What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-03-01 compared with 2022-03-03 · 292 added, 224 removed, 844 unchanged (38% of the section changed)

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Consolidated Financial Statements:

Consolidated Statements of I ncome

Consolidated Statements of Comprehensive Income

Consolidated Statements of Operations

Consolidated Statements of Comprehensive (Loss) Income

Consolidated Balance Sheets

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of

To the Shareholders and the Board of Directors of

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Funko, Inc.

and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes, and the financial statement schedule listed in the index at Item 15(a) (collectively referred to as the “consolidated financial statements”).

and subsidiaries (the Company) as of December 31, 2022, and 2021, the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 1, 2023 expressed an adverse opinion thereon.

Basis for Opinion

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Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Measurement of deferred tax assets related to the Company’s investment in Funko Acquisition Holdings, L.L.C.

Description of the Matter As discussed in Note 12 of the consolidated financial statements, the noncontrolling interest holders of Funko Acquisition Holdings, L.L.C.

(“LLC”) may redeem their equity interests in Funko Acquisition Holdings LLC (“LLC interests”) for shares of the Company’s Class A common stock as part of the Tax Receivable Agreement (“TRA”).

For income tax purposes, these redemptions are treated as direct purchases of LLC equity and are recorded at their fair market value upon the date of the redemption.

The resulting incremental tax basis in excess of the book basis arising from a redemption represents a deductible temporary difference for which a deferred tax asset is recorded.

At December 31, 2022, the Company’s total deferred tax asset related to the basis difference in its investment in LLC was $26.9 million.

The basis difference in the Company’s investment in LLC changes through redemptions of LLC interests and other qualifying transactions.

Auditing management’s accounting for the additional outside basis adjustments arising as a result of TRA exchanges is especially complex and challenging.

It requires the Company’s accounting to timely identify all historical basis differences and subsequent adjustments related to the redemptions, described above, and the related TRA payments to the LLC holders.

How We Addressed the Matter in Our Audit To test the completeness and accuracy of the deferred tax asset related to the basis difference in the investment in the LLC, we performed audit procedures that included, among others, testing redemptions of LLC interests on a sample basis by inspection of redemption notices, and obtaining external confirmation of the Company’s shares issued and outstanding with the stock transfer agent.

Further, to test the measurement of the deferred tax asset, for a selection of redemptions, we recalculated the change in tax basis resulting from the redemptions, including the determination of fair value and validating the Company’s underlying assumptions used in the calculation have not changed outside of expectations.

We also evaluated the Company’s disclosures included in Note 12 to the consolidated financial statements in relation to these matters.

Measurement of the Tax Receivable Agreement Liability

Description of the Matter As discussed in Note 13 of the consolidated financial statements, the Company has a Tax Receivable Agreement which is a contractual commitment to distribute 85% of any tax benefits (“TRA Payment”), realized or deemed to be realized by the Company to the parties to the TRA.

The TRA payments are contingent upon, among other things, the generation of future taxable income over the term of the TRA and future changes in tax laws.

At December 31, 2022, the Company’s liability due to the holders of the LLC interests under the TRA (“TRA liability”) was $109.2 million.

Auditing management’s accounting for the additional outside basis adjustments arising as a result of TRA exchanges is especially complex and challenging.

It requires the Company’s accounting to timely identify all historical basis differences and subsequent adjustments related to the redemptions, described above, and the related TRA payments.

How We Addressed the Matter in Our Audit To test the measurement of the Company’s TRA liability, our audit procedures included, among others, testing the calculation of the outside basis adjustments as a result of redemptions and TRA payments, which give rise to the TRA liability.

We recalculated the Company’s share of the tax basis in the net assets of Funko Acquisition Holdings, L.L.C.

To test the Company’s position that there is sufficient future taxable income to realize the tax benefits related to the redemptions discussed above, we evaluated the assumptions used by management to develop the projections of future taxable income.

For example, we compared the projections of future taxable income with the actual results of prior periods, as well as management’s consideration of current industry and economic trends.

We also assessed the historical accuracy of management’s projections and reconciled the projections of future taxable income with forecasted financial information prepared by the Company, ensuring this information is consistent with forecasts used for internal and external reporting.

We recalculated the TRA liability and compared the calculation to the terms set out in the TRA.

We tested the classification of the TRA liability between current and non-current assets is appropriate, based upon the expected TRA payments within 12 months of the balance sheet date.

We also evaluated the Company’s disclosures included in Note 13 to the consolidated financial statements in relation to these matters.

/s/ Ernst & Young LLP

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended December 31,

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Total operating expenses 1,334,626 933,828 628,994

Income from operations 95,465 23,543 46,613

(Loss) income from operations ( 11,920 ) 95,465 23,543

Interest expense, net 10,334 7,167 10,712

Loss on extinguishment of debt — 675 —

Other expense (income), net 2,708 1,043 ( 25 )

Income before income taxes 84,915 11,788 32,296

Income tax expense 17,061 2,025 4,476

Net income 67,854 9,763 27,820

Other expense, net 787 2,708 1,043

(Loss) income before income taxes ( 23,041 ) 84,915 11,788

Income tax (benefit) expense ( 17,801 ) 17,061 2,025

Net (loss) income ( 5,240 ) 67,854 9,763

net income attributable to non-controlling

2,795 23,954 5,802

Net income attributable to Funko, Inc.

Net (loss) income attributable to Funko, Inc.

$ ( 8,035 ) $ 43,900 $ 3,961

Earnings per share of Class A common stock:

(Loss) earnings per share of Class A common stock:

Basic $ ( 0.18 ) $ 1.14 $ 0.11

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

Year Ended December 31,

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(in thousands)

Net income $ 67,854 $ 9,763 $ 27,820

Other comprehensive income:

Net (loss) income $ ( 5,240 ) $ 67,854 $ 9,763

Other comprehensive (loss) income:

Foreign currency translation (loss) gain, net of tax effect of $ 1,169 , $ 163 and $( 274 ) for the years ended December 31, 2022, 2021 and 2020, respectively

( 4,695 ) ( 683 ) 1,415

Reclassification of foreign currency translation gain into net income ( 96 ) — —

Comprehensive income 67,075 11,178 29,278

Reclassification of foreign currency translation gain into net (loss) income — ( 96 ) —

Comprehensive (loss) income ( 9,935 ) 67,075 11,178

Comprehensive income attributable to

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1,781 23,815 6,290

Comprehensive income attributable to

Comprehensive (loss) income attributable to

$ ( 11,716 ) $ 43,260 $ 4,888

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Current liabilities:

Line of credit $ 70,000 $ —

Current portion long-term debt, net of unamortized discount 22,041 17,395

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Additional paid-in-capital 310,807 252,505

Accumulated other comprehensive income 1,078 1,718

Accumulated other comprehensive (loss) income ( 2,603 ) 1,078

Retained earnings 60,015 68,050

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Stock Additional

Paid-In Capital Other

Paid-In Capital Accumulated Other

Comprehensive

Income Retained

Income (Loss) Retained

Earnings Non-

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Activity under equity-based compensation plans 533 — — — 1,936 — — — 1,936

Acquisition of non-controlling interest of TokenWave, LLC 71 — — — ( 4,781 ) — — ( 732 ) ( 5,513 )

Cumulative translation adjustment,

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Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets — — — — 761 — — — 761

Recapitalization of common units of FAH, LLC — — ( 910 ) — 5,873 ( 5,873 ) —

Redemption of common units of

FAH, LLC 6,500 1 ( 6,488 ) ( 1 ) 37,922 — — ( 37,922 ) —

Other — — — — 200 ( 96 ) ( 253 ) 950 801

Net income — — — — — — 43,900 23,954 67,854

Net (loss) income — — — — — — ( 8,035 ) 2,795 ( 5,240 )

Period ended December 31, 2022 47,192 $ 5 3,293 $ — $ 310,807 $ ( 2,603 ) $ 60,015 $ 21,465 $ 389,689

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Operating Activities

Net income $ 67,854 $ 9,763 $ 27,820

Adjustments to reconcile net income to net cash provided by

Net (loss) income $ ( 5,240 ) $ 67,854 $ 9,763

Adjustments to reconcile net income to net cash (used in) provided by

operating activities:

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Other 5,244 1,403 1,952

Changes in operating assets and liabilities:

Changes in operating assets and liabilities, net of amounts acquired:

Accounts receivable, net 19,075 ( 56,648 ) 20,077

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Accrued expenses and other liabilities ( 22,841 ) 63,586 7,902

Net cash provided by operating activities 87,362 108,739 90,765

Net cash (used in) provided by operating activities ( 40,134 ) 87,362 108,739

Investing Activities

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Proceeds from exercise of equity-based options 1,472 3,794 219

Net cash used in financing activities ( 28,628 ) ( 63,338 ) ( 28,340 )

Net cash provided by (used in) financing activities 54,639 ( 28,628 ) ( 63,338 )

Effect of exchange rates on cash and cash equivalents ( 797 ) ( 51 ) 107

Net increase in cash and cash equivalents 31,302 27,026 11,743

Net change in cash and cash equivalents ( 64,357 ) 31,302 27,026

Cash and cash equivalents at beginning of period 83,557 52,255 25,229

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Income tax payments 22,363 1,462 4,167

Accrual for purchases of property and equipment — — 5,362

Establishment of liabilities under tax receivable agreement 30,034 20,691 1,000

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FAH, LLC owns 100 % of Funko Holdings LLC ("FHL") and FHL owns 100 % of Funko, LLC, a limited liability company formed in the state of Washington, which is its operating entity.

The Company is headquartered in Everett, Washington and is a leading pop culture consumer products company.

The Company designs, sources, and distributes licensed pop culture products.

The IPO and related reorganization transactions (the “Transactions”) resulted in the Company being the sole managing member of FAH, LLC.

As the sole managing member of FAH, LLC, Funko, Inc.

operates and controls all of FAH, LLC’s operations and, through FAH, LLC and its subsidiaries, conducts FAH, LLC’s business.

Accordingly, the Company consolidates the financial results of FAH, LLC and reports a non-controlling interest in its consolidated financial statements representing the FAH, LLC interests held by ACON Funko Investors, L.L.C., a Delaware limited liability company (“ACON Funko Investors”) and certain of its affiliates, Fundamental Capital, LLC and Funko International, LLC (collectively, “Fundamental”), and certain current and former executive officers, employees and directors, in each case, who held profits interests in FAH, LLC and who received common units of FAH, LLC in exchange for their profits interests in connection with the Transactions (as defined herein) (collectively, the “Original Equity Owners”) and the former holders of warrants to purchase ownership interests in FAH, LLC, which were converted into common units of FAH, LLC in connection with the Transactions, and, in each case, each of their permitted transferees that own common units in FAH, LLC and who may redeem at each of their options (subject in certain circumstances to time-based vesting requirements) their common units for, at the Company’s election, cash or newly-issued shares of the Company’s Class A common stock (collectively, the “Continuing Equity Owners”).

As the Transactions are considered transactions between entities under common control, the financial statements reflect the combined entities for all periods presented.

The Company is a leading pop culture consumer products company that designs, sources, and distributes licensed pop culture products.

The Company is headquartered in Everett, Washington.

operates and controls all of FAH, LLC’s operations and, through FAH, LLC and its subsidiaries, conducts FAH, LLC’s business, as the sole managing member.

Significant Accounting Policies

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For the years ended December 31, 2022, 2021 and 2020, there was no individual customer that generated net sales over 10%.

For the year ended December 31, 2022, 13 % of sales were related to the largest license agreement with no other license agreements accounting for more than 10% of sales.

For the year ended December 31, 2021, 26 % of sales were related to the Company’s two largest license agreements ( 13 % each) with no other license agreements accounting for more than 10% of sales.

For the year ended December 31, 2020, 12 % and 11 % of sales were related to the Company’s two largest license agreements with no other license agreements accounting for more than 10% of sales.

For the year ended December 31, 2019, 13 %, 11 % and 11 % of sales were related to the Company’s three largest license agreements with no other license agreements accounting for more than 10% of sales.

The Company maintains its cash within bank deposit accounts at high quality, accredited financial institutions.

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The Company has not experienced any credit losses in such accounts and does not believe it is exposed to significant credit risk on cash.

Inventory consists primarily of figures, plush, apparel, homewares, accessories, games and other finished goods, and is accounted for using the first-in, first-out (“FIFO”) method.

Inventory consists primarily of figures, plush, apparel, homewares, accessories, games, vinyl records and other finished goods, and is accounted for using the first-in, first-out (“FIFO”) method.

Inventory costs include direct product costs and freight costs.

The Company maintains reserves for excess and obsolete inventories to reflect the inventory balance at the lower of cost or net realizable value.

This valuation requires us to make judgments, based on currently available information, about the likely method of disposition, such as through sales to customers, or liquidation, and expected recoverable value of each disposition category.

The Company estimates obsolescence based on assumptions regarding future demand.

Reserves for excess and obsolete inventories were $ 16.9 million and $ 4.7 million as of December 31, 2022 and 2021, respectively.

During the year ended December 31, 2019, the Company recorded a $ 16.8 million charge related to the write-down of inventory as a result of the Company's decision to dispose of slower moving inventory to increase operational capacity.

This charge was incremental to normal course reserves.

Property and Equipment

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Lesser of useful life or term of lease

The Company monitors our long-lived assets for impairment indicators on an ongoing basis in accordance with U.S.

The Company monitors long-lived assets for impairment indicators on an ongoing basis in accordance with U.S.

If impairment indicators exist, the Company will perform the required impairment analysis by comparing the undiscounted cash flows expected to be generated from the long-lived assets to the related net book values.

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Changes in economic or operating conditions impacting these estimates and assumptions could result in the impairment of the Company's long-lived assets.

Other assets primarily comprise capitalized implementation costs from cloud computing arrangements, safeguarding assets and security deposits.

The Company capitalizes eligible costs associated with cloud computing arrangements over the term of the arrangement, plus reasonably certain renewals, and intends to recognize those costs on a straight-line basis in the same line item in the consolidated statement of operations as the expense for fees associated with the cloud computing arrangement once the capitalized project is ready for intended use.

Cloud computing arrangement costs, included in prepaid expenses and other current assets were $ 2.1 million and $ 1.4 million and other non-current assets were $ 3.0 million and $ 6.9 million as of December 31, 2022 and December 31, 2021, respectively.

No amortization expense associated with the cloud computing arrangements was recorded in the years ended December 31, 2022, 2021, or 2020.

The Company incurred an abandonment charge of $ 32.5 million during the year ended December 31, 2022, as it was determined the enterprise resource planning cloud computing arrangement was no longer feasible for its intended use.

Cash flows related to capitalized implementation costs are presented in cash flows used in operating activities.

Revenue Recognition and Sales Allowance

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Product Design and Development Costs

Product design and development costs are recognized in selling, general and administrative expenses in the consolidated statements of income as incurred.

Product design and development costs are recognized in selling, general and administrative expenses in the consolidated statements of operations as incurred.

Product design and development costs for the years ended December 31, 2022, 2021 and 2020, were $ 10.2 million, $ 6.8 million, and $ 5.1 million, respectively.

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dollars at period-end foreign exchange rates, and revenues and expenses are translated at average rates prevailing throughout the period.

Translation adjustments are included in other comprehensive income on the consolidated statements of comprehensive income.

Translation adjustments are included in other comprehensive income (loss) on the consolidated statements of comprehensive income (loss).

Transaction gains and losses including intercompany transactions denominated in a currency other than the functional currency of Funko, Inc.

are included in other expense (income), net on our consolidated statements of income.

In connection with the settlement and remeasurement of intercompany balances, we recorded a no minal loss, loss of $ 0.4 million and gain of $ 0.7 million for the years ended December 31, 2021, 2020 and 2019, respectively.

The income tax effects related to the unrealized foreign currency component of other comprehensive income are reclassified to earnings only when the net investment is sold, or when a liquidation of the respective net investment in the foreign entity is substantially completed.

are included in other expense, net on our consolidated statements of operations.

In connection with the settlement and remeasurement of intercompany balances, we recorded a $ 0.1 million gain, a no minal loss, and loss of $ 0.4 million for the years ended December 31, 2022, 2021 and 2020, respectively.

The income tax effects related to the unrealized foreign currency component of other comprehensive (loss) income are reclassified to earnings only when the net investment is sold, or when a liquidation of the respective net investment in the foreign entity is substantially completed.

Recently Adopted Accounting Standards

There were no recently adopted accounting standards during the year ended December 31, 2021 that had a material effect of the financial statements.

In March 2022, the Securities and Exchange Commission issued Staff Accounting Bulletin No.

121, Accounting for Obligations to Safeguard Crypto-Assets an Entity Holds for its Platform Users.

Funko, LLC through its wholly-owned subsidiary TokenWave, LLC, operates the Droppp.io platform, to facilitate the buying and selling of its NFTs.

The Company has recorded a $ 11.3 million safeguarding asset and corresponding liability, recorded in other current assets and other current liabilities in the consolidated balance sheets, respectively, based on the fair value of the platform users' accounts at December 31, 2022.

This asset (and liability) is remeasured at each reporting period.

The Company has not incurred a loss related to its safeguarding of user accounts for the year ended December 31, 2022.

There were no other recently adopted accounting standards during the year ended December 31, 2022 that had a material effect on the financial statements.

On March 26, 2021, the Company acquired a majority of the membership interests of TokenWave LLC, the developer of TokenHead, a mobile app and website for showcasing and tracking Non-Fungible Token (“NFT”) holdings.

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The purchase consideration, fair value of the assets acquired and liabilities assumed, and acquisition related transaction costs were not material.

The activity of TokenWave LLC included in the Company’s consolidated statements of income from the acquisition date to December 31, 2021 was not material.

On February 11, 2019, the Company acquired 100 % of the membership interests of Forrest-Pruzan Creative LLC (the “Forrest-Pruzan Acquisition”), a board game development studio in Seattle, WA, which now operates as Funko Games, LLC.

The total purchase consideration of $ 11.9 million was allocated on a fair value basis between net assets acquired and liabilities assumed of $ 11.6 million and noncompetition agreements entered into contemporaneously with the acquisition of $ 0.3 million.

The finalization of the purchase price allocation resulted in no change from the preliminary estimate.

The activity of Funko Games, LLC included in the Company’s consolidated statements of income from the acquisition date to December 31, 2019 was not material.

The purchase consideration allocated to the Forrest-Pruzan Acquisition was as follows:

Purchase Consideration at Fair Value

(in thousands)

Cash paid $ 6,500

Fair value of class A common stock issued 2,221

Cash holdback 1,400

Fair value of cash consideration due February 11, 2021 1,815

Total transaction price $ 11,936

Noncompetition agreements ( 290 )

On October 6, 2022, the Company acquired the remaining membership interests of TokenWave LLC, through a combination of cash and stock consideration, which was accounted for as an equity transaction.

On June 8, 2022, the Company acquired 100 % of the membership interests in Mondo Collectibles, LLC (f/k/a Mondo Tees Buyer, LLC) (“Mondo”), a high-end pop culture collectibles company that creates vinyl records, posters, soundtracks, toys, apparel, books, games and other collectibles.

This transaction represents an opportunity to expand the Company’s product offerings into vinyl records, posters and other high-end collectibles.

The Company accounted for the acquisition as a business combination.

The preliminary purchase consideration consists of $ 14.0 million in cash.

The Company is still in the process of completing the allocation of the purchase price to the fair value of the assets and liabilities acquired, and the difference between the estimated and final values could be material.

Goodwill of $ 5.1 million is calculated as the excess of the purchase price paid over the net assets acquired.

The Company does not expect the goodwill as recognized, to be deductible for tax purposes.

An intangible asset of $ 7.4 million, with a useful life of 10 years was recognized for the Mondo trade name.

The activity of Mondo as included in the Company’s consolidated statements of operations from the acquisition date to December 31, 2022 was not material.

The following table shows the preliminary purchase price allocation for the Mondo consideration and any fair value adjustment made through December 31, 2022 (in thousands):

Assets (Liabilities) Acquired (Assumed)

at Fair Value

Accounts receivable 924

Inventory 2,648

Other current assets 2,593

Intangible assets 7,370

Goodwill 5,117

Current liabilities ( 4,685 )

Consideration transferred $ 14,004

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The Company has determined that it has one reporting unit for which discrete financial information is available and results are regularly reviewed by management.

The Company’s long-lived asset groups, which includes intangible assets, property and equipment and operating lease right-of-use assets net of operating lease liabilities, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset group might not be recoverable.

Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset (or asset group), a significant change in the extent or manner in which an asset (or asset group) is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable.

No impairment charges relating to goodwill were recorded in the years ended December 31, 2022, 2021 and 2020.

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Balance as of January 1, 2021 $ 125,061

Acquisition 1,662

Foreign currency remeasurement ( 72 )

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Balance as of December 31, 2022 $ 131,380

Intangible assets acquired in a business combination are recognized separately from goodwill and are initially recognized at their fair value at the acquisition date.

Intangible assets acquired include intellectual property (product design), customer, licensor and supplier relationships, trade names, and noncompetition agreements.

These are definite-lived assets and are amortized on a straight-line basis over their useful lives.

These are definite-lived assets and are amortized on a straight-line basis over their estimated useful lives.

Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable.

Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable.

As of December 31, 2021, there were also $ 0.1 million in indefinite-lived assets not subject to amortization but tested for impairment.

No impairment charges relating to intangible assets were recorded in the years ended December 31, 2021, 2020 and 2019.

As of December 31, 2022 and 2021, there were also $ 0.1 million in indefinite-lived assets not subject to amortization but tested for impairment.

There were $ 0.2 million impairment charges relating to indefinite-lived intangible assets recorded in the years ended December 31, 2022 and no impairment charges were recorded in the years ended December 31, 2021 and 2020.

The following table provides the details of identified intangible assets, by major class, for the periods indicated (in thousands):

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10,991 ( 6,145 ) 4,846 11,276 ( 5,186 ) 6,090

Supplier relationships 2 322 ( 322 ) — 325 ( 325 ) —

Noncompetition agreements 3 290 ( 290 ) — 290 ( 278 ) 12

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In addition to the general portion of the allowance for doubtful accounts, certain doubtful accounts are evaluated for a specific reserve.

These accounts generally include significantly past due or other factors known where a substantial portion or all of the balance is uncollectible.

These accounts generally include significantly past due or other factors known where a substantial portion or all of the balance is deemed to be uncollectible.

Receivables are written-off when all reasonable collection efforts have been exhausted and it is probable the balance will not be collected.

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Accounts receivable, net $ 167,895 $ 187,688

Accounts receivable includes a $ 0.8 million tenant improvement receivable from a lessor as of both December 31, 2021 and 2020.

In addition, accounts receivable as of December 31, 2021 includes an income tax receivable of $ 0.3 million.

Accounts receivable includes a $ 1.5 million and $ 0.8 million tenant improvement receivable from a lessor as of December 31, 2022 and 2021.

In addition, accounts receivable as of December 31, 2022 and 2021 includes an income tax receivable of $ 7.8 million and $ 0.3 million.

The remaining balance is customer receivables.

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Prepaid royalties, net

Crypto asset safeguarding asset 11,271 —

Other prepaid expenses and current assets

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Current liabilities under tax receivable agreement 9,567 7,362

Crypto asset safeguarding liability 11,271 —

Other current liabilities

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As of December 31, 2022 and 2021, cash equivalents included $ 0.5 million and $ 56.9 million, respectively, of highly liquid money market funds, which are classified as Level 1 within the fair value hierarchy.

Crypto asset safeguarding liability and corresponding asset.

The crypto asset safeguarding liability and corresponding safeguarding asset are measured and recorded at fair value on a recurring basis using prices available in the market the Company determines to be the principal market at the balance sheet date.

As of December 31, 2022, the estimated fair value of the crypto asset safeguarding liability and corresponding asset was $ 11.3 million, classified at Level 1 within the fair value hierarchy.

The estimated fair values of the Company’s debt instruments, which are classified as Level 3 financial instruments, at December 31, 2022 and 2021, was approximately $ 177.5 million and $ 175.5 million, respectively.

The carrying values of the Company’s debt instruments at December 31, 2022 and 2021, were $ 175.8 million and $ 173.2 million, respectively.

The estimated fair value of the Company’s debt instruments primarily reflects assumptions regarding credit spreads for similar floating-rate instruments with similar terms and maturities and our standalone credit risk.

Debt consists of the following (in thousands):

Revolving Credit Facility $ 70,000 $ —

Term Loan Facility 157,500 175,500

Equipment Finance Loan 20,000 —

Debt issuance costs

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Maturities of long-term debt for each of the next five years and thereafter are as follows (in thousands):

Term Loan Facility

Term Facilities

2023 $ 22,581

Former Credit Facilities

On October 22, 2018, the Company entered into a credit agreement (as amended, the “Former Credit Agreement”) providing for a term loan facility in the amount of $ 235.0 million (the “Former Term Loan Facility”) and a revolving credit facility of $ 50.0 million (the “Former Revolving Credit Facility”) (together the “Former Credit Facilities”).

On February 11, 2019, the Company amended the Former Credit Agreement to increase the Former Revolving Credit Facility to $ 75.0 million.

On September 23, 2019, the Company entered into a second amendment to the Former Credit Agreement, which extended the maturity date of the Former Term Loan Facility and the Former Revolving Credit Facility under the Former Credit Facilities to September 23, 2024 (the “Former Facility Maturity Date”), reduced the interest margin applicable to all loans under the Former Credit Agreement by 0.75 % and reduced certain fees incurred under the Former Credit Agreement.

The second amendment also allowed the Company to request an additional $ 25.0 million increase to the Former Term Loan Facility.

On May 5, 2020 the Company entered into a third amendment to the Former Credit Agreement, which modified the financial covenants and adjusted the required leverage levels for the Leverage Ratio (as defined in the Former Credit Agreement) to provide the Company with additional flexibility.

The Former Term Loan Facility amortized in quarterly installments in aggregate amounts equal to 5.00 % of the original principal amount of the Former Term Loan Facility in the first and second years of the Former Term Loan Facility, 10.00 % of the original principal amount of the Former Term Loan Facility in the third and fourth years of the Former Term Loan Facility and 12.50 % of the original principal amount of the Former Term Loan Facility in the fifth year of the Former Term Loan Facility, with any outstanding balance due and payable on the Maturity Date.

The first amortization payment was on December 31, 2018.

The Former Revolving Credit Facility would have terminated on the Former Facility Maturity Date and loans thereunder were eligible to be borrowed, repaid, and reborrowed up to such date.

As amended, loans under the Credit Facilities bore interest, at the Company’s option, at either the Euro-Rate (as defined in the Credit Agreement), or in the case of swing loans, the Swing Rate (as defined in the Credit Agreement), plus 3.00 % or the Base Rate (as defined in the Credit Agreement) plus 2.00 %, with 0.25 % step-downs based on the achievement of certain leverage ratios.

The Euro-Rate was subject to a 1.00 % floor and for loans based on the Euro-Rate, interest payments were due at the end of each applicable interest period.

The Former Credit Facilities were secured by substantially all of the assets of the Company and its material domestic subsidiaries, subject to customary exceptions.

As of December 31, 2020, the Company was in compliance with all of the covenants in its Former Credit Agreement.

In September 2021, all of the outstanding aggregate principal balance and accrued interest of $ 180.1 million on the Company’s Former Term Loan Facility was repaid, and the Company recorded a $ 0.7 million loss on debt extinguishment as a result of the write-off of unamortized deferred financing fees.

New Credit Facilities

On September 17, 2021, the Company, entered into a new credit agreement (the “New Credit Agreement”) providing for a term loan facility in the amount of $ 180.0 million (the “New Term Loan Facility”) and a revolving credit facility of $ 100.0 million (the “New Revolving Credit Facility”) (together the “New Credit Facilities”).

On September 17, 2021, the Credit Agreement Parties entered into a new credit agreement (as amended from time to time, the “New Credit Agreement”) with JPMorgan Chase Bank, N.A., PNC Bank, National Association, KeyBank National Association, Citizens Bank, N.A., Bank of the West, HSBC Bank USA, National Association, Bank of America, N.A., U.S.

Bank National Association, MUFG Union Bank, N.A., and Wells Fargo Bank, National Association (collectively, the “Initial Lenders”) and JPMorgan Chase Bank, N.A.

as administrative agent, providing for a term loan facility in the amount of $ 180.0 million (the “New Term Loan Facility”) and a revolving credit facility of $ 100.0 million (the “New Revolving Credit Facility”) (together the “New Credit Facilities”).

Proceeds from the New Credit Facilities were primarily used to repay the Former Credit Facilities.

On April 26, 2022, the Credit Agreement Parties entered into Amendment No.

1 to the New Credit Agreement (the “First Amendment”) with the Initial Lenders and JPMorgan Chase Bank, N.A.

as administrative agent, which allows for additional Restricted Payments (as defined in the First Amendment) using specified funding sources.

On July 29, 2022, the Credit Agreement Parties entered into Amendment No.

2 to the New Credit Agreement (the “Second Amendment”) with the Initial Lenders and Goldman Sachs Bank USA (collectively, the “Lenders”) and JPMorgan Chase Bank, N.A.

as administrative agent, which increases the New Revolving Credit Facility to $ 215.0 million and converts the New Credit Facility interest rate index from Borrower (as defined in the New Credit Agreement) option LIBOR to SOFR.

The New Term Loan Facility matures on September 17, 2026 (the “Maturity Date”) and amortizes in quarterly installments in aggregate amounts equal to 2.50 % of the original principal amount of the New Term Loan Facility, with any outstanding balance due and payable on the Maturity Date.

The first amortization payment commences with the quarter ending on December 31, 2021.

The first amortization payment commenced with the quarter ending on December 31, 2021.

The New Revolving Credit Facility also terminates on the Maturity Date and loans thereunder may be borrowed, repaid, and reborrowed up to such date.

Loans under the New Credit Facilities will, at the Borrowers’ option, bear interest at either (i) LIBOR, EURIBOR, HIBOR, CDOR, Daily Simple SONIA and/or the Central Bank Rate, as applicable, plus 2.50 % or (ii) ABR or the Canadian prime rate, as applicable, plus 1.50 %, in each case of clauses (i) and (ii), subject to two 0.25 % step-downs based on the achievement of certain leverage ratios following the Closing Date.

Each of LIBOR, EURIBOR, HIBOR, CDOR and Daily Simple SONIA rates are subject to a 0 % floor.

Loans under the New Credit Facilities will, at the Borrowers’ option, bear interest at either (i) SOFR, EURIBOR, HIBOR, CDOR, Daily Simple SONIA and/or the Central Bank Rate, as applicable, plus (x) 2.50 % per annum and (y) solely in the case of Term SOFR based loans 0.10 % per annum or (ii) ABR or the Canadian prime rate, as applicable, plus 1.50 %, in each case of clauses (i) and (ii), subject to two 0.25 % step-downs based on the achievement of certain leverage ratios following the Closing Date.

Each of Term SOFR, EURIBOR, HIBOR, CDOR and Daily Simple SONIA rates are subject to a 0 % floor.

For loans based on ABR, the Central Bank Rate or the Canadian prime rate, interest payments are due quarterly.

For loans based on Daily Simple SONIA, interest payments are due monthly.

For loans based on LIBOR, EURIBOR, HIBOR or CDOR, interest payments are due at the end of each applicable interest period.

For loans based on SOFR, EURIBOR, HIBOR or CDOR, interest payments are due at the end of each applicable interest period.

The New Credit Facilities are secured by substantially all of the assets of the Company and any of its existing or future material domestic subsidiaries, subject to customary exceptions.

As of December 31, 2021, the Company was in compliance with all of the covenants in its New Credit Agreement.

At December 31, 2021 and 2020, the Company had $ 175.5 million and $ 193.9 million of borrowings outstanding under the New Term Loan Facility and Former Term Loan Facility, respectively, and no outstanding borrowings under the New Revolving Credit Facility and Former Revolving Credit Facility, respectively.

As of December 31, 2022 and 2021, the Company was in compliance with all of the covenants in its New Credit Agreement.

At December 31, 2022 and 2021, the Company had $ 157.5 million and $ 175.5 million of borrowings outstanding under the New Term Loan Facility, respectively, and $ 70.0 million and no outstanding borrowings under the New Revolving Credit Facility, respectively.

Outstanding borrowings under the New Revolving Credit Facility at December 31, 2022 are due within 30 days of each draw.

At December 31, 2022 and 2021, the Company had $ 145.0 million and $ 100.0 million available under the New Revolving Credit Facility and Former Revolving Credit Facility, respectively.

There were no outstanding letters of credit as of December 31, 2022 and 2021.

Subsequent to December 31, 2022, our projections indicated that we would be unable to maintain compliance with the financial covenants under the New Credit Agreement as of March 31, 2023 and, on February 28, 2023, we entered into a further amendment (the “Third Amendment”) to the New Credit Agreement to, among other things, (i) modify the financial covenants under the New Credit Agreement for the period beginning on the date of the Third Amendment through the fiscal quarter ending December 31, 2023 (the “Waiver Period”), (ii) reduce the size of the New Revolving Credit Facility from $ 215.0 million to $ 180.0 million as of the date of the Third Amendment and thereafter to $ 150.0 million on December 31, 2023, which reduction shall be permanent after the Waiver Period, (iii) restrict the ability to draw on the New Revolving Credit Facility during the Waiver Period in excess of the amount outstanding on the date of the Third Amendment, (iv) increase the margin payable under the Credit Facilities during the Waiver Period to (a) 4.00 % per annum with respect to any Term Benchmark Loan or RFR Loan (each as defined in the New Credit Agreement), and (b) 3.00 % per annum with respect to any Canadian Prime Loan or ABR Loan (as defined in the New Credit Agreement), (iv) allow that any calculation of Consolidated EBITDA (each as defined in the New Credit Agreement) that includes the fiscal quarters during the Waiver Period may include certain agreed upon amounts for certain addbacks, (v) further limit our ability to make certain restricted payments, including the ability to pay dividends or make other distributions on equity interests, or redeem, repurchase or retire equity interests, incur additional indebtedness, incur additional liens, enter into sale and leaseback transactions or issue additional equity interests or securities convertible into or exchange for equity interests (other than the issuance of common stock) during the Waiver Period, (vi) require a minimum cash requirement of at least $ 10.0 million and (vii) require a mandatory prepayment of the New Revolving Credit Facility during the Waiver Period with any cash proceeds in excess of $ 25.0 million.

Following the Waiver Period, beginning in the fiscal quarter ended March 31, 2024, the Third Amendment resets the maximum Net Leverage Ratio and the minimum Fixed Charge Coverage Ratio (each as defined in the New Credit Agreement) that must be maintained by the Credit Agreement Parties to 2.50 :1.00 and 1.25 :1.00, respectively, which were the ratios in effect under the New Credit Agreement prior to the Third Amendment.

As of February 28, 2023, the Company had $ 157.5 million and $ 141.0 million in borrowings outstanding under the New Term Loan Facility and New Revolving Credit Facility, respectively.

Former Credit Facilities

On October 22, 2018, FAH, LLC and certain of its material domestic subsidiaries from time to time (collectively the “Credit Agreement Parties”) entered into a credit agreement (as amended, the “Former Credit Agreement”) providing for a term loan facility in the amount of $ 235.0 million (the “Former Term Loan Facility”) and a revolving credit facility of $ 50.0 million (the “Former Revolving Credit Facility”) (together the “Former Credit Facilities”).

On February 11, 2019, the Credit Agreement Parties amended the Former Credit Agreement to increase the Former Revolving Credit Facility to $ 75.0 million.

On September 23, 2019, the Credit Agreement Parties entered into a second amendment to the Former Credit Agreement, which extended the maturity date of the Former Term Loan Facility and the Former Revolving Credit Facility under the Former Credit Facilities to September 23, 2024 (the “Former Facility Maturity Date”), reduced the interest margin applicable to all loans under the Former Credit Agreement by 0.75 % and reduced certain fees incurred under the Former Credit Agreement.

The second amendment also allowed the Credit Agreement Parties to request an additional $ 25.0 million increase to the Former Term Loan Facility.

On May 5, 2020 the Credit Agreement Parties entered into a third amendment to the Former Credit Agreement, which modified the financial covenants and adjusted the required leverage levels for the Leverage Ratio (as defined in the Former Credit Agreement) to provide the Credit Agreement Parties with additional flexibility.

The first amortization payment was on December 31, 2018.

The Former Revolving Credit Facility would have terminated on the Former Facility Maturity Date and loans thereunder were eligible to be borrowed, repaid, and reborrowed up to such date.

As amended, loans under the Credit Facilities bore interest, at the Credit Agreement Parties' option, at either the Euro-Rate (as defined in the Credit Agreement), or in the case of swing loans, the Swing Rate (as defined in the Credit Agreement), plus 3.00 % or the Base Rate (as defined in the Credit Agreement) plus 2.00 %, with 0.25 % step-downs based on the achievement of certain leverage ratios.

The Euro-Rate was subject to a 1.00 % floor and for loans based on the Euro-Rate, interest payments were due at the end of each applicable interest period.

The Former Credit Facilities were secured by substantially all of the assets of FAH, LLC and its material domestic subsidiaries, subject to customary exceptions.

In September 2021, all of the outstanding aggregate principal balance and accrued interest of $ 180.1 million on the Credit Agreement Parties' Former Term Loan Facility was repaid, and the Credit Agreement Parties recorded a $ 0.7 million loss on debt extinguishment as a result of the write-off of unamortized deferred financing fees.

Equipment Finance Loan

On November 25, 2022, Funko, LLC, Funko Games, LLC, Funko Acquisition Holdings, L.L.C., Funko Holdings LLC and Loungefly, LLC, (collectively, "Equipment Finance Credit Parties"), entered into a $ 20.0 million equipment finance agreement ("Equipment Finance Loan") with Wells Fargo Equipment Finance, Inc.

The loan is to be repaid in 48 monthly equal installments starting January 15, 2023 utilizing an annual fixed interest rate of 5.71 %.

The Equipment Finance Loan is secured by certain identified assets held within our Buckeye, Arizona warehouse.

At December 31, 2022, the Company had $ 20.0 million outstanding under the Equipment Finance Loan.

The Company has entered into non-cancellable operating leases for office, warehouse, and distribution facilities, with original lease periods expiring through 2032.

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For certain leases the Company receives lease incentives, such as tenant improvement allowances, and records those as adjustments to operating lease right-of-use assets and operating leases liabilities on the consolidated balance sheets and amortize the lease incentives on a straight-line basis over the lease term as an adjustment to rent expense.

Rent expense, included in selling, general and administrative expenses on the consolidated statements of income, was $ 16.5 million, $ 15.3 million and $ 14.9 million for the years ended December 31, 2021, 2020 and 2019, respectively.

During the years ended December 31, 2021 and 2020, operating cash outflows relating to operating lease liabilities was $ 14.4 million and $ 11.6 million, respectively and operating lease right-of-use assets obtained in exchange for new operating lease obligations was $ 4.0 million, with no lease incentives obtained and $ 5.8 million, net of lease incentives obtained of $ 0.3 million, respectively.

As of December 31, 2021 and 2020, the Company’s operating leases had a weighted-average remaining term of 7.0 years and 7.3 years, respectively and weighted-average discount rate of 6.22 % and 6.28 %, respectively.

Rent expense, included in selling, general and administrative expenses on the consolidated statements of operations, was $ 24.5 million, $ 16.5 million and $ 15.3 million for the years ended December 31, 2022, 2021 and 2020, respectively.

During the years ended December 31, 2022 and 2021, operating cash outflows relating to operating lease liabilities was $ 16.0 million and $ 14.4 million, respectively and operating lease right-of-use assets obtained in exchange for new operating lease obligations was $ 54.1 million, net of lease incentives obtained of $ 17.2 million and $ 4.0 million, with no lease incentives obtained, respectively.

As of December 31, 2022 and 2021, the Company’s operating leases had a weighted-average remaining term of 7.4 years and 7.0 years, respectively and weighted-average discount rates of 5.76 % and 6.22 %, respectively.

Excluded from the measurement of operating lease liabilities and operating lease right-of-use assets were certain warehouse and distribution contracts that either qualify for the short-term lease recognition exception and/or do not give the Company the right to control the warehouse and/or distribution facilities underlying the contract.

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The lease agreement was terminated in December 2021.

In January 2020, the Company has also entered into a non-cancellable operating sub-lease for office space expiring in 2024.

Rental income recognized for the years ended December 31, 2021 and 2020 was $ 0.3 million and $ 0.3 million, respectively, included as a reduction of selling, general and administrative expenses on the consolidated statements of income.

In January 2020, the Company entered into a non-cancellable operating sub-lease for office space expiring in 2024.

Rental income recognized for the years ended December 31, 2022, 2021 and 2020 was $ 0.4 million, $ 0.3 million and $ 0.3 million, respectively, included as a reduction of selling, general and administrative expenses on the consolidated statements of operations.

The future payments on the Company’s operating lease liabilities as of December 31, 2022 were as follows (in thousands):

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Total $ 101,260

Not included in the lease payments table above are future payments related to Warehouse and Distribution lease in Buckeye, Arizona.

The Company expects lease commencement to occur in mid-2022 and extend through October 2032.

The 862,000 square foot building is expected to add approximately $ 1.5 million, $ 4.6 million, $ 4.7 million, $ 4.8 million, $ 4.9 million and $ 31.2 million in minimum rental expense for 2022, 2023, 2024, 2025, 2026 and thereafter, respectively.

Income before income taxes consisted of (in thousands):

(Loss) income before income taxes consisted of (in thousands):

Year Ended December 31,

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Foreign 16,036 12,157 7,639

Income before income taxes $ 84,915 $ 11,788 $ 32,296

Income Tax Expense

(Loss) income before income taxes $ ( 23,041 ) $ 84,915 $ 11,788

Income Tax Expense (Benefit)

is taxed as a corporation and pays corporate federal, state and local taxes on income allocated to it from FAH, LLC based upon Funko, Inc.’s economic interest held in FAH, LLC.

FAH, LLC is treated as a pass-through partnership for income tax reporting purposes.

FAH, LLC’s members, including the Company, are liable for federal, state and local income taxes based on their share of FAH, LLC’s pass-through taxable income.

The components of the Company’s income tax expense consisted of the following (in thousands):

FAH, LLC is treated as a pass-through

partnership for income tax reporting purposes.

FAH, LLC’s members, including the Company, are liable for federal, state and local income taxes based on their share of FAH, LLC’s pass-through taxable income (loss).

The components of the Company’s income tax expense (benefit) consisted of the following (in thousands):

Year Ended December 31,

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1,629 1,825 59

2,750 2,703 1,673

Current income taxes

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( 17,414 ) ( 361 ) 3,323

Income tax expense

$ 17,061 $ 2,025 $ 4,476

A reconciliation of income tax expense from operations computed at the U.S.

federal statutory income tax rate to the Company’s effective income tax rate is as follows:

Income tax (benefit) expense $ ( 17,801 ) $ 17,061 $ 2,025

A reconciliation of income tax expense (benefit) from operations computed at the U.S.

federal statutory income tax rate to the Company’s effective income tax rate are as follows:

Year Ended December 31,

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Foreign taxes

( 9.9 ) 2.5 18.7

Foreign tax credit 11.7 — ( 9.3 )

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1.5 ( 1.9 ) —

Income tax expense

20.1 % 17.2 % 13.9 %

The Company’s annual effective tax rate in 2021, 2020 and 2019 was less than the statutory rate of 21%, primarily because the Company is not liable for income taxes on the portion of FAH, LLC’s earnings that are attributable to non-controlling interests.

Income tax (benefit) expense 77.3 % 20.1 % 17.2 %

The Company’s annual effective tax rate in 2022 is different than the statutory rate of 21% primarily due to a partial release of the valuation allowance, the limitation of future share based compensation pursuant to Section 162(m) of the Internal Revenue Code (the "Code"), and the Company is not liable for income taxes on the portion of FAH, LLC’s earnings that are attributable to non-controlling interests.

The Company's annual effective tax rate for 2021 and 2020 was less than the statutory rate of 21%, primarily because the Company is not liable for income taxes on the portion of FAH, LLC’s earnings that are attributable to non-controlling interests.

Deferred Income Taxes

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Other carryforwards 826 —

Net operating loss carryforward — 756

Gross deferred tax assets

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As of December 31, 2022 and 2021, the Company has a valuation allowance in the amount of $ 4.0 million and $ 14.8 million, respectively, against the deferred tax asset.

The Company released $ 11.0 million valuation allowance during the year ended December 31, 2022, related to a discrete benefit on the outside basis deferred tax asset.

Uncertain Tax Positions

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Unrecognized tax benefits at December 31 $ — $ — $ 490

Of the $ 0.5 million of unrecognized tax benefits as of December 31, 2020 and 2019, $ 0.2 million would impact the effective tax rate if recognized.

Interest and penalties related to income tax matters are classified as a component of income tax expense.

Of the $ 0.5 million of unrecognized tax benefits as of December 31, 2020, $ 0.2 million would impact the effective tax rate if recognized.

Interest and penalties related to income tax matters are classified as a component of income tax expense (benefit).

As of December 31, 2022, and 2021, we have not recorded any interest or penalties as the amounts were not material.

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federal, state, and local income tax examinations by tax authorities for years after 2018 and subject to examination for all foreign income tax returns for fiscal 2022 and 2021.

There were no open tax examinations at December 31, 2021 and 2020.

There was an open tax examination with the California Franchise Tax Board for the tax year 2019 at December 31, 2022.

There were no open tax examinations at December 31, 2021.

Tax Receivable Agreement

The Company is party to the Tax Receivable Agreement with FAH, LLC and each of the Continuing Equity Owners that provides for the payment by the Company to the Continuing Equity Owners under certain circumstances.

The Company is party to the Tax Receivable Agreement with FAH, LLC and each of the Continuing Equity Owners and certain transferees of the Continuing Equity Owners that have been joined as parties to the Tax Receivable Agreement (such parties, "TRA Parties") that provides for the payment by the Company to the Continuing Equity Owners under certain circumstances.

See Note 13, Liabilities under Tax Receivable Agreement.

Liabilities under Tax Receivable Agreement

On November 1, 2017, the Company entered into the Tax Receivable Agreement with FAH, LLC and each of the Continuing Equity Owners that provides for the payment by the Company to the Continuing Equity Owners of 85 % of the amount of tax benefits, if any, that it realizes, or in some circumstances, is deemed to realize, as a result of (i) future redemptions funded by the Company or exchanges, or deemed exchanges in certain circumstances, of common units for Class A common stock or cash, and (ii) certain additional tax benefits attributable to payments made under the Tax Receivable Agreement.

FAH, LLC intends to have in effect an election under Section 754 of the Internal Revenue Code effective for each taxable year in which a redemption or exchange (including deemed exchange) of common units for cash or stock occurs.

These tax benefit payments are not conditioned upon one or more of the Continuing Equity Owners maintaining a continued ownership interest in FAH, LLC.

In general, the Continuing Equity Owners’ rights under the Tax Receivable Agreement are assignable, including to transferees of common units in FAH, LLC (other than the Company as transferee pursuant to a redemption or exchange of common units in FAH, LLC).

The Company is party to the Tax Receivable Agreement with FAH, LLC and each of the TRA Parties that provides for the payment by the Company to the TRA Parties of 85 % of the amount of tax benefits, if any, that it realizes, or in some circumstances, is deemed to realize, as a result of (i) future redemptions funded by the Company or exchanges, or deemed exchanges in certain circumstances, of common units for Class A common stock or cash, and (ii) certain additional tax benefits attributable to payments made under the Tax Receivable Agreement.

FAH, LLC will have in effect an election under Section 754 of the Internal Revenue Code effective for each taxable year in which a redemption or exchange (including deemed exchange) of common units for cash or stock occurs.

These tax benefit payments are not conditioned upon one or more of the TRA Parties maintaining a continued ownership interest in FAH, LLC.

In general, the TRA Parties’ rights under the Tax Receivable Agreement are assignable, including to transferees of common units in FAH, LLC (other than the Company as transferee pursuant to a redemption or exchange of common units in FAH, LLC).

The Company expects to benefit from the remaining 15 % of the tax benefits, if any, that the Company may realize.

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The agreements include, among other things, an annual bonus based on certain performance metrics of the Company, as defined by the board, and up to one year ’s severance pay beyond termination date.

The Company has entered into a credit agreement which includes a term loan facility and a revolving credit facility.

The Company has entered into a New Credit Facility which includes a term loan facility and a revolving credit facility.

The Company has also entered into an Equipment Finance Loan.

See Note 10, Debt.

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Liabilities under Tax Receivable Agreement

The Company is party to the Tax Receivable Agreement with FAH, LLC and each of the TRA Parties that provides for the payment by the Company to the TRA Parties under certain circumstances.

See Note 13, Liabilities under Tax Receivable Agreement.

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For example, on March 10, 2020, a purported stockholder of the Company filed a putative class action lawsuit in the United States District Court for the Central District of California against the Company and certain of its officers, entitled Ferreira v.

The original complaint alleged that the Company violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as well as Rule 10b-5 promulgated thereunder, by making allegedly materially misleading statements in its earnings announcement and Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, as well as by omitting material facts necessary to make the statements made therein not misleading.

The lawsuit sought, among other things, compensatory damages and attorneys’ fees and costs.

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shortly thereafter, the Western District of Washington action was voluntarily dismissed.

Lead plaintiffs filed the consolidated complaint on July 31, 2020, against the Company and certain of its officers and directors, as well as entities affiliated with ACON Funko Investors, L.L.C.

Lead plaintiffs filed a consolidated complaint on July 31, 2020, against the Company and certain of its officers and directors, as well as entities affiliated with ACON Funko Investors, L.L.C.

The consolidated complaint added Section 10(b) and 20(a) claims based on the Company’s earnings announcement and Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, as well as claims under Section 20A of the Exchange Act.

All defendants moved to dismiss the consolidated action on October 2, 2020.

On February 25, 2021, the Court granted all defendants’ motions to dismiss the Ferreira action, allowing the lead plaintiffs leave to amend the complaint.

Lead plaintiffs filed their amended complaint on March 29, 2021, and all defendants moved to dismiss.

All defendants moved to dismiss the consolidated action, and the Court granted all defendants’ motions to dismiss the Ferreira action on February 25, 2021, allowing the lead plaintiffs leave to amend the complaint.

Lead plaintiffs filed an amended complaint on March 29, 2021, and all defendants moved to dismiss.

On October 25, 2021, the Court issued an order granting defendants’ motion in part and denying the motion in part.

Specifically, the court dismissed with prejudice all claims related to statements regarding Funko’s projected net sales and the claims based on inventory risk warnings in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, but denied the motion to dismiss as to claims based on inventory risk warnings in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2019.

Several shareholder derivative actions based on the earnings announcement and Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 have been brought on behalf of the Company against certain of its directors and officers.

On May 3, 2022, the parties agreed in principle to settle the litigation.

The Court granted preliminary approval of the settlement on July 17, 2022, and granted final approval on November 7, 2022.

The cost of settlement was paid by the Company’s director and officer liability insurance.

Several stockholder derivative actions based on the earnings announcement and Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 have been brought on behalf of the Company against certain of its directors and officers.

Specifically, on April 23, June 5, and June 10, 2020, the actions captioned Cassella v.

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Derivative Litigation , and on August 13, 2020, the consolidated action was stayed pending final resolution of the motion to dismiss in the Ferreira action.

Additionally, on July 14 and July 31, 2020, the actions captioned Rubin v.

On May 9, 2022, another complaint, asserting substantially similar claims, was filed in the U.S.

District Court for the Central District of California, captioned Smith v.

Mariotti , et al.

and Fletcher v.

The Company’s response to the complaints in both the consolidated action and Smith v.

Mariotti are scheduled to be submitted o n March 10, 2023.

On June 11, 2021, a purported stockholder filed a related derivative action, captioned Silverberg v.

Mariotti, et al.

, respectively, were filed in the United States District Court for the District of Delaware.

These two actions were consolidated for all purposes into one action under the title In re Funko, Inc.

Stockholder Derivative Litigation on September 8, 2020 and were subsequently transferred to the United States District Court for the Central District of California.

On April 23, 2021, both cases pending under the “Stockholder Derivative Litigation” caption were voluntarily dismissed, without prejudice.

, in the Court of Chancery of the State of Delaware.

On July 5, 2022, two purported stockholders filed an additional derivative action in the Court of Chancery, captioned Fletcher, et al.

That complaint also asserts claims arising out of same issues and events as the Silverberg litigation and the derivative actions pending in the Central District of California.

Additionally, between November 16, 2017 and June 12, 2018, seven purported stockholders of the Company filed putative class action lawsuits in the Superior Court of Washington in and for King County against the Company, certain of its officers and directors, ACON, Fundamental Capital, LLC and Funko International, LLC (collectively, “Fundamental”), the underwriters of its IPO, and certain other defendants.

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On August 1, 2018, plaintiffs filed a consolidated complaint against the Company, certain of its officers and directors, ACON, Fundamental, and certain other defendants.

On October 1, 2018, the Company moved to dismiss the action.

The motion was fully briefed as of November 30, 2018, and oral argument on the motion was held on May 3, 2019.

On August 2, 2019, the Court granted the Company’s motion to dismiss the action, allowing plaintiffs leave to amend the complaint.

On October 3, 2019, plaintiffs filed a first amended consolidated complaint.

The Company moved to dismiss that complaint on December 5, 2019 and on August 5, 2020, the Superior Court of Washington in and for King County dismissed the consolidated action with prejudice.

Plaintiffs appealed, and on November 1, 2021, the Court of Appeals reversed the trial court’s dismissal decision in most respects, and remanded the case to the trial court for further proceedings.

On January 13, 2022, the Company filed a petition seeking review of the Washington State Court of Appeals’ reversal by the Washington Supreme Court.

That petition is pending, and accordingly the case has not yet been remanded to the trial court.

The Company moved twice, and the Court twice granted the Company's motions to dismiss, the second time with prejudice.

Plaintiffs appealed, and on November 1, 2021, the Court of Appeals reversed the trial court’s dismissal decision in most respects.

On May 4, 2022, the Washington State Supreme Court denied the Company’s petition, and the case was remanded to the Superior Court for further proceedings.

The Company filed its answer on September 19, 2022 and discovery is currently ongoing.

On June 4, 2018, a putative class action lawsuit entitled Kanugonda v.

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On April 30, 2019, the lead plaintiff filed an amended complaint against the previously named defendants.

The parties to the federal action, now captioned Berkelhammer v.

, have agreed to a stay of that action pending developments in the state case.

The Company must respond to the Compliant in the federal action, now captioned Berkelhammer v.

, by March 13, 2023.

The cases in Washington state court and Berkelhammer v.

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The lawsuits seek, among other things, compensatory statutory damages and rescissory damages in account of the consideration paid for the Company’s Class A common stock by the plaintiffs and members of the putative class, as well as attorneys’ fees and costs.

On June 11, 2021, one of those purported stockholders filed a related derivative action, captioned Silverberg v.

On January 18, 2022, a purported stockholder filed a putative class action lawsuit in the Court of Chancery of the State of Delaware, captioned Shumacher v.

Mariotti, et al.

, was filed in the Court of Chancery of the State of Delaware.

In response, on July 8, 2021, the Company moved to stay and dismiss the action.

On December 1, 2021, Silverberg stipulated to a stay of the action pending resolution of Ferreira v.

Funko, Inc., et al.

2:20-cv-02319.

On January 18, 2022, a stockholder filed a putative class action lawsuit in the Court of Chancery of the State of Delaware relating to the Company’s corporate “Up-C” structure and bringing direct claims for breach of fiduciary against certain current and former officers and directors.

On February 14, 2022, the Company moved to dismiss the complaint.

A briefing schedule on the motion to dismiss has not yet been set.

, relating to the Company’s corporate “Up-C” structure and bringing direct claims for breach of fiduciary duties against certain current and former officers and directors.

On March 31, 2022, the defendants moved to dismiss the action.

In response to defendants’ motion to dismiss.

Plaintiff filed an Amended Complaint on May 25, 2022.

The amendment did not materially change the claims at issue, and the Defendants again moved to dismiss on July 29, 2022.

On December 15, 2022, Plaintiff opposed the Defendants’ motion to dismiss, and also moved for attorneys’ fees.

Briefing on the motion to dismiss was completed on February 8, 2023;

briefing on Plaintiff’s fee application is expected to be completed on March 10, 2023.

The Company is party to additional legal proceedings incidental to its business.

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Because its CODM reviews financial performance and allocates resources at a consolidated level on a regular basis, the Company has one segment.

The following tables present summarized product information as a percent of sales:

Year ended December 31,

2021 2020 2019

77.6 % 77.2 % 80.8 %

22.4 % 22.8 % 19.2 %

The following table presents summarized product information as a percent of sales:

Year ended December 31,

2022 2021 2020

Branded Products 74.5 % 76.2 % 78.6 %

Core Collectibles 75.5 % 79.8 % 80.8 %

Loungefly Branded Products 19.1 % 14.7 % 14.7 %

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One of the investors in Forbidden Planet is an employee of Funko UK, Ltd.

and an executive officer.

For the years ended December 31, 2022, 2021 and 2020, the Company recorded approximately $ 1.6 million, $ 0.8 million and $ 2.0 million, respectively, in net sales from business with Forbidden Planet.

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In February 2019, in connection with the Forrest-Pruzan Acquisition, the Company assumed two leases of office space with Roll and Move, LLC and Roll and Move II LLC, both of which are owned by certain former owners of Forrest-Pruzan Creative LLC, one of whom remains an employee of the Company.

For the years ended December 31, 2021 and 2020, the Company recorded $ 0.3 million and $ 0.2 million, of rental expense related to the leases, which was recorded in selling, general and administrative expenses in the Company’s consolidated statements of Income.

In 2022, the Company leased another space with the same landlord.

For the years ended December 31, 2022, 2021 and 2020, the Company recorded $ 0.3 million, $ 0.3 million and $ 0.2 million, of rental expense related to the leases, which was recorded in selling, general and administrative expenses in the Company’s consolidated statements of operations.

Employee Benefit Plans

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The Company’s board of directors has the discretion to determine the rights, preferences, privileges, restrictions and liquidation preferences of any series of preferred stock.

Reorganization Transactions

On November 1, 2017, in connection with the completion of the IPO, the Company completed a series of reorganization Transactions.

The Transactions included the following:

• The amendment and restatement of the existing FAH, LLC limited liability company agreement (the “FAH LLC Agreement”) to, among other things, (i) convert all existing ownership interests (including vested profits interests and all unvested profits interests and existing warrants to purchase ownership interests in FAH, LLC) into common units of FAH, LLC (subject to common units received in exchange for unvested profits interests remaining subject to time-based vesting requirements), and (ii) appoint the Company as FAH, LLC’s sole managing member upon its acquisition of common units in connection with the IPO;

• The amendment and restatement of the Company’s certificate of incorporation to, among other things, provide (i) for Class A common stock, with each share of Class A common stock entitling its holders to one vote per share on all matters presented to stockholders generally and (ii) for Class B common stock, with each share of Class B common stock entitling its holders to one vote per share on all matters presented to stockholders generally and that shares of Class B common stock may only be held by the Continuing Equity Owners and their permitted transferees;

• Certain funds affiliated with ACON Funko Investors (the “Former Equity Owners”) exchanged their indirect ownership interests in common units of FAH, LLC for 12,921,039 shares of Class A common stock on a one-for-one basis;

• The Company entered into (i) a stockholders’ agreement with ACON Funko Investors and the Former Equity Owners, Fundamental Capital, LLC and Funko International, LLC (collectively, “Fundamental”) and Brian Mariotti, the Company’s Chief Creative Officer, (ii) a registration rights agreement with certain of the Original Equity Owners (including each of the Company’s executive officers), and (iii) a tax receivable agreement (the “Tax Receivable Agreement”) with FAH, LLC and each of the Continuing Equity Owners.

The Transactions were effected on November 1, 2017, prior to the time the Company’s Class A common stock was registered under the Exchange Act, and prior to the completion of the IPO.

FAH, LLC Recapitalization

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As a result, the Company consolidates FAH, LLC’s financial results and reports a non-controlling interest related to the economic interest of FAH, LLC held by the Continuing Equity Owners.

The Amended and Restated Certificate of Incorporation and the FAH LLC Agreement discussed above requires FAH, LLC and the Company to, at all times, maintain (i) a one-to-one ratio between the number of shares of Class A common stock issued by the Company and the number of common units owned by the Company and (ii) a one-to-one ratio between the number of shares of Class B common stock owned by the Continuing Equity Owners and the number of common units owned by the Continuing Equity Owners (other than common units issuable upon the exercise of options and common units that are subject to time-based vesting requirements (the “Excluded Common Units”)).

The Amended and Restated Certificate of Incorporation and the FAH LLC Agreement requires FAH, LLC and the Company to, at all times, maintain (i) a one -to-one ratio between the number of shares of Class A common stock issued by the Company and the number of common units owned by the Company and (ii) a one -to-one ratio between the number of shares of Class B common stock owned by the Continuing Equity Owners and the number of common units owned by the Continuing Equity Owners (other than common units issuable upon the exercise of options and common units that are subject to time-based vesting requirements (the “Excluded Common Units”)).

The Company may issue shares of Class B common stock only to the extent necessary to maintain the one -to-one ratio between the number of common units of FAH, LLC held by the Continuing Equity Owners (other than the Excluded Common Units) and the number of shares of Class B common stock issued to the Continuing Equity Owners.

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Simultaneously with the payment of cash or shares of Class A common stock, as applicable, in connection with a redemption or exchange of common units pursuant to the terms of the FAH LLC Agreement, a number of shares of our Class B common stock registered in the name of the redeeming or exchanging Continuing Equity Owner will be cancelled for no consideration on a one -for-one basis with the number of common units so redeemed or exchanged.

On May 3, 2022, the Company entered into a common unit subscription agreement with FAH, LLC pursuant to which the Company purchased 4,251,701 newly issued common units in exchange for a capital contribution of approximately $ 74.0 million (the “Capital Contribution”).

Following the Capital Contribution, (i) the common units of FAH, LLC were recapitalized through a reverse unit split in order to maintain a one -to-one ratio between the number of common units owned by the Company and the number of outstanding shares of Class A common stock in accordance with the FAH LLC Agreement, and (ii) approximately 0.9 million outstanding shares of Class B common stock were cancelled.

Equity-Based Compensation

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The Company reserved a total of 5,518,518 shares of Class A common stock for issuance pursuant to the 2017 Plan.

In connection with the IPO, the Company granted 1,028,500 options to purchase shares of Class A common stock to certain of its directors, executive officers and employees.

Subsequent to the IPO, the Company has granted options to purchase shares of Class A common stock and restricted stock units on Class A common stock to certain of its directors, executive officers and employees under the 2017 Plan.

2019 Incentive Award Plan .

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We have also reserved for issuance an aggregate number of shares under the 2019 Plan equal to the sum of (i) 3,000,000 shares of our Class A common stock and (ii) an annual increase on the first day of each calendar year beginning on January 1, 2020 and ending on and including January 1, 2029, equal to the lesser of (A) 2 % of the shares of Class A Common Stock outstanding as of the last day of the immediately preceding fiscal year on a fully-diluted basis and (B) such lesser number of shares of Class A common stock as determined by our board of directors.

Total shares reserved for issuance under the 2019 plan was 4,111,526 as of December 31, 2022.

The number of unissued common shares reserved for future grants under the 2017 Plan and 2019 Plan was 104,984 and 1,024,800 , respectively as of December 31, 2022.

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Unvested at December 31, 2022 2,719 $ 16.82 2.86

A summary of performance stock unit activity for the year ended December 31, 2022 is as follows:

Performance Stock Units Weighted Average

Grant Date Fair Value Remaining

(in thousands) (years)

Unvested at December 31, 2021 — $ — 0.00

Granted 67 17.09

Unvested at December 31, 2022 67 $ 17.09 2.00

Performance stock units achievement is at the discretion of the Compensation Committee of the Board of Directors.

The number of units subject to future vesting is based on annual Company achieved factors, such as Net Sales and Adjusted EBITDA Margin.

Unvested units are expected to vest at the determination date of December 31, 2024.

Achievement is estimated at 100 % of the units granted as of December 31, 2022.

Options to purchase common units in FAH, LLC.

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Outstanding at December 31, 2021 228 $ 0.05 $ 4,278 1.41

Exercised ( 67 ) 0.05 1,166

Cancelled ( 15 ) —

Outstanding at December 31, 2022 146 0.05 1,590 0.41

Options exercisable at December 31, 2022 146 $ 0.05 $ 1,590 0.41

Unvested common units in FAH, LLC.

In connection with the IPO, unvested common units to purchase profit interests in FAH, LLC were converted into 1,901,327 unvested common units of FAH, LLC.

There were no unvested common units of FAH, LLC as of December 31, 2020.

The following table presents information on stock option exercises (in thousands):

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Equity-based compensation expense is recognized on a straight-line basis over the vesting period of the award.

The Company records equity-based compensation to selling, general and administrative expense on the consolidated statements of income.

The Company records equity-based compensation to selling, general and administrative expense on the consolidated statements of operations.

Equity-based compensation for the years ended December 31, 2022, 2021 and 2020 was $ 16.6 million, $ 13.0 million and $ 10.1 million, respectively.

As of December 31, 2022, there was $ 37.0 million of total unrecognized equity-based compensation expense that the Company expected to recognize over a remaining weighted-average period of 2.8 years.

Of this, $ 9.1 million is related to options to purchase Class A common stock in Funko, Inc.

and $ 15.0 million is related to unvested restricted stock units in Class A common stock of Funko, Inc.

As of December 31, 2021, the Company expected to recognize these costs over a remaining weighted average period of 2.6 years for options to purchase Class A shares in Funko, Inc., and 2.2 years for unvested restricted stock units in Class A common stock of Funko, Inc.

Non-controlling Interests

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As such, future redemptions or direct exchanges of common units of FAH, LLC by the Continuing Equity Owners will result in a change in ownership and reduce or increase the amount recorded as non-controlling interest and increase or decrease additional paid-in capital when FAH, LLC has positive or negative net assets, respectively.

Net income and comprehensive income are attributed between Funko, Inc.

Net (loss) income and comprehensive (loss) income are attributed between Funko, Inc.

and noncontrolling interest holders based on each party’s relative economic ownership interest in FAH, LLC.

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owned 47.2 million, 40.1 million and 35.7 million of FAH, LLC common units, respectively, representing a 91.6 %, 77.3 % and 69.5 % economic ownership interest in FAH, LLC, respectively.

Net income and comprehensive income of FAH, LLC excludes certain activity attributable to Funko, Inc., including $ 13.0 million, $ 10.0 million and $ 10.8 million of equity-based compensation expense for share-based compensation awards issued by Funko, Inc.

for the years ended December 31, 2021, 2020 and 2019, respectively, and $ 14.3 million of income tax expense, $ 0.4 million income tax benefit and $ 2.2 million of income tax expense for corporate, federal, state and local taxes attributable to Funko, Inc.

Net (loss) income and comprehensive (loss) income of FAH, LLC excludes certain activity attributable to Funko, Inc., including $ 16.6 million, $ 13.0 million and $ 10.0 million of equity-based compensation expense for share-based compensation awards issued by Funko, Inc.

for the years ended December 31, 2022, 2021 and 2020, respectively, and $ 20.5 million of income tax benefit, $ 14.3 million income tax expense and $ 0.4 million of income tax benefit for corporate, federal, state and local taxes attributable to Funko, Inc.

for the years ended December 31, 2022, 2021 and 2020, respectively.

Earnings per Share

Basic and Diluted Earnings per Share

Basic earnings per share of Class A common stock is computed by dividing net income available to Funko, Inc.

Basic and Diluted (Loss) Earnings per Share

Basic (loss) earnings per share of Class A common stock is computed by dividing net (loss) income available to Funko, Inc.

by the weighted-average number of shares of Class A common stock outstanding during the period.

Diluted earnings per share of Class A common stock is computed by dividing net income available to Funko, Inc.

Diluted (loss) earnings per share of Class A common stock is computed by dividing net (loss) income available to Funko, Inc.

by the weighted-average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities.

The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings per share of Class A common stock:

The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted (loss) earnings per share of Class A common stock:

Year Ended December 31, 2022 Year Ended December 31, 2021 Year Ended December 31, 2020

(in thousands, except per share data)

Net income $ 67,854 $ 9,763 $ 27,820

Net (loss) income $ ( 5,240 ) $ 67,854 $ 9,763

net income attributable to non-controlling interests

2,795 23,954 5,802

Net income attributable to Funko, Inc.

Net (loss) income attributable to Funko, Inc.

$ ( 8,035 ) $ 43,900 $ 3,961

Reallocation of net income attributable to non- controlling interests from the assumed exchange of common units of FAH, LLC for Class A common stock

Net income attributable to Funko, Inc.

Net (loss) income attributable to Funko, Inc.

— diluted $ ( 8,035 ) $ 43,900 $ 3,961

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— diluted 44,554,788 40,610,618 35,770,013

Earnings per share of Class A common stock — basic $ 1.14 $ 0.11 $ 0.38

Earnings per share of Class A common stock — diluted $ 1.08 $ 0.11 $ 0.36

For the years ended December 31, 2021, 2020 and December 31, 2019 an aggregate of 14.7 million, 19.7 million and 20.1 million of potentially dilutive securities, respectively, were excluded from the weighted-average in the computation of diluted earnings per share of Class A common stock because the effect would have been anti-dilutive.

For the years ended December 31, 2021, 2020 and 2019 anti-dilutive securities included 13.2 million, 15.8 million and 19.1 million of common units of FAH, LLC that are convertible into Class A common stock, but were excluded from the computations of diluted earnings per share because the effect would have been anti-dilutive under the if-converted method.

(Loss) earnings per share of Class A common stock — basic $ ( 0.18 ) $ 1.14 $ 0.11

(Loss) earnings per share of Class A common stock — diluted $ ( 0.18 ) $ 1.08 $ 0.11

For the years ended December 31, 2022, 2021 and December 31, 2020 an aggregate of 11.6 million, 14.7 million and 19.7 million of potentially dilutive securities, respectively, were excluded from the weighted-average in the computation of diluted (loss) earnings per share of Class A common stock because the effect would have been anti-dilutive.

For the years ended December 31, 2022, 2021 and 2020 anti-dilutive securities included 7.0 million, 13.2 million and 15.8 million of common units of FAH, LLC that are convertible into Class A common stock, but were excluded from the computations of diluted (loss) earnings per share because the effect would have been anti-dilutive under the if-converted method.

Shares of the Company’s Class B common stock do not participate in the earnings or losses of the Company and are therefore not participating securities.

As such, separate presentation of basic and diluted earnings per share of Class B common stock under the two-class method has not been presented.

As such, separate presentation of basic and diluted (loss) earnings per share of Class B common stock under the two-class method has not been presented.

Subsequent Event

Subsequent to the year ended December 31, 2022, the Company approved an inventory reduction plan to improve U.S.

warehouse operational efficiency.

The products were determined to be stated at their net realizable value at December 31, 2022, but were subsequently approved for destruction, and the Company expects an incremental charge for the write-down of products identified to be recorded to cost of sales in the first half of 2023 to be in the range of $ 30.0 million to $ 36.0 million.

Condensed Financial Information of Registrant

CONDENSED STATEMENTS OF INCOME

CONDENSED STATEMENTS OF OPERATIONS

(PARENT COMPANY ONLY)

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Tax receivable agreement liability adjustment ( 3,987 ) ( 1,590 ) ( 87 )

Equity in net income of subsidiaries 72,916 13,674 24,525

Income before income taxes 58,248 3,589 13,901

Income tax expense (benefit) 14,348 ( 372 ) 2,176

Net income $ 43,900 $ 3,961 $ 11,725

Equity in net (loss) income of subsidiaries ( 8,040 ) 72,916 13,674

(Loss) income before income taxes ( 28,572 ) 58,248 3,589

Income tax (benefit) expense ( 20,537 ) 14,348 ( 372 )

Net (loss) income $ ( 8,035 ) $ 43,900 $ 3,961

See accompanying notes to condensed financial information

Condensed Financial Information of Registrant (continued)

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

CONDENSED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(PARENT COMPANY ONLY)

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(in thousands)

Net income $ 43,900 $ 3,961 $ 11,725

Other comprehensive income:

Net (loss) income $ ( 8,035 ) $ 43,900 $ 3,961

Other comprehensive (loss) income:

Foreign currency translation (loss) gain, net of tax effect of $ 1,169 , $ 163 and $( 274 ) for the years ended December 31, 2022, 2021 and 2020, respectively

( 3,681 ) ( 544 ) 927

Reclassification of foreign currency translation gain into net income $ ( 96 ) $ — $ —

Comprehensive income attributable to

Reclassification of foreign currency translation gain into net (loss) income $ — $ ( 96 ) $ —

Comprehensive (loss) income attributable to

$ ( 11,716 ) $ 43,260 $ 4,888

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Current portion of liabilities under tax receivable agreement 9,567 7,362

Accrued expenses and other current liabilities — 40

Total current liabilities 9,567 22,046

Liabilities under tax receivable agreement, net of current portion 99,620 75,523

Other long-term liabilities — 490

Commitments and contingencies

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Additional paid-in-capital 310,807 252,505

Accumulated other comprehensive income 1,078 1,718

Accumulated other comprehensive (loss) income ( 2,603 ) 1,078

Retained earnings 60,015 68,050

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Operating Activities

Net income $ 43,900 $ 3,961 $ 11,725

Adjustments to reconcile net income to net cash provided by

Net (loss) income $ ( 8,035 ) $ 43,900 $ 3,961

Adjustments to reconcile net (loss) income to net cash (used in) provided by

operating activities:

Equity in net income of subsidiaries ( 72,916 ) ( 13,674 ) ( 24,525 )

Equity in net loss (income) of subsidiaries 8,040 ( 72,916 ) ( 13,674 )

Equity-based compensation 16,591 12,994 10,007

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Accrued expenses and other liabilities 11,190 ( 571 ) 304

Net cash provided by (used in) operating activities 1,123 33,005 ( 31,185 )

Net cash (used in) provided by operating activities ( 19,617 ) 1,123 33,005

Investing Activities

Capital contribution to FAH, LLC ( 73,980 ) — —

Net cash (used in) investing activities ( 73,980 ) — —

Financing Activities

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Net cash provided by financing activities 32,565 26,252 1,227

Net increase in cash and cash equivalents 27,375 34,232 292

Net change in cash and cash equivalents ( 61,032 ) 27,375 34,232

Cash and cash equivalents at beginning of period 61,943 34,568 336

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The Parent Company's assets consist primarily of cash and cash equivalents, its equity interest in FAH, LLC, and certain deferred tax assets.

The Parent Company also had three wholly owned subsidiaries with direct ownership interest in FAH, LLC until the subsidiaries were dissolved and liquidated on June 30, 2020.

The Parent Company's cash inflows are primarily from distributions and other transfers from FAH, LLC.

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Certain intercompany balances presented in these condensed Parent Company financial statements are eliminated in the consolidated financial statements.

For the years ended December 31, 2021, 2020, and 2019, the full amounts of intercompany revenue and equity in net income of subsidiaries in the Parent Company Statements of Operations were eliminated in consolidation.

For the years ended December 31, 2022, 2021, and 2020, the full amounts of intercompany revenue and equity in net (loss) income of subsidiaries in the Parent Company Statements of Operations were eliminated in consolidation.

An intercompany receivable was owed to the Parent Company by FAH, LLC of $ 119.2 million and $ 116.7 million as of December 31, 2022 and 2021, respectively.

On May 3, 2022, the Parent Company entered into a common unit subscription agreement with FAH, LLC pursuant to which the Parent Company purchased 4,251,701 newly issued common units in exchange for a capital contribution of approximately $ 74.0 million (the “Capital Contribution”).

Following the Capital Contribution, (i) the common units of FAH, LLC were recapitalized through a reverse unit split in order to maintain a one -to-one ratio between the number of common units owned by the Parent Company and the number of outstanding shares of Class A common stock in accordance with the FAH LLC Agreement, and (ii) approximately 0.9 million outstanding shares of Class B common stock were cancelled.

Related party amounts that were not eliminated in the consolidated financial statements include the Parent Company's liabilities under the tax receivable agreement, which totaled $ 109.2 million and $ 82.9 million as of December 31, 2022 and 2021, respectively.

Commitments and Contingencies

The Parent Company is party to a tax receivable agreement with certain holders of common units in FAH, LLC (the "Continuing Equity Owners") that provides for the payment by the Parent Company to the Continuing Equity Owners of 85 % of the amount of any tax benefits that the Parent Company actually realizes, or in some cases is deemed to realize, as a result of certain transactions.

The Parent Company is party to a tax receivable agreement that provides for the payment by the Parent Company to the TRA Parties of 85 % of the amount of any tax benefits that the Parent Company actually realizes, or in some cases is deemed to realize, as a result of certain transactions.

See Note 13 to the Funko, Inc.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data