10-K
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tm214075d1_10k.htm
FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31,
2020
OR
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-39312
PLBY Group, Inc.
(Exact name of Registrant as specified in its Charter)
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Los Angeles, California 90024
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including
area code: (310) 424-1800
Securities registered pursuant to Section 12(b) of
the Act:
Title of each class Trading symbol(s) Name of each exchange on which registered
Common Stock, par value $0.0001 per share PLBY Nasdaq Global Market
Securities registered pursuant to Section 12(g) of
the Act: None
Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ̈ No x
Indicate
by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ̈
No x
Indicate
by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes x No ̈
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes x No ̈
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ̈ Accelerated filer ̈
Non-accelerated filer x Smaller reporting company x
Emerging growth company x
If an emerging growth
company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ̈
Indicate by check
mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act by the registered public accounting firm that
prepared or issued its audit report. ̈
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ̈ No x
The aggregate market value of the voting securities
held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter,
June 30, 2020, was approximately $58.0 million based upon the closing sale price of $10.04 our units, comprised of one share
of common stock and the right to receive one-tenth of a share of common stock, on that date (as our common stock did not trade separately
until August 27, 2020). As of March 31, 2021, there were 33,560,980 shares of common stock, $0.0001 par value, issued and outstanding.
Documents Incorporated by Reference: None.
Table of Contents
Page
PART I
Item 1. Business 1
Item 1A. Risk Factors 2
Item 1B. Unresolved Staff Comments 21
Item 2. Properties 21
Item 3. Legal Proceedings 21
Item 4. Mine Safety Disclosures 22
PART II
Item 6. Selected Financial Data 23
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 26
Item 8. Financial Statements and Supplementary Data 27
Item 9A. Controls and Procedures 43
Item 9B. Other Information 44
PART III
Item 10. Directors, Executive Officers and Corporate Governance 45
Item 11. Executive Compensation 49
Item 14. Principal Accounting Fees and Services 55
PART IV
Item 15. Exhibits and Financial Statement Schedules 56
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EXPLANATORY NOTE
On February 10, 2021
(the “Closing Date”), subsequent to the end of the fiscal year ended December 31, 2020, the fiscal year to which this
Annual Report on Form 10-K relates, PLBY Group, Inc. (f/k/a Mountain Crest Acquisition Corp), a Delaware corporation (the “Company”),
consummated its previously announced business combination (as defined below), pursuant to which the Company acquired Playboy Enterprises, Inc.
(“Playboy”) (such acquisition is referred to as the “Business Combination”). In connection with the closing of
the Business Combination (the “Closing”), pursuant to the Agreement and Plan of Merger (the “Merger Agreement”)
between the Company, MCAC Merger Sub Inc. (“Merger Sub”), Playboy and Suying Liu, Merger Sub merged with and into Playboy,
with Playboy surviving the merger as a direct, wholly-owned subsidiary of the Company, and in connection therewith the Company changed
its name from Mountain Crest Acquisition Corp to PLBY Group, Inc. (the “Merger”).
Except as otherwise expressly
provided herein, the information in this Annual Report on Form 10-K does not reflect the consummation of the Business Combination
which, as discussed above, occurred subsequent to the period covered hereunder.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K
contains statements that are forward-looking and as such are not historical facts. This includes, without limitation, statements regarding
the financial position, capital structure, dividends, indebtedness, business strategy and plans and objectives of management for future
operations, including as they relate to the anticipated effects of the Business Combination. These statements constitute projections,
forecasts and forward-looking statements, and are not guarantees of performance. Such statements can be identified by the fact that they
do not relate strictly to historical or current facts. When used in this Annual Report on Form 10-K, words such as “anticipate,”
“believe,” “continue,” “could,” “estimate,” “expect,” “intend,”
“may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,”
“should,” “strive,” “would” and similar expressions may identify forward-looking statements, but the
absence of these words does not mean that a statement is not forward-looking. When the Company discusses its strategies or plans, including
as they relate to the Business Combination, it is making projections, forecasts or forward-looking statements. Such statements are based
on the beliefs of, as well as assumptions made by and information currently available to, the Company’s management.
The forward-looking statements
contained in this Annual Report on Form 10-K are based on current expectations and beliefs concerning future developments and their
potential effects on the Company. There can be no assurance that future developments affecting the Company will be those that the Company
has anticipated. These forward-looking statements involve significant risks and uncertainties that could cause the actual results to differ
materially from those discussed in the forward-looking statements. Factors that may cause such differences include, but are not limited
to: (1) the impact of COVID-19 pandemic on the Company’s business; (2) the inability to maintain the listing of the Company’s
shares of common stock on Nasdaq; (3) the risk that the Business Combination, recent acquisitions or any proposed transactions disrupt
the Company’s current plans and operations, including the risk that the Company does not complete any such proposed transactions
or achieve the expected benefit from them; (4) the ability to recognize the anticipated benefits of the Business Combination, which
may be affected by, among other things, competition, the ability of the Company to grow and manage growth profitably, and retain its key
employees; (5) costs related to the Business Combination; (6) litigation and regulatory enforcement risks, including changes
in applicable laws or regulations, the diversion of management time and attention and the additional costs and demands on our resources;
(7) the possibility that the Company may be adversely affected by other economic, business, and/or competitive factors; (8) expectations
regarding the Company’s strategies and future financial performance, including its projections, future business plans or objectives,
prospective performance and opportunities and competitors, revenues, products, pricing, operating expenses, market trends, liquidity,
cash flows and uses of cash, capital expenditures, and our ability to invest in growth initiatives and pursue acquisition opportunities;
(9) risks related to the organic and inorganic growth of the Company’s business and the timing of expected business milestones;
(10) the possibility that we may be adversely affected by geopolitical or other economic, business, and/or competitive factors; and
(11) other risks and uncertainties indicated in this Annual Report on Form 10-K, including those under “Item 1A. Risk Factors.”
Should one or more of these risks or uncertainties materialize, or should any of the Company’s assumptions prove incorrect, actual
results may vary in material respects from those projected in these forward-looking statements. The Company cautions that the foregoing
list of factors is not exclusive, and readers should not place undue reliance upon any forward-looking statements.
Forward-looking statements
included in this Annual Report on Form 10-K speak only as of the date of this Annual Report on Form 10-K or any earlier date
specified for such statements. The Company does not undertake any obligation to update or revise any forward-looking statements to reflect
any change in its expectations or any change in events, conditions, or circumstances on which any such statement is based, except as may
be required under applicable securities laws. All subsequent written or oral forward-looking statements attributable to the Company or
persons acting on the Company’s behalf are qualified in their entirety by this Cautionary Note Regarding Forward-Looking Statements.
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PART I
Unless otherwise stated
in this Annual Report on Form 10-K, references in this report to the “Company”, “we”, “us” and
“our” refer to PLBY Group, Inc., a Delaware corporation, formerly known as Mountain Crest Acquisition Corp. References
to “MCAC” refer to the registrant prior to the Closing.
Item 1. Business.
Introduction
MCAC was formed as a blank
check company on November 12, 2019, under the laws of the state of Delaware, for the purpose of effecting a merger, capital stock
exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. Based on its
business activities, MCAC was a “shell company” as defined under the Exchange Act because it had no operations and nominal
assets consisting almost entirely of cash. Until the consummation of the Business Combination (as defined below), the Company did not
engage in any operations nor generated any revenue.
On June 9, 2020, MCAC
consummated its initial public offering (the “initial public offering” or “IPO”) of 5,000,000 units, each consisting
of one share of MCAC common stock and one right to receive one-tenth (1/10) of a MCAC share of common stock (the “Units”),
generating gross proceeds of $50,000,000. Simultaneously with the closing of our IPO, MCAC consummated the sale of 321,500 Units in a
private placement (the “Private Units”) to Sunlight Global Investment LLC (“Sponsor”) and Chardan Capital Markets,
LLC (“Chardan”), generating gross proceeds of $3,215,000. On June 17, 2020, Chardan exercised its over-allotment option
in part and sold an additional 749,800 MCAC Units at an offering price of $10.00 per MCAC Unit, generating additional gross proceeds of
$7,498,000. In connection with the underwriters’ partial exercise of their over-allotment option, our Sponsor and Chardan purchased
from us an additional 33,741 Private Units for a total purchase price of $330,741, of which 29,992 Private Units was purchased by our
Sponsor and 3,749 Private Units was purchased by Chardan.
Simultaneously with the closing
of the IPO and the exercise of the over-allotment option by Chardan, MCAC also sold the Unit Purchase Option (the “UPO”) to
purchase up to 344,988 units to Chardan, for a purchase price of $100. The UPO is exercisable at $11.50 per unit (for an aggregate exercise
price of $3,967,362), beginning on the consummation of our initial business combination. The UPO may be exercised for cash or on a cashless
basis, at the holder’s option, and expires on June 9, 2025.
After deducting the underwriting
discounts, offering expenses, and commissions from the IPO and the sale of the Private Units, a total of $58,647,960 was deposited into
a trust account (the “Trust Account”), and the remaining $432,822 of the net proceeds were outside of the Trust Account and
made available to be used for business, legal and accounting due diligence on prospective business combinations and continuing general
and administrative expenses. In accordance with MCAC’s Amended and Restated Certificate of Incorporation, the amounts held in the
Trust Account could only be used by the Company upon the consummation of a business combination, except that there could be released to
MCAC, from time to time, any interest earned on the funds in the Trust Account that it may need to pay its tax obligations.
On February 10, 2021,
the Company consummated the Business Combination (as defined below), pursuant to which the Company acquired Playboy Enterprises, Inc.
(“Playboy”) (the acquisition is referred to herein as the “Business Combination”). In connection with the closing
of the Business Combination (the “Closing”), pursuant to the Agreement and Plan of Merger (the “Merger Agreement”)
dated September 30, 2020, between the Company, MCAC Merger Sub Inc. (“Merger Sub”), Playboy and Suying Liu, Merger Sub
merged with and into Playboy, with Playboy surviving the merger as a direct, wholly-owned subsidiary of the Company, and in connection
therewith the Company changed its name from Mountain Crest Acquisition Corp to PLBY Group, Inc. (the “Merger”).
In connection with the Business
Combination, MCAC entered into subscription agreements, each dated as of September 30, 2020 (the “Subscription Agreements”),
with certain institutional and accredited investors (collectively, the “PIPE Investors”), pursuant to which MCAC issued and
sold to the PIPE Investors, in a private placement closed immediately prior to the closing of the Business Combination, 5,000,000 shares
of common stock (the “PIPE Shares”) at $10.00 per share, for an aggregate purchase price of $50,000,000 (the “PIPE”)
to be used by the Company following the consummation of the Business Combination.
At the Closing and pursuant
to the Merger Agreement, MCAC (i) issued an aggregate of 20,916,812 shares of common stock to existing stockholders of Playboy, (ii) assumed
Playboy options exercisable for an aggregate of 3,560,541 shares of common stock at a weighted average exercise price of $5.61 and (iii) assumed
the obligation to issue shares in respect of terminated Playboy restricted stock units for an aggregate of 2,045,634 shares of common
stock to be settled approximately one year following the Closing.
Upon the consummation of
the Business Combination, Craig-Hallum Capital Group LLC and Roth Capital Partners LLC each received 100,000 shares of common stock (the
“Advisory Shares”) as compensation for advisory services rendered to MCAC, including in their role as placement agents in
the PIPE investment pursuant to an agreement, dated July 22, 2020, which was subsequently amended to join Roth Capital Partners,
LLC on September 30, 2020. The services were completed as of September 30, 2020.
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In connection with the Business
Combination, 8,824 shares of common stock were redeemed at a per share price of approximately $10.21 on February 10, 2021. Upon the
Closing, the Company had 33,560,980 shares of common stock outstanding. Following the Closing, our common stock began trading on the Nasdaq
Global Market (“Nasdaq”) under the new trading symbols of “PLBY” on February 11, 2021.
Further information regarding
the Business Combination and the Company is set forth in (i) the Company’s Definitive Proxy statement filed with the U.S. Securities
and Exchange Commission (the “SEC”) on January 21, 2021 (the “Proxy Statement”) and (ii) the Company’s
Current Report on Form 8-K filed with the SEC on February 16, 2021.
Except as otherwise expressly
provided below, this report does not reflect the consummation of the Business Combination which, as discussed above, occurred subsequent
to the period covered hereunder.
Employees
As of December 31, 2020
and prior to the Business Combination, MCAC had two executive officers. These individuals were not obligated to devote any specific number
of hours to our matters, but they intended to devote as much of their time as they deemed necessary to our affairs until we completed
an initial Business Combination. MCAC had no full-time employees prior to the completion of the Business Combination.
Available Information
Our
investor relations website address is www.plbygroup.com. We are required to file Annual Reports on Form 10-K and Quarterly
Reports on Form 10-Q with the SEC on a regular basis, and are required to disclose certain material events in a Current Report on
Form 8-K. The SEC also maintains a website that contains reports, proxy and information statements and other information regarding
issuers that file electronically with the SEC. The SEC’s website is located at http://www.sec.gov.
Item 1A. Risk Factors.
RISK
FACTORS
An investment in our securities
involves a high degree of risk. You should consider carefully all of the risks described below, together with the other information contained
in this Annual Report, before making a decision to invest in our securities. If any of the following events occur, our business, financial
condition and operating results may be materially adversely affected. In that event, the trading price of our securities could decline,
and you could lose all or part of your investment. The risks and uncertainties described below are not the only ones we face. Additional
risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that
adversely affect our business, financial condition and operating results. Unless the context otherwise requires, all references in this
subsection to the “Company,” “we”, “us” or “our” refer to PLBY Group, Inc. and its
consolidated subsidiaries following the Business Combination, which was completed on February 10, 2021, other than certain historical
information which refers to the business of Playboy prior to the consummation of the Business Combination.
Summary of Risk Factors
We have in the past been
adversely affected by certain of, and may in the future be materially and adversely affected by, the following risks:
· our ability to maintain the value and reputation of the Playboy brand;
· operating in highly competitive industries;
· various taxation related risks in multiple jurisdictions;
· potential systems failures in our digital operations;
· our exposure to data security and privacy risks;
· compliance with government regulations;
· challenges relating to operations and expansion outside of the U.S.;
· adverse results in litigation;
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· integration risks from significant future acquisitions;
· our debt and other financial obligations;
· the demand for our products;
· the COVID-19 (as defined below) pandemic;
· global economic conditions;
· the benefits from the Business Combination; and
General Risks Related to Our Business and Industry
Our success depends on our ability to maintain the value and
reputation of the Playboy brand.
Our success depends on the
value and reputation of the Playboy brand. The Playboy name is integral to our business as well as to the implementation of our strategies
for expanding our business. Maintaining, promoting, and positioning our brand will depend largely on the success of our marketing and
merchandising efforts and our ability to provide a consistent, high quality product, and customer experience.
We rely on social media,
as one of our marketing strategies, to have a positive impact on both our brand value and reputation. Our brand and reputation could be
adversely affected if we fail to achieve these objectives, if our public image was to be tarnished by negative publicity, which could
be amplified by social media, if we fail to deliver innovative and high-quality products and experiences acceptable to our customers,
or if we face or mishandle a product recall.
We license our brand to third
parties to use in connection with various goods and services, subject to our approval. Our financial condition could be negatively impacted
if any such third parties use our brand in a manner that adversely reflects on Playboy or our brand.
Additionally, while we devote
considerable efforts and resources to protecting our intellectual property, if these efforts are not successful, the value of our brand
may be harmed. Any harm to our brand and reputation could have a material adverse effect on our financial condition.
Our businesses operate in highly competitive industries.
The sexual wellness, lifestyle
experiences, apparel and accessories, and beauty and grooming industries in which we operate are highly competitive. The ability of our
businesses to compete in each of these industries successfully depends on a number of factors, including our ability to consistently supply
high quality and popular content and products, adapt to new technologies and distribution platforms, maintain our brand reputation and
produce new and successful products and content. There can be no assurance that we will be able to compete successfully in the future
against existing or new competitors, or that increasing competition will not result in price reductions, reduced margins or loss of market
share, any of which could have a material adverse effect on our business, financial condition or results of operations.
Additionally, many of our
competitors, including large entertainment and media enterprises and apparel and beauty retailers, have greater financial and human resources
than we do. We cannot assure you that we can remain competitive with companies that have greater resources or that offer alternative entertainment
or product offerings.
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The market for our adult oriented products
is changing rapidly, and unless we are able to anticipate these changes and rapidly adapt, we will lose market share.
Online usage is changing
rapidly as technological advancements allow the deployment of more advanced and interactive multimedia product offerings and the Internet
and mobile device usage have resulted in new digital distribution channels. As a result, we have to rapidly develop new business models,
products and distribution models that will allow us to otherwise capitalize on our large library of titles that we own and license as
well as our product offerings.
Unless we are able to effectively
modify our business model to compete with the products offered digitally on the Internet or elsewhere, our market share, revenues and
profits from our product offerings could decrease. Although we are currently developing new products and seeking potential acquisition
targets, no assurance can be given that we will remain competitive in the rapidly changing adult entertainment marketplace or the other
industries we compete in. Our future success will depend, in part, on our ability to adapt to rapidly changing technologies, to enhance
existing product offerings and to develop and introduce a variety of new products to address changing demands of our consumers.
If we are unable to obtain, maintain and
protect our intellectual property rights, in particular trademarks and copyrights, our ability to compete could be negatively impacted.
Our intellectual property
rights, particularly our trademarks in the Playboy name and Rabbit Head Design, are valuable assets of our business and are critical to
our success, growth potential and competitive position. Although certain of the intellectual property we use is registered in the U.S.
and in many of the foreign countries in which we operate, there can be no assurances with respect to the continuation of such intellectual
property rights, including our ability to further register, use or defend key current or future trademarks. Further, applicable law may
provide only limited and uncertain protection, particularly in emerging markets, such as China.
Furthermore, we may not apply
for, or be unable to obtain, intellectual property protection for certain aspects of our business. Third parties have in the past, and
could in the future, bring infringement, invalidity, co-inventorship, re-examination, opposition or similar claims with respect to our
current or future intellectual property. Any such claims, whether or not successful, could be costly to defend, may not be sufficiently
covered by any indemnification provisions to which we are party, divert management’s attention and resources, damage our reputation
and brands, and substantially harm our business, prospects, financial condition, results of operations, cash flows, as well as the trading
price of our securities.
In addition, third parties
may distribute and sell counterfeit (or grey market) versions of our products, which may be inferior or pose safety risks and could confuse
consumers or customers, which could cause them to refrain from purchasing our brands in the future or otherwise damage our reputation.
The presence of counterfeit versions of our products in the market and of prestige products in mass distribution channels could also dilute
the value of our brands, force us and our distributors to compete with heavily discounted products, cause us to be in breach of contract
(including license agreements), impact our compliance with distribution and competition laws in jurisdictions including the E.U. and China,
or otherwise have a negative impact on our reputation and business, prospects, financial condition or results of operations.
In order to protect or enforce
our intellectual property and other proprietary rights, we may initiate litigation or other proceedings against third parties, such as
infringement suits, opposition proceedings or interference proceedings. Any lawsuits or proceedings that we initiate could be expensive,
take significant time and divert management’s attention from other business concerns, adversely impact customer relations and we
may not be successful. Litigation and other proceedings may also put our intellectual property at risk of being invalidated or interpreted
narrowly. The occurrence of any of these events may have a material adverse effect on our business, prospects, financial condition, results
of operations, cash flows, as well as the trading price of our securities.
Our success depends on our ability to operate
our business without infringing, misappropriating or otherwise violating the intellectual property of third parties.
Our commercial success depends
in part on our ability to operate without infringing, misappropriating or otherwise violating the trademarks, patents, copyrights and
other proprietary rights of third parties. However, we cannot be certain that the conduct of our business does not and will not infringe,
misappropriate or otherwise violate such rights. Moreover, our acquisition targets and other businesses in which we may make strategic
investments are often smaller or younger companies with less robust intellectual property clearance practices, and we may face challenges
on the use of their trademarks and other proprietary rights.
If we are found to be infringing,
misappropriating or otherwise violating a third-party trademark, patent, copyright or other proprietary rights, we may need to obtain
a license, which may not be available in a timely manner on commercially reasonable terms or at all, or redesign or rebrand our products,
which may not be possible or result in a significant delay to market or otherwise have an adverse commercial impact. We may also be required
to pay substantial damages or be subject to a court order prohibiting us and our customers from selling certain products or engaging in
certain activities, which could therefore have a material adverse effect on our business, prospects, financial condition, results of operations
and cash flows, as well as the trading price of our securities.
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Any inability to identify, fund investment
in and commercially exploit new technology could have a material adverse impact on our business, financial condition or results of operations.
We are engaged in businesses
that have experienced significant technological changes over the past several years and are continuing to undergo technological changes.
Our ability to implement our business plan and to achieve the results projected by management will depend on management’s ability
to anticipate technological advances and implement strategies to take advantage of future technological changes. Any inability to identify,
fund investment in and commercially exploit new technology or the commercial failure of any technology that we pursue, such as Internet
and mobile, could result in our businesses becoming burdened by obsolete technology and could have a material adverse impact on our business,
financial condition or results of operations.
Our business involves the provision of sexually
explicit content which can create negative publicity, lawsuits and boycotts.
We are engaged in the business
of providing adult-oriented, sexually explicit products worldwide. Many people regard our primary business as unwholesome. Various national
and local governments, along with religious and children’s advocacy groups, consistently propose and enact legislation to restrict
the provision of, access to, and content of such entertainment. These groups also often file lawsuits against providers of adult entertainment,
encourage boycotts against such providers and mount negative publicity campaigns. In this regard, some of our distribution outlets and
advertisers, have from time-to-time been the target of groups who seek to limit the availability of our products because of their content.
We expect to continue to be subject to these activities.
The adult-oriented content
of our websites may also subject us to obscenity or other legal claims by third parties. We may also be subject to claims based upon the
content that is available on our websites through links to other sites and in jurisdictions that we have not previously distributed content
in. Implementing measures to reduce our exposure to this liability may require us to take steps that would substantially limit the attractiveness
of our websites and other distribution channels and/or their availability in various geographic areas, which could negatively impact their
ability to generate revenue.
In addition, some investors,
investment banks, market makers, lenders and others in the investment community may refuse to participate in the market for our common
stock, financings or other activities due to the nature of our adult business. These refusals may negatively impact the value of our common
stock and our opportunities to attract market support.
Companies providing products and services
on which we rely may refuse to do business with us because some of our products contain adult content.
Some companies that provide
products and services we need may be concerned that associating with us could lead to their becoming the target of negative publicity
campaigns by public interest groups and boycotts of their products and services. As a result of these concerns, these companies may be
reluctant to enter into or continue business relationships with us. There can be no assurance that we will be able to maintain our existing
business relationships with the companies, domestic or international, that currently provide us with services and products. Our inability
to maintain such business relationships, or to find replacement service providers, would materially adversely affect our business, financial
condition and results of operations. We could be forced to enter into business arrangements on terms less favorable to us than we might
otherwise obtain, which could lead to our doing business with less competitive terms, higher transaction costs and more inefficient operations
than if we were able to maintain such business relationships or find replacement service providers.
If we are unable to advertise on certain
platforms because of our brand or products, our business would be harmed.
Some companies that operate
websites and offline media, including search engines and social media platforms, on which we would like to advertise our products, and
provide direct purchasing capabilities, may be reluctant or refuse to allow such advertising due to the adult nature of certain of our
products and the history of our brand. Our inability to advertise on such platforms would make it more difficult for us to reach a broad
audience, which could limit sales of our products, and the reduce the value of our brand. Our existing competitors, as well as potential
new competitors, may not face such obstacles and be able to undertake more extensive marketing campaigns and reach a broader consumer
base, making it more difficult for Playboy to compete with them with similar products.
If we are unable to generate revenues from
advertising and sponsorships our future growth may be harmed.
If companies perceive Playboy.com or
any of our other free websites to be limited or ineffective advertising mediums, they may be reluctant to advertise in our products or
to be our sponsors. Our ability to generate significant advertising and sponsorship revenues depends upon several factors, including,
among others, the following:
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· our ability to offer attractive advertising rates;
· our ability to attract advertisers and sponsors; and
· our ability to provide effective advertising delivery and measurement systems.
Our potential advertising
revenues are also dependent on the level of spending by advertisers, which is impacted by a number of factors beyond our control, including
general economic conditions, changes in consumer purchasing and viewing habits and changes in the retail sales environment. Our existing
competitors, as well as potential new competitors, may have significantly greater financial, technical and marketing resources than we
do. These companies may be able to undertake more extensive marketing campaigns, adopt aggressive advertising pricing policies and devote
substantially more resources to attracting advertising customers.
We have experienced seasonality in our revenues,
which may result in volatility in our earnings.
While we receive revenue
throughout the year, our businesses do experience seasonality. For example, our consumer brand licensing business under our consumer business
experiences higher receipts in its first and third fiscal quarters due to the licensing fee structure in its licensing agreements which
typically require advance payment of such fees during these quarters, and our direct-to-consumer business typically experiences higher
sales in the fourth quarter due to the U.S. holiday season, including Halloween. To the extent that we continue to experience seasonality
after the Business Combination, this may result in volatility in our earnings.
We will have a significant amount of intangible
assets, including our trademarks, recorded on our consolidated balance sheet following the Business Combination. As a result of changes
in market conditions and declines in the estimated fair value of these assets, we may be required to record impairments of our intangible
assets in the future which could adversely affect our results of operations.
As of December 31, 2020,
Playboy’s indefinite-lived intangible assets and goodwill represented $337.2 million, or 81.8% of its total consolidated
assets. As a result of the Business Combination, such intangible assets and goodwill will be recorded on our consolidated balance sheets
going forward. Under accounting principles generally accepted in the United States, indefinite-lived intangible assets are not amortized,
but instead are subject to impairment evaluation based on related estimated fair values, with such testing to be done at least annually.
We will review our trademarks for impairment whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. Any write-down of intangible assets resulting from future periodic evaluations would, as applicable, either decrease our
net income or increase our net loss, and those decreases or increases could be material.
Our use of certain tax attributes may be
limited.
We have significant net
operating losses (“NOLs”). A valuation allowance has been provided as of December 31, 2020 which primarily relates to
state net operating losses and capital loss carryforwards. As of December 31, 2020, we had federal NOLs available to carryforward
to future periods of $180.2 million, which begin expiring in 2027 and we had state and local NOLs available to carryforward to
future periods of $99.3 million, which begin expiring in 2021. We have foreign tax credits available to carryforward to future periods
of $2.8 million as of December 31, 2020, which expire by 2021. The statute of limitations for tax years 2015 and
forward remains open to examination by the major U.S. taxing jurisdictions to which we are subject. In addition, due to the NOL carryforward
provision, tax authorities continue to have the ability to adjust the amount of our carryforward. The limitations on the use of the NOLs
under Section 382 could affect our ability to offset future taxable income.
We are subject to taxation related risks
in multiple jurisdictions.
We are a U.S.-based multinational
company subject to tax in multiple U.S. and foreign tax jurisdictions. Significant judgment is required in determining our global provision
for income taxes, deferred tax assets or liabilities and in evaluating our tax positions on a worldwide basis. While we believe our tax
positions are consistent with the tax laws in the jurisdictions in which we conduct our business, it is possible that these positions
may be challenged by jurisdictional tax authorities, which may have a significant impact on our global provision for income taxes.
Tax laws are being re-examined
and evaluated globally. New laws and interpretations of the law are taken into account for financial statement purposes in the quarter
or year that they become applicable. Tax authorities are increasingly scrutinizing the tax positions of companies. Many countries in the
European Union, as well as a number of other countries and organizations such as the Organization for Economic Cooperation and Development,
are actively considering changes to existing tax laws that, if enacted, could increase our tax obligations in countries where we do business.
If U.S. or other foreign tax authorities change applicable tax laws, our overall taxes could increase, and our business, financial condition
or results of operations may be adversely impacted.
Our digital operations are subject to systems
failures.
The uninterrupted performance
of our computer systems is critical to the operations of our websites. Our computer systems are located at external third-party sites,
and, as such, may be vulnerable to fire, loss of power, telecommunications failures and other similar catastrophes. In addition, we may
have to restrict access to our websites to solve problems caused by computer viruses or other system failures. Our customers may become
dissatisfied by any disruption or failure of our computer systems that interrupts our ability to provide our content. Repeated system
failures could substantially reduce the attractiveness of our websites and/or interfere with commercial transactions, negatively affecting
our ability to generate revenues. Our websites must accommodate a high volume of traffic and deliver regularly-updated content. Our sites
have, on occasion, experienced slow response times and network failures. These types of occurrences in the future could cause users to
perceive our websites as not functioning properly and therefore induce them to frequent websites other than ours. We are also subject
to risks from failures in computer systems other than our own because our customers depend on their own Internet service providers for
access to our sites. Our revenues could be negatively affected by outages or other difficulties customers experience in accessing our
websites due to Internet service providers’ system disruptions or similar failures unrelated to our systems. Our insurance policies
may not adequately compensate us for any losses that may occur due to any failures in our Internet systems or the systems of our customers’
Internet service providers.
6
Changes in how network operators handle
and charge for access to data that travel across their networks could adversely impact our business.
We rely significantly upon
the ability of consumers to access our products through the internet. If network operators block, restrict or otherwise impair access
to our products over their networks, our business could be negatively affected. To the extent that network operators implement usage-based
pricing, including meaningful bandwidth caps, or otherwise try to monetize access to their networks by data providers, we could incur
greater operating expenses and our membership acquisition and retention could be negatively impacted. Furthermore, to the extent network
operators create tiers of internet access service and either charge us for or prohibit us from being available through these tiers, our
business could be negatively impacted.
Most network operators that
provide consumers with access to the internet also provide these consumers with multichannel video programming. As such, many network
operators have an incentive to use their network infrastructure in a manner adverse to our continued growth and success. While we believe
that consumer demand, regulatory oversight and competition will help check these incentives, to the extent that network operators are
able to provide preferential treatment to their data as opposed to ours or otherwise implement discriminatory network management practices,
our business could be negatively impacted. The extent to which these incentives limit operator behavior differs across markets.
We are subject to data security and privacy
risks that could negatively affect our results, operations or reputation.
Online security breaches
could materially adversely affect our business, financial condition or results of operations. Any well-publicized compromise of security
could deter use of the Internet in general or use of the Internet to conduct transactions that involve transmitting confidential information
or downloading sensitive materials in particular. In addition to our own sensitive and proprietary business information, we handle transactional
and personal information about our consumers and users of our digital experiences, which include online distribution channels and product
engagement. In offering products via online payment, we may increasingly rely on technology licensed from third parties to provide the
security and authentication necessary to effect secure transmission of confidential information such as customer credit card numbers.
Advances in computer capabilities, new discoveries in the field of cryptography or other developments could compromise or breach the algorithms
that we use to protect our customers’ transaction data. If third parties are able to penetrate our network security or otherwise
misappropriate confidential information, we could be subject to liability, which could result in litigation. In addition, experienced
programmers or “hackers” may attempt to misappropriate proprietary information or cause interruptions in our product offerings
that could require us to expend significant capital and resources to protect against or remediate these problems. Increased scrutiny by
regulatory agencies, such as the Federal Trade Commission and state agencies, of the use of customer information could also result in
additional expenses if we are obligated to reengineer systems to comply with new regulations or to defend investigations of our privacy
practices.
In addition, we must comply
with increasingly complex and rigorous, and sometimes conflicting, regulatory standards enacted to protect business and personal data
in the United States, Europe and elsewhere. For example, the European Union adopted the General Data Protection Regulation (the “GDPR”),
which became effective on May 25, 2018; and California passed the California Consumer Privacy Act (the “CCPA”) which
became effective on January 1, 2020. The U.S. Children’s Online Privacy Protection Act (COPPA) also regulates the collection,
use and disclosure of personal information from children under 13 years of age. While none of our content is directed at children
under 13 years of age, if COPPA were to apply to us, failure to comply with COPPA may increase our costs, subject us to expensive
and distracting government investigations and could result in substantial fines. These laws impose additional obligations on companies
regarding the handling of personal data and provide certain individual privacy rights to persons whose data is stored. Compliance with
existing, proposed and recently enacted laws (including implementation of the privacy and process enhancements called for under GDPR and
CCPA) and regulations can be costly and time consuming, and any failure to comply with these regulatory standards could subject us to
legal and reputational risks.
Customer interaction with
our content is subject to our privacy policy and terms of service. If we fail to comply with our posted privacy policy or terms of service
or if we fail to comply with existing privacy-related or data protection laws and regulations, it could result in proceedings or litigation
against us by governmental authorities or others, which could result in fines or judgments against us, damage our reputation, impact our
financial condition and harm our business. If regulators, the media or consumers raise any concerns about our privacy and data protection
or consumer protection practices, even if unfounded, this could also result in fines or judgments against us, damage our reputation, and
negatively impact our financial condition and damage our business.
7
We are subject to payment processing risk.
Our customers pay for our
products using a variety of different payment methods, including credit and debit cards, gift cards, prepaid cards, direct debit, online
wallets and direct carrier and partner billing. We rely on internal systems as well as those of third parties to process payment. Acceptance
and processing of these payment methods are subject to certain rules and regulations, including additional authentication requirements
for certain payment methods, and require payment of interchange and other fees. To the extent there are increases in payment processing
fees, material changes in the payment ecosystem, such as large re-issuances of payment cards, delays in receiving payments from payment
processors, changes to rules or regulations concerning payments, loss of payment partners and/or disruptions or failures in our payment
processing systems, partner systems or payment products, including products we use to update payment information, our revenue, operating
expenses and results of operation could be adversely impacted. In certain instances, we leverage third parties such as our cable and other
partners to bill subscribers on our behalf. If these third parties become unwilling or unable to continue processing payments on our behalf,
we would have to transition subscribers or otherwise find alternative methods of collecting payments, which could adversely impact member
acquisition and retention. In addition, from time to time, we encounter fraudulent use of payment methods, which could impact our results
of operations and if not adequately controlled and managed could create negative consumer perceptions of our products. If we are unable
to maintain our fraud and chargeback rate at acceptable levels, card networks may impose fines, our card approval rate may be impacted
and we may be subject to additional card authentication requirements. The termination of our ability to process payments on any major
payment method would significantly impair our ability to operate our business.
Government regulations could adversely affect
our business, financial condition or results of operations.
Our businesses are regulated
by governmental authorities in the countries in which we operate. Because of our international operations, we must comply with diverse
and evolving regulations. Regulation relates to, among other things, licensing, access to satellite transponders, commercial advertising,
subscription rates, foreign investment, Internet gaming, use of confidential customer information and content, including standards
of decency/obscenity. Changes in the regulation of our operations or changes in interpretations of existing regulations by courts or regulators
or our inability to comply with current or future regulations could adversely affect us by reducing our revenues, increasing our operating
expenses and/or exposing us to significant liabilities. While we are not able to reliably predict particular regulatory developments that
could affect us adversely, those regulations related to adult content, the Internet, consumer products and commercial advertising illustrate
some of the potential difficulties we face.
Adult
content. Regulation of adult content could prevent us from making our content available in various jurisdictions
or otherwise have a material adverse effect on our business, financial condition or results of operations. The governments of some countries,
such as China and India, have sought to limit the influence of other cultures by restricting the distribution of products deemed to represent
foreign or “immoral” influences. Regulation aimed at limiting minors’ access to adult content could also increase our
cost of operations and introduce technological challenges, such as by requiring development and implementation of age verification systems.
U.S. government officials could amend or construe and seek to enforce more broadly or aggressively the adult content recordkeeping and
labeling requirements set forth in 18 U.S.C. Section 2257 and its implementing regulations in a manner that is unfavorable to our
business.
Internet. Various
governmental agencies are considering a number of legislative and regulatory proposals that may lead to laws or regulations concerning
various aspects of the Internet, including online content, intellectual property rights, user privacy, taxation, access charges, liability
for third-party activities and jurisdiction. Regulation of the Internet could materially adversely affect our business, financial condition
or results of operations by reducing the overall use of the Internet, reducing the demand for our products or increasing our cost of doing
business.
Consumer
products. Any attempts to limit or otherwise regulate the sale or distribution of certain consumer products
sold by our licensees could materially adversely affect our business, financial condition or results of operations.
8
We are subject to risks resulting from our
operations outside the U.S., and we face additional risks and challenges as we continue to expand internationally.
The international scope
of our operations may contribute to volatile financial results and difficulties in managing our business. For the years ended December 31,
2020 and 2019, we derived approximately 52% and 77% of our consolidated revenues from countries outside the U.S., respectively.
Our international operations expose us to numerous challenges and risks, including, but not limited to, the following:
· costs of complying with varying governmental regulations;
· fluctuations in currency exchange rates;
· scarcity of attractive licensing and joint venture partners;
· the potential need for opening and managing distribution centers abroad; and
· difficulties in protecting intellectual property rights in foreign countries.
In addition, important elements
of our business strategy, including capitalizing on advances in technology, expanding distribution of our products and content and leveraging
cross-promotional marketing capabilities, involve a continued commitment to expanding our business internationally. This international
expansion will require considerable management and financial resources.
We cannot assure you that
one or more of these factors or the demands on our management and financial resources would not harm any current or future international
operations and our business as a whole.
We are subject to periodic claims and litigation
that could result in unexpected expenses and could ultimately be resolved against us.
From time to time, we are
involved in litigation and other proceedings and litigation arising in the ordinary course of business, such as the matters described
in “Item 3—Legal Proceedings” of this Annual Report on Form 10-K. Defending these claims, even those without
merit, could cause us to incur significant legal expenses and divert financial and management resources. These claims could also result
in significant settlement amounts, damages, fine or other penalties. An unfavorable outcome of any particular proceeding could exceed
the limits of our insurance policies or the carriers may decline to fund such final settlements and/or judgments and could have an adverse
impact on our business, financial condition, and results of operations. In addition, an adverse resolution of any lawsuit or claim against
us could negatively impact our reputation and our brand image and could have a material adverse effect on our business.
In addition, we rely on our
employees, consultants and sub-contractors to conduct our operations in compliance with applicable laws and standards. Any violation of