What changed in this filing

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Item 1. Financial Statements

2026-07-31 compared with 2026-05-01 · 371 added, 286 removed, 468 unchanged (58% of the section changed)

7 unchanged sentences

Restricted cash

Accounts receivable, net of allowance for credit losses of $ 4,956 and $ 5,103 at March 31, 2026 and December 31, 2025, respectively

Accounts receivable, net of allowance for credit losses of $ 5,100 and $ 5,103 at June 30, 2026 and December 31, 2025, respectively

Inventory, net

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100,000,000 shares authorized;

11,444,411 and 11,342,981 shares issued and outstanding at March 31, 2026 and December 31, 2025, respectively

11,445,012 and 11,342,981 shares issued and outstanding at June 30, 2026 and December 31, 2025, respectively

Additional paid-in capital

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share data)

Three Months Ended

Six Months Ended

Cost of sales:

9 unchanged sentences

Other income (expense), net

Loss on debt extinguishment

Interest income

Interest expense

Loss before benefit from income taxes

Benefit from income taxes

Loss per share - basic and diluted

Shares used in loss per share - basic and diluted

Comprehensive loss

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

Provision for (benefit from) income taxes

Net income (loss)

Earnings (loss) per share - basic

Shares used in earnings (loss) per share - basic

Earnings (loss) per share - diluted

Shares used in earnings (loss) per share - diluted

Comprehensive income (loss)

accompanying notes to condensed consolidated financial statements.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

thousands, except per share data)

Three Months Ended March 31, 2026

Three and Six Months Ended June 30, 2026

Pacific, Inc.

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Balance, March 31, 2026

Three Months Ended March 31, 2025

Share-based compensation expense

Repurchase of common stock for employee tax withholding

Cash dividend declared, $ 0.25 per share

Foreign currency translation adjustment

Balance, June 30, 2026

Three and Six Months Ended June 30, 2025

Pacific, Inc.

8 unchanged sentences

Balance, March 31, 2025

Share-based compensation expense

Repurchase of common stock for employee tax withholding

Cash dividend declared, $ 0.25 per share

Foreign currency translation adjustment

Balance, June 30, 2025

accompanying notes to condensed consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

Six Months Ended

Cash flows from operating activities

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Recovery of credit losses

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Provision for credit losses

Depreciation and amortization

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Cash dividend paid

Deferred issuance costs

Payments for deferred issuance costs

Net cash used in financing activities

6 unchanged sentences

Cash paid for interest

The Company received income tax refunds of $ 6.9

million and nil during the three months ended March 31, 2026 and 2025.

The Company received income tax refunds of $ 7.1 million and $6

thousand during the six months ended June 30, 2026 and 2025, respectively, and has included these amounts in cash paid during the period

for income taxes, net.

disclosures of non-cash activities:

During the three months ended March 31, 2026 and 2025,

the lease liability increased by $ 0.1 million and $ 2.5 million respectively, with a corresponding increase to the ROU asset.

of March 31, 2026 and 2025, there were $ 6.0 million and $ 4.7 million, respectively, of property and equipment purchases included in accounts

the six months ended June 30, 2026 and 2025, the lease liability increased by $ 0.1 million and $ 2.5 million respectively, with a corresponding

increase to the ROU asset.

of June 30, 2026 and 2025, there was $ 5.9 million and $ 6.1 million, respectively, of property and equipment purchases included in accounts

accompanying notes to condensed consolidated financial statements.

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1 — Basis of Presentation

accompanying unaudited interim condensed consolidated financial statements included herein have been prepared by the Company, without

audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).

Certain information and

footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in

the United States of America have been condensed or omitted pursuant to such rules and regulations.

However, the Company believes that

the disclosures are adequate to prevent the information presented from being misleading.

These financial statements should be read in

conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K, which contains

audited financial information for the three years in the period ended December 31, 2025.

The accompanying unaudited interim condensed consolidated financial

statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and

Exchange Commission (the “SEC”).

Certain information and footnote disclosures normally included in financial statements prepared

in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to

such rules and regulations.

However, the Company believes that the disclosures are adequate to prevent the information presented from

being misleading.

These financial statements should be read in conjunction with the financial statements and the notes thereto included

in the Company’s Annual Report on Form 10-K, which contains audited financial information for each of the three years in the period

ended December 31, 2025.

information provided in this report reflects all adjustments (consisting solely of normal recurring items) that are, in the opinion of

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“the Company”).

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 condensed

consolidated financial statements and related disclosures.

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.

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

July 2025, the FASB issued ASU 2025-05, “Financial Instruments—Credit Losses (Topic 326):

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statements and related disclosures.

In September 2025, the FASB issued ASU 2025-06, “Intangibles—Goodwill

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

Targeted Improvements to the Accounting for Internal-Use Software.” The

new guidance removes all references to prescriptive and sequential software development stages (referred to as “project stages”)

throughout Subtopic 350-40.

Therefore, an entity is required to start capitalizing software costs when both of the following occur:

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

It is probable that the project will be completed and the

software will be used to perform the function intended (referred to as the “probable-to-complete recognition threshold”).

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

associated with the development activities of the software (referred to as “significant development uncertainty”).

The amendments

will be effective for all entities for annual reporting periods beginning after December 15, 2027, and interim reporting periods within

those annual reporting periods.

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

The Company is currently

evaluating the impact of adopting this standard on its condensed consolidated financial statements and related disclosures.

No other accounting pronouncements were issued or

adopted for the three months ended March 31, 2026 that materially impacted the Company.

September 2025, the FASB issued ASU 2025-06, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40):

Targeted Improvements to the Accounting for Internal-Use Software.” The new guidance removes all references to prescriptive and

sequential software development stages (referred to as “project stages”) throughout Subtopic 350-40.

Therefore, an entity

is required to start capitalizing software costs when both of the following occur:

Management has authorized and committed to funding

the software project and 2.

It is probable that the project will be completed and the software will be used to perform the function intended

(referred to as the “probable-to-complete recognition threshold”).

In evaluating the probable-to-complete recognition threshold,

an entity is required to consider whether there is significant uncertainty associated with the development activities of the software

(referred to as “significant development uncertainty”).

The amendments will be effective for all entities for annual reporting

periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods.

Early adoption is permitted

as of the beginning of an annual reporting period.

The Company is currently evaluating the impact of adopting this standard on its condensed

consolidated financial statements and related disclosures.

other accounting pronouncements were issued or adopted for the three and six months ended June 30, 2026 that materially impacted the

PACIFIC, INC.

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in comparison with current budget, prior forecast, prior year and recent years’ performance in that quarter.

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.

PACIFIC, INC.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

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

Information by segment and

a reconciliation to reported amounts for the three months ended March 31, 2026 and 2025 and as of March 31, 2026 and December 31, 2025

a reconciliation to reported amounts for the three and six months ended June 30, 2026 and 2025 and as of June 30, 2026 and December 31,

2025 are as follows (in thousands):

Three Months Ended March 31,

Three Months Ended June 30,

Cost of Sales (A)

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Other income (expense), net

Loss on debt extinguishment

Interest income

Interest expense

Income before benefit from income taxes

(A) Includes depreciation and amortization $ 2,107 $ 15 $ 2,122 $ 1,550 $ 9 $ 1,559

mainly of payroll and related expenses, rent, depreciation and other general and administrative expenses.

mainly of payroll related expenses, rent, depreciation and other general and administrative expenses.

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

Includes depreciation and amortization

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

PACIFIC, INC.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended June 30,

Cost of Sales (A)

Direct selling expenses

Product development and testing expenses

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

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

Income (loss) from operations

Other income (expense), net

Loss on debt extinguishment

Interest income

Interest expense

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

Includes depreciation and amortization

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

Toys/Consumer Products

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Company’s assets.

The following tables present information about the Company by geographic area as of March 31, 2026 and December

31, 2025 and for the three months ended March 31, 2026 and 2025 (in thousands):

The following tables present information about the Company by geographic area as of June 30, 2026 and December

31, 2025 and for the three and six months ended June 30, 2026 and 2025 (in thousands):

Long-lived Assets

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United Kingdom

Others combined

Three Months Ended

Six Months Ended

Net Sales by Customer Area

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Middle East & Africa

sales to major customers globally for the three months ended March 31, 2026 and 2025 were as follows (in thousands, except for percentages):

Three Months Ended March 31,

sales to major customers globally for the three and six months ended June 30, 2026 and 2025 were as follows (in thousands, except for

percentages):

Three Months Ended June 30,

Six Months Ended June 30,

the year ended December 31, 2025, the Company determined that, in prior periods, net sales to two subsidiaries of Walmart Inc., were

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Finished goods

inventory obsolescence reserve was $ 2.9 million and $ 2.4 million as of March 31, 2026 and December 31, 2025, respectively.

inventory obsolescence reserve was $ 1.8 million and $ 2.4 million as of June 30, 2026 and December 31, 2025, respectively.

4 — Revenue Recognition and Reserve for Sales Returns and Allowances

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As a result, these costs are recorded as direct selling expenses, as incurred.

For the three months ended March

31, 2026 and 2025, sales commissions were $ 0.5 million and $ 0.4 million, respectively.

For the three and six months ended

June 30, 2026 sales commissions were $ 0.5 million and $ 1.0 million, respectively.

For the three and six months ended June 30, 2025 sales

commissions were $ 0.5 million and $ 0.9 million, respectively.

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 three months ended March 31, 2026 and 2025, shipping and handling costs were $ 1.7 million

For the three and six months ended June 30, 2026, shipping and handling costs were $ 1.6 million

and $ 3.4 million, respectively.

For the three and six months ended June 30, 2025, shipping and handling costs were $ 1.7 million and $ 3.9

million, respectively.

PACIFIC, INC.

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5 — Credit Facilities

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.

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.

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.

JPMorgan ABL Facility was replaced with a new senior secured revolving credit facility with BMO Bank N.A., as described below.

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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.

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.

under the Revolving Facility bear interest, at the Company’s election, either (i) the Adjusted Term Secured Overnight Financing

under the Revolving Facility bear interest, at the Company’s election, at either (i) the Adjusted Term Secured Overnight Financing

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

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subsidiaries, subject to certain customary exclusions.

of March 31, 2026, the amount of outstanding borrowings was nil and the total excess borrowing availability was $ 68.3 million.

of March 31, 2026, off-balance sheet arrangements include letters of credit issued by BMO of $ 1.7 million and JPMorgan of $ 0.9 million.

of March 31, 2026, the Company was in compliance with the financial covenants under the BMO Credit Agreement.

of June 30, 2026, the amount of outstanding borrowings was nil and the total excess borrowing availability was $ 68.7 million.

of June 30, 2026, off-balance sheet arrangements include letters of credit issued by BMO of $ 1.3 million and JPMorgan of $ 0.9 million.

of June 30, 2026, the Company was in compliance with the financial covenants under the BMO Credit Agreement.

PACIFIC, INC.

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6 — Income Taxes

The Company’s income tax benefit of $ 0.8 million

for the three months ended March 31, 2026, reflects an effective tax rate of 16.6 %.

The Company’s income tax benefit of $ 1.2 million

for the three months ended March 31, 2025, reflects an effective tax rate of 32.8 %.

The tax benefit for the three months ended March

31, 2026 and 2025 primarily relates to the overall worldwide loss (i.e.

federal, state, and foreign) partially offset by discrete items.

Company’s income tax expense of $ 1.7 million for the three months ended June 30, 2026, reflects an effective tax rate of 22.5 %.

The Company’s income tax benefit of $ 0.6 million for the three months ended June 30, 2025, reflects an effective tax rate of 20.7 %.

The increase in tax expense for the quarter ended June 30, 2026 compared to the corresponding period in 2025 was primarily attributable

to higher pretax earnings and an increase in tax expense from discrete items recognized during the current-year period.

Company’s income tax expense of $ 0.9 million for the six months ended June 30, 2026 reflects an effective tax rate of 35.1 %.

Company’s income tax benefit of $ 1.8 million for the six months ended June 30, 2025 reflects an effective tax rate of 27.3 %.

increase in tax expense during the six months ended June 30, 2026 compared to the corresponding period in 2025 was primarily attributable

to higher pretax earnings and an increase in tax expense from discrete items recognized during the current-year period.

time to time, in the normal course of business, the Company may be audited by federal, state and foreign tax authorities.

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financial statements.

7 — Loss Per Share

following table is a reconciliation of the weighted average shares used in the computation of loss per share for the periods presented

(in thousands, except per share data):

7 — Earnings (Loss) Per Share

The following table is a reconciliation of the

weighted average shares used in the computation of earnings (loss) per share for the periods presented (in thousands, except per share

Three Months Ended

Loss per share - basic and diluted

Weighted average common shares outstanding - basic and diluted

Loss per share available to common stockholder - basic and diluted

Basic loss per share is calculated using the weighted

average number of common shares outstanding during the period.

Diluted 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 to the extent they

are dilutive).

Restricted stock units of 377,755 and 359,344 for the three months ended March 31, 2026 and 2025, respectively, were excluded

from the computation of diluted loss per share.

Of the RSUs excluded for 2026, 105,609 were anti-dilutive based on their terms, while

272,146 would have been dilutive if the Company had reported net income.

Six Months Ended

Earnings (loss) per share - basic and diluted

Net income (loss)

Weighted average common shares outstanding - basic

Earnings (loss) per share - basic

Weighted average common shares outstanding - diluted

Earnings (loss) per share - diluted

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 to the extent they are dilutive).

Potentially dilutive restricted stock units of 6,117 and 49,837 for the three and six months ended

June 30, 2026, respectively, were excluded from the computation of diluted loss per share since they would have been anti-dilutive.

Potentially dilutive restricted stock units of

250,349 and 340,270 for the three and six months ended June 30, 2025, respectively, were excluded from the computation of diluted loss

per share since they would have been anti-dilutive.

PACIFIC, INC.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8 — Common Stock

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but not issued and outstanding shares.

2026, certain employees, including two executive officers, surrendered an aggregate of 74,652 shares of restricted stock units for $ 1.3

2026, certain employees, including one executive officer, surrendered an aggregate of 75,051 shares of restricted stock units for $ 1.3

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

No forfeitures occurred during 2026.

Additionally, an aggregate of 30,511 shares of restricted stock

granted in 2023, 2024 and 2025 with a value of approximately $ 0.6 million was forfeited during 2026.

2025, certain employees, including two executive officers, surrendered an aggregate of 136,071 shares of restricted stock units for $ 3.8

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Additionally, an aggregate of 3,549 shares of restricted stock

granted in 2023 and 2024 with a value of approximately $ 38.1 thousand was forfeited during 2025.

quarterly dividend of $ 0.25 per share for owners of record as of February 27, 2026 was declared on February 18, 2026 and paid on March

A quarterly dividend of $ 0.25 per share for owners of record as of March 3, 2025 was declared on February 18, 2025 and paid

on March 31, 2025.

PACIFIC, INC.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

granted in 2022, 2023 and 2024 with a value of approximately $ 0.1 million was forfeited during 2025.

quarterly dividend of $ 0.25 per share for owners of record as of May 29, 2026 was declared on April 29, 2026 and paid on June 29, 2026.

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 $ 75.0 million of common stock, in one or more offerings in amounts, prices and at terms

that the Company will determine at the time of the offering.

of March 31, 2026, the Company did not sell any shares of common stock under the ATM Agreement.

On October 29, 2025, the Company filed with the

SEC a shelf registration statement pursuant to which it may issue, from time to time, up to $ 150.0 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.

This registration statement replaced an essentially similar one filed in October 2022, which expired by law on

its three-year anniversary.

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

Riley, as agent

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

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

of June 30, 2026, the Company did not sell any shares of common stock under the ATM Agreement.

On April 30, 2026, the Company filed with the SEC a shelf registration

statement pursuant to which it may issue, from time to time, up to $ 150.0 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.

This registration statement replaced an essentially similar one filed in October 2022, which expired by law on its three-year anniversary.

No shares were sold under such prior registration statement.

of March 31, 2026, the Company has not sold any securities pursuant to its shelf registration statement.

of June 30, 2026, the Company has not sold any securities pursuant to its shelf registration statement.

Company applies a fair value-based impairment test to the carrying value of goodwill and indefinite-lived intangible assets on an annual

basis and on an interim basis, if certain events or circumstances indicate that an impairment loss may have been incurred.

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

For the three months ended March 31, 2026,

there were no events or circumstances that indicated that an impairment loss may have been incurred.

10 — Comprehensive Loss

table below presents the components of the Company’s comprehensive loss for the three months ended March 31, 2026 and 2025 (in

Goodwill impairment

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

For the three months ended June 30, 2026, there were

no events or circumstances that indicated that an impairment loss may have been incurred.

Based on the Company’s April 1 annual assessment,

it determined that the fair value of the reporting unit containing goodwill exceeded its carrying amount.

No goodwill impairment was determined to have occurred

for the six months ended June 30, 2026 and 2025.

PACIFIC, INC.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

10 — Comprehensive Income (Loss)

table below presents the components of the Company’s comprehensive income (loss) for the three and six months ended June 30, 2026

and 2025 (in thousands):

Three Months Ended

Six Months Ended

Net income (loss)

Other comprehensive income (loss):

Foreign currency translation adjustment

Comprehensive loss

Comprehensive income (loss)

11 — Litigation and Contingencies

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Shares for the restricted stock units are not issued until they vest.

following table summarizes the total share-based compensation expense recognized for the three months ended March 31, 2026 and 2025 (in

following table summarizes the total share-based compensation expense recognized for the three and six months ended June 30, 2026 and

2025 (in thousands):

Three Months Ended

Six Months Ended

Share-based compensation expense

following table summarizes the RSU award activity for awards with service conditions for the three months ended March 31, 2026:

Grant Date Fair

following table summarizes the RSU award activity for awards with service conditions for the six months ended June 30, 2026:

Outstanding, December 31, 2025

Outstanding, March 31, 2026

following table summarizes the RSU award activity for awards with market conditions for the three months ended March 31, 2026:

Grant Date Fair

Outstanding, June 30, 2026

following table summarizes the RSU award activity for awards with market conditions for the six months ended June 30, 2026:

Outstanding, December 31, 2025

Outstanding, March 31, 2026

of March 31, 2026, there was $ 19.8 million of total unrecognized compensation cost related to non-vested restricted stock units, which

Outstanding, June 30, 2026

of June 30, 2026, there was $ 16.3 million of total unrecognized compensation cost related to non-vested restricted stock units, which

is expected to be recognized over a weighted-average period of 1.9 years.

of March 31, 2026, the fair market value of non-vested restricted stock units was $ 26.2 million.

of June 30, 2026, the fair market value of non-vested restricted stock units was $ 29.9 million.

PACIFIC, INC.

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to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

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

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

30, 2026 and December 31, 2025 (in thousands):

Fair Value Measurements

As of March 31, 2026

As of June 30, 2026

Money market funds

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Investments in employee deferred compensation trusts

PACIFIC, INC.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

market funds are included in cash and cash equivalents on the condensed consolidated balance sheets.

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on the condensed consolidated balance sheets.

For the three months ended March 31, 2026 and 2025, changes in the fair value of securities

held in the rabbi trust and offsetting increases or decreases in the deferred compensation obligation totaled $( 0.2 ) million and

$( 0.1 ) million, respectively, and are recognized in other general and administrative expenses in the Company’s condensed consolidated

statements of operations and comprehensive income.

For the six months ended June 30, 2026 and 2025, changes in the fair value of securities

held in the rabbi trust and offsetting increases or decreases in the deferred compensation obligation totaled $ 379 thousand and

$( 52 ) thousand, respectively, and are recognized in other general and administrative expenses in the Company’s condensed consolidated

statements of operations and comprehensive income (loss).

Company’s cash and cash equivalents including restricted cash, accounts receivable, accounts payable, and accrued expenses represent

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nature of the instruments.

PACIFIC, INC.

AND SUBSIDIARIES

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

14 — Prepaid Expenses and Other Assets

expenses and other assets as of March 31, 2026 and December 31, 2025 consist of the following (in thousands):

expenses and other assets as of June 30, 2026 and December 31, 2025 consist of the following (in thousands):

Prepaid expenses

Royalty advances (current and non-current)

Investments in employee deferred compensation trusts

Royalty advances (current and non-current)

Income tax receivable

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15 — Subsequent events

April 28, 2026, the Company’s Board of Directors declared a quarterly cash dividend of $ 0.25 per common share.

July 22, 2026, the Company’s Board of Directors declared a quarterly cash dividend of $ 0.25 per common share.

The dividend will

be payable on June 30, 2026, to shareholders of record at the close of business on May 29, 2026.

On April 30, 2026 the Company filed a

pre-effective amendment to its registration statement on Form S-3 (originally filed on October 29, 2025) pursuant to which it may

issue, from time to time, up to $ 150.0 million of securities, which will be reduced by any amount of securities sold pursuant to the

Company’s ATM Agreement (see Note 8 – Common Stock)

Subsequent to March 31, 2026, the U.S.

established a claims process to refund certain tariffs deemed unlawful following a Supreme Court decision.

The Company believes it may

be eligible for refunds related to tariffs previously paid.

As of the date of issuance, the Company has submitted a claim but the timing,

eligibility, and amount of any potential recovery remain subject to uncertainty and administrative review.

Accordingly, no receivable

or gain has been recognized as of March 31, 2026.

be payable on September 28, 2026, to shareholders of record at the close of business on August 28, 2026.

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

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critical accounting policies and estimates are included in the 2025 Annual Report on Form 10-K and did not materially change during the

first three months of 2026.

first six months of 2026.

Accounting Pronouncements

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

Three Months Ended

Three Months Ended June 30,

Six Months Ended June 30,

Cost of sales:

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Other income (expense), net

Loss on debt extinguishment

Interest income

Interest expense

Loss before benefit from income taxes

Benefit from income taxes

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

Provision for (benefit from) income taxes

Net income (loss)

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

Three Months Ended

Six Months Ended

Toys/Consumer Products

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Toys/Consumer Products

of the Three Months Ended March 31, 2026 and 2025

of the Three Months Ended June 30, 2026 and 2025

Toys/Consumer

Net sales of our Toys/Consumer Products segment were $100.1 million for the three months ended March 31, 2026 compared

to $107.4 million for the prior year period, representing a decrease of $7.3 million, or 6.8%.

The decrease was driven by lower sales

from North American customers despite higher sales from our International regions.

Dolls, Role-Play/Dress-up sales were down 32.4% versus

a year ago due to lower sales related to the Moana 2 Movie product as well Disney Princess products.

Net sales from the Action Play &

Collectibles division were up 28.9% due to higher net sales from the Super Mario Movie 2 products.

Net sales of our Costumes segment were $6.6 million for the three months ended March 31, 2026 compared to $5.8 million for the prior

Net sales of our Toys/Consumer Products segment were $97.5 million for the three months ended June 30, 2026 compared to

$80.4 million for the prior year period, representing an increase of $17.1 million, or 21.3%.

The increase was driven by higher sales

in the Action Play and Collectibles division, up 40.7% versus a year ago, driven by sales of Super Mario Movie and Nintendo products.

Additionally, the Dolls, Role-Play/Dress Up division increased 11.8% compared to the same period a year ago.

Net sales of our Costumes segment were $41.7 million for the three months ended June 30, 2026 compared to $38.7 million for the prior

year period, representing an increase of $3.0 million, or 7.8%.

The increase was primarily due to increased sales related to Nintendo

Toys/Consumer Products.

Cost of sales of our

Toys/Consumer Products segment was $66.1 million, or 66.0% of related net sales for the three months ended March 31, 2026 compared to

$69.2 million, or 64.4% of related net sales for the prior year period, representing a decrease of $3.1 million, or 4.5%.

as a percentage of net sales was due to a higher cost of product and tolling amortization compared with prior year.

Cost of sales of our Costumes segment

was $5.0 million, or 75.8% of related net sales for the three months ended March 31, 2026, compared to $5.0 million, or 86.2% of related

net sales for the prior year period.

The decrease as a percentage of net sales was due to lower royalty expense.

The increase was primarily due to reduced orders a year ago from select

recurring customers as a result of the US tariffs.

Toys/Consumer

Cost of sales of our Toys/Consumer Products segment was $64.0 million, or 65.6% of related net sales for the three months

ended June 30, 2026 compared to $53.3 million, or 66.3% of related net sales for the prior year period, representing an increase of $10.7

million, or 20.1%.

The decrease as a percentage of net sales was due to lower product costs as a percentage of net sales, while in the

increase in dollars was due to higher volume.

Cost of sales of our Costumes segment was $30.3 million, or 72.7% of related net sales for the three months ended June 30, 2026, compared

to $26.8 million, or 69.3% of related net sales for the prior year period, representing an increase of $3.5 million, or 13.1%.

was due to higher product costs as a percentage of net sales on Costume product versus a year ago.

General and Administrative Expenses

Selling, general and administrative expenses were

$41.2 million for the three months ended March 31, 2026 compared to $42.8 million for the prior year period constituting 38.6% and 37.7%

of net sales, respectively.

Selling, general and administrative expenses were slightly lower year over year, led by decreases in temp

help and media spend.

From Income Taxes

Our income tax benefit, which includes federal, state

and foreign income taxes and discrete items, was $0.8 million, or an effective tax rate of 16.6%, for the three months ended March 31,

general and administrative expenses were $45.1 million for the three months ended June 30, 2026 compared to $41.8 million for the prior

year period constituting 32.4% and 35.1% of net sales, respectively.

Selling, general and administrative expenses were up $3.3 million

year over year due to slightly higher selling expenses and salaries and benefits.

Income (Expense), net

Other Income (Expense), net was $7.0 million for

the three months ended June 30, 2026 compared to $25 thousand for the prior year period.

The increase is mainly due to refunded import

tariff expenditures.

A portion of the refund related to U.S.

inventory still on hand as of June 30, 2026 was applied to these inventory

items to reduce their cost basis.

Provision for (Benefit from) Income Taxes

income tax expense, which includes federal, state and foreign income taxes and discrete items, was $1.7 million, or an effective tax

rate of 22.5%, for the three months ended June 30, 2026.

During the comparable period in 2025, our income tax benefit was $0.6 million,

or an effective tax rate of 20.7%.

The increase in the effective tax rate is primarily attributable to an increase in tax expense from

discrete items recognized during the current-year period.

of the Six Months Ended June 30, 2026 and 2025

Toys/Consumer

Net sales of our Toys/Consumer Products segment were $197.6 million for the six months ended June 30, 2026 compared to

$187.8 million for the prior year period, representing an increase of $9.8 million, or 5.2%.

The increase was driven by higher sales

in the Action Play and Collectibles division, up 33.7% versus a year ago, due to higher sales related to the Super Mario Movie product,

offset by 12.3% lower sales in the Dolls, Role-Play/Dress Up division.

Net sales of our Costumes segment were $48.3 million for the six months ended June 30, 2026 compared to $44.5 million for the prior year

period, representing an increase of $3.8 million, or 8.5%.

The increase was primarily due to reduced orders a year ago from select recurring

customers as a result of the US tariffs.

Toys/Consumer

Cost of sales of our Toys/Consumer Products segment was $130.1 million, or 65.8% of related net sales for the six months

ended June 30, 2026 compared to $122.5 million, or 65.2% of related net sales for the prior year period, representing an increase of

$7.6 million, or 6.2%.

Cost of sales as a percentage of related net sales was relatively flat year-over-year with the increase in dollars

due to greater overall sales.

Cost of sales of our Costumes segment was $35.2 million, or 72.9% of related net sales for the six months ended June 30, 2026, compared

to $31.8 million, or 71.5% of related net sales for the prior year period, representing an increase of $3.4 million, or 10.7%.

as a percentage of net sales was due to higher net inventory reserves on Costume product versus a year ago.

General and Administrative Expenses

general and administrative expenses were $86.3 million for the six months ended June 30, 2026 compared to $84.6 million for the prior

year period constituting 35.1% and 36.4% of net sales, respectively.

Selling, general and administrative expenses were up $1.7 million

year over year, with slightly higher selling expenses and salaries and benefits.

Income (Expense), net

Other Income (Expense), net was $7.0 million for

the six months ended June 30, 2026 compared to $30 thousand for the prior year period.

The increase is due to refunded import tariff expenditures.

A portion of the refund related to U.S.

inventory still on hand as of June 30, 2026 was applied to these inventory items to reduce their

Provision for (Benefit from) Income Taxes

Our income tax expense, which includes federal,

state and foreign income taxes and discrete items, was $0.9 million, or an effective tax rate of 35.1%, for the six months ended June

During the comparable period in 2025, our income tax benefit was $1.8 million, or an effective tax rate of 27.3%.

in the effective tax rate is primarily attributable to a decrease in discrete tax benefits and an increase in pre-tax book loss for the

current period.

in the effective tax rate is primarily attributable to an increase in tax expense from discrete items recognized during the current-year

retail toy industry is inherently seasonal.

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payment terms.

we have taken steps to level sales over the entire year, sales are expected to remain heavily influenced by the seasonality of our toy

and costume products.

The result of these seasonal patterns is that operating results and the demand for working capital may vary significantly

Orders placed with us are generally cancelable until the date of shipment.

The combination of seasonal demand and the potential

for order cancellation makes accurate forecasting of future sales difficult and causes us to believe that backlog may not be an accurate

indicator of our future sales.

Similarly, financial results for a particular quarter may not be indicative of results for the entire

While we have taken steps to level sales over the entire year,

sales are expected to remain heavily influenced by the seasonality of our toy and costume products.

The result of these seasonal patterns

is that operating results and the demand for working capital may vary significantly by quarter.

Orders placed with us are generally cancellable

until the date of shipment.

The combination of seasonal demand and the potential for order cancellation makes accurate forecasting of

future sales difficult and causes us to believe that backlog may not be an accurate indicator of our future sales.

Similarly, financial

results for a particular quarter may not be indicative of results for the entire year.

and Capital Resources

of March 31, 2026, we had working capital (inclusive of cash, cash equivalents and restricted cash) of $111.8 million, compared to $121.0

million as of December 31, 2025, representing a decrease in working capital of $9.2 million during the three-month period ended March

The decrease in working capital is mainly attributable to changes in receivables, inventory and payables, coupled with cash

used in financing activities.

Operating activities provided net cash of $21.8 million

during the three months ended March 31, 2026, as compared to net cash used of $1.7 million in the prior year period.

The increase in

net cash provided by operating activities year-over-year is primarily due to higher receivable collections, lower inventory purchases,

less capital tied in prepaids and other assets, a lower cash out-flow for payables and a net refund of cash taxes paid in prior years.

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

inventory from our manufacturers.

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

for product manufactured by our suppliers or manufacturers for a variety of reasons including customer order cancellations or a decline

As part of our strategy to develop and market new products, we have entered into various character and product licenses with

royalties/obligations generally ranging from 1% to 22% payable on net sales of such products.

As of March 31, 2026, these agreements

required future aggregate minimum royalty guarantees of $193.4 million exclusive of $4.5 million in advances already paid.

Of this $193.4

million future minimum royalty guarantee, $66.8 million is due over the next twelve months.

activities used net cash of $5.8 million and $3.1 million for the three months ended March 31, 2026 and 2025, respectively, and consisted

As of June 30, 2026, we had working capital (inclusive of cash,

cash equivalents and restricted cash) of $116.0 million, compared to $121.0 million as of December 31, 2025, representing a decrease in

working capital of $5.0 million during the six-month period ended June 30, 2026.

The decrease in working capital is mainly attributable

to cash used for investing and financing activities, offset with $11.1 million refunded by the federal government related to import tariffs

levied under the International Emergency Economic Powers Act (IEEPA) and related interest.

activities provided net cash of $26.1 million during the six months ended June 30, 2026, as compared to net cash used of $15.9 million

in the prior year period.

The increase in net cash provided by operating activities year-over-year is primarily due to refunds received

related to IEEPA tariffs and income taxes, and lower overall inventory costs year-over-year.

Other than open purchase orders issued in

the normal course of business related to shipped product, we have no obligations to purchase inventory from our manufacturers.

we may incur costs or other losses as a result of not placing orders consistent with our forecasts for product manufactured by our suppliers

or manufacturers for a variety of reasons including customer order cancellations or a decline in demand.

As part of our strategy to develop

and market new products, we have entered into various character and product licenses with royalties/obligations generally ranging from

1% to 22% payable on net sales of such products.

As of June 30, 2026, these agreements required future aggregate minimum royalty guarantees

of $185.0 million exclusive of $3.8 million in advances already paid.

Of this $185.0 million future minimum royalty guarantee, $60.7

million is due over the next twelve months.

activities used net cash of $10.5 million and $6.0 million for the six months ended June 30, 2026 and 2025, respectively, and consisted

primarily of cash paid for the purchase of molds and tooling used in the manufacture of our products and purchases of investments to

fund our obligation to our employees stemming from our non-qualified deferred compensation plan.

activities used net cash of $4.3 million and $6.6 million for the three months ended March 31, 2026 and 2025, respectively.

used in financing activities during the three months ended March 31, 2026, mainly consists of $1.3 million used for the repurchase of

our common stock for employee tax withholding and $2.9 million used to pay dividends.

The cash used in financing activities during the

three months ended March 31, 2025, consists of $3.8 million used for the repurchase of our common stock for employee tax withholding

and $2.8 million used to pay dividends.

activities used net cash of $7.1 million and $9.4 million for the six months ended June 30, 2026 and 2025, respectively.

The cash used

in financing activities during the six months ended June 30, 2026, consists of $1.3 million used for the repurchase of our common stock

for employee tax withholding and $5.7 million used to pay dividends.

The cash used in financing activities during the six months ended

June 30, 2025, consists of $3.8 million used for the repurchase of our common stock for employee tax withholding and $5.6 million used

to pay dividends.

June 2025, we terminated our existing $67.5 million JPMorgan ABL revolving credit facility in connection with entering into a new senior

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charge of $0.3 million for the write-off of previously deferred financing costs associated with the JPMorgan facility.

On June 24, 2025, we entered into a new $70.0 million

senior secured revolving credit facility with a maturity date of June 24, 2030.

This facility replaces our prior facility and is expected

to provide improved pricing and enhanced liquidity flexibility.

Interest is payable at either SOFR plus a leverage-based margin or a

Base Rate alternative and includes a commitment fee on unused amounts.

The facility includes financial covenants requiring a minimum

interest coverage ratio of 3.00 to 1.00 and a maximum total net leverage ratio of 2.00 to 1.00.

As of March 31, 2026, we were in compliance

with all financial covenants.

under the revolving facility as of March 31, 2026, was $68.3 million.

June 24, 2025, we entered into a new $70.0 million senior secured revolving credit facility with a maturity date of June 24, 2030.

facility replaces our prior facility and is expected to provide improved pricing and enhanced liquidity flexibility.

Interest is payable

at either SOFR plus a leverage-based margin or a Base Rate alternative and includes a commitment fee on unused amounts.

includes financial covenants requiring a minimum interest coverage ratio of 3.00 to 1.00 and a maximum total net leverage ratio of 2.00

As of June 30, 2026, we were in compliance with all financial covenants.

under the revolving facility as of June 30, 2026, was $68.7 million.

The facility provides the Company with flexibility to fund working

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Note 5 – Credit Facilities for additional information pertaining to our Credit Facilities.

As of March 31, 2026 and December 31, 2025, we held

cash and cash equivalents, including restricted cash, of $64.0 million and $54.1 million, respectively.

Cash, and cash equivalents, including

restricted cash held outside of the United States in various foreign subsidiaries totaled $20.0 million and $16.9 million as of March

31, 2026 and December 31, 2025, respectively.

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

have either been fully taxed in the U.S.

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

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

tax should such amounts

be repatriated in the form of dividends or deemed distributions.

As such, foreign withholding taxes on future repatriations are not expected

to be significant.

primary sources of working capital are cash flows from operations and borrowings under our credit facility (see Note 5 – Credit

of June 30, 2026 and December 31, 2025, we held cash and cash equivalents, including restricted cash, of $60.6 million and $54.1 million,

respectively.

Cash, and cash equivalents, including restricted cash held outside of the United States in various foreign subsidiaries

totaled $9.4 million and $16.9 million as of June 30, 2026 and December 31, 2025, respectively.

The cash and cash equivalents, including

restricted cash balances in our foreign subsidiaries have either been fully taxed in the U.S.

or tax has been accounted for in connection

with the Tax Cuts and Jobs Act, or may be eligible for a full foreign dividends received deduction under such Act, and thus would not

be subject to additional U.S.

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

As such, foreign

withholding taxes on future repatriations are not expected to be significant.

primary sources of working capital are cash flows from operations and borrowings under our Revolving Facility (see Note 5 – Credit

cash flows from operations are impacted by the effect on sales of (1) the appeal of our products, (2) the success of our licensed brands

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

of March 31, 2026 off-balance sheet arrangements include letters of credit issued by JPMorgan of $0.9 million, temporarily secured with

of June 30, 2026 off-balance sheet arrangements include letters of credit issued by JPMorgan of $0.9 million, temporarily secured with

cash as collateral, and letters of credit issued by BMO of $1.3 million.

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

What changed 10-Q

Item 1. Financial Statements