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What changed in Karat Packaging Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Karat Packaging Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+423 added−436 removedSource: 10-K (2025-03-14) vs 10-K (2024-03-15)

Top changes in Karat Packaging Inc.'s 2024 10-K

423 paragraphs added · 436 removed · 315 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

96 edited+50 added−43 removed24 unchanged
Biggest changeWe plan to continue to grow our business and increase our profitability through the following key initiatives: Continue to build our e-commerce distribution channel We believe there is an opportunity to continue to significantly grow our higher margin e-commerce business to a more meaningful percent of revenue by continuing our investments in people, distribution capabilities. marketing and technology. 6 During 2023, we updated our company e-commerce platform, which not only enabled us to improve our storefront from an operational standpoint, but also allowed for the integration of multiple apps and extensions to enhance user experience.
Biggest changeContinue to build our e-commerce distribution channel We believe there is an opportunity to continue to significantly grow our higher margin e-commerce business and we intend to do so by continuing to make investments in people, distribution capabilities, marketing, and technology.
Diversity, Equity, and Inclusion (DEI) Diversity, equity and inclusion ("DE&I") are critical underpinnings of our corporate values. DE&I helps foster innovation, cultivate an environment filled with unique perspectives and drive engagement, innovation and organizational growth. Our focus to date has been increasing awareness amongst our employees on the importance of DE&I.
Diversity, Equity, and Inclusion (DEI) Diversity, equity and inclusion ("DE&I") are critical underpinnings of our corporate values. DE&I helps foster innovation, cultivate an environment filled with unique perspectives and drive engagement and organizational growth. Our focus to date has been increasing awareness amongst our employees on the importance of DE&I.
For over 20 years, the BPI certification has been the defining symbol of compostability due to its rigorous testing standards. The BPI certification is the only third-party verification for compostable products in North America.
For over 20 years, the BPI certification has been the defining symbol of commercial compostability due to its rigorous testing standards. The BPI certification is the only third-party verification for compostable products in North America.
Our principal executive and administrative offices are located at 6185 Kimball Avenue, Chino, CA 91708, and our telephone number is (626) 965-8882. Our website address is www.karatpackaging.com.
Our principal executive and administrative offices are located at 6185 Kimball Avenue, Chino, CA 91708, and our telephone number is (626) 965-8882. Our corporate website address is www.karatpackaging.com.
We classify our customers into four categories: distributors, national and regional chains, retail and e-commerce/online. • Distributors : national and regional distributors across the U.S. that purchase our products and provide a channel to offer our products to restaurants, offices, schools, government entities and other end users. 4 • National and regional chains : typically fast casual and fast food restaurants with locations across multiple states to which we supply specified products.
We classify our customers into four categories: distributors, national and regional chains, retail and e-commerce/online. • Distributors : national and regional distributors across the U.S. that purchase our products and provide a channel to offer our products to restaurants, offices, schools, government entities and other end users. • National and regional chains : typically fast casual, fast food restaurants, and supermarket chains with locations across multiple states to which we supply specified products.
We are a “smaller reporting company” as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended, or (the "Exchange Act"), and have elected to take advantage of certain of the scaled disclosure available for smaller reporting companies. Available Information Our Internet website is www.karatpackaging.com .
We are a “smaller reporting company” as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended, or (the "Exchange Act"), and have elected to take advantage of certain of the scaled disclosure available for smaller reporting companies. Available Information Our corporate website is www.karatpackaging.com.
Our Operations In our manufacturing facilities in the United States, the production process involves intake of water, dischargement to water, recycling of waste and other disposal activities. As a Company, we place strong emphasis on water conservation and reducing water pollution.
Our Operations In our manufacturing facilities in the United States, the production process involves intake of water, dischargement and recycling of waste as well as other disposal activities. As a Company, we place strong emphasis on water conservation and reducing water pollution.
We believe that the current industry environment and regulatory landscape has accelerated the shift in consumer preferences towards food delivery, take-out ordering and eco-friendly sustainable products, which we expect to continue in the foreseeable future.
We believe that the current industry environment and regulatory landscape has accelerated the shift in consumer preferences towards take-out orders, food delivery, and eco-friendly sustainable products, which we expect to continue in the foreseeable future.
For the years ended December 31, 2023 and December 31, 2022, no single customer represented more than 10% of our revenue. We are an omni-channel provider and have recently made significant investments in e-commerce, technology, supply chain, distribution network, and customer initiatives, such as online ordering and same day pickup.
For the years ended December 31, 2024 and 2023, no single customer represented more than 10% of our revenue. We are an omni-channel provider and have made significant investments in e-commerce, distribution network, technology, supply chain, and customer initiatives, such as online ordering and same day pickup.
These platforms also provide us with the opportunity to continue our expansion into the business-to-consumer ("B2C") market in addition to the business-to-business ("B2B") small retailer customers that we traditionally serve. We have recently elevated our focus on servicing B2C market by sourcing products tailored for and geared toward these end-users.
These platforms also provide us with the opportunity to continue our expansion into the business-to-consumer ("B2C") market in addition to the business-to-business ("B2B") small retailer customers that we have traditionally served. We have elevated our focus on servicing the B2C market by sourcing products tailored for and geared toward these end-users.
This model provides us with the flexibility to adjust the mix of our product offering from import and manufacturing in evolving economic environment to drive operating efficiency and sustained margin expansion.
This model provides us with the flexibility to adjust the mix of our product offering from import and manufacturing in evolving economic environments to drive operating efficiency and sustained margin expansion.
Growth Strategy Our goal is to become a leading single-source provider to a broad set of customers for all of their disposable foodservice products and related needs.
Growth Strategy Our goal is to become a leading provider to a broad set of customers for all of their disposable foodservice products and related needs.
We have installed LED bulbs in light fixtures within both the warehouse and office space that are more efficient than traditional fluorescent counterparts as well as with timers that automatically turn off lights after a period of time if no movement is detected.
We have installed LED bulbs in light fixtures within both the warehouse and office space that are more efficient than their traditional fluorescent counterparts, often with timers that automatically turn off lights after a period of time if no movement is detected.
Even in products that do require the use of plastic, we ensure that the resin we source is both BPA (or bisphenol A) and PFA (or perfluoroalkyl and polyfluoroalkyl) free. These substances are known for their extreme persistence in the environment upon discharge. Our commitment to sustainability is also demonstrated in our focus on recycling and reusing.
For products that require use of plastic, we try to ensure that the resin we source is both BPA and PFA (or perfluoroalkyl and polyfluoroalkyl) free as these substances are known for their extreme persistence in the environment upon discharge. Our commitment to sustainability is also demonstrated in our focus on recycling and reusing.
Any and all waste products from our production process is thoroughly inspected and checked for the potential of re-use or recyclability. Identified items are repackaged and sold or they are transferred to our local waste management facilities for proper disposal, thereby reducing waste and the use of landfill space. Some of our raw materials are Biodegradable Products Institute (BPI) certified.
Waste products from our production process are thoroughly inspected and checked for the potential of re-use or recyclability. Identified items are repackaged and sold or they are transferred to our local waste management facilities for proper disposal, thereby reducing waste and the use of landfill space. Some of our raw materials are also BPI certified.
We cover approximately 60% of total eligible healthcare costs for part and full-time employees for our approximately 225 participating employees as of December 31, 2023. Learning and Development We believe that high performance is an outcome of a person’s ability to change, adapt, and grow their capabilities throughout their career.
We cover approximately 65% of total eligible healthcare costs for part and full-time employees for our approximately 329 participating employees as of December 31, 2024. Learning and Development We believe that high performance is an outcome of a person’s ability to change, adapt, and grow their capabilities throughout their career.
We continue to invest in research and development for our Karat Earth® line to expand our product offering to meet the needs of our customers and the evolving regulatory landscape. Our Distribution and Logistics Network We sell and distribute our products to customers across the United States through our growing distribution network.
We continue to invest in research and development for our Karat Earth® line to expand our product offering to meet the needs of our customers and the evolving regulatory landscape. Our Distribution and Logistics Network We effectively serve our customers across the United States through our growing distribution network.
During 2023, in light of the rising domestic labor and other operating costs and dropping ocean freight rates, we executed a strategy to pivot into a more asset-light model by increasing imports and scaling back manufacturing in certain locations.
Starting in 2023 and continuing into 2024, in light of the rising domestic labor and other operating costs and dropping ocean freight rates, we executed a strategy to pivot into a more asset-light model by increasing imports and scaling back domestic manufacturing.
A total of 2,000,000 shares of common stock has been authorized and reserved for issuance under the Plan in the form of incentive or nonqualified stock options and stock awards. As of December 31, 2023, a total of 649,316 shares of common stock were awarded under the Plan.
A total of 2,000,000 shares of common stock has been authorized and reserved for issuance under the Plan in the form of incentive or nonqualified stock options and stock awards. As of December 31, 2024, a total of 913,900 shares of common stock were awarded under the Plan.
Our diverse and growing blue chip customer base includes well-known fast casual chains such as Applebee’s Neighborhood Grill + Bar, Chili’s Grill & Bar, PF Chang's, Texas Roadhouse, Chipotle Mexican Grill, Corner Bakery Cafe and TGI Fridays, as well as fast food chains including The Coffee Bean & Tea Leaf, El Pollo Loco, In-N-Out Burger, Jack in the Box, Popeyes, Panda Express, Raising Cane’s Chicken Fingers, and Torchy’s Tacos.
Our diverse and growing blue chip customer base includes well-known fast casual chains such as Applebee’s Neighborhood Grill + Bar, Chili’s Grill & Bar, PF Chang's China Bistro, Chipotle Mexican Grill, and Corner Bakery Cafe, and fast food chains such as The Coffee Bean & Tea Leaf, El Pollo Loco, In-N-Out Burger, Jack in the Box, Panda Express, and Raising Cane’s Chicken Fingers.
Good corporate governance and transparency are fundamental to achieving our vision of becoming a leading in all our markets. Our engagement approach involves ongoing communication with our employees.
Good corporate governance and transparency are fundamental to achieving our vision of becoming a leader in our industry. Our engagement approach involves ongoing communication with our employees.
Styrofoam products are non-biodegradable and therefore take up permanent space in landfills resulting in a constant leach of harmful chemicals into the environment. Styrofoam products are also very difficult to clean up as they often escape waste collection systems due to their low density.
Styrofoam products are non-biodegradable and therefore take up permanent space in landfills resulting in a constant leach of harmful chemicals into the environment. Styrofoam products are also very difficult to clean up as they often escape waste collection systems due to their low density. They are easily wind-blown and ultimately end up in parks, forests, beaches, oceans and rivers.
This is evidenced by the fact that we promoted 166 and 112 employees during the years ended December 31, 2023, and 2022, respectively. Other Information As of December 31, 2023, we had employed approximately 806 employees, out of which 778 were full-time employees. None of our employees are currently covered by a collective bargaining agreement.
This is evidenced by the fact that we promoted 110 and 166 employees during the years ended December 31, 2024, and 2023, respectively. 13 Other Information As of December 31, 2024, we employed approximately 721 employees, out of which 683 were full-time employees. None of our employees are currently covered by a collective bargaining agreement.
As of December 31, 2023, we have the following gender and ethnicity breakout for our employees, C-suite executives, and Board of Directors members: 12 Full-Time employees C-Suite Executives Board of Directors Total count 778 3 5 Gender Male 66% 67% 60% Female 33% 33% 40% Non-binary/Did not self-identify 1% — — Ethnicity Hispanic 45% — — Asian 16% 67% 100% White 16% 33% — Black 18% — — Other/Did not self-identify 5% — — Compensation and Benefits Consistent with our core values, we take care of our people by offering competitive compensation and comprehensive benefits programs.
As of December 31, 2024, we have the following gender and ethnicity breakout for our employees, C-suite executives, and Board of Directors members: Full-Time employees C-Suite Executives Board of Directors Total count 683 3 5 Gender Male 67% 67% 60% Female 33% 33% 40% Ethnicity Hispanic 53% — — Asian 15% 67% 100% White 14% 33% — Black 15% — — Other/Did not self-identify 3% — — Compensation and Benefits Consistent with our core values, we take care of our people by offering competitive compensation and comprehensive benefits programs.
Additionally, the potential to acquire existing and new suppliers, particularly in the U.S., may further reduce our reliance on the Asian supply chain, creating more diversified sourcing options for our customers. 7 Our Industry The disposable foodservice products industry is large and growing.
Additionally, the potential to acquire existing and new suppliers, particularly in the U.S., may further reduce our reliance on the Asian supply chain, creating more diversified sourcing options for our customers.
A recent peer-reviewed global study conducted by the American Association for the Advancement of Sciences found that less than 10 percent of plastics is recycled. Other studies indicated approximately 23% of landfill waste in the United States is comprised of plastic containers and food ware.
A recent peer-reviewed global study conducted by the American Association for the Advancement of Sciences found that less than 10 percent of plastics is recycled, meaning the vast majority of plastic waste ends up in landfills or the environment. Other studies indicated a large percentage of landfill waste in the United States is comprised of plastic containers and food-ware.
Our national distribution and logistics capacity has allowed us to reduce the need for reliance on third-party logistics providers and provide efficient and cost-effective distribution to customers. We intend to continue to enhance our distribution productivity via opening additional distribution centers in strategic locations across the U.S., expanding our distribution fleet, and increasing the number of drivers.
Our national distribution and logistics capacity allows us to provide efficient and cost- 5 effective distribution to customers and reduce reliance on third-party logistics providers. We intend to continue to enhance our distribution capabilities via opening of additional distribution centers in strategic locations across the U.S. and expanding our distribution fleet and workforce.
Our operating model entails generating the majority of our revenue from the distribution of our vendors' products, complemented by select manufacturing capabilities in the U.S., which allows us to provide customers with broad product choices and customized offerings with short lead times even during global supply chain disruptions.
Our operating model entails generating the majority of our revenue from the distribution of products sourced from a diversified global network of over 140 vendors, complemented by select manufacturing capabilities in the U.S., which allows us to provide customers with broad product choices and customized offerings with short lead times.
We own a fleet of 26 trucks (including some that are refrigerated to transport frozen food item), 44 trailers, 10 bobtails, 1 yard goat, and 38 chassis, and as of December 31, 2023, employed 40 drivers in our logistics division.
We own a fleet of 41 trucks (including some that are refrigerated to transport frozen food item), 44 trailers, 13 bobtails, and 47 chassis, and as of December 31, 2024, employed 40 drivers in our logistics division.
Leader in eco-friendly products to address sustainability Our commitment to pursuing environmental sustainability is exhibited in every aspect of our business. We believe we are amongst the leading companies in the supply of eco-friendly disposal foodservice products in the United States. Since our inception, we have made the conscious choice to never use Styrofoam in any of our products.
We believe we are amongst the leading companies in the supply of eco-friendly disposal foodservice products in the United States. Since our inception, we have made the conscious choice to never use Styrofoam in any of our products.
We intend to invest further in research and development for our Karat Earth® line to significantly expand our product offering to meet the needs of our customers and the evolving regulatory landscape. We often are a key supply chain partner integral to the daily operations of our customers.
We intend to invest further in research and development for our Karat Earth® line to significantly expand our product offering to meet the needs of our customers and the evolving regulatory landscape.
Our California, Texas and Hawaii facilities have a portion of operational capacity dedicated to manufacturing capabilities. For the year ended December 31, 2023, approximately 20% of our revenues were generated from the sale of products manufactured in-house. We view distribution as our primary focus and growth driver while utilizing our manufacturing capabilities as a complement to the base distribution business.
For the year ended December 31, 2024, approximately 11% of our revenues were generated from the sale of products manufactured in-house. We view distribution as our primary focus and growth driver while our manufacturing capabilities as a complement to the base distribution business.
We believe we are well positioned to benefit from increasing government regulation and environmental concerns given our strong portfolio of sustainable products, including our Karat Earth® line and our continued commitment and investment in our leadership position in providing eco-friendly products in the United States.
We believe we are well positioned to benefit from increasing government regulation and green-initiative concerns, given our strong portfolio of sustainable products, including our Karat Earth® line and our continued commitment towards and investment in expanding such product offerings in the United States.
Under the direction of our Chief Executive Officer and the board of directors, we are driving continuous improvements in bringing innovative eco-friendly products that meet the needs of our customers and our plant and enhancing our energy and waste management infrastructure in our sustainability journey.
We believe that effectively prioritizing and managing our ESG factors helps create long-term value for our investors. Under the direction of our Chief Executive Officer and the board of directors, we are driving continuous improvements in bringing innovative environmentally-friendly products that meet the needs of our customers and enhancing our energy and waste management infrastructure in our sustainability journey.
In 2013, we sold the retail bubble tea business to certain of 13 Lollicup’s shareholders. In 2014, as a result of a growing demand across the foodservice industry for our packaging goods, we began distributing and manufacturing products under our Karat brand in our California facility.
In 2013, we sold the retail bubble tea business to certain Lollicup’s shareholders. In 2014, due to growing demand across the foodservice industry for our disposable food packaging products, we began distributing and manufacturing under the Karat brand out of our California facility. In September 2018, we incorporated Karat Packaging Inc. in Delaware, and the Company, Lollicup, and Messrs.
In 2008, we established Karat Earth® as an eco-friendly line of foodservice products, including food and takeout containers, bags, tableware, cups, lids, cutlery and straws. Karat Earth® supplements our eco-friendly offerings within our other product lines.
In 2008, we established Karat Earth® as an eco-friendly line of foodservice products, including food and take-out containers, bags, boxes, tableware, cups, lids, cutlery and straws. This special catalog of products are largely made from renewable resources that are commercially compostable. Karat Earth® supplements our eco-friendly offerings within our other product lines.
The diversity of our customer types allows us to maintain a broad product offering while providing us with the ability to source products efficiently, as we are able to sell many products across multiple customer segments. We expect a large proportion of our future growth to come from national and regional chains as well as our higher margin online customers.
The diversity of our customer types allows us to maintain a broad product offering while providing us with the ability to source products efficiently, as we are able to sell many products across multiple customer segments.
As described in Note 22 — Subsequent Events in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, we entered into a lease agreement on February 12, 2024 for an additional distribution center in Mesa, Arizona and are currently in the process of setting up this location to be fully operational by the second quarter of 2024.
We are also in the process of setting up an additional warehouse in Chino, California to be fully operational by the second quarter of 2025, as described in Note 22 — Subsequent Events in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Further, we racked up additional areas in existing warehouses, adding 40,000 square feet of new racked space in our warehouses. Our distribution and fulfillment centers are strategically located in proximity to major population centers, including the Los Angeles, New York, Chicago, Dallas, Houston, Seattle, Atlanta and Honolulu metro areas.
Our distribution and fulfillment centers are strategically located in proximity to major population centers, including the Los Angeles, New York, Chicago, Phoenix, Dallas, Houston, Seattle, Atlanta and Honolulu metro areas.
As a result, the industry is represented by a large number of companies and remains highly fragmented. Similarly, end customers of the disposable foodservice products industry are equally diverse in composition.
The large breadth and scope of products is reflected in the diverse nature of the industry participants, which range from large international conglomerates to smaller regional and niche businesses. As a result, the industry is represented by a large number of companies and remains highly fragmented. Similarly, end customers of the disposable foodservice products industry are equally diverse in composition.
We provide technical and leadership training to employees, specifically our production and sales teams who work closely with our products and services. In particular, our focus on employee development has been structured over the last several years through programs designed to embed essential skills and reinforce strategic goals that are aligned to our culture.
In particular, our focus on employee development has been structured over the last several years through programs designed to embed essential skills and reinforce strategic goals that are aligned to our culture and business goals.
Our Company We are a rapidly-growing specialty distributor and select manufacturer of disposable foodservice products and related items. We are a nimble supplier of a wide range of products for the foodservice industry, including food and take-out containers, bags, tableware, cups, lids, cutlery, straws, specialty beverage ingredients, equipment, gloves and other products.
Our Company We are a rapidly-growing and nimble distributor and manufacturer of disposable foodservice products and related items, including food and take-out containers, bags, boxes, tableware, cups, lids, cutlery, straws, specialty beverage ingredients, gloves, janitorial supplies, and other products. Our products are available in plastic, paper, biopolymer-based, and other compostable forms.
We further expanded our e-commerce team and improved and scaled our online marketing efforts. Our e-commerce channel significantly outperformed all other channels in year-over-year revenue growth in 2023, and we believe the e-commerce channel will continue to be a key growth driver in our business.
We 3 have continued to invest in expanding our e-commerce team and improving and scaling our online marketing efforts. Our e-commerce channel, which typically carries a higher margin, significantly outperformed all other channels in year-over-year revenue growth in 2024, and we believe the e-commerce channel will continue to be a key growth driver in our business.
Employees, directors, and consultants are eligible to receive stock options and stock awards under the Plan. Additionally, the firm makes annual contributions to support the retirement goals of each employee through a matching contribution to 401(k) retirement accounts.
Employees, directors, and consultants are eligible to receive stock options and stock awards under the Plan. Additionally, we make matching contributions to to our employees' 401(k) retirement accounts to support their retirement goals.
Competitive Strengths We believe the following strengths fundamentally differentiate us from our competitors and drive our success: One-stop shop with a diverse product offering for the foodservice market and highly nimble sourcing capabilities We leverage our diversified global supplier network and offer customers a wide selection of single-use disposable foodservice products, with over 6,400 active SKUs (defined as active products available for purchase) across a broad range of product categories.
Competitive Strengths We believe the following strengths fundamentally differentiate us from our competitors and drive our success: Extensive portfolio of disposable foodservice products We leverage our diversified global supplier network and domestic production capabilities to offer customers a wide selection of single-use disposable foodservice products and specialty food and beverage products with over 6,900 SKUs across a broad range of product categories.
We expect this trend to continue on a national scale as foodservice establishments are looking to source alternative products made from biodegradable materials and other environmentally-friendly options.
We expect this trend to continue on a national scale as foodservice establishments look to source alternative products that are considered more environmentally-friendly.
Our products are available in plastic, paper, biopolymer-based and other compostable forms. Our Karat Earth® line provides environmentally friendly options to our customers, who are increasingly focused on sustainability. We also offer customized solutions to our customers, including new product development, design, printing and logistics services.
We are a leader in product innovation, offering a growing line of environmentally-friendly products to our customers, who are increasingly focused on sustainability. We also offer customized solutions to our customers, including new product development, design, printing and logistics services.
We enter into sales contracts with a subset of our national and regional chains customers, providing some visibility into future revenue. • Retail : primarily regional bubble tea shops, boutique coffee shops and frozen yogurt shops that often purchase our specialty beverage ingredients and related items. • E-commerce/Online : small businesses, often with less than two locations, such as small restaurants, bubble tea shops, coffee shops, juice bars, smoothie shops and some customers who purchase for personal use.
We enter into floor stocking agreements with a subset of our national and regional chains customers, providing some visibility into future revenue. • Retail : primarily regional bubble tea shops, boutique coffee shops, frozen yogurt shops and small mom-and-pop restaurants that often purchase our specialty beverage ingredients and related items.
Our Corporate Structure Set forth below is an organizational chart which identifies the Company and its consolidated entities as of December 31, 2023: Please see Note 2 — Summary of Significant Accounting Policies and Note 22 — Subsequent Events in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for a description of the agreements between Global Wells and us as well as the change in our ownership percentage in Global Wells subsequent to December 31, 2023 resulting from one Global Wells' member's redemption of its membership interest.
Generally, we expect relatively more of our earnings and cash flows to be generated in the second and third quarter of the fiscal year. 9 Our Corporate Structure Set forth below is an organizational chart for the Company and its consolidated entities as of December 31, 2024: Please see Note 2 — Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for a description of the agreements between Global Wells and us.
We further expanded our e-commerce team and improved and scaled our online marketing efforts. All of these initiatives allowed us to increase the number of online orders by approximately 37% in 2023 compared to prior year.
We have elevated our focus on servicing B2C market by sourcing products tailored for and geared toward these end users. We also further expanded our e-commerce team and improved and scaled our online marketing efforts. All of these initiatives allowed us to increase the number of online orders by approximately 48% in 2024 compared to prior year.
Compliance with these existing laws has not had a material impact on our capital expenditures, earnings or global competitive position. 11 A liability for environmental remediation and other environmental costs is accrued when we consider it probable that a liability has been incurred and the amount of loss can be reasonably estimated.
A liability for environmental remediation and other environmental costs is accrued when we consider it probable that a liability has been incurred and the amount of loss can be reasonably estimated. Environmental costs and accruals are presently not material to our operations, cash flows or financial position.
These challenges can be highly disruptive to a customer’s business and as a result, the customers often seek out other stable and more reliable channels for product sourcing.
As consolidation occurs, existing customers often find themselves facing challenges of changing product availability, discontinuations, increasing prices, support staff turnover and other potential transition-related challenges. These challenges can be highly disruptive to a customer’s business and as a result, the customers often seek out other stable and more reliable channels for product sourcing.
Our employees are expected to act with integrity and objectivity and to always strive to enhance our reputation and performance. We maintain a Code of Ethics which is attested by every employee and provides our framework for ethical business.
We maintain a Code of Business Conduct and Ethics which is attested by every employee and provides our framework for ethical business.
In addition, we also operate third-party storefronts on Amazon, Walmart, eBay, and recently expanded to TikTok. Our e-commerce platforms allow us to offer our entire range of products for online procurement and enable us to cross market other products to our customers.
We operate our e-commerce channel through our company storefront at www.lollicupstore.com and through our mobile app, available for download on both Apple and Android platforms, as well as third-party storefronts on Amazon, Walmart, eBay, and TikTok. Our e-commerce platforms allow us to offer our entire range of products for online procurement and cross market other products to our customers.
Additionally, we are able to custom print or label many of our products, to help our customers brand the at home dining experience of their customers.
This includes developing containers and food storage items that are both visually appealing and that deliver the best possible food quality and freshness. Additionally, we are able to custom print or label many of our products, to help our customers brand the at home dining experience of their customers.
Our e-commerce channel also significantly outperformed all other channels in year-over-year revenue growth in 2023, and we believe the e-commerce channel will continue to be a key growth driver in our business.
Our e-commerce channel also significantly outperformed all other channels in year-over-year revenue growth in 2024, and we believe the e-commerce channel will continue to be a key growth driver in our business. Grow our base business with incremental revenue from existing customers We have historically achieved tremendous success in gaining wallet-share with existing accounts once we won new customers.
As our capabilities, product offering and footprint expand, we are also beginning to supply products to national and regional supermarket chains, airlines, entertainment venues and other non-restaurant customers.
As our capabilities, product offering and footprint expand, we aim to continue to focus on the growth in the supermarket sector and broaden our reach to national and regional airlines, entertainment venues, and other non-restaurant customers.
During 2023, we invested in the significant expansion of our distribution capabilities by adding 188,000 square feet in distribution space through the opening of two new warehouses in Sugar Land, Texas and Aurora, Illinois. We also doubled our warehouse space in Washington as we moved our warehouse from Sumner to Puyallup.
In the past 24 months, we invested in the significant expansion of our distribution capabilities by adding over 232,000 square feet of distribution space through the opening of three new warehouses; Mesa, Arizona in 2024 and Sugar Land, Texas and Aurora, Illinois in 2023.
Pursue strategic acquisitions We evaluate and consider potential business acquisitions in order to expand the breadth of our existing infrastructure, product offerings, expertise, supply chain network, and operating efficiencies.
Pursue strategic acquisitions We evaluate and consider potential business acquisitions in order to expand the breadth of our existing infrastructure, product offerings, expertise, supply chain network, and operating efficiencies. Management is constantly assessing and identifying businesses that align with our strategic goals, seeking opportunities to acquire companies that bring complementary technologies, innovative capabilities, or niche market expertise.
Experienced and growth-oriented management team We have assembled a strong executive management team to lead our company in its next phase of growth, supported by a deep bench of functional area leads across the organization. Our co-founders Alan Yu and Marvin Cheng have worked together over the last 20 years to aggressively drive growth across the business.
Experienced and highly-driven management team with the focus on achieving attractive financial profile We have assembled a strong executive management team to lead our company in its next phase of growth, supported by a deep bench of functional area leads across the organization.
The utilization of trash compacting services has allowed us to minimize the frequency of waste pickups and also reduce landfill space.
We train our warehouse and janitorial staff to properly dispose of and recycle all types of material including paper, plastic, and scrap metal. The utilization of trash compacting services has allowed us to minimize the frequency of waste pickups and also reduce landfill space.
We emphasize real-life, real-time learning that enables a person to meet the demands of challenging and changing work and focuses on reinforcing key principles that are designed to support an individual’s effectiveness in his or her current job and in their future development.
We emphasize on-the-job learning that enables employees to meet the demands of challenging and changing work and focuses on reinforcing key principles that are designed to support employees' effectiveness in their current job and in their future development. We provide technical and leadership training to employees, specifically our production and sales teams who work closely with our products and services.
Expand our customer base via new capabilities, geographies, products, services and end markets We believe our addressable market continues to grow as emerging businesses like Grubhub, Uber Eats, DoorDash and others expand the need for foodservice disposable products, and takeout and at-home dining remain a constant even after the pandemic.
Our major customer retention rate, defined as year-over-year retention of our top 100 customers, was 100%. 6 Expand our customer base via new capabilities, geographies, products, services and end markets We believe our addressable market is substantial in size and continues to grow as food delivery businesses like Grubhub, Uber Eats, DoorDash and others expand the demand for take-out and at-home disposable foodservice products.
These platforms also provide us with the opportunity to continue our expansion into the B2C market in addition to the B2B small retailer customers that we traditionally serve. We have recently elevated our focus on servicing B2C market by sourcing products tailored for and geared toward these end-users.
Our e-commerce platforms allow us to offer our entire range of products for online procurement and enable us to cross market other products to our customers. These platforms also provide us with the opportunity to continue our expansion into the B2C market in addition to the B2B small retailer customers that we have traditionally served.
The restaurant and foodservice categories that are the primary purchasers of our products include quick service restaurants, fast casual, convenience stores, specialty drink establishments, casual dining and increasingly, premium casual and family dining restaurants.
The primary purchasers of our products include fast casual restaurants, fast food chains, family dining restaurants, specialty drink establishments like bubble tea and coffee shops, convenience stores, and supermarkets.
Daniel Quire joined us in 2018 and was appointed Chief Revenue Officer in 2023, helping to provide leadership to our sales term, lead our customer acquisition and engagement initiatives, and expand our market presence. Our Chief Financial Officer, Jian Guo, joined us in 2022, bringing years of public company experience to further bolster our finance and accounting functions.
Our Chief Financial Officer, Jian Guo, joined us in 2022, bringing years of public company experience to bolster our finance and accounting functions.
Disrupt the traditional foodservice supply chain The traditional foodservice supply chain consists of manufacturers selling through a multi-layer distribution and logistics network before the product reaches the end customer. As a full service distributor ourselves, we are able to provide products directly to the end user, eliminating the need for the traditional multi-layer supply chain.
We plan to continue to grow our business and increase our profitability through the following key initiatives: Disrupt the traditional foodservice supply chain The traditional foodservice supply chain consists of manufacturers selling through a multi-layer distribution and logistics network before the product reaches the end customer.
Our warehouse departments have implemented the practice of reusing paper cardboard boxes and wooden pallets for inventory storage and shipments. We offer credits to certain customers that return and reuse wooden pallets. We train our warehouse and janitorial staff to properly dispose of and recycle all types of material including paper, plastic, and scrap metal.
By using recycled resin, we reduce plastic waste, lower our carbon footprint, and contribute to the broader shift toward more sustainable solutions. Our warehouse departments have implemented the practice of reusing paper cardboard boxes and wooden pallets for inventory storage and shipments. We offer credits to certain customers that return and reuse wooden pallets.
A variety of individual cities have also passed their own complimentary ordinances to limit single-use plastic products. As more governments enact regulations to prevent and reduce waste that is harmful to the environment, and more consumers are actively taking steps towards being more sustainable, the demand for eco-friendly disposable products is on the rise.
While more governments enact regulations to prevent and reduce waste that is harmful to the environment, more consumers are also actively taking steps towards being more sustainable, accelerating the demand for eco-friendly disposable products. We have long prided ourselves in our commitment to environmental sustainability and innovation.
We operate our e-commerce channel through our company website, www.lollicupstore.com and upgraded the underlying e-commerce platform during 2023. This upgrade not only enabled us to improve our storefront from an operational standpoint, but also allowed for the integration of multiple apps and extensions to enhance user experience.
In 2023, we upgraded our company e-commerce platform, which not only enabled us to improve our storefront from an operational standpoint, but also allowed for the integration of multiple applications and extensions to enhance user experience. In 2024, we expanded our online presence to TikTok, adding to our existing list of third-party storefronts which already included Amazon, Walmart, and eBay.
We currently operate manufacturing facilities and distribution centers in Chino, California, Rockwall, Texas and Kapolei, Hawaii. In addition, we have distribution centers located in Branchburg, New Jersey; Puyallup, Washington; Summerville, South Carolina; Kapolei, Hawaii; City of Industry, California; Sugar Land, Texas; and Aurora, Illinois.
In addition, we have distribution centers located in Branchburg, New Jersey; Puyallup, Washington; Summerville, South Carolina; Kapolei, Hawaii; Sugar Land, Texas; Aurora, Illinois; and Mesa, Arizona. In the past 24 months, we opened new warehouses in Mesa, Arizona, Sugar Land, Texas and Aurora, Illinois, adding over 232,000 square feet of distribution space.
For example, during the hot weather of summer and fall months, we see an increase in the level of sales for items such as cold 9 drink cups and boba products. Generally, we expect relatively more of our earnings and cash flows to be generated in the second and third quarter of the fiscal year.
Seasonality Our business does not experience high seasonality though certain food and food related products are moderately seasonal. For example, during the hot weather of summer and fall months, we see an increase in the level of sales for items such as cold drink cups and boba products.
We strive to provide relevant market updates to our team members as well as to share important information regarding our revenue trends, inventory status, production, safety and other operating metrics as deemed necessary. We have received several recognition oriented awards throughout our company’s history.
We strive to provide relevant 12 market updates to our team members as well as to share important information regarding our revenue trends, inventory status, and other financial and operating metrics as deemed necessary. At the same time, our employees are expected to act with integrity and objectivity and to always strive to enhance our reputation and performance.
The industry is currently experiencing a period of both growth and transition as a result of several key factors that have emerged in recent years especially after the COVID-19 pandemic. These include the growing market for food delivery and take-out dining; new governmental regulations primarily resulting from an increasingly environmentally-conscious public; and growing consolidation within the disposable foodservice products industry.
In recent years, the industry has experienced several key trends, including the growing market for food delivery and take-out dining, new local and state regulations in light of an increasingly environmentally-conscious public, and growing consolidation within the disposable foodservice products industry.
While we largely maintained our manufacturing infrastructure, we disposed of certain production machinery and related raw materials and reduced our production workforce.
While we largely maintained our manufacturing infrastructure, we disposed of certain production machinery and related raw materials and reduced our production workforce. Although we expect manufacturing to remain a relatively small portion of our sales mix going forward, we plan to keep manufacturing capabilities domestically to retain our nimble business model.
We opened two new warehouses in 2023 located in Sugar Land, 5 Texas, and Aurora, Illinois, and also racked up additional space within existing warehouses to allow for better management and fulfillment of products.
Further, we racked up over 50,000 square feet of additional space within existing warehouses over the past two years to allow for better management and fulfillment of products.
Such striking statistics have prompted many state and city governments to enact regulations to cut down on plastic pollution. For example, California passed Bill 54 in June 2022, requiring all packaging in the state to be recyclable or compostable by 2032.
Such striking statistics have prompted many state and city governments to enact regulations to cut down on plastic pollution. For example, in 2024, New Jersey introduced regulations focusing on increasing post-consumer recycled (PCR) content in packaging.
We have also programmed our HVAC units at some of our locations to run on predetermined schedules to reduce our overall power consumption. Additionally, we are transitioning our company fleet from being gas powered to those that run entirely on electricity.
We have also programmed our HVAC units at some of our locations to run on predetermined schedules to reduce our overall power consumption. We are exploring options to improve the energy efficiency of our warehouses, such as through the installation of solar panels.
We also sell our products directly to leading restaurant supply companies that distribute products to a wide range of food-service establishments internationally. Our growing sales force works closely with our customers to tailor the optimal mix of products to meet the unique needs of their businesses.
Our customers range from large multi-national restaurant chains to regional and smaller establishments. We also sell through restaurant supply companies that distribute products to a wide range of food-service establishments. We collaborate closely with both our vendors and customers to create an optimized logistics and supply chain network tailored to meet the unique needs of our customers' businesses.
Our blue-chip customers include leading fast casual chains such as Chili’s Grill & Bar and Chipotle Mexican Grill, as well as fast food chains such as In-N-Out Burger, El Pollo Loco, and Panda Express, among others.
Our diverse and growing blue chip customer base includes well-known fast casual chains such as Applebee’s Neighborhood Grill + Bar, Chili’s Grill & Bar, PF Chang's China Bistro, Chipotle Mexican Grill, and Corner Bakery Cafe, fast food chains such as The Coffee Bean & Tea Leaf, El Pollo Loco, In-N-Out Burger, Jack in the Box, Panda Express, and Raising Cane’s Chicken Fingers.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAny material disruption or slowdown of our systems or those of third parties that we depend upon, including a disruption or slowdown caused by our failure to successfully manage significant increases in user volume or successfully upgrade systems, system failures, viruses, ransomware, security breaches, or other causes, could cause information, including data related to orders, to be lost or delayed, which could result in delays in the delivery of products to retailers and customers or lost sales, which could reduce demand for our products, harm our brand and reputation, and cause our sales to decline.
Biggest changeAny material disruption or slowdown of our systems or those of third parties that we depend upon, including those caused by failure to manage increases in user volume, unsuccessful system upgrades and updates, system failures, power loss, internet and network connectivity issues, cybersecurity incidents, or other causes, could cause important or confidential information to be lost or compromised or delayed.
Further international conflicts, such as the recent ones in the Middle East and Asia, could impact important trade routes, resulting in increased lead times for shipments and elevated freight costs, and suppressed margin.
Further international conflicts, such as the recent ones in the Middle East and Asia, could impact important trade routes, resulting in increased lead times for shipments, elevated freight costs, and suppressed margin.
If we do not adapt to meet these evolving challenges, the strength of our brand may erode, the quality of our products may suffer, we may not be able to deliver products on a timely basis to our customers, and our corporate culture may be harmed. We may become involved in legal or regulatory proceedings and audits.
If we do not adapt to meet these evolving challenges, our corporate culture may be harmed, the quality of our products may suffer, we may not be able to deliver products on a timely basis to our customers, and the strength of our brand may erode. We may become involved in legal or regulatory proceedings and audits.
Dollar, and in particular the exchange rates of the New Taiwan Dollar, could increase our costs, and have a material adverse impact on our business, results of operations, financial condition and cash flows.
Dollar, and in particular the exchange rates of the New Taiwan Dollar, could increase our costs, and have a material adverse impact on our business, financial condition, results of operations and cash flows.
If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and harm our business, results of operations, financial condition and cash flows. Acquisitions could result in operating difficulties and may materially adversely affect our business, financial condition, results of operations and growth prospects.
If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and harm our business, financial condition, results of operations and cash flows. Acquisitions could result in operating difficulties and may materially adversely affect our business, financial condition, results of operations and growth prospects.
These restrictions could also have a negative impact on our business, results of operations, financial condition and cash flows by significantly limiting or prohibiting us from engaging in certain transactions, including but not limited to: incurring or guaranteeing additional debt financing; transferring or selling assets currently held by us; and transferring ownership interests in certain of our subsidiaries.
These restrictions could also have a negative impact on our business, financial condition, results of operations and cash flows by significantly limiting or prohibiting us from engaging in certain transactions, including but not limited to: incurring or guaranteeing additional debt financing; transferring or selling assets currently held by us; and transferring ownership interests in certain of our subsidiaries.
Acquisition-related risks include: • diverting management time and focus from operating our business to acquisition integration; • customers moving to new suppliers as a result of the acquisition; • inability to retain employees from the business we acquire; • challenges associated with integrating employees from the acquired company into our organization; • difficulties integrating accounting, management information, human resource and other administrative systems to permit effective management of the business we acquire and realize efficiencies; • potential requirements for remediating controls, procedures and policies appropriate for a public company in the acquired business that prior to the acquisition lacked these controls, procedures and policies; • potential liability for past or present environmental, hazardous substance, or contamination concerns associated with the acquired business or its predecessors; • possible write-offs or impairment charges resulting from the acquisition; and • unanticipated or unknown liabilities relating to the acquired business.
Acquisition-related risks include: • diverting management time and focus from operating our business to acquisition integration; • customers moving to new suppliers as a result of the acquisition; • inability to retain employees from the business we acquire; • challenges associated with integrating employees from the acquired company into our organization; 26 • difficulties integrating accounting, management information, human resource and other administrative systems to permit effective management of the business we acquire and realize efficiencies; • potential requirements for remediating controls, procedures and policies appropriate for a public company in the acquired business that prior to the acquisition lacked these controls, procedures and policies; • potential liability for past or present environmental, hazardous substance, or contamination concerns associated with the acquired business or its predecessors; • possible write-offs or impairment charges resulting from the acquisition; and • unanticipated or unknown liabilities relating to the acquired business.
Unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for: (i) any derivative action or proceeding brought against or on behalf of the Company, (ii) any action asserting a claim of breach of a duty owed by any current or former director, officer, other employee or stockholder of the Company to the Company or the Company’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, (iv) any action as to which the Delaware General Corporation Law confers jurisdiction upon the Court of Chancery in the State of Delaware, or (v) any action asserting a claim governed by the internal affairs doctrine, shall, to the fullest extent permitted by law, be the Court of Chancery in the State of Delaware (or, only if the Court of Chancery in the State of Delaware declines to accept jurisdiction over a particular matter, any state or federal court located within the State 26 of Delaware).
Unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for: (i) any derivative action or proceeding brought against or on behalf of the Company, (ii) any action asserting a claim of breach of a duty owed by any current or former director, officer, other employee or stockholder of the Company to the Company or the Company’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, (iv) any action as to which the Delaware General Corporation Law confers jurisdiction upon the Court of Chancery in the State of Delaware, or (v) any action asserting a claim governed by the internal affairs doctrine, shall, to the fullest extent permitted by law, be the Court of Chancery in the State of Delaware (or, only if the Court of Chancery in the State of Delaware declines to accept jurisdiction over a particular matter, any state or federal court located within the State of Delaware).
Because we import many of our products, we are vulnerable to risks associated with products manufactured abroad, including, among other things: (a) risks of damage, destruction, or confiscation of products while in transit to our distribution centers; and (b) transportation and other delays in shipments, including as a result of heightened security screening, port congestion, and inspection processes or other port-of-entry limitations or restrictions in the United States.
Because we import many of our products, we are 24 vulnerable to risks associated with products manufactured abroad, including, among other things: (a) risks of damage, destruction, or confiscation of products while in transit to our distribution centers; and (b) transportation and other delays in shipments, including as a result of heightened security screening, port congestion, inspection processes, or other port-of-entry limitations or restrictions in the United States.
Labor disputes or disruptions at ports, our common carriers, or our suppliers or manufacturers could create significant risks for our business, particularly if these disputes result in work slowdowns, lockouts, strikes, or other disruptions during periods of significant importing or manufacturing, potentially causing delayed or cancelled orders by customers, unanticipated inventory accumulation or shortages, and significant incremental demurrage charges.
Labor disputes or disruptions at ports, our common carriers, or at our suppliers or manufacturers could create significant risks for our business, particularly if these disputes result in work slowdowns, lockouts, strikes, or other disruptions during periods of significant importing or manufacturing activity, potentially causing delayed or cancelled orders by customers, unanticipated inventory accumulation or shortages, and significant incremental demurrage charges.
Depending on the scale of the pandemic, our financial performance may differ significantly from historical rates, and our future operating results may also start to fall below expectations. We may also experience additional operating costs due to increased challenges with our workforce (including as a result of labor shortages, illness, absenteeism or government orders), and access to supplies and capital.
Depending on the scale of the pandemic, our future financial performance may differ significantly from historical rates, and our future operating results may also fall below expectations. We may also experience additional operating costs due to increased challenges with our workforce (including as a result of labor shortages, illness, absenteeism or government orders), and access to supplies and capital.
Accordingly, this concentration of ownership might decrease the market price of our common stock by: • delaying, deferring, or preventing a change in control of the company; • impeding a merger, consolidation, takeover, or other business combination involving us; or • discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of the company.
Accordingly, this concentration of ownership might decrease the market price of our common stock by: • delaying, deferring, or preventing a change in control of the company; • impeding a merger, consolidation, takeover, or other business combination involving us; or 25 • discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of the company.
In addition, stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies in our industry, as well as those of newly public companies. In the 25 past, stockholders of other public companies have instituted securities class action litigation following periods of market volatility.
In addition, stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies in our industry, as well as those of newly public companies. In the past, stockholders of other public companies have instituted securities class action litigation following periods of market volatility.
In all related party transactions, there is a risk that even if the Company personnel negotiating on behalf of the Company with the related party are striving to ensure that the terms of the transaction are arms-length, the related party’s influence may be such that the transaction terms could be viewed as favorable to that related party.
In all related party transactions, there is a risk that even if the Company personnel negotiating on behalf of the Company with the related party are striving to ensure that the terms of the transaction are arms-length, the related party’s influence may be such that the transaction terms could be viewed as favorable to that related 17 party.
If we are unable to make our payments when due or unable to refinance such amounts, our key equipment could be repossessed, our property could be foreclosed and our business could be negatively affected. The terms of the debt agreements impose significant operating and financial restrictions on us.
If we are unable to make our payments when due or unable to refinance such amounts, our key equipment could be repossessed, our property could be foreclosed and our business could be negatively affected. 28 The terms of our debt agreements impose significant operating and financial restrictions on us.
If the industry we operate in experiences a prolonged period of price decreases resulting from lower raw material, product, and ocean freight costs as well as prolonged customer destocking, we could see a reduction in our sales, gross margin and overall profitability.
If the industry we operate in experiences a prolonged period of price decreases resulting from lower raw material, product, and ocean freight costs, as well as prolonged customer destocking, we could see a reduction in our sales, gross 16 margin and overall profitability.
Failure to detect, prevent, or fix defects could result in a variety of consequences, including a greater number of product returns than expected from customers, litigation, product recalls, and credit claims, among others, which could harm our sales and results of operations.
Failure to detect, prevent, or fix defects could result in a variety of consequences, including a greater number of product returns than expected from customers, product recalls, and credit claims, among others, which could harm our sales and results of operations.
We have only a limited history operating our 20 business at its current scale. Consequently, if our operations continue to grow at a rapid pace, we may experience difficulties in managing this growth and building the appropriate processes and controls.
We have only a limited history operating our business at its current scale. Consequently, if our operations continue to grow at a rapid pace, we may experience difficulties in managing this growth and building the appropriate processes and controls.
Any inability to remediate the material weaknesses effectively or in a timely manner, or the identification of any new material weaknesses in the future, could limit our ability to prevent or detect a misstatement of our accounts or disclosures and could result in a material misstatement of our annual or interim financial statements.
Any inability to remediate the material weakness effectively or in a timely manner, or the identification of any new material weaknesses in the future, could limit our ability to prevent or detect a misstatement of our accounts or disclosures and could result in a material misstatement of our annual or interim financial statements.
The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including: • actual or anticipated fluctuations in our results of operations; • the financial projections we may provide to the public, any changes in these projections, or our failure to meet these projections; • failure of securities analysts to initiate or maintain coverage of our company, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; • ratings changes by any securities analysts who follow our company; • sales or potential sales of shares by our stockholders, or the filing of a registration statement for these sales; • adverse market reaction to any indebtedness we may incur or equity we may issue in the future; • announcements by us or our competitors of significant innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments; • publication of adverse research reports about us, our industry, or individual companies within our industry; • publicity related to problems in our manufacturing or the real or perceived quality of our products, as well as the failure to timely launch new products that gain market acceptance; • changes in operating performance and stock market valuations of our competitors; • price and volume fluctuations in the overall stock market, including as a result of trends in the United States or global economy; • any major change in our board of directors or management; • lawsuits threatened or filed against us or negative results of any lawsuits; • security breaches or cyberattacks; • legislation or regulation of our business; • loss of key personnel; • new products introduced by us or our competitors; • the perceived or real impact of events that harm our direct competitors; • developments with respect to our trademarks, patents, or proprietary rights; • general market conditions; and • other events or factors, including those resulting from war, incidents of terrorism, or responses to these events, which could be unrelated to us or outside of our control.
The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including: • actual or anticipated fluctuations in our results of operations; • the financial projections we may provide to the public, any changes in these projections, or our failure to meet these projections; • failure of securities analysts to initiate or maintain coverage of our company, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; • ratings changes by any securities analysts who follow our company; • sales or potential sales of shares by our stockholders, or the filing of a registration statement for these sales; • adverse market reaction to any indebtedness we may incur or equity we may issue in the future; • announcements by us or our competitors of significant innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments; • publication of adverse research reports about us, our industry, or individual companies within our industry; • publicity related to problems in our manufacturing or the real or perceived quality of our products, as well as the failure to timely launch new products that gain market acceptance; • changes in operating performance and stock market valuations of our competitors; • price and volume fluctuations in the overall stock market, including as a result of trends in the United States or global economy; • any major change in our board of directors or management; • lawsuits threatened or filed against us or negative results of any lawsuits; • security breaches or cyberattacks; • legislation or regulation of our business; • loss of key personnel; • new products introduced by us or our competitors; • the perceived or real impact of events that harm our direct competitors; • developments with respect to our trademarks, patents, or proprietary rights; • tariffs and other trade restrictions; • inflationary pressures; • general market conditions; and • other events or factors, including those resulting from war, incidents of terrorism, or responses to these events, which could be unrelated to us or outside of our control.
These tariffs have the potential to significantly raise the cost of our products. In such a case, there can be no assurance that we will be able to shift manufacturing and supply agreements to non-impacted countries, including the United States, 23 to reduce the effects of the tariffs.
Tariffs have the potential to significantly raise the cost of our products. In such a case, there can be no assurance that we will be able to shift manufacturing and supply agreements to non-impacted countries, including the United States, to reduce the effects of the tariffs.
If we were to experience a material adverse environmental event at any of our facilities, or we were to experience any material product safety issue with respect to our products or our business, our results of operations, financial condition and cash flow could be materially adversely affected.
If we were to experience a material adverse environmental event at any of our facilities, or we were to experience any material product safety issue with respect to our products or our business, financial condition, results of operations and cash flows could be materially and adversely affected.
For example, the banning of plastic straws was triggered by a social media backlash, which caused corresponding legislative changes within a short time period, resulting in the ban of plastic straws in certain jurisdictions, and a movement toward eco-friendly packaging.
For example, the banning of plastic straws was triggered by a social media backlash, which caused corresponding legislative changes within a short time period, resulting in the ban of plastic straws in certain jurisdictions, and a movement toward eco-friendly utensils.
Our business requires compliance with many laws and regulations, including labor and employment, sales and other taxes, customs, and consumer protection laws and ordinances that regulate retailers generally and/or govern the importation, promotion, and sale of merchandise, and the operation of stores and warehouse facilities.
Our business requires compliance with many laws and regulations, including labor, employment, taxes, customs, and consumer protection laws and ordinances that regulate retailers generally and/or govern the importation, promotion, and sale of merchandise, and the operation of stores and warehouse facilities.
Risks Related to the World Events and International Nature of Our Operations If additional tariffs or other restrictions are placed on foreign imports or any related counter-measures are taken by other countries, our business and results of operations could be harmed.
Risks Related to the Global Events and International Nature of Our Operations If additional tariffs or other restrictions are placed on foreign imports or any related counter-measures are taken by other countries, our business and results of operations could be harmed.
Increased regulatory requirements, including in relation to various aspects of ESG including disclosure requirements, or environmental causes may result in increased compliance or input costs of raw materials, which may cause disruptions in the manufacture of our products or an increase in operating costs.
Increased legislation, including in relation to various aspects of ESG including disclosure requirements, or environmental causes may result in increased compliance or input costs of raw materials, which may cause disruptions in the manufacture of our products or an increase in operating costs.
Our future income taxes could also be negatively impacted by our mix of earnings in the jurisdictions in which we operate being different than anticipated given differences in statutory tax rates in the countries in which we operate. In addition, tax policy efforts to raise global corporate tax rates could adversely impact our tax rate and subsequent tax expense.
Our future income taxes could also be negatively impacted by our mix of earnings in the jurisdictions in which we operate being different than anticipated given differences in statutory tax rates in the jurisdictions in which we operate. In addition, tax policy efforts to raise corporate tax rates could adversely impact our tax rate and tax expense.
As of March 1, 2024, our directors, executive officers, and other holders of more than 5% of our common stock, together with their affiliates, own, in the aggregate 65.5% of our outstanding common stock.
As of March 1, 2025, our directors, executive officers, and other holders of more than 5% of our common stock, together with their affiliates, own, in the aggregate 65.5% of our outstanding common stock.
If we are unable to remediate these material weaknesses, or if we experience additional material weaknesses or deficiencies in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial 21 results, in which case our business may be harmed, investors may lose confidence in the accuracy and completeness of our financial reports and the price of our common stock may decline.
If we are unable to remediate this material weakness, or if we experience additional material weaknesses or deficiencies in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial results, in which case our business may be harmed, investors may lose confidence in the accuracy and completeness of our financial reports and the price of our common stock may decline.
As a result, there can be no assurance we will be able to recruit, train, assimilate, motivate and retain employees in the future. The loss of a substantial number of these employees and our inability to hire and replace our workforce could disrupt our business and result in significant losses.
There can be no assurance that we will be able to recruit, train, assimilate, motivate and 18 retain employees in the future. The loss of a substantial number of these employees and our inability to hire and replace our workforce could disrupt our business and result in significant losses.
The rules governing the standards that must be met for management to determine that our internal control over financial reporting is effective are complex and require significant documentation, testing and possible remediation to meet the detailed standards under the rules. Our management has identified material weaknesses in our internal control over financial reporting.
The rules governing the standards that must be met for management to determine that our internal control over financial reporting is effective are complex and require significant documentation, testing and possible remediation to meet the detailed standards under the rules. Our management has identified a material weakness in our internal control over financial reporting.
Competitors, many of whom are larger and have greater financial resources than we do, may respond to challenging market conditions by lowering prices in an attempt to attract our customers. We cannot predict the timing, strength, or duration of any economic slowdown, instability, or recovery, generally or within any particular industry.
Competitors, many of whom are larger and have greater financial resources than we do, may respond to challenging market conditions by lowering prices in an attempt to attract customers. We cannot predict the timing, magnitude, or duration of any economic slowdown or recovery, generally or within any particular industry.
Additionally, failure to adequately source and timely ship our products to the U.S. and then onwards to customers could lead to lost potential revenue, failure to meet customer demand, strained relationships with customers, and diminished brand loyalty. Raw material inflation or shortage of available materials could harm our financial condition and results of operations.
Additionally, failure to adequately source and timely ship our products to the U.S. and then onwards to customers could lead to failure to meet customer demand, loss of potential revenue, strained relationships with customers, and diminishing brand loyalty. Raw material inflation or shortage of available materials could harm our financial condition and results of operations.
The outcome of some of these legal proceedings, audits, and other contingencies could require us to take, or refrain from taking, actions that could harm our operations or require us to pay substantial amounts of money, harming our financial condition and results of operations.
The outcome of some of these legal proceedings, audits, and other contingencies could require us to take actions that could harm our operations or require us to pay substantial amounts of money, harming our financial condition and results of operations.
Risks Related to Societal and Environmental Factors The effects of a pandemic are highly unpredictable and could be significant, and may have an adverse effect on our business, operations and our future financial performance. A pandemic, similar to COVID-19, would adversely impact our business, results of operations, financial condition and cash flows.
Risks Related to Societal and Environmental Factors The effects of a pandemic are highly unpredictable and could be significant, and may have an adverse effect on our business, operations and our future financial performance. A pandemic or global health crisis, similar to COVID-19, would adversely impact our business, financial condition, results of operations and cash flows.
Failure to procure our products from our third-party contract manufacturers and deliver merchandise to our customers in a timely, effective, and economically viable manner could reduce our sales and gross margins, damage our brand, and harm our business.
Failure to procure our products from our third-party contract manufacturers and deliver merchandise to our customers in a timely, effective, and economically viable manner could reduce our sales, gross margin, and profitability, damage our brand, and harm our business.
In addition, we cannot be sure that our existing insurance coverage and coverage for errors and omissions will continue to be available on acceptable terms or that our insurers will not deny coverage as to any future claim. If we are unable to successfully design and develop new products, our business may be harmed.
In addition, we cannot be sure that our existing insurance coverage and coverage for errors and omissions will continue to be available on acceptable terms or that our insurers will not deny coverage as to any future claim. We may be unable to successfully design and develop new products.
In addition, the facilities of our suppliers and where our manufacturers produce our products are located in parts of Asia that frequently experience typhoons and earthquakes. Acts of terrorism could also cause disruptions in our or our suppliers’, manufacturers’, and logistics providers’ businesses or the economy as a whole.
In addition, the facilities of our suppliers and where our manufacturers produce our products are located in parts of Asia that frequently experience typhoons and earthquakes. Criminal acts such as grand theft and acts of terrorism could also cause disruptions in our or our suppliers’, manufacturers’, and logistics providers’ businesses or the economy as a whole.
If one or more of these analysts cease to regularly cover us or fail to publish reports, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline. 27 Outstanding indebtedness may reduce our available funds. We have approximately $49.5 million in outstanding indebtedness as of December 31, 2023.
If one or more of these analysts cease to regularly cover us or fail to publish reports, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline. Outstanding indebtedness may reduce our available funds. We have approximately $48.5 million in outstanding indebtedness as of December 31, 2024.
Changes in such laws and regulations could negatively impact our customers’ demand for our products as they comply with such changes and/or require us to make changes to our products.
Changes in such laws and regulations could negatively impact customer demand for our products as they comply with these changes and/or require us to make changes to our products.
Violations of the FCPA, the Bribery Act, OFAC restrictions, or other export control, anti-corruption, anti-money laundering, and anti-terrorism laws or regulations may result in severe criminal or civil sanctions, and we may be subject to other related liabilities, which could harm our business, results of operations, financial condition and cash flows. 24 Foreign exchange rate fluctuations could affect our results of operations.
Violations of the FCPA, the Bribery Act, OFAC restrictions, or other export control, anti-corruption, anti-money laundering, and anti-terrorism laws or regulations may result in severe criminal or civil sanctions, and we may be subject to other related liabilities, which could harm our business, financial condition, results of operations and cash flows.
The loans are held at multiple banks and are collateralized by substantially all of Global Well's assets. There can be no guarantee that we will be able to pay all amounts when due or to refinance the amounts on terms that are acceptable to us or at all.
The loans are held at multiple banks and are collateralized by substantially all of Global Well's assets and is guaranteed by one of our stockholders. There can be no guarantee that we will be able to pay all amounts when due or to refinance the amounts on terms that are acceptable to us or at all.
As global economic conditions continue to be volatile and economic uncertainty remains, trends in consumer discretionary spending also remain unpredictable and subject to declines. Any of these factors could harm our business, financial condition, results of operations or cash flows. Periods of significant or prolonged deflation may negatively impact our results of operations and overall profitability.
As global economic conditions continue to be volatile and economic uncertainty remains, trends in consumer discretionary spending also remain unpredictable and subject to declines. Any of these factors could materially and adversely affect our business, financial condition, results of operations and cash flows. Periods of significant or prolonged deflation may negatively impact our business and results of operations.
If such events disrupt domestic or international air, ground or sea shipments, or the operation of the Company’s manufacturing facilities, the Company’s ability to obtain the materials necessary to manufacture its products and to deliver customer orders would be harmed, which would have a significant adverse effect on the Company’s business, results of operations, financial condition and cash flows.
If such events disrupt domestic or international air, ground or sea shipments, or the operation of the Company’s manufacturing facilities, the Company’s ability to source inventory or obtain the materials necessary to manufacture its products, and deliver customer orders would be harmed, which would have a significant adverse effect on the Company’s business and results of operations.
Historically, we have been able to mitigate the impact of higher costs by increasing our selling prices. However, due to the lag between the sourcing or the manufacturing of our products and sales to our customers, margin could be negatively impacted in periods of rising raw materials until price actions are in place.
Historically, we have been able to mitigate the impact of higher costs by increasing our selling prices. However, due to the lag between the sourcing or the manufacturing of our products and the subsequent sales to our customers, margin could be negatively impacted in periods of rising raw materials costs.
We are also expanding the number of distribution centers and warehouses across the United States and these efforts come with considerable challenges and risks, including entering into long term lease contracts with possibly significant termination clauses. If we are not successful, our business, results of operations, financial condition or cash flows may be harmed.
We are also expanding the number of distribution centers and warehouses across the United States and these efforts come with considerable challenges and risks, including entering into long term lease contracts with possibly significant termination clauses. If we are not successful, our business, financial condition, results of operations and cash flows could be materially and adversely effected.
If any of the events or developments described below occur, our business, financial condition, or results of operations could be materially or adversely affected. As a result, the market price of our common stock could decline, and investors could lose all or part of their investment.
If any of the events or developments described below occur, our business, financial condition, or results of operations could be materially or adversely affected. As a result, the market price of our common stock could decline, and investors could lose all or part of their investment. The risks described below are not the only risks we face.
The ability of our manufacturers to effectively satisfy our production requirements could also be impacted by manufacturer financial difficulty or disruption to their operations caused by fire, terrorist attack, natural disaster, or other events. The failure of any manufacturer to perform to our expectations could result in supply shortages or delays for certain products and harm our business.
The ability of our manufacturers to effectively satisfy our production requirements could also be impacted by manufacturer financial difficulty or disruption to their operations caused by fire, natural disasters, or other events. The failure of any third-party manufacturer to perform to our expectations could result in supply shortages or delays for certain products and harm our business results.
In addition, any payments we are required to make, and any injunction we are required to comply with as a result of such infringement, could harm our reputation, business, financial condition, results of operations or cash flows.
In addition, any payments we are required to make, and any injunction we are required to comply with as a result of such infringement, could materially and adversely affect our reputation, business, financial condition, results of operations and cash flows.
Any failure to obtain sufficient freight capacity on a timely basis or at favorable shipping rates will result in our inability to receive products from suppliers or deliver products to our customers in a timely and cost-effective manner, which will result in a material adverse impact on our business, financial condition, results of operations or cash flows.
Any failure to obtain sufficient freight capacity on a timely basis or at favorable shipping rates will result in our inability to receive products from suppliers or deliver products to our customers in a timely and cost-effective manner, which could materially and adversely affect our business, financial condition, results of operations and cash flows.
Changes in freight carrier costs related to the shipment of our products could have a material adverse impact on our results of operations. We rely upon third-party ocean freight, air freight and land-based carriers for product shipments to our customers.
Changes in freight carrier costs related to the shipment of our products could have a negative impact on our business and results of operations. We rely upon third-party ocean freight, air freight and land-based carriers for product shipments from our vendors and to our customers.
Labor is subject to cost inflation and availability, due to external factors, such as increases in minimum wage, higher cost of living, workforce participation rates, and employee preference for remote or hybrid work schedules, that are all beyond our control.
Labor cost inflation and the unavailability of skilled workers could disrupt our business. Labor is subject to cost inflation and availability, due to external factors, such as increases in minimum wage, higher cost of living, workforce participation rates, and employee preference for remote or hybrid work schedules, that are all beyond our control.
Our current and future products may experience quality problems from time to time that can result in product returns, negative publicity, litigation, product recalls, and warranty claims, which could result in decreased sales and operating margin, and harm to our brand.
Our current and future products may experience quality problems from time to time that can result in product returns, product recalls, credit claims, negative publicity, and even litigation, which could result in decreased sales and operating profit margin, and also bring harm to our brand.
The successful assertion of one or more large claims against us that exceeds our available insurance coverage, or results in changes to our insurance policies (including premium increases or the imposition of large deductible or co-insurance requirements), could have an adverse effect on our business.
We may not have adequate insurance coverage. The successful assertion of one or more large claims against us that exceeds our available insurance coverage, or results in changes to our insurance policies (including premium increases or the imposition of larger deductibles or co-insurance requirements), could have an adverse effect on our business.
Our third-party manufacturers are located in international markets, and we make payment to certain of these manufacturers in currency other than U.S. Dollars, including payments made in New Taiwan Dollars. Any fluctuations in foreign exchange rates against the U.S.
Foreign exchange rate fluctuations could affect our results of operations. Our third-party manufacturers are located in international markets, and we make payment to certain of these manufacturers in currencies other than U.S. Dollars, including payments made in New Taiwan Dollars. Any fluctuations in foreign exchange rates against the U.S.
Our reputation and our customers’ willingness to purchase our products depend in part on our suppliers’ and manufacturers’ compliance with ethical employment practices, such as with respect to child labor, wages and benefits, forced labor, discrimination, safe and healthy working conditions, and with all legal and regulatory requirements relating to the conduct of their businesses.
Our reputation and business could suffer due to non-compliance with ethical and legal standards by our suppliers and manufacturers Our reputation and our customers’ willingness to purchase our products depend in part on our suppliers’ and manufacturers’ compliance with ethical employment practices, such as with respect to child labor, wages and benefits, 19 forced labor, discrimination, safe and healthy working conditions, and with all legal and regulatory requirements relating to the conduct of their businesses.
Unfavorable conditions in our industry or the global economy could limit our ability to grow our business and negatively affect our results of operations. Our results of operations may vary based on the impact of changes in our industry or the global economy on us or our customers and potential customers.
Unfavorable conditions in our industry or the global economy could limit our ability to grow our business and negatively affect our results of operations. Our business results may vary based on the state of our industry or the global economy.
Although our Board of Directors declared a quarterly cash dividend in 2023 and intend to pay regular quarterly dividends for the foreseeable future, we may not be able to sustain our current quarterly dividend payouts.
Although we initiated our regular quarterly cash dividend in 2023 and intend to pay regular quarterly dividends for the foreseeable future, we may not be able to sustain our current quarterly dividend payouts.
A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected and corrected on a timely basis.
A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected and corrected on a timely basis. For a description of the identified material weakness, see Part II, Item 9A.
Historically, there have been tariffs and other trade restrictions and various alterations to trade agreements and terms between the United States and China, the European Union, Canada, and Mexico, among others, including limiting trade and/or imposing tariffs on imports from such countries.
Historically, there have been trade restrictions and various alterations to trade agreements between the United States and China, the European Union, Canada, and Mexico, among others, including limiting trade and/or imposing tariffs on imports from such countries. In early 2025, the new U.S.
For a description of the identified material weaknesses, see Part II, Item 9A, "Controls and Procedures". As further described in Item 9A, “Controls and Procedures,” we have remediated certain material weaknesses previously identified in Part II, Item 9A of Form 10-K for the year ended December 31, 2022 filed with the SEC on March 16, 2023.
"Controls and Procedures". As further described in Part II, Item 9A. "Controls and Procedures", we have remediated certain material weaknesses previously identified in Part II, Item 9A of Form 10-K for the year ended December 31, 2023 filed with the SEC on March 15, 2024.
Although we believe the exclusive forum provision benefits us by providing increased consistency in the application of Delaware law for the specified types of actions and proceedings, this provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company and its directors, officers, or other employees and may discourage lawsuits with respect to such claims.
Although we believe the exclusive forum provision benefits us by providing increased consistency in the application of Delaware law for the specified types of actions and proceedings, this provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company and its directors, officers, or other employees and may discourage lawsuits with respect to such claims. 27 We may issue preferred stock, the terms of which could adversely affect the voting power or value of our common stock.
If we underestimate the demand for our products, we, or our manufacturers, may not be able to scale to meet our demand, and this could result in delays in the shipment of our products and our failure to satisfy demand, as well as damage to our reputation and customer relationships.
If we underestimate the demand for our products, we, or our manufacturers, may not be able to scale to meet demand timely, and this could result in delays in the shipment of products to customers, lost revenue, and damage to our reputation and customer relationships.
Karat Packaging Inc. is a holding company with no operations of its own and, as such, it depends on its subsidiaries for cash to fund its operations and expenses, including future dividend payments, if any. As a holding company, our principal source of cash flow will be distributions from Lollicup, our wholly-owned subsidiary.
We are a holding company with no operations of our own and, as such, we depend on our subsidiaries for cash to fund our operations and expenses, including future dividend payments, if any. As a holding company, our principal source of cash flow will be distributions from Lollicup, our wholly-owned subsidiary.
We will remain an emerging growth company until the earliest of (i) the end of the fiscal year in which the market value of our common stock that is held by non-affiliates is at least $700 million as of the last business day of our most recently completed second fiscal quarter, (ii) the end of the fiscal year in which we have total annual gross revenues of $1.235 billion or more during such fiscal year, (iii) the date on which we issue more than $1 billion in non-convertible debt in a three-year period, or (iv) December 31, 2026, which represents the end of the fiscal year in which the fifth anniversary of the date of our IPO prospectus occurs. 28 The requirements of being a public company may strain our resources, divert management’s attention, and affect our ability to attract and retain executive management and qualified board members.
We will remain an emerging growth company until the earliest of (i) the end of the fiscal year in which the market value of our common stock that is held by non-affiliates is at least $700 million as of the last business day of our most recently completed second fiscal quarter, (ii) the end of the fiscal year in which we have total annual gross revenues of $1.235 billion or more during such fiscal year, (iii) the date on which we issue more than $1 billion in non-convertible debt in a three-year period, or (iv) December 31, 2026, which represents the end of the fiscal year in which the fifth anniversary of the date of our IPO prospectus occurs.
International political instability and terrorist activities could result in market instability, which could negatively impact our business results. Terrorist activities and armed conflicts, including recent escalations in regional conflicts, could result in economic sanctions that could impact our operational and financial results.
International political instability and armed conflicts, including recent escalations in regional conflicts, could result in economic sanctions that could impact our operational and financial results.
Negative conditions in the general economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, financial and credit market fluctuations, international trade relations, pandemics, political turmoil, natural catastrophes, warfare, and terrorist attacks could cause a decrease in demand for our products and negatively affect the growth of our business.
Negative economic conditions both in the United States and abroad, including conditions resulting from tighter financial and credit market access, international trade relations, political turmoil, natural catastrophes, warfare, and terrorist attacks could cause a decrease in demand for our products and negatively affect the growth of our business.
Raw material shortages, especially with respect to polyethylene terephthalate, or PET, plastic resin, or our inability to timely pass through increased costs to our customers may adversely affect our business, financial condition, results of operations or cash flows. We operate in a highly competitive environment and may not be able to compete successfully.
Additionally, raw material shortages, especially with respect to key materials such as plastic and paper, or our inability to timely pass through increased costs to our customers may materially and adversely affect our business, financial condition, results of operations and cash flows. 15 We operate in a highly competitive environment and may not be able to compete successfully.
For certain of our products, it may take a significant amount of time to identify and qualify a manufacturer that has the capability and resources to produce our products to our specifications in sufficient volume and satisfy our service and quality control standards. We rely on a combination of purchase orders and supply contracts with our suppliers and manufacturers.
For certain of our products, it may take a significant amount of time to identify and qualify a manufacturer that has the capability and resources to produce our products to our specifications in sufficient volume and satisfy our service and quality control standards.
The additional shares issued upon vesting will be eligible to be sold freely in the public market, subject to volume limitations applicable to affiliates and the existing lock-up agreements.
The additional shares issued upon exercise or vesting will be eligible to be sold freely in the public market, subject to volume limitations applicable to affiliates.
While we believe that our exposure to concentrations of credit risk with respect to trade receivables is mitigated by our large retail partner base, and we make allowances for sales and doubtful accounts, we nevertheless run the risk of our customers not being able to meet their payment obligations, particularly in a future economic downturn.
While we believe that our exposure to concentrations of credit risk with respect to trade receivables is mitigated by our large and diversified customer base, we nevertheless run the risk of our customers not being able to meet their payment obligations, particularly in an economic downturn.
In addition, our suppliers and manufacturers may raise prices in the future, which would increase our costs and harm our margins. Even those suppliers and manufacturers with whom we have supply contracts may breach these agreements, and we may not be able to enforce our rights under these agreements or may incur significant costs attempting to do so.
Even those suppliers and manufacturers with whom we have supply contracts may breach these agreements, and we may not be able to enforce our rights under these agreements or may incur significant costs attempting to do so.
Additionally, defending against these lawsuits and proceedings may be necessary, which could result in substantial costs and diversion of management’s attention and resources, harming our business, results of operations, financial condition or cash flows. Any pending or future legal or regulatory proceedings and audits could harm our business, results of operations, financial condition or cash flows.
Additionally, defending against these lawsuits and 21 proceedings may be necessary, which could result in substantial costs and diversion of management’s attention and resources, materially and adversely harming our business, financial condition, results of operations and cash flows.
In such case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting and the prices of our common stock may decline as a result.
In such case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting and the prices of our common stock may decline as a result. 22 If our goodwill, other intangible assets, or our property and equipment become impaired, we may be required to record a charge to our earnings.
We may be subject to liability if we infringe upon the intellectual property rights of third parties. Third parties have sued, and may sue us in the future for alleged infringement of their proprietary rights.
Problems or delays in this process could harm our brand and business results. We may be subject to liability if we infringe upon the intellectual property rights of third parties. Third parties have sued, and may sue us in the future for alleged infringement of their proprietary rights.
We expect to make significant investments in our research and development and sales and marketing organizations, expand our operations and infrastructure both domestically and internationally, design and develop new products, and enhance our existing products. In addition, in connection with operating as a public company, we will incur significant additional legal, accounting, and other expenses.
We expect to make significant investments in our sales and marketing efforts, expand our operations and infrastructure, design and develop new products, and enhance our existing lineup. Also, in connection with operating as a public company, we expect to continue to incur significant additional legal, accounting, and other related expenses.
If we are unable to quickly adapt to changes in consumer preferences and subsequent legislation, our business, financial condition, results of operations or cash flows could be adversely affected. Supply chain disruptions could interrupt product manufacturing and increase product costs. Our operating model entails generating the majority of our revenue from the import and distribution of our vendors' products.
If we are unable to quickly adapt to changes in consumer preferences and subsequent legislation, our business, financial condition, results of operations and cash flows could be materially and adversely affected. Supply chain disruptions could interrupt product manufacturing and increase product costs.
Although we have recently shifted towards an asset light model by increasing import and scaling back production and reducing capital expenditure, changes in economic and political conditions may result in us incurring significant capital expenditures again to expand manufacturing. We may also make significant investments to lease additional warehouse space, expand our truck fleet, and upgrade our e-commerce platform.
Although we have recently shifted towards an asset light model by increasing import and scaling back production and reducing capital expenditure, changes in economic and political conditions may result in us incurring significant capital expenditures again to expand manufacturing.
Our products are primarily used in restaurant and foodservice settings, and therefore they come into direct contact with food and other consumable products. Accordingly, our products must comply with various laws and regulations for food and beverage service applicable to our customers.
We manufacture and distribute single-use disposable products made of plastic, paper, biopolymer-based and other compostable products. Our products are primarily used in restaurant and foodservice settings, and therefore they come into direct contact with food and other consumable products. Accordingly, our products must comply with various laws and regulations for food and beverage service applicable to our customers.
If additional tariffs or other restrictions are placed on foreign imports, including on any of our products manufactured overseas for sale in the United States, or any related counter-measures are taken by other countries, our business, results of operations, financial condition and cash flows may be materially harmed.
If additional tariffs or other restrictions are placed on foreign imports, including on any of our products manufactured overseas for sale in the United States, or any related retaliatory measures are taken by other countries, our business may be negatively impacted.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeAny incident assessed as potentially being or becoming material is immediately escalated to the Audit Committee, and meetings of the Audit Committee and/or full Board of Directors would be held, as appropriate. We consult with our outside legal counsel as appropriate, including on materiality analysis and disclosure matters. Senior management makes the final materiality determination and disclosure decisions.
Biggest changeShould a cybersecurity event occur, the IR Team would review and assess the incident and determine whether further escalation and regulatory reporting is required. Any incident assessed as potentially being or becoming material is immediately escalated to the Audit Committee, and meetings of the Audit Committee and/or full Board of Directors would be held, as required.
The results of the assessment are used to drive alignment on prioritization of initiatives to enhance our security controls, make recommendations to senior management, and if necessary, but at least annually, inform the Audit Committee and Board of Directors.
The results of the assessment are used to drive alignment on prioritization of initiatives to enhance our security controls and measures, make recommendations to senior management, and if necessary, but at least annually, inform the Audit Committee and Board of Directors.
See Item 1A "Risk Factors" for additional information about the risks to our business associated with a breach or other compromise to our information and operational technology systems.
While we devote resources to our security measures designed to protect our systems and information, no security measure is infallible. See Item 1A "Risk Factors" for additional information about the risks to our business associated with a breach or other compromise to our information and operational technology systems.
This includes existing and new cybersecurity risks, how management is assessing and addressing such risks, status on key information security initiatives, and cybersecurity incidents, if any, and responses. Members of our Board of Directors also engage in ad hoc conversations with management on cybersecurity-related news events and discuss any updates to our cybersecurity risk management program.
Members of our Board of Directors also engage in ad hoc conversations with management on cybersecurity-related news events and discuss any updates to our cybersecurity risk management program.
Some of the controls and processes in place to manage risks from cybersecurity threats include monitoring systems, enforcement mechanisms, employee training, tools and related services from third-party providers, and management oversight.
Some of the processes in place to manage risks from cybersecurity threats include identity and access management, logging and monitoring, penetration testing, vulnerability scanning, security monitoring, employee awareness training, and professional services from third-party providers.
There can also be no guarantee that our policies and procedures under our cybersecurity risk management program will be properly followed in every instance or that those policies and procedures will be effective. While we devote resources to our security measures designed to protect our systems and information, no security measure is infallible.
Despite the implementation of our cybersecurity processes, our security measures cannot guarantee that a significant cybersecurity attack will not occur. There can also be no guarantee that our policies and procedures under our cybersecurity risk management program will be properly followed in every instance or that those policies and procedures will be effective.
We have also established an IT steering committee consisting of members from various key departments including IT, Finance, Operations, and Human Resources. The IT steering committee convenes at regular periodic intervals and reviews IT strategic and investment priorities, including the Company's cybersecurity programs. Our policies also require each of our employees to contribute to our data security efforts.
We have also established an IT steering committee consisting of members from various key departments including IT, Finance, Operations, and Human Resources. The IT steering committee convenes regularly to review and align on IT strategic priorities, including the cybersecurity risk management program.
We have developed and implemented a cybersecurity risk management program intended to protect the confidentiality, integrity, and availability of our critical systems and information. Our cybersecurity strategy prioritizes detection, analysis, and response to known, anticipated or unexpected threats. We implement and continue to update risk-based controls to protect key information and systems.
ITEM 1C. CYBERSECURITY Cybersecurity risk management is a critical part of our overall risk management efforts. We have developed and implemented a cybersecurity risk management program intended to protect the confidentiality, integrity, and availability of our key systems and information.
Our Board of Directors has oversight of our strategic and business risk management, and has delegated cybersecurity risk management oversight to the Audit Committee. Members of the Audit Committee receive updates on an as-needed basis, but at least annually, from senior management.
Governance Cybersecurity is an important part of our risk management processes and an area of focus for senior management. Our Board of Directors has oversight of our strategic and business risk management, and has delegated cybersecurity risk management oversight to the Audit Committee.
We maintain controls and procedures that are designed to ensure prompt escalation of certain cybersecurity incidents so that decisions regarding public disclosure and reporting of such incidents can be made in a timely manner. 30 In 2023, we are not aware of any cybersecurity incidents that have materially affected or are reasonably likely to materially affect us.
We consult with our outside legal counsel as appropriate, including on materiality analysis and disclosure matters. Senior management makes the final materiality determination and disclosure decisions. We maintain controls and procedures that are designed to ensure prompt escalation of certain cybersecurity incidents so that decisions regarding public disclosure and reporting of such incidents can be made in a timely manner.
Our cybersecurity risk management program in particular focuses on the following key areas: 29 Risk Assessment At least annually, we conduct a cybersecurity risk assessment to identify the inherent cyber security risks and threats to which we are exposed to, evaluate maturity and effectiveness of our systems and processes in addressing such identified risks and threats, and to identify any areas for further enhancements.
Our cybersecurity risk management program in particular focuses on the following key areas: Risk Assessment and Management At least annually, we conduct a cybersecurity risk assessment to identify key cybersecurity risks, assess the likelihood of the identified risks, and the potential business impact, and develop related mitigation and enhance plans.
The importance of cybersecurity is conveyed internally within the organization as well as externally. Within the organization, our cybersecurity efforts are led by our Information Technology ("IT") Manager who is a Microsoft Certified Professional and holds CompTIA Network+ and Cisco Network certifications.
These partnerships enable us to stay ahead of evolving threats and implement robust strategies to protect critical systems and data in the event of cybersecurity incidents. 30 Internally, our cybersecurity initiatives are led by our Information Technology ("IT") team headed by our experienced IT Manager, who is a Microsoft Certified Professional and holds certifications in CompTIA Network+ and Cisco Networking.
Our cybersecurity risk assessment considers information from internal stakeholders, known and potential information security vulnerabilities, and data from external sources (e.g., reported security incidents that have impacted other companies, industry trends, and evaluations by third parties and consultants).
The Company uses various techniques to identify cybersecurity risks, including but not limited to input from internal stakeholders, known and potential information security vulnerabilities identified through historical incidents and self-performed assessments, evaluations from third-party consultants, as well as external data including reported security incidents impacting other companies, and industry trends.
ITEM 1C. CYBERSECURITY Cybersecurity risk management is a critical part of our overall risk management efforts. We have adopted security-control principles based on the National Institute of Standards and Technology ("NIST") Cybersecurity Framework and other industry-recognized standards, as applicable.
This program leverages the security-control principles outlined by the National Institute of Standards and Technology ("NIST") Cybersecurity Framework 2.0 and other industry-recognized standards, as applicable. Our program prioritizes detection, analysis, and response to known, anticipated or unexpected threats.
Collaboration We also engage third-party security consultants to assist with assessment and enhancement of our cybersecurity risk management program and compliance with applicable practices and standards. Should a cyber security incident occur in the future, we may engage third parties to assist us in responding to the incident as well as enhancing our cybersecurity risk management program, if necessary.
Collaboration We periodically engage third-party cybersecurity experts to assess and enhance our cybersecurity risk management program, and to ensure compliance with industry best practices and applicable standards.
We acknowledge that cybersecurity threats are continually evolving, and the possibility of future cybersecurity incidents remains. Despite the implementation of our cybersecurity processes, our security measures cannot guarantee that a significant cybersecurity attack will not occur.
Impact of Cybersecurity Risks and Threats As of the date of this report, we are not aware of any cybersecurity threats or incidents that have materially affected our business, financial condition, results of operations or cash flows. We acknowledge that cybersecurity threats are continually evolving, and the possibility of future cybersecurity incidents remains.
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This does not imply that we meet any particular technical standards, specifications, or requirements, but rather that we use these principles as a guide to help us identify, assess, and manage cybersecurity risks relevant to our business.
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As cybersecurity threats evolve, we assess our program and make enhancements as needed to address emerging risks, adopt best practices, and strengthen our overall security posture.
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Incident Response and Recovery Planning We maintain an incident response and recovery plan (the "IRR Plan") that guides our activities in preparing for, detecting, responding to, and recovering from cybersecurity incidents. The IRR Plan identifies the working group responsible for the prevention, detection, mitigation and remediation of cybersecurity incidents.
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Our cyber risk management initiatives are integrated within the Company’s overall risk management process.
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The IRR Plan also covers the range of activities we undertake in connection with responding to cybersecurity incidents, including monitoring, identification, investigation, assessment, containment, remediation, and mitigation, as well as compliance with legal obligations including any necessary regulatory reporting. Incidents are evaluated, ranked by severity, and prioritized for response, remediation and reporting, if needed.
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Incident Response and Recovery Planning We maintain a comprehensive Incident Response and Recovery Plan (IRR Plan) designed to guide our preparation for, detection, response to, and recovery efforts in the event of cybersecurity incidents. The IRR Plan establishes clear roles and responsibilities for a cross-functional team (IR Team) tasked with handling cybersecurity incidents.
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At least annually, employees are required to attend a mandatory training on how to recognize phishing attempts and how to best handle and report cybersecurity threats. In addition, we collaborate with third party software as a service providers and other service providers to maintain policies and procedures governing our third-party security risks.
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The plan outlines a structured approach to managing incidents from the technical perspective, including monitoring, identification, investigation, assessment, containment, remediation, and mitigation. Additionally, the IRR Plan also addresses compliance with legal and reporting obligations, including any required notifications to affected parties, regulatory agencies, or the public, and reporting requirements with the SEC.
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We evaluate and ensure such third parties maintain appropriate security controls to protect our confidential data, and notify us of material data breaches that may impact our data. Governance Cybersecurity is an important part of our risk management processes and an area of focus for senior management.
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Cybersecurity incidents are evaluated based on their severity, potential impact, and likelihood of escalation, and are prioritized for response, remediation, and disclosure as necessary. The IRR Plan is regularly reviewed and updated as necessary to incorporate improvements and enhance the organization's overall incident response capabilities.
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In the event of a cybersecurity event, a cross-functional steering committee involving the IT, Finance, and Legal departments, would review and assess the incident and determine whether further escalation and regulatory reporting is required.
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During 2024, we also onboarded a Director of IT Research & Development with over 15 years of experience in IT, systems development, and cybersecurity frameworks, including senior roles at Fortune 500 companies. Both these IT leaders play a key role in driving strategies and solutions for system protection and incident management.
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This cross-functional approach ensures that cybersecurity efforts are integrated across the organization and that emerging risks are addressed proactively. In addition, we emphasize a company-wide culture of cybersecurity awareness. Employees are required to participate in mandatory training sessions at least annually, covering topics such as phishing recognition and threat response protocols.
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Other regular and ongoing security communications are also provided to reinforce these lessons and ensure that cybersecurity remains a priority at every level of the organization. Further, we work closely with third-party software as a service providers and other service partners to manage and mitigate security risks by implementing robust policies and procedures.
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Our process includes conducting thorough risk assessments during onboarding and requiring providers to maintain and implement strong security measures within their respective organizations. We mandate contractual obligations for timely notification of any material data breaches, enabling us to respond quickly to protect our data and operations.
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Members of the Audit Committee receive updates on an as-needed basis, but at least annually, from senior management. This includes existing and new cybersecurity risks, how management is assessing and addressing such risks, status on key information security initiatives, and cybersecurity incidents, if any, and responses.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe also lease and operate (i) an approximately 98,000 square foot warehouse storage and distribution facility in Puyallup, Washington, (ii) an approximately 76,000 square foot manufacturing, warehouse storage and distribution facility in Kapolei, Hawaii, (iii) an approximately 23,000 square foot warehouse storage and distribution facility also in Kapolei, Hawaii, (iv) an approximately 70,000 square foot warehouse storage and distribution facility in City of Industry, California, (v) an approximately 83,000 square foot warehouse storage and distribution facility in Sugar Land, Texas, and (vi) an approximately 105,000 square foot warehouse storage and distribution facility in Aurora, Illinois.
Biggest changeWe also lease and operate (i) an approximately 98,000 square foot warehouse storage and distribution facility in Puyallup, Washington, (ii) an approximately 76,000 square foot manufacturing, warehouse storage and distribution facility in Kapolei, Hawaii, (iii) an approximately 23,000 square foot warehouse storage and distribution facility also in Kapolei, Hawaii, (iv) an approximately 44,000 square foot warehouse storage and distribution facility in 31 Mesa, Arizona, (v) an approximately 83,000 square foot warehouse storage and distribution facility in Sugar Land, Texas, and (vi) an approximately 105,000 square foot warehouse storage and distribution facility in Aurora, Illinois.
We lease (i) an approximately 500,000 square foot manufacturing, warehouse storage and distribution facility in Rockwall, Texas and (ii) an approximately 108,000 square foot warehouse storage and distribution facility in Branchburg, New Jersey from our variable interest entity, as further described in Note 2 — Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
We lease (i) an approximately 500,000 square foot manufacturing, warehouse storage and distribution facility in Rockwall, Texas and (ii) an approximately 108,000 square foot warehouse storage and distribution facility in Branchburg, New Jersey from our consolidated variable interest entity, as further described in Note 2 — Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Added
Further, as described in Note 22 — Subsequent Events in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, we entered into a lease agreement on March 3, 2025 for a 187,000 square foot distribution center in Chino, California and are currently in the process of setting up this location to be fully operational by the second quarter of 2025.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS From time to time, we are involved in various legal proceedings. Although no assurance can be given, we do not believe that any of our currently pending proceedings will have a material adverse effect on our financial condition, cash flows or results of operations. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 31 Part II
Biggest changeITEM 3. LEGAL PROCEEDINGS From time to time, we are involved in various legal proceedings. Although no assurance can be given, we do not believe that any of our currently pending proceedings will have a material adverse effect on our financial condition, cash flows or results of operations. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 32 Part II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeSecurities Authorized for Issuance Under Equity Compensation Plans The following table provides information as of December 31, 2023, with respect to all of our compensation plans under which equity securities are authorized for issuance: Number of Securities To Be Issued Upon Exercise of Outstanding Options, Warrants and Rights Weighted Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance Equity compensation plans approved by stockholders 391,818 (1) $18.58 (2) 1,350,684 Total 391,818 $18.58 1,350,684 (1) This amount consists of (i) 5,345 shares of our common stock subject to unvested restricted stock units granted under the Plan, and (ii) 386,473 shares subject to stock options granted under the Plan.
Biggest changeSecurities Authorized for Issuance Under Equity Compensation Plans The following table provides information as of December 31, 2024 with respect to all of our compensation plans under which equity securities are authorized for issuance: Number of Securities To Be Issued Upon Exercise of Outstanding Options, Warrants and Rights Weighted Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance Equity compensation plans approved by stockholders 384,467 (1) $18.57 (2) 1,287,017 Total 384,467 $18.57 1,287,017 (1) This amount consists of (i) 70,800 shares of our common stock subject to unvested restricted stock units granted under the Plan, and (ii) 313,667 shares subject to stock options granted under the Plan.
(2) This number reflects the weighted-average exercise price of outstanding options and has been calculated exclusive of outstanding restricted stock unit awards issued under the Plan. Sales of Unregistered Securities and Repurchases of Securities During the fourth quarter of fiscal 2023, the Company did not sell any unregistered securities and did not repurchase any securities. ITEM 6. [RESERVED] 32
(2) This number reflects the weighted-average exercise price of outstanding options and has been calculated exclusive of outstanding restricted stock unit awards issued under the Plan. Sales of Unregistered Securities and Repurchases of Securities During the fourth quarter of fiscal 2024, the Company did not sell any unregistered securities and did not repurchase any securities. ITEM 6. [RESERVED] 33
Holders of Common Stock As of March 12, 2024, we had approximately 13 stockholders of record of our common stock. Dividends On August 7, 2023, our Board of Directors approved a quarterly cash dividend policy, which we have paid on a regular basis.
Holders of Common Stock As of March 10, 2025, we had approximately 8 stockholders of record of our common stock. Dividends On August 7, 2023, our Board of Directors approved a quarterly cash dividend policy, which we have paid on a regular basis since then.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeWe manage and evaluate our operations in one reportable segment. 2023 Business Highlights and Trends • During the year ended December 31, 2023, we invested in the significant expansion of our distribution capabilities through opening new warehouses and racking up additional areas in our existing warehouses. • We enhanced our sales force in 2023 through the addition of new team members and promotion of our inaugural Chief Revenue Officer. • During the year ended December 31, 2023, we executed a strategy to pivot into a more asset-light model by increasing imports and scaling back manufacturing in certain locations in light of dropping ocean freight rates coupled with rising domestic labor and operating costs, resulting in strong margin expansion and cash flows. • We recorded revenues of $405.7 million for the year ended December 31, 2023, a decrease of 4.1% compared to 2022 in revenue amount and an increase of 3.7% in volume. • We achieved a record gross margin of 37.7% for the year ended December 31, 2023, a 650-basis-point increase from the year ended December 31, 2022. • We recorded net income of $33.2 million for the year ended December 31, 2023, an increase of 28.4% compared to the year ended December 31, 2022. • We achieved a record net income margin of 8.2% for the year ended December 31, 2023 compared to 6.1% for the year ended December 31, 2022. 33 • We generated record net cash provided by operating activities of $53.4 million for the year ended December 31, 2023, an increase of 81.1% compared to prior year. • We generated consolidated Adjusted EBITDA, a non-GAAP measure defined below, of $59.1 million for the year ended December 31, 2023, a 29.4% increase from the year ended December 31, 2022. • Our Adjusted EBITDA margin, a non-GAAP measure defined below, expanded to a company record of 14.6% for the year ended December 31, 2023, an increase of 380 basis points from the year ended December 31, 2022. • We had financial liquidity of $59.3 million and additional short-term investments of $26.3 million as of December 31, 2023. • During the second quarter of 2023, we closed the sale of our equity interest in Bio Earth and received total consideration of $6.1 million, which comprised of our original deposits plus accrued interest. • On August 7, 2023, our Board of Directors approved our inaugural regular quarterly cash dividend.
Biggest changeWe manage and evaluate our operations in one reportable segment. 2024 Business Highlights and Trends • We initiated a strategic emphasis on expanding into the supermarket segment, and have started to see early positive results. • We continued our transition to a more asset-light model by further scaling back manufacturing in the U.S., increasing imports, and expanding our vendor network, leading to strong margin expansion. 34 • We recorded net sales of $422.6 million for the year ended December 31, 2024, an increase of 4.2% compared to the year ended December 31, 2023 in net sales amount and an increase of 7.4% in volume. • We achieved a record gross margin of 38.9% for the year ended December 31, 2024, a 120-basis-point increase from the year ended December 31, 2023. • We recorded net income of $30.8 million for the year ended December 31, 2024, a decrease of 7.1% compared to the year ended December 31, 2023. • We achieved net income margin of 7.3% for the year ended December 31, 2024, compared to 8.2% for the year ended December 31, 2023. • We generated net cash provided by operating activities of $48.0 million for the year ended December 31, 2024, a decrease of $5.4 million compared to the year ended December 31, 2023. • We generated Adjusted EBITDA, a non-GAAP measure defined below, of $55.3 million for the year ended December 31, 2024, a 6.5% decrease from the year ended December 31, 2023. • Our Adjusted EBITDA margin, a non-GAAP measure defined below, was 13.1% for the year ended December 31, 2024, a decrease of 150 basis points from the year ended December 31, 2023. • We had financial liquidity of $67.8 million and additional short-term investments of $28.3 million as of December 31, 2024. • During the year ended December 31, 2024, we returned a total of $31.0 million to our shareholders in the form of special and regular cash dividends. • On February 13, 2025, our Board of Directors declared another quarterly cash dividend of $0.45 per share on our common stock, which was paid on or around February 28, 2025 to shareholders of record at the close of business on February 24, 2025.
In accordance with the loan agreement, Global Wells is required to comply with certain financial covenants, including a minimum debt service coverage ratio.
In accordance with the loan agreement, Global Wells is required to comply with certain financial covenants, including a minimum debt service coverage ratio.
As described in Note 10 — Long-Term Debt to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, on June 17, 2022, we entered into a $28.7 million term loan agreement which matures July 1, 2027 (the “2027 Term Loan”).
As described in Note 10 — Long-Term Debt in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, on June 17, 2022, we entered into a $28.7 million term loan agreement which matures July 1, 2027 (the “2027 Term Loan”).
Interest accrues at a fixed rate of 3.50% per annum. Principal and interest payments of $0.1 million are due monthly throughout the term of the loan, with the remaining principal balance due at maturity. The 2026 Term Loan is collateralized by substantially all of Global Wells’ assets and is guaranteed by Global Wells and one of our stockholders.
Interest accrues at a 40 fixed rate of 3.50% per annum. Principal and interest payments of $0.1 million are due monthly throughout the term of the loan, with the remaining principal balance due at maturity. The 2026 Term Loan is collateralized by substantially all of Global Wells’ assets and is guaranteed by Global Wells and one of our stockholders.
On June 20, 2023, we amended the Line of Credit which increased the standby letter of credit sublimit from $2.0 million to $5.0 million. As of December 31, 2023, the amount issued under the standby letter of credit was $3.8 million, and the maximum remaining amount that could be borrowed under the Line of Credit was $36.2 million.
On June 20, 2023, we amended the Line of Credit which increased the standby letter of credit sublimit from $2.0 million to $5.0 million. As of December 31, 2024, the amount issued under the standby letter of credit was $3.8 million, and the maximum remaining amount that could be borrowed under the Line of Credit was $36.2 million.
As described in Note 8 — Line of Credit to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, the Line of Credit is available for working capital and general corporate purposes, and is secured by our assets.
As described in Note 8 — Line of Credit in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, the Line of Credit is available for working capital and general corporate purposes, and is secured by our assets.
The sale of additional equity securities or certain forms of debt financing could result in additional dilution 40 to our stockholders. We may not be able to obtain financing arrangements in amounts or on terms acceptable to us in the future.
The sale of additional equity securities or certain forms of debt financing could result in additional dilution to our stockholders. We may not be able to obtain financing arrangements in amounts or on terms acceptable to us in the future.
Additionally, as of December 31, 2023, we have a $23.0 million term loan that matures September 30, 2026 (the “2026 Term Loan”). The 2026 Term Loan had an initial balance of $16.1 million and an option to request for additional advances up to a maximum of $6.9 million through September 2022, which we exercised in February 2022.
Additionally, as of December 31, 2024, we have a $23.0 million term loan that matures September 30, 2026 (the “2026 Term Loan”). The 2026 Term Loan had an initial balance of $16.1 million and an option to request for additional advances up to a maximum of $6.9 million through September 2022, which we exercised in February 2022.
We have certain contractual obligations, such as operating lease obligations and purchase obligations that require us to make periodic payments. At December 31, 2023, we had operating leases, primarily for manufacturing and distribution facilities, and purchase obligations primarily for machinery and equipment, expiring at various dates through 2031.
We have certain contractual obligations, such as operating lease obligations and purchase obligations that require us to make periodic payments. At December 31, 2024, we had operating leases, primarily for manufacturing and distribution facilities, and purchase obligations primarily for machinery and equipment, expiring at various dates through 2031.
As of December 31, 2023, we were in compliance with the financial covenants under all of our loan agreements, and do not expect material uncertainties in our continued ability to be in compliance with all financial covenants through the remaining term of all of our loan agreements.
As of December 31, 2024, we were in compliance with the financial covenants under all of our loan agreements, and do not expect material uncertainties in our continued ability to be in compliance with all financial covenants through the remaining term of all of our loan agreements.
Related Party Transactions For a description of significant related party transactions, see Note 17 — Related Party Transactions in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Related Party Transactions For a description of significant related party transactions, see Note 16 — Related Party Transactions in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
This model provides us with the flexibility to adjust the mix of our product offering from import and manufacturing in evolving economic environment to drive operating efficiency and sustained margin expansion.
This model provides us with the flexibility to adjust the mix of our product offering from import and manufacturing in evolving economic environments to drive operating efficiency and sustained margin expansion.
In addition, cash decreased $1.8 million, primarily as a result of changes in working capital, which included a decrease of $4.6 million from a reduction in operating lease liabilities, an increase of $3.8 million in inventory to accommodate higher sales volume, and a decrease of $1.6 million in accrued expenses, partially offset by a decrease of $2.9 million in accounts receivable from decreased sales and improved cash collections, a decrease of $1.4 million in other assets, an increase of $1.1 million in accounts payable and related party payable, and an increase of $0.6 million in other liabilities.
In addition, cash decreased $1.8 million, primarily as a result of changes in working capital, which included a decrease of $4.6 million from a reduction in operating lease liabilities and a decrease of $3.8 million from additional inventory to accommodate higher sales volume, partially offset by an increase of $2.9 million from lower accounts receivable due to improved cash collections and lower sales, an increase of $1.6 million from higher accrued expenses, an increase of $1.4 million from a reduction in other assets, and an increase of $1.1 million from higher accounts payable and related party payable.
Net cash used in financing activities was $16.2 million for the year ended December 31, 2023, which primarily included $20.9 million of dividend payments to shareholders, $2.3 million of distributions from our variable interest entity to shareholders, and $1.0 million of payments made towards the term loans, partially offset by $8.0 million of additional borrowings under the 2027 Term Loan.
Net cash used in financing activities was $16.2 million for the year ended December 31, 2023, which primarily included $20.9 million of dividend payments to shareholders, $2.3 million of distributions from our variable interest entity to shareholders, and $1.0 million of payments towards long-term debt, partially offset by $8.0 million of additional borrowings under the 2027 Term Loan.
We had purchase obligations of $0.5 million outstanding as of the December 31, 2023, all of which are due in 2024. Such purchase obligations are primarily related to the purchase of machinery and equipment. Other than these contractual obligations, our off-balance sheet arrangements primarily consists of letters of credits issued under our Line of Credit.
We had purchase obligations of $0.2 million outstanding as of December 31, 2024, all of which are due in 2025. Such purchase obligations are primarily related to the purchase of machinery and equipment. Other than these contractual obligations, our off-balance sheet arrangements primarily consists of letters of credits issued under our Line of Credit.
Our eco-friendly products made up 33% of total sales during the year ended December 31, 2023 compared to 27% during the prior year. • Most of our products are sourced from vendors abroad and as a result we incur freight costs from these overseas import shipments, which could be a significant component of our cost of goods sold.
Our eco-friendly products made up 33.6% of total sales during the year ended December 31, 2024 compared to 32.7% during the prior year. • Most of our products are sourced from vendors abroad and as a result we incur freight costs from these overseas import shipments, which could be a significant component of our cost of goods sold.
We believe the following critical accounting estimates and policies have the most significant impact on our consolidated financial statements: Allowance for Doubtful Accounts The Company recognizes an allowance for doubtful accounts on accounts receivable in an amount equal to the estimated probable losses net of recoveries.
We believe the following critical accounting estimates and policies have the most significant impact on our consolidated financial statements: Allowance for Doubtful Accounts We recognize an allowance for doubtful accounts on accounts receivable in an amount equal to the estimated expected losses net of recoveries.
Adjusted EBITDA and Adjusted EBITDA Margin Adjusted EBITDA is a financial measure calculated as net income excluding (i) interest income, (ii) interest expense, (iii) provision for income taxes, (iv) depreciation and amortization, (v) stock-based compensation expense, (vi) out-of-period adjustment, (vii) secondary offering transaction costs, (viii) write-off of certain inventory items outside the normal course of business, and (ix) impairment expense and loss, net, on disposal of machinery outside the normal course of business.
Adjusted EBITDA and Adjusted EBITDA Margin Adjusted EBITDA is a financial measure calculated as net income excluding (i) interest income, (ii) interest expense, (iii) provision for income taxes, (iv) depreciation and amortization, (v) stock-based compensation expense, (vi) secondary 38 offering transaction costs, (vii) write-off of certain inventory items outside the normal course of business, (viii) impairment expense and loss, net, on disposal of machinery outside the normal course of business, and (ix) operating right-of-use asset impairment.
These additional allowances could materially affect our future financial results. As of December 31, 2023, and 2022, we had a total allowance for doubtful accounts of $0.4 million and $1.3 million, respectively.
These additional allowances could materially affect our future financial results. As of December 31, 2024, and 2023, we had a total allowance for doubtful accounts of $0.8 million and $0.4 million, respectively.
We believe price fluctuations will have either a positive or a negative impact on our results of operations in the future, depending on whether raw material costs increase or decrease and whether we can successfully implement price increases to offset the impacts of inflation. • Supplier chain effectiveness could have a long-lasting impact on our operations and financial results.
We believe price fluctuations will have either a positive or a negative impact on our results of operations in the future, depending on whether raw material costs increase or decrease and whether we can successfully implement price adjustments to maintain gross margin. • Supplier chain effectiveness could have a long-lasting impact on our operations and financial results.
We believe this trend will have either a positive or a negative impact on our results of operations, depending on whether we are able to source our raw materials or manufactured products from countries where tariffs have not been imposed by the current U.S. administration and whether the previously imposed tariffs are removed. • The cost of raw materials used to manufacture our products, including polyethylene terephthalate, or PET, plastic resin, aluminum and paper boards may continue to fluctuate.
We believe this trend will have either a positive or a negative impact on our results of operations, depending on whether we are able to source our raw materials or manufactured products from countries where tariffs have not been imposed, whether any previously imposed tariffs are removed an whether we can implement procedures to mitigate the impact from the tariffs. • The cost of raw materials used to manufacture our products, including polyethylene terephthalate, or PET, plastic resin, aluminum, and paper boards, may continue to fluctuate.
GAAP in the Consolidated Statements of Income; or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable measure so calculated and presented. Our primary non-GAAP financial measures are listed below and reflect how we evaluate our operating results.
GAAP; or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable measure calculated and presented in accordance with U.S. GAAP. Our primary non-GAAP financial measures are listed below and reflect how we evaluate our operating results.
We believe this trend will have either a positive or a negative impact on our results of operations, depending on whether we are able to manage our global supply chain effectively, including the accurate forecast of demand, the successful procurement of raw materials and products, and the effective management of our inventory, production and distribution. 34 • Fluctuations in foreign currency exchange rates could impact either positively or negatively various aspects of our business activities, including but not limited to our purchasing power and capacity to source inventory. • Beginning the first quarter of 2023, we began to execute a strategic business decision to pivot into a more asset-light growth model by increasing import and scaling back manufacturing in certain locations.
We believe this trend will have either a positive or a negative impact on our results of operations, depending on whether we are able to manage our global supply chain effectively, including the accurate forecast of demand, the successful procurement and transportation of raw materials and products, and the effective management of our inventory, production and distribution. • Fluctuations in foreign currency exchange rates could impact either positively or negatively various aspects of our business activities, including but not limited to our purchasing power and capacity to source inventory. • Since early 2023, we have pivoted into a more asset-light growth model by increasing import and scaling back manufacturing in the U.S.
As described further in Note 15 — Leases in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, we had a total of $21.5 million of operating lease liabilities as of the year ended December 31, 2023 with minimum lease payments ranging from approximately $2.0 million to $6.0 million on an annual basis over the next five years.
As described further in Note 14 — Leases in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, we had a total of $44.4 million of operating lease liabilities as of December 31, 2024 with minimum lease payments ranging from approximately $5.7 million to $12.2 million on an annual basis over the next five years.
In addition, we operate eight other warehouse spaces and distribution centers located in Puyallup, Washington; Summerville, South Carolina; Branchburg, New Jersey; Kapolei, Hawaii; City of Industry, California; Aurora, Illinois; and Sugar Land, Texas. Our distribution centers are strategically located in proximity to major population centers, including the Los Angeles, New York, Chicago, Dallas, Houston, Seattle, Atlanta and Honolulu metro areas.
In addition, we operate seven other warehouse spaces and distribution centers located in Puyallup, Washington; Summerville, South Carolina; Branchburg, New Jersey; Kapolei, Hawaii; Aurora, Illin ois; Mesa, Arizona; and Sugar Land, Texas. Our distribution centers are strategically located in proximity to major population centers, including the Los Angeles, New York, Chicago, Dallas, Houston, Seattle, Phoenix, Atlanta, and Honolulu metro areas.
Our operating model entails generating the majority of our revenue from the distribution of our vendors' products complemented by select manufacturing capabilities in the U.S., which allows us to provide customers with broad product choices and customized offerings with short lead times even during global supply chain disruptions.
Our operating model entails generating the majority of our revenue from the distribution of products sourced from a diversified global network, complemented by select manufacturing capabilities in the U.S., which allows us to provide customers with broad product choices and customized offerings with short lead times.
The improvement in working capital was driven by an increase of $31.1 million in current assets, partially offset by an increase of $5.1 million in current liabilities.
The improvement in working capital was driven by an increase of $6.1 million in current assets, partially offset by an increase of $2.0 million in current liabilities.
Inventory Reserve The Company maintains a reserve for excess and obsolete inventory and carries its inventory at net realizable value, taking into account various factors including historic usage, expected demand, anticipated sales price, and product expiration and obsolescence.
Inventory Reserve We maintain a reserve for excess and obsolete inventory and carry our inventory at net realizable value, taking into account various factors including historic usage, expected demand, anticipated sales price, and product expiration and obsolescence.
The increase was primarily driven by an increase in operating income of $12.1 million partially offset by a decrease in other income, net of $1.6 million and an increase in the provision for income taxes of approximately $3.1 million, as discussed above. 37 Non-GAAP Financial Measures We use certain non-GAAP financial measures to assess our financial and operating performance that are not defined by, or calculated in accordance with US GAAP.
The decrease was primarily driven by a decrease in operating income of $4.3 million, partially offset by an increase in other income, net of $2.0 million, as discussed above. Non-GAAP Financial Measures We use certain non-GAAP financial measures to assess our financial and operating performance that are not defined by, or calculated in accordance with U.S. GAAP.
Additionally, as described in Note 22 — Subsequent Events in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K , on February 7, 2024, our Board of Directors declared a quarterly dividend of $0.30 per share on our common stock, which was paid on February 29, 2024 to shareholders of record at the close of business on February 21, 2024.
Additionally, as described in Note 22 — Subsequent Events in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, on February 13, 2025, our Board of Directors declared another regular quarterly cash dividend of $0.45 per share on our common stock, which was paid on or around February 28, 2025 to shareholders of record at the close of business on February 24, 2025.
However, it could also reduce the barrier of entry, intensifying the competition. • U.S. foreign trade policy continues to evolve, such as the imposition of tariffs on a number of imported food-service disposable products, including those imported from China and other countries.
However, it could also reduce the barrier of entry, intensifying the competition. • U.S. foreign trade policy continues to evolve, such as the imposition of tariffs on imports from China and other countries.
Provision for income taxes Provision for income taxes was $9.8 million for the year ended December 31, 2023 compared to $6.7 million for the year ended December 31, 2022, an increase of $3.1 million, or 46.9% .
Provision for income taxes Provision for income taxes was $9.9 million for the year ended December 31, 2024 compared to $9.8 million for the year ended December 31, 2023, an increase of $0.1 million, or 0.7%. The Company’s effective tax rate was 24.3% for the year ended December 31, 2024 compared to 22.8% for the year ended December 31, 2023.
Operating expenses Operating expenses were $111.0 million for the year ended December 31, 2023 compared to $102.1 million for the year ended December 31, 2022, an increase of $8.9 million, or 8.7%.
Operating expenses Operating expenses were $126.6 million for the year ended December 31, 2024 compared to $111.0 million for the year ended December 31, 2023, an increase of $15.6 million, or 14.1%.
As of December 31, 2023, we had $3.8 million of letters of credits issued and outstanding under our Line of Credit. Additionally, as discussed in Note 20 — Commitments and Contingencies to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, on February 5, 2024, we received a Notice of Determination from U.S.
Additionally, as discussed in Note 19 — Commitments and Contingencies in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, on February 5, 2024, we received a Notice of Determination from U.S.
As of December 31, 2023, we had no borrowing on the Line of Credit, $28.2 million in outstanding balance under the 2027 Term Loan, and $21.6 million in outstanding balance under the 2026 Term Loan. 39 As described in Note 4 — Joint Venture in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, we entered into a joint venture agreement (the "JV Agreement") in April 2022 to establish a new corporation, Bio Earth, to build a bagasse factory in Taiwan.
As described in Note 4 — Joint Venture in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, we entered into a joint venture agreement (the "JV Agreement") in April 2022 to establish a new corporation, Bio Earth, to build a bagasse factory in Taiwan.
Cash Flows The following table summarizes cash flow for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 (in thousands) Net cash provided by operating activities $ 53,379 $ 29,474 Net cash used in investing activities (30,174) (17,845) Net cash used in financing activities (16,170) (2,071) Net change in cash and cash equivalents $ 7,035 $ 9,558 Cash flows provided by operating activities .
Cash Flows The following table summarizes cash flow for the years ended December 31, 2024 and 2023: Year Ended December 31, 2024 2023 (in thousands) Net cash provided by operating activities $ 47,982 $ 53,379 Net cash used in investing activities (5,855) (30,174) Net cash used in financing activities (33,619) (16,170) Net change in cash and cash equivalents $ 8,508 $ 7,035 Cash flows provided by operating activities .
Our Karat Earth® line provides environmentally friendly options to our customers, who are increasingly focused on sustainability. We offer customized solutions to our customers, including new product development, design, printing and logistics services.
We are a leader in product innovation, offering a growing line of environmentally-friendly products to our customers, who are increasingly focused on sustainability. We also offer customized solutions to our customers, including new product development, design, printing and logistics services.
The increase in current assets was primarily driven by an increase in cash and cash equivalents and short-term investments of $33.4 million, partially offset by a decrease in account receivable of $2.1 million and a decrease in prepaid expenses and other current assets of $0.4 million.
The increase in current assets was primarily driven by an increase in cash and cash equivalents and short-term investments of $10.5 million, partially offset by a decrease in prepaid expenses and other current assets of $2.6 million as tax prepayments as of December 31, 2023 were applied in 2024, a decrease in account receivable of $1.0 million, and a decrease in inventories of $0.8 million.
We are a nimble supplier of a wide range of products for the foodservice industry, including food and take-out containers, bags, tableware, cups, lids, cutlery, straws, specialty beverage ingredients, equipment, gloves and other products. Our products are available in plastic, paper, biopolymer-based and other compostable forms.
Overview We are a rapidly-growing and nimble distributor and manufacturer of disposable foodservice products and related items, including food and take-out containers, bags, boxes, tableware, cups, lids, cutlery, straws, specialty beverage ingredients, gloves, janitorial supplies, and other products. Our products are available in plastic, paper, biopolymer-based, and other compostable forms.
Operating income Operating income was $42.1 million for the year ended December 31, 2023 compared to $30.0 million for the year ended December 31, 2022, an increase of $12.1 million, or 40.2% .
Other income, net Other income, net was $2.9 million for the year ended December 31, 2024 compared to $0.9 million for the year ended December 31, 2023, an increase of $2.0 million, or 223.1%.
The rapidly changing macroeconomic and geopolitical dynamics created significant uncertainty in the global economy and capital markets, which could have long-lasting adverse effects beyond 2023.
In addition, we may consider making strategic acquisitions and investments which could require significant liquidity. The rapidly 41 changing macroeconomic and geopolitical dynamics created significant uncertainty in the global economy and capital markets, which could have long-lasting adverse effects.
Results of Operations Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022 Year Ended December 31, 2023 2022 (in thousands) Net sales $ 405,651 $ 422,957 Cost of goods sold 252,608 290,871 Gross profit 153,043 132,086 Operating expenses 110,967 102,071 Operating income 42,076 30,015 Other income, net 908 2,498 Provision for income taxes 9,804 6,676 Net income $ 33,180 $ 25,837 Net sales Net sales were $405.7 million for the year ended December 31, 2023 compared to $423.0 million for the year ended December 31, 2022, a decrease of $17.3 million, or 4.1%.
Results of Operations Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023 36 Year Ended December 31, 2024 2023 (in thousands) Net sales $ 422,633 $ 405,651 Cost of goods sold 258,304 252,608 Gross profit 164,329 153,043 Operating expenses 126,568 110,967 Operating income 37,761 42,076 Other income, net 2,934 908 Provision for income taxes 9,871 9,804 Net income $ 30,824 $ 33,180 Net sales Net sales were $422.6 million for the year ended December 31, 2024 compared to $405.7 million for the year ended December 31, 2023, an increase of $17.0 million, or 4.2%.
During the year ended December 31, 2023, we initiated a regular quarterly dividend and paid out special and regular quarterly dividend totaling $20.9 million . During the year ended December 31, 2022, we paid out special dividend totaling $7.0 million .
In 2023, our Board of Directors declared and initiated regular quarterly cash dividends. During the year ended December 31, 2024 and 2023, we paid out regular and special quarterly cash dividend totaling $31.0 million and $20.9 million, respectively.
The increase in current liabilities was primarily driven by an increase in other payable of $3.2 million due to reclassification of government grants from long-term to short-term, an increase in accounts payable and related party payable totaling $0.3 million, an increase in accrued expense of $1.6 million, and an increase in operating lease liability due within twelve months of $0.3 million, partially offset by a decrease in customer deposits of $0.3 million.
The increase in current liabilities was primarily driven by an increase in operating lease liabilities due within twelve months of $4.2 million primarily from our Chino facility lease renewal and an increase in accrued expenses of $3.0 million, partially offset by a decrease in accounts payable and related party payable of $2.8 million, and a decrease in other current liabilities of $2.2 million.
In addition, cash decreased $15.0 million, primarily as a result of changes in working capital, which included an increase of $16.2 million to accommodate higher sales volume, an increase of $1.5 million in prepaid expenses and other current assets, and a decrease of $3.8 million in 41 operating lease liability, partially offset by a decrease of $1.9 million in accounts receivable due to changes in the timing of collections, an increase of $3.0 million in accounts payable and related party payable, and an increase of $1.6 million in accrued expenses.
In addition, cash decreased $4.1 million primarily as a result of changes in working capital, which included a decrease of $6.7 million from a reduction in operating lease liabilities, a decrease of $2.4 million from a reduction in accounts payable and related party payable, and a decrease of $0.9 million from increased inventory purchases, partially offset by an increase of $2.8 million from a reduction in prepaid expenses and other current assets due to tax prepayments as of December 31, 2023 being applied in 2024, an increase of $3.0 million from increases in accrued expenses, and an increase of $0.6 million from a reduction in accounts receivable.
Year Ended December 31, Reconciliation of Adjusted EBITDA (unaudited): 2023 2022 (in thousands, except percentages) Amount % of Net Sales Amount % of Net Sales Net income: $ 33,180 8.2 % $ 25,837 6.1 % Add (deduct): Interest income (1,803) (0.4) (2,226) (0.5) Interest expense 2,043 0.5 2,017 0.5 Provision for income taxes 9,804 2.4 6,676 1.6 Depreciation and amortization 10,783 2.7 10,405 2.4 Stock-based compensation expense 770 0.2 2,047 0.5 Out-of-period adjustment (3) — — 879 0.2 Secondary offering transaction costs (2) 453 0.1 — — Write-off of inventory (1) 1,710 0.4 — — Impairment expense and loss, net, on disposal of machinery (1) 2,132 0.5 — — Adjusted EBITDA $ 59,072 14.6 % $ 45,635 10.8 % (1) The write-off of inventory and impairment expense and loss, net, on disposal of machinery represent costs incurred in connection with the scaling back of production in the U.S.
Year Ended December 31, Reconciliation of Adjusted EBITDA (unaudited): 2024 2023 (in thousands, except percentages) Amount % of Net Sales Amount % of Net Sales Net income $ 30,824 7.3 % $ 33,180 8.2 % Add (deduct): Interest income (2,299) (0.5) (1,803) (0.4) Interest expense 2,123 0.5 2,043 0.5 Provision for income taxes 9,871 2.3 9,804 2.4 Depreciation and amortization 10,675 2.5 10,783 2.7 Stock-based compensation expense 2,065 0.5 770 0.2 Secondary offering transaction costs (1) — — 453 0.1 Write-off of inventory (2) — — 1,710 0.4 Impairment expense and loss, net, on disposal of machinery (2) — — 2,132 0.5 Operating right-of-use asset impairment 1,993 0.5 — — Adjusted EBITDA $ 55,252 13.1 % $ 59,072 14.6 % (1) Secondary offering transaction costs represent legal and professional fees incurred in connection with the completion of the secondary offering, which were directly related to the offering and were incremental to our normal operating expenses.
There now appears to be a growing preference for the former and we believe this trend will continue to have a positive impact on our results of operations, as more of our customers will require packaging and containers to meet the demands of their increased food delivery and take-out dining consumers. • Environmental concerns regarding disposable products, broadly, have resulted in a number of significant changes that are specific to the food-service industry, including regulations applicable to our customers.
There is a clear growing preference for delivery and take-out, and we expect this trend to continue positively influencing our operating results, as more customers will need packaging and containers to support the rising demand from food delivery and take-out consumers. • Environmental concerns regarding disposable products, broadly, have resulted in a number of significant changes to the food-service industry, including regulations applicable to our customers.
Due to rounding, numbers presented throughout this report may not add up precisely to totals we provide and percentages may not precisely reflect the absolute figures. Overview We are a rapidly-growing specialty distributor and select manufacturer of disposable foodservice products and related items.
Due to rounding, numbers presented throughout this report may not add up precisely to totals we provide and percentages may not precisely reflect the absolute figures.
The increase was primarily due to an increase in gross profit of $21.0 million partially offset by an increase in operating expenses of $8.9 million, as discussed above. Other income, net Other income, net was $0.9 million for the year ended December 31, 2023 compared to $2.5 million for the year ended December 31, 2022.
Operating income Operating income was $37.8 million for the year ended December 31, 2024 compared to $42.1 million for the year ended December 31, 2023, a decrease of $4.3 million, or 10.3%. The decrease was primarily due to an increase in operating expenses of $15.6 million, partially offset by an increase in gross profit of $11.3 million, as discussed above.
Liquidity Position The following table summarizes total current assets, liabilities and working capital at December 31, 2023 compared to December 31, 2022: December 31, 2023 December 31, 2022 Increase/(Decrease) (in thousands) Current assets $ 154,929 $ 123,800 $ 31,129 Current liabilities 44,401 39,253 5,148 Working capital $ 110,528 $ 84,547 $ 25,981 As of December 31, 2023, we had working capital of $110.5 million, compared with working capital of $84.5 million as of December 31, 2022, representing an increase of $26.0 million, or 30.7% .
Liquidity Position The following table summarizes total current assets, current liabilities, and working capital at December 31, 2024 compared to December 31, 2023: December 31, 2024 December 31, 2023 Increase (in thousands) Current assets $ 160,997 $ 154,929 $ 6,068 Current liabilities 46,447 44,401 2,046 Working capital $ 114,550 $ 110,528 $ 4,022 As of December 31, 2024, we had working capital of $114.6 million, compared with $110.5 million as of December 31, 2023, representing an increase of $4.0 million, or 3.6%.
We also believe these measures provide investors with useful perspective on underlying business results and trends and facilitate a comparison of our performance from period to period.
We believe these measures provide investors with useful perspective on underlying business results and trends and facilitate a comparison of our performance from period to period. Adjusted EBITDA and Adjusted EBITDA margin should not be considered in isolation or as alternatives to net income, net income margin, or other measures determined in accordance with US GAAP.
Gross margin was 37.7% for the year ended December 31, 2023 compared to 31.2% for the year ended December 31, 2022, an increase of 650 basis points.
Gross profit Gross profit was $164.3 million for the year ended December 31, 2024 compared to $153.0 million for the year ended December 31, 2023, an increase of $11.3 million, or 7.4%. Gross margin was 38.9% for the year ended December 31, 2024 compared to 37.7% for the year ended December 31, 2023, an increase of 120 basis points.
Set forth below is a reconciliation of net income to Adjusted EBITDA and net income margin to Adjusted EBITDA margin.
Also, Adjusted EBITDA and Adjusted EBITDA margin are not necessarily comparable to similarly titled measures presented by other companies. Set forth below is a reconciliation of net income to Adjusted EBITDA and net income margin to Adjusted EBITDA margin.
Net income Net income was $33.2 million for the year ended December 31, 2023 compared to $25.8 million for the year ended December 31, 2022, an increase of $7.3 million, or 28.4% .
Cost of goods sold Cost of goods sold was $258.3 million for the year ended December 31, 2024 compared to $252.6 million for the year ended December 31, 2023, an increase of $5.7 million, or 2.3%.
Trends in Our Business The following trends have contributed to the results of our operations, and we anticipate that they will continue to affect our future results: • One of the most noticeable impacts of the COVID-19 pandemic was on the restaurant industry.
Trends in Our Business The following trends have contributed to the results of our operations, and we anticipate that they will continue to affect our future results: • A significant trend in the restaurant industry is the changing perception of food delivery and take-out compared to traditional on-premise dining.
Net cash provided by operating activities was $29.5 million for the year ended December 31, 2022, primarily the result of net income of $25.8 million, adjusted for certain non-cash items totaling $18.6 million, consisting mainly of depreciation and amortization, stock-based compensation, adjustments to accounts receivable and inventory reserves, changes in fair value of interest rate swap, deferred income taxes and asset impairment.
Net cash provided by operating activities was $48.0 million for the year ended December 31, 2024, primarily the result of net income of $30.8 million, adjusted for certain non-cash items totaling $21.2 million, consisting mainly of depreciation and amortization of fixed and operating right-of-use assets, stock-based compensation, impairment of operating right-of-use asset, write-off of inventory, loss, net, on disposal of machinery and equipment, adjustments to the allowance for doubtful accounts and inventory reserve, deferred income taxes, and 42 government grant income.
Net cash used in investing activities was $17.8 million for year ended December 31, 2022, which primarily included $12.1 million of deposits paid for additional property and equipment, $4.0 million of net investment pursuant to the JV Agreement, $2.7 million paid to purchase property and equipment, partially offset by $0.8 million received from the settlement of the interest rate swap.
Net cash used in investing activities was $5.9 million for the year ended December 31, 2024, which primarily included $50.8 million in purchases of short-term investments, $3.1 million in deposits made towards the purchase of property and equipment, and $0.9 million paid to directly acquire property and equipment, partially offset by $48.9 million in redemptions of short-term investments.
Net cash used in financing activities was $2.1 million for the year ended December 31, 2022 which primarily which primarily included $21.6 million of payments made towards the term loans, $21.1 million of payments on the Line of Credit, and $7.0 million of dividend payments to shareholders, partially offset by $21.1 million of borrowings under the Line of Credit, additional borrowing under the 2026 Term Loan of $6.9 million, and borrowings under the 2027 Term Loan of $20.6 million.
Net cash used in financing activities was $33.6 million for the year ended December 31, 2024, which primarily included $31.0 million of dividend payments to shareholders, $2.3 million paid for the redemption of a non-controlling member's interest in Global Wells, and $1.1 million of payments towards long-term debt, partially offset by cash proceeds of $0.7 million received from the exercise of stock options.
During the year ended December 31, 2023, we recorded $3.9 million in inventory adjustments, out of which $1.7 million related to the write-off of raw materials as we disposed of certain machinery and equipment in executing the plan to scale back production in the U.S.
Additionally, gross margin improved 60 basis points as the year ended December 31, 2023 included more inventory write-offs from expired products as well as a $1.7 million write-off of raw materials as we disposed of certain machinery and equipment in executing our strategy to scale back production in certain locations, as discussed above.
The year-over-year margin expansion is largely due to a significant decrease in total ocean freight and import costs, which as a percentage of net sales was 7.5% during the year ended December 31, 2023, down from 14.5% during the year ended December 31, 2022.
At the same time, freight and duty costs as a percentage of net sales increased to 8.2% during the year ended December 31, 2024 from 7.5% during the year ended December 31, 2023.
We are currently in the process of evaluating the appeal options and determining the timing of the payments. Our ongoing operations and growth strategy may require us to continue to make investments in our logistics and manufacturing infrastructure, e-commerce platform, talent, and technology capabilities. In addition, we may consider making strategic acquisitions and investments which could require significant liquidity.
As of December 31, 2024, we had $3.8 million of letters of credits issued and outstanding under our Line of Credit. Our ongoing operations and growth strategy may require us to continue to make investments in new markets and products, logistics and manufacturing infrastructure, e-commerce platform, talent, and technology capabilities.
As part of the execution of this strategy, certain machinery and equipment were disposed of or impaired, and raw materials associated with those machinery and equipment were written-off. 38 (2) Secondary offering transaction costs represent legal and professional fees incurred in connection with the completion of the secondary offering during the year ended December 31, 2023 , which were directly related to the offering and were incremental to our normal operating expenses.
(2) The write-off of inventory and impairment expense and loss, net, on disposal of machinery represent amounts recognized in connection with the scaling back of production in certain locations. As part of the execution of this strategy, certain machinery and equipment were disposed of or impaired, and raw materials associated with those machinery and equipment were written-off.
We had an inventory reserve of $0.4 million and $0.7 million as of December 31, 2023, and 2022, respectively. Stock-Based Compensation Stock-based compensation expense related to employee stock options is accounted for in accordance with Accounting Standard Codification ("ASC") 718, Compensation — Stock Compensation .
We had an inventory reserve of $0.6 million and $0.4 million as of December 31, 2024, and 2023, respectively.
Such decreases were partially offset by an increase of $16.4 million in volume and change in product mix, and an increase of $6.4 million due to the adjustment of online sales platform fees into operating expense for the year ended December 31, 2023 .
The year-over-year increase is primarily driven by an increase of $36.7 million from volume growth and change in product mix, an increase of $4.6 million in online sales platform fees due to higher sales within the e-commerce channel, and an increase of $0.8 million in logistics and shipping revenue.
The decrease of $1.6 million was primary due to a decrease in the gain on foreign currency transactions of $1.5 million and a decrease in interest income of $0.4 million. Interest income was $1.8 million during the year ended December 31, 2023, which was primarily earned on cash, cash equivalents, and short-term investments.
The increase was primarily due to an increase of $1.0 million in rental income as we sublet our City of Industry warehouse in California in early 2024, an increase of $0.5 million in interest income from our investments in certificates of deposit, and an increase of $0.4 million in gain on foreign currency transactions.
Customs and Border Protection related to its investigation to determine whether we have evaded the anti-dumping and countervailing duty on certain imported thermal paper products. Although we recorded an estimated additional import duty liability and cost of goods sold of $2.3 million as of December 31, 2023, the amount of the final payments could vary significantly from this estimate.
Customs and Border Protection ("CBP") related to its investigation to determine whether we have evaded the anti-dumping and countervailing duty on certain imported thermal paper products. On March 19, 2024, we initiated an appeal process by submitting a request for an administrative review of the initial determination issued by CBP.
The impact of the inventory write-off was an increase to cost of goods sold of $0.9 million for the year ended December 31, 2022. Liquidity and Capital Resources Sources and Uses of Funds Our primary sources of liquidity are cash provided by operations, borrowings under our line of credit with the Hanmi Bank (the “Line of Credit”), and promissory notes.
Set forth below is a reconciliation of net cash provided by operating activities to Free Cash Flow: Year Ended December 31, Reconciliation of Free Cash Flow (unaudited): 2024 2023 (in thousands) Net cash provided by operating activities $ 47,982 $ 53,379 Add (deduct): Purchases of property and equipment (934) (2,835) Deposits paid for property and equipment (3,134) (6,309) Deposits refunded from cancelled machinery orders — 503 Free Cash Flow $ 43,914 $ 44,738 Liquidity and Capital Resources Sources and Uses of Funds Our primary sources of liquidity are cash provided by operations, borrowings under our line of credit with the Hanmi Bank (the “Line of Credit”), and promissory notes.
Removed
During the year ended December 31, 2023, we returned a total of $20.9 million to our shareholders in the form of special and regular cash dividend. • On September 12, 2023, we increased our public float by completing a secondary public offering of 1.2 million shares of our common stock.
Added
Starting in 2023 and continuing into 2024, in light of the rising domestic labor and other operating costs and dropping ocean freight rates, we executed a strategy to pivot into a more asset-light model by increasing imports and scaling back domestic manufacturing.
Removed
The pandemic changed how customers view food delivery and take-out as compared to the traditional form of on-premise dining.
Added
At the same time, we have expanded our vendor network by prioritizing strong partnerships with reliable and cost-efficient sources. This has enabled us to diversify our supplier base, minimize reliance on individual suppliers, enhance the resilience of our supply chain, expand our margin and improve our operating cash flows.
Removed
This standard requires the Company to record compensation expense equal to the fair value of awards granted to employees and non-employees. The fair value of restricted stock unit awards is determined based on the closing price of our common stock on the trading day immediately prior to the grant date.
Added
Further, as described in Note 22 — Subsequent Events in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, we entered into a lease agreement on March 3, 2025 for an additional distribution center of approximately 187,000 square foot in Chino, California and are currently in the process of setting up this location to be fully operational by the second quarter of 2025.
Removed
The fair value of stock options is estimated on the grant-date using the Black-Scholes option pricing model.
Added
Conversely, periods of deflation, where raw material costs decrease, may create pricing pressure and start price wars, potentially requiring us to lower prices, 35 which could also affect our gross margin.
Removed
Key input assumptions used in the Black-Scholes option pricing model to estimate the grant date fair value of stock options include the fair value of the Company’s common stock, the expected option term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate, and the Company’s expected annual dividend yield.
Added
Such increases were partially offset by $25.2 million of unfavorable year-over-year pricing comparison, as the overall pricing environment remained competitive especially in the distributor channel, driven largely by customers' heightened focus on value and quality.
Removed
The risk-free interest rate assumption for options granted under the Plan, as defined in Note 13 — Stock-Based Compensation in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, is based upon observed interest rates on the United States government securities appropriate for the expected term of the stock options. 35 The expected term of employee stock options under the Plan represents the weighted-average period that the stock options are expected to remain outstanding.
Added
Freight and duty costs for the year ended December 31, 2024 increased $4.4 million from the year ended December 31, 2023 as a result of a 14% increase in import volume coupled with 27% higher freight container rates, despite a $3.0 million year-over-year decrease in anti-dumping and countervailing duty charges.
Removed
The expected term of options granted is calculated based on the “simplified method,” which estimates the expected term based on the average of the vesting period and contractual term of the stock option.

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