KARAT PACKAGING INC

As used in this Annual Report on Form 10-K, "we", "us", "our", "Karat", "the Company" or "our Company" refer to Karat Packaging Inc., a Delaware corporation, and, unless the context requires otherwise, our operating subsidiaries. References to "Global Wells" or "our variable interest entity" refer to Global Wells Investment Group LLC, a Texas limited liability company and our consolidated variable interest entity, in which the Company has an equity interest and which is controlled by one of our stockholders. References to "Lollicup" refer to Lollicup USA Inc., our wholly-owned subsidiary incorporated in California in 2001 and redomesticated to the State of Texas in October 2025.

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

We operate our business strategically and with broad flexibility to provide both our large and small customers with the wide spectrum of products they need to successfully run and grow their businesses. We believe we have established ourselves as a differentiated provider of high-quality products relative to our competitors. Our operating model entails generating the majority of our revenue from the distribution of products sourced from a diversified global network of nearly 150 vendors, complemented by select manufacturing capabilities in the U.S., which allows us to provide customers with broad product choices and customized offerings with short lead times. This model provides us with the flexibility to adjust the mix of our product offering from import and manufacturing in evolving economic environments to drive operating efficiency and sustained margin expansion and ensure quality of our customer service and product availability during global supply chain disruptions. Starting in 2023 and continuing into 2025, in light of the rising domestic labor and other operating costs and dropping ocean freight rates, we executed a strategy to pivot into a more asset-light model by increasing imports and scaling back domestic manufacturing.

Amidst the evolving tariff environment, we have placed our strategic emphasis on expanding and diversifying our global vendor network to enhance the resilience of our supply chain, minimize tariff impact on our operations and financial results, and maintain a strong margin profile and operating cash flows. We are prioritizing strong partnerships with reliable and cost-efficient sources and more favorable trade terms, negotiating additional vendor support, exploring opportunities to collaborate with vendors in new countries and geographies, while reallocating our own domestic production capabilities to optimize overall product margin. Although we have scaled back domestic manufacturing since 2023 by disposing of certain production machinery and related raw materials and reducing our production workforce, we have largely maintained our manufacturing infrastructure in the U.S. While we expect manufacturing to remain a relatively small portion of our sales mix going forward, we plan to keep manufacturing capabilities domestically to retain our nimble business model and resilient supply chain. For the year ended December 31, 2025, manufacturing accounted for approximately 9% of our net sales, down from 11% in the prior year.