JAKK 10-K & 10-Q changes, risk factors and insider trading

Sales of products under trademarks or trade or brand brand names licensed from others account for substantially all of our net sales. Product licenses allow us to capitalize on characters, designs, designs, concepts and inventions owned by others or developed by toy inventors and designers. Our license agreements generally require us to make specified minimum royalty payments, even if we fail to sell a sufficient number of units to generate these dollar amounts under the percentage of sales basis under which most agreements are written. Some of our license agreements have additional requirements for marketing spend for the brands licensed. Some of our license agreements disallow certain retailer credits and deductions from the sales base on which royalties are calculated, including in some cases uncollectable accounts. In addition, under certain of our license agreements, if we fail to achieve certain prescribed sales targets, we may be unable to retain or renew these licenses which may adversely impact our business, results of operations and financial condition. Many of our license agreements, although multi-year in total, require us to pay a minimum level of royalties annually that cannot be recouped outside of selling during that time period (often 12 months). There may also be minimum royalty commitments assigned to specific geographic regions or countries. As a result, sudden shocks to the market, such as has been the case with COVID-19COVID-19, trade wars or when a foundational retailer goes bankrupt, might leave us with these fixed expenses unless licensors are willing to renegotiate terms in consideration for the unexpected nature of the shock. Contractual minimal royalty payments are almost always fixed and determined upon signing, so these sorts of shocks could have a negative impact on our business, results of operations and financial condition for multiple years given the nature and timing of the shock.

Under the majority of our license agreements, the licensors have the right to review and approve our use of their licensed products, designs or materials before we may make any sales. If a licensor refuses to permit our use of any licensed property in the way we propose, or if their review process is delayed or not timely, our development, manufacturing and/or sale of new products could be impeded. Our licensing agreements include other restrictive provisions, such as limitations of the time period in which we have to sell existing inventory upon expiration of the license, requiring licensor approval of contract manufacturers and approval of marketing and promotional materials, limitations on channels of distribution, including internetonline sales, change of ownership clauses that require licensor approval of such change and may require a fee to be paid under certain circumstances and various other provisions that may have an adverse impact on our business, results of operations and financial condition.

Our continued success will substantially depend upon our ability to maintain existing relevant licenses and obtain new additional licenses. Intense competition exists for desirable licenses in in our industry. We cannot assure you that we will be able to secure or renew significant licenses on terms acceptable to us. In addition, as we add licenses, the need to fund additional capital expenditures, royalty advances and guaranteed minimum royalty payments may strain our cash resources. Often, licensors require cash advance payments upon signing agreements against future minimum royalty obligations, which requires us to pay out cash several quarters prior to our ability to ship, invoice and ultimately collect revenue from the related product sales. In addition, there might be licensor or consumer expectations that certain toy products contain music or musical elements related to the original entertainment. Those music rights must be separately acquired at additional expense, and as a result can adversely affect our profitability and competitiveness at retail.

The success of many of our character-related and theme-related products depends upon the popularity of characters in books, movies, television programs, video games, live sporting exhibitions, and other media and events. As we have a 9-18-month concept-to-market timeline depending on the product category, there is a degree of exposure given our dependence on third parties to adhere to their planned schedules. By extension, any sudden disruption in that third party’s release calendar can have negative repercussions for our business, both in terms of recouping our investments to date, as well as monetizing those investments at the profit margins we have planned. As we have a 9-18-month concept-to-market timeline depending on the product category, there is a degree of exposure given our dependence on third parties to adhere to their planned schedules. We cannot assure you that:

Our threetwo largest customers,customers are Target®, and Walmart®, and Amazon®,which accounted for 64.4%26.6% and 26.1%, respectively, of our net sales in 2024.2025. Except for outstanding purchase orders for specific products, we do not have written contracts with, or commitments from, any of our customers, and pursuant to the terms of certain of our vendor agreements, even some purchase orders may be cancelled without penalty up until delivery. A substantial reduction in or termination of orders from any of our largest customers would adversely affect our business, results of operations and financial condition. In addition, pressure by large customers seeking price reductions, financial incentives and changes in other terms of sale or for us to bear the risks and the cost of importing and carrying inventory could also adversely affect our business, results of operations and financial condition.

In June 2021,2025, we entered into and consummated a binding definitive agreement with JPMorganBMO ChaseBank N.A. (for ana asset-basedrevolving credit linefacility) with the objective of increasing our overall liquidity.

We havemay enteredenter into an At the Market Issuance Sales Agreement, pursuant to which we may offer and sell, from time to time, shares of our common stock, which may adversely affect the price of our Common Stock.

We have entered into an At the Market Issuance Sales Agreement (“ATM Agreement”), pursuant to which we may issue, from time to time, up to $75.0 million of common stock, in one or more offerings in amounts, prices and at terms that we will determine at the time of the offering. Any such sale of common stock will dilute our other equity holders and may adversely affect the market price of the common stock. Under our currently existing ATM Agreement with B. Riley, as of March 6, 2025, we have not sold any shares of our common stock.

We haveexpect anto effectivefile a shelf registration statement pursuant to which we may offer and sell, from time to time, securities, which may adversely affect the price of our Common Stock.

We haveexpect onto file with the SEC an effective registration statement pursuant to which we may issue, from time to time, up to $150 million of securities (which will be reduced by any amount of securities sold pursuant to the ATM Agreement) consisting of, or any combination of, common stock, preferred stock, debt securities, warrants, warrants, rights and/or units, in one or more offerings in amounts, prices and at terms that we will determine at the time of the offering. Any Any such sale of stock or convertible securities will, or have the potential to, dilute our other equity holders and may adversely affect the market price of the common stock. As of March 6, 2025, we have not sold any securities pursuant to our shelf registration statement.

Economic conditions, such as decreased consumer confidence, inflation or a recession, may adversely impact our business, results of operations and financial condition. In addition, general economic conditions were significantly and negatively affected by the September 11th terrorist attacks and could be similarly affected by any future attacks. The COVID-19 pandemic had a negative impact to our business in 2020 by disrupting consumer behavior, spending patterns and ultimately the play patterns and events that often motivate purchases of our products. Furthermore,The restrictionssudden imposition of tariffs in 2025 in the US on nearlyproducts allsourced of from China similarly reduced customer demand for our customers’ operating hoursproduct in 2020reaction atto onethe pointincreased cost per unit, while similarly increasing our cost base for product we import for sale in the yearUS orout another limited consumers’ ability to discoverof our products throughUS traditionalwarehouse in-store browsing and unplanned purchases. Continuation of such a weakened economic and business climate, as well as consumer uncertainty created by such a climate, could further adversely affect our sales and profitability.location. Other conditions, such as as the unavailability of electronic components or other raw materials, for example, may impede our ability to manufacture, source and ship ship new and continuing products on a timely basis. Interruptions and delays in the availability of raw materials and finished goods could result from labor stoppages and strikes, the occurrence or threat of wars or similar conflicts, trade restrictions, and severe or unexpected weather conditions and other factors, any of which could adversely affect our business and the results of our operations. Significant and sustained increases in the price of oil, for example, could adversely impact the cost of the raw materials used in the manufacture of certain of our products, such as plastic, as well as ocean and over-the-road shipping costs. Increases in the costs of raw materials and shipping and other transportation costs and delays in the delivery of finished goods, if not offset by higher prices, could adversely impact our sales. Further, actions US trade authorities have taken, and/or may take, around tariffs and related trade policies and the associated uncertainty of how such actions may be implemented add instability to our supply-chain. Our ability to offer products at the same levels of margins our customers have grown to expect and the same level of price-value our consumers have come to expect may be impeded as a result.

We depend upon many third-party manufacturers who develop, provide and use the tools, dies and molds that we generally own to manufacture our products.products, many of which we have successfully work with for decades. However, we have limited control over the manufacturing processes themselves. As a result, any difficulties encountered by the third-party manufacturers that result in product defects, production delays, cost overruns or the inability to fulfill orders on a timely basis, could adversely affect our business, results of operations and financial condition. The continuing conflict in the Middle East and its impact on the Red Sea shipping routes, as well as the climate driven transit disruptions at the Panama Canal in Middle America, may ultimately negatively impact the global flow of goods with increasing transit times and cost, which could adversely affect our ability to deliver our products in a timely manner and maintain our expected cost structure.

We do not have long-term contracts with our third-party manufacturers. Although we believe we could secure other third-party manufacturers to produce our products, our operations would be adversely affected if we suddenly lost our relationship with any of our current suppliers or if our current suppliers’ operations or sea or air transportation with our overseas manufacturers were disrupted or terminated even for a relatively short period of time. While a few of our manufactures supply a meaningful volume of our products, we are constantly evaluating new manufacturing sources to ensure we are maintaining product quality and innovation, source flexibility and market-appropriate pricing. Our tools, dies and molds are located at the facilities of our third-party manufacturers. Although we own the majority of those tools, dies and molds, our ability to retrieve them and move them to a new manufacturer in a cost-neutral manner might be limited by lack of manufacturing equipment compatibility or compatibility.government regulation.

Although we do not purchase the raw materials used to manufacture our products, we are potentially subject to variations in the prices we pay our third-party manufacturers for products, depending upon what they pay for their raw materials. We may also 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. In the event that some unexpected shock to the market (like the COVID-19 pandemic orpandemic, a sudden trade war, or a flare up in a shooting war in a sensitive area) were to suddenly drastically change demand or costing for product anticipated to be procured from our third-party manufacturers, we may incur some costs relating to raw materials they have ordered on our behalf, and/or finished goods that were not shipped due to last-minute cancelled orders from our customers buying FOB from China.

Our reliance upon external sources of manufacturing can be shifted, over a period of time, to alternative sources of supply, should such changes be necessary, but notcannot be done so quickly in a cost-neutral manner. However, if we were prevented from obtaining products or components for a material portion of our product line due to regulatory, political, labor or other factors beyond our control, our operations would be disrupted while alternative sources of products were secured. Also, the imposition of trade sanctions by the United States or another major market where we sell product against a class of products imported by us from, or the loss of “normal trade relations” status by China could significantly increase our cost of products imported from that nation. Because of the importance of international sales and international sourcing of manufacturing to our business, our results of operations and financial condition could be significantly and adversely affected if any of the risks described above or similar type of risks were to occur.

We are a party to lawsuits and other legal proceedings in the normal course of our business. Litigation and other legal proceedings can be expensive, lengthy and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. We cannot provide assurance that we will not be a party to additionalmaterial legal proceedings in the future. To the extent legal proceedings continue for long time periods or are adversely resolved, our business, results of operations, and financial condition could be significantly harmed.

If we are unable to acquire and integrate companies and new product lines successfully, we will be unable to implement a significantmeaningful componentpath ofto our growth strategy.growth.

Our growth strategy depends, in part, upon our ability to to acquire companies and new licenses and product lines. Future acquisitions, if any, may succeed only if we can effectively assess characteristics of potential target companies and product lines, such as:

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 as a resultbecause 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

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. Management believes the accounting estimate related to theThe allowance for current expected credit losses is a “critical accounting policy” because requires judgement isrelated required into the establishment of pools based on customer risk profile characteristics and the historical loss rates applied to each pool.pool In addition, the allowanceand 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.

Royalties. We enter into license agreements with strategic partners, inventors, designers and others for the use of intellectual properties in itsour 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 callprecede forany payment in advancesales or future paymentcollections of minimummonies guaranteed amounts. Amounts paid in advance are recorded as an asset and chargedrelated to expensesuch whensales. theWe relatedrecognize revenue is recognizedroyalty expenses in the consolidatedperiod statementsin ofwhich operations.sales Ifare allmade. orIn aaddition, portionwe ofassess whether forecasted revenue under any agreement is likely to be sufficient to cover the minimum guaranteed amountsroyalty appearguarantee, and if not to be recoverable through future use of the rights obtained under the license, the non-recoverable portion of the guaranty is charged to expense at that time. On a quarterly basis, we evaluate the recoverability of minimum guarantee amounts based on forecast revenues to be received for the products and record aroyalty shortfall reserve forand expectedassociated unrecoverableroyalty amounts.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.

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 activitiesactivities, and other specified factors such as sales to consumers. Management believes that theThe accounting estimatesestimate related to sales adjustments are “critical accounting policies” becauserequires significant judgment is required 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.

Toys/Consumer Products. Net sales of our Toys/Consumer Products segment were $461.9 million in 2025, compared to $570.0 million in 2024, compared to $580.7 million in 2023, representing a decrease of $10.7$108.1 million, or 1.8%. 19.0%. The decrease in net sales was primarily due to lower sales inNorth theAmerica, 1-2%down range24.0%, inwhile eachInternational ofsales ourgrew 2.7%. The Dolls, Role Play and Dress Up Division,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 DivisionDivision, anddown Seasonal Division. Movie properties such as15.6%, Sonic the Hedgehog 3 and Disney’sthe Sonic/DC Moana 2collaboration helpedadded incremental year over year sales, while lower Nintendo sales in 2024, but were offset bythose lowergains. shippingThe Seasonal Division was down 8.8% from prior year movie properties such as The Super Mario Bros. Movie, Disney’s The Little Mermaid, Disney’s Wish and Disney’s Encanto.2024.

Costumes. Net sales of our Costumes segment were $108.7 million in 2025, compared to $121.0 million in 2024, compared to $130.9 million in 2023, representing a decrease of $9.9$12.3 million, or 7.6%.10.2%. The decrease in net sales was primarily driven by US customers recalibratinglowering their order levels down based on Halloween 2023 sell-through.tariffs. Despite the lower sales in the US, our International sales grew in 20242025 to theits highest year ever.level.

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 comparedrepresenting toa $388.3 million, or 66.9%decrease of related net sales in 2023 representing an increase of $1.2$85.2 million or 0.3%.21.9%. Although royalty rates were lowerhigher year-over-year, the increasedecrease in the cost of sales percentage of net sales, year-over-year is due to higherlower 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 compared to $99.9 million, or 76.3% of related net sales for 2023 representing a decrease of $11.4$7.2 million, or 11.4%.8.1%. The year-over-year decrease in dollars is directly attributable to lower volume. The decreaseincrease in percent of net sales is attributable lowerhigher royalty expense due to lowerhigher royalty guarantee shortfalls andoffset marginalby improvements in product cost of goods attributable to mix and design for improved margin.

Selling, general and administrative expenses were $170.9 million in 2025 and $173.3 million in 20242024, constituting 29.9% and $164.2 million in 2023, constituting 25.1% and 23.1% of net sales, respectively. Selling, general and administrative expenses increaseddecreased from the prior year by $2.4 million or 1.4% primarily driven by higherlower media costs, product development expensescosts and employeelower compensation.temporary labor costs.

In 2023,2025, we recognized a loss on debt extinguishment of $1.0$0.4 million in connection with the extinguishmentearly oftermination theour 2021existing BSP$67.5 Termmillion LoanJPMorgan ABL revolving credit facility in Juneconnection with 2023.entering into a new senior secured facility with BMO Bank, N.A.

Interest expense was $1.1$0.5 million for the year ended ended December 31, 2024,2025, as compared to $6.5$1.1 million in the prior year period.period, In 2024, we recorded interest expense of $1.1 millionboth related to borrowings from our revolving credit facility. In 2023, we recorded interest expense of $3.2 million related to our 2021 BSP Term Loan, $0.7 million related to our revolving credit facility and $2.6 million related to other borrowing costs.facilities.

During 2024,2025, our income tax expense, which includes federal, state and foreign income taxes and discrete items, was $5.5$4.9 million, or an effective tax rate of 13.9%.33.1%. The 20242025 tax expense included a discrete tax benefit of $1.4$0.2 million primarily comprisedrelated ofto adjustments to uncertain tax positions and to return to provision adjustments. Absent these discrete tax benefits, our effective tax rate for 20242025 was 17.4%,34.4%, primarily due to taxes on federal, state, and foreign income.

In the first quarter of 2022, Russia and Ukraine engaged in an armed conflict that continues. We cannot predict at this time if the length of this conflict and if it 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 suggestion that the U.S. will taketaking unilateral action to impose tariffs on products imported from China createsand significantadopting 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. The additional suggestion that the U.S. will take unilateral action to impose tariffs on products imported from Canada and/or Mexico also creates significant uncertainty about which additional markets could be targeted for new tariffs. It also increases 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 mayhas facefaced significant 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.

Investing activities used net cash of $12.9$12.3 million and $8.9$12.9 million for the years ended December 31, 20242025 and 2023,2024, respectively, and consisted primarily of cash paid for the purchase of of molds and tooling used in the manufacture of our products.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 $26.9$17.1 million in 20242025 and $72.3$26.9 million in 2023.2024. 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$20.0 million and the repurchase of common stock for employee tax withholding of $6.9 million. The cash used in 2023 primarily consists of the repayment of our 2021 BSP Term Loan of $69.2 million and the repurchase of common stock for employee tax withholding of $3.1 million.

We were in compliance with the financial covenants under the JPMorganBMO ABLCredit Agreement as of December 31, 2024.2025.

Our primary sources of working capital are cash flows flows from operations and borrowings under our JPMorgancredit ABL Facilityfacility (See Item 8 “Consolidated Financial Statements and Supplementary Data Note 10 9 – Credit Facilities”).

As of December 31, 2024,2025, off-balance sheet arrangements include letters of credit issued by JPMorgan of $4.4$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.

AsWe of March 6, 2025, we havedid not soldsell any shares of common stock under the ATM Agreement.Agreement or pursuant to our self-registration statement.

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 threesix months of 2026.

Comparison of the Three Months Ended MarchJune 31,30, 2026 and 2025

Costumes.Toys/Consumer Products. Net sales of our CostumesToys/Consumer Products segment were $6.6$97.5 million for the three months ended MarchJune 31,30, 2026 compared to $5.8 $80.4 million for the prior year period, representing an increase of $0.8$17.1 million, or 13.8%.21.3%. The increase was primarilydriven dueby higher sales in the Action Play and Collectibles division, up 40.7% versus a year ago, driven by sales of Super Mario Movie and Nintendo products. Additionally, the Dolls, Role-Play/Dress Up division increased 11.8% compared to increasedthe salessame relatedperiod toa Nintendo costumes.year ago.

Toys/Consumer Products. Cost of sales of our Toys/Consumer Products segment was $66.1$64.0 million, or 66.0%65.6% of related net sales for the three months ended MarchJune 31,30, 2026 compared to $69.2 $53.3 million, or 64.4%66.3% of related net sales for the prior year period, representing aan decreaseincrease of $3.1 $10.7 million, or 4.5%.20.1%. The increase decrease as a percentage of net sales was due to lower product costs as a percentage of net sales, while in the increase in dollars was due to higher cost of product and tolling amortization compared with prior year.volume.

Costumes. Cost of sales of our Costumes segment was $5.0$30.3 million, or 75.8%72.7% of related net sales for the three months ended MarchJune 31,30, 2026, compared to $5.0$26.8 million, or 86.2%69.3% of related net sales for the prior year period.period, representing an increase of $3.5 million, or 13.1%. The decreaseincrease was due to higher product costs as a percentage of net sales wason dueCostume toproduct lowerversus royaltya expense.year ago.

Selling, general and administrative expenses were $41.2 $45.1 million for the three months ended MarchJune 31,30, 2026 compared to $42.8$41.8 million for the prior year period constituting 38.6%32.4% and 37.7% 35.1% of net sales, respectively. Selling, general and administrative expenses were slightlyup lower$3.3 million year over year,year leddue byto decreasesslightly inhigher temp helpselling expenses and mediasalaries spend.and benefits.

Provision for (Benefit From from) Income Taxes

Our income tax benefit,expense, which includes federal, state and foreign income taxes and discrete items, was $0.8$1.7 million, or an effective tax rate of 16.6%,22.5%, for the three months ended MarchJune 31, 30, 2026. During the comparable period in 2025, our income tax benefit was $1.2$0.6 million, or an effective tax rate of 32.8%.20.7%. The decrease increase in the effective tax rate is primarily attributable to a decrease in discrete tax benefits and an increase in pre-taxtax bookexpense lossfrom discrete foritems recognized during the current current-year period.

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 cancellable until the date of shipment. The combination of seasonal demand and the potential for order cancellation makes accurate forecasting of future sales difficult and causes us to believe that backlog may not be an accurate indicator of our future sales. Similarly, financial results for a particular quarter may not be indicative of results for the entire year.

As of MarchJune 31,30, 2026, we had working capital (inclusive of cash, cash equivalents and restricted cash) of $111.8$116.0 million, compared to $121.0 million as of December 31, 2025, representing a decrease in working capital of $9.2$5.0 million during the three-monthsix-month period ended March 31,June 30, 2026. The decrease in working capital is mainly attributable to cash used for investing and financing activities, offset with $11.1 million refunded by the federal government related to changesimport intariffs levied receivables,under inventorythe International Emergency Economic Powers Act (IEEPA) and payables,related coupled with cash used in financing activities.interest.

Operating activities provided net cash of $21.8$26.1 million during the threesix months ended MarchJune 31,30, 2026, as compared to net cash used of $1.7$15.9 million in the prior year period. The increase in net cash provided by operating activities year-over-year is primarily due to higherrefunds receivablereceived related collections,to IEEPA tariffs and income taxes, and lower overall inventory purchases, lesscosts capitalyear-over-year. 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 MarchJune 31,30, 2026, these agreements required future aggregate minimum royalty guarantees of $193.4$185.0 million exclusive of $4.5$3.8 million in advances already paid. Of this $193.4 $185.0 million future minimum royalty guarantee, $66.8 $60.7 million is due over the next twelve months.

Investing activities used net cash of $5.8$10.5 million and $3.1$6.0 million for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively, and consisted primarily of cash paid for the purchase of molds and tooling used in the manufacture of our products and purchases of investments to fund our obligation to our employees stemming from our non-qualified deferred compensation plan.

Financing activities used net cash of $4.3$7.1 million and $6.6$9.4 million for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively. The cash used used in financing activities during the threesix months ended MarchJune 31,30, 2026, mainly consists of $1.3 million used for the repurchase of our common stock for employee tax withholding and $2.9$5.7 million used to pay dividends. The cash used in financing activities during the three six months ended June March 31,30, 2025, consists of $3.8 million used for the repurchase of our common stock for employee tax withholding and $2.8$5.6 million used to pay dividends.

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 MarchJune 31,30, 2026, we were in compliance with all financial covenants.

Availability under the revolving facility as of MarchJune 31,30, 2026, was $68.3$68.7 million. The facility provides the Company with flexibility to fund working capital, capital expenditures, acquisitions, and general corporate purposes.

As of MarchJune 31,30, 2026 and December 31, 2025, we held cash and cash equivalents, including restricted cash, of $64.0$60.6 million and $54.1 million, respectively. Cash, and cash equivalents, including restricted cash held outside of the United States in various foreign subsidiaries totaled $20.0$9.4 million and $16.9 million as of March 31,June 30, 2026 and December 31, 2025, respectively. The cash and cash equivalents, including restricted cash balances in our foreign subsidiaries have either been fully taxed in the U.S. or tax has been accounted for in connection with the Tax Cuts and Jobs Act, or may be eligible for a full foreign dividends received deduction under such Act, and thus would not be subject to additional U.S. tax should such amounts be repatriated in the form of dividends or deemed distributions. As such, foreign withholding taxes on future repatriations are not expected to be significant.

Our primary sources of working capital are cash flows from operations and borrowings under our creditRevolving facilityFacility (see Note 5 – Credit Facilities).

As of MarchJune 31,30, 2026 off-balance sheet arrangements include letters of credit issued by JPMorgan of $0.9 million, temporarily secured with cash as collateral, and letters of credit issued by BMO of $1.7$1.3 million.