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Item 5. Market for Registrant’s Common Equity

2025-03-06 compared with 2024-03-15 · 451 added, 205 removed, 78 unchanged (89% of the section changed)

Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market for Registrant ’ s Common Equity,

Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock is traded on the Nasdaq Global Select exchange under the symbol “JAKK.”

Our common stock is traded on the Nasdaq Global

Select exchange under the symbol “JAKK.”

Security Holders

To the best of our knowledge, as of March 08, 2024, there were 53 holders of record of our common stock.

The payment of dividends on common stock is at the discretion of the Board of Directors and is subject to customary limitations and may be subject to certain restrictions under our credit facility and through March 10, 2024 were also subject to certain restrictions pursuant to the terms of our preferred stock.

To the best of our knowledge, as of February 18,

2025, there were 48 holders of record of our common stock.

The payment of dividends on common stock is at the discretion of the

Board of Directors and is subject to customary limitations and may be subject to certain restrictions under our credit facility.

were declared or paid in 2024.

However, on February 20, 2025, we issued a press release announcing that our Board of Directors declared

a quarterly cash dividend of $0.25 per common share.

The dividend will be payable on March 31, 2025 to shareholders of record at the close

of business on March 3, 2025.

Compensation Plan Information

The table below sets forth the following information as of the year ended December 31, 2023 for (i) all compensation plans previously approved by our stockholders and (ii) all compensation plans not previously approved by our stockholders, if any:

(a) the number of securities to be issued upon the exercise of outstanding options, warrants and rights;

(b) the weighted-average exercise price of such outstanding options, warrants and rights;

(c) other than securities to be issued upon the exercise of such outstanding options, warrants and rights, the number of securities remaining available for future issuance under the plans.

The table below sets forth the following information

as of the year ended December 31, 2024, for (i) all compensation plans previously approved by our stockholders and (ii) all compensation

plans not previously approved by our stockholders, if any:

(a) the number of securities to be issued upon the

exercise of outstanding options, warrants and rights;

(b) the weighted-average exercise price of such

outstanding options, warrants and rights;

exercise of such outstanding options, warrants and rights, the number of securities remaining available for future issuance under the

Plan Category

Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights

Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights

Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans, Excluding Securities Reflected in Column (c)

Securities to

Available for

Equity compensation plans approved by security holders

Equity compensation plans not approved by security holders

Equity compensation plans approved by our stockholders consist of the 2002 Stock Award and Incentive Plan.

An additional 1.0 million, 1.0 million, 3.6 million, 2.5 million and 1.4 million shares were added to the number of total issuable shares under the Plan and approved by the Board in 2023, 2021, 2019, 2017, and 2013, respectively.

Additionally, no shares subject to restricted stock awards remained unvested and no restricted stock awards have been issued as of December 31, 2023.

Disclosures with respect to equity issuable to certain of our executive officers pursuant to the terms of their employment agreements are disclosed below under Item 11.

Equity compensation plans approved by our stockholders consist of the

2002 Stock Award and Incentive Plan.

An additional 1.0 million, 1.0 million, 3.6 million, 2.5 million and 1.4 million shares were added

to the number of total issuable shares under the Plan and approved by the Board in 2023, 2021, 2019, 2017, and 2013, respectively.

Additionally,

no shares subject to restricted stock awards and no stock options remained unvested and no restricted stock awards and no stock options

have been issued as of December 31, 2024.

Disclosures with respect to equity issuable to certain of our executive officers pursuant to

the terms of their employment agreements are disclosed below under Item 11.

Issuer Purchases of Equity Securities

There were no issuer purchases of equity securities in the fourth quarter of 2023.

There were no issuer purchases of equity securities

in the fourth quarter of 2024.

Issuer Unregistered Sale of Equity Securities

There were no issuer sales of unregistered equity securities in the fourth quarter of 2023.

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

The following Management ’ s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties.

There were no issuer sales of unregistered equity

securities in the fourth quarter of 2024.

Management ’ s Discussion and Analysis

of Financial Condition and Results of Operations

The following Management ’ s Discussion

and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors.

You should read this section in conjunction with our consolidated financial statements and the related notes included in Item 8 “ Consolidated Financial Statements and Supplementary Data.

You should read this section in conjunction with our consolidated financial statements and the related notes included in Item 8 “ Consolidated

Financial Statements and Supplementary Data.

Critical Accounting Estimates

The accompanying consolidated financial statements and supplementary information were prepared in accordance with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements

and supplementary information were prepared in accordance with accounting principles generally accepted in the United States of America.

Significant accounting policies are discussed in Note 2 to the Consolidated Financial Statements, included within Item 8.

Inherent in the application of many of these accounting policies is the need for management to make estimates and judgments in the determination of certain revenues, expenses, assets and liabilities.

As such, materially different financial results can occur as circumstances change and additional information becomes known.

The estimates with the greatest potential effect on our results of operations and financial position include:

the application of many of these accounting policies is the need for management to make estimates and judgments in the determination of

certain revenues, expenses, assets and liabilities.

As such, materially different financial results can occur as circumstances change

and additional information becomes known.

The estimates with the greatest potential effect on our results of operations and financial

position include:

Allowance for Current Expected Credit Losses.

Our allowance for current expected credit losses is based upon management’s assessment of the business environment, customers’ risk profile characteristics, historical collection and loss information, aging of accounts receivables, and other matters specific to customer accounts in the establishment of pools.

If there were a deterioration of a major customer’s creditworthiness, or actual defaults were higher than our current expected credit losses, our estimates of the recoverability of amounts due to us could be misstated, which could have an adverse impact on our operating results.

Our allowance for current expected credit losses is also affected by the time at which uncollectible accounts receivable balances are actually written off.

Management believes the accounting estimate related to the allowance for current expected credit losses is a “critical accounting policy” because judgement is required in the establishment of pools based on customer risk profile characteristics and the historical loss rates applied to each pool.

In addition, the allowance requires judgement since it involves estimation of the impact of both current and future economic factors in relation to its customers’ risk profile characteristics.

Changes in the assumptions used to develop the estimates could materially affect key financial measures, including other selling and administrative expenses, net income and accounts receivable.

We enter into license agreements with strategic partners, inventors, designers and others for the use of intellectual properties in its products.

These agreements may call for payment in advance or future payment of minimum guaranteed amounts.

Amounts paid in advance are recorded as an asset and charged to expense when the related revenue is recognized in the consolidated statements of operations.

If all or a portion of the minimum guaranteed amounts appear not to be recoverable through future use of the rights obtained under the license, the non-recoverable portion of the guaranty is charged to expense at that time.

On a quarterly basis, we evaluate the recoverability of minimum guarantee amounts based on forecasted revenues to be received for the products and record a shortfall reserve for expected un-recoverable amounts.

If our actual revenue generated differs from our projections, recoverability of our minimum guarantees would be impacted and could materially affect key financial measures, including gross profit, net income and prepaid assets.

Our allowance for current expected credit losses is based upon management’s assessment of the business environment, customers’

risk profile characteristics, historical collection and loss information, aging of accounts receivables, and other matters specific to

customer accounts in the establishment of pools.

If there were a deterioration of a major customer’s creditworthiness, or actual

defaults were higher than our current expected credit losses, our estimates of the recoverability of amounts due to us could be misstated,

which could have an adverse impact on our operating results.

Our allowance for current expected credit losses is also affected by the

time at which uncollectible accounts receivable balances are actually written off.

Management believes the accounting estimate related

to the allowance for current expected credit losses is a “critical accounting policy” because judgement is required in the

establishment of pools based on customer risk profile characteristics and the historical loss rates applied to each pool.

the allowance requires judgement since it involves estimation of the impact of both current and future economic factors in relation to

its customers’ risk profile characteristics.

Changes in the assumptions used to develop the estimates could materially affect key

financial measures, including other selling and administrative expenses, net income and accounts receivable.

We enter into license

agreements with strategic partners, inventors, designers and others for the use of intellectual properties in its products.

These agreements

may call for payment in advance or future payment of minimum guaranteed amounts.

Amounts paid in advance are recorded as an asset and

charged to expense when the related revenue is recognized in the consolidated statements of operations.

If all or a portion of the minimum

guaranteed amounts appear not to be recoverable through future use of the rights obtained under the license, the non-recoverable portion

of the guaranty is charged to expense at that time.

On a quarterly basis, we evaluate the recoverability of minimum guarantee amounts

based on forecast revenues to be received for the products and record a shortfall reserve for expected unrecoverable amounts.

If our actual

revenue generated differs from our projections, the recoverability of our minimum guarantees would be impacted and could materially affect

key financial measures, including gross profit, net income and prepaid assets.

Fair value measurements.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants

at the measurement date.

In determining fair value, we use various methods including market, income and cost approaches.

Based upon these approaches, we often utilize certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique.

These inputs can be readily observable, market-corroborated, or unobservable inputs.

We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

Based upon observable inputs used in the valuation techniques, we are required to provide information according to the fair value hierarchy.

The fair value hierarchy ranks the quality and reliability of the information used to determine fair values into three broad levels as follows:

Based upon these

approaches, we often utilize certain assumptions that market participants would use in pricing the asset or liability, including assumptions

about risk and/or the risks inherent in the inputs to the valuation technique.

These inputs can be readily observable, market-corroborated,

or unobservable inputs.

We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable

Based upon observable inputs used in the valuation techniques, we are required to provide information according to the fair value

The fair value hierarchy ranks the quality and reliability of the information used to determine fair values into three broad

levels as follows:

Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.

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Valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

In instances where the determination of the fair value measurement is based upon inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based upon the lowest level input that is significant to the fair value measurement in its entirety.

Our 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 (see Item 8 "Consolidated Financial Statements and Supplementary Data Note 15 - Fair Value Measurements” for further information).

In instances where the determination of the fair

value measurement is based upon inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within

which the entire fair value measurement falls is based upon the lowest level input that is significant to the fair value measurement in

its entirety.

Our 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 (see Item 8 “Consolidated Financial Statements and Supplementary Data Note

15 - Fair Value Measurements” for further information).

Reserve for Inventory Obsolescence.

We value our inventory at the lower of cost or net realizable value.

Based upon a consideration of quantities on hand, actual and projected sales volume, anticipated product selling prices and product lines planned to be discontinued, slow-moving and obsolete inventory is written down to its net realizable value.

Failure to accurately predict and respond to consumer demand could result in us under-producing popular items or over-producing less popular items.

Furthermore, significant changes in demand for our products would impact management’s estimates in establishing our inventory provision.

Management’s estimates are monitored on a quarterly basis, and a further adjustment to reduce inventory to its net realizable value is recorded as an increase to cost of sales when deemed necessary under the lower of cost or net realizable value standard.

Significant changes in the assumptions used to develop the estimate could materially affect key financial measures, including gross profit, net income and inventories.

Based upon consideration of quantities on hand, actual and projected

sales volume, anticipated product selling prices and product lines planned to be discontinued, slow-moving and obsolete inventory is written

down to its net realizable value.

Failure to accurately predict and respond to consumer

demand could result in us under-producing popular items or over-producing less popular items.

Furthermore, significant changes in demand

for our products would impact management’s estimates in establishing our inventory provision.

Management’s estimates are monitored on a

quarterly basis, and a further adjustment to reduce inventory to its net realizable value is recorded as an increase in the cost of sales

when deemed necessary under the lower of cost or net realizable value standard.

Significant changes in the assumptions used to develop

the estimate could materially affect key financial measures, including gross profit, net income and inventories.

Reserve for Sales Returns and Allowances .

We routinely enter into arrangements with our customers to provide sales incentives, support customer promotions and provide allowances for returns and defective merchandise.

Such programs are based primarily on customer purchases, customer performance of specified promotional activities and other specified factors such as sales to consumers.

Management believes that the accounting estimates related to sales adjustments are “critical accounting policies” because significant judgment is required to estimate related accruals, such as estimating volumes of defective products to support reserves for defective merchandise and estimating future customer performance and consumer preferences that could impact the discretionary sales promotions.

Significant changes in the assumptions used to develop the estimates could materially affect key financial measures, such as net sales, gross profit, net income, and reserve for sales returns and allowances.

We routinely enter into arrangements with our customers to provide sales incentives, support customer promotions and provide allowances

for returns and defective merchandise.

Such programs are based primarily on customer purchases, customer performance of specified promotional

activities and other specified factors such as sales to consumers.

Management believes that the accounting estimates related to sales

adjustments are “critical accounting policies” because significant judgment is required to estimate related accruals, such

as estimating volumes of defective products to support reserves for defective merchandise and estimating future customer performance and

consumer preferences that could impact the discretionary sales promotions.

Significant changes in the assumptions used to develop the

estimates could materially affect key financial measures, such as net sales, gross profit, net income, and reserve for sales returns and

Income Allocation for Income Taxes .

Our annual income tax provision and related income tax assets and liabilities are based upon actual income as allocated to the various tax jurisdictions based upon our transfer pricing study, US and foreign statutory income tax rates and tax regulations and planning opportunities in the various jurisdictions in which we operate.

Our annual income tax provision and related income tax assets and liabilities are based upon actual income as allocated to the various

tax jurisdictions based upon our transfer pricing study, US and foreign statutory income tax rates and tax regulations and planning opportunities

in the various jurisdictions in which we operate.

Significant judgment is required in interpreting tax regulations in the U.S.

and foreign jurisdictions, and in evaluating worldwide uncertain tax positions.

Actual results could differ materially from those judgments, and changes from such judgments could materially affect our consolidated financial statements.

jurisdictions, and in evaluating worldwide uncertain tax positions.

Actual results could differ materially from those judgments, and changes

from such judgments could materially affect our consolidated financial statements.

Income taxes.

We do not file a consolidated return for our foreign subsidiaries.

We file federal and state returns and our foreign subsidiaries each file returns in their respective jurisdictions, as applicable.

We do not file a consolidated

return for our foreign subsidiaries.

We file federal and state returns and our foreign subsidiaries each file returns in their respective

jurisdictions, as applicable.

Deferred taxes are provided on an asset and liability method.

Deferred tax assets are recognized as deductible temporary differences, operating losses, or tax credit carry-forwards.

Deferred tax assets are recognized as deductible

temporary differences, operating losses, or tax credit carry-forwards.

Deferred tax liabilities are recognized as taxable temporary differences.

Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some or all of the deferred tax assets will not be realized.

Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

We must assess the likelihood that we will be able to recover our deferred tax assets.

Deferred tax assets are reduced by a valuation allowance, if, based upon the weight of available evidence, it is more likely than not that we will not realize some portion or all of the deferred tax assets.

We consider all available positive and negative evidence when assessing whether it is more likely than not that deferred tax assets are recoverable.

We consider evidence such as our past operating results, the existence of cumulative losses or cumulative income in previous periods and our forecast of future taxable income.

We believe this to be a critical accounting policy because should there be a change in our ability to recover our deferred tax assets, our tax provision would increase in the period in which we determine that the recovery is not likely, as well as decrease in the period in which the assessment of the recoverability of the deferred tax assets reverses, which could have a material impact on our results of operations.

We accrue a tax reserve for additional income taxes and interest, which may become payable in future years as a result of audit adjustments by tax authorities.

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

As of December 31, 2023, our income tax reserves were approximately $3.2 million and relate to federal and state income taxes.

We recognize current period interest expense and penalties and the reversal of previously recognized interest expense and penalties that has been determined to not be assessable due to the expiration of the related audit period or other compelling factors on the income tax liability for unrecognized tax benefits as a component of the income tax provision recognized in the consolidated statements of operations.

Deferred tax assets

are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some or all of the deferred tax

assets will not be realized.

Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the

date of enactment.

We must assess the likelihood that we will be able

to recover our deferred tax assets.

Deferred tax assets are reduced by a valuation allowance, if, based upon the weight of available evidence,

it is more likely than not that we will not realize some portion or all of the deferred tax assets.

We consider all available positive

and negative evidence when assessing whether it is more likely than not that deferred tax assets are recoverable.

We consider evidence

such as our past operating results, the existence of cumulative losses or cumulative income in previous periods and our forecast of future

taxable income.

We believe this to be a critical accounting policy because should there be a change in our ability to recover our deferred

tax assets, our tax provision would increase in the period in which we determine that the recovery is not likely, as well as decrease

in the period in which the assessment of the recoverability of the deferred tax assets reverses, which could have a material impact on

our results of operations.

We accrue a tax reserve for additional income taxes

and interest, which may become payable in future years as a result of audit adjustments by tax authorities.

The reserve is based upon

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

As of December

31, 2024, our income tax reserves were approximately $3.2 million and relate to federal and state income taxes.

We recognize current period interest expense and

penalties and the reversal of previously recognized interest expense and penalties that has been determined to not be assessable due to

the expiration of the related audit period or other compelling factors on the income tax liability for unrecognized tax benefits as a

component of the income tax provision recognized in the consolidated statements of operations.

Recent Accounting Pronouncements.

See Item 8 “Consolidated Financial Statements and Supplementary Data Note 2 - Summary of Significant Accounting Policies.”

See Item 8 “Consolidated Financial Statements

and Supplementary Data Note 2 - Summary of Significant Accounting Policies.”

Results of Operations

The following table sets forth, for the periods indicated, certain statement of operations data as a percentage of net sales.

A discussion of the operating results for 2022 can be found in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on April 14, 2023, in Item 7.

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

The following table sets forth, for the periods

indicated, certain statement of operations data as a percentage of net sales.

A discussion of the operating results for 2023 can be found

in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on March 15, 2024, in Item 7.

Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations.

Year Ended December 31,

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Interest expense

Income (loss) before provision for (benefit from) income taxes

Provision for (benefit from) income taxes

Net income (loss)

Net income (loss) attributable to JAKKS Pacific, Inc.

Net income (loss) attributable to common stockholders

The following table summarizes, for the periods indicated, certain statement of operations data by segment (in thousands).

Income before provision for income taxes

Provision for income taxes

Net income attributable to JAKKS Pacific, Inc.

Net income attributable to common stockholders

The following table summarizes, for the periods

indicated, certain statement of operations data by segment (in thousands).

Year Ended December 31,

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Toys/Consumer Products.

Net sales of our Toys/Consumer Products segment were $580.7 million in 2023, compared to $647.3 million in 2022, representing a decrease of $66.6 million, or 10.3%.

The decrease in net sales was primarily due to lower sales in our Dolls, Role Play and Dress Up Division, partially offset by increased sales in our Action Play & Collectibles Division.

Net sales of our Costumes segment were $130.9 million in 2023, compared to $148.9 million in 2022, representing a decrease of $18.0 million, or 12.1%.

The decrease in net sales was primarily driven by US customers recalibrating their order levels down based on Halloween 2022 sell-through.

Net sales of our

Toys/Consumer Products segment were $570.0 million in 2024, compared to $580.7 million in 2023, representing a decrease of $10.7 million,

The decrease in net sales was primarily due to lower sales in the 1-2% range in each of our Dolls, Role Play and Dress Up Division,

Action Play & Collectibles Division and Seasonal Division.

Movie properties such as Sonic the Hedgehog 3 and Disney’s Moana

2 helped sales in 2024, but were offset by lower shipping from prior year movie properties such as The Super Mario Bros.

Movie, Disney’s

The Little Mermaid, Disney’s Wish and Disney’s Encanto.

Net sales of our Costumes segment

were $121.0 million in 2024, compared to $130.9 million in 2023, representing a decrease of $9.9 million, or 7.6%.

The decrease in net

sales was primarily driven by US customers recalibrating their order levels down based on Halloween 2023 sell-through.

Despite the lower

sales in the US, our International sales grew in 2024 to the highest year ever.

Cost of Sales

Toys/Consumer Products.

Cost of sales of our Toys/Consumer Products segment was $388.3 million, or 66.9% of related net sales in 2023 compared to $465.4 million, or 71.9% of related net sales in 2022 representing a decrease of $77.1 million or 16.6%.

The decrease in dollars is due to lower overall sales in 2023, while the decrease in percentage of net sales, year-over-year is due to lower inbound freight costs.

Cost of sales of our Costumes segment was $99.9 million, or 76.3% of related net sales for 2023 compared to $119.5 million, or 80.3% of related net sales for 2022 representing a decrease of $19.6 million, or 16.4%.

The decrease in dollars is due to lower overall sales in 2023.

The decrease as a percentage of net sales, year-over-year, is due to lower inbound freight costs.

Cost of sales of

our Toys/Consumer Products segment was $389.5 million, or 68.3% of related net sales in 2024 compared to $388.3 million, or 66.9% of related

net sales in 2023 representing an increase of $1.2 million or 0.3%.

Although royalty rates were lower year-over-year, the increase in

the cost of sales percentage of net sales, year-over-year is due to higher inventory obsolescence costs.

Cost of sales of our Costumes segment

was $88.5 million, or 73.1% of related net sales for 2024 compared to $99.9 million, or 76.3% of related net sales for 2023 representing

a decrease of $11.4 million, or 11.4%.

The year-over-year decrease in dollars is directly attributable to lower volume.

The decrease in

percent of net sales is attributable lower royalty expense due to lower royalty guarantee shortfalls and marginal improvements in product

cost of goods attributable to mix and design for improved margin.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $164.2 million in 2023 and $150.0 million in 2022, constituting 23.1% and 18.8% of net sales, respectively.

Selling, general and administrative expenses increased from the prior year primarily driven by higher outbound freight and warehouse expenses for 3 rd party warehouses and less scale at operated warehouses coupled with lower capitalization of such cost, as well as higher compensation expense.

Selling, general and administrative expenses were

$173.3 million in 2024 and $164.2 million in 2023, constituting 25.1% and 23.1% of net sales, respectively.

Selling, general and administrative

expenses increased from the prior year primarily driven by higher media costs, product development expenses and employee compensation.

Loss on Debt Extinguishment

In 2023, we recognized a loss on debt extinguishment of $1.0 million in connection with the extinguishment of the 2021 BSP Term Loan in June 2023.

In 2023, we recognized a loss on debt extinguishment

of $1.0 million in connection with the extinguishment of the 2021 BSP Term Loan in June 2023.

Change in fair value of the preferred stock derivative

The change in fair value of the preferred stock derivative liability

for year ended December 31, 2024, was nil, as the Company had redeemed all the outstanding preferred shares on March 11, 2024.

in fair value for the year ended December 31, 2023, was $8.0 million reflecting the results of the fair value estimation driven mainly

by the accrual of dividends and changes in unobservable inputs such as discount rate and change-in-control-assumptions.

Interest Income

Interest Income was $1.3 million for the year ended December 31, 2023, as compared to $0.1 million in the prior year period.

Interest income earned is primarily due to the Company’s money market investments.

Interest Income was $0.8 million for the year ended

December 31, 2024, as compared to $1.3 million in the prior year period.

Interest income earned is primarily due to the Company’s

money market investments.

Interest Expense

Interest expense was $6.5 million for the year ended December 31, 2023, as compared to $11.2 million in the prior year period.

In 2023, we recorded interest expense of $3.2 million related to our 2021 BSP Term Loan, $0.7 million related to our revolving credit facility and $2.6 million related to other borrowing costs.

In 2022, we recorded interest expense of $9.3 million related to our 2021 BSP Term Loan, $0.6 million related to our revolving credit facility and $1.3 million related to other borrowing costs.

Interest expense was $1.1 million for the year ended

December 31, 2024, as compared to $6.5 million in the prior year period.

In 2024, we recorded interest expense of $1.1 million related

to our revolving credit facility.

In 2023, we recorded interest expense of $3.2 million related to our 2021 BSP Term Loan, $0.7 million

related to our revolving credit facility and $2.6 million related to other borrowing costs.

Provision for Income Taxes

During 2023, our income tax expense, which includes federal, state and foreign income taxes and discrete items, was $6.8 million, or an effective tax rate of 15.2%.

The 2023 tax expense included a discrete tax benefit of $2.7 million primarily comprised of valuation allowance adjustments.

Absent these discrete tax benefits, our effective tax rate for 2023 was 21.3%, primarily due to taxes on federal, state, and foreign income.

During 2022, our income tax benefit was $41.0 million, or an effective tax rate of (81.9)%.

The 2022 tax benefit of $41.0 million included a discrete tax benefit of $49.8 million primarily comprised of a valuation allowance release.

Absent these discrete tax benefits, our effective tax rate for 2022 was 17.6%, primarily due to taxes on federal, state, and foreign income.

We assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets by jurisdiction.

Based on our evaluation of all positive and negative evidence, as of December 31, 2023, a valuation allowance of $0.7 million has been recorded against the deferred tax assets that more likely than not will not be realized.

The net deferred tax asset change of $10.3 million consists of the net deferred tax asset changes in the US and foreign jurisdictions, where we are in a cumulative income position.

Uncertainties that may have a significant impact on net sales and income (loss) from operations

Significant outbreaks of contagious diseases, and other adverse public health developments, could have a material impact on our business operations and operating results.

The immediate and lingering impact of the 2019 COVID-19 pandemic added additional risk and complexity to the Company’s operations.

In addition, the history of smaller scale epidemics in Hong Kong/China (e.g., “bird flu”) highlights an additional risk given that substantially all of our product is sourced from China and our Hong Kong operation is foundational to our business model.

We cannot quantify the extent that any new outbreak might have on our sales, net income and cash flows, but it could be significant.

In the first quarter of 2022, Russia and Ukraine engaged in an armed conflict that continues.

We cannot predict at this time the length of this conflict and if it will spread to other countries.

During 2024, our income tax expense, which includes

federal, state and foreign income taxes and discrete items, was $5.5 million, or an effective tax rate of 13.9%.

The 2024 tax expense

included a discrete tax benefit of $1.4 million primarily comprised of return to provision adjustments.

Absent these discrete tax benefits,

our effective tax rate for 2024 was 17.4%, primarily due to taxes on federal, state, and foreign income.

During 2023, our income tax expense, which includes

federal, state and foreign income taxes and discrete items, was $6.8 million, or an effective tax rate of 15.2%.

The 2023 tax expense

included a discrete tax benefit of $2.7 million primarily comprised of valuation allowance adjustments.

Absent these discrete tax benefits,

our effective tax rate for 2023 was 21.3%, primarily due to taxes on federal, state, and foreign income.

We assess the available positive and negative evidence

to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets by jurisdiction.

evaluation of all positive and negative evidence, as of December 31, 2024, a valuation allowance of $0.7 million has been recorded against

the deferred tax assets that more likely than not will not be realized.

The net deferred tax asset change of $2.3 million consists of

the net deferred tax asset changes in the US and foreign jurisdictions, where we are in a cumulative income position.

Uncertainties that may have a significant impact on net sales

and income (loss) from operations

Significant outbreaks of contagious diseases, and

other adverse public health developments, could have a material impact on our business operations and operating results.

The immediate

and lingering impact of the 2019 COVID-19 pandemic added additional risk and complexity to the Company’s operations.

the history of smaller scale epidemics in Hong Kong/China (e.g., “bird flu”) highlights an additional risk given that substantially

all of our product is sourced from China and our Hong Kong operation is foundational to our business model.

We cannot quantify the extent

that any new outbreak might have on our sales, net income and cash flows, but it could be significant.

In the first quarter of 2022, Russia and Ukraine

engaged in an armed conflict that continues.

We cannot predict at this time the length of this conflict and if it will spread to other

Accordingly, we cannot quantify at this time if, or the extent, this conflict will adversely impact our business operations.

The suggestion that the U.S.

will take unilateral

action to impose tariffs on products imported from China creates significant uncertainty about our ability to source products with a cost

structure consistent with our recent history.

The additional suggestion that the U.S.

will take unilateral action to impose tariffs on

products imported from Canada and/or Mexico also creates significant uncertainty about which additional markets could be targeted for

It also increases the possibility that markets outside the U.S.

could institute retaliatory tariffs that would ultimately

increase the cost of our doing business in those markets where we import product.

In addition, our customer base may face significant

increased costs in importing our product from Hong Kong into their home markets.

In the event our customers choose to raise consumer prices

to offset these costs, negative consumer reaction could substantially reduce unit demand for our product line, and by extension lower

Lower sales could negatively impact our profitability and cash flows.

Quarterly Fluctuations and Seasonality

We have experienced significant quarterly fluctuations in operating results and anticipate these fluctuations in the future.

The operating results for any quarter are not necessarily indicative of results for any future period.

Our first quarter is typically expected to be the least profitable as a result of lower net sales but substantially similar fixed operating expenses.

We have experienced significant quarterly fluctuations

in operating results and anticipate these fluctuations in the future.

The operating results for any quarter are not necessarily indicative

of results for any future period.

Our first quarter is typically expected to be the least profitable as a result of lower net sales but

substantially similar fixed operating expenses.

This is consistent with the performance of many companies in the toy industry.

The following table presents our unaudited quarterly results for the years indicated.

The following table presents our unaudited quarterly

results for the years indicated.

The seasonality of our business is reflected in this quarterly presentation.

As a % of full year

As a % of net sales

Income (loss) from operations

As a % of full year

As a % of net sales

Income (loss) before provision for (benefit from) income taxes

As a % of net sales

Net income (loss)

As a % of net sales

Net income (loss) attributable to non-controlling interests

As a % of net sales

Net income (loss) attributable to JAKKS Pacific, Inc.

As a % of net sales

Net income (loss) attributable to common stockholders

As a % of net sales

Diluted earnings (loss) per share

Weighted average shares and equivalents outstanding

Quarterly and year-to-date computations of income (loss) per share amounts are made independently.

Therefore, the sum of the per share amounts for the quarters may not agree with the per share amounts for the year.

a % of full year

a % of net sales

(loss) from operations

a % of full year

a % of net sales

(loss) before provision for (benefit from) income taxes

a % of net sales

income (loss)

a % of net sales

income (loss) attributable to non-controlling interests

a % of net sales

income (loss) attributable to JAKKS Pacific, Inc.

a % of net sales

income (loss) attributable to common stockholders

a % of net sales

earnings (loss) per share

average shares and equivalents outstanding

Quarterly and year-to-date computations of income

(loss) per share amounts are made independently.

Therefore, the sum of the per share amounts for the quarters may not agree with the per

share amounts for the year.

Liquidity and Capital Resources

As of December 31, 2023, we had working capital of $106.1 million compared to $101.9 million as of December 31, 2022.

Operating activities provided net cash of $66.4 million in 2023 and $86.1 million in 2022.

The decrease in cash flows provided by operating activities, year-over-year, was primarily due to a lower net income and higher working capital usage, partially offset by higher non-cash charges related to valuation adjustments for our preferred stock derivative liability and an increase in deferred income tax assets due to inventory cost and other expense capitalization matters, offset by income tax activities payable.

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.

However, we may incur costs or other losses as a result of not placing orders consistent with our forecasts for product manufactured by our suppliers or manufacturers for a variety of reasons including customer order cancellations or a decline in demand.

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 22% payable on net sales of such products.

As of December 31, 2023, these agreements required future aggregate minimum royalty guarantees of $53.1 million, exclusive of $1.5 million in advances already paid.

As of December 31, 2024, we had working capital

of $119.3 million compared to $106.1 million as of December 31, 2023.

Operating activities provided net cash of $38.9

million in 2024 and $66.4 million in 2023.

The decrease in cash flows provided by operating activities, year-over-year, was primarily

due to a lower net income and higher working capital usage, partially offset by higher non-cash charges related to valuation adjustments

for our preferred stock derivative liability and an increase in deferred income tax assets due to inventory cost and other expense capitalization

matters, both in 2023.

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.

However, we may incur costs or other losses as a result of not placing orders

consistent with our forecasts for products manufactured by our suppliers or manufacturers for a variety of reasons including customer

order cancellations or a decline in demand.

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 25% payable on net sales of such products.

As of December

31, 2024, these agreements required future aggregate minimum royalty guarantees of $74.6 million, exclusive of $0.9 million in advances

already paid.

Of this $74.6 million future minimum royalty guarantee, $53.7 million is due over the next twelve months.

Investing activities used net cash of $8.9 million and $10.4 million for the years ended December 31, 2023 and 2022, respectively, and consisted primarily of cash paid for the purchase of molds and tooling used in the manufacture of our products.

Financing activities used net cash of $72.3 million in 2023 and $31.0 million in 2022.

The cash used in 2023 primarily consists of the repayment of our 2021 BSP Term Loan of $69.2 million and the repurchase of common stock for employee tax withholding of $3.1 million.

The cash used in 2022 primarily consists of the repayment of our 2021 BSP Term loan of $29.6 million and repurchase of common stock for employee tax withholding of $1.4 million.

The following is a summary of our significant contractual cash obligations for the periods indicated that existed as of December 31, 2023 and is based upon information appearing in the notes to the consolidated financial statements (in thousands):

Investing activities used net cash of $12.9 million

and $8.9 million for the years ended December 31, 2024 and 2023, respectively, and consisted primarily of cash paid for the purchase of

molds and tooling used in the manufacture of our products.

Financing activities used net cash of $26.9 million

in 2024 and $72.3 million in 2023.

The cash used in 2024 primarily consists of the cash portion for the redemption of the Series A Preferred

stock of $20 million and the repurchase of common stock for employee tax withholding of $6.9 million.

The cash used in 2023 primarily

consists of the repayment of our 2021 BSP Term Loan of $69.2 million and the repurchase of common stock for employee tax withholding of

$3.1 million.

The following is a summary of our significant contractual

cash obligations for the periods indicated that existed as of December 31, 2024 and is based upon information appearing in the notes to

the consolidated financial statements (in thousands):

Operating leases

2 unchanged sentences

Total contractual cash obligations

The above table excludes any potential uncertain income tax liabilities that may become payable upon examination of our income tax returns by taxing authorities.

Such amounts and periods of payment cannot be reliably estimated (see Item 8 “Consolidated Financial Statements and Supplementary Data Note 12 - Income Taxes” for further explanation of our uncertain tax positions).

As of December 31, 2023, we had no outstanding indebtedness under our senior secured revolving credit facility (the “JPMorgan ABL Facility”), aside from utilizing $9.4 million in letters of credit.

The above table excludes any potential uncertain

income tax liabilities that may become payable upon examination of our income tax returns by taxing authorities.

Such amounts and periods

of payment cannot be reliably estimated (see Item 8 “Consolidated Financial Statements and Supplementary Data Note 12 - Income

Taxes” for further explanation of our uncertain tax positions).

As of December 31, 2024, we had no outstanding indebtedness

under our senior secured revolving credit facility (the “JPMorgan ABL Facility”), aside from utilizing $4.4 million in letters

In June 2023 we had fully paid off our first-lien secured term loan (the “2021 BSP Term Loan Agreement”).

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 contained negative covenants that, subject to certain exceptions, limited 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 required 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 were required to maintain a Net Leverage Ratio of 3:00x.

On April 26, 2022, we entered into a First Amendment to the 2021 BSP Term Loan Agreement, to provide, among other things, that we must maintain Qualified Cash of at least:

(a) at all times after the Closing Date and prior to the First Amendment Effective Date, $20.0 million;

(b) at all times during the period commencing on the First Amendment Effective Date through and including June 30, 2022, $15.0 million;

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 contained negative covenants that, subject to certain exceptions, limited 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 required 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 were required to maintain a Net Leverage

Ratio of 3:00x.

On April 26, 2022, we entered into a First Amendment to the 2021 BSP Term Loan Agreement, to provide, among other things,

that we must maintain Qualified Cash of at least:

(a) at all times after the Closing Date and prior to the First Amendment Effective Date,

$20.0 million;

(b) at all times during the period commencing on the First Amendment Effective Date through and including June 30, 2022,

$15.0 million;

and (c) at all times on and after July 1, 2022, through September 30, 2022, $17.5 million;

provided, however, that if the Total Net Leverage Ratio exceeded 1.75:1.00 as of the last day of the most recently ended month for which financial statements were required to have been delivered, then the amount set forth in this clause shall be increased to $20.0 million.

Notwithstanding the foregoing, the Applicable Minimum Cash Amount shall be reduced by $1.0 million for every $5.0 million principal prepayment or repayment of the Term Loans following the First Amendment Effective Date;

provided however, that, the Applicable Minimum Cash Amount shall in no event be reduced below $15.0 million.

On June 27, 2022, as permitted by the terms within the 2021 BSP Term Loan Agreement, we made a voluntary fee-free $10.0 million prepayment towards the outstanding principal amount of the 2021 BSP Term Loan.

On September 28, 2022, as permitted by the terms within the 2021 BSP Term Loan Agreement, we made a voluntary $17.5 million prepayment towards the outstanding principal amount of the 2021 BSP Term Loan and incurred a $0.5 million prepayment penalty.

On January 3, 2023, as permitted by the terms within the 2021 BSP Term Loan Agreement, we made a voluntary $15.0 million prepayment towards the outstanding principal amount of the 2021 BSP Term Loan and incurred a $0.2 million prepayment penalty.

On March 3, 2023, as required by the terms within the 2021 BSP Term Loan Agreement under the Excess Cash Flow (“ECF”) Sweep provision, we made a mandatory $23.1 million payment towards the outstanding principal amount of the 2021 BSP Term Loan.

On June 5, 2023, we paid in full the 2021 BSP Term Loan and terminated the 2021 BSP Term Loan Agreement by making a $30.2 million prepayment towards the outstanding principal amount.

Additionally, we made a $0.4 million payment towards the outstanding accrued interest, and a $0.3 million payment for the prepayment penalty and other related fees.

In connection with this transaction, we recognized a loss on debt extinguishment of $1.0 million on our consolidated statements of operations.

The JPMorgan ABL 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 each Agreement.

If an event of default occurs under the Agreement, the maturity of the amounts owed under the JPMorgan ABL Agreement may be accelerated.

We were in compliance with the financial covenants under the JPMorgan ABL Agreement as of December 31, 2023.

(See Item 8 “Consolidated Financial Statements and Supplementary Data, Note 9 – Debt and Note 10 – Credit Facilities” for additional information pertaining to our Debt and Credit Facilities.)

As of December 31, 2023 and 2022, we held cash and cash equivalents, including restricted cash, of $72.4 million and $85.5 million, respectively.

Cash, and cash equivalents, including restricted cash held outside of the United States, in various foreign subsidiaries totaled $21.5 million and $39.4 million as of December 31, 2023 and 2022, respectively.

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

or tax has been accounted for in connection with the Tax Cuts and Jobs Act, or may be eligible for a full foreign dividends received deduction under such Act, and thus would not be subject to additional U.S.

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 December 31, 2023.

Our primary sources of working capital are cash flows from operations and borrowings under our JPMorgan ABL Facility (See Item 8 “Consolidated Financial Statements and Supplementary Data Note 10 – 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.

A downturn in any single factor or a combination of factors could have a material adverse impact upon our ability to generate sufficient cash flows to operate the business.

In addition, our business and liquidity are dependent to a significant degree on our vendors and their financial health, as well as the ability to accurately forecast the demand for products.

The loss of a key vendor, or material changes in support by them, or a significant variance in actual demand compared to the forecast, can have a material adverse impact on our cash flows and business.

Given the conditions in the toy industry environment in general, vendors, including licensors, may seek further assurances or take actions to protect against non-payment of amounts due to them.

provided, however, that if the

Total Net Leverage Ratio exceeded 1.75:1.00 as of the last day of the most recently ended month for which financial statements were required

to have been delivered, then the amount set forth in this clause shall be increased to $20.0 million.

Notwithstanding the foregoing, the

Applicable Minimum Cash Amount shall be reduced by $1.0 million for every $5.0 million principal prepayment or repayment of the Term Loans

following the First Amendment Effective Date;

provided however, that, the Applicable Minimum Cash Amount shall in no event be reduced

below $15.0 million.

On January 3, 2023, as permitted by the terms within

the 2021 BSP Term Loan Agreement, we made a voluntary $15.0 million prepayment towards the outstanding principal amount of the 2021 BSP

Term Loan and incurred a $0.2 million prepayment penalty.

On March 3, 2023, as required by the terms within

the 2021 BSP Term Loan Agreement under the Excess Cash Flow (“ECF”) Sweep provision, we made a mandatory $23.1 million payment

towards the outstanding principal amount of the 2021 BSP Term Loan.

On June 5, 2023, we paid in full the 2021 BSP Term

Loan and terminated the 2021 BSP Term Loan Agreement by making a $30.2 million prepayment towards the outstanding principal amount.

Additionally,

we made a $0.4 million payment towards the outstanding accrued interest, and a $0.3 million payment for the prepayment penalty and other

related fees.

In connection with this transaction, we recognized a loss on debt extinguishment of $1.0 million on our consolidated statements

of operations.

The JPMorgan ABL 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 each Agreement.

If an event of default occurs under the Agreement, the maturity of the amounts owed under the JPMorgan ABL Agreement

may be accelerated.

We were in compliance with the financial covenants

under the JPMorgan ABL Agreement as of December 31, 2024.

(See Item 8 “Consolidated Financial Statements

and Supplementary Data, Note 9 – Debt and Note 10 – Credit Facilities” for additional information pertaining to our

Debt and Credit Facilities.)

As of December 31, 2024 and 2023, we held cash and

cash equivalents, including restricted cash, of $70.1 million and $72.6 million, respectively.

Cash, and cash equivalents, including restricted

cash held outside of the United States, in various foreign subsidiaries totaled $16.5 million and $21.5 million as of December 31, 2024

and 2023, respectively.

The cash and cash equivalents, including restricted cash balances in our foreign subsidiaries have either been

fully taxed in the U.S.

or tax has been accounted for in connection with the Tax Cuts and Jobs Act, or may be eligible for a full foreign

dividends received deduction under such Act, and thus would not be subject to additional U.S.

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 December 31, 2024.

Our primary sources of working capital are cash

flows from operations and borrowings under our JPMorgan ABL Facility (See Item 8 “Consolidated Financial Statements and Supplementary

Data Note 10 – 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.

A downturn in any single factor or a combination

of factors could have a material adverse impact upon our ability to generate sufficient cash flows to operate the business.

our business and liquidity are dependent to a significant degree on our vendors and their financial health, as well as the ability to

accurately forecast the demand for products.

The loss of a key vendor, or material changes in support by them, or a significant variance

in actual demand compared to the forecast, can have a material adverse impact on our cash flows and business.

Given the conditions in

the toy industry environment in general, vendors, including licensors, may seek further assurances or take actions to protect against

non-payment of amounts due to them.

Changes in this area could have a material adverse impact on our liquidity.

As of December 31, 2023, off-balance sheet arrangements include letters of credit issued by JPMorgan of $9.4 million.

On July 1, 2022, we entered into an ATM Agreement with B.

Riley, as agent pursuant to which we may, from time to time, sell shares of our common stock, up to $75 million in common stock, in one or more offerings in amounts, at prices and in the terms that we will determine at the time of the offering.

On July 1, 2022, we filed a Form S-3 shelf registration statement (File No.

As of December 31, 2024, off-balance sheet arrangements

include letters of credit issued by JPMorgan of $4.4 million.

On July 1, 2022, we entered into an ATM Agreement

Riley, as agent pursuant to which we may, from time to time, sell shares of our common stock, up to $75 million in common stock,

in one or more offerings in amounts, at prices and in the terms that we will determine at the time of the offering.

On July 1, 2022, we

filed a Form S-3 shelf registration statement (File No.

333-266009) with the SEC.

On Aug 1, 2022, the SEC declared the Form S-3 shelf registration statement filed by us to be effective.

As of March 15, 2024, we have not sold any shares of common stock under the ATM Agreement.

We have on file with the SEC an effective registration statement pursuant to which we may issue, from time to time, up to $150 million of securities (which will be reduced by any amount of securities sold pursuant to the ATM Agreement) consisting of, or any combination of, common stock, preferred stock, debt securities, warrants, rights and/or units, in one or more offerings in amounts, prices and at terms that we will determine at the time of the offering.

As of March 15, 2024, we have not sold any securities pursuant to our shelf registration statement.

The nature of our business is a number of factors influence the price we offer product to our customers, and by extension they sell to our end customer.

Our products are manufactured by third-party vendors who deal with increases in labor rates as a normal course of their respective businesses.

The costing of the plastic components of our toys can be sensitive to sudden swings in oil prices.

Currency exchange can also create a degree of volatility, although the majority of our products are sourced in USD or Hong Kong dollars.

Increased volumes ideally generate increased scale at various points in the value chain.

Often times, in the toy industry when cost pressures result in price increases, the development teams will reengineer subsequent year refreshes to cost-reduce the items down to support traditional price points and preserve historical margins.

With those considerations in mind as well as others, during the last three fiscal years ending December 31, we do not believe that inflation has had a material impact on our net sales and income from continuing operations.

On Aug 1, 2022, the SEC declared the Form S-3 shelf

registration statement filed by us to be effective.

As of March 6, 2025, we have not sold any shares

of common stock under the ATM Agreement.

We have on file with the SEC an effective registration

statement pursuant to which we may issue, from time to time, up to $150 million of securities (which will be reduced by any amount of

securities sold pursuant to the ATM Agreement) consisting of, or any combination of, common stock, preferred stock, debt securities, warrants,

rights and/or units, in one or more offerings in amounts, prices and at terms that we will determine at the time of the offering.

As of March 6, 2025, we have not sold any securities

pursuant to our shelf registration statement.

The nature of our business is several factors influence

the price we offer product to our customers, and by extension they sell to our end customer.

Our products are manufactured by third-party

vendors who deal with increases in labor rates as a normal course of their respective businesses.

The costing of the plastic components

of our toys can be sensitive to sudden swings in oil prices.

Currency exchange can also create a degree of volatility, although the majority

of our products are sourced in USD or Hong Kong dollars.

Increased volumes ideally generate increased scale at various points in the value

Often times, in the toy industry when cost pressures result in price increases, the development teams will reengineer subsequent

year refreshes to cost-reduce the items down to support traditional price points and preserve historical margins.

With those considerations

in mind as well as others, during the last three fiscal years ending December 31, we do not believe that inflation has had a material

impact on our net sales and income from continuing operations.

Exchange Rates

Sales from our United States and Hong Kong operations are denominated in U.S.

Sales from our United States and Hong Kong operations

are denominated in U.S.

dollars and our manufacturing costs are denominated in either U.S.

or Hong Kong dollars.

Local sales (other than in Hong Kong) and operating expenses of our operations in Hong Kong, the United Kingdom, Germany, the Netherlands, France, Italy, Canada, Mexico and China are denominated in local currency, thereby creating exposure to changes in exchange rates.

Changes in the various exchange rates against the U.S.

Local sales (other than

in Hong Kong) and operating expenses of our operations in Hong Kong, the United Kingdom, Germany, the Netherlands, France, Italy, Canada,

Mexico and China are denominated in local currency, thereby creating exposure to changes in exchange rates.

Changes in the various exchange

rates against the U.S.

dollar may positively or negatively affect our operating results.

The exchange rate of the Hong Kong dollar to the U.S.

dollar has been linked to the U.S.

dollar by the Hong Kong Monetary Authority at HK$7.75 - HK$7.85 to US$1.00 since 2005 and, accordingly, has not represented a meaningful currency exchange risk to the U.S.

We cannot assure you that the exchange rate between the United States and Hong Kong currencies will continue to be fixed or that exchange rate fluctuations between the United States and Hong Kong, or all other currencies will not have a material adverse effect on our business, financial condition or results of operations.

We cannot assure you that the exchange rate between

the United States and other currencies will not have a material adverse effect on our business, financial condition or results of operations.

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

What changed 10-K

Item 5. Market for Registrant’s Common Equity