Karat Packaging Inc. (KRT) Risk Factors

ITEM 1A. RISK FACTORS

Investing in our common stock involves a high degree of risk. Investors should carefully consider the risks described below and all of the other information set forth in this Annual Report on Form 10-K, including our financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations," before deciding to invest in our common stock. If any of the events or developments described below occur, our business, financial condition, or results of operations could be materially or adversely affected. As a result, the market price of our common stock could decline, and investors could lose all or part of their investment. The risks described below are not the only risks we face. Additional risks not currently known to us or those we currently deem to be immaterial may also materially and adversely affect our business operations.

Risks Related to Our Industry

Demand for our products could be affected by changes in laws and regulations applicable to food and beverages and changes in consumer preferences.

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

Additionally, because our products are used to package consumer goods, we are subject to a variety of risks that could influence consumer behavior and negatively impact demand for our products, including changes in consumer preferences driven by various health and environmental-related concerns and perceptions.

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

Supply chain disruptions could interrupt product manufacturing and increase product costs.

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

Raw material inflation or shortage of available materials could harm our financial condition and results of operations.

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

We operate in a highly competitive environment and may not be able to compete successfully.

The single-use disposable foodservice products industry is extremely competitive and highly fragmented. Many of the companies that compete in our industry are significantly larger with greater resources, have greater brand recognition and

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

Unfavorable conditions in our industry or the global economy could limit our ability to grow our business and negatively affect our results of operations.

Our business results may vary based on the state of our industry or the global economy. Negative economic conditions both in the United States and abroad, including conditions resulting from tighter financial and credit market access, international trade relations, political turmoil, natural catastrophes, warfare, and terrorist attacks could cause a decrease in demand for our products and negatively affect the growth of our business. Competitors, many of whom are larger and have greater financial resources than we do, may respond to challenging market conditions by lowering prices in an attempt to attract customers. We cannot predict the timing, magnitude, or duration of any economic slowdown or recovery, generally or within any particular industry.

Changes in freight carrier costs related to the shipment of our products could have a negative impact on our business and results of operations.

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

We may experience delays or disruptions in the shipment of our goods through operational ports.

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

Our net sales and profits depend on the level of customer spending for our products, which is sensitive to general economic conditions and other factors.

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

Changes in tax laws or changes in our geographic mix of earnings could have a negative impact on our business and results of operations.

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We are subject to income and other taxes in the many jurisdictions in which we operate. Tax laws and regulations are complex and the determination of our overall provision for income taxes, as well as current and deferred tax assets and liabilities requires judgment and estimation. We are subject to routine examinations of our income tax returns, and tax authorities may disagree with our tax positions and assess additional tax. Our future income taxes could also be negatively impacted by our mix of earnings in the jurisdictions in which we operate being different than anticipated given differences in statutory tax rates in the jurisdictions in which we operate. In addition, tax policy efforts to raise corporate tax rates could adversely impact our tax rate and tax expense.

Risks Related to Our Business

Our business could be harmed if we are unable to accurately forecast demand for our products or our results of operations.

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

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

In addition, we may not be able to accurately forecast our business results and growth rate. Forecasts may be particularly challenging as we expand into new markets and geographies and develop and market new products. Our historical sales, expense levels, and profitability may not be an appropriate basis for forecasting future results. Failure to accurately forecast our results of operations could cause us to make poor operating decisions and we may not be able to adjust in a timely manner. Consequently, actual results could be materially lower than anticipated.

We may continue to incur significant capital expenditures which could affect our ability to meet our obligations and may otherwise restrict our growth.

Although we have recently shifted towards an asset light model by increasing import and scaling back production and reducing capital expenditure, changes in economic and political conditions may result in us incurring significant capital expenditures again to expand manufacturing. We may make significant investments to lease or own additional warehouse space, expand our truck fleet, and upgrade our warehouse management and operating systems. Such cash outlays could affect our ability to service our existing debt obligations or limit our ability to respond to business opportunities, pursue acquisitions or otherwise restrict our continued growth and expansion.

Because we have entered into a significant number of related party transactions through the course of our routine business operations, there is a risk of conflicts of interest involving our management, and that such transactions may not reflect terms that would be available from unaffiliated third parties.

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

The section “Related Party Transactions” in the Notes to the Consolidated Financial Statements in this Form 10-K provide specific information about our prior related party transactions. We may engage in additional related party transactions in the future, which will be subject to review and approval by our nominating and corporate governance committee pursuant to the Company’s related party transactions policy. There can be no assurance that such transactions,

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individually or in the aggregate, will not have an adverse effect on our financial condition and results of operations, or that we could not have achieved more favorable terms if such transactions had not been entered into with related parties.

We may not have adequate insurance coverage.

We may not have adequate insurance coverage. The successful assertion of one or more large claims against us that exceeds our available insurance coverage, or results in changes to our insurance policies (including premium increases or the imposition of larger deductibles or co-insurance requirements), could have an adverse effect on our business. In addition, we cannot be sure that our existing insurance coverage and coverage for errors and omissions will continue to be available on acceptable terms or that our insurers will not deny coverage as to any future claim.

We may be unable to successfully design and develop new products.

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

We may be subject to liability if we infringe upon the intellectual property rights of third parties.

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

Our current and future products may experience quality problems from time to time that can result in product returns, product recalls, credit claims, negative publicity, and even litigation, which could result in decreased sales and operating profit margin, and also bring harm to our brand.

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

Labor cost inflation and the unavailability of skilled workers could disrupt our business.

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

Our growth depends, in part, on expanding into additional foodservice and geographic markets, and we may not be successful in doing so.

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

We rely on third-party contract manufacturers and conflicts with, or loss of, our suppliers could negatively impact our business and results of operations.

Certain of our products are produced by third-party contract manufacturers. We face the risk that these third-party contract manufacturers may not produce and deliver our products on a timely basis, or at all. We may also experience the inability of our third-party contract manufacturers to meet the increased demand of our customers. These difficulties include reduction in production capacity, errors in complying with product specifications or regulatory requirements, failure to meet production deadlines, failure to achieve required quality standards, shortages and increases in the price of materials, and other business interruptions. The ability of our manufacturers to effectively satisfy our production requirements could also be impacted by manufacturer financial difficulty or disruption to their operations caused by fire, natural disasters, or other events. The failure of any third-party manufacturer to perform to our expectations could result in supply shortages or delays for certain products and harm our business results. If we experience significantly increased demand, or if we need to replace an existing manufacturer due to lack of performance, we may be unable to supplement or replace their manufacturing capacity on a timely basis or on terms that are acceptable to us, which may increase our costs, reduce our margins, and harm our ability to deliver our products on time. For certain of our products, it may take a significant amount of time to identify and qualify a manufacturer that has the capability and resources to produce our products to our specifications in sufficient volume and satisfy our service and quality control standards. Even those suppliers and manufacturers with whom we have supply contracts may breach these agreements, and we may not be able to enforce our rights under these agreements or may incur significant costs attempting to do so. As a result, we cannot predict with certainty our ability to obtain finished products in adequate quantities, of required quality and at acceptable prices.

Our relationship with our suppliers and third-party contract manufacturers are not exclusive, which means that these suppliers and manufacturers could produce similar products for our competitors.

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

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

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

We incur significant expenses to maintain our manufacturing equipment and any interruption in the operations of our facilities could negatively impact our business and results of operations.

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

Many of our operating costs and expenses are fixed and will not decline if our revenues decline.

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

The successful running of our operations is highly dependent upon information technology systems and tools operating as intended without any down-time or disruptions in service. Security incidents and attacks on our information technology systems and tools could lead to significant costs and business disruptions.

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

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

Despite regular reviews and enhancements of our cybersecurity measures, we have faced, and may continue to face, threats targeting our IT infrastructure and confidential or proprietary information. While we maintain security policies and controls to prevent, detect, and mitigate these risks, no system is immune from breaches that could expose sensitive data, disrupt operations, or affect our financial performance.

Additionally, we handle confidential and personal data subject to privacy laws and contractual obligations. Even with reasonable safeguards, cybersecurity incidents, data loss, programming errors, or employee misconduct could compromise this information, leading to fines, penalties, reputational damage, and other adverse effects on our operations and financial condition.

Adopting artificial intelligence (AI) technologies poses risks such as regulatory scrutiny, cybersecurity vulnerabilities, ethical concerns, and system inaccuracies, potentially leading to disruptions, costs, and reputational harm.

As we look for opportunities to adopt AI in our business operations, there could be significant risks that could materially and adversely impact our business, financial condition, results of operations, and cash flows. The rapid pace of AI innovation and technological advancement present challenges in maintaining a competitive edge, as failing to keep pace with emerging technologies or competitors could erode our market position. Additionally, AI is subject to increasing

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regulatory scrutiny and an evolving legal framework around data usage, privacy, and algorithmic accountability which may impose additional compliance costs, operational restrictions, or lead to investigations and litigation. The deployment of AI technologies also introduces cybersecurity vulnerabilities, with potential data breaches or unauthorized access threatening sensitive information and customer trust. Furthermore, public perception of AI-related social and ethical issues may also impact the acceptance and success of our AI initiatives. As we evaluate opportunities for AI adoption, we remain committed to enhancing our governance, compliance, and risk management practices to effectively address these challenges and align with our strategic objectives, however, there is no assurance that these measures will fully mitigate all risks associated with its adoption and use.

Our future success depends on the continuing efforts of our management and key employees, and on our ability to attract and retain highly skilled personnel and senior management.

We depend on the talents and continued efforts of our senior management and key employees. The loss of members of our management or key employees may disrupt our business and harm our results of operations. Furthermore, our ability to manage further expansion will require us to continue to attract, motivate, and retain additional qualified personnel. Competition for this type of personnel is intense, and we may not be successful in attracting, integrating, and retaining the personnel required to grow and operate our business effectively. There can be no assurance that our current management team, or any new members of our management team, will be able to successfully execute our business and operating strategies.

We may not be able to effectively manage our growth.

As we grow our business, slower growth or reduced demand for our products, increased competition, a decrease in the growth rate of our overall market, failure to develop and successfully market new products, or the maturation of our business or market could harm our business. We expect to make significant investments in our sales and marketing efforts, expand our operations and infrastructure, design and develop new products, and enhance our existing lineup. Also, in connection with operating as a public company, we expect to continue to incur significant additional legal, accounting, and other related expenses. If our sales do not increase at a sufficient rate to offset these increases in our operating expenses, our profitability may decline in future periods.

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

We may become involved in legal or regulatory proceedings and audits.

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

We are subject to payment-related risks.

We accept a variety of payment methods, including credit cards, debit cards, electronic funds transfers, and electronic payment systems. Accordingly, we are, and will continue to be, subject to significant and evolving regulations and compliance requirements, including obligations to implement enhanced authentication processes that could result in increased costs and liability, and reduce the ease of use of certain payment methods. For certain payment methods,

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including credit and debit cards, as well as electronic payment systems, we pay interchange and other fees, which may increase over time. We rely on independent service providers for payment processing, including credit and debit cards. If these independent service providers become unwilling or unable to provide these services to us or if the cost of using these providers increases, our business could be harmed.

We are subject to credit risk.

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

If we fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial results, in which case our business may be harmed, investors may lose confidence in the accuracy and completeness of our financial reports and the price of our common stock may decline.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Failure to maintain an effective system of internal controls could limit our ability to prevent or detect a misstatement of our accounts or disclosures and could result in a material misstatement of our annual or interim financial statements. We may also be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, which may result in investors losing confidence in our financial reporting and the decline in the prices of our common stock.

If our goodwill, other intangible assets, or our property and equipment become impaired, we may be required to record a charge to our earnings.

We may be required to record future impairments of goodwill, other intangible assets, or long-lived assets to the extent the fair value of these assets falls below their book value. Our estimates of fair value are based on various assumptions including future cash flows, discount rates, and current market estimates of value. Estimates used for future sales growth, gross profit performance, operating expenses, and other assumptions used to estimate fair value are subject to significant judgment. Although impairments are non-cash expenses, they could materially and adversely affect our future financial results and financial condition.

If our estimates or judgments relating to our critical accounting policies prove to be incorrect or change significantly, our results of operations could be harmed.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section of this Form 10-K titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, and related notes included elsewhere in this Form 10-K. These estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity and the amount of sales and expenses that are not readily apparent from other sources. Our results of operations may be harmed if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, and could result in a decline in our stock price.

Risks Related to Societal and Environmental Factors

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

As we rely heavily on our warehouse facilities for production, storage, and distribution of inventory, our business is particularly vulnerable to damage or interruption from earthquakes, fires, floods, pandemics, criminal acts, terrorism, and

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

Climate change and sustainability initiatives may result in significant operational changes and expenditures and adversely affect our business.

Continuing political and social attention to carbon emissions and sustainability may result in the imposition of additional regulations or restrictions to which we may become subject. Such policies could result in increased production costs including higher energy and raw materials prices, which could negatively impact our financial condition and results of operations. Additionally, changing weather patterns could also cause disruptions or the complete shutdown of our operations and facilities, thereby impacting our business and consolidated financial statements.

We are subject to environmental laws and regulations that expose us to a number of risks and could result in significant liabilities and costs.

We operate manufacturing facilities in the United States, and are therefore subject to certain environmental regulations with respect to the operation of those facilities. If we were to experience a material adverse environmental event at any of our facilities, or we were to experience any material product safety issue with respect to our products or our business, financial condition, results of operations and cash flows could be materially and adversely affected. Furthermore, concern over plastics products may result in new or increased legal and regulatory requirements to reduce or mitigate impacts to the environment. Increased legislation, including in relation to various aspects of ESG including disclosure requirements, or environmental causes may result in increased compliance or input costs of raw materials, which may cause disruptions in the manufacture of our products or an increase in operating costs. If we do not adapt to or comply with new regulations, or fail to meet the needs of the evolving investor, industry, or stakeholder expectations and standards, or if we are perceived to have not responded appropriately to the growing concern for ESG issues, customers and consumers may choose to stop purchasing our products or purchase products from another company or a competitor, and our reputation, business and consolidated financial statements may be adversely affected.

Risks Related to the Global Events and International Nature of Our Operations

Recent trade policy shifts and regulatory developments, including increased import tariffs and the renegotiation of trade agreements, could have a material adverse impact on our business, financial condition or results of operations.

Both global and domestic economic and geopolitical conditions greatly impact our business. The current federal administration's trade policy shifts, including increased import tariffs and the renegotiation of trade agreements, has increased the level of uncertainty in the global trading environment. These tariffs, affecting imports from countries such as China, could substantially increase the cost of our products, including raw materials needed for domestic manufacturing, and/or impact our ability to supply certain products to our customers. While we have been proactively implementing procedures to minimize the impact from such tariffs on our business, we may not be successfully in offsetting negative impacts from escalating trade tensions, including increased manufacturing costs, global supply chain disruptions, limitations on domestic and international sales, and reduced sales volumes and margins. Additionally, we may not be able to pass those cost increases through to our customers, which could have a materially adverse impact on our business, financial condition or results of operations. Even if we are able to pass such increases on to customers, higher prices could reduce demand for our products, further negatively affecting our sales, profitability, our business, financial condition, results of operations, and cash flows. The rate or duration of these tariffs and the resulting impact on general economic conditions and on our business are uncertain and depend on various factors, such as negotiations between the U.S. and affected countries, the responses of other countries or regions, exemptions or exclusions that may be granted, and availability and cost of alternative sources of supply, and there can be no assurance as to the extent to which we will be able to offset the impact through mitigation actions.

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On February 20, 2026, the U.S. Supreme Court issued a ruling against certain tariffs previously imposed under the International Emergency Economic Powers Act ("IEEPA"). Following the Supreme Court’s decision, the U.S. presidential administration announced its intention to invoke other laws to collect tariffs and announced new tariffs on imports from all countries, in addition to any existing non-IEEPA tariffs. There remained substantial uncertainty regarding the duration of existing and newly announced tariffs, potential changes or pauses to such tariffs, tariff levels, and the availability, timing and amount of any potential refunds of such tariffs.

International political instability and armed conflicts could result in market instability, which could negatively impact our business results.

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

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

Our overseas third-party contract manufacturers ship most of our products to our primary facility in California, which are then shipped to our customers and to our other distribution facilities. Because we import many of our products, we are vulnerable to risks associated with products manufactured abroad, including risks of damage, destruction, or confiscation of products while in transit to our distribution centers. In order to meet demand for a product, we have chosen in the past, and may choose in the future, to arrange for additional quantities of the product, if available, to be delivered through air freight, which is significantly more expensive than standard shipping by sea and, consequently, could harm our gross margins and profitability, and harm our business.

Many of our products are manufactured by third parties outside of the United States, and our business may be harmed by legal, regulatory, economic, and political risks associated with international trade and those markets.

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

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

Foreign exchange rate fluctuations could affect our results of operations.

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Our third-party vendors are located in international markets, and we make payment to certain of these vendors in their local currencies, including New Taiwan Dollars. Any fluctuations in foreign exchange rates against the United State Dollar, and in particular the exchange rates of the New Taiwan Dollar, could increase our costs, and have a material adverse impact on our business, financial condition, results of operations, and cash flows.

Risks Related to Ownership of Our Common Stock and Our Capital Structure

Our directors, executive officers, and significant stockholders have substantial control over us and could delay or prevent a change in corporate control.

As of March 1, 2026, our directors, executive officers, and other holders of more than 5% of our common stock, together with their affiliates, own, in the aggregate 57% of our outstanding common stock. As a result, these stockholders, acting together or in some cases individually, have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation, or sale of all or substantially all of our assets. In addition, these stockholders, acting together or in some cases individually, have the ability to control the management and affairs of our company. Accordingly, this concentration of ownership might decrease the market price of our common stock by:

•delaying, deferring, or preventing a change in control of the company;

•impeding a merger, consolidation, takeover, or other business combination involving us; or

•discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of the company.

Our stock price may be volatile or may decline, including due to factors beyond our control, resulting in substantial losses for investors.

The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

•actual or anticipated fluctuations in our results of operations;

•the financial projections we may provide to the public, any changes in these projections, or our failure to meet these projections;

•announcements about our share repurchase program, including repurchases under the program;

•failure of securities analysts to initiate or maintain coverage of our company, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;

•ratings changes by any securities analysts who follow our company;

•sales or potential sales of shares by our stockholders, or the filing of a registration statement for these sales;

•adverse market reaction to any indebtedness we may incur or equity we may issue in the future;

•announcements by us or our competitors of significant innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments;

•publication of adverse research reports about us, our industry, or individual companies within our industry;

•publicity related to problems in our manufacturing or the real or perceived quality of our products, as well as the failure to timely launch new products that gain market acceptance;

•changes in operating performance and stock market valuations of our competitors;

•price and volume fluctuations in the overall stock market, including as a result of trends in the United States or global economy;

•any major change in our Board of Directors or management;

•lawsuits threatened or filed against us or negative results of any lawsuits;

•security breaches or cyberattacks;

•legislation or regulation of our business;

•loss of key personnel;

•new products introduced by us or our competitors;

•the perceived or real impact of events that harm our direct competitors;

•developments with respect to our trademarks, patents, or proprietary rights;

•tariffs and other trade restrictions;

•inflationary pressures;

•general market conditions; and

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•other events or factors, including those resulting from war, incidents of terrorism, or responses to these events, which could be unrelated to us or outside of our control.

In addition, stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies in our industry, as well as those of newly public companies. In the past, stockholders of other public companies have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and harm our business, financial condition, results of operations and cash flows.

Acquisitions could result in operating difficulties and may materially adversely affect our business, financial condition, results of operations and growth prospects.

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

•diverting management time and focus from operating our business to acquisition integration;

•customers moving to new suppliers as a result of the acquisition;

•inability to retain employees from the business we acquire;

•challenges associated with integrating employees from the acquired company into our organization;

•difficulties integrating accounting, management information, human resource and other administrative systems to permit effective management of the business we acquire and realize efficiencies;

•potential requirements for remediating controls, procedures and policies appropriate for a public company in the acquired business that prior to the acquisition lacked these controls, procedures and policies;

•potential liability for past or present environmental, hazardous substance, or contamination concerns associated with the acquired business or its predecessors;

•possible write-offs or impairment charges resulting from the acquisition; and

•unanticipated or unknown liabilities relating to the acquired business.

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

Substantial future sales, or the perception or anticipation of future sales, of shares of our common stock may cause our stock price to decline. This could cause the market price of our common stock to drop significantly, even if our business is doing well.

Our stock price could decline as a result of substantial sales of our common stock, or the perception or anticipation that such sales could occur, particularly sales by our directors, executive officers, and significant stockholders. Possible sales also may make it more difficult for us to sell equity or equity-related securities in the future at a time and price we deem necessary or appropriate. Additionally, if we issue a large number of shares in connection with future acquisitions, financings or other circumstances, the market price of our common stock could decline significantly. We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances or sales of our shares will have on the market price of such shares.

As of December 31, 2025, we had 287,467 stock options, all of which were fully vested, and 43,500 of unvested restricted stock units outstanding. The additional shares issued upon exercise or vesting will be eligible to be sold freely in the public market, subject to volume limitations applicable to affiliates.

Our bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain actions, which could limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company and its directors, officers, or other employees and may discourage lawsuits with respect to such claims.

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Unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for: (i) any derivative action or proceeding brought against or on behalf of the Company, (ii) any action asserting a claim of breach of a duty owed by any current or former director, officer, other employee or stockholder of the Company to the Company or the Company’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, (iv) any action as to which the Delaware General Corporation Law confers jurisdiction upon the Court of Chancery in the State of Delaware, or (v) any action asserting a claim governed by the internal affairs doctrine, shall, to the fullest extent permitted by law, be the Court of Chancery in the State of Delaware (or, only if the Court of Chancery in the State of Delaware declines to accept jurisdiction over a particular matter, any state or federal court located within the State of Delaware). However, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder, and as such, the exclusive jurisdiction clauses set forth above would not apply to such suits. Furthermore, Section 22 of the Securities Act provides for concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder, and as such, the exclusive jurisdiction clauses set forth above would not apply to such suits.

Although we believe the exclusive forum provision benefits us by providing increased consistency in the application of Delaware law for the specified types of actions and proceedings, this provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company and its directors, officers, or other employees and may discourage lawsuits with respect to such claims.

We may issue preferred stock, the terms of which could adversely affect the voting power or value of our common stock.

Our certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designations, preferences, limitations and relative rights, including preferences over our common stock respecting dividends and distributions, as our Board of Directors may determine. The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of our common stock. For example, we might grant holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of the common stock.

We intend to pay quarterly dividends for the foreseeable future. If our stock price does not appreciate after you purchase our shares, you may lose some or all of your investment.

Although we initiated our regular quarterly cash dividend in 2023 and intend to pay regular quarterly dividends for the foreseeable future, we may not be able to sustain our current quarterly dividend payouts. Any future determination to declare cash dividends will be made at the discretion of our Board of Directors, subject to applicable laws, and will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual restrictions, general business conditions, and other factors that our Board of Directors may deem relevant. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.

We are a holding company with no operations of our own and, as such, we depend on our subsidiaries for cash to fund our operations and expenses, including future dividend payments, if any.

As a holding company, our principal source of cash flow will be distributions from Lollicup, our wholly-owned subsidiary. Therefore, our ability to fund and conduct our business, service our debt, and pay dividends, if any, in the future will depend on the ability of our subsidiaries to generate sufficient cash flow to make upstream cash distributions to us. Our subsidiaries are separate legal entities, and although they are wholly owned and controlled by us, they have no obligation to make any funds available to us, whether in the form of loans, dividends, or otherwise. The ability of our subsidiaries to distribute cash to us will also be subject to, among other things, restrictions that may be contained in our subsidiary agreements (as entered into from time to time), availability of sufficient funds in such subsidiaries and applicable laws and regulatory restrictions. Claims of any creditors of our subsidiaries generally will have priority as to the assets of such subsidiaries over our claims and claims of our creditors and stockholders. To the extent the ability of our subsidiaries to distribute dividends or other payments to us is limited in any way, our ability to fund and conduct our business, service our debt, and pay dividends, if any, could be harmed.

If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our stock price and trading volume could decline.

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The trading market for our common stock will be influenced to some extent by the research and reports that industry or financial analysts publish about us and our business. We do not control these analysts. As a relatively new public company, we may be slow to attract research coverage and the analysts who publish information about our common stock will have had relatively little experience with us or our industry, which could affect their ability to accurately forecast our results and could make it more likely that we fail to meet their estimates. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us provide inaccurate or unfavorable research or issue an adverse opinion regarding our stock price, our stock price could decline. If one or more of these analysts cease to regularly cover us or fail to publish reports, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.

Outstanding indebtedness may reduce our available funds.

We have approximately $35.9 million in outstanding indebtedness as of December 31, 2025. The loans are held at multiple banks and are collateralized by substantially all of Global Well's assets and is guaranteed by one of our stockholders. There can be no guarantee that we will be able to pay all amounts when due or to refinance the amounts on terms that are acceptable to us or at all. If we are unable to make our payments when due or unable to refinance such amounts, our key equipment could be repossessed, our property could be foreclosed and our business could be negatively affected.

The terms of our debt agreements impose significant operating and financial restrictions on us. These restrictions could also have a negative impact on our business, financial condition, results of operations and cash flows by significantly limiting or prohibiting us from engaging in certain transactions, including but not limited to: incurring or guaranteeing additional debt financing; transferring or selling assets currently held by us; and transferring ownership interests in certain of our subsidiaries. The failure to comply with any of these covenants could cause a default under our other debt agreements. Any of these defaults, if not waived, could result in the acceleration of all of our debt, in which case the debt would become immediately due and payable. If this occurs, we may not be able to repay our debt or borrow sufficient funds to refinance it on favorable terms, if any.

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

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

Our share repurchase program could affect the price of our common stock and increase volatility and could be suspended or terminated at any time, which could result in a decrease in the trading price of our common stock.

Pursuant to our share repurchase program, which was publicly announced in November 2025, we were authorized to repurchase up to $15.0 million of our outstanding common stock. Under the Share Repurchase Program, we may repurchase shares through open market transactions, through privately negotiated transactions, or pursuant to a trading plan separately adopted in the future, subject to the requirements of the Securities Exchange Act of 1934, as amended. Our Board of Directors may amend or suspend the Share Repurchase Program at any time in its discretion. As of December 31, 2025, there was approximately $12.0 million remaining authorization for purchases under the share repurchase program. The timing and amount of any share repurchases will be determined based on market conditions, share price and other factors, and we are not obligated to repurchase any shares. Repurchases of our shares could increase (or reduce the size of any decrease in) the market price of our common stock at the time of such repurchases. Additionally, repurchases under our share repurchase program have diminished and would continue to diminish our cash reserves, which could impact our ability to pursue possible strategic opportunities and acquisitions and could result in lower overall returns on our cash balances. Our share repurchases could also affect our share trading prices, increase their volatility, and reduce our stock's

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public float, and may be suspended or terminated at any time, which may result in a decrease in the trading prices of our stock. Further, under the Inflation Reduction Act of 2022, a 1% excise tax is imposed on the fair market value of certain stock repurchases at the time of such repurchases, which could increase the cost of repurchasing shares of our common stock. However, for the purposes of calculating such excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. There can be no assurance that any share repurchases will enhance stockholder value, as the market price of our common stock may nevertheless decline.

General Risk Factors

We are an emerging growth company and the reduced disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.

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

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

We will lose our status as an emerging growth company no later than December 31, 2026, which represents the end of the fiscal year in which the fifth anniversary of the date of our IPO prospectus occurs.