Karat Packaging Inc. (KRT)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes to the consolidated financial statements. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors including, but not limited to, those discussed in Part I, Item 1A. “Risk Factors.” and elsewhere in this Annual Report on Form 10-K. See “Forward Looking Statements” above for further explanation.

Due to rounding, numbers presented throughout this report may not add up precisely to totals we provide and percentages may not precisely reflect the absolute figures.

Overview

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

We operate an approximately 500,000 square foot distribution center located in Rockwall, Texas, an approximately 300,000 square foot distribution center in Chino, California, and an approximately 76,000 square foot distribution center located in Kapolei, Hawaii. We have selected manufacturing capabilities in all of these facilities. In addition, we operate seven other warehouse spaces and distribution centers located in Puyallup, Washington; Summerville, South Carolina; Branchburg, New Jersey; Kapolei, Hawaii; Aurora, Illinois; Mesa, Arizona; and Sugar Land, Texas. Our distribution centers are strategically located in proximity to major population centers, including the Los Angeles, New York, Chicago, Dallas, Houston, Seattle, Phoenix, Atlanta, and Honolulu metro areas. Further, as described in Note 22 — Subsequent Events in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, we entered into a lease agreement on March 3, 2025 for an additional distribution center of approximately 187,000 square foot in Chino, California and are currently in the process of setting up this location to be fully operational by the second quarter of 2025.

We manage and evaluate our operations in one reportable segment.

2024 Business Highlights and Trends

•We initiated a strategic emphasis on expanding into the supermarket segment, and have started to see early positive results.

•We continued our transition to a more asset-light model by further scaling back manufacturing in the U.S., increasing imports, and expanding our vendor network, leading to strong margin expansion.

34

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

•We achieved a record gross margin of 38.9% for the year ended December 31, 2024, a 120-basis-point increase from the year ended December 31, 2023.

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

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

•We generated net cash provided by operating activities of $48.0 million for the year ended December 31, 2024, a decrease of $5.4 million compared to the year ended December 31, 2023.

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

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

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

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

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

Trends in Our Business

The following trends have contributed to the results of our operations, and we anticipate that they will continue to affect our future results:

•A significant trend in the restaurant industry is the changing perception of food delivery and take-out compared to traditional on-premise dining. There is a clear growing preference for delivery and take-out, and we expect this trend to continue positively influencing our operating results, as more customers will need packaging and containers to support the rising demand from food delivery and take-out consumers.

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

•Most of our products are sourced from vendors abroad and as a result we incur freight costs from these overseas import shipments, which could be a significant component of our cost of goods sold. Elevated ocean freight rates could pressure our gross margin, and if we raise our price, dampen the demand for our products. Steady or dropping ocean freight could yield significant opportunities for us to expand our margin. However, it could also reduce the barrier of entry, intensifying the competition.

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

•The cost of raw materials used to manufacture our products, including polyethylene terephthalate, or PET, plastic resin, aluminum, and paper boards, may continue to fluctuate. Since negotiated sales contracts and the market largely determine the pricing for our products, we are, at times, limited in our ability to raise prices and pass through any impacts of inflation to our costs. There can also be lags between cost inflation and the implementation of price increases, which could negatively impact our gross margin. Conversely, periods of deflation, where raw material costs decrease, may create pricing pressure and start price wars, potentially requiring us to lower prices,

35

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.

•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.

•Fluctuations in foreign currency exchange rates could impact either positively or negatively various aspects of our business activities, including but not limited to our purchasing power and capacity to source inventory.

•Since early 2023, we have pivoted into a more asset-light growth model by increasing import and scaling back manufacturing in the U.S. We believe this will have either a positive or a negative impact on our results of operations, depending on whether we can successfully source and import finished goods at a price that is more favorable than domestically manufacturer products, and effectively realize savings from reduced manufacturing capabilities.

Critical Accounting Estimates

The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, management evaluates those estimates. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting estimates are those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant. We believe the following critical accounting estimates and policies have the most significant impact on our consolidated financial statements:

Allowance for Doubtful Accounts

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

Inventory Reserve

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

Results of Operations

Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023

36

Net sales

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

Cost of goods sold

Cost of goods sold was $258.3 million for the year ended December 31, 2024 compared to $252.6 million for the year ended December 31, 2023, an increase of $5.7 million, or 2.3%. Freight and duty costs for the year ended December 31, 2024 increased $4.4 million from the year ended December 31, 2023 as a result of a 14% increase in import volume coupled with 27% higher freight container rates, despite a $3.0 million year-over-year decrease in anti-dumping and countervailing duty charges. Additionally, product costs for the year ended December 31, 2024 increased $1.1 million from the year ended December 31, 2023 primarily as a result of increased sales volume, as discussed above, partially offset by favorable impact from reduced vendor pricing, a stronger United States Dollar against New Taiwan Dollar, and an increase in imports as a percentage of total product mix, in keeping with our asset-light strategy. Inventory reserve adjustment for the year ended December 31, 2024 increased $0.6 million from the year ended December 31, 2023. These increases were partially offset by a decrease in inventory adjustments and write-offs of $2.4 million, as 2023 included a $1.7 million write-off of raw materials as we disposed of certain machinery and equipment in executing our strategy to scale back production.

Gross profit

Gross profit was $164.3 million for the year ended December 31, 2024 compared to $153.0 million for the year ended December 31, 2023, an increase of $11.3 million, or 7.4%. Gross margin was 38.9% for the year ended December 31, 2024 compared to 37.7% for the year ended December 31, 2023, an increase of 120 basis points. Product costs as a percentage of net sales decreased to 50.2% for the year ended December 31, 2024 from 52.1% during the year ended December 31, 2023, primarily due to more favorable vendor pricing, foreign currency impact and product mix, as discussed above. Additionally, gross margin improved 60 basis points as the year ended December 31, 2023 included more inventory write-offs from expired products as well as a $1.7 million write-off of raw materials as we disposed of certain machinery and equipment in executing our strategy to scale back production in certain locations, as discussed above. At the same time, freight and duty costs as a percentage of net sales increased to 8.2% during the year ended December 31, 2024 from 7.5% during the year ended December 31, 2023.

Operating expenses

Operating expenses were $126.6 million for the year ended December 31, 2024 compared to $111.0 million for the year ended December 31, 2023, an increase of $15.6 million, or 14.1%. Selling expenses increased $10.8 million from the year ended December 31, 2023, which included a $4.6 million increase in online sales platform fees due to higher sales within the e-commerce channel in the current year, a $1.9 million increase in marketing expense primarily due to a ramp up

37

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

Operating income

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

Other income, net

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

Provision for income taxes

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

Net income

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

Non-GAAP Financial Measures

We use certain non-GAAP financial measures to assess our financial and operating performance that are not defined by, or calculated in accordance with U.S. GAAP. A non-GAAP financial measure is defined as a numerical measure of a company’s financial performance that (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the comparable measure calculated and presented in accordance with U.S. GAAP; or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable measure calculated and presented in accordance with U.S. GAAP.

Our primary non-GAAP financial measures are listed below and reflect how we evaluate our operating results.

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA is a financial measure calculated as net income excluding (i) interest income, (ii) interest expense, (iii) provision for income taxes, (iv) depreciation and amortization, (v) stock-based compensation expense, (vi) secondary

38

offering transaction costs, (vii) write-off of certain inventory items outside the normal course of business, (viii) impairment expense and loss, net, on disposal of machinery outside the normal course of business, and (ix) operating right-of-use asset impairment. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by net sales.

We present Adjusted EBITDA and Adjusted EBITDA margin as supplemental measures of our financial performance. Adjusted EBITDA and Adjusted EBITDA margin assist management in assessing our core operating performance. We believe these measures provide investors with useful perspective on underlying business results and trends and facilitate a comparison of our performance from period to period.

Adjusted EBITDA and Adjusted EBITDA margin should not be considered in isolation or as alternatives to net income, net income margin, or other measures determined in accordance with US GAAP. Also, Adjusted EBITDA and Adjusted EBITDA margin are not necessarily comparable to similarly titled measures presented by other companies.

Set forth below is a reconciliation of net income to Adjusted EBITDA and net income margin to Adjusted EBITDA margin.

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

(2) The write-off of inventory and impairment expense and loss, net, on disposal of machinery represent amounts recognized in connection with the scaling back of production in certain locations. As part of the execution of this strategy, certain machinery and equipment were disposed of or impaired, and raw materials associated with those machinery and equipment were written-off.

Free Cash Flow

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

We present Free Cash Flow as a supplemental measure of our financial liquidity. Free Cash Flow assists management in assessing our ability to fund growth through generation of additional cash from business operations. We believe this measure also provides investors with an important liquidity measure of the cash that is available, after capital expenditures, for operational expenses and investment in our business.

39

Free Cash Flow should not be considered in isolation or as alternatives to net income or cash flows from operating activities. Also, Free Cash Flow is not necessarily comparable to similarly titled measures presented by other companies.

Set forth below is a reconciliation of net cash provided by operating activities to Free Cash Flow:

Liquidity and Capital Resources

Sources and Uses of Funds

Our primary sources of liquidity are cash provided by operations, borrowings under our line of credit with the Hanmi Bank (the “Line of Credit”), and promissory notes. On an annual basis, we have typically generated positive cash flows from operations. Our ability to generate positive cash flow from operations in the future will be, at least in part, dependent on global economic conditions and our ability to navigate challenging macro environment at times.

As described in Note 8 — Line of Credit in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, the Line of Credit is available for working capital and general corporate purposes, and is secured by our assets. It consists of a $40.0 million revolving loan facility and a standby letter of credit sublimit. We are not required to pay a commitment (unused) fee on the undrawn portion of the Line of Credit and interest is payable monthly. On March 14, 2023, we amended the Line of Credit. Prior to March 14, 2023, interest accrued at the annual rate of prime less 0.25% with a minimum floor of 3.25%. The amendment on March 14, 2023, among other things, (1) extended the maturity date to March 14, 2025, and (2) revised the interest on any Line of Credit borrowings to an annual rate of one month term Secured Overnight Financing Rate ("SOFR") plus 2.50%, with a SOFR floor of 1.0%. On June 20, 2023, we amended the Line of Credit which increased the standby letter of credit sublimit from $2.0 million to $5.0 million. As of December 31, 2024, the amount issued under the standby letter of credit was $3.8 million, and the maximum remaining amount that could be borrowed under the Line of Credit was $36.2 million. As described in Note 22 — Subsequent Events in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, on March 3, 2025, the Company amended the Line of Credit again, which among other things, (1) extended the maturity date to March 14, 2027, (2) reduced the revolving loan facility to $20.0 million, and (3) revised the interest on any Line of Credit borrowings to an annual rate of one month term SOFR plus 2.25%, with a SOFR floor of 1.00%.

As described in Note 10 — Long-Term Debt in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, on June 17, 2022, we entered into a $28.7 million term loan agreement which matures July 1, 2027 (the “2027 Term Loan”). The 2027 Term Loan had an initial balance of $20.7 million and an option to request for additional advances up to a maximum of $8.0 million through June 2023, which we exercised in March 2023. Interest accrues at a fixed rate of 4.375% per annum. Principal and interest payments of $0.1 million are due monthly throughout the term of the loan, with the remaining principal balance due at maturity. The 2027 Term Loan is collateralized by substantially all of Global Wells’ assets and is guaranteed by one of our stockholders. In accordance with the loan agreement, Global Wells is required to comply with certain financial covenants, including a minimum debt service coverage ratio. Proceeds from the 2027 Term Loan were used to pay down an existing term loan with the same lender, which was set to mature in May 2029 with interest accruing at prime rate less 0.25%, and had an outstanding balance of $20.6 million as of the repayment date.

Additionally, as of December 31, 2024, we have a $23.0 million term loan that matures September 30, 2026 (the “2026 Term Loan”). The 2026 Term Loan had an initial balance of $16.1 million and an option to request for additional advances up to a maximum of $6.9 million through September 2022, which we exercised in February 2022. Interest accrues at a

40

fixed rate of 3.50% per annum. Principal and interest payments of $0.1 million are due monthly throughout the term of the loan, with the remaining principal balance due at maturity. The 2026 Term Loan is collateralized by substantially all of Global Wells’ assets and is guaranteed by Global Wells and one of our stockholders. In accordance with the loan agreement, Global Wells is required to comply with certain financial covenants, including a minimum debt service coverage ratio.

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

As described in Note 4 — Joint Venture in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, we entered into a joint venture agreement (the "JV Agreement") in April 2022 to establish a new corporation, Bio Earth, to build a bagasse factory in Taiwan. Through March 31, 2023, we had made net payments totaling $6.0 million as stipulated in the JV Agreement. In May 2023, we entered into a share transfer agreement to sell all of our equity interest in Bio Earth to Keary Global. Concurrent with the share transfer agreement, the Company also entered into an agreement with Keary Global, Bio Earth and Happiness Moon Co., Ltd. (“Happiness Moon”) pursuant to which (i) Lollicup agreed to transfer all Bio Earth shares, as well as its rights and obligations under the JV Agreement to Keary Global, (ii) Happiness Moon and Bio Earth agree to foregoing and (iii) Bio Earth shall manage the regulatory and registration requirements related to the share transfer. As of the end of the second quarter of 2023, the share transfer to Keary Global had been completed and we received the full amount of the total consideration owed to us in connection with the sale of our equity interest in Bio Earth of $6.1 million, representing the original deposits totaling $6.0 million plus interest which accrued at 5% per annum.

Additionally, as discussed in Note 19 — 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 in the process of protesting the received bills with CBP, and are also evaluating other appeal options. Payments on bills received will be due upon the resolution of the protests, currently expected to occur within the next 12 months. Although we have an import duty liability reserve of $3.1 million as of December 31, 2024, the amount of the final payments could vary significantly from the estimated liability reserve.

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

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

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

41

changing macroeconomic and geopolitical dynamics created significant uncertainty in the global economy and capital markets, which could have long-lasting adverse effects. We currently believe that our cash on hand, ongoing cash flows from our operations and funding available under our borrowings will be adequate to meet our working capital needs, service our debt, make lease payments, and fund capital expenditures for at least the next 12 months. We continue to explore other options to further expand our liquidity to support the business growth and enhance shareholder value.

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.

Liquidity Position

The following table summarizes total current assets, current liabilities, and working capital at December 31, 2024 compared to December 31, 2023:

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

Cash Flows

The following table summarizes cash flow for the years ended December 31, 2024 and 2023:

Cash flows provided by operating activities. Net cash provided by operating activities was $48.0 million for the year ended December 31, 2024, primarily the result of net income of $30.8 million, adjusted for certain non-cash items totaling $21.2 million, consisting mainly of depreciation and amortization of fixed and operating right-of-use assets, stock-based compensation, impairment of operating right-of-use asset, write-off of inventory, loss, net, on disposal of machinery and equipment, adjustments to the allowance for doubtful accounts and inventory reserve, deferred income taxes, and

42

government grant income. In addition, cash decreased $4.1 million primarily as a result of changes in working capital, which included a decrease of $6.7 million from a reduction in operating lease liabilities, a decrease of $2.4 million from a reduction in accounts payable and related party payable, and a decrease of $0.9 million from increased inventory purchases, partially offset by an increase of $2.8 million from a reduction in prepaid expenses and other current assets due to tax prepayments as of December 31, 2023 being applied in 2024, an increase of $3.0 million from increases in accrued expenses, and an increase of $0.6 million from a reduction in accounts receivable.

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

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

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

Related Party Transactions

For a description of significant related party transactions, see Note 16 — Related Party Transactions in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements is contained in Note 2 — Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes to the consolidated financial statements. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors including, but not limited to, those discussed in Part I, Item 1A. “Risk Factors.” and elsewhere in this Annual Report on Form 10-K. See “Forward Looking Statements” above for further explanation.

Due to rounding, numbers presented throughout this report may not add up precisely to totals we provide and percentages may not precisely reflect the absolute figures.

Overview

We are a rapidly-growing specialty distributor and select manufacturer of disposable foodservice products and related items. We are a nimble supplier of a wide range of products for the foodservice industry, including food and take-out containers, bags, tableware, cups, lids, cutlery, straws, specialty beverage ingredients, equipment, gloves and other products. Our products are available in plastic, paper, biopolymer-based and other compostable forms. Our Karat Earth® line provides environmentally friendly options to our customers, who are increasingly focused on sustainability. We offer customized solutions to our customers, including new product development, design, printing 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 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 even during global supply chain disruptions. This model provides us with the flexibility to adjust the mix of our product offering from import and manufacturing in evolving economic environment to drive operating efficiency and sustained margin expansion.

We operate an approximately 500,000 square foot distribution center located in Rockwall, Texas, an approximately 300,000 square foot distribution center in Chino, California, and an approximately 76,000 square foot distribution center located in Kapolei, Hawaii. We have selected manufacturing capabilities in all of these facilities. In addition, we operate eight other warehouse spaces and distribution centers located in Puyallup, Washington; Summerville, South Carolina; Branchburg, New Jersey; Kapolei, Hawaii; City of Industry, California; Aurora, Illinois; and Sugar Land, Texas. Our distribution centers are strategically located in proximity to major population centers, including the Los Angeles, New York, Chicago, Dallas, Houston, Seattle, Atlanta and Honolulu metro areas.

We manage and evaluate our operations in one reportable segment.

2023 Business Highlights and Trends

•During the year ended December 31, 2023, we invested in the significant expansion of our distribution capabilities through opening new warehouses and racking up additional areas in our existing warehouses.

•We enhanced our sales force in 2023 through the addition of new team members and promotion of our inaugural Chief Revenue Officer.

•During the year ended December 31, 2023, we executed a strategy to pivot into a more asset-light model by increasing imports and scaling back manufacturing in certain locations in light of dropping ocean freight rates coupled with rising domestic labor and operating costs, resulting in strong margin expansion and cash flows.

•We recorded revenues of $405.7 million for the year ended December 31, 2023, a decrease of 4.1% compared to 2022 in revenue amount and an increase of 3.7% in volume.

•We achieved a record gross margin of 37.7% for the year ended December 31, 2023, a 650-basis-point increase from the year ended December 31, 2022.

•We recorded net income of $33.2 million for the year ended December 31, 2023, an increase of 28.4% compared to the year ended December 31, 2022.

•We achieved a record net income margin of 8.2% for the year ended December 31, 2023 compared to 6.1% for the year ended December 31, 2022.

33

•We generated record net cash provided by operating activities of $53.4 million for the year ended December 31, 2023, an increase of 81.1% compared to prior year.

•We generated consolidated Adjusted EBITDA, a non-GAAP measure defined below, of $59.1 million for the year ended December 31, 2023, a 29.4% increase from the year ended December 31, 2022.

•Our Adjusted EBITDA margin, a non-GAAP measure defined below, expanded to a company record of 14.6% for the year ended December 31, 2023, an increase of 380 basis points from the year ended December 31, 2022.

•We had financial liquidity of $59.3 million and additional short-term investments of $26.3 million as of December 31, 2023.

•During the second quarter of 2023, we closed the sale of our equity interest in Bio Earth and received total consideration of $6.1 million, which comprised of our original deposits plus accrued interest.

•On August 7, 2023, our Board of Directors approved our inaugural regular quarterly cash dividend. During the year ended December 31, 2023, we returned a total of $20.9 million to our shareholders in the form of special and regular cash dividend.

•On September 12, 2023, we increased our public float by completing a secondary public offering of 1.2 million shares of our common stock.

Trends in Our Business

The following trends have contributed to the results of our operations, and we anticipate that they will continue to affect our future results:

•One of the most noticeable impacts of the COVID-19 pandemic was on the restaurant industry. The pandemic changed how customers view food delivery and take-out as compared to the traditional form of on-premise dining. There now appears to be a growing preference for the former and we believe this trend will continue to have a positive impact on our results of operations, as more of our customers will require packaging and containers to meet the demands of their increased food delivery and take-out dining consumers.

•Environmental concerns regarding disposable products, broadly, have resulted in a number of significant changes that are specific 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% of total sales during the year ended December 31, 2023 compared to 27% during the prior year.

•Most of our products are sourced from vendors abroad and as a result we incur freight costs from these overseas import shipments, which could be a significant component of our cost of goods sold. Elevated ocean freight rates could pressure our gross margin, and if we raise our price, dampen the demand for our products. Steady or dropping ocean freight could yield significant opportunities for us to expand our margin. However, it could also reduce the barrier of entry, intensifying the competition.

•U.S. foreign trade policy continues to evolve, such as the imposition of tariffs on a number of imported food-service disposable products, including those imported from China and other countries. We believe this trend will have either a positive or a negative impact on our results of operations, depending on whether we are able to source our raw materials or manufactured products from countries where tariffs have not been imposed by the current U.S. administration and whether the previously imposed tariffs are removed.

•The cost of raw materials used to manufacture our products, including polyethylene terephthalate, or PET, plastic resin, aluminum and paper boards may continue to fluctuate. Since negotiated sales contracts and the market largely determine the pricing for our products, we are, at times, limited in our ability to raise prices and pass through any impacts of inflation to our costs. There can also be lags between cost inflation and the implementation of price increases, which could negatively impact our gross margin. 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 increases to offset the impacts of inflation.

•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 of raw materials and products, and the effective management of our inventory, production and distribution.

34

•Fluctuations in foreign currency exchange rates could impact either positively or negatively various aspects of our business activities, including but not limited to our purchasing power and capacity to source inventory.

•Beginning the first quarter of 2023, we began to execute a strategic business decision to pivot into a more asset-light growth model by increasing import and scaling back manufacturing in certain locations. We believe this will have either a positive or a negative impact on our results of operations, depending on whether we can successfully source and import finished goods at a price that is more favorable than domestically manufacturer products, and effectively realize savings from reduced manufacturing capabilities.

Critical Accounting Estimates

The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, management evaluates those estimates. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting estimates are those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant. We believe the following critical accounting estimates and policies have the most significant impact on our consolidated financial statements:

Allowance for Doubtful Accounts

The Company recognizes an allowance for doubtful accounts on accounts receivable in an amount equal to the estimated probable losses net of recoveries. The allowance is based on an analysis of historical bad debt write-offs, current past due customers in the aging, risk profiles associated with different customer types, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. While such losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates we have in the past. A significant change in the liquidity or financial position of our customers could cause unfavorable trends in receivable collections and additional allowances may be required. These additional allowances could materially affect our future financial results. As of December 31, 2023, and 2022, we had a total allowance for doubtful accounts of $0.4 million and $1.3 million, respectively.

Inventory Reserve

The Company maintains a reserve for excess and obsolete inventory and carries its inventory at net realizable value, taking into account various factors including historic usage, expected demand, anticipated sales price, and product expiration and obsolescence. While such losses have historically been within our expectations and the provisions established, we cannot guarantee that the future trend will be similar to what we have experienced in the past. A significant change in demand or selling prices could result in additional reserve and materially affect our future financial results. We had an inventory reserve of $0.4 million and $0.7 million as of December 31, 2023, and 2022, respectively.

Stock-Based Compensation

Stock-based compensation expense related to employee stock options is accounted for in accordance with Accounting Standard Codification ("ASC") 718, Compensation — Stock Compensation. This standard requires the Company to record compensation expense equal to the fair value of awards granted to employees and non-employees. The fair value of restricted stock unit awards is determined based on the closing price of our common stock on the trading day immediately prior to the grant date. The fair value of stock options is estimated on the grant-date using the Black-Scholes option pricing model. Key input assumptions used in the Black-Scholes option pricing model to estimate the grant date fair value of stock options include the fair value of the Company’s common stock, the expected option term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate, and the Company’s expected annual dividend yield.

The risk-free interest rate assumption for options granted under the Plan, as defined in Note 13 — Stock-Based Compensation in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, is based upon observed interest rates on the United States government securities appropriate for the expected term of the stock options.

35

The expected term of employee stock options under the Plan represents the weighted-average period that the stock options are expected to remain outstanding. The expected term of options granted is calculated based on the “simplified method,” which estimates the expected term based on the average of the vesting period and contractual term of the stock option.

We determine the expected volatility assumption using the frequency of daily historical prices of comparable public company’s common stock for a period equal to the expected term of the options.

The dividend yield assumption for options granted under the Plan is based on the Company’s history and expectation of dividend payouts.

We review the underlying assumptions related to stock-based compensation at least annually or more frequently if we believe triggering events exist. If facts and circumstances change and we employ different assumptions in future periods, the compensation expense recorded may differ materially from the amount recorded in the current period. Stock-based compensation expense for the years ended December 31, 2023 and 2022 was $0.8 million, and $2.0 million, respectively.

Results of Operations

Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

Net sales

Net sales were $405.7 million for the year ended December 31, 2023 compared to $423.0 million for the year ended December 31, 2022, a decrease of $17.3 million, or 4.1%. This decrease is primarily made up of $33.3 million from unfavorable year-over-year pricing comparison, as we actively passed on savings from ocean freight and raw material costs to customers, and a $6.9 million reduction in logistic services and shipping revenue. Such decreases were partially offset by an increase of $16.4 million in volume and change in product mix, and an increase of $6.4 million due to the adjustment of online sales platform fees into operating expense for the year ended December 31, 2023.

Cost of goods sold

Cost of goods sold was $252.6 million for the year ended December 31, 2023 compared to $290.9 million for the year ended December 31, 2022, a decrease of $38.3 million, or 13.2%. Ocean freight and import duty costs decreased $31.0 million. This was primarily driven by a significant decrease in ocean freight rate partially offset by an increase in import duty charges, as 2023 included an estimated additional anti-dumping and countervailing duty charge of $3.9 million related to a U.S. Customs and Border Protection investigation on certain products imported during 2022 to 2023. See Note 20 - Commitments and Contingencies for further discussion on the matter. Product costs decreased $11.1 million as a result of lower sales in the current period, reduced vendor pricing on certain raw materials and finished goods, and a favorable foreign currency exchange rate impact from the strengthening of the United States Dollar against Taiwan New Dollar. Such decreases were partially offset by an adjustment of $3.9 million of certain production expenses from operating expenses into cost of goods sold for year ended December 31, 2023, and an increase of $0.4 million in inventory adjustments. During the year ended December 31, 2023, we recorded $3.9 million in inventory adjustments, out of which $1.7 million related to the write-off of raw materials as we disposed of certain machinery and equipment in executing the plan to scale back production in the U.S. During the year ended December 31, 2022, we recorded $3.5 million in inventory adjustments, out of which $0.9 million related to an out-of-period write-off of certain inventory items to correct immaterial errors in the quarterly and annual financial statements previously issued.

36

Gross profit

Gross profit was $153.0 million for the year ended December 31, 2023 compared to $132.1 million for the year ended December 31, 2022, an increase of $21.0 million, or 15.9%. Gross margin was 37.7% for the year ended December 31, 2023 compared to 31.2% for the year ended December 31, 2022, an increase of 650 basis points. Gross margin for the year ended December 31, 2023 included a negative impact totaling 140 basis points from the $3.9 million additional import duty charge and the $1.7 million write-off of raw materials associated with the disposal of certain machinery, as well as a net favorable impact of 60 basis points from the adjustment of certain production expenses and online sales platform fees, as discussed above. During the year ended December 31, 2022, gross margin included a negative impact of 20 basis points from the $0.9 million out-of-period write-off of certain inventory items discussed above. The year-over-year margin expansion is largely due to a significant decrease in total ocean freight and import costs, which as a percentage of net sales was 7.5% during the year ended December 31, 2023, down from 14.5% during the year ended December 31, 2022. Additional margin expansion factors also included strong United States Dollar against Taiwan New Dollar, and our efforts to scale back manufacturing in the U.S. in favor of imports which carry higher margin and improve operating efficiencies.

Operating expenses

Operating expenses were $111.0 million for the year ended December 31, 2023 compared to $102.1 million for the year ended December 31, 2022, an increase of $8.9 million, or 8.7%. The increase in operating expenses was primarily attributable to an adjustment of $6.4 million of online sales platform fees discussed above, an increase of $4.6 million in labor costs from the workforce expansion as we increased warehouse headcount to handle the larger volume of imports, an increase of $2.9 million in rent, warehouse, and utilities expense from our expanded distribution footprint, an increase of $2.4 million in marketing expense primarily to grow our e-commerce sales, an increase of $2.6 million in impairment expense and loss, net, primarily related to disposal of machinery as we scaled back production, and a write-off of $1.1 million in vendor prepayment upon the resolution of a legal contingency. These increases were partially offset by a decrease of $4.3 million in shipping and transportation costs due to lower shipping rates, a decrease of $1.3 million in in stock-based compensation expense, a decrease of $1.0 million in bad debt expense, and an adjustment of $3.9 million of certain production expenses from operating expenses into cost of goods sold for the year ended December 31, 2023 as discussed above.

Operating income

Operating income was $42.1 million for the year ended December 31, 2023 compared to $30.0 million for the year ended December 31, 2022, an increase of $12.1 million, or 40.2%. The increase was primarily due to an increase in gross profit of $21.0 million partially offset by an increase in operating expenses of $8.9 million, as discussed above.

Other income, net

Other income, net was $0.9 million for the year ended December 31, 2023 compared to $2.5 million for the year ended December 31, 2022. The decrease of $1.6 million was primary due to a decrease in the gain on foreign currency transactions of $1.5 million and a decrease in interest income of $0.4 million. Interest income was $1.8 million during the year ended December 31, 2023, which was primarily earned on cash, cash equivalents, and short-term investments. Interest income was $2.2 million during the year ended December 31, 2022, which was primarily associated with a gain on interest rate swap. Such decreases were partially offset by an increase in other income of $0.2 million.

Provision for income taxes

Provision for income taxes was $9.8 million for the year ended December 31, 2023 compared to $6.7 million for the year ended December 31, 2022, an increase of $3.1 million, or 46.9%. The Company’s effective tax rate was 22.8% for the year ended December 31, 2023 compared to 20.5% for the year ended December 31, 2022. The year-over-year increase in effective tax rate is primarily due to the decrease in non-controlling interest, which is not subject to tax, and a decrease in research and development credit, as we scaled back production and the associated research and development activities.

Net income

Net income was $33.2 million for the year ended December 31, 2023 compared to $25.8 million for the year ended December 31, 2022, an increase of $7.3 million, or 28.4%. The increase was primarily driven by an increase in operating income of $12.1 million partially offset by a decrease in other income, net of $1.6 million and an increase in the provision for income taxes of approximately $3.1 million, as discussed above.

37

Non-GAAP Financial Measures

We use certain non-GAAP financial measures to assess our financial and operating performance that are not defined by, or calculated in accordance with US GAAP. A non-GAAP financial measure is defined as a numerical measure of a company’s financial performance that (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the comparable measure calculated and presented in accordance with U.S. GAAP in the Consolidated Statements of Income; or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable measure so calculated and presented.

Our primary non-GAAP financial measures are listed below and reflect how we evaluate our operating results.

Adjusted EBITDA and Adjusted EBITDA Margin

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) out-of-period adjustment, (vii) secondary offering transaction costs, (viii) write-off of certain inventory items outside the normal course of business, and (ix) impairment expense and loss, net, on disposal of machinery outside the normal course of business. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by net sales.

We present Adjusted EBITDA and Adjusted EBITDA margin as supplemental measures of our financial performance. Adjusted EBITDA and Adjusted EBITDA margin assist management in assessing our core operating performance. We also believe these measures provide investors with useful perspective on underlying business results and trends and facilitate a comparison of our performance from period to period.

Adjusted EBITDA and Adjusted EBITDA margin should not be considered in isolation or as alternatives to net income or cash flows from operating activities and net income margin or other measures determined in accordance with GAAP. Also, Adjusted EBITDA and Adjusted EBITDA margin are not necessarily comparable to similarly titled measures presented by other companies.

Set forth below is a reconciliation of net income to Adjusted EBITDA and net income margin to Adjusted EBITDA margin.

(1) The write-off of inventory and impairment expense and loss, net, on disposal of machinery represent costs incurred in connection with the scaling back of production in the U.S. As part of the execution of this strategy, certain machinery and equipment were disposed of or impaired, and raw materials associated with those machinery and equipment were written-off.

38

(2) Secondary offering transaction costs represent legal and professional fees incurred in connection with the completion of the secondary offering during the year ended December 31, 2023, which were directly related to the offering and were incremental to our normal operating expenses.

(3) The out-of-period adjustment represented an inventory write-off recorded during the year ended December 31, 2022, which management believes was not representative of our underlying operating performance. The adjustment was to correct immaterial errors in the accounting for certain inventory items in our previously issued quarterly and annual financial statements. The impact of the inventory write-off was an increase to cost of goods sold of $0.9 million for the year ended December 31, 2022.

Liquidity and Capital Resources

Sources and Uses of Funds

Our primary sources of liquidity are cash provided by operations, borrowings under our line of credit with the Hanmi Bank (the “Line of Credit”), and promissory notes. On an annual basis, we have typically generated positive cash flows from operations. Our ability to generate positive cash flow from operations in the future will be, at least in part, dependent on global economic conditions and our ability to navigate challenging macro environment at times.

As described in Note 8 — Line of Credit to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, the Line of Credit is available for working capital and general corporate purposes, and is secured by our assets. It consists of a $40.0 million revolving loan facility and a standby letter of credit sublimit. We are not required to pay a commitment (unused) fee on the undrawn portion of the Line of Credit and interest is payable monthly. On March 14, 2023, we amended the Line of Credit. Prior to March 14, 2023, interest accrued at the annual rate of prime less 0.25% with a minimum floor of 3.25%. The amendment on March 14, 2023, among other things, (1) extended the maturity date to March 14, 2025, and (2) revised the interest on any Line of Credit borrowings to an annual rate of one month term Secured Overnight Financing Rate ("SOFR") plus 2.50%, with a SOFR floor of 1.0%. On June 20, 2023, we amended the Line of Credit which increased the standby letter of credit sublimit from $2.0 million to $5.0 million. As of December 31, 2023, 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 10 — Long-Term Debt to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, on June 17, 2022, we entered into a $28.7 million term loan agreement which matures July 1, 2027 (the “2027 Term Loan”). The 2027 Term Loan had an initial balance of $20.7 million and an option to request for additional advances up to a maximum of $8.0 million through June 2023, which we exercised in March 2023. Interest accrues at a fixed rate of 4.375% per annum. Principal and interest payments of $0.1 million are due monthly throughout the term of the loan, with the remaining principal balance due at maturity. The 2027 Term Loan is collateralized by substantially all of Global Wells’ assets and is guaranteed by one of our stockholders. In accordance with the loan agreement, Global Wells is required to comply with certain financial covenants, including a minimum debt service coverage ratio. Proceeds from the 2027 Term Loan were used to pay down an existing term loan with the same lender, which was set to mature in May 2029 with interest accruing at prime rate less 0.25%, and had an outstanding balance of $20.6 million as of the repayment date.

Additionally, as of December 31, 2023, we have a $23.0 million term loan that matures September 30, 2026 (the “2026 Term Loan”). The 2026 Term Loan had an initial balance of $16.1 million and an option to request for additional advances up to a maximum of $6.9 million through September 2022, which we exercised in February 2022. Interest accrues at a fixed rate of 3.50% per annum. Principal and interest payments of $0.1 million are due monthly throughout the term of the loan, with the remaining principal balance due at maturity. The 2026 Term Loan is collateralized by substantially all of Global Wells’ assets and is guaranteed by Global Wells and one of our stockholders. In accordance with the loan agreement, Global Wells is required to comply with certain financial covenants, including a minimum debt service coverage ratio.

As of December 31, 2023, we were in compliance with the financial covenants under all of our loan agreements, and do not expect material uncertainties in our continued ability to be in compliance with all financial covenants through the remaining term of all of our loan agreements. As of December 31, 2023, we had no borrowing on the Line of Credit, $28.2 million in outstanding balance under the 2027 Term Loan, and $21.6 million in outstanding balance under the 2026 Term Loan.

39

As described in Note 4 — Joint Venture in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, we entered into a joint venture agreement (the "JV Agreement") in April 2022 to establish a new corporation, Bio Earth, to build a bagasse factory in Taiwan. Through March 31, 2023, we had made net payments totaling $6.0 million as stipulated in the JV Agreement. In May 2023, we entered into a share transfer agreement to sell all of our equity interest in Bio Earth to Keary Global. Concurrent with the share transfer agreement, the Company also entered into an agreement with Keary Global, Bio Earth and Happiness Moon Co., Ltd. (“Happiness Moon”) pursuant to which (i) Lollicup agreed to transfer all Bio Earth shares, as well as its rights and obligations under the JV Agreement to Keary Global, (ii) Happiness Moon and Bio Earth agree to foregoing and (iii) Bio Earth shall manage the regulatory and registration requirements related to the share transfer. As of the end of the second quarter of 2023, the share transfer to Keary Global had been completed and we received the full amount of the total consideration owed to us in connection with the sale of our equity interest in Bio Earth of $6.1 million, representing the original deposits totaling $6.0 million plus interest which accrued at 5% per annum.

During the year ended December 31, 2023, we initiated a regular quarterly dividend and paid out special and regular quarterly dividend totaling $20.9 million. During the year ended December 31, 2022, we paid out special dividend totaling $7.0 million. Additionally, as described in Note 22 — Subsequent Events in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, on February 7, 2024, our Board of Directors declared a quarterly dividend of $0.30 per share on our common stock, which was paid on February 29, 2024 to shareholders of record at the close of business on February 21, 2024.

As described in Note 16 — Impairment Expense and Loss (Gain), Net, on Disposal of Machinery to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, in February 2023, management started to pivot into a more asset-light growth model by increasing import and scaling back manufacturing in certain locations. As part of the execution of this strategy, management reached an agreement with two unrelated third-party vendors in Taiwan to sell them certain of our manufacturing machinery and equipment. We also cancelled certain equipment purchase commitments that we had previously paid deposits towards. As of December 31, 2023, we had received $0.5 million in deposit refunds and $2.1 million from sale of the machinery and equipment. We expect to receive approximately $0.4 million in additional net cash proceeds from sale of the various manufacturing equipment in the next 12 months.

We have certain contractual obligations, such as operating lease obligations and purchase obligations that require us to make periodic payments. At December 31, 2023, we had operating leases, primarily for manufacturing and distribution facilities, and purchase obligations primarily for machinery and equipment, expiring at various dates through 2031. As described further in Note 15 — Leases in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, we had a total of $21.5 million of operating lease liabilities as of the year ended December 31, 2023 with minimum lease payments ranging from approximately $2.0 million to $6.0 million on an annual basis over the next five years. We had purchase obligations of $0.5 million outstanding as of the December 31, 2023, all of which are due in 2024. Such purchase obligations are primarily related to the purchase of machinery and equipment. Other than these contractual obligations, our off-balance sheet arrangements primarily consists of letters of credits issued under our Line of Credit. As of December 31, 2023, we had $3.8 million of letters of credits issued and outstanding under our Line of Credit. Additionally, as discussed in Note 20 — Commitments and Contingencies to 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 related to its investigation to determine whether we have evaded the anti-dumping and countervailing duty on certain imported thermal paper products. Although we recorded an estimated additional import duty liability and cost of goods sold of $2.3 million as of December 31, 2023, the amount of the final payments could vary significantly from this estimate. We are currently in the process of evaluating the appeal options and determining the timing of the payments.

Our ongoing operations and growth strategy may require us to continue to make investments in our logistics and manufacturing infrastructure, e-commerce platform, talent, and technology capabilities. In addition, we may consider making strategic acquisitions and investments which could require significant liquidity. The rapidly changing macroeconomic and geopolitical dynamics created significant uncertainty in the global economy and capital markets, which could have long-lasting adverse effects beyond 2023. 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.

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

40

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.

Liquidity Position

The following table summarizes total current assets, liabilities and working capital at December 31, 2023 compared to December 31, 2022:

As of December 31, 2023, we had working capital of $110.5 million, compared with working capital of $84.5 million as of December 31, 2022, representing an increase of $26.0 million, or 30.7%. The improvement in working capital was driven by an increase of $31.1 million in current assets, partially offset by an increase of $5.1 million in current liabilities. The increase in current assets was primarily driven by an increase in cash and cash equivalents and short-term investments of $33.4 million, partially offset by a decrease in account receivable of $2.1 million and a decrease in prepaid expenses and other current assets of $0.4 million. The increase in current liabilities was primarily driven by an increase in other payable of $3.2 million due to reclassification of government grants from long-term to short-term, an increase in accounts payable and related party payable totaling $0.3 million, an increase in accrued expense of $1.6 million, and an increase in operating lease liability due within twelve months of $0.3 million, partially offset by a decrease in customer deposits of $0.3 million.

Cash Flows

The following table summarizes cash flow for the years ended December 31, 2023 and 2022:

Cash flows provided by operating activities. Net cash provided by operating activities was $53.4 million for the year ended December 31, 2023, primarily the result of net income of $33.2 million, adjusted for certain non-cash items totaling $22.0 million, consisting mainly of depreciation and amortization of fixed and operating right-of-use assets, write-off of inventory and vendor prepayment, loss, net, on disposal of machinery, stock-based compensation, impairment of deposits, deferred income taxes, and adjustments to the allowance for doubtful accounts and inventory reserve. In addition, cash decreased $1.8 million, primarily as a result of changes in working capital, which included a decrease of $4.6 million from a reduction in operating lease liabilities, an increase of $3.8 million in inventory to accommodate higher sales volume, and a decrease of $1.6 million in accrued expenses, partially offset by a decrease of $2.9 million in accounts receivable from decreased sales and improved cash collections, a decrease of $1.4 million in other assets, an increase of $1.1 million in accounts payable and related party payable, and an increase of $0.6 million in other liabilities.

Net cash provided by operating activities was $29.5 million for the year ended December 31, 2022, primarily the result of net income of $25.8 million, adjusted for certain non-cash items totaling $18.6 million, consisting mainly of depreciation and amortization, stock-based compensation, adjustments to accounts receivable and inventory reserves, changes in fair value of interest rate swap, deferred income taxes and asset impairment. In addition, cash decreased $15.0 million, primarily as a result of changes in working capital, which included an increase of $16.2 million to accommodate higher sales volume, an increase of $1.5 million in prepaid expenses and other current assets, and a decrease of $3.8 million in

41

operating lease liability, partially offset by a decrease of $1.9 million in accounts receivable due to changes in the timing of collections, an increase of $3.0 million in accounts payable and related party payable, and an increase of $1.6 million in accrued expenses.

Cash flows used in investing activities. Net cash used in investing activities was $30.2 million for the year ended December 31, 2023, which primarily included $49.2 million in purchases of short-term investments, $6.3 million in deposits made towards the purchase of property and equipment, and $2.8 million paid to directly acquire property and equipment, partially offset by $23.0 million in redemptions of short-term investments, $4.0 million of net refund from the joint venture investment, $0.8 million of proceeds from the sale of machinery and equipment, and $0.5 million of deposits refunded from cancelled machinery orders. Net cash used in investing activities was $17.8 million for year ended December 31, 2022, which primarily included $12.1 million of deposits paid for additional property and equipment, $4.0 million of net investment pursuant to the JV Agreement, $2.7 million paid to purchase property and equipment, partially offset by $0.8 million received from the settlement of the interest rate swap.

Cash flows used in financing activities. Net cash used in financing activities was $16.2 million for the year ended December 31, 2023, which primarily included $20.9 million of dividend payments to shareholders, $2.3 million of distributions from our variable interest entity to shareholders, and $1.0 million of payments made towards the term loans, partially offset by $8.0 million of additional borrowings under the 2027 Term Loan. Net cash used in financing activities was $2.1 million for the year ended December 31, 2022 which primarily which primarily included $21.6 million of payments made towards the term loans, $21.1 million of payments on the Line of Credit, and $7.0 million of dividend payments to shareholders, partially offset by $21.1 million of borrowings under the Line of Credit, additional borrowing under the 2026 Term Loan of $6.9 million, and borrowings under the 2027 Term Loan of $20.6 million.

Related Party Transactions

For a description of significant related party transactions, see Note 17 — Related Party Transactions in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements is contained in Note 2 — Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes to the consolidated financial statements. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors including, but not limited to, those discussed in Part I, Item 1A. “Risk Factors.” and elsewhere in this Annual Report on Form 10-K. See “Forward Looking Statements” above for further explanation.

Overview

We are a rapidly-growing specialty distributor and select manufacturer of environmentally-friendly disposable foodservice products and related items. We are a nimble supplier of a wide range of products for the foodservice industry, including food and take-out containers, bags, tableware, cups, lids, cutlery, straws, specialty beverage ingredients, equipment, gloves and other products. Our products are available in plastic, paper, biopolymer-based and other compostable forms. Our Karat Earth® line provides environmentally friendly options to our customers, who are increasingly focused on sustainability. We offer customized solutions to our customers, including new product development, design, printing and logistics services.

While a majority of our revenue is generated from the distribution of our vendors’ products, we have select manufacturing capabilities in the U.S., which allows us to provide customers broad product choices and customized offerings with short lead times. 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 our ability to source products quickly on a cost-effective basis via a diversified global supplier network, complemented by our manufacturing capabilities for select products, has established us as a differentiated provider of high-quality products relative to our competitors and supported a superior margin profile.

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 five other distribution centers located in Sumner, Washington; Summerville, South Carolina; Branchburg, New Jersey; Kapolei, Hawaii; and City of Industry, California. Our distribution centers are strategically located in proximity to major population centers, including the Los Angeles, Dallas, New York, Seattle, Atlanta and Honolulu metro areas.

We manage and evaluate our operations in one reportable segment.

2022 Business Highlights and Trends

•We recorded revenues of $423.0 million for the year ended December 31, 2022, which represents an increase of 16.1% compared to 2021.

•We continued to drive significant margin expansion, achieving a record gross margin of 31.2% for the year ended December 31, 2022 despite a $3.5 million writeoff of certain inventory items, out of which $0.9 million was determined to be out-of-period. The impact from the out-of-period adjustment was a decrease of gross margin of 20 basis points. The gross margin achieved in 2022 represented an increase of 160 basis points from the year ended December 31, 2021, and an increase of 100 basis points from the year ended December 31, 2020 when gross margin was boosted by significant sales from higher-margin personal protective equipment (PPE) products.

•We recorded net income of $25.8 million for the year ended December 31, 2022, which represents an increase of 15.1% compared to 2021.

•We generated record net cash provided by operating activities of $29.5 million for the year ended December 31, 2022.

•During the year ended December 31, 2022, we refinanced our $21.6 million variable interest rate term loan with a new fixed interest term loan ahead of multiple interest rate hikes in the United States. The original loan was set to mature in May 2029 with a variable interest rate of prime less 0.25%. Our new $28.7 million term loan matures in July 2027 with interest accruing at a fixed rate of 4.375%.

•We had financial liquidity of $63.0 million as of December 31, 2022, and declared and paid a special cash dividend of $0.35 per share on our common stock in November 2022.

30

•We generated consolidated Adjusted EBITDA, a non-GAAP measure defined below, of $45.6 million for the year ended December 31, 2022, representing an increase of $8.6 million, or 23.2% compared the year ended December 31, 2021.

•During the year ended December 31, 2022, we further invested in the enhancement of our distribution infrastructure, adding two distribution centers in the City of Industry, California and Kapolei, Hawaii.

•During the year ended December 31, 2022, we continued our efforts and commitment to sustainability by investing, under a joint venture agreement, $4.0 million into establishing Bio Earth, a new Taiwanese corporation for the manufacturing of compostable foodservice products from bagasse. As of December 31, 2022, the incorporation and registration of Bio Earth had not been completed.

Trends in Our Business

The following trends have contributed to the results of our operations, and we anticipate that they will continue to affect our future results:

•There is a growing trend towards at home dining and mobility-oriented e-commerce, food delivery and take-out dining. We believe this trend will have a positive impact on our results of operations, as more of our customers will require packaging and containers to meet the demands of their increased food delivery and take-out dining consumers.

•Environmental concerns regarding disposable products, broadly, have resulted in a number of significant changes that are specific 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.

•Most of our products are sourced from vendors abroad and as a result we incur freight costs from these overseas import shipments. We believe fluctuations in freight cost can have either a positive or a negative impact on our results of operations, depending on whether such freight costs increase or decrease.

•U.S. foreign trade policy continues to evolve, such as the imposition of tariffs on a number of imported food-service disposable products, including those imported from China and other countries. We believe this trend will have either a positive or a negative impact on our results of operations, depending on whether we are able to source our raw materials or manufactured products from countries where tariffs have not been imposed by the current U.S. administration and whether the previously imposed tariffs are removed.

•The cost of raw materials used to manufacture our products, including polyethylene terephthalate, or PET, plastic resin, aluminum and paper boards may continue to fluctuate. Since negotiated sales contracts and the market largely determine the pricing for our products, we are, at times, limited in our ability to raise prices and pass through any impacts of inflation to our costs. There can also be lags between cost inflation and the implementation of price increases, which could negatively impact our gross margin. 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 increases to offset the impacts of inflation.

•Supplier chain disruptions 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 navigate the challenging environment and adjust our operating models effectively, including the accurate forecast of demand, the successful procurement of raw materials and products and the effective management of our inventory, production and distribution.

•Fluctuations in foreign currency exchange rates could impact either positively or negatively various aspects of our business activities, including but not limited to our purchasing power and capacity to source inventory.

Critical Accounting Estimates

The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, management evaluates those estimates. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions.

31

Critical accounting estimates are those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant. We believe the following critical accounting estimates and policies have the most significant impact on our consolidated financial statements:

Allowance for Doubtful Accounts

The Company recognizes an allowance for bad debt on accounts receivable in an amount equal to the estimated probable losses net of recoveries. The allowance is based on an analysis of historical bad debt write-offs, current past due customers in the aging, risk profiles associated with different customer types, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. While such losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates we have in the past. A significant change in the liquidity or financial position of our customers could cause unfavorable trends in receivable collections and additional allowances may be required. These additional allowances could materially affect our future financial results. As of December 31, 2022, and 2021, we had a total allowance for doubtful accounts of $1.3 million and $0.3 million, respectively.

Inventory Reserve

The Company maintains a reserve for excess and obsolete inventory and carries its inventory at net realizable value, taking into account various factors including historic usage, expected demand, anticipated sales price, and product obsolescence. While such losses have historically been within our expectations and the provisions established, we cannot guarantee that the future trend will be similar to what we have experienced in the past. A significant change in the demand or sales price could result in additional reserve and materially affect our future financial results. We had an inventory reserve of $0.7 million as of both December 31, 2022, and 2021.

Stock-Based Compensation

Stock-based compensation expense related to employee stock options is accounted for in accordance with Accounting Standard Codification ("ASC") 718, Compensation — Stock Compensation. This standard requires the Company to record compensation expense equal to the fair value of awards granted to employees and non-employees. The fair value of restricted stock unit awards is determined based on the closing price of our common stock on the trading day immediately prior to the grant date. The fair value of stock options is estimated on the grant-date using the Black-Scholes option pricing model. Key input assumptions used in the Black-Scholes option pricing model to estimate the grant date fair value of stock options include the fair value of the Company’s common stock, the expected option term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate, and the Company’s expected annual dividend yield.

The risk-free interest rate assumption for options granted under the Plan, as defined in Note 12 — Stock-Based Compensation in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, is based upon observed interest rates on the United States government securities appropriate for the expected term of the stock options.

The expected term of employee stock options under the Plan represents the weighted-average period that the stock options are expected to remain outstanding. The expected term of options granted is calculated based on the “simplified method,” which estimates the expected term based on the average of the vesting period and contractual term of the stock option.

We determine the expected volatility assumption using the frequency of daily historical prices of comparable public company’s common stock for a period equal to the expected term of the options.

The dividend yield assumption for options granted under the Plan is based on the Company’s history and expectation of dividend payouts.

We review the underlying assumptions related to stock-based compensation at least annually or more frequently if we believe triggering events exist. If facts and circumstances change and we employ different assumptions in future periods, the compensation expense recorded may differ materially from the amount recorded in the current period. Stock-based compensation expense for both the years ended December 31, 2022 and 2021 was $2.0 million.

32

Results of Operations

Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021

Net sales

Net sales were $423.0 million for the year ended December 31, 2022 compared to $364.2 million for the year ended December 31, 2021, an increase of $58.7 million, or 16%. The increase was attributable to an increase of $48.3 million in net sales to our existing customers and incremental net sales of $10.4 million from more than 15,000 new customers acquired during the year ended December 31, 2022. Of the total net sales increase of $58.7 million compared to the prior year, $43.7 million was attributable to favorable pricing primarily during the first half of the current year, $13.3 million was related to increase in volume and change in product mix, and $1.7 million was due to higher logistic services and shipping revenue.

Cost of goods sold

Cost of goods sold was $290.9 million for the year ended December 31, 2022 compared to $256.4 million for the year ended December 31, 2021, an increase of $34.5 million, or 13%. The increase was primarily due to an increase of $19.4 million in freight and duty costs to acquire inventory from overseas as ocean freight rates remained elevated for the majority of 2022, and an increase of $11.6 million in product costs driven by the general increase in raw materials and labor costs. Additionally, cost of goods sold for the year ended December 31, 2022 included a $3.5 million writeoff of certain inventory items, out of which $0.9 million was determined to be out-of-period and was recorded to correct immaterial errors in the quarterly and annual financial statements previously issued. These increases were partially offset by efficiencies and productivity improvements realized and the favorable foreign currency exchange rate impact from the strengthening of the United States Dollar against Taiwan New Dollar.

Gross profit

Gross profit was $132.1 million for the year ended December 31, 2022 compared to 107.8 million for the year ended December 31, 2021, an increase of $24.3 million, or 22%. Gross margin was 31.2% for the year ended December 31, 2022 compared to 29.6% for the year ended December 31, 2021. Despite higher freight and duty costs and the unfavorable impact from the out-of-period inventory write-off, the gross margin increased primarily due to margin expanding factors including a shift to higher margin items such as eco-friendly products, price increases implemented during the first half of the current year to partially offset higher ocean freight, product and labor costs, favorable foreign currency exchange rate from the strengthening of the United States Dollar against Taiwan New Dollar and improved operating efficiencies and productivity improvements.

Operating expenses

Operating expenses were $102.1 million for the year ended December 31, 2022 compared to $84.7 million for the year ended December 31, 2021, an increase of $17.4 million, or 21%. The increase was primarily due to an increase of $6.0 million in payroll-related costs due to workforce expansion, an increase of $5.4 million in shipping and transportation costs to transfer inventory between our warehouses and to deliver products to our customers amidst rising fuel prices, an increase of $2.4 million in rental expense primarily due to additional properties leased, an increase of $2.1 million in production expense resulting from higher repair and maintenance costs incurred, an increase of $0.6 million in bad debt

33

expense associated with higher sales, and an impairment of deposit of $0.5 million due to management's decision to abandon a capital expenditure project, partially offset by a decrease of $0.6 million in professional services expense.

Operating income

Operating income was $30.0 million for the year ended December 31, 2022 compared to $23.1 million for the year ended December 31, 2021, an increase of $6.9 million, or 30%. The increase was primarily due to an increase in gross profit of $24.3 million partially offset by an increase in operating expenses of $17.4 million, as discussed above.

Other income, net

Other income, net was $2.5 million for the year ended December 31, 2022 compared to $4.4 million for the year ended December 31, 2021, a decrease of $1.9 million, or 43%. The $2.5 million other income for the year ended December 31, 2022 consisted primarily of interest income of $2.2 million from the gain associated with the interest rate swap, a gain on foreign currency transactions of $1.6 million, and rental income of $0.9 million, partially offset by interest expense on the line of credit and term loans totaling $2.0 million. The $4.4 million other income for the year ended December 31, 2021 consisted primarily of gain on forgiveness of debt of $5.0 million, interest income of $1.5 million due to the change in the fair value of the interest rate swap, and rental income of $0.9 million, partially offset by interest expense incurred primarily on the line of credit and term loans totaling $2.9 million.

Provision for income taxes

Provision for income taxes was $6.7 million for the year ended December 31, 2022 compared to $5.1 million for the year ended December 31, 2021, an increase of $1.6 million, or 31%. The Company’s effective tax rate was 20.5% for the year ended December 31, 2022 compared to 18.5% for the year ended December 31, 2021. The effective tax rate was lower for the year ended December 31, 2021, primarily due to the gain on forgiveness of debt of $5.0 million, which was a discrete item not presented for the year ended December 31, 2022.

Net income

Net income was $25.8 million for the year ended December 31, 2022 compared to $22.4 million for the year ended December 31, 2021, an increase of $3.4 million, or 15%. The increase was primarily driven by an increase in operating income of $6.9 million partially offset by a decrease in other income, net of $1.9 million and an increase in the provision for income taxes of approximately $1.6 million, as discussed above.

Non-GAAP Financial Measure

We use certain non-GAAP financial measures to assess our financial and operating performance that are not defined by, or calculated in accordance with US GAAP. A non-GAAP financial measure is defined as a numerical measure of a company’s financial performance that (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the comparable measure calculated and presented in accordance with U.S. GAAP in the Consolidated Statements of Income; or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable measure so calculated and presented.

Our primary non-GAAP financial measures are listed below and reflect how we evaluate our operating results.

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA is a financial measure is calculated as net income excluding (i) interest income, (ii) interest expense, (iii) provision for income taxes, (iv) depreciation and amortization, (v) IPO related expenses, (vi) stock-based compensation expense, (vii) gain on forgiveness of debt, and (viii) out-of-period adjustment. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by net sales.

We present Adjusted EBITDA and Adjusted EBITDA margin as supplemental measures of our financial performance. Adjusted EBITDA and Adjusted EBITDA margin assist management in assessing our core operating performance. We also believe these measures provide investors with useful perspective on underlying business results and trends and facilitate a comparison of our performance from period to period.

34

Adjusted EBITDA and Adjusted EBITDA margin should not be considered in isolation or as alternatives to net income or cash flows from operating activities and net income margin or other measures determined in accordance with GAAP. Also, Adjusted EBITDA and Adjusted EBITDA margin are not necessarily comparable to similarly titled measures presented by other companies.

Set forth below is a reconciliation of net income to Adjusted EBITDA and net income margin to Adjusted EBITDA margin.

(1) The out-of-period adjustment represented an inventory write-off recorded during the year ended December 31, 2022, which management believes was not representative of our underlying operating performance. The adjustment was to correct immaterial errors in the accounting for certain inventory items in our previously issued quarterly and annual financial statements. The impact of the inventory write-off was an increase to cost of goods sold of $0.9 million for the year ended December 31, 2022.

Liquidity and Capital Resources

Sources and Uses of Funds

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, and during the year ended December 31, 2021, net proceeds of our IPO offering totaling $67.6 million. On an annual basis, we have typically generated positive cash flows from operations. Our ability to generate positive cash flow from operations in the future will be, at least in part, dependent on global economic conditions and our ability to navigate challenging macro environment at times.

As described in Note 7 — Line of Credit to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, the Line of Credit is available for working capital and general corporate purposes, and is secured by our assets. It consists of a $40.0 million revolving loan facility and a standby letter of credit sublimit. We are not required to pay a commitment (unused) fee on the undrawn portion of the Line of Credit and interest is payable monthly. On October 6, 2021, we amended the Line of Credit. Prior to October 6, 2021, interest accrued at an annual rate of prime less 0.25% with a minimum floor of 3.75%, and the amount that could be borrowed was subject to a borrowing base that was calculated as a percentage of the accounts receivable and inventory balances measured monthly. Additionally, the Company was required to comply with certain financial covenants, including a minimum current ratio, minimum tangible net worth, minimum debt service coverage ratio, and minimum debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio. The amendment on October 6, 2021, among other things, (1) extended the maturity date to October 6, 2023, (2) revised the interest on any line of credit borrowings to an annual rate of prime less 0.25%, with a minimum floor of 3.25%, (3) removed the requirement for the maximum amount of borrowings to be subject to a borrowing base requirement that was calculated as a percentage of accounts receivable and inventory balances, (4) removed the minimum tangible net worth and minimum debt service coverage ratio from the financial covenant

35

requirement, and (5) added a minimum fixed charge coverage ratio in the financial covenant requirement. On August 18, 2022, we amended the Line of Credit again which increased the standby letter of credit sublimit to $2.0 million. As of December 31, 2022, the amount issued under the standby letter of credit was $1.1 million, and the maximum remaining amount that could be borrowed under the Line of Credit was $38.9 million. As described in Note 19 — Subsequent Events, on March 14, 2023, we amended the Line of Credit again, which 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%.

As described in Note 9 — Long-Term Debt 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 has 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 have not exercised as of December 31, 2022. Interest accrues at a fixed rate of 4.375% per annum. Principal and interest payments of $0.1 million are due monthly throughout the term of the loan, with the remaining principal balance due at maturity. The 2027 Term Loan is collateralized by substantially all of Global Wells’ assets and is guaranteed by one of our stockholders. In accordance with the loan agreement, Global Wells is required to comply with certain financial covenants, including a minimum debt service coverage ratio. Proceeds from the 2027 Term Loan were used to pay down an existing term loan with the same lender, which was set to mature in May 2029 with interest accruing at prime rate less 0.25%, and had an outstanding balance of $20.6 million as of the repayment date.

Additionally, as of December 31, 2022, we have a $23.0 million term loan that matures in September 30, 2026 (the “2026 Term Loan”). The 2026 Term Loan had an initial balance of $16.1 million and an option to request for additional advances up to a maximum of $6.9 million through September 2022, which we exercised in February 2022. Interest accrues at a fixed rate of 3.50% per annum. Principal and interest payments of $0.1 million are due monthly throughout the term of the loan, with the remaining principal balance due at maturity. The 2026 Term Loan is collateralized by substantially all of Global Wells’ assets and is guaranteed by Global Wells and one of our stockholders. In accordance with the loan agreement, Global Wells is required to comply with certain financial covenants, including a minimum debt service coverage ratio.

As of December 31, 2022, we were in compliance with the financial covenants under all of our loan agreements, and do not expect material uncertainties in our continued ability to be in compliance with all financial covenants through the remaining term of all of our loan agreements. As of December 31, 2022, we had $0.0 million in outstanding balance on the Line of Credit bearing an interest per annum of prime rate less 0.25% (7.25% as of December 31, 2022), $20.6 million in outstanding balance under the 2027 Term Loan, and $22.2 million in outstanding balance under the 2026 Term Loan.

Additionally, our board of directors declared a special cash dividend of $0.35 per common share, which was paid on November 30, 2022 totaling $7.0 million to shareholders of record at the close of business on November 21, 2022.

As described in Note 4 — Joint Venture in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, our joint venture agreement (the "JV Agreement") to establish a new corporation, Bio Earth, to build a factory in Taiwan requires significant investment. As of December 31, 2022, we made net payments totaling $4.0 million as stipulated in the JV Agreement and expect to make the remaining net investment payments totaling $2.5 million under the JV Agreement during the year ended December 31, 2023. As of December 31, 2022, the incorporation and registration of Bio Earth had not been completed.

In addition to the committed investment payments under the JV agreement to be made in 2023, we also have certain contractual obligations, such as operating lease obligations and purchase obligations. At December 31, 2022, we had operating leases, primarily for manufacturing and distribution facilities, and purchase obligations primarily for machinery and equipment and constructions in certain of our facilities, expiring at various dates through 2031. As described further in Note 14 — Leases in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, we had a total of $16.1 million of operating lease liabilities as of the year ended December 31, 2022 with minimum lease payments ranging from approximately $1.1 million to $5.2 million on an annual basis over the next five years. We had purchase obligations of $6.9 million outstanding as of the year ended December 31, 2022, all of which are due in 2023. Such purchase obligations are primarily related to the purchase of machinery and equipment. Other than these contractual obligations, our off-balance sheet arrangements primarily consists of letters of credits issued under our Line of Credit. As of December 31, 2022, we had $1.1 million of letters of credits issued and outstanding under our Line of Credit.

36

In February 2023, management committed to a plan to sell certain manufacturing equipment to an unrelated third-party vendor in Taiwan, as we started to pivot into a more asset-light growth model by increasing import and scaling back manufacturing in California. We expect to receive approximately $2.6 million in cash proceeds from the sale of the equipment in the next 12 to 24 months.

Our ongoing operations and growth strategy may require us to continue to make investments in our logistics and manufacturing infrastructure and our e-commerce platform. In addition, we may consider making strategic acquisitions and investments and increasing our investment in Bio Earth, which could require significant liquidity. The rapidly changing macroeconomic and geopolitical dynamics created significant uncertainty in the global economy and capital markets, which could have long-lasting adverse effects beyond 2022. 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 for capital expenditures to further enhance our operating infrastructure and e-commerce platform 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.

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 raise 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.

Liquidity Position

The following table summarizes total current assets, liabilities and working capital at December 31, 2022 compared to December 31, 2021:

As of December 31, 2022, we had working capital of $84.5 million compared to working capital of $72.1 million as of December 31, 2021, representing an increase of $12.4 million, or 17%. The improvement in working capital was driven by an increase of $20.9 million in current assets partially offset by an increase of $8.5 million in current liabilities. The increase in current assets was primarily driven by an increase in inventory of $12.7 million to support higher sales volume and an increase in cash and cash equivalents of $9.6 million mainly due to strong cash flows from operating activities. The increase in current liabilities was primarily driven by an increase in operating lease liability due within twelve months of $4.5 million, as we adopted ASU 2016-02 (Topic 842), “Leases” on January 1, 2022, and an increase in accounts payable and related party payable of $3.0 million.

For additional information on financing entered into subsequent to December 31, 2022, see Note 19 — Subsequent Events in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Cash Flows

The following table summarizes cash flow for the years ended December 31, 2022 and 2021:

37

Cash flows provided by operating activities. Net cash provided by operating activities was $29.5 million for the year ended December 31, 2022, primarily the result of net income of $25.8 million, adjusted for certain non-cash items totaling $18.6 million, consisting mainly of depreciation and amortization, stock-based compensation, adjustments to accounts receivable and inventory reserves, changes in fair value of interest rate swap, deferred income taxes and asset impairment. In addition, cash decreased $15.0 million, primarily as a result of changes in working capital, which included an increase of $16.2 million in inventory buildup to accommodate higher sales volume, an increase of $1.5 million in prepaid expenses and other current assets, and a decrease of $3.8 million in operating lease liability due within twelve months, partially offset by a decrease of $1.9 million in accounts receivable due to changes in the timing of collections, an increase of $3.0 million in accounts payable and related party payable, and an increase of $1.6 million in accrued expenses. Net cash provided by operating activities was $8.7 million for the year ended December 31, 2021, primarily the result of net income of $22.4 million, adjusted for certain non-cash items totaling $6.6 million, consisting mainly of depreciation and amortization, stock-based compensation, changes in fair value of interest rate swap, and gain on forgiveness of debt. In addition, cash decreased $20.3 million, primarily as a result of changes in working capital, which included an increase of $10.9 million in inventory buildup to accommodate higher sales volume, an increase of $8.9 million in account receivable due to changes in the timing of collections, a decrease of $4.6 million in accounts payable and related party payable, partially offset by a $1.4 million decrease in prepaid expenses and other current assets, and an increase of $2.9 million in accrued expenses.

Cash flows used in investing activities. Net cash used in investing activities was $17.8 million for year ended December 31, 2022, which primarily included $12.1 million of deposits paid for additional property and equipment, $4.0 million of net investment pursuant to the JV Agreement, $2.7 million paid to purchase property and equipment, partially offset by $0.8 million received from the settlement of the interest rate swap. Net cash used in investing activities was $13.3 million for year ended December 31, 2021, which included $8.2 million of deposits paid for additional property and equipment, $4.2 million paid to purchase property and equipment, and $0.9 million for our acquisition of Pacific Cup, Inc.

Cash flows (used in) provided by financing activities. Net cash used in financing activities was $2.1 million for the year ended December 31, 2022, which primarily included $21.6 million of payments made towards the term loans, $21.1 million of payments on the Line of Credit, and $7.0 million of dividend payments to shareholders, partially offset by $21.1 million of borrowings under the Line of Credit, and $27.5 million of borrowings under the term loans. Net cash provided by financing activities was $10.6 million for the year ended December 31, 2021 which primarily included $67.6 million of proceeds from the issuance of common stock in connection with our initial public offering, and $16.0 million of borrowings under the term loans, partially offset by $39.3 million of payments made towards the term loans, and $34.6 million of payments on the Line of Credit.

For additional information on financing entered into subsequent to December 31, 2022, see Note 19 — Subsequent Events in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Related Party Transactions

For a description of significant related party transactions, see Note 15 — Related Party Transactions in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements is contained in Note 2 — Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

38

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes to the consolidated financial statements. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors including, but not limited to, those discussed in Part I, Item 1A. “Risk Factors.” and elsewhere in this Annual Report on Form 10-K. See “Forward Looking Statements” above for further explanation.

Overview

We are a rapidly-growing specialty distributor and select manufacturer of environmentally-friendly disposable foodservice products and related items. We are a nimble supplier of a wide range of products for the foodservice industry, including food and take out containers, bags, tableware, cups, lids, cutlery, straws, specialty beverage ingredients, equipment, gloves and other products. Our products are available in plastic, paper, biopolymer-based and other compostable forms. Our Karat Earth® line provides environmentally friendly options to our customers, who are increasingly focused on sustainability. We offer customized solutions to our customers, including new product development, design, printing and logistics services. While a majority of our revenue is generated from the distribution of our vendors’ products, we have select manufacturing capabilities in the U.S., which allows us to provide customers broad product choices and customized offerings with short lead times. Our goal is to be the single-source provider to our customers for all of their disposable foodservice products and related needs.

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 four other distribution centers located in Sumner, Washington, Summerville, South Carolina, Branchburg, New Jersey and Kapolei, Hawaii. Our New Jersey location is an approximately 108,000 square foot facility that opened in July 2020 and was fully operational in June 2021. In October 2021, we moved into our new 63,000 square-foot facility in South Carolina. Our distribution centers are strategically located in proximity to major population centers, including the Los Angeles, Dallas, New York, Seattle, Atlanta and Honolulu metro areas.

We manage and evaluate our operations in one reportable segment.

2021 Business Highlights and Trends

•We recorded revenues of $364.2 million during 2021, which represents an increase of 23% compared to 2020, despite the decrease in net sales related to personal protective equipment (PPE) products from the peak of $38.1 million for the year ended December 31, 2020 to $2.7 million for the year ended December 31, 2021.

•We recorded net income of $22.4 million during 2021, which represents an increase of 35% compared to 2020, despite challenges posed by the commodity input cost inflation, supply chain disruption, and higher labor costs.

•We completed our initial public offering on April 15, 2021, and raised net proceeds of approximately $67.6 million.

•We acquired over 27,000 new customers, which consisted of customers through wholesale distribution and e-commerce direct-to-consumer channels.

•We added a new manufacturing and distribution facility in Hawaii through our acquisition of Pacific Cup Inc.

•We paid off all our existing debt and capital lease obligations, except for debt obligations that remain outstanding from our consolidated variable interest entity, Global Wells.

•We generated consolidated Adjusted EBITDA, a non-GAAP measure defined below, of $37.0 million for the year, representing an increase of 3% from 2020.

•We invested $12.4 million in our logistics and manufacturing infrastructure to enhance our operation efficiency and position the business for future growth.

27

Trends in Our Business

The following trends have contributed to the results of our operations, and we anticipate that they will continue to affect our future results:

•There is a growing trend towards at home dining and mobility-oriented e-commerce, food delivery and take-out dining. We believe this trend will have a positive impact on our results of operations, as more of our customers will require packaging and containers to meet the demands of their increased food delivery and take-out dining consumers.

•Environmental concerns regarding disposable products broadly have resulted in a number of significant changes that are specific to the food-service industry, including regulations applicable to our customers. We believe this trend will have a positive impact on our results of operations, as we expect there will be an increased demand for eco-friendly and compostable single-use disposable products.

•Changes in freight carrier costs related to the shipment of our products, especially relating to overseas shipments. We believe this trend can have either a positive or a negative impact on our results of operations, depending on whether such freight costs increase or decrease.

•U.S. foreign trade policy continues to evolve, such as the imposition of tariffs on a number of imported food-service disposable products, including those imported from China and other countries. We believe this trend will have either a positive or a negative impact on our results of operations, depending on whether we are able to source our raw materials or manufactured products from countries where tariffs have not been imposed by the current U.S. administration.

•The cost of the raw materials used to manufacture our products, in particular polyethylene terephthalate, or PET, plastic resin, will continue to fluctuate. We believe this trend will have either a positive or a negative impact on our results of operations, depending on whether PET plastic resin costs increase or decrease.

COVID-19 Update

Information regarding COVID-19 update is contained in Note 18 — COVID-19 Update in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Critical Accounting Estimates

The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, management evaluates those estimates. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting estimates are those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant. We believe the following critical accounting estimates and policies have the most significant impact on our consolidated financial statements:

Inventory Reserve

The Company maintains reserves for excess and obsolete inventory considering various factors including historic usage, expected demand, anticipated sales price, and product obsolescence. While such losses have historically been within our expectations and the provisions established, we cannot guarantee that the future trend will be similar to what we have experienced in the past. As of December 31, 2021 and 2020, we had an inventory reserve of $743,000 and $675,000, respectively. A significant change in the demand or sales price could result in additional reserve and materially affect our future financial results.

Allowance for Doubtful Accounts

The Company recognizes an allowance for bad debt on accounts receivable in an amount equal to the estimated probable losses net of recoveries. The allowance is based on an analysis of historical bad debt write-offs, current past due customers in the aging as well as an assessment of specific identifiable customer accounts considered at risk or

28

uncollectible. While such losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates we have in the past. As of both December 31, 2021 and 2020, we had an allowance for doubtful accounts of $250,000. A significant change in the liquidity or financial position of our customers could cause unfavorable trends in receivable collections and additional allowances may be required. These additional allowances could materially affect our future financial results.

Stock-Based Compensation

Stock-based compensation expense related to employee stock options is accounted for in accordance with ASC 718, Compensation — Stock Compensation. This standard requires the Company to record compensation expense equal to the fair value of awards granted to employees and non-employees. The fair value of restricted stock unit awards is determined based on the closing price of our common stock on the trading day immediately prior to the grant date. The fair value of stock options is estimated on the grant-date using the Black-Scholes option pricing model. Key input assumptions used in the Black-Scholes option pricing model to estimate the grant date fair value of stock options include the fair value of the Company’s common stock, the expected option term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate, and the Company’s expected annual dividend yield.

The risk-free interest rate assumption for options granted under the Plan, as defined in Note 12 - Stock Based Compensation in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, is based upon observed interest rates on the United States government securities appropriate for the expected term of the stock options.

The expected term of employee stock options under the Plan represents the weighted-average period that the stock options are expected to remain outstanding. The expected term of options granted is calculated based on the “simplified method,” which estimates the expected term based on the average of the vesting period and contractual term of the stock option. Our expected term of stock options is 6.25 years.

We determine the expected volatility assumption using the frequency of daily historical prices of comparable public company’s common stock for a period equal to the expected term of the options.

The dividend yield assumption for options granted under the Plan is based on the Company’s history and expectation of dividend payouts.

We review the underlying assumptions related to stock-based compensation at least annually or more frequently if we believe triggering events exist. If facts and circumstances change and we employ different assumptions in future periods, the compensation expense recorded may differ materially from the amount recorded in the current period. Stock-based compensation expense for the years ended December 31, 2021 and 2020 was $2,026,000 and $0, respectively.

Results of Operations

Year ended December 31, 2021 Compared to the Year ended December 31, 2020

Net sales

Net sales were $364.2 million for the year ended December 31, 2021 compared to $295.5 million for the year ended December 31, 2020, an increase of $68.7 million, or 23.3%. The increase in net sales was primarily driven by an increase of $55.2 million in net sales to our existing customers as we continue to grow wallet share with existing customers and an incremental net sales of $13.6 million from over 27,000 new customers in 2021. Out of the total net sales increase of $68.7

29

million compared to 2020, approximately $32.9 million was attributable to price increases due to the pass through of inflation, $12.6 million was incremental sales from new SKUs, $15.0 million was primarily associated with the sales volume increase and $8.2 million represented an increase in logistic services and shipping revenue. Net sales related to PPE products declined from the peak of $38.1 million for the year ended December 31, 2020 to $2.7 million for the year ended December 31, 2021.

Cost of goods sold

Cost of goods sold increased by $50.0 million, or 24.2% to $256.4 million for the year ended December 31, 2021 compared to $206.4 million for the year ended December 31, 2020. The increase in cost of goods sold was primarily due to an increase of $30.6 million in product costs driven by higher volumes and cost inflation and an increase of $24.1 million in freight and duty costs to acquire inventory from overseas primarily due to elevated ocean freight rates. These unfavorable factors were partially offset by efficiencies and productivity improvements realized.

Gross profit

Gross profit increased $18.7 million, or 21.0%, to $107.8 million for the year ended December 31, 2021 compared to $89.1 million for the year ended December 31, 2020. Gross margin was 29.6% for the year ended December 31, 2021 compared to 30.2% for the year ended December 31, 2020, a decrease of 0.6%. Freight and duty costs as a percentage of net sales increased from 6.8% in 2020 to 12.1% in 2021 primarily due to elevated ocean freight rates. This unfavorable impact on the gross margin was partially offset by higher gross profit margins driven by our direct-to-consumer sales through our online channel and several price increases that the Company implemented in 2021 to pass through the increased product costs.

Operating expenses

Operating expenses for the year ended December 31, 2021 were $84.7 million compared to $61.4 million for the year ended December 31, 2020, an increase of $23.3 million, or 37.9%. This was primarily driven by the following increases: (1) $12.0 million in shipping and transportation costs due to higher volume of products transferred and shipped to our customers combined with higher fuel costs, (2) $5.1 million in payroll-related costs due to workforce expansion, (3) $2.0 million in stock-based compensation expense, (4) $1.2 million in on-line marketing expense, and (5) $1.1 million in professional services fees.

Operating income

Operating income for the year ended December 31, 2021 was $23.1 million compared to $27.7 million for the year ended December 31, 2020, a decrease of $4.6 million, or 16.4%. The decrease was due to an increase in gross profit of $18.7 million offset by an increase in operating expenses of $23.3 million.

Other income (expense)

Other income for the year ended December 31, 2021 was $4.4 million, compared to an other expense of $5.8 million for the year ended December 31, 2020, an improvement of $10.2 million, or 176.0%. The improvement was driven by the gain on the PPP loan debt forgiveness of $5.0 million received in 2021 and a decrease in net interest expense of $4.1 million primarily due to the payoff of certain borrowings and the change in the fair value of the interest rate swap(s), which resulted in interest income of $1.5 million for the year ended December 31, 2021 and interest expense of $1.6 million for the year ended December 31, 2020.

Net income

Net income for the year ended December 31, 2021 was $22.4 million compared to $16.7 million for the year ended December 31, 2020, an increase of $5.8 million, or 34.6%. The increase was primarily driven by an increase in other income of $10.2 million partially offset by a decrease in operating income of $4.6 million, as discussed above. Provision for income taxes was $5.1 million and $5.3 million for the years ended December 31, 2021 and 2020, respectively. The Company’s effective tax rate for the years ended December 31, 2021 and 2020 was 18.5% and 24.0% respectively. The decrease in the effective tax rate was primarily driven by the impact from the PPP loan debt forgiveness of $5.0 million included in the effective tax rate for the year ended December 31, 2021 that was not present for the year ended December 31, 2020.

30

Non-GAAP Financial Measure

We use certain non-GAAP financial measures to assess our financial and operating performance that are not defined by, or calculated in accordance with GAAP. A non-GAAP financial measure is defined as a numerical measure of a company’s financial performance that (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the comparable measure calculated and presented in accordance with GAAP in the Consolidated Statements of Income; or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable measure so calculated and presented.

Our primary non-GAAP financial measures are listed below and reflect how we evaluate our operating results.

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA is a financial measure equal to net income excluding (i) interest expense, (ii) provision for income taxes, (iii) depreciation and amortization, (iv) IPO related expenses, (v) gain on forgiveness of debt, and (vi) stock-based compensation expense. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by revenue.

We present Adjusted EBITDA and adjusted EBITDA margin as supplemental measures of our financial performance. Adjusted EBITDA and adjusted EBITDA margin assist management in assessing our core operating performance. We also believe these measures provide investors with useful perspective on underlying business results and trends and facilitate a comparison of our performance from period to period.

Adjusted EBITDA and adjusted EBITDA margin should not be considered in isolation or as alternatives to net income or cash flows from operating activities and net income margin or other measures determined in accordance with GAAP. Also, Adjusted EBITDA and adjusted EBITDA margin are not necessarily comparable to similarly titled measures presented by other companies.

Set forth below is a reconciliation of net income to Adjusted EBITDA and net income margin to adjusted EBITDA margin.

Liquidity and Capital Resources

Sources and Uses of Funds

Our primary sources of liquidity is cash provided by operations, borrowings under our line of credit and promissory notes, and during the year ended December 31, 2021, proceeds of our IPO offering totaling $67.6 million. We have generated positive cash flow from operations for both of the years ended December 31, 2021 and 2020. As described in Note 6 — Line of Credit, pursuant to the terms of the Business Loan Agreement, dated February 23, 2018, between Lollicup, as borrower, and Hanmi Bank, as lender (as amended, the “Loan Agreement”), we have a line of credit with a

31

maximum borrowing capacity of $40.0 million (the “Line of Credit”). The Line of Credit also includes a standby letter of credit sublimit. The loan was secured by the our assets and guaranteed by our stockholders. 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 July 9, 2020, we amended the Line of Credit to extend the maturity date to May 23, 2022. On October 6, 2021, we amended the Loan Agreement again. Prior to October 6, 2021, interest accrued at an annual rate of prime less 0.25% with a minimum floor of 3.75%, and the amount that could be borrowed was subject to a borrowing base that was calculated as a percentage of the accounts receivable and inventory balances measured monthly. Additionally, the Company was required to comply with certain financial covenants, including a minimum current ratio, minimum tangible net worth, minimum debt service coverage ratio, and minimum debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio.

The amendment on October 6, 2021, among other things, (1) extended the maturity date to October 6, 2023, (2) revised the interest on any line of credit borrowings to an annual rate of prime less 0.25%, with a minimum floor of 3.25%, (3) removed the requirement for the maximum amount of borrowings to be subject to a borrowing base requirement that was calculated as a percentage of accounts receivable and inventory balances, (4) removed the minimum tangible net worth and minimum debt service coverage ratio from the financial covenant requirement, and (5) added a minimum fixed charge coverage ratio in the financial covenant requirement.

Additionally, as described in Note 8 — Long-term Debt, as of December 31, 2021, we have a $21,580,000 term loan that matures in May 2029 (the “2029 Term Loan”) and a $23,000,000 term loan that matures September 30, 2026 (the “2026 Term Loan”). The 2029 Term Loan provides for an annual interest at prime rate less 0.25% and principal payments ranging from $24,000 to $40,000 along with interest are due monthly throughout the term of the loan, with the remaining principal balance due at maturity. The loan is collateralized by substantially all of our and Global Well’s assets and is guaranteed by us and our stockholders. The 2026 Term Loan had an initial balance of $16,115,000 and an option to request for additional advances up to a maximum of $6,885,000 through September 2022, which we exercised in February 2022. Interest accrues at a fixed rate of 3.5%. Principal and interest payments of $116,000 are due monthly throughout the term of the loan, with the remaining principal balance due at maturity. The 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 December 31, 2021, we were in compliance with the financial covenants under all of our loan agreements, and do not expect material uncertainties in our continued ability to be in compliance with all financial covenants through the remaining term of all of our loan agreements. As of December 31, 2021, we had no balance outstanding on our Line of Credit, $20.8 million in outstanding balance under the 2029 Term Loan, and $15.9 million in outstanding balance under the 2026 Term Loan.

We also have certain contractual obligations, such as operating lease obligations and purchase obligations. At December 31, 2021, we had operating leases, primarily for manufacturing and distribution facilities, and purchase obligations primarily for machinery and equipment and constructions in certain of our facilities, expiring at various dates through 2024. As described further in Note 14 – Commitments and Contingencies in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, we had a total of $10.3 million of minimum operating lease obligations. These minimum lease payments range from approximately $0.4 million to $3.1 million on an annual basis over the next five years. At December 31, 2021, we had purchase obligations of $10.9 million outstanding, including $8.2 million and $1.8 million and $0.9 million expiring in 2022, 2023 and 2024, respectively. Such purchase obligations are primarily related to the purchase of machinery and equipment, as we continue to invest in our manufacturing and distribution capabilities. Other than these contractual obligations, our off-balance sheet arrangements primarily consists of letters of credits issued under our Line of Credit. As of December 31, 2021, no letters of credits were outstanding under our Line of Credit.

Our ongoing operations and growth strategy may require us to continue to make investments in our logistics and manufacturing infrastructure and our e-commerce platform. In addition, we may consider making strategic acquisitions and investments, which could require significant liquidity. The COVID-19 pandemic created significant uncertainty in the global economy and capital markets for a large part of 2021, and there could be lingering adverse effects into 2022 and beyond. 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 for capital expenditures to further enhance our manufacturing and logistics infrastructure and our e-commerce platform for at least the next 12 months.

32

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 our Line of Credit, and raise 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.

Liquidity Position

The following table summarizes total current assets, liabilities and working capital at December 31, 2021 compared to December 31, 2020:

As of December 31, 2021, we had a working capital of $72.1 million, as compared to working capital of $36.6 million at December 31, 2020, representing an increase in working capital of $35.5 million, or 96.8%. The improvement in working capital from December 31, 2020 was driven by (1) a decrease of $10.2 million in the current portion of long-term debt, as we paid down certain term loans with proceeds from our IPO, (2) a decrease in related party payable of $3.0 million primarily due to the timing of payments, (3) an increase of $8.9 million in accounts receivable primarily resulting from the year-over-year sales growth, (4) an increase of $9.5 million in inventory as a result of higher sales volume, and (5) an increase of $6.0 million in cash and cash equivalents.

For additional information on financing entered into subsequent to December 31, 2021, see Note 19 — Subsequent Events in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Cash Flows

The following table summarizes cash flow for the year ended December 31, 2021 and 2020:

Cash flows provided by operating activities. For the year ended December 31, 2021, net cash provided by operating activities was $8.7 million, primarily resulting from net income of $22.4 million, adjusted for certain non-cash items totaling $5.2 million, consisting of depreciation and amortization, changes in fair value of interest rate swaps, stock-based compensation, and gain on forgiveness of debt. In addition, cash decreased $18.9 million, primarily as a result of changes in working capital of 18.9 million including an increase in account receivable and inventory of $8.9 million and $9.4 million, respectively, a decrease in related party payable of $3.0 million, offset by an increase in accrued expenses of $2.9 million. For the year ended December 31, 2020, net cash provided by operating activities was $14.5 million, primarily result of net income of $16.7 million, adjusted for certain non-cash items totaling $14.5 million, consisting of depreciation and amortization, changes in fair value of interest rate swaps, and deferred income taxes, which was partially offset by cash decrease of $16.7 million due to changes in working capital, including an increase in account receivable, inventory, and prepaid expense of $2.9 million, $13.8 million, and $3.4 million, respectively, partially offset by a decrease in deposit of $2.4 million.

33

Cash flows used in investing activities. Net cash used in investing activities for the year ended December 31, 2021 was $13.3 million, which was driven by the purchase of equipment for our California and Texas facility totaling $9.4 million, cash paid of $0.9 million for our acquisition of Pacific Cup, Inc, and cash paid of $3.0 million for the purchase and improvement our new warehouse in South Carolina. Net cash used in investing activities for the year ended December 31, 2020 was $37.4 million, which was driven by the purchase of manufacturing equipment and construction of our New Jersey warehouse totaling $29.5 million and deposits paid for additional manufacturing equipment of $6.9 million.

Cash flows provided by financing activities. Net cash provided by financing activities for the year ended December 31, 2021 was $10.6 million. Cash provided by financing activities primarily consisted of net proceeds from issuance of common stock in connection with our initial public offering of $67.6 million, borrowings under our Line of Credit of $1.5 million, and borrowings under term loans of $16.0 million. Cash used in financing activities primarily included payments on the Line of Credit of $34.6 million and payments under the term loans of $39.3 million. Net cash provided by financing activities for the year ended December 31, 2020 was $22.5 million, which was a result of borrowings under the Line of Credit and term loans totaling $31.0 million. During the year ended December 31, 2020, we made long-term debt and capital lease payments of $7.7 million and cash distributions of $0.6 million.

For additional information on financing entered into subsequent to December 31, 2021, see Note 19 — Subsequent Events in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Related Party Transactions

For a description of significant related party transactions, see Note 15 — Related Party Transactions in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements is contained in Note 2 — Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.