Karat Packaging (KRT) risk factors, FY2025 10-K

Risks Related to Our Industry

1. 01Demand for our products could be affected by changes in laws and regulations applicable to food and beverages and changes in consumer preferences
2. 02Additionally, because our products are used to package consumer goods, we are subject to a variety of risks that could influence consumer behavior and negatively impact demand for our products, including changes in consumer preferences driven by various health and environmental-related concerns and perceptions
3. 03Supply chain disruptions could interrupt product manufacturing and increase product costs
4. 04Raw material inflation or shortage of available materials could harm our financial condition and results of operations25% rewritten
5. 05We operate in a highly competitive environment and may not be able to compete successfully
6. 06Unfavorable conditions in our industry or the global economy could limit our ability to grow our business and negatively affect our results of operations
7. 07Changes in freight carrier costs related to the shipment of our products could have a negative impact on our business and results of operations
8. 08We may experience delays or disruptions in the shipment of our goods through operational ports43% rewritten
9. 09Our net sales and profits depend on the level of customer spending for our products, which is sensitive to general economic conditions and other factors
10. 10Changes in tax laws or changes in our geographic mix of earnings could have a negative impact on our business and results of operations

Risks Related to Our Business

1. 11Our business could be harmed if we are unable to accurately forecast demand for our products or our results of operations
2. 12To ensure adequate inventory supply, we forecast inventory needs and often place orders with our vendors before we receive firm orders from our customers. If we fail to accurately forecast demand, we may experience excess inventory levels or a shortage of product to deliver to our customers
3. 13We may continue to incur significant capital expenditures which could affect our ability to meet our obligations and may otherwise restrict our growth
4. 14Because we have entered into a significant number of related party transactions through the course of our routine business operations, there is a risk of conflicts of interest involving our management, and that such transactions may not reflect terms that would be available from unaffiliated third parties65% rewritten
5. 15We may not have adequate insurance coverage
6. 16We may be unable to successfully design and develop new products27% rewritten
7. 17We may be subject to liability if we infringe upon the intellectual property rights of third parties
8. 18Our current and future products may experience quality problems from time to time that can result in product returns, product recalls, credit claims, negative publicity, and even litigation, which could result in decreased sales and operating profit margin, and also bring harm to our brand
9. 19Labor cost inflation and the unavailability of skilled workers could disrupt our business
10. 20Our growth depends, in part, on expanding into additional foodservice and geographic markets, and we may not be successful in doing so
11. 21We rely on third-party contract manufacturers and conflicts with, or loss of, our suppliers could negatively impact our business and results of operations
12. 22Our relationship with our suppliers and third-party contract manufacturers are not exclusive, which means that these suppliers and manufacturers could produce similar products for our competitors
13. 23Our reputation and business could suffer due to non-compliance with ethical and legal standards by our suppliers and manufacturers
14. 24We incur significant expenses to maintain our manufacturing equipment and any interruption in the operations of our facilities could negatively impact our business and results of operations
15. 25Many of our operating costs and expenses are fixed and will not decline if our revenues decline
16. 26The successful running of our operations is highly dependent upon information technology systems and tools operating as intended without any down-time or disruptions in service. Security incidents and attacks on our information technology systems and tools could lead to significant costs and business disruptions
17. 27Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of confidential information, misappropriation of assets, and damage to our business relationships, all of which could negatively impact our business and results of operations
18. 28Adopting artificial intelligence (AI) technologies poses risks such as regulatory scrutiny, cybersecurity vulnerabilities, ethical concerns, and system inaccuracies, potentially leading to disruptions, costs, and reputational harm
19. 29Our future success depends on the continuing efforts of our management and key employees, and on our ability to attract and retain highly skilled personnel and senior management
20. 30We may not be able to effectively manage our growth
21. 31We may become involved in legal or regulatory proceedings and audits
22. 32We are subject to payment-related risks
23. 33We are subject to credit risk81% rewritten
24. 34If we fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial results, in which case our business may be harmed, investors may lose confidence in the accuracy and completeness of our financial reports and the price of our common stock may declineNew
25. 35If our goodwill, other intangible assets, or our property and equipment become impaired, we may be required to record a charge to our earnings
26. 36If our estimates or judgments relating to our critical accounting policies prove to be incorrect or change significantly, our results of operations could be harmed

Risks Related to Societal and Environmental Factors

1. 37Our business is subject to the risk of earthquakes, fires, floods, pandemics, and other catastrophic events including criminal acts and terrorism33% rewritten
2. 38Climate change and sustainability initiatives may result in significant operational changes and expenditures and adversely affect our business
3. 39We are subject to environmental laws and regulations that expose us to a number of risks and could result in significant liabilities and costs

Risks Related to the Global Events and International Nature of Our Operations

1. 40Recent trade policy shifts and regulatory developments, including increased import tariffs and the renegotiation of trade agreements, could have a material adverse impact on our business, financial condition or results of operationsNew
2. 41International political instability and armed conflicts could result in market instability, which could negatively impact our business results
3. 42If we fail to obtain shipments of products from our overseas manufacturers with standard shipping by sea, our gross margin, profitability, and our business could be harmedNew
4. 43Many of our products are manufactured by third parties outside of the United States, and our business may be harmed by legal, regulatory, economic, and political risks associated with international trade and those markets
5. 44Foreign exchange rate fluctuations could affect our results of operations51% rewritten

Risks Related to Ownership of Our Common Stock and Our Capital Structure

1. 45Our directors, executive officers, and significant stockholders have substantial control over us and could delay or prevent a change in corporate control
2. 46Our stock price may be volatile or may decline, including due to factors beyond our control, resulting in substantial losses for investors
3. 47Acquisitions could result in operating difficulties and may materially adversely affect our business, financial condition, results of operations and growth prospects
4. 48Substantial future sales, or the perception or anticipation of future sales, of shares of our common stock may cause our stock price to decline. This could cause the market price of our common stock to drop significantly, even if our business is doing well76% rewritten
5. 49As of December 31, 2025, we had 287,467 stock options, all of which were fully vested, and 43,500 of unvested restricted stock units outstanding. The additional shares issued upon exercise or vesting will be eligible to be sold freely in the public market, subject to volume limitations applicable to affiliatesNew
6. 50We may issue preferred stock, the terms of which could adversely affect the voting power or value of our common stock
7. 51We intend to pay quarterly dividends for the foreseeable future. If our stock price does not appreciate after you purchase our shares, you may lose some or all of your investment
8. 52We are a holding company with no operations of our own and, as such, we depend on our subsidiaries for cash to fund our operations and expenses, including future dividend payments, if any
9. 53If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our stock price and trading volume could decline
10. 54Outstanding indebtedness may reduce our available funds
11. 55We may depend on cash generated from outside sources of funding to support our growth
12. 56Our share repurchase program could affect the price of our common stock and increase volatility and could be suspended or terminated at any time, which could result in a decrease in the trading price of our common stockNew
13. 57We are an emerging growth company and the reduced disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors38% rewritten