jakkspacif20230930

jakkspacif20230930_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 September 30, 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 10,073,264 as of November 14, 2023.

JAKKS PACIFIC, INC. AND SUBSIDIARIES

TABLE OF CONTENTS TO QUARTERLY REPORT ON FORM 10-Q

QUARTER ENDED September 30, 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 Income	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	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28

Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
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	29

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	September 30, 2023			December 31, 2022
	(Unaudited)
Current assets
Cash and cash equivalents	$	96,252		$	85,297
Restricted cash		195			193
Accounts receivable, net of allowances for credit losses of $3,712 and $2,865 at September 30, 2023 and December 31, 2022, respectively		206,751			102,771
Inventory		68,832			80,619
Prepaid expenses and other assets		6,721			6,331
Total current assets		378,751			275,211
Property and equipment
Office furniture and equipment		10,185			10,064
Molds and tooling		119,143			113,714
Leasehold improvements		6,493			6,659
Total		135,821			130,437
Less accumulated depreciation and amortization		121,193			115,575
Property and equipment, net		14,628			14,862
Operating lease right-of-use assets, net		25,743			19,913
Other long-term assets		2,220			2,469
Deferred income tax assets, net		57,856			57,804
Goodwill		35,083			35,083
Total assets	$	514,281		$	405,342
Liabilities, Preferred Stock and Stockholders' Equity
Current liabilities
Accounts payable	$	94,409		$	33,687
Accounts payable – Meisheng (related party)		27,977			9,820
Accrued expenses		65,609			37,998
Reserve for sales returns and allowances		43,512			51,877
Income taxes payable		17,422			8,165
Short term operating lease liabilities		6,415			10,746
Short term debt, net		—			25,529
Total current liabilities		255,344			177,822
Long term operating lease liabilities		19,283			9,863
Accrued expenses - long term		3,750			—
Debt, non-current portion, net of issuance costs and debt discounts		—			41,622
Preferred stock derivative liability		28,586			21,918
Income taxes payable		2,994			2,929
Total liabilities		309,957			254,154

Preferred stock accrued dividends, $0.001 par value; 5,000,000 shares authorized; 200,000 shares issued and outstanding at September 30, 2023 and December 31, 2022		5,608			4,490

Stockholders' Equity
Common stock, $0.001 par value; 100,000,000 shares authorized; 10,073,264 and 9,742,236 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively		10			10
Additional paid-in capital		277,546			275,187
Accumulated deficit		(62,744	)		(112,018	)
Accumulated other comprehensive loss		(16,808	)		(17,482	)
Total JAKKS Pacific, Inc. stockholders' equity		198,004			145,697
Non-controlling interests		712			1,001
Total stockholders' equity		198,716			146,698
Total liabilities, preferred stock and stockholders' equity	$	514,281		$	405,342

See accompanying notes to condensed consolidated financial statements.

Table of Contents

JAKKS PACIFIC, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share data)

	Three Months Ended September 30, (Unaudited)						Nine Months Ended September 30, (Unaudited)
	2023			2022			2023			2022
Net sales	$	309,744		$	322,998		$	584,161		$	664,301
Cost of sales:
Cost of goods		149,052			174,334			293,512			368,242
Royalty expense		51,141			52,868			95,074			106,262
Amortization of tools and molds		2,566			3,885			5,955			7,079
Cost of sales		202,759			231,087			394,541			481,583
Gross profit		106,985			91,911			189,620			182,718
Direct selling expenses		10,684			8,397			22,405			20,137
General and administrative expenses		33,821			29,400			92,492			84,067
Depreciation and amortization		81			373			276			1,547
Selling, general and administrative expenses		44,586			38,170			115,173			105,751
Intangibles impairment		—			—			—			300
Income from operations		62,399			53,741			74,447			76,667
Loss from joint ventures		—			—			(565	)		—
Other income (expense), net		(52	)		251			424			520
Change in fair value of preferred stock derivative liability		(793	)		(7,449	)		(6,668	)		(2,065	)
Loss on debt extinguishment		—			—			(1,023	)		—
Interest income		384			55			587			64
Interest expense		(1,436	)		(4,350	)		(5,741	)		(8,889	)
Income before provision for income taxes		60,502			42,248			61,461			66,297
Provision for income taxes		12,381			11,572			12,476			13,323
Net income		48,121			30,676			48,985			52,974
Net loss attributable to non-controlling interests		(11	)		(17	)		(289	)		(470	)
Net income attributable to Jakks Pacific, Inc.	$	48,132		$	30,693		$	49,274		$	53,444
Net income attributable to common stockholders	$	47,754		$	30,336		$	48,156		$	52,390
Earnings per share - basic	$	4.77		$	3.13		$	4.85		$	5.44
Shares used in earnings per share - basic		10,021			9,695			9,922			9,624
Earnings per share - diluted	$	4.53		$	2.96		$	4.58		$	5.18
Shares used in earnings per share - diluted		10,542			10,260			10,503			10,111
Comprehensive income	$	47,334		$	27,847		$	49,659		$	47,332
Comprehensive income attributable to JAKKS Pacific, Inc.	$	47,345		$	27,864		$	49,948		$	47,802

See accompanying notes to condensed consolidated financial statements.

Table of Contents

JAKKS PACIFIC, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands)

Three and Nine Months Ended September 30, 2023
(Unaudited)
									Accumulated			JAKKS
			Additional						Other			Pacific, Inc.			Non-		Total
	Common		Paid-in			Accumulated			Comprehensive			Stockholders'			Controlling		Stockholders'
	Stock		Capital			Deficit			Loss			Equity			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

SEC Form 10-Q filed by JAKKS Pacific Inc.