Karat Packaging Inc. (KRT) presents a balance sheet as of March 31, 2026 with total assets of $282.7M against total liabilities of $127.5M, yielding GAAP book equity of $155.2M (including $7.7M noncontrolling interest). Under liquidation lens, the recovery picture is materially weaker. Applying standard haircuts: cash and short-term investments ($28.7M + $5.7M) recover at ~100% ($34.4M); accounts receivable ($42.3M gross, $41.4M net) recover at 90-95% (~$39M); inventory ($80.0M net) recovers at 60% (~$48M); PP&E net ($78.8M, gross $145.0M with $66.2M accumulated depreciation) recovers at 50-70% — the composition (machinery $64.4M gross, leasehold improvements $19.2M, building $38.6M, land $11.9M) suggests the owned real property supports the upper end of the range, but leasehold improvements and specialized manufacturing equipment constrain blended recovery; estimated $39-55M liquidation value; goodwill ($3.5M) and intangibles ($0.3M) zero out; operating ROU asset ($37.6M) zero out as an asset under liquidation. On the liability side, total long-term debt at face ($35.5M, with $12.7M current and $22.8M long-term net of fees), operating lease liability ($41.2M total, face value), accrued liabilities ($13.0M), accounts payable (implied from current liabilities structure approximately $29-30M), deferred tax liability ($2.9M), and other noncurrent liabilities ($2.7M) all remain at face. The $26.0M in IEEPA tariffs paid during 2025 and early 2026, subject to $25.8M in refund claims submitted through the CAPE system, represent a material contingent asset; no receivable has been recorded. If approved, this would directly improve liquidation recovery. As of the MFFAIS CLV/LLV/OLV estimates ($-70.5M / $-28.2M / $+51.8M respectively), the operating liquidation value is modestly positive, driven by tangible assets exceeding debt and lease obligations when PP&E is credited. The cash liquidation value (most conservative, excluding PP&E) is negative, consistent with the lease obligation stack ($41.2M face) exceeding liquid asset recovery. Compared to the prior filing (10-K for December 31, 2025), material changes are: (1) the 2026 Term Loan ($12.0M) is now fully classified as current given its September 2026 maturity, modestly increasing current liability density; (2) operating lease liability declined from a slightly higher base as scheduled payments ran off with no new leases added in Q1 2026; (3) inventory declined marginally ($80.0M vs $81.7M); (4) accounts receivable increased $5.9M on stronger March 2026 sales, improving near-term liquid asset recovery; (5) cash declined $9.2M net on dividends and investing outflows. The CBP customs duty contingency ($1.5M reserve, potential exposure understated per MD&A) and the unrecorded IEEPA refund claim ($25.8M) are the two most consequential off-balance-sheet items for liquidation analysis. Filing discusses the tariff refund in MD&A and Subsequent Events but does not separately tag the refund receivable amount in XBRL.
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