What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2023-02-28 compared with 2022-02-28 · 217 added, 137 removed, 351 unchanged (50% of the section changed)

Risk Factors.

Risk Factors Summary

The following is a summary of the principal risks and uncertainties described in more detail in this Annual Report on Form 10-K.

Risks Relating to Our Business and Industry

• We have a history of losses and we may not be able to achieve or maintain profitability in the future.

• Our reduction in workforce and the associated real estate reduction plan may not result in anticipated savings, could result in total costs and expenses that are greater than expected and could disrupt our business.

• We may be unable to sustain our revenue growth rate or effectively manage growth or new opportunities.

• We may not accurately forecast revenue and appropriately plan our expenses.

• We have experienced seasonal and quarterly variations in our revenue and operating results.

• Greater than expected product returns may exceed our reserve for returns.

• We may require additional capital to support our business growth.

• Public health emergencies or outbreaks of epidemics, pandemics, or contagious diseases such as the COVID-19 pandemic have adversely affected, and could in the future, adversely affect our business and the business of our consignors and buyers.

Risks Relating to Our Strategy

• We may be unable to execute on our retail strategy.

• Expansion of our operations internationally will require significant management attention and resources.

Risks Relating to Supply

• We may not be able to obtain sufficient new and recurring supply of pre-owned luxury goods.

• We may be unable to attract and retain talented sales professionals.

• Our growth and supply of product offerings are enhanced our ability to maintain our brand partnerships.

Risks Relating to Demand

• Our continued growth depends on attracting new and retaining repeat buyers.

• National retailers and brands set their own retail prices and promotional discounts on new luxury goods, which could adversely affect our value proposition to consignors and buyers.

• We must successfully gauge and respond to changing preferences among our consignors and buyers.

• We may be unable to replicate our business model for newer categories of consigned goods or different product mixes of consigned goods.

• We rely on consumer discretionary spending, which is adversely affected by economic downturns, including economic recession or depression, and other macroeconomic conditions or trends.

• Our industry is highly competitive and we may not be able to compete effectively.

Risks Related to Marketing and Brand Management

• Our success depends on the accuracy and reliability of our authentication process.

• We may not succeed in promoting and sustaining our brand.

• Our advertising activity may fail to efficiently drive growth in consignors and buyers.

• We rely on third parties to drive traffic to our website.

• Use of social media, emails and text messages may adversely impact our reputation or subject us to fines.

• The public disclosure of our Environmental, Social and Governance ("ESG") metrics may subject us to risks.

Risks Related to Our Merchandising and Fulfillment

• We may not be able to attract, train and retain specialized personnel and skilled employees.

• We may not be able to identify and lease authentication centers in suitable geographic regions.

• We may experience damage or destruction to our authentication centers or retail stores in which we store of the majority of the consigned luxury goods we offer through our online marketplace.

• Shipping is a critical part of our business and any changes in our shipping arrangements, costs, interruptions in shipping or damage to products in transit could adversely affect our operating results.

• We may be unable to successfully leverage technology to automate and drive efficiencies in our operations.

Risks Related to Data Security, Privacy and Fraud

• We rely on third parties to host our website and mobile app and to process payments.

• Failure of our data security could cause us to incur unexpected expenses or compromise our data assets.

• We may incur significant losses from fraud.

Risks Related to Our Employees

• We may be unable to attract and retain key personnel or effectively manage leadership succession.

• Labor-related matters, including labor disputes, may adversely affect our operations.

Risks Related to Our Intellectual Property

• If we cannot successfully protect our intellectual property, our business could suffer.

Risks Relating to Litigation and Regulatory Uncertainty

• We are currently, and may be in the future, party to lawsuits and other claims.

• Our use and other processing of personal information and other data is subject to laws and obligations relating to privacy and data protection.

• We pay or collect sales taxes in all jurisdictions which require such taxes.

• Failure to comply with applicable laws or regulations may subject us to fines, penalties, loss of licensure, registration, facility closures or other governmental enforcement action.

• Application of existing tax laws, rules or regulations are subject to interpretation by taxing authorities.

• Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

• If our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able to accurately report our financial results, prevent fraud or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information.

Risks Related to Ownership of Our Common Stock

• The market price of our common stock may be volatile or may decline steeply or suddenly regardless of our operating performance and we may not be able to meet investor or analyst expectations.

• Short sellers of our stock may be manipulative and may drive down the market price of our common stock.

• Delaware law and provisions in our certificate of incorporation and bylaws could make a merger, tender offer or proxy contest difficult, thereby depressing the trading price of our common stock.

• Our certificate of incorporation designates the Court of Chancery of the State of Delaware located within the State of Delaware as the exclusive forum for substantially all disputes between us and our stockholders.

Risks Related to Our Outstanding Notes

• We have incurred a significant amount of debt and may incur additional indebtedness in the future.

• Transactions relating to our Notes may dilute the ownership interest of our stockholders.

• The conversion of the Notes, if triggered, may adversely affect our financial condition and operating results.

• The accounting method for the Notes materially affects our reported financial results.

• The capped call transactions may affect the value of the Notes and our common stock.

Investing in our common stock involves a high degree of risk.

2 unchanged sentences

The occurrence of any of the following risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely affect our business, financial condition or results of operations.

Risks Relating to the COVID-19 Pandemic

Our operations have been, and may continue to be, adversely affected by the COVID-19 pandemic.

We currently have four authentication centers, one in Arizona and three in New Jersey.

In addition, we operate a number of retail stores in select locations in the United States.

For consignors, we also provide drop off of consigned goods at any one of our numerous luxury consignment offices (“LCOs”).

In response to the COVID-19 pandemic, state and local governments initially imposed significant limitations on business operations.

As of the date of this filing, our authentication centers , retail stores and LCOs are all operating subject to certain restrictions, such as modified operating models and hours and enhanced safety and cleaning protocols.

We have also taken actions to facilitate the continued operation of our business, including implementing social distancing measures, offering virtual consignment appointments to augment our concierge service, providing curbside pick-up for both our consignors and buyers, and enabling employees to work remotely to the extent possible.

In addition to these operational challenges, the COVID-19 pandemic also threatens the health of our employees, consignors and buyers.

Our business is critically dependent on our employees who staff our facilities and stores.

It is unclear whether further or new limitations will be imposed in the near future due to the current resurgence of the COVID-19 virus and any new variants.

The nature, scope and duration of the effects of the COVID-19 pandemic on our operations is highly uncertain and could have a material adverse effect on our business and operating results.

The COVID-19 pandemic has impacted, and may continue to impact, our business.

The COVID-19 pandemic and related government-mandated measures, such as business closures and vaccine mandates, have created significant market volatility, uncertainty and economic disruption.

The extent to which the COVID-19 pandemic impacts our business, results of operations, financial condition and liquidity will depend on numerous evolving factors, known and unknown, that we cannot predict, including the duration and scope of the pandemic;

government, business and individual actions that have been and continue to be taken in response to the pandemic;

the impact of the pandemic on national and global economic activity;

disruption of the financial and labor markets, including the possibility of a national or global economic recession or depression;

the limitations on operations requiring employees to perform their duties in-person, such as our warehouse operations;

the potential for shipping difficulties, including delayed deliveries to our buyers;

and weakened consumer demand.

Additionally, the increased number of employees who work remotely could introduce additional operational risk, such as an increased vulnerability to cyber-attacks, and harm productivity and collaboration.

Our ability to return to normalized operations and the timing of such a return cannot be predicted at this time.

In addition, the risks and uncertainties described elsewhere in this “Risk Factors” section may be heightened as a result of the impacts of the COVID-19 pandemic.

At this time, we cannot reasonably estimate the full extent of impact of the COVID-19 pandemic on our business, operations and financial results.

Risks Relating to Our Revenue and Operating Results

Risks Relating to Our Business and Industry

We have a history of losses and we may not achieve or maintain profitability in the future.

We experienced net losses of $175.8 million, $236.1 million, and $196.4 million in 2020, 2021 and 2022, respectively, and as of December 31, 2022 we had an accumulated deficit of $951.2 million.

Despite the impacts of the COVID-19 pandemic on our operations, we continue to align our strategy to capitalize on growth opportunities.

If our investments do not prove successful or our market does not develop as we expect, we may continue to experience losses over the long term.

Our key initiatives currently include updating our consignor commission structure, improving efficiency and cutting costs, optimizing product pricing, and capitalizing on potential new revenue streams.

If those initiatives or our investments do not prove successful or our market does not develop as we expect, we may not achieve profitability on the timeline we expect or at all, and may continue to experience losses over the long term.

Any failure to increase our revenue sufficiently to keep pace with our investments and other expenses could prevent us from achieving or maintaining profitability or positive cash flow on a consistent basis.

1 unchanged sentence

We cannot assure you that we will ever achieve or sustain profitability and may continue to incur significant losses going forward.

Our reduction in workforce and the associated real estate reduction plan may not result in anticipated savings, could result in total costs and expenses that are greater than expected and could disrupt our business.

In February 2023, we announced a reduction in workforce by approximately 7% and a reduction in our real estate presence to reduce our operating expenses.

We estimate that we will incur non-recurring charges of approximately $1.7 to $2.2 million in connection with the reduction in workforce, primarily consisting of severance payments, employee benefits contributions and related costs.

The estimates of the charges and expenditures that we expect to incur in connection with the reduction in workforce, and timing thereof, are subject to a number of assumptions, including local law requirements in various jurisdictions, and we may incur costs that are greater than we currently expect in connection with the reduction in workforce.

The Company also expects to incur charges related to its decision to exit and sublease or cease use of certain facilities under its plan to reduce its real estate presence, which charges cannot reasonably be estimated at this time.

See “Part IV, Note 15 – Subsequent Events” for a description of these recent changes.

We may not realize, in full or in part, the anticipated benefits, savings and improvements in our operating structure from these efforts due to unforeseen difficulties, delays or unexpected costs.

If we are unable to realize the expected operational efficiencies and cost savings from these efforts, our operating results and financial condition, and cash flows would be adversely affected.

We also cannot guarantee that we will not have to undertake additional workforce or real estate reductions in the future.

Furthermore, these changes may be disruptive to our operations.

For example, our workforce reductions could yield unanticipated consequences, such as attrition beyond planned staff reductions, the loss of institutional knowledge or expertise, increased difficulties in our day-to-day operations, greater-than-anticipated costs incurred in connection with implementing the workforce reductions and real estate reduction plan and reduced employee morale.

These changes could place substantial demands on our management and employees, which could lead to the diversion of our management’s and employees’ attention from other business priorities.

Our workforce reductions could also harm our ability to attract and retain qualified management and personnel who are critical to our business.

Our business, financial condition and results of operations could be materially and adversely affected by any failure to attract or retain qualified personnel.

In addition, while certain positions have been eliminated in connection workforce reduction, certain functions necessary to our reduced operations remain, and we may be unsuccessful in distributing the duties and obligations of departed employees among our remaining employees or to external service providers, which could result in disruptions to our operations.

We may also discover that the workforce reduction will make it difficult for us to pursue new opportunities and initiatives and require us to hire qualified replacement personnel, which may require us to incur additional and unanticipated costs and expenses.

We may further discover that, despite the implementation of our workforce reduction, we may require additional capital to continue expanding our business, and we may be unable to obtain such capital on acceptable terms, if at all.

In addition, our real estate reduction plan could harm our brand reputation, result in unanticipated charges or disputes, constrain our ability generate new supply, and reduce demand in buyers.

Our failure to successfully accomplish any of the above activities and goals may have a material adverse impact on our business, financial condition, and results of operations.

We may not be able to sustain our revenue growth rate or effectively manage growth or new opportunities.

1 unchanged sentence

Such recent revenue growth should not be considered indicative of our future performance.

Our online marketplace represents a

substantial departure from the traditional resale market for luxury goods.

Our online marketplace represents a substantial departure from the traditional resale market for luxury goods.

While our business grew rapidly prior to the COVID-19 pandemic, the resale market for luxury goods may not continue to develop in a manner that we expect or that otherwise would be favorable to our business.

1 unchanged sentence

You should consider our business and prospects in light of the risks and difficulties we may encounter.

Aside from the negative impact the COVID-19 pandemic has had and may continue to have on our revenues, as we grow our business, our future revenue growth rates may slow due to a number of factors, including the maturation of our business, increased market adoption against which future growth will be measured, increasing competition or our failure to capitalize on growth opportunities.

Aside from the negative impact the COVID-19 pandemic has had and may continue to have

on our revenues, as we grow our business, our future revenue growth rates may slow due to a number of factors, including the maturation of our business, increased market adoption against which future growth will be measured, increasing competition, slowing demand for items on our online marketplace from existing and new customers, changes to our commission structure, take rate or business model, changes in our total product mix, or our failure to capitalize on growth opportunities.

Our rapid growth has placed significant demands on our management and our operational and financial infrastructure.

Continued growth could also strain our ability to maintain reliable service levels for our consignors and buyers, develop and improve our operational, financial and management controls, enhance our reporting systems and procedures and recruit, train and retain highly skilled personnel.

Continued growth could strain our ability to maintain reliable service levels for our consignors and buyers, develop and improve our operational, financial and management controls, enhance our reporting systems and procedures and recruit, train and retain highly skilled personnel.

Failure to effectively manage the growth of our business and operations would negatively affect our reputation and brand, business, financial condition and operating results.

5 unchanged sentences

We have experienced seasonal and quarterly variations in our revenue and operating results.

Our business is seasonal and historically we have realized a disproportionate amount of our revenue and earnings for the year in the fourth quarter due to the holiday season and seasonal promotions.

Our business is seasonal and historically we have realized a disproportionate amount of our revenue and earnings for the year in the fourth quarter as a result of the holiday season and seasonal promotions.

We expect this to continue in the future.

If we experience lower than expected revenue during any fourth quarter, it may have a disproportionately large impact on our operating results and financial condition for that year.

In any given year, our seasonal sales patterns may become more pronounced, may strain our personnel and may cause a shortfall in revenue related to expenses in a given period, which could substantially harm our business, operating results and financial condition.

In anticipation of increased activity during the fourth quarter, we also incur significant additional expenses, including additional marketing and staffing in our sales and customer support operations.

In any given year, our seasonal sales patterns may become more pronounced, strain our personnel or reduce our profit margin in a given period, which could substantially harm our business, operating results and financial condition.

In anticipation of increased activity during the fourth quarter, we also incur significant additional expenses, including additional marketing spend and staffing in our sales and customer support operations.

In addition, we may experience an increase in our shipping costs due to complimentary upgrades, split-shipments and additional long-zone shipments necessary to ensure timely delivery for the holiday season.

2 unchanged sentences

We generally allow buyers to return certain purchases from our website and retail stores under our return policy.

We record a reserve for returns against proceeds we receive from the sale of goods on our online marketplace when we calculate revenue.

We record a reserve for returns against proceeds we receive from the sale of goods on our online marketplace and retail stores when we calculate revenue.

We estimate this reserve based on historical return trends and our current expectations.

2 unchanged sentences

We may require additional capital to support business growth.

We may require additional funds to support our growth and respond to business challenges, including the difficulties we have experienced as a result of the COVID-19 pandemic.

We may require additional funds to support our growth and respond to business challenges.

To support our future growth, we may need to further develop our online marketplace services, grow our retail presence, expand our categories of pre-owned luxury goods, enhance our operating infrastructure, expand the markets in which we operate and potentially acquire complementary businesses and technologies.

2 unchanged sentences

In addition, we may not be able to obtain additional financing on terms favorable to us, if at all.

If we are unable to obtain financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly limited, and our business and prospects could fail or be adversely affected.

If we are unable to obtain financing on terms satisfactory to us when we require it, our ability to support our business growth and to respond to business challenges could be significantly limited, and our business and prospects could fail or be adversely affected.

Public health emergencies or outbreaks of epidemics, pandemics, or contagious diseases such as the COVID-19 pandemic have adversely affected, and could in the future, adversely affect our business and the business of our consignors and buyers.

An epidemic, pandemic or similar serious public health issue, and the measures undertaken by governmental authorities to address it, could significantly disrupt or prevent us from operating our business in the ordinary course for an

extended period, and thereby, and/or along with any associated economic and/or social instability or distress, have a material adverse impact on our results of operations, cash flows and financial condition.

The global economy, our markets and our business have been, and may continue to be, materially and adversely affected by COVID-19.

Though availability of vaccines and reopening of state and local economies has improved the outlook for recovery from COVID-19's impacts, and recently, there has been a return to more normal societal interactions, the impact of new, more contagious or lethal variants that emerge, and the effectiveness of COVID-19 vaccines against variants and the related responses by governments, including reinstated government-imposed lockdowns or other measures, cannot be predicted at this time.

The extent to which an epidemic, pandemic or similar serious public health issue could impact our business, results of operations, financial condition and liquidity will depend on numerous evolving factors, known and unknown, that we cannot predict, including the duration and scope of the epidemic, pandemic or similar public health issue;

government, business and individual actions that have been and continue to be taken in response;

the impact of the public health issue on national and global economic activity;

disruption of the financial and labor markets, including the possibility of a national or global economic recession or depression;

the limitations on operations requiring employees to perform their duties in-person, such as our warehouse operations;

the potential for shipping difficulties, including delayed deliveries to our buyers;

and weakened consumer demand.

In addition, the risks and uncertainties described elsewhere in this “Risk Factors” section may be heightened as a result of the impacts of the COVID-19 pandemic.

At this time, we cannot reasonably estimate the full extent of impact of the COVID-19 pandemic on our business, operations and financial results.

Risks Relating to Our Strategy

We may be unable to execute on our retail growth strategy.

We currently operate a limited number of retail stores, including a number of “neighborhood stores” with smaller square footage.

We believe that retail stores are critical for our growth expansion of our business, raising brand awareness with consignors and buyers and generating new supply.

We also believe that an expansion of our brick-and-mortar presence complements our online marketplace and strengthens the omni-channel consigning and buying experience.

We may, however, have to enter into long-term leases before we know whether our retail strategy or a particular geography will be successful.

We also face a number of challenges in opening new stores, including locating retail space having a cost and geographic profile that will allow us to operate in highly desirable shopping locations, hire in-store talent and expand our retail operations in a cost-effective manner.

Prior to the COVID-19 pandemic, competition for retail locations had been increasing, making it more difficult to locate and secure retail space on acceptable pricing and other terms.

Even if we are able to secure attractive retail locations, the opening of new stores brings operational challenges.

In expanding our locations, we must provide our consignors and buyers with a consistent luxury experience.

We may be unable to execute on our retail strategy.

We currently operate a limited number of retail stores, including a number of Neighborhood Stores with smaller footprints.

We believe that retail stores are effective at raising brand awareness with consignors and buyers and generating new supply.

We also believe that our brick-and-mortar presence complements our online marketplace and strengthens the omni-channel consigning and buying experience.

We recently have and may in the future continue to reassess our retail footprint and adjust our retail strategy in particular geographies.

The opening and closing of retail stores brings operational challenges.

We may have to enter into long-term leases before we know whether our retail strategy or a particular geography will be successful.

We face a number of challenges in opening new stores, including locating retail space having a cost and geographic profile that will allow us to operate in highly desirable shopping locations, hire in-store talent and expand our retail operations in a cost-effective manner.

We also have faced and may in the future face a number of challenges in closing existing stores, which may include significant exit costs, managing lease obligations and employee-related costs, including in connection with our recently announced real estate reduction plan.

Closing existing stores may also limit our ability to attract new members, generate new supply and increase demand.

We must provide our consignors and buyers with a consistent luxury experience across our retail locations.

In the past, our stores have been the target of theft and have also experienced property damage.

1 unchanged sentence

In addition, the offering of unique, single-SKU products creates supply chain, merchandising and pricing challenges, as we must select the right product mix for each individual store while continuing to manage inventory at our authentication centers.

If we are not able to manage or execute on our retail growth strategy, our business, operating results, prospects and reputation may be harmed.

If we are not able to manage or execute on our retail strategy, our business, operating results, prospects and reputation may be harmed.

Expansion of our operations internationally will require significant management attention and resources.

While we have buyers from outside the United States who purchase items from our online marketplace, we have not expanded our physical operations internationally.

While we have members from outside the United States who purchase items from our online marketplace, we have not expanded our physical operations internationally.

If we choose to do so, we would need to adapt to various local cultures, languages, standards, laws and regulations and policies.

7 unchanged sentences

To expand our consignor base, we must appeal to and engage individuals new to consignment, or who have consigned through traditional brick-and-mortar shops but are unfamiliar with our business.

We find new consignors by converting buyers utilizing our online marketplace, shopping in our retail stores, or utilizing our LCOs.

We also reach new consignors through paid advertising, referral programs, organic word-of-mouth and other methods, such as mentions in the press, Internet search engine results and through our brand partnerships.

We recently increased our paid marketing expenses by investing more in television advertising and digital marketing and we expect to increase our spending on these and other paid marketing channels in the future.

We cannot be certain that these efforts will yield more consignors or be cost-effective.

We find new consignors by converting buyers utilizing our online marketplace, shopping in our retail stores, or utilizing our luxury consignment offices.

We also reach new consignors through paid advertising, marketing materials, digital marketing, referral programs, organic word-of-mouth and other methods, such as mentions in the press, Internet search engine results and through our brand partnerships.

We cannot be certain that these efforts will yield new consignors or be cost-effective.

Moreover, new consignors may not choose to consign with us a second time or as frequently, or consign as many items or the same value of items, as has historically been the case with existing consignors.

3 unchanged sentences

In addition, a significant number of our new and existing consignors greatly prefer our concierge consultation method for consigning luxury goods, which involves our sales professionals meeting with our consignors in their homes .

Due to the COVID-19 pandemic, we have modified our concierge consultation method for consigning luxury goods to operate on a “no contact” basis.

It is unclear what impact this modified “no contact” concierge consultation method will have on our operations and these new and existing consignors may not be as willing, or willing at all, to utilize our other methods for consignment.

We have also added a buy upfront program in an effort to generate additional supply.

The effectiveness of this program, including its commission structure, is still uncertain.

In November 2022, we updated our take rate structure with the goals of optimizing take rate, limiting consignment of lower value items, and increasing supply of higher value items.

If our updated take rate structure is not successful in increasing the consignment of such items, our brand and reputation could be adversely affected, and we may generate less revenue.

We have a buy upfront program in an effort to generate additional supply.

The effectiveness of this program is still uncertain.

If we fail to attract new consignors or drive repeat consignments in a cost-effective manner, or fail to convert buyers to consignors, our ability to grow our business and our operating results would be adversely affected.

4 unchanged sentences

If we are not successful in attracting and retaining effective sales professionals, the quantity and quality of the luxury goods sold through our online marketplace may be negatively impacted, which would have a material adverse effect on our business and operating results.

Our growth and supply of product offerings depend on our ability to maintain our brand partnerships.

We have established brand partnerships with brands such as, Gucci, Stella McCartney and Burberry, and seek to add additional partnerships in the future.

Our growth and supply of product offerings are enhanced by our ability to maintain our brand partnerships.

We have established brand partnerships with brands such as Stella McCartney, Jimmy Choo, Nanushka, 11Honore and Beckett Collectibles, and seek to add additional brand partnerships in the future.

We believe that these partnerships are important to increasing our supply and growing our business.

1 unchanged sentence

To establish and maintain these partnerships, brands must trust, among other things, our authentication process and that we provide a level of customer service that matches those generally provided by luxury brands, for both consignors and buyers, online and in-store.

If we are unable to provide value to our existing partners or to add new partners, the growth of our business may be harmed.

If we are unable to provide value to our existing partners or add new partners, the growth of our business may be harmed.

Risks Relating to Demand

1 unchanged sentence

To expand our buyer base, we must appeal to and attract buyers who do not typically purchase luxury goods, who have historically purchased only new luxury goods or who used other means to purchase pre-owned luxury goods, such as traditional brick-and-mortar consignment shops, auction houses and the websites of other secondary marketplaces.

We reach new buyers in part through television and digital advertising, other paid marketing, press coverage, referral programs, organic word of mouth, our brand partnerships and other methods of discovery, such as converting consignors to buyers.

We expect to continue investing heavily in these and other marketing channels in the future and cannot be certain that these efforts will yield more buyers or be cost-effective.

Moreover, new buyers may not purchase through our online marketplace as frequently or spend as much with us as historically has been the case with existing buyers.

We reach new buyers in part through television an d digital advertising, other paid marketing, press coverage, referral programs, organic word of mouth, our brand partnerships and other methods of discovery, such as converting consignors to buyers.

We expect to continue investing in these and other marketing channels in the future and cannot be certain that these efforts will yield more buyers or be cost-effective.

M oreover, new buyers may not purchase through our online marketplace as frequently or spend as much with us as historically has been the case with existing buyers.

As a result, the revenue generated from new buyer transactions may not be as high as the revenue generated from transactions with our existing buyers.

1 unchanged sentence

National retailers and brands set their own retail prices and promotional discounts on new luxury goods, which could adversely affect our value proposition to consignors and buyers.

National retailers and brands set pricing for new luxury goods that they sell and from time to time offer sales and promotional pricing, particularly during the holiday season, when we have historically made a substantial portion of our annual sales.

National retailers and brands set pricing for new luxury goods that they sell and from time to time offer sales and promotional pricing, particularly during the fourth quarter holiday season, when we have historically made a substantial portion of our annual sales.

Promotional pricing by these parties may lower the value of products consigned with us and our inventory and, in turn, reduce the value proposition for both our consignors and buyers.

We have in the past experienced a reduction in our GMV and AOV due to fluctuations in the price of new luxury goods sold by retailers and brands, and we could experience similar reductions and fluctuations in the future.

However, the timing and magnitude of such discounting can be difficult to predict and can be brought on by unique factors such as a retailer or brand going out of business and liquidating its inventory, which may happen to a greater extent as a result of the COVID-19 pandemic and weakened consumer demand.

Any of the foregoing risks could adversely affect our business, financial condition and operating results.

3 unchanged sentences

Our business model limits our responsiveness to changing preferences, as the majority of our inventory consists of unique, single-SKU items.

We are also sourcing an increasing amount of goods directly from brands.

While we attempt to source goods that complement our existing inventory, we cannot ensure we will do so successfully.

To the extent we do not accurately predict and successfully respond to the evolving preferences of our consignors and buyers, our ability to grow our business and our operating results would be adversely affected.

We may be unable to replicate our business model for newer categories of consigned luxury goods.

Our women’s category contributes a significant amount to our GMV.

We intend to deepen our penetration in other high-value categories such as men’s, jewelry and watches, and home and art and continue to explore additional categories

of luxury goods.

If these additional categories of pre-owned luxury goods are not accepted by our existing consignors or buyers, or if such categories do not attract new consignors or buyers, our revenues may fall short of expectations, our brand and reputation could be adversely affected and we may incur expenses that are not offset by revenues.

In addition, our business may be adversely affected if we are unable to attract new and repeat consignors that supply the necessary high-quality, appropriately priced and in-demand luxury merchandise in these additional categories, and these categories of goods may also have a different range of margin profiles than the goods currently sold through our online marketplace.

We may be unable to replicate our business model for newer categories of consigned goods or different product mixes of consigned goods .

In November 2022, we updated our take rate structure with the goals of optimizing take rate, limiting consignment of lower value items, and increasing supply of higher value items .

If such higher value items are not attractive to our existing consignors or buyers, or if such items do not attract new consignors or buyers, our revenues may fall short of expectations, our brand and reputation could be adversely affected and we may incur expenses that are not offset by revenues.

Additionally, as we enter into new categories, potential consignors may demand higher commissions than our current categories, which would adversely affect our take rate and operating results.

5 unchanged sentences

Our business and operating results are subject to global economic conditions and their impact on consumer discretionary spending, particularly in the luxury goods market.

Some of the factors that may reduce luxury spending include economic downturns, including economic recession or depression, high levels of unemployment, higher consumer debt levels, reductions in net worth, declines in asset values, including home values, and related market and economic uncertainty.

Many of these factors have occurred, and may occur in the future, as a result of the COVID-19 pandemic.

Such economic uncertainty and the resulting decrease in the rate of new luxury goods purchases in the primary market may have a corresponding impact on luxury resale, which could manifest in a number of ways, including fewer individuals choosing to consign their goods with us, resulting in a decrease of items available in our online marketplace, fewer individuals choosing to buy pre-owned luxury goods, resulting in lower active buyer growth and order volume, and lower Average Order Volume (“AOV”) due to a combination of lower average selling price per item and/or fewer items per average order, any of which could have an adverse effect on our business and operating results.

Some of the factors that may reduce luxury spending include economic downturns, including economic recession or depression, high levels of unemployment, higher consumer debt levels, higher levels of inflation, reductions in net worth, declines in asset values, including home values, and related market and economic uncertainty, including as a result of geopolitical instability.

Many of these factors have occurred, and may occur in the future, as a result of the COVID-19 pandemic and recent macroeconomic uncertainty, rising interest rates, inflationary pressures, credit constraints and geopolitical instability due in part to the conflict between Russia and Ukraine.

Such economic uncertainty and the resulting decrease in the rate of new luxury goods purchases in the primary market may have a corresponding impact on luxury resale, which could manifest in a number of ways, including fewer individuals choosing to consign their goods with us, resulting in a decrease of items available in our online marketplace, fewer individuals choosing to buy pre-owned luxury goods, resulting in lower active buyer growth and order volume, and lower AOV due to a combination of lower average selling price per item and/or fewer items per average order, any of which could have an adverse effect on our business and operating results.

Additionally, adverse economic changes could reduce consumer confidence, and could thereby negatively affect our operating results.

In the event of a prolonged economic downturn or acute recession, significant inflation, or decreased

supply, consumer spending habits could be adversely affected, and we could experience lower than expected revenue.

Any of these developments could harm our business, financial condition and operating results.

Our industry is highly competitive and we may not be able to compete effectively.

2 unchanged sentences

As the market evolves, new competitors may emerge, including traditional retail competitors who expand their offerings to include resale.

Some of our competitors may have greater resources than we do, which may allow them to derive greater revenue and profits from their existing buyer bases, acquire consignors at lower costs or respond more quickly than we can to new or emerging technologies and changes in consumer shopping behavior.

These competitors may also adopt more aggressive pricing policies, which may allow them to build larger consignor or buyer bases or generate revenue from their existing buyer bases more effectively than we do.

Some of our competitors may have greater resources than we do, which may allow them to derive greater revenue and profits from their existing buyer bases, acquire consignors at lower costs, achieve more favorable total product mixes or respond more quickly than we can to new or emerging technologies and changes in consumer shopping behavior or preferences.

These competitors may also adopt more aggressive pricing policies, commission structures or take rates, which may allow them to build larger consignor or buyer bases or generate revenue from their existing buyer bases more effectively than we do.

New competitors may force us to decrease our take rates to remain competitive and negatively impact on our financial performance.

8 unchanged sentences

The sale of any counterfeit goods may damage our reputation as a trusted online marketplace for authenticated, pre-owned luxury goods which may impact our ability to attract and maintain consignors, buyers and brand partners.

Additionally, we have been and may in the future be subject to negative press or public allegations, including on social media, that our

authentication processes are inadequate.

Additionally, we have been and may in the future be subject to negative press or public allegations, including on social media, that our authentication processes are inadequate.

Any material failure or perceived failure in our authentication operations could cause buyers and consignors to lose confidence in our platform and adversely affect our revenue.

7 unchanged sentences

Our advertising activity may fail to efficiently drive growth in consignors and buyers.

Our future growth and profitability depend in large part upon the effectiveness and efficiency of our advertising, promotion, public relations and marketing programs and we are investing heavily in these activities.

Our future growth and profitability depend in large part upon the effectiveness and efficiency of our advertising, promotion, public relations and marketing programs.

We closely monitor the effectiveness of our advertising campaigns and changes in the advertising market, and adjust or re-allocate our advertising spend across channels, customer segments and geographic markets in real-time in an effort to optimize the effectiveness of these activities.

We expect to increase advertising spend in future periods to continue driving our growth.

We may increase advertising spend in future periods to continue driving our profitable growth.

Even if our marketing and advertising expenses result in increased sales, the increase might not offset our related expenditures.

We also face the unique challenge of attracting consignors and buyers to our online marketplace who may be unfamiliar with both our brand and our consignment business model.

If we struggle to attract new consignors and buyers to our luxury resale model, or are unable to maintain our marketing and advertising channels on cost-effective terms or replace or supplement existing marketing and advertising channels with similarly or more effective channels, our marketing and advertising expenses could increase substantially, our consignor and buyer base could be adversely affected, and our business, operating results, financial condition and brand could suffer.

If we struggle to attract new consignors and buyers to our luxury resale model, or are unable

to maintain our marketing and advertising channels on cost-effective terms or replace or supplement existing marketing and advertising channels with similarly or more effective channels, our marketing and advertising expenses could increase substantially, our consignor and buyer base could be adversely affected, and our business, operating results, financial condition and brand could suffer.

We rely on third parties to drive traffic to our website.

13 unchanged sentences

Also, by electing to set goals and publicly disclose our ESG metrics, we may face increased scrutiny related to environmental, social, and governance activities.

Any failure to meet our goals or to act responsibly in the areas in which we report, may negatively affect our

reputation and the value of our brand, including impacting employee engagement and retention, the willingness of our consignors and buyers and our partners and vendors to do business with us, or investors’ willingness to purchase or hold shares of our common stock, any of which could adversely affect our business, financial performance, and growth.

Any failure to meet our goals, change in our ESG priorities or strategies, or perception that we fail to act responsibly in the areas in which we report, may negatively affect our reputation and the value of our brand, including impacting employee engagement and retention, the willingness of our consignors and buyers and our partners and vendors to do business with us, or investors’ willingness to purchase or hold shares of our common stock, any of which could adversely affect our business, financial performance, and growth.

Risks Related to Our Merchandising and Fulfillment

2 unchanged sentences

The operation of our business is complex and requires the coordination of multiple functions that are highly dependent on numerous employees and personnel.

Each luxury item that we offer through our online marketplace is unique and requires multiple touch points, including inspection, evaluation, authentication, photography, pricing, copywriting, application of a unique single-SKU and fulfillment.

Prior to the COVID-19 pandemic, we had rapidly increased our operations employee headcount to support the growth of our business.

Each luxury item that we offer through our online marketplace is unique and requires multiple touch points, including, among others, inspection, evaluation, authentication, photography, pricing, copywriting, application of a unique single-SKU and fulfillment.

The market for employees is increasingly competitive and highly dependent on geographic location.

1 unchanged sentence

We also provide specific training to our employees in each of our business functions in order to provide our consignors and buyers with a consistent luxury experience.

We have recently faced labor shortages exacerbated by the effects of COVID-19, and we may continue to experience such shortages in the future.

Our hiring challenges negatively impacted the time for processing and launching products on our website, and negatively impacted our GMV results, and similar challenges could negatively impact our business in the future.

If we fail to successfully locate, hire, train and retain personnel in the future, our operations would be negatively impacted, which would have an adverse effect on our business, financial condition and operating results.

2 unchanged sentences

Our ability to successfully grow our business depends on the availability and cost of leasing additional authentication centers that meet our criteria for a geographic location with access to a large, qualified talent pool as well as square footage, cost and other factors.

We currently have four authentication centers - one in Arizona and three in New Jersey.

Optimal space is becoming increasingly scarce, and where it is available, the lease terms offered by landlords are increasingly competitive.

We currently have four authentication

centers — one in Arizona and three in New Jersey.

Optimal space may become scarce, and where it is available, the lease terms offered by landlords may become increasingly competitive.

Companies who have more financial resources and negotiating leverage than us may be more attractive tenants and, as a result, may outbid us for the facilities we seek.

1 unchanged sentence

Failure to secure adequate authentication centers could have an adverse effect on our business and operating results.

We may experience damage or destruction to our authentication centers or retail stores in which we store all of the consigned luxury goods we offer through our online marketplace.

We may experience damage or destruction to our authentication centers or retail stores in which we store the majority of the consigned luxury goods we offer through our online marketplace.

We store the majority of the luxury goods we offer through our online marketplace in our authentication centers in Arizona and New Jersey, with a smaller portion of luxury goods offered for sale in our retail stores.

Any large scale damage to or catastrophic loss of goods stored in such authentication centers or retail stores, due to natural disasters, especially as catastrophic weather events become more frequent due to climate change, or man-made causes such as arson or theft would result in liability to our consignors for the expected commission liability for the lost items, reduction in the value of our inventory and a significant disruption to our business.

In addition, while we take measures to avoid damage, conduct inspections of consigned goods and inspect returned products, we cannot control items while they are out of our possession or prevent all damage while in our authentication centers.

For example, we have in the past and may in the future experience contamination, such as mold, bacteria, viruses, insects and other pests, in the goods shipped to us by our consignors, which may cause contamination of the goods stored in our authentication centers or while shipping to buyers.

We may incur additional expenses and our reputation could be harmed if buyers and potential buyers believe that the luxury goods we offer on behalf of our consignors is not of high-quality or may be damaged or contain contaminants.

We may incur additional expenses and our reputation could be harmed if buyers and potential buyers believe that the luxury goods we offer on behalf of our consignors are not of high-quality or may be damaged or contain contaminants.

Additionally, given the nature of the unique consigned luxury goods we offer on our online marketplace, our ability to restore the supply of consigned luxury goods on our online marketplace would take time and would result in a limitation and delay of available supply for buyers which would negatively impact our revenue and operating results.

While we carry insurance for the consigned luxury goods stored in these authentication centers, our liabilities exceed the maximum insurance coverage amount which would materially adversely impact our business and operating results.

Shipping is a critical part of our business and any changes in our shipping arrangements, interruptions in shipping or damage to products in transit could adversely affect our operating results.

While we carry insurance for the consigned luxury goods stored in these authentication centers as well as for business interruption and loss of income, our liabilities and expenses resulting from a catastrophic event could exceed our maximum insurance coverage amounts which could materially adversely impact our business and operating results.

Shipping is a critical part of our business and any changes in our shipping arrangements, costs, interruptions in shipping or damage to products in transit could adversely affect our operating results.

Our business depends on shipping vendors to meet our shipping needs.

If we are not able to maintain acceptable pricing and other terms or if our vendors experience performance problems or other difficulties, including as a result of the COVID-19 pandemic, it could negatively impact our operating results and our consignors’ and buyers’ experience.

partner with additional vendors or switch vendors in response, we may experience a disruption in shipping, which may negatively impact our reputation with consignors and buyers.

If we are not able to maintain acceptable pricing and other terms or if our vendors experience performance problems or other difficulties, including as a result of inflation or rising shipping costs, it could negatively impact our operating results and our consignors’ and buyers’ experience.

If we partner with additional vendors or switch vendors in response to such impact, we may experience a disruption in shipping, which may negatively impact our reputation with consignors and buyers.

We face particular challenges in shipping internationally, including delays in shipments and customer service issues relating to the imposition of duties, which can be substantial for luxury items.

Because of the seasonality of our business, any disruption to delivery services due to adverse weather, especially as climate change increases the frequency of such adverse weather, could result in delays that could adversely affect our reputation or operational results.

In addition, most of the items we sell are valuable and require special handling and delivery.

In addition, most of the items we sell are considered highly valuable and require special handling and delivery.

From time to time, such goods are damaged in transit which can increase return rates, increase our costs and harm our brand.

Returned goods may also be damaged in transit as part of the return process which can significantly impact the price we are able to charge for such goods on our online marketplace.

If our goods are not delivered in a timely fashion or are damaged or lost during the consignment or the delivery process, our consignors or buyers could become dissatisfied and cease using our services, which would adversely affect our business and operating results.

If our goods are not delivered to buyers in a timely fashion or are damaged or lost during the consignment or the delivery process, our consignors or buyers could become dissatisfied and cease using our services, which would adversely affect our business and operating results.

We may be unable to successfully leverage technology to automate and drive efficiencies in our operations.

8 unchanged sentences

The continuing and uninterrupted performance of our online marketplace is critical to our success.

We have experienced, and expect that in the future we will experience, interruptions, delays and outages in service and availability from time to time due to a variety of factors, including infrastructure changes, human or software errors, website hosting disruptions and capacity constraints which could affect the availability of services on our platform and prevent or inhibit the ability of buyers to access our online marketplace or complete purchases on our website and app.

We have experienced, and expect that in the future we will experience, interruptions, delays and outages in service and availability from time to time due to a variety of factors, including infrastructure changes, human or software errors, website hosting disruptions and capacity constraints which could affect the availability of services on our platform and prevent or inhibit the ability of members to access our online marketplace or complete purchases on our website and app.

Volume of traffic and activity on our online marketplace spikes on certain days and during certain periods of the year, such as during a Black Friday promotion and generally during the fourth quarter due to the seasonality of our business, and any interruption would be particularly problematic if it were to occur at such a high volume time.

3 unchanged sentences

Failure of our data security could cause us to incur unexpected expenses or compromise our data assets.

In the ordinary course of our business, we collect, process and store certain personal information (including credit card information) and other data relating to individuals, such as our consignors, buyers and employees.

We also maintain other information, such as our trade secrets and confidential business information, that is sensitive and that we seek to protect.

We rely substantially on commercially available systems, software, tools and monitoring to provide security for our processing, transmission and storage of personal information and other confidential information.

We or our vendors could be the subject of hacking, social engineering, phishing attacks or other attacks, which may allow hackers or other unauthorized parties, including our employees, to gain access to personal information or other data, including payment card data or confidential business information.

We rely substantially on commercially-available systems, software, including third-party open source software, tools and monitoring to provide security for our processing, transmission and storage of personal information and other confidential information.

We or our vendors, including cloud service providers, could be the subject to attacks from computer viruses, break-ins, phishing attacks , social engineering, ransomware attacks, unauthorized use, attempts to overload services with denial-of-service or other attacks, which may allow hackers or other unauthorized parties, including our employees, to gain access to personal information or other data, including payment card data or confidential business information.

Further, the use of open-source software may also present additional security risks because the public availability of such software may make it easier for hackers and other third parties to compromise our platform.

Our members use our web and mobile e-commerce applications to consign and shop with us.

These applications may become subject to account takeovers, denials of service, content scraping, or other attacks, which may result in our members' accounts being compromised.

We and our vendors have faced these attacks previously and regularly must defend against or respond to such incidents.

1 unchanged sentence

The techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not identified until they are launched against a target, and we and our vendors may be unable to anticipate these techniques or to implement adequate preventative measures.

their use of our online marketplace and subject us to litigation, government action, increased transaction fees, remediation costs, regulatory fines or penalties or other additional costs and liabilities that could adversely affect our business, financial condition and operating results.

Any actual or perceived compromise of our systems or data security measures or those of third parties with whom we do business, or any failure to prevent or mitigate the loss of personal or other confidential information and delays in detecting or providing notice of any such compromise or loss could disrupt our operations, damage our reputation, cause some participants to decrease or stop their use of our online marketplace and subject us to litigation, government action, increased transaction fees, remediation costs, regulatory fines or penalties or other additional costs and liabilities that could adversely affect our business, financial condition and operating results.

While we carry insurance related to potential data breaches, the insurance we do carry may not be adequate to cover all possible losses that our business could suffer.

We may incur significant losses from fraud.

We may fail to prevent consignors from consigning stolen goods.

We may fail to prevent consignors from consigning stolen or counterfeit goods.

Government regulators and law enforcement officials may allege that our services violate, or aid and abet violations of certain laws, including laws restricting or prohibiting the transferability and, by extension, the resale, of stolen goods.

1 unchanged sentence

In addition, we have implemented protective measures to detect such products.

If these measures prove inadequate, we may be required to spend substantial resources to take additional protective measures which could negatively impact our operations.

In addition, negative publicity relating to the actual or perceived listing or sale of stolen goods could damage our reputation and make our consignors and buyers reluctant to use our services.

If these measures prove inadequate, we may be required to spend substantial resources to take additional protective measures which could negatively impact our

In addition, negative publicity relating to the actual or perceived listing or sale of stolen or counterfeit goods could damage our reputation and make our consignors and buyers reluctant to use our services.

We have in the past incurred, and may in the future incur, losses from various types of fraudulent transactions, including the use of stolen credit card numbers, claims that a consignment of a good was not authorized and that a buyer did not authorize a purchase.

2 unchanged sentences

Risks Relating to Our Employees

We may be unable to attract and retain key personnel or to effectively manage leadership succession.

We may be unable to attract and retain key personnel or effectively manage leadership succession.

Our success depends in part on our ability to attract and retain key personnel on our executive team.

2 unchanged sentences

The loss of one or more of our key personnel or the inability to promptly identify a suitable successor to a key role could have an adverse effect on our business.

In particular, our Founder and Chief Executive Officer, Julie Wainwright, has unique and valuable experience from creating and leading our company from its inception through today.

If she were to depart or otherwise reduce her focus on The RealReal, our business may be disrupted.

Labor-related matters, including labor disputes, may adversely affect our operations.

2 unchanged sentences

If we were to become subject to work stoppages, we could experience disruption in our operations, including delays in merchandising operations and shipping, and increases in our labor costs which could materially adversely affect our business, financial condition or results of operations.

In addition, increased inflation rates could adversely affect us by increasing costs, including labor and employee benefit costs.

Risks Relating to Our Intellectual Property

17 unchanged sentences

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.

The final outcome of this litigation, including our liability, if any, with respect to Chanel’s claims, is uncertain.

An unfavorable outcome in this or similar litigation could adversely affect our business and could lead to other similar lawsuits.

See “Part II, Item 1 – Legal Proceedings” for a description of the Chanel litigation.

In addition, the Company, its officers and directors and the underwriters of the Company’s initial public offering (“IPO”) have been named as defendants in numerous purported securities class actions in connection with the Company’s IPO (the “Securities Litigation”).

In addition, the Company, its officers and directors and the underwriters of the Company’s initial public offering (“IPO”) were named as defendants in numerous purported securities class actions in connection with the Company’s IPO (the “Securities Litigation”).

See “Part II, Item 1 – Legal Proceedings” for a description of the Securities Litigation.

21 unchanged sentences

For example, California enacted legislation that came into effect January 2020, the California Consumer Privacy Act (the “CCPA”), that requires covered companies to provide new disclosures to California consumers and afford such consumers qualified new privacy rights, such as rights of access, deletion and to opt-out of the sales of their personal information.

The CCPA includes provisions that sunset at the end of 2020, may be amended or replaced, and Attorney General regulations have not yet been finalized.

In 2023, the CCPA was amended by the California Privacy Rights Act (the “CPRA”) to remove the exclusion of employment data from its auspices and add restrictions on non-sale sharing of data.

Additional rule making and clarification activity by the California Attorney General’s office and the new California Privacy Protection Agency is ongoing with final results expected to be released later in 2023.

It remains unclear what, if any, modifications will be made to the CCPA or how it will be interpreted.

The CCPA may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply.

Similarly, the European

Commission adopted a General Data Protection Regulation that became fully effective on May 25, 2018, imposing stringent EU data protection requirements.

Similarly, the European Commission adopted a General Data Protection Regulation that became fully effective on May 25, 2018, imposing stringent EU data protection requirements.

We cannot yet fully determine the impact these or future laws, rules and regulations may have on our business or operations.

1 unchanged sentence

Any failure or perceived failure by us or any third parties with which we do business to comply with these laws, rules and regulations, or with other obligations to which we or such third parties are or may become subject, may result in actions against us by governmental entities, or litigation, and the expenditure of legal and other costs and of substantial time and resources, and fines, penalties or other liabilities.

Further, in view of new or modified federal, state or foreign laws and regulations, industry standards, contractual obligations and other legal obligations, or any changes in their interpretation, we may find it necessary or desirable to change our business activities and practices or to expend significant resources to modify our product or services and otherwise adapt to these changes.

otherwise adapt to these changes.

We may be unable to make such changes and modifications in a commercially reasonable manner or at all, and our ability to develop new products and features could be limited.

17 unchanged sentences

Numerous U.S.

states and municipalities, including the States of California, New York and Florida, have regulations regarding the handling and sale of secondhand goods, and licensing requirements for secondhand dealers.

states and municipalities, including California, New York and Florida, have regulations regarding the handling and sale of secondhand goods, and licensing requirements for secondhand dealers.

Such government regulations could require us to change the way we conduct business, or our buyers to conduct their purchases in ways that increase costs, such as prohibiting or otherwise restricting the sale or shipment of certain items in some locations.

4 unchanged sentences

The application of the income and tax laws is subject to interpretation.

Although we believe our tax methodologies are compliant, a taxing authority’s final determination in the event of a tax audit could materially differ from our past or current methods for determining and complying with our tax obligations, including the calculation of our tax provisions

and accruals, in which case we may be subject to additional tax liabilities, possibly including interest and penalties.

Furthermore, taxing authorities have become more aggressive in their interpretation and enforcement of such laws, rules and regulations over time, as governments are increasingly focused on ways to increase revenues, which may be intensified as a result of the COVID-19 pandemic and resulting economic strain.

This has contributed to an increase in audit activity and stricter enforcement by taxing authorities.

1 unchanged sentence

In addition, many of the underlying laws, rules and regulations imposing taxes and other obligations were established before the growth of the Internet and e-commerce.

federal, state and local taxing authorities are currently reviewing the appropriate treatment of companies engaged in Internet commerce and considering changes to existing tax or other laws that could levy sales, income, consumption, use or other taxes relating to our activities, and/or impose obligations on us to collect such taxes.

obligations on us to collect such taxes.

If such tax or other laws, rules or regulations are amended, or if new unfavorable laws, rules or regulations are enacted, the results could increase our tax payments or other obligations, prospectively or retrospectively, subject us to interest and penalties, decrease the demand for our services if we pass on such costs to our buyers or consignors, result in increased costs to update or expand our technical or administrative infrastructure or effectively limit the scope of our business activities if we decided not to conduct business in particular jurisdictions.

6 unchanged sentences

In addition, the Tax Cuts and Jobs Act imposes certain limitations on the deduction of NOLs generated in tax years that began on or after January 1, 2018, including a limitation on use of NOLs to offset 80% of taxable income and the disallowance of NOL carryback.

Although NOLs generated in tax years before 2018 may still be used to offset future income without limitation, the recent legislation may limit our ability to use our NOLs to offset any future taxable income.

Our results of operations may be adversely affected by changes in generally accepted accounting principles.

Generally accepted accounting principles are subject to interpretation by the Financial Accounting Standards Board (“FASB”), the SEC and various bodies formed to promulgate and interpret appropriate accounting principles.

A change in these principles or interpretations could have a significant effect on our reported results of operations and could affect the reporting of transactions completed before the announcement of a change.

It is difficult to predict the impact of future changes to accounting principles or our accounting policies, any of which could negatively affect our reported results of operations.

Although NOLs generated in tax years before 2018 may still be used to offset future income without limitation, the Tax Cuts and Jobs Act may limit our ability to use our NOLs to offset any future taxable income.

If our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able to accurately report our financial results, prevent fraud or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information.

We recently became a “large accelerated filer” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which requires us to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”).

We are subject to the reporting requirements under the Securities Exchange Act of 1934, as amended (the “Exchange Act”),the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and the rules and regulations of the applicable listing standards of The Nasdaq Stock Market.

Section 404 of the Sarbanes-Oxley Act requires that we maintain effective internal control over financial reporting and disclosure controls and procedures.

In particular, we must perform system and process evaluations, document our controls and perform testing of our key controls over financial reporting to allow management and our independent public accounting firm to report on the effectiveness of our internal control over financial reporting.

If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act or if we encounter difficulties in the timely and accurate reporting of our financial results, or if we or our registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, our investors could lose confidence in our reported financial information, the market price of our stock may decline and we could be subject to lawsuits, sanctions or investigations by regulatory authorities, which would require additional financial and management resources.

In particular, we must perform system and process evaluations, document our controls and perform testing of our key controls over financial reporting to allow for management and our independent public accounting firm to report on the effectiveness of our internal control over financial reporting.

If we are not able to continue to comply with the requirements of Section 404 of the Sarbanes-Oxley Act or if we encounter difficulties in the timely and accurate reporting of our financial results, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, our investors could lose confidence in our reported financial information, the market price of our stock may decline and we could be subject to lawsuits, sanctions or investigations by regulatory authorities, which would require additional financial and management resources.

Risks Relating to Ownership of Our Common Stock

3 unchanged sentences

• actual or anticipated fluctuations in our consignor or buyer base, the level of consignor and buyer engagement, revenue or other operating results;

• adverse economic and market conditions, including declines in consumer discretionary spending, currency fluctuations, inflation and geopolitical instability;

• the research and reports that securities or industry analysts may publish about us, our business, our market or our competitors;

10 unchanged sentences

• developments in new legislation and pending lawsuits or regulatory actions, including interim or final rulings by judicial or regulatory bodies;

• other events or factors, including those resulting from war or incidents of terrorism, or responses to these events or threats to public health, such as the current COVID-19 pandemic.

• other events or factors, including those resulting from war or incidents of terrorism, or responses to these events or threats to public health, such as the current COVID-19 pandemic and the war in Ukraine.

In addition, price and volume fluctuations in the stock markets have affected and may continue to affect many online marketplace and other technology companies’ stock prices.

28 unchanged sentences

Our certificate of incorporation provides that, the Court of Chancery of the State of Delaware is the sole and exclusive forum for any derivative action or proceeding, any action asserting a claim of breach of a fiduciary duty, any action arising pursuant to any provision of the Delaware General Corporation Law (“DGCL”), our certificate of incorporation or our bylaws, any other action that is governed by the internal affairs doctrine or any other action asserting an “internal corporate claim,” as defined in the DGCL.

These exclusive-forum provisions do not apply to claims under the Securities Act or the Exchange Act.

These exclusive-forum provisions do not apply to claims under the Securities Act of 1933 (the "Securities Act") or the Exchange Act.

Any person or entity purchasing or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented to this provision.

7 unchanged sentences

If we are unable to generate such cash flow to service our debt, we may be required to adopt one or more alternatives, such as selling assets, incurring additional debt, restructuring debt or issuing additional equity on terms that may be onerous or highly dilutive.

These alternatives may be insufficient to overcome macroeconomic conditions that may affect us.

The duration and severity of macroeconomic uncertainty, any ensuing economic downturns, including economic recession or depression, could directly impact our ability to implement alternatives to service our debt.

We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

1 unchanged sentence

The conversion of some or all of our outstanding Notes would dilute the ownership interests of existing stockholders to the extent we deliver shares upon conversion of any such Notes.

If the Notes become convertible under the

terms of the indenture, and if holders subsequently elect to convert the Notes, we could be required to deliver to them a significant number of shares of our common stock.

If the Notes become convertible under the terms of the indenture, and if holders subsequently elect to convert the Notes, we could be required to deliver to them a significant number of shares of our common stock.

Any sales or anticipated sales in the public market of the common stock issuable upon conversion could adversely affect prevailing market prices for our common stock.

5 unchanged sentences

The accounting method for the Notes materially affects our reported financial results.

Under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 470-20, Debt with Conversion and Other Options, we have historically accounted for the liability and equity components of the Notes separately because the Notes may be settled entirely or partially in cash upon conversion in a manner that reflects our economic interest cost.

Prior to the adoption of ASU 2020-06, under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 470-20, Debt with Conversion and Other Options, we accounted for the liability and

equity components of the Notes separately because the Notes may be settled entirely or partially in cash upon conversion in a manner that reflects our economic interest cost.

This bifurcation resulted in a debt discount for Notes.

See "Note 2-Summary of Significant Accounting Policies- Convertible Senior Notes." We used the effective interest method to amortize the debt discount to interest expense over the amortization period, which is the expected life of the Notes.

However, ASC 470-20 has been amended for fiscal years beginning after December 15, 2021, such that we will account for the Notes as a single liability measured at their amortized cost beginning January 1, 2022, unless we determine that the conversion feature is a derivative that must be bifurcated from the host contract or that the substantial premium model in ASC 470-20 applies.

As a result of this amendment, we expect a decrease to our accumulated deficit as of January 1, 2022 related to the interest expense from the amortization of the debt discount .

In addition, we calculate diluted earnings per share using the "if converted" method, which assumes that all of the Notes were converted solely into shares of common stock at the beginning of the reporting period, unless the result would be anti-dilutive, which adversely affects our diluted earnings per share.

However, we adopted ASU 2020-06 as of January 1, 2022, under which we now account for the Notes as a single liability measured at their amortized cost.

Upon adoption, we recorded a cumulative effect adjustment of $13.4 million as a reduction to accumulated deficit and a reduction to additional paid in capital of $112.1 million related to amounts attributable to the value of the conversion options that had previously been recorded in equity.

Additionally, we recorded an increase to the Notes balance by an aggregate amount of $98.6 million as a result of the reversal of the separation of the convertible debt between debt and equity.

As a result of the adoption of ASU 2020-06, we also derecognized $27.5 million of deferred tax liabilities and recognized $0.2 million of deferred tax assets, resulting in a $27.7 million increase to the net deferred tax assets and a corresponding increase of $27.7 million in the offsetting valuation allowance.

The adoption of this standard also significantly decreased the amount of non-cash interest expense to be recognized in periods beginning on or after January 1, 2022 as a result of eliminating the discount associated with the equity component.

In addition, following adoption, we are required to calculate diluted earnings per share using the "if converted" method, which assumes that all of the Notes were converted solely into shares of common stock at the beginning of the reporting period, unless the result would be anti-dilutive, which can adversely affect our diluted earnings per share.

Future amendments to the accounting treatment for the Notes, could adversely affect our financial results, the trading price of our common stock and the trading price of the Notes.

8 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 1A. Risk Factors