What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2026-03-02 compared with 2025-03-06 · 699 added, 647 removed, 781 unchanged (63% of the section changed)

Quantitative and Qualitative Disclosures About Market

Market risk represents the risk of loss that may

impact our financial position, results of operations or cash flows due to adverse changes in financial and commodity market prices and

We are exposed to market risk in the areas of changes in United States and international borrowing rates and changes in foreign

currency exchange rates.

In addition, we are exposed to market risk in certain geographic areas that have experienced or remain vulnerable

to an economic downturn, such as China.

We purchase substantially all of our inventory from companies in China, and, therefore, we are

subject to the risk that such suppliers will be unable to provide inventory at competitive prices.

Market risk represents the risk of loss that may impact

our financial position, results of operations or cash flows due to adverse changes in financial and commodity market prices and rates.

We are exposed to market risk in the areas of changes in United States and international borrowing rates and changes in foreign currency

exchange rates.

In addition, we are exposed to market risk in certain geographic areas that have experienced or remain vulnerable to an

economic downturn, such as China.

We purchase substantially all of our inventory from companies in China, and, therefore, we are subject

to the risk that such suppliers will be unable to provide inventory at competitive prices and quality.

While we believe that, should such

events occur we would be able to find alternative sources of inventory at competitive prices, we cannot assure you that we would be able

events occur, we would be able to find alternative sources of inventory at competitive prices and quality, we cannot assure you that we

would be able to do so.

These exposures are directly related to our normal operating and funding activities.

To date, we have not used derivative instruments

or engaged in hedging activities to minimize our market risk.

To date, we have not used

derivative instruments or engaged in hedging activities to minimize our market risk.

Interest Rate Risk

Our exposure to market risk includes interest rate

fluctuations in connection with our JPMorgan ABL Facility (see Item 8 “Consolidated Financial Statements and Supplementary Data,

Note 10 – Credit Facilities).

In Q1 2023, we entered into an amendment to our

JPMorgan ABL Credit Agreement which changed the interest reference rate on our revolving line of credit from LIBOR to the Secured Overnight

Financing Rate (“SOFR”).

Effective March 16, 2023, borrowings under our JPMorgan

ABL Facility bear interest at either (i) SOFR 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%

Borrowings under the JPMorgan ABL Facility are therefore subject to risk based upon prevailing market interest rates.

rate risk may result from many factors, including governmental monetary and tax policies, domestic and international economic and political

considerations and other factors that are beyond our control.

During the twelve-month period ended December 31, 2024, the maximum amount

borrowed under the revolving credit facility was $36 million and the average amount of borrowings outstanding was $5.6 million.

December 31, 2024, the amount of total borrowings outstanding under the revolving credit facility was nil.

fluctuations in connection with our Revolving Facility (see Note 9 – Credit Facilities).

As detailed in the BMO Credit Agreement,

borrowings under the Revolving Facility bear interest, at the Company’s election, at either (i) the Adjusted Term SOFR plus an applicable

margin or (ii) the Base Rate plus an applicable margin.

The applicable margin varies based on the Company’s Total Net Leverage Ratio

and ranges from 1.50% to 2.00% for SOFR loans and from 0.50% to 1.00% for Base Rate loans.

Borrowings under the Revolving Facility are

therefore subject to risk based upon prevailing market interest rates.

Interest rate risk may result from many factors, including governmental

monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control.

During the twelve-month period ended December 31,

2025, the maximum amount borrowed under the revolving credit facility was $8 million and the average amount of borrowings outstanding

was $0.9 million.

As of December 31, 2025, the amount of total borrowings outstanding under the revolving credit facility was nil.

Foreign Currency Risk

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Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance

sheets of JAKKS Pacific, Inc.

(the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations,

comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2024, and

the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated

financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and

the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024 , in conformity

with accounting principles generally accepted in the United States of America.

We have audited the accompanying

consolidated balance sheets of JAKKS Pacific, Inc.

(the “Company”) as of December 31, 2025, and 2024, the related consolidated

statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended

December 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion,

the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31,

2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025 ,

in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards

of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial

reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework (2013)

issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 6, 2025,

expressed an unqualified opinion thereon.

reporting as of December 31, 2025, based on criteria established in Internal Control – Integrated Framework (2013) issued

by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 2, 2026, expressed

an unqualified opinion thereon.

Basis for Opinion

These consolidated financial statements are the

responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial

statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect

to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange

Commission and the PCAOB.

These consolidated financial

statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s

consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be

independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of

the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the

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to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and

(2) involved our especially challenging, subjective, or complex judgments.

(i) relates to accounts or disclosures that are material to the consolidated financial statements and

(ii) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter

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matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Cost of Sales for Royalties and Related Liabilities

Royalty Expense and Related Liabilities

As described in Notes 2, 7 and 15 of the consolidated

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properties in conjunction with its products.

For the year ended December 31, 2024, the cost of sales related to license agreement royalties

was $106.8 million.

These agreements generally require a percentage of sales (as defined by the respective agreements)

be paid to third parties as royalties.

They also often require a fixed minimum dollar amount of royalties to be paid regardless of what

level of sales are achieved during the term of the agreement.

Payment timing vary across agreements, and may precede any sales or collections

of monies related to such sales.

The Company recognizes royalty expenses in the period in which sales are made.

In addition, the Company

assesses whether forecasted revenue under any agreement are likely to be sufficient to cover the minimum royalty guarantee, and if not

a royalty shortfall reserve and associated royalty expense is recorded at that time.

For the year ended December 31, 2025, the royalty

expense was $92.4 million.

As of December 31, 2025, accrued royalties were $17.0 million.

We identified the cost of sales for royalties and

related liabilities as a critical audit matter.

The royalty expense calculation includes multiple variables based on various license agreements,

including amended and renewed license agreements, and a significant volume of underlying data.

The cost of sales for royalties and related

liabilities requires judgment to evaluate management’s forecasts, including assessing the Company’s ability to

fully utilize minimum guaranteed royalties.

Auditing these elements involved especially challenging auditor judgment due to the nature

and extent of effort required to address this matter.

We identified royalty expense and related liabilities

as a critical audit matter.

The royalty expense calculation includes multiple variables based on various license agreements, including

amended and renewed license agreements, which includes minimum royalty guarantee amounts, and a significant volume of underlying data.

The royalty liabilities related to the minimum royalty guarantee amounts requires judgment by management to evaluate existing information

and develop forecasts to assess the Company’s likelihood of incurring a royalty shortfall and recording an associated expense.

these elements involved especially challenging and subjective auditor judgment due to the nature and extent of effort required to address

The primary procedures we performed to address

this critical audit matter included:

Evaluating the reasonableness of management’s forecasts, which included:

(i) obtaining an understanding of management’s process for developing forecasts, (ii) comparing prior period forecasts to actual results, (iii) assessing the Company’s ability to meet its future guarantees at the license agreement level and (iv) evaluating the impact of alternative assumptions on the measurement and comparing to management’s estimate.

Assessing management’s projections in the context of other audit evidence obtained during the audit and historical performance to determine whether it was contradictory to the conclusion reached by management.

Testing the cost of sales for royalties and related liabilities by (i) evaluating the reasonableness of royalties based on existing, amended, and renewed license agreements during the year, (ii) testing the activity of selected royalty contracts.

Evaluating the reasonableness of management’s royalty expense and related liabilities, which included:

(i) obtaining an understanding of management’s process for determining royalty expense and related liabilities, and (ii) testing the design and operating effectiveness of controls over management’s processes in determining royalty expense and related liabilities.

Testing the royalty expense and related liabilities by (i) evaluating the reasonableness of certain royalties based on existing, amended, and renewed license agreements during the year, and (ii) testing the activity of selected license agreements.

management’s estimates of the likelihood of incurring a royalty shortfall by (i) assessing revenue forecasts

for certain license agreements by comparing them to historical performance, including assessing prior period forecasts to actual

results, (ii) assessing the Company’s ability to meet its future guarantees at the license agreement level, and (iii)

evaluating the impact of alternative assumptions on the measurement and comparing it to management’s estimate.

/s/ BDO USA, P.C.

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CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(In thousands, except share and per share data)

Current assets

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Accounts receivable, net of allowance for credit losses of $ 5,103 and $ 4,919 in 2025 and 2024, respectively

Inventory, net

Prepaid expenses and other assets

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Deferred income tax assets, net

Liabilities, Preferred Stock and Stockholders’ Equity

Liabilities and Stockholders’ Equity

Current liabilities

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Accrued expenses – long term

Preferred stock derivative liability

Income taxes payable

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Commitments and contingencies (Note 15)

Preferred stock accrued dividends, $ 0.001 par value;

5,000,000 shares authorized;

nil and 200,000 shares issued and outstanding at December 31, 2024 and 2023, respectively

Stockholders’ Equity

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Selling, general and administrative expense

Intangible asset impairment

Income from operations

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Interest expense

Income before provision for (benefit from) income taxes

Provision for (benefit from) income taxes

Income before provision for income taxes

Provision for income taxes

Net income (loss) attributable to non-controlling interests

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Stockholders’

(In thousands)

(In thousands, except per share data)

Balance, December 31, 2022

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Stock-based compensation expense

Non-controlling interests’ capital reduction

Repurchase of common stock for employee tax withholding

Preferred stock accrued dividends

Net income (loss)

Preferred stock redemption

Foreign currency translation adjustment

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Stock-based compensation expense

Non-controlling interests’ capital reduction

Non-controlling interests’ derecognition

Repurchase of common stock for employee tax withholding

Preferred stock accrued dividends

Preferred stock redemption

Cash dividend declared, $ 0.25 per share

Foreign currency translation adjustment

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Loss (gain) on disposal of property and equipment

Intangibles impairment

Loss on debt extinguishment

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Repayment of 2021 BSP Term Loan

Dividends paid

Deferred issuance costs

Net cash used in financing activities

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Cash, cash equivalents and restricted cash, end of year

Supplemental disclosures of non-cash activities:

Right-of-use assets exchanged for lease liabilities

Supplemental disclosures of cash flow information:

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Cash paid for income taxes, net

As of December 31, 2024, there was $ 3.0 million

of property and equipment included in accounts payable.

As of December 31, 2023, there was $ 3.0 million of property and equipment included

in accounts payable.

As of December 31, 2022, there was $ 3.6 million of property and equipment included in accounts payable.

Supplemental disclosures of non-cash activities:

During the years ended December 31, 2025, 2024

and 2023, the lease liability increased by $ 5.0 million, 39.5 million and $ 0.9 million respectively, with a corresponding increase to

the ROU asset.

As of December 31, 2025, 2024 and 2023 there was

$ 7.0 million, $ 3.0 million and $ 3.0 million, respectively of property and equipment included in accounts payable.

As of December 31, 2025, debt issuance costs of $ 0.1

million associated with the Company’s revolving credit facility with BMO Bank, N.A.

that was entered into on June 24, 2025 were

included in accrued expenses (see Note 9 – Credit Facilities).

On August 8, 2025, the Company deregistered Jakks

Pacific Trading Ltd., derecognized the related non-controlling interest of $ 0.5 million and recognized a liability towards the former

non-controlling shareholder of $ 0.5 million within accrued expenses.

On March 11, 2024, the Company issued $ 15.0 million

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The Company received income tax refunds of $ 0.4 ,

nil and $ 0.3 million for the years ended December 31, 2024, 2023 and 2022, respectively, and has included these amounts in cash paid during

$ 0.9 and nil million for the years ended December 31, 2025, 2024 and 2023, respectively, and has included these amounts in cash paid during

the period for income taxes, net.

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Restricted cash consists of a cash collateral account

to cover a guarantee bond.

to cover a guarantee bond and letters of credit under the previous lending agreement.

Accounts Receivable and Allowance for Current Expected Credit

Credit is granted to customers on an unsecured basis.

Credit limits and payment terms are established based on evaluations made on an ongoing basis throughout the fiscal year of the financial

performance, cash generation, financing availability and liquidity status of each customer.

Customers are reviewed at least annually,

with more frequent reviews performed as necessary, depending upon the customer’s financial condition and the level of credit being

For customers who are experiencing financial difficulties, management performs additional financial analyses before shipping

to those customers on credit.

The Company uses a variety of financial arrangements to ensure collectability of accounts receivable of

customers deemed to be a credit risk, including requiring letters of credit, purchasing various forms of credit insurance with unrelated

Credit is granted to customers on an unsecured

Credit limits and payment terms are established based on evaluations made on an ongoing basis throughout the fiscal year of the

financial performance, cash generation, financing availability and liquidity status of each customer.

Customers are reviewed at least

annually, with more frequent reviews performed as necessary, depending upon the customer’s financial condition and the level of

credit being extended.

For customers who are experiencing financial difficulties, management performs additional financial analyses before

shipping to those customers on credit.

The Company uses a variety of financial arrangements to ensure collectability of accounts receivable

of customers deemed to be a credit risk, including requiring letters of credit, purchasing various forms of credit insurance with unrelated

third parties, or requiring cash in advance of shipment.

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On an ongoing basis, the Company evaluates its estimates, including those related to the accounts receivable

and sales allowances, fair values of financial instruments, intangible assets and goodwill, useful lives of intangible assets and property

and equipment, income taxes, and contingent liabilities, among others.

The Company bases its estimates on assumptions, both historical

and forward looking, that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values

of assets and liabilities.

and sales allowances, and goodwill, useful lives of intangible assets and property and equipment, income taxes, and contingent liabilities,

among others.

The Company bases its estimates on assumptions, both historical and forward looking, that are believed to be reasonable,

the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Revenue recognition

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respectively.

The Company’s reserve for sales returns and

allowances amounted to $ 35.8 million and $ 38.5 million as of December 31, 2024 and 2023.

The Company’s net accounts receivable as of

December 31, 2024, and 2023 were $ 131.6 million and $ 123.8 million, respectively.

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.

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.

In determining

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value, net of inventory obsolescence reserve, and consists of the following (in thousands):

Raw materials

Finished goods

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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.

These agreements generally

require a percentage of sales (as defined by the respective agreements) be paid to third parties as royalties.

They also often require

a fixed minimum dollar amount of royalties to be paid regardless of what level of sales are achieved during the term of the agreement.

Payment timing varies across agreements and may precede any sales or collections of monies related to such sales.

The Company recognizes

royalty expenses in the period in which sales are made.

In addition, the Company assesses whether forecasted revenue under any agreement

is likely to be sufficient to cover the minimum royalty guarantee, and if not a royalty shortfall reserve and associated royalty expense

is recorded at that time.

The Company determines if an arrangement is a lease

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The Company does not have any finance leases.

ROU assets represent the Company’s right to

use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease.

ROU assets represent the Company’s right

to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease.

Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease

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For the years ended December 31, 2025 and 2024,

the total amount capitalized was $ 1.2 million and nil , respectively.

For the years ended December 31, 2024, 2023 and 2022, the expense

related to the amortization of internal-use software, which is included in the Company’s aggregate depreciation expense related

to property and equipment, was $ 17 thousand, nil and nil , respectively.

the total amount capitalized was $ 0.1 million and $ 1.2 million, respectively.

For the years ended December 31, 2025, 2024 and 2023, the

expense related to the amortization of internal-use software, which is included in the Company’s aggregate depreciation expense

related to property and equipment, was $ 92 thousand, $ 17 thousand and nil , respectively.

Other Comprehensive Income (Loss)

Other comprehensive income (loss) includes all changes

in equity from non-owner sources.

The Company accounts for other comprehensive income in accordance with Accounting Standards Codification

(“ASC”) ASC 220, “Comprehensive Income.” All the activity in other comprehensive income (loss) and all amounts

in accumulated other comprehensive income (loss) relate to foreign currency translation adjustments.

Other comprehensive income (loss) includes all

changes in equity from non-owner sources.

The Company accounts for other comprehensive income in accordance with Accounting Standards

Codification (“ASC”) ASC 220, “Comprehensive Income.” All the activity in other comprehensive income (loss) and

all amounts in accumulated other comprehensive income (loss) relate to foreign currency translation adjustments.

Production costs of commercials and programming

are charged to operations in the period during which the production is first aired.

are charged to operations in the period during which the production cost is incurred.

The costs of other advertising, promotion and marketing

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the date of enactment.

The Company recognizes net deferred tax assets to

the extent that the Company believes these assets are more likely than not to be realized.

The Company recognizes net deferred tax assets

to the extent that the Company believes these assets are more likely than not to be realized.

In making such a determination, management

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tax asset valuation allowance, which would reduce the provision for income taxes.

The Company records uncertain tax positions on the

basis of a two-step process whereby (1) management determines whether it is more likely than not that the tax positions will be sustained

The Company records uncertain tax positions on

the basis of a two-step process whereby (1) management determines whether it is more likely than not that the tax positions will be sustained

on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold,

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Foreign Currency Transaction Exposure

Currency exchange rate fluctuations may impact the

Company’s results of operations and cash flows.

The Company’s currency transaction exposures include gains and losses realized

on unhedged inventory purchases and unhedged receivables and payables balances that are denominated in a currency other than the applicable

functional currency.

Gains and losses on unhedged inventory purchases and other transactions associated with operating activities are

recorded in the components of operating income in the consolidated statement of operations.

Currency exchange rate fluctuations may impact

the Company’s results of operations and cash flows.

The Company’s currency transaction exposures include gains and losses

realized on unhedged inventory purchases and unhedged receivables and payables balances that are denominated in a currency other than

the applicable functional currency.

Gains and losses on unhedged inventory purchases and other transactions associated with operating

activities are recorded in the components of operating income in the consolidated statement of operations.

Accounting for the impairment of finite-lived tangible and intangible

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Earnings per share available to common stockholders - diluted

* The 200,000 shares issued and outstanding as of December 31,

2023 were non-participating.

A preferred dividend of $ 0.4 million was accrued for Q1 2024 and included in the preferred stock redemption.

** Net income attributable to common stockholders was computed

by deducting the difference between the fair value of the consideration transferred to the holders of the preferred stock and the carrying

amount of the preferred stock and fair value of the related derivative liability of $ 1.3 million for the years ended December 31, 2024

and the preferred stock dividend of $ 1.5 million and $ 1.4 million for the years ended December 31, 2023 and 2022 respectively.

* The 200,000 shares issued and

outstanding as of December 31, 2023 were non-participating.

A preferred dividend of $ 0.4 million was accrued for Q1 2024 and included

in the preferred stock redemption.

** Net income attributable to common

stockholders was computed by deducting the difference between the fair value of the consideration transferred to the holders of the preferred

stock and the carrying amount of the preferred stock and fair value of the related derivative liability of $ 1.3 million for the year

ended December 31, 2024 and the preferred stock dividend of $ 1.5 million for the year ended December 31, 2023 respectively.

Basic earnings (loss) per share is calculated using

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weighted average number of common shares and common share equivalents outstanding during the period (which consist of restricted stock

Potentially dilutive restricted stock units of 160 thousand, 28 thousand and 5 thousand for the years ended December 31, 2025,

2024 and 2023, respectively, were excluded from the computation of diluted loss per share since they would have been anti-dilutive.

Recently Adopted Accounting Pronouncements

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):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” The new guidance eliminates

two of the three models in ASC 470-20, which required entities to account for beneficial conversion features and cash conversion features

in equity, separately from the host convertible debt or preferred stock.

As a result, only conversion features accounted for under the

substantial premium model in ASC 470-20 and those that require bifurcation in accordance with ASC 815-15 will be accounted for separately.

In addition, the amendments in ASU 2020-06 eliminates some of the requirements in ASC 815-40 related to equity classification.

The amendments

in ASU 2020-06 further revised the guidance in ASC 260, Earnings Per Share (“EPS”), to address how convertible instruments

are accounted for in calculating diluted EPS, and requires enhanced disclosures about the terms of convertible instruments and contracts

in an entity’s own equity.

The new standard is effective for the Company for fiscal years beginning after December 15, 2023, including

interim periods within these fiscal years, with early adoption permitted.

The Company adopted ASU 2020-06 on January 1, 2024.

of this new accounting standard did not have a material impact on the Company’s consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07,

“Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.” The amendments in this update improve reportable

segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

The new standard is effective

for the Company for fiscal years beginning after December 15, 2023, with early adoption permitted.

The Company adopted this standard as

of December 31, 2024, which resulted in incremental segment disclosures.

See Note 3 - Business Segments, Geographic Data and Sales by

Major Customers.

In December 2023, the FASB issued ASU 2023-09, “Income

Taxes (Topic 740):

Improvements to Income Tax Disclosures.” This ASU provides standardization of tax disclosures, primarily related

to the rate reconciliation and income taxes paid information.

The Company adopted this standard on a prospective basis as of December

31, 2025, which resulted in incremental disclosures.

See Note 11 – Income Taxes.

Recent Accounting Pronouncements

In December 2023, the FASB issued ASU 2023-09,

“Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.” This ASU provides standardization of tax disclosures,

primarily related to the rate reconciliation and income taxes paid information.

The new standard is effective for the Company for fiscal

years beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the impact that the updated

disclosure will have on its consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03,

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standard on its consolidated financial statements and related disclosures.

Note 3 — Business Segments, Geographic Data and

Sales by Major Customers

In July 2025, the FASB issued ASU 2025-05, “Financial

Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses for Accounts Receivable and Contract Assets.” The new

guidance provides a practical expedient in developing reasonable and supportable forecasts when estimating expected credit losses for

current accounts receivable and current contract assets arising from transactions accounted for under Topic 606.

Entities that elect the

practical expedient may assume that current conditions as of the balance sheet date do not change for the remaining life of the respective

The amendments will be effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods

within those annual reporting periods.

Early adoption is permitted in both interim and annual reporting periods in which financial statements

have not yet been issued or made available for issuance.

The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements and related disclosures.

In September 2025, the FASB issued ASU 2025-06,

“Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40):

Targeted Improvements to the Accounting for

Internal-Use Software.” The new guidance removes all references to prescriptive and sequential software development stages (referred

to as “project stages”) throughout Subtopic 350-40.

Therefore, an entity is required to start capitalizing software costs

when both of the following occur:

Management has authorized and committed to funding the software project and 2.

It is probable that

the project will be completed and the software will be used to perform the function intended (referred to as the “probable-to-complete

recognition threshold”).

In evaluating the probable-to-complete recognition threshold, an entity is required to consider whether

there is significant uncertainty associated with the development activities of the software (referred to as “significant development

uncertainty”).

The amendments will be effective for all entities for annual reporting periods beginning after December 15, 2027,

and interim reporting periods within those annual reporting periods.

Early adoption is permitted as of the beginning of an annual reporting

The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements and

related disclosures.

Note 3 — Business Segments, Geographic Data and Sales

by Major Customers

The Company is a worldwide producer and marketer

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prior year and recent years’ performance in that quarter.

Segment performance is measured at the operating

income (loss) level.

All sales are made to external customers and general corporate expenses have been attributed to the segments based

upon relative sales volumes.

Segment assets are primarily comprised of accounts receivable and inventories, net of applicable reserves

and allowances, goodwill and other assets.

Certain assets which are not tracked by operating segment and/or that benefit multiple operating

segments have been allocated on the same basis.

Segment performance is measured at the gross profit

and operating income (loss) level.

All sales are made to external customers and general corporate expenses have been attributed to the

segments based upon relative sales volumes.

Segment assets are primarily comprised of accounts receivable and inventories, net of applicable

reserves and allowances, goodwill and other assets.

Certain assets which are not tracked by operating segment and/or that benefit multiple

operating segments have been allocated on the same basis.

Results are not necessarily those which would

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of December 31, 2025 and 2024 and for the three years in the period ended December 31, 2025 are as follows (in thousands):

Ended December 31,

selling expenses

development and testing expenses

general and administrative expenses (A), (B)

headquarter general & administrative expenses (A), (C)

(loss) from operations

(loss) from joint venture

income (expense), net

in fair value of preferred stock derivative liability

on debt extinguishment

before provision for (benefit from) income taxes

Year Ended December 31,

Cost of Sales (A)

Direct selling expenses

Product development and testing expenses

Divisional general and administrative expenses (A), (B)

Allocated headquarter general & administrative expenses (A), (C)

Income (loss) from operations

Income (loss) from joint venture

Other income (expense), net

Change in fair value of preferred stock derivative liability

Loss on debt extinguishment

Interest income

Interest expense

Income before provision for (benefit from) income taxes

(A) Includes depreciation and amortization $ 10,123 $ 110 $ 10,233 $ 9,925 $ 121 $ 10,046 $ 8,409 $ 176 $ 8,585

(B) Consist mainly of payroll and related expenses, rent, depreciation and other general and administrative expenses.

(B) Consist mainly of payroll and

related expenses, rent, depreciation and other general and administrative expenses.

expenses, rent, depreciation and other general and administrative expenses.

Toys/Consumer Products

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Latin America

Australia and New Zealand

Australia & New Zealand

Middle East and Africa

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Percentage of

(*) During the year ended December 31, 2025, the Company determined

that, in prior periods, net sales to two subsidiaries of Walmart Inc., were not aggregated with net sales to Walmart Inc.

customer disclosure under ASC 280-10-50-42.

Because these entities are under common control, such sales should be presented as revenues

from a single customer.

Accordingly, prior-period amounts have been revised to aggregate these net sales amounts to Walmart Inc.

its subsidiaries.

This revision affected only the major customer disclosure and had no impact on the Company’s consolidated financial

statements for any period presented.

The Company concluded that the revision was not material to previously issued financial statements.

No other customer accounted for more than 10% of the Company’s

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potential credit losses.

Note 4 — Joint Ventures

In November 2014, the Company entered into a joint

venture with Meisheng Culture & 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.

On May 10, 2023, the Company

dissolved the joint venture with MC&C.

Prior to the dissolution, the Company owned fifty-one percent of the joint venture.

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 years ended December 31, 2023 and 2022 was ($ 293 ,000) and ($ 330 ,000), respectively.

Note 4 — Prepaid Expenses and Other Assets

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Income tax receivable

Investments in employee deferred compensation trusts

Prepaid expenses

Royalty advances

Royalty advances (current and non-current)

Employee retention credit

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goodwill by reporting unit for the years ended December 31, 2025 and 2024.

In the second quarter of 2024, the Company performed

a quantitative assessment and determined that goodwill was not impaired as the fair value of the reporting units exceeded the carrying

There were no events or changes in circumstances after the second quarter assessment that indicated that the carrying value of

a reporting unit may exceed its fair value as of December 31, 2024.

The Company performed its annual impairment assessment

in the second quarter of 2025, and in the second quarter of 2024 using a quantitative approach, and determined there was no impairment.

In the second quarter of 2025, the Company identified

certain macroeconomic developments that represented potential indicators of impairment of goodwill in the form of rising import costs

As a result, the Company performed an interim quantitative impairment test for its reporting units as of May 31,

2025, consistent with the guidance in ASC 350.

The results of this analysis indicated that the fair value of each reporting unit continued

to exceed its carrying amount.

There were no events or changes in circumstances after

the second quarter assessment that indicated that the carrying value of a reporting unit may exceed its fair value as of December 31,

Note 6 — Concentration of Credit

Financial instruments that subject the Company to

concentration of credit risk are cash and cash equivalents and accounts receivable.

Cash equivalents consist primarily of overnight and

money market funds.

Financial instruments that subject the Company

to concentration of credit risk are cash and cash equivalents and accounts receivable.

Cash equivalents consist primarily of overnight

and money market funds.

These instruments are short-term in nature and bear minimal risk.

The Company maintains certain cash balances in excess

of Federal Deposit Insurance Corporation (“FDIC”) insured limits.

The Company has not experienced any losses in such accounts

and believes that the credit risk to the Company’s cash is minimal.

The Company maintains certain cash balances in

excess of Federal Deposit Insurance Corporation (“FDIC”) insured limits.

The Company has not experienced any losses in such

accounts and believes that the credit risk to the Company’s cash is minimal.

The Company performs ongoing credit evaluations

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Salaries and employee benefits

Warehousing and Logistics

Goods in transit

Professional fees

Third-party warehouse

Sales commissions

Unearned revenue

Interest expense

In addition to royalties currently payable on the

sale of licensed products during the year, the Company records a liability as accrued royalties for the estimated shortfall in achieving

minimum royalty guarantees pursuant to certain license agreements (see Note–16 - Commitments).

Accrued expenses – long-term related to obligations

from the Company’s non-qualified deferred compensation plan (see Note 18 – Employee Benefit Plans) which were $ 2.6 million

and $ 1.0 million as of December 31, 2024 and 2023, respectively.

Other long-term accrued expenses were nil as of December 31, 2024 and

$ 2.7 million as of December 31, 2023, related to negotiated extended payment terms as part of a multi-year agreement with a 3rd party

rights holder.

In addition to royalties currently payable on the sale

of licensed products during the year, the Company records a liability as accrued royalties for the estimated shortfall in achieving minimum

royalty guarantees pursuant to certain license agreements (see Note–15 - Commitments).

Accrued expenses – long-term related primarily

to obligations from the Company’s non-qualified deferred compensation plan (see Note 17 – Employee Benefit Plans) which were

$ 4.4 million and $ 2.6 million as of December 31, 2025 and 2024, respectively.

Note 8 — Debt

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3.25 % convertible senior notes due 2023 of the Company as well as the Company’s outstanding Series A Preferred Stock.

The fair value of the Company’s 2021 BSP Term

Loan was considered Level 3 fair value (see Note 15 – Fair Value Measurements for further discussion of the fair value hierarchy)

and was measured using the discounted future cash flow method.

In addition to the debt terms, the valuation methodology included an assumption

of a discount rate that approximated the current yield on a debt security with comparable risk.

This assumption was considered an unobservable

input in that it reflected the Company’s own assumptions about the inputs that market participants would use in pricing the asset

or liability.

The Company believed that this was the best information available for use in the fair value measurement.

Note 9 — Credit Facilities

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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”).

ABL Credit Agreement replaced 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.

The Company pays a commitment fee ( 0.25 % - 0.375 %) based on the unused portion

of the revolving credit facility.

Any amounts borrowed under the JPMorgan ABL Facility bore interest at either (i) LIBOR 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.

December 31, 2024 and 2023, the weighted average interest rate on the credit facility with JPMorgan Chase Bank was 7.30 % and 6.77 %, respectively.

In March 2023, the Company entered into a first

amendment for its JPMorgan ABL Credit Agreement, which transitioned the interest reference rate on its JPMorgan ABL Facility from LIBOR

to the Secured Overnight Financing Rate (“SOFR”).

The new interest reference rate for the ABL Facility became effective on

March 16, 2023.

Any amounts borrowed under the JPMorgan ABL Facility will bear interest at either (i) SOFR plus 1.50 % - 2.00 % (determined

by reference to an excess availability pricing grid) plus a constant 0.10 % spread adjustment 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 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.

N.A., as agent and lender, providing a $ 67.5 million senior secured revolving credit facility (the “JPMorgan ABL Facility”)

maturing in June 2026.

On June 24, 2025, in connection with the execution

of a new credit facility with BMO Bank, N.A., the Company voluntarily terminated the JPMorgan ABL Facility.

At the time of termination,

there were no borrowings outstanding under the JPMorgan ABL Facility.

The termination of the JPMorgan ABL Facility did not result in any

prepayment penalties or early termination fees.

Unamortized debt issuance costs associated with the JPMorgan ABL Facility were written

off and recorded as a loss on extinguishment of debt in the amount of $ 0.4 million, which is reflected in loss on debt extinguishment

in the consolidated statements of operations and comprehensive income for the twelve months ended December 31, 2025.

The JPMorgan ABL Facility was replaced with a new

senior secured revolving credit facility with BMO Bank, N.A., as described below.

BMO Bank, N.A.

On June 24, 2025, the Company and certain of its

subsidiaries entered into a new Credit Agreement (the “BMO Credit Agreement”) with BMO Bank, N.A., as administrative agent,

and a syndicate of lenders.

The BMO Credit Agreement provides for a senior secured revolving credit facility (the “Revolving Facility”)

with aggregate commitments of up to $70.0 million, including a $10.0 million sublimit for swingline loans and a $25.0 million sublimit

for letters of credit.

The Revolving Facility matures on June 24, 2030, unless extended pursuant to its terms.

Capitalized terms used

below have the meanings assigned to them in the BMO Credit Agreement.

Borrowings under the Revolving Facility bear interest,

at the Company’s election, either (i) the Adjusted Term Secured Overnight Financing Rate (“SOFR”) plus an applicable

margin or (ii) the Base Rate plus an applicable margin.

The applicable margin varies based on the Company’s Total Net Leverage Ratio

and ranges from 1.50 % to 2.00 % for SOFR loans and from 0.50 % to 1.00 % for Base Rate loans.

The Company is also subject to a commitment

fee on the unused portion of the Revolving Facility ranging from 0.20 % to 0.30 %, and a fee on outstanding letters of credit ranging from

1.50 % to 2.00 %.

The BMO Credit Agreement contains customary affirmative

and negative covenants, including limitations on indebtedness, liens, investments, asset sales and dividends.

Financial covenants include

a minimum Consolidated Interest Coverage Ratio of 3.00 to 1.00 , and maximum Total Net Leverage Ratio of 2.00 to 1.00 , tested quarterly.

The obligations under the BMO Credit Agreement

are guaranteed by certain of the Company’s U.S., Canadian and Hong Kong subsidiaries and are secured by substantially all of the

assets of the Company and certain of its subsidiaries, including equity interests in certain subsidiaries, subject to certain customary

As of December 31, 2025, the amount of outstanding

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As of December 31, 2025, off-balance sheet arrangements

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

Amortization expense classified as interest expense

related to the $ 1.6 million of debt issuance costs associated with the transaction that closed on June 2, 2021 was $ 0.3 million and $ 0.3

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

include letters of credit issued by BMO of $ 1.7 million and by JPMorgan of $ 1.6 million.

As of December 31, 2025 and 2024, the Company was

in compliance with the financial covenants under the JPMorgan ABL Credit Agreement.

in compliance with the financial covenants under the BMO Credit Agreement and the JPMorgan ABL Credit Agreement, respectively.

Note 10 — Related Party Transactions

In November 2014, the Company entered into a joint

venture with 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 which was dissolved in 2023 (see Note 4 – Joint Ventures).

In March 2017, the Company entered into an equity

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Meisheng is not represented on the Company’s board of directors and thus ceased to be a related party to the company.

Meisheng serves as a significant manufacturer of

Meisheng continues to be a significant manufacturer

of the Company.

For the years ended December 31, 2024 and 2023, the Company made inventory, molds and tooling related payments to Meisheng

of approximately $ 98.4 million, $ 75.7 million and $ 120.5 million respectively.

As of December 31, 2024 and 2023, amounts due to Meisheng

for inventory received by the Company, but not paid totaled $ 13.5 million and $ 12.3 million, respectively.

For the year ended December

31, 2024, the Company recorded sales revenues of $ 0.1 million from Party X People GMBH, a subsidiary of Meisheng.

12 — Income Taxes

Company does not file a consolidated return with its foreign subsidiaries.

The Company files federal and state returns and its foreign

subsidiaries file returns in their respective jurisdiction.

the years ended 2024, 2023 and 2022, the provision for income taxes, which included federal, state and foreign income taxes, was an expense

of $ 5.5 million, an expense of $ 6.8 million, and an benefit of $ 41.0 million, respectively, reflecting effective tax provision rates

of 13.9 %, 15.2 % and ( 81.9 )%, respectively.

2024 tax expense of $5.5 million included a discrete tax benefit of $ 1.4 million primarily comprised return to provision adjustments.

of approximately $ 98.4 million and $ 75.7 million respectively.

As of December 31, 2024, amounts due to Meisheng for inventory received

by the Company, but not paid totaled $ 13.5 million.

Note 11 — Income Taxes

The Company does not file a consolidated return

with its foreign subsidiaries.

The Company files federal and state returns and its foreign subsidiaries file returns in their respective

jurisdiction.

For the years ended 2025, 2024 and 2023, the provision

for income taxes, which included federal, state and foreign income taxes, was an expense of $ 4.9 million, $ 5.5 million and $ 6.8 million,

respectively, reflecting effective tax provision rates of 33.1 %, 13.9 % and 15.2 %.

The 2025 tax expense of $ 4.9 million included

a discrete tax benefit of $ 0.2 million primarily comprised of adjustments to uncertain tax positions and return to provision adjustments.

Absent these discrete tax benefits, our effective tax rate for 2025 was 34.4 %, primarily due to taxes on federal, state and foreign income.

the years ended 2023 and 2022, provision for income taxes includes federal, state and foreign income taxes at effective tax rates of

15.2% and (81.9)%, respectively.

Exclusive of discrete items, the effective tax provision rate would be 21.3 % in 2023 and 17.6 % in 2022.

of December 31, 2024 and 2023, the Company had net deferred tax assets of $ 70.4 million and $ 68.1 million, respectively, related to U.S.

For the years ended 2024 and 2023, provision for income

taxes includes federal, state and foreign income taxes at effective tax rates of 13.9% and 15.2%, respectively.

Exclusive of discrete

items, the effective tax provision rate would be 17.4 % in 2024 and 21.3 % in 2023.

As of December 31, 2025 and 2024, the Company

had net deferred tax assets of $ 69.6 million and $ 70.4 million, respectively, related to U.S.

and foreign jurisdictions.

for income taxes reflected in the accompanying consolidated statements of operations are comprised of the following (in thousands):

Provision for income taxes reflected in the accompanying

consolidated statements of operations are comprised of the following (in thousands):

Year ended December 31,

Current income tax expense (benefit):

Current income tax expense

State and local

Total current income tax expense (benefit)

Total current income tax expense

Deferred income tax expense (benefit)

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Total deferred income tax expense (benefit)

Total income tax expense (benefit)

components of deferred tax assets/(liabilities) are as follows (in thousands):

Total income tax expense

The components of deferred tax assets/(liabilities)

are as follows (in thousands):

Year ended December 31,

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Deferred Income Tax Liabilities:

Foreign net operating loss carryforwards

Undistributed foreign earnings

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Valuation allowance

Total Net Deferred Income Tax Assets/(Liabilities)

for income taxes varies from the U.S.

Total Net Deferred Income Tax Assets

The provision for income taxes varies from the

federal statutory rate.

The following reconciliation shows the significant differences in the tax

at statutory and effective rates:

The Company has elected to adopt the guidance in ASU No.

2023-09 on a prospective basis.

The following table is a reconciliation of the U.S.

federal statutory rate of 21.0 % to the Company’s effective rate for the year ended December 31, 2025, in accordance with guidance

December 31, 2025

Provision for income taxes at U.S.

federal statutory rate

State and local income taxes, net of federal income tax effect 1

Foreign tax effects

Statutory tax rate difference between Hong Kong and U.S.

Other foreign jurisdictions

Effect of changes in tax laws or rates enacted in the current period

Effect of cross-border tax laws

Foreign derived intangible income (FDII)

R&D tax credits

Changes in valuation allowances

Nontaxable or nondeductible items

Section 162(m)

Stock-based compensation

Changes in unrecognized tax benefits

Other adjustments

Effective Tax Rate

1 State and local taxes in California, New York and New York City made up the majority of the tax effect in this category.

The following table is a reconciliation of the U.S.

federal statutory rate of 21.0 % to the Company’s effective rate for the years ended December 31, 2024 and 2023 in accordance with

the guidance prior to the adoption of ASU No.

Year ended December 31,

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Valuation allowance

taxes result from temporary differences between tax basis of assets and liabilities and their reported amounts in the consolidated financial

The temporary differences result from costs required to be capitalized for tax purposes by the U.S.

Internal Revenue Code

(“IRC”), and certain items accrued for financial reporting purposes in the year incurred but not deductible for tax purposes

components of income (loss) before provision for income taxes are as follows (in thousands):

Deferred taxes result from temporary differences

between tax basis of assets and liabilities and their reported amounts in the consolidated financial statements.

The temporary differences

result from costs required to be capitalized for tax purposes by the U.S.

Internal Revenue Code (“IRC”), and certain items

accrued for financial reporting purposes in the year incurred but not deductible for tax purposes until paid.

The amounts of cash taxes paid during the year

ended December 31, 2025 are as follows:

Total income taxes paid, net of amounts refunded

Total income taxes paid, net of amounts refunded for

the years ended December 31, 2024 and 2023 are presented on the consolidated statement of cash flows.

The components of income before provision for income

taxes are as follows (in thousands):

Year ended December 31,

Company uses a recognition threshold and measurement process for recording in the consolidated financial statements uncertain tax positions

(“UTP”) taken or expected to be taken in a tax return.

following table provides further information of UTPs that would affect the effective tax rate, if recognized, as of December 31, 2024

(in millions):

The Company uses a recognition threshold and measurement

process for recording in the consolidated financial statements uncertain tax positions (“UTP”) taken or expected to be taken

in a tax return.

The following table provides further information of

UTPs that would affect the effective tax rate, if recognized, as of December 31, 2025 (in thousands):

Balance, December 31, 2022

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Balance, December 31, 2025

interest on uncertain income tax liabilities is recognized as a component of the income tax provision recognized in the consolidated

statements of operations.

During 2024 and 2023, the Company recognized $ 173 thousand and $ 41 thousand of interest expense related to

UTPs, respectively.

Company does not expect its gross unrecognized tax benefits to significantly change within the next 12 months.

Tax years 2021 through 2023 remain subject to Federal examination in

the United States.

Current interest on uncertain income tax liabilities

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

During 2025 and 2024,

the Company recognized $ 5 thousand and $ 173 thousand of interest expense related to UTPs, respectively.

The Company does not expect its gross unrecognized

tax benefits to significantly change within the next 12 months.

Tax years 2022 through 2024 remain subject to Federal

examination in the United States.

The tax years 2021 through 2024 are generally still subject to examination in the various states.

Furthermore, all

net operating losses and tax credit carryforwards are still subject to review given that the statute of limitation for these items would

begin in the year of utilization.

all net operating losses and tax credit carryforwards are still subject to review given that the statute of limitation for these items

would begin in the year of utilization.

The tax years 2019 through 2024 are still subject to examination in Hong Kong.

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of business, the Company is audited by federal, state and foreign tax authorities.

assesses 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.

Management assesses 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.

The Company is required to establish a valuation allowance for the U.S.

deferred tax assets and

record a charge to income if Management determines, based upon available evidence at the time the determination is made, that it is more

likely than not that some portion or all of the deferred tax assets may not be realized.

on the Company’s 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.

For the year ended December 31, 2024,

the valuation allowance remained approximately the same as the $ 0.7 million recorded at December 31, 2023.

The 2024 and 2023 net deferred

tax assets of $ 70.4 million and $ 68.1 million, respectively, consist of the net deferred tax assets in the US and foreign jurisdictions,

where the Company is in a cumulative income position.

to the Internal Revenue Code of 1986, as amended (the “Code”) Sections 382 and 383, annual use of a company’s NOL and

tax credit carryforwards may be limited if there is a cumulative change in ownership of greater than 50% within a three-year period.

The amount of the annual limitation is determined based on the value of the company immediately prior to the ownership change.

ownership changes may further affect the limitation in future years.

If limited, the related tax asset would be removed from the deferred

tax asset schedule with a corresponding reduction in the valuation allowance.

The Company had established a valuation allowance as the

realization of such deferred tax assets had not met the more likely than not threshold requirement.

December 31, 2024, the Company has U.S.

federal net NOLs, of approximately $ 148.6 million, which will begin to expire in 2033.

31, 2024, the Company has state NOLs of approximately $ 48.7 million, which will begin to expire in 2025.

Company maintained undistributed earnings overseas as of December 31, 2024.

As of December 31, 2024, the Company believed the funds held

by all non-U.S.

subsidiaries will be permanently reinvested outside of the U.S., with the exception of Hong Kong.

As a result of tax

reform, the Company’s unrepatriated earnings are no longer subject to federal income tax in the U.S.

deferred tax assets and record a charge to income if Management

determines, based upon available evidence at the time the determination is made, that it is more likely than not that some portion or

all of the deferred tax assets may not be realized.

Based on the Company’s evaluation of all positive

and negative evidence, as of December 31, 2025, a valuation allowance of $ 0.7 million has been recorded against the deferred tax assets

that more likely than not will not be realized.

Changes in the valuation allowance were immaterial for the years ended December 31, 2025,

2024, and 2023.

For the year ended December 31, 2025, the valuation allowance remained approximately the same as the $ 0.7 million recorded

at December 31, 2024.

The 2025 and 2024 net deferred tax assets of $ 69.6 million and $ 70.4 million, respectively, consist of the

net deferred tax assets in the US and foreign jurisdictions, where the Company is in a cumulative income position.

Pursuant to the Internal Revenue Code of 1986,

as amended (the “Code”) Sections 382 and 383, annual use of a company’s NOL and tax credit carryforwards may be limited

if there is a cumulative change in ownership of greater than 50% within a three-year period.

The amount of the annual limitation is determined

based on the value of the company immediately prior to the ownership change.

Subsequent ownership changes may further affect the limitation

in future years.

If limited, the related tax asset would be removed from the deferred tax asset schedule with a corresponding reduction

in the valuation allowance.

The Company had established a valuation allowance as the realization of such deferred tax assets had not met

the more likely than not threshold requirement.

At December 31, 2025, the Company has U.S.

net NOLs, of approximately $ 148.6 million, which will begin to expire in 2033.

At December 31, 2025, the Company has state NOLs of approximately

$ 48.0 million, which will begin to expire in 2025.

The Company maintained undistributed earnings overseas

as of December 31, 2025.

As of December 31, 2025, the Company believed the funds held by all non-U.S.

subsidiaries will be permanently

reinvested outside of the U.S., with the exception of Hong Kong.

As a result of tax reform, the Company’s unrepatriated earnings

are no longer subject to federal income tax in the U.S.

when distributed.

Company has lease agreements with lease and non-lease components, which are generally accounted for separately.

The Company has operating

leases for corporate offices, warehouses, and certain equipment.

The Company’s leases have remaining terms of 1 to 5 years, some

of which include options to extend the lease for up to 10 years, and some of which include options to terminate the lease within 1 year.

As of December 31, 2024, the Company’s weighted average remaining lease term is approximately 4 years and the weighted average

discount rate used to calculate the Company’s lease liability is approximately 6.79 %.

As of December 31, 2023, the Company’s

weighted average remaining lease term is approximately 4 years and the weighted average discount rate used to calculate the Company’s

lease liability is approximately 7.31 %.

ASC 842, total operating lease costs for the years ended December 31, 2024, 2023 and 2022 were $ 12.5 million, $ 12.4 million, and $ 19.1

million, respectively.

Of the $12.5 million for the year ended December 31, 2024, $ 2.1 million was related to short-term and variable

lease costs, including common area maintenance charges, management fees, taxes and storage fees.

Sublease rental income was $ 1.6 million

Of the $12.4 million for the year ended December 31, 2023, $ 3.3 million was related to short-term and variable lease costs,

including common area maintenance charges, management fees, taxes and storage fees.

Note 12 — Leases

The Company has lease agreements with lease and non-lease

components, which are generally accounted for separately.

The Company has operating leases for corporate offices, warehouses, and certain

The Company’s leases have remaining terms of 1 to 11 years, some of which include options to extend the lease for up

to 10 years, and some of which include options to terminate the lease within 1 year.

As of December 31, 2025, the Company’s weighted

average remaining lease term was approximately 4.0 years, and the weighted average discount rate used to calculate the Company’s

lease liability was approximately 6.70 %.

As of December 31, 2024, the Company’s weighted average remaining lease term was approximately

4 years, and the weighted average discount rate used to calculate the Company’s lease liability was approximately 6.79 %.

Total operating lease costs for the years ended December

31, 2025, 2024 and 2023 were $ 14.3 million, $ 12.5 million, and $ 12.4 million, respectively.

Of the $14.3 million for the year ended December

31, 2025, $ 1.8 million was related to short-term and variable lease costs, including common area maintenance charges, management fees,

taxes and storage fees.

Sublease rental income was $ 2.8 million in 2025.

Of the $19.1 million for the year ended December 31, 2022, $ 10.7 million was related to short-term and variable lease costs, including

common area maintenance charges, management fees, taxes and storage fees.

Of the $12.5 million for the year ended December 31, 2024, $ 2.1

million was related to short-term and variable lease costs, including common area maintenance charges, management fees, taxes and storage

Sublease rental income was $ 1.6 million in 2024.

Company had a cash outflow of $ 9.1 million, $ 10.7 million and $ 11.5 million related to operating leases for the years ended December

31, 2024, 2023 and 2022, respectively.

following table represents a reconciliation of the Company’s undiscounted future minimum lease payments under operating leases

to the lease liability excluding minimum lease payments for executed and legally enforceable leases that have not yet commenced as of

December 31, 2024 (in thousands):

Of the $12.4 million for the year ended December 31, 2023, $ 3.3 million was related

to short-term and variable lease costs, including common area maintenance charges, management fees, taxes and storage fees.

Sublease rental

income was $ 1.5 million in 2023.

The Company had a cash outflow of $ 11.8 million,

$ 9.1 million and $ 10.7 million related to operating leases for the years ended December 31, 2025, 2024 and 2023, respectively.

The following table represents a reconciliation

of the Company’s undiscounted future minimum lease payments under operating leases to the lease liability excluding minimum lease

payments for executed and legally enforceable leases that have not yet commenced as of December 31, 2025 (in thousands):

Year ending December 31,

Total lease payments

Imputed interest

of December 31, 2024 and 2023, the minimum lease payments for executed and legally enforceable leases that have not yet commenced were

14 — Common Stock and Preferred Stock

issuances of common stock, including those issued pursuant to restricted stock or unit grants, are issued from the Company’s authorized

but not issued and outstanding shares.

March 11, 2024, the Company redeemed all of the outstanding shares of Series A Senior Preferred Stock for an aggregate price of $ 20.0

million cash and 571,295 of its common shares representing a value of $ 15.0 million based on a share price of $ 26.26 .

2024, certain employees, including two executive officers, surrendered an aggregate of 229,587 shares of restricted stock units for $ 6.9

million to cover income taxes due on the vesting of restricted shares.

Additionally, an aggregate of 22,223 shares of restricted stock

granted in 2020, 2022 and 2023 with a value of approximately $ 0.4 million was forfeited during 2024.

2023, certain employees, including three executive officers, surrendered an aggregate of 157,019 shares of restricted stock units for

$ 3.1 million to cover income taxes due on the vesting of restricted shares.

Additionally, an aggregate of 34,588 shares of restricted

stock granted in 2021 and 2022 with a value of approximately $ 0.6 million was forfeited during 2023.

dividend was declared or paid in 2024 and 2023.

the Market Offering

July 1, 2022, the Company entered into an At the Market Issuance Sales Agreement (“ATM Agreement”) with B.

Riley, as agent

pursuant to which the Company may, from time to time, sell shares of its common stock, up to $ 75 million of common stock, in one or more

offerings in amounts, prices and at terms that the Company will determine at the time of the offering.

of the year ended December 31, 2024, the Company did not sell any shares of common stock under the ATM Agreement.

Company has on file with the SEC an effective registration statement pursuant to which it 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 the Company will determine at the time of the offering.

of the year ended December 31, 2024, the Company has not sold any securities pursuant to its shelf registration statement.

Less imputed interest

As of December 31, 2025 and 2024, the minimum lease

payments for executed and legally enforceable leases that have not yet commenced were nil .

Note 13 — Common Stock and Preferred Stock

All issuances of common stock, including those

issued pursuant to restricted stock or unit grants, are issued from the Company’s authorized but not issued and outstanding shares.

On March 11, 2024, the Company redeemed all of

the outstanding shares of Series A Senior Preferred Stock for an aggregate price of $ 20.0 million cash and 571,295 of its common shares

representing a value of $ 15.0 million based on a share price of $ 26.26 .

During 2025, certain employees, including two executive

officers, surrendered an aggregate of 240,369 shares of restricted stock units for $ 5.7 million to cover income taxes due on the vesting

of restricted shares.

Additionally, an aggregate of 8,620 shares of restricted stock granted in 2022, 2023 and 2024 with a value of approximately

$ 0.2 million was forfeited during 2025.

During 2024, certain employees, including two executive

officers, surrendered an aggregate of 229,587 shares of restricted stock units for $ 6.9 million to cover income taxes due on the vesting

of restricted shares.

Additionally, an aggregate of 22,223 shares of restricted stock granted in 2020, 2022 and 2023 with a value of approximately

$ 0.4 million was forfeited during 2024.

Quarterly cash dividends of $ 0.25 per common share

were paid on March 31, June 27, September 30 and December 29, 2025.

No dividend was declared or paid in 2024.

At the Market Offering

On July 1, 2022, the Company entered into an At the

Market Issuance Sales Agreement (“ATM Agreement”) with B.

Riley, as agent pursuant to which the Company may, from time to

time, sell shares of its common stock, up to $ 75 million of common stock, in one or more offerings in amounts, prices and at terms that

the Company will determine at the time of the offering.

The Company did not sell any shares of common stock under the ATM Agreement.

In 2022 the Company filed with the SEC an effective

registration statement pursuant to which it 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 the Company will determine at the time of

the offering.

In 2025 the registration statement expired by law on its third anniversary.

The Company did not sell any securities pursuant

to its shelf registration statement.

Redeemable Preferred Stock

On August 9, 2019, the Company entered into and

consummated multiple, binding definitive agreements (collectively, the “Recapitalization Transaction”) among various investor

parties to recapitalize the Company’s balance sheet.

In connection with the Recapitalization Transaction, 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”).

On March 11, 2024, the Company redeemed all of

the outstanding shares of Series A Senior Preferred Stock for an aggregate price of $ 20.0 million cash and 571,295 of its common shares,

representing a value of $ 15.0 million based on a share price of $ 26.26 , settling the preferred stock derivative liability of $ 29.9 million

and the preferred stock accrued dividends of $ 6.0 million as of December 31, 2023.

As of December 31, 2023, 200,000 shares of Series A

Preferred Stock were outstanding.

Each share of Series A Preferred Stock had an initial

value of $ 100 per share, which was automatically increased for any accrued and unpaid dividends (the “Accreted Value”).

The Series A Preferred Stock had 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 cash dividends were declared or paid.

Prior to the redemption, for the years ended December 31, 2024 and 2023, the

Company recorded $ 0.4 million and $ 1.5 million, respectively of preferred stock dividends as an increase in the value of the Series A

Preferred Stock.

August 9, 2019, the Company entered into and consummated multiple, binding definitive agreements (collectively, the “Recapitalization

Transaction”) among various investor parties to recapitalize the Company’s balance sheet.

In connection with the Recapitalization

Transaction, 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”).

March 11, 2024, the Company redeemed all of the outstanding shares of Series A Senior Preferred Stock for an aggregate price of $ 20.0

million cash and 571,295 of its common shares, representing a value of $ 15.0 million based on a share price of $ 26.26 , settling the preferred

stock derivative liability of $ 29.9 million and the preferred stock accrued dividends of $ 6.0 million as of December 31, 2023.

December 31, 2023, 200,000 shares of Series A Preferred Stock were outstanding.

share of Series A Preferred Stock had an initial value of $ 100 per share, which was automatically increased for any accrued and unpaid

dividends (the “Accreted Value”).

Series A Preferred Stock had 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 cash dividends have been declared or paid.

Prior to the redemption,

for the years ended December 31, 2024 and 2023, the Company recorded $ 0.4 million and $ 1.5 million, respectively of preferred stock dividends

as an increase in the value of the Series A Preferred Stock.

Series A Preferred Stock had no stated maturity, however, the Company had 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 2019 Recap Term Loan.

In addition, upon

the occurrence of certain change of control type events, holders of the Series A Preferred Stock were 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.

Company had the right, but was 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.

The Series A Preferred Stock did 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).

These approval rights required

the prior consent of specified percentages of holders (or in certain cases, all holders) of the Series A Preferred Stock in order for

the Company to take certain actions, including the issuance of additional shares of Series A Preferred Stock or parity stock, the issuance

of senior stock, certain amendments to the Amended and Restated Certificate of Incorporation, the Certificate of Designations of the

Series A Preferred Stock (the “Certificate of Designations”), the Second Amended and Restated By-laws or the Amended and

Restated Nominating and Corporate Governance Committee Charter, material changes in the Company’s line of business and certain

change of control type transactions.

In addition, the Certificate of Designations provided that the approval of at least six directors

were required for any related person transaction within the meaning of Item 404 of Regulation S-K under the Securities Act of 1933, as

amended, including, without limitation, the adoption of, or any amendment, modification or waiver of, any agreement or arrangement related

to any such transaction.

The Certificate of Designations also included restrictions on the ability of the Company to pay dividends on

or make distributions with respect to, or redeem or repurchase, shares of Common Stock or other junior stock.

In addition, holders of

the Series A Preferred Stock had preemptive rights regarding future issuance of Series A Preferred Stock or parity stock.

agreement was reached with the preferred shareholders to eliminate their ability to elect members to the Company’s Board of Directors

on a going-forward basis.

Series A Preferred Stock redemption amount was contingent upon certain events with no stated redemption date as of the reporting date,

although may become redeemable in the future.

In accordance with the SEC guidance within ASC Topic 480, Distinguishing Liabilities

Classification and Measurement of Redeemable Securities , the Company classified the Series A Preferred Stock as temporary

equity as the Series A Preferred Stock contained a redemption feature which was contingent upon certain deemed liquidation events, the

occurrence of which may not solely have been within the control of the Company.

ASC 815, Derivatives and Hedging , certain contractual terms that meet the accounting definition of a derivative must be accounted

for separately from the financial instrument in which they are embedded.

The Company had concluded that the redemption upon a change

of control and the repurchase option by the Company constituted embedded derivatives.

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

The redemption provision

specified if certain events that constitute a change of control occur, the Company may be required to settle the Series A Preferred Stock

at 150% of its accreted amount.

Accordingly, the redemption provision met the definition of a derivative, and its economic characteristics

were not considered clearly and closely related to the economic characteristics of the Series A Preferred Stock, and were more akin to

a debt instrument than equity.

Company considered the repurchase option to have no value as the likelihood was remote that this event, within the Company’s control,

would ever occur.

The liability was accounted for at fair value, with changes in fair value recognized as other income (expense) on the

Company’s consolidated statements of operations (see Note 15 – Fair Value Measurement).

The value of the redemption provision

explicitly considered the present value of the potential premium that would be paid related to, and the probability of, an event that

would trigger its payment.

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

of control event occurring.

these two embedded derivatives were accounted for separately from the Series A Preferred Stock at fair value.

of December 31, 2024, the Company had redeemed all of the outstanding shares of the Series A Preferred Stock.

of December 31, 2023, the Series A Preferred Stock was recorded in temporary equity at the amount of accrued, but unpaid dividends of

$ 6.0 million, and the redemption provision, as a bifurcated derivative, is recorded as a long term liability with an estimated value

of $ 29.9 million.

of December 31, 2023, the Series A Preferred Stock had a carrying value of $ 26.0 million and a liquidation value of $ 39.0 million.

following table provides a reconciliation of the beginning and ending balances of the Series A Preferred Stock, which is recorded in

temporary equity:

The Series A Preferred Stock had no stated maturity,

however, the Company had 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 2019 Recap Term Loan.

In addition, upon the occurrence of certain change of control type

events, holders of the Series A Preferred Stock were 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 had the right, but was 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.

The Series A Preferred Stock did 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).

These approval rights required the prior consent of specified percentages

of holders (or in certain cases, all holders) of the Series A Preferred Stock in order for the Company to take certain actions, including

the issuance of additional shares of Series A Preferred Stock or parity stock, the issuance of senior stock, certain amendments to the

Amended and Restated Certificate of Incorporation, the Certificate of Designations of the Series A Preferred Stock (the “Certificate

of Designations”), the Second Amended and Restated By-laws or the Amended and Restated Nominating and Corporate Governance Committee

Charter, material changes in the Company’s line of business and certain change of control type transactions.

In addition, the Certificate

of Designations provided that the approval of at least six directors were required for any related person transaction within the meaning

of Item 404 of Regulation S-K under the Securities Act of 1933, as amended, including, without limitation, the adoption of, or any amendment,

modification or waiver of, any agreement or arrangement related to any such transaction.

The Certificate of Designations also included

restrictions on the ability of the Company to pay dividends on or make distributions with respect to, or redeem or repurchase, shares

of Common Stock or other junior stock.

In addition, holders of the Series A Preferred Stock had preemptive rights regarding future issuance

of Series A Preferred Stock or parity stock.

In 2022, an agreement was reached with the preferred shareholders to eliminate their ability

to elect members to the Company’s Board of Directors on a going-forward basis.

The Series A Preferred Stock redemption amount

was contingent upon certain events with no stated redemption date as of the reporting date, although may become redeemable in the future.

In accordance with the SEC guidance within ASC Topic 480, Distinguishing Liabilities from Equity:

Classification and Measurement of

Redeemable Securities , the Company classified the Series A Preferred Stock as temporary equity as the Series A Preferred Stock contained

a redemption feature which was contingent upon certain deemed liquidation events, the occurrence of which may not solely have been within

the control of the Company.

Under ASC 815, Derivatives and Hedging ,

certain contractual terms that meet the accounting definition of a derivative must be accounted for separately from the financial instrument

in which they are embedded.

The Company had concluded that the redemption upon a change of control and the repurchase option by the Company

constituted embedded derivatives.

The embedded redemption upon a change of control was accounted for separately

from the Series A Preferred Stock.

The redemption provision specified if certain events that constitute a change of control occurred,

the Company would be required to settle the Series A Preferred Stock at 150% of its accreted amount.

Accordingly, the redemption provision

met the definition of a derivative, and its economic characteristics were not considered clearly and closely related to the economic characteristics

of the Series A Preferred Stock, and were more akin to a debt instrument than equity.

The Company considered the repurchase option to have

no value as the likelihood was remote that this event, within the Company’s control, would ever occur.

The liability was accounted

for at fair value, with changes in fair value recognized as other income (expense) on the Company’s consolidated statements of operations.

The value of the redemption provision explicitly considered the present value of the potential premium that would be paid related to,

and the probability of, an event that would trigger its payment.

The probability of a triggering event was based on management’s

estimates of the probability of a change of control event occurring.

Accordingly, these two embedded derivatives were

accounted for separately from the Series A Preferred Stock at fair value.

As of December 31, 2024, the Company had redeemed

all of the outstanding shares of the Series A Preferred Stock.

As of December 31, 2023, the Series A Preferred

Stock was recorded in temporary equity at the amount of accrued, but unpaid dividends of $ 6.0 million, and the redemption provision, as

a bifurcated derivative, is recorded as a long term liability with an estimated value of $ 29.9 million.

As of December 31, 2023, the Series A Preferred

Stock had a carrying value of $ 26.0 million and a liquidation value of $ 39.0 million.

The following table provides a reconciliation of

the beginning and ending balances of the Series A Preferred Stock, which is recorded in temporary equity:

Balance, January 1,

2 unchanged sentences

Balance, December 31,

15 — Fair Value Measurements

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.

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.

following tables summarize the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December

31, 2024 and 2023 (in thousands):

Note 14 — Fair Value Measurements

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.

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 assets and liabilities measured at fair value on a recurring basis as of December 31, 2025 and 2024 (in thousands):

Fair Value Measurements

6 unchanged sentences

Investments in employee deferred compensation trusts

Preferred stock derivative liability

market funds are included in cash and cash equivalents on the Consolidated Balance Sheets.

Investments in employee deferred compensation

trusts which are comprised of mutual funds are classified as trading securities are included in prepaid and other assets on the Consolidated

Balance Sheets (refer to Note 18 – Employee Benefit Plans).

following table provides 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):

Preferred stock derivative liability

2024 2023 2022

Balance at January 1, $ 29,947 $ 21,918 $ 21,282

Change in fair value — 8,029 636

Extinguishment through redemption of preferred stock ( 29,947 ) — —

Balance at December 31, $ — $ 29,947 $ 21,918

Company’s Series A Preferred derivative liability was classified within Level 3 of the fair value hierarchy because unobservable

inputs were used in estimating the fair value.

The fair value of the redemption provision embedded in the Series A Preferred Stock was

estimated based on a discounted cash flow model and probability assumptions based on management’s estimates of a change of control

event occurring.

The value of the redemption provision explicitly considered the present value of the potential premium that would be

paid related to, and the probability of, an event that would trigger its payment.

In subsequent periods, the derivative liability was

accounted for at fair value, with changes in fair value recognized as other income (expense) on the Company’s consolidated statements

of operations.

following table provides quantitative information of liabilities measured at fair value and the significant unobservable inputs (Level

3), the range of the significant unobservable inputs, and the valuation techniques.

preferred stock derivative liability was extinguished on March 11, 2024.

2023 Valuation

Technique Unobservable

(Weighted Average)

(In thousands)

Preferred Stock Derivative Liability $ 29,947 Discounted Cash Flow Change-in-control probability assumptions Range:

Timing of change-in-control assumptions Range:

1 to 10 years

Discount Rate Range:

Market yield* 6.3 %*

the hypothetical market yield

Company’s cash and cash equivalents including restricted cash, accounts receivable, accounts payable, accrued expenses and short-term

debt represent financial instruments.

The carrying value of these financial instruments is a reasonable approximation of fair value due

to the short-term nature of the instruments.

16 — Commitments

Company has entered into various license agreements whereby the Company may use certain characters and intellectual properties in conjunction

with its products.

Generally, such license agreements provide for royalties to be paid ranging from 1 % to 25 % of net sales with minimum

guarantees and advance payments.

These license agreements are subject to audits by the licensor, which can result in additional payments

due to the licensor.

the event the Company estimates that a shortfall in achieving the minimum guarantee is probable, a liability is recorded for the estimated

shortfall and charged to royalty expense.

annual minimum royalty guarantees as of December 31, 2024 are as follows (in thousands):

expense for the years ended December 31, 2024, 2023 and 2022, was $ 106.8 million, $ 117.6 million and $ 126.6 million, respectively.

Company has entered into employment agreements with certain executives expiring through December 31, 2026.

The aggregate future annual

minimum guaranteed amounts due under those agreements as of December 31, 2024 are as follows (in thousands):

17 — Share-Based Payments

the Company’s 2002 Stock Award and Incentive Plan (“the Plan”), which incorporated its Third Amended and Restated 1995

Stock Option Plan, the Company has reserved shares of its common stock for issuance upon the exercise of options granted under the Plan,

as well as for the awarding of other securities.

Under the Plan, employees (including officers), non-employee directors and independent

consultants may be granted options to purchase shares of common stock, restricted stock units and other securities (see Note 14 - Common

Stock and Preferred Stock).

The vesting of these share-based awards may vary, but typically vest over a requisite service period or are

based on performance criteria, with a maximum vesting period of four years .

Restricted shares typically vest in the same manner, with

the exception of certain awards vesting over one year to three years .

Share-based compensation expense is recognized on a straight-line basis

over the requisite service period.

Compensation expense for performance-awards is measured based on the amount of shares ultimately expected

to vest, estimated at each reporting date based on management expectations regarding the relevant performance criteria.

Unlike the restricted

stock awards, the shares for the restricted stock units are not issued until vested.

As of December 31, 2024, 1,793,551 shares were available

for future grant.

Additional shares may become available to the extent that options or shares of restricted stock presently outstanding

under the Plan terminate, expire, or are forfeited.

the Plan, share-based compensation payments may include the issuance of shares of restricted stock.

Restricted stock award grants are

based upon employment contracts, which vary by individual and year, and are subject to vesting conditions.

of December 31, 2024, 2023 and 2022 there was nil of total unrecognized compensation cost related to non-vested restricted stock awards.

the Plan, share-based compensation payments may include the issuance of Restricted Stock Units (RSUs) to employees, which occurs approximately

once per year and are subject to vesting conditions.

RSUs are valued at the market price of the shares underlying the award on the date

following table summarizes the RSU award activity, annually for the years ended December 31, 2024, 2023 and 2022:

Money market funds are included in cash and cash equivalents

on the Consolidated Balance Sheets.

Investments in employee deferred compensation trusts which are comprised of mutual funds are classified

as trading securities are included in prepaid and other assets on the Consolidated Balance Sheets (refer to Note 17 – Employee Benefit

Note 15 — Commitments

The Company has entered into various license agreements

whereby the Company may use certain characters and intellectual properties in conjunction with its products.

Generally, such license agreements

provide for royalties to be paid ranging from 1 % to 22 % of net sales with minimum royalty guarantees and advance payments.

These license

agreements are subject to audits by the licensor, which can result in additional payments due to the licensor.

In the event the Company estimates that a shortfall

in achieving the minimum royalty guarantee is probable, a liability is recorded for the estimated shortfall and charged to royalty expense.

Future annual minimum royalty guarantees as of

December 31, 2025 are as follows (in thousands):

Royalty expense for the years ended December 31,

2025, 2024 and 2023, was $ 92.4 million, $ 106.8 million and $ 117.6 million, respectively.

The Company has entered into employment agreements

with certain executives expiring through December 31, 2029.

The aggregate future annual minimum guaranteed amounts due under those agreements

as of December 31, 2025 are as follows (in thousands):

Note 16 — Share-Based Payments

Under the Company’s 2002 Stock Award and Incentive

Plan (“the Plan”), which incorporated its Third Amended and Restated 1995 Stock Option Plan, the Company has reserved shares

of its common stock for issuance upon the exercise of options granted under the Plan, as well as for the awarding of other securities.

Under the Plan, employees (including officers), non-employee directors and independent consultants may be granted options to purchase

shares of common stock, restricted stock units and other securities (see Note 13 - Common Stock and Preferred Stock).

The vesting of these

share-based awards may vary, but typically vest over a requisite service period or are based on performance criteria, with a maximum vesting

period of four years .

Restricted shares typically vest in the same manner, with the exception of certain awards vesting over one year

to three years .

Share-based compensation expense is recognized on a straight-line basis over the requisite service period.

expense for performance-awards is measured based on the amount of shares ultimately expected to vest, estimated at each reporting date

based on management expectations regarding the relevant performance criteria.

Unlike restricted stock awards, the shares for the restricted

stock units are not issued until vested.

The Company currently grants only restricted stock units with no current intention to issue RSAs.

As of December 31, 2025, 1,257,576 shares were available for future grant.

Additional shares may become available to the extent that options

or shares of restricted stock presently outstanding under the Plan terminate, expire, or are forfeited.

Restricted Stock Units

Under the Plan, share-based compensation payments may

include the issuance of Restricted Stock Units (RSUs), which occurs approximately once per year and are subject to vesting conditions.

RSUs are valued at the market price of the shares underlying the award on the date of grant.

The following table summarizes the RSU award activity

for awards with service conditions, annually for the years ended December 31, 2025, 2024 and 2023:

Outstanding, January 1

Converted from RSA

Outstanding, December 31

of December 31, 2024, there was $ 15.0 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 2.1 years.

Compensation Expense

following table summarizes the total share-based compensation expense (in thousands) which is recognized in general and administrative

expenses in the Consolidated Statement of Operations:

The following table summarizes the RSU award activity

for awards with market conditions, annually for the years ended December 31, 2025:

Outstanding, January 1

Outstanding, December 31

As of December 31, 2025, there was $ 18.5 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 2.0 years.

Share-Based Compensation Expense

The following table summarizes the total share-based

compensation expense (in thousands) which is recognized in general and administrative expenses in the Consolidated Statement of Operations:

Year Ended December 31,

Share-based compensation expense

18 — Employee Benefits Plan

Company sponsored for its U.S.

employees, a defined contribution plan under Section 401(k) of the Internal Revenue Code.

provided that employees may defer up to 50 % of their annual compensation subject to annual dollar limitations, and that the Company

would make a matching contribution equal to 100 % of each employee’s deferral, up to 5 % of the employee’s annual

compensation.

Company-matching contributions, which vest immediately, totaled $ 1.7 million, $ 1.5 million and $ 2.1 million for the

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

December 2023, the Company sponsored for certain of its U.S.

based senior employees, a nonqualified deferred compensation plan which

includes provisions for salary deferrals and discretionary contributions on a deferred tax basis.

The Company funds its deferred compensation

obligations through a rabbi trust which is subject to creditor claims in the event of insolvency, but such assets are not available for

general corporate purposes.

Assets held in the rabbi trust are invested in mutual funds, as selected by the participants, which are designated

as trading securities and carried at fair value.

As of December 31, 2024 the Company has not made any discretionary matching contributions

Employees direct the investment of their account balances, and the Company invests amounts held in the associated investment

trust consistent with these directions.

The value of the assets held in trust by the nonqualified plan was $ 1.7 million and $ 41.1 thousand

as of December 31, 2024 and 2023, respectively.

The deferred compensation investments and obligations are included in prepaid expenses

and other assets, and accrued expenses - long term in the consolidated balance sheets.

For the years ended December 31, 2024 and 2023,

changes in the fair value of securities held in the rabbi trust and offsetting increases or decreases in the deferred compensation obligation

totaled $ 0.2 million and nil , respectively, and are recognized in other general and administrative expenses in the Company’s Consolidated

Statements of Operations and Comprehensive Income

Company has statutory benefit plans outside the U.S., which are not material.

19 — Litigation and Contingencies

Company is a party to, and certain of its property is the subject of, various pending claims and legal proceedings that routinely arise

in the ordinary course of its business.

The Company accrues for losses when the loss is deemed probable and the liability can reasonably

be estimated.

Where a liability is probable and there is a range of estimated loss with no best estimate in the range, the Company records

the minimum estimated liability related to the claim.

As additional information becomes available, the Company assesses the potential

liability related to its pending litigation and revises its estimates.

the normal course of business, the Company may provide certain indemnifications and/or other commitments of varying scope to a) its licensors,

customers and certain other parties, including against third-party claims of intellectual property infringement, and b) its officers,

directors and employees, including against third-party claims regarding the periods in which they serve in such capacities with the Company.

The duration and amount of such obligations is, in certain cases, indefinite.

The Company’s director’s and officer’s

liability insurance policy may, however, enable it to recover a portion of any future payments related to its officer, director or employee

indemnifications.

For the past five years, costs related to director and officer indemnifications have not been significant.

certain liabilities recorded in the normal course of business related to royalty payments due to the Company’s licensors, no liabilities

have been recorded for indemnifications and/or other commitments.

20 — Subsequent Events

February 18, 2025, the Company’s Board of Directors declared a quarterly cash dividend of $ 0.25 per common share.

will be payable on March 31, 2025 to shareholders of record at the close of business on March 3, 2025.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Note 17 — Employee Benefit Plans

The Company sponsored for its U.S.

defined contribution plan under Section 401(k) of the Internal Revenue Code.

The Plan provided that employees may defer up to 50 % of their

annual compensation subject to annual dollar limitations, and that the Company would make a matching contribution equal to 100 % of each

employee’s deferral, up to 5 % of the employee’s annual compensation.

Company-matching contributions, which vest immediately,

totaled $ 2.0 million, $ 1.7 million and $ 1.5 million for the years ended December 31, 2025, 2024 and 2023, respectively.

Starting December 2023, the Company sponsored for certain

based senior employees, a nonqualified deferred compensation plan which includes provisions for salary deferrals and discretionary

contributions on a deferred tax basis.

The Company funds its deferred compensation obligations through a rabbi trust which is subject

to creditor claims in the event of insolvency, but such assets are not available for general corporate purposes.

Assets held in the rabbi

trust are invested in mutual funds, as selected by the participants, which are designated as trading securities and carried at fair value.

As of December 31, 2024, the Company has not made any discretionary matching contributions to the plan.

Employees direct the investment

of their account balances, and the Company invests amounts held in the associated investment trust consistent with these directions.

value of the assets held in trust by the nonqualified plan was $ 4.5 million and $ 1.7 million as of December 31, 2025 and 2024, respectively.

The deferred compensation investments and obligations are included in prepaid expenses and other assets, and accrued expenses - long term

in the consolidated balance sheets.

For the years ended December 31, 2025 and 2024, changes in the fair value of securities held in the

rabbi trust and offsetting increases or decreases in the deferred compensation obligation totaled $ 0.1 million and $ 0.2 million, respectively,

and are recognized in other general and administrative expenses in the Company’s Consolidated Statements of Operations and Comprehensive

The Company has statutory benefit plans outside

the U.S., which are not material.

Note 18 — Litigation and Contingencies

The Company is a party to, and certain of its property

is the subject of, various pending claims and legal proceedings that routinely arise in the ordinary course of its business.

accrues for losses when the loss is deemed probable and the liability can reasonably be estimated.

Where a liability is probable and there

is a range of estimated loss with no best estimate in the range, the Company records the minimum estimated liability related to the claim.

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

its estimates.

In the normal course of business, the Company

may provide certain indemnifications and/or other commitments of varying scope to a) its licensors, customers and certain other parties,

including against third-party claims of intellectual property infringement, and b) its officers, directors and employees, including against

third-party claims regarding the periods in which they serve in such capacities with the Company.

The duration and amount of such obligations

is, in certain cases, indefinite.

The Company’s director’s and officer’s liability insurance policy may, however, enable

it to recover a portion of any future payments related to its officer, director or employee indemnifications.

For the past five years,

costs related to director and officer indemnifications have not been significant.

Other than certain liabilities recorded in the normal

course of business related to royalty payments due to the Company’s licensors, no liabilities have been recorded for indemnifications

and/or other commitments.

Note 19 — Subsequent Events

On February 18, 2026, the Company’s Board

of Directors declared a quarterly cash dividend of $ 0.25 per common share.

The dividend will be payable on March 30, 2026 to shareholders

of record at the close of business on February 27, 2026.

Changes in and Disagreements with Accountants on Accounting

and Financial Disclosure

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 7A. Quantitative and Qualitative Disclosures About Market Risk