JAKKS PACIFIC INC 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 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 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. Interest Rate Risk Our exposure to market risk includes interest rate 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 We have wholly-owned subsidiaries in Hong Kong, China, the United Kingdom, Germany, France, the Netherlands, Italy, Canada and Mexico. Sales are generally made by these operations on FOB China or Hong Kong terms and are denominated in U.S. dollars. However, purchases of inventory and Hong Kong operating expenses are typically denominated in Hong Kong dollars and local operating expenses in the United Kingdom, Germany, France, the Netherlands, Italy, Canada, Mexico and China are denominated in local currency, thereby creating exposure to changes in exchange rates. Changes in the U.S. dollar exchange rates may positively or negatively affect our results of operations. We do not believe that near-term changes in these exchange rates, if any, will result in a material effect on our future earnings, fair values or cash flows. Therefore, we have chosen not to enter into foreign currency hedging transactions. We cannot assure you that this approach will be successful, especially in the event of a significant and sudden change in the value of these foreign currencies. 37 Table of Contents Item 8. Consolidated Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors JAKKS Pacific, Inc. Santa Monica, California Opinion on the Consolidated Financial Statements 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, 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. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (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 in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 38 Table of Contents Royalty Expense and Related Liabilities As described in Notes 2, 7 and 15 of the consolidated financial statements, the Company enters into various license agreements whereby the Company uses certain characters and intellectual properties in conjunction with its 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 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 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. Auditing these elements involved especially challenging and subjective auditor judgment due to the nature and extent of effort required to address this matter. The primary procedures we performed to address this critical audit matter included: ● 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. ● Assessing 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. We have served as the Company’s auditor since 2006. Los Angeles, California March 2, 2026 39 Table of Contents JAKKS PACIFIC, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2025 2024 (In thousands, except share and per share data) Assets Current assets Cash and cash equivalents $ 52,197 $ 69,936 Restricted cash 1,869 201 Accounts receivable, net of allowance for credit losses of $ 5,103 and $ 4,919 in 2025 and 2024, respectively 138,341 131,629 Inventory, net 59,805 52,780 Prepaid expenses and other assets 16,873 14,141 Total current assets 269,085 268,687 Property and equipment Office furniture and equipment 10,189 10,049 Molds and tooling 134,771 125,618 Leasehold improvements 7,264 6,956 Total 152,224 142,623 Less accumulated depreciation and amortization 133,216 126,981 Property and equipment, net 19,008 15,642 Operating lease right-of-use assets, net 46,776 53,254 Other long-term assets 2,682 1,781 Deferred income tax assets, net 69,569 70,394 Goodwill 35,077 35,111 Total assets $ 442,197 $ 444,869 Liabilities and Stockholders’ Equity Current liabilities Accounts payable $ 55,558 $ 42,560 Accounts payable - Meisheng (related party) — 13,461 Accrued expenses 43,076 48,456 Reserve for sales returns and allowances 33,569 35,817 Income taxes payable 2,119 1,035 Short-term operating lease liabilities 13,784 8,091 Total current liabilities 148,106 149,420 Long-term operating lease liabilities 39,578 48,433 Accrued expenses – long term 4,463 2,563 Income taxes payable 945 3,620 Total liabilities 193,092 204,036 Commitments and contingencies (Note 15) Stockholders’ Equity Common stock, $ 0.001 par value; 100,000,000 shares authorized; 11,342,981 and 11,025,582 shares issued and outstanding in 2025 and 2024, respectively 11 11 Additional paid-in capital 302,408 297,198 Accumulated deficit ( 41,021 ) ( 39,692 ) Accumulated other comprehensive loss ( 12,293 ) ( 17,184 ) Total JAKKS Pacific, Inc. stockholders’ equity 249,105 240,333 Non-controlling interests — 500 Total stockholders’ equity 249,105 240,833 Total liabilities, preferred stock and stockholders’ equity $ 442,197 $ 444,869 See accompanying notes to consolidated financial statements. 40 Table of Contents JAKKS PACIFIC, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2025 2024 2023 (In thousands, except per share amounts) Net sales $ 570,671 $ 691,042 $ 711,557 Cost of sales: Cost of goods 283,521 361,563 362,378 Royalty expense 92,381 106,804 117,607 Amortization of tools and molds 9,689 9,654 8,219 Cost of sales 385,591 478,021 488,204 Gross profit 185,080 213,021 223,353 Direct selling expenses 36,858 40,105 36,987 General and administrative expenses 133,460 132,840 126,893 Depreciation and amortization 544 392 366 Selling, general and administrative expense 170,862 173,337 164,246 Income from operations 14,218 39,684 59,107 Loss from joint ventures — — ( 565 ) Other income (expense), net 450 302 563 Change in fair value of preferred stock derivative liability — — ( 8,029 ) Loss on debt extinguishment ( 427 ) — ( 1,023 ) Interest income 995 841 1,344 Interest expense ( 471 ) ( 1,095 ) ( 6,451 ) Income before provision for income taxes 14,765 39,732 44,946 Provision for income taxes 4,894 5,532 6,833 Net income 9,871 34,200 38,113 Net income (loss) attributable to non-controlling interests — 280 ( 293 ) Net income attributable to JAKKS Pacific, Inc. $ 9,871 $ 33,920 $ 38,406 Net income attributable to common stockholders $ 9,871 $ 35,250 $ 36,904 Earnings per share - basic $ 0.88 $ 3.27 $ 3.70 Shares used in earnings per share - basic 11,190 10,781 9,962 Earnings per share - diluted $ 0.86 $ 3.14 $ 3.48 Shares used in earnings per share - diluted 11,491 11,226 10,590 See accompanying notes to consolidated financial statements. 41 Table of Contents JAKKS PACIFIC, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, 2025 2024 2023 (In thousands) Net income $ 9,871 $ 34,200 $ 38,113 Other comprehensive income (loss): Foreign currency translation adjustment 4,891 ( 1,557 ) 1,855 Comprehensive income 14,762 32,643 39,968 Less: Comprehensive income (loss) attributable to non-controlling interests — 280 ( 293 ) Comprehensive income attributable to JAKKS Pacific, Inc. $ 14,762 $ 32,363 $ 40,261 See accompanying notes to consolidated financial statements. 42 Table of Contents JAKKS PACIFIC, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’ EQUITY Accumulated JAKKS Common Stock Additional Other Pacific, Inc. Non- Total Number of Paid-in Accumulated Comprehensive Stockholders’ Controlling Stockholders’ Shares Amount Capital Deficit Loss Equity Interests Equity (In thousands, except per share data) Balance, December 31, 2022 9,742 $ 10 $ 275,187 $ ( 112,018 ) $ ( 17,482 ) $ 145,697 $ 1,001 $ 146,698 Stock-based compensation expense 511 — 8,027 — — 8,027 — 8,027 Repurchase of common stock for employee tax withholding ( 157 ) — ( 3,070 ) — — ( 3,070 ) — ( 3,070 ) Preferred stock accrued dividends — — ( 1,502 ) — — ( 1,502 ) — ( 1,502 ) Net income (loss) — — — 38,406 — 38,406 ( 293 ) 38,113 Foreign currency translation adjustment — — — — 1,855 1,855 — 1,855 Balance, December 31, 2023 10,096 10 278,642 ( 73,612 ) ( 15,627 ) 189,413 708 190,121 Stock-based compensation expense 589 1 9,535 — — 9,536 — 9,536 Non-controlling interests’ capital reduction — — — — — — ( 488 ) ( 488 ) Repurchase of common stock for employee tax withholding ( 230 ) — ( 6,918 ) — — ( 6,918 ) — ( 6,918 ) Preferred stock accrued dividends — — ( 390 ) — — ( 390 ) — ( 390 ) Preferred stock redemption 571 — 16,329 — — 16,329 16,329 Net income — — — 33,920 — 33,920 280 34,200 Foreign currency translation adjustment — — — — ( 1,557 ) ( 1,557 ) — ( 1,557 ) Balance, December 31, 2024 11,026 11 297,198 ( 39,692 ) ( 17,184 ) 240,333 500 240,833 Stock-based compensation expense 558 — 10,913 — — 10,913 — 10,913 Non-controlling interests’ derecognition — — — — — — ( 500 ) ( 500 ) Repurchase of common stock for employee tax withholding ( 241 ) — ( 5,703 ) — — ( 5,703 ) — ( 5,703 ) Cash dividend declared, $ 0.25 per share — — — ( 11,200 ) — ( 11,200 ) — ( 11,200 ) Net income — — — 9,871 — 9,871 — 9,871 Foreign currency translation adjustment — — — — 4,891 4,891 — 4,891 Balance, December 31, 2025 11,343 $ 11 $ 302,408 $ ( 41,021 ) $ ( 12,293 ) $ 249,105 $ — $ 249,105 See accompanying notes to consolidated financial statements. 43 Table of Contents JAKKS PACIFIC, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2025 2024 2023 Cash flows from operating activities Net income $ 9,871 $ 34,200 $ 38,113 Adjustments to reconcile net income to net cash provided by operating activities: Provision for doubtful accounts 314 1,397 726 Depreciation and amortization 10,233 10,046 8,585 Write-off and amortization of debt discount — — 714 Write-off and amortization of debt issuance costs 59 317 647 Share-based compensation expense 10,913 9,535 8,027 Loss (gain) on disposal of property and equipment 24 115 ( 40 ) Loss on debt extinguishment 427 — 1,023 Deferred income taxes 825 ( 2,251 ) ( 10,339 ) Change in fair value of preferred stock derivative liability — — 8,029 Changes in operating assets and liabilities: Accounts receivable ( 7,026 ) ( 9,229 ) ( 21,752 ) Inventory ( 7,025 ) ( 133 ) 27,972 Prepaid expenses and other assets ( 951 ) ( 6,086 ) ( 12 ) Account payable 8,183 508 9,595 Account payable - Meisheng (related party) ( 12,706 ) 1,117 1,918 Accrued expenses ( 6,026 ) 2,867 7,104 Reserve for sales returns and allowances ( 2,248 ) ( 2,714 ) ( 13,346 ) Income taxes payable ( 1,591 ) ( 2,375 ) ( 4,064 ) Other liabilities 5,216 1,633 3,504 Total adjustments ( 1,379 ) 4,747 28,291 Net cash provided by operating activities 8,492 38,947 66,404 Cash flows from investing activities Purchases of property and equipment ( 9,563 ) ( 11,246 ) ( 8,906 ) Investments in employee deferred compensation trusts ( 2,781 ) ( 1,645 ) ( 41 ) Proceeds from sale of property and equipment — 2 40 Net cash used in investing activities ( 12,344 ) ( 12,889 ) ( 8,907 ) Cash flows from financing activities Repurchase of common stock for employee tax withholding ( 5,703 ) ( 6,918 ) ( 3,070 ) Repayment of credit facility borrowings ( 8,000 ) ( 63,000 ) ( 10,000 ) Proceeds from credit facility borrowings 8,000 63,000 10,000 Redemption of preferred stock — ( 20,000 ) — Repayment of 2021 BSP Term Loan — — ( 69,218 ) Dividends paid ( 11,200 ) — — Deferred issuance costs ( 207 ) — — Net cash used in financing activities ( 17,110 ) ( 26,918 ) ( 72,288 ) Net increase (decrease) in cash, cash equivalents and restricted cash ( 20,962 ) ( 860 ) ( 14,791 ) Effect of foreign currency translation 4,891 ( 1,557 ) 1,855 Cash, cash equivalents and restricted cash, beginning of year 70,137 72,554 85,490 Cash, cash equivalents and restricted cash, end of year $ 54,066 $ 70,137 $ 72,554 Supplemental disclosures of cash flow information: Cash paid for interest $ 365 $ 473 $ 4,718 Cash paid for income taxes, net $ 5,011 $ 16,363 $ 21,635 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 in common stock as part of the consideration to redeem the preferred stock derivative liability (see Note 13 – Common Stock and Preferred Stock). The Company received income tax refunds of $ 0.4 , $ 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. See accompanying notes to consolidated financial statements. 44 Table of Contents JAKKS PACIFIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2025 Note 1 — Principal Industry JAKKS Pacific, Inc. (the “Company”) is engaged in the development, production and marketing of consumer products, including toys and related products, electronic products, and other consumer products. The Company markets its product lines domestically and internationally. The Company is incorporated under the laws of the State of Delaware. Note 2 — Summary of Significant Accounting Policies Principles of consolidation and basis of preparation These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions have been eliminated. Cash and cash equivalents The Company considers all highly liquid investments with an original maturity of three months or less, when acquired, to be cash equivalents. The Company maintains its cash in bank deposits which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk of cash and cash equivalents. 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 the Company’s 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. Restricted cash Restricted cash consists of a cash collateral account to cover a guarantee bond and letters of credit under the previous lending agreement. Accounts Receivable and Allowance for Current Expected Credit Losses 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 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. 45 Table of Contents The Company records an allowance for current expected credit losses 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 to establish pools based on customer risk profile characteristics and the historical loss rates applied to each pool under the expected credit loss model. The allowance consists of the following (in thousands): 2025 2024 2023 Allowance, beginning balance $ 4,919 $ 3,743 $ 2,865 Net additions 314 1,397 726 Write-offs and other ( 130 ) ( 221 ) 152 Allowance, ending balance $ 5,103 $ 4,919 $ 3,743 Bad debt expense was $ 0.3 million, $ 1.4 million and $ 0.7 million for the years ended December 31, 2025, 2024 and 2023, respectively Use of estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual future results could differ from those estimates. On an ongoing basis, the Company evaluates its estimates, including those related to the accounts receivable 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 The Company’s contracts with customers only include one performance obligation (i.e., sale of the Company’s products). Revenue is recognized in the gross amount at a point in time when delivery is completed and control of the promised goods is transferred to the customers. Revenue is measured as the amount of consideration the Company expects to be entitled to in exchange for those goods. The Company’s contracts do not involve financing elements as payment terms with customers are less than one year. Further, because revenue is recognized at the point in time goods are sold to customers, there are no contract assets or contract liability balances. The Company disaggregates its revenues from contracts with customers by reporting segment: Toys/Consumer Products and Costumes. The Company further disaggregates revenues by major geographic regions (See Note 3 - Business Segments, Geographic Data and Sales by Major Customers for further information). The Company offers various discounts, pricing concessions, and other allowances to customers, all of which are considered in determining the transaction price. Certain discounts and allowances are fixed and determinable at the time of sale and are recorded at the time of sale as a reduction to revenue. Other discounts and allowances can vary and are determined at management’s discretion (variable consideration). Specifically, the Company occasionally grants discretionary credits to facilitate markdowns and sales of slow-moving merchandise, and consequently accrues an allowance based on historic credits and management estimates. The Company also participates in cooperative advertising arrangements with some customers, whereby it allows a discount from invoiced product amounts in exchange for customer purchased advertising that features the Company’s products. Generally, these allowances range from 1 % to 30 % of gross sales, and are generally based upon product purchases or specific advertising campaigns. Such allowances are accrued when the related revenue is recognized. To the extent these cooperative advertising arrangements provide a distinct benefit at fair value, they are accounted for as direct selling expenses, otherwise they are recorded as a reduction to revenue. Further, while the Company generally does not allow product returns, the Company does make occasional exceptions to this policy and consequently records a sales return allowance based upon historic return amounts and management estimates. These allowances (variable consideration) are estimated using the expected value method and are recorded at the time of sale as a reduction to revenue. The Company adjusts its estimate of variable consideration at least quarterly or when facts and circumstances used in the estimation process may change. The variable consideration is not constrained as the Company has sufficient history on the related estimates and does not believe there is a risk of significant revenue reversal. Sales commissions are expensed when incurred as the related revenue is recognized at a point in time and therefore the amortization period is less than one year. As a result, these costs are recorded as direct selling expenses, as incurred. For the twelve months ended December 31, 2025, 2024 and 2023 sales commissions were $ 2.3 million, $ 1.8 million and $ 2.9 million, respectively. 46 Table of Contents Shipping and handling activities are considered part of the Company’s obligation to transfer the products and therefore are recorded as direct selling expenses, as incurred. For the twelve months ended December 31, 2025, 2024 and 2023, shipping and handling costs were $ 12.1 million, $ 7.4 million and $ 8.6 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. In determining fair value, the Company uses various methods including market, income and cost approaches. Based upon these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated, or unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based upon observable inputs used in the valuation techniques, the Company is required to provide information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values into three broad levels as follows: Level 1: Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities. Level 2: Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities. Level 3: Valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities. In instances where the determination of the fair value measurement is based upon inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based upon the lowest level input that is significant to the fair value measurement in its entirety. 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. Inventory Inventory, which includes the ex-factory cost of goods, capitalized warehouse costs and in-bound freight and duty, is valued at the lower of cost (weighted average) or net realizable value, net of inventory obsolescence reserve, and consists of the following (in thousands): December 31, 2025 2024 Finished goods $ 59,805 $ 52,780 As of December 31, 2025, and 2024, the inventory obsolescence reserve was $ 2.4 million and $ 10.9 million, respectively. Royalties The Company enters into license agreements with strategic partners, inventors, designers and others for the use of intellectual properties in its 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. 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. 47 Table of Contents Leases The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in its consolidated balance sheets. 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. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any prepaid lease amounts and excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company excludes right-of-use (“ROU”) assets and lease liabilities for leases with an initial term of 12 months or less from the balance sheet. Deferred Financing Charges Deferred financing charges consist of credit facility loan origination fees. These charges are capitalized and amortized over the life of the line of credit agreement. Property and equipment Property and equipment are stated at cost and are being depreciated using the straight-line method over their estimated useful lives as follows: Office equipment 5 years Automobiles 5 years Furniture and fixtures 5 - 7 years Leasehold improvements Shorter of length of lease or 10 years Internal-use software 10 years During interim reporting periods, the Company uses the usage method as its depreciation methodology for molds and tools used in the manufacturing of its products, which is more closely correlated to the production of goods as it follows the seasonality of sales. The Company believes that the usage method more accurately matches costs with revenues. From a full-year perspective, the depreciation methodology follows the straight-line method, based on the estimated useful life of molds and tools of three years. Estimated useful lives are periodically reviewed and, where appropriate, changes are made prospectively. The carrying value of property and equipment is reviewed when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. No impairment charges were recorded for the years ended December 31, 2025, 2024 and 2023. For the years ended December 31, 2025, 2024 and 2023, the Company’s aggregate depreciation expense related to property and equipment was $ 10.2 million, $ 10.0 million and $ 8.6 million, respectively. Internal-use software The Company reviews internal-use software development costs associated with infrastructure to determine if the costs qualify for capitalizing. The development costs incurred during the application development stage that are related to infrastructure are capitalized. Internal-use software is included in Property and Equipment in the accompanying consolidated balance sheets. Capitalization of such costs begins when the preliminary project stage is completed and ceases at the point at which the project is substantially complete and is ready for its intended purpose. For the years ended December 31, 2025 and 2024, 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. 48 Table of Contents 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. Advertising Production costs of commercials and programming are charged to operations in the period during which the production cost is incurred. The costs of other advertising, promotion and marketing programs are charged to operations in the period incurred. Advertising expense for the years ended December 31, 2025, 2024 and 2023, was approximately $ 9.4 million, $ 13.8 million and $ 13.2 million, respectively. 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 jurisdictions. 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 portion 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. 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 considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If management determines that the Company would be able to realize its deferred tax assets in the future in excess of their net recorded amount, management would make an adjustment to the deferred 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 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, management recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. Any accrued interest and penalties are included within the related tax liability. Foreign Currency Translation Exposure The Company’s reporting currency is the U.S. dollar. The translation of its net investment in subsidiaries with non-U.S. dollar functional currencies subjects the Company to currency exchange rate fluctuations in its results of operations and financial position. Assets and liabilities of subsidiaries with non-U.S. dollar functional currencies are translated into U.S. dollars at year-end exchange rates. Income, expense and cash flow items are translated at average exchange rates prevailing during the year. The resulting currency translation adjustments are recorded as a component of accumulated other comprehensive income (loss) within stockholders’ equity. The Company’s primary currency translation exposures in 2025, 2024 and 2023 were related to its net investment in entities having functional currencies denominated in the Hong Kong Dollar, British Pound, Canadian Dollar, Chinese Yuan, Mexican Peso and the Euro. 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. 49 Table of Contents Accounting for the impairment of finite-lived tangible and intangible assets Long-lived assets with finite lives, which include property and equipment and intangible assets other than goodwill, are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows from the use of these assets. When any such impairment exists, the related assets will be written down to fair value. Finite-lived intangible assets often consist of product technology rights, acquired backlog, customer relationships, product lines and license agreements. These intangible assets are amortized over the estimated economic lives of the related assets. Goodwill and other indefinite-lived intangible assets Goodwill and indefinite-lived intangible assets are not amortized but are 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, the Company 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 the Company determines that a reporting unit has an indication of impairment based on the qualitative assessment, it is required to perform a quantitative assessment. The Company 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. Indefinite-lived intangible assets other than goodwill consist of trademarks. The carrying value of goodwill and trademarks is based upon cost, which is subject to management’s current assessment of fair value. Management evaluates 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 management’s best estimates of projected future earnings and competitive analysis and the Company’s strategic focus. Share-based Compensation The Company measures all employee share-based compensation awards using a fair value method and records such expense in its consolidated statements of operations. Forfeitures are being recognized as they occur. 50 Table of Contents Earnings per share A reconciliation of the amounts used to calculate basic and diluted income (loss) per share for the years ended December 31, 2025, 2024, and 2023 follows (in thousands, except per share data): Year Ended December 31, 2025 2024 2023 Net income $ 9,871 $ 34,200 $ 38,113 Net income (loss) attributable to non-controlling interests — 280 ( 293 ) Net income attributable to JAKKS Pacific, Inc. 9,871 33,920 38,406 Preferred stock dividend* — — ( 1,502 ) Redemption of preferred stock — 1,330 — Net income attributable to common stockholders** $ 9,871 $ 35,250 $ 36,904 Weighted average common shares outstanding - basic 11,190 10,781 9,962 Earnings per share available to common stockholders - basic $ 0.88 $ 3.27 $ 3.70 Weighted average common shares outstanding - diluted 11,491 11,226 10,590 Earnings per share available to common stockholders - diluted $ 0.86 $ 3.14 $ 3.48 * 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 the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is calculated using the weighted average number of common shares and common share equivalents outstanding during the period (which consist of restricted stock units). 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 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. 51 Table of Contents Recent Accounting Pronouncements In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses”. The new guidance improves disclosures about a public business entity’s expenses by requiring disaggregated disclosures of certain types of expenses, including purchases of inventory, employee compensation, depreciation, intangible amortization and depletion, as applicable, for each income statement caption that includes those expenses. In addition, the standard will require entities to define and disclose total selling expenses. The standard is effective for public business entities such as the Company for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027. Early adoption is permitted, and entities may apply the standard prospectively or retrospectively. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements and related disclosures. 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 assets. 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: 1. 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 period. 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 of children’s toys and other consumer products, principally engaged in the design, development, production, marketing and distribution of its diverse portfolio of products. The Company’s segments are (i) Toys/Consumer Products and (ii) Costumes. The Toys/Consumer Products (“TCP”) segment includes action figures, vehicles, play sets, plush products, dolls, electronic products, construction toys, infant and pre-school toys, child-sized and hand-held role play toys and everyday costume play, foot-to-floor ride-on vehicles, wagons, novelty toys, seasonal and outdoor products, kids’ indoor and outdoor furniture, and related products. The Costumes segment, under its Disguise branding, designs, develops, markets and sells a wide range of every-day and special occasion dress-up costumes and related accessories in support of Halloween, Carnival, Children’s Day, Book Day/Week, and every-day/any-day costume play. The Company’s Chief Executive Officer and Chief Financial Officer have been identified jointly as the chief operating decision maker (“CODM”). The CODM manages and allocates resources on a segment basis. The determination of the two segments is consistent with the financial information regularly reviewed by the CODM for purposes of evaluating performance. Results are regularly reviewed in comparison with current budget, prior forecast, prior year and recent years’ performance in that quarter. 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. 52 Table of Contents Results are not necessarily those which would be achieved if each segment was an unaffiliated business enterprise. Information by segment and a reconciliation to reported amounts as of December 31, 2025 and 2024 and for the three years in the period ended December 31, 2025 are as follows (in thousands): Year Ended December 31, 2025 2024 2023 TCP Costumes Total TCP Costumes Total TCP Costumes Total Net Sales $ 461,937 $ 108,734 $ 570,671 $ 570,018 $ 121,024 $ 691,042 $ 580,686 $ 130,871 $ 711,557 Cost of Sales (A) 304,333 81,258 385,591 389,534 88,487 478,021 388,260 99,944 488,204 Gross Profit 157,604 27,476 185,080 180,484 32,537 213,021 192,426 30,927 223,353 Direct selling expenses 31,633 5,225 36,858 33,255 6,850 40,105 33,604 3,383 36,987 Product development and testing expenses 8,340 2,464 10,804 8,059 2,838 10,897 6,740 2,564 9,304 Divisional general and administrative expenses (A), (B) 22,520 11,518 34,038 28,539 12,341 40,880 23,746 13,495 37,241 Allocated headquarter general & administrative expenses (A), (C) 73,056 16,106 89,162 67,810 13,645 81,455 67,409 13,305 80,714 Income (loss) from operations 22,055 ( 7,837 ) 14,218 42,821 ( 3,137 ) 39,684 60,927 ( 1,820 ) 59,107 Income (loss) from joint venture — — ( 565 ) Other income (expense), net 450 302 563 Change in fair value of preferred stock derivative liability — — ( 8,029 ) Loss on debt extinguishment ( 427 ) — ( 1,023 ) Interest income 995 841 1,344 Interest expense ( 471 ) ( 1,095 ) ( 6,451 ) Income before provision for (benefit from) income taxes $ 14,765 $ 39,732 $ 44,946 (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. (C) Consist mainly of payroll related expenses, rent, depreciation and other general and administrative expenses. December 31, 2025 2024 Assets Toys/Consumer Products $ 419,064 $ 429,254 Costumes 23,133 15,615 $ 442,197 $ 444,869 53 Table of Contents Net revenues are categorized based upon location of the customer, while long-lived assets are categorized based upon the location of the Company’s assets. The following tables present information about the Company by geographic area as of December 31, 2025 and 2024 and for each of the three years in the period ended December 31, 2025 (in thousands): Year Ended December 31, 2025 2024 2023 Net Sales by Customer Area United States $ 416,605 $ 545,013 $ 557,865 Europe 81,379 71,392 76,464 Latin America 36,421 38,159 32,024 Canada 24,426 20,983 26,992 Australia & New Zealand 4,982 7,409 7,542 Asia 4,953 6,101 8,543 Middle East and Africa 1,905 1,985 2,127 $ 570,671 $ 691,042 $ 711,557 December 31, 2025 2024 Long-lived Assets United States $ 42,788 $ 53,020 China 16,659 13,553 United Kingdom 3,073 808 Hong Kong 1,853 582 Italy 717 754 Mexico 594 31 Canada 92 107 France 8 41 $ 65,784 $ 68,896 Major Customers Net sales to major customers globally were as follows (in thousands, except for percentages): 2025 2024 2023 Percentage of Percentage of Percentage of Amount Net Sales Amount Net Sales Amount Net Sales Target® $ 152,028 26.6 % $ 204,396 29.6 % $ 215,211 30.3 % Walmart® (*) 149,206 26.1 180,719 26.2 164,855 23.2 Amazon® <10 % < 10 % 73,149 10.6 74,878 10.5 $ 301,234 52.7 % $ 458,264 66.4 % $ 454,944 64.0 % (*) 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. in the major 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. and 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 total net sales. The concentration of the Company’s business with a relatively small number of customers may expose the Company to material adverse effects if one or more of its large customers were to experience financial difficulty. The Company performs ongoing credit evaluations of its top customers and maintains an allowance for potential credit losses. 54 Table of Contents Note 4 — Prepaid Expenses and Other Assets Prepaid expenses and other assets for the years ended December 31, 2025 and 2024 consist of the following (in thousands): December 31, 2025 2024 Income tax receivable $ 8,588 $ 8,798 Investments in employee deferred compensation trusts 4,467 1,686 Prepaid expenses 2,126 2,306 Royalty advances (current and non-current) 1,295 941 Employee retention credit 285 285 Other assets 112 125 $ 16,873 $ 14,141 Note 5 — Goodwill There were no changes in the carrying amount of goodwill by reporting unit for the years ended December 31, 2025 and 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 for the U.S. market. 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, 2025. Note 6 — Concentration of Credit Risk 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 performs ongoing credit evaluations of its customers’ financial conditions but does not require collateral to support domestic customer accounts receivable. For goods shipped FOB Hong Kong or China, the Company may require irrevocable letters of credit from the customer or purchase various forms of credit insurance. 55 Table of Contents Note 7 — Accrued Expenses Accrued expenses consist of the following (in thousands): December 31, 2025 2024 Royalties $ 16,985 $ 25,893 Inventory liabilities 5,131 5,131 Salaries and employee benefits 4,934 4,556 Warehousing and Logistics 4,769 1,261 Goods in transit 2,075 2,128 Professional fees 1,316 1,337 Bonuses 857 1,197 Other 7,009 6,953 $ 43,076 $ 48,456 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 Term Loan The Company and certain of its subsidiaries, as borrowers, had entered into a First Lien Term Loan Facility Credit Agreement on June 2, 2021, (the “2021 BSP Term Loan Agreement”) with Benefit Street Partners L.L.C., as Sole Lead Arranger, and BSP Agency, LLC, as agent, for a $ 99.0 million first-lien secured term loan (the “Initial Term Loan”) and a $ 19.0 million delayed draw term loan (the “Delayed Draw Term Loan” and collectively, the “2021 BSP Term Loan”). Net proceeds from the issuance of the 2021 BSP Term Loan, after deduction of $ 2.2 million in closing fees and $ 0.5 million of other administrative fees paid directly to the lenders, totaled $ 96.3 million. These fees are amortized over the life of the 2021 BSP Term Loan on a straight-line basis which approximates the effective interest method. Proceeds from the Initial Term Loan, together with available cash from the Company, were used to repay the Company’s former term loan (the “2019 Recap Term Loan” formerly known as the “New Term Loan” in prior filings) under the agreement dated as of August 9, 2019 with Cortland Capital Market Services LLC, as agent for certain investor parties. The Delayed Draw Term Loan provision was designed to provide necessary capital to redeem any of the Company’s outstanding 3.25 % convertible senior notes due 2023, upon their maturity, which, upon repayment of the 2019 Recap Term Loan, accelerated to no later than 91 days from the repayment of the 2019 Recap Term Loan, or September 1, 2021. On July 29, 2021, the Company terminated its Delayed Draw Term Loan option as it determined it had sufficient liquidity to fund any outstanding convertible senior notes that remained upon maturity. The 2021 BSP Term Loan Agreement contained negative covenants that, subject to certain exceptions, limited the ability of the Company and its subsidiaries to, among other things, incur additional indebtedness, make restricted payments, pledge its assets as security, make investments, loans, advances, guarantees and acquisitions, undergo fundamental changes and enter into transactions with affiliates. Commencing with the fiscal quarter ending June 30, 2021, the Company was required to maintain a Net Leverage Ratio of 4:00x, with step-downs occurring each fiscal year starting with the quarter ending March 31, 2022 through the quarter ending September 30, 2024 in which the Company was required to maintain a Net Leverage Ratio of 3:00x. On April 26, 2022, the Company entered into a First Amendment to the 2021 BSP Term Loan Agreement, to provide, among other things, that the Company must maintain Qualified Cash of at least: (a) at all times after the Closing Date and prior to the First Amendment Effective Date, April 26, 2022, $20.0 million; (b) at all times during the period commencing on the First Amendment Effective Date through and including June 30, 2022, $15.0 million; and (c) at all times on and after July 1, 2022, through September 30, 2022, $17.5 million; provided, however, that if the Total Net Leverage Ratio exceeded 1.75:1.00 as of the last day of the most recently ended month for which financial statements were required to have been delivered, then the amount set forth in this clause was to be increased to $20.0 million. Notwithstanding the foregoing, the Applicable Minimum Cash Amount was to be reduced by $1.0 million for every $5.0 million principal prepayment or repayment of the Term Loans following the First Amendment Effective Date; provided however, that, the Applicable Minimum Cash Amount was in no event to be reduced below $15.0 million. 56 Table of Contents Amounts outstanding under the 2021 BSP Term Loan bore interest at either (i) LIBOR plus 6.50 % - 7.00 % (determined by reference to a net leverage pricing grid), subject to a 1.00% LIBOR floor, or (ii) base rate plus 5.50% - 6.00% (determined by reference to a net leverage pricing grid), subject to a 2.00% base rate floor . The 2021 BSP Term Loan was termed to mature in June 2027. The 2021 BSP Term Loan Agreement contained events of default that are customary for a facility of this nature, including (subject in certain cases to grace periods and thresholds) nonpayment of principal, nonpayment of interest, fees or other amounts, material inaccuracy of representations and warranties, violation of covenants, cross-default to certain other existing indebtedness, bankruptcy or insolvency events, certain judgment defaults and a change of control as specified in the 2021 BSP Term Loan Agreement. If an event of default occurred, the maturity of the amounts owed under the 2021 BSP Term Loan Agreement might have been accelerated. The obligations under the 2021 BSP Term Loan Agreement were guaranteed by the Company, the subsidiary borrowers thereunder and certain of the other existing and future direct and indirect subsidiaries of the Company and were secured by substantially all of the assets of the Company, the subsidiary borrowers thereunder and such other subsidiary guarantors, in each case, subject to certain exceptions and permitted liens and subject to the priority lien granted under the JPMorgan ABL Credit Agreement (see Note 9 – Credit Facilities). In January 2023, the Company entered into a second amendment for its 2021 BSP Term Loan Agreement, which transitioned the interest reference rate on its 2021 BSP Term Loan from LIBOR to the Secured Overnight Financing Rate (“SOFR”). The new interest reference rate for the 2021 BSP Term Loan was effective on April 1, 2023. In addition to the transition to SOFR, the amendment also included a constant 0.10 % spread adjustment until the maturity of the 2021 BSP Term Loan. On January 3, 2023, as permitted by the terms within the 2021 BSP Term Loan Agreement, the Company had made a voluntary $ 15.0 million prepayment towards the outstanding principal amount of the 2021 BSP Term Loan and incurred a $ 0.2 million prepayment penalty and on March 3, 2023, as required by the terms within the 2021 BSP Term Loan Agreement under the Excess Cash Flow (“ECF”) Sweep provision, the Company had made a mandatory $ 23.1 million payment towards the outstanding principal amount of the 2021 BSP Term Loan. On June 5, 2023, the Company paid in full the 2021 BSP Term Loan and terminated the 2021 BSP Term Loan Agreement by making a $ 30.2 million prepayment towards the outstanding principal amount. Additionally, the Company made a $ 0.4 million payment towards the outstanding accrued interest, and a $ 0.3 million payment for the prepayment penalty and other related fees. In connection with this transaction, the Company recognized a loss on debt extinguishment of $ 1.0 million on its consolidated statements of operations. The agent and Sole Lead Arranger under the 2021 BSP Term Loan were affiliates of an affiliate of the Company, which affiliate, at the time of refinancing, owned common stock, and the 3.25 % convertible senior notes due 2023 of the Company as well as the Company’s outstanding Series A Preferred Stock. 57 Table of Contents Note 9 — Credit Facilities JPMorgan Chase On June 2, 2021, the Company and certain of its subsidiaries, as borrowers, entered into a Credit Agreement (the “JPMorgan ABL Credit Agreement”) with JPMorgan Chase Bank, N.A., as agent and lender, 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 exclusions. As of December 31, 2025, the amount of outstanding borrowings was nil and the total excess borrowing availability was $ 68.3 million. As of December 31, 2025, off-balance sheet arrangements 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 BMO Credit Agreement and the JPMorgan ABL Credit Agreement, respectively. 58 Table of Contents Note 10 — Related Party Transactions In March 2017, the Company entered into an equity purchase agreement with Hong Kong Meisheng Cultural Company Limited (“Meisheng”) which provided, among other things, that as long as Meisheng and its affiliates hold 10% or more of the issued and outstanding shares of common stock of the Company, Meisheng shall have the right from time to time to designate a nominee for election to the Company’s board of directors. Since such time, Mr. Xiaoqiang Zhao was Meisheng’s nominee. Meisheng and its affiliates own less than 10% of the Company’s outstanding shares of common stock. Mr. Zhao did not stand for reelection as director at the Company’s 2024 annual meeting. Since December 6, 2024, Meisheng is not represented on the Company’s board of directors and thus ceased to be a related party to the company. 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 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. 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. Provision for income taxes reflected in the accompanying consolidated statements of operations are comprised of the following (in thousands): Year ended December 31, 2025 2024 2023 Current income tax expense Federal $ 925 $ 4,204 $ 11,935 State and local 253 569 2,167 Foreign 2,891 3,010 3,070 Total current income tax expense 4,069 7,783 17,172 Deferred income tax expense (benefit) Federal 1,123 ( 2,340 ) ( 8,989 ) State and Local 44 247 ( 1,358 ) Foreign ( 342 ) ( 158 ) 8 Total deferred income tax expense (benefit) 825 ( 2,251 ) ( 10,339 ) Total income tax expense $ 4,894 $ 5,532 $ 6,833 59 Table of Contents The components of deferred tax assets/(liabilities) are as follows (in thousands): Year ended December 31, 2025 2024 Deferred Income Tax Assets: Reserve for sales allowances and possible losses $ 1,252 $ 956 Accrued expenses 1,904 1,940 Prepaid royalties 4 39 Accrued royalties 1,823 1,833 Inventory 11,278 12,876 State income taxes 106 224 Property and equipment 1,819 1,752 Goodwill and intangibles 447 728 Share based compensation 849 1,277 Interest limitation 1,997 2,243 Lease obligation 11,051 12,766 Federal and state net operating loss carryforwards 34,424 34,355 Foreign net operating loss carryforwards — 110 Credit carryforwards 28 3 Section 174 Capitalization 11,494 10,884 Other 1,674 1,567 Total Deferred Income Tax Assets 80,150 83,553 Deferred Income Tax Liabilities: Foreign net operating loss carryforwards ( 6 ) — Undistributed foreign earnings ( 310 ) ( 428 ) Operating lease right-of-use assets ( 9,551 ) ( 12,013 ) Total Deferred Income Tax Liabilities ( 9,867 ) ( 12,441 ) Valuation allowance ( 714 ) ( 718 ) Total Net Deferred Income Tax Assets $ 69,569 $ 70,394 The provision for income taxes varies from the U.S. federal statutory rate. 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 in ASU No. 2023-09. 60 Table of Contents Year Ended December 31, 2025 Amount ($) Percent (%) Provision for income taxes at U.S. federal statutory rate $ 3,101 21.0 % State and local income taxes, net of federal income tax effect 1 209 1.4 Foreign tax effects Hong Kong Statutory tax rate difference between Hong Kong and U.S. ( 384 ) ( 2.6 ) Other ( 12 ) ( 0.1 ) Other foreign jurisdictions 480 3.2 Effect of changes in tax laws or rates enacted in the current period — — Effect of cross-border tax laws Foreign derived intangible income (FDII) ( 772 ) ( 5.2 ) Other 28 0.2 Tax Credits R&D tax credits ( 79 ) ( 0.5 ) Changes in valuation allowances 1 — Nontaxable or nondeductible items Section 162(m) 2,766 18.7 Stock-based compensation ( 158 ) ( 1.1 ) Other 145 1.0 Changes in unrecognized tax benefits ( 649 ) ( 4.4 ) Other adjustments 218 1.5 Effective Tax Rate $ 4,894 33.1 % 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. 2023-09. Year ended December 31, 2024 2023 Federal income tax expense 21.0 % 21.0 % State income tax expense, net of federal tax effect 1.8 2.0 Effect of differences in U.S. and foreign statutory rates ( 1.3 ) ( 1.1 ) Uncertain tax positions 0.4 0.6 Provision to return ( 4.4 ) ( 0.1 ) Other deferred adjustments ( 0.2 ) ( 5.7 ) Change in tax rate 0.8 0.1 GILTI 5.2 — Foreign derived intangible income ( 8.6 ) ( 9.8 ) Other non-deductible expenses ( 3.6 ) ( 0.7 ) Unrealized loss — 4.2 Section 162(m) 8.1 6.4 R&D credit ( 1.0 ) ( 1.5 ) Foreign tax credit ( 4.8 ) — Undistributed foreign earnings ( 0.2 ) 0.1 Valuation allowance — — Other 0.7 ( 0.3 ) 13.9 % 15.2 % 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. 61 Table of Contents The amounts of cash taxes paid during the year ended December 31, 2025 are as follows: 2025 Federal $ 1,361 State 114 Foreign Hong Kong 2,279 Netherlands 300 Mexico 574 Other 383 Total income taxes paid, net of amounts refunded $ 5,011 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, 2025 2024 2023 Domestic $ 2,711 $ 24,801 $ 28,552 Foreign 12,054 14,931 16,394 $ 14,765 $ 39,732 $ 44,946 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 $ 2,767 Additions based on tax positions related to the current year 344 Additions for tax positions of prior years 797 Settlements ( 929 ) Balance, December 31, 2023 2,979 Additions based on tax positions related to the current year 203 Additions for tax positions of prior years 99 Settlements ( 152 ) Balance, December 31, 2024 3,129 Additions based on tax positions related to the current year 71 Additions for tax positions of prior years ( 222 ) Settlements ( 2,137 ) Balance, December 31, 2025 $ 841 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. The tax years 2019 through 2024 are still subject to examination in Hong Kong. In the normal course of business, the Company is audited by federal, state and foreign tax authorities. 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. 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. 62 Table of Contents 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. federal 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. 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 equipment. 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 $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 in 2024. 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. 63 Table of Contents 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, 2026 $ 16,936 2027 17,177 2028 16,757 2029 7,106 2030 426 Thereafter 2,171 Total lease payments 60,573 Less imputed interest 7,211 Total $ 53,362 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 Common 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. 64 Table of Contents 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. 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. 65 Table of Contents 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: 2024 2023 Balance, January 1, $ 5,992 $ 4,490 Preferred stock accrued dividends 390 1,502 Preferred stock redemption ( 6,382 ) — Balance, December 31, $ — $ 5,992 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): Carrying Amount as of December 31, Fair Value Measurements As of December 31, 2025 2025 Level 1 Level 2 Level 3 Money market funds $ 33,062 33,062 $ — $ — Investments in employee deferred compensation trusts 4,467 4,467 — — Carrying Amount as of December 31, Fair Value Measurements As of December 31, 2024 2024 Level 1 Level 2 Level 3 Money market funds $ 39,907 $ 39,907 $ — $ — Investments in employee deferred compensation trusts 1,686 1,686 — — 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 Plans). 66 Table of Contents 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): 2026 $ 57,374 2027 49,070 2028 46,474 2029 36,862 Total $ 189,780 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): 2026 $ 6,431 2027 5,355 2028 2,609 2029 665 Total $ 15,060 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. 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 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. 67 Table of Contents 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: 2025 2024 2023 Weighted Weighted Weighted Number of Average Grant Date Number of Average Grant Date Number of Average Grant Date Shares Fair Value Shares Fair Value Shares Fair Value Outstanding, January 1 1,008,400 $ 22.51 1,306,406 $ 16.47 1,408,586 $ 12.82 Granted 675,011 18.16 303,398 31.61 436,792 21.11 Vested ( 557,723 ) 20.13 ( 579,181 ) 14.08 ( 504,384 ) 11.75 Forfeited ( 8,620 ) 28.28 ( 22,223 ) 18.36 ( 34,588 ) 16.70 Outstanding, December 31 1,117,068 21.03 1,008,400 22.51 1,306,406 16.47 The following table summarizes the RSU award activity for awards with market conditions, annually for the years ended December 31, 2025: 2025 Weighted Number of Average Grant Date Shares Fair Value Outstanding, January 1 — $ — Granted 112,500 20.79 Vested — — Forfeited — — Outstanding, December 31 112,500 20.79 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, 2025 2024 2023 Share-based compensation expense $ 10,913 $ 9,535 $ 8,027 Note 17 — Employee Benefit Plans The Company sponsored for its U.S. employees, a 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. 68 Table of Contents Starting 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 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. The 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 Income 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. 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. 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. 69 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.