ARS 1 krt2025annualreport.htm ARS

Dear Fellow Shareholders:
For 2025, I am pleased to report that Karat Packaging again delivered solid profitable growth and turned in another excellent year, despite ongoing global trade volatility.
Our net sales in 2025 grew 10.7% in amount and 11.2% in volume compared to 2024 and we sustained strong gross margin at 36.8% for 2025 as we strategically and swiftly realigned our global supply chain against a backdrop of higher tariffs. Our flexible and nimble business model, strengthened by our successful ongoing efforts to diversify sourcing, remains a key distinguishing characteristic that continues to help us deliver consistent, effective results.
Our agility and responsiveness to customer needs continue to drive robust topline growth. We expanded our business within existing customer accounts, broadened our reach through new product offerings, penetrated new geographies and provided enhanced logistics services for end markets. Sales to chains and distributors grew 12.5%, and sales through the online channel increased 7.4% year-over-year in 2025. In 2025, one of our strategic focuses was to expand our new paper bags product category, which is gaining strong traction and delivering meaningful revenue contributions.
In addition to supplying paper bags to one of our largest national chain accounts, which we won in 2025, we are actively pursuing further opportunities, some of which are at the final confirmation stage. Complementing these successes, we are further expanding this category by supplying generic paper bags to smaller customer accounts. This strategy positions us to continue capturing market share in the years ahead, while strengthening our position as a leading provider of sustainable, eco‑friendly disposable foodservice products.
We ended the year with $91.0 million in working capital and financial liquidity of $45.6 million, reflecting the Company’s financial strength. Despite substantial duty and tariff payments, we effectively executed our working capital management and generated $33.8 million in net cash from operating activities. We also returned a total of $36.1 million to shareholders through quarterly cash dividends and repurchased $3.0 million in shares of our stock under our first-ever share repurchase program, authorized by our Board of Directors in early November 2025. These actions reinforce our commitment to a balanced capital allocation strategy that prioritizes meaningful shareholder returns and long‑term growth investments.
We remain committed to advancing top-line growth while continuously strengthening operational efficiency and upholding disciplined cost management. These priorities, supported by our resilient business model and focused execution, position us to enter 2026 with strong momentum.

On behalf of our entire team and Board of Directors, I thank you for your continued confidence and support. Together, we remain steadfast in navigating today’s dynamic environment, and we are energized by the opportunities ahead as we work to create enduring value for all our stakeholders.
Sincerely,
Alan Yu,
Chief Executive Officer

Forward-Looking Statements
This Letter contains “forward-looking statements” within the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical or current fact included in this Letter are forward-looking statements, including but not limited to statements regarding our long-term growth plans, priorities, planned investments and opportunities in 2026 and beyond. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause Karat's actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including but not limited to the risk factors discussed under the caption “Risk Factors” in Karat's Annual Report on Form 10-K for the fiscal year ended December 31, 2025, and its other filings with the Securities and Exchange Commission. These risk factors could cause actual results to differ materially from those indicated by the forward-looking statements made in this annual report. Any such forward-looking statements represent management’s estimates as of the date of this annual report. While Karat may elect to update such forward-looking statements at some point in the future, it disclaims any obligation to do so, except as required by law, even if subsequent events cause its views to change.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2025
OR

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

For 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 Number)
6185 Kimball Avenue Chino, California |  | 91708
(Address of registrant's principal executive offices) |  | (Zip code)

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

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

Title of each class |  | Trading Symbol |  | Name of each exchange on which registered
Common Stock, $0.001 par value |  | KRT |  | The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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, a smaller reporting company or an emerging growth company. See the 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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): Yes ☐ No ☒
As of June 30, 2025, the last business day of the registrant’s most recently completed second fiscal quarter, the approximate aggregate market value of the common stock held by non-affiliates of the registrant was $244,136,753, based on the closing price of the registrant’s common stock on that date.
As of March 10, 2026, the number of shares of common stock, $0.001 par value, outstanding was 19,963,731 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for the 2026 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, 2025.

Table of Contents

Part I |
Special Note Regarding Forward-Looking Statements | 2
Item 1. Business | 3
Item 1A. Risk Factors | 16
Item 1B. Unresolved Staff Comments | 30
Item 1C. Cybersecurity | 30
Item 2. Properties | 32
Item 3. Legal Proceedings | 32
Item 4. Mine Safety Disclosures | 32
Part II |
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities | 33
Item 6. [Reserved] | 34
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations | 35
Item 7A. Quantitative and Qualitative Disclosures About Market Risk | 45
Item 8. Financial Statements and Supplementary Data | 46
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | 75
Item 9A. Controls and Procedures | 75
Item 9B. Other Information | 76
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 76
Part III |
Item 10. Directors, Executive Officers and Corporate Governance | 77
Item 11. Executive Compensation | 77
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 77
Item 13. Certain Relationships and Related Party Transactions | 77
Item 14. Principal Accountant Fees and Services | 77
Part IV |
Item 15. Exhibits and Financial Statement Schedules | 78
Item 16. Form 10-K Summary | 80
Signatures | 81

1

Part I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains “forward-looking statements” that involve substantial risks and uncertainties. All statements other than statements of historical or current fact included in this Annual Report on Form 10-K are forward- looking statements. Forward-looking statements refer to our current expectations and projections relating to our financial condition, results of operations, plans, objectives, strategies, future performance, and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “assume,” “believe,” “can have,” “contemplate,” “continue,” “could,” “design,” “due,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “likely,” “may,” “might,” “objective,” “plan,” “predict,” “project,” “potential,” “seek,” “should,” “target,” “will,” “would” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operational performance or other events. For example, all statements we make relating to our estimated and projected costs, expenditures, and growth rates, our plans and objectives for future operations, growth, or initiatives, or strategies are forward-looking statements. 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;
•the impact of escalating global trade tensions and the adoption or expansion of tariffs and trade restrictions;
•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;
•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 Part I, Item 1A. "Risk Factors".
We make many of our forward-looking statements based on our operating budgets and forecasts, which are based upon detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results.
See the “Risk Factors” section and elsewhere in this Annual Report on Form 10-K for a more complete discussion of the risks and uncertainties mentioned above and for a discussion of other risks and uncertainties we face that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements as well as others made in this Annual Report on Form 10-K.
We caution you that the risks and uncertainties identified by us may not be all of the factors that are important to you. Furthermore, the forward-looking statements included in this Annual Report on Form 10-K are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events, or otherwise, except as required by law. You should evaluate all forward-looking statements made by us in the context of these risks and uncertainties.
2

ITEM 1. BUSINESS
As used in this Annual Report on Form 10-K, “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., our wholly-owned subsidiary incorporated in California in 2001 and redomesticated to the State of Texas in October 2025.
Our Company
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 development, design, printing 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 products sourced from a diversified global network of nearly 150 vendors, 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 evolving economic environments to drive operating efficiency and sustained margin expansion and ensure quality of our customer service and product availability during global supply chain disruptions. Starting in 2023 and continuing into 2025, in light of the rising domestic labor and other operating costs and dropping ocean freight rates, we executed a strategy to pivot into a more asset-light model by increasing imports and scaling back domestic manufacturing.
Amidst the evolving tariff environment, we have placed our strategic emphasis on expanding and diversifying our global vendor network to enhance the resilience of our supply chain, minimize tariff impact on our operations and financial results, and maintain a strong margin profile and operating cash flows. We are prioritizing strong partnerships with reliable and cost-efficient sources and more favorable trade terms, negotiating additional vendor support, exploring opportunities to collaborate with vendors in new countries and geographies, while reallocating our own domestic production capabilities to optimize overall product margin. Although we have scaled back domestic manufacturing since 2023 by disposing of certain production machinery and related raw materials and reducing our production workforce, we have largely maintained our manufacturing infrastructure in the U.S. While we expect manufacturing to remain a relatively small portion of our sales mix going forward, we plan to keep manufacturing capabilities domestically to retain our nimble business model and resilient supply chain. For the year ended December 31, 2025, manufacturing accounted for approximately 9% of our net sales, down from 11% in the prior year.
Our customers include a wide variety of national and regional distributors, restaurant and supermarket chains, retail establishments and online customers. Our products are well suited to address our customers’ needs towards take-out and food delivery orders. Our diverse and growing blue chip customer base includes well-known fast casual chains such as Applebee’s Neighborhood Grill + Bar, Chili’s Grill & Bar, PF Chang's China Bistro, Chipotle Mexican Grill, and Olive Garden, fast food chains such as The Coffee Bean & Tea Leaf, El Pollo Loco, In-N-Out Burger, Jack in the Box, Panda Express, and Raising Cane’s Chicken Fingers. Additionally, in 2025, we initiated a strategic emphasis on growing our paper bag business. We have won a paper bag contract with one of our largest national chain accounts with forecast annualized revenue of approximately $17.0 million, and we are looking into replicating the success with our other customers. We expect our paper bag business to significantly scale, and become one of the most significant growth drivers for our business in the next two to three years. As our capabilities, product offering, and footprint expand, we aim to broaden our reach to national and regional airlines, entertainment venues, and other non-restaurant customers. Our increasingly strong brand recognition in the foodservice industry, nimble operations and scaled distribution position us strongly for new customer acquisition and continued wallet share expansion with existing customers. For the years ended December 31, 2025 and 2024, no single customer represented more than 10% of our revenue.
We are an omni-channel provider and have made significant investments in e-commerce, distribution network, technology, supply chain, and customer initiatives, such as online ordering and same day pickup. We operate our e-commerce
3

channel through our company storefront at www.lollicupstore.com and through our mobile app, available for download on both Apple and Android platforms, as well as third-party storefronts on Amazon, Walmart, eBay, TikTok, and Sysco. Our e-commerce platforms allow us to offer our entire range of products for online procurement and cross market other products to our customers. These platforms also provide us with the opportunity to continue our expansion into the business-to-consumer ("B2C") market in addition to the business-to-business ("B2B") small retailer customers that we have traditionally served. We have continued to invest in expanding our e-commerce team and optimizing our online marketing efforts.
We classify our customers into three categories: chains and distributors, retail, and e-commerce/online.
•Chains and distributors: National and regional chains customers are typically fast casual, fast food restaurants, and supermarket chains with locations across multiple states. We enter into floor stocking agreements with a subset of our national and regional chains customers, providing some visibility into future revenue. Chain accounts often order through their designated distribution partners. National and regional distributors typically purchase our products to resell to restaurants, offices, schools, government entities and other businesses.
•Retail: Primarily regional bubble tea shops, boutique coffee shops, frozen yogurt shops and small mom-and-pop restaurants that often purchase our specialty beverage ingredients and related items. This channel also includes a small amount of revenue generated from logistic and transportation services provided to customers.
•E-commerce/Online: Small businesses, often with only one or two locations, as well as customers who purchase for personal use.
The diversity of our customer types allows us to maintain a broad product offering while providing us with the ability to source products efficiently, as we are able to sell many products across multiple customer segments. We expect a large proportion of our future growth to come from national and regional chains and distributors, as well as our higher margin online customers. We believe that the current industry environment and regulatory landscape has accelerated the shift in consumer preferences towards take-out orders, food delivery, and eco-friendly sustainable products, which we expect to continue in the foreseeable future.
As we broaden our reach and expand into new product categories and geographic areas, we have taken significant steps to strengthen our sales force and to scale our distribution network. We have added new sales representatives and regional managers to ensure localized expertise and better customer engagement in key markets. Additionally, we recognize the value of internal growth and development within our organization, exemplified by the promotion of our regional sales directors in 2025. These strategic appointments underscore our commitment to fostering leadership from within and aligning our sales strategy with long-term growth objectives. Together, these efforts position us to drive sales performance and deepen our market presence.
We continued to significantly expand our distribution network, which we view as one of the key growth drivers of our business. We currently operate manufacturing facilities and distribution centers in Chino, California, Rockwall, Texas and Kapolei, Hawaii. In addition, we have distribution centers located in Branchburg, New Jersey; Puyallup, Washington; Kapolei, Hawaii; Sugar Land, Texas; and Aurora, Illinois. In the past 24 months, we opened a second warehouse in Chino, California and a new warehouse in Mesa, Arizona, adding over 230,000 square feet of distribution space. Additionally, we also expanded capacity in existing warehouses. Our distribution and fulfillment centers are strategically located in proximity to major population centers, including the Los Angeles, New York, Chicago, Phoenix, Dallas, Houston, Seattle, Atlanta and Honolulu metro areas.
Competitive Strengths
We believe the following strengths fundamentally differentiate us from our competitors and drive our success:
Extensive portfolio of disposable foodservice and specialty food and beverage products
We leverage our diversified global supplier network and domestic production capabilities to offer customers a wide selection of single-use disposable foodservice products and specialty food and beverage products with nearly 8,400 SKUs across a broad range of product categories. Key offerings include food and take-out containers, bags, boxes, tableware, cups, lids, cutlery and straws, boba tea supplies and coffee drinks. Our strong relationships with our suppliers allow us to offer customers products that preserve the high food quality and meet the unique needs of their business. Furthermore, these supplier relationships allow us to offer custom-branded and custom-designed products with fast turnaround times and at competitive prices, providing them with both breadth of products and flexibility.
4

Pioneering the way for sustainability with a growing focus on eco-friendly products
Our commitment to pursuing environmental sustainability is exhibited in many aspects of our business. We believe we are amongst the leading companies in the supply of eco-friendly disposable foodservice products in the United States. Since our inception, we have made the conscious choice to never use Styrofoam in any of our products. In 2008, we established Karat Earth® as an eco-friendly line of foodservice products, including food and take-out containers, bags, boxes, tableware, cups, lids, cutlery, and straws. This special catalog of products are largely made from renewable resources that are commercially compostable. Karat Earth® supplements our eco-friendly offerings within our other product lines. We intend to invest further in research and development for our Karat Earth® line to significantly expand our product offering to meet the needs of our customers and the evolving regulatory landscape. We have seen continued growth in our eco-friendly product line, with sales from these products increasing to 34.1% of our total sales for the year ended December 31, 2025, compared to 33.6% in the previous year. We placed a strategic focus on expanding our paper bag business in 2025, and started shipment on a newly-acquired paper bag contract with a chain account in the second half of the year, growing paper bags sales from $7.9 million for the year ended December 31, 2024 to $13.7 million for the year ended December 31, 2025.
Growing blue-chip customer base across various channels
We sell and distribute our products to a variety of customers nationwide including national and regional distributors, restaurant and supermarket chains, retail establishments and online customers. We have a successful track record of winning new customers and significantly growing wallet shares with our customers. Our diverse and growing blue chip customer base includes well-known fast casual chains such as Applebee’s Neighborhood Grill + Bar, Chili’s Grill & Bar, PF Chang's China Bistro, Chipotle Mexican Grill, and Olive Garden, fast food chains such as The Coffee Bean & Tea Leaf, El Pollo Loco, In-N-Out Burger, Jack in the Box, Panda Express, and Raising Cane’s Chicken Fingers. We have grown our revenue from chains and distributors to $370.6 million for the year ended December 31, 2025, with an increase of approximately 64.7% compared to the year ended December 31, 2020 prior to our Initial Public Offering (IPO). Our growth is supported by continuous effort to add new customer accounts and to expand existing customer accounts. For example, for one of our largest national chain accounts, we grew from less than $1.0 million on 5 SKUs for the year ended December 31, 2016, to approximately $12.6 million on more than 20 SKUs for the year ended December 31, 2025, including a paper bag contract signed with forecast annualized revenue of approximately $17.0 million. We are looking into replicating the success on our paper bag business with our other customers. In addition, we have also added more than 120 new accounts in the chain and distributor channel for the year ended December 31, 2025. As our capabilities in product offering and footprint expand, we aim to continue to focus on the growth our paper bag business and eco-friendly products and broaden our reach to national and regional airlines, entertainment venues, and other non-restaurant customers.
Scaled distribution with diversified global sourcing and flexible domestic production capabilities
We leverage our diversified global supplier network to offer customers a wide selection of single-use disposable foodservice products. We have significantly grown our inventory sourcing network from only a handful of vendors initially to nearly 150 active vendors by the end of 2025. These supplier relationships allow us to offer custom-branded and custom-designed products with fast turnaround times and at competitive prices. Against a backdrop of higher tariff, we have strategically and swiftly realigned our global supply chain during 2025. We reduced purchases from China from approximately 22% of global sourcing during 2024 to approximately 15% in 2025, maintained purchases from Taiwan at approximately 50% of our global sourcing, and diversified sourcing to countries with more favorable trade conditions, including Malaysia and Vietnam, which in aggregate accounted for approximately 17% of our global sourcing in 2025 compared to 9% in 2024. Additionally, we are actively exploring sourcing from other geographies to further enhance the resilience of our global supply chain. Our capability to build and manage a nimble and adaptive global supplier chain has allowed us to continue to improve our cost efficiency and expand our margin.
Domestically, our California, Texas, and Hawaii facilities have a portion of operational capacity dedicated to manufacturing capabilities. For the year ended December 31, 2025, approximately 9% of our revenues were generated from the sale of products manufactured in-house. We view distribution as our primary focus and growth driver while our manufacturing capabilities as a complement to the base distribution business. This approach allows us to procure products at competitive prices, maintain disciplined cost management, and enhance supply chain resilience.
We consider our increasingly sophisticated logistics capabilities and expanded distribution network to be an important core competency and key differentiator from our competitors. Among the total of ten distribution centers, two were newly opened in the past 24 months located in Chino, California and Mesa, Arizona. Further, we racked up additional space within existing warehouses to allow for better management and fulfillment of products. We own a fleet of 40 trucks (including some
5

that are refrigerated to transport frozen food item), 46 trailers, 16 bobtails, and 47 chassis, and as of December 31, 2025, employed 41 drivers in our logistics division. Our national distribution and logistics capacity allows us to provide efficient and cost-effective distribution to customers and reduce reliance on third-party logistics providers. We intend to continue to enhance our distribution capabilities via opening of additional distribution centers in strategic locations across the U.S. and expanding our distribution fleet and workforce.
Experienced and highly-driven management team with the focus on achieving attractive financial profile
We have assembled a strong executive management team to lead our company in its next phase of growth, supported by a deep bench of functional area leads across the organization. Our co-founders, Alan Yu and Marvin Cheng, have worked together for over 20 years to aggressively drive growth across the business. Daniel Quire joined us in 2018 and was appointed Chief Revenue Officer in 2023, helping to provide leadership to our sales team, lead our customer acquisition and engagement initiatives, and expand our market presence. Our Chief Financial Officer, Jian Guo, joined us in 2022, bringing years of public company experience to bolster our finance and accounting functions. Under the leadership of our highly-driven management team, the Company has navigated various operational challenges in a dynamic global business environment and has demonstrated the ability to deliver industry-leading financial performance in recent periods, highlighted by strong gross margin expansion and robust cash flow generation.
Growth Strategy
Our goal is to become a leading provider to a broad set of customers for all of their disposable foodservice products and related needs. We plan to continue to grow our business and increase our profitability through the following key initiatives:
Disrupt the traditional foodservice supply chain
The traditional foodservice supply chain consists of manufacturers selling through a multi-layer distribution and logistics network before the product reaches the end customer. As a full-service distributor ourselves, we provide products directly to the end user, eliminating the need for the traditional multi-layer supply chain. In recent years, we have committed to enhancing our operational efficiency and customer satisfaction by strategically opening new distribution centers near key metropolitan areas in the United States. This initiative aims to optimize inventory distribution, reduce lead times for inter-warehouse transfers, expedite order fulfillment, and improve service reliability, all of which strengthen our competitive advantage.
Continue to build our e-commerce distribution channel
We believe there is an opportunity to continue to significantly grow our higher margin e-commerce business and we intend to do so by continuing to make investments in people, distribution capabilities, marketing, and technology. We expanded our online presence to TikTok in 2024 and Sysco in 2025, adding to our existing list of third-party storefronts which already included Amazon, Walmart, and eBay. Starting in 2025, we scaled back third-party fulfillment on e-commerce platforms, and focused on fulfilling ourselves, which allowed us to significantly enhance our online sales profitability. Our e-commerce platforms enable us to offer our entire range of products for online procurement and to cross market other products to our customers. These platforms also provide us with the opportunity to continue our expansion into the B2C market in addition to the B2B small retailer customers that we have traditionally served.
Grow our base business with incremental revenue from existing customers
We have historically achieved tremendous success in gaining wallet-share with existing accounts once we won new customers. We intend to continue to drive growth by increasing penetration within our existing customer base. We believe there is an opportunity to offer additional product lines allowing us to become a true “one-stop” supplier. Our reputation of being a reliable supplier with strong customer service and competitive prices has led to consistent requests for proposals from our existing customers as they look for new and innovative products and diversify their supplier base. We have historically experienced consistently high customer retention rates as a result of our product offerings and dedication to our customers. Our major customer retention rate, defined as year-over-year retention of our top 100 customers, was 99% from 2024 to 2025. For the year ended December 31, 2025, revenue from our major customers increased 11% year-over-year, as we continued to expand wallet share with existing customers.
Expand our customer base via new capabilities, geographies, products, services, and end markets
We believe our addressable market is substantial in size and continues to grow as food delivery businesses like Grubhub, Uber Eats, DoorDash, and others expand the demand for take-out and at-home disposable foodservice products. We plan to
6

continue to add new experienced sales team members to broaden our reach, expand into new geographic areas, and continue to focus on customer engagement.
We are committed to continuously evaluating and expanding our product and service offerings to meet evolving customer needs and enter new markets. For example, our strategic focus on our paper bag business in 2025 yielded significant results, with the win of a paper bag contract with one of our largest national chain accounts with forecast annualized revenue of approximately $17.0 million. This success validates our capabilities to grow our business through the expansion of our products and services, and highlights the immense growth opportunity with our other customers. As we continue to build on this momentum, the paper bag business will remain a key area of focus for ongoing expansion and development in the coming years.
We are also actively exploring opportunities to broaden our reach in additional sectors, including airlines, entertainment venues, and other non-traditional foodservice sectors. These markets present significant potential to grow our business through the introduction of new products such as fruit and vegetable trays, food and snack containers, and other related items.
Expand distribution network to support growth
We have made solid strides towards expanding our distribution footprint and capabilities in the United States, which has enhanced our inventory management, improved customer service and positioned us for continued market penetration and growth. In the past 24 months, we invested in the significant expansion of our distribution capabilities by adding over 230,000 square feet of distribution space through the opening of two new warehouses in Chino, California in 2025 and in Mesa, Arizona in 2024. Additionally, we racked up additional areas in existing warehouses. We look to continue the expansion of our distribution footprint and capabilities to strategically support our planned growth across the United States.
Continue to develop new, innovative eco-friendly products
As part of our growth strategy, we are focused on significantly increasing our eco-friendly product sales in the years ahead. Environmental sustainability is a top priority as we strengthen our position as a leading supplier of eco-friendly disposable foodservice products in the United States. Our Karat Earth® line features products primarily made from renewable resources that are commercially compostable. We are committed to continued investment in research and development to broaden and enhance this product line. As of December 31, 2025, our portfolio of eco-friendly products has grown to over 580 SKUs, up from approximately 550 SKUs as of the prior year end. Sales from eco-friendly products as a percentage of total sales increased from 33.6% for the year ended December 31, 2024 to 34.1% for the year ended December 31, 2025. In 2025, we initiated a strategic emphasis on expanding our paper bag product offerings. We have won a paper bag contract with one of our largest national chain accounts with forecast annualized revenue of approximately $17.0 million, and we are looking into replicating the success with our other customers. With shipments under this contract starting in the second half of 2025, we have grown our paper bags sales from $7.9 million for the year ended December 31, 2024 to $13.7 million for the year ended December 31, 2025. We expect our paper bag business to significantly scale, and become one of the most significant growth drivers for our business in the next two to three years. Through these initiatives, we aim to collaborate with our customers to progress towards achieving sustainability goals.
Pursue strategic acquisitions
We evaluate and consider potential business acquisitions in order to expand the breadth of our existing infrastructure, product offerings, expertise, supply chain network, and operating efficiencies. Management is constantly assessing and identifying businesses that align with our strategic goals, seeking opportunities to acquire companies that bring complementary technologies, innovative capabilities, or niche market expertise. Additionally, the potential to acquire existing and new suppliers, particularly in the U.S., may further reduce our reliance on the Asian supply chain, creating more diversified sourcing options for our customers. By acquiring businesses with scalable models, we aim to enhance our competitive position, drive long-term growth, and unlock synergies that benefit all stakeholders.
Our Industry
The disposable foodservice products industry is substantial in size and rapidly growing. The primary categories of disposable foodservice products include food and take-out containers, bags, boxes, tableware, cups, lids, cutlery, and straws. The large breadth and scope of products is reflected in the diverse nature of the industry participants, which range from large international conglomerates to smaller regional and niche businesses. As a result, the industry is represented by a large number of companies and remains highly fragmented. Similarly, end customers of the disposable foodservice products industry are
7

equally diverse in composition. The primary purchasers of our products include fast casual restaurants, fast food chains, family dining restaurants, specialty drink establishments like bubble tea and coffee shops, convenience stores, and supermarkets.
In recent years, the industry has experienced several key trends, including the growing market for food delivery and take-out dining, new local and state regulations in light of an increasingly environmentally-conscious public, and growing consolidation within the disposable foodservice products industry. We believe that our growth strategies, as discussed above, will position us to achieve accelerated growth as such market trends continue.
Food delivery and take-out
In recent years, the surge in at-home dining and mobility-focused e-commerce has fueled rapid growth in food delivery and takeout services, transforming the foodservice landscape. Data from the National Restaurant Association shows that operators are increasingly acknowledging the importance of off-premises dining and making it a strategic priority. According to studies done by International Market Analysis Research and Consulting Group, the United States online food delivery market is expected to reach $68.6 billion by 2032. As consumer preferences have evolved, foodservice establishments have realized that the at-home dining experience hinges not just on food quality but also on the packaging that ensures freshness, presentation, and convenience. Packaging plays an essential role in preserving the dining experience, with high-quality takeout containers, insulated bags, and other disposable products contributing significantly to customer satisfaction. Foodservice establishments are increasingly prioritizing innovative, sustainable, and customized packaging solutions, aimed to replicate the in-restaurant dining experience at home while meeting rising consumer expectations for convenience, presentation, and environmental responsibility.
Governmental regulations
Environmental concerns regarding disposable products have resulted in a number of significant changes to the foodservice industry, impacting a wide range of our customers. Many cities, states and local governments have enacted or are actively working towards legislation that require businesses to manage the lifecycle of their products and packaging with the goal to incentivize companies to shift toward recyclable, compostable, or reusable materials. We expect this trend to continue on a national scale as foodservice establishments look to source alternative products that are considered more environmentally-friendly. We believe we are well positioned to benefit from increasing government regulation and green-initiative concerns, given our strong portfolio of sustainable products, including our Karat Earth® line and our continued commitment towards and investment in expanding such product offerings in the United States.
Industry consolidation
In the U.S. food packaging industry, mergers and acquisitions have been prominent, both in distribution and manufacturing. Larger companies typically broaden their product portfolio through the acquisition of established companies, rather than building out new product categories organically. As consolidation occurs, existing customers often find themselves facing challenges of changing product availability, discontinuations, increasing prices, support staff turnover and other potential transition-related challenges. These challenges can be highly disruptive to a customer’s business and as a result, the customers often seek out other stable and more reliable channels for product sourcing.
Our Products
Our scaled distribution with diversified global sourcing capabilities complemented by select domestic productions allow us to offer a wide selection of high-quality disposable foodservice products at competitive prices. We work in close collaboration with our customers to develop products to meet the needs unique to their individual businesses. This includes developing containers and food storage items that are both visually appealing and that deliver the best possible food quality and freshness. Additionally, we are able to custom print or label many of our products, to help our customers brand the at home dining experience of their customers. Our range of products include but are not limited to:
•food and take-out containers;
•bags;
•boxes;
•tableware;
•cups;
•lids,
•cutlery,
•straws,
8

•specialty beverage ingredients;
•gloves;
•utensils;
•janitorial and warehouse supplies; and
•boba tea supplies and coffee drinks.
Karat Earth®
Our Karat Earth® product line represents a key component of our commitment to environmental sustainability and innovation. This specialty line features environmentally-friendly foodservice packaging solutions, with most products being plant or bio-based. These materials often align with stricter regulations and safety standards, minimizing chemical migration into food products and avoiding toxic substances like Bisphenol A (BPA) or phthalates, offering safer options for food contact. The product offerings under Karat Earth® are largely Biodegradable Products Institute (BPI) certified, ensuring alignment with recognized industry standards for commercial compostability. Many of the line’s plastic products are also made from polylactic acid (PLA), a biopolymer derived from plant sugars that is non-petroleum-based, non-volatile, non-toxic, and odorless upon incineration.
These attributes make Karat Earth® an effective option for customers seeking to demonstrate their dedication to environmental and social responsibility. We continue to invest in research and development for our Karat Earth® line to expand our product offering to meet the needs of our customers and the evolving regulatory landscape.
Our Distribution and Logistics Network
We effectively serve our customers across the United States through our growing distribution network. Our customers range from large multi-national restaurant chains to regional and smaller establishments. We also sell through restaurant supply companies that distribute products to a wide range of food-service establishments. We collaborate closely with both our vendors and customers to create an optimized logistics and supply chain network tailored to meet the unique needs of our customers' businesses.
We have established a scaled and flexible distribution and logistics system, with distribution centers strategically located throughout the United States. We offer multiple ordering channels, including telephone, email, electronic data interchange, Lollicup e-commerce store website and app, and storefronts on marketplaces such as Amazon, Walmart, eBay, TikTok, and Sysco. Our delivery options to customers range from courier package services to same-day delivery on our own fleet. Our scaled and nimble logistics network has enabled our customers to place and receive orders based on their real-time business needs and effectively reduce inventory level and working capital requirements.
Seasonality
Our business does not experience high seasonality though certain food and food related products are moderately seasonal. For example, during the hot weather of summer and fall months, we see an increase in the level of sales for items such as cold drink cups and boba products. Generally, we expect relatively more of our earnings and cash flows to be generated in the second and third quarter of the fiscal year.
Our Corporate Structure
9

Set forth below is an organizational chart for the Company and its consolidated entities as of December 31, 2025:
Please see Note 2 — Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for a description of the agreements between Global Wells and us.
Intellectual Property
Our intellectual property portfolio includes 12 active trademarks, including Lollicup, Karat, Karat Earth® and Total Clean, and 5 registered copyrights.
Environmental, Social and Governance (ESG)
At Karat Packaging, we are committed to pursuing initiatives that positively impact our products, our people, our customers and our planet. We recognize the importance of environmental, social and governance ("ESG") issues for all of our stakeholders and we are committed to incorporating ESG principles into our business strategies and organizational culture. By undertaking such measures, we are working towards making our workforce more inclusive, our business more sustainable, and our communities more engaged. Our commitment to practicing environmental sustainability is exhibited in almost every aspect of our business.
Our products
We are a pioneer and leader in the supply of eco-friendly disposable foodservice products in the United States. Since our inception, we made the conscious choice to never use Styrofoam in any of our products. Styrofoam products are non-biodegradable and therefore take up permanent space in landfills resulting in a constant leach of harmful chemicals into the environment. Styrofoam products are also very difficult to clean up as they often escape waste collection systems due to their low density. They are easily wind-blown and ultimately end up in parks, forests, beaches, oceans and rivers.
A recent peer-reviewed global study conducted by the American Association for the Advancement of Sciences found that less than 10 percent of plastics is recycled, meaning the vast majority of plastic waste ends up in landfills or the environment. Other studies indicated a large percentage of landfill waste in the United States is comprised of plastic containers and food-
10

ware. Such striking statistics have prompted many state and city governments to enact regulations to cut down on plastic pollution. For example, as of December 31, 2025, seven states — Maine, Oregon, Colorado, California, Minnesota, Maryland, and Washington — have enacted comprehensive Extended Producer Responsibility (EPR) packaging laws, requiring businesses to manage their packaging materials through end‑of‑life (the post‑consumer collection, sorting, recycling, composting, and final disposal of packaging). In 2024, New Jersey introduced regulations focusing on increasing post-consumer recycled (PCR) content in packaging. These mandates include gradual increases in PCR content for various materials, such as plastic beverage bottles and rigid plastic containers, aligning with long-term sustainability goals. In 2023, both Rhode Island and Delaware passed bills that prohibited food service establishments from using polystyrene foam in their food packaging. In 2022, California passed legislation banning Styrofoam starting January 1, 2025 and requiring all packaging in the state to be recyclable or compostable by 2032. In 2024, California further enacted the legislation banning all plastic carry out bags at retail checkout starting January 1, 2026, requiring stores to offer only recycled-paper or compliant reusable bags instead. A variety of individual cities have also passed their own complimentary ordinances to limit single-use plastic products. While more governments enact regulations to prevent and reduce waste that is harmful to the environment, more consumers are also actively taking steps towards being more sustainable, accelerating the demand for eco-friendly disposable products.
We have long prided ourselves in our commitment to environmental sustainability and innovation. As early as 2008, we established Karat Earth®, which is a specialty line featuring environmentally-friendly foodservice packaging solutions, with most products being plant or bio-based. These materials often align with stricter regulations and safety standards, minimizing chemical migration into food products and avoiding toxic substances like Bisphenol A (BPA) or phthalates, offering safer options for food contact. The product offerings under Karat Earth® are largely BPI certified, ensuring alignment with recognized industry standards for commercial compostability. Many of the line’s plastic products are also made from PLA, a biopolymer derived from plant sugars that is non-petroleum-based, non-volatile, non-toxic, and odorless upon incineration.
We continue to invest in research and development to expand our Karat Earth® product line and meet the growing demand for sustainable packaging solutions. As part of our broader sustainability initiatives, Karat Earth® supplements our other environmentally-friendly product lines, including paper items, strengthening our ability to deliver innovative, compliant, and market-responsive solutions. Through these efforts, we aim to support waste reduction, reduce reliance on non-renewable resources, and help customers achieve their sustainability goals while addressing broader environmental challenges. We have seen continued growth in our eco-friendly products, with sales from these products increasing to 34.1% of our total sales for the year ended December 31, 2025, compared to 33.6% in the previous year. As of December 31, 2025, we had over 580 SKUs of eco-friendly products that our customers could choose from, up from approximately 550 as of the prior year end.
Our operations
In our manufacturing facilities in the United States, the production process involves intake of water, discharge and recycling of waste as well as other disposal activities. As a Company, we place strong emphasis on water conservation and reducing water pollution. Outside of the required cooling of manufacturing machines and equipment after production cycles, our manufacturing process does not require large quantities of water. We ensure appropriate drainage and disposal of contaminated water, grease oil, and other chemicals discharged from our production activities in order to limit the pollution of valuable water sources. Reclamation is also a key consideration for us. Waste products from our production process are thoroughly inspected and checked for the potential of re-use or recyclability. Identified items are repackaged and sold or they are transferred to our local waste management facilities for proper disposal, thereby reducing waste and the use of landfill space. Some of our raw materials are also BPI certified. For over 20 years, the BPI certification has been the defining symbol of commercial compostability due to its rigorous testing standards. The BPI certification is the only third-party verification for compostable products in North America. For products that require use of plastic, we try to ensure that the resin we source is both BPA and PFA (or perfluoroalkyl and polyfluoroalkyl) free as these substances are known for their extreme persistence in the environment upon discharge.
Our commitment to sustainability is also demonstrated in our focus on recycling and reusing. For example, we utilize recycled resin material in our manufacturing process to reduce our reliance on virgin plastic. After production, any resin waste is meticulously washed and cleaned to remove contaminants, ensuring the recycled resin meets the required quality standards for reuse in our facilities. By using recycled resin, we reduce plastic waste, lower our carbon footprint, and contribute to the broader shift toward more sustainable solutions. Our warehouses have implemented the practice of reusing paper cardboard boxes and wooden pallets for inventory storage and shipments. We offer credits to certain customers that return and reuse wooden pallets. We train our warehouse and janitorial staff to properly dispose of and recycle all types of material including paper, plastic, and scrap metal. The utilization of trash compacting services has allowed us to minimize the frequency of waste pickups and also reduce landfill space. We have installed LED bulbs in light fixtures within both the warehouse and office
11

space that are more efficient than their traditional fluorescent counterparts, often with timers that automatically turn off lights after a period of time if no movement is detected. We have also programmed our HVAC units at some of our locations to run on predetermined schedules to reduce our overall power consumption. We are exploring options to improve the energy efficiency of our warehouses, such as through the installation of solar panels. Additionally, we are transitioning our company fleet from being gas powered to those that run entirely on electricity. To the extent possible, we have also switched over from single use batteries to rechargeable battery packs in our lineup of tools and equipment. We have installed charger meters to monitor the efficiency of our forklift batteries. This system allows us to optimize battery usage and is now eligible for quarterly credits through the California's Low Carbon Fuel Standard program ("LCFS program"). In addition, it provides real-time monitoring of all chargers, enabling better oversight and management of energy consumption. Our Company as a whole has also made strides to reduce the need for paper and ink by embracing a more digital form of paperwork retention. Through these various efforts, we play our part to reduce our carbon footprint and will continue to look into and implement further sustainable practices.
We are regulated by certain federal, state, and international environmental laws governing our use, transport, and disposal of production materials and control of emissions. Compliance with these existing laws has not had a material impact on our capital expenditures, earnings, or global competitive position.
A liability for environmental remediation and other environmental costs is accrued when we consider it probable that a liability has been incurred and the amount of loss can be reasonably estimated. Environmental costs and accruals are presently not material to our operations, cash flows, or financial position.
We are committed to providing consistent and excellent return to our shareholders, all while maintaining a strong sense of good corporate citizenship that places a high value on the welfare of our employees, the communities in which we operate, and the world as a whole. We believe that effectively prioritizing and managing our ESG factors helps create long-term value for our investors. Under the direction of our Chief Executive Officer and the Board of Directors, we are driving continuous improvements in bringing innovative environmentally-friendly products that meet the needs of our customers and enhancing our energy and waste management infrastructure in our sustainability journey.
Human Capital Management
Our culture
At Karat, it is our people – our greatest asset – that give us our strong reputation and stand at the heart of our growth. Our success depends on the talent, dedication, and well-being of our people. As we grow, we strive to recruit, retain, develop, and provide advancement opportunities for our team members. We continually work to make Karat an inclusive, equitable, and growth-focused workplace where all team members have the opportunity to flourish.
Safety
One of our most important corporate values is the safeguarding of our people and fostering a culture of care that promotes the well-being of our employees, contractors, and business partners. We protect our people, projects, and reputation by striving for zero employee injuries and illnesses, while operating and delivering our work responsibly and sustainably. Our safety culture empowers every member of the workforce to exercise stop-work authority without repercussion to address any potential unsafe work conditions. We develop and administer company-wide safety policies to ensure the well-being of each team member and compliance with Occupational Safety and Health Administration standards. This includes periodic safety training and assessments as well as annual safety audits. We require all employees and contractors at our warehouse and manufacturing facilities to understand and follow these safety policies. These guidelines have been put into place by management to address three key components of safety:
•Identifying the root cause of safety hazards in our operations;
•Assessing risks associated with all hazards or conditions identified; and
•Mitigating risks associated with known hazards and conditions.
Diversity, equity, and inclusion (DE&I)
Diversity, equity and inclusion ("DE&I") are critical underpinnings of our corporate values. DE&I helps foster innovation, cultivate an environment filled with unique perspectives and drive engagement and organizational growth. Our focus to date has been increasing awareness amongst our employees on the importance of DE&I.
12

As a business founded by representatives from a minority group in the United States, diversity and inclusion is engrained in our corporate history. We believe that a diverse workforce is essential to its long-term success and strive to foster a diverse, equitable, and inclusive culture where all voices are heard, valued, and included. Management embraces employees’ differences in race, color, religion, age, sex, sexual orientation, marital status, citizenship, national origin, geographic background, military or veteran status, disability (mental or physical), and any other characteristics that make our employees unique. We ensure that we leverage a diverse slate of candidates for all job vacancies, including senior leadership.
Good corporate governance and transparency are fundamental to achieving our vision of becoming a leader in our industry. Our engagement approach involves ongoing communication with our employees. We strive to provide relevant market updates to our team members as well as to share important information regarding our revenue trends, inventory status, and other financial and operating metrics as deemed necessary. At the same time, our employees are expected to act with integrity and objectivity and to always strive to enhance our reputation and performance. We maintain a Code of Business Conduct and Ethics which is attested by every employee and provides our framework for ethical business. As of December 31, 2025, we have the following gender and ethnicity breakout for our employees, C-suite executives, and Board of Directors members:

| Full-Time employees | C-Suite Executives | Board of Directors
Total count | 636 | 3 | 5
Gender |  |  |
Male | 66% | 67% | 60%
Female | 33% | 33% | 40%
Other/Did not self-identify | 1% | — | —
Ethnicity |  |  |
Hispanic | 51% | — | —
Asian | 16% | 67% | 100%
White | 13% | 33% | —
Black | 15% | — | —
Other/Did not self-identify | 5% | — | —

Compensation and benefits
Consistent with our core values, we take care of our people by offering competitive compensation and comprehensive benefits programs. We continuously make wage investments to ensure our compensation packages reflect the evolving circumstances across our markets. One of the goals of our recruitment strategy is to ensure we are aligning roles with compensation levels based on job responsibilities, market competitiveness, geographic location, strategic importance of roles, and other relevant factors.
Our compensation package includes a base salary and equity compensation programs, depending on the role. In January 2019, the Company’s Board of Directors adopted the 2019 Stock Incentive Plan (the “Plan”). A total of 2,000,000 shares of common stock have been authorized and reserved for issuance under the Plan in the form of incentive or nonqualified stock options and stock awards. As of December 31, 2025, a total of 935,900 shares of common stock were awarded under the Plan. Employees, directors, and consultants are eligible to receive stock options and stock awards under the Plan. Additionally, we make matching contributions to our employees' 401(k) retirement accounts to support their retirement goals.
We also offer our employees’ healthcare, wellness, paid sick leave, flexible paid time off, and other benefits to support their quality of life and enable them to thrive in the workplace. All eligible full-time and part-time employees and their eligible dependents receive competitive health benefits. We cover approximately 65% of total eligible healthcare costs for part and full-time employees for our 360 participating employees as of December 31, 2025.
Learning and development
We believe that high performance is an outcome of a person’s ability to change, adapt, and grow their capabilities throughout their career. We emphasize on-the-job learning that enables employees to meet the demands of challenging and changing work and focuses on reinforcing key principles that are designed to support employees' effectiveness in their current
13

job and in their future development. We provide technical and leadership training to employees, specifically our production and sales teams who work closely with our products and services. We continued to enhance our Sarbanes-Oxley ("SOX") compliance and cybersecurity awareness training programs to key employees, underscoring our commitment to equipping our workforce with the knowledge to navigate regulatory and digital risks effectively. In particular, our focus on employee development has been structured over the last several years through programs designed to embed essential skills and reinforce strategic goals that are aligned to our culture and business goals. This is evidenced by the fact that we promoted 77 and 110 employees during the years ended December 31, 2025, and 2024, respectively.
Other information
As of December 31, 2025, we employed approximately 696 employees, out of which 636 were full-time employees. None of our employees are currently covered by a collective bargaining agreement. We have no labor-related work stoppages and believe our relations with our employees are good.
Corporate Information
We were founded in 2000 by Alan Yu and Marvin Cheng in San Gabriel, California as Lollicup USA Inc., a California corporation. Initially our business was focused on the establishment, franchising, and licensing of bubble tea stores nationwide. Considered a pioneer for the bubble tea business in North America, our business grew rapidly from a single Lollicup store in 2000 to more than 60 stores in 2006. In order to ensure consistency across our stores, we expanded our focus in 2004 to include the distribution of supplies for the bubble tea industry. In 2013, we sold the retail bubble tea business to certain Lollicup’s shareholders. In 2014, due to growing demand across the foodservice industry for our disposable food packaging products, we began distributing and manufacturing under the Karat brand out of our California facility.
In September 2018, we incorporated Karat Packaging Inc. in Delaware, and the Company, Lollicup, and Messrs. Yu and Cheng and the other shareholders of Lollicup (together, the “Lollicup Shareholders”) entered into a share exchange agreement and plan of reorganization whereby the Lollicup Shareholders exchanged their shares of common stock in Lollicup for an equal number of shares of common stock of the Company, resulting in Lollicup becoming a wholly-owned subsidiary of the Company. In October 2025, we redomesticated Lollicup to the State of Texas. Our principal executive and administrative offices are located at 6185 Kimball Avenue, Chino, CA 91708, and our telephone number is (626) 965-8882. Our corporate website address is www.karatpackaging.com. For additional historical information about us, see Note 1 — Nature of Operations in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to take advantage of this exemption from new or revised accounting standards and, therefore, will not be subject to the same new or revised accounting standards as public companies that are not emerging growth companies.
For so long as we are an emerging growth company, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. These include, but are not limited to:
•Being permitted to present only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure in this filing;
•Not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (“Sarbanes-Oxley Act”) in the assessment of our internal control over financial reporting;
•Not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board (“PCAOB”) regarding mandatory audit firm rotation or a supplement to the auditors’ report providing additional information about the audit and the financial statements;
•Reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and
•Exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
14

We will cease to be an emerging growth company on December 31, 2026, which represents the end of the fiscal year in which the fifth anniversary of the date of our IPO prospectus occurs.
We are also a “smaller reporting company,” as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). To the extent that we continue to qualify as a smaller reporting company after we cease to qualify as an emerging growth company, certain of the exemptions available to us as an emerging growth company may continue to be available to us as a smaller reporting company.
Available Information
Our corporate website is www.karatpackaging.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Exchange Act are available, free of charge, under the Investor Relations tab of our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Additionally, the SEC maintains a website located at www.sec.gov that contains the information we file or furnish electronically with the SEC.
15

ITEM 1A. RISK FACTORS
Investing in our common stock involves a high degree of risk. Investors should carefully consider the risks described below and all of the other information set forth in this Annual Report on Form 10-K, including our financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations," before deciding to invest in our common stock. If any of the events or developments described below occur, our business, financial condition, or results of operations could be materially or adversely affected. As a result, the market price of our common stock could decline, and investors could lose all or part of their investment. The risks described below are not the only risks we face. Additional risks not currently known to us or those we currently deem to be immaterial may also materially and adversely affect our business operations.
Risks Related to Our Industry
Demand for our products could be affected by changes in laws and regulations applicable to food and beverages and changes in consumer preferences.
We manufacture and distribute single-use disposable products made of plastic, paper, biopolymer-based, and other compostable products. Our products are primarily used in restaurant and foodservice settings, and therefore they come into direct contact with food and other consumable products. Accordingly, our products must comply with various laws and regulations for food and beverage service applicable to our customers. Changes in such laws and regulations could negatively impact customer demand for our products as they comply with these changes and/or require us to make changes to our products.
Additionally, because our products are used to package consumer goods, we are subject to a variety of risks that could influence consumer behavior and negatively impact demand for our products, including changes in consumer preferences driven by various health and environmental-related concerns and perceptions.
Furthermore, we are subject to social and cultural changes, which could impact demand for certain products. For example, the banning of plastic straws was triggered by a social media backlash, which caused corresponding legislative changes within a short time period, resulting in the ban of plastic straws in certain jurisdictions, and a movement toward eco-friendly utensils. If we are unable to quickly adapt to changes in consumer preferences and subsequent legislation, our business, financial condition, results of operations, and cash flows could be materially and adversely affected.
Supply chain disruptions could interrupt product manufacturing and increase product costs.
Our operating model entails generating the majority of our revenue from the import and distribution of our vendors' products. While we have taken measures to diversify and expand our supplier network, our reliance on third-party manufacturers outside the U.S. to produce most of our products could negatively impact our business during global supply chain disruptions. Further international conflicts could impact important trade routes, resulting in increased lead times for shipments, elevated freight costs, and suppressed margin. Additionally, failure to adequately source and timely ship our products to the U.S. and then onwards to customers could lead to failure to meet customer demand, loss of potential revenue, strained relationships with customers, and diminishing brand loyalty.
Raw material inflation or shortage of available materials could harm our financial condition and results of operations.
Raw materials are subject to price fluctuations and availability, which could result from external factors, such as inflation, weather-related events, or other supply chain challenges, that are beyond our control. We typically do not enter into long-term fixed price contracts with our suppliers, and our suppliers could pass on raw material price increases to us. Even if we are able to mitigate the impact of higher costs by increasing our selling prices, our margin could be negatively impacted in periods of rising raw materials costs due to the lag between the sourcing or the manufacturing of our products and the subsequent sales to our customers. Additionally, raw material shortages, especially with respect to key materials such as plastic and paper, or our inability to timely pass through increased costs to our customers may materially and adversely affect our business, financial condition, results of operations, and cash flows.
We operate in a highly competitive environment and may not be able to compete successfully.
The single-use disposable foodservice products industry is extremely competitive and highly fragmented. Many of the companies that compete in our industry are significantly larger with greater resources, have greater brand recognition and
16

have a larger product offering. We may be unsuccessful in our efforts to compete against such large and established companies. In addition, our current or potential competitors may offer products at a lower price, expand their promotional activities, or offer products and services that are superior to ours. Our success is heavily dependent on our ability to source and develop emerging and legislatively mandated raw materials, adapt our manufacturing capabilities, and gain customer acceptance of our new products. If we are unable to effectively innovate, produce, and market differentiated products that are competitive in terms of price and quality, our ability to sustain or grow net sales, protect profit margins, or maintain our position in the industry may be compromised. Additionally, failure to attract and retain customers for both current and future products could hinder our efforts to expand market share and increase revenues. These challenges, compounded by competitive pressures, could materially and adversely affect our business, financial condition, results of operations, and cash flows.
Unfavorable conditions in our industry or the global economy could limit our ability to grow our business and negatively affect our results of operations.
Our business results may vary based on the state of our industry or the global economy. Negative economic conditions both in the United States and abroad, including conditions resulting from tighter financial and credit market access, international trade relations, political turmoil, natural catastrophes, warfare, and terrorist attacks could cause a decrease in demand for our products and negatively affect the growth of our business. Competitors, many of whom are larger and have greater financial resources than we do, may respond to challenging market conditions by lowering prices in an attempt to attract customers. We cannot predict the timing, magnitude, or duration of any economic slowdown or recovery, generally or within any particular industry.
Changes in freight carrier costs related to the shipment of our products could have a negative impact on our business and results of operations.
We rely upon third-party ocean freight, air freight, and land-based carriers for product shipments from our vendors and to our customers. Any failure to obtain sufficient freight capacity on a timely basis or at favorable shipping rates will result in our inability to receive products from suppliers or deliver products to our customers in a timely and cost-effective manner, which could materially and adversely affect our business, financial condition, results of operations, and cash flows.
We may experience delays or disruptions in the shipment of our goods through operational ports.
We rely on the timely and free flow of goods through open and operational ports, both domestic and international, from our suppliers and manufacturers. Transportation and other delays in shipments, including as a result of heightened security screening, port congestion, inspection processes, or other port-of-entry limitations or restrictions; or labor disputes or disruptions at ports, our common carriers, or at our suppliers or manufacturers could create significant risks for our business, particularly if these disputes result in work slowdowns, lockouts, strikes, or other disruptions during periods of significant importing or manufacturing activity, potentially causing delayed or cancelled orders by customers, unanticipated inventory accumulation or shortages, and significant incremental demurrage charges. Such disruptions could materially and adversely affect our business, financial condition, results of operations, and cash flows. Further, failure to procure our products from our suppliers and manufacturers and deliver merchandise to our customers in a timely and effective manner could reduce our sales, gross margin, and profitability, damage our brand, and harm our business.
Our net sales and profits depend on the level of customer spending for our products, which is sensitive to general economic conditions and other factors.
Restaurant dining and food delivery services are generally discretionary items for end-consumers. Therefore, the success of our business depends significantly on broader economic factors and trends in consumer spending. Consumers have broad discretion as to where to spend their disposable income and may choose to reduce their restaurant and foodservice spending in times of inflation, high interest and unemployment rates which would negatively impact our customers and then in turn our results of operations. As global economic conditions continue to be volatile and economic uncertainty remains, trends in consumer discretionary spending also remain unpredictable and subject to declines. Any of these factors could materially and adversely affect our business, financial condition, results of operations, and cash flows.
Changes in tax laws or changes in our geographic mix of earnings could have a negative impact on our business and results of operations.
17

We are subject to income and other taxes in the many jurisdictions in which we operate. Tax laws and regulations are complex and the determination of our overall provision for income taxes, as well as current and deferred tax assets and liabilities requires judgment and estimation. We are subject to routine examinations of our income tax returns, and tax authorities may disagree with our tax positions and assess additional tax. Our future income taxes could also be negatively impacted by our mix of earnings in the jurisdictions in which we operate being different than anticipated given differences in statutory tax rates in the jurisdictions in which we operate. In addition, tax policy efforts to raise corporate tax rates could adversely impact our tax rate and tax expense.
Risks Related to Our Business
Our business could be harmed if we are unable to accurately forecast demand for our products or our results of operations.
To ensure adequate inventory supply, we forecast inventory needs and often place orders with our vendors before we receive firm orders from our customers. If we fail to accurately forecast demand, we may experience excess inventory levels or a shortage of product to deliver to our customers.
If we underestimate the demand for our products, we, or our vendors, may not be able to scale to meet demand timely, and this could result in delays in the shipment of products to customers, lost revenue, and damage to our reputation and customer relationships. If we overestimate the demand for our products, we could face inventory levels in excess of demand, which could result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices, which would harm our gross margin.
In addition, we may not be able to accurately forecast our business results and growth rate. Forecasts may be particularly challenging as we expand into new markets and geographies and develop and market new products. Our historical sales, expense levels, and profitability may not be an appropriate basis for forecasting future results. Failure to accurately forecast our results of operations could cause us to make poor operating decisions and we may not be able to adjust in a timely manner. Consequently, actual results could be materially lower than anticipated.
We may continue to incur significant capital expenditures which could affect our ability to meet our obligations and may otherwise restrict our growth.
Although we have recently shifted towards an asset light model by increasing import and scaling back production and reducing capital expenditure, changes in economic and political conditions may result in us incurring significant capital expenditures again to expand manufacturing. We may make significant investments to lease or own additional warehouse space, expand our truck fleet, and upgrade our warehouse management and operating systems. Such cash outlays could affect our ability to service our existing debt obligations or limit our ability to respond to business opportunities, pursue acquisitions or otherwise restrict our continued growth and expansion.
Because we have entered into a significant number of related party transactions through the course of our routine business operations, there is a risk of conflicts of interest involving our management, and that such transactions may not reflect terms that would be available from unaffiliated third parties.
In the course of our normal business, we have purchased products from related parties, including an entity owned by one of the Company's stockholder’s family member. In addition, our Texas facility and our New Jersey facility are each owned and leased to us by our variable interest entity, wherein we are the primary beneficiary and in which we have an equity interest and which is controlled by one of our stockholders. In all related party transactions, there is a risk that even if the Company personnel negotiating on behalf of the Company with the related party are striving to ensure that the terms of the transaction are arms-length, the related party’s influence may be such that the transaction terms could be viewed as favorable to that related party. While we believe that our past related party transactions have been negotiated on an arm’s length basis and contain commercially reasonable terms, we may have been able to achieve more favorable terms had these transactions been entered into with unrelated parties.
The section “Related Party Transactions” in the Notes to the Consolidated Financial Statements in this Form 10-K provide specific information about our prior related party transactions. We may engage in additional related party transactions in the future, which will be subject to review and approval by our nominating and corporate governance committee pursuant to the Company’s related party transactions policy. There can be no assurance that such transactions,
18

individually or in the aggregate, will not have an adverse effect on our financial condition and results of operations, or that we could not have achieved more favorable terms if such transactions had not been entered into with related parties.
We may not have adequate insurance coverage.
We may not have adequate insurance coverage. The successful assertion of one or more large claims against us that exceeds our available insurance coverage, or results in changes to our insurance policies (including premium increases or the imposition of larger deductibles or co-insurance requirements), could have an adverse effect on our business. In addition, we cannot be sure that our existing insurance coverage and coverage for errors and omissions will continue to be available on acceptable terms or that our insurers will not deny coverage as to any future claim.
We may be unable to successfully design and develop new products.
To maintain and increase sales, we must continue to innovate our products in anticipation of consumer preferences, differentiate our products from those of our competitors, and maintain the strength of our brand. The design and development of our products is costly and time-consuming, and we typically have several products in development at the same time. Problems or delays in this process could harm our brand and business results.
We may be subject to liability if we infringe upon the intellectual property rights of third parties.
Third parties have sued, and may sue us in the future for alleged infringement of their proprietary rights. The party claiming infringement might have greater resources than we do to pursue its claims, and we could be forced to incur substantial costs and devote significant management resources to defend against such litigation, even if the claims are meritless and even if we ultimately prevail. If the party claiming infringement were to prevail, we could be forced to modify or discontinue our products, pay significant damages, or enter into expensive royalty or licensing arrangements with the prevailing party. In addition, any payments we are required to make, and any injunction we are required to comply with as a result of such infringement, could materially and adversely affect our reputation, business, financial condition, results of operations, and cash flows.
Our current and future products may experience quality problems from time to time that can result in product returns, product recalls, credit claims, negative publicity, and even litigation, which could result in decreased sales and operating profit margin, and also bring harm to our brand.
Although we extensively and rigorously test new and enhanced products, there can be no assurance we will be able to detect, prevent, or fix all defects. Defects in materials or components can unexpectedly interfere with the products’ intended use and safety and damage our reputation. Failure to detect, prevent, or fix defects could result in a variety of consequences, including a greater number of product returns than expected from customers, product recalls, and credit claims, among others, which could harm our sales and results of operations. In addition, any negative publicity or lawsuits filed against us related to the perceived quality and safety of our products could also harm our brand and decrease demand for our products, which could in turn materially and adversely affect our reputation, business, financial condition, results of operations, and cash flows.
Labor cost inflation and the unavailability of skilled workers could disrupt our business.
Labor is subject to cost inflation and availability, due to external factors, such as increases in minimum wage, higher cost of living, workforce participation rates, and employee preference for remote or hybrid work schedules, that are all beyond our control. For example, in January 2024, California passed Bill 1228 which increased the minimum-wage of fast food restaurant workers to $20 per hour beginning April 1, 2024. Legislation that directly or indirectly forces us to increase compensation for new and existing employees in order to attract and retain talent negatively impacts our labor costs and may harm results of operations. There can be no assurance that we will be able to recruit, train, assimilate, motivate, and retain employees in the future. The loss of a substantial number of these employees and our inability to hire and replace our workforce could disrupt our business and result in significant losses. The increased labor costs in the restaurant industry could also negatively impact the business operations of some of our customers, which could in turn adversely affect our business and results of operations.
Our growth depends, in part, on expanding into additional foodservice and geographic markets, and we may not be successful in doing so.
19

We believe that our future growth depends not only on continuing to reach our current customer base and demographic, but also continuing to expand our business into other foodservice sectors and geographies. The growth of our business will depend, in part, on our ability to continue to expand into additional foodservice sections including supermarkets, entertainment venues, national and regional airlines, and other non-restaurant customers. Additionally, we are expanding our sales and marketing efforts to further penetrate additional geographies across the United States, and we may encounter difficulties in attracting customers due to a lack of consumer familiarity with or acceptance of our brand. We continue to evaluate our go-to-market efforts and other strategies to expand the customer base for our products especially our eco-friendly line, and to further penetrate into other sectors and geographies. However, we cannot provide assurances that these efforts will be successful. We are also expanding the number of distribution centers and warehouses across the United States and these efforts come with considerable challenges and risks, including entering into long term lease contracts with possibly significant termination clauses. If we are not successful, our business, financial condition, results of operations, and cash flows could be materially and adversely affected.
We rely on third-party contract manufacturers and conflicts with, or loss of, our suppliers could negatively impact our business and results of operations.
Certain of our products are produced by third-party contract manufacturers. We face the risk that these third-party contract manufacturers may not produce and deliver our products on a timely basis, or at all. We may also experience the inability of our third-party contract manufacturers to meet the increased demand of our customers. These difficulties include reduction in production capacity, errors in complying with product specifications or regulatory requirements, failure to meet production deadlines, failure to achieve required quality standards, shortages and increases in the price of materials, and other business interruptions. The ability of our manufacturers to effectively satisfy our production requirements could also be impacted by manufacturer financial difficulty or disruption to their operations caused by fire, natural disasters, or other events. The failure of any third-party manufacturer to perform to our expectations could result in supply shortages or delays for certain products and harm our business results. If we experience significantly increased demand, or if we need to replace an existing manufacturer due to lack of performance, we may be unable to supplement or replace their manufacturing capacity on a timely basis or on terms that are acceptable to us, which may increase our costs, reduce our margins, and harm our ability to deliver our products on time. For certain of our products, it may take a significant amount of time to identify and qualify a manufacturer that has the capability and resources to produce our products to our specifications in sufficient volume and satisfy our service and quality control standards. Even those suppliers and manufacturers with whom we have supply contracts may breach these agreements, and we may not be able to enforce our rights under these agreements or may incur significant costs attempting to do so. As a result, we cannot predict with certainty our ability to obtain finished products in adequate quantities, of required quality and at acceptable prices.
Our relationship with our suppliers and third-party contract manufacturers are not exclusive, which means that these suppliers and manufacturers could produce similar products for our competitors.
In addition, our arrangements with our suppliers and manufacturers are not exclusive. As a result, they could produce similar products for our competitors, some of which could potentially purchase products in significantly greater volume. Our competitors could also enter into restrictive or exclusive arrangements with our suppliers and manufacturers that could impair or eliminate our access to manufacturing capacity or supplies. Additionally, our suppliers and manufacturers could also be acquired by our competitors, and may become our direct competitors, thus limiting or eliminating our access to manufacturing capacity. Any one of these risks could materially and adversely affect our business, financial condition, results of operations, and cash flows.
Our reputation and business could suffer due to non-compliance with ethical and legal standards by our suppliers and manufacturers.
Our reputation and our customers’ willingness to purchase our products depend in part on our suppliers’ and manufacturers’ compliance with ethical employment practices, such as with respect to child labor, wages and benefits, forced labor, discrimination, safe and healthy working conditions, and with all legal and regulatory requirements relating to the conduct of their businesses. We do not exercise control over our suppliers and manufacturers and cannot guarantee their compliance with ethical and lawful business practices. If our suppliers or manufacturers fail to comply, our reputation and brand image could be harmed and we could be exposed to litigation and additional costs that would harm our business, financial condition, results of operations, and cash flows.
We incur significant expenses to maintain our manufacturing equipment and any interruption in the operations of our facilities could negatively impact our business and results of operations.
20

We regularly incur significant expenses to maintain our manufacturing equipment and facilities. The machines and equipment that we use to manufacture our products are complex, have many parts, and some are run on a continuous basis. We must perform routine maintenance on our equipment and will have to periodically replace a variety of parts such as motors, pumps, pipes, and electrical parts. In addition, our facilities may require periodic shutdowns to perform major maintenance which may result in lower output and ultimately lower sales during the periods in which these scheduled maintenance occur. Further, there could be unexpected operational issues in future periods as a result of changes made to machines and equipment, as well as to operational and mechanical processes during the shutdown periods. Additionally, we may not be able to renew our facility leases on terms acceptable to us, if at all. If this occurs, it could materially and adversely affect our business, financial condition, results of operations, and cash flows.
Many of our operating costs and expenses are fixed and will not decline if our revenues decline.
Our results of operations depend, in large part, on our level of revenues, operating costs, and expenses. The expense of owning and operating our business is not necessarily reduced when circumstances such as market factors and competition cause a reduction in revenue from the business. Many of the costs or cash outlays associated with our business and operations, such as depreciation, rent, insurance, and loan payments are generally considered fixed. As a result, if revenues decline, we may not be able to reduce our expenses to keep pace with the corresponding reductions in revenues. This could materially and adversely affect our business, financial condition, results of operations, and cash flows.
The successful running of our operations is highly dependent upon information technology systems and tools operating as intended without any down-time or disruptions in service. Security incidents and attacks on our information technology systems and tools could lead to significant costs and business disruptions.
Information systems are the backbone of our business. Our business depends on our internally-developed information technology systems and tools, as well as certain software as a service products, to run our business, including storing key data, processing transactions, designing and manufacturing products, sourcing products, managing inventory and hosting and operating our website. Our ability to operate effectively on a day-to-day basis and accurately report our results depends on a solid technological infrastructure, which is inherently susceptible to internal and external threats. Any material disruption or slowdown of our systems or those of third parties that we depend upon, including those caused by failure to manage increases in user volume, unsuccessful system upgrades and updates, system failures, power loss, internet and network connectivity issues, cybersecurity incidents, or other causes, could cause important or confidential information to be lost or compromised or delayed. This could in turn impact our abilities to operate our business and accurately report our operating results, harm our brand and reputation, and cause our future sales to decline further. If our information systems become obsolete or inadequate to support our growth, it could damage our customer and business partner relationships, and our business, financial condition, results of operations, and cash flows could be materially and adversely affected.
Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of confidential information, misappropriation of assets, and damage to our business relationships, all of which could negatively impact our business and results of operations.
Despite regular reviews and enhancements of our cybersecurity measures, we have faced, and may continue to face, threats targeting our IT infrastructure and confidential or proprietary information. While we maintain security policies and controls to prevent, detect, and mitigate these risks, no system is immune from breaches that could expose sensitive data, disrupt operations, or affect our financial performance.
Additionally, we handle confidential and personal data subject to privacy laws and contractual obligations. Even with reasonable safeguards, cybersecurity incidents, data loss, programming errors, or employee misconduct could compromise this information, leading to fines, penalties, reputational damage, and other adverse effects on our operations and financial condition.
Adopting artificial intelligence (AI) technologies poses risks such as regulatory scrutiny, cybersecurity vulnerabilities, ethical concerns, and system inaccuracies, potentially leading to disruptions, costs, and reputational harm.
As we look for opportunities to adopt AI in our business operations, there could be significant risks that could materially and adversely impact our business, financial condition, results of operations, and cash flows. The rapid pace of AI innovation and technological advancement present challenges in maintaining a competitive edge, as failing to keep pace with emerging technologies or competitors could erode our market position. Additionally, AI is subject to increasing
21

regulatory scrutiny and an evolving legal framework around data usage, privacy, and algorithmic accountability which may impose additional compliance costs, operational restrictions, or lead to investigations and litigation. The deployment of AI technologies also introduces cybersecurity vulnerabilities, with potential data breaches or unauthorized access threatening sensitive information and customer trust. Furthermore, public perception of AI-related social and ethical issues may also impact the acceptance and success of our AI initiatives. As we evaluate opportunities for AI adoption, we remain committed to enhancing our governance, compliance, and risk management practices to effectively address these challenges and align with our strategic objectives, however, there is no assurance that these measures will fully mitigate all risks associated with its adoption and use.
Our future success depends on the continuing efforts of our management and key employees, and on our ability to attract and retain highly skilled personnel and senior management.
We depend on the talents and continued efforts of our senior management and key employees. The loss of members of our management or key employees may disrupt our business and harm our results of operations. Furthermore, our ability to manage further expansion will require us to continue to attract, motivate, and retain additional qualified personnel. Competition for this type of personnel is intense, and we may not be successful in attracting, integrating, and retaining the personnel required to grow and operate our business effectively. There can be no assurance that our current management team, or any new members of our management team, will be able to successfully execute our business and operating strategies.
We may not be able to effectively manage our growth.
As we grow our business, slower growth or reduced demand for our products, increased competition, a decrease in the growth rate of our overall market, failure to develop and successfully market new products, or the maturation of our business or market could harm our business. We expect to make significant investments in our sales and marketing efforts, expand our operations and infrastructure, design and develop new products, and enhance our existing lineup. Also, in connection with operating as a public company, we expect to continue to incur significant additional legal, accounting, and other related expenses. If our sales do not increase at a sufficient rate to offset these increases in our operating expenses, our profitability may decline in future periods.
If our operations continue to grow at a rapid pace, we may experience difficulties in managing this growth and building the appropriate processes and controls. Continued growth may increase the strain on our resources, and we could experience operating difficulties, including difficulties in sourcing, logistics, recruiting, maintaining internal controls, marketing, designing innovative products, and meeting consumer needs. If we do not adapt to meet these evolving challenges, our corporate culture may be harmed, the quality of our products may suffer, we may not be able to deliver products on a timely basis to our customers, and the strength of our brand may erode.
We may become involved in legal or regulatory proceedings and audits.
Our business requires compliance with many laws and regulations, including labor, employment, taxes, customs, and consumer protection laws and ordinances that regulate retailers generally and/or govern the importation, promotion, and sale of merchandise, and the operation of stores and warehouse facilities. Failure to comply with these laws and regulations could subject us to lawsuits and other proceedings, and could also lead to damage awards, fines, and penalties. We may become involved in a number of legal proceedings and audits, including government and agency investigations, and consumer, employment, tort, and other litigation. The outcome of some of these legal proceedings, audits, and other contingencies could require us to take actions that could harm our operations or require us to pay substantial amounts of money, harming our financial condition and results of operations. Additionally, defending against these lawsuits and proceedings may be necessary, which could result in substantial costs and diversion of management’s attention and resources, materially and adversely harming our business, financial condition, results of operations, and cash flows. Any pending or future legal or regulatory proceedings and audits could materially and adversely harm our business, financial condition, results of operations, and cash flows.
We are subject to payment-related risks.
We accept a variety of payment methods, including credit cards, debit cards, electronic funds transfers, and electronic payment systems. Accordingly, we are, and will continue to be, subject to significant and evolving regulations and compliance requirements, including obligations to implement enhanced authentication processes that could result in increased costs and liability, and reduce the ease of use of certain payment methods. For certain payment methods,
22

including credit and debit cards, as well as electronic payment systems, we pay interchange and other fees, which may increase over time. We rely on independent service providers for payment processing, including credit and debit cards. If these independent service providers become unwilling or unable to provide these services to us or if the cost of using these providers increases, our business could be harmed.
We are subject to credit risk.
We are exposed to credit risk primarily on our accounts receivable. We provide credit to our customers in the ordinary course of our business and perform ongoing credit evaluations. While we believe that our exposure to concentrations of credit risk with respect to trade receivables is mitigated by our large and diversified customer base, we nevertheless run the risk of our customers not being able to meet their payment obligations, particularly in an economic downturn. If a material number of our customers were not able to meet their payment obligations, our business, financial condition, results of operations, and cash flows could be materially and adversely affected.
If we fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial results, in which case our business may be harmed, investors may lose confidence in the accuracy and completeness of our financial reports and the price of our common stock may decline.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Failure to maintain an effective system of internal controls could limit our ability to prevent or detect a misstatement of our accounts or disclosures and could result in a material misstatement of our annual or interim financial statements. We may also be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, which may result in investors losing confidence in our financial reporting and the decline in the prices of our common stock.
If our goodwill, other intangible assets, or our property and equipment become impaired, we may be required to record a charge to our earnings.
We may be required to record future impairments of goodwill, other intangible assets, or long-lived assets to the extent the fair value of these assets falls below their book value. Our estimates of fair value are based on various assumptions including future cash flows, discount rates, and current market estimates of value. Estimates used for future sales growth, gross profit performance, operating expenses, and other assumptions used to estimate fair value are subject to significant judgment. Although impairments are non-cash expenses, they could materially and adversely affect our future financial results and financial condition.
If our estimates or judgments relating to our critical accounting policies prove to be incorrect or change significantly, our results of operations could be harmed.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section of this Form 10-K titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, and related notes included elsewhere in this Form 10-K. These estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity and the amount of sales and expenses that are not readily apparent from other sources. Our results of operations may be harmed if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, and could result in a decline in our stock price.
Risks Related to Societal and Environmental Factors
Our business is subject to the risk of earthquakes, fires, floods, pandemics, and other catastrophic events including criminal acts and terrorism.
As we rely heavily on our warehouse facilities for production, storage, and distribution of inventory, our business is particularly vulnerable to damage or interruption from earthquakes, fires, floods, pandemics, criminal acts, terrorism, and
23

similar events. A significant natural disaster could harm our business results and our insurance coverage may be insufficient to compensate us for losses that may occur. Our corporate offices, distribution centers, and manufacturing facilities are located in California, a state that frequently experiences earthquakes and wildfires, Texas, a state that frequently experiences floods and storms, and Hawaii, a state that frequently experiences hurricanes and tsunamis. In addition, the facilities of our suppliers and where our vendors produce our products are located in parts of Asia that frequently experience typhoons and earthquakes. A pandemic or other global health crisis could cause additional operating costs due to increased challenges with our workforce (including as a result of labor shortages, illness, absenteeism or government orders), and access to supplies and capital. Criminal acts such as grand theft and acts of terrorism could also cause disruptions in our or our vendors’, and logistics providers’ businesses or the economy as a whole. We may not have sufficient protection or recovery plans in place, and such disruptions could materially and adversely impact our financial results and financial condition.
Climate change and sustainability initiatives may result in significant operational changes and expenditures and adversely affect our business.
Continuing political and social attention to carbon emissions and sustainability may result in the imposition of additional regulations or restrictions to which we may become subject. Such policies could result in increased production costs including higher energy and raw materials prices, which could negatively impact our financial condition and results of operations. Additionally, changing weather patterns could also cause disruptions or the complete shutdown of our operations and facilities, thereby impacting our business and consolidated financial statements.
We are subject to environmental laws and regulations that expose us to a number of risks and could result in significant liabilities and costs.
We operate manufacturing facilities in the United States, and are therefore subject to certain environmental regulations with respect to the operation of those facilities. If we were to experience a material adverse environmental event at any of our facilities, or we were to experience any material product safety issue with respect to our products or our business, financial condition, results of operations and cash flows could be materially and adversely affected. Furthermore, concern over plastics products may result in new or increased legal and regulatory requirements to reduce or mitigate impacts to the environment. Increased legislation, including in relation to various aspects of ESG including disclosure requirements, or environmental causes may result in increased compliance or input costs of raw materials, which may cause disruptions in the manufacture of our products or an increase in operating costs. If we do not adapt to or comply with new regulations, or fail to meet the needs of the evolving investor, industry, or stakeholder expectations and standards, or if we are perceived to have not responded appropriately to the growing concern for ESG issues, customers and consumers may choose to stop purchasing our products or purchase products from another company or a competitor, and our reputation, business and consolidated financial statements may be adversely affected.
Risks Related to the Global Events and International Nature of Our Operations
Recent trade policy shifts and regulatory developments, including increased import tariffs and the renegotiation of trade agreements, could have a material adverse impact on our business, financial condition or results of operations.
Both global and domestic economic and geopolitical conditions greatly impact our business. The current federal administration's trade policy shifts, including increased import tariffs and the renegotiation of trade agreements, has increased the level of uncertainty in the global trading environment. These tariffs, affecting imports from countries such as China, could substantially increase the cost of our products, including raw materials needed for domestic manufacturing, and/or impact our ability to supply certain products to our customers. While we have been proactively implementing procedures to minimize the impact from such tariffs on our business, we may not be successfully in offsetting negative impacts from escalating trade tensions, including increased manufacturing costs, global supply chain disruptions, limitations on domestic and international sales, and reduced sales volumes and margins. Additionally, we may not be able to pass those cost increases through to our customers, which could have a materially adverse impact on our business, financial condition or results of operations. Even if we are able to pass such increases on to customers, higher prices could reduce demand for our products, further negatively affecting our sales, profitability, our business, financial condition, results of operations, and cash flows. The rate or duration of these tariffs and the resulting impact on general economic conditions and on our business are uncertain and depend on various factors, such as negotiations between the U.S. and affected countries, the responses of other countries or regions, exemptions or exclusions that may be granted, and availability and cost of alternative sources of supply, and there can be no assurance as to the extent to which we will be able to offset the impact through mitigation actions.
24

On February 20, 2026, the U.S. Supreme Court issued a ruling against certain tariffs previously imposed under the International Emergency Economic Powers Act ("IEEPA"). Following the Supreme Court’s decision, the U.S. presidential administration announced its intention to invoke other laws to collect tariffs and announced new tariffs on imports from all countries, in addition to any existing non-IEEPA tariffs. There remained substantial uncertainty regarding the duration of existing and newly announced tariffs, potential changes or pauses to such tariffs, tariff levels, and the availability, timing and amount of any potential refunds of such tariffs.
International political instability and armed conflicts could result in market instability, which could negatively impact our business results.
International political instability and armed conflicts could result in economic sanctions that could impact our operational and financial results. If such events disrupt domestic or international air, ground or sea shipments, or the operation of the Company’s manufacturing facilities, the Company’s ability to source inventory or obtain the materials necessary to manufacture its products, and deliver customer orders would be harmed, which would have a significant adverse effect on the Company’s business and results of operations. In addition, international conflicts could result in increased energy costs, which could increase the cost of sourcing, manufacturing, selling, and delivering products, and general inflation, which could also result in increases in the cost of sourcing and manufacturing, reduced customer demand and purchasing power, and overall market instability. All of these could materially and adversely affect our business, financial condition, results of operations, and cash flows.
If we fail to obtain shipments of products from our overseas manufacturers with standard shipping by sea, our gross margin, profitability, and our business could be harmed.
Our overseas third-party contract manufacturers ship most of our products to our primary facility in California, which are then shipped to our customers and to our other distribution facilities. Because we import many of our products, we are vulnerable to risks associated with products manufactured abroad, including risks of damage, destruction, or confiscation of products while in transit to our distribution centers. In order to meet demand for a product, we have chosen in the past, and may choose in the future, to arrange for additional quantities of the product, if available, to be delivered through air freight, which is significantly more expensive than standard shipping by sea and, consequently, could harm our gross margins and profitability, and harm our business.
Many of our products are manufactured by third parties outside of the United States, and our business may be harmed by legal, regulatory, economic, and political risks associated with international trade and those markets.
Many of our products are manufactured outside the United States. Our reliance on vendors in foreign markets creates risks inherent in doing business in foreign jurisdictions, including: (a) the burdens of complying with a variety of foreign laws and regulations, including trade and labor restrictions and laws relating to the importation and taxation of goods; (b) weaker protection for intellectual property and other legal rights than in the United States, and practical difficulties in enforcing intellectual property and other rights outside of the United States; (c) compliance with U.S. and foreign laws relating to foreign operations, including the U.S. Foreign Corrupt Practices Act, or FCPA, the UK Bribery Act 2010, or the Bribery Act, regulations of the U.S. Office of Foreign Assets Controls, or OFAC, and U.S. anti-money laundering regulations, which prohibit U.S. companies from making improper payments to foreign officials for the purpose of obtaining or retaining business, operating in certain countries, as well as engaging in other corrupt and illegal practices; (d) economic and political instability and acts of terrorism in the countries where our suppliers are located; (e) transportation interruptions or increases in transportation costs; (f) the imposition of tariffs on components and products that we import into the United States or other markets; and (g) the impact of currency exchange fluctuations, trade regulations, import duties, logistics costs, delays, and other related risks resulting in increased costs or liabilities. We cannot provide assurance that our directors, officers, employees, representatives, manufacturers, or suppliers have not engaged and will not engage in conduct for which we may be held responsible, nor can we provide assurance that our manufacturers, suppliers, or other business partners have not engaged and will not engage in conduct that could materially harm their ability to perform their contractual obligations to us or even result in our being held liable for such conduct.
Violations of the FCPA, the Bribery Act, OFAC restrictions, or other export control, anti-corruption, anti-money laundering, and anti-terrorism laws or regulations may result in severe criminal or civil sanctions, and we may be subject to other related liabilities, which could harm our business, financial condition, results of operations, and cash flows.
Foreign exchange rate fluctuations could affect our results of operations.
25

Our third-party vendors are located in international markets, and we make payment to certain of these vendors in their local currencies, including New Taiwan Dollars. Any fluctuations in foreign exchange rates against the United State Dollar, and in particular the exchange rates of the New Taiwan Dollar, could increase our costs, and have a material adverse impact on our business, financial condition, results of operations, and cash flows.
Risks Related to Ownership of Our Common Stock and Our Capital Structure
Our directors, executive officers, and significant stockholders have substantial control over us and could delay or prevent a change in corporate control.
As of March 1, 2026, our directors, executive officers, and other holders of more than 5% of our common stock, together with their affiliates, own, in the aggregate 57% of our outstanding common stock. As a result, these stockholders, acting together or in some cases individually, have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation, or sale of all or substantially all of our assets. In addition, these stockholders, acting together or in some cases individually, have the ability to control the management and affairs of our company. Accordingly, this concentration of ownership might decrease the market price of our common stock by:
•delaying, deferring, or preventing a change in control of the company;
•impeding a merger, consolidation, takeover, or other business combination involving us; or
•discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of the company.
Our stock price may be volatile or may decline, including due to factors beyond our control, resulting in substantial losses for investors.
The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
•actual or anticipated fluctuations in our results of operations;
•the financial projections we may provide to the public, any changes in these projections, or our failure to meet these projections;
•announcements about our share repurchase program, including repurchases under the program;
•failure of securities analysts to initiate or maintain coverage of our company, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;
•ratings changes by any securities analysts who follow our company;
•sales or potential sales of shares by our stockholders, or the filing of a registration statement for these sales;
•adverse market reaction to any indebtedness we may incur or equity we may issue in the future;
•announcements by us or our competitors of significant innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments;
•publication of adverse research reports about us, our industry, or individual companies within our industry;
•publicity related to problems in our manufacturing or the real or perceived quality of our products, as well as the failure to timely launch new products that gain market acceptance;
•changes in operating performance and stock market valuations of our competitors;
•price and volume fluctuations in the overall stock market, including as a result of trends in the United States or global economy;
•any major change in our Board of Directors or management;
•lawsuits threatened or filed against us or negative results of any lawsuits;
•security breaches or cyberattacks;
•legislation or regulation of our business;
•loss of key personnel;
•new products introduced by us or our competitors;
•the perceived or real impact of events that harm our direct competitors;
•developments with respect to our trademarks, patents, or proprietary rights;
•tariffs and other trade restrictions;
•inflationary pressures;
•general market conditions; and
26

•other events or factors, including those resulting from war, incidents of terrorism, or responses to these events, which could be unrelated to us or outside of our control.
In addition, stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies in our industry, as well as those of newly public companies. In the past, stockholders of other public companies have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and harm our business, financial condition, results of operations and cash flows.
Acquisitions could result in operating difficulties and may materially adversely affect our business, financial condition, results of operations and growth prospects.
We have evaluated, and expect to continue evaluating, potential strategic transactions, and we may pursue one or more transactions, including acquisitions. We have limited experience executing acquisitions. Any transaction could be material to our business, financial condition, results of operations, and growth prospects. Integrating an acquired company, business or technology may create unforeseen operating difficulties and expenditures. Acquisition-related risks include:
•diverting management time and focus from operating our business to acquisition integration;
•customers moving to new suppliers as a result of the acquisition;
•inability to retain employees from the business we acquire;
•challenges associated with integrating employees from the acquired company into our organization;
•difficulties integrating accounting, management information, human resource and other administrative systems to permit effective management of the business we acquire and realize efficiencies;
•potential requirements for remediating controls, procedures and policies appropriate for a public company in the acquired business that prior to the acquisition lacked these controls, procedures and policies;
•potential liability for past or present environmental, hazardous substance, or contamination concerns associated with the acquired business or its predecessors;
•possible write-offs or impairment charges resulting from the acquisition; and
•unanticipated or unknown liabilities relating to the acquired business.
Also, the anticipated benefit of any acquisition may not materialize. Future acquisitions or dispositions could result in potentially dilutive issuances of our equity securities, debt incurrence, contingent liabilities or amortization expenses or goodwill write-offs, any of which could materially adversely affect our business, financial condition, results of operations, and growth prospects. Future acquisitions may require us to obtain additional equity or debt financing, which may not be available on favorable terms or at all.
Substantial future sales, or the perception or anticipation of future sales, of shares of our common stock may cause our stock price to decline. This could cause the market price of our common stock to drop significantly, even if our business is doing well.
Our stock price could decline as a result of substantial sales of our common stock, or the perception or anticipation that such sales could occur, particularly sales by our directors, executive officers, and significant stockholders. Possible sales also may make it more difficult for us to sell equity or equity-related securities in the future at a time and price we deem necessary or appropriate. Additionally, if we issue a large number of shares in connection with future acquisitions, financings or other circumstances, the market price of our common stock could decline significantly. We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances or sales of our shares will have on the market price of such shares.
As of December 31, 2025, we had 287,467 stock options, all of which were fully vested, and 43,500 of unvested restricted stock units outstanding. The additional shares issued upon exercise or vesting will be eligible to be sold freely in the public market, subject to volume limitations applicable to affiliates.
Our bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain actions, which could limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company and its directors, officers, or other employees and may discourage lawsuits with respect to such claims.
27

Unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for: (i) any derivative action or proceeding brought against or on behalf of the Company, (ii) any action asserting a claim of breach of a duty owed by any current or former director, officer, other employee or stockholder of the Company to the Company or the Company’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, (iv) any action as to which the Delaware General Corporation Law confers jurisdiction upon the Court of Chancery in the State of Delaware, or (v) any action asserting a claim governed by the internal affairs doctrine, shall, to the fullest extent permitted by law, be the Court of Chancery in the State of Delaware (or, only if the Court of Chancery in the State of Delaware declines to accept jurisdiction over a particular matter, any state or federal court located within the State of Delaware). However, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder, and as such, the exclusive jurisdiction clauses set forth above would not apply to such suits. Furthermore, Section 22 of the Securities Act provides for concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder, and as such, the exclusive jurisdiction clauses set forth above would not apply to such suits.
Although we believe the exclusive forum provision benefits us by providing increased consistency in the application of Delaware law for the specified types of actions and proceedings, this provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company and its directors, officers, or other employees and may discourage lawsuits with respect to such claims.
We may issue preferred stock, the terms of which could adversely affect the voting power or value of our common stock.
Our certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designations, preferences, limitations and relative rights, including preferences over our common stock respecting dividends and distributions, as our Board of Directors may determine. The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of our common stock. For example, we might grant holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of the common stock.
We intend to pay quarterly dividends for the foreseeable future. If our stock price does not appreciate after you purchase our shares, you may lose some or all of your investment.
Although we initiated our regular quarterly cash dividend in 2023 and intend to pay regular quarterly dividends for the foreseeable future, we may not be able to sustain our current quarterly dividend payouts. Any future determination to declare cash dividends will be made at the discretion of our Board of Directors, subject to applicable laws, and will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual restrictions, general business conditions, and other factors that our Board of Directors may deem relevant. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.
We are a holding company with no operations of our own and, as such, we depend on our subsidiaries for cash to fund our operations and expenses, including future dividend payments, if any.
As a holding company, our principal source of cash flow will be distributions from Lollicup, our wholly-owned subsidiary. Therefore, our ability to fund and conduct our business, service our debt, and pay dividends, if any, in the future will depend on the ability of our subsidiaries to generate sufficient cash flow to make upstream cash distributions to us. Our subsidiaries are separate legal entities, and although they are wholly owned and controlled by us, they have no obligation to make any funds available to us, whether in the form of loans, dividends, or otherwise. The ability of our subsidiaries to distribute cash to us will also be subject to, among other things, restrictions that may be contained in our subsidiary agreements (as entered into from time to time), availability of sufficient funds in such subsidiaries and applicable laws and regulatory restrictions. Claims of any creditors of our subsidiaries generally will have priority as to the assets of such subsidiaries over our claims and claims of our creditors and stockholders. To the extent the ability of our subsidiaries to distribute dividends or other payments to us is limited in any way, our ability to fund and conduct our business, service our debt, and pay dividends, if any, could be harmed.
If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our stock price and trading volume could decline.
28

The trading market for our common stock will be influenced to some extent by the research and reports that industry or financial analysts publish about us and our business. We do not control these analysts. As a relatively new public company, we may be slow to attract research coverage and the analysts who publish information about our common stock will have had relatively little experience with us or our industry, which could affect their ability to accurately forecast our results and could make it more likely that we fail to meet their estimates. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us provide inaccurate or unfavorable research or issue an adverse opinion regarding our stock price, our stock price could decline. If one or more of these analysts cease to regularly cover us or fail to publish reports, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.
Outstanding indebtedness may reduce our available funds.
We have approximately $35.9 million in outstanding indebtedness as of December 31, 2025. The loans are held at multiple banks and are collateralized by substantially all of Global Well's assets and is guaranteed by one of our stockholders. There can be no guarantee that we will be able to pay all amounts when due or to refinance the amounts on terms that are acceptable to us or at all. If we are unable to make our payments when due or unable to refinance such amounts, our key equipment could be repossessed, our property could be foreclosed and our business could be negatively affected.
The terms of our debt agreements impose significant operating and financial restrictions on us. These restrictions could also have a negative impact on our business, financial condition, results of operations and cash flows by significantly limiting or prohibiting us from engaging in certain transactions, including but not limited to: incurring or guaranteeing additional debt financing; transferring or selling assets currently held by us; and transferring ownership interests in certain of our subsidiaries. The failure to comply with any of these covenants could cause a default under our other debt agreements. Any of these defaults, if not waived, could result in the acceleration of all of our debt, in which case the debt would become immediately due and payable. If this occurs, we may not be able to repay our debt or borrow sufficient funds to refinance it on favorable terms, if any.
We may depend on cash generated from outside sources of funding to support our growth.
Although we have in the past generated positive cash flow from operating activities, outside sources of equity and debt capital is an important source of fund for our current operations and growth initiatives. As we expand our business, we may need significant cash resources to fund operations such as purchasing and manufacturing inventory, marketing and promoting our products, expanding our vendor and customer relationships, enhancing distribution capabilities, paying employees, upgrading information technology systems and tools, and paying for the costs associated with operating as a public company. If we are unable to secure additional outside funding or if our business does not generate sufficient cash flow from operations to fund these activities and sufficient funds are not otherwise available, our business will be negatively impacted and restricted. If such outside financing is not available to us on satisfactory terms, our ability to operate and expand our business or respond to competitive pressures would be harmed. Moreover, if we raise additional capital by issuing equity securities or securities convertible into equity securities, your ownership may be diluted. Any indebtedness we incur may subject us to covenants that restrict our operations and will require interest and principal payments that would create additional cash demands and financial risk for us.
Our share repurchase program could affect the price of our common stock and increase volatility and could be suspended or terminated at any time, which could result in a decrease in the trading price of our common stock.
Pursuant to our share repurchase program, which was publicly announced in November 2025, we were authorized to repurchase up to $15.0 million of our outstanding common stock. Under the Share Repurchase Program, we 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. Our Board of Directors may amend or suspend the Share Repurchase Program at any time in its discretion. As of December 31, 2025, there was approximately $12.0 million remaining authorization for purchases under the share repurchase program. The timing and amount of any share repurchases will be determined based on market conditions, share price and other factors, and we are not obligated to repurchase any shares. Repurchases of our shares could increase (or reduce the size of any decrease in) the market price of our common stock at the time of such repurchases. Additionally, repurchases under our share repurchase program have diminished and would continue to diminish our cash reserves, which could impact our ability to pursue possible strategic opportunities and acquisitions and could result in lower overall returns on our cash balances. Our share repurchases could also affect our share trading prices, increase their volatility, and reduce our stock's
29

public float, and may be suspended or terminated at any time, which may result in a decrease in the trading prices of our stock. Further, under the Inflation Reduction Act of 2022, a 1% excise tax is imposed on the fair market value of certain stock repurchases at the time of such repurchases, which could increase the cost of repurchasing shares of our common stock. However, for the purposes of calculating such excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. There can be no assurance that any share repurchases will enhance stockholder value, as the market price of our common stock may nevertheless decline.
General Risk Factors
We are an emerging growth company and the reduced disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.
We are an “emerging growth company” as defined in JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised financial accounting standards until such time as those standards apply to private companies. We have elected to take advantage of the extended transition period for adopting new or revised financial statements under the JOBS Act as an emerging growth company.
For as long as we continue to be an emerging growth company, we intend to take advantage of other exemptions from certain reporting requirements that are applicable to other public companies, including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, exemption from any rules that may be adopted by the PCAOB requiring mandatory audit firm rotations or a supplement to the auditor’s report on financial statements, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute arrangements, and reduced financial reporting requirements. Investors may find our common stock less attractive because we will rely on these exemptions, which could result in a less active trading market for our common stock, increased price fluctuation, and a decrease in the trading price of our common stock.
We will lose our status as an emerging growth company no later than December 31, 2026, which represents the end of the fiscal year in which the fifth anniversary of the date of our IPO prospectus occurs.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 1C. CYBERSECURITY
Cybersecurity risk management is a critical part of our overall risk management efforts. We have developed and implemented a cybersecurity risk management program intended to protect the confidentiality, integrity, and availability of our key systems and information. This program leverages the security-control principles outlined by the National Institute of Standards and Technology ("NIST") Cybersecurity Framework 2.0 and other industry-recognized standards, as applicable. Our program prioritizes detection, analysis, and response to known, anticipated, or unexpected threats. Some of the processes in place to manage risks from cybersecurity threats include identity and access management, logging and monitoring, penetration testing, vulnerability scanning, security monitoring, employee awareness training, and professional services from third-party providers. As cybersecurity threats evolve, we assess our program and make enhancements as needed to address emerging risks, adopt best practices, and strengthen our overall security posture.
Our cybersecurity risk management program in particular focuses on the following key areas:
Risk assessment and management
We conduct cybersecurity risk assessment to identify key cybersecurity risks, assess the likelihood of the identified risks and the potential business impact, and develop related mitigation and enhancement plans. Our cyber risk management initiatives are integrated within the Company’s overall risk management process.
The Company uses various techniques to identify cybersecurity risks, including but not limited to input from internal stakeholders, known and potential information security vulnerabilities identified through historical incidents and self-performed assessments, evaluations from third-party consultants, as well as external data including reported security
30

incidents impacting other companies, and industry trends. The results of the assessment are used to drive alignment on prioritization of initiatives to enhance our security controls and measures, make recommendations to senior management, and if necessary, but at least annually, inform the Audit Committee and Board of Directors.
Incident response and recovery planning
We maintain a comprehensive Incident Response and Recovery Plan (IRR Plan) designed to guide our preparation for, detection, response to, and recovery efforts in the event of cybersecurity incidents. The IRR Plan establishes clear roles and responsibilities for a cross-functional team (IR Team) tasked with handling cybersecurity incidents. The plan outlines a structured approach to managing incidents from the technical perspective, including monitoring, identification, investigation, assessment, containment, remediation, and mitigation. Additionally, the IRR Plan also addresses compliance with legal and reporting obligations, including any required notifications to affected parties, regulatory agencies, or the public, and reporting requirements with the SEC. Cybersecurity incidents are evaluated based on their severity, potential impact, and likelihood of escalation, and are prioritized for response, remediation, and disclosure as necessary. The IRR Plan is regularly reviewed and updated as necessary to incorporate improvements and enhance the organization's overall incident response capabilities.
Should a cybersecurity event occur, the IR Team would review and assess the incident and determine whether further escalation and regulatory reporting is required. Any incident assessed as potentially being or becoming material is immediately escalated to the Audit Committee, and meetings of the Audit Committee and/or full Board of Directors would be held, as required.
We consult with our outside legal counsel as appropriate, including on materiality analysis and disclosure matters. Senior management makes the final materiality determination and disclosure decisions. We maintain controls and procedures that are designed to ensure prompt escalation of certain cybersecurity incidents so that decisions regarding public disclosure and reporting of such incidents can be made in a timely manner.
Collaboration
We periodically engage third-party cybersecurity experts to assess and enhance our cybersecurity risk management program, and to ensure compliance with industry best practices and applicable standards. These partnerships enable us to stay ahead of evolving threats and implement robust strategies to protect critical systems and data in the event of cybersecurity incidents.
Internally, our cybersecurity initiatives are led by our Information Technology ("IT") team headed by our experienced IT Manager, who is a Microsoft Certified Professional and holds certifications in CompTIA Network+ and Cisco Networking. During 2024, we onboarded a Director of IT Research & Development with over 15 years of experience in IT, systems development, and cybersecurity frameworks, including senior roles at Fortune 500 companies. Both these IT leaders play a key role in driving strategies and solutions for system protection and incident management.
We have also established an IT steering committee consisting of members from various key departments including IT, Finance, Operations, and Human Resources. The IT steering committee convenes regularly to review and align on IT strategic priorities, including the cybersecurity risk management program. This cross-functional approach ensures that cybersecurity efforts are integrated across the organization and that emerging risks are addressed proactively.
In addition, we emphasize a company-wide culture of cybersecurity awareness. Employees are required to participate in mandatory training sessions at least annually, covering topics such as phishing recognition and threat response protocols. Other regular and ongoing security communications are also provided to reinforce these lessons and ensure that cybersecurity remains a priority at every level of the organization.
Further, we work closely with third-party software as a service providers and other service partners to manage and mitigate security risks by implementing robust policies and procedures. Our process includes conducting thorough risk assessments during onboarding and requiring providers to maintain and implement strong security measures within their respective organizations. We mandate contractual obligations for timely notification of any material data breaches, enabling us to respond quickly to protect our data and operations.
Governance
31

Cybersecurity is an important part of our risk management processes and an area of focus for senior management. Our Board of Directors has oversight of our strategic and business risk management, and has delegated cybersecurity risk management oversight to the Audit Committee. Members of the Audit Committee receive updates on an as-needed basis, but at least annually, from senior management. This includes existing and new cybersecurity risks, how management is assessing and addressing such risks, status on key information security initiatives, and cybersecurity incidents, if any, and responses. Members of our Board of Directors also engage in ad hoc conversations with management on cybersecurity-related news events and discuss any updates to our cybersecurity risk management program.
Impact of cybersecurity risks and threats
As of the date of this report, we are not aware of any cybersecurity threats or incidents that have materially affected our business, financial condition, results of operations or cash flows. We acknowledge that cybersecurity threats are continually evolving, and the possibility of future cybersecurity incidents remains. Despite the implementation of our cybersecurity processes, our security measures cannot guarantee that a significant cybersecurity attack will not occur. There can also be no guarantee that our policies and procedures under our cybersecurity risk management program will be properly followed in every instance or that those policies and procedures will be effective. While we devote resources to our security measures designed to protect our systems and information, no security measure is infallible. See Item 1A "Risk Factors" for additional information about the risks to our business associated with a breach or other compromise to our information and operational technology systems.
ITEM 2. PROPERTIES
We lease our principal executive and administrative offices located at 6185 Kimball Avenue, Chino, California 91708. At the same location, we operate an approximately 300,000 square foot manufacturing, warehouse storage, and distribution facility.
We lease (i) an approximately 500,000 square foot manufacturing, warehouse storage and distribution facility in Rockwall, Texas and (ii) an approximately 108,000 square foot warehouse storage and distribution facility in Branchburg, New Jersey from our consolidated variable interest entity, as further described in Note 2 — Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K. We also lease and operate (i) an approximately 98,000 square foot warehouse storage and distribution facility in Puyallup, Washington, (ii) an approximately 76,000 square foot manufacturing, warehouse storage, and distribution facility in Kapolei, Hawaii, (iii) an approximately 23,000 square foot warehouse storage and distribution facility also in Kapolei, Hawaii, (iv) an approximately 44,000 square foot warehouse storage and distribution facility in Mesa, Arizona, (v) an approximately 83,000 square foot warehouse storage and distribution facility in Sugar Land, Texas, (vi) an approximately 105,000 square foot warehouse storage and distribution facility in Aurora, Illinois, and (vii) an approximately 187,000 square foot warehouse storage and distribution facility in Chino, California. Additionally, we lease an approximately 70,000 square foot warehouse facility in City of Industry, California, which we sublet since April 2024.
ITEM 3. 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.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
32

Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock trades on the NASDAQ Global Market under the symbol “KRT.” Our common stock commenced public trading on April 15, 2021.
Holders of Common Stock
As of March 10, 2026, we had 2 stockholders of record of our common stock. A substantially greater number of holders of our common stock are “street name” or beneficial holders, whose shares are held by banks, brokers and other financial institutions.
Dividends
On August 7, 2023, our Board of Directors approved a quarterly cash dividend policy, which we have paid on a regular basis since then. Continuation of the quarterly dividend will be at the discretion of our Board of Directors and will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual restrictions, general business conditions, and other factors that our Board of Directors may deem relevant. There are currently no restrictions on our present ability to pay dividends to stockholders of our common stock, other than those prescribed by Delaware law.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information as of December 31, 2025 with respect to all of our compensation plans under which equity securities are authorized for issuance:

| Number of Securities To Be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance
Equity compensation plans approved by stockholders | 330,967 (1) | $18.56 (2) | 1,277,517 |
Total | 330,967 |  | $18.56 | 1,277,517 |

(1) This amount consists of (i) 43,500 shares of our common stock subject to unvested restricted stock units granted under the Plan, and (ii) 287,467 shares subject to stock options granted under the Plan.
(2) This number reflects the weighted-average exercise price of outstanding options and has been calculated exclusive of outstanding restricted stock unit awards issued under the Plan.
Sales of Unregistered Securities
We did not sell any unregistered equity securities during the year ended December 31, 2025.
Issuer Purchases of Equity Securities
The following table sets forth information regarding our purchases of shares of our common stock during the fourth quarter of fiscal year 2025:
33

Period |  | Total Number of Shares Purchased |  | Weighted-Average Price Paid per Share (1) |  | Total Number of Shares Purchased as Part of Publicly Announced Program |  | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (1) (in thousands)
October 1, 2025 - October 31, 2025 |  | — |  |  | — |  |  | — |  |  | — |
November 1, 2025 - November 30, 2025 |  | 107,555 |  |  | $ | 21.64 |  |  | 107,555 |  |  | $ | 12,673 |
December 1, 2025 - December 31, 2025 |  | 29,819 |  |  | $ | 22.09 |  |  | 29,819 |  |  | $ | 12,014 |
Total |  | 137,374 |  |  |  |  | 137,374 |  |  |

(1) On November 5, 2025, the Company announced that our Board of Directors approved a share repurchase program (the "Share Repurchase Program"), authorizing us to repurchase up to $15.0 million of our common stock. The Share Repurchase Program has no set expiration date, and may be suspended, modified or discontinued at any time, and we have no obligation to repurchase any amount of our common stock under the program. All dollar amounts presented in the table above and in this report related to our share repurchases and our share repurchase authorizations exclude the impact of the excise tax imposed on share repurchases pursuant to the Inflation Reduction Act of 2022. See Note 10 - Stockholders' Equity in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for further information related to our share repurchases.
ITEM 6. [RESERVED]
34

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes to the consolidated financial statements. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors including, but not limited to, those discussed in Part I, Item 1A. “Risk Factors.” and elsewhere in this Annual Report on Form 10-K. See “Forward Looking Statements” above for further explanation.
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 development, design, printing, 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 and reliable provider of high-quality products relative to our competitors. Our operating model entails generating the majority of our revenue from the distribution of products sourced from a diversified global network, 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 evolving economic environments to drive operating efficiency and sustained margin expansion and ensure quality of our customer service and product availability during global supply chain disruptions. Starting in 2023 and continuing into 2025, in light of the rising domestic labor and other operating costs and dropping ocean freight rates, we executed a strategy to pivot into a more asset-light model by increasing imports and scaling back domestic manufacturing. Amidst the evolving tariff environment throughout 2025, we have placed our strategic emphasis on expanding and diversifying our global vendor network to enhance the resilience of our supply chain, minimize tariff impact on our operations and financial results, and maintain a strong margin profile and operating cash flows. We are prioritizing strong partnerships with reliable and cost-efficient sources and more favorable trade terms, negotiating additional vendor support, exploring opportunities to collaborate with vendors in new countries and geographies, while reallocating our own domestic production capabilities to optimize overall product margin.
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 seven othe r distribution centers lo cated in Puyallup, Washington; Branchburg, New Jersey; Kapolei, Hawaii; Aurora, Illin ois; Mesa, Arizona; Sugar Land, Texas, and Chino, California. 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.
2025 Business Highlights and Trends
•We have strategically and swiftly realigned our global supply chain in 2025 against a backdrop of higher tariffs. We reduced purchases from China from approximately 22% of global sourcing in 2024 to approximately 15% in 2025, maintained purchases from Taiwan at approximately 50% of our global sourcing, and diversified sourcing to countries with more favorable trade conditions, including Malaysia and Vietnam, which in aggregate accounted for approximately 17% of our global sourcing in 2025 compared to 9% in 2024.
35

•We continued to expand our eco-friendly product offerings, contributing to meaningful sales growth. Sales from eco-friendly products as a percentage of total sales increased from 33.6% for the year ended December 31, 2024 to 34.1% for the year ended December 31, 2025. We started shipment on a newly-acquired paper bag contract with a chain account in the second half of 2025, growing paper bags sales from $7.9 million for the year ended December 31, 2024 to $13.7 million for the year ended December 31, 2025.
•We continued our transition to a more asset-light model by further scaling back manufacturing in the U.S. and increasing imports from diversified sources to continue to improve our margin profile. For the year ended December 31, 2025, manufacturing accounted for approximately 9% of our net sales, down from 11% in the prior year.
•We achieved record net sales of $467.7 million for the year ended December 31, 2025, an increase of 10.7% in net sales amount and 11.2% in volume compared to the year ended December 31, 2024.
•We recorded gross margin of 36.8% for the year ended December 31, 2025, reflecting an expected decrease of 210-basis-point compared to the year ended December 31, 2024, as cost of goods sold in 2025 reflected elevated inventory cost due to tariffs in place.
•We recorded net income of $32.7 million for the year ended December 31, 2025, an increase of 6.0% compared to the year ended December 31, 2024.
•We recorded net income margin of 7.0% for the year ended December 31, 2025, compared to 7.3% for the year ended December 31, 2024, reflecting the decrease in gross margin, as discussed above, and an improvement in operating cost leverage.
•Net cash provided by operating activities was $33.8 million for the year ended December 31, 2025, a decrease of $14.2 million compared to the year ended December 31, 2024.
•We generated Adjusted EBITDA, a non-GAAP measure defined below, of $55.2 million for the year ended December 31, 2025, a decrease of 0.2% compared to the year ended December 31, 2024.
•Our Adjusted EBITDA margin, a non-GAAP measure defined below, was 11.8% for the year ended December 31, 2025, a decrease of 130 basis points compared to the year ended December 31, 2024.
•We had financial liquidity of $45.6 million as of December 31, 2025.
•During the year ended December 31, 2025, we returned a total of $36.1 million to our shareholders in the form of regular quarterly cash dividends.
•On November 4, 2025, our Board of Directors approved a first-ever share repurchase program of up to $15.0 million in common stock. We repurchased approximately $3.0 million of common stock during the period.
•On February 5, 2026, our Board of Directors declared another regular quarterly cash dividend of $0.45 per share on our common stock, which was paid on or about February 27, 2026 to the stockholders of record at the close of business on February 20, 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. Our eco-friendly products made up 34.1% of total sales during the year ended December 31, 2025, compared to 33.6% during the prior year, and we expect sales generated from eco-friendly products as percentage of total sales to continue to grow.
•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
36

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.
•Beginning in the first quarter of 2025, the U.S. government announced additional tariffs on goods imported into the U.S. from numerous countries and multiple nations have responded with reciprocal tariffs and other actions. 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 source our raw materials or manufactured products from countries with minimum tariffs, whether any previously imposed tariffs are removed and whether we can implement procedures to mitigate the impact from the tariffs. The Company continues to monitor the economic effects of such announcements. The Company has implemented short- and long-term mitigation efforts. Based on the current tariff policies, the Company expects to partially offset the operating profit impact of the enacted tariffs with supply chain adjustments and productivity and cost savings actions. To the extent additional tariffs or other trade restrictions are enacted and the Company is unable to offset the tariffs or the tariffs negatively impact demand, the Company’s revenue and profitability could be adversely impacted.
•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. 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 to 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. We believe price fluctuations 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 and whether we can successfully implement price adjustments to maintain gross margin.
•Supplier 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.
•Since early 2023, we have pivoted into a more asset-light growth model by increasing import and scaling back manufacturing in the U.S. We believe this will have either a positive or a negative impact on our results of operations, depending on whether we can successfully source and import finished goods at a price that is more favorable than domestically manufacturer products, and effectively realize savings from reduced manufacturing capabilities.
Critical Accounting Estimates
The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, management evaluates those estimates. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Critical accounting estimates are those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant. We believe the following critical accounting estimates and policies have the most significant impact on our consolidated financial statements:
Allowance for doubtful accounts
We recognize an allowance for doubtful accounts on accounts receivable in an amount equal to the estimated expected losses net of recoveries. The allowance is based on an analysis of historical bad debt write-offs, current past due customers
37

in the aging, risk profiles associated with different customer types, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. While such losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates we have in the past. A significant change in the liquidity or financial position of our customers could cause unfavorable trends in receivable collections and additional allowances may be required. These additional allowances could materially affect our future financial results. As of December 31, 2025, and 2024, we had a total allowance for doubtful accounts of $0.6 million and $0.8 million, respectively.
Inventory reserve
We maintain a reserve for excess and obsolete inventory and carry our inventory at net realizable value, taking into account various factors including historic usage, expected demand, anticipated sales price, and product expiration and obsolescence. While such losses have historically been within our expectations and the provisions established, we cannot guarantee that the future trend will be similar to what we have experienced in the past. A significant change in demand or selling prices could result in additional reserve and materially affect our future financial results. We had an inventory reserve of $0.7 million and $0.6 million as of December 31, 2025, and 2024, respectively.
Results of Operations
Year ended December 31, 2025 compared to the year ended December 31, 2024

| Year Ended December 31,
| 2025 |  | 2024
| (in thousands)
Net sales | $ | 467,743 |  | $ | 422,633
Cost of goods sold | 295,607 |  | 258,304
Gross profit | 172,136 |  | 164,329
Operating expenses | 130,722 |  | 126,568
Operating income | 41,414 |  | 37,761
Other income, net | 1,608 |  | 2,934
Provision for income taxes | 10,358 |  | 9,871
Net income | $ | 32,664 |  | $ | 30,824

Net sales
Net sales were $467.7 million for the year ended December 31, 2025 compared to $422.6 million for the year ended December 31, 2024, representing an increase of $45.1 million, or 10.7%. Net sales for the year ended December 31, 2024 were understated by $0.7 million, which represented products shipped and recognized as revenue in 2023 but not delivered until 2024. Including this impact, the year-over-year increase is primarily driven by an increase of $39.7 million from volume and an increase of $11.9 million from product mix. Such increases were partially offset by a $6.5 million unfavorable year-over-year pricing comparison, as the overall pricing environment remained competitive due to customers' heightened focus on value.
Cost of goods sold
Cost of goods sold was $295.6 million for the year ended December 31, 2025 compared to $258.3 million for the year ended December 31, 2024, representing an increase of $37.3 million, or 14.4%. Cost of goods sold for the year ended December 31, 2024 was understated by $0.4 million related to products shipped and recognized as cost of goods sold in 2023 but not delivered until 2024, as discussed above. Including this impact, the year-over-year increase in cost of goods sold was primarily driven by an increase in ocean freight and duty costs of $20.6 million, resulting from higher duties and tariffs, which nearly doubled from $14.7 million for the year ended December 31, 2024 to $29.3 million for the year ended December 31, 2025. This increase was further driven by a 22.0% increase in import volume, partially offset by a 5.4% decrease in average freight container rates. In addition, product costs increased by $18.1 million due to higher sales volume and better product mix, partially offset by more favorable vendor pricing.
Gross profit
38

Gross profit was $172.1 million for the year ended December 31, 2025 compared to $164.3 million for the year ended December 31, 2024, representing an increase of $7.8 million, or 4.8%. Gross profit for the year ended December 31, 2024 was understated by $0.3 million related to products shipped and recognized as revenue and cost of goods sold in 2023 but not delivered until 2024, as discussed above. Gross margin was 36.8% for the year ended December 31, 2025 compared to 38.9% for the year ended December 31, 2024, a decrease of 210 basis points. Gross margin was negatively impacted by rising freight and duty costs, as discussed above, which as a percentage of net sales increased to 11.8% during the year ended December 31, 2025 from 8.2% during the year ended December 31, 2024. This erosion in margin was partially offset by a decrease in product costs as a percentage of net sales from 49.9% during the year ended December 31, 2024 to 48.9% during the year ended December 31, 2025, as a result of more favorable vendor pricing and increased imports as a percentage of total product mix, as discussed above. Depreciation expense on production equipment as a percentage of net sales also decreased to 1.3% during the year ended December 31, 2025 from 1.5% during the year ended December 31, 2024.
Operating expenses
Operating expenses were $130.7 million for the year ended December 31, 2025 compared to $126.6 million for the year ended December 31, 2024, representing an increase of $4.2 million, or 3.3%. Shipping and transportation costs increased $7.0 million during the year ended December 31, 2025 primarily due to increases in both offline sales shipping volume and shipping rates. Rent expense increased $3.3 million primarily due to a higher rate on our Chino, California facility lease extension plus the opening of a new Chino distribution center in 2025. Salaries and benefits also increased $1.4 million during the year ended December 31, 2025. These increases were partially offset by a decrease in online platform fees of $3.8 million due to a shift away from third-party order fulfillments of online orders and a decrease in marketing expense of $1.1 million. In addition, 2025 included total gain, net, on disposal of machinery of $0.5 million. In comparison, 2024 included impairment expense and loss, net, on disposal of machinery of $2.8 million made up of a $0.8 million loss, net, on disposal of machinery and a $2.0 million non-cash ROU asset impairment charge resulting from the sublease of our City of Industry warehouse in California, as we optimized our distribution footprint in the southwest region with the opening of a new warehouse in Mesa, Arizona.
Operating income
Operating income was $41.4 million for the year ended December 31, 2025 compared to $37.8 million for the year ended December 31, 2024, representing an increase of $3.7 million, or 9.7%. The increase was primarily due to an increase in gross profit of $7.8 million, as discussed above, partially offset by an increase in operating expenses of $4.2 million.
Other income, net
Other income, net was $1.6 million for the year ended December 31, 2025 compared to $2.9 million for the year ended December 31, 2024, representing a decrease of $1.3 million, or 45.2%. The decrease was primarily driven from a loss on foreign currency transactions of $1.5 million, due to the weakening of the U.S. Dollar against the New Taiwan Dollar during the year ended December 31, 2025, compared to a gain on foreign currency transactions of $0.5 million during the year ended December 31, 2024. This negative impact was partially offset by an increase of $0.8 million in rental income as we sublet our City of Industry warehouse in California in 2024.
Provision for income taxes
Provision for income taxes was $10.4 million for the year ended December 31, 2025 compared to $9.9 million for the year ended December 31, 2024, representing an increase of $0.5 million, or 4.9%. The Company’s effective tax rate was 24.1% for the year ended December 31, 2025 compared to 24.3% for the year ended December 31, 2024. The year-over-year decrease in effective tax rate was primarily due to the deferred taxes true-up.
Net income
Net income was $32.7 million for the year ended December 31, 2025 compared to $30.8 million for the year ended December 31, 2024, representing an increase of $1.8 million, or 6.0%. The increase was primarily driven by an increase in operating income of $3.7 million, partially offset by a decrease in other income, net of $1.3 million, as discussed above.
Non-GAAP Financial Measures
39

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, (v) stock-based compensation expense, (vi) impairment of operating right-of-use asset, and (vii) secondary offering transaction costs by certain executive officers and stockholders of the Company. 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.

| Year Ended December 31,
Reconciliation of Adjusted EBITDA (unaudited): | 2025 |  | 2024
| (in thousands, except percentages)
| Amount |  | % of Net Sales |  | Amount |  | % of Net Sales
Net income | $ | 32,664 |  |  | 7.0 | % |  | $ | 30,824 |  |  | 7.3 | %
Add (deduct): |  |  |  |  |  |  |
Interest income | (2,210) |  |  | (0.5) |  |  | (2,299) |  |  | (0.5) |
Interest expense | 2,055 |  |  | 0.4 |  |  | 2,123 |  |  | 0.5 |
Provision for income taxes | 10,358 |  |  | 2.3 |  |  | 9,871 |  |  | 2.3 |
Depreciation and amortization | 10,891 |  |  | 2.3 |  |  | 10,675 |  |  | 2.5 |
Stock-based compensation expense | 1,182 |  |  | 0.3 |  |  | 2,065 |  |  | 0.5 |
Secondary offering transaction costs (1) | 214 |  |  | — |  |  | — |  |  | — |
Impairment of operating right-of-use asset | — |  |  | — |  |  | 1,993 |  |  | 0.5 |
Adjusted EBITDA | $ | 55,154 |  |  | 11.8 | % |  | $ | 55,252 |  |  | 13.1 | %

(1) Secondary offering transaction costs represent legal and professional fees incurred in connection with the completion of the secondary offering by certain executive officers and stockholders of the Company, which were directly related to the offering and were incremental to our normal operating expenses.
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.
40

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:

| Year Ended December 31,
Reconciliation of Free Cash Flow (unaudited): | 2025 |  | 2024
| (in thousands)
Net cash provided by operating activities | $ | 33,815 |  |  | $ | 47,982 |
Add (deduct): |  |  |
Purchases of property and equipment | (756) |  |  | (934) |
Deposits paid for property and equipment | (3,749) |  |  | (3,134) |
Free Cash Flow | $ | 29,310 |  |  | $ | 43,914 |

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 challenging macro environment at times.
As described in Note 7 — Line of Credit in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, the Line of Credit is available for working capital and general corporate purposes, and is secured by our assets. It consists of a $20.0 million revolving loan facility and a standby letter of credit sublimit. 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, the Company 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 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 $5.0 million to $7.5 million, from $7.5 million to $10.0 million, and from $10.0 million to $15.0 million. As of December 31, 2025, 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 9 — Long-Term Debt in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, 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 for additional advances up to a maximum of $8.0 million through June 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 December 31, 2025, 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 for additional advances
41

up to a maximum of $6.9 million through September 2022, which we exercised in February 2022. Interest accrues at a fixed rate of 3.50% 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. The entire remaining balance of $12.3 million under the 2026 Term Loan is reported in long-term debt, current portion on the consolidated balance sheet as of December 31, 2025. We intend to repay the 2026 Term Loan at maturity using available liquidity, which includes $37.9 million in cash and cash equivalents as of December 31, 2025.
As of December 31, 2025, 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 December 31, 2025, we had no borrowing on the Line of Credit, $23.6 million in outstanding balance under the 2027 Term Loan, and $12.3 million in outstanding balance under the 2026 Term Loan.
Additionally, as discussed in Note 17 — Commitments and Contingencies in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, 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 initiated an appeal process by submitting a request for an administrative review of the initial determination issued by CBP. On June 11, 2024, CBP completed the administrative review and upheld its initial conclusion. 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 made total payments of $1.9 million related to certain shipments under the investigation. We are also evaluating other appeal options. Payments on bills received will be due upon the resolution of the protests, currently expected to occur within the next 12 months. Although we have an import duty liability reserve of $1.7 million as of December 31, 2025, the amount of the final payments could vary significantly from the estimated liability reserve.
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 platform, talent, and technology capabilities. In addition, we may consider making strategic acquisitions and investments which could require significant liquidity. The rapidly changing macroeconomic and geopolitical dynamics have created significant uncertainty in the global economy and capital markets, which could have long-lasting adverse effects.
In addition, we pay a regular quarterly dividend to our stockholders, subject to approval each quarter by our Board of Directors. During the year ended December 31, 2025 and 2024, we paid out regular quarterly cash dividend totaling $36.1 million and $31.0 million, respectively. Additionally, as described in Note 20 — Subsequent Events in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, on February 5, 2026, our Board of Directors declared another regular quarterly cash dividend of $0.45 per share on our common stock, which was paid on or about February 27, 2026 to the stockholders of record at the close of business on February 20, 2026. Continuation of the regular quarterly dividend is at the discretion of the Board of Directors and depends upon our financial condition, results of operations, capital requirements, general business condition, and other factors deemed relevant by our Board of Directors.
As described in Note 10 — Stockholder's Equity in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, in November 2025, our Board of Directors approved a share repurchase program (the “Share Repurchase Program”) of up to $15.0 million, under which we are authorized to repurchase shares of our outstanding common stock from time to time through open market purchases. The timing and amount of stock repurchases will depend on a variety of factors, including the market conditions as well as corporate and regulatory considerations. The Share Repurchase Program has no set expiration date, and may be suspended, modified or discontinued at any time, and we have no obligation to repurchase any amount of our common stock under the program of our common stock. During the year ended December 31, 2025, we repurchased approximately $3.0 million shares of our common stock at an average per share cost of $21.74. As of December 31, 2025, we had approximately $12.0 million of remaining authorization for purchases under the Share Repurchase Program.
42

Additionally, we have certain contractual obligations, such as operating lease obligations and purchase obligations that require us to make periodic payments. At December 31, 2025, we had operating leases, primarily for manufacturing and distribution facilities, expiring at various dates through 2031. As described further in Note 13 — Leases in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, we had a total of $44.1 million of operating lease liabilities as of December 31, 2025 with minimum lease payments ranging from approximately $0.7 million to $14.6 million on an annual basis over the next five years. Other than these contractual obligations, our off-balance sheet arrangements primarily consists of letters of credits issued under our Line of Credit. As of December 31, 2025, we had $12.3 million of letters of credits issued and outstanding under our Line of Credits.
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, 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 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, 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, current liabilities, and working capital at December 31, 2025 compared to December 31, 2024:

| December 31, 2025 |  | December 31, 2024 |  | Increase/(Decrease)
| (in thousands)
Current assets | $ | 161,188 |  | $ | 160,997 |  | $ | 191
Current liabilities | 70,220 |  | 46,447 |  | 23,773
Working capital | $ | 90,968 |  | $ | 114,550 |  | $ | (23,582)

As of December 31, 2025, we had working capital of $91.0 million, compared with $114.6 million as of December 31, 2024, representing a decrease of $23.6 million, or 20.6%, driven by an increase of $23.8 million in current liabilities partially offset by an increase of $0.2 million in current assets. The increase in current liabilities was primarily due to an increase in the current portion of long-term debt of $11.8 million as the 2026 Term Loan became mature within twelve months, an increase in accounts payable and related party payables of $10.0 million, and an increase in operating lease liabilities, current portion of $3.0 million primarily due to a higher rate on our Chino, California facility lease extension plus the opening of a new Chino distribution center in 2025, partially offset by a decrease in other current liability of $0.8 million, as the Company paid Global Well's noncontrolling membership interest redemption gain tax withholding. The increase in current assets was primarily driven by an increase in inventories of $11.0 million as inventory cost reflected elevated duty and tariffs, an increase in accounts receivable of $9.7 million as a result of stronger sales in the three months ended December 31, 2025 compared to the three months ended December 31, 2024, and an increase in prepaid expenses and other current assets of $1.6 million partially offset by a decrease in cash and cash equivalents and short-term investments of $22.0 million.
Cash flows
The following table summarizes cash flow for the years ended December 31, 2025 and 2024:
43

| Year Ended December 31,
| 2025 |  | 2024
| (in thousands)
Net cash provided by operating activities | $ | 33,815 |  |  | $ | 47,982 |
Net cash provided by (used in) investing activities | 25,399 |  |  | (5,855) |
Net cash used in financing activities | (52,918) |  |  | (33,619) |
Net change in cash and cash equivalents | $ | 6,296 |  |  | $ | 8,508 |

Cash flows provided by operating activities. Net cash provided by operating activities was $33.8 million for the year ended December 31, 2025, primarily the result of net income of $32.7 million, adjusted for certain non-cash items totaling $25.3 million, consisting mainly of depreciation and amortization of fixed, operating right-of-use assets, and loan fees, stock-based compensation, write-off of inventory, gain, net, on disposal of machinery and equipment, adjustments to the allowance for doubtful accounts and inventory reserve, deferred income taxes, and government grant income. In addition, cash decreased $24.1 million primarily as a result of changes in working capital, which included a decrease of $11.9 million from increased inventory purchases, a decrease of $10.3 million from increased operating lease liabilities, a decrease of $9.8 million from higher accounts receivable balance, and a decrease of $1.3 million from increased prepaid expenses and other current assets, partially offset by an increase of $9.3 million from higher accounts payable and related party payable balance.
Net cash provided by operating activities was $48.0 million for the year ended December 31, 2024, primarily the result of net income of $30.8 million, adjusted for certain non-cash items totaling $21.2 million, consisting mainly of depreciation and amortization of fixed and operating right-of-use assets, stock-based compensation, impairment of operating right-of-use asset, write-off of inventory, loss, net, on disposal of machinery and equipment, adjustments to the allowance for doubtful accounts and inventory reserve, deferred income taxes, and government grant income. In addition, cash decreased $4.1 million primarily as a result of changes in working capital, which included a decrease of $6.7 million from a reduction in operating lease liabilities, a decrease of $2.4 million from a reduction in accounts payable and related party payable, and a decrease of $0.9 million from increased inventory purchases, partially offset by an increase of $2.8 million from a reduction in prepaid expenses and other current assets due to tax prepayments as of December 31, 2023 being applied in 2024, an increase of $3.0 million from increases in accrued expenses, and an increase of $0.6 million from a reduction in accounts receivable.
Cash flows provided by (used in) investing activities. Net cash provided by investing activities was $25.4 million for the year ended December 31, 2025, which primarily included $44.6 million in redemptions of short-term investments and $1.5 million in proceeds from disposal of property and equipment, partially offset by $16.3 million in purchases of short-term investments, $3.7 million in deposits made towards the purchase of property and equipment, and $0.8 million paid to directly acquire property and equipment. Net cash used in investing activities was $5.9 million for the year ended December 31, 2024, which primarily included $50.8 million in purchases of short-term investments, $3.1 million in deposits made towards the purchase of property and equipment, and $0.9 million paid to directly acquire property and equipment, partially offset by $48.9 million in redemptions of short-term investments.
Cash flows used in financing activities. Net cash used in financing activities was $52.9 million for the year ended December 31, 2025, which primarily included $36.1 million of dividend payments to shareholders, $12.7 million of payments towards long-term debt, $4.5 million of repayments on the Line of Credit, $3.0 million of share repurchases, and $0.9 million of payments for Global Wells noncontrolling membership interest redemption gain tax withholdings, partially offset by $4.5 million proceeds from Line of Credit . Net cash used in financing activities was $33.6 million for the year ended December 31, 2024, which primarily included $31.0 million of dividend payments to shareholders, $2.3 million paid for the redemption of a non-controlling member's interest in Global Wells, and $1.1 million of payments towards long-term debt, partially offset by cash proceeds of $0.7 million received from the exercise of stock options
Related Party Transactions
For a description of significant related party transactions, see Note 14 — Related Party Transactions in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Recent Accounting Pronouncements
44

Information regarding recent accounting pronouncements is contained in Note 2 — Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This item is not required for smaller reporting companies.
45

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
KARAT PACKAGING INC.
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

Audited Consolidated Financial Statements |
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 238) | 47
Consolidated Balance Sheets | 48
Consolidated Statements of Income | 50
Consolidated Statement of Stockholders' Equity | 51
Consolidated Statements of Cash Flows | 52
Notes to Consolidated Financial Statements | 54

46

Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Karat Packaging Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Karat Packaging Inc. and its subsidiaries (the "Company") as of December 31, 2025 and 2024, and the related consolidated statements of income, of stockholders’ equity and of cash flows for the years then ended, including the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
March 13, 2026
We have served as the Company’s auditor since 2023.
47

KARAT PACKAGING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

| December 31, 2025 |  | December 31, 2024
Assets |  |  |
Current assets |  |  |
Cash and cash equivalents (including $1,488 and $1,703 associated with variable interest entity at December 31, 2025 and December 31, 2024, respectively) | $ | 37,880 |  |  | $ | 31,584 |
Short-term investments (including $0 and $11,128 associated with variable interest entity at December 31, 2025 and December 31, 2024, respectively) | — |  |  | 28,343 |
Accounts receivable, net of allowance for bad debt of $581 and $758 at December 31, 2025 and December 31, 2024, respectively (including $4 and $0 associated with variable interest entity at December 31, 2025 and December 31, 2024, respectively) | 36,402 |  |  | 26,736 |
Inventories | 81,682 |  |  | 70,722 |
Prepaid expenses and other current assets (including $314 and $27 associated with variable interest entity at December 31, 2025 and December 31, 2024, respectively) | 5,224 |  |  | 3,612 |
Total current assets | 161,188 |  |  | 160,997 |
Property and equipment, net (including $41,758 and $42,972 associated with variable interest entity at December 31, 2025 and December 31, 2024, respectively) | 81,159 |  |  | 87,982 |
Deposits | — |  |  | 36 |
Goodwill | 3,510 |  |  | 3,510 |
Intangible assets, net | 273 |  |  | 300 |
Operating right-of-use assets | 40,299 |  |  | 40,628 |
Deferred tax assets | 255 |  |  | — |
Other non-current assets (including $68 and $34 associated with variable interest entity at December 31, 2025 and December 31, 2024, respectively) | 1,002 |  |  | 1,069 |
Total assets | $ | 287,686 |  |  | $ | 294,522 |
Liabilities and Stockholders’ Equity |  |  |
Current liabilities |  |  |
Accounts payable (including $97 and $16 associated with variable interest entity at December 31, 2025 and December 31, 2024, respectively) | $ | 26,323 |  |  | $ | 17,831 |
Accrued expenses (including $535 and $489 associated with variable interest entity at December 31, 2025 and December 31, 2024, respectively) | 13,460 |  |  | 13,555 |
Related party payable | 4,672 |  |  | 3,130 |
Income taxes payable (including $0 and $3 associated with variable interest entity at December 31, 2025 and December 31, 2024, respectively) | — |  |  | 65 |
Deferred revenue | 713 |  |  | 742 |
Long-term debt, current portion (including $12,941 and $1,179 associated with variable interest entity at December 31, 2025 and December 31, 2024, respectively) | 12,941 |  |  | 1,179 |
Operating lease liabilities, current portion | 11,982 |  |  | 8,977 |
Other current liabilities (including $49 and $916 associated with variable interest entity at December 31, 2025 and December 31, 2024, respectively) | 129 |  |  | 968 |
Total current liabilities | 70,220 |  |  | 46,447 |

48

| December 31, 2025 |  | December 31, 2024
Deferred tax liability | 2,936 |  |  | 426 |
Long-term debt, net of current portion and debt discount of $78 and $141 at December 31, 2025 and December 31, 2024, respectively (including $22,862 and $47,279 associated with variable interest entity at December 31, 2025 and December 31, 2024, respectively, and debt discount of $78 and $141 associated with variable interest entity at December 31, 2025 and December 31, 2024, respectively) | 22,862 |  |  | 47,279 |
Operating lease liabilities, net of current portion | 32,074 |  |  | 35,435 |
Other non-current liabilities (including $1,224 and $1,198 associated with variable interest entity at December 31, 2025 and December 31, 2024, respectively) | 2,724 |  |  | 2,736 |
Total liabilities | 130,816 |  |  | 132,323 |
Commitments and Contingencies (Note 17) |  |  |
Karat Packaging Inc. stockholders’ equity |  |  |
Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares issued and outstanding, as of both December 31, 2025 and December 31, 2024 | — |  |  | — |
Common stock, $0.001 par value, 100,000,000 shares authorized, 20,122,505 and 19,962,131 shares issued and outstanding, respectively, as of December 31, 2025, and 20,059,505 and 20,036,505 shares issued and outstanding, respectively, as of December 31, 2024 | 20 |  |  | 20 |
Additional paid in capital | 90,939 |  |  | 89,457 |
Treasury stock, 0.001 par value, 160,374 and 23,000 shares as of December 31, 2025 and December 31, 2024 respectively | (3,246) |  |  | (248) |
Retained earnings | 61,704 |  |  | 66,340 |
Total Karat Packaging Inc. stockholders’ equity | 149,417 |  |  | 155,569 |
Noncontrolling interest | 7,453 |  |  | 6,630 |
Total stockholders’ equity | 156,870 |  |  | 162,199 |
Total liabilities and stockholders’ equity | $ | 287,686 |  |  | $ | 294,522 |

The accompanying notes to the consolidated financial statements are an integral part of these statements.
49

KARAT PACKAGING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share data)

| Year Ended December 31,
| 2025 |  | 2024
Net sales | $ | 467,743 |  |  | $ | 422,633 |
Cost of goods sold | 295,607 |  |  | 258,304 |
Gross profit | 172,136 |  |  | 164,329 |
Operating expenses |  |  |
Selling expenses | 53,844 |  |  | 52,286 |
General and administrative expenses (including $2,855 and $2,358 associated with variable interest entity for the year ended December 31, 2025 and 2024, respectively) | 77,371 |  |  | 71,530 |
(Gain) loss, net, on disposal of machinery and impairment expense | (493) |  |  | 2,752 |
Total operating expenses | 130,722 |  |  | 126,568 |
Operating income | 41,414 |  |  | 37,761 |
Other income (expenses) |  |  |
Rental income (including $1,516 and $1,038 associated with variable interest entity for the year ended December 31, 2025 and 2024, respectively) | 2,923 |  |  | 2,076 |
Other income, net | 73 |  |  | 162 |
(Loss) gain on foreign currency transactions | (1,543) |  |  | 520 |
Interest income (including $586 and $470 associated with variable interest entity for the year ended December 31, 2025 and 2024, respectively) | 2,210 |  |  | 2,299 |
Interest expense (including $1,966 and $2,062 associated with variable interest entity for the year ended December 31, 2025 and 2024, respectively) | (2,055) |  |  | (2,123) |
Total other income, net | 1,608 |  |  | 2,934 |
Income before provision for income taxes | 43,022 |  |  | 40,695 |
Provision for income taxes | 10,358 |  |  | 9,871 |
Net income | 32,664 |  |  | 30,824 |
Net income attributable to noncontrolling interest | 1,186 |  |  | 849 |
Net income attributable to Karat Packaging Inc. | $ | 31,478 |  |  | $ | 29,975 |
Basic and diluted earnings per share: |  |  |
Basic | $ | 1.57 |  |  | $ | 1.50 |
Diluted | $ | 1.56 |  |  | $ | 1.49 |
Weighted average common shares outstanding, basic | 20,057,549 |  |  | 20,002,211 |
Weighted average common shares outstanding, diluted | 20,180,070 |  |  | 20,124,284 |

The accompanying notes to the consolidated financial statements are an integral part of these statements.
50

KARAT PACKAGING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(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, 2024 | 19,988,482 |  |  | $ | 20 |  |  | (23,000) |  |  | $ | (248) |  |  | $ | 86,667 |  |  | $ | 67,679 |  |  | $ | 154,118 |  |  | $ | 8,572 |  |  | $ | 162,690 |
Cash dividends declared ($1.55 per share) | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (31,016) |  |  | (31,016) |  |  | — |  |  | (31,016) |
Issuance of common stock upon vesting of restricted stock units | 31,550 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Stock-based compensation | — |  |  | — |  |  | — |  |  | — |  |  | 2,065 |  |  | — |  |  | 2,065 |  |  | — |  |  | 2,065 |
Exercise of stock options | 39,473 |  |  | — |  |  | — |  |  | — |  |  | 725 |  |  | — |  |  | 725 |  |  | — |  |  | 725 |
Global Wells noncontrolling membership interest redemption | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (316) |  |  | (316) |  |  | (2,893) |  |  | (3,209) |
Refund of Global Wells members' tax withholding payments | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 18 |  |  | 18 |  |  | 102 |  |  | 120 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 29,975 |  |  | 29,975 |  |  | 849 |  |  | 30,824 |
Balance, December 31, 2024 | 20,059,505 |  |  | $ | 20 |  |  | (23,000) |  |  | $ | (248) |  |  | $ | 89,457 |  |  | $ | 66,340 |  |  | $ | 155,569 |  |  | $ | 6,630 |  |  | $ | 162,199 |
Cash dividends declared ($1.80 per share) | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (36,100) |  |  | (36,100) |  |  | — |  |  | (36,100) |
Issuance of common stock upon vesting of restricted stock units | 46,800 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Repurchases of common stock, including excise tax | — |  |  | — |  |  | (137,374) |  |  | (2,998) |  |  | — |  |  | — |  |  | (2,998) |  |  | — |  |  | (2,998) |
Stock-based compensation | — |  |  | — |  |  | — |  |  | — |  |  | 1,182 |  |  | — |  |  | 1,182 |  |  | — |  |  | 1,182 |
Exercise of stock options | 16,200 |  |  | — |  |  | — |  |  | — |  |  | 300 |  |  | — |  |  | 300 |  |  | — |  |  | 300 |
Global Wells membership interest tax withholding | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (14) |  |  | (14) |  |  | (363) |  |  | (377) |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 31,478 |  |  | 31,478 |  |  | 1,186 |  |  | 32,664 |
Balance, December 31, 2025 | 20,122,505 |  |  | $ | 20 |  |  | (160,374) |  |  | $ | (3,246) |  |  | $ | 90,939 |  |  | $ | 61,704 |  |  | $ | 149,417 |  |  | $ | 7,453 |  |  | $ | 156,870 |

The accompanying notes to the consolidated financial statements are an integral part of these statements.
51

KARAT PACKAGING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

| Year Ended December 31,
| 2025 |  | 2024
Cash flows from operating activities |  |  |
Net income | $ | 32,664 |  |  | $ | 30,824 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |
Depreciation and amortization (including $1,214 and $1,213 associated with variable interest entity for the year ended December 31, 2025 and 2024, respectively) | 10,891 |  |  | 10,675 |
Adjustments to allowance for bad debt | 168 |  |  | 468 |
Adjustments to inventory reserve | 70 |  |  | 290 |
Write-off of inventories | 917 |  |  | 1,458 |
Impairment of operating right-of-use asset | — |  |  | 1,993 |
(Gain) loss, net, on disposal of property and equipment | (493) |  |  | 759 |
Amortization of loan fees (including $62 associated with variable interest entity for both the year ended December 31, 2025 and 2024) | 125 |  |  | 92 |
Accrued interest on certificates of deposit (including $0 and $50 associated with variable interest entity for the year ended December 31, 2025 and 2024, respectively) | — |  |  | (50) |
Stock-based compensation | 1,182 |  |  | 2,065 |
Amortization of operating right-of-use assets | 10,227 |  |  | 7,622 |
Deferred income taxes | 2,255 |  |  | (3,771) |
Government grant income (including $33 and $187 associated with variable interest entity for the year ended December 31, 2025 and 2024, respectively) | (70) |  |  | (360) |
(Increase) decrease in operating assets |  |  |
Accounts receivable (including $4 and $32 associated with variable interest entity for the year ended December 31, 2025 and 2024, respectively) | (9,834) |  |  | 559 |
Inventories | (11,947) |  |  | (942) |
Prepaid expenses and other current assets (including $255 and $23 associated with variable interest entity for the year ended December 31, 2025 and 2024, respectively) | (1,343) |  |  | 2,776 |
Other non-current assets (including $35 and $20 associated with variable interest entity for the year ended December 31, 2025 and 2024, respectively) | 15 |  |  | (79) |
Increase (decrease) in operating liabilities |  |  |
Accounts payable (including $53 and $47 associated with variable interest entity for the year ended December 31, 2025 and 2024, respectively) | 7,791 |  |  | (260) |
Accrued expenses (including $46 and $102 associated with variable interest entity for the year ended December 31, 2025 and 2024, respectively) | (95) |  |  | 2,979 |
Related party payable | 1,542 |  |  | (2,176) |
Income taxes payable (including $0 and 3 associated with variable interest entity for the year ended December 31, 2025 and 2024, respectively) | (65) |  |  | 65 |
Deferred revenue | (29) |  |  | (281) |
Operating lease liabilities | (10,254) |  |  | (6,679) |
Other liabilities (including $66 and $0 associated with variable interest entity for the year ended December 31, 2025 and 2024, respectively) | 98 |  |  | (45) |
Net cash provided by operating activities | $ | 33,815 |  |  | $ | 47,982 |

52

| Year Ended December 31,
| 2025 |  | 2024
Cash flows from investing activities |  |  |
Purchases of property and equipment | (756) |  |  | (934) |
Proceeds from disposal of property and equipment | 1,509 |  |  | 134 |
Deposits paid for property and equipment | (3,749) |  |  | (3,134) |
Purchases of publicly-traded equity securities | (451) |  |  | 29 |
Proceeds from disposal of publicly-traded equity securities | 503 |  |  | — |
Purchases of short-term investments (including $7,982 and $18,078 associated with variable interest entity for the year ended December 31, 2025 and 2024, respectively) | (16,300) |  |  | (50,806) |
Redemption of short-term investments (including $19,110 and $7,000 associated with variable interest entity for the year ended December 31, 2025 and 2024, respectively) | 44,643 |  |  | 48,856 |
Net cash provided by (used in) investing activities | $ | 25,399 |  |  | $ | (5,855) |
Cash flows from financing activities |  |  |
Payments on long-term debt (including $12,717 and $1,122 associated with variable interest entity for the year ended December 31, 2025 and 2024, respectively) | (12,717) |  |  | (1,122) |
Payments for lender fees | (147) |  |  | — |
Proceeds from line of credit | 4,500 |  |  | — |
Repayments on line of credit | (4,500) |  |  | — |
Proceeds from exercise of common stock options | 300 |  |  | 725 |
Repurchases of common stock | (2,998) |  |  | — |
Dividends paid to shareholders | (36,100) |  |  | (31,016) |
Payment of Global Wells membership interest tax withholding (including $362 and $0 associated with variable interest entity for the year ended December 31, 2025 and 2024, respectively) | (377) |  |  | — |
Payment of Global Wells noncontrolling membership interest redemption (including $0 and $2,010 associated with variable interest entity for the year ended December 31, 2025 and 2024, respectively) | — |  |  | (2,326) |
Refund of Global Wells members' tax withholding payments (including $0 and $120 associated with variable interest entity for the year ended December 31, 2025 and 2024, respectively) | — |  |  | 120 |
Payment of Global Wells noncontrolling membership interest redemption gain tax withholding (including $879 and $0 associated with variable interest entity for the year ended December 31, 2025 and 2024, respectively) | (879) |  |  | — |
Net cash used in financing activities | $ | (52,918) |  |  | $ | (33,619) |
Net increase in cash and cash equivalents | $ | 6,296 |  |  | $ | 8,508 |
Cash and cash equivalents |  |  |
Beginning of period | $ | 31,584 |  |  | $ | 23,076 |
End of period | $ | 37,880 |  |  | $ | 31,584 |
Supplemental disclosures of non-cash investing and financing activities: |  |  |
Transfers from deposits to property and equipment | $ | 3,785 |  |  | $ | 3,708 |
Non-cash purchases of property and equipment | $ | 962 |  |  | $ | 122 |
Non-cash disposal of property and equipment | $ | 480 |  |  | $ | — |
Non-cash excise tax on share repurchases | $ | 12 |  |  | $ | — |
Supplemental disclosures of cash flow information: |  |  |
Cash paid for income taxes | $ | 9,136 |  |  | $ | 10,969 |
Cash paid for interest | $ | 1,910 |  |  | $ | 2,031 |

The accompanying notes to the consolidated financial statements are an integral part of these statements.
53

KARAT PACKAGING INC.
NOTES TO 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 parent company for Lollicup (collectively, the “Company”) through a share exchange with the shareholders of Lollicup. The Company's common stock is 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 also offers customized solutions to customers, including new product design and development, custom printing, distribution of specialty food and beverage products, such as syrups, boba, and coffee drinks, as well as logistics services.
The Company supplies products to national and regional distributors, restaurant chains, supermarkets, as well as to small businesses including convenience stores, mom-and-pop restaurants, coffee houses, bubble tea cafes, pizza parlors, and frozen yogurt shops.
The Company currently operates manufacturing facilities and distribution centers in Chino, California; Rockwall, Texas; and Kapolei, Hawaii. In addition, the Company operates seven other distribution centers located in Puyallup, Washington; Branchburg, New Jersey; Kapolei, Hawaii; Aurora, Illinois; Mesa, Arizona; Sugar Land, Texas, and Chino, California.
2. Summary of Significant Accounting Policies
Basis of Presentation: The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”).
Principles of Consolidation: The 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.
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 consolidated financial statements separate from the Company’s stockholders’ equity. The amount of net income attributable to noncontrolling interests is disclosed in the 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 consolidated statements of stockholders’ equity.
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 consolidated financial statements. Estimates that are significant to the consolidated financial statements include allowance for doubtful accounts and reserve for excess and obsolete inventory.
Reporting Segments: The Company manages and evaluates its operations in one reportable segment. This segment consists of manufacturing and distribution of a broad portfolio of single-use products that are used to serve food and beverages and are available in plastic, paper, 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. The Company’s long-lived assets are almost all located in the United States, and its revenues are almost entirely generated in the United States.
54

Earnings per Share: Basic earnings per common share is calculated by dividing net income attributable to Karat Packaging, Inc. by the weighted average number of common shares outstanding during the related period. Diluted earnings per common share is calculated by adjusting weighted average outstanding shares, assuming conversion of all potentially dilutive shares.
Cash and Cash Equivalents: The Company generally considers all highly liquid investments purchased with an original maturity at the date of purchase of three months or less to be cash equivalents. At December 31, 2025 and 2024, cash and cash equivalents were comprised of cash on hand, cash deposited with banks, certificates of deposit, and cash held in a certain money market fund.
Accounts Receivable and Allowances: Accounts receivable consists primarily of amounts due from customers. Accounts receivable are carried at their estimated collectible amounts and are periodically evaluated for collectability based on past credit history. The Company recognizes an allowance for doubtful accounts on accounts receivable in an amount equal to the estimated expected losses net of recoveries. The allowance is based on an analysis of historical bad debt write-offs, current past due customers in the aging, risk profiles associated with different customer types, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. The Company also maintains a sales allowance primarily related to potential billing adjustments due to situations such as product returns and damages. The amount of the sales allowance is determined based on a historical transaction analysis. Any additions to the sales allowance are recorded as a reduction to net revenue.
Inventories: Inventories consist of raw materials, semi-finished goods, and finished goods. Inventory cost is determined using the weighted-average method and valued at lower of cost or net realizable value. The Company maintains a reserve for excess and obsolete inventory, taking into account various factors including historic usage, expected demand, anticipated sales price, and product expiration and obsolescence.
Property and Equipment: Property and equipment are carried at cost, net of accumulated depreciation and amortization, and net of impairment losses, if any. Depreciation of property and equipment are computed by straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized using the straight-line method over the term of the lease, or the estimated life of the improvement, whichever is less.
The estimated useful life of property and equipment are as follows:

Machinery and equipment |  | 3 years to 15 years
Leasehold improvements |  | Lesser of useful life or lease term
Vehicles |  | 3 years to 5 years
Furniture and fixtures |  | 3 years to 7 years
Building and building improvements |  | 10 years to 40 years
Computer hardware and software |  | 1 year to 3 years

Direct costs of constructing or acquiring property and equipment are capitalized as construction in progress. Depreciation would start when construction or acquisition is completed and the asset is ready for its intended use, at which point the construction in progress is transferred to property and equipment. Normal repairs and maintenance are expensed as incurred, whereas significant changes that materially increase values or extend useful lives are capitalized and depreciated over the estimated useful lives of the related assets.
Deposits: Deposits are payments made for machinery and equipment as well as construction and improvement for the Company’s facilities. There were no deposit impairment charges recorded for the year ended December 31, 2025 and 2024.
Impairment of Long-lived Assets: The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. If such events or circumstances exist, an impairment test is performed which comprises of two steps. The first step compares the carrying amount of the asset to the sum of expected undiscounted future cash flows. If the sum of expected undiscounted future cash flows exceeds the carrying amount of the asset, no impairment is taken. If the sum of expected undiscounted future cash flows is less than the carrying amount of the asset, a second step is warranted and an impairment loss is measured as the amount by which the carrying amount of the asset exceeds its fair value calculated using the present value of estimated net future cash flows. For the year ended December 31, 2025, management concluded that no impairment of long-lived assets
55

was required. During the year ended December 31, 2024, the Company recorded an impairment charge against its operating right-of-use ("ROU") assets of $1,993,000. See Note 13 — Leases for further information about this impairment charge.
Business Combination and Goodwill: The Company applies the acquisition method of accounting for business combinations in accordance with GAAP, which requires the Company to make use of estimates and judgments to allocate the purchase price paid for acquisitions to the fair value of the assets, including identifiable intangible assets, and liabilities acquired. Such estimates may be based on significant unobservable inputs. The Company’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Fair values are subject to refinement for up to one year after the closing date of an acquisition as information relative to closing date fair values becomes available. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
Goodwill is the excess of the acquisition price over the fair value of the tangible and identifiable intangible net assets acquired. The Company performs an impairment test of goodwill annually or whenever events and circumstances indicate that the carrying amount of goodwill may exceed its fair value. The Company operates as a single operating segment with one reporting unit and consequently evaluates goodwill for impairment based on an evaluation of the fair value of the Company as a whole. During the years ended December 31, 2025 and 2024, the Company determined no goodwill impairment has occurred.
Government Grants: Both Lollicup and Global Wells had received certain government grants (the "Grants"), provided to facilitate the Company's acquisition of land in Rockwall, Texas and the subsequent construction and operation of a facility (the “Facility”) in order to promote local business activity. The Grants comprised of $1,800,000 monetary grants and $1,002,000 non-monetary grants in the form of discount on the purchase price of the land acquisition price. As of December 31, 2024, the Company had $70,000 in other current liabilities and $2,372,000 in other non-current liabilities related to the Grants on the consolidated balance sheet. The Grants were subject to specific conditions, including maintaining a minimum tax value for the facility in Rockwall, Texas for five calendar years through 2024 (the “Required Period”), continuing operations at the Facility during the Required Period, employing a minimum number of full-time equivalent employees with a minimum average annual gross wage during the Required Period, and refraining from engaging in a pattern or practice of unlawful employment of aliens during the Required Period. The Company determined the Grants to be grants related to assets, and elected to recognize the grant liability into income over the useful life of the Facility once the Grants had been received and there was reasonable assurance that both entities would comply with all grant conditions through the end of the Required Period. For years ended December 31, 2025 and 2024, the Company recorded $70,000 and $360,000 of grant income, respectively, as an offset to general and administrative expenses in the consolidated statement of income and expects that $70,000 in other current liabilities and $2,302,000 in other non-current liabilities as of December 31, 2025 related to the Grants on the consolidated balance sheet will be similarly amortized over the remaining useful life of the Facility as an offset against general and administrative expenses in the consolidated statement of income.
Variable Interest Entities: The Company has a variable interest in Global Wells located in Rockwall, Texas. In 2017, Lollicup along with three other unrelated parties formed Global Wells, of which Lollicup received a 13.5% ownership interest and a 25% voting interest. On February 29, 2024, Global Wells and one of its members (the "Selling Member") entered into a membership interest redemption agreement, under which the Selling Member sold and Global Wells purchased and redeemed all of the Selling Member's 10.8% ownership interest in Global Wells for a total cash consideration of $3,208,000, subject to tax withholding. Subsequent to the redemption, the ownership interests and voting power of the remaining members of Global Wells were adjusted proportionally, with Lollicup's ownership interest increasing to 15.1% and voting interest increasing to 33.3%. During the year ended December 31, 2024, a total cash payment of $2,325,000, net of tax withholding, was made to the Selling Member in full consideration of the redemption.
The purpose of Global Wells is to own, construct, and manage warehouses and manufacturing facilities. Global Wells’ operating agreement may require its members to make additional contributions upon the unanimous decision of the members or when the cash in Global Wells’ bank account falls below $50,000. In the event that a member is unable to make an additional capital contribution, the other members will be required to make contributions to offset the amount that member cannot contribute, up to $25,000.
Global Wells was determined to be a variable interest entity in accordance with ASC Topic 810, Consolidations, however, at the time the investment was made, it was determined that Lollicup was not the primary beneficiary. In 2018, Lollicup entered into an operating lease with Global Wells (the “Texas Lease”). In 2020, the Company entered into another
56

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 New Jersey Lease are eliminated upon consolidation. See Note 3 — Global Wells for standalone financial information.
Assets recognized as a result of consolidating Global Wells do not represent additional assets that could be used to satisfy claims against the Company’s general assets. 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 9 — Long Term Debt for a description of the two term loans that Global Wells had with financial institutions as of December 31, 2025.
Share Repurchases: 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 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. See Note 10 — Stockholder's Equity for further information about the Share Repurchase Program.
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 year ended December 31, 2025 and 2024, net sales disaggregated by customer type consist of the amounts shown below.

| Year Ended December 31,
| 2025 |  | 2024
| (in thousands)
Chains and distributors * | $ | 370,556 |  |  | $ | 329,448 |
Online | 75,286 |  |  | 70,130 |
Retail * | 21,901 |  |  | 23,055 |
| $ | 467,743 |  |  | $ | 422,633 |

* During the three months ended June 30, 2025, the Company reclassified one customer from the retail to the chains and distributors channel, and reclassified the corresponding net sales amounts of approximately $4,272,000 for the year ended December 31, 2024, to conform to the current period presentation. The reclassification had no effect on previously reported consolidated net sales for the year ended December 31, 2024.
•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 third-party 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
57

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. During the year ended December 31, 2024, the Company's revenue and cost of goods sold were understated by approximately $700,000 and $400,000, respectively, for products that had been shipped and recorded as revenue and costs of goods sold in 2023 but not delivered until 2024.
In 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. Logistics services revenue was $4,661,000 and $5,483,000 for the year ended December 31, 2025, and 2024, respectively, and was classified under retail in net sales disaggregated by customer type table above.
The transaction price is the amount of consideration to which the Company expects to be entitled to in exchange for transferring goods to the customer. The transaction price is allocated to each performance obligation based on the standalone or contractual selling price. Revenue is recorded based on the total estimated transaction price, which includes fixed consideration and estimates of variable consideration. Variable consideration includes estimates of returns, restocking fees, and consideration payable to customers for rebates, sales incentives, and cooperative advertisement. The Company estimates its variable consideration based on contract terms and historical experience of actual results using the expected value method.
The Company’s contract liabilities consist primarily of rebates, sales incentives, cooperative advertising, and deferred revenue. As of December 31, 2025 and 2024, the Company had accrued $1,133,000 and $377,000, respectively, related to rebates, sales incentives, and cooperative advertising, included in accrued expenses in the consolidated balance sheets. Deferred revenue is included in current liabilities in the consolidated balance sheets. During the year ended December 31, 2025 and 2024, the Company recognized into revenue $568,000 and $794,000, respectively, of previously deferred revenue at the beginning of each respective year.
Shipping and handling fees billed to a customer are recorded within net sales, with corresponding shipping and handling costs recorded in selling expense on the accompanying consolidated statements of income. Shipping and handling fees billed to customers are not deemed to be separate performance obligations for product sales. Shipping and handling costs included within selling expenses in the consolidated statements of income for the years ended December 31, 2025 and 2024 were $36,049,000 and $29,432,000, respectively.
Sales taxes collected concurrently with revenue-producing activities and remitted to governmental authorities are excluded from revenue.
Advertising Costs: The Company expenses costs of print production, trade show, online marketing, and other advertisements in the period in which the expenditure is incurred. Advertising costs included within selling expenses in the consolidated statements of income were $5,675,000 and $6,762,000 for the years ended December 31, 2025 and 2024, respectively.
Income Taxes: The Company applies the provision of ASC 740, Income Taxes. Under ASC 740, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
Deferred tax assets are evaluated for recoverability each reporting period by assessing all positive and negative evidence available in order to assess the need for a valuation allowance. A valuation allowance is used to reduce some or all of the deferred tax assets if, based upon the weight of available evidence, it is more likely than not that such deferred tax assets will not be realized.
58

The Company accounts for uncertainties in income tax in accordance with ASC 740-10, Accounting for Uncertainty in Income Taxes. ASC 740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This accounting standard also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes in the accompanying consolidated statement of income. Accrued interest and penalties are included in the income taxes payable in the consolidated balance sheet.
Concentration of Credit Risk: Cash is maintained at financial institutions and, at times, balances exceed federally insured limits. Management believes that the credit risk related to such deposits is minimal.
The Company extends credit based on the valuation of the customers’ financial condition and generally collateral is not required. Management believes the Company is not exposed to any material credit risk on these accounts.
For the years ended December 31, 2025 and 2024, purchases from the following vendor make up greater than 10 percent of total purchases:

| Year Ended December 31,
| 2025 |  | 2024
Wen Ho Industrial Co. | 11 | % |  | *
Keary Global Group, Ltd. (“Keary Global”) and its affiliate, Keary International, Ltd. ("Keary International") – related parties | * |  | 11 | %

* Amounts represented less than 10% of total purchases.
Amounts due to the following vendors at December 31, 2025 and 2024, respectively, that exceed 10 percent of total accounts payable are as follows:

| December 31, 2025 |  | December 31, 2024
Keary Global and its affiliate, Keary International – related parties | 15 | % |  | 15 | %
LK Global International Ltd. | * |  | 13 | %
Fuling Technology Co., Ltd. | * |  | 12 | %

* Amounts payable represented less than 10% of total accounts payable.
No customer accounted for more than 10 percent of sales or accounts receivable for the years ended December 31, 2025 and 2024.
Fair Value Measurements: The Company follows ASC 820, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants.
ASC 820 establishes a hierarchy of valuation inputs based on the extent to which the inputs are observable in the marketplace. Observable inputs reflect market data obtained from sources independent of the reporting entity and unobservable inputs reflect the entity’s own assumptions about how market participants would value an asset or liability based on the best information available.
Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value. The three levels of inputs are as follows:
Level 1 — Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.
59

Level 2 — Inputs that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the same term of the assets or liabilities.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The Company has financial instruments classified within the fair value hierarchy, which consist of the following:
•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.
•At December 31, 2024, the Company had money market accounts and investments in publicly-traded equity securities classified as Level 1 and certificates of deposit classified as Level 2 within the fair value hierarchy.
The short-term investments as of December 31, 2024 comprised of certificates of deposit with an original maturity of longer than 3 months and are reported at their carrying value as current assets on the consolidated balance sheets. As all certificates of deposit will be due within 3 months as of December 31, 2025, these certificates of deposit have been included in cash and cash equivalents line on the consolidated balance sheets. The carrying value of these short-term investments approximate fair value as they were purchased near or on the respective balance sheet dates.
The following table summarizes the Company’s fair value measurements by level at December 31, 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 following table summarizes the Company’s fair value measurements by level at December 31, 2024 for the assets measured at fair value on a recurring basis:

| Level 1 |  | Level 2 |  | Level 3
| (in thousands)
Cash equivalents | $ | 725 |  |  | $ | 22,525 |  |  | $ | — |
Short-term investments | — |  |  | 28,343 |  |  | — |
Publicly-traded equity securities | 31 |  |  | — |  |  | — |
Fair value, December 31, 2024 | $ | 756 |  |  | $ | 50,868 |  |  | $ | — |

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 December 31, 2025 and 2024 approximated fair value because of the short
60

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 "2027 Term Loan," respectively):

| 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 |

| December 31, 2024
| Carrying Amount |  | Estimated Fair Value
| (in thousands)
2026 Term Loan | $ | 20,881 |  |  | $ | 19,846 |
2027 Term Loan | 27,577 |  |  | 27,174 |
| $ | 48,458 |  |  | $ | 47,020 |

The fair value of these financial instruments was determined using Level 2 inputs.
Certain long-lived non-financial assets and liabilities may be required to be measured at fair value on a nonrecurring basis in certain circumstances, including when there is evidence of impairment. These non-financial assets and liabilities may include assets acquired in a business combination or long-lived assets that are determined to be impaired. During the year ended December 31, 2024, the Company recorded an impairment against its operating ROU assets of $1,993,000. See Note 13 — Leases for further information about this impairment charge. With the exception of the ROU impairment, the Company did not have any long-lived non-financial assets or liabilities that had been measured at fair value subsequent to initial recognition as of December 31, 2025 or 2024.
Foreign Currency: The Company includes gains or losses from foreign currency transactions, such as those resulting from the settlement of foreign payables, in the consolidated statements of income. The Company recorded a foreign currency loss of $1,543,000 and foreign currency gain of $520,000 for the years ended December 31, 2025 and 2024, respectively.
Stock-Based Compensation: The Company recognizes stock-based compensation expense related to employee stock options and restricted stock units in accordance with ASC 718, Compensation — Stock Compensation. This standard requires the Company to record compensation expense equal to the fair value of awards granted to employees and non-employees. The Company accounts for forfeitures as they occur. There were no stock options granted during both the year ended December 31, 2025 and 2024.
Leases: The Company determines if an arrangement is a lease at inception. Leases are classified as either finance leases or operating leases. The Company has lease agreements for the use of facilities and vehicles, and its lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. Certain lease agreements contain both lease and non-lease components. The Company has elected the practical expedient to not separate lease components from non-lease components and has applied that practical expedient to all material classes of leased assets. Fixed payments for non-lease components are combined with lease payments and accounted for together as a single lease component which increases the amount of the lease assets and liabilities. Certain lease agreements contain variable payments, which are expensed as incurred and not included in the lease assets and liabilities. ROU assets represent the Company's right to use an underlying asset for the lease term, and lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term using a discount rate based on similarly secured borrowings available to the Company. ROU assets include any prepaid lease amounts and excludes lease incentives. ROU assets and corresponding operating leases liabilities are recognized for all leases with an initial term greater than 12 months. ROU assets are subject to the Company's long-lived assets impairment testing, as discussed above.
61

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 annual reporting period beginning after December 15, 2025, and is currently evaluating the impacts of the new guidance on its disclosures within the consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03 Income Statement Expenses (Topic 220): Disaggregation of Income Statement Expenses. The new guidance requires enhanced disclosure of disaggregated information about specific expense categories in the notes to financial statements on an annual and interim basis. The new guidance is effective for all public companies for annual reporting periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company will adopt the new standard in annual reporting period beginning after December 15, 2026. The application of this new guidance is not expected to have a material impact on the Company’s consolidated balance sheets, statements of income or cash flows, as the guidance pertains to disclosures only.
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. Global Wells
The following financial information includes assets and liabilities of Global Wells and are included in the accompanying consolidated balance sheets, except for those that eliminate upon consolidation:
62

| December 31, 2025 |  | December 31, 2024
| (in thousands)
Cash and cash equivalents | $ | 1,488 |  |  | $ | 1,703 |
Short-term investments | — |  |  | 11,128 |
Accounts receivable, net | 30 |  |  | — |
Prepaid expenses and other current assets | 790 |  |  | 535 |
Property and equipment, net | 41,758 |  |  | 42,972 |
Other non-current assets | 2,485 |  |  | 2,608 |
Total assets | $ | 46,551 |  |  | $ | 58,946 |
Accounts payable | $ | 97 |  |  | $ | 16 |
Accrued expenses | 535 |  |  | 489 |
Due to Lollicup USA Inc. | — |  |  | 14 |
Income taxes payable | — |  |  | 3 |
Other current liabilities | 49 |  |  | 916 |
Long-term debt, current portion | 12,941 |  |  | 1,179 |
Long-term debt, net of current portion | 22,862 |  |  | 47,279 |
Other non-current liabilities | 1,223 |  |  | 1,198 |
Total liabilities | $ | 37,707 |  |  | $ | 51,094 |

During the year ended December 31, 2024, Global Wells and one of its members entered into a membership interest redemption agreement. See Note 2 — Summary of Significant Accounting Policies for further discussion on the redemption.
4. Inventories
Inventories consist of the following:

| December 31, 2025 |  | December 31, 2024
| (in thousands)
Raw materials | $ | 4,442 |  |  | $ | 6,640 |
Semi-finished goods | 1,308 |  |  | 1,885 |
Finished goods | 76,642 |  |  | 62,837 |
Subtotal | 82,392 |  |  | 71,362 |
Less: inventory reserve | (710) |  |  | (640) |
Total inventories | $ | 81,682 |  |  | $ | 70,722 |

The Company incurred inventory adjustments and write-offs of $917,000 and $1,458,000 for the year ended December 31, 2025 and 2024, respectively. Inventory adjustments and write-offs are included in cost of goods sold on the accompanying consolidated statements of income.
5. Property and Equipment
63

| December 31, 2025 |  | December 31, 2024
| (in thousands)
Machinery and equipment | $ | 64,138 |  |  | $ | 66,928 |
Leasehold improvements | 19,212 |  |  | 19,193 |
Vehicles | 9,729 |  |  | 8,395 |
Furniture and fixtures | 1,009 |  |  | 1,015 |
Building | 38,572 |  |  | 38,779 |
Land | 11,907 |  |  | 11,907 |
Computer hardware and software | 73 |  |  | 94 |
Construction in progress | — |  |  | 431 |
| 144,640 |  |  | 146,742 |
Less: accumulated depreciation and amortization | (63,481) |  |  | (58,760) |
Total property and equipment, net | $ | 81,159 |  |  | $ | 87,982 |

Depreciation and amortization expense is reported within general and administrative expense except for depreciation and amortization expense related to manufacturing facilities and equipment, which is included in cost of goods sold on the accompanying consolidated statements of income.
For the year ended December 31, 2025 and 2024, depreciation and amortization expense reported within general and administrative expense was $4,591,000 and $4,264,000 respectively, and depreciation and amortization expense reported within cost of goods sold was $6,274,000 and $6,385,000, respectively.
6. Goodwill
The following table summarizes the activity in the Company's goodwill from December 31, 2023 to December 31, 2025:

| (in thousands)
Balance at December 31, 2023 | $ | 3,510 |
Goodwill acquired | —
Balance at December 31, 2024 | $ | 3,510 |
Goodwill acquired | —
Balance at December 31, 2025 | $ | 3,510 |

7. 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 December 31, 2025 and 2024, 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.
64

The Company had no borrowings outstanding under the Line of Credit as of both December 31, 2025 and 2024. The amount issued under the standby letter of credit was $12,313,000 and $3,813,000 as of December 31, 2025 and 2024, respectively. As of December 31, 2025, and 2024, the maximum remaining amount that could be borrowed under the Line of Credit was $7,687,000 and $36,187,000, respectively.
8. Accrued Expenses
Accrued expenses consist of the following:

| December 31, 2025 |  | December 31, 2024
| (in thousands)
Accrued miscellaneous expenses | $ | 1,870 |  |  | $ | 1,796 |
Accrued payroll | 622 |  |  | 1,953 |
Accrued ocean freight and other import costs | 4,011 |  |  | 4,215 |
Accrued sale and use taxes | 1,222 |  |  | 991 |
Accrued professional services fees | 619 |  |  | 967 |
Accrued vacation and sick pay | 855 |  |  | 899 |
Accrued property tax | 1,190 |  |  | 1,150 |
Accrued shipping expense | 1,844 |  |  | 1,137 |
Accrued sales discount expense | 1,133 |  |  | 374 |
Accrued interest expense | 94 |  |  | 73 |
Total accrued expenses | $ | 13,460 |  |  | $ | 13,555 |

65

9. Long-Term Debt
Long-term debt consists of the following:

| December 31, 2025 |  | December 31, 2024
| (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. The loan is collateralized by substantially all of Global Wells’ assets and is guaranteed by Global Wells and one of the Company’s stockholders. In accordance with the loan agreement, Global Wells is required to comply with certain financial covenants, including a minimum debt service coverage ratio. | $ | 12,258 |  |  | $ | 20,923 |
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. The loan is collateralized by substantially all of Global Wells’ assets and is guaranteed by one of the Company’s stockholders. In accordance with the loan agreement, Global Wells is required to comply with certain financial covenants, including a minimum debt coverage ratio. | 23,623 |  |  | 27,676 |
Long-term debt | 35,881 |  |  | 48,599 |
Less: unamortized loan fees | (78) |  |  | (141) |
Less: current portion | (12,941) |  |  | (1,179) |
Long-term debt, net of current portion | $ | 22,862 |  |  | $ | 47,279 |

At December 31, 2025, future maturities are:

| (in thousands)
2026 | $ | 12,959 |
2027 | 22,922 |
| $ | 35,881 |

The Company was in compliance with all of its financial covenants as of both December 31, 2025 and 2024.
The 2026 Term Loan matures on September 30, 2026. As of December 31, 2025, the entire remaining balance of $12,258,000 is included in the long-term debt, current portion on the consolidated balance sheet. The Company intends to repay the 2026 Term Loan at maturity using cash and cash equivalents of $37,880,000 as of December 31, 2025.
10. Stockholder’s Equity
The Company’s Certificate of Incorporation authorizes both common and preferred stock. The total number of shares of all classes of stock authorized for issuance is 110,000,000 shares, par value of $0.001, with 10,000,000 designated as preferred stock and 100,000,000 designated as common stock. Each holder of common stock and preferred stock shall be entitled to one vote per share held.
On November 5, 2025, the Company’s Board of Directors approved 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
66

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 year ended December 31, 2025, the Company repurchased approximately $2,986,000 of its common stock at an average per share cost of $21.74. As of December 31, 2025, the Company had approximately $12,014,000 of remaining authorization for purchases under the Share Repurchase Program.
During the years ended December 31, 2025 and 2024, the Company paid out special and regular quarterly dividend totaling $36,100,000 and $31,016,000, respectively. Additionally, as described in Note 20 — Subsequent Events, on February 5, 2026, the Company's Board of Directors declared a quarterly cash dividend of $0.45 per share on the Company's common stock.
11. Stock-Based Compensation
In January 2019, the Company’s Board of Directors adopted the 2019 Stock Incentive Plan (the “Plan”). A total of 2,000,000 shares of common stock were authorized and reserved for issuance under the Plan in the form of incentive or nonqualified stock options and stock awards. A committee appointed by the Board of Directors of the Company determines the terms and conditions of each grant under the Plan. Employees, directors, and consultants are eligible to receive stock options and stock awards under the Plan. The aggregate number of shares available under the Plan and the number of shares subject to outstanding options may be increased or decreased by the Plan administrator to reflect any changes in the outstanding common stock by reason of any recapitalization, reorganization, reclassification, stock split, reverse split, combination of shares, exchange of shares, stock dividend or other distribution payable in capital stock or similar transaction.
The exercise price of incentive stock options may not be less than the fair market value of the common stock at the date of grant. The exercise price of incentive stock options granted to individuals that own greater than 10% of the voting stock may not be less than 110% of the fair market value of the common stock at the date of grant.
The term of each incentive and nonqualified option is based upon conditions as determined by the option agreement; however, the term can be no more than ten years from the date of the grant. In the case of an incentive stock option granted to an optionee who, at the time the option is granted, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any parent or subsidiary, the term of the option will be a shorter term as provided in the option agreement, but not more than five years from the date of the grant.
As of December 31, 2025, a total of 1,277,517 shares of common stock were available for further award grants under the Plan. For the years ended December 31, 2025 and 2024, the Company recognized a total of $1,182,000 and $2,065,000 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. The Company recognized a net tax liability of $7,000 and $19,000 from compensation expense related to stock options and restricted stock units during the years ended December 31, 2025 and 2024, respectively.
Stock options
A summary of the Company’s stock option activity under the Plan for the years ended December 31, 2025 and 2024 is as follows:
67

| Number of Options |  | Weighted-Average Exercise Price |  | Weighted-Average Remaining Contract Life |  | Aggregate Intrinsic Value
|  |  |  |  | (in years) |  | (in thousands)
Outstanding at December 31, 2023 | 386,473 |  |  | $ | 18.58 |  |  | 7.8 |  | $ | 2,424 |
Exercised | (39,473) |  |  | 18.39 |  |  |  |  |
Forfeited | (33,333) |  |  | 18.86 |  |  |  |  |
Outstanding at December 31, 2024 | 313,667 |  |  | $ | 18.57 |  |  | 6.8 |  | $ | 3,667 |
Exercised | (16,200) |  |  | 18.51 |  |  |  |  |
Forfeited | (10,000) |  |  | 18.86 |  |  |  |  |
Outstanding at December 31, 2025 | 287,467 |  |  | $ | 18.56 |  |  | 5.8 |  | $ | 1,152 |
Vested and expected to vest at December 31, 2025 | 287,467 |  |  | $ | 18.56 |  |  | 5.8 |  | $ | 1,152 |
Exercisable at December 31, 2025 | 287,467 |  |  | $ | 18.56 |  |  | 5.8 |  | $ | 1,152 |

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 December 31, 2025, multiplied by the number of shares per each option.
There were no stock options granted during the years ended December 31, 2025 and 2024. At December 31, 2025, all stock options granted under the Plan were fully vested and exercisable.
Restricted stock units
A summary of the Company’s unvested restricted stock units activity under the Plan for the years ended December 31, 2025 and 2024 is as follows:

| Number of Shares Outstanding |  | Weighted Average Grant Date Fair Value
Unvested at December 31, 2023 | 5,346 |  |  | $ | 16.71 |
Granted | 97,004 |  |  | 29.31 |
Vested | (31,550) |  |  | 27.54 |
Unvested at December 31, 2024 | 70,800 |  |  | $ | 29.14 |
Granted | 22,000 |  |  | 26.34 |
Vested | (46,800) |  |  | 28.38 |
Forfeited | (2,500) |  |  | $ | 29.38 |
Unvested at December 31, 2025 | 43,500 |  |  | $ | 28.53 |

At December 31, 2025, total remaining stock-based compensation cost for unvested restricted stock units under the Plan was approximately $301,127. The cost is expected to be recognized over a weighted-average period of 0.5 years.
12. 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 year by the weighted average number of common shares outstanding during the period.
68

| Year Ended December 31,
| 2025 |  | 2024
| (in thousands, except per share data)
Net income attributable to Karat Packaging Inc. | $ | 31,478 |  |  | $ | 29,975 |
Weighted average shares | 20,058 |  |  | 20,002 |
Basic earnings per share | $ | 1.57 |  |  | $ | 1.50 |

(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:

| Year Ended December 31,
| 2025 |  | 2024
| (in thousands, except per share data)
Net income attributable to Karat Packaging Inc. | $ | 31,478 |  |  | $ | 29,975 |
Weighted average shares | 20,058 |  |  | 20,002 |
Dilutive shares |  |  |
Stock options and restricted stock units | 122 |  |  | 122 |
Total dilutive shares | 20,180 |  |  | 20,124 |
Diluted earnings per share | $ | 1.56 |  |  | $ | 1.49 |

For the years ended December 31, 2025 and 2024 a total o f 161 and 4,803 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.
13. Leases
The Company primarily leases manufacturing facilities, distribution centers, and office spaces with lease terms expiring through 2031. The following table summarizes the Company's lease costs in the accompanying consolidated statement of income:

| Year Ended December 31,
| 2025 |  | 2024
| (in thousands)
Operating lease expense | $ | 13,624 |  |  | $ | 9,708 |
Short-term lease expense | 1,880 |  |  | 1,367 |
Variable lease expense | 1,497 |  |  | 1,520 |
Total lease expense | $ | 17,001 |  |  | $ | 12,595 |

For the year ended December 31, 2025 and 2024, total lease expense included in operating expenses was $14,019,000 and $10,337,000, respectively, and total lease expense included in cost of goods sold was $2,982,000 and $2,258,000, respectively.
The following table presents supplemental information related to operating leases:
69

| December 31, 2025 |  | December 31, 2024
| (in thousands, except lease term and discount rate)
Weighted average remaining lease term | 3.47 years |  | 4.33 years
Weighted average discount rate | 6.9 | % |  | 7.0 | %
Right-of-use assets obtained in exchange for operating lease liabilities | $ | 10,457 |  |  | $ | 29,504 |
Cash paid for amounts included in measurement of lease obligations: |  |  |
Operating cash flows from operating leases | $ | 13,591 |  |  | $ | 8,805 |

As of December 31, 2025, future lease payments under operating lease were as follows:

|  | (in thousands)
2026 |  | $ | 14,594 |
2027 |  | 13,767 |
2028 |  | 12,915 |
2029 |  | 7,567 |
2030 |  | 715 |
Thereafter |  | 53 |
Total future lease payments |  | 49,611 |
Less: imputed interest |  | (5,555) |
Total lease liability balance |  | $ | 44,056 |

During the year ended December 31, 2024, the Company recorded a non-cash impairment of a ROU asset of $1,993,000 resulting from the sublease of its City of Industry warehouse in California.
Sublease income for the year ended December 31, 2025 and 2024 was $1,407,000 and $1,038,000, respectively. Sublease income is included in rental income in the accompanying consolidated statements of income.
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. During the year ended December 31, 2025, and 2024, Global Wells recognized rental income of $1,064,000 and $739,000, respectively, and expected rental income of $1,128,000 per annum over the next five years.
14. Related Party Transactions
Keary Global owns 250,004 shares of the Company's common stock as of December 31, 2025, which Keary Global acquired upon exercise of two convertible notes during the third quarter of 2018. Keary Global and its affiliate, Keary International, are owned by one of the Company’s stockholders’ family member. 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 December 31, 2025 and 2024, the Company has accounts payable due to Keary Global and Keary International of $4,672,000 and $3,130,000, respectively. Purchases for the years ended December 31, 2025 and 2024 from this related party were $33,237,000 and $35,109,000, 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.
70

15. Employee Benefits
The Company maintains a 401(k) plan for employees who meet specific requirements. The Company matches 100% of the employees’ contributions up to 3% of each employee’s salary, 87.5% of the employees’ contributions up to 4% of each employee’s salary, and 80% of the employees’ contributions up to 5% of each employee’s salary. The Company’s portion of the contributions is expensed as incurred with a total expense of $442,000 and $317,000 for the years ended December 31, 2025 and 2024, respectively.
16. Income Taxes
The provision for income taxes for the years ended December 31, 2025 and 2024, respectively, consisted of:

| Year Ended December 31,
| 2025 |  | 2024
| (in thousands)
Current |  |  |
Federal | $ | 6,169 |  |  | $ | 11,594 |
State | 1,934 |  |  | 2,048 |
| 8,103 |  |  | 13,642 |
Deferred |  |  |
Federal | 2,117 |  |  | (3,428) |
State | 138 |  |  | (343) |
| 2,255 |  |  | (3,771) |
Provision for income taxes | $ | 10,358 |  |  | $ | 9,871 |

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for federal and state income tax purposes.
The Company’s deferred tax assets (liabilities), calculated using effective tax rates is as follows:

| December 31, 2025 |  | December 31, 2024
| (in thousands)
Deferred tax assets: |  |  |
State taxes | $ | 386 |  |  | $ | 402 |
Reserves | 782 |  |  | 666 |
Accruals and deferred expenses | 179 |  |  | 1,592 |
Inventory | 1,452 |  |  | 1,137 |
Government grant | 328 |  |  | 328 |
Stock-based compensation | 479 |  | 537
Capitalized research and development costs | 165 |  |  | 1,852 |
Operating lease liabilities | 14,903 |  |  | 14,118 |
Total deferred tax assets | 18,674 |  |  | 20,632 |
Deferred tax liabilities: |  |  |
Fixed assets – depreciation | (8,069) |  |  | (8,504) |
Investment in Global Wells Investment Group | (77) |  |  | (176) |
Operating ROU asset | (13,209) |  |  | (12,378) |
Total deferred tax liabilities | (21,355) |  |  | (21,058) |
Net deferred tax liability | $ | (2,681) |  |  | $ | (426) |

71

Reconciliation of income taxes are as follows from statutory rate of 21% to the effective tax rate for the year ended December 31, 2025 and 2024, respectively:

| December 31, 2025 |  | December 31, 2024
| (in thousands)
Income tax computed at the federal statutory rate | $ | 9,034 |  |  | $ | 8,546 |
State taxes, net of federal tax benefits | 1,552 |  |  | 1,459 |
Noncontrolling interest - Income not subject to tax | (252) |  |  | (241) |
Permanent items | 14 |  |  | 22 |
Excess tax liability (benefit) from stock-based compensation | 7 |  |  | 19 |
Research and development credit | (71) |  |  | (76) |
Others | 74 |  |  | 142 |
Provision for income taxes | $ | 10,358 |  |  | $ | 9,871 |

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 year ended December 31, 2025.
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. As of both December 31, 2025 and 2024, the Company did not have any unrecognized tax benefit.
ASC 740, Income Taxes, provides for the recognition of deferred tax assets if realization of these assets is more-likely-than-not. In evaluating the Company’s ability to recover its deferred tax assets, the Company considers all available positive and negative evidence, including its operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. Based upon the level of historical taxable income, at this time, the Company determined that sufficient positive evidence existed to conclude that it is more likely than not there will be full utilization of the deferred tax assets in each jurisdiction. As such, as of December 31, 2025, and 2024, based on the available evidence, the Company did not record any valuation allowance.
17. 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 initiated an appeal process by submitting a request for an administrative review of the initial determination issued by CBP. On June 11, 2024, CBP completed the administrative review and upheld its initial conclusion. 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 made total payments of $1,909,000 related to certain shipments under the investigation. The Company is also evaluating other appeal options. Payments on bills received will be due upon the resolution of the protests, currently expected to occur within the next 12 months. The Company maintains a liability reserve representing the total estimated probable loss from the investigation plus accrued interest. As of December 31, 2025 and 2024, the Company had a total reserve of $1,720,000 and $3,051,000, respectively, representing bills received from CBP, including protested bills. 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
72

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.
18. Secondary Offering
On June 12, 2025, certain executive officers and stockholders of the Company (the "selling stockholders") completed a secondary public offering of shares of the Company's common stock. The Company did not receive any of the proceeds from the sale of these shares by the selling stockholders. The Company incurred offering transaction costs of $214,000 for the year ended December 31, 2025, which were recognized in general and administrative expense in the consolidated statements of income.
19. Segment Report
The Company operates and evaluates its business as a single reportable segment. This segment encompasses the manufacturing and distribution of a diverse range of single-use food and beverage service products made from materials such as plastic, paper, biopolymer-based, and other compostable forms. It also includes the distribution of specialty food and beverage items, like syrups, boba, and coffee drinks, as well as restaurant and warehouse supplies. This single segment is identified because it engages in business activities in which it generates revenue and expenses, its performance is reviewed by the Company’s chief executive officer who is the chief operating decision maker (“CODM”), and it has distinct financial information available. The CODM assesses performance of the reportable segment and decides how to allocate resources based on consolidated net income, which is also reported on the consolidated statements of income. The CODM uses this information to compare actual results against budgeted expectations in assessing the performance of the segment.
The following is the summary of the financial information for the Company’s reportable segment:
73

| Year Ended December 31,
| 2025 |  | 2024
| (in thousands)
Net sales | $ | 467,743 |  |  | $ | 422,633 |
Less (Add): |  |  |
Cost of goods sold | 295,607 |  |  | 258,304 |
Shipping and transportation | 41,079 |  |  | 34,119 |
Salaries and benefits | 37,684 |  |  | 36,311 |
Professional services | 4,967 |  |  | 5,024 |
Depreciation and amortization | 4,618 |  |  | 4,290 |
Rent expense | 12,702 |  |  | 9,364 |
Marketing expense | 5,675 |  |  | 6,762 |
Online platform fees | 7,254 |  |  | 11,043 |
Warehouse expense | 4,155 |  |  | 3,862 |
Stock-based compensation | 1,182 |  |  | 2,065 |
ROU asset impairment expense | — |  |  | 1,993 |
Secondary offering transaction costs | 214 |  |  | — |
(Gain) loss, net, on disposal of property and equipment | (493) |  |  | 759 |
Interest expense | 2,055 |  |  | 2,123 |
Provision for income taxes | 10,358 |  |  | 9,871 |
Other segment expenses* | 11,685 |  |  | 10,976 |
Interest income | 2,210 |  |  | 2,299 |
Other income, net | 1,453 |  |  | 2,758 |
Segment net income | 32,664 |  |  | 30,824 |
Reconciliation of segment net income to consolidated net income |  |  |
Adjustments and reconciling items | — |  |  | — |
Consolidated net income | 32,664 |  |  | 30,824 |

* 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, 2024. 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 as well. Additionally, the segment assets are the same as the assets reported on the condensed consolidated balance sheets.
20. Subsequent Events
On February 5, 2026, the Company's Board of Directors declared a regular quarterly cash dividend of $0.45 per share on the Company's common stock, which was paid on or about February 27, 2026 to the stockholders of record at the close of business on February 20, 2026.
On February 20, 2026, the United States Supreme Court issued a ruling against certain tariffs previously imposed under the International Emergency Economic Powers Act ("IEEPA"). Following the Supreme Court’s decision, the U.S. presidential administration announced its intention to invoke other laws to collect tariffs and announced new tariffs on imports from all countries, in addition to any existing non-IEEPA tariffs. There remains substantial uncertainty regarding the duration of existing and newly announced tariffs, potential changes or pauses to such tariffs, tariff levels, and the ultimate availability, timing, and amount of any potential refunds of such tariffs. The Company continues to monitor and evaluate these developments and assess their potential impact on its business, financial condition, and results of operations.
74

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
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 the Securities Exchange Act of 1934, as amended (“Exchange Act”) Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that its disclosure controls and procedures were effective as of December 31, 2025.
Management’s Annual Report on Internal Control Over Financial Reporting
The Company's management, under the supervision and with the participation of its Chief Executive Officer and Chief Financial Officer and oversight by its Board of Directors, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13(a)-15(f) and 15(d)-15(f) under the Exchange Act. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of the Company's internal control over financial reporting as of December 31, 2025 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in “Internal Control - Integrated Framework” (2013). Based on this assessment, management concluded that as of December 31, 2025, its internal control over financial reporting was effective.
Remediation of Previously Identified Material Weaknesses
As previously disclosed in Part II, “Item 9A – Controls and Procedures” of our Annual Report on Form 10-K for the year ended December 31, 2024, the Company previously identified and disclosed the following material weaknesses in its internal control over financial reporting as of December 31, 2024:
Management did not design and maintain effective controls to ensure appropriate segregation of duties related to the creation, approval and subsequent modification of journal entries. This deficiency did not result in a material misstatement to the consolidated financial statements, however, it could result in a misstatement of substantially all account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
During the year ended December 31, 2024, management redesigned and enhanced its control over the journal entry creation and approval process, remediated gaps in the design of such internal control and performed operating effectiveness testing. However, as of December 31, 2024, additional time was required to demonstrate the control has operated effectively for a sufficient period of time.
In the three months ended March 31, 2025, management continued to perform enhanced control over the journal entry creation and approval process. Management completed the testing necessary to conclude that the enhanced control was appropriately designed, implemented, and operated effectively for a sufficient period of time as of March 31, 2025, and that the previously-identified material weakness described above has been remediated.
Changes in Internal Control Over Financial Reporting
75

There have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2025 that has materially affected, or is 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.
ITEM 9B. OTHER INFORMATION
Rule 10b5-1 Trading Arrangements
During the fiscal quarter ended December 31, 2025, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” (in each case, as defined in Item 408 of Regulation S-K).
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
76

Part III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item will be contained in our definitive proxy statement, or Proxy Statement, to be filed with the SEC in connection with our 2026 Annual Meeting of Stockholders. Our Proxy Statement for the 2026 Annual Meeting of Stockholders is expected to be filed not later than 120 days after the end of our fiscal year ended December 31, 2025 and is incorporated into this report by this reference.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics that applies to our Chief Executive Officer, Chief Financial Officer, and to all of our other officers, directors, employees and agents. The Code of Business Conduct and Ethics is available on our website at www.karatpackaging.com. We intend to disclose future amendments to, or waivers from, certain provisions of our Code of Business Conduct and Ethics on the above website within five business days following the date of such amendment or waiver.
Policy on Insider Trading
Our Board of Directors has adopted a Policy on Insider Trading, which applies to all of our directors, officers, independent consultants, contractors, and employees. A copy of our Policy on Insider Trading is included as Exhibit 19.1 to this Annual Report on Form 10-K and is also posted in the investor section of our website at www.karatpackaging.com.
ITEM 11. EXECUTIVE AND DIRECTOR COMPENSATION
The information required by this item will be set forth in the Proxy Statement and is incorporated into this report by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item will be set forth in the Proxy Statement and is incorporated into this report by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The information required by this item will be set forth in the Proxy Statement and is incorporated into this report by this reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item will be set forth in the Proxy Statement and is incorporated into this report by this reference.
77

Part IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) We have filed the following documents as part of this Annual Report on Form 10-K:
1.The financial statements listed in the "Index to Financial Statements" on page F-1 are filed as part of this report.
2.Financial statement schedules are omitted because they are not applicable, or the required information is shown in the financial statements or notes thereto.
3.Exhibits included or incorporated herein: See below.

Exhibit No. |  | Description
3.1 |  | Certificate of Incorporation of Karat Packaging Inc. (Incorporated by reference to Exhibit 3.1 from the Registration Statement on Form S-1, filed with the Securities and Exchange Commission on February 18, 2021 and declared effective on April 14, 2021).
3.2 |  | Bylaws of Karat Packaging Inc. (Incorporated by reference to Exhibit 3.2 from the Registration Statement on Form S-1, filed with the Securities and Exchange Commission on February 18, 2021 and declared effective on April 14, 2021).
4.1 |  | Form of Common Stock Certificate (Incorporated by reference to Exhibit 4.1 from the Registration Statement on Form S-1, filed with the Securities and Exchange Commission on February 18, 2021 and declared effective on April 14, 2021).
4.2 |  | Description of Registrant's Securities (Incorporated by reference to Exhibit 4.2 from the Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 15, 2024).
10.1+ |  | Karat Packaging Inc. 2019 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 from the Registration Statement on Form S-1, filed with the Securities and Exchange Commission on February 18, 2021 and declared effective on April 14, 2021).
10.2+ |  | Form of Restricted Stock Unit Award Agreement Pursuant to the Karat Packaging Inc. 2019 Stock Incentive Plan (Incorporated by reference to Exhibit 10.2 from the Registration Statement on Form S-1, filed with the Securities and Exchange Commission on February 18, 2021 and declared effective on April 14, 2021).
10.3+ |  | Form of Karat Packaging Inc. 2019 Stock Incentive Plan Stock Option Agreement (Incorporated by reference to Exhibit 10.3 from the Registration Statement on Form S-1, filed with the Securities and Exchange Commission on February 18, 2021 and declared effective on April 14, 2021).
10.4 |  | Amended and Restated Lease Agreement, by and between the Company and Global Wells Investment Group LLC for the Texas facility (Incorporated by reference to Exhibit 10.4 from the Registration Statement on Form S-1, filed with the Securities and Exchange Commission on February 18, 2021 and declared effective on April 14, 2021).
10.5 |  | Standard Industrial/Commercial Single-Tenant Lease-Gross, dated February 6, 2013, by and between First Industrial, LP, a Delaware limited partnership and Lollicup USA Inc. (Incorporated by reference to Exhibit 10.5 from the Registration Statement on Form S-1, filed with the Securities and Exchange Commission on February 18, 2021 and declared effective on April 14, 2021).
10.6 |  | First Amendment to Standard Industrial/Commercial Single-Tenant Lease-Gross, dated November 14, 2018, by and between First Industrial, LP, a Delaware limited partnership and Lollicup USA Inc. (Incorporated by reference to Exhibit 10.6 from the Registration Statement on Form S-1, filed with the Securities and Exchange Commission on February 18, 2021 and declared effective on April 14, 2021).
10.7 |  | Lease Agreement, by and between the Company and G&O Chino Property, a California general partnership, as amended, for the Chino, California distribution center (Incorporated by reference to Exhibit 10.7 from the Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 14, 2025).
10.8 |  | Lease Agreement dated July 16, 2020, by and between Lollicup USA Inc. and Global Wells Investment Group LLC for the New Jersey facility (Incorporated by reference to Exhibit 10.7 from the Registration Statement on Form S-1, filed with the Securities and Exchange Commission on February 18, 2021 and declared effective on April 14, 2021).

78

10.9 |  | Share Exchange Agreement and Plan of Reorganization, dated as of September 27, 2018, entered into by the Company, Lollicup USA Inc., and each of Alan Yu, Marvin Cheng, Karat Global Group, LTD. (now known as Keary Global Group, LTD.) and Plutus Investment Holding Company (Incorporated by reference to Exhibit 10.8 from the Registration Statement on Form S-1, filed with the Securities and Exchange Commission on February 18, 2021 and declared effective on April 14, 2021).
10.10 |  | Assignment and Assumption of Grants, by and between Lollicup USA Inc. and Global Wells Investment Group LLC effective as of July 1, 2018 (Incorporated by reference to Exhibit 10.9 from the Registration Statement on Form S-1, filed with the Securities and Exchange Commission on February 18, 2021 and declared effective on April 14, 2021).
10.11 |  | Form of Indemnification Agreement (Incorporated by reference to Exhibit 10.10 from the Registration Statement on Form S-1, filed with the Securities and Exchange Commission on February 18, 2021 and declared effective on April 14, 2021.
10.12 |  | Purchase and Sale Agreement dated April 9, 2019 by and between Global Wells Investment Group LLC and Atosa Catering Equipment, Inc. (Incorporated by reference to Exhibit 10.11 from the Registration Statement on Form S-1, filed with the Securities and Exchange Commission on February 18, 2021 and declared effective on April 14, 2021).
10.13 |  | Business Loan Agreement dated February 23, 2018 by and between Lollicup USA Inc. and Hanmi Bank (Incorporated by reference to Exhibit 10.12 from the Registration Statement on Form S-1, filed with the Securities and Exchange Commission on February 18, 2021 and declared effective on April 14, 2021).
10.14+ |  | Form of Employment Agreement by and between the Company and Alan Yu (Incorporated by reference to Exhibit 10.16 from the Registration Statement on Form S-1, filed with the Securities and Exchange Commission on February 18, 2021 and declared effective on April 14, 2021).
10.15+ |  | Form of Employment Agreement by and between the Company and Marvin Cheng (Incorporated by reference to Exhibit 10.17 from the Registration Statement on Form S-1, filed with the Securities and Exchange Commission on February 18, 2021 and declared effective on April 14, 2021).
10.16 |  | Business Loan Agreement dated October 6, 2021 by and between Lollicup USA Inc. and Hanmi Bank (Incorporated by reference to Exhibit 10.20 from the Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 31, 2022).
10.17+ |  | Employment Agreement, dated February 1, 2022, by and between the Company and Jian Guo (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 1, 2022).
10.18 |  | Agreement, dated April 6, 2022, by and between Lollicup USA Inc. and Happiness Moon Co., Ltd. (English Translation) (Incorporated by reference to Exhibit 10.1 in the Company's Current Report on Form 8-K filed on April 7, 2022)
10.19 |  | Business Loan Agreement between Global Wells Investment Group LLC and East West Bank, dated June 15, 2022 (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 22, 2022).
10.20 |  | Change In Terms Agreement, dated August 18, 2022, by and between Lollicup USA Inc and Hanmi Bank (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on November 14, 2022).
10.21 |  | Change In Terms Agreement, dated March 14, 2023, by and between Lollicup USA Inc and Hanmi Bank (Incorporated by reference to Exhibit 10.26 to the Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 16, 2023).
10.22 |  | Agreement by and between Lollicup USA Inc., Keary Global Ltd., Happiness Moon Co. Ltd., and Bio Earth Technology, dated May 8, 2023 (English Translation) (incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2023).
10.23 |  | Share Transfer Agreement by and between Lollicup USA Inc. and Keary Global Ltd., dated May 8, 2023 (English Translation) (incorporated by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2023).
10.24 |  | Change In Terms Agreement, dated June 20, 2023, by and between Lollicup USA Inc and Hanmi Bank (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 22, 2023).
10.25 |  | Change In Terms Agreement , dated February 24, 2025 by and between Lollicup USA Inc. and Hanmi Bank (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 7, 2025).
10.26 |  | Separation Agreement and General Release, dated August 30, 2023 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 31, 2023).

79

10.27 |  | Employment Agreement, dated October 5, 2023, between Karat Packaging Inc. and Daniel Quire, Chief Revenue Officer (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 11, 2023).
10.28+ |  | Amendment to Employment Agreement, dated March 12, 2024, between Karat Packaging Inc. and Alan Yu, Chief Executive Officer (Incorporated by reference to Exhibit 10.32 from the Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 15, 2024).
10.29+ |  | Amendment to Employment Agreement, dated March 12, 2024, between Karat Packaging Inc. and Jian Guo, Chief Financial Officer (Incorporated by reference to Exhibit 10.33 from the Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 15, 2024).
10.30 |  | Change In Terms Agreement, dated February 24, 2025, by and between Lollicup USA Inc. and Hanmi Bank (Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 7, 2025)
10.31 |  | Change In Terms Agreement , dated March 17, 2025, by and between Lollicup USA Inc. and Hanmi Bank (Incorporated by reference to Exhibit 10.3 of the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 9, 2025).
10.32 |  | First Amendment to Lease Agreement dated June 27, 2025, by and between Lollicup USA Inc. and Global Wells Investment Group LLC for the New Jersey facility (Incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 8, 2025).
10.33 |  | Change In Terms Agreement , dated August 21, 2025, by and between Lollicup USA Inc. and Hanmi Bank (Incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 7, 2025).
10.34* |  | Change In Terms Agreement, dated October 3, 2025, by and between Lollicup USA Inc. and Hanmi Bank
10.35+* |  | Second Amendment to Employment Agreement, dated March 11, 2026, between Karat Packaging Inc. and Jian Guo, Chief Financial Officer
19.1 |  | Karat Packaging Inc.'s Amended Insider Trading Policy, effective as of March 12, 2024 (Incorporated by reference to Exhibit 19.1 from the Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 15, 2024).
21.1* |  | List of Subsidiaries
23.1* |  | Consent of independent registered public accounting firm (PricewaterhouseCoopers LLP)
31.1* |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act
31.2* |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act
32.1** |  | Certification pursuant to Section 906 of the Sarbanes-Oxley Act
32.2** |  | Certification pursuant to Section 906 of the Sarbanes-Oxley Act
97.1 |  | Karat Packaging Inc.'s Clawback Policy, effective as of October 2, 2023 (Incorporated by reference to Exhibit 97.1 from the Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 15, 2024).
101.INS* |  | XBRL Instance Document.
101.SCG* |  | XBRL Taxonomy Extension Schema.
101.CAL* |  | XBRL Taxonomy Extension Calculation Linkbase.
101.DEF* |  | XBRL Taxonomy Extension Definition Linkbase.
101.LAB* |  | XBRL Taxonomy Extension Label Linkbase.
101.PRE* |  | XBRL Taxonomy Extension Presentation Linkbase.
104* |  | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
* Filed herewith. ** Furnished herewith. + Indicates management compensatory agreement.

ITEM 16. FORM 10-K SUMMARY
None.
80

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 13, 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)

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature |  | Title |  | Date
/s/ Alan Yu |  | Chairman and Chief Executive Officer |  | March 13, 2026
Alan Yu |  | (Principal Executive Officer) |  |
/s/ Jian Guo |  | Chief Financial Officer and Director |  | March 13, 2026
Jian Guo |  | (Principal Financial Officer and Principal Accounting Officer) |  |
/s/ Eric Chen |  | Director |  | March 13, 2026
Eric Chen |  |  |  |
/s/ Paul Chen |  | Director |  | March 13, 2026
Paul Chen |  |  |  |
/s/ Eve Yen |  | Director |  | March 13, 2026
Eve Yen |  |  |  |

81

CORPORATE DIRECTORY
Board Members:
• Alan Yu (Chairman)
• Jian Guo
• Eric Chen (Independent)
• Paul Y. Chen (Independent)
• Eve Yen (Independent)
Executive Team:
• Alan Yu – CEO
• Jian Guo – CFO
• Daniel Quire – CRO
• Marvin Cheng – VP of Manufacturing and Secretary
• Amy Tsen – SVP of Finance
Corporate Headquarters Address:
• 6185 Kimball Ave, Chino, CA 91708
Independent Auditor:
• PricewaterhouseCoopers, LLP for the year ended December 31, 2025
Investor Relations Website:
• https://irkarat.com/
82

83