{"url_path":"/sec/jakk/10-k/2026/item-8","section_key":"item-8","section_title":"Item 8 Consolidated Financial Statements and Supplementary Data**","topic":"sec","document":{"doc_type":"10-K","doc_date":"2026-03-02","source_url":"https://www.sec.gov/Archives/edgar/data/1009829/0001185185-26-000723-index.html","accession_number":"0001185185-26-000723","cik":"0001009829","ticker":"JAKK","issuer_name":"JAKKS PACIFIC INC","edgar_url":"https://www.sec.gov/Archives/edgar/data/1009829/0001185185-26-000723-index.html","primary_entity_key":"0001009829","primary_entity_name":"JAKKS PACIFIC INC"},"word_count":15561,"has_tables":true,"body_markdown":"**Item 8. Consolidated Financial Statements and Supplementary Data**\n\n \n\n**Report of Independent Registered Public Accounting Firm**\n\n \n\nShareholders and Board of Directors\n\nJAKKS Pacific, Inc.\n\nSanta Monica, California\n\n \n\n**Opinion on the Consolidated Financial Statements**\n\n \n\nWe have audited the accompanying\nconsolidated balance sheets of JAKKS Pacific, Inc. (the “Company”) as of December 31, 2025, and 2024, the related consolidated\nstatements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended\nDecember 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion,\nthe consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31,\n2025 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**,**\nin conformity with accounting principles generally accepted in the United States of America.\n\n \n\nWe also have audited, in accordance with the standards\nof the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial\nreporting as of December 31, 2025, based on criteria established in *Internal Control – Integrated Framework (2013)* issued\nby the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 2, 2026, expressed\nan unqualified opinion thereon.\n\n \n\n**Basis for Opinion**\n\n** **\n\nThese consolidated financial\nstatements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s\nconsolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be\nindependent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of\nthe Securities and Exchange Commission and the PCAOB.\n\nWe conducted our audits in accordance with the\nstandards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated\nfinancial statements are free of material misstatement, whether due to error or fraud.\n\n \n\nOur audits included performing procedures to assess\nthe risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures\nthat respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the\nconsolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by\nmanagement, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide\na reasonable basis for our opinion.\n\n** **\n\n**Critical Audit Matter**\n\n** **\n\nThe critical audit matter communicated below is\na matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated\nto the audit committee and that: (i) relates to accounts or disclosures that are material to the consolidated financial statements and\n(ii) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter\nin any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit\nmatter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.\n\n \n\n \n\n38\n\n[Table of Contents](#TableOfContents) \n\n \n\n*Royalty Expense and Related Liabilities*\n\n \n\nAs described in Notes 2, 7 and 15 of the consolidated\nfinancial statements, the Company enters into various license agreements whereby the Company uses certain characters and intellectual\nproperties in conjunction with its products. These agreements generally require a percentage of sales (as defined by the respective agreements)\nbe paid to third parties as royalties. They also often require a fixed minimum dollar amount of royalties to be paid regardless of what\nlevel of sales are achieved during the term of the agreement. Payment timing vary across agreements, and may precede any sales or collections\nof monies related to such sales. The Company recognizes royalty expenses in the period in which sales are made. In addition, the Company\nassesses whether forecasted revenue under any agreement are likely to be sufficient to cover the minimum royalty guarantee, and if not\na royalty shortfall reserve and associated royalty expense is recorded at that time. For the year ended December 31, 2025, the royalty\nexpense was $92.4 million. As of December 31, 2025, accrued royalties were $17.0 million.\n\n \n\nWe identified royalty expense and related liabilities\nas a critical audit matter. The royalty expense calculation includes multiple variables based on various license agreements, including\namended and renewed license agreements, which includes minimum royalty guarantee amounts, and a significant volume of underlying data.\nThe royalty liabilities related to the minimum royalty guarantee amounts requires judgment by management to evaluate existing information\nand develop forecasts to assess the Company’s likelihood of incurring a royalty shortfall and recording an associated expense. Auditing\nthese elements involved especially challenging and subjective auditor judgment due to the nature and extent of effort required to address\nthis matter.\n\n \n\nThe primary procedures we performed to address\nthis critical audit matter included:\n\n \n\n \n●\nEvaluating 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.\n\n \n\n \n●\nTesting 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.\n\n \n\n \n●\nAssessing\nmanagement’s estimates of the likelihood of  incurring a royalty shortfall by (i) assessing revenue  forecasts\nfor certain license agreements by comparing them to historical performance, including assessing prior period forecasts to actual\nresults, (ii) assessing the Company’s ability to meet its future guarantees at the license agreement level, and (iii)\nevaluating the impact of alternative assumptions on the measurement and comparing it to management’s estimate.\n\n \n\n/s/ BDO USA, P.C.\n\n \n\nWe have served as the Company’s auditor\nsince 2006.\n\n \n\nLos Angeles, California\n\n \n\nMarch 2, 2026\n\n \n\n39\n\n[Table of Contents](#TableOfContents) \n\n \n\n**JAKKS PACIFIC, INC. AND SUBSIDIARIES**\n\n**CONSOLIDATED BALANCE SHEETS**\n\n \n\n  \nDecember 31, \n\n  \n2025  \n2024 \n\n  \n(In thousands, except share and per share data) \n\nAssets \n  \n\nCurrent assets \n   \n  \n\nCash and cash equivalents \n$52,197  \n$69,936 \n\nRestricted cash \n 1,869  \n 201 \n\nAccounts receivable, net of allowance for credit losses of $5,103 and $4,919 in 2025 and 2024, respectively \n 138,341  \n 131,629 \n\nInventory, net \n 59,805  \n 52,780 \n\nPrepaid expenses and other assets \n 16,873  \n 14,141 \n\nTotal current assets \n 269,085  \n 268,687 \n\nProperty and equipment \n    \n   \n\nOffice furniture and equipment \n 10,189  \n 10,049 \n\nMolds and tooling \n 134,771  \n 125,618 \n\nLeasehold improvements \n 7,264  \n 6,956 \n\nTotal \n 152,224  \n 142,623 \n\nLess accumulated depreciation and amortization \n 133,216  \n 126,981 \n\nProperty and equipment, net \n 19,008  \n 15,642 \n\nOperating lease right-of-use assets, net \n 46,776  \n 53,254 \n\nOther long-term assets \n 2,682  \n 1,781 \n\nDeferred income tax assets, net \n 69,569  \n 70,394 \n\nGoodwill \n 35,077  \n 35,111 \n\nTotal assets \n$442,197  \n$444,869 \n\nLiabilities and Stockholders’ Equity \n    \n   \n\nCurrent liabilities \n    \n   \n\nAccounts payable \n$55,558  \n$42,560 \n\nAccounts payable - Meisheng (related party) \n —  \n 13,461 \n\nAccrued expenses \n 43,076  \n 48,456 \n\nReserve for sales returns and allowances \n 33,569  \n 35,817 \n\nIncome taxes payable \n 2,119  \n 1,035 \n\nShort-term operating lease liabilities \n 13,784  \n 8,091 \n\nTotal current liabilities \n 148,106  \n 149,420 \n\nLong-term operating lease liabilities \n 39,578  \n 48,433 \n\nAccrued expenses – long term \n 4,463  \n 2,563 \n\nIncome taxes payable \n 945  \n 3,620 \n\nTotal liabilities \n 193,092  \n 204,036 \n\nCommitments and contingencies (Note 15) \n    \n   \n\n  \n    \n   \n\nStockholders’ Equity \n    \n   \n\nCommon 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 \n 11  \n 11 \n\nAdditional paid-in capital \n 302,408  \n 297,198 \n\nAccumulated deficit \n (41,021) \n (39,692)\n\nAccumulated other comprehensive loss \n (12,293) \n (17,184)\n\nTotal JAKKS Pacific, Inc. stockholders’ equity \n 249,105  \n 240,333 \n\nNon-controlling interests \n —  \n 500 \n\nTotal stockholders’ equity \n 249,105  \n 240,833 \n\nTotal liabilities, preferred stock and stockholders’ equity \n$442,197  \n$444,869 \n\n \n\n*See accompanying notes to consolidated financial\nstatements.*\n\n \n\n40\n\n[Table of Contents](#TableOfContents) \n\n \n\n**JAKKS PACIFIC, INC. AND SUBSIDIARIES**\n\n**CONSOLIDATED STATEMENTS OF OPERATIONS**\n\n \n\n  \nYear Ended December 31, \n\n  \n2025  \n2024  \n2023 \n\n  \n(In thousands, except per share amounts) \n\nNet sales \n$570,671  \n$691,042  \n$711,557 \n\nCost of sales: \n    \n    \n   \n\nCost of goods \n 283,521  \n 361,563  \n 362,378 \n\nRoyalty expense \n 92,381  \n 106,804  \n 117,607 \n\nAmortization of tools and molds \n 9,689  \n 9,654  \n 8,219 \n\nCost of sales \n 385,591  \n 478,021  \n 488,204 \n\nGross profit \n 185,080  \n 213,021  \n 223,353 \n\nDirect selling expenses \n 36,858  \n 40,105  \n 36,987 \n\nGeneral and administrative expenses \n 133,460  \n 132,840  \n 126,893 \n\nDepreciation and amortization \n 544  \n 392  \n 366 \n\nSelling, general and administrative expense \n 170,862  \n 173,337  \n 164,246 \n\nIncome from operations \n 14,218  \n 39,684  \n 59,107 \n\nLoss from joint ventures \n —  \n —  \n (565)\n\nOther income (expense), net \n 450  \n 302  \n 563 \n\nChange in fair value of preferred stock derivative liability \n —  \n —  \n (8,029)\n\nLoss on debt extinguishment \n (427) \n \n—\n  \n (1,023)\n\nInterest income \n 995  \n 841  \n 1,344 \n\nInterest expense \n (471) \n (1,095) \n (6,451)\n\nIncome before provision for income taxes \n 14,765  \n 39,732  \n 44,946 \n\nProvision for income taxes \n 4,894  \n 5,532  \n 6,833 \n\nNet income \n 9,871  \n 34,200  \n 38,113 \n\nNet income (loss) attributable to non-controlling interests \n —  \n 280  \n (293)\n\nNet income attributable to JAKKS Pacific, Inc. \n$9,871  \n$33,920  \n$38,406 \n\nNet income attributable to common stockholders \n$9,871  \n$35,250  \n$36,904 \n\nEarnings per share - basic \n$0.88  \n$3.27  \n$3.70 \n\nShares used in earnings per share - basic \n 11,190  \n 10,781  \n 9,962 \n\nEarnings per share - diluted \n$0.86  \n$3.14  \n$3.48 \n\nShares used in earnings per share - diluted \n 11,491  \n 11,226  \n 10,590 \n\n  \n\n*See accompanying notes to consolidated financial\nstatements.*\n\n \n\n41\n\n[Table of Contents](#TableOfContents) \n\n \n\n**JAKKS PACIFIC, INC. AND SUBSIDIARIES**\n\n**CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME**\n\n \n\n  \nYear Ended December 31, \n\n  \n2025  \n2024  \n2023 \n\n  \n(In thousands) \n\nNet income \n$9,871  \n$34,200  \n$38,113 \n\nOther comprehensive income (loss): \n    \n    \n   \n\nForeign currency translation adjustment \n 4,891  \n (1,557) \n 1,855 \n\nComprehensive income \n 14,762  \n 32,643  \n 39,968 \n\nLess: Comprehensive income (loss) attributable to non-controlling interests \n —  \n 280  \n (293)\n\nComprehensive income attributable to JAKKS Pacific, Inc. \n$14,762  \n$32,363  \n$40,261 \n\n  \n\n*See accompanying notes to consolidated financial\nstatements.*\n\n \n\n42\n\n[Table of Contents](#TableOfContents) \n\n \n\n**JAKKS PACIFIC, INC. AND SUBSIDIARIES**\n\n**CONSOLIDATED STATEMENTS OF STOCKHOLDERS**’\n**EQUITY**\n\n \n\n  \n   \n   \n   \nAccumulated  \nJAKKS  \n   \n  \n\n  \nCommon Stock  \nAdditional  \n   \nOther  \nPacific, Inc.  \nNon-  \nTotal \n\n  \nNumber of  \n   \nPaid-in  \nAccumulated  \nComprehensive  \nStockholders’  \nControlling  \nStockholders’ \n\n  \nShares  \nAmount  \nCapital  \nDeficit  \nLoss  \nEquity  \nInterests  \nEquity \n\n  \n(In thousands, except per share data) \n\nBalance, December 31, 2022 \n 9,742  \n$10  \n$275,187  \n$(112,018) \n$(17,482) \n$145,697  \n$1,001  \n$146,698 \n\nStock-based compensation expense \n 511  \n —  \n 8,027  \n —  \n —  \n 8,027  \n \n—\n  \n 8,027 \n\nRepurchase of common stock for employee tax withholding \n (157) \n —  \n (3,070) \n —  \n —  \n (3,070) \n \n—\n  \n (3,070)\n\nPreferred stock accrued dividends \n —  \n —  \n (1,502) \n —  \n —  \n (1,502) \n —  \n (1,502)\n\nNet income (loss) \n —  \n —  \n —  \n 38,406  \n —  \n 38,406  \n (293) \n 38,113 \n\nForeign currency translation adjustment \n —  \n —  \n —  \n —  \n 1,855  \n 1,855  \n \n—\n  \n 1,855 \n\nBalance, December 31, 2023 \n 10,096  \n 10  \n 278,642  \n (73,612) \n (15,627) \n 189,413  \n 708  \n 190,121 \n\nStock-based compensation expense \n 589  \n 1  \n 9,535  \n —  \n —  \n 9,536  \n —  \n 9,536 \n\nNon-controlling interests’ capital reduction \n —  \n —  \n —  \n —  \n —  \n —  \n (488) \n (488)\n\nRepurchase of common stock for employee tax withholding \n (230) \n —  \n (6,918) \n —  \n —  \n (6,918) \n —  \n (6,918)\n\nPreferred stock accrued dividends \n —  \n —  \n (390) \n —  \n —  \n (390) \n —  \n (390)\n\nPreferred stock redemption \n 571  \n —  \n 16,329  \n —  \n —  \n 16,329  \n    \n 16,329 \n\nNet income \n —  \n —  \n —  \n 33,920  \n —  \n 33,920  \n 280  \n 34,200 \n\nForeign currency translation adjustment \n —  \n —  \n —  \n —  \n (1,557) \n (1,557) \n —  \n (1,557)\n\nBalance, December 31, 2024 \n 11,026  \n 11  \n 297,198  \n (39,692) \n (17,184) \n 240,333  \n 500  \n 240,833 \n\nStock-based compensation expense \n 558  \n —  \n 10,913  \n —  \n —  \n 10,913  \n —  \n 10,913 \n\nNon-controlling interests’ derecognition \n —  \n —  \n —  \n —  \n —  \n —  \n (500) \n (500)\n\nRepurchase of common stock for employee tax withholding \n (241) \n —  \n (5,703) \n —  \n —  \n (5,703) \n —  \n (5,703)\n\nCash dividend declared, $0.25 per share \n —  \n —  \n —  \n (11,200) \n —  \n (11,200) \n —  \n (11,200)\n\nNet income \n —  \n —  \n —  \n 9,871  \n —  \n 9,871  \n —  \n 9,871 \n\nForeign currency translation adjustment \n —  \n —  \n —  \n —  \n 4,891  \n 4,891  \n —  \n 4,891 \n\nBalance, December 31, 2025 \n 11,343  \n$11  \n$302,408  \n$(41,021) \n$(12,293) \n$249,105  \n$—  \n$249,105 \n\n   \n\n*See accompanying notes to consolidated financial\nstatements.*\n\n \n\n43\n\n[Table of Contents](#TableOfContents) \n\n \n\n**JAKKS PACIFIC, INC. AND SUBSIDIARIES**\n\n**CONSOLIDATED STATEMENTS OF CASH FLOWS**\n\n \n\n  \nYear Ended December 31, \n\n  \n2025  \n2024  \n2023 \n\nCash flows from operating activities \n   \n   \n  \n\nNet income \n$9,871  \n$34,200  \n$38,113 \n\nAdjustments to reconcile net income to net cash provided by operating activities: \n    \n    \n   \n\nProvision for doubtful accounts \n 314  \n 1,397  \n 726 \n\nDepreciation and amortization \n 10,233  \n 10,046  \n 8,585 \n\nWrite-off and amortization of debt discount \n —  \n —  \n 714 \n\nWrite-off and amortization of debt issuance costs \n 59  \n 317  \n 647 \n\nShare-based compensation expense \n 10,913  \n 9,535  \n 8,027 \n\nLoss (gain) on disposal of property and equipment \n 24  \n 115  \n (40)\n\nLoss on debt extinguishment \n \n427\n  \n \n—\n  \n 1,023 \n\nDeferred income taxes \n 825  \n (2,251) \n (10,339)\n\nChange in fair value of preferred stock derivative liability \n —  \n —  \n 8,029 \n\nChanges in operating assets and liabilities: \n    \n    \n   \n\nAccounts receivable \n (7,026) \n (9,229) \n (21,752)\n\nInventory \n (7,025) \n (133) \n 27,972 \n\nPrepaid expenses and other assets \n (951) \n (6,086) \n (12)\n\nAccount payable \n 8,183  \n 508  \n 9,595 \n\nAccount payable - Meisheng (related party) \n (12,706) \n 1,117  \n 1,918 \n\nAccrued expenses \n (6,026) \n 2,867  \n 7,104 \n\nReserve for sales returns and allowances \n (2,248) \n (2,714) \n (13,346)\n\nIncome taxes payable \n (1,591) \n (2,375) \n (4,064)\n\nOther liabilities \n 5,216  \n 1,633  \n 3,504 \n\nTotal adjustments \n (1,379) \n 4,747  \n 28,291 \n\nNet cash provided by operating activities \n 8,492  \n 38,947  \n 66,404 \n\nCash flows from investing activities \n    \n    \n   \n\nPurchases of property and equipment \n (9,563) \n (11,246) \n (8,906)\n\nInvestments in employee deferred compensation trusts \n (2,781) \n (1,645) \n (41)\n\nProceeds from sale of property and equipment \n —  \n 2  \n 40 \n\nNet cash used in investing activities \n (12,344) \n (12,889) \n (8,907)\n\nCash flows from financing activities \n    \n    \n   \n\nRepurchase of common stock for employee tax withholding \n (5,703) \n (6,918) \n (3,070)\n\nRepayment of credit facility borrowings \n (8,000) \n (63,000) \n (10,000)\n\nProceeds from credit facility borrowings \n 8,000  \n 63,000  \n 10,000 \n\nRedemption of preferred stock \n —  \n (20,000) \n — \n\nRepayment of 2021 BSP Term Loan \n —  \n —  \n (69,218)\n\nDividends paid \n (11,200) \n —  \n — \n\nDeferred issuance costs \n (207) \n —  \n — \n\nNet cash used in financing activities \n (17,110) \n (26,918) \n (72,288)\n\nNet increase (decrease) in cash, cash equivalents and restricted cash \n (20,962) \n (860) \n (14,791)\n\nEffect of foreign currency translation \n 4,891  \n (1,557) \n 1,855\n\nCash, cash equivalents and restricted cash, beginning of year \n 70,137  \n 72,554  \n 85,490 \n\nCash, cash equivalents and restricted cash, end of year \n$54,066  \n$70,137  \n$72,554 \n\nSupplemental disclosures of cash flow information: \n    \n    \n   \n\nCash paid for interest \n$365  \n$473  \n$4,718 \n\nCash paid for income taxes, net \n$5,011  \n$16,363  \n$21,635 \n\n \n\n**Supplemental disclosures of non-cash activities:**\n\n \n\nDuring the years ended December 31, 2025, 2024\nand 2023, the lease liability increased by $5.0 million, 39.5 million and $0.9 million respectively, with a corresponding increase to\nthe ROU asset.\n\n \n\nAs of December 31, 2025, 2024 and 2023 there was\n$7.0 million, $3.0 million and $3.0 million, respectively of property and equipment included in accounts payable.\n\n \n\nAs of December 31, 2025, debt issuance costs of $0.1\nmillion associated with the Company’s revolving credit facility with BMO Bank, N.A. that was entered into on June 24, 2025 were\nincluded in accrued expenses (see Note 9 – Credit Facilities).\n\n \n\nOn August 8, 2025, the Company deregistered Jakks\nPacific Trading Ltd., derecognized the related non-controlling interest of $0.5 million and recognized a liability towards the former\nnon-controlling shareholder of $0.5 million within accrued expenses.\n\n \n\nOn March 11, 2024, the Company issued $15.0 million\nin common stock as part of the consideration to redeem the preferred stock derivative liability (see Note 13 – Common Stock and\nPreferred Stock).\n\n \n\nThe Company received income tax refunds of $0.4,\n$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\nthe period for income taxes, net.\n\n \n\n*See accompanying notes to consolidated financial\nstatements.*\n\n \n\n44\n\n[Table of Contents](#TableOfContents) \n\n \n\n**JAKKS PACIFIC, INC. AND SUBSIDIARIES**\n\n**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**\n\n**DECEMBER 31, 2025**\n\n \n\n**Note 1**—**Principal Industry**\n\n \n\nJAKKS Pacific, Inc. (the “Company”)\nis engaged in the development, production and marketing of consumer products, including toys and related products, electronic products,\nand other consumer products. The Company markets its product lines domestically and internationally.\n\n \n\nThe Company is incorporated under the laws of the\nState of Delaware.\n\n \n\n**Note 2**—**Summary of Significant Accounting Policies**\n\n \n\n**Principles of consolidation and basis of preparation**\n\n \n\nThese consolidated financial statements include\nthe accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions have been eliminated.\n\n \n\n**Cash and cash equivalents**\n\n \n\nThe Company considers all highly liquid investments\nwith an original maturity of three months or less, when acquired, to be cash equivalents. The Company maintains its cash in bank deposits\nwhich, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes\nit is not exposed to any significant credit risk of cash and cash equivalents.\n\n \n\nCash and cash equivalents, including restricted\ncash, held outside of the United States in various foreign subsidiaries totaled $16.9 million and $16.5 million as of December 31, 2025\nand 2024, respectively. The cash and cash equivalents, including restricted cash balances in the Company’s foreign subsidiaries\nhave 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\nfor a full foreign dividends received deduction under such Act, and thus would not be subject to additional U.S. tax should such amounts\nbe repatriated in the form of dividends or deemed distributions. Any such repatriation may result in foreign withholding taxes, which\nwe expect would not be significant as of December 31, 2025.\n\n \n\n**Restricted cash**\n\n \n\nRestricted cash consists of a cash collateral account\nto cover a guarantee bond and letters of credit under the previous lending agreement.\n\n \n\n**Accounts Receivable and Allowance for Current Expected Credit\nLosses**\n\n \n\nCredit is granted to customers on an unsecured\nbasis. Credit limits and payment terms are established based on evaluations made on an ongoing basis throughout the fiscal year of the\nfinancial performance, cash generation, financing availability and liquidity status of each customer. Customers are reviewed at least\nannually, with more frequent reviews performed as necessary, depending upon the customer’s financial condition and the level of\ncredit being extended. For customers who are experiencing financial difficulties, management performs additional financial analyses before\nshipping to those customers on credit. The Company uses a variety of financial arrangements to ensure collectability of accounts receivable\nof customers deemed to be a credit risk, including requiring letters of credit, purchasing various forms of credit insurance with unrelated\nthird parties, or requiring cash in advance of shipment.\n\n \n\n45\n\n[Table of Contents](#TableOfContents) \n\n \n\nThe Company records an allowance for current expected\ncredit losses based upon management’s assessment of the business environment, customers’ risk profile characteristics, historical\ncollection and loss information, aging of accounts receivables, and other matters specific to customer accounts to establish pools based\non customer risk profile characteristics and the historical loss rates applied to each pool under the expected credit loss model. The\nallowance consists of the following (in thousands):\n\n \n\n  \n2025  \n2024  \n2023 \n\nAllowance, beginning balance \n$4,919  \n$3,743  \n$2,865 \n\nNet additions \n 314  \n 1,397  \n 726 \n\nWrite-offs and other \n (130) \n (221) \n 152 \n\nAllowance, ending balance \n$5,103  \n$4,919  \n$3,743 \n\n \n\nBad debt expense was $0.3 million, $1.4 million\nand $0.7 million for the years ended December 31, 2025, 2024 and 2023, respectively\n\n \n\n**Use of estimates**\n\n \n\nThe preparation of consolidated financial statements\nin conformity with accounting principles generally accepted in the United States of America requires management to make estimates and\nassumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the dates of\nthe consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual future results\ncould differ from those estimates. On an ongoing basis, the Company evaluates its estimates, including those related to the accounts receivable\nand sales allowances, and goodwill, useful lives of intangible assets and property and equipment, income taxes, and contingent liabilities,\namong others. The Company bases its estimates on assumptions, both historical and forward looking, that are believed to be reasonable,\nthe results of which form the basis for making judgments about the carrying values of assets and liabilities.\n\n \n\n**Revenue recognition**\n\n \n\nThe Company’s contracts with customers only\ninclude one performance obligation (i.e., sale of the Company’s products). Revenue is recognized in the gross amount at a point\nin time when delivery is completed and control of the promised goods is transferred to the customers. Revenue is measured as the amount\nof consideration the Company expects to be entitled to in exchange for those goods. The Company’s contracts do not involve financing\nelements as payment terms with customers are less than one year. Further, because revenue is recognized at the point in time goods are\nsold to customers, there are no contract assets or contract liability balances.\n\n \n\nThe Company disaggregates its revenues from contracts\nwith customers by reporting segment: Toys/Consumer Products and Costumes. The Company further disaggregates revenues by major geographic\nregions (See Note 3 - Business Segments, Geographic Data and Sales by Major Customers for further information).\n\n \n\nThe Company offers various discounts, pricing concessions,\nand other allowances to customers, all of which are considered in determining the transaction price. Certain discounts and allowances\nare 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\ncan vary and are determined at management’s discretion (variable consideration). Specifically, the Company occasionally grants discretionary\ncredits to facilitate markdowns and sales of slow-moving merchandise, and consequently accrues an allowance based on historic credits\nand management estimates. The Company also participates in cooperative advertising arrangements with some customers, whereby it allows\na discount from invoiced product amounts in exchange for customer purchased advertising that features the Company’s products. Generally,\nthese allowances range from 1% to 30% of gross sales, and are generally based upon product purchases or specific advertising campaigns.\nSuch allowances are accrued when the related revenue is recognized. To the extent these cooperative advertising arrangements provide a\ndistinct benefit at fair value, they are accounted for as direct selling expenses, otherwise they are recorded as a reduction to revenue.\nFurther, while the Company generally does not allow product returns, the Company does make occasional exceptions to this policy and consequently\nrecords a sales return allowance based upon historic return amounts and management estimates. These allowances (variable consideration)\nare estimated using the expected value method and are recorded at the time of sale as a reduction to revenue. The Company adjusts its\nestimate of variable consideration at least quarterly or when facts and circumstances used in the estimation process may change. The variable\nconsideration is not constrained as the Company has sufficient history on the related estimates and does not believe there is a risk of\nsignificant revenue reversal.\n\n \n\nSales commissions are expensed when incurred as\nthe related revenue is recognized at a point in time and therefore the amortization period is less than one year. As a result, these costs\nare recorded as direct selling expenses, as incurred. For the twelve months ended December 31, 2025, 2024 and 2023 sales commissions were\n$2.3 million, $1.8 million and $2.9 million, respectively.\n\n \n\n46\n\n[Table of Contents](#TableOfContents) \n\n \n\nShipping and handling activities are considered\npart of the Company’s obligation to transfer the products and therefore are recorded as direct selling expenses, as incurred. For\nthe twelve months ended December 31, 2025, 2024 and 2023, shipping and handling costs were $12.1 million, $7.4 million and $8.6 million,\nrespectively.\n\n \n\n**Fair Value Measurements**\n\n \n\nFair value is the price that would be received\nto sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining\nfair value, the Company uses various methods including market, income and cost approaches. Based upon these approaches, the Company often\nutilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or\nthe risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated, or unobservable\ninputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.\nBased upon observable inputs used in the valuation techniques, the Company is required to provide information according to the fair value\nhierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values into three broad\nlevels as follows:\n\n \n\n \nLevel 1:\nValuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.\n\n \n \n \n\n \nLevel 2:\nValuations 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.\n\n \n \n \n\n \nLevel 3:\nValuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.\n\n \n\nIn instances where the determination of the fair\nvalue measurement is based upon inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within\nwhich the entire fair value measurement falls is based upon the lowest level input that is significant to the fair value measurement in\nits entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires\njudgment and considers factors specific to the asset or liability.\n\n \n\n**Inventory**\n\n \n\nInventory, which includes the ex-factory cost of\ngoods, capitalized warehouse costs and in-bound freight and duty, is valued at the lower of cost (weighted average) or net realizable\nvalue, net of inventory obsolescence reserve, and consists of the following (in thousands):\n\n \n\n  \nDecember 31, \n\n  \n2025  \n2024 \n\nFinished goods \n$59,805  \n$52,780 \n\n \n\nAs of December 31, 2025, and 2024, the inventory\nobsolescence reserve was $2.4 million and $10.9 million, respectively.\n\n \n\n**Royalties**\n\n \n\nThe Company enters into license agreements with\nstrategic partners, inventors, designers and others for the use of intellectual properties in its products. These agreements generally\nrequire a percentage of sales (as defined by the respective agreements) be paid to third parties as royalties. They also often require\na fixed minimum dollar amount of royalties to be paid regardless of what level of sales are achieved during the term of the agreement.\nPayment timing varies across agreements and may precede any sales or collections of monies related to such sales. The Company recognizes\nroyalty expenses in the period in which sales are made. In addition, the Company assesses whether forecasted revenue under any agreement\nis likely to be sufficient to cover the minimum royalty guarantee, and if not a royalty shortfall reserve and associated royalty expense\nis recorded at that time.\n\n \n\n47\n\n[Table of Contents](#TableOfContents) \n\n \n\n**Leases**\n\n \n\nThe Company determines if an arrangement is a lease\nat inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities\nin its consolidated balance sheets. The Company does not have any finance leases.\n\n \n\nROU assets represent the Company’s right\nto use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease.\nOperating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease\nterm. As most of the Company’s leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate\nbased on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset\nalso includes any prepaid lease amounts and excludes lease incentives. The Company’s lease terms may include options to extend or\nterminate the lease when it is reasonably certain that it will exercise that option. Lease expense for lease payments is recognized on\na straight-line basis over the lease term.\n\n \n\nThe Company excludes right-of-use (“ROU”)\nassets and lease liabilities for leases with an initial term of 12 months or less from the balance sheet.\n\n \n\n**Deferred Financing Charges**\n\n \n\nDeferred financing charges consist of credit facility\nloan origination fees. These charges are capitalized and amortized over the life of the line of credit agreement.\n\n \n\n**Property and equipment**\n\n \n\nProperty and equipment are stated at cost and are\nbeing depreciated using the straight-line method over their estimated useful lives as follows:\n\n \n\nOffice equipment\n5 years\n\nAutomobiles\n5 years\n\nFurniture and fixtures\n5 - 7 years\n\nLeasehold improvements\nShorter of length of lease or 10 years\n\nInternal-use software\n10 years\n\n \n\nDuring interim reporting periods, the Company uses\nthe usage method as its depreciation methodology for molds and tools used in the manufacturing of its products, which is more closely\ncorrelated to the production of goods as it follows the seasonality of sales. The Company believes that the usage method more accurately\nmatches costs with revenues. From a full-year perspective, the depreciation methodology follows the straight-line method, based on the\nestimated useful life of molds and tools of three years. Estimated useful lives are periodically reviewed and, where appropriate, changes\nare made prospectively. The carrying value of property and equipment is reviewed when events or changes in circumstances indicate that\nthe carrying value of an asset may not be recoverable. No impairment charges were recorded for the years ended December 31, 2025, 2024\nand 2023.\n\n \n\nFor the years ended December 31, 2025, 2024 and\n2023, the Company’s aggregate depreciation expense related to property and equipment was $10.2 million, $10.0 million and $8.6 million,\nrespectively.\n\n \n\n**Internal-use software**\n\n \n\nThe Company reviews internal-use software development\ncosts associated with infrastructure to determine if the costs qualify for capitalizing. The development costs incurred during the application\ndevelopment stage that are related to infrastructure are capitalized. Internal-use software is included in Property and Equipment in the\naccompanying consolidated balance sheets. Capitalization of such costs begins when the preliminary project stage is completed and ceases\nat the point at which the project is substantially complete and is ready for its intended purpose.\n\n \n\nFor the years ended December 31, 2025 and 2024,\nthe total amount capitalized was $0.1 million and $1.2 million, respectively. For the years ended December 31, 2025, 2024 and 2023, the\nexpense related to the amortization of internal-use software, which is included in the Company’s aggregate depreciation expense\nrelated to property and equipment, was $92 thousand, $17 thousand and nil, respectively.\n\n \n\n48\n\n[Table of Contents](#TableOfContents) \n\n** **\n\n**Other Comprehensive Income (Loss)**\n\n \n\nOther comprehensive income (loss) includes all\nchanges in equity from non-owner sources. The Company accounts for other comprehensive income in accordance with Accounting Standards\nCodification (“ASC”) ASC 220, “Comprehensive Income.” All the activity in other comprehensive income (loss) and\nall amounts in accumulated other comprehensive income (loss) relate to foreign currency translation adjustments.\n\n \n\n **Advertising**\n\n \n\nProduction costs of commercials and programming\nare charged to operations in the period during which the production cost is incurred. The costs of other advertising, promotion and marketing\nprograms are charged to operations in the period incurred. Advertising expense for the years ended December 31, 2025, 2024 and 2023, was\napproximately $9.4 million, $13.8 million and $13.2 million, respectively.\n\n \n\n**Income taxes**\n\n \n\nThe Company does not file a consolidated return\nwith its foreign subsidiaries. The Company files federal and state returns and its foreign subsidiaries file returns in their respective\njurisdictions. Deferred taxes are provided on an asset and liability method. Deferred tax assets are recognized as deductible temporary\ndifferences, operating losses, or tax credit carry-forwards. Deferred tax liabilities are recognized as taxable temporary differences.\nTemporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets\nare 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\ntax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on\nthe date of enactment.\n\n \n\nThe Company recognizes net deferred tax assets\nto the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management\nconsiders all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected\nfuture taxable income, tax-planning strategies, and results of recent operations. If management determines that the Company would be able\nto realize its deferred tax assets in the future in excess of their net recorded amount, management would make an adjustment to the deferred\ntax asset valuation allowance, which would reduce the provision for income taxes.\n\n \n\nThe Company records uncertain tax positions on\nthe basis of a two-step process whereby (1) management determines whether it is more likely than not that the tax positions will be sustained\non the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold,\nmanagement recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the\nrelated tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. Any\naccrued interest and penalties are included within the related tax liability.\n\n \n\n**Foreign Currency Translation Exposure**\n\n \n\nThe Company’s reporting currency is the U.S.\ndollar. The translation of its net investment in subsidiaries with non-U.S. dollar functional currencies subjects the Company to currency\nexchange rate fluctuations in its results of operations and financial position. Assets and liabilities of subsidiaries with non-U.S. dollar\nfunctional currencies are translated into U.S. dollars at year-end exchange rates. Income, expense and cash flow items are translated\nat average exchange rates prevailing during the year. The resulting currency translation adjustments are recorded as a component of accumulated\nother comprehensive income (loss) within stockholders’ equity. The Company’s primary currency translation exposures in 2025,\n2024 and 2023 were related to its net investment in entities having functional currencies denominated in the Hong Kong Dollar, British\nPound, Canadian Dollar, Chinese Yuan, Mexican Peso and the Euro.\n\n \n\n**Foreign Currency Transaction Exposure**\n\n \n\nCurrency exchange rate fluctuations may impact\nthe Company’s results of operations and cash flows. The Company’s currency transaction exposures include gains and losses\nrealized on unhedged inventory purchases and unhedged receivables and payables balances that are denominated in a currency other than\nthe applicable functional currency. Gains and losses on unhedged inventory purchases and other transactions associated with operating\nactivities are recorded in the components of operating income in the consolidated statement of operations.\n\n \n\n49\n\n[Table of Contents](#TableOfContents) \n\n \n\n**Accounting for the impairment of finite-lived tangible and intangible\nassets**\n\n \n\nLong-lived assets with finite lives, which include\nproperty and equipment and intangible assets other than goodwill, are evaluated for impairment when events or changes in circumstances\nindicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows from the use\nof these assets. When any such impairment exists, the related assets will be written down to fair value. Finite-lived intangible assets\noften consist of product technology rights, acquired backlog, customer relationships, product lines and license agreements. These intangible\nassets are amortized over the estimated economic lives of the related assets.\n\n \n\n**Goodwill and other indefinite-lived intangible assets**\n\n \n\nGoodwill and indefinite-lived intangible assets\nare not amortized but are tested for impairment at least annually at the reporting unit level and asset level. The annual goodwill test\nis performed in the second quarter and whenever events or changes in circumstances indicate that the carrying amount of a reporting unit\nmay exceed its fair value, the Company may assess goodwill for impairment using a qualitative assessment. Qualitative factors and their\nimpact on critical inputs are assessed to determine whether it is more likely than not that the fair value of a reporting unit is less\nthan its carrying value. If the Company determines that a reporting unit has an indication of impairment based on the qualitative assessment,\nit is required to perform a quantitative assessment. The Company may bypass the qualitative assessment and perform a quantitative assessment.\nImpairment is recognized in the amount by which, if any, the carrying value of the reporting unit exceeds the fair value, not to exceed\nthe carrying value of goodwill. Indefinite-lived intangible assets other than goodwill consist of trademarks.\n\n \n\nThe carrying value of goodwill and trademarks is\nbased upon cost, which is subject to management’s current assessment of fair value. Management evaluates fair value recoverability\nusing both objective and subjective factors. Objective factors include cash flows and analysis of recent sales and earnings trends. Subjective\nfactors include management’s best estimates of projected future earnings and competitive analysis and the Company’s strategic\nfocus.\n\n \n\n**Share-based Compensation**\n\n \n\nThe Company measures all employee share-based compensation\nawards using a fair value method and records such expense in its consolidated statements of operations. Forfeitures are being recognized\nas they occur.\n\n \n\n50\n\n[Table of Contents](#TableOfContents) \n\n** **\n\n**Earnings per share**\n\n \n\nA reconciliation of the amounts used to calculate\nbasic and diluted income (loss) per share for the years ended December 31, 2025, 2024, and 2023 follows (in thousands, except per share\ndata):\n\n \n\n  \nYear Ended December 31, \n\n  \n2025  \n2024  \n2023 \n\nNet income \n$9,871  \n$34,200  \n$38,113 \n\nNet income (loss) attributable to non-controlling interests \n —  \n 280  \n (293)\n\nNet income attributable to JAKKS Pacific, Inc. \n 9,871  \n 33,920  \n 38,406 \n\nPreferred stock dividend* \n —  \n —  \n (1,502)\n\nRedemption of preferred stock \n —  \n 1,330  \n — \n\nNet income attributable to common stockholders** \n$9,871  \n$35,250  \n$36,904 \n\nWeighted average common shares outstanding - basic \n 11,190  \n 10,781  \n 9,962 \n\nEarnings per share available to common stockholders - basic \n$0.88  \n$3.27  \n$3.70 \n\nWeighted average common shares outstanding - diluted \n 11,491  \n 11,226  \n 10,590 \n\nEarnings per share available to common stockholders - diluted \n$0.86  \n$3.14  \n$3.48 \n\n  \n\n*The 200,000 shares issued and\noutstanding as of December 31, 2023 were non-participating. A preferred dividend of $0.4 million was accrued for Q1 2024 and included\nin the preferred stock redemption.\n\n \n\n**Net income attributable to common\nstockholders was computed by deducting the difference between the fair value of the consideration transferred to the holders of the preferred\nstock and the carrying amount of the preferred stock and fair value of the related derivative liability of $1.3 million for the year\nended December 31, 2024 and the preferred stock dividend of $1.5 million for the year ended December 31, 2023 respectively.\n\n \n\nBasic earnings (loss) per share is calculated using\nthe weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is calculated using the\nweighted average number of common shares and common share equivalents outstanding during the period (which consist of restricted stock\nunits). Potentially dilutive restricted stock units of 160 thousand, 28 thousand and 5 thousand for the years ended December 31, 2025,\n2024 and 2023, respectively, were excluded from the computation of diluted loss per share since they would have been anti-dilutive.\n\n \n\n**Recently Adopted Accounting Pronouncements**\n\n \n\nIn December 2023, the FASB issued ASU 2023-09, “Income\nTaxes (Topic 740): Improvements to Income Tax Disclosures.” This ASU provides standardization of tax disclosures, primarily related\nto the rate reconciliation and income taxes paid information. The Company adopted this standard on a prospective basis as of December\n31, 2025, which resulted in incremental disclosures. See Note 11 – Income Taxes.\n\n \n\n51\n\n[Table of Contents](#TableOfContents) \n\n** **\n\n**Recent Accounting Pronouncements**\n\n  \n\nIn November 2024, the FASB issued ASU 2024-03,\n“Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation\nof Income Statement Expenses”. The new guidance improves disclosures about a public business entity’s expenses by requiring\ndisaggregated disclosures of certain types of expenses, including purchases of inventory, employee compensation, depreciation, intangible\namortization and depletion, as applicable, for each income statement caption that includes those expenses. In addition, the standard will\nrequire entities to define and disclose total selling expenses. The standard is effective for public business entities such as the Company\nfor annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027. Early adoption is permitted,\nand entities may apply the standard prospectively or retrospectively. The Company is currently evaluating the impact of adopting this\nstandard on its consolidated financial statements and related disclosures.\n\n \n\nIn July 2025, the FASB issued ASU 2025-05, “Financial\nInstruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets.” The new\nguidance provides a practical expedient in developing reasonable and supportable forecasts when estimating expected credit losses for\ncurrent accounts receivable and current contract assets arising from transactions accounted for under Topic 606. Entities that elect the\npractical expedient may assume that current conditions as of the balance sheet date do not change for the remaining life of the respective\nassets. The amendments will be effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods\nwithin those annual reporting periods. Early adoption is permitted in both interim and annual reporting periods in which financial statements\nhave 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.\n\n \n\nIn September 2025, the FASB issued ASU 2025-06,\n“Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for\nInternal-Use Software.” The new guidance removes all references to prescriptive and sequential software development stages (referred\nto as “project stages”) throughout Subtopic 350-40. Therefore, an entity is required to start capitalizing software costs\nwhen both of the following occur: 1. Management has authorized and committed to funding the software project and 2. It is probable that\nthe project will be completed and the software will be used to perform the function intended (referred to as the “probable-to-complete\nrecognition threshold”). In evaluating the probable-to-complete recognition threshold, an entity is required to consider whether\nthere is significant uncertainty associated with the development activities of the software (referred to as “significant development\nuncertainty”). The amendments will be effective for all entities for annual reporting periods beginning after December 15, 2027,\nand interim reporting periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual reporting\nperiod. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements and\nrelated disclosures.\n\n \n\n**Note 3**—**Business Segments, Geographic Data and Sales\nby Major Customers**\n\n \n\nThe Company is a worldwide producer and marketer\nof children’s toys and other consumer products, principally engaged in the design, development, production, marketing and distribution\nof its diverse portfolio of products. The Company’s segments are (i) Toys/Consumer Products and (ii) Costumes.\n\n \n\nThe Toys/Consumer Products (“TCP”)\nsegment includes action figures, vehicles, play sets, plush products, dolls, electronic products, construction toys, infant and pre-school\ntoys, child-sized and hand-held role play toys and everyday costume play, foot-to-floor ride-on vehicles, wagons, novelty toys, seasonal\nand outdoor products, kids’ indoor and outdoor furniture, and related products.\n\n \n\nThe Costumes segment, under its Disguise branding,\ndesigns, develops, markets and sells a wide range of every-day and special occasion dress-up costumes and related accessories in support\nof Halloween, Carnival, Children’s Day, Book Day/Week, and every-day/any-day costume play.\n\n \n\nThe Company’s Chief Executive Officer and\nChief Financial Officer have been identified jointly as the chief operating decision maker (“CODM”). The CODM manages and\nallocates resources on a segment basis. The determination of the two segments is consistent with the financial information regularly reviewed\nby the CODM for purposes of evaluating performance. Results are regularly reviewed in comparison with current budget, prior forecast,\nprior year and recent years’ performance in that quarter.\n\n** **\n\nSegment performance is measured at the gross profit\nand operating income (loss) level. All sales are made to external customers and general corporate expenses have been attributed to the\nsegments based upon relative sales volumes. Segment assets are primarily comprised of accounts receivable and inventories, net of applicable\nreserves and allowances, goodwill and other assets. Certain assets which are not tracked by operating segment and/or that benefit multiple\noperating segments have been allocated on the same basis.\n\n \n\n52\n\n[Table of Contents](#TableOfContents) \n\n \n\nResults are not necessarily those which would\nbe achieved if each segment was an unaffiliated business enterprise. Information by segment and a reconciliation to reported amounts as\nof December 31, 2025 and 2024 and for the three years in the period ended December 31, 2025 are as follows (in thousands):\n\n \n\n \n \n**Year Ended December 31,**\n \n\n \n \n**2025**\n \n \n**2024**\n \n \n**2023**\n \n\n \n \n**TCP**\n \n \n**Costumes**\n \n \n**Total**\n \n \n**TCP**\n \n \n**Costumes**\n \n \n**Total**\n \n \n**TCP**\n \n \n**Costumes**\n \n \n**Total**\n \n\nNet Sales\n \n$\n461,937\n \n \n $\n108,734\n \n \n $\n570,671\n \n \n$\n570,018\n \n \n$\n121,024\n \n \n$\n691,042\n \n \n$\n580,686\n \n \n$\n130,871\n \n \n$\n711,557\n \n\nCost of Sales (A)\n \n \n304,333\n \n \n \n81,258\n \n \n \n385,591\n \n \n \n389,534\n \n \n \n88,487\n \n \n \n478,021\n \n \n \n388,260\n \n \n \n99,944\n \n \n \n488,204\n \n\nGross Profit\n \n \n157,604\n \n \n \n27,476\n \n \n \n185,080\n \n \n \n180,484\n \n \n \n32,537\n \n \n \n213,021\n \n \n \n192,426\n \n \n \n30,927\n \n \n \n223,353\n \n\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nDirect selling expenses\n \n \n31,633\n \n \n \n5,225\n \n \n \n36,858\n \n \n \n33,255\n \n \n \n6,850\n \n \n \n40,105\n \n \n \n33,604\n \n \n \n3,383\n \n \n \n36,987\n \n\nProduct development and testing expenses\n \n \n8,340\n \n \n \n2,464\n \n \n \n10,804\n \n \n \n8,059\n \n \n \n2,838\n \n \n \n10,897\n \n \n \n6,740\n \n \n \n2,564\n \n \n \n9,304\n \n\nDivisional general and administrative expenses (A), (B)\n \n \n22,520\n \n \n \n11,518\n \n \n \n34,038\n \n \n \n28,539\n \n \n \n12,341\n \n \n \n40,880\n \n \n \n23,746\n \n \n \n13,495\n \n \n \n37,241\n \n\nAllocated headquarter general & administrative expenses (A), (C)\n \n \n73,056\n \n \n \n16,106\n \n \n \n89,162\n \n \n \n67,810\n \n \n \n13,645\n \n \n \n81,455\n \n \n \n67,409\n \n \n \n13,305\n \n \n \n80,714\n \n\nIncome (loss) from operations\n \n \n22,055\n \n \n \n(7,837\n)\n \n \n14,218\n \n \n \n42,821\n \n \n \n(3,137\n)\n \n \n39,684\n \n \n \n60,927\n \n \n \n(1,820\n)\n \n \n59,107\n \n\nIncome (loss) from joint venture\n \n \n \n \n \n \n \n \n \n \n—\n \n \n \n \n \n \n \n \n \n \n \n—\n \n \n \n \n \n \n \n \n \n \n \n(565\n)\n\nOther income (expense), net\n \n \n \n \n \n \n \n \n \n \n450\n \n \n \n \n \n \n \n \n \n \n \n302\n \n \n \n \n \n \n \n \n \n \n \n563\n \n\nChange in fair value of preferred stock derivative liability\n \n \n \n \n \n \n \n \n \n \n—\n \n \n \n \n \n \n \n \n \n \n \n—\n \n \n \n \n \n \n \n \n \n \n \n(8,029\n)\n\nLoss on debt extinguishment\n \n \n \n \n \n \n \n \n \n \n(427\n)\n \n \n \n \n \n \n \n \n \n \n—\n \n \n \n \n \n \n \n \n \n \n \n(1,023\n)\n\nInterest income\n \n \n \n \n \n \n \n \n \n \n995\n \n \n \n \n \n \n \n \n \n \n \n841\n \n \n \n \n \n \n \n \n \n \n \n1,344\n \n\nInterest expense\n \n \n \n \n \n \n \n \n \n \n(471\n)\n \n \n \n \n \n \n \n \n \n \n(1,095\n)\n \n \n \n \n \n \n \n \n \n \n(6,451\n)\n\nIncome before provision for (benefit from) income taxes\n \n \n \n \n \n \n \n \n \n $\n14,765\n \n \n \n \n \n \n \n \n \n \n$\n39,732\n \n \n \n \n \n \n \n \n \n \n$\n44,946\n \n\n \n\n(A) Includes depreciation and amortization  $10,123   $110   $10,233   $9,925   $121   $10,046   $8,409   $176   $8,585 \n\n \n\n(B)Consist mainly of payroll and\nrelated expenses, rent, depreciation and other general and administrative expenses.\n\n \n\n(C)Consist mainly of payroll related\nexpenses, rent, depreciation and other general and administrative expenses.\n\n \n\n  \nDecember 31, \n\n  \n2025  \n2024 \n\nAssets \n   \n  \n\nToys/Consumer Products \n$419,064  \n$429,254 \n\nCostumes \n 23,133  \n 15,615 \n\n  \n$442,197  \n$444,869 \n\n  \n\n53\n\n[Table of Contents](#TableOfContents) \n\n \n\nNet revenues are categorized based upon location\nof the customer, while long-lived assets are categorized based upon the location of the Company’s assets. The following tables present\ninformation about the Company by geographic area as of December 31, 2025 and 2024 and for each of the three years in the period ended\nDecember 31, 2025 (in thousands):\n\n \n\n  \nYear Ended December 31, \n\n  \n2025  \n2024  \n2023 \n\nNet Sales by Customer Area \n   \n   \n  \n\nUnited States \n$416,605  \n$545,013  \n$557,865 \n\nEurope \n 81,379  \n 71,392  \n 76,464 \n\nLatin America \n 36,421  \n 38,159  \n 32,024 \n\nCanada \n 24,426  \n 20,983  \n 26,992 \n\nAustralia & New Zealand \n 4,982  \n 7,409  \n 7,542 \n\nAsia \n 4,953  \n 6,101  \n 8,543 \n\nMiddle East and Africa \n 1,905  \n 1,985  \n 2,127 \n\n  \n$570,671  \n$691,042  \n$711,557 \n\n  \n\n  \nDecember 31, \n\n  \n2025  \n2024 \n\nLong-lived Assets \n   \n  \n\nUnited States \n$42,788  \n$53,020 \n\nChina \n 16,659  \n 13,553 \n\nUnited Kingdom \n 3,073  \n 808 \n\nHong Kong \n 1,853  \n 582 \n\nItaly \n 717  \n 754 \n\nMexico \n 594  \n 31 \n\nCanada \n 92  \n 107 \n\nFrance \n 8  \n 41 \n\n  \n$65,784  \n$68,896 \n\n \n\n**Major Customers**\n\n \n\nNet sales to major customers globally were as follows\n(in thousands, except for percentages):\n\n \n\n \n\n \n \n**2025**\n \n \n**2024**\n \n \n**2023**\n \n\n \n \n \n \n \n**Percentage of**\n \n \n \n \n \n**Percentage of**\n \n \n \n \n \n**Percentage of**\n \n\n \n \n**Amount**\n \n \n**Net Sales**\n \n \n**Amount**\n \n \n**Net Sales**\n \n \n**Amount**\n \n \n**Net Sales**\n \n\nTarget®\n \n$\n152,028\n \n \n \n26.6\n%\n \n$\n204,396\n \n \n \n29.6\n%\n \n$\n215,211\n \n \n \n30.3\n%\n\nWalmart® (*)\n \n \n149,206\n \n \n \n26.1\n \n \n \n180,719\n \n \n \n26.2\n \n \n \n164,855\n \n \n \n23.2\n \n\nAmazon®\n \n \n<10\n%\n \n \n<10\n%\n \n \n73,149\n \n \n \n10.6\n \n \n \n74,878\n \n \n \n10.5\n \n\n \n \n$\n301,234\n \n \n \n52.7\n%\n \n$\n458,264\n \n \n \n66.4\n%\n \n$\n454,944\n \n \n \n64.0\n%\n\n \n\n(*)During the year ended December 31, 2025, the Company determined\nthat, in prior periods, net sales to two subsidiaries of Walmart Inc., were not aggregated with net sales to Walmart Inc. in the major\ncustomer disclosure under ASC 280-10-50-42. Because these entities are under common control, such sales should be presented as revenues\nfrom a single customer. Accordingly, prior-period amounts have been revised to aggregate these net sales amounts to Walmart Inc. and\nits subsidiaries. This revision affected only the major customer disclosure and had no impact on the Company’s consolidated financial\nstatements for any period presented. The Company concluded that the revision was not material to previously issued financial statements.\n\n \n\nNo other customer accounted for more than 10% of the Company’s\ntotal net sales.\n\n \n\nThe concentration of the Company’s business\nwith a relatively small number of customers may expose the Company to material adverse effects if one or more of its large customers were\nto experience financial difficulty. The Company performs ongoing credit evaluations of its top customers and maintains an allowance for\npotential credit losses.\n\n \n\n54\n\n[Table of Contents](#TableOfContents) \n\n \n\n**Note 4**—**Prepaid Expenses and Other Assets**\n\n \n\nPrepaid expenses and other assets for the years\nended December 31, 2025 and 2024 consist of the following (in thousands):\n\n \n\n  \nDecember 31, \n\n  \n2025  \n2024 \n\nIncome tax receivable \n$8,588  \n$8,798 \n\nInvestments in employee deferred compensation trusts \n 4,467  \n 1,686 \n\nPrepaid expenses \n 2,126  \n 2,306 \n\nRoyalty advances (current and non-current) \n 1,295  \n 941 \n\nEmployee retention credit \n 285  \n 285 \n\nOther assets \n 112  \n 125 \n\n  \n$16,873  \n$14,141 \n\n  \n\n**Note 5**—**Goodwill**\n\n \n\nThere were no changes in the carrying amount of\ngoodwill by reporting unit for the years ended December 31, 2025 and 2024.\n\n \n\nThe Company performed its annual impairment assessment\nin the second quarter of 2025, and in the second quarter of 2024 using a quantitative approach, and determined there was no impairment.\n\n \n\nIn the second quarter of 2025, the Company identified\ncertain macroeconomic developments that represented potential indicators of impairment of goodwill in the form of rising import costs\nfor the U.S. market. As a result, the Company performed an interim quantitative impairment test for its reporting units as of May 31,\n2025, consistent with the guidance in ASC 350. The results of this analysis indicated that the fair value of each reporting unit continued\nto exceed its carrying amount.\n\n \n\nThere were no events or changes in circumstances after\nthe second quarter assessment that indicated that the carrying value of a reporting unit may exceed its fair value as of December 31,\n2025.\n\n \n\n**Note 6**—**Concentration of Credit\nRisk**\n\n \n\nFinancial instruments that subject the Company\nto concentration of credit risk are cash and cash equivalents and accounts receivable. Cash equivalents consist primarily of overnight\nand money market funds. These instruments are short-term in nature and bear minimal risk.\n\n \n\nThe Company maintains certain cash balances in\nexcess of Federal Deposit Insurance Corporation (“FDIC”) insured limits. The Company has not experienced any losses in such\naccounts and believes that the credit risk to the Company’s cash is minimal.\n\n \n\nThe Company performs ongoing credit evaluations\nof its customers’ financial conditions but does not require collateral to support domestic customer accounts receivable. For goods\nshipped FOB Hong Kong or China, the Company may require irrevocable letters of credit from the customer or purchase various forms of credit\ninsurance.\n\n \n\n55\n\n[Table of Contents](#TableOfContents) \n\n \n\n**Note 7**—**Accrued Expenses**\n\n \n\nAccrued expenses consist of the following (in thousands):\n\n \n\n  \nDecember 31, \n\n  \n2025  \n2024 \n\nRoyalties \n$16,985  \n$25,893 \n\nInventory liabilities \n 5,131  \n 5,131 \n\nSalaries and employee benefits \n 4,934  \n 4,556 \n\nWarehousing and Logistics \n 4,769  \n 1,261 \n\nGoods in transit \n 2,075  \n 2,128 \n\nProfessional fees \n 1,316  \n 1,337 \n\nBonuses \n 857  \n 1,197 \n\nOther \n 7,009  \n 6,953 \n\n  \n$43,076  \n$48,456 \n\n \n\nIn addition to royalties currently payable on the sale\nof licensed products during the year, the Company records a liability as accrued royalties for the estimated shortfall in achieving minimum\nroyalty guarantees pursuant to certain license agreements (see Note–15 - Commitments).\n\n \n\nAccrued expenses – long-term related primarily\nto obligations from the Company’s non-qualified deferred compensation plan (see Note 17 – Employee Benefit Plans) which were\n$4.4 million and $2.6 million as of December 31, 2025 and 2024, respectively.\n\n \n\n**Note 8**—**Debt**\n\n \n\n**Term Loan**\n\n \n\n The Company and certain of its subsidiaries,\nas borrowers, had entered into a First Lien Term Loan Facility Credit Agreement on June 2, 2021, (the “2021 BSP Term Loan Agreement”)\nwith 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\nloan (the “Initial Term Loan”) and a $19.0 million delayed draw term loan (the “Delayed Draw Term Loan” and collectively,\nthe “2021 BSP Term Loan”). Net proceeds from the issuance of the 2021 BSP Term Loan, after deduction of $2.2 million in closing\nfees and $0.5 million of other administrative fees paid directly to the lenders, totaled $96.3 million. These fees are amortized over\nthe life of the 2021 BSP Term Loan on a straight-line basis which approximates the effective interest method. Proceeds from the Initial\nTerm Loan, together with available cash from the Company, were used to repay the Company’s former term loan (the “2019 Recap\nTerm Loan” formerly known as the “New Term Loan” in prior filings) under the agreement dated as of August 9, 2019 with\nCortland Capital Market Services LLC, as agent for certain investor parties. The Delayed Draw Term Loan provision was designed to provide\nnecessary capital to redeem any of the Company’s outstanding 3.25% convertible senior notes due 2023, upon their maturity, which,\nupon 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\n1, 2021. On July 29, 2021, the Company terminated its Delayed Draw Term Loan option as it determined it had sufficient liquidity to fund\nany outstanding convertible senior notes that remained upon maturity.\n\n \n\nThe 2021 BSP Term Loan Agreement contained negative\ncovenants that, subject to certain exceptions, limited the ability of the Company and its subsidiaries to, among other things, incur additional\nindebtedness, make restricted payments, pledge its assets as security, make investments, loans, advances, guarantees and acquisitions,\nundergo fundamental changes and enter into transactions with affiliates. Commencing with the fiscal quarter ending June 30, 2021, the\nCompany was required to maintain a Net Leverage Ratio of 4:00x, with step-downs occurring each fiscal year starting with the quarter ending\nMarch 31, 2022 through the quarter ending September 30, 2024 in which the Company was required to maintain a Net Leverage Ratio of 3:00x.\nOn April 26, 2022, the Company entered into a First Amendment to the 2021 BSP Term Loan Agreement, to provide, among other things, that\nthe Company must maintain Qualified Cash of at least: (a) at all times after the Closing Date and prior to the First Amendment Effective\nDate, April 26, 2022, $20.0 million; (b) at all times during the period commencing on the First Amendment Effective Date through and including\nJune 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,\nthat 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\nwere required to have been delivered, then the amount set forth in this clause was to be increased to $20.0 million. Notwithstanding the\nforegoing, the Applicable Minimum Cash Amount was to be reduced by $1.0 million for every $5.0 million principal prepayment or repayment\nof the Term Loans following the First Amendment Effective Date; provided however, that, the Applicable Minimum Cash Amount was in no event\nto be reduced below $15.0 million.\n\n \n\n56\n\n[Table of Contents](#TableOfContents) \n\n \n\nAmounts outstanding under the 2021 BSP Term Loan\nbore 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\nfloor, 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.\nThe 2021 BSP Term Loan was termed to mature in June 2027.\n\n \n\nThe 2021 BSP Term Loan Agreement contained events\nof default that are customary for a facility of this nature, including (subject in certain cases to grace periods and thresholds) nonpayment\nof principal, nonpayment of interest, fees or other amounts, material inaccuracy of representations and warranties, violation of covenants,\ncross-default to certain other existing indebtedness, bankruptcy or insolvency events, certain judgment defaults and a change of control\nas specified in the 2021 BSP Term Loan Agreement. If an event of default occurred, the maturity of the amounts owed under the 2021 BSP\nTerm Loan Agreement might have been accelerated.\n\n \n\nThe obligations under the 2021 BSP Term Loan Agreement\nwere guaranteed by the Company, the subsidiary borrowers thereunder and certain of the other existing and future direct and indirect subsidiaries\nof the Company and were secured by substantially all of the assets of the Company, the subsidiary borrowers thereunder and such other\nsubsidiary guarantors, in each case, subject to certain exceptions and permitted liens and subject to the priority lien granted under\nthe JPMorgan ABL Credit Agreement (see Note 9 – Credit Facilities).\n\n \n\nIn January 2023, the Company entered into a second\namendment for its 2021 BSP Term Loan Agreement, which transitioned the interest reference rate on its 2021 BSP Term Loan from LIBOR to\nthe Secured Overnight Financing Rate (“SOFR”). The new interest reference rate for the 2021 BSP Term Loan was effective on\nApril 1, 2023. In addition to the transition to SOFR, the amendment also included a constant 0.10% spread adjustment until the maturity\nof the 2021 BSP Term Loan.\n\n \n\nOn January 3, 2023, as permitted by the terms within\nthe 2021 BSP Term Loan Agreement, the Company had made a voluntary $15.0 million prepayment towards the outstanding principal amount of\nthe 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\nTerm Loan Agreement under the Excess Cash Flow (“ECF”) Sweep provision, the Company had made a mandatory $23.1 million payment\ntowards the outstanding principal amount of the 2021 BSP Term Loan.\n\n \n\nOn June 5, 2023, the Company paid in full the 2021\nBSP Term Loan and terminated the 2021 BSP Term Loan Agreement by making a $30.2 million prepayment towards the outstanding principal amount.\nAdditionally, the Company made a $0.4 million payment towards the outstanding accrued interest, and a $0.3 million payment for the prepayment\npenalty and other related fees. In connection with this transaction, the Company recognized a loss on debt extinguishment of $1.0 million\non its consolidated statements of operations.\n\n \n\nThe agent and Sole Lead Arranger under the 2021\nBSP Term Loan were affiliates of an affiliate of the Company, which affiliate, at the time of refinancing, owned common stock, and the\n3.25% convertible senior notes due 2023 of the Company as well as the Company’s outstanding Series A Preferred Stock.\n\n \n\n57\n\n[Table of Contents](#TableOfContents) \n\n \n\n**Note 9**—**Credit Facilities**\n\n \n\n**JPMorgan Chase**\n\n \n\nOn June 2, 2021, the Company and certain of its\nsubsidiaries, as borrowers, entered into a Credit Agreement (the “JPMorgan ABL Credit Agreement”) with JPMorgan Chase Bank,\nN.A., as agent and lender, providing a $67.5 million senior secured revolving credit facility (the “JPMorgan ABL Facility”)\nmaturing in June 2026.\n\n \n\nOn June 24, 2025, in connection with the execution\nof a new credit facility with BMO Bank, N.A., the Company voluntarily terminated the JPMorgan ABL Facility. At the time of termination,\nthere were no borrowings outstanding under the JPMorgan ABL Facility. The termination of the JPMorgan ABL Facility did not result in any\nprepayment penalties or early termination fees. Unamortized debt issuance costs associated with the JPMorgan ABL Facility were written\noff and recorded as a loss on extinguishment of debt in the amount of $0.4 million, which is reflected in loss on debt extinguishment\nin the consolidated statements of operations and comprehensive income for the twelve months ended December 31, 2025.\n\n \n\nThe JPMorgan ABL Facility was replaced with a new\nsenior secured revolving credit facility with BMO Bank, N.A., as described below.\n\n \n\n**BMO Bank, N.A.**\n\n \n\nOn June 24, 2025, the Company and certain of its\nsubsidiaries entered into a new Credit Agreement (the “BMO Credit Agreement”) with BMO Bank, N.A., as administrative agent,\nand a syndicate of lenders. The BMO Credit Agreement provides for a senior secured revolving credit facility (the “Revolving Facility”)\nwith aggregate commitments of up to $70.0 million, including a $10.0 million sublimit for swingline loans and a $25.0 million sublimit\nfor letters of credit. The Revolving Facility matures on June 24, 2030, unless extended pursuant to its terms. Capitalized terms used\nbelow have the meanings assigned to them in the BMO Credit Agreement.\n\n \n\nBorrowings under the Revolving Facility bear interest,\nat the Company’s election, either (i) the Adjusted Term Secured Overnight Financing Rate (“SOFR”) plus an applicable\nmargin or (ii) the Base Rate plus an applicable margin. The applicable margin varies based on the Company’s Total Net Leverage Ratio\nand 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\nfee 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\n1.50% to 2.00%.\n\n \n\nThe BMO Credit Agreement contains customary affirmative\nand negative covenants, including limitations on indebtedness, liens, investments, asset sales and dividends. Financial covenants include\na 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.\n\n \n\nThe obligations under the BMO Credit Agreement\nare guaranteed by certain of the Company’s U.S., Canadian and Hong Kong subsidiaries and are secured by substantially all of the\nassets of the Company and certain of its subsidiaries, including equity interests in certain subsidiaries, subject to certain customary\nexclusions.\n\n \n\nAs of December 31, 2025, the amount of outstanding\nborrowings was nil and the total excess borrowing availability was $68.3 million.\n\n \n\nAs of December 31, 2025, off-balance sheet arrangements\ninclude letters of credit issued by BMO of $1.7 million and by JPMorgan of $1.6 million.\n\n  \n\nAs of December 31, 2025 and 2024, the Company was\nin compliance with the financial covenants under the BMO Credit Agreement and the JPMorgan ABL Credit Agreement, respectively.\n\n \n\n58\n\n[Table of Contents](#TableOfContents) \n\n \n\n**Note 10**—**Related Party Transactions**\n\n \n\nIn March 2017, the Company entered into an equity\npurchase agreement with Hong Kong Meisheng Cultural Company Limited (“Meisheng”) which provided, among other things, that\nas long as Meisheng and its affiliates hold 10% or more of the issued and outstanding shares of common stock of the Company, Meisheng\nshall have the right from time to time to designate a nominee for election to the Company’s board of directors. Since such time,\nMr. Xiaoqiang Zhao was Meisheng’s nominee. Meisheng and its affiliates own less than 10% of the Company’s outstanding shares\nof common stock. Mr. Zhao did not stand for reelection as director at the Company’s 2024 annual meeting. Since December 6, 2024,\nMeisheng is not represented on the Company’s board of directors and thus ceased to be a related party to the company.\n\n \n\nMeisheng continues to be a significant manufacturer\nof the Company. For the years ended December 31, 2024 and 2023, the Company made inventory, molds and tooling related payments to Meisheng\nof approximately $98.4 million and $75.7 million respectively. As of December 31, 2024, amounts due to Meisheng for inventory received\nby the Company, but not paid totaled $13.5 million.\n\n \n\n**Note 11**—**Income Taxes**\n\n \n\nThe Company does not file a consolidated return\nwith its foreign subsidiaries. The Company files federal and state returns and its foreign subsidiaries file returns in their respective\njurisdiction.\n\n \n\nFor the years ended 2025, 2024 and 2023, the provision\nfor income taxes, which included federal, state and foreign income taxes, was an expense of $4.9 million, $5.5 million and $6.8 million,\nrespectively, reflecting effective tax provision rates of 33.1%, 13.9% and 15.2%.\n\n \n\nThe 2025 tax expense of $4.9 million included\na discrete tax benefit of $0.2 million primarily comprised of adjustments to uncertain tax positions and return to provision adjustments.\nAbsent these discrete tax benefits, our effective tax rate for 2025 was 34.4%, primarily due to taxes on federal, state and foreign income.\n\n \n\nFor the years ended 2024 and 2023, provision for income\ntaxes includes federal, state and foreign income taxes at effective tax rates of 13.9% and 15.2%, respectively. Exclusive of discrete\nitems, the effective tax provision rate would be 17.4% in 2024 and 21.3% in 2023.\n\n \n\nAs of December 31, 2025 and 2024, the Company\nhad net deferred tax assets of $69.6 million and $70.4 million, respectively, related to U.S. and foreign jurisdictions.\n\n \n\nProvision for income taxes reflected in the accompanying\nconsolidated statements of operations are comprised of the following (in thousands):\n\n \n\n  \nYear ended December 31, \n\n  \n2025  \n2024  \n2023 \n\nCurrent income tax expense \n   \n   \n  \n\nFederal \n$925  \n$4,204  \n$11,935 \n\nState and local \n 253  \n 569  \n 2,167 \n\nForeign \n 2,891  \n 3,010  \n 3,070 \n\nTotal current income tax expense \n 4,069  \n 7,783  \n 17,172 \n\nDeferred income tax expense (benefit) \n    \n    \n   \n\nFederal \n 1,123  \n (2,340) \n (8,989)\n\nState and Local \n 44  \n 247  \n (1,358)\n\nForeign \n (342) \n (158) \n 8 \n\nTotal deferred income tax expense (benefit) \n 825  \n (2,251) \n (10,339)\n\n  \n    \n    \n   \n\nTotal income tax expense \n$4,894  \n$5,532  \n$6,833 \n\n \n\n59\n\n[Table of Contents](#TableOfContents) \n\n \n\nThe components of deferred tax assets/(liabilities)\nare as follows (in thousands):\n\n \n\n  \nYear ended December 31, \n\n  \n2025  \n2024 \n\nDeferred Income Tax Assets: \n   \n  \n\nReserve for sales allowances and possible losses \n$1,252  \n$956 \n\nAccrued expenses \n 1,904  \n 1,940 \n\nPrepaid royalties \n 4  \n 39 \n\nAccrued royalties \n 1,823  \n 1,833 \n\nInventory \n 11,278  \n 12,876 \n\nState income taxes \n 106  \n 224 \n\nProperty and equipment \n 1,819  \n 1,752 \n\nGoodwill and intangibles \n 447  \n 728 \n\nShare based compensation \n 849  \n 1,277 \n\nInterest limitation \n 1,997  \n 2,243 \n\nLease obligation \n 11,051  \n 12,766 \n\nFederal and state net operating loss carryforwards \n 34,424  \n 34,355 \n\nForeign net operating loss carryforwards \n —  \n 110 \n\nCredit carryforwards \n 28  \n 3 \n\nSection 174 Capitalization \n 11,494  \n 10,884 \n\nOther \n 1,674  \n 1,567 \n\nTotal Deferred Income Tax Assets \n 80,150  \n 83,553 \n\n  \n    \n   \n\nDeferred Income Tax Liabilities: \n    \n   \n\nForeign net operating loss carryforwards \n (6) \n — \n\nUndistributed foreign earnings \n (310) \n (428)\n\nOperating lease right-of-use assets \n (9,551) \n (12,013)\n\nTotal Deferred Income Tax Liabilities \n (9,867) \n (12,441)\n\nValuation allowance \n (714) \n (718)\n\nTotal Net Deferred Income Tax Assets \n$69,569  \n$70,394 \n\n \n\nThe provision for income taxes varies from the\nU.S. federal statutory rate. The Company has elected to adopt the guidance in ASU No. 2023-09 on a prospective basis.\n\n \n\nThe following table is a reconciliation of the U.S.\nfederal statutory rate of 21.0% to the Company’s effective rate for the year ended December 31, 2025, in accordance with guidance\nin ASU No. 2023-09.\n\n \n\n60\n\n[Table of Contents](#TableOfContents) \n\n \n\n  \nYear Ended\nDecember 31, 2025 \n\n  \nAmount ($)  \nPercent (%) \n\nProvision for income taxes at U.S. federal statutory rate \n$3,101  \n 21.0%\n\n**State and local income taxes, net of federal income tax effect1** \n 209  \n 1.4 \n\nForeign tax effects \n    \n   \n\nHong Kong \n    \n   \n\nStatutory tax rate difference between Hong Kong and U.S. \n (384) \n (2.6)\n\nOther \n (12) \n (0.1)\n\nOther foreign jurisdictions \n 480  \n 3.2 \n\nEffect of changes in tax laws or rates enacted in the current period \n —  \n — \n\nEffect of cross-border tax laws \n    \n   \n\nForeign derived intangible income (FDII) \n (772) \n (5.2)\n\nOther \n 28  \n 0.2 \n\nTax Credits \n    \n   \n\nR&D tax credits \n (79) \n (0.5)\n\nChanges in valuation allowances \n 1  \n — \n\nNontaxable or nondeductible items \n    \n   \n\nSection 162(m) \n 2,766  \n 18.7 \n\nStock-based compensation \n (158) \n (1.1)\n\nOther \n 145  \n 1.0 \n\nChanges in unrecognized tax benefits \n (649) \n (4.4)\n\nOther adjustments \n 218  \n 1.5 \n\nEffective Tax Rate \n$4,894  \n 33.1%\n\n \n\n \n\n1 State and local taxes in California, New York and New York City made up the majority of the tax effect in this category.\n\n \n\nThe following table is a reconciliation of the U.S.\nfederal statutory rate of 21.0% to the Company’s effective rate for the years ended December 31, 2024 and 2023 in accordance with\nthe guidance prior to the adoption of ASU No. 2023-09.\n\n \n\n  \nYear ended December 31, \n\n  \n2024  \n2023 \n\nFederal income tax expense \n 21.0% \n 21.0%\n\nState income tax expense, net of federal tax effect \n 1.8  \n 2.0 \n\nEffect of differences in U.S. and foreign statutory rates \n (1.3) \n (1.1)\n\nUncertain tax positions \n 0.4  \n 0.6 \n\nProvision to return \n (4.4) \n (0.1)\n\nOther deferred adjustments \n (0.2) \n (5.7)\n\nChange in tax rate \n 0.8  \n 0.1 \n\nGILTI \n 5.2  \n — \n\nForeign derived intangible income \n (8.6) \n (9.8)\n\nOther non-deductible expenses \n (3.6) \n (0.7)\n\nUnrealized loss \n —  \n 4.2 \n\nSection 162(m) \n 8.1  \n 6.4 \n\nR&D credit \n (1.0) \n (1.5)\n\nForeign tax credit \n (4.8) \n — \n\nUndistributed foreign earnings \n (0.2) \n 0.1 \n\nValuation allowance \n —  \n — \n\nOther \n 0.7  \n (0.3)\n\n  \n 13.9% \n 15.2%\n\n \n\nDeferred taxes result from temporary differences\nbetween tax basis of assets and liabilities and their reported amounts in the consolidated financial statements. The temporary differences\nresult from costs required to be capitalized for tax purposes by the U.S. Internal Revenue Code (“IRC”), and certain items\naccrued for financial reporting purposes in the year incurred but not deductible for tax purposes until paid.\n\n \n\n61\n\n[Table of Contents](#TableOfContents) \n\n \n\nThe amounts of cash taxes paid during the year\nended December 31, 2025 are as follows:\n\n \n\n  \n2025 \n\nFederal \n$1,361 \n\nState \n 114 \n\nForeign \n   \n\nHong Kong \n 2,279 \n\nNetherlands \n 300 \n\nMexico \n 574 \n\nOther \n 383 \n\nTotal income taxes paid, net of amounts refunded \n$5,011 \n\n  \n\nTotal income taxes paid, net of amounts refunded for\nthe years ended December 31, 2024 and 2023 are presented on the consolidated statement of cash flows.\n\n \n\nThe components of income before provision for income\ntaxes are as follows (in thousands):\n\n \n\n  \nYear ended December 31, \n\n  \n2025  \n2024  \n2023 \n\nDomestic \n$2,711  \n$24,801  \n$28,552 \n\nForeign \n 12,054  \n 14,931  \n 16,394 \n\n  \n$14,765  \n$39,732  \n$44,946 \n\n \n\nThe Company uses a recognition threshold and measurement\nprocess for recording in the consolidated financial statements uncertain tax positions (“UTP”) taken or expected to be taken\nin a tax return.\n\n \n\nThe following table provides further information of\nUTPs that would affect the effective tax rate, if recognized, as of December 31, 2025 (in thousands):\n\n \n\nBalance, December 31, 2022 \n$2,767 \n\nAdditions based on tax positions related to the current year \n 344 \n\nAdditions for tax positions of prior years \n 797 \n\nSettlements \n (929)\n\nBalance, December 31, 2023 \n 2,979 \n\nAdditions based on tax positions related to the current year \n 203 \n\nAdditions for tax positions of prior years \n 99 \n\nSettlements \n (152)\n\nBalance, December 31, 2024 \n 3,129 \n\nAdditions based on tax positions related to the current year \n 71 \n\nAdditions for tax positions of prior years \n (222)\n\nSettlements \n (2,137)\n\nBalance, December 31, 2025 \n$841 \n\n \n\nCurrent interest on uncertain income tax liabilities\nis recognized as a component of the income tax provision recognized in the consolidated statements of operations. During 2025 and 2024,\nthe Company recognized $5 thousand and $173 thousand of interest expense related to UTPs, respectively.\n\n \n\nThe Company does not expect its gross unrecognized\ntax benefits to significantly change within the next 12 months.\n\n \n\nTax years 2022 through 2024 remain subject to Federal\nexamination in the United States. The tax years 2021 through 2024 are generally still subject to examination in the various states. Furthermore,\nall net operating losses and tax credit carryforwards are still subject to review given that the statute of limitation for these items\nwould begin in the year of utilization. The tax years 2019 through 2024 are still subject to examination in Hong Kong. In the normal course\nof business, the Company is audited by federal, state and foreign tax authorities.\n\n \n\nManagement assesses the available positive and\nnegative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets by jurisdiction.\nThe Company is required to establish a valuation allowance for the U.S. deferred tax assets and record a charge to income if Management\ndetermines, based upon available evidence at the time the determination is made, that it is more likely than not that some portion or\nall of the deferred tax assets may not be realized.\n\n \n\nBased on the Company’s evaluation of all positive\nand negative evidence, as of December 31, 2025, a valuation allowance of $0.7 million has been recorded against the deferred tax assets\nthat more likely than not will not be realized. Changes in the valuation allowance were immaterial for the years ended December 31, 2025,\n2024, and 2023. For the year ended December 31, 2025, the valuation allowance remained approximately the same as the $0.7 million recorded\nat December 31, 2024. The 2025 and 2024 net deferred tax assets of $69.6 million and $70.4 million, respectively, consist of the\nnet deferred tax assets in the US and foreign jurisdictions, where the Company is in a cumulative income position.\n\n \n\n62\n\n[Table of Contents](#TableOfContents) \n\n \n\nPursuant to the Internal Revenue Code of 1986,\nas amended (the “Code”) Sections 382 and 383, annual use of a company’s NOL and tax credit carryforwards may be limited\nif there is a cumulative change in ownership of greater than 50% within a three-year period. The amount of the annual limitation is determined\nbased on the value of the company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation\nin future years. If limited, the related tax asset would be removed from the deferred tax asset schedule with a corresponding reduction\nin the valuation allowance. The Company had established a valuation allowance as the realization of such deferred tax assets had not met\nthe more likely than not threshold requirement.\n\n \n\nAt December 31, 2025, the Company has U.S. federal\nnet NOLs, of approximately $148.6 million, which will begin to expire in 2033. At December 31, 2025, the Company has state NOLs of approximately\n$48.0 million, which will begin to expire in 2025.\n\n \n\nThe Company maintained undistributed earnings overseas\nas of December 31, 2025. As of December 31, 2025, the Company believed the funds held by all non-U.S. subsidiaries will be permanently\nreinvested outside of the U.S., with the exception of Hong Kong. As a result of tax reform, the Company’s unrepatriated earnings\nare no longer subject to federal income tax in the U.S. when distributed.\n\n \n\n**Note 12**—**Leases**\n\n \n\nThe Company has lease agreements with lease and non-lease\ncomponents, which are generally accounted for separately. The Company has operating leases for corporate offices, warehouses, and certain\nequipment. The Company’s leases have remaining terms of 1 to 11 years, some of which include options to extend the lease for up\nto 10 years, and some of which include options to terminate the lease within 1 year. As of December 31, 2025, the Company’s weighted\naverage remaining lease term was approximately 4.0 years, and the weighted average discount rate used to calculate the Company’s\nlease liability was approximately 6.70%. As of December 31, 2024, the Company’s weighted average remaining lease term was approximately\n4 years, and the weighted average discount rate used to calculate the Company’s lease liability was approximately 6.79%.\n\n \n\nTotal operating lease costs for the years ended December\n31, 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\n31, 2025, $1.8 million was related to short-term and variable lease costs, including common area maintenance charges, management fees,\ntaxes 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\nmillion was related to short-term and variable lease costs, including common area maintenance charges, management fees, taxes and storage\nfees. 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\nto short-term and variable lease costs, including common area maintenance charges, management fees, taxes and storage fees. Sublease rental\nincome was $1.5 million in 2023.\n\n \n\nThe Company had a cash outflow of $11.8 million,\n$9.1 million and $10.7 million related to operating leases for the years ended December 31, 2025, 2024 and 2023, respectively.\n\n \n\n63\n\n[Table of Contents](#TableOfContents) \n\n \n\nThe following table represents a reconciliation\nof the Company’s undiscounted future minimum lease payments under operating leases to the lease liability excluding minimum lease\npayments for executed and legally enforceable leases that have not yet commenced as of December 31, 2025 (in thousands):\n\n \n\nYear ending December 31, \n  \n\n2026 \n$16,936 \n\n2027 \n 17,177 \n\n2028 \n 16,757 \n\n2029 \n 7,106 \n\n2030 \n 426 \n\nThereafter \n 2,171 \n\nTotal lease payments \n 60,573 \n\nLess imputed interest \n 7,211 \n\nTotal \n$53,362 \n\n \n\nAs of December 31, 2025 and 2024, the minimum lease\npayments for executed and legally enforceable leases that have not yet commenced were nil.\n\n \n\n**Note 13**—**Common Stock and Preferred Stock**\n\n \n\n**Common Stock**\n\n \n\nAll issuances of common stock, including those\nissued pursuant to restricted stock or unit grants, are issued from the Company’s authorized but not issued and outstanding shares.\n\n \n\nOn March 11, 2024, the Company redeemed all of\nthe outstanding shares of Series A Senior Preferred Stock for an aggregate price of $20.0 million cash and 571,295 of its common shares\nrepresenting a value of $15.0 million based on a share price of $26.26.\n\n \n\nDuring 2025, certain employees, including two executive\nofficers, surrendered an aggregate of 240,369 shares of restricted stock units for $5.7 million to cover income taxes due on the vesting\nof restricted shares. Additionally, an aggregate of 8,620 shares of restricted stock granted in 2022, 2023 and 2024 with a value of approximately\n$0.2 million was forfeited during 2025.\n\n \n\nDuring 2024, certain employees, including two executive\nofficers, surrendered an aggregate of 229,587 shares of restricted stock units for $6.9 million to cover income taxes due on the vesting\nof restricted shares. Additionally, an aggregate of 22,223 shares of restricted stock granted in 2020, 2022 and 2023 with a value of approximately\n$0.4 million was forfeited during 2024.\n\n \n\nQuarterly cash dividends of $0.25 per common share\nwere paid on March 31, June 27, September 30 and December 29, 2025. No dividend was declared or paid in 2024.\n\n \n\n**At the Market Offering**\n\n \n\nOn July 1, 2022, the Company entered into an At the\nMarket Issuance Sales Agreement (“ATM Agreement”) with B. Riley, as agent pursuant to which the Company may, from time to\ntime, 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\nthe Company will determine at the time of the offering. The Company did not sell any shares of common stock under the ATM Agreement.\n\n \n\nIn 2022 the Company filed with the SEC an effective\nregistration statement pursuant to which it may issue, from time to time, up to $150 million of securities (which will be reduced by any\namount of securities sold pursuant to the ATM Agreement) consisting of, or any combination of, common stock, preferred stock, debt securities,\nwarrants, rights and/or units, in one or more offerings in amounts, prices and at terms that the Company will determine at the time of\nthe offering. In 2025 the registration statement expired by law on its third anniversary. The Company did not sell any securities pursuant\nto its shelf registration statement.\n\n \n\n64\n\n[Table of Contents](#TableOfContents) \n\n \n\n**Redeemable Preferred Stock**\n\n \n\nOn August 9, 2019, the Company entered into and\nconsummated multiple, binding definitive agreements (collectively, the “Recapitalization Transaction”) among various investor\nparties to recapitalize the Company’s balance sheet. In connection with the Recapitalization Transaction, the Company issued 200,000\nshares of Series A Senior Preferred Stock (the “Series A Preferred Stock”), $0.001 par value per share, to the Investor Parties\n(the “New Preferred Equity”).\n\n \n\nOn March 11, 2024, the Company redeemed all of\nthe outstanding shares of Series A Senior Preferred Stock for an aggregate price of $20.0 million cash and 571,295 of its common shares,\nrepresenting a value of $15.0 million based on a share price of $26.26, settling the preferred stock derivative liability of $29.9 million\nand 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\nPreferred Stock were outstanding.\n\n \n\nEach share of Series A Preferred Stock had an initial\nvalue of $100 per share, which was automatically increased for any accrued and unpaid dividends (the “Accreted Value”).\n\n \n\nThe Series A Preferred Stock had the right to receive\ndividends 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\nA Preferred Stock. No cash dividends were declared or paid. Prior to the redemption, for the years ended December 31, 2024 and 2023, the\nCompany recorded $0.4 million and $1.5 million, respectively of preferred stock dividends as an increase in the value of the Series A\nPreferred Stock.\n\n \n\nThe Series A Preferred Stock had no stated maturity,\nhowever, the Company had the right to redeem all or a portion of the Series A Preferred Stock at its Liquidation Preference (as defined\nbelow) at any time after payment in full of the 2019 Recap Term Loan. In addition, upon the occurrence of certain change of control type\nevents, holders of the Series A Preferred Stock were entitled to receive an amount (the “Liquidation Preference”), in preference\nto holders of Common Stock or other junior stock, equal to (i) 20% of the Accreted Value in the case of a certain specified transaction,\nor (ii) otherwise, 150% of the Accreted value, plus any accrued and unpaid dividends.\n\n \n\nThe Company had the right, but was not required,\nto repurchase all or a portion of the Series A Preferred Stock at its Liquidation Preference at any time after payment in full of the\n2019 Recap Term Loan. The Series A Preferred Stock did not have any voting rights, except to the extent required by the Delaware General\nCorporation Law, except for the exclusive right to elect the Series A Preferred Directors (as described below) and except for certain\napproval rights over certain transactions (as described below). These approval rights required the prior consent of specified percentages\nof holders (or in certain cases, all holders) of the Series A Preferred Stock in order for the Company to take certain actions, including\nthe issuance of additional shares of Series A Preferred Stock or parity stock, the issuance of senior stock, certain amendments to the\nAmended and Restated Certificate of Incorporation, the Certificate of Designations of the Series A Preferred Stock (the “Certificate\nof Designations”), the Second Amended and Restated By-laws or the Amended and Restated Nominating and Corporate Governance Committee\nCharter, material changes in the Company’s line of business and certain change of control type transactions. In addition, the Certificate\nof Designations provided that the approval of at least six directors were required for any related person transaction within the meaning\nof Item 404 of Regulation S-K under the Securities Act of 1933, as amended, including, without limitation, the adoption of, or any amendment,\nmodification or waiver of, any agreement or arrangement related to any such transaction. The Certificate of Designations also included\nrestrictions on the ability of the Company to pay dividends on or make distributions with respect to, or redeem or repurchase, shares\nof Common Stock or other junior stock. In addition, holders of the Series A Preferred Stock had preemptive rights regarding future issuance\nof Series A Preferred Stock or parity stock. In 2022, an agreement was reached with the preferred shareholders to eliminate their ability\nto elect members to the Company’s Board of Directors on a going-forward basis.\n\n \n\nThe Series A Preferred Stock redemption amount\nwas contingent upon certain events with no stated redemption date as of the reporting date, although may become redeemable in the future.\nIn accordance with the SEC guidance within ASC Topic 480, *Distinguishing Liabilities from Equity: Classification and Measurement of\nRedeemable Securities*, the Company classified the Series A Preferred Stock as temporary equity as the Series A Preferred Stock contained\na redemption feature which was contingent upon certain deemed liquidation events, the occurrence of which may not solely have been within\nthe control of the Company.\n\n \n\nUnder ASC 815, *Derivatives and Hedging*,\ncertain contractual terms that meet the accounting definition of a derivative must be accounted for separately from the financial instrument\nin which they are embedded. The Company had concluded that the redemption upon a change of control and the repurchase option by the Company\nconstituted embedded derivatives.\n\n \n\nThe embedded redemption upon a change of control was accounted for separately\nfrom the Series A Preferred Stock. The redemption provision specified if certain events that constitute a change of control occurred,\nthe Company would be required to settle the Series A Preferred Stock at 150% of its accreted amount. Accordingly, the redemption provision\nmet the definition of a derivative, and its economic characteristics were not considered clearly and closely related to the economic characteristics\nof the Series A Preferred Stock, and were more akin to a debt instrument than equity.\n\n \n\n65\n\n[Table of Contents](#TableOfContents) \n\n \n\nThe Company considered the repurchase option to have\nno value as the likelihood was remote that this event, within the Company’s control, would ever occur. The liability was accounted\nfor at fair value, with changes in fair value recognized as other income (expense) on the Company’s consolidated statements of operations.\nThe value of the redemption provision explicitly considered the present value of the potential premium that would be paid related to,\nand the probability of, an event that would trigger its payment. The probability of a triggering event was based on management’s\nestimates of the probability of a change of control event occurring.\n\n \n\nAccordingly, these two embedded derivatives were\naccounted for separately from the Series A Preferred Stock at fair value.\n\n \n\nAs of December 31, 2024, the Company had redeemed\nall of the outstanding shares of the Series A Preferred Stock.\n\n \n\nAs of December 31, 2023, the Series A Preferred\nStock was recorded in temporary equity at the amount of accrued, but unpaid dividends of $6.0 million, and the redemption provision, as\na bifurcated derivative, is recorded as a long term liability with an estimated value of $29.9 million.\n\n \n\nAs of December 31, 2023, the Series A Preferred\nStock had a carrying value of $26.0 million and a liquidation value of $39.0 million.\n\n \n\nThe following table provides a reconciliation of\nthe beginning and ending balances of the Series A Preferred Stock, which is recorded in temporary equity:\n\n \n\n  \n2024  \n2023 \n\nBalance, January 1, \n$5,992  \n$4,490 \n\nPreferred stock accrued dividends \n 390  \n 1,502 \n\nPreferred stock redemption \n (6,382) \n — \n\nBalance, December 31, \n$—  \n$5,992 \n\n \n\n**Note 14**—**Fair Value Measurements**\n\n \n\nIn instances where the determination of the fair\nvalue measurement is based upon inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within\nwhich the entire fair value measurement falls is based upon the lowest level input that is significant to the fair value measurement in\nits entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires\njudgment and considers factors specific to the asset or liability.\n\n \n\nThe following tables summarize the Company’s\nfinancial assets and liabilities measured at fair value on a recurring basis as of December 31, 2025 and 2024 (in thousands):\n\n \n\n  \nCarrying\nAmount as of\nDecember 31,  \nFair Value Measurements\nAs of December 31, 2025 \n\n  \n2025  \nLevel 1  \nLevel 2  \nLevel 3 \n\nMoney market funds \n$33,062  \n 33,062  \n$—  \n$— \n\nInvestments in employee deferred compensation trusts \n 4,467  \n 4,467  \n —  \n — \n\n \n\n  \nCarrying\nAmount as of\nDecember 31,  \nFair Value Measurements\nAs of December 31, 2024 \n\n  \n2024  \nLevel 1  \nLevel 2  \nLevel 3 \n\nMoney market funds \n$39,907  \n$39,907  \n$—  \n$— \n\nInvestments in employee deferred compensation trusts \n 1,686  \n 1,686  \n —  \n — \n\n \n\nMoney market funds are included in cash and cash equivalents\non the Consolidated Balance Sheets. Investments in employee deferred compensation trusts which are comprised of mutual funds are classified\nas trading securities are included in prepaid and other assets on the Consolidated Balance Sheets (refer to Note 17 – Employee Benefit\nPlans).\n\n \n\n66\n\n[Table of Contents](#TableOfContents) \n\n \n\n**Note 15**—**Commitments**\n\n \n\nThe Company has entered into various license agreements\nwhereby the Company may use certain characters and intellectual properties in conjunction with its products. Generally, such license agreements\nprovide for royalties to be paid ranging from 1% to 22% of net sales with minimum royalty guarantees and advance payments. These license\nagreements are subject to audits by the licensor, which can result in additional payments due to the licensor.\n\n \n\nIn the event the Company estimates that a shortfall\nin achieving the minimum royalty guarantee is probable, a liability is recorded for the estimated shortfall and charged to royalty expense.\n\n \n\nFuture annual minimum royalty guarantees as of\nDecember 31, 2025 are as follows (in thousands):\n\n \n\n2026 \n$57,374 \n\n2027 \n 49,070 \n\n2028 \n 46,474 \n\n2029 \n 36,862 \n\nTotal \n$189,780 \n\n \n\nRoyalty expense for the years ended December 31,\n2025, 2024 and 2023, was $92.4 million, $106.8 million and $117.6 million, respectively.\n\n \n\nThe Company has entered into employment agreements\nwith certain executives expiring through December 31, 2029. The aggregate future annual minimum guaranteed amounts due under those agreements\nas of December 31, 2025 are as follows (in thousands):\n\n \n\n2026 \n$6,431 \n\n2027 \n 5,355 \n\n2028 \n 2,609 \n\n2029 \n 665 \n\nTotal \n$15,060 \n\n \n\n**Note 16**—**Share-Based Payments**\n\n \n\nUnder the Company’s 2002 Stock Award and Incentive\nPlan (“the Plan”), which incorporated its Third Amended and Restated 1995 Stock Option Plan, the Company has reserved shares\nof its common stock for issuance upon the exercise of options granted under the Plan, as well as for the awarding of other securities.\nUnder the Plan, employees (including officers), non-employee directors and independent consultants may be granted options to purchase\nshares of common stock, restricted stock units and other securities (see Note 13 - Common Stock and Preferred Stock). The vesting of these\nshare-based awards may vary, but typically vest over a requisite service period or are based on performance criteria, with a maximum vesting\nperiod of four years. Restricted shares typically vest in the same manner, with the exception of certain awards vesting over one year\nto three years. Share-based compensation expense is recognized on a straight-line basis over the requisite service period. Compensation\nexpense for performance-awards is measured based on the amount of shares ultimately expected to vest, estimated at each reporting date\nbased on management expectations regarding the relevant performance criteria. Unlike restricted stock awards, the shares for the restricted\nstock units are not issued until vested. The Company currently grants only restricted stock units with no current intention to issue RSAs.\nAs of December 31, 2025, 1,257,576 shares were available for future grant. Additional shares may become available to the extent that options\nor shares of restricted stock presently outstanding under the Plan terminate, expire, or are forfeited.\n\n \n\n67\n\n[Table of Contents](#TableOfContents) \n\n \n\n*Restricted Stock Units*\n\n \n\nUnder the Plan, share-based compensation payments may\ninclude the issuance of Restricted Stock Units (RSUs), which occurs approximately once per year and are subject to vesting conditions.\nRSUs are valued at the market price of the shares underlying the award on the date of grant.\n\n \n\nThe following table summarizes the RSU award activity\nfor awards with service conditions, annually for the years ended December 31, 2025, 2024 and 2023:\n\n \n\n  \n2025  \n2024  \n2023 \n\n  \n   \nWeighted  \n   \nWeighted  \n   \nWeighted \n\n  \nNumber of  \nAverage\nGrant Date  \nNumber of  \nAverage\nGrant Date  \nNumber of  \nAverage\nGrant Date \n\n  \nShares  \nFair Value  \nShares  \nFair Value  \nShares  \nFair Value \n\nOutstanding, January 1 \n 1,008,400  \n$22.51  \n 1,306,406  \n$16.47  \n 1,408,586  \n$12.82 \n\nGranted \n 675,011  \n 18.16  \n 303,398  \n 31.61  \n 436,792  \n 21.11 \n\nVested \n (557,723) \n 20.13  \n (579,181) \n 14.08  \n (504,384) \n 11.75 \n\nForfeited \n (8,620) \n 28.28  \n (22,223) \n 18.36  \n (34,588) \n 16.70 \n\nOutstanding, December 31 \n 1,117,068  \n 21.03  \n 1,008,400  \n 22.51  \n 1,306,406  \n 16.47 \n\n \n\nThe following table summarizes the RSU award activity\nfor awards with market conditions, annually for the years ended December 31, 2025:\n\n \n\n \n \n**2025**\n \n\n \n \n \n \n \n**Weighted**\n \n\n \n \n**Number of**\n \n \n**Average\nGrant Date**\n \n\n \n \n**Shares**\n \n \n**Fair Value**\n \n\nOutstanding, January 1\n \n \n—\n \n \n$\n—\n \n\nGranted\n \n \n112,500\n \n \n \n20.79\n \n\nVested\n \n \n—\n \n \n \n—\n \n\nForfeited\n \n \n—\n \n \n \n—\n \n\nOutstanding, December 31\n \n \n112,500\n \n \n \n20.79\n \n\n \n\nAs of December 31, 2025, there was $18.5 million\nof total unrecognized compensation cost related to non-vested restricted stock units, which is expected to be recognized over a weighted-average\nperiod of 2.0 years.\n\n \n\n*Share-Based Compensation Expense*\n\n \n\nThe following table summarizes the total share-based\ncompensation expense (in thousands) which is recognized in general and administrative expenses in the Consolidated Statement of Operations:\n\n \n\n  \nYear Ended December 31, \n\n  \n2025  \n2024  \n2023 \n\nShare-based compensation expense \n$10,913  \n$9,535  \n$8,027 \n\n \n\n**Note 17**—**Employee Benefit Plans**\n\n \n\nThe Company sponsored for its U.S. employees, a\ndefined contribution plan under Section 401(k) of the Internal Revenue Code. The Plan provided that employees may defer up to 50% of their\nannual compensation subject to annual dollar limitations, and that the Company would make a matching contribution equal to 100% of each\nemployee’s deferral, up to 5% of the employee’s annual compensation. Company-matching contributions, which vest immediately,\ntotaled $2.0 million, $1.7 million and $1.5 million for the years ended December 31, 2025, 2024 and 2023, respectively.\n\n \n\n68\n\n[Table of Contents](#TableOfContents) \n\n \n\nStarting December 2023, the Company sponsored for certain\nof its U.S. based senior employees, a nonqualified deferred compensation plan which includes provisions for salary deferrals and discretionary\ncontributions on a deferred tax basis. The Company funds its deferred compensation obligations through a rabbi trust which is subject\nto creditor claims in the event of insolvency, but such assets are not available for general corporate purposes. Assets held in the rabbi\ntrust are invested in mutual funds, as selected by the participants, which are designated as trading securities and carried at fair value.\nAs of December 31, 2024, the Company has not made any discretionary matching contributions to the plan. Employees direct the investment\nof their account balances, and the Company invests amounts held in the associated investment trust consistent with these directions. The\nvalue 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.\nThe deferred compensation investments and obligations are included in prepaid expenses and other assets, and accrued expenses - long term\nin the consolidated balance sheets. For the years ended December 31, 2025 and 2024, changes in the fair value of securities held in the\nrabbi trust and offsetting increases or decreases in the deferred compensation obligation totaled $0.1 million and $0.2 million, respectively,\nand are recognized in other general and administrative expenses in the Company’s Consolidated Statements of Operations and Comprehensive\nIncome\n\n \n\nThe Company has statutory benefit plans outside\nthe U.S., which are not material.\n\n  \n\n**Note 18**—**Litigation and Contingencies**\n\n \n\nThe Company is a party to, and certain of its property\nis the subject of, various pending claims and legal proceedings that routinely arise in the ordinary course of its business. The Company\naccrues for losses when the loss is deemed probable and the liability can reasonably be estimated. Where a liability is probable and there\nis a range of estimated loss with no best estimate in the range, the Company records the minimum estimated liability related to the claim.\nAs additional information becomes available, the Company assesses the potential liability related to its pending litigation and revises\nits estimates.\n\n \n\nIn the normal course of business, the Company\nmay provide certain indemnifications and/or other commitments of varying scope to a) its licensors, customers and certain other parties,\nincluding against third-party claims of intellectual property infringement, and b) its officers, directors and employees, including against\nthird-party claims regarding the periods in which they serve in such capacities with the Company. The duration and amount of such obligations\nis, in certain cases, indefinite. The Company’s director’s and officer’s liability insurance policy may, however, enable\nit to recover a portion of any future payments related to its officer, director or employee indemnifications. For the past five years,\ncosts related to director and officer indemnifications have not been significant. Other than certain liabilities recorded in the normal\ncourse of business related to royalty payments due to the Company’s licensors, no liabilities have been recorded for indemnifications\nand/or other commitments.\n\n \n\n**Note 19**—**Subsequent Events**\n\n \n\nOn February 18, 2026, the Company’s Board\nof Directors declared a quarterly cash dividend of $0.25 per common share. The dividend will be payable on March 30, 2026 to shareholders\nof record at the close of business on February 27, 2026.\n\n \n\n69\n\n[Table of Contents](#TableOfContents)"}