What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2025-03-14 compared with 2024-03-15 · 291 added, 294 removed, 667 unchanged (47% of the section changed)

4 unchanged sentences

Report of Independent Registered Public Accounting Firm (PCAOB ID No.

Report of Independent Registered Public Accounting Firm (BDO USA, LLP, Los Angeles, California, PCAOB ID No.

Consolidated Balance Sheets

6 unchanged sentences

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Karat Packaging Inc.

and its subsidiaries (the “Company”) as of December 31, 2023, and the related consolidated statements of income, of stockholders’ equity and of cash flows for the year then ended, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of Karat Packaging Inc.

and its subsidiaries (the "Company") as of December 31, 2024 and 2023, and the related consolidated statements of income, of stockholders’ equity and of cash flows for the years then ended, including the related notes (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

1 unchanged sentence

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

2 unchanged sentences

We have served as the Company’s auditor since 2023.

Report of Independent Registered Public Accounting Firm

Stockholders and Board of Directors

KARAT PACKAGING INC.

Chino, California

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Karat Packaging Inc.

and subsidiaries (the “Company”) as of December 31, 2022, the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022, and the results of its operations and its cash flows for the year then ended , in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Method Related to Leases

As discussed in Notes 2 and 15 to the consolidated financial statements, the Company has changed its method for accounting for leases effective January 1, 2022 due to the adoption of Accounting Standards Codification 842 - Leases.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ BDO USA, LLP

Los Angeles, California

March 16, 2023

We served as the Company’s auditor from 2016 through 2023.

KARAT PACKAGING INC.

AND SUBSIDIARIES

3 unchanged sentences

Current assets

Cash and cash equivalents (including $ 13,566 and $ 2,022 associated with variable interest entity at December 31, 2023 and 2022, respectively)

Cash and cash equivalents (including $ 1,703 and $ 13,566 associated with variable interest entity at December 31, 2024 and December 31, 2023, respectively)

$ 31,584 $ 23,076

Short-term investments 26,343 —

Accounts receivable, net of allowance for bad debt of $ 392 and $ 1,260 at December 31, 2023 and 2022, respectively (including $ 0 and $ 6 associated with variable interest entity at December 31, 2023 and 2022, respectively)

Short-term investments (including $ 11,128 and $ 0 associated with variable interest entity at December 31, 2024 and December 31, 2023, respectively)

28,343 26,343

Accounts receivable, net of allowance for bad debt of $ 758 and $ 392 at December 31, 2024 and December 31, 2023, respectively

26,736 27,763

Inventories 70,722 71,528

Prepaid expenses and other current assets (including $ 82 and $ 191 associated with variable interest entity at December 31, 2023 and 2022, respectively)

Prepaid expenses and other current assets (including $ 27 and $ 82 associated with variable interest entity at December 31, 2024 and December 31, 2023, respectively)

Total current assets 160,997 154,929

Property and equipment, net (including $ 44,185 and $ 45,399 associated with variable interest entity at December 31, 2023 and 2022, respectively)

Property and equipment, net (including $ 42,972 and $ 44,185 associated with variable interest entity at December 31, 2024 and December 31, 2023, respectively)

87,982 95,226

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Operating right-of-use assets 40,628 20,739

Other assets (including $ 53 and $ 38 associated with variable interest entity at December 31, 2023 and 2022, respectively)

Other non-current assets (including $ 34 and $ 53 associated with variable interest entity at December 31, 2024 and December 31, 2023, respectively)

Total assets $ 294,522 $ 276,397

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Current liabilities

Accounts payable (including $ 63 and $ 2 associated with variable interest entity at December 31, 2023 and 2022, respectively)

Accounts payable (including $ 16 and $ 63 associated with variable interest entity at December 31, 2024 and December 31, 2023, respectively)

$ 17,831 $ 18,446

Accrued expenses (including $ 591 and $ 625 associated with variable interest entity at December 31, 2023 and 2022, respectively)

Accrued expenses (including $ 489 and $ 591 associated with variable interest entity at December 31, 2024 and December 31, 2023, respectively)

13,555 10,576

Related party payable 3,130 5,306

Customer deposits (including $ 116 and $ 165 associated with variable interest entity at December 31, 2023 and 2022, respectively)

Long-term debt, current portion (including $ 1,122 and $ 957 associated with variable interest entity at December 31, 2023 and 2022, respectively)

Income taxes payable (including $ 3 and $ 0 associated with variable interest entity at December 31, 2024 and December 31, 2023, respectively)

Deferred revenue (including $ 0 and $ 116 associated with variable interest entity at December 31, 2024 and December 31, 2023, respectively)

Long-term debt, current portion (including $ 1,179 and $ 1,122 associated with variable interest entity at December 31, 2024 and December 31, 2023, respectively)

Operating lease liabilities, current portion 8,977 4,800

Other payables (including $ 1,302 and $ 0 associated with variable interest entity at December 31, 2023 and 2022, respectively)

Other current liabilities (including $ 916 and $ 1,302 associated with variable interest entity at December 31, 2024 and December 31, 2023, respectively)

Total current liabilities 46,447 44,401

1 unchanged sentence

Deferred tax liability 426 4,197

Long-term debt, net of current portion and debt discount of $ 203 and $ 216 at December 31, 2023 and December 31, 2022, respectively (including $ 48,396 and $ 41,558 associated with variable interest entity at December 31, 2023 and 2022, respectively, and debt discount of $ 203 and $ 216 associated with variable interest entity at December 31, 2023 and 2022, respectively)

Long-term debt, net of current portion and debt discount of $ 141 and $ 203 at December 31, 2024 and December 31, 2023, respectively (including $ 47,279 and $ 48,396 associated with variable interest entity at December 31, 2024 and December 31, 2023, respectively, and debt discount of $ 141 and $ 203 associated with variable interest entity at December 31, 2024 and December 31, 2023, respectively)

47,279 48,396

Operating lease liabilities, net of current portion 35,435 16,687

Other liabilities (including $ 0 and $ 1,302 associated with variable interest entity at December 31, 2023 and 2022, respectively)

Other non-current liabilities (including $ 1,198 and $ 0 associated with variable interest entity at December 31, 2024 and December 31, 2023 respectively)

Total liabilities 132,323 113,707

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stockholders’ equity

Preferred stock, $ 0.001 par value, 10,000,000 shares authorized, no shares issued and outstanding, as of December 31, 2023 and 2022

Preferred stock, $ 0.001 par value, 10,000,000 shares authorized, no shares issued and outstanding, as of December 31, 2024 and December 31, 2023

Common stock, $ 0.001 par value, 100,000,000 shares authorized, 20,059,505 and 20,036,505 shares issued and outstanding, respectively, as of December 31, 2024 and 19,988,482 and 19,965,482 shares issued and outstanding, respectively, as of December 31, 2023

Additional paid in capital 89,457 86,667

Treasury stock, $ 0.001 par value, 23,000 shares as of both December 31, 2023 and 2022

Treasury stock, $ 0.001 par value, 23,000 shares as of both December 31, 2024 and December 31, 2023

( 248 ) ( 248 )

16 unchanged sentences

Selling expenses 52,286 41,490

General and administrative expenses (including $ 2,749 and $ 2,775 associated with variable interest entity for the years ended December 31, 2023 and 2022, respectively)

General and administrative expenses (including $ 2,358 and $ 2,749 associated with variable interest entity for the year ended December 31, 2024 and 2023, respectively)

71,530 66,952

Impairment expense and loss (gain), net, on disposal of machinery

Impairment expense and loss, net, on disposal of machinery

Total operating expenses 126,568 110,967

1 unchanged sentence

Other income (expenses)

Rental income (including $ 981 and $ 949 associated with variable interest entity for the years ended December 31, 2023 and 2022, respectively)

Other expense, net

( 45 ) ( 228 )

Rental income (including $ 1,038 and $ 981 associated with variable interest entity for the year ended December 31, 2024 and 2023, respectively)

Oth er income (expenses), net

Gain on foreign currency transactions

Interest income (including $ 606 and $ 2,171 associated with variable interest entity for the years ended December 31, 2023 and 2022, respectively)

Interest expense (including $ 2,019 and $ 1,821 associated with variable interest entity for the years ended December 31, 2023 and 2022, respectively)

Interest income (including $ 470 and $ 606 a ssociated with variable interest entity for the year ended December 31, 2024 and 2023, respectively)

Interest expense (including $ 2,062 and $ 2,019 associated with variable interest entity for the year ended December 31, 2024 and 2023, respectively)

( 2,123 ) ( 2,043 )

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6,860 — — — 123 — 123 — 123

Distributions to shareholders, net of tax withholding

— — — — — — — ( 2,295 ) ( 2,295 )

Noncontrolling interest tax withholding — — — — — — — ( 94 ) ( 94 )

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Exercise of stock options 39,473 — — — 725 — 725 — 725

Distributions to shareholders, net of tax withholding

Global Wells noncontrolling membership interest redemption — — — — — ( 316 ) ( 316 ) ( 2,893 ) ( 3,209 )

Refund of Global Wells members' tax withholding payments

— — — — — 18 18 102 120

Noncontrolling interest tax withholding — — — — — — ( 94 ) ( 94 )

Net income — — — — — 29,975 29,975 849 30,824

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Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization (including $ 1,214 associated with variable interest entity for both the year ended December 31, 2023 and 2022)

Depreciation and amortization (including $ 1,213 and $ 1,214 associated with variable interest entity for the year ended December 31, 2024 and 2023, respectively)

10,675 10,783

1 unchanged sentence

Adjustments to inventory reserve 290 ( 399 )

Write-off of inventory 3,897 3,470

Write-off of inventories

Impairment of deposits — 549

Write-off of vendor prepayment — 1,124

Loss (gain), net, on disposal of machinery and equipment 2,002 ( 32 )

Change in fair value of interest rate swap (including $ 0 and $ 2,159 associated with variable interest entity for the year ended December 31, 2023 and 2022, respectively)

Impairment of operating right-of-use asset

Loss, net, on disposal of machinery and equipment

Amortization of loan fees (including $ 62 and $ 57 associated with variable interest entity for the year ended December 31, 2024 and 2023, respectively)

Accrued interest on certificates of deposit ( 155 ) —

Accrued interest on certificates of deposit (including $ 50 and $ 0 associated with variable interest entity for the year ended December 31, 2024 and 2023, respectively)

( 50 ) ( 155 )

Stock-based compensation 2,065 770

1 unchanged sentence

Deferred income taxes ( 3,771 ) ( 959 )

Government grant income (including $ 187 and $ 0 associated with variable interest entity for the year ended December 31, 2024 and 2023, respectively)

(Increase) decrease in operating assets

Accounts receivable (including $ 6 and $ 18 associated with variable interest entity for the year ended December 31, 2023 and 2022, respectively)

Accounts receivable (including $ 32 and $ 6 a ssociated with variable interest entity for the year ended December 31, 2024 and 2023, respectively)

Inventories ( 942 ) ( 3,820 )

Prepaid expenses and other current assets (including $ 109 and $ 75 associated with variable interest entity for the year ended December 31, 2023 and 2022, respectively)

Prepaid expenses and other current assets (including $ 23 and $ 109 a ssociated with variable interest entity for the year ended December 31, 2024 and 2023, respectively)

2,776 ( 466 )

Other assets (including $ 14 and $ 27 associated with variable interest entity for the year ended December 31, 2023 and 2022, respectively)

Other non-current assets (including $ 20 and $ 14 associated with variable interest entity for the year ended December 31, 2024 and 2023, respectively)

Increase (decrease) in operating liabilities

Accounts payable (including $ 60 and $ 495 associated with variable interest entity for the year ended December 31, 2023 and 2022, respectively)

Accrued expenses (including $ 34 and $ 402 associated with variable interest entity for the year ended December 31, 2023 and 2022, respectively)

Accounts payable (including $ 47 and $ 60 as sociated with variable interest entity for the year ended December 31, 2024 and 2023, respectively)

Accrued expenses (includin g $ 102 and $ 34 as sociated with variable interest entity for the year ended December 31, 2024 and 2023, respectively)

Related party payable ( 2,176 ) 366

Income taxes payable — ( 85 )

Customer deposits (including $ 49 and $ 77 associated with variable interest entity for the year ended December 31, 2023 and 2022, respectively)

Operating lease liability ( 4,642 ) ( 3,780 )

Other liabilities (including $ 0 and $ 1 associated with variable interest entity for the year ended December 31, 2023 and 2022, respectively)

Income taxes payable (including $ 3 and $ 0 associated with variable interest entity for the year ended December 31, 2024 and 2023, respectively)

Deferred revenue (including $ 0 and $ 49 a ssociated with variable interest entity for the year ended December 31, 2024 and 2023, respectively)

( 281 ) ( 330 )

Operating lease liabilities

( 6,679 ) ( 4,642 )

Other liabilities

Net cash provided by operating activities $ 47,982 $ 53,379

2 unchanged sentences

Purchases of property and equipment ( 934 ) ( 2,835 )

Proceeds on disposal of property and equipment 841 77

Proceeds from disposal of property and equipment

Payments for costs incurred from sale of machinery and equipment — ( 186 )

3 unchanged sentences

Deposits paid for property and equipment ( 3,134 ) ( 6,309 )

Proceeds from settlement of interest rate swap (including $ 0 and $ 825 associated with variable interest entity for the year ended December 31, 2023 and 2022, respectively)

Purchase of short-term investments (including $ 8,000 and $ 0 associated with variable interest entity for the year ended December 31, 2023 and 2022, respectively)

Purchases of publicly-traded equity securities

Purchases of short-term investments (including $ 18,078 and $ 8,000 associated with variable interest entity for the year ended December 31, 2024 and 2023, respectively)

( 50,806 ) ( 49,188 )

Redemption of short-term investments (including $ 7,000 and $ 8,000 associated with variable interest entity for the year ended December 31, 2024 and 2023, respectively)

48,856 23,000

Net cash used in investing activities

$ ( 5,855 ) $ ( 30,174 )

Cash flows from financing activities

Proceeds from line of credit — 21,100

Payments on line of credit — ( 21,100 )

Proceeds from long-term debt (including $ 0 and 8,000 associated with variable interest entity for the year ended December 31, 2024 and 2023, respectively)

6 unchanged sentences

Distributions to shareholders, net of tax withholding (including $ 0 and $ 2,295 associated with variable interest entity for the year ended December 31, 2024 and 2023, respectively)

Payments of noncontrolling interest tax withholding (including $ 0 and $ 1,063 associated with variable interest entity for the year ended December 31, 2023 and 2022, respectively)

Payment for Global Wells noncontrolling membership interest redemption (including $ 2,010 and $ 0 associated with variable interest entity for the year ended December 31, 2024 and 2023, respectively)

Refund of Global Wells members' tax withholding payments (including $ 120 and $ 0 associated with variable interest entity for the year ended December 31, 2024 and 2023, respectively)

Net cash used in financing activities

$ ( 33,619 ) $ ( 16,170 )

Net increase in cash and cash equivalents

$ 8,508 $ 7,035

Cash and cash equivalents

Beginning of year $ 16,041 $ 6,483

End of year $ 23,076 $ 16,041

Beginning of period

$ 23,076 $ 16,041

End of period

$ 31,584 $ 23,076

Supplemental disclosures of non-cash investing and financing activities:

Transfers from deposit to property and equipment $ 10,463 $ 9,859

Transfers from deposits to property and equipment

$ 3,708 $ 10,463

Non-cash purchases of property and equipment $ 122 $ 148

Supplemental disclosures of cash flow information:

Cash paid for income tax $ 11,765 $ 8,303

Cash paid for income taxes

$ 10,969 $ 11,765

Cash paid for interest $ 2,031 $ 1,996

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Lollicup USA Inc.

(“Lollicup”) was incorporated on January 21, 2001 under the laws of the State of California as an S-corporation.

Effective January 1, 2018, Lollicup elected to convert from an S-Corporation to a C-Corporation.

(“Lollicup”) was incorporated in 2001 in California.

Karat Packaging Inc.

(“Karat Packaging”) was incorporated on September 26, 2018 as a Delaware corporation and became the holding company for Lollicup (collectively, the “Company”) through a share exchange with the shareholders of Lollicup.

On April 15, 2021, the Company completed an initial public offering of shares of its common stock.

The shares are listed on the NASDAQ Global Market under the symbol "KRT".

(“Karat Packaging”) was incorporated in 2018 in Delaware and became the parent company for Lollicup (collectively, the “Company”) through a share exchange with the shareholders of Lollicup.

The Company's are listed on the NASDAQ Global Market under the symbol "KRT".

The Company is a manufacturer and distributor of single-use disposable products used in a variety of restaurant and foodservice settings.

The Company supplies a wide range of products such as food containers, tableware, cups, lids, cutlery, and straws.

The products are available in plastic, paper, bagasse, biopolymer-based, and other compostable forms.

In addition to manufacturing and distribution, the Company offers customized solutions to customers, including new product development, design, printing, and logistics services, and distributes certain specialty food and beverages products, such as syrups, boba, and coffee drinks.

The Company supplies products to national and regional distributors, supermarkets, airlines, restaurants, and convenience stores as well as to smaller chains and businesses including coffee houses, bubble tea cafes, pizza parlors, and frozen yogurt shops.

The Company supplies a wide range of products such as food and take-out containers, bags, boxes, tableware, cups, lids, cutlery, and straws.

The products are available in plastic, paper, biopolymer-based, and other compostable forms.

In addition to manufacturing and distribution, the Company also offers customized solutions to customers, including new product design and development, custom printing, distribution of specialty food and beverage products, such as syrups, boba, and coffee drinks, as well as logistics services.

The Company supplies products to national and regional distributors, restaurant chains, supermarkets, as well as to small businesses including convenience stores, mom-and-pop restaurants, coffee houses, bubble tea cafes, pizza parlors, and frozen yogurt shops.

The Company currently operates manufacturing facilities and distribution centers in Chino, California;

Rockwall, Texas, and Kapolei, Hawaii.

In addition, the Company operates eight other distribution centers located in Puyallup, Washington;

Rockwall, Texas;

and Kapolei, Hawaii.

In addition, the Company operates seven other distribution centers located in Puyallup, Washington;

Summerville, South Carolina;

1 unchanged sentence

Kapolei, Hawaii;

City of Industry, California, Aurora, Illinois;

Aurora, Illinois;

Mesa, Arizona;

and Sugar Land, Texas.

As described in Note 22 — Subsequent Events , the Company entered into a lease agreement on February 12, 2024 for an additional distribution center in Mesa, Arizona.

As described in Note 22 — Subsequent Events , the Company entered into a lease agreement on March 3, 2025 for an additional distribution center in Chino, California.

Summary of Significant Accounting Policies

3 unchanged sentences

The consolidated financial statements include the accounts of Karat Packaging and its wholly-owned and controlled operating subsidiaries:

Lollicup, Lollicup Franchising, LLC (“Lollicup Franchising”), and Global Wells, a variable interest entity wherein the Company is the primary beneficiary.

Lollicup, Lollicup Franchising, LLC, and Global Wells Investment Group ("Global Wells"), a variable interest entity wherein the Company is the primary beneficiary.

All intercompany accounts and transactions have been eliminated.

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Estimates and Assumptions:

Management uses estimates and assumptions in preparing financial statements in accordance with GAAP.

Management uses estimates and assumptions in preparing financial statements in accordance with US GAAP.

Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses.

Actual results could differ materially from the estimates that were assumed in preparing the consolidated financial statements.

Estimates that are significant to the consolidated financial statements include stock-based compensation, allowance for doubtful accounts and reserve for excess and obsolete inventory.

Estimates that are significant to the consolidated financial statements include allowance for doubtful accounts and reserve for excess and obsolete inventory.

Reporting Segments:

The Company manages and evaluates its operations in one reportable segment.

This segment consists of manufacturing and distribution of a broad portfolio of single-use products that are used to serve food and beverages and are available in plastic, paper, bagasse, biopolymer-based, and other compostable forms .

It also consists of the distribution of certain specialty food and beverage products, such as syrup, boba, and coffee drinks, as well as restaurant and warehouse supplies.

It also consists of the distribution of certain specialty food and beverage products, such as syrup, boba, and coffee drinks, as well as restaurant

and warehouse supplies.

The Company’s long-lived assets are all located in the United States, and its revenues are almost entirely generated in the United States.

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Diluted earnings per common share is calculated by adjusting weighted average outstanding shares, assuming conversion of all potentially dilutive shares.

Out-of-period adjustment:

During the quarter ended December 31, 2023, the Company recorded an out-of-period adjustment to write-off a vendor prepayment of $ 1,124,000 due to the resolution of a legal contingency that should have been reflected in its quarterly financial statements for the quarter ended September 30, 2023.

The Company evaluated the error and determined it was immaterial to both impacted periods.

Although the full year financial statements for the year ended December 31, 2023 are not affected, the impact of the adjustment for the quarter ended December 31, 2023 was a decrease to other assets and an increase in general and administrative expenses of $ 1,124,000 and a tax-effected decrease to net income of $ 847,000 .

See Note 20 — Commitments and Contingencies for further discussion about this litigation.

During the quarter ended December 31, 2023, the Company also recorded the following misclassification adjustments for the full year amounts within the consolidated statement of income with no impact on net income:

(i) $ 6,440,000 of online sales third-party platform fees from net sales to selling expense, including $ 4,764,000 deemed to be out-of-period, (ii) $ 3,947,000 of certain production expenses primarily related to machinery repair and maintenance from general and administrative expenses to cost of goods sold, including $ 3,392,000 deemed to be out-of-period, and (iii) $ 2,147,000 of payroll and employee-related costs for the Company's sales team within operating expenses from general and administrative expenses to selling expenses, including $ 1,529,000 deemed to be out-of-period.

All of the three out-of-period adjustments were recorded to correct immaterial errors in the Company's previously issued quarterly financial statements for the quarters ended March 31, June 30 and September 30, 2023.

The aggregate impact of these out-of-period adjustments for the quarter ended December 31, 2023 was an increase in net sales of $ 4,764,000 , an increase in cost of goods sold of $ 3,392,000 , an increase in selling expenses of $ 6,293,000 , and a decrease in general and administrative expenses of $ 4,921,000 .

These misclassification adjustments had no effect on totals for assets and liabilities, shareholders' equity, cash flows or net income for either the quarter ended December 31, 2023 or any of the previously reported quarters.

Reclassification:

Certain prior period amounts have been reclassified to conform to the current period presentation.

These reclassifications had no effect on previously reported totals for assets and liabilities, shareholders' equity, cash flows or net income.

Cash and cash equivalents:

The Company considers all highly liquid investments purchased with an original maturity at the date of purchase of three months or less to be cash equivalents.

At December 31, 2023 and 2022, cash and cash equivalents were comprised of cash on hand, cash deposited with banks, and cash held in certain money market fund.

The Company generally considers all highly liquid investments purchased with an original maturity at the date of purchase of three months or less to be cash equivalents.

At December 31, 2024 and 2023, cash and cash equivalents were comprised of cash on hand, cash deposited with banks, certificates of deposit, and cash held in a certain money market fund.

Accounts Receivable and Allowances:

2 unchanged sentences

The Company recognizes an allowance for doubtful accounts on accounts receivable in an amount equal to the estimated expected losses net of recoveries.

The Company estimates this allowance based on knowledge of the customers' financial condition, review of historical receivable and reserve trends, and other pertinent information.

The allowance is based on an analysis of historical bad debt write-offs, current past due customers in the aging, risk profiles associated with different customer types, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible.

The Company also maintains a sales allowance primarily related to potential billing adjustments due to situations such as product returns and damages.

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Machinery and equipment 3 years to 15 years

Leasehold improvements Lesser of useful life or lease term

Vehicles 5 years

Furniture and fixtures 7 years

Leasehold improvements

Lesser of useful life or lease term

Vehicles 3 years to 5 years

Furniture and fixtures 3 years to 7 years

Building and building improvements 10 years to 40 years

Property held under capital leases 3 years to 5 years

Computer hardware and software 3 years

Computer hardware and software 1 year to 3 years

Direct costs of constructing or acquiring property and equipment are capitalized as construction in progress.

Depreciation would start when construction or acquisition is completed and the asset is ready for its intended use, at which point the construction in progress is transferred to property and equipment.

Normal repairs and maintenance are expensed as incurred, whereas significant changes that materially increase values or extend useful lives are capitalized and depreciated over the estimated useful lives of the related assets.

Deposits are payments made for machinery and equipment as well as construction and improvement for the Company’s facilities.

Included in deposits are also payments made to lessors of leased properties as security for the full and faithful observance of contracts, which will be refunded to the Company upon expiration or termination of the contract.

During the year ended December 31, 2023, the Company recorded an impairment charge of $ 523,000 related to the cancellation of certain non-refundable equipment purchase commitments that it had previously paid deposits towards.

There were no deposit impairment charges recorded for the year ended December 31, 2024.

Impairment of Long-lived Assets:

1 unchanged sentence

If such events or circumstances exist, an impairment test is performed which comprises of two steps.

The first step compares the carrying amount of the asset to the sum of expected undiscounted future cash flows.

The first step compares the carrying

amount of the asset to the sum of expected undiscounted future cash flows.

If the sum of expected undiscounted future cash flows exceeds the carrying amount of the asset, no impairment is taken.

If the sum of expected undiscounted future cash flows is less than the carrying amount of the asset, a second step is warranted and an impairment loss is measured as the amount by which the carrying amount of the asset exceeds its fair value calculated using the present value of estimated net future cash flows.

For the years ended December 31, 2023 and 2022, management concluded that an impairment of long-lived assets was not required.

During the year ended December 31, 2024, the Company recorded an impairment charge against its operating right-of-use ("ROU") assets of $ 1,993,000 .

See Note 14 — Leases for further information about this impairment charge.

For the year ended December 31, 2023, management concluded that an impairment of long-lived assets was not required.

Business Combination and Goodwill:

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Government Grants:

Government grants are not recognized unless there is reasonable assurance that Lollicup and Global Wells, recipients of the grants, will comply with the grants’ conditions and that the grants will be received.

As of December 31, 2023 and 2022, Lollicup received cumulative grants of $ 1,500,000 and $ 1,350,000 , respectively.

As of both December 31, 2023 and 2022, Global Wells received cumulative grants of $ 1,302,000 .

These grants are reported as deferred income within other payable in the accompanying consolidated balance sheet as of December 31, 2023, and within other liabilities in the accompanying consolidated balance sheet as of December 31, 2022, as Lollicup and Global Wells have not fully met all conditions attached to the grants.

These conditions include requiring the facility in Rockwall, Texas to maintain a certain minimum tax value for 5 years calendar years through 2024 (the “Required Period”), continue operations in the facility for the Required Period, have a minimum number of full time equivalent employees with a minimum average annual gross wage employed in the operation of the facility in the Required Period, and promise to not engage in a pattern or practice of unlawful employment of aliens during the Required Period.

Derivative Instruments:

Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 815, Derivatives and Hedging , requires companies to recognize all of its derivative instruments as either assets or liabilities in the balance sheet at fair value.

The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship.

For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow

hedge, or a hedge of a net investment in a foreign operation.

For derivative instruments not designated as hedging instruments, the gain or loss is recognized in the statement of income during the current period.

In June 2019, Global Wells entered into an interest rate swap to manage interest rate risk, and accounted for such interest rate swap as a derivative instrument under ASC 815.

In June 2022, Global Wells terminated this interest rate swap.

The interest rate swap was not designated for hedge accounting and as such, changes in the fair value of the interest rate swap were recognized as interest income during the year ended December 31, 2022.

See Note 11 — Interest Rate Swap for additional information on the interest rate swap and the related termination.

Both Lollicup and Global Wells had received certain government grants (the "Grants"), totaling $ 1,500,000 and $ 1,302,000 , respectively, as of December 31, 2023.

The Grants were provided to facilitate the Company's acquisition of land in Rockwall, Texas and the subsequent construction and operation of a facility (the “Facility”) in order to promote local business activity.

The Grants comprised of $ 1,800,000 monetary grants and $ 1,002,000 non-monetary grants in the form of discount on the purchase price of the land acquisition price.

The Grants were subject to specific conditions, including maintaining a minimum tax value for the facility in Rockwall, Texas for five calendar years through 2024 (the “Required Period”), continuing operations at the Facility during the Required Period, employing a minimum number of full-time equivalent employees with a minimum average annual gross wage during the Required Period, and refraining from engaging in a pattern or practice of unlawful employment of aliens during the Required Period.

The Company determined the Grants to be grants related to assets, and elected to recognize the grant liability into income over the useful life of the Facility once the Grants had been received and there was reasonable assurance that both entities would comply with all grant conditions through the end of the Required Period.

For the year ended December 31, 2024, the Company recorded $ 360,000 of grant income as an offset to general and administrative expenses in the consolidated statement of income and expects that the $ 70,000 in other current liabilities and $ 2,372,000 in other non-current liabilities as of December 31, 2024 related to the Grants on the consolidated balance sheet will be similarly amortized over the remaining useful life of the Facility as an offset against general and administrative expenses in the consolidated statement of income.

Variable Interest Entities:

The Company has a variable interest in Global Wells.

In 2017, Lollicup along with three other unrelated parties formed Global Wells.

Lollicup has a 13.5 % ownership interest and a 25 % voting interest in Global Wells, located in Rockwall, Texas.

The purpose of this entity is to own, construct, and manage warehouses and manufacturing facilities.

Global Wells’ operating agreement may require its members to make additional contributions only upon the unanimous decision of the members or where the cash in Global Wells’ bank account falls below $ 50,000 .

The Company has a variable interest in Global Wells located in Rockwall, Texas.

In 2017, Lollicup along with three other unrelated parties formed Global Wells, of which Lollicup received a 13.5 % ownership interest and a 25 % voting interest.

On February 29, 2024, Global Wells and one of its members (the "Selling Member") entered into a membership interest redemption agreement, under which the Selling Member sold and Global Wells purchased and redeemed all of the Selling Member's 10.8 % ownership interest in Global Wells for a total cash consideration of $ 3,208,000 , subject to tax withholding.

Subsequent to the redemption, the ownership interests and voting power of the remaining members of Global Wells were adjusted proportionally, with Lollicup's ownership interest increasing to 15.1 % and voting interest increasing to 33.3 %.

During the year ended December 31, 2024, a total cash payment of $ 2,325,000 , net of tax withholding, was made to the Selling Member in full consideration of the redemption.

The purpose of Global Wells is to own, construct, and manage warehouses and manufacturing facilities.

Global Wells’ operating agreement may require its members to make additional contributions upon the unanimous decision of the members or when the cash in Global Wells’ bank account falls below $ 50,000 .

In the event that a member is unable to make an additional capital contribution, the other members will be required to make contributions to offset the amount that member cannot contribute, up to $ 25,000 .

Global Wells was determined to be a variable interest entity in accordance with ASC Topic 810, Consolidations , however, at the time the investment was made, it was determined that Lollicup was not the primary beneficiary.

In 2018, Lollicup entered into an operating lease with Global Wells (“Texas Lease”).

In 2020, the Company entered into another operating lease with Global Wells (“New Jersey Lease”).

In 2018, Lollicup entered into an operating lease with Global Wells (the “Texas Lease”).

In 2020, the Company entered into another operating lease with Global Wells (the “New Jersey Lease”).

Upon entering into the Texas Lease with Lollicup on March 23, 2018, it was determined that Lollicup holds current and potential rights that give it the power to direct activities of Global Wells that most significantly impact Global Wells’ economic performance, the ability to receive significant benefits, and the obligation to absorb potentially significant losses, resulting in Lollicup having a controlling financial interest in Global Wells.

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The monthly lease payments for both the Texas Lease and New Jersey Lease are eliminated upon consolidation.

See Note 3 — Global Wells for standalone financial information.

Assets recognized as a result of consolidating Global Wells do not represent additional assets that could be used to satisfy claims against the Company’s general assets.

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Revenue Recognition:

The Company generates revenues from product sales to customers that include national chains.

regional chains, distributors, small local restaurants, and those that purchase for individual consumption primarily through our online stores.

The Company generates revenues from product sales to customers that include national, and regional chains, distributors, small local restaurants, and those that purchase for individual consumption primarily through our online stores.

The Company considers revenue disaggregated by customer type to most accurately reflect the nature and uncertainty of its revenue and cash flows that are affected by economic factors.

For the years ended December 31, 2023 and 2022, net sales disaggregated by customer type consist of the amounts shown below.

For the year ended December 31, 2024 and 2023, net sales disaggregated by customer type consist of the amounts shown below.

Year Ended December 31,

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• National and regional chains revenue:

National and regional chains revenue is derived from chain restaurants and businesses with locations across multiple states.

National and regional chains revenue is derived from chain restaurants, supermarkets, and other businesses with locations across multiple states or cities.

Revenue from transactions with national and regional chains is recognized at a point in time upon transfer of control of promised products to customers.

Transfer of control typically occurs when the title and risk of loss passes to the customer.

Shipping terms generally indicate when the title and risk of loss have passed, which is generally when the products are shipped from the Company’s facility to the customers.

• Distributors revenue:

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Transfer of control typically occurs when the title and risk of loss passes to the customer.

Shipping terms generally indicate when the title and risk of loss have passed, which is generally when the products are shipped from the Company’s facility to the customers.

• Online revenue:

Online revenue is derived from the Company's online storefront on www.lollicupstore.com, and other e-commerce platforms including Amazon, Walmart, eBay, and TikTok with customers largely consisting of small businesses such as small restaurants, coffee houses, bubble tea cafes, pizza parlors, and frozen yogurt shops .

Online revenue is derived from the Company's online storefront on www.lollicupstore.com and through the Company's mobile app, as well as other e-commerce platforms including Amazon, Walmart, eBay, and TikTok with customers largely consisting of small businesses such as small mom-and-pop restaurants, coffee houses, bubble tea cafes, pizza parlors, and frozen yogurt shops.

Revenue from online transactions is recognized at a point in time upon transfer of control of promised products to customers.

Transfer of control typically occurs when the title and risk of loss passes to the customer.

Shipping terms generally indicate when the title and risk of loss have passed, which is generally when the products are shipped from the Company’s facility to the customers.

For online sales on third-party e-commerce platforms, the Company is the principal in the three-party arrangement and control of the products remains with the Company at all times until transferring to the end customer or upon return from the end customer.

For online sales on third-party e-commerce platforms, the Company is the principal in the three-party arrangement and control of the products remains with the Company until transferring to the end customer or upon return from the end customer.

Online platform fees are recognized as selling expenses.

• Retail revenue:

Retail revenue is derived primarily from regional and local restaurants, coffee houses, bubble tea cafes, pizza parlors, and frozen yogurt shops.

Revenue from retail transactions is recognized at a point in time upon transfer of control of promised products to customers.

Retail revenue is derived primarily from regional and local businesses, small mom-and-pop restaurants, coffee houses, bubble tea cafes, pizza parlors, and frozen yogurt shops.

Revenue from retail transactions is

recognized at a point in time upon transfer of control of promised products to customers.

Transfer of control typically occurs when the title and risk of loss passes to the customer.

Shipping terms generally indicate when the title and risk of loss have passed, which is generally when the products are shipped from the Company’s facility to the customers.

For all of the Company's revenue streams, shipping terms generally indicate when the title and risk of loss have passed, which is generally when products are delivered to customers.

During the year ended December 31, 2024, the Company's revenue and cost of goods sold were understated by approximately $ 700,000 and $ 400,000 , respectively, for products that had been shipped and recorded as revenue and costs of goods sold in 2023 but not delivered until 2024.

In the prior periods, the Company had assessed the impact of the lag between shipping and delivery to the previously-issued quarterly and annual financial statements, and concluded that the impact on its overall financial statements, including net sales, cost of goods sold, accounts receivable, inventories and customer deposits was immaterial.

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

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The Company estimates its variable consideration based on contract terms and historical experience of actual results using the expected value method.

The Company’s contract liabilities consist primarily of rebates, sales incentives, consideration payable to customers for cooperative advertising, and customer deposits.

The Company’s contract liabilities consist primarily of rebates, sales incentives, cooperative advertising, and deferred revenue.

As of December 31, 2024 and 2023, the rebates, sales incentives and cooperative advertising were not significant to the financial statements.

Customer deposits are included in the current liabilities in the consolidated balance sheets.

During the year ended December 31, 2023, and 2022, the Company recognized revenue of $ 1,077,000 and $ 1,104,000 , respectively, related to customer deposits received as of the beginning of each respective year.

Deferred revenue is included in current liabilities in the consolidated balance sheets.

During the year ended December 31, 2024 and 2023, the Company recognized into revenue $ 794,000 and $ 1,077,000 , respectively, of previously deferred revenue at the beginning of each respective year.

Shipping and handling fees billed to a customer are recorded within net sales, with corresponding shipping and handling costs recorded in selling expense on the accompanying consolidated statements of income.

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The Company expenses costs of print production, trade show, online marketing, and other advertisements in the period in which the expenditure is incurred.

Advertising costs included in operating expenses in the consolidated statements of income were $ 4,865,000 and $ 2,418,000 for the years ended December 31, 2023 and 2022, respectively.

Advertising costs included within selling expenses in the consolidated statements of income were $ 6,762,000 and $ 4,865,000 for the years ended December 31, 2024 and 2023, respectively.

Income Taxes:

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ASC 740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

This accounting standard also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

This accounting standard also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and

The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes in the accompanying consolidated statement of income.

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Management believes that the credit risk related to such deposits is minimal.

The Company extends credit based on the valuation of the customers’ financial condition and general collateral is not required.

The Company extends credit based on the valuation of the customers’ financial condition and generally collateral is not required.

Management believes the Company is not exposed to any material credit risk on these accounts.

For the years ended December 31, 2023 and 2022, purchases from the following vendor makes up greater than 10 percent of total purchases:

For the years ended December 31, 2024 and 2023, purchases from the following vendor make up greater than 10 percent of total purchases:

Year Ended December 31,

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(“Keary Global”) and its affiliate, Keary International, Ltd.

– related parties 13 % 11 %

("Keary International") – related parties

Amounts due to the following vendors at December 31, 2024 and 2023, respectively, that exceed 10 percent of total accounts payable are as follows:

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Keary Global and its affiliate, Keary International – related parties

LK Global International Ltd.

Fuling Technology Co., Ltd.

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The Company has financial instruments classified within the fair value hierarchy, which consist of the following:

• At December 31, 2024, the Company had money market accounts and investments in publicly-traded equity securities classified as Level 1 and certificates of deposit classified as Level 2 within the fair value hierarchy.

• At December 31, 2023, the Company had money market accounts and certificates of deposit classified as Level 1 and Level 2, respectively, within the fair value hierarchy.

The short-term investments comprise of certificates of deposits with an original maturity of longer than 90 days and are reported at their carrying value as current assets on the consolidated balance sheet.

The carrying value of these short-term investments approximates fair value as they were purchased near or on December 31, 2023.

• At December 31, 2022, the Company had money market accounts classified as Level 1 within the fair value hierarchy, and reported as a current asset on the consolidated balance sheet.

The short-term investments as of December 31, 2024 and 2023 comprised of certificates of deposit with an original maturity of longer than 3 months and are reported at their carrying value as current assets on the consolidated balance sheets.

The carrying value of these short-term investments approximate fair value as they were purchased near or on the respective balance sheet dates.

The following table summarizes the Company’s fair value measurements by level at December 31, 2024 for the assets measured at fair value on a recurring basis:

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Short-term investments — 28,343 —

Publicly-traded equity securities 31 — —

Fair value, December 31, 2024

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Cash equivalents $ 5,956 $ 10,000 $ —

Short-term investments — 26,343 —

Fair value, December 31, 2023

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The Company has not elected the fair value option as presented by ASC 825, Fair Value Option for Financial Assets and Financial Liabilities , for the financial assets and liabilities that are not otherwise required to be carried at fair value.

Under ASC 820, material financial assets and liabilities not carried at fair value, including accounts receivable, accounts payable, related-party payable, accrued and other liabilities, other payable and borrowings under promissory notes and Line of Credit (as defined below), are reported at their carrying value.

Under ASC 820, material financial assets and liabilities not carried at fair value, including accounts receivable, accounts payable, related-party payable, accrued expenses, other payables and borrowings under promissory notes and Line of Credit (as defined below), are reported at their carrying value.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, related-party payable, accrued expenses, and other payable at December 31, 2024 and 2023 approximated fair value because of the short maturity of these instruments.

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2026 Term Loan $ 20,881 $ 19,846

$ 21,490 $ 19,999

2027 Term Loan 27,577 27,174

$ 48,458 $ 47,020

$ 49,518 $ 47,809

December 31, 2023

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2026 Term Loan $ 21,490 $ 19,999

$ 22,168 $ 20,115

2027 Term Loan 28,028 27,810

$ 49,518 $ 47,809

$ 42,731 $ 39,033

The fair value of these financial instruments was determined using Level 2 inputs.

Certain long-lived non-financial assets and liabilities may be required to be measured at fair value on a nonrecurring basis in certain circumstances, including when there is evidence of impairment.

These non-financial assets and liabilities may include assets acquired in a business combination or property and equipment that are determined to be impaired.

As of December 31, 2023 and 2022, the Company did not have any material non-financial assets or liabilities that had been measured at fair value subsequent to initial recognition.

These non-financial assets and liabilities may include assets acquired in a business combination or long-lived assets that are determined to be impaired.

During the year ended December 31, 2024, the Company recorded an impairment against its operating ROU assets of $ 1,993,000 .

See Note 14 — Leases for further information about this impairment charge.

With the exception of the ROU impairment, the Company did not have any long-lived non-financial assets or liabilities that had been measured at fair value subsequent to initial recognition as of December 31, 2024 or 2023.

Foreign Currency:

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This standard requires the Company to record compensation expense equal to the fair value of awards granted to employees and non-employees.

The fair value of share-based payment awards is estimated on the grant-date using the Black-Scholes option pricing model for stock options, and the closing price of the Company's common stock on the trading day immediately prior to the grant date for restricted stock units.

Key input assumptions used in the Black-Scholes option pricing model to estimate the grant date fair value of stock options include the fair value of the Company’s common stock, the expected option term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate, and the Company’s expected annual dividend yield.

The risk-free interest rate assumption for options granted under the 2019 Stock Incentive Plan (the "Plan") is based upon observed interest rates on the United States government securities appropriate for the expected term of the Company’s stock options.

The expected term of employee stock options under the Plan represents the weighted-average period that the stock options are expected to remain outstanding.

The expected term of options granted is calculated based on the “simplified method,” which estimates the expected term based on the average of the vesting period and contractual term of the stock option.

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

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

Stock-based compensation expense is based on awards that ultimately vest.

Forfeitures are accounted for as they occur.

The Company has elected to treat stock-based payment awards with graded vesting schedules and time-based service conditions as separate awards and recognizes stock-based compensation expense over the requisite service period using the graded vesting attribution method.

The determination of stock-based compensation is inherently uncertain and subjective and involves the application of valuation models and assumptions requiring the use of judgment.

If the Company had made different assumptions, its stock-based compensation expense, and its net income could have been significantly different.

The Company accounts for forfeitures as they occur.

There were no stock options granted during both the year ended December 31, 2024 and 2023.

The Company determines if an arrangement is a lease at inception.

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Certain lease agreements contain both lease and non-lease components.

Fixed payments for non-lease components are combined with

lease payments and accounted for together as a single lease component which increases the amount of the lease assets and liabilities.

The Company has elected the practical expedient to not separate lease components from non-lease components and has applied that practical expedient to all material classes of leased assets.

Fixed payments for non-lease components are combined with lease payments and accounted for together as a single lease component which increases the amount of the lease assets and liabilities.

Certain lease agreements contain variable payments, which are expensed as incurred and not included in the lease assets and liabilities.

Right-of-use ("ROU") assets represent the Company's right to use an underlying asset for the lease term, and lease liabilities represent its obligation to make lease payments arising from the lease.

ROU assets represent the Company's right to use an underlying asset for the lease term, and lease liabilities represent its obligation to make lease payments arising from the lease.

ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term using a discount rate based on similarly secured borrowings available to the Company.

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ROU assets and corresponding operating leases liabilities are recognized for all leases with an initial term greater than 12 months.

ROU assets are subject to the Company's long-lived assets impairment testing, as discussed above.

New and Recently Adopted Accounting Standards:

The Company is an emerging growth company as that term is used in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"), and as such, the Company have elected to take advantage of certain reduced public company reporting requirements.

The Company is an emerging growth company as that term is used in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"), and as such, the Company has elected to take advantage of certain reduced public company reporting requirements.

In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards, as a result, the Company will adopt new or revised accounting standards on the relevant dates in which adoption of such standards is required for private companies.

In March 2023, the FASB issued updated ASU 2023-01 Lease (Topic 842):

Common Control Arrangements .

The new guidance amends ASC 842 to require all lessees, including public business entities, to amortize leasehold improvements associated with common control leases over their useful life to the common control group.

The Company adopted this new standard on January 1, 2024, by prospectively amortizing all new leasehold improvements recognized on or after the adoption date.

The adoption of this new standard did not have a material impact on the Company's financial statements.

In November 2023, the FASB issued ASU 2023-07 Segment Reporting (Topic 280):

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The new guidance requires enhanced disclosure of significant expenses that are regularly reported to the chief operating decision maker and the nature of segment expense information used to manage operations.

The new guidance is effective for all public companies for annual reporting periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The Company will adopt the new standard in annual reporting period beginning after December 15, 2023 and is currently evaluating the impacts of the new guidance on its disclosure within the consolidated financial statements.

The Company adopted this new standard for its annual period beginning January 1, 2024.

The adoption of this new standard resulted in additional required disclosures, described further in Note 21 — Segment Report.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

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The Company will adopt the new standard in annual reporting period beginning after December 15, 2025, and is currently evaluating the impacts of the new guidance on its disclosures within the consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03 Income Statement Expenses (Topic 220):

Disaggregation of Income Statement Expenses .

The new guidance requires enhanced disclosure of disaggregated information about specific expense categories in the notes to financial statements on an annual and interim basis.

The new guidance is effective for all public companies for annual reporting periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027.

Early adoption is permitted.

The Company will adopt the new standard in annual reporting period beginning after December 15, 2026.

The application of this new guidance is not expected to have a material impact on the Company’s consolidated balance sheets, statements of income or cash flows, as the guidance pertains to disclosures only.

The following financial information includes assets and liabilities of Global Wells and are included in the accompanying consolidated balance sheets, except for those that eliminate upon consolidation:

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(in thousands)

Cash $ 13,566 $ 2,022

Accounts receivable — 53

Cash and cash equivalents

$ 1,703 $ 13,566

Short-term investments 11,128 —

Prepaid expenses and other current assets 535 558

Due from Lollicup USA Inc.

Property and equipment, net 42,972 44,185

Other assets 3,240 4,262

Other non-current assets

Total assets $ 58,946 $ 61,549

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Accrued expenses 489 591

Customer deposits 116 165

Deferred revenue

Due to Lollicup USA Inc.

Other payable

Income taxes payable

Other current liabilities

Long-term debt, current portion 1,179 1,122

Long-term debt, net of current portion 47,279 48,396

Other liabilities — 1,302

Other non-current liabilities

Total liabilities $ 51,094 $ 51,604

During the year ended December 31, 2023 , Global Wells made a pro rata distribution of its earnings of $ 3,956,000 , net of all applicable withholding taxes, to its four members.

Lollicup received $ 504,000 , net of applicable withholding taxes, which is eliminated in the consolidated financial statements.

See Note 22 — Subsequent Events for discussion about one of Global Well's members redemption of its ownership interest in this entity.

Lollicup received $ 504,000 , net of applicable withholding taxes, which was eliminated in the consolidated financial statements.

During the year ended December 31, 2024, Global Wells and one of its members entered into a membership interest redemption agreement.

See Note 2 — Summary of Significant Accounting Policies for further discussion on the redemption.

Joint Venture

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Total inventories $ 70,722 $ 71,528

During the year ended December 31, 2023, the Company recorded $ 3,897,000 of adjustments and write-off related to certain inventory items, including a $ 1,710,000 write-off of raw materials, as the Company disposed of certain machinery and equipment in executing the strategy to scale back production in certain locations.

See Note 16 — Impairment Expense and Loss (Gain), Net, on Disposal of Machinery for further discussion about the disposal of machinery.

During the year ended December 31, 2022, the Company recorded a $ 3,470,000 write-off of certain inventory items, out of which $ 879,000 was determined to be out-of-period and was recorded to correct immaterial errors in its previously issued quarterly and annual financial statements.

The Company incurred inventory adjustments and write-offs of $ 1,458,000 and $ 3,897,000 for the year ended December 31, 2024 and 2023, respectively.

Included within the amount for the year ended December 31, 2023 was a $ 1,710,000 write-off of raw materials, as the Company disposed of certain machinery and equipment in executing the strategy to scale back production in certain locations.

Inventory adjustments and write-offs are included in cost of goods sold on the accompanying consolidated statements of income.

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Computer hardware and software 94 93

Construction in progress 431 —

146,742 144,962

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Depreciation and amortization expense is reported within general and administrative expense except for depreciation and amortization expense related to manufacturing facilities and equipment, which is included in cost of goods sold on the accompanying consolidated statements of income.

Depreciation and amortization expense on property and equipment reported within general and administrative expense was $ 3,981,000 and $ 4,491,000 for the years ended December 31, 2023 and 2022, respectively.

Depreciation and amortization expense on property and equipment reported within cost of goods sold was $ 6,776,000 and $ 5,887,000 for the years ended December 31, 2023 and 2022, respectively.

For the year ended December 31, 2024 and 2023, depreciation and amortization expense reported within general and administrative expense was $ 4,264,000 and $ 3,981,000 respectively, and depreciation and amortization expense reported within cost of goods sold was $ 6,385,000 and $ 6,776,000 , respectively.

The following table summarizes the activity in the Company's goodwill from December 31, 2022 to December 31, 2024:

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The amendment on March 14, 2023, among other things, (1) extended the maturity date to March 14, 2025, and (2) revised the interest on any Line of Credit borrowings to an annual rate of one month term Secured Overnight Financing Rate ("SOFR") plus 2.50 %, with a SOFR floor of 1.0 %.

The Line of Credit also includes a standby letter of credit sublimit, which was amended and increased to $ 2,000,000 on August 18, 2022 and then to $ 5,000,000 on June 20, 2023.

The Company had no borrowings outstanding under the Line of Credit as of both December 31, 2023 and December 31, 2022.

The Line of Credit also includes a standby letter of credit sublimit, which was amended and increased to $ 5,000,000 from $ 2,000,000 on June 20, 2023.

The Company had no borrowings outstanding under the Line of Credit as of both December 31, 2024 and 2023.

The amount issued under the standby letter of credit was $ 3,813,000 and $ 3,766,000 as of December 31, 2024 and 2023, respectively.

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As of both December 31, 2024 and 2023, the Company was in compliance with the financial covenants under the Line of Credit.

As described in Note 22 — Subsequent Events, on March 3, 2025, the Company amended the Line of Credit again, which among other things, (1) extended the maturity date to March 14, 2027, (2) reduced the revolving loan facility to $ 20,000,000 , and (3) revised the interest on any Line of Credit borrowings to an annual rate of one month term SOFR plus 2.25 %, with a SOFR floor of 1.00 %.

Accrued Expenses

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(in thousands)

The 2027 Loan was a refinance in June 2022 from a previous $ 21,580,000 term loan, and was accounted for as a debt modification.

The Company was in compliance with all of its financial covenants as of both December 31, 2024 and 2023.

Interest Rate Swaps

In June 2022, Global Wells terminated its ten-years floating-to-fixed interest rate swap, and recognized cash proceeds of $ 825,000 as gain on the settlement, which was included in interest income in the consolidated statements of income.

This interest rate swap had a notional value of $ 21,580,000 as of the effective date of June 13, 2019 based on the prime rate versus a 5.1 % fixed rate.

For the year ended December 31, 2022, Global Wells recognized $ 2,159,000 (including the gain on settlement) as interest income related to the interest rate swap .

Stockholder’s Equity

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Each holder of common stock and preferred stock shall be entitled to one vote per share held.

During the year ended December 31, 2023, the Company paid out special and regular quarterly dividend totaling $ 20,909,000 .

During the year ended December 31, 2022, the Company paid out special dividend totaling $ 6,964,000 .

During the years ended December 31, 2024 and 2023, the Company paid out special and regular quarterly dividend totaling $ 31,016,000 and $ 20,909,000 , respectively.

Additionally, as described in Note 22 — Subsequent Events , on February 13, 2025, the Company's Board of Directors declared a quarterly cash dividend of $ 0.45 per share on the Company's common stock.

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In the case of an incentive stock option granted to an optionee who, at the time the option is granted, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any parent or subsidiary, the term of the option will be a shorter term as provided in the option agreement, but not more than five years from the date of the grant.

As of December 31, 2023, a total of 1,350,684 shares of common stock was available for further award grants under the Plan.

As of December 31, 2024, a total of 1,287,017 shares of common stock were available for further award grants under the Plan.

For the years ended December 31, 2024 and 2023, the Company recognized a total of $ 2,065,000 and $ 770,000 in stock-based compensation expense, respectively.

The Company recognizes stock-based compensation over the vesting period, which is generally 3 years for both the restricted stock units and stock options.

The Company recognized a net tax benefit of $ 187,000 and $ 89,000 from compensation expense related to stock options and restricted stock units during the years ended December 31, 2023 and 2022, respectively.

The Company recognizes stock-based compensation over the vesting period, which is generally between two to three years for both the restricted stock units and stock options.

The Company recognized a net tax liability of $ 19,000 and net tax benefit of $ 187,000 from compensation expense related to stock options and restricted stock units during the years ended December 31, 2024 and 2023, respectively.

Stock Options

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Weighted-Average Exercise Price

Weighted-Average Remaining Contract Life (In Years)

Weighted-Average Remaining Contract Life

Aggregate Intrinsic Value

(in years) (in thousands)

Outstanding at December 31, 2022

420,000 $ 18.58 8.8 $ —

Granted 50,000 16.53

Exercised ( 6,860 ) 17.84

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The cost is expected to be recognized over a weighted-average period of 0.1 years.

There were no stock options granted during the year ended December 31, 2023.

The weighted-average grant date fair value of stock options granted during the year ended December 31, 2022 was $ 5.18 .

The assumptions that were used to calculate the grant date fair value of the Company’s stock option grants for the year ended December 31, 2022 were as follows:

December 31, 2022

Risk-free interest rate 1.70 %

Expected term (years) 6.25 years

Volatility 30.0 %

Dividend yield 0.40 %

Restricted Stock Units

3 unchanged sentences

Unvested at December 31, 2022

Granted 9,900 16.69

82,146 $ 11.47

Vested ( 75,133 ) 11.13

1 unchanged sentence

Unvested at December 31, 2023

5,346 $ 16.71

Vested ( 31,550 ) 27.54

Forfeited ( 1,667 ) 10.00

Unvested at December 31, 2024

70,800 $ 29.14

On March 12, 2024, the Company's Compensation Committee of the Board of Directors approved a grant totaling 91,000 restricted stock units to certain key employees.

The grant date fair value of these restricted stock units was $ 2,674,000 .

The restricted stock units vest at various times between May 2024 and May 2026.

On May 7, 2024, the Company's Compensation Committee of the Board of Directors approved a grant totaling 6,000 restricted stock units to each independent director of the Board of Directors.

The grant date fair value of these restricted stock units was $ 169,000 .

The restricted stock units vest at various times between May 2025 and May 2026.

At December 31, 2024, total remaining stock-based compensation cost for unvested restricted stock units under the Plan was approximately $ 974,000 .

The cost is expected to be recognized over a weighted-average period of 0.8 years.

There were no restricted stock units granted during the year ended December 31, 2023.

There were 9,900 restricted stock units granted during the year ended December 31, 2022 with a weighted-average grant date fair value of $ 16.69 .

The total fair value of restricted stock units, as of their respective vesting date, during the year ended December 31, 2023, and 2022, was $ 1,612,000 and $ 1,156,000 , respectively.

The cost is expected to be recognized over a weighted-average period of 1.0 year.

Earnings Per Share

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(in thousands)

2025 $ 11,749

Thereafter 737

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Total lease liability balance $ 44,412

In September 2020, Global Wells entered into an operating lease agreement with an unrelated party as the landlord for a term of 38 months beginning September 9, 2020.

The lease was extended for a period of two additional years beginning November 1, 2023, and generates monthly rental payments from $ 62,000 to $ 65,000 .

Sublease income for the year ended year ended December 31, 2023 and 2022 was $ 76,000 and $ 0 , respectively.

During the year ended December 31, 2024, the Company recorded a non-cash impairment of a ROU asset of $ 1,993,000 resulting from the sublease of its City of Industry warehouse in California.

Sublease income for the year ended December 31, 2024 and 2023 was $ 1,038,000 and $ 76,000 , respectively.

Sublease income is included in rental income in the accompanying consolidated statements of income.

The expected rental income is $ 786,000 and $ 616,000 for the year ended December 31, 2024, and 2025, respectively.

Impairment Expense and Loss (Gain), Net, on Disposal of Machinery and Equipment

Global Wells has been the landlord under an operating lease agreement with an unrelated party since September 2020.

During both the years ended December 31, 2024 and 2023, Global Wells recognized rental income from this tenant of $ 739,000 .

As discussed in Note 22 — Subsequent Events, on February 28, 2025, the lease agreement between Global Wells and the tenant was terminated and effective March 1, 2025, Global Wells entered into a new six-year operating lease agreement with a different unrelated party, which ends February 28, 2031 and is expected to generate rental income of $ 1,128,000 per annum over the next five years.

Impairment Expense and Loss, Net, on Disposal of Machinery and Equipment

In February 2023, the Company started to execute a strategy to increase imports and scale back manufacturing in certain locations.

The Company subsequently reached an agreement with two unrelated third-party vendors in Taiwan to sell them certain of its manufacturing machinery and equipment.

During the year ended December 31, 2023, the Company also cancelled certain equipment purchase commitments that it had previously paid deposits towards, and disposed of certain machinery and equipment through abandonment.

The Company recognized the following amounts related to impairment expense and loss (gain), net, on disposal of machinery:

The Company reached an agreement with two unrelated third-party vendors in Taiwan to sell them certain of its manufacturing machinery and equipment.

The Company also cancelled certain equipment purchase commitments that it had previously paid deposits towards, and disposed of certain machinery and equipment through abandonment.

As discussed in Note 14 — Leases, the Company recorded a non-cash impairment of a ROU asset resulting from the sublease of its City of Industry warehouse in California in the year ended December 31, 2024.

The following table represents impairment expense and loss, net, on disposal of machinery:

Year Ended December 31,

1 unchanged sentence

Loss, net, on disposal of machinery in scaling back manufacturing

Loss (gain), net, on disposal of machinery within normal course of business

Loss (gain), net, on disposal

Loss, net, on disposal of machinery within normal course of business

Loss, net, on disposal

Impairment of ROU asset

Impairment of deposits

Impairment expense and loss (gain), net, on disposal of machinery

Total impairment expense and loss, net, on disposal of machinery

$ 2,752 $ 2,525

Related Party Transactions

Keary Global ("Keary Global") owns 250,004 shares of the Company's common stock as of December 31, 2023, which Keary Global acquired upon exercise of two convertible notes during the third quarter of 2018.

Keary Global owns 250,004 shares of the Company's common stock as of December 31, 2024, which Keary Global acquired upon exercise of two convertible notes during the third quarter of 2018.

Keary Global and its affiliate, Keary International, are owned by one of the Company’s stockholders’ family member.

13 unchanged sentences

State 2,048 1,776

13,642 10,763

Federal ( 3,428 ) ( 1,052 )

State ( 343 ) 93

( 3,771 ) ( 959 )

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Noncontrolling interest - Income not subject to tax

( 241 ) ( 115 )

Permanent items 22 42

Excess tax benefit from stock based compensation ( 187 ) ( 89 )

Excess tax liability (benefit) from stock based compensation

Research and development credit ( 76 ) ( 417 )

( 116 ) ( 280 )

Provision for income taxes $ 9,871 $ 9,804

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As of December 31, 2024 and 2023, the Company does not have any unrecognized tax benefit.

The Company remains subject to IRS examination for the 2020 through 2022 tax years, and has received notice in February 2019 that it is under examination for years 2016 and 2017.

The Company remains subject to IRS examination for the 2021 through 2023 tax years.

Additionally, the Company files multiple state and local income tax returns and remains subject to examination in various of these jurisdictions for the 2020 through 2023 tax years.

The Company continues to work with the IRS relating to the 2016 and 2017 tax years and does not expect a material impact to the financial statements.

ASC 740, Income Taxes , provides for the recognition of deferred tax assets if realization of these assets is more-likely-than-not.

In evaluating the Company’s ability to recover its deferred tax assets, the Company considers all available positive and negative evidence, including its operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis.

Based upon the level of historical taxable income, at this time, the Company determined that sufficient positive evidence existed to conclude that it is more likely than not there will be full utilization of

the deferred tax assets in each jurisdiction.

on a jurisdiction-by-jurisdiction basis.

As such, as of December 31, 2024, and 2023, based on the available evidence, the Company did not record any valuation allowance.

In August 2022, the Inflation Reduction Act of 2022 (the "Act") was signed into law.

The Act, among other things, imposes a nondeductible 1% excise tax on the fair market value of certain stock that is "repurchased" during the taxable year by publicly traded U.S.

corporations or acquired by certain of its subsidiaries.

The taxable amount is reduced by the fair market value of certain issuances of stock throughout the year.

The Act also imposes a 15% corporate minimum tax on the adjusted financial statement income of large corporations for taxable years beginning after December 31, 2022.

We do not expect these tax law changes to have a material impact on our consolidated financial statements;

however, we will continue to evaluate their impact.

In March 2023, the IRS announced the Winter Storm Relief that allowed for taxpayers in California affected by severe winter storms, flooding, landslides, and mudslides to have until November 15, 2023, to file various individual and business tax returns and make tax payments.

The Company took advantage of this tax relief in the current year.

Commitments and Contingencies

On October 5, 2023, the Company received a final and binding judgment from the Taiwan Supreme Court, dismissing its claim filed in 2020 against one of its Taiwanese vendors to return a prepayment of $ 1,123,500 due to the vendor's failure to deliver products under the contract.

As a result, the Company recorded a write-off of the prepayment, which is included in general and administrative expense in the consolidated statement of income.

As a result, the Company recorded a write-off of the prepayment, which is included in general and administrative expense in the consolidated statement of income for the year ended December 31, 2023.

In May 2023, the Company received a Notice of Investigations and Interim Measures stating that U.S.

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On February 5, 2024, CBP issued its Notice of Determination concluding that the manufacturing procedures performed by the manufacturer in Taiwan, which the Company imported certain thermal paper products from, did not constitute substantial transformation.

Based on this, the Company recorded a reserve as of December 31, 2023 and a corresponding increase in cost of goods sold in the consolidated statement of income for the year ended December 31, 2023 for estimated additional probable loss of $ 2,333,000 , representing the total estimated probable loss on all thermal paper imports under the investigation period minus payments already made.

The Company is in the process of evaluating the CBP determination and assessing its appeal options.

The amount of the final payments could differ materially from the Company's current estimate.

As of December 31, 2023, the Company had a reserve of $ 2,738,000 , representing the total estimated probable loss on all thermal paper imports under the investigation period minus payments already made.

On March 19, 2024, the Company initiated an appeal process by submitting a request for an administrative review of the initial determination issued by CBP.

On June 11, 2024, CBP completed the administrative review and upheld its initial conclusion.

The Company accrued interest of $ 313,000 during the year ended December 31, 2024, related to the estimated total probable loss, increasing the total reserve to $ 3,051,000 as of December 31, 2024.

In February 2025, the Company started to receive bills related to certain of its thermal paper shipments received during 2022.

The Company is in the process of protesting the received bills with CBP, and is also evaluating other appeal options.

Payments on bills received will be due upon the resolution of the protests, currently expected to occur within the next 12 months.

The amount of the final payments could vary significantly from the estimated liability reserve.

The Company is a party to, and certain of its property is the subject of, various other pending claims and legal proceedings that routinely arise in the ordinary course of its business.

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The Company did not receive any of the proceeds from the sale of these shares by the selling stockholders.

The Company incurred offering transaction costs of $ 453,000 , which were recognized in general and administrative expense in the consolidated statement of income .

The Company incurred offering transaction costs of $ 453,000 , which were recognized in general and administrative expense in the consolidated statement of income for the year ended December 31, 2023 .

Segment Report

The Company operates and evaluates its business as a single reportable segment.

This segment encompasses the manufacturing and distribution of a diverse range of single-use food and beverage service products made from materials such as plastic, paper, biopolymer-based, and other compostable forms.

It also includes the distribution of specialty food and beverage items, like syrups, boba, and coffee drinks, as well as restaurant and warehouse supplies.

This single segment is identified because it engages in business activities in which it generates revenue and expenses, its performance is reviewed by the Company’s chief executive officer who is the chief operating decision maker (“CODM”), and it has distinct financial information available.

The CODM assesses performance of the reportable segment and decides how to allocate resources based on consolidated net income, which is also reported on the consolidated statements of income.

The CODM uses this information to compare actual results against budgeted expectations in assessing the performance of the segment.

The following is the summary of the financial information for the Company’s reportable segment:

Year Ended December 31,

(in thousands)

Net sales $ 422,633 $ 405,651

Cost of goods sold 258,304 252,608

Shipping and transportation 34,119 32,001

Salaries and benefits 36,311 35,831

Professional services 5,024 4,337

Depreciation and amortization 4,290 4,008

Rent expense 9,364 6,096

Marketing expense 6,762 4,865

Online platform fees 11,043 6,440

Warehouse expense 3,862 2,426

Stock-based compensation 2,065 770

Secondary offering costs — 453

Impairment expense and loss, net, on disposal of machinery 2,752 2,525

Interest expense 2,123 2,043

Provision for income taxes 9,871 9,804

Other segment expenses*

10,976 11,215

Interest income 2,299 1,803

Other income, net 2,758 1,148

Segment net income 30,824 33,180

Reconciliation of segment net income to consolidated net income

Adjustments and reconciling items — —

Consolidated net income 30,824 33,180

* Other segment expenses includes property taxes, insurance expenses, office expenses, and utilities.

The Company’s long-lived assets are all located in the United States, and its revenues are almost entirely generated in the United States.

The accounting policies of the reportable segment are the same as those described in Note 2 — Summary of Significant Accounting Policies .

Additionally, the total segment assets are the same as the consolidated total assets reported on the consolidated balance sheets.

Subsequent Events

On February 13, 2025, the Company's Board of Directors declared a quarterly cash dividend of $ 0.45 per share on the Company's common stock, which was paid on February 28, 2025 to shareholders of record at the close of business on February 24, 2025.

On February 12, 2024, the Company signed a lease agreement for a 44,000 square-foot distribution facility in Mesa, Arizona for a term of 65 months.

The lease term will commence on March 16, 2024 with monthly base lease payments ranging from $ 42,000 to $ 48,000 after an initial rent abatement period.

The ownership interests and voting power of the remaining three members of Global Wells, including Lollicup, were adjusted proportionally subsequent to the redemption.

Therefore, Lollicup's ownership interest increased to

15.1 % and voting interest increased to 33.3 %.

On February 16, 2024, Global Wells made an advance cash payment of $ 2,325,000 to the Selling Member, with the remaining balance expected to be paid before December 31, 2024.

On March 12, 2024, the Company's Compensation Committee of the Board of Directors approved a grant totaling 91,000 restricted stock units to certain key employees including the CEO and CFO.

The grant date fair value of these restricted stock units was $ 2,674,000 .

The restricted stock units vest at various times between May 2024 and May 2026.

On March 12, 2024, the Company and Alan Yu, CEO, entered into an amendment to his employment agreement (the “CEO Amendment”), effective as of March 12, 2024.

The CEO Amendment reflects that Mr.

Yu will continue in his role as Chief Executive Officer.

Also pursuant to the CEO Amendment, Mr.

Yu's base salary will increase to $ 300,000 per year.

The CEO Amendment also provides that Mr.

Yu will be granted 24,000 restricted stock units, as discussed above.

Additionally, on March 12, 2024, the Company and Jian Guo, CFO, entered into an amendment to her employment agreement (the “CFO Amendment”), effective as of March 12, 2024.

The CFO Amendment reflects that Ms.

Guo will continue in her role as Chief Financial Officer.

The CFO Amendment also provides that Ms.

Guo will be granted 24,000 restricted stock units, as discussed above.

On February 20, 2025, the Company received a notice of entry of judgment in which the court confirmed the arbitration award filed by the landlord of the Company's Chino, California facility.

As a result, the Company remeasured the lease liability and the right-of-use asset for this lease extension with the term expiring July 31, 2029, reflecting the change of estimate in the annual rent escalation.

The remeasurement resulted in an increase of lease liability and the right-of-use asset of $ 1,360,000 and $ 1,250,000 , respectively, as of December 31, 2024.

On February 28, 2025, the operating lease agreement between Global Wells, as the landlord, and an unrelated party, as the tenant, was terminated.

Effective March 1, 2025, Global Wells entered into a new six-year operating lease agreement with a different unrelated party.

See Note 14 — Leases for further discussion on the new operating lease agreement.

On March 3, 2025, the Company amended the Line of Credit again, which among other things, (1) extended the maturity date to March 14, 2027, (2) reduced the revolving loan facility to $ 20,000,000 , and (3) revised the interest on any Line of Credit borrowings to an annual rate of one month term SOFR plus 2.25 %, with a SOFR floor of 1.00 %.

On March 3, 2025, subsequently amended on March 6, 2025, the Company entered into a 52 -month lease agreement with G&O Chino Property, a California general partnership, commencing on April 1, 2025 for a second 187,000 square-foot distribution facility in Chino, California.

The term of the lease expires July 31, 2029 and requires monthly base payments ranging from $ 205,000 to $ 231,000 with certain rent abatement periods .

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data