JAKKS PACIFIC INC 10-K

Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is traded on the Nasdaq Global Select exchange under the symbol “JAKK.” Security Holders To the best of our knowledge, as of February 13, 2026, there were 145 holders of record of our common stock. Dividends The payment of dividends on common stock is at the discretion of the Board of Directors and is subject to customary limitations and may be subject to certain restrictions under our credit facility. Quarterly cash dividends of $0.25 per common share were paid on March 31, June 27, September 30 and December 29, 2025. On February 19, 2026, we issued a press release to announce that our 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. Compensation Plan Information The table below sets forth the following information as of the year ended December 31, 2025, for (i) all compensation plans previously approved by our stockholders and (ii) all compensation plans not previously approved by our stockholders, if any: (a) the number of securities to be issued upon the exercise of outstanding options, warrants and rights; (b) the weighted-average exercise price of such outstanding options, warrants and rights; and (c) other than securities to be issued upon the exercise of such outstanding options, warrants and rights, the number of securities remaining available for future issuance under the plans. Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights (b) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans, Excluding Securities Reflected in Column (c) Equity compensation plans approved by security holders — — 1,257,576 Equity compensation plans not approved by security holders — — — Total — — 1,257,576 Equity compensation plans approved by our stockholders consist of the 2002 Stock Award and Incentive Plan. An additional 1.0 million, 1.0 million, 3.6 million, 2.5 million and 1.4 million shares were added to the number of total issuable shares under the Plan and approved by the Board in 2023, 2021, 2019, 2017, and 2013, respectively. Additionally, no shares subject to restricted stock awards and no stock options remained unvested and no restricted stock awards and no stock options have been issued as of December 31, 2025. Disclosures with respect to equity issuable to certain of our executive officers pursuant to the terms of their employment agreements are disclosed below under Item 11. Issuer Purchases of Equity Securities There were no issuer purchases of equity securities in the fourth quarter of 2025. Issuer Unregistered Sale of Equity Securities There were no issuer sales of unregistered equity securities in the fourth quarter of 2025. Item 6. [Reserved] 27 Table of Contents Item 7. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations The following Management ’ s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements because of various factors. You should read this section in conjunction with our consolidated financial statements and the related notes included in Item 8 “ Consolidated Financial Statements and Supplementary Data. ” Critical Accounting Policies and Estimates The accompanying consolidated financial statements and supplementary information were prepared in accordance with accounting principles generally accepted in the United States of America. Significant accounting policies are discussed in Note 2 to the Consolidated Financial Statements, included within Item 8. Inherent in the application of many of these accounting policies is the need for management to make estimates and judgments in the determination of certain revenues, expenses, assets and liabilities. As such, materially different financial results can occur as circumstances change and additional information becomes known. The estimates with the greatest potential effect on our results of operations and financial position include: Allowance for Current Expected Credit Losses. Our allowance for current expected credit losses is based upon management’s assessment of the business environment, customers’ risk profile characteristics, historical collection and loss information, aging of accounts receivables, and other matters specific to customer accounts in the establishment of pools. If there were a deterioration of a major customer’s creditworthiness, or actual defaults were higher than our current expected credit losses, our estimates of the recoverability of amounts due to us could be misstated, which could have an adverse impact on our operating results. Our allowance for current expected credit losses is also affected by the time at which uncollectible accounts receivable balances are actually written off. The allowance for current expected credit losses requires judgement related to the establishment of pools based on customer risk profile characteristics and the historical loss rates applied to each pool and requires judgement since it involves estimation of the impact of both current and future economic factors in relation to its customers’ risk profile characteristics. Changes in the assumptions used to develop the estimates could materially affect key financial measures, including other selling and administrative expenses, net income and accounts receivable. Goodwill . Goodwill represents the excess of the purchase price over the fair values of the underlying net assets acquired in an acquisition. Goodwill is not amortized but tested for impairment at least annually at the reporting unit level and asset level. The annual goodwill test is performed in the second quarter and whenever events or changes in circumstances indicate that the carrying amount of a reporting unit may exceed its fair value, we may assess goodwill for impairment using a qualitative assessment. Qualitative factors and their impact on critical inputs are assessed to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If we determine that a reporting unit has an indication of impairment based on the qualitative assessment, it is required to perform a quantitative assessment. We may bypass the qualitative assessment and perform a quantitative assessment. Impairment is recognized in the amount by which, if any, the carrying value of the reporting unit exceeds the fair value, not to exceed the carrying value of goodwill. We evaluate fair value recoverability using both objective and subjective factors. Objective factors include cash flows and analysis of recent sales and earnings trends. Subjective factors include our best estimates of projected future earnings and competitive analysis and the Company’s strategic focus. We performed a quantitative assessment for Toys/Consumer Products reporting unit during Q2 2025, the fair value of which exceeded its carrying amount by 26%. As of December 31, 2025, all our Goodwill of $35.1 million related to our Toys/Consumer Products reporting unit. Royalties. We enter into license agreements with strategic partners, inventors, designers and others for the use of intellectual properties in our products. 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. We recognize royalty expenses in the period in which sales are made. In addition, we assess 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. If our actual revenue generated differs from our projections, the recoverability of our minimum guarantees would be impacted and could materially affect key financial measures, including gross profit, net income and prepaid assets. 28 Table of Contents Reserve for Inventory Obsolescence. We value our inventory at the lower of cost or net realizable value. Based upon consideration of quantities on hand, actual and projected sales volume, anticipated product selling prices and product lines planned to be discontinued, slow-moving and obsolete inventory is written down to its net realizable value. Failure to accurately predict and respond to consumer demand could result in us under-producing popular items or over-producing less popular items. Furthermore, significant changes in demand for our products would impact management’s estimates in establishing our inventory provision. Management’s estimates are monitored on a quarterly basis, and a further adjustment to reduce inventory to its net realizable value is recorded as an increase in the cost of sales when deemed necessary under the lower of cost or net realizable value standard. Significant changes in the assumptions used to develop the estimate could materially affect key financial measures, including gross profit, net income and inventories. Reserve for Sales Returns and Allowances . We routinely enter into arrangements with our customers to provide sales incentives, support customer promotions and provide allowances for returns and defective merchandise. Such programs are based primarily on customer purchases, customer performance of specified promotional activities, and other specified factors such as sales to consumers. The accounting estimate related to sales adjustments requires significant judgment to estimate related accruals, such as estimating volumes of defective products to support reserves for defective merchandise and estimating future customer performance and consumer preferences that could impact the discretionary sales promotions. Significant changes in the assumptions used to develop the estimates could materially affect key financial measures, such as net sales, gross profit, net income, and reserve for sales returns and allowances. Income taxes. We do not file a consolidated return for our foreign subsidiaries. We file federal and state returns and our foreign subsidiaries each file returns in their respective jurisdictions, as applicable. Deferred taxes are provided on an asset and liability method. Deferred tax assets are recognized as deductible temporary differences, operating losses, or tax credit carry-forwards. Deferred tax liabilities are recognized as taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Our annual income tax provision and related income tax assets and liabilities are based upon actual income as allocated to the various tax jurisdictions based upon our transfer pricing study, US and foreign statutory income tax rates and tax regulations and planning opportunities in the various jurisdictions in which we operate. Significant judgment is required in interpreting tax regulations in the U.S. and foreign jurisdictions, and in evaluating worldwide uncertain tax positions. Actual results could differ materially from those judgments, and changes from such judgments could materially affect our consolidated financial statements. We accrue a tax reserve for additional income taxes and interest, which may become payable in future years as a result of audit adjustments by tax authorities. The reserve is based upon management’s assessment of all relevant information and is periodically reviewed and adjusted as circumstances warrant. As of December 31, 2025, our income tax reserves were approximately $0.8 million and relate to federal and state income taxes. We recognize current period interest expense and penalties and the reversal of previously recognized interest expense and penalties that has been determined to not be assessable due to the expiration of the related audit period or other compelling factors on the income tax liability for unrecognized tax benefits as a component of the income tax provision recognized in the consolidated statements of operations. 29 Table of Contents Recent Accounting Pronouncements. See Item 8 “Consolidated Financial Statements and Supplementary Data Note 2 - Summary of Significant Accounting Policies.” Results of Operations The following table sets forth, for the periods indicated, certain statement of operations data as a percentage of net sales. A discussion of the operating results for 2024 can be found in our Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the SEC on March 6, 2025, in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations. Year Ended December 31, 2025 2024 Net sales 100.0 % 100.0 % Less: Cost of sales Cost of goods 49.7 52.3 Royalty expense 16.2 15.5 Amortization of tools and molds 1.7 1.4 Cost of sales 67.6 69.2 Gross profit 32.4 30.8 Direct selling expenses 6.4 5.8 General and administrative expenses 23.4 19.2 Depreciation and amortization 0.1 0.1 Selling, general and administrative expenses 29.9 25.1 Income from operations 2.5 5.7 Other income (expense), net 0.1 0.1 Loss on debt extinguishment (0.1 ) — Interest income 0.2 0.1 Interest expense (0.1 ) (0.2 ) Income before provision for income taxes 2.6 5.7 Provision for income taxes 0.9 0.8 Net income 1.7 4.9 Net income attributable to JAKKS Pacific, Inc. 1.7 % 4.9 % Net income attributable to common stockholders 1.7 % 5.1 % The following table summarizes, for the periods indicated, certain statement of operations data by segment (in thousands). Year Ended December 31, 2025 2024 Net Sales Toys/Consumer Products $ 461,937 $ 570,018 Costumes 108,734 121,024 570,671 691,042 Cost of Sales Toys/Consumer Products 304,333 389,534 Costumes 81,258 88,487 385,591 478,021 Gross Profit Toys/Consumer Products 157,604 180,484 Costumes 27,476 32,537 $ 185,080 $ 213,021 30 Table of Contents Comparison of the Years Ended December 31, 2025 and 2024 Net Sales Toys/Consumer Products. Net sales of our Toys/Consumer Products segment were $461.9 million in 2025, compared to $570.0 million in 2024, representing a decrease of $108.1 million, or 19.0%. The decrease in net sales was primarily due to lower sales North America, down 24.0%, while International sales grew 2.7%. The Dolls, Role Play and Dress Up Division decreased 22.6% year over year, mainly due to limited theatrical releases and lower sales within the Disney Princess and Style Collection businesses. Within the Action Play & Collectibles Division, down 15.6%, Sonic the Hedgehog 3 and the Sonic/DC collaboration added incremental year over year sales, while lower Nintendo sales offset those gains. The Seasonal Division was down 8.8% from 2024. Costumes. Net sales of our Costumes segment were $108.7 million in 2025, compared to $121.0 million in 2024, representing a decrease of $12.3 million, or 10.2%. The decrease in net sales was primarily driven by US customers lowering their order levels based on tariffs. Despite the lower sales in the US, our International sales grew in 2025 its highest level. Cost of Sales Toys/Consumer Products. Cost of sales of our Toys/Consumer Products segment was $304.3 million, or 65.9% of related net sales in 2025 compared to $389.5 million, or 68.3% of related net sales in 2024 representing a decrease of $85.2 million or 21.9%. Although royalty rates were higher year-over-year, the decrease in the cost of sales percentage of net sales, year-over-year is due to lower inventory obsolescence costs. Costumes. Cost of sales of our Costumes segment was $81.3 million, or 74.8% of related net sales for 2025 compared to $88.5 million, or 73.1% of related net sales for 2024 representing a decrease of $7.2 million, or 8.1%. The year-over-year decrease in dollars is directly attributable to lower volume. The increase in percent of net sales is attributable higher royalty expense due to higher royalty guarantee shortfalls offset by improvements in product cost of goods attributable to mix and design for improved margin. Selling, General and Administrative Expenses Selling, general and administrative expenses were $170.9 million in 2025 and $173.3 million in 2024, constituting 29.9% and 25.1% of net sales, respectively. Selling, general and administrative expenses decreased from the prior year by $2.4 million or 1.4% primarily driven by lower media costs and lower temporary labor costs. Loss on Debt Extinguishment In 2025, we recognized a loss on debt extinguishment of $0.4 million in connection with the early termination our existing $67.5 million JPMorgan ABL revolving credit facility in connection with entering into a new senior secured facility with BMO Bank, N.A. Interest Income Interest Income was $1.0 million for the year ended December 31, 2025, as compared to $0.8 million in the prior year period. Interest income earned is primarily due to the Company’s money market investments. Interest Expense Interest expense was $0.5 million for the year ended December 31, 2025, as compared to $1.1 million in the prior year period, both related to borrowings from our revolving credit facilities. 31 Table of Contents Provision for Income Taxes During 2025, our income tax expense, which includes federal, state and foreign income taxes and discrete items, was $4.9 million, or an effective tax rate of 33.1%. The 2025 tax expense included a discrete tax benefit of $0.2 million primarily related to adjustments to uncertain tax positions and to 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. During 2024, our income tax expense, which includes federal, state and foreign income taxes and discrete items, was $5.5 million, or an effective tax rate of 13.9%. The 2024 tax expense included a discrete tax benefit of $1.4 million primarily comprised of valuation allowance adjustments. Absent these discrete tax benefits, our effective tax rate for 2024 was 17.4%, primarily due to taxes on federal, state, and foreign income. We assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets by jurisdiction. Based on our evaluation of all positive and negative evidence, as of December 31, 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. The net deferred tax asset change of $0.8 million consists of the net deferred tax asset changes in the US and foreign jurisdictions, where we are in a cumulative income position. Uncertainties that may have a significant impact on net sales and income (loss) from operations Significant outbreaks of contagious diseases, and other adverse public health developments, could have a material impact on our business operations and operating results. The immediate and lingering impact of the 2019 COVID-19 pandemic added additional risk and complexity to the Company’s operations. In addition, the history of smaller scale epidemics in Hong Kong/China (e.g., “bird flu”) highlights an additional risk given that substantially all of our product is sourced from China and our Hong Kong operation is foundational to our business model. We cannot quantify the extent that any new outbreak might have on our sales, net income and cash flows, but it could be significant. In the first quarter of 2022, Russia and Ukraine engaged in an armed conflict that continues. We cannot predict at this time if the conflict will spread to other countries. Accordingly, we cannot quantify at this time if, or the extent, this conflict will adversely impact our business operations. The U.S. taking unilateral action to impose tariffs on products imported from China and adopting an approach to deploy tariffs with no advance notice or feedback mechanism has created across markets has created uncertainty about our ability to source products with a cost structure consistent with our recent history. It also increased the possibility that markets outside the U.S. could institute retaliatory tariffs that would ultimately increase the cost of our doing business in those markets where we import product. In addition, our customer base has faced increased costs in importing our product from Hong Kong into their home markets. In the event our customers choose to raise consumer prices to offset these costs, negative consumer reaction could substantially reduce unit demand for our product line, and by extension lower sales. Lower sales could negatively impact our profitability and cash flows. 32 Table of Contents Quarterly Fluctuations and Seasonality We have experienced significant quarterly fluctuations in operating results and anticipate these fluctuations in the future. The operating results for any quarter are not necessarily indicative of results for any future period. Our first quarter is typically expected to be the least profitable as a result of lower net sales but substantially similar fixed operating expenses. This is consistent with the performance of many companies in the toy industry. The following table presents our unaudited quarterly results for the years indicated. The seasonality of our business is reflected in this quarterly presentation. 2025 2024 First Second Third Fourth First Second Third Fourth (Unaudited) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Net Sales $ 113,253 $ 119,094 $ 211,210 $ 127,114 $ 90,076 $ 148,619 $ 321,606 $ 130,741 As a % of full year 19.8 % 20.9 % 37.0 % 22.3 % 13.0 % 21.6 % 46.5 % 18.9 % Gross profit $ 39,013 $ 39,023 $ 67,643 $ 39,401 $ 21,052 $ 47,585 $ 108,831 $ 35,553 As a % of full year 21.1 % 21.1 % 36.5 % 21.3 % 9.9 % 22.3 % 51.1 % 16.7 % As a % of net sales 34.4 % 32.8 % 32.0 % 31.0 % 23.4 % 32.0 % 33.8 % 27.2 % Income (loss) from operations $ (3,757 ) $ (2,783 ) $ 29,363 $ (8,605 ) $ (21,324 ) $ 7,643 $ 68,083 $ (14,718 ) As a % of full year (26.4 )% (19.6 )% 206.5 % (60.5 )% (53.7 )% 19.2 % 171.6 % (37.1 )% As a % of net sales (3.3 )% (2.3 )% 13.9 % (6.8 )% (23.7 )% 5.1 % 21.2 % (11.3 )% Income (loss) before provision for (benefit from) income taxes $ (3,545 ) $ (2,925 ) $ 29,723 $ (8,488 ) $ (20,953 ) $ 7,547 $ 67,697 $ (14,559 ) As a % of net sales (3.1 )% (2.5 )% 14.1 % (6.7 )% (23.3 )% 5.0 % 21.0 % (11.2 )% Net income (loss) $ (2,382 ) $ (2,319 ) $ 19,892 $ (5,320 ) $ (14,225 ) $ 5,266 $ 52,272 $ (9,113 ) As a % of net sales (2.1 )% (1.9 )% 9.4 % (4.2 )% (15.8 )% 3.5 % 16.3 % (7.0 )% Net income (loss) attributable to non-controlling interests $ — $ — $ — $ — $ 280 $ — $ — $ — As a % of net sales — % — % — % — % 0.3 % — % — % — % Net income (loss) attributable to JAKKS Pacific, Inc. $ (2,382 ) $ (2,319 ) $ 19,892 $ (5,320 ) $ (14,505 ) $ 5,266 $ 52,272 $ (9,113 ) As a % of net sales (2.1 )% (1.9 )% 9.4 % (4.2 )% (16.1 )% 3.5 % 16.3 % (7.0 )% Net income (loss) attributable to common stockholders $ (2,382 ) $ (2,319 ) $ 19,892 $ (5,320 ) $ (13,175 ) $ 5,266 $ 52,272 $ (9,113 ) As a % of net sales (2.1 )% (1.9 )% 9.4 % (4.2 )% (14.6 )% 3.5 % 16.3 % (7.0 )% Diluted earnings (loss) per share $ (0.21 ) $ (0.21 ) $ 1.74 $ (0.47 ) $ (1.27 ) $ 0.47 $ 4.64 $ (0.83 ) Weighted average shares and equivalents outstanding 11,146 11,146 11,423 11,282 10,354 11,245 11,275 11,008 Quarterly and year-to-date computations of income (loss) per share amounts are made independently. Therefore, the sum of the per share amounts for the quarters may not agree with the per share amounts for the year. 33 Table of Contents Liquidity and Capital Resources As of December 31, 2025, we had working capital of $121.0 million compared to $119.3 million as of December 31, 2024. Operating activities provided net cash of $8.5 million in 2025 and $38.9 million in 2024. The decrease in cash flows provided by operating activities, year-over-year, was primarily due to a lower net income and higher working capital usage, partially offset by higher non-cash charges related to valuation adjustments for our preferred stock derivative liability and an increase in deferred income tax assets due to inventory cost and other expense capitalization matters, both in 2024. Other than open purchase orders issued in the normal course of business related to shipped product, we have no obligations to purchase inventory from our manufacturers. However, we may incur costs or other losses as a result of not placing orders consistent with our forecasts for products manufactured by our suppliers or manufacturers for a variety of reasons including customer order cancellations or a decline in demand. As part of our strategy to develop and market new products, we have entered into various character and product licenses with royalties/obligations generally ranging from 1% to 22% payable on net sales of such products. As of December 31, 2025, these agreements required future aggregate minimum royalty guarantees of $189.8 million, exclusive of $2.3 million in advances already paid. Of this $189.8 million future minimum royalty guarantee, $57.4 million is due over the next twelve months. Investing activities used net cash of $12.3 million and $12.9 million for the years ended December 31, 2025 and 2024, respectively, and consisted primarily of cash paid for the purchase of molds and tooling used in the manufacture of our products and purchases of investments to fund our obligation to our employees stemming from our non-qualified deferred compensation plan. Financing activities used net cash of $17.1 million in 2025 and $26.9 million in 2024. The cash used in 2025 primarily consists of the quarterly cash dividends paid to holders of our common stock of $11.2 million and the repurchase of common stock for employee tax withholding of $5.7 million. The cash used in 2024 primarily consists of the cash portion for the redemption of the Series A Preferred stock of $20.0 million and the repurchase of common stock for employee tax withholding of $6.9 million. The following is a summary of our significant contractual cash obligations for the periods indicated that existed as of December 31, 2025 and is based upon information appearing in the notes to the consolidated financial statements (in thousands): 2026 2027 2028 2029 2030 Thereafter Total Operating leases $ 16,936 $ 17,177 $ 16,757 $ 7,106 $ 426 $ 2,171 $ 60,573 Minimum guaranteed license/royalty payments 57,374 49,070 46,474 36,862 — — 189,780 Employment contracts 6,431 5,355 2,609 665 — — 15,060 Total contractual cash obligations $ 80,741 $ 71,602 $ 65,840 $ 44,633 $ 426 $ 2,171 $ 265,413 The above table excludes any potential uncertain income tax liabilities that may become payable upon examination of our income tax returns by taxing authorities. Such amounts and periods of payment cannot be reliably estimated (see Item 8 “Consolidated Financial Statements and Supplementary Data Note 11 - Income Taxes” for further explanation of our uncertain tax positions). In June 2025, we terminated our existing $67.5 million JPMorgan ABL revolving credit facility in connection with entering into a new senior secured facility with BMO Bank, N.A. The prior facility had no outstanding borrowings at the time of termination. We recorded a non-cash charge of $0.3 million for the write-off of previously deferred financing costs associated with the JPMorgan facility. 34 Table of Contents 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, at 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 exclusions. Availability under the revolving facility as of December 31, 2025, was $68.3 million. The facility provides the Company with flexibility to fund working capital, capital expenditures, acquisitions, and general corporate purposes. We were in compliance with the financial covenants under the BMO Credit Agreement as of December 31, 2025. (See Item 8 “Consolidated Financial Statements and Supplementary Data, Note 8 – Debt and Note 9 – Credit Facilities” for additional information pertaining to our Debt and Credit Facilities.) As of December 31, 2025, and 2024, we held cash and cash equivalents, including restricted cash, of $54.1 million and $70.1 million, respectively. Cash, and cash equivalents, including restricted cash held outside of the United States, in various foreign subsidiaries totaled $16.9 million and $16.5 million as of December 31, 2025, and 2024, respectively. The cash and cash equivalents, including restricted cash balances in our foreign subsidiaries have either been fully taxed in the U.S. or tax has been accounted for in connection with the Tax Cuts and Jobs Act, or may be eligible for a full foreign dividends received deduction under such Act, and thus would not be subject to additional U.S. tax should such amounts be repatriated in the form of dividends or deemed distributions. Any such repatriation may result in foreign withholding taxes, which we expect would not be significant as of December 31, 2025. 35 Table of Contents Our primary sources of working capital are cash flows from operations and borrowings under our credit facility (See Item 8 “Consolidated Financial Statements and Supplementary Data Note 9 – Credit Facilities”). Typically, cash flows from operations are impacted by the effect on sales of (1) the appeal of our products, (2) the success of our licensed brands in motivating consumer purchase of related merchandise, (3) the highly competitive conditions existing in the toy industry and in securing commercially-attractive licenses, (4) dependency on a limited set of large customers, and (5) general economic conditions. A downturn in any single factor or a combination of factors could have a material adverse impact upon our ability to generate sufficient cash flows to operate the business. In addition, our business and liquidity are dependent to a significant degree on our vendors and their financial health, as well as the ability to accurately forecast the demand for products. The loss of a key vendor, or material changes in support by them, or a significant variance in actual demand compared to the forecast, can have a material adverse impact on our cash flows and business. Given the conditions in the toy industry environment in general, vendors, including licensors, may seek further assurances or take actions to protect against non-payment of amounts due to them. Changes in this area could have a material adverse impact on our liquidity. As of December 31, 2025, off-balance sheet arrangements include letters of credit issued by JPMorgan of $1.6 million, temporarily secured with cash as collateral, and letters of credit issued by BMO of $1.7 million. On July 1, 2022, we entered into an ATM Agreement with B. Riley, as agent pursuant to which we may, from time to time, sell shares of our common stock, up to $75 million in common stock, in one or more offerings in amounts, at prices and in the terms that we will determine at the time of the offering. On July 1, 2022, we filed a Form S-3 shelf registration statement (File No. 333-266009) with the SEC. On Aug 1, 2022, the SEC declared the Form S-3 shelf registration statement filed by us to be effective. In 2025, the registration statement expired by law on its third anniversary. We expect to file a new registration that will be declared effective during the first or second quarter of 2026. We did not sell any shares of common stock under the ATM Agreement or pursuant to our self-registration statement. The nature of our business is several factors influence the price we offer product to our customers, and by extension they sell to our end customer. Our products are manufactured by third-party vendors who deal with increases in labor rates as a normal course of their respective businesses. The costing of the plastic components of our toys can be sensitive to sudden swings in oil prices. Currency exchange can also create a degree of volatility, although the majority of our products are sourced in USD or Hong Kong dollars. Increased volumes ideally generate increased scale at various points in the value chain. Often times, in the toy industry when cost pressures result in price increases, the development teams will reengineer subsequent year refreshes to cost-reduce the items down to support traditional price points and preserve historical margins. With those considerations in mind as well as others, during the last three fiscal years ending December 31, we do not believe that inflation has had a material impact on our net sales and income from continuing operations. Exchange Rates Sales from our United States and Hong Kong operations are denominated in U.S. dollars and our manufacturing costs are denominated in either U.S. or Hong Kong dollars. Local sales (other than in Hong Kong) and operating expenses of our operations in Hong Kong, the United Kingdom, Germany, the Netherlands, France, Italy, Canada, Mexico and China are denominated in local currency, thereby creating exposure to changes in exchange rates. Changes in the various exchange rates against the U.S. dollar may positively or negatively affect our operating results. We cannot assure you that the exchange rate between the United States and other currencies will not have a material adverse effect on our business, financial condition or results of operations. 36 Table of Contents