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, including our beliefs regarding memory chip shortages and when new manufacturing facilities may become operational;
● our ability to collect any damages awarded to us, including in our litigation with Micron Technology, Inc. (“Micron”), Google, Inc. (“Google”) or any other counter parties;
● our ability to collect amounts owed to us pursuant to the Samsung License Agreement entered into with Samsung in connection with the settlement of our intellectual property litigation with Samsung;
● 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 currently have and may pursue in the future;
● 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 I, Item 1A of our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 19, 2026 (the “Annual 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
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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 report, as well as our 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. With a rich portfolio of patented technologies, our inventions are foundational to the advancement of artificial intelligence (“AI”) computing. During the second quarter of 2026, we recorded net sales of $109.8 million, gross profit of $22.9 million and net income of $1.4 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), proceeds raised from the June 2025 Offering (as defined below) and the October 2025 Offering (as defined below) and through the cash exercise of our outstanding warrants to purchase common stock. See “Liquidity and Capital Resources” below for more information.
Recent Developments
On August 4, 2026, we entered into a Patent Cross License Agreement, Settlement and Release Agreement, Supply Agreement, and ITC Cooperation Agreement with Samsung Electronics Co., Ltd. and/or its affiliate Samsung Semiconductor, Inc., effective as of July 31, 2026. In connection with the Supply Agreement, we also entered into a Securities Purchase Agreement and Lock-Up and Release Agreement with Samsung Semiconductor, Inc. See Note 9 to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report for additional information regarding these agreements and their terms.
Economic Conditions, Challenges and Risks
Our performance improved since the second half of 2025, driven by increased demand for our memory products and disciplined commercial execution. In our view, accelerated AI adoption has tightened industry supply relative to demand, contributing to broad - based price increases. We currently expect these dynamics to continue until additional industry fabrication capacity becomes available, potentially beginning in 2028; however, the timing, scale and effectiveness of any additional capacity, and the level of end-market demand when such capacity becomes available, may differ materially from our expectations. Increased industry fabrication capacity could improve component availability, place downward pressure on pricing, and shift product mix, any of which may moderate or adversely affect our volumes, pricing, margins and results of operations. The semiconductor industry is cyclical and subject to rapid changes in supply and demand, and future demand for our products is inherently unpredictable. Our current results of operations may not be indicative of our future results.
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 Product Purchase and Supply Agreement with SK hynix, which was entered into on April 5, 2021 (the “Supply Agreement”). The term of the supply provisions of this Supply Agreement expired in April 2026. We continue to purchase products from SK hynix following expiration of the Supply Agreement on a purchase order basis on similar terms to the prior Supply Agreement, but SK hynix ultimately may not continue to supply us with products for resale on similar terms or at all. In such circumstances, our financial results, including our revenue, profits and margins in future periods may be adversely affected. In August 2026 and as noted above, we entered into a Supply Agreement with
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Samsung Semiconductor providing us with the right to purchase up to $300 million of DRAM and NAND products per year for an aggregate of up to $1.5 billion over a five-year term. Should Samsung fail to comply with the terms of this agreement and the related arrangements, our financial results of operation would be adversely affected. See Note 9 to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report for additional information.
We are party to ongoing intellectual property litigation. While we have entered into the Settlement Agreement with Samsung to resolve our pending patent litigations with Samsung, other matters, including our litigation with Micron, remain subject to appeal and other proceedings, and any ultimate recovery from these matters may be less than the amounts awarded or may not be realized, including as a result of negotiated resolution, appeals, post-trial proceedings, patent office proceedings or other developments. We account for potential recoveries as gain contingencies and do not recognize them until realization is probable and reasonably estimable. The timing and amount of any recovery from these matters are inherently uncertain, and any resolution could materially affect our results of operations or cash flows in the period in which it occurs. See “Legal Proceedings” in Part II, Item 1 of this report and See Note 5 to the condensed consolidated financial statements included in Part I, Item 1 of this report for more information.
Results of Operations
Net Sales and Gross Profit
Net sales and gross profit for the three and six months ended June 27, 2026 and June 28, 2025 were as follows (dollars in thousands):
Three Months Ended
Six Months Ended
June 27,
June 28,
%
June 27,
June 28,
%
2026
2025
Change
2026
2025
Change
Net sales
$
109,845
$
41,706
163%
$
214,737
$
70,681
204%
Cost of sales
86,962
40,314
116%
169,465
67,989
149%
Gross profit
$
22,883
$
1,392
1544%
$
45,272
$
2,692
1582%
Gross margin percentage
21%
3%
21%
4%
Net Sales
Net sales increased by approximately $68.1 million during the second quarter of 2026 compared to the same period of 2025, primarily as a result of a $58.5 million increase in the sale of registered Dual Inline Memory Module (“RDIMM”) and discrete memory component products and a $9.7 million increase in sales of low-profile memory subsystem products, partially offset by a $0.1 million decrease in sales of our flash and solid-state drives products.
Net sales increased by approximately $144.1 million during the first six months of 2026 compared to the same period of 2025, primarily as a result of a $122.3 million increase in the sale of RDIMM and discrete memory component products, a $0.2 million increase in sales of our flash and solid-state drives products, and a $21.6 million increase in sales of low-profile memory subsystem products.
These increases are primarily due to the current supply-demand environment we discussed above.
Gross Profit and Gross Margin
Gross profit and gross margin percentage increased significantly during the second quarter and first six months of 2026 compared to the same periods of 2025, primarily as a result of higher sales prices due to the current supply-demand environment discussed above and product sales mix.
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Operating Expenses
Operating expenses for the three and six months ended June 27, 2026 and June 28, 2025, were as follows (dollars in thousands):
Three Months Ended
Six Months Ended
June 27,
June 28,
%
June 27,
June 28,
%
2026
2025
Change
2026
2025
Change
Research and development
$
1,050
$
833
26%
$
2,151
$
1,726
25%
Percentage of net sales
1%
2%
1%
2%
Intellectual property legal fees
$
16,753
$
3,480
381%
$
25,727
$
10,507
145%
Percentage of net sales
15%
8%
12%
15%
Selling, general and administrative
$
3,741
$
3,326
12%
$
7,490
$
6,473
16%
Percentage of net sales
3%
8%
3%
9%
Research and Development
Research and development expenses increased during the second quarter and first six months of 2026 compared to the same periods of 2025, primarily due to higher employee headcount and the associated increase 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. These fees 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. In addition, in connection with the settlement of our patent litigations with Samsung (see Note 9 to the condensed consolidated financial statements), we expect to incur legal fees payable to outside counsel retained on a partial contingent fee basis, calculated as a percentage of amounts received under the Settlement Agreement and Samsung License Agreement. Such fees may be material to our results of operations and cash flows in the periods in which they become payable.
Intellectual property legal fees increased during the second quarter and first six months of 2026 compared to the same periods of 2025 due primarily to higher legal expenses incurred to protect and enforce our patent portfolio.
Selling, General and Administrative
Selling, general and administrative expenses increased during the second quarter and first six months of 2026 compared to the same periods of 2025 due primarily to an increase in public company related fees and reporting costs and increased commissions due to higher sales that were completed in the second quarter and first six months of 2026 as compared to the same periods of 2025.
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Other Income, Net
Other income, net for the three and six months ended June 27, 2026 and June 28, 2025 was as follows (dollars in thousands):
Three Months Ended
Six Months Ended
June 27,
June 28,
%
June 27,
June 28,
%
2026
2025
Change
2026
2025
Change
Interest income, net
$
32
$
133
$
81
$
353
Other income, net
32
36
63
96
Total other income, net
$
64
$
169
(62%)
$
144
$
449
(68%)
Interest income, net decreased during the second quarter and first six months of 2026 compared to the same periods of 2025, primarily as a result of lower interest earned on our cash balances. Other income, net included a deposit returned for our former manufacturing facility located in the People’s Republic of China during the first six months of 2025.
Liquidity and Capital Resources
Our primary sources of cash are historically proceeds from issuances of equity and receipts from revenues. In addition, we previously received proceeds from our entry into a Strategic Product Supply and License Agreement with SK hynix on April 5, 2021, 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 and funds raised through the March 2025 Purchase Agreement.
The following tables present selected financial information as of June 27, 2026 and December 27, 2025 and for the first six months of 2026 and 2025 (in thousands):
June 27,
December 27,
2026
2025
Cash, cash equivalents and restricted cash
$
40,655
$
42,082
Working capital
22,098
(6,432)
Six Months Ended
June 27,
June 28,
2026
2025
Net cash used in operating activities
$
(18,514)
$
(17,732)
Net cash used in investing activities
(49)
(25)
Net cash provided by financing activities
17,136
12,188
During the six months ended June 27, 2026, net cash used in operating activities was primarily a result of net income of $10 million, non-cash adjustments to net income of $2.1 million, and net cash outflows from changes in operating assets and liabilities of $30.6 million driven predominantly by an increase in accounts receivable, an increase in inventories, a decrease in deferred revenue related to advance payments from customers, partially offset by an increase in accounts payable and an increase in accrued payroll and related liabilities. Net cash provided by financing activities during the six months ended June 27, 2026 primarily consisted of $16.6 million in net proceeds from exercise of stock options and warrants, and $0.8 million in net borrowings under the 2023 SVB Credit Agreement (as defined below), partially offset by $0.3 million in payments of notes payable to finance insurance policies.
During the six months ended June 28, 2025, net cash used in operating activities was primarily a result of net loss of $15.6 million, non-cash adjustments to net loss of $2.1 million, and net cash outflows from changes in operating assets and liabilities of $4.2 million driven predominantly by a decrease in accounts payable, an increase in inventories due to orders not shipped in June 2025, partially offset by an increase in deferred
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revenue related to advance payments received on orders shipped in July 2025. Net cash provided by financing activities during the six months ended June 28, 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 (as defined below), partially offset by $0.1 million in net repayments under the 2023 SVB Credit Agreement (as defined below), and $0.4 million in payments of notes payable to finance insurance policies.
Capital Resources
March 2025 Lincoln Park Purchase Agreement
On March 13, 2025, we entered into a purchase agreement (the “March 2025 Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“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 June 27, 2026, $ 73.7 million remains available under the March 2025 Purchase Agreement with Lincoln Park. Sales under the March 2025 Purchase Agreement are subject to daily volume - based limits and a contractual floor price, and our ability to access the remaining capacity at any point in time depends on prevailing market prices and trading volumes.
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 of our common stock (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 $9.3 million, after deducting placement agent fees and offering costs paid by us.
The October 2025 Purchase Agreement also provided that we could 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 (the “Board” or “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) Common Stock Purchase Warrants (the “June 2025 Warrants”) to purchase up to an aggregate of 34,285,720 shares of our common stock (the “June 2025 Warrant Shares”) 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 $11.6 million, after deducting placement agent fees and offering costs paid by us.
The June 2025 Purchase Agreement also provided that we could 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.
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 June 27, 2026, the outstanding borrowings under the 2023 SVB Credit Agreement were $2.6 million with no availability under the revolving line of credit. During the six months ended June 27, 2026, we had net borrowings of $0.8 million under the 2023 SVB Credit Agreement; because borrowing capacity is driven by eligible receivables and reserve adjustments, availability may fluctuate with collections and sales mix, and letters of credit issued under the facility and with other banks are secured by cash and reduce unrestricted liquidity.
Warrant Exercises
During the six months ended June 27, 2026, we received $16.3 million in proceeds from the cash exercise of issued and outstanding warrants to purchase 25,038,609 shares of common stock. From June 28, 2026 through August 6, 2026, we received $5.5 million in proceeds from the cash exercise of issued and outstanding warrants to purchase 5,676,949 shares of common stock. Future warrant exercises will likely depend on market conditions, the strategies of the individual warrant holders, and are ultimately at the discretion of the individual warrant holders. As such, future warrant exercises (if any) may be unpredictable and may not be representative of recent exercise activity.
Sufficiency of Cash Balances and Potential Sources of Additional Capital
We believe our existing balance of cash and cash equivalents (including restricted cash balances), which totaled $40.7 million as of June 27, 2026, along with cash receipts from revenues, payments pursuant to the Samsung License Agreement (with the upfront payment expected in August 2026), potential borrowing availability, if any, under the 2023 SVB Credit Agreement, funds raised through the March 2025 Purchase Agreement, proceeds received from warrant exercises, and other future debt and 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. This belief reflects our current assessment of known trends and uncertainties that could affect near-term liquidity, including the timing of cash effects from customer advance payments, fluctuations in borrowing-base availability and letters-of-credit usage and market conditions that affect our ability to utilize the March 2025 Purchase Agreement. 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.
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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 2024, the Financial Accounting Standards Board 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.
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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