Item 2. Management’s Discussion and Analysis
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Note Regarding Forward-Looking Statements
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and other parts of this report include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements other than historical facts and often address future events or our future performance. Words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “may,” “will,” “might,” “plan,” “predict,” “believe,” “should,” “could” and similar words or expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
Forward-looking statements contained in this MD&A and the condensed consolidated financial statements and the related notes included in Part I, Item 1 of this report include statements about, among other things:
● our beliefs regarding the market and demand for our products or the component products we resell;
● our ability to collect any damages awarded to us, including in our litigation with Samsung Electronics Co., Ltd., Samsung Semiconductor Inc., and Samsung Electronics America Inc. (collectively, “Samsung”) and/or in our litigation with Micron Technology, Inc. (“Micron”);
● our beliefs and estimates regarding potential intellectual property suits or claims in process under current litigation;
● our ability to defend successfully any challenges to our intellectual property or claims asserting patent infringement relating to our products;
● our ability to develop and launch new products that are attractive to the market and stimulate customer demand for these products;
● our plans relating to our intellectual property, including our goals of monetizing, protecting, licensing, expanding and defending our patent portfolio;
● our expectations and strategies regarding outstanding legal proceedings and patent reexaminations relating to our intellectual property portfolio;
● our expectations with respect to any strategic partnerships or other similar relationships we may pursue;
● the competitive landscape of our industry;
● general market, economic and political conditions;
● our business strategies and objectives;
● our expectations regarding our future operations and financial position, including revenues, costs and prospects, and our liquidity and capital resources, including cash flows, sufficiency of cash resources, efforts to reduce expenses and the potential for future financings;
● our ability to remediate any material weakness and maintain effective internal control over financial reporting; and
● the impact of the above factors and other future events on the market price and trading volume of our common stock.
All forward-looking statements reflect management’s present assumptions, expectations and beliefs regarding future events and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed in or implied by any forward-looking statements. These risks and uncertainties include those described under “Risk Factors” in Part II, Item 1A of this Quarterly Report. In light of these risks and uncertainties, our forward-looking statements should not be relied on as predictions of future events. All forward-looking statements reflect our assumptions, expectations and beliefs only as of the date they are made, and except as required by law, we undertake no obligation to revise or update any forward-looking statements for any reason.
The following MD&A should be read in conjunction with our condensed consolidated financial statements and the related notes included in Part I, Item 1 of this Quarterly Report, as well as our Annual Report on Form 10-
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K filed with the Securities and Exchange Commission (the “SEC”) on March 28, 2025 (the “Annual Report”). All information presented herein is based on our fiscal calendar, and references to particular years, quarters, months or periods refer to our fiscal years ended in January or December and the associated quarters, months and periods of those fiscal years. Each of the terms the “Company,” “Netlist,” “we,” “us,” or “our” as used herein refers collectively to Netlist, Inc. and its consolidated subsidiaries, unless otherwise stated.
Overview
We are a leading innovator in advanced memory and storage solutions, pushing the boundaries of technology to deliver unparalleled performance and reliability. With a rich portfolio of patented technologies, we have consistently driven innovation in the field of cutting-edge enterprise memory and storage, advancing artificial intelligence (“AI”) and empowering businesses and industries to thrive in the digital age.
During the third quarter of 2025, we recorded net sales of $42.2 million, gross profit of $1.8 million and net loss of $7.0 million. We have historically financed our operations primarily with proceeds from issuances of equity and debt securities and cash receipts from revenues. We have also funded our operations with a revolving line of credit under a bank credit facility with Silicon Valley Bank, a division of First-Citizens Bank & Trust Company (“SVB”), funds raised through our equity line arrangement under the March 2025 Purchase Agreement (as defined below), and proceeds raised from the June 2025 Offering (as defined below) and the October 2025 Offering (as defined below). See “Liquidity and Capital Resources” and “Recent Developments” below for more information.
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Recent Developments
Netlist, Inc. 2025 Equity Incentive Plan
On September 9, 2025, our stockholders approved the Netlist, Inc. 2025 Equity Incentive Plan at our 2025 Annual Meeting of Stockholders.
Amendment to Restated Certificate of Incorporation
On September 24, 2025, our stockholders approved the Certificate of Amendment to the Restated Certificate of Incorporation to increase the number of authorized shares of our common stock from 450,000,000 to 675,000,000.
October 2025 Offering
On October 6, 2025, we entered into a Securities Purchase Agreement (the “October 2025 Purchase Agreement”) with certain investors (collectively, the “October 2025 Purchasers”), pursuant to which we issued and sold to the October 2025 Purchasers in a registered offering (the “October 2025 Offering”) an aggregate of (i) 14,285,716 shares of our common stock and (ii) Common Stock Purchase Warrants (the “October 2025 Warrants”) to purchase up to an aggregate of 28,571,432 shares (the “October 2025 Warrant Shares”) of our common stock at a combined purchase price of $0.70 per share and accompanying October 2025 Warrant. The October 2025 Offering closed on October 7, 2025. The net proceeds to us from the October 2025 Offering were approximately $9.1 million, after deducting placement agent fees and offering costs paid by us.
The October 2025 Warrants are exercisable at any time on or after the issuance date, have a term of five years from the issuance date, have an exercise price of $0.70 per share, contain customary 4.99%/9.99% blocker provisions and provide for the cash payment of the Black-Scholes value of the October 2025 Warrants upon the occurrence of certain fundamental transactions. The exercise price and the number of October 2025 Warrant Shares issuable upon exercise of the October 2025 Warrants are subject to adjustment in the event of, among other things, certain transactions affecting our common stock (including without limitation stock splits and stock dividends). In addition, the exercise price of the October 2025 Warrants is subject to reduction in the event of certain common stock and common stock equivalent issuances, other than certain agreed exempt issuances, at a price lower than the exercise price of the October 2025 Warrants then in effect.
On October 6, 2025, we entered into a Placement Agency Agreement (the “October 2025 Placement Agreement”) with Roth Capital Partners, LLC (“Roth”), pursuant to which Roth agreed to act as our placement agent in connection with the October 2025 Offering. Pursuant to the terms of the October 2025 Placement Agreement, in consideration for its placement agent services, we paid Roth a cash fee in an amount equal to 4.0% of the aggregate gross proceeds received by us in connection with the closing of the October 2025 Offering.
In addition, pursuant to the October 2025 Purchase Agreement, o ur directors and executive officers entered into lock-up agreements with us , pursuant to which they agreed not to offer for sale, contract to sell, or sell any shares of our common stock or any securities convertible into, or exercisable or exchangeable for, shares of our common stock , for a period of 90 days from the closing of the October 2025 Offering, subject to certain customary exceptions.
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. The October 2025 Purchase Agreement also provides that we may not, subject to the exceptions described in the October 2025
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Purchase Agreement (including an exception permitting us to utilize the March 2025 Purchase Agreement following the expiration of the 90-day period following the closing of the October 2025 Offering), effect or enter into any Variable Rate Transactions (as defined in the October 2025 Purchase Agreement) until the six-month anniversary of the closing date of the October 2025 Offering.
Economic Conditions, Challenges and Risks
The U.S. government has recently implemented significant tariff increases on imports from the People’s Republic of China (“PRC”) and the PRC has retaliated with its own tariffs. These tariffs are the subject of ongoing discussions and agreements between the United States and the PRC. While we do not believe we have been materially affected by the recent tariffs or changes in trade policy, tariffs, quotas, trade agreements or other trade restrictions could affect our supply and manufacturing capabilities in the PRC, increase our operating expenses and reduce gross margins and could reduce our sales to customers located in the PRC, which, as of the quarter ended September 27, 2025, accounted for a majority of our net sales. The scope, duration, and broader economic impact of such measures remain uncertain and will depend on several factors, including ongoing negotiations between the U.S. and the PRC and/or other countries, their respective responses, and any possible exemptions or exclusions that may be granted or other countries targeted with tariffs.
In addition, 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.
Our performance, financial condition and prospects are also affected by a number of factors and are exposed to a number of other risks and uncertainties. We operate in a competitive and rapidly evolving industry in which new risks emerge from time to time, and it is not possible for us to predict all of the risks we may face, nor can we assess the impact of all factors on our business or the extent to which any factor or combination of factors could cause actual results to differ from our expectations. See the discussion of certain risks that we face under “Risk Factors” in Part II, Item 1A of this report.
Results of Operations
Net Sales and Gross Profit
Net sales and gross profit for the three and nine months ended September 27, 2025 and September 28, 2024 were as follows (dollars in thousands):
Three Months Ended
Nine Months Ended
September 27,
September 28,
%
September 27,
September 28,
%
2025
2024
Change
2025
2024
Change
Net sales
$
42,234
$
40,186
5%
$
112,915
$
112,828
0%
Cost of sales
40,396
39,044
3%
108,385
110,198
(2%)
Gross profit
$
1,838
$
1,142
61%
$
4,530
$
2,630
72%
Gross margin percentage
4%
3%
4%
2%
Net Sales
Net sales increased by approximately $2.0 million during the third quarter of 2025 compared to the same period of 2024, primarily as a result of a $2.3 million increase in sales of low-profile memory subsystem products and a $0.4 million increase in the sale of registered DIMM (“RDIMM”) and discrete memory component products, partially offset by a $0.6 million decrease in sales of our flash and solid-state drives (“SSD”) products.
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Net sales were consistent during the first nine months of 2025 compared to the same period of 2024. As of September 27, 2025, we had deferred revenue of $27.0 million. The deferred revenue relates to advance payments received during the quarter on orders shipped subsequent to the end of the quarter.
Gross Profit and Gross Margin
Gross profit and gross margin percentage increased during the third quarter and first nine months of 2025 compared to the same periods of 2024, primarily as a result of product sales mix.
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Operating Expenses
Operating expenses for the three and nine months ended September 27, 2025 and September 28, 2024, were as follows (dollars in thousands):
Three Months Ended
Nine Months Ended
September 27,
September 28,
%
September 27,
September 28,
%
2025
2024
Change
2025
2024
Change
Research and development
$
822
$
2,177
(62%)
$
2,548
$
6,987
(64%)
Percentage of net sales
2%
5%
2%
6%
Intellectual property legal fees
$
5,035
$
5,349
(6%)
$
15,542
$
28,403
(45%)
Percentage of net sales
12%
13%
14%
25%
Selling, general and administrative
$
3,131
$
3,271
(4%)
$
9,604
$
9,353
3%
Percentage of net sales
7%
8%
9%
8%
Research and Development
Research and development expenses decreased during the third quarter and first nine months of 2025 compared to the same periods of 2024, primarily due to a reduction in employee headcount that occurred in October 2024 and the associated decrease in overhead costs.
Intellectual Property Legal Fees
Intellectual property legal fees consist of fees incurred for patent enforcement and licensing, appeals, patent drafting and prosecution, and opposition to third-party post-grant patent proceedings. Although we expect intellectual property legal fees to generally increase over time as we continue to expand, protect and enforce our patent portfolio, these increases may not be linear but may occur in lump sums depending on jury trial management, due dates of various filings and their associated fees, and the arrangements we may make with our legal advisors in connection with enforcement proceedings, which may include fee arrangements or contingent fee arrangements in which we would pay these legal advisors on a scaled percentage of any negotiated fees, settlements or judgments awarded to us based on if, how and when the fees, settlements or judgments are obtained. See Note 5 to the condensed consolidated financial statements included in Part I, Item 1 of this report for further discussion.
Intellectual property legal fees decreased during the third quarter and first nine months of 2025 compared to the same periods of 2024 due primarily to lower legal expenses incurred to protect and enforce our patent portfolio.
Selling, General and Administrative
Selling, general and administrative expenses slightly decreased during the third quarter compared to the same period of 2024 due primarily to lower audit and public company related fees.
Selling, general and administrative expenses slightly increased during the first nine months of 2025 compared to the same period of 2024 due primarily to an increase in employee headcount and the related overhead and outside services.
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Other Income, Net
Other income, net for the three months and nine ended September 27, 2025 and September 28, 2024 was as follows (dollars in thousands):
Three Months Ended
Nine Months Ended
September 27,
September 28,
%
September 27,
September 28,
%
2025
2024
Change
2025
2024
Change
Interest income, net
$
106
$
162
$
459
$
796
Other income, net
34
88
130
167
Total other income, net
$
140
$
250
(44%)
$
589
$
963
(39%)
Interest income, net decreased during the third quarter and first nine months of 2025 compared to the same periods of 2024, primarily as a result of interest earned on lower cash balances. Other income, net included a reversal of the reserve to cover flood damage in our former manufacturing facility located in the PRC during the third quarter and first nine months of 2024.
Liquidity and Capital Resources
Our primary sources of cash are historically proceeds from issuances of equity and receipts from revenues. In addition, we have received proceeds from our entry into the Strategic Agreement with SK hynix, which we used to support our operations. We have also funded our operations with our revolving line of credit under a bank credit facility with SVB, funds raised through the March 2025 Purchase Agreement, and proceeds raised from the June 2025 Offering and October 2025 Offering.
The following tables present selected financial information as of September 27, 2025 and December 28, 2024 and for the first nine months of 2025 and 2024 (in thousands):
September 27,
December 28,
2025
2024
Cash, cash equivalents and restricted cash
$
20,844
$
34,607
Working capital
(14,545)
(7,305)
Nine Months Ended
September 27,
September 28,
2025
2024
Net cash used in operating activities
$
(27,995)
$
(25,504)
Net cash used in investing activities
(25)
(64)
Net cash provided by financing activities
14,257
2,494
During the nine months ended September 27, 2025, net cash used in operating activities was primarily a result of net loss of $22.6 million, non-cash adjustments to net loss of $2.7 million, and net cash outflows from changes in operating assets and liabilities of $8.2 million driven predominantly by a decrease in accounts payable, an increase in inventories due to orders not shipped in September 2025, an increase in prepaid expenses and other assets, partially offset by an increase in deferred revenue related to advance payments received on orders shipped in October 2025. Net cash provided by financing activities during the nine months ended September 27, 2025 primarily consisted of $1.1 million in net proceeds from the issuance of common stock under the March 2025 Purchase Agreement and $11.6 million in net proceeds from issuance of common stock under the June 2025 Purchase Agreement, $2.2 million in net borrowings under the 2023 SVB Credit Agreement (as defined below), partially offset by $0.5 million in payments of notes payable to finance insurance policies.
During the nine months ended September 28, 2024, net cash used in operating activities was primarily a result of net loss of $41.2 million, non-cash adjustments to net loss of $4.3 million, and net cash inflows from changes in operating assets and liabilities of $11.4 million driven predominantly by a decrease in inventories
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due to higher turnovers, increase in deferred revenue related to an advance payment received on an order shipped in October 2024 and decrease in accounts receivable due to faster cash collections, partially offset by the decrease in accounts payable due to the payments made for the legal fees incurred to defend our patent portfolio. Net cash provided by financing activities during the nine months ended September 28, 2024 primarily consisted of $5.2 million in net proceeds from issuance of common stock under our purchase agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”) dated September 28, 2021 , partially offset by $2.3 million in net repayments under the 2023 SVB Credit Agreement and by $0.5 million in payments of notes payable to finance insurance policies.
Capital Resources
October 2025 Offering
On October 6, 2025, we entered into the October 2025 Purchase Agreement with the October 2025 Purchasers, pursuant to which we issued and sold to the October 2025 Purchasers in the October 2025 Offering an aggregate of (i) 14,285,716 shares of our common stock and (ii) 28,571,432 October 2025 Warrants to purchase the October 2025 Warrant Shares at a combined purchase price of $0.70 per share and accompanying October 2025 Warrant. The October 2025 Offering closed on October 7, 2025. The net proceeds to us from the October 2025 Offering were approximately $9.1 million, after deducting placement agent fees and offering costs paid by us.
Further, pursuant to the terms of the October 2025 Purchase Agreement and subject to certain 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. The October 2025 Purchase Agreement also provides that we may not, subject to the exceptions described in the October 2025 Purchase Agreement (including an exception permitting us to utilize the March 2025 Purchase Agreement following the expiration of the 90-day period following the closing of the October 2025 Offering), effect or enter into any Variable Rate Transactions (as defined in the October 2025 Purchase Agreement) until the six-month anniversary of the closing date of the October 2025 Offering.
June 2025 Offering
On June 24, 2025, we entered into a Securities Purchase Agreement (the “June 2025 Purchase Agreement”) with certain investors, including Chun K. Hong, Chairperson of our board of directors, President and Chief Executive Officer (collectively, the “June 2025 Purchasers”), pursuant to which we issued and sold to the June 2025 Purchasers in a registered offering (the “June 2025 Offering”) an aggregate of (i) 17,142,860 shares of our common stock and (ii) 34,285,720 Common Stock Purchase Warrants (the “June 2025 Warrants”) to purchase up to an aggregate of 34,285,720 shares of our common stock at a combined purchase price of $0.70 per share and accompanying June 2025 Warrant. Mr. Hong purchased $3.0 million of shares and accompanying June 2025 Warrants in the June 2025 Offering. The June 2025 Offering closed on June 25, 2025. The net proceeds to us from the June 2025 Offering were approximately $11.3 million, after deducting placement agent fees and offering costs paid by us.
The June 2025 Purchase Agreement also provides that we may not, subject to the exceptions described in the June 2025 Purchase Agreement (including an exception permitting us to utilize the March 2025 Purchase Agreement following the expiration of the 90-day period following the closing of the June 2025 Offering),
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effect or enter into any Variable Rate Transactions (as defined in the June 2025 Purchase Agreement) until the six-month anniversary of the closing date of the June 2025 Offering.
March 2025 Lincoln Park Purchase Agreement
On March 13, 2025, we entered into a purchase agreement (the “March 2025 Purchase Agreement”) with Lincoln Park , pursuant to which we have the right to sell to Lincoln Park up to an aggregate of $75 million in shares of our common stock over the 36-month term of the March 2025 Purchase Agreement subject to the conditions and limitations set forth in the March 2025 Purchase Agreement. As of September 27, 2025, $ 73.9 million remains available under the March 2025 Purchase Agreement with Lincoln Park. 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.
2023 SVB Credit Agreement
On November 7, 2023, we entered into a loan and security agreement (as amended to date, the “2023 SVB Credit Agreement”) with SVB, which provides for a revolving line of credit up to $10.0 million. The borrowing base is limited to 85% of eligible accounts receivable, subject to certain adjustments. Borrowings accrue interest on advance at a per annum rate equal to the greater of 8.50% and the Wall Street Journal prime rate. The maturity date was originally November 7, 2025. On November 7, 2025, we entered into a first amendment to the loan and security agreement (the “2023 SVB Credit Agreement Amendment”) to, among other things, extend the maturity date from November 7, 2025 to November 7, 2027.
As of September 27, 2025, the outstanding borrowings under the 2023 SVB Credit Agreement were $1.1 million with no availability under the revolving line of credit. During the nine months ended September 27, 2025, we had net borrowings of $2.2 million under the 2023 SVB Credit Agreement.
Sufficiency of Cash Balances and Potential Sources of Additional Capital
We believe our existing balance of cash and cash equivalents together with the cash received under the Strategic Agreement with SK hynix, proceeds from issuances of debt and equity securities, including our equity line with Lincoln Park, cash receipts from net sales, funds raised through future equity offerings and taking into account cash expected to be used in our operations, will be sufficient to meet our anticipated cash needs for at least the next 12 months. However, this estimate may ultimately be incorrect and we may use our cash resources faster than we expect as a result of many factors, including costs to defend our intellectual property portfolio, the results of ongoing litigation and legal proceedings, demand and acceptance of our products, whether our current customers continue purchasing our products, costs of developing and improving our products, our results of operations, including our level of net product sales that we receive which can vary based on a number of factors, including the amount and timing of vendor payments, the timing of customer orders, the effects of changes in international trade policy, non-reoccurring items and changing projected inventory needs and estimates.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditure or capital resources that is material to investors.
Recent Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This ASU is effective for the annual periods beginning January 1, 2024, and
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becomes effective for interim periods within fiscal years beginning January 1, 2025. We adopted this guidance on December 28, 2024. The adoption only impacted our disclosure and has no material impact on the Company’s condensed consolidated financial statements as of and for the quarter ended September 27, 2025.
In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which updates expense disclosure requirements on an annual and interim basis. This ASU is effective for the annual periods beginning after December 15, 2026, and the interim reporting periods beginning after December 15, 2027. Early adoption is permitted. We are currently evaluating the impact of adopting this ASU.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which will require us to disclose specified additional information in its income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. This ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. We will adopt this ASU using either a prospective or retrospective transition method. We are currently evaluating the impact of adopting this ASU.
Critical Accounting Policies and Use of Estimates
The preparation of our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of net sales and expenses during the reporting period. By their nature, these estimates and assumptions are subject to an inherent degree of uncertainty. We base our estimates and assumptions on our historical experience, knowledge of current conditions and our beliefs of what could occur in the future considering available information. We review our estimates and assumptions on an ongoing basis. Actual results may differ from our estimates, which may result in material adverse effects on our consolidated operating results and financial position.
Our critical accounting policies and estimates are discussed in Note 1 to the condensed consolidated financial statements in this report and in the notes to consolidated financial statements in Part II, Item 8 of our Annual Report and in the MD&A in our Annual Report. There have been no significant changes to our critical accounting policies since our Annual Report.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
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