What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-31 compared with 2024-03-26 · 212 added, 214 removed, 126 unchanged (77% of the section changed)

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• “BPC” (Brands, Products, Channels) strategy to drive above-market organic growth.

We have continued to invest in its BPC strategy despite the market challenges, which is expected to drive improved organic growth in the longer term.

We have continued to invest in our BPC strategy despite the market challenges, which is expected to drive improved organic growth in the longer term.

We recently announced that we entered into a 5-year licensing agreement that will provide us access to an industry leading overflow toilet technology.

We will market this technology as FlushGuard Overflow Technology.

During the fourth quarter of 2023, we were awarded product placements at several large customers, including two of the largest commercial distributors in North America.

In addition, we continue to focus on our initiatives to expand geographically, with recently signed agreements providing entry into India, Eastern Europe, Australia, and the UK.

We will continue to market this technology as FlushGuard Overflow Technology.

We were recently awarded product placements at several large customers, including two of the largest commercial distributors in North America.

In addition, we continue to focus on our initiatives to expand geographically, with recently signed agreements providing entry into India, Eastern Europe and the UK.

• Enhanced margin performance.

We generated gross margin of 29.2% in fourth quarter of 2023, up from 23.7% in the same period last year owing to the ongoing mix shift to higher margin products.

For the full year 2023, gross margin was 27.4%, up nearly 800 basis points from the 19.5% gross margin generated in the prior year.

During 2024, we expect gross margins to remain consistent with those generated during fiscal year 2023, with operating margin improvement driven by volume leverage.

Our focus on higher-margin products has continued to deliver results, with gross margins reaching 26.9% in 2024 and 27.4% in 2023, a significant rise from 19.5% in 2022.

This positive trajectory reflects our commitment to optimizing our product mix and operational efficiency.

Looking ahead, we anticipate gross margins to remain in line with the levels achieved in 2024 and 2023.

• Efficient capital deployment.

We will continue to prioritize capital deployment in support of organic growth opportunities, while continuing to evaluate strategic M&A opportunities.

With total liquidity of $ 24.4 million at December 31, 2023, the Company believes it has sufficient financial flexibility to fund its organic growth strategy.

With total liquidity of $15.6 million as of December 31, 2024, the Company believes it has sufficient financial flexibility to fund its organic growth strategy.

• Deep manufacturing partners and customer relationships.

We have developed strong manufacturing and sourcing partners over the last 30+ years, which we believe will continue to give us a competitive advantage in the markets we serve.

We also have deep relationships with an established global customer base, offering end-

to-end solutions to support category growth.

We also have deep relationships with an established global customer base, offering end-to-end solutions to support category growth.

While recent supply chain and inflation pressures have been a headwind, our durable partnerships with manufacturing and sourcing partners have helped to mitigate these challenges.

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(“Foremost”), and its affiliates, pursuant to which, among other actions, Foremost contributed all of its equity interests in FGI Industries Inc.

(“FGI Industries”), FGI Europe Investment Limited, an entity formed in the British Virgin Islands, and FGI International, Limited, an entity formed under the laws of Hong Kong, each a wholly-owned subsidiary of Foremost, to the newly formed FGI Industries Ltd.

(“FGI Industries”), FGI Europe

Investment Limited, an entity formed in the British Virgin Islands, and FGI International, Limited, an entity formed under the laws of Hong Kong, each a wholly-owned subsidiary of Foremost, to the newly formed FGI Industries Ltd.

Foremost was established in 1987 and has become a global leader in kitchen and bath design, indoor and outdoor furniture, food service equipment, and manufacturing.

This discussion, and any financial information and results of operations discussed herein, refers to the assets, liabilities, revenue, expenses and cash flows that are directly attributable to the kitchen and bath business of Foremost before the completion of the Reorganization and are presented as if we had been in existence and the Reorganization had been in effect for the entirely of each of the periods presented.

Recent Trends

Due to changing market conditions, we are experiencing, and may continue to experience, lower market demand for certain of our products, particularly in our bath furniture category, as weak demand as customer destock and inventory corrections have had a negative impact on our net sales.

As previously noted, we also began experiencing supply chain disruptions and inflationary pressures, which affected operating margins beginning in late 2022.

However, we adopted several productivity and pricing measures to offset these headwinds and began to see resumed margin expansion in the second half of 2023.

While the demand environment remains uneven with multiple industry forecasters predicting modest declines in home improvement spend in 2024, we expect to generate above-market growth.

Results of Operations

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The following table summarizes the results of our operations for the years ended December 31, 2024 and 2023, respectively, and provides information regarding the dollar and percentage increase (decrease) during such periods.

For the Year Ended

Cost of revenues

For the Years Ended

December 31, Change

2024 2023 Amount Percentage

Revenue $ 131,818,073 $ 117,241,604 $ 14,576,469 12.4

Cost of revenue 96,390,733 85,164,322 11,226,411 13.2

Gross profit 35,427,340 32,077,282 3,350,058 10.4

Selling and distribution expenses 25,627,634 19,971,912 5,655,722 28.3

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Research and development expenses 1,699,383 1,376,844 322,539 23.4

Income from operations

Operating margins

(Loss) income from operations (2,099,591) 2,304,443 (4,404,034) (191.1)

Operating margins (%) (1.6) 2.0 (360) bps

Total other expenses, net (182,507) (916,655) 734,148 (80.1)

Provision for income taxes

Net income attributable to FGI Industries Ltd.

Adjusted income from operations (1)

(Benefit of) provision for income taxes (547,821) 808,224 (1,356,045) (167.8)

Net (loss) income (1,734,277) 579,564 (2,313,841) (399.2)

Net (loss) income attributable to FGI Industries Ltd.

shareholders (1,201,089) 733,604 (1,934,693) (263.7)

Adjusted (loss) income from operations (1)

(1,613,635) 2,840,401 (4,454,036) (156.8)

Adjusted operating margins (%) (1)

Adjusted net income (1)

(1) See “Non-GAAP Measures” below for more information on our use of these adjusted figures and a reconciliation of these financial measures to their closest GAAP comparators.

Our revenues decreased by $44.5 million, or 27.5%, to $117.2 million for the year ended December 31, 2023, from $161.7 million for the year ended December 31, 2022.

The decrease in our revenues was primarily by declines in sanitaryware and bath furniture categories.

Revenue categories by product are summarized as follows:

For the Year Ended December 31,

(1.2) 2.4 (360) bps

Adjusted net (loss) income attributable to FGI Industries Ltd.

shareholders (1)

$ (939,648) $ 1,731,512 $ (2,671,160) (154.3)

_________________________________________________

(1) See “Non-GAAP Measures” below for more information on our use of these adjusted figures and a reconciliation of these financial measures to their closest U.S.

generally accepted accounting principles (“GAAP”) comparators.

Our revenue increased by $14.6 million, or 12.4%, to $131.8 million for the year ended December 31, 2024, from $117.2 million for the year ended December 31, 2023.

The increase in our revenue was primarily driven by increases in sales of sanitaryware, shower system and custom kitchen cabinetry categories.

Revenue categories by product are summarized as follow:

For the Years Ended December 31, Change

2024 Percentage 2023 Percentage Percentage

USD % USD % %

Sanitaryware $ 81,109,955 61.5 $ 75,551,117 64.4 7.4

Bath Furniture 14,739,205 11.2 14,770,376 12.6 (0.2)

Shower System 25,521,977 19.4 19,997,197 17.1 27.6

We derive the majority of our revenues from sales of sanitaryware, which accounted for 64.4% and 64.8% of our total revenues for the years ended December 31, 2023 and 2022, respectively.

Revenues generated from the sales of sanitaryware decreased by 27.9% to $75.6 million for the year ended December 31, 2023, from $104.8 million for the year ended December 31, 2022.

The revenue decline was due to ongoing inventory de-stocking, primarily in the pro channel, and more muted demand trends.

Sanitaryware revenue increased sequentially in the fourth quarter of 2023, the third consecutive quarter of sequential revenue gains, as the pro channel is showing signs of improvement and new customer programs are also beginning to benefit results.

Our revenues from bath furniture sales decreased by 50.0% to $14.8 million for the year ended December 31, 2023 from $29.5 million for the year ended December 31, 2022.

Bath furniture sales accounted for 12.6% and 18.3% of our total revenue for 2023 and 2022, respectively as the bath furniture market continues to be impacted by macro headwinds and a trade-down to lower ticket products.

Our product mix in bath furniture has been moved heavily focused on higher-end products, which, given the customer trade-downs, was more adversely impacted than other value-focused peers in the space.

Based on the ongoing shift in customer demand to more value-priced offerings, we are launching product offerings in the mid-tier category to better address current demand and have already won several key customer awards featuring the new bath furniture.

Revenues from sales of Shower Systems decreased by 7.4% to $20.0 million for the year ended December 31, 2023 from $21.6 million for the year ended December 31, 2022.

Shower systems make up approximately 17.1% and 13.3% of our total revenue for 2023 and 2022, respectively.

However, our revenues from sales of Shower System have been increasing sequentially since the third quarter of 2023.

Recently launched programs are gaining momentum, including the online shower door program with a large Canadian retailer and the shower wall systems roll-out at up to 300 locations of a large U.S.

retailer with initial shipments that began in December 2023.

We also generate revenues from sales of Other products (custom kitchen cabinetry and others), which, in the aggregate, accounted for 5.9% and 3.6% of our total revenues for the years ended December 31 ,2023 and 2022.

The increase in Other was primarily driven by strong volume growth of custom kitchen cabinetry sales to our expanding network of kitchen cabinetry dealers in the United States.

Revenue benefited from continued dealer growth and new product launches.

We remain on track to launch our new kitchen cabinetry initiative in the first half of 2024.

We derive our revenues primarily from the United States, Canada and Europe.

Others 10,446,936 7.9 6,922,914 5.9 50.9

Total $ 131,818,073 100.0 $ 117,241,604 100.0 12.4

We derive the majority of our revenue from sales of sanitaryware, which accounted for 61.5% and 64.4% of our total revenue for the years ended December 31, 2024 and 2023, respectively.

Revenue generated from the sales of sanitaryware increased by 7.4% to $81.1 million for the year ended December 31, 2024, from $75.6 million for the year ended December 31, 2023.

This growth was primarily driven by higher sales volumes.

Despite the overall increase in revenue, the decline in sanitaryware’s share of total revenue suggests a diversification of our product mix, reflecting our strategic efforts to expand other product categories.

Our revenue from bath furniture sales accounted for 11.2% and 12.6% of our total revenue for the years ended December 31, 2024 and 2023, respectively.

Revenue generated from bath furniture sales decreased by 0.2% to $14.7 million for the year ended December 31, 2024 from $14.8 million for the year ended December 31, 2023.

Revenue from shower systems made up approximately 19.4% and 17.1% of our total revenue for the years ended December 31, 2024 and 2023, respectively.

Revenue from sales of shower systems increased by 27.6% to $25.5 million for the year ended December 31, 2024 from $20.0 million for the year ended December 31, 2023.

Our strategic initiatives in the shower systems category continue driving significant revenue growth.

Our revenue from sales of other products (custom kitchen cabinetry and other small offerings) increased by 50.9% to $10.4 million for the three months ended December 31, 2024, compared to $6.9 million for the year ended December 31, 2023.

This growth was primarily driven by a significant increase in sales volume for custom kitchen cabinetry, supported by the expansion of our network of kitchen cabinetry dealers in the United States.

Additionally, revenue benefited from continued dealer acquisitions and the successful introduction of new product offerings, which further strengthened our market presence and customer reach.

We derive our revenue primarily from the United States, Canada and Europe.

Revenue categories by geographic location are summarized as follows:

For the Year Ended December 31,

For the Years Ended December 31, Change

2024 Percentage 2023 Percentage Percentage

USD % USD % %

United States $ 82,378,167 62.5 $ 74,572,336 63.6 10.5

Canada 35,151,631 26.7 31,092,989 26.5 13.1

Europe 13,301,990 10.1 11,477,070 9.8 15.9

Rest of World 986,285 0.7 99,209 0.1 894.1

We generated the majority of our revenues in the United States market, which amounted to $74.6 million for the year ended December 31, 2023, and $103.3 million for the year ended December 31, 2022, representing a 27.8% decrease.

These revenues accounted for 63.6% and 63.8% of our total revenues for 2023 and 2022, respectively.

The decreased in the U.S.

market was primarily driven by volume weakness in the bath furniture as customers' de-stocking to adjust inventory level.

Total $ 131,818,073 100.0 $ 117,241,604 100.0 12.4

We generated the majority of our revenue in the United States market, which amounted to $82.4 million for the year ended December 31, 2024, and $74.6 million for the year ended December 31, 2023, representing a 10.5% increase.

This revenue accounted for 62.5% and 63.6% of our total revenue for the years ended December 31, 2024 and 2023, respectively.

This growth was primarily driven by the expansion of our distribution network and the successful execution of marketing initiatives.

Our second largest market is Canada.

Our revenues generated in the Canadian market were $31.1 million and $41.0 million for the years ended December 31, 2023 and 2022, respectively, representing a 24.2% decrease.

The decrease was primarily driven by volume weakness in both retail and wholesale markets.

We also derive a small portion of our revenue from Europe, which consists primarily of sales in Germany.

This amounted to $11.5 million and $16.8 million for the years ended December 31, 2023 and 2022, respectively, representing a 31.9% decrease.

The decrease was attributable to decreased demand that was impacted by global supply chain interruptions and inflation issues.

Gross profit was $32.1 million during year 2023, an increase of 1.8% compared to the prior year, as a result of pricing gains, a more favorable mix, and lower freight costs, despite volume weaknesses.

Gross profit margin percentage improved to 27.4% during 2023, up 790 basis points from 19.5% in the prior year, as gross margins continue benefit from a shift in revenue mix towards higher-margin products, lower logistics costs, and the full benefit of pricing actions taken during 2022.

Our revenue generated in the Canadian market was $35.2 million and $31.1 million for the years ended December 31, 2024 and 2023, respectively, representing a 13.1% increase.

The strong performance in Canada underscores the effectiveness of our regional growth strategy and highlights the market’s increasing contribution to our overall revenue.

We also derive our revenue from Europe, which consists primarily of sales in Germany.

This amounted to $13.3 million and $11.5 million for the years ended December 31, 2024 and 2023, respectively, representing a 15.9% increase.

Gross profit was $35.4 million for the year ended December 31, 2024, reflecting a 10.4% increase compared to the prior year.

Gross profit margin percentage stood at 26.9% for the year ended December 31, 2024, a 50-basis-point decrease from 27.4% in 2023.

This gross profit performance was driven by increased sales volume and a sustained focus on a higher-margin product mix.

Operating Expenses

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Our selling and distribution expenses increased by $5.7 million, or 28.3%, to $25.6 million for the year ended December 31, 2024, from $20.0 million for the year ended December 31, 2023.

The increase was a result of participating more sales trade show events and promotions as pandemic restrictions were eased, which caused the increase in marketing, sample and travel related expenses, partially offset by lower commission, sales coop and shipping freight expenses impacted by sales volume loss.

The increase was driven by higher personnel costs, expanded marketing and promotional activities, and rising warehouse expenses, reflecting the impact of inflation and our continued investment in driving sales growth.

General and administrative expenses primarily consisted of personnel costs, professional service fees, depreciation, travel, and office supply expenses.

Our general and administrative expenses increased by $1.8 million, or 21.1%, to $10.2 million for the year ended December 31, 2024, as compared to the year ended December 31, 2023.

The increase was primarily attributable to incremental public company costs and legal expenses.

Research and development expenses mainly consisted of personnel costs and product development costs.

Our research and development activities remained stable and are relatively immaterial to our consolidated statements of income.

The increase was driven by inflationary pressures and expenses related to newly formed subsidiaries and growth initiatives, supporting our continued expansion and operational growth.

Research and development expenses primarily comprised personnel costs and product development expenditures.

Our R&D activities remained stable and had a minimal impact on our overall consolidated results of operations.

Other Income (Expenses)

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Other income and expenses primarily include interest income and expenses, as well as miscellaneous non-operating income and expenses.

Other expenses, net increased by approximately $0.4 million or 66.2%, to $0.9 million for the year ended December 31, 2023, from $0.6 million for the year ended December 31, 2022.

This increase was the result of higher interest expenses due to increases in applicable interest rates.

Total other expenses, net decreased by approximately $0.7 million or 80.1%, to $0.2 million for the year ended December 31, 2024, from $0.9 million for the year ended December 31, 2023.

This decrease was primarily driven by proceeds from a settlement agreement and gains from foreign currency transactions, partially offset by higher interest expenses derived from our credit facilities.

Provision for Income Taxes

We recorded income tax expense of $0.8 million for the year ended December 31, 2023, and $0.9 million for the year ended December 31, 2022.

The decrease resulted from the decrease in our reported income before taxes of $2.8 million, or 54.7%.

Our net income decreased by $3.1 million, or 84.3%, to $0.6 million for the year ended December 31, 2023, from $3.7 million for the year ended December 31, 2022.

This decrease was a result of the combination of the changes discussed above.

We recorded income tax benefit of $0.5 million for the year ended December 31, 2024, and provision for income tax of $0.8 million for the year ended December 31, 2023.

Loss before income taxes resulted in a tax benefit for the year.

Net (Loss) Income

For the year ended December 31, 2024, we reported a net loss of $1.7 million, compared to a net income of $0.6 million in 2023, reflecting a $2.3 million decrease.

This change was driven by a combination of factors discussed above.

While these factors impacted short-term profitability, they position us for long-term growth and operational strength.

Liquidity and Capital Resources

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As of December 31, 2024, we had cash and working capital of $4.6 million and $10.4 million, respectively.

On January 27, 2022, we closed an underwritten public offering of 2.5 million units consisting of Ordinary Shares and warrants and received net proceeds, after commissions and expenses, of approximately $12.4 million.

We believe our revenues and operations will continue to grow and the current working capital is sufficient to support our operations and debt obligations well into the foreseeable future.

However, we may need additional cash resources in the future if we experience changes in business conditions or other developments, such as rising interest rates, inflation and increased costs, and may also need additional cash resources in the future if we wish to pursue opportunities for investment, acquisition, strategic cooperation or other similar actions.

As of December 31, 2024, we had approximately $14.5 million outstanding in the aggregate under our credit facilities discussed below for working capital replenishment.

We believe our revenue and operations will continue to grow and the current working capital is sufficient to support our operations and debt obligations well into the foreseeable future.

However, we may need additional cash resources in the

future if we experience changes in business conditions or other developments, such as rising interest rates, inflation and increased costs, and may also need additional cash resources in the future if we wish to pursue opportunities for investment, acquisition, strategic cooperation or other similar actions.

For example, from time to time we may provide loans or other operational support to Foremost to assist Foremost in capital expenditures or other efforts related to the manufacturing services that Foremost provides to us, which could limit the assets available for other corporate purposes or require additional resources.

If it is determined that the cash requirements exceed our amount of cash on hand, we may seek to issue debt or equity securities, and there can be no assurances that additional financing will be available on acceptable term, if at all.

As of December 31, 2023, FGI’s total outstanding debt is represented by a credit facility with East West Bank.

East West Bank Credit Facility

Our wholly owned subsidiary, FGI Industries (formerly named Foremost Groups, Inc.), has a line of credit agreement (the “Credit Agreement”) with East West Bank, which is collateralized by all 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 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.

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.

The Company's wholly-owned subsidiary, 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 49.91% of the voting control of Foremost.

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

East West Bank has agreed to extend the maturity date to June 21, 2025 while efforts regarding a renewal of the facility are ongoing.

As of December 31, 2024, FGI Industries was in compliance with these financial covenants.

The loan bears interest 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, 2024 and 2023 w as 7.25% and 8.25%, resp ectively.

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

The outstanding balance of such loan was $9.6 million and $7.0 million as of December 31, 2024 and 2023, respectively.

RBC Bank Loan

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).

has a line of credit agreement with Royal Bank of Canada (“RBC”), successor by amalgamation of HSBC Canada (the “Canadian Revolver”).

The revolving line of credit with RBC allows for borrowing up to CAD7.5 million (USD5.2 million as of December 31, 2024).

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

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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.

As of December 31, 2024, FGI Canada Ltd.

was not in compliance with certain financial covenants in the Canadian Revolver related to its debt to tangible net worth ratio.

In December 2024, FGI Canada Ltd.

obtained a waiver from the lender acknowledging the non-compliance and FGI Canada Ltd.’s plan to remedy the default on or before March 31, 2025.

The Company has classified the outstanding balance of the loan as a current liability on the consolidated balance sheet as of December 31, 2024.

The Company has sufficient liquidity to repay the loan in full if immediate settlement were required.

Borrowings under this line of credit amounted to $2.6 million and $0 as of December 31, 2024 and 2023, respectively.

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

CTBC Bank Credit Line

Subsequent to the year end, FGI International e ntered into an omnibus credit line (the “Credit Line”) with CTBC Bank Co., Ltd.

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

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

FGI Canada Ltd.

also has a revolving foreign exchange facility with RBC of up to a permitted maximum of USD3.0 million.

The advances are available to purchase foreign exchange forward contracts from time to time up to six months, subject to an overall maximum aggregate USD Equivalent outstanding face value not exceeding USD3.0 million.

CTBC Credit Facility

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

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

Borrowings under this line of credit amounted to $2.3 million and $0 as of December 31, 2024 and 2023, respectively.

On January 14, 2025, FGI International and CTBC agreed to increase the CTBC Credit Line to $3.0 million.

The following table summarizes the key components of our cash flows for the years ended December 31, 2024, and 2023.

For the Year Ended December 31,

Net cash provided by operating activities

For the Years Ended December 31,

Net cash (used in) provided by operating activities $ (7,425,317) $ 2,212,823

Net cash used in investing activities (2,875,816) (1,765,738)

Net cash (used in) provided by financing activities

Net cash provided by (used in) financing activities 7,543,192 (2,835,876)

Effect of exchange rate fluctuation on cash (461,140) 98,604

Net changes in cash (3,219,081) (2,290,187)

Cash, beginning of period

Cash, end of period

Cash, beginning of year 7,777,241 10,067,428

Cash, end of year $ 4,558,160 $ 7,777,241

Operating Activities

Net cash provided by operating activities was approximately $1.4 million for the year ended December 31, 2023 compared to $1.0 million for the year ended December 31, 2022.

The increase was primarily attributable to a decrease in inventory of approximately $3.4 million, and non-cash items of approximately $2.7 million, a decrease in other noncurrent assets of approximately $0.9 million, an increase in accounts payable – related parties of approximately $0.6 million, and net income for the year of approximately $0.6 million.

These drivers were partially offset by an increase in prepayments and other current assets of approximately $2.0 million, plus an increase in prepayments and other receivables - related parties of approximately $2.0 million, a decrease in operating lease liabilities of approximately $1.3 million, an increase in accounts receivable of approximately $1.1 million, and reversal of defective return of approximately $0.9 million.

Net cash provided by operating activities was approximately $1.0 million for the year ended December 31, 2022 which was primarily attributable to a decrease in accounts receivable of approximately $13.5 million, a decrease in inventories of approximately $8.0 million, and net income for the year of approximately $3.7 million, a decrease in other noncurrent assets of approximately $0.9 million, a decrease in right-of-used assets of approximately $0.9 million, an increase in accounts payable-related parties of approximately $0.1 million.

These drivers were partially offset by a decrease in accounts payable of approximately $17.3 million, plus an increase in prepayments and other receivables - related parties of approximately $2.5 million, a decrease in accrued expenses and other current liabilities of approximately $1.9 million, a decrease in operating lease liabilities of approximately $1.4 million, a decrease in income taxes payable of approximately $1.2 million and an increase in prepayments, other current assets of approximately $1.0 million, and non-cash items of approximately $0.6 million.

Net cash used in operating activities was approximately $7.4 million for the year ended December 31, 2024.

This change primarily reflects strategic investments and working capital fluctuations.

While 2024 saw a net loss, we continue to focus on long-term growth initiatives.

Increases in accounts receivable and prepayments, as well as payments of operating lease liabilities, reflect our expanding operations and commitments.

At the same time, higher accounts payable and a reduction in prepayments and other current assets provided a partial offset, demonstrating improved efficiency in managing liabilities.

Net cash provided by operating activities was approximately $2.2 million for the year ended December 31, 2023.

This positive cash flow was primarily driven by a reduction in inventory and other current assets, reflecting improved inventory management and efficient working capital utilization.

These benefits were partially offset by an increase in prepayments and other receivables, which resulted from higher advance payments to suppliers and other operational commitments.

Additionally, a decrease in operating lease liabilities contributed to lower net cash inflows.

Furthermore, an increase in accounts receivable impacted cash flow, reflecting higher sales on credit terms.

Investing Activities

Net cash used in investing activities was approximately $0.9 million and $1.1 million for the years ended December 31, 2023 and 2022, respectively.

We purchased property and equipment of $0.8 million and intangible assets of $0.1 million in 2023, as compared to purchase of property and equipment of $1.1 million in 2022.

Net cash used in investing activities was approximately $2.9 million and $1.8 million for the years ended December 31, 2024 and 2023, respectively, which was attributable to the purchases of property and equipment and intangible assets.

Financing Activities

Net cash used in financing activities was approximately $2.8 million for the year ended December 31, 2023, which represented the net repayments of revolving credit facility.

Net cash provided financing activities was approximately $7.0 million for the year ended December 31, 2022, which primarily represents the net proceeds from issuance of units in the IPO of $12.4 million and partially offset by repayment of bank loans of $4.9 million and a decrease of $0.5 million excess payment over carrying value resulted from long-lived assets acquisition from affiliate.

Net cash provided by financing activities was approximately $7.5 million for the year ended December 31, 2024 compared to net cash used in financing activities of $2.8 million for the year ended December 31, 2023.

During 2023, we made net repayments on the revolving credit facility, resulting in an overall cash outflow in financing activities.

The shift to net cash inflows in 2024 highlights our focus on enhancing liquidity and financial flexibility in response to evolving business needs and growth opportunities.

Commitments and Contingencies

Capital Expenditures

Our capital expenditures were incurred primarily in connection with the acquisition of property and equipment.

Our capital expenditures were incurred primarily in connection with the acquisition of property and equipment and intangible assets.

Our capital expenditures amounted to approximately $2.9 million and $1.8 million for the years ended December 31, 2024 and 2023, respectively.

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Critical Accounting Policies

The consolidated financial statements and accompanying notes have been prepared in accordance with U.S.

The preparation of these consolidated financial statements and accompanying notes requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

The consolidated financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles in the U.S.

The preparation of these consolidated financial statements and accompanying notes requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.

We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

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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 our 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.

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 our company and our 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 our company is the U.S.

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 parent’s net investment.

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 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.

Accounts receivable

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.

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

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

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

Inventories, net

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.

Property and equipment

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:

Leasehold Improvements

Lesser of lease term or expected useful life

Machinery and equipment

Furniture and fixtures.

We determine if an arrangement is a lease at inception.

Operating leases are included in right-of-use assets (“ROU assets”), accrued expenses 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 our obligation to make lease payments in exchange for the right to use an underlying asset.

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

Operating leases are included in operating lease right-of-use assets, net (“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.

We review our ROU assets as 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 the ROU asset is not recoverable from its undiscounted cash flows, then we would recognize an impairment loss for the difference between the carrying amount and the current fair value.

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

We determine 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.

Our lease terms may include options to extend or terminate the lease when there are relevant economic incentives present that make it reasonably certain that we will exercise that option.

We account for any non- lease components separately from lease components.

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 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 us.

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.

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Revenue recognition

We recognize 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 our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for the goods or services.

We generate 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 our customers.

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

We provide customer programs and incentive offerings, including co-operative marketing arrangements and volume-based incentives.

These customer programs and incentives are considered variable considerations.

We include in revenue variable considerations 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 our volume- based incentives.

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

Revenue is 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 revenue 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.

We estimate future product returns at the time of sale based on historical experience and record a corresponding reduction in accounts receivable.

We record receivables related to revenue when it has an unconditional right to invoice and receive payment.

The Company estimates future product returns at the time of sale based on historical experience and records a corresponding reduction in accounts receivable.

Share-based compensation

We account for share-based compensation in accordance with ASC 718, Compensation — Stock Compensation (“ASC 718”).

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

All of our share-based awards were classified as equity awards and are recognized in the consolidated financial statements based on their grant date fair values.

We have 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.

We account for forfeitures as they occur in accordance with ASU No.

2016-09, Compensation — Stock Compensation (Topic 718):

Improvement to Employee Share-based Payment Accounting.

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

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.

Deferred taxes are recognized based on the future tax consequences of differences between the carrying value of assets and liabilities and their respective tax basis.

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 (more than 50 percent likely) such deferred tax assets will not be realized, a valuation allowance is recorded.

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.

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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.

We record interest and penalties on our uncertain tax positions in income tax expense.

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 the tax arises.

Recently issued accounting pronouncements

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

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 our financial position or results of operation.

Recently adopted accounting standards

In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures,” which requires additional disclosures regarding an entity’s reportable segments, particularly regarding significant segment expenses, as well as information relating to the chief operating decision maker.

The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The Company adopted this standard on a retrospective basis for annual periods beginning January 1, 2024, and will adopt for interim periods within those annual periods beginning January 1, 2025.

The adoption of this guidance modified our disclosures, but did not have an impact on our financial position or results of operations.

Recently issued accounting standards

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures,” which requires additional income tax disclosures, particularly regarding the effective tax rate reconciliation and income taxes paid.

ASU 2023-09 is effective on a prospective or retrospective basis for annual period beginning after December 15, 2024, with early adoption permitted.

The Company plans to adopt this ASU for its annual period beginning January 1, 2025.

The adoption of this guidance will modify its disclosures, but will not have an impact on its financial position or results of operations.

In November 2024, the FASB issued ASU 2024-03, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses,” which requires additional disclosure of the nature of expenses included in the income statement.

ASU 2024-03 is effective on a prospective or retrospective basis for annual periods beginning after December 15, 2026, and interim periods within those annual periods beginning after December 15, 2027.

Early adoption is permitted.

The Company plans to adopt this ASU for its annual period beginning January 1, 2027.

The adoption of this guidance will modify its disclosures, but will not have an impact on its financial position or results of operations.

The Company considers the applicability and impact of all ASUs.

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

Non-GAAP Measures

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Our non-GAAP measures are:

Adjusted Income from Operations, Adjusted Operating Margins and Adjusted Net Income.

These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles in the United States (“US GAAP”).

Adjusted Operating Income, Adjusted Operating Margins and Adjusted Net Income.

These non-GAAP financial measures are not prepared in accordance with GAAP.

They are supplemental financial measures of our performance only, and should not be considered substitutes for net income, income from operations or any other measure derived in accordance with GAAP and may not be comparable to similarly titled measures reported by other entities.

We define Adjusted Income from Operations as GAAP income from operations excluding the impact of certain non-recurring expenses, including expenses related to COVID-19 protocols.

We define Adjusted Net Income as GAAP net income excluding the tax-effected impact of certain non-recurring expenses and income such as expenses related to COVID-19 protocols, unusual litigation fees and non-recurring compensation expenses related to our IPO.

We define Adjusted Operating Margins as adjusted income from operations divided by revenue.

We use these non-GAAP measures, along with U.S.

GAAP measures, to evaluate our business, measure our financial performance and profitability and our ability to manage expenses, after adjusting for certain one-time expenses, identify trends affecting our business and assist us in making strategic decisions.

We believe these non-GAAP measures, when reviewed in conjunction with U.S.

GAAP financial measures, and not in isolation or as substitutes for analysis of our results of operations under U.S.

GAAP, are useful to investors as they are widely used measures of performance and the adjustments we make to these non-GAAP measures provide investors further insight into our profitability and additional perspectives in comparing our performance over time on a consistent basis.

The following table reconciles Income from Operations to Adjusted Income from Operations and Adjusted Operating Margins, as well as Net income to Adjusted Net Income for the periods presented.

For the year ended

Income from operations

Non-recurring IPO-related compensation

We define Adjusted Operating Income as GAAP income from operations excluding the impact of certain non-recurring income and expenses, including non-recurring compensation expenses related to our IPO, unusual litigation and business expansion expense.

We define Adjusted Net Income as GAAP income before income taxes excluding the impact of certain non-recurring income and expenses, such as non-recurring compensation expenses related to our IPO, unusual litigation and business expansion expense, as well as income taxes at historical average effective rate and net income attributable to non-controlling shareholders.

We define Adjusted Operating Margins as Adjusted Operating Income divided by revenue.

We use these non-GAAP measures, along with GAAP measures, to evaluate our business, measure our financial performance and profitability and our ability to manage expenses, after adjusting for certain one-time expenses, identify trends affecting our business and assist us in making strategic decisions.

We believe these non-GAAP measures, when reviewed in conjunction with GAAP financial measures, and not in isolation or as substitutes for analysis of our results of operations under GAAP, are useful to investors as they are widely used measures of performance and the adjustments we make to these non-GAAP measures provide investors further insight into our profitability and additional perspectives in comparing our performance over time on a consistent basis.

The following table reconciles GAAP income from operations to Adjusted Operating Income and Adjusted Operating Margins, as well as GAAP net income to Adjusted Net Income for the periods presented.

For the Years Ended

(Loss) income from operations $ (2,099,591) $ 2,304,443

Non-recurring IPO-related share-based compensation 238,876 238,876

IPO and arbitration legal fee — 50,000

Anti-dumping penalty(1)

Business expansion expense 247,080 247,082

Adjusted income from operations

Adjusted Operating (Loss) Income $ (1,613,635) $ 2,840,401

Revenue $ 131,818,073 $ 117,241,604

Adjusted Operating Margins (%) (1.2) 2.4

(1) Represents an additional charge related to one-time anti-dumping/countervailing duty legal fee, as shown in prior periods.

For the year ended

Non-recurring IPO-related compensation

For the Years Ended

(Loss) income before income taxes $ (2,282,098) $ 1,387,788

Non-recurring IPO-related share-based compensation 238,876 238,876

IPO and arbitration legal fee — 50,000

Anti-dumping penalty(1)

Business expansion expense 247,080 247,082

Tax impact of adjustment at 18% effective rate

Adjusted net income

(1) Represents an additional charge related to one-time anti-dumping/countervailing duty legal fee, as shown in prior periods.

Adjusted (loss) income before income taxes (1,796,142) 1,923,746

income taxes at 18% rate (323,306) 346,274

net loss attributable to non-controlling shareholders (533,188) (154,040)

Adjusted Net (Loss) Income $ (939,648) $ 1,731,512

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

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What changed 10-K

Item 7. Management’s Discussion and Analysis