What changed in this filing

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Item 1. Financial Statements

2021-08-09 compared with 2021-05-12 · 427 added, 386 removed, 828 unchanged (50% of the section changed)

7 unchanged sentences

Restricted cash

Accounts receivable, net of allowance for doubtful accounts of $ 3,890 and $ 4,566 at March 31, 2021 and December 31, 2020, respectively

Accounts receivable, net of allowance for doubtful accounts of $ 3,176 and $ 4,566 at June 30, 2021 and December 31, 2020, respectively

Prepaid expenses and other assets

26 unchanged sentences

5,000,000 shares authorized;

200,000 shares issued and outstanding at March 31, 2021 and December 31, 2020

200,000 shares issued and outstanding at June 30, 2021 and December 31, 2020

Stockholders' Equity (Deficit)*

1 unchanged sentence

100,000,000 shares authorized;

6,218,728 and 5,694,772 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively*

7,458,323 and 5,694,772 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively*

Additional paid-in capital *

12 unchanged sentences

(In thousands, except per share data)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Cost of sales

Selling, general and administrative expenses

Loss from operations

Restructuring charge

Pandemic related charges

Income (loss) from operations

Income from joint ventures

2 unchanged sentences

Change in fair value of convertible senior notes

Loss on debt extinguishment

Interest income

Interest expense

Loss before provision for income taxes

Provision for income taxes

Loss before provision for (benefit from) income taxes

Provision for (benefit from) income taxes

Net income attributable to non-controlling interests

11 unchanged sentences

(In thousands)

Three Months Ended March 31, 2021

Common Stock*

Comprehensive

Three and Six Months Ended June 30, 2021

Pacific, Inc.

Stockholders'

Equity (Deficit)*

Total Stockholders'

Equity (Deficit)*

Stockholders'

Comprehensive

Balance, December 31, 2020

6 unchanged sentences

Balance, March 31, 2021

Three Months Ended March 31, 2020

Common Stock*

Comprehensive

Stock-based compensation expense

Conversion of convertible senior notes

Preferred stock accrued dividends

Net income (loss)

Foreign currency translation adjustment

Balance, June 30, 2021

Three and Six Months Ended June 30, 2020

Pacific, Inc.

Stockholders'

Equity (Deficit)*

Total Stockholders'

Equity (Deficit)*

Stockholders'

Comprehensive

Balance, December 31, 2019

5 unchanged sentences

Balance, March 31, 2020

Conversion of convertible senior notes

Stock-based compensation expense

Repurchase of common stock for employee tax withholding

Preferred stock accrued dividends

Net income (loss)

Foreign currency translation adjustment

Balance, June 30, 2020

* After giving effect to a 1 for 10 reverse stock split effective July 9, 2020.

4 unchanged sentences

(In thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities

7 unchanged sentences

Gain on disposal of property and equipment

Loss on debt extinguishment

Change in fair value of convertible senior notes

15 unchanged sentences

Cash flows from financing activities

Retirement of convertible senior notes

Proceeds from loan under the Paycheck Protection Program

Repurchase of common stock for employee tax withholding

Net cash used in financing activities

Net proceeds from issuance of long term debt

Debt issuance costs

Repayment of term loan

Net cash provided by (used in) financing activities

Net decrease in cash, cash equivalents and restricted cash

3 unchanged sentences

Cash paid during the period for:

As of March 31, 2021, there was $ 1.7 million of property and equipment purchases included in accounts payable.

As of March 31, 2020, there was $ 2.1 million of property and equipment purchases included in accounts payable.

As of June 30, 2021, there was $ 3.6 million of property and equipment purchases included in accounts payable.

As of June 30, 2020, there was $ 3.2 million of property and equipment purchases included in accounts payable.

See Notes 1, 5, 6 and 9 for additional supplemental information to the condensed consolidated statements of cash flows.

3 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

June 30, 2021

Note 1 — Basis of Presentation

23 unchanged sentences

The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848):

5 unchanged sentences

The Company is currently evaluating the impact that the adoption of this new guidance will have on its condensed consolidated financial statements.

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40):

17 unchanged sentences

The Company continues to monitor and explore any relevant government assistance programs that could support either cash liquidity or operating results in the short-medium term.

As of the filing of this document, the Company continues to have no draw down on its credit facility with Wells Fargo Bank, National Association (“Wells Fargo”), aside from utilizing $ 10.8 million in Letters of Credit.

On April 23, 2020, the Small Business Administration issued new guidance that questioned whether a public company with substantial market value and access to capital markets would qualify to participate in the Paycheck Protection Program.

4 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

June 30, 2021

On June 12, 2020, the Company received a $ 6.2 million loan under the Paycheck Protection Program (the “PPP Loan”) within the CARES Act.

6 unchanged sentences

The forgiveness of the loan is also dependent on the Company having initially qualified for the loan.

It remains the Company’s intention to file for forgiveness of this loan.

In the absence of knowing whether any funds will be forgiven, the Company accounts for the note as debt under ASC 470 and has reflected $ 1.7 million as short term debt and $ 4.5 million as long term debt on its balance sheet related to this loan.

In June 2021, the Company filed its application for forgiveness of the entirety of its PPP loan.

In the absence of knowing whether any funds will be forgiven, the Company accounts for the note as debt under ASC 470 and has reflected $ 6.2 million as short term debt on the Company’s condensed consolidated balance sheet related to this loan.

The CARES Act also provided an employee retention credit (“ERC”) which was a refundable tax credit against certain employment taxes of up to $5,000 per employee for eligible employers.

7 unchanged sentences

The Company will qualify for the employee retention credit for quarters where the Company’s operations were partially suspended due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19.

During the three months ended March 31, 2021, the Company recorded $ 1.9 million related to the ERC as an offset within selling, general and administrative expenses on the Company’s condensed consolidated statements of operations and within prepaid expenses and other assets on the Company's condensed consolidated balance sheet (See Note 18 – Prepaid Expense and Other Assets).

As of March 31, 2021 and December 31, 2020, the Company held cash and cash equivalents, including restricted cash, of $ 84.1 million and $ 92.7 million, respectively.

Cash, and cash equivalents, including restricted cash held outside of the United States in various foreign subsidiaries totaled $ 30.5 million and $ 48.7 million as of March 31, 2021 and December 31, 2020, respectively.

During the three and six months ended June 30, 2021, the Company recorded $ 0.1 million and $ 2.0 million, respectively, related to the ERC as an offset within selling, general and administrative expenses on the Company’s condensed consolidated statements of operations and within prepaid expenses and other assets on the Company's condensed consolidated balance sheet (See Note 18 – Prepaid Expense and Other Assets).

As of June 30, 2021 and December 31, 2020, the Company held cash and cash equivalents, including restricted cash, of $ 38.3 million and $ 92.7 million, respectively.

Cash, and cash equivalents, including restricted cash held outside of the United States in various foreign subsidiaries totaled $ 18.0 million and $ 48.7 million as of June 30, 2021 and December 31, 2020, respectively.

The cash and cash equivalents, including restricted cash balances in the Company's foreign subsidiaries have either been fully taxed in the U.S.

1 unchanged sentence

tax should such amounts be repatriated in the form of dividends or deemed distributions.

Any such repatriation may result in foreign withholding taxes, which the Company expects would not be significant as of March 31, 2021.

Any such repatriation may result in foreign withholding taxes, which the Company expects would not be significant as of June 30, 2021.

The Company’s primary sources of working capital are cash flows from operations and borrowings under its credit facility (see Note 6 - Credit Facilities).

6 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

As of March 31, 2021, the Company had $ 125.3 million (including $5.5 million in payment-in-kind (“PIK”) interest) of outstanding indebtedness under a First Lien Term Loan Facility Credit Agreement (the “New Term Loan Agreement”) and no outstanding indebtedness under its amended and extended Credit Agreement (the “Amended ABL Credit Agreement” or “Amended Wells Fargo Credit Agreement”) with Wells Fargo.

June 30, 2021

On June 2, 2021, the Company and certain of its subsidiaries, as borrowers, entered into a Credit Agreement (the “JPMorgan ABL Credit Agreement”), with JPMorgan Chase Bank, N.A., as agent and lender for a $ 67,500,000 senior secured revolving credit facility (the “JPMorgan ABL Facility”).

The JPMorgan ABL Credit Agreement replaces the Company’s existing asset-based revolving credit agreement, dated as of March 27, 2014 (the “Wells Fargo ABL Facility,” formerly known as the “Amended ABL Facility” in prior filings), with General Electric Capital Corporation, since assigned to Wells Fargo Bank, National Association.

Any amounts borrowed under the JPMorgan ABL Facility will bear interest at either (i) Eurodollar spread plus 1.50 % - 2.00 % (determined by reference to an excess availability pricing grid) or (ii) Alternate Base Rate plus 0.50 % - 1.00 % (determined by reference to an excess availability pricing grid and base rate subject to a 1.00% floor).

The JPMorgan ABL Facility matures in June 2026.

The JPMorgan ABL Credit Agreement contains negative covenants that, subject to certain exceptions, limit the ability of the Company and its subsidiaries to, among other things, incur additional indebtedness, make restricted payments, pledge their assets as security, make investments, loans, advances, guarantees and acquisitions, undergo fundamental changes and enter into transactions with affiliates.

Under certain circumstances the Company is also subject to a springing fixed charge coverage ratio covenant of not less than 1.1 to 1.0 , as described in more detail in the JPMorgan ABL Credit Agreement.

The JPMorgan ABL Credit Agreement contains events of default that are customary for a facility of this nature, including (subject in certain cases to grace periods and thresholds) nonpayment of principal, interest, fees or other amounts, material inaccuracy of representations and warranties, violation of covenants, cross-default to certain other existing indebtedness, bankruptcy or insolvency events, certain judgment defaults, loss of liens or guarantees and a change of control as specified in the JPMorgan ABL Credit Agreement.

If an event of default occurs, the commitments of the lenders to lend under the JPMorgan ABL Credit Agreement may be terminated and the maturity of the amounts owed may be accelerated.

The obligations under the JPMorgan ABL Credit Agreement are guaranteed by the Company, the subsidiary borrowers thereunder and certain of the other existing and future direct and indirect subsidiaries of the Company and are secured by substantially all of the assets of the Company, the subsidiary borrowers thereunder and such other subsidiary guarantors, in each case, subject to certain exceptions and permitted liens.

On June 2, 2021, the Company and certain of its subsidiaries, as borrowers, entered into a First Lien Term Loan Facility Credit Agreement (the “2021 BSP Term Loan Agreement”) with Benefit Street Partners L.L.C., as Sole Lead Arranger, and BSP Agency, LLC, as agent, for a $ 99.0 million first-lien secured term loan (the “Initial Term Loan”) and a $ 19.0 million delayed draw term loan (the “Delayed Draw Term Loan” and collectively, the “2021 BSP Term Loan”).

Net proceeds from the issuance of the 2021 BSP Term Loan, after deduction of $ 2.2 million in closing fees and $ 0.5 million of other administrative fees paid directly to the lenders, totaled $ 96.3 million.

These fees are being amortized over the life of the 2021 BSP Term Loan.

Proceeds from the Initial Term Loan, together with available cash from the Company, were used to repay the Company’s existing term loan (the “2019 Recap Term Loan,” formerly known as the “New Term Loan” in prior filings) under the agreement dated as of August 9, 2019 with Cortland Capital Market Services LLC, as agent for certain investor parties.

The Delayed Draw Term Loan provision was secured to redeem any of the Company’s outstanding 2023 Convertible Senior Notes (the “New Oasis Notes” or “ 3.25 % convertible senior notes due 2023”), upon its maturity, which, upon repayment of the 2019 Recap Term Loan, accelerated to no later than 91 days from the repayment of the 2019 Recap Term Loan, or September 1, 2021.

As of June 30, 2021, the Company had $ 14.1 million (including $ 0.7 million in PIK interest) of outstanding indebtedness under the New Oasis Notes.

As of August 9, 2021, the Company had $ 0.4 million (including $ 23,007 in PIK interest) of outstanding indebtedness under the New Oasis Notes.

On July 29, 2021 the Company terminated its Delayed Draw Term Loan option as it determined it had sufficient liquidity to fund any outstanding convertible senior notes that remained upon maturity.

Amounts outstanding under the 2021 BSP Term Loan will bear interest at either (i) LIBOR plus 6.50 % - 7.00 % (determined by reference to a net leverage pricing grid), subject to a 1.00% LIBOR floor, or (ii) base rate plus 5.50% - 6.00% (determined by reference to a net leverage pricing grid), subject to a 2.00% base rate floor .

The 2021 BSP Term Loan matures in June 2027.

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

The 2021 BSP Term Loan Agreement contains negative covenants that, subject to certain exceptions, limit the ability of the Company and its subsidiaries to, among other things, incur additional indebtedness, make restricted payments, pledge its assets as security, make investments, loans, advances, guarantees and acquisitions, undergo fundamental changes and enter into transactions with affiliates.

Commencing with the fiscal quarter ending June 30, 2021, the Company is required to maintain a Net Leverage Ratio of 4:00x, with step-downs occurring each fiscal year starting with the quarter ending March 31, 2022 through the quarter ending September 30, 2024 in which the Company is required to maintain a Net Leverage Ratio of 3:00x.

As of the Closing Date, the Company must maintain a minimum cash balance of not less than $20.0 million.

The minimum cash balance can be reduced to $15.0 million in increments of $1.0 million for every $5.0 million in principal repayment of the 2021 BSP Term Loan .

The terms and covenants are described in more detail in the 2021 BSP Term Loan Agreement.

The 2021 BSP Term Loan Agreement contains events of default that are customary for a facility of this nature, including (subject in certain cases to grace periods and thresholds) nonpayment of principal, nonpayment of interest, fees or other amounts, material inaccuracy of representations and warranties, violation of covenants, cross-default to certain other existing indebtedness, bankruptcy or insolvency events, certain judgment defaults and a change of control as specified in the 2021 BSP Term Loan Agreement.

If an event of default occurs, the maturity of the amounts owed under the 2021 BSP Term Loan Agreement may be accelerated.

The obligations under the 2021 BSP Term Loan Agreement are guaranteed by the Company, the subsidiary borrowers thereunder and certain of the other existing and future direct and indirect subsidiaries of the Company and are secured by substantially all of the assets of the Company, the subsidiary borrowers thereunder and such other subsidiary guarantors, in each case, subject to certain exceptions and permitted liens and subject to the priority lien granted under the JPMorgan ABL Credit Agreement.

The agent and Sole Lead Arranger under the 2021 BSP Term Loan are affiliates of an affiliate of the Company, which affiliate owned common stock and the 3.25 % convertible senior notes due 2023 of the Company at the time of the refinancing, as well as a majority of the Company’s outstanding Series A Preferred Stock giving the affiliates various rights as described in the Company’s public filings.

As of June 30, 2021, the Company had $ 99.0 million of outstanding indebtedness under the 2021 BSP Term Loan Agreement and no outstanding indebtedness under its amended and extended JPMorgan ABL Credit Agreement with JPM Chase aside from utilizing $ 11.0 million in Letters of Credit.

The Company also had the aforementioned PPP Loan of $ 6.2 million provided under the CARES Act program.

The New Term Loan Agreement and Amended ABL Credit Agreement each contain negative covenants that, subject to certain exceptions, limit the ability of the Company and its subsidiaries to, among other things, incur additional indebtedness, make restricted payments, pledge assets as security, make investments, loans, advances, guarantees and acquisitions, undergo fundamental changes and enter into transactions with affiliates, as well as cross-default provisions.

The Company secured the appropriate waivers from both parties before receiving the proceeds of the PPP Loan.

The original terms of the New Term Loan Agreement required the Company to maintain a trailing 12-month Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) (as defined and adjusted therein) of not less than $ 34.0 million and a minimum liquidity of not less than $ 10.0 million commencing with the fiscal quarter ending September 30, 2020.

On October 16, 2020, the Company reached an agreement (the “Amendment”) with holders of its New Term Loan and Wells Fargo, holder of its revolving credit facility, to amend the New Term Loan Agreement and defer its EBITDA covenant calculation until March 31, 2022.

Under the Amendment, the trailing 12-month EBITDA requirement was reduced to $ 25.0 million, which will not be calculated earlier than March 31, 2022.

The Amendment also required the Company to pre-pay $ 15.0 million of the New Term Loan immediately and, under certain conditions, pre-pay up to an additional $ 5.0 million no later than the third quarter of fiscal year 2021.

As of March 31, 2021, the Company has classified $5.0 million as short term debt.

In connection with the amendment on October 20, 2020, the Company paid $15.0 million of its outstanding principal amount and $0.3 million in related interest and PIK interest.

The New Term Loan Agreement contains events of default that are customary for a facility of this nature, including nonpayment of principal, nonpayment of interest, fees or other amounts, material inaccuracy of representations and warranties, violation of covenants, cross-default to other material indebtedness, bankruptcy or insolvency events, material judgment defaults and a change of control as specified in the New Term Loan Agreement, and cross-default provisions with the Amended Wells Fargo Credit Agreement.

If an event of default occurs under either Agreement, the maturity of the amounts owed under the New Term Loan Agreement and the Amended Wells Fargo Credit Agreement may be accelerated.

The Company’s unaudited interim condensed consolidated financial statements for the three months ended March 31, 2021 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.

Cash and cash equivalents, including restricted cash, projected cash flow from operations, and borrowings under the Company’s credit facility are sufficient to meet the Company’s working capital and capital expenditure requirements for the next 12 months.

On June 2, 2021, the Company repaid in full and terminated the First Lien Term Loan Facility Credit Agreement (the “2019 Recap Term Loan Agreement,” formerly known as the “New Term Loan Agreement” in prior filings), dated as of August 9, 2019, with Cortland Capital Market Services LLC, as agent.

The Wells Fargo ABL Credit Facility Agreement was also terminated as of June 2, 2021.

The Company’s unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2021 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.

The Company believes that cash and cash equivalents, including restricted cash, projected cash flow from operations, and borrowings under the Company’s credit facility are sufficient to meet the Company’s working capital and capital expenditure requirements for the next 12 months.

Note 2 — Business Segments, Geographic Data, and Sales by Major Customers

2 unchanged sentences

The Toys/Consumer Products segment includes action figures, vehicles, play sets, plush products, dolls, electronic products, construction toys, infant and pre-school toys, child-sized and hand-held role play toys and everyday costume play, foot-to-floor ride-on vehicles, wagons, novelty toys, seasonal and outdoor products, kids’ indoor and outdoor furniture, and related products, and makeup and skincare products under the C'est Moi brand.

The Costumes segment designs, develops, markets and sells a wide range of every-day and special occasion dress-up costumes and related accessories.

Halloween, Carnival, Children’s Day, Book Day/Week, and every-day/any-day costume play are all purchase occasions for Disguise innovative and trend-setting product since its inception in 1987.

JAKKS PACIFIC, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

June 30, 2021

The Costumes segment, under its Disguise branding, has been bringing innovative and trend-setting product to market since its inception in 1987.

This business designs, develops, markets and sells a wide range of every-day and special occasion dress-up costumes and related accessories in support of Halloween, Carnival, Children’s Day, Book Day/Week, and every-day/any-day costume play.

Segment performance is measured at the operating income (loss) level.

3 unchanged sentences

Results are not necessarily those which would be achieved if each segment was an unaffiliated business enterprise.

Information by segment and a reconciliation to reported amounts for the three months ended March 31, 2021 and 2020 and as of March 31, 2021 and December 31, 2020 are as follows (in thousands):

Information by segment and a reconciliation to reported amounts for the three and six months ended June 30, 2021 and 2020 and as of June 30, 2021 and December 31, 2020 are as follows (in thousands):

Three Months Ended

Six Months Ended

Toys/Consumer Products

Three Months Ended

Six Months Ended

Income (loss) from Operations

1 unchanged sentence

Three Months Ended

Six Months Ended

Depreciation and Amortization Expense

4 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

June 30, 2021

Net revenues are categorized based upon location of the customer, while long-lived assets are categorized based upon the location of the Company’s assets.

The following tables present information about the Company by geographic area as of March 31, 2021 and December 31, 2020 and for the three months ended March 31, 2021 and 2020 (in thousands):

The following tables present information about the Company by geographic area as of June 30, 2021 and December 31, 2020 and for the three and six months ended June 30, 2021 and 2020 (in thousands):

Long-lived Assets

2 unchanged sentences

Three Months Ended

Six Months Ended

Net Sales by Customer Area

4 unchanged sentences

Major Customers

Net sales to major customers for the three months ended March 31, 2021 and 2020 were as follows (in thousands, except for percentages):

Three Months Ended March 31,

Net sales to major customers for the three and six months ended June 30, 2021 and 2020 were as follows (in thousands, except for percentages):

Three Months Ended June 30,

Six Months Ended June 30,

No other customer accounted for more than 10% of the Company's total net sales.

4 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

June 30, 2021

Note 3 — Inventory

Inventory, which includes the ex-factory cost of goods, capitalized warehouse costs, and in-bound freight and duty, is valued at the lower of cost (first-in, first-out) or net realizable value, net of inventory obsolescence reserve, and consists of the following (in thousands):

March 31, 2021

December 31, 2020

Raw materials

Finished goods

As of March 31, 2021 and December 31, 2020, the inventory obsolescence reserve was $ 10.7 million and $ 10.8 million, respectively.

As of June 30, 2021 and December 31, 2020, the inventory obsolescence reserve was $ 10.5 million and $ 10.8 million, respectively.

Note 4 — Revenue Recognition and Reserve for Sales Returns and Allowances

22 unchanged sentences

Shipping and handling activities are considered part of the Company’s obligation to transfer the products and therefore are recorded as direct selling expenses, as incurred.

The Company’s reserve for sales returns and allowances amounted to $ 39.5 million as of March 31, 2021, compared to $ 42.1 million as of December 31, 2020.

The Company’s reserve for sales returns and allowances amounted to $ 42.3 million as of June 30, 2021, compared to $ 42.1 million as of December 31, 2020.

JAKKS PACIFIC, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

June 30, 2021

Note 5 — Debt

1 unchanged sentence

Convertible senior notes consist of the following (in thousands):

March 31, 2021

December 31, 2020

3.25 % convertible senior notes due 2023*

* The amounts presented for the 3.25 % convertible senior notes due 2023 within the table represent the fair value as of March 31, 2021 and December 31, 2020 (see Note 16 - Fair Value Measurements).

The principal amount of these notes is $ 20.0 million and $ 22.9 million as of March 31, 2021 and December 31, 2020, respectively.

The accrued, but unpaid, PIK interest is $ 0.9 million as of March 31, 2021 and December 31, 2020.

* The amounts presented for the 3.25 % convertible senior notes due 2023 within the table represent the fair value as of June 30, 2021 and December 31, 2020 (see Note 16 - Fair Value Measurements).

The principal amount of these notes is $ 13.3 million and $ 22.9 million as of June 30, 2021 and December 31, 2020, respectively.

The accrued, but unpaid, PIK interest is $ 0.7 million and $ 0.9 million as of June 30, 2021 and December 31, 2020, respectively.

In July 2013, the Company sold an aggregate of $ 100.0 million principal amount of 4.25% convertible senior notes due 2018 (the “2018 Notes”).

19 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

June 30, 2021

In August 2019, the Company entered into and consummated multiple, binding definitive agreements (collectively, the “Recapitalization Transaction”) among Wells Fargo, Oasis Investments II Master Fund Ltd.

3 unchanged sentences

Interest on the New Oasis Notes is payable on each May 1 and November 1 until maturity and accrues at an annual rate of (i) 3.25 % if paid in cash or 5.00 % if paid in stock plus (ii) 2.75 % payable in kind.

The New Oasis Notes mature 91 days after the amounts outstanding under the New Term Loan are paid in full, and in no event later than July 3, 2023.

The New Oasis Notes mature 91 days after the amounts outstanding under the 2019 Recap Term Loan are paid in full, and in no event later than July 3, 2023.

Excluding the impact of the Reverse Stock Split, the New Oasis Notes provide, among other things, that the initial conversion price is $ 1.00 .

19 unchanged sentences

As a result, the Company recorded an increase to additional paid-in capital of $ 5.6 million.

In May 2021, $ 2.0 million of the New Oasis Notes (including $ 93,805 in PIK interest) were converted for 354,170 shares of common stock.

As a result, the Company recorded an increase to additional paid-in capital of $ 4.0 million.

In June 2021, $ 5.0 million of the New Oasis Notes (including $ 245,040 in PIK interest) were converted for 885,425 shares of common stock.

As a result, the Company recorded an increase to additional paid-in capital of $ 10.3 million.

A director of the Company is a portfolio manager at Oasis Management.

The Company has elected to measure and present the debt held by Oasis at fair value using Level 3 inputs and as a result, recognized a loss of $ 9.0 million and a gain of $ 7.7 million for the three months ended March 31, 2021 and 2020 respectively, related to changes in the fair value of the New Oasis Notes.

At March 31, 2021 and December 31, 2020, the debt held by Oasis had a fair value of approximately $ 37.7 million and $ 34.1 million, respectively (see Note 16 - Fair Value Measurements).

The Company evaluated its credit risk as of March 31, 2021, and determined that there was no change from December 31, 2020.

The Company has elected to measure and present the debt held by Oasis at fair value using Level 3 inputs and as a result, recognized a loss of $ 3.8 million and $ 7.7 million for the three months ended June 30, 2021 and 2020, respectively, related to changes in the fair value of the New Oasis Notes.

At June 30, 2021 and December 31, 2020, the debt held by Oasis had a fair value of approximately $ 27.4 million and $ 34.1 million, respectively (see Note 16 - Fair Value Measurements).

The Company evaluated its credit risk as of June 30, 2021, and determined that there was no change from December 31, 2020.

JAKKS PACIFIC, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

June 30, 2021

In June 2014, the Company sold an aggregate of $ 115.0 million principal amount of 4.875 % convertible senior notes due 2020 (the “2020 Notes”).

11 unchanged sentences

The remaining $1.9 million principal amount of the 2020 Notes was redeemed at par at maturity on June 1, 2020.

The fair value of the 4.875% convertible senior notes due 2020 as of March 31, 2021 and 2020 was nil and $ 1.8 million (principal amount $1.9 million), respectively, based upon the most recent quoted market prices.

The fair values of the convertible senior notes are considered to be Level 3 measurements on the fair value hierarchy.

On February 5, 2021, Benefit Street Partners and Oasis Investment II Master Funds Ltd, both related parties, entered into a purchase and sale agreement wherein Benefit Street Partners purchased $ 11.0 million of principal amount, plus all accrued and unpaid interest thereon, of the New Oasis Notes from Oasis Investment II Master Funds Ltd (see Note 17 – Related Party Transactions).

The transaction closed on February 8, 2021.

As of June 30, 2021, Benefit Street Partners held $ 10.7 million in principal amount (including $ 0.2 million in PIK interest) of the New Oasis Notes.

Term loan consists of the following (in thousands):

March 31, 2021

June 30, 2021

December 31, 2020

Principal Amount**

Debt Discount/

Principal Amount**

Debt Discount/

2019 Recap Term Loan

2021 BSP Term Loan

* The term loan was valued using the discounted cash flow method to determine the implied debt discount.

The debt discount and issuance costs are being amortized over the life of the term loan.

** The amount presented excludes accrued, but unpaid, PIK interest of $ 5.5 million and $ 4.7 million as of March 31, 2021 and December 31, 2020, respectively.

In August 2019, in connection with the Recapitalization Transaction, the Company entered into a First Lien Term Loan Facility Credit Agreement (the “New Term Loan Agreement”), with certain of the Investor Parties, and Cortland Capital Market Services LLC, as agent, for a $ 134.8 million first-lien secured term loan (the “New Term Loan”).

** The amount presented excludes accrued, but unpaid, PIK interest of $ 4.7 million as of December 31, 2020.

In August 2019, in connection with the Recapitalization Transaction, the Company entered into the 2019 Recap Term Loan Agreement, with certain of the Investor Parties, and Cortland Capital Market Services LLC, as agent, for a $ 134.8 million 2019 Recap Term Loan.

The Company also issued common stock and preferred stock (see Note 9 - Common Stock and Preferred Stock) to the Investor Parties.

Amounts outstanding under the New Term Loan accrue interest at 10.50 % per annum, payable semi-annually (with 8 % per annum payable in cash and 2.5 % per annum payable in kind).

The New Term Loan matures on February 9, 2023.

Amounts outstanding under the 2019 Recap Term Loan accrue interest at 10.50 % per annum, payable semi-annually (with 8 % per annum payable in cash and 2.5 % per annum payable in kind).

The 2019 Recap Term Loan matures on February 9, 2023.

JAKKS PACIFIC, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

The New Term Loan Agreement contains negative covenants that, subject to certain exceptions, limit the ability of the Company and its subsidiaries to, among other things, incur additional indebtedness, make restricted payments, pledge assets as security, make investments, loans, advances, guarantees and acquisitions, undergo fundamental changes and enter into transactions with affiliates.

The original terms of the New Term Loan Agreement required the Company to maintain a trailing 12-month EBITDA (as defined and adjusted therein) of not less than $ 34.0 million and a minimum liquidity of not less than $ 10.0 million commencing with the fiscal quarter ended September 30, 2020.

On October 16, 2020, the Company reached an agreement (the “Amendment”) with holders of its New Term Loan and Wells Fargo, holder of its revolving credit facility, to amend its New Term Loan Agreement and defer its EBITDA covenant calculation until March 31, 2022.

June 30, 2021

The 2019 Recap Term Loan Agreement contains negative covenants that, subject to certain exceptions, limit the ability of the Company and its subsidiaries to, among other things, incur additional indebtedness, make restricted payments, pledge assets as security, make investments, loans, advances, guarantees and acquisitions, undergo fundamental changes and enter into transactions with affiliates.

The original terms of the 2019 Recap Term Loan Agreement required the Company to maintain a trailing 12-month EBITDA (as defined and adjusted therein) of not less than $ 34.0 million and a minimum liquidity of not less than $ 10.0 million commencing with the fiscal quarter ended September 30, 2020.

On October 16, 2020, the Company reached an agreement (the “Amendment”) with holders of its 2019 Recap Term Loan and Wells Fargo, holder of its revolving credit facility, to amend its 2019 Recap Term Loan Agreement and defer its EBITDA covenant calculation until March 31, 2022.

Under the Amendment, the trailing 12-month EBITDA requirement was reduced to $ 25.0 million, which will not be calculated earlier than March 31, 2022.

The Amendment also required the Company to pre-pay $ 15.0 million of the 2019 Recap Term Loan immediately and, under certain conditions, pre-pay up to an additional $ 5.0 million no later than the third quarter of fiscal year 2021.

In connection with the amendment, on October 20, 2020, the Company paid $ 15.0 million of its outstanding principal amount and $ 0.3 million in related interest and PIK interest.

As of March 31, 2021, the Company had $ 125.3 million (including $5.5 million in PIK interest) outstanding under the New Term Loan Agreement, $ 5.0 million of which is recorded as short term debt, and $ 114.8 million is recorded as long term debt on the condensed consolidated balance sheet.

As of December 31, 2020, the Company had $ 124.5 million (including $4.7 million in PIK interest) outstanding under the New Term Loan Agreement, $ 5.0 million of which is recorded as short term debt, and $ 114.8 million is recorded as long term debt on the condensed consolidated balance sheet.

If an event of default occurs, the maturity of the amounts owed under the New Term Loan Agreement may be accelerated.

The obligations under the New Term Loan Agreement are guaranteed by the Company, the subsidiary borrowers thereunder and certain of the other existing and future direct and indirect subsidiaries of the Company and are secured by substantially all of the assets of the Company, the subsidiary borrowers thereunder and such other subsidiary guarantors, in each case, subject to certain exceptions and permitted liens.

Amortization expense classified as interest expense related to the $ 3.8 million of debt issuance costs associated with the issuance of the New Term Loan was $ 0.3 million for the three months ended March 31, 2021 and 2020.

Amortization expense classified as interest expense related to the $ 10.1 million debt discount associated with the issuance of the New Term Loan was $ 0.7 million for the three months ended March 31, 2021 and 2020.

The fair value of the New Term Loan as of March 31, 2021 and December 31, 2020 was $ 132.5 million and $ 129.6 million, respectively.

As of June 30, 2021, the Company had nil outstanding under the 2019 Recap Term Loan Agreement.

As of December 31, 2020, the Company had $ 124.5 million (including $4.7 million in PIK interest) outstanding under the 2019 Recap Term Loan Agreement, $ 5.0 million of which is recorded as short term debt, and $ 114.8 million is recorded as long term debt on the condensed consolidated balance sheet.

The 2019 Recap Term Loan Agreement contains events of default that are customary for a facility of this nature, including nonpayment of principal, nonpayment of interest, fees or other amounts, material inaccuracy of representations and warranties, violation of covenants, cross-default to other material indebtedness, bankruptcy or insolvency events, material judgment defaults and a change of control as specified in the 2019 Recap Term Loan Agreement.

If an event of default occurs, the maturity of the amounts owed under the 2019 Recap Term Loan Agreement may be accelerated.

The obligations under the 2019 Recap Term Loan Agreement are guaranteed by the Company, the subsidiary borrowers thereunder and certain of the other existing and future direct and indirect subsidiaries of the Company and are secured by substantially all of the assets of the Company, the subsidiary borrowers thereunder and such other subsidiary guarantors, in each case, subject to certain exceptions and permitted liens.

Amortization expense classified as interest expense related to the $ 3.8 million of debt issuance costs associated with the issuance of the 2019 Recap Term Loan was $ 0.2 million and $ 0.4 million for the three and six months ended June 30, 2021, respectively.

Amortization expense classified as interest expense related to the $3.8 million of debt issuance costs associated with the issuance of the 2019 Recap Term Loan was $ 0.3 million and $ 0.5 million for the three and six months ended June 30, 2020, respectively.

Amortization expense classified as interest expense related to the $ 10.1 million debt discount associated with the issuance of the 2019 Recap Term Loan was $ 0.5 million and $ 1.2 million for the three and six months ended June 30, 2021, respectively.

Amortization expense classified as interest expense related to the $10.1 million debt discount associated with the issuance of the 2019 Recap Term Loan was $ 0.7 million and $ 1.4 million for the three and six months ended June 30, 2020, respectively.

The fair value of the 2019 Recap Term Loan as of June 30, 2021 and December 31, 2020 was nil and $ 129.6 million, respectively.

The estimated fair value was calculated using a discounted cash flow method and is classified as Level 3 within the fair value hierarchy.

On June 2, 2021, the Company repaid in full and terminated the 2019 Recap Term Loan Agreement, dated as of August 9, 2019, with Cortland Capital Market Services LLC, as agent.

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

On June 2, 2021, the Company and certain of its subsidiaries, as borrowers, entered into the 2021 BSP Term Loan Agreement with Benefit Street Partners L.L.C., as Sole Lead Arranger, and BSP Agency, LLC, as agent, for a $ 99.0 million Initial Term Loan and a $ 19.0 million Delay Draw Term Loan.

These fees are being amortized over the life of the 2021 BSP Term Loan.

Proceeds from the Initial Term Loan, together with available cash from the Company, were used to repay the Company’s 2019 Recap Term Loan under the agreement dated as of August 9, 2019 with Cortland Capital Market Services LLC, as agent for certain investor parties.

The Delayed Draw Term Loan provision was designed to provide necessary capital to redeem any of the Company’s outstanding 3.25 % convertible senior notes due 2023, upon their maturity, which, upon repayment of the 2019 Recap Term Loan, accelerated to no later than 91 days from the repayment of the 2019 Recap Term Loan, or September 1, 2021.

As of June 30, 2021, the Company had $ 14.1 million (including $ 0.7 million in PIK interest) of outstanding indebtedness under the New Oasis Notes.

On July 29, the Company terminated its Delayed Draw Term Loan option as it determined it had sufficient liquidity to fund any outstanding convertible senior notes that remained upon maturity.

The 2021 BSP Term Loan matures in June 2027.

As of the Closing Date, the Company must maintain a minimum cash balance of not less than $20.0 million.

The minimum cash balance can be reduced to $15.0 million in increments of $1.0 million for every $5.0 million in principal repayment of the 2021 BSP Term Loan .

The terms and covenants are described in more detail in the 2021 BSP Term Loan Agreement.

If an event of default occurs, the maturity of the amounts owed under the 2021 BSP Term Loan Agreement may be accelerated.

The agent and Sole Lead Arranger under the 2021 BSP Term Loan are affiliates of an affiliate of the Company, which affiliate, at the time of refinancing, owned common stock and the 3.25 % convertible senior notes due 2023 of the Company, as well as a majority of the Company’s outstanding Series A Preferred Stock giving the affiliates various rights as described in the Company’s public filings.

Amortization expense classified as interest expense related to the $ 1.0 million of debt issuance costs associated with the issuance of the 2021 BSP Term Loan was $ 14,094 for the three and six months ended June 30, 2021.

Amortization expense classified as interest expense related to the $ 2.3 million debt discount associated with the issuance of the 2021 BSP Term Loan was $ 30,342 for the three and six months ended June 30, 2021.

The fair value of the 2021 BSP Term Loan as of June 30, 2021 was $ 99.0 million.

The estimated fair value was calculated using a discounted cash flow method and is classified as Level 3 within the fair value hierarchy.

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

Loan under Paycheck Protection Program

4 unchanged sentences

The PPP Loan may be forgiven, partially or in full, if certain conditions are met, principally based on having been disbursed for permissible purposes and maintaining certain average levels of employment and payroll as required by the CARES Act.

As of March 31, 2021, the Company has recorded the PPP Loan as a liability and classified $ 1.7 million as a current liability and $ 4.5 million as a non-current liability on the condensed consolidated balance sheet.

The Company intends to apply for forgiveness of amounts received under the PPP in accordance with the requirements of the CARES Act, as amended.

As of June 30, 2021, the Company has recorded the PPP Loan as a liability and classified $ 6.2 million as short term debt on the condensed consolidated balance sheet.

The Company has applied for forgiveness of the $6.2 million PPP loan.

Any loan amounts forgiven will be removed from liabilities recorded.

While the Company used the proceeds of the PPP Loan only for permissible purposes, there can be no assurance that it will be eligible for forgiveness of the PPP Loan, in full or in part.

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

The carrying value of the PPP Loan is a reasonable approximation of fair value.

11 unchanged sentences

The obligations under the Amended ABL Credit Agreement are guaranteed by the Company, the subsidiary borrowers thereunder and certain of the other existing and future direct and indirect subsidiaries of the Company and are secured by substantially all of the assets of the Company, the subsidiary borrowers thereunder and such other subsidiary guarantors, in each case, subject to certain exceptions and permitted liens.

As of March 31, 2021, the amount of outstanding borrowings was nil , the amount of outstanding stand-by letters of credit totaled $ 10.8 million and the total excess borrowing capacity was $ 35.0 million.

As of December 31, 2020, the amount of outstanding borrowings was nil , the amount of outstanding stand-by letters of credit totaled $ 10.8 million and the total excess borrowing capacity was $ 37.3 million.

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

The Amended ABL Credit Agreement contains negative covenants that, subject to certain exceptions, limit the ability of the Company and its subsidiaries to, among other things, incur additional indebtedness, make restricted payments, pledge assets as security, make investments, loans, advances, guarantees and acquisitions, undergo fundamental changes and enter into transactions with affiliates.

The Company is also required to maintain a fixed charge coverage ratio of not less than 1.1 to 1.0 under certain circumstances, and a minimum liquidity of $ 25.0 million and a minimum availability of at least $ 9.0 million.

As of March 31, 2021 and December 31, 2020, the Company was in compliance with the financial covenants under the Amended ABL Facility and the previous Credit Facility, as applicable.

As of December 31, 2020, the Company was in compliance with the financial covenants under the Amended ABL Facility and the previous Credit Facility, as applicable.

Any amounts borrowed under the Amended ABL Facility accrue interest, at either (i) LIBOR plus 1.50 % - 2.00 % (determined by reference to a fixed charge coverage ratio-based pricing grid) or (ii) base rate plus 0.50 % - 1.00 % (determined by reference to a fixed charge coverage ratio-based pricing grid).

As of March 31, 2021 and December 31, 2020, the weighted average interest rate on the credit facility with Wells Fargo was nil .

As of December 31, 2020, the weighted average interest rate on the credit facility with Wells Fargo was nil .

The Amended ABL Facility also contains customary events of default, including a cross default provision and a change of control provision.

1 unchanged sentence

For certain events of default relating to insolvency, all outstanding obligations become due and payable.

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

As described in Note 5 – Debt, on October 16, 2020, the Company amended its New Term Loan to reduce the amount and defer the calculation of its EBITDA covenant, with Wells Fargo as party to the agreement.

Amortization expense classified as interest expense related to the $ 1.1 million of debt issuance costs associated with the transaction that closed on August 9, 2019 (i.e., Amended ABL Facility) was $ 0.1 million for the three months ended March 31, 2021 and 2020.

As of March 31, 2021, off-balance sheet arrangements include letters of credit issued by Wells Fargo of $ 10.8 million.

As described in Note 5 – Debt, on October 16, 2020, the Company amended its 2019 Recap Term Loan to reduce the amount and defer the calculation of its EBITDA covenant, with Wells Fargo as party to the agreement.

Amortization expense classified as interest expense related to the $ 1.1 million of debt issuance costs associated with the transaction that closed on August 9, 2019 (i.e., Amended ABL Facility) was $ 0.1 million and $ 0.2 million for the three and six months ended June 30, 2021, respectively.

Amortization expense classified as interest expense related to the $1.1 million of debt issuance costs associated with the Amended ABL Facility was $ 0.1 million and $ 0.2 million for the three and six months ended June 30, 2020, respectively.

On June 2, 2021, the Company terminated the Wells Fargo ABL Credit Facility Agreement.

Great American Capital Partners

6 unchanged sentences

In August 2019, in connection with the Recapitalization Transaction (see Note 5 - Debt), the Company repaid in full and terminated the Term Loan Agreement.

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

On June 2, 2021, the Company and certain of its subsidiaries, as borrowers, entered into the JPMorgan ABL Credit Agreement with JPMorgan Chase Bank, N.A., as agent and lender for a $ 67,500,000 senior secured revolving credit facility.

The JPMorgan ABL Credit Agreement replaces the Company’s Wells Fargo ABL Facility, dated as of March 27, 2014, with General Electric Capital Corporation, since assigned to Wells Fargo Bank, National Association.

The JPMorgan ABL Facility matures in June 2026.

If an event of default occurs, the commitments of the lenders to lend under the JPMorgan ABL Credit Agreement may be terminated and the maturity of the amounts owed may be accelerated.

As of June 30, 2021, the amount of outstanding borrowings was nil , the amount of outstanding stand-by letters of credit totaled $ 11.0 million and the total excess borrowing availability was $ 53.4 million.

Amortization expense classified as interest expense related to the $ 1.5 million of debt issuance costs associated with the transaction that closed on June 2, 2021 (i.e., JPMorgan ABL Credit Agreement) was $ 24,742 for the three and six months ended June 30, 2021.

As of June 30, 2021, off-balance sheet arrangements include letters of credit issued by JPMorgan of $ 11.0 million.

Note 7 — Income Taxes

The Company’s income tax expense of $ 0.1 million for the three months ended March 31, 2021 reflects an effective tax rate of ( 0.4 )%.

The Company’s income tax expense of $ 0.3 million for the three months ended March 31, 2020 reflects an effective tax rate of ( 2.4 )%.

The tax expense for the three months ended March 31, 2021 relates to foreign income taxes and discrete items.

The tax expense for the three months ended March 31, 2020 relates to foreign income taxes partially offset by discrete items.

The CARES Act was signed into federal law on March 27, 2020.

The CARES Act is an emergency economic stimulus package in response to the Coronavirus outbreak, which among other things contains numerous income tax provisions.

Some of these tax provisions are expected to be effective retroactively for years ending before the date of enactment.

However, the Company does not anticipate these benefits will have a material financial impact.

The Company’s income tax benefit of $ 0.1 million for the three months ended June 30, 2021 reflects an effective tax rate of 0.7 %.

The Company’s income tax expense of $ 0.3 million for the three months ended June 30, 2020 reflects an effective tax rate of ( 1.2 )%.

The tax benefit for the three months ended June 30, 2021 relates to discrete items offset by foreign income taxes.

The tax expense for the three months ended June 30, 2020 relates to foreign income taxes partially offset by discrete items.

The Company’s income tax benefit of $ 12,000 for the six months ended June 30, 2021 reflects an effective tax rate of 0.0 %.

The Company’s income tax expense of $ 0.5 million for the six months ended June 30, 2020 reflects an effective tax rate of ( 1.6 )%.

The majority of the tax benefit for the six months ended June 30, 2021 relates to discrete items offset by foreign income taxes.

The majority of the tax expense for the six months ended June 30, 2020 relates to foreign income taxes and discrete items.

JAKKS PACIFIC, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

June 30, 2021

Note 8 — Loss Per Share

The following table is a reconciliation of the weighted average shares used in the computation of loss per share for the periods presented (in thousands, except per share data):

Three Months Ended March 31,

Three Months Ended

Six Months Ended

Net income attributable to non-controlling interests

4 unchanged sentences

Loss per share available to common stockholders - basic and diluted

* Net loss attributable to common stockholders was computed by deducting preferred dividends of $ 326,094 and $ 307,000 for the three months ended March 31, 2021 and 2020, respectively.

* Net loss attributable to common stockholders was computed by deducting preferred dividends of $ 330,985 and $ 657,079 for the three and six months ended June 30, 2021, respectively.

Net loss attributable to common stockholders was computed by deducting preferred dividends of $ 311,849 and $ 619,090 for the three and six months ended June 30, 2020, respectively.

Basic earnings (loss) per share is calculated using the weighted average number of common shares outstanding during the period.

Diluted earnings (loss) per share is calculated using the weighted average number of common shares and common share equivalents outstanding during the period (which consist of restricted stock awards, restricted stock units and convertible debt to the extent they are dilutive).

For the three months ended March 31, 2021 and 2020, the convertible senior notes interest and related weighted common share equivalent of 3,853,393 and 3,774,766 , respectively, were excluded from the diluted earnings per share calculation since they would have been anti-dilutive.

Potentially dilutive restricted stock awards and units of 239,707 and 616,338 for each of the three months ended March 31, 2021 and 2020, respectively, were excluded from the computation of diluted earnings per share since they would have been anti-dilutive.

For the three and six months ended June 30, 2021, the convertible senior notes interest and related weighted common share equivalent of 3,012,120 and 3,430,432 , respectively, were excluded from the diluted earnings per share calculation since they would have been anti-dilutive.

For the three and six months ended June 30, 2020, the convertible senior notes interest and related weighted common share equivalent of 3,717,354 and 3,746,060 , respectively, were excluded from the diluted earnings per share calculation since they would have been anti-dilutive.

Potentially dilutive restricted stock awards and units of 291,187 and 267,631 for each of the three and six months ended June 30, 2021, respectively, were excluded from the computation of diluted earnings per share since they would have been anti-dilutive.

Potentially dilutive restricted stock awards and units of 603,479 and 609,909 for each of the three and six months ended June 30, 2020, respectively, were excluded from the computation of diluted earnings per share since they would have been anti-dilutive.

Note 9 — Common Stock and Preferred Stock

11 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

In January 2019, the Company was obligated to issue an aggregate of 306,122 shares of restricted stock at a value of approximately $ 4.5 million to two executive officers pursuant to the applicable employment contracts.

The shares were not issued at that time due to insufficient shares available in the 2002 Stock Award and Incentive Plan.

Such shares were subsequently approved by the Company's shareholders and issued in July 2019.

In addition, an aggregate of 32,823 shares of restricted stock at an aggregate value of approximately $ 0.5 million were issued to its six non-employee directors.

In August 2019, the Board resolved to accelerate and immediately vest upon closing of the Recapitalization Transaction, 16,417 shares of the annual stock compensation granted to resigning members of the Board on January 1, 2019.

Each resigning Board member forfeited the remaining balance of the annual stock compensation granted on January 1, 2019, or an aggregate of 5,470 shares.

The remaining 10,936 shares of restricted stock vested in January 2020.

June 30, 2021

In January 2020, the Company issued an aggregate of 70,421 shares of restricted stock at a value of approximately $ 0.7 million to two executive officers, which vest, in four equal annual installments over four years .

16 unchanged sentences

As a result, the Company recorded an increase to additional paid-in capital of $ 5.6 million.

No dividend was declared or paid in the three months ended March 31, 2021 and 2020.

In May 2021, $ 2.0 million of the New Oasis Notes (including $ 93,805 in PIK interest) were converted for 354,170 shares of common stock.

As a result, the Company recorded an increase to additional paid-in capital of $ 4.0 million.

In June 2021, $ 5.0 million of the New Oasis Notes (including $ 245,040 in PIK interest) were converted for 885,425 shares of common stock.

As a result, the Company recorded an increase to additional paid-in capital of $ 10.3 million.

No dividend was declared or paid in the three and six months ended June 30, 2021 and 2020.

Preferred Stock

On August 9, 2019, in connection with the Recapitalization Transaction (see Note 5 - Debt), the Company issued 200,000 shares of Series A Senior Preferred Stock (the “Series A Preferred Stock”), $ 0.001 par value per share, to the Investor Parties (the “New Preferred Equity”).

As of March 31, 2021 and December 31, 2020, 200,000 shares of Series A Preferred Stock were outstanding.

As of June 30, 2021 and December 31, 2020, 200,000 shares of Series A Preferred Stock were outstanding.

Each share of Series A Preferred Stock has an initial value of $ 100 per share, which is automatically increased for any accrued and unpaid dividends (the “Accreted Value”).

2 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

June 30, 2021

The Series A Preferred Stock has the right to receive dividends on a quarterly basis equal to 6.0 % per annum, payable in cash or, if not paid in cash, by an automatic accretion of the Series A Preferred Stock.

No dividends have been declared or paid.

For the three months ended March 31, 2021 and 2020, the Company recorded $ 326,094 and $ 307,000 , respectively of preferred stock dividends as an increase in the value of the Series A Preferred Stock.

The Series A Preferred Stock has no stated maturity, however, the Company has the right to redeem all or a portion of the Series A Preferred Stock at its Liquidation Preference (as defined below) at any time after payment in full of the New Term Loan.

No cash dividends have been declared or paid.

For the three and six months ended June 30, 2021, the Company recorded $ 330,985 and $ 657,079 of preferred stock dividends as an increase in the value of the Series A Preferred Stock, respectively.

For the three and six months ended June 30, 2020, the Company recorded $ 311,849 and $ 619,090 of preferred stock dividends as an increase in the value of the Series A Preferred Stock, respectively.

In addition, upon the occurrence of certain change of control type events, holders of the Series A Preferred Stock are entitled to receive an amount (the “Liquidation Preference”), in preference to holders of Common Stock or other junior stock, equal to (i) 20 % of the Accreted Value in the case of a certain specified transaction, or (ii) otherwise, 150 % of the Accreted value, plus any accrued and unpaid dividends.

The Company has the right, but is not required, to repurchase all or a portion of the Series A Preferred Stock at its Liquidation Preference at any time after payment in full of the New Term Loan (see Note 5 - Debt).

The Company has the right, but is not required, to repurchase all or a portion of the Series A Preferred Stock at its Liquidation Preference at any time after payment in full of the 2019 Recap Term Loan (see Note 5 - Debt).

The Series A Preferred Stock does not have any voting rights, except to the extent required by the Delaware General Corporation Law, except for the exclusive right to elect the Series A Preferred Directors (as described below) and except for certain approval rights over certain transactions (as described below).

15 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

June 30, 2021

The embedded redemption upon a change of control must be accounted for separately from the Series A Preferred Stock.

7 unchanged sentences

The probability of a triggering event was based on management’s estimates of the probability of a change of control event occurring.

As of March 31, 2021, the Series A Preferred Stock is recorded in temporary equity at the amount of accrued, but unpaid dividends of $ 2.1 million, and the redemption provision, as a bifurcated derivative, is recorded as a long term liability with an estimated value of $ 15.4 million.

As of June 30, 2021, the Series A Preferred Stock is recorded in temporary equity at the amount of accrued, but unpaid dividends of $ 2.4 million, and the redemption provision, as a bifurcated derivative, is recorded as a long term liability with an estimated value of $ 17.0 million.

As of December 31, 2020, the Series A Preferred Stock is recorded in temporary equity at the amount of accrued, but unpaid dividends of $ 1.7 million, and the redemption provision, as a bifurcated derivative, is recorded as a long term liability with an estimated value of $ 8.1 million.

3 unchanged sentences

Balance, March 31,

Preferred stock accrued dividends

Balance, June 30,

Note 10 — Joint Ventures

5 unchanged sentences

The joint venture was terminated on December 2, 2020.

For the three months ended March 31, 2021 and 2020 the Company recognized income from Pacific Animation Partners of nil and $ 2,000 , respectively.

As of March 31, 2021 and December 31, 2020, the balance of the investment in Pacific Animation Partners is nil .

In September 2012, the Company entered into a joint venture (“DreamPlay Toys”) with NantWorks LLC (“NantWorks”) in which it owns a fifty percent interest.

The Company retains the financial risk of the joint venture and is responsible for the day-to-day operations, which are expected to be nominal in future periods.

The results of operations of the joint venture are consolidated with the Company’s results.

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

In addition, in 2012, the Company invested $ 7.0 million in cash in exchange for a five percent economic interest in a related entity, DreamPlay, LLC, that was expected to monetize the exploitation of the recognition technologies in non-toy consumer product categories.

Adoption of the technology has been inadequate to establish a commercially viable market for the technology.

NantWorks has the right to repurchase the Company’s interest for $7.0 million, but the Company does not anticipate that NantWorks will do so.

As of September 30, 2017, the Company determined the value of this investment will not be realized and that full impairment of the value had occurred.

Accordingly, the Company recorded an impairment charge of $ 7.0 million during the quarter ended September 30, 2017.

For the three and six months ended June 30, 2021 the Company recognized income from Pacific Animation Partners of nil .

For the three and six months ended June 30, 2020, the Company recognized income from the joint venture of nil and $ 2,000 , respectively.

As of June 30, 2021 and December 31, 2020, the balance of the investment in Pacific Animation Partners is nil .

In November 2014, the Company entered into a joint venture with Meisheng Culture & Creative Corp., for the purpose of providing certain JAKKS licensed and non-licensed toys and consumer products to agreed-upon territories of the People’s Republic of China.

1 unchanged sentence

The Company owns fifty-one percent of the joint venture and consolidates the joint venture since control rests with the Company.

The non-controlling interest’s share of the income was $ 35,000 and $ 40,000 for the three months ended March 31, 2021 and 2020, respectively.

The non-controlling interest’s share of the income was $ 24,000 and $ 59,000 for the three and six months ended June 30, 2021, respectively.

The non-controlling interest’s share of the income was $ 8,000 and $ 48,000 for the three and six months ended June 30, 2020, respectively.

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

In October 2016, the Company entered into a joint venture with Hong Kong Meisheng Cultural Company Limited ("Meisheng"), a Hong Kong-based subsidiary of Meisheng Culture & Creative Corp., for the purpose of creating and developing original, multiplatform content for children including new short-form series and original shows.

3 unchanged sentences

The results of operations of the joint venture are consolidated with the Company's results.

The non-controlling interest’s share of the income (loss) from the joint venture for the three months ended March 31, 2021 and 2020 was nil .

As of March 31, 2021, Meisheng beneficially owns more than 8.5 % of the Company’s outstanding common stock.

The non-controlling interest’s share of the income (loss) from the joint venture for the three and six months ended June 30, 2021 and 2020 was nil .

As of June 30, 2021, Meisheng beneficially owns more than 7.0 % of the Company’s outstanding common stock.

In March 2017, the Company entered into an equity purchase agreement with Meisheng which provided, among other things, that as long as Meisheng and its affiliates hold 10 % or more of the issued and outstanding shares of common stock of the Company, Meisheng shall have the right from time to time to designate a nominee (who currently is Mr.

2 unchanged sentences

In the first quarter of 2019, Meisheng acquired New Time Group, which was a third-party manufacturer of the Company.

For the three months ended March 31, 2021 and 2020, the Company made inventory-related payments to Meisheng of approximately $ 7.5 million and $ 9.0 million, respectively.

As of March 31, 2021 and December 31, 2020, amounts due to Meisheng for inventory received by the Company, but not paid totaled $ 6.0 million and $ 10.1 million, respectively.

For the three and six months ended June 30, 2021, the Company made inventory-related payments to Meisheng of approximately $ 21.8 million and $ 29.2 million, respectively.

For the three and six months ended June 30, 2020, the Company made inventory-related payments to Meisheng of approximately $ 14.0 million and $ 23.0 million, respectively.

As of June 30, 2021 and December 31, 2020, amounts due to Meisheng for inventory received by the Company, but not paid totaled $ 19.6 million and $ 10.1 million, respectively.

Note 11 — Goodwill

1 unchanged sentence

Goodwill impairment exists when the estimated fair value of goodwill is less than its carrying value.

Based on several factors that occurred during the quarter ended March 31, 2020, the Company determined the fair value of its reporting units should be retested for potential impairment.

As a result of the retesting performed, no goodwill impairment was determined to have occurred for the three months ended March 31, 2020.

For the three months ended March 31, 2021, there were no events or circumstances that indicated that an impairment loss may have been incurred.

As of March 31, 2021, $ 35.1 million of goodwill was allocated to the Toys/Consumer Products reporting unit, which had a negative carrying value.

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

Based on the Company's April 1 annual assessment, it determined that the fair values of its reporting units were not less than the carrying amounts.

No goodwill impairment was determined to have occurred for the six months ended June 30, 2021.

As of June 30, 2021, $ 35.1 million of goodwill was allocated to the Toys/Consumer Products reporting unit, which had a negative carrying value.

Note 12 — Intangible Assets Other Than Goodwill

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Trademarks are disclosed separately in the accompanying condensed consolidated balance sheets.

Intangible assets as of March 31, 2021 and December 31, 2020 include the following (in thousands, except for weighted useful lives):

March 31, 2021

Intangible assets as of June 30, 2021 and December 31, 2020 include the following (in thousands, except for weighted useful lives):

June 30, 2021

December 31, 2020

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Unamortized Intangible Assets:

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

Note 13 — Comprehensive Loss

The table below presents the components of the Company’s comprehensive loss for the three months ended March 31, 2021 and 2020 (in thousands):

The table below presents the components of the Company’s comprehensive loss for the three and six months ended June 30, 2021 and 2020 (in thousands):

Three Months Ended

Six Months Ended

Other comprehensive income (loss):

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As additional information becomes available, the Company assesses the potential liability related to its pending litigation and revises its estimates.

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

A purported class action lawsuit was filed on November 10, 2020 in the United States District Court for the District of Delaware (Brown v.

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The Plan is more fully described in Notes 15 and 18 to the Consolidated Financial Statements in the Company’s 2020 Annual Report on Form 10-K.

The following table summarizes the total share-based compensation expense recognized for the three months ended March 31, 2021 and 2020 (in thousands):

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

The following table summarizes the total share-based compensation expense recognized for the three and six months ended June 30, 2021 and 2020 (in thousands):

Three Months Ended

Six Months Ended

Share-based compensation expense

Restricted Stock Awards

Restricted stock award activity (including those with performance-based vesting criteria) for the three months ended March 31, 2021 is summarized as follows:

Restricted stock award activity (including those with performance-based vesting criteria) for the six months ended June 30, 2021 is summarized as follows:

Restricted Stock Awards

3 unchanged sentences

Outstanding, December 31, 2020

Outstanding, March 31, 2021

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

As of March 31, 2021, there was $ 2.3 million of total unrecognized compensation cost related to non-vested restricted stock awards, which is expected to be recognized over a weighted-average period of 2.24 years.

Outstanding, June 30, 2021

As of June 30, 2021, there was $ 1.9 million of total unrecognized compensation cost related to non-vested restricted stock awards, which is expected to be recognized over a weighted-average period of 2.09 years.

Restricted Stock Units

Restricted stock unit activity (including those with performance-based vesting criteria) for the three months ended March 31, 2021 is summarized as follows:

Restricted stock unit activity (including those with performance-based vesting criteria) for the six months ended June 30, 2021 is summarized as follows:

Restricted Stock Units

3 unchanged sentences

Outstanding, December 31, 2020

Outstanding, March 31, 2021

As of March 31, 2021, there was $ 0.3 million of total unrecognized compensation cost related to non-vested restricted stock units, which is expected to be recognized over a weighted-average period of 2.44 years.

Outstanding, June 30, 2021

As of June 30, 2021, there was $ 0.3 million of total unrecognized compensation cost related to non-vested restricted stock units, which is expected to be recognized over a weighted-average period of 2.20 years.

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

Note 16 — Fair Value Measurements

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The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

The following tables summarize the Company's financial liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 (in thousands):

The following tables summarize the Company's financial liabilities measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020 (in thousands):

Fair Value Measurements

as of March 31, 2021

Carrying Amount as

of March 31, 2021

as of June 30, 2021

Carrying Amount as of

June 30, 2021

3.25% convertible senior notes due in 2023

Preferred stock derivative liability

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

Fair Value Measurements

as of December 31, 2020

Carrying Amount as

of December 31, 2020

Carrying Amount as of

December 31, 2020

3.25% convertible senior notes due in 2023

Preferred stock derivative liability

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

The following tables provide a reconciliation of the beginning and ending balances of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands):

3 unchanged sentences

Change in fair value

Balance, March 31,

Balance, June 30,

Preferred stock derivative liability

1 unchanged sentence

Change in fair value

Balance, March 31,

Balance, June 30,

The Company’s derivative liability is classified within Level 3 of the fair value hierarchy because unobservable inputs were used in estimating the fair value.

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Note 17 — Related Party Transactions

In November 2014, the Company entered into a joint venture with Meisheng Cultural & Creative Corp., Ltd., for the purpose of providing certain JAKKS licensed and non-licensed toys and consumer products to agreed-upon territories of the People’s Republic of China.

In November 2014, the Company entered into a joint venture with Meisheng Cultural & Creative Corp., Ltd., (“MC&C”) for the purpose of providing certain JAKKS licensed and non-licensed toys and consumer products to agreed-upon territories of the People’s Republic of China.

The joint venture includes a subsidiary in the Shanghai Free Trade Zone that sells, distributes and markets these products, which include dolls, plush, role play products, action figures, costumes, seasonal items, technology and app-enhanced toys, based on top entertainment licenses and JAKKS’ own proprietary brands.

The Company owns fifty-one percent of the joint venture and consolidates the joint venture since control rests with the Company.

The non-controlling interest’s share of the income was $ 35,000 and $ 40,000 for the three months ended March 31, 2021 and 2020, respectively.

The non-controlling interest’s share of the income was $ 24,000 and $ 59,000 for the three and six months ended June 30, 2021, respectively.

The non-controlling interest’s share of the income was $ 8,000 and $ 48,000 for the three and six months ended June 30, 2020, respectively.

In October 2016, the Company entered into a joint venture with Hong Kong Meisheng Cultural Company Limited ("Meisheng"), a Hong Kong-based subsidiary of Meisheng Culture & Creative Corp, for the purpose of creating and developing original, multiplatform content for children including new short-form series and original shows.

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The results of operations of the joint venture are consolidated with the Company's results.

The non-controlling interest’s share of the income (loss) from the joint venture for three months ended March 31, 2021 and 2020 was nil .

As of March 31, 2021, Meisheng beneficially owns more than 8.5 % of the Company’s outstanding common stock.

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

The non-controlling interest’s share of the income (loss) from the joint venture for three and six months ended June 30, 2021 and 2020 was nil .

MC&C is an affiliate of Meisheng.

As of June 30, 2021, Meisheng beneficially owns more than 7.0 % of the Company’s outstanding common stock.

In March 2017, the Company entered into an agreement to issue 366,089 shares of its common stock at an aggregate price of $ 19.3 million to a Hong Kong affiliate of its China joint venture partner.

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In 2019, the Company issued 5,471 shares of restricted stock at a value of $ 0.1 million to the non-employee director, which vested in January 2020.

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

Meisheng also serves as a significant manufacturer of the Company.

In the first quarter of 2019, Meisheng acquired New Time Group, which was a third-party manufacturer of the Company.

For the three months ended March 31, 2021 and 2020, the Company made inventory-related payments to Meisheng of approximately $ 7.5 million and $ 9.0 million, respectively.

As of March 31, 2021 and December 31, 2020, amounts due to Meisheng for inventory received by the Company, but not paid totaled $ 6.0 million and $ 10.1 million, respectively.

For the three and six months ended June 30, 2021, the Company made inventory-related payments to Meisheng of approximately $ 21.8 million and $ 29.2 million, respectively.

For the three and six months ended June 30, 2020, the Company made inventory-related payments to Meisheng of approximately $ 14.0 million and $ 23.0 million, respectively.

As of June 30, 2021 and December 31, 2020, amounts due to Meisheng for inventory received by the Company, but not paid totaled $ 19.6 million and $ 10.1 million, respectively.

A director of the Company is a portfolio manager at Oasis Management.

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The New Oasis Notes mature 91 days after the amounts outstanding under the New Term Loan are paid in full, and in no event later than July 3, 2023.

The New Oasis Notes mature 91 days after the amounts outstanding under the 2019 Recap Term Loan are paid in full, and in no event later than July 3, 2023.

The maturity date for the convertible senior notes has been accelerated to September 2021 due to the repayment and termination of the 2019 Recap Term Loan Agreement which triggered the early maturity of the notes.

A director of the Company is a director at Benefit Street Partners.

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The transaction closed on February 8, 2021.

As of March 31, 2021, Benefit Street Partners held $ 90.1 million in principal amount (including $ 3.9 million in PIK interest) of the New Term Loan.

As of June 30, 2021, Benefit Street Partners held $ 10.7 million in principal amount (including $ 0.2 million in PIK interest) of the New Oasis Notes.

On June 2, 2021, the Company entered into the 2021 BSP Term Loan Agreement with Benefit Street Partners as Sole Lead Arranger for a $ 99.0 million Initial Term Loan and a $ 19.0 million Delayed Draw Term Loan.

These fees are being amortized over the life of the 2021 BSP Term Loan.

Proceeds from the 2021 BSP Term Loan, together with available cash from the Company, were used to repay the Company’s 2019 Recap Term Loan.

Proceeds from the Delayed Draw Term Loan may be used to redeem any of the Company’s outstanding 3.25 % convertible senior notes due 2023.

On July 29, 2021 the Company terminated its Delayed Draw Term Loan option.

The 2021 BSP Term Loan matures in June 2027.

The 2021 BSP Term Loan Agreement contains negative covenants, events of default, and the obligations under the 2021 BSP Term Loan Agreement are guaranteed by the Company.

The terms, covenants, events of default, and Company obligations are described in more detail in Note 5 – Debt, as well as in the 2021 BSP Term Loan Agreement.

As of June 30, 2021, Benefit Street Partners held $ 99.0 million in principal amount of the 2021 BSP Term Loan.

A director of the Company is the managing Partner and portfolio manager at Axar Capital Management.

As of March 31, 2021, Axar Capital Management held nil in principal amount of the New Term Loan.

As of June 30, 2021, Axar Capital Management held nil in principal amount of the 2019 Recap Term Loan.

As of December 31, 2020, Axar Capital Management held $ 24.3 million in principal amount (including $ 0.9 million in payment-in-kind interest) of the 2019 Recap Term Loan.

JAKKS PACIFIC, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

Note 18 — Prepaid Expense and Other Assets

Prepaid expenses and other assets as of March 31, 2021 and December 31, 2020 consist of the following (in thousands):

Prepaid expenses and other assets as of June 30, 2021 and December 31, 2020 consist of the following (in thousands):

Royalty advances

Short term deposits

Prepaid expenses

3 unchanged sentences

Note 19 — Subsequent Events

On May 4, 2021, $ 1.0 million of the New Oasis Notes (including $ 46,539 in PIK interest) were converted for 177,085 shares of common stock.

In July 2021, $ 11.2 million (including $ 583,540 in PIK interest) of the New Oasis Notes were converted for 1,975,164 shares of common stock.

On July 29, 2021 the Company terminated its Delayed Draw Term Loan option.

In August 2021, $ 2.5 million (including $ 132,395 in PIK interest) of the New Oasis Notes were converted for 442,713 shares of common stock.

Management ’ s Discussion and Analysis of Financial Condition and Results of Operations

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On March 23, 2020, we encouraged our staff to begin working from home.

We expect that to be our operating model for an undetermined period of time, and to the extent permitted by federal, state and local instructions to reopen;

We identified expense reductions that we intend to implement throughout the remainder of fiscal 2021, as necessary;

In the US, we began to return to an in-office working model in July 2021, but have paused that transition in consideration of the rise in cases attributable to the Delta-variant of COVID-19.

We plan to monitor infection and transmission rates on a weekly basis and do not have an anticipated date for a more traditional work-from office operating model, while also remaining cognizant of federal, state and local guidelines;

Although our distribution center in City of Industry, California currently continues to operate, we continue to evaluate its operations, and may elect, or be required, to shut down its operations temporarily at any time in the future;

We have suspended all non-essential travel for our employees;

We are discouraging employee attendance at industry events and in-person work-related meetings.

We have significantly reduced non-essential travel for our employees;

We are minimizing employee attendance at industry events and in-person work-related meetings.

Each of the remedial measures taken by us has had, and we expect will continue to have, adverse impacts on our current business, financial condition and results of operations, and may create additional risks for us.

55 unchanged sentences

Shipping and handling activities are considered part of our obligation to transfer the products and therefore are recorded as direct selling expenses, as incurred.

Our reserve for sales returns and allowances amounted to $39.5 million as of March 31, 2021 and $42.1 million as of December 31, 2020.

Our reserve for sales returns and allowances amounted to $42.3 million as of June 30, 2021 and $42.1 million as of December 31, 2020.

Fair value measurements.

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If a reporting unit's carrying value exceeds its fair value, an impairment charge would be recognized for the excess amount, not to exceed the carrying amount of goodwill.

Based on several factors that occurred during the quarter ended March 31, 2020, we determined the fair value of our reporting units should be retested for potential impairment.

As a result of the retesting performed, no goodwill impairment was determined to have occurred for the three-month period ended March 31, 2020.

No goodwill impairment was determined to have occurred for the three-month period ended March 31, 2021.

Based on our April 1 annual assessment, we determined that the fair values of our reporting units were not less than the carrying amounts.

No goodwill impairment was determined to have occurred for the six months ended June 30, 2021.

Impairment of Long-Lived Assets.

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Discrete Items for Income Taxes.

The discrete expense recorded in the three months ended March 31, 2021 is $22,000 which is primarily related to excess tax deficiencies fully offset by valuation allowance, state income taxes, and foreign return-to-provision adjustments.

For the comparable period in 2020, a discrete tax benefit of $20,000 was recorded related to excess tax deficiencies fully offset by valuation allowance and change in uncertain tax positions.

The discrete benefit recorded in the six months ended June 30, 2021 is $0.3 million which is primarily related to the change in uncertain tax positions offset by state income taxes, foreign return-to-provision adjustments, and excess tax deficiencies fully offset by valuation allowance.

For the comparable period in 2020, a discrete tax expense of $29,000 was recorded related to excess tax deficiencies fully offset by valuation allowance, state income taxes, foreign return-to-provision adjustment, and change in uncertain tax positions.

Income taxes and interest and penalties related to income tax payable.

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The reserve is based upon management’s assessment of all relevant information and is periodically reviewed and adjusted as circumstances warrant.

As of March 31, 2021 and December 31, 2020, our income tax reserves were approximately $1.0 million.

As of June 30, 2021, and December 31, 2020, our income tax reserves were approximately $0.2 million and $1.0 million, respectively.

The $0.2 million balance primarily relates to the potential tax settlements in Hong Kong.

Our income tax reserves are included in income tax payable on the Condensed Consolidated Balance Sheets and within provision for income taxes on the Condensed Consolidated Statements of Operations and Comprehensive Loss.

Our income tax reserves are included in income tax payable on the Condensed Consolidated Balance Sheets and within provision for (benefit from) income taxes on the Condensed Consolidated Statements of Operations and Comprehensive Loss.

Share-Based Compensation.

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The following unaudited table sets forth, for the periods indicated, certain statement of income data as a percentage of net sales:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Cost of sales

Selling, general and administrative expenses

Loss from operations

Restructuring charge

Pandemic related charges

Income (loss) from operations

Income from joint ventures

2 unchanged sentences

Change in fair value of convertible senior notes

Loss on debt extinguishment

Interest income

Interest expense

Loss before provision for income taxes

Provision for income taxes

Loss before provision for (benefit from) income taxes

Provision for (benefit from) income taxes

Net income attributable to non-controlling interests

1 unchanged sentence

The following unaudited table summarizes, for the periods indicated, certain statements of operations data by segment (in thousands):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Toys/Consumer Products

2 unchanged sentences

Toys/Consumer Products

Comparison of the Three Months Ended March 31, 2021 and 2020

Comparison of the Three Months Ended June 30, 2021 and 2020

Toys/Consumer Products.

Net sales of our Toys/Consumer Products segment were $79.9 million for the three months ended March 31, 2021 compared to $62.6 million for the prior year period, representing an increase of $17.3 million, or 27.6%.

Double-digit sales growth was seen across all three divisions:

Boys, Girls, and Seasonal/Outdoor.

Sales from Boys’ toys increased in the quarter led by video game related toys like Nintendo®, Sonic the Hedgehog®, and Apex Legends®.

Net sales of our Toys/Consumer Products segment were $81.5 million for the three months ended June 30, 2021 compared to $56.2 million for the prior year period, representing an increase of $25.3 million, or 45.0%.

Double-digit sales growth was seen across all the Boys and Girls divisions, while sales for the Seasonal/Outdoor division were flat.

Sales from Boys’ toys increased in the quarter led by video game related toys like Nintendo® and Sonic the Hedgehog®.

Girls’ toys saw increases from Disney Princess® and Disney Raya®, with positive contributions from Perfectly Cute®.

Seasonal grew over the prior year period with the help of Redo Skateboards® and activity tables.

Net sales of our Costumes segment were $4.0 million for the three months ended March 2021 compared to $4.0 million for the prior year period.

Sales for the quarter were flat, in line with the seasonal nature of the costume business.

Sales from Redo helped keep the Seasonal division flat over the prior year period.

Net sales of our Costumes segment were $30.8 million for the three months ended June 30, 2021 compared to $22.5 million for the prior year period, representing an increase of $8.3 million, or 36.9%.

Sales for the quarter increased as retailers are planning for a stronger Halloween than prior year.

Cost of Sales

Toys/Consumer Products .

Cost of sales of our Toys/Consumer Products segment was $54.2 million, or 67.8% of related net sales for the three months ended March 31, 2021 compared to $47.4 million, or 75.7% of related net sales for the prior year period, representing an increase of $6.8 million, or 14.3%.

Cost of sales of our Toys/Consumer Products segment was $56.0 million, or 68.7% of related net sales for the three months ended June 30, 2021 compared to $42.9 million, or 76.3% of related net sales for the prior year period, representing an increase of $13.1 million, or 30.5%.

The increase in dollars is due to higher overall sales in 2021.

1 unchanged sentence

A lower average royalty rate, in part driven by the mix of products sold in the quarter also contributed to the decrease.

Cost of sales of our Costumes segment was $3.6 million, or 90.0% of related net sales for the three months ended March 31, 2021 compared to $2.8 million, or 70.0% of related net sales for the prior year period, representing an increase in dollars of $0.8 million, or 28.6%.

The increase in dollars and as a percentage of net sales, year over year, is due to an increase in customer credits attributable to slower-moving products.

Cost of sales of our Costumes segment was $24.5 million, or 79.5% of related net sales for the three months ended June 30, 2021 compared to $19.0 million, or 84.4% of related net sales for the prior year period, representing an increase in dollars of $5.5 million, or 28.9%.

The increase in dollars is due to higher sales, while the decrease in percentage of net sales, year over year, is due to a focused effort to design and develop our product lines for greater margin.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $28.8 million for the three months ended March 31, 2021 compared to $32.3 million for the prior year period constituting 34.4% and 48.6% of net sales, respectively.

Selling, general and administrative expenses decreased by $3.5 million from the prior year period primarily driven by a $1.9 million employee retention credit and company-wide cost savings initiatives begun in 2019 as well as other pandemic-driven cost mitigation programs.

Selling, general and administrative expenses were $30.1 million for the three months ended June 30, 2021 compared to $24.7 million for the prior year period constituting 26.8% and 31.3% of net sales, respectively.

Selling, general and administrative expenses increased by $5.4 million from the prior year period primarily as a result of higher warehousing and freight charges due to increased shipping for the quarter.

Restructuring Charge

During the three months ended June 30, 2020, we recognized $1.6 million of restructuring charges as a result of a company-wide restructuring initiative.

The restructuring charges primarily related to employee severance costs.

Pandemic Related Charges

During the three months ended June 30, 2020, we recognized $0.2 million spending directly attributable to making necessary accommodations related to the COVID-19 pandemic.

Interest Expense

Interest expense was $4.9 million for the three months ended March 31, 2021, as compared to $5.5 million in the prior year period.

During the three months ended March 31, 2021, we booked interest expense of $0.4 million related to our convertible senior notes due in 2023, $4.3 million related to our Term Loan, and $0.2 million related to our revolving credit facility.

During the three months ended March 31, 2020, we booked interest expense of $0.6 million related to our convertible senior notes, $4.7 million related to our Term Loan, and $0.2 million related to our revolving credit facility.

Provision for Income Taxes

Our income tax expense, which includes federal, state and foreign income taxes and discrete items, was $0.1 million, or an effective tax rate of (0.4)%, for the three months ended March 31, 2021.

Interest expense was $4.4 million for the three months ended June 30, 2021, as compared to $5.5 million in the prior year period.

During the three months ended June 30, 2021, we booked interest expense of $3.0 million related to our 2019 Recap Term Loan, $0.9 million related to our 2021 BSP Term Loan, $0.3 million related to our convertible senior notes due in 2023 and $0.2 million related to our revolving credit facility.

During the three months ended June 30, 2020, we booked interest expense of $0.6 million related to our convertible senior notes due in 2020 and 2023, $4.6 million related to our 2019 Recap Term Loan and $0.3 million related to our revolving credit facility.

Provision for (Benefit from) Income Taxes

Our income tax benefit, which includes federal, state and foreign income taxes and discrete items, was $0.1 million, or an effective tax rate of 0.7%, for the three months ended June 30, 2021.

During the comparable period in 2020, our income tax expense was $0.3 million, or an effective tax rate of (1.2)%.

Comparison of the Six Months Ended June 30, 2021 and 2020

Toys/Consumer Products .

Net sales of our Toys/Consumer Products segment were $161.4 million for the six months ended June 30, 2021 compared to $118.8 million for the prior year period, representing an increase of $42.6 million, or 35.9%.

The increase in net sales is primarily driven by strong performance across the Boys, Girls and Seasonal/Outdoor divisions.

Net sales of our Costumes segment were $34.8 million for the six months ended June 30, 2021 compared to $26.5 million for the prior year period, representing an increase of $8.3 million, or 31.3%.

Sales were higher due to retailers’ plans for a return to a more normal Halloween in 2021.

Cost of Sales

Toys/Consumer Products.

Cost of sales of our Toys/Consumer Products segment was $110.2 million, or 68.3% of related net sales for the six months ended June 30, 2021 compared to $90.4 million, or 76.1% of related net sales for the prior year period, representing an increase of $19.8 million, or 21.9%.

The increase in dollars is due to higher overall sales in 2021.

The decrease as a percentage of net sales, year over year, is due to lower average manufacturing costs resulting from a focused effort to design and develop our product lines for greater product margins.

This decrease is partially offset by a higher average royalty rate, in part driven by the mix of products sold during the six-month period.

Cost of sales of our Costumes segment was $28.0 million, or 80.5% of related net sales for the six months ended June 30, 2021 compared to $21.8 million, or 82.2% of related net sales for the prior year period, representing an increase in dollars of $6.2 million, or 28.4%.

The increase in dollars is due to higher overall sales in 2021.

The decrease in percentage of net sales is due to a focused effort to design and develop our product lines for greater margin, partially offset by higher ocean freight expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $58.9 million for the six months ended June 30, 2021 compared to $57.0 million for the prior year period constituting 30.0% and 39.2% of net sales, respectively.

Selling, general and administrative expenses increased by $1.9 million from the prior year period due to slightly higher Direct Selling and Product Development and Testing expenses.

Restructuring Charge

During the six months ended June 30, 2020, we recognized $1.6 million of restructuring charges as a result of a company-wide restructuring initiative.

The restructuring charges primarily related to employee severance costs.

Pandemic Related Charges

During the six months ended June 30, 2020, we recognized $0.2 million spending directly attributable to making necessary accommodations related to the COVID-19 pandemic.

Interest Expense

Interest expense was $9.2 million for the six months ended June 30, 2021, as compared to $11.1 million in the prior year period.

During the six months ended June 30, 2021, we booked interest expense of $7.3 million related to our 2019 Recap Term Loan, $0.9 million related to our 2021 BSP Term Loan, $0.6 million related to our convertible senior notes due in 2023 and $0.4 million related to our revolving credit facility.

During the six months ended June 30, 2020, we booked interest expense of $1.2 million related to our convertible senior notes due in 2020 and 2023, $9.3 million related to our 2019 Recap Term Loan and $0.6 million related to our revolving credit facility.

Provision for (Benefit From) Income Taxes

Our income tax benefit, which includes federal, state and foreign income taxes and discrete items, was $12,000, or an effective tax rate of 0.0%, for the six months ended June 30, 2021.

During the comparable period in 2020, our income tax expense was $0.5 million, or an effective tax rate of (1.6)%.

Seasonality and Backlog

8 unchanged sentences

Liquidity and Capital Resources

As of March 31, 2021, we had working capital of $107.8 million, compared to $112.6 million as of December 31, 2020.

Operating activities used net cash of $7.0 million in the three months ended March 31, 2021, as compared to $18.9 million in the prior year period.

Net cash during the three months ended March 31, 2021 was primarily impacted by a decrease in accrued expenses, accounts payable and reserve for sales returns and allowances, and an increase in prepaid expenses and other assets, partially offset by a decrease in accounts receivable.

Net cash during the three months ended March 31, 2020 was primarily impacted by a decrease in accounts payable, accrued expenses and reserve for sales returns and allowances, partially offset by a decrease in accounts receivable.

As of June 30, 2021, we had working capital (inclusive of cash, cash equivalents and restricted cash) of $45.9 million, compared to $112.6 million as of December 31, 2020, representing a decrease in working capital of $66.7 million during the six month period ended June 30, 2021.

The decrease in working capital is primarily due to the refinancing of our debt resulting in lower cash balances and higher short term debt due to the acceleration of the maturity of our convertible senior notes to mature in early September 2021, as well as, an increase in accounts payable.

These decreases are partially offset by increases in inventory and prepaid and other expenses.

Operating activities used net cash of $18.5 million during the six months ended June 30, 2021, as compared to $11.9 million in the prior year period.

The decrease in net cash during the six months ended June 30, 2021 was primarily impacted by the net loss, excluding the impact of non-cash charges, and an increase in accounts receivable, inventory, and prepaid expenses and other assets, partially offset by an increase in accounts payable.

Net cash during the six months ended June 30, 2020 was primarily impacted by a decrease in accounts payable, accrued expenses and reserve for sales returns and allowances, partially offset by a decrease in accounts receivable.

Other than open purchase orders issued in the normal course of business related to shipped product, we have no obligations to purchase inventory from our manufacturers.

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As part of our strategy to develop and market new products, we have entered into various character and product licenses with royalties/obligations generally ranging from 1% to 23% payable on net sales of such products.

As of March 31, 2021, these agreements required future aggregate minimum royalty guarantees of $33.7 million, exclusive of $15.1 million in advances already paid.

As of June 30, 2021, these agreements required future aggregate minimum royalty guarantees of $29.8 million exclusive of $12.2 million in advances already paid.

Of this $29.8 million future minimum royalty guarantee, $20.0 million is due over the next twelve months.

Our investing activities used net cash of $1.5 million in the three months ended March 31, 2021, as compared to using net cash of $1.6 million in the prior year period, and consisted primarily of cash paid for the purchase of molds and tooling used in the manufacture of our products.

Our financing activities used cash of $0.2 million for the three months ended March 31, 2021 and 2020, consisting of the repurchase of common stock for employee tax withholding.

As of March 31, 2021, we have $125.3 million (including $5.5 million in PIK interest) of outstanding indebtedness under a First Lien Term Loan Facility Credit Agreement (the “New Term Loan Agreement) and we have no outstanding indebtedness under an amended and extended Credit Agreement (the “Amended ABL Credit Agreement” or “Amended Wells Fargo Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”).

We also have a $6.2 million PPP Loan under the PPP provided under the CARES Act.

The New Term Loan Agreement and Amended ABL Credit Agreement each contain negative covenants that, subject to certain exceptions, limit our ability to, among other things, incur additional indebtedness, make restricted payments, pledge their assets as security, make investments, loans, advances, guarantees and acquisitions, undergo fundamental changes and enter into transactions with affiliates, as well as cross-default provisions.

The original terms of the New Term Loan Agreement required us to maintain a trailing 12-month Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) (as defined and adjusted therein) of not less than $34.0 million and a minimum liquidity of not less than $10.0 million commencing with the fiscal quarter ending September 30, 2020.

On October 16, 2020, we reached an agreement (the “Amendment”) with holders of our term loan and Wells Fargo Bank, National Association (“Wells Fargo”), holder of our revolving credit facility, to amend our New Term Loan Agreement and defer the EBITDA covenant calculation until March 31, 2022.

Under the Amendment, the trailing 12-month EBITDA requirement was reduced to $25.0 million, which will not be calculated earlier than March 31, 2022.

The Amendment also required us to pre-pay $15.0 million of the New Term Loan immediately and, under certain conditions, pre-pay up to an additional $5.0 million no later than the third quarter of fiscal year 2021.

In connection with the amendments on October 20, 2020, we paid $15.0 million of our outstanding principal amount and $0.3 million in related interest and PIK interest.

If an event of default occurs under either Agreement, the maturity of the amounts owed under the New Term Loan Agreement and the Amended Wells Fargo Credit Agreement may be accelerated.

We were in compliance with the financial covenants under the New Term Loan Agreement as of March 31, 2021.

Debt and Credit Facilities

Convertible Senior Notes

In July 2013, we sold an aggregate of $100.0 million principal amount of 4.25% convertible senior notes due 2018 (the “2018 Notes”).

The 2018 Notes, which were senior unsecured obligations, paid interest semi-annually in arrears on August 1 and February 1 of each year at a rate of 4.25% per annum and matured on August 1, 2018.

Excluding the impact of the Reverse Stock Split, the initial conversion rate for the 2018 Notes was 114.3674 shares of our common stock per $1,000 principal amount of notes, equivalent to an initial conversion price of approximately $8.74 per share of common stock, subject to adjustment in certain events.

In 2016, we repurchased and retired an aggregate of approximately $6.1 million principal amount of the 2018 Notes.

During the first quarter of 2017, we exchanged and retired $39.1 million principal amount of the 2018 Notes at par for $24.1 million in cash and approximately 290,000 shares of our common stock.

During the second quarter of 2017, we exchanged and retired $12.0 million principal amount of the 2018 Notes at par for $11.6 million in cash and 11,240 shares of our common stock.

In August 2017, we agreed with Oasis Management and Oasis Investments II Master Fund Ltd., (collectively, “Oasis”) the holder of approximately $21.6 million face amount of our 4.25% convertible senior notes due in 2018, to extend the maturity date of these notes to November 1, 2020.

In addition, the interest rate was reduced to 3.25% per annum and, excluding the impact of the Reverse Stock Split, the conversion rate was increased to 328.0302 shares of our common stock per $1,000 principal amount of notes, among other things.

After execution of a definitive agreement for the modification and final approval by the other members of our Board of Directors and Oasis’ Investment Committee, the transaction closed on November 7, 2017.

On July 26, 2018, we closed a transaction with Oasis to exchange $8.0 million face amount of the 2018 Notes with convertible senior notes similar to those issued to Oasis in November 2017.

The July 26, 2018 $8.0 million Oasis notes mature on November 1, 2020, accrue interest at an annual rate of 3.25%, and excluding the impact of the Reverse Stock Split, are convertible into shares of our common stock at a rate of 322.2688 shares per $1,000 principal amount of the new notes.

The conversion price for the 3.25% convertible senior notes due 2020 was reset on November 1, 2018 and November 1, 2019 (each, a “reset date”) to a price equal to 105% above the 5-day Volume Weighted Average Price ("VWAP") preceding the reset date;

provided, however, among other reset restrictions, that if the conversion price resulting from such reset is lower than 90 percent of the average VWAP during the 90 calendar days preceding the reset date, then the reset price shall be the 30-day VWAP preceding the reset date.

Excluding the impact of the Reverse Stock Split, the conversion price of the 3.25% convertible senior notes due 2020 reset on November 1, 2018 to $2.54 per share and the conversion rate was increased to 393.7008 shares of our common stock per $1,000 principal amount of notes.

The remaining $13.2 million of 2018 Notes were redeemed at par at maturity on August 1, 2018.

In August 2019, we entered into and consummated multiple, binding definitive agreements (collectively, the “Recapitalization Transaction”) among Wells Fargo, Oasis Investments II Master Fund Ltd.

and an ad hoc group of holders of the 4.875% convertible senior notes due 2020 ( the "Investor Parties") to recapitalize our balance sheet, including the extension to us of incremental liquidity and at least three-year extensions of substantially all of our outstanding convertible debt obligations and revolving credit facility.

Our term loan agreement entered into with Great American Capital Partners was paid in full and terminated in connection with the Recapitalization Transaction.

In connection with the Recapitalization Transaction, we issued (i) amended and restated notes with respect to the $21.6 million Oasis Note issued on November 7, 2017, and the $8.0 million Oasis Note issued on July 26, 2018 (together, the “Existing Oasis Notes”), and (ii) a new $8.0 million convertible senior note having the same terms as such amended and restated notes (the "New $8.0 million Oasis Note" and collectively, the “New Oasis Notes” or the "3.25% convertible senior notes due 2023").

Interest on the New Oasis Notes is payable on each May 1 and November 1 until maturity and accrues at an annual rate of (i) 3.25% if paid in cash or 5.00% if paid in stock plus (ii) 2.75% payable in kind.

The New Oasis Notes mature 91 days after the amounts outstanding under the New Term Loan are paid in full, and in no event later than July 3, 2023.

Excluding the impact of the Reverse Stock Split, the New Oasis Notes provide, among other things, that the initial conversion price is $1.00.

The conversion price will be reset on each February 9 and August 9, starting on February 9, 2020 (each, a “reset date”) to a price equal to 105% of the 5-day VWAP preceding the applicable reset date.

Under no circumstances shall the reset result in a conversion price be below the greater of (i) the closing price on the trading day immediately preceding the applicable reset date and (ii) 30% of the stock price as of the Transaction Agreement Date, or August 7, 2019, and will not be greater than the conversion price in effect immediately before such reset.

We may trigger a mandatory conversion of the New Oasis Notes if the market price exceeds 150% of the conversion price under certain circumstances.

We may redeem the New Oasis Notes in cash if a person, entity or group acquires shares of our Common Stock, par value $0.001 per share (the “Common Stock”), and as a result owns at least 49% of our issued and outstanding Common Stock.

On February 9, 2020, excluding the impact of the Reverse Stock Split, the conversion price of the New Oasis Notes reset to $1.00 per share ($10.00 per share after the Reverse Stock Split).

On August 9, 2020, the conversion price of the New Oasis Notes reset to $5.647.

On February 9, 2021, the conversion price of the New Oasis Notes recalculated and remained unchanged at $5.647.

In June 2020, $7.1 million of the New Oasis Notes (including $0.2 million in PIK interest) were converted for 710,100 shares of common stock.

As a result, we recorded an increase to additional paid-in capital of $9.5 million.

In August 2020, $1.0 million of the New Oasis Notes (including $27,288 in PIK interest) were converted for 177,085 shares of common stock.

As a result, we recorded an increase to additional paid-in capital of $1.3 million.

In October 2020, $2.0 million of the New Oasis Notes (including $63,225 in PIK interest) were converted for 354,170 shares of common stock.

As a result, we recorded an increase to additional paid-in capital of $2.6 million.

In November 2020, $4.0 million of the New Oasis Notes (including $138,248 in PIK interest) were converted for 708,340 shares of common stock.

As a result, we recorded an increase to additional paid-in capital of $5.4 million.

In December 2020, $1.0 million of the New Oasis Notes (including $36,528 in PIK interest) were converted for 177,085 shares of common stock.

As a result, we recorded an increase to additional paid-in capital of $1.4 million.

In March 2021, $3.0 million of the New Oasis Notes (including $128,230 in PIK interest) were converted for 531,255 shares of common stock.

As a result, the Company recorded an increase to additional paid-in capital of $5.6 million.

On February 5, 2021, Benefit Street Partners and Oasis Investment II Master Funds Ltd, both related parties, entered into a purchase and sale agreement wherein Benefit Street Partners purchased $11.0 million of principal amount, plus all accrued and unpaid interest thereon, of the New Oasis Notes from Oasis Investment II Master Funds Ltd (see Note 17 – Related Party Transactions).

The transaction closed on February 8, 2021 (see Note 5 – Debt).

In June 2014, we sold an aggregate of $115.0 million principal amount of 4.875% convertible senior notes due 2020 (the “2020 Notes”).

The 2020 Notes are senior unsecured obligations paying interest semi-annually in arrears on June 1 and December 1 of each year at a rate of 4.875% per annum and will mature on June 1, 2020.

Excluding the impact of the Reverse Stock Split, the initial and still current conversion rate for the 2020 Notes is 103.7613 shares of our common stock per $1,000 principal amount of notes, equivalent to an initial conversion price of approximately $9.64 per share of common stock, subject to adjustment in certain events.

Upon conversion, the 2020 Notes will be settled in shares of our common stock.

Holders of the 2020 Notes may require that we repurchase for cash all or some of their notes upon the occurrence of a fundamental change (as defined in the 2020 Notes).

In January 2016, we repurchased and retired an aggregate of $2.0 million principal amount of the 2020 Notes.

In connection with the Recapitalization Transaction, the 2020 Notes with a face amount of $111.1 million of the total $113.0 million that were outstanding at the time of the Recapitalization Transaction were refinanced and the maturity dates were extended.

Of the refinanced amount, $103.8 million was refinanced with the Investor Parties through the issuance of the New Common Equity, the New Preferred Equity (see Note 9 - Common Stock and Preferred Stock) and new secured term debt that matures in February 2023 (see Term Loan section below).

Additionally, $1.0 million of accrued interest was refinanced with the Investor Parties.

The remaining refinanced amount of $7.3 million was exchanged into the New $8.0 million Oasis Note discussed above.

The remaining $1.9 million principal amount of 2020 Notes were redeemed at par at maturity on June 1, 2020.

On August 9, 2019, in connection with the Recapitalization Transaction, we entered into a First Lien Term Loan Facility Credit Agreement, (the “New Term Loan Agreement”), with certain holders of the 2020 Notes, or the Investor Parties, and Cortland Capital Market Services LLC, as agent, for a $134.8 million first-lien secured term loan (the “New Term Loan”).

We also issued common stock and preferred stock (see Note 9 - Common Stock and Preferred Stock) to the Investor Parties.

Amounts outstanding under the New Term Loan accrue interest at 10.50% per annum, payable semi-annually (with 8% per annum payable in cash and 2.5% per annum payable in kind).

The New Term Loan matures on February 9, 2023.

The New Term Loan Agreement contains negative covenants that, subject to certain exceptions, limit our ability and the ability of our subsidiaries to, among other things, incur additional indebtedness, make restricted payments, pledge assets as security, make investments, loans, advances, guarantees and acquisitions, undergo fundamental changes and enter into transactions with affiliates.

The original terms of the New Term Loan Agreement required us to maintain a trailing 12-month EBITDA (as defined and adjusted therein) of not less than $34.0 million and a minimum liquidity of not less than $10.0 million commencing with the fiscal quarter ending September 30, 2020.

On October 16, 2020, we reached an agreement (the “Amendment”) with holders of our New Term Loan and Wells Fargo, holder of our revolving credit facility, to amend our New Term Loan Agreement and defer the EBITDA covenant calculation until March 31, 2022.

Under the Amendment, the trailing 12-month EBITDA requirement was reduced to $25.0 million, which will not be calculated earlier than March 31, 2022.

In connection with the amendments, on October 20, 2020, we paid $15.0 million of our outstanding principal amount and $0.3 million in related interest and PIK interest.

As of March 31, 2021, we had $125.3 million (including $5.5 million in PIK interest) outstanding under the New Term Loan Agreement.

The New Term Loan Agreement contains events of default that are customary for a facility of this nature, including nonpayment of principal, nonpayment of interest, fees or other amounts, material inaccuracy of representations and warranties, violations of covenants, cross-default to other material indebtedness, bankruptcy or insolvency events, material judgment defaults and a change of control as specified in the New Term Loan Agreement.

If an event of default occurs, the maturity of the amounts owed under the New Term Loan Agreement may be accelerated.

The obligations under the New Term Loan Agreement are guaranteed by us, the subsidiary borrowers thereunder and certain of the other existing and future direct and indirect subsidiaries and are secured by substantially all of our assets, the subsidiary borrowers thereunder and such other subsidiary guarantors, in each case, subject to certain exceptions and permitted liens.

Loan under Paycheck Protection Program

On June 12, 2020, we received a $6.2 million PPP Loan under the PPP within the CARES Act.

The PPP Loan matures on June 2, 2022 and is subject to the CARES Act terms which include, among other terms, an interest rate of 1.00% per annum and monthly installment payments of $261,275 commencing on September 27, 2021.

The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties.

The PPP Loan is subject to events of default and other provisions customary for a loan of this type.

The loan received has been recorded as a liability by the Company as of the date received.

We intend to apply for forgiveness of amounts received under the PPP, in accordance with the requirements of the CARES Act, as amended.

Any loan amounts forgiven will be removed from liabilities recorded.

While we used the proceeds of the PPP Loan only for permissible purposes, there can be no assurance that we will be eligible for forgiveness of the PPP Loan, in full or in part.

In March 2014, we and our domestic subsidiaries entered into a secured credit facility with General Electric Capital Corporation (“GECC”).

The credit facility, as amended and subsequently assigned to Wells Fargo pursuant to its acquisition of GECC, provides for a $75.0 million revolving credit facility subject to availability based on prescribed advance rates on certain domestic accounts receivable and inventory amounts used to compute the borrowing base (the “Credit Facility”).

The Credit Facility includes a sub-limit of up to $35.0 million for the issuance of letters of credit.

The amounts outstanding under the Credit Facility, as amended, were payable in full upon maturity of the facility on September 27, 2019, except that the Credit Facility would mature on June 15, 2018 if we did not refinance or extend the maturity of the convertible senior notes that mature in 2018, provided that any such refinancing or extension shall have a maturity date that is no sooner than six months after the stated maturity of the Credit Facility (i.e., on or about September 27, 2019).

On June 14, 2018, we entered into a Term Loan Agreement with Great American Capital Partners Finance Co., LLC (“GACP”) to provide the necessary capital to refinance the 2018 convertible senior notes (see additional details regarding the Term Loan Agreement below).

In addition, on June 14, 2018, we revised certain of the Credit Facility documents (and entered into new ones) so that certain of our Hong Kong based subsidiaries became additional parties to the Credit Facility.

As a result, the receivables of these subsidiaries can now be included in the borrowing base computation, subject to certain limitations, thereby effectively increasing the amount of funds we can borrow under the Credit Facility.

Any additional borrowings under the Credit Facility will be used for general working capital purposes.

In August 2019, in connection with the Recapitalization Transaction (see Note 5 - Debt), we entered into an amended and extended revolving credit facility with Wells Fargo (the “Amended ABL Credit Agreement”).

The Amended ABL Credit Agreement, amends, extends and restates our existing Credit Facility, dated as of March 27, 2014, as amended, with GECC and subsequently assigned to Wells Fargo, to, among other things, decrease the borrowing capacity from $75.0 million to $60.0 million and extend the maturity to August 9, 2022.

The obligations under the Amended ABL Credit Agreement are guaranteed by us, the subsidiary borrowers thereunder and certain of the other existing and future direct and indirect subsidiaries and are secured by substantially all of our assets, the subsidiary borrowers thereunder and such other subsidiary guarantors, in each case, subject to certain exceptions and permitted liens.

As of March 31, 2021, the amount of outstanding borrowings was nil, the amount of outstanding stand-by letters of credit was $10.8 million and the total excess borrowing capacity was $35.0 million.

As of December 31, 2020, the amount of outstanding borrowings was nil, the amount of outstanding stand-by letters of credit was $10.8 million and the total excess borrowing capacity was $37.3 million.

The Amended ABL Credit Agreement contains negative covenants that, subject to certain exceptions, limit our ability to, among other things, incur additional indebtedness, make restricted payments, pledge our assets as security, make investments, loans, advances, guarantees and acquisitions, undergo fundamental changes and enter into transactions with affiliates.

We are also required to maintain a fixed charge coverage ratio of not less than 1.1 to 1.0 under certain circumstances, and a minimum liquidity of $25.0 million and a minimum availability of at least $9.0 million.

As of March 31, 2021 and December 31, 2020, we are in compliance with the financial covenants under the Amended ABL Credit Agreement and the previous Credit Facility, as applicable.

Any amounts borrowed under the Amended ABL Credit Agreement accrue interest, at either (i) LIBOR plus 1.50%-2.00% (determined by reference to a fixed charge coverage ratio-based pricing grid) or (ii) base rate plus 0.50%-1.00% (determined by reference to a fixed charge coverage ratio-based pricing grid).

As of March 31, 2021 and December 31, 2020, the weighted average interest rate on the credit facility with Wells Fargo was nil.

The Amended ABL Agreement also contains customary events of default, including a cross default provision and a change of control provision.

In the event of a default, all of our obligations and our subsidiaries obligations under the Amended ABL Agreement may be declared immediately due and payable.

For certain events of default relating to insolvency, all outstanding obligations become due and payable.

As described in the aforementioned Term Loan section, on October 16, 2020, we amended the New Term Loan Agreement to reduce the amount and defer the calculation of our EBITDA covenant, with Wells Fargo as party to the agreement.

Great American Capital Partners

On June 14, 2018, we entered into a Term Loan Agreement, Term Note, Guaranty and Security Agreement and other ancillary documents and agreements (the “Term Loan”) with GACP, for itself as a Lender (as defined below) and as the agent (in such capacity, “Agent”) for the Lenders from time to time party to the Term Loan (collectively, “Lenders”) and the other “Secured Parties” under and as defined therein, with respect to the issuance to us by Lenders of a $20.0 million term loan.

To secure our obligations under the Term Loan, we granted to Agent, for the benefit of the Secured Parties, a security interest in a substantial amount of our consolidated assets and a pledge of the majority of the capital stock of various of our subsidiaries.

The Term Loan was a secured obligation, second only to the Credit Facility with Wells Fargo, except with respect to certain of our inventory in which GACP has a priority secured position.

The Term Loan required the repayment of principal in the amount of 10% of the outstanding Term Loan per year (payable monthly) beginning after the first anniversary.

All then-outstanding borrowings under the Term Loan would be due, and the Term Loan would terminate, no later than June 14, 2021, unless sooner terminated in accordance with its terms, which included the date of termination of the Wells Fargo Credit Facility and the date that is 91 days prior to the maturity of our various convertible senior notes due in 2020 (see Note 5 - Debt).

We were permitted to prepay the Term Loan, which would have required a prepayment fee (i) in year one of up to any unearned and unpaid interest that would have become due and payable in year one had the prepayment not occurred plus 2% of the initial amount of the Term Loan (i.e., $20.0 million), (ii) in year two of 2% of the initial amount of the Term Loan and (iii) in year three of 1% of the initial amount of the Term Loan.

In August 2019, in connection with the Recapitalization Transaction (see Note 5 - Debt), we repaid in full and terminated the Term Loan Agreement.

We are subject to negative covenants which, during the life of the Amended Wells Fargo Credit Agreement and New Term Loan Agreement, prohibit and/or limit us from, among other things, incurring certain types of other debt, acquiring other companies, making certain expenditures or investments, and changing the character of our business.

An outbreak of infectious disease, a pandemic or a similar public health threat, such as the 2019 Novel Coronavirus outbreak, or a fear of any of the foregoing, could adversely impact our ability to comply with such covenants.

Our failure to comply with such covenants or any other breach of the Amended Wells Fargo Credit Agreement or New Term Loan Agreement could cause a default and we may then be required to repay borrowings under our Amended Wells Fargo Credit Agreement or New Term Loan Agreement with capital from other sources, or reach some other accommodation with those parties.

As of March 31, 2021 and December 31, 2020, we held cash and cash equivalents, including restricted cash, of $84.1 million and $92.7 million, respectively.

Cash, and cash equivalents, including restricted cash held outside of the United States in various foreign subsidiaries totaled $30.5 million and $48.7 million as of March 31, 2021 and December 31, 2020, respectively.

Our investing activities used net cash of $3.7 million in the six months ended June 30, 2021, as compared to using net cash of $4.3 million in the prior year period, and consisted primarily of cash paid for the purchase of molds and tooling used in the manufacture of our products.

Our financing activities used cash of $32.5 million for the six months ended June 30, 2021, consisting of the repayment of our 2019 Recap Term Loan of $125.8 million, as well as, debt issuance costs of $2.8 million incurred in connection with the refinancing of our debt (see Note 5 - Debt), partially offset by the net proceeds from the issuance of our 2021 BSP Term Loan of $96.3 million.

Our financing activities provided net cash of $4.1 million for the six months ended June 30, 2020, primarily consisting of proceeds from the loan under the Paycheck Protection Program, partially offset by the retirement of convertible senior notes.

As of June 30, 2021, we have $99.0 million of outstanding indebtedness under our first-lien secured term loan (the “2021 BSP Term Loan Agreement”) and we have no outstanding indebtedness under our senior secured revolving credit facility (the “JPMorgan ABL Facility”), aside from utilizing $11.0 million in letters of credit.

We also have a $6.2 million PPP Loan under the PPP provided under the CARES Act and $14.1 million (including $0.7 million in PIK interest) of outstanding indebtedness under the New Oasis Notes.

The First Lien Term Loan Facility Credit Agreement (the “2021 BSP Term Loan Agreement”) and the Credit Agreement with JPMorgan Chase Bank, N.A., as agent and lender (the “JPMorgan ABL Credit Agreement”) each contain negative covenants that, subject to certain exceptions, limit our ability and our subsidiaries ability to, among other things, incur additional indebtedness, make restricted payments, pledge our assets as security, make investments, loans, advances, guarantees and acquisitions, undergo fundamental changes and enter into transactions with affiliates.

The terms of the 2021 BSP Term Loan Agreement also require us to maintain a Net Leverage Ratio of 4:00x, with step-downs occurring each fiscal year starting with the quarter ending March 31, 2022 through the quarter ending September 30, 2024 in which we are required to maintain a Net Leverage Ratio of 3:00x.

As of the Closing Date, we must maintain a minimum cash balance of not less than $20.0 million.

The minimum cash balance can be reduced to $15.0 million in increments of $1.0 million for every $5.0 million in principal repayment of the 2021 BSP Term Loan.

The terms of the JPMorgan ABL Credit Agreement also subject us to a springing fixed charge coverage ratio covenant of not less than 1.1 to 1.0 under certain circumstances.

The terms of both Agreements are described in more detail in their respective Agreements.

The 2021 BSP Term Loan Agreement and the JPMorgan ABL Agreement contain events of default that are customary for a facility of this nature, including (subject in certain cases to grace periods and thresholds) nonpayment of principal, nonpayment of interest, fees or other amounts, material inaccuracy of representations and warranties, violation of covenants, cross-default to certain other existing indebtedness, bankruptcy or insolvency events, certain judgment defaults and a change of control as specified in each Agreement.

If an event of default occurs under either Agreement, the maturity of the amounts owed under the 2021 BSP Term Loan Agreement and the JPMorgan ABL Agreement may be accelerated.

We were in compliance with the financial covenants under the 2021 BSP Term Loan Agreement and the JPMorgan ABL Agreement as of June 30, 2021.

See Note 5 – Debt and Note 6 – Credit Facilities for additional information pertaining to our Debt and Credit Facilities.

As of June 30, 2021 and December 31, 2020, we held cash and cash equivalents, including restricted cash, of $38.3 million and $92.7 million, respectively.

Cash, and cash equivalents, including restricted cash held outside of the United States in various foreign subsidiaries totaled $18.0 million and $48.7 million as of June 30, 2021 and December 31, 2020, respectively.

The cash and cash equivalents, including restricted cash balances in our foreign subsidiaries have either been fully taxed in the U.S.

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tax should such amounts be repatriated in the form of dividends or deemed distributions.

Any such repatriation may result in foreign withholding taxes, which we expect would not be significant as of March 31, 2021.

Our primary sources of working capital are cash flows from operations and borrowings under our Amended Wells Fargo Credit Agreement (see Note 6 - Credit Facilities).

Any such repatriation may result in foreign withholding taxes, which we expect would not be significant as of June 30, 2021.

Our primary sources of working capital are cash flows from operations and borrowings under our JPMorgan ABL Facility (see Note 6 - Credit Facilities).

Typically, cash flows from operations are impacted by the effect on sales of (1) the appeal of our products, (2) the success of our licensed brands in motivating consumer purchase of related merchandise, (3) the highly competitive conditions existing in the toy industry and in securing commercially-attractive licenses, (4) dependency on a limited set of large customers, and (5) general economic conditions.

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Off-Balance Sheet Arrangements

As of March 31, 2021, off-balance sheet arrangements include letters of credit issued by Wells Fargo of $10.8 million.

As of June 30, 2021, off-balance sheet arrangements include letters of credit issued by JPMorgan of $11.0 million.

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-Q

Item 1. Financial Statements