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Karat Packaging Inc (KRT)
NASDAQ:KRT
Risk Overview Q4, 2024
Risk Distribution
36% Finance & Corporate
21% Production
16% Macro & Political
11% Legal & Regulatory
9% Tech & Innovation
7% Ability to Sell
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.
Risk Change Over Time
S&P500 Average
Sector Average
Risks removed
Risks added
Risks changed
Karat Packaging Inc Risk Factors
New Risk (0)
Risk Changed (0)
Risk Removed (0)
No changes from previous report
The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
Risk Highlights Q4, 2024
Main Risk Category
Finance & Corporate
With 20 Risks
Finance & Corporate
With 20 Risks
Number of Disclosed Risks
56
+1
From last reportS&P 500 Average: 31
56
+1
From last reportS&P 500 Average: 31
Recent Changes
3Risks added
2Risks removed
14Risks changed
Since Dec 2024
3Risks added
2Risks removed
14Risks changed
Since Dec 2024
Number of Risk Changed
14
+14
From last reportS&P 500 Average: 3
14
+14
From last reportS&P 500 Average: 3
See the risk highlights of Karat Packaging Inc in the last period.
Risk Word Cloud
The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.
Risk Factors Full Breakdown - Total Risks 56
Finance & Corporate
Total Risks: 20/56 (36%)Above Sector Average
Share Price & Shareholder Rights7 | 12.5%
Share Price & Shareholder Rights - Risk 1
We are an emerging growth company and the reduced disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.Share Price & Shareholder Rights - Risk 2
If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our stock price and trading volume could decline.The trading market for our common stock will be influenced to some extent by the research and reports that industry or financial analysts publish about us and our business. We do not control these analysts. As a relatively new public company, we may be slow to attract research coverage and the analysts who publish information about our common stock will have had relatively little experience with us or our industry, which could affect their ability to accurately forecast our results and could make it more likely that we fail to meet their estimates. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us provide inaccurate or unfavorable research or issue an adverse opinion regarding our stock price, our stock price could decline. If one or more of these analysts cease to regularly cover us or fail to publish reports, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.
Share Price & Shareholder Rights - Risk 3
We may issue preferred stock, the terms of which could adversely affect the voting power or value of our common stock.Our certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designations, preferences, limitations and relative rights, including preferences over our common stock respecting dividends and distributions, as our board of directors may determine. The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of our common stock. For example, we might grant holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of the common stock.
Share Price & Shareholder Rights - Risk 4
Our bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain actions, which could limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company and its directors, officers, or other employees and may discourage lawsuits with respect to such claims.Unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for: (i) any derivative action or proceeding brought against or on behalf of the Company, (ii) any action asserting a claim of breach of a duty owed by any current or former director, officer, other employee or stockholder of the Company to the Company or the Company's stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, (iv) any action as to which the Delaware General Corporation Law confers jurisdiction upon the Court of Chancery in the State of Delaware, or (v) any action asserting a claim governed by the internal affairs doctrine, shall, to the fullest extent permitted by law, be the Court of Chancery in the State of Delaware (or, only if the Court of Chancery in the State of Delaware declines to accept jurisdiction over a particular matter, any state or federal court located within the State of Delaware). However, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder, and as such, the exclusive jurisdiction clauses set forth above would not apply to such suits. Furthermore, Section 22 of the Securities Act provides for concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder, and as such, the exclusive jurisdiction clauses set forth above would not apply to such suits.
Although we believe the exclusive forum provision benefits us by providing increased consistency in the application of Delaware law for the specified types of actions and proceedings, this provision may limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company and its directors, officers, or other employees and may discourage lawsuits with respect to such claims.
Share Price & Shareholder Rights - Risk 5
Our stock price may be volatile or may decline, including due to factors beyond our control, resulting in substantial losses for investors.The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
- actual or anticipated fluctuations in our results of operations;- the financial projections we may provide to the public, any changes in these projections, or our failure to meet these projections;- failure of securities analysts to initiate or maintain coverage of our company, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;- ratings changes by any securities analysts who follow our company;- sales or potential sales of shares by our stockholders, or the filing of a registration statement for these sales;- adverse market reaction to any indebtedness we may incur or equity we may issue in the future;- announcements by us or our competitors of significant innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments;- publication of adverse research reports about us, our industry, or individual companies within our industry;- publicity related to problems in our manufacturing or the real or perceived quality of our products, as well as the failure to timely launch new products that gain market acceptance;- changes in operating performance and stock market valuations of our competitors;- price and volume fluctuations in the overall stock market, including as a result of trends in the United States or global economy;- any major change in our board of directors or management;- lawsuits threatened or filed against us or negative results of any lawsuits;- security breaches or cyberattacks;- legislation or regulation of our business;- loss of key personnel;- new products introduced by us or our competitors;- the perceived or real impact of events that harm our direct competitors;- developments with respect to our trademarks, patents, or proprietary rights;- tariffs and other trade restrictions;- inflationary pressures;- general market conditions; and - other events or factors, including those resulting from war, incidents of terrorism, or responses to these events, which could be unrelated to us or outside of our control.
In addition, stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies in our industry, as well as those of newly public companies. In the past, stockholders of other public companies have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and harm our business, financial condition, results of operations and cash flows.
Share Price & Shareholder Rights - Risk 6
Our directors, executive officers, and significant stockholders have substantial control over us and could delay or prevent a change in corporate control.As of March 1, 2025, our directors, executive officers, and other holders of more than 5% of our common stock, together with their affiliates, own, in the aggregate 65.5% of our outstanding common stock. As a result, these stockholders, acting together or in some cases individually, have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation, or sale of all or substantially all of our assets. In addition, these stockholders, acting together or in some cases individually, have the ability to control the management and affairs of our company. Accordingly, this concentration of ownership might decrease the market price of our common stock by:
- delaying, deferring, or preventing a change in control of the company;- impeding a merger, consolidation, takeover, or other business combination involving us; or - discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of the company.
Share Price & Shareholder Rights - Risk 7
Substantial future sales, or the perception or anticipation of future sales, of shares of our common stock may cause our stock price to decline. This could cause the market price of our common stock to drop significantly, even if our business is doing well.Changed
Our stock price could decline as a result of substantial sales of our common stock, or the perception or anticipation that such sales could occur, particularly sales by our directors, executive officers, and significant stockholders. Possible sales also may make it more difficult for us to sell equity or equity-related securities in the future at a time and price we deem necessary or appropriate. Additionally, if we issue a large number of shares in connection with future acquisitions, financings or other circumstances, the market price of our common stock could decline significantly. We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances or sales of our shares will have on the market price of such shares.
As of December 31, 2024, we had 296,999 and 16,668 of vested and unvested stock options, respectively, and 70,800 of unvested restricted stock units outstanding. The additional shares issued upon exercise or vesting will be eligible to be sold freely in the public market, subject to volume limitations applicable to affiliates.
Accounting & Financial Operations5 | 8.9%
Accounting & Financial Operations - Risk 1
We are a holding company with no operations of our own and, as such, we depend on our subsidiaries for cash to fund our operations and expenses, including future dividend payments, if any.Changed
Accounting & Financial Operations - Risk 2
We have identified a material weakness in our internal control over financial reporting. If we are unable to remediate this material weakness, or if we experience additional material weaknesses or deficiencies in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial results, in which case our business may be harmed, investors may lose confidence in the accuracy and completeness of our financial reports and the price of our common stock may decline.Changed
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. The rules governing the standards that must be met for management to determine that our internal control over financial reporting is effective are complex and require significant documentation, testing and possible remediation to meet the detailed standards under the rules. Our management has identified a material weakness in our internal control over financial reporting. A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected and corrected on a timely basis. For a description of the identified material weakness, see Part II, Item 9A. "Controls and Procedures".
As further described in Part II, Item 9A. "Controls and Procedures", we have remediated certain material weaknesses previously identified in Part II, Item 9A of Form 10-K for the year ended December 31, 2023 filed with the SEC on March 15, 2024. For the existing material weakness as of December 31, 2024, we have undertaken steps to implement remedial actions. Although progress has been made, additional time is necessary to fully remediate the material weakness, and even despite the passage of time, we may not be successful in remediating the material weakness or be able to do so in a timely manner. Any inability to remediate the material weakness effectively or in a timely manner, or the identification of any new material weaknesses in the future, could limit our ability to prevent or detect a misstatement of our accounts or disclosures and could result in a material misstatement of our annual or interim financial statements. In such case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting and the prices of our common stock may decline as a result.
Accounting & Financial Operations - Risk 3
We intend to pay quarterly dividends for the foreseeable future. If our stock price does not appreciate after you purchase our shares, you may lose some or all of your investment.Although we initiated our regular quarterly cash dividend in 2023 and intend to pay regular quarterly dividends for the foreseeable future, we may not be able to sustain our current quarterly dividend payouts. Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual restrictions, general business conditions, and other factors that our board of directors may deem relevant. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.
Accounting & Financial Operations - Risk 4
If our estimates or judgments relating to our critical accounting policies prove to be incorrect or change significantly, our results of operations could be harmed.The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section of this Form 10-K titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements, and related notes included elsewhere in this Form 10-K. These estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity and the amount of sales and expenses that are not readily apparent from other sources. Our results of operations may be harmed if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, and could result in a decline in our stock price.
Accounting & Financial Operations - Risk 5
If our goodwill, other intangible assets, or our property and equipment become impaired, we may be required to record a charge to our earnings.We may be required to record future impairments of goodwill, other intangible assets, or long-lived assets to the extent the fair value of these assets falls below their book value. Our estimates of fair value are based on various assumptions including future cash flows, discount rates, and current market estimates of value. Estimates used for future sales growth, gross profit performance, operating expenses, and other assumptions used to estimate fair value are subject to significant judgment. Although impairments are non-cash expenses, they could materially and adversely affect our future financial results and financial condition.
Debt & Financing5 | 8.9%
Debt & Financing - Risk 1
We may continue to incur significant capital expenditures which could affect our ability to meet our obligations and may otherwise restrict our growth.Debt & Financing - Risk 2
Because we have entered into a significant number of related party transactions through the course of our routine business operations, there is a risk of conflicts of interest involving our management, and that such transactions may not reflect terms that would be available from unaffiliated third parties.In the course of our normal business, we have purchased products, raw materials, and supplies from our related parties, including an entity owned by our CEO Alan Yu's brother, Jeff Yu, who until 2021 was employed as an account manager for our national sales team. In addition, our Texas facility and our New Jersey facility are each owned and leased to us by our variable interest entity, wherein we are the primary beneficiary and in which we have an equity interest and which is controlled by one of our stockholders. In all related party transactions, there is a risk that even if the Company personnel negotiating on behalf of the Company with the related party are striving to ensure that the terms of the transaction are arms-length, the related party's influence may be such that the transaction terms could be viewed as favorable to that related party. While we believe that our past related party transactions have been negotiated on an arm's length basis and contain commercially reasonable terms, we may have been able to achieve more favorable terms had these transactions been entered into with unrelated parties.
The section "Related Party Transactions" in the Notes to the Consolidated Financial Statements in this Form 10-K provide specific information about our prior related party transactions. We may engage in additional related party transactions in the future, which will be subject to review and approval by our nominating and corporate governance committee pursuant to the Company's related party transactions policy. There can be no assurance that such transactions, individually or in the aggregate, will not have an adverse effect on our financial condition and results of operations, or that we could not have achieved more favorable terms if such transactions had not been entered into with related parties.
Debt & Financing - Risk 3
We are subject to credit risk.We are exposed to credit risk primarily on our accounts receivable. We provide credit to our customers in the ordinary course of our business and perform ongoing credit evaluations. While we believe that our exposure to concentrations of credit risk with respect to trade receivables is mitigated by our large and diversified customer base, we nevertheless run the risk of our customers not being able to meet their payment obligations, particularly in an economic downturn. If a material number of our customers were not able to meet their payment obligations, our business, financial condition, results of operations and cash flows could be materially and adversely effected.
Debt & Financing - Risk 4
We depend on cash generated from outside sources of funding to support our growth.Although we have in the past generated positive cash flow from operating activities, outside sources of equity and debt capital is an important source of fund for our current operations and growth initiatives. As we expand our business, we will need significant cash resources to fund operations such as purchasing and manufacturing inventory, marketing and promoting our products, expanding our vendor and customer relationships, enhancing distribution capabilities, paying employees, upgrading information technology systems and tools, and paying for the costs associated with operating as a public company. If we are unable to secure additional outside funding or if our business does not generate sufficient cash flow from operations to fund these activities and sufficient funds are not otherwise available, our business will be negatively impacted and restricted. If such outside financing is not available to us on satisfactory terms, our ability to operate and expand our business or respond to competitive pressures would be harmed. Moreover, if we raise additional capital by issuing equity securities or securities convertible into equity securities, your ownership may be diluted. Any indebtedness we incur may subject us to covenants that restrict our operations and will require interest and principal payments that would create additional cash demands and financial risk for us.
Debt & Financing - Risk 5
Outstanding indebtedness may reduce our available funds.We have approximately $48.5 million in outstanding indebtedness as of December 31, 2024. The loans are held at multiple banks and are collateralized by substantially all of Global Well's assets and is guaranteed by one of our stockholders. There can be no guarantee that we will be able to pay all amounts when due or to refinance the amounts on terms that are acceptable to us or at all. If we are unable to make our payments when due or unable to refinance such amounts, our key equipment could be repossessed, our property could be foreclosed and our business could be negatively affected.
The terms of our debt agreements impose significant operating and financial restrictions on us. These restrictions could also have a negative impact on our business, financial condition, results of operations and cash flows by significantly limiting or prohibiting us from engaging in certain transactions, including but not limited to: incurring or guaranteeing additional debt financing; transferring or selling assets currently held by us; and transferring ownership interests in certain of our subsidiaries. The failure to comply with any of these covenants could cause a default under our other debt agreements. Any of these defaults, if not waived, could result in the acceleration of all of our debt, in which case the debt would become immediately due and payable. If this occurs, we may not be able to repay our debt or borrow sufficient funds to refinance it on favorable terms, if any.
Corporate Activity and Growth3 | 5.4%
Corporate Activity and Growth - Risk 1
Acquisitions could result in operating difficulties and may materially adversely affect our business, financial condition, results of operations and growth prospects.Corporate Activity and Growth - Risk 2
Our growth depends, in part, on expanding into additional foodservice and geographic markets, and we may not be successful in doing so.We believe that our future growth depends not only on continuing to reach our current customer base and demographic, but also continuing to expand our business into other foodservice sectors and geographies. The growth of our business will depend, in part, on our ability to continue to expand into additional foodservice sections including supermarkets, entertainment venues, national and regional airlines, and other non-restaurant customers. Additionally, we are expanding our sales and marketing efforts to further penetrate additional geographies across the United States, and we may encounter difficulties in attracting customers due to a lack of consumer familiarity with or acceptance of our brand. We continue to evaluate our go-to-market efforts and other strategies to expand the customer base for our products especially our eco-friendly line, and to further penetrate into other sectors and geographies. However, we cannot provide assurances that these efforts will be successful. We are also expanding the number of distribution centers and warehouses across the United States and these efforts come with considerable challenges and risks, including entering into long term lease contracts with possibly significant termination clauses. If we are not successful, our business, financial condition, results of operations and cash flows could be materially and adversely effected.
Corporate Activity and Growth - Risk 3
We may not be able to effectively manage our growth.As we grow our business, slower growth or reduced demand for our products, increased competition, a decrease in the growth rate of our overall market, failure to develop and successfully market new products, or the maturation of our business or market could harm our business. We expect to make significant investments in our sales and marketing efforts, expand our operations and infrastructure, design and develop new products, and enhance our existing lineup. Also, in connection with operating as a public company, we expect to continue to incur significant additional legal, accounting, and other related expenses. If our sales do not increase at a sufficient rate to offset these increases in our operating expenses, our profitability may decline in future periods.
We have expanded our operations rapidly since our inception. Our employee headcount and the scope and complexity of our business have increased substantially over the past several years. We have only a limited history operating our business at its current scale. Consequently, if our operations continue to grow at a rapid pace, we may experience difficulties in managing this growth and building the appropriate processes and controls.
Continued growth may increase the strain on our resources, and we could experience operating difficulties, including difficulties in sourcing, logistics, recruiting, maintaining internal controls, marketing, designing innovative products, and meeting consumer needs. If we do not adapt to meet these evolving challenges, our corporate culture may be harmed, the quality of our products may suffer, we may not be able to deliver products on a timely basis to our customers, and the strength of our brand may erode.
Production
Total Risks: 12/56 (21%)Above Sector Average
Manufacturing2 | 3.6%
Manufacturing - Risk 1
We incur significant expenses to maintain our manufacturing equipment and any interruption in the operations of our facilities could negatively impact our business and results of operations.Changed
Manufacturing - Risk 2
Our current and future products may experience quality problems from time to time that can result in product returns, product recalls, credit claims, negative publicity, and even litigation, which could result in decreased sales and operating profit margin, and also bring harm to our brand.Changed
Although we extensively and rigorously test new and enhanced products, there can be no assurance we will be able to detect, prevent, or fix all defects. Defects in materials or components can unexpectedly interfere with the products' intended use and safety and damage our reputation. Failure to detect, prevent, or fix defects could result in a variety of consequences, including a greater number of product returns than expected from customers, product recalls, and credit claims, among others, which could harm our sales and results of operations. In addition, any negative publicity or lawsuits filed against us related to the perceived quality and safety of our products could also harm our brand and decrease demand for our products, which could in turn materially and adversely affect our reputation, business, financial condition, results of operations and cash flows.
Employment / Personnel2 | 3.6%
Employment / Personnel - Risk 1
Our future success depends on the continuing efforts of our management and key employees, and on our ability to attract and retain highly skilled personnel and senior management.Employment / Personnel - Risk 2
Labor cost inflation and the unavailability of skilled workers could disrupt our business.Labor is subject to cost inflation and availability, due to external factors, such as increases in minimum wage, higher cost of living, workforce participation rates, and employee preference for remote or hybrid work schedules, that are all beyond our control. For example, in January 2024, California passed Bill 1228 which increased the minimum-wage of fast food restaurant workers to $20 per hour beginning April 1, 2024. Legislation that directly or indirectly forces us to increase compensation for new and existing employees in order to attract and retain talent negatively impacts our labor costs and may harm results of operations. There can be no assurance that we will be able to recruit, train, assimilate, motivate and retain employees in the future. The loss of a substantial number of these employees and our inability to hire and replace our workforce could disrupt our business and result in significant losses. The increased labor costs in the restaurant industry could also negatively impact the business operations of some of our customers, which could in turn adversely affect our business and results of operations.
Supply Chain5 | 8.9%
Supply Chain - Risk 1
We may experience delays or disruptions in the shipment of our goods through operational ports.Supply Chain - Risk 2
If we fail to timely and effectively obtain shipments of products from our overseas manufacturers, our business and results of operations could be harmed.Our overseas third-party contract manufacturers ship most of our products to our primary facility in California, which are then shipped to our customers and to our other distribution facilities. Because we import many of our products, we are vulnerable to risks associated with products manufactured abroad, including, among other things: (a) risks of damage, destruction, or confiscation of products while in transit to our distribution centers; and (b) transportation and other delays in shipments, including as a result of heightened security screening, port congestion, inspection processes, or other port-of-entry limitations or restrictions in the United States. In order to meet demand for a product, we have chosen in the past, and may choose in the future, to arrange for additional quantities of the product, if available, to be delivered through air freight, which is significantly more expensive than standard shipping by sea and, consequently, could harm our gross margins. Failure to procure our products from our third-party contract manufacturers and deliver merchandise to our customers in a timely, effective, and economically viable manner could reduce our sales, gross margin, and profitability, damage our brand, and harm our business.
Supply Chain - Risk 3
Supply chain disruptions could interrupt product manufacturing and increase product costs.Our operating model entails generating the majority of our revenue from the import and distribution of our vendors' products. While we have taken measures to diversify and expand our supplier network, our reliance on third-party manufacturers outside the U.S. to produce most of our products could negatively impact our business during global supply chain disruptions. Further international conflicts, such as the recent ones in the Middle East and Asia, could impact important trade routes, resulting in increased lead times for shipments, elevated freight costs, and suppressed margin. Additionally, failure to adequately source and timely ship our products to the U.S. and then onwards to customers could lead to failure to meet customer demand, loss of potential revenue, strained relationships with customers, and diminishing brand loyalty.
Supply Chain - Risk 4
We rely on third-party contract manufacturers and conflicts with, or loss of, our suppliers could negatively impact our business and results of operations.Changed
Certain of our products are produced by third-party contract manufacturers. We face the risk that these third-party contract manufacturers may not produce and deliver our products on a timely basis, or at all. We may also experience the inability of our third-party contract manufacturers to meet the increased demand of our customers. These difficulties include reduction in production capacity, errors in complying with product specifications or regulatory requirements, failure to meet production deadlines, failure to achieve required quality standards, shortages and increases in the price of materials, and other business interruptions. The ability of our manufacturers to effectively satisfy our production requirements could also be impacted by manufacturer financial difficulty or disruption to their operations caused by fire, natural disasters, or other events. The failure of any third-party manufacturer to perform to our expectations could result in supply shortages or delays for certain products and harm our business results. If we experience significantly increased demand, or if we need to replace an existing manufacturer due to lack of performance, we may be unable to supplement or replace their manufacturing capacity on a timely basis or on terms that are acceptable to us, which may increase our costs, reduce our margins, and harm our ability to deliver our products on time. For certain of our products, it may take a significant amount of time to identify and qualify a manufacturer that has the capability and resources to produce our products to our specifications in sufficient volume and satisfy our service and quality control standards. Even those suppliers and manufacturers with whom we have supply contracts may breach these agreements, and we may not be able to enforce our rights under these agreements or may incur significant costs attempting to do so. As a result, we cannot predict with certainty our ability to obtain finished products in adequate quantities, of required quality and at acceptable prices.
Supply Chain - Risk 5
Our relationship with our suppliers and third-party contract manufacturers are not exclusive, which means that these suppliers and manufacturers could produce similar products for our competitors.Changed
In addition, our arrangements with our suppliers and manufacturers are not exclusive. As a result, they could produce similar products for our competitors, some of which could potentially purchase products in significantly greater volume. Our competitors could also enter into restrictive or exclusive arrangements with our suppliers and manufacturers that could impair or eliminate our access to manufacturing capacity or supplies. Additionally, our suppliers and manufacturers could also be acquired by our competitors, and may become our direct competitors, thus limiting or eliminating our access to manufacturing capacity. Any one of these risks could materially and adversely affect our business, financial condition, results of operations and cash flows.
Costs3 | 5.4%
Costs - Risk 1
Changes in freight carrier costs related to the shipment of our products could have a negative impact on our business and results of operations.Changed
Costs - Risk 2
We may not have adequate insurance coverage.We may not have adequate insurance coverage. The successful assertion of one or more large claims against us that exceeds our available insurance coverage, or results in changes to our insurance policies (including premium increases or the imposition of larger deductibles or co-insurance requirements), could have an adverse effect on our business. In addition, we cannot be sure that our existing insurance coverage and coverage for errors and omissions will continue to be available on acceptable terms or that our insurers will not deny coverage as to any future claim.
Costs - Risk 3
Many of our operating costs and expenses are fixed and will not decline if our revenues decline.Our results of operations depend, in large part, on our level of revenues, operating costs and expenses. The expense of owning and operating our business is not necessarily reduced when circumstances such as market factors and competition cause a reduction in revenue from the business. Many of the costs or cash outlays associated with our business and operations, such as depreciation, rent, insurance, and loan payments are generally considered fixed. As a result, if revenues decline, we may not be able to reduce our expenses to keep pace with the corresponding reductions in revenues. This could materially and adversely affect our business, financial condition, results of operations and cash flows.
Macro & Political
Total Risks: 9/56 (16%)Above Sector Average
Economy & Political Environment4 | 7.1%
Economy & Political Environment - Risk 1
Unfavorable conditions in our industry or the global economy could limit our ability to grow our business and negatively affect our results of operations.Economy & Political Environment - Risk 2
Raw material inflation or shortage of available materials could harm our financial condition and results of operations.Raw materials are subject to price fluctuations and availability, which could result from external factors, such as inflation, weather-related events, or other supply chain challenges, that are beyond our control. We typically do not enter into long-term fixed price contracts with our suppliers, and our suppliers could pass on raw material price increases to us. Historically, we have been able to mitigate the impact of higher costs by increasing our selling prices. However, due to the lag between the sourcing or the manufacturing of our products and the subsequent sales to our customers, margin could be negatively impacted in periods of rising raw materials costs. Additionally, raw material shortages, especially with respect to key materials such as plastic and paper, or our inability to timely pass through increased costs to our customers may materially and adversely affect our business, financial condition, results of operations and cash flows.
Economy & Political Environment - Risk 3
International political instability and armed conflicts could result in market instability, which could negatively impact our business results.Changed
International political instability and armed conflicts, including recent escalations in regional conflicts, could result in economic sanctions that could impact our operational and financial results. If such events disrupt domestic or international air, ground or sea shipments, or the operation of the Company's manufacturing facilities, the Company's ability to source inventory or obtain the materials necessary to manufacture its products, and deliver customer orders would be harmed, which would have a significant adverse effect on the Company's business and results of operations. In addition, international conflicts could result in increased energy costs, which could increase the cost of sourcing, manufacturing, selling, and delivering products, and general inflation, which could also result in increases in the cost of sourcing and manufacturing, reduced customer demand and purchasing power, and overall market instability. All of these could materially and adversely effect our business, financial condition, results of operations and cash flows.
Economy & Political Environment - Risk 4
Periods of significant or prolonged deflation may negatively impact our business and results of operations.Changed
If the industry we operate in experiences a prolonged period of price decreases resulting from lower raw material, product, and ocean freight costs, as well as prolonged customer destocking, we could see a reduction in our sales, gross margin and overall profitability. These lower costs could also reduce the barrier to entry within the foodservice industry thereby increasing competition and potentially affecting our results of operations. Similarly, if our competitors lower their prices and expand their promotional activities, we may be forced to lower our prices as well and our business, financial condition, results of operations and cash flows could be materially and adversely effected.
International Operations1 | 1.8%
International Operations - Risk 1
Many of our products are manufactured by third parties outside of the United States, and our business may be harmed by legal, regulatory, economic, and political risks associated with international trade and those markets.Natural and Human Disruptions3 | 5.4%
Natural and Human Disruptions - Risk 1
Climate change and sustainability initiatives may result in significant operational changes and expenditures and adversely affect our business.Natural and Human Disruptions - Risk 2
The effects of a pandemic are highly unpredictable and could be significant, and may have an adverse effect on our business, operations and our future financial performance.A pandemic or global health crisis, similar to COVID-19, would adversely impact our business, financial condition, results of operations and cash flows. Depending on the scale of the pandemic, our future financial performance may differ significantly from historical rates, and our future operating results may also fall below expectations. We may also experience additional operating costs due to increased challenges with our workforce (including as a result of labor shortages, illness, absenteeism or government orders), and access to supplies and capital. Even after a pandemic has subsided, we may experience materially adverse impacts to our business due to any resulting supply chain disruptions and economic conditions.
Natural and Human Disruptions - Risk 3
Our business is subject to the risk of earthquakes, fires, floods, and other catastrophic events including criminal acts and terrorism.Changed
As we rely heavily on our warehouse facilities for production, storage, and distribution of inventory, our business is particularly vulnerable to damage or interruption from earthquakes, fires, floods, criminal acts, terrorism, and similar events. A significant natural disaster could harm our business results and our insurance coverage may be insufficient to compensate us for losses that may occur. Our corporate offices, distribution centers, and manufacturing facilities are located in California, a state that frequently experiences earthquakes and wildfires, Texas, a state that frequently experiences floods and storms, and Hawaii, a state that frequently experiences hurricanes and tsunamis. In addition, the facilities of our suppliers and where our manufacturers produce our products are located in parts of Asia that frequently experience typhoons and earthquakes. Criminal acts such as grand theft and acts of terrorism could also cause disruptions in our or our suppliers', manufacturers', and logistics providers' businesses or the economy as a whole. We may not have sufficient protection or recovery plans in place, and such disruptions could materially and adversely impact our financial results and financial condition.
Capital Markets1 | 1.8%
Capital Markets - Risk 1
Foreign exchange rate fluctuations could affect our results of operations.Legal & Regulatory
Total Risks: 6/56 (11%)Below Sector Average
Regulation3 | 5.4%
Regulation - Risk 1
If additional tariffs or other restrictions are placed on foreign imports or any related counter-measures are taken by other countries, our business and results of operations could be harmed.Regulation - Risk 2
Demand for our products could be affected by changes in laws and regulations applicable to food and beverages and changes in consumer preferences.We manufacture and distribute single-use disposable products made of plastic, paper, biopolymer-based and other compostable products. Our products are primarily used in restaurant and foodservice settings, and therefore they come into direct contact with food and other consumable products. Accordingly, our products must comply with various laws and regulations for food and beverage service applicable to our customers. Changes in such laws and regulations could negatively impact customer demand for our products as they comply with these changes and/or require us to make changes to our products.
Additionally, because our products are used to package consumer goods, we are subject to a variety of risks that could influence consumer behavior and negatively impact demand for our products, including changes in consumer preferences driven by various health and environmental-related concerns and perceptions.
Furthermore, we are subject to social and cultural changes, which could impact demand for certain products. For example, the banning of plastic straws was triggered by a social media backlash, which caused corresponding legislative changes within a short time period, resulting in the ban of plastic straws in certain jurisdictions, and a movement toward eco-friendly utensils. If we are unable to quickly adapt to changes in consumer preferences and subsequent legislation, our business, financial condition, results of operations and cash flows could be materially and adversely affected.
Regulation - Risk 3
Our reputation and business could suffer due to non-compliance with ethical and legal standards by our suppliers and manufacturersAdded
Our reputation and our customers' willingness to purchase our products depend in part on our suppliers' and manufacturers' compliance with ethical employment practices, such as with respect to child labor, wages and benefits,forced labor, discrimination, safe and healthy working conditions, and with all legal and regulatory requirements relating to the conduct of their businesses. We do not exercise control over our suppliers and manufacturers and cannot guarantee their compliance with ethical and lawful business practices. If our suppliers or manufacturers fail to comply, our reputation and brand image could be harmed and we could be exposed to litigation and additional costs that would harm our business, financial condition, results of operations and cash flows.
Litigation & Legal Liabilities1 | 1.8%
Litigation & Legal Liabilities - Risk 1
We may become involved in legal or regulatory proceedings and audits.Taxation & Government Incentives1 | 1.8%
Taxation & Government Incentives - Risk 1
Changes in tax laws or changes in our geographic mix of earnings could have a negative impact on our business and results of operations.Changed
Environmental / Social1 | 1.8%
Environmental / Social - Risk 1
We are subject to environmental laws and regulations that expose us to a number of risks and could result in significant liabilities and costs.Tech & Innovation
Total Risks: 5/56 (9%)Below Sector Average
Innovation / R&D1 | 1.8%
Innovation / R&D - Risk 1
We may be unable to successfully design and develop new products.Changed
Trade Secrets1 | 1.8%
Trade Secrets - Risk 1
We may be subject to liability if we infringe upon the intellectual property rights of third parties.Cyber Security1 | 1.8%
Cyber Security - Risk 1
Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of confidential information, misappropriation of assets and damage to our business relationships, all of which could negatively impact our business and results of operations.Added
Technology2 | 3.6%
Technology - Risk 1
Adopting artificial intelligence (AI) technologies poses risks such as regulatory scrutiny, cybersecurity vulnerabilities, ethical concerns, and system inaccuracies, potentially leading to disruptions, costs, and reputational harm.Added
Technology - Risk 2
The successful running of our operations is highly dependent upon information technology systems and tools operating as intended without any down-time or disruptions in service. Security incidents and attacks on our information technology systems and tools could lead to significant costs and business disruptions.Changed
Information system is the backbone of our business. Our business depend on our internally-developed information technology systems and tools, as well as certain software as a service products, to run our business, including storing key data, processing transactions, designing and manufacturing products, sourcing products, managing inventory and hosting and operating our website. Our ability to operate effectively on a day-to-day basis and accurately report our results depends on a solid technological infrastructure, which is inherently susceptible to internal and external threats. Any material disruption or slowdown of our systems or those of third parties that we depend upon, including those caused by failure to manage increases in user volume, unsuccessful system upgrades and updates, system failures, power loss, internet and network connectivity issues, cybersecurity incidents, or other causes, could cause important or confidential information to be lost or compromised or delayed. This could in turn impact our abilities to operate our business and accurately report our operating results, harm our brand and reputation, and cause our future sales to decline further. If our information systems become obsolete or inadequate to support our growth, it could damage our customer and business partner relationships, and our business, financial condition, results of operations and cash flows could be materially and adversely effected.
Ability to Sell
Total Risks: 4/56 (7%)Below Sector Average
Competition1 | 1.8%
Competition - Risk 1
We operate in a highly competitive environment and may not be able to compete successfully.Demand2 | 3.6%
Demand - Risk 1
Our net sales and profits depend on the level of customer spending for our products, which is sensitive to general economic conditions and other factors.Demand - Risk 2
Our business could be harmed if we are unable to accurately forecast demand for our products or our results of operations.To ensure adequate inventory supply, we forecast inventory needs and often place orders with our manufacturers before we receive firm orders from our customers. If we fail to accurately forecast demand, we may experience excess inventory levels or a shortage of product to deliver to our customers.
If we underestimate the demand for our products, we, or our manufacturers, may not be able to scale to meet demand timely, and this could result in delays in the shipment of products to customers, lost revenue, and damage to our reputation and customer relationships. If we overestimate the demand for our products, we could face inventory levels in excess of demand, which could result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices, which would harm our gross margin.
In addition, we may not be able to accurately forecast our business results and growth rate. Forecasts may be particularly challenging as we expand into new markets and geographies and develop and market new products. Our historical sales, expense levels, and profitability may not be an appropriate basis for forecasting future results. Failure to accurately forecast our results of operations could cause us to make poor operating decisions and we may not be able to adjust in a timely manner. Consequently, actual results could be materially lower than anticipated.
Sales & Marketing1 | 1.8%
Sales & Marketing - Risk 1
We are subject to payment-related risks.See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.
FAQ
What are “Risk Factors”?
Risk factors are any situations or occurrences that could make investing in a company risky.
The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.
They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.
It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.
How do companies disclose their risk factors?
Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.
Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”.
Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report.
According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.
How can I use TipRanks risk factors in my stock research?
Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.
You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.
Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.
A simplified analysis of risk factors is unique to TipRanks.
What are all the risk factor categories?
TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.
1. Financial & Corporate
- Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
- Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
- Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
- Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.
2. Legal & Regulatory
- Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
- Regulation – risks related to compliance, GDPR, and new legislation.
- Environmental / Social – risks related to environmental regulation and to data privacy.
- Taxation & Government Incentives – risks related to taxation and changes in government incentives.
3. Production
- Costs – risks related to costs of production including commodity prices, future contracts, inventory.
- Supply Chain – risks related to the company’s suppliers.
- Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
- Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.
4. Technology & Innovation
- Innovation / R&D – risks related to innovation and new product development.
- Technology – risks related to the company’s reliance on technology.
- Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
- Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.
5. Ability to Sell
- Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
- Competition – risks related to the company’s competition including substitutes.
- Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
- Brand & Reputation – risks related to the company’s brand and reputation.
6. Macro & Political
- Economy & Political Environment – risks related to changes in economic and political conditions.
- Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
- International Operations – risks related to the global nature of the company.
- Capital Markets – risks related to exchange rates and trade, cryptocurrency.