Karat Packaging Inc.

Previous wording

We operate our business strategically and with broad flexibility to provide both our large and small customers with the wide spectrum of products they need to successfully run and grow their businesses. We believe we have established ourselves as a differentiated provider of high-quality products relative to our competitors. 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. 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. We are focusing on strengthening our supply chain resilience and efficiency by prioritizing strong partnerships with reliable and cost-efficient sources and diversifying sourcing to countries with more favorable trade conditions and minimal tariffs. This has enabled us to expand our supplier base, minimize reliance on individual suppliers, enhance the resilience of our supply chain, expand our margin and improve our operating cash flows.

Current wording

We operate our business strategically and with broad flexibility to provide both our large and small customers with the wide spectrum of products they need to successfully run and grow their businesses. We believe we have established ourselves as a differentiated provider of high-quality products relative to our competitors. 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. This model provides us with the flexibility to adjust the mix of our product offering from import and manufacturing in an evolving economic environment to drive operating efficiency and sustained margin expansion. We are focusing on strengthening our supply chain resilience and efficiency by prioritizing strong partnerships with reliable and cost-efficient sources and diversifying sourcing to countries with more favorable trade conditions and minimal tariffs. This has enabled us to expand our supplier base, minimize reliance on individual suppliers, enhance the resilience of our supply chain, expand our margin and improve our operating cash flows.

Previous wording

We operate an approximately 500,000 square foot distribution center located in Rockwall, Texas, an approximately 300,000 square foot distribution center in Chino, California, and an approximately 76,000 square foot distribution center located in Kapolei, Hawaii. We have selected manufacturing capabilities in all of these facilities. In addition, we operate seven other warehouse spaces and distribution centers located in Puyallup, Washington; Summerville, South Carolina; Branchburg, New Jersey; Kapolei, Hawaii; Aurora, Illinois; 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. On March 3, 2025, we entered into a lease agreement 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 end of May 2025.

Current wording

We operate an approximately 500,000 square foot distribution center located in Rockwall, Texas, an approximately 300,000 square foot distribution center in Chino, California, and an approximately 76,000 square foot distribution center located in Kapolei, Hawaii. We have selected manufacturing capabilities in all of these facilities. In addition, we operate eight other distribution centers located in Chino, California; Puyallup, Washington; Summerville, South Carolina; Branchburg, New Jersey; Kapolei, Hawaii; Aurora, Illinois; 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.

Previous wording

•We continued to strengthen our supply chain resilience ahead of the tariff uncertainty, by further reducing reliance on China, negotiating additional vendor support, expanding sourcing outside China, and ramping up domestic production for certain categories. Import from China as a percentage of total sourcing decreased to 18.4 percent for the three months ended March 31, 2025.

Current wording

•We continued to focus on strengthening our supply chain resilience as the tariff uncertainty continued. We further reduced reliance on China, negotiated additional vendor support, expanded sourcing outside China, and ramped up domestic production for certain categories. Import from China as a percentage of total sourcing decreased to 10.1% for the three months ended June 30, 2025 compared to 18.4% for the three months ended March 31, 2025. At the same time, we quickly scaled our domestic manufacturing, increasing our manufacturing output by 17.3% compared to the three months ended March 31, 2025.

Previous wording

•We recorded net sales of $103.6 million for the three months ended March 31, 2025, an increase of 8.4% in amount and 10.9% in volume, compared to the three months ended March 31, 2024.

Current wording

•We achieved record quarterly net sales of $124.0 million for the three months ended June 30, 2025, an increase of 10.1% in amount and 12.9% in volume, compared to the three months ended June 30, 2024. For the six months ended June 30, 2025, we recorded net sales of $227.6 million, an increase of 9.3% in amount and 11.7% in volume, compared to the six months ended June 30, 2024.

Previous wording

•We achieved gross margin of 39.3% for the three months ended March 31, 2025, consistent with the three months ended March 31, 2024.

Current wording

•We achieved gross margin of 39.6% and 39.5% for the three and six months ended June 30, 2025, respectively, an increase of 110 and 60 basis points from the three and six months ended June 30, 2024, respectively.

Previous wording

•Our net income margin was 6.6% for the three months ended March 31, 2025, a decrease of 20 basis points from the three months ended March 31, 2024.

Current wording

•Our net income margin was 8.9% and 7.8% for the three and six months ended June 30, 2025, respectively, an increase of 70 and 30 basis points from the three and six months ended June 30, 2024, respectively.

Previous wording

•We generated $7.7 million in net cash from operating activities for the three months ended March 31, 2025, an increase of 17.8% compared to the three months ended March 31, 2024.

Current wording

•We generated $9.8 million and $17.5 million in net cash from operating activities for the three and six months ended June 30, 2025, respectively, a decrease of 28.8% and 13.7% compared to the three and six months ended

Previous wording

•We generated consolidated Adjusted EBITDA, a non-GAAP measure defined below, of $11.9 million for the three months ended March 31, 2025, a decrease of 12.0% from the three months ended March 31, 2024.

Current wording

•We generated consolidated Adjusted EBITDA, a non-GAAP measure defined below, of $17.7 million and $29.6 million for the three and six months ended June 30, 2025, respectively, an increase of 12.8% and 1.3% from the three and six months ended June 30, 2024, respectively.

Previous wording

•Our Adjusted EBITDA margin, a non-GAAP measure defined below, was 11.5% for the three months ended March 31, 2025, a decrease of 270 basis points from the three months ended March 31, 2024.

Current wording

•Our Adjusted EBITDA margin, a non-GAAP measure defined below, was 14.3% and 13.0% for the three and six months ended June 30, 2025, respectively an increase of 40 and a decrease of 100 basis points from the three and six months ended June 30, 2024, respectively.

Previous wording

•We had financial liquidity of $46.7 million and additional short-term investments of $23.8 million as of March 31, 2025.

Current wording

•We had financial liquidity of $44.7 million and additional short-term investments of $26.4 million as of June 30, 2025.

Previous wording

•The recent introduction of baseline and reciprocal tariffs by the new federal administration in April 2025, particularly targeting nations with significant trade deficits like China, has injected considerable uncertainty into the global trade landscape. Broader macroeconomic repercussions of these tariffs—including higher inflation, reduced growth, or altered consumer behavior—could influence demand for our products. We believe our strategic and proactive measures taken over the past few years ahead of the tariff announcements to enhance our supply chain resilience and diversify our sourcing beyond China have solidified our standing as a dependable industry partner, positioning us to capitalize on growth opportunities despite challenging external conditions. Complementing these multi-year efforts, our robust domestic manufacturing scalability allows for swift responses to market changes. Furthermore, we have implemented targeted price adjustments to mitigate potential cost pressures. Whether the U.S. can successfully negotiate favorable trade terms and whether we can continue to effectively strengthen our supply chain would have a significant impact on our operations and financial results, and our ability to continue to gain market share.

Current wording

•The recent introduction of baseline and reciprocal tariffs by the new federal administration in April 2025, particularly targeting nations with significant trade deficits like China, has injected considerable uncertainty into the global trade landscape. Broader macroeconomic repercussions of these tariffs—including higher inflation, reduced growth, or altered consumer behavior—could influence demand for our products. We believe our strategic and proactive measures taken over the past few years ahead of the tariff announcements to enhance our supply chain resilience and diversify our sourcing beyond China have solidified our standing as a dependable industry partner, positioning us to capitalize on growth opportunities despite challenging external conditions. Complementing these multi-year efforts, our robust domestic manufacturing scalability allows for swift responses to market changes. Furthermore, we have implemented price adjustments to mitigate cost pressures from higher tariffs. Whether the U.S. can successfully negotiate favorable trade terms and whether we can continue to effectively strengthen our supply chain would have a significant impact on our operations and financial results, and our ability to continue to gain market share.

Previous wording

•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. Since negotiated sales contracts and the market largely determine the pricing for our products, we are, at times, limited in our ability to raise prices and pass through any impacts of inflation to our costs. There can also be lags between cost inflation and the implementation of price increases, which could negatively impact our gross margin. Conversely, periods of deflation, where raw material costs decrease, may create pricing pressure and start price wars, potentially requiring us to lower prices, which could also affect our gross margin. 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.

Current wording

•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. Since negotiated sales contracts and the market largely determine the pricing for our products, we are, at times, limited in our ability to raise prices and pass through any impacts of inflation on our costs. There can also be lags between cost inflation and the implementation of price increases, which could negatively impact our gross margin. Conversely, periods of deflation, where raw material costs decrease, may create pricing pressure and start price wars, potentially requiring us to lower prices, which could also affect our gross margin. 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.

Previous wording

•Since early 2023 and throughout 2024, we have pivoted into a more asset-light growth model by increasing imports and scaling back manufacturing in the U.S. In light of the recently announced tariffs as discussed above, we have started to ramp up domestic production on certain selected categories to mitigate potential cost pressures from imports and ensure continued supply to our customers. We will continue to evaluate the mix between import and domestic manufacturing under our nimble operations and flexible supply chain model in the dynamic global trade environment.

Current wording

•Since early 2023 and throughout 2024, we pivoted into a more asset-light growth model by increasing imports and scaling back manufacturing in the U.S. In light of the recently announced tariffs as discussed above, we have started to ramp up domestic production on certain selected categories to mitigate cost pressures from imports and ensure continued supply to our customers. We will continue to evaluate the mix between import and domestic manufacturing under our nimble operations and flexible supply chain model in the dynamic global trade environment.

Previous wording

Operating income was $7.8 million for the three months ended March 31, 2025 compared to $8.1 million for the three months ended March 31, 2024, a decrease of $0.3 million, or 3.2%. The decrease was primarily due to an increase in operating expenses of $3.4 million, partially offset by an increase in gross profit of $3.2 million, as discussed above.

Current wording

Operating income was $16.6 million for the three months ended June 30, 2025 compared to $11.1 million for the three months ended June 30, 2024, an increase of $5.4 million, or 48.9%. The increase was due to an increase in gross profit of $5.7 million, partially offset by an increase in operating expenses of $0.3 million, as discussed above.

Previous wording

Provision for income taxes was $2.1 million for the three months ended March 31, 2025 compared to $2.0 million for the three months ended March 31, 2024, an increase of $0.1 million, or 7.4%. The Company’s effective tax rate was 23.7% for the three months ended March 31, 2025 compared to 23.4% for the three months ended March 31, 2024.

Current wording

Provision for income taxes was $3.5 million for the three months ended June 30, 2025 compared to $2.8 million for the three months ended June 30, 2024, an increase of $0.6 million, or 21.8%. The Company’s effective tax rate was 23.8% for the three months ended June 30, 2025 and 23.5% for the three months ended June 30, 2024.

Previous wording

Net income was $6.8 million for the three months ended March 31, 2025 compared to $6.5 million for the three months ended March 31, 2024, an increase of $0.3 million, or 5.2%. The increase was primarily driven by an increase of $0.7 million in other income, net, partially offset by a decrease of $0.3 million in operating income and an increase of $0.1 million in provision for income taxes, as discussed above.

Current wording

Net income was $11.1 million for the three months ended June 30, 2025 compared to $9.2 million for the three months ended June 30, 2024, an increase of $1.8 million, or 19.8%. The increase was primarily driven by an increase of $5.4 million in operating income, partially offset by an increase of $3.0 million in other expenses, net, and an increase of $0.6 million in provision for income taxes, as discussed above.

Previous wording

Net sales were $103.6 million for the three months ended March 31, 2025 compared to $95.6 million for the three months ended March 31, 2024, an increase of $8.0 million, or 8.4%. Net sales for the three months ended March 31, 2024 were understated by $0.7 million, which represented products shipped and recognized as revenue in 2023 but not delivered until 2024. Including this impact, the year-over-year increase in net sales was primarily driven by an increase of $11.7 million in volume and change in product mix, partially offset by a $3.9 million unfavorable year-over-year pricing comparison, as the Company continued to be competitive on the pricing front.

Current wording

Net sales were $227.6 million for the six months ended June 30, 2025 compared to $208.2 million for the six months ended June 30, 2024, an increase of $19.4 million, or 9.3%. Net sales for the six months ended June 30, 2024 were understated by $0.7 million, which represented products shipped and recognized as revenue in 2023 but not delivered until 2024. Including this impact, the year-over-year increase in net sales was primarily driven by an increase of $26.1 million in volume and change in product mix, partially offset by a $7.4 million unfavorable year-over-year pricing comparison.

Previous wording

Cost of goods sold was $62.9 million for the three months ended March 31, 2025 compared to $58.0 million for the three months ended March 31, 2024, an increase of $4.9 million, or 8.4%. Cost of goods sold for the three months ended March 31, 2024 was understated by $0.4 million related to products shipped and recognized as cost of goods sold in 2023 but not delivered until 2024, as discussed above. Including this impact, the year-over-year increase in cost of goods sold was primarily driven by an increase in product costs of $3.0 million, as a result of increased sales volume partially offset by more favorable vendor pricing and product mix, and an increase in ocean freight and duty costs of $2.0 million as a result of a 15.5% increase in import volume coupled with 4.3% higher freight container rates.

Current wording

Cost of goods sold was $137.7 million for the six months ended June 30, 2025 compared to $127.2 million for the six months ended June 30, 2024, an increase of $10.5 million, or 8.3%. Cost of goods sold for the six months ended June 30, 2024 was understated by $0.4 million related to products shipped and recognized as cost of goods sold in 2023 but not delivered until 2024, as discussed above. Including this impact, the year-over-year increase in cost of goods sold was primarily driven by an increase in product costs of $7.0 million, as a result of increased sales volume partially offset by more favorable vendor pricing and product mix, and an increase in import costs including ocean freight and duty of $4.1 million as a result of higher import duty and tariff, coupled with a 25.9% increase in import volume, as we increased inventory purchases ahead of expected business expansion during the second half of 2025, and a 0.1% increase in average freight container rates during the six months ended June 30, 2025.

Previous wording

Gross profit was $40.8 million for the three months ended March 31, 2025 compared to $37.6 million for the three months ended March 31, 2024, an increase of $3.2 million, or 8.4%. Gross profit for the three months ended March 31, 2024 was understated by $0.3 million related to products shipped and recognized as revenue and cost of goods sold in 2023 but not delivered until 2024, as discussed above. Gross margin remained consistent at 39.3% for both the three months ended March 31, 2025 and 2024. Product costs as a percentage of net sales decreased to 49.5% during the three months ended March 31, 2025 from 50.5% during the three months ended March 31, 2024, due to more favorable vendor pricing, increased imports as a percentage of total product mix, and a positive impact from foreign currency due to a stronger United States Dollar compared to New Taiwan Dollar. This improvement in margin was offset by an increase in ocean freight and duty costs, as discussed above, which as a percentage of net sales increased to 8.6% during the three months ended March 31, 2025 from 7.3% during the three months ended March 31, 2024.

Current wording

Gross profit was $89.9 million for the six months ended June 30, 2025 compared to $81.0 million for the six months ended June 30, 2024, an increase of $8.9 million, or 10.9%. Gross profit for the six months ended June 30, 2024 was understated by $0.3 million related to products shipped and recognized as revenue and cost of goods sold in 2023 but not delivered until 2024, as discussed above. Gross margin was 39.5% for the six months ended June 30, 2025 compared to 38.9% for the six months ended June 30, 2024, an increase of 60 basis points. Product costs as a percentage of net sales decreased to 49.0% during the six months ended June 30, 2025 from 50.2% during the six months ended June 30, 2024 due to more favorable vendor pricing and increased imports as a percentage of total product mix. Additionally, depreciation expense on production equipment as a percentage of net sales decreased to 1.3% during the six months ended June 30, 2025 from 1.5% during the six months ended June 30, 2024. These improvements in margin were partially offset by an increase in import costs, including ocean freight and duty, as discussed above, which as a percentage of net sales increased to 9.1% during the six months ended June 30, 2025 from 8.0% during the six months ended June 30, 2024.

Previous wording

Operating expenses were $32.9 million for the three months ended March 31, 2025 compared to $29.5 million for the three months ended March 31, 2024, an increase of $3.4 million, or 11.6%. The increase in operating expenses for the three months ended March 31, 2025 was driven by higher shipping and transportation costs of $3.4 million as a result of an increase in shipping volume and in online packages as a percentage of total shipments, an increase in rent expense of $0.9 million primarily due to a higher rate on our Chino, California facility lease extension plus the opening of a new Chino distribution center, an increase in marketing expense of $0.4 million as we increased online marketing efforts to grow our e-commerce sales channel, and an increase in professional services expense of $0.3 million. These increases were partially offset by a non-cash impairment of a ROU asset of $2.0 million resulting from the sublease of our City of Industry warehouse in California during the three months ended March 31, 2024.

Current wording

Operating expenses were $65.5 million for the six months ended June 30, 2025 compared to $61.8 million for the six months ended June 30, 2024, an increase of $3.7 million, or 6.0%. Shipping and transportation costs increased $4.9 million during the six months ended June 30, 2025, including an increase of $3.3 million in shipping for offline orders due to higher sales volume, as discussed above, and an increase of $1.3 million in shipping for online orders as number of packages shipped increased 20.6%, while average shipping rate decreased 1.2%. Additionally, rent expense increased $2.1 million during the six months ended June 30, 2025 primarily due to a higher rate on our Chino, California facility lease extension plus the opening of a new Chino distribution center, salaries and benefits increased $0.6 million, and professional expenses increased $0.5 million primarily due to transaction costs incurred in connection with the secondary offering by certain executive officers and stockholders of the Company. See Note 16 —Secondary Offering for further information. These increases were partially offset by a reduction in online platform fees of $0.8 million, a decrease of $0.5 million in stock-based compensation, and a decrease in marketing expense of $0.3 million. Additionally, the six months ended June 30, 2025 included a $0.3 million gain on disposal of machinery in the normal course of business compared to a $2.5 million loss during the six months ended June 30, 2024, which comprised of a $2.0 million non-cash impairment charge of a ROU asset resulting from the sublease of our City of Industry warehouse in California and a $0.5 million loss on disposal of machinery in the normal course of business.

Previous wording

Other income, net was $1.1 million for the three months ended March 31, 2025 compared to $0.4 million for the three months ended March 31, 2024, an increase of $0.7 million, or 197.6%. The increase in other income, net for the three months ended March 31, 2025 was primarily driven by an increase in rental income of $0.5 million primarily from our City of Industry warehouse which we began to sublease in April 2024.

Current wording

Other expenses, net was $0.9 million for the six months ended June 30, 2025 compared to other income, net of $1.3 million for the six months ended June 30, 2024, an unfavorable variance of $2.3 million, or 169.5%. The variance was driven primarily from a loss on foreign currency transactions of $2.6 million during the six months ended June 30, 2025, due to the weakening of the United States Dollar against the New Taiwan Dollar, compared to a gain on foreign currency transactions of $0.4 million during the six months ended June 30, 2024. This negative impact was partially offset by an increase in rental income of $0.6 million during the six months ended June 30, 2025 primarily from our City of Industry warehouse, which we began to sublease in April 2024.

Previous wording

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, and (vi) operating right-of-use asset impairment. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by net sales.

Current wording

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) operating right-of-use asset impairment, and (vii) secondary offering transaction costs by certain executive officers and stockholders of the Company. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by net sales.

Previous wording

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. On an annual basis, we have typically generated positive cash flows from operations. Our ability to generate positive cash flow from operations in the future will be, at least in part, dependent on global economic conditions and our ability to navigate challenging macro environment at times.

Current wording

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. On an annual basis, we have typically generated positive cash flows from operations. Our ability to generate positive cash flow from operations in the future will be, at least in part, dependent on global economic conditions and our ability to navigate challenging the macro environment at times.

Previous wording

As described in Note 6 — Line of Credit to the condensed consolidated financial statements, the Line of Credit is available for working capital and general corporate purposes, and is secured by our assets. It consists of a revolving loan facility and a standby letter of credit sublimit. We are not required to pay a commitment (unused) fee on the undrawn portion of the Line of Credit and interest is payable monthly. On March 3, 2025, the Company amended the Line of Credit. Prior to March 3, 2025, the revolving loan facility had a maximum borrowing capacity of $40.0 million and interest accrued at an annual rate of one month term Secured Overnight Financing Rate ("SOFR") plus 2.50%, with a SOFR floor of 1.00%. The amendment on March 3, 2025, among other things, (1) extended the maturity date to March 14, 2027, (2) reduced the maximum borrowing capacity of the revolving loan facility to $20.0 million, and (3) revised the interest on any Line of Credit borrowings to an annual rate of one month term SOFR plus 2.25%, with a SOFR floor of 1.00%. On March 17, 2025, the Company entered into another amendment of the Line of Credit, increasing the standby letter of credit sublimit from $5.0 million to $7.5 million. As of March 31, 2025, the amount issued under the standby letter of credit was $5.8 million, and the maximum remaining amount that could be borrowed under the Line of Credit was $14.2 million.

Current wording

As described in Note 6 — Line of Credit to the condensed consolidated financial statements, the Line of Credit is available for working capital and general corporate purposes and is secured by our assets. It consists of a revolving loan facility and a standby letter of credit sub-limit. We are not required to pay a commitment (unused) fee on the undrawn portion of the Line of Credit and interest is payable monthly. On March 3, 2025, the Company amended the Line of Credit. Prior to March 3, 2025, the revolving loan facility had a maximum borrowing capacity of $40.0 million and interest accrued at an annual rate of one month term Secured Overnight Financing Rate ("SOFR") plus 2.50%, with a SOFR floor of 1.00%. The amendment on March 3, 2025, among other things, (1) extended the maturity date to March 14, 2027, (2) reduced the maximum borrowing capacity of the revolving loan facility to $20.0 million, and (3) revised the interest on any Line of Credit borrowings to an annual rate of one month term SOFR plus 2.25%, with a SOFR floor of 1.00%. On March 17, 2025, the Company entered another amendment of the Line of Credit, increasing the standby letter of credit sub-limit from $5.0 million to $7.5 million. As of June 30, 2025, the amount issued under the standby letter of credit was $5.8 million, and the maximum remaining amount that could be borrowed under the Line of Credit was $14.2 million.

Previous wording

As described in Note 8 —Long-Term Debt to the condensed consolidated financial statements, on June 17, 2022, weentered into a $28.7 million term loan agreement which matures July 1, 2027 (the “2027 Term Loan”). The 2027 Term Loan had an initial balance of $20.7 million and an option to request for additional advances up to a maximum of $8.0 million through June 2023, which we exercised in March 2023. Interest accrues at a fixed rate of 4.375% 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 2027 Term Loan is collateralized by substantially all of Global Wells’ assets and is guaranteed by one of our stockholders. In accordance with the loan agreement, Global Wells is required to comply with certain financial covenants, including a minimum debt service coverage ratio. Proceeds from the 2027 Term Loan were used to pay down an existing term loan with the same lender, which was set to mature in May 2029 with interest accruing at prime rate less 0.25%, and had an outstanding balance of $20.6 million as of the repayment date.

Current wording

As described in Note 8 —Long-Term Debt to the condensed consolidated financial statements, on June 17, 2022, we entered into a $28.7 million term loan agreement which matures July 1, 2027 (the “2027 Term Loan”). The 2027 Term Loan had an initial balance of $20.7 million and an option to request additional advances up to a maximum of $8.0 million through June 2023, which we exercised in March 2023. Interest accrues at a fixed rate of 4.375% 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 2027 Term Loan is collateralized by substantially all of Global Wells’ assets and is guaranteed by one of our stockholders. In accordance with the loan agreement, Global Wells is required to comply with certain financial covenants, including a minimum debt service coverage ratio. Proceeds from the 2027 Term Loan were used to pay down an existing term loan with the same lender, which was set to mature in May 2029 with interest accruing at a prime rate less 0.25%, and had an outstanding balance of $20.6 million as of the repayment date.

Previous wording

Additionally, as of March 31, 2025, 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. Interest accrues at a fixed rate of 3.5% 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. In accordance with the loan agreement, Global Wells is required to comply with certain financial covenants, including a minimum debt service coverage ratio.

Current wording

Additionally, as of June 30, 2025, 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 additional advances up to a maximum of $6.9 million through September 2022, which we exercised in February 2022. Interest accrues at a fixed rate of 3.5% 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. In accordance with the loan agreement, Global Wells is required to comply with certain financial covenants, including a minimum debt service coverage ratio. We are evaluating our options to pay down or to refinance the 2026 Term Loan.

Previous wording

As of March 31, 2025, 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 March 31, 2025, we had no borrowing on the Line of Credit, $27.5 million in outstanding balance under the 2027 Term Loan, and $20.8 million in outstanding balance under the 2026 Term Loan.

Current wording

As of June 30, 2025, 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 June 30, 2025, we had no borrowing on the Line of Credit, $27.4 million in outstanding balance under the 2027 Term Loan, and $20.6 million in outstanding balance under the 2026 Term Loan.

Previous wording

As discussed in Note 14 —Commitments and Contingenciesto the condensed consolidated financial statements, on February 5, 2024, we received a Notice of Determination from U.S. 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. On June 11, 2024, CBP completed the administrative review and upheld its initial conclusion. In February 2025, we started to receive bills related to certain of our thermal paper shipments. We are in the process of protesting the received bills with CBP, and are also evaluating other appeal options. Payments on bills received will be due upon the resolution of the protests, currently expected to occur within the next 12 months. Although we have an import duty liability reserve of $3.1 million as of March 31, 2025, the amount of the final payments could vary significantly from the estimated liability reserve.

Current wording

As discussed in Note 14 —Commitments and Contingenciesto the condensed consolidated financial statements, on February 5, 2024, we received a Notice of Determination from U.S. 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. On June 11, 2024, CBP completed the administrative review and upheld its initial conclusion. In February 2025, we started to receive bills related to certain of our thermal paper shipments. In July 2025, we submitted protests of certain bills received with CBP and made a total payment of $452,000 related to certain shipments under the investigation. We are also evaluating other appeal options. Payments on bills received will be due upon the resolution of the protests, currently expected to occur within the next 12 months. Although we have an import duty liability reserve of $3.3 million as of June 30, 2025, representing bills received from CBP, including protested bills, the amount of the final payments could vary significantly from the estimated liability reserve.

Previous wording

Additionally, as described in Note 16 —Subsequent Events to the condensed consolidated financial statements, on May 6, 2025 our Board of Directors declared another regular quarterly cash dividend of $0.45 per share on our common stock, which will be paid on or about May 23, 2025 to shareholders of record at the close of business on May 16, 2025. Prior to this, we paid out regular quarterly cash dividends totaling $9.0 million in the current fiscal year. 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. In addition, we may consider making strategic acquisitions and investments which could require significant liquidity. The rapidly changing macroeconomic, geopolitical and global trade dynamics created significant uncertainty in the global economy and capital markets, which could have long-lasting adverse effects. We currently believe that our cash on hand, ongoing cash flows from our operations and funding available under our borrowings will be adequate to meet our working capital needs, service our debt, make lease payments, and fund capital expenditures for at least the next 12 months. We continue to explore other options to further expand our liquidity to support the business growth and enhance shareholder value.

Current wording

Additionally, as described in Note 17 —Subsequent Events to the condensed consolidated financial statements, on August 5, 2025 our Board of Directors declared another regular quarterly cash dividend of $0.45 per share on our common stock, which will be paid on or about August 27, 2025 to shareholders of record at the close of business on August 20, 2025. Prior to this, we paid out regular quarterly cash dividends totaling $18.0 million in the current fiscal year. 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 platforms, talent, and technology capabilities. In addition, we may consider making strategic acquisitions and investments which could require significant liquidity. The rapidly changing macroeconomic, geopolitical and global trade dynamics created significant uncertainty in the global economy and capital markets, which could have long-lasting adverse effects. We currently believe that our cash on hand, ongoing cash flows from our operations and funding available under our borrowings will be adequate to meet our working capital needs, service our debt, make lease payments, and fund capital expenditures for at least the next 12 months. We continue to explore other options to further expand our liquidity to support the business growth and enhance shareholder value.

Previous wording

As of March 31, 2025, we had working capital of $111.9 million compared to $114.6 million as of December 31, 2024, representing a decrease of $2.7 million, or 2.3%. The decrease in working capital was driven by an increase of $13.6 million in current liabilities, partially offset by an increase of $11.0 million in current assets. The increase in current liabilities was primarily driven by an increase in accounts payable and related party payables of $8.6 million, an increase in income tax payable of $2.1 million, an increase in operating lease liabilities, current portion of $2.0 million from a higher rate on our Chino, California facility lease extension plus the opening of a new Chino distribution center, and an increase in accrued expenses of $1.3 million, partially offset by a reduction in other current liabilities of $0.8 million due to the payment of Global Wells noncontrolling membership interest redemption gain tax withholding. The increase in current assets was primarily driven by an increase in inventories of $9.2 million as we stocked up inventory ahead of the summer peak season and the increase in forecast demand, an increase in accounts receivable of $5.7 million as a result of stronger sales in the three months ended March 31, 2025 compared to the three months ended December 31, 2024, partially offset by a decrease in cash and cash equivalents and short-term investments of $3.7 million.

Current wording

As of June 30, 2025, we had working capital of $116.8 million compared to $114.6 million as of December 31, 2024, representing an increase of $2.2 million, or 1.9%, driven by an increase of $25.3 million in current assets, partially offset by an increase of $23.1 million in current liabilities. The increase in current assets was primarily driven by an increase in inventories of $18.1 million as we stocked up inventory for the summer peak season and to meet the increase in projected demand in the second half of 2025, an increase in accounts receivable of $9.6 million as a result of stronger sales in the three months ended June 30, 2025 compared to the three months ended December 31, 2024, partially offset by a decrease in cash and cash equivalents and short-term investments of $2.9 million. The increase in current liabilities was primarily driven by an increase in accounts payable and related party payables of $20.2 million, an increase in operating lease liabilities, current portion of $2.6 million from a higher rate on our Chino, California facility lease extension plus the opening of a new Chino distribution center, and an increase in accrued expenses of $0.7 million, partially offset by a reduction in other current liabilities of $0.9 million primarily due to the payment of Global Wells noncontrolling membership interest redemption gain tax withholding.

Previous wording

The following table summarizes cash flow for the three months ended March 31, 2025 and 2024:

Current wording

The following table summarizes cash flow for the six months ended June 30, 2025 and 2024:

Previous wording

Cash flows provided by operating activities. Net cash provided by operating activities was $7.7 million for the three months ended March 31, 2025, primarily the result of net income of $6.8 million, adjusted for certain non-cash items totaling $5.5 million, consisting mainly of depreciation and amortization of fixed assets and operating right-of-use assets, stock-based compensation, and adjustments to the allowance for doubtful accounts and inventory reserve. In addition, cash decreased by $4.6 million from changes in working capital, which included a decrease of $9.2 million from inventory build-up, a decrease of $5.9 million from an increase in accounts receivable from higher sales, and a decrease of $2.3 million from a reduction in operating lease liabilities. These decreases were partially offset by an increase of $8.7 million from higher accounts and related party payables primarily associated with increased inventory purchases, an increase of $2.1 million from higher income tax payable, and an increase of $1.3 million from higher accrued expenses.

Current wording

Cash flows provided by operating activities. Net cash provided by operating activities was $17.5 million for the six months ended June 30, 2025, primarily the result of net income of $17.9 million, adjusted for certain non-cash items totaling $11.1 million, consisting mainly of depreciation and amortization of fixed assets and operating right-of-use assets, stock-based compensation, gain on disposal of machinery in the normal course of business, and write-off of inventory. In addition, cash decreased by $11.5 million from changes in working capital, which included a decrease of $18.4 million from inventory build-up, a decrease of $9.6 million from an increase in accounts receivable due to higher sales, and a decrease of $4.6 million from the increase in operating lease liabilities. These decreases were partially offset by an increase of $20.4 million from higher accounts and related party payables primarily associated with increased inventory purchases and an increase of $0.7 million from higher accrued expenses.

Previous wording

Net cash provided by operating activities was $6.6 million for the three months ended March 31, 2024, primarily the result of net income of $6.5 million, adjusted for certain non-cash items totaling $6.7 million, consisting mainly of depreciation and amortization of fixed assets and operating right-of-use assets, write-off of inventory, stock-based compensation, ROU asset impairment, and accrued interest on certificates of deposit. In addition, cash decreased $6.6 million from changes in working capital, which included a decrease of $8.1 million from inventory build-up, a decrease of $2.3 million from an increase in accounts receivable, a decrease of $1.5 million from reductions in operating lease liabilities, and a decrease of $0.5 million from less deferred revenue. These decreases were partially offset by an increase of $1.7 million from reductions in prepaid expenses, $3.4 million from higher accounts and related party payables, and $0.7 million from higher accrued expenses.

Current wording

Net cash provided by operating activities was $20.3 million for thesix months ended June 30, 2024, primarily the result of net income of $15.7 million, adjusted for certain non-cash items totaling $13.3 million, consisting mainly of depreciation and amortization of fixed assets and operating right-of-use assets, ROU asset impairment, stock-based compensation, loss on disposal of fixed assets, write-off of inventory, andadjustments to inventory reserve,. In addition, cash decreased $8.8 million from changes in working capital, which included a decrease of $9.1 million from inventory build-up, a decrease of $6.1 million from an increase in accounts receivable from higher sales, and a decrease of $3.1 million from reductions in operating lease liabilities. These decreases were partially offset by an increase of $4.9 million from higher accounts and related party payables, $3.4 million from higher accrued expenses, and $2.0 million from reductions in prepaid expenses.

Previous wording

Cash flows provided by (used in) investing activities. Net cash provided by investing activities was $3.5 million for the three months ended March 31, 2025, which primarily included $12.7 million in redemptions of short-term investments, partially offset by $8.1 million in purchases of short-term investments, and $1.0 million of deposits paid for the purchase of property and equipment.

Current wording

Cash flows provided by (used in) investing activities. Net cash provided by investing activities was $1.2 million for the six months ended June 30, 2025, which primarily included $18.2 million in redemptions of short-term investments, $0.5 million of proceeds from the disposal of publicly-traded equity securities, and $0.5 million of proceeds from the sale of machinery and equipment, partially offset by $16.3 million in purchases of short-term investments, $1.0 million of deposits paid for the purchase of property and equipment, $0.5 million paid to invest in publicly-traded equity securities, and $0.3 million paid to directly purchase property and equipment.

Previous wording

Net cash used in investing activities was $7.9 million for the three months ended March 31, 2024, which primarily included $12.2 million in purchases of short-term investments, $0.8 million of deposits paid for the purchase of property and equipment, and $0.2 million paid to directly purchase property and equipment, partially offset by $5.1 million in redemptions of short-term investments.

Current wording

Net cash used in investing activities was $8.5 million for thesix months ended June 30, 2024, which primarily included $22.5 million in purchases of short-term investments, $2.0 million of deposits paid for the purchase of property and equipment, and $0.4 million paid to directly purchase property and equipment, partially offset by $16.4 million in redemptions of short-term investments.

Previous wording

Cash flows used in financing activities. Net cash used in financing activities was $10.4 million for the three months ended March 31, 2025, which primarily included $9.0 million of cash dividends paid to shareholders, $0.9 million of Global Wells membership interest redemption gain tax withholding payment, and $0.3 million of payments towards long-term debt.

Current wording

Cash flows used in financing activities. Net cash used in financing activities was $19.7 million for the six months ended June 30, 2025, which primarily included $18.0 million of cash dividends paid to shareholders, $0.9 million of Global Wells noncontrolling membership interest redemption gain tax withholding payment, and $0.6 million of payments towards long-term debt.

Previous wording

Net cash used in financing activities was $8.5 million for the three months ended March 31, 2024, which primarily included $6.0 million of cash dividends paid to shareholders, $2.3 million paid for the redemption of a non-controlling member's interest in Global Wells, and $0.3 million of payments towards long-term debt.

Current wording

Net cash used in financing activities was $15.6 million for the six months ended June 30, 2024, which primarily included $13.0 million of cash dividends paid to shareholders, $2.3 million paid for the redemption of a non-controlling member's interest in Global Wells, and $0.6 million of payments towards long-term debt, partially offset by cash proceeds of $0.3 million received from the exercise of stock options.