What changed in this filing

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Item 1A. Risk Factors

2021-03-08 compared with 2020-03-10 · 298 added, 307 removed, 483 unchanged (56% of the section changed)

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In that event, the trading price of our common stock could decline, perhaps significantly.

The Audit Committee’s investigation of certain accounting and internal control matters relating to our previously issued financial statements and the audit of our consolidated financial statements as of and for the year ended December 31, 2017 were time-consuming and expensive.

We incurred significant expenses, including audit, legal, consulting and other professional fees, in connection with the Audit Committee’s internal investigation, the review of our accounting, the audit of our 2017 financial statements and the ongoing remediation of deficiencies in our internal control over financial reporting.

As described in Item 9A, “Controls and Procedures,” of this report, we have taken a number of steps in order to strengthen our accounting function and attempt to reduce the risk of future recurrence and errors in accounting determinations.

The validation of the efficacy of these remedial steps will result in us incurring near term expenses, and to the extent these steps are not successful, we could be required to incur significant additional time and expense.

The incurrence of significant additional expense, or the requirement that management devote significant time that could reduce the time available to execute on our business strategies, could have a material adverse effect on our business, results of operations and financial condition.

If we do not successfully anticipate market needs and opportunities or if the market does not continue to adopt our application networking products, our business, financial condition and results of operations could be significantly harmed.

The application networking market is rapidly evolving and difficult to predict.

The order of presentation is not necessarily indicative of the level of risk that each factor poses to us.

Risks Related to Our Business, Operations and Industry

The COVID-19 pandemic could have a material adverse effect on our ability to operate effectively.

As a result, our business, financial condition and results of operations could be significantly harmed.

The World Health Organization has declared the COVID-19 outbreak a pandemic, and the virus continues to spread in areas where we operate and sell our products and services.

The COVID-19 pandemic and similar issues in the future could have a material adverse effect on our ability to operate, results of operations, financial condition, liquidity, and capital investments.

Several public health organizations have recommended, and many local governments have implemented, certain measures to slow and limit the transmission of the virus, including shelter in place and social distancing ordinances.

Such preventive measures, or others we may voluntarily put in place, may have a material adverse effect on our business for an indefinite period of time, such as the potential shut down of certain locations, decreased employee availability, potential border closures, disruptions to the businesses of our channel partners, and others.

Additionally, we face additional risks and challenges related to having a portion of our workforce working from home, including added pressure on our IT systems and the security of our network, and new challenges as our team adjusts to online collaboration.

The global economic downturn caused by COVID-19 could materially and adversely affect our customers, and thus could negatively impact demand for our products and our operating results.

Our customers may experience business interruptions due to health risks, governmental policies or financial hardships.

Business interruptions that are sustained for an extended time period due to the outbreak could have a material negative impact on our business and operations.

For example, the postponement of the Japan 2020 Olympics negatively impacted demand in Japan for our products in 2020 and may have continued impact on demand in 2021.

Conversely, it is possible that certain of our service provider customers could experience increased demand for their solutions due to shelter in place practices globally, which could, in turn, increase demand for our solutions, but there can be no assurance as to when, if, or to what extent this may occur, if at all, given the present degree of uncertainty.

COVID-19 may result in supply shortages of our products or our ability to import, export or sell product to customers in both the U.S.

and international markets.

Any decrease, limitations or delays on our ability to import, export, or sell our products would harm our business.

The supply chains of our contract manufacturers’ and many of our vendors may source products, parts or components from vendors experiencing business interruptions.

There are many uncertainties around COVID-19, including scientific and health issues, the unknown duration and extent of economic disruption on the global economy.

Due to the increased spread of COVID-19, the potential impact and risk to our business and operations have increased.

We cannot predict what impacts may arise in the future due to the evolving nature of the COVID-19 pandemic.

Due to this uncertainty, the Company has temporarily suspended our practice of providing quarterly quantitative guidance regarding revenue and earnings.

If we do not successfully anticipate market needs and opportunities or if the market does not continue to adopt our application delivery solutions, our business, financial condition and results of operations could be significantly harmed.

The application delivery market is rapidly evolving and difficult to predict.

Technologies, customer requirements, security threats and industry standards are constantly changing.

As a result, we must anticipate future market needs and opportunities and then develop new products or enhancements to our current products that are designed to address those needs and opportunities, and we may not be successful in doing so.

In 2020, we plan to introduce several new products.

However, even if we are able to anticipate, develop and commercially introduce new products and enhancements that address the market’s needs and opportunities, there can be no assurance that new products or enhancements will achieve widespread market acceptance.

For example, organizations that use other conventional or first-generation application networking products for their needs may believe that these products are sufficient.

In addition, as we launch new product offerings, organizations may not believe that such new product offerings offer any additional benefits as compared to the existing application networking products that they currently use.

Accordingly, organizations may continue allocating their IT budgets for existing application networking products and may not adopt our products, regardless of whether our products can offer superior performance or security.

If we fail to anticipate market needs and opportunities or if the market does not continue to adopt our application networking products, then market acceptance and sales of our current and future application networking products could be substantially decreased or delayed, we could lose customers, and our revenue may not grow or may decline.

We continuously seek to enhance and improve our solutions we make available to our customers.

However, even if we are able to anticipate, develop and commercially introduce new products and enhancements that address the market’s needs and

opportunities, there can be no assurance that new products or enhancements will achieve widespread market acceptance.

For example, organizations that use other conventional or first-generation application delivery solutions for their needs may believe that these solutions are sufficient.

Accordingly, organizations may continue allocating their IT budgets for existing application solutions and may not adopt our solutions, regardless of whether our solutions can offer superior performance or security.

If we fail to anticipate market needs and opportunities or if the market does not continue to adopt our application delivery solutions, then market acceptance and sales of our current and future application delivery solutions could be substantially decreased or delayed, we could lose customers, and our revenue may not grow or may decline.

Any of such events would significantly harm our business, financial condition and results of operations.

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We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain our competitive position.

In 2020, we plan to introduce several new products.

We continuously seek to enhance and improve our solutions we make available to our customers.

However, if we are unable to develop new products and features to address technological changes and new customer requirements in the application networking or security markets or if our investments in research and development do not yield the expected benefits in a timely manner, our business and operating results could be adversely affected.

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We experienced net losses for the years ended December 31, 2019 and 2018.

We also experienced a decline in revenue during the year ended December 31, 2019, as compared to each of the prior two years, including a decrease in revenue in the Americas.

We also experienced declines in total revenue, as well as declines in revenue in the Americas, during the years ended December 31, 2019 and 2018, as compared to each of the prior years.

Although one of our priorities is to strengthen our sales efforts in the Americas, there can be no assurance that such efforts will be successful.

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As a result of these expenditures, we may have to generate and sustain increased revenue, manage our cost structure and avoid significant liabilities to achieve future profitability.

We may not be able to increase our quarterly revenue or achieve profitability in the future or on a consistent basis, and we may incur significant losses in the future for a number of possible reasons, including our inability to develop products that achieve market acceptance, general economic conditions, increasing competition, decreased growth in the markets in which we operate, or our failure for any reason to capitalize on growth opportunities.

We may not be able to increase our quarterly revenue or achieve or maintain profitability in the future or on a consistent basis, and we may incur significant losses in the future for a number of possible reasons, including our inability to develop products that achieve market acceptance, general economic conditions, increasing competition, decreased growth in the markets in which we operate, or our failure for any reason to capitalize on growth opportunities.

Additionally, we may encounter unforeseen operating expenses, difficulties, complications, delays and other unknown factors that may result in losses in future periods.

If these losses exceed our expectations or our revenue growth expectations are not met in future periods, our financial performance will be harmed and our stock price could be volatile or decline.

In addition, we have developed a cost reduction plan, which we plan to implement in 2020.

However, there can be no assurances that the implementation of such plan will be successful.

Our operating results have varied and are likely to continue to vary significantly from period to period and may be unpredictable, which could cause the trading price of our common stock to decline.

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In addition to other risks listed in this “Risk Factors” section, factors that may affect our operating results include:

• The impact of COVID-19 on our business and on the business of our customers and business partners, as well as on the economy in general;

• fluctuations in and timing of purchases from, or loss of, large customers;

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• our ability to expand internationally and domestically;

our ability to implement our cost reduction plan;

• our third-party manufacturers’ and component suppliers’ capacity to meet our product demand forecasts on a timely basis, or at all.

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Concurrently with this transition, pricing and delivery models are also evolving.

Many companies in our industry, including some of our competitors, are developing and deploying cloud-based solutions for their customers.

Many companies in our industry,

including some of our competitors, are developing and deploying cloud-based solutions for their customers.

In addition, the emergence of new cloud infrastructures may enable new companies to compete with our business.

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Any failure to adapt to these evolving trends may reduce our revenue or operating margins and could have a material adverse effect on our business, results of operations and financial condition.

If we are unable to attract new end-customers, sell additional products to our existing end-customers or achieve the anticipated benefits from our investment in additional sales personnel and resources, our revenue may decline, and our gross margin will be adversely affected.

To maintain and increase our revenue, we must continually add new end-customers and sell additional products to existing end-customers.

The rate at which new and existing end-customers purchase solutions depends on a number of factors, including some outside of our control, such as general economic conditions.

If our efforts to sell our solutions to new end-customers and additional solutions to our existing end-customers are not successful, our business and operating results will suffer.

In certain recent periods, we have added personnel and other resources to our sales and marketing functions, as we focused on growing our business, entering new markets and increasing our market share.

We may incur additional expenses by hiring additional sales and marketing personnel and expanding our international operations in order to seek revenue growth.

The return on these and future investments may be lower, or may be realized more slowly, than we expect, if realized at all.

If we do not achieve the benefits anticipated from these investments, or if the achievement of these benefits is delayed, our growth rates will decline, and our gross margin would likely be adversely affected.

If we are not able to maintain and enhance our brand and reputation, our business and operating results may be harmed in tangible or intangible ways.

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dollar and the Japanese yen may therefore affect our actual revenue and gross margin.

We have been, may presently be, or in the future may be, a party to litigation and claims regarding intellectual property rights, resolution of which has been and may in the future be time-consuming, expensive and adverse to us, as well as require a significant amount of resources to prosecute, defend, or make our products non-infringing.

Our industry is characterized by the existence of a large number of patents and by increasingly frequent claims and related litigation based on allegations of infringement or other violations of patent and other intellectual property rights.

In the ordinary course of our business, we have been and may presently be in disputes and licensing discussions with others regarding their patents and other claimed intellectual property and proprietary rights.

Intellectual property infringement and misappropriation lawsuits and other claims are subject to inherent uncertainties due to the complexity of the technical and legal issues involved, and we cannot be certain that we will be successful in defending ourselves against such claims or in concluding licenses on reasonable terms or at all.

We may have fewer issued patents than some of our major competitors, and therefore may not be able to utilize our patent portfolio effectively to assert defenses or counterclaims in response to patent infringement claims or litigation brought against us by third parties.

Further, litigation may involve patent holding companies or other adverse patent owners that have no relevant products revenue and against which our potential patents may provide little or no deterrence.

In addition, many potential litigants have the capability to dedicate substantially greater resources than we can to enforce their intellectual property rights and to defend claims that may be brought against them.

We expect that infringement claims may increase as the number of product types and the number of competitors in our market increases.

Also, to the extent we gain greater visibility, market exposure and competitive success, we face a higher risk of being the subject of intellectual property infringement claims.

If we are found in the future to infringe the proprietary rights of others, or if we otherwise settle such claims, we could be compelled to pay damages or royalties and either obtain a license to those intellectual property rights or alter our products such that they no longer infringe.

Any license could be very expensive to obtain or may not be available at all.

Similarly, changing our products or processes to avoid infringing the rights of others may be costly, time-consuming or impractical.

Alternatively, we could also become subject to an injunction or other court order that could prevent us from offering our products.

Any of these claims, regardless of their merit, may be time-consuming, result in costly litigation and diversion of technical and management personnel, or require us to cease using infringing technology, develop non-infringing technology or enter into royalty or licensing agreements.

Many of our commercial agreements require us to indemnify our end-customers, distributors and resellers for certain third-party intellectual property infringement actions related to our technology, which may require us to defend or otherwise become involved in such infringement claims, and we could incur liabilities in excess of the amounts we have received for the relevant products and/or services from our end-customers, distributors or resellers.

These types of claims could harm our relationships with our end-customers, distributors and resellers, may deter future end-customers from purchasing our products or could expose us to litigation for these claims.

Even if we are not a party to any litigation between an end-customer, distributor or reseller, on the one hand, and a third party, on the other hand, an adverse outcome in any such litigation could make it more difficult for us to defend our intellectual property rights in any subsequent litigation in which we are a named party.

We may not be able to adequately protect our intellectual property, and if we are unable to do so, our competitive position could be harmed, or we could be required to incur significant expenses to enforce our rights.

We rely on a combination of patent, copyright, trademark and trade secret laws, and contractual restrictions on disclosure of confidential and proprietary information, to protect our intellectual property.

Despite the efforts we take to protect our intellectual property and other proprietary rights, these efforts may not be sufficient or effective at preventing their unauthorized use.

In addition, effective trademark, patent, copyright and trade secret protection may not be available or cost-effective in every country in which we have rights.

There may be instances where we are not able to protect intellectual property or other proprietary rights in a manner that maximizes competitive advantage.

If we are unable to protect our

intellectual property and other proprietary rights from unauthorized use, the value of those assets may be reduced, which could negatively impact our business.

We also rely in part on confidentiality and/or assignment agreements with our technology partners, employees, consultants, advisors and others.

These protections and agreements may not effectively prevent disclosure of our confidential information and may not provide an adequate remedy in the event of unauthorized disclosure.

In addition, others may independently discover our trade secrets and intellectual property information we thought to be proprietary, and in these cases we would not be able to assert any trade secret rights against those parties.

Despite our efforts to protect our intellectual property, unauthorized parties may attempt to copy or otherwise obtain and use our intellectual property or technology.

Monitoring unauthorized use of our intellectual property is difficult and expensive.

We have not made such monitoring a priority to date and will not likely make this a priority in the future.

We cannot be certain that the steps we have taken or will take will prevent misappropriation of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States.

If we fail to protect our intellectual property adequately, our competitors might gain access to our technology, and our business might be harmed.

In addition, even if we protect our intellectual property, we may need to license it to competitors, which could also be harmful.

For example, as a result of the settlement of an intellectual property matter, we have already licensed all of our issued patents, pending applications, and future patents and patent applications that we may acquire, obtain, apply for or have a right to license to Brocade Communications Systems, Inc.

until May 2025, for the life of each such patent.

In addition, we might incur significant expenses in defending our intellectual property rights.

Any of our patents, copyrights, trademarks or other intellectual property rights could be challenged by others or invalidated through administrative process or litigation.

We may in the future initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights.

Any litigation, whether or not resolved in our favor, could result in significant expense to us and divert the efforts of our management and technical personnel, as well as cause other claims to be made against us, which might adversely affect our business, operating results and financial condition.

We generate a significant amount of revenue from sales to distributors, resellers, and end-customers outside of the United States, and we are therefore subject to a number of risks that could adversely affect these international sources of our revenue.

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To the extent that we may enter into customer contracts in the future that include non-standard terms, our operating results may be adversely impacted.

We have a significant presence in international markets and plan to continue to expand our international operations, which exposes us to a number of risks that could affect our future growth.

Our sales team is comprised of field sales and inside sales personnel who are organized by geography and maintain sales presence in 28 countries as of December 31, 2019, including in the following countries and regions:

the United States, Western Europe, the Middle East, Japan, China, Taiwan, South Korea, Southeast Asia and Latin America.

We expect to continue to increase our sales headcount in all markets, particularly in markets where we currently do not have a sales presence.

As we continue to expand our international sales and operations, we are subject to a number of risks, including the following:

We have a significant presence in international markets and plan to continue to expand our international operations, which exposes us to a number of risks that could negatively affect our future business.

We have personnel in dozens of countries including in the following countries and regions:

the United States, Western Europe, India, the Middle East, Japan, China, Taiwan, South Korea, Southeast Asia and Latin America.

As we maintain our international operations, we are subject to a number of risks, including the following:

• greater difficulty in enforcing contracts and accounts receivable collection and possible longer collection periods;

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• general economic and political conditions in these foreign markets;

economic uncertainty around the world, including continued economic uncertainty as a result of sovereign debt issues in Europe and the United Kingdom’s exit from the European Union (commonly referred to as “Brexit”);

• economic uncertainty around the world, including continued economic uncertainty as a result of the COVID-19 pandemic, sovereign debt issues in Europe and the United Kingdom’s exit from the European Union (commonly referred to as “Brexit”);

• management communication and integration problems resulting from cultural and geographic dispersion;

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As such, if we or our intermediaries, such as channel partners and distributors, fail to comply with the requirements of the FCPA or similar legislation, governmental authorities in the United States and elsewhere could seek to impose civil and/or criminal fines and penalties which could have a material adverse effect on our business, operating results and financial condition.

Currently, China and other countries are facing a coronavirus pandemic.

The impact of the pandemic has significantly affected business and other activities within China, including travel to, from and within mainland China.

We employ sales and engineering personnel in China, many of whom are currently working from their homes and may continue to be negatively affected by the pandemic.

Our annual revenues in China typically represent not more than approximately 5% of our total revenues.

However, business interruptions that are sustained for an extended time period due to the outbreak could have a material negative impact on our business and operations.

The supply chains of our contract manufacturers’ and many of our vendors may source products, parts or components from China, countries near China and the region.

There are many uncertainties around COVID-19, including scientific and health issues, the unknown duration and extent of economic disruption in China and other markets, and the impact, if any, on the Chinese, U.S., and global economies.

As a result, COVID-19 may result in supply shortages of our products or our ability to import, export or sell product to customers in U.S.

and international markets.

Any decrease, limitations or delays on our ability to import, export, or sell our products would harm our business.

If the pandemic spreads to other countries where, individually or in the aggregate, our sales and operations are more significant, the potential impact and risk to our business and operations will increase.

To date, we have not seen any material negative impact on our business, but we cannot predict what impacts may arise in the future due to the evolving nature of the pandemic.

We are exposed to fluctuations in currency exchange rates, which could negatively affect our results of operations.

Our consolidated results of operations, financial position and cash flows are subject to fluctuations due to changes in foreign currency exchange rates.

Historically, the majority of our revenue contracts are denominated in U.S.

dollars, with the most significant exception being Japan, where we invoice primarily in the Japanese yen.

Our expenses are generally denominated in the currencies in which our operations are located, which is primarily in the Americas and EMEA.

Revenue resulting from selling in local currencies and costs incurred in local currencies are exposed to foreign currency exchange rate fluctuations that can affect our operating income.

The currency exchange impact of the foreign exchange rates on our net loss

was $1.4 million , $0.7 million and $0.4 million unfavorable for the years ended December 31, 2019, 2018 and 2017, respectively.

As exchange rates vary, our operating income may differ from expectations.

We deploy normal and customary hedging practices that are designed to proactively mitigate such exposure.

The use of such hedging activities may not offset any, or more than a portion, of the adverse financial effects of unfavorable movements in currency exchange rates over the limited time the hedges are in place and would not protect us from long term shifts in currency exchange rates.

Additionally, we currently face many risks associated with the COVID-19 pandemic.

Please refer to the discussion of these risks presented at the beginning of Item 1A.

Risk Factors.

Our success depends on our key personnel and our ability to hire, retain and motivate qualified product development, sales, marketing and finance personnel.

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There can be no assurance that our exploration of strategic alternatives will result in any transaction being consummated, and speculation and uncertainty regarding the outcome of our exploration of strategic alternatives may adversely impact our business.

On July 30, 2019, we announced that our Board of Directors has formed a Strategy Committee tasked and empowered with overseeing and executing specific activities directed to increasing shareholder value.

In furtherance of these activities, we retained Bank of America Merrill Lynch to advise us and the Board of Directors on strategic matters, including a near term exploration of a potential sale or change of control transaction.

No assurance can be given that such a transaction will be consummated in the near term or at all.

On July 30, 2019, we announced that our Board of Directors had formed a Strategy Committee tasked and empowered with overseeing and executing specific activities directed to increasing shareholder value.

No assurance can be given that a strategic transaction will be consummated in the near term or at all.

In addition, speculation and uncertainty regarding our exploration of strategic alternatives may cause or result in:

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The timing of the purchase of our products is often discretionary and may involve a significant commitment of capital and other resources.

Volatility in the global economic market or other effects of global or regional economic weakness, including limited availability of credit, a reduction in business confidence and activity, deficit-driven austerity measures that continue to affect governments and educational institutions, and other difficulties may affect one or more of the industries to which we sell our products and services.

If economic conditions in the United States, Europe and other key markets for our products continue to be volatile or do not improve or those markets experience another downturn, many end-customers may delay or reduce their IT spending.

Volatility in the global economic market or other effects of global or regional economic weakness, including the impacts of COVID-19, limited availability of credit, a reduction in business confidence and activity, deficit-driven austerity measures that continue to affect governments and educational institutions, and other difficulties may affect one or more of the industries to which we sell our products and services.

If economic conditions in the United States, Europe and other key markets for our products continue to be volatile in response to COVID-19 or otherwise do not improve or those markets experience a prolonged downturn, many end-customers may delay or reduce their IT spending.

caused severe economic disruptions around the globe and such disruptions may have a negative impact on the demand for information technology by large enterprises and service providers.

This could result in reductions in sales of our products and services, longer sales cycles, slower adoption of new technologies and increased price competition.

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In addition, there can be no assurance that IT spending levels will increase following any recovery.

Exposure to UK political developments, including the effects of Brexit, could have a material adverse effect on us.

On January 31, 2020, the United Kingdom (“UK”) left the European Union (“EU”), which began a transition period until the end of 2020 during which the UK and the EU will negotiate additional arrangements.

The effects of Brexit will depend on agreements the UK makes to retain access to EU markets following the transition period.

Brexit creates an uncertain political and economic environment in the UK and potentially across other EU member states for the foreseeable future, including during the transition period and such uncertainties could impair or limit our ability to transact business in the member EU states.

The political and economic uncertainty created by Brexit has caused and may continue to cause significant volatility in global financial markets and in the value of the Pound Sterling currency or other currencies, including the Euro.

Depending on the final terms reached between the UK and the EU, it is possible that there may be adverse practical and/or operational implications on our business.

Consequently, no assurance can be given as to the overall impact of Brexit and, in particular, no assurance can be given that our operating results, financial condition and prospects would not be adversely impacted by the result.

Enhanced United States tariffs import/export restrictions, Chinese regulations or other trade barriers may have a negative effect on global economic conditions, financial markets and our business.

There is currently significant uncertainty about the future relationship between the United States and various other countries, most significantly China, with respect to trade policies, treaties, tariffs and taxes.

The current U.S.

presidential administration has called for substantial changes to U.S.

foreign trade policy with respect to China and other countries, including the possibility of imposing greater restrictions on international trade and significant increases in tariffs on goods imported into the United States.

In 2018, the Office of the U.S.

Trade Representative (the “USTR”) enacted tariffs on imports into the U.S.

from China, including communications equipment products and components manufactured and imported from China.

An increase in tariffs will cause our costs to increase, which could narrow the profits we earn from sales of products requiring such materials.

Furthermore, if tariffs, trade restrictions, or trade barriers are placed on products such as ours by foreign governments, especially China, the prices for our products may increase, which may result in the loss of customers and harm to our business, financial condition and results of operations.

There can be no assurance that we will not experience a disruption in business related to these or other changes in trade practices and the process of changing suppliers in order to mitigate any such tariff costs could be complicated, time consuming and costly.

Furthermore, the U.S.

tariffs may cause customers to delay orders as they evaluate where to take delivery of our products in connection with their efforts to mitigate their own tariff exposure.

Such delays create forecasting difficulties for us and increase the risk that orders might be canceled or might never be placed.

Current or future tariffs imposed by the U.S.

may also negatively impact our customers’ sales, thereby causing an indirect negative impact on our own sales.

Any reduction in customers’ sales, and/or any apprehension among distributors and customers of a possible reduction in such sales, would likely cause an indirect negative impact on our own sales.

Additionally, the current uncertainty about the future relationship between the United States and other countries with respect to the trade policies, treaties, taxes, government regulations and tariffs makes it difficult to plan for the future.

New developments in these areas, or the perception that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between these nations and the United States.

Any of these factors could depress economic activity and restrict our access

to suppliers or customers and have a material adverse effect on our business, financial condition and results of operations and affect our strategy in China and elsewhere around the world.

Given the uncertainty of further developments related to tariffs, international trade agreements and policies we can give no assurance that our business, financial condition and operating results would not be adversely affected.

We are dependent on third-party manufacturers, and changes to those relationships, expected or unexpected, may result in delays or disruptions that could harm our business.

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Our reliance on these third-party manufacturers reduces our control over the manufacturing process and exposes us to risks, including reduced control over quality assurance, product costs, and product supply and timing.

Any manufacturing disruption at these manufacturers could severely impair our ability to fulfill orders.

Any manufacturing disruption at these manufacturers, including but not limited to disruptions due to COVID-19, could severely impair our ability to fulfill orders.

Our reliance on outsourced manufacturers also may create the potential for infringement or misappropriation of our intellectual property rights or confidential information.

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If we are unable to obtain a sufficient quantity of these components in a timely manner for any reason, sales and/or shipments of our products could be delayed or halted, which would seriously affect present and future sales and cause damage to end-customer relationships, which would, in turn, adversely affect our business, financial condition and results of operations.

In response to COVID-19, some of the countries in which these components are manufactured have implemented mandatory shut downs that may ultimately limit our ability to obtain a sufficient quantity of these components in a timely manner.

In addition, our component suppliers change their selling prices frequently in response to market trends, including industry-wide increases in demand, and because we do not necessarily have contracts with these suppliers, we are susceptible to price fluctuations related to raw materials and components.

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Furthermore, poor quality in sole-sourced components or certain other components in our products could also result in lost sales or lost sales opportunities.

If the quality of such components does not meet our standards or our end-customers’ requirements, if we are unable to obtain components from our existing suppliers on commercially reasonable terms, or if any of our sole source providers cease to continue to manufacture such components or to remain in business, we could be forced to redesign our products and qualify new components from alternate suppliers.

If the quality of such components does not meet our standards or our end-customers’ requirements, if we are

unable to obtain components from our existing suppliers on commercially reasonable terms, or if any of our sole source providers cease to continue to manufacture such components or to remain in business, we could be forced to redesign our products and qualify new components from alternate suppliers.

The development of alternate sources for those components can

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In addition, even claims that ultimately are unsuccessful could result in expenditures of funds in connection with litigation and divert management’s time and other resources.

Failure to protect and ensure the confidentiality and security of data could lead to legal liability, adversely affect our reputation and have a material adverse effect on our operating results, business and reputation.

We may collect, store and use certain confidential information in the course of providing our services, and we have invested in preserving the security of this data.

We may also outsource operations to third-party service providers to whom we transmit certain confidential data.

There are no assurances that any security measures we have in place, or any additional security measures that our subcontractors may have in place, will be sufficient to protect this confidential information from unauthorized security breaches.

We cannot assure you that, despite the implementation of these security measures, we will not be subject to a security incident or other data breach or that this data will not be compromised.

We may be required to expend significant capital and other resources to protect against security breaches or to alleviate problems caused by security breaches, or to pay penalties as a result of such breaches.

Despite our implementation of security measures, techniques used to obtain unauthorized access or to sabotage systems change frequently and may not be recognized until launched against a target.

As a result, we may be unable to anticipate these techniques or implement adequate preventative measures to protect this data.

In addition, security breaches can also occur as a result of non-technical issues, including intentional or inadvertent breaches by our employees or service providers or by other persons or entities with whom we have commercial relationships.

Any compromise or perceived compromise of our security could damage our reputation with our end-customers, and could subject us to significant liability, as well as regulatory action, including financial penalties, which would materially adversely affect our brand, results of operations, financial condition, business and prospects.

We have incurred, and expect to continue to incur, significant costs to protect against security breaches.

We may incur significant additional costs in the future to address problems caused by any actual or perceived security breaches.

Breaches of our security measures or those of our third-party service providers, or other security incidents, could result in:

unauthorized access to our sites, networks and systems;

unauthorized access to, misuse or misappropriation of information, including personally identifiable information, or other confidential or proprietary information of ourselves or third parties;

viruses, worms, spyware or other malware being served from our sites, networks or systems;

deletion or modification of content or the display of unauthorized content on our sites;

interruption, disruption or malfunction of operations;

costs relating to notification of individuals, or other forms of breach remediation;

deployment of additional personnel and protection technologies;

response to governmental investigations and media inquiries and coverage;

engagement of third-party experts and consultants;

litigation, regulatory investigations, prosecutions, and other actions;

and other potential liabilities.

If any of these events occurs, or is believed to occur, our reputation and brand could be damaged, our business may suffer, we could be required to expend significant capital and other resources to alleviate problems caused by such actual or perceived breaches, we could be exposed to a risk of loss, litigation or regulatory action and possible liability, and our ability to operate our business,

including our ability to provide maintenance and support services to our channel partners and end-customers, may be impaired.

If current or prospective channel partners and end-customers believe that our systems and solutions do not provide adequate security for their businesses’ needs, our business and our financial results could be harmed.

Additionally, actual, potential or anticipated attacks may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees and engage third-party experts and consultants.

Although we maintain privacy, data breach and network security liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all.

Any actual or perceived compromise or breach of our security measures, or those of our third-party service providers, or any unauthorized access to, misuse or misappropriation of personally identifiable information, channel partners’ or end-customers information, or other information, could violate applicable laws and regulations, contractual obligations or other legal obligations and cause significant legal and financial exposure, adverse publicity and a loss of confidence in our security measures, any of which could have an material adverse effect on our business, financial condition and operating results.

Our failure to adequately protect personal data could have a material adverse effect on our business.

A wide variety of provincial, state, national, foreign, and international laws and regulations apply to the collection, use, retention, protection, disclosure, transfer, and other processing of personal data.

These data protection and privacy-related laws and regulations are evolving and being tested in courts and may result in ever-increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions.

For example, the European Union’s General Data Protection Regulation, or GDPR, which took effect in May 2018, has caused EU data protection requirements to be more stringent and provide for greater penalties.

Because the GDPR may be subject to new or changing interpretations by courts, our interpretation of the law and efforts to comply with the rules and regulations of the law may be ruled invalid.

Noncompliance with the GDPR can trigger fines of up to €20 million or 4% of global annual revenues, whichever is higher.

The United Kingdom also recently enacted legislation that substantially implements the GDPR.

Similarly, California recently enacted the California Consumer Privacy Act, or CCPA, which, among other things, requires covered companies to provide new disclosures to California consumers and affords such consumers new rights to opt-out of certain sales of personal information.

Aspects of the CCPA and its interpretation remain unclear.

In addition, other states have enacted or proposed legislation that regulates the collection, use, and sale of personal information, and such regimes might not be compatible with either the GDPR or the CCPA or may require us to undertake additional practices.

We cannot yet predict the impact of the CCPA or impending legislation on our business or operations, but it may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply.

Our failure to comply with applicable laws and regulations, or to protect such data, could result in enforcement action against us, including significant fines, imprisonment of company officials and public censure, claims for damages by end-customers and other affected persons and entities, damage to our reputation and loss of goodwill (both in relation to existing and prospective channel partners and end-customers), and other forms of injunctive or operations-limiting relief, any of which could have a material adverse effect on our operations, financial performance, and business.

Evolving and changing definitions of personal data and personal information, within the European Union, the United States, and elsewhere, especially relating to classification of Internet Protocol (“IP”) addresses, machine identification, location data, biometric data and other information, may limit or inhibit our ability to operate or expand our business, including limiting strategic partnerships that may involve the sharing of data.

We may be required to expend significant resources to modify our solutions and otherwise adapt to these changes, which we may be unable to do on commercially reasonable terms or at all, and our ability to develop new solutions and features could be limited.

These developments could harm our business, financial condition and results of operations.

Even if not subject to legal challenge, the perception of privacy concerns, whether or not valid, may harm our reputation and inhibit adoption of our products by current and prospective end-customers.

If the general level of advanced cyberattacks declines, or is perceived by our current or potential customers to have declined, our business could be harmed.

Our security business may be dependent on enterprises and governments recognizing that advanced cyberattacks are pervasive and are not effectively prevented by legacy security solutions.

High visibility attacks on prominent companies and governments have increased market awareness of advanced cyberattacks and help to provide an impetus for enterprises and governments to devote resources to protecting against advanced cyberattacks, which may include testing, purchasing and deploying our products.

If advanced cyberattacks were to decline, or enterprises or governments perceived a decline in the general level of advanced cyberattacks, our ability to attract new channel partners and end-customers and expand our offerings within existing channel partners and end-customers could be materially and adversely affected.

An actual or perceived reduction in the threat landscape could increase our sales cycles and harm our business, results of operations and financial condition.

Undetected software or hardware errors may harm our business and results of operations.

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If any such claims were asserted against us, we could be required to incur significant legal expenses defending against such a claim.

Further, if our defenses to such a claim were not successful, we could be, for example, subject to significant damages, be required to seek licenses from third parties in order to continue offering our products and services without infringing such third party’s intellectual property rights, be required to re-engineer such products and services, or be required to discontinue making available such products and

services if re-engineering cannot be accomplished on a timely or successful basis.

The need to engage in these or other remedies could increase our costs or otherwise adversely affect our business, operating results and financial condition.

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Because of this complexity, prospective end-customers generally consider a number of factors over an extended period of time before committing to purchase our products.

time to evaluate, test and qualify our products prior to making a purchase decision and placing an order to ensure that our products will successfully interoperate with our end-customers’ complex network and data centers.

End-customers often view the purchase of our products as a significant and strategic decision that can have important implications on their existing networks and data centers and, as a result, require considerable time to evaluate, test and qualify our products prior to making a purchase decision and placing an order to ensure that our products will successfully interoperate with our end-customers’ complex network and data centers.

Additionally, the budgetary decisions at these entities can be lengthy and require multiple organization reviews.

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When support is purchased our end-customers depend on our support organization to provide a broad range of support services, including on-site technical support, 24-hour support and shipment of replacement parts on an expedited basis.

If our support organization or our distribution channel partners do not assist our end-customers in deploying our products effectively, succeed in helping our end-customers resolve post-deployment issues quickly, or provide ongoing support, it could adversely affect our ability to sell our products to existing end-customers and could harm our reputation with potential end-customers.

If our support organization or our

distribution channel partners do not assist our end-customers in deploying our products effectively, succeed in helping our end-customers resolve post-deployment issues quickly, or provide ongoing support, it could adversely affect our ability to sell our products to existing end-customers and could harm our reputation with potential end-customers.

We currently have technical support centers in the United States, Japan, China, India and the Netherlands.

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Accordingly, the effect of downturns in sales of our subscription-based solutions will not be fully reflected in our operating results until future periods.

A subscription revenue model also makes it difficult for us to rapidly

increase our revenue through additional subscription sales in any one period, as revenue is generally recognized over a longer period.

A subscription revenue model also makes it difficult for us to rapidly increase our revenue through additional subscription sales in any one period, as revenue is generally recognized over a longer period.

Our business and operations have experienced growth in certain prior periods and may experience rapid growth at certain times in the future, and if we do not effectively manage any future growth or are unable to improve our controls, systems and processes, our operating results will be adversely affected.

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If we are unable to establish or maintain our sales channels or if our distribution channel partners are unable to adapt to our future sales focus and needs, our business and results of operations will be harmed.

Our products must conform to industry standards in order to be accepted by end-customers in our markets.

Generally, our products comprise only a part of a data center.

The servers, network, software and other components and systems of a data center must comply with established industry standards in order to interoperate and function efficiently together.

We depend on companies that provide other components of the servers and systems in a data center to support prevailing industry standards.

Often, these companies are significantly larger and more influential in driving industry standards than we are.

Some industry standards may not be widely adopted or implemented uniformly, and competing standards may emerge that may be preferred by our end-customers.

If larger companies do not support the same industry standards that we do, or if competing standards emerge, market acceptance of our products could be adversely affected and we may need to incur substantial costs to conform our products to such standards, which could harm our business, operating results and financial condition.

We are dependent on various information technology systems, and failures of or interruptions to those systems could harm our business.

Many of our business processes depend upon our information technology systems, the systems and processes of third parties, and on interfaces with the systems of third parties.

If those systems fail or are interrupted, or if our ability to connect to or interact with one or more networks is interrupted, our processes may function at a diminished level or not at all.

This could harm our ability to ship or support our products, and our financial results may be harmed.

In addition, reconfiguring or upgrading our information technology systems or other business processes in response to changing business needs may be time-consuming and costly and is subject to risks of delay or failed deployment.

To the extent this impacts our ability to react timely to specific market or business opportunities, our financial results may be harmed.

Future acquisitions we may undertake may not result in the financial and strategic goals that are contemplated at the time of the transaction.

We may make future acquisitions of complementary companies, products or technologies.

With respect to any acquisitions we may undertake, we may find that the acquired businesses, products or technologies do not further our business strategy as expected, that we paid more than what the assets are later worth or that economic conditions change, all of which may generate future impairment charges.

Acquisitions may be viewed negatively by customers, financial markets or investors.

There may be difficulty integrating the operations and personnel of an acquired business, and we may have difficulty retaining the key personnel of an acquired business.

We may also have difficulty in integrating acquired technologies or products with our existing product lines.

Any integration process may require significant time and resources, and we may not be able to manage the process successfully.

Our ongoing business and management’s attention may be disrupted or diverted by transition or integration issues and the complexity of managing geographically and culturally diverse locations.

We may have difficulty

maintaining uniform standards, controls, procedures and policies across locations.

We may experience significant problems or liabilities associated with product quality, technology and other matters.

Our inability to successfully operate and integrate future acquisitions appropriately, effectively and in a timely manner, or to retain key personnel of any acquired business, could have a material adverse effect on our revenue, gross margin and expenses.

We are exposed to the credit risk of our distribution channel partners and end-customers, which could result in material losses and negatively impact our operating results.

Most of our sales are on an open credit basis, with typical payment terms ranging from 30 to 90 days depending on local customs or conditions that exist in the sale location.

If any of the distribution channel partners or end-customers responsible for a significant portion of our revenue becomes insolvent or suffers a deterioration in its financial or business condition and is unable to pay for our products, our results of operations could be harmed.

The sales price of our products and subscriptions may decrease, which may reduce our gross profits and adversely impact our financial results.

The sales prices for our products and subscriptions may decline for a variety of reasons, including competitive pricing pressures, discounts, a change in our mix of products and subscriptions, anticipation of the introduction of new products or subscriptions, or promotional programs.

Competition continues to increase in the market segments in which we participate, and we expect competition to further increase in the future, thereby leading to increased pricing pressures.

Larger competitors with more diverse product and service offerings may reduce the price of products or subscriptions that compete with ours or may bundle them with other products and subscriptions.

Additionally, although we price our products and subscriptions worldwide in U.S.

dollars (except in Japan), currency fluctuations in certain countries and regions may negatively impact actual prices that channel partners and end-customers are willing to pay in those countries and regions.

Furthermore, we anticipate that the sales prices and gross profits for our products will decrease over product life cycles.

We cannot guarantee that we will be successful in developing and introducing new offerings with enhanced functionality on a timely basis, or that our product and subscription offerings, if introduced, will enable us to maintain our prices and gross profits at levels that will allow us to achieve and maintain profitability.

Our business is subject to the risks of earthquakes, fire, power outages, floods, and other catastrophic events, and to interruption by man-made problems such as acts of war and terrorism.

A significant natural disaster, such as an earthquake, fire, a flood, or significant power outage could have a material adverse impact on our business, operating results, and financial condition.

Our corporate headquarters are located in the San Francisco Bay Area, a region known for seismic activity.

In addition, our two primary manufacturers are located in Taiwan, which is near major earthquake fault lines and subject to typhoons during certain times of the year.

In the event of a major earthquake or typhoon, or other natural or man-made disaster, our manufacturers in Taiwan may face business interruptions, which may impact quality assurance, product costs, and product supply and timing.

In the event our or our service providers’ information technology systems or manufacturing or logistics abilities are hindered by any of the events discussed above, shipments could be delayed, resulting in missed financial targets, such as revenue and shipment targets, and our operations could be disrupted, for the affected quarter or quarters.

In addition, cyber security attacks, acts of war or terrorism, or other geo-political unrest could cause disruptions in our business or the business of our supply chain, manufacturers, logistics providers, partners, or end-customers or the economy as a whole.

Any disruption in the business of our supply chain, manufacturers, logistics providers, partners or end-customers that impacts sales at the end of a quarter could have a significant adverse impact on our quarterly results.

All of the aforementioned risks may be further increased if the disaster recovery plans for us and our suppliers prove to be inadequate.

To the extent that any of the above should result in delays or cancellations of customer orders, or the delay in the manufacture, deployment or shipment of our products, our business, financial condition and operating results would be adversely affected.

Risks Related to Intellectual Property, Litigation, Laws and Regulations

Intellectual property infringement and

misappropriation lawsuits and other claims are subject to inherent uncertainties due to the complexity of the technical and legal issues involved, and we cannot be certain that we will be successful in defending ourselves against such claims or in concluding licenses on reasonable terms or at all.