QUARTERLY
REPORT
For
the quarterly period ended September 30, 2021
Doofus
Corporation
021-344061 (Securities
and Exchange Commission File Number) |
|
|
|
Delaware |
37-1836035 |
Hardturmstrasse 161, 8005 Zurich
Switzerland
(Address of Principal Executive
Offices)
+41 44 551 00 05
(Telephone
Number)
The number of shares of
common stock outstanding as of September 30, 2021 was 511,750,000.
TABLE
OF CONTENTS
|
|
Page |
|
PART
I – FINANCIAL INFORMATION |
|
Item 1. |
Financial Statements |
3 |
|
Balance Sheets as of September
30, 2021 and December 31, 2020 |
3 |
|
Statements of Operations
for the Three and Nine Months Ended September 30, 2021 and September 30, 2020 |
4 |
|
Statements
of Comprehensive Loss for the Three and Nine Months Ended September 30, 2021
and September 30, 2020 |
5 |
|
Statements
of Stockholders’ Equity for the Three and Nine Months Ended September 30,
2021 and September 30, 2020 |
6 |
|
Statements of Cash Flows
for the Nine Months Ended September 30, 2021 and September 30, 2020 |
7 |
|
Notes to Financial
Statements |
8 |
Item 2. |
Management’s Discussion
and Analysis of Financial Condition and Results of Operations |
12 |
Item 3. |
Quantitative and
Qualitative Disclosures About Market Risk |
17 |
Item 4. |
Controls and Procedures |
18 |
|
|
|
|
PART
II – OTHER INFORMATION |
|
Item 1. |
Legal Proceedings |
19 |
Item 1. A. |
Risk Factors |
19 |
Item 2. |
Unregistered Sales of
Equity Securities and Use of Proceeds |
33 |
Item 3. |
Signature |
34 |
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly
Report contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, which statements involve substantial risks
and uncertainties. Forward-looking statements generally relate to future events
or our future financial or operating performance. In some cases, you can
identify forward-looking statements because they contain words such as “may,” “will,”
“should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,”
“contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue”
or the negative of these words or other similar terms or expressions that
concern our expectations, strategy, plans or intentions. Forward-looking
statements contained in this Quarterly Report include, but are not limited to,
statements about:
·
our ability to attract and retain users and increase their level of engagement;
·
our plans regarding health and safety and our other top priorities,
including our expectations regarding the impact on our reported metrics,
policies and enforcement;
·
the impact of the COVID-19 pandemic and related responses of businesses
and governments to the pandemic on our operations and personnel, and on
commercial activity and on our operating results;
·
our ability to develop new products, product features and services,
improve our existing products and services, including and increase the value of
our products and services;
·
our business strategies, plans and priorities, including our plans for
growth and hiring, investment in our research and development efforts and our
plans to scale capacity and enhance capability and reliability of our
infrastructure, including capital expenditures relating to infrastructure;
·
our work to increase the stability, performance, development velocity
and scale of our products;
·
our ability to provide content from third parties, including our ability
to secure content on terms that are acceptable to us;
·
our expectations regarding our user growth and growth rates and related opportunities;
·
our ability to increase our revenue and our revenue growth rate;
·
our ability to monetize and improve monetization of our products and services;
·
our future financial performance, including revenue, cost of revenue,
operating expenses, including stock-based compensation and income taxes;
·
our expectations regarding certain deferred tax assets and fluctuations
in our tax expense and cash taxes;
·
the impact of privacy and data protection laws and regulations;
·
the impact of content-related legislation or regulation;
·
our expectations on future litigation or the decisions of the courts;
·
the effects of trends on our results of operations;
·
the impact of our future transactions and corporate structuring on our
income and other taxes;
·
the sufficiency of our cash and cash equivalents together with cash
generated from operations to meet our working capital and capital expenditure requirements;
·
our ability to timely and effectively develop, invest in, scale and
adapt our existing technology and network infrastructure;
·
our ability to successfully acquire and integrate companies and assets;
and
·
our expectations regarding international operations and foreign exchange
gains and losses.
We caution you
that the foregoing list may not contain all of the
forward-looking statements made in this Quarterly Report.
You should not
rely upon forward-looking statements as predictions of future events. We have
based the forward-looking statements contained in this Quarterly Report
primarily on our current expectations and projections about future events and
trends that we believe may affect our business, financial condition, operating
results, cash flows or prospects. The outcome of the events described in these
forward-looking statements is subject to risks, uncertainties and other factors
described in the section titled “Risk Factors” and elsewhere in this Quarterly
Report. Moreover, we operate in a very competitive and rapidly changing
environment. New risks and uncertainties emerge from time to time
and it is not possible for us to predict all risks and uncertainties that could
have an impact on the forward-looking statements contained in this Quarterly
Report. We cannot assure you that the results, events
and circumstances reflected in the forward-looking statements will be achieved
or occur, and actual results, events or circumstances could differ materially
from those described in the forward-looking statements.
The
forward-looking statements made in this Quarterly Report relate only to events
as of the date on which the statements are made. We undertake no obligation to
update any forward-looking statements made in this Quarterly Report to reflect
events or circumstances after the date of this Quarterly Report or to reflect
new information or the occurrence of unanticipated events, except as required
by law. We may not actually achieve the plans, intentions or expectations
disclosed in our forward-looking statements and you should not place undue
reliance on our forward-looking statements. Our forward-looking statements do
not reflect the potential impact of any future acquisitions, mergers,
dispositions, joint ventures or investments we may
make.
PART
I – FINANCIAL INFORMATION
Item 1. Financial Statements
DOOFUS
CORPORATION
BALANCE
SHEETS
(Unaudited)
The accompanying notes are an integral part of
these financial statements.
DOOFUS
CORPORATION
STATEMENTS
OF OPERATIONS
(Unaudited)
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
|
September 30, |
|
September 30, |
||||||||
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
||||
Revenue |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
Research and Development |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
Sales and Marketing |
|
|
4,900 |
|
|
- |
|
|
13,122 |
|
|
- |
General and Administrative |
|
|
26,289 |
|
|
25,927 |
|
|
90,594 |
|
|
53,655 |
Total Costs and Expenses |
|
|
31,189 |
|
|
25,927 |
|
|
103,716 |
|
|
53,655 |
Loss from Operations |
|
|
(31,189) |
|
|
(25,927) |
|
|
(103,716) |
|
|
(53,655) |
Interest Expense |
|
|
(24) |
|
|
(1) |
|
|
(267) |
|
|
(2) |
Interest Income |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
Other (Expense) Income, Net |
|
|
(645) |
|
|
329 |
|
|
(1,736) |
|
|
22 |
Income Before Income Taxes |
|
|
(31,858) |
|
|
(25,599) |
|
|
(105,719) |
|
|
(53,635) |
Benefit from Income Taxes |
|
|
5,202 |
|
|
4,301 |
|
|
17,364 |
|
|
9,011 |
Net Loss |
|
$ |
(26,656) |
|
$ |
(21,298) |
|
$ |
(88,355) |
|
$ |
(44,624) |
Net Loss per Share Attributable to Common Stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.00005) |
|
$ |
(0.00004) |
|
$ |
(0.00017) |
|
$ |
(0.00009) |
Diluted |
|
$ |
(0.00005) |
|
$ |
(0.00004) |
|
$ |
(0.00017) |
|
$ |
(0.00009) |
Weighted-Average Shares
Used to Compute Net Loss per Share Attributable to Common Stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
511,570,652 |
|
|
502,500,000 |
|
|
510,558,608 |
|
|
501,912,409 |
Diluted |
|
|
511,570,652 |
|
|
502,500,000 |
|
|
510,558,608 |
|
|
501,912,409 |
The
accompanying notes are an integral part of these financial statements.
DOOFUS
CORPORATION
STATEMENTS
OF COMPREHENSIVE LOSS
(Unaudited)
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
|
September 30, |
|
September 30, |
||||||||
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
||||
Net Loss |
|
$ |
(26,656) |
|
$ |
(21,298) |
|
$ |
(88,355) |
|
$ |
(44,624) |
Other Comprehensive
Income, Net of Tax: |
|
|
|
|
|
|
|
|
|
|
|
|
Change in Foreign Currency
Translation Adjustment |
|
|
3,597 |
|
|
(816) |
|
|
11,696 |
|
|
(1,803) |
Net
Change in Accumulated Other Comprehensive Income |
|
|
3,597 |
|
|
(816) |
|
|
11,696 |
|
|
(1,803) |
Comprehensive Loss |
|
$ |
(23,059) |
|
$ |
(22,114) |
|
$ |
(76,659) |
|
$ |
(46,427) |
The
accompanying notes are an integral part of these financial statements.
DOOFUS
CORPORATION
STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||||||||||
|
|
September 30, |
|
September 30, |
||||||||||||||||
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
||||||||||||
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
||||
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, Beginning of Period |
|
511,000,000 |
|
$ |
512 |
|
501,500,000 |
|
$ |
502 |
|
509,500,000 |
|
$ |
510 |
|
501,500,000 |
|
$ |
502 |
Issuance of Common Stock
for Cash |
|
1,750,000 |
|
|
1 |
|
1,000,000 |
|
|
1 |
|
2,250,000 |
|
|
2 |
|
1,000,000 |
|
|
1 |
Issuance of Common Stock for Stock-Based |
|
1,000,000 |
|
|
1 |
|
- |
|
|
- |
|
2,000,000 |
|
|
2 |
|
- |
|
|
- |
Cancellation of Issuance
of Common Stock for |
|
(2,000,000) |
|
|
(2) |
|
- |
|
|
- |
|
(2,000,000) |
|
|
(2) |
|
- |
|
|
- |
Balance, End of Period |
|
511,750,000 |
|
|
512 |
|
502,500,000 |
|
|
503 |
|
511,750,000 |
|
|
512 |
|
502,500,000 |
|
|
503 |
Additional Paid-In Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, Beginning of Period |
|
- |
|
|
109,988 |
|
- |
|
|
14,998 |
|
- |
|
|
94,988 |
|
- |
|
|
14,998 |
Issuance of Common Stock
for Cash |
|
- |
|
|
17,500 |
|
- |
|
|
9,999 |
|
- |
|
|
22,500 |
|
- |
|
|
9,999 |
Issuance of Common Stock for Stock-Based |
|
- |
|
|
10,000 |
|
- |
|
|
- |
|
- |
|
|
20,000 |
|
- |
|
|
- |
Cancellation of Issuance
of Common Stock for |
|
- |
|
|
(20,000) |
|
- |
|
|
- |
|
- |
|
|
(20,000) |
|
- |
|
|
- |
Balance, End of Period |
|
- |
|
|
117,488 |
|
- |
|
|
24,997 |
|
- |
|
|
117,488 |
|
- |
|
|
24,997 |
Accumulated Other Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, Beginning of Period |
|
- |
|
|
(1,683) |
|
- |
|
|
(273) |
|
- |
|
|
(4,920) |
|
- |
|
|
(25) |
Other Comprehensive Income
(Loss) |
|
- |
|
|
3,597 |
|
- |
|
|
(816) |
|
- |
|
|
11,696 |
|
- |
|
|
(1,803) |
Balance, End of Period |
|
- |
|
|
1,914 |
|
- |
|
|
(1,089) |
|
- |
|
|
6,776 |
|
- |
|
|
(1,828) |
Accumulated Deficit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, Beginning of Period |
|
- |
|
|
(199,264) |
|
- |
|
|
(39,215) |
|
- |
|
|
(142,427) |
|
- |
|
|
(15,150) |
Net Loss |
|
- |
|
|
(26,656) |
|
- |
|
|
(21,298) |
|
- |
|
|
(88,355) |
|
- |
|
|
(44,624) |
Balance, End of Period |
|
- |
|
|
(225,920) |
|
- |
|
|
(60,513) |
|
- |
|
|
(230,782) |
|
- |
|
|
(59,774) |
Total Stockholders' Equity |
|
511,750,000 |
|
$ |
(106,006) |
|
502,500,000 |
|
$ |
(36,102) |
|
511,750,000 |
|
$ |
(106,006) |
|
502,500,000 |
|
$ |
(36,102) |
The
accompanying notes are an integral part of these financial statements.
DOOFUS
CORPORATION
STATEMENTS
OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
Nine Months Ended |
||||
|
|
|
|
|
|
|
|
September 30, |
||||
|
|
|
|
|
|
|
|
2021 |
|
2020 |
||
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
|
|
|
|
|
|
$ |
(88,355) |
|
$ |
(44,624) |
Adjustments to Reconcile
Net Income to Net Cash Provided by Operating Activities: |
|
|
|
|
|
|
||||||
Depreciation and Amortization Expense |
|
|
|
|
|
|
|
|
199 |
|
|
545 |
Deferred Income Taxes |
|
|
|
|
|
|
|
|
(18,571) |
|
|
(9,011) |
Other Adjustments |
|
|
|
|
|
|
|
|
- |
|
|
(1,311) |
Changes in Assets and
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid Expenses and Other Assets |
|
|
|
|
|
|
|
|
521 |
|
|
891 |
Accounts Payable |
|
|
|
|
|
|
|
|
19,536 |
|
|
2,888 |
Accrued and Other Liabilities |
|
|
|
|
|
|
|
|
55,814 |
|
|
30,861 |
Net Cash Used in
Operating Activities |
|
|
|
|
|
|
|
|
(30,856) |
|
|
(19,761) |
Cash Flows from Investing
Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of Property and
Equipment |
|
|
|
|
|
|
|
|
- |
|
|
(1,715) |
Net Cash Used in Investing Activities |
|
|
|
|
|
|
|
|
- |
|
|
(1,715) |
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from Debt |
|
|
|
|
|
|
|
|
5,805 |
|
|
11,783 |
Proceeds from Issuances of
Common Stock for Cash |
|
|
|
|
|
|
|
|
22,500 |
|
|
10,000 |
Net Cash Provided by Financing Activities |
|
|
|
|
|
|
|
|
28,305 |
|
|
21,783 |
Net (Decrease) Increase in Cash, Cash Equivalents and Restricted
Cash |
|
|
|
|
|
(2,551) |
|
|
307 |
|||
Foreign Exchange Effect on
Cash, Cash Equivalents and Restricted Cash |
|
|
|
|
|
3,225 |
|
|
22 |
|||
Cash, Cash Equivalents and Restricted Cash at Beginning of Period |
|
|
|
|
|
(92) |
|
|
369 |
|||
Cash, Cash Equivalents and
Restricted Cash at End of Period |
|
|
|
|
|
|
|
$ |
582 |
|
$ |
698 |
Supplemental Disclosures of Non-Cash Investing and Financing
Activities |
|
|
|
|
|
|
||||||
Changes in Accrued Property and Equipment
Purchases |
|
|
|
|
|
|
|
$ |
- |
|
$ |
(1,715) |
Reconciliation of Cash, Cash Equivalents and Restricted Cash as
Shown in the Statements of Cash Flows |
|
|
|
|
|
|
|
|||||
Cash and Cash Equivalents |
|
|
|
|
|
|
|
|
582 |
|
|
698 |
Restricted Cash Included
in Prepaid Expenses and Other Current Assets |
|
|
|
|
|
- |
|
|
- |
|||
Restricted Cash Included in Other Assets |
|
|
|
|
|
|
|
|
257 |
|
|
263 |
Total Cash, Cash
Equivalents and Restricted Cash |
|
|
|
|
|
|
|
$ |
839 |
|
$ |
961 |
The
accompanying notes are an integral part of these financial statements.
NOTES
TO FINANCIAL STATEMENTS
(Unaudited)
Note 1. Description of
Business and Summary of Significant Accounting Policies
Description
of Business
Doofus
Corporation (the “Corporation”) was incorporated in
Delaware on August 29, 2016 and is headquartered in Zurich, Switzerland. The
Corporation is engaged in the business of computer and software services.
Fiscal
Year
The Corporation’s
fiscal year ends on December 31.
Basis of
Presentation
The accompanying
balance sheets as of September 30, 2021 and December 31, 2020 and the
statements of operations, the statements of comprehensive loss, statements of
stockholders’ equity and the statements of cash flows for the three and nine months
ended September 30, 2021, respectively, and for the three and nine months ended
September 30, 2020, respectively, are unaudited.
The
accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles in the United States (U.S. GAAP).
The unaudited financial statements reflect, in management’s opinion, all
adjustments of a normal, recurring nature that are necessary for the fair
statement of the Corporation’s financial position, results of operations and
cash flows for the interim periods but are not necessarily indicative of the
results expected for the full fiscal year or any other period.
Use of
Estimates
The
preparation of the Corporation’s financial
statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities, revenue,
and expenses, as well as related disclosure of contingent assets and
liabilities. Actual results could differ materially from the Corporation’s estimates.
To the extent that there are material differences between these estimates and
actual results, the Corporation’s financial condition or operating results will
be affected. The Corporation bases its estimates on past
experience and other assumptions that the Corporation believes are
reasonable under the circumstances, and the Corporation evaluates these
estimates on an ongoing basis.
Recent
Accounting Pronouncements
There have
been no recent accounting pronouncements or changes in accounting pronouncements
during the three and nine months ended September 30, 2021, as compared to the
recent accounting pronouncements described in the Corporation's Financial
Statements for the fiscal year ended December 31, 2020, that are of
significance or potential significance to the Corporation.
Significant
Accounting Policies
There have
been no material changes to the Corporation’s significant accounting policies
from its Financial Statements for the fiscal year ended December 31, 2020.
Note 2. Revenue
Revenue
Recognition
The
Corporation is pre-revenue and will derive its revenues from sales and subscription
fees, which are comprised of once-off and recurring subscription fees.
Note 3. Cash and Cash Equivalents
Cash and cash
equivalents consist of the following:
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
||
|
|
|
|
|
|
|
|
2021 |
|
2020 |
||
Cash |
|
|
|
|
|
|
|
$ |
582 |
|
$ |
225 |
Total |
|
|
|
|
|
|
|
$ |
582 |
|
$ |
225 |
Note 4. Fair Value
Measurements
The Corporation
measures its cash equivalents at fair value.
Note 5. Prepaid Expenses and
Other Current Assets
Prepaid
expenses and other current assets consist of the following:
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
||
|
|
|
|
|
|
|
|
2021 |
|
2020 |
||
Prepaid Expenses |
|
|
|
|
|
|
|
$ |
310 |
|
$ |
871 |
Total |
|
|
|
|
|
|
|
$ |
310 |
|
$ |
871 |
Note 6. Depreciation
Property and
equipment are stated at cost. Depreciation is calculated on a straight-line
basis over the estimated useful lives of those assets as follows:
Computer, Equipment and
Software |
|
|
|
|
|
3 to 9 years |
Furniture and Fixtures |
|
|
|
|
|
3
to 9 years |
Leasehold Improvements |
|
|
|
|
|
The remaining lease term or up to 10
years |
When assets
are retired or otherwise disposed of, the cost and accumulated depreciation and
amortization are removed from their respective accounts and any loss on such
retirement is reflected in operating expenses.
Note 7. Property and
Equipment, Net
The following
tables set forth property and equipment, net by type and by geographic area for
the periods presented:
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
||
|
|
|
|
|
|
|
|
2021 |
|
2020 |
||
Computers, Equipment and Software |
|
|
|
|
|
|
|
$ |
1,681 |
|
$ |
1,765 |
Total |
|
|
|
|
|
|
|
|
1,681 |
|
|
1,765 |
Less: Accumulated Depreciation and Amortization |
|
|
|
|
|
|
|
|
(820) |
|
|
(652) |
Property and Equipment, Net |
|
|
|
|
|
|
|
$ |
861 |
|
$ |
1,113 |
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
||
|
|
|
|
|
|
|
|
2021 |
|
2020 |
||
Property and Equipment, Net: |
|
|
|
|
|
|
|
|
|
|
|
|
Switzerland |
|
|
|
|
|
|
|
$ |
861 |
|
$ |
1,113 |
United States |
|
|
|
|
|
|
|
|
- |
|
|
- |
Total Property and Equipment, Net |
|
|
|
|
|
|
|
$ |
861 |
|
$ |
1,113 |
Note 8. Other Assets
The following
table presents the detail of other assets for the periods presented:
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
||
|
|
|
|
|
|
|
|
2021 |
|
2020 |
||
Security Deposits |
|
|
|
|
|
|
|
$ |
257 |
|
$ |
270 |
Total |
|
|
|
|
|
|
|
$ |
257 |
|
$ |
270 |
Note 9. Accrued and Other
Current Liabilities
The following
table presents the detail of accrued and other current liabilities for the
periods presented:
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
||
|
|
|
|
|
|
|
|
2021 |
|
2020 |
||
Accrued Compensation |
|
|
|
|
|
|
|
$ |
109,931 |
|
$ |
49,292 |
Accrued Social Security |
|
|
|
|
|
|
|
|
(123) |
|
|
9,088 |
Accrued Tax Liabilities |
|
|
|
|
|
|
|
|
1,802 |
|
|
230 |
Bank Overdraft |
|
|
|
|
|
|
|
|
- |
|
|
308 |
Total |
|
|
|
|
|
|
|
$ |
111,610 |
|
$ |
58,918 |
Note 10. Net Loss per Share
Basic net loss
per share is computed by dividing net loss attributable to common stockholders
by the weighted-average common shares outstanding during the period.
Diluted net
loss per share is computed by dividing the net loss attributable to common
stockholders by the weighted-average number of common shares outstanding during
the period, including potential dilutive common stock instruments.
The following
table presents the calculation of basic and diluted net loss per share for
periods presented:
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
|
September 30, |
|
September 30, |
||||||||
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
||||
Basic Net Loss per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
Numerator |
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
$ |
(26,656) |
|
$ |
(21,298) |
|
$ |
(88,355) |
|
$ |
(44,624) |
Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Common
Shares Outstanding |
|
|
511,570,652 |
|
|
502,500,000 |
|
|
510,558,608 |
|
|
501,912,409 |
Weighted-Average Shares Used to Compute
Basic Net Loss per |
|
|
511,570,652 |
|
|
502,500,000 |
|
|
510,558,608 |
|
|
501,912,409 |
Basic Net Loss per Share
Attributable to Common Stockholders |
|
$ |
(0.00005) |
|
$ |
(0.00004) |
|
$ |
(0.00017) |
|
$ |
(0.00009) |
Diluted Net Loss per
Share: |
|
|
|
|
|
|
|
|
|
|
|
|
Numerator |
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
$ |
(26,656) |
|
$ |
(21,298) |
|
$ |
(88,355) |
|
$ |
(44,624) |
Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares Used in Basic Computation |
|
|
511,570,652 |
|
|
502,500,000 |
|
|
510,558,608 |
|
|
501,912,409 |
Weighted-Average Shares
Used to Compute Diluted Net Loss |
|
|
511,570,652 |
|
|
502,500,000 |
|
|
510,558,608 |
|
|
501,912,409 |
Diluted Net Loss per Share Attributable to
Common Stockholders |
|
$ |
(0.00005) |
|
$ |
(0.00004) |
|
$ |
(0.00017) |
|
$ |
(0.00009) |
Note 11. Stockholders'
Equity
2020 Equity
Incentive Plan
The Corporation’s
2020 Equity Incentive Plan was adopted by the Board
of Directors on May 15, 2020 and approved by shareholders on June 24, 2020. The
number of shares of the Corporation’s common stock available for issuance under
the 2020 Equity Incentive Plan is 100,000,000. Under the 2020 Equity Incentive
Plan, the Corporation may grant incentive stock options, non-statutory stock
options and restricted stock to directors, officers, employees, and
consultants.
Restricted
Common Stock
The
Corporation has granted restricted common stock to its directors. Vesting of
this stock is dependent on the respective continued service at the Corporation for
a requisite service period, which is generally up to five years from the
issuance date, and the Corporation has the right to repurchase the unvested
shares upon termination of service. The fair value of the restricted common
stock issued to directors is recorded as compensation expense on a
straight-line basis over the requisite service period.
The
Corporation had 14 million and 16 million shares of unvested restricted common
stock as of September 30, 2021 and December 31, 2020, respectively. The
Corporation's restricted common stock activity was not material during the
three months ended September 30, 2021.
Note 12. Income Taxes
The Corporation’s
tax provision or benefit from income taxes for interim periods is determined
using an estimate of its annual effective tax rate, adjusted for discrete
items, if any. Each quarter, the Corporation updates its estimate of the annual
effective tax rate and makes a year-to-date adjustment to the provision.
The Corporation
recorded a benefit from income taxes of $5,202 and $17,364 for the three and nine
months ended September 30, 2021, respectively. The Corporation recorded a
benefit from income taxes of $4,301 and $9,011 for the three and nine months
ended September 30, 2020, respectively. The Corporation’s effective tax rate is
based on forecasted annual results which may fluctuate significantly through
the rest of the year.
As of September
30, 2021, the Corporation had $47,896 of deferred tax assets which could result
in a reduction of the Corporation’s effective tax rate, if recognized.
The Corporation
is subject to taxation in the United States and various states and foreign
jurisdictions. Earnings from non-U.S. activities are subject to local country income
tax. The material jurisdictions in which the Corporation is subject to potential
examination by taxing authorities include the United States and Switzerland.
The Corporation believes that adequate amounts have been provided for in these
jurisdictions.
Note 13. Commitments and
Contingencies
Credit
Facility
The Corporation has a revolving credit agreement with certain
directors and stockholders which provides for a $50,000 unsecured revolving credit
facility maturing on August 28, 2022. The Corporation is not obligated to pay
interest on loans under this credit facility or other customary fees for a
credit facility of this size and type, including an upfront fee and an unused
commitment fee. As of September 30, 2021, $19,247 had been drawn under the
credit facility compared to $14,663 on September 30, 2020.
Contractual
Obligations
The
Corporation had no contractual commitments for the three and nine months ended September
30, 2021, respectively, and for the three and nine months ended September 30,
2020, respectively.
Legal Proceedings
The
Corporation was not involved in any legal proceedings, claims, investigations,
and government inquiries and investigations for the three and nine months ended
September 30, 2021, respectively, and for the three and nine months ended September
30, 2020, respectively.
Non-Income
Taxes
The
Corporation was not subject to any non-income tax audits by domestic or foreign
tax authorities for the three and nine months ended September 30, 2021,
respectively, and for the three and nine months ended September 30, 2020,
respectively.
Note 14. Related Party
Transactions
No related
party transactions, other than the revolving credit agreement with certain
directors and stockholders disclosed in Note 13, occurred in the three and nine
months ended September 30, 2021, respectively, and in the three and nine months
ended September 30, 2020, respectively.
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
The following
discussion and analysis of our financial condition and results of operations
should be read in conjunction with the financial statements and related notes
thereto included in Item 1 “Financial Statements” in this Quarterly Report.
This discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those discussed
below. Factors that could cause or contribute to such differences include, but
are not limited to, those identified below and those discussed in the section
titled “Risk Factors” included elsewhere in this Quarterly Report.
Overview
and Highlights of Quarterly Results
The
Corporation was pre-revenue for the three and nine months ended September 30,
2021, respectively, and for the three and nine months ended September 30, 2020,
respectively.
Net loss was $26,656
and $88,355 for the three and nine months ended September 30, 2021,
respectively, compared to net loss of $21,298 and $44,624 for the three and nine
months ended September 30, 2020.
Loss from
operations was $31,189 and $103,716 for the three and nine months ended September
30, 2021, respectively, compared to loss from operations of $25,927 and $53,655
for the three and nine months ended September 30, 2020, respectively.
Cash, cash equivalents
and restricted cash totaled $839 as of September 30, 2021.
COVID-19
Update
The COVID-19
pandemic has resulted in public health responses including travel bans,
restrictions, social distancing requirements, and shelter-in-place orders,
which could negatively impact our operations and financial performance,
including our ability to raise funding.
Our business,
operations and financial performance have been, and may in the future be,
negatively impacted by the COVID-19 pandemic. Our past results may not be
indicative of our future performance, and historical trends in revenue, income
(loss) from operations, net income (loss), and net income (loss) per share may
differ materially. The risks related to the COVID-19 pandemic on our business
are further described in “Part II – Other Information, Item 1A. Risk Factors.”
Results
of Operations
The following
tables set forth our statements of operations data for each of the periods
presented:
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
|
September 30, |
|
September 30, |
||||||||
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
||||
Revenue |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
Research and Development |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
Sales and Marketing |
|
|
4,900 |
|
|
- |
|
|
13,122 |
|
|
- |
General and Administrative |
|
|
26,289 |
|
|
25,927 |
|
|
90,594 |
|
|
53,655 |
Total Costs and Expenses |
|
|
31,189 |
|
|
25,927 |
|
|
103,716 |
|
|
53,655 |
Loss from Operations |
|
|
(31,189) |
|
|
(25,927) |
|
|
(103,716) |
|
|
(53,655) |
Interest Expense |
|
|
(24) |
|
|
(1) |
|
|
(267) |
|
|
(2) |
Interest Income |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
Other (Expense) Income, Net |
|
|
(645) |
|
|
329 |
|
|
(1,736) |
|
|
22 |
Income Before Income Taxes |
|
|
(31,858) |
|
|
(25,599) |
|
|
(105,719) |
|
|
(53,635) |
Benefit from Income Taxes |
|
|
5,202 |
|
|
4,301 |
|
|
17,364 |
|
|
9,011 |
Net Loss |
|
$ |
(26,656) |
|
$ |
(21,298) |
|
$ |
(88,355) |
|
$ |
(44,624) |
Net Loss per Share Attributable to Common Stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.00005) |
|
$ |
(0.00004) |
|
$ |
(0.00017) |
|
$ |
(0.00009) |
Diluted |
|
$ |
(0.00005) |
|
$ |
(0.00004) |
|
$ |
(0.00017) |
|
$ |
(0.00009) |
Weighted-Average Shares
Used to Compute Net Loss per Share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
511,570,652 |
|
|
502,500,000 |
|
|
510,558,608 |
|
|
501,912,409 |
Diluted |
|
|
511,570,652 |
|
|
502,500,000 |
|
|
510,558,608 |
|
|
501,912,409 |
Revenue
No revenue was
generated for the three and nine months ended September 30, 2021, respectively,
and for the three and nine months ended September 30, 2020, respectively.
Cost of
Revenue
No cost of
revenue was incurred for the three and nine months ended September 30, 2021,
respectively, and for the three and nine months ended September 30, 2020,
respectively.
Research
and Development
No research
and development costs were incurred for the three and nine months ended September
30, 2021, respectively, and for the three and nine months ended September 30,
2020, respectively.
Sales
and Marketing
Sales and
marketing expenses consist primarily of personnel-related costs, including
salaries, commissions, benefits, and stock-based compensation for our employees
engaged in sales, sales support, business development and media, marketing,
corporate communications, and customer service functions. In addition,
marketing and sales-related expenses also include advertising costs, market
research, trade shows, branding, marketing, public relations costs,
amortization of acquired intangible assets, allocated facilities costs, and
other supporting overhead costs.
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||||||
|
|
September 30, |
|
September 30, |
||||||||||||
|
|
2021 |
|
2020 |
|
% Change |
|
2021 |
|
2020 |
|
% Change |
||||
Sales and Marketing |
|
$ |
4,900 |
|
$ |
- |
|
100% |
|
$ |
13,122 |
|
$ |
- |
|
100% |
Sales and Marketing as a
Percentage of Revenue |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
In the three
months ended September 30, 2021, sales and marketing expenses increased by $4,900
compared to the three months ended September 30, 2020. The increase was
attributable to a $4,900 increase in personnel-related costs mainly driven by
an increase in employee headcount.
In the nine
months ended September 30, 2021, sales and marketing expenses increased by $13,122
compared to the nine months ended September 30, 2020. The increase was attributable
to a $13,122 increase in personnel-related costs mainly driven by an increase
in employee headcount.
We continue to
evaluate key areas in our business to ensure we have an appropriate level of
sales and marketing expenses to execute on our key priorities and objectives.
We expect that sales and marketing expenses will increase in absolute U.S.
dollar amounts and vary as a percentage of revenue over time.
General
and Administrative
General and
administrative expenses consist primarily of personnel-related costs, including
salaries and benefits for our executive, administrative, finance, human
resources, legal, technology and other employees. In addition, general and administrative
expenses include fees and costs for professional services, including
third-party services and facilities costs and other supporting overhead costs
that are not allocated to other departments.
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||||||
|
|
September 30, |
|
September 30, |
||||||||||||
|
|
2021 |
|
2020 |
|
% Change |
|
2021 |
|
2020 |
|
% Change |
||||
General and Administrative |
|
$ |
26,289 |
|
$ |
25,927 |
|
1% |
|
$ |
90,594 |
|
$ |
53,655 |
|
69% |
General and Administrative
as |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
In the three
months ended September 30, 2021, general and administrative expenses increased
by $362 compared to the three months ended September 30, 2020. The increase was
attributable to a $362 mainly driven by administrative-related costs.
In the nine
months ended September 30, 2021, general and administrative expenses increased
by $36,939 compared to the nine months ended September 30, 2020. The increase
was attributable to a $36,939 mainly driven by administrative-related and personnel-related
costs.
We plan to
continue to invest in general and administrative functions to ensure we have an
appropriate level of support for our key priorities and objectives.
Interest
expense consists primarily of interest expense incurred in connection with trade
and other financing costs.
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||||||
|
|
September 30, |
|
September 30, |
||||||||||||
|
|
2021 |
|
2020 |
|
% Change |
|
2021 |
|
2020 |
|
% Change |
||||
Interest Expense |
|
$ |
(24) |
|
$ |
(1) |
|
2,300% |
|
$ |
(267) |
|
$ |
(2) |
|
13,250% |
In the three
and nine months ended September 30, 2021, interest expense increased by $23 and
$265 compared to the three and nine months ended September 30, 2020,
respectively. The increases were primarily attributable to financing-related
costs.
Interest
Income
No interest
income was generated for the three and nine months ended September 30, 2021,
respectively, and for the three and nine months ended September 30, 2020,
respectively.
Other (Expense)
Income, Net
Other (expense)
income, net, consists primarily of unrealized foreign exchange gains and losses
due to re-measurement of monetary assets and liabilities denominated in
non-functional currencies and realized foreign exchange gains and losses on
foreign exchange transactions. We expect our foreign exchange gains and losses
will vary depending upon movements in the underlying exchange rates.
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
|
September 30, |
|
September 30, |
||||||||
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
||||
Other (Expense) Income, Net |
|
$ |
(645) |
|
$ |
329 |
|
$ |
(1,736) |
|
$ |
22 |
In the three
and nine months ended September 30, 2021, other expense, net were $645 and $1,736
respectively, compared to other income, net, of $329 and $22 in the three and nine
months ended September 30, 2020, respectively. The change was primarily
attributable to movements in the underlying exchange rates.
Benefit from
Income Taxes
Our benefit from
income taxes consists of federal and state income taxes in the United States
and income taxes in certain foreign jurisdictions. Our benefit from income
taxes for interim periods has generally been determined using an estimate of
our annual effective tax rate, adjusted for discrete items, if any. Under
certain circumstances where we are unable to make a reliable estimate of the
annual effective tax rate, the accounting guidance permits the use of the
actual effective tax rate for the year-to-date period. In the three and nine
months ended September 30, 2021, we used this approach because we were unable
to reasonably estimate our annual effective tax rate due to the variability of
the rate as a result of fluctuations in forecasted
income and the effects of being taxed in multiple tax jurisdictions.
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
|
September 30, |
|
September 30, |
||||||||
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
||||
Benefit from Income Taxes |
|
$ |
5,202 |
|
$ |
4,301 |
|
$ |
|
$ |
9,011 |
|
We recorded a benefit
from income taxes of $5,202 and $17,364 for the three and nine months ended September
30, 2021, respectively. We recorded a benefit from income taxes of $4,301 and $9,011
for the three and nine months ended September 30, 2020, respectively.
Our effective
tax rate could be affected by our jurisdictional mix of income (loss) before
taxes, including our allocation of centrally incurred costs to foreign jurisdictions,
changes in tax rates and tax regulations, the impact of tax examinations, the
impact of business combinations, changes in our corporate structure, changes in
the geographic location of business functions or assets, tax effects of
stock-based compensation, and changes in management's assessment of the ability
to realize deferred tax assets. In addition, the provision is impacted by
deferred income taxes reflecting the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Liquidity
and Capital Resources
|
|
|
|
|
|
|
|
Nine Months Ended |
||||
|
|
|
|
|
|
|
|
September 30, |
||||
|
|
|
|
|
|
|
|
2021 |
|
2020 |
||
Net Loss |
|
|
|
|
|
|
|
$ |
(88,355) |
|
$ |
(44,624) |
Net Cash Used in Operating
Activities |
|
|
|
|
|
|
|
$ |
(30,856) |
|
$ |
(19,761) |
Net Cash Used in Investing Activities |
|
|
|
|
|
|
|
$ |
- |
|
$ |
(1,715) |
Net Cash Provided by
Financing Activities |
|
|
|
|
|
|
|
$ |
28,305 |
|
$ |
21,783 |
Our principal
sources of liquidity are our cash, cash equivalents, and revolving credit
facility.
As of September
30, 2021, we had $582 of cash and cash equivalents, of which $226 was held by
our foreign branch. We believe that our existing cash and cash equivalents, and
our credit facility will be sufficient to meet our working capital and capital
expenditure requirements for at least the next 12 months.
Credit
Facility
We have a
revolving credit agreement with certain directors and stockholders which
provides for a $50,000 revolving unsecured credit facility maturing on August 28,
2022. We are not obligated to pay interest on loans under the credit facility or
other customary fees for a credit facility of this size and type, including an
upfront fee and an unused commitment fee. As of September 30, 2021, $19,247 had
been drawn under the credit facility.
Operating
Activities
Cash used by
operating activities consists of net loss adjusted for certain non-cash items
including depreciation and amortization, deferred income taxes, as well as the
effect of changes in working capital and other activities. We expect that cash
provided by operating activities will fluctuate in future periods as a result of a number of factors, including increases in
operating expenses. For additional discussion, see “Part II – Other
Information, Item 1A. Risk Factors.”
Cash used by
operating activities in the nine months ended September 30, 2021, was $30,856,
an increase in cash outflow of $11,095 compared to the nine months ended September
30, 2020. Cash used by operating activities was driven by net loss of $88,355,
as adjusted for the exclusion of non-cash expenses and other adjustments
totaling $57,499, of which $199 was related to depreciation and amortization
expense, and $57,300 was related to the effect of changes in working capital
and other carrying balances.
Cash used by
operating activities in the nine months ended September 30, 2020, was $19,761.
Cash used by operating activities was driven by net loss of $44,624, as
adjusted for the exclusion of non-cash expenses and other adjustments totaling
$24,863.
Investing
Activities
Our primary
investing activities consist of purchases of property and equipment,
particularly computer and related equipment.
Cash used by
investing activities in the nine months ended September 30, 2021, was $0, a decrease
in cash outflow of $1,715 compared to the nine months ended September 30, 2020.
The decrease was primarily due to no additions to property and equipment in the
nine months ended September 30, 2021.
Financing
Activities
Our primary
financing activities consist of issuances of securities, including common stock
issued under our employee stock purchase plan and loans from directors and
stockholders.
Cash provided
by financing activities in the nine months ended September 30, 2021 was $28,305,
a increase of $6,522 compared
to the nine months ended September 30, 2020. The increase was primarily due to
a $22,500 increase in proceeds from the issuance of shares of stock, and $5,805
in proceeds from debt.
Contractual
Obligations
Refer to Note
13 – Commitments and Contingencies for details.
Off
Balance Sheet Arrangements
We do not have
any off-balance sheet arrangements and did not have any such arrangements as of
September 30, 2021.
Critical
Accounting Policies and Estimates
We prepare our
financial statements and related notes in accordance with U.S. GAAP. In doing
so, we make estimates and assumptions that affect our reported amounts of
assets, liabilities, revenue, and expenses, as well as related disclosure of
contingent assets and liabilities. To the extent that there are material
differences between these estimates and actual results, our financial condition
or operating results would be affected. We base our estimates on past experience and other assumptions that we believe are
reasonable under the circumstances, and we evaluate these estimates on an ongoing
basis. We refer to accounting estimates of this type as critical accounting
policies and estimates. Please refer to our Financial Statements for the fiscal
year ended December 31, 2020 for a more complete discussion of our critical
accounting policies and estimates.
There have
been no material changes to our critical accounting policies and estimates as
compared to the critical accounting policies and estimates described in our Financial
Statements for the fiscal year ended December 31, 2020.
Recent Accounting
Pronouncements
For
information with respect to recent accounting pronouncements and the impact of
these pronouncements on our financial statements, see Note 1 – “Description of
Business and Summary of Significant Accounting Policies” in the notes to the
financial statements included in Part I of this Quarterly Report.
Item 3. Quantitative and
Qualitative Disclosures about Market Risk
We have
operations both within the United States and Switzerland, and
are exposed to market risks in the ordinary course of our business. These risks
include primarily foreign exchange risks.
Foreign
Currency Exchange Risk
Transaction
Exposure
We transact
business in foreign currencies, as well as costs denominated in foreign
currencies, primarily the Swiss Franc. This exposes us to the risk of
fluctuations in foreign currency exchange rates. Accordingly, changes in exchange
rates, and in particular a continuing strengthening of the Swiss Franc, would
negatively affect our operating expenses as expressed in U.S. dollars.
We have
experienced, and will continue to experience, fluctuations in our net loss as a result of transaction gains or losses related to revaluing
and ultimately settling certain asset and liability balances that are
denominated in currencies other than the functional currency of the entities in
which they are recorded. Foreign currency gains and losses were immaterial for
the three and nine months ended September 30, 2021 and 2020.
Translation
Exposure
We are also
exposed to foreign exchange rate fluctuations as we translate the financial
statements of our foreign branch into U.S. dollars. If there is a change in
foreign currency exchange rates, the translating adjustments resulting from the
conversion of our foreign branch’s financial statements into U.S. dollars would
result in a gain or loss recorded as a component of accumulated other
comprehensive income (loss) which is part of stockholders’ equity.
Item 4. Controls and
Procedures
Evaluation
of Disclosure Controls and Procedures
Our
management, with the participation of our Chief Executive Officer and Audit
Committee, have evaluated the effectiveness of our disclosure controls and procedures
as of the end of the period covered by this Quarterly Report. The term
“disclosure controls and procedures,” as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), means controls and other procedures of a company that are designed to
ensure that information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities
and Exchange Commission’s rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by a company in the reports that it files
or submits under the Exchange Act is accumulated and communicated to the
company’s management, including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure. Management recognizes that any
controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving their objectives and management
necessarily applies its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. The design of disclosure controls and
procedures and internal control over financial reporting must reflect the fact
that there are resource constraints, and that management is required to apply judgment
in evaluating the benefits of possible controls and procedures relative to
their costs. Based on such evaluation, our Chief Executive Officer and Audit
Committee have concluded that, as of September 30, 2021, our disclosure
controls and procedures were designed at a reasonable assurance level and were
effective to provide reasonable assurance.
Changes
in Internal Control over Financial Reporting
There was no
change in our internal control over financial reporting identified in connection
with the evaluation required by Rule 13a-15(d) or 15d-15(d) of the Exchange Act
that occurred during the period covered by this Quarterly Report that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
PART
II – OTHER INFORMATION
Item 1. Legal Proceedings
We may in the
future be involved in legal proceedings, claims, investigations, and government
inquiries and investigations arising in the ordinary course of business. These
proceedings, which may include both individual and class action litigation and
administrative proceedings, may include, but are not limited to matters
involving content on our platforms, intellectual property, privacy, data
protection, securities, employment, and contractual rights. Legal risk may be
enhanced in jurisdictions outside the United States where our protection from
liability for content published on our platforms by third parties may be
unclear and where we may be less protected under local laws than we are in the
United States. Future litigation may be necessary, among other things, to
defend ourselves, and the users on our platforms or to establish our rights. Refer
to “Legal Proceedings” in Note 13 of the accompanying notes to our financial
statements, which is incorporated herein by reference.
Although the
results of the legal proceedings, claims, investigations, and government
inquiries and investigations in which we may be involved cannot be predicted
with certainty, and until there is final resolution on any such matter that we
may be required to accrue for, we may be exposed to loss in
excess of the amount accrued. Regardless of the outcome, litigation can
have an adverse impact on us because of defense and settlement costs, diversion
of management resources, and other factors.
Item 1A. Risk Factors
Investing in
our shares of common stock involves a high degree of risk. You should carefully
consider the risks and uncertainties described below, together with all of the other information in this Annual Report,
including the section titled “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our financial statements and related
notes, before making a decision to invest in our common stock. The risks and
uncertainties described below may not be the only ones we face. If any of the
risks occurs, our business, financial condition, operating results, cash flows
and prospects could be materially and adversely affected. In that event, the
perceived value of our common stock could decline, and you could lose part or all of your investment.
Risk Factor
Summary
Our business
operations are subject to numerous risks and uncertainties, including those
outside of our control, that could cause our business, financial condition, or
operating results to be harmed, including risks regarding the following:
Business
and Operational Factors
·
the impact of the COVID-19 pandemic and responsive measures;
·
failure to attract, retain and increase customers and content partners;
·
competition in our industry;
·
our prioritization of the long-term health of our service and product innovation;
·
our ability to establish, maintain and promote our products and brands;
·
our ability to attract new users or generate revenue with new products,
product features, services and initiatives and changes to existing products,
services and initiatives;
·
our ability to hire, retain and motivate highly skilled personnel;
·
the interoperability of our products and services across third-party
services and systems;
·
actual or perceived security breaches, as well as errors,
vulnerabilities or defects in our software and in products of third-party providers;
·
our international operations;
·
our past operating losses and any inability to maintain profitability or
accurately predict fluctuations in the future;
·
our reliance on assumptions and estimates to calculate certain key metrics;
·
catastrophic events and interruptions by man-made problems;
Intellectual
Property and Technology
·
our ability to scale our existing technology and infrastructure;
·
our failure to protect our intellectual property rights;
·
our use of open-source software;
·
future litigation related to intellectual property rights;
Regulatory
and Legal
·
complex and evolving United States (“US”) and foreign laws and regulations;
·
regulatory investigations and adverse settlements;
·
lawsuits or liability as a result of content published through our
products and services;
·
our ability to maintain an effective system of disclosure controls and
internal control over financial reporting;
Financial
and Transactional Risks
·
our ability to make and successfully integrate acquisitions and
investments or complete divestitures;
·
our debt obligations;
·
our tax liabilities;
·
our ability to use our net operating loss carryforwards;
·
the impairment of our goodwill or intangible assets;
Governance
Risks and Risks Related to Ownership of our Capital Stock
·
provisions of Delaware law and our certificate of incorporation and
bylaws could impair a takeover attempt if deemed undesirable by our board of directors;
·
the perceived value of our common stock;
·
failure to return capital to our stockholders; and
·
securities or industry analysts’ recommendations regarding our common
stock.
Business
and Operational Factors
The
COVID-19 Pandemic
The COVID-19
pandemic has disrupted and harmed, and is expected to continue to disrupt and
harm, our business, financial condition and operating
results. We are unable to predict the extent to which the pandemic and related
impacts will continue to adversely impact our business, financial condition and
operating results and the achievement of our strategic objectives.
Our business,
operations and financial performance have been negatively impacted by the
COVID-19 pandemic and related public health responses, such as travel bans,
restrictions, social distancing requirements and shelter-in-place orders. The
pandemic and these related responses have caused, and are expected to continue
to cause, global slowdown of economic activity (including the decrease in
demand for a broad variety of goods and services) and significant volatility
and disruption of financial markets.
The COVID-19
pandemic has subjected our operations, financial performance, and financial
condition to a number of risks, including, but not
limited to, those discussed below:
·
Declines in user demand due to changes or uncertainty in the business
operations and revenue of prospective users because of the COVID-19 pandemic,
including as a result of travel restrictions,
shelter-in-place orders and social distancing requirements impacting
businesses, and general economic uncertainty causing businesses to cut or
otherwise reduce costs, have resulted in, and we believe may continue to result
in, decreased demand for existing and new products and services.
·
The responsive measures to the COVID-19 pandemic may cause us to modify
our business practices by having employees work remotely, canceling all
non-essential employee travel, and cancelling, postponing, or holding events
and meetings virtually.
We may in the future also be required to, or choose voluntarily to, take
additional actions for the health and safety of our workforce, whether in
response to government orders or based on our own determinations of what is in
the best interests of our employees. While most of our operations can be
performed remotely, there is no guarantee that we will be as effective while
working remotely because our team is dispersed, many employees may have
additional personal needs to attend to (such as looking after children as a result of school closures or family who become sick),
and employees may become sick themselves and be unable to work. To the extent
our current or future measures result in decreased productivity, harm our
corporate culture, or otherwise negatively affect our business, our financial
condition and operating results could be adversely affected.
The severity,
magnitude and duration of the COVID-19 pandemic, the public health responses
and its economic consequences are uncertain, rapidly changing, and difficult to
predict, the pandemic’s impact on our operations and financial performance, as
well as its impact on our ability to successfully execute our business
strategies and initiatives, remains uncertain and difficult to predict.
Further, the ultimate impact of the COVID-19 pandemic on our customers,
employees, and on our business, operations and financial performance, depends
on many factors that are not within our control, including, but not limited, to
governmental, business and individuals’ actions that have been and continue to
be taken in response to the pandemic (including restrictions on travel and
transport, prohibitions on, or voluntary cancellation of, large gatherings of
people and social distancing requirements, and modified workplace activities);
the impact of the pandemic and actions taken in response local or regional
economies, travel, and economic activity; the availability of government
funding programs; general economic uncertainty in key markets and financial
market volatility, including the liquidity of marketable securities in which we
may invest from time to time; volatility in our stock value, global economic
conditions and levels of economic growth; and the pace of recovery when the
COVID-19 pandemic subsides.
If we
fail to attract and increase customers and content partners (“users”), our
revenue, business and operating results may be harmed.
Our users and
their level of engagement are critical to our success, and our long-term
financial performance will be significantly determined by our success in
increasing the growth rate of our customer base. Our customer growth rate may
fluctuate over time, and it may slow or decline. We will generate a substantial
majority of our revenue based upon subscriptions. A number of
factors may affect and could potentially negatively affect customer growth,
including if:
·
we are unable to convince users of the value and usefulness of our products
and services;
·
there is a decrease in the perceived quality, usefulness,
trustworthiness or relevance of the content generated by users;
·
there are concerns related to communication, privacy, data protection,
safety, security, spam, manipulation or other hostile or inappropriate usage or
other factors;
·
our users terminate their relationships with us or do not renew their
subscriptions or agreements on economic or other terms that are favorable to us;
·
we fail to introduce new and improved products or services or if we
introduce new or improved products or services that are not favorably received
or that negatively affect user engagement;
·
technical or other problems prevent us from delivering our products or
services in a rapid and reliable manner or otherwise affect users’ experiences
on our products or with our services;
·
users have difficulty installing, updating, or otherwise accessing our
products or services on mobile and other devices as a result of actions by us
or third parties that we rely on to distribute our products and deliver our services;
·
changes in our products or services that are mandated by, or that we
elect to make or to address, laws (such as the General Data Protection
Regulations (GDPR)) or legislation, inquiries from legislative bodies,
regulatory authorities or litigation (including settlements or consent decrees)
adversely affect our products or services;
·
we fail to provide adequate customer service; or
·
we do not maintain our brand image or reputation.
If we are
unable to increase our user base or engagement, or if these metrics decline,
our products and services could be less attractive to users, which would have a
material and adverse impact on our business, financial condition, and operating
results.
If we
are unable to compete effectively, our business and operating results could be
harmed.
We may face
intense competition for users to use our products and services. We may compete
for users against a variety of social content and networking platforms,
messaging companies, media companies and other companies, some of which have
greater financial resources, larger audiences or more established relationships
and reputations. New or existing competitors may draw users towards their
products or services and away from ours by introducing new products or product
features, including products or product features similar to
those we offer, investing their greater resources in customer acquisition
efforts, or otherwise developing products or services that users choose to
engage with rather than ours, any of which could decrease customer acquisition
and growth, and negatively affect our business.
We may also
compete with respect to content generated by our users. We may not establish
and maintain relationships with users, or our users may choose to publish
content on other platforms, and if they cease to utilize our platforms or
decrease their use of our platforms, then our customer base and subscription
revenue may decline.
We believe
that our ability to compete effectively for users depends upon many factors
both within and beyond our control, including:
·
the popularity, usefulness, ease of use, performance and reliability of
our products and services compared to those of our competitors, as well as our
reputation and brands, and our ability to adapt to continuously evolving
preferences and expectations of users;
·
the volume, quality and timeliness of content generated on our platforms;
·
the timing and market acceptance of our products and services;
·
the prominence of our applications in application marketplaces and of
our content in search engine results, as well as those of our competitors;
·
our ability, in and of itself, and in comparison to
the ability of our competitors, to develop new products and services and
enhancements to existing products and services, and to maintain the reliability
and security of our products and services as usage increases globally;
·
our ability, and our ability in comparison to the ability of our
competitors, to manage our business and operations during the COVID-19 pandemic
and related governmental, business and individual actions that have been and
continue to be taken in response to the pandemic (including restrictions on
travel and modified workplace activities);
·
changes mandated by, or that we elect to make to address legislation,
regulatory authorities or litigation, including
settlements, antitrust matters, consent decrees and privacy regulations, some
of which may have a disproportionate effect on us compared to our competitors;
and
·
the adoption and monetization of our products and services in the US and internationally.
Additionally, in recent years, there have been significant acquisitions
and consolidation by and among our actual and potential competitors. We
anticipate this trend of consolidation will continue, which will present
heightened competitive challenges for our business. Acquisitions by our
competitors may result in reduced functionality of our products and services.
If we are not able to compete effectively for users, our business and
operating results would be materially and adversely impacted.
Our
prioritization of the long-term health of our products and services, and on product innovation, may adversely impact our short-term
operating results.
We believe
that our long-term success depends on our ability to attract, maintain and improve the content offered on our platforms.
We have made this one of our top priorities and will focus our efforts on the
quality of such content, including by devoting substantial internal resources
to our strategy.
We may make
active decisions to prioritize long-term initiatives over near-term product
innovations and improvements that may affect our short-term health. These
decisions may not be consistent with the short-term expectations of our users
or investors and may not produce the long-term benefits that we anticipate, in
which case our customer base and our relationships with users,
and our business and operating results, could be harmed.
We encourage
our employees to swiftly develop and launch new and innovative products,
product features and services. We focus on improving the experience for users
using our products and services, which includes protecting their privacy, and
developing new and improved products and services for users on our platforms.
We prioritize innovation and the experience for users on
our platforms over short-term operating results. We may frequently make
product, product feature and service decisions that could reduce our short-term
operating results if we believe that the decisions are consistent with our
goals to improve the experience for users, which we believe will improve our
operating results over the long term. Our decisions to invest in the long-term
health of our services and on product innovation rather than short-term results
may not produce the long-term benefits that we expect, in which case our
customer base and our relationships with users, and our business and operating
results, could be adversely impacted and may not be consistent with the
expectations of investors, which could have a negative effect on the perceived
value of our common stock.
If we
are unable to establish, maintain and promote our brands, our business and
operating results may be harmed.
We believe
that promoting and growing our brands is critical to increasing users.
Maintaining and promoting our brands will depend largely on our ability to
continue to provide timely, useful, reliable and
innovative products and services with a focus on a positive experience on our
platforms, which we may not do successfully. We may introduce new products,
features, services, or terms of service that users do not like, which may
negatively affect our brands. Additionally, the actions of users may affect our
brands if users do not have a positive experience using our platforms’ content.
We may also experience media, legislative or regulatory scrutiny of our
decisions regarding privacy, data protection, security, content
and other issues, which may adversely affect our reputation and brands. Our
brands may also be negatively affected by third parties obtaining control over
users’ accounts or by other security or cybersecurity incidents. Maintaining
and enhancing our brands could require us to make substantial investments which
may not achieve the desired goals.
Additionally,
we and our executive leadership may receive unavoidable media coverage.
Negative publicity about our Corporation or executives, including the quality
and reliability of our products or content provided on our platforms, changes
to our products, policies and services, our privacy, data protection, policy
enforcement and security practices (including actions taken or not taken with
respect to certain content or reports regarding government surveillance),
litigation, regulatory activity, the actions of certain users (including
actions taken by users on our platforms or the dissemination of information
that may be viewed as undesirable, misleading or manipulative), even if
inaccurate, could adversely affect our reputation. Such negative publicity and
reputational harm could adversely affect users and their confidence in, and
loyalty to, our platforms and result in decreased revenue or increased costs to
restore our brands, which would adversely impact our business, financial condition and operating results.
Our new
products, product features, services and initiatives and changes to existing
products, services and initiatives could fail to attract new users or generate
revenue.
Our industry
is subject to rapid and frequent changes in technology, evolving user demands
and the frequent introduction by our competitors of new and enhanced offerings.
We must constantly assess the environment in which we operate and determine
whether we need to improve or re-allocate resources amongst our existing
products and services or create new ones (independently or in conjunction with
third parties). Our ability to attract users and increase our user base and
generate revenue will depend on those decisions. We may introduce significant
changes to our existing products and services or develop and introduce new and
unproven products and services, including technologies with which we have
little or no prior development or operating experience. If new or enhanced products,
product features or services fail to engage users, we may not attract or retain
users, or generate sufficient revenue or operating profit to justify our
investments, resulting in our business, financial condition and operating
results being adversely impacted.
We
depend on highly skilled personnel to operate and grow our business. If we are
unable to hire, retain and motivate our personnel, we may not be able to grow
effectively.
Our future
success and strategy will depend upon our continued ability to identify, hire,
develop, motivate and retain highly skilled personnel,
including senior management, engineers, designers, product managers and
marketers. We depend on contributions from our employees and,
in particular, our senior management team, to execute efficiently and
effectively. We have employment agreements with all members of our senior
management and other employees. We do not maintain key person life insurance
for any employee. We also face significant competition for employees in Zurich,
Switzerland (where our headquarters are located) for engineers, designers,
product managers and marketers from other technology startups and high-growth
companies, which include both publicly traded and privately held companies. As
a result, we may not be able to retain our existing employees or hire new
employees fast enough to meet our needs.
From time to
time, we may experience high voluntary erosion, and in those times the
resulting influx of new leaders and other employees will require us to expend
time, attention and resources to recruit and retain
talent, restructure parts of our organization and train and integrate new
employees. In addition, to attract and retain skilled personnel, we have to
offer, and believe we will need to continue to offer, highly-competitive
compensation packages. We may need to invest significant amounts of cash and
equity to attract and retain new employees and we may not realize sufficient
return on these investments. In addition, changes to immigration and work
authorization laws and regulations can be significantly affected by political
forces and levels of economic activity. Our business may be materially
adversely affected if legislative or administrative changes to immigration or
visa laws and regulations impair our hiring processes or projects involving
personnel who are not citizens of the country where the work is to be
performed. If we are not able to effectively attract and retain employees, we
may not be able to innovate or execute quickly on our strategy and our ability
to achieve our strategic objectives will be adversely impacted, and our
business will be harmed.
As a result of
the COVID-19 pandemic, we will slow headcount growth and focus on critical
roles while we continue to assess economic conditions.
We also believe
that our culture and core values will be a key contributor to our success and
our ability to foster the innovation, creativity, and teamwork we believe necessary
to support and grow our operations. If we fail to effectively manage our hiring
needs and successfully integrate our new hires, our efficiency and ability to
meet our forecasts, our culture, employee morale, productivity and retention
could suffer, and our business and operating results would be adversely
impacted.
Our
products, services, and customer retention and growth depend upon the
availability of a variety of third-party services and systems and the effective
interoperation with operating systems, networks, devices, web browsers and
standards. We do not control all of these systems and
cannot guarantee their availability, and we cannot guarantee that third parties
will not take actions that harm our products or profitability.
Our products
and the success of our business is dependent upon the ability of people to
access the Internet and the proper functioning of the various operating
systems, platforms and services upon which we rely.
These systems are provided and controlled by factors outside of our control,
including nation-state actors who may suppress or censor our products, and
broadband and Internet access marketplace, including incumbent telephone
companies, cable companies, mobile communications companies, government-owned
service providers, device manufacturers and operating system providers. Any of
these actors could take actions that degrade, disrupt, or increase the cost of
access to our products or services, which would in turn, negatively impact our
business. The adoption or repeal of any laws or regulations that adversely
affect the growth, popularity or use of the Internet, including laws or
practices limiting Internet neutrality, could decrease the demand for, or the
usage of, our products and services, increase our cost of doing business and
adversely affect our operating results. For example, access to our products and
services may be blocked in certain countries.
We also rely
on other service providers to maintain reliable network systems that provide
adequate speed, data capacity and security. We utilize third-party cloud
computing services in connection with certain aspects of our business and
operations, and any disruption of, or interference with, our use of such cloud
services could adversely impact our business and operations. As the Internet
continues to experience growth in the number of consumers, frequency of use and
amount of data transmitted, the Internet infrastructure that we rely on may be
unable to support the demands placed upon it. The failure of the Internet infrastructure
that we rely on, even for a short period of time, could undermine our
operations and harm our operating results.
Furthermore,
these systems, devices or software or services may experience changes, bugs, or
technical issues that may affect the availability of services or the
accessibility of our products. We may experience service disruptions, outages,
and other performance problems due to a variety of factors, including
infrastructure changes, human or software errors, hardware failure, capacity
constraints due to an overwhelming number of users accessing our products and
services simultaneously, computer viruses and denial of service or fraud or
security attacks. We may experience brief service outages as a result, in part,
of software misconfigurations. Additionally, although we may invest
significantly to improve the capacity, capability, and reliability of our
infrastructure, we may not serve traffic equally through co-located data
centers that support our products and services. Accordingly, in the event of a
significant issue at a data center supporting our network traffic, some of our
products and services may become inaccessible to our users or our users may
experience difficulties accessing our products and services. Any disruption or
failure in our infrastructure could hinder our ability to handle existing or
increased traffic on our platforms, which could significantly harm our
business.
The
availability of these services is also dependent upon our relationships with
third parties, which may change, including if they change their terms of
service or policies that diminish the functionality of our products and
services, make it difficult for users to access our products and services,
impose fees related to our products or services or give preferential treatment
to competitive products or services, could adversely affect usage of our
products and services. Additionally, some mobile carriers may experience
infrastructure issues due to natural disasters, which may cause deliverability
errors or poor-quality communications with our products. Because most users may
access our products and services through mobile devices, we are particularly
dependent on the interoperability of our products and services with mobile
devices and operating systems in order to deliver our
products and services. We also may not be successful in developing
relationships with key participants in the mobile industry or in developing
products or services that operate effectively with these operating systems,
networks, devices, web browsers and standards. Furthermore, if the number of
platforms for which we develop our product expands, it will result in an
increase in our operating expenses. In order to
deliver high quality products and services, it is important that our products
and services work well with a range of operating systems, networks, devices,
web browsers and standards that we do not control. Any such errors, regardless
of whether caused by our infrastructure or that of the service provider, may
result in the loss of our users or may make it difficult to attract new users
to our platforms. In the event that it is difficult
for users to access and use our products and services, particularly on their
mobile devices, our customer growth could be harmed, and our business and
operating results could be adversely impacted.
Our
products may contain errors, or our security measures may be breached,
resulting in the exposure of private information. Our products and services may
be subject to attacks that degrade or deny the ability of users to access our
products and services. These issues may result in the perception that our
products and services are not secure, and users may curtail or stop using our
products and services and our business and operating results could be harmed.
Our products
and services involve the storage and transmission of users’ information;
security incidents, including those caused by unintentional errors and those
intentionally caused by third parties, may expose us to a risk of loss of this
information, litigation, increased security costs and potential liability. We
and our third-party service providers may experience cyber-attacks of varying
degrees on a regular basis. We expect to incur significant costs in an effort
to detect and prevent security breaches and other security-related incidents,
and we may face increased costs in the event of an actual or perceived security
breach or other security-related incident. If an
actual or perceived breach of our security occurs, the market perception of the
effectiveness of our security measures could be harmed, our users may be
harmed, lose trust and confidence in us, decrease the use of our products and
services, or stop using our products and services in their entirety. We may
also incur significant legal and financial exposure, including legal claims,
higher transaction fees and regulatory fines and penalties. Any of these
actions could have a material and adverse effect on our business, reputation,
and operating results. While our insurance policies may include liability
coverage for certain of these matters, if we experienced a significant security
incident, we could be subject to liability or other damages that exceed our
insurance coverage.
Our products
and services incorporate complex software, and we encourage employees to
quickly develop and help us launch new and innovative features. Our software,
including any open-source software that is incorporated into our code, may now
or in the future, contain errors, bugs, or vulnerabilities that may only be
discovered after the product or service has been released. Errors,
vulnerabilities, or other design defects within the software on which we rely
may result in a negative experience for users who use our products, delay
product introductions or enhancements, result in targeting, measurement, or
billing errors, compromise our ability to protect the data of our users and our
intellectual property, or lead to reductions in our ability to provide some or all of our services. Any errors, bugs or vulnerabilities
discovered in our code after release could result in damage to our reputation,
loss of users and revenue, or liability for damages or other relief sought in
lawsuits, regulatory inquiries, or other proceedings, any of which could
adversely impact our business and operating results.
Our products
operate in conjunction with, and we are dependent upon, third-party products
and components across a broad ecosystem. If there is a security vulnerability,
error, or other bug in one of these third-party products or components, and if
there is a security exploit targeting them, we could face increased costs,
liability claims, reduced revenue, or harm to our reputation or competitive
position. The natural sunsetting of third-party products and operating systems
that we use requires that our infrastructure teams reallocate time and
attention to migration and updates, during which period potential security
vulnerabilities could be exploited. We may also work with third-party vendors
to process credit card payments by our users and are subject to payment card
association operating rules.
Unauthorized
parties may also gain access to passwords without attacking our platforms
directly and, instead, access users’ accounts by using credential information
from other recent breaches, using malware on victim devices that are stealing
passwords for all sites, or a combination of both. In addition, some of our
developers or other partners, such as third-party applications to which people
have given permission to access on their behalf, may receive or store
information provided by us or by users on our platforms through mobile or web
applications integrated with us. If these third parties or developers fail to
adopt or adhere to adequate data security practices, or in the event of a
breach of their networks, our data, or data of users on our platforms may be
improperly accessed, used, or disclosed. Unauthorized parties may in the future
obtain access to our data and data of users on our platforms. Any systems
failure or actual or perceived compromise of our security that results in the
unauthorized access to or release of data of users on our platforms, such as
credit card data, could significantly limit the adoption of our products and
services, as well as harm our reputation and brands and, therefore, our
business.
Our security measures may
also be breached due to employee error, malfeasance or otherwise. Additionally,
outside parties may attempt to fraudulently induce employees or users to
disclose sensitive information in order to gain access to our data or data of
users on our platforms, or may otherwise obtain access
to such data or accounts. Since users may use our platforms to establish and
maintain online identities, unauthorized communications from our users’
accounts that have been compromised may damage their personal security, reputations and brand, as well as our reputation and brands.
Because the techniques used to obtain unauthorized access, disable, or degrade
service or sabotage systems change frequently and often are not recognized
until launched against a target, we may be unable to anticipate these
techniques or to implement adequate preventative measures.
Our
international operations may be subject to increased challenges and risks.
We may
establish offices around the world and our products and services may be
available in multiple languages. However, our ability to manage our business,
monetize our products and services and conduct our operations internationally
requires considerable management attention and resources and is subject to the particular challenges of supporting a business in an
environment of multiple languages, cultures, customs, legal and regulatory
systems, alternative dispute systems and commercial markets. Our international
operations may require and may continue to require us to invest significant
funds and other resources. Operating internationally may subject us to new
risks and may increase risks that we currently face, including risks associated
with:
·
recruiting and retaining talented and capable employees in foreign
countries and maintaining our corporate culture across all of our offices;
·
providing our products and services and operating across a significant
distance, in different languages and among different cultures, including the
potential need to modify our products, services, content and features to ensure
that they are culturally relevant in different countries;
·
competition from regional platforms, mobile applications and services
that provide content and have strong positions in particular countries, which
have expanded and may continue to expand their geographic footprint;
·
differing and potentially lower levels of user growth and engagement in
new and emerging geographies;
·
regional activities, regional economic effects of the COVID-19 pandemic
and political upheaval;
·
greater difficulty in monetizing our products and services, including
costs to adapt our products and services in light of the manner in which users
access our platforms in such jurisdictions, such as the use of feature phones
in certain emerging markets, and challenges related to different levels of
Internet access or mobile device adoption in different jurisdictions;
·
compliance with applicable foreign laws and regulations, including laws
and regulations with respect to privacy, data protection, data localization,
data security, taxation, consumer protection, copyright, spam and content, and
the risk of penalties to users of our products and services and individual
members of management if our practices are deemed to be out of compliance;
·
actions by governments or others to restrict access to our platforms,
whether these actions are taken for political reasons, in response to decisions
we make regarding governmental requests or content generated by users on our
platforms, or otherwise;
·
longer payment cycles in some countries;
·
credit risk and higher levels of payment fraud;
·
operating in jurisdictions that do not protect intellectual property
rights to the same extent as the US;
·
compliance with anti-bribery laws including, without limitation,
compliance with the Foreign Corrupt Practices Act and the United Kingdom (“UK”)
Bribery Act, including by our business partners;
·
currency exchange rate fluctuations, as we conduct business in
currencies other than U.S. dollars but report our operating results in U.S.
dollars and any foreign currency forward contracts into which we enter may not
mitigate the impact of exchange rate fluctuations;
·
foreign exchange controls that might require significant lead time in
setting up operations in certain geographic territories and might prevent us
from repatriating cash earned outside of the US;
·
political and economic instability in some countries;
·
double taxation of our international earnings and potentially adverse
tax consequences due to changes in the tax laws of the US or the foreign
jurisdictions in which we operate; and
·
higher costs of doing business internationally, including increased
accounting, travel, infrastructure, and legal compliance costs.
If our revenue from our international operations,
and particularly from our operations in the countries and regions where we have
focused our spending, does not exceed the expense of establishing and
maintaining these operations, our business and operating results will suffer.
In addition, users may grow more rapidly than revenue in international regions
where the monetization of our products and services is not as developed. Our
inability to successfully expand our business, manage the complexity of our
global operations, or monetize our products and services internationally, could
adversely impact our business, financial condition and
operating results.
We may
incur significant operating losses, or we may not be able to maintain
profitability or accurately predict fluctuations in our operating results from
quarter to quarter.
Our annual
operating results may fluctuate and as a result, our past annual operating
results may not necessarily be indicators of future performance. Our operating
results in any given quarter can be influenced by numerous factors, many of
which we are unable to predict or are outside of our control, including:
·
our ability to attract and retain users;
·
the occurrence of unplanned significant events, such as natural
disasters and political revolutions, as well as seasonality which may differ
from our expectations;
·
the impacts of the COVID-19 pandemic, and governmental and business
actions in response thereto, on the global economy;
·
the pricing of our products and services, and our ability to maintain or
improve revenue and margins;
·
the development and introduction of new products or services, changes in
features of existing products or services or de-emphasis or termination of
existing products, product features or services;
·
the actions of our competitors;
·
increases in research and development, sales and marketing, and other
operating expenses that we may incur to grow and expand our operations and to
remain competitive, including stock-based compensation expense and costs
related to our technology infrastructure;
·
costs related to the acquisition of businesses, talent, technologies or
intellectual property, including potentially significant amortization costs;
·
system failures resulting in the inaccessibility of our products and services;
·
actual or perceived breaches of security or privacy, and the costs
associated with remediating any such breaches;
·
adverse litigation judgments, settlements or other litigation-related
costs, and the fees associated with investigating and defending claims;
·
changes in the legislative or regulatory environment, including with
respect to security, tax, privacy, data protection or content, or enforcement
by government regulators, including fines, orders or consent decrees;
·
changes in reserves or other non-cash credits or charges, such as releases
of deferred tax assets valuation allowance, impairment charges or purchase
accounting adjustments;
·
changes in our expected estimated useful life of property and equipment
and intangible assets;
·
fluctuations in currency exchange rates and changes in the proportion of
our revenue and expenses denominated in foreign currencies;
·
changes in US generally-accepted accounting
principles; and
·
changes in global or regional business or macroeconomic conditions.
Given the rapidly evolving markets in which we compete,
our historical operating results may not be useful to you in predicting our
future operating results. Additionally, certain new revenue products or product
features may carry higher costs relative to our other products, which may
decrease our margins, and we may incur increased costs to scale our operations
if users and engagement on our platforms increase. If we are unable to generate
adequate revenue growth and to manage our expenses, we may incur significant
losses in future periods and may not be able to achieve profitability.
We rely
on assumptions and estimates to calculate certain of our key metrics, and real
or perceived inaccuracies in such metrics may harm our reputation and
negatively affect our business.
We may
calculate our number of users using internal company
data that has not been independently verified. While these numbers may be based
on what we believe to be reasonable calculations for the applicable period of
measurement, there are inherent challenges in measuring number of users and
user engagement. For example, there may be a number of
false or spam accounts in existence on our platforms. We may estimate that the
average of false or spam accounts during a quarter represent a certain
percentage of our users during that quarter. However, this estimate may be
based on an internal review of a sample of accounts, and we may apply
significant judgment in making this determination. As such, our estimation of
false or spam accounts may not accurately represent the actual number of such
accounts, and the actual number of false or spam accounts could be higher than
we may have estimated. We will continually seek to improve our ability to
estimate the total number of false or spam accounts and eliminate them from the
calculation of our number of users, but we may otherwise treat multiple
accounts held by a single user or organization as multiple accounts for
purposes of calculating our number of users because we permit users and
organizations to have more than one account. Additionally, some accounts used
by organizations may be used by many users within the organization. As such,
the calculations of our number of users may not accurately reflect the actual
number of users or organizations using our platforms. We will regularly review
and may adjust our processes for calculating our internal metrics to improve
their accuracy. Our measures of user growth and engagement may differ from
estimates published by third parties or from similarly titled metrics of our competitors
due to differences in methodology. If users or investors do not perceive our
metrics to be accurate representations of our total accounts or user
engagement, or if we discover material inaccuracies in our metrics, our
reputation may be harmed and users may be less willing to allocate their
resources to our products and services, which could negatively affect our
business and operating results. Furthermore, as our business develops, we may
revise or cease reporting metrics if we determine that such metrics are no
longer accurate or appropriate measures of our performance. For example, we may
believe that our number of users, and its related growth, are not the best ways
to measure our success against our objectives going forward. If investors, analysts,
or users do not believe our reported measures, such as number of users, are
sufficient, or accurately reflect our business, we may receive negative
publicity and our operating results may be adversely impacted.
Our
business is subject to the risks of natural disasters such as diseases,
earthquakes, fire, power outages, floods, and other catastrophic events, and to
interruption by man-made problems such as terrorism.
A significant
natural disaster, such as the COVID-19 pandemic or an earthquake, fire, flood,
or significant power outage, could have a material adverse impact on our
business, operating results and financial condition.
For example, the COVID-19 pandemic has led to certain business disruptions as
described in our other risk factors, including travel bans and restrictions and
shelter-in-place orders, which have adversely affected our business and the economy as a whole, and which may continue to have an
adverse effect on our business, financial condition and operating results.
Despite any precautions we may take, the occurrence of a natural disaster or
other unanticipated problems at our data centers could result in lengthy
interruptions in our services. In addition, acts of terrorism and other
geopolitical unrest could cause disruptions in our business. All the aforementioned risks may be further increased if our
disaster recovery plans prove to be inadequate. We have implemented disaster
recovery programs, which allows us to move production to back-up data centers
in the event of a catastrophe. Although these programs are functional, we may
not serve network traffic equally from each data center, so if our primary data
center shuts down, there may be a period of time that
our products or services, or certain of our products or services, will remain
inaccessible or people may experience severe issues accessing our products and
services. We may not carry business interruption insurance sufficient to
compensate us for the potentially significant losses, including the potential
harm to our business that may result from interruptions in our ability to
provide our products and services. Any such natural disaster or man-made
drawback could adversely impact our business, financial condition, and
operating results.
Intellectual
Property and Technology
Our
business and operating results may be harmed by our failure to timely and
effectively scale and adapt our existing technology and infrastructure.
As users
generate more content, including text, photos and videos hosted by our
platforms, we may be required to expand and adapt our technology and
infrastructure to continue to reliably store, serve and analyze this content.
It may become increasingly difficult to maintain and improve the performance of
our products and services, especially during peak usage times, as our products
and services become more complex and our platforms’ traffic increases. In
addition, because we may lease our data center facilities, we cannot be assured
that we will be able to expand our data center infrastructure to meet demand in
a timely manner, or on favorable economic terms. If users are unable to access
our platforms or we are not able to make content available rapidly on our
platforms, users may seek other channels to obtain the information, and may not
return to our platforms or use our platforms as often in the future, or at all.
This would negatively impact our ability to attract new users to our platforms
and decrease the frequency of users returning to our platforms. We expect to
make significant investments to improve the capacity, capability
and reliability of our infrastructure. To the extent that we do not effectively
address capacity constraints, upgrade our systems as needed and continually
develop our technology and infrastructure to accommodate actual and anticipated
changes in technology, our business and operating results may be harmed.
We will scale
the capacity of, and enhance the capability and reliability of, our
infrastructure to support user growth and increased activity on our platforms.
We expect that investments and expenses associated with our infrastructure will
continue to grow, including the expansion and improvement of our data center
operations and related operating costs, additional servers
and networking equipment to increase the capacity of our infrastructure,
increased utilization of third-party cloud computing and associated costs
thereof, increased bandwidth costs, and costs to secure our users’ data. The
improvement of our infrastructure will require a significant investment of our
management’s time and our financial resources. If we fail to efficiently scale
and manage our infrastructure, our business, financial condition, and operating
results would be adversely impacted.
Our
intellectual property rights are valuable, and any inability to protect them
could reduce the value of our products, services and
brands.
Intellectual
property rights are important assets of our business, and we seek protection
for such rights as appropriate. To establish and protect our trade secrets,
trademarks, copyrights and patents, we license and
enter into confidentiality and intellectual property assignment agreement with
our directors, officers, employees and consultants. Various circumstances and
events outside of our control, however, pose threats to our intellectual
property rights. We may fail to obtain effective intellectual property
protection, effective intellectual property protection may not be available in
every country in which our products and services are available, or such laws
may provide only limited protection. Also, the efforts we have taken to protect
our intellectual property rights may not be sufficient or effective and any of
our intellectual property rights may be challenged, circumvented, infringed, or
misappropriated which could result in them being narrowed in scope or declared
invalid or unenforceable. There can be no assurance our intellectual property
rights will be sufficient to protect against others offering products or
services that are substantially similar to ours and
compete with our business.
We rely on
restrictions on the use and disclosure of our trade secrets and other
proprietary information contained in agreements we sign with our directors,
officers, employees and consultants to limit and
control access to, and disclosure of, our trade secrets and confidential
information. These agreements may be breached, or this intellectual property
may otherwise be disclosed or become known to our competitors, including
through hacking or theft, which could cause us to lose any competitive
advantage resulting from these trade secrets and proprietary information.
We may pursue
registration of trademarks and domain names in the US and in certain
jurisdictions outside of the US. Effective protection of trademarks and domain
names is expensive and difficult to maintain, both in terms of application and
registration costs, as well as the costs of defending and enforcing those rights.
We may be required to protect our rights in an increasing number of countries,
a process that is expensive and may not be successful, or which we may not
pursue in every country in which our products and services are distributed or
made available.
We may be
party to agreements that grant licenses to third parties to use our
intellectual property. For example, third parties may distribute their content
through our platforms, or embed our content in their applications or on their
platforms and make use of our trademarks in connection with their services. We
have a policy intended to assist third parties in the proper use of our
trademarks, and resources dedicated to enforcing this policy and protecting our
brands. We will review reports of improper and unauthorized use of our brands
or trademarks and may issue takedown notices or initiate discussions with the
third parties to correct the issues. However, there can be no assurance that we
will be able to protect against the unauthorized use of our brands or
trademarks. If the licensees of our brands or trademarks are not using our
brands or trademarks appropriately and we fail to maintain and enforce our
brand or trademark rights, we may limit our ability to protect our trademarks
which could result in diminishing the value of our brands or in our trademarks
being declared invalid or unenforceable. There is also a risk that one or more
of our trademarks could become generic, which could result in such trademark
being declared invalid or unenforceable.
We may also
seek to obtain patent protection for some of our technologies. We may be unable
to obtain patent protection for our technologies. Even if patents are issued
from our patent applications, which is not certain, our patents, and any
patents that may be issued in the future, may not provide us with competitive
advantages or distinguish our products and services from those of our
competitors. In addition, any patents may be contested, circumvented, or found
unenforceable or invalid, and we may not be able to prevent third parties from
infringing or otherwise violating them. Effective protection of patent rights
is expensive and difficult to maintain, both in terms of application and
maintenance costs, as well as the costs of defending and enforcing those
rights.
Significant
impairments of our intellectual property rights, and limitations on our ability
to assert our intellectual property rights against others, could harm our
business and our ability to compete.
Also,
obtaining, maintaining, and enforcing our intellectual property rights is
costly and time consuming. Any increase in the unauthorized use of our
intellectual property would adversely impact our business, financial condition,
and operating results.
Many of
our products and services contain open-source software, and we may license some
of our software through open-source projects, which may pose particular
risks to our proprietary software, products and services, in a manner
that could adversely impact our business.
We use
open-source software in our products and services and will continue to use
open-source software in the future. In addition, we may contribute software
source code to open-source projects under open-source licenses or release
internal software projects under open-source licenses in the future. The terms
of many open-source licenses to which we may be subject have not been
interpreted by US or foreign courts, and there is a risk that open-source
software licenses could be construed in a manner that imposes unanticipated
conditions or restrictions on our ability to provide or distribute our products
or services. Additionally, under some open-source licenses, if we combine our
proprietary software with open-source software in a certain manner, third
parties may claim ownership of, or demand release of, the open-source software
or derivative works that we developed using such software, which could include
our proprietary source code. Such third parties may also seek to enforce the
terms of the applicable open-source license through litigation which, if
successful, could require us to make our proprietary software source code
freely available, purchase a costly license or cease offering the implicated
products or services unless and until we can re-engineer them to avoid infringement.
This re-engineering process could require significant additional research and
development resources, and we may not be able to complete it successfully. In
addition to risks related to open-source license requirements, use of certain
open-source software may pose greater risks than use of third-party commercial
software, since open-source licensors generally do not provide warranties or
controls on the origin of software. Any of these risks could be difficult to
eliminate or manage, and, if not addressed, could adversely impact our
business, financial condition and operating results.
We may
face lawsuits or incur liability as a result of
content published or made available through our products and services.
We may face
claims relating to content that is published or made available through our
products and services or third-party products or services. In particular, the
nature of our business may expose us to claims related to defamation,
intellectual property rights, rights of publicity and privacy, illegal content,
misinformation, content regulation and personal injury offenses. The laws
relating to the liability of providers of online products or services for
activities of the people who use them remains somewhat unsettled, both within
the US and internationally. This risk may be enhanced in certain jurisdictions
outside the US where we may be less protected under local laws than we are in
the US. For example, we may be subject to legislation in Germany that may
impose significant fines for failure to comply with certain content removal and
disclosure obligations. Other countries, including Singapore, India, Australia,
and the UK, have implemented or are considering
similar legislation imposing penalties for failure to remove certain types of
content. We could incur significant costs investigating and defending these
claims. If we incur material costs or liability as a result
of these occurrences, our business, financial condition and operating
results would be adversely impacted.
Regulatory
and Legal
We are subject
to a variety of laws and regulations in the US and abroad that involve matters
central to our business, including privacy, data protection, security, rights
of publicity, content regulation, intellectual property, competition,
protection of minors, consumer protection, credit card processing and taxation.
Many of these laws and regulations are still evolving and being tested in
courts. As a result, it is possible that these laws and regulations may be
interpreted and applied in a manner that is inconsistent from country to
country and inconsistent with our current policies and practices and in ways
that could harm our business, particularly in the new and rapidly evolving
industry in which we operate. Additionally, the introduction of new products or
services may subject us to additional laws and regulations.
From time to
time, governments, regulators and others may express
concerns about whether our products, services, or practices compromise the
privacy or data protection rights of the users on our platforms, and others.
While we endeavor to comply with applicable privacy and data protection laws
and regulations, our privacy policies, and other obligations we may have with
respect to privacy and data protection, the failure or perceived failure to
comply, may result in inquiries and other proceedings or actions against us by
governments, regulators, or others. A number of
proposals have recently been adopted or are currently pending before federal,
state and foreign legislative and regulatory bodies that could significantly
affect our business. Moreover, foreign data protection, privacy, consumer
protection, content regulation and other laws and regulations are often more
restrictive or burdensome than those in the US. For example, the General Data
Protection Regulation (“GDPR”) in the European Union and the European Economic
Area (“EU”) imposes stringent operational requirements for entities processing
personal information and significant penalties for non-compliance, including
fines of up to €20 million or four percent of total worldwide revenue,
whichever is higher. Additionally, we rely on a variety of legal bases to
transfer certain personal information outside of the EU, including the EU-US
Privacy Shield Framework, the Swiss-US Privacy Shield Framework, and EU
Standard Contractual Clauses, or SCCs. These legal bases all have been, and may
be, the subject of legal challenges and they may be modified or invalidated.
This could result in us being required to implement duplicative, and
potentially expensive, information technology infrastructure and business
operations in Europe or could limit our ability to collect or process personal
information in Europe. Any of these changes with respect to EU data protection
law could disrupt our business.
Further, the
UK officially left the EU in 2020 (often referred to as "Brexit").
The effect of Brexit will depend on agreements, if any, the UK makes to retain
access to EU markets. Brexit creates economic and legal uncertainty in the
region and could adversely affect the tax, currency, operational, legal and regulatory regimes to which our business may be
subject, including with respect to privacy and data protection. Brexit may
adversely affect our revenues and subject us to new regulatory costs and
challenges, in addition to other adverse effects that we are unable effectively
to anticipate. The UK implemented a Data Protection Act, effective in May 2018 and
statutorily amended in 2019, that substantially implements the GDPR, with
penalties for noncompliance of up to the greater of Ł17.5 million or four
percent of total worldwide revenues. Brexit has, however, created uncertainty with regard to the future regulation of data protection in
the UK and requirements for data transfers between the UK and the EU and other
jurisdictions. For example, the EU-UK Trade and Cooperation Agreement provides
for a transition period of four months, subject to a potential two-month
extension, in which the European Commission will, subject to certain exceptions
that may result in termination of such transition period, continue to treat the
UK as if it remained an EU member state with respect to personal data
transfers. The UK may thereafter be considered a “third country” under the
GDPR, with transfers of personal data from the EU to the UK needing to be made
pursuant to GDPR-compliant safeguards unless the European Commission adopts an
adequacy decision with respect to the UK. With substantial uncertainty over the
interpretation and application of how the UK will approach and address the GDPR
following the transition period, we may face challenges in addressing
applicable requirements and making necessary changes to our policies and
practices and may incur significant costs and expenses in an
effort to do so.
Legislative
changes in the US, at both the federal and state level, that could impose new
obligations in areas such as privacy and liability for copyright infringement
or content by third parties such as various Congressional efforts to restrict
the scope of the protections available to online platforms under Section 230 of
the Communications Decency Act, and our protections from liability for
third-party content in the US could decrease or change. Additionally, recent
amendments to US patent laws may affect the ability of companies, including us,
to protect their innovations and defend against claims of patent infringement.
In April 2019,
the EU passed the Directive on Copyright in the Digital Single Market (the EU
Copyright Directive), which expands the liability of online platforms for
user-generated content. Each EU member state has two years to implement it. The
EU Copyright Directive may increase our costs of operations, our liability for
user-generated content, and our litigation costs.
Additionally,
we may have relationships with third parties that perform a variety of
functions such as payments processing, tokenization, vaulting, currency
conversion, fraud prevention and data security audits. The laws and regulations
related to online payments and other activities of these third parties,
including those relating to the processing of data, are complex, subject to
change, and vary across different jurisdictions in the US and internationally.
As a result, we may be required to spend significant time, effort
and expense to comply with applicable laws and regulations. Any failure or
claim of our failure to comply, or any failure or claim of failure by the
above-mentioned third parties to comply, could increase our costs or could
result in liabilities. Additionally, because we may accept payment via payment
cards, we are subject to global payments industry operating rules and
certification requirements governed by PCI Security Standards Council,
including the Payment Card Industry Data Security Standard. Any failure by us
to comply with these operating rules and certification requirements also may
result in costs and liabilities and may result in us losing our ability to
accept certain payment cards.
The US and
foreign laws and regulations described above, as well as any associated
inquiries or investigations or any other regulatory actions, may be costly to
comply with and may delay or impede the development of new products and
services, result in negative publicity, increase our operating costs, require
significant management time and attention, and subject us to remedies that may
result in a loss of users and otherwise harm our business, including fines or
demands or orders that we modify or cease existing business practices.
We may allow
the use of our platforms without the collection of extensive personal
information. We may experience additional pressure to expand our collection of
personal information in order to comply with new and
additional legal or regulatory demands or we may independently decide to do so.
If we obtain such additional personal information, we may be subject to
additional legal or regulatory obligations.
Regulatory
investigations and settlements could cause us to incur additional expenses or
change our business practices in a manner material and adverse to our business.
From time to
time, we may notify regulators of certain personal data breaches and privacy or
data protection issues and may be subject to inquiries and investigations
regarding various aspects of our regulatory compliance. We expect to be subject
to regulatory scrutiny as our business grows and awareness of our brands
increases.
It is possible
that a regulatory inquiry, investigation, or audit could cause us to incur
substantial fines and costs, result in reputational harm, prevent us from
offering certain products, services, features, or functionalities, require us
to change our policies or practices, divert management and other resources from
our business, or otherwise adversely impact our business. Violation of existing
or future regulatory orders, settlements or consent decrees could subject us to
substantial fines and other penalties that would adversely impact our financial
condition and operating results.
We
expect to be in the future, party to intellectual property rights claims that
are expensive and time consuming to defend, and, if resolved unfavorably, would
adversely impact our business, financial condition and
operating results.
Companies in the Internet, technology and media industries are
subject to litigation based on allegations of infringement, misappropriation,
or other violations of intellectual property rights. Many companies in these
industries, including many of our competitors, may have substantially larger
patent and intellectual property portfolios than we do, which could make us a
target for litigation as we may not be able to assert counterclaims against
parties that sue us for patent, or other intellectual property infringement. In
addition, various “non-practicing entities” that own patents and other
intellectual property rights often attempt to assert claims in
order to extract value from technology companies. From time to time, we
may receive claims from third parties which allege that we have infringed upon
their intellectual property rights. Further, from time to time we may introduce
new products, product features and services, including in areas where we
currently do not have an offering, which could increase our exposure to patent
and other intellectual property claims from competitors and non-practicing
entities. In addition, our standard terms and conditions for our Application
Programming Interfaces may provide users with indemnification for intellectual
property claims against them and require us to indemnify them for certain
intellectual property claims against them, which could require us to incur
considerable costs in defending such claims and may require us to pay
significant damages in the event of an adverse ruling. Users may also
discontinue the use of our products, services, and technologies as a result of injunctions or otherwise, which could result
in loss of revenue and adversely impact our business.
We may become
involved in intellectual property lawsuits, and as we face increasing
competition and develop new products, we expect the number of patent and other
intellectual property claims against us may grow. There may be intellectual
property or other rights held by others, including issued or pending patents,
that cover significant aspects of our products and services, and we cannot be
sure that we are not infringing or violating, and have not infringed or
violated, any third-party intellectual property rights or that we will not be
held to have done so or be accused of doing so in the future. Any claim or
litigation alleging that we have infringed or otherwise violated intellectual
property or other rights of third parties, with or without merit, and whether or not settled out of court or determined in our
favor, could be time-consuming and costly to address and resolve, and could
divert the time and attention of our management and technical personnel. Some
of our competitors have substantially greater resources than we do and are able to sustain the costs of complex intellectual
property litigation to a greater degree and for longer periods of time than we
could. The outcome of any litigation is inherently uncertain, and there can be
no assurances that favorable final outcomes will be obtained in all cases. In
addition, plaintiffs may seek, and we may become subject to, preliminary or
provisional rulings in the course of any such
litigation, including potential preliminary injunctions requiring us to cease
some or all of our operations. We may decide to settle such lawsuits and
disputes on terms that are unfavorable to us. Similarly, if any litigation to
which we are a party is resolved adversely, we may be subject to an unfavorable
judgment that may not be reversed upon appeal. The terms of such a settlement
or judgment may require us to cease some or all of our
operations or pay substantial amounts to the other party. In addition, we may
have to seek a license to continue practices found to be in violation of a
third-party’s rights. If we are required, or choose to enter
into, royalty or licensing arrangements, such arrangements may not be
available on reasonable terms, or at all, and may significantly increase our
operating costs and expenses. As a result, we may also be required to develop
or procure alternative non-infringing technology, which could require
significant effort and expense or discontinue use of the technology. An
unfavorable resolution of the disputes and litigation referred to above would
adversely impact our business, financial condition, and operating results.
If we
fail to maintain an effective system of disclosure controls and internal
control over financial reporting, our ability to produce timely and accurate
financial statements or comply with applicable regulations could be impaired.
As a
corporation, we may be subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended, the Sarbanes-Oxley Act of 2002, as amended
(the “Sarbanes-Oxley Act”), and the listing standards of any securities
exchange on which our securities may be listed or quoted for trading. The
Sarbanes-Oxley Act requires, among other things, that we maintain effective
disclosure controls and procedures and internal control over financial
reporting. In order to maintain and improve the
effectiveness of our disclosure controls and procedures and internal control
over financial reporting, we have expended and anticipate that we will continue
to expend, significant resources, including accounting-related costs and significant
management oversight.
Any failure to
develop or maintain effective controls, or any difficulties encountered in
their implementation or improvement, could cause us to be subject to one or
more investigations or enforcement actions by state or federal regulatory
agencies, stockholder lawsuits or other adverse actions requiring us to incur
defense costs, pay fines, settlements, or judgments. Any such failures could
also cause investors to lose confidence in our reported financial and other
information, which would likely have a negative effect on the perceived value
of our common stock.
Financial
and Transactional Risks
Acquisitions,
divestitures, and investments could disrupt our business and harm our financial
condition and operating results.
Our success
will depend, in part, on our ability to expand our products, product features
and services, and grow our business in response to changing technologies,
demands of users on our platforms and competitive pressures. In some
circumstances, we may determine to do so through the acquisition of
complementary businesses and technologies rather than through internal
development. The identification of suitable acquisition candidates can be
difficult, time-consuming, and costly, and we may not be able to successfully
complete identified acquisitions. The risks we face in connection with
acquisitions include:
·
diversion of management time and focus from operating our business to
addressing acquisition integration challenges;
·
retention of key employees from the acquired business;
·
cultural challenges associated with integrating employees from the
acquired business into our organization;
·
integration of the acquired business’ accounting, management
information, human resources and other administrative systems and processes;
·
the need to implement or improve controls, procedures and policies at a
business that prior to the acquisition may have lacked effective controls,
procedures and policies;
·
liability for activities of the acquired business before the acquisition,
including intellectual property infringement claims or violations of laws,
·
commercial disputes, tax liabilities and other known and unknown liabilities;
·
unanticipated write-offs or charges; and
·
litigation or other claims in connection with the acquired business,
including claims from terminated employees, former stockholders or other third
parties.
Our failure to address these risks or other
problems encountered in connection with our future acquisitions and investments
could cause us to fail to realize the anticipated benefits of these
acquisitions or investments, cause us to incur unanticipated liabilities, and
harm our business generally. Future acquisitions could also result in dilutive
issuances of our equity securities, the incurrence of debt, contingent
liabilities, amortization expenses, incremental operating expenses, or the
impairment of goodwill, any of which could adversely impact our financial
condition and operating results.
We may also make investments in privately held businesses in furtherance
of our strategic objectives. The instruments in which we invest may be
nonmarketable at the time of our initial investment and we may not realize a
return and may recognize a loss on such investments.
In certain cases, we may have to divest or stop investing in certain
products, including products that we may have acquired. In these cases, we may
need to restructure operations, terminate employees, and/or incur other
expenses. We may not realize the expected benefits and cost savings of these
actions and our operating results may be adversely impacted.
Our debt
obligations could adversely affect our financial condition.
As of
September 2016, we had an unsecured revolving credit facility with certain
directors and stockholders providing for loans in the aggregate principal
amount of $50,000.
Our debt
obligations could adversely impact us. For example, these obligations could:
·
require us to use a substantial portion of our cash flow from operations
to pay principal and interest on debt when required upon the occurrence of
certain change of control events or otherwise pursuant to the terms thereof,
which will reduce the amount of cash flow available to fund working capital,
capital expenditures, acquisitions, and other business activities;
·
adversely impact our credit rating, which could increase future
borrowing costs;
·
limit our future ability to raise funds for capital expenditures,
strategic acquisitions or business opportunities, and other general corporate requirements;
·
restrict our ability to create or incur liens and enter into
sale-leaseback financing transactions;
·
increase our vulnerability to adverse economic and industry conditions;
·
increase our exposure to interest rate risk from variable rate indebtedness;
·
dilute our earnings per share as a result of
the conversion provisions in debt instruments; and
·
place us at a competitive disadvantage compared to our less leveraged
competitors.
Our ability to
meet our payment obligations under our debt instruments depends on our ability
to generate significant cash flows in the future. This, to some extent, is
subject to market, economic, financial, competitive, legislative
and regulatory factors, as well as other factors that are beyond our control.
There can be no assurance that our business will generate cash flow from
operations, or that additional capital will be available to us, in amounts
sufficient to enable us to meet our debt payment obligations and to fund other
liquidity needs. Additionally, events and circumstances may occur which would
cause us to not be able to satisfy applicable draw-down conditions and utilize
our revolving credit facility. If we are unable to generate sufficient cash
flows to service our debt payment obligations, we may need to refinance or
restructure our debt, sell assets, reduce, or delay capital investments, or
seek to raise additional capital. If we are unable to implement one or more of
these alternatives on commercially reasonable terms or at all, we may be unable
to meet our debt payment obligations, which would materially and adversely
impact our business, financial condition and operating
results.
We may
have exposure to greater than anticipated tax liabilities, which could
adversely impact our operating results.
Our income tax
obligations are based in part on our corporate operating structure, including
the manner in which we may develop, value and use our
intellectual property and the scope of our international operations. We may be
subject to review and audit by tax authorities in the US (federal and state),
and other foreign jurisdictions and the laws in those jurisdictions are subject
to interpretation. Tax authorities may disagree with and challenge some of the
positions we have taken and any adverse outcome of such an audit could have a
negative effect on our financial position and operating results. In addition,
our future income taxes could be adversely affected by earnings being lower
than anticipated in jurisdictions that have lower statutory tax rates and
higher than anticipated in jurisdictions that have higher statutory tax rates,
by changes in the valuation of our deferred tax assets and liabilities, or by
changes in tax laws, regulations, or accounting principles, as well as certain
discrete items. For example, the legislation commonly referred to as the 2017
Tax Cuts and Jobs Act significantly affected US tax law by changing how US
income tax is assessed on multinational corporations. The US Department of
Treasury has issued, and will continue to issue, regulations and interpretive
guidance that may significantly impact how we will apply the law and impact our
results of operations.
In addition,
the Organization for Economic Cooperation and Development (OECD) has published
proposals covering a number of issues, including
country-by-country reporting, permanent establishment rules, transfer pricing
rules, tax treaties and taxation of the digital economy. Future tax reform
resulting from this development may result in changes to long-standing tax
principles, which could adversely affect our effective tax rate or result in
higher cash tax liabilities. In 2018, the European Commission proposed a series
of measures aimed at ensuring a fair and efficient taxation of digital
businesses operating within the EU. Some countries, in the EU and beyond, have
unilaterally moved to introduce their own digital services tax to capture tax
revenue on digital services more immediately. Notably, France, Italy, Austria,
the UK, Turkey, India and Indonesia have enacted, or
will soon enact, a digital tax. Such laws would increase our tax obligations in
those countries or change the manner in which we may
operate our business.
Our
ability to use our net operating loss carryforwards and certain other tax
attributes may be limited.
As of December
31, 2020, we had US federal net operating loss carryforwards of approximately
$18,333. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as
amended, if a corporation undergoes an “ownership change,” the Corporation’s
ability to use its pre-change net operating loss carryforwards and other
pre-change tax attributes, such as research tax credits, to offset its
post-change income and taxes, may be limited. In general, an “ownership change”
occurs if there is a cumulative change in our ownership by “5% shareholders”
that exceeds 50 percentage points over a rolling three-year period. Similar
rules may apply under state tax laws. In the event that
we have experienced an ownership change, or if we experience one or more
ownership changes in the future, then we may be limited in our ability to use
our net operating loss carryforwards and other tax assets to reduce taxes owed
on the net taxable income that we earn. Any such limitations on the ability to
use our net operating loss carry forwards and other tax assets could adversely
impact our business, financial condition, and operating results.
If our
goodwill or intangible assets become impaired, we may be required to record a
significant charge to earnings.
Under
generally accepted accounting principles in the US, or US GAAP, we review our
intangible assets for impairment when events or changes in circumstances
indicate the carrying value may not be recoverable. Goodwill is required to be
tested for impairment at least annually. An adverse change in market conditions
or financial results, particularly if such change has the effect of changing
one of our critical assumptions or estimates, could result in a change to the
estimation of fair value that could result in an impairment charge to our
goodwill or intangible assets. Any such material charges may have a material
and adverse impact on our operating results.
Governance
Risks and Risks Related to Ownership of our Capital Stock
Our
bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
Our bylaws and
Delaware law contain provisions which could have the effect of rendering more
difficult, delaying, or preventing an acquisition deemed undesirable by our
board of directors. Among other things, our bylaws include provisions:
·
limiting the liability of, and providing indemnification to, our
directors and officers;
·
limiting the ability of our stockholders to call and bring business
before special meetings;
·
requiring advance notice of stockholder proposals for business to be conducted
at meetings of our stockholders and for nominations of candidates for election
to our board of directors; and
·
controlling the procedures for the conduct and scheduling of stockholder
meetings.
These provisions, alone or together, could delay or
prevent hostile takeovers and changes in control or changes in our management.
As a Delaware corporation, we are also subject to provisions of Delaware
law, including Section 203 of the Delaware General Corporation Law, which
prevents certain stockholders holding more than 15% of our outstanding common
stock from engaging in certain business combinations without approval of the
holders of at least two-thirds of our outstanding common stock not held by such
15% or greater stockholder.
Any provision of our bylaws or Delaware law that has the effect of
delaying, preventing or deterring a change in control
could limit the opportunity for our stockholders to receive a premium for their
shares of our common stock, and could also affect the price that some investors
are willing to pay for our common stock.
The
perceived value of our common stock may be volatile, and you could lose all or
part of your investment.
The perceived
value of our common stock may be highly volatile in response to various
factors, some of which are beyond our control. In addition to the factors
discussed in this “Risk Factors” section and elsewhere in this Annual Report,
factors that could cause fluctuations in the perceived value of our common
stock include the following:
·
price and volume fluctuations in the overall stock market from time to
time, including fluctuations due to general economic uncertainty or negative
market sentiment, in particular related to the COVID-19 pandemic;
·
volatility in the market prices and trading volumes of technology stocks;
·
changes in operating performance and stock market valuations of other
technology companies generally, or those in our industry in particular;
·
sales of shares of our common stock by us or our stockholders;
·
rumors and market speculation involving us or other companies in our industry;
·
failure of securities analysts to cover or maintain coverage of us,
changes in financial estimates by securities analysts who follow us, or our
failure to meet these estimates or the expectations of investors;
·
the financial or non-financial metric projections we may provide to the
public, any changes in those projections or our failure to meet those projections;
·
announcements by us or our competitors of new products or services;
·
the public’s reaction to our press releases, other public announcements
and filings with the SEC;
·
actual or anticipated changes in our operating results or fluctuations
in our operating results;
·
actual or anticipated developments in our business, our competitors’
businesses or the competitive landscape generally;
·
our issuance of shares of our common stock, whether in connection with
an acquisition or upon conversion of some or all of our debt instruments;
·
litigation or regulatory action involving us, our industry or both, or investigations
by regulators into our operations or those of our competitors;
·
developments or disputes concerning our intellectual property or other
proprietary rights;
·
announced or completed acquisitions of businesses or technologies by us
or our competitors;
·
new laws or regulations or new interpretations of existing laws or
regulations applicable to our business;
·
changes in accounting standards, policies, guidelines, interpretations
or principles;
·
any significant change in our management; and
·
general economic conditions and slow or negative growth of our markets.
In addition,
in the past, following periods of volatility in the overall market and the
market price of a particular company’s securities, securities class action
litigation has often been instituted against these companies. Any securities
litigation can result in substantial costs and a diversion of our management’s
attention and resources. We may experience such litigation following any future
periods of volatility.
Our
failure to return capital to our stockholders could have a material adverse
effect on our perceived stock value.
We may
announce that our board of directors authorized the repurchase of our common
stock from time to time. Any failure to meet our commitment to return capital
to our stockholders could have a material adverse effect on our stock price.
If
securities or industry analysts change their recommendations regarding our
common stock adversely, the price of our common stock and trading volume could
decline.
The trading
market for our common stock may be influenced, to some extent, by the research
and reports that securities or industry analysts publish about us, our
business, our industry, our market, or our competitors. If any of the analysts
who cover us change their recommendation regarding our common stock adversely,
or provide more favorable relative recommendations about our competitors, the
perceived value of our common stock would likely decline.
Item 2. Unregistered Sales
of Equity Securities and Use of Proceeds
Unregistered
Sales of Equity Securities
We may sell or
issue unregistered shares of our common stock for working capital, acquisitions
and in terms of our 2020 Equity Incentive Plan.
The recipients
of these securities acquire the securities for investment purposes only, and
not with a view to or for sale in connection with any distribution thereof, and
appropriate legends are placed upon the stock certificates issued in these
transactions. All recipients have adequate access, through their relationships
with us or otherwise, to information about the Corporation. The issuance of these
securities is made without any general solicitation or advertising.
Item 3. Signature
Pursuant to
the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Corporation has duly caused this Quarterly Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Doofus Corporation
Date: November 8, 2021
By: /s/ JACQUES FOURIE
Jacques Fourie
President and Chief
Executive Officer
Principal Executive Officer
CERTIFICATION
OF PERIODIC REPORT UNDER SECTION 302 OF
THE
SARBANES-OXLEY ACT OF 2002
I, Jacques Fourie, certify
that:
1.
I have reviewed this Quarterly Report of Doofus Corporation (the
“Corporation”);
2.
Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the Corporation
as of, and for, the periods presented in this report;
4.
I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules
13a–15(f) and 15d–15(f)) for the Corporation and have:
(a)
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under my supervision, to
ensure that material information relating to the Corporation is made known to me
particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under my supervision,
to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the Corporation's disclosure controls and
procedures and presented in this report my conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d)
Disclosed in this report any change in the Corporation's internal
control over financial reporting that occurred during the Corporation's most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Corporation's internal control over financial reporting;
and;
5.
I have disclosed, based on my most recent evaluation of internal control
over financial reporting, to the audit committee of the Corporation's board of
directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the Corporation's ability to record, process,
summarize and report financial information; and
(b)
Any fraud, whether or not material, that
involves management or other employees who have a significant role in the Corporation's
internal control over financial reporting.
Date: November 8, 2021
/s/ JACQUES FOURIE
Jacques Fourie
President and Chief
Executive Officer
Principal Executive Officer
CERTIFICATIONS
OF CHIEF EXECUTIVE OFFICER
PURSUANT
TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
I, Jacques Fourie, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that the Quarterly Report of Doofus Corporation for
the fiscal quarter ended September 30, 2021 fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934
and that information contained in such Quarterly Report fairly presents, in all
material respects, the financial condition and results of operations of Doofus
Corporation.
Date: November 8, 2021
By: /s/ JACQUES FOURIE
Name: Jacques Fourie
Title: President and Chief Executive Officer