UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


			FORM			10-Q


ý			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~September 30, 2021~~March 31, 2022


¨			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-37745

RealNetworks, Inc.

(Exact name of registrant as specified in its charter)

Washington

91-1628146

(State of incorporation)

(I.R.S. Employer

Identification Number)

1501 First Avenue South, Suite 600

98134

Seattle

Washington

(Address of principal executive offices)

(Zip Code)

(206)

674-2700

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-Accelerated Filer

☒

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ☒

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, Par Value $0.001 per share

RNWK

The NASDAQ Stock Market

Preferred Share Purchase Rights

RNWK

The NASDAQ Stock Market

The number of shares of the registrant’s Common Stock outstanding as of ~~October~~April 29, ~~2021~~2022 was ~~47,130,385.~~47,312,808.

TABLE OF CONTENTS




Part I. Financial Information
Item 1. Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Default Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
Signature
Index to Exhibits

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

REALNETWORKS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	28,990	$	23,940	Cash and cash equivalents	$	21,775	$	27,109

Trade accounts receivable, net of allowances of $282 and $629		10,465		10,229
Trade accounts receivable, net of allowances of $288 and $299						Trade accounts receivable, net of allowances of $288 and $299	8,182		9,556
Deferred costs, current portion	Deferred costs, current portion	70		196		Deferred costs, current portion	28		49
Investments	Investments	2,758		9,965		Investments	—		1,755
Prepaid expenses and other current assets	Prepaid expenses and other current assets	6,155		3,480		Prepaid expenses and other current assets	5,456		3,166

Total current assets	Total current assets	48,438		47,810		Total current assets	35,441		41,635
Equipment, software, and leasehold improvements, at cost:	Equipment, software, and leasehold improvements, at cost:					Equipment, software, and leasehold improvements, at cost:
Equipment and software	Equipment and software	29,634		30,726		Equipment and software	28,246		29,464
Leasehold improvements	Leasehold improvements	2,757		2,776		Leasehold improvements	2,085		2,750
Total equipment, software, and leasehold improvements	Total equipment, software, and leasehold improvements	32,391		33,502		Total equipment, software, and leasehold improvements	30,331		32,214
Less accumulated depreciation and amortization	Less accumulated depreciation and amortization	30,937		31,631		Less accumulated depreciation and amortization	28,958		30,744
Net equipment, software, and leasehold improvements	Net equipment, software, and leasehold improvements	1,454		1,871		Net equipment, software, and leasehold improvements	1,373		1,470
Operating lease assets	Operating lease assets	4,478		7,937		Operating lease assets	4,135		3,992
Restricted cash equivalents	Restricted cash equivalents	1,630		1,630		Restricted cash equivalents	1,630		1,630
Other assets	Other assets	945		4,150		Other assets	2,716		2,878
Deferred costs, non-current portion		—		74

Deferred tax assets, net	Deferred tax assets, net	861		909		Deferred tax assets, net	709		727
Goodwill	Goodwill	17,073		17,375		Goodwill	16,875		16,976

Total assets	Total assets	$	74,879	$	81,756	Total assets	$	62,879	$	69,308

LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY					LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	2,183	$	2,750	Accounts payable	$	2,272	$	2,578
Accrued and other current liabilities	Accrued and other current liabilities	14,214		17,850		Accrued and other current liabilities	12,487		13,286
Deferred revenue, current portion	Deferred revenue, current portion	2,762		2,122		Deferred revenue, current portion	3,437		2,614

Total current liabilities	Total current liabilities	19,159		22,722		Total current liabilities	18,196		18,478
Deferred revenue, non-current portion	Deferred revenue, non-current portion	270		45		Deferred revenue, non-current portion	34		183
Deferred tax liabilities, net	Deferred tax liabilities, net	1,068		1,129		Deferred tax liabilities, net	1,115		1,132
Long-term lease liabilities	Long-term lease liabilities	5,354		6,837		Long-term lease liabilities	2,393		2,300
Long-term debt		—		2,895

Other long-term liabilities	Other long-term liabilities	718		2,241		Other long-term liabilities	22		1,142

Total liabilities	Total liabilities	26,569		35,869		Total liabilities	21,760		23,235
Commitments and contingencies (Note 12)
Commitments and contingencies (Note 10)						Commitments and contingencies (Note 10)
Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
Preferred stock, $0.001 par value:	Preferred stock, $0.001 par value:					Preferred stock, $0.001 par value:
Series A: authorized 200 shares, no shares issued and outstanding	Series A: authorized 200 shares, no shares issued and outstanding	—		—		Series A: authorized 200 shares, no shares issued and outstanding	—		—
Series B: authorized 8,100 shares; issued and outstanding 8,065 shares in 2021 and 2020		8		8
Series B: authorized 8,100 shares; issued and outstanding 8,065 shares in 2022 and 2021						Series B: authorized 8,100 shares; issued and outstanding 8,065 shares in 2022 and 2021	8		8
Undesignated series: authorized 51,700 shares	Undesignated series: authorized 51,700 shares	—		—		Undesignated series: authorized 51,700 shares	—		—
Common stock, $0.001 par value, authorized 250,000 shares; issued and outstanding 47,115 shares in 2021 and 38,424 shares in 2020		47		38
Common stock, $0.001 par value, authorized 250,000 shares; issued and outstanding 47,324 shares in 2022 and 47,257 shares in 2021						Common stock, $0.001 par value, authorized 250,000 shares; issued and outstanding 47,324 shares in 2022 and 47,257 shares in 2021	47		47
Additional paid-in capital	Additional paid-in capital	677,948		655,606		Additional paid-in capital	678,884		678,381
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(61,368)		(60,641)		Accumulated other comprehensive loss	(61,752)		(61,520)
Accumulated deficit	Accumulated deficit	(568,325)		(548,862)		Accumulated deficit	(576,068)		(570,843)
Total shareholders’ equity		48,310		46,149
Noncontrolling interests		—		(262)

Total equity	Total equity	48,310		45,887		Total equity	41,119		46,073
Total liabilities and equity	Total liabilities and equity	$	74,879	$	81,756	Total liabilities and equity	$	62,879	$	69,308

See accompanying notes to unaudited condensed consolidated financial statements.

REALNETWORKS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)


		Quarter Ended September 30,				Nine Months Ended September 30,					Quarter Ended March 31,
		2021		2020		2021		2020			2022		2021
Net revenue	Net revenue	$	14,332	$	16,554	$	44,781	$	50,461	Net revenue	$	13,276	$	15,888
Cost of revenue	Cost of revenue	3,119		4,062		10,370		12,429		Cost of revenue	2,736		3,679
Gross profit	Gross profit	11,213		12,492		34,411		38,032		Gross profit	10,540		12,209
Operating expenses:	Operating expenses:									Operating expenses:
Research and development	Research and development	5,250		5,781		17,818		18,375		Research and development	5,798		6,238
Sales and marketing	Sales and marketing	7,177		5,130		17,573		15,969		Sales and marketing	4,582		5,137
General and administrative	General and administrative	4,228		4,124		13,502		13,263		General and administrative	4,827		4,898
Fair value adjustments to contingent consideration liability	Fair value adjustments to contingent consideration liability	—		—		(1,040)		(200)		Fair value adjustments to contingent consideration liability	—		(1,040)
Restructuring and other charges	Restructuring and other charges	1,017		307		4,906		1,097		Restructuring and other charges	290		3,171
Total operating expenses	Total operating expenses	17,672		15,342		52,759		48,504		Total operating expenses	15,497		18,404
Operating loss	Operating loss	(6,459)		(2,850)		(18,348)		(10,472)		Operating loss	(4,957)		(6,195)
Other income (expenses):	Other income (expenses):									Other income (expenses):
Interest expense	Interest expense	(27)		(7)		(146)		(12)		Interest expense	(22)		(95)
Interest income	Interest income	7		6		27		31		Interest income	7		13
Loss on equity and other investments, net	Loss on equity and other investments, net	(1,229)		(37)		(6,070)		(90)		Loss on equity and other investments, net	(189)		(4,272)
Gain on forgiveness of Paycheck Protection Program loan		—		—		2,897		—
Other income (expense), net		46		(104)		2,066		63

Other income, net										Other income, net	19		104
Total other expenses, net	Total other expenses, net	(1,203)		(142)		(1,226)		(8)		Total other expenses, net	(185)		(4,250)
Loss from continuing operations before income taxes		(7,662)		(2,992)		(19,574)		(10,480)
Loss before income taxes										Loss before income taxes	(5,142)		(10,445)
Income tax expense	Income tax expense	6		316		133		606		Income tax expense	83		109
Net loss from continuing operations		(7,668)		(3,308)		(19,707)		(11,086)
Net loss from discontinued operations, net of tax		—		(1)		—		(2,466)

Net loss	Net loss	(7,668)		(3,309)		(19,707)		(13,552)		Net loss	(5,225)		(10,554)
Net loss attributable to noncontrolling interests of continuing operations		—		(77)		(244)		(196)
Net income (loss) attributable to noncontrolling interests of discontinued operations		—		6		—		(364)
Net loss attributable to noncontrolling interests										Net loss attributable to noncontrolling interests	—		(106)

Net loss attributable to RealNetworks	Net loss attributable to RealNetworks	$	(7,668)	$	(3,238)	$	(19,463)	$	(12,992)	Net loss attributable to RealNetworks	$	(5,225)	$	(10,448)

Net loss from continuing operations attributable to RealNetworks		$	(7,668)	$	(3,231)	$	(19,463)	$	(10,890)
Net loss from discontinued operations attributable to RealNetworks		—		(7)		—		(2,102)
Net loss attributable to RealNetworks		$	(7,668)	$	(3,238)	$	(19,463)	$	(12,992)
Net loss per share attributable to RealNetworks- Basic:
Continuing operations		$	(0.16)	$	(0.08)	$	(0.45)	$	(0.28)
Discontinued operations		—		—		—		(0.06)
Total net loss per share - Basic		$	(0.16)	$	(0.08)	$	(0.45)	$	(0.34)
Net loss per share attributable to RealNetworks- Diluted:
Continuing operations		$	(0.16)	$	(0.08)	$	(0.45)	$	(0.28)
Discontinued operations		—		—		—		(0.06)
Total net loss per share - Diluted		$	(0.16)	$	(0.08)	$	(0.45)	$	(0.34)

Net loss per share attributable to RealNetworks- Basic										Net loss per share attributable to RealNetworks- Basic	$	(0.11)	$	(0.27)

Net loss per share attributable to RealNetworks- Diluted										Net loss per share attributable to RealNetworks- Diluted	$	(0.11)	$	(0.27)

Shares used to compute basic net loss per share	Shares used to compute basic net loss per share	47,055		38,270		43,312		38,247		Shares used to compute basic net loss per share	47,276		38,502
Shares used to compute diluted net loss per share	Shares used to compute diluted net loss per share	47,055		38,270		43,312		38,247		Shares used to compute diluted net loss per share	47,276		38,502

See accompanying notes to unaudited condensed consolidated financial statements.

REALNETWORKS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)


		Quarter Ended September 30,				Nine Months Ended September 30,					Quarter Ended March 31,
		2021		2020		2021		2020			2022		2021
Net loss	Net loss	$	(7,668)	$	(3,309)	$	(19,707)	$	(13,552)	Net loss	$	(5,225)	$	(10,554)
Comprehensive loss:	Comprehensive loss:									Comprehensive loss:
Foreign currency translation adjustments	Foreign currency translation adjustments	(297)		(7)		(727)		(394)		Foreign currency translation adjustments	(232)		(536)
Total other comprehensive loss	Total other comprehensive loss	(297)		(7)		(727)		(394)		Total other comprehensive loss	(232)		(536)
Comprehensive loss including noncontrolling interests	Comprehensive loss including noncontrolling interests	(7,965)		(3,316)		(20,434)		(13,946)		Comprehensive loss including noncontrolling interests	(5,457)		(11,090)
Comprehensive loss attributable to noncontrolling interests	Comprehensive loss attributable to noncontrolling interests	—		(71)		(244)		(560)		Comprehensive loss attributable to noncontrolling interests	—		(106)
Comprehensive loss attributable to RealNetworks	Comprehensive loss attributable to RealNetworks	$	(7,965)	$	(3,245)	$	(20,190)	$	(13,386)	Comprehensive loss attributable to RealNetworks	$	(5,457)	$	(10,984)

See accompanying notes to unaudited condensed consolidated financial statements.

REALNETWORKS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)
Nine Months Ended September 30,
2021 2020
Cash flows from operating activities:
Net loss from continuing operations $ (19,707) $ (11,086)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
Depreciation and amortization 600 697
Stock-based compensation 3,789 1,093
Loss on equity and other investments, net 6,070 90
Foreign currency (gain) loss (62) 25
Fair value adjustments to contingent consideration liability (1,040) (200)
Loss on impairment of operating lease assets 2,461 —
Gain on deconsolidation of subsidiary (1,961) —
Gain on forgiveness of Paycheck Protection Program loan (2,897) —
Net change in certain operating assets and liabilities:
Trade accounts receivable (353) (323)
Prepaid expenses, operating lease and other assets 1,442 3,700
Accounts payable (501) (645)
Accrued, lease and other liabilities 743 (3,384)
Net cash used in operating activities- continuing operations (11,416) (10,033)
Net cash used in operating activities- discontinued operations — (4,086)
Net cash used in operating activities (11,416) (14,119)
Cash flows from investing activities:
Purchases of equipment, software, and leasehold improvements (280) (261)
Deconsolidation of subsidiary (836) —
Net cash used in investing activities- continuing operations (1,116) (261)
Net cash used in investing activities- discontinued operations — (192)
Net cash used in investing activities (1,116) (453)
Cash flows from financing activities:
Proceeds from issuance of common stock (stock options) 534 —
Proceeds from issuance of preferred stock — 10,000
Proceeds from equity offering, net of costs 20,114 —
Tax payments from shares withheld upon vesting of restricted stock (186) (12)
Payment of contingent consideration liability (2,500) —
Proceeds from long-term debt — 2,876
Other financing activities — 2,106
Net cash provided by financing activities- continuing operations 17,962 14,970
Net cash provided by financing activities- discontinued operations — 2,007
Net cash provided by financing activities 17,962 16,977
Effect of exchange rate changes on cash, cash equivalents and restricted cash (380) 32
Net increase in cash, cash equivalents and restricted cash 5,050 2,437
Cash, cash equivalents and restricted cash, beginning of period 25,570 22,179
Cash, cash equivalents and restricted cash end of period 30,620 24,616
Less: Cash, cash equivalents and restricted cash from discontinued operations — 6,741
Cash, cash equivalents and restricted cash from continuing operations, end of period $ 30,620 $ 17,875


	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net loss	$	(5,225)	$	(10,554)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	190		204
Stock-based compensation	695		836

Loss on equity and other investments, net	189		4,272
Foreign currency gain	(3)		(103)
Fair value adjustments to contingent consideration liability	—		(1,040)
Loss on impairment of operating lease assets	—		2,461



Net change in certain operating assets and liabilities:
Trade accounts receivable	1,345		(2,319)
Prepaid expenses, operating lease and other assets	(716)		496
Accounts payable	(297)		727
Accrued, lease and other liabilities	(1,151)		(1,956)


Net cash used in operating activities	(4,973)		(6,976)
Cash flows from investing activities:
Purchases of equipment, software, and leasehold improvements	(101)		(56)






Net cash used in investing activities	(101)		(56)
Cash flows from financing activities:
Proceeds from issuance of common stock (stock options)	—		468


Tax payments from shares withheld upon vesting of restricted stock	(19)		(110)







Net cash provided by (used in) financing activities	(19)		358
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(241)		(251)
Net decrease in cash, cash equivalents and restricted cash	(5,334)		(6,925)
Cash, cash equivalents and restricted cash, beginning of period	28,739		25,570


Cash, cash equivalents and restricted cash, end of period	$	23,405	$	18,645

See accompanying notes to unaudited condensed consolidated financial statements.

REALNETWORKS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands)


		Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Shareholders’ Equity		Noncontrolling Interests		Total Equity			Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Shareholders’ Equity		Noncontrolling Interests		Total Equity
		Shares	Amount		Shares	Amount															Shares	Amount		Shares	Amount

Balances, January 1, 2020		—	$	—	38,227	$	38	$	644,070	$	(61,323)	$	(544,010)	$	38,775	$	(502)	$	38,273
Balances, January 1, 2021																				Balances, January 1, 2021	8,065	$	8	38,424	$	38	$	655,606	$	(60,641)	$	(548,862)	$	46,149	$	(262)	$	45,887
Common stock issued for exercise of stock options and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock	Common stock issued for exercise of stock options and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock	—	—		4	—		—		—		—		—		—		—		Common stock issued for exercise of stock options and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock	—	—		229	—		358		—		—		358		—		358
Stock-based compensation	Stock-based compensation	—	—		—	—		380		—		—		380		—		380		Stock-based compensation	—	—		—	—		836		—		—		836		—		836
Foreign currency translation adjustments	Foreign currency translation adjustments	—	—		—	—		—		(907)		—		(907)		—		(907)		Foreign currency translation adjustments	—	—		—	—		—		(536)		—		(536)		—		(536)
Net loss	Net loss	—	—		—	—		—		—		(4,642)		(4,642)		(47)		(4,689)		Net loss	—	—		—	—		—		—		(10,448)		(10,448)		(106)		(10,554)
Issuance of Preferred B Stock		8,065	8		—	—		9,992		—		—		10,000		—		10,000
Balances, March 31, 2020		8,065	$	8	38,231	$	38	$	654,442	$	(62,230)	$	(548,652)	$	43,606	$	(549)	$	43,057
Common stock issued for exercise of stock options, employee stock purchase plan, and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock		—	—		23	—		(5)		—		—		(5)		—		(5)
Stock-based compensation		—	—		—	—		323		—		—		323		—		323
Foreign currency translation adjustments		—	—		—	—		—		520		—		520		—		520
Net loss		—	—		—	—		—		—		(5,112)		(5,112)		(442)		(5,554)
Balances, June 30, 2020		8,065	8		38,254	38		654,760		(61,710)		(553,764)		39,332		(991)		38,341
Common stock issued for exercise of stock options, employee stock purchase plan, and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock		—	—		21	—		(7)		—		—		(7)		—		(7)
Stock-based compensation		—	—		—	—		390		—		—		390		—		390
Foreign currency translation adjustments					—	—		—		(7)		—		(7)		—		(7)
Net loss					—	—		—		—		(3,238)		(3,238)		(71)		(3,309)
Balances, September 30, 2020		8,065	8		38,275	38		655,143		(61,717)		(557,002)		36,470		(1,062)		35,408
Balances, March 31, 2021																				Balances, March 31, 2021	8,065	$	8	38,653	$	38	$	656,800	$	(61,177)	$	(559,310)	$	36,359	$	(368)	$	35,991

~~See accompanying notes to unaudited condensed consolidated financial statements.~~

~~REALNETWORKS, INC. AND SUBSIDIARIES~~

~~UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY~~

~~(In thousands)~~


		Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Shareholders’ Equity		Noncontrolling Interests		Total Equity			Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Shareholders’ Equity		Noncontrolling Interests		Total Equity
		Shares	Amount		Shares	Amount															Shares	Amount		Shares	Amount

Balances, January 1, 2021		8,065	$	8	38,424	$	38	$	655,606	$	(60,641)	$	(548,862)	$	46,149	$	(262)	$	45,887
Balances, January 1, 2022																				Balances, January 1, 2022	8,065	$	8	47,257	$	47	$	678,381	$	(61,520)	$	(570,843)	$	46,073	$	—	$	46,073
Common stock issued for exercise of stock options and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock	Common stock issued for exercise of stock options and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock	—	—		229	—		358		—		—		358		—		358		Common stock issued for exercise of stock options and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock	—	—		67	—		—		—		—		—		—		—
Stock-based compensation	Stock-based compensation	—	—		—	—		836		—		—		836		—		836		Stock-based compensation	—	—		—	—		503		—		—		503		—		503
Foreign currency translation adjustments	Foreign currency translation adjustments	—	—		—	—		—		(536)		—		(536)		—		(536)		Foreign currency translation adjustments	—	—		—	—		—		(232)		—		(232)		—		(232)
Net loss	Net loss	—	—		—	—		—		—		(10,448)		(10,448)		(106)		(10,554)		Net loss	—	—		—	—		—		—		(5,225)		(5,225)		—		(5,225)
Balances, March 31, 2021		8,065	$	8	38,653	$	38	$	656,800	$	(61,177)	$	(559,310)	$	36,359	$	(368)	$	35,991
Common stock issued for exercise of stock options, and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock		—	—		95	1		58		—		—		59		—		59
Issuance of common stock from equity offering, net of costs		—	—		8,250	8		20,106		—		—		20,114		—		20,114
Stock-based compensation		—	—		—	—		435		—		—		435		—		435
Foreign currency translation adjustments		—	—		—	—		—		106		—		106		—		106
Deconsolidation of subsidiary		—	—		—	—		99		—		—		99		506		605
Net loss		—	—		—	—		—		—		(1,347)		(1,347)		(138)		(1,485)
Balances, June 30, 2021		8,065	8		46,998	47		677,498		$	(61,071)	(560,657)		55,825		—		55,825
Common stock issued for exercise of stock options, and vesting of restricted shares, net of tax payments from shares withheld upon vesting of restricted stock		—	—		117	—		(68)		—		—		(68)		—		(68)
Stock-based compensation		—	—		—	—		518		—		—		518		—		518
Foreign currency translation adjustments					—	—		—		(297)		—		(297)		—		(297)
Net loss					—	—		—		—		(7,668)		(7,668)		—		(7,668)
Balances, September 30, 2021		8,065	$	8	47,115	$	47	$	677,948	$	(61,368)	$	(568,325)	$	48,310	$	—	$	48,310

Balances, March 31, 2022																				Balances, March 31, 2022	8,065	$	8	47,324	$	47	$	678,884	$	(61,752)	$	(576,068)	$	41,119	$	—	$	41,119

See accompanying notes to unaudited condensed consolidated financial statements.

REALNETWORKS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Quarters Ended March 31, 2022 and ~~Nine Months Ended September 30,~~ 2021 ~~and 2020~~


Note 1.			Description of Business and Summary of Significant Accounting Policies

Description of Business.RealNetworks provides digital media software and services to consumers, mobile carriers, device manufacturers, system integrators, and other businesses. Consumers use our digital media products and services to store, organize, play, manage and enjoy their digital media content, either directly from us or through our distribution partners. ~~Over time, we~~We have ~~leveraged our technical expertise and access to proprietary data sources to develop~~recently developed a new generation of artificial intelligence (AI)-based products and solutions. The main two products and key investment initiatives in our AI portfolio are SAFR, our AI-based computer vision platform, and ~~Kontxt,~~KONTXT, our natural language processing-based message classification and analysis ~~product.~~platform.

Rhapsody International, Inc. (doing business as Napster) was held-for-sale and treated as discontinued operations for accounting and disclosure purposes as of the third quarter of 2020. The sale of Napster was completed during the fourth quarter of 2020. The results of operations and cash flows for our discontinued operations have been segregated from the results of continuing operations and segment results, and Napster’s operating results were recast to conform to this presentation in 2020. The notes to the condensed consolidated financial statements, unless otherwise indicated, are on a continuing operations basis. See Note 5. Dispositions for additional details regarding the sale of Napster.

On June 30, 2021, RealNetworks, Inc. deconsolidated Scener Inc., previously a consolidated subsidiary of RealNetworks. As of June 30, 2021, RealNetworks no longer has a controlling interest and will account for its remaining interest in Scener using the equity method of accounting. As a result of the deconsolidation of Scener, the Company recognized a gain of $2.0 million in Other income (expense), net on the condensed consolidated statement of operations in the second quarter of 2021.

Inherent in our business are various risks and uncertainties, including a limited history of certain of our product and service offerings. RealNetworks' success will depend on the acceptance of our technology, products and services and the ability to generate related revenue and cash flow.

In this Quarterly Report on Form 10-Q (10-Q or Report), RealNetworks, Inc., together with its subsidiaries, is referred to as "RealNetworks," the "Company," "we," "us," or "our." "RealPlayer," "RMHD," "RealMedia," "GameHouse," ~~"Kontxt,~~"KONTXT," "SAFR" and other trademarks of ours appearing in this report are our property.

Basis of Presentation.The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries in which it has a more than 50% voting interest. Noncontrolling interests ~~primarily represented~~represent third-party ownership in the equity of ~~Napster and~~ Scener Inc. ("Scener"), which was deconsolidated on June 30, 2021, and are reflected separately in the Company's financial statements. See Note 12. Related Party Transactions for additional details. Intercompany balances and transactions have been eliminated in consolidation.

The unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal, recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the results of operations for the periods presented. Operating results for the quarter ~~and nine months~~ ended ~~September 30, 2021~~March 31, 2022 are not necessarily indicative of the results that may be expected for any subsequent period or for the year ending December 31, ~~2021.~~2022. Certain information and disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).

Liquidity and Capital Resources. The Company continues to incur operating losses, ~~from continuing operations,~~ including net operating losses of ~~$6.5~~$5.0 million and ~~$18.3~~$6.2 million for the ~~quarter~~quarters ended March 31, 2022, and ~~nine months ended September 30,~~ 2021, respectively. The Company had an accumulated deficit of ~~$568.3~~$576.1 million and ~~$548.9~~$570.8 million as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. The Company believes that its cash and cash equivalents of ~~$29.0~~$21.8 million as of ~~September 30, 2021, as well as the unused capacity of its revolving line of credit are~~March 31, 2022, is adequate to fund the Company's operations for at least one year from the date these financial statements were issued.

Risks and Uncertainties. In March 2020, the World Health Organization declared the outbreak of the coronavirus that causes COVID-19 to be a global pandemic. As the virus spread throughout the U.S. and the world, authorities implemented numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, business limitations, and shutdowns. In addition to the pandemic's widespread impact on public health and global society, reactions to the pandemic as well as measures taken to contain the virus have caused significant turmoil to the global economy and financial markets. Moreover, similar to other companies, we have taken steps to support the health and well-being of our employees, customers, partners and communities, which include working remotely and learning to operate our businesses in a fundamentally different way.

The COVID-19 pandemic, including the emergence of variants such as the delta ~~variant,~~and omicron variants, and the resultant economic instability and financial market turmoil has added complexity, uncertainty and risk to nearly all aspects of our business. It is difficult to predict the near-term and long-term impacts that the pandemic will have on our results from operations, financial condition, liquidity and cash flows. In the preparation of our financial statements, certain estimates and assumptions regarding these impacts have been made, which could change in future periods and which could differ from actual outcomes.

Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 (the 10-K).


Note 2.			Recent Accounting Pronouncements

Recently issued accounting pronouncements not yet adopted

In August 2020, the Financial Accounting Standards Board ("FASB") issued new guidance that simplifies the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. The guidance enhances transparency and improves disclosures for convertible instruments and earnings per share guidance. It is effective for annual reporting periods beginning after December 15, 2023, with early adoption permitted. This update permits the use of either the modified retrospective or fully retrospective method of transition. We are in the process of evaluating the effect that this new guidance will have on our consolidated financial statements and related disclosures.

In January 2017, the FASB issued new guidance simplifying the test for goodwill impairment. The new guidance eliminates Step 2 from the goodwill impairment test, instead requiring an entity to recognize a goodwill impairment charge for the amount by which the reporting unit's carrying amount exceeds the reporting unit's fair value. This guidance is effective for interim and annual goodwill impairment tests in fiscal years beginning after December 15, 2022, with early adoption permitted. We do not currently expect the adoption to have a material impact on our consolidated financial statements and related disclosures.

In June 2016, the FASB issued new guidance amending existing guidance for the accounting of credit losses on financial instruments. Under the new guidance, the valuation allowance for credit losses is expected to be incurred over the financial asset’s contractual term. We reviewed the new credit loss standard and determined that it applies to our accounts receivable, which are typically of short duration and for which we have not historically experienced significant credit losses. This guidance is effective for us in fiscal years beginning after December 15, 2022 with any cumulative effect of adoption recorded as an adjustment to retained earnings. We are in the process of evaluating the effect that this new guidance will have on our consolidated financial statements and related disclosures.

109


Note 3.			Revenue Recognition

We generate all of our revenue through contracts with customers. Revenue is either recognized over time as the service is provided, or at a point in time when the product is transferred to the customer, depending on the contract type. Our performance obligations typically have an original duration of one year or less.

Disaggregation of Revenue

The following table presents our disaggregated revenue by source and segment (in thousands):
Quarter Ended September 30, 2021 Nine Months Ended September 30, 2021
Consumer Media Mobile Services Games Consumer Media Mobile Services Games
Business Line
Software License $ 1,506 0 $ 1,459 0 $ — $ 4,222 0 $ 4,781 0 $ —
Subscription Services 779 0 4,313 0 2,361 2,390 0 13,327 0 7,320
Product Sales 270 0 — 0 2,612 1,038 0 — 0 8,605
Advertising and Other 208 0 — 0 824 483 0 — 0 2,615
Total $ 2,763 $ 5,772 $ 5,797 $ 8,133 $ 18,108 $ 18,540
Quarter Ended September 30, 2020 Nine Months Ended September 30, 2020
Consumer Media Mobile Services Games Consumer Media Mobile Services Games
Business Line
Software License $ 642 0 $ 931 0 $ — $ 4,364 0 $ 2,734 0 $ —
Subscription Services 892 0 5,469 0 2,705 2,719 0 16,817 0 8,205
Product Sales 193 0 — 0 3,874 676 0 — 0 10,564
Advertising and Other 816 0 — 0 1,032 1,438 0 — 0 2,944
Total $ 2,543 $ 6,400 $ 7,611 $ 9,197 $ 19,551 $ 21,713


	Quarter Ended March 31, 2022
	Consumer Media			Mobile Services			Games
Business Line
Software License	$	987	0	$	1,531	0	$	—
Subscription Services	742		0	4,109		0	2,219
Product Sales	163		0	—		0	2,377
Advertising and Other	219		0	—		0	929
Total	$	2,111		$	5,640		$	5,525

	Quarter Ended March 31, 2021
	Consumer Media			Mobile Services			Games
Business Line
Software License	$	1,875	0	$	1,391	0	$	—
Subscription Services	818		0	4,589		0	2,528
Product Sales	438		0	—		0	3,163
Advertising and Other	178		0	—		0	908
Total	$	3,309		$	5,980		$	6,599

The following table presents our disaggregated revenue by sales channel (in thousands):


		Quarter Ended September 30, 2021						Nine Months Ended September 30, 2021							Quarter Ended March 31, 2022
		Consumer Media		Mobile Services		Games		Consumer Media		Mobile Services		Games			Consumer Media		Mobile Services		Games
Sales Channel	Sales Channel													Sales Channel
Business to Business	Business to Business	$	1,714	$	5,689	$	947	$	4,705	$	17,845	$	2,985	Business to Business	$	1,206	$	5,571	$	1,103
Direct to Consumer	Direct to Consumer	1,049		83		4,850		3,428		263		15,555		Direct to Consumer	905		69		4,422
Total	Total	$	2,763	$	5,772	$	5,797	$	8,133	$	18,108	$	18,540	Total	$	2,111	$	5,640	$	5,525

		Quarter Ended September 30, 2020						Nine Months Ended September 30, 2020							Quarter Ended March 31, 2021
		Consumer Media		Mobile Services		Games		Consumer Media		Mobile Services		Games			Consumer Media		Mobile Services		Games
Sales Channel	Sales Channel													Sales Channel
Business to Business	Business to Business	$	1,457	$	6,304	$	1,191	$	5,800	$	19,250	$	3,483	Business to Business	$	2,053	$	5,885	$	1,061
Direct to Consumer	Direct to Consumer	1,086		96		6,420		3,397		301		18,230		Direct to Consumer	1,256		95		5,538
Total	Total	$	2,543	$	6,400	$	7,611	$	9,197	$	19,551	$	21,713	Total	$	3,309	$	5,980	$	6,599

Contract Balances

The timing of revenue recognition may differ from the timing of invoicing to our customers. We record accounts receivable when the right to consideration becomes unconditional, except for the passage of time. For certain contracts, payment schedules may exceed one year; for those contracts we recognize a long-term receivable. As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, our balance of long-term accounts receivable was ~~$0.4~~$0.3 million and ~~$0.6~~$0.2 million, respectively, and is included in other long-term assets on our condensed consolidated balance sheets. The ~~decrease~~increase in this balance from December 31, ~~2020~~2021 to ~~September 30, 2021~~March 31, 2022 is primarily due to the timing of expected cash receipts. During the quarter ~~and nine months~~ ended ~~September 30, 2021,~~March 31, 2022, we recorded no impairments to our contract assets.

1110

We record deferred revenue when cash payments are received in advance of our completion of the underlying performance obligation. As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, we had a deferred revenue balance of ~~$3.0~~$3.5 million and ~~$2.2~~$2.8 million, respectively, primarily due to deferred revenue associated with monthly subscriptions.

Judgments and Estimates

Our contracts with customers can include obligations to provide multiple services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together can require significant judgment. For example, certain contracts include the sale of software licenses or subscriptions as well as services to be delivered over time. Judgment is also required to determine the standalone selling price ("SSP") for each distinct performance obligation in these arrangements. We allocate revenue to each performance obligation based on the relative SSP. We determine SSP for performance obligations based on overall pricing objectives, which take into consideration observable prices and market conditions.

For certain of our contracts, we recognize revenues using the sales- and usage-based exception as defined in the licensing guidance of Topic 606. For these contracts, we typically receive reporting of actual usage a quarter in arrears, and as such, we are required to estimate the current quarter's usage. To make these estimates, we utilize historical reporting information, as well as industry trends and interim reporting to quantify total quarterly usage. As actual usage information is received, we record a true-up in the following quarter to reflect any variance from our estimate. In the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ we did not record any material true-ups to our consolidated financial statements.

Practical Expedients

For those contracts for which we recognize revenue at the amount to which we have the right to invoice for service performed, we do not disclose the value of any unsatisfied performance obligations. We also do not disclose the remaining unsatisfied performance obligations which have an original duration of one year or less. Additionally, we immediately expense sales commissions when incurred as the amortization period would have been less than one year. These costs are recorded within sales and marketing expense.


Note 4.			Stock-Based Compensation

Total stock-based compensation expense recognized in our unaudited condensed consolidated statements of operations and comprehensive loss includes amounts related to stock options and restricted stock and was as follows (in thousands):
Quarter Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Total stock-based compensation expense $ 2,518 $ 390 $ 3,789 $ 1,093


	Quarter Ended March 31,
	2022		2021
Total stock-based compensation expense	$	695	$	836

The fair value of RealNetworks options granted determined using the Black-Scholes model used the following weighted-average assumptions:


		Quarter Ended September 30,				Nine Months Ended September 30,					Quarter Ended March 31,
		2021		2020		2021		2020			2022		2021
Expected dividend yield	Expected dividend yield	0	%	0	%	0	%	0	%	Expected dividend yield	0	%	0	%
Risk-free interest rate	Risk-free interest rate	0.58	%	0.21	%	0.56	%	0.40	%	Risk-free interest rate	1.73	%	0.48	%
Expected life (years)	Expected life (years)	3.9		4.0		3.9		4.0		Expected life (years)	4.0		3.9
Volatility	Volatility	71	%	45	%	71	%	45	%	Volatility	85	%	71	%

The total stock-based compensation amounts for ~~2021~~2022 and ~~2020~~2021 disclosed above are recorded in their respective line items within operating expenses in the unaudited condensed consolidated statements of operations and comprehensive loss. Included in the expense for the three ~~and nine~~ months ended September 30, 2021 was $2.0 million of stock-based compensation, resulting from certain equity award modifications that will be cash settled. At September 30, 2021, $1.3 million of this liability was recorded in other current liabilities and $0.7 million was recorded in other long-term liabilities within our unaudited condensed consolidated balance sheets. Also included in the expense for the nine months ended September 30,March 31, 2021 was stock compensation recorded for 2020 incentive bonuses paid in fully vested restricted stock units, which were authorized and granted during the first quarter of 2021.

As of ~~September 30, 2021,~~March 31, 2022, there was ~~$2.4~~$1.6 million of total unrecognized compensation cost, net of estimated forfeitures, related to stock awards. The unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately three years.

1211


~~Note 5.~~			~~Dispositions~~

RealNetworks, Inc. entered into a Support Agreement dated August 25, 2020 by and among its 84%-owned subsidiary, Rhapsody International, Inc. (doing business as Napster), and MelodyVR Group PLC, an English public limited company. The Support Agreement was executed in connection with an Agreement and Plan of Merger by and among Napster, MelodyVR, and a wholly owned subsidiary of MelodyVR. The transaction was completed on December 30, 2020. Pursuant to the Merger Agreement, on the closing date, MelodyVR's subsidiary merged with and into Napster, with Napster surviving and becoming a wholly owned subsidiary of MelodyVR. Other than as Securityholder Representative, RealNetworks is not a party to the Merger Agreement.

MelodyVR paid consideration of approximately $26 million to certain holders of debt and equity of Napster, comprised of $12 million in cash, shares of MelodyVR, and a $3 million 18-month indemnity escrow. Of the cash consideration, approximately $5.3 million was used to fully repay the advance to Napster on the revolving line of credit, pay Napster's transaction expenses, and pay amounts to certain of Napster's common stockholders. Additionally, $2.5 million of the cash proceeds and 47.8 million MelodyVR shares were used by RealNetworks to settle a contingent consideration obligation associated with our January 2019 acquisition from a third party of both a 42% stake in Napster and a $5 million loan to Napster. Net of these items, RealNetworks retained approximately $4.2 million in cash and 173.3 million shares of MelodyVR, as well as the right to any funds released from the $3 million escrow account. The shares of MelodyVR that RealNetworks received may not be sold or transferred, except in limited circumstances, for a period of approximately one year from the close of the transaction.

~~In March 2021, MelodyVR changed its name to Napster Group PLC (the "Napster Group") and the stock symbol was changed from MVR to NAPS.~~

Effective on the execution of the Agreement and Plan of Merger on August 25, 2020, Napster was treated as discontinued operations and held-for-sale for accounting and disclosure purposes and subsequently sold in December 2020. As such, Napster’s operating results were recast to conform to this presentation.

~~The following table summarizes the loss from discontinued operations (in thousands):~~
Quarter Ended September 30, 2020 Nine Months Ended September 30, 2020
Revenue $ 23,563 $ 73,225
Cost of revenue 17,438 56,280
Gross profit 6,125 16,945
Operating expenses 5,828 19,013
Operating income (loss) 297 (2,068)
Other expense (261) (299)
Income (loss) from discontinued operations before income taxes 36 (2,367)
Income tax expense 37 99
Net loss from discontinued operations (1) (2,466)
Noncontrolling interests in net income (loss) from discontinued operations 6 (364)
Net loss from discontinued operations attributable to RealNetworks $ (7) $ (2,102)

The 18-month indemnity escrow, which is included in Other current assets on the condensed consolidated balance sheet, was $2.8 million at September 30, 2021. We are not aware of any additional claims against the escrow at September 30, 2021.


Note 6.5.			Fair Value Measurements

Items Measured at Fair Value on a Recurring Basis

The following tables present information about our financial assets that have been measured at fair value on a recurring basis as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, and indicates the fair value hierarchy of the valuation inputs utilized to determine fair value (in thousands):


		Fair Value Measurements as of								Amortized Cost as of			Fair Value Measurements as of								Amortized Cost as of
		September 30, 2021								September 30, 2021			March 31, 2022								March 31, 2022
		Level 1		Level 2		Level 3		Total					Level 1		Level 2		Level 3		Total
Assets:	Assets:											Assets:
Cash and cash equivalents	Cash and cash equivalents	$	28,990	$	—	$	—	$	28,990	$	28,990	Cash and cash equivalents	$	21,775	$	—	$	—	$	21,775	$	21,775
Investments		—		—		2,758		2,758		N/A

Restricted cash equivalents	Restricted cash equivalents	1,630		—		—		1,630		1,630		Restricted cash equivalents	1,630		—		—		1,630		1,630
Total assets	Total assets	$	30,620	$	—	$	2,758	$	33,378	N/A		Total assets	$	23,405	$	—	$	—	$	23,405	$	23,405

Fair Value Measurements as of Amortized Cost as of
December 31, 2020 December 31, 2020
Level 1 Level 2 Level 3 Total
Assets:
Cash and cash equivalents $ 23,940 $ — $ — $ 23,940 $ 23,940
Investments — — 9,965 9,965 N/A
Restricted cash equivalents 1,630 — — 1,630 1,630
Total assets $ 25,570 $ — $ 9,965 $ 35,535 N/A
Liabilities:
Accrued and other current liabilities
Napster acquisition contingent consideration $ — $ — $ 4,800 $ 4,800 N/A
Other long-term liabilities
Simple Agreements for Future Equity — — 2,106 2,106 N/A
Total liabilities $ — $ — $ 6,906 $ 6,906 N/A


	Fair Value Measurements as of								Amortized Cost as of
	December 31, 2021								December 31, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	27,109	$	—	$	—	$	27,109	$	27,109
Investments	—		—		1,755		1,755		N/A
Restricted cash equivalents	1,630		—		—		1,630		1,630
Total assets	$	28,739	$	—	$	1,755	$	30,494	N/A

Restricted cash equivalents as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 primarily relate to maintaining a minimum balance of unrestricted cash at the bank. See Note 8.7. Debt for additional details.

Investments as of ~~September 30, 2021 and~~ December 31, ~~2020 are~~2021 were comprised of Napster Group ordinary shares received as a portion of the consideration from the Napster disposition, which closed on December 30, 2020. The fair value of these equity securities was calculated using the closing price of the shares as of ~~September 30, 2021 and~~ December 31, ~~2020 and discounted for~~2021. In the first quarter of 2022 these shares were acquired by a ~~lack of liquidity due to the 12-month contractual restriction on selling or transferring the shares, subject to certain exceptions.~~third party. The determination of the discount required the use of significant unobservable inputs, such as the lock-up period combined with an estimated equity volatility for the shares, that reflect our own estimates of assumptions that market participants would use. A 10% increase or decrease to the equity volatility rate would result in an insignificant decrease or increase, respectively, in the fair value ofat December 31, 2021 approximates the ~~stock. For the three~~consideration to be received and nine months ended September 30, 2021, we recognized unrealized losses of $1.2 million and $5.9 million, respectively, in Loss on equity and other investments, net on the condensed consolidated statements of operations.

~~During the second quarter of 2021, the Company settled the contingent consideration liability. Accrued~~is now recorded as a receivable within Prepaid expenses and other current ~~liabilities~~assets on our condensed consolidated balance sheet as of ~~December~~March 31, 2020 included the estimated fair value of the contingent consideration for the Napster acquisition, which was determined using a fair value measurement categorized within Level 3 of the fair value hierarchy. The valuation methodology of the contingent consideration at December 31, 2020 was based on RealNetworks' contractual obligation to pay the seller of the Napster interests acquired by RealNetworks in January 2019.

On June 30, 2021, the Company deconsolidated Scener, removing the SAFE Notes from RealNetworks, Inc. consolidated balance sheet. See Note 1. Description of Business and Summary of Significant Accounting Policies for additional information regarding the deconsolidation of Scener.

In the third quarter of 2020, Scener received $2.1 million in cash in exchange for the issuance of convertible securities, each a Simple Agreement for Future Equity. The conversion of these securities, or SAFE Notes, is contingent upon the occurrence of specific future capital-raising events by Scener. The future contingent events also contemplate the possibility of Scener having to pay back the original cash investment to each investor. The SAFE Notes were recorded at fair value and as an other, long-term liability on our consolidated financial statements until June 30, 2021, the date of Scener's deconsolidation from

RealNetworks, as further discussed in Note 1. Description of Business and Summary of Significant Accounting Policies. The valuation analysis model for the fair value of the SAFE Notes as of December 31, 2020 used significant unobservable inputs that reflected our own estimates of assumptions that market participants would use. Significant unobservable inputs to the valuation analysis model included the underlying conversion date for the SAFE Notes, Scener's capitalization prior to conversion of the SAFE Notes, an 80% discount rate as defined in the SAFE Note agreements, conversion price, conversion shares and an annual present value rate. All of the inputs were subject to significant judgment.2022.

Items Measured at Fair Value on a Non-recurring Basis

Certain of our assets and liabilities are measured at estimated fair value on a non-recurring basis, using Level 3 inputs. These instruments are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). ~~During~~Other than those discussed in Note 8. Restructuring and Other Charges, during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ we did not record any impairments on those assets required to be measured at fair value on a non-recurring basis.


Note 7.6.			Accrued and other current liabilities

Accrued and other current liabilities (in thousands):


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Royalties and other fulfillment costs	Royalties and other fulfillment costs	$	1,191	$	1,149	Royalties and other fulfillment costs	$	735	$	1,189
Employee compensation, commissions and benefits	Employee compensation, commissions and benefits	6,328		4,512		Employee compensation, commissions and benefits	5,451		5,761
Sales, VAT and other taxes payable	Sales, VAT and other taxes payable	1,146		1,231		Sales, VAT and other taxes payable	899		1,056
Operating lease liabilities	Operating lease liabilities	3,428		3,373		Operating lease liabilities	1,994		2,113
Napster acquisition contingent consideration		—		4,800

Other	Other	2,121		2,785		Other	3,408		3,167
Total accrued and other current liabilities	Total accrued and other current liabilities	$	14,214	$	17,850	Total accrued and other current liabilities	$	12,487	$	13,286


Note 8.7.			Debt

The Coronavirus Aid, Relief and Economic Security (CARES) Act, signed into law in March 2020, established the Paycheck Protection Program (PPP) to provide a direct incentive for small businesses to keep workers on their payroll. Through the PPP, participating banks write loans to eligible businesses and loan amounts are forgiven to the extent that employee retention criteria are met and proceeds are used to cover eligible costs over a 24-week measurement period following loan funding. In April 2020, following an assessment of eligibility and approval of its Board of Directors, RealNetworks issued a promissory note to a participating bank in the principal amount of $2.9 million pursuant to the PPP. The note had a maturity of 2 years, an interest rate of 1.0%, no pre-payment penalty, a ten-month deferment period starting after the 24-week measurement period, and was eligible for forgiveness pursuant to PPP guidelines. In April 2020, the Secretary of the Treasury and Small Business Administration (SBA) announced that the government will review all PPP loans of more than $2.0 million before there is forgiveness. We applied for forgiveness in January 2021. On June 19,February 2021, the Company received notice from our participating bank that our request for forgiveness was approved and our PPP loan principal and interest are deemed paid in full. Upon the forgiveness of our obligations of the PPP promissory note, we ~~recognized a gain of $2.9 million in Other income (expense), net on the condensed consolidated statement of operations in the second quarter of 2021.~~

~~In August 2019, RealNetworks and Napster~~ entered into aan amendment to our existing Loan and Security Agreement (Loan Agreement) with a third-party financial institution. Under the terms of the amended Loan Agreement, the bank extended a revolving line of credit (Revolver) not to exceed $10.0 million in the aggregate. In December 2020, at the time of closing the sale of Napster, as further described in Note 5. Dispositions, certain terms of the Loan Agreement were amended, including the removal of Napster as a party to the lending agreement.

~~In February 2021, we entered into an amendment with the bank on our Revolver,~~ whereby the borrowing base ~~for the Revolver~~ is comprised of accounts receivable and direct to consumer ~~deposits for RealNetworks only.~~deposits. Borrowings may

not exceed $6.5 million and are reduced by a ~~$1.0~~$0.4 million standby letter of credit entered into with the bank in connection with certain lease agreements. Advances bear interest at a rate equal to one-half of one percentage point (0.5%) above the greater of the prime rate or 3.25%. The Revolver matures August 1, 2022. The Loan Agreement contains customary covenants, including financial covenants, minimum EBITDA levels to be updated annually, and maintaining a minimum balance of $1.5 million unrestricted cash at the bank.

We paid and capitalized $0.6 million of financing fees to enter into the Revolver in August 2019, and the financing fees are being amortized over the term of the credit agreement. The unamortized fees were ~~$0.1 million~~insignificant at ~~September 30, 2021~~March 31, 2022 and are included in Deferred costs, current on our condensed consolidated balance sheets.


Note 9.			~~Shareholders' Equity~~

In April 2021, we completed an underwritten public offering of 8,250,000 shares of common stock at a price to the public of $2.70 per share. The aggregate gross proceeds from the offering were $22.3 million. Of these proceeds, we received approximately $20.1 million, after deducting underwriting discounts, commissions, and legal and other fees. The proceeds are expected to be used for general corporate purposes and working capital.


~~Note 10.~~8.			Restructuring and Other Charges

Restructuring and other charges in ~~2021~~2022 and ~~2020~~2021 consist of costs associated with the ongoing reorganization of our business operations and expense re-alignment efforts, which primarily relate to lease impairment and severance costs due to workforce reductions.

Restructuring charges are as follows (in thousands):
Employee Separation and Other Costs Asset Related and Other Costs Total
Costs incurred and charged to expense for the nine months ended September 30, 2021 $ 1,992 $ 2,914 $ 4,906
Costs incurred and charged to expense for the nine months ended September 30, 2020 $ 965 $ 132 $ 1,097


	Employee Separation Costs		Asset Related and Other Costs		Total
Costs incurred and charged to expense for the three months ended March 31, 2022	$	217	$	73	$	290
Costs incurred and charged to expense for the three months ended March 31, 2021	$	581	$	2,590	$	3,171

During the ~~nine months~~quarter ended ~~September 30,~~March 31, 2021, we recorded $2.5 million of lease impairment charges for an office space

previously vacated.

Changes to the accrued restructuring liability (which is included in Accrued and other current liabilities) for ~~2021~~2022 are as follows (in thousands):

~~Employee Separation and Other Costs~~

~~Accrued liability at December 31, 2020~~

~~346~~

~~Costs incurred and charged to expense for the nine months ended September 30, 2021, excluding noncash charges~~

~~1,772~~

~~Cash payments~~

~~(1,065)~~

~~Accrued liability at September 30, 2021~~

~~1,053~~


	Employee Separation Costs		Asset Related and Other Costs		Total
Accrued liability at December 31, 2021	$	316	$	1,475	$	1,791
Costs incurred and charged to expense for the three months ended March 31, 2022, excluding noncash charges	217		—		217
Cash payments	(147)		(436)		(583)
Accrued liability at March 31, 2022	$	386	$	1,039	$	1,425

1613


Note ~~11.~~9.			Loss Per Share

Basic net income (loss) per share (EPS) is computed by dividing net income (loss) attributable to RealNetworks by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income (loss) attributable to RealNetworks by the weighted average number of common and dilutive potential common shares outstanding during the period. Basic and diluted EPS (in thousands, except per share amounts):
Quarter Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Net loss from continuing operations attributable to RealNetworks $ (7,668) $ (3,231) $ (19,463) $ (10,890)
Net loss from discontinued operations attributable to RealNetworks — (7) — (2,102)
Net loss attributable to RealNetworks $ (7,668) $ (3,238) $ (19,463) $ (12,992)
Weighted average common shares outstanding used to compute basic EPS 47,055 38,270 43,312 38,247
Dilutive effect of stock based awards and Series B Preferred Stock — — — —
Weighted average common shares outstanding used to compute diluted EPS 47,055 38,270 43,312 38,247
Net loss per share attributable to RealNetworks- Basic:
Continuing operations $ (0.16) $ (0.08) $ (0.45) $ (0.28)
Discontinued operations — — — (0.06)
Total net loss per share - Basic $ (0.16) $ (0.08) $ (0.45) $ (0.34)
Net loss per share attributable to RealNetworks- Diluted:
Continuing operations $ (0.16) $ (0.08) $ (0.45) $ (0.28)
Discontinued operations — — — (0.06)
Total net loss per share - Diluted $ (0.16) $ (0.08) $ (0.45) $ (0.34)


	Quarter Ended March 31,
	2022		2021


Net loss attributable to RealNetworks	$	(5,225)	$	(10,448)

Weighted average common shares outstanding used to compute basic EPS	47,276		38,502
Dilutive effect of stock based awards and Series B Preferred Stock	—		—
Weighted average common shares outstanding used to compute diluted EPS	47,276		38,502

Net loss per share attributable to RealNetworks- Basic	$	(0.11)	$	(0.27)



Net loss per share attributable to RealNetworks- Diluted	$	(0.11)	$	(0.27)

During the ~~quarter~~quarters ended March 31, 2022 and ~~nine months ended September 30,~~ 2021, ~~4.9~~8.3 million and 4.2 million shares of common stock, respectively, of potentially issuable shares from common stock awards were excluded from the calculation of diluted EPS because of their antidilutive effect. During the quarter and nine months ended September 30, 2020, 6.7 million and 6.94.5 million shares of common stock, respectively, of potentially issuable shares from common stock awards were excluded from the calculation of diluted EPS because of their antidilutive effect.

During ~~2020, approximately~~the quarters ended March 31, 2022 and 2021, the 8.1 million shares of Series B Preferred Stock outstanding were issued. The Series B Preferred Stock is convertible into common stock on a one-to-one basis subject to the limitation described in Note 14. Related Party Transactions. During the quarters and nine months ended September 30, 2021 and 2020, these shares were also excluded from the calculation of diluted EPS because of their antidilutive effect.


Note ~~12.~~10.			Commitments and Contingencies

We have been in the past and could become in the future subject to legal proceedings, governmental investigations, and claims in the ordinary course of business, including employment claims, contract-related claims, and claims of alleged infringement of third-party patents, trademarks, and other intellectual property rights. Such claims, even if not meritorious, could force us to expend significant financial and managerial resources. In addition, given the broad distribution of some of our consumer products, any individual claim related to those products could give rise to liabilities that may be material to us. In the event of a determination adverse to us, we may incur substantial monetary liability, and/or be required to change our business practices. Either of these could have a material adverse effect on our consolidated financial statements.

On April 6, 2020, RealNetworks Asia Pacific Co., Ltd. received notice of a civil lawsuit filed by Korean Music Copyright Association (KOMCA) in Seoul Central District Court seeking damages of $2.6 million. Also named as a defendant in the lawsuit is Kakao M Corp (formerly known as LOEN Entertainment Corp.), one of the largest media publishing companies in Korea, which operates the Melon music platform. The claim is for a late payment penalty under a music licensing contract, pursuant to which, from 2004 to 2017, RealNetworks licensed music for its services to LOEN for its Melon platform. The current lawsuit relates solely to the late payment of music licensing fees under the contract; the underlying music licensing fees were paid by Kakao M to KOMCA in a separate settlement prior to KOMCA’s filing of this lawsuit. While we believe we have meritorious defenses to this lawsuit and ~~intend to~~are vigorously ~~defend RealNetworks,~~defending against it, litigation is inherently uncertain and we cannot currently predict the ultimate outcome of this matter. We have ~~not~~ recorded ~~an accrual~~a liability related to this matter as of ~~September 30, 2021 as~~March 31, 2022, at the low end of the range of outcomes, for an immaterial amount. Because of the uncertainty of this matter, it is ~~early~~reasonably possible that the estimated amount of the liability recorded will change in the ~~litigation and any potential liability cannot be reasonably estimated.~~

near term.


Note ~~13.~~11.			Segment Information

We manage our business and report revenue and operating income (loss) in 3 segments: (1) Consumer Media, which includes licensing of our codec technology and our PC-based RealPlayer products, including RealPlayer Plus and related products; (2) Mobile Services, which includes our SaaS services, our integrated RealTimes® platform which is sold to mobile carriers and our computer vision platform, SAFR (Secure Accurate Facial Recognition); and (3) Games, which includes all our games-related businesses, including sales of in-game virtual goods, mobile games and games licenses, games subscription services, and in-game advertising and advertising on game sites.

RealNetworks allocates to its Consumer Media, Mobile Services and Games reportable segments certain corporate expenses, which are directly attributable to supporting these businesses, including but not limited to a portion of finance, legal, human resources and headquarters facilities. Remaining expenses, which are not directly attributable to supporting these

businesses, are reported as corporate items. These corporate items may also include changes in the fair value of the contingent consideration liability, restructuring charges, and stock compensation charges.

RealNetworks reports the 3 reportable segments based on factors such as how we manage our operations and how the Chief Operating Decision Maker (CODM) reviews results. The CODM reviews financial information presented on both a consolidated basis and on a business segment basis. The accounting policies used to derive segment results are the same as those described in Note 1,1. Description of Business and Summary of Significant Accounting Policies, in the ~~2020~~2021 10-K.

1815

Segment results for the quarters ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ (in thousands):
Consumer Media
Quarter Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Revenue $ 2,763 $ 2,543 $ 8,133 $ 9,197
Cost of revenue 418 593 1,393 1,723
Gross profit 2,345 1,950 6,740 7,474
Operating expenses 1,495 2,092 6,028 6,754
Operating income (loss) $ 850 $ (142) $ 712 $ 720
Mobile Services Quarter Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Revenue $ 5,772 $ 6,400 $ 18,108 $ 19,551
Cost of revenue 1,282 1,511 4,291 4,989
Gross profit 4,490 4,889 13,817 14,562
Operating expenses 5,890 5,577 18,367 18,847
Operating loss $ (1,400) $ (688) $ (4,550) $ (4,285)
Games
Quarter Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Revenue $ 5,797 $ 7,611 $ 18,540 $ 21,713
Cost of revenue 1,414 1,955 4,671 5,707
Gross profit 4,383 5,656 13,869 16,006
Operating expenses 4,844 5,152 14,791 15,051
Operating income (loss) $ (461) $ 504 $ (922) $ 955
Corporate Quarter Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Cost of revenue $ 5 $ 3 $ 15 $ 10
Operating expenses 5,443 2,521 13,573 7,852
Operating loss $ (5,448) $ (2,524) $ (13,588) $ (7,862)


Consumer Media	Quarter Ended March 31,

	2022		2021
Revenue	$	2,111	$	3,309
Cost of revenue	388		478
Gross profit	1,723		2,831
Operating expenses	1,472		2,201
Operating income	$	251	$	630


Mobile Services	Quarter Ended March 31,

	2022		2021
Revenue	$	5,640	$	5,980
Cost of revenue	1,045		1,492
Gross profit	4,595		4,488
Operating expenses	6,666		6,145
Operating loss	$	(2,071)	$	(1,657)


Games	Quarter Ended March 31,

	2022		2021
Revenue	$	5,525	$	6,599
Cost of revenue	1,295		1,705
Gross profit	4,230		4,894
Operating expenses	3,999		5,098
Operating income (loss)	$	231	$	(204)


Corporate	Quarter Ended March 31,
	2022		2021
Cost of revenue	$	8	$	4
Operating expenses	3,360		4,960
Operating loss	$	(3,368)	$	(4,964)

Our customers consist primarily of consumers and corporations located in the U.S., Europe, and various foreign countries (Rest of the World). Revenue by geographic region (in thousands):


		Quarter Ended September 30,				Nine Months Ended September 30,					Quarter Ended March 31,
		2021		2020		2021		2020			2022		2021
United States	United States	$	9,227	$	11,855	$	28,368	$	32,810	United States	$	8,187	$	9,932
Europe	Europe	2,155		2,206		6,746		6,840		Europe	2,107		2,230
Rest of the World	Rest of the World	2,950		2,493		9,667		10,811		Rest of the World	2,982		3,726
Total net revenue	Total net revenue	$	14,332	$	16,554	$	44,781	$	50,461	Total net revenue	$	13,276	$	15,888

Long-lived assets (consisting of equipment, software, leasehold improvements, operating lease assets, and goodwill) by geographic region (in thousands) are as follows:


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
United States	United States	$	14,600	$	18,318	United States	$	14,098	$	14,402
Europe	Europe	6,966		7,638		Europe	7,057		6,682
Rest of the World	Rest of the World	1,439		1,227		Rest of the World	1,228		1,354
Total long-lived assets	Total long-lived assets	$	23,005	$	27,183	Total long-lived assets	$	22,383	$	22,438

1916


Note ~~14.~~12.			Related Party Transactions

~~The sale~~As of ~~Napster closed on December 30, 2020. For additional details, see Note 5. Dispositions.~~

~~In February 2020,~~March 31, 2022, we ~~entered into a Series B Preferred Stock Purchase Agreement with Mr. Glaser, Chairman~~owned approximately 45% of the ~~Board~~issued and ~~Chief Executive Officer~~outstanding stock of Scener, Inc. and account for our investment using the equity method of accounting. The Scener platform enables users to watch shows and movies socially from any major streaming platform. We deconsolidated Scener effective June 30, 2021 after RealNetworks ~~pursuant to which Mr. Glaser invested approximately $10.0~~no longer had a controlling interest in Scener. We recorded our share of losses of Scener, net of dilution gains, of $0.2 million ~~in RealNetworks in exchange~~ for the ~~issuance to him~~quarter ended March 31, 2022. These amounts are recorded in Loss on equity and other investments, net, on the consolidated statement of 8,064,516 shares of Series B Preferred Stock. The Series B Preferred Stock is non-voting and is convertible into common stock on a one-to-one basis, provided, however, that no conversion is permitted in the event that such conversion would cause Mr. Glaser’s beneficial ownership of our common stock to exceed the 38.5% threshold set forth in our Second Amended and Restated Shareholder Rights Plan dated November 30, 2018. The Series B Preferred Stock has no liquidation preference and no preferred dividend.

In July 2020, Mr. Glaser invested $0.7 million into a former RealNetworks subsidiary, Scener. Scener is developing a platform that transforms the experience of viewing video entertainment into a social connected playground. The July 2020 funding was in addition to $0.8 million that Mr. Glaser had previously directly invested in 2019. See Note 1. Description of Business and Summary of Significant Accounting Policies for information regarding the deconsolidation of Scener.operations.

2017

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, and projections about RealNetworks’ industry, products, management’s beliefs, and certain assumptions made by management. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and similar expressions are intended to identify forward-looking statements. All statements contained in this report that do not relate to matters of historical fact should be considered forward-looking statements. Forward-looking statements include statements with respect to:

•the expected benefits and other consequences of our growth plans, strategic initiatives, and restructurings;

•our expected introduction, and related monetization, of new and enhanced products, services and technologies across our ~~businesses;~~businesses, including our investment initiatives, SAFR and KONTXT;

•future revenues, operating expenses, income and other taxes, tax benefits, net income (loss) per diluted share available to common shareholders, acquisition costs and related amortization, and other measures of results of operations;

•the effects of our past acquisitions ~~including our January 2019 acquisition of a controlling interest in Napster and subsequent sale of our entire Napster interest in December 2020,~~ and expectations for future acquisitions and divestitures;

•plans, strategies and expected opportunities for future growth, increased profitability and innovation;

•our expected financial position, including liquidity, cash usage and conservation, and the availability of funding or other resources;

•the effects of ~~U.S. and foreign~~ legislation, regulations, administrative proceedings, court rulings, settlement negotiations and other factors that may impact our ~~businesses;~~businesses in the U.S. and in foreign jurisdictions, including recent and potential future regulatory and legal developments in the areas of artificial intelligence, privacy, cybersecurity and intellectual property;

•the continuation and expected nature of certain customer ~~relationships;~~and third party distributor relationships, including the U.S. government and the large, third party platforms that host our applications;

•impacts of competition and certain customer and third party distributor relationships on the future financial performance and growth of our businesses;

•our involvement in potential claims, legal proceedings and government investigations, and the potential outcomes and effects of such potential claims, legal proceedings and governmental investigations on our business, prospects, financial condition or results of operations;

•the effects of U.S. and foreign income and other taxes on our business, prospects, financial condition or results of operations; and

•the effect of economic and market conditions, including global pandemics and financial crises, on our business, prospects, financial condition or results of operations.

These statements are not guarantees of future performance and actual actions or results may differ materially. These statements are subject to certain risks, uncertainties and assumptions that are difficult to predict, including those noted in the documents incorporated herein by reference. Particular attention should also be paid to the cautionary language in Item 1A entitled “Risk Factors.” RealNetworks undertakes no obligation to update publicly any forward-looking statements as a result of new information, future events or otherwise, unless required by law. Readers should, however, carefully review the risk factors included in other reports or documents filed by RealNetworks from time to time with the Securities and Exchange Commission, particularly the Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.

2118

Overview

Our Business

RealNetworks invented the streaming media category in 1995 and continues to build on its foundation of digital media expertise and innovation. In recent years, we have leveraged our technical expertise and access to proprietary data sources to develop a new generation of AI-based products and solutions. These products and solutions are designed to help customers be safer and smarter, and for their companies to be more efficient and more successful. The main two products and key investment initiatives in our AI portfolio are SAFR, our AI-based computer vision platform, and ~~Kontxt,~~KONTXT, our natural language processing-based (NLP) message classification and analysis ~~product.~~platform.

SAFR leverages the power of AI to enhance security, safety, convenience, and ~~convenience for our customers around the globe~~operational efficiencies with fast and accurate ~~low-biased~~ face recognition and additional person- and object-based AI capabilities. ~~Kontxt~~KONTXT is based on AI NLP analysis, allowing our customers to analyze and classify multiple billions of messages monthly in real time in order to protect end consumers from spam and fraud. Our focus on AI-based products and our data science resources allows us to be agile, continuously evolving, and rapidly creating new solutions to solve ~~customers’~~consumers’ problems.

In addition to our AI solutions, our consumer products also feature GameHouse Original Stories, a unique IP portfolio of free-to-play and subscription mobile games, used by millions of players. Our consumer products also include ringback tones, which we sell to consumers through mobile operators, and the renowned RealPlayer, which introduced streaming to the world in 1995 and today provides millions of people worldwide a powerful way to stream, download, store, organize, and experience the rapidly expanding universe of digital media content. We also create video compression and enhancement technology, which we primarily license to OEMs, including manufacturers of mobile devices, smart TVs, and set-top boxes.

Our Segments

We manage our business and report revenue and operating income (loss) in three segments: (1) Consumer Media (2) Mobile Services, and (3) Games.

Within our Consumer Media segment, revenue is derived from the software licensing of our video compression and enhancement, or codec, technologies, including primarily from our prior-generation codec RealMedia Variable Bitrate, or RMVB, ~~and to a lesser extent~~as well as our newer codec technology, RealMedia High Definition, or RMHD. We also generate revenue from the sale of our ~~PC-based~~ RealPlayer products, including RealPlayer Plus and related products. These products and services are delivered directly to consumers and through partners, such as OEMs and mobile device manufacturers.

Our Mobile Services business generates revenue primarily from the sale of subscription services, which include our intercarrier messaging service and ringback tones, as well as through software licenses for the integration of our RealTimes platform and certain system implementations. We generate a significant portion of our revenue from sales within our Mobile Services business to a few mobile ~~carriers.~~carriers and one service partner. Our Mobile Services segment also includes our AI-based growth initiatives, SAFR and ~~Kontxt.~~KONTXT.

Our Games business generates revenue primarily through the development, publishing, and distribution of casual games under the GameHouse and Zylom brands. Games are offered via mobile devices, digital downloads, and subscription play. We derive revenue from ~~player~~consumer purchases of in-game virtual goods within our free-to-play games and ~~from~~ advertising on ~~games sites.~~mobile games. In addition, we derive revenue from the sale of individual games and subscription offerings.

RealNetworks allocates to its Consumer Media, Mobile Services, and Games reportable segments certain corporate expenses which are directly attributable to supporting these businesses, including, but not limited, to a portion of finance, IT, legal, human resources and headquarters facilities. Remaining expenses, which are not directly attributable to supporting these businesses, are reported as corporate items. These corporate items ~~may~~ also include restructuring charges and stock compensation expense.

COVID-19

In March 2020, the World Health Organization declared the outbreak of the coronavirus that causes COVID-19 to be a global pandemic. As the virus spread throughout the U.S. and the world, authorities implemented numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, business limitations, and shutdowns. In addition to the pandemic's widespread impact on public health and global society, reactions to the pandemic as well as measures taken to contain the virus have caused significant turmoil to the global economy and financial markets. Similar to other companies, from the onset of the pandemic, we implemented measures to support the health and well-being of our employees, customers, partners and communities, including working remotely and operating our ~~businesses~~business in a fundamentally different way. We reevaluated our operating plans, causing some significant pivots in our growth initiatives, while also reducing costs and reallocating resources.

The COVID-19 pandemic and the resultant economic instability and financial market turmoil added complexity, uncertainty and risk to nearly all aspects of our business. We continue to assess our plans as the pandemic environment evolves

2219

and strive to operate our business as efficiently as possible. We are unable to fully predict the impacts that the COVID-19 pandemic, including the emergence of variants, such as the delta ~~variant,~~and omicron variants, will continue to have on our results from operations, financial condition, liquidity and cash flows for the ~~remainder of~~ fiscal year ~~2021~~2022 or beyond, due to the numerous uncertainties, including the duration and severity of the pandemic and ongoing containment measures. We will continue to monitor and evaluate the effects to our businesses and adjust our plans as needed.

Financial Results

As of ~~September 30, 2021,~~March 31, 2022, we had ~~$29.0~~$21.8 million in unrestricted cash and cash equivalents, compared to ~~$23.9~~$27.1 million as of December 31, ~~2020.~~2021. The ~~2021 increase~~2022 decrease in cash and cash equivalents compared to the prior year end amount was primarily due to ~~the receipt of $20.1 million in net proceeds from the April 2021 underwritten public offering of 8,250,000 shares of~~ our ~~common stock, partially offset by~~ ongoing cash ~~flows~~ used in operating activities, which totaled ~~$11.4~~$5.0 million for the first ~~nine~~three months of 2021. We also used $2.5 million of cash and transferred 47.8 million ordinary shares of Napster Group, valued at the December 2020 Napster sale closing date, to settle our contingent consideration liability for our January 2019 purchase of Napster.

On June 19, 2021, the Company received notice from our participating bank that our request for forgiveness of the principal and interest on the Paycheck Protection Program (PPP) loan was approved, and we recognized a non-cash gain of $2.9 million within Other income (expense) on the condensed consolidated statement of operations in the second quarter of 2021.

On June 30, 2021, RealNetworks, Inc. deconsolidated Scener Inc., previously a consolidated subsidiary of RealNetworks, and recognized a non-cash gain of $2.0 million within Other income (expense), net on the condensed consolidated statement of operations in the second quarter of 2021.2022.

~~The following discussion reflects RealNetworks' results from continuing operations.~~ Condensed consolidated results were as follows (in thousands):


		Quarter Ended September 30,										Nine Months Ended September 30,											Quarter Ended March 31,
		2021			2020			$ Change		% Change		2021			2020			$ Change		% Change			2022			2021			$ Change			% Change
Total revenue	Total revenue	$	14,332		$	16,554		$	(2,222)	(13)	%	$	44,781		$	50,461		$	(5,680)	(11)	%	Total revenue	$	13,276		$	15,888		$	(2,612)		(16)	%
Cost of revenue	Cost of revenue	3,119			4,062			(943)		(23)	%	10,370			12,429			(2,059)		(17)	%	Cost of revenue	2,736			3,679			(943)			(26)	%
Gross profit	Gross profit	11,213			12,492			(1,279)		(10)	%	34,411			38,032			(3,621)		(10)	%	Gross profit	10,540			12,209			(1,669)			(14)	%
Gross margin	Gross margin	78		%	75		%					77		%	75		%					Gross margin	79		%	77		%	2		%

Operating expenses	Operating expenses	17,672			15,342			2,330		15	%	52,759			48,504			4,255		9	%	Operating expenses	15,497			18,404			(2,907)			(16)	%
Operating loss	Operating loss	$	(6,459)		$	(2,850)		$	(3,609)	(127)	%	$	(18,348)		$	(10,472)		$	(7,876)	(75)	%	Operating loss	$	(4,957)		$	(6,195)		$	1,238		20	%

In the ~~third~~first quarter of ~~2021,~~2022, our total consolidated revenue decreased ~~$2.2~~$2.6 million as compared with the ~~year-earlier~~prior-year period. The decrease was due to lower revenues in our Consumer Media, Games, and Mobile Services segments of ~~$1.8~~$1.2 million, $1.1 million, and ~~$0.6~~$0.3 million, respectively. ~~Partially offsetting these decreases was increased revenue from our Consumer Media segment of $0.2 million as compared to the year-earlier period.~~See below for further information regarding fluctuations by segment.

Cost of revenue decreased by $0.9 million for the quarter ended ~~September 30, 2021~~March 31, 2022 as compared with the ~~year-earlier~~prior-year period, due to decreases in our Games, Mobile Services, and Consumer Media segments of ~~$0.5~~$0.4 million, ~~$0.2~~$0.4 million, and ~~$0.2~~$0.1 million, respectively.

Operating expenses ~~increased~~decreased by ~~$2.3~~$2.9 million in the quarter ended ~~September 30, 2021~~March 31, 2022 as compared with the ~~year-earlier~~prior-year period. The ~~increase~~decrease was primarily due to ~~higher stock-based compensation and~~lower restructuring charges of ~~$2.1~~$2.9 million, ~~and $0.7 million, respectively, partially offset by~~ lower salaries and ~~people related expenses of $0.6 million.~~

For the nine months ended September 30, 2021, our total consolidated revenue decreased $5.7 million as compared with the year-earlier period. The decrease was due to lower revenues in our Games, Mobile Services, and Consumer Media segments of $3.2 million, $1.4 million and $1.1 million, respectively.

Cost of revenue decreased by $2.1 million for the nine months ended September 30, 2021 as compared with the year-earlier period, due to decreases in our Games, Mobile Services, and Consumer Media segments of $1.1 million, $0.7 million, and $0.3 million, respectively.

Operating expenses increased by $4.3 million in the nine months ended September 30, 2021 as compared with the year-earlier period. The increase was due primarily to higher restructuring charges of $3.8 million, higher stock-based compensation of $2.7 million, and higher professional fees of $1.0 million. Partially offsetting these increases were lower salaries and people relatedpeople-related costs ~~of $1.5 million, lower marketing expenses~~ of $0.6 million, and ~~a higher~~lower marketing fees of $0.4 million. These decreases were partially offset by the $1.0 million benefit in the first quarter of 2021 related to the fair value adjustment of the contingent consideration liability, ~~$0.8 million. See Note 6. Fair Value Measurements~~ for ~~more information on~~which no adjustment was recognized in the ~~contingent consideration~~first quarter of 2022 as the liability ~~which~~ was settled in the second quarter of 2021.

2320

Segment Operating Results

Consumer Media

Consumer Media segment results of operations were as follows (in thousands):


		Quarter Ended September 30,										Nine Months Ended September 30,											Quarter Ended March 31,

		2021			2020			$ Change		% Change		2021			2020			$ Change		% Change			2022			2021			$ Change			% Change
Revenue	Revenue	$	2,763		$	2,543		$	220	9	%	$	8,133		$	9,197		$	(1,064)	(12)	%	Revenue	$	2,111		$	3,309		$	(1,198)		(36)	%
Cost of revenue	Cost of revenue	418			593			(175)		(30)	%	1,393			1,723			(330)		(19)	%	Cost of revenue	388			478			(90)			(19)	%
Gross profit	Gross profit	2,345			1,950			395		20	%	6,740			7,474			(734)		(10)	%	Gross profit	1,723			2,831			(1,108)			(39)	%
Gross margin	Gross margin	85		%	77		%					83		%	81		%					Gross margin	82		%	86		%	(4)		%
Operating expenses	Operating expenses	1,495			2,092			(597)		(29)	%	6,028			6,754			(726)		(11)	%	Operating expenses	1,472			2,201			(729)			(33)	%
Operating income (loss)	Operating income (loss)	$	850		$	(142)		$	992	NM		$	712		$	720		$	(8)	(1)	%	Operating income (loss)	$	251		$	630		$	(379)		NM

Total Consumer Media revenue for the quarter ended ~~September 30, 2021 increased $0.2~~March 31, 2022 decreased $1.2 million as compared to the same quarter in ~~2020.~~2021. The ~~increase~~decrease was ~~primarily~~ due to ~~higher~~lower software license ~~and product sales~~ revenues, ~~partially offset by~~ lower ~~advertising and other~~subscription service revenues, and lower ~~subscription services revenue. Advertising and other revenue in the quarter ended September 30, 2020 included the non-recurring recognition of previously deferred third-party software~~ product ~~distribution revenue in the amount of $0.6 million.~~sales.

Software License

In the quarter ended ~~September 30, 2021,~~March 31, 2022, the ~~increase~~decrease in software license revenue of $0.9 million was primarily due ~~primarily~~ to the timing of contract renewals and shipments to existing customers.

Subscription Services

For our subscription services revenues, the $0.1 million decrease was primarily due to declines in our ~~long-standing~~legacy subscription products, which we expect to continue.

Product Sales

The ~~increase~~decrease in product sales of ~~$0.1~~$0.3 million was primarily due to ~~higher~~lower RealPlayer Plus sales during the ~~third~~first quarter of ~~2021.~~2022.

Cost of revenue for the three months ended ~~September 30, 2021~~March 31, 2022 decreased ~~$0.2~~$0.1 million compared with the ~~year-earlier period. This was~~prior-year period, primarily due to reductions in salaries and ~~people related expenses due to lower headcount.~~

Operating expenses decreased $0.6 million as compared with the year-earlier period, primarily due to Scener costs incurred in the year-earlier period. Scener was deconsolidated from RealNetworks, Inc. as of June 30, 2021.

Total Consumer Media revenue for the nine months ended September 30, 2021 decreased $1.1 million as compared to the prior year due primarily to lower advertising and Other revenues and lower subscription services revenue. This was partially offset by higher product sales. Advertising and other revenue in the nine months ended September 30, 2020 included the non-recurring recognition of previously deferred third-party software product distribution revenue in the amount of $0.6 million.

~~Software License~~

For the nine months ended September 30, 2021, the decrease in software license revenue of $0.1 million was due primarily to lower contract renewals as compared with the year-earlier period, partially offset by higher shipments to existing customers of approximately $0.5 million.

~~Subscription Services~~

~~For our subscription services revenue, the $0.3 million decrease was primarily due to declines in our long-standing subscription products, which we expect to continue.~~

~~Product Sales~~

~~The increase in product sales of $0.4 million was primarily due to higher RealPlayer Plus sales during the first nine months of 2021.~~

~~Cost of revenue for the nine months ended September 30, 2021 decreased $0.3 million compared with the year-earlier period. This was primarily due to reductions in salaries and people related~~people-related expenses due to lower headcount.

Operating expenses decreased $0.7 million as compared with the ~~year-earlier~~prior-year period, primarily due to ~~reductions~~Scener costs incurred in ~~salaries and people related expenses~~the prior-year period. Scener was deconsolidated from ~~headcount reductions and lower professional service fees.~~

RealNetworks, Inc. as of June 30, 2021.

Mobile Services

Mobile Services segment results of operations were as follows (in thousands):


		Quarter Ended September 30,										Nine Months Ended September 30,											Quarter Ended March 31,

		2021			2020			$ Change		% Change		2021			2020			$ Change		% Change			2022			2021			$ Change			% Change
Revenue	Revenue	$	5,772		$	6,400		$	(628)	(10)	%	$	18,108		$	19,551		$	(1,443)	(7)	%	Revenue	$	5,640		$	5,980		$	(340)		(6)	%
Cost of revenue	Cost of revenue	1,282			1,511			(229)		(15)	%	4,291			4,989			(698)		(14)	%	Cost of revenue	1,045			1,492			(447)			(30)	%
Gross profit	Gross profit	4,490			4,889			(399)		(8)	%	13,817			14,562			(745)		(5)	%	Gross profit	4,595			4,488			107			2	%
Gross margin	Gross margin	78		%	76		%					76		%	74		%					Gross margin	81		%	75		%	6		%
Operating expenses	Operating expenses	5,890			5,577			313		6	%	18,367			18,847			(480)		(3)	%	Operating expenses	6,666			6,145			521			8	%
Operating loss	Operating loss	$	(1,400)		$	(688)		$	(712)	(103)	%	$	(4,550)		$	(4,285)		$	(265)	(6)	%	Operating loss	$	(2,071)		$	(1,657)		$	(414)		(25)	%

Total Mobile Services revenue decreased by ~~$0.6~~$0.3 million in the quarter ended ~~September 30, 2021~~March 31, 2022 compared with the prior-year period. The revenue decrease was primarily due to lower subscription services revenues of ~~$1.1~~$0.5 million, partially offset by an increase in software license revenues of ~~$0.5~~$0.1 million.

Software License

For our software license revenue, the increase in revenue for the quarter ended ~~September 30, 2021~~March 31, 2022 as compared to the prior-year period was primarily due ~~primarily~~ to higher sales of our SAFR ~~product of $0.5 million.~~product.

Subscription Services

The decline in our subscription service revenue of ~~$1.1~~$0.5 million in the quarter ended ~~September 30, 2021~~March 31, 2022 as compared to the prior-year period is primarily due ~~primarily~~ to lower revenues ~~from our ringback tones business of $1.3 million, resulting from terminated contracts and lower subscribers. Partially offsetting this decline was higher revenue~~ from our messaging platform business of ~~$0.2~~$0.4 million.

Cost of revenue decreased by ~~$0.2~~$0.4 million in the quarter ended ~~September 30, 2021~~March 31, 2022 compared with the prior-year period, primarily due ~~primarily~~ to reductions in salaries and ~~people related expenses~~people-related costs due to lower headcount.

Operating expenses increased by ~~$0.3~~$0.5 million for the quarter ended ~~September 30, 2021~~March 31, 2022 compared with the ~~year-earlier~~prior-year period primarily due to higher professional fees of ~~$0.6~~$0.2 million, driven by AI-based growth initiatives, ~~partially offset by lower salaries~~higher marketing expense, and ~~people related expenses due to lower headcount of $0.4 million.~~

Total Mobile Services revenue decreased by $1.4 million in the nine months ended September 30, 2021 compared with the prior-year period. The revenue decrease was primarily due to lower subscription services revenue of $3.5 million, partially offset by an increase in software license revenues of $2.1 million.

~~Software License~~

~~For our software license revenue, the increase in revenue for the nine months ended September 30, 2021 as compared to the prior-year period was due primarily to~~ higher ~~sales of our SAFR product of $2.1 million.~~

~~Subscription Services~~

The decline in our subscription service revenue of $3.5 million in the nine months ended September 30, 2021 as compared to the prior-year period is due primarily to lower revenues from our ringback tones business of $3.3 million and messaging platform business of $0.2 million, resulting from terminated contracts and lower subscribers.

Cost of revenue decreased by $0.7 million in the nine months ended September 30, 2021 compared with the prior-year period, due primarily to lower amortization of deferred costs and lower people related expenses due to lower headcount.

Operating expenses decreased $0.5 million for the nine months ended September 30, 2021 compared with the year-earlier period due to reductions in salaries and people related expenses of $1.5 million and lower infrastructure ~~costs of $0.4 million. These decreases were partially offset by higher professional fees of $1.5 million, primarily from AI-based growth initiatives.~~

costs.

Games

Games segment results of operations were as follows (in thousands):


		Quarter Ended September 30,										Nine Months Ended September 30,											Quarter Ended March 31,

		2021			2020			$ Change		% Change		2021			2020			$ Change		% Change			2022			2021			$ Change			% Change
Revenue	Revenue	$	5,797		$	7,611		$	(1,814)	(24)	%	$	18,540		$	21,713		$	(3,173)	(15)	%	Revenue	$	5,525		$	6,599		$	(1,074)		(16)	%
Cost of revenue	Cost of revenue	1,414			1,955			(541)		(28)	%	4,671			5,707			(1,036)		(18)	%	Cost of revenue	1,295			1,705			(410)			(24)	%
Gross profit	Gross profit	4,383			5,656			(1,273)		(23)	%	13,869			16,006			(2,137)		(13)	%	Gross profit	4,230			4,894			(664)			(14)	%
Gross margin	Gross margin	76		%	74		%					75		%	74		%					Gross margin	77		%	74		%	3		%
Operating expenses	Operating expenses	4,844			5,152			(308)		(6)	%	14,791			15,051			(260)		(2)	%	Operating expenses	3,999			5,098			(1,099)			(22)	%
Operating income (loss)	Operating income (loss)	$	(461)		$	504		$	(965)	NM		$	(922)		$	955		$	(1,877)	NM		Operating income (loss)	$	231		$	(204)		$	435		NM

Total Games revenue decreased by ~~$1.8~~$1.1 million for the quarter ended ~~September 30, 2021~~March 31, 2022 as compared with the ~~year-earlier~~prior-year period primarily due ~~primarily~~ to a decrease of ~~$1.3~~$0.8 million in product sales revenue, and lower subscription service revenue of $0.3 ~~million and lower advertising revenues.~~million.

Subscription Services

Our subscription sales decreased $0.3 million as a result of fewer subscribers in the ~~third~~first quarter of ~~2021.~~2022.

Product Sales

Our product sales decreased ~~$1.3~~$0.8 million as a result of lower in-game purchases ~~of $1.2 million and sales of games of $0.1 million~~ compared to the prior-year period.

Cost of revenue decreased ~~$0.5~~$0.4 million in the quarter ended ~~September 30, 2021~~March 31, 2022 when compared to the prior-year period due to lower app store ~~fees and publisher license and service royalties.~~fees.

Operating expenses decreased ~~$0.3~~$1.1 million in the quarter ended ~~September 30, 2021~~March 31, 2022 when compared with the prior-year period ~~due~~ primarily ~~to lower marketing expenses.~~

~~Total Games revenue decreased $3.2 million for the nine months ended September 30, 2021 as compared with the year-earlier period~~ due to lower ~~product sales revenue~~salaries and people-related costs due to lower headcount of ~~$2.0 million, a decrease of $0.9 million in subscription services revenue, and lower advertising revenue.~~

~~Subscription Services~~

~~Our subscription sales decreased $0.9 million as a result of fewer subscribers during the nine months ended September 30, 2021.~~

~~Product Sales~~

~~Our product sales decreased $2.0 million as a result of lower in-game purchases of $1.4~~$0.7 million, and lower ~~sales of games of $0.6 million compared to the prior-year period.~~

~~Cost of revenue decreased $1.0 million in the nine months ended September 30, 2021 when compared to the prior year period due to lower app store fees and publisher license and service royalties.~~

~~Operating expenses decreased $0.3 million in the nine months ended September 30, 2021 when compared with the prior-year period due primarily to lower~~ marketing ~~expenses of $0.6 million, partially offset by higher professional fees of $0.3 million.~~expenses.

Corporate

Corporate results of operations were as follows (in thousands):


		Quarter Ended September 30,								Nine Months Ended September 30,									Quarter Ended March 31,

		2021		2020		$ Change		% Change		2021		2020		$ Change		% Change			2022		2021		$ Change		% Change
Cost of revenue	Cost of revenue	$	5	$	3	$	2	67	%	$	15	$	10	$	5	50	%	Cost of revenue	$	8	$	4	$	4	100	%

Operating expenses	Operating expenses	5,443		2,521		2,922		116	%	13,573		7,852		5,721		73	%	Operating expenses	3,360		4,960		(1,600)		(32)	%
Operating loss	Operating loss	$	(5,448)	$	(2,524)	$	(2,924)	(116)	%	$	(13,588)	$	(7,862)	$	(5,726)	(73)	%	Operating loss	$	(3,368)	$	(4,964)	$	1,596	32	%

Operating expenses ~~increased~~decreased by ~~$2.9~~$1.6 million in the quarter ended ~~September 30, 2021~~March 31, 2022 compared with the ~~year-earlier~~prior-year period, primarily due to ~~higher stock-based compensation and~~a decrease of $2.9 million in restructuring ~~costs of $2.1 and $0.7 million, respectively.~~

Operating expenses increased by $5.7 million for the nine months ended September 30, 2021 compared with the year-earlier period primarily due to higher restructuring charges of $3.8 million, higher stock-based compensation of $2.7 million, and higher salaries and people related costs of $0.7 million. These increases werecharges. This decrease was partially offset by ~~a $0.8~~the $1.0 million ~~higher~~ benefit in 2021 related to the fair value adjustment of the contingent consideration liability, ~~as further discussed~~which was settled in ~~Note 6. Fair Value Measurements,~~the second quarter of 2021, and ~~lower professional fees~~higher salaries and other people-related costs of ~~$0.5~~$0.4 million.

Consolidated Operating Expenses

Our operating expenses consist primarily of salaries and related personnel costs including stock-based compensation, consulting fees associated with product development, sales commissions, professional service fees, advertising costs, changes in the fair value of the contingent consideration liability, and restructuring charges. Operating expenses were as follows (in thousands):


		Quarter Ended September 30,								Nine Months Ended September 30,									Quarter Ended March 31,
		2021		2020		$ Change		% Change		2021		2020		$ Change		% Change			2022		2021		$ Change		% Change
Research and development	Research and development	$	5,250	$	5,781	$	(531)	(9)	%	$	17,818	$	18,375	$	(557)	(3)	%	Research and development	$	5,798	$	6,238	$	(440)	(7)	%
Sales and marketing	Sales and marketing	7,177		5,130		2,047		40	%	17,573		15,969		1,604		10	%	Sales and marketing	4,582		5,137		(555)		(11)	%
General and administrative	General and administrative	4,228		4,124		104		3	%	13,502		13,263		239		2	%	General and administrative	4,827		4,898		(71)		(1)	%
Fair value adjustments to contingent consideration liability	Fair value adjustments to contingent consideration liability	—		—		—		—	%	(1,040)		(200)		(840)		420	%	Fair value adjustments to contingent consideration liability	—		(1,040)		1,040		(100)	%
Restructuring and other charges	Restructuring and other charges	1,017		307		710		231	%	4,906		1,097		3,809		347	%	Restructuring and other charges	290		3,171		(2,881)		(91)	%
Total consolidated operating expenses	Total consolidated operating expenses	$	17,672	$	15,342	$	2,330	15	%	$	52,759	$	48,504	$	4,255	9	%	Total consolidated operating expenses	$	15,497	$	18,404	$	(2,907)	(16)	%

Research and development expenses decreased by ~~$0.5~~$0.4 million in the quarter ended ~~September 30, 2021~~March 31, 2022 as compared with the ~~year-earlier~~prior-year period, primarily due to ~~a reduction in~~lower salaries and ~~people related~~people-related costs.

~~Research~~Sales and ~~development~~marketing expenses decreased by $0.6 million ~~for~~in the ~~nine months~~quarter ended ~~September 30, 2021~~March 31, 2022 as compared with the year-earlier period due to a reduction in salaries and people related costs of $1.5 million, partially offset by higher professional service fees of $0.6 million and higher infrastructure costs of $0.3 million.

~~Sales and marketing expenses increased by $2.0 million in the quarter ended September 30, 2021 as compared with the year-earlier~~prior-year period, primarily due to ~~higher stock-based compensation.~~

Sales and marketing expenses increased $1.6 million for the nine months ended September 30, 2021 as compared with the year-earlier period due to higher stock-based compensation of $2.2 million and an increase in professional service fees of $0.8 million. Partially offsetting these increases were lower marketing ~~expenses of $0.6 million, lower infrastructure and other expenses of $0.4 million, and a $0.4 million reduction in salaries and people related costs.~~expense.

General and administrative expenses ~~increased~~decreased by $0.1 million in the quarter ended ~~September 30, 2021~~March 31, 2022 as compared with the ~~year-earlier~~prior-year period, primarily due to ~~higher~~lower salaries and ~~people related~~people-related costs.

General and administrative expenses increased by $0.2 million for the nine months ended September 30, 2021 as compared with the year-earlier period, primarily due to higher stock-based compensation and salaries and people related costs of $0.5 million and $0.4 million, respectively, partially offset by lower professional services expenses of $0.4 million and lower infrastructure costs of $0.4 million.

The fair value ~~adjustments~~adjustment to the contingent consideration liability ~~changed by $0.8~~was $1.0 million ~~for~~in the ~~nine~~three months ended ~~September 30, 2021 as compared with the same period in 2020.~~March 31, 2021. This liability was settled in the second quarter of 2021. ~~See Note 6. Fair Value Measurements for additional information.~~

Restructuring and other charges consist of costs associated with the ongoing reorganization of our business operations and expense re-alignment ~~efforts and the $2.5 million of lease impairment charges incurred in the first quarter of 2021 for office space previously vacated.~~efforts. For additional details on these charges, see Note ~~10.~~8. Restructuring and Other Charges.

Other Income (Expense)

Other income (expense), net was as follows (in thousands):


		Quarter Ended September 30,						Nine Months Ended September 30,							Quarter Ended March 31,
		2021		2020		$ Change		2021		2020		$ Change			2022		2021		$ Change
Interest expense	Interest expense	$	(27)	$	(7)	$	(20)	$	(146)	$	(12)	$	(134)	Interest expense	$	(22)	$	(95)	$	73
Interest income	Interest income	7		6		1		27		31		(4)		Interest income	7		13		(6)
Loss on equity and other investments, net	Loss on equity and other investments, net	(1,229)		(37)		(1,192)		(6,070)		(90)		(5,980)		Loss on equity and other investments, net	(189)		(4,272)		4,083
Gain on forgiveness of Paycheck Protection Program loan		—		—		—		2,897		—		2,897

Other income (expense), net	Other income (expense), net	46		(104)		150		2,066		63		2,003		Other income (expense), net	19		104		(85)
Total other expense, net	Total other expense, net	$	(1,203)	$	(142)	$	(1,061)	$	(1,226)	$	(8)	$	(1,218)	Total other expense, net	$	(185)	$	(4,250)	$	4,065

For the quarter ~~and nine months~~ ended ~~September 30, 2021,~~March 31, 2022, the Loss on equity and other investments, net, ~~of $1.2~~was $0.2 million. This amount is related to Scener as further discussed in Note 12. Related Party Transactions. The $4.3 million Loss on equity and ~~$6.1 million, respectively, primarily~~other investments, net, for the quarter ended March 31, 2021 reflects unrealized losses on equity ~~securities. We~~securities for the shares acquired ~~these shares~~ from the sale of Napster in December ~~2020, as further discussed~~2020. These shares were acquired by a third-party in ~~Note 5. Dispositions.~~

~~During~~ the ~~second~~first quarter of 2021, the Company received notice from our participating bank that our request for forgiveness of the principal and interest on our PPP loan was approved, and we recognized a non-cash gain of $2.9 million within Other income (expense) on the condensed consolidated statement of operations.2022.

On June 30, 2021, RealNetworks, Inc. deconsolidated Scener Inc., previously a consolidated subsidiary of RealNetworks, and recognized a non-cash gain of $2.0 million within Other income (expense) on the condensed consolidated statement of operations. The ~~remaining~~ fluctuations in Other income (expense), net primarily relate to foreign exchange gains and losses.

Income Taxes

We recognized income tax expense of $0.1 million during each of the ~~nine months~~quarters ended ~~September 30,~~March 31, 2022 and 2021 related to U.S. and foreign income taxes. ~~For the quarter and nine months ended September 30, 2020, income tax expense was $0.3 million and $0.6 million, respectively.~~

As of ~~September 30, 2021,~~March 31, 2022, RealNetworks has $0.7 million in uncertain tax positions.

The majority of our tax expense is due to income in our foreign jurisdictions. In addition, we have not benefited from losses in the U.S. and certain foreign jurisdictions as of the ~~third~~first quarter of ~~2021.~~2022. We generate income in a number of foreign jurisdictions, some of which have higher or lower tax rates relative to the U.S. federal statutory rate. Our tax expense could fluctuate significantly on a quarterly basis to the extent income is less than anticipated in countries with lower statutory tax rates and more than anticipated in countries with higher statutory tax rates. For the quarter ~~and nine months~~ ended ~~September 30, 2021,~~March 31, 2022, decreases in tax expense from income generated in foreign jurisdictions with lower tax rates in comparison to the U.S. federal statutory rate was offset by increases in tax expense from income generated in foreign jurisdictions having comparable, or higher tax rates in comparison to the U.S. federal statutory rate. The effect of differences in foreign tax rates on the Company's tax expense for the ~~third~~ quarter ~~and nine months~~ ended ~~September 30, 2021~~March 31, 2022 was minimal.

We file numerous consolidated and separate income tax returns in the U.S., including federal, state and local returns, as well as in foreign jurisdictions. With few exceptions, we are no longer subject to United States federal income tax examinations for tax years prior to 2013 or state, local or foreign income tax examinations for years prior to 1993. We are currently under audit by various states and foreign jurisdictions for certain tax years subsequent to 1993.

New Accounting Pronouncements

See Note 2. Recent Accounting Pronouncements, to the unaudited condensed consolidated financial statements included in Item 1 of Part I of this 10-Q.

Liquidity and Capital Resources

The following summarizes working capital, cash and cash equivalents, and restricted cash (in thousands):


		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Working capital, excluding cash and cash equivalents	Working capital, excluding cash and cash equivalents	$	289	$	1,148	Working capital, excluding cash and cash equivalents	$	(4,530)	$	(3,952)
Cash and cash equivalents	Cash and cash equivalents	28,990		23,940		Cash and cash equivalents	21,775		27,109
Restricted cash equivalents	Restricted cash equivalents	1,630		1,630		Restricted cash equivalents	1,630		1,630

Cash and cash equivalents ~~increased~~decreased from December 31, ~~2020~~2021 primarily due ~~primarily~~ to ~~the $20.1 million of net proceeds from the April 2021 equity offering. Partially offsetting the increase was~~ cash used in operating activities, which totaled

~~$11.4~~ $5.0 million in the first ~~nine~~three months of ~~2021, and the $2.5 million cash payment for settlement of the contingent consideration liability.~~2022.

As of ~~September 30, 2021,~~March 31, 2022, approximately ~~$6.9~~$6.7 million of the ~~$29.0~~$21.8 million of cash and cash equivalents was held by our foreign subsidiaries outside the U.S.

The following summarizes cash flow activity ~~from continuing operations~~ (in thousands):


		Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020			2022		2021
Cash used in operating activities	Cash used in operating activities	$	(11,416)	$	(10,033)	Cash used in operating activities	$	(4,973)	$	(6,976)
Cash used in investing activities	Cash used in investing activities	(1,116)		(261)		Cash used in investing activities	(101)		(56)
Cash provided by financing activities		17,962		14,970
Cash provided by (used in) financing activities						Cash provided by (used in) financing activities	(19)		358

Cash used in operating activities consisted of net loss from continuing operations adjusted for certain non-cash items such as depreciation and amortization, stock-based compensation, loss on equity and other investments, fair value adjustments to contingent consideration liability, loss on impairment of operating lease assets, foreign currency gains, and the effect of changes in certain operating assets and liabilities.

~~Cash used in operating activities from continuing operations~~ was ~~$1.4~~$2.0 million ~~higher~~lower in the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 as compared to the same period in ~~2020, primarily~~2021, due to our ~~higher~~lower operating loss recorded for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 compared to the prior year ~~period.~~period and to a lower amount of incremental cash used to fund the net change in working capital.

In each of the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ cash used by investing activities consisted of fixed asset purchases of ~~$0.3~~$0.1 million. ~~Also, for the nine months ended September 30, 2021, cash used by investing activities included the impact of the deconsolidation of Scener.~~

Cash ~~provided by~~used in financing activities for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 was insignificant. Cash used in financing activities for the three months ended March 31, 2021 was ~~$18.0~~$0.4 million. This cash inflow was due to ~~the net~~ proceeds from the ~~equity offering of $20.1 million and $0.4 million~~ issuance of common stock related to exercising of stock options, ~~net of~~partially offset by tax payments for shares withheld upon vesting of restricted ~~stock, partially offset by the $2.5 million cash payment for settlement of the contingent consideration liability.~~

Cash provided by financing activities for the nine months ended September 30, 2020 was $15.0 million. This cash inflow was due to the $10.0 million in cash proceeds from the first quarter 2020 issuance of Series B Preferred Stock and $2.9 million in proceeds from the PPP loan. As discussed in Note 8. Debt, we received forgiveness of our obligations for the PPP loan in the second quarter of 2021. Additionally, Scener, a subsidiary of RealNetworks, received $2.1 million in funds in the third quarter of 2020 from the issuance of SAFE Notes. See Note 6. Fair Value Measurements for more information on the SAFE Notes.stock.

Two customers accounted for more than 10% of trade accounts receivable as of ~~September 30, 2021,~~March 31, 2022, with the customers accounting for ~~24%~~20% and ~~13%~~10% each. ~~Two customers~~One customer accounted for more than 10% of trade accounts receivable at December 31, ~~2020,~~2021, with the ~~customers~~customer accounting for ~~19% and 10% each.~~23% of trade accounts receivable. Two customers accounted for ~~30%~~25% of consolidated revenue, or ~~$13.5~~$3.3 million, during the ~~nine~~three months ended ~~September 30, 2021. Two~~March 31, 2022, in the Mobile Services segment. Three customers accounted for ~~26%~~45% of consolidated revenue, or ~~$13.3~~$7.3 million, during the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021, in the Mobile Services segment.

While we currently have no planned significant capital expenditures for the remainder of ~~2021~~2022 other than those in the ordinary course of business, we do have contractual commitments for future payments related to office leases.

During the second quarter of 2021, we settled the contingent consideration associated with the Napster interests acquired by RealNetworks in January 2019. The payment included cash of $2.5 million and the transfer of 47.8 million ordinary shares of Napster Group, valued at the December 2020 Napster sale closing date.

RealNetworks is a party to a Loan Agreement with a third-party financial institution for a revolving line of credit, as discussed in Note 8.7. Debt. Under the Agreement, as amended, borrowings may not exceed $6.5 million and are reduced by a ~~$1.0~~$0.4 million standby letter of credit entered into with the bank in connection with certain lease agreements. The borrowing base for the Revolver is comprised of eligible accounts receivable and direct to consumer ~~deposits for RealNetworks only.~~deposits. At ~~September 30, 2021,~~March 31, 2022, we had no outstanding draws on the revolving line of credit.

In April 2021, we completed an underwritten public offering of 8,250,000 shares of our common stock at a price to the public of $2.70 per share. The aggregate gross proceeds from the offering were $22.3 million. Of these proceeds, we received $20.1 million, after deducting underwriting discounts, commissions, and legal and other fees. The proceeds are expected to be used for general corporate purposes and working capital.

In the near term, we expect to see continued net negative cash flow from operating activities. We believe that our unrestricted current cash and cash equivalents ~~and unused capacity on our revolving line of credit~~ will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. Notwithstanding this

availability of cash, ~~and access to additional funding,~~ management has considered and will continue to evaluate implementation of a variety of cash conservation measures.

InFor our anticipated cash needs for working capital and capital expenditures beyond the ~~future,~~next 12 months, we may seek to raise additional funds through public or private equity financing, or through other ~~sources.~~sources such as a new, or the renewal of our existing, credit facility. Such sources of funding may or may not be available to us on commercially reasonable terms. The sale of additional equity securities could result in dilution to our shareholders. In addition, in the future, we may enter into cash or stock acquisition transactions or other strategic transactions that could reduce cash available to fund our operations or result in dilution to shareholders.

~~Off-Balance Sheet Arrangements~~

We do not maintain accruals associated with certain guarantees, as discussed in Note 17 Guarantees, to the consolidated financial statements included in Item 8 of Part II of our 2020 10-K. Thus, these guarantee obligations constitute off-balance sheet arrangements.

Critical Accounting Policies and Estimates

The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Our critical accounting estimates are discussed in Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" section of our annual report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Due to the coronavirus pandemic, there has been uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The following discussion about our market risk involves forward-looking statements. All statements that do not relate to matters of historical fact should be considered forward-looking statements. Actual results could differ materially from those projected in any forward-looking statements.

Interest Rate Risk. Our exposure to interest rate risk from changes in market interest rates relates primarily to RealNetworks' revolving line of credit. RealNetworks' borrowing arrangement has floating rate interest payments and thus has a degree of interest rate risk, if interest rates increase. Based on the available balance, a hypothetical 10% increase/decrease in interest rates would not increase/decrease our annual interest expense or cash flows by more than a nominal amount.

~~Investment Risk.~~ As of September 30, 2021, we had an equity investment in common shares of a foreign publicly traded technology company. These common shares were acquired as a portion of the proceeds received in the sale of Napster. The equity investment is subject to fluctuation in the market price as well as being exposed to changes in foreign currency exchange rates. A hypothetical 10% increase/decrease in the common share price and foreign currency exchange rate would result in an increase/decrease of the value of the equity investment of approximately $0.6 million.

Foreign Currency Risk. We conduct business internationally in several currencies and thus are exposed to adverse movements in foreign currency exchange rates.

Our exposure to foreign exchange rate fluctuations arise in part from: (1) translation of the financial results of foreign subsidiaries into U.S. dollars in consolidation; (2) the remeasurement of non-functional currency assets, liabilities and intercompany balances into U.S. dollars for financial reporting purposes; and (3) non-U.S. dollar denominated sales to foreign customers.

Our foreign currency risk management program reduces, but does not entirely eliminate, the impact of currency exchange rate movements. For our foreign operations, the majority of our revenues and expenses are denominated in other currencies, such as the euro. We currently do not actively hedge our foreign currency exposures and are therefore subject to the risk of exchange rate fluctuations.

A hypothetical 10% increase or decrease in those currencies relative to the U.S. dollar as of ~~September 30, 2021~~March 31, 2022 would not result in a material impact on our financial position, results of operations or cash flows.

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Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~September 30, 2021.~~March 31, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based upon that evaluation, our chief executive officer and chief financial officer concluded that, as of ~~September 30, 2021,~~March 31, 2022, our disclosure controls and procedures were effective.

(b) Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the ~~third~~first quarter of ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

See Note ~~12.~~10. Commitments and Contingencies, to the unaudited condensed consolidated financial statements included in Item 1 of Part I of this Form 10-Q.

Item 1A. Risk Factors

You should carefully consider the risks described below together with all of the other information included in this Form 10-Q. The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations. If any of the following risks actually occurs, our business, financial condition or operating results, and the trading price of our common stock, could be materially harmed.

Risks Related to the COVID-19 Pandemic

Our operating plans and financial condition have been adversely affected by the various impacts of the COVID-19 pandemic, and we expect to experience continued adverse effects in future periods in connection with the ongoing public health and safety, governmental, and economic implications.

In March 2020, the World Health Organization declared the outbreak of the novel coronavirus that causes COVID-19 to be a global pandemic. As the virus spread throughout 2020, across the U.S. and the world, authorities implemented numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, business limitations, and shutdowns. In addition to the pandemic's widespread impact on public health and global society, reactions to the pandemic as well as measures taken to contain the virus initially caused significant turmoil to the global economy and financial markets. To address the public health and safety concerns, we took steps to support the health and well-being of our employees, customers, partners and communities, including working remotely and learning to operate our businesses in a fundamentally different way.

To date, we have had to change certain strategy and product plans in order to address implications of the pandemic to our businesses, ~~and,~~ in particular, to our growth initiatives. Although forced to furlough some employees in the early days of the pandemic, we were able to bring those employees back to work during the second quarter of 2020. We also reduced expenditures throughout 2020 in an effort to efficiently manage our businesses in the restricted and uncertain climate. We continue to face risk, however, related to fixed facilities costs given the uncertain post-pandemic future of the use of physical office space. In addition, the initial turmoil in financial markets contributed to significant downward pressure on our stock price early in the pandemic. In the ongoing remote work environment, we also face continued challenges in marketing new products, which in the past have relied on the intangible benefits of an in-person demo and sales experience. We cannot provide assurance that the actions we have taken will be sufficient, or that conditions will improve as the pandemic, including the emergence of variants of COVID-19 such as the delta ~~variant,~~and omicron variants, and reactions thereto, continue to evolve. Public health officials

and medical professionals have warned that COVID-19 cases may continue to spike,

particularly if vaccination rates do not quickly increase or if additional, potent disease variants emerge. It is unclear how long ~~the~~any resurgence will last, how severe it will be, and what safety measures governments will impose in response to it.

The COVID-19 pandemic and the resultant economic instability and financial market turmoil has added complexity, uncertainty and risk to nearly all aspects of our business. We are unable to fully predict the near-term and long-term impacts that the pandemic will have on our results from operations, financial condition, liquidity and cash flows for fiscal ~~2021~~2022 or beyond.

Risks Related to our Strategy

Our growth initiatives could take longer than planned, be unsuccessful, or deplete our cash resources, any of which would have a material adverse effect on the performance of our businesses and financial results, and could cause us to pursue additional debt or other funding sources.

In recent years, we have developed new products and technologies, and funded initiatives, intended to create growth in our businesses, while simultaneously taking steps to reduce costs and increase profitability. These growth initiatives ~~several of which have been unsuccessful over recent years,~~ have impacted all segments of our organization, requiring us to allocate limited resources among our diverse business units. Our financial sustainability is largely dependent on the success of our growth initiatives, and there are many risks to that success, some of which are internal to our company, including our ability to develop and monetize our products and services, and some of which are externally driven and outside of our control, such as the potential impact of macroeconomic pressures, including high inflation rates and supply chain interruptions, and global pandemics. In particular, progress with our growth initiatives was and may continue to be negatively impacted by various reactions to the global outbreak of the coronavirus that causes COVID-19, such as travel restrictions, community lockdowns, tightening of corporate budgets, reduction in consumer confidence, and instability in financial markets. We cannot predict the duration or severity of these reactions or impacts to our business and, if prolonged, our cash reserves may prove insufficient, requiring us to pursue additional debt or other funding sources.

Given the ambitious and significant nature of our growth initiatives, there is substantial risk that we may be unsuccessful in implementing our plans in a timely manner, our cash reserves may be depleted or insufficient to fully implement our plans, our growth initiatives may not gain adequate momentum, or the combination of our growth initiatives and cost reductions may not prove to be profitable. Moreover, our acceptance of outside funding for any of our growth businesses, such as our April 2021 public offering, exposes us to new risks and potential liabilities, including possible payment obligations and securities liability. Our business would suffer, and our operational results and financial outlook would be negatively impacted to a significant degree, in the event that any of our growth initiatives fail.

In August 2019, RealNetworks and Napster entered into a loan agreement with a third-party financial institution. Following the December 2020 sale of Napster to MelodyVR, the loan agreement was amended to remove Napster as a co-borrower and, among other modifications, to reduce the amount available under the revolving line of credit to a maximum of $6.5 million. The loan agreement, as amended, matures August 1, 2022 and contains customary covenants, including financial covenants, minimum EBITDA levels, and maintaining a minimum unrestricted cash balance. We have not had a debt facility in our recent past, therefore the entry into this facility has introduced new risks to the company, including the risk that constraints around covenants may lead to less flexibility in operational decision making, the risk of default and various implications thereof, and the potential increase in liabilities on our balance sheet in the event that we draw down the line of credit.

In April 2020, following an assessment of eligibility and upon approval by our Board of Directors, RealNetworks issued a promissory note in the principal amount of $2.9 million pursuant to the Paycheck Protection Program, or PPP, of the CARES Act. In May 2020, Napster, then-majority owned by RealNetworks though it maintained distinct legal status and control, issued its own promissory note in the principal amount of $1.7 million pursuant to the PPP. RealNetworks applied for forgiveness of its PPP loan in January 2021, and received notice that the PPP loan was forgiven in June ~~2021; Napster applied for forgiveness of its PPP loan in December 2020, and received notice that its PPP loan was forgiven in June~~ 2021.

The inability to obtain additional debt, whether through draws on our current revolving line of credit or through a new debt facility, or the need to raise funds through other means, could negatively impact our liquidity and ability to invest in our growth initiatives. Moreover, we could be compelled to consider funding that would impact our governance structure. Our pursuit of debt or other sources of liquidity could impair our financial results and stock price.

We need to successfully monetize our new products and services in order to sustain and grow our businesses, and manage our cash resources.

In order to sustain our current level of business and to implement our growth initiatives, we must successfully monetize our new products and services, including through existing and new relationships with distribution partners, establishing new sales channels, and managing new supply chains. Our digital media products and services must be attractive and useful to distribution partners and end users. The successful acceptance and monetization of these products and services, therefore, is subject to unpredictable and volatile factors beyond our control, including end-user preferences, competing products and services, the rapid pace of change in the market, the effectiveness of our distribution channels, and significant global crises. Any failure by us to timely and accurately anticipate consumers’ changing needs and preferences, emerging technological trends and data privacy norms, or changes in the competitive or regulatory landscape for our products and services could result

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in a failure to monetize our new products or the loss of market opportunities, both of which we have experienced at various times in our past.

Our growth initiatives are highly dependent on the performance of mobile telecommunications carriers, distributors, and resellers. We distribute our messaging platform services, such as ~~Kontxt,~~KONTXT, through a limited number of mobile telecommunications carriers. Our SAFR sales channel includes distributors and resellers, as well as sales directly to end users. The financial condition, performance, and demand of our products and services through these mobile telecommunications carriers, distributors, and resellers could deteriorate, weakening our ability to sell our products and services, causing a material negative impact on our financial results. Furthermore, the growth of our SAFR business is inherently uneven and the timing of signing contracts and revenue recognition for SAFR can result in highly variable results over time, making it difficult to predict future results.

Moreover, in order to grow our new businesses, we must make long-term investments, develop or obtain appropriate intellectual property and commit significant resources before knowing whether the products and services that we are developing or have introduced will meet the demands of the relevant market. As we have experienced, we may not realize a sufficient return, or may experience losses, on these ~~investments, thereby~~investments. If this happens, it could cause further ~~straining~~strain on our limited cash resources and negatively ~~affecting~~affect our ability to pursue other needed growth or strategic opportunities.

Sustaining and growing our businesses, and managing our cash resources, are subject to these risks inherent in developing, distributing and monetizing our new products and services. Our failure to manage these risks could further impair our operations and financial results to a material degree, and could cause an unsustainable depletion of our cash resources.

Furthermore, our products and services have been in the past and may be in the future subject to legal challenge. Responding to any such claims may require us to enter into royalty and licensing agreements on unfavorable terms, require us to stop distributing or selling, or to redesign our products or services, or to pay damages, any of which could constrain our growth plans and cash resources. Similarly, we may decide to initiate legal challenges against parties infringing on our intellectual property rights, which could incur substantial costs and require substantial management time to resolve, and we may not be successful in protecting our rights.

Our businesses, including in connection with our growth initiatives, face substantial competitive challenges that may impair our success, thus negatively impacting our future growth.

Our digital media products and services, including both longstanding and new products/~~solutions,~~services, some of which are central to our growth initiatives, face a wide variety of competitors, many of which have longer operating histories, greater name or brand recognition, deeper and more expansive market penetration, more employees, and significantly greater resources than we do. In addition, current and potential competitors may include relatively new businesses that develop or use innovative technologies, products or features that could disrupt the market for technologies, products or features that we currently develop and market or seek to develop and market. In attempting to compete with any or all of these competitors, we may experience, as we have in the past, some or all of the following consequences, any of which would adversely affect our operating results and the trading price of our stock:

•reduced prices or margins;

•loss of current and potential customers, or partners and potential partners who distribute our products and services or who provide content that we distribute to our customers;

•changes to our products, services, technologies, licenses or business practices or strategies;

•lengthened sales cycles;

•inability to meet demands for more rapid sales or development cycles;

•industry-wide changes in content distribution to customers or in trends in consumer consumption of digital media products and services;

•pressure to prematurely release products or product enhancements; or

•degradation in our stature or reputation in the ~~market.~~market, including due to adverse publicity.

Our Consumer Media technologies for media playback and production (RealPlayer, RealMedia VB and RealMedia HD) compete with alternative media playback technologies and audio and video content formats that have obtained broad market penetration. RealMedia VB and RealMedia HD are codecs, technology that enables compression and decompression of the media content in a (usually proprietary) format. We license our codec technology primarily to computer, smartphone and other mobile device manufacturers, and also to other partners that can support our efforts to build a strong ecosystem, like content providers and integrated circuit developers. To compete effectively, codec technologies must appeal to, and be adopted for use by, a wide range of parties: producers and providers of media content, consumers of media content, and device manufacturers who pre-load codec technologies onto their devices. Our ability to sustain or grow this business, which has recently experienced downward pressure, is dependent on the successful promotion and adoption of our codec technologies to a wide and diverse target market, which is a complex and highly uncertain undertaking. If we are unable to compete successfully, our Consumer Media business could decline as it has in the recent past or on a more accelerated basis.

The market for our Mobile Services business is highly competitive and continues to rapidly evolve. Our SaaS services face competition from a proliferation of applications and services, many of which carriers can deploy or offer to their subscribers, or which consumers can acquire independently of their carrier. We expect pricing pressure in this business to

continue to materially impact our operating results in this business. Our Mobile Services growth initiatives compete with a wide variety of companies, as small startups and well established, heavily resourced global companies race to develop AI-based technologies and launch products in the computer vision market. The success of these initiatives is highly dependent on our ability to differentiate our product offering within this highly competitive environment.

The branded services in our Games business compete with other developers, aggregators and distributors of mobile, online, and downloadable games. Our competitors vary in size and capabilities, some of which have high volume distribution channels and greater financial resources than we do; while others may be smaller and more able to quickly or efficiently adjust to market conditions. We also face significant price competition in the casual games market, as our competitors increasingly focus on free-to-play games or reduce prices more aggressively. We expect competition to continue to intensify in this market. Our games development studios compete primarily with other developers of mobile, online, and downloadable games, and must continue to develop popular and high-quality game titles. Our Games business must also continue to execute on opportunities to expand the play of our games on a variety of non-PC platforms, including mobile, in order to maintain our competitive position and to grow the business. Moreover, continued growth in our Games business is in part dependent on the availability of funds to invest in marketing, which availability cannot be assured.

Issues with the use of artificial intelligence, or AI, in our offerings could result in reputational harm or liability.

Certain of our growth initiatives are centered around AI-based products and solutions, of which our two main products are SAFR and KONTXT, and we expect these initiatives to comprise an increasing percentage of our go-forward business. ~~We envision a future in which our AI-based products and solutions help our customers live safer, smarter, more efficiently, and more successfully.~~ As with many disruptive innovations, AI presents risks and challenges that could affect its adoption, and therefore our business. AI algorithms may be flawed. Datasets may be insufficient or contain biased information. ~~Inappropriate~~Any inappropriate or controversial data practices by us, our distribution network, our end users, or others could impair the acceptance of AI solutions. These deficiencies could undermine the decisions, predictions, or analysis AI applications produce, subjecting us to competitive harm, legal liability, and brand or reputational harm. ~~Some AI scenarios present ethical issues.~~ If we enable or offer AI solutions that are controversial because of their impact on privacy, employment, or other social issues, we may experience brand or reputational harm. Potential government regulation related to AI ethics may also increase the burden and cost of research and development in this area, subjecting us to brand or reputational harm, competitive harm or legal liability.

Risks Related to our Operations

The distribution and license of our technology products and services are governed by contracts with third parties, the terms of which subject us to significant risks that could negatively impact our revenue, expenses and assumption of liability related to such contracts.

In our Consumer Media and Mobile Services segments, we distribute and license most of our technology products and services pursuant to contracts with third parties, such as mobile carriers and their partners, online service providers, and OEMs and device manufacturers, many of whom may have stronger negotiating leverage due to their size and reach. These contracts govern the calculation of revenue generated and expenses incurred, how we recognize revenue and expenses in our financial statements, and the allocation of risk and liabilities arising from the product or service or distribution thereof. Terms impacting revenue, over which we may have limited if any control, may involve revenue sharing arrangements, end user pricing, usage levels, and exclusivity, all of which significantly affect the level of revenue that we may realize from the relationship. Moreover, contract terms around marketing and promotion of our products and other expense allocation could result in us bearing higher expenses or achieving weaker performance than we had anticipated from the relationship.

In addition, although our contracts with third parties are typically for a fixed duration, they could be terminated early; and they may be renegotiated on less favorable terms or may not be renewed at all by the other party. We must, therefore, seek additional contracts with third parties on an ongoing basis to sustain and grow our business. We expect to face continuing and increased competition for the technology products and services we provide, and there is no assurance that the parties with which we currently have contracts will continue or extend current contracts on the same or more favorable terms, or that we will obtain alternative or additional contracts for our technology products and services. As we have experienced over the past several years relating to our technology sales in China, the further loss of existing contracts, the failure to enter new contracts, or the deterioration of customer creditworthiness or the terms in our contracts with third parties could continue to materially harm our operating results, financial condition, and cash flow.

Nearly all of our contracts in which we provide to another party services or rights to use our technology include some form of obligation by us to indemnify the other party for certain liabilities and losses incurred by them, including liabilities resulting from third party claims for damages that arise out of the use of our technology. These indemnification terms provide us with certain procedural safeguards, including the right to control the defense of the indemnified party. We have in the past incurred costs to defend and settle such claims. Claims against which we may be obligated to defend others pursuant to our contracts could in the future result in payments that could materially harm our business and financial results.

In our SAFR business we have contracted with the U.S. Government through the Small Business Innovation Research (SBIR) program. This subjects us to certain contracting rules, standards, and audits. If we fail to meet our obligations under such government contracts, we could face civil or criminal penalties, or administrative sanctions including suspension or debarment from future government business, termination of contract, refunding or suspension of payments, forfeiture of profits or payment of fines. In addition, future Federal contracts may be subject to increased contracting rules, standards, and audits which could have an adverse impact on our operating results if we fail to meet these obligations.

In our Games segment, we rely on third-party platforms to distribute our games and collect revenue from players. We are subject to the standard terms and conditions that these platform providers have for application developers, which govern the content, promotion, distribution, operation of games and other applications on their platforms, as well as the terms of the payment processing services provided by the platforms, and which the platform providers can change unilaterally on short notice or without notice. If our platform providers do not perform their obligations in accordance with our platform agreements, our operations and financial condition could be adversely impacted.

Our operating results are difficult to predict and may fluctuate, which may contribute to weakness or volatility in our stock price.

The trading price for our common stock has been in steady decline for many years, though, particularly more recently, has also been vulnerable to significant volatility caused by general market conditions or unusual stock-specific trading activity. There can be no assurance that our common stock will not experience additional, and potentially more significant, volatility in the future caused by unpredictable external factors, including due to the broad range of causes described in these risk factors. In addition, as a result of the rapidly changing markets in which we compete, and restructuring, impairment and other one-time events specific to us or our consumers, our operating results may fluctuate or decline from period to period, which may contribute to weakness or volatility in our stock price. For example, the timing of contract signing and the rules for revenue recognition in our SAFR business produce results that are inherently variable and difficult to predict. Our results from this business are likely to be volatile and may not reflect a steady pace of growth, which could result in fluctuations in our stock price. Moreover, the general difficulty in forecasting our operating results and identifying meaningful performance metrics, especially when factoring in our growth initiatives, could result in actual results that differ materially from expected results, our published guidance, or analyst expectations, again causing weakness and volatility in our stock ~~price.~~price and/or the trading volume of our shares. Compounding these internal factors are external factors, such as the significant instability in global financial markets experienced during ~~2020 and 2021,~~the COVID-19 pandemic, that will impact our operating results and stock price, potentially driving our stock price to record lows as occurred in 2020 or to significant activity levels as occurred in early ~~2021.~~2021, and rising inflation, that affects our ability to control our costs, including employee wages and benefits and other operating expenses.

The difficulty in forecasting our operating results may also cause over- or under-investment in certain growth initiatives, as such investment is often planned based on expected financial ~~results. This over-/under-investment could cause~~results, thus causing more severe fluctuations in operating results and, likely, further volatility in our stock price.

Further, because our common stock is listed on the Nasdaq Global Select Market, we must meet Nasdaq's continued listing requirements, in particular, financial requirements that include maintaining a minimum bid price of at least $1.00. ~~In April 2020, we~~On February 18, 2022, the Company received a letter from the Listing Qualifications Department of the Nasdaq Global ~~Select~~ Market indicating that, based upon the closing bid price of our common stock for the 30 consecutive business day period from ~~March 11, 2020 to April 23, 2020,~~January 4, 2022 through February 15, 2022, we did not meet the minimum bid price of $1.00 per share required for continued listing on Nasdaq. We have a compliance period of 180 calendar days ending August 17, 2022 in which to regain compliance. In ~~June 2020, we received a second letter from Nasdaq Staff indicating that we had regained~~order to regain compliance with ~~Nasdaq Listing Rule 5450(a)(1) based on its determination that the~~Nasdaq’s minimum bid price requirement, our common stock must maintain a minimum closing bid price of $1.00 for at least ten consecutive business days prior to August 17, 2022.

The letter has no immediate impact on the listing of our common stock, ~~had been at $1.00 per share or greater for~~which will continue to be listed and traded on Nasdaq during the ~~10 business days from May 15 to May 29, 2020. Although we are currently in~~180-day compliance ~~with all applicable continued listing requirements and have received no contradictory notification from Nasdaq, our stock price could again fall below the $1.00 minimum as a result~~period. Our Board of valuation pressure, stock-specific trading activity or general declines in the stock market. We regularly monitor our compliance with Nasdaq's continued listing requirements, and, as necessary, our Board will considerDirectors is considering the implementation of various measures intended to support ~~continued~~ compliance. In the event that we do not regain compliance by this date, we may be eligible for a second compliance period pursuant to Nasdaq’s rules.

Although we expect to restore our compliance with the listing requirements, we can provide no assurance that any action taken by us would be successful, or that any such action would stabilize the market price or improve the liquidity of our common stock. Should a delisting occur, a shareholder would likely find it significantly more difficult to dispose of our common stock, or to obtain accurate quotations as to the value of our common stock, and our ability to raise future capital through the sale of our common stock could be severely limited.

Any impairment to our goodwill, definite-lived, and right-of-use operating lease assets could result in a material charge to our earnings.

In accordance with GAAP, we test goodwill for possible impairment on an annual basis or more frequently in the event of certain indications of possible impairment. We review definite-lived and operating lease assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. These events or circumstances could include a significant change in the business climate, including a significant sustained decline in a reporting unit’s fair value, changes in our operating plans and forecasts, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of our business, a significant sustained decline in our market capitalization and other factors. If we were to determine that an impairment had occurred, we would be required to record an impairment charge, which could have a material negative, and unanticipated, impact on our financial results.

Continued loss of revenue from our subscription services is likely to cause further harm to our operating results.

Our operating results have been and will continue to be adversely impacted by the loss of subscription revenue related to our more traditional products and services. Subscribers cancel their subscriptions to our services for many reasons, including a perception that they do not use the services sufficiently or that the service does not provide enough value, a lack of attractive or exclusive content generally or as compared with competitive service offerings, or because customer service issues are not satisfactorily resolved. Revenue from our SuperPass subscription service, for example, has continued to decline over several periods, due to changes in consumer preferences and changes on our part to focus on other products and services we offer, and we expect this trend to continue.

Difficulty recruiting and retaining key personnel could significantly impair our operations or jeopardize our ability to meet our growth objectives.

Our success depends substantially on the contributions and abilities of certain key personnel, and we cannot provide assurance that we will be able to retain them in the near term or recruit them in the future. In 2020, we experienced a significant level of executive turnover, as we have experienced in the past and could experience in the future, which could impact our ability to retain key personnel. Also, qualified individuals are in high demand and competition for such qualified personnel in our industry, particularly engineering talent, is extremely intense, and we may incur significant costs to attract or retain them. Changes in immigration or other policies in the U.S. or other jurisdictions that make it more difficult to hire and retain key talent, or to assign individuals to any of our locations as needed to meet business needs, could adversely affect our ability to attract key talent or deploy individuals as needed, and thereby adversely affect our business and financial results. Further, the increased availability of work-from-home arrangements by other organizations in the competing environment primarily driven by the COVID-19 pandemic, repeated restructuring of our businesses and related cost-reduction efforts, as well as declines and volatility in our stock price, ~~have caused~~may cause instability in our workforce that ~~makes~~will make it more difficult to retain and recruit key personnel. Given these factors, there can be no assurance that we will be able to attract and retain the key personnel necessary to sustain our business or support future growth.

Acquisitions and divestitures involve costs and risks that could harm our business and impair our ability to realize potential benefits from these transactions.

As part of our business strategy, we have acquired and sold technologies and businesses in the past and expect that we will continue to do so in the future. The failure to adequately manage transaction costs and address the financial, legal and operational risks raised by acquisitions and divestitures of technology and businesses could harm our business and prevent us from realizing the benefits of these transactions. In addition, we may identify and acquire target companies, but those companies may not be complementary to our current operations and may not leverage our existing infrastructure or operational experience, which may increase the risks associated with completing acquisitions.

For example, our January 18, 2019 acquisition of a controlling interest in Napster represented a significant acquisition for RealNetworks. To effectuate the acquisition and incorporate Napster's financial results into our financial statements, we incurred significant transaction-related costs throughout fiscal year 2019 and early in 2020. Moreover, the 2020 sale of our Napster stake in connection with the merger of Napster and MelodyVR resulted in further significant transaction-related expenses, certain ongoing indemnification obligations, and the payment of a portion of proceeds to a third party.

Transaction-related costs and financial risks related to completed and potential future purchase or sale transactions may harm our financial position, reported operating results, or stock price. Previous acquisitions have resulted in significant expenses, including amortization of purchased technology, amortization of acquired identifiable intangible assets and incurring charges for the impairment of goodwill and other intangible assets, which are reflected in our operating expenses. New acquisitions and any potential additional future impairment of the value of purchased assets, including goodwill, could have a material negative impact on our future operating results. In compliance with GAAP, we evaluate these assets for impairment at least annually. Factors that may be considered a change in circumstances, indicating that our goodwill or definite-lived assets may not be recoverable, include reduced future revenue and cash flow estimates due to changes in our forecasts, and unfavorable changes to valuation multiples and discount rates due to changes in the market. If we were to conclude that any of these assets were impaired, we would have to recognize an impairment charge that could materially impact our financial results.

Purchase and sale transactions also involve operational risks that could harm our existing operations or prevent realization of anticipated benefits from a transaction. These operational risks include:

• difficulties and expenses in assimilating the operations, products, technology, information systems, and/or personnel of the acquired company;

• retaining key management or employees of the acquired company;

• entrance into unfamiliar markets, industry segments, or types of businesses;

• operating, managing and integrating acquired businesses in remote locations or in countries in which we have little or no prior experience;

• diversion of management time and other resources from existing operations;

• impairment of relationships with employees, affiliates, advertisers or content providers of our business or acquired business;

• assumption of known and unknown liabilities of the acquired company, including intellectual property claims; and

• potential impacts to our system of internal controls and disclosure controls and procedures.

Risks Related to Regulations and Other External Factors

Government regulation of the Internet, computer vision and facial recognition technologies, artificial intelligence and other related technologies exposes us to regulatory risks and unfavorable developments resulting from any changes in the regulatory landscape or in the industry or broader market conditions in which ~~Real~~RealNetworks operates. In addition, future Federal contracts will most likely be subject to substantial contracting rules, standards, and audits which could have an adverse impact on our operating results if we fail to meet these obligations.

We are subject to regulations and laws specific to the marketing, sale and delivery of goods and services. These laws and regulations, which continue to evolve, cover taxation, user privacy, data collection and protection, ~~network security,~~cybersecurity, copyrights, electronic contracts, sales procedures, automatic subscription renewals, credit card processing procedures, consumer protections, digital games distribution, artificial intelligence technologies and services, broadband Internet access, and content restrictions. We cannot guarantee that we have been or will be fully compliant in every jurisdiction, as it is not entirely clear how existing laws and regulations governing issues such as privacy, data protection, taxation and consumer protection apply or will be enforced with respect to the products and services we sell. Moreover, as Internet commerce continues to evolve, increasing regulation and/or enforcement efforts by federal, state and foreign agencies and the prospects for private litigation claims related to our data collection, privacy policies or other e-commerce practices become more likely. In addition, the adoption of any laws or regulations or the imposition of other legal requirements that adversely affect our ability to market, sell, and deliver our products and services could decrease our ability to offer or customer demand for our service offerings, resulting in lower revenue. Moreover, both in the U.S. and worldwide, ~~certain~~obligations relating to privacy, data protection, and cybersecurity are rapidly evolving. Certain jurisdictions have and more jurisdictions may impose stricter laws relating to privacy, ~~laws~~data protection or cybersecurity that may impact accepted business ~~practices.~~practices and impose obligations that may conflict with each other or may conflict with our policies, practices, or features of our products and services. For example, the European Union adopted the General Data Protection Regulation, or GDPR, effective as of May 2018 regarding the collecting, handling, and storage of personal data, and California has adopted the California Consumer Privacy Act of 2018 and will substantially expand privacy protection when the California Privacy Rights Act of 2020 goes into effect on January 1, 2023. We cannot provide assurance that the changes that we have adopted to our business practices will be compliant or that new compliance frameworks such as ~~this~~these or other obligations relating to privacy, data protection, or cybersecurity will not require us to modify our policies, practices, or features of our goods or services, results in claims, complaints, or demands of private parties or investigations, other proceedings by regulatory authorities, or fines or other liabilities, or otherwise have a negative impact on our financial results.

In addition, through the operation of our SAFR product, we are subject to regulations and laws generally and specifically applicable to the provision of facial recognition technology. New laws and regulations are under discussion and those that exist are untested, thus we cannot guarantee that we have been or will be fully compliant in every jurisdiction. Moreover, the voluntary development of norms, standards, and best practices by companies providing facial recognition and similar technology could require modifications to our technology or practices that may be costly or incompatible with our financial model.

In the future, and as we pursue further sales of our SAFR product to governmental agencies, such as the Small Business Innovation Research (SBIR) contracts with the U.S. Air Force in 2020, we may become subject to more extensive contracting rules, standards, and audits. If we fail to meet our obligations under such government contracts, we could face civil or criminal penalties, or administrative sanctions including suspension or debarment from future government business, termination of contract, refunding or suspension of payments, forfeiture of profits or payment of fines. Future regulations, or changes in laws and regulations or their existing interpretations or applications, could require us to further change our business practices, raise compliance costs or other costs of doing business and result in additional historical or future liabilities for us, resulting in adverse impacts on our business and our operating results. Moreover, as we seek to increase our sales to government entities, we may experience increased costs that relate to compliance with government regulations, including increased costs related to compliance with government data security regulations.

As a consumer-facing business, we receive complaints from our customers regarding our consumer marketing efforts and our customer service practices. Some of these customers may also complain to government agencies, and from time to time, those agencies have made inquiries to us about these practices. In addition, we may receive complaints or inquiries directly from governmental agencies that have not been prompted by consumers. We cannot provide assurance that governmental agencies will not bring future claims, as they have on occasion in the past, regarding our marketing, or consumer services or other practices.

We face financial and operational risks associated with doing business in non-U.S. jurisdictions and operating a global business, that have in the past and could in the future have a material adverse impact on our business, financial condition and results of operations.

A material portion of our revenue is derived from sales outside of the U.S. and most of our employees are located outside of the U.S. Consequently, our business and operations depend significantly on global and national economic conditions and on applicable trade regulations and tariffs. For example, our business in China could be negatively affected by an actual or perceived lack of stability or consistency in U.S.-China trade policy. The growth of our business is also dependent in part on successfully managing our international operations. Our non-U.S. sales, purchases and operations are subject to risks inherent in conducting business abroad, many of which are outside our control, including the following:

•periodic local or geographic economic downturns and unstable political conditions;

•price and currency exchange controls;

•fluctuation in the relative values of currencies;

•difficulty in repatriating ~~cash,~~funds, whether as a result of tax laws or otherwise;

•high inflation rates;

•compliance with current and changing tax laws, and the coordination of compliance with U.S. tax laws and the laws of any of the jurisdictions in which we do business;

•difficulties in complying with global ~~privacy~~ laws related to the collection, storage, use, transfer, and ~~use~~other processing of customer and employee data;

•difficulties protecting intellectual property;

•compliance with labor laws and other laws governing employees;

•local labor disputes;

•changes in trading policies, regulatory requirements, tariffs and other barriers, or the termination or renegotiation of existing trade ~~agreements;~~agreements including as a result of U.S. and other sanctions against Russia as a result of Russia's invasion of Ukraine;

•impact of changes in immigration or other policies impacting our ability to attract, hire, and retain key talent;

•potential implications resulting from the outbreak of disease on a global scale or localized in countries in which we do business or have employees;

•global supply chain interruptions, and

•difficulties in managing a global enterprise, including staffing, collecting accounts receivable, and managing suppliers, distributors, and representatives.

Because consumers may consider the purchase of our digital entertainment products and services to be a discretionary expenditure, their decision whether to purchase our products and services may be influenced by macroeconomic factors that affect consumer spending such as unemployment, access to credit, negative financial news, and declines in income. In addition, mobile telecommunication carriers and other business partners may reduce their business or advertising spending with us or for our products and services they distribute to users in the face of adverse macroeconomic conditions, such as financial market volatility, government austerity programs, tight credit, and declines in asset values. We have in the past recorded material asset impairment charges due in part to weakness in the global economy, and we may need to record additional impairments to our assets in future periods in the event of renewed weakness and uncertainty in the global or a relevant national economy. Accordingly, any significant weakness in the national and/or global economy could materially impact our business, financial condition and results of operations in a negative manner.

Our international operations involve risks inherent in doing business globally, including difficulties in managing operations due to distance, language, cultural differences, local economic conditions, outbreak of diseases, different or conflicting laws and regulations, taxes, and exchange rate fluctuations. The functional currency of our foreign subsidiaries is typically the local currency of the country in which each subsidiary operates. We translate our subsidiaries’ revenues into U.S. dollars in our financial statements, and continued volatility in foreign exchange rates may result in lower reported revenue or net assets in future periods. If we do not effectively manage any of the risks inherent in running our international businesses, our operating results and financial condition could be harmed. As another example, the COVID-19 pandemic has resulted in travel and work restrictions globally, and may further disrupt our ability to produce and sell products. As a result of the ongoing remote work environment, we face continued challenges in marketing new products, which in the past have relied on the intangible benefits of an in-person demo and sales experience. We continue to monitor the impacts of the pandemic to our business, as well as rapidly evolving expectations regarding its severity and duration. We are unable to predict the full effects of this pandemic on our operations and financial results. Additionally, we face uncertainty from the collateral effects of sanctions and other actions taken against Russia as a result of Russia's invasion of Ukraine. While our direct business with customers in Russia is not material, the macroeconomic effects of sanctions or other actions against Russia now or in the future could negatively affect our business. These effects include increases in the cost of energy and in inflation generally.

Our business is conducted in accordance with existing international trade relationships, and trade laws and regulations. Changes in geopolitical relationships and laws or policies governing the terms of foreign trade, such as the recent rise in protectionist politics and economic nationalism, could create uncertainty regarding our ability to operate and conduct commercial relationships in affected jurisdictions, which could have a material adverse effect on our business and financial results. Additionally, our global operations may also be adversely affected by political events, domestic or international terrorist events and hostilities or complications due to natural or human-caused disasters. These uncertainties could have a material adverse effect on the continuity of our business and our results of operations and financial condition.

We may be unable to adequately protect our proprietary rights or leverage our technology assets, and may face risks associated with third-party claims relating to intellectual property rights associated with our products and services.

Our ability to compete across our businesses partly depends on the superiority, uniqueness and value of our technology, including both internally developed technology and technology licensed from third parties. To protect our proprietary rights, we rely on a combination of patent, trademark, copyright and trade secret laws, confidentiality agreements with our employees and third parties, and protective contractual provisions. Our efforts to protect our intellectual property rights may not assure our

ownership rights in our intellectual property, protect or enhance the competitive position of our products, services and technology, or effectively prevent misappropriation of our technology.

From time to time, we receive claims and inquiries from third parties alleging that our technology used in our business may infringe the third parties’ proprietary rights. These claims, even if not meritorious, could force us to make significant investments of time, attention and money in defense, and give rise to monetary damages, penalties or injunctive relief against us. We may be forced to litigate, to enforce or defend our patents, trademarks or other intellectual property rights, or to determine the validity and scope of other parties' proprietary rights in intellectual property. To resolve or avoid such disputes, we may also be forced to enter into royalty or licensing agreements on unfavorable terms or redesign our product features, services and technology to avoid actual or claimed infringement or misappropriation of technology. Any such dispute would likely be costly and distract our management, and the outcome of any such dispute (such as additional licensing arrangements or redesign efforts) could fail to improve our business prospects or otherwise harm our business or financial results.

Disputes regarding the validity and scope of patents or the ownership of technologies and rights associated with streaming media, digital distribution, and online businesses are common and likely to arise in the future. We also routinely receive challenges to our trademarks and other proprietary intellectual property that we are using in our business activities. We are likely to continue to receive claims of third parties against us, alleging contract breaches, infringement of copyrights or patents, trademark rights, trade secret rights or other proprietary rights, or alleging unfair competition or violations of privacy rights.

Introduction of new technology and changes in consumer behavior could harm our business and results of operations.

The expectations and needs of technology consumers are constantly evolving. Our future success depends on a variety of factors, including our continued ability to innovate and introduce new products and services, enhance and integrate our products and services in a timely and cost-effective manner, extend our core technology into new applications, and anticipate emerging standards, business models, software delivery methods and other technological developments.

The introduction of, or limitations on, certain technologies may reduce the effectiveness of our products. For example, some of our products rely on tracking, third-party cookies or other identifiers to help our customers more effectively advertise and detect and prevent fraudulent activity. Consumers can control the use of these technologies through their browsers, operating systems, device settings or “ad-blocking” software or applications. Increased use of such methods, software or applications could harm our business.

Our success in the media and entertainment industry depends on our ability to adapt to shifting patterns of content consumption. The ways in which consumers view content, and technology and business models in our industry, continue to evolve rapidly, and new distribution platforms, as well as increased competition from new entrants and emerging technologies, have added to the complexity of maintaining predictable revenue streams. Moreover, Internet-connected devices and operating systems controlled by third parties increasingly contain features that allow device users to disable functionality that allows for the delivery of advertising on their devices, including through Apple’s Identifier for Advertising, or IDFA, or Google’s Advertising ID, or AAID, for Android devices. Device and browser manufacturers may include or expand these features as part of their standard device specifications.For example, Apple Inc. has imposed new requirements for consumer disclosures regarding privacy practices, and has implemented a new application tracking transparency framework that requires opt-in consent for certain types of tracking. This transparency framework was launched in April 2021. This transparency framework has and may continue to negatively impact the effectiveness of our advertising practices. We are further dependent on the interoperability of our sites with popular mobile operating systems that we do not control, such as iOS and Android, and any changes in such systems that degrade the functionality of our sites or give preferential treatment to competitive products could adversely affect the usage of our sites on mobile devices. In the event that it is more difficult for our customers to access and use our sites on their mobile devices, or if our customers choose not to access or to use our sites on their mobile devices or to use mobile products that do not offer access to our sites, our customer growth could be harmed and our business, financial condition and operating results ~~will suffer and we~~ may be ~~subject to market risk~~materially and ~~legal liability if~~adversely affected.

Disruptions or failures of, or cybersecurity attacks on, our systems or networks, or those of our third-party service providers, may cause such systems and networks to fail, become unavailable, unsecured or perform poorly, ~~so that current~~ or ~~potential users do not have adequate access~~may lead to ~~our products, services and websites.~~disclosure of sensitive customer data.

Our ability to provide our products and services to our customers and operate our business depends on the continued operation and security of our information systems and networks and those of our service providers. A significant or repeated reduction in the performance, security or availability of our information systems and network infrastructure or ~~that~~those of our

service providers could harm our ability to conduct our business, and harm our reputation and ability to attract and retain users, customers, advertisers and content providers. Many of our products are interactive Internet applications that by their very nature require communication between a client and server to operate.

We have on occasion experienced system errors and failures that caused interruption in availability of products or content or an increase in response time. Problems with our systems or networks, or third-party systems and networks that we utilize, could result from a failure to adequately maintain and enhance these systems and networks, natural disasters and similar events, power failures, intentional actions to disrupt systems and networks and many other causes.

We sell many of our products and services through online sales transactions directly with consumers, and their credit card information is collected and stored by our payment processors. The systems of our third party service providers may not prevent future improper access to or use, disclosure or other processing of credit card information, personal information or ~~personally identifiable information. We have a privacy policy concerning the collection, use, and disclosure of user data involved in interactions between~~other information relating to individuals, or other sensitive or confidential information that we or our ~~client, third party payment~~third-party service providers ~~and server products.~~process. A security breach, incident, or cyberattack impacting us or our third-party service providers–including any such matter that leads to the disclosure or other unauthorized processing of consumer account information, or any event that leads to the perception that any such matter has occurred; any failure by us to comply with our posted privacy policy or existing or new privacy ~~legislation,~~legislation; or any other actual or asserted obligations relating to privacy, data protection or cybersecurity, could result in unauthorized access to, damage to, disablement or encryption of, use or misuse of, disclosure of, modification of, destruction of, or loss of our data or our customers' data–could disrupt our ability to operate our products and services; could harm our ~~reputation,~~reputation; could impact the market for our products and ~~services,~~services; or could subject us to ~~litigation. We have on occasion experienced system errors~~claims, demands, litigation, regulatory investigations and ~~failures that caused interruption~~other proceedings, resulting in ~~availability of products or content or~~potentially significant fines and other liabilities. Further, because there are many different security attack techniques and such techniques continue to evolve and are generally not detected until after an increase in response time. Problems with our systems and networks, or the third party systems and networks that we utilize, could result from a failure to adequately maintain and enhance these systems and networks, natural disasters and similar events, power failures, intentional actions to disrupt systems and networks and many other causes. Many of our services do not currently have fully redundant systems or a formal disaster recovery plan, andincident has occurred, we may ~~not have~~be unable to implement adequate ~~business interruption insurance to compensate us for losses that may occur from~~preventative measures, anticipate attempted security breaches or other security incidents, or react in a ~~system outage.~~timely manner.

Security breaches, ransomware and other computer malware, phishing, and cyberattacks have become more prevalent and sophisticated in recent years, making it increasingly difficult to successfully defend against them or implement adequate preventive measures. Furthermore, we currently hold contracts with both U.S. and foreign governments, including the U.S. military, and expect to expand our portfolio of government contracts going forward, which may increase the risk that we will become a target for such attacks. As the risk of attack increases, our costs associated with ~~cyber~~network security and ~~network~~other aspects of cyber security may also increase. Our security measures or those of our third-party service providers could fail and result in unauthorized access to, damage to, disablement or encryption of, use or misuse of, disclosure of, modification of, destruction of, or loss of the data that we or they maintain or otherwise process. In addition, our remediation efforts may not be successful. We also may face difficulty or delay in identifying, remediating, and otherwise responding to cyberattacks and other security breaches and incidents. Furthermore, concerns about our practices or the ultimate use of our products and services with regard to the collection, use, retention, security, or disclosure or other processing of personal information or other ~~privacy-related~~ matters relating to privacy, data protection or cybersecurity, including ~~for~~with respect to artificial intelligence, could make us a more attractive target for malicious attacks and increase the resulting damage to our reputation and ~~downward~~negative effect on our operating results if a cyberattack or other security breach ~~occurs.~~occurs or is perceived to have occurred.

We cannot ensure that any limitation of liability provisions we may have in our customer and user agreements, contracts with third-party vendors and service providers, and other contracts relating to a security compromise or breach or other privacy or security incident would be enforceable or adequate or would otherwise protect us from any liabilities or damages with respect to any particular claim.

Moreover, our insurance coverage may not provide adequate coverage for liabilities we incur or indemnification claims we receive relating to any privacy or security incident or breach, or an insurer may deny coverage of claims. In the future, we may not be able to secure insurance for such matters on commercially reasonable terms, or at all. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could adversely affect our business, financial condition, and results of operations.

Changes in regulations applicable to the Internet and e-commerce that increase the taxes on the services we provide could materially harm our business and operating results.

As Internet commerce continues to evolve, increasing taxation by state, local or foreign tax authorities becomes more likely. For example, taxation of electronically delivered products and services or other charges imposed by government agencies may also be imposed. We collect transactional taxes and we believe we are compliant and current in all jurisdictions where we have a collection obligation for transaction taxes. Any regulation imposing greater taxes or other fees for products and services could result in a decline in the sale of products and services and the viability of those products and services, harming our business and operating results. A successful assertion by one or more states or foreign tax authorities that we should collect and remit sales or other taxes on the sale of our products or services could result in substantial liability for past sales.

In those countries where we have a tax obligation, ~~for example,~~ we collect and remit value added tax, or VAT, on sales of “electronically supplied services” provided to European Union ~~residents,~~ and ~~the~~United Kingdom residents. The collection and remittance of VAT subjects us to additional currency fluctuation risks.

Changes in accounting standards and subjective assumptions, estimates, and judgments by management related to complex accounting matters and changes in personnel responsible for internal controls could significantly affect our financial results or financial condition.

We prepare our financial statements in conformity with GAAP. ~~These~~GAAP accounting principles are subject to interpretation or changes by the Financial Accounting Standards Board, or FASB, and the SEC, and new accounting pronouncements and varying interpretations of accounting standards and practices have occurred in the past and are expected to occur in the future.

Moreover, our financial statements require the application of judgments and estimates regarding a wide range of matters that are relevant to our business, such as revenue recognition, and asset impairment and fair value ~~determinations, and the acquisition method of accounting and its related estimated fair value amounts.~~determinations. Changes in accounting standards or practices, or in our judgments and estimates underlying accounting standards and practices, could harm and/or materially impact our operating results and/or financial condition.

Our disclosure controls and procedures (DCPRs) are designed to ensure that information required to be disclosed in reports we file is accumulated and communicated to management and recorded, processed, summarized and reported as specified in the rules and forms of the SEC. In addition, we perform annual system and process evaluation and testing of our internal controls over financial reporting (ICFRs). Changes ~~to existing accounting rules~~ in our staffing, including turnover and reductions in the number of personnel participating in our DCPRs and ICFRs processes, may increase the likelihood that any errors and/or ~~to our judgments~~fraud go undetected and ~~estimates underlying those rules could materially impact our reported operating results and~~result in inaccurate financial ~~condition.~~information being issued.

We may be subject to additional income tax assessments and changes in applicable tax regulations could adversely affect our financial results.

We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes, income taxes payable, and net deferred tax assets. In the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different than that which is reflected in our historical financial statements. An audit or litigation can result in significant additional income taxes payable in the U.S. or foreign jurisdictions which could have a material adverse effect on our financial condition and results of operations.

Risks Related to our Governance and Capital Structure

Our Chairman of the Board and Chief Executive Officer beneficially owns 38.5% of our common stock, which gives him significant control over certain major decisions on which our shareholders may vote or which may discourage an acquisition of us.

Robert Glaser, our Chairman of the Board and Chief Executive Officer, beneficially owns 38.5% of our common stock. As a result, Mr. Glaser and his affiliates will have significant influence to:

•elect or defeat the election of our directors;

•amend or prevent amendment of our articles of incorporation or bylaws;

•effect or prevent a merger, sale of assets or other corporate transaction; and

•control the outcome of any other matter submitted to the shareholders for vote.

Furthermore, on February 10, 2020, we entered into a Series B Preferred Stock Purchase Agreement with Mr. Glaser pursuant to which Mr. Glaser invested approximately $10.0 million in RealNetworks in exchange for the issuance to him of approximately 8 million shares of our Series B Preferred Stock, par value $0.001 per share. The rights, preferences, limitations, and powers of the Series B Preferred Stock are set forth in and governed by the designation of rights and preferences of Series B Preferred Stock filed with the Secretary of State of the State of Washington. Those rights, preferences, limitations, and powers include the right to proportional adjustment and the right to any dividends or distributions declared with regard to our common stock, but the Series B Preferred Stock has no voting or consent rights, has no liquidation preference, has no preferred dividend, and has limitations on transferability. Each share of Series B Preferred Stock is convertible into one share of our common stock, however no conversion is permitted in the event that it would cause Mr. Glaser’s beneficial ownership of our common stock to exceed the 38.5% threshold set forth in our shareholder rights plan dated November 30, 2018.

The stock ownership of Mr. Glaser may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of RealNetworks, which in turn could reduce our stock price or prevent our shareholders from realizing a premium over our stock price.

Provisions of our charter documents, shareholder rights plan, and Washington law could discourage our acquisition by a third party.

Our articles of incorporation provide for a strategic transactions committee of the board of directors. Without the prior approval of this committee, and subject to certain limited exceptions, the board of directors does not have the authority to:

•adopt a plan of merger;

•authorize the sale, lease, exchange or mortgage of assets representing more than 50% of the book value of our assets prior to the transaction or on which our long-term business strategy is substantially dependent;

•authorize our voluntary dissolution; or

•take any action that has the effect of any of the above.

Mr. Glaser has special rights under our articles of incorporation to appoint or remove members of the strategic transactions committee at his discretion that could make it more difficult for RealNetworks to be sold or to complete another change of control transaction without Mr. Glaser’s consent. RealNetworks has also entered into an agreement providing Mr.

Glaser with certain contractual rights relating to the enforcement of our charter documents and Mr. Glaser’s roles and authority within RealNetworks. These rights and his role as Chairman of the Board of Directors, together with Mr. Glaser’s significant beneficial ownership, create unique potential for concentrated influence of Mr. Glaser over potentially material transactions involving RealNetworks and decisions regarding the future strategy and leadership of RealNetworks.

We adopted a shareholder rights plan in December 1998, which was amended and restated in December 2008, amended in April 2016 and February 2018, and again amended and restated in November 2018. The plan provides that shares of our common stock have associated preferred stock purchase rights, the exercise of which would make the acquisition of RealNetworks by a third party more expensive to that party, having the effect of discouraging third parties from acquiring RealNetworks without the approval of our board of directors, which has the power to redeem these rights and prevent their exercise.

Washington law imposes restrictions on some transactions between a corporation and certain significant shareholders. The foregoing provisions of our charter documents, shareholder rights plan, our agreement with Mr. Glaser, and Washington law, as well as our charter provisions that provide for a classified board of directors and the availability of “blank check”

preferred stock, could have the effect of making it more difficult or more expensive for a third party to acquire, or of discouraging a third party from attempting to acquire, control of us. These provisions may therefore have the effect of limiting the price that investors might be willing to pay in the future for our common stock.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Not applicable

(b) Not applicable

Item 3. Default Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

None

Item 6. Exhibits

See Index to Exhibits below.

4037

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-Q Report to be signed on its behalf by the undersigned, thereunto duly authorized.


			REALNETWORKS, INC.

			By:						/s/ Christine Chambers
									Christine Chambers
			Title:						Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

Dated: ~~November 4, 2021~~May 5, 2022

4138

INDEX TO EXHIBITS


Exhibit Number			Description







10.1*			~~2021 Executive MBO Plan~~
31.1			Certification of Robert Glaser ~~Certification of Robert Glaser,~~, Chairman and Chief Executive Officer of RealNetworks, Inc., pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2			Certification of Christine Chambers, Chief Financial Officer of RealNetworks, Inc., pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1			Certification of Robert Glaser, Chairman and Chief Executive Officer of RealNetworks, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2			Certification of Christine Chambers, Chief Financial Officer of RealNetworks, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS			XBRL Instance Document

101.SCH			XBRL Taxonomy Extension Schema Document

101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB			XBRL Taxonomy Extension Label Linkbase Document

101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF			XBRL Taxonomy Extension Definition Linkbase Document

104			Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

* Indicates a management contract or compensatory plan or arrangement.

4239


	Employee Separation and Other Costs		Asset Related and Other Costs		Total
Costs incurred and charged to expense for the nine months ended September 30, 2021	$	1,992	$	2,914	$	4,906
Costs incurred and charged to expense for the nine months ended September 30, 2020	$	965	$	132	$	1,097