What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-04-10 compared with 2025-03-31 · 150 added, 194 removed, 144 unchanged (70% of the section changed)

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We are currently focused on the following product categories:

sanitaryware (primarily toilets, sinks, pedestals and toilet seats), bath furniture (vanities, mirrors and cabinets), shower systems, customer kitchen cabinetry and other accessory items.

sanitaryware (primarily toilets, sinks, pedestals and toilet seats), bath furniture (vanities, mirrors and cabinets), shower systems, custom kitchen cabinetry and other accessory items.

These products are sold primarily for R&R activity and, to a lesser extent, new home or commercial construction.

We sell our products through numerous partners, including mass retail centers, wholesale and commercial distributors, online retailers and specialty stores.

Consistent with our long-term strategic plan, we intend to drive value creation for our shareholders through a balanced focus on product innovation, organic growth, and efficient capital deployment.

Consistent with our long-term strategic plan, we expect to continue to make significant investments across our business in order to continue to attract new customers, expand existing relationships, develop new products and manufacturing capabilities and expand into new jurisdictions, thereby prioritizing long-term growth over short-term profitability.

We intend to drive long-term value creation for our shareholders through a balanced focus on product innovation, organic growth, and efficient capital deployment.

The following initiatives represent key strategic priorities for us:

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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 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 2025, we entered into a 5-year licensing agreement that will provide us access to an industry leading overflow toilet technology.

We will continue to market this technology as FLUSH GUARD ® Overflow Technology.

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.

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Our focus on higher-margin products has continued to deliver results, with gross margins reaching 27.0% in 2025 and 26.9% in 2024, a significant rise from 19.5% in 2022.

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

This positive trajectory in margins reflects our commitment to optimizing our product mix and operational efficiency despite recent headwinds from tariffs.

Looking ahead, we anticipate gross margins to remain in line with the levels achieved in 2025 and 2024.

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

With total financial resources of $8.5 million as of December 31, 2025, the Company believes it has sufficient financial flexibility to fund its organic growth strategy.

• Deep manufacturing partners and customer relationships.

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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.

We were incorporated in the Cayman Islands on May 26, 2021 in connection with a reorganization (the “Reorganization”) of our parent company, Foremost Groups Ltd.

We were incorporated in the Cayman Islands on May 26, 2021 in connection with a reorganization and separation from our parent company, Foremost Groups Ltd.

(“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.

Reverse Share Split

On July 28, 2025, the Company filed an amendment (the “Amendment”) to the Company’s Amended and Restated Memorandum and Articles of Association with the Registrar of Companies in the Cayman Islands to effect a 1-for-5 reverse share split (the “Reverse Share Split”) of the Company’s ordinary shares, which was effected on July 31, 2025.

Unless otherwise noted, the share and per share information in this Annual Report on Form 10-K have been adjusted to give effect to the Reverse Share Split.

Tariff Developments

Our business was significantly impacted by the changes in the U.S.

tariff regime in 2025 and related responses from foreign jurisdictions.

On February 20, 2026, the U.S.

Supreme Court struck down certain tariffs imposed under the International Emergency Economic Powers Act (IEEPA).

Following the Supreme Court decision, the U.S.

Administration announced a new 10% global tariff under Section 122 of the Trade Act of 1974, subject to certain carveouts.

As of the filing date, it remains uncertain what impact these decisions will have on our future financial results, including the process and availability of obtaining refunds of amounts previously paid for the IEEPA tariffs or any fluctuations of the level of replacement tariffs imposed or the addition of any new tariffs through other means.

Results of Operations

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The following table summarizes the results of our operations for the years ended December 31, 2025 and 2024, respectively, and provides information regarding the dollar and percentage increase (decrease) during such periods.

For the Years Ended

For the Year Ended

December 31, Change

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Research and development expenses 1,417,329 1,699,383 (282,054) (16.6)

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

Loss from operations (2,402,056) (2,099,591) (302,465) 14.4

Operating margins (%) (1.8) (1.6) (20) bps

Total other expenses, net (1,936,958) (182,507) (1,754,451) 961.3

(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.

Provision for (benefit of) income taxes 2,786,392 (547,821) 3,334,213 (608.6)

Net loss (7,125,406) (1,734,277) (5,391,129) 310.9

Net loss attributable to FGI Industries Ltd.

shareholders (6,139,526) (1,201,089) (4,938,437) 411.2

Adjusted (loss) income from operations (1)

Adjusted loss from operations (1)

(2,382,150) (1,613,635) (768,515) 47.6

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(1.8) (1.2) (60) bps

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

Adjusted net loss attributable to FGI Industries Ltd.

shareholders (1)

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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.

Our revenue decreased by $1.3 million, or 1.0%, to $130.5 million for the year ended December 31, 2025, from $131.8 million for the year ended December 31, 2024.

The decrease in our revenue was driven by decreases in sales of sanitaryware, bath furniture and shower system, partially offset by an increase in sales of kitchen cabinetry and others.

Revenue categories by product are summarized as follow:

For the Years Ended December 31, Change

For the Year Ended December 31, Change

2025 Percentage 2024 Percentage Percentage

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We derive the majority of our revenue from sales of sanitaryware, which accounted for 61.5% and 61.5% of our total revenue for the years ended December 31, 2025 and 2024, 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.

Revenue generated from the sales of sanitaryware decreased by 1.0% to $80.3 million for the year ended December 31, 2025, from $81.1 million for the year ended December 31, 2024.

Despite this modest decline, sanitaryware maintained its position as our largest product category.

The stability in its share of total revenue reflects the ongoing resilience and steady demand for sanitaryware products, even as we continue to diversify our product portfolio and expand other categories in line with our long-term growth strategy.

Our revenue from bath furniture sales accounted for 10.9% and 11.2% of our total revenue for the years ended December 31, 2025 and 2024, respectively.

Revenue generated from bath furniture sales decreased by 3.6% to $14.2 million for the year ended December 31, 2025 from $14.7 million for the year ended December 31, 2024.

As part of our broader strategic focus on diversifying our product mix and expanding higher-growth categories, resources and sales efforts were increasingly allocated to other segments, which likely were factors in bath furniture sales during the period.

Revenue from shower systems made up approximately 17.3% and 19.4% of our total revenue for the years ended December 31, 2025 and 2024, 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.

Revenue from sales of shower systems decreased by 11.5% to $22.6 million for the year ended December 31, 2025 from $25.5 million for the year ended December 31, 2024.

While shower system revenue dropped year-over-year in 2025, our recently launched programs have driven growth in recent quarters and we anticipate them continuing to be a positive driver moving forward, similar to our sanitaryware programs.

Our revenue from sales of other products (custom kitchen cabinetry and other small offerings) increased by 28.4% to $13.4 million for the three months ended December 31, 2025, compared to $10.4 million for the year ended December 31, 2024.

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Revenue categories by geographic location are summarized as follows:

For the Years Ended December 31, Change

For the Year Ended December 31, Change

2025 Percentage 2024 Percentage Percentage

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Total $ 130,528,652 100.0 $ 131,818,073 100.0 (1.0)

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.

We generated the majority of our revenue in the United States market, which amounted to $80.7 million for the year ended December 31, 2025, and $82.4 million for the year ended December 31, 2024, representing a 2.0% decrease.

This revenue accounted for 61.8% and 62.5% of our total revenue for the years ended December 31, 2025 and 2024, respectively.

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

This modest decrease reflects our ability to minimize the broader effects of tariff-related disruptions through proactive supply chain management, pricing strategies, and close collaboration with our key customers.

As a result, despite the significant headwinds from trade policies, our U.S.

business demonstrated relative resilience and continued to represent a stable 61.8% of total revenue, underscoring the effectiveness of our efforts to manage external challenges and maintain our market position.

Our second largest market is Canada.

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.

Our revenue generated in the Canadian market was $33.3 million and $35.2 million for the years ended December 31, 2025 and 2024, respectively, representing a 5.1% decrease.

This decline reflects a moderation in sales during the second half of the year, as retailers continued to slow purchases following strong activity in the first half.

While the wholesale channel showed signs of improvement in the third quarter, this momentum was not sufficient to offset the overall softness in demand during the latter part of the year.

Despite these headwinds, Canada remained our second largest market, accounting for 25.5% of total revenue, and we continue to closely monitor market dynamics and adjust our strategies to support long-term growth in the region.

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

This amounted to $14.2 million and $13.3 million for the years ended December 31, 2025 and 2024, respectively, representing a 6.8% 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.

Our warehouse business in Germany has been gaining traction in recent years.

Gross profit was $35.3 million for the year ended December 31, 2025, reflecting a 0.5% decrease compared to the prior year.

Gross profit margin percentage stood at 27.0% for the year ended December 31, 2025, a 10-basis-point increase from 26.9% in 2024.

Operating Expenses

Selling and distribution expenses primarily consisted of personnel costs, marketing and promotion costs, commission, and freight and leasing charges.

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 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.

Our selling and distribution expenses decreased by $0.5 million, or 1.9%, to $25.1 million for the year ended December 31, 2025, from $25.6 million for the year ended December 31, 2024.

This reduction is a result of our continued focus on operational efficiency and cost management initiatives.

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 $0.9 million, or 8.9%, to $11.1 million for the year ended December 31, 2025, as compared to the year ended December 31, 2024.

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

The increase was primarily due to inflationary pressures and additional expenditures related to corporate support activities.

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

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

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.

Total other expenses, net increased by approximately $1.8 million to $1.9 million for the year ended December 31, 2025, from $0.2 million for the year ended December 31, 2024.

This increase was primarily driven by losses from foreign currency transactions.

Provision for Income Taxes

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.

We recorded provision for income tax of $2.8 million for the year ended December 31, 2025, primarily due to the requirement to maintain a full valuation allowance on deferred tax assets in our U.S.

subsidiaries as a result of recurring losses.

While this accounting treatment is required under current standards, we remain focused on executing our strategic initiatives and are encouraged by the progress we are making, which we believe positions us well for potential future improvements in our operating results.

Any sustained positive performance in future periods will be evaluated in accordance with applicable accounting guidance to determine the appropriate level of valuation allowance.

For the year ended December 31, 2025, we reported a net loss of $7.1 million, compared to a net loss of $1.7 million in 2024, reflecting a $5.4 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

Our principal sources of liquidity are cash generated from operating activities and cash borrowed under credit facilities, which we believe provides sufficient liquidity to support our financing needs.

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

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.

The Company's consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will continue to operate in the normal course of business and will be able to realize its assets and discharge its liabilities as they become due.

The Company has incurred net loss of $7.1 million and $1.7 million for the twelve months ended December 31, 2025 and the year ended December 31, 2024, respectively.

In addition, the Company had net cash provided by operating activities of $0.7 million and net cash used in operating activities of $7.4 million for the same respective periods.

As of December 31, 2025, the Company had approximately $1.9 million in cash and cash equivalents and had $11.9 million outstanding under its credit facilities, which were used primarily for working capital purposes.

As discussed in Note 8 to the consolidated financial statements, FGI Industries was not in compliance with certain financial covenants related to its debt coverage ratio as of December 31, 2025.

In March 2026, the Company amended and restated its Credit Agreement with East West Bank and is currently in compliance with all covenants.

As of December 31, 2025, FGI Canada was not in compliance with certain covenants related to its debt to tangible net worth ratio.

RBC agreed to waive its right to call the debt related to this noncompliance.

However, the Company has been facing and expects to continue to face adverse impacts from elevated tariff costs on imported goods.

These increased costs have put pressure on gross margins and have contributed to the overall liquidity challenges.

In response to the conditions, the Company implemented a number of actions, including:

• Termination of the lease for one of its warehouse facilities in the first quarter of 2025, which resulted in a non-recurring lease exit cost.

The facility had idle capacity, and the termination reduced the Company’s ongoing fixed overhead expenses.

• Execution of cost control initiatives across multiple operating departments, targeting to lower recurring operating expenses.

• Commercial launch and promotion of new product lines, including anti-overflow toilets, shower systems, and custom kitchen cabinetry, which have begun generating increased revenue.

• Successful renewal of the Company’s credit facility with East West Bank, extending the maturity and maintaining access to committed financing.

As a result of these actions, the Company expects to improve its liquidity and reduce its cost structure.

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.

East West Bank Credit Facility

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.

The current amount of maximum borrowings is $18,000,000 and the Credit Agreement had an original maturity date of December 21, 2024.

East West Bank has agreed to extend the maturity date on several occasions, most recently through April 3, 2026 while the parties discuss a renewal of the facility.

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;

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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 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) .

As of December 31, 2025, FGI Industries was not in compliance with certain financial covenants related to its debt coverage ratio.

The Company has classified the outstanding balance of the loan as a current liability on the consolidated balance sheet as of December 31, 2025.

The loan bears interest at a 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, 2025 and 2024 w as 6.50% and 7.25%, resp ectively.

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

On March 27, 2026, FGI Industries renewed its credit facility with East West Bank, extending the maturity to April 17, 2027.

The renewal includes a tiered interest‑rate margin determined by the subsidiary’s trailing‑twelve‑month EBITDA and updates to certain financial covenants, including revised EBITDA requirements and limitations on intercompany balances.

Following the renewal, the Company is in compliance with the revised covenant requirements.

See Note 16 to the consolidated financial statements.

Each sum of borrowings under the Credit Agreement is classified as a short-term loan.

The outstanding balance of such loan was $8.1 million and $9.6 million as of December 31, 2025 and 2024, respectively.

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FGI Canada Ltd.

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

(“FGI Canada”) 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 (USD5.5 million as of December 31, 2025).

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;

Pursuant to the Canadian Revolver, FGI Canada 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 HSBC Canada upon 60 days’ notice.

FGI Canada Ltd.

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

As of December 31, 2025, FGI Canada was not in compliance with certain covenants related to its debt to tangible net worth ratio.

RBC agreed to waive its right to call the debt related to this noncompliance.

Borrowings under this line of credit amounted to $1.7 million and $2.6 million as of December 31, 2025 and 2024, respectively.

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

FGI Canada 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.

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Under the CTBC Credit Line, FGI International may borrow, from time to time, up to $2.5 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 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.

Borrowings under this line of credit amounted to $2.1 million and $2.3 million as of December 31, 2025 and 2024, respectively.

The following table summarizes the key components of our cash flows for the years ended December 31, 2025, and 2024.

For the Years Ended December 31,

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

For the Year Ended December 31,

Net cash provided by (used in) operating activities $ 673,220 $ (7,425,317)

Net cash used in investing activities (1,015,847) (2,875,816)

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

Net cash (used in) provided by financing activities (2,633,539) 7,543,192

Effect of exchange rate fluctuation on cash 317,807 (461,140)

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Operating Activities

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.

Net cash provided by operating activities was approximately $0.7 million for the year ended December 31, 2025, compared to net cash used in operating activities of $7.4 million in the prior year.

The improvement in operating cash flow in 2025 was primarily driven by effective management of working capital, including a significant reduction in accounts receivable and higher accounts payable balances, which more than offset the impact of a net loss for the year.

Additionally, a decrease in prepayments and other current assets contributed positively to cash flow, reflecting tighter control over advance payments and operational outflows.

These improvements were partially offset by increased payments of operating lease liabilities and continued investments in our business to support long-term growth.

The shift from a significant cash outflow in 2024 to a modest inflow in 2025 demonstrates our ongoing efforts to enhance operational efficiency, optimize our working capital structure, and maintain financial flexibility in a dynamic market environment.

Investing Activities

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Financing Activities

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.

Net cash used in financing activities was approximately $2.6 million for the year ended December 31, 2025, compared to net cash provided by financing activities of $7.5 million in the prior year.

The cash outflow in 2025 primarily reflects net repayments on our revolving credit facilities as we focused on reducing outstanding debt and managing our capital structure in response to evolving business needs.

In contrast, the prior year’s positive cash flow from financing activities was largely attributable to increased borrowings to support working capital requirements and operational growth.

The transition from net cash inflows in 2024 to net outflows in 2025 underscores our commitment to prudent financial management and maintaining a balanced approach to liquidity and leverage as we continue to execute our strategic objectives.

Commitments and Contingencies

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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.

Our capital expenditures amounted to approximately $1.0 million and $2.9 million for the years ended

December 31, 2025 and 2024, respectively.

We do not expect to incur significant capital expenditures in the immediate future.

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We have no off-balance sheet arrangements including arrangements that would affect our liquidity, capital resources, market risk support and credit risk support or other benefits.

Critical Accounting Policies

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.

We have identified certain accounting policies that are significant to the preparation of the consolidated financial statements.

These accounting policies are important for an understanding of our financial condition and results of operations.

Critical accounting policies are those that are most important to the portrayal of our financial conditions and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

Certain accounting estimates are particularly sensitive because of their significance to consolidated financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments.

While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements included elsewhere in this registration statement, we believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our consolidated financial statements.

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.

Accounts receivable

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.

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.

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.

Critical Accounting Estimates

The preparation of our consolidated financial statements in accordance with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures.

While all estimates are subject to uncertainty, certain accounting estimates are considered critical because they are highly dependent on management’s judgment, involve significant uncertainty, and could materially impact our financial condition or results of operations if actual results differ from those estimates.

The following discussion addresses the critical accounting estimates that require our most difficult, subjective, or complex judgments.

Allowance for Credit Losses on Accounts Receivable

We maintain an allowance for expected credit losses on accounts receivable based on a combination of historical collection experience, the aging of receivables, current economic conditions, industry trends, and the financial condition of our customers.

Management regularly reviews the adequacy of the allowance, considering both quantitative and qualitative factors.

Changes in customer creditworthiness, macroeconomic conditions, or unexpected events could result in actual losses differing materially from our estimates.

A significant increase in uncollectible accounts could adversely affect our results of operations.

Inventory Valuation and Obsolescence Reserves

Inventories are stated at the lower of cost or net realizable value.

We record reserves for slow-moving, excess, or obsolete inventory based on historical experience, current inventory levels, forecasted demand, and market conditions.

The estimation process requires significant judgment regarding future sales, product life cycles, and market trends.

If actual demand or market conditions differ from our assumptions, additional write-downs or reversals may be required, which could materially impact our gross margin and operating results.

Valuation Allowance for Deferred Tax Assets

We recognize deferred tax assets for deductible temporary differences and net operating loss carryforwards to the extent that it is more likely than not that these assets will be realized.

The assessment of recoverability involves evaluating both positive and negative evidence, including recent financial performance, cumulative losses, forecasts of future taxable income, and tax planning strategies.

Given our recent history of net losses, we have recorded a valuation allowance against certain deferred tax assets.

Changes in our assessment of future profitability or tax law could result in significant adjustments to the valuation allowance, impacting our effective tax rate and net income.

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.

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 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 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.

The fair value of share-based awards, including stock options and restricted stock units, is estimated using the Black-Scholes option pricing model or other appropriate valuation techniques.

These models require management to make assumptions regarding expected volatility, risk-free interest rates, expected term, and forfeiture rates.

Changes in these assumptions could materially affect the amount of share-based compensation expense recognized in our financial statements.

Revenue Recognition – Variable Consideration and Returns

We recognize revenue when control of goods transfers to customers, typically upon shipment or delivery.

We estimate variable consideration, including customer incentives, rebates, and expected product returns, based on historical experience and current trends.

These estimates require significant judgment and are updated as new information becomes available.

Actual results may differ from our estimates, resulting in adjustments to revenue in future periods.

Non-GAAP Measures

In addition to the measures presented in our consolidated financial statements, we use the following non-GAAP measures to evaluate our business, measure our performance, identify trends affecting our business and assist us in making strategic decisions.

In addition to the measures presented in our unaudited condensed consolidated financial statements, we use the following non-GAAP measures to evaluate our business, measure our performance, identify trends affecting our business and assist us in making strategic decisions.

Our non-GAAP measures are:

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

Adjusted Income from Operations, 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 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 define Adjusted Operating Income as GAAP income from operations excluding the impact of certain non-recurring income and expenses, including IPO-related compensation (cash and share-based), legal fees and business expansion expenses.

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

We define Adjusted Operating Margins as adjusted income from operations 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.

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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

For the Year Ended

Loss from operations $ (2,402,056) $ (2,099,591)

Non-recurring IPO-related share-based compensation 19,906 238,876

IPO and arbitration legal fee — 50,000

Business expansion expense — 247,080

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

Adjusted Operating Loss $ (2,382,150) $ (1,613,635)

Revenue $ 130,528,652 $ 131,818,073

Adjusted Operating Margins (%) (1.8) (1.2)

For the Years Ended

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

For the Year Ended

Loss before income taxes $ (4,339,014) $ (2,282,098)

Non-recurring IPO-related share-based compensation 19,906 238,876

IPO and arbitration legal fee — 50,000

Business expansion expense — 247,080

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

Adjusted loss before income taxes (4,319,108) (1,796,142)

income taxes at 18% rate (777,439) (323,306)

net loss attributable to non-controlling shareholders (985,880) (533,188)

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

Adjusted Net Loss $ (2,555,789) $ (939,648)

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

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What changed 10-K

Item 7. Management’s Discussion and Analysis