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Karat Packaging (KRT)

Cover

Cover - shares9 Months Ended
Sep. 30, 2021Nov. 12, 2021
Cover [Abstract]
Document Type10-Q
Document Quarterly Reporttrue
Document Period End DateSep. 30,
2021
Document Transition Reportfalse
Entity File Number001-40336
Entity Registrant NameKarat Packaging Inc.
Entity Incorporation, State or Country CodeDE
Entity Tax Identification Number83-2237832
Entity Address, Address Line One6185 Kimball Avenue
Entity Address, City or TownChino
Entity Address, State or ProvinceCA
Entity Address, Postal Zip Code91708
City Area Code626
Local Phone Number965-8882
Title of 12(b) SecurityCommon Stock, $0.001 par value
Trading SymbolKRT
Security Exchange NameNASDAQ
Entity Current Reporting StatusYes
Entity Interactive Data CurrentYes
Entity Filer CategoryNon-accelerated Filer
Entity Small Businesstrue
Entity Emerging Growth Companytrue
Entity Ex Transition Periodfalse
Entity Shell Companyfalse
Entity Common Stock, Shares Outstanding19,799,424
Entity Central Index Key0001758021
Current Fiscal Year End Date--12-31
Document Fiscal Year Focus2021
Document Fiscal Period FocusQ3
Amendment Flagfalse

CONDENSED CONSOLIDATED BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($)Sep. 30, 2021Dec. 31, 2020
Current assets
Cash and cash equivalents (including $0.7 million and $0.1 million associated with variable interest entity at September 30, 2021 and December 31, 2020) $ 1,679,000 $ 448,000
Accounts receivable, net of allowance for doubtful accounts of $0.3 million and $0.3 million at September 30, 2021 and December 31, 2020, respectively (including $0.0 and $0.0 million associated with variable interest entity at September 30, 2021 and December 31, 2020)33,276,000 23,838,000
Inventories60,207,000 48,961,000
Prepaid expenses and other current assets (including $0.1 million and $0.1 million associated with variable interest entity at September 30, 2021 and December 31, 2020)5,690,000 6,530,000
Total current assets100,852,000 79,777,000
Property and equipment, net (including $46.9 million and $47.8 million associated with variable interest entity at September 30, 2021 and December 31, 2020, respectively)94,041,000 95,533,000
Deposits4,237,000 2,456,000
Goodwill3,510,000 3,113,000
Intangible assets, net387,000 0
Deferred tax asset64,000 64,000
Other assets (including $0.0 million and $0.1 million associated with variable interest entity at September 30, 2021 and December 31, 2020)399,000 161,000
Total assets203,490,000 181,104,000
Current liabilities
Accounts payable (including $0.0 million and $0.6 million associated with variable interest entity at September 30, 2021 and December 31, 2020, respectively)19,028,000 20,069,000
Accrued expenses (including $0.4 million and $0.1 million associated with variable interest entity at September 30, 2021 and December 31, 2020, respectively)8,161,000 4,959,000
Related party payable2,611,000 5,038,000
Credit cards payable131,000 794,000
Income taxes payable106,000 41,000
Customer deposits (including $0.1 million and $0 million associated with variable interest entity at September 30, 2021 and December 31, 2020)1,125,000 551,000
Capital leases, current portion186,000 321,000
Debt, current portion (including $1.2 million and $0.7 million associated with variable interest entity at September 30, 2021 and December 31, 2020)1,166,000 11,364,000
Total current liabilities32,514,000 43,137,000
Deferred tax liability6,181,000 6,181,000
Line of credit0 33,169,000
Long-term debt, net of current portion and debt discount of $0.2 million and $0.1 million at September 30, 2021 and December 31, 2020, respectively (including $35.6 million and $36.7 million associated with variable interest entity at September 30, 2021 and December 31, 2020, respectively, and debt discount of $0.2 million and $0.1 million associated with variable interest entity at September 30, 2021 and December 31, 2020, respectively)35,629,000 53,410,000
Capital leases, net of current portion106,000 290,000
Other liabilities (including $2.9 million and $3.9 million associated with variable interest entity at September 30, 2021 and December 31, 2020, respectively)4,051,000 5,049,000
Total liabilities78,481,000 141,236,000
Commitments and Contingencies (Note 13)0 0
Karat Packaging Inc. stockholders’ equity
Common stock, $0.001 par value, 100,000,000 shares authorized, 19,737,500 and 19,714,500 shares issued and outstanding, respectively, at September 30, 2021; 15,190,000 and 15,167,000 shares issued and outstanding, respectively, at December 31, 202020,000 15,000
Additional paid in capital82,656,000 13,981,000
Treasury stock, $0.001 par value, 23,000 and 23,000 shares on September 30, 2021 and December 31, 2020, respectively(248,000)(248,000)
Retained earnings33,805,000 18,656,000
Total Karat Packaging Inc. stockholders’ equity116,233,000 32,404,000
Noncontrolling interest8,776,000 7,464,000
Total stockholders’ equity125,009,000 39,868,000
Total liabilities and stockholders’ equity $ 203,490,000 $ 181,104,000

CONDENSED CONSOLIDATED BALANC_2

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parenthetical) - USD ($)Sep. 30, 2021Dec. 31, 2020
Cash and cash equivalents $ 1,679,000 $ 448,000
Allowance for doubtful accounts300,000 300,000
Prepaid expenses and other current assets5,690,000 6,530,000
Property and equipment, net94,041,000 95,533,000
Other assets399,000 161,000
Accounts payable19,028,000 20,069,000
Accrued expenses8,161,000 4,959,000
Customer deposits1,125,000 551,000
Long-term debt, current portion1,166,000 11,364,000
Long-term debt, net of current portion200,000 100,000
Other liabilities $ 4,051,000 $ 5,049,000
Common stock, par value (in dollars per share) $ 0.001 $ 0.001
Common stock, shares authorized (in shares)100,000,000 100,000,000
Common stock, shares issued (in shares)19,737,500 15,190,000
Common stock, shares outstanding (in shares)19,714,500 15,167,000
Treasury stock, par value (in dollars per share) $ 0.001 $ 0.001
Treasury stock, shares (in shares)23,000 23,000
Debt Issuance Costs, Net $ (210,000) $ (102,000)
VIE, Primary Beneficiary
Cash and cash equivalents700,000 100,000
Allowance for doubtful accounts0 0
Prepaid expenses and other current assets100,000 100,000
Property and equipment, net46,900,000 47,800,000
Other assets0 100,000
Accounts payable0 600,000
Accrued expenses400,000 100,000
Customer deposits100,000 0
Long-term debt, current portion1,200,000 700,000
Long-term debt, net of current portion35,600,000 36,700,000
Debt discount200,000 100,000
Other liabilities $ 2,900,000 $ 3,900,000

CONDENSED CONSOLIDATED STATEMEN

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) - USD ($)3 Months Ended9 Months Ended
Sep. 30, 2021Sep. 30, 2020Sep. 30, 2021Sep. 30, 2020
Income Statement [Abstract]
Net sales $ 102,711,000 $ 76,317,000 $ 272,910,000 $ 225,137,000
Cost of goods sold72,918,000 53,286,000 193,393,000 155,308,000
Gross profit29,793,000 23,031,000 79,517,000 69,829,000
Operating expenses:
Selling expense9,855,000 6,112,000 24,026,000 16,241,000
General and administrative expense (including $0.7 million and $0.8 million associated with variable interest entity for the three months ended September 30, 2021 and 2020, respectively; and $2.0 million and $1.4 million for the nine months ended September 30, 2021 and 2020, respectively, associated with variable interest entity)14,573,000 9,877,000 39,485,000 27,948,000
Total operating expenses24,428,000 15,989,000 63,511,000 44,189,000
Operating income5,365,000 7,042,000 16,006,000 25,640,000
Other income (expense)
Rental income (including $0.2 million and $0.0 associated with variable interest entity for the three months ended September 30, 2021 and 2020, respectively; and $0.7 million and $0.0 for the nine months ended September 30, 2021 and 2020, respectively, associated with variable interest entity)246,000 66,000 738,000 66,000
Other income101,000 24,000 223,000 86,000
Loss on foreign currency transactions(63,000)(268,000)(347,000)(377,000)
Interest expense (including $0.3 million and $0.3 million associated with variable interest entity for the three months ended September 30, 2021 and 2020, respectively; and $0.3 million and $2.9 million for the nine months ended September 30, 2021 and 2020, respectively, associated with variable interest entity)(308,000)(847,000)(1,158,000)(4,858,000)
Gain on forgiveness of debt0 0 5,000,000 0
Total other income (expense)(24,000)(1,025,000)4,456,000 (5,083,000)
Income before provision for income tax5,341,000 6,017,000 20,462,000 20,557,000
Provision for income tax1,268,000 1,451,000 4,001,000 5,483,000
Net income4,073,000 4,566,000 16,461,000 15,074,000
Net income (loss) attributable to noncontrolling interest287,000 494,000 1,312,000 (1,521,000)
Net income attributable to Karat Packaging Inc. $ 3,786,000 $ 4,072,000 $ 15,149,000 $ 16,595,000
Basic and diluted earnings per share:
Basic (in dollars per share) $ 0.19 $ 0.27 $ 0.84 $ 1.09
Diluted (in dollars per share) $ 0.19 $ 0.26 $ 0.84 $ 1.07
Weighted average common shares outstanding, basic (in shares)19,710,043 15,180,879 17,945,205 15,185,440
Weighted average common shares outstanding, diluted (in shares)19,881,295 15,451,879 18,110,127 15,456,440

CONDENSED CONSOLIDATED STATEM_2

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Parenthetical) - USD ($) $ in Thousands3 Months Ended9 Months Ended
Sep. 30, 2021Sep. 30, 2020Sep. 30, 2021Sep. 30, 2020
General and administrative expense $ 14,573 $ 9,877 $ 39,485 $ 27,948
Rental income246 66 738 66
Interest income (expense)(308)(847)(1,158)(4,858)
VIE, Primary Beneficiary
General and administrative expense700 800 2,000 1,400
Rental income200 0 700 0
Interest income (expense) $ 300 $ 300 $ 300 $ 2,900

CONDENSED CONSOLIDATED STATEM_3

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) - USD ($) $ in ThousandsTotalTotal Stockholders’ Equity attributable to Karat Packaging Inc.Common StockTreasury StockAdditional Paid-in CapitalRetained EarningsNoncontrolling Interest
Balance at the beginning of period (in shares) at Dec. 31, 201915,190,000 0
Balance at the beginning of period at Dec. 31, 2019 $ 24,054 $ 15,741 $ 15 $ 0 $ 13,981 $ 1,745 $ 8,313
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)567 2,451 2,451 (1,884)
Balance at the end of period (in shares) at Mar. 31, 202015,190,000 0
Balance at the end of period at Mar. 31, 202024,621 18,192 $ 15 $ 0 13,981 4,196 6,429
Balance at the beginning of period (in shares) at Dec. 31, 201915,190,000 0
Balance at the beginning of period at Dec. 31, 201924,054 15,741 $ 15 $ 0 13,981 1,745 8,313
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)15,074
Balance at the end of period (in shares) at Sep. 30, 202015,190,000 23,000
Balance at the end of period at Sep. 30, 202038,273 31,481 $ 15 $ (248)13,981 17,733 6,792
Balance at the beginning of period (in shares) at Mar. 31, 202015,190,000 0
Balance at the beginning of period at Mar. 31, 202024,621 18,192 $ 15 $ 0 13,981 4,196 6,429
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Treasury stock acquired (in shares)(10,000)
Treasury stock acquired(107)(107) $ (107)
Cash dividends(607)(607)(607)
Net income (loss)9,941 10,072 10,072 (131)
Balance at the end of period (in shares) at Jun. 30, 202015,190,000 10,000
Balance at the end of period at Jun. 30, 202033,848 27,550 $ 15 $ (107)13,981 13,661 6,298
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Treasury stock acquired (in shares)(13,000)
Treasury stock acquired(141)(141) $ (141)
Cash dividends0
Net income (loss)4,566 4,072 4,072 494
Balance at the end of period (in shares) at Sep. 30, 202015,190,000 23,000
Balance at the end of period at Sep. 30, 2020 $ 38,273 31,481 $ 15 $ (248)13,981 17,733 6,792
Balance at the beginning of period (in shares) at Dec. 31, 202015,167,000 15,190,000 23,000
Balance at the beginning of period at Dec. 31, 2020 $ 39,868 32,404 $ 15 $ (248)13,981 18,656 7,464
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)3,050 1,780 1,780 1,270
Balance at the end of period (in shares) at Mar. 31, 202115,190,000 23,000
Balance at the end of period at Mar. 31, 2021 $ 42,918 34,184 $ 15 $ (248)13,981 20,436 8,734
Balance at the beginning of period (in shares) at Dec. 31, 202015,167,000 15,190,000 23,000
Balance at the beginning of period at Dec. 31, 2020 $ 39,868 32,404 $ 15 $ (248)13,981 18,656 7,464
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss) $ 16,461
Balance at the end of period (in shares) at Sep. 30, 202119,714,500 19,737,500 23,000
Balance at the end of period at Sep. 30, 2021 $ 125,009 116,233 $ 20 $ (248)82,656 33,805 8,776
Balance at the beginning of period (in shares) at Mar. 31, 202115,190,000 23,000
Balance at the beginning of period at Mar. 31, 202142,918 34,184 $ 15 $ (248)13,981 20,436 8,734
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock in connection with our initial public offering, net of issuance costs of $5,088 (in shares)4,542,500
Issuance of common stock in connection with our initial public offering, net of issuance costs of $5,08867,592 67,592 $ 5 67,587
Stock-based compensation240 240 240
Net income (loss)9,338 9,583 9,583 (245)
Balance at the end of period (in shares) at Jun. 30, 202119,732,500 23,000
Balance at the end of period at Jun. 30, 2021120,088 111,599 $ 20 $ (248)81,808 30,019 8,489
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation848 848 848
Issuance of common stock upon vesting of restricted stock units (in shares)5,000
Net income (loss) $ 4,073 3,786 3,786 287
Balance at the end of period (in shares) at Sep. 30, 202119,714,500 19,737,500 23,000
Balance at the end of period at Sep. 30, 2021 $ 125,009 $ 116,233 $ 20 $ (248) $ 82,656 $ 33,805 $ 8,776

CONDENSED CONSOLIDATED STATEM_4

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) (Parenthetical) $ in Thousands9 Months Ended
Sep. 30, 2021USD ($)
Statement of Stockholders' Equity [Abstract]
Net of issuance costs $ 5,088

CONDENSED CONSOLIDATED STATEM_5

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) $ in Thousands9 Months Ended
Sep. 30, 2021Sep. 30, 2020
Cash flows from operating activities
Net income $ 16,461 $ 15,074
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization7,477 6,103
Provision for bad debt0 98
Reserve for inventory obsolescence133 0
Gain on sales of asset0 (19)
Change in fair value of interest rate swap(1,298)2,028
Amortization of loan fees9 9
Stock-based compensation1,088 0
Gain on forgiveness of PPP loan(5,000)0
(Increase) decrease in operating assets
Accounts receivable(9,438)(2,458)
Inventories(11,226)(13,187)
Prepaid expenses and other current assets840 (2,332)
Due from affiliated companies0 (840)
Deposits(64)1,739
Other assets(238)0
Increase (decrease) in operating liabilities
Accounts payable(1,041)801
Accrued expenses3,202 1,069
Related party payable(2,427)1,170
Credit cards payable(663)(317)
Income taxes payable65 3,088
Customer deposits574 (11)
Other liabilities300 285
Net cash (used in) provided by operating activities(1,246)12,300
Cash flows from investing activities
Purchases of property and equipment(3,947)(27,621)
Proceeds on disposal of property and equipment0 24
Deposits paid for property and equipment(3,792)(5,640)
Effect on initial consolidation of Lollicup Franchising Inc, net of cash acquired0 (893)
Acquisition of Pacific Cup, Inc., net of cash acquired(900)0
Net cash used in investing activities(8,639)(34,130)
Cash flows from financing activities
Proceeds from line of credit1,470 5,190
Payments on line of credit(34,639)0
Proceeds from long-term debt, net of issuance cost15,997 24,542
Payments on long-term debt(38,985)(5,497)
Issuance of common stock in connection with initial public offering, net of issuance costs67,592 0
Dividends paid to shareholders0 (607)
Payments on capital lease obligations(319)(285)
Treasury stock acquired0 (248)
Net cash provided by financing activities11,116 23,095
Net increase in cash and cash equivalents1,231 1,265
Cash and cash equivalents
Beginning of year448 802
End of year1,679 2,067
Supplemental disclosures of non-cash investing and  financing activities:
Capital expenditures funded by capital lease borrowings0 23
Transfers from deposit to property and equipment3,215 15,749
Acquisition of Pacific Cup, Inc. included within deposits100 0
Forgiveness of PPP loan5,000 0
Supplemental disclosures of cash flow information:
Cash paid for income tax3,324 2,395
Cash paid for interest $ 2,472 $ 2,869

Nature of Operations

Nature of Operations9 Months Ended
Sep. 30, 2021
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Nature of OperationsNature of Operations Lollicup USA Inc. (“Lollicup”) was incorporated on January 21, 2001 under the laws of the State of California as an S-corporation. Effective January 1, 2018, Lollicup elected to convert from an S-Corporation to a C-Corporation. Karat Packaging Inc. (“Karat Packaging”) was incorporated on September 26, 2018 as a Delaware corporation and became the holding company for Lollicup (collectively, the “Company”) through a share exchange with the shareholders of Lollicup. The Company is a manufacturer and distributor of environmentally friendly, single-use disposable products used in a variety of restaurant and foodservice settings. The Company supplies a wide range of products for the foodservice industry, including food containers, tableware, cups, lids, cutlery, and straws. The products are available in plastic, paper, biopolymer-based and other compostable forms. In 2020, the Company began to supply personal protective equipment related products to their customer such as face shields and face masks. In addition to manufacturing and distribution, the Company offers customized solutions to the customers, including new product development, design, printing, and logistics services. The Company also supplies products to smaller chains and businesses including boutique coffee houses, bubble tea cafes, pizza parlors and frozen yogurt shops, as well as to national and regional supermarkets and convenience stores.

Summary of Significant Accounti

Summary of Significant Accounting Policies9 Months Ended
Sep. 30, 2021
Accounting Policies [Abstract]
Summary of Significant Accounting PoliciesSummary 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 8-3 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 September 30, 2021 and for the three and nine months ended September 30, 2021 and 2020 is unaudited; however, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2021. The condensed consolidated balance sheet at December 31, 2020 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, 2020. Principles of Consolidation: The condensed consolidated financial statements include the accounts of Karat Packaging and its wholly-owned operating subsidiaries, Lollicup, Lollicup Franchising, LLC (“Lollicup Franchising”) (effective September 1, 2020, refer to Note 3), Pacific Cup, Inc. (effective March 1, 2021, refer to Note 3), and Global Wells, a variable interest entity wherein the Company is the primary beneficiary. All intercompany accounts and transactions have been eliminated. Noncontrolling Interests: The Company consolidates its variable interest entity, Global Wells, in which the Company is the primary beneficiary. The Company became the primary beneficiary of Global Wells on March 23, 2018 upon execution of an operating lease agreement allowing the Company to lease Global Wells’ facility. 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 Company’s stockholders’ equity. The amount of net income (loss) attributable to noncontrolling interests is disclosed in the condensed consolidated statements of income. 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. Estimates that are significant to the condensed consolidated financial statements include stock-based compensation, allowance for doubtful accounts, reserve for slow-moving and obsolete inventory, deferred taxes, and estimated useful lives of property and equipment, with effects of changes could result in future impairments of goodwill, intangibles, and long-lived assets. Reporting Segment: The Company manages and evaluates its operations in one reportable segment. This segment consists of manufacturing and supply of a broad portfolio of single-use products that are used to serve food and beverages and are available in plastic, paper, foam, post-consumer recycled content and renewable materials. It also consists of the distribution of personal protective equipment related products such as face shields and face masks. Earnings per Share: Basic earnings per common share is calculated by dividing net income attributable to Karat Packaging by the weighted average number of common shares outstanding during the related period. Diluted earnings per common share is calculated by adjusting weighted average outstanding shares, assuming conversion of all potentially dilutive shares. Cash and cash equivalents: The Company considers all highly liquid investments purchased with an original maturity at the date of purchase of three months or less to be cash equivalents. At September 30, 2021 and December 31, 2020, cash and cash equivalents were comprised of cash held in money market, cash on hand and cash deposited with banks. Concentration of Credit Risk : The financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents in financial institutions, which exceed federally insured limits, short-term investments, and non-affiliated trade receivables. The Company routinely assesses the financial strength of its customers and generally does not require collateral for trade receivables. Further, the Company has money market accounts which exceeded the federally insured limits by approximately $0.4 million and $0.2 million as of September 30, 2021 and December 31, 2020, respectively. Accounts Receivable and Allowance for Doubtful Accounts: Accounts receivable consists primarily of amounts due from customers. Accounts receivable are carried at their estimated collectible amounts and are periodically evaluated for collectability based on past credit history. The Company recognizes an allowance for bad debt on accounts receivable in an amount equal to the estimated probable losses net of recoveries. The allowance is based on an analysis of historical bad debt write-offs, current past due customers in the aging as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. Inventories: Inventories consist of raw materials, work-in-process, and finished goods. Inventory cost is determined using the first-in, first-out (FIFO) method and valued at lower of cost or net realizable value. The Company maintains reserves for excess and obsolete inventory considering various factors including historic usage, expected demand, anticipated sales price, and product obsolescence. Property and Equipment: Property and equipment are carried at cost, net of accumulated depreciation and amortization, and net of impairment losses, if any. Depreciation of property and equipment are computed by straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized using the straight-line method over the term of the lease, or the estimated life of the improvement, whichever is less. The estimated useful life of property and equipment are as follows: Machinery and equipment 5 years to 10 years Leasehold improvements Lower of useful life or lease term Vehicles 3 years to 5 years Furniture and fixtures 7 years Building 28 years to 40 years Property held under capital leases 3 years to 5 years Computer hardware and software 3 years Normal repairs and maintenance are expensed as incurred, whereas significant changes that materially increase values or extend useful lives are capitalized and depreciated over the estimated useful lives of the related assets. Deposits: Deposits include payments made for machinery and equipment related to the Rockwall, Texas manufacturing facility. As of September 30, 2021 and December 31, 2020, the Company had deposits of approximately $3.8 million and $1.8 million, respectively, relating to machinery and equipment for this facility. Included in deposits are also payments made to the lessors of leased properties as security for the full and faithful observance of contracts, which will be refunded to the Company upon expiration or termination of the contract. Impairment of Long-lived Assets: The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. An impairment exists if the undiscounted cash flows generated by the Company’s long-lived assets are less than the net book value of the related assets. If the long-lived assets are impaired, an impairment loss is recognized and measured as the amount by which the carrying value exceeds the estimated fair value of those assets. For the periods ended September 30, 2021 and September 30, 2020, management concluded that an impairment write-down was not required. Business Combination and Goodwill: The Company applies the acquisition method of accounting for business combinations in accordance with U.S. GAAP, which requires the Company to make use of estimates and judgments to allocate the purchase price paid for acquisitions to the fair value of the assets, including identifiable intangible assets, and liabilities acquired. Such estimates may be based on significant unobservable inputs. The Company’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Fair values are subject to refinement for up to one year after the closing date of an acquisition as information relative to closing date fair values becomes available. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. Goodwill is the excess of the acquisition price over the fair value of the tangible and identifiable intangible net assets acquired. The Company does not amortize goodwill, but performs an impairment test of goodwill annually or whenever events and circumstances indicate that the carrying amount of goodwill may exceed its fair value. The Company operates as a single operating segment with one reporting unit and consequently evaluates goodwill for impairment based on an evaluation of the fair value of the Company as a whole. Goodwill is evaluated for impairment at least annually on October 1, or more frequently if events or changes in circumstances would more likely than not reduce the fair value of its single reporting unit below its carrying value. As of September 30, 2021, goodwill recorded in the accompanying condensed consolidated balance sheets is related to the Company’s acquisition of Pacific Cup, Inc. and Lollicup Franchising (see Note 3). Through September 30, 2021, the Company determined no impairments have occurred. The following table displays a roll-forward of the carrying amount of goodwill from December 31, 2020 to September 30, 2021: Gross carrying amount Balance at December 31, 2020 $ 3,113,000 Acquired through business combination 397,000 Balance at September 30, 2021 3,510,000 Accumulated impairment Balance at December 31, 2020 — Impairment loss recognized — Balance at September 30, 2021 — Carrying amount at September 30, 2021 $ 3,510,000 Government Grants: Government grants are not recognized unless there is reasonable assurance that the Company and Global Wells will comply with the grants’ conditions and that the grants will be received. As of September 30, 2021 and December 31, 2020, the Company received cumulative grants of $1,200,000 and $900,000, respectively. As of September 30, 2021 and December 31, 2020, Global Wells received cumulative grants of $1,302,000. These grants are reported as deferred income within other liabilities in the accompanying condensed consolidated balance sheets as there are conditions attached to the grants that the Company and Global Wells have not met. These conditions include requiring its facility in Rockwall, Texas to maintain a certain minimum tax value for five calendar years (the “Required Period”), continue operations in the facility for the Required Period, have a minimum number of full time equivalent employees with a minimum average annual gross wage employed in the operation of the facility in the Required Period, and promise to not engage in a pattern or practice of unlawful employment of aliens during the Required Period. Derivative Instruments: Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic No. 815, Derivatives and Hedging , requires companies to recognize all of its derivative instruments as either assets or liabilities in the statement of financial position at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in the statement of income during the current period. The Company and Global Wells are exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments applicable to the Company and Global Wells is interest rate risk. Interest rate swaps are entered into to manage interest rate risk associated with the Company and Global Wells’ fixed and floating-rate borrowings. As of September 30, 2021 and December 31, 2020, Global Wells had interest rate swaps that are accounted for as a derivative instrument under ASC 815. The Company and Global Wells did not designate interest rate swaps for hedge accounting and as such, the change in fair value of interest rate swaps is recognized as interest expense in the accompanying condensed consolidated statements of income. Variable Interest Entities: The Company has a variable interest in two entities, Global Wells and Lollicup Franchising, LLC (prior to September 30, 2020, the acquisition date, see Note 3). Global Wells In 2017, Lollicup along with three other unrelated parties formed Global Wells. Lollicup has a 13.5% ownership interest and a 25% voting interest in Global Wells, located in Rockwall, Texas. The purpose of this entity is to own, construct, and manage a warehouse and manufacturing facility. Global Wells’ operating agreement may require its members to make additional contributions only upon the unanimous decision of the members or where the cash in Global Wells’ bank account falls below $50,000. In the event that a member is unable to make an additional capital contribution, the other members will be required to make contributions to offset the amount that member cannot contribute, up to $25,000. Global Wells was determined to be a variable interest entity in accordance with ASC Topic 810, Consolidations , however, at the time the investment was made, it was determined that Lollicup was not the primary beneficiary. In 2018, Lollicup entered into an operating lease with Global Wells (“Texas Lease”). The lease term for the Texas Lease is for 10 years beginning October 1, 2018 and called for a monthly lease payment of $214,500. The lease agreement was subsequently amended for the lease term to begin in May 1, 2019 and calls for a monthly lease payment of $196,000. In June 2020, the Company entered into another operating lease with Global Wells (“New Jersey Lease”). The lease term for the New Jersey Lease is for 5 years beginning July 1, 2020 and calls for a monthly lease payment of $90,128. 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, receive significant benefits, or 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 Topic 810, for the period from March 23, 2018. The monthly lease payments for the Texas Lease and 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; they represent claims against the specific assets of Global Wells, except for the Company’s guarantee of Global Wells’ term loans. The Company was a guarantor for Global Wells’ construction loan, which provided for advances up to $21,640,000 and expired in May 2019. In May 2019, Global Wells entered into a loan agreement with a financial institution and used the proceeds from the new term loan to pay off the principal balance and accrued interest related to the construction loan. In June 2020, Global Wells entered into a loan agreement with a financial institution to purchase land and building in Branchburg, New Jersey, which was also guaranteed by the Company. The Company entered into an operating lease with Global Wells to utilize the facility in Branchburg, New Jersey. As of September 30, 2021 and December 31, 2020, total loan guaranteed by the Company related to Global Wells amounted to $37,005,000 and $37,491,000, respectively. The term loans are also guaranteed by the Company’s two significant stockholders. The following financial information includes assets and liabilities of Global Wells and are included in the accompanying condensed consolidated balance sheets, except for those that eliminate upon consolidation: September 30, December 31, Cash $ 689,000 $ 81,000 Accounts receivable 396,000 343,000 Prepaid expenses and other current assets 87,000 98,000 Property and equipment, net 46,916,000 47,826,000 Other assets 4,882,000 5,260,000 Total assets $ 52,970,000 $ 53,608,000 Accounts payable $ 29,000 $ 564,000 Accrued expenses 447,000 128,000 Customer deposits 82,000 — Due to Lollicup USA Inc. 2,620,000 2,990,000 Long-term debt, current portion 1,166,000 694,000 Long-term debt, net of current portion 35,629,000 36,697,000 Other liabilities 2,851,000 3,906,000 Total liabilities $ 42,824,000 $ 44,979,000 Lollicup Franchising, LLC Prior to the acquisition, on September 30, 2020 (see Note 3), the Company’s two major shareholders share common ownership with Lollicup Franchising. Lollicup Franchising owns and operates one store and also licenses its name to third party store owners and operators. The Company sells inventory to Lollicup Franchising and to the licensed third-party stores. In connection with the sales to third-party stores, the Company has an incentive program with Lollicup Franchising where a certain percentage of the sales to the third-party stores are paid to Lollicup Franchising. The Company has determined that the Company held a variable interest in Lollicup Franchising, however, it was determined that the Company is not the primary beneficiary. The Company incurred incentive program expenses of $21,000 and $79,000 for the three and nine months ended September 30, 2020, respectively, which are reported as a contra to net sales in the accompanying condensed consolidated statements of income. The Company does not have any explicit arrangements and implicit variable interest where the Company is required to provide financial support to Lollicup Franchising. The Company has determined that the maximum exposure to loss as a result of its involvement with Lollicup Franchising is zero. Stockholder’s Equity: The Company’s Certificate of Incorporation authorizes both common and preferred stock. The total number of shares of all classes of stock authorized for issuance is 110,000,000 shares, par value of $0.001, with 10,000,000 designed as preferred stock and 100,000,000 designated as common stock. Each holder of common stock and preferred stock shall be entitled to one vote per share held. In June 2020, a $0.04 cents per qualifying share of dividend was declared by the Company. The Company recorded $607,000 of cash dividends as of December 31, 2020. In June 2020, the Company re-acquired 10,000 of its own shares from an existing shareholder. The total amount paid to acquire the shares was $107,000 and has been deducted from shareholders’ equity. In July 2020, the Company re-acquired 13,000 of its own shares from an existing shareholder. The total amount paid to acquire the shares was $141,000 and has been deducted from shareholders’ equity. Revenue Recognition: As the Company generates revenues from customers that include national distributors, fast food restaurants with multiple locations, small businesses, and those that purchase for individual consumption, the Company considers revenue disaggregated by customer type to most accurately reflect the nature and uncertainty of its revenue and cash flows that are affected by economic factors. For the three months and nine months ended September 30, 2021 and 2020, net sales disaggregated by customer type consists of the amounts shown below. Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 National $ 22,894,000 $ 18,426,000 $ 63,493,000 $ 50,092,000 Distributors 57,317,000 39,862,000 148,294,000 118,322,000 Online 14,644,000 8,928,000 39,790,000 26,472,000 Retail 7,856,000 9,101,000 21,333,000 30,251,000 Total Revenue $ 102,711,000 $ 76,317,000 $ 272,910,000 $ 225,137,000 • National chains revenue: National chains revenue is derived from fast food restaurants with locations across multiple states. Revenue from transactions with national chains 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. Shipping terms generally indicate when the title and risk of loss have passed, which is generally when the products are shipped from our manufacturing facility to the customers. • Distributors revenue: Distributors revenues are derived from national and regional distributors across the U.S. that purchase the Company’s products for restaurants, offices, schools, and government entities. Revenue from national distributions 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. Shipping terms generally indicate when the title and risk of loss have passed, which is generally when the products are shipped from our manufacturing facility to the customers. • Online revenue: Online revenue is derived from small businesses such as small restaurants, bubble tea shops, coffee shops, juice bars and smoothie shops. Revenue from wholesale 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. Shipping terms generally indicate when the title and risk of loss have passed, which is generally when the products are shipped from our manufacturing facility to the customers. • Retail revenue: Retail revenue is derived primarily from regional bubble tea shops, boutique coffee shops 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. Shipping terms generally indicate when the title and risk of loss have passed, which is generally when the products are shipped from our manufacturing facility to the customers. The transaction price is the amount of consideration to which the Company expects to be entitled to in exchange for transferring goods to the customer. Revenue is recorded based on the total estimated transaction price, which includes fixed consideration and estimates of variable consideration. Variable consideration includes estimates of rebates and other sales incentives, cash discounts for prompt payment, consideration payable to customers for cooperative advertising and other program incentives, and sales returns. The Company estimates its variable consideration based on contract terms and historical experience of actual results using the expected value method. The performance obligations are generally satisfied shortly after manufacturing and shipment as purchases made by the Company’s customers are manufactured and shipped with minimal lead time. The Company’s contract liabilities consist of rebates and other sales incentives, consideration payable to customers for cooperative advertising and other program incentives, and sales return. As of September 30, 2021 and December 31, 2020, the contract liabilities were not considered significant to the financial statements. Shipping and handling fees billed to a customer are recorded within net sales, with corresponding shipping and handling costs recorded in selling expense on the accompanying condensed consolidated statements of income. Shipping and handling fees billed to a customer are not deemed to be separate performance obligations as these activities occur before the customer receives the products. Shipping and handling costs included within selling expenses in the condensed consolidated statements of income for the three months ended September 30, 2021 and 2020 were $8,794,000 and $5,099,000 , respectively. Shipping and handling costs included within selling expenses in the condensed consolidated statements of income for the nine months ended September 30, 2021 and 2020 were $21,285,000 and $13,164,000, respectively. Sales taxes collected concurrently with revenue-producing activities and remitted to governmental authorities are excluded from revenue. Sales commissions are expensed as incurred due to the amortization period being less than one year and are recorded in selling expense on the accompanying consolidated statements of income. Advertising Costs: The Company expenses costs of print production, trade show, online marketing, and other advertisements in the period in which the expenditure is incurred. Advertising costs included in operating expenses in the condensed consolidated statements of income w ere $823,000 and $336,000 for the three months ended September 30, 2021 and 2020, respectively. Advertising costs included in operating expenses in the condensed consolidated statements of income were $1,843,000 and $1,126,000 fo r the nine months ended September 30, 2021 and 2020, respectively. Income Taxes: The Company applies the asset and liability approach for financial accounting and reporting for income taxes. Deferred income taxes arise from temporary differences between income tax and financial reporting and principally relate to recognition of revenue and expenses in different periods for financial and tax accounting purposes and are measured using currently enacted tax rates and laws. In addition, a deferred tax asset can be generated by net operating loss carryforwards. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. The Company applies ASC 740, Income Taxes , which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company’s practice is to recognize potential interest and/or penalties related to income tax matters as income tax expense in the accompanying condensed consolidated statements of income. Accrued interest and penalties are included on the related tax liability in the condensed consolidated balance sheets. The Company had no uncertain tax positions as of September 30, 2021 and December 31, 2020. Concentration of Credit Risk: Cash is maintained at financial institutions and, at times, balances exceed federally insured limits. Management believes that the credit risk related to such deposits is minimal. The Company extends credit based on the valuation of the customers’ financial condition and general collateral is not required. Management believes the Company is not exposed to any material credit risk on these accounts. For the three and nine months ended September 30, 2021 and 2020, respectively, purchases from the following vendor makes up greater than 10 percent of total purchases: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Keary Global Ltd. ("Keary Global") and its affiliate, Keary International, Ltd.- related parties 13.7 % 13.3 % 14.3 % 11 % Amounts due to the following vendors at September 30, 2021 and December 31, 2020 that exceed 10 percent of total accounts payable are as follows: September 30, December 31, Keary Global and its affiliate, Keary International - related parties * 18 % Taizhou Fuling Plastics Co., Ltd * 11 % Fuling Technology Co., Ltd. 24 % * Wen Ho Industrial Co. 12 % * *Amounts payable represented less than 10% of total accounts payable No customer accounted for more than 10 percent of sales for the three and nine months ended September 30, 2021 and 2020, respectively. No customer accounted for more than 10 percent of accounts receivable as of September 30, 2021 and December 31, 2020. Fair Value Measurements: The Company follows ASC 820, Fair Value Measurements , which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. ASC 820 establishes a hierarchy of valuation inputs based on the extent to which the inputs are observable in the marketplace. Observable inputs reflect market data obtained from sources independent of the reporting entity and unobservable inputs reflect the entity’s own assumptions about how market participants would value an asset or liability based on the best information available. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value. The following describes the hierarchy of inputs used to measure fair value and the primary valuation methodologies used by the Center for financial instruments measured at fair value on a recurring basis. The three levels of inputs are as follows: Level 1 — Quoted prices in active markets for identical assets or liabilities that the Center has the ability to access as of the measurement date. Level 2 — Inputs that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the same term of the assets or liabilities. Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. At September 30, 2021 and December 31, 2020, the Company has financial instruments classified within the fair value hierarchy, which consist of the following: • Interest rate swaps that meets the definition of a derivative, classified as Level 2 within the fair value hierarchy, and reported as an asset or liabilit

Acquisitions

Acquisitions9 Months Ended
Sep. 30, 2021
Business Combination and Asset Acquisition [Abstract]
AcquisitionsAcquisitions Pacific Cup, Inc. On March 1, 2021, Lollicup entered into an asset purchase agreement (“the Pacific Cup Agreement”) with Pacific Cup, Inc. (“Pacific Cup”), a manufacturer and distributor of disposable products operating in Kapolei, Hawaii. Pursuant to the Pacific Cup Agreement, Lollicup paid cash consideration of $1,000,000 to acquire certain assets of Pacific Cup. Acquisition-related costs were immaterial. The acquisition of Pacific Cup has been accounted for as a business combination pursuant to ASC 805, Business Combinations , using the acquisition method of accounting. The acquisition method requires, among other things, that assets acquired and liabilities assumed to be recognized at their fair values as of the acquisition date. The initial estimated fair value of assets acquired has been recognized based on management’s estimates and assumptions using information about facts and circumstances that existed at the acquisition date. The excess of the purchase price over the tangible assets is preliminarily recorded as goodwill. The goodwill recognized in this transaction was derived from expected opportunities to leverage Pacific Cup’s customer base, manufacturing facility, and sales force to expand the Company’s footprint. Goodwill recognized as a result of this acquisition is deductible for income tax purposes, and subject to annual impairment testing, which may give rise to deferred taxes in future periods. The following table summarizes the assets acquired as a result of this acquisition: Inventories $ 153,000 Property and equipment 50,000 Customer relationships 400,000 Goodwill 397,000 Total assets acquired $ 1,000,000

Inventories

Inventories9 Months Ended
Sep. 30, 2021
Inventory Disclosure [Abstract]
InventoriesInventories Inventories consist of the following: September 30, December 31, Raw materials $ 17,092,000 $ 4,251,000 Work in progress — 133,000 Finished goods 43,790,000 45,252,000 Subtotal 60,882,000 49,636,000 Less inventory reserve (675,000) (675,000) Total inventories $ 60,207,000 $ 48,961,000

Property and Equipment

Property and Equipment9 Months Ended
Sep. 30, 2021
Property, Plant and Equipment [Abstract]
Property and EquipmentProperty and Equipment Property and equipment, net consist of the following: September 30, December 31, Machinery and equipment $ 59,975,000 $ 55,528,000 Leasehold improvements 17,955,000 17,832,000 Vehicles 4,471,000 3,447,000 Furniture and fixtures 903,000 851,000 Building 35,237,000 34,134,000 Land 11,907,000 11,907,000 Property held under capital leases 828,000 1,607,000 Computer hardware and software 548,000 546,000 131,824,000 125,852,000 Less accumulated depreciation (37,783,000) (30,319,000) Total property and equipment, net $ 94,041,000 $ 95,533,000 Depreciation and amortization expense were $2,528,000 and $2,234,000 for the three months ended September 30, 2021 and 2020, respectively. Depreciation and amortization expense were $7,464,000 and $6,103,000 for the nine months ended September 30, 2021 and 2020, respectively. Depreciation and amortization expense are reported within general and administrative expense except for depreciation and amortization expense related to manufacturing facilities and equipment, which are included in cost of goods sold on the accompanying condensed consolidated statements of income.

Line of Credit

Line of Credit9 Months Ended
Sep. 30, 2021
Debt Disclosure [Abstract]
Line of CreditLine of Credit The Company has a line of credit with a lender with an initial maturity date of February 23, 2019. The agreement was amended prior to maturity to extend the maturity date to May 2019. In May 2019, the line of credit was amended again to extend the maturity date to May 2021 and increase the maximum borrowing from $25,000,000 to $30,000,000. Interest accrues at an annual rate of prime less 0.25% with a minimum floor of 3.25% (3.75% at September 30, 2021 and December 31, 2020). In September 2019, the Company further increased the maximum borrowing from $30,000,000 to $40,000,000. In July 2020, the line of credit was amended again to extend the maturity date to May 2022. The Company has $0.0 and $33,169,000 of line of credit borrowings as of September 30, 2021 and December 31, 2020, respectively. 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 amount that can be borrowed is subject to a borrowing base that is calculated as a percentage of the accounts receivable and inventory balances measured monthly. As of September 30, 2021 and December 31, 2020, the maximum amount that can be borrowed based on the borrowing base is $40,000,000 and $34,668,000, respectively. The loan is secured by the Company’s assets and guaranteed by the Company’s stockholders. In accordance with the line of credit agreement, the Company must comply with certain financial covenants, including a minimum current ratio, minimum tangible net worth, minimum debt service coverage ratio, and minimum debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio. As of September 30, 2021 and December 31, 2020, the Company was in compliance with the financial covenants. The line of credit also includes a standby letter of credit sub-limit. The amounts issued under the standby letter of credit was $0 as of September 30, 2021 and December 31, 2020. Long-Term debt consists of the following: September 30, December 31, A promissory note that allowed for advances up to $5,000,000 through March 2018, at which point it converted to a term loan. Outstanding principal balance of $4,814,677 was converted in March 2018, maturing in March 2023. Principal and interest payment of $90,815 due monthly at the fixed rate of 4.98%. The loan was secured by certain machinery and equipment. In accordance with the loan agreement, the Company was required to comply with certain financial covenants, including a minimum fixed charge coverage ratio and net income. $ — $ 2,322,000 An equipment loan with a draw down period ending August 28, 2019 for up to $10,000,000, at which point the entire principal outstanding was due, unless extended. Outstanding principal balance of $9,476,000 was converted to a term loan in June 2019, maturing in July 2024. Principal and interest payment of $192,572 due monthly starting August 2019 at the fixed rate of 5.75%. The loan was secured by the Company’s assets and guaranteed by the Company’s stockholders. In accordance with loan agreement, the Company was required to comply with certain financial covenants, including a minimum current ratio, minimum effective tangible net-worth, maximum debt to effective tangible net worth, and minimum debt coverage ratio. — 7,450,000 A $2,130,000 term loan that expired April 30, 2021. Principal and interest payment of $55,539 due monthly with the remaining principal and unpaid interest due at maturity. Interest accrues based on prime rate (3.25% as of December 31, 2020). The loan was secured by the company’s assets and guaranteed by the company’s stockholders. In accordance with the loan agreement, the Company was required to comply with certain financial covenants, including a minimum current ratio, minimum effective tangible net-worth, maximum debt to effective tangible net worth, and minimum debt coverage ratio. — 212,000 A $935,000 term loan that expires December 31, 2021. Principal and interest payment of $19,834 due monthly with the remaining principal and unpaid interest due at maturity. Interest accrues at a fixed rate of 3.50%. The loan was secured by the Company’s assets and guaranteed by the Company’s stockholders. In accordance with the loan agreement, the Company was required to comply with certain financial covenants, including a minimum current ratio, minimum effective tangible net-worth, maximum debt to effective tangible net worth, and minimum debt coverage ratio. — 234,000 Subtotal, continue on following page $ — $ 10,218,000 September 30, December 31, Subtotal from previous page $ — $ 10,218,000 An equipment loan with a draw down period ended May 31, 2019 for up to $10,000,000. After the draw period, the outstanding principal balance is converted to a term loan payable, maturing on May 31, 2024. The first principal and interest payment commenced in July 2019. Interest accrued based on prime rate (3.25% at December 31, 2020). The loan was secured by the Company’s assets and guaranteed by the Company’s stockholders. In accordance with the loan agreement, the Company was required to comply with certain fixed financial covenants, including a fixed charge coverage ratio and a minimum tangible net worth. — 7,000,000 A $3,000,000 term loan that expires December 2024. Interest only payment due for the first six months. Principal and interest payment of $57,769 due monthly beginning January 2020 with the remaining principal and unpaid interest due at maturity. Interest accrued at prime rate plus 0.25% (3.50% at December 31, 2020).The loan was secured the Company’s assets and guaranteed by the Company’s stockholders. In accordance with the loan agreement, the Company was required to comply with certain financial covenants, including a minimum current ratio, minimum tangible net worth, debt service charge ratio, and debt to EBITDA rolling ratio. — 2,444,000 A $21,580,000 term loan that matures in May 2029. Interest accrues at prime rate less 0.25% (3.00% at December 31, 2020) and principal payments ranging from $24,356 to $39,581 along with interest are due monthly throughout the term of the loan, with the remaining principal balance due at maturity. The loan was collateralized by substantially all of the Company’s and Global Well’s assets and was guaranteed by the Company and its stockholders. The Company incurred debt issuance costs of approximately $119,000, which is reported as a reduction of the carrying value of debt on the accompanying consolidated balance sheet. 20,890,000 21,130,000 A $3,000,000 term loan that expires June 17, 2025. Principal and interest payment of $54,623 due monthly with the remaining principal and unpaid interest due at maturity. Interest accrues based on prime rate plus margin of 0.25% (3.50% as of December 31, 2020). The loan was secured by the company’s assets and guaranteed by the company’s stockholders. In accordance with the loan agreement, the Company was required to comply with certain financial covenants, including a minimum current ratio, minimum effective tangible net-worth, maximum debt to effective tangible net worth, and minimum debt coverage ratio. — 2,723,000 A $5,000,000 Paycheck Protection Program loan that expires April 16, 2022. Interest accrues at 1.0%. — 5,000,000 Subtotal, continue on following page $ 20,890,000 $ 48,515,000 September 30, 2021 December 31, 2020 Subtotal from previous page $ 20,890,000 $ 48,515,000 A $16,540,000 term loan that matures June 30, 2025. Interest accrues at 4.5% fixed and principal payments ranging from $30,524 to $37,720 along with interest are due monthly throughout the term of the loan, with the remaining principal balance due at maturity. The loan is collateralized by substantially all of the Company’s and Global Well’s assets and is guaranteed by the Company and its stockholders. This loan was refinanced in September 2021 (see below). — 16,361,000 A $23,000,000 term loan that matures September 30, 2026, with the initial balance of $16,115,000 and an option to request for additional advances up to a maximum of $6,885,000 through September 2022. Interest accrues at a fixed rate of 3.5%. Principal and interest payments of $115,766 are due monthly throughout the term of the loan, with the remaining principal balance due at maturity. The loan is collateralized by substantially all of Global Wells' assets and is guaranteed by Global Wells and one of the Company's stockholders. In accordance with the loan agreement, Global Wells is required to comply with certain financial covenants, including a minimum debt service coverage ratio. 16,115,000 — Long-term debt 37,005,000 64,876,000 Less: unamortized loan fees (210,000) (102,000) Less: current portion (1,166,000) (11,364,000) Long-term debt, net of current portion $ 35,629,000 $ 53,410,000 At September 30, 2021, future maturities : 2021 (remainder) $ 288,000 2022 1,178,000 2023 1,224,000 2024 1,276,000 2025 1,333,000 Thereafter 31,706,000 Total $ 37,005,000 The Company was in compliance with all its financial covenants as of September 30, 2021 and December 31, 2020. On April 16, 2020, the Company received loan proceeds in the amount of $5 million under the Paycheck Protection Program (the “PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are potentially forgivable after eight weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period. The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months. In October 2020, the PPP loan was amended to extend the deferral of payments until September 2021. The application for these funds required the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support ongoing operations. This certification further required the Company to take into account its current business activity and ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these funds, and the potential forgiveness of these PPP loan, are dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan is based on its future adherence to the forgiveness criteria. If, despite the good faith belief that given the Company’s circumstances all eligibility requirements for the PPP loan were satisfied, it is later determined that the Company is ineligible to receive the PPP loan, it may be required to repay the PPP loan in its entirety and/or be subject to additional penalties. The Company applied for the forgiveness of the PPP loan. On June 10, 2021, the Company was granted loan forgiveness, in whole, by meeting the conditions for use of loan proceeds. The loan forgiveness of $5.0 million was recorded as gain on forgiveness of debt in the accompanying condensed consolidated statements of income.

Accrued Expenses

Accrued Expenses9 Months Ended
Sep. 30, 2021
Payables and Accruals [Abstract]
Accrued ExpensesAccrued Expenses The following table summarizes information related to accrued expense liabilities: September 30, December 31, Accrued expenses $ 3,171,000 $ 1,796,000 Accrued interest 40,000 199,000 Accrued payroll 1,371,000 1,253,000 Accrued vacation and sick pay 630,000 496,000 Accrued shipping expenses 1,859,000 433,000 Accrued professional services fees 724,000 481,000 Deferred rent liability 366,000 301,000 Total accrued expenses $ 8,161,000 $ 4,959,000

Long-Term Debt

Long-Term Debt9 Months Ended
Sep. 30, 2021
Debt Disclosure [Abstract]
Long-Term DebtLine of Credit The Company has a line of credit with a lender with an initial maturity date of February 23, 2019. The agreement was amended prior to maturity to extend the maturity date to May 2019. In May 2019, the line of credit was amended again to extend the maturity date to May 2021 and increase the maximum borrowing from $25,000,000 to $30,000,000. Interest accrues at an annual rate of prime less 0.25% with a minimum floor of 3.25% (3.75% at September 30, 2021 and December 31, 2020). In September 2019, the Company further increased the maximum borrowing from $30,000,000 to $40,000,000. In July 2020, the line of credit was amended again to extend the maturity date to May 2022. The Company has $0.0 and $33,169,000 of line of credit borrowings as of September 30, 2021 and December 31, 2020, respectively. 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 amount that can be borrowed is subject to a borrowing base that is calculated as a percentage of the accounts receivable and inventory balances measured monthly. As of September 30, 2021 and December 31, 2020, the maximum amount that can be borrowed based on the borrowing base is $40,000,000 and $34,668,000, respectively. The loan is secured by the Company’s assets and guaranteed by the Company’s stockholders. In accordance with the line of credit agreement, the Company must comply with certain financial covenants, including a minimum current ratio, minimum tangible net worth, minimum debt service coverage ratio, and minimum debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio. As of September 30, 2021 and December 31, 2020, the Company was in compliance with the financial covenants. The line of credit also includes a standby letter of credit sub-limit. The amounts issued under the standby letter of credit was $0 as of September 30, 2021 and December 31, 2020. Long-Term debt consists of the following: September 30, December 31, A promissory note that allowed for advances up to $5,000,000 through March 2018, at which point it converted to a term loan. Outstanding principal balance of $4,814,677 was converted in March 2018, maturing in March 2023. Principal and interest payment of $90,815 due monthly at the fixed rate of 4.98%. The loan was secured by certain machinery and equipment. In accordance with the loan agreement, the Company was required to comply with certain financial covenants, including a minimum fixed charge coverage ratio and net income. $ — $ 2,322,000 An equipment loan with a draw down period ending August 28, 2019 for up to $10,000,000, at which point the entire principal outstanding was due, unless extended. Outstanding principal balance of $9,476,000 was converted to a term loan in June 2019, maturing in July 2024. Principal and interest payment of $192,572 due monthly starting August 2019 at the fixed rate of 5.75%. The loan was secured by the Company’s assets and guaranteed by the Company’s stockholders. In accordance with loan agreement, the Company was required to comply with certain financial covenants, including a minimum current ratio, minimum effective tangible net-worth, maximum debt to effective tangible net worth, and minimum debt coverage ratio. — 7,450,000 A $2,130,000 term loan that expired April 30, 2021. Principal and interest payment of $55,539 due monthly with the remaining principal and unpaid interest due at maturity. Interest accrues based on prime rate (3.25% as of December 31, 2020). The loan was secured by the company’s assets and guaranteed by the company’s stockholders. In accordance with the loan agreement, the Company was required to comply with certain financial covenants, including a minimum current ratio, minimum effective tangible net-worth, maximum debt to effective tangible net worth, and minimum debt coverage ratio. — 212,000 A $935,000 term loan that expires December 31, 2021. Principal and interest payment of $19,834 due monthly with the remaining principal and unpaid interest due at maturity. Interest accrues at a fixed rate of 3.50%. The loan was secured by the Company’s assets and guaranteed by the Company’s stockholders. In accordance with the loan agreement, the Company was required to comply with certain financial covenants, including a minimum current ratio, minimum effective tangible net-worth, maximum debt to effective tangible net worth, and minimum debt coverage ratio. — 234,000 Subtotal, continue on following page $ — $ 10,218,000 September 30, December 31, Subtotal from previous page $ — $ 10,218,000 An equipment loan with a draw down period ended May 31, 2019 for up to $10,000,000. After the draw period, the outstanding principal balance is converted to a term loan payable, maturing on May 31, 2024. The first principal and interest payment commenced in July 2019. Interest accrued based on prime rate (3.25% at December 31, 2020). The loan was secured by the Company’s assets and guaranteed by the Company’s stockholders. In accordance with the loan agreement, the Company was required to comply with certain fixed financial covenants, including a fixed charge coverage ratio and a minimum tangible net worth. — 7,000,000 A $3,000,000 term loan that expires December 2024. Interest only payment due for the first six months. Principal and interest payment of $57,769 due monthly beginning January 2020 with the remaining principal and unpaid interest due at maturity. Interest accrued at prime rate plus 0.25% (3.50% at December 31, 2020).The loan was secured the Company’s assets and guaranteed by the Company’s stockholders. In accordance with the loan agreement, the Company was required to comply with certain financial covenants, including a minimum current ratio, minimum tangible net worth, debt service charge ratio, and debt to EBITDA rolling ratio. — 2,444,000 A $21,580,000 term loan that matures in May 2029. Interest accrues at prime rate less 0.25% (3.00% at December 31, 2020) and principal payments ranging from $24,356 to $39,581 along with interest are due monthly throughout the term of the loan, with the remaining principal balance due at maturity. The loan was collateralized by substantially all of the Company’s and Global Well’s assets and was guaranteed by the Company and its stockholders. The Company incurred debt issuance costs of approximately $119,000, which is reported as a reduction of the carrying value of debt on the accompanying consolidated balance sheet. 20,890,000 21,130,000 A $3,000,000 term loan that expires June 17, 2025. Principal and interest payment of $54,623 due monthly with the remaining principal and unpaid interest due at maturity. Interest accrues based on prime rate plus margin of 0.25% (3.50% as of December 31, 2020). The loan was secured by the company’s assets and guaranteed by the company’s stockholders. In accordance with the loan agreement, the Company was required to comply with certain financial covenants, including a minimum current ratio, minimum effective tangible net-worth, maximum debt to effective tangible net worth, and minimum debt coverage ratio. — 2,723,000 A $5,000,000 Paycheck Protection Program loan that expires April 16, 2022. Interest accrues at 1.0%. — 5,000,000 Subtotal, continue on following page $ 20,890,000 $ 48,515,000 September 30, 2021 December 31, 2020 Subtotal from previous page $ 20,890,000 $ 48,515,000 A $16,540,000 term loan that matures June 30, 2025. Interest accrues at 4.5% fixed and principal payments ranging from $30,524 to $37,720 along with interest are due monthly throughout the term of the loan, with the remaining principal balance due at maturity. The loan is collateralized by substantially all of the Company’s and Global Well’s assets and is guaranteed by the Company and its stockholders. This loan was refinanced in September 2021 (see below). — 16,361,000 A $23,000,000 term loan that matures September 30, 2026, with the initial balance of $16,115,000 and an option to request for additional advances up to a maximum of $6,885,000 through September 2022. Interest accrues at a fixed rate of 3.5%. Principal and interest payments of $115,766 are due monthly throughout the term of the loan, with the remaining principal balance due at maturity. The loan is collateralized by substantially all of Global Wells' assets and is guaranteed by Global Wells and one of the Company's stockholders. In accordance with the loan agreement, Global Wells is required to comply with certain financial covenants, including a minimum debt service coverage ratio. 16,115,000 — Long-term debt 37,005,000 64,876,000 Less: unamortized loan fees (210,000) (102,000) Less: current portion (1,166,000) (11,364,000) Long-term debt, net of current portion $ 35,629,000 $ 53,410,000 At September 30, 2021, future maturities : 2021 (remainder) $ 288,000 2022 1,178,000 2023 1,224,000 2024 1,276,000 2025 1,333,000 Thereafter 31,706,000 Total $ 37,005,000 The Company was in compliance with all its financial covenants as of September 30, 2021 and December 31, 2020. On April 16, 2020, the Company received loan proceeds in the amount of $5 million under the Paycheck Protection Program (the “PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are potentially forgivable after eight weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period. The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months. In October 2020, the PPP loan was amended to extend the deferral of payments until September 2021. The application for these funds required the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support ongoing operations. This certification further required the Company to take into account its current business activity and ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these funds, and the potential forgiveness of these PPP loan, are dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan is based on its future adherence to the forgiveness criteria. If, despite the good faith belief that given the Company’s circumstances all eligibility requirements for the PPP loan were satisfied, it is later determined that the Company is ineligible to receive the PPP loan, it may be required to repay the PPP loan in its entirety and/or be subject to additional penalties. The Company applied for the forgiveness of the PPP loan. On June 10, 2021, the Company was granted loan forgiveness, in whole, by meeting the conditions for use of loan proceeds. The loan forgiveness of $5.0 million was recorded as gain on forgiveness of debt in the accompanying condensed consolidated statements of income.

Interest Rate Swaps

Interest Rate Swaps9 Months Ended
Sep. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract]
Interest Rate SwapsInterest Rate Swaps In June 2019, Global Wells entered into a ten years floating-to-fixed interest-rate swap, with an effective date of June 13, 2019, that is based on the prime rate versus a 5.05% fixed rate. The notional value was $21,580,000 as of June 30, 2019. The payment dates are the fifth day of the month beginning July 5, 2019 to the termination date of May 4, 2029. As of September 30, 2021 and December 31, 2020, the fair value of the interest rate swap was $1,549,000 and $2,604,000, respectively, which is reported as other liabilities in the accompanying condensed consolidated balance sheets. For the three months ended September 30, 2021 and 2020, Global Wells recognized approximately $155,000 and $222,000 as interest income, respectively, related to change in fair value of this interest rate swap. For the nine months ended September 30, 2021 and 2020, Global Wells recognized approximately $1,055,000 as interest income and $1,875,000 as interest expense, respectively, related to change in fair value of this interest rate swap. In June 2019, the Company also entered into a five years floating-to-fixed interest-rate swap, with an effective date of June 3, 2019, that is based on the prime rate versus 5.19% fixed rate. The notional was $10,000,000 as of June 30, 2019. The payment dates are the fifth day of the month beginning July 5, 2019 to the termination date of May 31, 2024. As of September 30, 2021 and December 31, 2020, the fair value of the interest rate swap was $0 and $243,000, respectively, which is reported as other liabilities in the accompanying condensed consolidated balance sheets. For the three months ended September 30, 2021 and 2020, the Company recognized approximately $0 and $48,000 as interest expense, respectively, related to change in fair value of this interest rate swap. For the nine months ended September 30, 2021 and 2020, the Company recognized approximately $47,000 as interest income and $153,000 as interest expense, respectively, related to change in fair value of this interest rate swap. In April 2021, the Company terminated the interest rate swap with a notional amount of $10,000,000, recognizing $196,200 in swap termination fee, which was included in the net interest income recognized in the condensed consolidated statements of income for the nine months ended September 30, 2021.

Obligations under Capital Lease

Obligations under Capital Leases9 Months Ended
Sep. 30, 2021
Assets and Liabilities, Lessee [Abstract]
Obligations under Capital LeasesObligations under Capital Leases The Company is the lessee of warehouse vehicles under capital leases that expire in various years through 2024. The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or fair value of the assets. The assets are depreciated over their estimated useful lives. Depreciation of property under capital leases is included in depreciation and amortization expense within the general and administrative operating expenses of the condensed consolidated statements of income. Interest rates on capitalized leases vary from 3.55% to 6.50% and are imputed based on the lower of the Company’s incremental borrowing rate at the inception of each lease or the lessor’s implicit rate of return. The capital leases provide for bargain purchase options and are guaranteed by the stockholders of the Company.

Stock-based Compensation

Stock-based Compensation9 Months Ended
Sep. 30, 2021
Share-based Payment Arrangement [Abstract]
Stock-based CompensationStock-based CompensationIn January 2019, the Company’s Board of Directors adopted the 2019 Stock Incentive Plan (the “Plan”). A total of 2,000,000 shares of common stock were authorized and reserved for issuance under the Plan in the form of incentive or nonqualified stock options and stock awards. A committee appointed by the Board of Directors of the Company determines the terms and conditions of each grant under the Plan. Employees, directors, and consultants are eligible to receive stock options and stock awards under the Plan. The aggregate number of shares available under the Plan and the number of shares subject to outstanding options may be increased or decreased by the Plan administrator to reflect any changes in the outstanding common stock by reason of any recapitalization, reorganization, reclassification, stock split, reverse split, combination of shares, exchange of shares, stock dividend or other distribution payable in capital stock or similar transaction. The exercise price of incentive stock options may not be less than the fair market value of the common stock at the date of grant. The exercise price of incentive stock options granted to individuals that own greater than 10% of the voting stock may not be less than 110% of the fair market value of the common stock at the date of grant. The term of each incentive and nonqualified option is based upon such conditions as determined by the option agreement; however, the term can be no more than ten years from the date of the grant. In the case of an incentive stock option granted to an optionee who, at the time the option is granted, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any parent or subsidiary, the term of the option will be such shorter term as may be provided in the option agreement, but not more than five years from the date of the grant. Stock Options A summary of the Company’s stock option activity under the Plan for the period ended September 30, 2021 is as follows: Number of Weighted- Weighted- Aggregate Outstanding at December 31, 2020 15,000 $10.00 8.0 $ — Granted — — Exercised — — Canceled/forfeited — — Outstanding at September 30, 2021 15,000 $10.00 7.3 $ — Expected to vest at September 30, 2021 15,000 $10.00 7.3 $ — Exercisable at September 30, 2021 — — 0.0 $ — In September 2021, the Company's Board of Directors accelerated the vesting of all outstanding stock options to vest immediately on October 15, 2021. Accordingly, the acceleration of the options vesting was treated as an award modification under ASC 718, resulting in an additional stock-based compensation expense of approximately $5,000 recognized for the three and nine months ended September 30, 2021. At September 30, 2021, total remaining stock-based compensation expense for unvested stock options is approximately $12,752. Restricted stock The Company issued restricted stock units to employees of the Company. The following table summarizes the unvested restricted stock units for the period ended September 30, 2021: Number of Weighted Unvested at December 31, 2020 256,000 $ 10.00 Granted 40,000 17.98 Vested (5,000) 18.56 Forfeited (51,250) 11.03 Unvested at September 30, 2021 239,750 $ 11.11 The restricted stock units and stock options granted are subjected to vesting conditions contingent upon the closing of an initial public offering of the Company. In September 2021, the Company's Board of Directors accelerated the vesting of the Company's restricted stock units, with each tranche of award vesting 6 months earlier than the original vesting date. The acceleration of the restricted stock units vesting was treated as an award modification under ASC 718, resulting in an additional stock-based compensation expense of approximately $411,000 recognized for the three and nine months ended September 30, 2021. For the three months ended September 30, 2021 and 2020, the Company recognized a total of $0.8 million and $0 stock-based compensation expense. For the nine months ended September 30, 2021 and 2020, the Company recognized $1.1 million and $0 stock-based compensation expense, respectively. The restricted stock units and stock options granted began vesting on April 15, 2021, which is the date of closing of the Company’s initial public offering. The company is recognizing stock-based compensation over the vesting period, which is generally over 3 years for the restricted stock units and 1 year for the stock options. At September 30, 2021, total remaining stock-based compensation expense for unvested restricted stock units is approximately $1.7 million.

Earnings Per Share

Earnings Per Share9 Months Ended
Sep. 30, 2021
Earnings Per Share [Abstract]
Earnings Per ShareEarnings Per Share (a) Basic Basic earnings per share is calculated by dividing the net income attributable to Karat Packaging for the year by the weighted average number of common shares outstanding during the related period. Three Months Ended Nine Months Ended 2021 2020 2021 2020 Net income attributable to Karat Packaging Inc. $ 3,786,000 $ 4,072,000 $ 15,149,000 $ 16,595,000 Weighted average number of common shares in issue 19,710,043 15,180,879 17,945,205 15,185,440 Basic earnings per share $ 0.19 $ 0.27 $ 0.84 $ 1.09 (b) Diluted For the purpose of calculating diluted earnings per share, the profit attributable to equity holders of the Company and the weighted average number of common shares outstanding during the related period have been adjusted for the dilutive effects of all potential convertible shares and shares issuable through stock options and restricted stock awards. The dilutive earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of shares that would have been in issue, inclusive of all potentially dilutive shares including unexercised stock options and unvested restricted stock, adjusted by the number of such shares that would have been issued at fair value as follows: Three Months Ended Nine Months Ended 2021 2020 2021 2020 Net income attributable to Karat Packaging Inc. $ 3,786,000 $ 4,072,000 $ 15,149,000 $ 16,595,000 Weighted average number of common shares in issue 19,710,043 15,180,879 17,945,205 15,185,440 Dilutive shares Stock options and restricted stock units 171,252 271,000 164,922 271,000 Adjusted weighted average number of common shares 19,881,295 15,451,879 18,110,127 15,456,440 Diluted earnings per share $ 0.19 $ 0.26 $ 0.84 $ 1.07 For the period ended September 30, 2021, a total of 89,828 shares of potentially dilutive shares have been excluded in the diluted earnings per share calculation due to its anti-dilutive impact on earnings per share.

Commitments and Contingencies

Commitments and Contingencies9 Months Ended
Sep. 30, 2021
Commitments and Contingencies Disclosure [Abstract]
Commitments and ContingenciesCommitments and Contingencies Lease Commitments The Company leases its facilities under various operating leases expiring through 2031. The Company also leases automobiles under various operating leases expiring through 2024. In 2018, Lollicup entered the Texas Lease, which is an operating lease with Global Wells. The lease term for the Texas Lease is for 10 years beginning October 1, 2018 and called for a monthly lease payment of $214,500. The lease agreement was subsequently amended for the lease term to begin in May 1, 2019 and calls for a monthly lease payment of $196,000. In June 2020, the Company entered into the New Jersey Lease, another operating lease with Global Wells. The lease term for the New Jersey Lease is for 5 years beginning July 1, 2020 and calls for a monthly lease payment of $90,128. At September 30, 2021, approximate future minimum lease obligations, which includes payment to Global Wells under certain lease arrangements as described above, are as follows: 2021 (remainder) $ 1,634,000 2022 6,603,000 2023 6,696,000 2024 5,513,000 2025 3,743,000 Thereafter 10,731,000 Total $ 34,920,000 In September 2020, Global Wells entered into an operating lease with an unrelated party as the landlord. The lease term is for 38 months beginning September 9, 2020 and generates monthly rental payments from $57,602 to $61,110 over the lease term. Contingencies The Company is involved from time to time in certain legal actions and claims arising in the ordinary course of 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.

Related Party Transactions

Related Party Transactions9 Months Ended
Sep. 30, 2021
Related Party Transactions [Abstract]
Related Party TransactionsRelated Party Transactions Lollicup Franchising was determined to be a related party by virtue of common ownership from January 1, 2020 to August 31, 2020. The Company acquired all of the membership interest of Lollicup Franchising from the Company’s two primary shareholders for $900,000 in September 2020. Lollicup Franchising is a wholly-owned subsidiary of the Company and this balance is eliminated upon consolidation as of September 30, 2020 (see Note 3). Sales for the three months and nine months ended September 30, 2020 to this related party were $4,000 and $23,000, respectively. The Company has incurred incentive program expenses of $21,000 and $79,000 for the three and nine months ended September 30, 2020, respectively. As a minority stockholder of the Company, Keary Global owns 250,004 shares of common stock as of September 30, 2021, which Keary Global acquired upon exercise of two convertible notes during the third quarter of 2018. Keary Global and its affiliate, Keary International, are owned by one of the Company’s stockholders’ family member. In addition to being a stockholder, Keary Global and Keary International are inventory suppliers and purchasing agents for the Company overseas. The Company has entered into ongoing purchase and supply agreements with Keary Global. At September 30, 2021 and December 31, 2020, the Company has accounts payable due to Keary Global and Keary Internation al, of $2,611,000 and $5,038,000, r espectively. Purchases for the three months ended September 30, 2021 and 2020 from this related party w ere $12,248,000 and $8,815,000, respectively. Purchases for the nine months ended September 30, 2021 and 2020 from this related pa rty were $25,780,000 and $20,625,000, respectively.

Income Taxes

Income Taxes9 Months Ended
Sep. 30, 2021
Income Tax Disclosure [Abstract]
Income TaxesIncome Taxes In determining the interim provision for income taxes, the Company uses the annual estimated effective tax rate applied to the actual year-to-date income and adds the tax effects of any discrete items in the reporting period in which they occur. For the three and nine months ended September 30, 2021 and 2020, the Company’s annual estimated effective tax rate differed from the U.S. federal statutory tax rate of 21% primarily due to exclusion of non-controlling interest income, state taxes, permanent book tax differences, and income tax credits. For the three months ended September 30, 2021 and 2020, the Company's income tax expense was $1.3 million and $1.5 million, with effective tax rate of 23.7% and 24.1%, respectively. For the nine months ended September 30, 2021 and 2020, the Company’s income tax expense was $4.0 million and $5.5 million, with effective tax rates of 19.6% and 26.7%, respectively. On June 10, 2021, the Company was granted PPP loan forgiveness of $5.0 million, in whole, by meeting the conditions for use of loan proceeds. The Company recorded the loan forgiveness as a gain on forgiveness of debt in the accompanying condensed consolidated statements of income for the nine months ended September 30, 2021. The effective tax rate was lowered by 3.9% from 23.5%, for the nine months ended September 30, 2021. ASC 740, Income Taxes , provides for the recognition of deferred tax assets if realization of these assets is more-likely-than-not. In evaluating the Company’s ability to recover its deferred tax assets, the Company considers all available positive and negative evidence, including its operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. Based upon the level of historical taxable income, at this time, the Company determined that sufficient positive evidence existed to conclude that it is more likely than not there will be full utilization of the deferred tax assets in each jurisdiction. The Company remains subject to IRS examination for the 2016 through 2019 tax years, and received notice in February 2019 that it is under examination for years 2016 and 2017. Additionally, the Company files multiple state and local income tax returns and remains subject to examination in various of these jurisdictions, including California for the 2016 through 2019 tax years, and South Carolina for the 2017 through 2019 tax years. In September 2020, the Company acquired 100% LLC member interest in Lollicup Franchising, LLC. Lollicup Franchising, LLC was treated as a partnership for income tax purposes prior to the acquisition. It is currently under audit for tax year 2015 and 2016. The Company does not believe the outcome of this audit will have a material impact on the Company’s financial statements. The Company accounts for uncertainties in income tax in accordance with ASC 740-10 — Accounting for Uncertainty in Income Taxes . ASC 740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This accounting standard also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As of September 30, 2021, the Company does not have any unrecognized tax benefits. On March 27, 2020, the CARES Act was signed into law by the president. The CARES Act provides several favorable tax provisions. The Company evaluated the impacts of CARES Act and determined it currently has no material impact to the Company’s consolidated financial statements. The Taxpayer Certainty and Disaster Relief Act of 2020, enacted on December 27, 2020, added a temporary exception to the 50% limit (TCJA) on the amount that businesses may deduct for food or beverages. Beginning January 1, 2021, through December 31, 2022, the temporary exception allows a 100% deduction for food or beverages from restaurants. The Company evaluated the impacts and does not believe the Act has material impact to the income tax provision. On March 10, 2021, the “ American Rescue Plan Act of 2021” was signed into law by the president. The American Rescue Plan Act of 2021 provides several tax provisions. The Company evaluated the impacts of the American Rescue Plan Act of 2021 and determined it has no material impact to the income tax provision.

COVID-19

COVID-199 Months Ended
Sep. 30, 2021
Unusual or Infrequent Items, or Both [Abstract]
COVID-19COVID-19On January 30, 2020, the World Health Organization (“the WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As the pandemic is ongoing, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, while the Company is not able to precisely estimate the effects of the COVID-19 outbreak, the Company does not believe that it will be adversely affected. Furthermore, in response to the pandemic, the Company started supplying personal protective equipment related products to their customers, which had a positive impact to the Company’s operations in 2020. Although the Company cannot estimate the length or gravity of the impact of the COVID-19 outbreak at this time, if the pandemic continues, it may have a material adverse effect on the Company’s results of future operations, financial position, and liquidity in fiscal year 2021.

Subsequent Events

Subsequent Events9 Months Ended
Sep. 30, 2021
Subsequent Events [Abstract]
Subsequent EventsSubsequent Events In October 2021, the Company renewed its line of credit, extending the maturity date to October 2023. Interest on any line of credit borrowings accrue at an annual rate of prime less 0.25%, with a minimum floor of 3.25%. In addition, the maximum amount of borrowings permitted under the line of credit arrangement is no longer subjected to a borrowing base requirement that was calculated as a percentage of accounts receivable and inventory balances. As part of the line of credit renewal, the financial covenants the Company must comply with have been modified. The Company is no longer required to comply with a minimum tangible net worth and minimum debt service coverage ratio. A minimum fixed charge coverage ratio was added as one of the financial covenants the Company is subjected to going forward. All other financial covenants remain unchanged from the existing arrangement. In October 2021, the Company's Board of Directors granted 430,000 stock options to 24 non-employee directors and employees with an exercise price of $18.80 per share under the 2019 Stock Incentive Plan.

Summary of Significant Accoun_2

Summary of Significant Accounting Policies (Policies)9 Months Ended
Sep. 30, 2021
Accounting Policies [Abstract]
Basis of PresentationBasis 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 8-3 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 September 30, 2021 and for the three and nine months ended September 30, 2021 and 2020 is unaudited; however, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2021. The condensed consolidated balance sheet at December 31, 2020 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, 2020.
Principles of ConsolidationPrinciples of Consolidation: The condensed consolidated financial statements include the accounts of Karat Packaging and its wholly-owned operating subsidiaries, Lollicup, Lollicup Franchising, LLC (“Lollicup Franchising”) (effective September 1, 2020, refer to Note 3), Pacific Cup, Inc. (effective March 1, 2021, refer to Note 3), and Global Wells, a variable interest entity wherein the Company is the primary beneficiary. All intercompany accounts and transactions have been eliminated.
Noncontrolling InterestsNoncontrolling Interests: The Company consolidates its variable interest entity, Global Wells, in which the Company is the primary beneficiary. The Company became the primary beneficiary of Global Wells on March 23, 2018 upon execution of an operating lease agreement allowing the Company to lease Global Wells’ facility. 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 Company’s stockholders’ equity. The amount of net income (loss) attributable to noncontrolling interests is disclosed in the condensed consolidated statements of income.
Estimates and AssumptionsEstimates 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. Estimates that are significant to the condensed consolidated financial statements include stock-based compensation, allowance for doubtful accounts, reserve for slow-moving and obsolete inventory, deferred taxes, and estimated useful lives of property and equipment, with effects of changes could result in future impairments of goodwill, intangibles, and long-lived assets.
Reporting SegmentReporting Segment: The Company manages and evaluates its operations in one reportable segment. This segment consists of manufacturing and supply of a broad portfolio of single-use products that are used to serve food and beverages and are available in plastic, paper, foam, post-consumer recycled content and renewable materials. It also consists of the distribution of personal protective equipment related products such as face shields and face masks.
Earnings per ShareEarnings per Share: Basic earnings per common share is calculated by dividing net income attributable to Karat Packaging by the weighted average number of common shares outstanding during the related period. Diluted earnings per common share is calculated by adjusting weighted average outstanding shares, assuming conversion of all potentially dilutive shares.
Cash and cash equivalentsCash and cash equivalents: The Company considers all highly liquid investments purchased with an original maturity at the date of purchase of three months or less to be cash equivalents. At September 30, 2021 and December 31, 2020, cash and cash equivalents were comprised of cash held in money market, cash on hand and cash deposited with banks.
Concentration of Credit RiskConcentration of Credit Risk : The financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents in financial institutions, which exceed federally insured limits, short-term investments, and non-affiliated trade receivables. The Company routinely assesses the financial strength of its customers and generally does not require collateral for trade receivables. Further, the Company has money market accounts which exceeded the federally insured limits by approximately $0.4 million and $0.2 million as of September 30, 2021 and December 31, 2020, respectively. Concentration of Credit Risk: Cash is maintained at financial institutions and, at times, balances exceed federally insured limits. Management believes that the credit risk related to such deposits is minimal. The Company extends credit based on the valuation of the customers’ financial condition and general collateral is not required. Management believes the Company is not exposed to any material credit risk on these accounts.
Accounts Receivable and Allowance for Doubtful AccountsAccounts Receivable and Allowance for Doubtful Accounts: Accounts receivable consists primarily of amounts due from customers. Accounts receivable are carried at their estimated collectible amounts and are periodically evaluated for collectability based on past credit history. The Company recognizes an allowance for bad debt on accounts receivable in an amount equal to the estimated probable losses net of recoveries. The allowance is based on an analysis of historical bad debt write-offs, current past due customers in the aging as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible.
InventoriesInventories: Inventories consist of raw materials, work-in-process, and finished goods. Inventory cost is determined using the first-in, first-out (FIFO) method and valued at lower of cost or net realizable value. The Company maintains reserves for excess and obsolete inventory considering various factors including historic usage, expected demand, anticipated sales price, and product obsolescence.
Property and EquipmentProperty and Equipment: Property and equipment are carried at cost, net of accumulated depreciation and amortization, and net of impairment losses, if any. Depreciation of property and equipment are computed by straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized using the straight-line method over the term of the lease, or the estimated life of the improvement, whichever is less. The estimated useful life of property and equipment are as follows: Machinery and equipment 5 years to 10 years Leasehold improvements Lower of useful life or lease term Vehicles 3 years to 5 years Furniture and fixtures 7 years Building 28 years to 40 years Property held under capital leases 3 years to 5 years Computer hardware and software 3 years
DepositsDeposits: Deposits include payments made for machinery and equipment related to the Rockwall, Texas manufacturing facility. As of September 30, 2021 and December 31, 2020, the Company had deposits of approximately $3.8 million and $1.8 million, respectively, relating to machinery and equipment for this facility. Included in deposits are also payments made to the lessors of leased properties as security for the full and faithful observance of contracts, which will be refunded to the Company upon expiration or termination of the contract.
Impairment of Long-lived AssetsImpairment of Long-lived Assets: The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. An impairment exists if the undiscounted cash flows generated by the Company’s long-lived assets are less than the net book value of the related assets. If the long-lived assets are impaired, an impairment loss is recognized and measured as the amount by which the carrying value exceeds the estimated fair value of those assets. For the periods ended September 30, 2021 and September 30, 2020, management concluded that an impairment write-down was not required.
Business Combination and GoodwillBusiness Combination and Goodwill: The Company applies the acquisition method of accounting for business combinations in accordance with U.S. GAAP, which requires the Company to make use of estimates and judgments to allocate the purchase price paid for acquisitions to the fair value of the assets, including identifiable intangible assets, and liabilities acquired. Such estimates may be based on significant unobservable inputs. The Company’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Fair values are subject to refinement for up to one year after the closing date of an acquisition as information relative to closing date fair values becomes available. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
Government GrantsGovernment Grants: Government grants are not recognized unless there is reasonable assurance that the Company and Global Wells will comply with the grants’ conditions and that the grants will be received. As of September 30, 2021 and December 31, 2020, the Company received cumulative grants of $1,200,000 and $900,000, respectively. As of September 30, 2021 and
Derivative InstrumentsDerivative Instruments: Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic No. 815, Derivatives and Hedging , requires companies to recognize all of its derivative instruments as either assets or liabilities in the statement of financial position at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in the statement of income during the current period. The Company and Global Wells are exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments applicable to the Company and Global Wells is interest rate risk. Interest rate swaps are entered into to manage interest rate risk associated with the Company and Global Wells’ fixed and floating-rate borrowings. As of September 30, 2021 and December 31, 2020, Global Wells had interest rate swaps that are accounted for as a derivative instrument under ASC 815. The Company and Global Wells did not designate interest rate swaps for hedge accounting and as such, the change in fair value of interest rate swaps is recognized as interest expense in the accompanying condensed consolidated statements of income.
Variable Interest EntitiesVariable Interest Entities: The Company has a variable interest in two entities, Global Wells and Lollicup Franchising, LLC (prior to September 30, 2020, the acquisition date, see Note 3). Global Wells In 2017, Lollicup along with three other unrelated parties formed Global Wells. Lollicup has a 13.5% ownership interest and a 25% voting interest in Global Wells, located in Rockwall, Texas. The purpose of this entity is to own, construct, and manage a warehouse and manufacturing facility. Global Wells’ operating agreement may require its members to make additional contributions only upon the unanimous decision of the members or where the cash in Global Wells’ bank account falls below $50,000. In the event that a member is unable to make an additional capital contribution, the other members will be required to make contributions to offset the amount that member cannot contribute, up to $25,000. Global Wells was determined to be a variable interest entity in accordance with ASC Topic 810, Consolidations , however, at the time the investment was made, it was determined that Lollicup was not the primary beneficiary. In 2018, Lollicup entered into an operating lease with Global Wells (“Texas Lease”). The lease term for the Texas Lease is for 10 years beginning October 1, 2018 and called for a monthly lease payment of $214,500. The lease agreement was subsequently amended for the lease term to begin in May 1, 2019 and calls for a monthly lease payment of $196,000. In June 2020, the Company entered into another operating lease with Global Wells (“New Jersey Lease”). The lease term for the New Jersey Lease is for 5 years beginning July 1, 2020 and calls for a monthly lease payment of $90,128. 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, receive significant benefits, or 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 Topic 810, for the period from March 23, 2018. The monthly lease payments for the Texas Lease and 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; they represent claims against the specific assets of Global Wells, except for the Company’s guarantee of Global Wells’ term loans. The Company was a guarantor for Global Wells’ construction loan, which provided for advances up to $21,640,000 and expired in May 2019. In May 2019, Global Wells entered into a loan agreement with a financial institution and used the proceeds from the new term loan to pay off the principal balance and accrued interest related to the construction loan. In June 2020, Global Wells entered into a loan agreement with a financial institution to purchase land and building in Branchburg, New Jersey, which was also guaranteed by the Company. The Company entered into an operating lease with Global Wells to utilize the facility in Branchburg, New Jersey. As of September 30, 2021 and December 31, 2020, total loan guaranteed by the Company related to Global Wells amounted to $37,005,000 and $37,491,000, respectively. The term loans are also guaranteed by the Company’s two significant stockholders. The following financial information includes assets and liabilities of Global Wells and are included in the accompanying condensed consolidated balance sheets, except for those that eliminate upon consolidation: September 30, December 31, Cash $ 689,000 $ 81,000 Accounts receivable 396,000 343,000 Prepaid expenses and other current assets 87,000 98,000 Property and equipment, net 46,916,000 47,826,000 Other assets 4,882,000 5,260,000 Total assets $ 52,970,000 $ 53,608,000 Accounts payable $ 29,000 $ 564,000 Accrued expenses 447,000 128,000 Customer deposits 82,000 — Due to Lollicup USA Inc. 2,620,000 2,990,000 Long-term debt, current portion 1,166,000 694,000 Long-term debt, net of current portion 35,629,000 36,697,000 Other liabilities 2,851,000 3,906,000 Total liabilities $ 42,824,000 $ 44,979,000 Lollicup Franchising, LLC Prior to the acquisition, on September 30, 2020 (see Note 3), the Company’s two major shareholders share common ownership with Lollicup Franchising. Lollicup Franchising owns and operates one store and also licenses its name to third party store owners and operators. The Company sells inventory to Lollicup Franchising and to the licensed third-party stores. In connection with the sales to third-party stores, the Company has an incentive program with Lollicup Franchising where a certain percentage of the sales to the third-party stores are paid to Lollicup Franchising. The Company has determined that the Company held a variable interest in Lollicup Franchising, however, it was determined that the Company is not the primary beneficiary. The Company incurred incentive program expenses of $21,000 and $79,000 for the three and nine months ended September 30, 2020, respectively, which are reported as a contra to net sales in the accompanying condensed consolidated statements of income. The Company does not have any explicit arrangements and implicit variable interest where the Company is required to provide financial support to Lollicup Franchising. The Company has determined that the maximum exposure to loss as a result of its involvement with Lollicup Franchising is zero.
Stockholder's EquityStockholder’s Equity: The Company’s Certificate of Incorporation authorizes both common and preferred stock.
Revenue RecognitionRevenue Recognition: As the Company generates revenues from customers that include national distributors, fast food restaurants with multiple locations, small businesses, and those that purchase for individual consumption, the Company considers revenue disaggregated by customer type to most accurately reflect the nature and uncertainty of its revenue and cash flows that are affected by economic factors. For the three months and nine months ended September 30, 2021 and 2020, net sales disaggregated by customer type consists of the amounts shown below. Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 National $ 22,894,000 $ 18,426,000 $ 63,493,000 $ 50,092,000 Distributors 57,317,000 39,862,000 148,294,000 118,322,000 Online 14,644,000 8,928,000 39,790,000 26,472,000 Retail 7,856,000 9,101,000 21,333,000 30,251,000 Total Revenue $ 102,711,000 $ 76,317,000 $ 272,910,000 $ 225,137,000 • National chains revenue: National chains revenue is derived from fast food restaurants with locations across multiple states. Revenue from transactions with national chains 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. Shipping terms generally indicate when the title and risk of loss have passed, which is generally when the products are shipped from our manufacturing facility to the customers. • Distributors revenue: Distributors revenues are derived from national and regional distributors across the U.S. that purchase the Company’s products for restaurants, offices, schools, and government entities. Revenue from national distributions 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. Shipping terms generally indicate when the title and risk of loss have passed, which is generally when the products are shipped from our manufacturing facility to the customers. • Online revenue: Online revenue is derived from small businesses such as small restaurants, bubble tea shops, coffee shops, juice bars and smoothie shops. Revenue from wholesale 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. Shipping terms generally indicate when the title and risk of loss have passed, which is generally when the products are shipped from our manufacturing facility to the customers. • Retail revenue: Retail revenue is derived primarily from regional bubble tea shops, boutique coffee shops 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. Shipping terms generally indicate when the title and risk of loss have passed, which is generally when the products are shipped from our manufacturing facility to the customers. The transaction price is the amount of consideration to which the Company expects to be entitled to in exchange for transferring goods to the customer. Revenue is recorded based on the total estimated transaction price, which includes fixed consideration and estimates of variable consideration. Variable consideration includes estimates of rebates and other sales incentives, cash discounts for prompt payment, consideration payable to customers for cooperative advertising and other program incentives, and sales returns. The Company estimates its variable consideration based on contract terms and historical experience of actual results using the expected value method. The performance obligations are generally satisfied shortly after manufacturing and shipment as purchases made by the Company’s customers are manufactured and shipped with minimal lead time. The Company’s contract liabilities consist of rebates and other sales incentives, consideration payable to customers for cooperative advertising and other program incentives, and sales return. As of September 30, 2021 and December 31, 2020, the contract liabilities were not considered significant to the financial statements. Shipping and handling fees billed to a customer are recorded within net sales, with corresponding shipping and handling costs recorded in selling expense on the accompanying condensed consolidated statements of income. Shipping and handling fees billed to a customer are not deemed to be separate performance obligations as these activities occur before the customer receives the products. Shipping and handling costs included within selling expenses in the condensed consolidated statements of income for the three months ended September 30, 2021 and 2020 were $8,794,000 and $5,099,000 , respectively. Shipping and handling costs included within selling expenses in the condensed consolidated statements of income for the nine months ended September 30, 2021 and 2020 were $21,285,000 and $13,164,000, respectively. Sales taxes collected concurrently with revenue-producing activities and remitted to governmental authorities are excluded from revenue. Sales commissions are expensed as incurred due to the amortization period being less than one year and are recorded in selling expense on the accompanying consolidated statements of income.
Advertising CostsAdvertising Costs: The Company expenses costs of print production, trade show, online marketing, and other advertisements in the period in which the expenditure is incurred.
Income TaxesIncome Taxes: The Company applies the asset and liability approach for financial accounting and reporting for income taxes. Deferred income taxes arise from temporary differences between income tax and financial reporting and principally relate to recognition of revenue and expenses in different periods for financial and tax accounting purposes and are measured using currently enacted tax rates and laws. In addition, a deferred tax asset can be generated by net operating loss carryforwards. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. The Company applies ASC 740, Income Taxes , which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
Fair Value MeasurementsFair Value Measurements: The Company follows ASC 820, Fair Value Measurements , which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. ASC 820 establishes a hierarchy of valuation inputs based on the extent to which the inputs are observable in the marketplace. Observable inputs reflect market data obtained from sources independent of the reporting entity and unobservable inputs reflect the entity’s own assumptions about how market participants would value an asset or liability based on the best information available. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value. The following describes the hierarchy of inputs used to measure fair value and the primary valuation methodologies used by the Center for financial instruments measured at fair value on a recurring basis. The three levels of inputs are as follows: Level 1 — Quoted prices in active markets for identical assets or liabilities that the Center has the ability to access as of the measurement date. Level 2 — Inputs that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the same term of the assets or liabilities. Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. At September 30, 2021 and December 31, 2020, the Company has financial instruments classified within the fair value hierarchy, which consist of the following: • Interest rate swaps that meets the definition of a derivative, classified as Level 2 within the fair value hierarchy, and reported as an asset or liability depending on its fair value on the condensed consolidated balance sheet. The fair value of interest rate swaps is calculated using pricing models that will use volatility to quantify the probability of changes around interest rate trends. • Money market account, classified as Level 1 within the fair value hierarchy, and reported as a current asset on the condensed consolidated balance sheets. The following table summarizes the Company’s fair value measurements by level at September 30, 2021 for the assets and liabilities measured at fair value on a recurring basis: Level 1 Level 2 Level 3 Cash equivalents $ 699,000 $ — $ — Interest rate swaps — (1,549,000) * — Fair value, September 30, 2021 $ 699,000 $ (1,549,000) $ — *See Note 9 for further discussion on interest rate swaps. The following table summarizes the Company’s fair value measurements by level at December 31, 2020 for the assets and liabilities measured at fair value on a recurring basis: Level 1 Level 2 Level 3 Cash equivalents $ 448,000 $ — $ — Interest rate swaps — (2,847,000) — Fair value, December 31, 2020 $ 448,000 $ (2,847,000) $ — 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, and borrowing under promissory notes, are reported at their carrying value. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued and other liabilities approximate fair value because of the short maturity of these instruments. The carrying amounts of long-term debt and line of credit at September 30, 2021 and December 31, 2020 approximates fair value because the interest rate approximates the current market interest rate. The fair value of these financial instruments was determined using level 2 inputs.
Foreign CurrencyForeign Currency: The Company includes gains or losses from foreign currency transactions, such as those resulting from the settlement of foreign receivables or payables, in the consolidated statements of operations.
Stock-Based CompensationStock-Based Compensation: The Company recognizes stock-based compensation expense related to employee stock options in accordance with ASC 718, Compensation — Stock Compensation . This standard requires the Company to record compensation expense equal to the fair value of awards granted to employees and non-employees. The fair value of share-based payment awards is estimated on the grant-date using the Black-Scholes option pricing model. Key input assumptions used in the Black-Scholes option pricing model to estimate the grant date fair value of stock options include the fair value of the Company’s common stock, the expected option term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate, and the Company’s expected annual dividend yield. The risk-free interest rate assumption for options granted under the 2019 Stock Incentive Plan is based upon observed interest rates on the United States government securities appropriate for the expected term of the Company’s stock options. The expected term of employee stock options under the Plan represents the weighted-average period that the stock options are expected to remain outstanding. The expected term of options granted is calculated based on the “simplified method,” which estimates the expected term based on the average of the vesting period and contractual term of the stock option. The Company determined the expected volatility assumption using the frequency of daily historical prices of comparable public company’s common stock for a period equal to the expected term of the options. The dividend yield assumption for options granted under the Plan is based on the Company’s history and expectation of dividend payouts. Stock-based compensation expense is based on awards that ultimately vest. Forfeitures are accounted for as they occur. The Company has elected to treat stock-based payment awards with graded vesting schedules and time-based service conditions as separate awards and recognizes stock-based compensation expense over the requisite service period using the graded vesting attribution method. The determination of stock-based compensation is inherently uncertain and subjective and involves the application of valuation models and assumptions requiring the use of judgment. If the Company had made different assumptions, its stock-based compensation expense, and its net loss could have been significantly different.
New and Recently Adopted Accounting StandardsNew 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 have 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 February 2016, the FASB issued ASU 2016-2 (Topic 842), “ Leases ”. This ASU amends a number of aspects of lease accounting, including requiring lessees to recognize operating leases with a term greater than one year on their balance sheet as a right-of-use asset and corresponding lease liability, measured at the present value of the lease payments. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is permitted. The FASB subsequently issued ASU 2018-11 (Topic 842), “Leases: Targeted Improvements” which amends ASC 842 in two important areas, including (i) allowing lessors to combine lease and associated nonlease components by class of underlying asset in contracts that meet certain criteria and, (ii) provides entities with an optional method for adopting the new leasing guidance by recognizing a cumulative-effect adjustment to the opening balance of the retained earnings, and not to restate the comparative periods presented at the adoption date. The effective date for ASC 842 for public business entities is annual reporting periods beginning after December 15, 2018. The effective date for all other entities is annual reporting periods beginning after December 15, 2021. The Company elects to adopt the new standard in annual reporting period beginning after December 15, 2021, and is currently assessing the impact of this standard on the Company’s consolidated financial statements. In June 2016, the FASB issued ASU 2016-13 “ Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ” which adds to U.S. GAAP an impairment model known as the current expected credit loss (CECL) model that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. The ASU is also intended to reduce the complexity of U.S. GAAP by decreasing the number of credit impairment models that entities use to account for debt instruments. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years for public business entities that are U.S. Securities and Exchange Commission (SEC) filers. For all other public business entities, the ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. For all other entities, the ASU is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is permitted beginning after December 15, 2018, including interim periods within those fiscal years. The FASB subsequently issued ASU 2019-10 (Topic 326), “Financial Instruments-Credit Losses: Effective Dates” which amends the effective date for SEC filers that are eligible to be ‘smaller reporting companies’, non-SEC filers and all other companies, including not-for-profit companies and employee benefit plans. For calendar-year end companies that are eligible for the deferral, the effective date is January 1, 2023. The Company elects to adopt the new standard in annual reporting period beginning after January 1, 2023, and is currently assessing the impact of this standard on the Company’s consolidated financial statements. In June 2018, the FASB issued ASU 2018-7 (Topic 718), “ Compensation — Stock Compensation: Improvements to Non-employee Share based Payment Accounting ”, which supersedes Subtopic 505-50 and expands the scope of ASC Topic 718 to include share-based payments issued to nonemployees for goods and services. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide financing to the issuer or awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC Topic 606. The FASB subsequently issued ASU 2019-8 (Topic 718), “ Compensation — Stock Compensation ” which clarifies guidance in Topic 718 on measurement and classification of share-based payments to customers. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606. The Company adopted this ASU as of January 1, 2020 and adoption of this guidance did not have a material impact on the Company’s financial position, results of operations and cash flow. In August 2018, the FASB issued ASU 2018-13 “ Fair Value Measurement (Topic 820) Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement ”. The guidance in this ASU eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements. Entities are no longer required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy but require public companies to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. Certain provisions are applied prospectively while others are applied retrospectively. This ASU is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company adopted this ASU as of January 1, 2020 and adoption of this guidance did not have a material impact on the Company’s financial position, results of operations and cash flow. In December 2019, the FASB issued ASU 2019-12 “ Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ”. The guidance in this ASU eliminates certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. For public entities, the amendments in this Update are effective for fiscal years, beginning after December 15, 2020. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption of the amendment is permitted. As part of the IPO relief provided to emerging growth companies ("EGC"), an EGC may elect to adopt new standards on the timeline afforded a private company. The Company elects to adopt the new standard in annual reporting period beginning after December 15, 2021, and is currently assessing the impact of this standard on the Company’s consolidated financial statements. In March 2020, the FASB issued ASU 2020-3 “ Codification Improvements to Financial Instruments ”. The guidance in this ASU clarifies the requirement for all entities to provide the fair value option disclosures in paragraphs 825-10-50-24 through 50-32 of the FASB’s ASC. The guidance also clarifies that the contractual term of a net investment in a lease determined in accordance with ASC 842, “Leases”, should be the contractual term used to measure expected credit losses under ASC 326, “Financial Instruments — Credit Losses”. This ASU is effective upon adoption of the amendments in ASU 2016-13. Early adoption is not permitted before an entity’s adoption of ASU 2016-13.

Summary of Significant Accoun_3

Summary of Significant Accounting Policies (Tables)9 Months Ended
Sep. 30, 2021
Accounting Policies [Abstract]
Schedule of estimated useful life of property and equipmentThe estimated useful life of property and equipment are as follows: Machinery and equipment 5 years to 10 years Leasehold improvements Lower of useful life or lease term Vehicles 3 years to 5 years Furniture and fixtures 7 years Building 28 years to 40 years Property held under capital leases 3 years to 5 years Computer hardware and software 3 years
Schedule of goodwillThe following table displays a roll-forward of the carrying amount of goodwill from December 31, 2020 to September 30, 2021: Gross carrying amount Balance at December 31, 2020 $ 3,113,000 Acquired through business combination 397,000 Balance at September 30, 2021 3,510,000 Accumulated impairment Balance at December 31, 2020 — Impairment loss recognized — Balance at September 30, 2021 — Carrying amount at September 30, 2021 $ 3,510,000
Schedule of variable interest entity financial informationThe following financial information includes assets and liabilities of Global Wells and are included in the accompanying condensed consolidated balance sheets, except for those that eliminate upon consolidation: September 30, December 31, Cash $ 689,000 $ 81,000 Accounts receivable 396,000 343,000 Prepaid expenses and other current assets 87,000 98,000 Property and equipment, net 46,916,000 47,826,000 Other assets 4,882,000 5,260,000 Total assets $ 52,970,000 $ 53,608,000 Accounts payable $ 29,000 $ 564,000 Accrued expenses 447,000 128,000 Customer deposits 82,000 — Due to Lollicup USA Inc. 2,620,000 2,990,000 Long-term debt, current portion 1,166,000 694,000 Long-term debt, net of current portion 35,629,000 36,697,000 Other liabilities 2,851,000 3,906,000 Total liabilities $ 42,824,000 $ 44,979,000
Summary of net sales disaggregated by customer typeFor the three months and nine months ended September 30, 2021 and 2020, net sales disaggregated by customer type consists of the amounts shown below. Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 National $ 22,894,000 $ 18,426,000 $ 63,493,000 $ 50,092,000 Distributors 57,317,000 39,862,000 148,294,000 118,322,000 Online 14,644,000 8,928,000 39,790,000 26,472,000 Retail 7,856,000 9,101,000 21,333,000 30,251,000 Total Revenue $ 102,711,000 $ 76,317,000 $ 272,910,000 $ 225,137,000
Schedule of concentration of credit riskFor the three and nine months ended September 30, 2021 and 2020, respectively, purchases from the following vendor makes up greater than 10 percent of total purchases: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Keary Global Ltd. ("Keary Global") and its affiliate, Keary International, Ltd.- related parties 13.7 % 13.3 % 14.3 % 11 % Amounts due to the following vendors at September 30, 2021 and December 31, 2020 that exceed 10 percent of total accounts payable are as follows: September 30, December 31, Keary Global and its affiliate, Keary International - related parties * 18 % Taizhou Fuling Plastics Co., Ltd * 11 % Fuling Technology Co., Ltd. 24 % * Wen Ho Industrial Co. 12 % * *Amounts payable represented less than 10% of total accounts payable
Summary of fair value measurements by level for the assets and liabilities measured at fair value on a recurring basisThe following table summarizes the Company’s fair value measurements by level at September 30, 2021 for the assets and liabilities measured at fair value on a recurring basis: Level 1 Level 2 Level 3 Cash equivalents $ 699,000 $ — $ — Interest rate swaps — (1,549,000) * — Fair value, September 30, 2021 $ 699,000 $ (1,549,000) $ — *See Note 9 for further discussion on interest rate swaps. The following table summarizes the Company’s fair value measurements by level at December 31, 2020 for the assets and liabilities measured at fair value on a recurring basis: Level 1 Level 2 Level 3 Cash equivalents $ 448,000 $ — $ — Interest rate swaps — (2,847,000) — Fair value, December 31, 2020 $ 448,000 $ (2,847,000) $ —

Acquisitions (Tables)

Acquisitions (Tables)9 Months Ended
Sep. 30, 2021
Business Combination and Asset Acquisition [Abstract]
Summary of assets acquired and liabilities assumedThe following table summarizes the assets acquired as a result of this acquisition: Inventories $ 153,000 Property and equipment 50,000 Customer relationships 400,000 Goodwill 397,000 Total assets acquired $ 1,000,000

Inventories (Tables)

Inventories (Tables)9 Months Ended
Sep. 30, 2021
Inventory Disclosure [Abstract]
Schedule of inventoriesInventories consist of the following: September 30, December 31, Raw materials $ 17,092,000 $ 4,251,000 Work in progress — 133,000 Finished goods 43,790,000 45,252,000 Subtotal 60,882,000 49,636,000 Less inventory reserve (675,000) (675,000) Total inventories $ 60,207,000 $ 48,961,000

Property and Equipment (Tables)

Property and Equipment (Tables)9 Months Ended
Sep. 30, 2021
Property, Plant and Equipment [Abstract]
Schedule of property and equipment, netProperty and equipment, net consist of the following: September 30, December 31, Machinery and equipment $ 59,975,000 $ 55,528,000 Leasehold improvements 17,955,000 17,832,000 Vehicles 4,471,000 3,447,000 Furniture and fixtures 903,000 851,000 Building 35,237,000 34,134,000 Land 11,907,000 11,907,000 Property held under capital leases 828,000 1,607,000 Computer hardware and software 548,000 546,000 131,824,000 125,852,000 Less accumulated depreciation (37,783,000) (30,319,000) Total property and equipment, net $ 94,041,000 $ 95,533,000

Accrued Expenses (Tables)

Accrued Expenses (Tables)9 Months Ended
Sep. 30, 2021
Payables and Accruals [Abstract]
Summary of accrued expense liabilitiesThe following table summarizes information related to accrued expense liabilities: September 30, December 31, Accrued expenses $ 3,171,000 $ 1,796,000 Accrued interest 40,000 199,000 Accrued payroll 1,371,000 1,253,000 Accrued vacation and sick pay 630,000 496,000 Accrued shipping expenses 1,859,000 433,000 Accrued professional services fees 724,000 481,000 Deferred rent liability 366,000 301,000 Total accrued expenses $ 8,161,000 $ 4,959,000

Long-Term Debt (Tables)

Long-Term Debt (Tables)9 Months Ended
Sep. 30, 2021
Debt Disclosure [Abstract]
Schedule of long-term debtLong-Term debt consists of the following: September 30, December 31, A promissory note that allowed for advances up to $5,000,000 through March 2018, at which point it converted to a term loan. Outstanding principal balance of $4,814,677 was converted in March 2018, maturing in March 2023. Principal and interest payment of $90,815 due monthly at the fixed rate of 4.98%. The loan was secured by certain machinery and equipment. In accordance with the loan agreement, the Company was required to comply with certain financial covenants, including a minimum fixed charge coverage ratio and net income. $ — $ 2,322,000 An equipment loan with a draw down period ending August 28, 2019 for up to $10,000,000, at which point the entire principal outstanding was due, unless extended. Outstanding principal balance of $9,476,000 was converted to a term loan in June 2019, maturing in July 2024. Principal and interest payment of $192,572 due monthly starting August 2019 at the fixed rate of 5.75%. The loan was secured by the Company’s assets and guaranteed by the Company’s stockholders. In accordance with loan agreement, the Company was required to comply with certain financial covenants, including a minimum current ratio, minimum effective tangible net-worth, maximum debt to effective tangible net worth, and minimum debt coverage ratio. — 7,450,000 A $2,130,000 term loan that expired April 30, 2021. Principal and interest payment of $55,539 due monthly with the remaining principal and unpaid interest due at maturity. Interest accrues based on prime rate (3.25% as of December 31, 2020). The loan was secured by the company’s assets and guaranteed by the company’s stockholders. In accordance with the loan agreement, the Company was required to comply with certain financial covenants, including a minimum current ratio, minimum effective tangible net-worth, maximum debt to effective tangible net worth, and minimum debt coverage ratio. — 212,000 A $935,000 term loan that expires December 31, 2021. Principal and interest payment of $19,834 due monthly with the remaining principal and unpaid interest due at maturity. Interest accrues at a fixed rate of 3.50%. The loan was secured by the Company’s assets and guaranteed by the Company’s stockholders. In accordance with the loan agreement, the Company was required to comply with certain financial covenants, including a minimum current ratio, minimum effective tangible net-worth, maximum debt to effective tangible net worth, and minimum debt coverage ratio. — 234,000 Subtotal, continue on following page $ — $ 10,218,000 September 30, December 31, Subtotal from previous page $ — $ 10,218,000 An equipment loan with a draw down period ended May 31, 2019 for up to $10,000,000. After the draw period, the outstanding principal balance is converted to a term loan payable, maturing on May 31, 2024. The first principal and interest payment commenced in July 2019. Interest accrued based on prime rate (3.25% at December 31, 2020). The loan was secured by the Company’s assets and guaranteed by the Company’s stockholders. In accordance with the loan agreement, the Company was required to comply with certain fixed financial covenants, including a fixed charge coverage ratio and a minimum tangible net worth. — 7,000,000 A $3,000,000 term loan that expires December 2024. Interest only payment due for the first six months. Principal and interest payment of $57,769 due monthly beginning January 2020 with the remaining principal and unpaid interest due at maturity. Interest accrued at prime rate plus 0.25% (3.50% at December 31, 2020).The loan was secured the Company’s assets and guaranteed by the Company’s stockholders. In accordance with the loan agreement, the Company was required to comply with certain financial covenants, including a minimum current ratio, minimum tangible net worth, debt service charge ratio, and debt to EBITDA rolling ratio. — 2,444,000 A $21,580,000 term loan that matures in May 2029. Interest accrues at prime rate less 0.25% (3.00% at December 31, 2020) and principal payments ranging from $24,356 to $39,581 along with interest are due monthly throughout the term of the loan, with the remaining principal balance due at maturity. The loan was collateralized by substantially all of the Company’s and Global Well’s assets and was guaranteed by the Company and its stockholders. The Company incurred debt issuance costs of approximately $119,000, which is reported as a reduction of the carrying value of debt on the accompanying consolidated balance sheet. 20,890,000 21,130,000 A $3,000,000 term loan that expires June 17, 2025. Principal and interest payment of $54,623 due monthly with the remaining principal and unpaid interest due at maturity. Interest accrues based on prime rate plus margin of 0.25% (3.50% as of December 31, 2020). The loan was secured by the company’s assets and guaranteed by the company’s stockholders. In accordance with the loan agreement, the Company was required to comply with certain financial covenants, including a minimum current ratio, minimum effective tangible net-worth, maximum debt to effective tangible net worth, and minimum debt coverage ratio. — 2,723,000 A $5,000,000 Paycheck Protection Program loan that expires April 16, 2022. Interest accrues at 1.0%. — 5,000,000 Subtotal, continue on following page $ 20,890,000 $ 48,515,000 September 30, 2021 December 31, 2020 Subtotal from previous page $ 20,890,000 $ 48,515,000 A $16,540,000 term loan that matures June 30, 2025. Interest accrues at 4.5% fixed and principal payments ranging from $30,524 to $37,720 along with interest are due monthly throughout the term of the loan, with the remaining principal balance due at maturity. The loan is collateralized by substantially all of the Company’s and Global Well’s assets and is guaranteed by the Company and its stockholders. This loan was refinanced in September 2021 (see below). — 16,361,000 A $23,000,000 term loan that matures September 30, 2026, with the initial balance of $16,115,000 and an option to request for additional advances up to a maximum of $6,885,000 through September 2022. Interest accrues at a fixed rate of 3.5%. Principal and interest payments of $115,766 are due monthly throughout the term of the loan, with the remaining principal balance due at maturity. The loan is collateralized by substantially all of Global Wells' assets and is guaranteed by Global Wells and one of the Company's stockholders. In accordance with the loan agreement, Global Wells is required to comply with certain financial covenants, including a minimum debt service coverage ratio. 16,115,000 — Long-term debt 37,005,000 64,876,000 Less: unamortized loan fees (210,000) (102,000) Less: current portion (1,166,000) (11,364,000) Long-term debt, net of current portion $ 35,629,000 $ 53,410,000
Schedule of future maturitiesAt September 30, 2021, future maturities : 2021 (remainder) $ 288,000 2022 1,178,000 2023 1,224,000 2024 1,276,000 2025 1,333,000 Thereafter 31,706,000 Total $ 37,005,000

Stock-based Compensation (Table

Stock-based Compensation (Tables)9 Months Ended
Sep. 30, 2021
Share-based Payment Arrangement [Abstract]
Summary of stock option activityA summary of the Company’s stock option activity under the Plan for the period ended September 30, 2021 is as follows: Number of Weighted- Weighted- Aggregate Outstanding at December 31, 2020 15,000 $10.00 8.0 $ — Granted — — Exercised — — Canceled/forfeited — — Outstanding at September 30, 2021 15,000 $10.00 7.3 $ — Expected to vest at September 30, 2021 15,000 $10.00 7.3 $ — Exercisable at September 30, 2021 — — 0.0 $ —
Summary of unvested restricted stock unit activityThe Company issued restricted stock units to employees of the Company. The following table summarizes the unvested restricted stock units for the period ended September 30, 2021: Number of Weighted Unvested at December 31, 2020 256,000 $ 10.00 Granted 40,000 17.98 Vested (5,000) 18.56 Forfeited (51,250) 11.03 Unvested at September 30, 2021 239,750 $ 11.11

Earnings Per Share (Tables)

Earnings Per Share (Tables)9 Months Ended
Sep. 30, 2021
Earnings Per Share [Abstract]
Schedule of earnings per shareBasic earnings per share is calculated by dividing the net income attributable to Karat Packaging for the year by the weighted average number of common shares outstanding during the related period. Three Months Ended Nine Months Ended 2021 2020 2021 2020 Net income attributable to Karat Packaging Inc. $ 3,786,000 $ 4,072,000 $ 15,149,000 $ 16,595,000 Weighted average number of common shares in issue 19,710,043 15,180,879 17,945,205 15,185,440 Basic earnings per share $ 0.19 $ 0.27 $ 0.84 $ 1.09 Three Months Ended Nine Months Ended 2021 2020 2021 2020 Net income attributable to Karat Packaging Inc. $ 3,786,000 $ 4,072,000 $ 15,149,000 $ 16,595,000 Weighted average number of common shares in issue 19,710,043 15,180,879 17,945,205 15,185,440 Dilutive shares Stock options and restricted stock units 171,252 271,000 164,922 271,000 Adjusted weighted average number of common shares 19,881,295 15,451,879 18,110,127 15,456,440 Diluted earnings per share $ 0.19 $ 0.26 $ 0.84 $ 1.07

Commitments and Contingencies (

Commitments and Contingencies (Tables)9 Months Ended
Sep. 30, 2021
Commitments and Contingencies Disclosure [Abstract]
Schedule of future minimum lease obligationsAt September 30, 2021, approximate future minimum lease obligations, which includes payment to Global Wells under certain lease arrangements as described above, are as follows: 2021 (remainder) $ 1,634,000 2022 6,603,000 2023 6,696,000 2024 5,513,000 2025 3,743,000 Thereafter 10,731,000 Total $ 34,920,000

Nature of Operations (Details)

Nature of Operations (Details)9 Months Ended
Sep. 30, 2021distribution_center
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Distribution centers operated by entity3

Summary of Significant Accoun_4

Summary of Significant Accounting Policies - Narrative (Details) $ in Millions9 Months Ended
Sep. 30, 2021USD ($)segmententityDec. 31, 2020USD ($)
Accounting Policies [Abstract]
Reportable segment | segment1
Money market deposits, exceeding federally insured limits | $ $ 0.4 $ 0.2
Variable interest entity, number of entities | entity2

Summary of Significant Accoun_5

Summary of Significant Accounting Policies - Estimated Useful Life (Details)9 Months Ended
Sep. 30, 2021
Furniture and fixtures
Property, Plant and Equipment [Line Items]
Estimated useful life of property and equipment7 years
Computer hardware and software
Property, Plant and Equipment [Line Items]
Estimated useful life of property and equipment3 years
Minimum | Machinery and equipment
Property, Plant and Equipment [Line Items]
Estimated useful life of property and equipment5 years
Minimum | Vehicles
Property, Plant and Equipment [Line Items]
Estimated useful life of property and equipment3 years
Minimum | Building
Property, Plant and Equipment [Line Items]
Estimated useful life of property and equipment28 years
Minimum | Property held under capital leases
Property, Plant and Equipment [Line Items]
Estimated useful life of property and equipment3 years
Maximum | Machinery and equipment
Property, Plant and Equipment [Line Items]
Estimated useful life of property and equipment10 years
Maximum | Vehicles
Property, Plant and Equipment [Line Items]
Estimated useful life of property and equipment5 years
Maximum | Building
Property, Plant and Equipment [Line Items]
Estimated useful life of property and equipment40 years
Maximum | Property held under capital leases
Property, Plant and Equipment [Line Items]
Estimated useful life of property and equipment5 years

Summary of Significant Accoun_6

Summary of Significant Accounting Policies - Capitalized and Depreciated (Details)9 Months Ended
Sep. 30, 2021USD ($)reporting_unitDec. 31, 2020USD ($)
Deposits [Abstract]
Deposits relating to machinery and equipment $ 3,800,000 $ 1,800,000
Business Combination, Goodwill [Abstract]
Reporting unit | reporting_unit1
Impairments of goodwill $ 0
Government Grants
Cumulative grants1,200,000 900,000
Global Wells
Government Grants
Cumulative grants $ 1,302,000 $ 1,302,000

Summary of Significant Accoun_7

Summary of Significant Accounting Policies - Schedule of Goodwill (Details)9 Months Ended
Sep. 30, 2021USD ($)
Goodwill [Roll Forward]
Goodwill, beginning balance $ 3,113,000
Acquired through business combination397,000
Goodwill, ending balance3,510,000
Accumulated impairment
Goodwill, accumulated impairment, beginning balance0
Impairment loss recognized0
Goodwill, accumulated impairment, ending balance0
Goodwill, ending balance $ 3,510,000

Summary of Significant Accoun_8

Summary of Significant Accounting Policies - Global Wells (Details) - Global WellsJul. 01, 2020USD ($)May 01, 2019USD ($)Oct. 01, 2018USD ($)Sep. 30, 2021USD ($)stockholderDec. 31, 2017USD ($)unrelated_partyDec. 31, 2020USD ($)May 31, 2019USD ($)
Variable Interest Entity [Line Items]
Other unrelated parties | unrelated_party3
Ownership interest13.50%
Voting interest25.00%
Minimum bank account to make additional contributions from members $ 50,000
Contributions to offset the amount that member cannot contribute (up to) $ 25,000
Maximum advances (up to) $ 21,640,000
Total loan guaranteed $ 37,005,000 $ 37,491,000
Number of primary stockholders who guaranteed loans | stockholder2
Texas
Variable Interest Entity [Line Items]
Lease term10 years
Monthly lease payment $ 196,000 $ 214,500
New Jersey
Variable Interest Entity [Line Items]
Lease term5 years
Monthly lease payment $ 90,128

Summary of Significant Accoun_9

Summary of Significant Accounting Policies - Assets and Liabilities of Global Wells (Details) - USD ($)Sep. 30, 2021Dec. 31, 2020
Variable Interest Entity [Line Items]
Cash and cash equivalents $ 1,679,000 $ 448,000
Accounts receivable33,276,000 23,838,000
Prepaid expenses and other current assets5,690,000 6,530,000
Property and equipment, net94,041,000 95,533,000
Other assets399,000 161,000
Total assets203,490,000 181,104,000
Accounts payable19,028,000 20,069,000
Accrued expenses8,161,000 4,959,000
Customer deposits1,125,000 551,000
Due to Lollicup USA Inc.2,611,000 5,038,000
Long-term debt, current portion1,166,000 11,364,000
Long-term debt, net of current portion200,000 100,000
Other liabilities4,051,000 5,049,000
Total liabilities78,481,000 141,236,000
Global Wells
Variable Interest Entity [Line Items]
Cash and cash equivalents689,000 81,000
Accounts receivable396,000 343,000
Prepaid expenses and other current assets87,000 98,000
Property and equipment, net46,916,000 47,826,000
Other assets4,882,000 5,260,000
Total assets52,970,000 53,608,000
Accounts payable29,000 564,000
Accrued expenses447,000 128,000
Customer deposits82,000 0
Due to Lollicup USA Inc.2,620,000 2,990,000
Long-term debt, current portion1,166,000 694,000
Long-term debt, net of current portion35,629,000 36,697,000
Other liabilities2,851,000 3,906,000
Total liabilities $ 42,824,000 $ 44,979,000

Summary of Significant Accou_10

Summary of Significant Accounting Policies - Lollicup Franchising, LLC (Details) - Lollicup Franchising, LLCSep. 01, 2020shareholderstoreSep. 30, 2020USD ($)Sep. 30, 2020USD ($)Sep. 30, 2021USD ($)
Variable Interest Entity [Line Items]
Major shareholders who share common ownership with Lollicup Franchising | shareholder2
Store owned | store1
Incentive program expenses21,000 79,000
Maximum exposure to loss $ 0

Summary of Significant Accou_11

Summary of Significant Accounting Policies - Stockholder's Equity (Details)1 Months Ended9 Months Ended
Jul. 31, 2020USD ($)sharesJun. 30, 2020USD ($)$ / sharessharesSep. 30, 2021vote$ / sharessharesDec. 31, 2020USD ($)$ / sharesshares
Accounting Policies [Abstract]
Total number of shares of all classes of stock authorized (in shares)110,000,000
Common stock, par value (in dollars per share) | $ / shares $ 0.001 $ 0.001
Preferred stock, shares authorized (in shares)10,000,000
Common stock, shares authorized (in shares)100,000,000 100,000,000
Votes per share held | vote1
Ordinary share per dividend (in dollars per share) | $ / shares $ 0.04
Cash dividends | $ $ 607,000
Treasury stock acquired (in shares)13,000 10,000
Payments to acquire treasury stock | $ $ 141,000 $ 107,000

Summary of Significant Accou_12

Summary of Significant Accounting Policies - Revenue Recognition (Details) - USD ($)3 Months Ended9 Months Ended
Sep. 30, 2021Sep. 30, 2020Sep. 30, 2021Sep. 30, 2020
Disaggregation of Revenue [Line Items]
Net sales $ 102,711,000 $ 76,317,000 $ 272,910,000 $ 225,137,000
Cost of goods sold72,918,000 53,286,000 193,393,000 155,308,000
Selling expenses
Disaggregation of Revenue [Line Items]
Cost of goods sold8,794,000 5,099,000 21,285,000 13,164,000
National
Disaggregation of Revenue [Line Items]
Net sales22,894,000 18,426,000 63,493,000 50,092,000
Distributors
Disaggregation of Revenue [Line Items]
Net sales57,317,000 39,862,000 148,294,000 118,322,000
Online
Disaggregation of Revenue [Line Items]
Net sales14,644,000 8,928,000 39,790,000 26,472,000
Retail
Disaggregation of Revenue [Line Items]
Net sales $ 7,856,000 $ 9,101,000 $ 21,333,000 $ 30,251,000

Summary of Significant Accou_13

Summary of Significant Accounting Policies - Advertising Costs and Income Taxes (Details) - USD ($)3 Months Ended9 Months Ended
Sep. 30, 2021Sep. 30, 2020Sep. 30, 2021Sep. 30, 2020Dec. 31, 2020
Marketing and Advertising Expense [Abstract]
Advertising costs $ 823,000 $ 336,000 $ 1,843,000 $ 1,126,000
Income Tax Disclosure [Abstract]
Uncertain tax positions $ 0 $ 0 $ 0

Summary of Significant Accou_14

Summary of Significant Accounting Policies - Concentration of Credit Risk (Details) - Supplier3 Months Ended9 Months Ended12 Months Ended
Sep. 30, 2021Sep. 30, 2020Sep. 30, 2021Sep. 30, 2020Dec. 31, 2020
Purchases | Keary Global and its affiliate, Keary International - related parties
Concentration Risk [Line Items]
Concentration risk percentage13.70%13.30%14.30%11.00%
Accounts payable | Keary Global and its affiliate, Keary International - related parties
Concentration Risk [Line Items]
Concentration risk percentage18.00%
Accounts payable | Taizhou Fuling Plastics Co., Ltd
Concentration Risk [Line Items]
Concentration risk percentage11.00%
Accounts payable | Fuling Technology Co., Ltd.
Concentration Risk [Line Items]
Concentration risk percentage24.00%
Accounts payable | Wen Ho Industrial Co.
Concentration Risk [Line Items]
Concentration risk percentage12.00%

Summary of Significant Accou_15

Summary of Significant Accounting Policies - Fair Value Measurements (Details) - Recurring basis - USD ($)Sep. 30, 2021Dec. 31, 2020
Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents $ 699,000 $ 448,000
Interest rate swaps0 0
Fair value699,000 448,000
Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents0 0
Interest rate swaps(1,549,000)(2,847,000)
Fair value(1,549,000)(2,847,000)
Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents0 0
Interest rate swaps0 0
Fair value $ 0 $ 0

Summary of Significant Accou_16

Summary of Significant Accounting Policies - Foreign Currency (Details) - USD ($)3 Months Ended9 Months Ended
Sep. 30, 2021Sep. 30, 2020Sep. 30, 2021Sep. 30, 2020
Foreign Currency
Loss of foreign currency transactions $ 63,000 $ 268,000 $ 347,000 $ 377,000

Acquisitions - Narrative (Detai

Acquisitions - Narrative (Details)Mar. 01, 2021USD ($)
Pacific Cup, Inc
Business Acquisition [Line Items]
Cash consideration $ 1,000,000

Acquisitions - Pacific Cup (Det

Acquisitions - Pacific Cup (Details) - USD ($)Sep. 30, 2021Dec. 31, 2020
Business Acquisition [Line Items]
Goodwill $ 3,510,000 $ 3,113,000
Pacific Cup, Inc
Business Acquisition [Line Items]
Inventories153,000
Property and equipment50,000
Customer relationships400,000
Goodwill397,000
Total assets acquired $ 1,000,000

Inventories (Details)

Inventories (Details) - USD ($)Sep. 30, 2021Dec. 31, 2020
Inventory Disclosure [Abstract]
Raw materials $ 17,092,000 $ 4,251,000
Work in progress0 133,000
Finished goods43,790,000 45,252,000
Subtotal60,882,000 49,636,000
Less inventory reserve(675,000)(675,000)
Total inventories $ 60,207,000 $ 48,961,000

Property and Equipment (Details

Property and Equipment (Details) - USD ($)3 Months Ended9 Months Ended
Sep. 30, 2021Sep. 30, 2020Sep. 30, 2021Sep. 30, 2020Dec. 31, 2020
Property, Plant and Equipment, Net, by Type [Abstract]
Property and equipment, gross $ 131,824,000 $ 131,824,000 $ 125,852,000
Less accumulated depreciation(37,783,000)(37,783,000)(30,319,000)
Total property and equipment, net94,041,000 94,041,000 95,533,000
Depreciation and amortization expense2,528,000 $ 2,234,000 7,464,000 $ 6,103,000
Machinery and equipment
Property, Plant and Equipment, Net, by Type [Abstract]
Property and equipment, gross59,975,000 59,975,000 55,528,000
Leasehold improvements
Property, Plant and Equipment, Net, by Type [Abstract]
Property and equipment, gross17,955,000 17,955,000 17,832,000
Vehicles
Property, Plant and Equipment, Net, by Type [Abstract]
Property and equipment, gross4,471,000 4,471,000 3,447,000
Furniture and fixtures
Property, Plant and Equipment, Net, by Type [Abstract]
Property and equipment, gross903,000 903,000 851,000
Building
Property, Plant and Equipment, Net, by Type [Abstract]
Property and equipment, gross35,237,000 35,237,000 34,134,000
Land
Property, Plant and Equipment, Net, by Type [Abstract]
Property and equipment, gross11,907,000 11,907,000 11,907,000
Property held under capital leases
Property, Plant and Equipment, Net, by Type [Abstract]
Property and equipment, gross828,000 828,000 1,607,000
Computer hardware and software
Property, Plant and Equipment, Net, by Type [Abstract]
Property and equipment, gross $ 548,000 $ 548,000 $ 546,000

Line of Credit (Details)

Line of Credit (Details) - USD ($)9 Months Ended12 Months Ended
Sep. 30, 2021Dec. 31, 2020Dec. 31, 2019Sep. 29, 2019May 30, 2019
Line of Credit Facility [Line Items]
Line of credit $ 0 $ 33,169,000
Line of credit
Line of Credit Facility [Line Items]
Maximum borrowing $ 40,000,000 $ 34,668,000 $ 40,000,000 $ 30,000,000 $ 25,000,000
Floor rate3.25%3.75%
Line of credit $ 0 $ 33,169,000
Standby letter of credit
Line of Credit Facility [Line Items]
Line of credit $ 0 $ 0
Prime Rate | Line of credit
Line of Credit Facility [Line Items]
Spread on variable rate0.25%

Accrued Expenses (Details)

Accrued Expenses (Details) - USD ($)Sep. 30, 2021Dec. 31, 2020
Payables and Accruals [Abstract]
Accrued expenses $ 3,171,000 $ 1,796,000
Accrued interest40,000 199,000
Accrued payroll1,371,000 1,253,000
Accrued vacation and sick pay630,000 496,000
Accrued shipping expenses1,859,000 433,000
Accrued professional services fees724,000 481,000
Deferred rent liability366,000 301,000
Total accrued expenses $ 8,161,000 $ 4,959,000

Long-Term Debt - Schedule of Lo

Long-Term Debt - Schedule of Long-term Debt (Details) - USD ($)9 Months Ended12 Months Ended
Sep. 30, 2021Dec. 31, 2020
Debt Instrument [Line Items]
Long-term debt $ 37,005,000 $ 64,876,000
Less: unamortized loan fees(210,000)(102,000)
Long-term debt, current portion(1,166,000)(11,364,000)
Long-term debt, net of current portion and debt discount of $0.2 million and $0.1 million at September 30, 2021 and December 31, 2020, respectively (including $35.6 million and $36.7 million associated with variable interest entity at September 30, 2021 and December 31, 2020, respectively, and debt discount of $0.2 million and $0.1 million associated with variable interest entity at September 30, 2021 and December 31, 2020, respectively)35,629,000 53,410,000
Promissory Note
Debt Instrument [Line Items]
Maximum borrowing capacity5,000,000
Amount converted to term loan4,814,677
Term Loan, Maturing March 2023
Debt Instrument [Line Items]
Long-term debt0 2,322,000
Monthly principal and interest payments $ 90,815
Fixed interest rate4.98%
Equipment Loan, Draw Down Period Ending August 28, 2019
Debt Instrument [Line Items]
Maximum borrowing capacity $ 10,000,000
Amount converted to term loan9,476,000
Term Loan, Maturing July 2024
Debt Instrument [Line Items]
Long-term debt0 7,450,000
Monthly principal and interest payments $ 192,572
Fixed interest rate5.75%
Term Loan, Maturing April 30, 2021
Debt Instrument [Line Items]
Long-term debt $ 0 $ 212,000
Monthly principal and interest payments55,539
Fixed interest rate3.25%
Face amount of loan2,130,000
Term Loan, Maturing December 31, 2021
Debt Instrument [Line Items]
Long-term debt0 $ 234,000
Monthly principal and interest payments $ 19,834
Fixed interest rate3.50%
Face amount of loan $ 935,000
Subtotal 1
Debt Instrument [Line Items]
Long-term debt0 $ 10,218,000
Equipment Loan With Draw Down Period Ending May 31, 2019
Debt Instrument [Line Items]
Maximum borrowing capacity10,000,000
Fixed interest rate3.25%
Term Loan, Maturing May 31, 2024
Debt Instrument [Line Items]
Long-term debt0 $ 7,000,000
Term Loan, Maturing December 2024
Debt Instrument [Line Items]
Long-term debt0 $ 2,444,000
Monthly principal and interest payments57,769
Face amount of loan $ 3,000,000
Term Loan, Maturing December 2024 | Prime Rate
Debt Instrument [Line Items]
Basis spread on variable rate0.25%
Interest rate during the period3.50%
Term Loan, Maturing May 2029
Debt Instrument [Line Items]
Long-term debt $ 20,890,000 $ 21,130,000
Face amount of loan21,580,000
Debt issuance costs119,000
Term Loan, Maturing May 2029 | Minimum
Debt Instrument [Line Items]
Monthly principal and interest payments24,356
Term Loan, Maturing May 2029 | Maximum
Debt Instrument [Line Items]
Monthly principal and interest payments $ 39,581
Term Loan, Maturing May 2029 | Prime Rate
Debt Instrument [Line Items]
Basis spread on variable rate0.25%
Interest rate during the period3.00%
Term Loan, Maturing June 17, 2025
Debt Instrument [Line Items]
Long-term debt $ 0 $ 2,723,000
Monthly principal and interest payments54,623
Face amount of loan $ 3,000,000
Term Loan, Maturing June 17, 2025 | Prime Rate
Debt Instrument [Line Items]
Basis spread on variable rate0.25%
Interest rate during the period3.50%
Paycheck Protection Program, CARES Act
Debt Instrument [Line Items]
Long-term debt $ 0 $ 5,000,000
Fixed interest rate1.00%
Face amount of loan $ 5,000,000
Subtotal 2
Debt Instrument [Line Items]
Long-term debt20,890,000 48,515,000
Term Loan, Maturing June 30, 2025
Debt Instrument [Line Items]
Long-term debt $ 0 16,361,000
Fixed interest rate4.50%
Face amount of loan $ 16,540,000
Term Loan, Maturing June 30, 2025 | Minimum
Debt Instrument [Line Items]
Monthly principal and interest payments30,524
Term Loan, Maturing June 30, 2025 | Maximum
Debt Instrument [Line Items]
Monthly principal and interest payments37,720
Term Loan, Maturing September 30, 2026
Debt Instrument [Line Items]
Long-term debt16,115,000 $ 0
Amount converted to term loan16,115,000
Monthly principal and interest payments $ 115,766
Fixed interest rate3.50%
Face amount of loan $ 23,000,000
Term loan, accordion feature $ 6,885,000

Long-Term Debt - Schedule of Fu

Long-Term Debt - Schedule of Future Maturities (Details) - USD ($)Sep. 30, 2021Dec. 31, 2020
Future maturities:
2021 (remainder) $ 288,000
20221,178,000
20231,224,000
20241,276,000
20251,333,000
Thereafter31,706,000
Long-term debt $ 37,005,000 $ 64,876,000

Long-Term Debt - Narrative (Det

Long-Term Debt - Narrative (Details) - USD ($) $ in ThousandsJun. 10, 2021Apr. 16, 2020Sep. 30, 2021Sep. 30, 2020Sep. 30, 2021Sep. 30, 2020
Debt Instrument [Line Items]
Forgiveness of PPP loan $ 0 $ 0 $ 5,000 $ 0
Paycheck Protection Program, CARES Act
Debt Instrument [Line Items]
Loan proceeds received $ 5,000
Forgiveness of PPP loan $ 5,000 $ 5,000

Interest Rate Swaps (Details)

Interest Rate Swaps (Details) - USD ($)Jun. 13, 2019Jun. 03, 2019Sep. 30, 2021Sep. 30, 2020Sep. 30, 2021Sep. 30, 2020Apr. 30, 2021Dec. 31, 2020Sep. 30, 2019
Derivative [Line Items]
Interest income (expense) $ 308,000 $ 847,000 $ 1,158,000 $ 4,858,000
Interest Rate Swap
Derivative [Line Items]
Term of contract5 years
Fixed interest rate5.19%
Notional value $ 10,000,000
Derivative interest income0 47,000
Derivative interest expense48,000 153,000
Notional amount, termination $ 10,000,000
Interest income (expense)196,200
Interest Rate Swap | Global Wells
Derivative [Line Items]
Term of contract10 years
Fixed interest rate5.05%
Notional value $ 21,580,000
Derivative interest income155,000 $ 222,000 1,055,000
Derivative interest expense $ 1,875,000
Interest Rate Swap | Other Liabilities
Derivative [Line Items]
Derivative fair value0 0 $ 243,000
Interest Rate Swap | Other Liabilities | Global Wells
Derivative [Line Items]
Derivative fair value $ 1,549,000 $ 1,549,000 $ 2,604,000

Obligations under Capital Lea_2

Obligations under Capital Leases (Details)9 Months Ended
Sep. 30, 2021
Minimum
Schedule of Capital Lease Obligations [Line Items]
Interest rates on capitalized leases3.55%
Maximum
Schedule of Capital Lease Obligations [Line Items]
Interest rates on capitalized leases6.50%

Stock-based Compensation - Narr

Stock-based Compensation - Narrative (Details) - USD ($)3 Months Ended9 Months Ended12 Months Ended
Sep. 30, 2021Sep. 30, 2020Sep. 30, 2021Dec. 31, 2020Jan. 31, 2019
Stock-based Compensation
Shares authorized (in shares)2,000,000
Shares reserved for issuance (in shares)2,000,000
Remaining stock-based compensation expense for unvested stock options $ 12,752 $ 12,752
Accelerated award vesting period6 months
Stock-based compensation expense800,000 $ 0 $ 1,100,000 $ 0
Remaining stock-based compensation expense for unvested restricted stock units1,700,000 1,700,000
Share-based Payment Arrangement, Option
Stock-based Compensation
Stock-based compensation expense, increase5,000 $ 5,000
Vesting period1 year
Restricted Stock Units (RSUs)
Stock-based Compensation
Stock-based compensation expense, increase $ 411,000 $ 411,000
Vesting period3 years
Maximum
Stock-based Compensation
Award term10 years
Incentive Stock Optionee, Stock Ownership Greater than Ten Percent of Voting Power
Stock-based Compensation
Minimum exercise price to fair market value of common stock at the date of grant110.00%110.00%
Incentive Stock Optionee, Stock Ownership Greater than Ten Percent of Voting Power | Maximum
Stock-based Compensation
Award term5 years

Stock-based Compensation - Summ

Stock-based Compensation - Summary of Stock Options Activity (Details) - USD ($)3 Months Ended9 Months Ended
Mar. 31, 2021Sep. 30, 2021Dec. 31, 2020
Number of Options
Outstanding at beginning of period (in shares)15,000 15,000
Granted (in shares)0
Exercised (in shares)0
Canceled/forfeited (in shares)0
Outstanding at end of period (in shares)15,000
Number of options, expected to vest (in shares)15,000
Number of options, exercisable (in shares)0
Weighted- Average Exercise Price
Outstanding at beginning of period (in dollars per share) $ 10 $ 10
Granted (in dollars per share)0
Exercised (in dollars per share)0
Canceled/forfeited (in dollars per share)0
Outstanding at end of period (in dollars per share)10
Weighted average exercise price, expected to vest (in dollars per share)10
Weighted average exercise price, exercisable (in dollars per share) $ 0
Stock Option Activity, Additional Disclosures
Weighted average remaining contract life, options outstanding8 years7 years 3 months 18 days
Weighted average remaining contract life, expected to vest7 years 3 months 18 days
Weighted average remaining contract life, exercisable0 years
Aggregate intrinsic value, options outstanding $ 0 $ 0
Aggregate intrinsic value, expected to vest0
Aggregate intrinsic value, exercisable $ 0

Stock-based Compensation - Su_2

Stock-based Compensation - Summary of Unvested Restricted Stock Units (Details) - Restricted Stock Units (RSUs)9 Months Ended
Sep. 30, 2021$ / sharesshares
Number of Shares Outstanding
Outstanding at beginning of period (in shares) | shares256,000
Granted (in shares) | shares40,000
Vested (in shares) | shares(5,000)
Forfeited (in shares) | shares(51,250)
Outstanding at end of period (in shares) | shares239,750
Weighted Average Grant Date Fair Value
Outstanding at beginning of period (in dollars per share) | $ / shares $ 10
Granted (in dollars per share) | $ / shares17.98
Vested (in dollars per share) | $ / shares18.56
Forfeited (in dollars per share) | $ / shares11.03
Outstanding at end of period (in dollars per share) | $ / shares $ 11.11

Earnings Per Share (Details)

Earnings Per Share (Details) - USD ($)3 Months Ended9 Months Ended
Sep. 30, 2021Sep. 30, 2020Sep. 30, 2021Sep. 30, 2020
Earnings Per Share Reconciliation [Abstract]
Net income attributable to Karat Packaging Inc. $ 3,786,000 $ 4,072,000 $ 15,149,000 $ 16,595,000
Weighted average number of common shares in issue (in shares)19,710,043 15,180,879 17,945,205 15,185,440
Basic earnings per share (in dollars per share) $ 0.19 $ 0.27 $ 0.84 $ 1.09
Weighted Average Number of Shares Outstanding, Diluted [Abstract]
Net income attributable to Karat Packaging Inc. $ 3,786,000 $ 4,072,000 $ 15,149,000 $ 16,595,000
Weighted average common shares outstanding, basic (in shares)19,710,043 15,180,879 17,945,205 15,185,440
Dilutive shares
Stock options and restricted stock units (in shares)171,252 271,000 164,922 271,000
Adjusted weighted average number of common shares (in shares)19,881,295 15,451,879 18,110,127 15,456,440
Diluted earnings per share (in dollars per share) $ 0.19 $ 0.26 $ 0.84 $ 1.07
Potentially dilutive shares excluded from diluted earnings per share calculation (in shares)89,828

Commitments and Contingencies -

Commitments and Contingencies - Narrative (Details) - Global Wells - USD ($)Sep. 09, 2020Jul. 01, 2020May 01, 2019Oct. 01, 2018
Lessee, Lease, Description [Line Items]
Operating lease term38 months
Texas
Lessee, Lease, Description [Line Items]
Operating lease term10 years
Monthly lease payment $ 196,000 $ 214,500
New Jersey
Lessee, Lease, Description [Line Items]
Operating lease term5 years
Monthly lease payment $ 90,128
Minimum
Lessee, Lease, Description [Line Items]
Monthly lease payment $ 57,602
Maximum
Lessee, Lease, Description [Line Items]
Monthly lease payment $ 61,110

Commitments and Contingencies_2

Commitments and Contingencies - Future Minimum Lease Obligations (Details) $ in ThousandsSep. 30, 2021USD ($)
Commitments and Contingencies Disclosure [Abstract]
2021 (remainder) $ 1,634
20226,603
20236,696
20245,513
20253,743
Thereafter10,731
Future minimum lease obligations $ 34,920

Related Party Transactions (Det

Related Party Transactions (Details)1 Months Ended3 Months Ended9 Months Ended
Sep. 30, 2020USD ($)shareholderSep. 30, 2021USD ($)sharesSep. 30, 2020USD ($)Sep. 30, 2018convertible_noteSep. 30, 2021USD ($)sharesSep. 30, 2020USD ($)Dec. 31, 2020USD ($)shares
Related Party Transaction [Line Items]
Common stock, shares outstanding (in shares) | shares19,714,500 19,714,500 15,167,000
Related party payable $ 2,611,000 $ 2,611,000 $ 5,038,000
Affiliated Entity | Lollicup Franchising, LLC
Related Party Transaction [Line Items]
Number of primary shareholders | shareholder2
Cash consideration $ 900,000
Sales from related party $ 4,000 $ 23,000
Incentive program expenses21,000 79,000
Affiliated Entity | Keary Global
Related Party Transaction [Line Items]
Common stock, shares outstanding (in shares) | shares250,004 250,004
Number of exercised convertible notes | convertible_note2
Related party payable $ 2,611,000 $ 2,611,000 5,038,000
Purchases from related party12,248,000 $ 8,815,000 25,780,000
Affiliated Entity | Keary International
Related Party Transaction [Line Items]
Related party payable2,611,000 2,611,000 $ 5,038,000
Purchases from related party $ 12,248,000 $ 8,815,000 $ 25,780,000 $ 20,625,000

Income Taxes (Details)

Income Taxes (Details) - USD ($) $ in ThousandsJun. 10, 2021Sep. 30, 2021Sep. 30, 2020Sep. 30, 2021Sep. 30, 2020
Income Tax Contingency [Line Items]
Income tax expense $ 1,268 $ 1,451 $ 4,001 $ 5,483
Effective tax rate23.70%24.10%19.60%26.70%
Forgiveness of PPP loan $ 0 $ 0 $ 5,000 $ 0
Lollicup Franchising, LLC | Subsidiaries
Income Tax Contingency [Line Items]
Cumulative percentage ownership after all transactions100.00%
Paycheck Protection Program, CARES Act
Income Tax Contingency [Line Items]
Effective tax rate23.50%
Forgiveness of PPP loan $ 5,000 $ 5,000
Effective income tax rate, reduction0.039

Subsequent Events (Details)

Subsequent Events (Details) $ / shares in Units, $ in Thousands1 Months Ended9 Months Ended12 Months Ended
Oct. 31, 2021USD ($)employees$ / sharessharesSep. 30, 2021USD ($)$ / sharessharesSep. 30, 2020USD ($)Dec. 31, 2020
Subsequent Event [Line Items]
Options granted (in shares) | shares0
Granted (in dollars per share) | $ / shares $ 0
Payments on capital lease obligations | $ $ 319 $ 285
Line of credit
Subsequent Event [Line Items]
Floor rate3.25%3.75%
Line of credit | Prime Rate
Subsequent Event [Line Items]
Basis spread on variable rate0.25%
Subsequent Event
Subsequent Event [Line Items]
Options granted (in shares) | shares430,000
Number of non-employee directors and employees | employees24
Granted (in dollars per share) | $ / shares $ 18.80
Payments on capital lease obligations | $ $ 300
Subsequent Event | Line of credit
Subsequent Event [Line Items]
Floor rate3.25%
Subsequent Event | Line of credit | Prime Rate
Subsequent Event [Line Items]
Basis spread on variable rate0.25%