QUARTERLY
REPORT
For
the quarterly period ended June 30, 2020
Doofus
Corporation
021-344061 (Securities
and Exchange Commission File Number) |
|
|
|
Delaware |
37-1836035 |
Badenerstrasse 549, 8048
Zurich
Switzerland
(Address of Principal Executive
Offices)
+41 44 551 0005
(Telephone
Number)
The number of shares of
common stock outstanding as of June 30, 2020 was 502,500,000.
TABLE
OF CONTENTS
|
|
Page |
|
PART
I – FINANCIAL INFORMATION |
|
Item 1. |
Financial Statements
(Unaudited) |
4 |
|
Balance Sheets as of June
30, 2020 and December 31, 2019 |
4 |
|
Statements of Operations
for the Three and Six Months Ended June 30, 2020 and June 30, 2019 |
5 |
|
Statements of
Comprehensive Loss for the Three and Six Months Ended June 30, 2020 and June
30, 2019 |
6 |
|
Statements of Stockholders’
Equity for the Three and Six Months Ended June 30, 2020 and June 30, 2019 |
7 |
|
Statements of Cash Flows
for the Six Months Ended June 30, 2020 and June 30, 2019 |
8 |
|
Notes to Financial
Statements |
9 |
Item 2. |
Management’s Discussion
and Analysis of Financial Condition and Results of Operations |
14 |
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. |
Sales or Issues of
Unregistered Equity Securities and Use of Proceeds |
32 |
Item 3. |
Signature |
33 |
|
|
|
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
(Unaudited)
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 |
|
Six Months Ended |
||||||||
|
|
June 30, |
|
June 30, |
||||||||
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||
Revenue |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
Research and Development |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
Sales and Marketing |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
General and Administrative |
|
|
25,945 |
|
|
280 |
|
|
28,130 |
|
|
960 |
Total Costs and Expenses |
|
|
25,945 |
|
|
280 |
|
|
28,130 |
|
|
960 |
Loss from Operations |
|
|
(25,945) |
|
|
(280) |
|
|
(28,130) |
|
|
(960) |
Interest Expense |
|
|
(1) |
|
|
- |
|
|
(1) |
|
|
- |
Interest Income |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
Other Expense, Net |
|
|
(286) |
|
|
32 |
|
|
(291) |
|
|
(22) |
Income Before Income Taxes |
|
|
(26,232) |
|
|
|
|
|
(28,422) |
|
|
(982) |
Benefit for Income Taxes |
|
|
4,407 |
|
|
52 |
|
|
4,775 |
|
|
176 |
Net Loss |
|
$ |
(21,825) |
|
$ |
(196) |
|
$ |
(23,647) |
|
$ |
(806) |
Net Loss per Share Attributable to Common Stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.00008) |
|
$ |
(0.0000004) |
|
$ |
(0.00005) |
|
$ |
(0.000002) |
Diluted |
|
$ |
(0.00008) |
|
$ |
(0.0000004) |
|
$ |
(0.00005) |
|
$ |
(0.000002) |
Weighted-Average Shares
Used to Compute Net Loss per Share Attributable to Common Stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
501,730,769 |
|
|
500,016,484 |
|
|
501,615,385 |
|
|
500,008,287 |
Diluted |
|
|
501,730,769 |
|
|
500,016,484 |
|
|
501,615,385 |
|
|
500,008,287 |
The
accompanying notes are an integral part of these financial statements.
DOOFUS
CORPORATION
STATEMENTS
OF COMPREHENSIVE LOSS
(Unaudited)
|
|
Three Months Ended |
|
Six Months Ended |
||||||||
|
|
June 30, |
|
June 30, |
||||||||
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||
Net Loss |
|
$ |
(21,825) |
|
$ |
(196) |
|
$ |
(23,647) |
|
$ |
(806) |
Other Comprehensive Loss,
Net of Tax: |
|
|
|
|
|
|
|
|
|
|
|
|
Change in Foreign Currency
Translation Adjustment |
|
|
(174) |
|
|
(54) |
|
|
(393) |
|
|
(11) |
Net
Change in Accumulated Other Comprehensive Loss |
|
|
(174) |
|
|
(54) |
|
|
(393) |
|
|
(11) |
Comprehensive Loss |
|
$ |
(21,999) |
|
$ |
(250) |
|
$ |
(24,040) |
|
$ |
(817) |
The
accompanying notes are an integral part of these financial statements.
DOOFUS
CORPORATION
STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
|
|
Three Months Ended |
|
Six Months Ended |
||||||||||||||||
|
|
June 30, |
|
June 30, |
||||||||||||||||
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||||||||||
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
||||
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, Beginning of Period |
|
501,500,000 |
|
$ |
502 |
|
500,000,000 |
|
$ |
500 |
|
501,500,000 |
|
$ |
502 |
|
500,000,000 |
|
$ |
500 |
Issuance of Common Stock |
|
1,000,000 |
|
|
1 |
|
500,000 |
|
|
1 |
|
1,000,000 |
|
|
1 |
|
500,000 |
|
|
1 |
Balance,
End of Period |
|
502,500,000 |
|
|
503 |
|
500,500,000 |
|
|
501 |
|
502,500,000 |
|
|
503 |
|
500,500,000 |
|
|
501 |
Additional Paid-In Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, Beginning of Period |
|
- |
|
|
14,998 |
|
- |
|
|
- |
|
- |
|
|
14,998 |
|
- |
|
|
- |
Issuance of Common Stock |
|
- |
|
|
9,999 |
|
- |
|
|
4,999 |
|
- |
|
|
9,999 |
|
- |
|
|
4,999 |
Balance,
End of Period |
|
- |
|
|
24,997 |
|
- |
|
|
4,999 |
|
- |
|
|
24,997 |
|
- |
|
|
4,999 |
Accumulated Other Comprehensive Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, Beginning of Period |
|
- |
|
|
(100) |
|
- |
|
|
22 |
|
- |
|
|
(26) |
|
- |
|
|
- |
Other Comprehensive Loss |
|
- |
|
|
(174) |
|
- |
|
|
(54) |
|
- |
|
|
(393) |
|
- |
|
|
(11) |
Balance,
End of Period |
|
- |
|
|
(274) |
|
- |
|
|
(32) |
|
- |
|
|
(419) |
|
- |
|
|
(11) |
Accumulated Deficit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, Beginning of Period |
|
- |
|
|
(17,117) |
|
- |
|
|
(4,830) |
|
- |
|
|
(15,150) |
|
- |
|
|
(4,241) |
Net Loss |
|
- |
|
|
(21,825) |
|
- |
|
|
(196) |
|
- |
|
|
(23,647) |
|
- |
|
|
(806) |
Balance,
End of Period |
|
- |
|
|
(38,942) |
|
- |
|
|
(5,026) |
|
- |
|
|
(38,797) |
|
- |
|
|
(5,047) |
Total Stockholders' Equity |
|
502,500,000 |
|
$ |
(13,716) |
|
500,500,000 |
|
$ |
442 |
|
502,500,000 |
|
$ |
(13,716) |
|
500,500,000 |
|
$ |
442 |
The
accompanying notes are an integral part of these financial statements.
DOOFUS
CORPORATION
STATEMENTS
OF CASH FLOWS
(Unaudited)
|
|
|
|
Six Months Ended |
||||||||
|
|
|
|
June 30, |
||||||||
|
|
|
|
|
|
2020 |
|
2019 |
||||
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
|
|
|
|
|
|
$ |
(23,647) |
|
$ |
(805) |
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities: |
|
|
|
|
|
|
|
|
|
|||
Depreciation and Amortization Expense |
|
|
|
|
|
|
|
|
479 |
|
|
- |
Deferred Income Taxes |
|
|
|
|
|
|
|
|
(4,842) |
|
|
(176) |
Other Adjustments |
|
|
|
|
|
|
|
|
(126) |
|
|
44 |
Changes in Assets and
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid Expenses and Other Assets |
|
|
|
|
|
|
|
|
(1,079) |
|
|
(135) |
Accounts Payable |
|
|
|
|
|
|
|
|
3,579 |
|
|
- |
Accrued and Other Liabilities |
|
|
|
|
|
|
|
|
14,753 |
|
|
- |
Net Cash Used in
Operating Activities |
|
|
|
|
|
|
|
|
(10,883) |
|
|
(1,072) |
Cash Flows from Investing
Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of Property and
Equipment |
|
|
|
|
|
|
|
|
(1,649) |
|
|
- |
Net Cash Used in Investing Activities |
|
|
|
|
|
|
|
|
(1,649) |
|
|
- |
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from Debt |
|
|
|
|
|
|
|
|
2,700 |
|
|
738 |
Proceeds from Issuances of
Common Stock |
|
|
|
|
|
|
|
|
10,000 |
|
|
5,000 |
Net Cash Provided by Financing Activities |
|
|
|
|
|
|
|
|
12,700 |
|
|
5,738 |
Net Increase in Cash, Cash Equivalents and Restricted Cash |
|
|
|
|
|
168 |
|
|
4,666 |
|||
Foreign Exchange Effect on
Cash, Cash Equivalents and Restricted Cash |
|
|
|
|
|
(292) |
|
|
(22) |
|||
Cash, Cash Equivalents and Restricted Cash at Beginning of Period |
|
|
|
|
|
|
|
|
369 |
|
|
286 |
Cash, Cash Equivalents and
Restricted Cash at End of Period |
|
|
|
|
|
|
|
$ |
245 |
|
$ |
4,930 |
Supplemental Disclosures of Non-Cash Investing and Financing
Activities |
|
|
|
|
|
|
|
|
|
|||
Changes in Accrued Property and Equipment
Purchases |
|
|
|
|
|
|
|
|
(1,649) |
|
|
- |
Reconciliation of Cash, Cash Equivalents and
Restricted Cash as Shown in the Statements of Cash Flows |
|
|
|
|
|
|
||||||
Cash and Cash Equivalents |
|
|
|
|
|
|
|
$ |
245 |
|
$ |
4,930 |
Restricted Cash Included
in Prepaid Expenses and Other Current Assets |
|
|
|
|
|
- |
|
|
- |
|||
Restricted Cash Included in Other Assets |
|
|
|
|
|
|
|
|
- |
|
|
- |
Total Cash, Cash
Equivalents and Restricted Cash |
|
|
|
|
|
|
|
$ |
245 |
|
$ |
4,930 |
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 June 30, 2020 and December 31, 2019 and the statements
of operations, the statements of comprehensive income, statements of
stockholders’ equity and the statements of cash flows for the three and
six months ended June 30, 2020, respectively, and for
the three and six months ended June 30, 2019, 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 interim 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.
Prior
Period Reclassifications
Certain prior
period amounts have been reclassified to conform to the current period
presentation.
Prior
Period Restatements
The
Corporation’s financial statements for 2019 and for the three months ended
March 31, 2020 have been restated for the effect of foreign currency
translation adjustments that were made in the conversion of its Zurich branch’s
financial statements from Swiss francs. As the financial statements are not
determined to be materially misstated, the Corporation is not required to issue
restated financial statements for 2019 and for the three months ended March 31,
2020.
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.
COVID-19
Impacts
The COVID-19
pandemic has caused widespread economic disruption and has impacted the Corporation
in several ways. The Corporation expects the extent of the impact on its
financial and operational results will depend on the duration and severity of
the economic disruption caused by the COVID-19 pandemic.
The Corporation considered the impacts of the COVID-19
pandemic on its significant estimates and judgments used in applying its
accounting policies in the three and six months ended June 30, 2020. In light
of the pandemic, there is a greater degree of uncertainty in applying these
judgments and depending on the duration and severity of the pandemic, changes
to its estimates and judgments could result in a meaningful impact on the
Corporation’s financial statements in future periods.
Recent
Accounting Pronouncements
In December
2019, the FASB issued a new accounting standard update to simplify the
accounting for income taxes. The new guidance removes certain exceptions for
recognizing deferred taxes for investments, performing intraperiod allocation
and calculating income taxes in interim periods. It also adds guidance to
reduce complexity in certain areas, including recognizing deferred taxes for
tax goodwill and allocating taxes to members of a consolidated group. The Corporation
adopted this guidance on January 1, 2020, using the modified retrospective
method, and the adoption did not have a material impact on the Corporation's
financial statements and related disclosures.
With the
exception of the standards discussed above, there have been no other recent
accounting pronouncements or changes in accounting pronouncements during the
three and six months ended June 30, 2020, as compared to the recent accounting
pronouncements described in the Corporation's Financial Statements for the
fiscal year ended December 31, 2019, 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, 2019.
Note 2. Revenue
Revenue
Recognition
The
Corporation is pre-revenue and will derive its revenues from 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:
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
||
|
|
|
|
|
|
|
|
2020 |
|
2019 |
||
Cash |
|
|
|
|
|
|
|
$ |
245 |
|
$ |
369 |
Total |
|
|
|
|
|
|
|
$ |
245 |
|
$ |
369 |
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:
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
||
|
|
|
|
|
|
|
|
2020 |
|
2019 |
||
Prepaid Expenses |
|
|
|
|
|
|
|
$ |
1,011 |
|
$ |
184 |
Total |
|
|
|
|
|
|
|
$ |
1,011 |
|
$ |
184 |
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:
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
||
|
|
|
|
|
|
|
|
2020 |
|
2019 |
||
Property and Equipment, Net |
|
|
|
|
|
|
|
|
|
|
|
|
Equipment |
|
|
|
|
|
|
|
$ |
1,648 |
|
$ |
- |
Total |
|
|
|
|
|
|
|
|
1,648 |
|
|
- |
Less: Accumulated
Depreciation and Amortization |
|
|
|
|
|
|
|
|
(479) |
|
|
- |
Property and Equipment,
Net |
|
|
|
|
|
|
|
$ |
1,169 |
|
$ |
- |
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
||
|
|
|
|
|
|
|
|
2020 |
|
2019 |
||
Property and Equipment, Net |
|
|
|
|
|
|
|
|
|
|
|
|
Switzerland |
|
|
|
|
|
|
|
$ |
1,169 |
|
$ |
- |
United States |
|
|
|
|
|
|
|
|
- |
|
|
- |
Total Property and Equipment, Net |
|
|
|
|
|
|
|
$ |
1,169 |
|
$ |
- |
Note 8. Other Assets
The following
table presents the detail of other assets for the periods presented:
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
||
|
|
|
|
|
|
|
|
2020 |
|
2019 |
||
Security Deposits |
|
|
|
|
|
|
|
$ |
252 |
|
$ |
- |
Total |
|
|
|
|
|
|
|
$ |
252 |
|
$ |
- |
Note 9. Accrued and Other
Current Liabilities
The following
table presents the detail of accrued and other current liabilities for the
periods presented:
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
||
|
|
|
|
|
|
|
|
2020 |
|
2019 |
||
Accrued Compensation |
|
|
|
|
|
|
|
$ |
11,315 |
|
$ |
- |
Accrued Social Security |
|
|
|
|
|
|
|
|
2,612 |
|
|
- |
Accrued Tax Liabilities |
|
|
|
|
|
|
|
|
(216) |
|
|
- |
COVID-19 Assistance Loan |
|
|
|
|
|
|
|
|
1,051 |
|
|
- |
Credit Cards |
|
|
|
|
|
|
|
|
(9) |
|
|
- |
Total |
|
|
|
|
|
|
|
$ |
14,753 |
|
$ |
- |
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 |
|
Six Months Ended |
||||||||
|
|
June 30, |
|
June 30, |
||||||||
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||
Basic Net Loss per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
Numerator |
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
$ |
(21,825) |
|
$ |
(196) |
|
$ |
(23,647) |
|
$ |
(806) |
Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Common
Shares Outstanding |
|
|
501,730,769 |
|
|
500,016,484 |
|
|
501,615,385 |
|
|
500,008,287 |
Weighted-Average Shares Used to Compute
Basic Net Loss per Share |
|
|
501,730,769 |
|
|
500,016,484 |
|
|
501,615,385 |
|
|
500,008,287 |
Basic Net Loss per Share Attributable to Common Stockholders |
|
$ |
(0.00008) |
|
$ |
(0.0000004) |
|
$ |
(0.00005) |
|
$ |
(0.000002) |
Diluted Net Loss per
Share: |
|
|
|
|
|
|
|
|
|
|
|
|
Numerator |
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
$ |
(21,825) |
|
$ |
(196) |
|
$ |
(23,647) |
|
$ |
(806) |
Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares Used in Basic Computation |
|
|
501,730,769 |
|
|
500,016,484 |
|
|
501,615,385 |
|
|
500,008,287 |
Weighted-Average Shares
Used to Compute Diluted Net Loss |
|
|
501,730,769 |
|
|
500,016,484 |
|
|
501,615,385 |
|
|
500,008,287 |
Diluted Net Loss per Share
Attributable to Common Stockholders |
|
$ |
(0.00008) |
|
$ |
(0.0000004) |
|
$ |
(0.00005) |
|
$ |
(0.000002) |
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.
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 an income tax benefit of $4,407 and $4,775 for
the three and six months ended June 30, 2020, respectively, and an income
tax benefit of $52 and $176 for the three and six months ended June 30, 2019,
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 June 30,
2020, the Corporation had $8,240 of unrecognized tax benefits 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, 2021. 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 June 30, 2020, $5,585 had been drawn under the credit
facility compared to $3,314 on June 30, 2019.
Contractual
Obligations
The Corporation
had no contractual commitments for the three and six months
ended June 30, 2020, respectively, and for the three and six months ended
June 30, 2019, respectively.
Legal
Proceedings
The Corporation
was not involved in any legal proceedings, claims, investigations, and
government inquiries and investigations for the three and six months ended June
30, 2020, respectively, and for the three and six months ended June 30, 2019,
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 six months ended June 30, 2020, respectively, and
for the three and six months ended June 30, 2019, 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 six
months ended June 30, 2020, respectively, and in the three and six months ended
June 30, 2019, 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 six months ended June 30, 2020,
respectively, and for the three and six months ended June 30, 2019,
respectively.
Net loss was $21,825
and $23,647 for the three and six months ended June 30, 2020, respectively,
compared to net loss of $196 and $806 for the three and six months ended June 30,
2019.
Loss from
operations was $25,945 and $28,130 for the three and six months ended June 30,
2020, respectively, compared to loss from operations of $280 and $960 for the
three and six months ended June 30, 2019, respectively.
Cash, cash equivalents
and restricted cash totaled $245 as of June 30, 2020.
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.
Given the
unprecedented uncertainty and rapidly shifting market conditions of the
business environment, we cannot reasonably estimate the full impacts of the
COVID-19 pandemic on our future financial and operational results. We continue
to monitor the evolving situation and guidance from international and domestic
authorities, including federal, state and local public
health authorities, and there may be developments outside our control requiring
us to adjust our operating plan. As such, given the unprecedented uncertainty
around the duration and severity of the impact on market conditions and the business
environment, we cannot reasonably estimate the full impacts of the COVID-19
pandemic on our operating results in the future.
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 |
|
Six Months Ended |
||||||||
|
|
June 30, |
|
June 30, |
||||||||
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||
Revenue |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
Research and Development |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
Sales and Marketing |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
General and Administrative |
|
|
25,945 |
|
|
280 |
|
|
28,130 |
|
|
960 |
Total Costs and Expenses |
|
|
25,945 |
|
|
280 |
|
|
28,130 |
|
|
960 |
Loss from Operations |
|
|
(25,945) |
|
|
(280) |
|
|
(28,130) |
|
|
(960) |
Interest Expense |
|
|
(1) |
|
|
- |
|
|
(1) |
|
|
- |
Interest Income |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
Other Expense, Net |
|
|
(286) |
|
|
32 |
|
|
(291) |
|
|
(22) |
Income Before Income Taxes |
|
|
(26,232) |
|
|
|
|
|
(28,422) |
|
|
(982) |
Benefit for Income Taxes |
|
|
4,407 |
|
|
52 |
|
|
4,775 |
|
|
176 |
Net Loss |
|
$ |
(21,825) |
|
$ |
(196) |
|
$ |
(23,647) |
|
$ |
(806) |
Revenue
No revenue was
generated for the three and six months ended June 30, 2020, respectively, and for
the three and six months ended June 30, 2019, respectively.
Cost of
Revenue
No cost of
revenue was incurred for the three and six months ended June 30, 2020,
respectively, and for the three and six months ended June 30, 2019,
respectively.
Research
and Development
No research
and development costs were incurred for the three and six months ended June 30,
2020, respectively, and for the three and six months ended June 30, 2019,
respectively.
Sales
and Marketing
No sales and marketing costs were incurred for the three and
six months ended June 30, 2020, respectively, and for the three and six months
ended June 30, 2019, respectively.
General
and Administrative
General and
administrative expenses consist primarily of personnel-related costs, including
salaries, benefits, and social security contributions 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.
In the three and
six months ended June 30, 2020, general and administrative expenses increased
by $25,665 and $27,170 respectively, compared to the three and six months ended
June 30, 2019, respectively. The increases were attributable to an increase in
personnel-related costs mainly driven by an increase in employee headcount, facilities,
and other supporting overhead expenses.
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 in the three and six months ended June 30, 2020
comprised $1 and $1, respectively. No interest expense was incurred for the
three and six months ended June 30, 2019, respectively.
Interest
Income
No interest
income was generated for the three and six months ended June 30, 2020,
respectively, and for the three and six months ended June 30, 2019, respectively.
Other
Expense, Net
Other expense,
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.
Benefit
for Income Taxes
Our benefit
from income taxes increased by $4,355 and $4,599 in the three and six months
ended June 30, 2020, respectively, compared to the three and six months ended June
30, 2019, respectively. In the three and six months ended June 30, 2020, the
benefit from income taxes was $4,407 and $4,775 respectively, and in the three and
six months ended June 30, 2019 the benefit from income
taxes was $52 and $176 respectively. The increase in benefit from income taxes
was due to the increase in loss before tax.
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,
2021. 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 June 30, 2020, $5,585 had been
drawn under the credit facility compared to $3,314 on June 30, 2019.
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 fluctuations
in our revenue and increases in operating expenses. For additional discussion,
see “Part II – Other Information, Item 1A. Risk Factors.”
Cash used by
operating activities in the six months ended June 30, 2020 was $10,883, an increase
in cash outflow of $9,811 compared to the six months ended June 30, 2019. Cash used
by operating activities was driven by a net loss of $23,647, as adjusted for
the exclusion of non-cash expenses and other adjustments totaling $12,764, of
which $479 was related to depreciation and amortization expense, and $12,285 was
related to the effect of changes in working capital and other carrying
balances.
Cash used by
operating activities in the six months ended June 30, 2019 was $1,072. Cash used
by operating activities was driven by net loss of $805, as adjusted for the
exclusion of non-cash expenses and other adjustments totaling $267.
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 six months ended June 30, 2020 was $1,649, an increase in cash outflow of $1,649 compared
to the six months ended June 30, 2019. The increase was primarily due to a $1,649
increase in purchases of property and equipment in the six months ended June 30,
2020.
Financing
Activities
Our primary
financing activities consist of loans from directors and stockholders.
Cash provided
by financing activities in the six months ended June 30, 2020 was $12,700,
compared to $5,738 in the six months ended June 30, 2019. The change was
primarily due to $10,000 in proceeds from the issuances of common stock in the six
months ended June 30, 2020.
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
June 30, 2020.
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, 2019 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, 2019.
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 we 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
six months ended June 30, 2020 and 2019.
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 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 June 30, 2020, 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 15d15(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 Quarterly 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.
Risks Related to Our
Business and Our Industry
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 virtually
events and meetings. 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.
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 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 United
States 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 on 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 attracts, 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 product features, products and services. We focus on improving the experience
for users using our products and services, which includes protecting their
privacy, and on 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.
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 member 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 is 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
quickly 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 focused 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 we need 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 and 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 action 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 are 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 of 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 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 fail to attract or retain users
or to generate sufficient revenue or operating profit to justify our
investments, and our business, financial condition and operating results would
be adversely impacted.
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 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.
If we
are unable to maintain and promote our brands, our business and operating
results may be harmed.
We believe
that promoting and growing our brands are 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 features, products, 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 may 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 about the
quality and reliability of our products or of 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
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, and
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/or 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 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 machines 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 websites, 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 United States;
·
compliance with anti-bribery laws including, without limitation,
compliance with the Foreign Corrupt Practices Act and the U.K. 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 the United States;
·
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 United States 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.
Our
business is subject to complex and evolving U.S. and foreign laws and
regulations. These laws and regulations are subject to change and uncertain
interpretation, and could result in claims, changes to our business practices,
monetary penalties, increased cost of operations or declines in user growth, user
engagement, or otherwise harm our business.
We are subject
to a variety of laws and regulations in the United States 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 United States. 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 4% 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-U.S. Privacy Shield Framework, the Swiss-U.S. 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,
following a referendum in June 2016 in which United Kingdom (“UK”) voters
approved an exit from the EU, the UK officially left the EU on January 31,
2020, with a transitional period set to end on December 31, 2020 (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. 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. Brexit has created uncertainty with regard to the requirements for data transfers between
the UK and the EU and other jurisdictions.
Legislative
changes in the United States, 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 United States could decrease or
change. Additionally, recent amendments to U.S. 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 United States 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 U.S. 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 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 United States and internationally. This risk may be enhanced in certain
jurisdictions outside the United States where we may be less protected under
local laws than we are in the United States. 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 United Kingdom, 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.
Our
intellectual property rights are valuable, and any inability to protect them
could reduce the value of our products, services, and brands.
Our trade
secrets, trademarks, copyrights and other intellectual
property rights are important assets. We rely on, and expect to continue to
rely on, a combination of confidentiality and license agreements with our
employees, consultants and third parties with whom we have relationships, as
well as trademark, trade dress, domain name, copyright, trade secret and patent
laws, to protect our brand and other intellectual property rights. However,
various events outside of our control pose a threat to our intellectual
property rights, as well as to our products, services
and technologies. For example, we may fail to obtain effective intellectual
property protection, or effective intellectual property protection may not be
available in every country in which our products and services are available.
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, 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 United States and in certain
jurisdictions outside of the United States. 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 websites
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 issues takedown notices or initiates 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.
We
expect to be in the future, party to intellectual property rights claims that
are expensive and time consuming to defend, and, if resolved adversely, 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.
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 quarterly
operating results may fluctuate and as a result, our past quarterly 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 U.S. 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.
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
U.S. 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 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.
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.
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 company,
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 the
Corporation’s 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.
Our debt
obligations could adversely affect our financial condition.
As of June 30,
2020, 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.
Our
business is subject to the risks of 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 geo-political unrest could cause
disruptions in our business. All of 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.
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 United States (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 U.S. tax law by changing how U.S.
income tax is assessed on multinational corporations. The U.S. 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
European Union. Some countries, in the European Union 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 United Kingdom, 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.
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 United States, or U.S. 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.
Our
ability to use our net operating loss carryforwards and certain other tax
attributes may be limited.
As of December
31, 2019, we had U.S. federal net operating loss carryforwards of approximately
$15,140. 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.
Risks Related to Ownership
of Our Common 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 Quarterly 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. Sales or Issues of
Unregistered Equity Securities and Use of Proceeds
Sales or
Issues of Unregistered 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 10, 2020
By: /s/ JACQUES FOURIE
Jacques Fourie
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 10, 2020
/s/ JACQUES FOURIE
Jacques Fourie
Chief Executive Officer
Principal Executive Officer