jakkspacif20230331

jakkspacif20230331_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023
or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to

	Commission file number: 0-28104

JAKKS Pacific, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	95-4527222
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

2951 28th Street Santa Monica, California (Address of Principal Executive Offices)	90405 (Zip Code)

Registrant’s Telephone Number, Including Area Code: (424) 268-9444

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(g) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock $.001 Par Value	JAKK	The NASDAQ Global Select Market

The number of shares outstanding of the issuer’s common stock is 9,870,927 as of May 10, 2023.

JAKKS PACIFIC, INC. AND SUBSIDIARIES

TABLE OF CONTENTS TO QUARTERLY REPORT ON FORM 10-Q

QUARTER ENDED March 31, 2023

ITEMS IN FORM 10-Q

Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss	4
	Condensed Consolidated Statements of Stockholders' Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26

Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	None
Item 3.	Defaults Upon Senior Securities	None
Item 4.	Mine Safety Disclosures	None
Item 5.	Other Information	None
Item 6.	Exhibits	27

Signatures
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

JAKKS PACIFIC, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

Assets	March 31, 2023			December 31, 2022
	(Unaudited)
Current assets
Cash and cash equivalents	$	38,103		$	85,297
Restricted cash		198			193
Accounts receivable, net of allowances for credit losses of $3,226 and $2,865 at March 31, 2023 and December 31, 2022, respectively		85,171			102,771
Inventory		63,988			80,619
Prepaid expenses and other assets		12,849			6,331
Total current assets		200,309			275,211
Property and equipment
Office furniture and equipment		10,077			10,064
Molds and tooling		114,098			113,714
Leasehold improvements		6,493			6,659
Total		130,668			130,437
Less accumulated depreciation and amortization		114,499			115,575
Property and equipment, net		16,169			14,862
Operating lease right-of-use assets, net		17,634			19,913
Other long-term assets		2,387			2,469
Deferred income tax assets, net		57,804			57,804
Goodwill		35,083			35,083
Total assets	$	329,386		$	405,342
Liabilities, Preferred Stock and Stockholders' Equity
Current liabilities
Accounts payable	$	27,714		$	33,687
Accounts payable – Meisheng (related party)		8,024			9,820
Accrued expenses		27,006			37,998
Reserve for sales returns and allowances		41,064			51,877
Income taxes payable		6,241			8,165
Short term operating lease liabilities		10,009			10,746
Short term debt, net		2,475			25,529
Total current liabilities		122,533			177,822
Long term operating lease liabilities		8,095			9,863
Debt, non-current portion, net of issuance costs and debt discounts		26,969			41,622
Preferred stock derivative liability		21,771			21,918
Income taxes payable		2,941			2,929
Total liabilities		182,309			254,154

Preferred stock accrued dividends, $0.001 par value; 5,000,000 shares authorized; 200,000 shares issued and outstanding at March 31, 2023 and December 31, 2022		4,857			4,490

Stockholders' Equity
Common stock, $0.001 par value; 100,000,000 shares authorized; 9,870,927 and 9,742,236 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively		10			10
Additional paid-in capital		275,695			275,187
Accumulated deficit		(117,331	)		(112,018	)
Accumulated other comprehensive loss		(17,150	)		(17,482	)
Total JAKKS Pacific, Inc. stockholders' equity		141,224			145,697
Non-controlling interests		996			1,001
Total stockholders' equity		142,220			146,698
Total liabilities, preferred stock and stockholders' equity	$	329,386		$	405,342

See accompanying notes to condensed consolidated financial statements.

	Three Months Ended March 31, (Unaudited)
	2023			2022
Net sales	$	107,484		$	120,881
Cost of sales:
Cost of goods		58,304			72,058
Royalty expense		16,654			17,690
Amortization of tools and molds		1,089			1,216
Cost of sales		76,047			90,964
Gross profit		31,437			29,917
Direct selling expenses		7,741			4,902
General and administrative expenses		27,994			25,153
Depreciation and amortization		102			596
Selling, general and administrative expenses		35,837			30,651
Loss from operations		(4,400	)		(734	)
Other income (expense), net		438			86
Change in fair value of preferred stock derivative liability		147			(645	)
Interest income		117			3
Interest expense		(3,003	)		(2,202	)
Loss before provision for (benefit from) income taxes		(6,701	)		(3,492	)
Provision for (benefit from) income taxes		(1,383	)		417
Net loss		(5,318	)		(3,909	)
Net loss attributable to non-controlling interests		(5	)		(100	)
Net loss attributable to JAKKS Pacific, Inc.	$	(5,313	)	$	(3,809	)
Net loss attributable to common stockholders	$	(5,680	)	$	(4,155	)
Loss per share - basic and diluted	$	(0.58	)	$	(0.43	)
Shares used in loss per share - basic and diluted		9,871			9,588
Comprehensive loss	$	(4,986	)	$	(4,571	)
Comprehensive loss attributable to JAKKS Pacific, Inc.	$	(4,981	)	$	(4,471	)

Three Months Ended March 31, 2023
(Unaudited)
												JAKKS
									Accumulated			Pacific, Inc.
			Additional						Other			Stockholders'			Non-			Total
	Common		Paid-in			Accumulated			Comprehensive			Equity			Controlling			Stockholders'
	Stock		Capital			Deficit			Loss			(Deficit)			Interests			Equity
Balance, December 31, 2022	$	10	$	275,187		$	(112,018	)	$	(17,482	)	$	145,697		$	1,001		$	146,698
Share-based compensation expense		—		2,089			—			—			2,089			—			2,089
Repurchase of common stock for employee tax withholding		—		(1,214	)		—			—			(1,214	)		—			(1,214	)
Preferred stock accrued dividends		—		(367	)		—			—			(367	)		—			(367	)
Net loss		—		—			(5,313	)		—			(5,313	)		(5	)		(5,318	)
Foreign currency translation adjustment		—		—			—			332			332			—			332
Balance, March 31, 2023	$	10	$	275,695		$	(117,331	)	$	(17,150	)	$	141,224		$	996		$	142,220

Three Months Ended March 31, 2022
(Unaudited)
												JAKKS
									Accumulated			Pacific, Inc.
			Additional						Other			Stockholders'			Non-			Total
	Common		Paid-in			Accumulated			Comprehensive			Equity			Controlling			Stockholders'
	Stock		Capital			Deficit			Loss			(Deficit)			Interests			Equity
Balance, December 31, 2021	$	10	$	272,941		$	(203,431	)	$	(12,952	)	$	56,568		$	1,331		$	57,899
Share-based compensation expense		—		870			—			—			870			—			870
Repurchase of common stock for employee tax withholding		—		(644	)		—			—			(644	)		—			(644	)
Preferred stock accrued dividends		—		(346	)		—			—			(346	)		—			(346	)
Net loss		—		—			(3,809	)		—			(3,809	)		(100	)		(3,909	)
Foreign currency translation adjustment		—		—			—			(662	)		(662	)		—			(662	)
Balance, March 31, 2022	$	10	$	272,821		$	(207,240	)	$	(13,614	)	$	51,977		$	1,231		$	53,208

	Three Months Ended March 31,
	(Unaudited)
	2023			2022
Cash flows from operating activities
Net loss	$	(5,318	)	$	(3,909	)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for (recovery of) credit losses		380			(39	)
Depreciation and amortization		1,191			1,812
Write-off and amortization of debt discount		692			94
Write-off and amortization of debt issuance costs		399			123
Share-based compensation expense		2,089			870
Gain on disposal of property and equipment		(18	)		—
Change in fair value of preferred stock derivative liability		(147	)		645
Changes in operating assets and liabilities:
Accounts receivable		17,220			43,703
Inventory		16,631			(1,352	)
Prepaid expenses and other assets		(6,515	)		(6,540	)
Accounts payable		(4,704	)		(14,328	)
Accounts payable - Meisheng (related party)		(2,073	)		(389	)
Accrued expenses		(10,992	)		(16,475	)
Reserve for sales returns and allowances		(10,813	)		(6,910	)
Income taxes payable		(1,912	)		201
Other liabilities		(226	)		(242	)
Total adjustments		1,202			1,173
Net cash used in operating activities		(4,116	)		(2,736	)
Cash flows from investing activities
Purchases of property and equipment		(3,490	)		(1,817	)
Proceeds from sale of property and equipment		18			—
Net cash used in investing activities		(3,472	)		(1,817	)
Cash flows from financing activities
Repurchase of common stock for employee tax withholding		(1,214	)		(644	)
Repayment of credit facility borrowings		—			(13,000	)
Proceeds from credit facility borrowings		—			13,000
Repayment of 2021 BSP Term Loan		(38,719	)		(248	)
Net cash used in financing activities		(39,933	)		(892	)
Net decrease in cash, cash equivalents and restricted cash		(47,521	)		(5,445	)
Effect of foreign currency translation		332			(662	)
Cash, cash equivalents and restricted cash, beginning of period		85,490			45,332
Cash, cash equivalents and restricted cash, end of period	$	38,301		$	39,225
Supplemental disclosures of cash flow information:
Cash paid for income taxes, net	$	550		$	220
Cash paid for interest	$	1,906		$	1,967

`	Three Months Ended
	March 31,
	2023		2022
Net Sales
Toys/Consumer Products	$	97,893	$	111,123
Costumes		9,591		9,758
	$	107,484	$	120,881

	March 31,		December 31,
	2023		2022
Assets
Toys/Consumer Products	$	298,215	$	377,605
Costumes		31,171		27,737
	$	329,386	$	405,342

	March 31, 2023							December 31, 2022
			Debt Discount/							Debt Discount/
	Principal		Issuance			Net		Principal		Issuance			Net
	Amount		Costs*			Amount		Amount		Costs*			Amount
2021 BSP Term Loan	$	30,183	$	(739	)	$	29,444	$	68,901	$	(1,750	)	$	67,151

	Three Months Ended March 31,
Loss per share - basic and diluted	2023			2022
Net loss	$	(5,318	)	$	(3,909	)
Net loss attributable to non-controlling interests		(5	)		(100	)
Net loss attributable to JAKKS Pacific, Inc.		(5,313	)		(3,809	)
Preferred stock dividend *		367			346
Net loss attributable to common stockholders **	$	(5,680	)	$	(4,155	)
Weighted average common shares outstanding - basic and diluted		9,871			9,588
Loss per share available to common stockholder - basic and diluted	$	(0.58	)	$	(0.43	)

	2023		2022
Balance, January 1,	$	4,490	$	3,074
Preferred stock accrued dividends		367		346
Balance, March 31,	$	4,857	$	3,420

	March 31,		December 31,
	2023		2022
Long-lived Assets
China	$	15,608	$	14,161
United States		15,224		17,383
Hong Kong		1,931		2,142
United Kingdom		936		974
Mexico		64		69
Canada		40		46
	$	33,803	$	34,775

	Three Months Ended
	March 31,
	2023		2022
Net Sales by Customer Area
United States	$	80,443	$	97,050
Europe		10,162		13,389
Latin America		9,204		2,385
Canada		4,054		3,379
Australia & New Zealand		1,608		1,491
Asia		1,380		2,076
Middle East & Africa		633		1,111
	$	107,484	$	120,881

	Three Months Ended March 31,
	2023					2022
			Percentage					Percentage
	Amount		of Net Sales			Amount		of Net Sales
Target	$	29,404		27.4	%	$	35,670		29.5	%
Wal-Mart		23,283		21.7			23,020		19.0
Amazon		6,601		6.1			14,016		11.6
	$	59,288		55.2	%	$	72,706		60.1	%

		Restricted Stock Units
		Number of Shares

SEC Form 10-Q filed by JAKKS Pacific Inc.