Karat Packaging Inc. (KRT) Business

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

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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.

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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

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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

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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

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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,

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•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

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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-

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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

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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.

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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:

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

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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.

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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.