Karat Packaging Inc.

Previous wording

As used in this Quarterly Report on Form 10-Q, “we,” “us,” “our,” “Karat,” “the Company” or “our Company” refer to Karat Packaging Inc., a Delaware corporation, and, unless the context requires otherwise, our operating subsidiaries. References to “Global Wells” or “our variable interest entity” refer to Global Wells Investment Group LLC, a Texas limited liability company and our consolidated variable interest entity, in which the Company has an equity interest and which is controlled by one of our stockholders. References to “Lollicup” refer to Lollicup USA Inc., a California corporation, our wholly-owned subsidiary.

Current wording

As used in this Quarterly Report on Form 10-Q, “we,” “us,” “our,” “Karat,” “the Company” or “our Company” refer to Karat Packaging Inc., a Delaware corporation, and, unless the context requires otherwise, our operating subsidiaries. References to “Global Wells” or “our variable interest entity” refer to Global Wells Investment Group LLC, a Texas limited liability company and our consolidated variable interest entity, in which the Company has an equity interest and which is controlled by one of our stockholders. References to “Lollicup” refer to Lollicup USA Inc., a Texas corporation, our wholly-owned subsidiary.

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 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.

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. On October 17, 2025, we announced that Lollicup, our wholly-owned business operating subsidiary, relocated its headquarters to Rockwall, Texas, from Chino, California.

Previous 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.

Current wording

•We further enhanced our supply chain resilience as the tariff environment continued to evolve. We focused on diversifying sourcing, negotiating additional vendor support, and pivoting to domestic production for certain categories. We strategically increased domestic purchases, which as a percentage of global sourcing, increased from 14.6% for the three months ended June 30, 2025 to 20.4% for the three months ended September 30, 2025. At the same time, we decreased purchase concentration on Taiwan, reducing its percentage from 58.0% for the three months ended June 30, 2025 to 41.6% for the three months ended September 30, 2025.

Previous 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.

Current wording

•We achieved record quarterly net sales of $124.5 million for the three months ended September 30, 2025, an increase of 10.4% in amount and 8.7% in volume, compared to the three months ended September 30, 2024. For the nine months ended September 30, 2025, we recorded net sales of $352.1 million, an increase of 9.7% in amount and 10.8% in volume, compared to the nine months ended September 30, 2024.

Previous wording

•We achieved record quarterly net income of $11.1 million for the three months ended June 30, 2025, an increase of 19.8%, compared to the three months ended June 30, 2024. For the six months ended June 30, 2025, we recorded net income of $17.9 million, an increase of 13.8%, compared to the six months ended June 30, 2024.

Current wording

•We recorded quarterly net income of $7.6 million for the three months ended September 30, 2025, a decrease of 17.9%, compared to the three months ended September 30, 2024. For the nine months ended September 30, 2025, we recorded net income of $25.5 million, an increase of 2.0%, compared to the nine months ended September 30, 2024.

Previous 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.

Current wording

•Our net income margin was 6.1% and 7.2% for the three and nine months ended September 30, 2025, respectively, a decrease of 210 and 60 basis points from the three and nine months ended September 30, 2024, respectively.

Previous 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.

Current wording

•We generated consolidated Adjusted EBITDA, a non-GAAP measure defined below, of $13.1 million and $42.7 million for the three and nine months ended September 30, 2025, respectively, a decrease of 11.3% and 2.9% from the three and nine months ended September 30, 2024, respectively.

Previous 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.

Current wording

•Our Adjusted EBITDA margin, a non-GAAP measure defined below, was 10.5% and 12.1% for the three and nine months ended September 30, 2025, respectively a decrease of 250 and 160 basis points from the three and nine months ended September 30, 2024, respectively.

Previous wording

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

Current wording

•We had financial liquidity of $34.7 million and additional short-term investments of $19.9 million as of September 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 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.

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. The legality of the overall tariff policy enacted by the administration remains uncertain as the issue is currently under review by the Supreme Court. The outcome of this case, along with the U.S.’s ability to negotiate favorable trade terms and our continued efforts to strengthen our supply chain will have a significant impact on our operations and financial results, and our ability to continue to gain market share.

Previous 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.

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 are strategically focusing our domestic manufacturing capacity 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

Net sales were $124.0 million for the three months ended June 30, 2025 compared to $112.6 million for the three months ended June 30, 2024, an increase of $11.4 million, or 10.1%. The sales growth was primarily driven by an increase of $14.2 million in volume and change in product mix, partially offset by a $3.3 million unfavorable year-over-year pricing comparison.

Current wording

Net sales were $124.5 million for the three months ended September 30, 2025 compared to $112.8 million for the three months ended September 30, 2024, an increase of $11.7 million, or 10.4%. The sales growth was primarily driven by an increase of $9.4 million in volume and a $3.5 million favorable impact from product mix, partially offset by a $0.7 million unfavorable year-over-year pricing comparison.

Previous wording

Cost of goods sold was $74.9 million for the three months ended June 30, 2025 compared to $69.2 million for the three months ended June 30, 2024, an increase of $5.7 million, or 8.2%. Product costs increased $4.0 million due to sales growth partially offset by more favorable vendor pricing and product mix. Import costs, including ocean freight and duty, increased $2.1 million as a result of higher import duty and tariff, coupled with a 37.0% increase in import volume, as we increased inventory purchases ahead of expected business expansion during the second half of 2025. This was partially offset by a 4.0% decrease in average freight container rates during the three months ended June 30, 2025.

Current wording

Cost of goods sold was $81.6 million for the three months ended September 30, 2025 compared to $69.3 million for the three months ended September 30, 2024, an increase of $12.3 million, or 17.8%. Product costs increased $5.0 million due to sales growth partially offset by more favorable vendor pricing and product mix. Import costs, including ocean freight and duty, increased $8.2 million as a result of higher import duty and tariffs, coupled with a 21.0% increase in import volume, as we purchased more inventory ahead of expected business expansion, partially offset by a 13.4% decrease in average freight container rates during the three months ended September 30, 2025.

Previous wording

Gross profit was $49.1 million for the three months ended June 30, 2025 compared to $43.4 million for the three months ended June 30, 2024, an increase of $5.7 million, or 13.1%. Gross margin was 39.6% for the three months ended June 30, 2025 compared to 38.5% for the three months ended June 30, 2024, an increase of 110 basis points. Product costs as a percentage of net sales decreased to 48.5% during the three months ended June 30, 2025 from 49.9% during the three months ended June 30, 2024 due to more favorable vendor pricing and increased imports as a percentage of total product mix. Depreciation expense on production equipment as a percentage of net sales decreased to 1.2% during the three months ended June 30, 2025 from 1.4% during the three months ended June 30, 2024. These improvements in margin were partially offset by an increase in ocean freight and duty costs, as discussed above, which as a percentage of net sales increased to 9.5% during the three months ended June 30, 2025 from 8.6% during the three months ended June 30, 2024.

Current wording

Gross profit was $42.9 million for the three months ended September 30, 2025 compared to $43.5 million for the three months ended September 30, 2024, a decrease of $0.6 million, or 1.3%. Gross margin was 34.5% for the three months ended September 30, 2025 compared to 38.6% for the three months ended September 30, 2024, a decrease of 410 basis points. Gross margin was negatively impacted by rising import costs, as discussed above, which as a percentage of net sales increased to 14.4% during the three months ended September 30, 2025 from 8.6% during the three months ended September 30, 2024. This erosion in margin was partially offset by a decrease in product costs as a percentage of net sales, from 49.6% during the three months ended September 30, 2024 to 48.9% during the three months ended September 30, 2025, as a result of more favorable vendor pricing and increased imports as a percentage of total product mix. Inventory write-offs and adjustments as a percentage of net sales also decreased to 0.2% during the three months ended September 30, 2025 from 0.6% during the three months ended September 30, 2024.

Previous wording

Operating income was $24.4 million for the six months ended June 30, 2025 compared to $19.2 million for the six months ended June 30, 2024, an increase of $5.2 million, or 27.0%. The increase was due to an increase in gross profit of $8.9 million, partially offset by an increase in operating expenses of $3.7 million, as discussed above.

Current wording

Operating income was $8.6 million for the three months ended September 30, 2025 compared to $11.3 million for the three months ended September 30, 2024, a decrease of $2.7 million, or 23.9%. The decrease was due to a decrease in gross profit of $0.6 million, coupled with an increase in operating expenses of $2.1 million, as discussed above.

Previous wording

Other expenses, net was $2.0 million for the three months ended June 30, 2025 compared to other income, net of $1.0 million for the three months ended June 30, 2024, an unfavorable variance of $3.0 million, or 314.0%. The variance was driven primarily from a loss on foreign currency transactions of $2.9 million during the three 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 $0.3 million during the three months ended June 30, 2024.

Current wording

Other income, net was $1.3 million for the three months ended September 30, 2025 compared to $0.6 million for the three months ended September 30, 2024, an increase of $0.7 million, or 126.5%. The increase was driven primarily from a gain on foreign currency transactions of $0.7 million due to the strengthening of the United States Dollar against the New Taiwan Dollar during the three months ended September 30, 2025, compared to a loss on foreign currency transactions of $0.3 million during the three months ended September 30, 2024.

Previous 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.

Current wording

Provision for income taxes was $2.3 million for the three months ended September 30, 2025 compared to $2.6 million for the three months ended September 30, 2024, a decrease of $0.3 million, or 11.3%. The Company’s effective tax rate was 23.3% for the three months ended September 30, 2025 compared to 21.9% for the three months ended September 30, 2024, primarily due to the change in the non-taxable non-controlling interest income and research and development credits.

Previous wording

Net income was $17.9 million for the six months ended June 30, 2025 compared to $15.7 million for the six months ended June 30, 2024, an increase of $2.2 million, or 13.8%. The increase was primarily driven by an increase of $5.2 million in operating income, partially offset by an increase of $2.3 million in other expenses, net, and an increase of $0.8 million in provision for income taxes, as discussed above.

Current wording

Net income was $7.6 million for the three months ended September 30, 2025 compared to $9.3 million for the three months ended September 30, 2024, a decrease of $1.7 million, or 17.9%. The decrease was primarily driven by a decrease of $2.7 million in operating income, partially offset by an increase of $0.7 million in other income, net, and a decrease of $0.3 million in provision for income taxes, as discussed above.

Previous 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.

Current wording

Net sales were $352.1 million for the nine months ended September 30, 2025 compared to $321.0 million for the nine months ended September 30, 2024, an increase of $31.1 million, or 9.7%. Net sales for the nine months ended September 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 $30.1 million in volume and a $7.4 million favorable impact from product mix, partially offset by a $6.6 million unfavorable year-over-year pricing comparison.

Previous 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.

Current wording

Cost of goods sold was $219.3 million for the nine months ended September 30, 2025 compared to $196.5 million for the nine months ended September 30, 2024, an increase of $22.9 million, or 11.6%. Cost of goods sold for the nine months ended September 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 $12.0 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 $12.2 million as a result of higher import duty and tariffs, coupled with a 24.4% increase in import volume, as we purchased more inventory ahead of expected business expansion partially offset by a 4.2% decrease in average freight container rates during the nine months ended September 30, 2025.

Previous 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.

Current wording

Gross profit was $132.8 million for the nine months ended September 30, 2025 compared to $124.5 million for the nine months ended September 30, 2024, an increase of $8.3 million, or 6.7%. Gross profit for the nine months ended September 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 37.7% for the nine months ended September 30, 2025 compared to 38.8% for the nine months ended September 30, 2024, a decrease of 110 basis points. Gross margin was negatively impacted by rising import costs, as discussed above, which as a percentage of net sales increased to 11.0% during the nine months ended September 30, 2025 from 8.2% during the nine months ended September 30, 2024. This erosion in margin was partially offset by a decrease in product costs as a percentage of net sales from 50.0% during the nine months ended September 30, 2024 to 49.0% during the nine months ended September 30, 2025 as a result of more favorable vendor pricing and increased imports as a percentage of total product mix. Depreciation expense on production equipment as a percentage of net sales also decreased to 1.3% during the nine months ended September 30, 2025 from 1.5% during the nine months ended September 30, 2024.

Previous wording

Operating expenses were $32.6 million for the three months ended June 30, 2025 compared to $32.3 million for the three months ended June 30, 2024, an increase of $0.3 million, or 0.8%. Shipping and transportation costs increased $1.5 million during the three months ended June 30, 2025, including an increase of $1.7 million in shipping for offline orders due to higher sales volume, as discussed above, partially offset by a decrease of $0.3 million in shipping for online orders despite an increase in the number of packages shipped of 6.8% due to sales increase, as we realized an average shipping rate reduction of 14.0%. Additionally, rent expense increased $1.2 million during the three 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, and salaries and benefits increased $0.4 million. These increases were partially offset by a decrease in online platform fees of $0.8 million, a reduction of marketing expense of $0.7 million, and a decrease in stock-based compensation of $0.5 million. Additionally, the three months ended June 30, 2025 included a $0.3 million gain on disposal of machinery in the normal course of business compared to a $0.5 million loss on disposal of machinery in the normal course of business during the three months ended June 30, 2024.

Current wording

Operating expenses were $99.8 million for the nine months ended September 30, 2025 compared to $94.0 million for the nine months ended September 30, 2024, an increase of $5.8 million, or 6.2%. Shipping and transportation costs increased $7.0 million during the nine months ended September 30, 2025 primarily due to increased offline sales shipping volume. Rent expense increased $2.8 million 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 also increased $1.2 million. These increases were partially offset by a reduction in online platform fees of $2.2 million due to a shift away from third-party order fulfillments of online orders, and a decrease of $0.7 million in stock-based compensation. Additionally, the nine months ended September 30, 2025 included a $0.7 million gain on disposal of machinery in the normal course of business compared to a

Previous 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.

Current wording

$2.5 million loss during the nine months ended September 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

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.

Current wording

Operating income was $32.9 million for the nine months ended September 30, 2025 compared to $30.5 million for the nine months ended September 30, 2024, an increase of $2.5 million, or 8.1%. The increase was due to an increase in gross profit of $8.3 million, partially offset by an increase in operating expenses of $5.8 million, as discussed above.

Previous 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.

Current wording

Other income, net was $0.4 million for the nine months ended September 30, 2025 compared to $1.9 million for the nine months ended September 30, 2024, a decrease of $1.5 million, or 78.6%. The decrease was driven primarily from a loss on foreign currency transactions of $1.9 million, due to the weakening of the United States Dollar against the New Taiwan Dollar during the nine months ended September 30, 2025, compared to a gain on foreign currency transactions of $0.2 million during the nine months ended September 30, 2024. This negative impact was partially offset by an increase in rental income of $0.8 million during the nine months ended September 30, 2025 primarily from our City of Industry warehouse, which we began to sublease in April 2024.

Previous wording

Provision for income taxes was $5.6 million for the six months ended June 30, 2025 compared to $4.8 million for the six months ended June 30, 2024, an increase of $0.8 million, or 15.9%. The Company’s effective tax rate was 23.8% for the six months ended June 30, 2025 compared to 23.5% for the six months ended June 30, 2024.

Current wording

Provision for income taxes was $7.9 million for the nine months ended September 30, 2025 compared to $7.4 million for the nine months ended September 30, 2024, an increase of $0.5 million, or 6.4%. The Company’s effective tax rate was 23.6% for the nine months ended September 30, 2025 compared to 22.9% for the nine months ended September 30, 2024, primarily due to the change in the non-taxable non-controlling interest income and research and development credits.

Previous 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.

Current wording

Net income was $25.5 million for the nine months ended September 30, 2025 compared to $25.0 million for the nine months ended September 30, 2024, an increase of $0.5 million, or 2.0%. The increase was primarily driven by an increase of $2.5 million in operating income, partially offset by a decrease of $1.5 million in other income, net, and an increase of $0.5 million in provision for income taxes, as discussed above.

Previous wording

(1) Secondary offering transaction costs represent legal and professional fees incurred in connection with the completion of the secondary offering by certain executive officers and stockholders of the Company, which were directly related to the offering and were incremental to our normal operating expenses. See Note 16 —Secondary Offering for further information.

Current wording

(1) Secondary offering transaction costs represent legal and professional fees incurred in connection with the completion of the secondary offering by certain executive officers and stockholders of the Company, which were directly related to the offering and were incremental to our normal operating expenses.

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 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.

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, we 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, we entered into another amendment of the Line of Credit, increasing the standby letter of credit sub-limit from $5.0 million to $7.5 million, and then again on August 21, 2025, increasing it from $7.5 million to $10.0 million. Additionally, as described in Note 17 —Subsequent Events to the condensed consolidated financial statements, on October 3, 2025, we entered into another amendment of the Line of Credit to increase the standby letter of credit sub-limit from$10.0 million to $15.0 million. As of September 30, 2025, we had $1.0 million of borrowings outstanding under the Line of Credit bearing an interest rate of 6.52% per annum, which we repaid in full on October 8, 2025, as described in Note 17 —Subsequent Events to the condensed consolidated financial statements. As of September 30, 2025, the amount issued under the standby letter of credit was $8.3 million, and the maximum remaining amount that could be borrowed under the Line of Credit was $10.7 million.

Previous 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.

Current wording

As described in Note 8 —Long-Term Debt to the condensed consolidated financial statements, on June 17, 2022, we entered into a $25.2 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. On September 5, 2025, we made an early payment of $3.5 million to reduce the remaining principal balance due at maturity, with total monthly payments remaining the same for the remainder of the loan term. 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.

Previous 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.

Current wording

Additionally, as of September 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 reclassified the entire remaining balance of $20.4 million under the 2026 Term Loan from long-term debt, net of current portion to long-term debt, current portion on our condensed consolidated balance sheet as of September 30, 2025. We intend to repay the 2026 Term Loan at maturity using our available liquidity, which includes $24.0 million in cash and cash equivalents and $19.9 million in short-term investments as of September 30, 2025.

Previous 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.

Current wording

As of September 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 September 30, 2025, we had $1.0 million of borrowings outstanding under the Line of Credit, $23.8 million in outstanding balance under the 2027 Term Loan, and $20.4 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. 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.

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. During the three months ended September 30, 2025, we submitted protests of certain bills received with CBP and made total payments of $1.5 million 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 $1.8 million as of September 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 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.

Current wording

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, including the entire balance due on our 2026 Term Loan upon maturity, 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 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.

Current wording

As of September 30, 2025, we had working capital of $91.1 million compared to $114.6 million as of December 31, 2024, representing a decrease of $23.5 million, or 20.5%, driven by an increase of $33.2 million in current liabilities, partially offset by an increase of $9.7 million in current assets. The increase in current liabilities was primarily driven by an increase in the current portion of long-term debt of $19.9 million as the 2026 Term Loan became mature within twelve months, an increase in accounts payable and related party payables of $7.4 million, an increase in operating lease liabilities, current portion of $2.7 million from a higher rate on our Chino, California facility lease extension plus the opening of a new Chino distribution center, an increase in accrued expenses of $2.7 million, and an increase in outstanding borrowing under our Line of Credit of $1.0 million. The increase in current assets was primarily driven by an increase in inventories of $13.4 million as we increased inventory purchases ahead of expected business expansion and inventory cost started to reflect elevated duty and tariffs, an increase in accounts receivable of $11.1 million as a result of stronger sales in the three months ended September 30, 2025 compared to the three months ended December 31, 2024, an increase in prepaid expenses and other current assets partially offset by a decrease in cash and cash equivalents and short-term investments of $16.0 million.

Previous wording

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

Current wording

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

Previous 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.

Current wording

Cash flows provided by operating activities. Net cash provided by operating activities was $18.5 million for the nine months ended September 30, 2025, primarily the result of net income of $25.5 million, adjusted for certain non-cash items totaling $16.6 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 $23.6 million from changes in working capital, which included a decrease of $13.9 million from the increase in inventory primarily due to higher import costs, a decrease of $11.2 million from an increase in accounts receivable due to higher sales, and a decrease of $7.4 million from a reduction in operating lease liabilities. These decreases were partially offset by an increase of $6.7 million from higher accounts and related party payables primarily associated with increased inventory purchases and an increase of $2.7 million from higher accrued expenses.

Previous 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.

Current wording

Net cash provided by operating activities was $39.7 million for the nine months ended September 30, 2024, primarily the result of net income of $25.0 million, adjusted for certain non-cash items totaling $19.3 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, and adjustments to inventory reserve. In addition, cash decreased $4.5 million from changes in working capital, which included a decrease of $6.3 million from an increase in accounts receivable from higher sales, a decrease of $4.5 million from reductions in operating lease liabilities, a decrease of $0.9 million from inventory build-up, and a decrease of $0.4 million from a reduction in deferred revenue. These decreases were partially offset by an increase of $4.2 million from higher accounts and related party payables, an increase of $2.2 million from higher accrued expenses, and a decrease of $1.4 million in prepaid expenses and other current assets primarily resulting from the reduction of tax receivables.

Previous 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.

Current wording

Cash flows provided by investing activities. Net cash provided by investing activities was $5.4 million for the nine months ended September 30, 2025, which primarily included $24.7 million in redemptions of short-term investments, partially offset by $16.3 million in purchases of short-term investments and $3.2 million of deposits paid for the purchase of property and equipment.

Previous 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.

Current wording

Net cash provided in investing activities was $1.8 million for the nine months ended September 30, 2024, which primarily included $38.6 million in redemptions of short-term investments, partially offset by $33.6 million in purchases of short-term investments, $2.6 million of deposits paid for the purchase of property and equipment, and $0.7 million paid to directly purchase property and equipment.