What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-10 compared with 2020-08-11 · 67 added, 90 removed, 162 unchanged (49% of the section changed)

25 unchanged sentences

● 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;

● the impact of the above factors and other future events on the market price and trading volume of our common stock.

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We also resell solid state drive (“SSD”), NAND flash, DRAM products and other component products to end-customers that are not reached in the distribution models of the component manufacturers, including storage customers, appliance customers, system builders and cloud and datacenter customers.

During the second quarter of 2020, we recorded net sales of $10.9 million, gross profit of $1.8 million and net loss of $1.8 million.

During the third quarter of 2020, we recorded net sales of $10.2 million, gross profit of $1.3 million and net loss of $2.1 million.

We have historically financed our operations primarily with proceeds from issuances of equity and debt securities and cash receipts from revenues, including from product sales and a non-recurring engineering (“NRE”) fee from our November 2015 joint development and license agreement (“JDLA”) with Samsung Electronics Co., Ltd (“Samsung”).

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Recent Developments

Developments relating to SK hynix Proceedings

We have taken action to protect and defend our innovations by filing legal proceedings for patent infringement against SK hynix and two of its subsidiaries in the U.S.

International Trade Commission (“ITC”), U.S.

district court and the courts of Germany.

In our second ITC action against SK hynix, on April 12, 2018, the ITC granted SK hynix’s motion for summary determination of non-infringement and terminated the investigation in its entirety.

On April 23, 2018, the Company filed a petition seeking ITC review of this decision.

On May 29, 2018, the ITC Commission remanded the Second ITC Action back to the ALJ to resolve the parties’ claim construction disputes and continue the investigation.

On June 14, 2018, the ITC extended the target date for the final determination to August 5, 2019, with a final initial determination due by April 5, 2019.

Based on this extended target date, the ITC scheduled a hearing on the merits to begin on December 14, 2018 and conclude on December 21, 2018.

On September 13, 2018, the ITC rescheduled the hearing on the merits to begin on January 14, 2019 and conclude on January 18, 2019.

On January 29, 2019, due to the government shutdown, the ITC again rescheduled the hearing on the merits to begin on March 11, 2019 and conclude on March 15, 2019.

On March 12, 2019 the ALJ postponed the trial due to reasons unrelated to the dispute

between the parties.

The trial recommenced on July 15, 2019 and ended on July 19, 2019.

An initial determination regarding our second ITC action against SK hynix was issued on October 21, 2019.

In the initial determination, the Chief Administrative Law Judge found in Netlist’s favor held there was a violation of Section 337 of the Tariff Act of 1930 as amended with respect to U.S.

9,606,907 and alternatively found there was no violation with respect to U.S.

A final determination regarding our second ITC action against SK Hynix was issued on April 7, 2020.

In the final determination, the ITC found no violation of section 337 of the Tariff Act of 1930, as amended with respect to U.S.

Netlist has elected not to appeal this decision.

On January 31, 2019, the court in Germany found there was no infringement of the Utility Model asserted and dismissed the case.

We do not intend to appeal this ruling.

In our two separate ITC actions against SK hynix, we have requested exclusion orders that direct U.S.

Customs and Border Protection to stop allegedly infringing SK hynix RDIMM and LRDIMM products from entering the United States.

district court proceedings (which are currently stayed), we are primarily seeking damages.

All of our patents involved in these proceedings allegedly cover key features of RDIMM and LRDIMM products.

On January 16, 2018, the ITC issued a final determination regarding our first ITC action against SK hynix filed in September 2016, in which it concluded there was no infringement of the patents in this action and terminated the ITC’s investigation related to these proceedings.

We appealed this final determination to the Court of Appeals for the Federal Circuit, and oral arguments for this appeal were scheduled for December 5, 2019 at the Court of Appeals for the Federal Circuit.

On December 12, 2019, the Court of Appeals for the Federal Circuit affirmed the invalidity ruling by the Patent Trial and Appeal Board involving the patents in litigation at the first ITC Action and dismissed the appeal of the final determination of the first ITC Action as moot.

First Amendment to TRGP Agreement

On January 23, 2020, we entered into the first amendment to the investment agreement dated May 3, 2017 with TR Global Funding V, LLC (“TRGP”) (“TRGP Agreement”) to amend the recovery sharing formula related to claims against SK hynix for alleged infringement of our patents.

TRGP Agreement generally provided that TRGP directly fund the costs incurred by us or on our behalf in connection with our first ITC action and our U.S.

The TRGP Agreement generally provided that TRGP directly fund the costs incurred by us or on our behalf in connection with our first ITC action and certain U.S.

district court proceedings against SK hynix.

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On June 24, 2019, we entered into a purchase agreement (the “2019 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 $10 million in shares of our common stock over the 36-month term of the Purchase Agreement subject to the conditions and limitations set forth in the 2019 Purchase Agreement.

During the six months ended June 27, 2020 and subsequent to June 27, 2020, Lincoln Park did not purchase shares of our common stock under the 2019 Purchase Agreement.

During the first nine months of 2020, Lincoln Park did not purchase shares of our common stock under the 2019 Purchase Agreement.

2020 Lincoln Park Purchase Agreement

On March 5, 2020, we entered into another purchase agreement (the “2020 Purchase Agreement”) with Lincoln Park, pursuant to which we have the right to sell to Lincoln Park up to an aggregate of $20 million in shares of our common stock over the 36-month term of the 2020 Purchase Agreement subject to the conditions and limitations set forth in the 2020 Purchase Agreement.

As consideration for entering into the 2020 Purchase Agreement, we issued to Lincoln Park 1,529,052 shares of our common stock as initial commitment shares in a noncash transaction on March 6, 2020 and will issue up to 917,431 additional shares of our common stock as additional commitment shares on a pro rata

basis in connection with any additional purchases.

We will not receive any cash proceeds from the issuance of these additional commitment shares.

During the six months ended June 27, 2020, Lincoln Park purchased an aggregate of 9,651,964 shares of our common stock for a net purchase price of $2.8 million under the 2020 Purchase Agreement.

In connection with the purchases, we issued to Lincoln Park an aggregate of 128,790 shares of our common stock as commitment shares in noncash transactions.

Subsequent to June 27, 2020, Lincoln Park purchased an aggregate of 13,198,158 shares of our common stock for a net purchase price of $9.0 million under the 2020 Purchase Agreement.

In connection with the purchases, we issued to Lincoln Park an aggregate of 414,642 shares of our common stock as commitment shares in noncash transactions.

During the third quarter and first nine months of 2020, Lincoln Park purchased an aggregate of 13,748,158 shares and 23,400,122 shares of our common stock for a net purchase price of $9.4 million and $12.2 million, respectively, under the 2020 Purchase Agreement.

In connection with the purchases, during the third quarter and first nine months of 2020, we issued to Lincoln Park an aggregate of 431,798 shares and 560,588 shares of our common stock, respectively, as commitment shares in noncash transactions.

Paycheck Protection Program Loan

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It is not clear what the potential effects of such alterations or modifications may have on our business, consolidated results of operations, financial condition, and liquidity.

Summary Results of Operations

Three Months Ended

Six Months Ended

(dollars in thousands, except per share amounts)

Operating loss

Net loss per share—basic and diluted

Results of Operations

Net Sales and Gross Profit

Net sales, cost of sales and gross profit for the three and six months ended June 27, 2020 and June 29, 2019 were as follows (dollars in thousands):

Net sales, cost of sales and gross profit for the three and nine months ended September 26, 2020 and September 28, 2019 were as follows (dollars in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

September 26,

September 28,

September 26,

September 28,

Cost of sales

Net sales include resales of certain component products, including SSDs and DRAM products, and sales of our high-performance memory subsystems.

Net sales increased by $5.4 million during the second quarter of 2020 compared to the same quarter of 2019 primarily as a result of a $4.1 million overall increase in sales of NAND flash products (including a $3.1 million increase in Netlist’s flash SSD products and a $0.9 million increase in the resales of NAND flash products), and a $1.3 million increase in sales of other small outline dual in-line memory module (“SODIMM”) and RDIMM products.

Net sales increased by $14.9 million during the first six months of 2020 compared to the same period in 2019 primarily as a result of a $10.2 million increase in sales of NAND flash products (including a $4.9 million increase in Netlist’s flash SSD products and a $5.2 million increase in the resales of NAND flash products) and a $4.7 million overall increase in sales of SODIMM and RDIMM products (a $3.5 million increase in the resales of SODIMM and RDIMM products and a $1.2 million increase in sales of our Specialty SODIMM and RDIMM products).

Net sales increased by $4.1 million during the third quarter of 2020 compared to the same quarter of 2019 primarily as a result of a $2.5 million overall increase in sales of NAND flash products (including a $1.5 million increase in Netlist’s flash SSD products and a $0.9 million increase in the resales of NAND flash products), and a $1.9 million increase in sales of other small outline dual in-line memory module (“SODIMM”) and RDIMM products, partially offset by a $0.1 million decrease in sales of our very low profile memory subsystem products and a $0.2 million increase in sales return reserve.

Net sales increased by $19.0 million during the first nine months of 2020 compared to the same period in 2019 primarily as a result of a $12.7 million increase in sales of NAND flash products (including a $6.3 million increase in Netlist’s flash SSD products and a $6.1 million increase in the resales of NAND flash products) and a $6.6 million overall increase in sales of SODIMM and RDIMM products (a $4.3 million increase in the resales of SODIMM and RDIMM products and a $2.3 million increase in sales of our Specialty SODIMM and RDIMM products), partially offset by an aggregate of $0.3 million increase in sales return reserve and customer discounts.

Net sales in all periods presented were impacted by fluctuating customer concentrations.

During the second quarter of 2020, one customer accounted for equal to or more than 10% of net sales, with an aggregate of 22%, while during the same period in 2019, there was no customer that accounted for equal to or more than 10% of net sales.

During the second quarter of 2020, our four largest customers accounted for an aggregate of 41% of net sales.

Of these four customers, three customers did not contribute significant sales during the same quarter of 2019.

During the second quarter of 2019, our four largest customers accounted for an aggregate of 31% of net sales.

During the first six months of 2020 and 2019, one customer accounted for equal to or more than 10% of net sales, with an aggregate of 16% and 10%, respectively, and during the first six months of 2020, our four largest customers accounted for an aggregate of 31% of net sales.

Of these four customers, two customers did not contribute any sales or contributed only insignificant sales.

During the first six months of 2019, our four largest customers accounted for an aggregate of 30% of net sales.

Visibility in our global markets is lacking and demand uncertainty is intensifying.

As a result, it is difficult for us to predict the effects of the pandemic on our business.

During the third quarter of 2020 and 2019, two customers were equal to or more than 10% of net sales, with an aggregate of 35% and 23%, respectively, and during the third quarter of 2020, our four largest customers accounted for an aggregate of 52% of net sales.

Of these four customers, three customers did not contribute any sales or contributed only insignificant sales during the same quarter of 2019.

During the third quarter of 2019, our four largest customers accounted for an aggregate of 37% of net sales.

During the first nine months of 2020 and 2019, one customer accounted for equal to or more than 10% of net sales, with 15% and 11%, respectively, and during the first nine months of 2020, our four largest customers accounted for an aggregate of 33% of net sales.

Of these four customers, three customers did not contribute any significant sales during the same period in 2019.

During the first nine months of 2019, our four largest customers accounted for an aggregate of 30% of net sales.

Visibility to demand in our global markets continues and as a result, it is difficult for us to predict the effects of the COVID-19 pandemic on our business in the future.

Gross Profit and Gross Margin

Gross profit increased during the second quarter and first six months of 2020 compared to the same periods in 2019 due primarily to higher sales and gross profits on the sale of enterprise SSD, Specialty SODIMM and RDIMM products.

Gross profit increased during the third quarter and first nine months of 2020 compared to the same periods in 2019 due primarily to higher sales and gross profits on the sale of enterprise SSD products.

Gross margin (or gross profit as a percentage of net sales) fluctuates based on the change in our product mix over periods and the relative cost of the factory.

Operating Expenses

Operating expenses for the three months ended June 27, 2020 and June 29, 2019 were as follows (dollars in thousands):

Operating expenses for the three and nine months ended September 26, 2020 and September 28, 2019 were as follows (dollars in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

September 26,

September 28,

September 26,

September 28,

Research and development

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Research and Development

Research and development expenses increased during the second quarter and first six months of 2020 compared to the same periods in 2019 due primarily to an increase in employee headcount and overhead, partially offset by a decrease in travel, office and depreciation expenses.

Research and development expenses increased during the third quarter and first nine months of 2020 compared to the same periods in 2019 due primarily to an increase in employee headcount and overhead, partially offset by a decrease in travel, office and depreciation expenses.

Intellectual Property Legal Fees

Intellectual property legal fees consist of legal fees incurred for patent filings, protection and enforcement.

Although we expect intellectual property legal fees to generally increase over time as we continue to protect, defend and enforce and seek to expand our patent portfolio, these increases may not be linear but may occur in lump sums depending on the due dates of patent 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 such as with TRGP 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.

Although we expect intellectual property legal fees to generally increase over time as we continue to protect, defend and enforce and seek to expand our patent portfolio, these increases may not be linear but may occur in lump sums depending on the due dates of patent 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 7 to the condensed consolidated financial statements included in Part I, Item 1 of this report for further discussion.

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As of December 28, 2019, accumulated deficit excluded $1.7 million and $10.2 million of such legal expenses incurred in 2018 and 2017, respectively.

We do not anticipate any further legal expenses will be paid by TRGP under this agreement.

TPGP did not fund the legal expenses incurred for our second ITC action and our proceedings in international courts.

No further legal expenses will be paid by TRGP under this agreement.

TPGP did not fund the legal expenses incurred for our second ITC action and our proceedings in international courts as well as other District Court proceedings.

TRGP is not currently funding our legal expenses.

Intellectual property legal fees decreased during the second quarter and first six months of 2020 compared to the same periods in 2019 due primarily to lower legal expenses incurred to defend our patent portfolio internationally, including the costs incurred for our second ITC action and inter partes review of our patents before the U.S.

Intellectual property legal fees decreased during the third quarter and first nine months of 2020 compared to the same periods in 2019 due primarily to lower legal expenses incurred to defend our patent portfolio internationally, including the costs incurred for our second ITC action and inter partes review of our patents before the U.S.

Patent and Trademark Office.

Selling, General and Administrative

Selling, general and administrative expenses slightly decreased during the second quarter of 2020 compared to the same period in 2019 due primarily to a decrease in travel and product evaluation expenses, partially offset by an increase in sales and marketing payroll costs and sales commissions.

During the first six months of 2020, selling, general and administrative expenses slightly increased compared to the same period in 2019 due primarily to an increase in sales and marketing payroll costs and related overhead and commissions, partially offset by a decrease in travel and product evaluation expenses.

Selling, general and administrative expenses slightly increased during the third quarter of 2020 compared to the same period in 2019 due primarily to an increase in product evaluation expenses, outside services and sales commissions, partially offset by a decrease in travel expenses.

During the first nine months of 2020, selling, general and administrative expenses also slightly increased compared to the same period in 2019 due primarily to an increase in sales and marketing payroll costs and related overhead and commissions and outside services, partially offset by a decrease in travel and product evaluation expenses.

Other Expense, Net

Other expense, net for the three and six months ended June 27, 2020 and June 29, 2019 was as follows (dollars in thousands):

Other expense, net for the three and nine months ended September 26, 2020 and September 28, 2019 was as follows (dollars in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

September 26,

September 28,

September 26,

September 28,

Interest expense, net

Other expense, net

Other income (expense), net

Total other expense, net

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The Iliad Note was fully converted to shares of our common stock during 2019 and there was no outstanding balance as of December 28, 2019.

As a result, during the second quarter and first six months of 2020 compared to the same periods in 2019, the interest expense decreased.

As a result, during the third quarter and first nine months of 2020 compared to the same periods in 2019, the interest expense decreased.

Liquidity and Capital Resources

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We have also funded our operations with a revolving line of credit under a bank credit facility, a funding arrangement for costs associated with certain of our legal proceedings against SK hynix and, to a lesser extent, equipment leasing arrangements.

The following tables present selected financial information as of June 27, 2020 and December 28, 2019 and for the first six months of 2020 and 2019 (in thousands):

The following tables present selected financial information as of September 26, 2020 and December 28, 2019 and for the first nine months of 2020 and 2019 (in thousands):

September 26,

Cash and cash equivalents

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Working capital

Six Months Ended

Nine Months Ended

September 26,

September 28,

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

During the six months ended June 27, 2020, net cash used in operating activities was primarily a result of net loss of $3.4 million and non-cash adjustments to net loss of $1.0 million, offset by net cash outflows from changes in operating assets and liabilities of $0.4 million driven predominantly by an increase in inventories due to higher purchases to support increased sales and accrued payroll and related liabilities, partially offset by a decrease in accounts receivable due to vigorous collection efforts.

Net cash used in investing activities during the six months ended June 27, 2020 consisted of cash used to acquire property and equipment.

Net cash provided by financing activities during the six months ended June 27, 2020 primarily consisted of $2.8 million in net proceeds from issuance of common stock under the 2020 Lincoln Park Purchase Agreement and $0.6 million in proceeds from the issuance of PPP Loan, partially offset by $1.6 million in net repayments under the SVB Credit Agreement.

During the six months ended June 29, 2019, net cash used in operating activities primarily resulted from net loss of $7.6 million and non-cash adjustments to net loss of $1.4 million, offset by net cash outflows from changes in operating assets and liabilities of $0.5 million driven predominantly from a decrease in accounts payable due to lower purchases and legal fees and payments made toward outstanding legal fees, partially offset by a decrease in inventories and accounts receivable, respectively.

Net cash used in investing activities during the six months ended June 29, 2019 was the result of our purchases of property and equipment.

Net cash used in financing activities during the six months ended June 29, 2019 primarily consisted of $0.2 million in net repayments under the SVB Credit Agreement and $0.2 million in payments of outstanding debt.

Net cash provided by financing activities

During the nine months ended September 26, 2020, net cash used in operating activities was primarily a result of net loss of $5.5 million and non-cash adjustments to net loss of $1.5 million, offset by net cash outflows from changes in operating assets and liabilities of $2.9 million driven predominantly by an increase in inventories due to higher purchases to support increased sales and an increase in accounts receivable due to higher sales, partially offset by a decrease in accounts payable and accrued expenses and other current liabilities.

Net cash provided by financing activities during the nine months ended September 26, 2020 primarily consisted of $12.2 million in net proceeds from issuance of common stock under the 2020 Lincoln Park Purchase Agreement, $0.6 million in proceeds from the issuance of the PPP Loan and $0.4 million in net borrowings under the SVB Credit Agreement, partially offset by $0.4 million in payments of outstanding debt.

During the nine months ended September 28, 2019, net cash used in operating activities primarily resulted from net loss of $10.7 million and non-cash adjustments to net loss of $2.1 million, offset by net cash outflows from changes in operating assets and liabilities of $0.6 million driven predominantly from a decrease in accounts payable due to lower purchases and legal fees and payments made toward outstanding legal fees, and a decrease in accrued expenses and other current liabilities primarily from the recognition of current portion of operating lease liabilities, partially offset by a decrease in inventories and accounts receivable, respectively.

Net cash used in investing activities during the nine months ended September 28, 2019 was the result of our purchases of property and equipment.

Net cash provided by financing activities primarily consisted of $2.5 million in proceeds from issuance of common stock to Lincoln Park, partially offset by $0.8 million in net repayments under the SVB Credit Agreement and $0.4 million in payments of outstanding debt.

Capital Resources

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On June 24, 2019, we entered into the 2019 Purchase Agreement with Lincoln Park, pursuant to which we have the right to sell to Lincoln Park up to an aggregate of $10 million in shares of our common stock over the 36-month term of the 2019 Purchase Agreement subject to the conditions and limitations set forth in the 2019 Purchase Agreement.

As of June 27, 2020, an aggregate of $3.6 million in shares of our common stock was available for purchases over the remaining term under the 2019 Purchase Agreement.

As of September 26, 2020, an aggregate of $3.6 million in shares of our common stock was available for purchases over the remaining term under the 2019 Purchase Agreement.

2020 Lincoln Park Purchase Agreement

On March 5, 2020, we entered into the 2020 Purchase Agreement with Lincoln Park, pursuant to which we have the right to sell to Lincoln Park up to an aggregate of $20 million in shares of our common stock over the 36-month term of the 2020 Purchase Agreement subject to the conditions and limitations set forth in the 2020 Purchase Agreement.

As of June 27, 2020, an aggregate of $8.2 million in shares of our common stock was available for purchases over the remaining term under the 2020 Purchase Agreement.

As of September 26, 2020, an aggregate of $7.8 million in shares of our common stock was available for purchases over the remaining term under the 2020 Purchase Agreement.

TRGP Agreemen t

On May 3, 2017, we entered into the TRGP Agreement, which generally provided that TRGP will directly fund the costs incurred by us or on our behalf in connection with our first ITC action and our U.S.

On May 3, 2017, we entered into the TRGP Agreement, which generally provided that TRGP directly fund the costs incurred by us or on our behalf in connection with our first ITC action and our U.S.

district court proceedings against SK hynix.

During 2018 and 2017, TRGP directly paid $1.7 million and $10.2 million on our behalf incurred in connection with these proceedings.

On January 23, 2020, we entered into an amendment to the TRGP Agreement to alter the recovery sharing formula related to claims against SK hynix.

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The borrowing base is limited to 85% of eligible accounts receivable, subject to certain adjustments as set forth in the SVB Credit Agreement.

As of June 27, 2020, the borrowings under the SVB Credit Agreement bear interest at the Wall Street Journal “prime rate” plus 2.75% per annum and mature on April 30, 2021.

As of June 27, 2020, the outstanding borrowings under the SVB Credit Agreement were $1.3 million with additional borrowing availability of $0.1 million.

During the six months ended June 27, 2020, we made net repayments of $1.6 million under the SVB Credit Agreement.

As of September 26, 2020, the borrowings under the SVB Credit Agreement bear interest at the Wall Street Journal “prime rate” plus 2.75% per annum and mature on April 30, 2021.

As of September 26, 2020, the outstanding borrowings under the SVB Credit Agreement were $3.4 million with additional borrowing availability of $0.1 million.

During the nine months ended September 26, 2020, we made net borrowings of $0.4 million under the SVB Credit Agreement.

Paycheck Protection Program Loan

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and the nature and timing of acquisitions and other strategic transactions in which we participate, if any.

However, the SVIC Note will mature at the end of December 2021, and if it is not converted into equity, we may not have adequate liquidity to repay the obligations thereunder unless we raise additional capital or enter into an amendment to the SVIC Note.

While we believe that we will be able to raise such funds or obtain an amendment to the SVIC Note, there can be no assurance that this will occur.

Although we expect to rely in the near term on our existing cash and cash equivalents balance and our primary source of cash described above, 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.

Further, some or all of our ongoing or planned investments may not be successful and could result in further losses.

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.

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.

We may not be able to obtain capital when needed, on terms acceptable to us or at all and may have the need to seek the authorization of additional shares from our stockholders, which could be costly, time-consuming and unsuccessful.

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If we pursue asset or technology sales or licenses or other alternative financing arrangements to obtain additional capital, our operational capacity may be limited and any revenue streams or business plans that are dependent on the sold or licensed assets may be reduced or eliminated.

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.

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.

Off-Balance Sheet Arrangements

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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 2. Management’s Discussion and Analysis