JAKKS PACIFIC INC (JAKK)

CIK: 0001009829. SIC: 3944 Games, Toys & Children's Vehicles (No Dolls & Bicycles). Latest 10-K as of: 2026-03-02.

SIC breadcrumb: Manufacturing > SIC Major Group 39 > SIC 3944 Games, Toys & Children's Vehicles (No Dolls & Bicycles)

SEC company page: https://www.sec.gov/edgar/browse/?CIK=1009829. Latest filing source: 0001185185-26-000723.

Selected Fundamentals

Financials

Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-03-02. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001009829.json. Derived margins, ratios, and free cash flow are computed from the extracted annual SEC facts.

Flow metrics use full-year FY periods from 10-K/10-K/A filings; balance-sheet metrics use FY-end instants. Free cash flow = operating cash flow - capital expenditures. Missing metrics are omitted rather than fabricated.

Ratios

ROE and ROA use period-end equity/assets. Liabilities / equity uses total liabilities divided by stockholders' equity. Current ratio uses current assets divided by current liabilities when both are reported.

Financial Charts

Quarterly

Quarterly standardized facts from SEC companyfacts as of latest extracted filing date 2026-05-01. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001009829.json.

Flow metrics use discrete quarter-length periods from 10-Q/10-Q/A filings. Q4 revenue and net income are derived only when annual FY and nine-month YTD facts exist for the same fiscal year; derived Q4 values are labeled. EPS Q4 is not derived.

Quarterly Charts

Macro Cross-References

• CPIAUCSL - Consumer Price Index for All Urban Consumers: All Items in U.S. City Average
• UNRATE - Unemployment Rate
• FEDFUNDS - Federal Funds Effective Rate
• CES0500000003 - Average Hourly Earnings of All Employees, Total Private
• DFEDTARU - Federal Funds Target Range - Upper Limit
• DFEDTARL - Federal Funds Target Range - Lower Limit
• DGS3MO - Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity
• DGS2 - Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity
• DGS10 - Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity
• DGS30 - Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity
• T10Y2Y - 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
• CPILFESL - Consumer Price Index for All Urban Consumers: All Items Less Food and Energy
• CPIUFDSL - Consumer Price Index for All Urban Consumers: Food
• CPIENGSL - Consumer Price Index for All Urban Consumers: Energy
• CUSR0000SAH1 - Consumer Price Index for All Urban Consumers: Shelter
• PCEPI - Personal Consumption Expenditures: Chain-type Price Index
• PCEPILFE - Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index
• PPIACO - Producer Price Index by Commodity: All Commodities
• T10YIE - 10-Year Breakeven Inflation Rate
• U6RATE - Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons
• PAYEMS - All Employees, Total Nonfarm
• CIVPART - Labor Force Participation Rate
• EMRATIO - Employment-Population Ratio
• UNEMPLOY - Unemployed
• CE16OV - Employment Level
• ICSA - Initial Claims
• JTSJOL - Job Openings: Total Nonfarm
• JTSQUR - Quits: Total Nonfarm
• GDPC1 - Real Gross Domestic Product
• A191RL1Q225SBEA - Real Gross Domestic Product: Percent Change from Preceding Period
• INDPRO - Industrial Production: Total Index
• TCU - Capacity Utilization: Total Index
• HOUST - New Privately-Owned Housing Units Started: Total Units
• PERMIT - New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units
• RSAFS - Advance Retail Sales: Retail Trade
• PCE - Personal Consumption Expenditures
• DSPIC96 - Real Disposable Personal Income
• PSAVERT - Personal Saving Rate
• M2SL - M2
• BOPGSTB - U.S. International Trade in Goods and Services: Balance
• MSPUS - Median Sales Price of Houses Sold for the United States
• HSN1F - New One Family Houses Sold: United States
• RHORUSQ156N - Homeownership Rate in the United States
• TTLCONS - Total Construction Spending: Total Construction in the United States
• RRVRUSQ156N - Rental Vacancy Rate in the United States
• TOTALSL - Total Consumer Credit Owned and Securitized
• REVOLSL - Revolving Consumer Credit Owned and Securitized
• DRCCLACBS - Delinquency Rate on Credit Card Loans, All Commercial Banks
• GDP - Gross Domestic Product
• GPDI - Gross Private Domestic Investment
• GCE - Government Consumption Expenditures and Gross Investment
• PCEC - Personal Consumption Expenditures
• NETEXP - Net Exports of Goods and Services
• GFDEBTN - Federal Debt: Total Public Debt
• GFDEGDQ188S - Federal Debt: Total Public Debt as Percent of Gross Domestic Product
• FYFSD - Federal Surplus or Deficit
• FGRECPT - Federal Government Current Receipts
• FGEXPND - Federal Government: Current Expenditures
• MANEMP - All Employees, Manufacturing
• USCONS - All Employees, Construction
• USTRADE - All Employees, Retail Trade
• USFIRE - All Employees, Financial Activities
• USGOVT - All Employees, Government
• AWHAETP - Average Weekly Hours of All Employees, Total Private
• DGORDER - Manufacturers' New Orders: Durable Goods
• NEWORDER - Manufacturers' New Orders: Nondefense Capital Goods Excluding Aircraft
• BUSINV - Total Business Inventories
• EXPGS - Exports of Goods and Services
• IMPGS - Imports of Goods and Services
• IR - Import Price Index (End Use): All Commodities
• PPIFIS - Producer Price Index by Commodity: Final Demand

Latest quarter (10-Q)

Latest 10-Q source: 0001185185-26-001667.

Extracted from Part I Item 2 to the first post-MD&A boundary after HTML sanitization. Confidence: high. Filing date: 2026-05-01. Report date: 2026-03-31.

Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The
following discussion and analysis of financial condition and results of operations should be read together with our condensed consolidated
financial statements and notes thereto, which appear elsewhere herein.

Disclosure
Regarding Forward-Looking Statements

This
Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. For example, statements included in this Report regarding our financial position, business
strategy and other plans and objectives for future operations, and assumptions and predictions about future product demand, supply, manufacturing,
costs, marketing and pricing factors are all forward-looking statements. When we use words like “intend,” “anticipate,”
“believe,” “estimate,” “plan” or “expect,” or other words of a similar import, we are
making forward-looking statements. We believe that the assumptions and expectations reflected in such forward-looking statements are
reasonable, based upon information available to us on the date hereof, but we cannot assure you that these assumptions and expectations
will prove to have been correct or that we will take any action that we may presently be planning. We have disclosed certain important
factors (e.g., see “Risk Factors”) that could cause our actual results to differ materially from our current expectations
elsewhere in this Report. You should understand that forward-looking statements made in this Report are necessarily qualified by these
factors. We are not undertaking to publicly update or revise any forward-looking statement if we obtain new information or upon the occurrence
of future events or otherwise.

Critical
Accounting Estimates

Our
critical accounting policies and estimates are included in the 2025 Annual Report on Form 10-K and did not materially change during the
first three months of 2026.

New
Accounting Pronouncements

See
Note 1 to the condensed consolidated financial statements.

Results
of Operations

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

Three Months Ended

March 31,

(Unaudited)

2026

2025

Net sales

100.0

%

100.0

%

Cost of sales:

Cost of goods

48.9

48.3

Royalty expense

15.9

16.0

Amortization of tools and molds

1.8

1.3

Cost of sales

66.6

65.6

Gross profit

33.4

34.4

Direct selling expenses

7.7

7.7

General and administrative expenses

30.8

29.9

Depreciation and amortization

0.1

0.1

Selling, general and administrative expenses

38.6

37.7

Loss from operations

(5.2

)

(3.3

)

Other income (expense), net

—

—

Interest income

0.4

0.3

Interest expense

—

(0.1

)

Loss before benefit from income taxes

(4.8

)

(3.1

)

Benefit from income taxes

(0.8

)

(1.0

)

Net loss

(4.0

)%

(2.1

)%

18

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

Three Months Ended

March 31,

(Unaudited)

2026

2025

Net Sales

Toys/Consumer Products

$

100,095

$

107,438

Costumes

6,581

5,815

106,676

113,253

Cost of Sales

Toys/Consumer Products

66,113

69,239

Costumes

4,957

5,001

71,070

74,240

Gross Profit

Toys/Consumer Products

33,982

38,199

Costumes

1,624

814

$

35,606

$

39,013

Comparison
of the Three Months Ended March 31, 2026 and 2025

Net
Sales

Toys/Consumer
Products. Net sales of our Toys/Consumer Products segment were $100.1 million for the three months ended March 31, 2026 compared
to $107.4 million for the prior year period, representing a decrease of $7.3 million, or 6.8%. The decrease was driven by lower sales
from North American customers despite higher sales from our International regions. Dolls, Role-Play/Dress-up sales were down 32.4% versus
a year ago due to lower sales related to the Moana 2 Movie product as well Disney Princess products. Net sales from the Action Play &
Collectibles division were up 28.9% due to higher net sales from the Super Mario Movie 2 products.

Costumes.
Net sales of our Costumes segment were $6.6 million for the three months ended March 31, 2026 compared to $5.8 million for the prior
year period, representing an increase of $0.8 million, or 13.8%. The increase was primarily due to increased sales related to Nintendo
costumes.

Cost
of Sales

Toys/Consumer Products. Cost of sales of our
Toys/Consumer Products segment was $66.1 million, or 66.0% of related net sales for the three months ended March 31, 2026 compared to
$69.2 million, or 64.4% of related net sales for the prior year period, representing a decrease of $3.1 million, or 4.5%. The increase
as a percentage of net sales was due to a higher cost of product and tolling amortization compared with prior year.

Costumes. Cost of sales of our Costumes segment
was $5.0 million, or 75.8% of related net sales for the three months ended March 31, 2026, compared to $5.0 million, or 86.2% of related
net sales for the prior year period. The decrease as a percentage of net sales was due to lower royalty expense.

Selling,
General and Administrative Expenses

Selling, general and administrative expenses were
$41.2 million for the three months ended March 31, 2026 compared to $42.8 million for the prior year period constituting 38.6% and 37.7%
of net sales, respectively. Selling, general and administrative expenses were slightly lower year over year, led by decreases in temp
help and media spend.

Benefit
From Income Taxes

Our income tax benefit, which includes federal, state
and foreign income taxes and discrete items, was $0.8 million, or an effective tax rate of 16.6%, for the three months ended March 31,
2026. During the comparable period in 2025, our income tax benefit was $1.2 million, or an effective tax rate of 32.8%. The decrease
in the effective tax rate is primarily attributable to a decrease in discrete tax benefits and an increase in pre-tax book loss for the
current period.

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Table of Contents 

Seasonality
and Backlog

The
retail toy industry is inherently seasonal. Generally, our sales have been highest during the second and third quarters, and collections
for those sales have been highest during the succeeding fourth and first quarters. Our working capital needs have been highest during
the second and third quarters as we make royalty advance payments for some of our licenses and buy and sell inventory subject to customer
payment terms.

While
we have taken steps to level sales over the entire year, sales are expected to remain heavily influenced by the seasonality of our toy
and costume products. The result of these seasonal patterns is that operating results and the demand for working capital may vary significantly
by quarter. Orders placed with us are generally cancelable until the date of shipment. The combination of seasonal demand and the potential
for order cancellation makes accurate forecasting of future sales difficult and causes us to believe that backlog may not be an accurate
indicator of our future sales. Similarly, financial results for a particular quarter may not be indicative of results for the entire
year.

Liquidity
and Capital Resources

As
of March 31, 2026, we had working capital (inclusive of cash, cash equivalents and restricted cash) of $111.8 million, compared to $121.0
million as of December 31, 2025, representing a decrease in working capital of $9.2 million during the three-month period ended March
31, 2026. The decrease in working capital is mainly attributable to changes in receivables, inventory and payables, coupled with cash
used in financing activities.

Operating activities provided net cash of $21.8 million
during the three months ended March 31, 2026, as compared to net cash used of $1.7 million in the prior year period. The increase in
net cash provided by operating activities year-over-year is primarily due to higher receivable collections, lower inventory purchases,
less capital tied in prepaids and other assets, a lower cash out-flow for payables and a net refund of cash taxes paid in prior years.
Other than open purchase orders issued in the normal course of business related to shipped product, we have no obligations to purchase
inventory from our manufacturers. However, we may incur costs or other losses as a result of not placing orders consistent with our forecasts
for product manufactured by our suppliers or manufacturers for a variety of reasons including customer order cancellations or a decline
in demand. As part of our strategy to develop and market new products, we have entered into various character and product licenses with
royalties/obligations generally ranging from 1% to 22% payable on net sales of such products. As of March 31, 2026, these agreements
required future aggregate minimum royalty guarantees of $193.4 million exclusive of $4.5 million in advances already paid. Of this $193.4
million future minimum royalty guarantee, $66.8 million is due over the next twelve months.

Investing
activities used net cash of $5.8 million and $3.1 million for the three months ended March 31, 2026 and 2025, respectively, and consisted
primarily of cash paid for the purchase of molds and tooling used in the manufacture of our products and purchases of investments to
fund our obligation to our employees stemming from our non-qualified deferred compensation plan.

Financing
activities used net cash of $4.3 million and $6.6 million for the three months ended March 31, 2026 and 2025, respectively. The cash
used in financing activities during the three months ended March 31, 2026, mainly consists of $1.3 million used for the repurchase of
our common stock for employee tax withholding and $2.9 million used to pay dividends. The cash used in financing activities during the
three months ended March 31, 2025, consists of $3.8 million used for the repurchase of our common stock for employee tax withholding
and $2.8 million used to pay dividends.

In
June 2025, we terminated our existing $67.5 million JPMorgan ABL revolving credit facility in connection with entering into a new senior
secured facility with BMO Bank N.A. The prior facility had no outstanding borrowings at the time of termination. We recorded a non-cash
charge of $0.3 million for the write-off of previously deferred financing costs associated with the JPMorgan facility.

On June 24, 2025, we entered into a new $70.0 million
senior secured revolving credit facility with a maturity date of June 24, 2030. This facility replaces our prior facility and is expected
to provide improved pricing and enhanced liquidity flexibility. Interest is payable at either SOFR plus a leverage-based margin or a
Base Rate alternative and includes a commitment fee on unused amounts. The facility includes financial covenants requiring a minimum
interest coverage ratio of 3.00 to 1.00 and a maximum total net leverage ratio of 2.00 to 1.00. As of March 31, 2026, we were in compliance
with all financial covenants.

Availability
under the revolving facility as of March 31, 2026, was $68.3 million. The facility provides the Company with flexibility to fund working
capital, capital expenditures, acquisitions, and general corporate purposes.

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

As of March 31, 2026 and December 31, 2025, we held
cash and cash equivalents, including restricted cash, of $64.0 million and $54.1 million, respectively. Cash, and cash equivalents, including
restricted cash held outside of the United States in various foreign subsidiaries totaled $20.0 million and $16.9 million as of March
31, 2026 and December 31, 2025, respectively. The cash and cash equivalents, including restricted cash balances in our foreign subsidiaries
have either been fully taxed in the U.S. or tax has been accounted for in

[Excerpt truncated for page length; source filing is linked above.]

Latest 10-K MD&A

Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high. Filing date: 2026-03-02. Report date: 2025-12-31.

Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations

The following Management’s Discussion
and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties.
Our actual results could differ materially from those anticipated in these forward-looking statements because of various factors.
You should read this section in conjunction with our consolidated financial statements and the related notes included in Item 8 “Consolidated
Financial Statements and Supplementary Data.”

Critical Accounting Policies and Estimates

The accompanying consolidated financial statements
and supplementary information were prepared in accordance with accounting principles generally accepted in the United States of America.
Significant accounting policies are discussed in Note 2 to the Consolidated Financial Statements, included within Item 8. Inherent in
the application of many of these accounting policies is the need for management to make estimates and judgments in the determination
of certain revenues, expenses, assets and liabilities. As such, materially different financial results can occur as circumstances change
and additional information becomes known. The estimates with the greatest potential effect on our results of operations and financial
position include:

Allowance for Current Expected Credit Losses.
Our allowance for current expected credit losses is based upon management’s assessment of the business environment, customers’
risk profile characteristics, historical collection and loss information, aging of accounts receivables, and other matters specific to
customer accounts in the establishment of pools. If there were a deterioration of a major customer’s creditworthiness, or actual
defaults were higher than our current expected credit losses, our estimates of the recoverability of amounts due to us could be misstated,
which could have an adverse impact on our operating results. Our allowance for current expected credit losses is also affected by the
time at which uncollectible accounts receivable balances are actually written off. The allowance for current expected credit losses requires
judgement related to the establishment of pools based on customer risk profile characteristics and the historical loss rates applied to
each pool and requires judgement since it involves estimation of the impact of both current and future economic factors in relation to
its customers’ risk profile characteristics. Changes in the assumptions used to develop the estimates could materially affect key
financial measures, including other selling and administrative expenses, net income and accounts receivable.

Goodwill. Goodwill represents the
excess of the purchase price over the fair values of the underlying net assets acquired in an acquisition. Goodwill is not amortized but
tested for impairment at least annually at the reporting unit level and asset level. The annual goodwill test is performed in the second
quarter and whenever events or changes in circumstances indicate that the carrying amount of a reporting unit may exceed its fair value,
we may assess goodwill for impairment using a qualitative assessment. Qualitative factors and their impact on critical inputs are assessed
to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If we determine
that a reporting unit has an indication of impairment based on the qualitative assessment, it is required to perform a quantitative assessment.
We may bypass the qualitative assessment and perform a quantitative assessment. Impairment is recognized in the amount by which, if any,
the carrying value of the reporting unit exceeds the fair value, not to exceed the carrying value of goodwill. We evaluate fair value
recoverability using both objective and subjective factors. Objective factors include cash flows and analysis of recent sales and earnings
trends. Subjective factors include our best estimates of projected future earnings and competitive analysis and the Company’s strategic
focus. We performed a quantitative assessment for Toys/Consumer Products reporting unit during Q2 2025, the fair value of which exceeded
its carrying amount by 26%. As of December 31, 2025, all our Goodwill of $35.1 million related to our Toys/Consumer Products reporting
unit.

Royalties. We enter into license
agreements with strategic partners, inventors, designers and others for the use of intellectual properties in our products. These agreements
generally require a percentage of sales (as defined by the respective agreements) be paid to third parties as royalties. They also often
require a fixed minimum dollar amount of royalties to be paid regardless of what level of sales are achieved during the term of the agreement.
Payment timing varies across agreements and may precede any sales or collections of monies related to such sales. We recognize royalty
expenses in the period in which sales are made. In addition, we assess whether forecasted revenue under any agreement is likely to be
sufficient to cover the minimum royalty guarantee, and if not a royalty shortfall reserve and associated royalty expense is recorded at
that time. If our actual revenue generated differs from our projections, the recoverability of our minimum guarantees would be impacted
and could materially affect key financial measures, including gross profit, net income and prepaid assets.

28

Table of Contents 

Reserve for Inventory Obsolescence.
We value our inventory at the lower of cost or net realizable value. Based upon consideration of quantities on hand, actual and projected
sales volume, anticipated product selling prices and product lines planned to be discontinued, slow-moving and obsolete inventory is
written down to its net realizable value.

Failure to accurately predict and respond to consumer
demand could result in us under-producing popular items or over-producing less popular items. Furthermore, significant changes in demand
for our products would impact management’s estimates in establishing our inventory provision.

Management’s estimates are monitored on
a quarterly basis, and a further adjustment to reduce inventory to its net realizable value is recorded as an increase in the cost of
sales when deemed necessary under the lower of cost or net realizable value standard. Significant changes in the assumptions used to
develop the estimate could materially affect key financial measures, including gross profit, net income and inventories.

Reserve for Sales Returns and Allowances.
We routinely enter into arrangements with our customers to provide sales incentives, support customer promotions and provide allowances
for returns and defective merchandise. Such programs are based primarily on customer purchases, customer performance of specified promotional
activities, and other specified factors such as sales to consumers. The accounting estimate related to sales adjustments requires significant
judgment to estimate related accruals, such as estimating volumes of defective products to support reserves for defective merchandise
and estimating future customer performance and consumer preferences that could impact the discretionary sales promotions. Significant
changes in the assumptions used to develop the estimates could materially affect key financial measures, such as net sales, gross profit,
net income, and reserve for sales returns and allowances.

Income taxes. We do not file a consolidated
return for our foreign subsidiaries. We file federal and state returns and our foreign subsidiaries each file returns in their respective
jurisdictions, as applicable. Deferred taxes are provided on an asset and liability method. Deferred tax assets are recognized as deductible
temporary differences, operating losses, or tax credit carry-forwards. Deferred tax liabilities are recognized as taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets
are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment.

Our annual income tax provision and related income
tax assets and liabilities are based upon actual income as allocated to the various tax jurisdictions based upon our transfer pricing
study, US and foreign statutory income tax rates and tax regulations and planning opportunities in the various jurisdictions in which
we operate. Significant judgment is required in interpreting tax regulations in the U.S. and foreign jurisdictions, and in evaluating
worldwide uncertain tax positions. Actual results could differ materially from those judgments, and changes from such judgments could
materially affect our consolidated financial statements.

We accrue a tax reserve for additional income taxes
and interest, which may become payable in future years as a result of audit adjustments by tax authorities. The reserve is based upon
management’s assessment of all relevant information and is periodically reviewed and adjusted as circumstances warrant. As of December
31, 2025, our income tax reserves were approximately $0.8 million and relate to federal and state income taxes.

We recognize current period interest expense and
penalties and the reversal of previously recognized interest expense and penalties that has been determined to not be assessable due
to the expiration of the related audit period or other compelling factors on the income tax liability for unrecognized tax benefits as
a component of the income tax provision recognized in the consolidated statements of operations.

29

Table of Contents 

Recent Accounting Pronouncements.

See Item 8 “Consolidated Financial Statements
and Supplementary Data Note 2 - Summary of Significant Accounting Policies.”

Results of Operations

The following table sets forth, for the periods
indicated, certain statement of operations data as a percentage of net sales. A discussion of the operating results for 2024 can be found
in our Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the SEC on March 6, 2025, in Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations.

Year Ended December 31,

2025

2024

Net sales

100.0

%

100.0

%

Less: Cost of sales

Cost of goods

49.7

52.3

Royalty expense

16.2

15.5

Amortization of tools and molds

1.7

1.4

Cost of sales

67.6

69.2

Gross profit

32.4

30.8

Direct selling expenses

6.4

5.8

General and administrative expenses

23.4

19.2

Depreciation and amortization

0.1

0.1

Selling, general and administrative expenses

29.9

25.1

Income from operations

2.5

5.7

Other income (expense), net

0.1

0.1

Loss on debt extinguishment

(0.1

)

—

Interest income

0.2

0.1

Interest expense

(0.1

)

(0.2

)

Income before provision for income taxes

2.6

5.7

Provision for income taxes

0.9

0.8

Net income

1.7

4.9

Net income attributable to JAKKS Pacific, Inc.

1.7

%

4.9

%

Net income attributable to common stockholders

1.7

%

5.1

%

The following table summarizes, for the periods
indicated, certain statement of operations data by segment (in thousands).

Year Ended December 31,

2025

2024

Net Sales

Toys/Consumer Products

$

461,937

$

570,018

Costumes

108,734

121,024

570,671

691,042

Cost of Sales

Toys/Consumer Products

304,333

389,534

Costumes

81,258

88,487

385,591

478,021

Gross Profit

Toys/Consumer Products

157,604

180,484

Costumes

27,476

32,537

$

185,080

$

213,021

30

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Comparison of the Years Ended December 31, 2025 and 2024

Net Sales

Toys/Consumer Products. Net sales of our Toys/Consumer
Products segment were $461.9 million in 2025, compared to $570.0 million in 2024, representing a decrease of $108.1 million, or 19.0%.
The decrease in net sales was primarily due to lower sales North America, down 24.0%, while International sales grew 2.7%. The Dolls,
Role Play and Dress Up Division decreased 22.6% year over year, mainly due to limited theatrical releases and lower sales within the Disney
Princess and Style Collection businesses. Within the Action Play & Collectibles Division, down 15.6%, Sonic the Hedgehog 3 and the
Sonic/DC collaboration added incremental year over year sales, while lower Nintendo sales offset those gains. The Seasonal Division was
down 8.8% from 2024.

Costumes. Net sales of our Costumes segment
were $108.7 million in 2025, compared to $121.0 million in 2024, representing a decrease of $12.3 million, or 10.2%. The decrease in net
sales was primarily driven by US customers lowering their order levels based on tariffs. Despite the lower sales in the US, our International
sales grew in 2025 its highest level.

Cost of Sales

Toys/Consumer Products. Cost of sales of
our Toys/Consumer Products segment was $304.3 million, or 65.9% of related net sales in 2025 compared to $389.5 million, or 68.3% of related
net sales in 2024 representing a decrease of $85.2 million or 21.9%. Although royalty rates were higher year-over-year, the decrease in
the cost of sales percentage of net sales, year-over-year is due to lower inventory obsolescence costs.

Costumes. Cost of sales of our Costumes segment
was $81.3 million, or 74.8% of related net sales for 2025 compared to $88.5 million, or 73.1% of related net sales for 2024 representing
a decrease of $7.2 million, or 8.1%. The year-over-year decrease in dollars is directly attributable to lower volume. The increase in
percent of net sales is attributable higher royalty expense due to higher royalty guarantee shortfalls offset by improvements in product
cost of goods attributable to mix and design for improved margin.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were
$170.9 million in 2025 and $173.3 million in 2024, constituting 29.9% and 25.1% of net sales, respectively. Selling, general and administrative
expenses decreased from the prior year by $2.4 million or 1.4% primarily driven by lower media costs and lower temporary labor costs.

Loss on Debt Extinguishment

In 2025, we recognized a loss on debt extinguishment
of $0.4 million in connection with the early termination our existing $67.5 million JPMorgan ABL revolving credit facility in connection
with entering into a new senior secured facility with BMO Bank, N.A.

Interest Income

Interest Income was $1.0 million for the year
ended December 31, 2025, as compared to $0.8 million in the prior year period. Interest income earned is primarily due to the Company’s
money market investments.

Interest Expense

Interest expense was $0.5 million for the year
ended December 31, 2025, as compared to $1.1 million in the prior year period, both related to borrowings from our revolving credit facilities.

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Provision for Income Taxes

During 2025, our income tax expense, which includes
federal, state and foreign income taxes and discrete items, was $4.9 million, or an effective tax rate of 33.1%. The 2025 tax expense
included a discrete tax benefit of $0.2 million primarily related to adjustments to uncertain tax positions and to return to provision
adjustments. Absent these discrete tax benefits, our effective tax rate for 2025 was 34.4%, primarily due to taxes on federal, state,
and foreign income.

During 2024, our income tax expense, which includes
federal, state and foreign income taxes and discrete items, was $5.5 million, or an effective tax rate of 13.9%. The 2024 tax expense
included a discrete tax benefit of $1.4 million primarily comprised of valuation allowance adjustments. Absent these discrete tax benefits,
our effective tax rate for 2024 was 17.4%, primarily due to taxes on federal, state, and foreign income.

We assess the available positive and negative evidence
to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets by jurisdiction. Based on our
evaluation of all positive and negative evidence, as of December 31, 2025, a valuation allowance of $0.7 million has been recorded against
the deferred tax assets that more likely than not will not be realized. The net deferred tax asset change of $0.8 million consists of
the net deferred tax asset changes in the US and foreign jurisdictions, where we are in a cumulative income position.

Uncertainties that may have a significant impact on net sales
and income (loss) from operations

Significant outbreaks of contagious diseases,
and other adverse public health developments, could have a material impact on our business operations and operating results. The immediate
and lingering impact of the 2019 COVID-19 pandemic added additional risk and complexity to the Company’s operations. In addition,
the history of smaller scale epidemics in Hong Kong/China (e.g., “bird flu”) highlights an additional risk given that substantially
all of our product is sourced from China and our Hong Kong operation is foundational to our business model. We cannot quantify the extent
that any new outbreak might have on our sales, net income and cash flows, but it could be significant.

In the first quarter of 2022, Russia and Ukraine
engaged in an armed conflict that continues. We cannot predict at this time if the conflict will spread to other countries. Accordingly,
we cannot quantify at this time if, or the extent, this conflict will adversely impact our business operations.

The U.S. taking unilateral action to impose tariffs
on products imported from China and adopting an approach to deploy tariffs with no advance notice or feedback mechanism has created across
markets has created uncertainty about our ability to source products with a cost structure consistent with our recent history. It also
increased the possibility that markets outside the U.S. could institute retaliatory tariffs that would ultimately increase the cost of
our doing business in those markets where we import product. In addition, our customer base has faced increased costs in importing our
product from Hong Kong into their home markets. In the event our customers choose to raise consumer prices to offset these costs, negative
consumer reaction could substantially reduce unit demand for our product line, and by extension lower sales. Lower sales could negatively
impact our profitability and cash flows.

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Quarterly Fluctuations and Seasonality

We have experienced significant quarterly fluctuations
in operating results and anticipate these fluctuations in the future. The operating results for any quarter are not necessarily indicative
of results for any future period. Our first quarter is typically expected to be the least profitable as a result of lower net sales but
substantially similar fixed operating expenses. This is consistent with the performance of many companies in the toy industry.

The following table presents our unaudited quarterly
results for the years indicated. The seasonality of our business is reflected in this quarterly presentation.

2025

2024

First

Second

Third

Fourth

First

Second

Third

Fourth

(Unaudited)

Quarter

Quarter

Quarter

Quarter

Quarter

Quarter

Quarter

Quarter

Net Sales

$

113,253

$

119,094

$

211,210

$

127,114

$

90,076

$

148,619

$

321,606

$

130,741

As a % of full year

19.8

%

20.9

%

37.0

%

22.3

%

13.0

%

21.6

%

46.5

%

18.9

%

Gross profit

$

39,013

$

39,023

$

67,643

$

39,401

$

21,052

$

47,585

$

108,831

$

35,553

As a % of full year

21.1

%

21.1

%

36.5

%

21.3

%

9.9

%

22.3

%

51.1

%

16.7

%

As a % of net sales

34.4

%

32.8

%

32.0

%

31.0

%

23.4

%

32.0

%

33.8

%

27.2

%

Income (loss) from operations

$

(3,757

)

$

(2,783

)

$

29,363

$

(8,605

)

$

(21,324

)

$

7,643

$

68,083

$

(14,718

)

As a % of full year

(26.4

)%

(19.6

)%

206.5

%

(60.5

)%

(53.7

)%

19.2

%

171.6

%

(37.1

)%

As a % of net sales

(3.3

)%

(2.3

)%

13.9

%

(6.8

)%

(23.7

)%

5.1

%

21.2

%

(11.3

)%

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

$

(3,545

)

$

(2,925

)

$

29,723

$

(8,488

)

$

(20,953

)

$

7,547

$

67,697

$

(14,559

)

As a % of net sales

(3.1

)%

(2.5

)%

14.1

%

(6.7

)%

(23.3

)%

5.0

%

21.0

%

(11.2

)%

Net income (loss)

$

(2,382

)

$

(2,319

)

$

19,892

$

(5,320

)

$

(14,225

)

$

5,266

$

52,272

$

(9,113

)

As a % of net sales

(2.1

)%

(1.9

)%

9.4

%

(4.2

)%

(15.8

)%

3.5

%

16.3

%

(7.0

)%

Net income (loss) attributable to
non-controlling interests

$

—

$

—

$

—

$

—

$

280

$

—

$

—

$

—

As a % of net sales

—

%

—

%

—

%

—

%

0.3

%

—

%

—

%

—

%

Net income (loss) attributable to
JAKKS Pacific, Inc.

$

(2,382

)

$

(2,319

)

$

19,892

$

(5,320

)

$

(14,505

)

$

5,266

$

52,272

$

(9,113

)

As a % of net sales

(2.1

)%

(1.9

)%

9.4

%

(4.2

)%

(16.1

)%

3.5

%

16.3

%

(7.0

)%

Net income (loss) attributable to
common stockholders

$

(2,382

)

$

(2,319

)

$

19,892

$

(5,320

)

$

(13,175

)

$

5,266

$

52,272

$

(9,113

)

As a % of net sales

(2.1

)%

(1.9

)%

9.4

%

(4.2

)%

(14.6

)%

3.5

%

16.3

%

(7.0

)%

Diluted earnings (loss) per share

$

(0.21

)

$

(0.21

)

$

1.74

$

(0.47

)

$

(1.27

)

$

0.47

$

4.64

$

(0.83

)

Weighted average shares and equivalents outstanding

11,146

11,146

11,423

11,282

10,354

11,245

11,275

11,008

Quarterly and year-to-date computations of income
(loss) per share amounts are made independently. Therefore, the sum of the per share amounts for the quarters may not agree with the
per share amounts for the year.

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Liquidity and Capital Resources

As of December 31, 2025, we had working capital
of $121.0 million compared to $119.3 million as of December 31, 2024.

Operating activities provided net cash of $8.5
million in 2025 and $38.9 million in 2024. The decrease in cash flows provided by operating activities, year-over-year, was primarily
due to a lower net income and higher working capital usage, partially offset by higher non-cash charges related to valuation adjustments
for our preferred stock derivative liability and an increase in deferred income tax assets due to inventory cost and other expense capitalization
matters, both in 2024. Other than open purchase orders issued in the normal course of business related to shipped product, we have no
obligations to purchase inventory from our manufacturers. However, we may incur costs or other losses as a result of not placing orders
consistent with our forecasts for products manufactured by our suppliers or manufacturers for a variety of reasons including customer
order cancellations or a decline in demand. As part of our strategy to develop and market new products, we have entered into various
character and product licenses with royalties/obligations generally ranging from 1% to 22% payable on net sales of such products. As
of December 31, 2025, these agreements required future aggregate minimum royalty guarantees of $189.8 million, exclusive of $2.3 million
in advances already paid. Of this $189.8 million future minimum royalty guarantee, $57.4 million is due over the next twelve months.

Investing activities used net cash of $12.3 million
and $12.9 million for the years ended December 31, 2025 and 2024, respectively, and consisted primarily of cash paid for the purchase
of molds and tooling used in the manufacture of our products and purchases of investments to fund our obligation to our employees stemming
from our non-qualified deferred compensation plan.

Financing activities used net cash of $17.1 million
in 2025 and $26.9 million in 2024. The cash used in 2025 primarily consists of the quarterly cash dividends paid to holders of our common
stock of $11.2 million and the repurchase of common stock for employee tax withholding of $5.7 million. The cash used in 2024 primarily
consists of the cash portion for the redemption of the Series A Preferred stock of $20.0 million and the repurchase of common stock for
employee tax withholding of $6.9 million.

The following is a summary of our significant
contractual cash obligations for the periods indicated that existed as of December 31, 2025 and is based upon information appearing in
the notes to the consolidated financial statements (in thousands):

2026

2027

2028

2029

2030

Thereafter

Total

Operating leases

$

16,936

$

17,177

$

16,757

$

7,106

$

426

$

2,171

$

60,573

Minimum guaranteed license/royalty payments

57,374

49,070

46,474

36,862

—

—

189,780

Employment contracts

6,431

5,355

2,609

665

—

—

15,060

Total contractual cash obligations

$

80,741

$

71,602

$

65,840

$

44,633

$

426

$

2,171

$

265,413

The above table excludes any potential uncertain income
tax liabilities that may become payable upon examination of our income tax returns by taxing authorities. Such amounts and periods of
payment cannot be reliably estimated (see Item 8 “Consolidated Financial Statements and Supplementary Data Note 11 - Income
Taxes” for further explanation of our uncertain tax positions).

In June 2025, we terminated our existing $67.5
million JPMorgan ABL revolving credit facility in connection with entering into a new senior secured facility with BMO Bank, N.A. The
prior facility had no outstanding borrowings at the time of termination. We recorded a non-cash charge of $0.3 million for the write-off
of previously deferred financing costs associated with the JPMorgan facility.

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On June 24, 2025, the Company and certain of its
subsidiaries entered into a new Credit Agreement (the “BMO Credit Agreement”) with BMO Bank, N.A., as administrative agent,
and a syndicate of lenders. The BMO Credit Agreement provides for a senior secured revolving credit facility (the “Revolving Facility”)
with aggregate commitments of up to $70.0 million, including a $10.0 million sublimit for swingline loans and a $25.0 million sublimit
for letters of credit. The Revolving Facility matures on June 24, 2030, unless extended pursuant to its terms. Capitalized terms used
below have the meanings assigned to them in the BMO Credit Agreement.

Borrowings under the Revolving Facility bear interest,
at the Company’s election, at either (i) the Adjusted Term Secured Overnight Financing Rate (“SOFR”) plus an applicable
margin or (ii) the Base Rate plus an applicable margin. The applicable margin varies based on the Company’s Total Net Leverage Ratio
and ranges from 1.50% to 2.00% for SOFR loans and from 0.50% to 1.00% for Base Rate loans. The Company is also subject to a commitment
fee on the unused portion of the Revolving Facility ranging from 0.20% to 0.30%, and a fee on outstanding letters of credit ranging from
1.50% to 2.00%.

The BMO Credit Agreement contains customary affirmative
and negative covenants, including limitations on indebtedness, liens, investments, asset sales and dividends. Financial covenants include
a minimum Consolidated Interest Coverage Ratio of 3.00 to 1.00, and maximum Total Net Leverage Ratio of 2.00 to 1.00, tested quarterly.

The obligations under the BMO Credit Agreement
are guaranteed by certain of the Company’s U.S., Canadian and Hong Kong subsidiaries and are secured by substantially all of the
assets of the Company and certain of its subsidiaries, including equity interests in certain subsidiaries, subject to certain customary
exclusions.

Availability under the revolving facility as of
December 31, 2025, was $68.3 million. The facility provides the Company with flexibility to fund working capital, capital expenditures,
acquisitions, and general corporate purposes.

We were in compliance with the financial covenants
under the BMO Credit Agreement as of December 31, 2025.

(See Item 8 “Consolidated Financial Statements
and Supplementary Data, Note 8 – Debt and Note 9 – Credit Facilities” for additional information pertaining to our Debt
and Credit Facilities.)

As of December 31, 2025, and 2024, we held cash
and cash equivalents, including restricted cash, of $54.1 million and $70.1 million, respectively. Cash, and cash equivalents, including
restricted cash held outside of the United States, in various foreign subsidiaries totaled $16.9 million and $16.5 million as of December
31, 2025, and 2024, respectively. The cash and cash equivalents, including restricted cash balances in our foreign subsidiaries have either
been fully taxed in the U.S. or tax has been accounted for in connection with the Tax Cuts and Jobs Act, or may be eligible for a full
foreign dividends received deduction under such Act, and thus would not be subject to additional U.S. tax should such amounts be repatriated
in the form of dividends or deemed distributions. Any such repatriation may result in foreign withholding taxes, which we expect would
not be significant as of December 31, 2025.

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Our primary sources of working capital are cash flows
from operations and borrowings under our credit facility (See Item 8 “Consolidated Financial Statements and Supplementary Data Note
9 – Credit Facilities”).

Typically, cash flows from operations are impacted
by the effect on sales of (1) the appeal of our products, (2) the success of our licensed brands in motivating consumer purchase of related
merchandise, (3) the highly competitive conditions existing in the toy industry and in securing commercially-attractive licenses, (4)
dependency on a limited set of large customers, and (5) general economic conditions. A downturn in any single factor or a combination
of factors could have a material adverse impact upon our ability to generate sufficient cash flows to operate the business. In addition,
our business and liquidity are dependent to a significant degree on our vendors and their financial health, as well as the ability to
accurately forecast the demand for products. The loss of a key vendor, or material changes in support by them, or a significant variance
in actual demand compared to the forecast, can have a material adverse impact on our cash flows and business. Given the conditions in
the toy industry environment in general, vendors, including licensors, may seek further assurances or take actions to protect against
non-payment of amounts due to them. Changes in this area could have a material adverse impact on our liquidity.

As of December 31, 2025, off-balance sheet arrangements
include letters of credit issued by JPMorgan of $1.6 million, temporarily secured with cash as collateral, and letters of credit issued
by BMO of $1.7 million.

On July 1, 2022, we entered into an ATM Agreement
with B. Riley, as agent pursuant to which we may, from time to time, sell shares of our common stock, up to $75 million in common stock,
in one or more offerings in amounts, at prices and in the terms that we will determine at the time of the offering. On July 1, 2022, we
filed a Form S-3 shelf registration statement (File No. 333-266009) with the SEC. On Aug 1, 2022, the SEC declared the Form S-3 shelf
registration statement filed by us to be effective. In 2025, the registration statement expired by law on its third anniversary. We expect
to file a new registration that will be declared effective during the first or second quarter of 2026.

We did not sell any shares of common stock under
the ATM Agreement or pursuant to our self-registration statement.

The nature of our business is several factors influence
the price we offer product to our customers, and by extension they sell to our end customer. Our products are manufactured by third-party
vendors who deal with increases in labor rates as a normal course of their respective businesses. The costing of the plastic components
of our toys can be sensitive to sudden swings in oil prices. Currency exchange can also create a degree of volatility, although the majority
of our products are sourced in USD or Hong Kong dollars. Increased volumes ideally generate increased scale at various points in the value
chain. Often times, in the toy industry when cost pressures result in price increases, the development teams will reengineer subsequent
year refreshes to cost-reduce the items down to support traditional price points and preserve historical margins. With those considerations
in mind as well as others, during the last three fiscal years ending December 31, we do not believe that inflation has had a material
impact on our net sales and income from continuing operations.

Exchange Rates

Sales from our United States and Hong Kong operations
are denominated in U.S. dollars and our manufacturing costs are denominated in either U.S. or Hong Kong dollars. Local sales (other than
in Hong Kong) and operating expenses of our operations in Hong Kong, the United Kingdom, Germany, the Netherlands, France, Italy, Canada,
Mexico and China are denominated in local currency, thereby creating exposure to changes in exchange rates. Changes in the various exchange
rates against the U.S. dollar may positively or negatively affect our operating results. We cannot assure you that the exchange rate between
the United States and other currencies will not have a material adverse effect on our business, financial condition or results of operations.

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