Karat Packaging Inc.
For the period ended Mar 31, 2026. Filed May 8, 2026.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2026 · Filed May 8, 2026
KRT$33.54-34.8%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2025-09-30; filed 2025-11-07.
0001758021-25-000009
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2026-03-31; filed 2026-05-08.
0001758021-26-000021
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 126 previous paragraphs and 105 current paragraphs.
66 unchanged; 32 reworded; 7 added; 28 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 6 previous and 5 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (7)
Current report
•We continue to realign our global supply chain within a dynamic global trade environment. We increased domestic purchases to 18.3% from 13.8% for the three months ended March 31, 2026 compared to the three months ended March 31, 2025 and diversified sourcing to countries with more favorable trade conditions. Specifically, we reduced sourcing from Taiwan from 53.7% to 46.3% and from China from 18.4% to 11.3% for the three months ended March 31, 2026 compared to the three months ended March 31, 2025, respectively. Further, we increased our purchases from Malaysia and Vietnam from an aggregate of 12.2% to 17.2% for the three months ended March 31, 2026 compared to the three months ended March 31, 2025.
Current report
•Our gross margin was 35.5% for the three months ended March 31, 2026, a decrease of 380 basis points compared to the three months ended March 31, 2025, reflecting the expected unfavorable impact from higher tariffs.
Current report
•As of March 31, 2026, we had financial liquidity of $36.4 million, consisting of $28.7 million in cash and cash equivalents and $7.7 million in availability under Line of Credit. In addition, we had $5.7 million in short-term investments as of March 31, 2026.
Current report
•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 continue to strengthen our global supply chain, whether any previously imposed tariffs are removed and whether we can implement procedures to mitigate the impact from the tariffs.
Current report
Cost of goods sold was $75.4 million for the three months ended March 31, 2026 compared to $62.9 million for the three months ended March 31, 2025, an increase of $12.6 million, or 20.0%. Product costs increased $5.2 million primarily due to sales volume growth. Import costs, including duty and tariffs and ocean freight, increased $7.3 million primarily as a result of higher import duty and tariffs, which increased from $3.4 million for the three months ended March 31, 2025 to $10.5 million for the three months ended March 31, 2026.
Current report
Other income, net was $0.9 million for the three months ended March 31, 2026 compared to $1.1 million for the three months ended March 31, 2025, a decrease of $0.2 million, or 17.7%. The decrease was driven primarily by a decrease in interest income of $0.3 million due to lower invested balances in certificates of deposit during the three months ended March 31, 2026.
Current report
As described in Note 16 —Subsequent Events to the condensed consolidated financial statements, on February 20, 2026, the U.S. Supreme Court held that certain tariffs previously imposed under the International Emergency Economic Powers Act ("IEEPA") were unconstitutional. The case was remanded to the U.S. Court of International Trade (the "CIT") for further instructions regarding the refund of all IEEPA tariffs paid by importers of record. On April 20, 2026, CBP launched a new electronic system entitled Consolidated Administration and Processing of Entries ("CAPE") system to automate refunds for IEEPA tariffs paid by importers, following the order issued by the CIT. We have completed the process of reviewing our import data, and determined that we have paid a total of $26.0 million of IEEPA tariffs during the year ended December 31, 2025 and the first two months of 2026. As of April 20, 2026, we have successfully submitted refund claims totaling $25.8 million within CAPE, representing refund claims for all IEEPA tariffs paid on all entries that were not yet liquidated or were liquidated within 80 days of submission with CAPE, currently eligible to be automatically refunded through CAPE, upon CBP's approval of the claims. We continue to closely monitor the status of our submitted claims, and evaluate the probability and estimated amount of potential refunds. The financial impact of these events is uncertain, as it is unclear to whether the current U.S. presidential administration will appeal the ruling of the CIT, whether our submitted claims will be approved by CBP, and to what extent IEEPA tariffs will be refunded by CBP. No tariff refund receivables have been recorded in the accompanying condensed consolidated financial statements as of March 31, 2026.
Removed paragraphs (28)
Previous report
•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 report
•Our gross margin was 34.5% and 37.7% for the three and nine months ended September 30, 2025, respectively, reflecting an expected decrease of 410 and 110 basis points from the three and nine months ended September 30, 2024, respectively, as our cost of goods sold began to reflect inventory brought in with elevated tariffs.
Previous report
•We had financial liquidity of $34.7 million and additional short-term investments of $19.9 million as of September 30, 2025.
Previous report
•On November 4, 2025, our Board of Directors approved a first-ever share repurchase program of up to $15.0 million in common stock.
Previous report
•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 report
•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 report
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 report
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 report
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 report
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 report
Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024
Previous report
Net sales
Previous report
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 report
Cost of goods sold
Previous report
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 report
Gross profit
Previous report
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 report
Operating expenses
Previous report
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 report
$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 report
Operating income
Previous report
Other income, net
Previous report
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 report
Provision for income taxes
Previous report
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 report
Net income
Previous report
(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 report
As described in Note 17 —Subsequent Events to the condensed consolidated financial statements, on November 4, 2025, our Board of Directors approved a share repurchase program (the “Share Repurchase Program”) of up to $15.0 million, under which we are authorized to repurchase shares of our outstanding common stock from time to time through open market purchases. The timing and amount of stock repurchases will depend on a variety of factors, including the market conditions as well as corporate and regulatory considerations. The Share Repurchase Program has no set expiration date, and may be suspended, modified or discontinued at any time, and we have no obligation to repurchase any amount of our common stock under the program.
Reworded paragraphs (32)
Previous wording
We operate our business strategically and with broad flexibility to provide both our large and small customers with the wide spectrum of products they need to successfully run and grow their businesses. We believe we have established ourselves as a differentiated provider of high-quality products relative to our competitors. Our operating model entails generating the majority of our revenue from the distribution of our vendors' products complemented by select manufacturing capabilities in the U.S., which allows us to provide customers with broad product choices and customized offerings with short lead times. This model provides us with the flexibility to adjust the mix of our product offering from import and manufacturing in an evolving economic environment to drive operating efficiency and sustained margin expansion. We are focusing on strengthening our supply chain resilience and efficiency by prioritizing strong partnerships with reliable and cost-efficient sources and diversifying sourcing to countries with more favorable trade conditions and minimal tariffs. This has enabled us to expand our supplier base, minimize reliance on individual suppliers, enhance the resilience of our supply chain, expand our margin and improve our operating cash flows.
Current wording
We operate our business strategically and with broad flexibility to provide both our large and small customers with the wide spectrum of products they need to successfully run and grow their businesses. We believe we have established ourselves as a differentiated provider of high-quality products relative to our competitors. Our operating model entails generating the majority of our revenue from the distribution of our vendors' products complemented by select manufacturing capabilities in the U.S., which allows us to provide customers with broad product choices and customized offerings with short lead times. This model provides us with the flexibility to adjust the mix of our product offering from import and manufacturing in an evolving economic environment to drive operating efficiency and sustained margin expansion. We have strengthened our supply chain resilience and efficiency by prioritizing strong partnerships with reliable and cost-efficient sources and diversifying sourcing to countries with more favorable trade conditions and minimal tariffs in a dynamic global trade landscape. This has enabled us to expand our supplier base, minimize reliance on individual suppliers, enhance the resilience of our supply chain, expand our margin and improve our operating cash flows.
Previous wording
•We 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.
Current wording
•We recorded quarterly net sales of $116.9 million for the three months ended March 31, 2026, an increase of 12.9% in amount and 10.4% in volume, compared to the three months ended March 31, 2025.
Previous 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.
Current wording
•We recorded quarterly net income of $7.1 million for the three months ended March 31, 2026, an increase of 4.8% compared to the three months ended March 31, 2025.
Previous 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.
Current wording
•Our net income margin was 6.1% for the three months ended March 31, 2026, a decrease of 50 basis points compared to the three months ended March 31, 2025.
Previous wording
•We generated $1.0 million and $18.5 million in net cash from operating activities for the three and nine months ended September 30, 2025, respectively, a decrease of 95.0% and 53.5% compared to the three and nine months ended September 30, 2024, respectively. During the three months ended September 30, 2025 compared to the three months ended September 30, 2024, our duty and tariff payments increased $9.1 million and our inventory purchase payments increased $20.0 million, partially offset by strong collection from account receivables of $11.7 million.
Current wording
•We generated $7.2 million in net cash from operating activities for the three months ended March 31, 2026, a decrease of 6.9% compared to the three months ended March 31, 2025.
Previous 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.
Current wording
•We generated consolidated Adjusted EBITDA, a non-GAAP measure defined below, of $12.5 million for the three months ended March 31, 2026, an increase of 4.8% compared to the three months ended March 31, 2025.
Previous 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.
Current wording
•Our Adjusted EBITDA margin, a non-GAAP measure defined below, was 10.7% for the three months ended March 31, 2026, a decrease of 80 basis points compared to the three months ended March 31, 2025.
Previous wording
•The cost of raw materials used to manufacture our products, including polyethylene terephthalate, or PET, plastic resin, aluminum, and paper boards, may continue to fluctuate. Since negotiated sales contracts and the market largely determine the pricing for our products, we are, at times, limited in our ability to raise prices and pass through any impacts of inflation on our costs. There can also be lags between cost inflation and the implementation of price increases, which could negatively impact our gross margin. Conversely, periods of deflation, where raw material costs decrease, may create pricing pressure and start price wars, potentially requiring us to lower prices, which could also affect our gross margin. We believe price fluctuations will have either a positive or a negative impact on our results of operations in the future, depending on whether raw material costs increase or decrease and whether we can successfully implement price adjustments to maintain gross margin.
Current wording
•The cost of raw materials used to manufacture our products, including polyethylene terephthalate, or PET, plastic resin, aluminum, and paper boards, may continue to fluctuate, and the availability and cost of such raw materials are subject to global geopolitical risks. Since negotiated sales contracts and the market largely determine the pricing for our products, we are, at times, limited in our ability to raise prices and pass through any impacts of inflation on our costs. There can also be lags between cost inflation and the implementation of price increases, which could negatively impact our gross margin. Conversely, periods of deflation, where raw material costs decrease, may create pricing pressure and start price wars, potentially requiring us to lower prices, which could also affect our gross margin. Additionally, the availability of raw materials may affect our suppliers’ ability to manufacture products and may limit the volume of products we are able to import, which in turn could impact our ability to meet customer demand. We believe price fluctuations and the availability of raw materials will have either a positive or a negative impact on our results of operations in the future, depending on whether raw material costs increase or decrease, whether we can successfully implement price adjustments to maintain gross margin and whether we can effectively realign our global supply chain to mitigate disruptions and support product availability.
Previous wording
•Supplier chain effectiveness could have a long-lasting impact on our operations and financial results. We believe this trend will have either a positive or a negative impact on our results of operations, depending on whether we are able to manage our global supply chain effectively, including the accurate forecast of demand, the successful procurement and transportation of raw materials and products, and the effective management of our inventory, production and distribution.
Current wording
•Supply chain effectiveness could have a long-lasting impact on our operations and financial results. We believe this trend will have either a positive or a negative impact on our results of operations, depending on whether we are able to manage our global supply chain effectively, including the accurate forecast of demand, the successful procurement and transportation of raw materials and products, and the effective management of our inventory, production and distribution.
Previous 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.
Current wording
Net sales were $116.9 million for the three months ended March 31, 2026 compared to $103.6 million for the three months ended March 31, 2025, an increase of $13.3 million, or 12.9%. The sales growth was primarily driven by an increase of $12.1 million in volume and product mix, as well as a $2.0 million favorable year-over-year pricing comparison, partially offset by a decrease of $0.8 million in shipping and logistics revenue.
Previous 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.
Current wording
Gross profit was $41.5 million for the three months ended March 31, 2026 compared to $40.8 million for the three months ended March 31, 2025, an increase of $0.8 million, or 1.9%. Gross margin was 35.5% for the three months ended March 31, 2026 compared to 39.3% for the three months ended March 31, 2025, a decrease of 380 basis points. Gross margin was negatively impacted by rising import costs, as discussed above, which as a percentage of net sales increased to 13.8% during the three months ended March 31, 2026 from 8.6% during the three months ended March 31, 2025. This erosion in margin was partially offset by a decrease in product costs as a percentage of net sales from 49.5% during the three months ended March 31, 2025 to 48.4% during the three months ended March 31, 2026, demonstrating the effectiveness of our diversified sourcing strategy and benefiting from favorable product mix and pricing. Inventory adjustments as a percentage of net sales also increased to 0.3% of inventory write-offs during the three months ended March 31, 2026 from 0.1% of inventory recovery during the three months ended March 31, 2025.
Previous wording
Operating expenses were $34.3 million for the three months ended September 30, 2025 compared to $32.2 million for the three months ended September 30, 2024, an increase of $2.1 million, or 6.6%. Shipping and transportation costs increased $2.1 million during the three months ended September 30, 2025 primarily due to increased offline sales shipping volume. Rent expense increased $0.7 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 $0.6 million during the three months ended September 30, 2025. These increases were partially offset by a decrease in online platform fees of $1.4 million due to a shift away from third-party order fulfillments of online orders.
Current wording
Operating expenses were $33.1 million for the three months ended March 31, 2026 compared to $32.9 million for the three months ended March 31, 2025, an increase of $0.1 million, or 0.4%. Rent expense increased $0.6 million primarily due to the opening of a new Chino distribution center in March 2025. Salaries and benefits also increased $0.6 million during the three months ended March 31, 2026. These increases were partially offset by a decrease in online platform fees of $0.7 million due to a shift away from third-party order fulfillments of online orders and a decrease in shipping and transportation costs of $0.4 million during the three months ended March 31, 2026 primarily due to decrease in online shipping rates.
Previous 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.
Current wording
Operating income was $8.5 million for the three months ended March 31, 2026 compared to $7.8 million for the three months ended March 31, 2025, an increase of $0.6 million, or 8.2%. The increase was due to an increase in gross profit of $0.8 million, partially offset by an increase in operating expenses of $0.1 million, as discussed above.
Previous 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.
Current wording
Provision for income taxes was $2.2 million for the three months ended March 31, 2026 compared to $2.1 million for the three months ended March 31, 2025, an increase of $0.1 million, or 5.7%. The Company’s effective tax rate was 23.9% for the three months ended March 31, 2026 compared to 23.7% for the three months ended March 31, 2025, primarily due to the change in non-taxable non-controlling interest income.
Previous 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.
Current wording
Net income was $7.1 million for the three months ended March 31, 2026 compared to $6.8 million for the three months ended March 31, 2025, an increase of $0.3 million, or 4.8%. The increase was primarily driven by an increase of $0.6 million in operating income, partially offset by a decrease of $0.2 million in other income, net, and an increase of $0.1 million in provision for income taxes, 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) operating right-of-use asset impairment, and (vii) secondary offering transaction costs by certain executive officers and stockholders of the Company. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by net sales.
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, and (v) stock-based compensation expense. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by net sales.
Previous wording
Our primary sources of liquidity are cash provided by operations, borrowings under our line of credit with the Hanmi Bank (the “Line of Credit”), and promissory notes. On an annual basis, we have typically generated positive cash flows from operations. Our ability to generate positive cash flow from operations in the future will be, at least in part, dependent on global economic conditions and our ability to navigate challenging the macro environment at times.
Current wording
Our primary sources of liquidity are cash provided by operations, borrowings under our line of credit with the Hanmi Bank (the "Line of Credit"), and promissory notes. On an annual basis, we have typically generated positive cash flows from operations. Our ability to generate positive cash flow from operations in the future will be, at least in part, dependent on global economic conditions and our ability to navigate the challenging macro environment at times.
Previous wording
As described in Note 6 — Line of Credit to the condensed consolidated financial statements, the Line of Credit is available for working capital and general corporate purposes and is secured by our assets. It consists of a revolving loan facility and a standby letter of credit 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.
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, 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 $5,000,000 to $7,500,000, from $7,500,000 to $10,000,000, and from $10,000,000 to $15,000,000. As of March 31, 2026, 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 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.
Current wording
As described in Note 8 —Long-Term Debt to the condensed consolidated financial statements, on June 17, 2022, we entered into a $28.7 million term loan agreement which matures July 1, 2027 (the "2027 Term Loan"). The 2027 Term Loan had an initial balance of $20.7 million and an option to request additional advances up to a maximum of $8.0 million through June 30, 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 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.
Current wording
Additionally, as of March 31, 2026, 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. 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. As of March 31, 2026, the entire remaining balance of $12.0 million is included in the long-term debt, current portion on the condensed consolidated balance sheet. We intend to repay the 2026 Term Loan at maturity using our available liquidity, which includes $28.7 million in cash and cash equivalents and $5.7 million in short-term investments as of March 31, 2026.
Previous 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.
Current wording
As of March 31, 2026, we were in compliance with the financial covenants under all of our loan agreements, and do not expect material uncertainties in our continued ability to be in compliance with all financial covenants through the remaining term of all of our loan agreements. As of March 31, 2026, we had no borrowings outstanding under the Line of Credit, $23.4 million in outstanding balance under the 2027 Term Loan, and $12.0 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. 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.
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 submitted 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 received its determination on all submitted protests as of April 3, 2026. We made total payments of $1,909,000 related to certain shipments under the investigation for the year ended December 31, 2025 and no payment for the three months ended March 31, 2026. Payments on bills received are currently due as all submitted protests are resolved. Although we have an import duty liability reserve of $1.5 million as of March 31, 2026, 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 November 4, 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 November 28, 2025 to shareholders of record at the close of business on November 21, 2025. Prior to this, we paid out regular quarterly cash dividends totaling $27.1 million in the current fiscal year.
Current wording
Additionally, on May 5, 2026 our Board of Directors declared another regular quarterly cash dividend of $0.45 per share on our common stock, which will be paid on or about May 28, 2026 to shareholders of record at the close of business on May 21, 2026. Prior to this, we paid out regular quarterly cash dividends totaling $9.0 million in the current fiscal year.
Previous wording
Beyond the next 12 months, if we require additional capital resources to grow our business, either organically or through acquisition, we may seek to sell additional equity securities, increase use of the Line of Credit, and acquire additional debt. The sale of additional equity securities or certain forms of debt financing could result in additional dilution to our stockholders. We may not be able to obtain financing arrangements in amounts or on terms acceptable to us in the future. In the event we are unable to obtain additional financing when needed, we may be compelled to delay or curtail our plans to develop our business, which could have a material adverse effect on our operations, market position and competitiveness. Notwithstanding the potential liquidity challenges described above, we expect to meet our long-term liquidity needs with cash flows from operations and financing arrangements.
Current wording
Beyond the next 12 months, if we require additional capital resources to grow our business, either organically or through acquisition, we may seek to sell additional equity securities, renew and increase use of the Line of Credit, and acquire additional debt. The sale of additional equity securities or certain forms of debt financing could result in additional dilution to our stockholders. We may not be able to obtain financing arrangements in amounts or on terms acceptable to us in the future. In the event we are unable to obtain additional financing when needed, we may be compelled to delay or curtail our plans to develop our business, which could have a material adverse effect on our operations, market position and competitiveness. Notwithstanding the potential liquidity challenges described above, we expect to meet our long-term liquidity needs with cash flows from operations and financing arrangements.
Previous 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.
Current wording
As of March 31, 2026, we had working capital of $90.7 million compared to $91.0 million as of December 31, 2025, representing a decrease of $0.3 million, or 0.3%, driven by a decrease of $0.2 million in current assets partially offset by an increase of $0.1 million in current liabilities. The decrease in current assets was primarily driven by a decrease in cash and cash equivalents and short-term investments of $3.5 million, a decrease in inventories of $1.7 million, and a decrease in prepaid expenses and other current assets of $0.9 million, partially offset by an increase in accounts receivable of $5.9 million as a result of stronger sales in March 2026 compared to December 2025. The increase in current liabilities was primarily driven by an increase in income tax payable of $1.3 million and an increase in deferred revenue of $0.5 million, partially offset by a decrease in accounts payable and related party payables of $1.3 million and a decrease in accrued expenses of $0.4 million.
Previous wording
The following table summarizes cash flow for the nine months ended September 30, 2025 and 2024:
Current wording
The following table summarizes cash flow for the three months ended March 31, 2026 and 2025:
Previous 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.
Current wording
Cash flows provided by operating activities. Net cash provided by operating activities was $7.2 million for the three months ended March 31, 2026, primarily the result of net income of $7.1 million, adjusted for certain non-cash items totaling $6.5 million, consisting mainly of depreciation and amortization of fixed assets and operating right-of-use assets, stock-based compensation, and allowance for bad debt and inventory adjustments. In addition, cash decreased by $6.5 million from changes in working capital, primarily resulted from a decrease of $6.2 million from an increase in accounts receivable due to higher sales and a decrease of $2.9 million from a reduction in operating lease liabilities, partially offset by an increase of $1.3 million from a reduction in inventory purchases and an increase of $1.3 million from the increase in income tax payable.
Previous 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.
Current wording
Net cash provided by operating activities was $7.7 million for the three months ended March 31, 2025, primarily the result of net income of $6.8 million, adjusted for certain non-cash items totaling $5.5 million, consisting mainly of depreciation and amortization of fixed assets and operating right-of-use assets, stock-based compensation, and adjustments to the allowance for doubtful accounts and inventory reserve. In addition, cash decreased by $4.6 million from changes in working capital, which included a decrease of $9.2 million from inventory build-up, a decrease of $5.9 million from an increase in accounts receivable from higher sales, and a decrease of $2.3 million from a reduction in operating lease liabilities. These decreases were partially offset by an increase of $8.7 million from higher accounts and related party payables primarily associated with increased inventory purchases, an increase of $2.1 million from higher income tax payable, and an increase of $1.3 million from higher accrued expenses.
Previous 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.
Current wording
Cash flows (used in) provided by investing activities. Net cash used in investing activities was $6.9 million for the three months ended March 31, 2026, which primarily included $5.7 million in purchases of short-term investments and $0.6 million in purchases of property and equipment.
Previous 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.
Current wording
Net cash provided by investing activities was $3.5 million for the three months ended March 31, 2025, which primarily included $12.7 million in redemptions of short-term investments, partially offset by $8.1 million in purchases of short-term investments, and $1.0 million of deposits paid for the purchase of property and equipment.
Previous wording
Net cash used in financing activities was $25.7 million for the nine months ended September 30, 2024, which primarily included $23.0 million of cash dividends paid to shareholders, $2.3 million paid for the redemption of a non-controlling member's interest in Global Wells, and $0.8 million of payments towards long-term debt, partially offset by cash proceeds of $0.4 million received from the exercise of stock options.
Current wording
Cash flows used in financing activities. Net cash used in financing activities was $9.5 million for the three months ended March 31, 2026, which primarily included $9.0 million of cash dividends paid to shareholders and $0.4 million of payments towards long-term debt.
Previous wording
Cash flows used in financing activities. Net cash used in financing activities was $31.5 million for the nine months ended September 30, 2025, which primarily included $27.1 million of cash dividends paid to shareholders, $4.4 million of payments towards long-term debt, $3.5 million of repayment on the Line of Credit, and $0.9 million of Global Wells noncontrolling membership interest redemption gain tax withholding payment, partially offset by $4.5 million of proceeds from the Line of Credit.
Current wording
Net cash used in financing activities was $10.4 million for the three months ended March 31, 2025, which primarily included $9.0 million of cash dividends paid to shareholders, $0.9 million of Global Wells membership interest redemption gain tax withholding payment, and $0.3 million of payments towards long-term debt.