lat-20251231
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
For the fiscal year ended December 31, 2025
OR
For transition period from to
Commission File Number 001-39688
Latch, Inc.
(Exact name of registrant as specified in its charter)
1220 N. Price Road, Suite 2
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common stock, par value $0.0001 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒
As of June 30, 2025, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $18.8 million (based upon the last trading price of such stock as reported by the OTC Markets on such date).
As of March 26, 2026, there were 164,257,801 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Annual Report on Form 10-K, to the extent not set forth herein, is incorporated by reference to the registrant’s definitive proxy statement relating to the 2026 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission on or before April 30, 2026.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (this “Form 10-K”) contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Form 10-K, including statements concerning possible or assumed future actions, business strategies, events or results of operations, and any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Form 10-K and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the risks, uncertainties and assumptions described under Part I, Item 1A. “Risk Factors.” These forward-looking statements are subject to numerous risks, including, without limitation, the following:
•our ability to remediate the material weaknesses we identified in our internal control over financial reporting, or other findings in the Company’s 2022-2023 internal investigation, and the timing of such remediation;
•the performance of our common stock, particularly given the limited liquidity and depressed trading prices of our common stock, which is trading on OTC Markets Group Inc.’s (“OTC”) OTCID Basic Market (the “OTCID Market”), and may not be listed on the OTCQX or OTCQB markets or a national securities exchange;
•developments in the pending derivative actions or other legal proceedings;
•regulatory disputes and governmental inquiries, including the SEC Investigation (as defined below);
•privacy and data protection laws, privacy or data breaches or the loss of data;
•the impact of changes in consumer spending patterns, consumer preferences, local, regional and national economic conditions, crime, weather, demographic trends and employee availability;
•increases in component costs, long lead times, supply shortages and other disruptions to our supply chain;
•delays in construction timelines at our customers’ building sites;
•any defects in new products or enhancements to existing products;
•our ability to continue to develop new products, services and innovations to meet constantly evolving customer demands;
•our ability to hire, retain, manage and motivate employees, including key personnel;
•the impact of workforce reductions on our business, financial condition and results of operations;
•our ability to improve operating and financial results and attain profitability;
•compliance with laws and regulations applicable to our business;
•the impact of macroeconomic conditions on our business, our suppliers and our existing and potential customers;
•our ability to upgrade and maintain our information technology systems;
•our ability to create, acquire and protect intellectual property;
•our ability to successfully identify, complete, integrate and realize synergies from acquisitions, such as the HelloTech Merger (as defined below), including the ability to retain key personnel from such acquisitions; and
•the potential adverse impact of the HelloTech Merger and any future acquisitions, including the potential increase in risks already existing in our operations, poor performance or decline in value of acquired businesses and unexpected costs or liabilities that may arise.
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur, and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. As a result of these factors, we cannot assure you that the forward-looking statements in this Form 10-K will prove to be accurate. Except as required by applicable law, we do not plan to
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publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
You should read this Form 10-K completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
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Page
Part I
Item 1. Business 1
Item 1A. Risk Factors 7
Item 1B. Unresolved Staff Comments 43
Item 1C. Cybersecurity 43
Item 2. Properties 44
Item 3. Legal Proceedings 44
Item 4. Mine Safety Disclosures 44
Part II
Item 6. Reserved 45
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 57
Item 8. Financial Statements and Supplementary Data 58
Item 9A. Controls and Procedures 101
Item 9B. Other Information 104
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 104
Part III
Item 10. Directors, Executive Officers and Corporate Governance 105
Item 11. Executive Compensation 105
Item 14. Principal Accounting Fees and Services 106
Part IV
Item 15. Exhibits and Financial Statement Schedules 107
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PART I
Item 1. Business
Unless the context otherwise requires, references in this subsection to “we,” “our,” “Latch,” “DOOR” and the “Company” refer to the business and operations of Latch, Inc. and its consolidated subsidiaries.
Overview
Latch is a technology company delivering an integrated ecosystem of hardware, software and services designed to enhance operations and experiences within buildings, primarily serving the multifamily rental market. In August 2025, we rebranded as DOOR, although our legal name remains Latch, Inc.
Our core offering is built around a proprietary, cloud-based software-as-a-service (“SaaS”) platform (the “DOOR Platform”) that powers and manages our suite of smart access control devices (including locks, readers and intercoms) and smart home devices and integrates with other connected devices within a building.
We provide solutions that streamline building management for property owners and operators, offer modern convenience and security for residents and simplify interactions for visitors and service providers. While our foundation remains smart access control, we are actively expanding the DOOR Platform and our device integrations to encompass broader smart home solutions, managing devices such as sensors, thermostats and lighting. This ongoing expansion leverages our established platform to create more connected and efficient buildings as we lay the groundwork for a building intelligence platform, automating and streamlining building operations, including work order management and automation, property maintenance and unit inspections and repairs.
Our customers, which include real estate developers, builders, owners and property managers in the United States and Canada, typically purchase our hardware devices (directly or indirectly through our channel partner network) and directly license our SaaS platform. Residents interact with the DOOR Platform through the DOOR mobile application and its predecessor Latch mobile application (together, the “DOOR App”). Through the DOOR App, residents access common areas and unlock residential doors, provide guest access, manage smart home devices and book services.
Our professional services offerings are integral to ensuring successful deployment of the DOOR Platform and ongoing support for our customers and their residents. This includes connecting our multifamily property customers with our partners for installation of Latch and third-party smart access and smart home hardware, ensuring that solutions are implemented efficiently and correctly.
Complementing our multifamily installation capabilities, our wholly-owned subsidiary, HelloTech, Inc. (“HelloTech”), provides a scalable, nationwide network of skilled independent technicians. HelloTech connects these service providers with residents and property managers seeking a wide range of on-demand technical services, such as TV mounting and smart home device installation and set-up, as well as broader home services, such as furniture assembly and handyman services.
Additionally, we offer a comprehensive property management service in and around Boston, Massachusetts.
We operate in one operating and reporting segment.
Corporate History
TS Innovation Acquisitions Corp. (“TSIA”) was incorporated in Delaware on September 18, 2020 as a special purpose acquisition company formed to acquire one or more operating businesses through a business combination. On January 24, 2021, TSIA entered into an agreement and plan of merger by and among Latch Systems, Inc., a Delaware corporation formed in 2014 (“Legacy Latch”), TSIA and Lionet Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of TSIA (“Merger Sub”). On June 4, 2021, we consummated the merger, pursuant to which Merger Sub merged with and into Legacy Latch, with Legacy Latch becoming a wholly-owned subsidiary of TSIA (the “2021 Business Combination”). The post-combination company, TSIA, changed its name to Latch, Inc.
In connection with our rebrand to DOOR, in August 2025, Latch Systems, Inc., our primary operating entity and a wholly-owned subsidiary of Latch, Inc., changed its name to DOOR Systems, Inc (“Latch Systems” or “DOOR Systems,” as the context requires).
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Launch of Door Property Management
In March 2024, we announced the launch of Door Property Management, LLC (“DPM”), our wholly-owned subsidiary, in conjunction with the acquisition of the property management business of The Broadway Company, a Boston-based real estate investment company (“Broadway”). Additionally, we purchased the property management division of Boston Realty Advisors in June 2024. Together, these acquisitions (the “Property Management Acquisitions”) enable us to (i) operate all aspects of a multifamily residential property, from physical management to providing advanced technology solutions, and (ii) gain hands-on experience in property management to further refine and optimize its products and services.
HelloTech Merger and Loan Agreement
On June 21, 2024, our wholly-owned subsidiary, LS HT Merger Sub, Inc. (“HT Merger Sub”), entered into an Agreement and Plan of Merger with HelloTech. On July 1, 2024, HT Merger Sub merged with and into HelloTech, with HelloTech continuing as the surviving corporation and our wholly-owned subsidiary (the “HelloTech Merger”).
HelloTech is a service platform delivering on-demand, last-mile installation, setup and connected device support. The HelloTech platform supports our professional services offering.
As consideration for the HelloTech Merger, we (i) assumed HelloTech’s outstanding borrowings under its existing term loan of approximately $6.9 million as of July 1, 2024 with Customers Bank (the “Prior Loan”) and (ii) paid $0.3 million of HelloTech’s merger-related expenses. HelloTech’s stockholders and other equity holders (including option holders, warrant holders and holders of simple agreements for future equity) did not receive any consideration in connection with the HelloTech Merger.
On July 15, 2024, we entered into a loan agreement with Customers Bank (the “Loan Agreement”). Pursuant to the Loan Agreement, Customers Bank issued a term loan in the principal amount of $6.0 million (the “Loan”). The Loan Agreement, which amended and restated the terms of the Prior Loan, did not result in us receiving any additional loan proceeds. Interest is payable on the Loan at a rate equal to the greater of (a) the prime rate published in The Wall Street Journal or (b) 6.0%. The Loan matures on July 15, 2029 (the “Maturity Date”).
Concurrent with the Loan Agreement, we issued a warrant to Customers Bank to purchase 1,000,000 shares of our common stock (the “Bank Warrant”). The Bank Warrant has an exercise price of $1.25 per share, was exercisable upon issuance and will expire six years from the date of issuance, or July 15, 2030.
The DOOR Platform
The DOOR Platform is our central software platform unifying the building experience for all stakeholders. It comprises several key components:
•DOOR OS: A web-based application for building owners, property managers and channel partners to manage access permissions, oversee building operations, monitor connected devices, streamline resident turnover and resolve operational issues–all remotely.
•DOOR App: iOS and Android applications used by residents and building operators for unlocking doors, managing guest and service provider access and controlling and monitoring integrated smart home devices. Building operators also use the DOOR App to activate devices.
•Concierge Pro: An optional service providing 24/7 remote receptionist capabilities for deliveries and guest arrivals, integrated with our Latch Intercom or Latch Link devices described below.
•OpenKit: Software Development Kits (SDKs) and Application Programming Interfaces (APIs) allowing partners (e.g., property technology platforms or delivery services) to integrate their applications with the DOOR Platform for seamless workflows like resident onboarding and management or remote unlocking for couriers.
Hardware Devices
Our DOOR Platform operates with both Latch-designed hardware and compatible third-party devices.
•Latch Access Devices: Our hardware portfolio includes smart locks for unit doors (Latch C, M and Interconnect series) and readers for common area and building entrances (Latch R), designed to meet industry standards and building codes.
•Connectivity and Other Devices: We offer devices like the Latch Intercom, Latch Link (a QR-code based virtual intercom), DOOR Camera and DOOR Hub, which acts as a connectivity hub enabling communication between the
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DOOR Platform and various smart access, smart home (e.g., thermostats, light switches and leak detectors) and sensor devices within a building.
•Third-Party Integration (Latch Lens): Our Latch Lens program allows third-party hardware manufacturers to embed Latch technology in their products, enabling their devices to connect, and operate seamlessly, with the DOOR Platform. The Latch Lens program expands hardware choices for customers while maintaining the unified software experience provided by the DOOR Platform.
Software and Partnerships
To provide customers with a comprehensive building operating system, we integrate the DOOR Platform with essential third-party software and services. We integrate with leading property management software providers (e.g., Yardi, RealPage, Entrata and AppFolio) to ensure smooth data flow and operational efficiency for property managers. We also partner with other technology providers (e.g., Tour24 and Pynwheel) to enable specific workflows like self-guided tours through DOOR Platform integrations.
Professional Services
In addition to our hardware and software solutions, we offer a comprehensive professional services business line. This includes connecting our multifamily customers to our vetted and trusted network of technicians and service providers for the installation and deployment of Latch and third-party smart access and smart home hardware products directly within their multifamily properties. Furthermore, our HelloTech business operates as a platform connecting a nationwide network of independent, vetted technicians and service providers with single family and multifamily property residents and property managers who require on-demand technical services, such as TV mounting and smart home device installation and set-up, as well as broader home services, such as furniture assembly and handyman services. We also offer a subscription service through the HelloTech platform that includes discounted home services and other technical support such as 24/7 online support, home technology checkups, and antivirus and password manager software support.
Channel Partners
Our primary go-to-market strategy involves distributing our hardware through a network of third-party channel partners. These partners typically market, sell, install and provide activation services for our solutions. Customers primarily license the DOOR Platform software directly from us, complementing their hardware purchase from the channel partner. We also engage in direct sales and service arrangements with certain customers.
Manufacturing and Supply Chain
We outsource the manufacturing of most of our hardware products to multiple contract manufacturers in Asia and the United States. The majority of the components that go into the manufacturing of our products are sourced from third-party suppliers and are generally purchased on our behalf by our manufacturers, subject to certain supplier lists we approve. Our supply chain team coordinates the relationships between our contract manufacturers and component suppliers.
We purchase from our contract manufacturers on a purchase order basis. Under our governing agreements, our contract manufacturers must follow our established product design specifications, quality assurance programs and manufacturing standards. To improve our control of supply pipelines, we own certain tooling and equipment specifically required to manufacture our products. To ensure adequate inventory supply and avoid excess inventory supply, we must forecast inventory needs and expenses and place orders in advance with our suppliers and contract manufacturers, based on our estimates of future demand for particular products and services.
Market Opportunity
The real estate market, particularly large investor-owned and managed buildings, represents a significant opportunity for technology-driven operational improvements. We currently focus on the North American multifamily rental market, which comprised approximately 27 million units in buildings with five or more units in the United States, based on U.S. census data for 2023. This market includes both new construction and retrofit opportunities.
•New Multifamily Construction: Based on U.S. census data, an average of approximately 351,000 new multifamily units (in buildings with five or more units) were completed annually between 2019 and 2023. We target these new developments to embed our ecosystem from the ground up.
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•Multifamily Retrofits: Retrofits of a building’s traditional locks, earlier generation smart locks and offline home devices are often driven by major maintenance cycles, property sales or standalone hardware or system upgrade efforts. We expect our revenues attributable to retrofits to grow as we continue to focus on selling to owners of existing buildings and developing products and solutions that are suitable for retrofit projects.
Beyond the market for our hardware and SaaS platform, there is a substantial opportunity for related professional services in both the multifamily and single-family residential market. For multifamily properties, this includes the installation and deployment of smart access control and other smart home devices, a critical component for both new construction and retrofit projects. Our professional direct installation services address this need, ensuring our systems and third-party solutions are implemented effectively.
Furthermore, the HelloTech business addresses the broader consumer market for on-demand technical and home services. This market includes residents in multifamily properties and single-family homes who require assistance with tasks such as smart device installation and setup, IT support, TV mounting, furniture assembly and general handyman services. The increasing adoption of smart home technology across all residential types fuels the demand for skilled technicians capable of installing, configuring and troubleshooting these devices, representing a significant service opportunity.
Our Go to Market and Growth Strategy
In order to create value for our stockholders, our core objective is to expand the adoption and utilization of the DOOR Platform. Key strategies to achieving this objective include:
•Further Penetration of North American Multifamily Market: We aim to grow our customer base through direct sales efforts targeting new and existing portfolios, supporting our channel partners that resell our products and leveraging tools like e-commerce platforms to streamline purchasing.
•New Products and Services: We continue to invest in research and development to innovate and expand the capabilities of the DOOR Platform and our hardware offerings. This includes enhancing our core access features, integrating a wider array of smart home devices and developing functionalities that support our long-term vision of a comprehensive building intelligence platform. We deploy many software updates and features over-the-air via the DOOR Platform.
•Selling into a Growing Market: We believe the adoption of smart building technology in multifamily properties will continue to increase, driven by demands for operational efficiency, enhanced resident experiences and security, creating favorable market conditions for our integrated solutions.
•Expand and Leverage Professional Services: We plan to grow our professional services revenue by scaling our multifamily installation partner network and expanding the reach and service offerings of the HelloTech platform. In addition to providing an additional revenue stream, our professional services offering strengthens customer relationships by ensuring high-quality deployment and support, potentially increasing the adoption and stickiness of the DOOR Platform.
Competition
The smart building technology market is dynamic, with various companies offering solutions that compete with components or the entirety of our ecosystem. Competition exists from traditional lock manufacturers, other smart access control providers and specialized smart home device and platform companies. We anticipate competition will intensify as the market matures. Our ability to compete successfully depends on various factors, including:
•The functionality, reliability, ease of use and cost-effectiveness of our integrated platform.
•Our ability to innovate and introduce differentiated features and smart home integrations.
•Our ability to source components and manufacture our hardware products at costs that create positive selling margins at competitive pricing.
•Our success in expanding into new applications and adjacent markets.
•Our ability to attract, retain and support channel partners and other technology partners.
•Our brand recognition and reputation.
•Our ability to effectively leverage data and artificial intelligence to enhance our offerings.
•Our capacity to attract and retain skilled engineering, sales and support personnel.
•Our ability to successfully protect our intellectual property.
•The quality, reach and efficiency of our professional installation partners for multifamily deployments.
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•Our ability to successfully scale the HelloTech platform to provide consistent, high-quality, on-demand technical and home services to a broad resident base.
•The effectiveness of our service offerings, and associated marketing efforts, in differentiating DOOR from competitors who solely offer hardware and software without comparable installation and support infrastructure.
Competitive Strengths
We believe our key competitive strengths include:
•SaaS Revenue Model: Our software licensing model provides a recurring revenue stream tied to the deployment of the DOOR Platform.
•Unified Management Experience: The DOOR Platform provides property managers with a single, integrated interface for managing access control, a growing range of smart home devices and building operations, reducing the complexity and inefficiency inherent with disparate point solutions.
•Network of Partners: Our established channel program provides broad market reach for sales and installation across the United States and portions of Canada.
•End-to-End Service Capability: Through our professional installation services supporting our multifamily property customers and our HelloTech platform supporting residents, we offer an enhanced value proposition for customers and users. Our expertise goes beyond manufacturing hardware to its effective deployment and ongoing usability, simplifying property management operations and enhancing resident experience.
•Our Intellectual Property Portfolio: We own patents, trademarks, copyrights and trade secrets covering core aspects of our hardware design, software platform and user experience, protecting our technology from infringement and competitive pressure. We have approximately 100 patents, including approximately 45 utility patents, which protect the inventive aspects of our products and services, and approximately 55 design patents, which protect the ornamental design of certain of our hardware products. None of our utility patents expire prior to 2035, and one of our foreign design patents is expected to expire in 2026.
Government Regulation
We operate our business primarily in the United States, and our products are sold in the United States and Canada. We are subject to regulation by various federal, state, local and foreign governmental agencies, including, but not limited to, agencies and regulatory bodies or authorities responsible for monitoring and enforcing product safety and consumer protection laws, data privacy and security laws and regulations, employment and labor laws, workplace safety laws and regulations, environmental laws and regulations, export and import control laws and regulations, antitrust laws, securities laws and tax laws and regulations.
Anti-Corruption and Export Laws
We are subject to the U.S. bribery of public officials statute contained in 18 U.S.C. § 201, the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.S. Travel Act and possibly other anti-bribery laws, including those designed to comply with the Organization for Economic Cooperation and Development (the “OECD”) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions or other international conventions. Anti-corruption laws are often interpreted broadly and generally prohibit our company, employees and agents from authorizing, offering, promising or providing, directly or indirectly, improper payments of anything of value to recipients in the public sector to obtain or retain business or an unfair business advantage. Certain anti-corruption laws also prohibit us from soliciting or accepting bribes or kickbacks or from engaging in bribery involving private persons. We can be held liable in certain circumstances for the corrupt activities of our representatives, contractors, channel partners and agents, even if we did not explicitly authorize such activity. Although our Code of Business Conduct and Ethics (the “Code of Ethics”) addresses compliance with applicable anti-corruption laws, there can be no assurance that all of our employees, representatives, contractors, channel partners and agents will comply with these laws.
Because we primarily operate in the United States, import from Asia and export to Canada, we are subject to laws in various jurisdictions. We are subject to anti-money laundering laws such as the USA PATRIOT Act and may be subject to similar laws in other jurisdictions. Our products are subject to export and import control laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations and various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Control. We also may be subject to import/export laws and regulations in other jurisdictions in which we conduct business or source our products. If we fail to comply with these laws and regulations, we and certain of our employees could be subject to substantial civil or criminal penalties,
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including the possible loss of export or import privileges, fines, which may be imposed on us and responsible employees or managers and, in extreme cases, the incarceration of responsible employees or managers.
United States
We and our business customers are subject to various federal, state and local regulations related to access control products, such as state and local building and fire codes, the Americans with Disabilities Act, and requirements for Underwriter Laboratories (“UL”) and Federal Communications Commission (“FCC”) certifications. We and our business customers may be subject to numerous federal and state laws and regulations, including data breach notification laws, data privacy and security laws, and consumer protection laws and regulations (e.g., Section 5 of the Federal Trade Commission Act (the “FTC Act”) that govern the collection, use, disclosure and protection of personal information. Privacy and security laws, self-regulatory schemes, regulations, standards and other obligations are constantly evolving, may conflict with each other to complicate compliance efforts and can result in investigations, proceedings or actions that may lead to significant civil and/or criminal penalties and restrictions on data processing. For example, the California Consumer Privacy Act went into effect on January 1, 2020 and was amended by the California Privacy Rights Act that went into effect on January 1, 2023 (together, the “CCPA”). The CCPA, among other things, created new data privacy obligations for covered companies and provided new privacy rights to California residents, including the right to access and delete their personal information, opt out of certain personal information processing and sharing and receive detailed information about how their personal information is used. The CCPA also created a private right of action with statutory damages for certain data breaches, thereby potentially increasing risks associated with a data breach. Pursuant to the CCPA, the California legislature also created a new California data protection agency specifically tasked to enforce the law, which has resulted in increased regulatory scrutiny of organizations conducting business in California in the areas of data protection and security. Similar laws have been passed in other states and are continuing to be proposed at the state and federal level, reflecting a trend toward more stringent privacy legislation in the United States. The enactment of such laws could have potentially conflicting requirements that would make compliance challenging. In the event that we are subject to or affected by domestic privacy and data protection laws, any liability from failure to comply with these laws could adversely affect our financial condition.
In addition to state privacy bills, local regulation is also increasing. For instance, in 2021, New York City enacted the Tenant Data Privacy Act (the “TDPA”), regulating how building access data is collected, processed and disposed of by property managers and smart access system operators. The TDPA went into effect in July 2021, and we had to make certain adjustments to our retention of data collected from New York City users of our platform to comply with its requirements. Similar local legislation in other cities where we operate is likely, which will further increase the complexity and expense of ensuring that our privacy practices are compliant.
Additionally, the interpretations of existing federal and state consumer protection laws relating to online collection, use, dissemination and security of personal information adopted by the Federal Trade Commission (the “FTC”), state attorneys general, private plaintiffs and courts have evolved, and may continue to evolve, over time. Consumer protection laws require us to publish statements that describe how we handle personal information and choices individuals may have about the way we handle their personal information. If such information that we publish is deemed untrue, we may be subject to government claims of unfair or deceptive trade practices, which could lead to significant liabilities and consequences. Furthermore, according to the FTC, violating consumers’ privacy rights or failing to take appropriate steps to keep consumers’ personal information secure may constitute unfair acts or practices in or affecting commerce in violation of Section 5 of the FTC Act. The FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business and the cost of available tools to improve security and reduce vulnerabilities.
Canada
In Canada, the Personal Information Protection and Electronic Documents Act (“PIPEDA”) and similar provincial laws impose obligations with respect to processing personal information. PIPEDA requires companies to obtain an individual’s consent prior to collecting, using or disclosing that individual’s personal information. Individuals have the right to access and challenge the accuracy of their personal information held by an organization, and personal information may only be used for the purposes for which it was collected. If an organization intends to use personal information for another purpose, it must again obtain that individual’s consent to the proposed processing. Failure to comply with PIPEDA and similar provincial laws could result in significant fines and penalties.
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Cash and Inventory Position
As of December 31, 2025 and December 31, 2024, our unrestricted cash and cash equivalents and current and non-current available-for-sale securities were approximately $34.6 million and $75.4 million, respectively. As of December 31, 2025 and December 31, 2024, we also had approximately $27.3 million and $30.5 million in net inventory, respectively.
Human Capital
Our employees are critical to our success. As of December 31, 2025, we had approximately 120 full-time employees, all of which were based in the United States. We also engage consultants and contractors in the United States and internationally, primarily in South America and Romania, to supplement our permanent workforce. A majority of our employees are engaged in engineering, software and product development, sales and related functions. To date, we have not experienced any work stoppages and consider our relationship with our employees and service providers to be in good standing. None of our domestic or international employees are subject to a collective bargaining agreement or represented by a labor union.
We recognize the importance of an inclusive environment. We believe we offer competitive compensation, including base pay, discretionary bonus and equity incentive opportunities, paid time off and a family-friendly benefits package, including paid parental leave, to ensure our team members have the flexibility and support for a healthy work/life balance. Other than our St. Louis-based employees and our property management team, our workforce generally operates on a remote basis, which we believe is suitable for the conduct of our business.
Available Information
Our internet website address for our stockholders and other interested parties is https://DOOR.com/investors. We make available, free of charge, through our website or through the SEC’s website at www.sec.gov, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports, as soon as reasonably practicable after filing such reports with the SEC. Also, the charters of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee, the Code of Ethics, our Corporate Governance Guidelines and stockholder communications are available through our website, and we also intend to disclose any amendments to our Code of Ethics, or waivers to such code on behalf of our Chief Executive Officer or Chief Financial Officer, on our website. All of these corporate governance materials are available free of charge and in print to any stockholder who provides a written request to the Corporate Secretary at 1220 N. Price Rd, Suite 2, Olivette, Missouri 63132. The contents of our website are not intended to be incorporated by reference into this Form 10-K or any other report or document we file and any reference to our website is intended to be an inactive textual reference only.
Item 1A. Risk Factors
The following is a summary of the risks and uncertainties that could materially adversely affect our business, financial condition and results of operations. We encourage you to carefully review the full risk factors contained below in their entirety for additional information regarding these risks and uncertainties.
Risks Related to the Restatement, Internal Controls and Related Matters
•We are subject to an ongoing investigation by the SEC and may be named in future governmental or other regulatory investigations and proceedings.
•Because our securities are traded on the OTCID Market, there is a minimal public market for our securities, which negatively affects the value of our securities and may make it difficult or impossible for you to sell or buy them.
•Matters relating to or arising from the Restatement and the Company’s 2022 internal investigation of certain key performance indicators and revenue recognition practices (the “Investigation”) have had, and could continue to have, an adverse effect on our business and financial condition and reputation.
•We have material weaknesses in our internal control over financial reporting.
Risks Related to our Business and Industry
•The presence of various risks and uncertainties associated with the Company’s liquidity position may adversely affect our ability to sustain our operations.
•We have a history of losses, we may not achieve or maintain profitability in the future, and our operating results and financial condition may continue to fluctuate.
•The loss of a significant customer may have a material adverse effect on us.
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•Our growth and the markets in which we operate make it difficult to evaluate our current business and future prospects.
•We face various risks related to our HelloTech business, many of which are difficult to predict while the business is being integrated into the Company.
•Our future operating results will rely in part upon the successful execution of our strategic partnerships.
•If our security controls are breached, or unauthorized or inadvertent access to user information or other data or to control or view systems are otherwise obtained, we may incur significant liabilities.
•We may be unable to attract new customers and maintain customer satisfaction with current customers.
•We rely on our channel partner network and certain third-party providers of licensed software and services that are important to our business.
•Customer turnover or costs we incur to retain and upsell our customers could adversely affect our financial performance.
•If we are unable to develop new solutions, adapt to technological change, sell our software, services and products into new markets or further penetrate our existing markets, our revenue may not grow as expected.
•We operate in the emerging and evolving smart building technology industry, which may develop more slowly than we expect and may become more competitive.
•We may not realize the anticipated benefits of the HelloTech Merger or other acquisitions.
•Changes in effective tax rates, adverse outcomes resulting from examination of our income or other tax returns and an inability to use some or all of our net operating loss carryforwards could adversely affect our results of operations.
•We may require additional capital to pursue our business objectives and to operate our business.
•If we are unable to acquire or adequately protect intellectual property, we could be competitively disadvantaged.
•Accusations of infringement of third-party intellectual property rights could materially and adversely affect our business.
•Some of our products and services contain open source software, which may pose particular risks to our business.
•Our products and services may be affected from time to time by design and manufacturing defects.
•If we fail to continue to develop our brands, our business may suffer.
•We must successfully upgrade and maintain our information technology systems, and problems with our information systems, third-party systems and infrastructure upon which we rely could interfere with our business and operations.
•We collect, store, process and use personal information, which subjects us to legal obligations and laws and regulations related to security and privacy.
•We rely on a limited number of suppliers, manufacturers and logistics partners that we do not control.
•Increases in component costs, long lead times, supply shortages and changes, labor shortages and construction delays could disrupt our supply chain and operations.
•Our operating results could be adversely affected if we are unable to accurately forecast customer demand for our products and services and adequately manage our inventory.
•From time to time, we may be subject to legal proceedings, regulatory disputes and governmental inquiries that could cause us to incur significant expenses, divert our management’s attention and materially harm our business.
•Our smart building technology is subject to varying state and local regulations, and we must also comply with import and export, bribery and money laundering laws, regulations and controls.
•If we are unable to sustain pricing levels, our business could be adversely affected.
•Insurance policies may not cover all of our operating risks, and a casualty loss beyond the limits of our coverage could negatively impact our business.
•Downturns in general economic and market conditions and reductions in spending may reduce demand for our software, services and products, which could harm our revenue, results of operations and cash flows.
•We may not be able to generate sufficient cash to service our indebtedness, and we may be forced to take other actions to satisfy our obligations under applicable debt instruments, which may not be successful.
•The Loan Agreement does, and any future agreements related to indebtedness may, restrict our current and future operations, particularly our ability to respond to changes in business or to take certain actions.
Risks Related to Ownership of Our Securities
•Our common stock price may be volatile or may decline regardless of our operating performance.
•We do not intend to pay dividends on our common stock for the foreseeable future.
•Our issuance or sale of additional shares of common stock or convertible securities could make it difficult for another company to acquire us, may dilute your ownership of us and could adversely affect our stock price.
•Our warrants are subject to various limitations and features that could adversely impact the holders of such warrants.
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•Anti-takeover provisions in our governing documents and under Delaware law could make an acquisition of us more difficult or limit attempts by our stockholders to replace or remove our current management.
•Our governing documents provide a sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.
•Climate change and related environmental issues may have an adverse effect on our business, financial condition and operating results.
•Stockholder and customer emphasis on environmental, social and governance responsibility may impose additional costs on us or expose us to new risks.
•Our business is subject to the risk of earthquakes, fires, power outages, floods and other catastrophic events, and to interruption by man-made problems such as terrorism.
•We incur increased costs as a result of being a public company. Failure to comply with laws, regulations and standards relating to our public company status could materially and adversely affect our business and results of operations.
•If securities analysts do not publish research or reports about us, or if they issue unfavorable commentary about us or our industry or downgrade our common stock, the price of our common stock could decline.
Risks Related to the Investigation, Restatement, Internal Controls and Related Matters
We are subject to an ongoing SEC investigation (the “SEC Investigation”) and may be named in future governmental or other regulatory investigations and proceedings, each of which could have a material adverse impact on our business, financial condition, results of operation, cash flows and reputation.
Since being contacted by the Staff of the SEC in March 2023, the Company has been cooperating with the Staff’s investigation into issues related to the Company’s key performance indicators and revenue recognition practices that led to the Restatement and related issues. We cannot predict the duration or outcome of the SEC Investigation or whether the SEC will bring an enforcement action against us.
We cannot predict or provide any assurance as to the timing, outcome or consequences of the SEC Investigation. If the SEC were to conclude that enforcement action is appropriate, we could be required to pay civil penalties and fines, and the SEC could impose other sanctions against us or against our current and former officers and directors. We have incurred, and may continue to incur, significant expenses related to legal and other professional services in connection with matters relating to or arising from the SEC Investigation. These cash outflows have, and will continue to, negatively impact our cash position and profitability. We cannot predict if the SEC will impose any penalty or fine and, if it does, the magnitude or timing of such penalty or fine; however, any penalty or fine would also negatively impact our cash position, profitability and liquidity.
In addition, our Board of Directors (the “Board”), management and employees have expended, and may continue to expend, a substantial amount of time on the SEC Investigation, diverting resources and attention that would otherwise be directed toward our operations and implementation of our business strategy, all of which could materially adversely affect our business, financial condition and results of operations. Publicity surrounding the foregoing, or any SEC enforcement action or settlement as a result of the SEC Investigation, even if ultimately resolved favorably for us, could have an adverse impact on our reputation, business, financial condition and results of operations.
In addition, although we have completed the Restatement, we could receive additional inquiries from the SEC or other regulatory authorities regarding our restated financial statements or matters relating thereto, and we could be subject to future claims, investigations or proceedings. Any future inquiries from regulatory authorities, or future claims or proceedings as a result of the Restatement or any related regulatory investigation, will, regardless of the outcome, consume a significant amount of our internal resources and result in additional legal and accounting costs.
Because our securities are trading on the OTCID Market, there is a minimal public market for our securities, which negatively affects the value of our securities and may make it difficult or impossible for you to sell them. We cannot assure you that our common stock and warrants will be traded on the OTCQX or OTCQB markets or listed on Nasdaq or any other national securities exchange in the future.
Beginning June 7, 2021, Latch common stock and warrants were listed and traded on The Nasdaq Capital Market LLC (“Nasdaq”) under the ticker symbols LTCH and LTCHW, respectively. In connection with the delisting of the Company’s securities from Nasdaq, from August 11, 2023 to February 12, 2026, Latch’s common stock and warrants traded on the OTC Expert Market.
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Following the Company’s filing of its Quarterly Report on Form 10-Q for the period ended September 30, 2025, Latch’s securities began trading on the OTC Pink - Limited market on February 12, 2026 and the OTCID Market on March 2, 2026.
Quotes in the OTCID Market are “Unsolicited Only” until a broker-dealer reviews the Company’s securities and submits an application under SEC Rule15c2-11. This application (the “Form 211”) is subject to review by the Financial Industry Regulatory Authority (“FINRA”). Until a Form 211 is accepted, broker-dealers may only use the OTCID Market to publish unsolicited quotes representing limit orders from retail and institutional investors who are not affiliates or insiders of the Company. Because of these restrictions, there is a minimal public market for our securities, which negatively affects the value of our securities and may make it difficult or impossible for you to sell them. We cannot assure you that our common stock and warrants will be traded on the OTCQX or OTCQB markets, which generally offer greater liquidity than the OTCID Market, or will not again trade at a lower level of the OTC markets, in the future.
Over-the-counter markets are generally considered to be less efficient than, and not as broad as, a national stock exchange. In addition, our ability to raise additional capital may be impaired because of the less liquid nature of the over-the-counter markets. While we cannot guarantee that we would be able to complete an equity financing on acceptable terms, or at all, we believe that dilution from any equity financing while our shares are quoted on an over-the-counter market would likely be substantially greater than if we were to complete a financing while our common stock is traded on a national securities exchange.
Our common stock may also be subject to penny stock rules, which impose additional sales practice requirements on broker-dealers who sell our common stock. The SEC generally defines “penny stock” as an equity security that has a market price of less than $5.00 per share, subject to certain exceptions. The ability of broker-dealers to sell our common stock and the ability of our stockholders to sell their shares in the secondary market will be limited and, as a result, the market liquidity for our common stock will likely be adversely affected. Further, certain brokerage firms have implemented rules regarding the deposit of penny stock shares into new or existing accounts where such stocks do not meet minimum price and volume requirements. Such rules may make it difficult or even prevent stockholders from timely selling their shares through such brokerage firms unless the shares meet such minimum requirements.
No assurance can be provided that an active trading market for our securities will develop or, if one develops, will continue. The lack of an active trading market for our securities may limit the liquidity of an investment in our common stock or warrants, meaning you may not be able to sell any shares of common stock or warrants you own at times, or at prices, attractive to you. Any of these factors may materially adversely affect the price of our common stock and warrants.
We may not ever be able to satisfy the initial or continued listing requirements for our common stock to be listed on any stock exchange, including Nasdaq, which are often more widely-traded and liquid markets. Some, but not all, of the factors that may delay or prevent the listing of our common stock on a more widely-traded and liquid market include the following: our stockholders’ equity may be insufficient; the market value of our outstanding securities may be too low; our net income from operations may be too low; our common stock may not be sufficiently widely held; we may not be able to secure market makers for our common stock; the SEC Investigation may remain ongoing; and we may fail to regain or maintain compliance with the relevant listing rules and requirements.
In the future, if eligible to do so, we could elect to deregister our securities under the Exchange Act. Deregistration would result in less disclosure about us and may negatively affect the liquidity and trading prices of our securities.
In the future, if eligible to do so, our Board may elect to voluntarily deregister our securities under the Exchange Act and suspend our reporting obligations. While no Board approval of deregistration has taken place, in the future, the Board may consider and/or authorize the Company to file with the SEC a Form 15 to voluntarily deregister our securities under Section 12(g) of the Exchange Act and suspend our reporting obligations under Section 15(d) of the Exchange Act, if eligible to do so. If the Board approves such deregistration, we would file a Form 15 and our obligations to file periodic reports, such as annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, would be suspended immediately upon the filing of the Form 15 with the SEC, and our proxy statement, Section 16 and other Section 12(g) reporting responsibilities would terminate effective 90 days after the filing of the Form 15. Following any deregistration, we would not expect to publish periodic financial information or furnish such information to our stockholders except as may be required by applicable laws or stock exchange rules. As a result of the foregoing factors, deregistration may result in less disclosure about us and may negatively affect the liquidity and trading prices of our securities.
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Matters relating to or arising from the Restatement and the Investigation, including adverse publicity and potential concerns from our customers, have had, and could continue to have, an adverse effect on our business and financial condition.
We have been, and could continue to be, the subject of negative publicity focusing on the Investigation and the Restatement and have been, and may continue to be, adversely impacted by negative reactions from our customers or others with whom we do business. Concerns include the perception of the effort required to address our accounting and control environment and the ability for us to be a long-term provider to our customers. The continued occurrence of any of the foregoing could harm our business and have an adverse effect on our financial condition.
We and our directors and certain of our former officers have been named in a derivative lawsuit related to the circumstances that gave rise to the Restatement and may be named in further proceedings.
On February 15 and July 13, 2023, two alleged stockholders of Latch stock filed derivative actions purportedly on behalf of Latch in the United States District Court for the Southern District of New York: Manley v. Latch, Inc., et al., Case No. 1:23-cv-01273 (the “Manley Action”) and Gottlieb v. Latch, Inc., et al., Case No. 1:23-cv-06047 (the “Gottlieb Action”). The actions, which were consolidated (together, the “Derivative Actions”) generally allege that certain directors and former officers of the Company breached their fiduciary duties and violated Section 14(a) of the Exchange Act by making false or misleading statements regarding the Company’s business, operations and prospects. The Gottlieb Action includes additional claims for unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets and contribution against certain individual defendants named in Brennan v. Latch, Inc. et al., Case No. 1:22-cv-07473 (S.D.N.Y.) (the “Brennan Action”) and Schwartz v. Latch, Inc., et al., Case No. 1:23-cv-00027 (D. Del.) (the “Schwartz Action”), both of which, as described below, have been settled in exchange for the release of all claims against the defendants, along with consolidated class action complaints in the Court of Chancery of the State of Delaware. The Derivative Actions seek orders permitting plaintiffs to maintain each action derivatively on behalf of the Company, awarding unspecified damages allegedly sustained by the Company, awarding restitution from the individual defendants, requiring the Company to make certain reforms to its corporate governance and controls and awarding costs and attorneys’ fees. In March 2026, the Company agreed in principle to a settlement involving the implementation of certain governance reforms and the Company’s payment of $0.5 million in attorneys’ fees, for which the Company does not expect any insurance contribution. The Company does not believe the allegations are meritorious and intends to vigorously defend against them should the parties not reach a final settlement.
The Derivative Actions relate to the circumstances identified in the Investigation, which gave rise to the Restatement and an extended filing delay in filing our periodic reports with the SEC. The litigation has been time consuming and expensive. We may also be named in further litigation, investigations or other actions that may be filed or initiated against us or our current or former officer or directors, which could require significant additional management time and attention, and could result in significant additional legal expenses or result in government enforcement actions, any of which could have a material adverse impact on our results of operations, financial condition, liquidity and cash flows. We cannot predict what losses we may incur in the pending litigation matters and contingencies related to our obligations under the federal and state securities laws, or in other legal proceedings or governmental investigations or proceedings related to the Restatement.
Any further legal proceedings will likely involve significant defense and other costs and, if decided adversely to us or settled, could result in significant monetary damages, penalties and reputational harm. These cash outflows could negatively impact, our cash position, liquidity and profitability.
We have entered into indemnification agreements with each of our current and former directors, certain of our current and former officers and certain third parties, and our amended and restated certificate of incorporation requires us to indemnify each of our directors and officers, to the fullest extent permitted by Delaware law, who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that he or she is or was a director or officer of the Company. Although we maintain insurance coverage in amounts and with deductibles that we believe are appropriate for our operations, our insurance coverage does not cover all claims that have been or may be brought against us, and insurance coverage may not be available to us at a reasonable cost. As a result, we have been and may continue to be exposed to substantial uninsured liabilities, including pursuant to our indemnification obligations, which could materially adversely affect our business, prospects, results of operations and financial condition.
See Part I, Item 3. “Legal Proceedings” and Note 17. Commitments and Contingencies, in Part II, Item 8. “Financial Statements” for additional discussion of these matters.
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We have identified deficiencies in our internal control over financial reporting that resulted in material weaknesses in our internal control over financial reporting and have concluded that our internal control over financial reporting and our disclosure controls and procedures were not effective as of December 31, 2025. If we fail to properly remediate these or any future material weaknesses or deficiencies or to maintain proper and effective internal controls, further material misstatements in our financial statements could occur and impair our ability to produce accurate and timely financial statements and could adversely affect investor confidence in our financial reports, which could negatively affect our business.
A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the financial statements would not be prevented or detected on a timely basis. We have concluded that our internal control over financial reporting was not effective as of December 31, 2025 due to the existence of material weaknesses, and we have also concluded that our disclosure controls and procedures were not effective as of December 31, 2025 due to material weaknesses in our internal control over financial reporting, all as described in Part II, Item 9A. “Controls and Procedures.” Our management has determined that we have material weaknesses in the Company’s internal control over financial reporting as of December 31, 2025 related to (i) control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring activities. All of these material weaknesses were identified as of December 31, 2021 or December 31, 2022.
As of the date of this Form 10-K, our remediation efforts are on-going. We cannot assure you that additional material weaknesses in our internal control over financial reporting will not arise or be identified in the future. We intend to continue our control remediation activities and to continue to improve our operational, information technology, financial systems and infrastructure procedures and controls, as well as to continue to expand, train, retain and manage our personnel who are essential to effective internal controls. In doing so, we will continue to incur expenses and expend management time on compliance-related issues. We may be unable to hire or retain such personnel, including qualified accounting and financial reporting personnel.
If our remediation measures are insufficient to address the identified deficiencies, or if additional deficiencies in our internal control over financial reporting are discovered or occur in the future, our consolidated financial statements may contain material misstatements, and we could be required to restate our financial results. Moreover, because of the inherent limitations of any control system, material misstatements due to error or fraud may not be prevented or detected on a timely basis, or at all. Although we are working to remedy the ineffectiveness of the Company’s internal control over financial reporting, there can be no assurance as to when the remediation plan will be fully implemented, the aggregate cost of implementation or whether the remediation plan will be adequate and effective. Until our remediation plan is fully implemented, our management will continue to devote significant time and attention to these efforts. If we do not complete our remediation in a timely fashion, or at all, or if our remediation plan is inadequate or ineffective, there is an increased risk that we will be unable to timely file future periodic reports with the SEC and that our future consolidated financial statements could contain errors that will be undetected. If we are unable to provide reliable and timely financial reports in the future, our business and reputation may be further harmed. Restated financial statements and failures in internal controls may also cause us to fail to meet reporting obligations, result in the delisting of our securities, negatively affect investor confidence in our management and the accuracy of our financial statements and disclosures, or result in adverse publicity and concerns from investors, any of which could have a negative effect on the price of our common stock, subject us to further regulatory investigations and penalties or stockholder litigation, and materially adversely impact our business and financial condition.
If we identify any new material weaknesses in the future, any such weakness could limit our ability to prevent or detect a misstatement of our financial statements. In addition, if we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an unqualified opinion as to the effectiveness of our internal control over financial reporting, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in the accuracy of our financial reporting and our stock price may decline as a result. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to avoid potential future material weaknesses.
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Risks Related to our Business and Industry
The presence of various risks and uncertainties associated with the Company’s liquidity position may adversely affect its ability to sustain its operations.
As of the date of this Form 10-K (the “Filing Date”), the presence of the following risks and uncertainties associated with the Company’s liquidity position may adversely affect its ability to sustain its operations:
i.The continued incurrence of significant expenses related to legal and other professional services in connection with the SEC Investigation and the possibility that the SEC may levy civil penalties or fines against the Company;
ii.Potential expenditures associated with defending, negotiating or resolving the service provider demand described in Note 17. Commitments and Contingencies, in Part II, Item 8. “Financial Statements;”
iii.Unexpected expenditures related to the Derivative Actions;
iv.The incurrence of significant expenses related to other legal or regulatory proceedings, whether actual or threatened;
v.The failure of the Company to achieve its revenue expectations, including as a result of:
•Pricing compression for the Company’s products;
▪Market adoption of the DOOR App;
▪The success of the HelloTech and DPM businesses;
▪The impact of elevated interest rates on the Company’s potential customers, who may eliminate or delay expenditures for the products or services the Company offers; and
▪Market perception of the Company and its offerings;
vi.Costs of revenue and operating expenses exceeding the Company’s expectations;
vii.The Company’s failure to maintain the liquidity ratio required by the Loan Agreement;
viii.The Company’s inability to fully leverage its prepaid inventory; or
ix.The catastrophic loss of inventory due to theft, natural disaster or otherwise.
Due to the risks and uncertainties described above, the Company continues to monitor its liquidity position. The Company recognizes the challenge of maintaining sufficient liquidity to sustain its operations and remain in compliance with the liquidity ratio required by the Loan Agreement. However, notwithstanding its liquidity position as of the Filing Date, and while it is difficult to predict its future liquidity requirements with certainty, the Company currently expects it will be able to generate sufficient liquidity to fund its operations over the 12 months beyond the Filing Date.
In response to the risks and uncertainties described above, the Company may attempt to secure additional outside capital. However, it can provide no assurance it will be able to secure any outside capital in the future at all, or on terms that are acceptable to the Company. Additionally, the Company’s securities are currently traded on the OTCID Market. Because of applicable restrictions, there is a minimal public market for the Company’s securities, and the Company’s ability to raise additional capital may be impaired because of the less liquid nature of the over-the-counter markets.
The Company also plans to continue to closely monitor its cash flow forecast and, if necessary, may implement certain incremental cost savings measures to preserve its liquidity, including potentially exiting unprofitable business units, which would reduce the Company’s revenues.
As of December 31, 2025, the Company’s unrestricted cash and cash equivalents and current and non-current available-for-sale securities were approximately $34.6 million.
We have not been profitable historically and may not achieve or maintain profitability in the future.
We have experienced net losses in each year since inception, including a net loss of $53.7 million for the year ended December 31, 2025. We believe we will continue to incur operating losses and negative cash flow in the near term as we continue to invest significantly in our business, in particular to enhance and develop new DOOR Platform features, services and products to position us for future growth. Additionally, we have incurred substantial losses and expended significant resources to market, promote and sell our solutions and products and expect to continue to do so in the future. We also expect to continue to invest for future growth, including for customer acquisition, technology infrastructure and services development. As noted above, we have also incurred significant costs in connection with the SEC Investigation and legal proceedings.
Achieving profitability will require us to increase revenues, manage our cost structure and avoid significant liabilities. Revenue growth may slow, revenues may decline or we may incur significant losses in the future for a number of possible reasons, including general macroeconomic conditions, increasing competition (including competitive pricing pressures), a
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decrease in the growth of the markets in which we compete or if we fail for any reason to continue to capitalize on growth opportunities. Additionally, we may encounter unforeseen operating expenses, difficulties, complications, delays and service quality problems or other unknown factors that may result in losses in future periods. If these losses exceed our expectations or our revenue growth expectations are not met in future periods, our financial performance will be harmed and our stock price could be volatile or decline.
Our operating results and financial condition may fluctuate from period to period.
Our operating results and financial condition fluctuate from quarter-to-quarter and year-to-year and are likely to continue to vary due to a number of factors, many of which are not within our control. Both our business and the smart building technology industry are changing rapidly, and our historical operating results may not be useful in predicting our future operating results. If our operating results, guidance or projections we provide to the marketplace do not meet previous guidance or projections or the expectations of securities analysts or investors, or we adjust such guidance or projections downward, the market price of our common stock will likely decline. We have experienced declines in our common stock since 2021. Fluctuations in our operating results and financial condition may occur due to a number of factors, including:
•the portion of our revenue attributable to SaaS versus hardware and services;
•the impact of organizational changes, including any reductions in force;
•fluctuations in demand for our platform and solutions;
•changes in pricing by us in response to competitive pricing actions or otherwise;
•the ability of our hardware vendors to continue to manufacture high-quality products and to supply sufficient products to meet our demands;
•the timing and success of introductions of new solutions, products or upgrades by us or our competitors;
•changes in our business and pricing policies or those of our competitors;
•our ability to accurately forecast demand and revenue;
•our ability to control costs, including our operating expenses and the costs of the hardware we purchase;
•competition, including entry into the industry by new competitors and new offerings by existing competitors;
•our ability to successfully manage and integrate any acquisitions of businesses;
•issues related to introductions of new or improved products such as shortages of prior generation products or decreased demand for next generation products;
•the amount and timing of expenditures, including those related to expanding our operations, increasing research and development, introducing new services, solutions or products or paying litigation or similar expenses, including those related to the SEC Investigation, the Derivative Actions or other legal proceedings;
•the ability to effectively manage growth within existing and new markets;
•changes in the payment terms for our products and services;
•the strength of regional, national and global economies;
•the impact of any economic disruption, such as those caused by the conflict in Iran, increasing interest rates, the implementation of tariffs on imports, inflationary pressures and the threat of a recession;
•changes in the fair values of our financial instruments (including certain warrants that we assumed in connection with the 2021 Business Combination); and
•the impact of natural disasters or man-made problems such as terrorism.
Due to the foregoing factors, and the other risks discussed in this Form 10-K, you should not rely on quarter-over-quarter and year-over-year comparisons of our operating results as indicators of our future performance.
Our growth and the quickly changing markets in which we operate make it difficult to evaluate our current business and future prospects, which may increase the risk of investing in our common stock.
We have grown since 2017 when we introduced our smart building technology. We have encountered and expect to continue to encounter risks and uncertainties frequently experienced by growing companies in rapidly changing markets. If our assumptions regarding these uncertainties are incorrect or change in reaction to changes in our markets, or if we do not manage or address these risks successfully, our results of operations could differ materially from our expectations, and our business could suffer.
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The loss of a significant customer may have a material adverse effect on us.
We depend on a small number of customers for a substantial portion of our business, and we expect that a small number of customers will continue to account for a significant part of our revenue and receivables in the future. As of December 31, 2025, the Company had one customer that accounted for 47% of gross accounts receivable. As of December 31, 2024, the Company had two customers that accounted for 48% of gross accounts receivable. For the years ending December 31, 2025 and 2024, the Company had one customer that accounted for 32% and 33%, respectively, of total revenue.
If a key customer stops or slows its purchasing of our products for any reason, materially reduces its operations or its demand for our products, or suffers a material impairment of its operations for a significant period of time such that it is unable to receive or utilize our products, or pay its liabilities, our business would be materially adversely affected. For example, we expect the volume of hardware purchases and installations for a key customer’s existing portfolio to substantially decrease beginning in the year ending December 31, 2026. If the Company is unable to replace the associated revenues through addition to the key customer’s existing portfolio, expansion of our customer base, our product offerings or otherwise, the Company’s revenues would decrease, and our business would be adversely impacted.
We engage some individuals classified as independent contractors, not employees, and if U.S. or international regulatory authorities mandate that they be classified as employees, our business would be adversely impacted.
We engage independent contractors and are subject to U.S. and international regulations and guidelines regarding independent contractor classification. For instance, the technicians that provide services through the HelloTech platform are engaged as independent contractors. These classification regulations and guidelines vary by jurisdiction, are highly fact sensitive and are subject to judicial and agency interpretation, and it could be determined that our current or former independent contractor classifications are inapplicable. Further, if legal standards for classification of independent contractors change, it may be necessary to modify our compensation structure for these personnel, including by paying additional compensation or reimbursing expenses. In addition, if our independent contractors are determined to have been misclassified as independent contractors, we would incur additional exposure under U.S. and international law, workers’ compensation, unemployment benefits, labor, employment and tort laws, including for prior periods, as well as potential liability for employee benefits and tax withholding. Any of these outcomes could result in substantial costs to us, could significantly impair our financial condition and our ability to conduct our business as we choose and could damage our reputation and our ability to attract and retain other personnel.
In addition to the harms listed above, a determination in, resolution of, or settlement of, any legal proceeding related to the classification of HelloTech technicians may require us to significantly alter the existing HelloTech business model and/or operations (including suspending or ceasing operations in impacted jurisdictions), increase our costs and impact our ability to add qualified technicians to our platform and grow our business, which could have an adverse effect on our business, financial condition and results of operations and our ability to achieve or maintain profitability in the future.
We rely on third-party background check providers to screen potential and existing HelloTech technicians, and if such providers fail to provide accurate information, or if providers are unable to complete background checks because of data access restrictions, court closures or other unforeseen government shutdowns, or if we do not maintain business relationships with them, our business, financial condition and results of operations could be adversely affected.
We rely on third-party background check providers to screen the records of potential and existing HelloTech independent technicians to help identify those that are not qualified to utilize our platform pursuant to applicable laws or any internal standards. Our HelloTech business may be adversely affected to the extent we cannot attract or retain qualified technicians as a result of such providers being unable to complete certain background checks, or being significantly delayed in completing certain background checks, because of data access restrictions, or to the extent that they do not meet their contractual obligations, our expectations or the requirements of applicable laws or regulations. If any of our third-party background check providers terminates its relationship with us, we may need to find an alternate provider, and may not be able to secure similar terms or replace such partners in an acceptable time frame.
If we cannot find alternate third-party background check providers on terms acceptable to us, we may not be able to timely onboard potential independent technicians, and as a result, our platform may be less attractive to qualified technicians. Further, if the background checks conducted by our third-party background check providers do not meet our expectations or the requirements under applicable laws and regulations, unqualified technicians may be permitted to provide services on the HelloTech platform, and as a result, our reputation and brand could be adversely affected and we could be subject to increased regulatory or litigation exposure.
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We are also subject to a number of laws and regulations applicable to background checks for potential and existing independent technicians on the HelloTech platform. If we or technicians on our platform fail to comply with applicable laws, rules and legislation, our reputation, business, financial condition and results of operations could be adversely affected.
Any negative publicity related to any of our third-party background check providers, including publicity related to safety incidents or data security breaches or incidents, could adversely affect our reputation and brand and could potentially lead to increased regulatory or litigation exposure. Any of the foregoing risks could adversely affect our business, financial condition and results of operations.
Any failure to offer high-quality support of our HelloTech platform may harm our relationships with merchants, consumers, and technicians and could adversely affect our business, financial condition and results of operations.
Our ability to attract and retain merchants, consumers and independent technicians to our HelloTech platform is dependent in part on our ability to provide high-quality support. Merchants, property owners, consumers and technicians depend on our support organization to resolve any issues relating to our platform. As we continue to grow our HelloTech business and improve our offerings, we will face challenges related to providing high-quality support services at scale. Any failure to maintain high-quality support, or a market perception that we do not maintain high-quality support, could harm our reputation and adversely affect our ability to scale our platform and business, financial condition and results of operations.
If HelloTech platform users engage in, or are subject to, criminal, violent, inappropriate or dangerous activity that results in safety incidents, our ability to attract and retain technicians, consumers and merchants may be harmed, which could have an adverse impact on our reputation, business, financial condition and operating results.
We are not able to control or predict the actions of HelloTech platform users and third parties, either during their use of the HelloTech platform or otherwise, and we may be unable to protect or provide a safe environment for independent technicians, consumers and customers as a result of certain actions by independent technicians, consumers, merchants and third parties. Such actions may result in injuries, loss of life, property damage, theft, unauthorized use of credit and debit cards or bank accounts, business interruption, brand and reputational damage or other significant liabilities. Although we administer certain qualification processes for technicians on our HelloTech platform, including background checks through third-party service providers, these qualification processes and background checks may not expose all potentially relevant information and are limited in certain jurisdictions according to national and local laws, and our third-party service providers may fail to conduct such background checks adequately or disclose information that could be relevant to a determination of eligibility. In addition, we do not independently verify technicians’ skills.
At the same time, if the measures we have taken to guard against illegal, improper or otherwise inappropriate activities by HelloTech independent technicians, such as our requirement that all technicians undergo a background check, are too restrictive and inadvertently prevent technicians otherwise in good standing from using our platform, or if we are unable to implement and communicate these measures fairly and transparently or are perceived to have failed to do so, the growth of technicians on our platform could be adversely affected.
If HelloTech independent technicians, or individuals impersonating technicians, engage in criminal activity, misconduct or inappropriate conduct or use our HelloTech platform as a conduit for criminal activity, customers may not consider our service offerings safe. Furthermore, if consumers or other customers engage in criminal activity or misconduct while using our HelloTech platform, technicians may be unwilling to use our platform.
The success of our HelloTech platform depends, in substantial part, on our ability to establish and maintain relationships with quality and trustworthy service professionals.
We must continue to attract, retain and grow the number of skilled and reliable service professionals who can provide services on our HelloTech platform. If we do not offer innovative services that resonate with customers and independent technicians generally, as well as provide technicians with attractive economics, the number of technicians affiliated with our platform would decrease. Any such decrease would result in smaller and less diverse networks and directories of technicians, and in turn, decreases in service requests, which could adversely impact our business, financial condition and results of operations.
The success of our HelloTech platform depends in part on our ability to cost-effectively attract and retain independent technicians who satisfy our screening criteria and procedures and to increase the use of our platform by existing technicians. Technicians have the ability to decline service orders or stop using our platform entirely at any time, and we do not have exclusivity provisions with technicians. Accordingly, if we do not continue to provide technicians with flexibility on our
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platform and compelling opportunities to earn income, we may fail to attract new technicians or retain existing technicians or increase their use of our platform, or we may experience complaints, negative publicity or work stoppages that could adversely affect our users and our business.
Relatedly, if customers choose to use competing offerings, we may lack sufficient opportunities for technicians to earn, which may reduce the perceived utility of our platform and impact our ability to attract and retain technicians. Changes in certain laws and regulations, including immigration and labor and employment laws, or laws that require us to make changes to our platform that decrease the flexibility provided to technicians in certain markets, may result in a decrease in the pool of technicians, which may result in increased competition for technicians or higher costs of recruitment and engagement. Other factors outside of our control, such as increases in the price of gasoline, vehicles or insurance, may also reduce the number of technicians that utilize our platform or the use of our platform by technicians. If we fail to attract technicians, retain existing technicians on favorable terms or maintain or increase the use of our HelloTech platform by existing technicians, we may not be able to meet the demand of customers, and our business, financial condition and results of operations could be adversely affected.
Our future operating results will rely in part upon the successful execution of our strategic partnerships, which may not be successful. If these companies choose not to partner with us, our business and results of operations may be harmed.
Establishing a strategic partnership between two independent businesses is a complex, costly and time-consuming process that requires significant management attention and resources. Realizing the benefits of our strategic partnerships will depend in part on our ability to work with our strategic partners to develop, integrate, market and sell co-branded or connected solutions. In particular, working with major technology platforms and their products and services may take an extended period of time to deliver. Setting up and maintaining the operations and processes necessary for these strategic partnerships may cause us to incur significant costs and disrupt our business and, if implemented ineffectively, would limit the expected benefits to us. In addition, the process of bringing solutions that rely on third-party technology to market may take longer than anticipated, which could negate or reduce any anticipated benefits and revenue opportunities, and it may be necessary in the future to renegotiate agreements relating to various aspects of these solutions or other third-party solutions. The failure to successfully and timely implement and operate our strategic partnerships could harm our ability to realize the anticipated benefits of these partnerships and could adversely affect our business, financial condition, cash flows and results of operations. In addition, if these third-party solution providers choose not to partner with us, choose to integrate their solutions with our competitors’ platforms or are unable or unwilling to update their solutions, our business, financial condition, cash flows and results of operations could be harmed.
If our security controls are breached, or unauthorized or inadvertent access to user information or other data or to control or view systems are otherwise obtained, our products, software or services may be perceived as insecure, our business may be harmed and we may incur significant liabilities.
Use of our solutions and services involves the storage, transmission and processing of personal information of our end users, and may in certain cases help secure, or permit access to, our end users’ homes or properties. We also maintain and process confidential, proprietary and personal information in our business, including our employees’ and contractors’ personal information and confidential business information. We rely on proprietary and commercially available systems, software, tools and monitoring to protect against unauthorized use or access of the information we process and maintain. Our services and the networks and information systems we utilize in our business are at risk for breaches as a result of third-party action, employee or partner error, malfeasance or other factors. Although we have established security measures to protect customer information, our or our partners’ security and testing measures may not prevent security breaches. Further, advances in computer capabilities, new discoveries in the field of cryptography, inadequate facility security or other developments may result in a compromise or breach of the technology we use to protect personal information.
We also use artificial intelligence (“AI”) tools in various business processes. Procedures to ensure these tools do not train on, store, misappropriate or otherwise use our confidential or proprietary data may not always be followed or effective.
Criminals and other nefarious actors are using increasingly sophisticated methods, including cyberattacks, phishing, malicious code, computer viruses, malware (e.g., ransomware), social engineering and other illicit acts to capture, access or alter various types of information, to engage in illegal activities such as fraud and identity theft and to expose and exploit potential security and privacy vulnerabilities in corporate systems and websites. In addition, our information technology systems are vulnerable to attack, damage and interruption from employee theft or misuse, human error, fraud, denial or degradation of service attacks, sophisticated nation-state and nation-state-supported actors or unauthorized access or use by persons inside our organization, or persons with access to systems inside our organization. Unauthorized intrusion into the
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portions of our systems and networks and data storage devices that process and store confidential and private end-user information, the loss of such information or the deployment of malware or other harmful code to our services or our networks or systems may result in negative consequences, including the actual or alleged malfunction of our products, software or services. In addition, third parties, including our partners, could also be sources of security risks to us in the event of a failure of their own security systems and infrastructure. The threats we and our partners face continue to evolve and are difficult to predict due to advances in computer capabilities, new discoveries in the field of cryptography and new and sophisticated methods used by criminals. There can be no assurances that our defensive measures will prevent cyberattacks or that we will discover network or system intrusions or other breaches on a timely basis or at all. We may suffer a compromise or breach of the technology protecting the systems or networks that house or access our software, services and products or on which we or our partners process or store personal information or other sensitive information or data, or any such incident may be believed or reported to have occurred. Any such actual or perceived compromises or breaches to systems, or unauthorized access to our customers’ data, products, software or services, or acquisition or loss of data, whether suffered by us, our partners or other third parties, whether as a result of employee error or malfeasance or otherwise, could harm our business. They could, for example, cause interruptions in operations, loss of data, loss of confidence in our services, software and products and damage to our reputation and could limit the adoption of our software, services and products. They could also subject us to costs, regulatory investigations and orders, litigation, breach notification obligations or regulatory or administrative sanctions, contract damages, indemnity demands and other liabilities and materially and adversely affect our customer base, sales, revenues and profits. Any of these could, in turn, have a material adverse impact on our business, financial condition, cash flows or results of operations.
We and certain of our service providers are from time to time subject to cyberattacks and security incidents. While we do not believe that we have experienced any significant system failure, accident or security breach to date, if such an event were to occur it could result in unauthorized access to or loss of any data, which could subject us to data privacy and security laws and regulations and substantial fines by U.S. federal and state authorities or foreign data privacy authorities and private claims by companies or individuals. A cyberattack may cause us to incur additional costs, such as investigative and remediation costs, the costs of providing individuals and/or data owners with notice of any breach, legal fees and the costs of any additional fraud detection activities required by law, a court, a regulator or a third party. Additionally, some of our customer contracts require us to indemnify customers from damages they may incur as a result of a breach of our systems. There can be no assurance that the limitation of liability provisions in our contracts for a security breach would be enforceable or would otherwise protect us from any such liabilities or damages with respect to any particular claim.
Further, if a high profile security breach occurs with respect to another provider of smart building solutions, customers and potential customers may lose trust in the security of our services or in the smart building technology industry generally, which could adversely impact our ability to retain or attract customers. Even in the absence of any security breach, customer concerns about security, privacy or data protection may deter them from using our software, services and products.
Our insurance policies covering errors and omissions and certain security and privacy damages and claim expenses may not be sufficient to compensate for all potential liability. Although we maintain cyber liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all.
Direct selling may subject us to additional risks.
Our channel partners contract with building owners to own the full scope of installation and service of our smart access products. However, we also use an integrated direct selling and deployment strategy targeted at certain larger enterprise accounts in which Latch directly owns the full scope of installation and service of our products with the building. Additionally, we offer direct sales to customers through our e-commerce platform. These strategies involve significant risks and uncertainties, including distraction of management from other business operations, significant research and development, sales and marketing and other resources dedicated to the strategies at the expense of resources being dedicated to other business operations, generation of insufficient revenue to offset expenses associated with the strategies, inadequate return of capital, increased exposure to liability for improper installation (where applicable) and other risks that we may not have adequately anticipated. Because new strategies and initiatives are inherently risky, our direct selling strategy may not be successful and could materially adversely affect our business, results of operations and financial condition.
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We may be unable to attract new customers and maintain customer satisfaction with current customers, which could have an adverse effect on our business and rate of growth.
Our business and revenue growth is dependent on our ability to continuously attract and retain customers, and we cannot be sure that we will be successful in these efforts, or that customer retention levels will not materially decline. There are a number of factors that could lead to a decline in customer levels or that could prevent us from increasing our customer levels, including:
•our failure to introduce new features, products or services that customers find engaging or our introduction of new products or services, or changes to existing products and services, that are not favorably received;
•harm to our brand and reputation, including as a result of the Investigation, the Restatement, the SEC Investigation, delisting from Nasdaq or otherwise;
•pricing and perceived value of our products, software and services;
•our inability to deliver quality products, software and services;
•our customers engaging with competitive software, services and products;
•technical or other problems preventing customers from using our software, services and products in a rapid and reliable manner or otherwise affecting the customer experience;
•deterioration of the real estate industry, including declining levels of, or significant delays in, new construction of multifamily rental buildings and reduced spending in the real estate industry;
•unsatisfactory experiences with the delivery, installation or service of our products; and
•deteriorating general economic conditions or a change in consumer spending preferences or buying trends.
As a result of these factors, we cannot be sure that our customer levels will be adequate to maintain or permit the expansion of our operations. A decline in customer levels could have an adverse effect on our business, financial condition and results of operations.
We rely on certain third-party providers of licensed software and services that are important to the operation of our business.
Certain aspects of the operation of our business depend on third-party software and service providers, such as cloud infrastructure services. We rely on certain software technology that we license from third parties and use in our software, services and products to perform key functions and provide critical functionality. With regard to licensed software technology, we are dependent upon the ability of third parties to maintain, enhance or develop their software and services on a timely and cost-effective basis, to meet industry technological standards and innovations to deliver software and services that are free of defects or security vulnerabilities and to ensure their software and services are free from disruptions or interruptions and claims of intellectual property infringement. These third-party services and software licenses may not always be available to us on commercially reasonable terms or at all.
If our agreements with third-party software or service vendors are not renewed or the third-party software or services become obsolete, fail to function properly, no longer include features or functionality our customers expect, are incompatible with future versions of our products or services, are defective or otherwise fail to address our needs, there is no assurance that we would be able to replace the functionality provided by the third-party software or services with software or services from alternative providers, and we may be unable to meet the requirements of certain SLAs. Furthermore, even if we obtain licenses to alternative software or services that provide the functionality we need, we may be required to replace hardware installed at our customers’ properties to effect our integration of or migration to alternative software products. Any of these factors could have a material adverse effect on our financial condition, cash flows or results of operations.
We rely on our channel partner network to sell and deploy our products, and the inability of our channel partners to effectively perform to our standards, or the loss of key channel partners, could adversely affect our operating results.
Our channel partners are third-party onsite product specialists that provide specific knowledge and expertise to assist in the sale and deployment of Latch products. We provide our channel partners with specific training and programs to assist them in selling our software, services and products, but there can be no assurance that these steps will be effective. In addition, our channel partners may be unsuccessful in selling and supporting our software, services and products. In the future, these partners may also market, sell and support products and services that are competitive with ours and may devote more resources to the marketing, sales and support of such competitive products. We cannot assure you that we will retain these channel partners or that we will be able to secure additional or replacement channel partners. The loss of one or more of our significant channel partners, or a decline in the number or size of orders from any of them, could harm our results of
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operations. In addition, any new channel partner requires training and may take several weeks or more to achieve productivity. Our channel partner sales structure could subject us to lawsuits, potential liability and reputational harm if, for example, any of our channel partners misrepresents the functionality of our software, services or products to customers or violates laws or our corporate policies. If we fail to effectively manage our existing sales channels, if our channel partners are unsuccessful in fulfilling orders for our products or if we are unable to enter into arrangements with, retain and incentivize a sufficient number of high quality channel partners in each of the regions in which we sell products and services, our ability to sell our products and results of operations will be harmed.
Potential customer turnover, or costs we incur to retain and upsell our customers, could materially and adversely affect our financial performance.
Our customers have no obligation to renew their contracts for our software services after the expiration of the initial term. In the event that these customers do renew their contracts, they may choose to renew for fewer units, shorter contract lengths or less expensive subscriptions. We cannot predict the renewal rates for customers that have entered into software contracts with us.
Customer turnover and reductions in the number of units for which a customer subscribes each could have a significant impact on our results of operations, as does the cost we incur to retain our customers and to encourage them to upgrade their services and increase the number of their units that use our software, services and products. Our turnover rate could increase if customers are not satisfied with our software, services and products, the value proposition of our services or our ability to meet their needs and expectations. The number of units contracted by a customer could also decrease due to factors beyond our control, including the failure or unwillingness of customers to pay for our software, services and products due to financial constraints or macroeconomic factors. If a significant number of customers terminate, reduce or fail to renew their software contracts, it could have a material adverse effect on our financial condition, cash flows or results of operations. Furthermore, we may be required to incur significantly higher marketing expenditures in order to increase the number of new customers or to upsell existing customers, which could harm our business and results of operations.
Our future success also depends in part on our ability to sell additional functionalities to our customers and to sell into our customers’ future projects. This may require a longer sales cycle and increasingly sophisticated and more costly sales efforts, technologies and tools. Any increase in the costs necessary to upgrade, expand and retain existing customers could materially and adversely affect our financial performance. If our efforts to convince customers to add units and purchase additional functionalities are not successful, our business may suffer. In addition, such increased costs could cause us to increase our prices, which could increase our customer turnover rate.
If we are unable to develop new solutions, adapt to technological change, sell our software, services and products into new markets or further penetrate our existing markets, our revenue may not grow as expected.
Our ability to increase sales will depend, in large part, on our ability to enhance and improve our platforms, software, services and products, introduce new software, services and products in a timely manner, sell into new markets and further penetrate our existing markets. The success of any enhancement or new platform, software, services and products depends on several factors, including the timely completion, introduction and market acceptance of enhanced or new software, services and products, the ability to maintain and develop relationships with partners and vendors, the ability to attract, retain and effectively train sales and marketing personnel, the effectiveness of our marketing programs and the ability of our software, services and products to maintain compatibility with a wide range of connected devices. Any new product or service we develop, acquire or offer, such as property management services or services for residents or consumers, may not be introduced in a timely or cost-effective manner and may not achieve the broad market acceptance necessary to generate significant revenue. Any new markets into which we attempt to sell our software, services and products, including new vertical markets and new regions, may not be receptive. Our ability to further penetrate our existing markets depends on the quality, availability and reliability of our software, services and products and our ability to design our software, services and products to meet customer demand. Similarly, if any of our competitors implement new technologies before we are able to implement ours, those competitors may be able to provide more effective products, possibly at lower prices. Any delay or failure in the introduction of new or enhanced solutions could harm our business, financial condition, cash flows and results of operations.
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We operate in the emerging and evolving smart building technology industry, which may develop more slowly or differently than we expect. If the smart building technology industry does not grow as we expect, or if we cannot expand our platforms and solutions to meet the demands of this market, our revenue may decline, fail to grow or fail to grow at an accelerated rate, and we may incur operating losses.
The market for integrated smart home solutions, such as home automation, security monitoring, video monitoring, energy management and building services, is in an early stage of development, and it is uncertain how rapidly or how consistently this market will develop and the degree to which our platforms and solutions will be accepted. Some customers may be reluctant or unwilling to use our platforms and solutions for a number of reasons, including satisfaction with traditional solutions, concerns about additional costs, concerns about data privacy or lack of awareness of the benefits of our platforms and solutions. Our ability to expand into new markets depends on several factors, including the reputation and recognition of our platforms and solutions, the timely completion, introduction and market acceptance of our platforms and solutions, our ability to attract, retain and effectively train sales and marketing personnel, our ability to develop relationships with service providers, the effectiveness of our marketing programs, the costs of our platforms and solutions and the success of our competitors. If we are unsuccessful in developing and marketing our platforms and solutions into new markets, or if customers do not perceive or value the benefits of our platforms and solutions, the market for our platforms and solutions might not continue to develop or might develop more slowly than we expect, either of which would harm our revenue and growth prospects.
The markets in which we participate could become more competitive, and many companies, including large technology companies, point solution providers such as traditional lock companies and other managed service providers, may target the markets in which we do business, including the smart building technology industry. If we are unable to compete effectively with these potential competitors, our sales and profitability could be adversely affected.
The smart building technology industry in which we participate may become more competitive, and competition may intensify in the future. Our ability to compete depends on a number of factors, including:
•our platforms’ and solutions’ functionality, performance, ease of use, reliability, availability and cost effectiveness relative to our competitors’ products;
•our success in utilizing new and proprietary technologies to offer new solutions and features;
•our success in identifying new markets, applications and technologies;
•our ability to attract and retain partners;
•our name or brand recognition and reputation;
•our ability to recruit hardware and software engineers and sales and marketing personnel; and
•our ability to protect our intellectual property.
Potential customers may prefer to purchase from existing suppliers rather than a new supplier regardless of product performance or features. In the event a customer decides to evaluate a smart home solution, the customer may be more inclined to select a competitor if such competitor’s product offerings are broader or at a better price point than those that we offer.
Many vendors have emerged, and may continue to emerge, to provide point products with advanced functionality for use in buildings, such as video doorbells, thermostats or lights that can be controlled by an application on a smartphone. We expect a significant increase in the number of electronics and appliance products that are network-aware and connected, with each likely having its own mobile application. Customers may be attracted to the relatively low costs of these point solution products and the ability to expand their building control solution over time with minimal upfront costs, which may reduce demand for our integrated solutions. If so, building managers may offer the point products and services of competitors, which would adversely affect our sales and profitability. If a significant number of customers in our target market chooses to adopt point products rather than our integrated solutions, then our business, financial condition, cash flows and results of operations will be harmed, and we may not be able to achieve sustained growth, or our business may decline.
We may expand through acquisitions of, or investments in, other companies, each of which may divert our management’s attention, result in additional dilution to our stockholders, increase expenses, disrupt our operations and harm our results of operations.
Our business strategy may, from time to time, include acquiring or investing in complementary services, technologies or businesses, such as the HelloTech Merger. We cannot assure you that we will successfully identify suitable acquisition candidates, integrate or manage disparate technologies, lines of business, personnel and corporate cultures, realize our
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business strategy or the expected return on our investment, or manage a geographically dispersed company. Any such acquisition or investment could materially and adversely affect our results of operations. Acquisitions and other strategic investments involve significant risks and uncertainties, including:
•the potential failure to achieve the expected benefits of the combination or acquisition;
•unanticipated costs and liabilities;
•difficulties in integrating new software, services and products, businesses, operations and technology infrastructure in an efficient and effective manner;
•difficulties in maintaining customer relations;
•the potential loss of key employees of the acquired businesses;
•the diversion of the attention of our senior management from the operation of our daily business;
•the potential adverse effect on our cash position to the extent that we use cash for the purchase price;
•the potential significant increase of our interest expense, leverage and debt service requirements if we incur additional debt to pay for an acquisition;
•the potential issuance of securities that would dilute our stockholders’ percentage ownership;
•the potential to incur large and immediate write-offs and restructuring and other related expenses; and
•the inability to maintain uniform standards, controls, policies and procedures.
Moreover, we cannot assure you that we will realize the anticipated benefits of any acquisition or investment, including the HelloTech Merger. In addition, our inability to successfully operate and integrate newly acquired businesses appropriately, effectively and in a timely manner could impair our ability to take advantage of future growth opportunities and other advances in technology and could adversely affect our revenues, gross margins and expenses.
New lines of business or new products and services may subject us to additional risks.
From time to time, we may implement new lines of business or offer new products and services within existing lines of business. For instance, in 2024, we launched DPM and acquired HelloTech. In addition, we will continue to make investments in research, development, and marketing for new products and services. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business or new products and services, we may invest significant time and resources. Initial timetables for the development and introduction of new lines of business or new products or services may not be achieved and price and profitability targets may not prove feasible. New regulatory and compliance regimes, such as those related to professional services or property management operations, may be found to apply to new lines of business, and we may not be in compliance. Furthermore, if customers do not perceive our new offerings as providing significant value, they may fail to accept our new lines of business or products and services. External factors, such as competitive alternatives and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Furthermore, the burden on management and our information technology of introducing any new line of business or new product or service could have a significant impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, financial condition and results of operations.
Claims from riders, drivers, residents, guests or third parties that allege harm, whether or not our products or services are in use, could adversely affect our business, brand, financial condition and results of operations.
In connection with the James app, property management business or HelloTech platform, we may become subject to claims, lawsuits, investigations and other legal proceedings relating to injuries to, or deaths of, riders, drivers, pedestrians, residents, guests or other third-parties that are attributed to our operations or applications. We may also be subject to claims alleging that we are directly or vicariously liable for the acts of the drivers on the James app or technicians on our HelloTech platform or for harm related to the actions of drivers, technicians, riders or third parties, or the management and safety of the James app or HelloTech platform, including harm caused by criminal activity. We may be subject to personal injury claims whether or not such injury actually occurred as a result of activity on the James app or HelloTech platform or is attributable to our operations. We may incur expenses to settle personal injury claims. Regardless of the outcome of any legal proceeding, any injuries to, or deaths of, any riders, drivers, residents, guests or third parties could result in negative publicity and harm to our brand, reputation, business, financial condition and results of operations. Insurance policies and programs are not available for all possible claims we may face, may not be economically feasible and may not provide any or sufficient coverage to
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mitigate potential liability. We may have to pay high premiums or deductibles for coverage and, for certain situations or categories of claims, we may not be able to secure coverage at all.
If we determine that our goodwill has become further impaired, we may incur additional impairment charges, which would negatively impact our operating results.
Goodwill represents the excess of cost over the fair value of net assets acquired in business combinations. We recognized a goodwill impairment charge of $16.6 million for the year ended December 31, 2025 within operating expenses in the accompanying Consolidated Statements of Operations and Comprehensive Loss. Following the impairment, approximately $13.6 million of goodwill remained recorded on the accompanying Consolidated Balance Sheet at December 31, 2025.
We assess goodwill for impairment at least annually, and more frequently if events or circumstances indicate it is more likely than not that the carrying amount of the Company may not be recoverable. Goodwill may be further impaired if there are adverse changes in expected future cash flows of a reporting unit, if we restructure or dispose of a portion of our business or if there are sustained negative trends in our industry or the economy.
However, goodwill is particularly sensitive to changes in financial performance and liquidity and broader industry conditions. Factors such as lower-than-expected revenue growth, continued operating losses or reductions in our cash position from funding ongoing operations could materially reduce the fair value of the Company. We continue to monitor Company performance, along with the risks related to our business and industry, to evaluate if the carrying value of the Company exceeds its estimated fair value.
Changes in effective tax rates or tax laws, or adverse outcomes resulting from examination of our income or other tax returns, could adversely affect our results of operations and financial condition.
Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:
•changes in the valuation of our deferred tax assets and liabilities;
•expiration of, or lapses in, the research and development tax credit laws;
•expiration or non-utilization of net operating loss carryforwards;
•tax effects of share-based compensation;
•expansion into new jurisdictions;
•potential challenges to and costs related to implementation and ongoing operation of the intercompany arrangements among our domestic and foreign entities;
•changes in tax laws and regulations and accounting principles, or interpretations or applications thereof (which could apply retroactively); and
•certain non-deductible expenses as a result of acquisitions.
Any changes in our effective tax rate could adversely affect our results of operations.
Moreover, changes in applicable tax laws could increase our costs and adversely affect our operating results. For example, in 2021, the OECD announced an accord to set a minimum global corporate tax rate of 15%, which is being or may be implemented in many jurisdictions, including the United States. The OECD is also issuing tax-related guidelines that are different, in some respects, than current tax principles. If countries amend their tax laws to adopt all or part of the OECD guidelines, this may increase tax uncertainty and increase taxes applicable to us or our stockholders. We cannot predict whether the U.S. Congress or any other governmental body, whether in the United States or in other jurisdictions, will enact new tax legislation (including increases to tax rates), whether the U.S. Internal Revenue Service or any other tax authority will issue new regulations or other guidance, whether the OECD or any other intergovernmental organization will publish any further guidelines on taxation or whether member states will implement such guidelines, nor can we predict what effect such legislation, regulations or international guidelines might have.
We may be unable to use some or all of our net operating loss carryforwards, which could materially and adversely affect our reported financial condition and results of operations.
As of December 31, 2025, we had approximately $30.5 million in federal net operating loss (“NOL”) carryforwards available to offset future taxable income that will begin to expire in 2034 and approximately $538.2 million in federal NOL carryforwards available to offset future taxable income that have an indefinite life. As of December 31, 2025, we had approximately $493.5 million in state NOL carryforwards available to offset future taxable income. Some of these state NOLs have an indefinite life, and others are subject to different expiration rules.
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In addition, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), our ability to utilize NOL carryforwards or other tax attributes in any taxable year may be limited if we experience an “ownership change.” A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders, who each own at least 5% of our common stock, increase their collective ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. Because the limitations on utilization of NOLs and other tax attributes that are triggered in connection with an ownership change are generally based on the value of the issuer at the time of the ownership change, if we have undergone an ownership change (whether in connection with the HelloTech Merger or any other changes in our ownership) at a time when the stock price of our common stock is limited in relation to the size of our NOLs, it could materially limit the future potential value of our NOLs. We have not completed a Section 382 analysis of any ownership changes that may have occurred or the impact of any Section 382 limitation on the utilization of acquired NOLs.
It is possible that we will not generate taxable income in time to use our NOL carryforwards that are subject to expiration (or that we will not generate taxable income at all). If, in the event that it is determined that we have experienced an “ownership change” in the past, or if we experience one or more Section 382 “ownership changes” in the future, we may not be able to utilize a material portion of our NOLs, even if we achieve profitability. If we are limited in our ability to use our NOLs in future years in which we have taxable income, we will pay more taxes than if we were able to fully utilize our NOLs. This could materially and adversely affect our results of operations.
A 1% U.S. federal excise tax could be imposed on us in connection with any redemptions we undertake.
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was signed into federal law. The IRA provides for, among other things, a U.S. federal 1% excise tax on certain repurchases (including redemptions) of stock by publicly traded U.S. corporations and certain other persons (a “covered corporation”). Because we are a Delaware corporation and our securities have traded on Nasdaq (and may in the future be listed on a stock exchange), we may be a “covered corporation” for this purpose. The excise tax is imposed on the repurchasing corporation itself, not its stockholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. If we were to conduct repurchases of our stock or other transactions covered by the excise tax described above, we could potentially be subject to this excise tax, which could increase our costs and adversely affect our operating results.
We may require additional capital to pursue our business objectives and to respond to business opportunities, challenges or unforeseen circumstances. If capital is not available to us, our business, results of operations and financial condition may be adversely affected.
We intend to continue to make expenditures and investments to support the growth of our business and may require additional capital to pursue our business objectives and respond to business opportunities, challenges or unforeseen circumstances, including the need to develop new hardware or software or enhance our existing hardware and software, enhance our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. However, additional funds may not be available when we need them on terms that are acceptable to us, or at all. Any debt financing that we secure could involve restrictive covenants, such as those in our Loan Agreement with Customers Bank, which may make it more difficult for us to obtain additional capital or to pursue business opportunities. In addition, the restrictive covenants in any credit facilities or debt instruments may restrict us from being able to conduct our operations in a manner required for our business and may restrict our growth, which could have an adverse effect on our business, financial condition or results of operations.
In addition, volatility in the credit markets may have an adverse effect on our ability to obtain debt financing, and elevated interest rates would increase the cost of any such debt financing. Any future issuances of equity or convertible debt securities could result in significant dilution to our existing stockholders, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any offering of equity will be made significantly more difficult, and result in less proceeds, to the extent our common stock is not trading on a national securities exchange at the time of such offering. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to pursue our business objectives and to respond to opportunities, challenges or unforeseen circumstances could be significantly limited, and our business, results of operations, financial condition and prospects could be materially and adversely affected.
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If we are unable to acquire intellectual property or adequately protect intellectual property, we could be competitively disadvantaged.
Our intellectual property, including our patents, trademarks, copyrights, trade secrets and other proprietary rights, constitutes a significant part of our value. Our success depends, in part, on our ability to protect our proprietary technology, brands and other intellectual property against dilution, infringement, misappropriation and competitive pressure by defending our intellectual property rights. To protect our intellectual property rights, we rely on a combination of patent, trademark, copyright and trade secret laws of the United States, Canada and countries in Europe and Asia and a combination of confidentiality procedures, contractual provisions and other methods, all of which offer only limited protection. In addition, we make efforts to acquire rights to intellectual property necessary for our operations. However, there can be no assurance that these measures will be successful in any given case, particularly in those countries where the laws do not protect our proprietary rights as fully as in the United States.
We own a portfolio of issued U.S. patents and pending U.S. and foreign patent applications that relate to a variety of smart building technology utilized in our business. We may file additional patent applications in the future in the United States or internationally. The process of obtaining patent protection is expensive and time-consuming, and we may not be able to prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner through the issuance of a patent. We may choose not to seek patent protection for certain innovations and may choose not to pursue patent protection in certain jurisdictions. In addition, issuance of a patent does not guarantee that we have an absolute right to practice the patented invention.
If we fail to acquire the necessary intellectual property rights or adequately protect or assert our intellectual property rights, competitors may dilute our brands or manufacture and market similar software, services and products or convert our customers, which could adversely affect our market share and results of operations. We may not receive patents or trademarks for all our pending patent and trademark applications, and existing or future patents or licenses may not provide competitive advantages for our software, services and products. Furthermore, it is possible that our patent applications may not issue as granted patents, that the scope of our issued patents will be insufficient or not have the coverage originally sought or that our issued patents will not provide us with any competitive advantages. Our competitors may challenge, invalidate or avoid the application of our existing or future intellectual property rights that we obtain or license. In addition, patent rights may not prevent our competitors from developing, using or selling products or services that are similar to or address the same market as our software, services and products. The loss of protection for our intellectual property rights could reduce the market value of our brands and our software, services and products, reduce new customer originations or upgrade sales to existing customers, lower our profits and have a material adverse effect on our business, financial condition, cash flows or results of operations.
Our policy is to require our employees to execute written agreements in which they assign to us their rights in potential inventions and other intellectual property created within the scope of their employment (or, with respect to consultants and service providers, their engagement to develop such intellectual property), but we cannot assure you that we have adequately protected our rights in every such agreement or that we have executed an agreement with every such party. Finally, in order to benefit from the protection of patents and other intellectual property rights, we must monitor and detect infringement, misappropriation or other violations of our intellectual property rights and pursue infringement, misappropriation or other claims in certain circumstances in relevant jurisdictions, all of which are costly and time-consuming. As a result, we may not be able to obtain adequate protection or to effectively enforce our issued patents or other intellectual property rights.
In addition to patents and registered trademarks, we rely on trade secret rights, copyrights and other rights to protect our unpatented proprietary intellectual property and technology. Despite our efforts to protect our proprietary technologies and our intellectual property rights, unauthorized parties, including our employees, consultants, service providers or subscribers, may attempt to copy aspects of our products or obtain and use our trade secrets or other confidential information. We generally enter into confidentiality agreements with our employees, contractors and third parties that have access to our material confidential information and generally limit access to and distribution of our proprietary information and proprietary technology through certain procedural safeguards. These agreements may not effectively prevent unauthorized use or disclosure of our intellectual property or technology, could be breached or otherwise may not provide meaningful protection for our trade secrets and know-how related to the design, manufacture or operation of our products and may not provide an adequate remedy in the event of unauthorized use or disclosure. We cannot assure you that the steps taken by us will prevent misappropriation of our intellectual property or technology or infringement of our intellectual property rights. Competitors may independently develop technologies or products that are substantially equivalent or superior to our solutions or that inappropriately incorporate our proprietary technology into their products, or they may hire our former employees who may misappropriate our proprietary technology or misuse our confidential information. In addition, the laws of foreign countries
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where we engage service providers or may do business in the future may not protect intellectual property rights and technology to the same extent as the laws of the United States, and these countries may not enforce these laws as diligently as government agencies and private parties in the United States.
From time to time, legal action by us may be necessary to enforce our patents and other intellectual property rights, to protect our trade secrets, to determine the validity and scope of the intellectual property rights of others or to defend against claims of infringement, misappropriation or invalidity. Such litigation could result in substantial costs and diversion of resources and could negatively affect our business, operating results and financial condition. If we are unable to protect our intellectual property and technology, we may find ourselves at a competitive disadvantage to others who need not incur the additional expense, time and effort required to create our products.
Accusations of infringement of third-party intellectual property rights could materially and adversely affect our business.
There has been substantial litigation in the areas in which we operate regarding intellectual property rights. In some instances, we have agreed to indemnify our customers for expenses and liability resulting from claimed intellectual property infringement by our solutions. From time to time, we may receive requests for indemnification in connection with allegations of intellectual property infringement, and we may choose, or be required, to assume the defense and/or reimburse our customers for their expenses, settlement and/or liability. We cannot assure you that we will be able to settle any future claims or, if we are able to settle any such claims, that the settlement will be on terms favorable to us. Our broad range of technology may increase the likelihood that third parties will claim that we or our customers infringe their intellectual property rights. We cannot be certain that our products and services or those of third parties that we incorporate into our offerings do not and will not infringe the intellectual property rights of others. Some competitors and others may now and in the future have larger and more mature patent portfolios than we have and may therefore have an advantage over us in the event of patent litigation.
We have in the past been sued for infringement and received, and may in the future be sued for or receive, notices of allegations of infringement, misappropriation or misuse of other parties’ proprietary rights, including by special purpose or so-called “non-practicing” entities that focus solely on extracting royalties and settlements by enforcing intellectual property rights and against whom our patents may therefore provide little or no deterrence or protection. Furthermore, regardless of their merits, accusations and lawsuits like these may require significant time and expense to defend, may negatively affect customer relationships, may divert management’s attention away from other aspects of our operations and, upon resolution, may have a material adverse effect on our business, results of operations, financial condition and cash flows.
Certain technology necessary for us to provide our solutions may, in fact, be patented by other parties either now or in the future. If such technology were validly patented by another person, we may have to negotiate a license for the use of that technology. We may not be able to negotiate such a license at a price that is acceptable to us or at all. The existence of such a patent, or our inability to negotiate a license for any such technology on acceptable terms, could force us to cease using the technology and cease offering subscriptions incorporating the technology, which could materially and adversely affect our business and results of operations.
If we, or any of our solutions, were found to be infringing on the intellectual property rights of any third party, we could be subject to liability for such infringement, which could be material. We could also be prohibited from using or selling certain subscriptions, prohibited from using certain processes or required to redesign certain products, each of which could have a material adverse effect on our business and results of operations.
These and other outcomes may:
•result in the loss of a substantial number of existing customers or inhibit the acquisition of new customers;
•cause us to pay license fees for intellectual property we are alleged or deemed to have infringed;
•cause us to incur costs and devote valuable technical resources to redesigning our products;
•cause our cost of revenue to increase;
•cause us to accelerate expenditures to preserve existing revenues;
•materially and adversely affect our brand in the marketplace and cause a substantial loss of goodwill;
•cause us to change our business methods or subscriptions; and
•require us to cease certain business operations or cease offering certain products or features.
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Some of our products and services contain open source software, which may pose particular risks to our proprietary software, technologies, products and services in a manner that could harm our business.
We use open source software in our products and services and anticipate using open source software in the future. Some open source software licenses require those who distribute open source software as part of their own software product to publicly disclose all or part of the source code to such software product or to make available any derivative works of the open source code on unfavorable terms or at no cost; and all open source software licenses contain conditions and restrictions. Some open source software may include generative AI software or other software that incorporates or relies on generative AI. The use of such software may expose us to risks as the intellectual property ownership and license rights, including copyright, of generative AI software and tools has not been fully interpreted by U.S. courts or been fully addressed by federal, state or international regulations, and there is a risk that open source software licenses, including those that incorporate or rely on generative AI, could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to provide or distribute our products or services. Additionally, we could face claims from third parties claiming ownership of, or demanding release of, the open source software or derivative works that we developed using such software, which could include our proprietary source code, or otherwise seeking to enforce, or alleging copyright infringement on the basis that we have failed to comply with, the terms of the applicable open source license. These claims could result in litigation and statutory damages for copyright infringement and could require us to make our software source code freely available, purchase a costly license or cease offering the implicated products or services unless and until we can re-engineer them to avoid infringement. This re-engineering process could require us to expend significant additional research and development resources, and we cannot guarantee that we would be successful.
Additionally, the use of certain open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of software. There is typically no support available for open source software, and we cannot ensure that the authors of such open source software will implement or push updates to address security risks or will not abandon further development and maintenance. Many of the risks associated with the use of open source software and the use of generative AI, such as the lack of warranties or assurances of title or performance, cannot be eliminated and could negatively affect our business. We cannot be sure that all open source software is identified or submitted for approval prior to use in our products and services. Any of these risks could be difficult to eliminate or manage, and, if not addressed, could have an adverse effect on our business, financial condition and operating results.
Our products and services may be affected from time to time by design and manufacturing defects that could adversely affect our business and result in harm to our reputation.