Karat Packaging (NASDAQ: KRT) doubles earnings as tariff refunds boost cash
Karat Packaging Inc. delivered very strong results for the quarter and six months ended June 30, 2026. Net sales were $136.3 million in the quarter and $253.2 million year‑to‑date, up 9.9% and 11.3% year over year. Quarterly net income reached $29.6 million (diluted EPS $1.46), with first‑half net income of $36.8 million (diluted EPS $1.80).
Results were significantly affected by $26.7 million of IEEPA tariff refunds recognized in Q2 2026, including $25.8 million recorded as a reduction of cost of goods sold and $0.9 million as interest income. This lifted gross margin to 56.6% for the quarter and 46.9% for the first half and increased Adjusted EBITDA to $41.6 million in Q2 and $54.1 million year‑to‑date.
Operating cash flow rose to $40.3 million for the first half, supporting dividends of about $18.0 million, early term‑loan repayments, and $2.0 million of share repurchases. As of June 30, 2026, cash and cash equivalents were $38.4 million, short‑term investments $15.7 million, and term debt $34.6 million, with no borrowings under a $20 million revolving credit facility. Management highlighted changing tariff regimes, a CBP duty matter with a $1.3 million reserve, and ongoing supply‑chain realignment as important continuing factors.
Positive
- Net sales increased to $136.3 million in Q2 2026 and $253.2 million for the first half, year‑over‑year growth of 9.9% and 11.3% driven mainly by higher volume and favorable product mix.
- Net income rose to record levels of $29.6 million for Q2 2026 and $36.8 million year‑to‑date, while Adjusted EBITDA reached $41.6 million in Q2 and $54.1 million for the first half.
- First‑half operating cash flow grew to $40.3 million, leaving Karat Packaging with $38.4 million in cash, $15.7 million in short‑term investments, and no borrowings under its $20 million line of credit.
Negative
- Reported profitability was materially boosted by one‑time IEEPA tariff refunds totaling $26.7 million in Q2 2026, so current margins and earnings are above the ongoing run‑rate that excludes this benefit.
- Import duty and tariff costs still increased from $8.1 million to $18.9 million for the first half year over year, and new Section 301 tariffs of 10%–12.5% on about 60 trading partners add continued trade‑policy uncertainty.
- Karat Packaging continues to address a CBP matter on prior thermal paper imports; it has paid $1.909 million in 2025 and $188,000 in the first half of 2026 and maintains a $1.291 million liability reserve, with final payments potentially differing from current estimates.
Filing Explained
The June 30 report identifies an $11.372 million term-loan maturity on September 30 against $38.399 million cash and $15.744 million short-term investments.
This unaudited quarterly report updates interim financial statements and states that the company intends to repay the remaining
The company’s repurchase program authorizes purchases of up to
Separately, the board increased the quarterly cash dividend to
The filing’s specific milestones are the dividend record and payment dates and the September 30 loan maturity; the repurchase authorization has no set expiration date and may be suspended, modified, or discontinued.
Key Figures
Net sales Q2 2026: $136.3 million
Net income Q2 2026: $29.6 million
IEEPA tariff refunds: $26.7 million
+5 more
8 metrics
Net sales Q2 2026
$136.3 million
Net sales for the three months ended June 30, 2026
Net income Q2 2026
$29.6 million
Net income for the three months ended June 30, 2026
IEEPA tariff refunds
$26.7 million
IEEPA tariff refunds recognized in the three and six months ended June 30, 2026
Operating cash flow H1 2026
$40.3 million
Net cash provided by operating activities for the six months ended June 30, 2026
Cash and equivalents
$38.4 million
Cash and cash equivalents as of June 30, 2026
Short-term investments
$15.7 million
Short-term investments as of June 30, 2026
Term debt balance
$34.6 million
Total long-term debt outstanding as of June 30, 2026
Share repurchases Q2 2026
$1.993 million
74,000 shares repurchased at an average price of $27.11 under the share repurchase program
Key Terms
International Emergency Economic Powers Act, variable interest entity, Adjusted EBITDA, Section 301 tariffs, +1 more
5 terms
International Emergency Economic Powers Act regulatory
"the U.S. Supreme Court held that certain tariffs previously imposed under IEEPA were unconstitutional"
A U.S. law that gives the president broad authority to control trade, financial transactions, and assets during a declared national emergency, such as by imposing sanctions, freezing property, or restricting exports and imports. For investors it matters because those powers can suddenly block deals, cut off access to markets or funds, and change the value of companies or securities much like an emergency brake that can stop or reroute economic activity overnight.
variable interest entity financial
"Global Wells Investment Group ("Global Wells"), a variable interest entity wherein the Company is the primary beneficiary"
A variable interest entity (VIE) is a company structure where one party controls another company’s operations and economic outcomes through contracts or special arrangements instead of owning a majority of its voting shares. For investors, VIEs matter because the controlling party’s financial results, debts and risks can appear in the controller’s reports even though ownership looks separate, so understanding VIEs helps assess true exposure, governance limits and transparency—like spotting a puppet controlled by strings rather than direct ownership.
Adjusted EBITDA financial
"We generated consolidated Adjusted EBITDA, a non-GAAP measure defined below, of $41.6 million"
Adjusted EBITDA is a way companies measure how much money they make from their core operations, like running a business, by removing certain costs or income that aren’t part of regular business activities. It helps investors see how well a company is doing without distractions from unusual expenses or gains, making it easier to compare companies or track performance over time.
Section 301 tariffs regulatory
"new Section 301 tariffs ranging from 10% to 12.5% were imposed on approximately 60 trading partners"
Section 301 tariffs are extra import duties a government can impose on goods from another country after it finds unfair trade practices, like forced technology transfer or discriminatory rules. Think of them as a penalty fee added to certain foreign products; they matter to investors because they can raise costs, disrupt supply chains, change competitive positions, and affect corporate profits, pricing and market access across affected industries.
noncontrolling interests financial
"Noncontrolling interests represent third-party equity ownership interests in Global Wells"
The portion of a subsidiary’s equity and profits that belongs to outside owners rather than the parent company; when a parent reports consolidated results it includes the whole subsidiary but shows the noncontrolling slice separately. Think of a company’s subsidiary as a pie where the parent owns most slices but some are held by other investors — noncontrolling interests tell you how much of the pie and its future earnings don’t belong to the parent, which affects how much profit and net assets are truly attributable to the parent’s shareholders.
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FAQ
How did Karat Packaging (KRT) perform financially in Q2 2026?
Karat Packaging reported Q2 2026 net sales of $136.3 million, up 9.9% year over year, and net income of $29.6 million. First‑half 2026 net sales were $253.2 million with net income of $36.8 million, reflecting strong growth and margin expansion.
What was the size and impact of the IEEPA tariff refunds for Karat Packaging (KRT)?
Karat Packaging recorded $26.7 million of IEEPA tariff refunds in Q2 2026, including $25.8 million reducing cost of goods sold and $0.9 million as interest income. Management described these refunds as a one‑time benefit that significantly lifted gross margin and net income.
How are Karat Packaging’s (KRT) margins and Adjusted EBITDA trending?
Gross margin reached 56.6% in Q2 2026 and 46.9% for the first half, helped by tariff refunds. Adjusted EBITDA rose to $41.6 million in Q2 and $54.1 million year‑to‑date, with Adjusted EBITDA margins of 30.5% and 21.4%, respectively.
What is Karat Packaging’s (KRT) liquidity and debt position as of June 30, 2026?
As of June 30, 2026, Karat Packaging held $38.4 million in cash and cash equivalents, $15.7 million in short‑term investments, and had $3.6 million available under its $20 million revolving line of credit, against term debt of $34.6 million.
Did Karat Packaging (KRT) return cash to shareholders in 2026?
Yes. In the first half of 2026, Karat Packaging paid cash dividends totaling about $18.0 million and repurchased 74,000 shares for $1.993 million. On August 4, 2026, the board also increased the regular quarterly dividend to $0.47 per share.
How is Karat Packaging (KRT) managing trade and tariff changes?
Karat Packaging has realigned sourcing, increasing domestic purchases and shifting some volume to countries with more favorable trade conditions. It also benefited from $26.7 million of IEEPA tariff refunds, while noting new Section 301 tariffs of 10%–12.5% on many trading partners.
What non-GAAP metrics does Karat Packaging (KRT) use and why?
Karat Packaging highlights Adjusted EBITDA and Adjusted EBITDA margin, which exclude interest, taxes, depreciation, amortization, stock‑based compensation, and secondary offering costs. Management believes these measures help assess core operating performance alongside GAAP results.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended June 30, 2026
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from ______________ to ______________
Commission file number 001-40336
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
( | ||||||||
(Registrant’s telephone number, including area code) | ||||||||
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | ☒ | ||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||||||||
| Emerging growth company | ||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of Common Stock, $0.001 par value, outstanding on August 4, 2026 was 19,931,721 shares.
Table of Contents
| Page | ||||||||
PART I - FINANCIAL INFORMATION | ||||||||
Item 1. | Financial Statements | 2 | ||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22 | ||||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 34 | ||||||
Item 4. | Controls and Procedures | 34 | ||||||
PART II - OTHER INFORMATION | ||||||||
Item 1. | Legal Proceedings | 35 | ||||||
Item 1A. | Risk Factors | 35 | ||||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 35 | ||||||
Item 3. | Defaults Upon Senior Securities | 35 | ||||||
Item 4. | Mine Safety Disclosures | 35 | ||||||
Item 5. | Other Information | 35 | ||||||
Item 6. | Exhibits | 35 | ||||||
SIGNATURES | 37 | |||||||
1
KARAT PACKAGING INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share data)
PART I - FINANCIAL INFORMATION
| June 30, 2026 | December 31, 2025 | ||||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
Cash and cash equivalents (including $ | $ | $ | |||||||||
| Short-term investments | |||||||||||
Accounts receivable, net of allowance for bad debt of $ | |||||||||||
| Inventories | |||||||||||
Prepaid expenses and other current assets (including $ | |||||||||||
| Total current assets | |||||||||||
Property and equipment, net (including $ | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Operating right-of-use assets | |||||||||||
| Deferred tax assets | |||||||||||
Other non-current assets (including $ | |||||||||||
| Total assets | $ | $ | |||||||||
2
| June 30, 2026 | December 31, 2025 | ||||||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current liabilities | |||||||||||
Accounts payable (including $ | $ | $ | |||||||||
Accrued expenses (including $ | |||||||||||
| Related party payable | |||||||||||
| Income taxes payable | |||||||||||
| Deferred revenue | |||||||||||
Long-term debt, current portion (including $ | |||||||||||
| Operating lease liabilities, current portion | |||||||||||
Other current liabilities (including $ | |||||||||||
| Total current liabilities | |||||||||||
| Deferred tax liabilities | |||||||||||
Long-term debt, net of current portion and debt discount of $ | |||||||||||
| Operating lease liabilities, net of current portion | |||||||||||
Other non-current liabilities (including $ | |||||||||||
| Total liabilities | |||||||||||
Commitments and Contingencies (Note 14) | |||||||||||
| Karat Packaging Inc. stockholders’ equity | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid in capital | |||||||||||
Treasury stock, $ | ( | ( | |||||||||
| Retained earnings | |||||||||||
| Total Karat Packaging Inc. stockholders’ equity | |||||||||||
| Noncontrolling interest | |||||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
3
KARAT PACKAGING INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except share and per share data)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| Cost of goods sold | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Selling expenses | |||||||||||||||||||||||
General and administrative expenses (including $ | |||||||||||||||||||||||
| Loss (gain), net, on disposal of property and equipment | ( | ( | |||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Other income (expenses) | |||||||||||||||||||||||
Rental income (including $ | |||||||||||||||||||||||
Other income (expenses), net (including $ | ( | ( | |||||||||||||||||||||
| (Loss) gain on foreign currency transactions | ( | ( | ( | ||||||||||||||||||||
Interest income (including $ | |||||||||||||||||||||||
Interest expense (including ($ | ( | ( | ( | ( | |||||||||||||||||||
| Total other income (expenses), net | ( | ( | |||||||||||||||||||||
| Income before provision for income taxes | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Net income attributable to noncontrolling interest | |||||||||||||||||||||||
| Net income attributable to Karat Packaging Inc. | $ | $ | $ | $ | |||||||||||||||||||
| Basic and diluted earnings per share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average common shares outstanding, basic | |||||||||||||||||||||||
| Weighted average common shares outstanding, diluted | |||||||||||||||||||||||
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
4
KARAT PACKAGING INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(In thousands, except share and per share data)
| Common Stock | Treasury Stock | Additional Paid-in Capital | Retained Earnings | Total Stockholders’ Equity Attributable to Karat Packaging Inc. | Noncontrolling Interest | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, January 1, 2025 | $ | ( | $ | ( | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared ($ | — | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Global Wells membership interest tax withholding | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2025 | $ | ( | $ | ( | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared ($ | — | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon vesting of restricted stock units | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Global Wells membership interest tax withholding | — | — | — | — | — | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2025 | $ | ( | $ | ( | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Treasury Stock | Additional Paid-in Capital | Retained Earnings | Total Stockholders’ Equity Attributable to Karat Packaging Inc. | Noncontrolling Interest | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, January 1, 2026 | $ | ( | $ | ( | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared ($ | — | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Global Wells membership interest tax withholding | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2026 | $ | ( | $ | ( | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared ($ | — | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon vesting of restricted stock units | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock, including excise tax | — | — | ( | ( | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Global Wells membership interest tax withholding | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2026 | $ | ( | $ | ( | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
5
KARAT PACKAGING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
| Six Months Ended June 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| Cash flows from operating activities | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation and amortization (including $ | |||||||||||
| Adjustments to allowance for bad debt | ( | ||||||||||
| Adjustments to inventory reserve | |||||||||||
| Write-off of inventories | |||||||||||
| Loss (gain), net, on disposal of property and equipment | ( | ||||||||||
Amortization of loan fees (including $ | |||||||||||
| Unrealized loss from investment in publicly-traded equity securities | |||||||||||
| Stock-based compensation | |||||||||||
| Amortization of operating right-of-use assets | |||||||||||
Government grant income (including ($ | ( | ( | |||||||||
| (Increase) decrease in operating assets | |||||||||||
Accounts receivable (including $ | ( | ( | |||||||||
| Inventories | ( | ( | |||||||||
Prepaid expenses and other current assets (including ($ | ( | ( | |||||||||
Other non-current assets (including $ | ( | ( | |||||||||
| Increase (decrease) in operating liabilities | |||||||||||
Accounts payable (including ($ | |||||||||||
Accrued expenses (including ($ | |||||||||||
| Related party payable | |||||||||||
| Income taxes payable | |||||||||||
| Deferred revenue | |||||||||||
| Operating lease liabilities | ( | ( | |||||||||
Other liabilities (including ($ | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
6
| Six Months Ended June 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| Cash flows from investing activities | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Proceeds from disposal of property and equipment | |||||||||||
| Deposits paid for property and equipment | ( | ( | |||||||||
| Purchases of publicly-traded equity securities | ( | ( | |||||||||
| Proceeds from disposal of publicly-traded equity securities | |||||||||||
Purchases of short-term investments (including $ | ( | ( | |||||||||
Redemption of short-term investments (including $ | |||||||||||
| Net cash (used in) provided by investing activities | ( | ||||||||||
| Cash flows from financing activities | |||||||||||
Payment of long-term debt (including ($ | ( | ( | |||||||||
| Payments for lender fees | ( | ( | |||||||||
| Proceeds from exercise of common stock options | |||||||||||
| Repurchase of common stock | ( | ||||||||||
| Dividends paid to shareholders | ( | ( | |||||||||
Payment of Global Wells membership interest tax withholding (including ($ | ( | ( | |||||||||
Payment of Global Wells noncontrolling membership interest redemption gain tax withholding (including $ | ( | ||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents | |||||||||||
| Beginning of period | |||||||||||
| End of period | $ | $ | |||||||||
| Supplemental disclosures of non-cash investing and financing activities: | |||||||||||
| Non-cash excise tax on share repurchases | $ | $ | |||||||||
| Transfers from deposits to property and equipment | $ | $ | |||||||||
| Non-cash purchases of property and equipment | $ | $ | |||||||||
| Non-cash disposal of property and equipment | $ | $ | |||||||||
| Supplemental disclosures of cash flow information: | |||||||||||
| Cash paid for income taxes | $ | $ | |||||||||
| Cash paid for interest | $ | $ | |||||||||
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
7
KARAT PACKAGING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations
Lollicup USA Inc. ("Lollicup") was incorporated in 2001 in California and in October 2025, redomesticated to the State of Texas. Karat Packaging Inc. ("Karat Packaging") was incorporated in 2018 in Delaware and became the holding company for Lollicup (collectively, the "Company") through a share exchange with the shareholders of Lollicup. The Company's shares are listed on the NASDAQ Global Market under the symbol "KRT".
The Company is a manufacturer and distributor of single-use disposable products used in a variety of restaurant and foodservice settings. The Company supplies a wide range of products such as food and take-out containers, bags, boxes, tableware, cups, lids, cutlery, and straws. The products are available in plastic, paper, biopolymer-based, and other compostable forms. In addition to manufacturing and distribution, the Company offers customized solutions to customers, including new product design and development, custom printing, distribution of specialty food and beverages products, such as syrups, boba, and coffee drinks, as well as logistics services.
The Company supplies products to national and regional distributors, restaurant chains, supermarkets, as well as to small businesses including convenience stores, mom-and-pop restaurants, coffee houses, bubble tea cafes, pizza parlors, and frozen yogurt shops.
2. Summary of Significant Accounting Policies
Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles as promulgated in the United States of America ("US GAAP") for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all the information and footnotes required by US GAAP for complete financial statements. The financial information as of June 30, 2026 and for the three and six months ended June 30, 2026 and 2025 is unaudited; however, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement have been included. Operating results for the three and six months ended June 30, 2026 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2026.
The condensed consolidated balance sheet at December 31, 2025 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by US GAAP for complete financial statements. These financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2025, as included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 13, 2026.
Estimates and Assumptions: Management uses estimates and assumptions in preparing financial statements in accordance with US GAAP. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ materially from the estimates that were assumed in preparing the condensed consolidated financial statements.
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KARAT PACKAGING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The International Emergency Economic Powers Act ("IEEPA") Tariff Refund Claims: On February 20, 2026, the U.S. Supreme Court held that certain tariffs previously imposed under IEEPA were unconstitutional. The case was remanded to the U.S. Court of International Trade for further instructions regarding the refund of all IEEPA tariffs paid by importers of record. In April 2026, the Company submitted refund claims with U.S. Customs and Border Protection related to eligible tariff payments made in prior periods. The Company has elected to apply the loss recovery guidance under FASB ASC 450 — Contingencies to account for the recognition of IEEPA tariff refunds. Refunds are recognized when deemed probable as a reduction of cost of goods sold when the related inventory has been sold, and any excess amount received associated with the refund is recognized as interest 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 the member cannot contribute, up to $25,000 .
Global Wells was determined to be a variable interest entity in accordance with ASC Topic 810, Consolidations, however, at the time the investment was made, it was determined that Lollicup was not the primary beneficiary. In 2018, Lollicup entered into an operating lease with Global Wells (the “Texas Lease”). In 2020, the Company entered into another operating lease with Global Wells (the “New Jersey Lease”). On June 26, 2025, the Company renewed the New Jersey Lease with Global Wells, extending the lease term for an additional five years to August 31, 2030.
Upon entering into the Texas Lease with Lollicup on March 23, 2018, it was determined that Lollicup holds current and potential rights that give it the power to direct activities of Global Wells that most significantly impact Global Wells’ economic performance, the ability to receive significant benefits, and the obligation to absorb potentially significant losses, resulting in Lollicup having a controlling financial interest in Global Wells. As a result, Lollicup was deemed to be the primary beneficiary of Global Wells and has consolidated Global Wells under the risk and reward model of ASC 810, for the period from March 23, 2018. The monthly lease payments for both the Texas Lease and the New Jersey Lease are eliminated upon consolidation.
Assets recognized as a result of consolidating Global Wells do not represent additional assets that could be used to satisfy claims against the Company’s general assets. Conversely, liabilities recognized as a result of consolidating Global Wells do not represent additional claims of the Company’s general assets; rather they represent claims against the specific assets of Global Wells. See Note 8 — Long-Term Debt for a description of the two term loans that Global Wells had with financial institutions as of June 30, 2026.
Noncontrolling Interests: The Company consolidates its variable interest entity, Global Wells, in which the Company is the primary beneficiary. Noncontrolling interests represent third-party equity ownership interests in Global Wells. The Company recognizes noncontrolling interests as equity in the condensed consolidated financial statements separate from the Company’s stockholders’ equity. The amount of net income attributable to noncontrolling interests is disclosed in the condensed consolidated statements of income. Tax payments made by the Company on behalf of the noncontrolling
9
KARAT PACKAGING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
interests are deducted from their equity balances, as shown in the condensed consolidated statements of stockholders’ equity.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Chains and distributors | $ | $ | $ | $ | |||||||||||||||||||
| Online | |||||||||||||||||||||||
| Retail | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
•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 pass to the customer.
•Online revenue: Online revenue is derived from the Company's online storefront on www.lollicupstore.com, and through the Company's mobile app, as well as other e-commerce platforms with customers largely consisting of small businesses such as small mom-and-pop restaurants, coffee houses, bubble tea cafes, pizza parlors, and frozen yogurt shops. Revenue from online transactions is recognized at a point in time upon transfer of control of promised products to customers. Transfer of control typically occurs when the title and risk of loss passes to the customer. For online sales on third-party e-commerce platforms, the Company is the principal in the three-party arrangement and control of the products remains with the Company until transferring to the end customer or upon return from the end customer. Online platform fees are recognized as selling expenses.
•Retail revenue: Retail revenue is derived primarily from regional and local restaurants, small mom-and-pop restaurants, coffee houses, bubble tea cafes, pizza parlors, and frozen yogurt shops. Revenue from retail transactions is recognized at a point in time upon transfer of control of promised products to customers. Transfer of control typically occurs when the title and risk of loss passes to the customer.
For all of the Company's revenue streams, shipping terms generally indicate when the title and risk of loss have passed, which is generally when products are delivered to customers.
In addition to product sales, the Company also generates revenue from logistics services, which is the transportation and delivery of shipping containers from ports to local retail customers. Logistics services revenue was classified under retail in net sales disaggregated by customer type table above and is recognized over time due to the continuous transfer of control to the customer. As control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. During the three months ended June 30, 2026 and 2025, logistics services revenue was $679,000 and $1,349,000 , respectively. During the six months ended June 30, 2026 and 2025, logistics services revenue was $1,444,000 and $2,622,000 , respectively.
The Company’s contract liabilities consist primarily of rebates, sales incentives, cooperative advertising, and deferred revenue. As of June 30, 2026 and December 31, 2025, the Company had accrued $923,000 and $1,133,000 , respectively, related to rebates, sales incentives, and cooperative advertising, included in accrued expenses in the condensed consolidated balance sheets. During the three months ended June 30, 2026 and 2025, the Company recognized revenue of $31,000 and $39,000 , respectively, related to previously deferred revenue at the beginning of each respective period. During the six months ended June 30, 2026 and 2025, the Company recognized revenue of $432,000 and $556,000 , respectively, related to previously deferred revenue at the beginning of each respective period.
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KARAT PACKAGING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Measurements: The Company has financial instruments classified within the fair value hierarchy, which consist of the following:
•At June 30, 2026, the Company had money market accounts and investments in publicly-traded equity securities classified as Level 1 and certificates of deposit classified as Level 2 within the fair value hierarchy.
•At December 31, 2025, the Company had money market accounts classified as Level 1 and certificates of deposit classified as Level 2 within the fair value hierarchy.
Short-term investments consist of certificates of deposit with an original maturity of longer than 3 months and are reported at their carrying value as current assets on the condensed consolidated balance sheets. The carrying value of these short-term investments approximates fair value as they were purchased near or on the respective balance sheet dates. Other certificates of deposit with an original maturity of equal to or shorter than 3 months have been included as cash equivalents on the condensed consolidated balance sheets.
The following table summarizes the Company’s fair value measurements by level at June 30, 2026 for the assets measured at fair value on a recurring basis:
| Level 1 | Level 2 | Level 3 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Cash equivalents | $ | $ | $ | ||||||||||||||
| Short-term investments | |||||||||||||||||
| Publicly-traded equity securities | |||||||||||||||||
| Fair value, June 30, 2026 | $ | $ | $ | ||||||||||||||
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 | $ | $ | $ | ||||||||||||||
| Fair value, December 31, 2025 | $ | $ | $ | ||||||||||||||
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.
| June 30, 2026 | |||||||||||
| Carrying Amount | Estimated Fair Value | ||||||||||
| (in thousands) | |||||||||||
| 2026 Term Loan | $ | $ | |||||||||
| 2027 Term Loan | |||||||||||
| $ | $ | ||||||||||
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KARAT PACKAGING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| December 31, 2025 | |||||||||||
| Carrying Amount | Estimated Fair Value | ||||||||||
| (in thousands) | |||||||||||
| 2026 Term Loan | $ | $ | |||||||||
| 2027 Term Loan | |||||||||||
| $ | $ | ||||||||||
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. For the three and six months ended June 30, 2026, management concluded that an impairment of long-lived assets was not required. The Company did not have any non-financial assets or liabilities that had been measured at fair value subsequent to initial recognition with the exception of a non-cash impairment of an operating ROU asset of $1,993,000 in the year ended December 31, 2024, resulting from the sublease of the Company's City of Industry warehouse in California.
New and Recently Adopted Accounting Standards: The Company is an emerging growth company as that term is used in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"), and as such, the Company has elected to take advantage of certain reduced public company reporting requirements. In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards, as a result, the Company will adopt new or revised accounting standards on the relevant dates in which adoption of such standards is required for private companies.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The new guidance requires disaggregated information about the effective tax rate reconciliation and additional information on taxes paid that meet a quantitative threshold. The new guidance is effective for public companies for annual reporting periods beginning after December 15, 2024, and for non-public companies for annual reporting periods beginning after December 15, 2025, with early adoption permitted for both. The Company will adopt the new standard in its annual reporting period beginning after December 15, 2025, and is currently evaluating the impacts of the new guidance on its disclosures within the consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03 Income Statement Expenses (Topic 220): Disaggregation of Income Statement Expenses. The new guidance requires enhanced disclosure of disaggregated information about specific expense categories in the notes to financial statements on an annual and interim basis. The new guidance is effective for all public companies for annual reporting periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company will adopt the new standard in its annual reporting period beginning after December 15, 2026. The application of this new guidance is not expected to have a material impact on the Company’s consolidated balance sheets, statements of income or cash flows, as the guidance pertains to disclosures only.
In December 2025, the FASB issued ASU 2025-11 Interim Reporting (Topic 270): Narrow-Scope Improvements. The new guidance creates a comprehensive list of interim disclosures required under US GAAP and incorporates a disclosure principle that requires disclosures at interim periods when an event or change that has a material effect on an entity has occurred since the previous year end. The new guidance is effective for all public companies for interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company will adopt the new standard in its interim reporting period beginning after December 15, 2027, and is currently evaluating the impacts of the new guidance on its disclosures within the condensed consolidated financial statements.
3. Inventories
Inventories consist of the following:
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KARAT PACKAGING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| June 30, 2026 | December 31, 2025 | ||||||||||
| (in thousands) | |||||||||||
| Raw materials | $ | $ | |||||||||
| Semi-finished goods | |||||||||||
| Finished goods | |||||||||||
| Subtotal | |||||||||||
| Less: inventory reserve | ( | ( | |||||||||
| Total inventories | $ | $ | |||||||||
4. Property and Equipment
| June 30, 2026 | December 31, 2025 | ||||||||||
| (in thousands) | |||||||||||
| Machinery and equipment | $ | $ | |||||||||
| Leasehold improvements | |||||||||||
| Vehicles | |||||||||||
| Furniture and fixtures | |||||||||||
| Building | |||||||||||
| Land | |||||||||||
| Computer hardware and software | |||||||||||
| Construction in progress | |||||||||||
| Total property and equipment | |||||||||||
| Less: accumulated depreciation and amortization | ( | ( | |||||||||
| Total property and equipment, net | $ | $ | |||||||||
Depreciation and amortization expense is reported within general and administrative expense, except for depreciation and amortization expense related to manufacturing facilities and equipment, which is included in cost of goods sold on the accompanying condensed consolidated statements of income.
For the three months ended June 30, 2026 and 2025, depreciation and amortization expense reported within general and administrative expense was $1,175,000 and $1,138,000 , respectively, and depreciation expense reported within cost of goods sold was $1,545,000 and $1,534,000 , respectively. For the six months ended June 30, 2026 and 2025, depreciation and amortization expense reported within general and administrative expense was $2,342,000 and $2,270,000 , respectively, and depreciation expense reported within cost of goods sold was $3,112,000 and $3,083,000 , respectively.
5. Goodwill
The following table summarizes the activity in the Company's goodwill from December 31, 2025 to June 30, 2026:
| (in thousands) | |||||
| Balance at December 31, 2025 | $ | ||||
| Goodwill acquired | |||||
| Balance at June 30, 2026 | $ | ||||
6. Line of Credit
Pursuant to the terms of the Business Loan Agreement, dated February 23, 2018, between Lollicup, as borrower, and Hanmi Bank, as lender (as amended, the "Loan Agreement"), the Company has a line of credit with a maximum borrowing capacity of $20,000,000 (the "Line of Credit") secured by the Company’s assets. The Company is not required to pay a commitment (unused) fee on the undrawn portion of the Line of Credit and interest is payable monthly. The Company is required to comply with certain financial covenants, including a minimum current ratio, minimum debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio and a minimum fixed charge coverage ratio. As of both
13
KARAT PACKAGING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2026 and December 31, 2025, the Company was in compliance with the financial covenants under the Line of Credit.
On March 3, 2025, the Company amended the Line of Credit. Prior to March 3, 2025, the revolving loan facility had a maximum borrowing capacity of $40,000,000 and interest accrued at an annual rate of one month term Secured Overnight Financing Rate ("SOFR") plus 2.50 %, with a SOFR floor of 1.00 %. The amendment on March 3, 2025, among other things, (1) extended the maturity date to March 14, 2027, (2) reduced the maximum borrowing capacity of the revolving loan facility to $20,000,000 , and (3) revised the interest on any Line of Credit borrowings to an annual rate of one month term SOFR plus 2.25 %, with a SOFR floor of 1.00 %. On March 17, 2025, August 21, 2025, October 3, 2025, and May 11, 2026, the Company entered into four separate amendments of the Line of Credit, increasing the standby letter of credit sub-limit, respectively, from $5,000,000 to $7,500,000 7,500,000 10,000,000 10,000,000 15,000,000 15,000,000 18,000,000 . As of both June 30, 2026 and December 31, 2025, the Company had no
The amount issued under the standby letter of credit was $16,431,000 and $12,313,000 as of June 30, 2026 and December 31, 2025, respectively. As of June 30, 2026, the maximum remaining amount that could be borrowed under the Line of Credit was $3,569,000 .
7. Accrued Expenses
The following table summarizes information related to accrued expense liabilities:
| June 30, 2026 | December 31, 2025 | ||||||||||
| (in thousands) | |||||||||||
| Accrued miscellaneous expenses | $ | $ | |||||||||
| Accrued payroll | |||||||||||
| Accrued ocean freight and other import costs | |||||||||||
| Accrued sale and use taxes | |||||||||||
| Accrued professional services fees | |||||||||||
| Accrued vacation and sick pay | |||||||||||
| Accrued property tax | |||||||||||
Accrued shipping expense | |||||||||||
| Accrued sales discount expense | |||||||||||
| Accrued online platform fees | |||||||||||
| Accrued interest expense | |||||||||||
| Total accrued expenses | $ | $ | |||||||||
14
KARAT PACKAGING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Long-Term Debt
Long-term debt consists of the following:
| June 30, 2026 | December 31, 2025 | ||||||||||
| (in thousands) | |||||||||||
The 2026 Term Loan, with an initial balance of $ | $ | $ | |||||||||
The 2027 Term Loan, with an initial balance of $ | |||||||||||
| Long-term debt | |||||||||||
| Less: unamortized loan fees | ( | ( | |||||||||
| Less: current portion | ( | ( | |||||||||
| Long-term debt, net of current portion | $ | $ | |||||||||
At June 30, 2026, future maturities are:
| (in thousands) | |||||
| 2026 (remainder) | $ | ||||
| 2027 | |||||
| Total | $ | ||||
The Company was in compliance with all of its financial covenants as of both June 30, 2026 and December 31, 2025.
The 2026 Term Loan matures on September 30, 2026. As of June 30, 2026, the entire remaining balance of $11,372,000 is included in the long-term debt, current portion on the condensed consolidated balance sheet. The Company intends to repay the 2026 Term Loan at maturity using available liquidity, which includes $38,399,000 in cash and cash equivalents and $15,744,000 in short-term investments as of June 30, 2026.
9. Stockholders' Equity
On November 5, 2025, the Company’s Board of Directors approved a Share Repurchase Program (the "Share Repurchase Program") of up to $15,000,000 of its common stock. Under the Share Repurchase Program, the Company may repurchase shares through open market transactions, through privately negotiated transactions, or pursuant to a trading plan separately adopted in the future, subject to the requirements of the Securities Exchange Act of 1934, as amended. The Share Repurchase Program has no set expiration date, and may be suspended, modified or discontinued at any time.
A summary of the Company’s common stock that has been repurchased as part of the Share Repurchase Program for the three and six months ended June 30, 2026 is as follows:
15
KARAT PACKAGING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| (in thousands, except per share data) | |||||||||||||||||||||||
| Shares repurchased | |||||||||||||||||||||||
| Average price per share | $ | $ | $ | $ | |||||||||||||||||||
| Total investment | $ | $ | $ | $ | |||||||||||||||||||
As of June 30, 2026, the Company had approximately $10,021,000 of remaining authorization for purchases under the Share Repurchase Program.
In January 2019, the Company’s board of directors adopted the 2019 Stock Incentive Plan (the "Plan"). As of June 30, 2026, a total of 1,136,267 shares of common stock were available for further award grants under the Plan. For the three months ended June 30, 2026 and 2025, the Company recognized a total of $596,000 and $445,000 in stock-based compensation expense, respectively. For the six months ended June 30, 2026 and 2025, the Company recognized a total of $838,000 and $791,000 in stock-based compensation expense, respectively. The Company recognizes stock-based compensation over the vesting period, which is generally within three years
Stock Options
A summary of the Company’s stock option activity under the Plan for the six months ended June 30, 2026 is as follows:
Number of Options | Weighted-Average Exercise Price | Weighted-Average Remaining Contract Life | Aggregate Intrinsic Value | ||||||||||||||||||||
(in years) | (in thousands) | ||||||||||||||||||||||
| Outstanding at December 31, 2025 | $ | $ | |||||||||||||||||||||
| Exercised | ( | ||||||||||||||||||||||
| Outstanding at June 30, 2026 | $ | $ | |||||||||||||||||||||
| Vested and expected to vest at June 30, 2026 | $ | $ | |||||||||||||||||||||
| Exercisable at June 30, 2026 | $ | $ | |||||||||||||||||||||
There were no
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 June 30, 2026 and December 31, 2025, respectively, multiplied by the number of shares per each option.
Restricted Stock Units
A summary of the Company’s unvested restricted stock units' activity under the Plan for the six months ended June 30, 2026 is as follows:
Number of Shares Outstanding | Weighted Average Grant Date Fair Value | ||||||||||
| Unvested at December 31, 2025 | $ | ||||||||||
| Granted | |||||||||||
| Vested | ( | ||||||||||
| Unvested at June 30, 2026 | $ | ||||||||||
16
KARAT PACKAGING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2026, total remaining stock-based compensation cost for unvested restricted stock units was approximately $2,842,000 . The cost is expected to be recognized over a weighted-average period of 1.5 years.
10. Earnings Per Share
(a)Basic
Basic earnings per share is calculated by dividing the net income attributable to equity holders of the Company for the period by the weighted average number of common shares outstanding during the period.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| (in thousands, except per share data) | |||||||||||||||||||||||
| Net income attributable to Karat Packaging Inc. | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average number of common shares outstanding | |||||||||||||||||||||||
| Basic earnings per share | $ | $ | $ | $ | |||||||||||||||||||
(b)Diluted
Diluted earnings per share is calculated based upon the weighted average number of common shares and common equivalent shares outstanding during the period, calculated using the treasury stock method. Under the treasury stock method, exercise proceeds include the amount the employee must pay for exercising stock options and the amount of compensation cost related to stock awards for future services that the Company has not yet recognized. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect.
The following table summarizes the calculation of diluted earnings per share:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| (in thousands, except per share data) | |||||||||||||||||||||||
| Net income attributable to Karat Packaging Inc. | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average number of common shares outstanding | |||||||||||||||||||||||
| Dilutive shares | |||||||||||||||||||||||
| Stock options and restricted stock units | |||||||||||||||||||||||
| Adjusted weighted average number of common shares | |||||||||||||||||||||||
| Diluted earnings per share | $ | $ | $ | $ | |||||||||||||||||||
For the three months ended June 30, 2026 and 2025, there were no 9,333 and 0 shares of potentially dilutive shares, respectively, have been excluded in the diluted earnings per share calculation due to their anti-dilutive impact on earnings per share.
11. Leases
The Company primarily leases manufacturing facilities, distribution centers, and office spaces with lease terms expiring through 2031. The Company recognized the following lease costs in the accompanying condensed consolidated statement of income:
17
KARAT PACKAGING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Operating lease expense | $ | $ | $ | $ | |||||||||||||||||||
| Short-term lease expense | |||||||||||||||||||||||
| Variable lease expense | |||||||||||||||||||||||
| Total lease expense | $ | $ | $ | $ | |||||||||||||||||||
For the three months ended June 30, 2026 and 2025, rent expense included in operating expenses was $3,464,000 and $3,755,000 , respectively, and rent expense included in cost of goods sold was $847,000 and $714,000 , respectively. For the six months ended June 30, 2026 and 2025, rent expense included in operating expenses was $7,054,000 and $6,945,000 respectively, and rent expense included in cost of goods sold was $1,664,000 and $1,534,000 , respectively.
The following table presents supplemental information related to operating leases:
| June 30, 2026 | December 31, 2025 | ||||||||||
| Weighted average remaining lease term | |||||||||||
| Weighted average discount rate | % | % | |||||||||
| Six Months Ended June 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| (in thousands) | |||||||||||
Right-of-use assets obtained in exchange for operating lease liabilities | $ | $ | |||||||||
| Cash paid for amounts included in measurement of lease obligations: | |||||||||||
| Operating cash flows from operating leases | $ | $ | |||||||||
As of June 30, 2026, future lease payments under operating leases were as follows:
| (in thousands) | ||||||||
| 2026 (remainder) | $ | |||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| 2030 | ||||||||
| Thereafter | ||||||||
| Total lease payments | ||||||||
| Less: imputed interest | ( | |||||||
| Total lease liability balance | $ | |||||||
Global Wells has been the landlord under an operating lease agreement with an unrelated party since September 2020. On February 28, 2025, the lease agreement between Global Wells and the tenant was terminated and effective March 1, 2025, Global Wells entered into a new six-year operating lease agreement ending on February 28, 2031 with a different unrelated party that generates monthly rental payments from $87,000 to $101,000 . The expected rental income is $564,000 for the remaining six months of the year ending December 31, 2026, $1,128,000 188,000 for the year ending December 31, 2031.
12. Related Party Transactions
Keary Global Group, Ltd. ("Keary Global") owns 250,004 shares of the Company's common stock as of June 30, 2026, which Keary Global acquired upon exercise of two convertible notes during the third quarter of 2018. Keary Global and its affiliate, Keary International, Ltd. ("Keary International"), are owned by one of the Company’s stockholders’ family member. In addition to being a stockholder, Keary Global and Keary International are inventory suppliers and purchasing
18
KARAT PACKAGING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 June 30, 2026 and December 31, 2025, the Company has accounts payable due to Keary Global of $7,390,000 and $4,672,000 , respectively. Purchases for the three months ended June 30, 2026 and 2025 from Keary Global were $13,297,000 and $10,583,000 , respectively. Purchases for the six months ended June 30, 2026 and 2025 from Keary Global were $22,463,000 and $20,923,000 , respectively.
13. Income Taxes
For the three months ended June 30, 2026 and 2025, the Company's income tax expense was $9,377,000 and $3,459,000 , respectively, with an effective tax rate of 24.0 % and 23.8 %, respectively. For the six months ended June 30, 2026 and 2025, the Company's income tax expense was $11,618,000 and $5,580,000 , respectively, with an effective tax rate of 24.0 % and 23.8 %, respectively. For both the three and six months ended June 30, 2026 and 2025, the Company's effective tax rate differed from the United States federal statutory rate of 21% primarily due to state taxes and the non-taxable non-controlling interest income.
In evaluating the Company’s ability to recover its deferred tax assets, the Company considers all available positive and negative evidence, including its operating results, ongoing tax planning, and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. Based upon the level of historical taxable income, at this time, the Company determined that sufficient positive evidence existed to conclude that it is more likely than not there will be full utilization of the deferred tax assets in each jurisdiction. As such, as of June 30, 2026, the Company did not record any valuation allowance.
On July 4, 2025, the President signed H.R. 1, the One Big Beautiful Bill Act into law. The legislation includes several changes to federal tax law that generally allow for more favorable deductibility of certain business expenses beginning in 2025, including the restoration of immediate expensing of domestic research and development expenditures, reinstatement of 100% bonus depreciation, and more favorable rules for determining the limitation on business interest expense. These changes, primarily timing differences with no net impact, were incorporated in the income tax provision for the period ended June 30, 2026.
14. Commitments and Contingencies
In May 2023, the Company received a Notice of Investigations and Interim Measures stating that the U.S. Customs and Border Protection ("CBP") had initiated a formal investigation to determine whether the Company had evaded the anti-dumping and countervailing duty orders on lightweight thermal paper from China by transshipping the merchandise through Taiwan. The period of investigation was from January 2022 through the pendency of the investigation. On February 5, 2024, CBP issued its Notice of Determination concluding that the manufacturing procedures performed by the manufacturer in Taiwan, which the Company imported certain thermal paper products from, did not constitute substantial transformation. On March 19, 2024, the Company submitted a request for an administrative review of the initial determination issued by CBP. On June 11, 2024, CBP completed the administrative review and upheld its initial conclusion. In February 2025, the Company started to receive bills related to certain of its thermal paper shipments. During the year ended December 31, 2025, the Company submitted protests of certain bills received with CBP, and received its determination on all submitted protests as of April 3, 2026. The Company made total payments of $1,909,000 related to certain shipments under the investigation for the year ended December 31, 2025 and $188,000 for the six months ended June 30, 2026. Payments on bills received are currently due as all submitted protests are resolved. However, the Company is also evaluating other appeal options. The Company maintains a liability reserve, representing the total estimated probable loss from the investigation plus accrued interest, of $1,291,000 and $1,720,000 as of June 30, 2026 and
19
KARAT PACKAGING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2025, respectively. The amount of the final payments could vary significantly from the estimated liability reserve.
On February 20, 2026, the U.S. Supreme Court held that certain tariffs previously imposed under the International Emergency Economic Powers Act ("IEEPA") were unconstitutional. The case was remanded to the U.S. Court of International Trade for further instructions regarding the refund of all IEEPA tariffs paid by importers of record. The Company has completed the process of reviewing its import data, and determined that it has paid a total of $25,982,000 of IEEPA tariffs during the year ended December 31, 2025 and the first two months of 2026. In April 2026, the Company submitted refund claims totaling $25,790,000 eligible for processing at time of filing. The Company recognized $26,722,000 of IEEPA tariff refunds during the three and six months ended June 30, 2026, consisting of $25,790,000 of principal recognized as a reduction of cost of goods sold, as all related inventory has been sold as of June 30, 2026, and $932,000 of excess amount recognized as interest income in the accompanying condensed consolidated statements of income. Of the total amount recognized, $25,192,000 had been received and $1,530,000 was deemed probable and recognized as prepaid expenses and other current assets in the accompanying condensed consolidated balance sheet as of June 30, 2026.
The Company is a party to, and certain of its property is the subject of, various pending claims, government investigations and legal proceedings that routinely arise in the ordinary course of its business. Management believes that the outcome of such litigation and claims, should they arise in the future, is not likely to have a material effect on the Company’s financial position or results of operations.
15. Segment Report
The Company operates and evaluates its business as a single reportable segment. The following is the summary of the financial information for the Company’s reportable segment:
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KARAT PACKAGING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| Less (add): | |||||||||||||||||||||||
| Cost of goods sold | |||||||||||||||||||||||
| Shipping and transportation | |||||||||||||||||||||||
| Salaries and benefits | |||||||||||||||||||||||
| Professional services | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Rent expense | |||||||||||||||||||||||
| Marketing expense | |||||||||||||||||||||||
| Online platform fees | |||||||||||||||||||||||
| Warehouse expense | |||||||||||||||||||||||
| Stock-based compensation | |||||||||||||||||||||||
| Secondary offering transaction costs | |||||||||||||||||||||||
| Loss (gain), net, on disposal of property and equipment | ( | ( | |||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Other segment expenses* | |||||||||||||||||||||||
| Interest income | ( | ( | ( | ( | |||||||||||||||||||
| Other (income) expenses, net | ( | ( | |||||||||||||||||||||
| Segment net income | |||||||||||||||||||||||
| Reconciliation of segment net income to consolidated net income | |||||||||||||||||||||||
| Adjustments and reconciling items | |||||||||||||||||||||||
| Consolidated net income | $ | $ | $ | $ | |||||||||||||||||||
* Other segment expenses include property taxes, insurance expenses, office expenses, bad debt expenses, and utilities.
There are no changes in the basis of segmentation or measurement of segment profit or loss since December 31, 2025. The Company’s long-lived assets are almost entirely located in the United States, and similarly its revenues are almost entirely generated in the United States. Additionally, the segment assets are the same as the assets reported on the condensed consolidated balance sheets.
16. 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 , which were recognized in general and administrative expense in the condensed consolidated statements of income.
17. Subsequent Events
On August 4, 2026, the Company's Board of Directors declared an increase in its regular quarterly cash dividend to $0.47 per share on the Company's common stock, which will be paid on or about August 28, 2026 to shareholders of record at the close of business on August 21, 2026.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes. This discussion and analysis contain “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements relate to expectations concerning matters that are not historical facts. For example, statements discussing, among other things, business strategies, growth strategies and initiatives, future revenues and future performance and expected costs and liabilities are forward-looking statements. Such forward-looking statements may be identified by words such as “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “remain,” “should,” or “will” or the negative of these terms or other comparable terminology. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expect and, therefore, you should not unduly rely on such statements. The risks and uncertainties that could cause those actual results to differ materially from those expressed or implied by these forward-looking statements include but are not limited to:
•fluctuations in the demand for our products in light of changes in laws and regulations applicable to food and beverages and changes in consumer preferences;
•supply chain disruptions that could interrupt product manufacturing and increase product costs;
•our ability to source raw materials and navigate a shortage of available materials;
•our ability to compete successfully in our industry;
•the impact of earthquakes, fire, power outages, floods, pandemics and other catastrophic events, as well as the impact of any interruption by problems such as terrorism, cyberattacks, or failure of key information technology systems;
•our ability to accurately forecast demand for our products or our results of operations;
•the impact of problems relating to delays or disruptions in the shipment of our goods through operational ports;
•our ability to expand into additional foodservice and geographic markets;
•our ability to successfully design and develop new products;
•fluctuations in freight carrier costs related to the shipment of our products could have a material adverse impact on our results of operations;
•the effects of public health crises including pandemics;
•our ability to attract and retain skilled personnel and senior management; and
•other risks and uncertainties described in “Risk Factors" as set forth in Item I, Part 1A, “Risk Factors” of the Annual Report on Form 10-K for the year ended December 31, 2025 as filed with the Securities and Exchange Commission (the "SEC") on March 13, 2026 (the "2025 Form 10-K").
As used in this Quarterly Report on Form 10-Q, “we,” “us,” “our,” “Karat,” “the Company” or “our Company” refer to Karat Packaging Inc., a Delaware corporation, and, unless the context requires otherwise, our operating subsidiaries. References to “Global Wells” or “our variable interest entity” refer to Global Wells Investment Group LLC, a Texas limited liability company and our consolidated variable interest entity, in which the Company has an equity interest and which is controlled by one of our stockholders. References to “Lollicup” refer to Lollicup USA Inc., a Texas corporation, our wholly-owned subsidiary.
Due to rounding, numbers presented throughout this report may not add up precisely to totals we provide, and percentages may not precisely reflect the absolute figures.
Overview
22
We are a rapidly-growing and nimble distributor and manufacturer of disposable foodservice products and related items, including food and take-out containers, bags, boxes, tableware, cups, lids, cutlery, straws, specialty beverage ingredients, gloves, janitorial supplies, and other products. Our products are available in plastic, paper, biopolymer-based and other compostable forms. We are a leader in product innovation, offering a growing line of environmentally-friendly products to our customers, who are increasingly focused on sustainability. We also offer customized solutions to our customers, including new product design and development, custom printing, distribution of specialty food and beverage products, and logistics services.
We operate our business strategically and with broad flexibility to provide both our large and small customers with the wide spectrum of products they need to successfully run and grow their businesses. We believe we have established ourselves as a differentiated provider of high-quality products relative to our competitors. Our operating model entails generating the majority of our revenue from the distribution of our vendors' products complemented by select manufacturing capabilities in the U.S., which allows us to provide customers with broad product choices and customized offerings with short lead times. This model provides us with the flexibility to adjust the mix of our product offering from import and manufacturing in an evolving economic environment to drive operating efficiency and sustain margin expansion. We have strengthened our supply chain resilience and efficiency by prioritizing strong partnerships with reliable and cost-efficient sources and diversifying sourcing to countries with more favorable trade conditions and minimal tariffs in a dynamic global trade landscape. This has enabled us to expand our supplier base, minimize reliance on individual suppliers, enhance the resilience of our supply chain, expand our margin and improve our operating cash flows.
We operate an approximately 500,000 square foot distribution center located in Rockwall, Texas, an approximately 300,000 square foot distribution center in Chino, California, and an approximately 76,000 square foot distribution center located in Kapolei, Hawaii. We have selected manufacturing capabilities in all of these facilities. In addition, we operate eight other distribution centers located in Chino, California; Puyallup, Washington; Summerville, South Carolina; Branchburg, New Jersey; Kapolei, Hawaii; Aurora, Illinois; Mesa, Arizona; and Sugar Land, Texas. Our distribution centers are strategically located in proximity to major population centers, including the Los Angeles, New York, Chicago, Dallas, Houston, Seattle, Phoenix, Atlanta, and Honolulu metro areas. On October 17, 2025, we announced that Lollicup, our wholly-owned business operating subsidiary, relocated its headquarters to Rockwall, Texas, from Chino, California.
We manage and evaluate our operations in one reportable segment.
Trade and Tariffs Update
Beginning in 2025, the U.S. implemented a baseline tariff framework on most imports with higher country and product-specific rates for certain trading partners, including Taiwan and China, among others. In February 2026, the U.S. Supreme Court ruled that these tariffs levied under the International Emergency Economic Powers Act ("IEEPA") were unconstitutional. With the removal of IEEPA tariff following Supreme Court's ruling, a new temporary 10% tariff for all imports under Section 122 of the Trade Act of 1974 was imposed effective February 24, 2026, and remained in effect for 150 days, the maximum period that Section 122 permits without congressional action. Subsequent to the expiration of the Section 122 tariff on July 24, 2026, new Section 301 tariffs ranging from 10% to 12.5% were imposed on approximately 60 trading partners effective July 24, 2026.
As a result of the Supreme Court’s ruling, and in response to the order from the U.S. Court of International Trade, the U.S. Customs and Border Protection ("CBP") formalized a process for refunds of previously paid IEEPA tariffs to importers of record. We have completed the process of reviewing our import data, and determined that we have paid a total of $26.0 million of IEEPA tariffs during the year ended December 31, 2025 and the first two months of 2026. In April 2026, we submitted refund claims totaling $25.8 million and expect to submit the remaining eligible claims once CBP opens the filing window.
We recorded $26.7 million of IEEPA tariff refunds during the three and six months ended June 30, 2026, consisting of $25.8 million of principal recognized as a reduction of cost of goods sold, as all related inventory has been sold as of June 30, 2026, and $0.9 million of excess amount recognized as interest income in the accompanying condensed consolidated statements of income.
Business Highlights and Trends
•We continue to realign our global supply chain within a dynamic global trade environment. We increased domestic purchases for the three and six months ended June 30, 2026 to 19.5% and 19.0%, respectively, from
23
14.6% and 14.2%, respectively, for the three and six months ended June 30, 2025, and diversified sourcing to countries with more favorable trade conditions. Specifically, we reduced sourcing from Taiwan to 45.9% and 46.0%, respectively, for the three and six months ended June 30, 2026, from 58.0% and 56.0%, respectively, for the three and six months ended June 30, 2025. Further, we increased our purchases from Indonesia, South America, and Singapore for the three and six months ended June 30, 2026 to an aggregate of 12.0% and 9.1%, respectively, from 0.9% and 1.1%, respectively, for the three and six months ended June 30, 2025.
•We recognized $25.8 million as a reduction of cost of goods sold and $0.9 million as interest income related to IEEPA tariff refunds during the three and six months ended June 30, 2026. The recorded IEEPA tariff refunds increased our gross profit and our adjusted EBITDA by $25.8 million, our other income, net, by $0.9 million, and our net income by $20.2 million, respectively, for the three and six months ended June 30, 2026. The refunds delivered benefits to our gross margin and our adjusted EBITDA margin of 18.9% and 10.2%, respectively, and our net income margin of 14.8% and 8.0%, respectively, for the three and six months ended June 30, 2026. The refunds represent the recovery of tariffs paid in prior periods and provided a one-time benefit to our results during the quarter. Cash received from IEEPA tariff refunds, included in cash from operating activities, totaled $25.2 million during the three and six months ended June 30, 2026.
•We achieved record quarterly net sales of $136.3 million for the three months ended June 30, 2026, an increase of 9.9% in amount and 8.9% in volume, compared to the three months ended June 30, 2025. For the six months ended June 30, 2026, we recorded net sales of $253.2 million, an increase of 11.3% in amount and 9.6% in volume, compared to the six months ended June 30, 2025.
•Our gross margin was 56.6% and 46.9% for the three and six months ended June 30, 2026, an increase of 1,700 basis points and 740 basis points compared to the three and six months ended June 30, 2025.
•We achieved record quarterly net income of $29.6 million for the three months ended June 30, 2026, an increase of 168.3% compared to the three months ended June 30, 2025. For the six months ended June 30, 2026, we recorded net income of $36.8 million, an increase of 105.9%, compared to the six months ended June 30, 2025.
•Our net income margin was 21.8% and 14.5% for the three and six months ended June 30, 2026, an increase of 1,290 and 670 basis points compared to the three and six months ended June 30, 2025.
•We generated $33.2 million and $40.3 million in net cash from operating activities for the three and six months ended June 30, 2026, an increase of 240.0% and 130.9% compared to the three and six months ended June 30, 2025.
•We generated consolidated Adjusted EBITDA, a non-GAAP measure defined below, of $41.6 million and $54.1 million for the three and six months ended June 30, 2026, an increase of 135.2% and 82.7% compared to the three and six months ended June 30, 2025.
•Our Adjusted EBITDA margin, a non-GAAP measure defined below, was 30.5% and 21.4% for the three and six months ended June 30, 2026, an increase of 1,620 and 840 basis points compared to the three and six months ended June 30, 2025.
•As of June 30, 2026, we had financial liquidity of $42.0 million, consisting of $38.4 million in cash and cash equivalents and $3.6 million in availability under Line of Credit. In addition, we had $15.7 million in short-term investments as of June 30, 2026.
•On August 4, 2026, our Board of Directors declared an increase to our quarterly cash dividend to $0.47 per share on our common stock, which will be paid on August 28, 2026 to shareholders of record at the close of business on August 21, 2026.
Trends in Our Business
The following trends have contributed to the results of our operations, and we anticipate that they will continue to affect our future results:
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•A significant trend in the restaurant industry is the changing perception of food delivery and take-out compared to traditional on-premise dining. There is a clear growing preference for delivery and take-out, and we expect this trend to continue positively, influencing our operating results, as more customers will need packaging and containers to support the rising demand from food delivery and take-out consumers.
•Environmental concerns regarding disposable products, broadly, have resulted in a number of significant changes to the food-service industry, including regulations applicable to our customers. We believe this trend will have a positive long-lasting impact on our results of operations, as we expect there will be an increased demand for eco-friendly and compostable single-use disposable products.
•Most of our products are sourced from vendors abroad and as a result we incur freight costs from these overseas import shipments, which could be a significant component of our cost of goods sold. Elevated ocean freight rates could pressure our gross margin, and if we raise our price, dampen the demand for our products. Steady or dropping ocean freight could yield significant opportunities for us to expand our margin. However, it could also reduce the barrier of entry, intensifying the competition.
•U.S. foreign trade policy continues to evolve, such as the imposition of tariffs on imports from China and other countries. We believe this trend will have either a positive or a negative impact on our results of operations, depending on whether we are able to continue to strengthen our global supply chain, whether any previously imposed tariffs are removed and whether we can implement procedures to mitigate the impact from the tariffs.
•The cost of raw materials used to manufacture our products, including polyethylene terephthalate, or PET, plastic resin, aluminum, and paper boards, may continue to fluctuate, and the availability and cost of such raw materials are subject to global geopolitical risks. Since negotiated sales contracts and the market largely determine the pricing for our products, we are, at times, limited in our ability to raise prices and pass through any impacts of inflation on our costs. There can also be lags between cost inflation and the implementation of price increases, which could negatively impact our gross margin. Conversely, periods of deflation, where raw material costs decrease, may create pricing pressure and start price wars, potentially requiring us to lower prices, which could also affect our gross margin. Additionally, the availability of raw materials may affect our suppliers’ ability to manufacture products and may limit the volume of products we are able to import, which in turn could impact our ability to meet customer demand. We believe price fluctuations and the availability of raw materials will have either a positive or a negative impact on our results of operations in the future, depending on whether raw material costs increase or decrease, whether we can successfully implement price adjustments to maintain gross margin and whether we can effectively realign our global supply chain to mitigate disruptions and support product availability.
•Supply chain effectiveness could have a long-lasting impact on our operations and financial results. We believe this trend will have either a positive or a negative impact on our results of operations, depending on whether we are able to manage our global supply chain effectively, including the accurate forecast of demand, the successful procurement and transportation of raw materials and products, and the effective management of our inventory, production and distribution.
•Fluctuations in foreign currency exchange rates could impact either positively or negatively various aspects of our business activities, including but not limited to our purchasing power and capacity to source inventory.
Critical Accounting Estimates
The following discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with US GAAP. The preparation of these financial statements in accordance with US GAAP requires us to make estimates and judgments.
There have been no material changes in our critical accounting policies, or in the estimates and assumptions underlying those policies, from those described under the heading “Critical Accounting Estimates” in Item 7 of Part II of our 2025 Form 10-K.
Results of Operations
25
The amount and percentage changes calculated in the discussion below were based on numbers rounded to the nearest thousands.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Net sales | $ | 136,302 | $ | 123,986 | $ | 253,249 | $ | 227,610 | |||||||||||||||
| Cost of goods sold | 59,142 | 74,879 | 134,563 | 137,741 | |||||||||||||||||||
| Gross profit | 77,160 | 49,107 | 118,686 | 89,869 | |||||||||||||||||||
| Operating expenses | 39,558 | 32,557 | 72,620 | 65,499 | |||||||||||||||||||
| Operating income | 37,602 | 16,550 | 46,066 | 24,370 | |||||||||||||||||||
| Other income (expenses), net | 1,424 | (2,039) | 2,342 | (923) | |||||||||||||||||||
| Provision for income taxes | 9,377 | 3,459 | 11,618 | 5,580 | |||||||||||||||||||
| Net income | $ | 29,649 | $ | 11,052 | $ | 36,790 | $ | 17,867 | |||||||||||||||
Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025
Net sales
Net sales were $136.3 million for the three months ended June 30, 2026 compared to $124.0 million for the three months ended June 30, 2025, an increase of $12.3 million, or 9.9%. The sales growth was primarily driven by an increase of $13.1 million in volume and product mix, as well as a $0.4 million favorable year-over-year pricing comparison, partially offset by a decrease of $1.1 million in shipping and logistics revenue.
Cost of goods sold
Cost of goods sold was $59.1 million for the three months ended June 30, 2026, compared to $74.9 million for the three months ended June 30, 2025, a decrease of $15.7 million, or 21.0%. This is primarily driven by IEEPA tariff refunds of $25.8 million, partially offset by higher product costs of $6.9 million due to increased sales volume and resin price, coupled with higher import costs of $3.5 million, including duty and tariffs and ocean freight, mainly due to a 4.3% increase in the number of containers imported and an 8.9% increase in average container rate compared to the three months ended June 30, 2025.
Gross profit
Gross profit was $77.2 million for the three months ended June 30, 2026 compared to $49.1 million for the three months ended June 30, 2025, an increase of $28.1 million, or 57.1%. Gross margin was 56.6% for the three months ended June 30, 2026 compared to 39.6% for the three months ended June 30, 2025, an increase of 1,700 basis points. IEEPA tariff refunds delivered a favorable impact on gross margin of 1,890 basis points for the three months ended June 30, 2026. Partially offset this benefit, product costs as a percentage of net sales increased to 49.2% from 48.5%, and import costs increased to 11.1% from 9.5%, compared to the three months ended June 30, 2025.
Operating expenses
Operating expenses were $39.6 million for the three months ended June 30, 2026 compared to $32.6 million for the three months ended June 30, 2025, an increase of $7.0 million, or 21.5%. Shipping and transportation costs increased $3.1 million during the three months ended June 30, 2026 driven by higher shipping volume and increased shipping rate. Online platform fees increased $0.6 million and marketing expense increased $0.5 million, as online sales grew 23.6% compared to the three months ended June 30, 2025. Additionally, salaries and benefits increased $1.1 million, bad debt expense increased $0.6 million, and warehouse expense increased $0.4 million. Further, the three months ended June 30, 2026 included a $0.1 million loss compared to a $0.3 million gain on disposal of machinery in the normal course of business during the three months ended June 30, 2025.
Operating income
26
Operating income was $37.6 million for the three months ended June 30, 2026 compared to $16.6 million for the three months ended June 30, 2025, an increase of $21.1 million, or 127.2%. The increase was due to an increase in gross profit of $28.1 million partially offset by an increase in operating expenses of $7.0 million, as discussed above.
Other income (expenses), net
Other income, net was $1.4 million for the three months ended June 30, 2026 compared to other expenses, net of $2.0 million for the three months ended June 30, 2025, a favorable variance of $3.5 million, primarily due to a decrease in loss on foreign currency transactions of $2.8 million a result of the fluctuation of currency exchange rate between the United States Dollar and the New Taiwan Dollar. Additionally, interest income increased $0.5 million compared to the three months ended June 30, 2025. Interest income in the three months ended June 30, 2026 consisted mostly of the $0.9 million related to IEEPA tariff refunds. Interest income in the three months ended June 30, 2025 consisted entirely of interest generated from investment in certificates of deposit of $0.7 million.
Provision for income taxes
Provision for income taxes was $9.4 million, including an impact of $6.6 million from IEEPA tariff refunds, for the three months ended June 30, 2026 compared to $3.5 million for the three months ended June 30, 2025, an increase of $5.9 million, or 171.1%. The Company’s effective tax rate was 24.0% for the three months ended June 30, 2026 compared to 23.8% for the three months ended June 30, 2025.
Net income
Net income was $29.6 million for the three months ended June 30, 2026 compared to $11.1 million for the three months ended June 30, 2025, an increase of $18.6 million, or 168.3%. The increase was primarily driven by an increase of $21.1 million in operating income and an increase of $3.5 million in other income, net, partially offset by an increase of $5.9 million in provision for income taxes, as discussed above.
Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025
Net sales
Net sales were $253.2 million for the six months ended June 30, 2026 compared to $227.6 million for the six months ended June 30, 2025, an increase of $25.6 million, or 11.3%. The year-over-year increase in net sales was primarily driven by an increase of $25.4 million in volume and change in product mix, as well as a $2.3 million favorable year-over-year pricing comparison, partially offset by a decrease of $2.0 million in shipping and logistics revenue.
Cost of goods sold
Cost of goods sold was $134.6 million for the six months ended June 30, 2026 compared to $137.7 million for the six months ended June 30, 2025, a decrease of $3.2 million, or 2.3%, primarily due to IEEPA tariff refunds of $25.8 million during the six months ended June 30, 2026. This decrease is partially offset by an increase of $12.1 million in product costs primarily driven by increased sales volume and resin price, and an increase of $10.7 million in import costs, including duty and tariffs and ocean freight, primarily as a result of higher import duty and tariffs, which increased from $8.1 million for the six months ended June 30, 2025 to $18.9 million for the six months ended June 30, 2026.
Gross profit
Gross profit was $118.7 million for the six months ended June 30, 2026 compared to $89.9 million for the six months ended June 30, 2025, an increase of $28.8 million, or 32.1%. Gross margin was 46.9% for the six months ended June 30, 2026 compared to 39.5% for the six months ended June 30, 2025, an increase of 740 basis points. IEEPA tariff refunds delivered a favorable impact on gross margin of 1,020 basis points for the six months ended June 30, 2026. Additionally, product costs as a percentage of net sales decreased to 48.8% from 48.9%, while import costs as a percentage of net sales increased to 12.4% from 9.1%, compared to the six months ended June 30, 2025.
Operating expenses
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Operating expenses were $72.6 million for the six months ended June 30, 2026 compared to $65.5 million for the six months ended June 30, 2025, an increase of $7.1 million, or 10.9%. Shipping and transportation costs increased $2.7 million during the six months ended June 30, 2026 driven by higher shipping volume and increased shipping rate. In addition, salaries and benefits increased $1.7 million, bad debt expense increased $0.7 million, warehouse expense increased $0.7 million, and marketing expense increased $0.4 million. Further, the six months ended June 30, 2026 included a $0.1 million loss compared to a $0.3 million gain on disposal of machinery in the normal course of business during the six months ended June 30, 2025.
Operating income
Operating income was $46.1 million for the six months ended June 30, 2026 compared to $24.4 million for the six months ended June 30, 2025, an increase of $21.7 million, or 89.0%. The increase was due to an increase in gross profit of $28.8 million, partially offset by an increase in operating expenses of $7.1 million, as discussed above.
Other income (expenses), net
Other income, net was $2.3 million for the six months ended June 30, 2026 compared to other expenses, net of $0.9 million for the six months ended June 30, 2025, a favorable variance of $3.3 million. The variance was driven primarily by a gain on foreign currency transactions of $0.2 million during the six months ended June 30, 2026, compared to a loss on foreign currency transactions of $2.6 million during the six months ended June 30, 2025, due to the foreign currency fluctuation between the United States Dollar and the New Taiwan Dollar. In addition, interest income increased $0.2 million due to $0.9 million interest income related to IEEPA tariff refunds recognized in the six months ended June 30, 2026, partially offset by a decrease of $0.7 million in interest income from investment in certificates of deposit compared to the six months ended June 30, 2025.
Provision for income taxes
Provision for income taxes was $11.6 million, including $6.6 million impact from IEEPA tariff refunds, for the six months ended June 30, 2026 compared to 5.6 million for the six months ended June 30, 2025, an increase of $6.0 million, or 108.2%. The Company’s effective tax rate was 24.0% for the six months ended June 30, 2026 compared to 23.8% for the six months ended June 30, 2025.
Net income
Net income was $36.8 million for the six months ended June 30, 2026 compared to $17.9 million for the six months ended June 30, 2025, an increase of $18.9 million, or 105.9%. The increase was primarily driven by an increase of $21.7 million in operating income and an increase of $3.3 million in other income, net, partially offset by an increase of $6.0 million in provision for income taxes, as discussed above.
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Non-GAAP Financial Measures
We use certain non-GAAP financial measures to assess our financial and operating performance that are not defined by, or calculated in accordance with U.S. GAAP. A non-GAAP financial measure is defined as a numerical measure of a company’s financial performance that (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the comparable measure calculated and presented in accordance with U.S. GAAP; or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable measure calculated and presented in accordance with U.S. GAAP.
Our primary non-GAAP financial measures are listed below and reflect how we evaluate our operating results.
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA is a financial measure calculated as net income excluding (i) interest income, (ii) interest expense, (iii) provision for income taxes, (iv) depreciation and amortization, (v) stock-based compensation expense, and (vi) secondary offering transaction costs. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by net sales.
We present Adjusted EBITDA and Adjusted EBITDA margin as supplemental measures of our financial performance. Adjusted EBITDA and Adjusted EBITDA margin assist management in assessing our core operating performance. We believe these measures provide investors with useful perspective on underlying business results and trends and facilitate a comparison of our performance from period to period.
Adjusted EBITDA and Adjusted EBITDA margin should not be considered in isolation or as alternatives to net income, net income margin, or other measures determined in accordance with US GAAP. Also, Adjusted EBITDA and Adjusted EBITDA margin are not necessarily comparable to similarly titled measures presented by other companies.
Set forth below is a reconciliation of net income to Adjusted EBITDA and net income margin to Adjusted EBITDA margin.
Reconciliation of Adjusted EBITDA (unaudited) | Three Months Ended June 30, | ||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Amount | % of Net Sales | Amount | % of Net Sales | ||||||||||||||||||||
| Net income | $ | 29,649 | 21.8 | % | $ | 11,052 | 8.9 | % | |||||||||||||||
| Add (deduct): | |||||||||||||||||||||||
| Interest income | (1,161) | (0.9) | (676) | (0.5) | |||||||||||||||||||
| Interest expense | 425 | 0.3 | 521 | 0.4 | |||||||||||||||||||
| Provision for income taxes | 9,377 | 6.9 | 3,459 | 2.8 | |||||||||||||||||||
| Depreciation and amortization | 2,727 | 2.0 | 2,678 | 2.1 | |||||||||||||||||||
| Stock-based compensation expense | 596 | 0.4 | 445 | 0.4 | |||||||||||||||||||
| Secondary offering costs (1) | — | — | 214 | 0.2 | |||||||||||||||||||
| Adjusted EBITDA | $ | 41,613 | 30.5 | % | $ | 17,693 | 14.3 | % | |||||||||||||||
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| Reconciliation of Adjusted EBITDA (unaudited) | Six Months Ended June 30, | ||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||||||||
| Amount | % of Net Sales | Amount | % of Net Sales | ||||||||||||||||||||
| Net income | $ | 36,790 | 14.5 | % | $ | 17,867 | 7.8 | % | |||||||||||||||
| Add (deduct): | |||||||||||||||||||||||
| Interest income | (1,447) | (0.6) | (1,242) | (0.5) | |||||||||||||||||||
| Interest expense | 834 | 0.3 | 1,030 | 0.4 | |||||||||||||||||||
| Provision for income taxes | 11,618 | 4.6 | 5,580 | 2.5 | |||||||||||||||||||
| Depreciation and amortization | 5,468 | 2.3 | 5,366 | 2.4 | |||||||||||||||||||
| Stock-based compensation expense | 838 | 0.3 | 791 | 0.3 | |||||||||||||||||||
| Secondary offering transaction costs (1) | — | — | 214 | 0.1 | |||||||||||||||||||
| Adjusted EBITDA | $ | 54,101 | 21.4 | % | $ | 29,606 | 13.0 | % | |||||||||||||||
(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, as discussed in Note 16 — Secondary Offering.
Free Cash Flow
Free Cash Flow is a financial measure calculated as cash from operating activities less cash used in (i) purchases of property and equipment and (ii) deposits paid for property and equipment.
We present Free Cash Flow as a supplemental measure of our financial liquidity. Free Cash Flow assists management in assessing our ability to fund growth through generation of additional cash from business operations. We believe this measure also provides investors with an important liquidity measure of the cash that is available, after capital expenditures, for operational expenses and investment in our business.
Free Cash Flow should not be considered in isolation or as alternatives to net income or cash flows from operating activities. Also, Free Cash Flow is not necessarily comparable to similarly titled measures presented by other companies.
Set forth below is a reconciliation of net cash provided by operating activities to Free Cash Flow:
Reconciliation of Free Cash Flow (unaudited) | Six Months Ended June 30, | ||||||||||
| 2026 | 2025 | ||||||||||
| (in thousands) | |||||||||||
| Net cash provided by operating activities | $ | 40,345 | $ | 17,476 | |||||||
Deduct: | |||||||||||
| Purchases of property and equipment | (621) | (274) | |||||||||
| Deposits paid for property and equipment | (1,653) | (989) | |||||||||
| Free Cash Flow | $ | 38,071 | $ | 16,213 | |||||||
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Liquidity and Capital Resources
Sources and Uses of Funds
Our primary sources of liquidity are cash provided by operations, borrowings under our line of credit with the Hanmi Bank (the "Line of Credit"), and promissory notes. On an annual basis, we have typically generated positive cash flows from operations. Our ability to generate positive cash flow from operations in the future will be, at least in part, dependent on global economic conditions and our ability to navigate the challenging macro environment at times.
As described in Note 6 — Line of Credit to the condensed consolidated financial statements, the Line of Credit is available for working capital and general corporate purposes and is secured by our assets. It consists of a revolving loan facility and a standby letter of credit sub-limit. We are not required to pay a commitment (unused) fee on the undrawn portion of the Line of Credit and interest is payable monthly. On March 3, 2025, we amended the Line of Credit. Prior to March 3, 2025, the revolving loan facility had a maximum borrowing capacity of $40.0 million and interest accrued at an annual rate of one month term Secured Overnight Financing Rate ("SOFR") plus 2.50%, with a SOFR floor of 1.00%. The amendment on March 3, 2025, among other things, (1) extended the maturity date to March 14, 2027, (2) reduced the maximum borrowing capacity of the revolving loan facility to $20.0 million, and (3) revised the interest on any Line of Credit borrowings to an annual rate of one month term SOFR plus 2.25%, with a SOFR floor of 1.00%. On March 17, 2025, August 21, 2025, October 3, 2025, and May 11, 2026, we entered into four 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, from $10,000,000 to $15,000,000, and from $15,000,000 to $18,000,000. As of June 30, 2026, the amount issued under the standby letter of credit was $16.4 million, and the maximum remaining amount that could be borrowed under the Line of Credit was $3.6 million.
As described in Note 8 — Long-Term Debt to the condensed consolidated financial statements, on June 17, 2022, we entered into a $28.7 million term loan agreement which matures July 1, 2027 (the "2027 Term Loan"). The 2027 Term Loan had an initial balance of $20.7 million and an option to request additional advances up to a maximum of $8.0 million through June 30, 2023, which we exercised in March 2023. Interest accrues at a fixed rate of 4.375% per annum. Principal and interest payments of $0.1 million are due monthly throughout the term of the loan, with the remaining principal balance due at maturity. On September 5, 2025, we made an early payment of $3.5 million to reduce the remaining principal balance due at maturity, with total monthly payments remaining the same for the remainder of the loan term. The 2027 Term Loan is collateralized by substantially all of Global Wells’ assets and is guaranteed by one of our stockholders. In accordance with the loan agreement, Global Wells is required to comply with certain financial covenants, including a minimum debt service coverage ratio.
Additionally, as of June 30, 2026, we have a $23.0 million term loan that matures September 30, 2026 (the "2026 Term Loan"). The 2026 Term Loan had an initial balance of $16.1 million and an option to request additional advances up to a maximum of $6.9 million through September 2022, which we exercised in February 2022. Interest accrues at a fixed rate of 3.5% per annum. Principal and interest payments of $0.1 million are due monthly throughout the term of the loan, with the remaining principal balance due at maturity. On December 18, 2025 and April 24, 2026, we made early payments of $8.0 million and $0.4 million, respectively, to reduce the remaining principal balance due at maturity, with total monthly payments remaining the same for the remainder of the loan term. The 2026 Term Loan is collateralized by substantially all of Global Wells’ assets and is guaranteed by Global Wells and one of our stockholders. In accordance with the loan agreement, Global Wells is required to comply with certain financial covenants, including a minimum debt service coverage ratio. As of June 30, 2026, the entire remaining balance of $11.4 million is included in the long-term debt, current portion on the condensed consolidated balance sheet. We intend to repay the 2026 Term Loan at maturity using our available liquidity, which includes $38.4 million in cash and cash equivalents and $15.7 million in short-term investments as of June 30, 2026.
As of June 30, 2026, we were in compliance with the financial covenants under all of our loan agreements, and do not expect material uncertainties in our continued ability to be in compliance with all financial covenants through the remaining term of all of our loan agreements. As of June 30, 2026, we had no borrowings outstanding under the Line of Credit, $23.3 million in outstanding balance under the 2027 Term Loan, and $11.4 million in outstanding balance under the 2026 Term Loan.
As discussed in Note 14 — Commitments and Contingencies to the condensed consolidated financial statements, on February 5, 2024, we received a Notice of Determination from the 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
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thermal paper products. On March 19, 2024, we submitted a request for an administrative review of the initial determination issued by CBP. On June 11, 2024, CBP completed the administrative review and upheld its initial conclusion. In February 2025, we started to receive bills related to certain of our thermal paper shipments. During the year ended December 31, 2025, we submitted protests of certain bills received with CBP, and received its determination on all submitted protests as of April 3, 2026. We made total payments of $1.9 million related to certain shipments under the investigation for the year ended December 31, 2025 and $0.2 million for the six months ended June 30, 2026. Payments on bills received are currently due as all submitted protests are resolved. Although we have an import duty liability reserve of $1.3 million as of June 30, 2026, the amount of the final payments could vary significantly from the estimated liability reserve.
On February 20, 2026, the U.S. Supreme Court held that certain tariffs previously imposed under the International Emergency Economic Powers Act ("IEEPA") were unconstitutional. The case was remanded to the U.S. Court of International Trade for further instructions regarding the refund of all IEEPA tariffs paid by importers of record. We have completed the process of reviewing our import data, and determined that we have paid a total of $26.0 million of IEEPA tariffs during the year ended December 31, 2025 and the first two months of 2026. In April 2026, we submitted refund claims totaling $25.8 million and expect to submit the remaining eligible claims once CBP opens the filing window.
We recognized $26.7 million of IEEPA tariff refunds during the three and six months ended June 30, 2026. Of the total amount recognized, $25.2 million had been received and $1.5 million was deemed probable and recognized as prepaid expenses and other current assets in the accompanying condensed consolidated balance sheet as of June 30, 2026. We currently expect to receive the refund of the remaining $1.5 million within the next 12 months, and continue to closely monitor the status of its submitted claims and developments.
Additionally, on August 4, 2026 our Board of Directors declared an increase to our regular quarterly cash dividend to $0.47 per share on our common stock, which will be paid on August 28, 2026 to shareholders of record at the close of business on August 21, 2026. Prior to this, we paid out regular quarterly cash dividends totaling $18.0 million in the current fiscal year.
Our ongoing operations and growth strategy may require us to continue to make investments in new markets and products, logistics and manufacturing infrastructure, e-commerce platforms, talent, and technology capabilities. In addition, we may consider making strategic acquisitions and investments which could require significant liquidity. The rapidly changing macroeconomic, geopolitical and global trade dynamics created significant uncertainty in the global economy and capital markets, which could have long-lasting adverse effects. We currently believe that our cash on hand, ongoing cash flows from our operations and funding available under our borrowings will be adequate to meet our working capital needs, service our debt, including the entire balance due on our 2026 Term Loan upon maturity, make lease payments, and fund capital expenditures for at least the next 12 months. We continue to explore other options to further expand our liquidity to support the business growth and enhance shareholder value.
Beyond the next 12 months, if we require additional capital resources to grow our business, either organically or through acquisition, we may seek to sell additional equity securities, renew and increase use of the Line of Credit, and acquire additional debt. The sale of additional equity securities or certain forms of debt financing could result in additional dilution to our stockholders. We may not be able to obtain financing arrangements in amounts or on terms acceptable to us in the future. In the event we are unable to obtain additional financing when needed, we may be compelled to delay or curtail our plans to develop our business, which could have a material adverse effect on our operations, market position and competitiveness. Notwithstanding the potential liquidity challenges described above, we expect to meet our long-term liquidity needs with cash flows from operations and financing arrangements.
Liquidity Position
The following table summarizes total current assets, liabilities and working capital at June 30, 2026 compared to December 31, 2025:
| June 30, 2026 | December 31, 2025 | Change | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Current assets | $ | 199,342 | $ | 161,188 | $ | 38,154 | |||||||||||
| Current liabilities | 88,551 | 70,220 | 18,331 | ||||||||||||||
| Working capital | $ | 110,791 | $ | 90,968 | $ | 19,823 | |||||||||||
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As of June 30, 2026, we had working capital of $110.8 million compared to $91.0 million as of December 31, 2025, representing an increase of $19.8 million, or 21.8%, driven by an increase of $38.2 million in current assets, partially offset by an increase of $18.3 million in current liabilities. The increase in current assets was primarily driven by an increase in cash and cash equivalents and short-term investments of $16.3 million, an increase in accounts receivable of $12.8 million as a result of stronger sales, an increase in inventories of $7.4 million as we stock up for the summer peak season, and an increase in prepaid expenses and other current assets of $1.7 million due to $1.5 million outstanding IEEPA tariff receivable. The increase in current liabilities was primarily driven by an increase in accounts payable and related party payables of $10.4 million, an increase in income tax payable of $5.7 million, and an increase in accrued expenses of $2.5 million, partially offset by a decrease in long-term debt, current portion of $0.9 million.
Cash Flows
The following table summarizes cash flow for the six months ended June 30, 2026 and 2025:
| Six Months Ended June 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| (in thousands) | |||||||||||
| Net cash provided by operating activities | $ | 40,345 | $ | 17,476 | |||||||
Net cash (used in) provided by investing activities | (18,260) | 1,164 | |||||||||
| Net cash used in financing activities | (21,566) | (19,675) | |||||||||
| Net change in cash and cash equivalents | $ | 519 | $ | (1,035) | |||||||
Cash flows provided by operating activities. Net cash provided by operating activities was $40.3 million for the six months ended June 30, 2026, primarily the result of net income of $36.8 million, adjusted for certain non-cash items totaling $13.3 million, consisting mainly of depreciation and amortization of fixed assets and operating right-of-use assets, stock-based compensation, and allowance for bad debt and inventory adjustments. In addition, cash decreased by $9.7 million from changes in working capital, primarily resulted from a decrease of $13.4 million from an increase in accounts receivable due to higher sales, a decrease of $8.2 million from an increase in inventory due to increased inventory purchases, a decrease of $5.9 million from a reduction in operating lease liabilities, and a decrease of $1.6 million from an increase in prepaid expenses, partially offset by an increase of $10.9 million from higher accounts and related party payables primarily due to increased inventory purchases, an increase of $2.5 million from higher accrued expenses, and an increase of $5.7 million from the increase in income tax payable.
Net cash provided by operating activities was $17.5 million for the six months ended June 30, 2025, primarily the result of net income of $17.9 million, adjusted for certain non-cash items totaling $11.1 million, consisting mainly of depreciation and amortization of fixed assets and operating right-of-use assets, stock-based compensation, gain on disposal of machinery in the normal course of business, and write-off of inventory. In addition, cash decreased by $11.5 million from changes in working capital, which included a decrease of $18.4 million from inventory build-up, a decrease of $9.6 million from an increase in accounts receivable from higher sales, and a decrease of $4.6 million from an increase in operating lease liabilities. These decreases were partially offset by an increase of $20.4 million from higher accounts and related party payables primarily associated with increased inventory purchases and an increase of $0.7 million from higher accrued expenses.
Cash flows (used in) provided by investing activities. Net cash used in investing activities was $18.3 million for the six months ended June 30, 2026, which primarily included $15.7 million in purchases of short-term investments, $1.7 million in deposits paid for the purchase of property and equipment, and $0.6 million paid to directly purchase property and equipment.
Net cash provided by investing activities was $1.2 million for the six months ended June 30, 2025, which primarily included $18.2 million in redemptions of short-term investments, $0.5 million of proceeds from the disposal of publicly-traded equity securities, and $0.5 million of proceeds from the sale of machinery and equipment, partially offset by $16.3 million in purchases of short-term investments, $1.0 million of deposits paid for the purchase of property and equipment, $0.5 million paid to invest in publicly-traded equity securities, and $0.3 million paid to directly purchase property and equipment.
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Cash flows used in financing activities. Net cash used in financing activities was $21.6 million for the six months ended June 30, 2026, which primarily included $18.0 million of cash dividends paid to shareholders, $2.0 million of repurchases of common stock ,and $1.2 million of payments towards long-term debt.
Net cash used in financing activities was $19.7 million for the six months ended June 30, 2025, which primarily included $18.0 million of cash dividends paid to shareholders, $0.9 million of Global Wells noncontrolling membership interest redemption gain tax withholding payment, and $0.6 million of payments towards long-term debt.
Related Party Transactions
For a description of significant related party transactions, see Note 12 — Related Party Transactions in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is contained in Note 2 — Summary of Significant Accounting Policies in the Notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This item is not required for smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this Quarterly Report on Form 10-Q, the Company's management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of its disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2026. Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2026.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the three months ended June 30, 2026, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we are involved in various legal proceedings. Although no assurance can be given, we do not believe that any of our currently pending proceedings will have a material adverse effect on our financial condition, cash flows or results of operations. See Note 14 — Commitments and Contingencies in Part I, Item 1 of this Quarterly Report for a description of our commitments and contingencies.
Item 1A. Risk Factors.
There have been no material changes to the Risk Factors previously disclosed in the 2025 Form 10-K, which is incorporated herein by reference.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
The following table sets forth information regarding our purchases of shares of our common stock during the second quarter of fiscal year 2026:
| 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) | ||||||||||||||||||||||
| April 1, 2026 - April 30, 2026 | — | $ | — | — | $ | 12,014 | ||||||||||||||||||||
| May 1, 2026 - May 31, 2026 | 73,258 | $ | 27.11 | 73,258 | $ | 10,028 | ||||||||||||||||||||
| June 1, 2026 - June 30, 2026 | 252 | $ | 26.76 | 252 | $ | 10,022 | ||||||||||||||||||||
| Total | 73,510 | 73,510 | ||||||||||||||||||||||||
(1) On November 5, 2025, the Company announced that the Board of Directors approved a Share Repurchase Program authorizing the Company to repurchase up to $15.0 million of its 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 9 - Stockholders' Equity or further information related to our share repurchases.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Rule 10b5-1 Trading Arrangements
During the three months ended June 30, 2026, none of the Company’s directors or officers adopted terminated
Item 6. Exhibits.
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| Exhibit No. | Description | |||||||
| 10.1* | Change In Terms Agreement, dated May 11, 2026, by and between Lollicup USA Inc. and Hanmi Bank | |||||||
| 31.1* | Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||||||
| 31.2* | Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||||||
| 32.1** | Certifications of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||||
| 32.2** | Certifications of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||||
| 101.INS* | XBRL Instance Document | |||||||
| 101.SCH* | XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB* | XBRL Taxonomy Extension Labels Linkbase Document | |||||||
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104* | Cover Page Interactive File (formatted as inline XBRL and contained in Exhibit 101) | |||||||
* Filed herewith. ** Furnished herewith. + Indicates management compensatory agreement. | ||||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DATE: August 7, 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) | ||||||||
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