What changed in this filing

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Item 1A. Risk Factors

2020-08-13 compared with 2020-05-14 · 144 added, 118 removed, 728 unchanged (26% of the section changed)

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a global slowdown and profound economic uncertainty.

In addition, as a resul t of the COVID-19 pandemic, we have req uired all employees who are able to do so to work remotely indefinitely.

It is possible that widespread remote work arrangements may have a negative impact on our operations, the execution of our business plans, the productivity and availability of key pe rsonnel and other employees necessary to conduct our business, and on third-party service providers who perform critical services for us, or otherwise cause operational failures due to changes in our normal business practices necessitated by the outbreak a nd related governmental actions.

If a natural disaster, power outage, connectivity issue, or other event occurred that impacted our employees’ ability to work remotely, it may be difficult or, in certain cases, impossible, for us to continue our business f or a substantial period of time.

The increase in remote working may also result in consumer privacy, data security, and fraud risks, and our understanding of applicable legal and regulatory requirements, as well as the latest guidance from regulatory autho rities in connection with the COVID-19 pandemic, may be subject to legal or regulatory challenge, particularly as regulatory guidance evolves in response to future developments.

The ultimate scope and duration of the COVID-19 pandemic’s impact on the global economy and our industry are difficult to predict.

There can be no assurances that the actions we have already taken or will take in response to the COVID-19 pandemic will prevent or mitigate any associated risks or repercussions.

The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic, its severity, the actions to contain the disease or mitigate its impact, and the duratio n, timing and severity of the impact on customer behavior, including any recession resulting from the pandemic, all of which are unpredictable.

An extended period of economic disruption as a result of the COVID-19 pandemic would have a material negative im pact on our business, financial position, results of operations and growth prospects.

The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic, its severity, the actions to contain the disease or mitigate its impact, and the duration, timing and severity of the impact on customer behavior, including any recession resulting from the pandemic, all of which are unpredictable.

An extended period of economic disruption as a result of the COVID-19 pandemic would have a material negative impact on our business, financial position, results of operations and growth prospects.

The COVID-19 pandemic may also intensify the risks described in the other risk factors disclosed in this report.

Our operating results could be adversely affected by natural disasters, public health crises, political crises or other catastrophic events.

Our operating results could be adversely affected by natural disasters, public health crises, political crises, social unrest or other catastrophic events.

Our principal offices, data centers and our fulfillment center are located in Southern California, an area which has a history of earthquakes, and are thus vulnerable to damage.

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political crises, such as terrorist attacks, war and other political instability;

social unrest;

or other catastrophic events, whether occurring in the United States or internationally, could disrupt our operations in any of our offices and fulfillment center or the operations of one or more of our third-party providers or vendors.

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Prior to the COVID-19 outbreak we were growing rapidly;

however, in response to the pandemic we have reduced costs and operations to a level that are more commensurate with current sales.

however, in response to the pandemic and related unforeseen business conditions, we took several actions in early April 2020 to reduce costs and operations to levels that were more commensurate with then-current sales.

Those actions included furloughs, pay reductions, reductions in capital expenditures and, to a lesser extent, layoffs, among other things.

As net sales improved throughout the second quarter of 2020 in part due to the easing of stay-at-home orders and other state-imposed restrictions on businesses, we began to bring back furloughed employees and return the majority of our corporate employees, except for executives and senior management, to their pre-COVID-19 salaries and wages.

Consumer behavior may be slow to return to pre-COVID-19 patterns and levels, if at all.

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Our ability to return to growth may be complicated by the actions we have taken and their effect on service providers who may seek opportunities with other companies.

To attract top talent, we have had to offer, and expect to continue to offer, competitive compensation and benefits packages before we can validate the productivity of new employees.

We may also need to return employee compensation levels to pre-COIVD-19 levels or increase such compensation to remain competitive in attracting and retaining talented employees.

To attract top talent, we offer, and expect to continue to offer, competitive compensation and benefits packages before we can validate the productivity of new employees.

We may also elect to increase compensation levels to remain competitive in attracting and retaining talented employees.

We may not be able to re-hire or hire new employees quickly enough to meet our needs.

If we fail to effectively manage our hiring needs or successfully integrate new hires, our efficiency, our ability to meet forecasts and our employee morale, productivity and retention could suffer, which may have an adverse effect on our business, financial condition and operating results.

If we fail to effectively manage our hiring needs or successfully

integrate new hires, our efficiency, our ability to meet forecasts and our employee morale, productivity and retention could suffer, which may have an adverse effect on our business, financial condition and operating resul ts.

We are also required to manage numerous relationships with various vendors and other third parties.

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We typically enter into agreements to manufacture and purchase our merchandise in advance of trends, shifts in customer preference and typical selling seasons.

Our failure to anticipate, identify or react appropriately, or in a timely manner to changes in customer preferences, tastes and trends or economic conditions, including near and long-term changes as a result of the COVID-19 pandemic could lead to, among other things, missed opportunities, excess inventory or inventory shortages, markdowns and write-offs, all of which could negatively impact our profitability and have a material adverse effect on our business, financial condition and operating results.

Our failure to anticipate, identify or react appropriately, or in a timely manner to changes in customer preferences, tastes and trends or economic conditions, including near and long-term changes as a result of the COVID-19 pandemic, could lead to, among other things, missed opportunities, excess inventory or inventory shortages, markdowns and write-offs, any of which could negatively impact our profitability and have a material adverse effect on our business, financial condition and operating results.

Failure to respond to changing customer preferences and fashion trends could also negatively impact our brand image with our customers and result in diminished brand loyalty.

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Our business and operating results are subject to global economic conditions and their impact on consumer discretionary spending.

Some of the factors that may negatively influence consumer spending, many of which are becoming increasingly present as a result of the COVID-19 pandemic, include high levels of unemployment, higher consumer debt levels, reductions in net worth, declines in asset values and related market uncertainty, home foreclosures and reductions in home values, fluctuating interest rates and credit availability, fluctuating fuel and other energy costs, fluctuating commodity prices and general uncertainty regarding the overall future political and economic environment.

Some of the factors that may negatively influence consumer spending, many of which are becoming increasingly present as a result of the COVID-19 pandemic and political instability, include high levels of unemployment, higher consumer debt levels, reductions in net worth, declines in asset values and related market uncertainty, home foreclosures and reductions in home values, fluctuating interest rates and credit availability, fluctuating fuel and other energy costs, fluctuating commodity prices and general uncertainty regarding the overall future political and economic environment, and recent large-scale social unrest across much of the United States.

Economic conditions in certain regions may also be affected by natural disasters, such as earthquakes, hurricanes, tropical storms and wildfires.

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fluctuations in product mix between sites and between owned and non-owned brands;

our ability to effectively launch and manage new sites and brands;

our ability to effectively launch and manage new si tes and brands;

fluctuations in the levels or quality of inventory;

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anticipating and quickly responding to changing apparel trends and consumer shopping preferences.

We expect competition to increase as other established and emerging companies enter the markets in which we compete, as customer requirements evolve and a s new products and technologies are introduced.

Many of our current competitors have, and potential competitors may have, longer operating histories, larger fulfillment infrastructures, greater technical capabilities, faster shipping times, lower-cost shipping, larger databases, greater financial, marketing, institutional and other resources and larger customer bases than we do.

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Data from both such sources may include information relating to fraudulent accounts and interactions with our sites or the social media accounts of our influencers (including as a result of the use of bots, or other automated or manual mechanisms to generate false impressions that are delivered through our sites or their accounts).

We have only a limited ability to verify data from our sites or third parties, and perpetrators of fraudulent impressions may change their tactics and may become more sophisticated, which would make it still more difficult to detect such activity.

We have only limited abilities to verify data from our sites or third parties, and perpetrators of fraudulent impressions may change their tactics and may become more sophisticated, which would make it still more difficult to detect such activity.

Our methodologies for tracking metrics may also change over time, which could result in changes to the metrics we report.

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In addition, limitations, changes or errors with respect to how we measure data may affect our understanding of certain details of our business, which could affect our longer-term strategies.

If our performance metrics are not accurate representations of the reach or monetization of our network, if we discover material inaccuracies in our metrics or the data on which such metrics are based, or if we can no longer calculate any of our key performance metrics with a sufficient degree of accuracy and cannot find an adequate replacement for the metric, our business, financial condition and operating results could be adversely affected.

If our performance metrics are not accurate representations of the reach or monetization of our network, if we discover material inaccuracies in our metrics or the data on which such metrics are bas ed, or if we can no longer calculate any of our key performance metrics with a sufficient degree of accuracy and cannot find an adequate replacement for the metric, our business, financial condition and operating results could be adversely affected.

We may be unable to accurately forecast net sales and appropriately plan our expenses in the future.

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acquire new customers and retain existing customers;

offer an assortment of merchandise that is attractive to consumers;

offer an assortment of merchandise that is attractive to consumer s;

develop new features to enhance the consumer experience on our sites;

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We believe that much of the growth in our customer base to date has originated from social media and our influencer-driven marketing strategy.

While COVID-19-related travel restrictions and social distancing measures remain in place we are unable to engage with consumers through activations such as #REVOLVEfestival, #REVOLVEaroundtheworld and other activities that we have used to acquire customers and drive sales.

If our shifts in marketing to address these restrictions and changes in consumer behavior and preferences are not effective, our operating results will be adversely affected.

Over the long term, if we are not able to develop and maintain positive relationships with our large network influencers, our ability to promote and maintain awareness of our sites and brands and leverage social media platforms to drive visits to our sites may be adversely affected.

Use of social media and influencers may materially and adversely affect our re putation or subject us to fines or other penalties.

While COVID-19-related travel

restrictions and social distancing measures remain in place we are unable to engage with consumers through acti vations such as #REVOLVEfestival, #REVOLVEa ro undthew orld and other activities that we have used to acquire customers and drive sales.

If our shifts in marketing to address these restrictions and changes in consumer behavior and preferences are not effectiv e, our operating results will be adversely affected.

Over the long term, if we are not able to develop and maintain positive relationships with our large network influencers, our ability to promote and maintain awareness of our sites and brands and leverag e social media platforms to drive visits to our sites may be adversely affected.

Use of social media and influencers may materially and adversely affect our reputation or subject us to fines or other penalties.

We use third-party social media platforms as, among other things, marketing tools.

For example, we maintain Instagram, Facebook, Pinterest, YouTube and TikTok accounts.

For example, we maintain Instagram, Facebook, Pinterest, YouTube, TikTok and WeChat accounts.

We also maintain relationships with thousands of social media influencers and engage in sponsorship initiatives.

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If we are unable to cost-effectively use social media platforms as marketing tools or if the social media platforms we use change their policies or algorithms, we may not be able to fully optimize such platforms, and our ability to maintain and acquire customers and our financial condition may suffer.

Furthermore, as laws and regulations and public opinion rapidly evolve to govern the use of these platforms and devices, the failure by us, our employees, our network of social media influencers, our sponsors or third parties acting at our direction to abide by applicable laws and regulations in the use of these platforms and devices or otherwise could subject us to regulatory investigations, class action lawsuits, liability, fines or other penalties and have a material adverse effect on our business, financial condition and operating results.

Furthermore, as laws and regulations and public opinion rapidly evolve to govern the use of social media platforms, our ability to use certain platforms as marketing tools may become limited or restricted, which could adversely impact our business and operating results.

For example, on August 6, 2020, President Trump issued two executive orders that will restrict U.S.

businesses’ use of TikTok and WeChat, two Chinese-owned mobile applications.

Effective 45 days after the execution of the orders, U.S.

businesses will be prohibited from carrying out any transaction with ByteDance Ltd., the owner of TikTok, or its subsidiaries, and any transaction that is related to WeChat with Tencent Holding Ltd.

or its subsidiaries.

The failure by us, our employees, our network of social media influencers, our sponsors or third parties acting at our direction to abide by applicable laws and regulations in the use of social media platforms or otherwise could subject us to regulatory investigations, class action lawsuits, liability, fines or other penalties and have a material adverse effect on our business, financial condition and operating results.

In addition, an increase in the use of social media for product promotion and marketing may cause an increase in the burden on us to monitor compliance of such materials, and increase the risk that such materials could contain problematic product or marketing claims in violation of applicable regulations.

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Our success depends on our ability to acquire customers in a cost-effective manner.

In order to expand our customer base, we must appeal to and acquire customers who have historically used other means of commerce in shopping for apparel and may prefer alternatives to our offerings, such as traditional brick-and-mortar retailers and the websites of our competitors.

t he websites of our competitors.

We have made significant investments related to customer acquisition and expect to continue to spend significant amounts to acquire additional customers.

For example, we engage in social media marketing campaigns and maintain relationships with thousands of social media and celebrity influencers.

For example, we engage in social media marketing campaigns and maintai n relationships with thousands of social media and celebrity influencers.

Such campaigns are expensive and may not result in the cost-effective acquisition of customers.

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We cannot assure you that the net sales contribution from new customers we acquire will ultimately exceed the cost of acquiring those customers.

If we fail to deliver a quality shopping experience, or if consumers do not perceive the products we offer to be of high value and quality, we may not be able to acquire new customers.

If we are unable to acquire new customers who purchase products in numbers sufficient to grow our business, we may not be able to generate the scale necessary to drive beneficial network effects with our suppliers, our net sales may decrease, and our business, financial condition and operating results may be materially adversely affected.

As social media and influencer based marketing gains popularity, the market for these channels has become increasingly competitive.

If we fail to deliver a quality shopping experien ce, or if consumers do not perceive the products we offer to be of high value and quality, we may not be able to acquire new customers.

If we are unable to acquire new customers who purchase products in numbers sufficient to grow our business, we may not b e able to generate the scale necessary to drive beneficial network effects with our suppliers, our net sales may decrease, and our business, financial condition and operating results may be materially adversely affected.

As social media and influencer base d marketing gains popularity, the market for these channels has become increasingly competitive.

We believe we have maintained the effectiveness and efficiency of these channels in recent periods;

however, if competition continues to increase, it may impact our operating results.

however, if competition continues to increase, it may impac t our operating results.

We also seek to engage with our customers and build awareness of our brands through sponsoring unique events and experiences such as # REVOLVEfestival, #REVOLVEaroundtheworld, and #REVOLVEawards, as well as short-term pop-up retail experiences.

We anticipate that our marketing initiatives may become increasingly expensive as competition increases, and generating a meaningful return on those initiatives may be difficult.

In addition, several of such events have been, and may in the fu ture be, postponed or cancelled in response to the COVID-19 pandemic.

In addition, several of such events have been, and may in the future be, postponed or cancelled in response to the COVID-19 pandemic.

Furthermore, it is uncertain whether the behavior of our target demographics will change as a result of the pandemic in a manner that makes such events less effective.

If our marketing e fforts are not successful in promoting awareness of our brands and products, driving customer engagement or attracting new customers, or if we are not able to cost-effectively manage our marketing expenses, our operating results will be adversely affected.

If our marketing efforts are not successful in promoting awareness of our brands and products, driving customer engagement or attracting new customers, or if we are not able to cost-effectively manage our marketing expenses, our operating results will be adversely affected.

We obtain a significant amount of traffic via social networking websites or other channels used by our current and prospective customers.

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Demand for products, however, can change significantly between the time inventory is ordered and the date of sale.

Demand may be affected by the COVID-19 pandemic, seasonality, new product launches, rapid changes in product cycles and pricing, product defects, promotions, changes in consumer spending patterns, changes in consumer tastes with respect to our products and other factors, and our consumers may not purchase products in the quantities that we expect.

Seasonality in our business does not follow that of traditional retailers, such as typical concentration of net sales in the holiday quarter.

We believe our results are impacted by a pattern of increased sales leading up to #REVOLVEfestival in April and during May and June, which results in peak sales during the second quarter of each fiscal year.

Demand may be affected by, among other things, the COVID-19 pandemic, seasonality, new product launches,

rapid ch anges in product cycles and pricing, product defects, promotions, changes in consumer spending patterns, changes in consumer tastes with respect to our products and other factors, political instability and social unrest, and our consumers may not purchase products in the quantities that we expect.

Seasonality in our business has not historically followed that of traditional retailers, such as typical concentration of net sales in the holiday quarter.

We believe our historical results have been impacted by a pattern of increased sales leading up to #REVOLVEfestival in April and during May and June, which results in peak sales during the second quarter of each fiscal year.

We have experienced seasonally slower activity during the first quarter.

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It may be difficult to accurately forecast demand and determine appropriate levels of product.

We generally do not have the r ight to return unsold products to our suppliers.

We generally do not have the right to return unsold products to our suppliers.

If we fail to manage our inventory effectively or negotiate favorable credit terms with third-party suppliers, we may be subject to a heightened risk of inventory obsolescence, a decline in inventory values, and significant inventory write-downs or write-offs.

In addition, if we are required to lower sale prices in order to reduce inventory level or to pay higher prices to our suppliers, our profit margins might be negatively affected.

Any failure to manage o wned brand expansion or accurately forecast demand for owned brands could adversely affect growth, margins and inventory levels.

In addition, our ability to meet customer demand may be negatively impacted by disruptions in the supply chain due to a number of factors, including, for example, the COVID-19 pandemic, particularly in China .

In addition, if we are required to lower sale prices in order to reduce inventory levels or to pay higher prices to our suppliers, our profit margins might be negatively affected.

Any failure to manage owned brand expansion or accurately forecast demand for owned brands could adversely affect growth, margins and inventory levels.

In addition, our ability to meet customer demand may be negatively impacted by a shortage in inventory due to reduced inventory purchases or disruptions in the supply chain due to a number of factors, including, for example, the COVID-19 pandemic, particularly in China.

A substantial majority of our owned brand products and a substantial portion of the products we source from third parties are manufactured in China.

The COVID-19 pandemic ha s impacted, and will continue to impact , our supply chain and may delay or prevent the manufacturing or transport of product that is sourced in China.

While we seek to further diversify our supply chain and sourcing, we may not be able to diversify in a co st effective manner, or at all, which may materially and adversely affect our business, financial condition and operating results.

In addition, COVID-19 has impacted the supply chain worldw ide and therefore, diversification of the supply chain and sourcing may not yield the targeted benefits.

The COVID-19 pandemic has impacted, and will continue to impact, our supply chain and may delay or prevent the manufacturing or transport of product that is sourced in China.

While we seek to further diversify our supply chain and sourcing, we may not be able to diversify in a cost effective manner, or at all, which may materially and adversely affect our business, financial condition and operating results.

In addition, COVID-19 has impacted the supply chain worldwide and therefore, diversification of the supply chain and sourcing may not yield the targeted benefits.

Merchandise returns could harm our business.

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Nonetheless, each new product launch involves risks, as well as the possibility of unexpected consequences.

For example, sales of our new products may not be as high as we anticipate, due to lack of acceptance of the products themselves or their price, or limited effectiveness of our marketing strategies.

In addition, our ability to launch new products may be limited by delays or difficulties affecting the ability of our suppliers or manufacturers to timely manufacture, distribute and ship new products.

For example, sales of our new products may not be as high as we anticipate, due to lack of acceptance

of the products themselves or their price, or limited effectiveness of our marketing strategies.

In addition, our ability to launch new products may be limited by delays or difficult ies affecting the ability of our suppliers or manufacturers to timely manufacture, distribute and ship new products.

Sales of new products may also be affected by inventory management.

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Any of these occurrences could delay or impede our ability to achieve our sales objectives, which could have a material adverse effect on our business, financial condition and operating results.

In recent periods, our inventory position has increased at a greater rate than that of net sales, particularly in our REVOLVE segment where we have made significant investments in our owned brand platform and the launch of the superdown.com site, our lower price point offering.

In recent periods, o ur inventory position has increased at a greater rate than that of net sales, particularly in our REVOLVE segment where we have made significant investments in our owned brand platform and the launch of the superdown.com site, our lower price point offerin g.

We believe our efforts to manage inventory levels have impacted the percentage of sales at full price and gross margin in the current period and will likely continue to impact the percentage of sales at full price and gross margin in the near term.

These efforts may also impact the pace of growth in net sales in the near term.

As part of our ongoing business strategy we expect we will need to continue to introduce new products in our traditional product categories of clothing, shoes and acces sories, while also expanding our product launches into adjacent categories in which we may have little to no operating experience.

For example, we launched a lower price point offering in March 2019, which may adversely affect customer lifetime value and o ur operating results.

Thes e efforts may also impact the pace of growth in net sales in the near term.

As part of our ongoing business strategy we expect we will need to continue to introduce new products in our traditional product categories of clothing, shoes and accessories, while also expanding our product launches into adjacent categories in which we may have little to no operating experience.

For example, we launched a lower price point offering in March 2019, which may adversely affect customer lifetime value and our operating results.

The success of product launches in adjacent categories could be hampered by our relative inexperience operating in such categories, the strength of our competitors or any of the other risks referred to above.

Furthermore, any expansio n into new product categories may prove to be an operational and financial constraint which inhibits our ability to successfully accomplish such expansion.

Our inability to introduce successful products in our traditional categories or in adjacent categori es could limit our future growth and have a material adverse effect on our business, financial condition and operating results.

Furthermore, any expansion into new product categories may prove to be an operational and financial constraint which inhibits our ability to successfully accomplish such expansion.

Our inability to introduce successful products in our traditional categories or in adjacent categories could limit our future growth and have a material adverse effect on our business, financial condition and operating results.

There is no assurance that consumers will continue to purchase our products in the future.

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If we do not optimize and operate our fulfillment center successfully and efficiently, it could result in excess or insufficient fulfillment capacity, an increase in costs or impairment charges or harm our business in other ways.

If we do not have sufficient fulfillment capacity or experience a problem fulfilling orders in a timely manner, our customers may experience delays in receiving their purchases, which could harm our reputation and our relationship with our customers.

If we do not have sufficient fulfillment capacity or experience a problem fulfilling orders in a timely manner, our

customers may experience delays in rece iving their purchases, which could harm our reputation and our relationship with our customers.

We have designed and built our own fulfillment center infrastructure, including customizing third-party inventory and package handling software systems, which is tailored to meet the specific needs of our business.

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In September 2018, we entered into a five-year lease for approximately 281,000 square feet of fulfillment and office space.

In the first quarter of 2019, we consol idated substantially all of our fulfillment activities into this centralized facility and have terminated the lease of our prior distribution facility.

In May and in June 2019, we sublet two of our existing fulfillment centers through substantially all of their remaining lease terms.

In October 2019, we sublet the majority of the unoccupied warehouse space portions of our fulfillment centers.

Additionally, by the end of 2019 we had terminated the leases on two of the buildings in our prior distribution faci lity footprint.

In the first quarter of 2019, we consolidated substantially all of our fulfillment activities into this centralized facility and have terminated the lease of our prior distribution facility.

Our remaining fulfillment centers and unoccupied warehouse space were sublet through the majority of their remaining lease terms, which are set to expire at the end of 2020.

Additionally, by the end of 2019 we had terminated the leases on two of the buildings in our prior distribution facility footprint.

We expect that our current capacity will support our near-term growth plans.

Over the long term, we cannot assure you that we will be able to locate suitable facilities on commercially acceptable terms in accordance with our expansion plan s, nor can we assure you that we will be able to recruit qualified managerial and operational personnel to support our expansion plans.

If we are unable to secure new facilities for the expansion of our fulfillment operations or to effectively control expa nsion-related expenses, our business, prospects, financial condition and operating results could be materially and adversely affected.

If we grow faster than we anticipate, we may exceed our fulfillment center capacity sooner than we anticipate, we may exp erience problems fulfilling orders in a timely manner or our customers may experience delays in receiving their purchases, which could harm our reputation and our relationship with our customers, and we would need to increase our capital expenditures more than anticipated.

Over the long term, we cannot assure you that we will be able to locate suitable facilities on commercially acceptable terms in accordance with our expansion plans, nor can we assure you that we will be able to recruit qualified managerial and operational personnel to support our expansion plans.

If we are unable to secure new facilities for the expansion of our fulfillment operations or to effectively control expansion-related expenses, our business, prospects, financial condition and operating results could be materially and adversely affected.

If we grow faster than we anticipate, we may exceed our fulfillment center capacity sooner than we anticipate, we may experience problems fulfilling orders in a timely manner or our customers may experience delays in receiving their purchases, which could harm our reputation and our relationship with our customers, and we would need to increase our capital expenditures more than anticipated.

Many of the expenses and investments with respect to our fulfillment center are fixed, and any expansion of such fulfillment center will require additional investment of capital.

We expect to incur higher capital expenditures in the futur e for our fulfillment center operations.

We expect to incur higher capital expenditures in the future for our fulfillment center operations.

We may incur such expenses or make such investments in advance of expected sales, and such expected sales may not occur.

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any failure to comply could adversely affect our business.

In addition, quality control problems, such as the use of materials and delivery of products that do not meet our quality control standards and specifications or comply with applicable laws or regulations, could harm our business.

In the past, we have experienced negative press and government enforcement actions as a result of our vendors’ failure to comply with certain applicable laws and regulations, and may experience similar negative press as a result of any future non-compliance by our vendors.

We do not regularly inspect these vendors and quality control problems could result in regulatory action, such as restrictions on importation, products of inferior quality or product stock outages or shortages, harming our sales and creating inventory write-downs for unusable products.

In addition, quality control problems, such as the use of materials and del ivery of products that do not meet our quality control standards and specifications or comply with applicable laws or regulations, could harm our business.

In the past, we have experienced negative press and government enforcement actions as a result of ou r vendors’ failure to comply with certain applicable laws and regulations, and may experience similar negative press as a result of any future non-compliance by our vendors.

We do not regularly inspect these vendors and quality control problems could resul t in regulatory action, such as restrictions on importation, products of inferior quality or product stock outages or shortages, harming our sales and creating inventory write-downs for unusable products.

We have also outsourced portions of our distribution process, as well as certain technology-related functions, to third-party service providers.

Specifically, we rely on third parties in a number of foreign countries and territories, we are dependent on third-party vendors for credit card processing, and we use third-party hos ting and networking providers to host our sites.

The failure of one or more of these entities to provide the expected services on a timely basis, or at all, or at the prices we expect, or the costs and disruption incurred in changing these outsourced funct ions to being performed under our management and direct control or that of a third party, may have a material adverse effect on our business, financial condition and results of operations.

We are not party to long-term contracts with some of our distributo rs, and upon expiration of these existing agreements, we may not be able to renegotiate the terms on a commercially reasonable basis, or at all.

The failure of one or more of these entities to provide the expected services on a timely basis, or at all, or at the prices we expect, or the costs and disruption incurred in changing these outsourced functions to being performed under our management and direct control or that of a third party, may have a material adverse effect on our business, financial condition and results of operations.

We are not party to long-term contracts with some of our distributors, and upon expiration of these existing agreements, we may not be able to renegotiate the terms on a commercially reasonable basis, or at all.

Further, our third-party manufacturers, suppliers and distributors may:

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encounter difficulties with proper payment of custom duties or excise taxes;

disclose our confidential information or intellectual property to competitors or third parties;

misuse our confidential information or intellectual property or disclose them to competitors or third parties;

engage in activities or employ practices that may harm our reputation;

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Trade disputes between the United States and China have and may continue to lead to increased tariffs on our goods and restrict the flow of the goods between the United States and China.

The COVID-19 outbreak caused delayed shipments from our manufacturing partners and other third party suppliers, initially in China but over time impacting third parties worldwide.

We are also subject to risks of damage or loss during delivery by our shipping vendors.

If our merchandise is not delivered in a timely fashion or is damaged or lost during the delivery process, our customers could become dissatisfied and cease shopping on our sites, which would adversely affect our business and operating results.

Our failure to adequa tely and effectively staff our fulfillment center, through third parties or with our own employees, could adversely affect our customer experience and operating results.

The COVID-19 outbreak caused delayed shipments from

our manufacturing partners and other third party suppliers, initially in China but over time impacting third parties worldwide.

We are also subject to risks of damage or loss during deliver y by our shipping vendors.

Our failure to adequately and effectively staff our fulfillment center, through third parties or with our own employees, could adversely affect our customer experience and operating results.

We currently receive and distribute merchandise at a single fulfillment center in Los Angeles County, which is not operated by a third party.

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Accordingly, we cannot predict how such regulations or expectations might develop in the future and cannot be certain that our guidelines or current practices would satisfy all parties who are active in monitoring our products or other business practices worldwide.

We have operations in Chin a, which exposes us to risks inherent in doing business there.

We have operations and do business in China, which exposes us to risks inherent in doing business there.

We use multiple third-party suppliers and manufacturers based primarily in China.

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In addition, we and our manufacturers and suppliers may not be able to find a sufficient number of qualified workers due to the intensely competitive and fluid market for skilled labor in China.

Operating in China exposes us to political, legal and economic risks.

In particular, the political, legal and economic climate in China, both nationally and regionally, is fluid and unpredictable.

Our ability to operate in China may be adversely affected by changes in U.S.

and Chinese laws and regulations such as those related to, among other things, taxation, import and export tariffs, custom duties, environmental regulations, land use rights, intellectual property, currency controls, network security, employee benefits, hygiene supervision and other matters.

We also sell our merchandise to customers in China and use Chinese-owned social media platforms such as TikTok and WeChat to market to and transact with customers inside and outside of China.

Operating and doing business in China and using Chinese-owned social media platforms as tools for marketing, messaging and transacting with our customers exposes us to political, legal and economic risks.

In particular, the political, legal and economic climate in China, both nationally and regionally, and China’s relationship with the United States, is fluid and unpredictable.

Our ability to operate and do business in China, and use Chinese-owned social media platforms, may be adversely affected by changes in U.S.

and Chinese laws and regulations such as those related to, among other things, taxation, import and export tariffs, custom duties, social media, environmental regulations, land use rights, intellectual property, currency controls, network security, employee benefits, hygiene supervision and other matters.

In addition, we may not obtain or retain the requisite legal permits to continue to operate in China, and costs or operational limitations may be imposed in connection with obtaining and complying with such permits.

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We do not have long-term employment or non-competition agreements with any of our personnel.

In response to the COVID-19 pandemic we undertook cost reduction measures that included salary reductions, furloughs and, to a lesser extent, layoffs.

Over the long term, such actions may adversely affect our ability to retain and attract employees.

If we are unable to retain, attract and motivate talented employees with the appropriate skills at cost-effective compensation levels, or if changes to our business adversely affect morale or retention, we may not achieve our objectives and our business and operating results could be adversely affected.

In response to the COVID-19 pandemic we undertook cost reduction measures in early April 2020 that included salary reductions, furloughs and, to a lesser extent, layoffs.

However, if we are unable to retain, attract and motivate talented employees with the appropriate skills at cost-effective compensation levels, or if changes to our business adversely affect morale or retention, we may not achieve our objectives and our business and operating results could be adversely affected.

In addition, 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.

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In particular, the job market in Southern California, where our principal offices and fulfillment center as well as the majority of our employees are located, is very competitive.

The COVID-19 pandemic and the related, recently extended shelter-in-place orders in California and throughout the United States, have resulted in unforeseen financial challenges and uncertainties.

We have taken various cost-cutting measures in response, including salary reductions, furloughs and, to a lesser extent, layoffs, which may implicate the federal Worker Adjustment and Retraining Notification Act and the analogue California law.

These laws typically require, among other things, that companies notify affected employees and certain government agencies and elected officials of any mass layoff at least 60 days before the layoff, with associated wage and hour penalties for failure to provide proper notice.

However, under both federal law and, as a result of California Governor Gavin Newsom’s Executive Order N-31-20, California law, employers may, as we have done, avail themselves of exceptions from providing the full 60 days’ notice based on unforeseen business circumstances.

The COVID-19 pandemic has resulted in unforeseen financial challenges and uncertainties for us.

In response, we determined that cost-cutting measures were necessary and prudent to position us to continue to operate in a successful manner.

The various cost-cutting measures included salary reductions, furloughs and, to a lesser extent, layoffs, which may implicate the federal Worker Adjustment and Retraining Notification Act, or the WARN Act, and the analogue California law.

As of the date of this report, many of the furloughs and salary and wage reductions have been reversed and the majority of our corporate employees are currently receiving their pre-COVID wages and salaries.

We believe that these measures were necessary to improve the likelihood of preserving the jobs of our remaining employees.

The WARN Act typically requires, among other things, that companies notify affected employees and certain government agencies and elected officials of any mass layoff at least 60 days before the layoff, with associated wage and hour penalties for failure to provide proper notice.

We provided notice to affected employees and required government agencies and elected officials as soon as practicable.

Developments in labor and employment law and any unionizing efforts by employees could have a material adverse effect on our results of operations.

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For example, among other requirements, California law requires employers to pay employees who are classified as exempt from overtime a minimum salary of at least twice the minimum wage, which is currently $54,080 per year for executive, administrative and professional employees with employers that have 26 or more employees.

Employees in California who are exempt under the computer professional exemption, for example, must now be paid at least $96,968.33.

Minimum salary requirements impact the way we classify certain employees, increases our payment of overtime wages and provision of meal or rest breaks, and increases the overall salaries we are required to pay to currently exempt employees to maintain their exempt status.

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Such regulatory scrutiny or actions over such classification practices also may create different or conflicting obligations from one jurisdiction to another.

Although we are currently not involved in any material legal actions and, to our knowledge, there have been no materials claims of misclassification made against us, the likelihood of misclassification claims in states like California has increased in light of laws such as Assembly Bill 5, and the results of any such litigation or arbitration are inherently unpredictable and legal proceedings related to such claims, individually or in the aggregate, could have a material impact on the Company’s business, financial condition and results of operations.

Although we are currently not involved in any material legal actions and, to our knowledge, there have been no materials claims of misclassification made against us, the likelihood of misclassification claims in states like California has increased in light of laws such as Assembly Bill 5, and the results of any such litigation or arbitration are inherently unpredictable and legal proceedings related to such claims, individually or in the aggregate, could have a material impact on our business, financial condition and results of operations.

Regardless of the outcome, litigation and arbitration of misclassification and wage and hour claims can have an adverse impact on us because of defense and settlement costs individually and in the aggregate, diversion of management resources and other factors, which could have a material adverse effect on our business, financial condition and results of operations.

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In an effort to protect sensitive information, we rely on a variety of security measures, including encryption and authentication technology licensed from third parties.

However, advances in computer capabilities, increasingly sophisticated tools and methods used by hackers and cyber terrorists, new discoveries in the field of cryptography or other developments may result in our failure or inability to adequately protect sensitive information.

Our servers are lo cated in close proximity to one another in Southern California and are vulnerable to power outages, telecommunications failures and catastrophic events.

However, advances in computer capabilities, increasingly sophisticated tools and methods used by hackers and cyber terrorists, new

discoveries in the field of cryptography or other developments may result in our failure or inabi lity to adequately protect sensitive information.

Our servers are located in close proximity to one another in Southern California and are vulnerable to power outages, telecommunications failures and catastrophic events.

Like other online services, they are also vulnerable to computer viruses, unauthorized access, phishing or social engineering attacks, ransomware attacks, denial-of-service attacks and other real or perceived cyberattacks.

Any of these incidents could lead to interruptions or shutdowns of our platform, loss or corruption of data, or unauthorized access to o r disclosure of personal data or other sensitive information.

Any of these incidents could lead to interruptions or shutdowns of our platform, loss or corruption of data, or unauthorized access to or disclosure of personal data or other sensitive information.

Cyberattacks could also result in the theft of our intellectual property.

We have been subject to attempted cyber, phishing or social engineering attacks in the past and may continue to be subje ct to such attacks in the future.

We have been subject to attempted cyber, phishing or social engineering attacks in the past and may continue to be subject to such attacks in the future.

If we gain greater visibility, we may face a higher risk of being targeted by cyberattacks.

Advances in computer capabilities, new technological discoveries or other developments may result in cyberattacks becoming more so phisticated and more difficult to detect.

We and our third-party service providers may not have the resources or technical sophistication to anticipate or prevent all such cyberattacks, and we or they may face difficulties or delays in identifying and resp onding to cyberattacks and data security breaches.

Advances in computer capabilities, new technological discoveries or other developments may result in cyberattacks becoming more sophisticated and more difficult to detect.

Moreover, techniques used to obtain unauthorized access to systems change frequently and may not be known until launched against us or our third-party service providers.

Security breaches can also occur as a result of non-technical issues, including phishing attacks, social engineering, and other intentional or inadvertent actions by our employees, our third-party service providers, or their personnel.

Our third-party service providers also face these risk s.

Our third-party service providers also face these risks.

We incur significant costs in an effort to detect and prevent security breaches and other security-related incidents and we expect our costs will increase as we make improvements to our systems and processes to prevent further breaches and incidents.

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As a result, our practices likely have not complied or may not comply in the future with all such laws, regulations, requirements and obligations.

Any failure, or perceived failure, by us to comply with our privacy policies or with any federal, state or international laws, regulations, industry self-regulatory principles, industry standards or codes of conduct, regulatory guidance, orders to which we may be subject or other legal or contractual obligations relating to privacy, data protection, information security or consumer protection could adversely affect our reputation, brand and business, and may result in claims, proceedings or actions against us by governmental entities or others or other

liabilities or require us to change our operations and/or cease or modify our use of certain d ata sets.

Any such claim, proceeding or action could hurt our reputation, brand and business, force us to incur significant expenses in defense of such proceedings, distract our management, increase our costs of doing business, result in a loss of customer s and suppliers or an inability to process credit card payments and may result in the imposition of monetary penalties.

We may also be contractually required to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any laws, regulations or other legal obligations relating to privacy or consumer protection or any inadvertent or unauthorized use or disclosure of data that we store or handle as part of operating our business.

Additionally, any failure by us to comply w ith the PCI-DSS may violate payment card association operating rules, applicable laws and regulations, and contractual obligations to which we are subject.

Any such failure to comply with the PCI-DSS also may subject us to fines, penalties, damages, and c ivil liability, or the loss of our ability to accept credit and debit card payments, any of which may materially adversely affect our business, financial condition and operating results.

of conduct, regulatory guidance, orders to which we may be subject or other legal or contractual obligations relating to pr ivacy, data protection, information security or consumer protection could adversely affect our reputation, brand and business, and may result in claims, proceedings or actions against us by governmental entities or others or other liabilities or require us to change our operations and/or cease or modify our use of certain data sets.

Any such claim, proceeding or action could hurt our reputation, brand and business, force us to incur significant expenses in defense of such proceedings, distract our managemen t, increase our costs of doing business, result in a loss of customers and suppliers or an inability to process credit card payments and may result in the imposition of monetary penalties.

We may also be contractually required to indemnify and hold harmles s third parties from the costs or consequences of non-compliance with any laws, regulations or other legal obligations relating to privacy or consumer protection or any inadvertent or unauthorized use or disclosure of data that we store or handle as part o f operating our business.

Additionally, any failure by us to comply with the PCI-DSS may violate payment card association operating rules, applicable laws and regulations, and contractual obligations to which we are subject.

Any such failure to comply wit h the PCI-DSS also may subject us to fines, penalties, damages, and civil liability, or the loss of our ability to accept credit and debit card payments, any of which may materially adversely affect our business, financial condition and operating results.

Federal, state and international governmental authorities continue to evaluate the privacy implications inherent in the use of third-party “cookies” and other methods of online tracking for behavioral advertising and other purposes.

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For example, in 2018, California enacted the California Consumer Privacy Act, or CCPA, which, among other things, requires new disclosures to California consumers and affords such consumers new abilities to opt out of certain sales of personal information.

The CCPA was amended on multiple occasions and is the subject of proposed regulations issued by the California Attorney General regarding certain aspects of the CCPA, with those regulations yet to be finalized.

The CCPA was amended on multiple occasions and is the subject of regulations issued by the

California Attorney General regarding certain aspects of the law and its application .

Aspects of the CCPA remain unclear and there is uncertainty regarding its interpretation and enforcement.

The effects of the CCPA potentially are significant, however, and may require us to modify our data processing practices

and policies and to incur substantial costs and expenses in an effort to comply.

As a general matter, compliance with laws, regulations, and any applicable rules or guidance from self-regulatory organizations r elating to privacy, data protection, information security and consumer protection, may result in substantial costs and may necessitate changes to our business practices, which may compromise our growth strategy, adversely affect our ability to acquire cust omers, and otherwise adversely affect our business, financial condition and operating results.

The effects of the CCPA potentially a re significant, however, and may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply.

Moreover, a new privacy law, the California Privacy Rights Act, or CPRA, recently was certi fied by the California Secretary of State to appear on the ballot for the November 3, 2020 election.

If this initiative is approved by California voters, the CPRA would significantly modify the CCPA, potentially resulting in further uncertainty and requiri ng us to incur additional costs and expenses in an effort to comply.

As a general matter, compliance with laws, regulations, and any applicable rules or guidance from self-regulatory organizations relating to privacy, data protection, information security and consumer protection, may result in substantial costs and may necessitate changes to our business practices, which may compromise our growth strategy, adversely affect our ability to acquire customers, and otherwise adversely affect our business, financ ial condition and operating results.

System interruptions that impair customer access to our sites or other performance failures in our technology infrastructure could damage our business, reputation and brand and substantially harm our business and results of operations.

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Accordingly, we redesign and enhance various functions on our sites on a regular basis, and we may experience instability and performance issues as a result of these changes.

Any slowdown or failure of our sites and the underlying technology infrastructure could harm our business, reputation and our ability to acquire, retain and serve our customers, which could materially adversely affect our results of operations and our business interruption insurance may not be sufficient to compensate us for the losses that could occur.

We are increasingly dependent on information technology, and if we are unable to protect against serv ice interruptions, data corruption, cyber-based attacks or network security breaches, our operations could be disrupted.

Any slow down or failure of our sites and the underlying technology infrastructure could harm our business, reputation and our ability to acquire, retain and serve our customers, which could materially adversely affect our results of operations and our business int erruption insurance may not be sufficient to compensate us for the losses that could occur.

We are increasingly dependent on information technology, and if we are unable to protect against service interruptions, data corruption, cyber-based attacks or network security breaches, our operations could be disrupted.

We rely on information technology networks and systems to market and sell our products, to process, transmit and store electronic and financial information, to manage a variety of business processes and activities and to comply with regulatory, legal and tax requirements.

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Additionally, difficulties with implementing new technology systems, delays in our timeline for planned improvements, significant system failures, or our inability to successfully modify our information systems to respond to changes in our business needs may cause disruptions in our business operations and have a material adverse effect on our business, financial condition and results of operations.

Some of our software and syste ms contain open source software, which may pose particular risks to our proprietary applications.

Some of our software and systems contain open source software, which may pose particular risk s to our proprietary applications.

We use open source software in the applications we have developed to operate our business and will use open source software in the future.

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In the event that it is more difficult for our customers to buy products from us on their mobile devices, or if our customers choose not to buy products from us on their mobile devices or to use mobile products that do not offer access to our websites, our customer growth could be harmed and our business, financial condition and operating results may be materially adversely affected.

Government regulation of the Internet and eCommerce is evolving, and unfavorable changes o r failure by us to comply with these regulations could substantially harm our business and results of operations.

Government regulation of the Internet and eCommerce is evolving, and unfavorable changes or failure by us to comply with these regulations could substant ially harm our business and results of operations.

We are subject to general business regulations and laws as well as regulations and laws specifically governing the Internet and eCommerce.

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Since our products are sold internationally, we are also dependent on the laws of a range of countries and territories to protect and enforce our intellectual property rights.

We currently have no registered copyrights, applications for copyright registrations, patents issued or applications pending in the United States or internati onally.

We currently have no registered c opyrights, applications for copyright registrations, patents issued or applications pending in the United States or internationally.

Any registered copyrights or patents that may be issued in the future may not provide us with any competitive advantages or may be challenged by third parties, and future registered copyrights or patent applications may never be granted.

Even if is sued, there can be no assurance that these registered copyrights or patents will adequately protect our intellectual property or survive a legal challenge, as the legal standards relating to the validity, enforceability and scope of protection of registere d copyright, patent and other intellectual property rights are uncertain.

Our limited registered copyright and patent protection may restrict our ability to protect our technologies and processes from competition.

We primarily rely on unregistered copyrigh ts to protect our designs and products and on trade secret laws to protect our technologies and processes, including the algorithms we use throughout our business.

Others may independently develop the same or similar designs, products, technologies and pro cesses, or may improperly acquire and use information about our technologies and processes, which may allow them to provide products or services similar to ours, which could harm our competitive position.

Even if issued, there can be no assurance that these registered copyrights or patents will adequately protect our intellectual property or su rvive a legal challenge, as the legal standards relating to the validity, enforceability and scope of protection of registered copyright, patent and other intellectual property rights are uncertain.

Our limited registered copyright and patent protection ma y restrict our ability to protect our technologies and processes from competition.

We primarily rely on unregistered copyrights to protect our designs and products and on trade secret laws to protect our technologies and processes, including the algorithms we use throughout our business.

Others may independently develop the same or similar designs, products, technologies and processes, or may improperly acquire and use information about our technologies and processes, which may allow them to provide product s or services similar to ours, which could harm our competitive position.

We may be required to spend significant resources to monitor and protect our intellectual property rights, and the efforts we take to protect our proprietary rights may not be sufficient.

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Our failure to adequately prevent fraudulent transactions could damage our reputation, result in litigation or regulatory action and lead to expenses that could substantially impact our operating results.

If our internal cont rol 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 confid ence in our reported financial information and may lead to a decline in our stock price.

If our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able to accurately re port 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 and may lead to a decline in our stock price.

We are subject to the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which require our management to certify financial and other information in our quarterly and annual reports and provide, beginning with our second Annual Report on Form 10-K, an annual management report on the effectiveness of internal controls over financial reporting.

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maintaining morale and culture and retaining and integrating key employees;

maintaining or developing controls, procedures and policies (including effective internal control over financial reporting and disclosure controls and procedures);

identifying assuming liabilities related to the activities of the acquired business before the acquisition, including liabilities for violations of laws and regulations, intellectual property issues, commercial disputes, taxes and other matters.

maintaining or developing controls, procedures and policies (including effective internal control over financia l reporting and disclosure controls and procedures);

identifying and assuming liabilities related to the activities of the acquired business before the acquisition, including liabilities for violations of laws and regulations, intellectual property issues, commercial disputes, taxes and other matters.

Moreover, we may not benefit from our acquisitions as we expect, or in the time frame we expect.

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differing labor regulations where labor laws may be more advantageous to employees as compared to the United States and increased labor costs;

more stringent regulations relating to privacy, data protection, and data security and access t o, or use of, commercial and personal information, particularly in Europe;

more stringent regulations relating to privacy, data protection, and data security and access to, or use of, commercial and personal information, particularly in Europe;

changes in a specific country’s or region’s political or economic conditions;

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Fluctuations in our tax obligations and effective tax rate could adversely affect our business, financial condition and operating results.

The enactment of tax reform legislation, including legislation implementing changes in taxation of international business activities, could materially impact our fina ncial position and results of operations.

The enactment of tax reform legisla tion, including legislation implementing changes in taxation of international business activities, could materially impact our financial position and results of operations.

Legislation or other changes in tax laws could increase our liability and adversely affect our after-tax profitability.

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corporate statutory tax rate, eliminates or limits the deduction of several expenses that were previously deductible, imposes a mandatory deemed repatriation tax on undistributed historic earnings of foreign subsidiaries, requires a minimum tax on earnings generated by foreign subsidiaries and permits a tax-free repatriation of foreign earnings through a dividends received deduction (subject to certain exceptions).

We have completed our evaluation of the overall impact of the 2017 Tax Act on our effective tax rate and balance sheet and reflected the amounts in our financial statements.

The 2017 Tax Act may have significant impacts in future periods.

Although we have completed our evaluation of the overall impact of the 2017 Tax Act on our effective tax rate and balance sheet and reflected the amounts in our financial statements, the 2017 Tax Act may have significant impacts in future periods.

We could be required to collect additional sales taxes or be subject to other tax liabilities that may increase the costs our customers would have to pay for our offering and adversely affect our operating results.

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lawsuits threatened or filed against us;

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

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

imposition of fines or other remedial measures as a result of the underpayment of customs duties;

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We register the offer and sale of all shares of common stock that we may issue under our equity incentive plans and, as a result, the sale of shares to be issued under our equity incentive plans can be freely sold in the public market upon issuance, subject to the restrictions of Rule 144 under the Securities Act in the case of our affiliates.

The dual class structure of our common stock will have the effect of concentrating voting control wit h our executive officers, directors and their affiliates, and it may depress the trading price of our Class A common stock.

The dual class structure of our common stock will have the effect of concentrating voting control with our executive officers, directors and their affiliates, and it may depress the trading price of our Class A common s tock.

Our Class B common stock has ten votes per share and our Class A common stock has one vote per share.

Our stockholders who held shares prior to our initial public offering, all of which hold shares of Class B common stock, collectively own shares representing approximately 97% of the voting power of our outstanding capital stock as of March 31, 2020.

MMMK Development, Inc., an entity controlled by our co-chief executive officers, controls 70% of the voting power of our outstanding capital stock as of March 31, 2020 and therefore is able to control all matters submitted to our stockholders for approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of our company or our assets, even if their stock holdings represent less than 50% of the outstanding shares of our capital stock.

MMMK Development, Inc., an entity controlled by our co-chief executive officers, controls 70% of the voting power of our outstanding capital stock as of June 30, 2020 and therefore is able to control all matters submitted to our stockholders for approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of our company or our assets, even if their stock holdings represent less than 50% of the outstanding shares of our capital stock.

Our co-chief executive officers may have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests.

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Accordingly, these shares are able to be freely sold in the public market upon issuance as permitted by any applicable vesting requirements, and subject to compliance with applicable securities laws.

In addition, the holders of all of our Class B common stock have rights, subject to certain conditions, to require us to file registration statements for the public resale of the shares of Class A common stock issuable upon conversion of their shares of Class B common stock, or to include such shares i n registration statements that we may file.

In addition, the holders of all of our Class B common stock have rights, subject to certain conditions, to require us to file registration statements for the public resale of the s hares of Class A common stock issuable upon conversion of their shares of Class B common stock, or to include such shares in registration statements that we may file.

The requirements of being a public company may strain our resources, result in more litigation and divert management’s attention.

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These exclusive-forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees.

If a court were to find the exclusive-forum provision in our bylaws to be inapplicable or unenforceable in an action, we may incur additional cos ts associated with resolving the dispute in other jurisdictions, which could seriously harm our business.

If a court were to find the exclusive-forum provision in our bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could seriously harm our business.

Unregistered Sales of Equity Securities and Use of Proceeds

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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-Q

Item 1A. Risk Factors