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Sales of our common stock, or the perception that such sales could occur, could cause the market price of our stock to drop significantly, regardless of the state of our business.
−Removed: As of June 27, 2020, there were 181,012,723 shares of our common stock outstanding, of which 6,691,758 shares of our common stock are subject to outstanding stock options, 2,725,219 shares of our common stock are subject to outstanding unvested restricted stock units, 15,010,012 shares of our common stock are subject to outstanding warrants, and 13,105,973 shares of our common stock subject to an outstanding convertible note.
+Added: As of September 26, 2020, there were 195,951,317 shares of our common stock outstanding.
+Added: In addition, 6,904,258 shares of our common stock are subject to outstanding stock options, 2,536,635 shares of our common stock are subject to outstanding unvested restricted stock units, 13,786,110 shares of our common stock are subject to outstanding warrants, and 13,165,808 shares of our common stock subject to an outstanding convertible note.
All outstanding shares of our common stock are eligible for sale in the public market under applicable federal securities laws, subject in certain cases to the requirements of Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), and shares issued upon the exercise or conversion of outstanding stock options, warrants or convertible notes may also be eligible for sale in the public market, to the extent permitted by Rule 144 or other applicable securities laws and the provisions of the applicable stock option, warrant and convertible note agreements.
If these shares are sold, or if it is perceived that they may be sold, in the public market, the trading price of our common stock could fall.
−Removed: Our principal stockholders have significant voting power and may take actions that may not be in the best interest of our other stockholders.
−Removed: As of August 3, 2020, 4.4% of our outstanding common stock was held by our directors and officers, including 4.1% held by Chun K.
−Removed: Hong, our President, Chief Executive Officer and Chairman of our board of directors.
+Added: Hong has significant control over all corporate decisions that may not be in the best interest of our other stockholders.
+Added: As of November 5, 2020, 4.2% of our outstanding common stock was held by our directors and officers, including 4.0% held by Chun K.
+Added: Hong, our President, Chief Executive Officer and the sole member of our board of directors.
As a result, Mr.
−Removed: Hong has the ability to exert substantial influence over all matters requiring approval by our stockholders, including the election and removal of directors, any proposed merger, consolidation or sale of all or substantially all of our assets and other significant corporate transactions.
+Added: Hong has the ability to exert substantial control over all matters requiring approval by our stockholders and our board of directors, including the election and removal of directors, any proposed merger, consolidation or sale of all or substantially all of our assets and other significant corporate transactions.
This concentration of control could be disadvantageous to other stockholders with interests different from those of Mr.
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In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock.
−Removed: Further, in April 2017, we adopted a rights agreement that would, under certain specified circumstances and for so long as the rights issued under the rights agreement are outstanding, give the holders of our common stock the right to acquire additional shares of our capital stock, which would make it more difficult for a third party to acquire a significant percentage of our outstanding capital stock or attempt a hostile takeover of our Company.
+Added: Further, we adopted a rights agreement that would, under certain specified circumstances and for so long as the rights issued under the rights agreement are outstanding, give the holders of our common stock the right to acquire additional shares of our capital stock, which would make it more difficult for a third party to acquire a significant percentage of our outstanding capital stock or attempt a hostile takeover of our Company.
These and other provisions in our certificate of incorporation and bylaws and of Delaware law, as well as the existence of our rights agreement, could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by our board of directors, including a merger, tender offer, proxy contest or other change of control transaction involving our Company.
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We face risks related to the impact of the COVID-19 pandemic and the related protective public health measures.
−Removed: COVID-19 has globally spread throughout other areas such as Asia, Europe, the Middle East, and North America and has resulted in authorities imposing, and businesses and individuals implementing, numerous unprecedented measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place/stay-at-home and social distancing orders, and shutdowns.
+Added: COVID-19 has spread globally and has resulted in authorities imposing, and businesses and individuals implementing, numerous unprecedented measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place/stay-at-home and social distancing orders, and shutdowns.
These measures have impacted and may further impact our workforce and operations, the operations of our customers, and those of our respective vendors, suppliers, and partners.
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Although we have in the past engaged in a series of cost reduction actions, such expense reductions alone will not make us profitable or allow us to sustain profitability if it is achieved, and eliminating or reducing strategic initiatives could limit our opportunities and prospects.
−Removed: Our ability to achieve profitability will depend on increased revenue growth from, among other things, increased demand for our memory subsystems and other product offerings and our ability to monetize our intellectual property.
+Added: Our ability to achieve profitability will depend on increased revenue growth from, among other things, increased demand for our product offerings and our ability to monetize our intellectual property.
We may not be successful in any of these pursuits, and we may never achieve profitability or sustain profitability if achieved.
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However, 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.
+Added: Moreover, the SVIC Note will mature in 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.
+Added: 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.
Further, some or all of our ongoing or planned investments may not be successful and could further deplete our capital without immediate, or any, cash returns.
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If we incur additional debt, it may increase our leverage relative to our earnings or to our equity capitalization or have other material consequences.
−Removed: 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.
−Removed: Moreover, we may incur substantial costs in pursuing any future capital-raising transactions, including
−Removed: 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.
+Added: If we pursue asset or technology sales or
+Added: 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.
+Added: 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.
We may be unsuccessful in monetizing our intellectual property portfolio.
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● limiting our ability to incur additional debt when needed, on acceptable terms or at all.
−Removed: We are and expect to continue to be involved in legal proceedings at the ITC to try to stop allegedly infringing SK hynix RDIMM and LRDIMM products from entering the United States, as well as legal proceedings in U.S.
−Removed: and international courts to seek damages for the alleged patent infringement.
−Removed: Our involvement in these proceedings, as well as steps we have taken to implement certain of our strategies in connection with these proceedings, subject us to a number of risks.
−Removed: We have taken action to protect and defend our innovations by filing legal proceedings for patent infringement against SK hynix, Inc., a South Korean memory semiconductor supplier (“SK hynix”) and two of its subsidiaries in the U.S.
−Removed: International Trade Commission (“ITC”), U.S.
−Removed: district court and the courts of Germany and the People’s Republic of China (the “PRC”).
−Removed: In our two separate ITC actions, we have requested exclusion orders that direct U.S.
−Removed: Customs and Border Protection to stop allegedly infringing SK hynix registered dual in-line memory modules (“RDIMM”) and load reduced dual in-line memory modules (“LRDIMM”) products from entering the United States.
−Removed: district court and international court proceedings, we are primarily seeking damages.
−Removed: Our first ITC action was resolved in January 2018 with a final determination of no infringement of the patents asserted in this action.
−Removed: The Company appealed this final determination to the Court of Appeals for the Federal Circuit where on December 12, 2019, the CAFC dismissed our appeal as moot.
−Removed: In our second ITC action, the ITC terminated the investigation in April 2018, but then restarted the investigation in May 2018 following a Remand order from the ITC Commission and it remains ongoing.
−Removed: Netlist received a final determination on April 7, 2020 finding no violation of section 337 of the Tariff Act of 1930, as amended in its second ITC proceeding.
−Removed: Although other court proceedings remain ongoing, the loss of the first and second ITC actions could negatively impact our prospects for positive results in these other proceedings.
−Removed: Moreover, if we do not achieve a positive result in other proceedings, then we will have invested significant time and funds in the first and second ITC actions that will not be recovered with any cash returns.
−Removed: On January 31, 2019, the Munich District Court (the “Court”) dismissed an action brought by us against SK hynix Inc.
−Removed: and Hewlett-Packard GmbH regarding the infringement of our German utility model.
−Removed: In its judgment the Court followed a different claim construction than advocated by us whereby it did not find our utility model to be infringed.
−Removed: Our remaining proceedings against SK hynix, as with any intellectual property litigation, are expensive and time-consuming, regardless of the merits of the claims, and could divert management’s attention from our other activities.
−Removed: Even if we are successful at the ITC, we would then need to enforce the order, which could also be expensive, time-consuming and a diversion to management.
−Removed: In addition, lawsuits in the ITC and in courts are subject to inherent uncertainties due to the complexity of the technical issues involved and various other factors, and we may not be successful in any of our actions.
−Removed: For example, if we are countersued by SK hynix and lose the suit, we could be required to pay substantial damages or lose some of our intellectual property protections.
−Removed: Furthermore, we may not be able to reach a settlement with SK hynix to license our patent portfolio, and even if we are able to reach a settlement, the terms of the arrangement may not be as favorable as we anticipated.
−Removed: Any of the foregoing could cause us to incur significant costs, decrease the perceived value of our intellectual property and materially adversely affect our business, financial condition or results of operations.
−Removed: We have taken steps intended to solidify our position and strategy in connection with our proceedings against SK hynix.
−Removed: In May 2017, we established a funding arrangement with TRGP, which generally provides that TRGP will directly fund the costs incurred by us or on our behalf in connection with certain of our SK hynix proceedings (including our first ITC action and our U.S.
−Removed: district court proceedings, but excluding our second ITC action and our proceedings in international courts), and in exchange for such funding, we agreed to pay to TRGP the amount of its funding plus an escalating premium if and when we recover any proceeds from the funded proceedings, and we have granted to TRGP a first-priority lien on the claims underlying the funded proceedings and any proceeds received from the funded proceedings and a second-priority lien on our patents that are the subject of the funded proceedings.
−Removed: We established this funding arrangement in order to provide us with increased security that we will be able to vigorously pursue our claims against SK hynix through their final resolution, but the arrangement also involves certain risks, including, among others, our obligation to use a portion of any proceeds we may receive from these proceedings to repay the funded amounts at a premium.
−Removed: On January 29, 2020, Netlist, Inc.
−Removed: and TRGP entered into a First Amendment to the funding arrangement.
−Removed: Under the First Amendment, the parties agreed to modify the recovery sharing formula related to claims against SK hynix.
−Removed: Our arrangement with TRGP only covers fees incurred in connection with certain of our outstanding proceedings against SK hynix, and we are responsible for funding costs related to our other outstanding proceedings and any future actions we may file.
−Removed: As a result, our ability to fund all of our proceedings against SK hynix may be limited to our own cash resources, in which case we may be forced to severely limit our pursuit of these claims and/or our other operations.
−Removed: In addition, in April 2017, we adopted a rights agreement to implement a standard “poison pill.” In general terms, for so long as the rights issued under the rights agreement are outstanding, the rights agreement prevents any person or group from acquiring a significant percentage of our outstanding capital stock or attempting a hostile takeover of our Company by significantly diluting the ownership percentage of such person or group.
−Removed: The rights agreement, as amended, expires on April 17, 2021.
−Removed: As a result, the rights agreement has a significant anti-takeover effect.
−Removed: Our board of directors approved the rights agreement as part of our strategy in connection with our proceedings against SK hynix, with the intent of disconnecting our market capitalization from the damages calculations and any settlement negotiations that may develop in connection with these proceedings.
−Removed: However, the rights agreement may not have the intended, or any, impact on these proceedings or any related settlement negotiations, but would have the anti-takeover effect of any standard “poison pill” and thus would involve the risks associated with these anti-takeover effects, which are described elsewhere in these risk factors.
We are and expect to continue to be involved in other legal and administrative proceedings to enforce or protect our intellectual property rights and to defend against claims that we infringe the intellectual property rights of others.
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Our business strategy includes litigating claims against others, such as our competitors and customers, to enforce our intellectual property, contractual and commercial rights, including, in particular, our patent portfolio and our trade secrets, as well as to challenge the validity and scope of the proprietary rights of others.
−Removed: This or other similar
−Removed: proceedings could also subject us to counterclaims or countersuits against us, or the parties we sue could seek to invalidate our patents or other intellectual property rights through reexamination or similar processes at the USPTO or similar bodies.
+Added: This or other similar proceedings could also subject us to counterclaims or countersuits against us, or the parties we sue could seek to invalidate our patents or other intellectual property rights through reexamination or similar processes at the USPTO or similar bodies.
Further, any legal disputes with customers could cause them to cease buying or using our products or the component products we resell or delay their purchase of these products and could substantially damage our relationship with them.
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Making use of new technologies and entering new markets increases the likelihood that others might allege that our products or the component products we resell infringe their intellectual property rights.
−Removed: The likelihood of this type of lawsuit may also be increased due to the limited pool of experienced technical personnel that we can draw on to meet our hiring needs.
+Added: The likelihood of this type of
+Added: lawsuit may also be increased due to the limited pool of experienced technical personnel that we can draw on to meet our hiring needs.
As a result, a number of our existing employees have worked for our existing or potential competitors at some point during their careers, and we anticipate a number of our future employees will have similar work histories.
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Although we expect these memory subsystems to continue to account for a portion of our revenues, we have experienced declines in sales of these products in recent periods, and these declines could continue or intensify in the future.
−Removed: We believe market acceptance of these products or derivative products that incorporate our core memory subsystem
−Removed: technology is critical to our success, and any continued decline in sales of these products could have a material adverse impact on our performance and long-term prospects.
+Added: We believe market acceptance of these products or derivative products that incorporate our core memory subsystem technology is critical to our success, and any continued decline in sales of these products could have a material adverse impact on our performance and long-term prospects.
We have invested significant research and development time and capital in the design of ASIC and hybrid devices, including our NVvault family of products and our next-generation HybriDIMM memory subsystem.
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Further, we may not be able to sell some of our products developed for one customer to a different customer because our products are often customized to address specific customer requirements, and even if we are able to sell these products to another customer, our margin on these products may be reduced.
−Removed: Additionally, although customers are generally allowed only limited rights of return after
−Removed: purchasing our products or the component products we resell, we may determine that it is in our best interest to accept returns from certain large or key customers even if we are not contractually obligated to accept them in order to maintain good relations with these customers.
+Added: Additionally, although customers are generally allowed only limited rights of return after purchasing our products or the component products we resell, we may determine that it is in our best interest to accept returns from certain large or key customers even if we are not contractually obligated to accept them in order to maintain good relations with these customers.
Any returns beyond our expectations could negatively impact our operating results.
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Moreover, if we are not able to obtain these components in the amounts needed on a timely basis and at commercially reasonable prices, we may not be able to develop or introduce new products, we may experience significant increases in our cost of sales if we are forced to procure components from alternative suppliers and are not able to negotiate favorable terms with these suppliers, or we may be forced to cease our sales of products dependent on the components or resales of the components we sell to customers directly.
−Removed: Our dependence on a small number of suppliers and the lack of any guaranteed sources for the essential components of our products and the components we resell expose us to several risks, including the inability to obtain an
−Removed: adequate supply of these components, increases in their costs, delivery delays and poor quality.
+Added: Our dependence on a small number of suppliers and the lack of any guaranteed sources for the essential components of our products and the components we resell expose us to several risks, including the inability to obtain an adequate supply of these components, increases in their costs, delivery delays and poor quality.
Additionally, our customers qualify certain of the components provided by our suppliers for use in their systems.
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Additionally, if and to the extent we enter new markets or pursue licensing arrangements to monetize our technologies and intellectual property portfolio, we may face competition from a large number of competitors that produce solutions utilizing similar or competing technologies.
−Removed: Some of our customers and suppliers may have proprietary products or technologies that are competitive with our products or the components we resell to them or could develop internal solutions or enter into strategic relationships
−Removed: with, or acquire, other high-density memory module or component providers.
+Added: Some of our customers and suppliers may have proprietary products or technologies that are competitive with our products or the components we resell to them or could develop internal solutions or enter into strategic relationships with, or acquire, other high-density memory module or component providers.
Any of these actions could reduce our customers’ demand for our products or the component products we resell.
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During these downturns, product demand diminishes, production capacity exceeds demand, inventory levels increase and average sale prices decline, all of which would materially adversely impact our business and operating results.
−Removed: In addition, because many of our costs and operating expenses are relatively fixed, if we are unable to control our expenses adequately in response to reduced product demand and sales, our gross margins and cash flows would be negatively impacted.
+Added: In addition, because many of
+Added: our costs and operating expenses are relatively fixed, if we are unable to control our expenses adequately in response to reduced product demand and sales, our gross margins and cash flows would be negatively impacted.
Further, such a downturn could decrease the perceived value of our intellectual property portfolio and reduce our ability to pursue our intellectual property monetization objectives.
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If we overestimate customer demand, we may have excess component or finished goods inventory, which may not be able to be used in other products or resold and may become obsolete before any such use or resale.
−Removed: If there is a subsequent
−Removed: decline in the prices of components, the value of our inventory would fall and we may be required to write-down the value of our component inventory, which may result in a significant increase in our cost of sales and decrease in our gross margin.
+Added: If there is a subsequent decline in the prices of components, the value of our inventory would fall and we may be required to write-down the value of our component inventory, which may result in a significant increase in our cost of sales and decrease in our gross margin.
In the past, we have had to write-down inventory due to obsolescence, excess quantities and declines in market value below our costs.
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In addition, if our product demand forecasts are wrong, we may understate or overstate the provision required for excess and obsolete inventory.
−Removed: If our inventories are determined to be overvalued, we would be required to recognize additional expense in our cost of sales at the time of the determination.
+Added: If our inventories are determined to be overvalued, we would be required to recognize
+Added: additional expense in our cost of sales at the time of the determination.
Conversely, if our inventories are determined to be undervalued, we may have over-reported our costs of sales in previous periods and would be required to recognize additional gross profit at the time the inventories are sold.
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As we manufacture new and more complex products, the risk of encountering delays, difficulties or higher costs increases.
−Removed: In addition, the start-up costs associated with implementing
−Removed: new manufacturing technologies, methods and processes, including the purchase of new equipment and any resulting manufacturing delays and inefficiencies, could negatively impact our results of operations.
+Added: In addition, the start-up costs associated with implementing new manufacturing technologies, methods and processes, including the purchase of new equipment and any resulting manufacturing delays and inefficiencies, could negatively impact our results of operations.
Additionally, we could experience a prolonged disruption, material malfunction, interruption or other loss of operations at our manufacturing facility for any number of reasons, including the occurrence of a contagious disease or illness, such as COVID-19, or catastrophic weather events, or we may need to add manufacturing capacity to satisfy any increased demand for our products.
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Any need to expand or replace our manufacturing facility would be expensive and time-consuming and could also subject us to factory audits by our customers that could themselves result in delays, unexpected costs or customer losses if we cannot meet the standards of any such audits.
−Removed: Further, we may not be able to replace or increase our manufacturing capacity at all.
+Added: Further, we may not be able to replace or increase our manufacturing
+Added: capacity at all.
The occurrence of any of these events could have a material adverse effect on our business, financial condition and results of operations.
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As is common in our industry, we have a number of agreements in which we have agreed to defend, indemnify and hold harmless our customers and suppliers from damages and costs that may arise from the infringement by our products of third-party patents, trademarks or other proprietary rights.
−Removed: The scope of these indemnities varies, the duration of these indemnities is generally perpetual after execution of an agreement, and the maximum potential amount of future
−Removed: payments we could be required to make under these indemnities is often unlimited.
+Added: The scope of these indemnities varies, the duration of these indemnities is generally perpetual after execution of an agreement, and the maximum potential amount of future payments we could be required to make under these indemnities is often unlimited.
Any indemnification claims by customers could require us to incur significant legal fees and could potentially result in our payment of substantial damages, and our insurance generally would not cover these fees or damages.
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We do not have employment agreements with any of our employees other than Chun K.
−Removed: Hong, our President, Chief Executive Officer and Chairman of our board of directors, and as a result most of our employees may terminate their employment with us at any time.
+Added: Hong, our President, Chief Executive Officer and sole member of our board of
+Added: directors, and as a result most of our employees may terminate their employment with us at any time.
We maintain “Key Man” life insurance on Mr.
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Foreign Corrupt Practices Act and similar anti-bribery laws in the non-U.S.
−Removed: jurisdictions in which we operate, as well as
−Removed: a wide variety of other complex foreign laws, regulations and treaties;
+Added: jurisdictions in which we operate, as well as a wide variety of other complex foreign laws, regulations and treaties;
and potentially adverse tax consequences.
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Any failure or malfunctioning of our global information technology systems, errors or misuse by system users, difficulties migrating stand-alone systems to our centralized systems or inadequacy of the systems in addressing the needs of our operations could disrupt our ability to timely and accurately manufacture and ship products, divert management’s and key employees’ attention from other business matters and involve significant costs and other resources to repair or otherwise resolve, any of which could have a material adverse effect on our business, financial condition and results of operations.
−Removed: Any such event could also disrupt our ability to timely and accurately process, report and evaluate key operating metrics and key components of our results of operations, financial position and cash flows and could adversely
−Removed: affect our ability to complete other important business processes, such as maintenance of our disclosure controls and procedures and internal control over financial reporting.
+Added: Any such event could also disrupt our ability to timely and accurately process, report and evaluate key operating metrics and key components of our results of operations, financial position and cash flows and could adversely affect our ability to complete other important business processes, such as maintenance of our disclosure controls and procedures and internal control over financial reporting.
While our information technology systems include security measures designed to prevent unauthorized access, employee error, employee malfeasance or other causes, including intentional misconduct by computer hackers, could circumvent these measures and result in unauthorized access to these systems.
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or foreign data protection laws that are applicable to us, including the California Consumer Privacy Act which went into effect in January 2020.
−Removed: These laws and their interpretation and application are constantly evolving, and they could be interpreted and applied in a manner that is inconsistent with our current practices or they could become more stringent over time.
+Added: These laws and their interpretation and application are
+Added: constantly evolving, and they could be interpreted and applied in a manner that is inconsistent with our current practices or they could become more stringent over time.
Efforts to comply with applicable data protection laws or any new interpretations of their application could involve significant time and substantial costs or require us to change our business practices and compliance procedures, and any failures to so comply could subject us to substantial civil or criminal fines or sanctions.
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These laws and rules require companies to verify and disclose whether or not such minerals, as used in a company’s products or their manufacture, originate from the Democratic Republic of Congo or an adjoining country.
−Removed: Because our products contain certain conflict minerals and we or our manufacturers use these
−Removed: conflict minerals in the manufacture of our products, we are required to comply with these laws and disclosure rules.
+Added: Because our products contain certain conflict minerals and we or our manufacturers use these conflict minerals in the manufacture of our products, we are required to comply with these laws and disclosure rules.
To comply, we are required to conduct a reasonable country of origin inquiry each year and, depending on the results of that inquiry, we may be required to exercise due diligence on the source and chain of custody of conflict minerals contained in or used to manufacture our products.
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Further, these rules could affect the availability in sufficient quantities and at competitive prices of certain minerals used in our products and their manufacture, which could result in increased material and component costs and additional costs associated with potential changes to our products, processes or sources of supply.
−Removed: Additionally, if we are unable to sufficiently verify the origin of the minerals used in our products through the due diligence measures we implement, we may not be able to satisfy customer preferences or requirements regarding the use of conflict minerals in the products they purchase, which could place us at a competitive disadvantage.
−Removed: Our internal control over financial reporting may not be effective, which could have a significant and adverse effect on our business.
+Added: Additionally, if we are unable to sufficiently verify the origin of the minerals used in our products through the due diligence measures
+Added: we implement, we may not be able to satisfy customer preferences or requirements regarding the use of conflict minerals in the products they purchase, which could place us at a competitive disadvantage.
+Added: We have identified a material weakness in our internal control over financial reporting.
+Added: If we are unable to remediate the material weakness, or if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect our business.
+Added: A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
+Added: As described in “Item 4.
+Added: Controls and Procedures,” we have concluded that our internal control over financial reporting was ineffective as of September 26, 2020 due to a material weakness.
+Added: The identified material weakness, at September 26, 2020, relates to the lack of an independent audit committee.
+Added: While the control deficiency identified did not result in any identified misstatements, a reasonable possibility exists that a material misstatement to the annual or interim consolidated financial statements and disclosures will not be prevented or detected on a timely basis.
+Added: In an effort to remediate the identified material weakness and enhance our internal controls, our finance and accounting personnel are continuing to follow all of the same procedures that they undertook in preparation for independent audit committee meetings on a quarterly and annual basis.
+Added: Our CEO and sole director will oversee these processes and review materials prepared by the finance and accounting staff as well as our independent auditors on a quarterly and annual basis.
+Added: If our remedial measures are insufficient to address the material weakness, or if additional material weaknesses or significant deficiencies in our internal control over financial reporting occur in the future, we may not be able to timely or accurately report our results of operations or maintain effective disclosure controls and procedures.
+Added: If we are unable to report financial information timely or accurately, or to maintain effective disclosure controls and procedures, we could be required to restate our financial statements and be subject to, among other things, regulatory or enforcement actions, securities litigation, limitations on our ability to access capital markets, debt rating agency downgrades or rating withdrawals, or loss in confidence of our investors, any one of which could adversely affect the valuation of our common stock and our business prospects.
+Added: We can give no assurance that the measures we have taken and plan to take in the future will remediate the material weakness identified or that any additional material weaknesses will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting.
+Added: We are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act of 2002, as amended that place significant demands on our resources.
Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC, which we collectively refer to as Section 404, require us to evaluate our internal control over financial reporting and require management to report on the effectiveness of this internal control as of the end of each fiscal year.
In addition, if and when we are no longer a “smaller reporting company” under applicable SEC rules, Section 404 will require us to obtain an attestation report from our independent registered public accounting firm as to our internal control over financial reporting.
−Removed: Effective internal control is necessary for us to produce accurate and reliable financial reports and is important in our efforts to prevent financial fraud.
−Removed: In the course of our Section 404 evaluations, we or our independent registered public accounting firm may identify significant deficiencies or material weaknesses in our internal control over financial reporting.
−Removed: If we fail to maintain an effective system of internal control over financial reporting or if management or our independent registered public accounting firm discover significant deficiencies or material weaknesses, we may be unable to produce accurate and reliable financial reports or prevent fraud, which could result in a loss of customer or investor confidence in us or our public disclosures and negatively impact our stock price.
−Removed: Any of these outcomes could harm our financial condition and results of operations.
−Removed: Further, our Section 404 evaluations may lead us to conclude that enhancements, modifications or changes to our internal control over financial reporting are necessary or desirable.
+Added: Our Section 404 evaluations may lead us to conclude that enhancements, modifications or changes to our internal control over financial reporting are necessary or desirable.
Implementing any such changes would divert the attention of management, involve significant time and costs and negatively impact our financial reporting functions during the transition, any of which could have a material negative effect on our results of operations and financial condition.
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August 10, 2020
+Added: Amendment No.
+Added: 3 to Rights Agreement, dated as of August 14, 2020, by and between Netlist, Inc.
+Added: and Computershare Trust Company, N.A., as rights agent
+Added: August 14, 2020
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
10 unchanged sentences
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
−Removed: August 11, 2020
+Added: November 10, 2020
Netlist, Inc.
−Removed: President, Chief Executive Officer and Chairman of the Board
+Added: President, Chief Executive Officer and Sole Director
(Principal Executive Officer)
3 unchanged sentences
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.