| Summary of Significant Accounting Policies | Note 2 ā Summary of significant accounting policies Basis of presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (āGAAPā) for information pursuant to the rules and regulations of the Securities and Exchange Commission (āSECā). The results of operations for the three months ended March 31, 2022 are not necessarily indicative of results to be expected for the full year of 2022. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the Companyās audited financial statements as of and for the years ended December 31, 2021 and 2020. Principles of consolidation The unaudited condensed consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant intercompany transactions and balances between the Company and its subsidiaries are eliminated upon consolidation. Subsidiaries are those entities which the Company, directly or indirectly, controls more than one half of the voting power; or has the power to govern the financial and operating policies, to appoint or remove the majority of the members of the board of directors, or to cast a majority of votes at a meeting of directors. Use of estimates and assumptions The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in the Companyās unaudited condensed consolidated financial statements include the useful lives of property and equipment, impairment of long-lived assets, allowance for doubtful accounts, provision for contingent liabilities, revenue recognition, deferred taxes and uncertain tax position. Actual results could differ from these estimates. Foreign currency translation and transaction The functional currencies of the Company and its subsidiaries are the local currency of the country in which the subsidiaries operate, except for FGI International which is incorporated in Hong Kong while adopting the United States Dollar (āU.S. Dollarā or āUSDā) as its functional currency. The reporting currency of the Company is the U.S. Dollar. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect at that date. The equity denominated in the functional currencies is translated at the historical rates of exchange at the time of capital contributions. The results of operations and the cash flows denominated in foreign currencies are translated at the average rates of exchange during the reporting period. Because cash flows are translated based on the average translation rates, amounts related to assets and liabilities reported on the unaudited condensed consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the unaudited condensed consolidated balance sheets. Translation adjustments arising from the use of different exchange rates from period to period are included as a separate component of accumulated other comprehensive income included in the unaudited condensed consolidated statements of changes in shareholdersā equity. Transaction gains and losses arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency in the unaudited condensed consolidated statements of income and comprehensive income. For the purpose of presenting the financial statements of subsidiaries using the Renminbi (āRMBā) as their functional currency, the Companyās assets and liabilities are expressed in U.S. Dollars at the exchange rate on the balance sheet date, which was 6.3524 and 6.3762 as of March 31, 2022 and December 31, 2021, respectively; shareholdersā equity or parentās net investment accounts are translated at historical rates, and income and expense items are translated at the average exchange rate during the period, which was 6.3532 and 6.4824 for the three months ended March 31, 2022 and 2021, respectively. For the purpose of presenting the financial statements of the subsidiary using the Canadian Dollar (āCADā) as its functional currency, the Companyās assets and liabilities are expressed in U.S. Dollars at the exchange rate on the balance sheet date, which was 1.2697 and 1.2697 as of March 31, 2022 and December 31, 2021, respectively; shareholdersā equity or parentās net investment accounts are translated at historical rates, and income and expense items are translated at the average exchange rate during the period, which was 1.2697 and 1.2741 for the three months ended March 31, 2022 and 2021, respectively. For the purpose of presenting the financial statements of the subsidiary using the Euro (āEURā) as its functional currency, the Companyās assets and liabilities are expressed in U.S. Dollars at the exchange rate on the balance sheet date, which was 0.8979 and 0.8815 as of March 31, 2022 and December 31, 2021, respectively; parentās net investment accounts are translated at historical rates, and income and expense items are translated at the average exchange rate during the period, which was 0.8887 and 0.8197 for the three months ended March 31, 2022 and 2021, respectively. Cash Cash consists of cash on hand, demand deposits and time deposits placed with banks or other financial institutions that have original maturities of three months or less. The Company did not have any cash equivalents as of March 31, 2022 and December 31, 2021. Accounts receivable, net Bills and trade receivables include trade accounts due from customers. In establishing the required allowance for doubtful accounts, management considers historical collection experience, aging of the receivables, the economic environment, industry trend analysis, and the credit history and financial conditions of the customers. Management reviews its receivables on a regular basis to determine if the bad debt allowance is adequate, and adjusts the allowance when necessary. Delinquent account balances are written off against allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. Inventories, net Inventories are stated at the lower of cost and net realizable value. Cost consists of purchase price and related shipping and handling expenses, and is determined using the weighted average cost method, based on individual products. The methods of determining inventory costs are used consistently from year to year. A provision for slow-moving items is calculated based on historical experience. Management reviews this provision annually to assess whether, based on economic conditions, it is adequate. Prepayments Prepayments are cash deposited or advanced to suppliers for the purchase of goods or services that have not been received or provided. This amount is refundable and bears no interest. Prepayments and deposits are classified as either current or non-current based on the terms of the respective agreements. These advances are unsecured and are reviewed periodically to determine whether their carrying value has become impaired. Property and equipment, net Property and equipment are stated at cost net of accumulated depreciation and impairment. Depreciation is provided over the estimated useful lives of the assets using the straight-line method from the time the assets are placed in service. Estimated useful lives are as follows: ā ā ā ā ā Useful Life Leasehold Improvements ā Lesser of lease term and Machinery and equipment 3 ā 5 years Furniture and fixtures 3 ā 5 years Vehicles 5 years Molds 3 ā 5 years ā Intangible assets, net The Companyās 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 may not be recoverable. The Company assesses the recoverability of an asset based on the undiscounted future cash flows the asset is expected to generate and recognize an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. If an impairment is identified, the Company would reduce the carrying amount of the asset to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values. As of March 31, 2022 and December 31, 2021, no impairment of long-lived assets was recognized. Leases The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right- of-use assets, net (āROU assetsā), operating lease liabilities ā current and operating lease liabilities ā noncurrent on the unaudited condensed consolidated balance sheets. ROU assets represent our right to use an underlying asset for the duration of the lease term while lease liabilities represent the Companyās 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 Companyās leases do not provide an implicit rate, the Company generally uses its incremental borrowing rate on the commencement date of the lease as the discount rate in determining the present value of future lease payments. The Company determines the incremental borrowing rate for each lease by using the incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The Companyās 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: ā Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. ā 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. ā Level 3 inputs to the valuation methodology are unobservable and significant to the fair value. Financial instruments included in current assets and current liabilities are reported in the consolidated balance sheets at face value or cost, which approximate fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rates of interest. Revenue recognition In May 2014, the Financial Accounting Standards Board (āFASBā) issued Accounting Standards Update (āASUā) No. 2014-09, āRevenue from Contracts with Customers (Topic 606)ā (āASU 2014-09ā). ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The Company generates revenues from sales of K&B products, and recognizes revenue as control of its products is transferred to its customers, which is generally at the time of shipment or upon delivery based on the contractual terms with the Companyās customers. The Companyās customersā 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 Companyās volume- based incentives. This determination is updated on a monthly basis. Certain product sales include a right of return. The Company estimates future product returns at the time of sale based on historical experience and records a corresponding reduction in accounts receivable. The Company records receivables related to revenue when it has an unconditional right to invoice and receive payment. The Companyās disaggregated revenues are summarized as follows: ā ā ā ā ā ā ā ā ā ā ā For the Three Months Ended ā ā ā March 31, ā ā ā 2022 ā 2021 ā ā USD USD Revenues by product line ā ā ā ā Sanitaryware ā $ 28,179,193 ā $ 22,805,413 ā Bath Furniture ā 10,115,812 ā 11,482,661 ā Others ā 5,280,234 ā 2,087,615 ā Total ā $ 43,575,239 ā $ 36,375,689 ā ā ā ā ā ā ā ā ā ā ā ā For the Three Months Ended ā ā ā March 31, ā ā ā 2022 ā 2021 ā ā USD USD Revenues by geographic location ā ā ā ā ā ā ā United States ā $ 27,353,195 ā $ 22,081,821 ā Canada ā 12,296,002 ā 9,558,196 ā Europe ā 3,926,042 ā 4,735,672 ā Total ā $ 43,575,239 ā $ 36,375,689 ā ā Share-based compensation The Company accounts for share-based compensation in accordance with Accounting Standards Codification (āASCā) 718, āCompensation ā Stock Compensationā (āASC 718ā). In accordance with ASC 718, the Company determines whether an award should be classified and accounted for as a liability award or an equity award. All of the Companyās share- based awards were classified as equity awards and are recognized in the unaudited condensed consolidated financial statements based on their grant date fair values. The Company has elected to recognize share-based compensation using the straight-line method for all share-based awards granted over the requisite service period, which is the vesting period. The Company accounts for forfeitures as they occur in accordance with ASU No. 2016-09, āCompensation ā Stock Compensation (Topic 718): Improvement to Employee Share-based Payment Accounting.ā The Company, with the assistance of an independent third-party valuation firm, determined the fair value of the stock options granted to employees. The Black-Scholes Model was applied in determining the estimated fair value of the options granted to employees and non-employees. Income Taxes Deferred taxes are recognized based on the future tax consequences of the differences between the carrying value of assets and liabilities and their respective tax bases. The future realization of deferred tax assets depends on the existence of sufficient taxable income in future periods. Possible sources of taxable income include taxable income in carryback periods, the future reversal of existing taxable temporary differences recorded as a deferred tax liability, tax-planning strategies that generate future income or gains in excess of anticipated losses in the carryforward period and projected future taxable income. If, based upon all available evidence, both positive and negative, it is more likely than not (i.e., more than 50 percent likely) that such deferred tax assets will not be realized, a valuation allowance is recorded. Significant weight is given to positive and negative evidence that is objectively verifiable. A companyās three- year cumulative loss position is significant negative evidence in considering whether deferred tax assets are realizable, and the accounting guidance restricts the amount of reliance we can place on projected taxable income to support the recovery of the deferred tax assets. The current accounting guidance allows the recognition of only those income tax positions that have a greater than 50 percent likelihood of being sustained upon examination by the taxing authorities. The Company believes that there is an increased potential for volatility in its effective tax rate because this threshold allows for changes in the income tax environment and, to a greater extent, the inherent complexities of income tax law in a substantial number of jurisdictions, which may affect the computation of its liability for uncertain tax positions. The Company records interest and penalties on our uncertain tax positions in income tax expense. We record the tax effects of Foreign Derived Intangible Income (FDII) and Global Intangible Low-Taxed Income (GILTI) related to our foreign operations as a component of income tax expense in the period in which the tax arises. Comprehensive income Comprehensive income consists of two components: net income and other comprehensive income. Other comprehensive income refers to revenue, expenses, gains and losses that under GAAP are recorded as an element of equity but are excluded from net income. Other comprehensive income consists of a foreign currency translation adjustment resulting from certain of the Companyās subsidiaries not using the U.S. Dollar as their functional currencies. Earnings per share The Company computes earnings per share (āEPSā) in accordance with ASC 260, āEarnings per Shareā (āASC 260ā). ASC 260 requires companies to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average ordinary shares outstanding for the period. Diluted EPS presents the dilutive effect on a per share basis of the potential ordinary shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential ordinary shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. Segment reporting ASC 280, āSegment Reporting,ā establishes standards for reporting information about operating segments on a basis consistent with the Companyās internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements for detailing the Companyās business segments. Recently issued accounting pronouncements In June 2016, the FASB issued ASU 2016- 13, āFinancial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,ā 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 āprobableā threshold and requires an entity to use a broader range of information, including forecast information when estimating expected credit losses. Generally, this should result in a more timely recognition of credit losses. This guidance became effective for interim and annual periods beginning after December 15, 2019 with early adoption permitted for interim and annual periods beginning after December 15, 2018. The requirements of the amended guidance should be applied using a modified retrospective approach except for debt securities, which require a prospective transition approach. In November 2019, the FASB issued ASU 2019-10, which finalized the delay of such effective date to fiscal years beginning after December 15, 2022 for private and all other companies, including emerging growth companies. As an emerging growth company, the Company plans to In December 2019, the FASB issued ASU 2019-12, āIncome Taxes (Topic 740): Simplifying the Accounting for Income Taxes,ā which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The adoption of the standard did not have an impact on our financial position or results of operation. The Company considers the applicability and impact of all ASUs. ASUs not listed above were assessed and determined not to be applicable. |
