Funko, Inc.

Previous wording

We sell our products in numerous countries across North America, Europe, Latin America, Asia and Africa, with approximately 36% of our net sales in the three months ended March 31, 2025 generated outside of the United States. We also source, procure and assemble inventory, primarily out of Vietnam, China and Mexico. As such, we are exposed to and impacted by global macroeconomic factors. Current macroeconomic factors remain very dynamic, including greater political uncertainty, new or increasing tariffs and general uncertainty over U.S. trade and tariff policies, unrest or instability in the United States, Central and Eastern Europe (including the ongoing Russia-Ukraine War), the Middle East (including the Israel–Hamas War), and certain Southeast Asia regions as well as financial instability, rising interest rates and heightened inflation that could reduce our net sales or have impacts to our gross margin (as defined below), net income and cash flows.

Current wording

We sell our products in numerous countries across North America, Europe, Latin America, Asia and Africa, with approximately 39% of our net sales in the six months ended June 30, 2025 generated outside of the United States. We also source, procure and assemble inventory, primarily out of Vietnam, China and Mexico. As such, we are exposed to and impacted by global macroeconomic factors. Current macroeconomic factors remain very dynamic, including greater political uncertainty, new or increasing tariffs and general uncertainty over U.S. trade and tariff policies, unrest or instability in the United States, Central and Eastern Europe (including the ongoing Russia-Ukraine War), the Middle East (including the Israel–Hamas War), and certain Southeast Asia regions as well as financial instability, rising interest rates and heightened inflation that could reduce our net sales or have impacts to our gross margin (as defined below), net income and cash flows.

Previous wording

In addition, we have been and continue to be operating in a challenging retail environment where retailers have slowed their restocking, prioritized lower inventory levels and, in some cases, have canceled their orders. Moreover, tariffs on imports have adversely impacted and are expected to adversely impact our costs, and we intend to raise prices for certain of our products. This has had an impact across our brands and geographies of reducing our net sales, gross margin and net income, and could impact consumer discretionary spending in future periods. We have strategically adjusted our inventory buy-in to focus on non-exclusive core products in order to help mitigate this impact. For additional information regarding our financial condition, see “Liquidity and Financial Condition” below.

Current wording

In addition, we have been and continue to be operating in a challenging retail environment where retailers have slowed their restocking, prioritized lower inventory levels and, in some cases, have canceled their orders. Moreover, tariffs on imports have adversely impacted and are expected to adversely impact our costs, and we have raised prices for certain of our products. This has had an impact across our brands and geographies of reducing our net sales, gross margin and net income, and could impact consumer discretionary spending in future periods. We have strategically adjusted our inventory buy-in to focus on non-exclusive core products in order to help mitigate this impact. For additional information regarding our financial condition, see “Liquidity and Financial Condition” below.

Previous wording

(1)Earnings before interest, taxes, depreciation and amortization (“EBITDA”) and Adjusted EBITDA are financial measures not calculated in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), or non-GAAP financial measures. For a reconciliation of EBITDA and Adjusted EBITDA to net loss, the most closely comparable U.S. GAAP financial measure, see “Non-GAAP Financial Measures” below.

Current wording

(1)Earnings before interest, taxes, depreciation and amortization (“EBITDA”) and Adjusted EBITDA are financial measures not calculated in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), or non-GAAP financial measures. For a reconciliation of EBITDA and Adjusted EBITDA to net (loss) income, the most closely comparable U.S. GAAP financial measure, see “Non-GAAP Financial Measures” below.

Previous wording

The following table sets forth information comparing the components of net loss for the three months ended March 31, 2025 and 2024:

Current wording

The following table sets forth information comparing the components of net (loss) income for the three months ended June 30, 2025 and 2024:

Previous wording

On a geographical basis, net sales in the United States decreased 16.7% to $121.9 million in the three months ended March 31, 2025 as compared to $146.4 million in the three months ended March 31, 2024. Net sales in Europe decreased 0.1% to $54.2 million in the three months ended March 31, 2025 as compared to $54.2 million in the three months ended March 31, 2024. Net sales in other international locations decreased 3.1% to $14.6 million in the three months ended March 31, 2025 as compared to $15.1 million in the three months ended March 31, 2024.

Current wording

On a geographical basis, net sales in the United States decreased 27.7% to $117.9 million in the three months ended June 30, 2025 as compared to $163.0 million in the three months ended June 30, 2024. Net sales in Europe decreased 4.3% to $57.8 million in the three months ended June 30, 2025 as compared to $60.4 million in the three months ended June 30, 2024, primarily as a result of $4.0 million nonrecurring net sales in other branded category including Funko Games. Net sales in other international locations decreased 26.6% to $17.8 million in the three months ended June 30, 2025 as compared to $24.3 million in the three months ended June 30, 2024.

Previous wording

On a branded category basis, net sales of the Core Collectible branded category decreased 8.0% to $144.5 million in the three months ended March 31, 2025 as compared to $157.1 million in the three months ended March 31, 2024. Loungefly branded category net sales decreased 13.0% to $35.4 million in the three months ended March 31, 2025 as compared to $40.7 million in the three months ended March 31, 2024. Other branded category net sales decreased 39.2% to $10.9 million in the three months ended March 31, 2025 as compared to $17.9 million in the three months ended March 31, 2024.

Current wording

On a branded category basis, net sales of the Core Collectible branded category decreased 15.7% to $157.5 million in the three months ended June 30, 2025 as compared to $186.7 million in the three months ended June 30, 2024. Loungefly branded category net sales decreased 23.2% to $31.8 million in the three months ended June 30, 2025 as compared to $41.5 million in the three months ended June 30, 2024. Other branded category net sales decreased 78.7% to $4.1 million in the three months ended June 30, 2025 as compared to $19.4 million in the three months ended June 30, 2024.

Previous wording

Cost of sales (exclusive of depreciation and amortization) was $113.9 million for the three months ended March 31, 2025, a decrease of 12.0%, compared to $129.4 million for the three months ended March 31, 2024. Cost of sales (exclusive of depreciation and amortization) decreased primarily as a result of decreased sales, as discussed above.

Current wording

Cost of sales (exclusive of depreciation and amortization) was $131.4 million for the three months ended June 30, 2025, a decrease of 8.5%, compared to $143.6 million for the three months ended June 30, 2024. Cost of sales (exclusive of depreciation and amortization) decreased primarily as a result of decreased sales, as discussed above.

Previous wording

Gross margin (exclusive of depreciation and amortization), calculated as net sales less cost of sales as a percentage of net sales, was 40.3% for the three months ended March 31, 2025, compared to 40.0% for the three months ended March 31, 2024. The increase in gross margin (exclusive of depreciation and amortization) for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was driven primarily by the savings in product cost due to the mix of product sold.

Current wording

Gross margin (exclusive of depreciation and amortization), calculated as net sales less cost of sales as a percentage of net sales, was 32.1% for the three months ended June 30, 2025, compared to 42.0% for the three months ended June 30, 2024. The decrease in gross margin (exclusive of depreciation and amortization) for the three months ended June 30, 2025 compared to the three months ended June 30, 2024 was driven primarily by increased inventory reserves as well as increased shipping, freight and duty costs.

Previous wording

Selling, general, and administrative expenses were $84.8 million for the three months ended March 31, 2025, a decrease of 0.9%, compared to $85.6 million for the three months ended March 31, 2024. The decrease was driven primarily by a $3.6 million decrease in personnel and related costs (including salary and related taxes/benefits, commissions and equity-based compensation), a $1.6 million decrease in administrative fees, primarily driven by a reduction of bad debt expense, and a $1.3 million decrease in professional fees, primarily driven by non-recurring acquisition transaction costs and other expenses during the three months ended March 31, 2024, partially offset by an increase of $4.1 million in advertising and marketing fees. Selling, general and administrative expenses were 44.5% and 39.7% of net sales for each of the three months ended March 31, 2025 and 2024, respectively.

Current wording

Selling, general, and administrative expenses were $82.3 million for the three months ended June 30, 2025, an increase of 5.6%, compared to $77.9 million for the three months ended June 30, 2024. The increase was driven primarily by a $3.2 million increase in personnel and related costs (including salary and related taxes/benefits, commissions and equity-based compensation), a $2.4 million increase in professional fees, related to a net one-time legal settlement gain of $1.4 million related to a previously disclosed Loungefly customs-related matter for the three months ended June 30, 2024, a $2.0 million increase in software fees, offset by a $1.9 million decrease in facilities and rent related to decreased usage of third-party logistics sites. Selling, general and administrative expenses were 42.5% and 31.5% of net sales for each of the three months ended June 30, 2025 and 2024, respectively.

Previous wording

Depreciation and amortization expense was $15.3 million for the three months ended March 31, 2025, a decrease of 2.0%, compared to $15.6 million for the three months ended March 31, 2024, primarily related to the type and timing of assets placed in service.

Current wording

Depreciation and amortization expense was $14.5 million for the three months ended June 30, 2025, a decrease of 5.8%, compared to $15.4 million for the three months ended June 30, 2024, primarily related to the type and timing of assets placed in service.

Previous wording

Income tax expense was $0.8 million and $0.9 million for the three months ended March 31, 2025 and 2024, respectively.

Current wording

Income tax expense was $0.8 million for the three months ended June 30, 2025 and 2024, respectively.

Previous wording

Net loss was $28.1 million for the three months ended March 31, 2025, compared to net loss of $23.7 million for the three months ended March 31, 2024. The 18.6% increase in net loss was primarily due to the decrease in net sales outpacing the decrease in operating expenses as compared to the three months ended March 31, 2024.

Current wording

Net loss was $41.0 million for the three months ended June 30, 2025, compared to net income of $5.4 million for the three months ended June 30, 2024. The increase in net loss was primarily due to the decrease in net sales outpacing the decrease in operating expenses as compared to the three months ended June 30, 2024.

Previous wording

Net sales were $190.7 million for the three months ended March 31, 2025, a decrease of 11.6%, compared to $215.7 million for the three months ended March 31, 2024. The decrease in net sales was due primarily to decreased sales to specialty and mass market retailers for the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

Current wording

Net sales were $384.2 million for the six months ended June 30, 2025, a decrease of 17.1%, compared to $463.4 million for the six months ended June 30, 2024. The decrease in net sales was due primarily to decreased sales to specialty and mass market retailers as a result of tariff disruption and general macroeconomic uncertainty for the six months ended June 30, 2025 compared to the six months ended June 30, 2024.

Previous wording

Interest expense, net was $3.8 million for the three months ended March 31, 2025, a decrease of 39.0%, compared to $6.3 million for the three months ended March 31, 2024. The decrease in interest expense, net was due primarily to lower average balance of debt outstanding during the three months ended March 31, 2025.

Current wording

Interest expense, net was $8.4 million for the six months ended June 30, 2025, a decrease of 26.5%, compared to $11.4 million for the six months ended June 30, 2024. The decrease in interest expense, net was due primarily to lower average balance of debt outstanding during the six months ended June 30, 2025.

Previous wording

Other expense, net was $0.2 million and $1.6 million for the three months ended March 31, 2025 and 2024, respectively. Other expense, net for the three months ended March 31, 2025 and 2024 was primarily related to foreign currency gains and losses relating to transactions denominated in currencies other than the U.S. dollar.

Current wording

Other expense, net was $1.1 million and $1.0 million for the six months ended June 30, 2025 and 2024, respectively. Other expense, net for the six months ended June 30, 2025 and 2024 was primarily related to foreign currency gains and losses relating to transactions denominated in currencies other than the U.S. dollar.

Previous wording

EBITDA, Adjusted EBITDA, Adjusted Net Loss and Adjusted Loss per Diluted Share (collectively the “Non-GAAP Financial Measures”) are supplemental measures of our performance that are not required by, or presented in accordance with, U.S. GAAP. The Non-GAAP Financial Measures are not measurements of our financial performance under U.S. GAAP and should not be considered as an alternative to net loss, loss per share or any other performance measure derived in accordance with U.S. GAAP. We define EBITDA as net loss before interest expense, net, income tax expense, depreciation and amortization. We define Adjusted EBITDA as EBITDA further adjusted for non-cash charges related to equity-based compensation programs, acquisition transaction costs and other expenses, certain severance, relocation and related costs, foreign currency transaction gains and losses and other unusual or one-time items. We define Adjusted Net Loss as net loss attributable to Funko, Inc. adjusted for the reallocation of loss attributable to non-controlling interests from the assumed exchange of all outstanding common units and options in FAH, LLC for newly issued-shares of Class A common stock of Funko, Inc. and further adjusted for the impact of certain non-cash charges and other items that we do not consider in our evaluation of ongoing operating performance. These items include, among other things, non-cash charges related to equity-based compensation programs, acquisition transaction costs and other expenses, certain severance, relocation and related costs, foreign currency transaction gains and losses and the income tax expense effect of these adjustments. We define Adjusted Loss per Diluted Share as Adjusted Net Loss divided by the weighted-average shares of Class A common stock outstanding, assuming (1) the full exchange of all outstanding common units and options in FAH, LLC for newly issued-shares of Class A common stock of Funko, Inc. and (2) the dilutive effect of stock options and unvested common units, if any. We caution investors that amounts presented in accordance with our definitions of the Non-GAAP Financial Measures may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate the Non-GAAP Financial Measures in the same manner. We present the Non-GAAP Financial Measures because we consider them to be important supplemental measures of our performance and believe they are frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. Management believes that investors’ understanding of our performance is enhanced by including these Non-GAAP Financial Measures as a reasonable basis for comparing our ongoing results of operations.

Current wording

EBITDA, Adjusted EBITDA, Adjusted Net (Loss) Income and Adjusted (Loss) Earnings per Diluted Share (collectively the “Non-GAAP Financial Measures”) are supplemental measures of our performance that are not required by, or presented in accordance with, U.S. GAAP. The Non-GAAP Financial Measures are not measurements of our financial performance under U.S. GAAP and should not be considered as an alternative to net (loss) income, (loss) income per share or any other performance measure derived in accordance with U.S. GAAP. We define EBITDA as net (loss) income before interest expense, net, income tax expense, depreciation and amortization. We define Adjusted EBITDA as EBITDA further adjusted for non-cash charges related to equity-based compensation programs, acquisition costs and other expenses, certain severance, relocation and related costs, foreign currency transaction gains and losses and other unusual or one-time items. We define Adjusted Net (Loss) Income as net (loss) income attributable to Funko, Inc. adjusted for the reallocation of (loss) income attributable to non-controlling interests from the assumed exchange of all outstanding common units and options in FAH, LLC for newly issued-shares of Class A common stock of Funko, Inc. and further adjusted for the impact of certain non-cash charges and other items that we do not consider in our evaluation of ongoing operating performance. These items include, among other things, non-cash charges related to equity-based compensation programs, acquisition costs and other expenses, certain severance, relocation and related costs, foreign currency transaction gains and losses and the income tax expense (benefit) effect of these adjustments. We define Adjusted (Loss) Earnings per Diluted Share as Adjusted Net (Loss) Income divided by the weighted-average shares of Class A common stock outstanding, assuming (1) the full exchange of all outstanding common units and options in FAH, LLC for newly issued-shares of Class A common stock of Funko, Inc. and (2) the dilutive effect of stock options and unvested common units, if any. We caution investors that amounts presented in accordance with our definitions of the Non-GAAP Financial Measures may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate the Non-GAAP Financial Measures in the same manner. We present the Non-GAAP Financial Measures because we consider them to be important supplemental measures of our performance and believe they are frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. Management believes that investors’ understanding of our performance is enhanced by including these Non-GAAP Financial Measures as a reasonable basis for comparing our ongoing results of operations.

Previous wording

By providing these Non-GAAP Financial Measures, together with reconciliations, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. The Non-GAAP Financial Measures have limitations as analytical tools, and should not be considered in isolation, or as an alternative to, or a substitute for net income or other financial statement data presented in our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q as indicators of financial performance. Some of the limitations are:

Current wording

By providing these Non-GAAP Financial Measures, together with reconciliations, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. The Non-GAAP Financial Measures have limitations as analytical tools, and should not be considered in isolation, or as an alternative to, or a substitute for net (loss) income or other financial statement data presented in our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”) as indicators of financial performance. Some of the limitations are:

Previous wording

Due to these limitations, Non-GAAP Financial Measures should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using these non-GAAP measures only supplementally. As noted in the table below, the Non-GAAP Financial Measures include adjustments for non-cash charges related to equity-based compensation programs, acquisition transaction costs and other expenses, certain severance, relocation and related costs, foreign currency transaction gains and losses and other unusual or one-time items. It is reasonable to expect that certain of these items will occur in future periods. However, we believe these adjustments are appropriate because the amounts recognized can vary significantly from period to period, do not directly relate to the ongoing operations of our business and complicate comparisons of our internal operating results and operating results of other companies over time. Each of the normal recurring adjustments and other adjustments described herein and in the reconciliation table below help management with a measure of our core operating performance over time by removing items that are not related to day-to-day operations.

Current wording

Due to these limitations, Non-GAAP Financial Measures should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using these non-GAAP measures only supplementally. As noted in the table below, the Non-GAAP Financial Measures include adjustments for non-cash charges related to equity-based compensation programs, acquisition costs and other expenses, certain severance, relocation and related costs, foreign currency transaction gains and losses and other unusual or one-time items. It is reasonable to expect that certain of these items will occur in future periods. However, we believe these adjustments are appropriate because the amounts recognized can vary significantly from period to period, do not directly relate to the ongoing operations of our business and complicate comparisons of our internal operating results and operating results of other companies over time. Each of the normal recurring adjustments and other adjustments described herein and in the reconciliation table below help management with a measure of our core operating performance over time by removing items that are not related to day-to-day operations.

Previous wording

The following tables reconcile the Non-GAAP Financial Measures to the most directly comparable U.S. GAAP financial performance measure, which is net loss, for the periods presented:

Current wording

The following tables reconcile the Non-GAAP Financial Measures to the most directly comparable U.S. GAAP financial performance measure, which is net (loss) income, for the periods presented:

Previous wording

(3)For the three months ended March 31, 2024, costs of $3.2 million related to contract settlement agreements and related services for assets held for sale (including fair market value adjustments of $135,000) related to a potential business initiative and the sale of certain assets under Funko Games.

Current wording

(3)For the three months ended June 30, 2024, includes a net one-time legal settlement gain of $1.4 million related to a previously disclosed Loungefly customs-related matter. For the six months ended June 30, 2024, also includes $3.2 million related to contract settlement agreements and related services for assets held for sale (including fair market value adjustments of $135,000) related to a potential business initiative and the sale of certain assets under Funko Games.

Previous wording

(4)For the three months ended March 31, 2024, includes charges related severance and benefit costs related to certain management resignations.

Current wording

(4)For the three and six months ended June 30, 2024, includes charges related to severance and benefit costs related to certain management departures.

Previous wording

(5)Represents both unrealized and realized foreign currency losses on transactions denominated other than in U.S. dollars, including derivative gains and losses on foreign currency forward exchange contracts.

Current wording

(5)Represents both unrealized and realized foreign currency gains and losses on transactions denominated other than in U.S. dollars, including derivative gains and losses on foreign currency forward exchange contracts.

Previous wording

(6)Represents the income tax expense effect of the above adjustments. This adjustment uses an effective tax rate of 25% for all periods presented.

Current wording

(6)Represents the income tax expense (benefit) effect of the above adjustments including net (loss) income. This adjustment uses an effective tax rate of 25% for all periods presented.

Previous wording

Our primary requirements for liquidity and capital are working capital, inventory management, capital expenditures, debt service and general corporate needs. Our primary sources of cash flows have been cash flows from operating activities and borrowings under our credit facilities.

Current wording

Our primary requirements for liquidity and capital are working capital, inventory management, capital expenditures, debt service and general corporate needs. Our primary sources of cash flows have been cash flows from operating activities and borrowings under the Credit Agreement with FAH, LLC and certain of its material domestic subsidiaries from time to time (the “Credit Agreement Parties”) and JPMorgan Chase Bank, N.A., PNC Bank, National Association, KeyBank National Association, Citizens Bank, N.A., Bank of the West, HSBC Bank USA, National Association, Bank of America, N.A., U.S. Bank National Association, MUFG Union Bank, N.A., and Wells Fargo Bank, National Association (collectively, the “Initial Lenders”) and JPMorgan Chase Bank, N.A. as administrative agent (the “Administrative Agent”), providing for a term loan facility in the amount of $180.0 million (the “Term Loan Facility”) and a revolving credit facility of $100.0 million (the “Revolving Credit Facility”) (together the “Credit Facilities”).

Previous wording

The challenging retail environment, in particular as a result of the current tariff environment, has adversely impacted and is expected to adversely impact our performance. As of March 31, 2025, we were in compliance with the financial and other covenants under our Credit Agreement, dated September 17, 2021 with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto (as amended, the “Credit Agreement”). However, failure to satisfy the covenants under the Credit Agreement, without a timely cure, waiver or amendment, would be considered an event of default. If an event of default occurs and is not cured or waived, the Lenders (as defined in the Credit Agreement) could elect to declare all amounts outstanding under the Credit Agreement immediately due and payable and exercise other remedies as set forth in the Credit Agreement. In addition, the Lenders would have the right to proceed against the collateral pledged to them, which includes substantially all of our assets.

Current wording

In connection with preparing the unaudited consolidated financial statements for the three months ended June 30, 2025, management evaluated our future liquidity, forecasted operating results and ability to comply with the covenants under our Credit Agreement, for the twelve months from the date of issuance of these financial statements and determined that, principally based on our forecast of the expected effects of the announced tariffs and other facts and conditions, we are forecasting that we will not be in compliance with the maximum Net Leverage Ratio and minimum Fixed Charge Coverage Ratio (each as defined in the Credit Agreement) covenants as of the end of the quarter ending December 31, 2025 and future quarters. Failure to satisfy the covenants under the Credit Agreement, without a timely cure, waiver or amendment, would be considered an event of default. If an event of default occurs and is not cured or waived, the Required Lenders (as defined in the Credit Agreement) could elect to declare all amounts outstanding under the Credit Agreement immediately due and payable and exercise other remedies as set forth in the Credit Agreement. In addition, the Required Lenders would have the right to proceed against the collateral pledged to them, which includes substantially all of our assets.

Previous wording

Management has developed a plan, as summarized below, that, if executed successfully, we believe will provide sufficient liquidity to meet our obligations as they become due for a reasonable period of time, including to meet its obligations under the Credit Agreement, and/or obtain covenant relief. The plan includes:

Current wording

Management has developed a plan, as summarized below, that, if executed successfully, we believe will provide sufficient liquidity to meet our obligations as they become due for a reasonable period of time, including to meet our obligations under the Credit Agreement. The plan includes:

Previous wording

•Continuing to monitor our commercial pricing strategy, work with current and potential sourcing partners to mitigate the effects of increasing costs, including shifting certain manufacturing out of China, and, if necessary and consistent with our existing contractual commitments, decreasing our activity level and capital expenditures further. This plan reflects our strategy of controlling capital costs and maintaining financial flexibility.

Current wording

•Continuing to monitor our commercial pricing strategy, working with current and potential sourcing partners to mitigate the effects of increasing costs, including shifting certain manufacturing out of China, and, if necessary and consistent with our existing contractual commitments, decreasing our activity level and capital expenditures further. This plan reflects our strategy of controlling capital costs and maintaining financial flexibility.

Previous wording

•Gaining positive cash-inflow from operating activities through continuous overhead cost reductions and increased sales of higher margin products. We have a significant presence in international markets, which are not impacted by tariffs, and will continue to pursue strategies to grow those markets.

Current wording

•Gaining positive cash-inflow from operating activities through continuous overhead cost reductions and increased sales of higher margin products and working capital management, including timing of accounts receivable collections. We have a significant presence in international markets, which are not impacted by tariffs, and will continue to pursue strategies to grow those markets.

Previous wording

•Raising additional cash through the issuance of debt or assessing potential amendments, including a covenant waiver and/or refinancing of our existing debt arrangements as considered necessary. In addition, we intend to opportunistically consider other potential business opportunities or strategic transactions.

Current wording

•Raising additional cash through the issuance of equity or debt or assessing potential amendments, including additional covenant relief and/or refinancing of our existing debt arrangements as considered necessary. In addition, we intend to opportunistically consider other potential business opportunities or strategic transactions, including a potential sale of the Company. We will need to raise additional cash or refinance our Credit Agreement in the near term.

Previous wording

While management believes that the measures described in the above plan will be adequate to satisfy its liquidity requirements, there can be no assurance that our lenders will agree to waive, modify and/or amend the Maximum Net Leverage Ratio and Minimum Fixed Charge Coverage Ratio covenants or that the plan will be successfully implemented.

Current wording

While management believes that the measures described in the above plan will be adequate to satisfy our liquidity requirements, there can be no assurance that management’s liquidity plan will be successfully implemented, our lenders will agree to waive, modify and/or amend the maximum Net Leverage Ratio and minimum Fixed Charge Coverage Ratio covenants for the periods of forecasted covenant noncompliance, or that the Credit Agreement can be refinanced before its maturity date, which all raise substantial doubt about our ability to continue as a going concern for the next twelve months.

Previous wording

See Part I, Item 1, “Financial Statements - Note 1, “Organization and Operations” and Part II, Item 1A, Risk Factors – “There is substantial doubt about our ability to continue as a going concern due to pressure on our financial covenants arising from the current tariff environment” for additional information.

Current wording

See Part I, Item 1, “Financial Statements - Note 1, “Organization and Operations” and Part II, Item 1A, Risk Factors – “There is substantial doubt about our ability to continue as a going concern due to pressure on our financial covenants arising from the current retail environment” for additional information.

Previous wording

Even in the absence of an event of default, if we are unable to generate sufficient cash flows from operations in the future, and if availability under our Revolving Credit Facility is not sufficient, we may have to obtain additional financing. If we obtain additional capital by issuing equity, the interests of our existing stockholders will be diluted. If we incur additional indebtedness, that indebtedness may contain significant financial and other covenants that may significantly restrict our operations. We cannot assure you that we could obtain refinancing or additional financing on favorable terms or at all.

Current wording

We expect to have to obtain additional financing. If we obtain additional capital by issuing equity, the interests of our existing stockholders will be diluted. If we incur additional indebtedness, that indebtedness may contain significant financial and other covenants that may significantly restrict our operations. We cannot assure you that we could obtain refinancing or additional financing on favorable terms or at all. In addition, the Board has initiated a formal review process to evaluate strategic alternatives for the Company, including a potential sale of the Company. The Company has not set a deadline or definitive timetable for the completion of the strategic alternatives review process, and there can be no assurance that this process will result in any particular outcome.

Previous wording

The following table shows summary cash flow information for the three months ended March 31, 2025 and 2024 (in thousands):

Current wording

The following table shows summary cash flow information for the six months ended June 30, 2025 and 2024 (in thousands):

Previous wording

Operating Activities. Net cash used in operating activities was $22.3 million for the three months ended March 31, 2025, compared to net cash provided by operating activities of $14.5 million for the three months ended March 31, 2024. Changes in net cash used in or provided by operating activities resulted primarily from cash received from net sales and cash payments for product costs and royalty expenses paid to our licensors. Other drivers of the changes in net cash provided by operating activities include shipping and freight costs, selling, general and administrative expenses (including personnel expenses and commissions and rent and facilities costs) and interest payments made for our short-term borrowings and long-term debt. Our accounts receivable typically are short term and settle in approximately 30 to 90 days (average 57 days).

Current wording

Operating Activities. Net cash used in operating activities was $44.4 million for the six months ended June 30, 2025, compared to net cash provided by operating activities of $60.4 million for the six months ended June 30, 2024. Changes in net cash used in or provided by operating activities resulted primarily from cash received from net sales and cash payments for product costs and royalty expenses paid to our licensors. Other drivers of the changes in net cash provided by operating activities include shipping and freight costs, selling, general and administrative expenses (including personnel expenses and commissions and rent and facilities costs) and interest payments made for our short-term borrowings and long-term debt. Our accounts receivable typically are short term and settle in approximately 30 to 90 days (average 62 days).

Previous wording

The increase in net cash used in operating activities for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was primarily due to changes in working capital that increased net cash used in operating activities by $31.7 million and an increase in net loss of $4.4 million and changes in depreciation and amortization, equity-based compensation and other, net of $0.7 million. Within working capital, the primary drivers were increases in accrued expenses and other current liabilities of $17.4 million, accrued royalties of $5.9 million and decrease to prepaid expenses and other assets of $6.9 million.

Current wording

The increase in net cash used in operating activities for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 was primarily due to changes in working capital that increased net cash used in operating activities by $52.8 million, an increase in net loss of $50.8 million and changes in depreciation and amortization, equity-based compensation and other, net of $1.3 million. Within working capital, the primary drivers were increases in accrued expenses and other current liabilities of $10.0 million, and, accrued royalties of $12.6 million and decreases to prepaid expenses and other assets of $23.1 million and inventory of $15.9 million.

Previous wording

Investing Activities. Our net cash used in investing activities primarily consists of purchases of property and equipment. For the three months ended March 31, 2025, net cash used in investing activities was $6.4 million and was primarily related to purchases of tooling and molds used for production of our product lines. For the three months ended March 31, 2024, net cash provided by investing activities was $2.8 million related to the sale of inventory and certain intellectual property marketed under and related to Funko Games of $6.8 million, offset by purchases of tooling and molds used for production of our product lines of $4.2 million.

Current wording

Investing Activities. Our net cash used in investing activities primarily consists of purchases of property and equipment. For the six months ended June 30, 2025, net cash used in investing activities was $15.2 million and was primarily related to purchases of tooling and molds used for production of our product lines. For the six months ended June 30, 2024, net cash provided by investing activities was $6.0 million related to the sale of inventory and certain intellectual property marketed under and related to Funko Games of $6.8 million, offset by purchases of tooling and molds used for production of our product lines of $13.3 million.

Previous wording

For the three months ended March 31, 2025, net cash provided by financing activities was $19.3 million, primarily related to borrowings on the Revolving Line of Credit Facility of $25.0 million, offset by payments on the Term Loan Facility and Equipment Finance Loan of $5.8 million. For the three months ended March 31, 2024, net cash used in financing activities was $27.4 million, primarily related to payments on the Term Loan Facility and Equipment Finance Loan of $13.9 million and repayment of borrowings on the Revolving Line of Credit Facility of $13.5 million.

Current wording

For the six months ended June 30, 2025, net cash provided by financing activities was $73.7 million, primarily related to borrowings on the Revolving Line of Credit Facility of $85.0 million, offset by payments on the Term Loan Facility and Equipment Finance Loan of $11.5 million. For the six months ended June 30, 2024, net cash used in financing activities was $49.3 million, primarily related to payments on the Term Loan Facility and Equipment Finance Loan of $19.6 million and repayment of borrowings on the Revolving Line of Credit Facility of $30.5 million.

Previous wording

As of March 31, 2025, we had $107.9 million of indebtedness outstanding under our Term Loan Facility (net of unamortized discount of $0.8 million) and $85.0 million outstanding borrowings under our Revolving Credit Facility, leaving $65.0 million of availability under our Revolving Credit Facility. In April 2025, we borrowed an additional $60.0 million, leaving $5.0 million of availability under our Revolving Credit Facility. The Term Loan Facility matures on September 17, 2026 (the “Maturity Date”) and amortizes in quarterly installments in aggregate amounts equal to 2.50% of the original principal amount of the Term Loan Facility, with any outstanding balance due and payable on the Maturity Date. The first amortization payment commenced with the quarter ended on December 31, 2021. The Revolving Credit Facility also terminates on the Maturity Date and loans thereunder may be borrowed, repaid, and reborrowed up to such date.

Current wording

As of June 30, 2025, we had $103.6 million of indebtedness outstanding under our Term Loan Facility (net of unamortized discount of $0.7 million) and $145.0 million outstanding borrowings under our Revolving Credit Facility. Pursuant to the Fourth Amendment, the commitments and outstanding borrowings under the Revolving Credit Facility have since been reduced to $135.0 million. The Term Loan Facility matures on September 17, 2026 (the “Maturity Date”) and amortizes in quarterly installments in aggregate amounts equal to 2.50% of the original principal amount of the Term Loan Facility, with any outstanding balance due and payable on the Maturity Date. The first amortization payment commenced with the quarter ended on December 31, 2021. The Revolving Credit Facility also terminates on the Maturity Date.

Previous wording

Loans under the Credit Facilities will, at the Borrowers’ option, bear interest at either (i) SOFR, EURIBOR, HIBOR, CDOR, Daily Simple SONIA and/or the Central Bank Rate, as applicable, plus (x) 4.00% per annum and (y) solely in the case of Term SOFR based loans, 0.10% per annum or (ii) ABR or the Canadian prime rate, as applicable, plus 3.00%, in each case of clauses (i) and (ii), subject to two 0.25% step-downs based on the achievement of certain leverage ratios following February 28, 2023. Each of SOFR, EURIBOR, HIBOR, CDOR and Daily Simple SONIA rates are subject to a 0.00% floor. For loans based on ABR, the Central Bank Rate or the Canadian prime rate, interest payments are due quarterly. For loans based on Daily Simple SONIA, interest payments are due monthly. For loans based on SOFR, EURIBOR, HIBOR or CDOR, interest payments are due at the end of each applicable interest period.

Current wording

Loans under the Credit Facilities will, at the Borrowers’ option, bear interest at either (i) SOFR plus (x) 4.00% per annum and (y) 0.10% per annum or (ii) ABR plus 3.00% per annum. SOFR rate is subject to a 0% floor. For loans based on ABR, interest payments are due quarterly. For loans based on SOFR, interest payments are due at the end of each applicable interest period.

Previous wording

In addition, the Credit Agreement requires FAH, LLC and its subsidiaries to comply on a quarterly basis with a Maximum Net Leverage Ratio and a Minimum Fixed Charge Coverage Ratio (in each case, measured on a trailing four-quarter basis). The Maximum Net Leverage Ratio and the Minimum Fixed Charge Coverage Ratio for the fiscal quarter ended March 31, 2025 and each quarter through maturity are 2.50:1.00 and 1.25:1.00, respectively.

Current wording

In addition, the Credit Agreement requires FAH, LLC and its subsidiaries to comply on a quarterly basis with a maximum Net Leverage Ratio of 2.50:1.00 and a minimum Fixed Charge Coverage Ratio of 1.25:1.00 (in each case, measured on a trailing four-quarter basis). The Fourth Amendment waives the maximum Net Leverage Ratio and the minimum Fixed Charge Coverage Ratio covenants under the Credit Agreement for the periods ended June 30, 2025 and ending September 30, 2025. The maximum Net Leverage Ratio and the minimum Fixed Charge Coverage Ratio, will reset for the fiscal quarter ended December 31, 2025 and each fiscal quarter thereafter through the Maturity Date. For additional information regarding the terms of the Fourth Amendment, see Note 4, “Debt.”