krt-20260331

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

SEC Form 10-Q filed by Karat Packaging Inc.