FGI Industries Ltd.

11/13/2026 | Press release | Distributed by Public on 11/13/2026 15:19

Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.
The disclosures in this Quarterly Report on Form 10-Q are complementary to those made in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 10, 2026 (the "2025 Form 10-K"). You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing in this Quarterly Report on Form 10-Q as well as our audited financial statements, notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our 2025 Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Risk Factors" section of this Quarterly Report on Form 10-Q and of our 2025 Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. All amounts in Management's Discussion and Analysis of Financial Condition and Results of Operations are approximate.
Overview
FGI is a global supplier of kitchen and bath products. Over the course of 30 years, we have built an industry-wide reputation for product innovation, quality, and excellent customer service. 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, 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 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:
•Commitment to product innovation. We have a history of being an innovator in the kitchen and bath markets and developing "on-trend" products and bringing them to market ahead of the competition. We have developed deep marketing skills, leading design capabilities, and product development expertise. A recent example of our innovative product development includes the Jetcoat® shower wall systems, which offer a stylized design option without the fuss of messy grout. We expect to continue to invest in research and development to drive product innovation throughout 2026.
•"BPC" (Brands, Products, Channels) strategy to drive above-market organic growth. 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 have 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.
•Enhanced margin performance. Our focus on higher-margin products has continued to deliver results, with gross margins reaching 29.3% for the nine months ended September 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.
•Efficient capital deployment. We will continue to prioritize capital deployment in support of organic growth opportunities, while continuing to evaluate strategic M&A opportunities. With total financial resources of $6.3 million as of September 30, 2026, the Company believes it has sufficient financial flexibility to fund its organic growth strategy.
•Deep manufacturing partners and customer relationships. We have developed strong manufacturing and sourcing partners over the last 30+ years, which we believe will continue to give us a competitive advantage in the markets we serve. We also have deep relationships with an established global customer base, offering end-to-end
solutions to support category growth. 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 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. 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.
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 Quarterly Report on Form 10-Q 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. 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 U.S. 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 second quarter of 2026. 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.
Supply Chain Operations
As part of our ongoing efforts to diversify our supply chain and manage expenses, we are currently working on initiatives to optimize our warehouse operations and global sourcing strategy. We are in the process of onboarding several suppliers in new jurisdictions in order to diversify our supply chain. As part of these efforts, we have been making several adjustments to our warehouse operations across multiple locations and expect to begin operations at a new warehouse in Texas to support distributions in the southern United States. These initiatives, if successful, are expected to deliver cost savings through reduced freight costs and shipping times for our North American operations.
Distribution Facility Lease
During fiscal 2026, the Company entered into a long-term operating lease for a distribution facility in Baytown, Texas to support its warehousing and distribution operations. The lease extends through January 2032 and includes scheduled rent escalations over the term. Management believes the facility provides sufficient capacity to support anticipated business growth and enhance distribution capabilities. The lease represents a long-term operating commitment and is not expected to have a material adverse effect on the Company's liquidity or capital resources.
Results of Operations
The following table summarizes the results of our operations for the three and nine months ended September 30, 2026 and 2025 and provides information regarding the dollar and percentage increase (decrease) during such periods.
For the Three and Nine Months Ended September 30, 2026 and 2025
For the Three Months Ended
September 30, 		Change
2026 2025 Amount Percentage
USD %
Revenue $ 31,694,021 $ 35,848,861 $ (4,154,840) (11.6)
Cost of revenue 22,956,887 26,350,193 (3,393,306) (12.9)
Gross profit 8,737,134 9,498,668 (761,534) (8.0)
Selling and distribution expenses 6,116,603 6,060,571 56,032 0.9
General and administrative expenses 2,805,789 2,784,507 21,282 0.8
Research and development expenses 322,253 283,867 38,386 13.5
Loss (income) from operations (507,511) 369,723 (877,234) (237.3)
Operating margins (%) (1.6) 1.0 (260) bps
Total other expenses, net (443,675) (438,190) (5,485) 1.3
Provision for income taxes 73,499 1,879,599 (1,806,100) (96.1)
Net loss (1,024,685) (1,948,066) 923,381 (47.4)
Net loss attributable to FGI Industries Ltd. shareholders (946,020) (1,651,332) 705,312 (42.7)
Adjusted (loss) income from operations(1)
(507,511) 369,723 (877,234) (237.3)
Adjusted operating margins (%)(1)
(1.6) 1.0 (260) bps
Adjusted net (loss) income attributable to FGI Industries Ltd. shareholders(1)
$ (701,308) $ 240,591 $ (941,899) (391.5)
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(1)See "Non-GAAP Measures" below for more information on our use of these adjusted figures and a reconciliation of these financial measures to their closest U.S. generally accepted accounting principles ("GAAP") comparators.
For the Nine Months Ended
September 30, 		Change
2026 2025 Amount Percentage
USD
USD
USD %
Revenue $ 94,081,033 $ 100,059,669 $ (5,978,636) (6.0)
Cost of revenue 66,520,816 72,954,136 (6,433,320) (8.8)
Gross profit 27,560,217 27,105,533 454,684 1.7
Selling and distribution expenses 18,309,899 19,433,477 (1,123,578) (5.8)
General and administrative expenses 8,037,475 8,330,435 (292,960) (3.5)
Research and development expenses 1,011,179 1,085,095 (73,916) (6.8)
Income (loss) from operations 201,664 (1,743,474) 1,945,138 (111.6)
Operating margins (%) 0.2 (1.7) 190 bps
Total other expenses, net (1,003,476) (1,459,121) 455,645 (31.2)
Provision for income taxes 239,376 925,493 (686,117) (74.1)
Net loss (1,041,188) (4,128,088) 3,086,900 (74.8)
Net loss attributable to FGI Industries Ltd. shareholders (619,316) (3,511,948) 2,892,632 (82.4)
Adjusted income (loss) from operations(1)
201,664 (1,723,568) 1,925,232 (111.7)
Adjusted operating margins (%)(1)
0.2 (1.7) 190 bps
Adjusted net loss attributable to FGI Industries Ltd. shareholders(1)
$ (235,614) $ (1,993,665) $ 1,758,051 (88.2)
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(1)See "Non-GAAP Measures" below for more information on our use of these adjusted figures and a reconciliation of these financial measures to their closest U.S. generally accepted accounting principles ("GAAP") comparators.
Revenue
For the three months ended September 30, 2026, our revenue decreased by $4.2 million, or 11.6%, to $31.7 million from $35.8 million for the same period last year. The decrease was primarily driven by declines in sanitaryware and shower system sales, which decreased by 16.6% and 22.9%, respectively, partially offset by a 32.8% increase in other revenue.
For the nine months ended September 30, 2026, our revenue decreased by $6.0 million, or 6.0%, to $94.1 million from $100.1 million for the same period last year. The decrease was primarily driven by an 11.1% decline in sanitaryware sales and a 2.3% decline in bath furniture sales, partially offset by a 1.4% increase in shower system sales and an 8.3% increase in other revenue.
Revenue categories by product are summarized as follows:
For the Three Months Ended September 30, Change
2026 Percentage 2025 Percentage Percentage
USD % USD % %
Sanitaryware $ 19,125,213 60.3 $ 22,945,010 64.0 (16.6)
Bath Furniture 3,636,135 11.5 3,714,301 10.4 (2.1)
Shower System 4,522,456 14.3 5,869,423 16.4 (22.9)
Others 4,410,217 13.9 3,320,127 9.2 32.8
Total $ 31,694,021 100.0 $ 35,848,861 100.0 (11.6)
For the Nine Months Ended September 30, Change
2026 Percentage 2025 Percentage Percentage
USD % USD % %
Sanitaryware $ 54,393,111 57.8 $ 61,187,767 61.2 (11.1)
Bath Furniture 11,680,318 12.4 11,952,906 11.9 (2.3)
Shower System 17,029,929 18.1 16,786,602 16.8 1.4
Others 10,977,675 11.7 10,132,394 10.1 8.3
Total $ 94,081,033 100.0 $ 100,059,669 100.0 (6.0)
Sanitaryware is our largest product category, accounting for 60.3% and 57.8% of our total revenue for the three and nine months ended September 30, 2026, respectively, compared to 64.0% and 61.2% for the comparable periods of 2025. For the three months ended September 30, 2026, sanitaryware revenue decreased by 16.6% to $19.1 million from $22.9 million for the same period of 2025. For the nine months ended September 30, 2026, sanitaryware revenue decreased by 11.1% to $54.4 million from $61.2 million for the same period of 2025. The declines across both periods reflect continued softness in housing and remodeling activity and reduced customer purchasing, which weighed on demand.
Bath furniture accounted for 11.5% and 12.4% of our total revenue for the three and nine months ended September 30, 2026, respectively, compared to 10.4% and 11.9% for the comparable periods of 2025. Bath furniture sales decreased by 2.1% to $3.6 million for the three months ended September 30, 2026, compared to $3.7 million for the same period of 2025. For the nine months ended September 30, 2026, bath furniture sales decreased by 2.3% to $11.7 million from $12.0 million for the same period of 2025. Our recently launched mid-tier products, designed to better address the current demand environment, are helping to partially mitigate the broader decline.
Shower systems accounted for approximately 14.3% and 18.1% of our total revenue for the three and nine months ended September 30, 2026, respectively, compared to 16.4% and 16.8% for the comparable periods of 2025. Revenue from shower system sales decreased by 22.9% to $4.5 million for the three months ended September 30, 2026, compared to $5.9 million for the same period of 2025. For the nine months ended September 30, 2026, revenue from shower system sales increased by 1.4% to $17.0 million from $16.8 million for the same period of 2025. New programs secured during the quarter broadened the opportunity for future sales growth; however, these programs had not yet ramped sufficiently to offset the third-quarter decline.
Other revenue (primarily custom kitchen cabinetry from our Covered Bridge business) accounted for 13.9% and 11.7% of our total revenue for the three and nine months ended September 30, 2026, respectively, compared to 9.2% and 10.1% for the comparable periods of 2025. Other revenue increased by 32.8% to $4.4 million for the three months ended September 30, 2026, compared to $3.3 million for the same period of 2025. For the nine months ended September 30, 2026, other revenue increased by 8.3% to $11.0 million from $10.1 million for the same period of 2025. The increases were primarily driven by continued volume growth in our Covered Bridge custom kitchen cabinetry business.
Revenue Categories by Geographic Location
We derive our revenue primarily from the United States, Canada and Europe. Revenue categories by geographic location are summarized as follows:
For the Three Months Ended September 30, Change
2026 Percentage 2025 Percentage Percentage
USD % USD % %
United States $ 19,825,386 62.6 $ 22,493,458 62.7 (11.9)
Canada 8,301,845 26.2 9,120,195 25.4 (9.0)
Europe 2,865,729 9.0 3,666,761 10.2 (21.8)
Rest of World 701,061 2.2 568,447 1.7 23.3
Total $ 31,694,021 100.0 $ 35,848,861 100.0 (11.6)
For the Nine Months Ended September 30, Change
2026 Percentage 2025 Percentage Percentage
USD % USD % %
United States $ 61,357,402 65.2 $ 61,632,691 61.6 (0.4)
Canada 21,016,428 22.3 26,072,809 26.1 (19.4)
Europe 9,319,985 9.9 10,407,865 10.4 (10.5)
Rest of World 2,387,218 2.6 1,946,304 1.9 22.7
Total $ 94,081,033 100.0 $ 100,059,669 100.0 (6.0)
The United States is our largest market, accounting for 62.6% and 65.2% of our total revenue for the three and nine months ended September 30, 2026, respectively, compared to 62.7% and 61.6% for the comparable periods of 2025. For the three months ended September 30, 2026, U.S. revenue decreased by 11.9% to $19.8 million from $22.5 million for the same period of 2025. For the nine months ended September 30, 2026, U.S. revenue decreased by 0.4% to $61.4 million from $61.6 million for the same period of 2025. The three-month decline reflects lower demand across several product categories in the period.
Canada is our second largest market, accounting for 26.2% and 22.3% of our total revenue for the three and nine months ended September 30, 2026, respectively, compared to 25.4% and 26.1% for the comparable periods of 2025. For the three months ended September 30, 2026, Canadian revenue decreased by 9.0% to $8.3 million from $9.1 million for the same period of 2025. For the nine months ended September 30, 2026, Canadian revenue decreased by 19.4% to $21.0 million from $26.1 million for the same period of 2025. The declines across both periods reflect softer demand in the Canadian market, including lower toilet sales, as well as a challenging environment for housing and remodeling activity.
Europe, which consists primarily of sales in Germany, accounted for 9.0% and 9.9% of our total revenue for the three and nine months ended September 30, 2026, respectively, compared to 10.2% and 10.4% for the comparable periods of 2025. For the three months ended September 30, 2026, European revenue decreased by 21.8% to $2.9 million from $3.7 million for the same period of 2025. For the nine months ended September 30, 2026, European revenue decreased by 10.5% to $9.3 million from $10.4 million for the same period of 2025. The declines across both periods were driven by lower sales volumes in the European market.
Gross Profit
Gross profit was $8.7 million and $27.6 million for the three and nine months ended September 30, 2026, representing changes of (8.0)% and 1.7% compared to the same periods of 2025, respectively. Gross profit margin was 27.6% and 29.3% for the three and nine months ended September 30, 2026, up 110 basis points and 220 basis points from 26.5% and 27.1% for the comparable periods of 2025, respectively. The three-month margin contraction reflects lower sales volumes, unfavorable fixed-cost absorption, and competitive pricing conditions, partially offset by product mix and ongoing cost-control efforts.
Operating Expenses
Selling and distribution expenses primarily consisted of personnel costs, marketing and promotion costs, commissions, and freight and leasing charges. Our selling and distribution expenses increased by $0.1 million, or 0.9%, to $6.1 million for the three months ended September 30, 2026, from $6.1 million for the three months ended September 30, 2025, and decreased by $1.1 million, or 5.8%, to $18.3 million for the nine months ended September 30, 2026, from $19.4 million for the nine months ended September 30, 2025. The decrease in the nine-month period was largely attributable to actions taken to optimize our facility footprint and reduce ongoing overhead costs.
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 less than $0.1 million, or 0.8%, to $2.8 million for the three months ended September 30, 2026, from $2.8 million for the three months ended September 30, 2025, and decreased by $0.3 million, or 3.5%, to $8.0 million for the nine months ended September 30, 2026, from $8.3 million for the nine months ended September 30, 2025, reflecting our ongoing efforts to optimize operations and reduce overall operating expenses.
Research and development expenses mainly consisted of personnel costs and product development costs. Our research and development activities remained stable and are relatively immaterial to our results.
Other Income (Expenses)
Other income (expenses) represents interest income and expenses, as well as non-recurring non-operating gains and losses. Interest expense increased due to a higher average loan balance during the period.
Provision for Income Taxes
We recorded a provision for income taxes of $0.1 million for the three months ended September 30, 2026, compared to $1.9 million for the three months ended September 30, 2025. For the nine months ended September 30, 2026, we recorded a provision for income taxes of approximately $0.2 million, compared to a provision of $0.9 million for the same period of 2025. Our effective tax rate was (7.7)% and (29.9)% for the three and nine months ended September 30, 2026, respectively, compared to (2,745.3)% and (28.9)% for the comparable periods of 2025. The fluctuations were primarily driven by the recognition of a valuation allowance against deferred tax assets in certain jurisdictions and differing statutory tax rates across our international operations.
Net Loss
We incurred a net loss of $1.0 million for the three months ended September 30, 2026, compared to a net loss of $1.9 million for the same period of 2025. For the nine months ended September 30, 2026, net loss was $1.0 million, compared to a net loss of $4.1 million for the same period of 2025. These changes reflect the combination of the factors discussed above, including the challenging revenue environment in the third quarter, partially offset by improved gross margins on a year-to-date basis due to cost recoveries and disciplined expense management.
Liquidity and Capital Resources
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 $1.0 million and net cash provided by operating activities of $0.3 million for the nine months ended September 30, 2026. As of September 30, 2026, the Company had approximately $2.0 million in cash and had $12.4 million outstanding balance under its credit facilities, which were used primarily for working capital purposes.
Additionally, the Company has been facing 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:
•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 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.
The Credit Agreement contains financial covenants that require FGI Industries to maintain aggregate year to date EBITDA figures (defined as earnings before interest, taxes, depreciation and amortization) on a consolidated and unconsolidated basis, tested monthly, of up to $1.6 million and $1.4 million, respectively, as well as maintain certain limits on intercompany loans and affiliate transactions. As of September 30, 2026, FGI Industries was in compliance with these financial covenants.
The loan bears interest at a variable rate based on the Prime Rate (as quoted by the Wall Street Journal) plus a margin between 0% and 1.5% based on the Company's trailing twelve month EBITDA (subject to a minimum rate of 4.500% per annum).
Each sum of borrowings under the Credit Agreement is classified as a short-term loan. The outstanding balance of such loan was $9.7 million and $8.1 million as of September 30, 2026 and December 31, 2025, respectively. The Company expects to discuss a renewal of this facility with East West Bank ahead of maturity.
RBC Bank Loan
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 September 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 September 30, 2026, FGI Canada was in compliance with these financial covenants.
Borrowings under this line of credit amounted to $1.6 million and $1.7 million as of September 30, 2026 and December 31, 2025, 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.
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 $2.5 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 $1.0 million and $2.1 million as of September 30, 2026 and December 31, 2025, respectively.
Cash Flows
The following table summarizes the key components of our cash flows for the nine months ended September 30, 2026 and 2025.
For the Nine Months Ended September 30,
2026 2025
USD USD
Net cash provided by (used in) operating activities $ 314,294 $ (1,670,736)
Net cash used in investing activities (353,639) (893,846)
Net cash provided by (used in) financing activities 506,534 (426,021)
Effect of exchange rate fluctuation on cash (328,378) 308,125
Net changes in cash 138,811 (2,682,478)
Cash, beginning of period 1,899,801 4,558,160
Cash, end of period $ 2,038,612 $ 1,875,682
Operating Activities
Net cash provided by operating activities was $0.3 million for the nine months ended September 30, 2026, compared to net cash used in operating activities of $1.7 million for the same period of 2025, reflecting a $2.0 million year-over-year improvement. The most significant contributor to this improvement was a $3.1 million reduction in net loss, from $4.1 million in the prior year period to $1.0 million in the current period. Working capital dynamics also shifted meaningfully: prepayments and other receivables from related parties swung from a $5.7 million cash outflow in 2025 to a $1.4 million inflow in 2026, contributing approximately $7.1 million in relative improvement. These favorable factors were substantially offset by a reversal in accounts receivable, which shifted from a $1.7 million inflow in 2025 to a $2.5 million outflow in 2026, and a reversal in accounts payable, which shifted from a $3.3 million inflow in 2025 to a $1.4 million outflow in 2026, together representing approximately $9.0 million in combined headwinds. Non-cash charges, including $1.6 million of amortization and $0.5 million of depreciation, were largely consistent with the prior year period and did not materially contribute to the year-over-year change.
Investing Activities
Net cash used in investing activities totaled $0.4 million for the nine months ended September 30, 2026, compared to $0.9 million for the same period of 2025. The decrease was primarily attributable to reduced capital expenditures, with property and equipment purchases declining to $0.3 million from $0.8 million in the prior year period.
Financing Activities
Net cash provided by financing activities was $0.5 million for the nine months ended September 30, 2026, primarily reflecting net proceeds from the Company's revolving credit facilities of approximately $0.5 million. In contrast, financing activities used $0.4 million of cash for the same period of 2025, reflecting net repayments under these facilities during that period.
Commitments and Contingencies
Capital Expenditures
Our capital expenditures were incurred primarily in connection with the acquisition of property and equipment. Our capital expenditures amounted to $0.4 million and $0.9 million for the nine months ended September 30, 2026 and 2025, respectively. We do not expect to incur significant capital expenditures in the immediate future.
Off-Balance Sheet Arrangements
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 and Significant Accounting Estimates
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 nine months ended September 30, 2026.
Recently Issued Accounting Pronouncements
See Note 2, "Summary of significant accounting policies" in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Non-GAAP Measures
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 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 initial public offering ("IPO"). 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, 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 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. We believe these non-GAAP measures, when reviewed in conjunction with GAAP financial measures, and not in isolation or as substitutes for analysis of our results of operations under GAAP, are useful to investors as they are widely used measures of performance and the adjustments we make to these non-GAAP measures provide investors further insight into our profitability and additional perspectives in comparing our performance over time on a consistent basis.
The following table reconciles GAAP income from operations to Adjusted Operating Income and Adjusted Operating Margins, as well as GAAP net income to Adjusted Net Income for the periods presented.
For the Three Months Ended
September 30, 		For the Nine Months Ended
September 30,
2026 2025 2026 2025
USD USD USD USD
Income (loss) from operations $ (507,511) $ 369,723 $ 201,664 $ (1,743,474)
Adjustments:
Non-recurring IPO-related share-based compensation - - - 19,906
Adjusted Operating (Loss) Income $ (507,511) $ 369,723 $ 201,664 $ (1,723,568)
Revenue $ 31,694,021 $ 35,848,861 $ 94,081,033 $ 100,059,669
Adjusted Operating Margins (%) (1.6) 1.0 0.2 (1.7)
For the Three Months Ended
September 30, 		For the Nine Months Ended
September 30,
2026 2025 2026 2025
USD USD USD USD
Loss before income taxes $ (951,186) $ (68,467) $ (801,812) $ (3,202,595)
Adjustments:
Non-recurring IPO-related share-based compensation - - - 19,906
Adjusted income (loss) before income taxes (951,186) (68,467) (801,812) (3,182,689)
Less: income taxes at 18% rate (171,213) (12,324) (144,326) (572,884)
Less: net loss attributable to non-controlling shareholders (78,665) (296,734) (421,872) (616,140)
Adjusted Net (Loss) Income $ (701,308) $ 240,591 $ (235,614) $ (1,993,665)
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