FGI Industries Ltd. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA FGI INDUSTRIES LTD. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ​ ​ Report of Independent Registered Public Accounting Firm (PCAOB ID: 688 ) 50 Consolidated Balance Sheets as of December 31, 2023 and 2022 51 Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2023 and 2022 52 Consolidated Statements of Changes in Shareholders’ Equity (Parent’s Net Investment) for the years ended December 31, 2023 and 2022 53 Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 54 Notes to Consolidated Financial Statements 55 ​ ​ ​ ​ 49 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ​ To the Shareholders and Board of Directors of FGI Industries Ltd. ​ Opinion on the Financial Statements ​ We have audited the accompanying consolidated balance sheets of FGI Industries Ltd. (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of income and comprehensive income, changes in shareholders’ equity (parent’s net investment) and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. ​ Basis for Opinion ​ These financial statements are the responsibility of the Company's management. 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 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. ​ Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. ​ ​ /s/ Marcum llp ​ Marcum llp ​ We have served as the Company’s auditor since 2020. ​ Melville, NY March 26, 2024 ​ 50 Table of Contents FGI INDUSTRIES LTD. CONSOLIDATED BALANCE SHEETS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ As of ​ ​ December 31, 2023 ​ December 31, 2022 ​ USD USD ​ ​ ​ ​ ASSETS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ CURRENT ASSETS ​ ​ Cash ​ $ 7,777,241 ​ $ 10,067,428 Accounts receivable, net ​ 16,195,543 ​ 14,295,859 Inventories, net ​ 9,923,852 ​ 13,292,591 Prepayments and other current assets ​ 4,617,751 ​ 2,588,081 Prepayments and other receivables – related parties ​ 7,600,283 ​ 5,643,649 Total current assets ​ 46,114,670 ​ 45,887,608 ​ ​ ​ ​ ​ ​ ​ PROPERTY AND EQUIPMENT, NET ​ 1,910,491 ​ 1,269,971 ​ ​ ​ ​ ​ ​ ​ OTHER ASSETS ​ ​ Intangible assets ​ 102,227 ​ — Operating lease right-of-use assets, net ​ 15,203,576 ​ 9,815,572 Deferred tax assets, net ​ 1,168,833 ​ 1,265,539 Other noncurrent assets ​ 1,245,133 ​ 2,128,240 Total other assets ​ 17,719,769 ​ 13,209,351 Total assets ​ $ 65,744,930 ​ $ 60,366,930 ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND SHAREHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​ ​ ​ ​ CURRENT LIABILITIES ​ ​ Short-term loans ​ $ 6,959,175 ​ $ 9,795,052 Accounts payable ​ 14,524,607 ​ 14,718,969 Accounts payable – related parties ​ ​ 735,308 ​ ​ 104,442 Income tax payable ​ 189,119 ​ 33,350 Operating lease liabilities – current ​ 1,595,998 ​ 1,543,031 Accrued expenses and other current liabilities ​ 4,039,499 ​ 3,580,359 Total current liabilities ​ 28,043,706 ​ 29,775,203 ​ ​ ​ ​ ​ ​ ​ OTHER LIABILITIES ​ ​ Operating lease liabilities – noncurrent ​ 13,674,452 ​ 7,847,317 Total liabilities ​ 41,718,158 ​ 37,622,520 ​ ​ ​ ​ ​ ​ ​ COMMITMENTS AND CONTINGENCIES ​ ​ ​ ​ ​ ​ ​ ​ ​ SHAREHOLDERS’ EQUITY ​ ​ 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) ​ 955 ​ 950 Additional paid-in capital ​ ​ 20,877,832 ​ ​ 20,459,859 Retained earnings ​ ​ 4,413,524 ​ ​ 3,679,920 Accumulated other comprehensive loss ​ ​ ( 1,111,499 ) ​ ​ ( 1,396,319 ) FGI Industries Ltd. shareholders’ equity ​ 24,180,812 ​ 22,744,410 Non-controlling interests ​ ​ ( 154,040 ) ​ ​ — Total shareholders’ equity ​ ​ 24,026,772 ​ ​ 22,744,410 Total liabilities and shareholders’ equity ​ $ 65,744,930 ​ $ 60,366,930 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 51 Table of Contents FGI INDUSTRIES LTD. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Years Ended ​ ​ December 31, ​ ​ 2023 ​ 2022 ​ ​ ​ USD ​ USD REVENUES ​ $ 117,241,604 ​ $ 161,718,543 ​ ​ ​ ​ ​ ​ ​ COST OF REVENUES ​ 85,164,322 ​ 130,209,538 ​ ​ ​ ​ ​ ​ ​ GROSS PROFIT ​ 32,077,282 ​ 31,509,005 ​ ​ ​ ​ ​ ​ ​ OPERATING EXPENSES ​ ​ ​ ​ Selling and distribution ​ ​ 19,971,912 ​ ​ 17,533,028 General and administrative ​ 8,424,083 ​ 7,830,023 Research and development ​ 1,376,844 ​ 1,053,976 Total operating expenses ​ 29,772,839 ​ 26,417,027 ​ ​ ​ ​ ​ ​ ​ INCOME FROM OPERATIONS ​ 2,304,443 ​ 5,091,978 ​ ​ ​ ​ ​ ​ ​ OTHER INCOME (EXPENSES) ​ ​ ​ ​ Interest income ​ ​ 10,543 ​ ​ 3,159 Interest expense ​ ( 749,729 ) ​ ( 600,798 ) Other (expenses) income, net ​ ( 177,469 ) ​ 46,211 Total other expenses, net ​ ( 916,655 ) ​ ( 551,428 ) ​ ​ ​ ​ ​ ​ ​ INCOME BEFORE INCOME TAXES ​ 1,387,788 ​ 4,540,550 ​ ​ ​ ​ ​ ​ ​ PROVISION FOR INCOME TAXES ​ ​ ​ ​ Current ​ ​ 711,518 ​ ​ 658,694 Deferred ​ 96,706 ​ 201,936 Total provision for income taxes ​ 808,224 ​ 860,630 ​ ​ ​ ​ ​ ​ ​ NET INCOME ​ 579,564 ​ 3,679,920 Less: net loss attributable to non-controlling shareholders ​ ​ ( 154,040 ) ​ ​ — Net income attributable to FGI Industries Ltd. Shareholders ​ ​ 733,604 ​ ​ 3,679,920 ​ ​ ​ ​ ​ ​ ​ OTHER COMPREHENSIVE INCOME (LOSS) ​ ​ ​ ​ Foreign currency translation adjustment ​ ​ 284,820 ​ ​ ( 741,587 ) ​ ​ ​ ​ ​ ​ ​ COMPREHENSIVE INCOME ​ ​ 864,384 ​ ​ 2,938,333 Less: comprehensive loss attributable to non-controlling shareholders ​ ​ ( 154,040 ) ​ ​ — Comprehensive income attributable to FGI Industries Ltd. Shareholders ​ $ 1,018,424 ​ $ 2,938,333 ​ ​ ​ ​ ​ ​ ​ WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES ​ ​ ​ ​ Basic ​ ​ 9,525,434 ​ ​ 9,335,616 Diluted ​ ​ 9,821,112 ​ ​ 9,341,921 ​ ​ ​ ​ ​ ​ ​ EARNINGS PER SHARE ​ ​ ​ ​ ​ ​ Basic ​ $ 0.08 ​ $ 0.39 Diluted ​ $ 0.07 ​ $ 0.39 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 52 Table of Contents FGI INDUSTRIES LTD. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (PARENT’S NET INVESTMENT) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated Total FGI ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional Parent's ​ ​ Other ​ Industries Ltd. ​ Non- ​ Total ​ ​ Preference Shares ​ Ordinary Shares ​ Paid-in ​ Net ​ Retained ​ Comprehensive ​ Shareholders' ​ Controlling ​ Shareholders' ​ Shares ​ Amount Shares ​ Amount Capital Investment Earnings Loss Equity Interests Equity Balance at January 1, 2022 ​ ​ — ​ $ — ​ ​ 7,000,000 ​ $ 700 ​ $ — ​ $ 7,549,010 ​ $ — ​ $ — ​ $ 7,549,710 ​ $ — ​ $ 7,549,710 Consummation of separation transaction upon completion of reorganization ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 8,203,742 ​ ​ ( 7,549,010 ) ​ ​ — ​ ​ ( 654,732 ) ​ ​ — ​ ​ — ​ ​ — Share-based compensation ​ ​ — ​ — ​ ​ — ​ — ​ 383,572 ​ — ​ — ​ — ​ 383,572 ​ — ​ 383,572 Issuance of ordinary shares upon Initial Public Offering (“IPO”), net ​ ​ — ​ ​ — ​ ​ 2,500,000 ​ ​ 250 ​ ​ 12,370,550 ​ ​ — ​ ​ — ​ ​ — ​ ​ 12,370,800 ​ ​ — ​ ​ 12,370,800 Net income ​ ​ — ​ — ​ ​ — ​ — ​ — ​ — ​ 3,679,920 ​ — ​ 3,679,920 ​ — ​ 3,679,920 Long-lived assets acquisition from affiliate ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 498,005 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 498,005 ) ​ — ​ ( 498,005 ) Foreign currency translation adjustments ​ ​ — ​ — ​ ​ — ​ — ​ — ​ — ​ — ​ ( 741,587 ) ​ ( 741,587 ) ​ — ​ ( 741,587 ) Balance at December 31, 2022 ​ ​ — ​ $ — ​ ​ 9,500,000 ​ $ 950 ​ $ 20,459,859 ​ $ — ​ $ 3,679,920 ​ $ ( 1,396,319 ) ​ $ 22,744,410 ​ $ — ​ $ 22,744,410 Share-based compensation ​ ​ — ​ — ​ ​ 47,607 ​ 5 ​ 417,973 ​ — ​ — ​ — ​ 417,978 ​ — ​ 417,978 Net income ​ ​ — ​ — ​ ​ — ​ — ​ — ​ — ​ 733,604 ​ — ​ 733,604 ​ ( 154,040 ) ​ 579,564 Foreign currency translation adjustments ​ ​ — ​ — ​ ​ — ​ — ​ — ​ — ​ — ​ 284,820 ​ 284,820 ​ — ​ 284,820 Balance at December 31, 2023 ​ ​ — ​ $ — ​ ​ 9,547,607 ​ $ 955 ​ $ 20,877,832 ​ $ — ​ $ 4,413,524 ​ $ ( 1,111,499 ) ​ $ 24,180,812 ​ $ ( 154,040 ) ​ $ 24,026,772 ​ ​ ​ ​ ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 53 Table of Contents FGI INDUSTRIES LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Years Ended December 31, ​ ​ 2023 ​ 2022 ​ USD USD CASH FLOWS FROM OPERATING ACTIVITIES ​ ​ ​ ​ ​ ​ Net income ​ $ 579,564 ​ $ 3,679,920 Adjustments to reconcile net income to net cash provided by operating activities ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ ​ 2,017,502 ​ ​ 218,662 Share-based compensation ​ 417,978 ​ 383,572 Provision for credit losses ​ 78,640 ​ 261,381 Reversal of defective return ​ ​ ( 851,554 ) ​ ​ ( 1,696,263 ) Foreign exchange transaction loss ​ 185,317 ​ 7,417 Deferred income tax expense ​ 96,707 ​ 213,050 Changes in operating assets and liabilities ​ ​ ​ ​ Accounts receivable ​ ​ ( 1,126,770 ) ​ ​ 13,489,673 Inventories ​ 3,368,740 ​ 7,971,370 Prepayments and other current assets ​ ( 2,029,670 ) ​ ( 1,041,458 ) Prepayments and other receivables – related parties ​ ( 1,956,634 ) ​ ( 2,523,826 ) Other noncurrent assets ​ 883,108 ​ 860,770 Income taxes ​ 155,769 ​ ( 1,187,589 ) Right-of-use assets ​ — ​ 858,322 Accounts payable ​ ( 194,362 ) ​ ( 17,290,882 ) Accounts payable-related parties ​ 630,866 ​ 104,442 Operating lease liabilities ​ ( 1,324,641 ) ​ ( 1,396,218 ) Accrued expenses and other current liabilities ​ 459,139 ​ ( 1,932,078 ) Net cash provided by operating activities ​ 1,389,699 ​ 980,265 ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM INVESTING ACTIVITIES ​ ​ Proceeds from disposal of property and equipment ​ — ​ 400 Purchase of property and equipment ​ ( 840,387 ) ​ ( 1,064,223 ) Purchase of intangible assets ​ ​ ( 102,227 ) ​ ​ — Net cash used in investing activities ​ ( 942,614 ) ​ ( 1,063,823 ) ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM FINANCING ACTIVITIES ​ ​ Net repayments of revolving credit facility ​ ( 2,835,876 ) ​ ( 4,862,228 ) Net proceeds from issuance of ordinary shares in IPO ​ — ​ 12,370,800 Excess payment over carrying value on long-lived assets acquisition from common-control affiliate ​ ​ — ​ ​ ( 498,005 ) Net cash (used in) provided by financing activities ​ ( 2,835,876 ) ​ 7,010,567 ​ ​ ​ ​ ​ ​ ​ EFFECT OF EXCHANGE RATE FLUCTUATION ON CASH ​ 98,604 ​ ( 743,477 ) ​ ​ ​ ​ ​ ​ ​ NET CHANGES IN CASH ​ ( 2,290,187 ) ​ 6,183,532 CASH, BEGINNING OF YEAR ​ 10,067,428 ​ 3,883,896 CASH, END OF YEAR ​ $ 7,777,241 ​ $ 10,067,428 ​ ​ ​ ​ ​ ​ ​ SUPPLEMENTAL CASH FLOW INFORMATION ​ ​ ​ ​ Cash paid during the period for interest ​ ​ ( 749,646 ) ​ ​ ( 600,043 ) Cash paid during the period for income taxes ​ ( 552,163 ) ​ ( 1,835,823 ) ​ ​ ​ ​ ​ ​ ​ NON-CASH INVESTING AND FINANCING ACTIVITIES ​ ​ 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. ​ ​ 54 Table of Contents FGI INDUSTRIES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ Note 1 — Nature of business and organization FGI Industries Ltd. (“FGI” or the “Company”) is a holding company organized on May 26, 2021, under the laws of the Cayman Islands. The Company has no substantive operations other than holding all of the outstanding equity of its operating subsidiaries as described below. The Company is a supplier of global kitchen and bath products and currently focuses on the following categories: sanitaryware (primarily toilets, sinks, pedestals and toilet seats), bath furniture (vanities, mirrors and cabinets), shower systems, customer kitchen cabinetry and other accessory items. These products are sold primarily for repair and remodeling (“R&R”) activity and, to a lesser extent, new home or commercial construction. The Company sells its products through numerous partners, including mass retail centers, wholesale and commercial distributors, online retailers and independent dealers and distributors. The accompanying consolidated financial statements reflect the activities of FGI and each of the following entities, in each case, as contemplated after the Reorganization, as described below: ​ ​ ​ ​ ​ ​ Name Background Ownership FGI Industries, Inc. ● A New Jersey corporation 100 % owned by FGI (formerly named Foremost Groups, Inc.) ​ ● Incorporated on January 5, 1988 ​ ​ ​ ​ ● Sales and distribution in the United States ​ ​ FGI Europe Investment Limited ​ ● A British Virgin Islands holding company ​ 100 % owned by FGI ​ ​ ● Incorporated on January 1, 2007 ​ ​ FGI International, Limited ​ ● A Hong Kong company ​ 100 % owned by FGI ​ ​ ● Incorporated on June 2, 2021 ​ ​ ​ ​ ● Sales, sourcing and product development ​ ​ FGI Canada Ltd. ​ ● A Canadian company ​ 100 % owned by FGI Industries, Inc. ​ ​ ● Incorporated on October 17, 1997 ​ ​ ​ ​ ● Sales and distribution in Canada ​ ​ FGI Germany GmbH & Co. KG ​ ● A German company ​ 100 % owned by FGI Europe Investment Limited ​ ​ ● Incorporated on January 24, 2013 ​ ​ ​ ​ ● Sales and distribution in Germany ​ ​ FGI China, Ltd. ​ ● A PRC limited liability company ​ 100 % owned by FGI International, Limited ​ ​ ● Incorporated on August 19, 2021 ​ ​ ​ ​ ● Sourcing and product development ​ ​ FGI United Kingdom Ltd ​ ● An UK company ​ 100 % owned by FGI Europe Investment Limited ​ ​ ● Incorporated on December 10, 2021 ​ ​ ​ ​ ● Sales and distribution in UK ​ ​ FGI Australasia Pty Ltd ​ ● An Australian company ​ 100 % owned by FGI ​ ​ ● Incorporated on September 8, 2022 ​ ​ ​ ​ ● Sales and distribution in Australia ​ ​ Covered Bridge Cabinetry Manufacturing Co., Ltd ​ ● A Cambodian company ​ 100 % owned by FGI ​ ​ ● Incorporated on April 21, 2022 ​ ​ ​ ​ ● 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 On January 27, 2022, the following reorganization steps were collectively completed: (i) the incorporation of FGI International, Limited (“FGI International”) and FGI China, Ltd., (ii) FGI Industries, Inc. (formerly Foremost Groups, Inc.) (“FGI Industries”), which operates the kitchen and bath (“K&B”) sales and distribution business in the United States and, through its wholly-owned Canadian subsidiary, Foremost International Limited, in Canada, distributed 100 % of the outstanding shares of stock of Foremost Kingbetter Food Equipment Inc. (“FKB”), which operates a separate furniture line of business, to Foremost Groups Ltd. (“Foremost”), FGI Industries’ sole shareholder; 55 Table of Contents (iii) Foremost contributed the FKB shares to Foremost Home Inc. (“FHI”), a newly-formed wholly-owned subsidiary of Foremost; and (iv) Foremost contributed 100 % of the outstanding shares of stock of each of FGI Industries, FGI Europe Investment Limited (“FGI Europe”), which, directly and, through its wholly-owned German subsidiary, FGI Germany GmbH & Co., operates the K&B sales and distribution business in Europe, and FGI International, which, directly and through its wholly-owned Chinese subsidiary, FGI China, Ltd., operates the K&B sales and distribution business in the remainder of the world, K&B product development and sourcing of K&B products in China, to the Company (collectively, the “Reorganization”), such that, immediately following the Reorganization, (x) Foremost owns 100 % of the equity interests in each of the Company and FHI , (y) the Company owns 100 % of the equity interests in each of FGI Industries, FGI Europe and FGI International , which collectively, and through subsidiaries, operate the K&B business worldwide (the “K&B Business”), and (z) FHI owns 100 % of the equity interests in FKB. ​ Immediately before and as contemplated by the proposed Reorganization, each of the Companies, FGI Industries, FGI Europe and FGI International, and each of their respective subsidiaries was and is ultimately controlled by Foremost. 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 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. On January 14, 2022, FGI Industries, a wholly-owned subsidiary of the Company, entered into a shared services agreement (the “FHI Shared Services Agreement”) with Foremost Home Industries, Inc., a newly-formed wholly-owned subsidiary of Foremost (“FHI”). Pursuant to the FHI Shared Services Agreement, FGI Industries provides FHI with general and administrative services, information technology systems services and human resources services, as well as warehouse space services and supply chain services in the United States. Under the FHI Shared Services Agreement, FHI will reimburse any reasonable and documented out-of-pocket fees incurred by FGI Industries as well as pay a service fee for each service. For warehouse services, FHI will pay FGI Industries a $ 500,000 annual fee as well as a fee equal to 4 % of gross product sales of all products stored in such warehouses. For all other services provided, FHI will pay a service fee equal to the total costs incurred by FGI Industries for such service generally divided by the number of FHI employees relative to FGI Industries employees. The FHI Shared Services Agreement will have an initial term of one year and will renew automatically unless cancelled by either party upon the giving of at least 60 days in advance of the expiration of the then-current term. On January 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. The terms of the Worldwide Services Agreement as between the service provider and recipient are substantially identical to those of the FHI Shared Services Agreement, including calculation of service fees and termination provisions, with Foremost Worldwide providing services and FGI Industries paying Foremost Worldwide for such services. The assets and liabilities have been stated at historical carrying amounts. Only those assets and liabilities that are specifically identifiable to the K&B Business are included in the Company’s consolidated balance sheets. 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. Operating expenses were allocated to the Company based on employees and activities that are involved in the K&B Business. Any expenses that were not directly attributable to any specific business were allocated to the Company based on the proportion of the number of employees of the K&B Business to the total number of employees of both the K&B Business and FHI. 56 Table of Contents The following table sets forth the revenues, cost of revenues and operating expenses that were irrelevant to the K&B Business allocated from FGI Industries to Foremost Home, Inc. for years ended December 31, 2023 and 2022, respectively. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Years Ended ​ ​ December 31, ​ ​ 2023 ​ 2022 ​ USD ​ USD Revenues ​ $ 991,919 ​ $ 34,470,623 Cost of revenues ​ ( 768,065 ) ​ ( 27,735,284 ) Gross profit ​ 223,854 ​ 6,735,339 Selling and distribution expenses ​ 45,979 ​ ( 3,883,799 ) General and administrative expenses ​ — ​ ( 322,825 ) Research and development expenses ​ — ​ ( 219,346 ) Income from operations ​ $ 269,833 ​ $ 2,309,369 ​ 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 years ended December 31, 2023 and 2022, respectively. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Years Ended ​ ​ December 31, ​ ​ 2023 ​ 2022 ​ USD ​ USD Revenues ​ $ — ​ $ 25,022,960 Cost of revenues ​ — ​ ( 22,853,884 ) Gross profit ​ — ​ 2,169,076 Selling and distribution expenses ​ — ​ ( 517,408 ) General and administrative expenses ​ — ​ ( 466,872 ) Research and development expenses ​ — ​ ( 27,315 ) Income from operations ​ $ — ​ $ 1,157,481 ​ Income tax liability is calculated based on a separate return basis as if the K&B Business had filed separate tax returns before the completion of the Reorganization. Immediately following the Reorganization, the K&B Business began to file separate tax returns and report taxation based on the actual tax return of each legal entity. Management believes the basis and amounts of these allocations are reasonable. While the expenses allocated to the Company for these items are not necessarily indicative of the expenses that would have been incurred if the Company had been a separate, stand-alone entity, the Company does not believe that there is any significant difference between the nature and amounts of these allocated expenses and the expenses that would have been incurred if the Company had been a separate, stand-alone entity. Note 2 — Summary of significant accounting policies Liquidity ​ Historically, the Company finances its operations through internally generated cash, short-term loans and payables. As of December 31, 2023, the Company had approximately $ 7.8 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 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, 2024. 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: 57 Table of Contents ​ · other available sources of financing from other banks and financial institutions; · sales of additional securities to the public or other investors; and · financial support from the Company’s shareholders. Based on the above considerations, the Company’s management is of the opinion that it has sufficient funds to meet the Company’s working capital requirements and debt obligations as they become due over the next twelve (12) months. Basis of presentation The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commissions (the “SEC”), regarding financial reporting, and include all normal and recurring adjustments that management of the Company considers necessary for a fair presentation of its financial position and operation results. Principles of consolidation The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant intercompany transactions and balances between the Company and its subsidiaries are eliminated upon consolidation. Subsidiaries are those entities which the Company, directly or indirectly, controls more than one half of the voting power; or has the power to govern the financial and operating policies, to appoint or remove the majority of the members of the board of directors, or to cast a majority of votes at a meeting of directors. Use of estimates and assumptions The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in the Company’s consolidated financial statements include the useful lives of property and equipment, allowance for 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. Foreign currency translation and transaction The functional currencies of the Company and its subsidiaries are the local currency of the country in which the subsidiaries operate, except for FGI International which is incorporated in Hong Kong while adopting the United States Dollar (“U.S. Dollar” or “USD”) as its functional currency. The reporting currency of the Company is the U.S. Dollar. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect at that date. The equity denominated in the functional currencies is translated at the historical rates of exchange at the time of capital contributions. The results of operations and the cash flows denominated in foreign currencies are translated at the average rates of exchange during the reporting period. Because cash flows are translated based on the average translation rates, amounts related to assets and liabilities reported on the 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. Transaction gains and losses arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency in the consolidated statements of income and comprehensive income. 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 58 Table of Contents 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. For the purpose of presenting the financial statements of the subsidiary using the Canadian Dollar (“CAD”) 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 1.3246 and 1.3541 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 1.3541 and 1.2945 for the years ended December 31, 2023 and 2022, respectively. For the purpose of presenting the financial statements of the subsidiary using the Euro (“EUR”) 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 0.9059 and 0.9338 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 0.9527 and 0.9474 for the years ended December 31, 2023 and 2022, respectively. Cash 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. Accounts receivable, net Accounts receivables include trade accounts due from customers. 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 Inventories are stated at the lower of cost and net realizable value. Cost consists of purchase price and related shipping and handling expenses, and is determined using the weighted average cost method, based on individual products. The methods of determining inventory costs are used consistently from year to year. A provision for slow-moving items is calculated based on historical experience. Management reviews this provision annually to assess whether, based on economic conditions, it is adequate. Prepayments Prepayments are cash deposited or advanced to suppliers for the purchase of goods or services that have not been received or provided. This amount is refundable and bears no interest. Prepayments and deposits are classified as either current or non-current based on the terms of the respective agreements. These advances are unsecured and are reviewed periodically to determine whether their carrying value has become impaired. 59 Table of Contents Property and equipment, net Property and equipment are stated at cost net of accumulated depreciation and impairment. Depreciation is provided over the estimated useful lives of the assets using the straight-line method from the time the assets are placed in service. Estimated useful lives are as follows: ​ ​ ​ ​ ​ Useful Life Building ​ 20 years Leasehold Improvements ​ Lesser of lease term and expected useful life Machinery and equipment 3 – 5 years Furniture and fixtures 3 – 5 years Vehicles 5 years Molds 3 – 5 years ​ Intangible assets, net The Company’s intangible assets with definite useful lives primarily consist of software acquired for internal use. The Company amortizes its intangible assets with definite useful lives over their estimated useful lives and reviews these assets for impairment. The Company typically amortizes its intangible assets with definite useful lives on a straight-line basis over the estimated useful lives of ten years . Impairment for long-lived assets Long-lived assets, including property and equipment and intangible assets with definite useful lives, are reviewed for impairment whenever material events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset group may not be recoverable. 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. Leases The Company determines if an arrangement is a lease at inception. Operating leases are included in right-of-use assets (“ROU assets”), operating lease liabilities — current and operating lease liabilities — noncurrent on the consolidated balance sheets. ROU assets represent our right to use an underlying asset for the duration of the lease term while lease liabilities represent the Company’s obligation to make lease payments in exchange for the right to use an underlying asset. ROU assets and lease liabilities are measured based on the present value of fixed lease payments over the lease term at the commencement date. The ROU asset also includes any lease payments made prior to the commencement date and initial direct costs incurred, and is reduced by any lease incentives received. The Company reviews its ROU assets as material events occur or circumstances change that would indicate the carrying amount of the ROU assets are not recoverable and exceed their fair values. If the carrying amount of an ROU asset is not recoverable from its undiscounted cash flows, then the Company would recognize an impairment loss for the difference between the carrying amount and the current fair value. As most of the Company’s leases do not provide an implicit rate, the Company generally uses its incremental borrowing rate on the commencement date of the lease as the discount rate in determining the present value of future lease payments. The Company determines the incremental borrowing rate for each lease by using the incremental 60 Table of Contents borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The Company’s lease terms may include options to extend or terminate the lease when there are relevant economic incentives present that make it reasonably certain that the Company will exercise that option. The Company accounts for any non- lease components separately from lease components. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Fair Value Measurement The accounting standard regarding fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company. The accounting standards define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement and enhance disclosure requirements for fair value measures. The three levels of the fair value hierarchy are as follows: ● Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. ● Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. ● Level 3 inputs to the valuation methodology are unobservable and significant to the fair value. Financial instruments included in current assets and current liabilities are reported in the consolidated balance sheets at face value or cost, which approximate fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rates of interest. Revenue recognition The Company recognized revenue in accordance with Accounting Standards Codification (“ASC”) 606 – Revenue from Contracts with Customer. Revenues are recognized when control of the promised goods or performance obligations for services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for the goods or services. The Company generates revenues from sales of kitchen and bath products, and recognizes revenue as control of its products is transferred to its customers, which is generally at the time of shipment or upon delivery based on the contractual terms with the Company’s customers. The Company’s customers’ payment terms generally range from 15 to 60 days of fulfilling its performance obligations and recognizing revenue. The Company provides customer programs and incentive offerings, including co-operative marketing arrangements and volume-based incentives. These customer programs and incentives are considered variable consideration. The Company includes in revenue variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the variable consideration is resolved. This determination is made based upon known customer program and incentive offerings at the time of sale, and expected sales volume forecasts as it relates to the Company’s volume- based incentives. This determination is updated on a monthly basis. Certain product sales include a right of return. The Company estimates future product returns at the time of sale based on historical experience and records a corresponding reduction in accounts receivable. The Company records receivables related to revenue when it has an unconditional right to invoice and receive payment. 61 Table of Contents The Company’s disaggregated revenues are summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Years Ended ​ ​ December 31, ​ ​ 2023 ​ 2022 ​ USD USD Revenues by product line ​ ​ ​ Sanitaryware ​ $ 75,551,117 ​ $ 104,806,342 Bath Furniture ​ 14,770,376 ​ 29,519,728 Shower System ​ ​ 19,997,197 ​ ​ 21,586,888 Others ​ 6,922,914 ​ 5,805,585 Total ​ $ 117,241,604 ​ $ 161,718,543 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenues ​ Total assets ​ ​ For the Years Ended ​ As of ​ ​ December 31, ​ December 31, ​ ​ 2023 ​ 2022 ​ 2023 ​ 2022 ​ USD USD ​ USD USD ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenues/ total assets by geographic location ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ United States ​ $ 74,572,336 ​ $ 103,255,662 ​ $ 38,401,665 ​ $ 38,364,005 Canada ​ 31,092,989 ​ 41,025,288 ​ 17,850,709 ​ 14,584,946 Europe ​ ​ 11,477,070 ​ ​ 16,844,015 ​ ​ 528,068 ​ ​ 343,946 Rest of World ​ 99,209 ​ 593,578 ​ 8,964,488 ​ 7,074,033 Total ​ $ 117,241,604 ​ $ 161,718,543 ​ $ 65,744,930 ​ $ 60,366,930 ​ Shipping and Handling Costs Shipping and handling costs are expensed as incurred and are included in selling and distribution expenses on the accompanying statement of operations. For the years ended December 31 2023 and 2022, shipping and handling expense was $ 711,640 and $ 842,827 , respectively. Share-based compensation The Company accounts for share-based compensation in accordance with ASC 718, Compensation — Stock Compensation (“ASC 718”). In accordance with ASC 718, the Company determines whether an award should be classified and accounted for as a liability award or an equity award. All the Company’s share- based awards were classified as equity awards and are recognized in the consolidated financial statements based on their grant date fair values. The Company has elected to recognize share-based compensation using the straight-line method for all share-based awards granted over the requisite service period, which is the vesting period. The Company accounts for forfeitures as they occur in accordance with ASC 718. The Company, with the assistance of an independent third-party valuation firm, determines the fair value of the stock options granted to employees. The Black Scholes Model is applied in determining the estimated fair value of the options granted to employees and non-employees. The Company recognized share-based compensation $ 417,978 and $ 383,572 in 2023 and 2022, respectively. Income Taxes Deferred taxes are recognized based on the future tax consequences of the differences between the carrying value of assets and liabilities and their respective tax basis. The future realization of deferred tax assets depends on the existence of sufficient taxable income in future periods. Possible sources of taxable income include taxable income in carryback periods, the future reversal of existing taxable temporary differences recorded as a deferred tax liability, tax-planning strategies that generate future income or gains in excess of anticipated losses in the carryforward period and projected future taxable income. 62 Table of Contents If, based upon all available evidence, both positive and negative, it is more likely than not (i.e., more than 50 percent likely) that such deferred tax assets will not be realized, a valuation allowance is recorded. Significant weight is given to positive and negative evidence that is objectively verifiable. A company’s three- year cumulative loss position is significant negative evidence in considering whether deferred tax assets are realizable, and the accounting guidance restricts the amount of reliance we can place on projected taxable income to support the recovery of the deferred tax assets. The current accounting guidance allows the recognition of only those income tax positions that have a greater than 50 percent likelihood of being sustained upon examination by the taxing authorities. The Company believes that there is an increased potential for volatility in its effective tax rate because this threshold allows for changes in the income tax environment and, to a greater extent, the inherent complexities of income tax law in a substantial number of jurisdictions, which may affect the computation of its liability for uncertain tax positions. The Company records interest and penalties on our uncertain tax positions in income tax expense. As of December 31, 2023, the tax years ended December 31, 2020 through December 31, 2023 for FGI Industries, Inc. remain open for statutory examination by tax authority. We record the tax effects of Foreign Derived Intangible Income (FDII) and Global Intangible Low-Taxed Income (GILTI) related to our foreign operations as a component of income tax expense in the period in which the tax arises. 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 Comprehensive income consists of two components: net income and other comprehensive income. Other comprehensive income refers to revenue, expenses, gains and losses that under US GAAP are recorded as an element of equity but are excluded from net income. Other comprehensive income consists of a foreign currency translation adjustment resulting from the Company not using the U.S. Dollar as its functional currencies. Earnings per share The Company computes earnings per share (“EPS”) in accordance with ASC 260 – Earnings per Share (“ASC 260”). ASC 260 requires companies to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average ordinary shares outstanding for the period. Diluted EPS presents the dilutive effect on a per share basis of the potential ordinary shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential ordinary shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. 63 Table of Contents The following table sets forth the computation of basic and diluted earnings per share for the year ended December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended ​ ​ December 31, ​ ​ 2023 ​ 2022 ​ USD USD Numerator: ​ ​ ​ ​ ​ ​ Net income attributable to FGI Industries Ltd. Shareholders ​ $ 733,604 ​ $ 3,679,920 ​ ​ ​ ​ ​ ​ ​ Denominator: ​ ​ ​ ​ Weighted-average number of ordinary shares outstanding — basic ​ ​ 9,525,434 ​ ​ 9,335,616 Potentially dilutive shares from outstanding options/warrants ​ ​ 295,678 ​ ​ 6,305 Weighted-average number of ordinary shares outstanding — diluted ​ ​ 9,821,112 ​ ​ 9,341,921 ​ ​ ​ ​ ​ ​ ​ Earnings per share — basic ​ $ 0.08 ​ $ 0.39 Earnings per share — diluted ​ $ 0.07 ​ $ 0.39 ​ Potential ordinary shares that have an anti-dilutive effect are excluded from the calculation of diluted EPS. 355,999 and 2,925,000 number of options and warrants, respectively, were excluded from diluted EPS because their effects were anti-dilutive. ​ Segment reporting ASC 280, “Segment Reporting”, establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements for detailing the Company’s business segments. Recently issued accounting pronouncements In June 2016, the FASB issued ASU 2016 13, “Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” amending the accounting for the impairment of financial instruments, including trade receivables. Under previous guidance, credit losses were recognized when the applicable losses had a probable likelihood of occurring and this assessment was based on past events and current conditions. The amended current guidance eliminates the “probable” threshold and requires an entity to use a broader range of information, including forecast information when estimating expected credit losses. Generally, this should result in a more timely recognition of credit losses. This guidance became effective for interim and annual periods beginning after December 15, 2019 with early adoption permitted for interim and annual periods beginning after December 15, 2018. The requirements of the amended guidance should be applied using a modified retrospective approach except for debt securities, which require a prospective transition approach. In November 2019, the FASB issued ASU 2019 10, which finalized the delay of such effective date to fiscal years beginning after December 15, 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 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. 64 Table of Contents Note 3 — Accounts receivable, net Accounts receivable, net consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ As of ​ ​ December 31, 2023 ​ December 31, 2022 ​ USD USD ​ ​ ​ ​ ​ Accounts receivable ​ $ 17,184,706 ​ $ 16,330,540 Allowance for credit losses ​ ( 244,879 ) ​ ( 438,843 ) Accrued defective return and discount ​ ( 744,284 ) ​ ( 1,595,838 ) Accounts receivable, net ​ $ 16,195,543 ​ $ 14,295,859 ​ Movements of allowance for credit losses are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended ​ For the Year Ended ​ ​ December 31, ​ December 31, ​ ​ 2023 ​ 2022 ​ USD USD ​ ​ ​ ​ ​ Beginning balance ​ $ 438,843 ​ $ 177,462 Addition ​ 78,640 ​ 261,381 Write-off ​ ​ ( 272,604 ) ​ ​ — Ending balance ​ $ 244,879 ​ $ 438,843 ​ Movements of accrued defective return and discount accounts are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended ​ For the Year Ended ​ ​ December 31, ​ December 31, ​ ​ 2023 ​ 2022 ​ USD USD ​ ​ ​ ​ ​ Beginning balance ​ $ 1,595,838 ​ $ 3,292,101 Provision ​ ( 851,554 ) ​ ( 1,696,263 ) Ending balance ​ $ 744,284 ​ $ 1,595,838 ​ Note 4 — Inventories, net Inventories, net consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ As of ​ ​ December 31, 2023 ​ December 31, 2022 ​ USD USD ​ ​ ​ ​ ​ Finished product ​ $ 10,565,858 ​ $ 13,956,121 Reserves for slow-moving inventories ​ ( 642,006 ) ​ ( 663,530 ) Inventories, net ​ $ 9,923,852 ​ $ 13,292,591 ​ 65 Table of Contents Movements of inventory reserves are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended ​ For the Year Ended ​ ​ December 31, ​ December 31, ​ ​ 2023 ​ 2022 ​ USD USD ​ ​ ​ ​ ​ Beginning balance ​ $ 663,530 ​ $ 544,158 Addition ​ ( 21,524 ) ​ 119,372 Ending balance ​ $ 642,006 ​ $ 663,530 ​ Note 5 — Prepayments and other assets Prepayments and other assets consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ As of ​ ​ December 31, 2023 ​ December 31, 2022 ​ USD USD ​ ​ ​ ​ ​ Prepayments ​ $ 3,953,340 ​ $ 2,026,259 Others ​ 664,411 ​ 561,822 Total prepayments and other assets ​ $ 4,617,751 ​ $ 2,588,081 ​ Note 6 — Property and equipment, net Property and equipment, net consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ As of ​ December 31, 2023 December 31, 2022 ​ USD ​ USD ​ ​ ​ ​ ​ Building ​ $ 946,066 ​ $ 946,066 Leasehold Improvements ​ ​ 1,695,361 ​ ​ 1,074,206 Machinery and equipment ​ 1,613,439 ​ 2,246,610 Furniture and fixtures ​ 259,449 ​ 516,310 Vehicles ​ 147,912 ​ 147,913 Molds ​ 26,377 ​ 26,377 Subtotal ​ 4,688,604 ​ 4,957,482 Less: accumulated depreciation ​ ( 2,778,113 ) ​ ( 3,687,511 ) Total ​ $ 1,910,491 ​ $ 1,269,971 ​ 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. Note 7 — Leases The Company has operating leases primarily for corporate offices, warehouses and showrooms. As of December 31, 2023, the Company’s leases have remaining lease terms up to 9.4 years. 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 . 66 Table of Contents 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ As of ​ ​ December 31, 2023 ​ December 31, 2022 ​ USD USD ​ ​ ​ ​ ​ Operating lease right-of-use assets ​ $ 15,203,576 ​ $ 9,815,572 Operating lease liabilities – current ​ $ 1,595,998 ​ $ 1,543,031 Operating lease liabilities – noncurrent ​ 13,674,452 ​ 7,847,317 Total operating lease liabilities ​ $ 15,270,450 ​ $ 9,390,348 ​ Information relating to the lease term and discount rate are as follows: ​ ​ ​ ​ ​ ​ ​ ​ As of As of ​ December 31, 2023 December 31, 2022 ​ ​ ​ ​ ​ ​ Weighted-average remaining lease term ​ Operating leases 9.4 years 7.9 years ​ Weighted-average discount rate ​ Operating leases 5.7 % ​ 4.7 % ​ ​ As of December 31, 2023, the maturities of operating lease liabilities were as follows: ​ ​ ​ ​ ​ For the 12 months ending December 31, ​ ​ 2024 ​ $ 2,428,743 2025 ​ 2,605,218 2026 ​ 2,669,007 2027 ​ 2,658,505 2028 ​ 2,267,101 Thereafter ​ 7,108,025 Total lease payments ​ 19,736,599 Less: imputed interest ​ ( 4,466,149 ) Present value of lease liabilities ​ $ 15,270,450 ​ Note 8 — Short-term loans East West Bank loan FGI Industries, Inc. (formerly named Foremost Groups, Inc.) (“FGI Industries”) has a line of credit agreement (the “Credit Agreement”) with East West Bank, which is collateralized by all assets of FGI Industries and personally guaranteed by Liang Chou Chen, who holds approximately 49.89 % of the voting control of Foremost. 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 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 on consolidated basis; and (c) a total debt to tangible net worth ratio (defined as total liabilities divided by tangible net 67 Table of Contents 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 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) . The interest rate as of December 31, 2023 and December 31, 2022 was 8.25 % 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 $ 6,959,175 and $ 9,795,052 as of December 31, 2023 and 2022, respectively. HSBC Canada Bank Loan / Foreign Exchange Facility FGI Canada Ltd. has a line of credit agreement with HSBC Canada (the “Canadian Revolver”). The revolving line of credit with HSBC Canada allows for borrowing up to CAD $ 7,500,000 (US $ 5,662,087 as of the December 31, 2023 exchange rate). This is an assets-based line of credit, the borrowing limit is calculated based on certain percentage of accounts receivable and inventory balances. Pursuant to the Canadian Revolver, FGI Canada Ltd. is required to maintain (a) a debt to tangible net worth ratio of no more than 3.00 to 1.00; and (b) a ratio of current assets to current liabilities of at least 1.25 to 1.00. The loan bears interest at a rate of Prime rate plus 0.50 %. As of December 31, 2023 and 2022, FGI Canada Ltd. was in compliance with these financial covenants. Borrowings under this line of credit amounts to $ 0 as of December 31, 2023 and 2022. The facility matures at the discretion of HSBC Canada upon 60 days notice. FGI Canada Ltd. also has a revolving foreign exchange facility with HSBC Canada of up to a permitted maximum of US $ 3,000,000 . The advances are available to purchase foreign exchange forward contacts from time to time up to six months , subject to an overall maximum aggregate USD Equivalent outstanding face value not exceeding $ 3,000,000 . Note 9 — Shareholders’ Equity FGI was incorporated in the Cayman Islands on May 26, 2021 in connection with the planned Reorganization, as described in Note 1. The Company was authorized to issue 50,000,000 ordinary shares with a par value of $ 0.001 per share. On January 27, 2022, the Company completed the Reorganization upon the consummation of the initial public offering (“IPO”). After the Reorganization and the IPO, the Company’s authorized share capital is $ 21,000 divided into (i) 200,000,000 Ordinary Shares of par value of $ 0.0001 each, and (ii) 10,000,000 Preference Shares of par value of $ 0.0001 each; 9,500,000 ordinary shares were issued and outstanding accordingly. The Company believes it is appropriate to reflect these share issuances as nominal share issuances on a retroactive basis similar to a stock split pursuant to ASC 260. The Company has retroactively adjusted all shares and per share data for all the periods presented. ​ Initial Public Offering On January 27, 2022 , the Company consummated its IPO of 2,500,000 units (“Units”), each consisting of (i) one ordinary share, $ 0.0001 par value per share, of the Company (the “Shares”), and (ii) one warrant of the Company (the “Warrants”) entitling the holder to purchase one Share at an exercise price of $ 6.00 per Share. The Shares and Warrants were issued separately in the offering, and may be transferred separately immediately upon issuance. The Units were 68 Table of Contents sold at a price of $ 6.00 per Unit. The Warrants included in the units were immediately exercisable following the consummation of the offering, have an exercise price equal to the initial public offering price, and expire five years from the date of issuance. For the purposes of covering any over-allotments in connection with the distribution and sale of the Units, the Company granted a 45 -day option to the underwriters to purchase (the “Over-allotment Option”), in the aggregate, up to 375,000 ordinary shares (the “Option Shares”) and Warrants to purchase up to 375,000 ordinary shares (the “Option Warrants”), which was exercisable in any combination of Option Shares and/or Option Warrants at the per Share purchase price and/or the per Warrant purchase price, respectively. On January 25, 2022, the underwriters exercised in full their option to purchase up to an additional 375,000 Warrants at the price of $ 0.01 per Option Warrant. Management determined that these Warrants meet the definition of a derivative under ASC 815-40; however, they fall under the scope exception, which states that contracts issued that both a) indexed to its own stock; and b) classified in shareholders' equity are not considered derivatives. The Warrants were recorded at their fair value on the date of grant as a component of equity. The aggregated fair value of these Warrants on January 27, 2022 was $ 4.16 million. The fair value has been estimated using the Black-Scholes pricing model with the following weighted-average assumptions: market value of underlying stock of $ 1.448 ; risk free rate of 1.66 %; expected term of five years; exercise price of the warrants of $ 6.00 ; volatility of 44.00 %; and expected future dividends of $ 0 . As of the date of this report, 2,875,000 warrants were issued and outstanding; and none of the warrants have been exercised. The gross proceeds from the IPO were approximately $ 15.00 million with net proceeds of approximately $ 12.4 million, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by the Company. Immediately following the consummation of the IPO, there were an aggregate of 9,500,000 ordinary shares issued and outstanding. As a result of the IPO, the ordinary shares and Warrants now trade on the Nasdaq Capital Market under the symbol “FGI” and “FGIWW,” respectively. Public Offering Warrants In connection with and upon the closing of the IPO on January 27, 2022, the Company issued warrants equal to 2 % of the Shares issued in the IPO, or 50,000 ordinary shares, to the representative of the underwriters for the IPO. The warrants carry a term of five years , shall not be exercisable for a period of 180 days from the closing of the IPO and shall be exercisable at a price equal to the IPO price per share. Management determined that these warrants meet the definition of a derivative under ASC 815-40; however, they fall under the scope exception, which states that contracts issued that are both a) indexed to its own stock; and b) classified in shareholders' equity are not considered derivatives. The warrants were recorded at their fair value on the date of grant as a component of equity. The aggregated fair value of these IPO warrants on January 27, 2022 was $ 0.1 million. The fair value has been estimated using the Black-Scholes pricing model with the following weighted-average assumptions: market value of underlying stock of $ 1.448 ; risk free rate of 1.66 %; expected term of five years; exercise price of the warrants of $ 6.00 ; volatility of 44.00 %; and expected future dividends of $ 0 . As of the date of this report, warrants exercisable for 50,000 shares were issued and outstanding; and none of the warrants have been exercised. ​ Note 10 — Share-based compensation 2021 Equity Plan and Employee Stock Purchase 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. 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. 69 Table of Contents On October 7, 2021, the Board approved the adoption of the FGI Industries Ltd. Employee Stock Purchase Plan (the “ESPP”). The ESPP was approved by the Company’s 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. The board set the maximum aggregate number of ordinary shares reserved and available pursuant to the 2021 Equity Plan at 1,500,000 shares. The number of ordinary shares reserved for issuance under our 2021 Equity Plan will automatically increase on the first day of each year, commencing on January 1, 2022 and ending on (and including) January 1, 2031, in an amount equal to the lesser of (a) 4.5 % of the total number of ordinary shares outstanding on December 31 of the immediately preceding calendar year, (b) 600,000 ordinary shares, or (c) such lesser number of shares as determined by the Board. The Equity Plan became effective on September 28, 2021. The Company believes the options or awards granted contain an explicit service condition and/or performance condition. Under ASC 718-10-55-76, if the vesting (or exercisability) of an award is based on the satisfaction of both a service and performance condition, the entity must initially determine which outcomes are probable and recognize the compensation cost over the longer of the explicit or implicit service period. Because an initial public offering generally is not considered to be probable until the initial public offering is effective, no compensation cost was recognized until the IPO occurred. Restricted shares units (“RSU”) On January 27, 2022, the board of directors approved the issuance of 183,750 restricted share units (“RSUs”) to certain officers and employees under the 2021 Equity Plan as compensation awards. The fair value for these RSUs was $ 716,625 based on the closing share price of $ 3.90 as at January 27, 2022. These awards will vest in three equal installments on each anniversary of the grant date over three years . As of 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. The fair value for these RSUs was $ 22,050 based on the closing share price of $ 2.52 as at April 13, 2022. These awards will vest as to one -third of the shares on the one-year anniversary of the grant date. The remaining shares will vest in a series of 24 successive equal monthly installments upon completion of each additional month of service, commencing on the grant date. As of December 31, 2023, 4,861 of these granted RSUs were 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 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. All these awards are subjected to performance conditions and will vest on December 31, 2024. The fair value for these RSUs was $ 36,000 based on the closing share price of $ 2.20 as at May 17, 2022. As of 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. 70 Table of Contents 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 ​ Shares Non-vested as of January 1, 2022 ​ — Granted ​ 296,474 Vested ​ — Canceled ​ — Non-vested as of December 31, 2022 ​ 296,474 Granted ​ 113,984 Vested ​ ( 66,111 ) Canceled ​ ( 87,611 ) Non-vested as of December 31, 2023 ​ 256,736 ​ The following is a summary of the status of restricted share at December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ Outstanding Restricted Share ​ ​ ​ ​ ​ Average Remaining ​ Fair Value per share ​ Number ​ Amortization Period (Years) $ 3.90 ​ 122,500 ​ 1.08 $ 2.52 ​ 3,889 ​ 1.25 $ 2.20 ​ 16,363 ​ 1.00 $ 2.08 ​ 96,635 ​ 2.25 $ 2.08 ​ 17,349 ​ 2.25 ​ ​ ​ 256,736 ​ ​ ​ Share options (“Options”) On March 24, 2022, the board of directors approved the issuance of 98,747 share options under the 2021 Equity Plan with an exercise price per share of $ 3.07 and a contractual life of 10 years to the Company’s executive officers and directors to incentivize their performance and continue to align their interests with the Company’s shareholders. The 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, 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 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, 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 71 Table of Contents 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 . 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 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. They are accounted for as equity awards and contain service or performance vesting conditions. The following table summarizes the Company’s employee share option activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted Weighted ​ ​ ​ ​ ​ Weighted ​ Average ​ Average ​ ​ ​ ​ ​ ​ Average ​ Grant date ​ Remaining ​ Average ​ ​ Number of ​ Exercise ​ Fair ​ Contractual ​ Intrinsic ​ ​ Options ​ Price ​ Value ​ Term ​ value ​ ​ ​ ​ USD ​ USD ​ Years ​ USD Share options outstanding at December 31, 2022 380,745 ​ 2.54 ​ 1.19 9.35 — Granted 158,976 2.08 1.26 9.75 — Forfeited ​ 183,722 ​ — ​ — ​ — ​ — Exercised ​ — ​ — ​ — ​ — ​ — Expired ​ — ​ — ​ — ​ — ​ — Share options outstanding at December 31, 2023 355,999 ​ 3.48 ​ 1.77 8.29 ​ — Vested and exercisable at December 31, 2023 196,079 2.57 1.21 8.29 — ​ For the years ended December 31, 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. ​ 72 Table of Contents Fair value of options The Company used the Black-Scholes simplified method for the year ended December 31, 2023. The assumptions used to value the options granted to employees were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the ​ For the ​ ​ Year Ended ​ Year Ended ​ ​ ​ December 31, ​ December 31, ​ ​ 2023 ​ 2022 ​ ​ ​ ​ ​ ​ Risk-free interest rate ​ 3.65 % ​ 2.49 - 2.92 % Expected volatility range ​ 63.36 % ​ 40.30 - 45.67 % Fair market value per ordinary share as at grant dates ​ $ 2.08 ​ $ 2.26 - 3.07 ​ ​ The risk-free interest rate for periods within the contractual life of the options is based on the U.S. Treasury yield curve in effect at the time of grant for a term consistent with the contractual term of the awards. Expected volatility is estimated based on the volatility of ordinary shares or common stock of several comparable companies in the same industry. The expected exercise multiple is based on management’s estimation, which the Company believes is representative of the future. The Company has elected to recognize share-based compensation expense using a straight-line method for all the employee equity awards granted with graded vesting based on service conditions, provided that the amount of compensation cost recognized at any date is at least equal to the portion of the grant date fair value of the equity awards that are vested at that date. The following table sets forth the amount of share-based compensation expense included in each of the relevant financial statement line items: ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended ​ December 31, ​ 2023 ​ 2022 ​ ​ USD ​ ​ USD Selling and distribution expenses $ 124,994 ​ $ 108,694 General and administrative expenses 292,984 ​ 274,878 Total share-based compensation expenses $ 417,978 ​ $ 383,572 ​ As of December 31, 2023, there was $ 637,956 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 1.46 years. 73 Table of Contents Note 11 — Income taxes The source of pre-tax income and the components of income tax expense are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Years Ended ​ ​ December 31, ​ 2023 2022 ​ ​ USD ​ USD Income components ​ ​ ​ ​ ​ ​ United States ​ $ ( 681,951 ) ​ $ 991,240 Outside United States ​ 2,069,739 ​ 3,549,310 Total pre-tax income ​ $ 1,387,788 ​ $ 4,540,550 Provision for income taxes ​ ​ Current ​ ​ Federal ​ $ 27,451 ​ $ 54,504 State ​ 13,555 ​ 9,923 Foreign ​ 670,512 ​ 594,267 ​ ​ 711,518 ​ 658,694 Deferred ​ ​ Federal ​ 24,622 ​ 146,843 State ​ 92,271 ​ 52,034 Foreign ​ ( 20,187 ) ​ 3,059 ​ ​ 96,706 ​ 201,936 Total provision for income taxes ​ $ 808,224 ​ $ 860,630 ​ Reconciliations between taxes at the U.S. federal income tax rate and taxes at the Company’s effective income tax rate on earnings before income taxes are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Years Ended ​ ​ December 31, ​ ​ 2023 ​ 2022 Federal statutory rate ​ 21.0 % ​ 21.0 % (Decrease) increase in tax rate resulting from: ​ ​ ​ State and local income taxes, net of federal benefit ​ ( 0.5 ) ​ 1.0 ​ Foreign operations ​ 15.1 ​ ( 3.3 ) ​ Permanent items ​ 3.1 ​ 0.1 ​ Deferred adjustments ​ 16.8 ​ — ​ Others ​ 2.7 ​ 0.1 ​ Effective tax rate ​ 58.2 % ​ 18.9 % 74 Table of Contents ​ The following is a summary of the components of the net deferred tax assets and liabilities recognized in the consolidated balance sheets: ​ ​ ​ ​ ​ ​ ​ ​ ​ As of As of ​ ​ December 31, 2023 ​ December 31, 2022 ​ ​ USD ​ USD ​ ​ ​ ​ ​ Deferred tax assets ​ ​ Allowance for credit losses ​ $ 58,476 ​ $ 109,713 Other reserve ​ 61,371 ​ 144,333 Accrued expenses ​ 143,823 ​ 126,992 Lease liability ​ 1,769,328 ​ 2,144,348 Charitable contributions ​ 8,181 ​ 8,565 Business interest limitation ​ 242,862 ​ 385,069 Net operating loss – federal ​ 310,099 ​ 414,905 Net operating loss – state ​ 27,337 ​ 75,863 Other ​ 66,063 ​ 46,005 Total deferred tax assets ​ 2,687,540 ​ 3,455,793 Less: valuation allowance ​ — ​ — Net deferred tax assets ​ 2,687,540 ​ 3,455,793 Deferred tax liabilities ​ ​ Fixed assets ​ 1,728,364 ​ 2,190,254 Intangibles ​ ( 209,657 ) ​ — Total deferred tax liabilities ​ 1,518,707 ​ 2,190,254 Deferred tax assets, net of deferred tax liabilities ​ $ 1,168,833 ​ $ 1,265,539 ​ The deferred tax assets related to the Company’s net operating losses of $ 1,836,077 (Federal $ 1,476,655 and States $ 359,422 ) and $ 3,174,799 (Federal $ 1,975,734 and States $ 1,199,065 ) as of December 31, 2023 and 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 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 On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. 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. ​ 75 Table of Contents Note 12 — Related party transactions and balances Sales/ Purchase from a related party – consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nature of For the Year Ended December 31, Name of Related Party ​ Relationship ​ transactions ​ 2023 ​ 2022 ​ ​ ​ ​ ​ ​ USD ​ USD Focal Capital Holding Limited ​ An entity under common control ​ Purchase ​ $ 7,003,714 ​ $ 9,850,083 Foremost Worldwide Co., Ltd An entity under common control Purchase ​ ​ 2,308,468 ​ ​ 5,812,457 F.P.Z. FURNITURE (CAMBODIA) CO., LTD ​ An entity under common control ​ Purchase ​ ​ 575,061 ​ ​ — Foremost Australasia Pty Ltd ​ An entity under common control Purchase ​ ​ 409,777 ​ ​ — RIZHAO FOREMOST WOODWORK MANUFACTURING CO. LTD ​ An entity under common control Purchase ​ ​ 16,026 ​ ​ — ​ ​ ​ ​ ​ ​ $ 10,313,046 ​ $ 15,662,540 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nature of ​ For the Year Ended December 31, Name of Related Party ​ Relationship ​ transactions ​ 2023 ​ 2022 ​ ​ ​ ​ ​ ​ USD ​ USD Foremost Worldwide Co., Ltd An entity under common control Sales ​ $ — ​ $ 593,578 ​ ​ ​ ​ ​ ​ $ — ​ $ 593,578 ​ The ending balance of such transactions as of December 31, 2023 and December 31, 2022, are listed of the following: Prepayments — related parties ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ As of ​ December 31, December 31, Name of Related Party ​ 2023 ​ 2022 ​ ​ USD ​ USD ​ ​ ​ ​ ​ Focal Capital Holding Limited ​ $ 6,658,498 ​ $ 3,806,873 Rizhao Foremost Woodwork Manufacturing Co., Ltd. ​ ​ 9,181 ​ ​ — ​ ​ $ 6,667,679 ​ $ 3,806,873 ​ Accounts Payables — related parties ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ As of ​ December 31, December 31, Name of Related Party ​ 2023 ​ 2022 ​ ​ USD ​ USD ​ ​ ​ ​ ​ Foremost Worldwide Co., Ltd $ 735,308 ​ $ 104,442 ​ ​ $ 735,308 ​ $ 104,442 ​ 76 Table of Contents Shared Service and Miscellaneous expenses – related party FGI Industries, Inc. is party to the FHI Shared Services Agreement with FHI. Total amounts provided to FHI under the FHI Share Services Agreement for the 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 : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ As of ​ ​ Nature of December 31, December 31, Name of Related Party ​ Relationship ​ transactions ​ 2023 ​ 2022 ​ ​ ​ ​ ​ ​ USD ​ USD ​ ​ ​ ​ ​ ​ ​ ​ ​ Foremost Home Inc. (“FHI”) ​ An entity under common control ​ Shared services and Miscellaneous expenses ​ ​ 1,183,612 ​ ​ 1,879,249 Foremost Worldwide Co., Ltd ​ An entity under common control ​ Shared services and Miscellaneous expenses ​ ​ ( 251,008 ) ​ ​ ( 42,473 ) ​ ​ ​ ​ ​ ​ $ 932,604 ​ $ 1,836,776 ​ Property purchase — related party In July 2022, FGI entered into a property purchase agreement with a common control related party to purchase a building and sub-lease the land use right with an initial term of 50 years in amount of $ 1,963,521 . As building and sub-lease the land use right were recorded at historic cost in amount of $ 946,066 and $ 519,450 , respectively. The excess payment over carrying value $ 498,005 was recorded under shareholders equity statement. ​ Loan guarantee by a related party Liang Chou Chen holds approximately 49.89 % of the voting control of Foremost, the Company’s majority shareholder and guarantor of the loan obtained by FGI Industries from East West Bank under the Credit Agreement. See Note 8 for details. Note 13 — Concentrations of risks Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash. The Canadian Deposit Insurance Corporation pays compensation up to a limit of CAD 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, 2023, cash balance of CAD 5.8 million (USD 4.4 million) was maintained at financial institutions in Canada, of which CAD 5.7 million (USD 4.3 million) was subject to credit risk. The Taiwan Central Deposit Insurance Corporation pays compensation up to a limit of NTD 3.0 million (approximately USD 0.1 million) if the bank with which an individual/a company holds its eligible deposit fails. As of December 31, 2023, an aggregated cash balance of USD 2.8 million, consisted from four bank accounts, was maintained at financial institutions in Taiwan, of which USD 2.5 million was subject to credit risk. 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. 77 Table of Contents 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. The Company is also exposed to risk from its accounts receivable and other receivables. These assets are subjected to credit evaluations. An allowance has been made for estimated unrecoverable amounts which have been determined by reference to past default experience and the current economic environment. Customer concentration risk For the 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, 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. Vendor concentration risk For the year ended December 31, 2023, Tangshan Huida Ceramic Group Co., Ltd (“Huida”) accounted for 54.7 % of the Company’s total purchases. For the year ended December 31, 2022, Huida accounted for 51.8 % of the Company’s total purchases. No other supplier accounts for more than 10% of the Company’s total purchases for the years ended December 31, 2023 and 2022. As of December 31, 2023, Huida accounted for 71.4 % of the total balance of accounts payable. As of December 31, 2022, Huida accounted for 85.5 % of the total balance of accounts payable. No other supplier accounts for more than 10% of the Company’s accounts payable as of December 31, 2023 and 2022. Note 14 — Commitments and contingencies Litigation From time to time, the Company is involved in legal and regulatory proceedings that are incidental to the operation of its businesses. These proceedings may seek remedies relating to matters including environmental, tax, intellectual property, acquisitions or divestitures, product liability, property damage, personal injury, privacy, employment, labor and pension, government contract issues and commercial or contractual disputes. Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including management assessment of the merits of the particular claims, the Company does not believe it is reasonably possible that any asserted or unasserted legal claims or proceedings, individually or in aggregate, will have a material adverse effect on our results of operations, or financial condition. Note 15 — Segment information The Company follows ASC 280, Segment Reporting, which requires that companies disclose segment data based on how management makes decisions about allocating resources to each segment and evaluating their performances. The Company has one reporting segment. The Company’s chief operating decision maker has been identified as the chief executive officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company and hence the Company has only one reportable segment. 78 Table of Contents Note 16 — Subsequent events On January 25, 2024 , FGI International entered into an omnibus credit line (the “Credit Line”) with CTBC Bank Co., Ltd. (“CTBC”). 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 . ​ ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no disagreements with Marcum LLP.