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 products sourced from a diversified global network, complemented by select manufacturing capabilities in the U.S., which allows us to provide customers with broad product choices and customized offerings with short lead times. This model provides us with the flexibility to adjust the mix of our product offering from import and manufacturing in evolving economic environments to drive operating efficiency and sustained margin expansion. Starting in 2023 and continuing into 2024, in light of the rising domestic labor and other operating costs and dropping ocean freight rates, we executed a strategy to pivot into a more asset-light model by increasing imports and scaling back domestic manufacturing. At the same time, we have expanded our vendor network by prioritizing strong partnerships with reliable and cost-efficient sources. This has enabled us to diversify our supplier base, minimize reliance on individual suppliers, enhance the resilience of our supply chain, expand our margin and improve our operating cash flows.

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 and reliable provider of high-quality products relative to our competitors. Our operating model entails generating the majority of our revenue from the distribution of products sourced from a diversified global network, complemented by select manufacturing capabilities in the U.S., which allows us to provide customers with broad product choices and customized offerings with short lead times. This model provides us with the flexibility to adjust the mix of our product offering from import and manufacturing in evolving economic environments to drive operating efficiency and sustained margin expansion and ensure quality of our customer service and product availability during global supply chain disruptions. Starting in 2023 and continuing into 2025, in light of the rising domestic labor and other operating costs and dropping ocean freight rates, we executed a strategy to pivot into a more asset-light model by increasing imports and scaling back domestic manufacturing. Amidst the evolving tariff environment throughout 2025, we have placed our strategic emphasis on expanding and diversifying our global vendor network to enhance the resilience of our supply chain, minimize tariff impact on our operations and financial results, and maintain a strong margin profile and operating cash flows. We are prioritizing strong partnerships with reliable and cost-efficient sources and more favorable trade terms, negotiating additional vendor support, exploring opportunities to collaborate with vendors in new countries and geographies, while reallocating our own domestic production capabilities to optimize overall product margin.

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. Further, as described in Note 22 —Subsequent Eventsin the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, we entered into a lease agreement on March 3, 2025 for an additional distribution center of approximately 187,000 square foot in Chino, California and are currently in the process of setting up this location to be fully operational by the second quarter of 2025.

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 seven other distribution centers located in Puyallup, Washington; Branchburg, New Jersey; Kapolei, Hawaii; Aurora, Illinois; Mesa, Arizona; Sugar Land, Texas, and Chino, California. 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 our transition to a more asset-light model by further scaling back manufacturing in the U.S., increasing imports, and expanding our vendor network, leading to strong margin expansion.

Current wording

•We continued our transition to a more asset-light model by further scaling back manufacturing in the U.S. and increasing imports from diversified sources to continue to improve our margin profile. For the year ended December 31, 2025, manufacturing accounted for approximately 9% of our net sales, down from 11% in the prior year.

Previous wording

•We recorded net sales of $422.6 million for the year ended December 31, 2024, an increase of 4.2% compared to the year ended December 31, 2023 in net sales amount and an increase of 7.4% in volume.

Current wording

•We achieved record net sales of $467.7 million for the year ended December 31, 2025, an increase of 10.7% in net sales amount and 11.2% in volume compared to the year ended December 31, 2024.

Previous wording

•We recorded net income of $30.8 million for the year ended December 31, 2024, a decrease of 7.1% compared to the year ended December 31, 2023.

Current wording

•We recorded net income of $32.7 million for the year ended December 31, 2025, an increase of 6.0% compared to the year ended December 31, 2024.

Previous wording

•We achieved net income margin of 7.3% for the year ended December 31, 2024, compared to 8.2% for the year ended December 31, 2023.

Current wording

•We recorded net income margin of 7.0% for the year ended December 31, 2025, compared to 7.3% for the year ended December 31, 2024, reflecting the decrease in gross margin, as discussed above, and an improvement in operating cost leverage.

Previous wording

•We generated Adjusted EBITDA, a non-GAAP measure defined below, of $55.3 million for the year ended December 31, 2024, a 6.5% decrease from the year ended December 31, 2023.

Current wording

•We generated Adjusted EBITDA, a non-GAAP measure defined below, of $55.2 million for the year ended December 31, 2025, a decrease of 0.2% compared to the year ended December 31, 2024.

Previous wording

•Our Adjusted EBITDA margin, a non-GAAP measure defined below, was 13.1% for the year ended December 31, 2024, a decrease of 150 basis points from the year ended December 31, 2023.

Current wording

•Our Adjusted EBITDA margin, a non-GAAP measure defined below, was 11.8% for the year ended December 31, 2025, a decrease of 130 basis points compared to the year ended December 31, 2024.

Previous wording

•We had financial liquidity of $67.8 million and additional short-term investments of $28.3 million as of December 31, 2024.

Current wording

•We had financial liquidity of $45.6 million as of December 31, 2025.

Previous wording

•During the year ended December 31, 2024, we returned a total of $31.0 million to our shareholders in the form of special and regular cash dividends.

Current wording

•During the year ended December 31, 2025, we returned a total of $36.1 million to our shareholders in the form of regular quarterly cash dividends.

Previous wording

•On February 13, 2025, our Board of Directors declared another quarterly cash dividend of $0.45 per share on our common stock, which was paid on or around February 28, 2025 to shareholders of record at the close of business on February 24, 2025.

Current wording

•On February 5, 2026, our Board of Directors declared another regular quarterly cash dividend of $0.45 per share on our common stock, which was paid on or about February 27, 2026 to the stockholders of record at the close of business on February 20, 2026.

Previous wording

•Environmental concerns regarding disposable products, broadly, have resulted in a number of significant changes to the food-service industry, including regulations applicable to our customers. We believe this trend will have a positive long-lasting impact on our results of operations, as we expect there will be an increased demand for eco-friendly and compostable single-use disposable products. Our eco-friendly products made up 33.6% of total sales during the year ended December 31, 2024 compared to 32.7% during the prior year.

Current wording

•Environmental concerns regarding disposable products, broadly, have resulted in a number of significant changes to the food-service industry, including regulations applicable to our customers. We believe this trend will have a positive long-lasting impact on our results of operations, as we expect there will be an increased demand for eco-friendly and compostable single-use disposable products. Our eco-friendly products made up 34.1% of total sales during the year ended December 31, 2025, compared to 33.6% during the prior year, and we expect sales generated from eco-friendly products as percentage of total sales to continue to grow.

Previous wording

•U.S. foreign trade policy continues to evolve, such as the imposition of tariffs on imports from China and other countries. We believe this trend will have either a positive or a negative impact on our results of operations, depending on whether we are able to source our raw materials or manufactured products from countries where tariffs have not been imposed, whether any previously imposed tariffs are removed an whether we can implement procedures to mitigate the impact from the tariffs.

Current wording

•Beginning in the first quarter of 2025, the U.S. government announced additional tariffs on goods imported into the U.S. from numerous countries and multiple nations have responded with reciprocal tariffs and other actions. We believe this trend will have either a positive or a negative impact on our results of operations, depending on whether we are able to source our raw materials or manufactured products from countries with minimum tariffs, whether any previously imposed tariffs are removed and whether we can implement procedures to mitigate the impact from the tariffs. The Company continues to monitor the economic effects of such announcements. The Company has implemented short- and long-term mitigation efforts. Based on the current tariff policies, the Company expects to partially offset the operating profit impact of the enacted tariffs with supply chain adjustments and productivity and cost savings actions. To the extent additional tariffs or other trade restrictions are enacted and the Company is unable to offset the tariffs or the tariffs negatively impact demand, the Company’s revenue and profitability could be adversely impacted.

Previous wording

We recognize an allowance for doubtful accounts on accounts receivable in an amount equal to the estimated expected losses net of recoveries. The allowance is based on an analysis of historical bad debt write-offs, current past due customers in the aging, risk profiles associated with different customer types, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. While such losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates we have in the past. A significant change in the liquidity or financial position of our customers could cause unfavorable trends in receivable collections and additional allowances may be required. These additional allowances could materially affect our future financial results. As of December 31, 2024, and 2023, we had a total allowance for doubtful accounts of $0.8 million and $0.4 million, respectively.

Current wording

We recognize an allowance for doubtful accounts on accounts receivable in an amount equal to the estimated expected losses net of recoveries. The allowance is based on an analysis of historical bad debt write-offs, current past due customers in the aging, risk profiles associated with different customer types, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. While such losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates we have in the past. A significant change in the liquidity or financial position of our customers could cause unfavorable trends in receivable collections and additional allowances may be required. These additional allowances could materially affect our future financial results. As of December 31, 2025, and 2024, we had a total allowance for doubtful accounts of $0.6 million and $0.8 million, respectively.

Previous wording

We maintain a reserve for excess and obsolete inventory and carry our inventory at net realizable value, taking into account various factors including historic usage, expected demand, anticipated sales price, and product expiration and obsolescence. While such losses have historically been within our expectations and the provisions established, we cannot guarantee that the future trend will be similar to what we have experienced in the past. A significant change in demand or selling prices could result in additional reserve and materially affect our future financial results. We had an inventory reserve of $0.6 million and $0.4 million as of December 31, 2024, and 2023, respectively.

Current wording

We maintain a reserve for excess and obsolete inventory and carry our inventory at net realizable value, taking into account various factors including historic usage, expected demand, anticipated sales price, and product expiration and obsolescence. While such losses have historically been within our expectations and the provisions established, we cannot guarantee that the future trend will be similar to what we have experienced in the past. A significant change in demand or selling prices could result in additional reserve and materially affect our future financial results. We had an inventory reserve of $0.7 million and $0.6 million as of December 31, 2025, and 2024, respectively.

Previous wording

Net sales were $422.6 million for the year ended December 31, 2024 compared to $405.7 million for the year ended December 31, 2023, an increase of $17.0 million, or 4.2%. The year-over-year increase is primarily driven by an increase of $36.7 million from volume growth and change in product mix, an increase of $4.6 million in online sales platform fees due to higher sales within the e-commerce channel, and an increase of $0.8 million in logistics and shipping revenue. Such increases were partially offset by $25.2 million of unfavorable year-over-year pricing comparison, as the overall pricing environment remained competitive especially in the distributor channel, driven largely by customers' heightened focus on value and quality.

Current wording

Net sales were $467.7 million for the year ended December 31, 2025 compared to $422.6 million for the year ended December 31, 2024, representing an increase of $45.1 million, or 10.7%. Net sales for the year ended December 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 is primarily driven by an increase of $39.7 million from volume and an increase of $11.9 million from product mix. Such increases were partially offset by a $6.5 million unfavorable year-over-year pricing comparison, as the overall pricing environment remained competitive due to customers' heightened focus on value.

Previous wording

Operating expenses were $126.6 million for the year ended December 31, 2024 compared to $111.0 million for the year ended December 31, 2023, an increase of $15.6 million, or 14.1%. Selling expenses increased$10.8 million from the year ended December 31, 2023, which included a $4.6 million increase in online sales platform fees due to higher sales within the e-commerce channel in the current year, a $1.9 million increase in marketing expense primarily due to a ramp up in online marketing efforts to grow our e-commerce sales channel, a $1.4 million increase in shipping costs, and a $0.8 million increase in labor costs for our sales team. General and administrative expenses increased $4.6 million from the year ended December 31, 2023, which included a $4.7 million increase in rent and warehouse expense due to the opening of new distribution centers in late 2023 and early 2024 and a higher rate on our Chino, California facility lease extension, a $1.0 million increase in stock-based compensation and a $0.8 million increase in labor costs, partially offset by a $1.1 million decrease in write-off charges as 2023 included a write-off of a vendor prepayment upon the resolution of a legal contingency and a $0.5 million reduction in fees associated with the secondary offering that occurred in 2023. In addition, impairment expense and loss, net, on disposal of machinery of $2.8 million for the year ended December 31, 2024 included a $0.8 million loss, net, on disposal of machinery and a $2.0 million non-cash ROU asset impairment charge resulting from the sublease of our City of Industry warehouse in California, as we optimized our distribution footprint in the southwest region with the opening of a new warehouse in Mesa, Arizona. In comparison, impairment expense and loss, net, on disposal of machinery of $2.5 million for the year ended December 31, 2023 included a $0.5 million impairment on deposits paid for property and equipment and a $2.0 million loss, net, on disposal of machinery in keeping with our asset-light strategy.

Current wording

Operating expenses were $130.7 million for the year ended December 31, 2025 compared to $126.6 million for the year ended December 31, 2024, representing an increase of $4.2 million, or 3.3%. Shipping and transportation costs increased $7.0 million during the year ended December 31, 2025 primarily due to increases in both offline sales shipping volume and shipping rates. Rent expense increased $3.3 million primarily due to a higher rate on our Chino, California facility lease extension plus the opening of a new Chino distribution center in 2025. Salaries and benefits also increased $1.4 million during the year ended December 31, 2025. These increases were partially offset by a decrease in online platform fees of $3.8 million due to a shift away from third-party order fulfillments of online orders and a decrease in marketing expense of $1.1 million. In addition, 2025 included total gain, net, on disposal of machinery of $0.5 million. In comparison, 2024 included impairment expense and loss, net, on disposal of machinery of $2.8 million made up of a $0.8 million loss, net, on disposal of machinery and a $2.0 million non-cash ROU asset impairment charge resulting from the sublease of our City of Industry warehouse in California, as we optimized our distribution footprint in the southwest region with the opening of a new warehouse in Mesa, Arizona.

Previous wording

Operating income was $37.8 million for the year ended December 31, 2024 compared to $42.1 million for the year ended December 31, 2023, a decrease of $4.3 million, or 10.3%. The decrease was primarily due to an increase in operating expenses of $15.6 million, partially offset by an increase in gross profit of $11.3 million, as discussed above.

Current wording

Operating income was $41.4 million for the year ended December 31, 2025 compared to $37.8 million for the year ended December 31, 2024, representing an increase of $3.7 million, or 9.7%. The increase was primarily due to an increase in gross profit of $7.8 million, as discussed above, partially offset by an increase in operating expenses of $4.2 million.

Previous wording

Other income, net was $2.9 million for the year ended December 31, 2024 compared to $0.9 million for the year ended December 31, 2023, an increase of $2.0 million, or 223.1%. The increase was primarily due to an increase of $1.0 million in rental income as we sublet our City of Industry warehouse in California in early 2024, an increase of $0.5 million in interest income from our investments in certificates of deposit, and an increase of $0.4 million in gain on foreign currency transactions.

Current wording

Other income, net was $1.6 million for the year ended December 31, 2025 compared to $2.9 million for the year ended December 31, 2024, representing a decrease of $1.3 million, or 45.2%. The decrease was primarily driven from a loss on foreign currency transactions of $1.5 million, due to the weakening of the U.S. Dollar against the New Taiwan Dollar during the year ended December 31, 2025, compared to a gain on foreign currency transactions of $0.5 million during the year ended December 31, 2024. This negative impact was partially offset by an increase of $0.8 million in rental income as we sublet our City of Industry warehouse in California in 2024.

Previous wording

Provision for income taxes was $9.9 million for the year ended December 31, 2024 compared to $9.8 million for the year ended December 31, 2023, an increase of $0.1 million, or 0.7%. The Company’s effective tax rate was 24.3% for the year ended December 31, 2024 compared to 22.8% for the year ended December 31, 2023. The year-over-year increase in effective tax rate was primarily due to the decrease in research and development tax credit and the stock compensation windfall.

Current wording

Provision for income taxes was $10.4 million for the year ended December 31, 2025 compared to $9.9 million for the year ended December 31, 2024, representing an increase of $0.5 million, or 4.9%. The Company’s effective tax rate was 24.1% for the year ended December 31, 2025 compared to 24.3% for the year ended December 31, 2024. The year-over-year decrease in effective tax rate was primarily due to the deferred taxes true-up.

Previous wording

Net income was $30.8 million for the year ended December 31, 2024 compared to $33.2 million for the year ended December 31, 2023, a decrease of $2.4 million, or 7.1%. The decrease was primarily driven by a decrease in operating income of $4.3 million, partially offset by an increase in other income, net of $2.0 million, as discussed above.

Current wording

Net income was $32.7 million for the year ended December 31, 2025 compared to $30.8 million for the year ended December 31, 2024, representing an increase of $1.8 million, or 6.0%. The increase was primarily driven by an increase in operating income of $3.7 million, partially offset by a decrease in other income, net of $1.3 million, as discussed above.

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, (vi) secondary offering transaction costs, (vii) write-off of certain inventory items outside the normal course of business, (viii) impairment expense and loss, net, on disposal of machinery outside the normal course of business, and (ix) operating right-of-use asset impairment. 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) impairment of operating right-of-use asset, 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

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

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

Free Cash Flow is a financial measure calculated as cash from operating activities less cash used in (i) purchases of property and equipment, and (ii) deposits paid for property and equipment, offset by (iii) deposits refunded from cancelled machinery orders.

Current wording

Free Cash Flow is a financial measure calculated as cash from operating activities less cash used in (i) purchases of property and equipment and (ii) deposits paid for property and equipment.

Previous wording

As described in Note 8 — Line of Credit in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, the Line of Credit is available for working capital and general corporate purposes, and is secured by our assets. It consists of a $40.0 million 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 14, 2023, we amended the Line of Credit. Prior to March 14, 2023, interest accrued at the annual rate of prime less 0.25% with a minimum floor of 3.25%. The amendment on March 14, 2023, among other things, (1) extended the maturity date to March 14, 2025, and (2) revised the interest on any Line of Credit borrowings to an annual rate of one month term Secured Overnight Financing Rate ("SOFR") plus 2.50%, with a SOFR floor of 1.0%. On June 20, 2023, we amended the Line of Credit which increased the standby letter of credit sublimit from $2.0 million to $5.0 million. As of December 31, 2024, the amount issued under the standby letter of credit was $3.8 million, and the maximum remaining amount that could be borrowed under the Line of Credit was $36.2 million. As described in Note 22 —Subsequent Events in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, on March 3, 2025, the Company amended the Line of Credit again, which among other things, (1) extended the maturity date to March 14, 2027, (2) reduced 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%.

Current wording

As described in Note 7 — Line of Credit in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, the Line of Credit is available for working capital and general corporate purposes, and is secured by our assets. It consists of a $20.0 million 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 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, August 21, 2025, and October 3, 2025, the Company entered into three separate amendments of the Line of Credit, increasing the standby letter of credit sub-limit, respectively, from $5.0 million to $7.5 million, from $7.5 million to $10.0 million, and from $10.0 million to $15.0 million. As of December 31, 2025, the amount issued under the standby letter of credit was $12.3 million, and the maximum remaining amount that could be borrowed under the Line of Credit was $7.7 million.

Previous wording

As described in Note 10 —Long-Term Debt in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, on June 17, 2022, we entered into a $28.7 million term loan agreement which matures July 1, 2027 (the “2027 Term Loan”). 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 9 —Long-Term Debt in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, on June 17, 2022, we entered into a $28.7 million term loan agreement which matures July 1, 2027 (the “2027 Term Loan”). 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. 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 December 31, 2024, we have a $23.0 million term loan that matures September 30, 2026 (the “2026 Term Loan”). The 2026 Term Loan had an initial balance of $16.1 million and an option to request for additional advances up to a maximum of $6.9 million through September 2022, which we exercised in February 2022. Interest accrues at a fixed rate of 3.50% per annum. Principal and interest payments of $0.1 million are due monthly throughout the term of the loan, with the remaining principal balance due at maturity. The 2026 Term Loan is collateralized by substantially all of Global Wells’ assets and is guaranteed by Global Wells and one of our stockholders. 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 December 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 3.50% per annum. Principal and interest payments of $0.1 million are due monthly throughout the term of the loan, with the remaining principal balance due at maturity. On December 18, 2025, we made an early payment of $8.0 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 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. The entire remaining balance of $12.3 million under the 2026 Term Loan is reported in long-term debt, current portion on the consolidated balance sheet as of December 31, 2025. We intend to repay the 2026 Term Loan at maturity using available liquidity, which includes $37.9 million in cash and cash equivalents as of December 31, 2025.

Previous wording

As of December 31, 2024, we were in compliance with the financial covenants under all of our loan agreements, and do not expect material uncertainties in our continued ability to be in compliance with all financial covenants through the remaining term of all of our loan agreements. As of December 31, 2024, we had no borrowing on the Line of Credit, $27.7 million in outstanding balance under the 2027 Term Loan, and $20.9 million in outstanding balance under the 2026 Term Loan.

Current wording

As of December 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 December 31, 2025, we had no borrowing on the Line of Credit, $23.6 million in outstanding balance under the 2027 Term Loan, and $12.3 million in outstanding balance under the 2026 Term Loan.

Previous wording

Additionally, as discussed in Note 19 —Commitments and Contingenciesin the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, on February 5, 2024, we received a Notice of Determination from U.S. 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 December 31, 2024, the amount of the final payments could vary significantly from the estimated liability reserve.

Current wording

Additionally, as discussed in Note 17 —Commitments and Contingenciesin the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, on February 5, 2024, we received a Notice of Determination from U.S. 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 year ended December 31, 2025, we submitted protests of certain bills received with CBP and made total payments of $1.9 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 $1.7 million as of December 31, 2025, the amount of the final payments could vary significantly from the estimated liability reserve.

Previous 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 platform, talent, and technology capabilities. In addition, we may consider making strategic acquisitions and investments which could require significant liquidity. The rapidly changing macroeconomic and geopolitical 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 platform, talent, and technology capabilities. In addition, we may consider making strategic acquisitions and investments which could require significant liquidity. The rapidly changing macroeconomic and geopolitical dynamics have created significant uncertainty in the global economy and capital markets, which could have long-lasting adverse effects.

Previous wording

In 2023, our Board of Directors declared and initiated regular quarterly cash dividends. During the year ended December 31, 2024 and 2023, we paid out regular and special quarterly cash dividend totaling $31.0 million and $20.9 million, respectively. Additionally, as described in Note 22 —Subsequent Events in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, on February 13, 2025, our Board of Directors declared another regular quarterly cash dividend of $0.45 per share on our common stock, which was paid on or around February 28, 2025 to shareholders of record at the close of business on February 24, 2025.

Current wording

In addition, we pay a regular quarterly dividend to our stockholders, subject to approval each quarter by our Board of Directors. During the year ended December 31, 2025 and 2024, we paid out regular quarterly cash dividend totaling $36.1 million and $31.0 million, respectively. Additionally, as described in Note 20 —Subsequent Events in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, on February 5, 2026, our Board of Directors declared another regular quarterly cash dividend of $0.45 per share on our common stock, which was paid on or about February 27, 2026 to the stockholders of record at the close of business on February 20, 2026. Continuation of the regular quarterly dividend is at the discretion of the Board of Directors and depends upon our financial condition, results of operations, capital requirements, general business condition, and other factors deemed relevant by our Board of Directors.

Previous wording

We have certain contractual obligations, such as operating lease obligations and purchase obligations that require us to make periodic payments. At December 31, 2024, we had operating leases, primarily for manufacturing and distribution facilities, and purchase obligations primarily for machinery and equipment, expiring at various dates through 2031. As described further in Note 14 —Leases in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, we had a total of $44.4 million of operating lease liabilities as of December 31, 2024 with minimum lease payments ranging from approximately $5.7 million to $12.2 million on an annual basis over the next five years. We had purchase obligations of $0.2 million outstanding as of December 31, 2024, all of which are due in 2025. Such purchase obligations are primarily related to the purchase of machinery and equipment. Other than these contractual obligations, our off-balance sheet arrangements primarily consists of letters of credits issued under our Line of Credit. As of December 31, 2024, we had $3.8 million of letters of credits issued and outstanding under our Line of Credit.

Current wording

Additionally, we have certain contractual obligations, such as operating lease obligations and purchase obligations that require us to make periodic payments. At December 31, 2025, we had operating leases, primarily for manufacturing and distribution facilities, expiring at various dates through 2031. As described further in Note 13 —Leases in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, we had a total of $44.1 million of operating lease liabilities as of December 31, 2025 with minimum lease payments ranging from approximately $0.7 million to $14.6 million on an annual basis over the next five years. Other than these contractual obligations, our off-balance sheet arrangements primarily consists of letters of credits issued under our Line of Credit. As of December 31, 2025, we had $12.3 million of letters of credits issued and outstanding under our Line of Credits.

Previous wording

As of December 31, 2024, we had working capital of $114.6 million, compared with $110.5 million as of December 31, 2023, representing an increase of $4.0 million, or 3.6%. The improvement in working capital was driven by an increase of $6.1 million in current assets, partially offset by an increase of $2.0 million in current liabilities. The increase in current assets was primarily driven by an increase in cash and cash equivalents and short-term investments of $10.5 million, partially offset by a decrease in prepaid expenses and other current assets of $2.6 million as tax prepayments as of December 31, 2023 were applied in 2024, a decrease in account receivable of $1.0 million, and a decrease in inventories of $0.8 million. The increase in current liabilities was primarily driven by an increase in operating lease liabilities due within twelve months of $4.2 million primarily from our Chino facility lease renewal and an increase in accrued expenses of $3.0 million, partially offset by a decrease in accounts payable and related party payable of $2.8 million, and a decrease in other current liabilities of $2.2 million.

Current wording

As of December 31, 2025, we had working capital of $91.0 million, compared with $114.6 million as of December 31, 2024, representing a decrease of $23.6 million, or 20.6%, driven by an increase of $23.8 million in current liabilities partially offset by an increase of $0.2 million in current assets. The increase in current liabilities was primarily due to an increase in the current portion of long-term debt of $11.8 million as the 2026 Term Loan became mature within twelve months, an increase in accounts payable and related party payables of $10.0 million, and an increase in operating lease liabilities, current portion of $3.0 million primarily due to a higher rate on our Chino, California facility lease extension plus the opening of a new Chino distribution center in 2025, partially offset by a decrease in other current liability of $0.8 million, as the Company paid Global Well's noncontrolling membership interest redemption gain tax withholding. The increase in current assets was primarily driven by an increase in inventories of $11.0 million as inventory cost reflected elevated duty and tariffs, an increase in accounts receivable of $9.7 million as a result of stronger sales in the three months ended December 31, 2025 compared to the three months ended December 31, 2024, and an increase in prepaid expenses and other current assets of $1.6 million partially offset by a decrease in cash and cash equivalents and short-term investments of $22.0 million.

Previous wording

Net cash provided by operating activities was $53.4 million for the year ended December 31, 2023, primarily the result of net income of $33.2 million, adjusted for certain non-cash items totaling $22.0 million, consisting mainly of depreciation and amortization of fixed and operating right-of-use assets, write-off of inventory and vendor prepayment, loss, net, on disposal of machinery, stock-based compensation, impairment of deposits, deferred income taxes, and adjustments to the allowance for doubtful accounts and inventory reserve. In addition, cash decreased $1.8 million, primarily as a result of changes in working capital, which included a decrease of $4.6 million from a reduction in operating lease liabilities and a decrease of $3.8 million from additional inventory to accommodate higher sales volume, partially offset by an increase of $2.9 million from lower accounts receivable due to improved cash collections and lower sales, an increase of $1.6 million from higher accrued expenses, an increase of $1.4 million from a reduction in other assets, and an increase of $1.1 million from higher accounts payable and related party payable.

Current wording

Cash flows provided by operating activities. Net cash provided by operating activities was $33.8 million for the year ended December 31, 2025, primarily the result of net income of $32.7 million, adjusted for certain non-cash items totaling $25.3 million, consisting mainly of depreciation and amortization of fixed, operating right-of-use assets, and loan fees, stock-based compensation, write-off of inventory, gain, net, on disposal of machinery and equipment, adjustments to the allowance for doubtful accounts and inventory reserve, deferred income taxes, and government grant income. In addition, cash decreased $24.1 million primarily as a result of changes in working capital, which included a decrease of $11.9 million from increased inventory purchases, a decrease of $10.3 million from increased operating lease liabilities, a decrease of $9.8 million from higher accounts receivable balance, and a decrease of $1.3 million from increased prepaid expenses and other current assets, partially offset by an increase of $9.3 million from higher accounts payable and related party payable balance.

Previous wording

Cash flows provided by operating activities. Net cash provided by operating activities was $48.0 million for the year ended December 31, 2024, primarily the result of net income of $30.8 million, adjusted for certain non-cash items totaling $21.2 million, consisting mainly of depreciation and amortization of fixed and operating right-of-use assets, stock-based compensation, impairment of operating right-of-use asset, write-off of inventory, loss, net, on disposal of machinery and equipment, adjustments to the allowance for doubtful accounts and inventory reserve, deferred income taxes, and government grant income. In addition, cash decreased $4.1 million primarily as a result of changes in working capital, which included a decrease of $6.7 million from a reduction in operating lease liabilities, a decrease of $2.4 million from a reduction in accounts payable and related party payable, and a decrease of $0.9 million from increased inventory purchases, partially offset by an increase of $2.8 million from a reduction in prepaid expenses and other current assets due to tax prepayments as of December 31, 2023 being applied in 2024, an increase of $3.0 million from increases in accrued expenses, and an increase of $0.6 million from a reduction in accounts receivable.

Current wording

Net cash provided by operating activities was $48.0 million for the year ended December 31, 2024, primarily the result of net income of $30.8 million, adjusted for certain non-cash items totaling $21.2 million, consisting mainly of depreciation and amortization of fixed and operating right-of-use assets, stock-based compensation, impairment of operating right-of-use asset, write-off of inventory, loss, net, on disposal of machinery and equipment, adjustments to the allowance for doubtful accounts and inventory reserve, deferred income taxes, and government grant income. In addition, cash decreased $4.1 million primarily as a result of changes in working capital, which included a decrease of $6.7 million from a reduction in operating lease liabilities, a decrease of $2.4 million from a reduction in accounts payable and related party payable, and a decrease of $0.9 million from increased inventory purchases, partially offset by an increase of $2.8 million from a reduction in prepaid expenses and other current assets due to tax prepayments as of December 31, 2023 being applied in 2024, an increase of $3.0 million from increases in accrued expenses, and an increase of $0.6 million from a reduction in accounts receivable.

Previous wording

Cash flows used in investing activities. Net cash used in investing activities was $5.9 million for the year ended December 31, 2024, which primarily included $50.8 million in purchases of short-term investments, $3.1 million in deposits made towards the purchase of property and equipment, and $0.9 million paid to directly acquire property and equipment, partially offset by $48.9 million in redemptions of short-term investments. Net cash used in investing activities was $30.2 million for the year ended December 31, 2023, which primarily included $49.2 million in purchases of short-term investments, $6.3 million in deposits made towards the purchase of property and equipment, and $2.8 million paid to directly acquire property and equipment, partially offset by $23.0 million in redemptions of short-term investments, $4.0 million of net refund from the joint venture investment, $0.8 million of proceeds from the sale of machinery and equipment, and $0.5 million of deposits refunded from cancelled machinery orders.

Current wording

Cash flows provided by (used in) investing activities. Net cash provided by investing activities was $25.4 million for the year ended December 31, 2025, which primarily included $44.6 million in redemptions of short-term investments and $1.5 million in proceeds from disposal of property and equipment, partially offset by $16.3 million in purchases of short-term investments, $3.7 million in deposits made towards the purchase of property and equipment, and $0.8 million paid to directly acquire property and equipment. Net cash used in investing activities was $5.9 million for the year ended December 31, 2024, which primarily included $50.8 million in purchases of short-term investments, $3.1 million in deposits made towards the purchase of property and equipment, and $0.9 million paid to directly acquire property and equipment, partially offset by $48.9 million in redemptions of short-term investments.

Previous wording

Cash flows used in financing activities. Net cash used in financing activities was $33.6 million for the year ended December 31, 2024, which primarily included $31.0 million of dividend payments to shareholders, $2.3 million paid for the redemption of a non-controlling member's interest in Global Wells, and $1.1 million of payments towards long-term debt, partially offset by cash proceeds of $0.7 million received from the exercise of stock options. Net cash used in financing activities was $16.2 million for the year ended December 31, 2023, which primarily included $20.9 million of dividend payments to shareholders, $2.3 million of distributions from our variable interest entity to shareholders, and $1.0 million of payments towards long-term debt, partially offset by $8.0 million of additional borrowings under the 2027 Term Loan.

Current wording

Cash flows used in financing activities. Net cash used in financing activities was $52.9 million for the year ended December 31, 2025, which primarily included $36.1 million of dividend payments to shareholders, $12.7 million of payments towards long-term debt, $4.5 million of repayments on the Line of Credit, $3.0 million of share repurchases, and $0.9 million of payments for Global Wells noncontrolling membership interest redemption gain tax withholdings, partially offset by $4.5 million proceeds from Line of Credit . Net cash used in financing activities was $33.6 million for the year ended December 31, 2024, which primarily included $31.0 million of dividend payments to shareholders, $2.3 million paid for the redemption of a non-controlling member's interest in Global Wells, and $1.1 million of payments towards long-term debt, partially offset by cash proceeds of $0.7 million received from the exercise of stock options