What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-03-12 compared with 2025-03-13 · 119 added, 143 removed, 328 unchanged (44% of the section changed)

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We create whimsical, fun and unique products that enable fans to express their affinity for their favorite “something”—whether it is a movie, TV show, video game, musician or sports team.

We infuse our distinct designs and aesthetic sensibility into one of the industry’s largest portfolios of licensed content over a wide variety of product categories, including figures, plush, accessories, apparel, homewares, digital NFTs, vinyl records and limited-edition posters.

We sell our products in numerous countries across North America, Europe, Latin America, Asia and Africa, with approximately 40% of our net sales generated outside of the United States.

We also source, procure and assemble inventory, primarily out of Vietnam, China and Mexico.

We also source, procure and assemble inventory, primarily out of Vietnam, China, Cambodia and Mexico.

As such, we are exposed to and impacted by global macroeconomic factors.

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trade and tariff policies, rising interest rates and heightened inflation that could reduce our net sales or have impacts to our gross margin (as defined below), net income and cash flows.

In addition, we have been and continue to be operating in a challenging retail environment where retailers have slowed their restocking, prioritized lower inventory levels and, in some cases, have canceled their orders.

Certain tariffs enacted in 2025 have been subject to successful legal challenge, but it remains unclear whether and to whom those tariffs may be refunded, and the federal government may attempt to impose new or similar tariffs under alternative statutory mechanisms.

This has led and may lead to further continued uncertainty and volatility in U.S.

and global financial and economic conditions and commodity markets, declining consumer confidence, significant inflation and diminished expectations for the economy, and ultimately reduced demand for our products.

Moreover, tariffs on imports have adversely impacted and may in the future adversely impact our costs and we have raised prices for certain of our products.

This has had an impact across our brands and geographies of reducing our net sales, gross margin and net income.

Additionally, tariffs could impact consumer discretionary spending in future periods.

We have strategically adjusted our inventory buy-in to focus on non-exclusive core products in order to help mitigate this impact.

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GAAP financial measure, see “Non-GAAP Financial Measures” in this item .

(2) Following correspondence with the Securities and Exchange Commission (the “SEC”), we no longer adjust our non-GAAP financial measures for one-time disposal costs for finished goods held at offshore factories, one-time disposal costs for unfinished goods held at offshore factories, and inventory write-down.

This change in presentation lowers adjusted EBITDA by $39.0 million for the year ended December 31, 2023.

This change did not impact periods prior to fiscal year 2023.

Factors Affecting our Business

Growth in the Market for Pop Culture Consumer Products

Our operating results and prospects will be impacted by developments in the market for pop culture consumer products.

Our operating results and prospects are impacted by developments in the market for pop culture consumer products.

Our business has benefited from pop culture trends including (1) technological innovation that has facilitated content consumption and engagement, (2) creation of more quality content, (3) greater cultural prevalence and acceptance of pop culture fandom and (4) increased engagement by fans with pop culture content beyond mere consumption driven by social media and demonstrated by fan-centric experiences, such as Comic-Con events around the world.

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To the extent we are unable to offer products that appeal to consumers, our operating results will be adversely affected.

This is particularly true given the concentration of our sales of products under certain of our brands, particularly our Core Collectible branded products, which represented approximately 77% and 73% of our sales for the years ended December 31, 2024 and 2023, respectively, and which are sold across multiple product categories.

Relationships with Content Providers

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Historically, substantially all of our sales have been derived from our retail customers and distributors, upon which we rely to reach the consumers who are the ultimate purchasers of our products.

Our top ten wholesale customers represented approximately 31% and 32% of our sales for the years ended December 31, 2024 and 2023, respectively.

Our top ten wholesale customers represented approximately 31% of our sales for both the years ended December 31, 2025 and 2024, respectively.

During the years ended December 31, 2025 and 2024, we saw shifts in our client mix as a direct result of our growing direct-to-consumer business and enhanced online presence of our top customers.

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We may from time to time, liquidate and/or dispose of inventory to increase warehouse operating efficiency.

During the year ended December 31, 2023, the Company approved an inventory reduction plan to improve U.S.

warehouse operational efficiency.

The Company recorded a $30.3 million inventory write-down included in cost of sales as presented in the consolidated statements of operations for the year ended December 31, 2023.

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.

Taxation and Expenses

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We have caused and intend to continue to cause FAH, LLC to make distributions in an amount sufficient to allow us to pay our tax obligations and operating expenses, including distributions to fund any ordinary course payments due under the Tax Receivable Agreement.

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 was not more likely than not that the results of operations will generate sufficient taxable income to realize its deferred tax assets.

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.

Based on the Company's assessment as of December 31, 2025 and 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.

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.

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.

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.

Components of our Results of Operations

We sell a broad array of licensed pop culture consumer products across a variety of categories, including figures, plush, accessories, apparel, homewares, NFTs, vinyl records and limited-edition posters, primarily to retail customers and distributors.

We sell a broad array of licensed pop culture consumer products across a variety of categories, including figures, plush, accessories, apparel, homewares, vinyl records and limited-edition posters, primarily to retail customers and distributors.

We also sell our products directly to consumers through our e-commerce operations, our retail stores and, to a lesser extent, at specialty licensing and comic book conventions and exhibitions.

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We evaluate the need for price increases along with other incentive arrangements and cost of product to help manage gross margins.

In 2023, we instituted price increases for our products, and we may institute additional increases in 2025.

In 2025, we instituted price increases for certain of our products.

Sales terms typically do not allow for a right of return except in relation to a manufacturing defect and certain products purchased through our website.

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Cost of Sales

Cost of sales consists primarily of product costs, royalty expenses paid to our licensors, the cost to ship our products, including both inbound freight and duties and outbound products to our customers and inventory management.

Cost of sales consists primarily of product costs, royalty expenses paid to our licensors, the cost to ship our products, including both inbound freight, duties and tariffs and outbound products to our customers and inventory management.

Our cost of sales excludes depreciation and amortization.

Our products are produced and assembled by third-party manufacturers primarily in Vietnam, China and Mexico.

Our products are produced and assembled by third-party manufacturers primarily in Vietnam, China, Cambodia and Mexico.

The use of third-party manufacturers enables us to avoid incurring fixed product costs, while maximizing flexibility, capacity and capability.

As part of a continuing effort to reduce manufacturing costs and ensure speed to market, we have historically kept our production concentrated with a small number of manufacturers and factories even as we have grown and diversified.

Our use of international manufacturers, particularly in China and Mexico, may increase the likelihood that our costs are adversely impacted by new tariffs.

Our use of international manufacturers, may increase the likelihood that our costs are adversely impacted by additional tariffs.

Our product costs and gross margins will be impacted from period to period based on the product mix in any given period.

Our Loungefly branded products tend to have a higher product cost and higher duties as a percentage of sales and therefore lower gross margins than our Core Collectible branded products.

Our royalty costs and gross margins will also be impacted from period to period based on our mix of licensed products sold, as well as a variety of other factors including reserves for minimum guarantees and ongoing and future royalty audits.

Our shipping costs, both inbound and outbound, will fluctuate from period to period based on customer mix due to varying shipping terms and other factors.

We contract a portion of our freight needs and the remainder is acquired through the spot market, where there may be varying costs and transit times.

We anticipate inflationary pressures throughout our supply chain in future periods, specific to freight and duties costs and, to a lesser extent, product costs.

We anticipate inflationary pressures throughout our supply chain in future periods, specific to freight, duty and tariff costs and, to a lesser extent, product costs.

Selling, General and Administrative Expenses

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Interest Expense, Net

Interest expense, net includes the cost of our short-term borrowings and long-term debt, including the amortization of debt issuance costs and original issue discounts, net of any interest income earned.

Interest expense, net includes the cost of our revolving facility borrowings and term debt, including the amortization of debt issuance costs and original issue discounts, net of any interest income earned.

Results of Operations

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Total operating expenses 953,752 1,036,859 (83,107) (8.0) %

Loss from operations 12,991 (103,827) 116,818 nm

(Loss) income from operations (45,543) 12,991 (58,534) (450.6) %

Interest expense, net 19,181 20,575 (1,394) (6.8) %

Loss on extinguishment of debt — 494 (494) nm

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

Other expense (income), net 2,922 (127) 3,049 nm

Other (income) expense, net (785) 2,922 (3,707) (126.9) %

Loss before income taxes (63,939) (10,506) (53,433) 508.6 %

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$ (67,360) $ (14,718) $ (52,642) 357.7 %

Net sales were $1.0 billion for the year ended December 31, 2024, a decrease of 4.2% compared to $1.1 billion for the year ended December 31, 2023.

The decrease in net sales was primarily due to decreased sales to our specialty retailers and e-commerce site customers, primarily as a result of the available content slate and performance of certain exclusive products.

Our top ten wholesale customers represented approximately 31% and 32% of our sales for the years ended December 31, 2024 and 2023, respectively.

On a geographical basis, net sales in the United States decreased 9.7% to $682.0 million in the year ended December 31, 2024 as compared to $755.6 million in the year ended December 31, 2023, net sales in Europe increased 5.7% to $283.8 million in the year ended December 31, 2024 from $268.5 million in the year ended December 31, 2023 and net sales in other international locations increased 16.8% to $84.1 million in the year ended December 31, 2024 from $72.0 million in the year ended December 31, 2023.

On a product category basis, net sales of Core Collectible branded products increased 0.2% to $804.4 million in the year ended December 31, 2024 as compared to $803.2 million in the year ended December 31, 2023.

Net sales were $908.2 million for the year ended December 31, 2025, a decrease of 13.5% compared to $1.0 billion for the year ended December 31, 2024.

The decrease in net sales was across all distribution channels as a result of adverse impacts to demand from tariff disruption and general macroeconomic uncertainty.

Our top ten wholesale customers represented approximately 31% of our sales for both the years ended December 31, 2025 and 2024.

On a geographical basis, net sales in the United States decreased 19.9% to $546.3 million in the year ended December 31, 2025 as compared to $682.0 million in the year ended December 31, 2024, net sales in Europe increased 1.6% to $288.3 million in the year ended December 31, 2025 from $283.8 million in the year ended December 31, 2024 and net sales in other international locations decreased 12.5% to $73.5 million in the year ended December 31, 2025 from $84.1 million in the year ended December 31, 2024.

On a product category basis, net sales of Core Collectible branded products decreased 10.1% to $723.3 million in the year ended December 31, 2025 as compared to $804.4 million in the year ended December 31, 2024.

Net sales of Loungefly branded products decreased 9.8% to $155.0 million in the year ended December 31, 2025 as compared to $171.8 million in the year ended December 31, 2024.

Net sales of other products decreased 6.1% to $73.6 million in the year ended December 31, 2024 as compared to $78.4 million in the year ended December 31, 2023.

Net sales of other products decreased 59.4% to $29.9 million in the year ended December 31, 2025 as compared to $73.6 million in the year ended December 31, 2024, primarily related to the reduction of product offerings, including certain toys, games and NFTs.

Cost of Sales and Gross Margin (exclusive of depreciation and amortization)

Cost of sales (exclusive of depreciation and amortization) was $556.9 million for the year ended December 31, 2025, a decrease of 9.5%, compared to $615.3 million for the year ended December 31, 2024.

Cost of sales (exclusive of depreciation and amortization) decreased primarily as a result of certain costs incurred during the year ended December 31, 2023, that were not recurring during the year ended December 31, 2024.

Other costs decreased $73.7 million or 91.0%, primarily related to domestic inventory and one-time offshore finished and unfinished goods write-offs and increased inventory reserves for the year ended December 31, 2023.

Product costs decreased $32.9 million or 8.8%, shipping and freight costs decreased $30.3 million or 23.3% and license and royalty costs decreased $10.8 million or 6.0%.

Cost of sales (exclusive of depreciation and amortization) decreased primarily as a result of decreased net sales, as discussed above, offset by increased duty and tariff costs during the year ended December 31, 2025.

Product costs decreased $71.6 million or 21.1% and license and royalty costs decreased $10.4 million or 6.2%.

Shipping, freight, duty and tariff costs increased $9.5 million or 9.5%, primarily as a result of recent implemented tariffs and increased duties and other costs increased $14.6 million or 203.8%, primarily related to increased inventory reserves as a result of comparable year ended December 31, 2024 product mix sell-through and related inventory reserve benefit.

Gross margin (exclusive of depreciation and amortization), calculated as net sales less cost of sales as a percentage of sales, was 38.7% for the year ended December 31, 2025, compared to 41.4% for the year ended December 31, 2024.

Gross margin (exclusive of depreciation and amortization) increased for the year ended December 31, 2024 compared to the year ended December 31, 2023, due to the factors noted above.

Gross margin (exclusive of depreciation and amortization) decreased for the year ended December 31, 2025 compared to the year ended December 31, 2024, due to the factors noted above.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses were $337.7 million for the year ended December 31, 2025, a decrease of 5.9%, compared to $359.0 million for the year ended December 31, 2024.

The decrease was driven primarily by a $19.5 million decrease in personnel expenses, commissions and stock option expense, a $12.3 million decrease in professional fees, primarily related to non-recurring severance payments, termination of a lease agreement and related expenses and impairment of assets held-for-sale during the year ended December 31, 2023, offset by an increase in advertising and marketing fees of $20.3 million in 2024, primarily in support of our direct-to-consumer channel.

The decrease was driven primarily by a $10.6 million decrease in personnel expenses, commissions and stock option expense, a $5.2 million decrease in facilities and rent, related to decreased usage of third-party logistics sites, a $4.5 million decrease in administrative fees, and a $3.1 million decrease in professional fees, offset by an increase in software expenses of $4.4 million, primarily to support our direct-to-consumer growth initiatives.

Selling, general, and administrative expenses were 37.2% of sales for the year ended December 31, 2025, compared to 34.2% of sales for the year ended December 31, 2024, due to the factors noted above.

Depreciation and Amortization

Depreciation and amortization expense was $62.6 million for the year ended December 31, 2024, compared to $59.8 million for the year ended December 31, 2023, primarily driven by the type and timing of assets placed into service.

Depreciation and amortization expense was $59.1 million for the year ended December 31, 2025, a decrease of 5.6%, compared to $62.6 million for the year ended December 31, 2024, primarily driven by the type and timing of assets placed into service.

Interest Expense, Net

Interest expense, net was $19.2 million for the year ended December 31, 2025, a decrease of 6.8%, compared to $20.6 million for the year ended December 31, 2024.

The decrease in interest expense, net was due to lower average balances of debt outstanding during the year ended December 31, 2024.

Loss on Debt Extinguishment

As a result of the amendment to our Credit Agreement entered into in February 2023, a $0.5 million loss on debt extinguishment was recorded for the year ended December 31, 2023 as unamortized debt financing fees were written-off.

Gain on Tax Receivable Agreement Liability Adjustment

As a result of recognizing a full valuation allowance related to the Company’s deferred tax assets, the Company determined as of June 30, 2023 that no future tax benefits were expected to be realized under the Tax Receivable Agreement.

The long-term portion of the tax receivable agreement liability was reduced and we recorded a gain of $100.2 million during the year ended December 31, 2023.

Other Expense (Income), Net

Other expense, net was $2.9 million and other income, net was $0.1 million for the years ended December 31, 2024 and 2023, respectively.

Other expense (income), net for the years ended December 31, 2024 and 2023 was primarily related to foreign currency gains and losses relating to transactions denominated in currencies other than the U.S.

The decrease in interest expense, net was primarily due to lower average balances of debt outstanding during the year ended December 31, 2025.

Other (Income) Expense, Net

Other income, net was $0.8 million and other expense, net was $2.9 million for the years ended December 31, 2025 and 2024, respectively.

Other (income) expense, net for the years ended December 31, 2025 and 2024 was primarily related to foreign currency gains and losses relating to transactions denominated in currencies other than the U.S.

Income Tax Expense

Income tax expense was $4.4 million for the year ended December 31, 2025, compared to $4.6 million for the year ended December 31, 2024.

The decrease in income tax expense was related to recognizing a full valuation allowance on the Company’s deferred tax assets during the year ended December 31, 2023.

The Company’s tax expense primarily reflects foreign income taxes in jurisdictions where the Company generates taxable income under its transfer pricing arrangements.

operations continue to be in a full valuation allowance position, resulting in no material U.S.

federal or state income tax expense.

Net loss was $68.3 million for the year ended December 31, 2025, compared to $15.1 million for the year ended December 31, 2024.

The decrease in net loss was primarily the result of lower net sales, offset by the nonrecurring events for the year ended December 31, 2023, as discussed above.

The increase in net loss was primarily due to the decrease in net sales outpacing the decrease in operating expenses as compared to the year ended December 31, 2024.

Non-GAAP Financial Measures

EBITDA, Adjusted EBITDA, Adjusted Net Income (Loss) and Adjusted Earnings (Loss) per Diluted Share (collectively the “Non-GAAP Financial Measures”) are supplemental measures of our performance that are not required by, or presented in accordance with, U.S.

EBITDA, Adjusted EBITDA, Adjusted Net (Loss) Income and Adjusted (Loss) Earnings per Diluted Share (collectively the “Non-GAAP Financial Measures”) are supplemental measures of our performance that are not required by, or presented in accordance with, U.S.

The Non-GAAP Financial Measures are not measurements of our financial performance under U.S.

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We define EBITDA as net loss before interest expense, net, income tax expense, depreciation and amortization.

We define Adjusted EBITDA as EBITDA further adjusted for non-cash charges related to equity-based compensation programs, loss on debt extinguishment, acquisition transaction costs and other expenses, certain severance, relocation and related costs, foreign currency transaction gains and losses, tax receivable agreement liability adjustments and other unusual or one-time items.

We define Adjusted Net Income (Loss) as net loss attributable to Funko, Inc.

We define Adjusted EBITDA as EBITDA further adjusted for non-cash charges related to equity-based compensation programs, acquisition transaction costs and other expenses, certain severance, relocation and related costs, foreign currency transaction gains and losses, tax receivable agreement liability adjustments and other unusual or one-time items.

We define Adjusted Net (Loss) Income as net loss attributable to Funko, Inc.

adjusted for the reallocation of loss attributable to non-controlling interests from the assumed exchange of all outstanding common units and options in FAH, LLC for newly issued-shares of Class A common stock of Funko, Inc.

and further adjusted for the impact of certain non-cash charges and other items that we do not consider in our evaluation of ongoing operating performance.

These items include, among other things, non-cash charges related to equity-based compensation programs, loss on debt extinguishment, acquisition transaction costs and other expenses, certain severance, relocation and related costs, foreign currency transaction gains and losses, tax receivable agreement liability adjustments and the income tax expense effect of these adjustments.

We define Adjusted Earnings (Loss) per Diluted Share as Adjusted Net Income (Loss) divided by the weighted-average shares of Class A common stock outstanding, assuming (1) the full exchange of all outstanding common units and options in FAH, LLC for newly issued-shares of Class A common stock of Funko, Inc.

These items include, among other things, non-cash charges related to equity-based compensation programs, acquisition transaction costs and other expenses, certain severance, relocation and related costs, foreign currency transaction gains and losses, tax receivable agreement liability adjustments and the income tax expense effect of these adjustments.

We define Adjusted (Loss) Earnings per Diluted Share as Adjusted Net (Loss) Income divided by the weighted-average shares of Class A common stock outstanding, assuming (1) the full exchange of all outstanding common units and options in FAH, LLC for newly issued-shares of Class A common stock of Funko, Inc.

and (2) the dilutive effect of stock options and unvested common units, if any.

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GAAP results and using these non-GAAP measures only supplementally.

As noted in the table below, the Non-GAAP Financial Measures include adjustments for non-cash charges related to equity-based compensation programs, loss on debt extinguishment, acquisition transaction costs and other expenses, certain severance, relocation and related costs, foreign currency transaction gains and losses, tax receivable agreement liability adjustments and other unusual or one-time items.

As noted in the table below, the Non-GAAP Financial Measures include adjustments for non-cash charges related to equity-based compensation programs, acquisition transaction costs and other expenses, certain severance, relocation and related costs, foreign currency transaction gains and losses, tax receivable agreement liability adjustments and other unusual or one-time items.

It is reasonable to expect that certain of these items will occur in future periods.

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Reallocation of net loss attributable to non-controlling interests from the assumed exchange of common units of FAH, LLC for Class A common stock (1)

(352) (10,359)

Equity-based compensation (2)

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Certain severance, relocation and related costs (4)

Loss on extinguishment of debt (5)

Foreign currency transaction loss (5)

Tax receivable agreement liability adjustments (6)

547 (100,223)

Income tax expense (8)

1,668 157,386

Adjusted net income (loss) (9)

$ 8,687 $ (74,666)

Income tax effect of adjustments and valuation allowance reversal (7)

Adjusted net (loss) income $ (38,773) $ 8,687

Weighted-average shares of Class A common stock outstanding-basic

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Loss per diluted share $ (1.24) $ (0.28)

Adjusted earnings (loss) per diluted share $ 0.16 $ (1.43)

Adjusted (loss) earnings per diluted share $ (0.70) $ 0.16

Year Ended December 31,

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Certain severance, relocation and related costs (4)

Loss on extinguishment of debt (5)

Foreign currency transaction loss (5)

Tax receivable agreement liability adjustments (6)

547 (100,223)

Adjusted EBITDA $ 26,580 $ 94,741

$ 94,741 $ (11,822)

(1) Represents the reallocation of net loss attributable to non-controlling interests from the assumed exchange of common units of FAH, LLC in periods in which income was attributable to non-controlling interests.

(2) Represents non-cash charges related to equity-based compensation programs, which vary from period to period depending on timing of awards.

(3) For the year ended December 31, 2025, includes charges related to fair market value adjustments for certain assets held for sale.

For the year ended December 31, 2024, includes a net one-time legal settlement gain of $1.4 million related to a previously disclosed Loungefly customs-related matter and costs of $4.8 million related to contract settlement agreements and related services for assets held for sale (including fair market value adjustments of $1.3 million) related to a potential business initiative and the sale of certain assets under Funko Games.

For the year ended December 31, 2023, includes a lease termination charge related to the abandonment of a potential business initiative of $5.0 million, expenses related to assets held for sale of $6.8 million (including fair market value adjustments of $6.5 million), related charges of termination of service contracts, architecture and design fees of $1.6 million related to the potential business initiative, and a purchase agreement termination charge of $1.0 million related to the abandonment of a potential business initiative, partially offset by acquisition-related benefits of $975,000 related to a working capital adjustment under the Mondo Collectibles, LLC acquisition.

(4) Represents certain severance, relocation and related costs.

(4) For the year ended December 31, 2024, includes severance and benefit costs related to certain management departures of $2.1 million.

For the year ended December 31, 2023, includes charges to remove leasehold improvements and return multiple Washington-based warehouses of $382,000, and charges related to severance and benefit costs for reductions-in-force of $5.2 million.

(5) Represents write-off of unamortized debt financing fees for the year ended December 31, 2023.

(5) Represents both unrealized and realized foreign currency losses (gains) on transactions other than in U.S.

(6) Represents recognized adjustments to the tax receivable agreement liability.

For the year ended December 31, 2023, reflects a reduction of the tax receivable agreement liability as a result of recognizing a full valuation allowance of the Company's deferred tax assets and anticipated inability to realize future tax benefits.

(8) Represents the income tax expense effect of the above adjustments.

This adjustment uses an effective tax rate of 25% for the years ended December 31, 2024 and 2023.

For the year ended December 31, 2023, this also includes $123.2 million recognized valuation allowance on the Company’s deferred tax assets.

(9) Following correspondence with the SEC, we no longer adjust our non-GAAP financial measures for one-time disposal costs for finished goods held at offshore factories, one-time disposal costs for unfinished goods held at offshore factories, and inventory write-down.

This change in presentation lowers adjusted net income (loss) by $29.3 million and adjusted EBITDA by $39.0 million for the year ended December 31, 2023.

(7) Represents the income tax expense (benefit) effect of the above adjustments including adding back the valuation allowance related to the net loss.

This adjustment uses an effective tax rate of 25% for all periods presented.

Liquidity and Financial Condition

Our primary requirements for liquidity and capital are working capital, inventory management, capital expenditures, debt service and general corporate needs.

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

Proceeds from the Credit Facilities were primarily used to repay the Company’s former $235.0 million term loan facility and its former $75.0 million revolving credit facility.

On July 29, 2022, the Revolving Credit Facility was increased to $215.0 million and on February 28, 2023 the Revolving Credit Facility was reduced to $180.0 million and again to $150.0 million on December 31, 2023.

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

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).

On November 25, 2022, the Company entered into a $20.0 million equipment finance agreement ("Equipment Finance Loan").

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

We are a holding company with no material assets, and we do not conduct any business operations of our own.

We have no independent means of generating revenue or cash flow, and our ability to pay dividends in the future, if any, is dependent upon the financial results and cash flows of FAH, LLC and its subsidiaries and distributions we receive from FAH, LLC.

Under the terms of the Credit Facilities, our subsidiaries are currently limited in their ability to pay cash dividends to the Company, subject to certain customary exceptions, including among others:

• the ability to pay, so long as there is no current or ongoing event of default, amounts required to be paid under the Tax Receivable Agreement, certain expenses associated with being a public company and reimbursement of expenses required by the FAH LLC Agreement or the Registration Rights Agreement;

• the ability to make other distributions of up to $25.0 million during any period of four consecutive fiscal quarters as long as after giving pro forma effect to such distribution (i) no event of default then exists or would result therefrom and (ii) the Net Leverage Ratio (as defined in the Credit Agreement) is not greater than a ratio that is 0.50:1.00 less than the Net Leverage Ratio set forth in the financial covenant for the applicable fiscal quarter.

We expect these limitations to continue in the future under the terms of our Credit Agreement and that they may continue under the terms of any future credit agreement or any future debt or preferred equity securities of ours or of our subsidiaries.

On July 15, 2022, we filed a preliminary shelf registration statement on Form S-3 with the SEC.

The Form S-3 was declared effective by the SEC on July 26, 2022 and will remain effective until through July 25, 2025.

The Form S-3 allows us to offer and sell from time-to-time up to $100.0 million of Class A common stock, preferred stock, debt securities, warrants, purchase contracts or units comprised of any combination of these securities for our own account and allows certain selling stockholders to offer and sell 17,318,008 shares of Class A common stock in one or more offerings.

The Form S-3 is intended to provide us flexibility to conduct registered sales of our securities, subject to market conditions and our future capital needs.

The terms of any future offering under the shelf registration statement will be established at the time of such offering and will be described in a prospectus supplement filed with the SEC prior to the completion of any such offering.

Our primary sources of cash flows have been cash flows from operating activities and borrowings under the Credit Agreement dated September 17, 2021 with FAH, LLC and certain of its material domestic subsidiaries from time to time (the “Credit Agreement Parties”) (as amended, restated and amended and restated, supplemented, waived or otherwise modified from time to time, the "Credit Agreement"), providing for a term loan facility in the amount of $180.0 million (the "Term Loan Facility") and a revolving credit facility of $125.0 million (the "Revolving Credit Facility" and together with the Term Loan Facility, the "Credit Facilities").

The challenging retail environment, in particular as a result of the tariffs imposed in 2025, and the potential imposition of modified or additional tariffs or export controls by other countries, has adversely impacted and is expected to adversely impact our performance.

On February 13, 2026, the Credit Agreement Parties entered into (the "Fifth Amendment") with the lenders under the Credit Agreement in effect prior to the First Amendment (the "Prior Credit Agreement"), which among other things, amended the Prior Credit Agreement to (i) extend the maturity date of the loans under the Prior Credit Agreement from September 17, 2026 to December 31, 2027, and (ii) amend the financial covenants applicable to FAH, LLC and its subsidiaries under the Prior Credit Agreement to, among other things, (a) waive the minimum Fixed Charge Coverage Ratio (as defined in the Credit Agreement) covenant for the fiscal quarter ended December 31, 2025 and the fiscal quarters ending March 31, 2026 and June 30, 2026, (b) provide FAH, LLC additional cushion with respect to the minimum Fixed Charge Coverage Ratio covenant for the fiscal quarters ending September 30, 2026, December 31, 2026 and March 31, 2027 relative to the minimum Fixed Charge Coverage Ratio covenant set forth in the Prior Credit Agreement, (c) introduce a minimum Consolidated EBITDA (as defined in the Credit Agreement) covenant for the six-month period ending June 30, 2026, (d) waive the maximum Net Leverage Ratio (as defined in the Credit Agreement) covenant for the fiscal quarter ended December 31, 2025 and the fiscal quarters ending March 31, 2026, June 30, 2026 and September 30, 2026, (e) subject to certain usage restrictions, permit FAH, LLC to forego testing of the maximum Net Leverage Ratio, minimum Fixed Charge Coverage Ratio, minimum Qualified Cash (as defined in the Credit Agreement) and minimum Consolidated EBITDA covenants (collectively, the "Financial Covenants") for any test period (to the extent required to be tested in such test period) if FAH, LLC makes a voluntary prepayment of the loans under the Credit Agreement in an amount not less than $10.0 million prior to the delivery of a compliance certificate for such test period, (f) requiring amortization payments on the outstanding revolving loans, with each such amortization payment in respect of the outstanding revolving loans permanently reducing the revolving commitments and (g) requiring quarterly mandatory prepayment of the revolving loans with cash (subject to certain exceptions) and cash equivalents in excess of $50.0 million, with each such prepayment permanently reducing the revolving commitments.

Consistent with the Prior Credit Agreement, the Credit Parties are subject to a covenant to hold no less than $10.0 million of Qualified Cash at any time.

As a result of the Fifth Amendment of the Credit Agreement, we expect that our existing resources and future cash flows from operations and cash and cash equivalents, will provide us with sufficient liquidity to meet our obligations for at least the next twelve months from the issuance date of these financial statements, including compliance with all covenants under the Credit Agreement.

As our financial condition continues to improve as a result of the 2025 implemented price increases and cost savings initiatives, we plan to either amend the Credit Agreement to further extend the maturity, seek alternative financing arrangements prior to the maturity of the debt, or opportunistically pursue other business opportunities or strategic transactions with the assistance of financial advisors.

However, there can be no assurance these plans will be completed.

If we are unable to complete these plans before the end of the fiscal year December 31, 2026, the debt would reclassify from long-term liability to a current liability.

If the Credit Agreement is not refinanced before its maturity date of December 31, 2027 on terms that are acceptable to us or, if we do not successfully enter into a transaction(s) to strengthen our balance sheet and increase our financial flexibility, our liquidity, results of operations, cash flows and financial condition would be materially adversely impacted.

If we obtain additional capital by issuing equity, the interests of our existing stockholders will be diluted.

If we incur additional indebtedness, that indebtedness may contain significant financial and other covenants that may significantly restrict our operations.

We cannot assure you that we could obtain refinancing or additional financing on favorable terms or at all.

In addition, our Board of Directors intends to continue to evaluate strategic alternatives for the Company from time to time.

There can be no assurance that any review of strategic alternatives will result in the identification or consummation of any transaction or action and there is no defined timeline for completion of a review process.

Liquidity and Capital Resources

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Year Ended December 31,

Net cash provided by operating activities $ 123,524 $ 30,935

Net cash (used in) provided by operating activities $ (5,120) $ 123,524

Net cash used in investing activities (31,902) (25,228)

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

Net cash provided by (used in) financing activities 42,037 (99,242)

Effect of exchange rates on cash and cash equivalents 2,478 (852)

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Our net cash provided by operating activities consists of net loss adjusted for certain non-cash items, including depreciation and amortization, equity-based compensation, as well as the effect of changes in working capital and other activities.

Net cash provided by operating activities was $123.5 million for the year ended December 31, 2024, compared to $30.9 million for the year ended December 31, 2023.

Changes in net cash provided by operating activities resulted primarily from cash received from net sales and cash payments for product costs and royalty expenses paid to our licensors.

Other drivers of the changes in net cash provided by operating activities include shipping and freight costs, selling, general and administrative expenses (including personnel expenses and commissions and rent and facilities costs) and interest payments made for our short-term borrowings and long-term debt.

Net cash used in operating activities was $5.1 million for the year ended December 31, 2025, compared to net cash provided by operating activities of $123.5 million for the year ended December 31, 2024.

Changes in net cash (used in) provided by operating activities resulted primarily from cash received from net sales and cash payments for product costs and royalty expenses paid to our licensors.

Other drivers of the changes in net cash provided by operating activities include shipping, freight, duty and tariff costs, selling, general and administrative expenses (including personnel expenses and commissions and rent and facilities costs) and interest payments made for our revolving facility borrowings and term debt.

Our accounts receivable typically are short term and settle in approximately 30 to 90 days (average 60 days).

The increase for the year ended December 31, 2024 compared to the year ended December 31, 2023 was primarily due to changes in net loss of $149.4 million, offset by changes in certain non-cash items, including depreciation and amortization, equity-based compensation, tax receivable liability adjustments and deferred tax expense of $16.8 million and changes in working capital of $39.9 million, which decreased net cash provided by operating activities.

Working capital changes were primarily due to increases in inventory of $96.3 million and accounts receivable of $30.9 million, offset by increases in accounts payable of $27.2 million, accrued royalties of $21.7 million and accrued expenses and other liabilities of $19.9 million and a decrease to prepaid expenses and other assets of $19.0 million.

The decrease for the year ended December 31, 2025 compared to the year ended December 31, 2024 was primarily due to changes in net loss of $53.2 million, changes in certain non-cash items, including depreciation and amortization, equity-based compensation, and other, net of $11.1 million and changes in working capital of $64.3 million, which decreased net cash provided by operating activities.

Working capital changes were primarily due to increases in accrued expenses and other liabilities of $8.9 million, accounts payable of $8.9 million, accrued royalties of $8.5 million, and decreases to inventory of $14.4 million, prepaid expenses and other assets of $20.5 million and accounts receivable of $3.4 million.

Investing Activities .

Our net cash used in investing activities primarily relates to the purchase of property and equipment and acquisitions, net of cash acquired.

For the year ended December 31, 2024, net cash used in investing activities was $25.2 million, which was used for the purchase of property and equipment, primarily related to tooling and molds, offset by proceeds from the sale of inventory and certain intellectual property marketed under and related to Funko Games.

For the year ended December 31, 2023, net cash used in investing activities was $39.8 million and was primarily related to purchases of tooling and molds used in our production product lines and for the acquisition of MessageMe, Inc.

(d/b/a HipDot).

For the year ended December 31, 2025, net cash used in investing activities was $31.9 million, which was primarily related to purchases of tooling and molds used for production of our product lines.

For the year ended December 31, 2024, net cash used in investing activities was $25.2 million and was primarily related to the purchase of property and equipment, related to tooling and molds, offset by proceeds from the sale of inventory and certain intellectual property marketed under and related to Funko Games.

Financing Activities .

Our financing activities primarily consist of proceeds from stock issuances, the issuance of long-term debt, net of debt issuance costs, the repayment of long-term debt, payments and borrowings under our line of credit facility and distributions to members.

For the year ended December 31, 2025, net cash provided by financing activities was $42.0 million, primarily related to proceeds from net borrowings on the Revolving Line of Credit of $65.0 million, offset by payments under the Term Loan and Equipment Financing Loan of $23.1 million.

For the year ended December 31, 2024, net cash used in financing activities was $99.2 million, primarily related to net repayments on the Revolving Line of Credit of $60.5 million, payments under the Term Loan and Equipment Financing Loan of $31.1 million and payments to TRA parties of $9.0 million.

For the year ended December 31, 2023, net cash provided by financing activities was $25.6 million, primarily related to proceeds from net borrowings on the Revolving Line of Credit of $50.5 million, partially offset by payments under the Term Loan and Equipment Financing Loan of $22.6 million.

Financial Condition

We believe that our sources of liquidity and capital will be sufficient to finance our continued operations, growth strategy and our planned capital expenditures for at least the next 12 months.

However, we cannot assure you that our cash provided by operating activities, cash and cash equivalents or cash available under our Revolving Credit Facility will be sufficient to meet our future needs.

In particular, though we were in compliance with the financial and other covenants under the Credit Agreement as of December 31, 2024, we cannot assure you that we will be able to maintain compliance with our financial covenants, or that we will be able to further amend the Credit Agreement should circumstances arise in the future.

If our operating results fail to improve or if we are otherwise unable to maintain compliance with the financial or other covenants under the Credit Agreement, our lenders could, among other things, terminate all outstanding commitments thereunder and accelerate all outstanding borrowings and other obligations, which would require us to seek additional financing.

We cannot assure you that our cash provided by operating activities and cash and cash equivalents will be sufficient to meet our future needs.

The current no availability under our Revolving Credit Facility.

As of December 31, 2025, the Credit Agreement Parties were in compliance with all of the covenants then in effect and required to be tested under the Credit Agreement, however, we cannot assure you that we will be able to maintain compliance with the Financial Covenants, or that we will be able to further amend the Credit Agreement should circumstances arise in the future.

If our operating results fail to improve or if we are otherwise unable to maintain compliance with the Financial Covenants or other covenants under the Credit Agreement, our lenders could, among other things, terminate all outstanding commitments thereunder and accelerate all outstanding borrowings and other obligations, which would require us to seek additional financing.

Even in the absence of such event, if we are unable to generate sufficient cash flows from operations in the future, and if availability under our Revolving Credit Facility is not sufficient, or if our debt matures and we are unable to repay amounts owed in full, we may have to obtain additional financing or refinancing.

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We cannot assure you that we could obtain refinancing or additional financing on favorable terms or at all.

As of December 31, 2024, we had $112.2 million of indebtedness outstanding under our Term Loan Facility (net of unamortized discount of $1.0 million) and $60.0 million outstanding borrowings under our Revolving Credit Facility, leaving $90.0 million available under our Revolving Credit Facility.

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.

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

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

Loans under the Credit Facilities will, at the Borrowers’ option, bear interest at either (i) SOFR, EURIBOR, HIBOR, CDOR, Daily Simple SONIA and/or the Central Bank Rate, as applicable, plus (x) 4.00% per annum and (y) solely in the case of Term SOFR based loans, 0.10% per annum or (ii) ABR or the Canadian prime rate, as applicable, plus 3.00% per annum, in each case of clauses (i) and (ii), subject to two 0.25% step-downs based on the achievement of certain leverage ratios following February 28, 2023.

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

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

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

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

As of December 31, 2025, we had $94.9 million of indebtedness outstanding under our Term Loan Facility (net of unamortized discount of $0.4 million) and $125.0 million outstanding borrowings under our Revolving Credit Facility.

The Credit Facilities under the Credit Agreement will mature on December 31, 2027 (the “Maturity Date”).

On March 31, 2026, an amortization payment in an amount equal to $4,500,000 is due with respect to the Term Loan Facility.

At the end of each fiscal quarter thereafter, commencing with the fiscal quarter ending June 30, 2026, (i) the Term Loan Facility, will amortize in quarterly installments equal to $4,125,000, with any outstanding balance due and payable on the Maturity Date and (ii) the Revolving Credit Facility will amortize in quarterly installments equal to $375,000 (accompanied by permanent commitment reductions), with any outstanding balance due and payable on the Maturity Date.

Loans under the Credit Facilities currently bear interest at SOFR plus 4.50% per annum.

On the first day of each fiscal quarter, commencing with April 1, 2027, an additional 0.25% per annum will be added to the interest rate applicable to the loans under the Credit Facilities.

SOFR rate is subject to a 0% floor.

For loans based on SOFR, interest payments are due at the end of each applicable interest period and in the case of loans based on SOFR with an interest period of more than three months' duration, on each day prior to the last day of such interest period that occurs at intervals of three months' duration after the first day of such interest period.

The Credit Agreement contains a number of covenants that, among other things and subject to certain exceptions, restrict our ability to:

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• amend or modify our governing documents.

In addition, the Credit Agreement requires FAH, LLC and its subsidiaries to comply on a quarterly basis with a maximum Net Leverage Ratio and a minimum fixed charge coverage ratio (in each case, measured on a trailing four-quarter basis).

The maximum Net Leverage Ratio and the minimum fixed charge coverage ratio are 2.50:1.00 and 1.25:1.00, respectively.

As of December 31, 2024 and 2023, we were in compliance with all financial covenants in our respective credit agreements in effect at such time.

We expect to maintain compliance with our covenants for at least one year from the issuance of these financial statements based on our current expectations and forecasts.

If economic conditions worsen and negatively impact the Company’s earnings and operating cash flows, this could impact our ability to regain compliance with our amended financial covenants and require the Company to seek additional amendments to our Credit Agreement or cause us to default on our obligations under the Credit Agreement.

In addition, the Credit Agreement requires FAH, LLC and its subsidiaries to, subject to the proviso at the end of this paragraph, comply with the following Financial Covenants:

(i) on a quarterly basis, commencing with the fiscal quarter ending December 31, 2026, a maximum Net Leverage Ratio of 2.50:1.00, (ii) on a quarterly basis, commencing with the fiscal quarter ending September 30, 2026, a minimum Fixed Charge Coverage Ratio of (a) 0.75:1.00 with respect to the fiscal quarter ending September 30, 2026, (b) 0.85:1.00 with respect to the fiscal quarter ending December 31, 2026, (c) 1.00:1.00 with respect to the fiscal quarter ending March 31, 2027, and (d) 1.25:1.00 with respect to the fiscal quarter ending June 30, 2027 and each fiscal quarter thereafter, (iii) at all times, a minimum Qualified Cash covenant of $10.0 million, and (iv) for the six-month period ending June 30, 2026, a minimum Consolidated EBITDA covenant of $15.1 million;

provided that if, in any fiscal quarter, FAH, LLC voluntarily prepays, prior to the date on which a compliance certificate is required to be delivered in respect of such fiscal quarter, more than $10.0 million of principal of then-outstanding loans, then all of the applicable Financial Covenants (other than the minimum Qualified Cash covenant), to the extent required to be tested in such fiscal quarter, will be deemed waived for such fiscal quarter (the “Covenant Cure Right”);

provided, further, that (x) the Covenant Cure Right is not permitted to be exercised in two (2) consecutive fiscal quarters, and (y) if the Cure Right is to be exercised in any fiscal quarter, FAH, LLC needs to have complied with the maximum Fixed Charge Coverage Ratio required in respect of the preceding fiscal quarter.

As of December 31, 2025, the Credit Agreement Parties were in compliance with the Financial Covenants and other covenants then in effect and required to be tested under the Credit Agreement.

The Credit Agreement also contains certain customary representations and warranties and affirmative covenants, and certain reporting obligations.

In addition, the lenders under the Credit Facilities will be permitted to accelerate all outstanding borrowings and other obligations, terminate outstanding commitments and exercise other specified remedies upon the occurrence of certain events of default (subject to certain grace periods and exceptions), which include, among other things, payment defaults, breaches of representations and warranties, covenant defaults, certain cross-defaults and cross-accelerations to other indebtedness, certain events of bankruptcy and insolvency, certain material monetary judgments and changes of control.

The Credit Agreement defines “change of control” to include, among other things, any person or group other than ACON and its affiliates becoming the beneficial owner of more than 35% of the voting power of the equity interests of Funko, Inc.

As of December 31, 2024, we had $34.7 million of cash and cash equivalents and $(18.7) million of working capital, compared with $36.5 million of cash and cash equivalents and $(16.0) million of working capital as of December 31, 2023.

Working capital is impacted by seasonal trends of our business and the timing of new product releases, as well as our current portion of long-term debt and draw downs on our line of credit.

For further discussion of changes in our debt, see below, and Note 10, "Debt" of the Notes to Consolidated Financial Statements included in this Form 10-K.

The Credit Agreement defines “change of control” to include, among other things, any person or group other than TCG and its affiliates becoming the beneficial owner of more than 35% of the voting power of the equity interests of Funko, Inc.

Form S-3 Registration Statement

Our registration statement on Form S-3 was declared effective by the SEC on August 15, 2025 and will remain effective through August 15, 2028.

The Form S-3 allows us to offer and sell from time-to-time up to $100.0 million of Class A common stock, preferred stock, debt securities, warrants, purchase contracts or units comprised of any combination of these securities for our own account and allows certain selling stockholders to offer and sell 12,626,024 shares of Class A common stock in one or more offerings.

The terms of any offering under the shelf registration statement will be established at the time of such offering and will be described in a prospectus supplement filed with the SEC prior to the completion of any such offering.

The Form S-3 is intended to provide us flexibility to conduct registered sales of our securities, subject to market conditions and our future capital needs.

At-the-Market Sales Agreement

On August 15, 2025, we entered into an At-the-Market Sales Agreement (the “Sales Agreement”) with BTIG, LLC (the “Agent”) relating to shares of our Class A common stock.

In accordance with the terms of the Sales Agreement, from time to time we may offer and sell shares of our Class A common stock having an aggregate gross sales price of up to $40.0 million through or to the Agent, acting as sales agent or principal, pursuant to the prospectus supplement.

No sales were made under the Sales Agreement during the year ended December 31, 2025.

Future Sources and Uses of Liquidity

As of December 31, 2025, we had $42.1 million of cash and cash equivalents and $46.5 million of working capital, compared with $34.7 million of cash and cash equivalents and $(18.7) million of working capital as of December 31, 2024.

Working capital is impacted by seasonal trends of our business and the timing of new product releases, as well as our current portion of long-term debt and any availability under our Revolving Credit Facility, which current availability under our Revolving Credit Facility is $0.

For further discussion of changes in our debt, see above, and Note 10, "Debt" of the Notes to Consolidated Financial Statements included in this Form 10-K.

As noted above, historically, our primary sources of cash flows have been cash flows from operating activities and borrowings under our Credit Facilities.

We expect these sources of liquidity to continue to be our primary sources of liquidity.

Credit Facilities .

On September 17, 2021, the Company entered into the Credit Facilities, which mature in September 2026.

We expect cash flows from operations to continue to be our primary sources of liquidity.

For a discussion of our Credit Facilities, see Note 10, "Debt" of the Notes to Consolidated Financial Statements included in this Form 10-K.

Offerings of Registered Securities .

On July 15, 2022, we filed a preliminary shelf registration statement on Form S-3 with the SEC.

The Form S-3 was declared effective by the SEC on July 26, 2022 and will remain effective until through July 25, 2025.

In addition, as described above, on August 15, 2025, we filed a registration statement on Form S-3 for the sale from time-to-time of up to $100.0 million of certain of our securities and for certain selling stockholders to offer and sell shares of Class A common stock in one or more offerings.

We also entered into the Sales Agreement to offer and sell shares of our Class A common stock having an aggregate gross sales price of up to $40.0 million, pursuant to the prospectus supplement.

As noted above, our primary requirements for liquidity and capital are working capital, inventory management, capital expenditures, debt service and general corporate needs.

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See Note 14 "Commitments and Contingencies" in the Notes to Consolidated Financial Statements included in this Form 10-K for a discussion of other material contractual obligations.

Additional future liquidity needs may include tax distributions, the redemption right held by the Continuing Equity Owners that they may exercise from time to time (should we elect to exchange their common units for a cash payment), payments under the Tax Receivable Agreement and general cash requirements for operations and capital expenditures (including a future enterprise resource management system (ERP), additional platforms to support our direct-to-consumer experience, and capital build out of new leased warehouse and office space).

Additional future liquidity needs will likely include tax distributions, interest payments, repayment of our debt facilities, the redemption right held by the Continuing Equity Owners that they may exercise from time to time (should we elect to exchange their common units for a cash payment), payments under the Tax Receivable Agreement and general cash requirements for operations and capital expenditures (including a future enterprise resource management system (ERP), additional platforms to support our direct-to-consumer experience, and capital build out of new leased warehouse and office space).

The Continuing Equity Owners may exercise their redemption right for as long as their common units remain outstanding.

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Historically, the first quarter of the year has represented the lowest volume of shipment and sales in our business and in the retail and toy industries generally and it is also the least profitable quarter due to the various fixed costs of the business.

However, the rapid growth we have experienced in recent years may have masked the full effects of seasonal factors on our business to date, and as such, seasonality may have a greater effect on our results of operations in future periods.

However, the volatility in net sales we have experienced in recent years may have masked the full effects of seasonal factors on our business to date, and as such, seasonality may have a greater effect on our results of operations in future periods.

Recent Accounting Pronouncements

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historically adjustments to these estimates have not been material.

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.

As of December 31, 2025 and 2024 , we had an accrual of $29.6 million and $23.5 million, respectively, related to ongoing and future royalty audits, based on estimates of the costs we expect to incur.

Inventory consists primarily of figures, plush, accessories and other finished goods, and is accounted for using the first-in, first-out, or FIFO, method.

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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.

During the year ended December 31, 2025, the Company observed a significant decline in the market valuation of the Company’s Class A common stock along with a volatile macroeconomic environment.

As a result, the Company has evaluated potential goodwill impairment triggering events as of December 31, 2025, and determined it was more likely than not that the fair value of the reporting unit was above carrying value of the net assets.

However, the Company will continue to evaluate for impairment triggering events due to the substantive changes in circumstances, such as market capitalization, which could indicate a potential impairment and the need to record a material, non-cash charge in a future period.

The Company also expects to assess the recoverability of the carrying value of the identified intangible and other long-lived assets, to the extent conditions necessitate an impairment assessment.

Income Taxes.

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In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including our operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis.

If we determine we will not be able to fully utilize all or part of these deferred tax assets, we would record a valuation allowance through earnings in the period the determination was made, as we did during the year ended December 31, 2023.

If we determine we will not be able to fully utilize all or part of these deferred tax assets, we would record a valuation allowance through earnings in the period the determination was made.

In accordance with ASC 740, we recognize, in our consolidated financial statements, the impact of our tax positions that are more likely than not to be sustained upon examination based on the technical merits of the positions.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis