What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2022-02-28 compared with 2021-03-01 · 515 added, 462 removed, 767 unchanged (56% of the section changed)

2 unchanged sentences

Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2021.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2020, our disclosure controls and procedures were effective at the reasonable assurance level in ensuring that (a) the 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, and (b) such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Based on this evaluation, our Chief

Executive Officer and Chief Financial Officer concluded that, as of December 31, 2021, our disclosure controls and procedures were effective at the reasonable assurance level in ensuring that (a) the 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, and (b) such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Annual Report on Internal Control Over Financial Reporting

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Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on evaluation under these criteria, management determined that our internal control over financial reporting was effective as of December 31, 2020.

In connection with completing our evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020, we identified certain General Information Technology Controls (GITC) in interim periods prior to August 31, 2020 that were not designed at a sufficient level of precision to support the effective operation of underlying process level controls and to establish minimum documentation requirements to

evidence control performance.

We considered the nature of these GITC control deficiencies, in the aggregate, to represent a material weakness in our internal control over financial reporting.

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 our annual or interim financial statements would not be prevented or detected on a timely basis.

As we prepared for our assessment, we improved the design of controls and formally implemented GITCs related to (i) access security, (ii) change management, and (iii) IT operations throughout the course of the third quarter.

The material weakness identified as part of our assessment did not result in any misstatements to our financial statements during the fiscal year, nor does it require a restatement of or change in our financial statements for any prior annual or interim period.

Based on our evaluation under the COSO framework, we believe these steps we have taken have remediated the material weakness as of December 31, 2020.

KPMG, LLP, our independent registered public accounting firm, has audited the effectiveness of our internal control over financial reporting as of December 31, 2020.

Based on evaluatio n under these criteria, management determined that our internal control over financial reporting was effective as of December 31, 2021.

KPMG, LLP, our independent registered public accounting firm, has audited the effectiveness of our internal control over financial reporting as of December 31, 2021, as stated in their report which is included in Part IV —Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Changes in Internal Control Over Financial Reporting

Other than implementing the remediation steps noted in the previous section, there was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the year ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the year ended December 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

10 unchanged sentences

Other Information.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

Directors, Executive Officers and Corporate Governance.

7 unchanged sentences

Principal Accounting Fees and Services.

Our independent registered public accounting firm is KPMG LLP, San Francisco, CA, Auditor ID:

The information required by this Item is incorporated by reference to the information set forth under the caption “Proposal No.

1 unchanged sentence

Exhibits, Financial Statement Schedules.

Please refer to the Financial Statements, Notes to Financial Statements and the Exhibit Index in this Form 10-K which is incorporated herein by reference.

Please refer to the Exhibit Index in this Form 10-K which is incorporated herein by reference.

(a) Please refer to the Financial Statements, Notes to Financial Statements and the Exhibit Index in this Form 10-K which is incorporated herein by reference.

(b) Please refer to the Exhibit Index in this Form 10-K which is incorporated herein by reference.

Form 10-K Summary

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Incorporated by Reference

Description Form File No.

Exhibit Filing Date Filed

3.1 Form of Amended and Restated Certificate of Incorporation of The RealReal, Inc., as currently in effect.

June 17, 2019

S-1 333-231891 3.2 June 17, 2019

3.2 Form of Amended and Restated Bylaws of The RealReal, Inc.

as currently in effect.

S-1 333-231891 3.4 June 6, 2019

4.1 Form of Common Stock Certificate.

June 17, 2019

S-1 333-231891 4.1 June 17, 2019

4.2 Seventh Amended and Restated Investor Rights Agreement, dated March 22, 2019 among The RealReal, Inc.

and certain holders of its capital stock.

S-1 333-231891 4.7 May 31, 2019

4.3 Indenture dated June 15, 2020, between The RealReal, Inc.

Bank National Association as Trustee, including form of 3.00% Convertible Senior Note due 2025.

June 16, 2020

8-K 001-38953 4.1 June 16, 2020

4.4 Description of Securities.

August 7, 2020

10-Q 001-38953 4.2 August 7, 2020

4.5 Indenture dated March 8, 2021, between The RealReal, Inc.

Bank National Association as Trustee, including form of 1.00% Convertible Senior Note due 2028.

8-K 001-38953 4.1 March 8, 2021

4.6 Form of 1.00% Convertible Senior Note due 2028 (included in Exhibit 4.1).

8-K 001-38953 4.2 March 8, 2021

10.1+ The RealReal, Inc.

2011 Equity Incentive Plan and related form agreements.

S-1 333-231891 10.1 May 31, 2019

10.2+ Form of Indemnification Agreement entered into by and between The RealReal, Inc.

and its directors and executive officers.

June 17, 2019

S-1 333-231891 10.2 June 17, 2019

10.3# Loan and Security Agreement dated as of September 19, 2013 by and between The RealReal, Inc.

and Square 1 Bank.

S-1 333-231891 10.3 May 31, 2019

10.4# First Amendment to Loan and Security Agreement dated as of March 13, 2014 by and between The RealReal, Inc.

and Square 1 Bank.

S-1 333-231891 10.4 May 31, 2019

10.5# Second Amendment to Loan and Security Agreement dated as of August 5, 2014 by and between The RealReal, Inc.

and Square 1 Bank.

S-1 333-231891 10.5 May 31, 2019

10.6# Third Amendment to Loan and Security Agreement dated as of September 25, 2014 by and between The RealReal, Inc.

and Square 1 Bank.

S-1 333-231891 10.6 May 31, 2019

Incorporated by Reference

Description Form File No.

Exhibit Filing Date Filed

10.7# Fourth Amendment to Loan and Security Agreement dated as of December 28, 2015 by and between The RealReal, Inc.

and Pacific Western Bank.

S-1 333-231891 10.7 May 31, 2019

10.8# Fifth Amendment to Loan and Security Agreement dated as of July 18, 2016 by and between The RealReal, Inc.

and Pacific Western Bank.

Incorporated by Reference

S-1 333-231891 10.8 May 31, 2019

10.9# Sixth Amendment to Loan and Security Agreement dated as of September 16, 2016 by and between The RealReal, Inc.

and Pacific Western Bank.

S-1 333-231891 10.9 May 31, 2019

10.10# Seventh Amendment to Loan and Security Agreement dated as of March 28, 2017 by and between The RealReal, Inc.

and Pacific Western Bank.

S-1 333-231891 10.1 May 31, 2019

10.11# Eighth Amendment to Loan and Security Agreement dated as of July 27, 2017 by and between The RealReal, Inc.

and Pacific Western Bank.

S-1 333-231891 10.1 May 31, 2019

10.12# Ninth Amendment to Loan and Security Agreement dated as of March 5, 2018 by and between The RealReal, Inc.

and Pacific Western Bank.

S-1 333-231891 10.1 May 31, 2019

10.13# Tenth Amendment to Loan and Security Agreement dated as of July 25, 2018 by and between The RealReal, Inc.

and Pacific Western Bank.

S-1 333-231891 10.1 May 31, 2019

10.14# Eleventh Amendment to Loan and Security Agreement dated as of August 9, 2018 by and between The RealReal, Inc.

and Pacific Western Bank.

S-1 333-231891 10.1 May 31, 2019

10.15# Twelfth Amendment to Loan and Security Agreement dated as of December 19, 2018 by and between The RealReal, Inc.

and Pacific Western Bank.

S-1 333-231891 10.2 May 31, 2019

10.16# Lease Agreement dated as of March 18, 2014 by and between The RealReal, Inc.

and 35 Enterprise Avenue, L.L.C.

S-1 333-231891 10.2 May 31, 2019

10.17# Lease Modification Agreement dated as of March 8, 2018 by and between The RealReal, Inc.

and 35 Enterprise Avenue, L.L.C.

S-1 333-231891 10.2 May 31, 2019

10.18# Lease Agreement dated as of March 14, 2016 by and between The RealReal, Inc.

and M&L Associates.

S-1 333-231891 10.2 May 31, 2019

10.19# Lease Agreement dated as of June 5, 2018 by and between The RealReal, Inc.

and Hartz Enterprise LLC.

S-1 333-231891 10.2 May 31, 2019

Incorporated by Reference

Description Form File No.

Exhibit Filing Date Filed

10.20# Lease Agreement dated as of September 14, 2018 by and between The RealReal, Inc.

and Prologis Perth Amboy Associates, LLC.

S-1 333-231891 10.2 May 31, 2019

10.21+ The RealReal, Inc.

2019 Equity Incentive Plan.

June 17, 2019

S-1 333-231891 10.2 June 17, 2019

10.22+ The RealReal, Inc.

2019 Employee Stock Purchase Plan.

June 17, 2019

Incorporated by Reference

S-1 333-231891 10.2 June 17, 2019

10.23+ The RealReal, Inc.

2019 Equity Incentive Plan Stock Option Agreement and related form agreements.

August 14, 2019

10-Q 001-38953 10.1 August 14, 2019

10.24+ The RealReal, Inc.

2019 Equity Incentive Plan Restricted Stock Unit Award Agreement and related form agreements.

August 14, 2019

10-Q 001-38953 10.2 August 14, 2019

10.25+ The RealReal, Inc.

2019 Employee Stock Purchase Plan, as amended and restated on February 19, 2020.

March 11, 2020

10-K 001-38953 10.2 March 11, 2020

10.26 Form of Base Capped Call Confirmation, dated June 10, 2020 between The RealReal, Inc.

and each of the Counterparties.

June 16, 2020

8-K 001-38953 10.1 June 16, 2020

10.27 Form of Additional Capped Call Confirmation, dated June 18, 2020 between The RealReal, Inc.

and each of the Capped Call Counterparties.

June 23, 2020

8-K 001-38953 10.1 June 23, 2020

10.28# Lease Agreement dated as of November 2, 2020 by and between The RealReal, Inc.

and Liberty Property Limited Partnership.

November 10, 2020

10-Q 001-38953 10.1 November 10, 2020

10.29 Form of Base Capped Call Confirmation, dated March 8, 2021 between The RealReal, Inc.

and each of the Counterparties.

8-K 001-38953 10.1 March 8, 2021

10.30 Form of Additional Capped Call Confirmation, dated March 12, 2021 between The RealReal, Inc.

and each of the Capped Call Counterparties.

8-K 001-38953 10.1 March 16, 2021

10.31+ Form of Severance and Change in Control Agreement approved by the Company’s board of directors on May 5, 2021.

10-Q 001-38953 10.1 May 10, 2021

10.32+ Transition and Separation Agreement between the Company and Matt Gustke dated August 6, 2021.

10-Q 001-38953 10.1 August 9, 2021

10.33+ Offer Letter dated September 15, 2021 between the Company and Robert Julian.

10-Q 001-38953 10.1 November 8, 2021

Incorporated by Reference

Description Form File No.

Exhibit Filing Date Filed

10.34+ The RealReal, Inc.

Performance-Based Restricted Stock Unit Award Agreement

23.1 Consent of KPMG, LLP, Independent Registered Public Accounting Firm

5 unchanged sentences

Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

XBRL Instance Document

XBRL Taxonomy Extension Schema Document

XBRL Taxonomy Extension Calculation Linkbase Document

XBRL Taxonomy Extension Definition Linkbase Document

Incorporated by Reference

XBRL Taxonomy Extension Label Linkbase Document

XBRL Taxonomy Extension Presentation Linkbase Document

101.INS XBRL Instance Document X

101.SCH XBRL Taxonomy Extension Schema Document X

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document X

101.DEF XBRL Taxonomy Extension Definition Linkbase Document X

101.LAB XBRL Taxonomy Extension Label Linkbase Document X

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document X

104 Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, and 101.PRE).

___________________________________________

+ Indicates management contract or compensatory plan.

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The RealReal, Inc.

March 1, 2021

/s/ Matt Gustke

February 28, 2022 By:

/s/ Robert Julian

Robert Julian

Chief Financial Officer

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

Name Title Date

/s/ Julie Wainwright

Chairperson and Chief Executive Officer

March 1, 2021

Julie Wainwright

(Principal Executive Officer)

/s/ Matt Gustke

Chief Financial Officer

March 1, 2021

(Principal Financial Officer)

Vice President, Chief Accounting Officer

March 1, 2021

(Principal Accounting Officer)

Chairperson and Chief Executive Officer February 28, 2022

Julie Wainwright (Principal Executive Officer)

/s/ Robert Julian

Chief Financial Officer February 28, 2022

Robert Julian (Principal Financial Officer)

Senior Vice President, Chief Accounting Officer February 28, 2022

Steve Lo (Principal Accounting Officer)

/s/ Chip Baird

March 1, 2021

/s/ Caretha Coleman

March 1, 2021

Director February 28, 2022

/s/ Caretha Coleman Director February 28, 2022

Caretha Coleman

/s/ Emma Grede

March 1, 2021

/s/ Karen Katz

March 1, 2021

/s/ Rob Krolik

March 1, 2021

/s/ Michael Kumin

March 1, 2021

Michael Kumin

/s/ Niki Leondakis

March 1, 2021

/s/ Karen Katz Director February 28, 2022

/s/ Rob Krolik Director February 28, 2022

/s/ Niki Leondakis Director February 28, 2022

Niki Leondakis

/s/ Carol Melton

March 1, 2021

/s/ James Miller

March 1, 2021

Director February 28, 2022

/s/ James Miller Director February 28, 2022

INDEX TO FINANCIAL STATEMENTS

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generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 1, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

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The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Incremental borrowing rate used to measure operating lease liabilities upon adoption of Topic 842

As discussed in Notes 2 and 11 to the financial statements, the Company adopted Topic 842 on January 1, 2020.

At adoption, Topic 842 requires, amongst other things, the Company to measure the lease liability at the present value of the future lease payments as of January 1, 2020, using the applicable incremental borrowing rate for each lease.

The Company derived the incremental borrowing rate based on its own estimated synthetic credit rating, corresponding yield curve, and the remaining terms of each lease at the adoption date.

As a result of the adoption of Topic 842, the Company recognized $12.8 million in current operating leases liabilities and $106.2 million in operating lease liabilities, net of the current portion as of January 1, 2020.

We identified the evaluation of the incremental borrowing rates used to measure the Company’s operating lease liabilities upon adoption of Topic 842 as a critical audit matter.

Given the lack of a directly observable Company specific credit rating as of the adoption date, subjective auditor judgment was required to evaluate the appropriateness of the methodology used to develop the incremental borrowing rates, including the development of the synthetic credit rating.

In addition, specialized skills and knowledge were required to assist in the evaluation of the incremental borrowing rates determined by the Company.

Evaluation of the initial value of the liability component of the 2028 convertible senior notes

As discussed in Note 7 of the financial statements, in March 2021, the Company issued 1.00% convertible senior notes due in 2028 (the 2028 Notes) for an aggregate principal amount of $287.5 million.

The Company separately accounted for the liability and equity components by allocating the proceeds between the liability component and the embedded conversion options, or equity components.

The initial value of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated

conversion feature.

As a result, the Company recorded the initial fair value of the liability component of $191.3 million.

We identified the evaluation of the initial value of the liability component of the 2028 Notes as a critical audit matter.

A high degree of auditor judgment was required in assessing the interest rate that would be available to the Company for a similar debt instrument that does not have a conversion feature.

The audit effort associated with the evaluation of the interest rate estimate required valuation professionals with specialized skills and knowledge.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of an internal control related to evaluating the appropriateness of the methodology used and the development of the synthetic credit rating.

We involved valuation professionals with specialized skills and knowledge, who assisted in:

● evaluating the appropri ateness of the methodology used to estimate the synthetic credit rating,

developing an independent estimate of the synthetic credit rating and comparing it with the synthetic credit rating used by the Company in developing their incremental borrowing rates, and

obtaining market yield curves associated with our estimated synthetic credit rating used to derive incremental borrowing rates associated with different lease terms and comparing them to the estimated incremental borrowing rates developed by the Company for the same lease terms.

We evaluated the design and tested the operating effectiveness of an internal control over the Company's process to determine the interest rate that would be available to the Company for a similar debt instrument that does not have a conversion feature.

We involved our valuation professionals with specialized skills and knowledge, who assisted in:

• evaluating the reasonableness of the valuation model used by the Company in estimating an interest rate available to the Company for a similar debt instrument that does not have a conversion feature

• evaluating the relevance of a historical debt transaction entered into by the Company for a lending arrangement that did not have a conversion feature.

We have served as the Company’s auditor since 2013.

San Francisco, California

March 1, 2021

February 28, 2022

Report of Independent Registered Public Accounting Firm

4 unchanged sentences

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the balance sheets of the Company as of December 31, 2020 and 2019, the related statements of operations, comprehensive loss, redeemable convertible preferred stock, convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the financial statements), and our report dated March 1, 2021 expressed an unqualified opinion on those financial statements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the balance sheets of the Company as of December 31, 2021 and December 31, 2020, the related statements of operations, comprehensive loss, redeemable convertible preferred stock, convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the financial statements), and our report dated February 28, 2022 expressed an unqualified opinion on those financial statements.

Basis for Opinion

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectivene ss to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

San Francisco, California

March 1, 2021

February 28, 2022

THE REALREAL, INC.

1 unchanged sentence

(In thousands, except share and per share data)

December 31, 2021 December 31, 2020

Current assets

Cash and cash equivalents

$ 418,171 $ 350,846

Short-term investments

1 unchanged sentence

Inventory, net

71,015 42,321

Prepaid expenses and other current assets

20,859 17,072

Total current assets

517,812 421,469

Property and equipment, net 89,286 63,454

Operating lease right-of-use assets 145,311 118,136

Other assets 2,535 2,050

$ 754,944 $ 605,109

Liabilities and Stockholders’ Equity

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Accounts payable

$ 4,503 $ 14,346

Accrued consignor payable

71,042 57,053

Operating lease liabilities, current portion

18,253 14,999

Other accrued and current liabilities

94,188 61,862

Total current liabilities

187,986 148,260

Operating lease liabilities, net of current portion 143,159 115,084

2 unchanged sentences

Total liabilities

681,816 413,816

Commitments and contingencies (Note 11) — —

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Common stock, $ 0.00001 par value;

500,000,000 shares

authorized as of December 31, 2020 and December 31, 2019;

89,301,664 and 85,872,320 shares issued and outstanding

as of December 31, 2020 and December 31, 2019, respectively

500,000,000 shares authorized as of December 31, 2021 and December 31, 2020;

92,960,066 and 89,301,664 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively

Additional paid-in capital

841,255 723,302

Accumulated other comprehensive income

Accumulated deficit

( 768,128 ) ( 532,021 )

Total stockholders’ equity

73,128 191,293

Total liabilities and stockholders’ equity

$ 754,944 $ 605,109

The accompanying notes are an integral part of these financial statements.

THE REALREAL, IN C .

THE REALREAL, INC.

Statements of Operations

1 unchanged sentence

Years Ended December 31,

2021 2020 2019

Consignment and service revenue $ 346,848 $ 247,326 $ 265,729

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Total cost of revenue 194,215 112,382 114,831

Gross profit 273,477 187,567 201,523

Operating expenses:

Marketing 62,749 54,813 47,734

Operations and technology 235,829 163,808 143,231

Selling, general and administrative 176,418 140,652 110,663

Legal settlement 13,389 1,110 —

Total operating expenses 488,385 360,383 301,628

2 unchanged sentences

Interest expense ( 21,531 ) ( 5,264 ) ( 616 )

Other expense, net

Other income (expense), net 23 ( 169 ) ( 2,102 )

Loss before provision for income taxes ( 236,051 ) ( 175,731 ) ( 98,230 )

Provision for income taxes 56 101 199

Accretion of redeemable convertible preferred stock to

redemption value

Net loss $ ( 236,107 ) $ ( 175,832 ) $ ( 98,429 )

Accretion of redeemable convertible preferred stock to redemption value

$ — $ — $ ( 3,355 )

Net loss attributable to common stockholders

Net loss per share attributable to common stockholders,

basic and diluted

Shares used to compute net loss per share attributable to

common stockholders, basic and diluted

$ ( 236,107 ) $ ( 175,832 ) $ ( 101,784 )

Net loss per share attributable to common stockholders, basic and diluted

$ ( 2.58 ) $ ( 2.01 ) $ ( 2.14 )

Shares used to compute net loss per share attributable to common stockholders, basic and diluted

91,409,624 87,587,409 47,478,544

The accompanying notes are an integral part of these financial statements.

3 unchanged sentences

Year Ended December 31,

2021 2020 2019

Net loss $ ( 236,107 ) $ ( 175,832 ) $ ( 98,429 )

Other comprehensive income (loss), net of tax:

6 unchanged sentences

Redeemable Convertible

Stockholders’

Preferred Stock

Preferred Stock Convertible

Preferred Stock Common Stock Additional

Capital Accumulated

Comprehensive

Income (Loss)

Balances as of December 31, 2017

Issuance of Series G redeemable convertible

preferred stock upon conversion of notes, net

of issuance costs of $190

Issuance of Series G convertible preferred stock

upon conversion of notes, net of issuance costs

Loss on extinguishment of convertible notes

Issuance of Series G redeemable convertible

preferred stock, net of issuance costs of $3,360

Issuance of Series G convertible preferred stock,

net of issuance costs of $373

Accretion of redeemable convertible preferred

stock to redemption value

Income (Loss) Accumulated

Deficit Total

Stockholders’

Shares Amount Shares Amount Shares Amount

Balance as of December 31, 2018 31,053,601 $ 151,381 73,724,645 $ 142,819 8,593,077 $ — $ — $ ( 25 ) $ ( 257,665 ) $ ( 257,690 )

Issuance of Series H redeemable convertible preferred stock net of issuance costs of $ 166

6,350,345 43,492 — — — — — — — —

Issuance of Series H convertible preferred stock net of issuance costs of $ 59

— — 3,831,766 26,283 — — — — — —

Accretion of redeemable convertible preferred stock to redemption value — 3,355 — — — — ( 3,260 ) — ( 95 ) ( 3,355 )

Conversion of redeemable convertible preferred stock to common stock in connection with initial public offering ( 37,403,946 ) ( 198,228 ) — — 19,585,426 — 198,228 — — 198,228

Conversion of convertible preferred stock to common stock in connection with initial public offering — — ( 77,556,411 ) ( 169,102 ) 38,778,180 — 169,102 — — 169,102

Conversion of convertible preferred stock warrants to common stock warrants in connection with initial public offering — — — — — — 2,710 — — 2,710

Issuance of common stock in connection with initial public offering, net of issuance costs of $ 5,333

— — — — 17,250,000 — 315,518 — — 315,518

Issuance of common stock upon exercise of options — — — — 1,551,313 1 2,695 — — 2,696

Issuance of common stock upon exercise of warrants — — — — 10,677 — 33 — — 33

Compensation expense related to stock sales by

current and former employees

Issuance of common stock upon vesting of restricted stock units, net of shares withheld for employee taxes — — — — 14,105 — ( 130 ) — — ( 130 )

Issuance of common stock for cashless exercise of warrants — — — — 89,542 — — — — —

Compensation expense related to stock sales by current and former employees — — — — — — 819 — — 819

Stock-based compensation expense — — — — — — 7,711 — — 7,711

Other comprehensive loss

Other comprehensive income — — — — — — — 32 — 32

Net loss — — — — — — — — ( 98,429 ) ( 98,429 )

Balance as of December 31, 2019 — $ — — $ — 85,872,320 $ 1 $ 693,426 $ 7 $ ( 356,189 ) $ 337,245

Issuance of Series H redeemable convertible

preferred stock net of issuance costs of $166

Issuance of Series H convertible preferred

stock net of issuance costs of $59

Accretion of redeemable convertible preferred

stock to redemption value

Conversion of redeemable convertible preferred

stock to common stock in connection with

initial public offering

Conversion of convertible preferred stock to

common stock in connection with

initial public offering

Conversion of convertible preferred stock warrants

to common stock warrants in connection with

initial public offering

Issuance of common stock in connection with

initial public offering, net of issuance costs

Purchase of capped calls — — — — — — ( 22,546 ) — — ( 22,546 )

Equity component of convertible senior notes, net of issuance costs of $ 767

— — — — — — 19,020 — — 19,020

Issuance of common stock upon exercise of options — — — — 2,604,494 — 8,859 — — 8,859

Issuance of common stock upon exercise of warrants

Issuance of common stock upon vesting of

restricted stock units, net of shares withheld

for employee taxes

Issuance of common stock for cashless exercise

Compensation expense related to stock sales by

current and former employees

Issuance of common stock upon vesting of restricted stock units, net of shares withheld for employee taxes — — — — 733,385 — ( 751 ) — — ( 751 )

Issuance of common stock for exercises under ESPP — — — — 91,465 — 972 — — 972

Stock-based compensation expense — — — — — — 24,322 — — 24,322

Other comprehensive income — — — — — — — 4 — 4

Net loss — — — — — — — — ( 175,832 ) ( 175,832 )

Balance as of December 31, 2020 — $ — — $ — 89,301,664 $ 1 $ 723,302 $ 11 $ ( 532,021 ) $ 191,293

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Equity component of convertible senior notes, net of issuance costs of $ 767

— — — — — — 93,031 — — 93,031

Issuance of common stock upon exercise of options — — — — 1,221,365 — 6,009 — — 6,009

Issuance of common stock upon vesting of

restricted stock units, net of shares withheld

for employee taxes

Issuance of common stock upon vesting of restricted stock units, net of shares withheld for employee taxes — — — — 2,237,748 — ( 8 ) — — ( 8 )

Issuance of common stock for exercises under ESPP — — — — 199,289 — 2,341 — — 2,341

Stock-based compensation expense — — — — — — 50,246 — — 50,246

Other comprehensive income

Other comprehensive loss — — — — — — — ( 11 ) — ( 11 )

Net loss — — — — — — — — ( 236,107 ) ( 236,107 )

Balance as of December 31, 2021 — $ — — $ — 92,960,066 $ 1 $ 841,255 $ — $ ( 768,128 ) $ 73,128

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Year Ended December 31,

2021 2020 2019

Cash flows from operating activities:

Net loss $ ( 236,107 ) $ ( 175,832 ) $ ( 98,429 )

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

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Reduction of operating lease right-of-use assets 19,439 16,062 —

Change in fair value of convertible note derivative liability

Bad debt expense 1,034 903 1,371

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Loss on retirement of property and equipment 546 280 —

Accretion of unconditional endowment grant liability

Accretion of debt discounts and issuance costs 13,989 2,399 11

Amortization of premiums (discounts) on short-term investments

Other adjustments 10 ( 86 ) ( 226 )

Changes in operating assets and liabilities:

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Prepaid expenses and other current assets ( 4,009 ) ( 3,443 ) ( 4,108 )

Other assets ( 638 ) 548 ( 1,026 )

Operating lease liability ( 15,285 ) ( 12,752 ) —

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Proceeds from maturities of short-term investments 4,000 278,215 39,281

Proceeds from sale of short-term investments

Capitalized proprietary software development costs ( 9,967 ) ( 8,678 ) ( 9,267 )

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Proceeds from issuance of 2025 convertible notes, net of issuance costs — 166,278 —

Purchase of capped calls

Purchase of capped calls in conjunction with the issuance of the 2025 convertible senior notes — ( 22,546 ) —

Proceeds from issuance of 2028 convertible notes, net of issuance costs 278,234 — —

Purchase of capped calls in conjunction with the issuance of the 2028 convertible senior notes ( 33,666 ) — —

Proceeds from exercise of stock options and common stock warrants 6,009 8,859 2,729

Proceeds from issuance of Employee Stock Purchase Program

Payment of deferred offering costs

Proceeds from issuance of stock in connection with the Employee Stock Purchase Program 2,341 972 —

Taxes paid related to restricted stock vesting ( 5 ) ( 748 ) ( 130 )

Issuance cost paid related to conversion of convertible notes

Repayment of debt — — ( 9,250 )

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Supplemental disclosures of non-cash investing and financing activities

Issuance of convertible preferred stock upon extinguishment of convertible notes

Issuance of redeemable convertible preferred stock upon extinguishment of convertible notes

Accretion of redeemable convertible preferred stock to redemption value — — 3,355

Loss on extinguishment of convertible notes

Purchases of property and equipment included in accounts payable and other accrued and current liabilities 1,922 2,638 4,878

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Issuance costs associated with issuance of convertible senior notes included in other accrued and current liabilities — 469 —

Stock-based compensation capitalized to proprietary software development costs 1,444 — —

Tax withholding liability for restricted stock 3 — —

The accompanying notes are an integral part of these financial statements.

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Impact of the Coronavirus (“COVID-19”) Pandemic

The COVID-19 pandemic has materially impacted the Company's business operations and results of operations in 2020.

In the year ended December 31, 2020, the COVID-19 pandemic materially impacted the Company's business operations and results of operations.

Operations in the Company’s authentication centers were initially limited in accordance with shelter-in-place orders resulting in operations below full capacity.

However, operations capacity was no longer limited by restrictions related to COVID-19 during the second half of the year ended December 31, 2020.

In-person white glove consignment appointments were temporarily suspended and augmented with virtual appointments but remain an option for our consignor base.

All luxury consignment offices and retail stores were temporarily closed for varying periods of time but were all open during the entirety of the second half of the year.

In-person concierge consignment appointments were temporarily suspended.

Luxury consignment offices and retail stores were temporarily closed.

During the second half of the fiscal year 2020, operations capacity was no longer limited by restrictions related to COVID-19 and all luxury consignment offices and retail stores were open.

In-person concierge consignment appointments were available as an option for our consignor base and were augmented with virtual appointments.

In March 2021, the Company resumed in-person concierge consignment appointments in various areas.

The authentication centers and retail stores experience intermittent closures to perform safety and cleaning procedures.

The Company also reopened its corporate offices, including our corporate headquarters in San Francisco.

The Company believes that its financial resources will allow it to manage the anticipated impact of COVID-19 on the Company’s business operations for the foreseeable future.

The Company believes its existing cash and cash equivalents and short-term investments as of December 31, 2020 will be sufficient to meet its working capital and capital expenditures needs for at least the next 12 months.

The Company believes its existing cash and cash equivalents as of December 31, 2021 will be sufficient to meet its working capital and capital expenditures needs for at least the next 12 months.

Basis of Presentation

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generally accepted accounting principles (“GAAP”) and, in the opinion of management, reflect all adjustments necessary to state fairly the Company’s financial position, results of operations, comprehensive loss, redeemable convertible preferred stock, convertible preferred stock, and stockholders’ equity (deficit), and cash flows for the periods presented.

Certain corrections to the prior periods have been made to conform to the current period presentation, as described in Note 2.

The Company’s functional and reporting currency is the U.S.

Certain changes in presentation have been made to conform the prior period presentation to the current period reporting.

Such reclassifications did not affect total revenues, operating income, or net income.

We have made certain presentation changes to reclassify accretion of unconditional grant liability, and amortization of premiums (discounts) on short-term investments to other adjustments within operating cash flows in the Statements of Cash Flows.

We have also made certain presentation changes to reclassify accrued interest on convertible notes from other current and accrued liabilities to a separate line item within operating cash flows in the Statements of Cash Flows.

Additionally, we have made certain presentation changes to reclassify legal settlement expenses from Selling, general and administrative to Legal settlement within operating expenses in the Statements of Operations.

Initial Public Offering

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The Company received aggregate net proceeds of $ 315.5 million after deducting underwriting discounts and commissions of $ 24.1 million and issuance costs of $ 5.3 million.

Immediately p rior to the completion of the IPO, the Company filed its Amended and Restated Certificate of Incorporation, which authorizes a total of 500,000,000 shares of common stock and 50,000,000 shares of undesignated preferred stock.

Immediately prior to the completion of the IPO, the Company filed its Amended and Restated Certificate of Incorporation, which authorizes a total of 500,000,000 shares of common stock and 50,000,000 shares of undesignated preferred stock.

The Company recorded the conversion of 114,960,357 shares of convertible preferred stock and redeemable convertible preferred stock then outstanding into 58,363,606 shares of common stock to additional paid-in capital.

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On June 13, 2019, the Company effected a reverse split of shares of the Company’s common stock on a 1-for-2 basis (the “Reverse Stock Split”).

All issued and outstanding shares of common stock, warrants for common stock,

options to purchase common stock and the related per share amounts contained in the financial statements have been retroactively adjusted to reflect this Reverse Stock Split for all periods presented.

All issued and outstanding shares of common stock, warrants for common stock, options to purchase common stock and the related per share amounts contained in the financial statements have been retroactively adjusted to reflect this Reverse Stock Split for all periods presented.

The par value and authorized shares of common stock were not adjusted as a result of the Reverse Stock Split.

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The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the reporting period.

Significant items subject to such estimates and assumptions include those related to revenue recognition, including the returns reserve, valuation of inventory, software development costs, stock-based compensation, redemption value of redeemable convertible preferred stock, incremental borrowing rates related to lease liability, fair value of the liability component of convertible senior notes, valuation of deferred taxes, and other contingencies.

Significant items subject to such estimates and assumptions include those related to revenue recognition, including the returns reserve, valuation of inventory, software development costs, stock-based compensation, incremental borrowing rates related to lease liability, fair value of the liability component of convertible senior notes, valuation of deferred taxes, and other contingencies.

The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate.

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The two-class method requires income (loss) available or attributable to common stockholders for the period to be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

Before the IPO, the Company’s redeemable convertible preferred stock and convertible preferred stock were considered participating securities.

However, the holders of such shares did not have a contractual obligation to participate in the Company’s losses.

The Company’s convertible senior notes are participating securities as they give the holders the right to receive dividends if dividend or distribution declared to the common stockholders is equal to or greater than the last reported sale price of the Company’s common stock on the trading day immediately preceding the ex-dividend date for such dividend or distribution as if the instruments had been converted into shares of common stock.

The Company’s convertible senior notes are participating securities as they give the holders the right to receive dividends if dividends or distributions declared to the common stockholders is equal to or greater than the last reported sale price of the Company’s common stock on the trading day immediately preceding the ex-dividend date for such dividend or distribution as if the instruments had been converted into shares of common stock.

No undistributed earnings were allocated to the participating securities as the contingent event is not satisfied as of the reporting date.

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These are treated as a reduction of consignment and service revenue and direct revenue.

Additionally, the Company periodically offers commission exceptions to consignors to optimize its supply.

These are treated as reduction of consignment and service revenue,

and are reflected in the Company’s take rate.

Additionally, the Company periodically offers commission exceptions to the standard consignment rates to consignors to optimize its supply.

These are treated as a reduction of consignment and service revenue at the time of sale.

The Company may offer a certain type of buyer incentive in the form of site credits to buyers on current transactions to be applied towards future transactions, which are included in other accrued and current liabilities on the balance sheets.

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The fair value of restricted stock units (“RSUs”) is estimated based on the fair market value of the Company’s common stock on the date of grant, which is determined based on the closing price of the Company’s common stock.

The fair value of each

purchase under the employee stoc k purchase plan (ESPP) is estimated at the beginning of the offering period using the Black-Scholes option pricing model.

The fair value of each purchase under the ESPP is estimated at the beginning of the offering period using the Black-Scholes option pricing model.

Prior to the IPO, certain employees have sold their shares of the Company’s common stock to the Company’s existing investors.

In such secondary sale transactions, the Company recorded the difference in purchase price and the fair value of such shares as compensation expense within selling, general and administrative in the statements of operations and a corresponding credit to additional paid-in capital.

Cash, Cash Equivalents and Restricted Cash

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original maturities of three months or less from the purchase date to be cash equivalents.

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treasury securities.

Restricted cash consists of cash deposited with a financial institution as collateral for the Company’s letters of credit for its facility leases and the Company’s credit cards.

As of December 31, 2020 and December 31, 2019, the Company had no restricted cash.

The following table provides a reconciliation of cash, cash equivalents and restricted cash that sum to the total of the same amounts shown in the statements of cash flows (in thousands):

December 31, 2020

December 31, 2019

December 31, 2018

Cash and cash equivalents

Restricted cash

Total cash, cash equivalents and restricted

Short-term Investments

The Company has classified and accounted for its short-term investments as available-for-sale which are carried at fair value on its balance sheets.

Available-for-sale securities with remaining maturities of 12 months or less are classified as short term and available-for-sale securities with remaining maturities greater than 12 months are classified as long term.

Available-for-sale securities with remaining m aturities of 12 months or less are classified as short term and available-for-sale securities with remaining maturities greater than 12 months a re classified as long term.

Available-for-sale investments are reported at fair value based on quoted market prices and other observable market data.

The Company records any unrealized gains and losses within accumulated other comprehensive income (loss) as a component of stockholders’ equity (deficit), of which there were none as of December 31, 2020 and 2019.

The Company adopted Accounting Standards Update (ASU) 2016-13 described below under "Recent Adopted Accounting Pronouncements." In accordance with the adopted guidance, the Company replaced the incurred loss approach with an expected loss model and the Company records allowances for available-for-sale debt securities rather than to reduce the carrying amount for other-than-temporary impairment as was followed under the other-than-temporary impairment model prior to January 1, 2020.

Realized gains and losses and other-than-temporary impairments on investments are included in Other income and expense, net.

As of December 31, 2020, the Company had not recorded any impairments due to credit loss.

The Company records any unrealized gains and losses within accumulated other comprehensive income (loss) as a component of stockholders’ equity (deficit).

The unrealized gains and losses recorded within accumulated other comprehensive income (loss) have not been material for 2021 and 2020.

In accordance with Accounting Standards Update (ASU) 2016-13, the Company replaced the incurred loss approach with an expected loss model and the Company records allowances for available-for-sale debt securities rather than to reduce the carrying amount for other-than-temporary impairment as was followed under the other-than-temporary impairment model prior to January 1, 2020.

Realized gains and losses and other-than-temporary impairments on investments are included in Other income (expense), net.

As of December 31, 2021 and 2020, the Company had not recorded any impairments due to credit loss.

Accounts Receivable

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The cost of inventory is an amount equal to that paid to the consignor or vendors.

Inventory is valued at the lower of cost and net

realizable value using the specific identification method and the Company records provisions, as appropriate, to write down obsolete and excess inventory to estimated net realizable value.

Inventory is valued at the lower of cost and net realizable value using the specific identification method and the Company records provisions, as appropriate, to write down obsolete and excess inventory to estimated net realizable value.

After the inventory value is reduced, adjustments are not made to increase it from the estimated net realizable value.

Our provisions to write down obsolete and excess inventory to net realizable value have not been materia l for 2020 and 2019.

Our provisions to write down obsolete and excess inventory to net realizable value have not been material for 2021 and 2020.

Return reserves, which reduce revenue and cost of sales, are estimated using historical experience.

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The estimated useful lives of our assets are as follows:

Proprietary software

Furniture and equipment

Leasehold improvements

Shorter of lease term or estimated useful life

Proprietary software 3 years

Furniture and equipment 3 - 5 years

Vehicles 5 years

Leasehold improvements Shorter of lease term or estimated useful life

Software Development Costs

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The carrying amounts of long-lived assets, including property and equipment, net and capitalized proprietary software, are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful life is shorter than originally estimated.

Recoverability of assets to be held and used is measured by comparing the carrying amount of assets to future undiscounted net cash flows the assets are expected to generate over their remaining life.

Recoverability of

assets to be held and used is measured by comparing the carrying amount of assets to future undiscounted net cash flows the assets are expected to generate over their remaining life.

If the assets are considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired assets.

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In the event an anticipated offering is abandoned, deferred offering costs will be expensed.

In 2020, offering costs of $6.7 million related to the issuance of convertible notes was allocated to the liability and equity components based on the allocation of the proceeds.

Of the total offering costs, $0.8 million was recorded as a

r eduction to additional paid-in capital and $ 5.9 million was recorded as a reduction in the carrying value of the debt on the balance sheet.

In 2021, offering costs of $ 9.4 million related to the issuance of the 2028 Notes was allocated to the liability and equity components of the 2028 Notes based on the allocation of the proceeds.

Of the total offering costs, $ 3.1 million was recorded as a reduction to additional paid-in capital and $ 6.3 million was recorded as a reduction in the carrying value of the debt on the balance sheet.

In 2020, offering costs of $ 6.7 million related to the issuance of the 2025 Notes was allocated to the liability and equity components of the 2025 Notes based on the allocation of the proceeds.

Of the total offering costs, $ 0.8 million was recorded as a reduction to additional paid-in capital and $ 5.9 million was recorded as a reduction in the carrying value of the debt on the balance sheet.

In 2019, offering costs of $ 0.3 million were expensed.

As of December 31, 2019, $ 5.3 million deferred offering costs were offset against the IPO proceeds withi n stockholders’ equity (deficit) on the balance sheets.

As of December 31, 2019, $ 5.3 million deferred offering costs were offset against the IPO proceeds within stockholders’ equity (deficit) on the balance sheets.

Accretion of Redeemable Convertible Preferred Stock

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Increases to the carrying value of redeemable convertible preferred stock recognized in each period are charged to additional paid-in capital, or in the absence of additional paid-in capital, charged to accumulated deficit.

Convertible Preferred Stock Warrant Liability

The Company issued convertible preferred stock warrants in conjunction with the issuance of debt.

Such warrants were recorded as other noncurrent liabilities on the balance sheets at their estimated fair value because the shares underlying the warrants may obligate the Company to transfer assets to the holders at a future date under certain circumstances such as a deemed liquidation event.

The warrants are subject to re-measurement at each balance sheet date and the change in fair value, if any, is included in other expense, net.

The Company continued to remeasure these warrants until the earlier of the expiration, exercise or conversion of the convertible preferred stock warrants into common warrants, which occurred upon the completion of the IPO on July 2, 2019.

In connection with the completion of the IPO, the convertible preferred stock warrants automatically converted into common stock warrants.

Upon conversion of the convertible preferred stock warrants, the related convertible preferred stock warrant liability was reclassified to additional paid-in capital.

Prior to the adoption of ASC 842 on January 1, 2020

Leases are reviewed for classification as operating or capital leases.

For operating leases, the Company recognizes rent on a straight-line basis over the term of the lease.

The Company records the difference between cash payments and rent expense recognized as a deferred rent liability included in other accrued and current liabilities and other noncurrent liabilities on the balance sheets.

Incentives granted under the Company’s facility leases, including allowances to fund leasehold improvements, are deferred and are recognized as adjustments to rental expense on a straight-line basis over the term of the lease.

Leases were reviewed for classification as operating or capital leases.

For operating leases, the Company recognized rent on a straight-line basis over the term of the lease.

The Company recorded the difference between cash payments and rent expense recognized as a deferred rent liability included in other accrued and current liabilities and other noncurrent liabilities on the balance sheets.

Incentives granted under the Company’s facility leases, including allowances to fund leasehold improvements, were deferred and are recognized as adjustments to rental expense on a straight-line basis over the term of the lease.

The Company changed its method of accounting for leases as of January 1, 2020 due to the adoption of Accounting Standards Update 2016-02, Leases (Topic 842).

Subsequent to the adoption of ASC 842 on January 1, 2020

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The Company has finance leases for vehicles and equipment, and the amounts of finance lease right-of-use assets and finance lease liabilities have been immaterial to date.

Convertible Senior Notes

Convertible Senior Notes, net

Convertible debt instruments that may be settled in cash or other assets, or partially in cash, upon conversion, are separately accounted for as long-term debt and equity components (or conversion feature).

The accounting applies to the Company’s convertible senior notes (the “Notes”) issued in June 2020.

The debt component represents the Company’s contractual obligation to pay principal and interest and the equity component represents the Company’s option to convert the debt security into equity of the Company or the equivalent amount of cash.

Upon issuance, the Company allocated the debt component on the basis of the estimated fair value of an identical debt instrument that it would issue excluding the conversion option and the remaining proceeds are allocated to the equity component.

Upon issuance of the 2025 Notes and the 2028 Notes, the Company allocated the debt components on the basis of the estimated fair value of a similar liability that does not have an associated convertible feature and the remaining proceeds are allocated to the equity component.

The bifurcation of the debt and equity components resulted in a debt discount for the aforementioned notes.

The Company uses the interest method to amortize the debt discount to interest expense over the amortization period which is the expected life of the debt.

The Company uses the effective interest method to amortize the debt discount to interest expense over the amortization period which is the expected life of the debt.

Capped Call Transactions

In June 2020, in connection with the issuance of its convertible senior notes, the Company entered into Capped Call Transactions (see Note 7).

In June 2020 and March 2021, in connection with the issuance of its convertible senior notes, the Company entered into Capped Call Transactions (see Note 7).

The Capped Call Transactions are expected generally to reduce the potential dilution to the holders of the Company’s common stock upon any conversion of the Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted Notes, with such reduction and/or offset subject to a cap based on the cap price.

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The Company presents debt issuance costs on the balance sheet as a direct deduction from the associated debt.

A portion of debt issuance costs incurred in connection with the Notes issued in June 2020 was related to the equity component and was recorded as a reduction to additional paid in capital and is not amortized to interest expense over the estimated life of the related debt.

A portion of debt issuance costs incurred in connection with the convertible senior notes issued in June 2020 and March 2021 was related to the equity component and was recorded as a reduction to additional paid in capital and is not amortized to interest expense over the estimated life of the related debt.

Income taxes are accounted for under the asset and liability method.

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The Company reduces credit risk by placing its cash and cash equivalents, restricted cash, and investments with major financial institutions within the United States.

As of December 31, 2020 and December 31, 2019, there we re no customers that represented 10% or more of the Company’s accounts receivable balance and there were no customers that individually exceeded 10% of the Company’s total revenue for each of the years ended December 31, 2020, 2019, and 2018.

Immaterial Correction of an Error in Prior Periods

During the quarter ended December 31, 2020, the Company identified an overstatement of consignment and services revenue and inventory, net as a result of an error in accounting for inventory associated with commissions paid outside of our normal payment cycle to consignors for returned merchandise.

In accordance with FASB Accounting Standards Codification 250, Accounting Changes and Error Corrections , we evaluated the materiality of the errors from quantitative and qualitative perspectives, and concluded that the errors were immaterial to the Company’s prior period interim and annual financial statements.

Since these errors were not material to any prior period interim or annual financial statements, no amendments to previously filed interim or annual periodic reports are required.

Consequently, the Company has adjusted for these errors by revising its historical financial statements presented herein.

The Company recognized the effect of the error in 2019 by decreasing inventory, net consignment and services revenue by approximately $1.7 million.

The following table presents the effects of the immaterial error correction on the balance sheet and related statements of redeemable convertible preferred stock, convertible preferred stock, and stockholders’ equity (deficit) for the period indicated (in thousands):

As of December 31, 2019

As previously

Current Assets:

Inventory, net

Total current assets

Stockholders' equity (deficit):

Accumulated deficit

Total stockholders' equity (deficit)

Total liabilities and stockholders’ equity (deficit)

The following table presents the effects of the immaterial error correction on the statements of operations and net loss per share attributable to common stockholders, basic and diluted for the period indicated (in thousands):

Year Ended December 31, 2019

As previously

Consignment and service revenue

Direct revenue

Total revenue

Loss from operations

Loss before provision for income taxes

Net loss attributable to common stockholders

Net loss per share attributable to common stockholders, basic and diluted

Shares used to compute net loss per share attributable to common stockholders, basic and diluted

The following table presents the effects of the immaterial error correction on the statements of comprehensive loss (in thousands):

Year Ended December 31, 2019

As previously

Other comprehensive income (loss), net of tax

Unrealized gain (loss) on investments

Comprehensive loss

The following table presents the effects of the immaterial error correction on the statements of cash flows (in thousands):

Year ended December 31, 2019

As previously

Cash flows from operating activities:

Changes in operating activities and liabilities:

Inventory, net

Net cash used in operating activities

As of December 31, 2021 and December 31, 2020, there were no customers that represented 10% or more of the Company’s accounts receivable balance and there were no customers that individually exceeded 10% of the Company’s total revenue for each of the years ended December 31, 2021, 2020, and 2019.

Recently Adopted Accounting Pronouncements

The Company was an emerging growth company “EGC”, as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act).

Under the JOBS Act, emerging growth companies can delay adopting new or revised

accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.

The Company had elected to use this extended transition period to enable it to comply with new or revised accountin g standards that have different effective dates for public and private companies until the earlier of the date it (1) was no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JO BS Act.

The Company chose to adopt new or revised accounting standards earlier than such time those standards apply to private companies and retain its election for the extended transition period, if early adoption is permitted for all entities.

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

Because the market value of the Company’s common stock held by non-affiliates exceeded $700 million as of June 30, 2020, the Company ceased to be an emerging growth company and was deemed a “large accelerated filer” under the Exchange Act as of December 31, 2020.

As a result, the Company adopted all applicable standards retrospectively as of January 1, 2020 in this Annual Report on Form 10-K.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) .

ASU 2016-02 is aimed at making leasing activities more transparent and comparable.

This new standard requires substantially all leases to be recognized by lessees on their balance sheets as a right-of-use asset and corresponding lease liability, includin g leases currently accounted for as operating leases.

The Company early adopted the standard on January 1, 2020.

The Company adopted Topic 842 on January 1, 2020 using the modified retrospective approach and applied it to all existing leases as of the adoption date, which allows for a cumulative-effect adjustment to retained earnings on the adoption date.

The Company will continue to present prior period amounts under ASC 840.

In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard which does not require the Company to reassess whether contracts that expired prior to the adoption date contained an embedded lease, reassess historical lease classification, or evaluate direct costs for leases that were in effect at the adoption date.

As a result of implementing this guidance, the Company recognized $110.3 million in right of use assets as of January 1, 2020.

The Company also recorded $12.8 million in current operating lease liabilities and $106.2 million in operating lease liabilities, net of current portion in its balance sheet as of January 1, 2020.

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

Measurement of Credit Losses on Financial Instruments (Topic 326) .

The standard amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities.

For available for sale debt securities, credit losses will be presented as an allowance rather than as a write-down.

The Company adopted Topic 326 retrospectively of January 1, 2020.

The adoption of this standard did not have a material impact on the Company’s financial statements as credit losses are not expected to be significant based on historical collection trends, the financial condition of payment partners, and external market factors.

The Company also assessed the impact of COVID-19 on expected credit losses and it was also not material.

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718), which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees.

The Company adopted Topic 718 retrospectively of January 1, 2020.

The adoption of this standard did not have a material impact on the Company’s financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) .

This standard modifies disclosure requirements related to fair value measurement and is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

The Company adopted this guidance effective January 1, 2020, which did not have a material impact on its financial statements.

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2019-12, Income Taxes (Topic 740), which simplifies the accounting for income taxes, primarily by removing certain exceptions to ASC 740.

ASU also simplifies areas such as franchise taxes and interim recognition of enactment of tax laws and rate changes.

The standard is effective for fiscal periods beginning after December 15, 2020.

We adopted this standard as of January 1, 2021.

The adoption of this standard did not have a material impact on our financial statements.

Recently Issued Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-6, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , which simplifies accounting for convertible instruments.

Under this ASU, the embedded conversion features will no longer be separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives or that

do not result in substantial premiums accounted for as paid-in capital.

Consequently, a converti ble debt instrument will be accounted for as a single liability measured at its amortized cost and a convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifur cation and recognition as derivatives.

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , which simplifies accounting fo r convertible instruments.

Under this ASU, the embedded conversion features will no longer be separated from the host contract for convertible ins truments with conversion features that are not required to be accounted for as derivatives or that do not result in substantial premiums accounted for as paid-in capital.

Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and a convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives.

ASU 2020-6 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas.

The ASU will be effective for annual reporting periods beginning after December 15, 2021 and early adoption is permitted.

The Company is currently evaluating the timing and impact of this standard on its financial statements.

It is expected that upon a doption, the Company’s Convertible Senior Notes, as discussed in Note 7, will no longer be bifurcated into an equity and a debt component, but rather accounted for as a single liability.

The Company is adopting this ASU using the modified retrospective method beginning January 1, 2022.

While the adoption remains in progress, the Company expects that upon adoption, the Company’s Convertible Senior Notes, as discussed in Note 7, will no longer be bifurcated into an equity and a debt component, but rather accounted for as a single liability.

The Company also expects that the adoption will result in a decrease to our accumulated deficit as of January 1, 2022 related to the interest expense from the amortization of the debt discount.

Cash, Cash Equivalents and Short-term Investments

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Cash and cash equivalents:

Money market fund

$ 278,769 $ — $ — $ 278,769

Money market funds

139,402 — — 139,402

Total cash and cash equivalents $ 418,171 $ — $ — $ 418,171

Short-term investments:

Corporate bonds

Total short-term investments

December 31, 2020

Cash and cash equivalents:

Treasury securities

Money market fund

Corporate bonds

Commercial paper

$ 150,520 $ — $ — $ 150,520

Money market funds

200,326 — — 200,326

Total cash and cash equivalents $ 350,846 $ — $ — $ 350,846

Short-term investments:

Treasury securities

Corporate bonds

Commercial paper

$ 4,006 $ 11 $ — $ 4,017

Total short-term investments $ 4,006 $ 11 $ — $ 4,017

As of December 31, 2020 and December 31, 2019, the contractual maturity for the short-term investments is less than one year.

As of December 31, 2020, the contractual maturity for the short-term investments is less than one year.

For the years ended December 31, 2021, 2020, and 2019 the Company recognized no material realized gains or losses on short-term investments.

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Assets and liabilities recorded at fair value on a recurring basis on the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values.

Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants

on the measurement date.

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservab le inputs.

Fair value is defined as the exchange

price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:

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There were no transfers between Level 1, Level 2 or Level 3 of the fair value hierarchy during the periods presented.

The following tables provide the financial instruments measured at fair value (in thousands):

December 31, 2020

Short-term investments:

Corporate bonds

Total short-term investments

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of December 31, 2021, the Company’s cash equivalents solely consisted of money market funds, which amounted to $ 139.4 million.

Money market funds are measured at net asset value per share and are excluded from cash equivalents in the fair value hierarchy table.

The following table provides the financial instruments measured at fair value (in thousands) as of December 31, 2020:

December 31, 2020

Cash equivalents:

Treasury securities

Corporate bonds

Commercial paper

Total cash equivalents

Level 1 Level 2 Level 3 Total

Short-term investments:

Treasury securities

Corporate bonds

Commercial paper

$ — $ 4,017 $ — $ 4,017

Total short-term investments

$ — $ 4,017 $ — $ 4,017

(1) Money market funds are measured at net asset value per share and are excluded from cash equivalents in the fair value hierarchy table.

The amounts of the money market funds (in thousands) were $200,326 and $5,399 at 12/31/20 and 12/31/19, respectively.

On June 15, 2020, the Company issued 3.00% convertible senior notes due 2025 with embedded conversion features.

The Company estimated the fair value of the Notes using a discounted cash flow approach to derive the value of a debt instrument using the expected cash flows and the estimated yield related to the convertible senior notes.

The significant assumptions used in estimating the expected cash flows were the estimated market yield based on an implied yield and credit quality analysis of a term loan with similar attributes.

The Company recorded approximately $152.7 million as the fair value of the liability on June 15, 2020, with a corresponding amount recorded as a discount on the initial issuance of the Notes of approximately $19.8 million.

The debt discount was recorded to equity and is being amortized to the debt liability over the life of the Notes using the effective interest method.

As of December 31, 2020, the fair value of the Notes, which differs from its carrying value is determined by prices for the Notes observed in market trading.

The market for trading of the Notes is not considered to be an active market and therefore the estimate of fair value is based on Level 2 inputs, such as interest rates.

As of December 31, 2020, the estimated fair value of the Notes, which has an aggregate face value of $172.5 million, was $184.4 million based on the market price on the last trading day for the period.

The fair value of the convertible preferred stock warrant liability on the date of issuance and each re-measurement date was estimated using the Black‑Scholes option pricing model.

Inputs used to determine the estimated fair value as of each valuation date included expected term of the warrants, the risk-free interest rate, volatility, and the fair value of underlying shares.

Due to the nature of these valuation models, the valuation of the warrants is considered a Level 3 measurement.

The following table presents a rollforward of the fair value of the Level 3 liability recorded at fair value (in thousands):

Stock Warrant

Balance as of December 31, 2018

Changes in estimated fair value

Reclass to additional paid-in capital upon

conversion to common stock warrants

Balance as of December 31, 2019

The amounts of the money market funds (in thousands) was $ 200,326 as of December 31, 2020.

Fair Value Measurements of Other Financial Instruments

The following table presents the carrying amounts and estimated fair values of the financial instruments that are not recorded at fair value on the balance sheets (in millions):

December 31, 2021

Net Carrying Amount Estimated Fair Value

2025 Convertible senior notes $ 153.9 $ 185.5

2028 Convertible senior notes $ 194.5 $ 288.7

The principal amounts of the 2025 Notes and the 2028 Notes are $ 172.5 million and $ 287.5 million, respectively.

The difference between the principal amounts of the convertible senior notes and their respective net carrying amounts are the unamortized debt issuance costs and the unamortized debt discount (See Note 7).

As of December 31, 2021, the fair value of the 2025 Notes and 2028 Notes, which differs from its carrying value is determined by prices for the Notes observed in market trading.

The market for trading of the 2025 Notes and 2028 Notes is not considered to be an active market and therefore the estimate of fair value is based on Level 2 inputs, such as interest rates based on the market price on the last trading day for the period.

Balance Sheet Components

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Property and equipment, net consists of the following (in thousands):

2021 December 31,

Proprietary software

$ 31,799 $ 24,218

Furniture and equipment

40,176 27,687

Leasehold improvements

66,154 52,828

Property and equipment, gross 139,634 105,401

accumulated depreciation and amortization ( 50,348 ) ( 41,947 )

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Depreciation and amortization expense on property and equipment was $ 23.5 million, $ 18.8 million, and $ 13.4 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Property and equipment taken out of service as part of the closure of the Brisbane authentication center during the year ended December 31, 2021 was $ 8.7 million and a related $ 0.3 million of loss on disposal of property and equipment was recorded within the 'Operations and Technology' line of the Statements of Operations during the year ended December 31, 2021.

The company also recorded $ 0.2 million of loss on impairment of capitalized propriety software within the 'Operations and Technology' line of the Statements of Operations during the year ended December 31, 2021.

During the year ended December 31, 2020, fully depreciated proprietary software in the amount of $ 7.9 million was taken out of service.

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Other accrued and current liabilities consist of the following (in thousands):

2021 December 31,

Returns reserve $ 23,577 $ 18,327

Accrued compensation 14,258 13,406

Accrued marketing and outside services

Site credit liability

Accrued legal 14,417 2,537

Accrued sales tax and other taxes 8,935 6,870

Site credit liability 8,738 5,475

Accrued marketing and outside services 7,897 8,253

Accrued interest 1,166 216

Deferred revenue 3,387 1,617

Accrued inventory 3,513 470

Other 8,300 4,691

Other accrued and current liabilities $ 94,188 $ 61,862

Debt and Convertible Preferred Stock Warrants

In 2013, the Company entered into an agreement to obtain a term loan facility (“Term Loan Facility”) in the amount of $ 5.0 million for general corporate purposes and working capital expenditures.

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With the repayment of the term loans, the Company was no longer subject to debt covenants as of December 31, 2020.

During the years ended December 31, 2020, 2019 and 2018, the Company recorded interest expense related to the Term Loans of zero, $0.3 million, and $0.7 million, respectively.

Warrants Issued with Term Loan Facility

During the period from 2013 to 2016, in connection with the Term Loan Facility, the Company issued convertible preferred stock warrants, which included warrants to purchase 131,652 shares of its Series B convertible preferred stock with an exercise price of $1.03 per share, 6,868 shares of its Series C convertible preferred stock with an exercise price of $2.18 per share, 43,010 shares of its Series D convertible preferred stock with an exercise price of $2.79 per share and 25,597 shares of its Series E convertible preferred stock with an exercise price of $2.93 per share (together the “Convertible Preferred Stock Warrants”).

The Convertible Preferred Stock Warrants were exercisable from the date of issuance and have a 10-year term.

The initial estimated fair value of the Convertible Preferred Stock Warrants was recorded as convertible preferred stock warrant liability with an offset to the debt discount associated with the Term Loan Facility.

The debt discount is amortized to interest expense over the repayment period of the loan using the effective-interest method.

All convertible Preferred Stock Warrants were converted to common stock warrants and exercised through net share settlement in July 2019.

No warrants were outstanding as of December 31, 2020 and 2019.

Convertible Notes

During the years ended December 31, 2021, 2020 and 2019, the Company recorded interest expense related to the Term Loans of zero , zero , and $ 0.3 million, respectively.

Revolving Credit Agreement

In April 2021, the Company entered into a loan and security agreement ("Revolving Credit Agreement") with a lender, to provide a revolving line of credit of up to $ 50 million.

Advances on the line of credit bear interest payable monthly at a variable annual rate equal to the greater of the prime rate plus 0.50 % or 4.25 %.

The credit facility expires in April 2023.

The Revolving Credit Agreement contains affirmative, negative and financial covenants, including covenants that require maintaining minimum cash and investment balances over specified periods of time and covenants that restrict, among other things, the Company’s ability to change its name, business, management, ownership or business locations, enter into mergers or acquisitions or incur additional indebtedness.

As of December 31, 2021, the Company was in compliance with all covenants.

As of December 31, 2021, $ 0 had been drawn on the Revolving Credit Agreement.

Convertible Senior Notes, Net

2025 Convertible Senior Notes

In June 2020, the Company issued an aggregate principal of $172.5 million of its 3.00% Convertible Senior Notes due 2025 (the “Notes”), pursuant to an indenture (the “Indenture”) between the Company and U.S.

In June 2020, the Company issued an aggregate principal of $ 172.5 million of its 3.00 % Convertible Senior Notes due 2025 (the “2025 Notes”), pursuant to an indenture between the Company and U.S.

Bank National Association, as trustee, in a private offering (the “Note Offering”) to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”).

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• During any calendar quarter (and only during such calendar quarter) beginning after September 30, 2020, if, the last reported sale price per share of the Company’s common stock exceeds 130 % of the applicable conversion price on each applicable trading day for at least 20 trading days (whether or not consecutive) in the period of the 30 consecutive trading day period ending on, and including, the last trading day of the immediately preceding calendar quarter.

During the five business day period after any five consecutive trading day period in which, for each day of that period, the trading price per $1,000 principal amount of No tes for such trading day was less than 98 % of the product of the last reported sale price of the Company’s common stock and the applicable conversion rate on such trading day;

• During the five business day period after any five consecutive trading day period in which, for each day of that period, the trading price per $1,000 principal amount of Notes for such trading day was less than 98 % of the product of the last reported sale price of the Company’s common stock and the applicable conversion rate on such trading day;

• Upon the occurrence of specified corporate transactions;

3 unchanged sentences

It is the Company’s current intent to settle conversions of the 2025 Notes through combination settlement, which involves repayment of the principal portion in cash and any excess of the conversion value over the principal amount in shares of its common stock.

The conditions allowing holders of the 2025 Notes to convert were not met as of December 31, 2021.

The 2025 Notes are unsecured and unsubordinated obligations of the Company and will rank senior in right of payment to any of future indebtedness of the Company that is expressly subordinated in right of payment to the 2025 Notes;

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If bankruptcy, insolvency, or reorganization occurs with respect to the Company (and not solely with respect to a significant subsidiary of the Company), then the principal amount of, and all accrued and unpaid interest on, all of the 2025 Notes then outstanding will immediately become due and payable without any further action or notice by any person.

If an event of default (other than bankruptcy, insolvency, or reorganization with respect to the Company and not solely with respect to a significant subsidiary of ours) occurs and is continuing, then, with the exception of certain reporting events of default, the trustee, by notice to the Company, or noteholders of at least 25% of the aggregate principal amount of notes then outstanding, by notice to us and the trustee, may declare the principal amount of, and all accrued and unpaid interest on, all of the Notes then outstanding to become due and payable immediately.

events of default, the trustee, by notice to the Company, or noteholders of at least 25 % of the aggregate principal amount of notes then outstanding, by notice to us and the trustee, may declare the principal amount of, and all accrued and unpaid interest on, all of the 2025 Notes then outstanding to become due and payable immediately.

In accounting for the issuance of the 2025 Notes, the Company separately accounted for the liability and equity components of the 2025 Notes by allocating the proceeds between the liability component and the embedded conversion options, or equity component, due to Company’s ability to settle the 2025 Notes in cash, its common stock, or a combination of cash and common stock at Company’s option.

4 unchanged sentences

The equity component is not remeasured as long as it continues to meet the conditions for equity classification.

The net carrying amount of the liability component of the Notes was as follows:

The net carrying amount of the liability component of the 2025 Notes was as follows (in thousands):

2021 December 31,

$ 172,500 $ 172,500

Unamortized debt discount

( 14,350 ) ( 17,945 )

Unamortized debt issuance costs

( 4,286 ) ( 5,367 )

Net carrying amount

The net carrying amount of the equity component of the Notes was as follows:

$ 153,864 $ 149,188

The net carrying amount of the equity component of the 2025 Notes was as follows (in thousands):

Proceeds allocated to the conversion options (debt discount) $ 19,787

6 unchanged sentences

The effective interest rate on the liability component of the 2025 Notes for the period from the date of issuance through December 31, 2021 was 6.4 %.

The following table sets forth the amounts recorded in interest expense related to the Notes from the date of issuance through December 31, 2020:

The following table sets forth the amounts recorded in interest expense related to the 2025 Notes (in thousands):

Year Ended December 31,

Contractual interest expense $ 5,175 $ 2,803

2 unchanged sentences

Total interest and amortization expense

Future minimum payments under the Notes as of December 31, 2020, are as follows:

$ 9,851 $ 5,202

Future minimum payments under the 2025 Notes as of December 31, 2021, are as follows (in thousands):

Fiscal Year Amount

Total future payments

1 unchanged sentence

Total principal amount

Capped Call Transactions with Respect to the Notes

In June 2020, in connection with the issuance of the Notes, including the initial purchasers’ exercise of the option to purchase additional Notes, the Company entered into capped call transactions with respect to its common stock (the “Purchased Calls”) with certain financial institutions (collectively, the “Counterparties”).

The Company paid an aggregate amount of approximately $22.5 million to the Counterparties for the Purchased Calls.

The Purchased Calls cover, subject to anti-dilution adjustments that are intended to be substantially identical to those in the Notes, approximately 9,705,454 shares of the Company’s common stock at a strike price that corresponds to the initial conversion price of the Notes, also subject to adjustment, and are exercisable upon conversion of the Notes.

The Purchased Call are subject to adjustment upon the occurrence of specified extraordinary events affecting the

Company, including merger events, tender offer and announcement events.

In addition, the Purchase Calls are subject to certain specified additional disruption events that may give rise to a termination of the Purchased Calls, including nationalizat ion, insolvency or delisting, changes in law, failures to deliver, insolvency filings and hedging disruptions.

The Purchased Calls settle in components commencing on April 16, 2025 with the last component scheduled to expire on June 12, 2025 .

The cap price of the capped call transactions is initially $27.88 per share, which represents a premium of 100.0% over the closing price of the Company’s common stock of $13.94 per share on June 10, 2020, and is subject to certain adjustments under the terms of the capped call transactions.

The Company expects to receive from the Counterparties a number of shares of the Company’s common stock or, at the Company’s election (subject to certain conditions), cash, with an aggregate market value (or, in the case of cash settlement, in an amount) approximately equal to the product of such excess times the number of shares of the Company’s common stock relating to the Purchased Calls being exercised.

2028 Convertible Senior Notes

In March 2021, the Company issued an aggregate principal of $ 287.5 million of its 1.00 % Convertible Senior Notes due 2028, pursuant to an indenture between the Company and U.S.

Bank National Association, as trustee, in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act.

The 2028 Notes issued in the Note Offering include $ 37.5 million in aggregate principal amount of the 2028 Notes sold to the initial purchasers resulting from the exercise in full of their option to purchase additional Notes.

The 2028 Notes will mature on March 1, 2028, unless earlier redeemed or repurchased by the Company or converted.

The Company received net proceeds from the 2028 Notes offering of approximately $ 278.1 million, after deducting the initial purchasers’ discount and commission and offering expenses.

The Company used approximately $ 33.7 million of the net proceeds from the 2028 Notes offering to fund the net cost of entering into the capped call transactions described below.

The Company intends to use the remainder of the net proceeds for general corporate purposes.

The 2028 Notes accrue interest at a rate of 1.00 % per annum, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2021.

The initial conversion rate applicable to the 2028 Notes is 31.4465 shares of common stock per $1,000 principal amount of 2028 Notes (which is equivalent to an initial conversion price of approximately $ 31.80 per share of the Company’s common stock).

The conversion rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for accrued and unpaid interest.

In addition, upon the occurrence of a corporate event, the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its 2028 Notes in connection with such corporate event.

The 2028 Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after March 5, 2025 if the last reported sale price per share of the Company’s common stock exceeds 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately before the date the Company sends the related redemption notice.

In addition, calling any Note for redemption will constitute a make-whole fundamental change with respect to that Note, in which case the conversion rate applicable to the conversion of that Note will be increased in certain circumstances if it is converted after it is called for redemption.

Prior to December 1, 2027, the 2028 Notes will be convertible only under the following circumstances:

• During any calendar quarter (and only during such calendar quarter) beginning after June 30, 2021, if, the last reported sale price per share of the Company’s common stock exceeds 130 % of the applicable conversion price on each applicable trading day for at least 20 trading days (whether or not consecutive) in the period of the 30 consecutive trading day period ending on, and including, the last trading day of the immediately preceding calendar quarter;

product of the last reported sale price of the Company’s common stock and the applicable conversion rate on such trading day;

• Upon the occurrence of specified corporate transactions;

• If the Company calls any notes for redemption.

On and after December 1, 2027, until the close of business on the scheduled trading day immediately preceding the maturity date, holders may convert all or a portion of their 2028 Notes, in multiples of $1,000 principal amount, at any time, regardless of the foregoing circumstances.

Upon conversion, the 2028 Notes will be settled, at the Company’s election, in cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock.

It is the Company’s current intent to settle conversions of the 2028 Notes through combination settlement, which involves repayment of the principal portion in cash and any excess of the conversion value over the principal amount in shares of its common stock.

The conditions allowing holders of the 2028 Notes to convert were not met as of December 31, 2021.

The 2028 Notes are unsecured and unsubordinated obligations of the Company and will rank senior in right of payment to any of future indebtedness of the Company that is expressly subordinated in right of payment to the 2028 Notes;

rank equal in right of payment to any existing and future unsecured indebtedness of the Company that is not so subordinated;

be effectively subordinated in right of payment to any secured indebtedness of the Company to the extent of the value of the assets securing such indebtedness;

and be structurally subordinated to all existing and future indebtedness and other liabilities and obligations incurred by future subsidiaries of the Company.

If bankruptcy, insolvency, or reorganization occurs with respect to the Company (and not solely with respect to a significant subsidiary of the Company), then the principal amount of, and all accrued and unpaid interest on, all of the 2028 Notes then outstanding will immediately become due and payable without any further action or notice by any person.

If an event of default (other than bankruptcy, insolvency, or reorganization with respect to the Company and not solely with respect to a significant subsidiary of the Company) occurs and is continuing, then, with the exception of certain reporting events of default, the trustee, by notice to the Company, or noteholders of at least 25 % of the aggregate principal amount of notes then outstanding, by notice to us and the trustee, may declare the principal amount of, and all accrued and unpaid interest on, all of the 2028 Notes then outstanding to become due and payable immediately.

In accounting for the issuance of the 2028 Notes, the Company separately accounted for the liability and equity components of the 2028 Notes by allocating the proceeds between the liability component and the embedded conversion options, or equity component, due to Company’s ability to settle the 2028 Notes in cash, its common stock, or a combination of cash and common stock at Company’s option.

The allocation was done by first estimating the fair value of the liability component and the residual value was assigned to the equity component.

The value of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature.

The allocation was performed in a manner that reflected the Company’s non-convertible debt borrowing rate for similar debt.

The interest rate of 7.18 % was used to compute the initial fair value of the liability component of $ 191.3 million, with a corresponding amount recorded as a discount on the initial issuance of the 2028 Notes of approximately $ 96.2 million.

The equity component is not remeasured as long as it continues to meet the conditions for equity classification.

The net carrying amount of the liability component of the 2028 Notes was as follows (in thousands):

Unamortized debt discount

Unamortized debt issuance costs

Net carrying amount

The net carrying amount of the equity component of the 2028 Notes was as follows (in thousands):

Proceeds allocated to the conversion options (debt discount) $ 96,162

Issuance costs ( 3,131 )

Net carrying amount

In connection with the issuance of the 2028 Notes, the Company incurred approximately $ 9.4 million of debt issuance costs, which primarily consisted of initial purchasers’ discounts and legal and other professional fees.

The Company allocated these costs to the liability and equity components based on the allocation of the proceeds.

The portion of these costs allocated to the equity component totaling approximately $ 3.1 million was recorded as a reduction to additional paid-in capital.

The portion of these costs allocated to the liability component totaling approximately $ 6.3 million was recorded as a reduction in the carrying value of the debt on the condensed balance sheets and is amortized to interest expense using the effective interest method over the expected life of the 2028 Notes or approximately its seven-year term.

The effective interest rate on the liability component of the 2028 Notes for the period from the date of issuance through December 31, 2021 was 7.5 %.

The following table sets forth the amounts recorded in interest expense related to the 2028 Notes (in thousands):

Year Ended December 31, 2021

Contractual interest expense $ 2,332

Amortization of debt discount 8,759

Amortization of debt issuance costs 554

Total interest and amortization expense

Future minimum payments under the 2028 Notes as of December 31, 2021, are as follows (in thousands):

Fiscal Year Amount

Total future payments

Less amounts representing interest

Total principal amount

Capped Call Transactions with Respect to the 2025 Notes and 2028 Notes

In connection with the issuance of the 2025 Notes and 2028 Notes, including the initial purchasers’ exercise of the option to purchase additional Notes, the Company entered into capped call transactions with respect to its common stock with certain financial institutions (collectively, the “Counterparties”).

The Company paid an aggregate amount of approximately $ 22.5 million to the Counterparties in connection with the 2025 capped call transactions (the "2025 Capped Calls") and $ 33.7 million to the Counterparties in connection with the 2028 capped call transactions and (the "2028 Capped Calls" and, together with the 2025 Capped Calls, the "Capped Calls").

The 2025 Capped Calls and 2028 Capped Calls cover approximately 9,705,454 and 9,040,869 shares of the Company’s common stock at a strike price that corresponds to the initial conversion price of the 2025 Notes and the 2028 Notes, respectively.

The 2025 Capped Calls and the 2028 Capped Calls are subject to anti-dilution adjustments that are intended to be substantially identical to those in the 2025 Notes and the 2028 Notes, as applicable, and are exercisable upon conversion of the 2025 Notes or the 2028 Notes, as applicable.

The Capped Calls are subject to adjustment upon the occurrence of specified extraordinary events affecting the Company, including merger events, tender offer and announcement events.

In addition, the Capped Calls are subject to certain specified additional disruption events that may give rise to a termination of the Capped Calls, including nationalization, insolvency or delisting, changes in law, failures to deliver, insolvency filings and hedging disruptions.

The 2025 Capped Calls settle in components commencing on April 16, 2025 with the last component scheduled to expire

on June 12, 2025.

The 2028 Capped Calls settle in components commencing on December 31, 2027 with the last component scheduled to expire on February 28, 2028.

The cap price of the 2025 Capped Call is initially $ 27.88 per share, which represents a premium of 100.0 % over the closing price of the Company’s common stock of $ 13.94 per share on June 10, 2020, and is subject to certain adjustments under the terms of the capped call transactions.

The cap price of the 2028 Capped Call is initially $ 48.00 per share, which represents a premium of 100.0 % over the closing price of the Company’s common stock of $ 24.00 per share on March 3, 2021, and is subject to certain adjustments under the terms of the Capped Calls.

These capped call instruments meet the conditions outlined in ASC 815-40 to be classified in stockholders’ equity, are not accounted for as derivatives, and are not subsequently remeasured as long as the conditions for equity classification continue to be met.

The Company recorded a reduction to additional paid-in capital of approximately $22.5 million during the year ended December 31, 2020 related to the premium payments for the Capped Call Transactions.

2018 Convertible Notes

In April 2018, the Company issued $14.4 million in convertible notes (“2018 Notes”) to existing shareholders of redeemable convertible and convertible preferred stock.

Interest accrued on the principal balance at an annual rate of 8%.

Principal and accrued interest were due at the earliest of (1) the one-year anniversary of the issuance date, (2) event of default and (3) a change of control, defined as either a merger, sale of stock or assets or other form of transaction.

The 2018 Notes contained certain qualified financing and non-qualified financing redemption features which were determined to be a compound embedded derivative requiring bifurcation and separate accounting at its estimated fair value.

On issuance of the 2018 Notes, the Company recognized a liability of $0.4 million for the estimated fair value of the embedded derivative and incurred $0.1 million in debt issuance costs, both of which were recorded as a debt discount associated with the 2018 Notes.

In June 2018, the outstanding balance of principal and accrued interest on the 2018 Notes of $14.6 million converted into 1,067,550 and 1,997,709 shares of the Company’s Series G redeemable convertible and convertible preferred stock, respectively, at a price of $4.7565 per share.

The conversion of the 2018 Notes into Series G redeemable convertible preferred stock and Series G convertible preferred stock was accounted for as an extinguishment.

The extinguishment of the 2018 Notes was considered a capital transaction and accordingly, the Company recognized a $0.4 million loss on extinguishment through additional paid in capital equal to the unamortized debt discount at the date of conversion.

Convertible Preferred Stock and Redeemable Convertible Preferred Stock

At December 31, 2018, convertible preferred stock and redeemable convertible preferred stock consisted of the following (in thousands, except share amounts):

December 31, 2018

In March 2019, the Company sold 6,350,345 shares of Series H redeemable convertible preferred stock and 3,831,766 shares of Series H convertible preferred stock at $6.8748 per share to new and existing investors for aggregate gross proceeds of $70.0 million.

On July 2, 2019 and immediately prior to the completion of the IPO, all outstanding shares of convertible preferred stock and redeemable convertible preferred stock then outstanding converted into 58,363,606 shares of common stock.

The carrying value of the redeemable convertible preferred stock was accreted to redemption value from the date of issuance to the earliest redemption date using the effective interest method.

As of March 31, 2019, the Company determined that redemption of the redeemable convertible preferred stock was not probable and as such, did not record any additional accretion after March 31, 2019.

The Company recorded a reduction to additional paid-in capital of approximately $ 22.5 million and $ 33.7 million related to the premium payments for the 2025 Capped Calls and the 2028 Capped Calls, respectively.

The Company had reserved shares of common stock for issuance, on an as-converted basis, as follows:

2021 December 31,

Options issued and outstanding 4,131,501 5,809,376

Shares available for grant under the 2019 equity incentive plan

Outstanding restricted stock units 8,182,649 5,103,727

Shares available for grant under the 2019 equity incentive plan 6,709,676 7,104,498

Shares available for issuance under 2019 ESPP 3,210,985 2,517,258

22,234,811 20,534,859

Share-based Compensation Plans

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On August 4, 2020, the Company’s board of directors approved an increase of shares available for grant under the 2019 Plan by 4,293,616 shares.

On May 5, 2021, the Company’s board of directors approved an increase of shares available for grant under the 2019 Plan by 4,465,083 shares.

Activity under the Company’s stock option plan is set forth below:

Options Weighted-

Share Weighted-

Life (years) Aggregate

(in thousands)

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Options vested and exercisable— December 31, 2021 3,627,255 4.19 3.9 29,182

There were no stock options granted in 2020.

The weighted average grant date fair value of options granted during the years ended December 31, 2019 and 2018 was $8.60 per share and $3.36 per share, respectively.

There were no stock options granted in 2021 and in 2020.

The weighted average grant date fair value of options granted during the year ended December 31, 2019 was $ 8.60 per share.

The aggregate intrinsic value of options exercised for the years ended December 31, 2021, 2020, and 2019 was $ 20.5 million, $ 32.2 million, and $ 16.2 million, respectively.

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A summary of RSU activity for the year ended December 31, 2021 is as follows:

Restricted Stock Units

Shares Restricted Stock Units

Average Grant

Aggregate Intrinsic Value

Value Aggregate Intrinsic Value

(in thousands)

Unvested December 31, 2020 5,103,727 $ 13.40 $ 99,640

Granted 7,928,232 18.69

Vested ( 2,238,553 ) 17.03

Forfeited ( 2,610,757 ) 16.88

Unvested December 31, 2021 8,182,649 $ 16.42 $ 94,972

The total fair value of RSUs vested during the year ended December 31, 2020 was $12.5 million .

The total fair value of RSUs v ested during the year ended December 31, 2021 was $ 38.1 million .

2019 Employee Stock Purchase Plan

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On August 4, 2020, the Company’s board of directors approved an increase in the shares available for grant under the ESPP by 858,723 shares.

The initial offering period ran from May 15, 2020 through November 14, 2020.

Employees purchased 91,465 shares at an average price of $10.63 for the year ended December 31, 2020.

There were no shares purchased by employees during the year ended 2019.

The intrinsic value of shares purchased during the year ended 2020 was $0.2 million.

On May 5, 2021, the Company's board of directors approved an increase in the shares available for grant under the ESPP by 893,016 shares.

During the years ended December 31, 2021 and 2020, employees purchased 199,289 and 91,465 shares, respectively, at an average price of $ 11.74 and $ 10.63 , respectively.

There were no shares purchased by employees during the year ended December 31, 2019.

The intrinsic value of shares purchased during the years December 31, 2021 and 2020 was $ 0.7 million and $ 0.2 million, respectively.

The intrinsic value is calculated as the difference between the market value on the date of purchase and the purchase price of the shares.

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Therefore, the Company uses an expected dividend yield of zero.

The following assumptions were used to estimate the fair value of stock options granted in 2019 and 2018, as there were no stock options granted i n 2020:

The following assumptions were used to estimate the fair value of stock options granted in 2019, as there were no stock options granted in 2021 and 2020:

Year Ended December 31, 2019

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Expected volatility 44.2 % – 47.8 %

44.2% – 47.8%

46.6% – 48.1%

Average risk-free rate 1.9 % – 2.6 %

Dividend yield —

As of December 31, 2020, total unrecognized stock-based compensation expense related to options was $9.9 million, respectively.

As of December 31, 2021, total unrecognized stock-based compensation expense related to options was $ 3.6 million.

These costs are expected to be recognized over a weighted average period of 1.2 years as of December 31, 2021.

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Year Ended December 31,

2021 2020 2019

Marketing $ 2,557 $ 1,755 $ 392

Operations and technology 21,395 10,241 3,148

Selling, general and administrative 24,850 12,326 4,171

$ 48,802 $ 24,322 $ 7,711

The amounts presented in the above table exclude compensation expense related to the stock sales by current and former employees.

In September 2018, executives of the Company sold an aggregate of 432,270 shares of the Company’s common stock at a price of $9.0902 per share for an aggregate amount of $3.9 million to certain of the Company’s existing investors.

The Company determined that the purchase price was in excess of the fair value of such shares.

As a result, during the year ended December 31, 2018, the Company recorded the excess of the purchase price above fair value of $0.8 million as compensation expense within selling, general and administrative in the statements of operations and a corresponding credit to additional paid-in capital.

Additionally , in March 2019, executives of the Company sold an aggregate of 382,477 shares of the Company’s common stock at a price of $12.72 per share for an aggregate amount of $4.9 million to certain of the Company’s existing investors.

In March 2019, executives of the Company sold an aggregate of 382,477 shares of the Company’s common stock at a price of $ 12.72 per share for an aggregate amount of $ 4.9 million to certain of the Company’s existing

The Company determined that the purchase price was in excess of the fair value of such shares.

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The Company leases its corporate offices, retail spaces and authentication centers under various noncancelable operating leases with terms ranging from one year to fifteen years .

The Company adopted ASU 2016-02 on January 1, 2020.

At adoption, t he Company measured the lease liability at the present value of the future lease payments as of January 1, 2020, using the Company’s incremental borrowing rate for each lease.

The Company derived the incremental borrowing rate by developing its own synthetic credit rating, corresponding yield cur ve, and the terms of each lease at the adoption date .

The corresponding right-of-use asset is valued at the amount of the lease liability adjusted for the remaining balance of unamortized lease incentives, prepaid rent and deferred rent as of the adoption date.

The Company recorded operating lease costs of $ 24.7 million for the year ended December 31, 2020.

The Company incurred $ 3.9 million of variable lease costs for the year ended December 31, 2020, which is comprised primarily of the Company’s propor tionate share of operating expenses, property taxes and insurance.

Rent expense under ASC 840 was $ 18.1 million and 10.4 million for the years ended December 31, 20 19 and 2018, respectively.

The Company recorded operating lease costs of $ 29.7 million and $ 24.7 million for the years ended December 31, 2021 and 2020, respectively.

The Company incurred $ 5.3 million and $ 3.9 million of variable lease costs for the years ended December 31, 2021 and 2020, respectively, which is comprised primarily of the Company’s proportionate share of operating expenses, property taxes and insurance.

Rent expense under ASC 840 was $ 18.1 million for the year ended December 31, 2019.

Maturities of operating lease liabilities by fiscal year for the Company’s operating leases are as follows (in thousands):

Fiscal Year Amount

Thereafter 58,806

Total future minimum payments $ 199,357

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Present value of operating lease liabilities $ 161,411

As of December 31, 2020, the Company has entered into operating lease agreements that have not yet commenced.

The Company will determine the classification at the commencement date for each lease, but currently expects these leases to be classified as operating leases.

Pending execution of the landlord's obligations to prepare leased spaces for occupancy, the Company expects these leases to commence on various dates in the year ended December 31, 2021.

The Company expects to receive a Tenant Improvement Allowance of approximately $1.8 million in the year ended December 31, 2021.

As of December 31, 2020, the Company’s estimated undiscounted lease payments for leases that have not yet commenced were as follows (in thousands):

Lease payments for leases not yet commenced

Total undiscounted lease payments expected to be capitalized

As of December 31, 2019, the Company’s future minimum lease payments under the noncancelable operating leases were as follows (in thousands):

Year Ending December 31,

Total future minimum payments

Supplemental cash flow information related to the Company’s operating leases are as follows (in thousands):

December 31, 2020

Year Ended December 31, 2021 Year Ended December 31, 2020

Operating cash flows used for operating leases $ 25,386 $ 21,381

Operating lease assets obtained in exchange for

operating lease liabilities

Operating lease assets obtained in exchange for operating lease liabilities $ 46,614 $ 23,853

The weighted average remaining lease term and discount rate for the Company’s operating leases are as follows:

December 31, 2020

Weighted average remaining lease term

As of December 31, 2021 As of December 31, 2020

Weighted average remaining lease term 7.1 years 7.3 years

Weighted average discount rate 6.2 % 6.6 %

The Company has leases for certain vehicles and equipment that are classified as finance leases.

The finance lease right-of-use asset and finance lease liabilities for these vehicle and equipment leases are not material as of December 31, 2020.

The finance lease right-of-use asset and finance lease liabilities for these vehicle and equipment leases are not material as of December 31, 2021 and 2020.

Commitments and Contingencies

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As of December 31, 2021, the future minimum payments under the Company’s noncancelable purchase commitments were as follows (in thousands):

Year Ending December 31,

Year Ending December 31, Purchase

Total future minimum payments $ 12,993

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The Endowment Agreement directs the use of the funds but contains no binding restrictions on the use of the funds.

On the execution of the Endowment Agreement, the Company recognized $ 1.7 million expense for the estimated fair value of t he grant, using a discount rate of 10 %, to selling, general and administrative expenses in the statements of operations.

On the execution of the Endowment Agreement, the Company recognized $ 1.7 million expense for the estimated fair value of the grant, using a discount rate of 10 %, to selling, general and administrative expenses in the statements of operations.

The Company recognized a corresponding liability for the remaining installment payments and will recognize accretion of the liability as interest expense over the remaining term of the Endowment Agreement.

Interest expense related to the accretion of the grant liability was not material in the years ended December 31, 2021, 2020, and 2019.

As of December 31, 2020, the outstanding liability was $0.5 million, which is included in other accrued and current liabilities on the balance sheets on the balance sheets.

As of December 31, 2019, the outstanding liability was $0.9 million, of which $0.5 million is included in other accrued and current liabilities on the balance sheets and $0.4 million is included in other noncurrent liabilities on the balance sheets.

As of December 31, 2021, there was no outstanding liability, as the final annual installment of $ 0.5 million was made during the year ended December 31, 2021.

As of December 31, 2020, the outstanding liability was $ 0.5 million, which is included in other accrued and current liabilities on the balance sheets.

Contingencies

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On November 14, 2018, Chanel, Inc.

(“Chanel”) filed a lawsuit against the Company in the U.S.

District Court for the Southern District of New York bringing various trademark and advertising-related claims under the Lanham Act and New York state law analogues.

Chanel alleges, among other things, that the Company has misrepresented certain counterfeit Chanel products as authentic Chanel products, that the Company’s resale of Chanel products confuses consumers into believing that Chanel is affiliated with the Company and involved in authenticating consignors ’ goods and that only Chanel is capable of authenticating second-hand Chanel goods.

The Court issued an Opinion & Order on March 30, 2020 denying in part and granting in part the Company’s motion to dismiss.

The Company filed its answer and affirmative defenses on May 29, 2020.

Chanel’s claims are now in the discovery phase.

On November 3, 2020, with the court’s permission, the Company filed a motion to amend its answer to add counterclaims against Chanel alleging anticompetitive conduct in violation of the federal and state antitrust laws as well as tortious interference.

That motion was granted on February 24, 2021, permitting the Company to file its amended pleading.

sued the Company in the U.S.

District Court for the Southern District of New York.

The Complaint alleged federal and state law claims of trademark infringement, unfair competition, and false advertising.

On February 1, 2019, Chanel, Inc.

filed its First Amended Complaint that included substantially similar claims against the Company.

On March 4, 2019, the Company filed a Motion to Dismiss the First Amended Complaint, which was granted in part and dismissed in part on March 30, 2020.

The surviving claims against the Company include trademark infringement under 15 U.S.C.

§ 1114, false advertising under 15 U.S.C.

§ 1125, and unfair competition under New York common law.

On May 29, 2020, the Company filed its Answer to the Amended Complaint.

On October 30, 2020, the Company sought leave to amend its Answer to assert counterclaims against Chanel, Inc.

for violations of the Sherman Act, 15 U.S.C.

§§ 1 & 2, the Donnelly Act, N.Y.

§ 340, and New York common law.

The motion for leave to amend was granted on February 24, 2021.

moved to dismiss the Company’s counterclaims;

the motion to dismiss remains pending.

The parties agreed to a stay in April 2021 to engage in settlement discussions.

After several mediation sessions, the parties were unable to reach a resolution, and the stay was lifted in November 2021.

The Court entered an Amended Scheduling Order on December 20, 2021.

Under the Amended Scheduling Order, all fact discovery is to be completed by August 1, 2022 and all discovery is to be completed by November 14, 2022.

Fact discovery is underway, and the parties are actively working to resolve several ongoing discovery disputes.

This litigation is in its early stages and the final outcome, including the Company’s liability, if any, with respect to Chanel’s claims, is uncertain.

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On August 4, 2020, the court granted defendants’ motion to stay the state court action and deferred ruling on the demurrer and motion to strike pending the outcome of the federal court action.

A motion to dismiss the federal court action was filed on May 15, 2020, which motion remains pending.

The state and federal complaints each allege claims under the Securities Act of

1933 on behalf of a purported class of shareholders who acquired the Company’s stock pursuant to or traceable to the registration statement for the Company’s IPO.

The federal complaint also alleges claims und er the Securities Exchange Act of 1934 on behalf of a purported class of shareholders who purchased the Company’s stock from June 27, 2019 through November 20, 2019.

The complaints each allege, among other things, that the defendants violated federal secur ities laws by issuing false or misleading statements in the registration statement regarding certain of the Company’s key financial and operating metrics, and related to the Company’s authentication processes.

The complaints seek, among other things, dama ges and interest, rescission, and attorneys’ fees and costs.

A motion to dismiss the federal court action was filed on May 15, 2020.

On March 31, 2021, the court entered an order on the motion to dismiss, dismissing the Securities Exchange Act of 1934 (the “Exchange Act”) claims and some of the claims alleged under the Securities Act of 1933 (the “Securities Act”).

The court provided plaintiffs with an opportunity to amend the complaint and, on April 30, 2021, plaintiffs filed a Second Amended Complaint in federal court.

The state court complaint, and the Second Amended Complaint in federal court each allege claims under the Securities Act of 1933 on behalf of a purported class of shareholders who acquired the Company’s stock pursuant to or traceable to the registration statement for the Company’s IPO.

The federal complaint also alleges claims under the Exchange Act on behalf of a purported class of shareholders who purchased the Company’s stock from June 27, 2019 through November 20, 2019.

The complaints seek, among other things, damages and interest, rescission, and attorneys’ fees and costs.

On July 27, 2021, the Company reached an agreement in principle to settle this shareholder class action.

On November 5, 2021, plaintiff filed the executed stipulation of settlement and motion for preliminary approval of the settlement with the federal court.

The stipulation of settlement is subject to preliminary and final approval by the court.

The financial terms of the stipulation of settlement provide that the Company will pay $ 11.0 million within thirty ( 30 ) days of the later of preliminary approval of the settlement or plaintiff’s counsel providing payment instructions.

In connection with the settlement, the Company recorded approximately $ 11.0 million during the year ended December 31, 2021 under our Operating expenses as a Legal settlement.

The Company intends to pay for the settlement with available resources.

On September 10, 2020 and December 7, 2020, purported shareholders filed putative derivative actions in the United States District Court for the District of Delaware.

The derivative complaints allege factual allegations largely tracking the above referenced lawsuits.

The two derivative cases have been consolidated and the consolidated case has been stayed pending a ruling on the motion to dismiss in the federal securities case.

While the Compa ny intends to vigorously defend against the litigation described above, the cases are at a very early stage and there can be no assurance that the Company will be successful in its defense.

For this same reason, the Company cannot currently estimate the lo ss or the range of possible losses it may experience in connection with this litigation.

The derivative complaints allege factual allegations largely tracking the above referenced purported shareholder class actions.

The two derivative cases have been consolidated.

On September 13, 2021, the parties reached a settlement in principle of the derivative case.

The settlement in principle provides for certain corporate governance reforms in exchange for a release and dismissal of the lawsuit.

On October 21, 2021, the parties reached agreement to pay up to $ 0.5 million in attorneys’ fees and costs to plaintiffs’ counsel in the derivative case.

On November 5, 2021, the parties entered into a stipulation of settlement, and on February 11, 2022, the court entered an order and final judgment approving the settlement.

In connection with the derivative settlement, the Company recorded approximately $ 0.5 million for the year ended December 31, 2021 under our Operating expenses as a Legal settlement.

The stipulation of settlement was preliminarily approved on December 8, 2021, and the $ 0.5 million was paid within thirty ( 30 ) days of the preliminary approval, or on January 7, 2022, with available resources.

Indemnifications

3 unchanged sentences

Year Ended December 31,

2021 2020 2019

Total current tax expense 56 101 199

3 unchanged sentences

Year Ended December 31,

2021 2020 2019

Tax at federal statutory rate

$ ( 49,480 ) $ ( 36,559 ) $ ( 20,272 )

State taxes, net of federal effect

( 13,704 ) ( 10,315 ) ( 5,170 )

Stock-based compensation ( 2,698 ) ( 6,261 ) 750

Non-deductible items

3,661 402 679

Convertible Notes 16,782 — —

Valuation allowance

42,327 52,834 24,212

Other 3,168 — —

Provision for income taxes $ 56 $ 101 $ 199

2 unchanged sentences

Net operating loss carryforwards

$ 178,558 $ 129,333

Fixed assets and intangibles

Accruals and reserves

Stock options 5,007 3,147

Operating lease liabilities

43,345 35,267

Capped calls 15,095 —

Gross deferred tax assets 253,122 177,549

valuation allowance

( 185,541 ) ( 143,214 )

Total deferred tax assets 67,581 34,335

1 unchanged sentence

Operating lease right-of-use assets

( 39,021 ) ( 32,028 )

Convertible debt ( 26,477 ) —

( 2,083 ) ( 2,307 )

Gross deferred tax liabilities ( 67,581 ) ( 34,335 )

Net deferred tax assets $ — $ —

In assessing the realizability of deferred tax assets, the Company evaluates all available positive and negative evidence by considering whether it is more likely than not that some portion or all of the deferred tax assets will not be recognized.

The ultimate realization of deferred tax assets is dependent upon future taxable income, future reversals of existing taxable temporary difference, taxable income in carryback years and tax-planning strategies.

5 unchanged sentences

As of December 31, 2021 and 2020, the Company has a net operating loss carryforward of $ 674.9 million and $ 485.1 million for federal tax purposes, respectively, and $ 609.7 million and $ 458.9 million for state tax purposes, respectively.

If not utilized, these losses will expire beginning in 2032 for California purposes.

If not utilized, these losses will expire beginning in 2024 for state tax purposes.

However, beginning in tax year 2018 and forward, the Federal law has changed such that net operating losses generated after December 31, 2017 may be carried forward indefinitely.

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Year Ended December 31,

2021 2020 2019

Net loss attributable to common stockholders

Weighted-average common shares outstanding

used to calculate net loss per share attributable

to common stockholders, basic and diluted

Net loss per share attributable to common

stockholders, basic and diluted

The following securities were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented, because including them would have been anti-dilutive (on an as-converted basis, except the Convertible Senior Notes):

Convertible preferred stock

Redeemable convertible preferred stock

$ ( 236,107 ) $ ( 175,832 ) $ ( 101,784 )

Weighted-average common shares outstanding used to calculate net loss per share attributable to common stockholders, basic and diluted

91,409,624 87,587,409 47,478,544

Net loss per share attributable to common stockholders, basic and diluted

$ ( 2.58 ) $ ( 2.01 ) $ ( 2.14 )

2021 2020 2019

Options to purchase common stock 4,131,501 5,809,376 9,171,756

2 unchanged sentences

Assumed conversion of the Convertible Senior Notes 18,746,323 9,705,454 —

Warrants to purchase convertible preferred stock

Warrant to purchase common stock

The Notes issued in June 2020 are convertible, based on the applicable conversion rate, into cash, shares of the Company’s common stock or a combination thereof, at the Company’s election.

The impact of the assumed conversion to diluted net income per share is computed using the treasury stock method.

31,213,281 20,728,286 9,961,573

The Convertible Senior Notes issued in June 2020 and in March 2021 are convertible, based on the applicable conversion rate, into cash, shares of the Company’s common stock or a combination thereof, at the Company’s election.

The impact of the assumed conversion to diluted net income per share is computed on an as-converted basis.

Retirement Plan

2 unchanged sentences

The Company matches employee contributions at a rate of 25 % of vested contributions, up to a maximum of $ 1,000 per participant per year.

The Company’s contributions to the 401(k) plan were immaterial for the years ended December 31, 2020, 2019, and 2018.

The Company’s contributions to the 401(k) plan were $ 1.1 million, $ 0.8 million, and $ 0.5 million for the years ended December 31, 2021, 2020, and 2019, respectively.

Related Parties

2 unchanged sentences

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