What changed in this filing

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Item 1A. Risk Factors

2021-08-27 compared with 2020-08-21 · 163 added, 79 removed, 647 unchanged (27% of the section changed)

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If any event related to these known or unknown risks or uncertainties actually occurs, our business prospects, operating results, and financial condition could be materially adversely affected.

Risk Factors Summary

• our limited ability to forecast our results of operations and sales;

• volatility and competition in the markets we serve or our inability to compete effectively with our competitors;

• our reliance on a limited number of distributors for our products and the inability of our distributors to manage inventory of our products effectively, timely sell our products or estimate future demand for our products;

• our inventory decisions, including, without limitation, for new product introductions, are based on assumptions and forecasts, which, if inaccurate, may result in write-downs of inventory or components;

• our inability to keep pace with rapid technological and market changes or to maintain competitive prices for products;

• the technological complexity of our products, which may contain undetected hardware defects or software bugs;

• our inability to anticipate or mitigate cyberattacks, security vulnerabilities or other fraudulent or illegal activity;

• our inability to manage our growth and expand our operations;

• our inability to maintain or enhance the strength of our brand;

• our reliance on a limited number of contract manufacturers to manufacture our products, and potential quality or product supply problems for our products if we are unable to secure sufficient components for our products or there is a shortage of manufacturing capacity;

• our reliance on a limited number of suppliers and our inability to predict shortages in components, such as the global shortage in chipsets, or other supply disruptions, including, without limitations, as a result of COVID-19, or to identify or qualify alternative suppliers;

• disruption to the manufacturing or shipping of our products due to natural disasters, labor shortages or operational reductions from outbreaks of diseases or other public health events, including, without limitation, COVID-19, or similar disruptions in the countries or regions in which our contract manufacturers or logistics contractors are located;

• a global economic downturn;

• lower than expected returns from our investments in growth areas or our enterprise and service provider technologies;

• the ineffective management of product introductions, product transitions and marketing or our inability to remain competitive and stimulate customer demand for our products;

• our inability to anticipate consumer preferences and develop desirable consumer products and solutions, or to execute our strategy for our consumer products or develop our sales channels;

• general credit, liquidity, market, and interest rate risks to our investment securities;

• exposure to increased economic and operational uncertainties from our international operations, including, without limitation, as a result of foreign policy and geopolitical developments, particularly those involving China, varying legal and regulatory regimes and the effects of foreign currency exchange rates;

• the failure of our foreign warehouse and logistics providers to safeguard, manage and properly report our inventory;

• exposure to increased operational risks and liability to the extent we develop our own foreign manufacturing capacity;

• our inability to manage geographically dispersed research and development teams;

• our limited ability to obtain and enforce our intellectual property rights, particularly in China and South America;

• the misappropriation of our intellectual property and trade secrets by our contract manufacturers or others to manufacture competitive products or counterfeit products;

• our exposure to extensive intellectual property litigation;

• the risks of using open source software in our products;

• our debt levels and the impact our debt levels may have on our ability to raise capital or otherwise finance our business;

• the risks of expanding our product offerings or our operations or increases in our operating expenses;

• exposure to increased operational risks associated with our investments in new businesses, products, services, technologies, joint ventures and other strategic transactions;

• our reliance on third-party software and services for certain aspects of our operations, including, without limitation, our financial reporting functions;

• our inability to integrate future acquisitions;

• changes in LIBOR reporting practices and the index used to replace LIBOR;

• our reliance on our founder and chief executive officer, who owns a majority of our common stock;

• volatility in the price of our common stock due to volatility in our results of operations or our failure to pay cash dividends or to repurchase shares of our common stock pursuant to our repurchase programs;

• the reliance of our products on unlicensed radio frequency spectrum, and the increasing reliance of consumer and other products on the same spectrum or from the introduction of regulation of such spectrum;

• potential liability under trade protection, anti-corruption, and other laws resulting from our global operations;

• changes in laws and regulations relating to the handling of personal data;

• the adverse impact from litigation matters;

• the adverse impact to our results of operations from successful warranty claims, product losses or recalls;

• indemnification claims against us for intellectual property infringement, defective products, and security vulnerabilities;

• our inability to maintain an effective system of internal controls;

• changes in tax laws and regulations or reviews or audits of our tax returns.

Risks Related to Our Business and Industry

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Although we have a large number of distributors in numerous countries who sell our products, a limited number of these distributors represent a significant portion of our sales.

One or more of our major distributors may suffer from a decline in their financial

condition, decrease in demand from their customers, or a decline in other aspects of their business which could impair their ability to purchase and resell our products.

One or more of our major distributors may suffer from a decline in their financial condition, decrease in demand from their customers, or a decline in other aspects of their business which could impair their ability to purchase and resell our products.

Any distributor may also cease doing business with us at any time with little or no notice.

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As we move into new markets for different types of products, our brand may not be as well-known as the incumbents’ brands in those markets.

Potential customers may prefer to purchase from their existing suppliers or well-known brands rather than a new

supplier, regardless of product performance or features.

Potential customers may prefer to purchase from their existing suppliers or well-known brands rather than a new supplier, regardless of product performance or features.

We expect increased competition from other established and emerging companies if our market continues to develop and expand.

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We have in the past experienced, and may in the future experience, defects and bugs.

If any of our products contain material defects or bugs, or has reliability, quality or compatibility problems, we may not be able to promptly or successfully correct these problems.

If any of our products contain material defects or bugs, or has reliability, quality or compatibility problems, we may not be able to correct these problems promptly or successfully.

The existence of defects or bugs in our products may damage our reputation and disrupt our sales.

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If we experience greater returns from retailers or end customers, or greater warranty claims, in excess of our reserves, our business, revenue and results of operations could be harmed.

Security vulnerabilities in our products, services and systems could lead to reduced revenues and claims against us.

Security vulnerabilities in our products, services and systems, or in our distribution channel, could lead to reduced revenues and claims against us.

The quality and performance of some of our products and services may depend upon their ability to withstand cyber-attacks.

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Some of our products and services also involve the storage and transmission of users’ and customers’ proprietary information which may be the target of cyber-attacks.

Hardware and software that we produce or procure from third parties also may contain defects in manufacture or design, including bugs and other problems, which could compromise their ability to withstand cyber-attacks.

We have experienced cyber-attacks in the past, and may experience cyber-attacks in the future.

As a result, unauthorized parties may have obtained, and may in the future obtain, access to our systems, data or our users’ or customers’ data.

Our security measures may also be breached due to employee error, malfeasance, or otherwise.

Third parties may also attempt to induce employees, users, or customers to disclose sensitive information in order to gain access to our data or our users’ or customers’ data.

Any such breach or unauthorized access could result in significant legal and financial exposure, damage to our reputation, and a loss of confidence in the security of our products and services.

Hardware and software that we produce or procure

from third parties also may contain defects in manufacture or design, including bugs and other problems, which could compromise their ability to withstand cyber-attacks.

Additionally, our sales to customers through our webstores have increased, which may expose us to liabilities associated with the online collection of customer data, including credit card information, and the costs we may incur to mitigate such risks.

Our sales to customers through our webstores require the transmission of confidential information, including credit card information, securely over public networks.

Third parties may have the technology or knowledge to breach the security of customer transaction data.

Although we have security measures related to our systems and the privacy of our customers, we cannot guarantee these measures will effectively prevent others from obtaining unauthorized access to our information and our customers’ information.

Any person who circumvents our security measures could destroy or steal valuable information and/or disrupt our operations.

Any security breach could also expose us to risks of data loss, litigation and liability, and could seriously disrupt operations and harm our reputation, any of which could adversely affect our financial condition and results of operations.

In addition, state and federal laws and regulations are increasingly enacted to protect consumers against identity theft.

These laws and regulations will likely increase the costs of doing business and if we fail to implement appropriate security measures, or to detect and provide prompt notice of unauthorized access as required by some of these laws and regulations, we could be subject to potential claims for damages and other remedies, which could adversely affect our business and results of operations.

For additional information regarding the impact of privacy regulations applicable to our business, see “—Risks Related to Regulatory, Legal and Tax Matters — Our failure to comply with U.S.

and foreign laws related to privacy, data security, cybersecurity and data protection, such as the E.U.

Data Protection Directive and China Cybersecurity Law, could adversely affect our financial condition, results of operations, and our brand.”

We and certain of our vendors have experienced cyber-attacks in the past, and may experience cyber-attacks in the future.

As a result, unauthorized parties have obtained, and may in the future obtain, access to our systems and data and may have obtained, and may in the future obtain, our users’ or customers’ data.

Our security measures have in the past, and may in the future, be breached due to employee error, malfeasance, or otherwise.

Third parties may also attempt to induce employees, users, or customers or those of our vendors to disclose sensitive information in order to gain access to our data or our users’ or customers’ data.

Any such breach or unauthorized access could result in significant legal and financial exposure, costly and time-intensive notice requirements or other remediation efforts, damage to our reputation, and a loss of confidence in the security of our products and services.

Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.

For example, in January 2021, we became aware that certain of our information technology systems hosted by a third party cloud provider were improperly accessed and certain of our source code and the credentials used to access the information technology systems themselves had been compromised.

We received a threat to publicly release these materials unless we made a payment, which we have not done.

As a result, it is possible that the source code and other information could be publicly disclosed or made available to our competitors.

Due to the nature of the source code and the other information that we believe was improperly accessed, we at this time do not believe that any public disclosure will have a material adverse effect on our business or operations, but it is impossible to gauge the precise impact of any such disclosure.

We have taken, and will continue to take, steps to remediate access controls to our information technology systems.

The costs to us to eliminate or alleviate security vulnerabilities can be significant, and our efforts to address these problems may not be successful and could result in interruptions, delays, cessation of service and loss of existing or potential customers that may impede our sales, manufacturing, distribution or other critical functions, as well as potential liability to the company.

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We may be unable to anticipate or fail to adequately mitigate against increasingly sophisticated methods to engage in illegal or fraudulent activities against us.

Despite any defensive measures we take to manage threats to our business, our risk and exposure to these matters remain heightened because of, among other things, the evolving nature of such threats in light of advances in computer capabilities, new discoveries in the field of cryptography, new and sophisticated methods used by criminals including phishing, social engineering or other illicit acts, or other events or developments that we may be unable to anticipate or fail to adequately mitigate.

Despite any defensive measures we take to manage threats to our business, our risk and exposure to these matters remain heightened because of, among other things, the evolving nature of such threats in light of advances in computer capabilities, new discoveries in the field of cryptography, new and sophisticated methods used by criminals including phishing, social engineering or other illicit acts, the increasing use of our webstores by customers, or other events or developments that we may be unable to anticipate or fail to adequately mitigate.

In June 2015, we determined that we were the victim of criminal fraud known to law enforcement authorities as business e-mail compromise fraud which involved employee impersonation and fraudulent requests targeting our finance department.

The fraud resulted in transfers of

funds aggregating $46.7 million held by a Company subsidiary incorporated in Hong Kong to other overseas accounts held by third parties.

The fraud resulted in transfers of funds aggregating $46.7 million held by a Company subsidiary incorporated in Hong Kong to other overseas accounts held by third parties.

To date, the Company has recovered $18.6 million.

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In fiscal 2016, the Company recorded a net recovery of an additional $8.3 million, comprised of an $8.6 million recovery less $0.3 million of professional service fees associated with the recovery.

No additional recoveries were made since fiscal year ended 2016.

In March 2021, the Company recorded a recovery of an additional $1.9 million.

No additional recoveries were made since March 31, 2021.

The Company is continuing to pursue the recovery of the remaining $28.1 million and is cooperating with numerous overseas law enforcement authorities who are actively pursuing a multi-agency criminal investigation.

However, any additional recoveries are likely remote and therefore cannot be assured.

The Company may not be successful in obtaining any insurance coverage for this loss.

While we do not expect the fraud to have a material impact on our business, we have borne, and will continue to bear additional expenses in connection with the remediation and investigation of the fraud.

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We may fail to effectively manage the challenges associated with our growth.

Over the past several years we have expanded, and continue to expand, our product offerings, the number of customers we sell to, our transaction volumes, the number of our facilities, and the number of contract manufacturers that we utilize to produce our products.

Over the past several years we have expanded, and continue to expand, our product offerings, the number of customers we sell to, our transaction volumes, the number and type of our facilities, and the number of contract manufacturers that we utilize to produce our products.

Failure to effectively manage the increased complexity associated with this expansion, particularly in light of our lean management structure, would make it difficult to conduct our business, fulfill customer orders, and pursue our strategies.

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We rely on a limited number of contract manufacturers to produce our products.

Supply chain issues or a shortage of adequate component supply or manufacturing capacity could increase our costs or delay our ability to fulfill future orders and could have a material adverse impact on our business and results of operations.

Shortages of components or manufacturing capacity could increase our costs or delay our ability to fulfill future orders and could have a material adverse impact on our business and results of operations.

We retain contract manufacturers, located primarily in China and V ietnam , to manufacture our products.

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The ability and willingness of our contract manufacturers to perform is largely outside our control.

Additionally, from time to time, unexpected events, such as the COVID-19 pandemic, have had, and may continue to have in the future, adverse effects on the ability of our contract manufacturers to fulfill their obligations to us due to, among other things, work stoppages or slowdowns due to facility closures or other social distancing mitigation efforts, and, more recently, the inability of our contract manufacturers to procure adequate supplies of the components to manufacture our products, particularly chipsets.

A shortage of adequate component supply or manufacturing capacity could increase our costs by requiring us to use alternative contract manufacturers or component suppliers, which may not be available to us on acceptable terms, if at all.

our use of chipsets from different or multiple sources may require us to significantly modify our designs and manufacturing processes to accommodate these different chipsets, which would also increase our manufacturing costs and could delay our ability to manufacture products and result in decreased sales of our products.

These increases in manufacturing costs or delays in manufacturing could have a material adverse impact on our business and results of operations.

For additional discussion of the risks associated with supply chain issues or supplies of components, including chipsets, see the risk factor below captioned “We rely upon a limited number of suppliers.

If these sources fail to satisfy our supply requirements or we are unable to manage our supply requirements through other sources, could disrupt our business or have a material adverse effect on our results of operations and financial condition.”

In the event that we receive shipments of products that fail to comply with our technical specifications or that fail to conform to our quality control standards, and we are not able to obtain replacement products in a timely manner, we risk revenue losses from the inability to sell those products, increased administrative and shipping costs, and lower profitability.

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We do not control our contract manufacturers or suppliers, including their labor, environmental or other practices.

Environmental regulations or changes in the supply, demand or available sources of natural resources may affect the availability and cost of goods

and services necessary to run our business.

Environmental regulations or changes in the supply, demand or available sources of natural resources may affect the availability and cost of goods and services necessary to run our business.

Non-compliance or deliberate violations of labor, environmental or other laws by our contract manufacturer or suppliers, or a failure of these parties to follow ethical business practices, could lead to negative publicity and harm our reputation or brand.

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• industry consolidation occurring within one or more component supplier markets, such as the semiconductor market.

We rely upon a limited number of suppliers, and it can be costly and time consuming to use components from other suppliers.

We rely upon a limited number of suppliers.

We use components that are subject to price fluctuations, shortages or interruptions of supply, including chipsets that have been subject to ongoing significant shortages.

The cost, quality and availability of these components are essential to the production and sale of all of our products and disruptions in our supply of these components could delay or disrupt the supply of our products and affect our business, results of operations and financial condition .

In fiscal 2021, we experienced reduced availability of components used to manufacture our products, especially the chipsets, which has impacted, and we expect will continue to impact our ability and costs to manufacture our products.

These supply shortages have resulted in increased component delivery lead times and increased costs to obtain components, particularly chipsets, and resulted in delays in product production.

We do not stockpile sufficient components, particularly the chipsets, to cover the time it would take to re-engineer our products to replace the components used to manufacture or products.

While we are continuing to work closely with our suppliers and contract manufacturers to minimize the potential adverse impacts of the supply shortage, there are many companies seeking to purchase the limited supply of chipsets and other components, many of which have greater resources and larger market share than we have, which may limit the effectiveness of our efforts.

We expect that shortages of chipsets and other components will continue and may have an adverse impact on our ability to manufacture our products and meet demand for our products.

Should the shortage of chipsets and other components used to manufacture our products continue, there is no assurance that we will be able to obtain sufficient chipsets or other components on acceptable terms, if at all, which could delay or disrupt the supply of our products and affect our business, results of operations and financial condition .

We purchase components, directly or through our contract manufacturers, from third parties that are necessary for the manufacture of our products.

Shortages in the supply of components or other supply disruptions, including, without limitation, due to reductions in supply as a result of COVID-19, may not be predicted in time to design-in different components or qualify other suppliers.

Shortages in the supply of components or other supply disruptions, including, without limitations, due to increasing demand for electronics and reductions in supply as a result of COVID-19, may not be predicted in time to design-in different components or qualify other suppliers.

Shortages or supply disruptions may also increase the prices of components due to market conditions.

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For example, we currently rely upon some chipset suppliers, such as Qualcomm Atheros and Broadcom, as single-source suppliers of certain components for some of our products, and a disruption in the supply of those components would significantly disrupt our business.

We and our contract manufacturers generally rely on short-term purchase orders rather than long-term contracts with the suppliers of components for our products.

As a result, even if components are available, we and our contract manufacturers may not be able to procure sufficient components at reasonable prices to build our products in a timely manner.

We and our contract manufacturers generally rely on short-term purchase orders rather than long-term contracts with the suppliers of components for our products, particularly chipsets.

As a result, even if the components for our products (including chipsets) are available, we and our contract manufacturers may not be able to procure sufficient components at reasonable prices to build our products in a timely manner.

Further, in order to minimize their inventory risk, our manufacturers might not order components from third-party suppliers with adequate lead time, thereby impacting our ability to meet our demand forecast.

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For example, in the last decade, China has suffered health crises related to the outbreak of avian influenza, severe acute respiratory syndrome and COVID-19.

Public health problems may result in quarantines, business closures, unavailability of key personnel, domestic and international transportation restrictions, import and export complications, and otherwise cause shortages in the supply of components or cause other disruptions within our supply chain.

The COVID-19 pandemic and resulting global disruptions have caused significant volatility in financial markets and the domestic and global economy.

This disruption can contribute to potential payment delays or defaults in our accounts receivable, affect asset valuations resulting in impairment charges, and affect the availability of financing credit as well as other segments of the credit markets.

Public health problems may also result in quarantines, business closures, unavailability of key personnel, domestic and international transportation restrictions, import and export complications, and otherwise cause shortages in the supply of components or cause other disruptions within our supply chain.

Public health problems currently cause and may continue to cause disruptions, delays, shortages, and increased costs within our supply chain, and distribution channels.

In addition, public health problems may require us to take precautionary measures to minimize the risk to our employees, including requiring our employees to work remotely and suspending non-essential travel, which could negatively affect our business.

Additionally, we have experienced a disruption in our supply chain as a result of the COVID-19 related restrictions that have impacted our suppliers’ ability to manufacture or provide key components or services, and we have incurred, and continue to incur, additional costs to expedite deliveries of components and services.

The disruptions in our supply chain have not been fully remediated as of the date of this report.

As a result of the transition to a remote working environment, we may experience disruptions or inefficiencies in our ability to operate our business.

The continuation of these remote working measures also introduces additional operational risk, including increased cybersecurity risk.

financial loss, litigation and liability and could seriously disrupt our operations, which could materially and adversely affect our business, financial condition or results of operations.

These cybersecurity risks include greater phishing, social engineering, malware, and other cybersecurity attacks, greater risk of a security breach resulting in the unauthorized release, destruction or misuse of valuable information, and potential impairment of our ability to perform critical functions, all of which could expose us to risks of data or financial loss, litigation and liability and could seriously disrupt our operations, which could materially and adversely affect our business, financial condition or results of operations.

Public health problems may expose us to unanticipated liability or require us to change our business practices in a manner materially adverse to our business, results of operations and financial condition.

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The global macroeconomic environment has been challenging and inconsistent caused by instability in the global credit markets, the impact of uncertainty regarding global central bank monetary policy, the instability in the geopolitical environment in many parts of the world, including the June 2016 referendum by the United Kingdom in which voters approved an exit from the European Union, commonly referred to as “Brexit”.

As a result of the referendum, the British government formally initiated the process for withdrawal in March 2017, and, following agreed extensions between the European Council and the United Kingdom on March 22, 2019, April 11, 2019 and October 28, 2019, “Brexit” became effective on January 31, 2020 under the terms of a Withdrawal Agreement that was ratified by the U.K.

Parliament, and the European Parliament in Brussels, in late January 2020.

Under the Withdrawal Agreement, a “transition period” will come into force for eleven months, from February 1, 2020 until December 31, 2020.

Although the Withdrawal Agreement ensures that a “no-deal” or “cliff-edge” Brexit was avoided on January 31, 2020, there is no certainty that a similar effect will be avoided at the end of 2020.

This could continue to cause disruptions in the markets that we serve.

On January 1, 2021, the United Kingdom left the European Union.

On December 24, 2020, the European Commission reached a trade agreement with the United Kingdom on the terms of its future cooperation with the European Union, subject to final approval by the European Parliament.

The most significant impact of the new trade agreement are new regulations regarding trade, tax, and employees, among others, in the United Kingdom that resulted in the creation of non-tariff barriers and have increased our shipping and regulatory costs and complexities for moving our products between the UK and EU.

Brexit could continue to cause disruptions in the markets that we serve.

Additionally, we may be adversely affected by the Brexit in ways we do not currently anticipate.

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Accordingly, we are at risk that these distributors may give higher priority to selling other companies’ products.

We have limited number of distributors in certain regions, and if we were to lose the services of a distributor, we might need to find another distributor in that area and there can be no assurance of our

ability to do so in a timely manner or on favorable terms.

Additionally, as a result of the COVID-19 pandemic, certain of our distributors have been forced to temporarily suspend or otherwise reduce operations, which may adversely impact sales of our products.

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We may experience risks in our investments due to changes in the market, which could adversely affect the value or liquidity of our investments .

We maintain a portfolio of marketable securities in a variety of instruments, which may include, but not limited to, money market funds, corporate bonds, U.S.

From time to time, we may maintain a portfolio of marketable securities in a variety of instruments, which may include, but not limited to, money market funds, corporate bonds, U.S.

agency bonds and commercial papers.

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Our business is susceptible to risks associated with operations outside of the United States.

We have operations in China, the Czech Republic, Lithuania, Poland, Latvia, Ukraine, Canada, India, Taiwan and elsewhere.

We also sell to distributors in numerous countries throughout the world.

We have operations in China, the Czech Republic, Lithuania, Poland, Latvia, Ukraine, Canada, India, Taiwan and elsewhere, with our operations in Taiwan, in particular, increasingly important to our overall business.

We also sell to distributors in numerous

countries throughout the world.

Our operations outside of the United States subject us to risks that we generally do not face in the United States.

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• political, social and economic instability in some jurisdictions.

Additionally, changes in the local political, social and economic environment in the countries in which we operate, including in Taiwan due to the increasing political tensions among the United States, Taiwan and China, could adversely affect our operations outside of the United States, as well as our plans for the business.

If any of these risks were to come to fruition, it could negatively affect our business outside the United States and, consequently, our results of operations.

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We invested in developing our own manufacturing capacity to support our product development and prototyping.

To the extent that

we may invest in and expand or relocate these manufacturing capabilities, and increasingly rely upon such activities, we will face increased risks associated with:

To the extent that we may invest in and expand or relocate these manufacturing capabilities, and increasingly rely upon such activities, we will face increased risks associated with:

• bearing the fixed costs of these activities;

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Since these activities are currently conducted in China and could be expanded to other foreign countries, some of these risks may be more significant due to the less predictable legal and political environment.

Additionally, changes in the local political, social and economic environment could adversely affect our ability and plans to develop our own manufacturing capacity.

Our business may be negatively affected by political events and foreign policy responses.

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Changes in commodity prices may also cause political uncertainty and increase currency volatility that can affect economic activity.

Policies and statements by the current White House administration have created uncertainty with how trade might be affected between the U.S.

and the rest of the world, and China, in particular.

For example, in June 2018, the Office of the United States Trade Representative announced new proposed tariffs for certain products imported into the U.S.

For example, increasing tensions between the U.S., China and other countries may result in changes in laws or regulations that will affect our ability to manufacture and sell our products.

The vast majority of our products that are imported into the U.S.

from China are currently subject to tariffs that range between 7.5% and 25%.

On January 22, 2020, the United States of Trade Representative announced it will reduce Section 301 List 4A additional tariffs from 15% to 7.5% and that List 4B tariffs would not go into effect.

These tariffs have already affected our operating results and margins.

These tariffs have already affected our

operating results and margins.

The progress and continuation of trade negotiations between the U.S.

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These tariffs have, and will continue to have, an adverse effect on our results of operations and margins.

We can provide no assu rance regarding the magnitude, scope or duration of the imposed tariffs or the magnitude, scope or duration from any relief in increases to such tariffs, as well as the potential for additional tariffs or trade barriers by the U.S., China or other countries, nor that any strategies we may implement to mitigate the impact of such tariffs or other trade actions will be successful.

Changes in U.S.

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Although we police our trademark rights carefully, there can be no assurance that we are aware of all third party uses or that we will prevail in enforcing our rights in all such instances.

Any of these negative outcomes could impact the strength, value and effectiveness of our brand, as well as our ability to market our products.

Any of these negative outcomes could impact the strength, value and effectiveness of our brand, as well

as our ability to market our products.

We have also registered domain names for websites, or URLs, that we use in our business, such as www.ui.com.

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Regardless of the merit of these claims, they can be time-consuming, result in costly litigation and diversion of technical and management personnel, or require us to develop a non-infringing technology or enter into license agreements.

Where claims are made by customers, resistance even to unmeritorious claims could damage customer relationships.

Where claims are made by

customers, resistance even to unmeritorious claims could damage customer relationships.

We cannot determine with certainty whether any existing or future third-party intellectual property rights would require us to alter our technologies, obtain licenses or cease certain activities.

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We use open source software in certain of our products, and may use more open source software in the future.

There have been claims challenging the ownership of software against companies that use open source software in the development of their products.

We could become subject to claims regarding the ownership of what we believe to be our proprietary software.

Usage of open source software can also lead to greater risks than the use of third-party commercial software, since open source licensors generally do not provide warranties or controls on origin of the software.

There have been claims challenging the ownership of software and claims of copyright infringement against companies that use open source software in the development of their products.

We could become subject to claims regarding the ownership of what we believe to be our proprietary software and claims of copyright infringement.

Usage of open source software can also lead to greater risks than the use of third-party commercial software, because open source licensors generally do not provide warranties or controls on origin of the software.

Some open source licenses contain requirements that users make available and license the source code for the modifications or derivative works that they create based upon the open source software.

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Risks Related to Our Management and Structure

We may lose the services of our founder and Chief Executive Officer, Robert J.

Pera, or other key personnel.

Our success and future growth depend on the skills, working relationships and continued services of our management team, and in particular our founder and Chief Executive Officer, Robert J.

Our future performance may also depend on our ability to retain other key personnel.

We are reliant on our founder and Chief Executive Officer, Robert J.

Pera, and the departure or loss of Mr.

Pera or other key personnel would disrupt our business.

Our success and future growth depend on the skills, working relationships and continued services of our founder, Chairman and Chief Executive Officer, Robert J.

Pera, as well as the other members of our management team.

We do not maintain any significant key person insurance with regard to any of our personnel.

Pera, in particular, is central to our product development efforts and overall strategic direction.

The departure or loss of Mr.

Pera or any of the other members of our management team and the inability to identify and hire a qualified replacement timely would adversely affect our business, results of operations and financial condition.

Our business model relies in part on leanly staffed, independent and efficient research and development teams.

Our research and development teams are organized around small groups or individual contributors for a given platform, and there is little overlap in knowledge and responsibilities.

In the event that we are unable to retain the services of any key contributors, we may be unable to bring our products or product improvements to market in a timely manner, if at all, due to disruption in our development activities.

Our future success also depends on our ability to attract, retain and motivate skilled personnel.

In the event that we are unable to retain the services of any key contributors or are unable to identify and attract additional contributors, we may be unable to bring our products or product improvements to market in a timely manner, if at all, due to disruption in our development activities.

Our future success also depends on our ability to attract, retain and motivate our management and skilled personnel.

Competition for personnel exists in the industries in which we participate, particularly for persons with specialized experience in areas such as antenna design and radio frequency equipment.

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Our debt levels could adversely affect our ability to raise additional capital to pay dividends, repurchase our shares of common stock and fund our operations or limit our ability to react to changes in our industry or the economy.

As of June 30, 2020, our balance outstanding under the Credit Agreement for our Term Facility and Revolving Facility, was $475.0 million and $180.0 million, respectively.

As of June 30, 2021, our balance outstanding under the Third Amended and Restated Credit Agreement for our Term Facility and Revolving Facility, was $493.8 million and $0.0 million, respectively.

In the future we may need to raise additional capital to finance our payment of dividends or repurchase shares of our common stock and fund our growth and operational goals.

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• limiting our ability to make strategic acquisitions or causing us to make non-strategic divestitures;

• limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements,

acquisitions and general corporate or other purposes;

• limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes;

• limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to competitors who are less highly leveraged or have access to more capital.

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Because these investments are inherently risky, no assurance can be given that such investments will be successful and will not adversely affect our reputation, business prospects, results of operation and financial condition.

We may be adversely affected by changes in LIBOR reporting practices or the method in which LIBOR is calculated.

We may be adversely affected by changes in LIBOR reporting practices or the index used to replace LIBOR.

Our Term Facility and Revolving Facility primarily use the London Interbank Offered Rate (“LIBOR”) to calculate interest due to our lenders.

On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021.

It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021.

As a result, it is possible that LIBOR will be discontinued as a reference rate after 2021.

Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S.

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Treasury securities, called the Secured Overnight Financing Rate (“SOFR”).

The first publication of SOFR was released by the Federal Reserve Bank of New York in April 2018.

Whether SOFR will become a widely accepted benchmark in place of LIBOR, however, remains in question.

As such, the future of LIBOR and potential alternatives thereto are uncertain at this time.

If LIBOR is discontinued, the terms of our Credit Agreement provide for the use of an alternative rate.

Such an event would not affect our ability to borrow or maintain already outstanding borrowings, but the alternative rate could be higher and more volatile than LIBOR prior to its discontinuance.

As such, the future of LIBOR and potential alternative reference rates are uncertain at this time.

If LIBOR is discontinued, the terms of our Third Amended and Restated Credit Agreement provide for the use of an alternative rate.

Such an event would not affect our ability to borrow or maintain already outstanding borrowings, but the alternative rate could be higher and more volatile than LIBOR prior to its discontinuance and may result in interest obligations which are higher or lower or that do not otherwise correlate over time with the interest payments that would have been made on such debt if LIBOR remained in its current form.

Accordingly, the potential effects of the foregoing on our cost of capital cannot yet be determined.

Further, the same costs and risks that may lead to the unavailability of LIBOR may make one or more of the alternative rate methods impossible or impracticable to determine.

Any of these proposals or consequences could materially and adversely affect our financing costs, and as a result, our financial condition, operating results and cash flows.

Risks Related to Our Common Stock

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Pera, our founder, Chairman, and Chief Executive Officer, is able to exercise voting rights with respect to a majority of the voting power of our outstanding stock and therefore has the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation, or sale of all or substantially all of our assets.

This concentrated control could delay, defer, or prevent a change of control, merger, consolidation, or sale of all or substantially all of

our assets that our other stockholders support, or conversely this concentrated control could result in the consummation of such a transaction that our other stockholders do not support.

This concentrated control could delay, defer, or prevent a change of control, merger, consolidation, or sale of all or substantially all of our assets that our other stockholders support, or conversely this concentrated control could result in the consummation of such a transaction that our other stockholders do not support.

This concentrated control could also discourage certain potential investors from acquiring our common stock and might harm the trading price of our stock.

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In addition, our business may be subject to seasonality, although our recent growth rates and timing of product introductions may have historically masked our seasonal changes in demand.

For example, our consumer products may be subject to general seasonal

spending trends associated with holidays.

For example, our consumer products may be subject to general seasonal spending trends associated with holidays.

Risks Related to Regulatory, Legal and Tax Matters

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The process of identifying products that have been widely distributed for withdrawals and recalls may be lengthy and require significant resources and we may incur significant replacement costs, damage claims and harm to our reputation.

expect to continue to be the subject of investigations, inquiries, data requests, actions, orders, and audits by government authorities and regulators in the United States, the European Union, and around the world.

We are and expect to continue to be the subject of investigations, inquiries, data requests, actions, orders, and audits by government authorities and regulators in the United States, the European Union, and around the world.

Orders issued by, or inquiries or enforcement actions initiated by, government or regulatory authorities could cause us to incur substantial costs, expose us to unanticipated liability or penalties or require us to change our business practices in a manner materially adverse to our financial condition, results of operations, and our brand.

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Data Protection Directive and China Cybersecurity Law, could adversely affect our financial condition, results of operations, and our brand.

We are or may become subject to a variety of laws and regulations in the United States and abroad regarding privacy, data security, cybersecurity and data protection.

We are or may become subject to a variety of laws and regulations in the United States and abroad regarding privacy, data security,

cybersecurity and data protection.

These laws and regulations are continuously evolving and developing.

The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting, particularly with respect to foreign laws.

The scope and interpretation of the laws that are or may be applicable to us and our business, including our webstore sales, are often uncertain and may be conflicting, particularly with respect to foreign laws.

In particular, there are numerous U.S.

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For example, to provide products for network operators and service providers who utilize unlicensed RF spectrum, we may be required to limit their ability to use our products in licensed RF spectrum.

The operation of our products by network operators or service providers in the United States or elsewhere in a manner not in compliance with local law could result in fines, operational disruption, or harm to our reputation.

The operation of our

products by network operators or service providers in the United States or elsewhere in a manner not in compliance with local law could result in fines, operational disruption, or harm to our reputation.

In addition, if new spectrums, either licensed or unlicensed, are made available by government regulatory agencies for broadband wireless communication that may disrupt the competitive landscape of our industry and impact our business.

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Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements.

In addition, projections of any evaluation of effectiveness of internal control over financial reporting in future periods are subject to the risk that the control may become inadequate because of changes in conditions or a deterioration in the degree of compliance with the policies or procedures.

in the past and may in the future fail to maintain adequate internal controls.

The preparation of Consolidated Financial Statements also requires us to make estimates and assumptions.

We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances.

To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

Additionally, as the COVID-19 pandemic continues to develop, many of our estimates could require increased judgment and carry a higher degree of variability and volatility.

As events continue to evolve our estimates may change materially in future periods.

In addition, projections of any evaluation of effectiveness of internal control over financial reporting in future periods a re subject to the risk that the control may become inadequate because of changes in conditions or a deterioration in the degree of compliance with the policies or procedures.

We have in the past and may in the future fail to maintain adequate internal controls.

For example, as reported in the Annual Reports on Form 10-K for the years ended June 30, 2015 and 2016, management of the Company determined that the Company did not maintain an effective control environment, which contributed to three material weaknesses in internal control over financial reporting.

As described in more detail in our Annual Report on Form 10-K for year ended June 30, 2017, under Item 9A.

“Controls and Procedures”, the Company completed the remediation efforts of such material weakness, completed testing of the controls to address such material weaknesses and concluded that the previously reported material weaknesses in internal controls over financial reporting have been satisfactorily remediated as of June 30, 2017.

weaknesses in internal controls over financial reporting have been satisfactorily remediated as of June 30, 2017.

Any such failure (including any failure to implement new or improved controls, difficulties in the execution of such implementation or deterioration of our current control practices) may result in an inability to prevent fraud, or cause us to fail to meet our reporting obligations.

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We regularly assess the likelihood of favorable or unfavorable outcomes resulting from examinations to determine the adequacy of our provision for income taxes.

believe our tax estimates are reasonable, there can be no assurance that any final determination will not be materially different than the treatment reflected in our historical income tax provisions and accruals, which could materially and adversely affect our business results of operations and financial condition.

Although we believe our tax estimates are reasonable, there can be no assurance that any final determination will not be materially different than the treatment reflected in our historical income tax provisions and accruals, which could materially and adversely affect our business results of operations and financial condition.

Changes in applicable tax regulations could negatively affect our financial results.

On December 22, 2017, the U.S.

government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs (the “2017 Tax Act”).

government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “2017 Tax Act”).

A significant portion of our earnings are earned by our subsidiaries outside the U.S.

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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