What changed in this filing

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Item 1A. Risk Factors

2025-11-12 compared with 2025-08-12 · 102 added, 86 removed, 656 unchanged (22% of the section changed)

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● We are and expect to continue to be involved in other legal and administrative proceedings to enforce or protect our intellectual property rights and to defend against claims that we infringe the intellectual property rights of others;

● The vast majority of our net product sales in recent periods have been generated from resales of products, including products sourced from SK hynix, and any decline in these product resales could significantly harm our performance;

● The vast majority of our net product sales in recent periods have been generated from resales of products sourced from SK hynix pursuant to our Strategic Agreement with SK hynix.

The supply terms of this Strategic Agreement expire in April 2026, and we may be unable to renew these terms.

If SK hynix does not continue to supply us with products for resale, our revenues will be adversely affected;

● We are subject to risks relating to our focus on developing our compute express link (“CXL”) products for our target customer markets;

● Sales to a small number of customers currently and have historically represented a significant portion of our net product sales, and the loss of, or a significant reduction in sales to, any one of these customers could materially harm our business;

● We are exposed to additional business, regulatory, political, operational, financial and economic risks related to our international sales and operations.

In particular, a significant portion of our sales are to customers located in the PRC.

Sales to these customers may be adversely affected as a result of international trade policies or the tariff environment between the United States and the PRC;

● We are subject to risks of disruption in the supply of component products;

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● Our operating results may be adversely impacted by worldwide economic and political uncertainties and specific conditions in the markets we address and in which we or our strategic partners or competitors do business, including the cyclical nature of and volatility in the memory market and semiconductor industry and the ongoing effects of recent changes to international trade and tariff policies;

● Our lack of a significant backlog of unfilled orders and the difficulty inherent in estimating customer demand makes it difficult to forecast our short-term requirements, and any failure to optimally calibrate our production capacity and inventory levels to meet customer demand could adversely affect our revenues, gross margin and earnings;

● Our lack of a significant backlog of unfilled orders and the difficulty inherent in estimating customer demand makes it difficult to forecast our short-term requirements, and any failure to optimally calibrate our production capacity and inventory levels to meet customer demand could materially and adversely affect our revenues, gross margin and earnings;

● Our manufacturing operations involve significant risks;

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Our estimates of our operating revenues and expenses and working capital requirements could be incorrect, and we may use our cash resources faster than we anticipate;

● Our inability to increase the authorized number of shares of our capital stock could impede our ability to pursue our strategic objectives, complete equity-based funding activities, provide equity incentives to engage key talent and negatively impact stockholder value;

● The price and trading volume of our common stock has and may continue to fluctuate significantly in reaction to real or perceived developments in our business;

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● Future issuances of our common stock or rights to purchase our common stock, including pursuant to our outstanding warrants, equity incentive plans or the March 2025 Purchase Agreement, would result in additional dilution to the percentage ownership of our stockholders and could cause the price of our common stock to decline;

● A large portion of our warrants contain anti-dilution provisions for certain dilutive issuances of our securities at prices lower than the exercise prices set forth in such warrants;

● Sales of our common stock, or the perception that such sales could occur, could cause the market price of our stock to drop significantly, regardless of the state of our business;

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Since the inception of our business in 2000, we have only experienced two fiscal years (2006 and 2021) with profitable results.

In order to sustain profitability, or to achieve and sustain positive cash flows from operations, we must reduce operating expenses and/or increase our revenues and gross margin.

In order to sustain or again achieve profitability, or to achieve and sustain positive cash flows from operations, we must reduce operating expenses and/or increase our revenues and gross margin.

Although we have in the past engaged in a series of cost reduction actions, such expense reductions alone will not make us profitable or allow us to sustain profitability if it is achieved, and eliminating or reducing strategic initiatives could limit our opportunities and prospects.

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As previously reported, in our litigation with Samsung, we were awarded approximately $303 million and $118 million in damages in two separate cases.

As of the reporting date, all Netlist patents found to be infringed in the respective jury verdicts and judgments remain subject to final written decisions by the U.S.

Patent and Trademark Office and Patent Trial & Appeal Board (“PTAB”) in their corresponding inter partes reviews (“IPRs”), which are subject to appeals before the U.S.

As of the reporting date, all Netlist patents found to be infringed in the respective jury verdicts and judgments remain subject to final written decisions by the Patent Trial & Appeal Board (“PTAB”) in their corresponding inter partes reviews (“IPRs”), which are subject to appeals before the U.S.

Court of Appeals for the Federal Circuit (“CAFC”).

The first case (approximately $303 million) is also on appeal before the CAFC.

See Note 5 to the condensed consolidated financial statements included in Part I, Item 1 of this report for discussion of the current status of these proceedings.

In the second case (approximately $118 million), Samsung has filed post-trial motions for judgment as a matter of law and for a new trial.

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Following the resolution of these post-trial motions, this case may be subject to further appeals.

The outcomes of the pending IPR appeals and the two cases (including appeals) may impact our ability to collect the respective damages awards and/or the amounts collected.

One of the patents found to have been infringed has also recently been challenged in an ex parte reexamination.

See Note 5 to the condensed consolidated financial statements included in Part I, Item 1 of this report for discussion of the current status of these proceedings.

The outcomes of the pending IPR, the ex parte reexamination, appeals and the two cases (including appeals) may impact our ability to collect the respective damages awards and/or the amounts collected.

In addition, if we are unable to sustain our operations through the post-trial phase of the second case or the appeals, we may be required to raise additional capital through proceeds from other litigated matters or debt or equity financing.

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Additionally, opportunistic purchases of products for resale, when coupled with a decrease in demand, may cause us to write off excess inventory which would adversely affect our operating performance.

We may experience supply shortages at any time and for a variety of reasons, including, among others, spikes in customer demand that cannot be satisfied or shortages due to international tariffs, and any problems that arise with SK hynix’s manufacturing operations or facilities that cause disruptions or delays, or any failure to comply with the terms of the agreements regarding the supply of these products.

The vast majority of our net product sales in recent periods have been generated from resales of products sourced from SK hynix pursuant to the Strategic Agreement.

The term of the supply provisions of this Strategic Agreement expire in April 2026.

We may be unable to renew our supply agreements with SK hynix.

We can provide no assurance that SK hynix will continue to supply us with products for resale on similar terms to our existing arrangements or at all.

As a result, our revenue in future periods will be adversely affected if SK hynix does not continue to supply us with products for resale.

In addition, we may experience supply shortages at any time and for a variety of reasons, including, among others, spikes in customer demand that cannot be satisfied or shortages due to international tariffs, and any problems that arise with SK hynix’s manufacturing operations or facilities that cause disruptions or delays, or any failure to comply with the terms of the agreements regarding the supply of these products.

If we choose, or if we are forced, to seek to supply the component products we resell from other suppliers, we may not be able to identify other suppliers that are available and able to produce the particular components with the specific product specifications and in the quantities our customers require, or we may not be able to make arrangements with any other suppliers in a timely manner to avoid delays in satisfying customer orders.

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We rely on a variety of third-party vendors, manufacturers, and strategic partners, such as SK hynix, to support critical aspects of our operations.

Our or our third-party partners’ failure to comply with the terms and conditions of these third-party contracts—whether due to oversight, misinterpretation, operational challenges,

or changes in business priorities—could result in contractual breaches.

Our or our third-party partners’ failure to comply with the terms and conditions of these third-party contracts—whether due to oversight, misinterpretation, operational challenges, or changes in business priorities—could result in contractual breaches.

Such breaches may lead to penalties, termination of agreements, litigation, reputational harm, or disruptions in service delivery.

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As a result, sales to small numbers of customers have historically represented and currently represent a substantial portion of our net product sales, and we expect this concentration to continue.

For example, for the quarter ended June 28, 2025, three customers represented approximately 34%, 16%, and 13% of our net product sales, respectively.

For example, for the quarter ended September 27, 2025, three customers represented approximately 36%, 18%, and 13% of our net product sales, respectively.

Additionally, the composition of major customers and their respective contributions to our net product sales have fluctuated and will likely continue to fluctuate from period to period as our existing and prospective customers progress through the life cycle of the products they produce and sell and experience resulting fluctuations in their product demand.

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As a result, our inventory purchases have historically been concentrated in a small number of suppliers, including SK hynix, from which we obtained a large portion of our products purchased for resale.

We also use consumables and other components, including printed circuit boards, to manufacture our

memory subsystems, which we sometimes procure from single or limited sources to take advantage of volume pricing discounts.

We also use consumables and other components, including printed circuit boards, to manufacture our memory subsystems, which we sometimes procure from single or limited sources to take advantage of volume pricing discounts.

From time to time, shortages in SSDs, volatile memory components, and/or non-volatile memory components have required some suppliers to limit the supply of these components.

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If we fail to maintain sufficient purchase levels with some suppliers, our ability to obtain supplies of these raw materials may be impaired due to the practice of some suppliers of allocating their products to customers with the highest regular demand.

Frequent technology changes and the introduction of next-generation versions of component products may also result in the obsolescence of our inventory on-hand, which could involve significant time and costs to replace, reduce our net product sales and gross margin and adversely affect our operating performance and financial condition.

replace, reduce our net product sales and gross margin and adversely affect our operating performance and financial condition.

Our customers require that our products undergo a lengthy and expensive qualification process without any assurance of sales.

Our prospective customers generally test and evaluate our memory subsystems before purchasing our products and integrating them into their systems.

This extensive qualification process involves rigorous reliability testing and evaluation of our products, which may continue for nine months or longer and is often

subject to delays.

This extensive qualification process involves rigorous reliability testing and evaluation of our products, which may continue for nine months or longer and is often subject to delays.

In addition to qualification of specific products, some of our customers may also require us to undergo a technology qualification if our product designs incorporate innovative technologies that the customer may not have previously encountered.

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We believe the continued and timely development of new products and technologies and improvement of existing products and technologies are critical to our business and prospects for growth.

In the face of uncertainty on which new technology solutions will become successful, we endeavor to focus our efforts on developing the technology changes that are ultimately successful in supporting our customers’ requirement s.

In the face of uncertainty on which new

technology solutions will become successful, we endeavor to focus our efforts on developing the technology changes that are ultimately successful in supporting our customers’ requirement s.

In order to continue to develop and introduce new or enhanced products and technologies, we need to:

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This risk is intensified by the current trend of entities seeking patents and other intellectual property protections in AI to gain a competitive edge.

While we have made efforts to mitigate risk under our terms of service, our deployment and use of AI tools may still expose us to increased litigation risk associated with intellectual property infringement claims.

While we have made efforts to mitigate risk under our terms of service, our deployment and use of AI tools may still expose us to increased litigation risk

associated with intellectual property infringement claims.

Further, the probabilistic nature of AI technologies can result in unwanted, inaccurate, or offensive outputs.

In the event the AI tools we provide to customers do not perform reliably or in accordance with stated expectations, we may need to disable user access to such AI

In the event the AI tools we provide to customers do not perform reliably or in accordance with stated expectations, we may need to disable user access to such AI tools;

similarly, if the AI tools that we use for internal business purposes do not perform in accordance with expectations, we may be forced to discontinue or restrict the use of such tools.

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Additionally, if and to the extent we enter new markets or pursue licensing arrangements to monetize our technologies and intellectual property portfolio, we may face competition from a large number of competitors that produce solutions utilizing similar or competing technologies.

Some of our customers and suppliers may have proprietary products or technologies that are competitive with our products or the components we resell to them or could develop internal solutions or enter into strategic relationships with, or acquire, other high-density memory module or component providers.

Some of our customers and suppliers have proprietary products or technologies that are competitive with our products or the components we resell to them or could develop internal solutions or enter into strategic relationships with, or acquire, other high-density memory module or component providers.

Any of these actions could reduce our customers’ demand for our products or the component products we resell.

Additionally, some of our significant suppliers could choose to sell component products to customers directly, which would adversely affect our ability to resell these products or may choose to manufacture competitive memory subsystem products themselves or reduce our supply of essential components of our products, which could adversely affect our ability to manufacture and sell our memory subsystems.

Additionally, some of our significant suppliers could choose to sell component products to customers directly, which could materially and adversely affect our ability to resell these products or may choose to manufacture competitive memory subsystem products themselves or reduce our supply of essential components of our products, which could materially and adversely affect our ability to manufacture and sell our memory subsystems.

We believe our ability to compete in our current target markets and potential future markets will depend in part on our ability to successfully and timely develop, introduce and sell at attractive prices new and enhanced products or technologies and otherwise respond to changing market requirements, which we may not be able to do faster and better than our competitors.

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The semiconductor memory and storage markets, in particular, are generally highly competitive and companies may use aggressive pricing to obtain market share.

Our suppliers may seek to increase wafer output, improve yields, and reduce die size, which could result in significant increases in worldwide supply and downward pressure on prices.

Our suppliers may seek to increase wafer

output, improve yields, and reduce die size, which could result in significant increases in worldwide supply and downward pressure on prices.

Increases in worldwide supply of semiconductor memory and storage also result from fabrication capacity expansions, either by way of new facilities, increased capacity utilization, or reallocation of other semiconductor production to semiconductor memory and storage production.

in worldwide supply of semiconductor memory and storage could lead to declines in average selling prices and a decrease in short-term and/or long-term demand resulting in industry oversupply and could materially adversely affect our business, results of operations, or financial condition.

Increases in worldwide supply of semiconductor memory and storage could lead to declines in average selling prices and a decrease in short-term and/or long-term demand resulting in industry oversupply and could materially adversely affect our business, results of operations, or financial condition.

Our operating results may be adversely impacted by worldwide economic and political uncertainties and specific conditions in the markets we address and in which we or our strategic partners or competitors do business, including the cyclical nature of and volatility in the memory market and semiconductor industry and the ongoing effects of recent changes to international trade and tariff policies.

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The combination of our lengthy sales cycle coupled with any challenging macroeconomic conditions could compound the negative impact of any such downturn on the results of our operations.

Our lack of a significant backlog of unfilled orders and the difficulty inherent in estimating customer demand makes it difficult to forecast our short-term requirements, and any failure to optimally calibrate our production capacity and inventory levels to meet customer demand could adversely affect our revenues, gross margin and earnings.

Our lack of a significant backlog of unfilled orders and the difficulty inherent in estimating customer demand makes it difficult to forecast our short-term requirements, and any failure to optimally

calibrate our production capacity and inventory levels to meet customer demand could materially and adversely affect our revenues, gross margin and earnings.

We make significant decisions regarding the levels of business we will seek and accept, production schedules, component procurement, personnel needs and other resource requirements based on our estimates of customer demand.

We do not have long-term agreements with any of our customers.

Instead, our product sales are made primarily pursuant to stand-alone purchase orders that we often receive no more than two weeks in advance of the desired delivery date and that may be rescheduled or cancelled on

relatively short notice.

The short-term nature of the commitments by many of our customers and our customers’ ability to cancel or defer purchase orders for any reason reduces our backlog of firm orders and our ability to accurately estimate future customer requirements for our products or the component products we resell.

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Conversely, if our inventories are determined to be undervalued, we may have over-reported our costs of sales in previous periods and would be required to recognize additional gross margin at the time the inventories are sold.

Declines in our average sale prices, driven by volatile prices for components and other factors, may result in declines in our revenues and gross margin.

Our industry has historically been characterized by declines in average sale prices.

Declines in our average sale prices, driven by volatile prices for components and other factors, may result in material declines in our revenues and gross margin.

Our industry has historically been characterized by declines in average sale prices and we have at times experienced declines in average sale prices.

If sale price declines are not offset by corresponding decreases in costs or increases in sales volume or sales of products with higher margins, these sale price declines could have a material adverse effect on our operating results.

The prices customers pay for the products we sell can fluctuate due to many factors, including, among others, competitive conditions in our key customer markets, international tariff policies, changes in customer requirements or preferences, volatility in the market prices for SSDs, volatile memory components, non-volatile memory components, and other components or products, and changes in manufacturing efficiencies or capacities related to the aforementioned.

requirements or preferences, volatility in the market prices for SSDs, volatile memory components, non-volatile memory components, and other components or products, and changes in manufacturing efficiencies or capacities related to the aforementioned.

Market prices for component products have historically constituted a substantial portion of the total cost of our memory subsystems and in recent periods have constituted the vast majority of the cost of resales of these products to customers directly.

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Our manufacturing operations involve significant risks.

We manufacture our products in Suzhou, PRC and also utilize third-party manufacturing facilities in the PRC, Taiwan and Korea where we produce our products.

We utilize third-party manufacturing facilities in the PRC, Taiwan and Korea where we produce our products.

As we manufacture new and more complex products, the risk of encountering delays, difficulties or higher costs increases.

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Under these circumstances, our manufacturing costs may increase, decrease our gross margin, decrease our control over manufacturing processes, limit our ability to satisfy customer requirements and demand and delay new product development until we secure additional manufacturing capacity, which we may not be able to do in a timely manner, on acceptable terms or at all.

We may also experience a decline in our gross margin and supply disruptions as a result of the recent international tariffs between the United States and China and this trend may continue.

If any of these risks occur, our operations, performance and customer relationships could be severely harmed.

We may experience a decline in our gross margin and supply disruptions as a result of the recent international tariffs between the United States and China and this trend may continue.

We also may need to expand our existing manufacturing capacity or establish additional capacity in the future.

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The ability and willingness of third parties to enter into these engagements with us and perform in accordance with these engagements is largely outside our control.

If one or more of our design or manufacturing partners experiences a manufacturing disruption for any number of factors including labor disruptions, catastrophic weather events, political instability, acts of terror or war, and military hostilities in multiple geographies (including the ongoing conflict in Ukraine and recent events in Israel and Palestine), and the occurrence of a contagious disease or illness, fails to dedicate adequate resources to the production of the components we use in our products or the components we resell, experiences financial instability or otherwise fails to perform its obligations to us in a timely manner or at satisfactory quality levels, our ability to bring products to market or deliver products to our customers, as well as our reputation, could suffer and our business and prospects could be materially harmed.

In the event of any failure by our component

manufacturers, we may have no readily available alternative source of supply for these components, since, in our experience, the lead time needed to establish a relationship with a new design or manufacturing partner is substantial, and the time for our OEM customers to re-qualify our products with components from a new vendor is also significant.

If one or more of our design

or manufacturing partners experiences a manufacturing disruption for any number of factors including labor disruptions, catastrophic weather events, political instability, acts of terror or war, and military hostilities in multiple geographies (including the ongoing conflicts in Ukraine as well as Israel and Palestine), and the occurrence of a contagious disease or illness, fails to dedicate adequate resources to the production of the components we use in our products or the components we resell, experiences financial instability or otherwise fails to perform its obligations to us in a timely manner or at satisfactory quality levels, our ability to bring products to market or deliver products to our customers, as well as our reputation, could suffer and our business and prospects could be materially harmed.

In the event of any failure by our component manufacturers, we may have no readily available alternative source of supply for these components, since, in our experience, the lead time needed to establish a relationship with a new design or manufacturing partner is substantial, and the time for our OEM customers to re-qualify our products with components from a new vendor is also significant.

Additionally, even if an alternative manufacturer is available, we may not be able to engage the manufacturer on acceptable terms, which could result in increased costs, timing requirements or other adverse changes.

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As is common in our industry, we have a number of agreements in which we have agreed to defend, indemnify and hold harmless our customers and suppliers from damages and costs that may arise from the infringement by our products of third-party patents, trademarks or other proprietary rights, claims based on our negligence or willful misconduct and indemnities involving the accuracy of representations and warranties.

We also have indemnification obligations (i) to our director and officers to the maximum extent permitted

under the laws of the State of Delaware, (ii) pertaining to obligations, demands, claims, relating to liabilities claimed or asserted by other parties in connection with transactions contemplated by applicable investment or loan documents, and (iii) arising from other claims related to certain real estate leases, under which we may be required to indemnify property owners for environmental and other liabilities or may face other claims arising from our use of the applicable premises.

We also have indemnification obligations (i) to our directors and officers to the maximum extent permitted under the laws of the State of Delaware, (ii) pertaining to obligations, demands, claims, relating to liabilities claimed or asserted by other parties in connection with transactions contemplated by applicable investment or loan documents, and (iii) arising from other claims related to certain real estate leases, under which we may be required to indemnify property owners for environmental and other liabilities or may face other claims arising from our use of the applicable premises.

The scope of these indemnities varies, the duration of these indemnities is often perpetual after execution of an agreement, and the maximum potential amount of future payments we could be required to make under these indemnities is often unlimited.

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Our operations could be disrupted by power outages, natural disasters, cyber-attacks or other factors.

Due to the geographic concentration of our manufacturing operations in our PRC facility and our small number of suppliers, including SK hynix for many of the components and/or products we resell, a disruption resulting from equipment or power failures, quality control issues, human errors, government intervention, cyber-attacks, geopolitical changes or natural disasters, including earthquakes and floods, could require significant costs to repair and could interrupt or interfere with product manufacture and sale and cause significant delays in product shipments, which could harm our customer relationships, financial condition and results of operations.

In the past, our PRC facility has suffered water damage as a result of heavy rains and floods, which forced us to temporarily halt manufacturing at the facility while necessary repairs or equipment replacements were made.

Due to our small number of suppliers, including SK hynix for many of the components and/or products we resell, a disruption resulting from equipment or power failures, quality control issues, human errors, government intervention, cyber-attacks, geopolitical changes or natural disasters, including earthquakes and floods, could require significant costs to repair and could interrupt or interfere with product manufacture and sale and cause significant delays in product shipments, which could harm our customer relationships, financial condition and results of operations.

In the past, our prior PRC manufacturing facility suffered water damage as a result of heavy rains and floods, which forced us to temporarily halt manufacturing at the facility while necessary repairs or equipment replacements were made.

This incident caused us to incur additional expenses because we were forced to shift our manufacturing activities to a third-party facility in the PRC to mitigate the disruption in product shipments to our customers.

If manufacturing at the PRC facility is disrupted for similar or other reasons in the future, we may again be subject to increased expenses in order to engage a third-party manufacturer, or, if we are not able to secure alternative manufacturing capabilities, our ability to sell products and our relationships with our customers could be materially harmed.

If manufacturing at any of our or our partners’ or suppliers’ facility is disrupted for similar or other reasons in the future, we may again be subject to increased expenses in order to secure alternative manufacturing capabilities, our ability to sell products and our relationships with our customers could be materially harmed.

Additionally, we may be forced to bear significant costs in order to repair any damage to our manufacturing equipment and facility.

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We store key data about our business, including certain customer data, information about our and our customers’ intellectual property and other proprietary information, on our global information technology systems.

Any material failure or malfunctioning of our global information technology systems, errors or misuse by system users, cyber-attacks, difficulties migrating stand-alone systems to our centralized systems or inadequacy of the systems in addressing the needs of our operations could disrupt our ability to timely and accurately manufacture and ship products, divert management’s and key employees’ attention from other business matters and involve significant costs and other resources to repair or otherwise resolve, any of

which could have a material adverse effect on our business, financial condition and results of operations.

Any such event could also materially disrupt our ability to timely and accurately process, report and evaluate key operating metrics and key components of our results of operations, financial position and cash flows and could adversely affect our ability to complete other important business processes, such as maintenance of our disclosure controls and procedures and internal control over financial reporting.

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Further, the California Privacy Rights Act (“CPRA”), which became effective in 2023 and amends the CCPA, creates additional obligations with respect to processing and storing personal information, as well as establishes a new regulatory authority to enforce the CCPA and CPRA which is in the process of drafting and implementing new regulations.

Unlike other state privacy laws, the CCPA also regulates personal information collected in a business to business and in human resources contexts which impacts our business operations.

Unlike other state privacy laws, the CCPA also regulates personal information collected in business to business and in human resources contexts which impacts our business operations.

These laws, the regulations, and their interpretation and application are constantly evolving, and they could be interpreted and applied in a manner that is inconsistent with our current practices or they could become more stringent over time.

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Also in the PRC, the Personal Information Protection Law, which took effect on November 1, 2023, introduced stringent protection measures for processing personal information.

We may be required to make further adjustments to our business practices to comply with the data security and data protection laws in the PRC, and such regulations may interfere with intended business activities, or cause us to incur additional costs.

We may be required to make further adjustments to our business practices to comply with the

data security and data protection laws in the PRC, and such regulations may interfere with intended business activities, or cause us to incur additional costs.

Further, the Department of Justice’s Data Transfer Rule took full effect as of October 6, 2025 and it prohibits or restricts the flow of bulk sensitive U.S.

personal data to “countries of concern” and “covered persons” to protect national security.

It mandates U.S.

companies to take proactive steps, such as data mapping, partner vetting and due diligence, and the implementation of robust compliance programs to detect, control, and document such data flows.

In addition to other countries, the Bulk Transfer Rule includes China as a country of concern and may have impact on our business activities, or cause us to incur additional costs associated with compliance.

If we do not effectively manage any future growth we may experience, our resources, systems and controls may be strained and our results of operations may suffer.

Any future growth we may experience could strain our resources, management, information and telecommunication systems and operating and financial controls.

To manage future growth effectively, including any expansion of volume in our manufacturing facility in the PRC, we must be able to improve and expand our systems and controls, which we may not be able to do in a timely or cost-effective manner.

addition, our management team has relatively limited experience managing a rapidly growing business.

To manage future growth effectively, we must be able to improve and expand our systems and controls, which we may not be able to do in a timely or cost-effective manner.

In addition, our management team has relatively limited experience managing a rapidly growing business.

As a result, they may not be able to manage any future growth we may experience.

A failure to manage any growth we may experience or improve or expand our existing systems and controls, or unexpected difficulties in doing so, could harm our business and results of operations.

A failure to manage any growth we may experience or improve or expand our existing systems and controls and to grow and scale our manufacturing capabilities, or unexpected difficulties in doing so, could harm our business and results of operations.

If we acquire businesses or technologies or pursue other strategic transactions or relationships in the future, these transactions could disrupt our business and harm our operating results and financial condition.

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● entering markets in which we have no or limited experience and in which competitors have stronger market positions;

● the potential loss of our key employees or an acquired company;

● the potential loss of our key employees or those of an acquired company;

● exposure to contingent liabilities of an acquired company;

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We may experience inflation in connection with the newly enacted and proposed international tariffs.

If inflation in these costs increases beyond our ability to control for them through measures such as implementing operating efficiencies, we may not be able

to increase prices to sufficiently offset the effect of various cost increases without negatively impacting customer demand, thereby negatively impacting our margin performance and results of operations.

If inflation in these costs increases beyond our ability to control for them through measures such as implementing operating efficiencies, we may not be able to increase prices to sufficiently offset the effect of various cost increases without negatively impacting customer demand, thereby negatively impacting our margin performance and results of operations.

Geopolitical risks associated with the ongoing conflicts between Russia and Ukraine and Israel and Palestine continue to contribute to heightened market volatility and uncertainty, which could negatively impact our business, financial condition, and results of operations.

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We do not and cannot know if either or both of these conflicts will further escalate, nor can we predict the resulting global economic, political or security consequences.

These could include additional sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, the availability and cost of materials, supplies, labor, currency exchange rates and financial markets.

These could include additional sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, the

availability and cost of materials, supplies, labor, currency exchange rates and financial markets.

Any of these developments could have a material adverse effect on our business, financial condition and results of operations.

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We are exposed to additional business, regulatory, political, operational, financial and economic risks related to our international sales and operations.

We sell products to foreign corporations and deliver products to facilities located in foreign countries, and, as of the quarter ended June 28, 2025, a majority of our net sales were to customers located in the PRC.

To facilitate this process and to meet the long-term projected demand for our products, we utilize manufacturing facilities in the PRC, Taiwan and Korea where we produce our products.

In particular, a significant portion of our sales are to customers located in the PRC.

Sales to these customers may be adversely affected as a result of international trade policies or the tariff environment between the United States and the PRC.

We sell products to foreign corporations and deliver products to facilities located in foreign countries.

To facilitate this process and to meet the long-term projected demand for our products, we utilize manufacturing facilities in the PRC, Taiwan and Korea where our contracted third parties, produce our products.

Selling and manufacturing in foreign countries subjects us to additional risks not present with our domestic operations, as we are operating in business and regulatory environments in which we have limited experience and that may impose materially different requirements.

Further, the geographic distance from our headquarters in Irvine, California, compounds the difficulties of maintaining a manufacturing operation in the PRC, Taiwan and Korea.

Further, the geographic distance from our headquarters in Irvine, California, compounds the difficulties of maintaining or supervising a manufacturing operation in the PRC, Taiwan and Korea.

For instance, we may not be able to maintain the desired amount of control over production capacity and timing, inventory levels, product quality, delivery schedules, manufacturing yields or costs.

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While we are not presently aware of any direct impacts of these restrictions on our supply chain, the UFLPA may have an adverse effect on global supply chains which could adversely impact our business and results of operations.

Additionally, our management has limited experience creating or overseeing foreign operations generally, and the ongoing administration and operation of our PRC facility may require substantial amounts of time and attention by our management team, particularly if we encounter operational, legal or cultural difficulties or disruptions at our PRC, Taiwan and Korea facilities.

In addition, under its current leadership, the government of the PRC has been pursuing economic reform policies, including by encouraging foreign trade and investment.

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Some of these additional tariffs have been implemented and others have been conditionally paused, and it is reasonably possible that new or additional tariffs will be periodically announced given the current global trade environment.

A significant portion of our sales are to customers located in the PRC.

A significant portion of our sales are to

customers located in the PRC.

Depending upon their implementation and duration of these tariffs, as well as our ability to mitigate their impact, these tariffs and any other future regulatory actions implemented on a broader range of products or raw materials could materially affect our business, including in the form of increased cost of goods sold, decreased margins, increased pricing for customers and consumers, reduced sales of our products, and disruptions in our supply chain.

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trade policy if there is a change in administration) or of any foreign countries in which we operate or purchase goods, or the terms of any trade agreements or their impact on our business.

adversely impact demand for our products, our costs, our customers, our suppliers and the world and U.S.

The adoption and expansion of trade restrictions and tariffs, quotas and embargoes, the occurrence or threat of a trade war or other governmental action related to tariffs or trade agreements or policies, has the potential to adversely impact demand for our products, our costs, our customers, our suppliers and the world and U.S.

economies, which in turn could have a material adverse effect on our business, operating results and financial condition.

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Moreover, economic uncertainty arising from rapidly changing trade policies may lead to a global economic slowdown that could increase costs of our products and/or reduce demand for our products.

Further, there are uncertainties regarding the interpretation and application of PRC, Taiwan and Korea laws, rules, and regulations, including, but not limited to, the laws, rules and regulations governing our manufacturing facilities in the PRC, Taiwan and Korea.

Further, there are uncertainties regarding the interpretation and application of PRC, Taiwan and Korea laws, rules, and regulations, including, but not limited to, the laws, rules and regulations governing our third-party suppliers’ manufacturing facilities in the PRC, Taiwan and Korea.

Because many laws and regulations are relatively new, the interpretations of many laws, regulations and rules are not always uniform.

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Enforcement of existing laws or contracts based on existing law may be uncertain and sporadic.

We cannot assure you that the PRC, Taiwan and Korea regulatory authorities will not determine that our manufacturing facilities in PRC, Taiwan and Korea do not violate the local laws, rules or regulations.

The PRC, Taiwan and Korea have broad discretion in dealing with violations of laws and regulations, including levying fines, revoking business and other licenses and requiring actions necessary for compliance.

We cannot assure you that the PRC, Taiwan and Korea regulatory authorities will not determine that our third-party suppliers’ manufacturing facilities in PRC, Taiwan and Korea do not violate the local laws, rules or regulations.

The PRC, Taiwan and Korea have broad discretion in dealing with violations of laws and

regulations, including levying fines, revoking business and other licenses and requiring actions necessary for compliance.

In particular, licenses and permits issued or granted by relevant governmental agencies may be revoked at a later time by other regulatory agencies.

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As a result, RMB may not be freely convertible into other currencies at all times.

PRC government institutes changes in currency conversion procedures or imposes additional restrictions on currency conversion, our operations and our operating results could be negatively impacted.

If the PRC government institutes changes in currency conversion procedures or imposes additional restrictions on currency conversion, our operations and our operating results could be negatively impacted.

In addition, PRC law imposes restrictions on the movement of funds outside of the PRC.

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These conditions could continue or worsen, which could adversely affect our foreign operations and our performance.

The occurrence of any of these risks related to our international operations, including our manufacturing facility in the PRC and our international sales, could have a material adverse effect on our business, financial condition and prospects for growth.

The occurrence of any of these risks related to our international operations, including our international sales, could have a material adverse effect on our business, financial condition and prospects for growth.

Our failure to comply with environmental and other applicable laws and regulations could subject us to significant fines and liabilities or cause us to incur significant costs.

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Today, we use lead-free soldering technologies in our manufacturing processes, as this is required for products entering the European Union.

We could incur substantial costs, including clean-up costs, civil or criminal fines or sanctions and third-party claims for property damage or personal injury, as a result of violations of or noncompliance with these and other environmental laws and regulations.

We could incur

substantial costs, including clean-up costs, civil or criminal fines or sanctions and third-party claims for property damage or personal injury, as a result of violations of or noncompliance with these and other environmental laws and regulations.

Although we have not incurred significant costs to date to comply with these laws and regulations, new laws or changes to current laws and regulations to make them more stringent could require us to incur significant costs to remain in compliance.

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It is difficult and costly to manage the requirements of every authority having jurisdiction over our various activities and to comply with their varying standards.

Additionally, any changes to existing regulations

or adoption of new regulations may result in significant additional expense to us or our customers.

Additionally, any changes to existing regulations or adoption of new regulations may result in significant additional expense to us or our customers.

Further, our failure to comply with any applicable laws and regulations may result in a variety of administrative, civil and criminal enforcement measures, including monetary penalties or imposition of sanctions or other corrective requirements, any of which could materially adversely affect our reputation and our business.

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A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

As of June 28, 2025, our management concluded there was a material weakness in our internal controls due to the lack of an independent board and audit committee until the recent board appointments and audit committee’s reformation in June 2025.

As a result of these circumstances and the related lack of independent committee oversight of the financial reporting process, our principal executive officer and our principal financial officer concluded that our internal control over financial reporting was not effective as of June 28, 2025 based on the criteria set forth by COSO.

As of September 27, 2025, our management concluded there was a material weakness in our internal controls due to the lack of an independent board and audit committee until the recent board appointments and audit committee’s

reformation in June 2025.

As a result of these circumstances and the related lack of independent committee oversight of the financial reporting process, our principal executive officer and our principal financial officer concluded that our internal control over financial reporting was not effective as of September 27, 2025 based on the criteria set forth by COSO.

In June 2025, we formed an Audit Committee and appointed two additional independent members of our Board of Directors.

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Despite the reformation of our Audit Committee and these recent appointments, the material weakness discussed above cannot be considered remediated until these controls operate for a sufficient period and management has concluded, through testing, that our internal controls are operating effectively.

We can give no assurance that the measures we have taken and

plan to take in the future will remediate the material weakness identified or that any additional material weaknesses will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting.

We can give no assurance that the measures we have taken and plan to take in the future will remediate the material weakness identified or that any additional material weaknesses will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting.

Risks Related to Intellectual Property and Litigation

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Moreover, monitoring for any unauthorized use of our technologies is costly, time-consuming and difficult.

This is particularly true in foreign countries, such as the PRC, where we have established a manufacturing facility and where the laws may not protect our proprietary rights to the same extent as applicable U.S.

This is particularly true in foreign countries, such as the PRC, where the laws may not protect our proprietary rights to the same extent as applicable U.S.

If some or all of the claims in our patent applications are not allowed, if any of our issued patents or other intellectual property protections are limited, invalidated or circumvented by third parties, or if we are not able to obtain extensions of existing patents upon their expiration or issuance of new patents to maintain protections provided by expiring patents, we could face increased competition for our products and technologies and be unable to execute on our strategy of monetizing our intellectual property.

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Our estimates of our operating revenues and expenses and working capital requirements could be incorrect, and we may use our cash resources faster than we anticipate.

To support our activities in the near term, we expect to rely on cash generated from our business, the cash received under the Strategic Agreement entered into on April 5, 2021 with SK hynix, proceeds from issuances of debt and equity securities, proceeds from our registered offerings with certain investors, the equity financing available under the March 2025 Purchase Agreement entered into with Lincoln Park on March 13, 2025, and borrowing availability under our credit facility with SVB.

To support our activities in the near term, we expect to rely on cash generated from our business, the cash received under the Strategic Agreement entered into on April 5, 2021 with SK hynix, proceeds from issuances of debt and equity securities, proceeds from our registered offerings with certain investors, and the equity financing available under the March 2025 Purchase Agreement entered into with Lincoln Park on March 13, 2025, and borrowing availability under our credit facility with SVB.

Taking into account our planned activities and sources of capital, we believe we have sufficient cash resources to satisfy our capital needs for at least the next 12 months.

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● the costs associated with the continued operation, and any future growth, of our business.

As of June 28, 2025, we do not have any additional borrowing availability under the revolving line of credit with SVB.

Pursuant to the June 2025 Purchase Agreement, we may not effect any sale under the March 2025 Purchase Agreement for a period of 90 days from the closing of the June 2025 Offering.

Further, pursuant to the terms of the June 2025 Purchase Agreement, we have agreed for a period of 90 days from the closing of the June 2025 Offering not to (i) issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of common stock or Common Stock Equivalents (as defined in the June 2025 Purchase Agreement) or (ii) file any registration statement or amendment or supplement to any registration statement.

We also have a limited number of authorized shares of our common stock and may not be able to increase the number of authorized shares of our common stock to meet future equity financing

See “Risk Factors — Risks Related to Capitalization and Financial Markets — The inability to increase the authorized capital stock could impede our ability to pursue our strategic objectives, provide equity incentives to engage key talent and negatively impact stockholder value.

Pursuant to the October 2025 Purchase Agreement, we may not effect any sale under the March 2025 Purchase Agreement for a period of 90 days from the closing of the October 2025 Offering.

Further, pursuant to the terms of the October 2025 Purchase Agreement and subject to certain limited exceptions, we have agreed for a period of 90 days from the closing of the October 2025 Offering not to (i) issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of common stock or Common Stock Equivalents (as defined in the October 2025 Purchase Agreement) or (ii) file any registration statement or amendment or supplement to any registration statement.

Until we can generate sufficient revenues to finance our cash requirements from our operations, which we may never do, we may need to increase our liquidity and capital resources by one or more measures, which may include, among others, reducing operating expenses, restructuring our balance sheet by negotiating with creditors and vendors, entering into strategic partnerships or alliances, raising additional financing through the issuance of debt, equity or convertible securities or pursuing alternative sources of capital, such as through asset or technology sales or licenses or other alternative financing arrangements.

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Moreover, we may incur substantial costs in pursuing any future capital-raising transactions, including investment banking, legal and accounting fees, printing and distribution expenses and other similar costs, which would reduce the benefit of the capital received from the transaction.

Our inability to increase the authorized number of shares of our capital stock could impede our ability to pursue our strategic objectives, complete equity-based funding activities, provide equity incentives to engage key talent and negatively impact stockholder value.

Pursuant to a Definitive Proxy Statement on Schedule 14A, filed with the SEC on July 24, 2025, an annual meeting of the stockholders will be held to address certain proposals, including a proposal to increase the authorized number of shares of our common stock from 450,000,000 to 675,000,000.

We believe a greater number of authorized shares of our common stock would provide us with flexibility to issue shares of common stock for any proper corporate purpose, which could include strategic investments, strategic partnership arrangements, awards or grants under employee equity incentive plans, equity-based financing to support the execution of our business strategy, or other general purposes.

The availability of additional authorized shares of our common stock would enhance the business and financial flexibility and allow us to execute any of these transactions in the future without the possible delays and significant expense of obtaining additional shareholder approval, unless otherwise required by our governing documents, or applicable laws or regulatory requirements.

We currently have no specific understandings, arrangements or agreements with respect to any future acquisitions that would require us to issue a material amount of new shares of our common stock.

If we are unsuccessful in securing stockholder approval to increase the authorized shares of our common stock, we may not be able to take timely advantage of market conditions or favorable financing or acquisition opportunities that could help us grow and create value for stockholders.

This could impede our ability to

pursue our strategic objectives and restrict the equity incentives available to attract, retain and motivate key talent, which could negatively impact the value of our stock, our business prospects and results of operations.

The price and trading volume of our common stock has and may continue to fluctuate significantly in reaction to real or perceived developments in our business.

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In addition, investor concerns regarding the United States or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all.

Any material decline in available funding or our ability to access our cash and cash equivalents could adversely impact our ability to meet our operating expenses, result in breaches of our contractual obligations or result in violations of federal or state wage and hour laws, any of which could have material adverse impacts on our operations and liquidity.

federal or state wage and hour laws, any of which could have material adverse impacts on our operations and liquidity.

We hold our cash and cash equivalents that we use to meet our working capital needs in deposit accounts at multiple financial institutions.

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If we sell common stock or other equity or convertible debt securities in the future, our then-existing stockholders could be materially diluted by such issuances and new investors could gain rights, preferences and privileges senior to the holders of our common stock, which could cause the price of our common stock to decline.

A large portion of our warrants contain anti-dilution provisions for certain dilutive issuances of our securities at prices lower than the exercise prices set forth in such warrants.

We currently have outstanding June 2025 Warrants to purchase up to 34,285,720 shares of our common stock and October 2025 Warrants to purchase up to 28,571,432 shares of our common stock.

The June 2025 Warrants and October 2025 Warrants provide for a reduction of the exercise price if we, at any time while these warrants are outstanding, issue, or are deemed to have issued, common stock or common stock equivalents, at a price less than the exercise price then in effect for these warrants, subject to certain customary exceptions.

The June 2025 Warrants currently have an exercise price of $0.60 and the October 2025 Warrants currently have an exercise price of $0.70.

The exercise price of the June 2025 Warrants and the October 2025 Warrants will also remain subject to adjustment for future dilutive issuances.

The dilutive effect of any exercise price adjustments to the June 2025 Warrants and the October 2025 Warrants would likely have a negative impact on the trading price of our common stock and these terms may cause the exercise price of these warrants to be reduced to a price that is well below their current exercise price or any further reduced exercise price pursuant to the terms of these warrants.

Sales of our common stock, or the perception that such sales could occur, could cause the market price of our stock to drop significantly, regardless of the state of our business.

As of June 28, 2025, there were 292,451,926 shares of our common stock outstanding.

As of September 27, 2025, there were 292,659,926 shares of our common stock outstanding.

In addition, 2,708,763 shares of our common stock are subject to outstanding stock options, 2,874,880 shares of our common stock are subject to outstanding unvested restricted stock units, and 59,033,196 shares of our common stock are subject to outstanding warrants.

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

What changed 10-Q

Item 1A. Risk Factors