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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2026


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission file number 001-40336

Karat Packaging Inc.

(Exact name of registrant as specified in its charter)


Delaware						83-2237832
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

6185 Kimball Avenue Chino, CA						91708
(Address of principal executive offices)						(Zip Code)


			(626) 965-8882
			(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value

KRT

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of Common Stock, $0.001 par value, outstanding on May 5, 2026 was 19,963,731 shares.

Table of Contents


		Page
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	2

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	31

Item 4.	Controls and Procedures	31

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	32

Item 1A.	Risk Factors	32

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 3.	Defaults Upon Senior Securities	32

Item 4.	Mine Safety Disclosures	32

Item 5.	Other Information	32

Item 6.	Exhibits	32

SIGNATURES		34

KARAT PACKAGING INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per share data)

PART I - FINANCIAL INFORMATION


	March 31, 2026		December 31, 2025
Assets
Current assets
Cash and cash equivalents (including $1,557 and $1,488 associated with variable interest entity at March 31, 2026 and December 31, 2025, respectively)	$	28,680	$	37,880
Short-term investments	5,744		—
Accounts receivable, net of allowance for bad debt of $877 and $581 at March 31, 2026 and December 31, 2025, respectively	42,270		36,402
Inventories	80,009		81,682
Prepaid expenses and other current assets (including $318 and $314 associated with variable interest entity at March 31, 2026 and December 31, 2025, respectively)	4,333		5,224
Total current assets	161,036		161,188
Property and equipment, net (including $41,455 and $41,758 associated with variable interest entity at March 31, 2026 and December 31, 2025, respectively)	78,819		81,159
Deposits	3		—
Goodwill	3,510		3,510
Intangible assets, net	267		273
Operating right-of-use assets	37,586		40,299
Deferred tax asset	255		255
Other non-current assets (including $86 and $68 associated with variable interest entity at March 31, 2026 and December 31, 2025, respectively)	1,206		1,002
Total assets	$	282,682	$	287,686


	March 31, 2026		December 31, 2025
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable (including $97 associated with variable interest entity as of both March 31, 2026 and December 31, 2025, respectively)	$	24,282	$	26,323
Accrued expenses (including $189 and $535 associated with variable interest entity at March 31, 2026 and December 31, 2025, respectively)	13,027		13,460
Related party payable	5,462		4,672
Income taxes payable	1,267		—
Deferred revenue	1,165		713
Long-term debt, current portion (including $12,714 and $12,941 associated with variable interest entity at March 31, 2026 and December 31, 2025, respectively)	12,714		12,941
Operating lease liabilities, current portion	12,323		11,982
Other current liabilities (including $51 and $49 associated with variable interest entity at March 31, 2026 and December 31, 2025, respectively)	111		129
Total current liabilities	70,351		70,220
Deferred tax liability	2,936		2,936
Long-term debt, net of current portion and debt discount of $63 and $78 at March 31, 2026 and December 31, 2025, respectively (including $22,688 and $22,862 associated with variable interest entity at March 31, 2026 and December 31, 2025, respectively, and debt discount of $63 and $78 associated with variable interest entity at March 31, 2026 and December 31, 2025, respectively)	22,688		22,862
Operating lease liabilities, net of current portion	28,827		32,074
Other non-current liabilities (including $1,216 and $1,224 associated with variable interest entity at March 31, 2026 and December 31, 2025 respectively)	2,707		2,724
Total liabilities	127,509		130,816
Commitments and Contingencies (Note 14)
Karat Packaging Inc. stockholders’ equity
Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares issued and outstanding, as of both March 31, 2026 and December 31, 2025	—		—
Common stock, $0.001 par value, 100,000,000 shares authorized, 20,124,105 and 19,963,731 shares issued and outstanding, respectively, as of March 31, 2026 and 20,122,505 and 19,962,131 shares issued and outstanding, respectively, as of December 31, 2025	20		20
Additional paid in capital	91,211		90,939
Treasury stock, $0.001 par value, 160,374 shares as of both March 31, 2026 and December 31, 2025	(3,246)		(3,246)
Retained earnings	59,462		61,704
Total Karat Packaging Inc. stockholders’ equity	147,447		149,417
Noncontrolling interest	7,726		7,453
Total stockholders’ equity	155,173		156,870
Total liabilities and stockholders’ equity	$	282,682	$	287,686

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

KARAT PACKAGING INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(In thousands, except share and per share data)


	Three Months Ended March 31,
	2026		2025
Net sales	$	116,947	$	103,624
Cost of goods sold	75,421		62,862
Gross profit	41,526		40,762
Operating expenses
Selling expenses	12,936		14,411
General and administrative expenses (including $641 and $677 associated with variable interest entity for the three months ended March 31, 2026 and 2025, respectively)	20,126		18,548
Gain, net, on disposal of property	—		(17)
Total operating expenses	33,062		32,942
Operating income	8,464		7,820
Other income (expenses)
Rental income (including $357 and $446 associated with variable interest entity for the three months ended March 31, 2026 and 2025, respectively)	698		776
Other income, net (including $76 and $0 associated with variable interest entity for the three months ended March 31, 2026 and 2025, respectively)	91		44
Gain on foreign currency transactions	252		239
Interest income (including $3 and $226 associated with variable interest entity for the three months ended March 31, 2026 and 2025, respectively)	286		566
Interest expense (including ($380) and ($500) associated with variable interest entity for the three months ended March 31, 2026 and 2025, respectively)	(409)		(509)
Total other income, net	918		1,116
Income before provision for income taxes	9,382		8,936
Provision for income taxes	2,241		2,121
Net income	7,141		6,815
Net income attributable to noncontrolling interest	400		406
Net income attributable to Karat Packaging Inc.	$	6,741	$	6,409
Basic and diluted earnings per share:
Basic	$	0.34	$	0.32
Diluted	$	0.34	$	0.32
Weighted average common shares outstanding, basic	19,963,224		20,036,505
Weighted average common shares outstanding, diluted	20,073,479		20,198,654

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

KARAT PACKAGING INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(In thousands, except share and per share data)


	Common Stock			Treasury Stock			Additional Paid-in Capital		Retained Earnings		Total Stockholders’ Equity Attributable to Karat Packaging Inc.		Noncontrolling Interest		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance, January 1, 2025	20,059,505	$	20	(23,000)	$	(248)	$	89,457	$	66,340	$	155,569	$	6,630	$	162,199
Cash dividends declared ($0.45 per share)	—	—		—	—		—		(9,017)		(9,017)		—		(9,017)
Stock-based compensation	—	—		—	—		346		—		346		—		346
Global Wells membership interest tax withholding	—	—		—	—		—		—		—		(132)		(132)
Net income	—	—		—	—		—		6,409		6,409		406		6,815
Balance, March 31, 2025	20,059,505	$	20	(23,000)	$	(248)	$	89,803	$	63,732	$	153,307	$	6,904	$	160,211

	Common Stock			Treasury Stock			Additional Paid-in Capital		Retained Earnings		Total Stockholders’ Equity Attributable to Karat Packaging Inc.		Noncontrolling Interest		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance, January 1, 2026	20,122,505	$	20	(160,374)	$	(3,246)	$	90,939	$	61,704	$	149,417	$	7,453	$	156,870
Cash dividends declared ($0.45 per share)	—	—		—	—		—		(8,983)		(8,983)		—		(8,983)
Stock-based compensation	—	—		—	—		242		—		242		—		242
Exercise of stock options	1,600	—		—	—		30		—		30		—		30
Global Wells membership interest tax withholding	—	—		—	—		—		—		—		(127)		(127)
Net income	—	—		—	—		—		6,741		6,741		400		7,141
Balance, March 31, 2026	20,124,105	$	20	(160,374)	$	(3,246)	$	91,211	$	59,462	$	147,447	$	7,726	$	155,173

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

KARAT PACKAGING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)


	Three Months Ended March 31,
	2026		2025
Cash flows from operating activities
Net income	$	7,141	$	6,815
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including $303 associated with variable interest entity for both the three months ended March 31, 2026 and 2025)	2,741		2,688
Adjustments to allowance for bad debt	340		222
Adjustments to inventory reserve	49		90
Write-off (recovery) of inventory	374		(83)
Gain on disposal of property and equipment	—		(17)
Amortization of loan fees (including $15 associated with variable interest entity for both the three months ended March 31, 2026 and 2025)	45		23
Accrued interest on certificates of deposit	—		(48)
Unrealized loss from investment in publicly-traded equity securities	43		46
Stock-based compensation	242		346
Amortization of operating right-of-use assets	2,713		2,253
Government grant income (including ($8) associated with variable interest entity for both the three months ended March 31, 2026 and 2025)	(17)		(18)
(Increase) decrease in operating assets
Accounts receivable (including $4 and $0 associated with variable interest entity for the three months ended March 31, 2026 and 2025, respectively)	(6,208)		(5,887)
Inventories	1,250		(9,191)
Prepaid expenses and other current assets (including ($4) and ($112) associated with variable interest entity for the three months ended March 31, 2026 and 2025, respectively)	872		257
Other non-current assets (including $18 and ($25) associated with variable interest entity for the three months ended March 31, 2026 and 2025, respectively)	(5)		(24)
Increase (decrease) in operating liabilities
Accounts payable (including $0 and $3 associated with variable interest entity for the three months ended March 31, 2026 and 2025, respectively)	(1,541)		6,734
Accrued expenses (including ($346) and ($303) associated with variable interest entity for the three months ended March 31, 2026 and 2025, respectively)	(433)		1,313
Related party payable	790		1,927
Income taxes payable (including $0 and $3 associated with variable interest entity for the three months ended March 31, 2026 and 2025, respectively)	1,267		2,124
Deferred revenue	452		395
Operating lease liabilities	(2,906)		(2,337)
Other liabilities (including $5 and $59 associated with variable interest entity for the three months ended March 31, 2026 and 2025, respectively)	(18)		98
Net cash provided by operating activities	7,191		7,726


	Three Months Ended March 31,
	2026		2025
Cash flows from investing activities
Purchases of property and equipment	(565)		(107)
Proceeds from disposal of property and equipment	—		59
Deposits paid for property and equipment	(333)		(989)
Purchases of publicly-traded equity securities	(242)		(212)
Proceeds from disposal of publicly-traded equity securities	—		191
Purchases of short-term investments (including $0 and ($87) associated with variable interest entity for the three months ended March 31, 2026 and 2025, respectively)	(5,744)		(8,148)
Redemption of short-term investments (including $0 and $7,678 associated with variable interest entity for the three months ended March 31, 2026 and 2025, respectively)	—		12,739
Net cash (used in) provided by investing activities	(6,884)		3,533
Cash flows from financing activities
Payment of long-term debt (including ($416) and ($295) associated with variable interest entity for the three months ended March 31, 2026 and 2025, respectively)	(416)		(295)
Payments for lender fees	(11)		(47)
Proceeds from exercise of common stock options	30		—
Dividends paid to shareholders	(8,983)		(9,017)
Payment of Global Wells membership interest tax withholding (including ($127) and ($132) associated with variable interest entity for the three months ended March 31, 2026 and 2025, respectively)	(127)		(132)
Payment of Global Wells noncontrolling membership interest redemption gain tax withholding (including $0 and ($879) associated with variable interest entity for the three months ended March 31, 2026 and 2025, respectively)	—		(879)
Net cash used in financing activities	(9,507)		(10,370)
Net (decrease) increase in cash and cash equivalents	(9,200)		889
Cash and cash equivalents
Beginning of period	37,880		31,584
End of period	$	28,680	$	32,473
Supplemental disclosures of non-cash investing and financing activities:
Transfers from deposits to property and equipment	$	330	$	853
Non-cash purchases of property and equipment	$	—	$	37
Supplemental disclosures of cash flow information:
Cash paid for interest	$	383	$	477

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

KARAT PACKAGING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Operations

Lollicup USA Inc. ("Lollicup") was incorporated in 2001 in California and in October 2025, redomesticated to the State of Texas. Karat Packaging Inc. ("Karat Packaging") was incorporated in 2018 in Delaware and became the holding company for Lollicup (collectively, the "Company") through a share exchange with the shareholders of Lollicup. The Company's shares 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 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 offers customized solutions to customers, including new product design and development, custom printing, distribution of specialty food and beverages 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 Chino, California; Puyallup, Washington; Summerville, South Carolina; Branchburg, New Jersey; Kapolei, Hawaii; Aurora, Illinois; Mesa, Arizona; and Sugar Land, Texas.

2. Summary of Significant Accounting Policies

Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles as promulgated in the United States of America ("US GAAP") for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all the information and footnotes required by US GAAP for complete financial statements. The financial information as of March 31, 2026 and for the three months ended March 31, 2026 and 2025 is unaudited; however, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement have been included. Operating results for the three months ended March 31, 2026 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2026.

The condensed consolidated balance sheet at December 31, 2025 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by US GAAP for complete financial statements. These financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2025, as included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 13, 2026.

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

Estimates and Assumptions: 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 condensed consolidated financial statements.

Share Repurchases: The Company’s Board of Directors has approved a Share Repurchase Program authorizing the Company to repurchase up to $15,000,000 of its common stock. Under the Share Repurchase Program, the Company may repurchase shares through open market transactions, through privately negotiated transactions, or pursuant to a trading plan separately adopted in the future, subject to the requirements of the Securities Exchange Act of 1934, as amended. The Company records the shares repurchased as treasury stock based on the amount paid to repurchase its shares. Direct costs incurred to acquire treasury stock are treated like stock issue costs and added to the cost of the treasury stock.

KARAT PACKAGING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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, 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.

Variable Interest Entities: 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 the 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 (the “Texas Lease”). In 2020, the Company entered into another operating lease with Global Wells (the “New Jersey Lease”). On June 26, 2025, the Company renewed the New Jersey Lease with Global Wells, extending the lease term for an additional five years to August 31, 2030.

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. As a result, Lollicup was deemed to be the primary beneficiary of Global Wells and has consolidated Global Wells under the risk and reward model of ASC 810, for the period from March 23, 2018. The monthly lease payments for both the Texas Lease and the New Jersey Lease are eliminated upon consolidation.

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. Conversely, liabilities recognized as a result of consolidating Global Wells do not represent additional claims of the Company’s general assets; rather they represent claims against the specific assets of Global Wells. See Note 8 — Long-Term Debt for a description of the two term loans that Global Wells had with financial institutions as of March 31, 2026.

Noncontrolling Interests: The Company consolidates its variable interest entity, Global Wells, in which the Company is the primary beneficiary. Noncontrolling interests represent third-party equity ownership interests in Global Wells. The Company recognizes noncontrolling interests as equity in the condensed consolidated financial statements separate from the Company’s stockholders’ equity. The amount of net income attributable to noncontrolling interests is disclosed in the condensed consolidated statements of income. Tax payments made by the Company on behalf of the noncontrolling interests are deducted from their equity balances, as shown in the condensed consolidated statements of stockholders’ equity.

Revenue Recognition: 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 three months ended March 31, 2026 and 2025, net sales disaggregated by customer type consist of the amounts shown below.

KARAT PACKAGING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


	Three Months Ended March 31,
	2026		2025
	(in thousands)
Chains and distributors *	$	92,879	$	80,670
Online	19,525		17,791
Retail *	4,543		5,163
	$	116,947	$	103,624

* The Company reclassified one customer from the retail to the chains and distributors channel, and recast the corresponding net sales amounts of $1,071,000 for the three months ended March 31, 2025 to conform to the current period presentation. The recast had no effect on previously reported consolidated net sales for the three months ended March 31, 2025.

•Chains and distributors revenue: National and regional chains revenue is derived from chain restaurants, supermarkets, and other businesses with multiple locations. Distributors revenue is derived from distributors across the U.S. that purchase the Company’s products for resale and distribution to restaurants, supermarkets, and other businesses. Chain accounts often order through their distribution partners. Revenue from transactions with chains and distributors 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.

•Online revenue: 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 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. 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, 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.

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.

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. Logistics services revenue is recognized over time due to the continuous transfer of control to the customer. As control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. During the three months ended March 31, 2026 and 2025, logistics services revenue was $765,000 and $1,273,000, respectively, and was classified under retail in net sales disaggregated by customer type table above.

The Company’s contract liabilities consist primarily of rebates, sales incentives, cooperative advertising, and deferred revenue. As of March 31, 2026 and December 31, 2025, the Company had accrued $799,000 and $1,133,000, respectively, related to rebates, sales incentives, and cooperative advertising, included in accrued expenses in the condensed consolidated balance sheets. During the three months ended March 31, 2026 and 2025, the Company recognized revenue of $401,000 and $517,000, respectively, related to previously deferred revenue at the beginning of each respective period.

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

•At March 31, 2026, 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.

KARAT PACKAGING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

•At December 31, 2025, the Company had money market accounts classified as Level 1 and certificates of deposit classified as Level 2 within the fair value hierarchy.

Short-term investments consist 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 condensed consolidated balance sheets. The carrying value of these short-term investments approximates fair value as they were purchased near or on the respective balance sheet dates. Other certificates of deposit with an original maturity of equal to or shorter than 3 months have been included as cash equivalents on the condensed consolidated balance sheets.

The following table summarizes the Company’s fair value measurements by level at March 31, 2026 for the assets measured at fair value on a recurring basis:


	Level 1		Level 2		Level 3
	(in thousands)
Cash equivalents	$	2,712	$	16,101	$	—
Short-term investments	—		5,744		—
Publicly-traded equity securities	199		—		—
Fair value, March 31, 2026	$	2,911	$	21,845	$	—

The following table summarizes the Company’s fair value measurements by level at December 31, 2025 for the assets measured at fair value on a recurring basis:


	Level 1		Level 2		Level 3
	(in thousands)
Cash equivalents	$	3,699	$	24,696	$	—
Fair value, December 31, 2025	$	3,699	$	24,696	$	—

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 expenses, other current liabilities, 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 current liabilities at March 31, 2026 and December 31, 2025 approximate fair value because of the short maturity of these instruments. The following is a summary of the carrying amount and estimated fair value of the $23,000,000 and $28,700,000 term loans that mature in September 2026 and July 2027, respectively (the "2026 Term Loan" and the "2027 Term Loan", respectively):


	March 31, 2026
	Carrying Amount		Estimated Fair Value
	(in thousands)
2026 Term Loan	$	12,005	$	11,861
2027 Term Loan	23,397		23,458
	$	35,402	$	35,319


	December 31, 2025
	Carrying Amount		Estimated Fair Value
	(in thousands)
2026 Term Loan	$	12,240	$	12,040
2027 Term Loan	23,563		23,694
	$	35,803	$	35,734

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

KARAT PACKAGING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 long-lived assets that are determined to be impaired. For the three months ended March 31, 2026, management concluded that an impairment of long-lived assets was not required. The Company did not have any non-financial assets or liabilities that had been measured at fair value subsequent to initial recognition with the exception of a non-cash impairment of an operating ROU asset of $1,993,000 in the year ended December 31, 2024, resulting from the sublease of the Company's City of Industry warehouse in California.

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 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 December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The new guidance requires disaggregated information about the effective tax rate reconciliation and additional information on taxes paid that meet a quantitative threshold. The new guidance is effective for public companies for annual reporting periods beginning after December 15, 2024, and for non-public companies for annual reporting periods beginning after December 15, 2025, with early adoption permitted for both. The Company will adopt the new standard in its 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 its 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.

In December 2025, the FASB issued ASU 2025-11 Interim Reporting (Topic 270): Narrow-Scope Improvements. The new guidance creates a comprehensive list of interim disclosures required under US GAAP and incorporates a disclosure principle that requires disclosures at interim periods when an event or change that has a material effect on an entity has occurred since the previous year end. The new guidance is effective for all public companies for interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company will adopt the new standard in its interim reporting period beginning after December 15, 2027, and is currently evaluating the impacts of the new guidance on its disclosures within the condensed consolidated financial statements.

3. Inventories

Inventories consist of the following:


	March 31, 2026		December 31, 2025
	(in thousands)
Raw materials	$	4,011	$	4,442
Semi-finished goods	940		1,308
Finished goods	75,817		76,642
Subtotal	80,768		82,392
Less: inventory reserve	(759)		(710)
Total inventories	$	80,009	$	81,682

4. Property and Equipment

KARAT PACKAGING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


	March 31, 2026		December 31, 2025
	(in thousands)
Machinery and equipment	$	64,369	$	64,138
Leasehold improvements	19,212		19,212
Vehicles	9,729		9,729
Furniture and fixtures	1,009		1,009
Building	38,572		38,572
Land	11,907		11,907
Computer hardware and software	73		73
Construction in progress	163		—
	145,034		144,640
Less: accumulated depreciation and amortization	(66,215)		(63,481)
Total property and equipment, net	$	78,819	$	81,159

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 condensed consolidated statements of income.

For the three months ended March 31, 2026 and 2025, depreciation and amortization expense reported within general and administrative expense was $1,167,000 and $1,132,000, respectively, and depreciation expense reported within cost of goods sold was $1,567,000 and $1,549,000, respectively.

5. Goodwill

The following table summarizes the activity in the Company's goodwill from December 31, 2025 to March 31, 2026:


	(in thousands)
Balance at December 31, 2025	$	3,510
Goodwill acquired	—
Balance at March 31, 2026	$	3,510

6. Line of Credit

Pursuant to the terms of the Business Loan Agreement, dated February 23, 2018, between Lollicup, as borrower, and Hanmi Bank, as lender (as amended, the "Loan Agreement"), the Company has a line of credit with a maximum borrowing capacity of $20,000,000 (the "Line of Credit") secured by the Company’s assets. The Company is not required to pay a commitment (unused) fee on the undrawn portion of the Line of Credit and interest is payable monthly. The Company is required to comply with certain financial covenants, including a minimum current ratio, minimum debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio and a minimum fixed charge coverage ratio. As of both March 31, 2026 and December 31, 2025, the Company was in compliance with the financial covenants under the Line of Credit.

On March 3, 2025, the Company amended the Line of Credit. Prior to March 3, 2025, the revolving loan facility had a maximum borrowing capacity of $40,000,000 and interest accrued at an annual rate of one month term Secured Overnight Financing Rate ("SOFR") plus 2.50%, with a SOFR floor of 1.00%. The amendment on March 3, 2025, among other things, (1) extended the maturity date to March 14, 2027, (2) reduced the maximum borrowing capacity of 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 17, 2025, August 21, 2025, and October 3, 2025, the Company entered into three separate amendments of the Line of Credit, increasing the standby letter of credit sub-limit, respectively, from $5,000,000 to $7,500,000, from $7,500,000 to $10,000,000, and from $10,000,000 to $15,000,000. As of March 31, 2026 and December 31, 2025, the Company had no borrowings outstanding under the Line of Credit.

KARAT PACKAGING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The amount issued under the standby letter of credit was $12,313,000 as of both March 31, 2026 and December 31, 2025. As of March 31, 2026, the maximum remaining amount that could be borrowed under the Line of Credit was $7,687,000.

7. Accrued Expenses

The following table summarizes information related to accrued expense liabilities:


	March 31, 2026		December 31, 2025
	(in thousands)
Accrued miscellaneous expenses	$	1,841	$	1,870
Accrued payroll	1,212		622
Accrued ocean freight and other import costs	3,625		4,011
Accrued sale and use taxes	1,267		1,222
Accrued professional services fees	659		619
Accrued vacation and sick pay	1,177		855
Accrued property tax	340		1,190
Accrued shipping expense	2,028		1,844
Accrued sales discount expense	799		1,133
Accrued interest expense	79		94
Total accrued expenses	$	13,027	$	13,460

8. Long-Term Debt

Long-term debt consists of the following:


	March 31, 2026		December 31, 2025
	(in thousands)
The 2026 Term Loan, with an initial balance of $16,115,000 and an option to request for additional advances up to a maximum of $6,885,000 through September 2022, which the Company exercised in February 2022. Interest accrues at a fixed rate of 3.5% per annum. Principal and interest payments of $116,000 are due monthly throughout the term of the loan, with the remaining principal balance due at maturity. On December 18, 2025, the Company made an early payment of $8,000,000 to reduce the remaining principal balance due at maturity, with total monthly payments remaining the same for the remainder of the loan term.	$	12,017	$	12,258
The 2027 Term Loan, with an initial balance of $20,700,000 and an option to request for additional advances up to a maximum of $8,000,000 through June 30, 2023, which the Company exercised in March 2023. Interest accrues at a fixed rate of 4.375% per annum. Prior to August 1, 2023, principal and interest payments of $104,000 were due monthly. Beginning August 1, 2023, monthly principal and interest payments increased to $144,000 for the remainder of the loan term, with the remaining principal balance due at maturity. On September 5, 2025, the Company made an early payment of $3,500,000 to reduce the remaining principal balance due at maturity, with total monthly payments remaining the same for the remainder of the loan term.	23,448		23,623
Long-term debt	35,465		35,881
Less: unamortized loan fees	(63)		(78)
Less: current portion	(12,714)		(12,941)
Long-term debt, net of current portion	$	22,688	$	22,862

At March 31, 2026, future maturities are:

KARAT PACKAGING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


	(in thousands)
2026 (remainder)	$	12,541
2027	22,924
	$	35,465

The Company was in compliance with all of its financial covenants as of both March 31, 2026 and December 31, 2025.

The 2026 Term Loan matures on September 30, 2026. As of March 31, 2026, the entire remaining balance of $12,017,000 is included in the long-term debt, current portion on the condensed consolidated balance sheet. The Company intends to repay the 2026 Term Loan at maturity using available liquidity, which includes $28,680,000 in cash and cash equivalents and $5,744,000 in short-term investments as of March 31, 2026.

9. Stockholders' Equity

On November 5, 2025, the Company’s Board of Directors approved a Share Repurchase Program (the "Share Repurchase Program") of up to $15,000,000 of its common stock. Under the Share Repurchase Program, the Company may repurchase shares through open market transactions, through privately negotiated transactions, or pursuant to a trading plan separately adopted in the future, subject to the requirements of the Securities Exchange Act of 1934, as amended. The Share Repurchase Program has no set expiration date, and may be suspended, modified or discontinued at any time. During the three months ended March 31, 2026, the Company did not make any repurchases of its common stock. As of March 31, 2026, the Company had approximately $12,014,000 of remaining authorization for purchases under the Share Repurchase Program.

In January 2019, the Company’s board of directors adopted the 2019 Stock Incentive Plan (the "Plan"). As of March 31, 2026, a total of 1,193,517 shares of common stock were available for further award grants under the Plan. For the three months ended March 31, 2026 and 2025, the Company recognized a total of $242,000 and $346,000 in stock-based compensation expense, respectively. The Company recognizes stock-based compensation over the vesting period, which is generally within three years for both the restricted stock units and stock options.

Stock Options

A summary of the Company’s stock option activity under the Plan for the three months ended March 31, 2026 is as follows:


	Number of Options	Weighted-Average Exercise Price		Weighted-Average Remaining Contract Life	Aggregate Intrinsic Value
				(in years)	(in thousands)
Outstanding at December 31, 2025	287,467	$	18.56	5.8	$	1,152
Exercised	(1,600)	18.86
Outstanding at March 31, 2026	285,867	$	18.56	5.6	$	2,675
Vested and expected to vest at March 31, 2026	285,867	$	18.56	5.6	$	2,675
Exercisable at March 31, 2026	285,867	$	18.56	5.6	$	2,675

There were no stock options granted during the three months ended March 31, 2026. At March 31, 2026, all stock options granted under the Plan were fully vested and exercisable.

The aggregate intrinsic value is calculated by subtracting the exercise price of the option from the closing price of the Company’s common stock on March 31, 2026 and December 31, 2025, respectively, multiplied by the number of shares per each option.

KARAT PACKAGING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Restricted Stock Units

A summary of the Company’s unvested restricted stock units' activity under the Plan for the three months ended March 31, 2026 is as follows:


	Number of Shares Outstanding	Weighted Average Grant Date Fair Value
Unvested at December 31, 2025	43,500	$	28.53
Granted	84,000	22.34
Unvested at March 31, 2026	127,500	$	24.45

At March 31, 2026, total remaining stock-based compensation cost for unvested restricted stock units was approximately $1,936,000. The cost is expected to be recognized over a weighted-average period of 1.4 years.

10. Earnings Per Share

(a)Basic

Basic earnings per share is calculated by dividing the net income attributable to equity holders of the Company for the period by the weighted average number of common shares outstanding during the period.


	Three Months Ended March 31,
	2026		2025
	(in thousands, except per share data)
Net income attributable to Karat Packaging Inc.	$	6,741	$	6,409
Weighted average number of common shares outstanding	19,963		20,037
Basic earnings per share	$	0.34	$	0.32

(b)Diluted

Diluted earnings per share is calculated based upon the weighted average number of common shares and common equivalent shares outstanding during the period, calculated using the treasury stock method. Under the treasury stock method, exercise proceeds include the amount the employee must pay for exercising stock options and the amount of compensation cost related to stock awards for future services that the Company has not yet recognized. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect.

The following table summarizes the calculation of diluted earnings per share:


	Three Months Ended March 31,
	2026		2025
	(in thousands, except per share data)
Net income attributable to Karat Packaging Inc.	$	6,741	$	6,409
Weighted average number of common shares outstanding	19,963		20,037
Dilutive shares
Stock options and restricted stock units	110		162
Adjusted weighted average number of common shares	20,073		20,199
Diluted earnings per share	$	0.34	$	0.32

For the three months ended March 31, 2026 and 2025, a total of 18,666 and 0 shares of potentially dilutive shares, respectively, have been excluded in the diluted earnings per share calculation due to their anti-dilutive impact on earnings per share.

KARAT PACKAGING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

11. Leases

The Company primarily leases manufacturing facilities, distribution centers, and office spaces with lease terms expiring through 2031. The Company recognized the following lease costs in the accompanying condensed consolidated statement of income:


	Three Months Ended March 31,
	2026		2025
	(in thousands)
Operating lease expense	$	3,492	$	3,046
Short-term lease expense	456		648
Variable lease expense	459		316
Total lease expense	$	4,407	$	4,010

For the three months ended March 31, 2026 and 2025, rent expense included in operating expenses was $3,590,000 and $3,190,000, respectively, and rent expense included in cost of goods sold was $817,000 and $820,000, respectively.

The following table presents supplemental information related to operating leases:


	March 31, 2026		December 31, 2025
Weighted average remaining lease term	3.24 years		3.47 years
Weighted average discount rate	7.0	%	6.9	%


	Three Months Ended March 31,
	2026		2025
	(in thousands)
Right-of-use assets obtained in exchange for operating lease liabilities	$	—	$	10,457
Cash paid for amounts included in measurement of lease obligations:
Operating cash flows from operating leases	$	3,636	$	3,145

As of March 31, 2026, future lease payments under operating leases were as follows:


	(in thousands)
2026 (remainder)	$	10,959
2027	13,767
2028	12,915
2029	7,567
2030	715
Thereafter	53
Total lease payments	45,976
Less: imputed interest	(4,826)
Total lease liability balance	$	41,150

Global Wells has been the landlord under an operating lease agreement with an unrelated party since September 2020. 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 ending on February 28, 2031 with a different unrelated party that generates monthly rental payments from $87,000 to $101,000. The expected rental income is $846,000 for the remaining nine months of the year ending December 31, 2026, $1,128,000 per annum over the next four years, and $188,000 for the year ending December 31, 2031.

12. Related Party Transactions

Keary Global Group, Ltd. ("Keary Global") owns 250,004 shares of the Company's common stock as of March 31, 2026, which Keary Global acquired upon exercise of two convertible notes during the third quarter of 2018. Keary Global

KARAT PACKAGING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

and its affiliate, Keary International, Ltd. ("Keary International"), are owned by one of the Company’s stockholders’ family member. In addition to being a stockholder, Keary Global and Keary International are inventory suppliers and purchasing agents for the Company overseas. The Company has an ongoing agreement (the "Procurement Agreement") with Keary Global, which was amended and restated on June 26, 2025 to clarify the responsibilities of both parties under the Procurement Agreement. At March 31, 2026 and December 31, 2025, the Company has accounts payable due to Keary Global of $5,462,000 and $4,672,000, respectively. Purchases for the three months ended March 31, 2026 and 2025 from Keary Global were $9,166,000 and $10,340,000, respectively.

On June 26, 2025, the Company renewed the New Jersey Lease with Global Wells, extending the lease term for an additional five years to August 31, 2030. Under this lease renewal, monthly base lease payments range from $122,000 to $140,000 after an initial rent abatement period.

13. Income Taxes

For the three months ended March 31, 2026 and 2025, the Company's income tax expense was $2,241,000 and $2,121,000, respectively, with an effective tax rate of 23.9% and 23.7%, respectively. For both the three months ended March 31, 2026 and 2025, the Company's effective tax rate differed from the United States federal statutory rate of 21% primarily due to state taxes and the non-taxable non-controlling interest income.

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. As such, as of March 31, 2026, the Company did not record any valuation allowance.

On July 4, 2025, the President signed H.R. 1, the “One Big Beautiful Bill Act” into law. The legislation includes several changes to federal tax law that generally allow for more favorable deductibility of certain business expenses beginning in 2025, including the restoration of immediate expensing of domestic research and development expenditures, reinstatement of 100% bonus depreciation, and more favorable rules for determining the limitation on business interest expense. These changes, primarily timing differences with no net impact, were incorporated in the income tax provision for the period ended March 31, 2026.

The Company remains subject to IRS examination for the 2022 through 2024 tax years. Additionally, the Company files multiple state and local income tax returns and remains subject to examination in various jurisdictions for the 2021 through 2024 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. In October 2025, the Company received a notice from the IRS that its 2023 federal income tax return was selected for examination. The examination remains in its early stages, and no issues have been raised by the IRS to date. As of both March 31, 2026 and December 31, 2025, the Company did not have any unrecognized tax benefit.

14. Commitments and Contingencies

In May 2023, the Company received a Notice of Investigations and Interim Measures stating that U.S. Customs and Border Protection ("CBP") had initiated a formal investigation to determine whether the Company had evaded the anti-dumping and countervailing duty orders on lightweight thermal paper from China by transshipping the merchandise through Taiwan. The period of investigation was from January 2022 through the pendency of the investigation. 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. On March 19, 2024, the Company submitted a request for an administrative review of the initial determination issued by CBP. On June 11, 2024, CBP completed the administrative review and upheld its initial conclusion. In February 2025, the Company started to receive bills related to certain of its thermal paper shipments. During the year ended December 31, 2025, the Company submitted protests of certain bills received with CBP, and received its determination on all submitted protests as of April 3, 2026. The Company made total payments of $1,909,000 related to certain shipments under the investigation for the year ended December 31, 2025 and no payment for the three months ended March 31, 2026. Payments on bills received are currently due as all submitted protests are resolved. However, the Company is also evaluating other appeal options. The Company maintains a liability reserve, representing the total estimated probable loss from the investigation plus accrued interest, of $1,504,000 and $1,720,000 as of March 31, 2026

KARAT PACKAGING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

and December 31, 2025, respectively. 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 pending claims, government investigations and legal proceedings that routinely arise in the ordinary course of its business. Management believes that the outcome of such litigation and claims, should they arise in the future, is not likely to have a material effect on the Company’s financial position or results of operations.

15. Segment Report

The Company operates and evaluates its business as a single reportable segment. The following is the summary of the financial information for the Company’s reportable segment:


	Three Months Ended March 31,
	2026		2025
	(in thousands)
Net sales	$	116,947	$	103,624
Less (add):
Cost of goods sold	75,421		62,862
Shipping and transportation	10,217		10,616
Salaries and benefits	9,658		9,065
Professional services	1,350		1,438
Depreciation and amortization	1,173		1,139
Rent expense	3,305		2,750
Marketing expense	1,347		1,518
Online platform fees	1,542		2,221
Warehouse expense	1,258		939
Stock-based compensation	242		346
Gain, net, on disposal of property	—		(17)
Interest expense	409		509
Provision for income taxes	2,241		2,121
Other segment expenses*	2,970		2,927
Interest income	(286)		(566)
Other income, net	(1,041)		(1,059)
Segment net income	7,141		6,815
Reconciliation of segment net income to consolidated net income
Adjustments and reconciling items	—		—
Consolidated net income	$	7,141	$	6,815

* Other segment expenses include property taxes, insurance expenses, office expenses, bad debt expenses, and utilities.

There are no changes in the basis of segmentation or measurement of segment profit or loss since December 31, 2025. The Company’s long-lived assets are almost entirely located in the United States, and similarly its revenues are almost entirely generated in the United States. Additionally, the segment assets are the same as the assets reported on the condensed consolidated balance sheets.

16. Subsequent Events

On February 20, 2026, the U.S. Supreme Court held that certain tariffs previously imposed under the International Emergency Economic Powers Act ("IEEPA") were unconstitutional. The case was remanded to the U.S. Court of International Trade (the "CIT") for further instructions regarding the refund of all IEEPA tariffs paid by importers of record. On April 20, 2026, CBP launched a new electronic system entitled Consolidated Administration and Processing of Entries ("CAPE") system to automate refunds for IEEPA tariffs paid by importers, following the order issued by the CIT. The Company has completed the process of reviewing its import data, and determined that it has paid a total of

KARAT PACKAGING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

$26.0 million of IEEPA tariffs during the year ended December 31, 2025 and the first two months of 2026. The Company has submitted refund claims totaling $25.8 million through CAPE, representing claims for IEEPA tariffs paid on all entries that were not yet liquidated or were liquidated within 80 days of submission with CAPE, currently eligible to be automatically refunded through CAPE, upon CBP's approval of the claims. The Company continues to closely monitor the status of its submitted claims, and evaluate the probability and estimated amount of potential refunds. The financial impact of these events is uncertain, as it is unclear whether the current U.S. presidential administration will appeal the ruling of the CIT, whether the Company's submitted claims will be approved by CBP, and to what extent IEEPA tariffs will be refunded by CBP. No tariff refund receivables have been recorded in the accompanying condensed consolidated financial statements.

On May 5, 2026, the Company's Board of Directors declared a quarterly cash dividend of $0.45 per share on the Company's common stock, which will be paid on or about May 28, 2026 to shareholders of record at the close of business on May 21, 2026.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes. This discussion and analysis contains “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements relate to expectations concerning matters that are not historical facts. For example, statements discussing, among other things, business strategies, growth strategies and initiatives, future revenues and future performance and expected costs and liabilities are forward-looking statements. Such forward-looking statements may be identified by words such as “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “remain,” “should,” or “will” or the negative of these terms or other comparable terminology. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expect and, therefore, you should not unduly rely on such statements. The risks and uncertainties that could cause those actual results to differ materially from those expressed or implied by these forward-looking statements include but are not limited to:

•fluctuations in the demand for our products in light of changes in laws and regulations applicable to food and beverages and changes in consumer preferences;

•supply chain disruptions that could interrupt product manufacturing and increase product costs;

•our ability to source raw materials and navigate a shortage of available materials;

•our ability to compete successfully in our industry;

•the impact of earthquakes, fire, power outages, floods, pandemics and other catastrophic events, as well as the impact of any interruption by problems such as terrorism, cyberattacks, or failure of key information technology systems;

•our ability to accurately forecast demand for our products or our results of operations;

•the impact of problems relating to delays or disruptions in the shipment of our goods through operational ports;

•our ability to expand into additional foodservice and geographic markets;

•our ability to successfully design and develop new products;

•fluctuations in freight carrier costs related to the shipment of our products could have a material adverse impact on our results of operations;

•the effects of public health crises including pandemics;

•our ability to attract and retain skilled personnel and senior management; and

•other risks and uncertainties described in “Risk Factors" as set forth in Item I, Part 1A, “Risk Factors” of the Annual Report on Form 10-K for the year ended December 31, 2025 as filed with the Securities and Exchange Commission (the "SEC") on March 13, 2026 (the "2025 Form 10-K").

As used in this Quarterly Report on Form 10-Q, “we,” “us,” “our,” “Karat,” “the Company” or “our Company” refer to Karat Packaging Inc., a Delaware corporation, and, unless the context requires otherwise, our operating subsidiaries. References to “Global Wells” or “our variable interest entity” refer to Global Wells Investment Group LLC, a Texas limited liability company and our consolidated variable interest entity, in which the Company has an equity interest and which is controlled by one of our stockholders. References to “Lollicup” refer to Lollicup USA Inc., a Texas corporation, our wholly-owned subsidiary.

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

Overview

We are a rapidly-growing and nimble distributor and manufacturer of disposable foodservice products and related items, including food and take-out containers, bags, boxes, tableware, cups, lids, cutlery, straws, specialty beverage ingredients, gloves, janitorial supplies, and other products. Our products are available in plastic, paper, biopolymer-based and other compostable forms. We are a leader in product innovation, offering a growing line of environmentally-friendly products to our customers, who are increasingly focused on sustainability. We also offer customized solutions to our customers, including new product design and development, custom printing, distribution of specialty food and beverage products, and logistics services.

We operate our business strategically and with broad flexibility to provide both our large and small customers with the wide spectrum of products they need to successfully run and grow their businesses. We believe we have established ourselves as a differentiated provider of high-quality products relative to our competitors. Our operating model entails generating the majority of our revenue from the distribution of our vendors' products complemented by select manufacturing capabilities in the U.S., which allows us to provide customers with broad product choices and customized offerings with short lead times. This model provides us with the flexibility to adjust the mix of our product offering from import and manufacturing in an evolving economic environment to drive operating efficiency and sustained margin expansion. We have strengthened our supply chain resilience and efficiency by prioritizing strong partnerships with reliable and cost-efficient sources and diversifying sourcing to countries with more favorable trade conditions and minimal tariffs in a dynamic global trade landscape. This has enabled us to expand our supplier base, minimize reliance on individual suppliers, enhance the resilience of our supply chain, expand our margin and improve our operating cash flows.

We operate an approximately 500,000 square foot distribution center located in Rockwall, Texas, an approximately 300,000 square foot distribution center in Chino, California, and an approximately 76,000 square foot distribution center located in Kapolei, Hawaii. We have selected manufacturing capabilities in all of these facilities. In addition, we operate eight other distribution centers located in Chino, California; Puyallup, Washington; Summerville, South Carolina; Branchburg, New Jersey; Kapolei, Hawaii; Aurora, Illinois; Mesa, Arizona; and Sugar Land, Texas. Our distribution centers are strategically located in proximity to major population centers, including the Los Angeles, New York, Chicago, Dallas, Houston, Seattle, Phoenix, Atlanta, and Honolulu metro areas. On October 17, 2025, we announced that Lollicup, our wholly-owned business operating subsidiary, relocated its headquarters to Rockwall, Texas, from Chino, California.

We manage and evaluate our operations in one reportable segment.

Business Highlights and Trends

•We continue to realign our global supply chain within a dynamic global trade environment. We increased domestic purchases to 18.3% from 13.8% for the three months ended March 31, 2026 compared to the three months ended March 31, 2025 and diversified sourcing to countries with more favorable trade conditions. Specifically, we reduced sourcing from Taiwan from 53.7% to 46.3% and from China from 18.4% to 11.3% for the three months ended March 31, 2026 compared to the three months ended March 31, 2025, respectively. Further, we increased our purchases from Malaysia and Vietnam from an aggregate of 12.2% to 17.2% for the three months ended March 31, 2026 compared to the three months ended March 31, 2025.

•We recorded quarterly net sales of $116.9 million for the three months ended March 31, 2026, an increase of 12.9% in amount and 10.4% in volume, compared to the three months ended March 31, 2025.

•Our gross margin was 35.5% for the three months ended March 31, 2026, a decrease of 380 basis points compared to the three months ended March 31, 2025, reflecting the expected unfavorable impact from higher tariffs.

•We recorded quarterly net income of $7.1 million for the three months ended March 31, 2026, an increase of 4.8% compared to the three months ended March 31, 2025.

•Our net income margin was 6.1% for the three months ended March 31, 2026, a decrease of 50 basis points compared to the three months ended March 31, 2025.

•We generated $7.2 million in net cash from operating activities for the three months ended March 31, 2026, a decrease of 6.9% compared to the three months ended March 31, 2025.

•We generated consolidated Adjusted EBITDA, a non-GAAP measure defined below, of $12.5 million for the three months ended March 31, 2026, an increase of 4.8% compared to the three months ended March 31, 2025.

•Our Adjusted EBITDA margin, a non-GAAP measure defined below, was 10.7% for the three months ended March 31, 2026, a decrease of 80 basis points compared to the three months ended March 31, 2025.

•As of March 31, 2026, we had financial liquidity of $36.4 million, consisting of $28.7 million in cash and cash equivalents and $7.7 million in availability under Line of Credit. In addition, we had $5.7 million in short-term investments as of March 31, 2026.

•On May 5, 2026, our Board of Directors declared another quarterly cash dividend of $0.45 per share on our common stock, which will be paid on or about May 28, 2026 to shareholders of record at the close of business on May 21, 2026.

Trends in Our Business

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

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

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

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

•U.S. foreign trade policy continues to evolve, such as the imposition of tariffs on imports from China and other countries. We believe this trend will have either a positive or a negative impact on our results of operations, depending on whether we are able to continue to strengthen our global supply chain, whether any previously imposed tariffs are removed and whether we can implement procedures to mitigate the impact from the tariffs.

•The cost of raw materials used to manufacture our products, including polyethylene terephthalate, or PET, plastic resin, aluminum, and paper boards, may continue to fluctuate, and the availability and cost of such raw materials are subject to global geopolitical risks. Since negotiated sales contracts and the market largely determine the pricing for our products, we are, at times, limited in our ability to raise prices and pass through any impacts of inflation on our costs. There can also be lags between cost inflation and the implementation of price increases, which could negatively impact our gross margin. Conversely, periods of deflation, where raw material costs decrease, may create pricing pressure and start price wars, potentially requiring us to lower prices, which could also affect our gross margin. Additionally, the availability of raw materials may affect our suppliers’ ability to manufacture products and may limit the volume of products we are able to import, which in turn could impact our ability to meet customer demand. We believe price fluctuations and the availability of raw materials will have either a positive or a negative impact on our results of operations in the future, depending on whether raw material costs increase or decrease, whether we can successfully implement price adjustments to maintain gross margin and whether we can effectively realign our global supply chain to mitigate disruptions and support product availability.

•Supply chain effectiveness could have a long-lasting impact on our operations and financial results. We believe this trend will have either a positive or a negative impact on our results of operations, depending on whether we are able to manage our global supply chain effectively, including the accurate forecast of demand, the successful procurement and transportation of raw materials and products, and the effective management of our inventory, production and distribution.

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

Critical Accounting Estimates

The following discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with US GAAP. The preparation of these financial statements in accordance with US GAAP requires us to make estimates and judgments.

There have been no material changes in our critical accounting policies, or in the estimates and assumptions underlying those policies, from those described under the heading “Critical Accounting Estimates” in Item 7 of Part II of our 2025 Form 10-K.

Results of Operations

The amount and percentage changes calculated in the discussion below were based on numbers rounded to the nearest thousands.


	Three Months Ended March 31,
	2026		2025
	(in thousands)
Net sales	$	116,947	$	103,624
Cost of goods sold	75,421		62,862
Gross profit	41,526		40,762
Operating expenses	33,062		32,942
Operating income	8,464		7,820
Other income, net	918		1,116
Provision for income taxes	2,241		2,121
Net income	$	7,141	$	6,815

Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025

Net sales

Net sales were $116.9 million for the three months ended March 31, 2026 compared to $103.6 million for the three months ended March 31, 2025, an increase of $13.3 million, or 12.9%. The sales growth was primarily driven by an increase of $12.1 million in volume and product mix, as well as a $2.0 million favorable year-over-year pricing comparison, partially offset by a decrease of $0.8 million in shipping and logistics revenue.

Cost of goods sold

Cost of goods sold was $75.4 million for the three months ended March 31, 2026 compared to $62.9 million for the three months ended March 31, 2025, an increase of $12.6 million, or 20.0%. Product costs increased $5.2 million primarily due to sales volume growth. Import costs, including duty and tariffs and ocean freight, increased $7.3 million primarily as a result of higher import duty and tariffs, which increased from $3.4 million for the three months ended March 31, 2025 to $10.5 million for the three months ended March 31, 2026.

Gross profit

Gross profit was $41.5 million for the three months ended March 31, 2026 compared to $40.8 million for the three months ended March 31, 2025, an increase of $0.8 million, or 1.9%. Gross margin was 35.5% for the three months ended March 31, 2026 compared to 39.3% for the three months ended March 31, 2025, a decrease of 380 basis points. Gross margin was negatively impacted by rising import costs, as discussed above, which as a percentage of net sales increased to 13.8% during the three months ended March 31, 2026 from 8.6% during the three months ended March 31, 2025. This erosion in margin was partially offset by a decrease in product costs as a percentage of net sales from 49.5% during the three months ended March 31, 2025 to 48.4% during the three months ended March 31, 2026, demonstrating the effectiveness of our diversified sourcing strategy and benefiting from favorable product mix and pricing. Inventory

adjustments as a percentage of net sales also increased to 0.3% of inventory write-offs during the three months ended March 31, 2026 from 0.1% of inventory recovery during the three months ended March 31, 2025.

Operating expenses

Operating expenses were $33.1 million for the three months ended March 31, 2026 compared to $32.9 million for the three months ended March 31, 2025, an increase of $0.1 million, or 0.4%. Rent expense increased $0.6 million primarily due to the opening of a new Chino distribution center in March 2025. Salaries and benefits also increased $0.6 million during the three months ended March 31, 2026. These increases were partially offset by a decrease in online platform fees of $0.7 million due to a shift away from third-party order fulfillments of online orders and a decrease in shipping and transportation costs of $0.4 million during the three months ended March 31, 2026 primarily due to decrease in online shipping rates.

Operating income

Operating income was $8.5 million for the three months ended March 31, 2026 compared to $7.8 million for the three months ended March 31, 2025, an increase of $0.6 million, or 8.2%. The increase was due to an increase in gross profit of $0.8 million, partially offset by an increase in operating expenses of $0.1 million, as discussed above.

Other income, net

Other income, net was $0.9 million for the three months ended March 31, 2026 compared to $1.1 million for the three months ended March 31, 2025, a decrease of $0.2 million, or 17.7%. The decrease was driven primarily by a decrease in interest income of $0.3 million due to lower invested balances in certificates of deposit during the three months ended March 31, 2026.

Provision for income taxes

Provision for income taxes was $2.2 million for the three months ended March 31, 2026 compared to $2.1 million for the three months ended March 31, 2025, an increase of $0.1 million, or 5.7%. The Company’s effective tax rate was 23.9% for the three months ended March 31, 2026 compared to 23.7% for the three months ended March 31, 2025, primarily due to the change in non-taxable non-controlling interest income.

Net income

Net income was $7.1 million for the three months ended March 31, 2026 compared to $6.8 million for the three months ended March 31, 2025, an increase of $0.3 million, or 4.8%. The increase was primarily driven by an increase of $0.6 million in operating income, partially offset by a decrease of $0.2 million in other income, net, and an increase of $0.1 million in provision for income taxes, as discussed above.

Non-GAAP Financial Measures

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

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

Adjusted EBITDA and Adjusted EBITDA Margin

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

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

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

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


Reconciliation of Adjusted EBITDA (unaudited)	Three Months Ended March 31,
	2026				2025
	(in thousands, except percentages)
	Amount		% of Net Sales		Amount		% of Net Sales
Net income	$	7,141	6.1	%	$	6,815	6.6	%
Add (deduct):
Interest income	(286)		(0.2)		(566)		(0.5)
Interest expense	409		0.3		509		0.5
Provision for income taxes	2,241		1.9		2,121		2.0
Depreciation and amortization	2,741		2.4		2,688		2.6
Stock-based compensation expense	242		0.2		346		0.3
Adjusted EBITDA	$	12,488	10.7	%	$	11,913	11.5	%

Free Cash Flow

Free Cash Flow is a financial measure calculated as cash from operating activities less cash used in (i) purchases of property and equipment and (ii) deposits paid for property and equipment.

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

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

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


Reconciliation of Free Cash Flow (unaudited)	Three Months Ended March 31,
	2026		2025
	(in thousands)
Net cash provided by operating activities	$	7,191	$	7,726
Deduct:
Purchases of property and equipment	(565)		(107)
Deposits paid for property and equipment	(333)		(989)
Free Cash Flow	$	6,293	$	6,630

Liquidity and Capital Resources

Sources and Uses of Funds

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

As described in Note 6 — Line of Credit to the condensed consolidated financial statements, the Line of Credit is available for working capital and general corporate purposes and is secured by our assets. It consists of a revolving loan facility and a standby letter of credit sub-limit. We are not required to pay a commitment (unused) fee on the undrawn portion of the Line of Credit and interest is payable monthly. On March 3, 2025, we amended the Line of Credit. Prior to March 3, 2025, the revolving loan facility had a maximum borrowing capacity of $40.0 million and interest accrued at an annual rate of one month term Secured Overnight Financing Rate ("SOFR") plus 2.50%, with a SOFR floor of 1.00%. The amendment on March 3, 2025, among other things, (1) extended the maturity date to March 14, 2027, (2) reduced the maximum borrowing capacity of the revolving loan facility to $20.0 million, and (3) revised the interest on any Line of Credit borrowings to an annual rate of one month term SOFR plus 2.25%, with a SOFR floor of 1.00%. On March 17, 2025, August 21, 2025, and October 3, 2025, the Company entered into three separate amendments of the Line of Credit, increasing the standby letter of credit sub-limit, respectively, from $5,000,000 to $7,500,000, from $7,500,000 to $10,000,000, and from $10,000,000 to $15,000,000. As of March 31, 2026, the amount issued under the standby letter of credit was $12.3 million, and the maximum remaining amount that could be borrowed under the Line of Credit was $7.7 million.

As described in Note 8 — Long-Term Debt to the condensed consolidated financial statements, on June 17, 2022, we entered into a $28.7 million term loan agreement which matures July 1, 2027 (the "2027 Term Loan"). The 2027 Term Loan had an initial balance of $20.7 million and an option to request additional advances up to a maximum of $8.0 million through June 30, 2023, which we exercised in March 2023. Interest accrues at a fixed rate of 4.375% per annum. Principal and interest payments of $0.1 million are due monthly throughout the term of the loan, with the remaining principal balance due at maturity. On September 5, 2025, we made an early payment of $3.5 million to reduce the remaining principal balance due at maturity, with total monthly payments remaining the same for the remainder of the loan term. The 2027 Term Loan is collateralized by substantially all of Global Wells’ assets and is guaranteed by one of our stockholders. In accordance with the loan agreement, Global Wells is required to comply with certain financial covenants, including a minimum debt service coverage ratio.

Additionally, as of March 31, 2026, we have a $23.0 million term loan that matures September 30, 2026 (the "2026 Term Loan"). The 2026 Term Loan had an initial balance of $16.1 million and an option to request additional advances up to a maximum of $6.9 million through September 2022, which we exercised in February 2022. Interest accrues at a fixed rate of 3.5% per annum. Principal and interest payments of $0.1 million are due monthly throughout the term of the loan, with the remaining principal balance due at maturity. On December 18, 2025, we made an early payment of $8.0 million to reduce the remaining principal balance due at maturity, with total monthly payments remaining the same for the remainder of the loan term. The 2026 Term Loan is collateralized by substantially all of Global Wells’ assets and is guaranteed by Global Wells and one of our stockholders. In accordance with the loan agreement, Global Wells is required to comply with certain financial covenants, including a minimum debt service coverage ratio. As of March 31, 2026, the entire remaining balance of $12.0 million is included in the long-term debt, current portion on the condensed consolidated balance sheet. We intend to repay the 2026 Term Loan at maturity using our available liquidity, which includes $28.7 million in cash and cash equivalents and $5.7 million in short-term investments as of March 31, 2026.

As of March 31, 2026, we were in compliance with the financial covenants under all of our loan agreements, and do not expect material uncertainties in our continued ability to be in compliance with all financial covenants through the remaining term of all of our loan agreements. As of March 31, 2026, we had no borrowings outstanding under the Line of Credit, $23.4 million in outstanding balance under the 2027 Term Loan, and $12.0 million in outstanding balance under the 2026 Term Loan.

As discussed in Note 14 — Commitments and Contingencies to the condensed consolidated financial statements, on February 5, 2024, we received a Notice of Determination from U.S. Customs and Border Protection ("CBP") related to its investigation to determine whether we have evaded the anti-dumping and countervailing duty on certain imported thermal paper products. On March 19, 2024, we submitted a request for an administrative review of the initial determination issued

by CBP. On June 11, 2024, CBP completed the administrative review and upheld its initial conclusion. In February 2025, we started to receive bills related to certain of our thermal paper shipments. During the year ended December 31, 2025, we submitted protests of certain bills received with CBP, and received its determination on all submitted protests as of April 3, 2026. We made total payments of $1,909,000 related to certain shipments under the investigation for the year ended December 31, 2025 and no payment for the three months ended March 31, 2026. Payments on bills received are currently due as all submitted protests are resolved. Although we have an import duty liability reserve of $1.5 million as of March 31, 2026, the amount of the final payments could vary significantly from the estimated liability reserve.

As described in Note 16 — Subsequent Events to the condensed consolidated financial statements, on February 20, 2026, the U.S. Supreme Court held that certain tariffs previously imposed under the International Emergency Economic Powers Act ("IEEPA") were unconstitutional. The case was remanded to the U.S. Court of International Trade (the "CIT") for further instructions regarding the refund of all IEEPA tariffs paid by importers of record. On April 20, 2026, CBP launched a new electronic system entitled Consolidated Administration and Processing of Entries ("CAPE") system to automate refunds for IEEPA tariffs paid by importers, following the order issued by the CIT. We have completed the process of reviewing our import data, and determined that we have paid a total of $26.0 million of IEEPA tariffs during the year ended December 31, 2025 and the first two months of 2026. As of April 20, 2026, we have successfully submitted refund claims totaling $25.8 million within CAPE, representing refund claims for all IEEPA tariffs paid on all entries that were not yet liquidated or were liquidated within 80 days of submission with CAPE, currently eligible to be automatically refunded through CAPE, upon CBP's approval of the claims. We continue to closely monitor the status of our submitted claims, and evaluate the probability and estimated amount of potential refunds. The financial impact of these events is uncertain, as it is unclear to whether the current U.S. presidential administration will appeal the ruling of the CIT, whether our submitted claims will be approved by CBP, and to what extent IEEPA tariffs will be refunded by CBP. No tariff refund receivables have been recorded in the accompanying condensed consolidated financial statements as of March 31, 2026.

Additionally, on May 5, 2026 our Board of Directors declared another regular quarterly cash dividend of $0.45 per share on our common stock, which will be paid on or about May 28, 2026 to shareholders of record at the close of business on May 21, 2026. Prior to this, we paid out regular quarterly cash dividends totaling $9.0 million in the current fiscal year.

Our ongoing operations and growth strategy may require us to continue to make investments in new markets and products, logistics and manufacturing infrastructure, e-commerce platforms, talent, and technology capabilities. In addition, we may consider making strategic acquisitions and investments which could require significant liquidity. The rapidly changing macroeconomic, geopolitical and global trade dynamics created significant uncertainty in the global economy and capital markets, which could have long-lasting adverse effects. We currently believe that our cash on hand, ongoing cash flows from our operations and funding available under our borrowings will be adequate to meet our working capital needs, service our debt, including the entire balance due on our 2026 Term Loan upon maturity, make lease payments, and fund capital expenditures for at least the next 12 months. We continue to explore other options to further expand our liquidity to support the business growth and enhance shareholder value.

Beyond the next 12 months, if we require additional capital resources to grow our business, either organically or through acquisition, we may seek to sell additional equity securities, renew and increase use of the Line of Credit, and acquire additional debt. The sale of additional equity securities or certain forms of debt financing could result in additional dilution to our stockholders. We may not be able to obtain financing arrangements in amounts or on terms acceptable to us in the future. In the event we are unable to obtain additional financing when needed, we may be compelled to delay or curtail our plans to develop our business, which could have a material adverse effect on our operations, market position and competitiveness. Notwithstanding the potential liquidity challenges described above, we expect to meet our long-term liquidity needs with cash flows from operations and financing arrangements.

Liquidity Position

The following table summarizes total current assets, liabilities and working capital at March 31, 2026 compared to December 31, 2025:


	March 31, 2026		December 31, 2025		Change
	(in thousands)
Current assets	$	161,036	$	161,188	$	(152)
Current liabilities	70,351		70,220		131
Working capital	$	90,685	$	90,968	$	(283)

As of March 31, 2026, we had working capital of $90.7 million compared to $91.0 million as of December 31, 2025, representing a decrease of $0.3 million, or 0.3%, driven by a decrease of $0.2 million in current assets partially offset by an increase of $0.1 million in current liabilities. The decrease in current assets was primarily driven by a decrease in cash and cash equivalents and short-term investments of $3.5 million, a decrease in inventories of $1.7 million, and a decrease in prepaid expenses and other current assets of $0.9 million, partially offset by an increase in accounts receivable of $5.9 million as a result of stronger sales in March 2026 compared to December 2025. The increase in current liabilities was primarily driven by an increase in income tax payable of $1.3 million and an increase in deferred revenue of $0.5 million, partially offset by a decrease in accounts payable and related party payables of $1.3 million and a decrease in accrued expenses of $0.4 million.

Cash Flows

The following table summarizes cash flow for the three months ended March 31, 2026 and 2025:


	Three Months Ended March 31,
	2026		2025
	(in thousands)
Net cash provided by operating activities	$	7,191	$	7,726
Net cash (used in) provided by investing activities	(6,884)		3,533
Net cash used in financing activities	(9,507)		(10,370)
Net change in cash and cash equivalents	$	(9,200)	$	889

Cash flows provided by operating activities. Net cash provided by operating activities was $7.2 million for the three months ended March 31, 2026, primarily the result of net income of $7.1 million, adjusted for certain non-cash items totaling $6.5 million, consisting mainly of depreciation and amortization of fixed assets and operating right-of-use assets, stock-based compensation, and allowance for bad debt and inventory adjustments. In addition, cash decreased by $6.5 million from changes in working capital, primarily resulted from a decrease of $6.2 million from an increase in accounts receivable due to higher sales and a decrease of $2.9 million from a reduction in operating lease liabilities, partially offset by an increase of $1.3 million from a reduction in inventory purchases and an increase of $1.3 million from the increase in income tax payable.

Net cash provided by operating activities was $7.7 million for the three months ended March 31, 2025, primarily the result of net income of $6.8 million, adjusted for certain non-cash items totaling $5.5 million, consisting mainly of depreciation and amortization of fixed assets and operating right-of-use assets, stock-based compensation, and adjustments to the allowance for doubtful accounts and inventory reserve. In addition, cash decreased by $4.6 million from changes in working capital, which included a decrease of $9.2 million from inventory build-up, a decrease of $5.9 million from an increase in accounts receivable from higher sales, and a decrease of $2.3 million from a reduction in operating lease liabilities. These decreases were partially offset by an increase of $8.7 million from higher accounts and related party payables primarily associated with increased inventory purchases, an increase of $2.1 million from higher income tax payable, and an increase of $1.3 million from higher accrued expenses.

Cash flows (used in) provided by investing activities. Net cash used in investing activities was $6.9 million for the three months ended March 31, 2026, which primarily included $5.7 million in purchases of short-term investments and $0.6 million in purchases of property and equipment.

Net cash provided by investing activities was $3.5 million for the three months ended March 31, 2025, which primarily included $12.7 million in redemptions of short-term investments, partially offset by $8.1 million in purchases of short-term investments, and $1.0 million of deposits paid for the purchase of property and equipment.

Cash flows used in financing activities. Net cash used in financing activities was $9.5 million for the three months ended March 31, 2026, which primarily included $9.0 million of cash dividends paid to shareholders and $0.4 million of payments towards long-term debt.

Net cash used in financing activities was $10.4 million for the three months ended March 31, 2025, which primarily included $9.0 million of cash dividends paid to shareholders, $0.9 million of Global Wells membership interest redemption gain tax withholding payment, and $0.3 million of payments towards long-term debt.

Related Party Transactions

For a description of significant related party transactions, see Note 12 — Related Party Transactions in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements is contained in Note 2 — Summary of Significant Accounting Policies in the Notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This item is not required for smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this Quarterly Report on Form 10-Q, the Company's management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of its disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2026. Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2026.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the three months ended March 31, 2026, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we are involved in various legal proceedings. Although no assurance can be given, we do not believe that any of our currently pending proceedings will have a material adverse effect on our financial condition, cash flows or results of operations. See Note 14 — Commitments and Contingencies in Part I, Item 1 of this Quarterly Report for a description of our commitments and contingencies.

Item 1A. Risk Factors.

There have been no material changes to the Risk Factors previously disclosed in the 2025 Form 10-K, which is incorporated herein by reference.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Rule 10b5-1 Trading Arrangements

During the three months ended March 31, 2026, none of the Company’s directors or officers adopted, modified, or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement”, as such terms are defined under Item 408 of Regulation S-K.

Item 6. Exhibits.


Exhibit No.						Description
10.1+						Second Amendment to Employment Agreement, dated March 11, 2026, between Karat Packaging Inc. and Jian Guo, Chief Financial Officer. (Incorporated by reference to Exhibit 10.35 from the Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 13, 2026)
31.1*						Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*						Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**						Certifications of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**						Certifications of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*						XBRL Instance Document
101.SCH*						XBRL Taxonomy Extension Schema Document
101.CAL*						XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*						XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*						XBRL Taxonomy Extension Labels Linkbase Document
101.PRE*						XBRL Taxonomy Extension Presentation Linkbase Document
104*						Cover Page Interactive File (formatted as inline XBRL and contained in Exhibit 101)



* Filed herewith. ** Furnished herewith. + Indicates management compensatory agreement.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


DATE: May 8, 2026	KARAT PACKAGING INC.

	By:	/s/ Alan Yu
		Alan Yu
		Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Jian Guo
		Jian Guo
		Chief Financial Officer
		(Principal Financial Officer and
		Principal Accounting Officer)

Karat Packaging Inc. 10-Q