What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-13 compared with 2024-03-07 · 331 added, 280 removed, 848 unchanged (42% of the section changed)

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Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Financial Statements:

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Funko, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

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

and its subsidiaries (the "Company") as of December 31, 2024, and the related consolidated statements of operations, of comprehensive (loss) income, of stockholders’ equity and of cash flows for the year then ended, including the related notes and financial statement schedule as of December 31, 2024 and for the year then ended listed in the index appearing under Item 15(a)2 (collectively referred to as the "consolidated financial statements").

We also have audited the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because material weaknesses in internal control over financial reporting existed as of that date as the Company did not design and maintain effective controls (i) related to the order-to-cash and income taxes business processes, as well as controls related to the preparation and review of journal entries at a foreign subsidiary;

(ii) to verify appropriate segregation of duties;

and (iii) over certain information technology general controls for certain information systems that are relevant to the preparation of the financial statements, related to program change management controls and user access controls.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

The material weaknesses referred to above are described in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A.

We considered these material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the 2024 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for crypto asset safeguarding assets and liabilities in 2024.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in management's report referred to above.

Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audit.

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.

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

PricewaterhouseCoopers LLP, 1420 Fifth Avenue, Suite 2800, Seattle, Washington 98101

(206) 398 3000, www.pwc.com/us

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

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

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition – Certain Products

As described in Note 2 to the consolidated financial statements, revenue from the sale of Company products is recognized when control of the goods is transferred to the customer, which is upon shipment or upon receipt of finished goods by the customer, depending on the contract terms.

The Company routinely enters into arrangements with its customers to provide sales incentives, support customer promotions, and provide allowances for returns and defective merchandise.

The costs of these programs reduce gross sales in the period the related sale is recognized.

The Company’s consolidated net sales were $1,050 million for the year ended December 31, 2024, of which a significant portion relates to certain products.

The principal consideration for our determination that performing procedures relating to revenue recognition from certain products is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company’s revenue recognition from certain products.

As described in the “Opinions on the Financial Statements and Internal Control over Financial Reporting” section, a material weakness was identified related to this matter.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included, among others (i) testing revenue recognized, on a sample basis, by obtaining and inspecting source documents, such as contracts, purchase orders, invoices, proof of transfer of control, and cash receipts net of credit memos and discounts;

(ii) confirming outstanding customer invoice balances as of December 31, 2024, on a sample basis, and for confirmations not returned, obtaining and inspecting source documents, such as contracts, invoices, proof of transfer of control, and subsequent cash receipts;

(iii) testing the timing of revenue recognition, on a sample basis, for revenue transactions that occurred near period end by obtaining and inspecting source documents, such as contracts, purchase orders, invoices, and proof of transfer of control;

(iv) testing the issuance of credit memos, on a sample basis, by obtaining and inspecting source documents, such as contracts, credit memos, and original invoices;

(v) testing sales incentives, on a sample basis, by obtaining contracts with customers and recalculating the sales incentives;

and (vi) testing the completeness of the sales allowances by considering whether contrary evidence exists.

/s/ PricewaterhouseCoopers LLP

Seattle, Washington

March 13, 2025

We have served as the Company’s auditor since 2024.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Funko, Inc.

Opinion on the Financial Statements

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

and subsidiaries (the Company) as of December 31, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S.

We have audited the accompanying consolidated balance sheet of Funko Inc.

(the Company) as of December 31, 2023, the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2023, and the related notes and financial statement schedule listed in 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, 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, 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, 2023, 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 7, 2024 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 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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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

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

The communication of the critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

Estimate of Reserve for Sales Allowances

Description of the Matter As discussed in Note 2 of the consolidated financial statements, the Company estimates costs of various incentives, including sales incentives, customer promotions, allowances for returns and defective merchandise (i.e., “sales allowances").

As of December 31, 2023, the estimated reserve for sales allowances the Company was $44.1 million which reduces gross sales in the period the related sale was recognized.

In accounting for the reserve for sales allowances, significant judgement is required in determining the timing of when claims will be received from customers and the percentage of sales with expected future claims based on historical trends and information from customers, such as agreed upon customer contract terms as well as historical experience from customers.

Auditing the Company’s estimate of the reserve for sales allowances is complex and highly judgmental due to the significant judgements required for timing of when claims, contractual and non-contractual, will be made by the customer, magnitude of claims that will be received, and assumptions about which claims the Company will grant.

The reserve for sales allowances reflects management’s assumptions about future claim activity and changes in those assumptions could have a material effect on revenue recognized.

How We Addressed the Matter in Our Audit As a result of the material weaknesses, we tested the reserve for sales allowances as of December 31, 2023, and increased the extent of our procedures to test the completeness and accuracy of the data used in the calculation of the reserve.

Additional procedures included obtaining and assessing the terms of contractual arrangements with customers, confirming directly with sales representatives whether there were any additional agreements entered into with customers from those included in the calculation, agreeing historical claims data used in the calculation to supporting evidence, and independently determining the time period between the receipt of historical claims from the customer and the period in which the related sales were recognized.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2015.

We served as the Company’s auditor from 2015 to 2024

Seattle, Washington

March 7, 2024

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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Net sales $ 1,049,850 $ 1,096,086 $ 1,322,706

Cost of sales (exclusive of depreciation and

amortization shown separately below)

763,085 888,685 648,302

Cost of sales (exclusive of depreciation and amortization) 615,318 763,085 888,685

Selling, general, and administrative expenses 358,958 377,065 398,272

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Total operating expenses 1,036,859 1,199,913 1,334,626

(Loss) income from operations ( 103,827 ) ( 11,920 ) 95,465

Income (loss) from operations 12,991 ( 103,827 ) ( 11,920 )

Interest expense, net 20,575 27,970 10,334

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Gain on tax receivable agreement liability adjustment — ( 100,223 ) —

Other (income) expense, net ( 127 ) 787 2,708

(Loss) income before income taxes ( 31,941 ) ( 23,041 ) 84,915

Other expense (income), net 2,922 ( 127 ) 787

Loss before income taxes ( 10,506 ) ( 31,941 ) ( 23,041 )

Income tax expense (benefit) 4,564 132,497 ( 17,801 )

Net (loss) income ( 164,438 ) ( 5,240 ) 67,854

Net loss ( 15,070 ) ( 164,438 ) ( 5,240 )

net (loss) income attributable to non-controlling

( 352 ) ( 10,359 ) 2,795

Net (loss) income attributable to Funko, Inc.

Net loss attributable to Funko, Inc.

$ ( 14,718 ) $ ( 154,079 ) $ ( 8,035 )

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

Loss per share of Class A common stock:

Basic $ ( 0.28 ) $ ( 3.19 ) $ ( 0.18 )

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See accompanying notes to consolidated financial statements.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

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(in thousands)

Net (loss) income $ ( 164,438 ) $ ( 5,240 ) $ 67,854

Net loss $ ( 15,070 ) $ ( 164,438 ) $ ( 5,240 )

Other comprehensive (loss) income:

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( 1,541 ) 2,617 ( 4,695 )

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

Comprehensive (loss) income ( 161,821 ) ( 9,935 ) 67,075

Comprehensive loss ( 16,611 ) ( 161,821 ) ( 9,935 )

Comprehensive (loss) income attributable to

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( 397 ) ( 10,165 ) 1,781

Comprehensive (loss) income attributable to

Comprehensive loss attributable to

$ ( 16,214 ) $ ( 151,656 ) $ ( 11,716 )

See accompanying notes to consolidated financial statements.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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Accounts receivable, net 119,882 130,831

Inventory, net 119,458 246,429

Inventories 92,580 119,458

Prepaid expenses and other current assets 39,942 50,074

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Property and equipment, net 78,357 91,335

Operating lease right-of-use assets 61,499 71,072

Operating lease right-of-use assets, net 52,846 61,499

Goodwill 133,652 133,795

Intangible assets, net 151,547 167,388

Deferred tax asset, net of valuation allowance — 123,893

Other assets 3,793 7,752

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Line of credit $ 60,000 $ 120,500

Current portion long-term debt, net of unamortized discount 22,072 22,041

Current portion of long-term debt 22,512 22,072

Current portion of operating lease liabilities 17,102 17,486

Accounts payable 63,130 52,919

Income taxes payable 986 871

Accrued royalties 61,362 54,375

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Total current liabilities 305,794 352,772

Long-term debt, net of unamortized discount 130,986 153,778

Operating lease liabilities, net of current portion 71,309 82,356

Deferred tax liability 402 382

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

Long-term debt 100,303 130,986

Operating lease liabilities 60,390 71,309

Other long-term liabilities 4,414 5,478

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Accumulated other comprehensive loss ( 1,676 ) ( 180 )

(Accumulated deficit) retained earnings ( 94,064 ) 60,015

Accumulated deficit ( 108,782 ) ( 94,064 )

Total stockholders' equity attributable to Funko, Inc.

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See accompanying notes to consolidated financial statements.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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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, net of tax — — — — — ( 3,681 ) — ( 1,014 ) ( 4,695 )

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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Activity under equity-based compensation plans 1,601 — — — 756 — — — 756

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

Cumulative translation adjustment, net of tax — — — — — 2,423 — 194 2,617

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 1,756 — ( 1,016 ) — 4,083 — — ( 4,083 ) —

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

Net loss — — — — — — ( 154,079 ) ( 10,359 ) ( 164,438 )

Period ended December 31, 2023 50,549 $ 5 2,277 $ — $ 326,180 $ ( 180 ) $ ( 94,064 ) $ 6,099 $ 238,040

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See accompanying notes to consolidated financial statements.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

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Operating Activities

Net (loss) income $ ( 164,438 ) $ ( 5,240 ) $ 67,854

Net loss $ ( 15,070 ) $ ( 164,438 ) $ ( 5,240 )

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

operating activities:

Depreciation, amortization and other 57,389 47,919 40,056

Depreciation and amortization 62,583 57,389 47,919

Equity-based compensation 13,602 10,534 16,591

Amortization of debt issuance costs and debt discounts 1,274 902 1,118

Loss on debt extinguishment — 494 —

Gain on tax receivable agreement liability adjustment — ( 100,223 ) —

Deferred tax expense (benefit) 123,124 ( 17,414 ) ( 361 )

Other 4,090 5,244 1,403

Deferred tax (benefit) expense ( 57 ) 123,124 ( 17,414 )

Other, net 3,722 5,364 6,146

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

Accounts receivable, net 9,624 40,513 19,075

Inventory 122,479 ( 82,214 ) ( 107,166 )

Inventories 26,216 122,479 ( 82,214 )

Prepaid expenses and other assets 17,076 ( 1,969 ) ( 7,263 )

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Acquisitions of business and intangible assets, net of cash acquired — ( 5,364 ) ( 19,479 )

Other 699 562 179

Sale of Funko Games inventory and certain intellectual property 6,754 — —

Other, net 809 699 562

Net cash used in investing activities ( 25,228 ) ( 39,796 ) ( 78,065 )

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Payments on line of credit ( 100,500 ) ( 20,500 ) ( 50,000 )

Debt issuance costs ( 1,957 ) ( 405 ) ( 1,055 )

Proceeds from long-term debt, net — 20,000 180,000

Proceeds from long-term debt — — 20,000

Payment of long-term debt ( 31,104 ) ( 22,581 ) ( 18,000 )

Contingent consideration — — ( 2,000 )

Distributions to continuing equity owners — ( 1,118 ) ( 10,710 )

Payments under tax receivable agreement ( 8,960 ) ( 4 ) ( 7,718 )

Proceeds from exercise of equity-based options 756 1,472 3,794

Net cash provided by (used in) financing activities 25,596 54,639 ( 28,628 )

Other, net 1,322 ( 1,201 ) 1,067

Net cash (used in) provided by financing activities ( 99,242 ) 25,596 54,639

Effect of exchange rates on cash and cash equivalents ( 852 ) 518 ( 797 )

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See accompanying notes to consolidated financial statements.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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Cash Equivalents

Cash equivalents include amounts due from third-party financial institutions for credit and debit card transactions.

These transactions typically settle in less than 5 days and were $ 1.2 million and $ 1.3 million at December 31, 2023 and 2022, respectively.

Cash equivalents include amounts due from third-party financial institutions for credit and debit card transactions, that typically settle in less than 5 days.

Cash equivalents also include short-term investments, which are highly liquid investments with maturities of three months or less when purchased.

Concentrations of Business and Credit Risk

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The collection of these receivables has been within the terms of the associated customer agreement.

For the years ended December 31, 2023, 2022 and 2021, there was no individual customer that generated net sales over 10%.

For the year ended December 31, 2023, no individual license agreement accounted for more than 10% of sales.

For the year ended December 31, 2022, 13 % of sales were related to the Company’s largest license agreements 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 years ended December 31, 2024, 2023 and 2022, there was no individual customer that generated over 10% of net sales.

For both the years ended December 31, 2024 and 2023, no individual license agreement accounted for more than 10% of sales.

For the year ended December 31, 2022, 13 % of sales were related to the Company’s largest license agreement 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 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.

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

Inventory costs include direct product costs, freight and duty costs.

Inventories are stated at the lower of cost or net realizable value.

The Company estimates obsolescence based on assumptions regarding future demand.

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warehouse operational efficiency.

The Company recorded a $ 30.3 million inventory write-down included in cost of sales as presented in the condensed consolidated statements of operations.

The Company recorded a $ 30.3 million inventory write-down included in cost of sales as presented in the consolidated statements of operations.

The units were identified and recorded based on an estimate of product costs, associated capitalized freight, net of allocated inventory reserves of the identified units and an estimate of physical destruction costs, during the quarter ended March 31, 2023.

The physical destruction plan was completed during the third quarter of 2023.

Property and Equipment

Property and Equipment and Long-Lived Assets

Property and equipment is stated at historical cost, net of accumulated depreciation, and, if applicable, impairment charges.

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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.

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.

If impairment indicators exist, the Company will perform the required impairment analysis by comparing the undiscounted cash flows expected to be generated from the underlying asset groups to the related net book values.

If the net book value exceeds the undiscounted cash flows, an impairment loss is measured and recognized.

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Cloud computing arrangement costs, included in prepaid expenses and other current assets were $ 2.8 million and $ 2.7 million and other assets were $ 0.6 million and $ 3.1 million as of December 31, 2024 and 2023, respectively.

Amortization expense associated with the cloud computing arrangements of $ 2.2 million was recorded in the year ended December 31, 2023, and no amortization expense was recorded for the years ended December 31, 2022 or 2021.

Amortization expense associated with the cloud computing arrangements of $ 2.8 million and $ 2.2 million was recorded in the year ended December 31, 2024 and 2023, respectively, and no amortization expense was recorded for the years ended December 31, 2022.

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.

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Revenue from the sale of Company products is recognized when control of the goods is transferred to the customer, which is upon shipment or upon receipt of finished goods by the customer, depending on the contract terms.

Deferred revenue is recognized when the Company collects cash from the customer and had not yet filled is obligation for delivery of product or service.

Deferred revenue is recorded within accrued expenses and other current liabilities on the Company's consolidated balance sheets.

Deferred revenue is recognized when the Company collects cash from the customer and had not yet filled its obligation for delivery of product or service.

Deferred revenue was $ 13.3 million and $ 9.9 million as of December 31, 2024 and 2023, respectively, and is recorded within accrued expenses and other current liabilities on the Company's consolidated balance sheets.

The Company routinely enters into arrangements with its customers to provide sales incentives, support customer promotions, and provide allowances for returns and defective merchandise.

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Accordingly, shipping and handling activities that are performed by the Company, whether before or after a customer has obtained control of the products, are considered fulfillment costs to satisfy our performance obligation to transfer the products, and are recorded as incurred within cost of sales.

Shipping fees billed to customers are included in net sales.

We have elected the practical expedient to not recognize a significant financing component for contracts that include payments terms of one year or less.

We have also elected the practical expedient permitting expensing of costs to obtain a contract when the expected amortization period is one year or less.

Shipping Revenue and Costs

Shipping and handling costs include inbound freight costs and the cost to ship product to the customer and are included in cost of sales.

Shipping fees billed to customers are included in net sales.

We enter into agreements for rights to licensed trademarks, copyrights and likenesses for use in our products.

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In situations where a minimum commitment is not expected to be met based on expected revenues, we will accrue up to the minimum amount when it is reasonably certain that revenues generated will not meet the minimum commitment.

Royalty and license expense is recorded within cost of sales on the consolidated statements of income.

Our license agreements typically grant our licensors the right to audit our compliance with the terms and conditions of such agreements.

Any such audit could result in a dispute over whether we have paid the proper royalties and a requirement that we pay additional royalties.

As of December 31, 2024 and 2023 , we had a reserve of $ 23.5 million and $ 18.1 million, respectively, related to ongoing and future royalty audits, based on estimates of the costs we expect to incur.

Royalty and license expense is recorded within cost of sales on the consolidated statements of operations.

Royalty expenses for the years ended December 31, 2024 , 2023 and 2022, were $ 168.9 million, $ 179.7 million and $ 213.1 million, respectively.

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The Company enters into cooperative advertising arrangements with customers.

The fees related to these arrangements are recorded as a reduction of net sales in the accompanying consolidated statements of income because the Company has determined it does not receive an identifiable benefit and cannot reasonably estimate the fair value of these arrangements.

The fees related to these arrangements are recorded as a reduction of net sales in the accompanying consolidated statements of operations because the Company has determined it does not receive an identifiable benefit and cannot reasonably estimate the fair value of these arrangements.

Product Design and Development Costs

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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 (loss) on the consolidated statements of comprehensive income (loss).

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

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

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 $ 0.7 million gain, a $ 0.1 million gain and a no minal loss for the years ended December 31, 2023, 2022 and 2021, respectively.

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

There were no material gains (losses) recognized In connection with the settlement and remeasurement of intercompany balances for the years ended December 31, 2024, 2023 and 2022.

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.

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Consequently, the Company established a full valuation allowance of $ 123.2 million against its deferred tax assets, thus reducing the carrying balance to $ 0 , and recognized a corresponding increase to tax expense in the consolidated statements of operations and comprehensive (loss) income in the year ended December 31, 2023.

There was no change to that assessment as of December 31, 2023.

Future changes to the balances of these valuation allowances, as a result of this continued review and analysis by the Company, could impact the financial statements within the period of change.

Based on the Company's assessment as of December 31, 2024, a full valuation allowance on its deferred tax assets remains appropriate.

As a result of the full valuation allowance on the deferred tax assets, and projected inability to fully utilize all or part of the related tax benefits, the Company determined that certain payments to the TRA Parties related to unrealized tax benefits under the TRA are no longer probable and estimable.

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The Company performed a true-up in the fourth quarter of 2023 based on the filed 2022 consolidated tax return and recognized a further reduction in TRA liability and corresponding $ 603 thousand gain within the accompanying consolidated statements of operations and comprehensive (loss) income.

There was no change to that assessment as of December 31, 2023.

The Company estimated a TRA liability for the year ended December 31, 2024 of $ 547 thousand as utilization of certain portions of the deferred tax assets subject to the TRA were more likely than not to be recognized.

Assets Held-for-Sale

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Recently Adopted Accounting Standards

There were no recently adopted accounting standards during the year ended December 31, 2023 that had a material effect on the financial statements.

In January 2025, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") 122, that rescinded SAB 121, Accounting for Obligations to Safeguard Crypto-Assets an Entity Holds for its Platform Users .

The Company has elected to early adopt SAB 122 on a fully retrospective basis.

As a result of the adoption, the Company has excluded the crypto asset safeguarding asset and corresponding liability of $ 6.1 million from the December 31, 2023 presentation of prepaid expenses and other current assets and accrued expenses and other current liabilities, on the consolidated balance sheets and consolidated statements of cash flows, respectively.

The Company, through its wholly-owned subsidiary TokenWave, LLC, operates the Droppp.io platform, to facilitate the buying and selling of its NFTs, holds cryptographic key information for NFTs and is a custodian for NFTs held in platform users' accounts.

The Company has not incurred a loss event during the years ended December 31, 2024, 2023 or 2022, as a result of its safeguarding.

In November 2023, the Financial Accounting Standards Board issued an Accounting Standards Update ("ASU"), which requires all public entities, including public entities with a single reportable segment, to provide in interim and annual periods one or more measures of segment profit or loss used by the chief operating decision maker to allocate resources and assess performance.

Additionally, the standard requires disclosures of significant segment expenses and other segment items as well as incremental qualitative disclosures.

The Company adopted the ASU for the year ended December 31, 2024, on a retrospective basis.

The adoption of this ASU did not change the way that the Company identifies its reportable segments and, as a result, did not have a material impact on the Company’s segment-related disclosures.

Refer to Note 15, "Segments" for further information on the Company's reportable segment.

Accounting Pronouncements Not Yet Adopted

In December 2023, the Financial Accounting Standards Board issued an Accounting Standards Update ("ASU") amending existing crypto asset disclosures, primarily requiring detailed disclosures about the types of crypto assets held by entities and the changes in those holdings.

The ASU is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the ASU to determine its impact on crypto asset disclosures.

In December 2023, the Financial Accounting Standards Board issued an ASU amending existing income tax disclosure guidance, primarily requiring more detailed disclosure for income taxes paid by jurisdiction and the effective tax rate reconciliation.

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The Company is currently evaluating the ASU to determine its impact on income tax disclosures.

In November 2024, the Financial Accounting Standards Board issued an ASU requiring that an entity disclose in the notes to the financial statements specified information about certain costs and expenses, including the amounts of (a) purchases of inventory, (b) employee compensation, (c) depreciation, (d) intangible asset amortization, and (e) other amounts of depletion expense included in each relevant expense caption presented on the statement of operations.

The standard also requires disclosure of a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively, as well as the total amount of selling expenses and an entity’s definition of selling expenses.

The ASU was clarified in January 2025 and is effective for annual reporting periods beginning after December 15, 2026 and interim periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted and it can be applied on either a prospective or retroactive basis.

The Company is currently evaluating the ASU to determine its impact on income statement presentation and enhanced footnote disclosures.

On January 19, 2023, the Company acquired 100 % of the stock outstanding in MessageMe, Inc.

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The final purchase consideration was $ 14.0 million in cash.

Goodwill of $ 5.5 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, 2023 was not material.

The following table shows the final purchase price allocation for the Mondo acquisition as of June 8, 2022 (in thousands):

Assets (Liabilities) Acquired (Assumed)

at Fair Value

Accounts receivable 702

Inventory 2,508

Other current assets 2,545

Intangible assets 7,370

Goodwill 5,458

Current liabilities ( 4,616 )

Consideration transferred $ 14,004

Goodwill and Intangible Assets

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Acquisition 4,065

Reclassification to assets held-for-sale ( 2,162 )

Foreign currency remeasurement 512

Balance as of December 31, 2023 $ 133,795

Acquisition 4,065

Reclassification to assets held-for-sale ( 87 )

1 unchanged sentence

Balance as of December 31, 2024 $ 133,652

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

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

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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, 2023 and 2022, there were also $ 0.1 million in indefinite-lived assets not subject to amortization but tested for impairment.

There were no , $ 0.2 million and no impairment charges relating to indefinite-lived intangible assets recorded in the years ended December 31, 2023, 2022 and 2021, respectively.

As of December 31, 2024 and 2023, there were also $ 27.0 thousand and $ 88.0 thousand, respectively, in indefinite-lived assets not subject to amortization but tested for impairment.

There were immaterial impairment charges relating to indefinite-lived intangible assets recorded in the years ended December 31, 2024, 2023 and 2022, respectively.

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

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Accounts Receivable, Net

Accounts receivable, net, primarily represent customer receivables, recorded at invoiced amount, net of a sales allowance and an allowance for doubtful accounts.

Accounts receivable, net, primarily represent customer receivables, recorded at invoiced amount, net of a sales allowance and an allowance for credit losses.

A sales allowance is determined based on various factors, including the overall business environment, historical trends and information from customers, such as agreed upon customer contract terms as well as historical experience from the customer.

An allowance for doubtful accounts is determined based on various factors, including specific identification of balances at risk for not being collected, historical experience, existing economic conditions and supportable forecasted changes.

The Company evaluates its general portion of the allowance for doubtful accounts based on historical loss information and applies reserve percentages based on aging schedule.

An allowance for credit losses is determined based on various factors, including specific identification of balances at risk for not being collected, historical experience, existing economic conditions and supportable forecasted changes.

Credit limits and payment terms are established based on evaluations made on an ongoing basis throughout the fiscal year of the financial performance, cash generation, financing availability, and liquidity status of each customer.

Customers are reviewed at least annually, with more frequent reviews performed as necessary, based on the customers' financial condition and the level of credit being extended.

For customers who are experiencing financial difficulties, management performs additional financial analyses before shipping to those customers on credit.

The Company uses a variety of financial arrangements to ensure collectability of accounts receivable of customers, including requiring letters of credit, purchasing various forms of credit insurance with unrelated third parties, or requiring cash in advance of shipment, where applicable.

The Company evaluates its general portion of the allowance for credit losses based on historical loss information and applies reserve percentages based on aging schedule.

Days past due is calculated from contractual due date of the trade receivable contract.

The composition of the trade receivables is consistent with that used in developing the historical credit-loss percentages and evaluated to reflect current conditions and supportable forecasted changes.

The trade receivables are generally due in 30 to 90 days.

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

The trade receivables are generally due in 30 to 90 days, average of 57 days at December 31, 2024.

In addition to the general portion of the allowance for credit losses, 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 deemed to be uncollectible.

4 unchanged sentences

( 42,245 ) ( 44,121 )

Allowance for doubtful accounts

Allowance for credit losses

( 3,702 ) ( 5,048 )

Accounts receivable, net $ 119,882 $ 130,831

Accounts receivable includes a $ 0.8 million and $ 1.5 million tenant improvement receivable from a lessor as of December 31, 2023 and 2022.

In addition, accounts receivable as of December 31, 2023 and 2022 includes an income tax receivable of $ 0.3 million and $ 7.8 million.

The remaining balance is customer receivables.

Bad debt expense was $ 0.3 million, $ 6.1 million and $ 0.9 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Activity in our allowance for doubtful accounts was as follows (in thousands):

Allowance for doubtful accounts - beginning $ 7,589 $ 3,156

Bad debt expense, net was $ 1.5 million, $ 0.3 million and $ 6.1 million for the years ended December 31, 2024, 2023 and 2022, respectively.

Activity in our allowance for credit losses was as follows (in thousands):

Allowance for credit losses- beginning $ 5,048 $ 7,589

Charged to costs 1,529 294

Write offs ( 2,875 ) ( 2,835 )

Allowance for doubtful accounts - ending $ 5,048 $ 7,589

Allowance for credit losses - ending $ 3,702 $ 5,048

Prepaid Expenses and Other Current Assets

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Prepaid royalties, net

25,079 12,985

Crypto asset safeguarding asset 6,060 11,271

Assets held-for-sale 1,682 8,694

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$ 39,942 $ 50,074

In January 2024, the Company sold all outstanding inventory and certain intellectual property marketed under and related to Funko Games, to an independent third-party.

The Company also entered into a multi-year exclusive worldwide license and distribution agreement with the purchaser, whereby the Company will earn minimum guaranteed royalty payments for the continued use of the Funko brand.

Proceeds from the transaction were utilized to pay down a portion of the outstanding balance of the Term Loan Facility (as defined below).

Property and Equipment, Net

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Current liabilities under tax receivable agreement 547 8,960

Crypto asset safeguarding liability 6,060 11,271

Deferred revenue 13,265 9,914

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As of December 31, 2024 and 2023, cash equivalents included $ 1.5 million and $ 13.5 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.

The Company utilizes recent blockchain sales data through its own Droppp Marketplace to value the NFTs held in platform users' accounts for which it holds the cryptographic key information.

As of December 31, 2023 and 2022, the estimated fair value of the crypto asset safeguarding liability and corresponding asset was $ 6.1 million and $ 11.3 million, respectively classified at Level 2 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, 2024 and 2023, was approximately $ 123.8 million and $ 154.9 million, respectively.

13 unchanged sentences

$ 100,303 $ 130,986

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

Maturities of long-term debt are as follows (in thousands):

Term Facilities

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On February 28, 2023, the Credit Agreement Parties entered into an Amendment No.

3 (the “Third Amendment”) to the Credit Agreement to, among other things, (i) modify the financial covenants under the 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 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 is permanent after the Waiver Period, (iii) restrict the ability to draw on the 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 Credit Agreement), and (b) 3.00 % per annum with respect to any Canadian Prime Loan or ABR Loan (as defined in the Credit Agreement), (v) allow that any calculation of Consolidated EBITDA (each as defined in the Credit Agreement) that includes the fiscal quarters during the Waiver Period may include certain agreed upon amounts for certain addbacks, (vi) 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, (vii) require a minimum qualified cash requirement of at least $ 10.0 million and (viii) require a mandatory prepayment of the Revolving Credit Facility during the Waiver Period with any qualified cash proceeds in excess of $ 25.0 million.

Beginning in the fiscal quarter ending March 31, 2024, the Third Amendment resets the maximum Net Leverage Ratio and the minimum Fixed Charge Coverage Ratio (each as defined in the 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 Credit Agreement prior to the Third Amendment.

3 (the “Third Amendment”) to the Credit Agreement to, among other things, (i) modify the financial covenants under the Credit Agreement for the period beginning on the date of the Third Amendment through the fiscal quarter ended December 31, 2023 (the “Waiver Period”), (ii) reduce the size of the 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 is permanent after the Waiver Period, (iii) restrict the ability to draw on the 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 Credit Agreement), and (b) 3.00 % per annum with respect to any Canadian Prime Loan or ABR Loan (as defined in the Credit Agreement), (v) allow that any calculation of Consolidated EBITDA (each as defined in the Credit Agreement) that includes the fiscal quarters during the Waiver Period may include certain agreed upon amounts for certain addbacks, (vi) 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, (vii) require a minimum qualified cash requirement of at least $ 10.0 million and (viii) require a mandatory prepayment of the Revolving Credit Facility during the Waiver Period with any qualified cash proceeds in excess of $ 25.0 million.

Beginning in the fiscal quarter ended March 31, 2024, the Third Amendment reset the maximum Net Leverage Ratio and the minimum Fixed Charge Coverage Ratio (each as defined in the 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 Credit Agreement prior to the Third Amendment.

On June 11, 2024 (the “Consent Effective Date"), the Credit Agreement Parties entered into that certain Limited Waiver and Limited Consent (the “Limited Waiver and Limited Consent”), with the lenders party thereto (the “Required Lenders”) and the Administrative Agent.

Pursuant to the Limited Waiver and Limited Consent, the Administrative Agent and the Required Lenders have agreed to irrevocably and permanently waive, from any time prior to or after the Consent Effective Date, the Credit Agreement Parties’ compliance with the covenant to maintain a minimum threshold of Qualified Cash (as defined in the Credit Agreement).

The 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 Term Loan Facility, with any outstanding balance due and payable on the Maturity Date.

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

As of December 31, 2023, the Credit Agreement Parties were in compliance with the modified covenants that were amended pursuant to the Third Amendment and within the Waiver Period and as of December 31, 2022, the Credit Agreement Parties were in compliance with all of the covenants in its Credit Agreement.

As of December 31, 2024 and 2023, the Credit Agreement Parties were in compliance with all of the financial covenants in its Credit Agreement.

At December 31, 2024 and 2023, the Credit Agreement Parties had $ 113.2 million and $ 139.5 million of borrowings outstanding under the Term Loan Facility, respectively, and $ 60.0 million and $ 120.5 million outstanding borrowings under the Revolving Credit Facility, respectively.

Outstanding borrowings under the Revolving Credit Facility at December 31, 2023 are due within 30 days of the applicable draw.

Interest rates on the outstanding borrowings under the Revolving Credit Facility at December 31, 2024 are reset every 30 days and can be repaid and reborrowed up until the maturity date.

The weighted average rate on outstanding borrowings under Revolving Credit Facility as of December 31, 2024 and 2023 was 6.71 % and 9.45 %, respectively.

At December 31, 2024 and 2023, the Company had $ 90.0 million and $ 20.5 million available under the Revolving Credit Facility, respectively.

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The Company combines lease and non-lease components for new and reassessed leases.

Some operating leases also contain the option to renew for five years periods at prevailing market rates at the time of renewal.

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.

Some operating leases also contain the option to renew for five year periods at prevailing market rates at the time of renewal.

In addition to minimum rent, certain of the leases require payment of real estate taxes, insurance, common area maintenance charges, and other executory costs.

1 unchanged sentence

Rent expense, included in selling, general and administrative expenses on the consolidated statements of operations, was $ 24.6 million, $ 29.4 million and $ 24.5 million for the years ended December 31, 2024, 2023 and 2022, respectively.

Variable expenses, such as common area maintenance and property taxes related to the lease agreements, included in selling, general and administrative expenses on the consolidated statements of operations, was $ 6.9 million, $ 7.5 million and $ 5.1 million for the years ended December 31, 2024, 2023 and 2022.

During the year ended December 31, 2023, the Company terminated an agreement for a lease that had not commenced and incurred a charge of approximately $ 4.2 million.

During the years ended December 31, 2023 and 2022, operating cash outflows relating to operating lease liabilities were $ 19.5 million and $ 16.0 million, respectively.

Operating lease right-of-use assets obtained in exchange for new operating lease obligations was $ 0.9 million during the year ended December 31, 2023.

Operating lease right-of-use assets obtained in exchange for new operating lease obligations was $ 54.1 million, with $ 17.2 million lease incentives obtained, during the year ended December 31, 2022.

During the years ended December 31, 2024, 2023 and 2022, operating cash outflows relating to operating lease liabilities were $ 18.2 million, $ 19.5 million and $ 16.0 million, respectively.

Operating lease right-of-use assets obtained in exchange for new operating lease obligations was $ 3.2 million, $ 0.9 million and $ 54.1 million, with $ 17.2 million lease incentives obtained, during the year ended December 31, 2024, 2023 and 2022, respectively.

As of December 31, 2024 and 2023, the Company’s operating leases had a weighted-average remaining term of 6.0 years and 6.7 years, respectively, and weighted-average discount rates of 5.76 % and 5.78 %, respectively.

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

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

Rental income recognized for the years ended December 31, 2024, 2023 and 2022 was $ 0.3 million, $ 0.6 million and $ 0.4 million, respectively, included as a reduction of selling, general and administrative expenses on the consolidated statements of operations.

5 unchanged sentences

Total $ 77,492

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

Loss before income taxes consisted of (in thousands):

Year Ended December 31,

2 unchanged sentences

Foreign 15,427 14,906 16,036

(Loss) income before income taxes $ ( 31,941 ) $ ( 23,041 ) $ 84,915

Loss before income taxes $ ( 10,506 ) $ ( 31,941 ) $ ( 23,041 )

Income Tax Expense (Benefit)

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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).

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 and loss.

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

5 unchanged sentences

4,771 3,728 2,750

3,728 2,750 2,703

Current income taxes

18 unchanged sentences

Foreign tax credit — — 11.7

Foreign deferred tax — — 0.0

Non-deductible expenses

1 unchanged sentence

Change in valuation allowance ( 3.9 ) ( 340.5 ) 47.2

( 340.5 ) 47.2 2.3

Non-controlling interest

4 unchanged sentences

Income tax expense ( 43.4 ) % ( 414.8 ) % 77.3 %

The Company's annual effective tax rate in 2024 is different than the statutory rate of 21% due to the valuation allowance and foreign taxes.

The Company’s annual effective tax rate in 2023 is different than the statutory rate of 21% due to the valuation allowance.

The Company's annual effective tax rate for 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 in 2021 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.

The Company's annual effective tax rate for 2022 is different than the statutory rate of 21%, primarily due to a partial release of the valuation allowance, the limitation on deductions of future share based compensation pursuant to Section 162(m) of the Internal Revenue Code (the "Code"), and the fact that 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

6 unchanged sentences

Foreign tax credit 62 62

Section 163(j) interest 9,149 6,348 (1)

Other carryforwards 218 146

11 unchanged sentences

Net deferred tax assets $ ( 542 ) $ ( 402 )

(1) The prior years' Section 163(j) interest deferred tax asset has been disaggregated from investment in partnership to conform to current-year presentation.

The Company's federal net operating loss carryforward of $ 28.5 million at December 31, 2024 is indefinite.

The Company's state net operating loss carryforward of $ 4.9 million at December 31, 2024, have various expiration dates based on jurisdiction, ranging from tax years ending 2034 to 2044.

The Company's other carryforwards, primarily related to charitable contributions at December 31, 2024, expire in the tax years ending 2028 and 2029.

The Company evaluates its ability to realize deferred tax assets on a quarterly basis and establishes a valuation allowance when it is more likely than not that all or a portion of a deferred tax asset may not be realized.

During the year ended December 31, 2023, the Company determined that based on all the available evidence, including the Company’s three-year cumulative pre-tax loss position, it is not more likely than not that the results of operations will generate sufficient taxable income to realize its deferred tax assets.

As of December 31, 2022, the Company recognized a deferred tax asset of $ 93.9 million, associated with the basis difference in its investment in FAH, LLC upon acquiring these LLC interests.

However, a portion of the total basis difference will only reverse upon the eventual sale of its interest in FAH, LLC, which we expect would result in a capital loss.

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

Based on the Company's assessment as of December 31, 2024, the Company determined that based on all the available evidence, including the Company’s three-year cumulative pre-tax loss position, it is not more likely than not that the results of operations will generate sufficient taxable income to realize its deferred tax assets and retained a full valuation allowance.

During the year ended December 31, 2023, the Company established a full valuation allowance of $ 123.2 million against its deferred tax assets and recognized a corresponding increase to tax expense in the consolidated statements of operations and comprehensive (loss) income in the year ended December 31, 2023.

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.

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

The Company is generally not obligated to make any payments under the Tax Receivable Agreement until the tax benefits associated with a relevant transaction that gave rise to the payment are realized.

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

The Company is generally not obligated to make any payments under the Tax Receivable Agreement until the tax benefits associated with a relevant transaction are realized (as determined in accordance with the terms of the Tax Receivable Agreement).

Amounts payable under the Tax Receivable Agreement are contingent upon, among other things, (i) the generation of future taxable income over the term of the Tax Receivable Agreement and (ii) future changes in tax laws.

If the Company does not generate sufficient taxable income in the aggregate over the term of the Tax Receivable Agreement to utilize the tax benefits, then it would not be required to make the related Tax Receivable Agreement payments.

During years ended December 31, 2023 and 2022, the Company acquired an aggregate of 1.8 million and 6.5 million common units of FAH, LLC, respectively, in connection with the redemption of common units, which resulted in an increase in the tax basis of our investment in FAH, LLC subject to the provisions of the Tax Receivable Agreement.

As a result of these exchanges, during the years ended December 31, 2023 and 2022, the Company recognized an increase to its net deferred tax assets in the amount of $ 0.0 million and $ 30.6 million, respectively, and corresponding Tax Receivable Agreement liabilities, representing 85 % of the aggregate tax benefits we expect to realize from the tax basis increases related to the redemption of FAH, LLC common units.

If the Company does not generate sufficient taxable income in the aggregate over the term of the Tax Receivable Agreement to utilize the tax benefits, then it generally would not be required to make the related Tax Receivable Agreement payments.

During years ended December 31, 2024 and 2023, the Company acquired an aggregate of 1.2 million and 1.8 million common units of FAH, LLC, respectively, in connection with the redemption and/or exchange of common units, none of which resulted in an increase in the tax basis of our investment in FAH, LLC subject to the provisions of the Tax Receivable Agreement.

The Company estimated a TRA liability for the year ended December 31, 2024 of $ 547 thousand as utilization of certain portion of the deferred tax assets subject to the TRA were more likely than not to be recognized.

Based on this assessment, the Company reduced its TRA Liability as of June 30, 2023, to $ 9.6 million, and recognized a gain of $ 99.6 million within the accompanying consolidated statements of operations and comprehensive (loss) income.

1 unchanged sentence

There were no transactions subject to the Tax Receivable Agreement for which the Company did not recognize the related liability during the years ended December 31, 2024, 2023 and 2022, as we concluded at such time that it was probable that the Company would have sufficient future taxable income to utilize all of the related tax benefits.

The estimated gross outstanding balance of the TRA liability as of December 31, 2024 was equivalent to the liability outstanding at December 31, 2023 of $ 99.6 million, adjusted for immaterial redemptions and changes in tax rates.

The following table summarizes changes in the amount of the Company’s Tax Receivable Agreement liability (in thousands):

10 unchanged sentences

The agreements generally require royalty payments based on product sales and in some cases may require minimum royalty and other related commitments.

The Company is expected to incur $ 80.4 million in minimum guaranteed royalty payments under licensing arrangements, including $ 31.1 million in 2024, $ 48.8 million in 2025, $ 0.2 million in 2026 and $ 0.2 million in 2027.

The Company is expected to incur $ 68.6 million in minimum guaranteed royalty payments under licensing arrangements, including $ 64.2 million for the year ended December 31, 2025, $ 3.6 million for the year ended December 31, 2026 and $ 0.8 million for the year ended December 31, 2027.

Our license agreements typically grant our licensors the right to audit our compliance with the terms and conditions of such agreements.

Any such audit could result in a dispute over whether we have paid the proper royalties and a requirement that we pay additional royalties.

As of December 31, 2024, we had a reserve of $ 23.5 million, related to ongoing and future royalty audits, based on estimates of the costs we expect to incur.

Pre-Production Costs and Inventory

The Company routinely enters into purchase commitments for tooling and molds and pre-production costs related to inventory.

The Company bases production schedules for products on internal forecasts, taking into account historical trends of similar products and properties, current market information and communications with customers.

Employment Agreements

The Company has employment agreements with certain officers.

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

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

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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.

The Company is expected to incur $ 9.0 million in 2024.

See Note 13, "Liabilities under Tax Receivable Agreement".

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

Mariotti et al.

, and Igelido v.

Mariotti et al.

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

Mariotti et al., Evans v.

Mariotti et al., and Igelido v.

Mariotti et al., respectively, were filed in the United States District Court for the Central District of California.

On July 6, 2020, these three actions were consolidated for all purposes into one action under the title In re Funko, Inc.

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Mariotti, et al.

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

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

Mariotti et al .

In March 2023, the Company reached a non-monetary settlement in principle in In re Funko, Inc.

Derivative Litigation , Smith v.

Mariotti , and Fletcher, et al.

Mariotti and the actions were stayed pending finalization of the settlement.

On March 4, 2024, plaintiffs filed a motion for preliminary approval of the settlement with the Court.

As part of the settlement, the plaintiffs agreed to dismiss their claims on behalf of the corporation in exchange for a set of corporate governance reforms and attorney’s fees and expenses.

The attorney’s fees and expenses will be paid out of Funko’s directors and officers insurance.The motion for preliminary approval of the settlement remains pending.

Mariotti , and Fletcher v.

Mariotti et al.

and the actions were stayed pending finalization of the settlement.

As part of the settlement, the plaintiffs in all three cases agreed to dismiss their claims on behalf of the corporation in exchange for a set of corporate governance reforms and attorney’s fees and expenses.

The attorney’s fees and expenses were paid out of Funko’s directors and officers’ insurance.

On November 18, 2024, the Court entered a Final order and Judgment approving the settlement in all respects.

Accordingly, all three of the cases were dismissed, with prejudice, between November 18 and December 20, 2024, and the Court granted a Stipulation of Voluntary Dismissal with Prejudice releasing all claims against Funko.

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

Mariotti, et al.

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

The Company moved to dismiss the Silverberg complaint on April 3, 2023.

Plaintiff responded on May 3, 2023, and briefing was completed on May 25, 2023.

The motion remains pending before the Court of Chancery.

, in the Court of Chancery of the State of Delaware, seeking declaratory and monetary relief.

The claims asserted in Silverberg v.

Mariotti, et al.

litigation were released as a result of the settlement described above.

Accordingly, the Silverberg v.

Mariotti, et al.

litigation was dismissed with prejudice on December 2, 2024.

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, the underwriters of its IPO, and certain other defendants.

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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.

Plaintiffs filed a motion for class certification on July 7, 2023, and briefing was completed on the class certification motion on October 25, 2023.

On November 6, 2023, the Washington Superior Court granted Plaintiffs’ motion for class certification.

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

Funko, Inc., et al.

was filed in the United States District Court for the Western District of Washington against the Company, certain of its officers and directors, and certain other defendants.

On January 4, 2019, a lead plaintiff was appointed in that case.

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

The Company moved to dismiss the Complaint in the federal action, now captioned Berkelhammer v.

, on June 14, 2023.

Plaintiff filed an opposition on July 27, 2023, cross moving for an order voluntarily dismissing the action without prejudice so that he can pursue status as a class representative in In re Funko, Inc.

Securities Litigation , or in the alternative, a court order denying defendants’ motion to dismiss.

Briefing completed on August 18, 2023.

On October 13, 2023, the District Court granted plaintiff’s motion for voluntary dismissal without prejudice, denied defendants’ motion to dismiss, and dismissed the action.

The cases in Washington state court and Berkelhammer v.

allege that the Company violated Sections 11, 12, and 15 of the Securities Act of 1933, as amended, by making allegedly materially misleading statements in documents filed with the U.S.

Securities and Exchange Commission in connection with the Company’s IPO and by omitting material facts necessary to make the statements made therein not misleading.

The Company filed its answer on September 19, 2022 and the Court certified the case as a class action on November 6, 2023.

The consolidated complaint alleges that the Company violated Sections 11, 12, and 15 of the Securities Act of 1933, as amended (“Securities Act”), as amended, by making allegedly materially misleading statements in documents filed with the SEC in connection with the Company’s IPO and by omitting material facts necessary to make the statements made therein not misleading.

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 October 21, 2024, the parties agreed to a settlement in principle, and on October 29, 2024 notified the Court of a proposed class settlement.

The Company has accrued a liability, and offsetting receivable, of $ 14.75 million on its consolidated balance sheets as of December 31, 2024.

The Court preliminarily approved the settlement on February 12, 2025 and the settlement was paid on February 25, 2025, directly by the Company’s applicable insurance policies.

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.

, 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.

, 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, seeking declaratory, monetary, and injunctive relief.

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.

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 August 12, 2022.

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

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We filed our answer on January 26, 2024, and discovery is currently ongoing.

On March 13, 2024, the representative plaintiff moved to withdraw as a plaintiff in the action, and another purported stockholder moved to intervene as representative plaintiff.

On October 28, 2024, the Court granted the plaintiff’s motion to withdraw and granted the new representative plaintiff’s motion to intervene.

The Company filed its Answer to the Verified Class Action Complaint in Intervention on December 10, 2024, and discovery is currently ongoing.

On June 2, 2023, a purported stockholder filed a putative class action lawsuit in the United States District Court for the Western District of Washington, captioned Studen v.

The Complaint alleges that the Company and certain individual defendants violated Sections 10(b) and 20(a) of the Exchange Act, as amended, as well as Rule 10b-5 promulgated thereunder by making allegedly materially misleading statements in documents filed with the SEC, as well as in earnings calls and presentations to investors, regarding a planned upgrade to its enterprise resource planning system and the relocation of a distribution center, as well as by omitting material facts about the same subjects necessary to make the statements made therein not misleading.

Funko, Inc., et al.

The Complaint alleges that the Company and certain individual defendants violated Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), as well as Rule 10b-5 promulgated thereunder by making allegedly materially misleading statements in documents filed with the SEC, as well as in earnings calls and presentations to investors, regarding a planned upgrade to its enterprise resource planning system and the relocation of a distribution center, as well as by omitting material facts about the same subjects necessary to make the statements made therein not misleading.

The lawsuits seek, among other things, compensatory damages and attorneys’ fees and costs.

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Plaintiff seeks to represent a putative class of investors who purchased or acquired Funko common stock between March 3, 2022 and March 1, 2023.

The Company moved to dismiss on December 15, 2023, and the motion will be fully briefed by March 22, 2024.

On May 16, 2024, the Court granted the Company’s motion to dismiss with leave for Plaintiffs to file a second amended complaint.

On July 1, 2024, Plaintiffs notified the Court of their decision to not amend their complaint, and the Court dismissed the complaint with prejudice on July 8, 2024.

Plaintiffs filed a Notice of Appeal to the United States Court of Appeals for the Ninth Circuit on August 6, 2024, under the amended caption Construction Laborers Pension Trust of Greater St.

Funko, Inc., et al .

Plaintiffs’ opening brief was filed on October 21, 2024, and briefing was completed on February 10, 2025.

Oral argument is expected to be held in or around May or June 2025.

On April 12, 2024, a former employee of the Company filed a putative class action in San Diego Superior Court, seeking to represent all non-exempt workers of the Company in the State of California.

The complaint alleges various wage and hour violations under the California Labor Code and related statutes.

Plaintiff has also served a Private Attorneys General Act notice for the same alleged wage and hour violations.

The claims predominantly relate to alleged unpaid wages (overtime) and missed meal and rest breaks.

The lawsuit seeks, among other things, compensatory damages, statutory penalties, attorneys’ fees and costs.

There have been no substantive rulings in the case, including as to propriety of proceeding on a class wide basis, and a date for trial has not yet been set.

The parties have agreed to a mediation session related to this case that is expected to occur in May 2025.

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

While the outcome of these additional matters could differ from management’s expectations, the Company does not believe that the resolution of such matters is reasonably likely to have a material effect on its results of operations or financial condition.

The Company identifies its segments according to how the business activities are managed and evaluated and for which discrete financial information is available and for which is regularly reviewed by its Chief Operating Decision Maker (“CODM”) to allocate resources and assess performance.

Due to a change in executive management during the year ended December 31, 2023, we have redefined our named CODM from our prior Chief Executive Officer to our current Chief Financial Officer and Chief Operating Officer.

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

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

The Company identifies its segments according to how the business activities are managed and evaluated and for which discrete financial information is available and regularly reviewed by its Chief Operating Decision Maker (“CODM”) to allocate resources and assess performance.

The Company’s current CODM is our Chief Executive Officer, Cynthia Williams.

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

The segment derives revenue from customers by providing a wide variety of branded categories, including Core Collectible (predominately figures), Loungefly (predominately softlines including bags, wallets, backpacks and accessories) and Other (predominately Mondo, Digital and other emerging brands).

All product lines, designs, licenses, and marketing/sales strategies are centrally managed as a single operating entity rather than at a geographic or subsidiary level.

The accounting policies of the segment are the same as those described in the summary of significant accounting policies above.

The CODM assesses performance for the segment and decides how to allocate resources (including employees, property, financial, and capital resources) based on consolidated net loss that also is reported on the Company's consolidated statements of operations.

The CODM uses consolidated net loss to monitor budget-to-actual results on a monthly basis.

During the monthly finance review, consolidated net income (loss) along with other finance metrics are presented to the CODM to understand how branded categories are tracking to budget, specific to net sales.

The following table sets forth segment information for revenue, segment net loss and significant expenses:

Year Ended December 31,

2024 2023 2022

Core Collectibles 73.3 % 75.5 % 79.8 %

Loungefly Branded Products 19.6 % 19.1 % 14.7 %

(in thousands, except per share data)

Net sales $ 1,049,850 $ 1,096,086 $ 1,322,706

Product, freight, duties and shipping costs 439,124 502,327 646,011

License and royalty costs 168,883 179,714 213,128

Inventory reserves and other costs 7,311 81,044 29,546

Salaries, benefits, incentive and stock compensation 145,593 157,940 158,596

Warehouse labor and third-party logistics fees 52,244 62,416 62,060

Advertising and marketing 51,567 31,256 26,666

Other selling, general and administrative fees 109,554 125,453 150,950

Depreciation and amortization 62,583 59,763 47,669

Other expense (income) 23,497 ( 71,886 ) 11,121

Income tax expense (benefit) 4,564 132,497 ( 17,801 )

Net loss $ ( 15,070 ) $ ( 164,438 ) $ ( 5,240 )

The following table presents summarized product information:

Year ended December 31,

2024 2023 2022

The following tables present summarized geographical information (in thousands):

Core Collectible $ 804,407 $ 803,181 $ 998,443

Loungefly 171,833 214,523 252,977

73,610 78,382 71,286

Total net sales

$ 1,049,850 $ 1,096,086 $ 1,322,706

The following tables present summarized geographical information, shipped to (net sales) and used in (long-term assets) (in thousands):

Year ended December 31,

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$ 88,705 $ 110,308

Vietnam and China 31,411 28,811

United Kingdom

18,867 21,056

Europe 15,055 18,867

Other International 31,236 31,411

Total long-lived assets

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At December 31, 2024 and 2023, accounts receivable from Forbidden Planet were $ 0.4 million and $ 0.5 million on the consolidated balance sheets, respectively.

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 was an employee of the Company.

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

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

The relationship was no longer a related party during the year ended December 31, 2023.

Employee Benefit Plans

33 unchanged sentences

2019 Incentive Award Plan (the "2019 Plan").

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.

The Company reserved for issuance an aggregate number of shares under the 2019 Plan equal to the sum of (i) 3,000,000 shares of 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 7,706,086 as of December 31, 2024.

The number of unissued common shares reserved for future grants under the 2017 Plan and 2019 Plan was 1,206,560 and 3,706,144 , respectively as of December 31, 2023.

2024 Inducement Award Plan.

Effective May 8, 2024, the Company adopted the Funko, Inc.

2024 Inducement Award Plan (the "2024 Plan").

The Company reserved for issuance 1,500,000 shares of Class A common stock under the 2024 Plan.

The number of unissued common shares reserved for future grants under the 2017 Plan, 2019 Plan and 2024 Plan was 1,672,523 , 1,709,768 , and 720,516 , respectively as of December 31, 2024.

A summary of stock option activity for the year ended December 31, 2024 is as follows:

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Stock options awarded to employees under the 2017 Plan and 2019 Plan are generally granted with an exercise price equal to the closing market price of the Company’s common stock at the date of grant, vest over four years , and have ten year contractual terms.

A summary of performance stock option activity for the year ended December 31, 2024 is as follows:

Performance Stock Options Weighted

Exercise Price Aggregate

Value Remaining

(in thousands) (years)

Outstanding at December 31, 2023 — $ — $ — 0.00

Granted 298 8.39 —

Outstanding at December 31, 2024 298 8.39 1,490 9.38

Options exercisable at December 31, 2024 — $ — $ — 0.00

Performance stock options awarded to employees under the 2024 Plan are granted with an exercise price equal to the closing market price of the Company’s common stock at the date of grant.

The awards will be eligible to vest based on the achievement of a stock price hurdle equal to three times the Exercise Price (the “Vesting Price”), measured based on the average of the Company’s closing share price over a 90 trading day trailing average, prior to the fourth anniversary of May 20, 2024 and subject to Employee’s continued employment with the Company;

provided, that, notwithstanding the foregoing, such Stock Option Grant shall not be eligible to vest until at least the second anniversary of the date of grant regardless of whether such stock price hurdle has been achieved.

The awards have ten year contractual terms.

A summary of restricted stock unit activity for the year ended December 31, 2024 is as follows:

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Unvested at December 31, 2023 113 $ 12.10 1.75

Granted 114 9.77

Vested ( 3 ) 17.09

1 unchanged sentence

Unvested at December 31, 2024 42 $ 12.89 1.00

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.

The number of units subject to future vesting is based on annual Company achieved factors, such as Net Sales and Adjusted EBITDA Margin and achievement is at the direction of the Compensation Committee of the board of directors.

Unvested units are expected to vest at the determination date of December 31, 2024 or December 31, 2025, depending on the grant.

Achievement is estimated at a weighted average 59.3 % of the units granted as of December 31, 2024.

Options to purchase common units in FAH, LLC.

In connection with the IPO, existing options to purchase Class A units in FAH, LLC were converted into 555,867 options to purchase common units in FAH, LLC.

A summary of FAH, LLC stock option activity for the year ended December 31, 2023 is as follows:

FAH, LLC Stock

Options Weighted

Exercise Price Aggregate

Value Remaining

(in thousands) (in thousands) (years)

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

Exercised ( 146 ) 0.05 1,078

Outstanding at December 31, 2023 — — — 0.00

Options exercisable at December 31, 2023 — $ — $ — 0.00

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

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

Net loss 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 53.0 million, 50.5 million and 47.2 million of FAH, LLC common units, respectively, representing a 97.2 %, 94.9 % and 91.6 % economic ownership interest in FAH, LLC, respectively.

Net (loss) income and comprehensive (loss) income of FAH, LLC excludes certain activity attributable to Funko, Inc., including $ 10.5 million, $ 16.6 million and $ 13.0 million of equity-based compensation expense for share-based compensation awards issued by Funko, Inc.

for the years ended December 31, 2023, 2022 and 2021, respectively, and $ 128.7 million of income tax expense, $ 20.5 million income tax benefit and $ 14.3 million of income tax expense for corporate, federal, state and local taxes attributable to Funko, Inc.

Net loss and comprehensive (loss) income of FAH, LLC excludes certain activity attributable to Funko, Inc., including $ 13.6 million, $ 10.5 million and $ 16.6 million of equity-based compensation expense for share-based compensation awards issued by Funko, Inc.

for the years ended December 31, 2024, 2023 and 2022, respectively, and $ 0.1 million of income tax expense, $ 128.7 million income tax expense and $ 20.5 million of income tax benefit for corporate, federal, state and local taxes attributable to Funko, Inc.

for the years ended December 31, 2024, 2023 and 2022, respectively.

Earnings per Share

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.

(Loss) Earnings per Share

Basic and Diluted Loss per Share

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

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

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

Diluted loss per share of Class A common stock is computed by dividing net loss 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 (loss) 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 per share of Class A common stock:

Year Ended December 31, 2024 Year Ended December 31, 2023 Year Ended December 31, 2022

(in thousands, except per share data)

Net (loss) income $ ( 164,438 ) $ ( 5,240 ) $ 67,854

Net loss $ ( 15,070 ) $ ( 164,438 ) $ ( 5,240 )

net loss income attributable to non-controlling interests

( 352 ) ( 10,359 ) 2,795

Net (loss) income attributable to Funko, Inc.

Net loss attributable to Funko, Inc.

$ ( 14,718 ) $ ( 154,079 ) $ ( 8,035 )

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 (loss) income attributable to Funko, Inc.

Net loss attributable to Funko, Inc.

— diluted $ ( 14,718 ) $ ( 154,079 ) $ ( 8,035 )

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— basic 52,043,490 48,332,401 44,554,788

Dilutive common units of FAH, LLC that are convertible into

Class A common stock

Dilutive Funko, Inc.

equity compensation awards

— — 1,990,728

Weighted-average shares of Class A common stock outstanding

— diluted 52,043,490 48,332,401 44,554,788

(Loss) earnings per share of Class A common stock — basic $ ( 3.19 ) $ ( 0.18 ) $ 1.14

(Loss) earnings per share of Class A common stock — diluted $ ( 3.19 ) $ ( 0.18 ) $ 1.08

Loss per share of Class A common stock — basic $ ( 0.28 ) $ ( 3.19 ) $ ( 0.18 )

Loss per share of Class A common stock — diluted $ ( 0.28 ) $ ( 3.19 ) $ ( 0.18 )

For the years ended December 31, 2024, 2023 and 2022 an aggregate of 6.3 million, 9.9 million and 11.6 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, 2023, 2022 and 2021 anti-dilutive securities included 4.0 million, 7.0 million and 13.2 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.

For the years ended December 31, 2024, 2023 and 2022 anti-dilutive securities included 2.0 million, 4.0 million and 7.0 million of common units of FAH, LLC that are convertible into Class A common stock, but were excluded from the computations of diluted loss 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 (loss) 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 per share of Class B common stock under the two-class method has not been presented.

Condensed Financial Information of Registrant

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Loss from operations ( 13,655 ) ( 10,586 ) ( 16,377 )

Interest (expense) income, net ( 321 ) ( 168 ) 3

Interest expense, net ( 387 ) ( 321 ) ( 168 )

Tax receivable agreement liability adjustment ( 547 ) 100,223 ( 3,987 )

Equity in net (loss) income of subsidiaries ( 114,697 ) ( 8,040 ) 72,916

(Loss) income before income taxes ( 25,381 ) ( 28,572 ) 58,248

Income tax expense (benefit) 128,698 ( 20,537 ) 14,348

Net (loss) income $ ( 154,079 ) $ ( 8,035 ) $ 43,900

Equity in net income (loss) of subsidiaries ( 186 ) ( 114,697 ) ( 8,040 )

Loss before income taxes ( 14,775 ) ( 25,381 ) ( 28,572 )

Income tax (benefit) expense ( 57 ) 128,698 ( 20,537 )

Net loss $ ( 14,718 ) $ ( 154,079 ) $ ( 8,035 )

See accompanying notes to condensed financial information.

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(in thousands)

Net (loss) income $ ( 154,079 ) $ ( 8,035 ) $ 43,900

Net loss $ ( 14,718 ) $ ( 154,079 ) $ ( 8,035 )

Other comprehensive (loss) income:

1 unchanged sentence

( 1,496 ) 2,423 ( 3,681 )

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

Comprehensive (loss) income attributable to

Comprehensive loss attributable to

$ ( 16,214 ) $ ( 151,656 ) $ ( 11,716 )

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Intercompany receivable 113,009 118,783

Deferred tax asset, net of valuation allowance — 123,893

Investment in subsidiaries 119,097 118,443

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Total current liabilities 547 9,330

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

Commitments and contingencies

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Additional paid-in-capital 343,472 326,180

Accumulated other comprehensive (loss) income ( 180 ) ( 2,603 )

(Accumulated deficit) retained earnings ( 94,064 ) 60,015

Accumulated other comprehensive loss ( 1,676 ) ( 180 )

Accumulated deficit ( 108,782 ) ( 94,064 )

Total stockholders' equity 233,019 231,941

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Operating Activities

Net (loss) income $ ( 154,079 ) $ ( 8,035 ) $ 43,900

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

Net loss $ ( 14,718 ) $ ( 154,079 ) $ ( 8,035 )

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

operating activities:

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Tax receivable liability adjustment 547 ( 100,223 ) 3,987

Changes in operating assets and liabilities:

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

Income tax receivable 110 7,219 ( 7,530 )

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Proceeds from exercise of equity-based options 1,410 749 1,472

Net cash provided by financing activities 745 32,565 26,252

Net cash (used in) provided by financing activities ( 7,550 ) 745 32,565

Net change in cash and cash equivalents ( 2,476 ) 2,823 ( 61,032 )

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The amounts available to the Parent Company to fulfill cash commitments are subject to certain restrictions in FAH, LLC’s Credit Facilities.

See Note 10 to the Funko, Inc.

See Note 10, "Debt" to the Funko, Inc.

Consolidated Financial Statements, appearing elsewhere in this Form 10-K.

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These condensed Parent Company financial statements should be read in conjunction with the consolidated financial statements of Funko, Inc.

and its subsidiaries and the accompanying notes thereto, included in this Form 10-K.

and the accompanying notes thereto, included in this Form 10-K.

For purposes of this condensed financial information, the Parent Company's interest in FAH, LLC is recorded based upon its proportionate share of FAH, LLC's net assets (similar to presenting them on the equity method).

The net assets of the consolidated subsidiaries exceed 25 percent of consolidated net assets, therefore requiring Schedule I.

The Parent Company is the sole managing member of FAH, LLC, and pursuant to the Amended and Restated LLC Agreement of FAH, LLC (the “LLC Agreement”), receives compensation in the form of reimbursements for all costs associated with being a public company.

1 unchanged sentence

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

For the years ended December 31, 2023, 2022, and 2021, 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.

For the years ended December 31, 2024, 2023, and 2022, the full amounts of intercompany revenue and equity in net income (loss) 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 $ 113.0 million and $ 118.8 million as of December 31, 2024 and 2023, respectively.

4 unchanged sentences

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.

See Note 13, "Liabilities under Tax Receivable Agreement," to the Funko, Inc.

consolidated financial statements, appearing elsewhere in this Form 10-K, for more information regarding the Parent Company's tax receivable agreement.

As described in Note 13 to the Funko, Inc.

As described in Note 13, "Liabilities under Tax Receivable Agreement," to the Funko, Inc.

consolidated financial statements, appearing elsewhere in the Form 10-K, amounts payable under the tax receivable agreement are contingent upon, among other things, (i) generation of future taxable income of Funko, Inc.

1 unchanged sentence

As of December 31, 2024 and 2023, liabilities under the tax receivable agreement totaled $ 0.5 million and $ 9.0 million, respectively.

See Note 14 to the Funko, Inc.

See Note 14, "Commitments and Contingencies," to the Funko, Inc.

consolidated financial statements, appearing elsewhere in this Form 10-K, for information regarding pending and threatened litigation.

1 unchanged sentence

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not Applicable.

The information required by this Item 9 was previously reported in the Company's Current Report on Form 8-K that was filed with the Securities and Exchange Commission on April 12, 2024, as amended on May 9, 2024.

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