What changed in this filing

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Item 9A. Controls and Procedures

2023-03-01 compared with 2022-02-28 · 125 added, 72 removed, 91 unchanged (68% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures.

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the commission’s rules and forms.

Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

1 unchanged sentence

In light of this fact, our management has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that, notwithstanding the material weaknesses in our internal control over financial reporting, the consolidated financial statements for the periods covered by and included in this Annual Report fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.

Previously Reported Material Weaknesses

As disclosed in the section entitled “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K, we previously identified material weaknesses in our internal control over financial reporting.

These material weaknesses primarily relate to our failure to design, maintain, and document sufficient oversight of activities related to our internal control over financial reporting due to a lack of an appropriate level of experience and training in internal control over financial reporting commensurate with public company requirements;

formal accounting policies procedures, and controls related to substantially all of our business processes to achieve complete, accurate and timely financial accounting, reporting and disclosures, including controls over account reconciliations, segregation of duties and the preparation and review of journal entries;

IT general controls for information systems and applications that are relevant to the preparation of the consolidated financial statements.

We have concluded that these material weaknesses arose because, as a private company, we did not have the necessary business processes, systems, personnel, and related internal controls necessary to satisfy the accounting and financial reporting requirements of a public company.

Accordingly, we have determined that these control deficiencies constituted material weaknesses in our internal control over financial reporting.

A material weakness is a deficiency or combination of deficiencies in our internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our consolidated financial statements would not be prevented or detected on a timely basis.

These deficiencies could result in additional misstatements to our consolidated financial statements that would be material and would not be prevented or detected on a timely basis.

Management's Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act.

Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.

GAAP and includes those policies and procedures that:

(1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect transactions and the dispositions of assets;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S.

GAAP and that receipts and expenditures are being made only in accordance with appropriate authorizations of management and directors;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on its financial statements.

Management, under the supervision of and with the participation of the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in "Internal Control—Integrated Framework" (2013).

Based on this assessment, management determined that the Company’s internal control over financial reporting as of December 31, 2022 was not effective due to the material weaknesses described below.

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

• We did not design or maintain an effective control environment as we lacked sufficient oversight of activities related to our internal control over financial reporting due to a lack of an appropriate level of experience and training commensurate with public company requirements.

This material weakness resulted in our identification of the following additional material weaknesses;

• We did not maintain formal accounting policies and procedures, and did not design, document and maintain controls related to substantially all of our business processes to achieve complete, accurate and timely financial accounting, reporting and disclosures, including controls over account reconciliations, segregation of duties and the preparation and review of journal entries;

• We did not design and maintain effective controls over information technology, or IT, general controls for information systems and applications that are relevant to the preparation of the consolidated financial statements.

Specifically, we did not design and maintain (i) program change management controls to ensure

that IT program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately that are relevant to the preparation of our financial statements, (ii) user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to financial applications, programs, and data to appropriate personnel, (iii) computer operations controls to ensure that critical batch jobs are monitored and data backups are authorized and monitored, and (iv) testing and approval of controls for program development to ensure that new software development is aligned with business and IT requirements.

These IT deficiencies, when aggregated, could impact effective segregation of duties as well as the effectiveness of IT-dependent controls that could result in misstatements potentially impacting all financial statement accounts and disclosures that would not be prevented or detected.

Accordingly, our management has determined these deficiencies in the aggregate constitute a material weakness.

None of the material weaknesses described above resulted in a material misstatement to our annual or interim consolidated financial statements.

However, each of the material weaknesses described above could result in a misstatement of one or more account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

Remediation Plans

We have commenced measures to remediate the identified material weaknesses.

These measures include adding personnel as well as improving the control environment around financial systems and processes.

We intend to continue to take steps to remediate the material weaknesses described above and further evolve our accounting processes.

To date, we have implemented certain measures to address the identified material weaknesses.

These measures include adding personnel as well as improving our internal controls around financial systems and processes.

We intend to continue to take steps to remediate the material weaknesses described above and further evolve our internal controls and processes.

We will not be able to remediate these material weaknesses until these steps have been completed and have been operating effectively for a sufficient period of time.

3 unchanged sentences

• engaged a global accounting advisory firm to assist with the documentation, evaluation, remediation and testing of our internal control over financial reporting.

The following are remedial actions that management is undertaking during 2022:

evaluate our internal control over financial reporting with respect to design, implementation, and operating effectiveness;

formalize our accounting policies, including training relevant personnel, related to, but not limited to, account reconciliations and manual journal entries;

formalize IT procedures for key financial systems, including training relevant personnel, related to segregation of duties, user access, batch jobs, data backups, change management, and program development.

The following remedial actions were taken during the year ended December 31, 2022:

• evaluated our internal control over financial reporting with respect to design, implementation, and operating effectiveness;

• added key resources to the Internal Audit team, including an IT expert;

• formalized our accounting policies, including training relevant personnel, related to, but not limited to, account reconciliations and manual journal entries;

• formalized IT procedures for key financial systems, including training relevant personnel, related to segregation of duties, user access, batch jobs, data backups, change management, and program development.

The following are the remaining remedial actions that management plans to undertake during 2023:

• continue to enhance our IT general control resources, including the hiring of a new Chief Information Security Officer ("CISO");

• ensure that the IT general controls specific to all key systems supporting financial reporting, including user access reviews, are being consistently operated and evidenced such that persuasive evidence is obtained that our IT general controls are effective and sustainable;

• ensure that controls over key reports and data derived from systems supporting financial reporting are consistently evidenced;

• ensure controls are fully in place to address segregation of duties risks that could present a reasonable possibility of material misstatements;

• ensure that sufficient evidence of operating effectiveness is consistently demonstrated and maintained for key business process controls.

While we believe that these efforts will improve our internal control over financial reporting, the implementation of our remediation is ongoing and will require testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles.

We believe we are making progress toward achieving the effectiveness of our internal controls and disclosure controls.

We believe we have made substantial progress toward achieving effective internal control over financial reporting and disclosure controls and procedures.

The actions that we are taking are subject to ongoing senior management review, as well as audit committee oversight.

1 unchanged sentence

We may also conclude that additional measures may be required to remediate the material weaknesses in our internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

The Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting due to a transition period established by the rules of the SEC for newly public companies.

Inherent Limitation on the Effectiveness of Internal Controls and Procedures

Changes in Internal Control over Financial Reporting

There have been no changes in internal control over financial reporting during the quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Inherent Limitation on the Effectiveness of Internal Control over Financial Reporting and Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud.

11 unchanged sentences

Directors, Executive Officers and Corporate Governance.

Information required by this item will be contained in our definitive proxy statement to be filed with the Securities and Exchange Commission on Schedule 14A in connection with our 2022 Annual Meeting of Stockholders, or the Proxy Statement, which will be filed no later than 120 days after the end of our fiscal year ended December 31, 2021, and is incorporated herein by reference.

Information required by this item will be contained in our definitive proxy statement to be filed with the SEC on Schedule 14A in connection with our 2023 Annual Meeting of Stockholders, or the Proxy Statement, which will be filed no later than 120 days after the end of our fiscal year ended December 31, 2022, and is incorporated herein by reference.

We have adopted a Code of Business Conduct and Ethics that applies to our officers, directors and employees which is available on our website at investors.compass.com.

9 unchanged sentences

The information required by this item regarding principal accountant fees and services will be incorporated by reference to the information set forth in our Proxy Statement.

Exhibits, Financial Statement Schedules.

The following documents are filed as part of this report:

Exhibits and Financial Statement Schedules.

(a) The following documents are filed as part of this report:

Financial Statements

Information in response to this Item is included in Part II, Item 8 of this Annual Report on Form 10-K.

Information in response to this Item is included in Part II, Item 8 of this Annual Report.

Financial Statement Schedules

1 unchanged sentence

Years Ended December 31, 2022, 2021 and 2020

of Year Charged

Expenses Write-

offs Other Balance

(in millions)

2 unchanged sentences

Compass Concierge receivable allowance for credit loss 17.3 1.8 ( 4.4 ) — 14.7

Valuation allowance for deferred tax assets

Valuation allowance for deferred tax assets 448.4 — — 145.8 (b)

December 31, 2021

1 unchanged sentence

Compass Concierge receivable allowance for credit loss 17.2 7.2 ( 7.1 ) — 17.3

Valuation allowance for deferred tax assets

Valuation allowance for deferred tax assets 287.5 — — 160.9 (b)

December 31, 2020

Accounts receivable allowance for credit loss 2.7 6.9 ( 1.5 ) — 8.1

Compass Concierge receivable allowance for credit loss

Valuation allowance for deferred tax assets

(a) The Company adopted ASU 2016-13,

Financial Instruments — Credit Losses (Topic 326)

as of January 1, 2020 on a modified retrospective basis which resulted in a $5.6 million increase in the Company’s overall allowance for credit losses related to the Company’s Compass Concierge receivables, with a corresponding increase to the Company’s accumulated deficit.

Compass Concierge receivable allowance for credit loss 4.7 9.1 ( 2.2 ) 5.6 (a)

Valuation allowance for deferred tax assets 223.1 — — 64.4 (b)

(a) The Company adopted ASU 2016-13, Financial Instruments — Credit Losses (Topic 326) as of January 1, 2020 on a modified retrospective basis which resulted in a $ 5.6 million increase in the Company’s overall allowance for credit losses related to the Company’s Compass Concierge receivables, with a corresponding increase to the Company’s accumulated deficit.

(b) For the years ended December 31, 2022, 2021 and 2020, the increase in valuation allowance relates to U.S.

2 unchanged sentences

Exhibit Index

Incorporated by Reference

Exhibit Description

Restated Certificate of Incorporation of the Registrant

Number Incorporated by Reference

Exhibit Description Form File No.

Exhibit Filing Date Filed

3.1 Restated Certificate of Incor poration of the Registrant

10-Q 001-40291 3.1 5/13/21

3.2 Amended and Restated Bylaws of the Registrant

10-Q 001-40291 3.2 5/13/21

4.1 Description of Common Stock

10-K 001-40291 4.1 2/28/22

4.2 Form of Registrant's Class A common stock certificate

S-1/A 333-253744 4.1 3/23/21

10.1+ Form of Indemnification Agreement by and between the Registrant and each of its directors and executive officers

S-1 333-253744 10.1 3/1/21

10.2+ 2012 Stock Incentive Plan and forms of award agreements thereunder

S-1 333-253744 10.2 3/1/21

10.3+ 2021 Equity Incentive Plan and forms of award agreements thereunder

S-1/A 333-253744 10.3 3/23/21

10.4+ 2021 Employee Stock Purchase Plan and forms of award agreements thereunder

S-1/A 333-253744 10.4 3/23/21

10.5+ Non-Employee Director Compensation Policy

S-1 333-253744 10.5 3/1/21

10.6+ Letter Agreement between the Registrant and Robert Reffkin, dated as of March 12, 2020, as amended

Offer Letter between the Registrant and Kristen Ankerbrandt, dated as of March 13, 2021

Offer Letter between the Registrant and Greg Hart, dated as of March 12, 2021

S-1/A 333-253744 10.6 3/23/21

10.7+ Offer Letter between the Registrant and Joseph Sirosh, dated as of March 12, 2021

S-1/A 333-253744 10.9 3/23/21

10.8+ Offer Letter between the Registrant and Brad Serwin, dated as of March 12, 2021

S-1/A 333-253744 10.10 3/23/21

10.9+ Form of Change in Control and Severance Agreement between the Registrant and its named executive officers

S-1/A 333-253744 10.11 3/23/21

10.10 Lease Agreement between Urban Compass, Inc.

and 90 Fifth Avenue Owner LLC, dated July 23, 2014, and amendments thereto

Amended and Restated Revolving Credit and Security Agreement among Compass Concierge SPV I, LLC, Barclays Bank PLC and the lenders party thereto, dated as of July 29, 2021

S-1 333-253744 10.12 3/1/21

10.11 Revolving Credit and Guaranty Agreement among the Registrant, Barclays Bank PLC, the Lenders, and Issuing Banks party thereto, dated as of March 4, 2021

S-1/A 333-253744 10.14 3/23/21

10.12+ Form of Exchange Agreement between the Registrant and Robert Reffkin

S-1 333-253744 10.14 3/1/21

10.13+ Form of Equity Exchange Right Agreement between the Registrant and Robert Reffkin

S-1 333-253744 10.15 3/1/21

10.14+ Forms of Global Notice of Restricted Stock Unit Award and Global Restricted Stock Unit Award Agreement

10-Q 001-40291 10.2 8/10/21

10.15+ Forms of Global Notice of Stock Option Grant and Global Stock Option Agreement

10-Q 001-40291 10.3 8/10/21

10.16+ Executive Bonus Plan, effective as of March 1, 2022

8-K 001-40291 10.1 3/17/22

10.17+ Amended and Restated Offer Letter between the Registrant and Neda Navab, dated May 10, 2022

10-Q 001-40291 10.1 5/13/22

10.18+ Amended and Restated Offer Letter between the Registrant and Priyanka Singh, dated May 10, 2022

10-Q 001-40291 10.2 5/13/22

10.19+ Second Amended and Restated Offer Letter between the Registrant and Kristen Ankerbrandt, dated May 10, 2022

10-Q 001-40291 10.3 5/13/22

Number Incorporated by Reference

Exhibit Description Form File No.

Exhibit Filing Date Filed

10.20+ Second Amended and Restated Offer Letter between the Registrant and Greg Hart, dated May 10, 2022

10-Q 001-40291 10.4 5/13/22

10.21 Amended and Restated Revolving Credit and Security Agreement among Compass Concierge SPV I, LLC, Barclays Bank PLC and the lenders party thereto, dated as of August 5, 2022

10-Q 001-40291 10.1 8/15/22

10.22+ Separation Agreement between the Registrant and Kristen Ankerbrandt, dated as of August 2, 2022

10-Q 001-40291 10.2 8/15/22

10.23+ Promotion Award Letter Agreement between the Registrant and Greg Hart, dated as of August 10, 2022

10-Q 001-40291 10.3 8/15/22

10.24+ Offer Letter between the Company and Kalani Reelitz, dated as of October 24, 2022

8-K 001-40291 10.1 10/28/22

21.1 Subsidiaries of the Registrant

5 unchanged sentences

32.2# Certification of Chief Financial Officer, pursuant to 18 U.S.C.

Interactive Data Files

Cover page interactive data file, submitted using inline XBRL (contained in Exhibit 101)

101 The following financial information related to the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, formatted in iXBRL (Inline Extensible Business Reporting Language):

(i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Loss, (iv) the Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit), (v) the Consolidated Statements of Cash Flows;

and (vi) the related Notes to Consolidated Financial Statements X

104 Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101 X

+ Management contract or compensatory plan.

# In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No.

34-47986, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-K and will not be deemed “filed” for purposes of Section 18 of the Exchange Act or deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act.

Form 10-K Summary.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

February 28, 2022

/s/ Robert Reffkin

Robert Reffkin

March 1, 2023 By /s/ Robert Reffkin

(Date) Robert Reffkin

Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, each person whose individual signature appears below hereby authorizes and appoints Robert Reffkin, Kristen Ankerbrandt, and Scott Wahlers and each of them, with full power of substitution and re-substitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue thereof.

KNOW ALL PERSONS BY THESE PRESENTS, each person whose individual signature appears below hereby authorizes and appoints Robert Reffkin, Kalani Reelitz, and Scott Wahlers and each of them, with full power of substitution and re-substitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

/s/ Robert Reffkin

Chairman of the Board of Directors and Chief Executive Officer

February 28, 2022

Robert Reffkin

(Principal Executive Officer)

/s/ Kristen Ankerbrandt

Chief Financial Officer

February 28, 2022

Kristen Ankerbrandt

(Principal Financial Officer)

/s/ Scott Wahlers

Chief Accounting Officer

February 28, 2022

Scott Wahlers

(Principal Accounting Officer)

/s/ Jeffrey Housenbold

February 28, 2022

Name Title Date

/s/ Robert Reffkin Chairman of the Board of Directors and Chief Executive Officer March 1, 2023

Robert Reffkin (Principal Executive Officer)

/s/ Kalani Reelitz Chief Financial Officer March 1, 2023

Kalani Reelitz (Principal Financial Officer)

/s/ Scott Wahlers Chief Accounting Officer March 1, 2023

Scott Wahlers (Principal Accounting Officer)

/s/ Jeffrey Housenbold Director March 1, 2023

Jeffrey Housenbold

/s/ Frank Martell

February 28, 2022

/s/ Allan Leinwand Director March 1, 2023

Allan Leinwand

/s/ Frank Martell Director March 1, 2023

Frank Martell

/s/ Eileen Murray

February 28, 2022

Eileen Murray

/s/ Charles Phillips

February 28, 2022

/s/ Josh McCarter Director March 1, 2023

Josh McCarter

/s/ Charles Phillips Director March 1, 2023

Charles Phillips

/s/ Steven Sordello

February 28, 2022

/s/ Steven Sordello Director March 1, 2023

Steven Sordello

/s/ Pamela Thomas-Graham

February 28, 2022

/s/ Pamela Thomas-Graham Director March 1, 2023

Pamela Thomas-Graham

/s/ Dawanna Williams Director March 1, 2023

Dawanna Williams

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 9A. Controls and Procedures