KRT 10-K & 10-Q changes, risk factors and insider trading

We manufacture and distribute single-use disposable products made of plastic, paper, biopolymer-basedbiopolymer-based, and other compostable products. Our products are primarily used in restaurant and foodservice settings, and therefore they come into direct contact with food and other consumable products. Accordingly, our products must comply with various laws and regulations for food and beverage service applicable to our customers. Changes in such laws and regulations could negatively impact customer demand for our products as they comply with these changes and/or require us to make changes to our products.

Furthermore, we are subject to social and cultural changes, which could impact demand for certain products. For example, the banning of plastic straws was triggered by a social media backlash, which caused corresponding legislative changes within a short time period, resulting in the ban of plastic straws in certain jurisdictions, and a movement toward eco-friendly utensils. If we are unable to quickly adapt to changes in consumer preferences and subsequent legislation, our business, financial condition, results of operationsoperations, and cash flows could be materially and adversely affected.

Our operating model entails generating the majority of our revenue from the import and distribution of our vendors' products. While we have taken measures to diversify and expand our supplier network, our reliance on third-party manufacturers outside the U.S. to produce most of our products could negatively impact our business during global supply chain disruptions. Further international conflicts, such as the recent ones in the Middle East and Asia,conflicts could impact important trade routes, resulting in increased lead times for shipments, elevated freight costs, and suppressed margin. Additionally, failure to adequately source and timely ship our products to the U.S. and then onwards to customers could lead to failure to meet customer demand, loss of potential revenue, strained relationships with customers, and diminishing brand loyalty.

Raw materials are subject to price fluctuations and availability, which could result from external factors, such as inflation, weather-related events, or other supply chain challenges, that are beyond our control. We typically do not enter into long-term fixed price contracts with our suppliers, and our suppliers could pass on raw material price increases to us. Historically,Even if we have beenare able to mitigate the impact of higher costs by increasing our selling prices.prices, However,our margin could be negatively impacted in periods of rising raw materials costs due to the lag between the sourcing or the manufacturing of our products and the subsequent sales to our customers, margin could be negatively impacted in periods of rising raw materials costs.customers. Additionally, raw material shortages, especially with respect to key materials such as plastic and paper, or our inability to timely pass through increased costs to our customers may materially and adversely affect our business, financial condition, results of operationsoperations, and cash flows.

The single-use disposable foodservice products industry is extremely competitive and highly fragmented. Many of the companies that compete in our industry are significantly larger with greater resources, have greater brand recognition and have a larger product offering. We may be unsuccessful in our efforts to compete against such large and established companies. In addition, our current or potential competitors may offer products at a lower price, expand their promotional activities, or offer products and services that are superior to ours. Our success is heavily dependent on our ability to source and develop emerging and legislatively mandated raw materials, adapt our manufacturing capabilities, and gain customer acceptance of our new products. If we are unable to effectively innovate, produce, and market differentiated products that are competitive in terms of price and quality, our ability to sustain or grow net sales, protect profit margins, or maintain our position in the industry may be compromised. Additionally, failure to attract and retain customers for both current and future products could hinder our efforts to expand market share and increase revenues. These challenges, compounded by competitive pressures, could materially and adversely affect our business, financial condition, results of operationsoperations, and cash flows.

We rely upon third-party ocean freight, air freightfreight, and land-based carriers for product shipments from our vendors and to our customers. Any failure to obtain sufficient freight capacity on a timely basis or at favorable shipping rates will result in our inability to receive products from suppliers or deliver products to our customers in a timely and cost-effective manner, which could materially and adversely affect our business, financial condition, results of operationsoperations, and cash flows.

We rely on the timely and free flow of goods through open and operational ports, both domestic and international, from our suppliers and manufacturers. LaborTransportation and other delays in shipments, including as a result of heightened security screening, port congestion, inspection processes, or other port-of-entry limitations or restrictions; or labor disputes or disruptions at ports, our common carriers, or at our suppliers or manufacturers could create significant risks for our business, particularly if these disputes result in work slowdowns, lockouts, strikes, or other disruptions during periods of significant importing or manufacturing activity, potentially causing delayed or cancelled orders by customers, unanticipated inventory accumulation or shortages, and significant incremental demurrage charges. Such disruptions could materially and adversely affect our business, financial condition, results of operationsoperations, and cash flows. Further, failure to procure our products from our suppliers and manufacturers and deliver merchandise to our customers in a timely and effective manner could reduce our sales, gross margin, and profitability, damage our brand, and harm our business.

Restaurant dining and food delivery services are generally discretionary items for end-consumers. Therefore, the success of our business depends significantly on broader economic factors and trends in consumer spending. Consumers have broad discretion as to where to spend their disposable income and may choose to reduce their restaurant and foodservice spending in times of inflation, high interest and unemployment rates which would negatively impact our customers and then in turn our results of operations. As global economic conditions continue to be volatile and economic uncertainty remains, trends in consumer discretionary spending also remain unpredictable and subject to declines. Any of these factors could materially and adversely affect our business, financial condition, results of operationsoperations, and cash flows.

To ensure adequate inventory supply, we forecast inventory needs and often place orders with our manufacturersvendors before we receive firm orders from our customers. If we fail to accurately forecast demand, we may experience excess inventory levels or a shortage of product to deliver to our customers.

If we underestimate the demand for our products, we, or our manufacturers,vendors, may not be able to scale to meet demand timely, and this could result in delays in the shipment of products to customers, lost revenue, and damage to our reputation and customer relationships. If we overestimate the demand for our products, we could face inventory levels in excess of demand, which could result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices, which would harm our gross margin.

In the course of our normal business, we have purchased products, raw materials, and suppliesproducts from our related parties, including an entity owned by ourone CEOof Alanthe Yu’sCompany's brother,stockholder’s Jefffamily Yu, who until 2021 was employed as an account manager for our national sales team.member. In addition, our Texas facility and our New Jersey facility are each owned and leased to us by our variable interest entity, wherein we are the primary beneficiary and in which we have an equity interest and which is controlled by one of our stockholders. In all related party transactions, there is a risk that even if the Company personnel negotiating on behalf of the Company with the related party are striving to ensure that the terms of the transaction are arms-length, the related party’s influence may be such that the transaction terms could be viewed as favorable to that related party. While we believe that our past related party transactions have been negotiated on an arm’s length basis and contain commercially reasonable terms, we may have been able to achieve more favorable terms had these transactions been entered into with unrelated parties.

To maintain and increase sales, we must continue to innovate our products in anticipation of consumer preferences, differentiatingdifferentiate our products from those of our competitors, and maintainingmaintain the strength of our brand. The design and development of our products is costly and time-consuming, and we typically have several products in development at the same time. Problems or delays in this process could harm our brand and business results.

Third parties have sued, and may sue us in the future for alleged infringement of their proprietary rights. The party claiming infringement might have greater resources than we do to pursue its claims, and we could be forced to incur substantial costs and devote significant management resources to defend against such litigation, even if the claims are meritless and even if we ultimately prevail. If the party claiming infringement were to prevail, we could be forced to modify or discontinue our products, pay significant damages, or enter into expensive royalty or licensing arrangements with the prevailing party. In addition, any payments we are required to make, and any injunction we are required to comply with as a result of such infringement, could materially and adversely affect our reputation, business, financial condition, results of operationsoperations, and cash flows.

Although we extensively and rigorously test new and enhanced products, there can be no assurance we will be able to detect, prevent, or fix all defects. Defects in materials or components can unexpectedly interfere with the products’ intended use and safety and damage our reputation. Failure to detect, prevent, or fix defects could result in a variety of consequences, including a greater number of product returns than expected from customers, product recalls, and credit claims, among others, which could harm our sales and results of operations. In addition, any negative publicity or lawsuits filed against us related to the perceived quality and safety of our products could also harm our brand and decrease demand for our products, which could in turn materially and adversely affect our reputation, business, financial condition, results of operationsoperations, and cash flows.

Labor is subject to cost inflation and availability, due to external factors, such as increases in minimum wage, higher cost of living, workforce participation rates, and employee preference for remote or hybrid work schedules, that are all beyond our control. For example, in January 2024, California passed Bill 1228 which increased the minimum-wage of fast food restaurant workers to $20 per hour beginning April 1, 2024. Legislation that directly or indirectly forces us to increase compensation for new and existing employees in order to attract and retain talent negatively impacts our labor costs and may harm results of operations. There can be no assurance that we will be able to recruit, train, assimilate, motivatemotivate, and retain employees in the future. The loss of a substantial number of these employees and our inability to hire and replace our workforce could disrupt our business and result in significant losses. The increased labor costs in the restaurant industry could also negatively impact the business operations of some of our customers, which could in turn adversely affect our business and results of operations.

We believe that our future growth depends not only on continuing to reach our current customer base and demographic, but also continuing to expand our business into other foodservice sectors and geographies. The growth of our business will depend, in part, on our ability to continue to expand into additional foodservice sections including supermarkets, entertainment venues, national and regional airlines, and other non-restaurant customers. Additionally, we are expanding our sales and marketing efforts to further penetrate additional geographies across the United States, and we may encounter difficulties in attracting customers due to a lack of consumer familiarity with or acceptance of our brand. We continue to evaluate our go-to-market efforts and other strategies to expand the customer base for our products especially our eco-friendly line, and to further penetrate into other sectors and geographies. However, we cannot provide assurances that these efforts will be successful. We are also expanding the number of distribution centers and warehouses across the United States and these efforts come with considerable challenges and risks, including entering into long term lease contracts with possibly significant termination clauses. If we are not successful, our business, financial condition, results of operationsoperations, and cash flows could be materially and adversely effected.affected.

In addition, our arrangements with our suppliers and manufacturers are not exclusive. As a result, they could produce similar products for our competitors, some of which could potentially purchase products in significantly greater volume. Our competitors could also enter into restrictive or exclusive arrangements with our suppliers and manufacturers that could impair or eliminate our access to manufacturing capacity or supplies. Additionally, our suppliers and manufacturers could also be acquired by our competitors, and may become our direct competitors, thus limiting or eliminating our access to manufacturing capacity. Any one of these risks could materially and adversely affect our business, financial condition, results of operationsoperations, and cash flows.

Our reputation and business could suffer due to non-compliance with ethical and legal standards by our suppliers and manufacturersmanufacturers.

Our reputation and our customers’ willingness to purchase our products depend in part on our suppliers’ and manufacturers’ compliance with ethical employment practices, such as with respect to child labor, wages and benefits, forced labor, discrimination, safe and healthy working conditions, and with all legal and regulatory requirements relating to the conduct of their businesses. We do not exercise control over our suppliers and manufacturers and cannot guarantee their compliance with ethical and lawful business practices. If our suppliers or manufacturers fail to comply, our reputation and brand image could be harmed and we could be exposed to litigation and additional costs that would harm our business, financial condition, results of operationsoperations, and cash flows.

We regularly incur significant expenses to maintain our manufacturing equipment and facilities. The machines and equipment that we use to manufacture our products are complex, have many partsparts, and some are run on a continuous basis. We must perform routine maintenance on our equipment and will have to periodically replace a variety of parts such as motors, pumps, pipes, and electrical parts. In addition, our facilities may require periodic shutdowns to perform major maintenance which may result in lower output and ultimately lower sales during the periods in which these scheduled maintenance occur. Further, there could be unexpected operational issues in future periods as a result of changes made to machines and equipment, as well as to operational and mechanical processes during the shutdown periods. Additionally, we may not be able to renew our facility leases on terms acceptable to us, if at all. If this occurs, it could materially and adversely affect our business, financial condition, results of operationsoperations, and cash flows.

Our results of operations depend, in large part, on our level of revenues, operating costscosts, and expenses. The expense of owning and operating our business is not necessarily reduced when circumstances such as market factors and competition cause a reduction in revenue from the business. Many of the costs or cash outlays associated with our business and operations, such as depreciation, rent, insurance, and loan payments are generally considered fixed. As a result, if revenues decline, we may not be able to reduce our expenses to keep pace with the corresponding reductions in revenues. This could materially and adversely affect our business, financial condition, results of operationsoperations, and cash flows.

Information systemsystems isare the backbone of our business. Our business dependdepends on our internally-developed information technology systems and tools, as well as certain software as a service products, to run our business, including storing key data, processing transactions, designing and manufacturing products, sourcing products, managing inventory and hosting and operating our website. Our ability to operate effectively on a day-to-day basis and accurately report our results depends on a solid technological infrastructure, which is inherently susceptible to internal and external threats. Any material disruption or slowdown of our systems or those of third parties that we depend upon, including those caused by failure to manage increases in user volume, unsuccessful system upgrades and updates, system failures, power loss, internet and network connectivity issues, cybersecurity incidents, or other causes, could cause important or confidential information to be lost or compromised or delayed. This could in turn impact our abilities to operate our business and accurately report our operating results, harm our brand and reputation, and cause our future sales to decline further. If our information systems become obsolete or inadequate to support our growth, it could damage our customer and business partner relationships, and our business, financial condition, results of operationsoperations, and cash flows could be materially and adversely effected.affected.

Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of confidential information, misappropriation of assetsassets, and damage to our business relationships, all of which could negatively impact our business and results of operations.

As we look for opportunities to adopt AI in our business operations, there could be significant risks that could materially and adversely impact our business, financial condition, results of operationsoperations, and cash flows. The rapid pace of AI innovation and technological advancement present challenges in maintaining a competitive edge, as failing to keep pace with emerging technologies or competitors could erode our market position. Additionally, AI is subject to increasing regulatory scrutiny and an evolving legal framework around data usage, privacy, and algorithmic accountability which may impose additional compliance costs, operational restrictions, or lead to investigations and litigation. The deployment of AI technologies also introduces cybersecurity vulnerabilities, with potential data breaches or unauthorized access threatening sensitive information and customer trust. Furthermore, public perception of AI-related social and ethical issues may also impact the acceptance and success of our AI initiatives. As we evaluate opportunities for AI adoption, we remain committed to enhancing our governance, compliance, and risk management practices to effectively address these challenges and align with our strategic objectives, however, there is no assurance that these measures will fully mitigate all risks associated with its adoption and use.

If our operations continue to grow at a rapid pace, we may experience difficulties in managing this growth and building the appropriate processes and controls. Continued growth may increase the strain on our resources, and we could experience operating difficulties, including difficulties in sourcing, logistics, recruiting, maintaining internal controls, marketing, designing innovative products, and meeting consumer needs. If we do not adapt to meet these evolving challenges, our corporate culture may be harmed, the quality of our products may suffer, we may not be able to deliver products on a timely basis to our customers, and the strength of our brand may erode.

Our business requires compliance with many laws and regulations, including labor, employment, taxes, customs, and consumer protection laws and ordinances that regulate retailers generally and/or govern the importation, promotion, and sale of merchandise, and the operation of stores and warehouse facilities. Failure to comply with these laws and regulations could subject us to lawsuits and other proceedings, and could also lead to damage awards, fines, and penalties. We may become involved in a number of legal proceedings and audits, including government and agency investigations, and consumer, employment, tort, and other litigation. The outcome of some of these legal proceedings, audits, and other contingencies could require us to take actions that could harm our operations or require us to pay substantial amounts of money, harming our financial condition and results of operations. Additionally, defending against these lawsuits and proceedings may be necessary, which could result in substantial costs and diversion of management’s attention and resources, materially and adversely harming our business, financial condition, results of operationsoperations, and cash flows. Any pending or future legal or regulatory proceedings and audits could materially and adversely harm our business, financial condition, results of operationsoperations, and cash flows.

We are exposed to credit risk primarily on our accounts receivable. We provide credit to our customers in the ordinary course of our business and perform ongoing credit evaluations. While we believe that our exposure to concentrations of credit risk with respect to trade receivables is mitigated by our large and diversified customer base, we nevertheless run the risk of our customers not being able to meet their payment obligations, particularly in an economic downturn. If a material number of our customers were not able to meet their payment obligations, our business, financial condition, results of operationsoperations, and cash flows could be materially and adversely effected.affected.

We have identified a material weakness in our internal control over financial reporting. If we are unable to remediate this material weakness, or if we experience additional material weaknesses or deficiencies in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial results, in which case our business may be harmed, investors may lose confidence in the accuracy and completeness of our financial reports and the price of our common stock may decline.

AsOur furthermanagement describedis responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in Partaccordance II,with ItemGAAP. 9A.Failure "Controlsto andmaintain Procedures",an weeffective have remediated certain material weaknesses previously identified in Part II, Item 9Asystem of Forminternal 10-K for the year ended December 31, 2023 filed with the SEC on March 15, 2024. For the existing material weakness as of December 31, 2024, we have undertaken steps to implement remedial actions. Although progress has been made, additional time is necessary to fully remediate the material weakness, and even despite the passage of time, we may not be successful in remediating the material weakness or be able to do so in a timely manner. Any inability to remediate the material weakness effectively or in a timely manner, or the identification of any new material weaknesses in the future,controls could limit our ability to prevent or detect a misstatement of our accounts or disclosures and could result in a material misstatement of our annual or interim financial statements. In such case, weWe may also be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investorswhich may loseresult in investors losing confidence in our financial reporting and the decline in the prices of our common stock may decline as a result.stock.

Our business is subject to the risk of earthquakes, fires, floods, pandemics, and other catastrophic events including criminal acts and terrorism.

As we rely heavily on our warehouse facilities for production, storage, and distribution of inventory, our business is particularly vulnerable to damage or interruption from earthquakes, fires, floods, pandemics, criminal acts, terrorism, and similar events. A significant natural disaster could harm our business results and our insurance coverage may be insufficient to compensate us for losses that may occur. Our corporate offices, distribution centers, and manufacturing facilities are located in California, a state that frequently experiences earthquakes and wildfires, Texas, a state that frequently experiences floods and storms, and Hawaii, a state that frequently experiences hurricanes and tsunamis. In addition, the facilities of our suppliers and where our manufacturersvendors produce our products are located in parts of Asia that frequently experience typhoons and earthquakes. A pandemic or other global health crisis could cause additional operating costs due to increased challenges with our workforce (including as a result of labor shortages, illness, absenteeism or government orders), and access to supplies and capital. Criminal acts such as grand theft and acts of terrorism could also cause disruptions in our or our suppliers’, manufacturers’,vendors’, and logistics providers’ businesses or the economy as a whole. We may not have sufficient protection or recovery plans in place, and such disruptions could materially and adversely impact our financial results and financial condition.

International political instability and armed conflicts, including recent escalations in regional conflicts,conflicts could result in economic sanctions that could impact our operational and financial results. If such events disrupt domestic or international air, ground or sea shipments, or the operation of the Company’s manufacturing facilities, the Company’s ability to source inventory or obtain the materials necessary to manufacture its products, and deliver customer orders would be harmed, which would have a significant adverse effect on the Company’s business and results of operations. In addition, international conflicts could result in increased energy costs, which could increase the cost of sourcing, manufacturing, selling, and delivering products, and general inflation, which could also result in increases in the cost of sourcing and manufacturing, reduced customer demand and purchasing power, and overall market instability. All of these could materially and adversely effectaffect our business, financial condition, results of operationsoperations, and cash flows.

If we fail to timely and effectively obtain shipments of products from our overseas manufacturers,manufacturers with standard shipping by sea, our gross margin, profitability, and our business and results of operations could be harmed.

Our overseas third-party contract manufacturers ship most of our products to our primary facility in California, which are then shipped to our customers and to our other distribution facilities. Because we import many of our products, we are vulnerable to risks associated with products manufactured abroad, including, among other things: (a)including risks of damage, destruction, or confiscation of products while in transit to our distribution centers; and (b) transportation and other delays in shipments, including as a result of heightened security screening, port congestion, inspection processes, or other port-of-entry limitations or restrictions in the United States.centers. In order to meet demand for a product, we have chosen in the past, and may choose in the future, to arrange for additional quantities of the product, if available, to be delivered through air freight, which is significantly more expensive than standard shipping by sea and, consequently, could harm our gross margins. Failure to procure our products from our third-party contract manufacturers and deliver merchandise to our customers in a timely, effective, and economically viable manner could reduce our sales, gross margin,margins and profitability, damage our brand, and harm our business.

Many of our products are manufactured outside the United States. Our reliance on suppliers and manufacturersvendors in foreign markets creates risks inherent in doing business in foreign jurisdictions, including: (a) the burdens of complying with a variety of foreign laws and regulations, including trade and labor restrictions and laws relating to the importation and taxation of goods; (b) weaker protection for intellectual property and other legal rights than in the United States, and practical difficulties in enforcing intellectual property and other rights outside of the United States; (c) compliance with U.S. and foreign laws relating to foreign operations, including the U.S. Foreign Corrupt Practices Act, or FCPA, the UK Bribery Act 2010, or the Bribery Act, regulations of the U.S. Office of Foreign Assets Controls, or OFAC, and U.S. anti-money laundering regulations, which prohibit U.S. companies from making improper payments to foreign officials for the purpose of obtaining or retaining business, operating in certain countries, as well as engaging in other corrupt and illegal practices; (d) economic and political instability and acts of terrorism in the countries where our suppliers are located; (e) transportation interruptions or increases in transportation costs; (f) the imposition of tariffs on components and products that we import into the United States or other markets; and (g) the impact of currency exchange fluctuations, trade regulations, import duties, logistics costs, delays, and other related risks resulting in increased costs or liabilities. We cannot provide assurance that our directors, officers, employees, representatives, manufacturers, or suppliers have not engaged and will not engage in conduct for which we may be held responsible, nor can we provide assurance that our manufacturers, suppliers, or other business partners have not engaged and will not engage in conduct that could materially harm their ability to perform their contractual obligations to us or even result in our being held liable for such conduct.

Violations of the FCPA, the Bribery Act, OFAC restrictions, or other export control, anti-corruption, anti-money laundering, and anti-terrorism laws or regulations may result in severe criminal or civil sanctions, and we may be subject to other related liabilities, which could harm our business, financial condition, results of operationsoperations, and cash flows.

Our third-party manufacturersvendors are located in international markets, and we make payment to certain of these manufacturersvendors in currenciestheir otherlocal than U.S. Dollars,currencies, including payments made in New Taiwan Dollars. Any fluctuations in foreign exchange rates against the U.S.United State Dollar, and in particular the exchange rates of the New Taiwan Dollar, could increase our costs, and have a material adverse impact on our business, financial condition, results of operationsoperations, and cash flows.

We have evaluated, and expect to continue evaluating, potential strategic transactions, and we may pursue one or more transactions, including acquisitions. We have limited experience executing acquisitions. Any transaction could be material to our business, financial condition, results of operationsoperations, and growth prospects. Integrating an acquired company, business or technology may create unforeseen operating difficulties and expenditures. Acquisition-related risks include:

Also, the anticipated benefit of any acquisition may not materialize. Future acquisitions or dispositions could result in potentially dilutive issuances of our equity securities, debt incurrence, contingent liabilities or amortization expenses or goodwill write-offs, any of which could materially adversely affect our business, financial condition, results of operationsoperations, and growth prospects. Future acquisitions may require us to obtain additional equity or debt financing, which may not be available on favorable terms or at all.

As of December 31, 2024,2025, we had 296,999 and 16,668 of vested and unvested287,467 stock options, respectively,all of which were fully vested, and 70,80043,500 of unvested restricted stock units outstanding. The additional shares issued upon exercise or vesting will be eligible to be sold freely in the public market, subject to volume limitations applicable to affiliates.

We may depend on cash generated from outside sources of funding to support our growth.

Although we have in the past generated positive cash flow from operating activities, outside sources of equity and debt capital is an important source of fund for our current operations and growth initiatives. As we expand our business, we willmay need significant cash resources to fund operations such as purchasing and manufacturing inventory, marketing and promoting our products, expanding our vendor and customer relationships, enhancing distribution capabilities, paying employees, upgrading information technology systems and tools, and paying for the costs associated with operating as a public company. If we are unable to secure additional outside funding or if our business does not generate sufficient cash flow from operations to fund these activities and sufficient funds are not otherwise available, our business will be negatively impacted and restricted. If such outside financing is not available to us on satisfactory terms, our ability to operate and expand our business or respond to competitive pressures would be harmed. Moreover, if we raise additional capital by issuing equity securities or securities convertible into equity securities, your ownership may be diluted. Any indebtedness we incur may subject us to covenants that restrict our operations and will require interest and principal payments that would create additional cash demands and financial risk for us.

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”).Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised financial accounting standards until such time as those standards apply to private companies. We have elected to take advantage of the extended transition period for adopting new or revised financial statements under the JOBS Act as an emerging growth company.

For as long as we continue to be an emerging growth company, we intend to take advantage of other exemptions from certain reporting requirements that are applicable to other public companies, including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended or the Sarbanes-Oxley Act, exemption from any rules that may be adopted by the Public Company Accounting Oversight Board (“PCAOB”) requiring mandatory audit firm rotations or a supplement to the auditor’s report on financial statements, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute arrangements, and reduced financial reporting requirements. Investors may find our common stock less attractive because we will rely on these exemptions, which could result in a less active trading market for our common stock, increased price fluctuation, and a decrease in the trading price of our common stock.

We are a rapidly-growing and nimble distributor and manufacturer of disposable foodservice products and related items, including food and take-out containers, bags, boxes, tableware, cups, lids, cutlery, straws, specialty beverage ingredients, gloves, janitorial supplies, and other products. Our products are available in plastic, paper, biopolymer-based, and other compostable forms. We are a leader in product innovation, offering a growing line of environmentally-friendly products to our customers, who are increasingly focused on sustainability. We also offer customized solutions to our customers, including new product development, design, printingprinting, and logistics services.

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.expansion and ensure quality of our customer service and product availability during global supply chain disruptions. Starting in 2023 and continuing into 2024,2025, 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. AtAmidst the sameevolving time,tariff environment throughout 2025, we have expandedplaced our strategic emphasis on expanding and diversifying our global vendor network byto 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.sources Thisand hasmore enabledfavorable ustrade terms, negotiating additional vendor support, exploring opportunities to diversifycollaborate with vendors in new countries and geographies, while reallocating our supplierown base,domestic minimizeproduction reliancecapabilities onto individualoptimize suppliers,overall enhanceproduct the resilience of our supply chain, expand our margin and improve our operating cash flows.margin.

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.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. Further,On asOctober described17, in2025, Notewe 22announced —that SubsequentLollicup, Eventsour inwholly-owned thebusiness Notesoperating subsidiary, relocated its headquarters to theRockwall, ConsolidatedTexas, 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 infrom Chino, California and are currently in the process of setting up this location to be fully operational by the second quarter of 2025.California.

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

•We recordedachieved record net incomesales of $30.8$467.7 million for the year ended December 31, 2024,2025, aan decreaseincrease of 7.1%10.7% in net sales amount and 11.2% in volume compared to the year ended December 31, 2023.2024.

•OurWe Adjustedrecorded EBITDAgross margin,margin aof non-GAAP measure defined below, was 13.1%36.8% for the year ended December 31, 2024,2025, areflecting an expected decrease of 150210-basis-point basiscompared points fromto the year ended December 31, 2023.2024, as cost of goods sold in 2025 reflected elevated inventory cost due to tariffs in place.

•We had financial liquidity of $67.8 million and additional short-term investments of $28.3$45.6 million as of December 31, 2024.2025.

•During the year ended December 31, 2024,2025, we returned a total of $31.0$36.1 million to our shareholders in the form of specialregular and regularquarterly cash dividends.

•On February 13,5, 2025,2026, our Board of Directors declared another regular quarterly cash dividend of $0.45 per share on our common stock, which was paid on or aroundabout February 28,27, 20252026 to shareholdersthe stockholders of record at the close of business on February 24,20, 2025.2026.

•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%34.1% of total sales during the year ended December 31, 20242025, compared to 32.7%33.6% during the prior year.year, and we expect sales generated from eco-friendly products as percentage of total sales to continue to grow.

Net sales were $467.7 million for the year ended December 31, 2025 compared to $422.6 million for the year ended December 31, 20242024, comparedrepresenting toan $405.7increase millionof $45.1 million, or 10.7%. Net sales for the year ended December 31, 2023,2024 anwere increaseunderstated ofby $17.0$0.7 million, orwhich 4.2%.represented Theproducts 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 $36.7$39.7 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$11.9 million infrom logisticsproduct and shipping revenue.mix. Such increases were partially offset by $25.2a $6.5 million of unfavorable year-over-year pricing comparison, as the overall pricing environment remained competitive especiallydue in the distributor channel, driven largely byto customers' heightened focus on value and quality.value.

Operating income was $41.4 million for the year ended December 31, 2025 compared to $37.8 million for the year ended December 31, 20242024, comparedrepresenting toan $42.1 million for the year ended December 31, 2023, a decreaseincrease of $4.3$3.7 million, or 10.3%.9.7%. The decreaseincrease was primarily due to an increase in operatinggross expensesprofit of $15.6$7.8 million, as discussed above, partially offset by an increase in grossoperating profitexpenses of $11.3$4.2 million, as discussed above.million.

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, 20242024, comparedrepresenting toan $9.8increase millionof $0.5 million, or 4.9%. The Company’s effective tax rate was 24.1% for the year ended December 31, 2023,2025 ancompared increase of $0.1 million, or 0.7%. The Company’s effective tax rate wasto 24.3% for the year ended December 31, 2024 compared to 22.8% for the year ended December 31, 2023.2024. The year-over-year increasedecrease in effective tax rate was primarily due to the decreasedeferred intaxes research and development tax credit and the stock compensation windfall.true-up.

Net income was $32.7 million for the year ended December 31, 2025 compared to $30.8 million for the year ended December 31, 20242024, comparedrepresenting toan $33.2 million for the year ended December 31, 2023, a decreaseincrease of $2.4$1.8 million, or 7.1%.6.0%. The decreaseincrease was primarily driven by aan decreaseincrease in operating income of $4.3$3.7 million, partially offset by ana increasedecrease in other income, net of $2.0$1.3 million, as discussed above.

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,costs (vii)by write-offcertain executive officers and stockholders 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.Company. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by net sales.

(1) Secondary offering transaction costs represent legal and professional fees incurred in connection with the completion of the secondary offering,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.

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

As described in Note 87 — 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$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 14,3, 2023,2025, wethe Company amended the Line of Credit. Prior to March 14,3, 2023,2025, the revolving loan facility had a maximum borrowing capacity of $40.0 million and 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%.1.00%. OnThe 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,amendment on March 3, 2025, the Company amended the Line of Credit again, which2025 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.

As described in Note 109 — 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. 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.

Additionally, as of December 31, 2024,2025, 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.

Additionally, as discussed in Note 1917 — Commitments and Contingencies in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, on February 5, 2024, we received a Notice of Determination from U.S. 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 inDuring the processyear ended December 31, 2025, we submitted protests of protestingcertain bills received with CBP and made total payments of $1.9 million related to certain shipments under the receivedinvestigation. bills with CBP, andWe 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$1.7 million as of December 31, 2024,2025, the amount of the final payments could vary significantly from the estimated liability reserve.

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. 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.

Cash flows provided by operating activities. Net cash provided by operating activities was $48.0$33.8 million for the year ended December 31, 2024,2025, primarily the result of net income of $30.8$32.7 million, adjusted for certain non-cash items totaling $21.2$25.3 million, consisting mainly of depreciation and amortization of fixed andfixed, operating right-of-use assets, and loan fees, stock-based compensation, impairment of operating right-of-use asset, write-off of inventory, loss,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 $4.1$24.1 million primarily as a result of changes in working capital, which included a decrease of $6.7$11.9 million from increased inventory purchases, a reductiondecrease inof $10.3 million from increased operating lease liabilities, a decrease of $2.4$9.8 million from a reduction inhigher accounts payablereceivable and related party payable,balance, and a decrease of $0.9$1.3 million from increased inventoryprepaid purchases,expenses and other current assets, partially offset by an increase of $2.8$9.3 million from ahigher reductionaccounts in prepaid expensespayable and otherrelated currentparty assetspayable 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.balance.

Net cash provided by operating activities was $53.4$48.0 million for the year ended December 31, 2023,2024, primarily the result of net income of $33.2$30.8 million, adjusted for certain non-cash items totaling $22.0$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 and vendor prepayment,inventory, loss, net, on disposal of machinery, stock-based compensation, impairment of deposits, deferred income taxes,machinery and equipment, adjustments to the allowance for doubtful accounts and inventory reserve.reserve, deferred income taxes, and government grant income. In addition, cash decreased $1.8$4.1 million,million primarily as a result of changes in working capital, which included a decrease of $4.6$6.7 million from a reduction in operating lease liabilitiesliabilities, a decrease of $2.4 million from a reduction in accounts payable and related party payable, and a decrease of $3.8$0.9 million from additionalincreased inventory to accommodate higher sales volume,purchases, 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$2.8 million from a reduction in prepaid expenses and other assets,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 $1.1$0.6 million from highera reduction in accounts payable and related party payable.receivable.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes. This discussion and analysis containscontain “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements relate to expectations concerning matters that are not historical facts. For example, statements discussing, among other things, business strategies, growth strategies and initiatives, future revenues and future performance and expected costs and liabilities are forward-looking statements. Such forward-looking statements may be identified by words such as “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “remain,” “should,” or “will” or the negative of these terms or other comparable terminology. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expect and, therefore, you should not unduly rely on such statements. The risks and uncertainties that could cause those actual results to differ materially from those expressed or implied by these forward-looking statements include but are not limited to:

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 sustainedsustain 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.

•We continue to realign our global supply chain within a dynamic global trade environment. We increased domestic purchases for the three and six months ended June 30, 2026 to 18.3%19.5% and 19.0%, respectively, from 13.8%14.6% and 14.2%, respectively, for the three monthsand ended March 31, 2026 compared to the threesix months ended MarchJune 31,30, 20252025, and diversified sourcing to countries with more favorable trade conditions. Specifically, we reduced sourcing from Taiwan from 53.7% to 46.3%45.9% and from46.0%, China from 18.4% to 11.3%respectively, for the three and six months ended MarchJune 31,30, 20262026, comparedfrom to58.0% and 56.0%, respectively, for the three and six months ended MarchJune 31,30, 2025, respectively.2025. Further, we increased our purchases from MalaysiaIndonesia, South America, and VietnamSingapore fromfor the three and six months ended June 30, 2026 to an aggregate of 12.2%12.0% toand 17.2%9.1%, respectively, from 0.9% and 1.1%, respectively, for the three monthsand ended March 31, 2026 compared to the threesix months ended MarchJune 31,30, 2025.

•We recordedachieved record quarterly net sales of $116.9$136.3 million for the three months ended MarchJune 31,30, 2026, an increase of 12.9%9.9% in amount and 10.4%8.9% in volume, compared to the three months ended MarchJune 31,30, 2025. For the six months ended June 30, 2026, we recorded net sales of $253.2 million, an increase of 11.3% in amount and 9.6% in volume, compared to the six months ended June 30, 2025.

•Our net incomegross margin was 6.1%56.6% and 46.9% for the three and six months ended MarchJune 31,30, 2026, aan decreaseincrease of 501,700 basis points and 740 basis points compared to the three and six months ended MarchJune 31,30, 2025.

•We generatedachieved consolidatedrecord Adjustedquarterly EBITDA,net a non-GAAP measure defined below,income of $12.5$29.6 million for the three months ended MarchJune 31,30, 2026, an increase of 4.8%168.3% compared to the three months ended MarchJune 31,30, 2025. For the six months ended June 30, 2026, we recorded net income of $36.8 million, an increase of 105.9%, compared to the six months ended June 30, 2025.

•Our Adjustednet EBITDAincome margin, a non-GAAP measure defined below,margin was 10.7%21.8% and 14.5% for the three and six months ended MarchJune 31,30, 2026, aan decreaseincrease of 801,290 and 670 basis points compared to the three and six months ended MarchJune 31,30, 2025.

•As of MarchJune 31,30, 2026, we had financial liquidity of $36.4$42.0 million, consisting of $28.7$38.4 million in cash and cash equivalents and $7.7$3.6 million in availability under Line of Credit. In addition, we had $5.7$15.7 million in short-term investments as of MarchJune 31,30, 2026.

•On MayAugust 5,4, 2026, our Board of Directors declared anotheran increase to our quarterly cash dividend ofto $0.45$0.47 per share on our common stock, which will be paid on or about MayAugust 28, 2026 to shareholders of record at the close of business on MayAugust 21, 2026.

Three Months Ended MarchJune 31,30, 2026 Compared to Three Months Ended MarchJune 31,30, 2025

Net sales were $116.9$136.3 million for the three months ended MarchJune 31,30, 2026 compared to $103.6$124.0 million for the three months ended MarchJune 31,30, 2025, an increase of $13.3$12.3 million, or 12.9%.9.9%. The sales growth was primarily driven by an increase of $12.1$13.1 million in volume and product mix, as well as a $2.0$0.4 million favorable year-over-year pricing comparison, partially offset by a decrease of $0.8$1.1 million in shipping and logistics revenue.

Cost of goods sold was $75.4$59.1 million for the three months ended MarchJune 31,30, 20262026, compared to $62.9$74.9 million for the three months ended MarchJune 31,30, 2025, ana increasedecrease of $12.6$15.7 million, or 20.0%.21.0%. ProductThis is primarily driven by IEEPA tariff refunds of $25.8 million, partially offset by higher product costs increasedof $5.2$6.9 million primarily due to increased sales volume growth.and Importresin costs,price, coupled with higher import costs of $3.5 million, including duty and tariffs and ocean freight, increasedmainly $7.3due million primarily asto a result4.3% increase in the number of highercontainers import dutyimported and tariffs,an which8.9% increasedincrease fromin $3.4average millioncontainer forrate compared to the three months ended MarchJune 31,30, 2025 to $10.5 million for the three months ended March 31, 2026.2025.

Gross profit was $41.5$77.2 million for the three months ended MarchJune 31,30, 2026 compared to $40.8$49.1 million for the three months ended MarchJune 31,30, 2025, an increase of $0.8$28.1 million, or 1.9%.57.1%. Gross margin was 35.5%56.6% for the three months ended MarchJune 31,30, 2026 compared to 39.3%39.6% for the three months ended MarchJune 31,30, 2025, aan decreaseincrease of 3801,700 basis points. GrossIEEPA tariff refunds delivered a favorable impact on gross margin wasof negatively1,890 impactedbasis bypoints risingfor importthe costs,three asmonths discussedended above,June which30, 2026. Partially offset this benefit, product costs as a percentage of net sales increased to 13.8%49.2% duringfrom 48.5%, and import costs increased to 11.1% from 9.5%, compared to the three months ended MarchJune 31, 2026 from 8.6% during the three months ended March 31,30, 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.

Operating income was $8.5$37.6 million for the three months ended MarchJune 31,30, 2026 compared to $7.8$16.6 million for the three months ended MarchJune 31,30, 2025, an increase of $0.6$21.1 million, or 8.2%.127.2%. The increase was due to an increase in gross profit of $0.8$28.1 million,million partially offset by an increase in operating expenses of $0.1$7.0 million, as discussed above.

Other income,income (expenses), net

Provision for income taxes was $2.2$9.4 million, including an impact of $6.6 million from IEEPA tariff refunds, for the three months ended June 30, 2026 compared to $3.5 million for the three months ended MarchJune 31, 2026 compared to $2.1 million for the three months ended March 31,30, 2025, an increase of $0.1$5.9 million, or 5.7%.171.1%. The Company’s effective tax rate was 23.9%24.0% for the three months ended MarchJune 31,30, 2026 compared to 23.7%23.8% for the three months ended MarchJune 31,30, 2025, primarily due to the change in non-taxable non-controlling interest income.2025.

Net income was $7.1$29.6 million for the three months ended MarchJune 31,30, 2026 compared to $6.8$11.1 million for the three months ended MarchJune 31,30, 2025, an increase of $0.3$18.6 million, or 4.8%.168.3%. The increase was primarily driven by an increase of $0.6$21.1 million in operating income,income partiallyand offsetan by a decreaseincrease of $0.2$3.5 million in other income, net, andpartially offset by an increase of $0.1$5.9 million in provision for income taxes, as discussed above.

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.expense, and (vi) secondary offering transaction costs. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by net sales.

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, theand CompanyMay 11, 2026, we entered into threefour 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.$15,000,000, and from $15,000,000 to $18,000,000. As of MarchJune 31,30, 2026, the amount issued under the standby letter of credit was $12.3$16.4 million, and the maximum remaining amount that could be borrowed under the Line of Credit was $7.7$3.6 million.

Additionally, as of MarchJune 31,30, 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, 2025,2025 and April 24, 2026, we made an early paymentpayments of $8.0 million and $0.4 million, respectively, 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 MarchJune 31,30, 2026, the entire remaining balance of $12.0$11.4 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$38.4 million in cash and cash equivalents and $5.7$15.7 million in short-term investments as of MarchJune 31,30, 2026.

As of MarchJune 31,30, 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 MarchJune 31,30, 2026, we had no borrowings outstanding under the Line of Credit, $23.4$23.3 million in outstanding balance under the 2027 Term Loan, and $12.0$11.4 million in outstanding balance under the 2026 Term Loan.

As discussed in Note 14 — Commitments and Contingencies to the condensed consolidated financial statements, on February 5, 2024, we received a Notice of Determination from the 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$1.9 million related to certain shipments under the investigation for the year ended December 31, 2025 and no$0.2 paymentmillion for the threesix months ended MarchJune 31,30, 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$1.3 million as of MarchJune 31,30, 2026, the amount of the final payments could vary significantly from the estimated liability reserve.

As described in Note 16 — Subsequent Events to the condensed consolidated financial statements, onOn 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 ofIn April 20, 2026, we have successfully submitted refund claims totaling $25.8 million withinand CAPE,expect representingto refundsubmit the remaining eligible claims foronce allCBP 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 ofopens the claims.filing 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.window.

Additionally, on MayAugust 5,4, 2026 our Board of Directors declared anotheran increase to our regular quarterly cash dividend ofto $0.45$0.47 per share on our common stock, which will be paid on or about MayAugust 28, 2026 to shareholders of record at the close of business on MayAugust 21, 2026. Prior to this, we paid out regular quarterly cash dividends totaling $9.0$18.0 million in the current fiscal year.

The following table summarizes total current assets, liabilities and working capital at MarchJune 31,30, 2026 compared to December 31, 2025:

As of MarchJune 31,30, 2026, we had working capital of $90.7$110.8 million compared to $91.0 million as of December 31, 2025, representing aan decreaseincrease of $0.3$19.8 million, or 0.3%,21.8%, driven by aan decreaseincrease of $0.2$38.2 million in current assetsassets, partially offset by an increase of $0.1$18.3 million in current liabilities. The decreaseincrease in current assets was primarily driven by aan decreaseincrease in cash and cash equivalents and short-term investments of $3.5$16.3 million, an increase in accounts receivable of $12.8 million as a decreaseresult of stronger sales, an increase in inventories of $1.7$7.4 million,million as we stock up for the summer peak season, and aan decreaseincrease in prepaid expenses and other current assets of $0.9 million, partially offset by an increase in accounts receivable of $5.9$1.7 million as a result of stronger sales in March 2026 compareddue to December$1.5 2025.million outstanding IEEPA tariff receivable. The increase in current liabilities was primarily driven by an increase in accounts payable and related party payables of $10.4 million, an increase in income tax payable of $1.3$5.7 millionmillion, and an increase in deferredaccrued revenueexpenses of $0.5$2.5 million, partially offset by a decrease in accountslong-term payabledebt, andcurrent related party payablesportion of $1.3 million and a decrease in accrued expenses of $0.4$0.9 million.