What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2024-03-15 compared with 2023-03-16 · 118 added, 101 removed, 246 unchanged (47% of the section changed)

7 unchanged sentences

We also 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 with broad product choices and customized offerings with short lead times.

For the year ended December 31, 2022, distribution accounted for approximately 74% of our net sales, while manufacturing accounted for approximately 26% of our net sales.

We expect manufacturing to remain a relatively small portion of our sales mix in fiscal year 2023, but believe it provides us with the flexibility to provide customized products with short lead times to complement our global sourcing capabilities.

To that end, 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 global supplier network, complemented by our own manufacturing capabilities for select products, has established us as a differentiated provider of high-quality products relative to our competitors.

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.

During 2023, 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 manufacturing in certain locations.

While we largely maintained our manufacturing infrastructure, we disposed of certain production machinery and related raw materials and reduced our production workforce.

For the year ended December 31, 2023, distribution accounted for approximately 80% of our net sales, up from 74% in the prior year, while manufacturing accounted for approximately 20% of our net sales, down from 26% in the prior year.

While we expect manufacturing to remain a relatively small portion of our sales mix going forward, we plan to retain manufacturing capabilities domestically to continue to operate with a nimble business model.

Our customers include a wide variety of national and regional distributors, restaurant chains, retail establishments and online customers.

1 unchanged sentence

Our diverse and growing blue chip customer base includes well-known fast casual chains such as Applebee’s Neighborhood Grill + Bar, Chili’s Grill & Bar, PF Chang's, Texas Roadhouse, Chipotle Mexican Grill, Corner Bakery Cafe and TGI Fridays, as well as fast food chains including The Coffee Bean & Tea Leaf, El Pollo Loco, In-N-Out Burger, Jack in the Box, Popeyes, Panda Express, Raising Cane’s Chicken Fingers, and Torchy’s Tacos.

As our capabilities, product offering and footprint expand, we are also beginning to supply products to national and regional supermarket chains, airlines, sports and entertainment venues and other non-restaurant customers.

As our capabilities, product offering and footprint expand, we are also beginning to supply products to national and regional supermarket chains, airlines, entertainment venues and other non-restaurant customers.

Our strong brand recognition in the foodservice industry, nimble operations and rapidly increasing size and scope of our distribution and logistics network provide us with a significant advantage that enables us to acquire new customers as well as increase our business with existing customers.

For the years ended December 31, 2023 and December 31, 2022, no single customer represented more than 10% of our revenue.

We are an omni-channel provider and have recently made significant investments in e-commerce, technology, supply chain, distribution center layout remodels, and customer initiatives, such as online ordering and same day pickup.

We operate our e-commerce channel through our company website, www.lollicupstore.com, and also through third-party storefronts such as Amazon and Walmart.

Our e-commerce channel offers the entire range of our products for online procurement, and we believe it will continue to be a key growth driver for our business going forward.

Additionally, the e-commerce channel enables us to cross market other products to our customers.

We are an omni-channel provider and have recently made significant investments in e-commerce, technology, supply chain, distribution network, and customer initiatives, such as online ordering and same day pickup.

We operate our e-commerce channel through our company website, www.lollicupstore.com and upgraded the underlying e-commerce platform during 2023.

This upgrade not only enabled us to improve our storefront from an operational standpoint, but also allowed for the integration of multiple apps and extensions to enhance user experience.

In addition, we also operate third-party storefronts on Amazon, Walmart, eBay, and recently expanded to TikTok.

Our e-commerce platforms allow us to offer our entire range of products for online procurement and enable us to cross market other products to our customers.

These platforms also provide us with the opportunity to continue our expansion into the business-to-consumer ("B2C") market in addition to the business-to-business ("B2B") small retailer customers that we traditionally serve.

We have recently elevated our focus on servicing B2C market by sourcing products tailored for and geared toward these end-users.

We further expanded our e-commerce team and improved and scaled our online marketing efforts.

Our e-commerce channel significantly outperformed all other channels in year-over-year revenue growth in 2023, and we believe the e-commerce channel will continue to be a key growth driver in our business.

We classify our customers into four categories:

distributors, national and regional chains, retail and online.

distributors, national and regional chains, retail and e-commerce/online.

• Distributors :

3 unchanged sentences

typically fast casual and fast food restaurants with locations across multiple states to which we supply specified products.

We enter into sales contracts with a subset of our national and regional chains customers, providing visibility into future revenue.

We enter into sales contracts with a subset of our national and regional chains customers, providing some visibility into future revenue.

primarily regional bubble tea shops, boutique coffee shops and frozen yogurt shops that often purchase our specialty beverage ingredients and related items.

• E-commerce/Online :

small businesses, often with less than two locations, such as small restaurants, bubble tea shops, coffee shops, juice bars, smoothie shops and some customers who purchase for personal use.

In addition to product sales, we also generate revenue from logistics services which is the transportation and delivery of shipping containers from ports to customers, primarily to retail customers.

The diversity of our customer types provides us with the ability to source products efficiently while maintaining a broad product offering, as we are able to sell many products

across multiple customer segments.

We expect a large proportion of our growth to come from national and regional chains and our higher margin online customers.

We have generated significant growth through the continued expansion of our customer base and increasing penetration into existing customers across all channels.

In addition, we have been able to grow our wallet share with many customers, in particular our national and regional chains, by supplying them a broader range of our foodservice disposables and related products.

In addition to product sales, we also generate a small amount of revenue from logistics services which is the transportation and delivery of shipping containers from ports to customers, primarily to retail customers.

The diversity of our customer types allows us to maintain a broad product offering while providing us with the ability to source products efficiently, as we are able to sell many products across multiple customer segments.

We expect a large proportion of our future growth to come from national and regional chains as well as our higher margin online customers.

We believe that the current industry environment and regulatory landscape has accelerated the shift in consumer preferences towards food delivery, take-out ordering and eco-friendly sustainable products, which we expect to continue in the foreseeable future.

We currently operate manufacturing facilities and distribution and fulfillment centers in Chino, California, Rockwall, Texas and Kapolei, Hawaii.

In addition, we operate other distribution centers located in Rockwall, Texas, Branchburg, New Jersey, Sumner, Washington, Summerville, South Carolina, Kapolei, Hawaii and City of Industry, California.

The distribution and fulfillment centers are strategically located in proximity to major population centers, including the Los Angeles, New York, Seattle, Atlanta and Honolulu metro areas.

With our customer-centric approach, we have generated significant growth through the continued expansion of our customer base and increasing penetration into existing customers across all channels.

As we broaden our reach, expand into new geographic areas, and continue to focus on customer engagement, we expanded our sales force in 2023 by bringing in new sales representatives and regional managers.

We also promoted from within our inaugural Chief Revenue Officer in 2023.

We currently operate manufacturing facilities and distribution centers in Chino, California, Rockwall, Texas and Kapolei, Hawaii.

In addition, we have distribution centers located in Branchburg, New Jersey;

Puyallup, Washington;

Summerville, South Carolina;

Kapolei, Hawaii;

City of Industry, California;

Sugar Land, Texas;

and Aurora, Illinois.

During 2023, we invested in the significant expansion of our distribution capabilities by adding 188,000 square feet in distribution space through the opening of two new warehouses in Sugar Land, Texas and Aurora, Illinois.

We also doubled our warehouse space in Washington as we moved our warehouse from Sumner to Puyallup.

Further, we racked up additional areas in existing warehouses, adding 40,000 square feet of new racked space in our warehouses.

Our distribution and fulfillment 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.

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 February 12, 2024 for an additional distribution center in Mesa, Arizona and are currently in the process of setting up this location to be fully operational by the second quarter of 2024.

Competitive Strengths

1 unchanged sentence

One-stop shop with a diverse product offering for the foodservice market and highly nimble sourcing capabilities

We leverage our diversified global supplier network and offer customers a wide selection of single-use disposable foodservice products, with over 8,600 SKUs across a broad range of product categories.

We leverage our diversified global supplier network and offer customers a wide selection of single-use disposable foodservice products, with over 6,400 active SKUs (defined as active products available for purchase) across a broad range of product categories.

We have significantly grown our inventory sourcing network from only a handful of vendors initially to over 133 active vendors by the end of 2023.

8 unchanged sentences

Through an ongoing feedback loop, as customer demand varies and new needs emerge, we are able to act nimbly and qualify new suppliers quickly to augment our product offering.

These capabilities make us a key partner to our customers.

Focus on distribution and advanced logistics network, complemented by flexible manufacturing capabilities

We consider our increasingly sophisticated distribution capabilities and related strength in logistics to be an important core competency and key differentiator from our competitors.

We own a fleet of 31 trucks, 41 trailers, 9 bobtails, one yard goat and 24 chassis, and as of December 31, 2022, employ 43 drivers in our logistics division.

This model has resulted in more efficient distribution to customers, reducing the need for reliance on third-party logistics providers such as FedEx and United Parcel Service.

Our strategically located facilities give us a strong national footprint, which positions us well to serve regions across the U.S.

in a timely fashion.

We intend to continue to add to our capabilities via further distribution center openings and expansions, the purchase of additional vehicles, the hiring of additional drivers and additional logistics service offerings.

We opened two new warehouses in 2023 located in Sugar Land,

Texas, and Aurora, Illinois, and also racked up additional space within existing warehouses to allow for better management and fulfillment of products.

We own a fleet of 26 trucks (including some that are refrigerated to transport frozen food item), 44 trailers, 10 bobtails, 1 yard goat, and 38 chassis, and as of December 31, 2023, employed 40 drivers in our logistics division.

Our national distribution and logistics capacity has allowed us to reduce the need for reliance on third-party logistics providers and provide efficient and cost-effective distribution to customers.

We intend to continue to enhance our distribution productivity via opening additional distribution centers in strategic locations across the U.S., expanding our distribution fleet, and increasing the number of drivers.

Our California, Texas and Hawaii facilities have a portion of operational capacity dedicated to manufacturing capabilities.

1 unchanged sentence

We view distribution as our primary focus and growth driver while utilizing our manufacturing capabilities as a complement to the base distribution business.

This approach allows us to procure products at competitive prices by being able to compare procurement costs versus domestic manufacturing costs to help determine whether it is more efficient to produce ourselves versus relying on suppliers.

This approach allows us to procure products at competitive prices by being able to compare procurement costs versus domestic manufacturing costs to help determine the more efficient option.

Diverse and growing blue-chip customer base

1 unchanged sentence

Our blue-chip customers include leading fast casual chains such as Chili’s Grill & Bar and Chipotle Mexican Grill, as well as fast food chains such as In-N-Out Burger, El Pollo Loco, and Panda Express, among others.

We intend to further expand our customer base by selling our products to non-traditional foodservice customers, including regional and national supermarket chains, airlines, sports and entertainment venues and other non-restaurant customers.

Plans for such expansion are already underway and beginning to yield positive results and a diversification of our customer base.

We intend to further expand our customer base by selling our products to non-traditional foodservice customers, including regional and national supermarket chains, airlines, entertainment venues and other non-restaurant customers.

Progress towards such expansion and diversification of our customer base is already underway.

Leader in eco-friendly products to address sustainability

We are committed to pursuing environmental sustainability and this is exhibited in every aspect of our business.

We are amongst the leading companies in the supply of eco-friendly disposal foodservice products in the United States.

Our commitment to pursuing environmental sustainability is exhibited in every aspect of our business.

We believe we are amongst the leading companies in the supply of eco-friendly disposal foodservice products in the United States.

Since our inception, we have made the conscious choice to never use Styrofoam in any of our products.

In 2008, we established Karat Earth® as an eco-friendly line of foodservice products, including food and takeout containers, bags, tableware, cups, lids, cutlery and straws.

In April 2022, we announced a definitive joint venture agreement to establish a new corporation to build a factory in Taiwan for the production of compostable bagasse foodservice products which have a low carbon footprint.

The new factory is expected to produce approximately 7,500 tons of products annually, with the first shipment of products to customers expected in June 2023.

We have consistently grown eco-friendly products as a percentage of our total product sales, and continued to invest in research and development to expand our eco-friendly product line to meet the needs of our customers and the evolving regulatory landscape.

Karat Earth® supplements our eco-friendly offerings within our other product lines.

We continue to invest in research and development to expand our offering of sustainable products to meet the needs of our customers and the evolving regulatory landscape.

These efforts have allowed us to consistently grow our sales from eco-friendly products as a percentage of our total sales.

Our eco-friendly products made up 33% of total sales during the year ended December 31, 2023 compared to 27% during the prior year.

Customized solutions offering new product development, design, printing and logistics services

5 unchanged sentences

Our co-founders Alan Yu and Marvin Cheng have worked together over the last 20 years to aggressively drive growth across the business.

Joanne Wang joined us in 2003 and was appointed Chief Operating Officer in 2018, helping to drive our pricing structure and sales training programs and overseeing general operational functions.

Daniel Quire joined us in 2018 and was appointed Chief Revenue Officer in 2023, helping to provide leadership to our sales term, lead our customer acquisition and engagement initiatives, and expand our market presence.

Our Chief Financial Officer, Jian Guo, joined us in 2022, bringing years of public company experience to further bolster our finance and accounting functions.

3 unchanged sentences

Continue to build our e-commerce distribution channel

We believe there is an opportunity to significantly grow our higher margin e-commerce business to a more meaningful percent of revenue by continuing our investments in people, software and technology.

By committing additional resources and upgrading our e-commerce platform and online advertising efforts, we expect to enhance our e-commerce experience to better support the needs of our customers.

Our e-commerce retail channel is our highest margin channel of distribution.

By offering our entire range of products online and bolstering our logistics capabilities, our customers can conveniently order products themselves on an ad hoc basis.

We believe there is an opportunity to continue to significantly grow our higher margin e-commerce business to a more meaningful percent of revenue by continuing our investments in people, distribution capabilities.

marketing and technology.

During 2023, we updated our company e-commerce platform, which not only enabled us to improve our storefront from an operational standpoint, but also allowed for the integration of multiple apps and extensions to enhance user experience.

In addition, we also operate third-party storefronts on Amazon, Walmart, eBay, and recently expanded to TikTok.

Our e-commerce platforms allow us to offer our entire range of products for online procurement and enable us to cross market other products to our customers.

These platforms also provide us with the opportunity to continue our expansion into the B2C market in addition to the B2B small retailer customers that we traditionally serve.

We have recently elevated our focus on servicing B2C market by sourcing products tailored for and geared toward these end-users.

We further expanded our e-commerce team and improved and scaled our online marketing efforts.

All of these initiatives allowed us to increase the number of online orders by approximately 37% in 2023 compared to prior year.

Our e-commerce channel also significantly outperformed all other channels in year-over-year revenue growth in 2023, and we believe the e-commerce channel will continue to be a key growth driver in our business.

Disrupt the traditional foodservice supply chain

8 unchanged sentences

Our unique ability to serve customers as a reliable supplier with strong customer service at competitive prices has positioned us to be a frequent recipient of requests for proposals from our existing customers as they look for new sources of supply.

For the year ended December 31, 2022, net sales to distributors and national and regional chains, our two largest channels, grew 21.2% and 11.4%, respectively, from the year ended December 31, 2021, as we grew our business with existing customers and added new customers.

Offering a larger range of products, coupled with our ability to provide custom specifications and configurations to existing products, will allow us to better serve the needs of our customers and increase retention further.

We have historically experienced consistently high

customer retention rates as a result of our dedication to our customers and our hands-on approach.

Offering a larger range of products, coupled with our ability to provide custom specifications and configurations to existing products, allows us to better serve the needs of our customers and increase retention further.

We have historically experienced consistently high customer retention rates as a result of our dedication to our customers and our hands-on approach.

For the year ended December 31, 2023, our major customer retention rate, defined as year over year retention of our top 100 customers, was 99%.

Expand our customer base via new capabilities, geographies, products, services and end markets

We believe our addressable market continues to grow as emerging businesses like Grubhub, Uber Eats, DoorDash and others expand the need for foodservice disposable products and takeout and at-home dining remain a constant even as the pandemic started to recede.

We plan to continue to add new experienced sales team members to broaden our reach and more efficiently provide customer service as we grow.

We have made solid strides towards expanding our distribution footprint and capabilities in the United States by adding two distribution centers in 2022, and intend to continue our expansion efforts.

In addition, we have continuously evaluated and expanded our product and service offerings to respond to customer demand and enter new end markets, including sports venues, supermarket chains, airlines and other non-traditional foodservice markets.

We see substantial opportunity to further expand our customer base with many individual customers through our select food and drink offerings (i.e.

bubble tea, coffee, sauces and syrups) available via our e-commerce channel.

In addition, we see significant opportunity with supermarket chains to gain wallet share by providing fruit trays, vegetable containers, compostable meat trays and other related items, all of which are higher margin products than some of our other products.

We believe our addressable market continues to grow as emerging businesses like Grubhub, Uber Eats, DoorDash and others expand the need for foodservice disposable products, and takeout and at-home dining remain a constant even after the pandemic.

We plan to continue to add new experienced sales team members to broaden our reach, expand into new geographic areas, and continue to focus on customer engagement.

We also promoted from within our inaugural Chief Revenue Officer in 2023.

We have made solid strides towards expanding our distribution footprint and capabilities in the United States.

During 2023, we opened two new warehouses in Sugar Land, Texas and Aurora, Illinois, adding 188,000 square feet in distribution space.

We doubled our warehouse space in Washington as we moved our warehouse from Sumner to Puyallup.

Further, we also racked up additional areas in existing warehouses, adding 40,000 square feet of new racked space in our warehouses.

In addition, we are continuously evaluating and expanding our product and service offerings to respond to customer demand and penetrate into new markets, including supermarket chains, airlines, entertainment venues, and other non-traditional foodservice markets.

We see significant opportunity specifically with supermarkets to gain wallet share by providing fruit trays, vegetable containers, pizza boxes, compostable meat trays and other related items, all of which are higher margin products than some of our other products.

Our online platforms have provided us with the opportunity to continue our expansion into the business-to-consumer B2C market.

Pursue strategic acquisitions

We have the opportunity to capitalize on our existing infrastructure and expertise by continuing to selectively pursue opportunistic acquisitions in order to expand the breadth of our distribution and logistics network, increase our operating efficiency and add additional products and capabilities.

In April 2022, we announced a definitive joint venture agreement with Happiness Moon, Co.

Ltd to establish a new corporation, Bio Earth Technology ("Bio Earth"), to build a new 180,000 square-foot factory in Taiwan for the production of compostable bagasse foodservice products.

We continue to consider and evaluate certain acquisition opportunities across the United States that we expect would enhance our national footprint.

We evaluate and consider potential business acquisitions in order to expand the breadth of our existing infrastructure, product offerings, expertise, supply chain network, and operating efficiencies.

Additionally, the potential to acquire existing and new suppliers, particularly in the U.S., may further reduce our reliance on the Asian supply chain, creating more diversified sourcing options for our customers.

6 unchanged sentences

We estimate our growth to significantly outpace the industry average given our increase in sales of high demand items like take-out containers and bags, our ability to continuously augment our product offering to address customer needs and our avoidance of product categories in decline, including materials in the process of being banned under various governmental regulations.

The industry is currently experiencing a period of both growth and transition as a result of several key factors that have emerged in recent years and have accelerated during the COVID-19 pandemic.

The industry is currently experiencing a period of both growth and transition as a result of several key factors that have emerged in recent years especially after the COVID-19 pandemic.

These include the growing market for food delivery and take-out dining;

5 unchanged sentences

As consumer preferences have evolved, foodservice establishments have realized that the at-home dining experience is closely linked to the quality of the packaging utilized.

Data from the National Restaurant Association and Technomic shows that operators are increasingly acknowledging the importance of off-premises dining and making it a strategic priority.

Based on data from Uber’s acquisition of Postmates, the online delivery market is expected to grow at a compound annual growth rate of 18.1% to $61 billion by 2025.

This growth is driven in large part by e-commerce companies such as Grubhub, Uber Eats, DoorDash and others.

We believe the market opportunity will continue to expand for years to come.

Data from the National Restaurant Association shows that operators are increasingly acknowledging the importance of off-premises dining and making it a strategic priority.

According to studies done by International Market Analysis Research and Consulting Group, the United States online food delivery market size reached $29.1 billion in 2023.

The same studies expect the market to reach $68.6 billion by 2032, exhibiting a growth rate (CAGR) of 9.8% during 2024-2032.

In order to benefit from this growing market trend, foodservice establishments are actively trying to provide a high quality at-home dining customer experience that is comparable to the in-restaurant experience.

Central to this effort is food quality and overall presentation where take-out containers and related products play a critical role.

Restaurants are seeking to develop high quality, customized disposables that not only provide the freshest and best possible food experience, but also provide a premium, branded at-home dining experience.

Governmental regulations

27 unchanged sentences

Due to its material composition, Ingeo PLA is non-volatile, non-toxic and odorless if incinerated.

During the year ended December 31, 2022, net sales of our Karat Earth® products increased by 36% as compared to the year ended December 31, 2021.

We continue to invest in research and development for our Karat Earth® line to expand our product offering to meet the needs of our customers and the evolving regulatory landscape.

Our Distribution and Logistics Network

We sell and distribute our products to customers across the United States.

We sell and distribute our products to customers across the United States through our growing distribution network.

We partner with foodservice establishments of every size, with our customers ranging from large multi-national restaurant chains to regional and smaller-chain establishments.

Our customers benefit from our broad product offering which allows them to streamline their procurement process by purchasing all of their disposable goods from a single-source provider.

Our customers benefit from our broad product offering and efficient distribution which allows them to streamline their procurement process by purchasing all of their disposable goods from a single-source provider and effectively reduce inventory level and working capital requirements.

We also sell our products directly to leading restaurant supply companies that distribute products to a wide range of food-service establishments internationally.

Our growing sales force works closely with our customers to tailor the optimal mix of products to meet the unique needs of their businesses.

We continue to hire additional sales personnel nationally to expand our sales reach, geographic footprint and increase our penetration into the different market segments of the foodservice industry.

We continue to hire additional sales personnel nationally to expand our sales reach, geographic footprint and increase our penetration into the different market segments of the foodservice industry, specifically the South, Midwest, and Pacific Northwest regions of the U.S.

We work closely with our customers to develop an optimal logistics and supply chain solution customized to their businesses.

We have built a flexible distribution system which allows our customers to order and receive products on a timely basis based on the real-time needs of their businesses.

In addition to regularly scheduled delivery intervals, our customers can order and schedule delivery of products via telephone, facsimile, email or through our online e-commerce platform and our storefronts on Amazon.com and Walmart.com.

Our regional warehouses and distribution centers allow us to deliver products on a timely basis to key population centers across the United States.

Depending on the needs of our customers, final product delivery to their stores or affiliated distribution centers occurs via courier package delivery or through our company-employed delivery drivers.

In 2004, we established our Company store website at www.lollicupstore.com, to provide an additional channel for our customers to purchase our products.

The website offers our entire range of products for online procurement, and we believe it will continue to be a key growth driver for our business, as it enables us to cross market products to potential customers.

We have also added third-party storefronts on Amazon and Walmart to complement our Company store website.

Sales through these online channels accounted for 12.7% of total net sales for the year ended December 31, 2022.

We have recently made significant investments to further develop and upgrade the www.lollicupstore.com e-commerce platform to improve online traffic and order placements.

Our business does not experience high seasonality though certain food and food related products are moderately seasonal.

For example, during the hot weather of summer and fall months, we see an increase in the level of sales for items such as cold drink cups and boba products.

For example, during the hot weather of summer and fall months, we see an increase in the level of sales for items such as cold

drink cups and boba products.

Generally, we expect relatively more of our earnings and cash flows to be generated in the second and third quarter of the fiscal year.

Our Corporate Structure

Set forth below is an organizational chart which identifies the Company and its consolidated entities as:

Please see 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 for a description of the agreements between our variable interest entity and us.

Set forth below is an organizational chart which identifies the Company and its consolidated entities as of December 31, 2023:

Please see Note 2 — Summary of Significant Accounting Policies and 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 for a description of the agreements between Global Wells and us as well as the change in our ownership percentage in Global Wells subsequent to December 31, 2023 resulting from one Global Wells' member's redemption of its membership interest.

Intellectual Property

3 unchanged sentences

We recognize the importance of environmental, social and governance ("ESG") issues for all of our stakeholders and we are committed to incorporating ESG principles into our business strategies and organizational culture.

By undertaking such measures, we hope to make our workforce more inclusive, our business more sustainable, and our communities more engaged.

By undertaking such measures, we are working towards making our workforce more inclusive, our business more sustainable, and our communities more engaged.

Our commitment to practicing environmental sustainability is exhibited in almost every aspect of our business.

1 unchanged sentence

Since our inception, we made the conscious choice to never use Styrofoam in any of our products.

The reason behind such a decision was that Styrofoam products are non-biodegradable and therefore take up permanent space in landfills resulting in a constant leach of harmful chemicals into the environment.

Styrofoam products are non-biodegradable and therefore take up permanent space in landfills resulting in a constant leach of harmful chemicals into the environment.

Styrofoam products are also very difficult to clean up as they often escape waste collection systems due to their low density.

3 unchanged sentences

Karat Earth® plastic products are made from polylactic acid (PLA) sourced from NatureWorks Ingeo PLA.

Ingeo PLA is a non-petroleum based, biopolymer that is manufactured from

plant sugars.

Ingeo PLA is a non-petroleum based, biopolymer that is manufactured from plant sugars.

Due to its material composition, Ingeo PLA is non-volatile, non-toxic and odorless if incinerated.

We continue to invest in research and development to expand the product offering in our Karat Earth® line.

During the year ended December 31, 2022, net sales of our Karat Earth® products increased by 36% as compared to the year ended December 31, 2021.

Fiscal year 2022 marked an important milestone in our continued efforts and commitment to sustainability.

In April 2022, we announced a definitive joint venture agreement with Happiness Moon, Co.

Ltd to establish a new corporation, Bio Earth, to build a new 180,000 square-foot factory in Taiwan for the production of compostable bagasse foodservice products.

Bagasse has a low carbon footprint.

Since it is a derivative of sugar cane, bagasse lifespan includes a period where atmospheric carbon is captured and converted to biomass.

In the right conditions, bagasse can biodegrade in 30-90 days without toxic residue, and even provide nutrient-rich compost.

Packaging made with bagasse is also fully recyclable.

This makes it ideal for all levels of packaging.

The new plant is expected to produce approximately 7,500 tons of products annually, with the first shipment of products to customers expected in June 2023.

Karat Earth® supplements our eco-friendly offerings within our other product lines.

We continue to invest in research and development to expand our offering of sustainable products to meet the needs of our customers and the evolving regulatory landscape.

Our eco-friendly products made up 33% of total sales during the year ended December 31, 2023 compared to 27% during the prior year.

A recent peer-reviewed global study conducted by the American Association for the Advancement of Sciences found that less than 10 percent of plastics is recycled.

1 unchanged sentence

Such striking statistics have prompted many state and city governments to enact regulations to cut down on plastic pollution.

For example, California passed the Plastic Pollution Prevention and Packaging Producer Responsibility Act also known as SB 54 in June 2022, requiring all packaging in the state to be recyclable or compostable by 2032.

In October 2021, the state of Washington adopted a statewide ban on certain carryout bags.

Individual cities such as Los Angeles, San Diego and Honolulu have also passed their own complimentary ordinances to limit single-use plastic products.

For example, California passed Bill 54 in June 2022, requiring all packaging in the state to be recyclable or compostable by 2032.

Rhode Island passed Bill 5090 in June 2023, banning restaurants and food service establishments from processing, preparing, selling or providing food or drinks in disposable food containers made from polystyrene foam.

Delaware passed Bill 51 in August 2023, prohibiting polystyrene foam containers, plastic beverage stirrers, and sandwich picks beginning July 1, 2025.

A variety of individual cities have also passed their own complimentary ordinances to limit single-use plastic products.

As more governments enact regulations to prevent and reduce waste that is harmful to the environment, and more consumers are actively taking steps towards being more sustainable, the demand for eco-friendly disposable products is on the rise.

In order to better position ourselves for this change in the industry landscape, we have significantly expanded our eco-friendly product offerings.

As of December 31, 2022, we have over 400 SKUs of eco-friendly products that our customers can choose from.

In order to better position ourselves for this change in the industry landscape, we have significantly expanded our sourcing of eco-friendly products and increased the number of related product offerings.

As of December 31, 2023, we had over 500 SKUs of eco-friendly products that our customers could choose from, up from approximately 400 as of the prior year end.

Our Operations

11 unchanged sentences

These substances are known for their extreme persistence in the environment upon discharge.

Our warehouse departments also have certain sustainability practices implemented.

By reusing paper cardboard boxes as well as wooden pallets for inventory storage and shipments, we are able to further reduce our carbon footprint.

Our commitment to sustainability is also demonstrated in our focus on recycling and reusing.

Our warehouse departments have implemented the practice of reusing paper cardboard boxes and wooden pallets for inventory storage and shipments.

We offer credits to certain customers that return and reuse wooden pallets.

We train our warehouse and janitorial staff to properly dispose of and recycle all types of material including paper, plastic, and scrap metal.

The utilization of trash compacting services has allowed us to minimize the frequency of waste pickups and also reduce landfill space.

We have installed LED bulbs in light fixtures within both the warehouse and office space that are more efficient than traditional fluorescent counterparts as well as with timers that automatically turn off lights after a period of time if no movement is detected.

We have also programmed our HVAC units at some of our locations to run on predetermined schedules to reduce our overall power consumption.

Additionally, we are transitioning our company fleet from being gas powered to those that run entirely on electricity.

To the extent possible, we have also switched over from single use batteries to rechargeable battery packs in our line up of tools and equipment.

Our Company as a whole has also made strides to reduce the need for paper and ink by embracing a more digital form of paperwork retention.

Through these various efforts, we play our part to reduce our carbon footprint and will continue to look into and implement further sustainable practices.

We are regulated by certain federal, state and international environmental laws governing our use, transport and disposal of production materials and control of emissions.

20 unchanged sentences

• Mitigating risks associated with known hazards and conditions.

We also support the community uptake of approved COVID-19 vaccines as the most effective measure to control the global pandemic and we strongly encourage that our employees receive an approved vaccine.

We have taken and will continue to take critical steps to keep our people, customers and communities safe from COVID-19.

Diversity, Equity, and Inclusion (DEI)

3 unchanged sentences

As a business founded by representatives from a minority group in the United States, diversity and inclusion is engrained in our corporate history.

We believe that a diverse workforce is essential to its long-term success and strives to foster a diverse, equitable, and inclusive culture where all voices are heard, valued, and included.

We believe that a diverse workforce is essential to its long-term success and strive to foster a diverse, equitable, and inclusive culture where all voices are heard, valued, and included.

Management embraces employees’ differences in race, color, religion, age, sex, sexual orientation, marital status, citizenship, national origin, geographic background, military or veteran status, disability (mental or physical), and any other characteristics that make our employees unique.

24 unchanged sentences

A total of 2,000,000 shares of common stock has been authorized and reserved for issuance under the Plan in the form of incentive or nonqualified stock options and stock awards.

As of December 31, 2023, a total of 649,316 shares of common stock were awarded under the Plan.

Employees, directors, and consultants are eligible to receive stock options and stock awards under the Plan.

16 unchanged sentences

Initially our business was focused on the establishment, franchising and licensing of bubble tea stores nationwide.

Considered a pioneer for the bubble tea business in North America, our business grew rapidly from a single Lollicup Tea Café store in 2000 to more than 60 stores in 2006.

Considered a pioneer for the bubble tea business in North America, our business grew rapidly from a single Lollicup store in 2000 to more than 60 stores in 2006.

In order to ensure consistency across our stores, we expanded our focus in 2004 to include the distribution of supplies for the bubble tea industry.

14 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business