The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and assumptions.

The Company grants credit to its customers on an unsecured basis. The Company monitors the financial health of its customers and will take actions to mitigate a customer's credit risk if a negative financial forecast is expected. As of December 31, 2025 and 2024, the balance of accounts receivable consisted of 8% and 6%, respectively, of amounts owed from the largest customer for the given period. The collection of these receivables has been within the terms of the associated customer agreement.

Inventories consist primarily of figures, plush, apparel, homewares, accessories and other finished goods, and is accounted for using the first-in, first-out (“FIFO”) method. Inventory costs include direct product costs, freight and duty costs. Inventories are stated at the lower of cost or net realizable value. The Company estimates obsolescence based on assumptions regarding future demand. This valuation requires us to make judgments, based on currently available information, about the likely method of disposition, such as through sales to customers, or liquidation, and expected recoverable value of each disposition category. Reserves for excess and obsolete inventories were $11.0 million and $11.8 million as of December 31, 2025 and 2024, respectively.

During the year ended December 31, 2023, the Company approved an inventory reduction plan to improve U.S. warehouse operational efficiency. The Company recorded a $30.3 million inventory write-down included in cost of sales as presented in the consolidated statements of operations. The units were identified and recorded based on an estimate of product costs, associated capitalized freight, net of allocated inventory reserves of the identified units and an estimate of physical destruction costs, during the quarter ended March 31, 2023. The physical destruction plan was completed during the third quarter of 2023.

Property and equipment is stated at historical cost, net of accumulated depreciation, and, if applicable, impairment charges. Depreciation of property and equipment is recorded using the straight-line method over the shorter of the estimated useful life of the asset or the lease term. The estimated useful lives of our property and equipment are generally as follows:


Asset						Lives (in years)
Tooling and molds						2
Furniture, fixtures, and warehouse equipment						2 to 7
Computer equipment, software and other						3 to 5
Leasehold improvements						Lesser of useful life or term of lease

The Company monitors long-lived assets for impairment indicators on an ongoing basis in accordance with U.S. GAAP. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset (or asset group), a significant change in the extent or manner in which an asset (or asset group) is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable. If impairment indicators exist, the Company will perform the required impairment analysis by comparing the undiscounted cash flows expected to be generated from the underlying asset groups to the related net book values. If the net book value exceeds the undiscounted cash flows, an impairment loss is measured and recognized. An impairment loss is measured as the difference between the net book value and the fair value of the long-lived assets. Fair value is estimated based upon a combination of market and cost approaches, as appropriate. Changes in economic or operating conditions impacting these estimates and assumptions could result in the impairment of the Company's long-lived assets.

Other assets primarily comprise capitalized implementation costs from cloud computing arrangements and security deposits. The Company capitalizes eligible costs associated with cloud computing arrangements over the term of the arrangement, plus reasonably certain renewals, and intends to recognize those costs on a straight-line basis in the same line item in the consolidated statement of operations as the expense for fees associated with the cloud computing arrangement once the capitalized project is ready for intended use. Capitalized cloud computing arrangement costs and amortization expense were immaterial for the periods presented.

Revenue from the sale of Company products is recognized when control of the goods is transferred to the customer, which is upon shipment or upon receipt of finished goods by the customer, depending on the contract terms. Deferred revenue is recognized when the Company collects cash from the customer and had not yet filled its obligation for delivery of product or service. Deferred revenue was $17.6 million and $13.3 million as of December 31, 2025 and 2024, respectively, and is recorded within accrued expenses and other current liabilities on the Company's consolidated balance sheets. The Company expects to recognize revenue under these performance obligations over the next 12 months.

The Company routinely enters into arrangements with its customers to provide sales incentives, support customer promotions, and provide allowances for returns and defective merchandise. These sales adjustments require management to make estimates. In making these estimates, management considers all available information including the overall business environment, historical trends and information from customers, such as agreed upon customer contract terms as well as historical experience from the customer. The costs of these programs reduce gross sales in the period the related sale is recognized. The Company adjusts its estimates at least quarterly or when facts and circumstances used in the estimate process change. As of December 31, 2025 and 2024, the Company had sales allowances of $39.8 million and $42.2 million, respectively.

The Company has elected to account for shipping and handling activities that occur after control of the related good transfers as fulfillment activities instead of assessing such activities as performance obligations. Accordingly, shipping and handling activities that are performed by the Company, after a customer has obtained control of the products, are considered fulfillment costs and are included within cost of sales when related revenues are recognized. Shipping fees billed to customers are included in net sales.

The Company enters into agreements for rights to licensed trademarks, copyrights and likenesses for use in our products. These licensing agreements require the payment of royalty fees to the licensor based on a percentage of revenue. Many licensing agreements also require minimum royalty commitments. When royalty fees are paid in advance, the Company records these payments as a prepaid asset. If the Company determines that it is probable that the expected revenue will not be realized, a reserve is recorded against the prepaid asset for the non-recoverable portion. As of December 31, 2025, the Company recorded a prepaid asset of $18.6 million, net of a reserve of $0.8 million. As of December 31, 2024, the Company recorded a prepaid asset of $6.1 million, net of a reserve of $8.5 million.

The Company records a royalty liability as revenues are earned based on the terms of the licensing agreement. In situations where a minimum commitment is not expected to be met based on expected revenues, the Company will accrue up to the minimum amount when it is reasonably certain that revenues generated will not meet the minimum commitment. Our license agreements typically grant our licensors the right to audit our compliance with the terms and conditions of such agreements. Any such audit could result in a dispute over whether the Company has paid the proper royalties and a requirement that the Company pay additional royalties. As of December 31, 2025 and 2024, the Company had an accrual of $29.6 million and $23.5 million, respectively, related to ongoing and future royalty audits, based on estimates of the costs the Company expects to incur. Royalty and license expense is recorded within cost of sales on the consolidated statements of operations. Royalty expenses for the years ended December 31, 2025, 2024 and 2023, were $158.5 million, $168.9 million and $179.7 million, respectively.

Advertising and marketing costs are expensed when the advertising or marketing event takes place. These costs include the fees to participate in trade shows and Comic-Cons, as well as costs to develop promotional video and other online content created for advertising purposes. These costs are included in selling, general and administrative expenses and for the years ended December 31, 2025, 2024 and 2023 were $51.5 million, $51.6 million, and $31.3 million, respectively.

The Company has international sales and operating expenses that are denominated in local functional currencies. The functional currency of our international subsidiaries is the same as the local currency. Assets and liabilities of these subsidiaries are translated into U.S. dollars at period-end foreign exchange rates, and revenues and expenses are translated at average rates prevailing throughout the period. Translation adjustments are included in other comprehensive income (loss) on the consolidated statements of comprehensive loss. Transaction gains and losses including intercompany transactions denominated in a currency other than the functional currency of Funko, Inc. are included in other (income) expense, net on our consolidated statements of operations. There were no material gains (losses) recognized In connection with the settlement and remeasurement of intercompany balances for the years ended December 31, 2025, 2024 and 2023.

During the year ended December 31, 2023, the Company determined that based on all the available evidence, including the Company’s three-year cumulative pre-tax loss position, it is not more likely than not that the results of operations will generate sufficient taxable income to realize its deferred tax assets. Consequently, the Company established a full valuation allowance of $123.2 million against its deferred tax assets, thus reducing the carrying balance to $0, and recognized a corresponding increase to tax expense in the consolidated statements of operations and comprehensive loss in the year ended December 31, 2023. Future changes to the balances of these valuation allowances, as a result of this continued review and analysis by the Company, could impact the financial statements within the period of change. Based on the Company's assessment as of December 31, 2025, a full valuation allowance on its deferred tax assets remains appropriate.

As a result of the full valuation allowance on the deferred tax assets, and projected inability to fully utilize all or part of the related tax benefits, the Company determined that certain payments to the TRA Parties related to unrealized tax benefits under the TRA are no longer probable and estimable. Based on this assessment, the Company reduced its TRA Liability as of June 30, 2023, to $9.6 million, and recognized a gain of $99.6 million within the accompanying consolidated statements of operations and comprehensive loss. The Company performed a true-up in the fourth quarter of 2023 based on the filed 2022 consolidated tax return and recognized a further reduction in TRA liability and corresponding $603 thousand gain within the accompanying consolidated statements of operations and comprehensive loss. The Company estimated a TRA liability for the year ended December 31, 2025 and 2024 of $120 thousand and $547 thousand, respectively, as utilization of certain portions of the deferred tax assets subject to the TRA were more likely than not to be recognized.

During the fiscal years ended December 31, 2025, 2024 and 2023, the Company recorded net losses of $67.4 million, $14.7 million and $154.1 million, respectively. The Company’s annual revenues decreased from $1.1 billion in 2023 to $1.0 billion in 2024 and to $908.2 million in 2025. The Company’s principal sources of liquidity are existing cash and cash equivalents and cash flows from operating activities. There is no remaining borrowing availability under the Company's Revolving Credit Facility, as defined below, and the amended Credit Agreement, as defined below, requires that cash in excess of $50.0 million be used for prepayment of the Revolving Credit Facility, which prepayments permanently reduce the revolving commitments. Cash used for operating activities for the fiscal year ended December 31, 2025 was $5.1 million, which included $18.3 million of interest payments. As of December 31, 2025, the Company held cash and cash equivalents of $42.1 million and total debt under the Credit Agreement, of $219.9 million (net of $0.4 million in unamortized debt issuance costs), with a maturity date of December 31, 2027, which is beyond one year from the date that the financial statements are issued or available to be issued.

The Company sources, procures and assembles inventory, primarily out of Vietnam, Cambodia, China and Mexico. The effects of tariffs imposed in 2025, and the potential imposition of modified or additional tariffs or export controls by other countries, could continue to have an adverse effect on future net sales, margins, profitability and cash flows. The Company anticipates it may face continued supply chain challenges, cost volatility, and consumer and economic uncertainty due to these ongoing changes in global trade policies. The Company has continued to benefit from 2025 price increases and realized certain cost-savings of shifting production into lower tariff countries, overhead reductions and capital expenditures and entered into the Fifth Amendment to the Credit Agreement, to proactively manage the Company’s liquidity.

On February 13, 2026, the Credit Parties entered into the Fifth Amendment of the Credit Agreement to, among other things, amend the Prior Credit Agreement to (i) extend the maturity date of the loans from September 17, 2026 to December 31, 2027, and (ii) amend the financial covenants applicable to FAH, LLC and its subsidiaries under the Prior Credit Agreement to, among other things, (a) waive the minimum Fixed Charge Coverage Ratio financial covenant for the fiscal quarter ended December 31, 2025 and the fiscal quarters ending March 31, 2026 and June 30, 2026, (b) provide FAH, LLC additional cushion with respect to the minimum Fixed Charge Coverage Ratio financial covenant for the fiscal quarters ending September 30, 2026, December 31, 2026 and March 31, 2027 relative to the minimum Fixed Charge Coverage Ratio covenant set forth in the Prior Credit Agreement, (c) introduce a minimum Consolidated EBITDA covenant for the six-month period ending June 30, 2026, (d) waive the maximum Net Leverage Ratio covenant for the fiscal quarter ended December 31, 2025 and the fiscal quarters ending March 31, 2026, June 30, 2026 and September 30, 2026, (e) subject to certain usage restrictions, permit FAH, LLC to forego testing of certain Financial Covenants for any test period (to the extent required to be tested in such test period and not in two consecutive quarters) if FAH, LLC makes a voluntary permanent prepayment of the loans under the Credit Agreement in an amount not less than $10.0 million prior to the delivery of a compliance certificate for such test period, (f) requiring amortization payments on the outstanding revolving loans, with each such amortization payment in respect of the outstanding revolving loans permanently reducing the revolving commitments and (g) requiring quarterly mandatory prepayment of the revolving loans with cash (subject to certain exceptions) and cash equivalents in excess of $50.0 million, with each such prepayment permanently reducing the revolving commitments. Consistent with the Prior Credit Agreement, the Credit Parties are subject to a covenant to hold no less than $10.0 million of Qualified Cash at any time.

As a result of the Fifth Amendment of the Credit Agreement, the Company expects that its existing resources and future cash flows from operations and cash and cash equivalents, will provide it with sufficient liquidity to meet its obligations for at least the next twelve months from the issuance date of these financial statements, including compliance with all covenants under the Credit Agreement. As the Company's financial condition continues to improve as a result of the initiatives referred to above, the Company plans to either amend the Credit Agreement to further extend the maturity, seek alternative financing arrangements prior to the maturity of the debt, or opportunistically pursue other business opportunities or strategic transactions with the assistance of financial advisors. However, there can be no assurance these plans will be completed. If the Company is unable to complete these plans before the end of the fiscal year December 31, 2026, the debt would then be reclassified from a long-term liability to a current liability. If the Credit Agreement is not refinanced before its maturity date of December 31, 2027 on terms that are acceptable to the Company or, if the Company does not successfully enter into a transaction(s) to strengthen its balance sheet and increase its financial flexibility, the Company’s liquidity, results of operations, cash flows and financial condition would be materially adversely impacted.

In December 2023, the Financial Accounting Standards Board issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 amends existing income tax disclosure guidance, primarily requiring more detailed disclosure for income taxes paid by jurisdiction and the effective tax rate reconciliation. The Company adopted the ASU for the year ended December 31, 2025, on a prospective basis. Refer to Note 12, "Income Taxes" for further information on the Company's enhanced disclosures.

In November 2024, the Financial Accounting Standards Board issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses for public business entities. ASU 2024-03 requires that an entity disclose in the notes to the financial statements specified information about certain costs and expenses, including the amounts of (a) purchases of inventory, (b) employee compensation, (c) depreciation, (d) intangible asset amortization, and (e) other amounts of depletion expense included in each relevant expense caption presented on the statement of operations. The standard also requires disclosure of a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively, as well as the total amount of selling expenses and an entity’s definition of selling expenses. The ASU was clarified in January 2025 and is effective for annual reporting periods beginning after December 15, 2026 and interim periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted and it can be applied on either a prospective or retroactive basis. The Company is currently evaluating the ASU to determine its impact on income statement presentation and enhanced footnote disclosures.