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 ) 45 Consolidated Balance Sheets as of December 31, 202 4 and 202 3 46 Consolidated Statements of Operations and Comprehensive (Loss) Income for the years ended December 31, 202 4 and 202 3 47 Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 202 4 and 202 3 48 Consolidated Statements of Cash Flows for the years ended December 31, 202 4 and 202 3 49 Notes to Consolidated Financial Statements 50 44 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, 2024 and 2023, the related consolidated statements of operations and comprehensive (loss) income, changes in shareholders’ equity and cash flows for each of the two years in the period ended December 31, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, 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 audits 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 31, 2025 45 Table of Contents FGI INDUSTRIES LTD. CONSOLIDATED BALANCE SHEETS As of December 31, 2024 As of December 31, 2023 USD USD ASSETS CURRENT ASSETS Cash $ 4,558,160 $ 7,777,241 Accounts receivable, net 20,293,555 16,195,543 Inventories, net 13,957,867 9,923,852 Prepayments and other current assets 2,091,407 4,617,751 Prepayments and other receivables – related parties 11,996,973 7,600,283 Total current assets 52,897,962 46,114,670 PROPERTY AND EQUIPMENT, NET 3,634,340 1,910,491 OTHER ASSETS Intangible assets 1,849,951 102,227 Operating lease right-of-use assets, net 12,823,747 15,203,576 Deferred tax assets, net 2,665,585 1,168,833 Other noncurrent assets 1,589,830 1,245,133 Total other assets 18,929,113 17,719,769 Total assets $ 75,461,415 $ 65,744,930 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Short-term loans $ 14,502,367 $ 6,959,175 Accounts payable 19,349,529 14,524,607 Accounts payable – related parties 894,661 735,308 Income tax payable 23,189 189,119 Operating lease liabilities – current 1,867,956 1,595,998 Accrued expenses and other current liabilities 5,905,124 4,039,499 Total current liabilities 42,542,826 28,043,706 OTHER LIABILITIES Operating lease liabilities – noncurrent 11,352,939 13,674,452 Total liabilities 53,895,765 41,718,158 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, 2024 and December 31, 2023) — — Ordinary shares ($ 0.0001 par value, 200,000,000 shares authorized, 9,563,914 and 9,547,607 shares issued and outstanding as of December 31, 2024 and December 31, 2023, respectively) 956 955 Additional paid-in capital 21,279,047 20,877,832 Retained earnings 3,212,435 4,413,524 Accumulated other comprehensive loss ( 2,239,560 ) ( 1,111,499 ) FGI Industries Ltd. shareholders’ equity 22,252,878 24,180,812 Non-controlling interests ( 687,228 ) ( 154,040 ) Total shareholders’ equity 21,565,650 24,026,772 Total liabilities and shareholders’ equity $ 75,461,415 $ 65,744,930 _________________________________________________ The accompanying notes are an integral part of these consolidated financial statements. 46 Table of Contents FGI INDUSTRIES LTD. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME For the Years Ended December 31, 2024 2023 USD USD Revenue $ 131,818,073 $ 117,241,604 Cost of revenue 96,390,733 85,164,322 Gross profit 35,427,340 32,077,282 Operating expenses Selling and distribution 25,627,634 19,971,912 General and administrative 10,199,914 8,424,083 Research and development 1,699,383 1,376,844 Total operating expenses 37,526,931 29,772,839 (Loss) income from operations ( 2,099,591 ) 2,304,443 Other income (expenses) Interest income 9,792 10,543 Interest expense ( 1,246,742 ) ( 749,729 ) Other income (expenses), net 1,054,443 ( 177,469 ) Total other income (expenses), net ( 182,507 ) ( 916,655 ) (Loss) income before income taxes ( 2,282,098 ) 1,387,788 Provision for (benefit of) income taxes Current 963,542 711,518 Deferred ( 1,511,363 ) 96,706 Total (benefit of) provision for income taxes ( 547,821 ) 808,224 Net (loss) income ( 1,734,277 ) 579,564 Less: net loss attributable to non-controlling shareholders ( 533,188 ) ( 154,040 ) Net (loss) income attributable to FGI Industries Ltd. shareholders ( 1,201,089 ) 733,604 Other comprehensive (loss) income Foreign currency translation adjustment ( 1,128,061 ) 284,820 Comprehensive (loss) income ( 2,862,338 ) 864,384 Less: comprehensive loss attributable to non-controlling shareholders ( 533,188 ) ( 154,040 ) Comprehensive (loss) income attributable to FGI Industries Ltd. shareholders $ ( 2,329,150 ) $ 1,018,424 Weighted average number of ordinary shares Basic 9,565,167 9,525,434 Diluted 9,565,167 9,821,112 (Loss) earnings per share Basic $ ( 0.13 ) $ 0.08 Diluted $ ( 0.13 ) $ 0.07 _________________________________________________ The accompanying notes are an integral part of these consolidated financial statements. 47 Table of Contents FGI INDUSTRIES LTD. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY Preference Shares Ordinary Shares Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total FGI Industries Ltd. Shareholders' Equity Non- Controlling Interests Total Shareholders' Equity Shares Amount Shares Amount Balance at January 1, 2023 — $ — 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 (loss) — — — — — 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 Share-based compensation — — 16,307 1 401,215 — — 401,216 — 401,216 Net loss — — — — — ( 1,201,089 ) — ( 1,201,089 ) ( 533,188 ) ( 1,734,277 ) Foreign currency translation adjustments — — — — — — ( 1,128,061 ) ( 1,128,061 ) — ( 1,128,061 ) Balance at December 31, 2024 — $ — 9,563,914 $ 956 $ 21,279,047 $ 3,212,435 $ ( 2,239,560 ) $ 22,252,878 $ ( 687,228 ) $ 21,565,650 _________________________________________________ The accompanying notes are an integral part of these consolidated financial statements. 48 Table of Contents FGI INDUSTRIES LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2024 2023 USD USD CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) income $ ( 1,734,277 ) $ 579,564 Adjustments to reconcile net (loss) income to net cash used in operating activities Depreciation 474,828 200,764 Amortization 2,701,615 1,816,738 Share-based compensation 401,216 417,978 Provision for credit losses 137,592 78,640 Provision for defective return 257,643 ( 851,554 ) Foreign exchange transaction (gain) loss ( 659,544 ) 185,317 Deferred income tax (benefit) expense ( 1,496,752 ) 96,707 Changes in operating assets and liabilities Accounts receivable ( 4,928,997 ) ( 1,126,770 ) Inventories ( 4,034,016 ) 3,368,740 Prepayments and other current assets 1,284,680 ( 1,206,546 ) Prepayments and other receivables – related parties ( 3,960,942 ) ( 1,956,634 ) Other noncurrent assets ( 344,697 ) 883,108 Income taxes ( 165,930 ) 155,769 Accounts payable 4,824,922 ( 194,362 ) Accounts payable - related parties 159,353 630,866 Operating lease liabilities ( 2,207,636 ) ( 1,324,641 ) Accrued expenses and other current liabilities 1,865,625 459,139 Net cash (used in) provided by operating activities ( 7,425,317 ) 2,212,823 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment ( 2,206,052 ) ( 840,387 ) Purchase of intangible assets ( 669,764 ) ( 925,351 ) Net cash used in investing activities ( 2,875,816 ) ( 1,765,738 ) CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from (repayments of) revolving credit facility 7,543,192 ( 2,835,876 ) 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 YEAR 7,777,241 10,067,428 CASH, END OF YEAR $ 4,558,160 $ 7,777,241 SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the period for interest $ ( 1,233,763 ) $ ( 749,646 ) Cash paid during the period for income taxes $ ( 1,112,640 ) $ ( 552,163 ) NON-CASH INVESTING AND FINANCING ACTIVITIES New addition on right-of-use assets $ ( 158,082 ) $ ( 7,204,742 ) Acquisition of intangible asset partially through prior period advanced payment $ ( 1,241,664 ) $ — _________________________________________________ The accompanying notes are an integral part of these consolidated financial statements. 49 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. (formerly named Foremost Groups, Inc.) • A New Jersey corporation • Incorporated on January 5, 1988 • Sales and distribution in the United States 100 % owned by FGI FGI Europe Investment Limited • A British Virgin Islands holding company • Incorporated on January 1, 2007 100 % owned by FGI FGI International, Limited • A Hong Kong company • Incorporated on June 2, 2021 • Sales, sourcing and product development 100 % owned by FGI FGI Canada Ltd. • A Canadian company • Incorporated on October 17, 1997 • Sales and distribution in Canada 100 % owned by FGI Industries Inc. FGI Germany GmbH & Co. KG • A German company • Incorporated on January 24, 2013 • Sales and distribution in Germany 100 % owned by FGI Europe Investment Limited FGI China, Ltd. • A PRC limited liability company • Incorporated on August 19, 2021 • Sourcing and product development 100 % owned by FGI International, Limited FGI United Kingdom Ltd • An UK company • Incorporated on December 10, 2021 • Sales and distribution in UK 100 % owned by FGI Europe Investment Limited FGI Australasia Pty Ltd • An Australian company • Incorporated on September 8, 2022 • Sales and distribution in Australia 100 % owned by FGI Covered Bridge Cabinetry Manufacturing Co., Ltd • A Cambodian company • Incorporated on April 21, 2022 • Manufacturing in Cambodia 100 % owned by FGI Isla Porter LLC • A New Jersey company • Formed on June 2, 2023 • Sales and distribution in the United States 60 % owned by FGI Industries Inc. FGI Industries India Private Limited • An Indian company • Incorporated on June 11, 2024 • Sales and distribution in India 100 % owned by FGI 50 Table of Contents 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; (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. 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 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 had an initial term of one year and renews automatically unless cancelled by either party upon the giving of at least 60 days notice in advance of the expiration of the then-current term. On January 14, 2022, the Company entered into a shared services agreement (the “Worldwide Shared Services Agreement”) with Foremost Worldwide Co., Ltd. (“Foremost Worldwide”) pursuant to which Foremost Worldwide provides 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. On January 1, 2023, the Worldwide Services Agreement was amended and restated to include additional digital online and related 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 consolidated statements of operations and comprehensive (loss) income consists all the revenue, costs and expenses of the K&B Business, including allocations to 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 revenue and cost of revenue attributable to selling of K&B 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. 51 Table of Contents Since December 2023, the books and records of FHI have been completely separated from FGI Industries. The following table sets forth the revenue, cost of revenue and operating expenses that were irrelevant to the K&B Business allocated from FGI Industries to Foremost Home, Inc. for years ended December 31, 2024 and 2023, respectively. For the Years Ended December 31, 2024 2023 USD USD Revenue $ — $ 991,919 Cost of revenue — ( 768,065 ) Gross profit — 223,854 Selling and distribution expenses — 45,979 General and administrative expenses — — Research and development expenses — — Income from operations $ — $ 269,833 Since October 2022, the books and records of FGI International have been completely separated from Foremost Worldwide Co., Ltd., a wholly-owned subsidiary of Foremost. 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, 2024 , the Company had approximately $ 4.6 million in cash and cash equivalents, which primarily consists of cash on hand and bank deposits, which are unrestricted as to withdrawal and use. 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: • 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. 52 Table of Contents 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 revenue 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 and adopted 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 operations and comprehensive (loss) income. For the purpose of presenting the financial statements of subsidiaries using the Renminbi (“RMB”) as their functional currency, the Company’s assets and liabilities are expressed in U.S. Dollars at the exchange rate on the balance sheet date, which was 7.3094 and 7.1006 as of December 31, 2024 and 2023, respectively; shareholders’ equity accounts are translated at historical rates, and income and expense items are translated at the average exchange rate during the period. For the purpose of presenting the financial statements of the subsidiary using the Canadian Dollar (“CAD”) as its functional currency, the Company’s assets and liabilities are expressed in U.S. Dollars at the exchange rate on the balance sheet date, which was 1.4384 and 1.3246 as of December 31, 2024 and 2023, respectively; shareholders’ equity accounts are translated at historical rates, and income and expense items are translated at the average exchange rate during the period. For the purpose of presenting the financial statements of the subsidiary using the Euro (“EUR”) as its functional currency, the Company’s assets and liabilities are expressed in U.S. Dollars at the exchange rate on the balance sheet date, which was 0.9600 and 0.9059 as of December 31, 2024 and 2023, respectively; shareholders’ equity accounts are translated at historical rates, and income and expense items are translated at the average exchange rate during the period. For the purpose of presenting the financial statements of the subsidiary using the Indian Rupee (“INR”) as its functional currency, the Company’s assets and liabilities are expressed in U.S. Dollars at the exchange rate on the balance sheet date, which was 85.4912 as of December 31, 2024; shareholders’ equity accounts are translated at historical rates, and income and expense items are translated at the average exchange rate during the period. 53 Table of Contents Reclassification Certain prior year amounts have been reclassified to conform with the current year presentation, specifically the depreciation and amortization in the consolidated statements of cash flows. These reclassifications have no effect on the consolidated balance sheets and the consolidated statements of operations and comprehensive (loss) income previously reported. 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 not have any cash equivalents as of December 31, 2024 and 2023. Accounts receivable, net Accounts receivables include trade accounts due from customers. 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. 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: 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 . 54 Table of Contents 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, 2024 and 2023, 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 (“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 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. 55 Table of Contents 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. 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. 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 Company’s disaggregated revenue is summarized as follows: For the Years Ended December 31, 2024 2023 USD USD Revenue by product line Sanitaryware $ 81,109,955 $ 75,551,117 Bath Furniture 14,739,205 14,770,376 Shower System 25,521,977 19,997,197 Others 10,446,936 6,922,914 Total $ 131,818,073 $ 117,241,604 Total Revenue Total Assets For the Years Ended December 31, As of December 31, 2024 2023 2024 2023 USD USD USD USD Revenue/ total assets by geographic location United States $ 82,378,167 $ 74,572,336 $ 47,935,433 $ 38,401,665 Canada 35,151,631 31,092,989 15,027,362 17,850,709 Europe 13,301,990 11,477,070 1,625,994 528,068 Rest of World 986,285 99,209 10,872,626 8,964,488 Total $ 131,818,073 $ 117,241,604 $ 75,461,415 $ 65,744,930 56 Table of Contents 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, 2024 and 2023, shipping and handling expense was $ 1,261,294 and $ 711,640 , 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 of $ 401,216 and $ 417,978 for the years ended December 31, 2024 and 2023, 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 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 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 and penalties on its uncertain tax positions, which were insignificant for the years ended December 31, 2024 and 2023, in income tax expense. As of December 31, 2024, the tax years ended December 31, 2021 through December 31, 2023 for FGI Industries remain open for statutory examination by tax authority. The Company 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 operations and comprehensive (loss) 57 Table of Contents income as allocations of the net income or loss for the period between non-controlling shareholders and the shareholders of the Company. Comprehensive income (loss) Comprehensive income (loss) consists of two components: net income and other comprehensive income. Other comprehensive income (loss) refers to revenue, expenses, gains and losses that under U.S. 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 (loss) per share The Company computes earnings (loss) 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. The following table sets forth the computation of basic and diluted earnings per share for the year ended December 31, 2024 and 2023 : For the Years Ended December 31, 2024 2023 USD USD Numerator: Net (loss) income attributable to FGI Industries Ltd. shareholders $ ( 1,201,089 ) $ 733,604 Denominator: Weighted-average number of ordinary shares outstanding — basic 9,565,167 9,525,434 Potentially dilutive shares from outstanding options/warrants — 295,678 Weighted-average number of ordinary shares outstanding — diluted 9,565,167 9,821,112 Earnings (loss) per share — basic $ ( 0.13 ) $ 0.08 Earnings (loss) per share — diluted $ ( 0.13 ) $ 0.07 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 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. 58 Table of Contents 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. Note 3 — Accounts receivable, net Accounts receivable, net consisted of the following: As of December 31, 2024 As of December 31, 2023 USD USD Accounts receivable $ 21,487,303 $ 17,184,706 Allowance for credit losses ( 191,821 ) ( 244,879 ) Accrued defective return and discount ( 1,001,927 ) ( 744,284 ) Accounts receivable, net $ 20,293,555 $ 16,195,543 Movements of allowance for credit losses are as follows: For the Years Ended December 31, For the Year Ended December 31, 2024 2023 USD USD Beginning balance $ 244,879 $ 438,843 Provision 137,592 78,640 Write-off ( 190,650 ) ( 272,604 ) Ending balance $ 191,821 $ 244,879 59 Table of Contents Movements of accrued defective return and discount accounts are as follows: For the Years Ended December 31, For the Year Ended December 31, 2024 2023 USD USD Beginning balance $ 744,284 $ 1,595,838 Provision (recovery) 257,643 ( 851,554 ) Ending balance $ 1,001,927 $ 744,284 Note 4 — Inventories, net Inventories, net consisted of the following: As of December 31, 2024 As of December 31, 2023 USD USD Finished product $ 14,789,552 $ 10,565,858 Reserves for slow-moving inventories ( 831,685 ) ( 642,006 ) Inventories, net $ 13,957,867 $ 9,923,852 Movements of inventory reserves are as follows: For the Years Ended December 31, For the Year Ended December 31, 2024 2023 USD USD Beginning balance $ 642,006 $ 663,530 Provision (recovery) 189,679 ( 21,524 ) Ending balance $ 831,685 $ 642,006 Note 5 — Prepayments and other assets Prepayments and other assets consisted of the following: As of December 31, 2024 As of December 31, 2023 USD USD Prepayments $ 1,806,555 $ 3,953,340 Others 284,852 664,411 Total prepayments and other assets $ 2,091,407 $ 4,617,751 60 Table of Contents Note 6 — Property and equipment, net Property and equipment, net consist of the following: As of December 31, 2024 As of December 31, 2023 USD USD Building $ 946,066 $ 946,066 Leasehold Improvements 1,919,687 1,695,361 Machinery and equipment 3,549,167 1,613,439 Furniture and fixtures 274,994 259,449 Vehicles 147,912 147,912 Molds 26,377 26,377 Subtotal 6,864,203 4,688,604 Less: accumulated depreciation ( 3,311,647 ) ( 2,778,113 ) Prepayment for purchase of equipment and construction-in-progress 81,784 — Total $ 3,634,340 $ 1,910,491 Depreciation expenses for the years ended December 31, 2024 and 2023 amounted to $ 474,828 and $ 200,764 , respectively, which were included in general and administrative expenses on the consolidated statements of operations and comprehensive (loss) income. Note 7 — Leases The Company has operating leases primarily for corporate offices, warehouses and showrooms. As of December 31, 2024, the Company’s leases have remaining lease terms up to 10.2 years. The Company also purchased an operating lease for land from a common control affiliate for manufacturing purposes, which has a remaining lease term up to 47.5 years and can be extended for another 50.0 years for $ 1 . For the years ended December 31, 2024, and 2023, the total lease expenses were $ 2,763,970 and $ 2,581,542 respectively. The table below presents the operating lease related assets and liabilities recorded on the Company’s consolidated balance sheets: As of December 31, 2024 As of December 31, 2023 USD USD Operating lease right-of-use assets $ 12,823,747 $ 15,203,576 Operating lease liabilities – current $ 1,867,956 $ 1,595,998 Operating lease liabilities – noncurrent 11,352,939 13,674,452 Total operating lease liabilities $ 13,220,895 $ 15,270,450 Information relating to the lease term and discount rate are as follows: 61 Table of Contents As of December 31, 2024 As of December 31, 2023 Weighted-average remaining lease term Operating leases 8.7 years 9.4 years Weighted-average discount rate Operating leases 5.7 % 5.7 % As of December 31, 2024 , the maturities of operating lease liabilities were as follows: For the 12 months ending December 31, 2025 $ 2,575,464 2026 2,622,311 2027 2,613,448 2028 2,221,045 2029 1,339,891 Thereafter 5,258,220 Total lease payments 16,630,379 Less: imputed interest ( 3,409,484 ) Present value of lease liabilities $ 13,220,895 Note 8 — Short-term loans East West Bank loan 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 the Credit Agreement had 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. 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 , tested at the end of each fiscal quarter, on a 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 a consolidated basis. As of December 31, 2024, 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, 2024 and 2023 was 7.25 % and 8.25 %, 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 $ 9.6 million and $ 7.0 million as of December 31, 2024 and 2023, respectively. RBC Bank Loan / Foreign Exchange Facility FGI Canada Ltd. 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 CAD 7.5 62 Table of Contents million (USD 5.2 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. 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, 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 RBC upon 60 days’ notice. FGI Canada Ltd. also has a revolving foreign exchange facility with RBC of up to a permitted maximum of USD 3.0 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 USD 3.0 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. (“CTBC”). 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. 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 is 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 sold at a price of $ 6.00 per Unit. The Warr ants 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. 63 Table of Contents 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 has been exercised. The gross proceeds from the IPO were approximately $ 15.0 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 the 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. 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 shareholders on October 7, 2021, and became effective on the effective date of the Company’s consummation of the IPO of its ordinary shares. The ESPP offers eligible employees the opportunity to acquire a stock ownership interest in the Company through periodic payroll deductions that will be applied towards the purchase of ordinary shares at a discount from the then-current market price. The 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. 64 Table of Contents Restricted shares units (“RSU”) In January 2022, the Company issued 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 of 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, 2024, 122,500 of these granted RSUs were vested. In April 2022, the Company issued 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 of 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, 2024, 7,778 of these granted RSUs were vested. In May 2022, the Company issued 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 were 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 of May 11, 2022. If the maximum performance was met, the Company would have issued an additional 43,805 RSUs under these awards with a grant date fair value of $ 99,000 . As of December 31, 2024, all RSUs were canceled and none of them were vested. In May 2022, the Company issued 16,363 RSUs to its independent directors under the 2021 Equity Plan as compensation award. All these awards are subjected to performance conditions through December 31, 2024 . The fair value for these RSUs was $ 36,000 based on the closing share price of $ 2.20 as of May 17, 2022. As of December 31, 2024 , all RSUs were canceled and none of them were vested. In March 2023, the Company issued 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 of 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, 2024, none of these RSUs were vested. In March 2023 , the Company issued 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 of March 29, 2023 . As of December 31, 2024 , 10,120 of these RSUs were vested. In March 2024, the Company issued 413,354 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 $ 620,031 based on the closing share price of $ 1.50 as of March 22, 2024. If the maximum performance is met, the Company will issue an additional 206,677 RSUs under these awards with a grant date fair value of $ 310,016 . As of December 31, 2024 , none of these RSUs were vested. In April 2024, the Company issued 13,333 RSUs under the 2021 Equity Plan to one of the Company’s employees. This award was subject to performance obligations through December 31, 2024. The grant date fair value for these RSUs was $ 20,000 based on the closing share price of $ 1.50 as of April 1, 2024. If the maximum performance was met, the Company would have issued an additional 6,667 RSUs under these awards with a grant date fair value of $ 10,000 . As of December 31, 2024 , all RSUs were canceled and none of them were vested. 65 Table of Contents The following is a summary of the restricted share granted: Restricted shares grants Shares Non-vested as of January 1, 2023 296,474 Granted 113,984 Vested ( 66,111 ) Canceled ( 87,611 ) Non-vested as of December 31, 2023 256,736 Granted 426,687 Vested ( 74,287 ) Canceled ( 29,696 ) Non-vested as of December 31, 2024 579,440 The following is a summary of the status of restricted share at December 31, 2024: Outstanding Restricted Shares Fair Value per share Number Average Remaining Amortization Period (Years) $ 3.90 61,250 0.08 $ 2.52 972 0.25 $ 2.08 96,635 1.25 $ 2.08 7,229 1.25 $ 1.50 413,354 2.25 579,440 Share options (“Options”) In March 2022, the Company issued 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, 2024, 90,518 of these granted options were vested. In April 2022, the Company issued 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, 2024, 86,552 of these granted options were vested. In May 2022, the Company issued 159,881 share options under the 2021 Equity Plan with an exercise price per share of $ 2.26 and a contractual life of 10 years to Company officers to incentivize their performance and continue to align their interests with the Company’s shareholders. The fair value for these options was $ 171,462 determined using the Black-Scholes simplified method at the per option fair value of $ 1.07 . The number of options granted were subject to performance conditions through December 31, 2022, which could result 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, 2024, 137,675 of these granted options were vested. 66 Table of Contents In March 2023, the Company issued 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, 2024, all options were canceled and none of them were vested. In April 2023, the Company issued 106,341 share options under the 2021 Equity Plan with an exercise price per share of $ 1.74 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 $ 112,423 determined using the Black-Scholes simplified method at the per option fair value of $ 1.06 . 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, 2024, 59,078 of these granted options were vested. In March 2024, the Company issued 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. As of December 31, 2024 , none of these granted options were vested. In April 2024, the Company issued 167,994 share options under the 2021 Equity Plan with an exercise price per share of $ 1.32 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 $ 126,163 determined using the Black-Scholes simplified method at the per option fair value of $ 0.75 . 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, 2024, none of these granted options 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: Number of Options Weighted Average Exercise Price Weighted Average Grant Date Fair Value Weighted Average Remaining Contractual Term Average Intrinsic Value USD USD Years USD Share options outstanding at December 31, 2023 462,340 $ 2.37 $ 1.20 9.35 $ — Granted 697,629 1.46 0.82 10.00 — Forfeited — Exercised — Expired — Share options outstanding at December 31, 2024 1,159,969 1.82 0.96 8.56 — Vested and exercisable at December 31, 2024 373,824 $ 2.43 $ 1.18 7.44 $ — For the years ended December 31, 2024 and 2023, the total fair value of options awarded was $ 573,163 and $ 313,423 , respectively. 67 Table of Contents The aggregate intrinsic value in the table above represents the difference between the exercise price of the awards and the fair value of the underlying Ordinary Shares at each reporting date, for those awards that had exercise price below the estimated fair value of the relevant Ordinary Shares. Fair value of options The Company used the Black-Scholes simplified method for the year ended December 31, 2024. The assumptions used to value the options granted to employees were as follows: April 2024 March 2024 April 2023 March 2023 Risk-free interest rate (%) 4.54 4.21 3.50 3.65 Expected volatility range (%) 55.32 55.11 63.39 63.36 Fair market value per ordinary share as at grant dates $ 1.32 $ 1.50 $ 1.74 $ 2.08 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 Years Ended December 31, 2024 2023 USD USD Selling and distribution expenses $ 190,864 $ 124,994 General and administrative expenses 210,352 292,984 Total share-based compensation expenses $ 401,216 $ 417,978 As of December 31, 2024, there was $ 202,328 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 1.41 years. 68 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, 2024 2023 USD USD Income components United States $ ( 5,300,760 ) $ ( 681,951 ) Outside United States 3,018,662 2,069,739 Total pre-tax (loss) income $ ( 2,282,098 ) $ 1,387,788 Provision for (benefit of) income taxes Current Federal $ 2,809 $ 27,451 State 46,915 13,555 Foreign 913,818 670,512 963,542 711,518 Deferred Federal ( 941,331 ) 24,622 State ( 435,241 ) 92,271 Foreign ( 134,791 ) ( 20,187 ) ( 1,511,363 ) 96,706 Total (benefit of) provision for income taxes $ ( 547,821 ) $ 808,224 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, 2024 2023 % % Federal statutory rate 21.0 21.0 Increase (decrease) in tax rate resulting from: State and local income taxes, net of federal benefit 13.4 ( 0.5 ) Foreign operations ( 6.4 ) 15.1 Permanent items ( 8.1 ) 3.1 Deferred adjustments — 16.8 Others 4.1 2.7 Effective tax rate 24.0 58.2 The following is a summary of the components of the net deferred tax assets and liabilities recognized in the consolidated balance sheets: 69 Table of Contents As of December 31, 2024 As of December 31, 2023 USD USD Deferred tax assets Allowance for credit losses $ 45,859 $ 58,476 Other reserve 127,515 61,371 Accrued expenses 152,600 143,823 Lease liability 1,464,256 1,769,328 Charitable contributions 331 8,181 Business interest limitation 634,794 242,862 Net operating loss – federal 976,500 310,099 Net operating loss – state 328,861 27,337 Other 186,554 66,063 Total deferred tax assets 3,917,270 2,687,540 Less: valuation allowance — — Net deferred tax assets 3,917,270 2,687,540 Deferred tax liabilities Fixed assets 1,416,178 1,728,364 Intangibles ( 164,493 ) ( 209,657 ) Total deferred tax liabilities 1,251,685 1,518,707 Deferred tax assets, net of deferred tax liabilities $ 2,665,585 $ 1,168,833 The deferred tax assets related to the Company’s net operating losses of $ 10,056,026 (Federal $ 4,649,994 and States $ 5,406,032 ) and $ 1,836,077 (Federal $ 1,476,655 and States $ 359,422 ) as of December 31, 2024 and December 31, 2023, 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, 2024 or December 31, 2023. The Company has not taken any tax positions for which it is reasonably possible that unrecognized tax benefits will significantly increase within the next 12 months. 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. 70 Table of Contents Note 12 — Related party transactions and balances Sales to a related party Name of Related Party Relationship Nature of Transactions For the Years Ended December 31, 2024 2023 USD USD Foremost Worldwide Co., Ltd. An entity under common control Sales $ 799,967 $ — $ 799,967 $ — Purchases from related parties Name of Related Party Relationship Nature of Transactions For the Years Ended December 31, 2024 2023 USD USD Focal Capital Holding Limited An entity under common control Purchases $ 6,157,455 $ 7,003,714 Foremost Worldwide Co., Ltd. An entity under common control Purchases 8,385,673 2,308,468 Rizhao Foremost Woodwork Manufacturing Co., Ltd. An entity under common control Purchases 330,722 16,026 F.P.Z. Furniture (Cambodia) Co., Ltd. An entity under common control Purchases 125,208 575,061 Foremost Australasia Pty Ltd An entity under common control Purchases — 409,777 $ 14,999,058 $ 10,313,046 The ending balances of such transactions as of December 31, 2024 and 2023 are listed of the following: Prepayments — related parties Name of Related Party As of December 31, 2024 As of December 31, 2023 USD USD Focal Capital Holding Limited $ 9,975,298 $ 6,658,498 Rizhao Foremost Woodwork Manufacturing Co., Ltd. — 9,181 $ 9,975,298 $ 6,667,679 Accounts Payables — related parties Name of Related Party As of December 31, 2024 As of December 31, 2023 USD USD Foremost Worldwide Co., Ltd. $ 718,605 $ 735,308 Rizhao Foremost Woodwork Manufacturing Co., Ltd. $ 56,389 $ — F.P.Z. Furniture (Cambodia) Co., Ltd. $ 119,667 $ — $ 894,661 $ 735,308 71 Table of Contents Shared Service and Miscellaneous expenses – related party FGI Industries 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, 2024 and 2023 were $ 761,672 and $ 821,864 , 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, 2024 and 2023 were $ 287,993 and $ 304,103 , respectively. Other Receivables (Payables) — related parties Name of Related Party Relationship Nature of Transactions As of December 31, 2024 As of December 31, 2023 USD USD Foremost Home Inc. (“FHI”) An entity under common control Shared services and Miscellaneous expenses 2,654,286 1,183,612 Foremost Worldwide Co., Ltd. An entity under common control Shared services and Miscellaneous expenses ( 340,901 ) ( 251,008 ) F.P.Z. Furniture (Cambodia) Co., Ltd. An entity under common control Shared services and Miscellaneous expenses ( 291,710 ) — $ 2,021,675 $ 932,604 Loan guarantee by a related party Liang Chou Chen holds approximately 49.91 % of the voting control of Foremost, the Company’s majority shareholder and is a guarantor of the loans under the Credit Agreement and under the CTBC Credit Line. 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 CAD100,000 (approximately USD69,522) if the bank with which an individual/a company holds its eligible deposit fails. As of December 31, 2024, a cash balance of CAD 1,937,962 (USD 1,347,304 ) was maintained at financial institutions in Canada, of which CAD 1,837,962 (USD 1,276,880 ) was subject to credit risk. The Taiwan Central Deposit Insurance Corporation pays compensation up to a limit of New Taiwan Dollar 3,000,000 (approximately USD91,500) if the bank with which an individual/a company holds its eligible deposit fails. As of December 31, 2024, an aggregated cash balance of USD 2,548,188 was maintained at financial institutions in Taiwan, of which USD 2,260,205 was subject to credit risk. The European Banking Authority pays compensation up to a limit of EUR100,000 (approximately USD104,167) if the bank with which an individual/a company holds its eligible deposit fails. As of December 31, 2024, cash balance of EUR 132,650 (USD 138,178 ) was maintained at financial institutions in Europe, of which EUR 11,182 (USD 11,647 ) was subject to credit risk. As of December 31, 2024, cash balance of USD 143,567 was maintained at financial institutions in Kingdom of Cambodia, all of which was subject to credit risk. The Reserve Bank of India pays compensation up to a limit of INR500,000 (approximately USD5,849) if the bank with which an individual/a company holds its eligible deposit fails. As of December 31, 2024, cash balance of INR 1,714,244 (USD 20,052 ) was maintained at financial institutions in India, of which INR 1,214,244 (USD 14,203 ) 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. 72 Table of Contents Customer concentration risk For the year ended December 31, 2024, two customers accounted for 17.9 % and 16.7 % of the Company’s total revenue, respectively. For the year ended December 31, 2023, three customers accounted for 17.6 %, 16.4 % and 10.4 % of the Company’s total revenue, respectively. No other customer accounted for more than 10% of the Company’s revenue for the years ended December 31, 2024 and 2023. As of December 31, 2024, two customers accounted for 29.4 % and 11.4 % of the total balance of accounts receivable, respectively. As of December 31, 2023, four customers accounted for 27.2 %, 19.0 %, 12.0 % and 11.1 % of the total balance of accounts receivable, respectively. No other customer accounted for more than 10% of the Company’s accounts receivable as of December 31, 2024 and 2023. Vendor concentration risk For the year ended December 31, 2024, Tangshan Huida Ceramic Group Co., Ltd (“Huida”) accounted for 55.5 % of the Company’s total purchases. For the year ended December 31, 2023, Huida accounted for 54.7 % of the Company’s total purchases, respectively. No other supplier accounted for more than 10% of the Company’s total purchases for the years ended December 31, 2024 and 2023. As of December 31, 2024, Huida accounted for 69.6 % of the total balance of accounts payable. As of December 31, 2023, Huida accounted for 71.4 % of the total balance of accounts payable. No other supplier accounted for more than 10% of the Company’s accounts payable as of December 31, 2024 and 2023. 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’s 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 its results of operations or financial condition. Note 15 — Segment information The Company follows ASC 280, “Segment Reporting” and adopted ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”. 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 which derives its revenue from the supply of bath and kitchen products. The accounting policies of the kitchen and bath segment are the same as those described in the summary of significant accounting policies. The measure of segment net income (loss) is reported on the consolidated statements of operations and comprehensive (loss) income as net income (loss). The measure of segment total assets is reported on the consolidated balance sheets as total assets. The Company's segment revenue, segment expenses, segment net income (loss), and a reconciliation of the total reportable segment's net income (loss) to the consolidated net income (loss) are as follows: 73 Table of Contents Kitchen and Bath Segment For the Years Ended December 31, 2024 2023 USD USD Revenue $ 131,818,073 $ 117,241,604 Less: Cost of revenue 96,390,733 85,164,322 Selling and distribution expenses 25,627,634 19,971,912 General and administrative expenses 10,199,914 8,424,083 Research and development expenses 1,699,383 1,376,844 Other segment items (1) 182,507 916,655 (Benefit of) provision for income taxes ( 547,821 ) 808,224 Segment net (loss) income ( 1,734,277 ) 579,564 Reconciliation of profit or loss Adjustments and reconciling items — — Consolidated net (loss) income $ ( 1,734,277 ) $ 579,564 (1) Other segment items included interest income, interest expense and non-recurring other income and expenses. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no disagreements with Marcum LLP.