3 unchanged sentences
Other events that we do not currently anticipate or that we currently deem immaterial may also affect our business, prospects, financial condition and results of operations.
−Removed: Risks Related to Our Business
+Added: BUSINESS, ECONOMIC, MARKET AND OPERATING RISKS
+Added: The COVID-19 pandemic has adversely impacted and could materially adversely impact our business, financial condition and results of operations.
+Added: In 2020, the COVID-19 outbreak was declared a pandemic and has spread throughout the world.
+Added: COVID-19 has caused and continues to cause significant loss of life and disruption to the global economy, including the curtailment of activities by businesses and consumers in much of the world as governments and others seek to limit the spread of the disease, including through business and transportation shutdowns and restrictions on people’s movement and congregation.
+Added: As a result of the COVID-19 pandemic, we have experienced, weakened demand for our products, which has had a negative impact on our net sales and liquidity.
+Added: Beginning at the end of the first quarter of 2020 and continuing through the remainder of 2020, many of our retail customers were unable to sell our products in their stores due to government-mandated closures and temporarily reduced orders for our products.
+Added: While some of these closures have been lifted, due to the surge of cases in certain areas we expect to see additional closures, stores that reopened to close back down and/or delays in planned reopenings.
+Added: For example, certain regions in Europe implemented new restrictions and closures during the fourth quarter of 2020 in response to increased rates of infection.
+Added: We expect these trends to continue until infection rates are significantly reduced.
+Added: In addition, the pandemic has reduced foot traffic in the stores that remain open where our products are sold, and the global economic impact of the pandemic has reduced consumer demand for our products generally.
+Added: At the end of the second quarter of 2020 and through the third quarter of 2020 we began seeing a number of our key accounts reopening and remain open through the end of the year.
+Added: There can be no guarantees that this demand will be preserved.
+Added: In addition, in the year ended December 31, 2020, certain of our suppliers and the manufacturers of certain of our products were adversely impacted by COVID-19.
+Added: As a result, we faced delays or difficulty sourcing products, which negatively affected our business and financial results.
+Added: The impact on our supply chain and manufacturing could negatively affect our financial results for future reporting periods while the pandemic is ongoing.
+Added: Even if we are able to find alternate sources for such products, they may cost more, which could adversely impact our profitability and financial condition.
+Added: Additionally, we cannot assure you that our cash provided by operating activities, cash and cash equivalents or cash available under our Revolving Credit Facility will be sufficient to meet our future liquidity needs, particularly in light of the ongoing nature of the COVID-19 pandemic and its continuing impact on the global economy and consumer demand.
+Added: While we do not have any current plans to seek additional liquidity, we have evaluated options to improve our liquidity, such as the issuance of additional unsecured and secured debt, equity securities and equity-linked securities.
+Added: There can be no assurance when or whether any such issuance will occur, and any such financing may be material in nature and could result in significant additional borrowings or issuances of equity or equity-linked securities.
+Added: If we obtain additional capital by issuing equity, the interests of our existing stockholders will be diluted, which may be significant.
+Added: If we incur additional indebtedness, that indebtedness may contain significant financial and other covenants that may significantly restrict our operations.
+Added: We cannot assure you that we could obtain refinancing or additional financing on favorable terms or at all.
+Added: The COVID-19 pandemic continues to rapidly evolve.
+Added: The extent to which the pandemic impacts our business, liquidity, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the transmission rate of the disease, new variants or mutations in the disease, the duration and extent of the pandemic, the effectiveness, timing and distribution of vaccines, travel restrictions and social distancing in the United States, the United Kingdom and other countries in Europe, the duration and extent of business closures and business disruptions and the effectiveness of actions taken to contain, treat and prevent the disease.
+Added: If we or our retail customers continue to experience prolonged shutdowns or other business disruptions, our ability to conduct our business and, in turn, our liquidity, results of operations and financial condition, are likely to be materially and adversely affected.
+Added: Additionally, concerns over the economic impact of the COVID-19 pandemic have caused extreme volatility in financial and capital markets, which has adversely impacted and may materially adversely impact our stock price and our ability to access capital markets.
Our success depends on our ability to execute our business strategy.
−Removed: Our net sales and profitability have grown rapidly in recent periods;
+Added: Our net sales and profitability have generally grown rapidly in the last several years;
however, this should not be considered indicative of our future performance.
+Added: In the year ended December 31, 2020, our net sales decreased 17.9% compared to our net sales in the year ended December 31, 2019.
Our future growth, profitability and cash flows depend upon our ability to successfully execute our business strategy, which is dependent upon a number of factors, including our ability to:
8 unchanged sentences
• execute any acquisitions quickly and efficiently and integrate businesses successfully.
−Removed: There can be no assurance that we can successfully execute our business strategy in the manner or time period that we expect.
+Added: There can be no assurance that we can successfully execute our business strategy in the manner or time period that we expect, particularly in light of the ongoing nature of the COVID-19 pandemic and its continuing impact on the global economy and consumer demand.
Further, achieving these objectives will require investments which may result in short-term costs without generating any current sales or countervailing cost savings and, therefore, may be dilutive to our earnings, at least in the short term.
10 unchanged sentences
Our top ten licensors collectively accounted for approximately 74%, 73% and 72% of our sales for the years ended December 31, 2020, 2019 and 2018, respectively.
−Removed: Moreover, while we have separate licensing arrangements with Disney, LucasFilm and Marvel, these parties are all under common ownership by Disney and collectively these licensors accounted for approximately 38%, 34% and 33% of our sales for the
−Removed: years ended December 31, 2019, 2018 and 2017, respectively.
+Added: Moreover, while we have separate licensing arrangements with Disney, LucasFilm and Marvel, these parties are all under common ownership by Disney and collectively these licensors accounted for approximately 41%, 38% and 34% of our sales for the years ended December 31, 2020, 2019 and 2018, respectively.
The termination or lack of renewal of one or more of our license agreements, or the renewal of a license agreement on less favorable terms, could have a material adverse effect on our business, financial condition and results of operations.
−Removed: For example, in January 2019 we renewed our licensing agreements with Disney, LucasFilm and Marvel.
−Removed: In connection with such renewals, we were required to provide Disney certain benefits and fees in addition to paying Disney approximately $2.0 million as a consent fee under our previous licensing agreements.
While we may enter into additional license agreements in the future, the terms of such license agreements may be less favorable than the terms of our existing license agreements.
16 unchanged sentences
If we breach any of these obligations or any other obligations set forth in any of our license agreements, we could be subject to monetary penalties and our rights under such license agreements could be terminated, either of which could have a material adverse effect on our business, financial condition and results of operations.
−Removed: Our success is also partially dependent on the reputation of our licensors, the goodwill associated with their intellectual property, and their ability to protect and maintain the intellectual property rights that we use in connection with our products, all of which may be harmed by factors outside our control.
+Added: Our success is also partially dependent on the reputation of our licensors and the goodwill associated with their intellectual property, and their ability to protect and maintain the intellectual property rights that we use in connection with our products, all of which may be harmed by factors outside our control.
See also “If we are unable to obtain, maintain and protect our intellectual property rights, in particular trademarks and copyrights, or if our licensors are unable to maintain and protect their intellectual property rights that we use in connection with our products, our ability to compete could be negatively impacted.”
−Removed: As a purveyor of licensed pop culture consumer products, we may not be able to design and develop products that will be popular with consumers, and we may not be able to maintain the popularity of successful products.
−Removed: The interests of consumers evolve extremely quickly and can change dramatically from year to year.
−Removed: To be successful we must correctly anticipate both the products and the movies, TV shows, video games, music, sports
−Removed: and other content releases (including the related characters), that will appeal to consumers and quickly develop and introduce products that can compete successfully for consumers’ limited time, attention and spending.
−Removed: Evolving consumer tastes and shifting interests, coupled with an ever changing and expanding pipeline of products and content that compete for consumers’ interest and acceptance, create an environment in which some products and content can fail to achieve consumer acceptance, while others can be popular during a certain period of time but then be rapidly replaced.
−Removed: As a result, consumer products, particularly those based on pop culture such as ours, can have short life cycles.
−Removed: In addition, given the growing market for digital products and the increasingly digital nature of pop culture, there is also a risk that consumer demand for physical products may decrease over time.
−Removed: If we devote time and resources to developing and marketing products that consumers do not find appealing enough to buy in sufficient quantities, our sales and profits may decline, and our business performance may be damaged.
−Removed: Similarly, if our product offerings fail to correctly anticipate consumer interests, our sales and earnings will be adversely affected.
−Removed: Additionally, our business is increasingly global and depends on interest in and acceptance of our products and our licensors’ brands by consumers in diverse markets around the world with different tastes and preferences.
−Removed: As such, our success depends on our ability to successfully predict and adapt to changing consumer tastes and preferences in multiple markets and geographies and to design products that can achieve popularity globally over a broad and diverse consumer audience.
−Removed: There is no guarantee that we will be able to successfully develop and market products with global appeal.
−Removed: Consumer demand for pop culture products can and does shift rapidly and without warning.
−Removed: As a result, even if our product offerings are initially successful, there can be no guarantee that we will be able to maintain their popularity with consumers.
−Removed: Accordingly, our success will depend, in part, on our ability to continually design and introduce new products that consumers find appealing.
−Removed: To the extent we are unable to do so, our sales and profitability will be adversely affected.
−Removed: This is particularly true given the concentration of our sales under certain of our brands, particularly Pop!.
−Removed: Sales of our Pop!
−Removed: branded products accounted for approximately 79%, 76% and 70% of our sales for the years ended December 31, 2019, 2018 and 2017, respectively.
−Removed: If consumer demand for our Pop!
−Removed: branded products were to decrease, our business, financial condition and results of operations could be adversely affected unless we were able to develop and market additional products that generated an equivalent amount of net sales at a comparable gross margin, which there is no guarantee we would be able to do.
+Added: Global and regional economic downturns that negatively impact the retail and credit markets, or that otherwise damage the financial health of our retail customers and consumers, can harm our business and financial performance.
+Added: We design, manufacture and market a wide variety of consumer products worldwide for sale to our retail customers and directly to consumers.
+Added: Our financial performance is impacted by the level of discretionary consumer spending in the markets in which we operate.
+Added: Recessions, credit crises and other economic downturns, such as the recent downturn caused by the COVID-19 pandemic, or disruptions in credit markets, in the United States and in other markets in which our products are sold can result in lower levels of economic activity, lower employment levels, less consumer disposable income, and lower consumer confidence.
+Added: The retail industry is subject to volatility, especially during uncertain economic conditions.
+Added: A downturn in the retail industry in particular may disproportionately affect us because a substantial majority of our net sales are to retail customers.
+Added: Significant increases in the costs of other products which are required by consumers, such as gasoline, home heating fuels, or groceries, may reduce household spending on our products.
+Added: Such cost increases and weakened economic conditions may result from any number of factors, including pandemics, terrorist attacks, wars and other conflicts, natural disasters, increases in critical commodity prices or labor costs, or the prospect of such events.
+Added: Such a weakened economic and business climate, as well as consumer uncertainty created by such a climate, could harm our sales and profitability.
+Added: Similarly, reductions in the value of key assets held by consumers, such as their homes or stock market investments, can lower consumer confidence and consumer spending power.
+Added: Any of these factors can reduce the amount which consumers spend on the purchase of our products.
+Added: This in turn can reduce our sales and harm our financial performance and profitability.
+Added: In addition to experiencing potentially lower sales of our products during times of economic difficulty, in an effort to maintain sales during such times, we may need to reduce the price of our products, increase our promotional spending or sales allowances, or take other steps to encourage retailer and consumer purchases of our products.
+Added: Those steps may lower our net sales or increase our costs, thereby decreasing our operating margins and lowering our profitability.
Changes in the retail industry and markets for consumer products affecting our retail customers or retailing practices could negatively impact our business, financial condition and results of operations.
1 unchanged sentence
As such, trends and changes in the retail industry can negatively impact our business, financial condition and results of operations.
−Removed: For example, the retail industry, and in particular the toys sector, experienced softness during the 2019 holiday season, which adversely impacted our sales.
−Removed: Due to the challenging environment for traditional “brick-and-mortar” retail locations caused by declining in-store traffic, many retailers are closing physical stores, and some traditional retailers are engaging in significant reorganizations, filing for bankruptcy and going out of business.
−Removed: For example, in September 2017, Toys “R” Us, Inc.
−Removed: and certain of its subsidiaries filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Bankruptcy Code, and in March 2018, Toys “R” Us, Inc.
−Removed: announced the wind down of its U.S.
−Removed: operations and the potential insolvency proceedings of certain of its subsidiaries.
−Removed: Toys “R” Us, Inc.
−Removed: accounted for approximately 3.4% of our sales for the year ended December 31, 2017.
+Added: For example, in 2020, the retail industry has experienced dramatic reductions in sales due to the store closures related to the COVID-19 pandemic and weakened consumer demand, which has adversely impacted our net sales.
+Added: Prior to the onset of the COVID-19 pandemic, due to the challenging environment for traditional “brick-and-mortar” retail locations caused by declining in-store traffic, many retailers were closing physical stores, and some traditional retailers were engaging in significant reorganizations, filing for bankruptcy and going out of business.
+Added: We expect that the COVID-19 pandemic will exacerbate this trend.
In addition to furthering consolidation in the retail industry, such a trend could have a negative effect on the financial health of our retail customers and distributors, potentially causing them to experience difficulties in fulfilling their payment obligations to us or our distributors, reduce the amount of their purchases, seek extended credit terms or otherwise change their purchasing patterns, alter the manner in which they promote our products or the resources they devote to promoting and selling our products or cease doing business with us or our distributors.
−Removed: If any of our retail customers were to file for bankruptcy, we could be unable to collect amounts owed to us and could even be required to repay certain amounts paid to us prior to the bankruptcy filing.
+Added: If any of our retail customers were to file for bankruptcy, as a result of the COVID-19 pandemic or otherwise, we could be unable to collect amounts owed to us and could even be required to repay certain amounts paid to us prior to the bankruptcy filing.
The occurrence of any of these events would have an adverse effect on our business, cash flows, financial condition and results of operations.
If we do not effectively maintain and further develop our relationships with retail customers and distributors, our growth prospects, business and results of operations could be harmed.
−Removed: Historically, substantially all of our net sales have been derived from our retail customers and distributors, upon which we rely to reach the consumers who are the ultimate purchasers of our products.
+Added: Historically, a majority of all of our net sales have been derived from our retail customers and distributors, upon which we rely to reach the consumers who are the ultimate purchasers of our products.
In the United States, we primarily sell our products directly to specialty retailers, mass-market retailers and e-commerce sites.
13 unchanged sentences
Any reduction in purchases of our products by our retail customers and distributors, or the loss of any key retailer or distributor, could adversely affect our net sales, operating results and financial condition.
+Added: As a result of the COVID-19 pandemic, we have had certain of our retail customers reduce and, in some instances, cancel purchase orders as a result of store closures or a shift of purchasing to focus only on essential consumer products.
Furthermore, consumer preferences have shifted, and may continue to shift in the future, to sales channels other than traditional retail, including e-commerce, in which we have more limited experience, presence and development.
12 unchanged sentences
Any of these competitors may be able to bring new products to market more quickly, respond more rapidly than us to changes in consumer preferences and produce products of higher quality or that can be sold at more accessible price points.
−Removed: To the extent our competitors’
−Removed: products achieve greater market acceptance than our products, our business, financial condition and results of operations will be adversely affected.
+Added: To the extent our competitors’ products achieve greater market acceptance than our products, our business, financial condition and results of operations will be adversely affected.
In addition, certain of our licensors have reserved the rights to manufacture, distribute and sell identical or similar products to those we design and sell under our license agreements.
9 unchanged sentences
If we fail to manage our growth effectively, our financial performance may suffer.
−Removed: We have experienced rapid growth over the last several years, which has placed a strain on our managerial, operational, product design and development, sales and marketing, administrative and financial infrastructure.
+Added: We have generally experienced rapid growth over the last several years, which has placed a strain on our managerial, operational, product design and development, sales and marketing, administrative and financial infrastructure.
For example, we increased our total number of full-time employees from 66 as of December 31, 2013 to 777 as of December 31, 2020.
−Removed: As a result of our acquisition of Underground Toys Limited in January 2017, we now have distribution operations in the United Kingdom, our first distribution center outside of our headquarters in Everett, Washington.
−Removed: In June 2017, with the acquisition of Loungefly, LLC, we added an additional distribution center in Chatsworth, California.
+Added: We also have multiple distribution centers in the U.S.
+Added: and the United Kingdom.
Our success depends in part upon our ability to manage our growth effectively.
To do so, we must continue to increase the productivity of our existing employees and to hire, train and manage new employees as needed, which we may not be able to do successfully or without compromising our corporate culture.
−Removed: See “Our success is critically dependent on the efforts and dedication of our officers and other employees, and the loss of any one or more key employees, or our inability to attract and retain qualified personnel and maintain our corporate culture, could adversely affect our business.” To manage domestic and international growth of our operations and personnel, we will need to continue to improve our product development, supply chain, financial and management controls and our reporting processes and procedures and implement more extensive and integrated financial and business information systems.
+Added: See “Our success is critically dependent on the efforts and dedication of our officers and other employees, and the loss of one or more key employees, or our inability to attract and retain qualified personnel and maintain our corporate culture, could adversely affect our business.” To manage domestic and international growth of our operations and personnel, we will need to continue to improve our product development, supply chain, financial and management controls and our reporting processes and procedures and implement more extensive and integrated financial and business information systems.
These additional investments will increase our operating costs, which will make it more difficult for us to offset any future revenue shortfalls by reducing expenses in the short term.
26 unchanged sentences
Any such delay or cancellation may decrease the number of products we sell and harm our business.
+Added: For example, in 2020 there was a lack of new content releases due to the impact of COVID-19 on new content production and the movie theater industry.
+Added: Due to this impact, the percent of our sales attributable to classic evergreen properties was higher compared to historical trends.
+Added: As a purveyor of licensed pop culture consumer products, we may not be able to design and develop products that will be popular with consumers, and we may not be able to maintain the popularity of successful products.
+Added: The interests of consumers evolve extremely quickly and can change dramatically from year to year.
+Added: To be successful we must correctly anticipate both the products and the movies, TV shows, video games, music, sports and other content releases (including the related characters), that will appeal to consumers and quickly develop and introduce products that can compete successfully for consumers’ limited time, attention and spending.
+Added: Evolving consumer tastes and shifting interests, coupled with an ever changing and expanding pipeline of products and content that compete for consumers’ interest and acceptance, create an environment in which some products and content can fail to achieve consumer acceptance, while others can be popular during a certain period of time but then be rapidly replaced.
+Added: As a result, consumer products, particularly those based on pop culture such as ours, can have short life cycles.
+Added: In addition, given the growing market for digital products and the increasingly digital nature of pop culture, there is also a risk that consumer demand for physical products may decrease over time.
+Added: If we devote time and resources to developing and marketing products that consumers do not find appealing enough to buy in sufficient quantities, our sales and profits may decline, and our business performance may be damaged.
+Added: Similarly, if our product offerings fail to correctly anticipate consumer interests, our sales and earnings will be adversely affected.
+Added: Additionally, our business is increasingly global and depends on interest in and acceptance of our products and our licensors’ brands by consumers in diverse markets around the world with different tastes and preferences.
+Added: As such, our success depends on our ability to successfully predict and adapt to changing consumer tastes and preferences in multiple markets and geographies and to design products that can achieve popularity globally over a broad and diverse consumer audience.
+Added: There is no guarantee that we will be able to successfully develop and market products with global appeal.
+Added: Consumer demand for pop culture products can and does shift rapidly and without warning.
+Added: As a result, even if our product offerings are initially successful, there can be no guarantee that we will be able to maintain their popularity with consumers.
+Added: Accordingly, our success will depend, in part, on our ability to continually design and introduce new products that consumers find appealing.
+Added: To the extent we are unable to do so, our sales and profitability will be adversely affected.
+Added: This is particularly true given the concentration of our sales under certain of our brands, particularly Pop!.
+Added: Sales of our Pop!
+Added: branded products accounted for approximately 76%, 79% and 76% of our sales for the years ended December 31, 2020, 2019 and 2018, respectively.
+Added: If consumer demand for our Pop!
+Added: branded products were to decrease, our business, financial condition and results of operations could be adversely affected unless we were able to develop and market additional products that generated an equivalent amount of net sales at a comparable gross margin, which there is no guarantee we would be able to do.
We may not realize the full benefit of our licenses if the properties we license have less market appeal than expected or if sales from the products that use those properties are not sufficient to satisfy the minimum guaranteed royalties.
9 unchanged sentences
When our licensing agreements require minimum royalty guarantees, we accrue a royalty liability based on the contractually required percentage, as revenues are earned.
−Removed: In the case that a minimum royalty guarantee is not expected to be met through sales, we will
−Removed: accrue up to the minimum amount required to be paid.
+Added: In the case that a minimum royalty guarantee is not expected to be met through sales, we will accrue up to the minimum amount required to be paid.
For the years ended December 31, 2020, 2019 and 2018, we recorded reserves of $1.0 million, $2.4 million and $5.5 million, respectively, related to prepaid royalties we estimated would not be recovered through sales.
57 unchanged sentences
However, we cannot be certain that the conduct of our business does not and will not infringe, misappropriate or otherwise violate such rights.
−Removed: Many companies have employed intellectual property litigation as a way to gain a competitive advantage, and to the
−Removed: extent we gain greater visibility and market exposure as a public company, we may also face a greater risk of being the subject of such litigation.
+Added: Many companies have employed intellectual property litigation as a way to gain a competitive advantage, and to the extent we gain greater visibility and market exposure as a public company, we may also face a greater risk of being the subject of such litigation.
For these and other reasons, third parties may allege that our products or activities, including products we make under license, infringe, misappropriate or otherwise violate their trademark, copyright or other proprietary rights.
21 unchanged sentences
As we continue to grow, we may be unable to identify, hire or retain enough people who will maintain our corporate culture, including those in management and other key positions.
+Added: Conversely, when we are forced to furlough or lay off employees, as we did during the year ended December 31, 2020, there have been and may in the future be adverse consequences for our corporate culture and employee morale.
Our corporate culture could also be adversely affected by the increasingly global distribution of our employees, as well as their increasingly diverse skill sets.
3 unchanged sentences
As a consequence, we have experienced moderate seasonality in our business.
−Removed: Approximately 55%, 60% and 61%, of our net sales for the
−Removed: years ended December 31, 2019, 2018 and 2017, respectively, were made in the third and fourth quarters, as our customers build up their inventories in anticipation of the holiday season.
+Added: Approximately 64%, 55% and 60%, of our net sales for the years ended December 31, 2020, 2019 and 2018, respectively, were made in the third and fourth quarters, as our customers build up their inventories in anticipation of the holiday season.
This seasonal pattern requires significant use of working capital, mainly to manufacture inventory during the portion of the year prior to the holiday season and requires accurate forecasting of demand for products during the holiday season in order to avoid losing potential sales of highly popular products or producing excess inventory of less popular products.
−Removed: During the 2019 holiday season, for example, we experienced lower than expected purchases by our top customers as well as softness in sales related to certain tentpole movie releases, both of which adversely affected our financial results.
In addition, as a result of the seasonal nature of our business, we would be significantly and adversely affected, in a manner disproportionate to the impact on a company with sales spread more evenly throughout the year, by unforeseen events such as a terrorist attack or economic shock that harm the retail environment or consumer buying patterns during our key selling season, or by events such as strikes or port delays that interfere with the shipment of goods during the critical months leading up to the holiday shopping season.
12 unchanged sentences
In addition, while we require that our products supplied by third-party manufacturers be produced in compliance with all applicable laws and regulations, and we have the right to monitor compliance by our third-party manufacturers with our manufacturing requirements and to oversee the quality control process at our manufacturers’ factories, there is always a risk that one or more of our third-party manufacturers will not comply with our requirements, and that we will not immediately discover such non-compliance.
−Removed: For example, the Consumer Product Safety Improvement Act of 2008, or the CPSIA, limits the amounts of lead and phthalates that are permissible in certain products and requires that our products be tested to ensure that they do not contain these substances in amounts that exceed permissible levels.
+Added: For example, the Consumer Product Safety Improvement Act of 2008 (the "CPSIA") limits the amounts of lead and phthalates that are permissible in certain products and requires that our products be tested to ensure that they do not contain these substances in amounts that exceed permissible levels.
In the past, products manufactured by certain of our third-party manufacturers have tested positive for phthalates.
2 unchanged sentences
Monitoring compliance by independent manufacturers is complicated by the fact that expectations of ethical business practices continually evolve, may be substantially more demanding than applicable legal requirements and are driven in part by legal developments and by diverse groups active in publicizing and organizing public responses to perceived ethical shortcomings.
−Removed: Accordingly, we cannot predict how such expectations might develop
−Removed: in the future and cannot be certain that our manufacturing requirements, even if complied with, would satisfy all parties who are active in monitoring and publicizing perceived shortcomings in labor and other business practices worldwide.
+Added: Accordingly, we cannot predict how such expectations might develop in the future and cannot be certain that our manufacturing requirements, even if complied with, would satisfy all parties who are active in monitoring and publicizing perceived shortcomings in labor and other business practices worldwide.
Additionally, the third-party manufacturers that produce most of our products are located in Vietnam, China and Mexico.
1 unchanged sentence
See “Our substantial sales and manufacturing operations outside the United States subject us to risks associated with international operations.”
−Removed: The novel coronavirus outbreak could adversely impact our business, financial condition and results of operations.
−Removed: In January 2020, the World Health Organization declared the novel coronavirus outbreak originating in Wuhan, China to be a public health emergency.
−Removed: Certain of our suppliers and the manufacturers of certain of our products have been and may continue to be adversely impacted by the novel coronavirus outbreak.
−Removed: As a result, we have faced and may continue to face delays or difficulty sourcing products, which could negatively affect our business and financial results.
−Removed: Even if we are able to find alternate sources for such products, they may cost more, which could adversely impact our profitability and financial condition.
−Removed: At this time, there is significant uncertainty relating to the potential effect of the novel coronavirus on our business.
−Removed: Infections may become more widespread, including to other countries where we source products or have operations, which may worsen the supply shortage or force us to restrict our third-party manufacturing or other operations.
−Removed: In addition, because the outbreak has spread to the greater Seattle, Washington area, where our headquarters and primary warehouse facility are located, we may need to restrict access to our facilities, which could negatively impact productivity.
−Removed: The outbreak may also reduce foot traffic in the stores where our products are sold or temporarily reduce demand for our products.
−Removed: Any of these occurrences may have a negative impact on our business, financial condition or results of operations.
+Added: Historical data regarding our business, results of operations, financial condition and liquidity does not reflect the impact of the COVID-19 pandemic and related containment measures and therefore does not purport to be representative of our future performance.
+Added: The information included in this annual report and our other reports filed with the SEC includes information regarding our business, results of operations, financial condition and liquidity as of dates and for periods before or during the impact of COVID-19 and related containment measures (including border closings, quarantining, “shelter-in-place” orders and “social distancing”).
+Added: This historical information therefore does not fully reflect the adverse impacts of the COVID-19 pandemic and the related containment measures on our business.
+Added: Accordingly, investors are cautioned not to unduly rely on historical information regarding our business, results of operations, financial condition or liquidity, as that data does not fully reflect the adverse impact of COVID-19 and therefore does not purport to be representative of the future results of operations, financial condition, liquidity or other financial or operating results of our business.
Our operations, including our corporate headquarters, primary distribution facilities and third-party manufacturers, are concentrated in certain geographic regions, which makes us susceptible to adverse conditions in those regions.
2 unchanged sentences
London, England;
−Removed: Maldon, England;
Bath, England;
Burbank, California;
−Removed: Chatsworth, California;
and Puyallup, Washington.
5 unchanged sentences
Any disruption to or failures in these delivery services, whether as a result of extreme or severe weather conditions, natural disasters, labor unrest or otherwise, affecting western Washington in particular, or the West Coast in general, or in other areas in which we operate, could significantly disrupt our operations, damage or destroy our equipment and inventory and cause us to incur additional expenses, any of which could have a material adverse effect on our business, financial condition and results of operations.
−Removed: For example, in the fall of 2014, longshoreman work stoppages created a significant backlog of cargo containers at ports.
−Removed: We experienced delays in the shipment of our products as a result of this backlog and were unable to meet our planned inventory allocations for a limited period of time.
+Added: In addition, in the year ended December 31, 2020, certain of our suppliers and the manufacturers of certain of our products were adversely impacted by COVID-19.
+Added: As a result, we faced delays or difficulty sourcing products, which negatively affected our business and financial results.
+Added: In response, we shifted a greater amount of our production from China to Vietnam.
Although we possess insurance for damage to our property and the disruption of our business, this insurance, and in particular earthquake insurance, which is subject to various limitations and requires large deductibles or co-payments, may not be sufficient to cover all of our potential losses, and may be cancelled by us in the future or otherwise cease to be available to us on reasonable terms or at all.
3 unchanged sentences
Sales to our international customers comprised approximately 25%, 34% and 32% of our sales for the years ended December 31, 2020, 2019 and 2018, respectively.
−Removed: We expect sales to our international customers to account for an increasing portion of our sales in future fiscal years, including as a result of the Underground Toys Acquisition and the formation of our subsidiary Funko UK, Ltd., through which we now sell directly to certain of our customers in Europe, the Middle East and Africa.
+Added: We expect sales to our international customers to account for an increasing portion of our sales in future fiscal years, including as a result of our 2017 acquisition of Underground Toys and the formation of our subsidiary Funko UK, Ltd., through which we now sell directly to certain of our customers in Europe, the Middle East and Africa.
In fact, over time, we expect our international sales and operations to continue to grow both in dollars and as a percentage of our overall business as a result of a key business strategy to expand our presence in emerging and underserved international markets.
13 unchanged sentences
• proper payment of customs duties and/or excise taxes;
−Removed: • natural disasters and pandemics, including related to the 2019 coronavirus outbreak, and the greater difficulty and cost in recovering therefrom;
+Added: • natural disasters and pandemics, including related to the COVID-19 pandemic, the greater difficulty and cost in recovering therefrom;
• transportation delays and interruptions;
6 unchanged sentences
tariff impositions against Chinese exports have been followed by retaliatory Chinese tariffs on U.S.
+Added: exports to China.
Certain of the products we purchase from manufacturers in China have been or may in the future be subject to these tariffs, which could make our products less competitive than those of our competitors whose inputs are not subject to these tariffs.
6 unchanged sentences
The results of the United Kingdom’s referendum on withdrawal from the European Union may have a negative effect on global economic conditions, financial markets and our business.
−Removed: Following a national referendum and enactment of legislation by the government of the United Kingdom, the United Kingdom withdrew from the European Union ("Brexit") on January 31, 2020 and entered into a transition period during which it will continue its ongoing and complex negotiations with the European Union relating to the future trading relationship between the parties.
−Removed: Significant political and economic uncertainty remains about whether the terms of the relationship will differ materially from the terms before withdrawal, as well as about the possibility that a so-called "no deal" separation will occur if negotiations are not completed by the end of the transition period.
+Added: Following a national referendum and enactment of legislation by the government of the United Kingdom, the United Kingdom withdrew from the European Union ("Brexit") on January 31, 2020 and ratified an agreement on the future trading relationship between the parties (the “UK-EU Trade and Cooperation Agreement” or “TCA”) in December 2020, relating to the future trading relationship between the parties.
+Added: The TCA is subject to formal approval by the European Parliament and the Council of the European Union before it comes into effect and has been applied provisionally since January 1, 2021.
+Added: Because the agreement merely sets forth a framework in many respects and will require complex additional bilateral negotiations between the United Kingdom and the European Union as both parties continue to work on the rules for implementation, significant political and economic uncertainty remains about whether the relationship will differ materially from the terms before withdrawal.
These developments, or the perception that any of them could occur, have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets.
1 unchanged sentence
Lack of clarity about future United Kingdom laws and regulations, including financial laws and regulations, tax and free trade agreements, intellectual property rights, privacy and data protection, environmental, health and safety laws and regulations and employment laws, could increase costs and depress economic activity.
−Removed: If the United Kingdom and the European Union are unable to negotiate acceptable withdrawal terms or if other European Union member states pursue withdrawal, barrier-free access between the United Kingdom and other European Union member states or among the European economic area overall could be diminished or eliminated.
+Added: If other European Union member states pursue withdrawal, barrier-free access between the United Kingdom and other European Union member states or among the European economic area overall could be diminished or eliminated.
Any of these factors could have a material adverse effect on our business, financial condition and results of operations.
11 unchanged sentences
Outcomes from these audits could have an adverse effect on our operating results and financial condition.
−Removed: Changes in foreign currency exchange rates can significantly impact our reported financial performance.
−Removed: Our increasingly global operations mean we produce, buy, and sell products in many different markets with many different currencies.
−Removed: As a result, if the exchange rate between the U.S.
−Removed: dollar and a local currency for an international market in which we have significant sales or operations changes, our financial results as reported in U.S.
−Removed: dollars may be meaningfully impacted even if our business in the local currency is not significantly affected.
−Removed: Similarly, our expenses can be significantly impacted, in U.S.
−Removed: dollar terms, by exchange rates, meaning the profitability of our business in U.S.
−Removed: dollar terms can be negatively impacted by exchange rate movements which we do not control.
−Removed: In recent years, certain key currencies, such as the euro and the British pound sterling, depreciated significantly compared to the U.S.
−Removed: Depreciation in key currencies during 2020 and beyond may have a significant negative impact on our sales and earnings as they are reported in U.S.
−Removed: Global and regional economic downturns that negatively impact the retail and credit markets, or that otherwise damage the financial health of our retail customers and consumers, can harm our business and financial performance.
−Removed: We design, manufacture and market a wide variety of consumer products worldwide for sale to our retail customers and directly to consumers.
−Removed: Our financial performance is impacted by the level of discretionary consumer spending in the markets in which we operate.
−Removed: Recessions, credit crises and other economic downturns, or disruptions in credit markets, in the United States and in other markets in which our products are sold can result in lower levels of economic activity, lower employment levels, less consumer disposable income, and lower consumer confidence.
−Removed: The retail industry is subject to volatility, especially during uncertain economic conditions.
−Removed: A downturn in the retail industry in particular may disproportionately affect us because a substantial majority of our net sales are to retail customers.
−Removed: Significant increases in the costs of other products which are required by consumers, such as gasoline, home heating fuels, or groceries, may reduce household spending on our products.
−Removed: Such cost increases and weakened economic conditions may result from any number of factors, including terrorist attacks, wars and other conflicts, natural disasters, increases in critical commodity prices or labor costs, or the prospect of such events.
−Removed: Such a weakened economic and business climate, as well as consumer uncertainty created by such a climate, could harm our sales and profitability.
−Removed: Similarly, reductions in the value of key assets held by consumers, such as their homes or stock market investments, can lower consumer confidence and consumer spending power.
−Removed: Any of these factors can reduce the amount which consumers spend on the purchase of our products.
−Removed: This in turn can reduce our sales and harm our financial performance and profitability.
−Removed: In addition to experiencing potentially lower sales of our products during times of economic difficulty, in an effort to maintain sales during such times, we may need to reduce the price of our products, increase our promotional spending or sales allowances, or take other steps to encourage retailer and consumer purchases of our products.
−Removed: Those steps may lower our net sales or increase our costs, thereby decreasing our operating margins and lowering our profitability.
Our business depends in large part on our vendors and outsourcers, and our reputation and ability to effectively operate our business may be harmed by actions taken by these third parties outside of our control.
We rely significantly on vendor and outsourcing relationships with third parties for services and systems including manufacturing, transportation, logistics and information technology.
−Removed: In 2018, we initiated a relationship with a third party logistics company to process and fulfill customer orders in Europe.
−Removed: Any shortcoming of one of our vendors or outsourcers, including our third party logistics provider in Europe, particularly one affecting the quality of these services or systems, may be attributed by customers to us, thus damaging our reputation and brand value, and potentially affecting our results of operations.
+Added: We use third party logistics companies to process and fulfill customer orders in Europe and the U.S.
+Added: Any shortcoming of one of our vendors or outsourcers, including our third party logistics providers, particularly one affecting the quality of these services or systems, may be attributed by customers to us, thus damaging our reputation and brand value, and potentially affecting our results of operations.
In addition, problems with transitioning these services and systems to, or operating failures with, these vendors and outsourcers could cause delays in product sales, reduce the efficiency of our operations and require significant capital investments to remediate.
1 unchanged sentence
As a company that designs and sells consumer products, we are subject to significant government regulation, including, in the United States, under the CPSA, the FHSA, the CPSIA and the FFA, as well as under product safety and consumer protection statutes in our international markets.
−Removed: There can be no assurance that we will be in compliance, and failure to comply with these acts could result in sanctions which could have a negative impact on
−Removed: our business, financial condition and results of operations.
+Added: There can be no assurance that we will be in compliance, and failure to comply with these acts could result in sanctions which could have a negative impact on our business, financial condition and results of operations.
This risk is exacerbated by our reliance on third parties to manufacture our products.
37 unchanged sentences
Wayfair that a U.S.
−Removed: state may require an online retailer with no in-state property or personnel to collect and remit sales taxes on
−Removed: sales made to the state’s residents, which may permit wider enforcement of sales tax collection requirements.
+Added: state may require an online retailer with no in-state property or personnel to collect and remit sales taxes on sales made to the state’s residents, which may permit wider enforcement of sales tax collection requirements.
These collection responsibilities and the complexity associated with tax collection, remittance and audit requirements would also increase the costs associated with our e-commerce business.
11 unchanged sentences
We are, and may in the future become, subject to various legal proceedings and claims that arise in or outside the ordinary course of business.
−Removed: For example, on November 16, 2017, a purported stockholder of the Company filed a putative class action lawsuit in the Superior Court of Washington in and for King County against us, certain of our officers and directors, and the underwriters of our IPO, entitled Robert Lowinger v.
−Removed: In January and March 2018, five additional putative class action lawsuits were filed in Washington state court, four in the Superior Court of Washington in and for King County and one in the Superior Court of Washington in and for Snohomish County.
−Removed: Two of the King County lawsuits, Surratt v.
−Removed: (filed on January 16, 2018) and Baskin v.
−Removed: (filed on January 30, 2018), were filed against us and certain of our officers and directors.
−Removed: The other two King County lawsuits, The Ronald and Maxine Linde Foundation v.
−Removed: (filed on January 18, 2018) and Lovewell v.
−Removed: et al (filed on March 27, 2018), were filed against us, certain of our officers and directors, ACON, Fundamental and certain other defendants.
−Removed: The Snohomish County lawsuit, Berkelhammer v.
−Removed: (filed on March 13, 2018), was filed against us, certain of our officers and directors, and ACON.
−Removed: On May 8, 2015, the Berkelhammer action was voluntarily dismissed, and on May 15, 2018 a substantially similar action was filed by the same plaintiff in the Superior Court of Washington in and for King County.
−Removed: On April 2, 2018, a putative class action lawsuit entitled Jacobs v.
−Removed: al was filed in the United States District Court for the Western District of Washington against us, certain of our officers and directors, and certain other defendants.
−Removed: On May 21, 2018, the Jacobs action was voluntarily dismissed, and on June 12, 2018, a substantially similar action was filed by the same plaintiff in the Superior Court of Washington in and for King County.
−Removed: On July 2, 2018, all of the above-referenced suits were ordered consolidated for all purposes into one action under the title In re Funko, Inc.
−Removed: Securities Litigation in the Superior Court of Washington in and for King County.
−Removed: 1, 2018, plaintiffs filed a consolidated complaint against us, certain of our officers and directors, ACON, Fundamental, and certain other defendants.
−Removed: On October 1, 2018, we moved to dismiss that action.
−Removed: Plaintiffs filed their opposition to our motion to dismiss on October 31, 2018, and we filed our reply to plaintiffs’ opposition on November 30, 2018.
−Removed: Oral argument on the motion to dismiss was held on May 3, 2019.
+Added: For example, on March 10, 2020, a purported stockholder of the Company filed a putative class action lawsuit in the United States District Court for the Central District of California against us and certain of our officers, entitled Ferreira v.
+Added: The complaint alleges that we violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as well as Rule 10b-5 promulgated thereunder, by making allegedly materially misleading statements in our earnings announcement and Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, as well as by omitting material facts necessary to make the statements made therein not misleading.
+Added: The lawsuit seeks, among other things, compensatory damages and attorneys’ fees and costs.
+Added: Two additional complaints making substantially similar allegations— Nahas v.
+Added: and Dachev v.
+Added: —were filed April 3, 2020 in the United States District Court for the Central District of California and April 9, 2020 in the United States District Court for the Western District of Washington, respectively.
+Added: On June 11, 2020, the Central District of California actions were consolidated for all purposes into one action under the Ferreira caption, and a lead plaintiff and lead counsel were appointed pursuant to the Private Securities Litigation Reform Act.
+Added: Lead plaintiff filed the consolidated complaint on July 31, 2020, against us and certain of our officers and directors, as well as entities affiliated with ACON.
+Added: The consolidated complaint added Section 10(b) and 20(a) claims based on our earnings announcement and Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, as well as claims under Section 20A of the Securities Exchange Act of 1934.
+Added: All defendants moved to dismiss the consolidated action on October 2, 2020, and briefing on the motions to dismiss concluded on January 29, 2021.
+Added: On February 26, 2021, the Court granted our motion to dismiss the Ferreira action, allowing the plaintiffs leave to amend the complaint.
+Added: On June 25, 2020, the Dachev action was voluntarily dismissed.
+Added: Five shareholder derivative actions based on the earnings announcement and Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 have been brought on behalf of the Company against certain of our directors and officers.
+Added: Specifically, on April 23, June 5, and June 10, 2020, the actions captioned Cassella v.
+Added: Mariotti et al.
+Added: Mariotti et al.
+Added: , and Igelido v.
+Added: Mariotti et al.
+Added: , respectively, were filed in the United States District Court for the Central District of California.
+Added: On July 6, 2020, these three actions were consolidated for all purposes into one action under the title In re Funko, Inc.
+Added: Derivative Litigation , and on August 13, 2020, the consolidated action was stayed pending final resolution of the motion to dismiss in the Ferreira action.
+Added: Additionally, on July 14 and July 31, 2020, the actions captioned Rubin v.
+Added: Mariotti et al.
+Added: and Fletcher v.
+Added: Mariotti et al.
+Added: , respectively, were filed in the United States District Court for the District of Delaware.
+Added: These two actions were consolidated for all purposes into one action under the title In re Funko, Inc.
+Added: Stockholder Derivative Litigation on September 8, 2020.
+Added: On October 30, 2020, the consolidated action was transferred to the United States District Court for the Central District of California.
+Added: The complaints filed in the shareholder derivative actions have alleged breaches of fiduciary duties, unjust enrichment, waste of corporate assets, insider trading, and violations of the Exchange Act.
+Added: The actions seek, among other things, payment of damages to the Company and to disgorge the directors and officers from all profits and benefits they obtained due to their alleged wrongful conduct.
+Added: Additionally, between November 16, 2017 and June 12, 2018, seven purported stockholders of the Company filed putative class action lawsuits in the Superior Court of Washington in and for King County against us, certain of our officers and directors, ACON, Fundamental, the underwriters of our IPO, and certain other defendants.
+Added: On July 2, 2018, the suits were ordered consolidated for all purposes into one action under the title In re Funko, Inc.
+Added: Securities Litigation .
+Added: On August 1, 2018, plaintiffs filed a consolidated complaint against us, certain of our officers and directors, ACON, Fundamental, and certain other defendants.
+Added: On October 1, 2018, we moved to dismiss the action.
+Added: The motion was fully briefed as of November 30, 2018, and oral argument on the motion was held on May 3, 2019.
On August 2, 2019, the Court granted our motion to dismiss the consolidated state litigation, allowing plaintiffs leave to amend the complaint.
1 unchanged sentence
We moved to dismiss that complaint on December 5, 2019.
−Removed: We anticipate that the motion will be fully briefed by March 11, 2020, and that oral argument on the motion will take place March 27, 2020.
−Removed: Additionally, on June 4, 2018, a putative class action lawsuit entitled Kanugonda v.
+Added: The motion was fully briefed as of March 17, 2020, and oral argument on the motion was held on May 15, 2020.
+Added: On August 5, 2020, the Superior Court of Washington in and for King County dismissed the consolidated action with prejudice.
+Added: Plaintiffs filed a notice of appeal to the Washington Court of Appeals on September 4, 2020 and their opening brief on February 12, 2021.
+Added: We expect briefing on the appeal to conclude mid-2021.
+Added: On June 4, 2018, a putative class action lawsuit entitled Kanugonda v.
+Added: Funko, Inc., et al.
was filed in the United States District Court for the Western District of Washington against us, certain of our officers and directors, and certain other defendants.
3 unchanged sentences
, have agreed to a stay of that action pending developments in the state case.
−Removed: The complaints in both state and federal court allege that we violated Sections 11, 12, and 15 of the Securities Act of 1933, as amended, by making allegedly materially misleading statements and by omitting material facts necessary to make the statements made therein not misleading.
+Added: The complaints in Washington state court and Berkelhammer v.
+Added: allege that we violated Sections 11, 12, and 15 of the Securities Act of 1933, as amended, by making allegedly materially misleading statements in documents filed with the U.S.
+Added: Securities and Exchange Commission in connection with our IPO and by omitting material facts necessary to make the statements made therein not misleading.
The lawsuits seek, among other things, compensatory statutory damages and rescissory damages in account of the consideration paid for our Class A common stock by the plaintiffs and members of the putative class, as well as attorneys’ fees and costs.
+Added: Finally, on December 8, 2020 and February 3, 2021, two purported stockholders of the Company filed complaints against us in the Court of Chancery of the State of Delaware to compel inspection of books and records pursuant to 8 Del.
+Added: Those actions, captioned Silverberg v.
+Added: and De La Combe v.
+Added: , respectively, are pending.
The results of the securities class action lawsuit and any future legal proceedings cannot be predicted with certainty.
3 unchanged sentences
In addition, such lawsuits may make it more difficult to finance our operations.
−Removed: Failure to comply with anti-corruption and anti-bribery laws could result in fines, criminal penalties and materially adversely affect our business, financial condition and results of operations.
−Removed: A significant risk resulting from our global operations is compliance with a wide variety of U.S.
−Removed: federal and state and non-U.S.
−Removed: laws, regulations and policies, including laws related to anti-corruption, anti-bribery and laundering.
−Removed: The FCPA, the U.K.
−Removed: Bribery Act of 2010 and similar anti-corruption and anti-bribery laws in other jurisdictions generally prohibit companies, their officers, directors, employees and third-party intermediaries, business partners, and agents from making improper payments or other improper things of value to government officials or other persons.
−Removed: There has been an increase in anti-bribery and anti-corruption law enforcement activity in recent years, with more frequent and aggressive investigations and enforcement proceedings by both the U.S.
−Removed: Department of Justice and the SEC, increased enforcement activity by non-U.S.
−Removed: regulators, and increases in criminal and civil proceedings brought against companies and individuals.
−Removed: We operate in parts of the world that are considered high-risk from an anti-bribery and anti-corruption perspective, and strict compliance with anti-bribery and anti-corruption laws may conflict with local customs and practices.
−Removed: We cannot assure you that our internal controls, policies and procedures will protect us from improper conduct by our officers, directors, employees, third-party intermediaries, business partners or agents.
−Removed: To the extent that we learn that any of these parties do not adhere to our internal control policies, we are committed to taking appropriate remedial action.
−Removed: In the event that we believe or have reason to believe that any such party has or may have violated such laws, we may be required to investigate or have outside counsel investigate the relevant facts and circumstances, and detecting, investigating and resolving actual or alleged violations can be expensive and require a significant diversion of time, resources and attention from senior management.
−Removed: Any violation of U.S.
−Removed: federal and state and non-U.S.
−Removed: anti-bribery and anti-corruption laws, regulations and policies could result in substantial fines, sanctions, civil or criminal penalties, and curtailment of operations in the U.S.
−Removed: or other applicable jurisdictions.
−Removed: In addition, actual or alleged violations could damage our reputation and ability to do business.
−Removed: Any of the foregoing could materially adversely affect our business, financial condition and results of operations.
−Removed: We are subject to governmental economic sanctions requirements and export and import controls that could impair our ability to compete in international markets or subject us to liability if we are not in compliance with applicable laws.
−Removed: company, we are subject to U.S.
−Removed: export control and economic sanctions laws and regulations, and we are required to export our products in compliance with those laws and regulations, including the U.S.
−Removed: Export Administration Regulations and economic and trade sanctions programs administered by the Treasury Department’s Office of Foreign Assets Control.
−Removed: economic sanctions and export control laws and regulations prohibit the shipment of specified products and services to countries, governments and persons that are the subject of U.S.
−Removed: While we take precautions against doing any business, directly or indirectly, in or with countries, governments and persons subject to U.S.
−Removed: sanctions, such measures may be circumvented.
−Removed: There can be no assurance that we will be in compliance with U.S.
−Removed: export control or economic sanctions laws and regulations in the future.
−Removed: Any such violation could result in criminal or civil fines, penalties or other sanctions and repercussions, including reputational harm that could materially adversely affect our business.
We may not realize the anticipated benefits of acquisitions or investments, the realization of such benefits may be delayed or reduced or our acquisitions or investments may have unexpected costs.
16 unchanged sentences
Failure to successfully operate our information systems and implement new technology effectively could disrupt our business or reduce our sales or profitability.
−Removed: We rely extensively on various information technology systems and software applications, including our enterprise resource planning software, to manage many aspects of our business, including product development, management of our supply chain, sale and delivery of our products, financial reporting and various other processes and
−Removed: transactions.
+Added: We rely extensively on various information technology systems and software applications, including our enterprise resource planning software, to manage many aspects of our business, including product development, management of our supply chain, sale and delivery of our products, financial reporting and various other processes and transactions.
We are critically dependent on the integrity, security and consistent operations of these systems and related back-up systems.
2 unchanged sentences
The failure of these information systems to perform as designed, our failure to operate them effectively, or a security breach or disruption in operation of our information systems could disrupt our business, require significant capital investments to remediate a problem or subject us to liability.
−Removed: In 2018, we upgraded the enterprise resource planning software used by our United Kingdom operations.
−Removed: This upgrade resulted in certain delays in our operations in the first few months of implementation.
−Removed: We are also considering upgrades to our enterprise resource planning software at our other locations, including in the United States.
+Added: We are also in process of upgrading our enterprise resource planning software globally, beginning in the United States.
If the potential upgrades are not successful or result in delays, our business could be disrupted or harmed.
2 unchanged sentences
In addition, the process of implementing any new technology systems involves inherent costs and risks, including potential delays and system failures, the potential disruption of our internal control structure, the diversion of management’s time and attention, and the need to re-train or hire new employees, any of which could disrupt our business operations and have a material adverse effect on our business, financial condition and results of operations.
−Removed: If our electronic data is compromised our business could be significantly harmed.
−Removed: We maintain significant amounts of data electronically.
−Removed: This data relates to all aspects of our business, including current and future products and entertainment under development, and also contains certain customer, consumer, supplier, partner and employee data.
−Removed: We maintain systems and processes designed to protect the data within our control, but notwithstanding such protective measures, there is a risk of intrusion or tampering that could compromise the integrity and privacy of this data.
−Removed: In addition, we provide confidential and proprietary information to our third-party business partners in certain cases where doing so is necessary or appropriate to conduct our business.
−Removed: While we obtain assurances from those parties that they have systems and processes in place to protect such data, and where applicable, that they will take steps to assure the protections of such data by third parties, nonetheless those partners may also be subject to data intrusion or otherwise compromise the protection of such data.
−Removed: Any compromise of the confidential data of our customers, consumers, suppliers, partners, employees or ourselves, or failure to prevent or mitigate the loss of or damage to this data through breach of our information technology systems or other means could substantially disrupt our operations, harm our customers, consumers and other business partners, damage our reputation, violate applicable laws and regulations and subject us to additional costs and liabilities and loss of business that could be material.
−Removed: A failure to comply with laws and regulations relating to privacy and the protection of data relating to individuals may result in negative publicity, claims, investigations and litigation, and adversely affect our financial performance.
−Removed: We are subject to laws, rules, and regulations in the United States, the European Union, and other jurisdictions relating to the collection, use, and security of personal information and data.
−Removed: Such data privacy laws, regulations, and other obligations may require us to change our business practices and may negatively impact our ability to expand our business and pursue business opportunities.
−Removed: We may incur significant expenses to comply with the laws, regulations and other obligations that apply to us.
−Removed: Additionally, the privacy- and data protection-related laws, rules, and regulations applicable to us are subject to significant change.
−Removed: Several jurisdictions have passed new laws and regulations in this area, and other jurisdictions are considering imposing additional restrictions.
−Removed: For example, our operations are subject to the European Union’s General Data Protection Regulation, which imposes data privacy and security requirements on companies doing business in the European Union, including substantial penalties for non-compliance.
−Removed: The California Consumer Privacy Act (the "CCPA"), which went into effect on January 1, 2020, imposes similar requirements on companies handling data of California residents and creates a new and potentially severe statutory damages framework for (i) violations of the CCPA and (ii) businesses that fail to implement reasonable security procedures and practices to prevent data breaches.
−Removed: Privacy and data protection-related laws and regulations also may be interpreted and enforced inconsistently over time and from jurisdiction to jurisdiction.
−Removed: In addition to government regulation, privacy advocates and industry groups may propose new and
−Removed: different self-regulatory standards that either legally or contractually apply to us.
−Removed: One example of such self-regulatory standards to which we may be contractually bound is the Payment Card Industry Data Security Standard, or PCI DSS.
−Removed: Though we currently use third-party vendors to process and store credit card data in connection with our e-commerce business, to the extent we process or store such data ourselves in the future, we may be subject to various aspects of the PCI DSS, and fines, penalties, and a loss of the ability to process credit card payments could result from any failure to comply with the PCI DSS.
−Removed: Any actual or perceived inability to comply with applicable privacy or data protection laws, regulations, or other obligations could result in significant cost and liability, litigation or governmental investigations, damage our reputation, and adversely affect our business.
Our indebtedness could adversely affect our financial health and competitive position.
−Removed: On October 22, 2018, we entered into the Credit Agreement providing for the New Term Loan Facility in the amount of $235.0 million and the New Revolving Credit Facility in the amount of $50.0 million (which was increased to $75.0 million on February 11, 2019).
−Removed: Proceeds from the New Credit Facilities were primarily used to repay the Former Senior Secured Credit Facilities.
−Removed: As of December 31, 2019, we had $242.3 million of indebtedness outstanding under our New Credit Facilities, consisting of $216.5 million outstanding under our New Term Loan Facility (net of unamortized discount of $3.8 million) and $25.8 million outstanding under our New Revolving Credit Facility.
+Added: On October 22, 2018, we entered into the Credit Agreement dated October 22, 2018 (as amended, the "Credit Agreement"), providing for a term loan facility in the amount of $235.0 million (the "Term Loan Facility") and a revolving credit facility of $50.0 million (the "Revolving Credit Facility" and together with the Term Loan Facility, the "Credit Facilities") (which was increased to $75.0 million on February 11, 2019).
+Added: As of December 31, 2020, we had $190.8 million of indebtedness outstanding under our Credit Facilities, consisting of $190.8 million outstanding under our Term Loan Facility (net of unamortized discount of $3.1 million) and no outstanding borrowings under our Revolving Credit Facility.
In order to service this indebtedness and any additional indebtedness we may incur in the future, we need to generate cash.
15 unchanged sentences
• amend or modify our governing documents.
−Removed: The restrictive covenants in the Credit Agreement also require us to maintain specified financial ratios.
+Added: The restrictive covenants in the Credit Agreement also require us to maintain specified financial ratios, other than during the Waiver Period.
While we have not previously breached and are not in breach of any of these covenants, there can be no guarantee that we will not breach these covenants in the future.
1 unchanged sentence
Our failure to comply with any of these covenants or restrictions could result in an event of default under our credit facilities.
−Removed: This would permit the lending banks under such facilities to take certain actions, including terminating all outstanding commitments and declaring all amounts due under our credit agreement to be immediately due and payable, including all outstanding borrowings, accrued and unpaid interest thereon, and prepayment premiums with respect to such borrowings and any terminated
+Added: This would permit the lending banks under such facilities to take certain actions, including terminating all outstanding commitments and declaring all amounts due under our credit agreement to be immediately due and payable, including all outstanding borrowings, accrued and unpaid interest thereon, and prepayment premiums with respect to such borrowings and any terminated commitments.
In addition, the lenders would have the right to proceed against the collateral we granted to them, which includes substantially all of our assets.
2 unchanged sentences
In the future, we may require additional capital to respond to business opportunities, challenges, acquisitions or unforeseen circumstances, and may determine to engage in equity or debt financings or enter into credit facilities or refinance existing indebtedness for other reasons.
−Removed: We may not be able to timely secure additional debt or equity financing on favorable terms, or at all.
+Added: As a result of the COVID-19 pandemic, we are currently evaluating additional options to improve our liquidity, such as the issuance of additional unsecured and secured debt, equity securities and equity-linked securities.
+Added: We may not be able to timely secure additional debt or equity financing on favorable terms, or at all, including due to market volatility and uncertainty resulting from the COVID-19 pandemic.
As discussed above, the Credit Agreement contains restrictive covenants that limit our ability to incur additional indebtedness and engage in other capital-raising activities.
2 unchanged sentences
If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited.
−Removed: Uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR after 2021 may adversely affect the market value of our current or future debt obligations.
−Removed: The London Inter-bank Offered Rate (“LIBOR”) and certain other interest “benchmarks” may be subject to regulatory guidance and/or reform that could cause interest rates under our current or future debt agreements to perform differently than in the past or cause other unanticipated consequences.
−Removed: The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has announced that it intends to stop encouraging or requiring banks to submit LIBOR rates after 2021, and it is unclear if LIBOR will cease to exist or if new methods of calculating LIBOR will evolve.
−Removed: If LIBOR ceases to exist or if the methods of calculating LIBOR change from their current form, interest rates on our debt obligations under our New Credit Facilities may be adversely affected.
−Removed: Any impairment in the value of our goodwill or other assets would adversely affect our financial condition and results of operations.
−Removed: We are required, at least annually, or as facts and circumstances warrant, to test goodwill and other assets to determine if impairment has occurred.
−Removed: Impairment may result from any number of factors, including adverse changes in assumptions used for valuation purposes, such as actual or projected net sales growth rates, profitability or discount rates, or other variables.
−Removed: If the testing indicates that impairment has occurred, we are required to record a non-cash impairment charge for the difference between the carrying value of the goodwill or other assets and the implied fair value of the goodwill or the fair value of other assets in the period the determination is made.
−Removed: We cannot always predict the amount and timing of any impairment of assets.
−Removed: Should the value of goodwill or other assets become impaired, it would have an adverse effect on our financial condition and results of operations.
−Removed: Risks Relating to Our Organizational Structure
+Added: ORGANIZATIONAL STRUCTURE RISKS
ACON has significant influence over us, including over decisions that require the approval of stockholders, and its interests, along with the interests of our other Continuing Equity Owners, in our business may conflict with the interests of our other stockholders.
2 unchanged sentences
Accordingly, ACON will have significant influence over substantially all transactions and other matters submitted to a vote of our stockholders, such as a merger, consolidation, dissolution or sale of all or substantially all of our assets, the issuance or redemption of certain additional equity interests, and the election of directors.
−Removed: This influence may increase the likelihood that we will
−Removed: consummate transactions that are not in the best interests of holders of our Class A common stock or, conversely, prevent the consummation of transactions that are in the best interests of holders of our Class A common stock.
+Added: This influence may increase the likelihood that we will consummate transactions that are not in the best interests of holders of our Class A common stock or, conversely, prevent the consummation of transactions that are in the best interests of holders of our Class A common stock.
Additionally, the Continuing Equity Owners who, as of March 9, 2021, collectively hold approximately 50.2% of the combined voting power of our common stock, may receive payments from us under the Tax Receivable Agreement in connection with our purchase of common units of FAH, LLC directly from certain of the Continuing Equity Owners upon a redemption or exchange of their common units in FAH, LLC, including the issuance of shares of our Class A common stock upon any such redemption or exchange.
20 unchanged sentences
• any increase or decrease of the size of our board of directors.
−Removed: We are a “controlled company” within the meaning of the Nasdaq rules and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements.
−Removed: You will not have the same protections afforded to stockholders of companies that are subject to such corporate governance requirements.
−Removed: Pursuant to the terms of the Stockholders Agreement, ACON, Fundamental and Brian Mariotti, our chief executive officer, in the aggregate, have more than 50% of the voting power for the election of directors, and, as a result, we are considered a “controlled company” for the purposes of the Nasdaq rules.
−Removed: As such, we qualify for, and may rely on, exemptions from certain corporate governance requirements, including the requirements to have a majority of “independent directors” as defined under the Nasdaq rules on our board of directors, an entirely independent nominating and corporate governance committee with a written charter addressing the committee’s purpose and responsibilities, and an entirely independent compensation committee with a written charter addressing the committee’s purpose and responsibilities.
−Removed: The corporate governance requirements and specifically the independence standards are intended to ensure that directors who are considered independent are free of any conflicting interest that could influence their actions as directors.
−Removed: As a result of our reliance on the foregoing “controlled company” exemptions, you may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the Nasdaq rules.
Our amended and restated certificate of incorporation provides that the doctrine of “corporate opportunity” does not apply with respect to any director or stockholder who is not employed by us or our subsidiaries.
4 unchanged sentences
As a result, certain of our stockholders, directors and their respective affiliates are not prohibited from operating or investing in competing businesses.
−Removed: We therefore may find ourselves in competition with certain of our stockholders, directors or their respective affiliates, and we may not have knowledge of, or be able to pursue, transactions that
−Removed: could potentially be beneficial to us.
+Added: We therefore may find ourselves in competition with certain of our stockholders, directors or their respective affiliates, and we may not have knowledge of, or be able to pursue, transactions that could potentially be beneficial to us.
Accordingly, we may lose a corporate opportunity or suffer competitive harm, which could negatively impact our business or prospects.
19 unchanged sentences
If FAH, LLC does not have sufficient funds to make distributions, our ability to declare and pay cash dividends may also be restricted or impaired.
−Removed: See “Risks Relating to Ownership of Our Class A Common Stock.”
+Added: See “Ownership of Our Class A Common Stock Risks.”
In certain circumstances, FAH, LLC will be required to make distributions to us and the Continuing Equity Owners, and the distributions that FAH, LLC will be required to make may be substantial.
25 unchanged sentences
We will not be reimbursed for any cash payments previously made to the Continuing Equity Owners pursuant to the Tax Receivable Agreement if any tax benefits initially claimed by us are subsequently challenged by a taxing authority and are ultimately disallowed.
−Removed: Instead, any excess cash payments made by us to a Continuing Equity Owner will be netted against any future cash payments that we might otherwise be required to make under the
−Removed: terms of the Tax Receivable Agreement.
+Added: Instead, any excess cash payments made by us to a Continuing Equity Owner will be netted against any future cash payments that we might otherwise be required to make under the terms of the Tax Receivable Agreement.
However, a challenge to any tax benefits initially claimed by us may not arise for a number of years following the initial time of such payment or, even if challenged early, such excess cash payment may be greater than the amount of future cash payments that we might otherwise be required to make under the terms of the Tax Receivable Agreement and, as a result, there might not be future cash payments from which to net against.
15 unchanged sentences
This and other aspects of our organizational structure may adversely impact the future trading market for our Class A common stock.
−Removed: Risks Relating to Ownership of Our Class A Common Stock
+Added: OWNERSHIP OF OUR CLASS A COMMON STOCK RISKS
The Continuing Equity Owners own common units in FAH, LLC, and the Continuing Equity Owners will have the right to redeem their common units in FAH, LLC pursuant to the terms of the FAH LLC Agreement for shares of Class A common stock or cash.
As of March 9, 2021, we had an aggregate of 163,752,767 shares of Class A common stock authorized but unissued, as well as approximately 15,076,403 shares of Class A common stock issuable, at our election, upon redemption of FAH, LLC common units held by the Continuing Equity Owners.
−Removed: FAH, LLC has entered into the FAH LLC Agreement, and subject to certain restrictions set forth in such agreement, the Continuing Equity Owners are entitled to have their common units redeemed from time to time at each of their options (subject in certain
−Removed: circumstances to time-based vesting requirements) for, at our election, newly-issued shares of our Class A common stock on a one-for-one basis or a cash payment equal to a volume weighted average market price of one share of Class A common stock for each common unit redeemed, in each case, in accordance with the terms of the FAH LLC Agreement;
+Added: FAH, LLC has entered into the FAH LLC Agreement, and subject to certain restrictions set forth in such agreement, the Continuing Equity Owners are entitled to have their common units redeemed from time to time at each of their options (subject in certain circumstances to time-based vesting requirements) for, at our election, newly-issued shares of our Class A common stock on a one-for-one basis or a cash payment equal to a volume weighted average market price of one share of Class A common stock for each common unit redeemed, in each case, in accordance with the terms of the FAH LLC Agreement;
provided that, at our election, we may effect a direct exchange by us of such Class A common stock or such cash, as applicable, for such common units.
13 unchanged sentences
We have also reserved for issuance an aggregate number of shares under the Company’s 2019 Incentive Award Plan (the “2019 Plan”) equal to the sum of (i) 3,000,0000 shares of our Class A common stock and (ii) an annual increase on the first day of each calendar year beginning on January 1, 2020 and ending on and including January 1, 2029, equal to the lesser of (A) 2% of the shares of Class A Common Stock outstanding as of the last day of the immediately preceding fiscal year on a fully-diluted basis and (B) such lesser number of shares of Class A common stock as determined by our board of directors.
+Added: As of December 31, 2020, we had granted 311,200 shares of Class A common stock underlying stock options and 397,015 shares of Class A common stock underlying restricted stock units under the 2019 Plan to certain of our executive officers and other employees.
Any shares of Class A common stock that we issue, including under our 2017 Plan, our 2019 Plan or other equity incentive plans that we may adopt in the future, would dilute the percentage ownership held by the holders of our Class A common stock.
3 unchanged sentences
The Form S-3 was declared effective by the SEC on September 16, 2019.
−Removed: S-3 allows us to sell from time to time up to $100.0 million of Class A common stock, preferred stock, debt securities, warrants, purchase contracts or units comprised of any combination of these securities for our own account and, following the secondary underwritten public offering which was completed on September 19, 2019, allows certain Original Equity Owners to sell 27,934,185 shares of Class A common stock in one or more offerings.
+Added: The Form S-3 allows us to sell from time to time up to $100.0 million of Class A common stock, preferred stock, debt securities, warrants, purchase contracts or units comprised of any combination of these securities for our own account and, following the secondary underwritten public offering which was completed on September 19, 2019, allows certain Original Equity Owners to sell 27,934,185 shares of Class A common stock in one or more offerings.
If we offer and sell Class A common stock under the Form S-3, it would dilute the percentage ownership held by the existing holders of our Class A common stock.
Any sales in connection with the Registration Rights Agreement, or the prospect of any such sales, could materially impact the market price of our Class A common stock and could impair our ability to raise capital through future sales of equity securities.
−Removed: Our Class A common stock price may be volatile or may decline regardless of our operating performance and you may not be able to resell your shares at or above the price you paid for them.
−Removed: Volatility in the market price of our Class A common stock may prevent you from being able to sell your shares at or above the price you paid for them.
−Removed: Many factors, which are outside our control, may cause the market price of our Class A common stock to fluctuate significantly, including those described elsewhere in this “Risk Factors” section, as well as the following:
−Removed: • our operating and financial performance and prospects;
−Removed: • our quarterly or annual earnings or those of other companies in our industry compared to market expectations;
−Removed: • conditions that impact demand for our products;
−Removed: • future announcements concerning our business, our customers’ businesses or our competitors’ businesses;
−Removed: • the public’s reaction to our press releases, other public announcements and filings with the SEC;
−Removed: • the market’s reaction to our reduced disclosure and other requirements as a result of being an “emerging growth company” under the Jumpstart Our Business Startups Act (“JOBS Act”);
−Removed: • the size of our public float;
−Removed: • coverage by or changes in financial estimates by securities analysts or failure to meet their expectations;
−Removed: • market and industry perception of our success, or lack thereof, in pursuing our growth strategy;
−Removed: • strategic actions by us or our competitors, such as acquisitions or restructurings;
−Removed: • changes in laws or regulations which adversely affect our industry, our licensors or us;
−Removed: • changes in accounting standards, policies, guidance, interpretations or principles;
−Removed: • changes in senior management or key personnel;
−Removed: • issuances, exchanges or sales, or expected issuances, exchanges or sales of our capital stock;
−Removed: • changes in our dividend policy;
−Removed: • adverse resolution of new or pending litigation against us;
−Removed: • the imposition of fines or other remedial measures as a result of the underpayment of customs duties at Loungefly;
−Removed: • changes in general market, economic and political conditions in the United States and global economies or financial markets, including those resulting from natural disasters, terrorist attacks, acts of war and responses to such events.
−Removed: As a result, volatility in the market price of our Class A common stock may prevent investors from being able to sell their Class A common stock at or above the price they paid for them or at all.
−Removed: These broad market and industry factors may materially reduce the market price of our Class A common stock, regardless of our operating performance.
−Removed: In addition, price volatility may be greater if the public float and trading volume of our Class A common stock is low.
−Removed: As a result, you may suffer a loss on your investment.
We do not intend to pay dividends on our Class A common stock for the foreseeable future.
3 unchanged sentences
Any such decision will also be subject to compliance with contractual restrictions and covenants in the agreements governing our current and future indebtedness.
−Removed: Our New Credit Facilities contain certain covenants that restrict the ability of FAH, LLC and its subsidiaries to pay dividends or make distributions.
+Added: Our Credit Facilities contain certain covenants that restrict the ability of FAH, LLC and its subsidiaries to pay dividends or make distributions.
Because we are a holding company, our ability to pay dividends on our Class A common stock depends on our receipt of cash distributions from FAH, LLC and, through FAH, LLC, cash distributions and dividends from our other direct and indirect wholly owned subsidiaries.
9 unchanged sentences
• any action required or permitted to be taken by our stockholders at an annual meeting or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a written consent is signed by the holders of our outstanding shares of common stock representing not less than the minimum number of votes that would be necessary to authorize such action at a meeting at which all outstanding shares of common stock entitled to vote thereon were present and voted, provided that at such time as the ACON Related Parties, directly or indirectly, beneficially own in the aggregate, less than 35% of all shares of Class A common stock (including for this purpose all shares of Class A common stock issuable upon redemption of common units, assuming all such common units are redeemed for Class A common stock on a one-for-one basis) issued and outstanding, any action required or permitted to be taken by our stockholders at an annual meeting or special meeting of stockholders may not be taken by written consent in lieu of a meeting;
−Removed: • our amended and restated certificate of incorporation may be amended or repealed by the affirmative vote of a majority of the votes which all our stockholders would be eligible to cast in an election of directors and our amended and restated bylaws may be amended or repealed by a majority vote of our board of directors or by the affirmative vote of a majority of the votes which all our stockholders would be eligible to cast in an election of directors, provided that at such time as the ACON Related Parties, directly or indirectly, beneficially own in the aggregate, less than 35% of
−Removed: all shares of Class A common stock (including for this purpose all shares of Class A common stock issuable upon redemption of common units, assuming all such common units are redeemed for Class A common stock on a one-for-one basis) issued and outstanding, our amended and restated certificate of incorporation and our amended and restated bylaws may be amended or repealed by the affirmative vote of the holders of at least 66 2 / 3 % of the votes which all our stockholders would be entitled to cast in any annual election of directors and our amended and restated bylaws may also be amended or repealed by a majority vote of our board of directors;
+Added: • our amended and restated certificate of incorporation may be amended or repealed by the affirmative vote of a majority of the votes which all our stockholders would be eligible to cast in an election of directors and our amended and restated bylaws may be amended or repealed by a majority vote of our board of directors or by the affirmative vote of a majority of the votes which all our stockholders would be eligible to cast in an election of directors, provided that at such time as the ACON Related Parties, directly or indirectly, beneficially own in the aggregate, less than 35% of all shares of Class A common stock (including for this purpose all shares of Class A common stock issuable upon redemption of common units, assuming all such common units are redeemed for Class A common stock on a one-for-one basis) issued and outstanding, our amended and restated certificate of incorporation and our amended and restated bylaws may be amended or repealed by the affirmative vote of the holders of at least 66 2 / 3 % of the votes which all our stockholders would be entitled to cast in any annual election of directors and our amended and restated bylaws may also be amended or repealed by a majority vote of our board of directors;
• we require advance notice and duration of ownership requirements for stockholder proposals;
3 unchanged sentences
In addition, because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management team.
−Removed: Please see “Risks Relating to Our Organizational Structure—ACON has significant influence over us, including over decisions that require the approval of stockholders, and its interests, along with the interests of our other Continuing Equity Owners, in our business may conflict with the interests of our other stockholders.”
+Added: Please see “Organizational Structure Risks—ACON has significant influence over us, including over decisions that require the approval of stockholders, and its interests, along with the interests of our other Continuing Equity Owners, in our business may conflict with the interests of our other stockholders.”
Our amended and restated certificate of incorporation provides, subject to certain exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.
3 unchanged sentences
or (4) any action asserting a claim against us, any director or our officers or employees that is governed by the internal affairs doctrine.
−Removed: This provision would not apply to suits brought to enforce a duty or liability created by the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Securities Act, or, in each case, the rules and regulations thereunder, or any other claim for which the U.S.
+Added: This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act, Securities Act, or, in each case, the rules and regulations thereunder, or any other claim for which the U.S.
federal courts have exclusive jurisdiction.
5 unchanged sentences
Our board of directors has the authority to determine the preferences, limitations and relative rights of the shares of preferred stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by our stockholders.
−Removed: Our preferred stock could be issued with voting, liquidation, dividend
−Removed: and other rights superior to the rights of our Class A common stock.
+Added: Our preferred stock could be issued with voting, liquidation, dividend and other rights superior to the rights of our Class A common stock.
The potential issuance of preferred stock may delay or prevent a change in control of us, discouraging bids for our Class A common stock at a premium to the market price, and materially and adversely affect the market price and the voting and other rights of the holders of our Class A common stock.
3 unchanged sentences
• be exempt from the “say on pay” and “say on golden parachute” advisory vote requirements of the Dodd-Frank Wall Street Reform and Customer Protection Act, or the Dodd-Frank Act;
−Removed: • be exempt from certain disclosure requirements of the Dodd-Frank Act relating to compensation of its executive officers and be permitted to omit the detailed compensation discussion and analysis from the proxy statements and reports it files under the Securities Exchange Act of 1934, as amended (the “Exchange Act”);
+Added: • be exempt from certain disclosure requirements of the Dodd-Frank Act relating to compensation of its executive officers and be permitted to omit the detailed compensation discussion and analysis from the proxy statements and reports it files under the Exchange Act;
• be exempt from any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotations or a supplement to the auditor’s report on our financial statements.
3 unchanged sentences
We cannot predict if investors will find our Class A common stock less attractive if we elect to rely on these exemptions, or if taking advantage of these exemptions would result in less active trading or more volatility in the price of our Class A common stock.
+Added: As a public reporting company, we are subject to rules and regulations established from time to time by the SEC regarding our internal control over financial reporting.
+Added: Any failure to establish and maintain effective internal control over financial reporting and disclosure controls and procedures may cause us to not be able to accurately report our financial results or report them in a timely manner.
+Added: We are a public reporting company subject to the rules and regulations established from time to time by the SEC and The Nasdaq Stock Market.
+Added: These rules and regulations require, among other things, that we have and periodically evaluate procedures with respect to our internal control over financial reporting.
+Added: Reporting obligations as a public company are likely to continue to place a considerable strain on our financial and management systems, processes and controls, as well as on our personnel.
+Added: Under Section 404(a) of the Sarbanes-Oxley Act our management is required to assess and report annually on the effectiveness of our internal control over financial reporting and to identify any material weaknesses in our internal control over financial reporting.
+Added: Once we are no longer an emerging growth company, Section 404(b) of the Sarbanes-Oxley Act will require our independent registered public accounting firm to issue an annual report that addresses the effectiveness of our internal control over financial reporting.
+Added: As of December 31, 2019, we had identified a material weakness in our internal control over financial reporting based on the effects of the underpayment of customs duties at Loungefly, which was remediated during the year ended December 31, 2020.
+Added: As a result of this material weakness or any other material weakness that may be identified in the future, our senior management was and may in the future be unable to conclude that we have effective internal control over financial reporting, and our independent registered public accounting firm may not be able to render an unqualified opinion on management’s assessment and the effectiveness of our internal control over financial reporting at such time as it is required to do so.
+Added: In addition, we could be subject to sanctions or investigations by the SEC, the Nasdaq Stock Market or other regulatory authorities, a loss of public and investor confidence, and litigation from investors and stockholders, any of which could have a material adverse effect on our business and our stock price.
+Added: If further material weaknesses are discovered, we may not be able to manage our business effectively or accurately report our financial performance on a timely basis, which could cause a decline in the price of our Class A common stock and adversely affect our results of operations and financial condition.
+Added: In addition to taking remediation measures in response to the material weakness we identify, we may need to expend additional resources and provide additional management oversight in order to establish effective disclosure controls and procedures and internal control over financial reporting.
+Added: Implementing any appropriate changes to our internal controls may require specific compliance training of our employees, entail substantial costs, take a significant period of time to complete or divert management’s attention from other business concerns.
+Added: These changes may not, however, ultimately be effective to achieve and maintain adequate internal controls.
+Added: GENERAL RISKS
+Added: Changes in foreign currency exchange rates can significantly impact our reported financial performance.
+Added: Our increasingly global operations mean we produce, buy, and sell products in many different markets with many different currencies.
+Added: As a result, if the exchange rate between the U.S.
+Added: dollar and a local currency for an international market in which we have significant sales or operations changes, our financial results as reported in U.S.
+Added: dollars may be meaningfully impacted even if our business in the local currency is not significantly affected.
+Added: Similarly, our expenses can be significantly impacted, in U.S.
+Added: dollar terms, by exchange rates, meaning the profitability of our business in U.S.
+Added: dollar terms can be negatively impacted by exchange rate movements which we do not control.
+Added: In recent years, certain key currencies, such as the euro and the British pound sterling, depreciated significantly compared to the U.S.
+Added: Depreciation in key currencies during 2021 and beyond may have a significant negative impact on our sales and earnings as they are reported in U.S.
+Added: We are subject to governmental economic sanctions requirements and export and import controls that could impair our ability to compete in international markets or subject us to liability if we are not in compliance with applicable laws.
+Added: company, we are subject to U.S.
+Added: export control and economic sanctions laws and regulations, and we are required to export our products in compliance with those laws and regulations, including the U.S.
+Added: Export Administration Regulations and economic and trade sanctions programs administered by the Treasury Department’s Office of Foreign Assets Control.
+Added: economic sanctions and export control laws and regulations prohibit the shipment of specified products and services to countries, governments and persons that are the subject of U.S.
+Added: While we take precautions against doing any business, directly or indirectly, in or with countries, governments and persons subject to U.S.
+Added: sanctions, such measures may be circumvented.
+Added: There can be no assurance that we will be in compliance with U.S.
+Added: export control or economic sanctions laws and regulations in the future.
+Added: Any such violation could result in criminal or civil fines, penalties or other sanctions and repercussions, including reputational harm that could materially adversely affect our business.
+Added: If our electronic data is compromised our business could be significantly harmed.
+Added: We maintain significant amounts of data electronically.
+Added: This data relates to all aspects of our business, including current and future products and entertainment under development, and also contains certain customer, consumer, supplier, partner and employee data.
+Added: We maintain systems and processes designed to protect the data within our control, but notwithstanding such protective measures, there is a risk of intrusion or tampering that could compromise the integrity and privacy of this data.
+Added: In addition, we provide confidential and proprietary information to our third-party business partners in certain cases where doing so is necessary or appropriate to conduct our business.
+Added: While we obtain assurances from those parties that they have systems and processes in place to protect such data, and where applicable, that they will take steps to assure the protections of such data by third parties, nonetheless those partners may also be subject to data intrusion or otherwise compromise the protection of such data.
+Added: Any compromise of the confidential data of our customers, consumers, suppliers, partners, employees or ourselves, or failure to prevent or mitigate the loss of or damage to this data through breach of our information technology systems or other means could substantially disrupt our operations, harm our customers, consumers and other business partners, damage our reputation, violate applicable laws and regulations and subject us to additional costs and liabilities and loss of business that could be material.
+Added: Uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR after 2021, or in certain cases, 2023, may adversely affect the market value of our current or future debt obligations.
+Added: The London Inter-bank Offered Rate (“LIBOR”) and certain other interest “benchmarks” may be subject to regulatory guidance and/or reform that could cause interest rates under our current or future debt agreements to perform differently than in the past or cause other unanticipated consequences.
+Added: The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has announced that it intends to stop encouraging or requiring banks to submit LIBOR rates after 2021, or in certain cases, 2023, and it is unclear if LIBOR will cease to exist or if new methods of calculating LIBOR will evolve.
+Added: If LIBOR ceases to exist or if the methods of calculating LIBOR change from their current form, interest rates on our debt obligations under our Credit Facilities may be adversely affected.
+Added: Any impairment in the value of our goodwill or other assets would adversely affect our financial condition and results of operations.
+Added: We are required, at least annually, or as facts and circumstances warrant, to test goodwill and other assets to determine if impairment has occurred.
+Added: Impairment may result from any number of factors, including adverse changes in assumptions used for valuation purposes, such as actual or projected net sales growth rates, profitability or discount rates, or other variables.
+Added: If the testing indicates that impairment has occurred, we are required to record a non-cash impairment charge for the difference between the carrying value of the goodwill or other assets and the implied fair value of the goodwill or the fair value of other assets in the period the determination is made.
+Added: We cannot always predict the amount and timing of any impairment of assets.
+Added: Should the value of goodwill or other assets become impaired, it would have an adverse effect on our financial condition and results of operations.
+Added: Our Class A common stock price may be volatile or may decline regardless of our operating performance and you may not be able to resell your shares at or above the price you paid for them.
+Added: Volatility in the market price of our Class A common stock may prevent you from being able to sell your shares at or above the price you paid for them.
+Added: Many factors, which are outside our control, may cause the market price of our Class A common stock to fluctuate significantly, including those described elsewhere in this “Risk Factors” section, as well as the following:
+Added: • our operating and financial performance and prospects;
+Added: • our quarterly or annual earnings or those of other companies in our industry compared to market expectations;
+Added: • conditions that impact demand for our products;
+Added: • future announcements concerning our business, our customers’ businesses or our competitors’ businesses;
+Added: • the public’s reaction to our press releases, other public announcements and filings with the SEC;
+Added: • the market’s reaction to our reduced disclosure and other requirements as a result of being an “emerging growth company” under the Jumpstart Our Business Startups Act (“JOBS Act”);
+Added: • the size of our public float;
+Added: • coverage by or changes in financial estimates by securities analysts or failure to meet their expectations;
+Added: • market and industry perception of our success, or lack thereof, in pursuing our growth strategy;
+Added: • short sales of our stock or trading phenomena such as "short squeezes";
+Added: • strategic actions by us or our competitors, such as acquisitions or restructurings;
+Added: • changes in laws or regulations which adversely affect our industry, our licensors or us;
+Added: • changes in accounting standards, policies, guidance, interpretations or principles;
+Added: • changes in senior management or key personnel;
+Added: • issuances, exchanges or sales, or expected issuances, exchanges or sales of our capital stock;
+Added: • changes in our dividend policy;
+Added: • adverse resolution of new or pending litigation against us;
+Added: • the imposition of fines or other remedial measures as a result of the underpayment of customs duties at Loungefly;
+Added: • changes in general market, economic and political conditions in the United States and global economies or financial markets, including those resulting from natural disasters, terrorist attacks, acts of war, pandemics such as COVID-19, and responses to such events.
+Added: As a result, volatility in the market price of our Class A common stock may prevent investors from being able to sell their Class A common stock at or above the price they paid for them or at all.
+Added: These broad market and industry factors may materially reduce the market price of our Class A common stock, regardless of our operating performance.
+Added: In addition, price volatility may be greater if the public float and trading volume of our Class A common stock is low.
+Added: As a result, you may suffer a loss on your investment.
The obligations associated with being a public company require significant resources and management attention, which may divert from our business operations.
−Removed: As a result of our IPO, we became subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act.
+Added: We are subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act.
The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition.
16 unchanged sentences
As a result, it may be more difficult for us to attract and retain qualified people to serve on our board of directors and our board committees or as executive officers.
−Removed: As a public reporting company, we are subject to rules and regulations established from time to time by the SEC regarding our internal control over financial reporting.
−Removed: Any failure to establish and maintain effective internal control over financial reporting and disclosure controls and procedures may cause us to not be able to accurately report our financial results or report them in a timely manner.
−Removed: We are a public reporting company subject to the rules and regulations established from time to time by the SEC and The Nasdaq Stock Market.
−Removed: These rules and regulations require, among other things, that we have and periodically evaluate procedures with respect to our internal control over financial reporting.
−Removed: Reporting obligations as a public company are likely to continue to place a considerable strain on our financial and management systems, processes and controls, as well as on our personnel.
−Removed: Under Section 404(a) of the Sarbanes-Oxley Act our management is required to assess and report annually on the effectiveness of our internal control over financial reporting and to identify any material weaknesses in our internal control over financial reporting.
−Removed: Once we are no longer an emerging growth company, Section 404(b) of the Sarbanes-Oxley Act will require our independent registered public accounting firm to issue an annual report that addresses the effectiveness of our internal control over financial reporting.
−Removed: As of December 31, 2019, we have identified a material weakness in our internal control over financial reporting based on the effects of the underpayment of customs duties at Loungefly.
−Removed: As a result of this material weakness or any other material weakness that may be identified in the future, our senior management was and may in the future be unable to conclude that we have effective internal control over financial reporting, and our independent registered public accounting firm may not be able to render an unqualified opinion on management’s assessment and the effectiveness of our internal control over financial reporting at such time as it is required to do so.
−Removed: In addition, we could be subject to sanctions or investigations by the SEC, the Nasdaq Stock Market or other regulatory authorities, a loss of public and investor confidence, and litigation from investors and stockholders, any of which could have a material adverse effect on our business and our stock price.
−Removed: If our remedial measures are insufficient to address this material weakness, or if further material weaknesses are discovered, we may not be able to manage our business effectively or accurately report our financial performance on a timely basis, which could cause a decline in the price of our Class A common stock and adversely affect our results of operations and financial condition.
−Removed: In addition to taking remediation measures in response to the material weakness we identified relating to the underpayment of customs duties at Loungefly, we may need to expend additional resources and provide additional management oversight in order to establish effective disclosure controls and procedures and internal control over financial reporting.
−Removed: Implementing any appropriate changes to our internal controls may require specific compliance training of our employees, entail substantial costs, take a significant period of time to complete or divert management’s attention from other business concerns.
−Removed: These changes may not, however, ultimately be effective to achieve and maintain adequate internal controls.
We may fail to meet analyst expectations, or analysts may issue unfavorable commentary about us or our industry or downgrade our Class A common stock, which could cause the price of our Class A common stock to decline.
2 unchanged sentences
The analysts’ estimates are based upon their own independent opinions and may be different from our own estimates or expectations.
−Removed: If our operating results are below the estimates or expectations of
−Removed: public market analysts and investors, the trading price of our Class A common stock could decline.
+Added: If our operating results are below the estimates or expectations of public market analysts and investors, the trading price of our Class A common stock could decline.
In addition, one or more analysts could cease to cover our company, which could cause us to lose visibility in the market, and one or more analysts could downgrade our Class A common stock or issue other negative commentary about our company or our industry.
As a result of one or more of these factors, the trading price of our Class A common stock could decline.
+Added: Failure to comply with anti-corruption and anti-bribery laws could result in fines, criminal penalties and materially adversely affect our business, financial condition and results of operations.
+Added: A significant risk resulting from our global operations is compliance with a wide variety of U.S.
+Added: federal and state and non-U.S.
+Added: laws, regulations and policies, including laws related to anti-corruption, anti-bribery and laundering.
+Added: The FCPA, the U.K.
+Added: Bribery Act of 2010 and similar anti-corruption and anti-bribery laws in other jurisdictions generally prohibit companies, their officers, directors, employees and third-party intermediaries, business partners, and agents from making improper payments or other improper things of value to government officials or other persons.
+Added: There has been an increase in anti-bribery and anti-corruption law enforcement activity in recent years, with more frequent and aggressive investigations and enforcement proceedings by both the U.S.
+Added: Department of Justice and the SEC, increased enforcement activity by non-U.S.
+Added: regulators, and increases in criminal and civil proceedings brought against companies and individuals.
+Added: We operate in parts of the world that are considered high-risk from an anti-bribery and anti-corruption perspective, and strict compliance with anti-bribery and anti-corruption laws may conflict with local customs and practices.
+Added: We cannot assure you that our internal controls, policies and procedures will protect us from improper conduct by our officers, directors, employees, third-party intermediaries, business partners or agents.
+Added: To the extent that we learn that any of these parties do not adhere to our internal control policies, we are committed to taking appropriate remedial action.
+Added: In the event that we believe or have reason to believe that any such party has or may have violated such laws, we may be required to investigate or have outside counsel investigate the relevant facts and circumstances, and detecting, investigating and resolving actual or alleged violations can be expensive and require a significant diversion of time, resources and attention from senior management.
+Added: Any violation of U.S.
+Added: federal and state and non-U.S.
+Added: anti-bribery and anti-corruption laws, regulations and policies could result in substantial fines, sanctions, civil or criminal penalties, and curtailment of operations in the U.S.
+Added: or other applicable jurisdictions.
+Added: In addition, actual or alleged violations could damage our reputation and ability to do business.
+Added: Any of the foregoing could materially adversely affect our business, financial condition and results of operations.
+Added: A failure to comply with laws and regulations relating to privacy and the protection of data relating to individuals may result in negative publicity, claims, investigations and litigation, and adversely affect our financial performance.
+Added: We are subject to laws, rules, and regulations in the United States, the European Union, and other jurisdictions relating to the collection, use, and security of personal information and data.
+Added: Such data privacy laws, regulations, and other obligations may require us to change our business practices and may negatively impact our ability to expand our business and pursue business opportunities.
+Added: We may incur significant expenses to comply with the laws, regulations and other obligations that apply to us.
+Added: Additionally, the privacy- and data protection-related laws, rules, and regulations applicable to us are subject to significant change.
+Added: Several jurisdictions have passed new laws and regulations in this area, and other jurisdictions are considering imposing additional restrictions.
+Added: For example, our operations are subject to the European Union’s General Data Protection Regulation, which imposes data privacy and security requirements on companies doing business in the European Union, including:
+Added: providing detailed disclosures about how personal data is collected and processed;
+Added: demonstrating an appropriate legal basis;
+Added: granted new rights for data subjects in regard to their personal data;
+Added: and imposing limitations on retention of personal data;
+Added: and maintaining a record of data processing.
+Added: Each of the GDPR and the UK data protection regime can result in fines up to the greater of EUR 20 million or £17 million, as applicable, or 4% of total global annual turnover.
+Added: We are also subject to European Union rules with respect to cross-border transfers of personal data out of the EEA and the United Kingdom.
+Added: Recent legal developments in Europe have created complexity and uncertainty regarding transfers of personal information from the EEA and the United Kingdom to the United States.
+Added: These recent developments may require us to review and amend the legal mechanisms by which we make and/or receive personal data transfers to/in the U.S.
+Added: The California Consumer Privacy Act (the "CCPA"), which went into effect on January 1, 2020, imposes similar requirements on companies handling data of California residents and creates a new and potentially severe statutory damages framework for (i) violations of the CCPA and (ii) businesses that fail to implement reasonable security procedures and practices to prevent data breaches.
+Added: Additionally, a new law, the California Privacy Rights Act (the “CPRA”), will impose additional data protection obligations on companies doing business in California, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data.
+Added: It will also create a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement.
+Added: The majority of the provisions will go into effect on January 1, 2023, and additional compliance investment and potential business process changes may be required.
+Added: Privacy and data protection-related laws and regulations also may be interpreted and enforced inconsistently over time and from jurisdiction to jurisdiction.
+Added: In addition to government regulation, privacy advocates and industry groups may propose new and different self-regulatory standards that either legally or contractually apply to us.
+Added: One example of such self-regulatory standards to which we may be contractually bound is the Payment Card Industry Data Security Standard, or PCI DSS.
+Added: Though we currently use third-party vendors to process and store credit card data in connection with our e-commerce business, to the extent we process or store such data ourselves in the future, we may be subject to various aspects of the PCI DSS, and fines, penalties, and a loss of the ability to process credit card payments could result from any failure to comply with the PCI DSS.
+Added: Any actual or perceived inability to comply with applicable privacy or data protection laws, regulations, or other obligations could result in significant cost and liability, litigation or governmental investigations, damage our reputation, and adversely affect our business.
UNRESOLVED STAFF COMMENTS
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.