What changed in this filing

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Item 1A. Risk Factors

2022-02-14 compared with 2021-02-17 · 140 added, 143 removed, 578 unchanged (33% of the section changed)

23 unchanged sentences

Our market is very competitive.

If we fail to compete successfully, our business and operating results will suffer.

If we fail to compete successfully then our business and operating results will suffer.

We face significant competition from both established and emerging competitors.

We believe our principal current competitors are:

in endpoint ICs, NXP and Alien;

In endpoint ICs, NXP, Alien, EM Microelectronic and Kiloway;

in reader ICs, ST, Phychips, Iotelligent and MagicRF;

in readers and gateways, Alien and Zebra.

and in readers and gateways, Alien and Zebra.

Our channel partners, including our OEMs, ODMs, distributors, SIs, VARs and software solution partners may choose to compete with us rather than purchase our products, which would not only reduce our customer base but also increase competition in the market, adversely affecting our operating results, business and prospects.

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These competitors may discount their products to gain market share.

In doing so, they could simply accept smaller margins, or they could maintain margins by achieving cost savings through better, more efficient designs or production methods.

In doing so, they could simply accept lower margins, or they could maintain margins by achieving cost savings through better, more efficient designs or production methods.

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

Further, the Chinese government has made development of the Chinese semiconductor industry a priority, increasing competitive pressures on us while possibly restricting our access to the Chinese market.

Our channel partners, including our OEMs, ODMs, distributors, SIs, VARs and software solution partners may also choose to compete with us rather than purchase our products.

We are expected to introduce new products and product enhancements on a regular basis.

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Integrating our products with end-user information systems could prove more difficult or time consuming than we or they anticipate, which could delay deployments.

Selling prices of our products could decrease substantially, which could have a material adverse effect on our revenue and gross margins.

The average selling price, or ASP, of our products has decreased over time and RAIN market development.

We expect continued price decreases, but cannot predict the future rate.

From time-to-time we reduce the selling prices of our products to meet end-user demands or to respond to market pressure from our competition.

The selling prices of our products could fluctuate substantially, which could have a material adverse effect on our revenue and gross margins.

The average selling price, or ASP, of our products has historically decreased with time and with RAIN market growth.

Although we expect further price decreases in the long term, we raised prices in 2021 to accommodate higher product costs and we cannot predict future pricing trends.

Also, from time-to-time we reduce our product prices to meet end-user demands or to respond to market pressure from our competition.

We also sometimes reduce prices to encourage adoption, address macroeconomic conditions or for other reasons.

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

If, in the future, we are unable to offset ASP reductions with increased sales volumes or reduced product costs, or if we are unable to successfully increase ASPs to offset cost increases, then our revenue and gross margins will suffer.

Rapid market innovation, which we continue to experience, can drive intense pricing pressure, particularly for older products or products using older technology.

New market requirements can render old products uncompetitive for new opportunities.

When demand for older products declines, ASPs may decrease quickly.

To profitably sell our products we must continually improve our technology and processes, and reduce costs in line with the lower selling prices.

If we and our third-party suppliers and manufacturers cannot develop and implement processes or improve efficiencies sufficient to maintain required margins, we may not be able to sell our products profitably.

New requirements can render older products uncompetitive for new opportunities.

In addition, costs for producing older products may stay the same or even increase due to reduced volumes or limited capacity for producing these products.

When demand for older products declines, or during times of increased market inventory, ASPs may decline quickly.

To sell our products profitably we must continually improve our technology and processes and reduce costs in line with the lower selling prices.

If we and our third-party suppliers and manufacturers cannot develop and implement processes or improve efficiencies sufficient to maintain required margins, we may be unable to sell our products profitably.

We generate most of our revenue from our endpoint ICs, and a decline in sales of these products or increased price competition in the market for endpoint ICs could adversely affect our operating results and financial condition.

We derive, and expect to continue to derive, a majority of our product revenue from our endpoint ICs.

Accordingly, we are vulnerable to fluctuations in endpoint IC demand.

If demand declines then our business and operating results will suffer.

We derive, and expect to continue to derive, most of our product revenue from our endpoint ICs.

Accordingly, we are vulnerable to fluctuations in endpoint IC demand, wafer supply and wafer prices.

If demand declines, or if we are unable to procure enough wafers to meet the demand we do have, or if we are unable to raise prices to accommodate cost increases, then our business and operating results will suffer.

In addition, the continued adoption of, and demand for, our existing endpoint ICs, as well as for our new endpoint ICs, derives in part from our ability to continually innovate and to demonstrate the benefits of using our endpoint ICs with our reader ICs, readers and gateways.

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They are also highly technical and are deployed in large, complex systems.

Our channel partners and end users may discover errors, defects or incompatibilities in our products, including after deploying them.

In addition, our channel partners or end users may find compatibility or interoperability issues between our products and their enterprise software systems, or between our products and other RAIN products.

Our partners and end users may discover errors, defects or incompatibilities in our products, including after deploying them.

In addition, our partners or end users may find compatibility or interoperability issues between our products and their enterprise software systems, or between our products and other RAIN products.

They may also experience problems when our products are combined with or incorporated into products from other vendors, such as our tag OEMs using our endpoint ICs with their antennas, or our reader partners using our reader ICs in their readers.

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increased insurance costs.

Currently, certain of our products are experiencing production issues.

While we believe that these issues can be resolved in a timely manner, if we are unable to resolve these issues in a timely manner, or at all, our operating results could be adversely affected.

Currently, our products are experiencing production issues, including but not limited to production delays, insufficient production capacity and component shortages.

If we are unable to resolve these issues in a timely manner, or at all, then our operating results will be adversely affected.

When we introduce new products, our success in ramping adoption depends, in part, on us making these products easy to deploy by our partners and their end customers.

For example, for our new M700 endpoint ICs and E710, E510 and E310 reader ICs, we continue supporting our partners to produce high-performing, high-quality products.

Until our partners are able to deploy our products widely, adoption and our operating results could suffer.

Given the technical and business requirements against which end users evaluate RAIN and our products and platform, our business results and prospects could suffer if we are unable to make our products and our platform easy to deploy.

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We spend significant time and resources to have RAIN and our products selected by a potential end user or customer.

End users or our direct customers adopting RAIN often involves them weighing the benefits of RAIN against the costs of modifying or replacing their existing systems, and if they remain unconvinced, they may not deploy.

If we fail to develop new products that adequately or competitively address the needs of end users or our direct customers, they may not select our products to be designed into their systems, which could adversely affect our business, prospects and operating results .

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Technology developments may affect our business negatively.

Breakthroughs in legacy RFID technologies or markets, including those using low frequency or high frequency technology, could adversely affect RAIN market growth generally and demand for our products in particular.

Breakthroughs in legacy RFID technologies or markets, including those using low frequency or high frequency RFID technology, could adversely affect RAIN market growth generally and demand for our products in particular.

Likewise, new technologies may allow lower-cost ICs than our current silicon-based technology allows.

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We participate in developing RAIN industry standards, including with GS1 and ISO, and have designed our products to comply with those standards.

We have historically taken a leadership positing in standards development.

In the future, we could lose that leadership position or our influence in standards development.

We have historically taken a leadership position in standards development.

In the future, we could lose that leadership position or our influence in standards development, or we could choose not to participate in certain standards activities.

New industry standards, or changes to existing standards, could render our products obsolete and cause us to incur substantial development costs to adapt to the new or changed standards.

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Government regulations may change, possibly without notice, requiring us to redesign our products to conform with the new regulations or constraining our ability to incorporate new features into our products.

Such changes could cause us to incur significant costs, including costs associated with obsolete inventory.

changes could cause us to incur significant costs, including costs associated with obsolete inventory.

Regulatory changes may also cause us forego opportunities to improve our products, potentially delaying our time-to-market.

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Moreover, in the event of a quality issue, the process of testing failed products and diagnosing and fixing defects is time consuming and costly and could constrain our ability to supply customers with new products.

We are vulnerable to silicon wafer shortages, which may adversely affect our ability to meet demand for our products .

The semiconductor industry frequently has periods of capacity shortfall.

Some semiconductor industry analysts predict such a shortfall in 2021.

These shortfalls may decrease sales and cause market-share losses if our customers purchase competitive products, or alternatively, may artificially increase sales as customers overbuy our products, followed by sales declines in future periods as they consume their accumulated inventory.

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

The semiconductor industry has experienced periods of capacity shortfall.

Many industries, ours included, are experiencing such a shortfall in 2021 and 2022, due to significant worldwide semiconductor demand and limited foundry supply.

We exited fourth-quarter 2021 with limited semiconductor inventory and tight foundry supply for both our 200mm and 300mm products, and our foundry partner has signaled tight wafer availability, at least in the older-generation semiconductor nodes that we use, well into 2022.

They have also raised prices.

Absent a significantly higher wafer allocation in 2022 over 2021, and without the benefit of the wafer inventory buffer we had entering 2021, we will be unable to meet 2022 endpoint IC demand, potentially by a significant amount.

capacity, and total unit volumes in light of anticipated strong endpoint IC demand against that constrained wafer supply.

We have wafer supply commitments similar to fourth-quarter levels through at least mid-2022, but our supply in subsequent periods is less certain.

Wafer shortfalls may decrease sales and cause market-share losses if we are unable to supply enough products and/or our customers purchase competing products or, alternatively, may artificially increase sales as customers overbuy our products, followed by sales declines in future periods as they consume their accumulated inventory.

Additionally, if we are unable to raise our prices to cover our higher costs, our gross margins and other financial results could suffer.

We have also experienced, and expect to continue experiencing, shortages and price increases for components we use in readers and gateways, potentially impacting future product availability and/or costs.

If we are unable to increase our prices to cover our increased costs, our gross margins and other financial results could suffer.

At times, our suppliers ask us to purchase excess products to ensure we do not face a subsequent shortage.

For example, in certain quarters of 2014, 2015 and 2016, we purchased more endpoint IC wafers than we needed, which reduced our available cash.

In addition, we may invest in inventory to support anticipated business growth,

as we did with endpoint IC inventory in 2017.

In addition, we may invest in inventory to support anticipated business growth, as we did with endpoint IC inventory in 2017 and 2020.

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

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Our significant Covid-19 risks include:

uncertain product demand given the decline in many business activities globally, particularly in the retail industry, as well as overall delays in RAIN market adoption;

uncertain product demand given the decline and subsequent rebound, the latter at least partial, in many business activities globally, particularly in the retail industry, as well as overall delays in RAIN market adoption;

decreased visibility into market demand and consequent challenges in effectively managing our inventory;

partner-requested preordering or rescheduling as a result of supply concerns which can increase channel inventory;

increased operating costs such as those associated with work-from-home edicts and increased legal and regulatory demands;

partner-requested preordering or rescheduling as a result of supply concerns which can distort channel inventory, either positively or negatively;

increased operating costs such as those associated with work-from-home or restricted-movement edicts, increased legal and regulatory demands, and increase product costs due to component or production shortfalls;

product delays or shortages due to restrictions on our ability, or that of our suppliers, to operate at normal capacity due to personnel movement restrictions or other limitations;

delays in customer pilots which can delay project-based deployments;

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With respect to market demand, in 2020, Covid-19 caused widespread venue closures, materially affecting demand for our products.

Covid-19 is expected to continue impacting venues into 2021, with a particularly adverse impact in retail, including retail apparel, where RAIN is widely adopted.

Covid-19 continued impacting venues in 2021, with an adverse impact in retail, including retail apparel, where RAIN is widely adopted, and likely will continue to have impacts on venues and retailers in 2022.

Covid-19 may accelerate a long-term shift in consumer behavior away from physical stores which may further reduce demand for our products over the longer term.

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Covid-19 has affected many other markets that use our products, including aviation, sporting events such as footraces, and many others.

Many of these markets will continue to feel Covid-19’s impacts into 2021.

Many of these markets continued to feel Covid-19’s impacts in 2021 and may continue to feel these impacts in 2022.

If we fail to make our products and platform easy-to-deploy and economical for these markets, or if participants in these markets delay or forgo RAIN investments in response to Covid-19 or otherwise, our ability to penetrate them may suffer.

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China has responded by imposing significant tariffs on a variety of items imported from the United States.

Such tariffs could have a material adverse impact on our ability to compete internationally.

The United States and China signed a preliminary trade agreement in early 2020.

However, the tariffs remain in place as negotiations between the countries continue.

Such tariffs could materially and adversely affect our ability to compete internationally.

Although the United States and China signed a preliminary trade agreement in early 2020, the tariffs remain in place as negotiations between the countries continue.

Other causes of uncertainty include the Chinese government’s efforts to promote China’s domestic semiconductor industry and lingering uncertainties stemming from the United Kingdom’s separation from the EU.

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changes in a country’s or region’s political, regulatory, legal or economic conditions, including, for example, global and regional economic disruptions caused by Covid-19;

political uncertainty, strife, unrest, or conflict, including, for example, the United Kingdom’s departure from the EU and political unrest in Hong Kong;

political uncertainty, strife, unrest, or conflict, including, for example, the United Kingdom’s 2021 departure from the EU and China’s crackdown on Hong Kong;

differing regulations with regard to maintaining operations, products and public information;

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For example, the European Union Court of Justice in October 2015 invalidated the EU-U.S.

Safe Harbor Framework, which facilitated personal data transfers to the

United States in compliance with applicable EU data-protection laws.

Safe Harbor Framework, which facilitated personal data transfers to the United States in compliance with applicable EU data-protection laws.

Privacy Shield, subsequently adopted in 2016 to provide a mechanism for companies to transfer EU personal data to the United States, was also invalidated by the European Union Court of Justice in July 2020.

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We may be required to change our policies and practices with respect to data transfer and other aspects of our data processing and security, which may be burdensome or involve substantial cost and expense, in an effort to address new and evolving limitations and requirements relating to privacy, security, data storage and data protection.

Additionally, the United Kingdom, or UK, has enacted legislation that substantially implements the GDPR and which provides for penalties of up to the greater of 4% of worldwide annual revenue and 17.5 million British Pounds.

The United Kingdom, or UK, has enacted legislation that substantially implements the GDPR and which provides for penalties of up to the greater of 4% of worldwide annual revenue and £17.5 million.

Following the UK’s exit from the EU, however, which became effective January 31, 2020, with a transition period ending December 31, 2020, significant uncertainty remains regarding matters such as data transfers between the UK, the EU and other jurisdictions.

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Laws and regulations relating to privacy, data protection and security, and continued evolution of such laws and regulations and their interpretation and enforcement, may require us to modify our practices and policies, which we may not be able to do on commercially reasonable terms or at all, and otherwise cause us to incur substantial costs and expenses in an effort to comply.

Any failure or perceived failure by us or any third parties with which we do business to comply with these laws and regulations may result in actions against us by governmental entities, private claims and litigation, the expenditure of legal and other costs and of substantial time and resources, and fines, penalties or other liabilities.

Any such actions may be expensive to defend, may require the expenditure of substantial legal and other costs and substantial time and resources and likely would damage our reputation and adversely affect our business, financial condition and results of operations.

Any failure or perceived failure by us or any third parties with which we do business to comply

with these laws and regulations may result in actions against us by governmental entities, private claims and litigation, legal and other costs, substantial time and resources and fines, penalties or other liabilities.

Any such actions may be expensive to defend, may incur substantial legal and other costs and substantial time and resources and likely would damage our reputation and adversely affect our business, financial condition and results of operations.

We opened an office in Shanghai, China in 2011.

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In the event of a disagreement, if our position is not sustained, we could be required to pay additional taxes, interest and penalties, which could result in tax charges, higher effective tax rates, reduced cash flows and lower overall profitability.

We have added engineering personnel in South America and are expanding our operations team in Southeast Asia, each through subsidiaries in these jurisdictions.

Expanding our presence in this way increases our exposure to risks inherent in operating globally.

We are subject to governmental export and import controls that could subject us to liability or impair our ability to compete in international markets.

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Such tariffs could have a material impact on our product costs and decrease our ability to sell our products to existing or potential customers and harm our ability to compete internationally.

Further, it is possible that additional sanctions or restrictions may be imposed by the U.S.

Further, it is possible that additional sanctions

or restrictions may be imposed by the U.S.

government on items imported into the United States from China and any such measures could further adversely affect our ability to sell our products to existing or potential customers and harm our ability to compete internationally.

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Some of these jurisdictions have also experienced, and may continue to experience, intermittent or sustained mandatory shutdowns or other restrictions to combat the spread of Covid-19.

Deterioration in the political, social, business or economic conditions in any jurisdictions in which we have significant suppliers could slow or halt product shipments or disrupt our ability to test or post-process products.

In response, we could be forced to transfer our manufacturing, testing and post-processing activities to more stable, and potentially more costly, regions or find alternative suppliers.

In particular, we source a significant portion of our wafers from suppliers in Taiwan, and our supply of wafers and other critical components may be materially and adversely affected by diplomatic, geopolitical and other developments affecting the relationship between China and Taiwan.

Since 1949, Taiwan and the Chinese mainland have been separately governed.

The government of the People’s Republic of China claims that it is the only legitimate government in China, including Taiwan and mainland China, and that Taiwan is part of China.

Although significant economic and cultural relations have been established between Taiwan and mainland China in the past few years, the People’s Republic of China has refused to renounce the use of military force to gain control over Taiwan, there can be no assurances that relations between Taiwan and mainland China will not deteriorate, particularly in light of ongoing tensions between China, the United States and Taiwan.

Any such developments could materially and adversely affect our business, financial condition and results of operations.

Our business operations could be disrupted by natural disasters.

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

For example, we generated 14% of our total 2019 revenue from a North American systems customer.

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

Because we sell and fulfill through channel partners, our ability to affect or determine end-user demand is limited.

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

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

Our channel 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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appropriately managing both positive and negative publicity.

Product supply shortages have challenged our ability to meet customer needs and we have recently increased prices in response to our suppliers increasing their prices to us.

Our inability to supply customers with products they need, and/or our need to increase our prices could result in long-lasting, negative consequences to our relationships with customers, to RAIN adoption and to our business overall.

Risks Relating to Our Intellectual Property

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in early 2015 they reached a settlement agreement with the last of the end-user defendants.

The licensed Round Rock patents all expired by the

The licensed Round Rock patents all expired by the end of 2019.

However, we, our channel partners, suppliers or end users could be involved in similar disputes in the future which could adversely affect our operating results and growth prospects.

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For the latter, in the course of us participating in developing ISO standards, we agreed to license on a RAND basis those of our patents that are necessarily infringed by the practice of those ISO standards, again subject to reciprocal royalty-free rights from the other ISO members.

Because it may not be clear whether a member’s intellectual property is necessary to the practice of a protocol or standard, disputes could arise among members, resulting in our inability to receive a license on royalty-free or RAND terms or to assert our not-necessary patents against others.

Because it may not be clear whether a member’s intellectual property is necessary to the practice of current or future protocols or standards, disputes could arise among members, resulting in our inability to receive a license on royalty-free or RAND terms or to assert our not-necessary patents against others.

Further, some GS1 EPCglobal members declined to license their intellectual property on royalty-free terms, instead demanding reasonable and nondiscriminatory, or RAND, terms.

Disputes or confusion may arise about whether we may invoke our necessary

intellectual property if those members choose to assert their RAND intellectual property, potentially causing or at least complicating any ensuing litigation and harming our business, financial condition and operating results.

Disputes or confusion may arise about whether we may invoke our necessary intellectual property if those members choose to assert their RAND intellectual property, potentially causing or at least complicating any ensuing litigation and harming our business, financial condition and operating results.

In the course of us participating in ISO, we may be required to grant to all users worldwide a license to those of our patents that are necessarily infringed by the practice of other standards, including at frequencies other than UHF, on RAND terms, again subject to reciprocity.

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Use and distribution of open-source software may entail greater risks than use of third-party commercial software.

Certain open-source software licenses require a user who intends to distribute the open-source software as a component of the user’s software to disclose publicly part or all of the user’s source code.

Certain open-source software

licenses require a user who intends to distribute the open-source software as a component of the user’s software to disclose publicly part or all of the user’s source code.

In addition, certain open-source software licenses require the user of such software to make derivative works of the open-source code available to others at low or no cost.

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If such concerns increase, or if actual malicious or inadvertent breaches of privacy or theft occur or are perceived to have occurred, then our reputation could be damaged, our business and prospects may suffer, and we could incur significant liability.

We may be or be alleged to be subject to contractual or self-regulatory obligations, in addition to legal and regulatory obligations, relating to privacy, data protection and

security with respect to RAIN.

We may be or be alleged to be subject to contractual or self-regulatory obligations, in addition to legal and regulatory obligations, relating to privacy, data protection and security with respect to RAIN.

These actual or asserted obligations may require us to modify our practices and policies, which we may not be able to do on commercially reasonable terms or at all, and otherwise cause us to incur substantial costs and expenses.

Any failure or perceived failure to comply with any laws , regulations, or contractual or other obligations to which we are or may be asserted to be subject may result in regulatory actions , private claims and litigation, the expenditure of legal and other costs and of substantial time and resources, and fines, penalties or other liabilities.

Any such action s may be expensive to defend, may require the expenditure of substantial legal and other costs and substantial time and resources and likely would damage our reputation and adversely affect our business, financial condition and results of operations.

Any failure or perceived failure to comply with any laws, regulations, or contractual or other obligations to which we are or may be asserted to be subject may result in regulatory actions, private claims and litigation, legal and other costs, substantial time and resources and fines, penalties or other liabilities.

Any such actions may be expensive to defend, may entail substantial legal and other costs as well as time and resources and likely would damage our reputation and adversely affect our business, financial condition and results of operations.

In addition to concerns over privacy or theft, it is possible for those with malicious intent to misuse RAIN to facilitate theft or damage the public trust.

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In April 2011, the EC signed a voluntary agreement with private and public entities to develop privacy guidelines for companies using RFID in the EU.

While compliance with the guidelines is voluntary, our customers that do business in the EU may have a preference for products that comply with the guidelines.

While compliance with the guidelines is voluntary, our customers that do business in the EU prefer products that comply with the guidelines.

If our RAIN products do not provide the necessary functionality to allow customers to comply with the guidelines then our business may suffer.

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Although the Gen2 V2 protocol includes features for addressing consumer privacy and authenticating a tag, and although we have incorporated custom features in our products to further protect consumer privacy, a third party may still breach these features, including as implemented in our products, in which case our reputation could be damaged and our business and prospects could suffer.

A breach of our security systems could have an adverse effect on our business.

A breach of security or other security incidents impacting our systems or others used in our business could have an adverse effect on our business.

We use security systems to maintain our facility’s physical and information-technology security and to protect our proprietary and confidential information, including that of our customers, suppliers and employees.

We face risks of security breaches from a variety of sources, including viruses, ransomware, hacking, malicious code, and social engineering and other forms of employee or contractor negligence, unintentional acts, or malfeasance.

Accidental or willful security breaches or other unauthorized access to our facilities or information systems could compromise access to and the integrity of this information.

The consequences of loss and possible misuse of our

proprietary and confidential information , including information relating to individuals, could include, among other things, unfavorable publicity, damage to our reputation, difficulty marketing or selling our products, customer allegations of breach of contract, loss or theft of intellectual property, claims and litigation, governmental and regulatory proceedings, and possible fines, penalties and other damages and liabilities , any of which could have a material adverse effect on our business, financial condition, reputation and relationships with customers and partners .

We rely on third-party providers of corporate infrastructure services such as for human resources, electronic communications and financial functions, and we are therefore dependent on the security systems of these third-party providers.

These third-party providers also face risks of security breaches, and our ability to monitor their security is limited.

Any security breaches or other unauthorized access to our service-providers’ systems or viruses, loggers, or other malfeasant code in their data or software could expose us to loss or misappropriation of, or unauthorized use or disclosure of, confidential and proprietary information.

We face risks of security breaches and incidents from a variety of sources, including viruses, ransomware, hacking, malicious code, and social engineering and other forms of employee or contractor negligence, unintentional acts, or malfeasance.

Accidental or willful security breaches or incidents or other unauthorized access to our facilities or information systems could compromise access to and the integrity of this information.

The consequences of loss and possible misuse of our proprietary and confidential information, including information relating to individuals, could include, among other things, unfavorable publicity, damage to our reputation, difficulty marketing or selling our products, customer allegations of breach of contract, loss or theft of intellectual property, claims and litigation, governmental and regulatory proceedings, and possible fines, penalties and other damages and liabilities, any of which could have a material adverse effect on our business, financial condition, reputation and relationships with customers and partners.

We rely on third-party providers of corporate infrastructure services such as for human resources, electronic communications and financial functions.

Additionally, our platform operates in conjunction with, and we are dependent upon, third-party products, services, and components.

Consequently, we depend on the security systems of these third-party providers.

There have been and may continue to be significant attacks on certain third-party providers, and we cannot guarantee that our or our third-party providers’ systems and networks have not been breached or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our systems and networks or the systems and networks of third parties that support us and our platform.

These third-party providers also face risks of security breaches or incidents, and our ability to monitor their security is limited.

Any security breaches, incidents or other unauthorized access to our service-providers’ systems or viruses, loggers, ransomware or other errors, vulnerabilities, or malfeasant code in their data or software could expose us to loss, unavailability, or misappropriation of, or unauthorized use or disclosure of, confidential and proprietary information.

If there is a security vulnerability, error, ransomware or other bug or malfeasant code in one of these third-party products, services and components and if there is a security exploit targeting them, we could face increased costs, claims, liability, reduced revenue and harm to our reputation or competitive position.

Because the techniques used to obtain unauthorized access to or sabotage security systems change frequently and are often not recognized until after an attack, we may be unable to anticipate the techniques or implement adequate preventative measures, thereby exposing us to material adverse effect on our business, operations and financial condition.

We use SolarWinds products, including those compromised by the security breach SolarWinds announced on December 14, 2020.

Although we do not believe our system was compromised, and have patched the Solarwinds products, we remain susceptible to security breaches in the future.

We applied the recommended security patches provided by SolarWinds and we do not believe our system was compromised.

Using third-party providers introduces risk of a cybersecurity incident.

We may incur significant costs in an effort to detect and prevent security breaches and other security-related incidents.

In the event of an actual or perceived security breach, we could be required to expend significant capital and other resources to mitigate, notify third parties of, and otherwise address, the breach and its root cause and to take steps to prevent further breaches.

Claims relating to an actual or perceived security breach may not be adequately covered by our insurance and may result in increased insurance costs or insurance not being available to us at all.

In the event of an actual or perceived security breach or incident, we could be required to expend significant capital and other resources to mitigate, notify third parties of, and otherwise address, the breach or incident and its root cause and to take steps to prevent further breaches or incidents.

Claims relating to an actual or perceived security breach or incident may not be adequately covered by our insurance and may result in increased insurance costs or insurance not being available to us at all.

Risks Relating to Our Financial Position and Capital Needs

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We have incurred losses since our inception in 2000.

While we were profitable between 2013 and 2015, we had a net loss of $51.9 million for the year ended and an accumulated deficit of $314.7 million as of December 31, 2020.

Whereas we were profitable between 2013 and 2015, we had a net loss of $51.3 million for the year ended, and an accumulated deficit of $362.5 million as of, December 31, 2021.

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

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The rapidly evolving nature of the markets in which we sell our products, as well as other factors that are beyond our control, reduce our ability to accurately gauge our future prospects and forecast our quarterly or annual performance.

I f endpoint IC sales exceed expectations or if we reduce prices to win a large opportunity or in response to competition, then our revenue and profitability may be positively affected, but gross margins may be negatively affected.

I f sales exceed expectations or if we reduce prices to win a large opportunity or in response to competition, then our revenue and profitability may be positively affected, but gross margins may be negatively affected.

If we are unable to obtain semiconductor wafers or electronic components, then our sales will decline and our revenue and profitability may be negatively affected.

If research analysts or investors view our decisions negatively, the trading price of our common stock could decline.

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End users drive demand for our products, but we sell nearly all our products through channel partners so our ability to forecast end-user demand is limited.

We rely on those same channel partners to integrate our products with end-user information systems and this integration has been uneven and unpredictable in scope, timing and implementation.

Also, RAIN-based systems often require time-consuming proofs-of-concepts and other steps such

as designing and implementing new business processes, which make sales of our products difficult to forecast.

We rely on those same channel partners to integrate our products with end-

user information systems and this integration has been uneven and unpredictable in scope, timing and implementation.

Also, RAIN-based systems often require time-consuming proofs-of-concepts and other steps such as designing and implementing new business processes, which make sales of our products difficult to forecast.

Partly as a consequence , in the past, both we and other industry participants have at times overestimated the RAIN market size and growth rates, then failed to meet expectations.

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Those shortened lead times decreased our ability to predict both optimal inventory and order volume for a quarter.

Then, in early 2020, Covid-19 introduced even greater uncertainty in our business, and its full scope and duration remain unpredictable.

Then, in early 2020, Covid-19 introduced even greater uncertainty in our business, with us choosing to build product inventory during the pandemic-induced downturn.

In 2021 we saw strong demand in excess of our available product supply, and we expect that these conditions will continue into 2022.

We currently have endpoint IC supply commitments that will allow us to equal or exceed fourth-quarter 2021 shipment levels through mid-2022, but the adequacy of our supply beyond mid-2022 remains uncertain.

We expect that for the foreseeable future our visibility to future sales, including volumes and prices, will continue to be limited.

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variations in the quality of our products and return rates;

delays in new-product introductions;

delays in new-product introductions and in the maturity of our new-product technologies;

decreases in selling prices for our products;

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Risks Relating to Our Financial Reporting and Disclosure

We are subject to additional regulatory compliance requirements, including Section 404 of the Sarbanes-Oxley Act of 2002.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our consolidated financial results or prevent fraud.

We previously identified a material weakness in our internal control over financial reporting and cannot guarantee we will not have a future material weakness.

We have a short history as a public company.

Although our management team and other company personnel devote substantial time to regulatory compliance, we may not effectively or efficiently manage our maturation as a public company.

Additionally, we have incurred and will continue to incur significant legal, accounting and other expenses related to compliance with laws, regulations and standards applicable to public companies.

We expect rules and regulations such as the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, to continue increasing the time and costs we must devote to compliance as well as to other activities.

For example, Section 404 of the Sarbanes-Oxley Act, or Section 404, requires management to report on, and after we no longer qualify as an emerging growth company that our independent registered public accounting firm attest to, the effectiveness of our internal controls over financial reporting.

If we fail to maintain an effective system of disclosure controls and internal controls over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired, which may adversely affect investor confidence in us and, in turn, lead to a decline in the market price of our common stock.

As a public company, we are required to comply with the requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the rules and regulations of The Nasdaq Stock Market.

T he Sarbanes-Oxley Act, among other things, requires that we maintain effective disclosure controls and procedures and internal control over financial reporting.

Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud.

Section 404 compliance will continue to divert resources and take significant time and effort.

We may be unable to successfully complete the procedures, certifications and attestation requirements of Section 404 in a timely manner.

We or our independent registered public accounting firm may find internal controls that need improvement or may uncover a material weakness.

For example, under Section 404 of the Sarbanes-Oxley Act, or Section 404, we are required to make a formal assessment of the effectiveness of our internal control over financial reporting.

As an “emerging growth company”, we availed ourselves of an exemption from the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting.

However , we may no longer avail ourselves of this exemption since we ceased to be an “emerging growth company” on December 31, 2021.

As a result, our independent registered public accounting firm is required to undertake an assessment of our internal control over financial reporting and the cost of our compliance with Section 404 will correspondingly increase.

Compliance with the applicable provisions of Section 2404 will continue to divert resources and take significant time and effort.

Moreover, we may be unable to successfully complete all the procedures, certifications and attestation requirements of Section 404 in a timely manner.

Additionally, we have previously identified and reported material weaknesses in our internal controls over financial reporting in prior years, and while these identified material weaknesses have been remediated, there can be no assurance that our remediation will be effective in future periods or prevent other material weaknesses or significant deficiencies in our internal control over financial reporting from arising in the future.

We may identify additional material weaknesses in our internal controls over financial reporting in future periods.

A material weakness, even if quickly remedied, could reduce the market’s confidence in our financial statements and harm our stock price.

Any inability to provide reliable financial reports or prevent fraud could harm our business.

We may be unable to effectively implement, or effectively implement in a timely manner, the controls and employee training necessary to ensure continued compliance with the Sarbanes-Oxley Act and other regulatory and reporting requirements.

In addition, the Sarbanes-Oxley Act may be modified, supplemented or amended from time to time, in which case implementing the requisite changes may take us significant time and may require additional controls and employee training.

Our growth will challenge our ability to maintain these internal control and disclosure standards.

If we fail to successfully complete the procedures, certifications and attestation requirements of Section 404, or if our chief executive officer, chief financial officer or independent registered public accounting firm determine that our internal control over financial reporting is not effective as defined under Section 404, we could be subject to sanctions or investigations by the SEC or by other regulatory authorities.

Investor perceptions of our company may suffer, likely causing a decline in our stock price.

We may not be able to fully comply with the requirements of the Sarbanes-Oxley Act or management or our independent registered public accounting firm may conclude that our internal controls will not be effective in future periods.

Regardless of compliance with Section 404, any failure of our internal controls could have a material adverse effect on our stated operating results and harm our reputation.

A material weakness is a deficiency, or a combination of deficiencies, in internal controls over financial reporting.

A consequence of a material weakness is a reasonable possibility that a material misstatement in our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

In the course of preparing our consolidated financial statements in prior years, we, in conjunction with our independent registered public accounting firm, identified errors which, combined with other identified control deficiencies, were considered to indicate a material weakness in our internal control over financial reporting.

These errors related to accounting and financial disclosure of complex accounting matters related to the cash flow statement presentation of lease incentives in our consolidated interim financial statements for the nine months ended September 30, 2015.

In 2016, we identified that we did not reflect the correction of the identified error in our consolidated interim financial statements for the nine months ended September 30, 2015 on the statement of cash flows in our Quarterly Report on Form 10-Q filed with the SEC on November 7, 2016.

We remediated this material weakness as of December 31, 2018, including increasing the depth and experience in our accounting and finance organization, as well as designing and implementing improved processes and internal controls.

However, our remediation may not be effective in future periods or may not prevent other material weaknesses or significant deficiencies in our internal control over financial reporting from arising in the future.

If we fail to retain finance personnel or fail to maintain our financial reporting systems and infrastructure, we may be unable to timely and accurately report our financial results or comply with the requirements of being a public company, including compliance with the Sarbanes-Oxley Act and SEC reporting requirements, which in turn could significantly harm our reputation and our business.

We have hired employees with financial reporting and Sarbanes-Oxley Act compliance expertise.

Our inability to retain these employees could adversely impact our ability to timely and accurately prepare and file our financial statements, as well as adversely affect our future financial statements because new employees need time and training to learn our business and operating procedures.

If our finance and accounting organization is unable, for any reason, to meet the demands of being a public company then the quality and timeliness of our financial reporting may suffer, which could result in errors, filing delays and/or material weaknesses in our internal controls.

The consequences of errors or delays in our reported financial statements could cause the trading price of our stock to decline and could harm our business, operating results and financial condition.

As an emerging growth company within the meaning of the Securities Act, we utilize certain modified disclosure requirements, and those requirements may make our common stock less attractive to investors.

We are an emerging growth company, and for as long as we remain an emerging growth company we may choose to take advantage of exemptions from some reporting requirements applicable to other public companies but not to emerging growth companies, including:

not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act;

reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements;

exemptions from the requirements to hold a nonbinding advisory vote on executive compensation and receive stockholder approval of any golden parachute payments not previously approved.

We plan in our filings with the SEC to continue to use the modified disclosure requirements available to emerging growth companies.

As a result, our stockholders may not have access to certain information they may deem important.

We can remain an emerging growth company until the earliest of:

December 31, 2021;

the last day of the first fiscal year in which our annual gross revenue exceeds $1 billion;

the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter;

the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.

We have incurred and, in the future, will incur higher costs by being a public company.

Any failure to implement and maintain effective disclosure controls and procedures and internal control over financial reporting, including identifying material weaknesses, could cause investors to lose confidence in the accuracy and completeness of our financial statements and reports, which would likely adversely affect the market price of our common stock.

In addition, we could be subject to sanctions or investigations by The Nasdaq Stock Market, the SEC and other regulatory authorities.

We have incurred and, in the future, will incur high costs of being a public company.

We have incurred significant legal, accounting and other costs associated with public company reporting requirements.

Those costs will increase as we transition to no-longer being an emerging growth company.

For as long as we remain an emerging growth company, we will use the exemption from the requirement under Section 404 that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting.

At the time when our independent registered public accounting firm is required to assess our internal control over financial reporting, the cost of our compliance with Section 404 will increase.

If we are unable to comply with those requirements of Section 404 applicable to us, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting, we could incur sanctions or investigations by the SEC or other regulatory authorities which would require additional financial and management resources and further increase costs, all of which could cause the market price of our stock to decline.

We ceased to be an “emerging growth company” on December 31, 2021 and are no longer eligible for reduced disclosure requirements and exemptions applicable to “emerging growth companies.” As such, we will be required to hold a say-on-pay vote and a say-on-frequency vote at our 2022 annual meeting of stockholders.

We expect that our loss of “emerging growth company” status will require additional attention from management and will result in increased costs to us, which could include higher legal fees, accounting fees and fees associated with investor relations activities, among others.

We have hired and may need to continue to hire additional accounting and information technology staff with appropriate public company experience and technical accounting knowledge.

We cannot predict or estimate the amount of additional costs we may incur as a result of being a public company.

We have and will continue to incur costs associated with recently adopted corporate governance requirements, including those of the SEC and The Nasdaq Global Select Market.

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announcements by us or our competitors of acquisitions, new products, significant contracts, commercial relationships or capital commitments;

supply interruptions;

supply interruptions, including semiconductor wafer or other product shortfalls;

developments relating to intellectual property rights or in disputes relating to those rights;

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Securities class-action litigation is frequently instituted against companies whose stock prices decline significantly, as it was against us.

The litigation against us causes substantial costs and a diversion of management’s attention and resources.

For further information regarding this litigation risk, please refer to Note 11 of our consolidated financial statements included elsewhere in this report.

Such litigation causes substantial costs and a diversion of management’s attention and resources.

For further information regarding this litigation risk, please refer to Note 11 of our condensed consolidated financial statements included elsewhere in this report.

We may need to raise additional capital which may not be available on favorable terms, if at all, causing dilution to stockholders, restricting our operations or adversely affecting our ability to operate our business.

In the course of running our business we may need to raise capital, potentially diluting our stockholders.

In December 2019, we issued and sold $86.3 million aggregate principal amount of 2.00% convertible senior notes due 2026, or the 2019 Notes, and we may in the future engage in additional equity, equity-linked or debt financings to secure additional funds.

In December 2019, we issued and sold $86.3 million aggregate principal amount of 2.00% convertible senior notes due 2026, or the 2019 Notes.

In November 2021, we issued and sold $287.5 million aggregate principal amount of 1.125% convertible senior notes due 2027, or the 2021 Notes and we may in the future engage in additional equity, equity-linked or debt financings to secure additional funds.

We used approximately $183.6 million of the net proceeds, excluding accrued interest, to repurchase approximately $76.4 million aggregate principal of the 2019 Notes through individual privately negotiated transactions concurrent with such offering.

If unforeseen circumstances drive our financing needs, such as unforeseen expenditures or if our operating results are worse than we expect, then we may not be able to raise capital on favorable terms, if at all.

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If we need but cannot raise additional capital on acceptable terms then we may not be able to meet our business objectives, our stock price may fall, and you may lose some or all of your investment.

Transactions relating to the 2019 Notes may affect our stock’s value.

If the 2019 Notes are converted by holders, then we have the ability under the indenture for the 2019 Notes to deliver cash, stock or any combination of cash or stock, at our election.

Transactions relating to the 2019 Notes or the 2021 Notes may affect our stock’s value.

If the 2019 Notes or the 2021 Notes are converted by holders, then we have the ability under the indenture for the 2019 Notes to deliver cash, stock or any combination of cash or stock, at our election.

If we elect to deliver stock, then doing so will dilute the ownership interests of our existing stockholders.

Any sales in the public market of the stock issuable upon a conversion could negatively affect the price of our stock.

Anticipated future conversions of the 2019 Notes into shares of our stock could depress the price of our stock.

Certain holders of the 2019 Notes may also engage in short selling to hedge their position in the 2019 Notes, which could decrease the price of our stock.

In connection with the issuance of the 2019 Notes, we entered into privately negotiated capped-call transactions with financial counterparties.

Any sales in the public market of the stock issuable upon a conversion could decrease our stock price.

Anticipated future conversions of the 2019 Notes or the 2021 Notes into shares of our stock could also decrease our stock price.

Certain holders of the 2019 Notes or the 2021 Notes may also engage in short selling to hedge their position in the 2019 Notes or the 2021 Notes, which could also decrease our stock price.

In connection with us issuing the 2019 Notes, we entered into privately negotiated capped-call transactions with financial counterparties.

The capped-call transactions are generally designed to reduce potential dilution to our stock upon any conversion or settlement of the 2019 Notes or offset any cash payments we are required to make in excess of the principal amount of converted 2019 Notes, as the case may be, with such reduction or offset subject to a cap based on the cap price.

From time to time, the financial counterparties to the capped calls may modify their hedge positions by entering into or unwinding various derivative transactions with respect to our stock or purchasing or selling our stock or other securities of ours in secondary market transactions prior to the maturity of the capped calls.

This activity could cause a decrease in the market price of our stock.

For more information on the 2019 Notes and the capped-call transactions, see Note 7 of our consolidated financial statements included elsewhere in this report.

This activity could cause a decrease in our stock price.

For more information on the 2019 Notes, the 2021 Notes and the capped-call transactions, see Note 7 of our consolidated financial statements included elsewhere in this report.

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.

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This concentration of ownership could have the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could have a material adverse effect on our stock price and may prevent attempts by our stockholders to replace or remove our board of directors or management.

Servicing the 2019 Notes may require a significant amount of cash, and we may not have sufficient cash flow or the ability to raise the funds necessary to satisfy our obligations under the 2019 Notes, and our current and future indebtedness may limit our operating flexibility or otherwise affect our business.

Our ability to make scheduled payments of the principal of, to pay interest on or to refinance any current or future indebtedness, including the 2019 Notes, or to make cash payments in connection with any conversion of the 2019 Notes or upon any fundamental change if holders require us to repurchase their 2019 Notes for cash, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control.

Servicing the 2019 Notes and the 20 21 Notes may require a significant amount of cash, and we may not have sufficient cash flow or the ability to raise the funds necessary to satisfy our obligations under the Notes, and our current and future indebtedness may limit our operating flexibility or otherwise affect our business.

Our ability to make scheduled payments of the principal of, to pay interest on or to refinance any current or future indebtedness, including the 2019 Notes and 2021 Notes, or to make cash payments in connection with any conversion of the 2019 Notes or 2021 Notes or upon any fundamental change if holders require us to repurchase their 2019 Notes or 2021 Notes for cash, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control.

Our business may not generate sufficient future cash from operations to service our indebtedness and make necessary capital expenditures.

If we are unable to generate sufficient cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring indebtedness or obtaining additional equity capital on terms that may be onerous or highly dilutive.

Our ability to refinance any of our indebtedness, including the 2019 Notes, will depend on the capital markets and our financial condition at such time.

Our ability to refinance any of our indebtedness, including the 2019 Notes and the 2021 Notes, will depend on the capital markets and our financial condition at such time.

We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in us defaulting on our debt obligations.

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For example, it could:

make it more difficult for us to satisfy our debt obligations, including the 2019 Notes;

make it more difficult for us to satisfy our debt obligations, including the 2019 Notes and 2021 Notes;

increase our vulnerability to general adverse economic and industry conditions;

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provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;

divide our board of directors into three classes (subject to gradual declassification beginning at the 2021 annual meeting of stockholders, such that our board of directors will be fully declassified beginning at the 2023 annual meeting of stockholders);

divide our board of directors into three classes, each of which stands for election once every three years (subject to gradual declassification beginning at the 2021 annual meeting of stockholders, such that our board of directors will be fully declassified beginning at the 2023 annual meeting of stockholders);

restrict the forum for certain litigation against us to Delaware;

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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-K

Item 1A. Risk Factors