FGI Industries Ltd.

Previous wording

•Enhanced margin performance. Our focus on higher-margin products has continued to deliver results, with gross margins reaching 26.8% for the three months ended March 31, 2026, 27.0% in 2025 and 26.9% in 2024, a significant rise from 19.5% in 2022. 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.

Current wording

•Enhanced margin performance. Our focus on higher-margin products has continued to deliver results, with gross margins reaching 30.2% for the six months ended June 30, 2026, 27.0% in 2025 and 26.9% in 2024, a significant rise from 19.5% in 2022. This positive trajectory in margins reflects our commitment to optimizing our product mix and operational efficiency, as well as the benefit of certain cost recoveries, despite recent headwinds from tariffs. Looking ahead, we anticipate gross margins to remain in line with the levels achieved in 2025 and 2024.

Previous wording

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. These global tariffs were recently invalidated by a US Court of International Trade ruling, but the government has filed a notice of appeal. 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.

Current wording

Our business was significantly impacted by the changes in the U.S. tariff regime in 2025 and related responses from foreign jurisdictions. We seek to offset tariffs and other costs through pricing, savings, sourcing changes and other measures, but demand could decline if consumer confidence weakens or the prices of our products increase. In February 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. These global tariffs were recently invalidated by a US Court of International Trade ruling, but the government has filed a notice of appeal. During the three months ended June 30, 2026, the Company received approximately $2.7 million in refunds of IEEPA tariffs previously paid, which was recognized as a reduction to cost of revenue in the current period. In July 2026, the global tariff under Section 122 expired and was replaced by new tariffs generally ranging from 10% to 12.5% under Section 301. Several legal challenges to these new tariffs have been implemented. It remains uncertain what impact the ongoing legal and regulatory developments will have on our future financial results, including the availability of any additional refunds of amounts previously paid, any fluctuations in the level of replacement tariffs imposed, or the addition of any new tariffs through other means.

Previous wording

The following table summarizes the results of our operations for the three months ended March 31, 2026 and 2025 and provides information regarding the dollar and percentage increase (decrease) during such periods.

Current wording

The following table summarizes the results of our operations for the three and six months ended June 30, 2026 and 2025 and provides information regarding the dollar and percentage increase (decrease) during such periods.

Previous wording

For the three months ended March 31, 2026, our revenue decreased by $2.7 million, or 8.2%, to $30.5 million from $33.2 million for the same period last year. The decrease in our revenue was primarily driven by decreases in sales of sanitaryware.

Current wording

For the six months ended June 30, 2026, our revenue decreased by $1.8 million, or 2.8%, to $62.4 million from $64.2 million for the same period last year. The decrease was primarily driven by a 7.8% decline in sanitaryware sales, partially offset by a 14.6% increase in shower system sales reflecting the continued traction of our recently launched programs.

Previous wording

Selling and distribution expenses primarily consisted of personnel costs, marketing and promotion costs, commission, and freight and leasing charges. Our selling and distribution expenses decreased by $0.9 million, or 13.2%, to $6.2 million for the three months ended March 31, 2026, from $7.2 million for the three months ended March 31, 2025. This decrease was largely attributable to actions taken to optimize our facility footprint and reduce ongoing overhead costs.

Current wording

Selling and distribution expenses primarily consisted of personnel costs, marketing and promotion costs, commissions, and freight and leasing charges. Our selling and distribution expenses decreased by $0.2 million, or 3.7%, to $6.0 million for the three months ended June 30, 2026, from $6.2 million for the same period of 2025, and decreased by $1.2 million, or 8.8%, to $12.2 million for the six months ended June 30, 2026, from $13.4 million for the same period of 2025. The decreases across both periods were largely attributable to actions taken to optimize our facility footprint and reduce ongoing overhead costs.

Previous wording

General and administrative expenses primarily consisted of personnel costs, professional service fees, depreciation, travel, and office supply expenses. Our general and administrative expenses decreased by $0.3 million, or 12.8%, to $2.4 million for the three months ended March 31, 2026, from $2.7 million for the three months ended March 31, 2025. The decline reflects our ongoing efforts to optimize operations and reduce overall operating expenses.

Current wording

General and administrative expenses primarily consisted of personnel costs, professional service fees, depreciation, travel, and office supply expenses. Our general and administrative expenses remained relatively consistent at $2.9 million for the three months ended June 30, 2026, compared to $2.8 million for the same period of 2025, and decreased by $0.3 million, or 5.7%, to $5.2 million for the six months ended June 30, 2026, from $5.5 million for the same period of 2025, reflecting our ongoing efforts to optimize operations and reduce overall operating expenses.

Previous wording

The Company's unaudited condensed 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 $1.1 million and net cash used in operating activities of $0.3 million for the three months ended March 31, 2026. As of March 31, 2026, the Company had approximately $2.7 million in cash and had $13.1 million outstanding balance under its credit facilities, which were used primarily for working capital purposes.

Current wording

The Company's unaudited condensed 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 $0.0 million and net cash provided by operating activities of $1.8 million for the six months ended June 30, 2026. As of June 30, 2026, the Company had approximately $4.4 million in cash and had $13.0 million outstanding balance under its credit facilities, which were used primarily for working capital purposes.

Previous wording

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 real property owned by Mr. Liang Chou Chen, who holds approximately 49.91% of the voting control of Foremost, and guaranteed by certain affiliates, Mr. Chen and Ms. Han Ping Chen. The current amount of maximum borrowings is $18,000,000 and the maturity date is April 17, 2027. This is an assets-based line of credit, the borrowing limit is calculated based on certain percentage of accounts receivable and inventory balances.

Current wording

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 real property owned by Mr. Liang Chou Chen, who holds approximately 49.91% of the voting control of Foremost, and guaranteed by certain affiliates, Mr. Chen and Ms. Han Ping Chen. The current amount of maximum borrowings is $18,000,000 and the maturity date is April 17,

Previous wording

Each sum of borrowings under the Credit Agreement is classified as a short-term loan. The outstanding balance of such loan was $9.2 million and $8.1 million as of March 31, 2026 and December 31, 2025, respectively.

Current wording

Each sum of borrowings under the Credit Agreement is classified as a short-term loan. The outstanding balance of such loan was $9.1 million and $8.1 million as of June 30, 2026 and December 31, 2025, respectively.

Previous wording

FGI Canada Ltd. (“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 March 31, 2026). 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 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 March 31, 2026, FGI Canada was in compliance with these financial covenants.

Current wording

FGI Canada Ltd. (“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 (USD5.3 million as of June 30, 2026). 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 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 June 30, 2026, FGI Canada was in compliance with these financial covenants.

Previous wording

Borrowings under this line of credit amounted to $2.3 million and $1.7 million as of March 31, 2026 and December 31, 2025, respectively. The facility matures at the discretion of RBC upon 60 days’ notice.

Current wording

Borrowings under this line of credit amounted to $2.5 million and $1.7 million as of June 30, 2026 and December 31, 2025, respectively. The facility matures at the discretion of RBC upon 60 days’ notice.

Previous wording

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 $2.5 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 Rate 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 $1.6 million and $2.1 million as of March 31, 2026 and December 31, 2025, respectively.

Current wording

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 $2.5 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 Rate in effect from time to time, plus 120 basis 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 Mr. Liang Chou Chen. Borrowings under this line of credit amounted to $1.4 million and $2.1 million as of June 30, 2026 and December 31, 2025, respectively.

Previous wording

The following table summarizes the key components of our cash flows for the three months ended March 31, 2026 and 2025.

Current wording

The following table summarizes the key components of our cash flows for the six months ended June 30, 2026 and 2025.

Previous wording

Net cash used in operating activities was $0.3 million for the three months ended March 31, 2026, compared to $1.7 million used in the same period of 2025. The improvement in operating cash flow was primarily driven by favorable changes in working capital, including a $1.1 million decrease in inventories and a $0.6 million decrease in prepayments and other receivables from related parties, which provided cash inflows. Non-cash adjustments such as $0.5 million of amortization, $0.2 million of depreciation, and changes in provisions for credit losses and defective returns also contributed to narrowing the gap between net loss and operating cash flow. These inflows helped offset cash outflows from a $0.2 million increase in accounts receivable and a $0.8 million decrease in accounts payable. Overall, the Company’s operating cash flow for the quarter reflected improved management of working capital and cost control initiatives compared to the prior year period.

Current wording

Net cash provided by operating activities was $1.8 million for the six months ended June 30, 2026, compared to $0.2 million for the same period of 2025. The improvement was primarily driven by favorable working capital changes, including a $3.2 million decrease in inventories and a $1.3 million decrease in prepayments and other receivables from related parties, which provided significant cash inflows. These were supplemented by non-cash adjustments including $1.1 million of amortization, $0.4 million of depreciation, and a $0.5 million provision for defective returns. These inflows were partially offset by a $2.1 million increase in accounts receivable and a $1.8 million decrease in accounts payable. Overall, the improvement in operating cash flow reflects the Company's near-breakeven net loss position, disciplined inventory management, and ongoing working capital optimization compared to the prior year period.

Previous wording

Net cash used in investing activities totaled $0.1 million for the three months ended March 31, 2026, compared to $0.5 million in the same period of 2025. The decrease was primarily attributable to reduced capital expenditures.

Current wording

Net cash used in investing activities totaled $0.2 million for the six months ended June 30, 2026, compared to $0.6 million for the same period of 2025. The decrease was primarily attributable to reduced capital expenditures, with property and equipment purchases declining to $0.2 million from $0.6 million in the prior year period.

Previous wording

Net cash provided by financing activities was $1.3 million for the three months ended March 31, 2026, primarily due to net proceeds from the Company’s revolving credit facilities. In contrast, the same period in 2025 incurred $1.3 million in cash used in financing activities, reflecting net repayment under these facilities.

Current wording

Net cash provided by financing activities was $1.2 million for the six months ended June 30, 2026, primarily reflecting net proceeds from the Company's revolving credit facilities. In contrast, financing activities used $1.9 million of cash for the same period of 2025, reflecting net repayments under these facilities during that period.

Previous wording

Our capital expenditures were incurred primarily in connection with the acquisition of property and equipment. Our capital expenditures amounted to $0.1 million and $0.5 million for the three months ended March 31, 2026 and 2025, respectively. We do not expect to incur significant capital expenditures in the immediate future.

Current wording

Our capital expenditures were incurred primarily in connection with the acquisition of property and equipment. Our capital expenditures amounted to $0.2 million and $0.6 million for the six months ended June 30, 2026 and 2025, respectively. We do not expect to incur significant capital expenditures in the immediate future.

Previous wording

A discussion of our critical accounting policies and significant accounting estimates is included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2025 Form 10-K. The preparation of the unaudited condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of some assets and liabilities and, in some instances, the reported amounts of revenue and expenses during the applicable reporting period. Actual results could differ materially from these estimates. Changes in estimates are recorded in results of operations in the period that the events or circumstances giving rise to such changes occur. Within the context of these critical accounting estimates, we are not currently aware of any reasonably likely events or circumstances that would result in different policies or estimates being reported for the three months ended March 31, 2026.

Current wording

A discussion of our critical accounting policies and significant accounting estimates is included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2025 Form 10-K. The preparation of the unaudited condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of some assets and liabilities and, in some instances, the reported amounts of revenue and expenses during the applicable reporting period. Actual results could differ materially from these estimates. Changes in estimates are recorded in results of operations in the period that the events or circumstances giving rise to such changes occur. Within the context of these critical accounting estimates, we are not currently aware of any reasonably likely events or circumstances that would result in different policies or estimates being reported for the six months ended June 30, 2026.