and liabilities

2 unchanged sentences

( 1,581,168 )

( 1,470,609 )

Prepayments and other receivables – related parties

( 2,998,615 )

( 5,348,158 )

Other noncurrent assets

16 unchanged sentences

Net proceeds from issuance of ordinary shares in IPO

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

Net cash (used in) provided by financing activities

9 unchanged sentences

NON-CASH INVESTING AND FINANCING ACTIVITIES

Net changes in parent company investment

New addition on Right-of-use assets

37 unchanged sentences

● Incorporated on January 24, 2013

Investment Limited

● Sales and distribution in Germany

Investment Limited

FGI China, Ltd.

21 unchanged sentences

● Manufacturing in Cambodia

Isla Porter LLC

● A New Jersey corporation

60 % owned by FGI

● Incorporated on June 2, 2023

Industries, Inc.

● Sales and distribution in the United States

Reorganization

29 unchanged sentences

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

for three and six months ended June 30, 2023 and 2022, respectively.

For the Three Months Ended

For the Six Months Ended

Cost of revenues

( 7,081,295 )

( 16,548,199 )

Selling and distribution expenses

( 1,249,018 )

( 2,321,830 )

General and administrative expenses

1 unchanged sentence

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.

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 and six months ended June 30, 2023 and 2022, respectively.

For the Three Months Ended

For the Six Months Ended

Cost of revenues

( 3,868,618 )

( 22,455,116 )

Selling and distribution expenses

8 unchanged sentences

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

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.

As of June 30, 2023, the Company had approximately $ 6.9 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 this quarterly report, our wholly owned subsidiary FGI Industries Inc.

has obtained a waiver for the Corporate Borrower’s Audited Annual Statements, a U.S.

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

15 unchanged sentences

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.

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

Actual results could differ from these estimates .

10 unchanged sentences

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 6.8770 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.

Dollars at the exchange rate on the balance sheet date, which was 7.2797 and 6.9653 as of June 30, 2023 and December 31, 2022, respectively;

shareholders’ equity accounts are translated at historical rates, and income and expense items are translated at the average exchange rate during the period, which was 6.9795 and 6.5443 for the three months ended June 30, 2023 and 2022, respectively, and 6.9369 and 6.4488 for the six months ended June 30, 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 1.3541 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.

Dollars at the exchange rate on the balance sheet date, which was 1.3541 and 1.3541 as of June 30, 2023 and December 31, 2022, respectively;

shareholders’ equity accounts are translated at historical rates, and income and expense items are translated at the average exchange rate during the period, which was 1.3541 and 1.2697 for the three months ended June 30, 2023 and 2022, respectively, and 1.3541 and 1.2697 for the six months ended June 30, 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 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.

Dollars at the exchange rate on the balance sheet date, which was 0.9163 and 0.9338 as of June 30, 2023 and December 31, 2022, respectively;

shareholders’ equity accounts are translated at historical rates, and income and expense items are translated at the average exchange rate during the period, which was 0.9201 and 0.9249 for the three months ended June 30, 2023 and 2022, respectively, and 0.9269 and 0.9068 for the six months ended June 30, 2023 and 2022, respectively.

Reclassification

2 unchanged sentences

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 March 31, 2023 and December 31, 2022.

The Company did no t have any cash equivalents as of June 30, 2023 and December 31, 2022.

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.

In establishing the required allowance for expected credit losses, management considers historical collection experience, aging of the receivables, the economic environment, industry trend analysis, and the credit history and financial conditions of the customers.

Management reviews its receivables on a regular basis to determine if the expected credit losses are adequate and adjusts the allowance when necessary.

Delinquent account balances are written off against allowance for credit losses after management has determined that the likelihood of collection is not probable.

Inventories, net

25 unchanged sentences

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

As of June 30, 2023 and December 31, 2022, no impairment of long-lived assets was recognized.

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

33 unchanged sentences

For the Three Months Ended

For the Six Months Ended

Revenues by product line

2 unchanged sentences

For the Three Months Ended

For the Six Months Ended

Revenues/ total asset by geographic location

3 unchanged sentences

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.

For the three months ended June 30, 2023 and 2022, shipping and handling expense was $ 210,370 and $ 242,086 , respectively, for the six months ended June 30, 2023 and 2022, shipping and handling expense was $ 314,084 and $ 489,195 , respectively.

Share-based compensation

1 unchanged sentence

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

All the Company’s share-based awards were

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

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.

2 unchanged sentences

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.

The Company recognized share-based compensation $ 152,835 , $ 272,556 and $ 104,920 , $ 144,734 for the three and six months ended June 30, 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.

7 unchanged sentences

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.

As of June 30, 2023, the tax years ended December 31, 2019 through December 31, 2022 for FGI Industries, Inc.

remain open for statutory examination by tax authority.

10 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

The following table sets forth the computation of basic and diluted earnings per share for the six months ended June 30, 2023 and 2022:

For the Three Months Ended

For the Six Months Ended

Net income attributable to FGI Industries Ltd

14 unchanged sentences

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.

growth companies.

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.

3 unchanged sentences

Accounts receivable, net consisted of the following:

March 31, 2023

June 30, 2023

December 31, 2022

Accounts receivable

Allowance for doubtful accounts

Allowance for credit losses

Accrued defective return and discount

2 unchanged sentences

Accounts receivable, net

Movements of allowance for doubtful accounts are as follows:

For the Three Months Ended

For the Years Ended

Movements of allowance for credit losses are as follows:

For the Six Months Ended

For the Year Ended

Beginning balance

1 unchanged sentence

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

For the Three Months Ended

For the Years Ended

For the Six Months Ended

For the Year Ended

Beginning balance

Addition (Provision), net

( 1,696,263 )

2 unchanged sentences

Inventories, net consisted of the following:

March 31, 2023

June 30, 2023

December 31, 2022

3 unchanged sentences

Movements of inventory reserves are as follows:

For the Three Months Ended

For the Years Ended

For the Six Months Ended

For the Year Ended

Beginning balance

2 unchanged sentences

Prepayments and other assets consisted of the following:

March 31, 2023

June 30, 2023

December 31, 2022

2 unchanged sentences

Property and equipment, net consist of the following:

March 31, 2023

June 30, 2023

December 31, 2022

5 unchanged sentences

( 3,687,511 )

* 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.

Depreciation expenses for the six months ended June 30, 2023 and 2022 amounted to $ 78,759 and $ 95,530 , respectively;

depreciation expenses for the three months ended June 30, 2023 and 2022 amounted to $ 43,199 and $ 47,915 .

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

As of June 30, 2023, the Company’s leases have remaining lease terms up to 11.7 years.

The company also purchased an operating lease land from a common control affiliate for manufacturing, which has remaining lease term up to 49 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.

For the three months ended June 30, 2023 and 2022, the total lease expenses paid was $ 517,588 and $ 414,821 , respectively, for the six months ended June 30, 2023 and 2022, the total lease expenses paid was $ 935,266 and $ 824,972 , respectively.

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

March 31, 2023

June 30, 2023

December 31, 2022

4 unchanged sentences

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

March 31, 2023

June 30, 2023

December 31, 2022

3 unchanged sentences

Operating leases

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

For the 12 months ending March 31,

As of June 30, 2023, the maturities of operating lease liabilities were as follows:

For the 12 months ending June 30,

Total lease payments

8 unchanged sentences

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

(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;

and (c) a total debt to tangible net worth ratio (defined as total liabilities divided by tangible net worth, which is defined as total book net worth plus minority interest, less loans to officers, shareholders, and affiliates minus intangible assets and accumulated amortization) not to exceed 4.0 to 1, tested at the end of each fiscal quarter, on consolidated basis.

As of 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.

As of June 30, 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 audited financial statements of FGI Industries on a non-consolidated basis.

As of the date of report, FGI Industries has obtained a waiver for such Corporate Borrower’s Audited 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.

The interest rate as of June 30, 2023, and December 31, 2022 was 8.00 % 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 $ 8,426,548 and $ 9,795,052 as of March 31, 2023, and December 31, 2022, respectively.

The outstanding balance of such loan was $ 7,863,680 and $ 9,795,052 as of June 30, 2023, and December 31, 2022, respectively.

HSBC Canada Bank Loan / Foreign Exchange Facility

1 unchanged sentence

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).

The revolving line of credit with HSBC Canada allows for borrowing up to CAD $ 7,500,000 (US $ 5,538,734 as of the June 30, 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.

3 unchanged sentences

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

As of March 31, 2023, FGI Canada Ltd.

As of June 30, 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.

Borrowings under this line of credit amounts to $ 0 as of June 30, 2023, and December 31, 2022.

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

11 unchanged sentences

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.

“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.

41 unchanged sentences

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.

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.

1 unchanged sentence

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.

8 unchanged sentences

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.

As of June 30, 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.

2 unchanged sentences

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

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

As of June 30, 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.

3 unchanged sentences

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.

As of June 30, 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.

1 unchanged sentence

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.

As of June 30, 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.

3 unchanged sentences

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.

As of June 30, 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.

1 unchanged sentence

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

As of June 30, 2023 , no granted shares under this plan are vested

The following is a summary of the restricted share granted:

1 unchanged sentence

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:

Non-vested as of June 30, 2023

The following is a summary of the status of restricted shares at June 30, 2023:

Outstanding Restricted Share

7 unchanged sentences

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.

As of June 30, 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.

2 unchanged sentences

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.

As of June 30, 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.

3 unchanged sentences

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.

As of June 30, 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.

3 unchanged sentences

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.

As of June 30, 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 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.

Share options outstanding at June 30, 2023

Vested and exercisable at June 30, 2023

For the six months ended June 30, 2023 and 2022, the total fair value of options awarded was $ 628,834 and $ 454,373 , respectively.

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

Fair value of options

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

The Company used the Black-Scholes simplified method for the six months ended June 30, 2023.

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

three months ended

Six Months Ended

For the Year Ended

9 unchanged sentences

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

For the three months ended

For the Six Months Ended

Selling and distribution expenses

1 unchanged sentence

Total share-based compensation expenses

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.

As of June 30, 2023, there was $ 1,182,378 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 2.06 years.

2 unchanged sentences

For the Three Months Ended

For the Six Months Ended

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 Three Months Ended

For the Six Months Ended

Federal statutory rate

5 unchanged sentences

Effective tax rate

The effective tax rate for the six months ended June 30, 2023 as presented in the table above did not give consideration to the elimination of unrealized profit from intercompany sales.

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

March 31, 2023

June 30, 2023

December 31, 2022

Deferred tax assets

Allowance for doubtful accounts

Allowance for credit losses

Other reserve

11 unchanged sentences

Deferred tax assets, net of deferred tax liabilities

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 deferred tax assets related to the Company’s net operating losses of 2,797,253 (Federal $ 1,762,539 and States $ 1,034,714 ) and $ 3,174,799 (Federal $ 1,975,734 and States $ 1,199,065 ) as of June 30, 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 had no material unrecognized tax benefits at June 30, 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.

7 unchanged sentences

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.

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.

2 unchanged sentences

Purchase from a related party – consisted of the following:

For the three months ended March 31,

For the Three Months Ended June 30,

For the Six Months Ended June 30,

Name of Related Party

3 unchanged sentences

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:

Foremost Home Inc.

An entity under common control

The ending balance of such transactions as of June 30, 2023 and December 31, 2022, are listed of the following:

Prepayments — related parties

4 unchanged sentences

Foremost Worldwide Co., Ltd

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

Rizhao Foremost Woodwork Manufacturing Co., Ltd.

Shared Service and Miscellaneous expenses – related party

1 unchanged sentence

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.

Total amounts provided to FHI under the FHI Share Services Agreement for the three and six months ended June 30, 2023 and 2022 were $ 232,367 , $ 476,981 and $ 661,976 , $ 913,799 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.

Total amounts provided from Foremost Worldwide under the Worldwide Shared Services Agreement for the three and six months ended June 30, 2023 and 2022 were $ 75,898 , $ 145,242 and $ 20,709 , $ 68,604 , respectively.

Other Payables — related parties

3 unchanged sentences

Miscellaneous

Focal Capital Holding Limited

An entity under common control

Miscellaneous

Foremost Home Inc.

14 unchanged sentences

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.

As of June 30, 2023, a cash balance of USD 403,829 was maintained at financial institutions in the United States, of which USD 105,143 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 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.

As of June 30, 2023, a cash balance of CAD 4,982,395 (USD 3,679,488 ) was maintained at financial institutions in Canada, of which CAD 4,882,395 (USD 3,605,638 ) 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 96,000 ) if the bank with which an individual/a company holds its eligible deposit fails.

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.

As of June 30, 2023, an aggregated cash balance of USD 2,461,554 was maintained at financial institutions in Taiwan, of which USD 2,115,395 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.

As of June 30, 2023, cash balance of EUR 135,850 (USD 148,259 ) was maintained at financial institutions in Europe, of which EUR 35,850 (USD 39,124 ) was subject to credit risk.

As of June 30, 2023, cash balance of US 126,958 was maintained at financial institutions in Kingdom of Cambodia, of which USD 126,958 was subject to credit risk.

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

3 unchanged sentences

Customer concentration risk

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.

For the three months ended June 30, 2023, three customers accounted for 18.3 %, 16.7 % and 11.4 % of the Company’s total revenues, respectively.

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.

No other customer accounted for more than 10% of the Company’s revenue for the three months ended June 30, 2023 and 2022.

For the six months ended June 30, 2023, two customers accounted for 19.1 % and 17.7 % of the Company’s total revenues, respectively.

For the six months ended June 30, 2022, two customers accounted for 23.3 % and 20.0 % of the Company’s total revenues, respectively.

No other customer accounted for more than 10% of the Company’s revenue for the six months ended June 30, 2023 and 2022.

As of June 30, 2023, three customers accounted for 19.0 %, 17.6 % and 14.8 % 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.

No other customer accounted for more than 10% of the Company’s accounts receivable as of June 30, 2023 and December 31, 2022.

Vendor concentration risk

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.

For the three months ended June 30, 2023, Tangshan Huida Ceramic Group Co., Ltd (“Huida”) accounted for 55.2 % of the Company’s total purchases, and another vendor accounted 10.2 % of the Company’s total purchases.

For the three months ended June 30, 2022, Huida accounted for 58.8 % 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, 2023 and 2022

For the six months ended June 30, 2023, Huida accounted for 53.4 % of the Company’s total purchases, and another vendor accounted 13.3 % of the Company’s total purchases.

For the six months ended June 30, 2022, Huida accounted for 52.2 % of the Company’s total purchases.

No other supplier accounted for more than 10% of the Company’s total purchases for the six ended June 30, 2023 and 2022

As of June 30, 2023, Huida accounted for 78.1 % 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 accounted for more than 10% of the Company’s accounts payable as of March 31, 2023 and December 31, 2022.

No other supplier accounted for more than 10% of the Company’s accounts payable as of June 30, 2023 and December 31, 2022.

Note 14 — Commitments and contingencies

4 unchanged sentences

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.

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.

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