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 ~~March 31,~~September 30, 2021


¨			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 ~~May 10,~~October 29, 2021 was ~~46,907,403.~~

47,130,385.

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)

March 31,
2021 December 31,
2020
ASSETS
Current assets:
Cash and cash equivalents $ 17,015 $ 23,940
Trade accounts receivable, net of allowances of $630 and $629 12,469 10,229
Deferred costs, current portion 262 196
Investments 5,693 9,965
Prepaid expenses and other current assets 3,833 3,480
Total current assets 39,272 47,810
Equipment, software, and leasehold improvements, at cost:
Equipment and software 30,313 30,726
Leasehold improvements 2,745 2,776
Total equipment, software, and leasehold improvements 33,058 33,502
Less accumulated depreciation and amortization 31,381 31,631
Net equipment, software, and leasehold improvements 1,677 1,871
Operating lease assets 4,771 7,937
Restricted cash equivalents 1,630 1,630
Other assets 3,792 4,150
Deferred costs, non-current portion 71 74
Deferred tax assets, net 874 909
Goodwill 17,191 17,375
Total assets $ 69,278 $ 81,756
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 3,448 $ 2,750
Accrued and other current liabilities 15,230 17,850
Deferred revenue, current portion 2,302 2,122
Total current liabilities 20,980 22,722
Deferred revenue, non-current portion 35 45
Deferred tax liabilities, net 1,101 1,129
Long-term lease liabilities 6,098 6,837
Long-term debt 2,902 2,895
Other long-term liabilities 2,171 2,241
Total liabilities 33,287 35,869
Commitments and contingencies (Note 11)
Shareholders’ equity:
Preferred stock, $0.001 par value:
Series A: authorized 200 shares, no shares issued and outstanding 0 0
Series B: authorized 8,100 shares; issued and outstanding 8,065 shares in 2021 and 2020 8 8
Undesignated series: authorized 51,700 shares 0 0
Common stock, $0.001 par value, authorized 250,000 shares; issued and outstanding 38,653 shares in 2021 and 38,424 shares in 2020 38 38
Additional paid-in capital 656,800 655,606
Accumulated other comprehensive loss (61,177) (60,641)
Accumulated deficit (559,310) (548,862)
Total shareholders’ equity 36,359 46,149
Noncontrolling interests (368) (262)
Total equity 35,991 45,887
Total liabilities and equity $ 69,278 $ 81,756


	September 30, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	28,990	$	23,940

Trade accounts receivable, net of allowances of $282 and $629	10,465		10,229
Deferred costs, current portion	70		196
Investments	2,758		9,965
Prepaid expenses and other current assets	6,155		3,480

Total current assets	48,438		47,810
Equipment, software, and leasehold improvements, at cost:
Equipment and software	29,634		30,726
Leasehold improvements	2,757		2,776
Total equipment, software, and leasehold improvements	32,391		33,502
Less accumulated depreciation and amortization	30,937		31,631
Net equipment, software, and leasehold improvements	1,454		1,871
Operating lease assets	4,478		7,937
Restricted cash equivalents	1,630		1,630
Other assets	945		4,150
Deferred costs, non-current portion	—		74
Deferred tax assets, net	861		909
Goodwill	17,073		17,375

Total assets	$	74,879	$	81,756

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,183	$	2,750
Accrued and other current liabilities	14,214		17,850
Deferred revenue, current portion	2,762		2,122


Total current liabilities	19,159		22,722
Deferred revenue, non-current portion	270		45
Deferred tax liabilities, net	1,068		1,129
Long-term lease liabilities	5,354		6,837
Long-term debt	—		2,895
Other long-term liabilities	718		2,241

Total liabilities	26,569		35,869
Commitments and contingencies (Note 12)
Shareholders’ equity:
Preferred stock, $0.001 par value:
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
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
Additional paid-in capital	677,948		655,606
Accumulated other comprehensive loss	(61,368)		(60,641)
Accumulated deficit	(568,325)		(548,862)
Total shareholders’ equity	48,310		46,149
Noncontrolling interests	—		(262)
Total equity	48,310		45,887
Total liabilities and equity	$	74,879	$	81,756

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 March 31,
2021 2020
Net revenue $ 15,888 $ 16,822
Cost of revenue 3,679 4,104
Gross profit 12,209 12,718
Operating expenses:
Research and development 6,238 6,606
Sales and marketing 5,137 6,000
General and administrative 4,898 5,161
Fair value adjustments to contingent consideration liability (1,040) (300)
Restructuring and other charges 3,171 86
Total operating expenses 18,404 17,553
Operating loss (6,195) (4,835)
Other income (expenses):
Interest expense (95) 0
Interest income 13 6
Loss on equity and other investments, net (4,272) 0
Other income, net 104 238
Total other income (expenses), net (4,250) 244
Loss from continuing operations before income taxes (10,445) (4,591)
Income tax expense 109 25
Net loss from continuing operations (10,554) (4,616)
Net loss from discontinued operations, net of tax 0 (73)
Net loss (10,554) (4,689)
Net loss attributable to noncontrolling interests of continuing operations (106) (53)
Net income (loss) attributable to noncontrolling interests of discontinued operations 0 6
Net loss attributable to RealNetworks $ (10,448) $ (4,642)
Net loss from continuing operations attributable to RealNetworks $ (10,448) $ (4,563)
Net loss from discontinued operations attributable to RealNetworks 0 (79)
Net loss attributable to RealNetworks $ (10,448) $ (4,642)
Net loss per share attributable to RealNetworks- Basic:
Continuing operations $ (0.27) $ (0.12)
Discontinued operations 0 0
Total net loss per share - Basic $ (0.27) $ (0.12)
Net loss per share attributable to RealNetworks- Diluted:
Continuing operations $ (0.27) $ (0.12)
Discontinued operations 0 0
Total net loss per share - Diluted $ (0.27) $ (0.12)
Shares used to compute basic net loss per share 38,502 38,229
Shares used to compute diluted net loss per share 38,502 38,229


	Quarter Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net revenue	$	14,332	$	16,554	$	44,781	$	50,461
Cost of revenue	3,119		4,062		10,370		12,429
Gross profit	11,213		12,492		34,411		38,032
Operating expenses:
Research and development	5,250		5,781		17,818		18,375
Sales and marketing	7,177		5,130		17,573		15,969
General and administrative	4,228		4,124		13,502		13,263
Fair value adjustments to contingent consideration liability	—		—		(1,040)		(200)
Restructuring and other charges	1,017		307		4,906		1,097
Total operating expenses	17,672		15,342		52,759		48,504
Operating loss	(6,459)		(2,850)		(18,348)		(10,472)
Other income (expenses):
Interest expense	(27)		(7)		(146)		(12)
Interest income	7		6		27		31
Loss on equity and other investments, net	(1,229)		(37)		(6,070)		(90)
Gain on forgiveness of Paycheck Protection Program loan	—		—		2,897		—
Other income (expense), net	46		(104)		2,066		63
Total other expenses, net	(1,203)		(142)		(1,226)		(8)
Loss from continuing operations before income taxes	(7,662)		(2,992)		(19,574)		(10,480)
Income tax expense	6		316		133		606
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	(7,668)		(3,309)		(19,707)		(13,552)
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 RealNetworks	$	(7,668)	$	(3,238)	$	(19,463)	$	(12,992)

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

See accompanying notes to unaudited condensed consolidated financial statements.

REALNETWORKS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)


		Quarter Ended March 31,				Quarter Ended September 30,				Nine Months Ended September 30,
		2021		2020				2021		2020		2021		2020
Net loss	Net loss	$	(10,554)	$	(4,689)		Net loss	$	(7,668)	$	(3,309)	$	(19,707)	$	(13,552)
Comprehensive loss:	Comprehensive loss:						Comprehensive loss:
Foreign currency translation adjustments	Foreign currency translation adjustments	(536)		(907)			Foreign currency translation adjustments	(297)		(7)		(727)		(394)
Total other comprehensive loss	Total other comprehensive loss	(536)		(907)			Total other comprehensive loss	(297)		(7)		(727)		(394)
Comprehensive loss including noncontrolling interests	Comprehensive loss including noncontrolling interests	(11,090)		(5,596)			Comprehensive loss including noncontrolling interests	(7,965)		(3,316)		(20,434)		(13,946)
Comprehensive loss attributable to noncontrolling interests	Comprehensive loss attributable to noncontrolling interests	(106)		(47)			Comprehensive loss attributable to noncontrolling interests	—		(71)		(244)		(560)
Comprehensive loss attributable to RealNetworks	Comprehensive loss attributable to RealNetworks	$	(10,984)	$	(5,549)		Comprehensive loss attributable to RealNetworks	$	(7,965)	$	(3,245)	$	(20,190)	$	(13,386)

See accompanying notes to unaudited condensed consolidated financial statements.

REALNETWORKS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Three Months Ended March 31,
2021 2020
Cash flows from operating activities:
Net loss from continuing operations $ (10,554) $ (4,616)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
Depreciation and amortization 204 280
Stock-based compensation 836 380
Loss on equity and other investments, net 4,272 0
Foreign currency gain (103) (210)
Fair value adjustments to contingent consideration liability (1,040) (300)
Loss on impairment of operating lease assets 2,461 0
Net change in certain operating assets and liabilities:
Trade accounts receivable (2,319) (693)
Prepaid expenses, operating lease and other assets 496 (453)
Accounts payable 727 66
Accrued, lease and other liabilities (1,956) (377)
Net cash used in operating activities- continuing operations (6,976) (5,923)
Net cash provided by operating activities- discontinued operations 0 1,299
Net cash used in operating activities (6,976) (4,624)
Cash flows from investing activities:
Purchases of equipment, software, and leasehold improvements (56) (80)
Net cash used in investing activities- continuing operations (56) (80)
Net cash used in investing activities- discontinued operations 0 (14)
Net cash used in investing activities (56) (94)
Cash flows from financing activities:
Proceeds from issuance of common stock (stock options) 468 0
Proceeds from issuance of preferred stock 0 10,000
Tax payments from shares withheld upon vesting of restricted stock (110) 0
Net cash provided by financing activities- continuing operations 358 10,000
Net cash used in financing activities- discontinued operations 0 (2,404)
Net cash provided by financing activities 358 7,596
Effect of exchange rate changes on cash, cash equivalents and restricted cash (251) (637)
Net (decrease) increase in cash, cash equivalents and restricted cash (6,925) 2,241
Cash, cash equivalents and restricted cash, beginning of period 25,570 22,179
Cash, cash equivalents and restricted cash end of period 18,645 24,420
Less: Cash, cash equivalents and restricted cash from discontinued operations 0 8,025
Cash, cash equivalents and restricted cash from continuing operations, end of period $ 18,645 $ 16,395


	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

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
Shares Amount Shares Amount

Balances, January 1, 2020 0 $ 0 38,227 $ 38 $ 644,070 $ (61,323) $ (544,010) $ 38,775 $ (502) $ 38,273
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 — — — — — — —
Stock-based compensation — — — — 380 — — 380 — 380
Foreign currency translation adjustments — — — — — (907) — (907) — (907)
Net loss — — — — — — (4,642) (4,642) (47) (4,689)
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


	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

Balances, January 1, 2020	—	$	—	38,227	$	38	$	644,070	$	(61,323)	$	(544,010)	$	38,775	$	(502)	$	38,273
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	—		—		—		—		—		—		—
Stock-based compensation	—	—		—	—		380		—		—		380		—		380
Foreign currency translation adjustments	—	—		—	—		—		(907)		—		(907)		—		(907)
Net loss	—	—		—	—		—		—		(4,642)		(4,642)		(47)		(4,689)
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

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

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 — — 229 — 358 — — 358 — 358
Stock-based compensation — — — — 836 — — 836 — 836
Foreign currency translation adjustments — — — — — (536) — (536) — (536)
Net loss — — — — — — (10,448) (10,448) (106) (10,554)
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
	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
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	—	—		—	—		836		—		—		836		—		836
Foreign currency translation adjustments	—	—		—	—		—		(536)		—		(536)		—		(536)
Net loss	—	—		—	—		—		—		(10,448)		(10,448)		(106)		(10,554)
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

See accompanying notes to unaudited condensed consolidated financial statements.

REALNETWORKS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Quarters and Nine Months Ended ~~March 31,~~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 have leveraged our technical expertise and access to proprietary data sources to develop 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, our natural language processing-based message classification and analysis product.

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," "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 ~~represent~~represented third-party ownership in the equity of Napster and Scener Inc. ("Scener") and are reflected separately in the Company's financial statements. 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 ~~March 31,~~September 30, 2021 are not necessarily indicative of the results that may be expected for any subsequent period or for the year ending December 31, 2021. 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 ~~$6.2~~$6.5 million and ~~$4.8~~$18.3 million for the ~~quarters~~quarter and nine months ended ~~March 31,~~September 30, 2021, ~~and 2020,~~ respectively. The Company had an accumulated deficit of ~~$559.3~~$568.3 million and $548.9 million as of ~~March 31,~~September 30, 2021 and December 31, 2020, respectively. The Company believes that its cash and cash equivalents of ~~$17.0~~$29.0 million as of ~~March 31,~~September 30, 2021, as well as the unused capacity of its revolving line of credit are adequate to fund the Company's operations for at least one year from the date these financial statements were issued. ~~Additionally, in April 2021, we received net proceeds of approximately $20.3 million from the completion of an equity offering, as described in Note 14. Subsequent Events,~~

Risks and Uncertainties. 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 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 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 (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.

910


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, 2021
Consumer Media Mobile Services Games
Business Line
Software License $ 1,875 0 $ 1,391 0 $ 0
Subscription Services 818 0 4,589 0 2,528
Product Sales 438 0 0 0 3,163
Advertising and Other 178 0 0 0 908
Total $ 3,309 $ 5,980 $ 6,599
Quarter Ended March 31, 2020
Consumer Media Mobile Services Games
Business Line
Software License $ 2,020 0 $ 831 0 $ 0
Subscription Services 929 0 5,859 0 2,770
Product Sales 222 0 0 0 2,978
Advertising and Other 324 0 0 0 889
Total $ 3,495 $ 6,690 $ 6,637

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

Quarter Ended March 31, 2021
Consumer Media Mobile Services Games
Sales Channel
Business to Business $ 2,053 $ 5,885 $ 1,061
Direct to Consumer 1,256 95 5,538
Total $ 3,309 $ 5,980 $ 6,599
Quarter Ended March 31, 2020
Consumer Media Mobile Services Games
Sales Channel
Business to Business $ 2,343 $ 6,584 $ 1,095
Direct to Consumer 1,152 106 5,542
Total $ 3,495 $ 6,690 $ 6,637


	Quarter Ended September 30, 2021						Nine Months Ended September 30, 2021
	Consumer Media		Mobile Services		Games		Consumer Media		Mobile Services		Games
Sales Channel
Business to Business	$	1,714	$	5,689	$	947	$	4,705	$	17,845	$	2,985
Direct to Consumer	1,049		83		4,850		3,428		263		15,555
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
Sales Channel
Business to Business	$	1,457	$	6,304	$	1,191	$	5,800	$	19,250	$	3,483
Direct to Consumer	1,086		96		6,420		3,397		301		18,230
Total	$	2,543	$	6,400	$	7,611	$	9,197	$	19,551	$	21,713

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 ~~March 31,~~September 30, 2021 and December 31, 2020, our balance of long-term accounts receivable was $0.4 million and $0.6 million, respectively, and is included in other long-term assets on our condensed consolidated balance sheets. The decrease in this balance from December 31, 2020 to ~~March 31,~~September 30, 2021 is primarily due to the timing of expected cash receipts. During the quarter and nine months ended ~~March 31,~~September 30, 2021, we recorded no impairments to our contract assets.

1011

We record deferred revenue when cash payments are received in advance of our completion of the underlying performance obligation. As of ~~March 31,~~September 30, 2021 and December 31, 2020, we had a deferred revenue balance of ~~$2.3~~$3.0 million and $2.2 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 ~~three~~nine months ended ~~March 31,~~September 30, 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 ~~income (loss)~~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,
2021 2020
Total stock-based compensation expense $ 836 $ 380

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

Quarter Ended March 31,
2021 2020
Expected dividend yield 0 % 0 %
Risk-free interest rate 0.48 % 0.90 %
Expected life (years) 3.9 4.0
Volatility 71 % 45 %


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

The total stock-based compensation amounts for 2021 and 2020 disclosed above are recorded in their respective line items within operating expenses in the unaudited condensed consolidated statements of operations and comprehensive ~~income (loss).~~loss. Included in the expense for the three and nine months ended ~~March 31,~~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, 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 ~~March 31,~~September 30, 2021, there was ~~$3.0~~$2.4 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.

1112


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 ~~were used~~ and 47.8 million MelodyVR shares ~~are to be~~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 ~~for the quarter ended March 31, 2020:~~


~~Revenue~~	$	~~26,323~~
~~Cost of revenue~~	~~20,072~~
~~Gross profit~~	~~6,251~~
~~Operating expenses~~	~~6,504~~
~~Operating loss~~	~~(253)~~
~~Other income~~	~~294~~
~~Income from discontinued operations before income taxes~~	41
~~Income tax expense~~	~~114~~
~~Net loss from discontinued operations~~	~~(73)~~
~~Noncontrolling interests in net income from discontinued operations~~	6
~~Net loss from discontinued operations attributable to RealNetworks~~	$	~~(79)~~

(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 ~~sheets,~~sheet, was ~~reduced from $3.0 million to~~ $2.8 million ~~during the quarter ended March 31,~~at September 30, 2021. We are not aware of any additional claims against the escrow at ~~March 31,~~September 30, 2021.

1213


Note 6.			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 ~~March 31,~~September 30, 2021 and December 31, 2020, 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
	September 30, 2021								September 30, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	28,990	$	—	$	—	$	28,990	$	28,990
Investments	—		—		2,758		2,758		N/A
Restricted cash equivalents	1,630		—		—		1,630		1,630
Total assets	$	30,620	$	—	$	2,758	$	33,378	N/A

Fair Value Measurements as of Amortized Cost as of
March 31, 2021 March 31, 2021
Level 1 Level 2 Level 3 Total
Assets:
Cash and cash equivalents $ 17,015 $ 0 $ 0 $ 17,015 $ 17,015
Investments 0 0 5,693 5,693 N/A
Restricted cash equivalents 1,630 0 0 1,630 1,630
Total assets $ 18,645 $ 0 $ 5,693 $ 24,338 N/A
Liabilities:
Accrued and other current liabilities
Napster acquisition contingent consideration $ 0 $ 0 $ 3,760 $ 3,760 N/A
Other long-term liabilities
Simple Agreements for Future Equity 0 0 2,106 2,106 N/A
Total liabilities $ 0 $ 0 $ 5,866 $ 5,866 N/A


		Fair Value Measurements as of								Amortized Cost as of			Fair Value Measurements as of								Amortized Cost as of
		December 31, 2020								December 31, 2020			December 31, 2020								December 31, 2020
		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	$	23,940	$	0	$	0	$	23,940	$	23,940	Cash and cash equivalents	$	23,940	$	—	$	—	$	23,940	$	23,940
Investments	Investments	0		0		9,965		9,965		N/A		Investments	—		—		9,965		9,965		N/A
Restricted cash equivalents	Restricted cash equivalents	1,630		0		0		1,630		1,630		Restricted cash equivalents	1,630		—		—		1,630		1,630
Total assets	Total assets	$	25,570	$	0	$	9,965	$	35,535	N/A		Total assets	$	25,570	$	—	$	9,965	$	35,535	N/A
Liabilities:	Liabilities:											Liabilities:
Accrued and other current liabilities	Accrued and other current liabilities											Accrued and other current liabilities
Napster acquisition contingent consideration	Napster acquisition contingent consideration	$	0	$	0	$	4,800	$	4,800	N/A		Napster acquisition contingent consideration	$	—	$	—	$	4,800	$	4,800	N/A
Other long-term liabilities	Other long-term liabilities											Other long-term liabilities
Simple Agreements for Future Equity	Simple Agreements for Future Equity	0		0		2,106		2,106		N/A		Simple Agreements for Future Equity	—		—		2,106		2,106		N/A
Total liabilities	Total liabilities	$	0	$	0	$	6,906	$	6,906	N/A		Total liabilities	$	—	$	—	$	6,906	$	6,906	N/A

Restricted cash equivalents as of ~~March 31,~~September 30, 2021 and December 31, 2020 primarily relate to maintaining a minimum balance of unrestricted cash at the bank. See Note 8. Debt for additional details.

Investments as of ~~March 31,~~September 30, 2021 and December 31, 2020 are 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 ~~March 31,~~September 30, 2021 and December 31, 2020 and discounted for a lack of liquidity due to the 12-month contractual restriction on selling or transferring the shares, subject to certain exceptions. 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 ~~could~~would result in ~~a $0.1 million~~an insignificant decrease or increase, respectively, in the fair value of the stock. For the three and nine months ended ~~March 31,~~September 30, 2021, we recognized unrealized losses of ~~$4.3~~$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 and other current liabilities as of ~~March 31, 2021 and~~ December 31, 2020 ~~includes~~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 ~~March 31, 2021 and~~ December 31, 2020 was based on RealNetworks' contractual obligation to pay the seller of the Napster interests acquired by RealNetworks in January 2019. ~~In April~~

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 ~~seller agreed on the form~~deconsolidation of ~~final payment of the~~

contingent consideration, resulting in a cash payment 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, discounted for a lack of liquidity due to the restriction on selling or transferring the shares. The change in the share price of the Napster Group ordinary shares from the sale closing date to the settlement date resulted in a fair value adjustment to the contingent consideration. During the three months ended March 31, 2021, the Company recognized a gain of $1.0 million in Fair value adjustments to contingent consideration liability on the condensed consolidated statements of operations.Scener.

In the third quarter of 2020, Scener ~~our non-wholly owned subsidiary,~~ 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 ~~are~~were recorded at fair value and as aan other, long-term liability on our consolidated financial statements ~~within Other long-term liabilities~~until June 30, 2021, the date of Scener's deconsolidation from

RealNetworks, as further discussed in Note 1. Description of Business and ~~are required to be recorded at fair value each quarter.~~Summary of Significant Accounting Policies. The valuation analysis model for the fair value of the SAFE Notes as of ~~March 31, 2021 and~~ December 31, 2020 used significant unobservable inputs that ~~reflect~~reflected our own estimates of assumptions that market participants would use. ~~There has been no significant change in the estimated fair value since the issuance in the third quarter of 2020.~~ Significant unobservable inputs to the valuation analysis model ~~include~~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 ~~are~~were subject to significant judgment. Based on Scener's outstanding shares, without regard to potential dilution by the SAFE Notes or any other convertible securities, RealNetworks owns 82% of Scener. See Note 13. Related Party Transactions for additional discussion of Scener.

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 the three and nine months ended ~~March 31,~~September 30, 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.			Accrued and other current liabilities

Accrued and other current liabilities (in thousands):

March 31, 2021 December 31, 2020
Royalties and other fulfillment costs $ 1,173 $ 1,149
Employee compensation, commissions and benefits 3,626 4,512
Sales, VAT and other taxes payable 1,302 1,231
Operating lease liabilities 3,127 3,373
Napster acquisition contingent consideration 3,760 4,800
Other 2,242 2,785
Total accrued and other current liabilities $ 15,230 $ 17,850


	September 30, 2021		December 31, 2020
Royalties and other fulfillment costs	$	1,191	$	1,149
Employee compensation, commissions and benefits	6,328		4,512
Sales, VAT and other taxes payable	1,146		1,231
Operating lease liabilities	3,428		3,373
Napster acquisition contingent consideration	—		4,800
Other	2,121		2,785
Total accrued and other current liabilities	$	14,214	$	17,850


Note 8.			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 ~~has~~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 iswas 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. ~~No assurance can be given~~On June 19, 2021, the Company received notice from our participating bank that ~~we will be granted~~our request for forgiveness ~~for~~was approved and our PPP loan principal and interest are deemed paid in full. Upon the forgiveness of our obligations of the PPP ~~loan. The PPP loan will be derecognized upon confirmation~~promissory note, we recognized a gain of ~~forgiveness from~~$2.9 million in Other income (expense), net on the ~~SBA and/or upon repayment~~condensed consolidated statement of operations in the ~~loan in accordance with its terms.~~

second quarter of 2021.

In August 2019, RealNetworks and Napster entered into a Loan and Security Agreement (Loan Agreement) with a third-party financial institution. Under the terms of the 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. Borrowings may not exceed $6.5 million and are reduced by a $1.0 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 are in the process of negotiating the customary covenants for 2021, and we do not expect the resulting revisions to have a material effect on the Loan Agreement.~~

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 at ~~March 31,~~September 30, 2021 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 9.10.			Restructuring Charges

Restructuring and other charges in 2021 and 2020 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 three months ended March 31, 2021 $ 581 $ 2,590 $ 3,171
Costs incurred and charged to expense for the three months ended March 31, 2020 $ 86 $ 0 $ 86


	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

During the ~~quarter~~nine months ended ~~March 31,~~September 30, 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 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 ~~three~~nine months ended ~~March 31,~~September 30, 2021, excluding noncash charges

~~362~~1,772

Cash payments

~~(224)~~(1,065)

Accrued liability at ~~March 31,~~September 30, 2021

~~484~~1,053

1516


Note ~~10.~~11.			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 March 31,
2021 2020
Net loss from continuing operations attributable to RealNetworks $ (10,448) $ (4,563)
Net loss from discontinued operations attributable to RealNetworks 0 (79)
Net loss attributable to RealNetworks $ (10,448) $ (4,642)
Weighted average common shares outstanding used to compute basic EPS 38,502 38,229
Dilutive effect of stock based awards and Series B Preferred Stock 0 0
Weighted average common shares outstanding used to compute diluted EPS 38,502 38,229
Net loss per share attributable to RealNetworks- Basic:
Continuing operations $ (0.27) $ (0.12)
Discontinued operations 0 0
Total net loss per share - Basic $ (0.27) $ (0.12)
Net loss per share attributable to RealNetworks- Diluted:
Continuing operations $ (0.27) $ (0.12)
Discontinued operations 0 0
Total net loss per share - Diluted $ (0.27) $ (0.12)


	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)

During the ~~quarters~~quarter and nine months ended ~~March 31,~~September 30, 2021, ~~and 2020, 4.5~~4.9 million and ~~7.9~~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 6.9 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 8.1 million shares of Series B Preferred Stock 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 ~~13.~~14. Related Party Transactions. During the quarters and nine months ended ~~March 31,~~September 30, 2021 and 2020, these shares were also excluded from the calculation of diluted EPS because of their antidilutive effect.


Note ~~11.~~12.			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 vigorously defend RealNetworks, litigation is inherently uncertain and we cannot predict the outcome of this matter. We have not recorded an accrual related to this matter as of ~~March 31,~~September 30, 2021 as it is early in the litigation and any potential liability cannot be reasonably estimated.


Note ~~12.~~13.			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 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, Description of Business and Summary of Significant Accounting Policies, in the 2020 10-K.

Segment results for the quarters ended ~~March 31,~~September 30, 2021 and 2020 (in thousands):

Consumer Media
Quarter Ended March 31,
2021 2020
Revenue $ 3,309 $ 3,495
Cost of revenue 478 611
Gross profit 2,831 2,884
Operating expenses 2,201 2,458
Operating income $ 630 $ 426


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)

Mobile Services Quarter Ended March 31,
2021 2020
Revenue $ 5,980 $ 6,690
Cost of revenue 1,492 1,696
Gross profit 4,488 4,994
Operating expenses 6,145 7,588
Operating loss $ (1,657) $ (2,594)

Games
Quarter Ended March 31,
2021 2020
Revenue $ 6,599 $ 6,637
Cost of revenue 1,705 1,794
Gross profit 4,894 4,843
Operating expenses 5,098 4,923
Operating loss $ (204) $ (80)

Corporate Quarter Ended March 31,
2021 2020
Cost of revenue $ 4 $ 3
Operating expenses 4,960 2,584
Operating loss $ (4,964) $ (2,587)

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,
	2021		2020		2021		2020
United States	$	9,227	$	11,855	$	28,368	$	32,810
Europe	2,155		2,206		6,746		6,840
Rest of the World	2,950		2,493		9,667		10,811
Total net revenue	$	14,332	$	16,554	$	44,781	$	50,461

Quarter Ended March 31,
2021 2020
United States $ 9,932 $ 10,214
Europe 2,230 2,252
Rest of the World 3,726 4,356
Total net revenue $ 15,888 $ 16,822

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

March 31,
2021 December 31,
2020
United States $ 15,426 $ 18,318
Europe 7,159 7,638
Rest of the World 1,054 1,227
Total long-lived assets $ 23,639 $ 27,183


	September 30, 2021		December 31, 2020
United States	$	14,600	$	18,318
Europe	6,966		7,638
Rest of the World	1,439		1,227
Total long-lived assets	$	23,005	$	27,183

1819


Note ~~13.~~14.			Related Party Transactions

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

In February 2020, we entered into a Series B Preferred Stock Purchase Agreement with Mr. Glaser, Chairman of the Board and Chief Executive Officer of RealNetworks, pursuant to which Mr. Glaser invested approximately $10.0 million in RealNetworks in exchange for the issuance to him 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. ~~In August 2020, this same subsidiary entered into agreements~~See Note 1. Description of Business and ~~received $1.4 million in funding from outside investors. The 2020 investments were in~~Summary of Significant Accounting Policies for information regarding the ~~form~~deconsolidation of SAFEs, as described in Note 6. Fair Value Measurements. As of March 31, 2021, RealNetworks owned approximately 82% of the subsidiary's outstanding equity, and we consolidate its financial results into our financial statements. The financial results of the subsidiary are reported in our Consumer Media segment.


~~Note 14.~~			~~Subsequent Events~~

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 $20.3 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.Scener.

1920

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;

•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, and the potential for forgiveness of certain loans;~~resources;

•the effects of U.S. and foreign legislation, regulations, administrative proceedings, court rulings, settlement negotiations and other factors that may impact our businesses;

•the continuation and expected nature of certain customer relationships;

•impacts of competition and certain customer 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.

2021

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, our natural language processing-based (NLP) message classification and analysis product.

SAFR leverages the power of AI to enhance security and convenience for our customers around the globe with fast, accurate, low-biased face recognition and additional person- and object-based AI capabilities. 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’ 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 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. Our Mobile Services segment also includes our AI-based growth initiatives, SAFR and 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 purchases of in-game virtual goods within our free-to-play games and from advertising on games sites. 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 ~~novel~~ 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 caused significant turmoil to the global economy and financial markets. Similar to other companies, atfrom 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 ~~learning to operate~~operating our businesses 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. ~~As a result of the pandemic, we reevaluated our operating plans,~~

~~causing some significant pivots in 2020 for our growth initiatives, and we~~We continue to assess our plans as the pandemic environment ~~evolves. Moreover, as we continue~~evolves

and strive to operate our business as efficiently as ~~possible, we have taken steps to more aggressively reduce costs and reallocate resources.~~possible. We are unable to fully predict the impacts that the COVID-19 pandemic, including the emergence of variants, such as the delta variant, will continue to have on our results from operations, financial condition, liquidity and cash flows for the remainder of fiscal year 2021 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 ~~March 31,~~September 30, 2021, we had ~~$17.0~~$29.0 million in unrestricted cash and cash equivalents, compared to $23.9 million as of December 31, 2020. The 2021 ~~decrease~~increase 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 ~~$7.0~~$11.4 million for the first ~~three~~nine 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.

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

Quarter Ended March 31,
2021 2020 $ Change % Change
Total revenue $ 15,888 $ 16,822 $ (934) (6) %
Cost of revenue 3,679 4,104 (425) (10) %
Gross profit 12,209 12,718 (509) (4) %
Gross margin 77 % 76 %
Operating expenses 18,404 17,553 851 5 %
Operating loss $ (6,195) $ (4,835) $ (1,360) (28) %


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

Operating expenses	17,672			15,342			2,330		15	%	52,759			48,504			4,255		9	%
Operating loss	$	(6,459)		$	(2,850)		$	(3,609)	(127)	%	$	(18,348)		$	(10,472)		$	(7,876)	(75)	%

In the ~~first~~third quarter of 2021, our total consolidated revenue decreased ~~$0.9~~$2.2 million as compared with the year-earlier period. The decrease was due ~~primarily~~ to lower revenues in our Games and Mobile Services segments of $1.8 million and $0.6 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.

Cost of revenue decreased by $0.9 million for the quarter ended September 30, 2021 as compared with the year-earlier period, due to decreases in our Games, Mobile Services, and Consumer Media segments of ~~$0.7~~$0.5 million, $0.2 million, and $0.2 million, respectively.

Operating expenses increased by $2.3 million in the quarter ended September 30, 2021 as compared with the year-earlier period. The increase was primarily due to higher stock-based compensation and restructuring charges of $2.1 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 ~~$0.4~~$2.1 million for the ~~quarter~~nine months ended ~~March 31,~~September 30, 2021 as compared with the year-earlier period, ~~primarily~~ due to decreases in our Games, Mobile Services, and Consumer Media ~~segments.~~segments of $1.1 million, $0.7 million, and $0.3 million, respectively.

Operating expenses increased by ~~$0.9~~$4.3 million in the ~~quarter~~nine months ended ~~March 31,~~September 30, 2021 as compared with the year-earlier period. The increase was due primarily to higher restructuring charges of ~~$3.1~~$3.8 million, ~~partially offset by~~higher stock-based compensation of $2.7 million, and higher professional fees of $1.0 million. Partially offsetting these increases were lower salaries and ~~benefits~~people related costs of ~~$1.2~~$1.5 million, ~~and~~ lower marketing expenses of ~~$0.3 million. Also contributing to the offset was~~$0.6 million, and a ~~$0.7 million~~ higher benefit ~~in the first quarter of 2021~~ related to the fair value adjustment of the contingent consideration ~~liability.~~liability $0.8 million. See Note 6. Fair Value Measurements for more information on the contingent consideration liability, which was settled in the second quarter of 2021.

Segment Operating Results

Consumer Media

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

Quarter Ended March 31,
2021 2020 $ Change % Change
Revenue $ 3,309 $ 3,495 $ (186) (5) %
Cost of revenue 478 611 (133) (22) %
Gross profit 2,831 2,884 (53) (2) %
Gross margin 86 % 83 %
Operating expenses 2,201 2,458 (257) (10) %
Operating income $ 630 $ 426 $ 204 48 %


	Quarter Ended September 30,										Nine Months Ended September 30,

	2021			2020			$ Change		% Change		2021			2020			$ Change		% Change
Revenue	$	2,763		$	2,543		$	220	9	%	$	8,133		$	9,197		$	(1,064)	(12)	%
Cost of revenue	418			593			(175)		(30)	%	1,393			1,723			(330)		(19)	%
Gross profit	2,345			1,950			395		20	%	6,740			7,474			(734)		(10)	%
Gross margin	85		%	77		%					83		%	81		%
Operating expenses	1,495			2,092			(597)		(29)	%	6,028			6,754			(726)		(11)	%
Operating income (loss)	$	850		$	(142)		$	992	NM		$	712		$	720		$	(8)	(1)	%

Total Consumer Media revenue for the quarter ended ~~March 31,~~September 30, 2021 ~~decreased~~increased $0.2 million as compared to the same quarter in 2020. The ~~decrease~~increase was primarily due to ~~lower~~higher software license and product sales revenues, partially offset by lower advertising and other revenues and lower subscription ~~services. This was partially offset by higher~~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 ~~sales.~~distribution revenue in the amount of $0.6 million.

Software License

In the quarter ended ~~March 31,~~September 30, 2021, the ~~decrease~~increase in software license revenue of ~~$0.1~~$0.9 million was due primarily to the timing of contract ~~renewals.~~

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 subscription products, which we expect to continue.

Product Sales

The increase in product sales of ~~$0.2~~$0.1 million was primarily due to higher RealPlayer Plus sales during the ~~first~~third quarter of 2021.

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

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

Mobile Services

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


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

		2021			2020			$ Change		% Change				2021			2020			$ Change		% Change		2021			2020			$ Change		% Change
Revenue	Revenue	$	5,980		$	6,690		$	(710)	(11)	%		Revenue	$	5,772		$	6,400		$	(628)	(10)	%	$	18,108		$	19,551		$	(1,443)	(7)	%
Cost of revenue	Cost of revenue	1,492			1,696			(204)		(12)	%		Cost of revenue	1,282			1,511			(229)		(15)	%	4,291			4,989			(698)		(14)	%
Gross profit	Gross profit	4,488			4,994			(506)		(10)	%		Gross profit	4,490			4,889			(399)		(8)	%	13,817			14,562			(745)		(5)	%
Gross margin	Gross margin	75		%	75		%						Gross margin	78		%	76		%					76		%	74		%
Operating expenses	Operating expenses	6,145			7,588			(1,443)		(19)	%		Operating expenses	5,890			5,577			313		6	%	18,367			18,847			(480)		(3)	%
Operating loss	Operating loss	$	(1,657)		$	(2,594)		$	937	36	%		Operating loss	$	(1,400)		$	(688)		$	(712)	(103)	%	$	(4,550)		$	(4,285)		$	(265)	(6)	%

Total Mobile Services revenue decreased by ~~$0.7~~$0.6 million in the quarter ended ~~March 31,~~September 30, 2021 compared with the prior-year period. The revenue decrease was primarily due to lower subscription services revenues of ~~$1.4~~$1.1 million, partially offset by an increase in software license revenues of ~~$0.6~~$0.5 million.

Software License

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

Subscription Services

The decline in our subscription service revenue of ~~$1.4~~$1.1 million in the quarter ended ~~March 31,~~September 30, 2021 as compared to the prior-year period is due primarily to lower revenues from our ringback tones business of ~~$1.1~~$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 million.

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

Operating expenses increased by $0.3 million for the quarter ended September 30, 2021 compared with the year-earlier period due to higher professional fees of $0.6 million, driven by AI-based growth initiatives, partially offset by lower salaries 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 ~~$0.2~~$0.7 million in the ~~quarter~~nine months ended ~~March 31,~~September 30, 2021 compared with the prior-year period, due primarily to ~~reductions in salaries~~lower amortization of deferred costs and ~~benefits~~lower people related expenses due to ~~headcount reductions.~~lower headcount.

Operating expenses decreased ~~by $1.4~~$0.5 million for the ~~quarter~~nine months ended ~~March 31,~~September 30, 2021 compared with the year-earlier period due to reductions in salaries and ~~benefits~~people related ~~to headcount reductions~~expenses of ~~$1.4~~$1.5 million and lower ~~marketing expenses~~infrastructure costs of ~~$0.3~~$0.4 million. These decreases were partially offset by higher professional fees of ~~$0.3 million.~~$1.5 million, primarily from AI-based growth initiatives.

2325

Games

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

Quarter Ended March 31,
2021 2020 $ Change % Change
Revenue $ 6,599 $ 6,637 $ (38) (1) %
Cost of revenue 1,705 1,794 (89) (5) %
Gross profit 4,894 4,843 51 1 %
Gross margin 74 % 73 %
Operating expenses 5,098 4,923 175 4 %
Operating loss $ (204) $ (80) $ (124) 155 %


	Quarter Ended September 30,										Nine Months Ended September 30,

	2021			2020			$ Change		% Change		2021			2020			$ Change		% Change
Revenue	$	5,797		$	7,611		$	(1,814)	(24)	%	$	18,540		$	21,713		$	(3,173)	(15)	%
Cost of revenue	1,414			1,955			(541)		(28)	%	4,671			5,707			(1,036)		(18)	%
Gross profit	4,383			5,656			(1,273)		(23)	%	13,869			16,006			(2,137)		(13)	%
Gross margin	76		%	74		%					75		%	74		%
Operating expenses	4,844			5,152			(308)		(6)	%	14,791			15,051			(260)		(2)	%
Operating income (loss)	$	(461)		$	504		$	(965)	NM		$	(922)		$	955		$	(1,877)	NM

Total Games revenue decreased ~~slightly~~by $1.8 million for the quarter ended ~~March 31,~~September 30, 2021 as compared with the year-earlier period due primarily to a decrease of ~~$0.2~~$1.3 million in ~~subscription services revenues, offset by a $0.2 million increase in our~~ product sales ~~revenues, described more fully below.~~revenue, lower subscription service revenue of $0.3 million and lower advertising revenues.

Subscription Services

Our subscription sales decreased ~~$0.2~~$0.3 million as a result of ~~lower~~fewer subscribers in the ~~first~~third quarter of 2021.

Product Sales

Our product sales ~~increased $0.2~~decreased $1.3 million as a result of ~~higher~~lower in-game purchases of ~~$0.4~~$1.2 million and sales of games of $0.1 million compared to the prior-year period.

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

Operating expenses decreased $0.3 million in the quarter ended September 30, 2021 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 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 million and lower sales of games of ~~$0.2 million.~~$0.6 million compared to the prior-year period.

Cost of revenue decreased ~~$0.1~~$1.0 million in the ~~quarter~~nine months ended ~~March 31,~~September 30, 2021 when compared to the prior year period due to lower app store fees and publisher license and service royalties.

Operating expenses ~~increased $0.2~~decreased $0.3 million in the ~~quarter~~nine months ended ~~March 31,~~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 ~~service fees.~~fees of $0.3 million.

Corporate

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

Quarter Ended March 31,
2021 2020 $ Change % Change
Cost of revenue $ 4 $ 3 $ 1 33 %
Operating expenses 4,960 2,584 2,376 92 %
Operating loss $ (4,964) $ (2,587) $ (2,377) (92) %


	Quarter Ended September 30,								Nine Months Ended September 30,

	2021		2020		$ Change		% Change		2021		2020		$ Change		% Change
Cost of revenue	$	5	$	3	$	2	67	%	$	15	$	10	$	5	50	%


Operating expenses	5,443		2,521		2,922		116	%	13,573		7,852		5,721		73	%
Operating loss	$	(5,448)	$	(2,524)	$	(2,924)	(116)	%	$	(13,588)	$	(7,862)	$	(5,726)	(73)	%

Operating expenses increased by ~~$2.4~~$2.9 million in the quarter ended ~~March 31,~~September 30, 2021 compared with the year-earlier period, primarily due to higher stock-based compensation and 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 ~~and stock~~charges of $3.8 million, higher stock-based compensation ~~expenses~~ of ~~$3.1~~$2.7 million, and ~~$0.5 million, respectively.~~higher salaries and people related costs of $0.7 million. These increases were partially offset by a ~~$0.7~~$0.8 million higher benefit in ~~the first quarter of~~ 2021 related to the fair value adjustment of the contingent consideration liability, as further discussed in Note 6. Fair Value Measurements, and lower professional fees of ~~$0.4~~$0.5 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 March 31,
2021 2020 $ Change % Change
Research and development $ 6,238 $ 6,606 $ (368) (6) %
Sales and marketing 5,137 6,000 (863) (14) %
General and administrative 4,898 5,161 (263) (5) %
Fair value adjustments to contingent consideration liability (1,040) (300) (740) 247 %
Restructuring and other charges 3,171 86 3,085 3,587 %
Total consolidated operating expenses $ 18,404 $ 17,553 $ 851 5 %


	Quarter Ended September 30,								Nine Months Ended September 30,
	2021		2020		$ Change		% Change		2021		2020		$ Change		% Change
Research and development	$	5,250	$	5,781	$	(531)	(9)	%	$	17,818	$	18,375	$	(557)	(3)	%
Sales and marketing	7,177		5,130		2,047		40	%	17,573		15,969		1,604		10	%
General and administrative	4,228		4,124		104		3	%	13,502		13,263		239		2	%
Fair value adjustments to contingent consideration liability	—		—		—		—	%	(1,040)		(200)		(840)		420	%
Restructuring and other charges	1,017		307		710		231	%	4,906		1,097		3,809		347	%
Total consolidated operating expenses	$	17,672	$	15,342	$	2,330	15	%	$	52,759	$	48,504	$	4,255	9	%

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

Research and development expenses decreased by $0.6 million for the nine months ended September 30, 2021 as compared with the year-earlier period due to a reduction in salaries and people related costs of ~~$0.8~~$1.5 million, partially offset by higher professional service fees of ~~$0.2~~$0.6 million and higher infrastructure costs of ~~$0.1~~$0.3 million.

Sales and marketing expenses ~~decreased $0.9~~increased by $2.0 million in the quarter ended ~~March 31,~~September 30, 2021 as compared with the year-earlier 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 ~~$0.7~~$0.4 million reduction in salaries and people related ~~costs and lower marketing expenses of $0.3 million, partially offset by a $0.2 million increase in professional service fees.~~costs.

General and administrative expenses ~~decreased~~increased by ~~$0.3~~$0.1 million in the quarter ended ~~March 31,~~September 30, 2021 as compared with the year-earlier period, primarily due to higher salaries and 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 ~~service fees~~services expenses of $0.4 million and lower infrastructure ~~expenses~~costs of ~~$0.1 million, partially offset by higher stock compensation expense.~~$0.4 million.

The fair value adjustments to the contingent consideration liability changed by ~~$0.7~~$0.8 million infor the ~~quarter~~nine months ended ~~March 31,~~September 30, 2021 as compared with the same period in 2020. 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. For additional details on these charges, see Note 9.10. Restructuring Charges.

Other Income (Expense)

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


	Quarter Ended September 30,						Nine Months Ended September 30,
	2021		2020		$ Change		2021		2020		$ Change
Interest expense	$	(27)	$	(7)	$	(20)	$	(146)	$	(12)	$	(134)
Interest income	7		6		1		27		31		(4)
Loss on equity and other investments, net	(1,229)		(37)		(1,192)		(6,070)		(90)		(5,980)
Gain on forgiveness of Paycheck Protection Program loan	—		—		—		2,897		—		2,897
Other income (expense), net	46		(104)		150		2,066		63		2,003
Total other expense, net	$	(1,203)	$	(142)	$	(1,061)	$	(1,226)	$	(8)	$	(1,218)

Quarter Ended March 31,
2021 2020 $ Change
Interest expense $ (95) $ — $ (95)
Interest income 13 6 7
Loss on equity and other investments, net (4,272) — (4,272)
Other income, net 104 238 (134)
Total other income (expense), net $ (4,250) $ 244 $ (4,494)

~~As of~~For the quarter and nine months ended ~~March 31,~~September 30, 2021, the Loss on equity and other investments, net, of ~~$4.3~~$1.2 million and $6.1 million, respectively, primarily reflects ~~the~~ unrealized losses on equity securities. We acquired these shares from the sale of Napster in December 2020, as further discussed in Note 5. Dispositions.

During the second 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.

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 the ~~quarter~~nine months ended ~~March 31,~~September 30, 2021 related to U.S. and foreign income taxes. For the ~~same period in~~quarter and nine months ended September 30, 2020, income tax expense was ~~insignificant.~~$0.3 million and $0.6 million, respectively.

As of ~~March 31,~~September 30, 2021, 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 ~~first~~third quarter of 2021. 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 ~~March 31,~~September 30, 2021, 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 ~~first~~third quarter ofand nine months ended September 30, 2021 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):

March 31, 2021 December 31, 2020
Working capital, excluding cash and cash equivalents $ 1,277 $ 1,148
Cash and cash equivalents 17,015 23,940
Restricted cash equivalents 1,630 1,630


	September 30, 2021		December 31, 2020
Working capital, excluding cash and cash equivalents	$	289	$	1,148
Cash and cash equivalents	28,990		23,940
Restricted cash equivalents	1,630		1,630

Cash and cash equivalents ~~decreased~~increased from December 31, 2020 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 ~~$7.0~~

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

As of ~~March 31,~~September 30, 2021, approximately ~~$7.9~~$6.9 million of the ~~$17.0~~$29.0 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):

Three Months Ended March 31,
2021 2020
Cash used in operating activities $ (6,976) $ (5,923)
Cash used in investing activities (56) (80)
Cash provided by financing activities 358 10,000


	Nine Months Ended September 30,
	2021		2020
Cash used in operating activities	$	(11,416)	$	(10,033)
Cash used in investing activities	(1,116)		(261)
Cash provided by financing activities	17,962		14,970

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 ~~$1.1~~$1.4 million higher in the ~~three~~nine months ended ~~March 31,~~September 30, 2021 as compared to the same period in 2020, primarily due to our higher operating loss recorded for the ~~incremental cash used~~nine months ended September 30, 2021 compared to ~~fund~~ the ~~net change in working capital.~~prior year period.

In each of the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020, cash used by investing activities consisted of fixed asset purchases of ~~$0.1~~$0.3 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 financing activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 was ~~$0.4~~$18.0 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, ~~partially offset by~~net of tax payments for shares withheld upon vesting of restricted ~~stock.~~stock, partially offset by the $2.5 million cash payment for settlement of the contingent consideration liability.

Cash provided by financing activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 was ~~$10.0~~$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..~~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.

~~Three~~Two customers accounted for more than 10% of trade accounts receivable as of ~~March 31,~~September 30, 2021, with the customers accounting for ~~21% , 11%,~~24% and ~~10%~~13% each. Two customers ~~individually comprised~~accounted for more than 10% of trade accounts receivable at December 31, 2020, with the customers accounting for 19% and 10% each. ~~Three~~Two customers accounted for ~~45%~~30% of consolidated revenue, or ~~$7.3~~$13.5 million, during the ~~three~~nine months ended ~~March 31,~~September 30, 2021. Two customers accounted for 26% of consolidated revenue, or ~~$4.4~~$13.3 million, during the ~~three~~nine months ended ~~March 31,~~September 30, 2020.

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

~~As discussed in Note 6. Fair Value Measurements, in April~~During the second quarter of 2021, we ~~agreed with the seller on the form of final payment of~~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. ~~The fair value of RealNetworks' investment in the ordinary shares of Napster Group as of March 31, 2021 was $5.7 million, inclusive of the shares to be transferred to the seller.~~

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. Debt. Under the Agreement, as amended, borrowings may not exceed $6.5 million and are reduced by a $1.0 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. At ~~March 31,~~September 30, 2021, 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 ~~approximately $20.3~~$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.

In the future, we may seek to raise additional funds through public or private equity financing or through other sources. 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.

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 ~~March 31,~~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 ~~$1.2~~$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 ~~March 31,~~September 30, 2021 would not result in a material impact on our financial position, results of operations or cash flows.

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 ~~March 31,~~September 30, 2021. 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 ~~March 31,~~September 30, 2021, 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 ~~first~~third quarter of 2021 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 ~~11.~~12. 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. 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 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 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 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 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 and global pandemics. In particular, progress with our growth initiatives was 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, ~~and Scener's 2020 fundraising,~~ 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. On April 23, 2020, the Small Business Administration issued new guidance that introduced some uncertainty as to whether a public company with substantial market value and access to capital markets would qualify for participation in the PPP. Subsequently, on April 28, 2020 the Secretary of the Treasury and Small Business Administration announced that the government would review all PPP loans of more than $2 million for which the borrower applied for forgiveness. While we believe that RealNetworks and Napster fully qualified for the loans, should we be audited or reviewed by the U.S. Department of the Treasury as a result of filing an application for forgiveness or otherwise, such audit or review could result in the diversion of management’s time and attention and legal and reputational costs. 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. If an audit were to be conducted~~2020, and ~~an adverse finding~~ received ~~all or a portion of the~~notice that its PPP loan ~~could be required to be returned, which would reduce our liquidity and potentially result~~was forgiven in ~~fines and penalties.~~June 2021.

The inability to obtain additional debt, whether through draws on our current 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

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, 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.

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 further straining our limited cash resources and negatively affecting 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, 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.

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, 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 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.

Risks Related to our Operations

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. 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, our operating results may fluctuate or decline from period to period, which may contribute to weakness or volatility 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, again causing weakness and volatility in our stock price. Compounding these internal factors are external factors, such as the significant instability in global financial markets experienced ~~over the past year,~~during 2020 and 2021, 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.

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 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 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, we did not meet the minimum bid price of $1.00 per share required for continued listing on Nasdaq. In June 2020, we received a second letter from Nasdaq Staff indicating that we had regained compliance with Nasdaq Listing Rule 5450(a)(1) based on its determination that the closing bid price of our common stock had been at $1.00 per share or greater for the 10 business days from May 15 to May 29, 2020. Although we are currently in 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 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 consider the implementation of various measures intended to support continued compliance.

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,

repeated restructuring of our businesses and related cost-reduction efforts, as well as declines and volatility in our stock price, have caused instability in our workforce that makes 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 ~~technology,~~technologies, artificial intelligence and other related technologies ~~is evolving,~~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 operates. In addition, future Federal contracts will most likely be subject to substantial contracting rules, standards, and audits which could have an adverse ~~effect~~impact on our operating ~~results.~~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, 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, 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 ~~states~~jurisdictions have and more ~~states~~jurisdictions may impose stricter privacy laws that may impact accepted business practices. 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 will not 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.

AsIn 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.

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, whether as a result of tax laws or otherwise;

•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, and use 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;

•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; 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. 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.

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.

Our business and operating results will suffer and we may be subject to market risk and legal liability if our systems or networks fail, become unavailable, unsecured or perform poorly so that current or potential users do not have adequate access to our products, services and websites.

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 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 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 or disclosure of credit card information or personally identifiable information. We have a privacy policy concerning the collection, use, and disclosure of user data involved in interactions between our client, third party payment providers, and server products. A security breach or cyberattack that leads to disclosure of consumer account information, or any failure by us to comply with our posted privacy policy or existing or new privacy legislation, could harm our reputation, impact the market for our products and services, or subject us to litigation. 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 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, and we may not have adequate business interruption insurance to compensate us for losses that may occur from a system outage.

Security breaches, 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. As the risk of attack increases, our costs associated with cyber security and network security may also increase. Furthermore, concerns about our practices or the ultimate use of our products and services with regard to the collection, use, retention, security or disclosure of personal information or other privacy-related matters, including for artificial intelligence, could make us a more attractive target for malicious attacks and increase the resulting damage to our reputation and downward effect on our operating results if a breach occurs.

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. The~~residents, and 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 could significantly affect our financial results or financial condition.

We prepare our financial statements in conformity with GAAP. These 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, asset impairment and fair value determinations, and the acquisition method of accounting and its related estimated fair value amounts. 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. Changes to existing accounting rules or to our judgments and estimates underlying those rules could materially impact our reported operating results and financial condition.

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.

3740

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: ~~May 13,~~November 4, 2021

3841

INDEX TO EXHIBITS


Exhibit Number			Description








~~10.1~~10.1*			O ~~ffer letter dated January 15,~~ 2021 ~~between RealNetworks, Inc. and Christine Chambers~~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~~,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.


	March 31, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	17,015	$	23,940

Trade accounts receivable, net of allowances of $630 and $629	12,469		10,229
Deferred costs, current portion	262		196
Investments	5,693		9,965
Prepaid expenses and other current assets	3,833		3,480

Total current assets	39,272		47,810
Equipment, software, and leasehold improvements, at cost:
Equipment and software	30,313		30,726
Leasehold improvements	2,745		2,776
Total equipment, software, and leasehold improvements	33,058		33,502
Less accumulated depreciation and amortization	31,381		31,631
Net equipment, software, and leasehold improvements	1,677		1,871
Operating lease assets	4,771		7,937
Restricted cash equivalents	1,630		1,630
Other assets	3,792		4,150
Deferred costs, non-current portion	71		74
Deferred tax assets, net	874		909
Goodwill	17,191		17,375

Total assets	$	69,278	$	81,756

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,448	$	2,750
Accrued and other current liabilities	15,230		17,850
Deferred revenue, current portion	2,302		2,122


Total current liabilities	20,980		22,722
Deferred revenue, non-current portion	35		45
Deferred tax liabilities, net	1,101		1,129
Long-term lease liabilities	6,098		6,837
Long-term debt	2,902		2,895
Other long-term liabilities	2,171		2,241

Total liabilities	33,287		35,869
Commitments and contingencies (Note 11)
Shareholders’ equity:
Preferred stock, $0.001 par value:
Series A: authorized 200 shares, no shares issued and outstanding	0		0
Series B: authorized 8,100 shares; issued and outstanding 8,065 shares in 2021 and 2020	8		8
Undesignated series: authorized 51,700 shares	0		0
Common stock, $0.001 par value, authorized 250,000 shares; issued and outstanding 38,653 shares in 2021 and 38,424 shares in 2020	38		38
Additional paid-in capital	656,800		655,606
Accumulated other comprehensive loss	(61,177)		(60,641)
Accumulated deficit	(559,310)		(548,862)
Total shareholders’ equity	36,359		46,149
Noncontrolling interests	(368)		(262)
Total equity	35,991		45,887
Total liabilities and equity	$	69,278	$	81,756


	Three Months Ended March 31,
	2021		2020
Cash flows from operating activities:
Net loss from continuing operations	$	(10,554)	$	(4,616)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
Depreciation and amortization	204		280
Stock-based compensation	836		380

Loss on equity and other investments, net	4,272		0
Foreign currency gain	(103)		(210)
Fair value adjustments to contingent consideration liability	(1,040)		(300)
Loss on impairment of operating lease assets	2,461		0

Net change in certain operating assets and liabilities:
Trade accounts receivable	(2,319)		(693)
Prepaid expenses, operating lease and other assets	496		(453)
Accounts payable	727		66
Accrued, lease and other liabilities	(1,956)		(377)
Net cash used in operating activities- continuing operations	(6,976)		(5,923)
Net cash provided by operating activities- discontinued operations	0		1,299
Net cash used in operating activities	(6,976)		(4,624)
Cash flows from investing activities:
Purchases of equipment, software, and leasehold improvements	(56)		(80)



Net cash used in investing activities- continuing operations	(56)		(80)
Net cash used in investing activities- discontinued operations	0		(14)
Net cash used in investing activities	(56)		(94)
Cash flows from financing activities:
Proceeds from issuance of common stock (stock options)	468		0
Proceeds from issuance of preferred stock	0		10,000
Tax payments from shares withheld upon vesting of restricted stock	(110)		0




Net cash provided by financing activities- continuing operations	358		10,000
Net cash used in financing activities- discontinued operations	0		(2,404)
Net cash provided by financing activities	358		7,596
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(251)		(637)
Net (decrease) increase in cash, cash equivalents and restricted cash	(6,925)		2,241
Cash, cash equivalents and restricted cash, beginning of period	25,570		22,179
Cash, cash equivalents and restricted cash end of period	18,645		24,420
Less: Cash, cash equivalents and restricted cash from discontinued operations	0		8,025
Cash, cash equivalents and restricted cash from continuing operations, end of period	$	18,645	$	16,395


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

	Quarter Ended March 31, 2020
	Consumer Media			Mobile Services			Games
Business Line
Software License	$	2,020	0	$	831	0	$	0
Subscription Services	929		0	5,859		0	2,770
Product Sales	222		0	0		0	2,978
Advertising and Other	324		0	0		0	889
Total	$	3,495		$	6,690		$	6,637


	Fair Value Measurements as of								Amortized Cost as of
	March 31, 2021								March 31, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	17,015	$	0	$	0	$	17,015	$	17,015
Investments	0		0		5,693		5,693		N/A
Restricted cash equivalents	1,630		0		0		1,630		1,630
Total assets	$	18,645	$	0	$	5,693	$	24,338	N/A
Liabilities:
Accrued and other current liabilities
Napster acquisition contingent consideration	$	0	$	0	$	3,760	$	3,760	N/A
Other long-term liabilities
Simple Agreements for Future Equity	0		0		2,106		2,106		N/A
Total liabilities	$	0	$	0	$	5,866	$	5,866	N/A