# Firy Inc.: Form 10-Q for the period ended Jun 30, 2022

- Company: [Firy Inc.](/companies/firy.md) (CIK 1801661)
- Form: 10-Q
- Filed: 2022-08-04
- Accepted by EDGAR: Aug 4, 2022, 16:08 ET
- Period: 2022-06-30
- Accession: 0001628280-22-021059
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1801661/000162828022021059/sklz-20220630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1801661/000162828022021059/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-04-01 to 2022-06-30 | $73.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2022-01-01 to 2022-06-30 | $166.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-04-01 to 2022-06-30 | $9.0m | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2022-01-01 to 2022-06-30 | $18.3m | us-gaap:CostOfRevenue |
| Research and development | 3 months, 2022-04-01 to 2022-06-30 | $18.5m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2022-01-01 to 2022-06-30 | $37.2m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2022-04-01 to 2022-06-30 | −$54.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2022-01-01 to 2022-06-30 | −$198.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-04-01 to 2022-06-30 | $7.6m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2022-01-01 to 2022-06-30 | $15.8m | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-04-01 to 2022-06-30 | −$155.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2022-01-01 to 2022-06-30 | −$367.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-04-01 to 2022-06-30 | −$60.6m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2022-01-01 to 2022-06-30 | −$208.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-04-01 to 2022-06-30 | −$0.15 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2022-01-01 to 2022-06-30 | −$0.52 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-04-01 to 2022-06-30 | −$0.15 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2022-01-01 to 2022-06-30 | −$0.52 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-04-01 to 2022-06-30 | 408,157,735 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2022-01-01 to 2022-06-30 | 404,923,522 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2022-01-01 to 2022-06-30 | −$145.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2022-01-01 to 2022-06-30 | $346.0k | us-gaap:PaymentsToAcquireProductiveAssets |
| Cash and equivalents | at 2022-06-30 | $170.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-06-30 | $502.5m | us-gaap:AssetsCurrent |
| Total assets | at 2022-06-30 | $858.9m | us-gaap:Assets |
| Current liabilities | at 2022-06-30 | $58.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-06-30 | $354.0m | us-gaap:Liabilities |
| Long-term debt | at 2022-06-30 | $280.9m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2022-06-30 | $0 | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2022-06-30 | $504.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 50,855 characters.

### Forward-Looking Statements

*The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of Skillz Inc. (for purposes of this section, “Skillz,” “we,” “us” and “our”). MD&A is provided as a supplement to, and should be read in conjunction with, our Annual Report on Form 10-K for the year ended December 31, 2021, and our financial statements and the accompanying Notes to Financial Statements (Part I, Item 1 of this Form 10-Q). This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in Part II, Item 1A, “Risk Factors”. Actual results may differ materially from those contained in any forward-looking statements. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.*

### Overview

We operate a marketplace that connects the world through competition, serving both developers and users. Our platform enables fair, fun and competitive gaming experiences and the trust we foster with users is the foundation upon which our community is built. We believe our marketplace benefits from a powerful network effect: compelling content attracts users to our platform, while the increasing size of our audience attracts more developers to create new interactive experiences on our platform.

Skillz was founded in 2012 by Andrew Paradise and Casey Chafkin with the vision to make eSports accessible to everyone possible. As of June 30, 2022, the platform had 2.2 million monthly active users (“MAUs”) and hosts an average of over 6 million daily tournaments, including 2 million paid entry daily tournaments, offering over $150 million in prizes each month. Since our inception in 2012, over 10,000 registered game developers have launched a game integration on our platform. As of June 30, 2022, over 200 developers had a game on our platform with at least one installed user.

Our culture is built upon a set of values established by our founders, aligning the company and its employees in a common vision. Our seven values are: Honor; Mission; Collaboration; Productivity; Willingness; Frugality; and Balance. Our approach has focused on trust and fairness for users enabling game developers to focus on what they do best: build great content.

Our technology capabilities are industry-leading and provide the tools necessary for developers to compete with the largest and most sophisticated mobile game developers in the world. Our easy-to-integrate software development kit (“SDK”) and developer console allow our developers to monitor, integrate and update their games seamlessly over the air. We ingest and analyze over 300 data points from each game play session, enhancing our data-driven algorithms and LiveOps systems. Moreover, we have developed a robust platform enabling fun, fair and meaningful competitive gameplay.

Historically, our top games and related developers have accounted for a substantial portion of our revenue earned from the Skillz platform. For the three months ended June 30, 2022 and 2021, the games Solitaire Cube, 21 Blitz (each developed by Tether Studios, LLC (“Tether”)) and Blackout Bingo (developed by Big Run Studios Inc. (“Big Run”)) combined accounted for 71% and 73% of our revenue earned from the Skillz platform, respectively. For the three months ended June 30, 2022 and 2021 Tether accounted for 38% and 42% of our revenue earned from the Skillz platform, respectively. For the three months ended June 30, 2022 and 2021 Big Run accounted for 42% and 40% of our revenue earned from the Skillz platform, respectively. For the six months ended June 30, 2022 and 2021, Solitaire Cube, 21 Blitz, and Blackout Bingo accounted for 71% and 74% of our revenue earned from the Skillz platform, respectively. For the six months ended June 30, 2022 and 2021 Tether accounted for 38% and 42% of our revenue earned from the Skillz platform, respectively. For the six months ended June 30, 2022 and 2021 Big Run accounted for 42% and 40% of our revenue earned from the Skillz platform, respectively.

Our top titles rotate over time as more games generate success on the Skillz platform. In the six months ended June 30, 2022, the number of games that generated over $1 million of annualized Gross Marketplace Volume (“GMV”) grew 9% to 47 from 43 in the six months ended June 30, 2021. We define GMV as the total entry fees paid by users for contests hosted on Skillz’s platform where total entry fees include entry fees paid by end-users using cash deposits, prior cash winnings from end-users’ accounts that have not been withdrawn, and end-user incentives used to enter paid entry fee contests

We define Monthly Active Users (“MAUs”) as the number of end-users who entered into a paid or free contest hosted on Skillz’s platform at least once in a month, averaged over each month in a period. We define Average Revenue Per Monthly Active User (“ARPU”) as the average revenue in a given month divided by MAUs in that month, averaged over the period. For the three months ended June 30, 2022 and 2021, we served 2.2 million and 2.4 million MAUs, respectively, and had ARPU of

$10.94 and $12.46, respectively. For the six months ended June 30, 2022 and 2021, we served 2.7 million and 2.5 million MAUs, respectively, and had ARPU of $10.29 and $11.44, respectively.

We define Paying Monthly Active Users (“PMAUs”) as the number of end-users who entered into a paid contest hosted on Skillz’s platform at least once in a month, averaged over each month in the period. We define Average Revenue Per Paying Monthly Active User (“ARPPU”) as the average revenue in a given month divided by PMAUs in that month, averaged over the period. We monitor the conversion of users to paying users based on the ratio of Paying MAU to MAU. For the three months ended June 30, 2022 and 2021, our Paying MAU to MAU ratio was 19%, our Paying MAU was 0.4 million and 0.5 million, respectively and our monthly ARPPU was $58 and $64, respectively. For the six months ended June 30, 2022 and 2021, our Paying MAU to MAU ratio was 18% and 19%, respectively, our Paying MAU was 0.5 million, and our monthly ARPPU was $56 and $62, respectively. ARPU and ARPPU do not include a deduction for the end-user incentives that are included in sales and marketing expenses. For the three months ended June 30, 2022 and 2021, the average amount of end-user incentives that were included as sales and marketing expense on a per playing user basis was $4.54 and $6.26, respectively, and per paying user basis was $24.06 and $32.33, respectively. For the six months ended June 30, 2022 and 2021, the average amount of end-user incentives that were included as sales and marketing expense on a per playing user basis was $4.42 and $5.30, respectively, and per paying user basis was $24.40 and $29.00, respectively. With existing user retention and existing and new user spend being key drivers to revenue, changes in these metrics are impacted by a number of factors, including marketing expense and user experience. For example, in the second quarter of 2022, we experienced lower retention from some of our mature cohorts of users. We believe the main drivers of this were instances of users cheating on the platform and past product changes.

Engagement marketing is a sales and marketing expense representing rewards and awards that developers do not have a valid expectation of being offered to end-users to engage on the platform. Decreases in engagement marketing could result in lower revenue as paying users no longer receive those end-user incentives, which include Bonus Cash which can only be used to enter into paid contests. User acquisition (“UA”) marketing is a sales and marketing expense to acquire new paying users to the platform. Assuming acquisition cost per user is constant, decreases in UA marketing typically result in lower revenue as a result of having fewer new paying users. The reduction in UA marketing and engagement marketing expenses could result in a reduction in expected revenue. In addition, a number of other factors impact, or have the potential to impact, revenue. These factors include, but are not limited to, the retention of existing users on the platform and average monthly revenue per paying user. Over the course of 2022, our plan has been to focus on driving higher efficiency from our marketing investment by (1) reducing spend on low-return engagement marketing programs, which we expect will result in lowering engagement marketing as a percentage of revenue and (2) driving UA efficiency by optimizing spend across networks, driving higher organic traffic, and migrating more UA marketing spend to Aarki, Inc. (“Aarki”), which we expect, over the long term, will result in reducing the total UA dollars spent relative to 2021 and significantly lower average user acquisition cost with shorter payback periods.

On July 16, 2021, the Company completed the acquisition of Aarki and acquired 100% of the outstanding equity and voting interest of Aarki under the terms of the Agreement and Plan of Merger. The Company paid $162.3 million in consideration comprised of $95.3 million in cash and the remaining $67.1 million comprised of 4.4 million shares of Skillz Class A common stock to the existing Aarki stockholders. The addition of Aarki’s technology-driven marketing platform will result in significant efficiencies in user-acquisition costs over the long term, which can be reinvested to acquire more users to accelerate growth and provide a broader product offering, including media buying capabilities to better serve game developers. The financial results of Aarki have been included in the Company’s condensed consolidated financial statements since the date of the acquisition. As previously disclosed, we recorded certain goodwill and intangible assets in connection with our acquisition of Aarki. The Company’s policy is to evaluate goodwill and intangible assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. We continue to review our operating results, macroeconomic conditions, our stock price and our market capitalization relative to our net book value in order to evaluate the need to assess goodwill for impairment.

### Our Financial Model

Skillz’s financial model aligns the interests of gamers and developers, driving value for our stockholders. By monetizing through competition, our system eliminates friction that exists in traditional monetization models between the developer and the gamer. The more gamers enjoy our platform, the longer they play, creating more value for Skillz and our developers. By generating higher player to payor conversion, retention and engagement, we are able to monetize users at higher than what our developers would generate through advertisements or in-game purchases.

Our platform allows users to participate in fair competition, while rewarding developers who create games that keep players engaged. We generate revenue by receiving a percentage of player entry fees in paid contests, after deducting end-user prize money (i.e., winnings from the Competitions), end-user incentives accounted for as reduction of revenue and the profit share paid to developers (the “Take Rate”). GMV represents entry fees that may be paid using cash deposits, prior cash winnings that have not been withdrawn, and end-user incentives. Cash deposits as a percentage of total entry fees represented approximately 12% and 10% for the three months ended June 30, 2022 and 2021, respectively, and 12% and 10% for the six months ended June 30, 2022, and 2021, respectively. Prior cash winnings that have not been withdrawn as a percentage of total entry fees represented approximately 81% and 82% for the three and six months ended June 30, 2022 and 2021, respectively. End-user incentives as a percentage of total entry fees represented approximately 7% and 8% for the three and six months ended June 30, 2022 and 2021, respectively. For the three months ended June 30, 2022 and 2021, total GMV was $432.2 million and $608.5 million, respectively, and prizes were 80.6% and 81.6% of GMV, respectively. For the six months ended June 30, 2022 and 2021, total GMV was $984.3 million and $1,175.2 million, respectively, and prizes were 80.6% and 81.6% of GMV, respectively. Prizes include cash, bonus cash, goods and items sponsored by third-parties. For the periods presented, the amount paid in prizes sponsored by third-parties, including goods, was immaterial. Our model has allowed us to grow users, developers and revenue steadily while driving meaningful operating leverage.

The following are key elements of our financial model:

- **The scale, growth and engagement of the users —** As we continue to acquire users, our ability to match comparable players, on both skill level and tournament template, in a fair and timely manner improves. Better matching leads to stronger engagement and the ability to create larger tournaments with more profitable take rates. This creates a stickier, more engaging, and continuously improving experience for our players, which in turn attracts more players to our platform, creating a positively reinforcing cycle leading to ever-improving gaming experiences.
- **The scale, growth and partnership of our developers —** We have created a platform that drives economic success for our developers. Our end-to-end platform allows developers to focus on creating games by automating and optimizing integral parts of their businesses — from user acquisition and monetization to game optimization. Our built-in payments, analytics, customer support, and live operations platform enables our developers to consistently learn, grow, earn and share in our success.
- **Product-first philosophy and data science capabilities —** We have built a culture that puts product first, driving our impact with users and developers and then scaling marketing investment. For the three and six months ended June 30, 2022, 47% of our salary costs were spent on product development. Our easy-to-integrate SDK contains over 200 features in a less than 16-MB package which allows for over-the-air upgrades. Our intuitive Developer Console dashboard enables our developers to rapidly integrate and monitor the performance of their games. Our LiveOps system enables us to manage and optimize the user experience across the thousands of games on our platform. We collect over 300 data points during each gameplay session to feed our big data assets which augment all elements of our platform. Our key data science technologies drive our player rating and matching, anti-cheat and anti-fraud, and user experience personalization engine.
- **Our unit economics —** Our proprietary and highly scalable software platform produces revenue at a low direct cost, contributing to our gross margins. Once acquired, each user cohort contributes predictably to revenue over its life. A cohort is all the users acquired in the period presented. A user is considered part of a cohort based on the first time they make a deposit and enter a paid tournament. Once a user is considered part of a cohort, they are always counted in that cohort.

### Key Components of Results of Operations

### Revenue

Skillz provides a service to the game developers aimed at improving the monetization of their game content. The monetization service provided by Skillz allows developers to offer multi-player competition to their end-users which increases end-user retention and engagement.

By utilizing the Skillz monetization services, game developers can enhance the player experience by enabling them to compete in head-to-head matches, live tournaments, leagues, and charity tournaments and increase player retention through referral bonus programs, loyalty perks, on-system achievements and bonus cash. Skillz provides developers with a SDK that they can download and integrate with their existing games. The SDK serves as a data interface between Skillz and the game developers that enables Skillz to provide monetization services to the developer. Specifically, these monetization services include end-user registration services, player matching, fraud and fair play monitoring, and billing and settlement services. The SDK and Skillz monetization services provide the following key benefits to the developers:

- Streamlined game and tournament management allowing players to register with the developer to compete in games for prizes while earning Skillz loyalty perks;
- Fair play in each tournament via the Skillz suite of fairness tools, including skill-based player matching and fraud monitoring;
- Improved end-user retention by rewarding the most loyal players with Ticketz which can be redeemed in the Skillz virtual store and are earned in every match and can be redeemed for prizes or credits to be used towards future paid entry fee tournaments;
- Marketing campaigns through main-stream online advertising networks and social media platforms to drive end-user traffic to developers’ games within the Skillz ecosystem;
- Systematic calls to end-user action via push notifications to users with game results, promotional offers, and time-sensitive actions; and
- Process end-user payments, billings and settlements on behalf of the developer to enable players to connect their preferred payment method to deposit and enter into the game developers’ multi-player competitions for cash prizes.

Generally, end-users are required to deposit funds into their Skillz account in order to be eligible to participate in games for prizes. As part of its monetization services, Skillz is responsible for processing all end-user payments, billings and settlements on behalf of the game developer, such that the game developer does not have to collect directly from or make payments directly to the end-users. When the end-users enter into cash games, the end-users pay an entry fee using cash deposits, prior cash winnings in the end-users’ accounts that have not been withdrawn, and end-user incentives (specifically Bonus Cash). Skillz recognizes revenue related to each game regardless of how entry fees are paid. Skillz is responsible for distributing the prize money to the winner on behalf of the game developer. Skillz typically withholds 16% to 20% of the total entry fees when distributing the prize money as a commission. That commission is shared between Skillz and the game developers; however, the game developers’ share is calculated solely based upon entry fees paid by net cash deposits received from end-users, adjusted for certain costs incurred by Skillz to provide monetization services.

### Costs and Expenses

### Cost of Revenue

Our cost of revenue consists of variable costs. These include mainly (i) payment processing fees, (ii) customer support costs, (iii) direct software costs, (iv) amortization of internal use software and (v) server costs.

We incur payment processing costs on user deposits. We also incur costs directly related to servicing end-user support tickets on behalf of the game developer that are logged by users directly within the Skillz SDK. These support costs include an allocation of the facilities expense, such as rent, maintenance and utilities costs according to headcount, needed to service these tickets. We use a third party as our cloud computing service; we incur server and software costs as a direct result of running our SDK in our developers’ games. We also incur costs related to the amortization of intangible assets which include developed technology.

### Research and Development

Research and development expenses consist of software development costs, comprised mainly of product and platform development, server and software costs that support research and development activities, and to a lesser extent, allocation of rent, maintenance and utilities costs according to headcount. Personnel related expenses consist of salaries, benefits, stock-based compensation and restructuring charges. We expect research and development expenses will fluctuate both in terms of absolute dollars and as a percentage of revenue in the future.

### Sales and Marketing

Sales and marketing expenses consist primarily of direct advertising costs, engagement marketing expenses that are not recorded as a reduction of revenue, UA marketing expenses and amortization of intangible assets which include customer relationships. Sales and marketing expenses also include allocations of rent, maintenance and utilities costs according to headcount. Personnel related expenses consist of salaries, benefits, stock-based compensation and restructuring charges. We expect sales and marketing expenses will fluctuate both in terms of absolute dollars and as a percentage of revenue in the future.

### General and Administrative

General and administrative expenses consist of personnel-related expenses for our corporate, executive, finance, and other administrative functions, expenses for outside professional services, and allocation of rent, maintenance and utilities costs according to headcount. Personnel related expenses consist of salaries, benefits, stock-based compensation and restructuring charges. General and administrative expenses also include expenses related to a loss contingency accrual.

We expect our general and administrative expenses, excluding impact of the CEO award cancellation of performance stock units to stock based compensation expenses, to increase for the foreseeable future as we scale headcount with the growth of our business, and as a result of operating as a public company, including compliance with the rules and regulations of the SEC, legal, audit, additional insurance expenses, investor relations activities, and other administrative and professional services.

### Results of Operations

The following table sets forth a summary of our results of operations for the periods indicated.

|  | Three Months Ended June 30, 2022 | 2021 | Six Months Ended June 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $73,335 | $89,491 | $166,773 | $173,168 |
| Costs and expenses: |  |  |  |  |
| Cost of revenue | 9,020 | 4,386 | 18,285 | 8,642 |
| Research and development | 18,529 | 10,140 | 37,182 | 17,422 |
| Sales and marketing | 73,185 | 99,523 | 190,517 | 195,846 |
| General and administrative | 26,712 | 25,432 | 119,504 | 52,716 |
| Total costs and expenses | 127,446 | 139,481 | 365,488 | 274,626 |
| Loss from operations | (54,111) | (49,990) | (198,715) | (101,458) |
| Interest expense, net | (7,596) | (25) | (15,753) | (49) |
| Change in fair value of common stock warrant liabilities | 1,023 | (29,595) | 5,485 | (31,703) |
| Other income (expense), net | (82) | 80 | (108) | 130 |
| Loss before income taxes | (60,766) | (79,530) | (209,091) | (133,080) |
| Provision for (benefit from) income taxes | (155) | 65 | (367) | 107 |
| Net loss | $(60,611) | $(79,595) | $(208,724) | $(133,187) |
| Net loss per share attributable to common stockholders: |  |  |  |  |
| Basic and diluted | $(0.15) | $(0.21) | $(0.52) | $(0.36) |
| Weighted average shares outstanding: |  |  |  |  |
| Basic and diluted | 408,157,735 | 385,945,332 | 404,923,522 | 371,519,800 |

### Revenue

*(In thousands, except percentages)*

|  | Three Months Ended June 30, 2022 | 2021 | % Change 2022 | Six Months Ended June 30, 2021 |  | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | $73,335 | $89,491 | (18)% | $166,773 | $173,168 | (4)% |

#### Three Months Ended

Revenue decreased by $16.2 million, or 18%, to $73.3 million in the three months ended June 30, 2022 from $89.5 million in the three months ended June 30, 2021. The decrease was attributable primarily to lower retention from existing user cohorts driven by a combination of factors, including increased instances of users cheating on the platform, and past product changes, which together have had a negative impact on overall user experience. Furthermore, there were $16.3 million, or 35%, and $14.5 million, or 32%, decreases in spend to acquire new paying users and engagement marketing spend, respectively, as the Company scaled back to achieve better user acquisition efficiency and eliminated low-return engagement marketing programs.

Our year-over-year revenue growth rate for the three months ended June 30, 2022 was (18)%, which was down from our year-over-year revenue growth rate for the three months ended June 30, 2021 of 52%. The decrease in revenue growth rate compared to the previous period is primarily due to transitioning our focus from revenue growth to promoting profitable growth and efficiency. The transition to profitable growth and efficiency led the Company to reduce the rate of investment in

Engagement Marketing and UA marketing. Our year-over-year growth rate for the three months ended June 30, 2022 for Engagement Marketing and UA marketing was (32)% and (35)%, respectively, and was down from our year-over-year growth rate for the three months ended June 30, 2021 for Engagement Marketing and UA marketing of 92% and 84%, respectively.

#### Six Months Ended

Revenue decreased by $6.4 million, or 4%, to $166.8 million in the six months ended June 30, 2022 from $173.2 million in the six months ended June 30, 2021. The decrease was attributable primarily to lower retention from existing user cohorts driven by a combination of factors, including increased instances of users cheating on the platform and past product changes, which together have had a negative impact on overall user experience. Furthermore, there were $10.9 million, or 11%, and $8.4 million, or 10%, decreases in user acquisition and engagement marketing, respectively, as the Company scaled back to achieve better user acquisition efficiency and eliminated certain low-return engagement marketing programs.

Our year-over-year revenue growth rate for the six months ended June 30, 2022 was (4)%, which was down from our year-over-year revenue growth rate or the six months ended June 30, 2021 of 69%. The decrease in revenue growth rate compared to the previous period is primarily due to transitioning our focus from revenue growth to promoting profitable growth and efficiency. The transition to profitable growth and efficiency led the Company to reduce the rate of investment in Engagement Marketing and UA marketing. Our year-over-year growth rate for the six months ended June 30, 2022 for Engagement Marketing and UA marketing was (10)% and (11)%, respectively, and was down from our year-over-year growth rate for the six months ended June 30, 2021 for Engagement Marketing and UA marketing of 101% and 93%, respectively.

### Cost of Revenue

*(In thousands, except percentages)*

|  | Three Months Ended June 30, 2022 | 2021 | % Change 2022 | Six Months Ended June 30, 2021 |  | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Cost of revenue | $9,020 | $4,386 | 106% | 18,285 | 8,642 | 112% |

#### Three Months Ended

Cost of revenue increased by $4.6 million, or 106%, to $9.0 million in the three months ended June 30, 2022 from $4.4 million in the three months ended June 30, 2021. The increase in cost of revenue was primarily driven by server expense attributed to the acquisition of Aarki and the amortization of acquired developed technology intangible assets. Cost of revenue as a percentage of revenue increased to 12% in the three months ended June 30, 2022 compared to 5% in the three months ended June 30, 2021.

#### Six Months Ended

Cost of revenue increased by $9.6 million, or 112%, to $18.3 million in the six months ended June 30, 2022 from $8.6 million in the six months ended June 30, 2021. The increase in cost of revenue was primarily driven by server expense attributed to the acquisition of Aarki and the amortization of acquired developed technology intangible assets. Cost of revenue as a percentage of revenue increased to 11% in the six months ended June 30, 2022 compared to 5% in the six months ended June 30, 2021.

### Research and Development

*(In thousands, except percentages)*

|  | Three Months Ended June 30, 2022 | 2021 | % Change 2022 | Six Months Ended June 30, 2021 |  | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Research and development | $18,529 | $10,140 | 83% | 37,182 | 17,422 | 113% |

#### Three Months Ended

Research and development costs increased by $8.4 million, or 83%, to $18.5 million in the three months ended June 30, 2022 from $10.1 million in the three months ended June 30, 2021. The increase was primarily driven by a $6.8 million increase in research and development headcount costs, of which $6.3 million related to salaries due to an increase in headcount from the acquisition of Aarki, a $0.9 million increase related to stock-based compensation, a $0.5 million increase related to equipment and software expense, and $1.0 million of restructuring charges. These increases were partially offset by decreases of $0.2 million in bonuses and $0.7 million in professional fees. Research and development expenses accounted for 25% of revenue in the three months ended June 30, 2022 compared to 11% in the three months ended June 30, 2021.

#### Six Months Ended

Research and development costs increased by $19.8 million, or 113%, to $37.2 million in the six months ended June 30, 2022 from $17.4 million in the six months ended June 30, 2021. The increase was primarily driven by a $15.9 million increase in research and development headcount costs, of which $14.1 million related to salaries and bonuses due to an increase in headcount from the acquisition of Aarki, a $2.1 million increase related to stock-based compensation, a $0.4 million increase in bonuses, a $1.2 million increase related to equipment and software expense, and $1.0 million of restructuring charges. These increases were partially offset by a decrease of $1.0 million in professional fees. Research and development expenses accounted for 22% of revenue in the six months ended June 30, 2022 compared to 10% in the six months ended June 30, 2021.

### Sales and Marketing

*(In thousands, except percentages)*

|  | Three Months Ended June 30, 2022 | 2021 | % Change 2022 | Six Months Ended June 30, 2021 |  | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Sales and marketing | $73,185 | $99,523 | (26)% | 190,517 | 195,846 | (3)% |

#### Three Months Ended

Sales and marketing costs decreased by $26.3 million, or 26%, to $73.2 million in the three months ended June 30, 2022 from $99.5 million in the three months ended June 30, 2021. The decrease was attributable primarily to a 35% and 32% decrease in UA and engagement marketing spend, respectively. UA marketing expenses were $30.7 million and $47.0 million in three months ended June 30, 2022 and 2021, respectively. Engagement marketing expenses were $30.4 million and $44.9 million in the three months ended June 30, 2022 and 2021, respectively. Engagement marketing as a percentage of revenue decreased to 41% in the three months ended June 30, 2022 from 50% in the three months ended June 30, 2021, respectively. This decrease reflects a reduced investments in low-return marketing programs that resulted in a decrease in our engagement marketing expense per user in the three months ended June 30, 2022 compared to the three months ended June 30, 2021.

#### Six Months Ended

Sales and marketing costs decreased by $5.3 million, or 3%, to $190.5 million in the six months ended June 30, 2022 from $195.8 million in the six months ended June 30, 2021. The decrease was attributable primarily to an 11% and 10% decrease in UA and engagement marketing spend, respectively. UA marketing expenses were $90.4 million and $101.3 million in six months ended June 30, 2022 and 2021, respectively. Engagement marketing expenses were $72.5 million and $80.9 million in the six months ended June 30, 2022 and 2021, respectively. Engagement marketing as a percentage of revenue decreased to 43% in the six months ended June 30, 2022 from 47% in the six months ended June 30, 2021, respectively. This decrease reflects reduced investments in low-return marketing programs that resulted in a decrease in our engagement marketing expense per user in the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

### General and Administrative

*(In thousands, except percentages)*

|  | Three Months Ended June 30, 2022 | 2021 | % Change 2022 | Six Months Ended June 30, 2021 |  | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| General and administrative | $26,712 | $25,432 | 5% | 119,504 | 52,716 | 127% |

#### Three Months Ended

General and administrative costs increased by $1.3 million, or 5%, to $26.7 million in the three months ended June 30, 2022 from $25.4 million in the three months ended June 30, 2021. The increase was primarily driven by a $3.3 million increase in payroll expenses related to salaries, severance and payroll taxes, a $0.5 million increase in employee benefits, a $0.5 million increase in facilities expenses and a $0.2 million increase in depreciation for computer equipment. These increases were partially offset by a $1.9 million decrease in stock-based compensation expense, a $1.3 million decrease of professional fees and a $0.6 million decrease of bonus and commission expenses. General and administrative expenses accounted for 36% of revenue in the three months ended June 30, 2022 compared to 28% in the three months ended June 30, 2021.

#### Six Months Ended

General and administrative costs increased by $66.8 million, or 127%, to $119.5 million in the six months ended June 30, 2022 from $52.7 million in the six months ended June 30, 2021. The increase was primarily driven by a $62.8 million increase in stock-based compensation expense, which includes $65.1 million related to the cancellation of performance stock units previously granted to the CEO without the concurrent grant or offer of a replacement award, a $7.0 million increase in payroll expenses related to salaries, severance and payroll taxes, a $1.0 million increase in employee benefits and a $0.7 million increase in facilities expenses. These increases were partially offset by a $5.1 million decrease in professional fees. General and administrative expenses accounted for 72% of revenue in the six months ended June 30, 2022 compared to 30% in the six months ended June 30, 2021.

### Interest expense, net

*(In thousands, except percentages)*

|  | Three Months Ended June 30, 2022 | 2021 | % Change 2022 | Six Months Ended June 30, 2021 |  | % Change |
| --- | ---: | ---: | --- | ---: | ---: | --- |
| Interest expense, net | $(7,596) | $(25) | NM | (15,753) | (49) | NM |

#### Three Months Ended

Interest expense, net increased by $7.6 million to $7.6 million in the three months ended June 30, 2022 from $25 thousand in the three months ended June 30, 2021. The increase was due to interest expense related to our senior secured notes issued in December 2021.

#### Six Months Ended

Interest expense, net increased by $15.7 million to $15.8 million in the six months ended June 30, 2022 from $49 thousand in the six months ended June 30, 2021. The increase was due to interest expense related to our senior secured notes issued in December 2021.

### Change in fair value common stock of warrant liabilities

*(In thousands, except percentages)*

|  | Three Months Ended June 30, 2022 | 2021 | % Change 2022 | Six Months Ended June 30, 2021 |  | % Change |
| --- | ---: | ---: | --- | ---: | ---: | --- |
| Change in fair value of common stock warrant liabilities | 1,023 | (29,595) | NM | 5,485 | (31,703) | NM |

The change in fair value of warrant liabilities was due to the decrease in the estimated fair value of the Private Common Stock Warrants and redemption of Public Common Stock Warrants. Refer to Note 11, Common Stock Warrants, of the notes to the consolidated financial statements for further discussion.

### Other income (expense), net

*(In thousands, except percentages)*

|  | Three Months Ended June 30, 2022 | 2021 | % Change 2022 | Six Months Ended June 30, 2021 |  | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Other (expense) income, net | $(82) | $80 | (203)% | (108) | 130 | (183)% |

33

#### Three Months Ended

Other income (expense), net decreased by $162 thousand, to $82 thousand in the three months ended June 30, 2022 from $80 thousand in the three months ended June 30, 2021. The decrease was primarily driven by foreign currency transaction losses in three months ended June 30, 2021.

#### Six Months Ended

Other income, net decreased by $238 thousand, to $108 thousand in the six months ended June 30, 2022 from $130 thousand in the six months ended June 30, 2021. The decrease was primarily driven by foreign currency transaction losses in six months ended June 30, 2021.

### Provision for (benefit from) income taxes

*(In thousands, except percentages)*

|  | Three Months Ended June 30, 2022 | 2021 | % Change 2022 | Six Months Ended June 30, 2021 |  | % Change |
| --- | ---: | ---: | --- | ---: | ---: | --- |
| Provision for (benefit from) income taxes | $(155) | $65 | NM | $(367) | $107 | NM |

#### Three Months Ended

Provision for (benefit from) income taxes increased by $220 thousand to a (benefit from) income taxes of $155 thousand in the three months ended June 30, 2022 from a provision for income taxes of $65 thousand in the three months ended June 30, 2021. The increase was primarily driven by the reversal of net deferred tax liabilities related to the acquisition of Aarki.

#### Six Months Ended

Provision for (benefit from) income taxes increased by $474 thousand to a (benefit from) income taxes of $367 thousand in the six months ended June 30, 2022 from a provision for income taxes of $107 thousand in the six months ended June 30, 2021. The increase was primarily driven by the reversal of net deferred tax liabilities related to the acquisition of Aarki.

### Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measure is useful in evaluating our operational performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively with GAAP financial information, may be helpful to investors in assessing our operating performance. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP.

### Adjusted EBITDA

“Adjusted EBITDA” is defined as net income (loss), excluding interest income (expense); change in fair value of common stock warrant liabilities; other (expense) income, net; (benefit from) provision for income tax; depreciation and amortization; stock-based compensation expense and related payroll tax expense; and certain other non-cash or non-recurring items impacting net income (loss) from time to time, including, but not limited to acquisition related expenses for transaction costs, loss contingency accruals and restructuring charges, as they are not indicative of business operations. Adjusted EBITDA is intended as a supplemental measure of our performance that is neither required by, nor presented in accordance with, GAAP. We believe that the use of Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the Company’s financial measures with those of comparable companies, which may present similar non-GAAP financial measures to investors. However, you should be aware that when evaluating Adjusted EBITDA we may incur future expenses similar to those excluded when calculating this measure. In addition, our presentation of this measure should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate Adjusted EBITDA in the same fashion.

Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA on a supplemental basis. You should review the reconciliation of net loss to Adjusted EBITDA below and not rely on any single financial measure to evaluate our business.

The following table reconciles net loss to Adjusted EBITDA for the periods indicated (in thousands):

|  | Three Months Ended June 30, 2022 | 2021 | Six Months Ended June 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Net loss | $(60,611) | $(79,595) | $(208,724) | $(133,187) |
| Interest expense, net | 7,596 | 25 | 15,753 | 49 |
| Stock-based compensation(3) | 13,820 | 15,774 | 91,745 | 26,719 |
| Change in fair value of common stock warrant liabilities | (1,023) | 29,595 | (5,485) | 31,703 |
| (Benefit from) provision for income taxes | (155) | 65 | (367) | 107 |
| Depreciation and amortization | 5,846 | 547 | 11,384 | 1,102 |
| Other expense (income), net | 82 | (80) | 108 | (130) |
| Restructuring charges(4) | 2,933 | — | 2,933 | — |
| One-time nonrecurring expenses (1) (2) | (93) | 2,090 | 26 | 10,929 |
| Adjusted EBITDA | $(31,605) | $(31,579) | $(92,627) | $(62,708) |

(1) For the three and six months ended June 30, 2022, amounts represent one-time nonrecurring expenses related to IPO bonuses for certain employees, net of amounts forfeited by terminated employees.

(2) For the three and six months ended June 30, 2021, amounts represent one-time nonrecurring expenses related to the follow-on offering, Aarki acquisition, and executive severance expense.

(3) For the six months ended June 30, 2022, amount includes stock-based compensation recognized for the cancellation of the Chief Executive Officer’ award of 16,119,540 performance share units granted on September 14, 2021 (the “CEO Performance Stock Units”). Please refer to Note 13, Stock-Based Compensations.

(4) For the three and six months ended June 30, 2022, amount includes restructuring charges related to employee termination benefits. Please refer to Note 5, Restructuring, for more details.

### Liquidity and Capital Resources

Since inception, we have financed our operations primarily from the sales of capital stock. As of June 30, 2022, our principal sources of liquidity were our cash and cash equivalents in the amount of $170.0 million, which are primarily invested in money market funds and marketable securities with maturities of less than three months, and marketable securities in the amount of $419.6 million.

As of June 30, 2022, the Company had 4,535,728 Private Warrants outstanding. During the six months ended June 30, 2022, there was no exercise of any Private Warrants.

In December 2021, the Company offered $300 million in aggregate principal senior secured notes due 2026 in a private offering. The notes were sold in a private placement to qualified institutional buyers. Annual interest started to accrue from December 20, 2021 at a stated rate of 10.25%, and will be payable semiannually on June 15 and December 15 of each year, beginning on June 15, 2022. The notes will mature on December 15, 2026. We intend to use the net proceeds from the offering for general corporate purposes, which may include potential investments in or acquisitions of other companies, products, or technologies that we may identify in the future. The notes contain customary covenants restricting our and certain of our subsidiaries’ ability to incur debt, incur liens, make distributions to holders of our stock, make certain transactions with our affiliates, as well as certain financial covenants specified in the indentures. We were in compliance with all covenants applicable to the notes as of June 30, 2022.

We are aware that our outstanding debt securities are currently trading at substantial discounts to their respective principal amounts. In order to reduce future cash interest payments, as well as future amounts due at maturity or upon redemption, we may, from time to time, seek to retire or purchase our outstanding debt through cash purchases, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

As of the date of this statement, our existing liquidity resources are sufficient to continue operating activities for at least one year past the issuance date of the condensed consolidated financial statements. Our future cash requirements will depend on many factors, including the level of cash necessary to fund our operations, including our sales and marketing activities. We also may require sources of liquidity to invest in or acquire complementary businesses, applications or technologies.

The following table provides a summary of cash flow data (in thousands):

|  | Six Months Ended June 30, 2022 | 2021 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(145,014) | $(64,990) |
| Net cash provided by (used in) investing activities | $76,312 | $(3,508) |
| Net cash provided by (used in) financing activities | $(2,641) | $498,548 |

### Cash Flows from Operating Activities

Our cash flows from operating activities are significantly affected by the growth of our business primarily related to research and development, sales and marketing, and general and administrative activities. Our operating cash flows are also affected by our working capital needs to support growth in personnel-related expenditures and fluctuations in accounts payable and other current assets and liabilities.

Net cash used in operating activities was $145.0 million for the six months ended June 30, 2022. The most significant component of our cash used during this period was a net loss of $208.7 million , which included non-cash expenses of $91.7 million related to stock-based compensation, including $65.1 million related to the cancellation of performance stock units granted to our CEO, non-cash income of $5.5 million for the change in fair value related to Private Common Stock Warrants, $11.4 million related to depreciation and amortization, and net cash outflows of $38.3 million from changes in operating assets and liabilities. The net cash outflows from changes of operating assets and liabilities were primarily the result of an increase in prepaid expense and other assets of $5.1 million, a decrease in accounts payable of $17.2 million, and a decrease in other liabilities of $18.9 million.

Net cash used in operating activities was $65.0 million for the six months ended June 30, 2021. The most significant component of our cash used during this period was a net loss of $133.2 million, which included non-cash expenses of $31.7 million for the change in fair value related to Public and Private Common Stock Warrants, $26.7 million related to stock-based compensation, $1.1 million related to depreciation and amortization, accretion of unamortized discounts and amortization of issuance costs, and net cash inflows of $8.7 million from changes in operating assets and liabilities. The net cash inflows from changes of operating assets and liabilities were primarily the result of an increase in other liabilities of $15.9 million, primarily related to an increase in accrued sales and marketing costs.

### Cash Flows from Investing Activities

Net cash provided by investing activities was $76.3 million for the six months ended June 30, 2022. The net cash used in investing activities included $327.5 million for purchases of marketable securities, partially offset by $79.1 million in proceeds from sales of marketable securities and $325.1 million in proceeds from maturities of marketable securities.

Net cash used in investing activities was $3.5 million for the six months ended June 30, 2021. The net cash used in investing activities included a $2.0 million investment in non-marketable equity securities, and $1.5 million in purchases of property and equipment, including internal-use software.

### Cash Flows from Financing Activities

Net cash used in financing activities was $2.6 million for six months ended June 30, 2022, which was primarily due to $2.0 million in payments for debt issuance costs and $1.5 million in principal payments on finance lease obligations.

Net cash provided by financing activities was $498.5 million for six months ended June 30, 2021, which was primarily due to $402.1 million in net proceeds from the issuance of common stock in connection with the Company’s follow-on offering and $109.5 million of proceeds from the exercise of common stock warrants, partially offset by $13.2 million in payments made towards offering costs.

### Contractual Obligations and Commitments

Our material cash requirements include the following contractual and other obligations.

### Leases

We have operating lease arrangements for office space, and finance lease agreements for certain network equipment. As of June 30, 2022, we had lease payment obligations of $25.1 million, of which $5.3 million is payable within 12 months.

### Secured Notes and Term Loan

Refer to “Liquidity and Capital Resources” under Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Form 10-Q for more information.

### Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

### Critical Accounting Policies and Estimates

See critical accounting policies and estimates in our Form 10-K filed March 1, 2022 as there have been no material changes.

### Recent Accounting Pronouncements

See Note 2 to our condensed consolidated financial statements for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial condition and our results of operations.

## Market risk

As filed, 1,388 characters.

We are exposed to a variety of market and other risks, including the effects of changes in interest rates, inflation, as well as risks to the availability of funding sources.

### Interest Rate Risk

The market risk inherent in our financial instruments and our financial position represents the potential loss arising from adverse changes in interest rates. As of June 30, 2022, we had cash and cash equivalents of $170.0 million, which consisted of money market fund accounts and commercial papers for which the fair market value would be affected by changes in the general level of U.S. interest rates. As of June 30, 2022, we had marketable securities of $419.6 million, which primarily consisted of U.S government, corporate debt securities, asset backed securities, commercial paper, and debt instruments issued by foreign governments, for which the fair market value would be affected by changes in the general level of interest rates. We limit the amount of credit exposure to any one issuer. Our investments carry a degree of interest rate risk. However, due to the low-risk profile of our investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of our cash and cash equivalents and marketable securities.

### Foreign Currency Risk

There was no material foreign currency risk for the six months ended June 30, 2022 and 2021.

## Controls and procedures

As filed, 7,154 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), as of June 30, 2022, the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of such date, our disclosure controls and procedures were not effective as a result of previously disclosed material weaknesses in our internal control over financial reporting as described below.

Notwithstanding the material weaknesses, management has concluded that our condensed consolidated financial statements present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in this Form 10-Q, in conformity with GAAP.

### Material Weaknesses

As previously disclosed in our management’s report on internal control over financial reporting within the Form 10-K for the year ended December 31, 2021, we identified material weaknesses in our internal control over financial reporting with respect to the following:

- Information technology general controls (ITGCs) in the areas of access and program change over information technology (IT) systems that support the Company’s financial reporting processes were not designed and operating effectively. Specifically, the Company did not maintain sufficient: user access controls to ensure appropriate segregation of duties and adequately restrict user and privileged access to financial applications, programs and data to appropriate Company personnel; program change management controls to ensure that IT program and data changes affecting financial information technology applications and underlying records are identified, tested, authorized, and implemented appropriately. As a result, the Company’s related IT dependent manual and application controls that rely upon the affected ITGCs, or information coming from IT systems with affected ITGCs were also deemed ineffective.
- Controls designed to properly evaluate certain accounting processes, including where management review is involved, did not operate effectively due to lack of sufficient documentation or evidence retained to demonstrate management’s review.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

### Remediation of Material Weaknesses

During the three months ended June 30, 2022, we continued to design and implement internal control measures to improve our internal control over financial reporting and remediate the material weaknesses. Our efforts included a number of actions:

- ITGC: We are continuing to design and implement improved processes and controls for requesting, authorizing, and reviewing user access to key information systems which impact our financial reporting. This includes the addition of new control activities associated with user access provisioning within our key applications, as well as certain controls which review user access and activity logs. Additionally, we are redesigning our permissions associated with role-based access to our general ledger as well as designing and implementing compensating controls. We also are designing and implementing improved processes and controls over program changes within our key information systems which impact our financial reporting.
- Management Review Controls: We continue to reinforce management review control training for our accounting department to strengthen documentation and retention of evidence to be commensurate with risks associated with accounting processes involving complexity, subjectivity, and estimation uncertainties for specific transactions.

While these actions and planned actions are subject to ongoing management evaluation and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles, we believe that these remediation actions, when fully implemented, will remediate the material weaknesses we have identified and strengthen our internal control over financial reporting. We are committed to the continuous improvement of our internal control over financial reporting. As we continue to evaluate and work to improve our internal control over financial reporting, we may take additional measures to address control deficiencies, or we may modify, or in appropriate circumstances not complete, certain of the remediation work described above.

### Changes in Internal Control over Financial Reporting

Other than the significant changes noted above associated with the material weaknesses and corresponding remediation procedures as described above, there was no change in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15b-15(d) of the Exchange Act during the first quarter of 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### Limitations on Effectiveness of Controls and Procedures

Our management, including our principal executive officer and principal financial officer, do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Due to inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

## Risk factors

As filed, 153 characters.

There have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.

Filed Aug 4, 2022.
Source: SEC EDGAR, the filing index for accession 0001628280-22-021059. Last ingested by Listed: Oct 27, 2026, 16:12 ET. No prices; not investment advice.