Description of Business and Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2021

Description of Business and Summary of Significant Accounting Policies


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 for the three and six months ended June 30, 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 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 six months ended June 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 $5.7 million and $11.9 million for the quarter and six months ended June 30, 2021, respectively. The Company had an accumulated deficit of $560.7 million and $548.9 million as of June 30, 2021 and December 31, 2020, respectively. The Company believes that its cash and cash equivalents of $29.9 million as of June 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.

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

The COVID-19 pandemic, including the emergence of new 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).