What changed in this filing

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Item 1. Legal Proceedings

2024-07-24 compared with 2024-04-24 · 62 added, 67 removed, 548 unchanged (19% of the section changed)

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We cannot predict whether any resulting liability will have a material adverse effect on our financial position, results of operations, cash flows, market position or stock price.

Patent Litigation

Between 2019 and 2023, we were engaged in multiple patent lawsuits with subsidiaries of NXP N.V., or NXP, our primary endpoint IC competitor.

On March 13, 2024, we and NXP entered into a Settlement and Patent Cross-License Agreement dated March 13, 2024, or the Settlement Agreement which resolved all outstanding litigation and proceedings between us.

For further information on these lawsuits, please refer to Note 6 of our condensed consolidated financial statements included elsewhere in this report.

Ris k Factors.

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To gain market share, they could discount their products and accept lower margins, or they could maintain margins by achieving cost savings through better, more efficient designs or production methods.

They could devote more resources than we can to product development, promotion, sale and support.

They could devote more resources than we can to product development, promotion, sales and support.

They could also bundle other technologies, including those we do not have in our product portfolio, with their RAIN products.

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As a result, we may be unable to accurately forecast our future operating results including revenue, gross margins, cash flows and—profitability, any or all of which could negatively impact our financial performance.

We must regularly introduce new products and product enhancements to compete effectively.

We must introduce new products, product enhancements and services to compete effectively.

We introduce new products and services to advance our business, satisfy increasingly demanding end-user requirements and grow RAIN market adoption.

We commit significant resources developing and introducing these new products and services.

We also commit significant resources improving the performance and reliability of, and reducing the costs of, our existing products and services.

Whether our new products and services will succeed is uncertain.

Our success developing the technologies, processes or capabilities necessary or desired for new or enhanced products and services, or licensing or otherwise acquiring them from third parties, and our ability to introduce new products and services before our competition, depends on many factors, including:

We commit significant resources developing and introducing these new products and services, and to improving the performance and reliability of, and reducing the costs of, our existing products and services.

Whether our new or enhanced products and services will succeed is uncertain.

Our success developing the technologies, processes or capabilities necessary or desired for new or enhanced products and services, or licensing or otherwise acquiring them from third parties, and our ability to introduce new or enhanced products and services before our competition, depends on many factors, including:

• our ability to identify new product capabilities or services that end users will widely adopt;

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• the quality, reliability and selling price of our product or service;

• the effectiveness of our marketing, sales and service.

When we introduce new products, our success in ramping adoption depends, in part, on us making those products easy for our partners and end users to deploy and use.

• the effectiveness of our marketing, sales and support.

When we introduce new products and services, our success in ramping adoption depends, in part, on us making those products and services easy for our partners and end users to deploy and use.

For example, for our new M800-family endpoint ICs, we are currently significantly supporting our inlay partners to produce high-performing, high-quality inlays.

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We must also develop relationships with top-tier solution partners to gain access to and address challenging new use cases.

If we do not succeed in identifying, developing, selling and deploying enterprise solutions, particularly solutions that rely on autonomous reading, with top-tier partners and across a range of markets and end users, then our business prospects will suffer.

Delivering enterprise solutions requires a network of partner products and services that complement our own product offerings and that together address the enterprise needs.

Convincing enterprises to engage us to solve their business problems – including evaluation, design, deployment, operations and services, as well as integrating RAIN data into the enterprise's information systems, requires tight coordination among our and our partners' sales, marketing, operations and engineering teams.

If we do not succeed in identifying, developing, selling and deploying enterprise solutions, particularly solutions that rely on autonomous reading, with top-tier partners and end users and across a range of markets and use cases, then our business prospects will suffer.

Delivering enterprise solutions requires a network of partner products and services that complement our own product offerings and that together address enterprise needs.

Convincing enterprises to partner with us to solve their business problems—including evaluation, design, deployment, operations and services, as well as integrating RAIN data into the enterprise's information systems—requires tight coordination among our and our partners' sales, marketing, operations and engineering teams.

We, or our partners, may be unable to successfully acquire customers for our enterprise solutions, or successfully address our market opportunity.

Although we today have partners who can successfully introduce our platform, or aspects of it, to their customers, their knowledge of our platform and RAIN in general is still nascent.

Although we have partners who can successfully introduce our platform, or aspects of it, to their customers, even today their knowledge of our platform and RAIN in general is often still nascent.

If we do not build our network of solutions, and partners to deliver those solutions, and broaden our efforts to deliver solutions that leverage our platform in large, complex enterprise opportunities, then our business prospects will suffer.

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As demand for older products declines, or as competition from competitors with lower product costs or lower profitability expectations increases, or during times of oversupply, ASPs may decline quickly.

To compete profitably we must continually improve our technology and processes and reduce unit costs in line with lower selling prices.

If we are unable to offset ASP reductions with increased sales volumes or reduced product costs, then our revenue and gross margins will suffer.

To compete profitably we must continually improve our technology and processes, reduce unit costs in line with lower selling prices, and introduce new, higher margin products.

If we are unable to offset ASP reductions with increased sales volumes or reduced product costs, or if we are unable to introduce new products that command higher prices and better gross margins, then our overall revenue and gross margins will suffer.

Though less common, we have also increased prices from time to time, especially during times of increasing wafer costs.

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We may be required to raise prices again if macroeconomic conditions, including inflation, create upward pressure on our product costs.

Increased prices could dampen adoption and market growth.

Pricing commitments and other restrictive provisions in our customer agreements could adversely affect our operating results.

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Endpoint IC sales, which constitute and likely will continue to constitute the majority of our product revenue, have, for the most part, lower gross margins than our systems product sales.

Our overall product gross margins are affected by product mix, which can fluctuate based on demand and supply, competitive pressures and end-user needs and demand.

Our overall product gross margins are affected by product mix, which can fluctuate based on supply and demand, competitive pressures and end-user needs and demand.

A shift in sales mix away from our higher margin products to lower margin products, either within our endpoint IC product portfolio or from our systems business to our endpoint ICs, could negatively affect our gross margins.

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Persuading end users or partners to design our products into their business processes or products requires educating them about RAIN’s and our products’ value.

They may use other technologies or products and may not be receptive to introducing RAIN into

their business processes or products.

They may use other technologies or products and may not be receptive to introducing RAIN into their business processes or products.

Even when convinced, they often undertake long pilot programs and qualifications prior to placing orders.

These pilot programs and qualifications can be time consuming and expensive, and there is no assurance they will result in an order for our products.

These pilot programs and qualifications can be time-consuming and expensive, and there is no assurance they will

result in an order for our products.

If we fail to develop new products that adequately or competitively address end users’ or our partners’ needs, then we may not receive product orders, which could adversely affect our business, prospects and operating results.

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Changes in government spectrum regulations or in their enforcement could adversely affect our ability to sell our products.

Our readers and gateways are collectively certified for use in more than 40 countries worldwide, including the United States, Canada, Mexico, China, Japan, South Korea and every country in the EU.

If spectrum regulations change, or if our products are found to be noncompliant despite being certified, we could need to redesign our products, potentially resulting in significant costs, including costs associated with obsolete inventory.

Our readers and gateways are collectively certified for use in more than 40 countries worldwide, including the United States, Canada, Mexico, China, Japan, South Korea and every country in the European Union, or the EU.

If spectrum regulations or the application or enforceability or such regulations should change, or if our products were found to be noncompliant despite being certified, we could need to redesign our products, potentially resulting in significant costs, including costs associated with obsolete inventory.

Regulatory changes may also cause us to forego opportunities, adversely affecting our business.

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To materially grow our licensing program and revenues, we will need to maintain and grow our intellectual property portfolio and continue to research and develop RAIN innovations that will generate and maintain demand for licenses to our technology and features.

We will also need to develop and maintain an ability to monitor intellectual property use by others and possibly seek enforcement action against those who attempt to improperly use our intellectual property.

These enforcement actions could require significant investments in management time and attention, and cash as we incur legal and other expenses.

We will also need to develop and maintain an ability to monitor infringement of our intellectual property rights by others and possibly seek enforcement action against those who attempt to infringe our intellectual property rights.

These enforcement actions could require significant investments in management time and attention as well as cash as we incur legal and other expenses.

They could also compete with our objectives in other areas of our business such as wanting to maintain close, strategic relationships with important partners or end users of our products.

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For more information regarding the terms of our Settlement Agreement with NXP, please refer to Note 6 of our condensed consolidated financial statements included elsewhere in this report.

If NXP were to breach its license payment obligations, or if NXP were to design out our intellectual property and exercise its right to terminate our license before the end of the 10-year term of the agreement, our licensing revenues would decline, and our overall results of operations and cash flows would suffer.

If NXP were to breach its license payment obligations, or if NXP were to design around our intellectual property rights and exercise its right to terminate our license before the end of the agreement's 10-year term, our licensing revenues would decline and our overall results of operations and cash flows would suffer.

Risks Relating to Our Personnel and Business Operations

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• Supply disruptions may affect our ability to meet partner or end-user demand, whether in a cost-effective manner or at all, potentially causing those partners or end users to cancel orders, qualify alternative suppliers or purchase from our competitors.

Supply disruptions can also distort demand, making it even harder to meet true demand with finished products.

Supply disruptions can also distort demand, making it even harder to meet true demand.

If our suppliers fail to manufacture our products at reasonable prices or with satisfactory quality levels, then our ability to bring those products to market and our reputation could both suffer.

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Shortages of silicon wafers or components used in our readers and gateways may adversely affect our ability to meet demand for our products and adversely affect our revenue and/or gross margins.

We expect wafer capacity in the semiconductor nodes we use to be tight for the foreseeable future.

We procure wafers on a purchase-order basis, so our wafer supply is not guaranteed, and we may not receive adequate supply from our foundry partners when shortages occur.

Wafer shortfalls limit sales and may cause market-share losses.

They may also artificially increase bookings as customers over-order our products, and then cause sales declines as those customers consume their accumulated inventory.

We expect wafer capacity in at least some of the semiconductor nodes we use to be tight for the foreseeable future.

We procure wafers on a purchase-order basis, so our wafer supply is not guaranteed, and we may not receive adequate supply from our foundry partners when shortages occur.

Wafer shortages may also artificially increase bookings as customers over-order our products, and then cause sales declines as those customers consume their accumulated inventory.

Additionally, if our suppliers charge us more but we are unable to raise our prices to cover those higher costs, our gross margins and other financial results could suffer.

To guard against wafer shortages, we may invest in inventory to support anticipated business growth, like we did with endpoint IC inventory in 2017, 2020 and late 2022/early 2023.

Shortages of our silicon products can also occur due to post-processing constraints.

To convert the wafers we receive from our foundry partner into saleable ICs, we perform additional steps including testing, thinning, bumping and dicing.

If our third-party suppliers are unable to efficiently perform these steps, or if we experience any capacity constraints with respect to these steps, then we may be unable to satisfy demand for our products, adversely affecting our financial results.

We may be unable to accurately anticipate the scope or nature of business demand, which could cause excess or obsolescent inventory.

We maintain inventory to meet customer demand, but high inventory levels can increase expenses or reserves and expose us to a higher risk of product obsolescence when we introduce new products and technologies, all of which could negatively affect our business.

For example, in 2022 we had strong demand for our M700 ICs, but due to limited 300mm wafer supply, we transitioned some customers back to our prior-generation 200mm Monza R6 product family.

If we are unable to sell the inventory we purchased, or if we must sell it at lower prices, then our business will be negatively impacted.

If our third-party suppliers are unable to efficiently perform these steps, and our production capacity is constrained as a result, we may be unable to satisfy demand for our products and our financial results could suffer.

We have also experienced shortages and price increases for components we use in our readers and gateways, as well as in packaging and test capacity for our reader ICs, and we may continue to experience such shortages and price increases in the future.

Any such shortages or price increases will negatively impact our product availability and costs and our financial results will suffer.

We bear inventory risks due to our reliance on partners to sell and distribute our products.

We bear inventory risks because our products have relatively long lead times, demand for our products are hard to accurately forecast, and we rely on partners to sell and distribute our products.

We maintain inventory to meet customer demand.

To guard against wafer shortages, and to allow for production risks given the relatively long lead times for our many of our products, we may invest in inventory to support anticipated business growth, like we did with endpoint IC inventory in 2017, 2020 and late 2022/early 2023.

When we introduce new products, we may also initially carry higher inventory or have slower inventory turns depending on market acceptance.

We typically order products from our suppliers based on partner forecasts before we receive purchase orders.

However, many of our partners have difficulty accurately forecasting their demand and the timing of that demand.

They also sometimes cancel orders or reschedule product shipments, in some cases with little or no advance notice to us.

We also sometimes receive soft commitments for large orders which do not materialize.

In addition, when we introduce new products, we may initially carry higher inventory or have slower inventory turns depending on market acceptance.

However, many of our partners have difficulty accurately forecasting their demand and the timing of that demand, and sometimes cancel orders or reschedule product shipments, in some cases with little or no advance notice to us.

Partners will also sometimes give us soft commitments for large orders that do not materialize.

We have additional uncertainty arising from competition and from unanticipated external events, such as macroeconomic trends or events and changes in regulatory standards, all of which can adversely affect demand and consequently our inventory levels, sales and operating results.

High inventory levels can increase expenses or reserves and expose us to a higher risk of product obsolescence, especially when we introduce new products and technologies.

If we are unable to sell the inventory we purchased, or if we must sell it at lower prices, then our business will be negatively impacted.

Acquisitions could result in operating difficulties, dilution and other harmful consequences.

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• unanticipated or unknown liabilities relating to the acquired business.

Foreign acquisitions involve additional risks beyond those above, including related to integrating operations across different cultures and languages, currency risks and the economic, political and regulatory risks associated with other countries.

Foreign acquisitions involve additional risks beyond those above, including those related to integrating operations across different cultures and languages, currency risks and the economic, political and regulatory risks associated with other countries.

Also, the anticipated benefit of any acquisition, domestic or foreign, may not materialize.

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• corrupt or unethical practices in foreign jurisdictions that may subject us to exposure under applicable anti-corruption and anti-bribery laws such as the U.S.

Foreign Corrupt Practices Act of 1977, as amended, or FCPA, and the United Kingdom Bribery Act of 2010, or U.K.

Foreign Corrupt Practices Act of 1977, as amended, and the United Kingdom Bribery Act of 2010;

• regulations, and changes thereof, relating to data privacy, cybersecurity and the unauthorized use of, or access to, commercial and personal information, particularly in Europe.

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We outsource our manufacturing and production to suppliers in a small number of Asian jurisdictions, including Thailand, Malaysia, Taiwan and China.

Some of these jurisdictions have experienced significant restrictions during the Covid-19 pandemic.

Some of these jurisdictions experienced significant restrictions during the Covid-19 pandemic.

These jurisdictions have also experienced significant changes in political, social, business or economic conditions in the past and may experience them in the future.

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Any such interference could impair or delay our product sales or increase our cost of sales.

We engage directly some with end users.

We engage directly with some end users.

Their projects, often involving large purchases of our readers and gateways, are often discrete deployments that can result in significant sales for periods of time.

They also increase the volatility of our revenue and operating results.

If we are unable to replace project-based revenue with new revenue streams, or if end users with large projects change or delay those projects without giving us with adequate notice, then our sales could decline from period to period and harm our stock price.

If we are unable to replace project-based revenue with new revenue streams, or if end users with large projects change or delay those projects without providing us with adequate notice, then our sales could decline from period to period and harm our stock price.

Our ability to affect or determine end-user demand is limited in part because we sell and fulfill primarily through partners and rarely directly to end users.

End users drive demand for our products but because we sell our products primarily through partners, we are one step removed from those end users and often unable to directly assess and affect their demand.

End users drive demand for our products but because we sell our products primarily through partners, we are one step removed from those end users and are often unable to directly assess and affect their demand.

Our partners may choose to prioritize selling our competitors’ products over ours, or they may offer products that compete with our products or limit sales of our products.

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Distributors may, subject to time and quality limitations, return products in exchange for other products.

Our reserves estimates for products stocked by our distributors are based primarily on reports provided to us by those distributors, typically monthly.

Our reserve estimates for products stocked by our distributors are based primarily on reports provided to us by those distributors, typically monthly.

If the inventory and resale information our partners and distributors provide is inaccurate, or if we do not receive it in a timely manner, then we may not have a reliable view of products being sold to end users which could negatively impact our operating results.

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Our ESG practices may not meet their standards, and they as well as advocacy groups may campaign for us to change our business or practices to address their ESG-related concerns.

Our failure, or perceived failure, to respond to any such campaigns could harm our business and reputation and negatively impact the market price of our securities.

Our failure, or perceived failure, to adequately respond to any such campaigns could harm our business and reputation and negatively impact the market price of our securities.

Moreover, with the continued evolution of ESG practices and reporting and disclosure requirements, our costs related to those ESG practices and reporting and disclosure requirements could increase, which could negatively affect our operating results.

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We also only have registered trademarks and domain names in select countries where we believe filing for such protection is appropriate.

By focusing our intellectual property protection on the United States and a small number of foreign countries, we have a limited ability to assert that intellectual property outside the United States, including in some significant foreign markets such as China.

By focusing our intellectual property protection on the United States and a small number of foreign countries, we have a limited ability to assert intellectual property rights outside the United States, including in some significant foreign markets such as China.

Moreover, the global manufacturing and distribution systems for tags or labels incorporating our endpoint IC products could complicate our efforts to enforce our U.S.

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Patent litigation is complex and uncertain.

We may or may not prevail in patent-related proceedings and such proceedings may result in increased legal expenses, additional demands on our management’s time and attention, and negative effects on our

relationships with partners or end users.

If any pending or future proceedings result in an adverse outcome, our intellectual property could be weakened and we could be required to:

If any pending or future proceedings result in an adverse outcome, our intellectual property rights could be weakened and we could be required to:

• cease manufacturing, using or selling the infringing products, processes or technology;

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• cross-license our technology to a competitor to resolve an infringement claim, which could weaken our ability to compete with that competitor;

• pay substantial damages to our partners or end users for them to discontinue using, or replace, infringing products with non-infringing products.

• pay substantial damages to our partners or end users for them to discontinue using, or replace, infringing products with noninfringing products.

Even if we do prevail in patent-related proceedings, verdicts and judgments can be modified or even reversed by trial or appellate courts.

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These damages could be sizable and disproportionate to the business we derive from those partners or end users.

Moreover, we may not know whether we are infringing a third party’s rights due to the large number of RAIN-related patents or to other systemic factors.

Moreover, we may not know whether we are infringing a third party’s intellectual property rights due to the large number of RAIN-related patents or other systemic factors.

For example, patent applications in the United States are maintained in confidence for up to 18 months after filing or, in some instances, for the entire time prior to patent issuance.

Consequently, we may not be able to account for such rights until after a patent issues.

Intellectual property policies of industry standards organizations in whose working groups we participate could require us to provide royalty-free licenses of some of our intellectual property.

Intellectual property policies of industry standards organizations in whose working groups we participate could require us to provide royalty-free licenses of some to our intellectual property.

When participating in GS1, ISO, RAIN and other industry-standards organizations, it is a general policy that those who participate in developing a protocol or standard must license, either royalty-free or under reasonable and nondiscriminatory, or RAND, terms, intellectual property that is necessary to implement all or part of the protocol or standard.

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Such uncertainty could complicate us asserting our not-necessary patents against others, or to use those patents in our own defense, thereby devaluing our intellectual property.

Further, some GS1 EPCglobal members declined to license their intellectual property on royalty-free terms, instead retaining

the right to license their technology on RAND terms.

Further, some GS1 EPCglobal members declined to license their intellectual property on royalty-free terms, instead retaining the right to license their technology on RAND terms.

These members may choose to assert their intellectual property, in which case we will need to defend ourselves within the confines of the GS1 and ISO intellectual property policies.

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Aspects of key privacy laws and regulations—including the California Consumer Privacy Act of 2018, the California Privacy Rights Act, similar privacy laws enacted in other states and the EU General Data Protection Regulation—remain unclear as of the date of this report and continue evolving, potentially with far-reaching implications.

Laws and regulations

relating to privacy, data protection and security;

Laws and regulations relating to privacy, data protection and security;

related industry standards and guidelines;

and continued evolution of these laws, regulations, standards, guidelines and other actual and asserted obligations, as well as their interpretation and enforcement, may require us to modify our products, practices and policies, which we may not be able to do on commercially reasonable terms or at all, and otherwise could cause us to incur substantial costs and expenses.

and otherwise could cause us to incur substantial costs and expenses.

Any failure or perceived failure by us or any third parties with which we do business to comply with these laws and regulations or other actual or asserted obligations may result in claims or litigation;

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We cannot be certain that we will attain or sustain profitability in the future.

We have incurred losses since our inception in 2000.

Whereas we were profitable between 2013 and 2015, we had a net loss of $43.4 million for the year ended December 31, 2023, and an accumulated deficit of $430.2 million as of December 31, 2023.

We have incurred losses since our inception in 2000, with a net loss of $43.4 million for the year ended December 31, 2023, and an accumulated deficit of $430.2 million as of December 31, 2023.

Although we reported GAAP net income for the first and second quarters of 2024, there can be no assurance that we will be able to sustain profitability in the future.

Our ability to attain or sustain profitability depends on numerous factors, many of which are out of our control, including continued RAIN industry adoption and us maintaining or growing our market share.

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These fluctuations make financial planning and forecasting difficult.

These fluctuations may also cause unanticipated decreases in our available cash, which could negatively affect our business and prospects.

These fluctuations may also cause unanticipated decreases in our

available cash, which could negatively affect our business and prospects.

Material factors that contribute to fluctuations in our operating results include:

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Our principal stockholders and management own a significant percentage of our stock and are able to exercise significant influence over matters subject to stockholder approval.

As of March 31, 2024, our executive officers, directors and principal stockholders, together with their respective affiliates, beneficially owned approximately 51.0% of our stock.

As of June 30, 2024, our executive officers, directors and principal stockholders, together with their respective affiliates, beneficially owned approximately 46.6% of our stock.

As a result, our executive officers, directors and principal stockholders may be able to significantly influence, in their capacity as stockholders, matters requiring approval by our stockholders, including electing directors and approving mergers, acquisitions or other transactions.

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Anti-takeover provisions in our charter documents and under Delaware or Washington law could prevent, delay or impede an acquisition of us and constrain our stock price.

Provisions of our certificate of incorporation and our bylaws may delay or discourage transactions involving an actual or potential change in our control or in our management, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests.

premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests.

These provisions could, therefore, adversely affect our stock price.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Legal Proceedings