What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2023-04-14 compared with 2022-03-16 · 25 added, 24 removed, 222 unchanged (18% of the section changed)

1 unchanged sentence

Company Overview

We are a leading multi-line, multi-brand toy company that designs, produces, markets, sells and distributes toys and related products, consumables and related products, electronics and related products, kids indoor and outdoor furniture, and other consumer products.

We are a leading multi-line, multi-brand toy company that designs, produces, markets, sells and distributes toys and related products, kids indoor and outdoor furniture, and other consumer products.

We focus our business on acquiring or licensing well-recognized intellectual property (“IP”), trademarks and/or brand names, most with long product histories (“evergreen brands”).

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Action figures and accessories, including licensed characters based on the Nintendo®, Sonic the Hedgehog® and Apex Legends® franchises and our own proprietary brands including Creepy Crawlers®;

Toy vehicles, including Xtreme Power Dozer®, Xtreme Power Dump Truck®, XPV®, Road Champs®, Fly Wheels® and MXS® toy vehicles and accessories;

Dolls and accessories, including small dolls, large dolls, fashion dolls and baby dolls based on licenses, including Disney Encanto™, Disney ILY 4EVER™, Disney Frozen®, Disney Princess® and Minnie Mouse®, and infant and pre-school toys based on TV shows like Gigantosaurus® and PBS’s Daniel Tiger’s Neighborhood®;

Toy vehicles, including Xtreme Power Dozer®, Xtreme Power Dump Truck®, XPV®, Road Champs®, Fly Wheels® and AirTitans® inflatable remote-control dinosaur;

Dolls and accessories, including small dolls, large dolls, fashion dolls and baby dolls based on licenses, including Disney Encanto®, Disney ILY 4EVER™, Disney Frozen®, Disney Princess® and Minnie Mouse®, and infant and pre-school toys based on TV shows like PBS’s Daniel Tiger’s Neighborhood® as well as in-house brands such as Perfectly Cute® and collectable plush Ami Amis™;

Private label products developed exclusively for certain retail customers in various product categories;

Foot-to-floor ride-on products, including those based on Fisher-Price®, Nickelodeon®, and Hasbro®/Entertainment One® licenses and inflatable environments, tents and wagons;

Foot-to-floor ride-on products, including those based on Fisher-Price®, Nickelodeon®, and Hasbro®/Entertainment One® licenses and inflatable play environments, tents and wagons;

Role play, dress-up, pretend play and novelty products for boys and girls based on well-known brands and entertainment properties such as Disney Frozen® , Black & Decker® , Disney Princess®, and Disney Encanto®, as well as those based on our own proprietary brands;

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kiddie pools, seasonal and outdoor products, including those based on Disney® characters, Nickelodeon® , Hasbro® / Entertainment One® licenses;

Halloween and everyday costumes for all ages based on licensed and proprietary non-licensed brands, including Super Mario Bros.®, Microsoft’s Halo®, LEGO® Movie, Disney-Pixar Toy Story®, Harry Potter®, Jurassic World®, Sesame Street®, Power Rangers®¸ Hasbro® brands and Disney Frozen®, Disney Princess® and related Halloween accessories;

Outdoor activity toys including Redo Skateboard Co.® and Junior sports toys including Skyball® hyper-charged balls, sport sets and Wave Hoops® toy hoops marketed under our Maui® brand.

Halloween and everyday costumes for all ages based on licensed and proprietary non-licensed brands, including Super Mario Bros.®, Microsoft’s Halo®, Disney-Pixar Toy Story®, Harry Potter®, Minions®, Sesame Street®, Power Rangers®¸ Hasbro® brands and Disney Frozen®, Disney Princess® and related Halloween accessories;

Outdoor activity toys including ReDo Skateboard Co.® and junior sports toys including Sky Ball® hyper-charged balls, SportsZone™ sport sets and Wave Hoop® toy hoops marketed under our Maui® brand;

Board games under the brand JAKKS Wild Games™, including Temple Raider®, K.O.

Corral™, and Galactic JAXX™.

We continually review the marketplace to identify and evaluate popular and evergreen brands and product categories that we believe have the potential for growth.

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We intend to continue to pursue new licenses from these media & entertainment companies along with other licensors.

We also intend to continue to purchase additional inventions and product concepts through our existing network of inventors and product developers.

We also intend to continue to secure additional inventions and product concepts through our existing network of inventors and product developers.

●Expand International Sales.

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We cannot assure you that we will be able to recruit and retain qualified personnel or expand and manage our operations effectively and profitably.

To effectively manage future growth, we must continue to expand our operational, financial and management information systems and to train, motivate and manage our work force.

To effectively manage future growth, we must continue to expand our operational, financial and management information systems and to train, motivate and manage our workforce.

While we believe that our operational, financial and management information systems will be adequate to support our future growth, no assurance can be given they will be adequate without significant investment in our infrastructure.

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Total retail sales of toys, excluding video games, in the United States, were approximately $29.2 billion in 2022.

We believe the two largest United States toy companies, Hasbro® and Mattel®, collectively hold a dominant share of the U.S.

We believe the two largest United States toy companies, Hasbro® and Mattel®, along with The LEGO Group (headquartered in Denmark), collectively hold a dominant share of the U.S.

In addition, hundreds of smaller companies compete in the design and development of new toys, the procurement of character and product licenses, and the improvement, expansion and re-introduction of previously established products and product lines.

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We focus our business on acquiring or licensing well-recognized properties, trademarks and/or brand names, and we seek to acquire evergreen brands which are less subject to market fads or trends.

Generally, our license agreements for products and concepts call for royalties ranging from 1% to 23% of net sales, and some may require minimum royalty guarantees and up-front or advanced royalty payments.

Generally, our license agreements for products and concepts call for royalties ranging from 1% to 22% of net sales, and some may require minimum royalty guarantees and up-front or advanced royalty payments against those guarantees.

Our principal products are highlighted above in our Company Overview.

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We contract the manufacture of most of our products to unaffiliated manufacturers located in The People’s Republic of China (“China”).

We sell the finished products to our customers, many of whom take title to the goods in Hong Kong or China.

We sell the finished products to our customers, many of whom take title to the goods in China.

These methods allow us to reduce certain operating costs and working capital requirements.

We also contract the manufacture of certain products from Hong Kong Meisheng Cultural Company Limited (“Meisheng”), which involved payment to Meisheng of approximately $77.7 million and $64.8 million for the year ended December 31, 2021 and 2020, respectively.

We also contract the manufacture of certain products from Hong Kong Meisheng Cultural Company Limited (“Meisheng”), which involved payment to Meisheng of approximately $120.5 million and $77.7 million for the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, Meisheng owns 5.4% of our outstanding common stock, and Zhao Xiaoqiang, one of our directors, is executive director of Meisheng.

2 unchanged sentences

We intend to continue expanding distribution of our products into foreign territories and, accordingly, we have:

entered into a joint venture in China;

engaged representatives to oversee sales in certain foreign territories;

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opened sales offices in Canada, Europe and Mexico;

opened distribution centers in the UK and Europe.

opened distribution centers in the UK and Netherlands.

Outside of the United States, we currently sell our products primarily in Europe, Australia, Canada, Latin America and Asia.

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Manufacturing and Supplies

Most of our products are currently produced by overseas third-party manufacturers, which we choose on the basis of quality, flexibility, reliability and price.

Our products are currently produced by overseas third-party manufacturers, which we choose on the basis of quality, flexibility, reliability and price.

Consistent with industry practice, the use of third-party manufacturers enables us to avoid incurring fixed manufacturing costs, while maximizing flexibility, capacity and the latest production technology.

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In addition, our third-party manufacturers have seen increases in foreign exchange rate exposure during this time.

Currently, we have ongoing relationships with over seventy different manufacturers.

Currently, we have ongoing relationships with over sixty different manufacturers.

We believe that alternative sources of supply are available to us although we cannot be assured that we can obtain adequate supplies of manufactured products on short notice.

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Competition may result in price reductions, reduced gross margins and loss of market share, any of which could have a material adverse effect on our business, financial condition and results of operations.

In many of our product lines we compete directly against one or both of the toy industry’s two dominant companies, Mattel® and Hasbro®.

In many of our product lines we compete directly against one or both of two of the toy industry’s most dominant companies, Mattel® and Hasbro®.

In addition, we compete in our Halloween costume lines with Rubies II.

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Seasonality factors cause our operating results to fluctuate significantly from quarter to quarter.

However, our seasonal products are primarily sold in the spring and summer seasons.

However, our outdoor/seasonal products are primarily sold in the spring and summer seasons.

Our results of operations may also fluctuate as a result of factors such as the timing of new products (and related expenses) introduced by us or our competitors, the theatrical/entertainment-led releases of licensed brands, the advertising activities of our competitors, delivery schedules set by our customers and the emergence of new market entrants.

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Because customer orders may be canceled at any time, often without penalty, our backlog may not accurately indicate sales for any future period.

In 2021, a number of factors ultimately attributable to the COVID-19 pandemic disruption created significant bottlenecks and supply-demand imbalances in exporting product out of Asia into the United States and Europe.

In 2022 and 2021, a number of factors partially attributable to the COVID-19 pandemic created significant bottlenecks and supply-demand imbalances in exporting product out of Asia into the United States and Europe.

These factors increased the cost of ocean freight and the cost of trucking while incurring higher expenses and penalties from product being stuck at the port awaiting inbound trucking pickup.

The unpredictability of delivery times further resulted in higher warehouse handling costs as container arrival timelines proved less predictable sometimes requiring overtime labor and expansion of the short-term labor pool to cope with above-average arriving volumes.

Specifically, in 2022, companies and retailers responded to the ocean freight crisis by shifting more of their importation of product to the first half of the year.

These efforts created more volatility in accurately forecasting market demand.

In areas where consumer demand subsequently cooled, a backlog of inventory accumulated both at retailers and in manufacturer distribution centers.

These excesses in turn generated incremental costs as inventory levels exceeded normal capacity levels, and temporary price reductions were utilized to accelerated consumer demand.

Finally, the longer delivery time resulted in a slower cash conversion cycle for us as the net impact was a longer holding period for finished goods inventory between manufacture and sale to customer.

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As of December 31, 2022, we had approximately 622 employees (including temporary and seasonal employees) working in over 8 countries worldwide to create innovative products and experiences that inspire, entertain, and develop children through play, with approximately 265 employees (43% of the total workforce) located outside the U.S.

The remaining workforce focuses on design, development, marketing, sales, finance, and other aspects of our business.

Employee Engagement

3 unchanged sentences

Our Human Resources department has an open-door policy that encourages employees to seek career advancement advice.

We utilize an “Employee Development Plan” which outlines both short-term and long-term career plans.

Holding various events and workshops throughout the year, employees are encouraged to voice any concerns and/or to bring forth their ideas and suggestions.

We have communicated to staff that we will move to a work-from-home Friday operating model for most employees when we resume in-office activities.

Diversity and Inclusion

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Nearly all employees take advantage of these learning opportunities.

In 2021, all courses and trainings were held online with excellent participation.

Health and Safety

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In 2022 with the impact of the COVID-19 pandemic, our number one priority was the health and safety of all of our employees, worldwide.

The immediate and continuous response was to provide a remote work environment for employees (when available), implement enhanced protocols to provide a safe and sanitary working environment and offer on-site COVID-19 testing at no cost to employees and their dependents.

The immediate and continuous response was to support a remote work environment for employees (when available and appropriate), implement enhanced protocols to provide a safe and sanitary working environment and offer on-site COVID-19 testing at no cost to employees and their dependents.

Environmental Issues

10 unchanged sentences

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 1. Business