What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-04-01 compared with 2023-03-31 · 415 added, 415 removed, 632 unchanged (57% of the section changed)

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INDEX TO THE FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (BDO USA, LLP, San Jose, California, PCAOB ID# 243 )

Balance Sheets

Statements of Operations

Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit )

Statements of Cash Flows

Notes to Financial Statements

Report of Independent Registered Public Accounting Firm (BDO USA, P.C., San Jose, California, PCAOB ID # 243 )

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Changes in Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

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San Mateo, California

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Backblaze, Inc.

(the “Company”) as of December 31, 2022 and 2021, the related statements of operations, changes in convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the years then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended , in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 2 to the financial statements, the Company has changed its method for accounting for leases in the fiscal year 2022 due to the adoption of Topic 842:

Leases, using a modified retrospective approach.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Backblaze, Inc.

(the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended , in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

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Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ BDO USA, LLP

/s/ BDO USA, P.C.

We have served as the Company’s auditor since 2020.

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BACKBLAZE, INC.

BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

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Accounts receivable, net

Short-term investments 58,733 —

Short-term investments, net 16,799 58,733

Prepaid expenses and other current assets

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32,521 16,704

$ 131,687 $ 152,458

Liabilities and Stockholders’ Equity

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Deferred revenue, non-current

Other long-term liabilities

Debt facility, non-current 4,128 4,306

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Class B common stock, $ 0.0001 par value;

37,000,000 shares authorized as of December 31, 2022 and 2021;

17,195,404 and 22,156,842 shares issued and outstanding as of December 31, 2022 and 2021, respectively.

295,986 and 37,000,000 shares authorized as of December 31, 2023 and 2022;

zero and 17,195,404 shares issued and outstanding as of December 31, 2023 and 2022, respectively.

Additional paid-in capital

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$ 131,687 $ 152,458

See accompanying notes, which are an integral part of these financial statements.

See accompanying notes, which are an integral part of these consolidated financial statements.

BACKBLAZE, INC.

STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

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Investment income 1,984 965

Interest expense, net

( 4,289 ) ( 3,677 )

Gain on extinguishment of debt

Realized loss on SAFE — ( 1,436 )

Interest expense ( 3,792 ) ( 4,289 )

Loss before provision for income taxes

( 59,713 ) ( 51,437 )

Income tax (benefit) provision ( 39 ) 96

Income tax benefit — ( 39 )

$ ( 59,713 ) $ ( 51,398 )

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Weighted average shares used in computing net loss per share attributable to Class A and Class B common stockholders, basic and diluted (1)

See accompanying notes, which are an integral part of these financial statements.

36,011,446 31,662,301

(1) On July 6, 2023, all shares of the Company’s then outstanding Class B common stock were automatically converted into the same number of shares of Class A common stock, pursuant to the terms of the Company’s Amended and Restated Certificate of Incorporation.

No additional shares of Class B common stock will be issued following such conversion.

See Note 12 for further details.

See accompanying notes, which are an integral part of these consolidated financial statements.

BACKBLAZE, INC.

STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

Preferred Stock Class A and Class B Common Stock Additional

Shares Amount Shares Amount

Class A and Class B Common Stock (1)

Shares Amount

Balance as of December 31, 2021

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Net loss — — — ( 51,398 ) ( 51,398 )

Conversion of convertible preferred stock to common stock upon initial public offering ( 3,359,195 ) ( 2,784 ) 3,359,195 ( 3 ) 2,784 — 2,781

Issuance of Class A common stock upon initial public offering, net of underwriting discounts and commissions and other offering costs — — 7,187,500 1 103,142 — 103,143

Issuance of Class A common stock upon settlement of SAFE notes — — 722,860 — 11,566 — 11,566

Issuance of Class A and Class B common stock upon exercise of stock options 2,112,819 1 4,407 — 4,408

Issuance of Class A common stock under 2021 Plan, net of taxes withheld 321,720 — ( 130 ) — ( 130 )

Issuance of Class A common stock related to the 2021 Employee Stock Purchase Plan ("ESPP") 574,364 — 2,511 — 2,511

Stock-based compensation — — 17,871 — 17,871

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Net loss — — — ( 59,713 ) ( 59,713 )

Issuance of Class A and Class B common stock upon exercise of stock options — — 2,112,819 1 4,407 — 4,408

Issuance of Class A common stock under equity incentive plans, net of taxes withheld — — 321,720 — ( 130 ) — ( 130 )

Issuance of Class A common stock related to Employee Stock Purchase Plan ("ESPP") — — 574,364 — 2,511 — 2,511

Issuance of Class A common stock upon exercise of stock options 2,446,846 — 4,613 — 4,613

Issuance of Class A common stock under 2021 Plan 2,327,073 — — — —

Issuance of Class A common stock related to ESPP 695,046 — 2,339 — 2,339

Issuance of restricted stock units related to the 2022 Bonus Plan (See Note 13) 287,908 — 1,848 — 1,848

Stock-based compensation — — 27,103 — 27,103

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39,150,610 $ 4 $ 192,388 $ ( 147,454 ) $ 44,938

See accompanying notes, which are an integral part of these financial statements.

(1) On July 6, 2023, all shares of the Company’s then outstanding Class B common stock were automatically converted into the same number of Class A common stock, pursuant to the terms of the Company’s Amended and Restated Certificate of Incorporation.

No additional shares of Class B common stock will be issued following such conversion.

See Note 12 for further details.

See accompanying notes, which are an integral part of these consolidated financial statements.

BACKBLAZE INC.

STATEMENTS OF CASH FLOWS

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

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$ ( 59,713 ) $ ( 51,398 )

Adjustments to reconcile net loss to net cash provided by operating activities:

Gain on extinguishment of Paycheck Protection Program (“PPP”) loan

Net accretion of discount on investment securities ( 863 ) —

Realized loss and interest expense on SAFE — 1,566

Adjustments to reconcile net loss to net cash used in operating activities:

Net accretion of discount on investment securities and net realized investment gains

Noncash lease expense on operating leases 2,350 2,457

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Stock-based compensation

Loss (gain) on disposal of assets and other adjustments 37 ( 4 )

25,177 17,049

Impairment of capitalized internal-use software 232 —

(Gain) loss on disposal of assets ( 292 ) 37

Changes in operating assets and liabilities:

Accounts receivable

( 547 ) ( 100 )

Prepaid expenses and other current assets

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Accounts payable

( 295 ) 1,627

Accrued expenses and other current liabilities

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Other long-term liabilities

( 69 ) ( 495 )

Net cash (used in) provided by operating activities

( 13,781 ) 3,520

Net cash used in operating activities ( 7,350 ) ( 13,781 )

CASH FLOWS FROM INVESTING ACTIVITIES

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Maturities of marketable securities 67,874 88,000

Purchases of property and equipment, net

( 7,349 ) ( 7,562 )

Proceeds from disposal of property and equipment 369 —

Purchases of property and equipment ( 5,512 ) ( 7,349 )

Capitalized internal-use software costs

( 14,716 ) ( 8,634 )

Net cash used in investing activities

( 73,854 ) ( 11,190 )

Net cash provided by (used in) investing activities 21,657 ( 73,854 )

CASH FLOWS FROM FINANCING ACTIVITIES

Principal payments on finance lease and lease financing obligations ( 19,510 ) ( 16,492 )

Proceeds from initial public offering, net of underwriting discounts and commissions and other offering costs

Payments of deferred offering costs — ( 658 )

( 658 ) ( 2,977 )

Proceeds from debt facility 4,273 4,305

Repayment of debt facility ( 4,450 ) —

Proceeds from SAFE

Proceeds from insurance premium financing 893 —

Principal payments on insurance premium financing ( 1,545 ) —

Proceeds from lease financing obligations 4,450 —

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Proceeds from exercises of stock options 4,708 4,252

Proceeds from employee stock purchase plan 2,511 —

Net cash (used in) provided by financing activities

( 6,212 ) 106,606

Proceeds from ESPP 2,339 2,511

Net cash used in financing activities ( 8,842 ) ( 6,212 )

Net increase (decrease) in cash, restricted cash and restricted cash, non-current 5,465 ( 93,847 )

Cash and restricted cash at beginning of period 105,012 6,076

Cash, restricted cash and restricted cash, non-current at end of period $ 11,165 $ 105,012

Cash, restricted cash, current and restricted cash, non-current at beginning of period 11,165 105,012

Cash, restricted cash, current and restricted cash, non-current at end of period $ 16,630 $ 11,165

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

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Accrued bonus settled in restricted stock units $ 1,848 $ —

Accrued bonus classified as stock-based compensation $ 3,034 $ 1,852

Financed insurance premiums included in accrued expenses and other current liabilities $ — $ 1,545

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Assets obtained in exchange for operating lease obligations $ 5,448 $ 4,118

Proceeds from stock option exercises pending settlement $ 156 $ —

Settlement of SAFE notes $ — $ 11,566

Extinguishment of PPP loan

Receivable recorded due to stock option exercises pending settlement $ 18 $ 156

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH

Cash and cash equivalents

$ 12,502 $ 6,690

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Restricted cash, non-current $ 4,128 $ 4,306

Total cash, cash equivalents and restricted cash

$ 11,165 $ 105,012

See accompanying notes, which are an integral part of these financial statements.

Total cash, cash equivalents, restricted cash, current and restricted cash, non-current $ 16,630 $ 11,165

See accompanying notes, which are an integral part of these consolidated financial statements.

BACKBLAZE INC.

NOTES TO FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Organization and Description of Business

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Backblaze, Inc.

(“Backblaze” or the “Company”) is a storage cloud platform, providing businesses and consumers with solutions to store and use their data.

and its subsidiaries (collectively, “Backblaze” or the “Company”) is a storage cloud platform, providing businesses and consumers with solutions to store and use their data.

Backblaze provides these cloud services through purpose-built, web-scale software built on commodity hardware.

Backblaze was incorporated in the state of Delaware on April 20, 2007 and is headquartered in San Mateo, California.

Initial Public Offering (“IPO”)

On November 15, 2021, the Company’s IPO had its first closing, in which it issued and sold 6,250,000 shares of our Class A common stock at a public offering price of $ 16.00 per share.

On November 17, 2021, the IPO had its second closing, in which the Company issued and sold 937,500 additional shares at the same per-share price pursuant to the exercise by the underwriters of their option to purchase such shares from us for the purpose of covering over-allotments.

Together, these two closings resulted in net proceeds of approximately $ 103.0 million after deducting the underwriting discounts and commissions and offering expenses.

In connection with the IPO and with the filing of the Company’s Amended and Restated Certificate of Incorporation in Delaware and the adoption of its Amended and Restated Bylaws, the following occurred, (i) the reclassification of all outstanding shares of the Company’s common stock into an equivalent number of shares of its Class B common stock, (ii) all shares of the convertible preferred stock then outstanding automatically converted into 3,359,195 shares of Class B common stock and (iii) the SAFE notes automatically converted into 722,860 shares of Class A common stock.

Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”).

During October 2021, the Company effected a 3.6 -for-1 stock split of its outstanding common stock and convertible preferred stock.

Upon the effectiveness of the stock split, all issued and outstanding shares of common stock and convertible preferred stock and related per share amounts contained in the accompanying financial statements were retroactively revised to reflect this stock split for all periods presented.

The par value of the authorized stock was not adjusted as a result of the stock split.

The accompanying consolidated financial statements and accompanying notes have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries, including the formation of Backblaze Netherlands B.V.

and Backblaze Worldwide, Inc.

subsidiaries in 2023.

All intercompany balances and transactions have been eliminated in consolidation.

The Company’s fiscal year ends on December 31.

Emerging Growth Company

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The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an EGC or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act.

As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

As a result, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

The Company expects to use the extended transition period for any other new or revised accounting standards during the period in which it remains an EGC.

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The Company has a single operating and reportable segment.

In reaching this conclusion, management considers the definition of the chief operating decision maker (“CODM”), how the business is defined by the CODM, the nature of the

information provided to the CODM and how that information is used to make operating decisions, allocate resources and assess performance.

The Company’s chief operating decision maker is its Chief Executive Officer, who reviews financial information presented on an aggregated basis for purposes of making operating decisions, assessing financial performance and allocating resources.

In reaching this conclusion, management considers the definition of the chief operating decision maker (“CODM”), how the business is defined by the CODM, the nature of the information provided to the CODM and how that information is used to make operating decisions, allocate resources and assess performance.

The Company’s chief operating decision maker is its Chief Executive Officer (“CEO”), who reviews financial information presented on an aggregated basis for purposes of making operating decisions, assessing financial performance and allocating resources.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes.

Such estimates and assumptions include the costs to be capitalized as internal-use software, which include (i) determining whether projects will result in new or additional functionality, (ii) the start and end date of the application development phase of projects, and (iii) their useful life, the useful lives of other long-lived assets, impairment considerations for long-lived assets, the incremental borrowing rate for lease agreements, expected lease term, lease and non-lease component allocation, estim ates related to variable consideration, valuation of the Company’s (i) common stock prior to its IPO in November 2021, (ii) stock options, and (iii) Employee Stock Purchase Plan (“ESPP”) expense, and accounting for taxes, including estimates for sales tax and VAT liability, deferred tax assets, valuation allowance and uncertain tax positions.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and the accompanying notes.

Such estimates and assumptions include the costs to be capitalized as internal-use software, which include determining whether projects will result in new or additional functionality, the useful lives of other long-lived assets, impairment considerations for long-lived assets, the incremental borrowing rate for lease agreements, lease and non-lease component allocation, estim ates related to variable consideration, valuation of the Company’s Employee Stock Purchase Plan (“ESPP”) expense, and accounting for taxes, including estimates for deferred tax assets, valuation

allowance, and uncertain tax positions.

The Company bases its estimates on historical experience and on assumptions that management considers reasonable.

Future actual results could differ materially from these estimates.

Risks and Uncertainties

The worldwide spread of COVID-19 has had a significant impact on the global economy.

Although it is difficult to identify the exact overall impact of the pandemic, we believe that the pandemic may have caused some customers to reduce their use of cloud storage with us or to delay increasing their use of our cloud storage offerings.

In addition, the pandemic may have caused potential customers to delay their purchasing decisions or to store less data with us.

In addition to the impact on customers, the pandemic has had some impact to our supply chain.

Although the pandemic appears to have substantially lessened, it is possible that the pandemic could re-emerge and adversely impact our business and operations, as well as the business and operations of our customers and partners.

Concentrations

Financial instruments that potentially subject the Company to credit risk primarily consist of cash, cash equivalents and accounts receivable.

The Company maintains its cash and cash equivalents with high-quality financial institutions with investment-grade ratings.

Although the Company uses City National Bank, a subsidiary of Royal Bank of Canada (“RBC”), for its banking needs, and does not use Silicon Valley Bank in any capacity, the banking industry has experienced disruption and uncertainty in connection with the recent sudden closure of Silicon Valley Bank in March 2023.

Foreign Currency

The reporting currency of the Company is the United States dollar (“USD”).

The functional currency of the Company and its subsidiaries is USD.

Transaction gains and losses that arise from exchange rate fluctuations on monetary transactions denominated in a currency other than the functional currency are included in general and administrative on the consolidated statements of operations when realized.

Concentrations and Risks and Uncertainties

The Company believes that its existing cash, cash equivalents and short-term investments together with cash provided by operations, will be sufficient to support its working capital and capital expenditure requirements for at least the next 12 months.

However, to achieve its continued growth and objectives, the Company will need to obtain additional sources of financing which may include entering into lease agreements, sale-leaseback arrangements, credit facilities, and other debt financing arrangements for the purpose of acquiring infrastructure equipment and to fund its operations.

In the event that the Company requires additional financing, it may not be able to raise such financing on terms acceptable to us or at all.

If the Company is unable to obtain additional sources of financing, raise additional capital or generate cash flows necessary to expand its operations and invest in continued innovation, it may not be able to compete successfully, which would harm its business, results of operations and financial condition.

Financial instruments that potentially subject the Company to credit risk primarily consist of cash, cash equivalents, accounts receivable, short-term investments, and unbilled accounts receivable.

The Company maintains its cash, restricted cash, and short-term investments with high-quality financial institutions with investment-grade ratings.

In the event of a failure of any financial institutions where the Company maintains deposits, it may lose timely access to its funds at such institutions and incur significant losses to the extent its funds exceed the $250,000 limit insured by the Federal Deposit Insurance Corporation.

Deposits with these financial institutions may exceed the amount of insurance provided on such deposits.

For accounts receivable, the Company is exposed to credit risk in the event of nonpayment by customers to the extent of the amount recorded on the balance sheets.

For accounts receivable, the Company is exposed to credit risk in the event of nonpayment by customers to the extent of the amount recorded on the consolidated balance sheets.

In addition, the Company uses City National Bank, a subsidiary of Royal Bank of Canada (“RBC”), for its banking needs.

While the Company and its bank has not been directly affected by the failures of certain banks, the banking industry overall has experienced disruption and uncertainty, which could put additional pressures on the Company’s bank and other banks, and may negatively impact the availability and costs for various banking and investment offerings.

The Company does not have separate collateral requirements to support financial instruments subject to credit risk.

The Company acquires infrastructure equipment from third party vendors.

Vendors may have limited sources of equipment and supplies which may expose the Company to potential supply and service disruptions that could harm the Company’s business.

Two vendors represented in aggregate 25 % of total cash disbursements during the year ended December 31, 2022, and two vendors represented 26 % of the accounts p ayable balance as of December 31, 2022.

Two vendors represented in aggregate 24 % of total cash disbursements during the year ended December 31, 2021, and three vendors represented 40 % of the accounts payable balance as of December 31, 2021.

For the Years Ended December 31,

Cash disbursement concentration

Number of vendors 2 2

Total cash disbursements represented by vendors listed above 21 % 25 %

Accounts payable concentration

Number of vendors 2 2

Total accounts payable balance represented by vendors listed above 30 % 26 %

The Company derives substantially all of its revenue from the services operating on its Backblaze Storage Cloud platform:

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The potential for severe impact to the Company’s business could result if the Company was unable to operate its platform or serve customers through its platform, for an extended period of time.

Restructuring

Restructuring costs are comprised of severance costs related to workforce reductions.

The Company recognizes restructuring charges when the liability is incurred.

For involuntary terminations, employee termination benefits are accrued at the date (i) management has committed to a plan of termination, which includes identification of employees to be terminated and related information, (ii) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn, and (iii) employees have been notified of their termination dates and expected severance payments.

For voluntary terminations, the Company recognizes a liability when the termination benefit has been irrevocably accepted by the employee.

Revenue Recognition

The Backblaze Storage Cloud provides the core platform for the Company’s B2 Cloud Storage consumption-based offering and its Computer Backup subscription-based offering.

The Company derives its revenue primarily from fees earned from customers accessing these offerings through its platform, paid monthly in arrears for consumption-based arrangements for B2 Cloud Storage, or charged upfront for subscription-based arrangements for Computer Backup.

The Company provides services to its customers under subscription-based arrangements of one month, one-year and two-years, which automatically renew at the end of the respective term.

The Backblaze Storage Cloud provides the core platform for the Company’s B2 Cloud Storage and its Computer Backup offerings.

The Company derives its revenue primarily from fees earned from customers accessing these offerings through its platform.

These fees are paid monthly in arrears for its consumption-based arrangements related to its B2 Cloud Storage offering, or charged upfront for subscription-based arrangements related to its Computer Backup and B2 Cloud Storage offerings.

The Company provides services to its customers under Computer Backup subscription-based arrangements of one month , one-year , and two-years , which automatically renew at the end of the respective term.

The Company generally provides services to its customers under its B2 Cloud Storage subscription-based offering arrangements of one-year to five-years .

The Company also recognizes revenue from products offered to its customers for the ability to securely restore data using a USB drive (“USB Restore”) and for migrating large data sets to its platform using its proprietary Fireball device.

The Company refers to these products as its “Physical Media revenue”.

Physical Media revenue was approximately 1 % of the Company’s revenue for the years ended December 31, 2022 and 2021.

Physical Media revenue was less than 1 % of the Company’s revenue for the years ended December 31, 2023 and 2022.

The Company’s monthly subscription arrangements do not provide customers with refund rights.

One and two-year subscription arrangements are eligible for a full refund up to 30 days after subscribing.

One to five-year subscription arrangements are eligible for a full refund up to 30 days after subscribing.

For its Physical Media revenue, the Company offers a full refund to its customers restoring data using a USB drive, if the drives are returned to the Company within 30 days of receipt.

The Company recognizes revenue net of its estimate of expected customer cancellations and returns.

The Company recognizes revenue net of its estimate of expected customer cancellations, returns, and discounts.

These estimates involve inherent uncertainties and use of management’s judgment.

While the majority of the Company’s customers pay via credit card, amounts that have been invoiced are recorded in accounts receivable and in revenue, or deferred revenue, depending on whether appropriate revenue recognition criteria have been met.

As the Company provides its offerings as a hosted service, it does not provide customers the contractual right to take possession of the software at any time, does not incur set up costs, nor does it charge an installation fee for its new customers.

As the Company provides its offerings as a hosted service, it does not provide customers the contractual right to take possession of the software at any time, does not incur set up costs, and does not charge an installation fee for its new customers.

The Company determines revenue recognition through the following five steps:

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Performance obligations promised in a contract are identified based on the services and products that will be transferred to the customer that are both capable of being distinct and are distinct in the context of the contract.

The Company’s contracts typically contain a single distinct performance obligation representing one of its Backblaze Storage Cloud platform offerings, which includes either B2 Cloud Storage or Computer Backup services and related customer support.

The Company’s contracts typically contain a single distinct performance obligation

representing one of its Backblaze Storage Cloud platform offerings, which includes either B2 Cloud Storage or Computer Backup services and related customer support.

Customers also have the option to purchase a USB device for USB Restore and rental of its Fireball device at the standalone selling price (“SSP”).

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The Company’s variable consideration includes consumption-based revenue and revenue arrangements that offer the right of return.

The Company offers a 30 day right of ret urn for its 1 and 2-year subscription-based arrangements and records a refund liability based on historical return data.

The Company offers a 30 day right of ret urn for its 1 to 5-year subscription-based arrangements and records a refund liability based on historical return data.

Certain fees that are considered consideration payable to a customer are accounted for as a reduction of the transaction price.

None of the Company’s

contracts contain a significant financing component.

None of the Company’s contracts contain a significant financing component.

Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental entities (e.g., sales and other indirect taxes).

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Recognize revenue when or as the Company satisfies a performance obligation.

Revenue is recognized when control of the services is transferred to the customer and in an amount that reflects the consideration the Company expects to receive in exchange for those services.

Revenue is recognized based on the output method when control of the services is transferred to the customer and in an amount that reflects the consideration the Company expects to receive in exchange for those services.

Performance obligations are satisfied over time when the customer simultaneously receives and consumes the benefits as the entity performs.

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Revenue for USB Restore is recognized as USB devices are delivered to customers, and recognition of the Company’s Fireball device rental is time-based.

The Company also offers a 15-day free trial pe riod for its subscription-based arrangements and it does not enter into a contract with the customer during this trial period.

The Company also offers a 15-day free trial pe riod for its Computer Backup subscription-based arrangements and it does not enter into a contract with the customer during this trial period.

Separately, under its consumption-based arrangements, the Company does not charge customers until at least 10 gigabytes of data have been stored.

The Company applied the optional exemption of not disclosing the transaction price allocated to the remaining performance obligations for its consumption-based contracts and contracts with original duration of one year or less.

The non-current deferred revenue balance o f $ 2.6 million on the Company’s balance sheet as of December 31, 2022 will be recognized in 2024.

The Company applied the opti onal exemption of not disclosing the transaction price allocated to the remaining performance obligations for its consumption-based contracts and contracts with original duration of one year or less.

The non-current deferred revenue balance of $ 4.1 million on the Company’s consolidated balance sheet as of December 31, 2023 will be recognized starting in 2025 and going forward.

As of December 31, 2022, the Company’s non-current deferred revenue balance was $ 2.6 million, which will be recognized in 2024.

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These expenses include rent and utilities for operating in co-location facilities, network and bandwidth costs, shipping and handling for Physical Media revenue, depreciation of the Company’s equipment and capital lease assets in co-location facilities and other infrastructure expenses incurred in connection with its customers’ use of its services.

The Company periodically receives discounts from third-party vendors that are recorded as a reduction to cost of revenue on its consolidated statements of operations.

Personnel-related costs associated with customer support and maintaining service availability include salaries, benefits, bonuses and stock-based compensation.

5 unchanged sentences

Advertising Costs

Advertising costs are expensed as incurred and are included in sales and marketing expenses in the statements of operations.

Advertising costs are expensed as incurred and are included in sales and marketing expenses in the consolidated statements of operations.

These costs were approximate ly $ 3.6 million and $ 5.7 million for the years ended December 31, 2023 and 2022, respectively.

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Where interpretation of the tax law may be uncertain, the Company recognizes, measures and discloses income tax uncertainties.

The Company accounts for interest expense and penalties related to unrecognized tax benefits as income tax expense in its statements of operations.

The Company accounts for interest expense and penalties related to unrecognized tax benefits as income tax expense in its consolidated statements of operations.

The Company is subject to periodic audits by the Internal Revenue Service and other taxing authorities, which may challenge tax positions taken by the Company.

1 unchanged sentence

All stock-based compensation to employees is measured on the grant date, based on the fair value of the awards on the date of grant.

The Company recognizes compensation cost for its awards on a straight-line basis over the requisite service period, which is generally a vesting period of three to four years , except for the awards granted under the Company’s 2022 Bonus Plan (see Note 14).

The Company recognizes compensation cost for its awards on a straight-line basis over the requisite service period, which is generally a vesting period of one to four years , except for the awards granted under the Company’s 2022 Bonus Plan (see Note 13).

Share-based compensation includes restricted stock units (“RSUs”), stock option grants and stock purchase rights under the ESPP.

6 unchanged sentences

Cash equivalents are primarily recorded at cost, which approximates fair value due to their short maturities.

The Company holds all investments on a held-to-maturity basis and evaluates each position quarterly for impairment.

The Company recognizes an impairment on a security through the statement of operations if (i) the Company intends to sell the impaired security;

or (ii) it is more likely than not the Company will be required to sell the impaired security prior to recovery of its amortized cost basis.

If a sale is intended or likely to be required, the amortized cost basis of the security will be written down to fair value and the full amount of the impairment will be recognized through the statement of operations as a net realized investment loss.

In evaluating whether a decline in fair value is other-than-temporary, the Company considers several factors including, but not limited to:

• the intent to sell the security or whether it is more likely than not the Company will be required to sell the security before recovery;

• the severity and duration of the decline in fair value;

• the financial condition of the issuer;

• the failure of the issuer to make scheduled interest or principal payments;

• recent credit downgrades of the applicable security or the issuer below investment grade;

• adverse conditions specifically related to the security, an industry or a geographical area.

Restricted Cash

A s of December 31, 2022, the Compa ny had $ 169 thousand in restricted cash related to the letter of credit established according to requirements under a lease agreement, reported as a component of other current assets on the consolidated balance sheets.

As of December 31, 2023, this balance is no longer restricted as the lease agreement and associated letter of credit have been completed.

Additionally, the Company had $ 4.1 million and $ 4.3 million in restricted cash as of December 31, 2023 and 2022 , respectively, related to the line of credit agreement with City National Bank.

See Note 11 for further details.

The Company holds all investments on a held-to-maturity basis, and they are reported at amortized cost with realized gains or losses reported in earnings.

The Company determines the appropriate classification of its investment in debt securities at the time of purchase and re-evaluates such determination at each balance sheet date.

The Company will recognize an allowance for estimated credit losses on its held-to-maturity securities, using a forward-looking expected loss model, which reflects losses that are expected to be incurred over the life of the financial instrument.

The Company uses a roll-rate method to determine the estimated credit losses using factors including historical global average default rates and expected recovery rates on similar credit quality, bond maturity and duration, along with historical experience, current conditions, and forecasts of future economic conditions, if available.

The Company monitors the credit profile of its held-to-maturity securities on a quarterly basis, using third party data to assess their credit ratings as well as any adverse conditions specifically related to the security.

The allowance for credit losses is less than $ 1 thousand for the year ended December 31, 2023.

The Company’s short-term investments include investment grade commercial paper with original maturities of 365 days or less at the date of purchase.

Short-term investments are recorded at amortized cost on the balance sheet.

Short-term investments are recorded at amortized cost on the consolidated balance sheets.

Fair Value of Financial Instruments

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Level 3 — Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

The carrying amounts reflected in the balance sheets for accounts receivable, prepaid expenses and other current assets, accounts payable, accrued liabilities and other liabilities and deferred revenue, current approximate their respective fair values due to the short maturities of those instruments.

The carrying amounts reflected in the consolidated balance sheets for accounts receivable, prepaid expenses and other current assets, accounts payable, accrued liabilities and other liabilities and deferred revenue, current approximate their respective fair values due to the short maturities of those instruments.

Accounts Receivable, Net

Accounts receivable are recorded net of an allowance for doubtful accounts, when the Company has an unconditional right to payment.

The allowance for doubtful accounts is estimated based on the Company’s assessment of its ability to collect on customer accounts receivable and wa s not material as of December 31, 2022 and 2021.

Accounts receivable are recorded net of an allowance when the Company has an unconditional right to payment.

The Company adopted the current expected credit loss model ("CECL") as prescribed by Accounting Standards Update 2016-13 on January 1, 2023.

Under CECL, accounts receivable are carried at the original invoiced amount less an estimated allowance for expected credit losses based on the probability of future collection.

The allowance is estimated based on the Company’s assessment of its ability to collect on customer accounts receivable and are $ 8 thousand and $ 13 thousand as of December 31, 2023 and 2022, respectively.

The provision totaled $ 30 thousand and zero for the years ending December 31, 2023 and 2022, respectively.

Direct write-offs totaled $ 35 thousand and zero for the years ending December 31, 2023 and 2022, respectively.

Recoveries totaled zero and $ 22 thousand for the years ending December 31, 2023 and 2022, respectively.

The Company regularly reviews the allowance by considering certain factors such as historical experience, credit quality, age of accounts receivable balances and other known conditions that may affect a customer’s ability to pay.

In cases where the Company is aware of circumstances that may impair a specific customer’s ability to meet its financial obligations, a specific allowance is recorded against amounts due from the customer which reduces the net recognized receivable to the amount the Company reasonably believes will be collected.

The Company writes-off accounts receivable against the allowance when a determination is made that the balance is uncollectible and collection of the receivable is no longer being actively pursued.

The Company records changes in the estimate to the allowance for expected credit losses through provision for expected credit losses when a determination is made that the balance is uncollectible and collection of the receivable is no longer being actively pursued.

Unbilled Accounts Receivable

Unbilled accounts receivable represents revenue recognized on contracts for which billings have not yet been presented to customers due to consumption-based usage that is billed monthly in arrears.

Substantially all of the Company’s unbilled accounts receivable is charged via a credit card upon billing.

Unbilled accounts receivable is included in prepaid expenses and other current assets on the balance sheets.

Substantially all of the Company’s unbilled

accounts receivable is charged via a credit card upon billing.

Unbilled accounts receivable is included in prepaid expenses and other current assets on the consolidated balance sheets.

The balance of unbilled accounts receivable as of December 31, 2023 and 2022 is presented in Note 6.

Deferred Offering Costs

Deferred offering costs, which consist of direct incremental legal, accounting and consulting fees relating to the Company’s IPO, are capitalized in other assets on the balance sheet.

Deferred offering costs, which consist of direct incremental legal, accounting and consulting fees relating to the Company’s IPO, are capitalized in other assets on the consolidated balance sheets.

The deferred offering costs were offset against IPO proceeds upon the consummation of the IPO.

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As renewal commission is commensurate with a commission in an initial sale, such amounts are capitalized and amortized over the stated contract term.

Capitalized commission amounts expected to be recognized within one year of the balance sheet date are recorded as prepaid expenses and other current assets, and the remaining portion is recorded as other assets, on the Company’s balance sheets.

Expenses for commissions are included in sales and marketing expenses in the statements of operations.

Expenses for commissions are included in sales and marketing expenses in the consolidated statements of operations.

Property and Equipment, Net

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The Company determines the useful lives of identifiable project assets after considering the specific facts and circumstances related to each project.

The amortization of costs related to the platform applications is included in cost of revenue in the statements of operations.

Significant judgments related to the capitalization of software costs include determining whether it is probable that projects will result in new or additional functionality, concluding on when the application development phase starts and ends and estimating which costs, especially employee compensation costs, should be capitalized.

The amortization of costs related to the platform applications is included in cost of revenue in the consolidated statements of operations.

Significant judgments related to the capitalization of software costs include determining whether it is probable that projects will result in new or additional functionality.

Impairment of Long-lived Assets

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Deferred revenue relating to the Company’s subscription-based arrangements that have a contractual expiration date of less than 12 months are classified as current.

The Company classifies deferred revenue from services that will be provided in more than 12 months as non-current on its balance sheets.

The Company classifies deferred revenue from services that will be provided in more than 12 months as non-current on its consolidated balance sheets.

The Company enters into finance lease arrangements for hard drives and related equipment, and operating leases for rental of co-location space in data centers and offices.

The Company determines if an arrangement is or contains a lease at inception by evaluating various factors, including if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration and other facts and circumstances.

As a majority of the Company’s operating leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available as of the commencement date for each lease component.

The discount rate used is the rate of interest that a lessee would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term in a similar economic environment.

For finance leases, the lease term generally begins on the date of initial possession of the leased asset, and for operating leases the term begins when the Company has the right to use the leased space and obtain the economic benefits.

1 unchanged sentence

Lease classification is determined at the lease commencement date.

The underlying assets of finance leases are included in property and equipment, net, on the Company’s balance sheets.

Accounting Pronouncements Recently Adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016-02, Leases (Topic 842), or (“ASC 842”), and since that date, has issued several ASUs to further clarify certain aspects of ASU 2016-02 and provide entities with practical expedients that may be elected upon adoption.

The Company adopted the new standard beginning January 1, 2022 using the modified retrospective approach and electing the optional transition approach of not adjusting the comparative period financial statements for the impact of adoption.

The Company elected the package of practical expedients permitted under the transition guidance, which allows the Company to carry forward its historical lease classification, its assessment on whether a contract is or contains a lease, and its initial direct costs for any leases that existed prior to adoption of the new standard.

In accordance with ASC 842, the Company determines if an arrangement is a lease at its inception.

For arrangements classified as an operating lease, Right-of-use (“ROU”) assets and corresponding lease liabilities, are recognized at the commencement date based on the present value of remaining lease payments over the lease term, which, for the Company, includes primarily fixed payments.

For leases existing at adoption, the Company elected to use the remaining lease term and remaining minimum lease payments in calculating the incremental borrowing rate for all existing leases.

The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options.

The Company records an asset and lease liability on its consolidated balance sheets for leases that have yet to commence when it has the ability to control the underlying asset as that creates a significant right and obligation to the Company.

The underlying assets of finance leases are included in property and equipment, net, on the Company’s consolidated balance sheets.

Variable lease payments are expensed as incurred and include certain non-lease components, such as maintenance and other services provided by the lessor to the extent the charges are variable.

The Company has elected the short-term lease practical expedient for all asset classes, which allows the lessee to not apply the recognition requirements of ASC 842 to short-term leases (leases with original terms of 12 months or less and that do not include a purchase option that the lessee is reasonably certain to exercise).

The Company has elected the practical expedient to combine lease and non-lease components for all of its leases, with the exception of its leases belonging to the colocation lease agreement asset class.

For its colocation lease agreements, the Company only recognizes fixed minimum payments for tangible components as ROU assets and operating lease liabilities, as this class of agreements may include significant intangible components.

The adoption of the new standard on January 1, 2022 resulted in the recognition of approximately $ 5.2 million and $ 5.6 million of operating lease ROU assets and operating lease liabilities on the Company's balance sheet, respectively, with the ROU asset on an existing lease being offset by an existing ASC 420, Exit or Disposal Cost Obligations, obligation of approximately $ 0.4 million .

The Company noted no material impact on its financial statements with respect to its finance leases as a result of its ASC 842 adoption.

See Note 10 to these financial state ments.

Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , which requires a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected, with further clarifications made more recently.

For trade receivables, loans and other financial instruments, the Company will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable.

Credit losses relating to available-for-sale debt securities are required to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities.

This guidance is effective for the Company for its fiscal year beginning January 1, 2023 and

interim periods within that fisc al year.

The adoption of, and future elections under, this ASU are not expected to have a material impact on the Company’s financial statements.

For its colocation lease agreements, the Company only recognizes fixed minimum payments for tangible components as right-of-use assets and operating lease liabilities, as this class of agreements may include significant intangible components.

Accounting Pronouncements Recently Adopted

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , which requires a financial asset measured at an amortized cost basis be presented at the net amount expected to be collected.

For accounts receivables, unbilled receivables, loans, and other financial instruments, the Company is required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable.

The Company adopted the guidance effective January 1, 2023 using the modified retrospective transition method with comparative periods continuing to be reported using the previous applicable guidance and determined that it did not have a material impact on its consolidated financial statements.

Recently Issued Accounting Pronouncements

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740) - Improvements to Income Tax Disclosures” requiring enhancements and further transparency to certain income tax disclosures, most notably the tax rate reconciliation and income taxes paid.

This ASU is effective for fiscal years beginning after December 15, 2024 on a prospective basis and retrospective application is permitted.

The Company is currently evaluating the impact of the adoption of this standard.

In November 2023, the FASB issued ASU No.

2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosure.” The ASU updates reportable segment disclosure requirements, primarily through requiring enhanced disclosures about significant segment expenses and information used to assess segment performance.

These disclosures are required quarterly and also applies to public entities with a single reportable segment.

The ASU is effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024, with early adoption permitted.

It is required to be adopted retrospectively for all prior periods presented in the financial statements.

The Company is currently evaluating the impact of adopting this ASU on its disclosures.

Deferred Contract Costs

The Company’s amortization of deferred contract costs was $ 0.9 million and $ 0.8 million during the years ended December 31, 2022 and 2021, respectively.

The amount of capitalized contract costs was $ 0.4 million as of December 31, 2022 and 2021, respectively.

The following table presents the Company’s amortization of deferred contract costs (in thousands):

For the Years Ended

Amortization of deferred contract costs

Deferred contract costs

Deferred Revenue

Deferred revenue was $ 25.5 million and $ 24.9 million as of December 31, 2022 and 2021, respectively.

Total revenue recognized during the year ended December 31, 2022 and 2021 was approximately $ 21.7 million and $ 17.6 million, respectively, which was included in each deferred revenue balance at the beginning of each respective period.

The Company’s deferred revenue as stated on the balance sheets presented approximates its contract liability balance as of December 31, 2022 and 2021.

The Company’s deferred revenue balance as of December 31, 2022 , approximates the aggregate amount of the transaction price allocated to remaining performance obligations (“RPOs”) as of that date.

Further, as of December 31, 2022 , the Company’s deferred revenue, current, balance on its balance sheet of $ 22.9 million approximates the expected amount to be recognized from its RPOs as revenue over the next 12 months.

The following table presents information regarding the Company’s deferred revenue (in thousands):

Deferred revenue

$ 30,049 $ 25,523

For the Years Ended December 31,

Total revenue recognized, included in each deferred revenue balance at the beginning of each respective period

$ 22,983 $ 21,764

The Company’s deferred revenue as stated on the consolidated balance sheets presented approximates its contract liability balance as of December 31, 2023 and 2022.

The Company’s total deferred revenue balance as of December 31, 2023 , approximates the aggregate amount of the transaction price allocated to remaining performance obligations (“RPOs”) as of that date.

As of December 31, 2023 , the Company’s RPOs were $ 33.1 million.

This amount includes deferred revenue arising from consideration invoiced for which the related performance obligations have not been satisfied, as well as future committed revenue for periods within current contracts with customers.

As of December 31, 2023, the Company expects to recognize $ 27.6 million or approximately 84 % of its RPOs over the next 12 months, and substantially all of its RPOs over the next 24 months.

Disaggregation of Total Revenue

The following table presents the Company’s revenue disaggregated by product (in thousands):

For the Years Ended

B2 Cloud Storage

$ 46,427 $ 33,202

Computer Backup

55,592 51,953

Total revenue (1)

$ 102,019 $ 85,155

________________

(1) For the periods presented, Physical Media revenue has been consolidated into B2 Cloud Storage or Computer Backup revenue based on the underlying offering from which it originates.

The following table presents the Company’s total revenue disaggregated by timing of revenue recognition (in thousands):

For the Years Ended

Consumption-based arrangements (B2 Cloud Storage)

Consumption-based arrangements

$ 45,771 $ 33,041

Subscription-based arrangements (Computer Backup)

Subscription-based arrangements

55,679 51,431

Physical Media

Physical Media (point in time)

Total revenue

7 unchanged sentences

18,267 15,229

Total revenue

$ 102,019 $ 85,155

1 unchanged sentence

The following table summarizes adjusted cost, gross unrealized losses, and fair value by significant investment category.

The Company’s commercial paper investments are classified as held-to-maturity on its balance sheets as of December 31, 2022 .

The Company did not have an investments balance as of December 31, 2021 .

The Company’s commercial paper investments with original maturities greater than 90 days are classified as held-to-maturity and commercial paper investments with original maturities of 90 days or less are classified as cash equivalents on its consolidated balance sheets as of December 31, 2023 and 2022 .

Amortized Cost Gross Unrealized Fair Value Net Carrying Value

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(In Thousands)

Cash equivalents

Commercial paper $ 4,976 $ 10 $ — $ 4,986 $ 4,976

Total cash equivalents $ 4,976 $ 10 $ — $ 4,986 $ 4,976

Commercial paper $ 16,799 $ — $ ( 10 ) $ 16,789 $ 16,799

Total investments $ 16,799 $ — $ ( 10 ) $ 16,789 $ 16,799

Amortized Cost Gross Unrealized Fair Value Net Carrying Value

As of December 31, 2022

(In Thousands)

Commercial paper $ 58,733 $ — $ ( 144 ) $ 58,589 $ 58,733

Total investments $ 58,733 $ — $ ( 144 ) $ 58,589 $ 58,733

Scheduled Maturities

The amortized cost and fair value of held-to-maturity securities as of December 31, 2022 by contractual maturity are shown below.

The amortized cost and fair value of held-to-maturity securities as of December 31, 2023 and 2022 by contractual maturity are shown below.

As of December 31, 2023

6 unchanged sentences

Total investments $ 16,799 $ 16,789

As of December 31, 2022

Amortized Cost Fair Value

(In Thousands)

Within one year $ 58,733 $ 58,589

After one year through five years — —

After 5 years through 10 years — —

After 10 years — —

Total investments $ 58,733 $ 58,589

Aging of Unrealized Losses

As of December 31, 2022, the Company’s investments had an aggregate gross unrealized loss of $ 0.1 million, all of which had been in an unrealized loss position of less than twelve months and are recorded at amortized cost on the Company’s balance sheet.

As of December 31, 2022 , the investment portfolio did not have any securities that had been in an unrealized loss position for a period of twelve months or longer.

The Company did not have held-to-maturity investments as of December 31, 2021 .

For those securities in an unrealized loss position, the length of time the securities were in such a position is as follows:

1 unchanged sentence

# of Securities Fair Value Unrealized Losses # of Securities Fair Value Unrealized Losses

As of December 31, 2022 (Dollars In Thousands)

As of December 31, 2023

(Dollars In Thousands)

Commercial paper 4 $ 16,789 $ ( 10 ) 4 $ 16,789 $ ( 10 )

Total 4 $ 16,789 $ ( 10 ) 4 $ 16,789 $ ( 10 )

Less than 12 Months Total

# of Securities Fair Value Unrealized Losses # of Securities Fair Value Unrealized Losses

As of December 31, 2022

(Dollars In Thousands)

Commercial paper 11 $ 58,589 $ ( 144 ) 11 $ 58,589 $ ( 144 )

Total 11 $ 58,589 $ ( 144 ) 11 $ 58,589 $ ( 144 )

Fair Value Measurements

The Company classifies its fair value disclosure for its held-to-maturity investments, which are comprised of investment grade commercial paper, within Level 2 of the fair value hierarchy because the fair value of these securities are priced by

using inputs based on non-binding market consensus that are primarily corroborated by observable market data or quoted market prices for similar instruments.

There were no transfers between levels of the fair value hierarchy for the year ended December 31, 2022 and 2021, respectively.

The Company held no assets or liabilities that were measured at fair value on a recurring basis as of December 31, 2022 and 2021, respectively.

The following table summarizes the total carrying value of the Company’s Level 3 instruments held as of December 31, 2021 including cumulative realized losses recognized during the year ended December 31, 2021 (in thousands):

Year Ended December 31, 2021

Beginning balance as of December 31, 2020

Sale of SAFE notes

Total realized loss

Conversion of SAFE notes

Ending balance as of December 31, 2021

Level 3 instruments are characterized by unobservable inputs that are supported by little or no market activity, which require management judgment or estimation.

The fair value of the SAFE notes was determined in interim periods during 2021 using unobservable inputs.

In valuing the SAFE notes, the Company used a Monte Carlo simulation to forecast a range of probability-weighted settlement paths in combination with income, market, and cost-based valuation approaches.

The settlement paths used probabilities ranging from 5 % to 65 %.

The Company used a discount rate of approximately 30 % to adjust the probability-weighted settlement paths to their present value.

An increase in the discount rate would decrease the fair value of the instrument, and an increase in probabilities of certain settlement paths would increase the fair value of the instrument.

The fair value of the SAFE notes, upon conversion, was determined using the Company’s Class A common stock valuation of $ 16.00 as of the settlement date of November 10, 2021, which is also the Company’s IPO date.

See Note 11 for further details on the SAFE Notes.

A s of December 31, 2022 and December 31, 2021, the Compa ny had $ 169 thousand in restricted cash related to the letter of credit established according to requirements under a lease agreement, reported as a component of other current assets on the balance sheets.

Additionally, as of December 31, 2022 , the Company had $ 4.3 million in restricted cash related to the line of credit agreement with City National Bank.

See Note 11 for further details.

The Company classifies its fair value disclosure of held-to-maturity investments, which are comprised of investment grade commercial paper, within Level 2 of the fair value hierarchy because the fair value of these securities are priced by using inputs based on non-binding market consensus that are primarily corroborated by observable market data or quoted market prices for similar instruments.

The following table summarizes the fair value of the Company’s Level 2 instruments held as of December 31, 2023 and 2022 (in thousands):

Commercial paper $ 16,789 $ 58,589

There were no transfers between levels of the fair value hierarchy for the year ended December 31, 2023 and 2022.

The Company held no assets or liabilities that were measured at fair value on a recurring basis as of December 31, 2023 and 2022.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

Unbilled accounts receivable $ 1,637 $ 1,220

Unbilled accounts receivable, net $ 2,375 $ 1,637

Prepaid expenses 2,313 2,600

Prepaid subscriptions 1,312 730

Prepaid Physical Media Hardware 246 378

Capitalized commissions 365 345

Receivable from payment processor 1,276 644

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Machinery and equipment

14,004 11,613

Computer equipment

3 unchanged sentences

124,963 109,851

accumulated depreciation

accumulated depreciation and amortization

( 79,363 ) ( 60,476 )

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Depreciation expense was $ 21.3 million and $ 18.0 million for the years ended December 31, 2023 and 2022, respectively.

For the Company’s equipment under capital leases and collateralized financing obligations, accumulated depreciation was $ 24.5 million and $ 13.5 million as of December 31, 2022 and 2021, respectively.

The carrying value of the Company’s equipment under capital lease agreements and collateralized financing obligations was $ 37.8 million and $ 36.9 million as of December 31, 2022 and 2021, respectively.

During the years ended December 31, 2022 and 2021, the Company recorded a loss and a gain of less than $ 0.1 million , respectively, as a result of disposing of certain hard drives.

For the Company’s equipment under finance leases and collateralized financing obligations, accumulated depreciation was $ 31.6 million and $ 24.5 million as of December 31, 2023 and 2022, respectively.

The carrying value of the Company’s equipment under finance lease agreements and collateralized financing obligations was $ 37.1 million and $ 37.8 million as of December 31, 2023 and 2022, respectively.

During the years ended December 31, 2023 and 2022, the Company recorded a gain of $ 0.4 million and a loss of $ 0.1 million , respectively, as a result of disposing of certain hard drives.

These disposals occurred in the ordinary course of business, as the Company continuously evaluates its requirements for operating its data centers.

The loss and gains are recorded as general and administrative expenses in the Company’s statements of operations.

As of December 31, 2022 , the Company had long-lived assets of $ 56.3 million, comprising of property and equipment, net and operating lease right-of-use assets, with $ 50.2 million located in the United States and $ 6.1 million located in The Netherlands.

As of December 31, 2021, substantially all of the Company’s assets were held in the United States.

The loss and gains are recorded as general and administrative expenses in the Company’s consolidated statements of operations.

The Company had long-lived assets, comprising of property and equipment, net and operating lease right-of-use assets consisting of the following (in thousands):

United States $ 50,746 $ 50,176

The Netherlands 4,834 6,080

Total property and equipment, net and operating lease right-of-use assets $ 55,580 $ 56,256

Capitalized Internal-Use Software, Net

9 unchanged sentences

$ 32,521 $ 16,704

In accordance with the adoption of ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software , during 2021 the Company aligned its capitalization of implementation costs for cloud computing arrangements with its accounting for the underlying software license included in such arrangements.

Accordingly, the Company reclassified these implementation costs on its balance sheet to prepaid expenses and other current assets and other assets as of December 31, 2021, on a prospective basis.

Amortization expense of capitalized internal-use software was $ 3.6 million and $ 2.2 million for the years ended December 31, 2023 and 2022, respectively.

Amortization of developed and general and administrative internal-use

software are included in cost of revenue and general and administrative expense, respectively, in the Company’s statements of operations for the years ended December 31, 2022 and 2021.

Amortization of developed software and software purchased for internal use are included in cost of revenue and general and administrative expense, respectively, in the Company’s consolidated statements of operations for the years ended December 31, 2023 and 2022.

As of December 31, 2023, future amortization expense is expected to be as follows (in thousands):

Year Ending December 31,

The Company evaluates capitalized internal-use software for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

During the year ended December 31, 2023, the Company recorded an impairment expense of $ 0.2 million, related to an in-house operating system initiative that was determined to no longer provide future economic benefits during 2023.

The impairment expense is recorded as research and development expense in the Company’s consolidated statement of operations.

No impairment expense was recorded during the year ended December 31, 2022.

Accrued Expenses and Other Current Liabilities

3 unchanged sentences

Accrued expenses 1,284 2,881

Accrued sales taxes 208 1,209

Accrued value-added tax ("VAT") 1,266 1,220

5 unchanged sentences

The Company enters into finance lease arrangements to obtain hard drives and related equipment for its data center operations.

The terms of these agreements primarily range from three -to- four years and certain of these arrangements have optional renewals to extend the term of the lease generally at a fixed price.

The terms of t hese agreements primarily range from three -to- four years and certain of these arrangements have optional renewals to extend the term of the lease generally at a fixed price.

Contingent rental payments are generally not included in the Company’s finance lease agreements.

1 unchanged sentence

The Company’s finance leases have original lease periods expiring between 2024 and 2026.

The underlying assets of finance leases are included in the property and equipment, net on the Company’s balance sheet.

A s of December 31, 2022 , the weighted average remaining lease term for finance lease and lease financing obligation agreements was approximately two years and the weighted average discount rate for finance leases was 10.2 %.

For th e Company’s assets acquired through finance lease and lease financing obligation agreements, which are related to sale-leaseback agreements, depreciation expense was $ 13.2 million and $ 11.5 million for the years ended December 31, 2022 and 2021, respectively.

Depreciation expense on assets acquired through the Company’s finance leases and lease financing obligations is included in cost of revenue in its statements of operations.

During the year ended December 31, 2022 , total finance lease costs were $ 16.1 million, of which interest expense was approximately $ 3.9 million, and total lease financing obligation costs were $ 1.4 million, of which interest expense was approximately $ 0.3 million.

The cash paid on interest on finance lease and lease financing obligations was $ 3.8 million for the year ended December 31, 2022 .

During the year ended December 31, 2021, the Company entered into four sale-leaseback arrangements with vendors to provide $ 4.3 million in cash proceeds for previously purchased hard drives and related equipment.

The Company concluded the related lease arrangements would be classified as lease financing obligations as it has the option to repurchase the assets at their fair value at a future date.

Therefore, the transactions were each deemed a failed sale-leaseback and was accounted for as a financing arrangement.

Finance leases are included in property and equipment, net on the Company’s consolidated balance sheets.

As of December 31, 2023, the weighted average remaining lease term for finance lease and lease financing obligation agreements was approximately 1.7 years and the weighted average discount rate for finance leases was 11.0 %.

As of December 31, 2022, the weighted average remaining lease term for finance lease and lease financing obligation agreements was approximately 2 years and the weighted average discount rate for finance leases was 10.2 %.

The following table presents information regarding assets acquired through finance lease and lease financing obligation agreements, which are related to sale-leaseback agreements (in millions):

For the Years Ended December 31,

Depreciation expense

$ 15.4 $ 13.2

Total finance lease costs $ 16.9 $ 16.1

Total interest expense included in finance lease costs $ 2.8 $ 3.9

Total lease financing obligation costs $ 1.8 $ 1.4

Total interest expense included in lease financing obligation costs $ 0.4 $ 0.3

Cash paid on interest on finance lease and lease financing obligations $ 3.2 $ 3.8

Depreciation expense on assets acquired through the Company’s finance leases and lease financing obligations is included in cost of revenue in its consolidated statements of operations.

During the year ended December 31, 2023, the Company entered into two sale-leaseback arrangements with vendors to provide an aggregate of $ 4.5 million in cash proceeds for previously purchased hard drives and related equipment.

The Company concluded the related lease arrangements would be classified as a lease financing obligation as the Company was reasonably certain to exercise the purchase option within the arrangement.

Therefore, the transaction was deemed a failed sale-leaseback and was accounted for as a financing arrangement.

The assets continue to be depreciated over their useful lives, and payments are allocated between interest expense and repayment of the financing liability.

The failed sale-leaseback transactions continued to be accounted for as a failed sale-leaseback upon adoption of ASC 842 because the leaseback is classified as financing.

The Company did not enter into any new sale-leaseback arrangements during the year ended December 31, 2022.

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Total liability $ 25,861 $ 5,941 $ 31,802

Prior to the ASC 842 adoption, the future minimum commitment for these finance leases and lease financing obligations as of December 31, 2021 were as follows (in thousands):

Year Ending December 31,

2022 $ 16,765

Total future minimum lease and financing commitments

Less imputed interest

Total liability

Prior to the ASC 842 adoption, as of December 31, 2021, the future minimum payments related to the lease financing obligations consisted of the following (in thousands):

Year Ending December 31,

Total future minimum financing payments

Operating Leases

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Certain lease agreements include renewal options to extend the lease term at a price to be determined upon exercise.

These options are not reasonably certain to be exercised and therefore are not factored into the determination of

lease payments.

These options are not reasonably certain to be exercised and therefore are not factored into the determination of lease payments.

Contingent rental payments are generally not included in the Company’s lease agreements.

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The Company does not have a material amount of short-term leases as of December 31, 2023 .

In July 2023, the Company entered into an operating lease agreement for purposes of consolidating and moving out of two offices into one office, resulting in the recognition of $ 5.3 million of operating right-of-use assets and $ 5.2 million of operating lease liabilities, current and non-current, on its consolidated balance sheets.

A s of December 31, 2023, the weighted average remaining lease term for operating leases was approximately 5.5 years and the weighted average discount rate for operating leases was approximately 7.1 %.

As of December 31, 2022 , the weighted average remaining lease term for operating leases was approximately 5.6 years and the weighted average discount rate for operating leases was approximately 5.4 %.

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Total $ 10,029

Non-lease components included in the Company’s colocation lease agreements are related to non-tangible utilities and services used in its data center operations.

The Company used judgment and third-party data in determining the stand-alone price for allocating consideration to lease and non-lease components under these colocation lease agreements, such as, the price of utilities as compared to its tangible data center footprint within each colocation facility.

Non-lease components included in the Company’s co-location lease agreements are related to non-tangible utilities and services used in its data center operations.

The Company used judgment and third-party data in determining the stand-alone price for allocating consideration to lease and non-lease components under these co-location lease agreements, such as, the price of utilities as compared to its tangible data center footprint within each co-location facility.

The future minimum commitments for the Company’s non-cancellable contractual obligations as of December 31, 2023 for non-lease components were as follows (in thousands):

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Total future minimum commitments $ 18,219

Prior to the ASC 842 adoption, the future minimum commitments for these operating leases as of December 31, 2021 were as follows (in thousands), which also include minimum payments for services under operating lease agreements:

Year Ending December 31,

Rental expense related to the Company’s operating leases was $ 6.5 million for the year ended December 31, 2022, of which $ 4.9 million is included in cost of revenue in its statement of operations.

During the year ended December 31, 2022, total operating lease cost was $ 7.7 million, which does not include costs related to services.

Rental expense related to the Company’s operating leases was $ 7.1 million for the year ended December 31, 2021.

The following table presents information regarding the Company’s operating leases (in millions).

Total operating lease cost does not include costs related to services.

For the Years Ended December 31,

Rental expense for both lease and non-lease components $ 8.1 $ 6.5

Rental expense for both lease and non-lease components included in cost of revenue $ 6.8 $ 4.9

Rental expense related to lease components $ 3.1 $ 3.3

Total operating lease cost $ 10.6 $ 7.7

Total operating lease cost of $ 10.6 million for the year ended December 31, 2023 includes $ 1.8 million of variable lease costs and $ 0.7 million of short-term lease costs.

Total operating lease cost of $ 7.7 million for the year ended December 31, 2022 includes $ 0.9 million of variable lease costs and $ 0.2 million of short-term lease costs.

Other Contractual Commitments

Other non-cancellable commitments relate mainly to infrastructure agreements used to facilitate the Company’s operations.

This amount does not include amounts related to finance lease, lease financing obligations and operating leases as disclosed above.

As of December 31, 2022, the Company had future minimum payments under the Company’s non-cancelable purchase commitments of $ 10.8 million and $ 0.2 million payable during the years ending December 31, 2023 and 2024, respectively.

Other non-cancellable commitments relate mainly to service agreements used to facilitate the Company’s infrastructure operations.

As of December 31, 2023, the Company had non-cancelable purchase commitments of $ 1.2 million and $ 0.6 million payable during the years ending December 31, 2024 and 2025, respectively.

During 2023, the Company made payments of $ 0.2 million to a related party, Meaningful Works, for marketing services per terms of an agreement.

An executive officer of Meaningful Works is an immediate family member of the Company’s CEO.

As of December 31, 2023, the scope of services has been completed per terms of the agreement.

The Company sponsors a 401(k) defined contribution plan covering all eligible U.S.

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The Company is involved from time to time in various claims and legal actions arising in the ordinary course of business.

While it is not feasible to predict or determine the ultimate outcome of these matters, the Company believes that none of its current legal proceedings are likely to have a material adverse effect on its financial position, results of operations or cash

However, the results of legal proceedings are inherently unpredictable and litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors.

On July 15, 2022, the Company received a demand letter from the investors that participated in the Simple Agreement for Future Equity agreement in August 2021 related to a contractual dispute in connection with the SAFE transaction.

On July 15, 2022, the Company received a demand letter from the investors that participated in the Simple Agreement for Future Equity (“SAFE”) agreement in August 2021 related to a contractual dispute in connection with the SAFE transaction.

The investors sought a refund of their original investment of $ 10.0 million .

In February 2023, the Company settled with the SAFE holders for a full release of all claims related to the SAFE transaction for a one-time payment in the amount of $ 1.5 million in aggregate.

The $ 1.5 million settlement is included as a general and administrative expense in the Company’s statement of operations during the year ended December 31, 2022.

The $ 1.5 million settlement is included as a general and administrative expense in the Company’s consolidated statements of operations during the year ended December 31, 2022.

One of the SAFE holders, TMT Investments PLC (“TMT”), a beneficial holder of more than 5% of the Company’s capital stock, was a party to the settlement and received a pro-rata payment of $ 0.3 million as part of the SAFE settlement.

The Company undertook an analysis of its sales tax exposure based on the South Dakota vs.

Wayfair case whereby the U.S.

Supreme Court determined that physical presence was not required to determine the potential exposure a company has for sales tax purposes.

Based on the Company’s analysis, its total accrual for sales tax payable was $ 0.2 million and $ 1.2 million as of December 2022 and 2021, respectively, which includes estimated amounts for penalties and interest.

Accrued VAT Liability

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The Company accrues an amount that it considers probable to be collected and can be reasonably estimated.

Based on the Company’s analysis, its total accrual for VAT tax payable was $ 1.2 million and $ 2.5 million as of December 31, 2022 and 2021, respectively, which includes estimated amounts for penalties and interest.

Based on the Company’s analysis, its total accrual for VAT tax payable was $ 1.3 million and $ 1.2 million as of December 31, 2023 and 2022, respectively.

Indemnification

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It is not possible to determine the maximum potential loss under these indemnification provisions due to the Company’s limited history of prior indemnification claims and the unique facts and circumstances involved in each particular provision.

No losses have been recorded in the statements of operations in connection with the indemnification provisions.

No losses have been recorded in the consolidated statements of operations in connection with the indemnification provisions.

Credit Facility

During October 2021, the Company entered into a revolving credit agreement (“RCA”) with City National Bank (“Lender”).

Under this agreement, among other things, (i) amounts available to be borrowed are $ 9.5 million and (ii) advances on the line of credit will bear monthly interest at a variable rate equal to, at the Company’s discretion, (a) the average Secured Overnight Financing Rate (“SOFR”) plus 2.75 %, or (b) the base rate.

During April 2022 , the Company entered into a second amendment to its revolving credit agreement (as amended, the “RCA”) with City National Bank (“Lender”).

Under this amendment, the amounts available to be borrowed was increased to $ 30.0 million from $ 9.5 million.

During January 2023, the Company entered into a third amendment to the RCA.

Under this amendment, advances on the line of credit will bear monthly interest at a variable rate equal to, at the Company’s discretion, (a) the average Secured Overnight Financing Rate (“SOFR”) plus 2.00 %, or (b) the base rate.

The base rate under the RCA is a rate equal to the greater of (i) 3.00 % or (ii) the prime rate most recently announced by the Lender.

The revolving credit agreement matures in September 2024.

In connection with this agreement, the Company fully repaid and subsequently terminated its 2017 revolving credit agreement with HomeStreet Bank.

During December 2021, the Company entered into its first amendment to the revolving credit agreement with City National Bank.

The amendment removed the financial covenants under the agreement and added a requirement for cash collateral to be posted prior to any advance.

During April 2022, the Company entered into a second amendment to its revolving credit agreement with City National Bank.

Under this amendment, the amount available to be borrowed was increased to $ 30.0 million from $ 9.5 million.

There were no other material changes to the agreement as a result of the amendment.

The Company began borrowing under the RCA during the year ended December 31, 2022.

As of December 31, 2022, the Company had an outstanding balance of $ 4.3 million and the total amount available to the Company to be borrowed was $ 25.7 million .

Under the RCA, the outstanding balance of $ 4.3 million as of December 31, 2022 was collateralized by an equal amount of cash held by the Company.

As such, the Company held $ 4.3 million in cash that it deemed to be restricted and is included in restricted cash, non-current on the Company’s balance sheet as of December 31, 2022 .

With prior written notice to the Lender, the Company has the right, at any time prior to the maturity date, to terminate the RCA.

There were no other material changes to the RCA as a result of the amendment.

In December 2023, the Company entered into a fourth amendment related to the RCA.

Under this amendment, the maximum borrowing available was reduced from $ 30 million to $ 20 million.

Furthermore, advances on the line of credit will bear monthly interest at a variable rate equal to, at the Company’s discretion, (a) the average SOFR plus 2.75 %, or (b) the base rate described above.

The RCA has an unused line fee equal to 0.3 % of the difference between the maximum balance available under the RCA and the average daily balance outstanding during the quarter, payable within ten days of the last day of each quarter.

The RCA provides for an annual commitment fee equal to 0.5 % on the amount available to be borrowed, payable annually on December 29th.

The Company incurred annual commitment fees on the unused balance of the RCA of $ 0.1 million for the year ended December 31, 2023.

In connection with the RCA, the Company incurred an additional $ 5 thousand of additional debt issuance costs which, together with the $ 0.1 million of commitment fees and $ 0.1 million of the then unamortized debt issuance costs, will be amortized over the remaining term of the facility.

As of December 31, 2023, the C ompany had an outstanding balance of $ 4.1 million and the total amount available to the Company to be borrowed was $ 15.9 million.

The outstanding balance of $ 4.1 million as of December 31, 2023 was collateralized by cash held by the Company.

As such, the Company held $ 4.1 million in cash that it deemed to be restricted and is included in restricted cash, non-current on the Company’s consolidated balance sheets as of December 31, 2023.

With prior written notice to the Lender, the Company has the right, at any time prior to the maturity date in December 2025, to terminate the RCA.

In the event of such termination, the aggregate principal of the then outstanding amounts, including any accrued interest to date, shall be repaid and the restrictions on the associated collateralized cash would be released.

1 unchanged sentence

Interest payments on outstanding borrowing are due on the last day of each monthly interest period and payments for the commitment fee are due at the end of each calendar quarter.

Advances under the RCA are due in full in September 2024.

As the RCA is a multi-year revolving credit agreement, the Company classifies the facility as long-term debt on its balance sheets as it has the intent and ability to maintain the facility outstanding for longer than 12 months.

Insurance Premium Financing Agreement

Effective November 2022, the Company entered into an insurance policy with annual premiums totaling $ 2.1 million.

The Company has executed a Finance Agreement with AFCO Premium Credit LLC over a term of twelve months , with an annual interest rate of 4.5 %, that finances the payment of the total premiums owed.

Total interest expense and amortization of debt issuance costs related to the RCA was $ 0.6 million and $ 0.2 million for the years ended December 31, 2023 and 2022, respectively.

Advances under the RCA are due in full in December 2025.

As the RCA is a multi-year revolving credit agreement, the Company classifies the facility as long-term debt on its consolidated balance sheets as it has the intent and ability to maintain the facility outstanding for longer than 12 months.

The Company classifies the facility as a debt facility, non-current on its consolidated balance sheets as of December 31, 2023.

Insurance Premium Financing Agreements

In November 2022, the Company entered into an additional insurance policy with annual premiums totaling $ 2.1 million.

The Company executed an additional finance agreement with AFCO Premium Credit LLC over a term of twelve months , with an annual interest rate and weighted average interest rate for the periods presented of 4.5 %, that finances the payment of the total premiums owed.

The finance agreement required a $ 0.5 million down payment, with the remaining $ 1.5 million plus interest paid over three quarterly installments.

These quarterly payments started on February 10, 2023.

As of December 31, 2023, the balance of this finance agreement was fully paid.

Total interest expense related to this agreement was less than $ 0.1 million for both the years ended December 31, 2023 and 2022, respectively.

In November 2023, the Company entered into an insurance policy with annual premiums totaling $ 1.2 million .

The Company has executed a finance agreement with AFCO Premium Credit LLC over a term of twelve months , with an annual interest rate and weighted average interest rate for the year ended December 31, 2023 of 7.0 %, that finances the payment of the total premiums owed.

The agreement requires a $ 0.3 million down payment, with the remaining $ 0.9 million plus interest paid over three quarterly installments.

These quarterly payments start February 10, 2024.

As of December 31, 2022, the unpaid balance is approximately $ 1.5 million, reported as a component of accrued expenses and other current liabilities on the balance sheets.

Paycheck Protection Program

On April 22, 2020, the Company received $ 2.3 million in funding through the U.S.

Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) that was part of the CARES Act that was signed into law in March 2020.

The interest rate on the loan is 1.00 % per year and matured in April 2022.

The note was payable in monthly installments of principal and interest, beginning in August 2021.

The Company recognized the entire loan amount as a financial liability, with interest accrued and expensed over the term of the loan.

An application to forgive the entire amount was submitted with the lender in July 2020.

In June 2021, the Company received notification from the SBA that the Company’s forgiveness application of the PPP loan and accrued interest, totaling $ 2.3 million, was approved in full, and the Company has no further obligations related to the PPP loan.

Accordingly, the Company recorded the forgiveness of the PPP loan as gain on extinguishment of debt on its statement of operations for the year ended December 31, 2021.

Convertible notes and related party transactions

During August 2021, the Company issued investors convertible notes (the “Security”) in the amount of $ 10.0 million.

The Security was classified as a Simple Agreement for Future Equity agreement.

The convertible notes were automatically convertible into shares of the Company’s Class A common stock upon the completion of an initial public offering (or other liquidity event if sooner) at a discounted price to the value of its common stock at the time of such event.

The Company determined that the SAFE notes should be classified as a liability based on evaluating the characteristics of the instrument, which contained both debt and equity-like features.

As such, the Company recorded the carrying value of the SAFE notes and the associated accrued interest as a current liability on its balance sheet upon its issuance.

The fair value of the SAFE notes was determined in interim periods during 2021 using unobservable inputs.

The settlement paths used probabilities ranging from 5 % to 65 %.

The Company used a discount rate of approximately 30 % to adjust the probability-weighted settlement paths to their present value.

An increase in the discount rate would decrease the fair value of the instrument, and an

increase in probabilities of certain settlement paths would increase the fair value of the instrument.

On November 10, 2021, in connection with the IPO, the SAFE notes automatically converted into 722,860 shares of Class A common stock.

The Company valued the notes on the settlement date of November 10, 2021 based on the Class A common stock price of $ 16.00 , which was the price of the Class A common stock sold in the IPO.

The weighted average discount on the SAFE notes was approximately 13 % and interest accrued was $ 0.1 million.

This valuation resulted in a realized loss of $ 1.4 million that the Company recorded in its statement of operations.

Furthermore, $ 2.0 million of the SAFE notes were purchased by TMT, and was deemed to be a related party transaction.

In addition, as described more fully in Note 10, TMT also received a pro-rata payment of $ 0.3 million as part of the settlement relating to a contractual dispute in connection with the SAFE transaction, in exchange for a full release of claims related to the SAFE transaction.

As of December 31, 2023, the unpaid balance is $ 0.9 million , reported as a component of accrued expenses and other current liabilities on the consolidated balance sheets.

Total interest expense related to this agreement was less than $ 0.1 million for the year ended December 31, 2023.

Stockholders’ Equity

Common Stock.

In connection with the IPO, the Amended and Restated Certificate of Incorporation provided for a dual class common stock structure, all outstanding shares of the Company’s common stock converted into an equivalent number of shares of its Class B common stock, and all shares of the convertible preferred stock then outstanding automatically converted into 3,359,195 shares of Class B common stock.

The Class B common stock on the Company’s balance sheets presented is representative of its common stock prior to the inception of the dual class structure.

Subsequent to the IPO, the Company has had two classes of common stock, Class A common stock and Class B common stock.

The rights of the holders of Class A common stock and Class B common stock are identical, except for voting, transfer, and conversion rights.

Each share of Class A common stock is entitled to one vote.

Each share of Class B common stock is entitled to ten votes and is convertible at any time into one share of Class A common stock.

From the time of its initial public offering through July 5, 2023, the Company had two outstanding classes of common stock, Class A common stock and Class B common stock.

The rights of the holders of Class A common stock and Class B common stock were identical, except for voting, transfer, and conversion rights.

On July 6, 2023, all of the Company’s then-outstanding shares of the Company’s Class B common stock were automatically converted (the “Conversion”) into the same number of shares of Class A common stock pursuant to the terms of the Company’s Amended and Restated Certificate of Incorporation.

No additional shares of Class B common stock will be issued following the Conversion.

In addition, on July 7, 2023, the Company filed a Certificate of Retirement with the Secretary of State of the

State of Delaware effecting the retirement of the shares of Class B common stock that were issued but no longer outstanding following the Conversion.

As of December 31, 2023, the Company’s sole outstanding class of common stock was its Class A common stock.

The Company had reserved shares of common stock for future issuance as follows:

9 unchanged sentences

Shares available for future purchases 962,960

Promissory notes

In June 2021, the Company issued full-recourse promissory notes to four employees of the Company for an aggregate principal amount of $ 48.0 thousand with an interest rate of 0.13 % per annum.

All of the principal was used to exercise options for 234,526 shares of the Company’s common stock.

As of December 31, 2021 , the promissory notes had been settled.

Convertible Preferred Stock

In connection with the IPO on November 10, 2021, as further discussed in Note 11, and with the filing of the Company’s Amended and Restated Certificate of Incorporation in Delaware and the adoption of its Amended and Restated Bylaws, all shares of the Company’s convertible preferred stock outstanding, totaling 3,359,195 , were automatically converted into an equivalent number of Class B common stock on a one -to-one basis and their carrying value of $ 2.7 million was reclassified into stockholder’s equity.

As of December 31, 2022 and December 31, 2021, there were no shares of convertible preferred stock issued and outstanding.

Stock-Based Compensation

3 unchanged sentences

The 2011 Plan provides for the grant of stock-based awards to employees, non-employee directors, and other service providers of the Company.

During April 2020, the Company’s Board approved an increase to the number of authorized shares under the Plan by 2,700,000 .

Following the increase, the Plan had 12,420,000 shares authorized as of December 31, 2020.

In March and August 2021, the Company’s Board approved increases to the number of authorized shares under the Plan by 1,980,000 .

Following the increases, the Plan had 14,400,000 shares authorized.

The 2011 Plan expired in September 2021.

5 unchanged sentences

Share Reserve .

The number of shares of our common stock available for issuance under our 2021 Plan equals the sum of 5,262,500 shares plus up to approximately 13,719,000 shares subject to awards granted under our 2011 Plan that expire, forfeit or are repurchased following the effective date of the 2021 Plan.

The number of shares reserved for issuance under our 2021 Plan will be increased automatically on the first business day of each of our fiscal years, commencing in 2022 and ending in 2031, by a number equal to the least of (i) 4,784,100 shares, (ii) 5 % of the shares of common stock outstanding on the last business day of the prior fiscal year;

As of December 31, 2023, the number of shares of common stock available for issuance under the 2021 Plan equaled the sum of 14,662,500 shares, plus up to approximately 13,719,000 shares subject to awards granted under the 2011 Plan that expire, forfeit or are repurchased following the effective date of the 2021 Plan.

In addition, the 2021 Plan includes an evergreen provision from which the number of shares reserved for issuance under the 2021 Plan will be increased automatically on the first business day of each of the Company’s fiscal years and ending on January 1, 2031, by a number equal to the lowest of (i) 4,784,100 shares, (ii) 5 % of the shares of Class A common stock outstanding on the last business day of the prior fiscal year;

or (iii) the number of shares determined by the Board of Directors.

During the year ended December 31, 2022, the Company increased the number of shares reserved under the 2021 Plan by 1,519,241 pursuant to this evergreen provision.

Pursuant to this evergreen provision, the Company increased the number of shares reserved under the 2021 Plan by 809,916 and 411,399 shares of Class A common stock during the years ended December 31, 2023 and 2022, respectively.

In July 2023, the Company increased the number of shares reserved under the 2021 Plan by 8,292,158 shares of Class A common stock pursuant to the amendment and restatement of the 2021 Plan adopted by the Company’s board of directors and approved by the stockholders.

In general, to the extent that any awards under the 2021 Plan are forfeited, terminate, expire or lapse without the issuance of shares, or if the Company reacquires the shares subject to awards granted under our 2021 Plan, those shares will again become available for issuance under our 2021 Plan, as will shares applied to pay the exercise or purchase price of an award or to satisfy tax withholding obligations related to any award.

Restricted Stock Units

During November 2021, in connection with the IPO, the Company granted its first RSUs under the 2021 Plan to certain of its non-employee directors.

During the year ended December 31, 2022, the Company began granting more RSUs than options to its employees and non-employee directors.

All RSUs granted have service-based vesting conditions.

RSUs granted under the 2021 Equity Incentive Plan generally vest based on continued service over a three - to- four year period for employees, and over a one year period for non-employee directors .

Restricted stock units (“RSUs”) granted under the 2021 Plan generally vest based on continued service up to a four-year period for employees, and over a one-year period for non-employee directors.

RSU activity for the year ended December 31, 2023 was as follows:

7 unchanged sentences

5,256,833 $ 5.63

The weighted-average grant-date fair value of 4,163,608 RSUs granted during the year ended December 31, 2022 was $ 6.87 .

The fair value as of the respective vesting dates of RSUs was $ 14.2 million and $ 1.9 million during the years ended December 31, 2023 and 2022, respectively.

Stock Options

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Stock options granted under the equity plans generally vest based on continued service over four years and expire ten years from the date of grant.

The following table summarizes the Black-Scholes option pricing model weighted-average assumptions used in estimating the fair value of stock options granted to employees during the years ended December 31, 2022 and 2021, inclusive of grants issued under from the 2021 and 2011 Equity Incentive Plans:

For the Years Ended December 31,

No stock options were granted during the year ended December 31, 2023.

For the Year Ended December 31,

Expected term (in years) 6

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Because the Company has never paid and has no intention to pay cash dividends on common stock, the expected dividend yield is zero .

Fair value of underlying common stock.

Prior to the IPO, because the Company’s common stock was not yet publicly traded, the Company estimated the fair value of common stock.

The Board of Directors (the “Board”) considered numerous objective and subjective factors to determine the fair value of the Company’s common stock at each meeting in which awards were approved.

The factors considered included, but are not limited to:

(i) the results of contemporaneous independent third-party valuations of the Company’s common stock;

(ii) the prices, rights, preferences, and privileges of the Company’s convertible preferred stock relative to those of its common stock;

(iii) the lack of marketability of the Company’s common stock;

(iv) actual operating and financial results;

(v) then current business conditions and projections;

(vi) the likelihood of achieving a liquidity event, such as an initial public offering or sale of the Company, given prevailing market conditions;

and (vii) precedent transactions involving the Company’s shares.

A summary of equity award activity under the Company’s equity plans and related information is as follows (in thousands, except share, price and year data):

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Options cancelled 617,293 ( 617,293 ) 10.87

2011 Stock Plan expiration ( 177,995 ) —

RSUs granted ( 18,750 ) —

Balance as of December 31, 2021

3,880,274 14,940,182 $ 5.19 6.69 $ 182,843

Shares authorized 1,519,241

Options granted ( 109,800 ) 109,800 13.29

Options exercised — ( 2,112,819 ) 2.09

Options cancelled 565,882 ( 565,882 ) 6.37

RSU award activity, net of shares withheld for taxes ( 4,019,031 ) —

RSU award activity ( 4,155,753 ) —

Balance as of December 31, 2023

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7,747,252 $ 5.24 5.17 $ 29,480

The weighted-average grant-date fair value of options granted was $ 6.26 and $ 7.10 during the years ended December 31, 2022 and 2021, respectively.

The weighted-average grant-date fair value of options granted was $ 6.26 during the year ended December 31, 2022.

The intrinsic value of options exercised was $ 8.8 million and $ 10.5 million for the years ended December 31, 2023 and 2022, respectively.

1 unchanged sentence

The aggregate grant-date fair value of options vested was $ 8.5 million and $ 13.0 million for the years ended December 31, 2023 and 2022, respectively.

In October 2021, the Company’s Board of Directors adopted the 2021 Employee Stock Purchase Plan (“ESPP”), which became effective on the date of the IPO.

In October 2021, the Company’s Board of Directors adopted the ESPP, which became effective on the date of the IPO.

The ESPP initially reserved and authorized the issuance of up to a total of 956,800 shares of Class A common stock to participating employees.

During the year ended December 31, 2022, the Company increased the number of shares reserved under the ESPP by 607,696 pursuant to its evergreen provision.

Pursuant to its evergreen provision, the Company increased the number of shares reserved under the ESPP by 667,874 and 607,696 for the years ended December 31, 2023 and 2022, respectively.

The initial offering period commenced in November 2021 and the first purchase date occurred in May 2022.

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The ESPP shall terminate automatically 20 years after its effective date, unless the ESPP is extended by the Board of Directors and the extension is approved within 12 months by a vote of the stockholders of the Company.

As of December 31, 2022, 574,364 shares of Class A common stock have been purchased under the ESPP.

695,046 and 574,364 shares of Class A common stock have been purchased under the ESPP during the years ended December 31, 2023 and 2022, respectively.

The fair value of the purchase rights under the ESPP was estima ted using the Black-Scholes option pricing model with a similar methodology for determining inputs as the Company’s stock options, as described above.

The Company recorded stock-based compensation expense under this plan of $ 2.9 million f or the year ended December 31, 2022, of which $ 0.6 million was capitalized for the development of capitalized internal-use software.

As of December 31, 2022 , the total unrecognized stock-based compensation expense related to the ESPP was $ 4.5 million and is expected to be recognized over a weighted

average period of 2 years.

The Company recorded stock-based compensation expense under this plan of $ 4.2 million and $ 2.9 million f or the years ended December 31, 2023 and 2022, respectively, of which $ 0.8 million and $ 0.6 million was capitalized for the development of capitalized internal-use software.

As of December 31, 2023 , the total unrecognized stock-based compensation expense related to the ESPP was $ 1.1 million and is expected to be recognized over a weighted average period of 1 year.

As of December 31, 2023 , $ 0.4 million had been withheld on behalf of employees for future purchases.

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Stock-Based Compensation Expense

Stock-based compensation expense included in the statements of operations was as follows (in thousands):

Stock-based compensation expense included in the consolidated statements of operations was as follows (in thousands):

For the Years Ended December 31,

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During the years ended December 31, 2023 and 2022 , the Company capitalized $ 5.0 million and $ 2.7 million, respectively, of stock-based compensation for the development of capitalized internal-use software.

As of December 31, 2022, total compensation cost related to stock options and RSUs not yet vested was $ 21.2 million and $ 22.7 million, respectively which will be recognized over a weighted-average period of 2.1 years and 3.0 years, respectively.

During March 2022, the Company’s Compensation Committee approved a new bonus plan (“2022 Bonus Plan”) for its employees.

As of December 31, 2023, total unrecognized compensation cost related to stock options and RSUs not yet vested was $ 10.5 million and $ 27.4 million, respectively, which will be recognized over a weighted-average period of 1.3 and 2.1 years for stock options and RSUs, respectively.

During March 2022, the Company’s Compensation Committee of the Board of Directors approved a new bonus structure (“Bonus Plan”) for its employees.

The Bonus Plan is contingent upon the achievement of annual corporate performance targets.

If these performance targets are met during 2022, employees will be paid out under the plan in RSUs in 2023.

In each respective calendar year, the Company accrues for the Bonus Plan.

The actual payout amount is determined by the Company’s Compensation Committee based on the actual achievement with respect to the annual performance targets and is paid in the subsequent year in the variable number of RSUs equal to the payout amount.

These RSUs are subject to performance and service condition vesting requirements, beginning from the grant date to the payout date.

Participants must remain employed with the Company through the date of payout to maintain eligibility under the Bonus Plan.

Pursuant to the Bonus Plan, during February 2023 the Company’s Compensation Committee approved the issuance of approximately 288,000 RSUs that immediately vested based on actual performance against the performance targets for 2022.

The Company recognized $ 1.9 million in stock-based compensation during the year ended December 31, 2022, of which the Company capitalized $ 0.3 million of stock-based compensation expense under this plan for the development of internal-use software.

During February 2023, the Company’s Board of Directors approved annual corporate performance targets under its Bonus Plan for 2023 for its employees.

If these performance targets are met during 2023, employees will be paid out under the Bonus Plan in RSUs in 2024.

As a result, the Company recognized $ 3.0 million in stock-based compensation during the year ended December 31, 2023 based on progress made towards these performance targets.

These RSUs are subject to performance and service condition vesting requirements, beginning from the grant date to the payout date.

During the year ended December 31, 2023, the Company capitalized $ 0.5 million of stock-based compensation expense under this plan for the development of internal-use software.

As of December 31, 2023, the accrued bonus balance is $ 3.0 million , reported as a component of accrued expenses and other current liabilities on the consolidated balance sheets.

Pursuant to the Bonus Plan, during February 2024, the Company’s Compensation Committee approved the issuance of approximately 296,000 RSUs that immediately vested.

During the year ended December 31, 2021, the Company’s Board approved modifications to extend the exercise period of vested options for certain terminated employees by the earlier of five years from the employee’s termination date or the option expiration date.

The modification was effective upon the Board’s approvals.

As a result, the Company recognized an incremental $ 0.1 million in stock-based compensation during the year ended December 31, 2021.

There were no such modifications during the year ended December 31, 2022.

Net Loss per Share Attributable to Common Stockholders

The Company computes net loss per share using the two-class method required for multiple classes of common stock and participating securities.

The rights of the holders of the Class A common stock and Class B common stock are identical, except with respect to voting and conversion.

Accordingly, the Class A common stock and Class B common stock share equally in the Company’s net losses.

Prior to the IPO, the Company’s participating securities also included convertible preferred stock.

The holders of convertible preferred stock did not have a contractual obligation to share in the Company’s losses, and as a result, net losses were not allocated to these participating securities.

Subsequent to the IPO, the Company considers its convertible preferred stock to be participating securities.

The Company computes net loss per share for periods prior to the Conversion using the two-class method required for multiple classes of common stock and participating securities.

Prior to the Conversion, shares of Class A and Class B were the only outstanding equity in the Company.

The rights of the holders of the Class A common stock and Class B common stock were identical, except with respect to voting, transfer, and conversion.

Accordingly, the Class A common stock and Class B common stock shared equally in the Company’s net losses.

Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period.

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For purposes of this calculation, the Company’s stock options, share purchase rights pursuant to the Company’s ESPP, and unvested restricted stock are considered to be potential common stock equivalents, but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive.

The shares issued in the IPO, the shares issued pursuant to the exercise by the underwriters of an option to purchase additional shares, and the shares of Class A and Class B common stock issued upon conversion of the SAFE notes, respectively, are included in the table below.

For illustration purposes, Class B common stock in the table below for the 2021 periods presented represents the Company’s common stock prior the adoption of the dual class structure in connection with the IPO.

As discussed above in Note 12, on July 6, 2023, all of the Company’s then-outstanding shares of Class B common stock, par value $ 0.0001 per share, were automatically converted into the same number of shares of Class A common stock, par value $ 0.0001 per share, pursuant to the terms of the Company’s Amended and Restated Certificate of Incorporation.

No additional shares of Class B common stock will be issued following the conversion.

In addition, on July 7, 2023, the Company filed a Certificate of Retirement with the Secretary of State of the State of Delaware effecting the retirement of the shares of Class B common stock that were issued but no longer outstanding following the Conversion.

As the liquidation and dividend rights were identical, the Company’s undistributed earnings or losses were allocated on a proportionate basis among the holders of Class A and Class B common stock.

As a result, the net loss per share attributed to common stockholders was, therefore, the same for both Class A and Class B common stock on an individual or combined basis.

The following table presents the calculation of basic and diluted net loss per share (in thousands, except share and per share data):

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Total 14,665,405 16,207,533

Restructuring

In January 2023, the Company initiated measures to reduce headcount to pursue greater cost efficiency and align strategic initiatives.

These measures were substantially completed by June 30, 2023, and the total cost was $ 3.6 million.

During this period, approximately 1 % and 4 % of the Company’s workforce terminated employment, which were voluntary and involuntary terminations, respectively.

As a result, the Company incurred employee termination expenses and other associated costs.

A summary of the restructuring charges as reported on the consolidated statement of operations for the year ended December 31, 2023, of which $ 0.7 million were related to involuntary terminations, is as follows (in thousands):

Severance and other Personnel Costs For the Year Ended December 31, 2023

Research and development $ 2,311

Sales and marketing 1,025

General and administrative 280

The following table is a summary of the charges in the severance and other personnel liabilities, included within accrued expenses and other current liabilities on the consolidated balance sheet, related to the workforce reduction (in thousands):

Balance as of January 1, 2023 $ —

Severance and other personnel costs 3,616

Cash payments during the period ( 3,616 )

Balance as of December 31, 2023

The following table presents the components of net loss before income taxes (in thousands):

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$ ( 59,713 ) $ ( 51,437 )

The provision for income taxes for the years ended were as follows (in thousands):

The provision for income taxes included in the consolidated statement of operations is comprised of the following (in thousands):

For the Years Ended

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Total provision

$ ( 39 ) $ 96

Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Realization of net deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain.

The following table presents a reconciliation of the statutory federal rate and the Company’s effective tax rate:

The following table presents a reconciliation of the statutory federal rate and the Company’s effective tax rate, using a federal statutory rate of 21%:

For the Years Ended

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Change in valuation allowance

Permanent items

( 4 ) % ( 4 ) %

Stock-based compensation

Debt instruments — % 2 %

PPP loan adjustment — % ( 2 ) %

( 6 ) % ( 4 ) %

Effective tax rate

The components of the Company’s deferred tax assets and liabilities consisted of (in thousands):

Deferred tax assets:

Net operating loss carryforwards

Net operating loss (“NOL”) carryforwards

$ 23,111 $ 15,154

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Research and experimental expenditures under IRC Section 174 14,063 5,062

Lease liability

Disallowed interest expense 2,767 1,841

Accruals and other

1,064 ( 222 )

56,097 32,531

Valuation allowance

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( 1,967 ) ( 1,986 )

Right of use asset

( 2,496 ) ( 1,666 )

Capitalized internal-use software

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Realization of net deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain.

ASC 740 requires that the tax benefit of net operating losses (“NOLs”), temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is more likely than not.

Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period.

Management believes that realization of the deferred tax assets arising from the above-mentioned future tax benefits from operating loss carryforwards is currently not more likely than not and, accordingly, has provided a valuation allowance.

The valuation allowance increased by $ 14.3 million and $ 7.2 million during the years ended December 31, 2022 and 2021, respectively.

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain.

Based on evidence of Company's earnings history, the net U.S.

deferred tax assets have been fully offset by a valuation allowance.

The valuation allowance increased b y $ 17.6 million a nd $ 14.3 million during the years ended December 31, 2023 and 2022, respectively.

As of December 31, 2023, the Company had federal and state NOL carryforwards of $ 91.4 million and $ 66.0 million , respectively.

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The Company also has $ 0.1 million of California enterprise zone credits which will begin to expire in 2028.

The utilization of NOLs and tax credit carryforwards to offset future taxable income may be subject to an annual limitation as a result of ownership changes that have occurred previously or may occur in the future.

Under Sections 382 and 383 of the Internal Revenue Code (“IRC”), a corporation that undergoes an ownership change may be subject to limitations on its ability to utilize its pre-change NOLs and other tax attributes otherwise available to offset future taxable income and/or tax liability.

An ownership change is defined as a cumulative change of 50% or more in the ownership positions of certain stockholders during a rolling three-year period.

The Company has not completed a formal study to determine if any ownership changes within the meaning of IRC Sections 382 and 383 have occurred.

If an ownership change has occurred, the Company’s ability to use its NOLs or tax credit carryforwards may be restricted, which could require the Company to pay federal or state income taxes earlier than would be required if such limitations were not in effect.

Effective for tax years beginning after December 31, 2021, taxpayers are required to capitalize any expenses they incurred that are considered incidental to research and experimentation (“R&E”) activities under IRC Section 174.

While taxpayers historically had the option of deducting these expenses under IRC Section 174, the Tax Act mandates capitalization and amortization beginning with tax years after December 31, 2021.

Expenses incurred in connection with R&E activities must

be amortized over a 5-year period if incurred in the US or over a 15-year period if incurred outside of the United States.

R&E activities are broader in scope than the calculation of qualified research activities under IRC Section 41 (for research and development tax credit purposes).

For the year ended December 31, 2022, the Company performed an analysis based on all the guidance available and has determined that it will continue to be in a loss position after considering the R&E capitalization.

The Company will continue to monitor the effects of this legislation, however, the Company does not expect to pay cash taxes as a result of this change as the remaining operating expenses excluding R&E expense are significant and expect to continue to generate losses for tax purposes in the near future.

Utilization of some of the federal and state net operating loss and credit carryforwards are subject to annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986 (specifically Section 382), as amended, and similar state provisions.

The Company performed a Section 382 analysis through December 31, 2022 and determined that ownership changes occurred in the year 2007, 2009 and 2012.

The ownership changes identified had no significant impact on federal and state net operating losses.

The annual limitations may result in the expiration of net operating losses and credits before utilization in the future.

At this time, we have not finalized a Section 382 analysis through December 31, 2023 to assess whether such an ownership change has occurred that could impact these federal and state net operating losses.

On August 16, 2022, the Inflation Reduction Act was enacted in the U.S.

and introduced a 15% alternative minimum tax based on the financial statement income of certain large corporations (“CAMT”) and an excise tax of 1% of stock

repurchases, effective January 1, 2023.

The various provisions of the Inflation Reduction Act do not have a material impact on the Company’s consolidated financial statements for the year ended December 31, 2023 .

Uncertain Income Tax Positions

The total amount of unrecognized tax benefits as of December 31, 2022 was $ 1.2 million which related to federal and state R&D credits.

If recognized, none of the unrecognized tax benefits would affect the effective tax rate.

The following table summarizes the activity related to the Company’s unrecognized tax benefits (in thousands):

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Balance at beginning of year

$ 1,239 $ 817

Tax positions related to the current year:

Tax positions related to the prior year:

Lapses in statute

Balance at end of year

$ 1,889 $ 1,239

The total amount of unrecognized tax benefits as of December 31, 2023 was $ 1.9 million, all related to federal and state tax jurisdictions .

If recognized, none of the unrecognized tax benefits would affect the effective tax rate.

The Company’s policy is to account for interest and penalties as income tax expense.

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federal and state income tax examination for calendar tax years beginning in 2007 due to NOLs that are being carried forward for tax purposes.

Subsequent Events

Starting in January 2023, the Company initiated a reduction in headcount incurring employee termination expenses and other associated costs, in aggregate, estimated to be between $ 3.5 million to $ 4.0 million.

The Company expects to recognize the majority of these expenses in the first quarter of fiscal year 2023.

In February 2023, in addition to approving equity awards related to the 2022 Bonus Plan (see Note 14), the Company’s Compensation Committee approved the issuance of approximately 701,000 RSUs with service-based vesting periods that are satisfied over three or four years .

The Company expects to recognize approximately $ 4.1 million in stock-based compensation on a straight-line basis over the vesting period of these awards.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosures

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data