What changed in this filing

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Item 1A. Risk Factors

2021-03-19 compared with 2020-05-13 · 78 added, 74 removed, 243 unchanged (38% of the section changed)

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We undertake no obligation to make any revisions to the forward-looking statements contained in this Annual Report on Form 10-K to reflect events or circumstances occurring after the date of the filing of this report.

Substantial doubt being raised as to the Company’s ability to continue as a going concern could have negative reputation effects which could in turn hinder the Company’s business prospects.

We have limited or no ability to predict or control how external stakeholders will interpret and react to the aforementioned Substantial Doubt opinion included in our 2019 10-K filing.

Negative reactions could hinder the Company’s ability to secure, retain and/or attract talent, shareholders for its common stock, licenses and/or strategic partners, which in turn could negatively impact our operating results.

Our inability to redesign, restyle and extend our existing core products and product lines as consumer preferences evolve, and to develop, introduce and gain customer acceptance of new products and product lines, may materially and adversely impact our business, financial condition and results of operations.

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Several trends in recent years have presented challenges for the toy industry, including:

the phenomenon of children outgrowing toys at younger ages, particularly in favor of interactive and high technology products;

increasing use of technology;

the phenomenon of children outgrowing toys at younger ages, particularly in favor of interactive and high

technology products;

increasing use of technology, broadly, be it taking share of children ’ s discretionary time or otherwise;

shorter life cycles for individual products;

higher consumer expectations for product quality, functionality and value;

a wider array of content offerings and platforms attracting a viable audience that enables a meaningful consumer products opportunity, and the company’s ability to effectively predict those platforms and offerings given the increasingly fragmented content marketplace;

the evolving media landscape increases the cost and complexity of advertising our products directly to end consumers, and similarly our ability to effectively predict the most effective advertising platforms could adversely impact our ability to sell our product lines at planned levels or better.

higher consumer expectations for product quality, functionality and price-value;

a wider array of content offerings and platforms attracting a viable audience that enables a meaningful consumer products opportunity, and our ability to effectively predict those platforms and offerings given the increasingly fragmented content distribution marketplace;

the evolving media landscape increases the cost and complexity of advertising our products directly to end-consumers, and similarly our ability to effectively predict the most effective advertising platforms could adversely impact our ability to introduce and sell our product lines at planned levels or better;

consumer shopping habits migrating from traditional “ brick & mortar ” browsing to more online experiences.

We cannot be assured that this change will not adversely impact our historical ability to have our newest product offerings discovered, evaluated and appreciated sufficiently to motivate purchase and ultimately build word-of-mouth endorsement about the value of our offerings.

We cannot assure you that:

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the products that we introduce will achieve any significant degree of market acceptance;

our support of customers with an online shopping proposition is expected to lead to a comparable degree of sales or margins through the offline shopping experience should consumer behavior migrate more of our business in that direction;

the life cycles of our products will be sufficient to permit us to recover our inventory costs, and licensing, design, manufacturing, marketing and other costs associated with those products;

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Product licenses allow us to capitalize on characters, designs, concepts and inventions owned by others or developed by toy inventors and designers.

Our license agreements generally require us to make specified minimum royalty payments, even if we fail to sell a sufficient number of units to cover these amounts.

Our license agreements generally require us to make specified minimum royalty payments, even if we fail to sell a sufficient number of units to generate these dollar amounts under the percentage of sales basis under which most agreements are written.

Some of our license agreements have additional requirements for marketing spend for the brands licensed.

Some of our license agreements disallow certain retailer credits and deductions from the sales base on which royalties are calculated.

Some of our license agreements disallow certain retailer credits and deductions from the sales base on which royalties are calculated, including in some cases uncollectable accounts.

In addition, under certain of our license agreements, if we fail to achieve certain prescribed sales targets, we may be unable to retain or renew these licenses which may adversely impact our business, results of operations and financial condition.

Many of our license agreements, although multi-year in duration, require us to pay a minimum level of royalties annually that cannot be recouped following expiration of the applicable sales period (often 12 months).

As a result, sudden shocks to the market, such as have occurred with the COVID-19 pandemic or when a foundational retailer becomes bankrupt, would leave us with such minimum royalty obligations unless the relevant licensors are willing to renegotiate terms bearing in mind the unexpected nature of the market shock.

Contractual minimal royalty payments are generally fixed and determined upon signing the license agreement, so these market shocks could have a negative impact on our business, results of operations and financial condition for multiple years given the nature, timing and effect of the shock.

Many of our license agreements, although multi-year in total, require us to pay a minimum level of royalties annually that cannot be recouped outside of selling during that time period (often 12 months).

There may also be minimum commitments assigned to specific geographic regions or countries.

As a result, sudden shocks to the market, such as has been the case with COVID-19 or when a foundational retailer goes bankrupt, might leave us with these fixed expenses unless licensors are willing to renegotiate terms in consideration for the unexpected nature of the shock.

Contractual minimal royalty payments are almost always fixed and determined upon signing, so these sorts of shocks could have a negative impact on our business, results of operations and financial condition for multiple years given the nature and timing of the shock.

Some of our licenses are restricted as to use and include other restrictive provisions.

Under the majority of our license agreements, the licensors have the right to review and approve our use of their licensed products, designs or materials before we may make any sales.

If a licensor refuses to permit our use of any licensed property in the way we propose, or if their review process is delayed, our development or sale of new products could be impeded.

If a licensor refuses to permit our use of any licensed property in the way we propose, or if their review process is delayed or not timely, our development, manufacturing and/or sale of new products could be impeded.

Our licensing agreements include other restrictive provisions, such as limitations of the time period in which we have to sell existing inventory upon expiration of the license, requiring licensor approval of contract manufacturers and approval of marketing and promotional materials, limitations on channels of distribution, including internet sales, change of ownership clauses that require licensor approval of such change and may require a fee to be paid under certain circumstances and various other provisions that may have an adverse impact on our business, results of operations and financial condition.

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In addition, as we add licenses, the need to fund additional capital expenditures, royalty advances and guaranteed minimum royalty payments may strain our cash resources.

Licensors often require cash advance payments upon signing agreements to be applied against future minimum royalty obligations, which require us to pay out cash several quarters prior to our ability to ship, invoice and ultimately collect revenue from the related product sales.

Often times, licensors require cash advance payments upon signing agreements against future minimum royalty obligations, which requires us to pay out cash several quarters prior to our ability to ship, invoice and ultimately collect revenue from the related product sales.

In addition, there might be licensor or consumer expectations that certain toy products contain music or musical elements related to the original entertainment.

Those music rights must be separately acquired at additional expense, and as a result can adversely affect our profitability and competitiveness at retail.

A limited number of licensors account for a large portion of our net sales.

We derive a significant portion of our net sales from a limited number of licensors, one of which accounts for over 62% of our net sales.

If one or more of these licensors were to terminate or fail to renew our license or not grant us new licenses, our business, results of operation and financial condition could be adversely affected.

If one or more of these licensors were to terminate or fail to renew our licenses or not grant us new licenses, our business, results of operations and financial condition could be adversely affected.

The failure of our character-related and theme-related products to become and/or remain popular with children may materially and adversely impact our business, results of operations and financial condition.

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By extension, any sudden disruption in that calendar can have negative repercussions to our business, both in terms of recouping our investments to date, as well as, monetizing those investments at the profit margins we have planned.

As we generally have a 9-18 month concept-to-market timeline depending on the product category, there is a degree of exposure given our dependence on third-parties to adhere to such planned schedules.

As we have a 9-18-month concept-to-market timeline depending on the product category, there is a degree of exposure given our dependence on third parties to adhere to their planned schedules.

We cannot assure you that:

media associated with our character-related and theme-related product lines will be released at the times we expect or will be successful;

the success of media associated with our existing character-related and theme-related product lines will result in substantial promotional value to our products;

entertainment content associated with our character-related and theme-related product lines will be released at the times we expect, via the media we expected and/or will reach a wide enough audience to generate the level of consumer demand we anticipated in agreeing to sign the license and develop our product line;

the success of entertainment content associated with our existing character-related and theme-related product lines will result in substantial promotional value to our products;

we will be successful in renewing licenses upon expiration of terms that are favorable to us;

we will be successful in obtaining licenses to produce new character-related and theme-related products in the future;

We will continue to be able to effectively assess our licensors’ ability to launch new brands in a manner to effectively create a market for consumer products given their challenges in a changing media and entertainment landscape;

we will continue to be able to assess effectively our licensors ’ ability to launch new brands in a manner to effectively create a market for consumer products given the rapidly changing content distribution landscape and a potential reprioritization of their goals for their content launches;

we will continue to be able to effectively assess the longevity and market appetite for consumer products for pre-existing licensor brands given the ever-increasing competition for consumer ’ s attention and discretionary spending.

Our failure to achieve any or all of the foregoing benchmarks may cause the infrastructure of our operations to fail, thereby adversely affecting our business, results of operations and financial condition.

A limited number of customers account for a large portion of our net sales, so that if one or more of our major customers were to experience difficulties in fulfilling their obligations to us, cease doing business with us, significantly reduce the amount of their purchases from us or return substantial amounts of our products, it could have a material adverse effect on our business, results of operations and financial condition.

A limited number of customers account for a large portion of our net sales, so that if one or more of our major customers were to experience difficulties in fulfilling their obligations to us, cease doing business with us, significantly reduce the amount of their purchases from us or return substantial amounts of our products, it could have a materially adverse effect on our business, results of operations and financial condition.

Our two largest customers, Wal-Mart and Target, accounted for 54.8% of our net sales in 2020.

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In addition, pressure by large customers seeking price reductions, financial incentives and changes in other terms of sale or for us to bear the risks and the cost of carrying inventory could also adversely affect our business, results of operations and financial condition.

For example, the recent bankruptcy and liquidation of Toys “R” Us (“TRU”) in the United States, and in certain other jurisdictions around the world, had a material, adverse impact on the toy industry and our business, results of operations and financial condition.

For example, the bankruptcy and liquidation of Toys “R” Us (“TRU”) in the United States, and in certain other jurisdictions around the world, had a material, adverse impact on the toy industry and our business, results of operations and financial condition.

In 2017, TRU was our third largest customer with net sales of $69.5 million.

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If one or more of our major customers were to experience difficulties in fulfilling their obligations to us resulting from bankruptcy or other deterioration in their financial condition or ability to meet their obligations, cease doing business with us, significantly reduce the amount of their purchases from us, or return substantial amounts of our products, it could have a material adverse effect on our business, results of operations and financial condition.

In light of the recent COVID-19 pandemic, many customers outside of our largest customers are under varying degrees of financial duress.

Customers may request extended payment terms which may require us to take on increased credit risk or to reduce or forgo sales entirely in an attempt to mitigate risk associated with customer bankruptcy risk.

The COVID-19 pandemic has left many customers outside of our largest customers under varying degrees of financial distress, and it seems some of our largest customers are facing increases in their operating costs.

Customers may request extended payment terms which may require us to take on increased credit risk or to reduce or forgo sales entirely in an attempt to mitigate financial risk associated with customer bankruptcy risk.

Restrictions under or the loss of availability under our term loan and revolving credit line could adversely impact our business and financial condition .

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We are also subject to negative covenants which, during the life of the credit line and term loan, prohibit and/or limit us from, among other things, incurring certain types of other debt, acquiring other companies, making certain expenditures or investments, and changing the character of our business.

An outbreak of infectious disease, a pandemic or a similar public health threat, such as the 2019 Novel Coronavirus outbreak (see below), or a fear of any of the foregoing, could adversely impact our ability to comply with such covenants.

An outbreak of infectious disease, a pandemic or a similar public health threat, such as the 2019 Novel Coronavirus outbreak (see below), could adversely impact our ability to comply with such covenants.

Our failure to comply with such covenants or any other breach of the credit line or term loan agreements could cause a default and we may then be required to repay borrowings under our credit line and term loan with capital from other sources.

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In August 2019, we issued a series of preferred stock with a face amount of $20.0 million.

The preferred stock (i) is senior to our common stock, (ii) not convertible into common stock, (iii) earns a dividend at an annual rate of 6% (which may or may not be paid in cash), (iv) includes a liquidation preference of up to 150% of the accrued amount, and (v) includes the right to elect two members to the Company’s Board of Directors, among other rights, terms and conditions.

The preferred stock (i) is senior to our common stock, (ii) not convertible into common stock, (iii) earns a dividend at an annual rate of 6% (which may or may not be paid in cash), (iv) includes a liquidation preference of up to 150% of the accrued amount, and (v) includes the right to elect up to two members to the Company’s Board of Directors, among other rights, terms and conditions.

In addition, the series of preferred stock includes other protective rights and provisions, such as amendments to the Company’s bylaws to restrict changes that may adversely impact the rights of the preferred stockholders, engaging in businesses that are not permitted businesses, as defined, limitations on assets dispositions and entering into a change of control transaction without the approval of the preferred stockholders.

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Our success has been largely dependent upon the experience and continued services of Stephen G.

Berman, our President and Chief Executive Officer.

We cannot assure you that we would be able to find an appropriate replacement for Mr.

Berman, our Chairman and Chief Executive Officer.

Berman is under contract through 2024, we cannot assure you that we would be able to find an appropriate replacement for Mr.

Berman should the need arise, and any loss or interruption of the services of Mr.

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In addition, general economic conditions were significantly and negatively affected by the September 11th terrorist attacks and could be similarly affected by any future attacks.

We are beginning to experience negative effects on economic conditions from the global spread of the novel strain of coronavirus that was recently declared a global pandemic by the World Health Organization.

Such a weakened economic and business climate, as well as consumer uncertainty created by such a climate, could adversely affect our sales and profitability.

The COVID-19 pandemic had a negative impact to our business in 2020 by disrupting consumer behavior, spending patterns and ultimately the play patterns and events that often motivate purchasing of our products.

Furthermore, restrictions on nearly all of our customers’ operating hours at one point in the year or another, limited consumers’ ability to discover our products thru traditional in-store browsing and unplanned purchase.

Continuation of such a weakened economic and business climate, as well as consumer uncertainty created by such a climate, could further adversely affect our sales and profitability.

Other conditions, such as the unavailability of electronic components or other raw materials, for example, may impede our ability to manufacture, source and ship new and continuing products on a timely basis.

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In December 2019, a strain of Novel Coronavirus causing respiratory illness and death emerged in the city of Wuhan in the Hubei province of China.

The Chinese government has taken certain emergency measures to combat the spread of the virus, including extension of the Lunar New Year holiday, implementation of travel bans and closure of factories and businesses.

The Chinese government took certain emergency measures to combat the spread of the virus, including extension of the Lunar New Year holiday, implementation of travel bans and closure of factories and businesses.

The majority of our materials and products are sourced from suppliers located in China.

The COVID-19 virus was declared a global pandemic by the World Health Organization in March 2020 and has been spreading throughout the United States and the rest of the world, resulting in emergency measures, including travel bans, closure of retail stores and other businesses, and restrictions on gatherings of more than a maximum number of people.

The COVID-19 virus was ultimately declared a global pandemic by the World Health Organization and has been spreading throughout the world, including the United States, resulting in emergency measures, including travel bans, closure of retail stores, and restrictions on gatherings of more than a maximum number of people.

These outbreaks are disruptive to local economies and commercial activity, and create downward pressure on our ability to make our product line available to consumers or for consumers to purchase our products, even if our products are available.

At this time, we cannot predict with any certainty the duration and depth of the impact of the COVID-19 pandemic in the United States or other places worldwide where we sell our products or manufacture our products.

At this time, we cannot predict with any certainty the further duration and depth of the impact in the United States or other places worldwide where we sell our products or manufacture our products.

Accordingly, it is extremely challenging to estimate the extent by which we will be negatively impacted by this disease.

In the relatively short period of time with which the world has been dealing with this pandemic, significant economic turmoil has already impacted world markets.

Numerous nationally recognized economists are predicting that the disease will lead to a worldwide recession.

Should that occur, we can expect that our sales, net income and cash flows will be negatively impacted.

While the governmental organizations of the United States, as well as governments across the world, have implemented emergency economic measures and announced the evaluation and implementation of additional emergency economic assistance packages, it is unclear what impact they are having, and will have, on the economy in the United States and worldwide.

Great uncertainty surrounds the length of time this disease will continue to spread, and the extent governments will continue to impose, or add additional, quarantines, curfews, travel restrictions and closures of retail stores.

While the governmental organizations of the United States, as well as governments across the world, have implemented emergency economic measures and announced the consideration of additional emergency economic assistance packages, it is unclear what impact they are having, and will have, on the economy in the United States and worldwide.

Uncertainty surrounds the length of time this disease will continue to spread, and the extent governments will continue to impose, or add additional, quarantines, curfews, travel restrictions and closures of retail stores.

In addition, even following control of the disease and the end of the pandemic, the economic dislocation caused by the disease to so many people may linger and be so significant that consumers’ focus could be directed away from consumer discretionary spending for products such as ours for an extended period of time.

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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.

The COVID-19 pandemic has also accelerated consumers’ shift to ecommerce transactions with traditional brick & mortar retailers.

Some of these transactions are for “Ship-to-home” purchases and some are for local pick-up by the consumer at the brick & mortar location.

In either case, the consumer’s path to discovery of new items changes to a digital medium.

It remains to be seen whether this change has a negative adverse impact on consumers’ ability to discover the breadth and depth of our product range or whether it discourages adding incremental unplanned purchases to the shopping cart.

Either scenario could have a negative impact on our overall business performance.

Our Halloween (Disguise) business is even more seasonal than our core Toy/Consumer Products business.

This seasonality is further exacerbated by consumer migration to online shopping as the style and size attributes of the Halloween business in part behaves like an apparel-driven transaction rather than “one-size-for-all” toy/consumer product transaction.

In the event that some unexpected shock to the market (like the COVID-19 pandemic) were to make the traditional Halloween experience either less relevant or less feasible to celebrate in the traditional manner, it could have a material impact on our sales of related product.

Given that securing licenses, product design and development and ultimately sourcing of the product take place months in advance of the actual Halloween selling season, we have limited ability to recover invested expense if the market demand for those products were to suddenly be reduced.

Although some product could be held in inventory or materials rolled forward to the next manufacturing and sales season, these events would in turn incrementally tie up our invested capital until the following year at best.

This seasonality is further exacerbated by consumer migration to online shopping as the style and size attributes of the Halloween business (i.e., we make the same costume in multiple sizes, and the same item “ costume ” across a very wide range of brands and properties) in part behaves like an apparel-driven transaction rather than “ one-size-for-all ” toy/consumer product transaction.

In 2020, COVID-19 was an unexpected shock to the market, making the traditional Halloween experience less feasible to celebrate in its traditional manner.

It had a material impact on our sales of related product.

Any similar event that suddenly makes the holiday less relevant or infeasible to celebrate can and likely will have a negative impact on that segment of business.

Given that securing licenses, product design and development and ultimately sourcing of the product takes place months in advance of the actual Halloween selling season, we have limited ability to recover invested expense if the market demand for those products were to suddenly be reduced.

Although some product could be held in inventory or materials rolled forward to the next manufacturing season, these events would in turn incrementally tie up our capital until the following year at best, and/or put added strain on our third-party manufacturers.

We depend upon third-party manufacturers, and if our relationship with any of them is harmed or if they independently encounter difficulties in their manufacturing processes, we could experience product defects, production delays, unplanned costs or higher product costs, or the inability to fulfill orders on a timely basis, any of which could adversely affect our business, results of operations and financial condition.

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We do not have long-term contracts with our third-party manufacturers.

Although we believe we could secure other third-party manufacturers to produce our products, our operations would be adversely affected if we lost our relationship with any of our current suppliers or if our current suppliers’ operations or sea or air transportation with our overseas manufacturers were disrupted or terminated even for a relatively short period of time.

Although we believe we could secure other third-party manufacturers to produce our products, our operations would be adversely affected if we suddenly lost our relationship with any of our current suppliers or if our current suppliers’ operations or sea or air transportation with our overseas manufacturers were disrupted or terminated even for a relatively short period of time.

Our tools, dies and molds are located at the facilities of our third-party manufacturers.

Although we own the majority of those tools, dies and molds, our ability to retrieve them and move them to a new manufacturer might be limited by lack of manufacturing equipment compatibility.

In addition, the current COVID-19 pandemic has made on-site engagement of our vendor base more challenging.

Although we do not purchase the raw materials used to manufacture our products, we are potentially subject to variations in the prices we pay our third-party manufacturers for products, depending upon what they pay for their raw materials.

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larger sales, marketing and product development departments;

stronger brand name recognition;

stronger brand name recognition and/or well-established owned brands/trademark;

broader international sales and marketing infrastructure;

longer operating histories;

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Many of our competitors offer similar products or alternatives to our products.

Our competitors have obtained and are likely to continue to obtain licenses that overlap our licenses with respect to products, geographic areas and markets.

Our competitors have obtained and are likely to continue to obtain licenses that overlap our licenses with respect to products, geographic areas and retail channels.

We cannot assure you that we will be able to obtain adequate shelf space in retail stores to support our existing products, expand our products and product lines or continue to compete effectively against current and future competitors.

Our corporate headquarters, fulfillment center and information technology systems are in Southern California, and if these operations are disrupted, we may not be able to operate our core functions and/or ship merchandise to our customers, which would adversely affect our business.

Our corporate headquarters, distribution center and information technology systems are in Santa Monica and City of Industry, California.

Our corporate headquarters, distribution center and information technology systems are in Santa Monica and the City of Industry, California, and the overwhelming majority of our U.S.-based staff lives in Southern California.

If we encounter any disruptions to our operations within these buildings, or if they were to shut down for any reason, including by fire or other natural disaster, or as a result of the COVID-19 pandemic, then we may be prevented from effectively operating, shipping and processing our merchandise.

Furthermore, the risk of disruption or shut down at these buildings is greater than it might be if they were located in another region, as Southern California is prone to natural disasters such as earthquakes and wildfires.

Any disruption or shutdown at these locations could significantly impact our operations and have a material adverse effect on our financial condition and results of operations.

Furthermore, the risk of disruption or shut down at these buildings and/or within the Southern California community is greater than it might be if they were located in another region as Southern California is prone to natural disasters such as earthquakes and wildfires.

Any disruption or shut down at these locations could significantly impact our operations and have a material adverse effect on our financial condition and results of operations.

We have substantial sales and manufacturing operations outside of the United States, subjecting us to risks common to international operations.

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Sales to our international customers comprised approximately 18.4% of our net sales for the year ended 2020 and approximately 19.6% of our net sales for year ended 2019.

We expect our sales to international customers to account for a greater portion of our revenues in future fiscal periods.

Although COVID-19 disproportionately negatively impacted our international business in 2020, we expect our sales to international customers to account for a greater portion of our revenues in future fiscal periods.

Additionally, we use third-party manufacturers, located principally in China, and are subject to the risks normally associated with international operations, including:

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complications in complying with laws in varying jurisdictions and changes in governmental policies;

greater difficulty and expenses associated with recovering from natural disasters, such as earthquakes, hurricanes and floods;

transportation delays and interruption, inclusive of raw material’s sourcing to our third-party manufacturers, and finished goods delivery to our customers and ultimate consumers;

greater difficulty and expenses associated with recovering from natural disasters, such as earthquakes,

hurricanes and floods;

transportation delays and interruption, inclusive of raw material ’ s sourcing to our third-party manufacturers as well as finished goods delivery through to our customers and ultimate consumers;

work stoppages;

the potential imposition of tariffs;

the pricing of intercompany transactions may be challenged by taxing authorities in both foreign jurisdictions and the United States, with potential increases in income and other taxes.

the pricing of intercompany transactions may be challenged by taxing authorities in both foreign jurisdictions

and the United States, with potential increases in income and other taxes.

Our reliance upon external sources of manufacturing can be shifted, over a period of time, to alternative sources of supply, should such changes be necessary.

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removal of our products from the market.

Any of these results may adversely affect our business, results of operation and financial condition.

Any of these results may adversely affect our business, results of operations and financial condition.

There can be no assurance that our product liability insurance will be sufficient to avoid or limit our loss in the event of an adverse outcome of any product liability claim.

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In particular, in April 2020 the company executed a restructuring of its workforce to mitigate costs in light of reduced revenue expectations attributable to the COVID-19 pandemic.

In addition, a temporary reduction in base pay is scheduled to begin in May 2020.

There is risk associated in our ability to seamlessly adapt to a smaller organizational structure, manage any morale issues associated with the temporary reduction in pay and effectively capture the net positive cash and expense impact anticipated by these activities.

The inability to successfully defend claims from taxing authorities or the adoption of new tax legislation could adversely affect our results of operations and financial condition.

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Historically, we experienced growth in our product lines through acquisitions of businesses, products and licenses.

This growth in product lines has contributed significantly to our total revenues over the last few years.

This growth in product lines has contributed significantly to our total revenues over the years.

Even though we have had no significant acquisitions since 2012, comparing our future period-to-period operating results may not be meaningful and results of operations from prior periods may not be indicative of future results.

We cannot assure that we will continue to experience growth in, or maintain our present level of, net sales.

Our growth strategy calls for us to continuously develop and diversify our toy business by acquiring other companies, entering into additional license agreements, refining our product lines and expanding into international markets, which will place additional demands upon our management, operational capacity and financial resources and systems.

Our growth strategy calls for us to continuously develop and diversify our toy business by acquiring other companies, entering into additional license agreements, refining our product lines, expanding into adjacent Toys/Consumer Products/Costume categories and expanding into international markets, which will place additional demands upon our management, operational capacity and financial resources and systems.

The increased demand upon management may necessitate our recruitment and retention of qualified management personnel.

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We use third-party technology and systems for a variety of reasons, including, without limitation, encryption and authentication technology, employee email, content delivery to customers, back-office support, and other functions.

A small volume of our consumer products and services rely on a component or element which is internet-enabled, and some are offered in conjunction with business partners or such third-party service providers.

In any given year, a small volume of our consumer products and services may rely on a component or element which is internet-enabled, and may be offered in conjunction with business partners or such third-party service providers.

We, our business partners and third-party service providers may collect, process, store and transmit consumer data, including personal information, in connection with those products and services.

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Although we have developed systems and processes that are designed to protect customer information and prevent data loss and other security breaches, including systems and processes designed to reduce the impact of a security breach at a third-party provider, such measures cannot provide absolute security.

We have exposure to similar security risks faced by other large companies that have data stored on their information technology systems.

We have exposures to similar security risks faced by other large companies that have data stored on their information technology systems.

To our knowledge, we have not experienced any material breach of our cybersecurity systems.

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Additionally, any of these events could lead to violations of privacy laws, loss of customers, or loss, misappropriation or corruption of confidential information, trade secrets or data, which could expose us to potential litigation, regulatory actions, sanctions or other statutory penalties, any or all of which could adversely affect our business, and cause it to incur significant losses and remediation costs.

The sudden onset of the COVID-19 pandemic has required most of our employees to work remotely, putting unprecedented strain on our information technology resources and infrastructure.

The COVID-19 pandemic required most of our employees to work remotely, putting unprecedented strain on our information technology resources and infrastructure.

We cannot be sure how long the work-from-home model will stay in place and how mandates around social distancing and extensive remote work will generate new and unforeseen risks of business disruption and increased complexity across the range of functions that comprise the Company’s daily activities.

In addition, by rapidly deploying the work-from-home model, we are increasing our vulnerability to hacking and other nefarious activities as employees adjust to new hardware/software infrastructure and resources as well as close the gap created by no longer being in close physical proximity to their colleagues.

In addition, by deploying the work-from-home model, we increase our vulnerability to hacking and other nefarious activities as employees adjust to new hardware/software infrastructure and resources as well as close the gap created by no longer being in close physical proximity to their colleagues.

Although all employees are required to use work infrastructure and our secure VPN, we cannot be completely certain that we will not have increased exposure to security considerations in this new environment.

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the degree to which acquired operations can be integrated with our operations;

appropriate valuation and our ability to create substantially more value post-acquisition.

We cannot assure you that we can identify attractive acquisition candidates or negotiate acceptable acquisition terms, and our failure to do so may adversely affect our results of operations and our ability to sustain growth.

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failure of an acquired business to achieve targeted financial results;

limited capital to finance acquisitions;

limited capital to finance acquisitions and/or fund appropriate working capital post-acquisition;

inability to maintain or secure relevant licenses to maintain or expand the net sales of acquired business.

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All the factors discussed in this section, disclosures made in other parts of this Annual Report on Form 10-K, or any other material announcements or events could affect our stock price.

In addition, quarterly fluctuations in our operating results, changes in investor and analyst perception of the business risks and conditions of our business, our ability to meet earnings estimates and other performance expectations of financial analysts or investors, unfavorable commentary or downgrades of our stock by research analysts, fluctuations in the stock prices of our peer companies or in stock markets in general, and general economic or political conditions could also cause the price of our stock to change.

In addition, quarterly fluctuations in our operating results, changes in investor and analyst perception of the business risks and conditions of our business, our ability to meet earnings estimates and other performance expectations of financial analysts or investors, unfavorable commentary or downgrades of our stock by research analysts, fluctuations in the stock prices of other toy companies or in stock markets in general, and general economic or political conditions could also cause the price of our stock to change.

A significant drop in the price of our stock could expose us to the risk of securities class action lawsuits, which could result in substantial costs and divert management’s attention and resources, adversely affecting our business.

If our stock price continues to remain below $1.00, our common stock may be subject to delisting from The NASDAQ Stock Market.

On June 24, 2019, we received a written notice from NASDAQ stating that we no longer comply with NASDAQ Marketplace Rule 5450(a)(1) because the bid price of our common stock closed below the required minimum $1.00 per share for the previous 30 consecutive business days.

The notice also indicated that, in accordance with Marketplace Rule 5810(c)(3)(A), we had a period of 180 calendar days, until December 23, 2019, to regain compliance with Rule 5450(a)(1).

We appealed the delisting determination to a NASDAQ hearing panel and the delisting was stayed pending the panel’s determination.

At such hearing, we presented a plan to regain compliance, which plan included implementation of a reverse stock split if necessary, and NASDAQ granted our request for continued listing, subject to the requirement that we shall have demonstrated compliance with Nasdaq listing Rule 5450(a)(1) on or before June 23, 2020.

The COVID-19 pandemic has prompted NASDAQ to allow for an extended timeline to regain compliance, if necessary.

We are currently evaluating our alternatives to resolve the listing deficiency.

To the extent we are unable to resolve the listing deficiency, there is a risk that our common stock may be delisted from NASDAQ, which would adversely impact the liquidity of our common stock and potentially result in even lower bid prices for our common stock.

We have a valuation allowance on the deferred taxes on our books since their future realization is uncertain.

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Current accounting standards require that a valuation allowance be recorded if it is not likely that sufficient taxable income of appropriate character will be generated to realize the deferred tax assets.

We currently believe that based on the available information, it is more likely than not that our deferred tax assets will not be realized, and accordingly we have recorded a valuation allowance against our U.S.

federal and state deferred tax assets.

Certain of our net operating losses and tax credit carry-forwards can expire if unused, and the utilization of our net operating losses and tax credit carry-forwards could be substantially limited in the event of an "ownership change," as defined in Section 382 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code.

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Declines in our profitability may impact the fair value of our reporting units, which could result in a write-down of our goodwill and consequently harm our results of operations.

We did not record any goodwill impairment charges during 2018 and 2019.

We did not record any goodwill impairment charges during 2020, 2019 or 2018.

In the future, if we do not achieve our profitability and growth targets the carrying value of our goodwill may become further impaired, resulting in additional impairment charges.

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.

What changed 10-K

Item 1A. Risk Factors