What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-26 compared with 2023-04-17 · 173 added, 161 removed, 725 unchanged (32% of the section changed)

18 unchanged sentences

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

We conducted our audit s in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

8 unchanged sentences

We have served as the Company’s auditor since 2020.

Philadelphia, PA

April 17, 2023

March 26, 2024

FGI INDUSTRIES LTD.

28 unchanged sentences

SHAREHOLDERS’ EQUITY

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

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

Ordinary shares ($ 0.0001 par value, 200,000,000 shares authorized, 9,547,607 and 9,500,000 shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively)

Additional paid-in capital

Parent’s net investment

Retained earnings

1 unchanged sentence

( 1,111,499 )

( 1,396,319 )

FGI Industries Ltd.

shareholders’ equity

Non-controlling interests

Total shareholders’ equity

11 unchanged sentences

INCOME FROM OPERATIONS

OTHER (EXPENSES) INCOME

OTHER INCOME (EXPENSES)

Interest income

Interest expense

Other income, net

Total other (expenses) income, net

Other (expenses) income, net

Total other expenses, net

INCOME BEFORE INCOME TAXES

1 unchanged sentence

Total provision for income taxes

OTHER COMPREHENSIVE (LOSS) INCOME

net loss attributable to non-controlling shareholders

Net income attributable to FGI Industries Ltd.

OTHER COMPREHENSIVE INCOME (LOSS)

Foreign currency translation adjustment

COMPREHENSIVE INCOME

comprehensive loss attributable to non-controlling shareholders

Comprehensive income attributable to FGI Industries Ltd.

WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES

4 unchanged sentences

EQUITY (PARENT’S NET INVESTMENT)

Industries Ltd.

Preference Shares

1 unchanged sentence

Comprehensive

Shareholders'

Balance at January 1, 2022

Net distribution to Parent

( 1,946,973 )

Foreign currency translation adjustments

Balance at December 31, 2021

Consummation of separation transaction upon completion of reorganization

6 unchanged sentences

( 1,396,319 )

Share-based compensation

Foreign currency translation adjustments

Balance at December 31, 2023

( 1,111,499 )

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

3 unchanged sentences

CASH FLOWS FROM OPERATING ACTIVITIES

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

Adjustments to reconcile net income to net cash provided by operating activities

Depreciation and amortization

Share-based compensation

Provision for doubtful accounts

(Reversal of) provision of defective return

Provision for credit losses

Reversal of defective return

( 1,696,263 )

Foreign exchange transaction loss

Gain on Forgiveness of PPP loan

( 1,680,900 )

Deferred income taxes

Loss on disposal of property and equipment

Deferred income tax expense

Changes in operating assets and liabilities

1 unchanged sentence

( 1,126,770 )

( 12,955,619 )

Prepayments and other current assets

( 2,029,670 )

( 1,041,458 )

Prepayments and other receivables – related parties

( 1,956,634 )

Other noncurrent assets

( 2,523,826 )

Other noncurrent assets

( 1,187,589 )

8 unchanged sentences

( 1,932,078 )

Net cash provided by (used in) operating activities

( 3,217,321 )

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

2 unchanged sentences

( 1,064,223 )

Purchase of intangible assets

Net cash used in investing activities

1 unchanged sentence

CASH FLOWS FROM FINANCING ACTIVITIES

Net (repayments of) proceeds from revolving credit facility

Net repayments of revolving credit facility

( 2,835,876 )

( 4,862,228 )

Net proceeds from issuance of ordinary shares in IPO

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

Net changes in parent company investment

Net cash (used in) provided by financing activities

( 2,835,876 )

Net cash provided by financing activities

EFFECT OF EXCHANGE RATE FLUCTUATION ON CASH

NET CHANGES IN CASH

( 2,290,187 )

CASH, BEGINNING OF YEAR

5 unchanged sentences

NON-CASH INVESTING AND FINANCING ACTIVITIES

Net changes in parent company investment

( 1,946,973 )

New addition on Right-of-use assets

( 7,204,742 )

( 2,585,925 )

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

26 unchanged sentences

FGI Canada Ltd.

● A Canada company

100 % owned by FGI

● A Canadian company

100 % owned by FGI Industries, Inc.

● Incorporated on October 17, 1997

Industries, Inc.

● Sales and distribution in Canada

1 unchanged sentence

● A German company

100 % owned by FGI Europe

100 % owned by FGI Europe Investment Limited

● Incorporated on January 24, 2013

Investment Limited

● Sales and distribution in Germany

1 unchanged sentence

● A PRC limited liability company

100 % owned by FGI

100 % owned by FGI International, Limited

● Incorporated on August 19, 2021

International, Limited

● Sourcing and product development

1 unchanged sentence

● An UK company

100 % owned by FGI Europe

100 % owned by FGI Europe Investment Limited

● Incorporated on December 10, 2021

Investment Limited

● Sales and distribution in UK

FGI Austrlasia Pty Ltd

● An Australia company

FGI Australasia Pty Ltd

● An Australian company

100 % owned by FGI

2 unchanged sentences

Covered Bridge Cabinetry Manufacturing Co., Ltd

● A Cambodia company

● A Cambodian company

100 % owned by FGI

1 unchanged sentence

● Manufacturing in Cambodia

Isla Porter LLC

● A New Jersey company

60 % owned by FGI Industries, Inc.

● Formed on June 2, 2023

● Sales and distribution in the United States

Reorganization

9 unchanged sentences

As such, the accompanying 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 consolidated financial statements are presented as if the Company had been in existence and the Reorganization had been in effect during the years ended December 31, 2022 and 2021.

The consolidated financial statements are presented as if the Company had been in existence and the Reorganization had been in effect for the entirely of each of the periods presented.

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 years presented before the completion of the Reorganization.

5 unchanged sentences

The FHI Shared Services Agreement will have an initial term of one year and will renew automatically unless cancelled by either party upon the giving of at least 60 days in advance of the expiration of the then-current term.

On January 14, 2022 the Company entered into a shared services agreement (the “Worldwide Shared Services Agreement”) with Foremost Worldwide Co., Ltd.

On January 1, 2023 the Company entered into an amended and restated shared services agreement (the “Worldwide Shared Services Agreement”) with Foremost Worldwide Co., Ltd.

(“Foremost Worldwide”) pursuant to which Foremost Worldwide will provide FGI Industries with general and administrative services, information technology system services and human resources services, in Taiwan.

2 unchanged sentences

Only those assets and liabilities that are specifically identifiable to the K&B Business are included in the Company’s consolidated balance sheets.

research and development expenses, and which were incurred by FGI but related to the K&B Business prior to the Reorganization.

The Company’s statements of income and comprehensive income consists all the revenues, costs and expenses of the K&B Business, including allocations to the selling and distribution expenses, general and administrative expenses, and research and development expenses, and which were incurred by FGI but related to the K&B Business prior to the Reorganization.

All revenues and cost of revenues attributable to selling of kitchen and bath products were allocated to the Company.

6 unchanged sentences

( 27,735,284 )

( 41,169,282 )

Selling and distribution expenses

( 3,883,799 )

( 4,709,220 )

General and administrative expenses

( 1,395,573 )

Research and development expenses

4 unchanged sentences

( 22,853,884 )

( 103,421,236 )

Selling and distribution expenses

( 1,436,696 )

General and administrative expenses

( 1,236,061 )

Research and development expenses

9 unchanged sentences

standalone reporting obligation, which will be due by April 30, 2024.

If not meet this compliance, East West Bank has right to call the line of credit, please refer to Note 8 – Short-term loans.

If the condition is not met, East West Bank has the right to close the line of credit, please refer to Note 8 – Short-term loans.

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:

14 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.

6 unchanged sentences

The results of operations and the cash flows denominated in foreign currencies are translated at the average rates of exchange during the reporting period.

Because cash flows are translated

based on the average translation rates, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets.

Because cash flows are translated based on the average translation rates, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets.

Translation adjustments arising from the use of different exchange rates from period to period are included as a separate component of accumulated other comprehensive income included in the consolidated statements of changes in shareholders’ equity.

1 unchanged sentence

For the purpose of presenting the financial statements of subsidiaries using the Renminbi (“RMB”) as functional currency, the Company’s assets and liabilities are expressed in U.S.

Dollars at the exchange rate on the balance sheet date, which was 6.9653 and 6.3762 as of December 31, 2022 and 2021, respectively;

Dollars at the exchange rate on the balance sheet

date, which was 7.1006 and 6.9653 as of December 31, 2023 and 2022, respectively;

shareholders’ equity accounts are translated at historical rates, and income and expense items are translated at the average exchange rate during the period, which was 7.0945 and 6.7164 the years ended December 31, 2023 and 2022, respectively.

5 unchanged sentences

shareholders’ equity accounts are translated at historical rates, and income and expense items are translated at the average exchange rate during the period, which was 0.9527 and 0.9474 for the years ended December 31, 2023 and 2022, respectively.

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.

Cash consists of cash on hand and demand 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 December 31, 2023 and 2022.

1 unchanged sentence

Accounts 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 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 is adequate and adjusts the allowance when necessary.

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

Inventories, net

22 unchanged sentences

Impairment for long-lived assets

Long-lived assets, including property and equipment and intangible assets with definite useful lives, are reviewed for impairment whenever material events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable.

The Company assesses the recoverability of an asset based on the undiscounted future cash flows the asset is expected to generate and recognize an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset.

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

The Company assesses the recoverability of an asset group based on the undiscounted future cash flows the asset group is expected to generate and recognize an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset group plus net proceeds expected from disposition of the asset group, if any, are less than the carrying value of the asset group.

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

5 unchanged sentences

The Company reviews its ROU assets as material events occur or circumstances change that would indicate the carrying amount of the ROU assets are not recoverable and exceed their fair values.

If the carrying amount of an ROU asset is not recoverable from its undiscounted cash flows,

then the Company would recognize an impairment loss for the difference between the carrying amount and the current fair value.

If the carrying amount of an ROU asset is not recoverable from its undiscounted cash flows, then the Company would recognize an impairment loss for the difference between the carrying amount and the current fair value.

As most of the Company’s leases do not provide an implicit rate, the Company generally uses its incremental borrowing rate on the commencement date of the lease as the discount rate in determining the present value of future lease payments.

The Company determines the incremental borrowing rate for each lease by using the incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date.

The Company 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.

28 unchanged sentences

For the Years Ended

Revenues/ total asset by geographic location

Revenues/ total assets by geographic location

United States

10 unchanged sentences

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

The Company recognized share-based compensation $ 417,978 and $ 383,572 in 2023 and 2022, respectively.

11 unchanged sentences

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.

Non-controlling interests

The Company’s non-controlling interests represent the minority shareholders’ ownership interests related to the Company’s subsidiary, including 40 % in Isla Porter LLC.

The non-controlling interests are presented in the consolidated balance sheets, separate from equity attributable to the shareholders of the Company.

Non-controlling interests in the results of operations of the Company are presented on the consolidated statements of income and comprehensive income as allocations of the net income or loss for the period between non-controlling shareholders and the shareholders of the Company.

Comprehensive income

12 unchanged sentences

For the Year Ended

Net income attributable to FGI Industries Ltd.

9 unchanged sentences

Recently issued accounting pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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.

In June 2016, the FASB issued ASU 2016 13, “Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” amending the accounting for the impairment of financial instruments, including trade receivables.

Under previous guidance, credit losses were recognized when the applicable losses had a probable likelihood of occurring and this assessment was based on past events and current conditions.

4 unchanged sentences

In November 2019, the FASB issued ASU 2019 10, which finalized the delay of such effective date to fiscal years beginning after December 15, 2023 for private and all other companies, including emerging growth companies.

As an emerging growth company, the Company adopted this guidance from January 1, 2023 , and the adoption of the standard will not have an impact on our financial position or results of operation.

As an emerging growth company, the Company adopted this guidance from January 1, 2023 , and the adoption of the standard did not have an impact on its financial position or results of operation.

The Company considers the applicability and impact of all ASUs.

ASUs not listed above were assessed and determined not to be applicable.

Note 3 — Accounts receivable, net

3 unchanged sentences

Accounts receivable

Allowance for doubtful accounts

Allowance for credit losses

Accrued defective return and discount

( 1,595,838 )

( 3,292,101 )

Accounts receivable, net

Movements of allowance for doubtful accounts are as follows:

Movements of allowance for credit losses are as follows:

For the Year Ended

For the Years Ended

For the Year Ended

Beginning balance

2 unchanged sentences

For the Year Ended

For the Years Ended

For the Year Ended

Beginning balance

(Provision) Addition, net

( 1,696,263 )

9 unchanged sentences

For the Year Ended

For the Years Ended

For the Year Ended

Beginning balance

Addition (Reversal)

Ending balance

14 unchanged sentences

( 3,687,511 )

* The building is not yet in service.

Depreciation expenses for the years ended December 31, 2023 and 2022 amounted to $ 200,764 and $ 175,979 , respectively, which were included in general and administrative expenses on the consolidated statements of income and comprehensive income.

3 unchanged sentences

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

For the years ended December 31, 2022, and 2021, the total lease expenses booked and paid was $ 1,715,232 and $ 1,611,948 respectively.

For the years ended December 31, 2023, and 2022, the total lease expenses was $ 2,581,542 and $ 1,239,353 respectively.

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

23 unchanged sentences

On November 25, 2022, the line was extended, to a new maturity date of December 21, 2024 , and the current amount of maximum borrowings is $ 18,000,000 .

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

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, 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 December 31, 2021, FGI Industries was not in compliance with this financial covenant;

however, East West Bank provided a waiver for such non-compliance.

As of December 31, 2022, FGI Industries was in compliance with this financial covenant.

As of the date of report, FGI Industries is in process of obtaining extension for Corporate Borrower Annual Statements, a U.S.

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 December 31, 2023 and 2022, FGI Industries was in compliance with these financial covenants.

As of the date of the report, FGI Industries is in the process of obtaining extension for Corporate Borrower Annual Statements, a U.S.

standalone reporting obligation, which will be due by April 30, 202 4 .

If not meet this compliance, East West Bank has right to call the line of credit.

If the condition is not met , East West Bank has the right to close the line of credit .

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) .

1 unchanged sentence

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

The outstanding balance of such loan was $ 9,795,052 and $ 14,657,280 as of December 31, 2022 and December 31, 2021, respectively.

The outstanding balance of such loan was $ 6,959,175 and $ 9,795,052 as of December 31, 2023 and 2022, respectively.

HSBC Canada Bank Loan / Foreign Exchange Facility

2 unchanged sentences

The revolving line of credit with HSBC Canada allows for borrowing up to CAD $ 7,500,000 (US $ 5,662,087 as of the December 31, 2023 exchange rate).

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

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.

3 unchanged sentences

As of December 31, 2023 and 2022, FGI Canada Ltd.

was in compliance with this financial covenant.

was in compliance with these financial covenants.

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

1 unchanged sentence

FGI Canada Ltd.

also has a revolving foreign exchange facility 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 the Foreign Exchange Facility Limit.

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 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 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, FGI Industries 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 consolidated statements of income and comprehensive income.

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

3 unchanged sentences

After the Reorganization and the IPO, the Company’s authorized share capital is $ 21,000 divided into (i) 200,000,000 Ordinary Shares of par value of $ 0.0001 each, and (ii) 10,000,000 Preference Shares of par value of $ 0.0001 each;

7,000,000 ordinary shares were issued and outstanding prior to the IPO and 9,500,000 ordinary shares were issued and outstanding subsequent to the IPO.

9,500,000 ordinary shares were issued and outstanding accordingly.

The Company believes it is appropriate to reflect these share issuances as nominal share issuances on a retroactive basis similar to a stock split pursuant to ASC 260.

3 unchanged sentences

The Shares and Warrants were issued separately in the offering, and may be transferred separately immediately upon issuance.

The Units were sold at a price of $ 6.00 per Unit.

The Units were

sold at a price of $ 6.00 per Unit.

The Warrants included in the units were immediately exercisable following the consummation of the offering, have an exercise price equal to the initial public offering price, and expire five years from the date of issuance.

37 unchanged sentences

2021 Equity Plan and Employee Stock Purchase Plan

On October 7, 2021, the Board of directors adopted 2021 Equity Plan (the “2021 Equity Plan”).

On October 7, 2021, the Board of directors adopted 2021 Equity Incentive Plan (the “2021 Equity Plan”).

The 2021 Equity Plan permits the grant of equity and equity-based incentive awards, including non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock awards, stock unit awards and other stock-based awards.

2 unchanged sentences

Employee Stock Purchase Plan (the “ESPP”).

The ESPP was approved by the Company’s stockholders on October 7, 2021, and became effective on the effective date of the Company’s consummation of the initial public offering of its ordinary shares.

The ESPP was approved by the Company’s stockholders 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.

2 unchanged sentences

The Equity Plan became effective on September 28, 2021.

The maximum number of shares that may be sold by the Company under the ESPP will be 500,000 shares, plus an automatic annual increase in such amount on January 1 of each year beginning in 2022 and ending on (and including) January 1, 2031 equal to the lesser of:

(i) 1 % of the total number of shares outstanding as of December 31 of the immediately preceding calendar year, or (ii) 300,000 shares, unless the Board determines that any annual increase shall be for a number of shares that is less than the number of shares determined by the application of clauses (i) and (ii).

If the purchases by all participants in an offering period would otherwise cause the aggregate number of shares to be sold under the ESPP to exceed the then-applicable available shares under the ESPP, each participant in that offering period shall be allocated a ratable portion of the remaining number of shares which may be sold under the ESPP.

The Company believes the options or awards granted contain an explicit service condition and/or performance condition.

5 unchanged sentences

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

As of December 31, 2022, no granted shares under this plan are vested.

As of December 31, 2023, 61,250 of these granted RSUs were 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.

1 unchanged sentence

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.

As of December 31, 2022, 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.

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 December 31, 2022, no granted shares under this plan are vested.

As of December 31, 2023, 4,861 of these granted RSUs were vested.

All these awards are subjected to performance conditions through December 31, 2024.

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

As of December 31, 2023, the performance condition was not met, and none of the RSUs were 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 December 31, 2022, no granted shares under this plan are vested.

As of December 31, 2023, none of these RSUs were 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 through December 31, 2025.

The grant date 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 an additional 48,317 RSUs under these awards with a grant date fair value of $ 100,500 .

As of December 31 , 2023, none of these RSUs were 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 through December 31, 2025.

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

As of December 31, 2023, none of these RSUs were vested.

The following is a summary of the restricted share granted:

Restricted shares grants

Non-vested as of January 1, 2022

Non-vested as of December 31, 2022

7 unchanged sentences

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 .

The grant date 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 December 31, 2022, no granted options under this plan are vested.

As of December 31, 2023, 57,602 of these granted options were 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 .

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

The grant date 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 December 31, 2022, no granted options under this plan are vested.

On May 11, 2022, the board of directors approved the issuance of 184,627 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.

As of December 31, 2023, 54,095 of these granted options were 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 number of options granted were subject to performance conditions through December 31, 2022, which could have resulted in additional options awarded if maximum performance metrics were met.

In addition to the performance criteria, the options 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 December 31, 2022, no granted options under this plan are vested.

The options paid out at threshold under the performance metrics, and no additional options were awarded.

As of December 31, 2023, 84,382 of these granted options were 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 grant date 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 through December 31, 2023, which could result in additional options awarded if maximum performance metrics are met.

In addition to the performance criteria, the 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.

As of December 31, 2023, all options were canceled and none of them were vested.

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

9 unchanged sentences

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

For the years ended

Risk-free interest rate

4 unchanged sentences

Treasury yield curve in effect at the time of grant for a term consistent with the contractual term of the awards.

Expected volatility is estimated based on the volatility of ordinary shares or common stock of several comparable companies in the same

Expected volatility is estimated based on the volatility of ordinary shares or common stock of several comparable companies in the same industry.

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

1 unchanged sentence

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

For the years ended

For the Year Ended

Selling and distribution expenses

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Permanent items

Foreign dividends and earnings taxable in the United States

Deferred adjustments

Effective tax rate

3 unchanged sentences

Deferred tax assets

Allowance for doubtful accounts

Allowance for credit losses

Other reserve

14 unchanged sentences

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

The Company had no material unrecognized tax benefits at December 31, 2022, 2021 or 2020.

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.

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

The Company has no t 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

5 unchanged sentences

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.

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.

1 unchanged sentence

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.

There was no material impact of the IR Act on the Company ’ s consolidated financial statements.

Note 12 — Related party transactions and balances

2 unchanged sentences

Name of Related Party

Rizhao Foremost Woodwork Manufacturing Co., Ltd.

An entity under common control

Focal Capital Holding Limited

2 unchanged sentences

An entity under common control

FURNITURE (CAMBODIA) CO., LTD

An entity under common control

Foremost Australasia Pty Ltd

An entity under common control

RIZHAO FOREMOST WOODWORK MANUFACTURING CO.

An entity under common control

For the Year Ended December 31,

5 unchanged sentences

Name of Related Party

Rizhao Foremost Woodwork Manufacturing Co., Ltd.

Focal Capital Holding Limited

Rizhao Foremost Woodwork Manufacturing Co., Ltd.

Accounts Payables — related parties

2 unchanged sentences

Shared Service and Miscellaneous expenses – related party

On January 14, 2022, FGI Industries, Inc.

entered into a Shared Services Agreement with FHI, total amounts provided to FHI under the FHI Share Services Agreement in 2022 were $ 1,122,996 , which was booked under selling and distribution expenses and administration expenses.

On January 14, 2022, FGI entered into a Worldwide Shared Services Agreement with Foremost Worldwide, total amounts provided from Foremost Worldwide under the Worldwide Shared Services Agreement in 2022 were $ 126,745 .

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 years ended December 31, 2023 and 2022 were $ 821,864 and $ 1,122,996 , 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 years ended December 31, 2023 and 2022 were $ 304,103 and $ 126,745 , respectively.

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

Name of Related Party

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

An entity under common control

Miscellaneous

Foremost Home Inc.

18 unchanged sentences

The European Banking Authority pays compensation up to a limit of EUR 0.1 million (approximately USD 0.1 million) if the bank with which an individual/a company holds its eligible deposit fails.

As of December 31, 2022, cash balance of EUR 0.1 million (USD 0.1 million) was maintained at financial institutions in Europe, of which EUR 5,965 (USD 6,388 ) was subject to credit risk.

As of December 31, 2023, cash balance of EUR 0.2 million (USD 0.2 million) was maintained at financial institutions in Europe, of which EUR 0.1 million (USD 0.1 million) was subject to credit risk.

As of December 31, 2023, cash balance of USD 28,871 was maintained at financial institutions in Kingdom of Cambodia, of which USD 28,871 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 year ended December 31, 2022, two customers accounted for 22.2 % and 22.13 % of the Company’s total revenues, respectively.

For the year ended December 31, 2023, three customers accounted for 17.6 %, 16.4 % and 10.4 % of the Company’s total revenues, respectively.

For the year ended December 31, 2022, two customers accounted for 22.2 % and 22.1 % of the Company’s total revenues, respectively.

No other customer accounts for more than 10% of the Company’s revenue for the years ended December 31, 2023 and 2022.

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

As of December 31, 2023, four customers accounted for 27.2 %, 19.0 %, 12.0 % and 11.1 % 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 accounts for more than 10% of the Company’s accounts receivable as of December 31, 2023, and 2022.

14 unchanged sentences

The Company’s chief operating decision maker has been identified as the chief executive officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company and hence the Company has only one reportable segment.

Note 16 — Subsequent events

On January 25, 2024 , FGI International entered into an omnibus credit line (the “Credit Line”) with CTBC Bank Co., Ltd.

Under the Credit Line, FGI International may borrow, from time to time, up to $ 2.3 million, with borrowings limited to 90 % of FGI International’s export “open account” trade receivables.

The Credit Line will bear interest at a rate of “Base Rate”, which is based on monthly or quarterly Taipei Interbank Offered in effect from time to time, plus 120 base points and handling fees, unless otherwise agreed to by the parties.

The Credit Line is unsecured and is fully guaranteed by the Company and partially guaranteed by Liang Chou Chen.

On March 20, 2024, the board of directors approved the issuance of 529,635 share options under the 2021 Equity Plan with an exercise price per share of $ 1.50 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 grant date fair value for these options was $ 447,000 determined using the Black-Scholes simplified method at the per option fair value of $ 0.84 .

All these options are subjected to performance conditions through December 31, 2024, which could result in additional options awarded if maximum performance metrics are met.

In addition to the performance criteria, the 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 March 20, 2024, the board of directors approved the issuance of 411,548 RSUs under the 2021 Equity Plan to the Company’s directors, officers and employees.

All these awards are subjected to performance conditions through December 31, 2026.

The grant date fair value for these RSUs was $ 617,322 based on the closing share price of $ 1.50 as at March 2 2 , 202 4 .

If the maximum performance is met, the Company will issue an additional 205,774 RSUs under these awards with a grant date fair value of $ 308,661 .

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

1 unchanged sentence

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-K

Item 8. Financial Statements and Supplementary Data