NETLIST INC 10-K

Item 8. Financial Statements and Supplementary Dat a ​ ​ ​ ​ ​ Index to Consolidated Financial Statements Page Consolidated Balance Sheets ​ 49 Consolidated Statements of Operations ​ 50 Consolidated Statements of Stockholders’ Deficit ​ 51 Consolidated Statements of Cash Flows ​ 52 Notes to Consolidated Financial Statements ​ 53 Report of Independent Registered Public Accounting Firm ​ 78 ​ All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and accompanying notes. ​ ​ ​ ​ 48 Table of Contents Netlist, Inc. and Subsidiaries ​ CONSOLIDATED BALANCE SHEETS (in thousands, except par value amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ January 2, ​ December 28, ​ 2021 ​ 2019 ASSETS ​ ​ ​ ​ ​ ​ Current Assets: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 13,326 ​ $ 8,966 Restricted cash ​ ​ 3,200 ​ ​ 2,750 Accounts receivable, net of allowances of $157 (2020) and $61 (2019) ​ ​ 4,680 ​ ​ 3,672 Inventories ​ ​ 3,198 ​ ​ 3,496 Prepaid expenses and other current assets ​ ​ 514 ​ ​ 627 Total current assets ​ ​ 24,918 ​ ​ 19,511 Property and equipment, net ​ ​ 182 ​ ​ 286 Operating lease right-of-use assets ​ ​ 114 ​ ​ 968 Other assets ​ ​ 58 ​ ​ 1,376 Total assets ​ $ 25,272 ​ $ 22,141 ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND STOCKHOLDERS' DEFICIT ​ ​ ​ ​ ​ ​ Current Liabilities: ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 5,327 ​ $ 9,134 Revolving line of credit ​ ​ 3,678 ​ ​ 2,990 Accrued payroll and related liabilities ​ ​ 806 ​ ​ 740 Accrued expenses and other current liabilities ​ ​ 777 ​ ​ 793 Long-term debt due within one year ​ ​ 17,056 ​ ​ 412 Total current liabilities ​ ​ 27,644 ​ ​ 14,069 Long-term debt ​ ​ 146 ​ ​ 15,793 Operating lease liabilities ​ ​ — ​ ​ 498 Other liabilities ​ ​ 102 ​ ​ 144 Total liabilities ​ ​ 27,892 ​ ​ 30,504 Commitments and contingencies ​ ​ ​ ​ ​ ​ Stockholders' deficit: ​ ​ ​ ​ ​ ​ Preferred stock, $0.001 par value—10,000 shares authorized: Series A preferred stock, $0.001 par value; 1,000 shares authorized; none issued and outstanding ​ ​ — ​ ​ — Common stock, $0.001 par value—450,000 shares authorized; 195,978 (2020) and 169,539 (2019) shares issued and outstanding ​ ​ 195 ​ ​ 169 Additional paid-in capital ​ ​ 192,071 ​ ​ 179,086 Accumulated deficit ​ ​ (194,886) ​ ​ (187,618) Total stockholders' deficit ​ ​ (2,620) ​ ​ (8,363) Total liabilities and stockholders' deficit ​ $ 25,272 ​ $ 22,141 ​ See accompanying notes to consolidated financial statements. ​ ​ ​ 49 Table of Contents Netlist, Inc. and Subsidiaries ​ CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ January 2, ​ December 28, ​ 2021 2019 Net sales ​ $ 47,234 ​ $ 26,103 Cost of sales ​ ​ 40,503 ​ ​ 23,533 Gross profit ​ ​ 6,731 ​ ​ 2,570 Operating expenses: ​ ​ ​ ​ ​ ​ Research and development ​ ​ 2,953 ​ ​ 2,383 Intellectual property legal fees ​ ​ 2,368 ​ ​ 4,131 Selling, general and administrative ​ ​ 8,247 ​ ​ 7,546 Total operating expenses ​ ​ 13,568 ​ ​ 14,060 Operating loss ​ ​ (6,837) ​ ​ (11,490) Other expense, net: ​ ​ ​ ​ ​ ​ Interest expense, net ​ ​ (531) ​ ​ (945) Other income (expense), net ​ ​ 101 ​ ​ (4) Total other expense, net ​ ​ (430) ​ ​ (949) Loss before provision for income taxes ​ ​ (7,267) ​ ​ (12,439) Provision for income taxes ​ ​ 1 ​ ​ 13 Net loss ​ $ (7,268) ​ $ (12,452) ​ ​ ​ ​ ​ ​ ​ Net loss per common share: ​ ​ ​ ​ ​ ​ Basic and diluted ​ $ (0.04) ​ $ (0.08) Weighted-average common shares outstanding: ​ ​ ​ ​ ​ ​ Basic and diluted ​ ​ 183,594 ​ ​ 148,132 ​ ​ See accompanying notes to consolidated financial statements. 50 Table of Contents ​ Netlist, Inc. and Subsidiaries ​ CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ Total ​ ​ Common Stock ​ Paid-in ​ Accumulated ​ Stockholders' ​ Shares Amount Capital Deficit Deficit Balance, December 29, 2018 ​ 139,283 ​ $ 139 ​ $ 169,355 ​ $ (175,166) ​ $ (5,672) Net loss ​ — ​ ​ — ​ ​ — ​ ​ (12,452) ​ ​ (12,452) Issuance of common stock, net, and commitment shares ​ 20,387 ​ ​ 20 ​ ​ 6,332 ​ ​ — ​ ​ 6,352 Common stock issued on conversion of Iliad Note ​ 9,167 ​ ​ 9 ​ ​ 2,439 ​ ​ — ​ ​ 2,448 Exercise of stock options ​ 175 ​ ​ — ​ ​ 49 ​ ​ — ​ ​ 49 Stock-based compensation ​ — ​ ​ — ​ ​ 989 ​ ​ — ​ ​ 989 Restricted stock units vested and distributed ​ 749 ​ ​ 1 ​ ​ (1) ​ ​ — ​ ​ — Tax withholdings related to net share settlements of equity awards ​ (222) ​ ​ — ​ ​ (77) ​ ​ — ​ ​ (77) Balance, December 28, 2019 ​ 169,539 ​ ​ 169 ​ ​ 179,086 ​ ​ (187,618) ​ ​ (8,363) Net loss ​ — ​ ​ — ​ ​ — ​ ​ (7,268) ​ ​ (7,268) Issuance of common stock, net, and commitment shares ​ 25,490 ​ ​ 25 ​ ​ 12,149 ​ ​ — ​ ​ 12,174 Issuance of warrants ​ — ​ ​ — ​ ​ 145 ​ ​ — ​ ​ 145 Exercise of stock options ​ 226 ​ ​ — ​ ​ 32 ​ ​ — ​ ​ 32 Exercise of warrants ​ 256 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Stock-based compensation ​ — ​ ​ — ​ ​ 763 ​ ​ — ​ ​ 763 Restricted stock units vested and distributed ​ 801 ​ ​ 1 ​ ​ (1) ​ ​ — ​ ​ — Tax withholdings related to net share settlements of equity awards ​ (334) ​ ​ — ​ ​ (103) ​ ​ — ​ ​ (103) Balance, January 2, 2021 ​ 195,978 ​ $ 195 ​ $ 192,071 ​ $ (194,886) ​ $ (2,620) ​ See accompanying notes to consolidated financial statements. 51 Table of Contents ​ Netlist, Inc. and Subsidiaries ​ CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ January 2, ​ December 28, ​ 2021 2019 Cash flows from operating activities: ​ ​ ​ ​ ​ ​ Net loss ​ $ (7,268) ​ $ (12,452) Adjustments to reconcile net loss to net cash used in operating activities: ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ ​ 147 ​ ​ 172 Interest accrued on convertible promissory notes ​ ​ 309 ​ ​ 415 Amortization of debt discounts ​ ​ 212 ​ ​ 480 Non-cash lease expense ​ ​ 489 ​ ​ 534 Stock-based compensation ​ ​ 763 ​ ​ 989 Issuance of warrants in lieu of payment ​ ​ 145 ​ ​ — Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ Accounts receivable ​ ​ (1,008) ​ ​ (755) Inventories ​ ​ 298 ​ ​ (550) Prepaid expenses and other assets ​ ​ 1,693 ​ ​ 480 Accounts payable ​ ​ (3,807) ​ ​ (363) Accrued payroll and related liabilities ​ ​ 66 ​ ​ 136 Accrued expenses and other liabilities ​ ​ (173) ​ ​ (571) Net cash used in operating activities ​ ​ (8,134) ​ ​ (11,485) Cash flows from investing activities: ​ ​ ​ ​ ​ ​ Acquisition of property and equipment ​ ​ (43) ​ ​ (83) Net cash used in investing activities ​ ​ (43) ​ ​ (83) Cash flows from financing activities: ​ ​ ​ ​ ​ ​ Net borrowings under line of credit ​ ​ 688 ​ ​ 697 Proceeds from issuance of long-term debt ​ ​ 637 ​ ​ — Principal repayments under finance lease ​ ​ (18) ​ ​ (13) Payments on note payable ​ ​ (423) ​ ​ (376) Proceeds from issuance of common stock, net ​ ​ 12,174 ​ ​ 6,352 Proceeds from exercise of stock options ​ ​ 32 ​ ​ 49 Payments for taxes related to net share settlement of equity awards ​ ​ (103) ​ ​ (77) Net cash provided by financing activities ​ ​ 12,987 ​ ​ 6,632 Net change in cash, cash equivalents and restricted cash ​ ​ 4,810 ​ ​ (4,936) Cash, cash equivalents and restricted cash at beginning of period ​ ​ 11,716 ​ ​ 16,652 Cash, cash equivalents and restricted cash at end of period ​ $ 16,526 ​ $ 11,716 ​ ​ ​ ​ ​ ​ ​ Reconciliation of cash, cash equivalents and restricted cash at end of period: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 13,326 ​ $ 8,966 Restricted cash ​ ​ 3,200 ​ ​ 2,750 Cash, cash equivalents and restricted cash at end of period ​ $ 16,526 ​ $ 11,716 ​ See accompanying notes to consolidated financial statements. ​ ​ 52 Table of Contents ​ Netlist, Inc. and Subsidiaries ​ Notes to Consolidated Financial Statements ​ Note 1—Description of Business ​ Netlist, Inc. and its wholly-owned subsidiaries (collectively the “Company” or “Netlist”) provides high-performance modular memory subsystems to customers in diverse industries that require enterprise and storage class memory solutions to empower critical business decisions. The Company has a history of introducing disruptive new products, such as one of the first load-reduced dual in-line memory modules (“LRDIMM”) based on its distributed buffer architecture, which has been adopted by the industry for DDR4 LRDIMM. The Company was also one of the first to bring NAND flash memory (“NAND flash”) to the memory channel with its NVvault non-volatile dual in-line memory modules (“NVDIMM”) using software-intensive controllers and merging dynamic random access memory integrated circuits (“DRAM ICs” or “DRAM”) and NAND flash to solve data bottleneck and data retention challenges encountered in high-performance computing environments. The Company has introduced a new generation of storage class memory products called HybriDIMM to address the growing need for real-time analytics in Big Data applications, in-memory databases, high performance computing and advanced data storage solutions. The Company also resells 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. ​ Due to the ground-breaking product development of its engineering teams, Netlist has built a robust portfolio of over 130 issued and pending U.S. and foreign patents, many seminal, in the areas of hybrid memory, storage class memory, rank multiplication and load reduction. Since its inception, the Company has dedicated substantial resources to the development, protection and enforcement of technology innovations it believes are essential to its business. The Company’s early pioneering work in these areas has been broadly adopted in industry-standard registered dual in-line memory module (“RDIMM”), LRDIMM and NVDIMM. Netlist’s objective is to continue to innovate in its field and invest further in its intellectual property portfolio, with the goal of monetizing its intellectual property through a combination of product sales and licensing, royalty or other revenue-producing arrangements, which may result from joint development or similar partnerships or defense of the Company’s patents through enforcement actions against parties it believes are infringing them. ​ Netlist was incorporated in June 2000 and is headquartered in Irvine, California. The Company has established a manufacturing facility in the People’s Republic of China (“PRC”), which became operational in July 2007. The Company operates in one reportable segment, which is the design and manufacture of high-performance memory subsystems for the server, high-performance computing and communications markets. ​ Liquidity ​ The Company incurred net loss of $7.3 million and $12.5 million for 2020 and 2019, respectively. The Company has historically financed its operations primarily with revenues generated from operations, including product sales, and proceeds from issuances of debt and equity securities (see Notes 5 and 9). The Company has also funded its operations with a revolving line of credit under a bank credit facility and a funding arrangement for costs associated with certain of its legal proceedings (see Notes 4, 5 and 8). ​ On August 27, 2018, the Company entered into a Securities Purchase Agreement with Iliad Research and Trading, L.P. (“Iliad”) (“Iliad Purchase Agreement”), pursuant to which the Company issued a convertible promissory note in the principal amount of $2.3 million (“Iliad Note”) with an original issue discount of $0.2 million. The Iliad Note bore interest at an annual rate of 8% and would have matured on August 27, 2020, unless earlier repurchased, redeemed or converted in accordance with its terms. During 2019, Iliad fully-converted the outstanding principal and accrued interest on the Iliad Note to shares of the Company’s common stock, and as a result, there were no outstanding principal and accrued interest on the Iliad Note as of December 28, 2019 (see Note 5). ​ 53 Table of Contents On June 24, 2019, the Company entered into a purchase agreement (the “2019 Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which the Company has the right to sell to Lincoln Park up to an aggregate of $10 million in shares of its 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 (see Note 9). ​ On March 5, 2020, the Company entered into another purchase agreement (the “2020 Purchase Agreement”) with Lincoln Park, pursuant to which the Company had the right to sell to Lincoln Park up to an aggregate of $20 million in shares of its 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 (see Note 9). ​ On April 23, 2020, the Company entered into an unsecured promissory note with a principal amount of $0.6 million through Hanmi Bank under the Paycheck Protection Program (“PPP”) (“PPP Loan”) administered by the Small Business Administration (“SBA”) and established as part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) (see Note 5). ​ Inadequate working capital would have a material adverse effect on the Company’s business and operations and could cause the Company to fail to execute its business plan, fail to take advantage of future opportunities or fail to respond to competitive pressures or customer requirements. A lack of sufficient funding may also require the Company to significantly modify its business model and/or reduce or cease its operations, which could include implementing cost-cutting measures or delaying, scaling back or eliminating some or all of its ongoing and planned investments in corporate infrastructure, research and development projects, business development initiatives and sales and marketing activities, among other activities. While the Company’s estimates of its operating revenues and expenses and working capital requirements could be incorrect and the Company may use its cash resources faster than it anticipates, management believes the Company’s existing cash balance together with cash receipts from revenues, borrowing availability under a bank credit facility (see Note 4), funds available to be raised from the 2019 Lincoln Park arrangement (see Note 9) and funds raised through the debt and equity offerings, will be sufficient to meet the Company’s anticipated cash needs for at least the next 12 months. ​ Note 2—Summary of Significant Accounting Policies ​ Basis of Presentation ​ The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Company has evaluated events occurring subsequent to January 2, 2021, through the filing date of this Annual Report on Form 10-K and concluded that there were no events that required recognition and disclosures, other than those discussed elsewhere in the notes hereto. ​ Principles of Consolidation ​ The consolidated financial statements include the accounts of Netlist, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. ​ Fiscal Year ​ The Company’s fiscal year is the 52- or 53-week period that ends on the Saturday nearest to December 31. The Company’s fiscal year 2020 includes 53 weeks and ended on January 2, 2021 and its fiscal year 2019 included 52 weeks and ended on December 28, 2019. The first three quarters of fiscal year 2020 each includes 13 weeks and the fourth quarter includes 14 weeks. The four quarters of fiscal year 2019 each included 13 weeks. Unless otherwise stated, references to particular years, quarters, months and periods refer to the Company’s fiscal years ended in January or December and the associated quarters, months and periods of those fiscal years. ​ 54 Table of Contents Use of Estimates ​ The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and expenses. Significant items subject to such estimates and assumptions include provisions for uncollectible receivables and sales returns, warranty liability, valuation of inventories, fair value of financial instruments, useful lives and impairment of property and equipment, inputs used to value stock-based compensation and convertible debt instruments and the realization of deferred tax assets. Actual results may differ materially from those estimates. ​ Recently Adopted Accounting Guidance ​ In the first quarter of 2020, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force) (“ASU 2018-15”), which amends the accounting for implementation, setup, and other upfront costs in a hosting arrangement that is a service contract. The adoption of ASU 2018-15 did not have an impact on the Company’s consolidated financial statements. ​ In the first quarter of 2020, the Company adopted FASB ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which removes, modifies, and adds various disclosure requirements on fair value measurements in Topic 820. The adoption of ASU 2018-13 did not have an impact on the Company’s consolidated financial statements. ​ Recently Issued Accounting Guidance ​ In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes , which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This ASU also clarifies and simplifies other aspects of the accounting for income taxes. The ASU will be effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years and early adoption is permitted. Certain amendments of this ASU may be adopted on a retrospective basis, modified retrospective basis or prospective basis. The Company does not expect material impacts from adopting this ASU on its consolidated financial statements. ​ In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity . This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity's own equity, and also improves and amends the related earnings per share guidance for both Subtopics. The ASU will be effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years and early adoption is permitted. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements. ​ Revenue Recognition ​ Revenue is recognized when control is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods and services. Revenue recognition is evaluated through the five steps outlined within the guidance. Substantially all of the Company’s net sales relate to products sold at a point in time through ship-and-bill performance obligations. At contract inception, an assessment of the goods and services promised in the contracts with customers is performed and a performance obligation is identified for each distinct promise to transfer to the customer a good or service (or bundle of goods or services). To identify the performance obligations, the Company considers all of the goods or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. Contracts with customers are comprised of customer purchase orders, invoices (including the Company’s standard terms and conditions) and written contracts. ​ 55 Table of Contents Performance Obligations ​ Net sales and related cost of sales are primarily the result of promises to transfer products to customers. For performance obligations related to substantially all of the ship-and-bill products, control transfers at a point in time when title transfers upon shipment of the product to the customer, and for some sales, control transfers when title is transferred at time of receipt by the customer. Once a product has shipped or has been delivered, the customer is able to direct the use of, and obtain substantially all of the remaining benefits from, the asset. The Company considers control to have transferred upon shipment or delivery, because the Company has a present right to payment at that time, the customer has legal title to the asset, the Company has transferred physical possession of the asset, and the customer has the significant risks and rewards of ownership of the asset. ​ Amounts billed to its customers for shipping and handling are recorded in net sales. Shipping and handling costs incurred by the Company are included in cost of sales in the accompanying consolidated statements of operations. ​ Significant Payment Terms ​ For ship-and-bill type contracts with customers, the invoice states the final terms of the sale, including the description, quantity, and price of each product purchased. Payment terms are typically due within 30 days after delivery but, in limited instances, can range up to 60 days after delivery. Accordingly, the Company’s contracts with customers do not include a significant financing component. ​ Variable Consideration ​ The Company’s revenue generating activities include variable consideration which is recorded as a reduction of the transaction price based upon expected amounts at the time revenue for the corresponding product sale is recognized. Common forms of variable consideration include limited rights of return for up to 30 days, except for sales of excess component inventories, which contain no right-of-return privileges and volume rebates for meeting established sales targets. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the anticipated performance and all information (historical, current and forecasted) that is reasonably available. ​ Returns for products sold are estimated using the expected value method and are recorded as a reduction in reported revenues at the time of sale based upon historical product return experience and is adjusted for known trends to arrive at the amount of consideration to which the Company expects to receive. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. ​ Contract Assets and Liabilities ​ The Company continually evaluates whether the revenue generating activities and advanced payment arrangements with customers result in the recognition of contract assets or liabilities. Generally, the Company does not have material amounts of contract assets since revenue is recognized as control of goods is transferred or as services are performed. As of January 2, 2021, the Company recorded a contract liability of $0.3 million related to volume rebates to a customer, which is included in accrued expenses and other current liabilities in the consolidated balance sheets. As of December 28, 2019, there was no such liability. ​ Warranties ​ The Company offers standard product warranties generally ranging from one to three years to its memory subsystem products customers, depending on the negotiated terms of any purchase agreements, and has no other post-shipment obligations or separately priced extended warranty or product maintenance contracts. These warranties require the Company to repair or replace defective product returned to the Company during the warranty period at no cost to the customer. Warranties are not offered on sales of component products. The Company records an estimate for warranty related costs at the time of sale based on its historical and estimated future product return rates and expected repair or 56 Table of Contents replacement costs. Estimated future warranty costs are recorded in the period in which the sale is recorded and are included in cost of sales in the consolidated statements of operations. ​ Cash and Cash Equivalents ​ Cash and cash equivalents consist of cash and short-term investments with original maturities of three months or less. ​ Restricted Cash ​ The Company’s restricted cash consists of cash to secure standby letters of credit (see Note 4). ​ Fair Value Measurements ​ The Company accounts for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. The Company categorizes each of its fair value measurements in one of those three levels based on the lowest level input that is significant to the fair value measurement in its entirety. ​ ● Level 1 – inputs are based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. An active market is defined as a market in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis. ● Level 2 – inputs are based on quoted prices of similar instruments in active markets, quoted prices for identical or similar instruments in market that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. ● Level 3 – inputs are generally unobservable inputs for the asset or liability, which are typically based on management’s estimates of assumptions that market participants would use in pricing the assets and liabilities. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. ​ The Company’s financial instruments consist principally of cash and cash equivalents, restricted cash, a revolving line of credit, the PPP Loan and a convertible promissory note. Cash equivalents consist of short-term investments with original maturities of three months or less and restricted cash consists of cash to secure standby letters of credit (see Note 4). The carrying value of these instruments approximates their fair value due to their short-term nature. The fair value of the revolving line of credit, the PPP Loan and convertible promissory note is estimated by using current applicable rates for similar instruments as of the balance sheet date and an assessment of the credit rating. The carrying values of the revolving line of credit as of January 2, 2021 and December 28, 2019 and the PPP Loan as of January 2, 2021 approximate fair value because the interest rate yield is near current market rates for comparable debt instruments. The fair value of the convertible promissory note is estimated by using a discounted cash flow analysis using borrowing rates available to the Company for debt instruments with similar terms and maturities and is classified in Level 2 of the valuation hierarchy. The carrying value and estimated fair value of the senior secured convertible promissory note as of January 2, 2021 were $14.8 million and $12.1 million, respectively. The carrying value and estimated fair value of the senior secured convertible promissory note as of December 28, 2019 were $14.6 million and $11.7 million, respectively. ​ Accounts Receivable, net ​ The Company extends credit to its customers. An allowance for doubtful accounts is maintained for estimated losses resulting from the inability of the Company’s customers to make required payments. The Company specifically analyzes the age of customer balances, historical bad debt experiences, customer creditworthiness and changes in customer payment terms when making estimates of the collectability of the Company’s accounts receivable balances. If the Company determines that the financial condition of any of its customers has deteriorated, whether due to customer 57 Table of Contents specific or general economic issues, an increase in the allowance may be made. After all attempts to collect a receivable have failed, the receivable is written off. ​ Concentration of Credit Risk ​ Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents, and accounts receivable. The Company invests its cash equivalents primarily in money market mutual funds. Cash equivalents are maintained with high quality institutions, the composition and maturities of which are regularly monitored by management. At times, deposits held with financial institutions may exceed the amount of insurance provided by the Federal Deposit Insurance Corporation and the Securities Investor Protection Corporation. ​ The Company’s accounts receivable are primarily derived from sales to original equipment manufacturers in the server, high-performance computing and communications markets, as well as from sales to storage customers, appliance customers, system builders and cloud and datacenter customers. The Company performs credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary, but generally requires no collateral. The Company believes the concentration of credit risk in its accounts receivable is moderated by its credit evaluation process, relatively short collection terms, a high level of credit worthiness of its customers (see Note 12), foreign credit insurance, and letters of credit issued in its favor. The allowance for credit losses is maintained, and such losses historically have not been significant and have been within management’s expectations. ​ Inventories ​ Inventories are valued at the lower of cost or the net realizable value. Cost is determined on an average cost basis which approximates actual cost on a first-in, first-out basis and includes raw materials, labor and manufacturing overhead. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company evaluates inventory balances for excess quantities and obsolescence on a regular basis by analyzing estimated demand, inventory on hand, sales levels and other information and reduce inventory balances to net realizable value for excess and obsolete inventory based on this analysis. At the point of the write-down recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. ​ Property and Equipment ​ Property and equipment are recorded at cost and depreciated on a straight-line basis over their estimated useful lives, which generally range from three to seven years. Leasehold improvements are recorded at cost and amortized on a straight-line basis over the shorter of their estimated useful lives or the remaining lease term. Expenditures for repairs and maintenance are expensed as incurred. Upon retirement or sale, the cost and related accumulated depreciation and amortization of disposed assets are removed from the accounts and any resulting gain or loss is included in other income (expense), net in the consolidated statements of operations. ​ Impairment of Long-Lived Assets ​ The Company evaluates the recoverability of the carrying value of long-lived assets held and used by the Company in its operations for impairment on at least an annual basis or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future net cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. These projected future cash flows may vary significantly over time as a result of increased competition, changes in technology, fluctuations in demand, consolidation of the Company’s customers and reductions in average sales prices. If the carrying value is determined not to be recoverable from future operating cash flows, the asset is deemed impaired and an impairment loss is recognized to the extent the carrying value exceeds the estimated fair value of the asset. The fair value of the asset or asset group is based on market 58 Table of Contents value when available, or when unavailable, on discounted expected cash flows. The management believes there is no impairment of long-lived assets as of January 2, 2021 and December 28, 2019. ​ Leases ​ The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, accrued expenses and other current liabilities, and operating lease liabilities on its consolidated balance sheets. Finance leases are included in property and equipment, accrued expenses and other current liabilities, and other liabilities in its consolidated balance sheets. ​ ROU assets represent the right of the Company to use an underlying asset for the lease term and lease liabilities represent the obligation of the Company to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. ​ The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component. The Company does not present short-term leases on the balance sheet, as those leases have a lease term of twelve months or less at inception and do not contain purchase options or renewal terms that the Company is reasonably certain to exercise. ​ Stock-Based Compensation ​ Stock-based awards are comprised principally of stock options, restricted stock awards (“RSAs”) and restricted stock units (“RSUs”). Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense over the requisite service period, which is the vesting period, on a straight-line basis, net of estimated forfeitures. The Company uses the Black-Scholes option pricing model to determine the grant date fair value of stock options. The model requires the Company to estimate the expected volatility and expected term of the stock options, which are highly complex and subjective variables. The expected volatility is based on the historical volatility of the Company’s common stock. The expected term is computed using the simplified method as the Company’s best estimate given its lack of actual exercise history. The risk-free rate selected to value any particular grant is based on the U.S. Treasury rate that corresponds to the expected term of the grant effective as of the date of the grant. The expected dividend assumption is based on the Company’s history and management’s expectation regarding dividend payouts. The grant-date fair value of RSAs and RSUs equals the closing price of the Company’s common stock on the grant date. ​ Income Taxes ​ Deferred income tax assets and liabilities are recognized for temporary differences between the financial statement carrying amounts of assets and liabilities and the amounts that are reported in the income tax returns. Deferred taxes are evaluated for realization on a jurisdictional basis. The Company records valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. In making this assessment, management analyzes future taxable income, reversing temporary differences and ongoing tax planning strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, the Company will adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income. ​ The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities based on the technical merits of the Company’s position. The tax benefit recognized in the financial statements for a particular tax position is based on the largest benefit 59 Table of Contents that is more likely than not to be realized. The amount of unrecognized tax benefits is adjusted as appropriate for changes in facts and circumstances, such as significant amendments to existing tax laws, new regulations or interpretations by the taxing authorities, new information obtained during a tax examination, or resolution of an examination. The Company recognizes both accrued interest and penalties associated with uncertain tax positions as a component of provision for income taxes in the consolidated statements of operations. ​ The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations may change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability for U.S. or foreign taxes may be materially different from the Company’s estimates, which could require the Company to record additional tax liabilities or to reduce previously recorded tax liabilities, as applicable. ​ Contingent Legal Expenses ​ Contingent legal fees are expensed in the consolidated statements of operations in the period that the related revenues are recognized. In instances where there are no recoveries from potential infringers, no contingent legal fees are paid; however, the Company may be liable for certain out of pocket legal costs incurred pursuant to the underlying legal services agreement. ​ Research and Development Expenses ​ Research and development expenditures are expensed in the period incurred. ​ Foreign Currency Remeasurement ​ The functional currency of the Company’s foreign subsidiaries is the U.S. dollar. Local currency financial statements are remeasured into U.S. dollars at the exchange rate in effect as of the balance sheet date for monetary assets and liabilities and the historical exchange rate for nonmonetary assets and liabilities. Expenses are remeasured using the average exchange rate for the period, except items related to nonmonetary assets and liabilities, which are remeasured using historical exchange rates. All remeasurement gains and losses are included in determining net loss. Transaction gains and losses were not significant during 2020 or 2019. ​ Net Loss Per Share ​ Basic net loss per share is calculated by dividing net loss by the weighted-average common shares outstanding during the period. Diluted net loss per share is calculated by dividing the net loss by the weighted-average shares and dilutive potential common shares outstanding during the period. Dilutive potential shares consist of dilutive shares issuable upon the exercise of outstanding stock options and warrants computed using the treasury stock method, shares issuable under the conversion feature of a convertible note using the “if-converted” method, and shares issuable upon the vesting of RSAs and RSUs. In periods of net loss, basic and diluted loss per share are the same, as the effect of dilutive potential shares on loss per share is anti-dilutive. 60 Table of Contents ​ ​ ​ Note 3—Supplemental Financial Information ​ Inventories ​ Inventories consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ January 2, ​ December 28, ​ 2021 2019 Raw materials ​ $ 578 ​ $ 1,052 Work in process ​ ​ 2 ​ ​ 25 Finished goods ​ ​ 2,618 ​ ​ 2,419 ​ ​ $ 3,198 ​ $ 3,496 ​ Property and Equipment, net ​ Property and equipment, net consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ January 2, ​ December 28, ​ 2021 ​ 2019 Machinery and equipment $ 7,811 ​ $ 7,867 Computer equipment and software ​ 2,523 ​ ​ 2,447 Leasehold improvements ​ 737 ​ ​ 737 Furniture and fixtures ​ 55 ​ ​ 55 ​ ​ 11,126 ​ ​ 11,106 Less: accumulated depreciation and amortization ​ (10,944) ​ ​ (10,820) ​ $ 182 ​ $ 286 ​ Substantially all the Company’s property and equipment, net, are located within the United States as of January 2, 2021 and December 28, 2019. ​ Other Assets ​ Other assets consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ January 2, ​ December 28, ​ 2021 2019 Refundable withholding tax ​ $ — ​ $ 1,320 Other assets ​ ​ 58 ​ ​ 56 ​ ​ $ 58 ​ $ 1,376 ​ Refundable withholding tax was the amount of tax withheld by the Company’s customer in the Republic of Korea in November 2015 and was determined to be refundable from the Korean tax authority. During 2020, the Company received the full amount due from the Korean tax authority. ​ 61 Table of Contents Disaggregation of Net Sales ​ The following table shows disaggregated net sales by major source (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ January 2, ​ December 28, ​ 2021 ​ 2019 Resales of third-party products ​ $ 31,031 ​ $ 19,982 Sale of the Company's modular memory subsystems ​ ​ 16,203 ​ ​ 6,121 Total net sales ​ $ 47,234 ​ $ 26,103 ​ Net sales by country presented below are based on the billing location of the customer (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ January 2, ​ December 28, ​ 2021 2019 United States ​ $ 35,826 ​ $ 19,919 China(1) ​ ​ 6,071 ​ ​ 2,167 Other countries ​ ​ 5,337 ​ ​ 4,017 Total net sales ​ $ 47,234 ​ $ 26,103 (1) China includes Hong Kong and Taiwan. ​ The United States and China accounted for more than 10% of the Company’s net sales for 2020. For 2019, the United States was the only country that accounted for more than 10% of the Company’s net sales. ​ Net Loss Per Share ​ The following table shows the computation of basic and diluted net loss per share of common stock (in thousands, except per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ January 2, ​ December 28, ​ 2021 2019 Numerator: Net loss ​ $ (7,268) ​ $ (12,452) Denominator: Weighted-average common shares outstanding—basic and diluted ​ ​ 183,594 ​ ​ 148,132 Net loss per share—basic and diluted ​ $ (0.04) ​ $ (0.08) ​ The Company computed net loss per share using the two-class method required for unvested participating securities through the three months ended March 28, 2020. No allocation of undistributed earnings to participating securities was performed for periods with net loss as such securities do not have a contractual obligation to share in the loss of the Company. ​ The table below sets forth potentially dilutive weighted average common share equivalents, consisting of shares issuable upon the exercise of outstanding stock options and warrants using the treasury stock method, shares issuable upon conversion of the SVIC Note (see Note 5) using the “if-converted” method, and the vesting of RSAs and RSUs. 62 Table of Contents These potential weighted average common share equivalents have been excluded from the diluted net loss per share calculations above as their effect would be anti-dilutive (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ January 2, ​ December 28, ​ 2021 2019 Weighted average common share equivalents ​ ​ 13,644 ​ ​ 13,357 ​ Cash Flow Information ​ The following table shows supplemental disclosures of cash flow information and non-cash financing activities (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ January 2, ​ December 28, ​ 2021 2019 Supplemental disclosure of cash flow information: ​ ​ ​ ​ ​ ​ Cash paid for interest ​ $ 70 ​ $ 62 Supplemental disclosure of non-cash financing activities: ​ ​ ​ ​ ​ ​ Common stock issued on conversion of convertible note payable and accrued interest ​ $ — ​ $ 2,448 Debt financing of insurance ​ $ 262 ​ $ 412 ​ ​ Note 4—Credit Agreement ​ On October 31, 2009, the Company and Silicon Valley Bank (“SVB”) entered into a credit agreement (as the same may from time to time be amended, modified, supplemented or restated, the “SVB Credit Agreement”), which provides for a revolving line of credit up to $5.0 million. The borrowing base is limited to 85% of the eligible accounts receivable, subject to certain adjustments. As of January 2, 2021, the borrowings under the SVB Credit Agreement bear interest based on the Wall Street Journal “prime rate” plus 2.75% and mature on April 30, 2021. The SVB Credit Agreement requires letters of credit to be secured by cash, which is classified as restricted cash in the accompanying consolidated balance sheets. As of January 2, 2021 and December 28, 2019, (i) outstanding letters of credit were $3.2 million and $2.8 million, respectively, (ii) outstanding borrowings were $3.7 million and $3.0 million, respectively, and (iii) availability under the revolving line of credit was $0.1 million and $0.2 million, respectively. ​ On April 12, 2017, the Company and SVB entered into an amendment to the SVB Credit Agreement to, among other things, obtain SVB’s consent in connection with the Company’s rights agreement with Computershare Trust Company, N.A., as rights agent (see Note 9), and make certain administrative changes in connection with the Company’s funding arrangement with TR Global Funding V, LLC, an affiliate of TRGP Capital Management, LLC (“TRGP”) (see Note 8). ​ For all periods before April 20, 2017, all obligations under the SVB Credit Agreement were secured by a first priority security interest in the Company’s tangible and intangible assets, other than its patent portfolio, which was subject to a first priority security interest held by Samsung Venture Investment Co. (“SVIC”) (see Note 5). Certain of these lien priorities were modified in April and May 2017 in connection with the Company’s establishment of a funding arrangement with TRGP for certain of the Company’s litigation expenses in connection with certain of its legal proceedings against SK hynix, Inc., a South Korean memory semiconductor supplier (“SK hynix”). On May 3, 2017, TRGP entered into an intercreditor agreement with each of SVIC and SVB, and on April 20, 2017, SVIC and SVB entered into an intercreditor agreement with each other (such intercreditor agreements, collectively, the “Intercreditor Agreements”). Pursuant to the terms of the Intercreditor Agreements, SVB’s security interests in the Company’s assets have been modified as follows: SVB has a first priority security interest in all of the Company’s tangible and intangible assets other than its patent portfolio and its claims underlying and any proceeds it may receive from the SK hynix proceedings; a second priority security interest in the Company’s patent portfolio other than the patents that are the 63 Table of Contents subject of the SK hynix proceedings; and a third priority security interest in the Company’s patents that are the subject of the SK hynix proceedings (see Note 8). ​ The SVB Credit Agreement subjects the Company to certain affirmative and negative covenants, including financial covenants with respect to the Company’s liquidity and restrictions on the payment of dividends. As of January 2, 2021, the Company was in compliance with its covenants under the SVB Credit Agreement. ​ Note 5—Debt ​ The Company’s debt consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ January 2, ​ December 28, ​ 2021 2019 Secured convertible note, due December 2021, including accrued interest of $1,538 (2020) and $1,233 (2019), respectively ​ $ 16,538 ​ $ 16,233 Paycheck protection program loan, due April 2022, including accrued interest of $4 ​ ​ 641 ​ ​ — Notes payable ​ ​ 251 ​ ​ 412 Unamortized debt discounts and issuance costs ​ ​ (228) ​ ​ (440) Total debt ​ ​ 17,202 ​ ​ 16,205 Less: amounts due within one year ​ ​ (17,056) ​ ​ (412) Long-term debt ​ $ 146 ​ $ 15,793 ​ Secured Convertible Note ​ On November 18, 2015, in connection with entering into the JDLA with Samsung, the Company issued to SVIC a secured convertible note (“SVIC Note”) and stock purchase warrant (“SVIC Warrant”). The SVIC Note has an original principal amount of $15.0 million, accrues interest at a rate of 2.0% per year, is due and payable in full on December 31, 2021, and is convertible into shares of the Company’s common stock at a conversion price of $1.25 per share, subject to certain adjustments, on the maturity date of the SVIC Note. Upon a change of control of the Company prior to the maturity date of the SVIC Note, the SVIC Note may, at the Company’s option, be assumed by the surviving entity or be redeemed upon the consummation of such change of control for the principal and accrued but unpaid interest as of the redemption date. The SVIC Warrant grants SVIC a right to purchase 2,000,000 shares of the Company’s common stock at an exercise price of $0.30 per share, subject to certain adjustments, is only exercisable in the event the Company exercises its right to redeem the SVIC Note prior to its maturity date, and expires on December 31, 2025. ​ The SVIC Warrant was valued at $1.2 million, based on its relative fair value, and was recorded as a debt discount. The Company also recorded $0.2 million of debt issuance costs as a debt discount for professional services fees rendered in connection with the transaction. These amounts are being amortized to interest expense over the term of the SVIC Note using the interest method. For 2020 and 2019, the Company amortized $0.2 million and $0.2 million, respectively, to interest expense in the accompanying consolidated statements of operations. The effective interest rate, including accretion of the SVIC Note to par and amortization of debt issuance costs, was approximately 3.4%. As of January 2, 2021 and December 28, 2019, the outstanding principal and accrued interest on the SVIC Note was $16.5 million and $16.2 million, respectively, and the outstanding SVIC Note balance, net of unamortized debt discounts and issuance costs, was $16.3 million and $15.8 million, respectively. ​ In connection with the SVIC Note, SVIC was granted a first priority security interest in the Company’s patent portfolio and a second priority security interest in all of the Company’s other tangible and intangible assets. Upon issuance of the SVIC Note, the Company, SVB and SVIC entered into an Intercreditor Agreement pursuant to which SVB and SVIC agreed to their relative security interests in the Company’s assets. In May 2017, SVIC, SVB and TRGP entered into additional Intercreditor Agreements to modify certain of these lien priorities (see Note 8). Additionally, upon issuance of the SVIC Note and the SVIC Warrant, the Company and SVIC entered into a Registration Rights Agreement pursuant to which the Company is obligated to register with the Securities and Exchange Commission, upon demand by SVIC, the shares of the Company’s common stock issuable upon conversion of the SVIC Note or upon exercise of the SVIC Warrant. 64 Table of Contents ​ The SVIC Note subjects the Company to certain affirmative and negative operating covenants. As of January 2, 2021, the Company was in compliance with its covenants under the SVIC Note. ​ Unsecured Convertible Note ​ On August 27, 2018, the Company entered into the Iliad Purchase Agreement, pursuant to which the Company issued the $2.3 million Iliad Note with an original issue discount of $0.2 million. The Iliad Note bore interest at an annual rate of 8% and would have matured on August 27, 2020, unless earlier repurchased, redeemed or converted in accordance with its terms. ​ During 2019, Iliad fully converted the outstanding principal and accrued interest on the Iliad Note to shares of the Company’s common stock as follows: (1) $1.9 million of the outstanding principal and accrued interest on the Iliad Note to 7,778,270 shares of the Company’s common stock at the Redemption Conversion Price and (2) $0.5 million of the outstanding principal and accrued interest on the Iliad Note to 1,388,890 shares of the Company’s common stock at the Lender Conversion Price. As a result of these conversions, as of December 28, 2019, there were no outstanding principal and accrued interest on the Iliad Note. ​ Paycheck Protection Program Loan ​ On April 23, 2020, the Company entered into the PPP Loan with a principal amount of $0.6 million through Hanmi Bank under the PPP administered by the SBA and established as part of the CARES Act. The PPP Loan bears interest at 1.0% per annum and matures on April 23, 2022 with the first six months of interest and principal payments deferred. The amount borrowed under the PPP Loan is guaranteed by the SBA and is eligible for forgiveness in an amount equal to the sum of the eligible costs, including payroll, benefits, rent and utilities, incurred by the Company during the 24-week period beginning on the date the Company received the proceeds. The PPP Loan contains customary events of default, and the occurrence of an event of default may result in a claim for the immediate repayment of all amounts outstanding under the PPP Loan. In February 2021, the Company applied for forgiveness of the PPP Loan. ​ Contractual Maturities of Debt Obligations ​ The aggregate contractual maturities of all borrowings due subsequent to January 2, 2021, including accrued interest, are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ ​ ​ ​ Amount 2021 ​ ​ ​ ​ $ 17,284 2022 ​ ​ ​ ​ ​ 146 Total ​ ​ ​ ​ $ 17,430 ​ ​ Note 6—Leases ​ The Company has operating and finance leases primarily associated with office and manufacturing facilities and certain equipment. The determination of which discount rate to use when measuring the lease obligation was deemed a significant judgment. ​ 65 Table of Contents Lease cost and supplemental cash flow information related to operating and finance leases were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ January 2, ​ December 28, ​ 2021 2019 Lease cost: ​ ​ ​ ​ ​ ​ Operating lease cost ​ $ 565 ​ $ 623 Finance lease cost ​ ​ ​ ​ ​ ​ Amortization of right-of-use assets ​ $ 19 ​ $ 14 Interest on lease liabilities ​ ​ 4 ​ ​ 3 Total finance lease cost ​ $ 23 ​ $ 17 ​ ​ ​ ​ ​ ​ ​ Cash paid for amounts included in the measurement of lease liabilities: ​ ​ ​ ​ ​ ​ Operating cash flows from operating leases ​ $ 561 ​ $ 592 Operating cash flows from finance leases ​ ​ 4 ​ ​ 3 Financing cash flows from finance leases ​ ​ 18 ​ ​ 13 Right-of-use assets obtained in exchange for lease obligations: ​ ​ ​ ​ ​ ​ Finance leases ​ $ — ​ $ 96 Lease modification to decrease ROU assets ​ ​ 365 ​ ​ — ​ Supplemental balance sheet information related to leases was as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ January 2, ​ December 28, ​ ​ 2021 ​ 2019 Operating Leases ​ ​ ​ ​ ​ ​ Operating lease right-of-use assets ​ $ 114 ​ $ 968 Accrued expenses and other current liabilities ​ $ 118 ​ $ 511 Operating lease liabilities ​ ​ — ​ ​ 498 Total operating lease liabilities ​ $ 118 ​ $ 1,009 ​ ​ ​ ​ ​ ​ ​ Finance Leases ​ ​ ​ ​ ​ ​ Property and equipment, at cost ​ $ 96 ​ $ 96 Accumulated depreciation ​ ​ (34) ​ ​ (14) Property and equipment, net ​ $ 62 ​ $ 82 Accrued expenses and other current liabilities ​ $ 19 ​ $ 18 Other liabilities ​ ​ 46 ​ ​ 65 Total finance lease liabilities ​ $ 65 ​ $ 83 ​ The following table includes supplemental information: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ January 2, ​ December 28, ​ ​ 2021 ​ 2019 Weighted Average Remaining Lease Term (in years) ​ ​ ​ ​ ​ ​ Operating lease ​ ​ 0.4 ​ ​ 2.1 Finance lease ​ ​ 3.3 ​ ​ 4.3 ​ ​ ​ ​ ​ ​ ​ Weighted Average Discount Rate ​ ​ ​ ​ ​ ​ Operating lease ​ ​ 6.1% ​ ​ 7.9% Finance lease ​ ​ 5.1% ​ ​ 5.1% ​ 66 Table of Contents Maturities of lease liabilities as of January 2, 2021 were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ Operating Leases ​ Finance Leases 2021 ​ $ 120 ​ $ 22 2022 ​ ​ — ​ ​ 22 2023 ​ ​ — ​ ​ 22 2024 ​ ​ — ​ ​ 5 Total lease payments ​ ​ 120 ​ ​ 71 Less: imputed interest ​ ​ (2) ​ ​ (6) Total ​ $ 118 ​ $ 65 ​ ​ Note 7—Income Taxes ​ United States and foreign loss before provision for income taxes was as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ January 2, ​ December 28, ​ 2021 2019 United States ​ $ (6,741) ​ $ (11,916) Foreign ​ ​ (526) ​ ​ (523) ​ ​ $ (7,267) ​ $ (12,439) ​ The provision for income taxes consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ January 2, ​ December 28, ​ 2021 2019 Current: ​ ​ ​ ​ ​ ​ Federal ​ $ — ​ $ — State ​ ​ 1 ​ ​ 13 Total current ​ ​ 1 ​ ​ 13 Deferred: ​ ​ ​ ​ ​ ​ Federal ​ ​ (1,402) ​ ​ (2,256) State ​ ​ (415) ​ ​ (769) Foreign ​ ​ 67 ​ ​ 166 Change in valuation allowance ​ ​ 1,750 ​ ​ 2,859 Total deferred ​ ​ — ​ ​ — Provision for income taxes ​ $ 1 ​ $ 13 ​ Income taxes differ from the amounts computed by applying the statutory federal income tax rate of 21% for 2020 and 2019. The reconciliation of this difference is as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ January 2, ​ December 28, ​ 2021 2019 Statutory federal income tax rate ​ ​ 21% ​ ​ 21% Change in valuation allowance ​ ​ (19)% ​ ​ (18)% Other ​ ​ (2)% ​ ​ (3)% Effective tax rate ​ ​ —% ​ ​ —% ​ 67 Table of Contents Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the deferred tax assets and liabilities are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ January 2, ​ December 28, ​ 2021 2019 Deferred tax assets: ​ ​ ​ ​ ​ ​ Operating loss carryforward ​ $ 33,564 ​ $ 32,014 Tax credit carryforwards ​ ​ 3,779 ​ ​ 3,664 Reserves and allowances ​ ​ 707 ​ ​ 643 Foreign operating loss carryforward ​ ​ 692 ​ ​ 759 Stock-based compensation ​ ​ 236 ​ ​ 368 Other ​ ​ 573 ​ ​ 672 Total deferred tax assets ​ ​ 39,551 ​ ​ 38,120 Deferred tax liabilities: ​ ​ ​ ​ ​ ​ Operating lease right-of-use assets ​ ​ (121) ​ ​ (261) Prepaid expenses ​ ​ (31) ​ ​ (161) Basis difference in warrant and note ​ ​ (57) ​ ​ (106) Total deferred tax liabilities ​ ​ (209) ​ ​ (528) Net deferred tax assets ​ ​ 39,342 ​ ​ 37,592 Valuation allowance ​ ​ (39,342) ​ ​ (37,592) ​ ​ $ — ​ $ — ​ The Company evaluates whether a valuation allowance should be established against its deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. In making such judgments, significant weight is given to evidence that can be objectively verified. As of January 2, 2021 and December 28, 2019, a valuation allowance of $39.3 million and $37.6 million, respectively, has been provided based on the Company’s assessment that it is more likely than not that sufficient taxable income will not be generated to realize the tax benefits of the temporary differences. The valuation allowance increased by $1.7 million and $2.9 million during 2020 and 2019, respectively. These increases in these years primarily relate to the increases in the net operating loss (“NOL”) carryforward. ​ As of January 2, 2021, the Company had (i) $136.8 million of federal NOL carryforwards, of which $104.2 million will expire from 2029 through 2037, and $32.6 million of which will be carried forward indefinitely, (ii) $76.5 million of state NOL carryforwards, which begin to expire in 2029, (iii) federal tax credit carryforwards of $1.9 million, which begin to expire in 2026, and (iv) state tax credit carryforwards of $1.9 million, which will be carried forward indefinitely. In addition, as of January 2, 2021, the Company had $2.7 million of foreign NOL carryforwards from various jurisdictions, which begin to expire in 2021. Utilization of the NOL and tax credit carryforwards is subject to an annual limitation due to the ownership percentage change limitations provided by Section 382 of the Internal Revenue Code (the “Code”) and similar state and foreign law provisions. Under Section 382 of the Code, substantial changes in our ownership may limit the amount of NOL and tax credit carryforwards that are available to offset taxable income. The annual limitation would not automatically result in the loss of NOL and tax credit carryforwards but may limit the amount available in any given future period. Additional limitations on the use of these tax attributes could occur in the event of possible disputes arising in examination from various taxing authorities. ​ The Company files income tax returns with federal, state and foreign jurisdictions. The Company is no longer subject to Internal Revenue Service (“IRS”) or state examinations for periods prior to 2016, although certain carryforward attributes that were generated prior to 2016 may still be adjusted by the IRS. ​ The Company includes interest and penalties related to uncertain tax positions within the provision for income taxes. As of January 2, 2021 and December 28, 2019, the interest or penalties accrued related to unrecognized tax benefits were insignificant, and during 2020 and 2019, the interest and penalties related to uncertain tax position recorded were insignificant. As of January 2, 2021, the Company had no unrecognized tax benefits that would significantly change in the next 12 months. 68 Table of Contents ​ Note 8—Commitments and Contingencies ​ Contingent Legal Expenses ​ The Company may retain the services of law firms that specialize in patent licensing and enforcement and patent law in connection with its licensing and enforcement activities. These law firms may be retained on a contingent fee basis whereby such law firms are paid on a scaled percentage of any negotiated fee, settlements or judgments awarded based on how and when the fees, settlements or judgments are obtained. ​ TRGP Agreement and Related Intercreditor Agreements ​ On May 3, 2017, the Company and TRGP entered into an investment agreement (the “TRGP Agreement”), which generally provided that TRGP directly fund the costs incurred by or on behalf of the Company in connection with the Company’s first action in the U.S. International Trade Commission (“ITC”) and its U.S. district court proceedings, but excluding all other proceedings (all such funded costs, collectively, the “Funded Costs”). In exchange for such funding, the Company agreed that, if the Company recovered any proceeds in connection with the funded SK hynix proceedings relating to certain patents, it would pay to TRGP the amount of the Funded Costs paid by TRGP plus an escalating premium based on when any such proceeds are recovered. In addition, pursuant to the terms of a separate security agreement between the Company and TRGP dated May 3, 2017 (the “Security Agreement”), the Company granted to TRGP (i) a first priority lien on, and security in, the claims underlying the funded SK hynix proceedings and any proceeds that may be received by the Company in connection with these proceedings, and (ii) a second priority lien on, and security in, the Company’s patents that are the subject of the funded SK hynix proceedings. The TRGP Agreement and its amendment do not impose financial covenants on the Company. On January 23, 2020, the Company and TRGP entered into an amendment to the TRGP Agreement to alter the recovery sharing formula related to claims against SK hynix for alleged infringement of the Company’s patents. ​ In connection with the TRGP Agreement, in May 2017, TRGP, SVIC and SVB entered into the Intercreditor Agreements. Pursuant to the terms of the Intercreditor Agreements, TRGP, SVB and SVIC have agreed to their relative security interest priorities in the Company’s assets, such that: (i) TRGP has a first priority security interest in the Company’s claims underlying the funded SK hynix proceedings and any proceeds that may be received by the Company in connection with these proceedings relating to certain patents, and a second priority security interest in the Company’s patents that are the subject of the funded SK hynix proceedings, (ii) SVIC has a first priority security interest in the Company’s complete patent portfolio and a second priority security interest in all of the Company’s other tangible and intangible assets (other than the Company’s claims underlying and any proceeds it may receive from the SK hynix proceedings funded under the TRGP Agreement), and (iii) SVB has a first priority security interest in all of the Company’s tangible and intangible assets other than its patent portfolio and its claims underlying and any proceeds it may receive from the SK hynix proceedings funded under the TRGP Agreement, a second priority security interest in the Company’s patent portfolio other than the patents that are the subject of the SK hynix proceedings funded under the TRGP Agreement, and a third priority security interest in the Company’s patents that are the subject of the SK hynix proceedings funded under the TRGP Agreement. The Company consented and agreed to the terms of each of the Intercreditor Agreements. ​ ​ Legal expenses incurred by the Company but paid by TRGP pursuant to the terms of the TRGP Agreement are excluded from the consolidated financial statements. During the years ended December 29, 2018 and December 30, 2017, the Company excluded legal expenses of $1.8 million and $10.2 million, respectively, as a result of TRGP’s payment of these expenses under the TRGP Agreement. No further legal expenses will be paid by TRGP under this agreement. Any settlement or other cash proceeds the Company may recover in the future in connection with the funded SK hynix proceedings may be reduced by the aggregate amount of legal expenses excluded by the Company as a result of TRGP’s payment of these expenses under the TRGP Agreement, plus the premium amount due to TRGP under the terms of the amended TRGP Agreement at the time of any such recovery. ​ 69 Table of Contents Litigation and Patent Reexaminations ​ The Company owns numerous patents and continues to seek to grow and strengthen its patent portfolio, which covers various aspects of the Company’s innovations and includes various claim scopes. The Company plans to pursue avenues to monetize its intellectual property portfolio, in which it would generate revenue by selling or licensing its technology, and it intends to vigorously enforce its patent rights against alleged infringers of such rights. The Company dedicates substantial resources to protecting and enforcing its intellectual property rights, including with patent infringement proceedings it files against third parties and defense of its patents against challenges made by way of reexamination and review proceedings at the U.S. Patent and Trademark Office (“USPTO”) and Patent Trial and Appeal Board (“PTAB”). The Company expects these activities to continue for the foreseeable future, with no guarantee that any ongoing or future patent protection or litigation activities will be successful, or that the Company will be able to monetize its intellectual property portfolio. The Company is also subject to litigation based on claims that it has infringed on the intellectual property rights of others. ​ Any litigation, regardless of its outcome, is inherently uncertain, involves a significant dedication of resources, including time and capital, and diverts management’s attention from other activities of the Company. As a result, any current or future infringement claims or patent challenges by or against third parties, whether or not eventually decided in the Company’s favor or settled, could materially adversely affect the Company’s business, financial condition and results of operations. Additionally, the outcome of pending or future litigation and related patent reviews and reexaminations, as well as any delay in their resolution, could affect the Company’s ability to continue to sell its products, protect against competition in the current and expected markets for its products or license or otherwise monetize its intellectual property rights in the future. ​ Google Litigation ​ On December 4, 2009, the Company filed a patent infringement lawsuit against Google, Inc. (“Google”) in the U.S. District Court for the Northern District of California (the “Northern District Court”), seeking damages and injunctive relief based on Google’s alleged infringement of the Company’s U.S. Patent No. 7,619,912 (the “‘912 patent”), which relates generally to technologies to implement rank multiplication. In February 2010, Google answered the Company’s complaint and asserted counterclaims against the Company seeking a declaration that the patent is invalid and not infringed, and claiming that the Company committed fraud, negligent misrepresentation and breach of contract based on the Company’s activities in the Joint Electron Device Engineering Council (“JEDEC”) standard-setting organization. The counterclaim seeks unspecified compensatory damages. Accruals have not been recorded for loss contingencies related to Google’s counterclaim because it is not probable that a loss has been incurred and the amount of any such loss cannot be reasonably estimated. In October 2010, Google requested and was later granted an Inter Partes Reexamination of the ‘912 patent by the USPTO. The reexamination proceedings are described below. In connection with the reexamination request, the Northern District Court granted the Company’s and Google’s joint request to stay the ‘912 patent infringement lawsuit against Google until the completion of the reexamination proceedings. On January 31, 2019, the PTAB, in response to Google’s rehearing request, denied rehearing of the PTAB’s previous decision upholding the validity of claims in Netlist’s ‘912 patent. On April 16, 2019, Google filed an appeal to this decision. On June 15, 2020, the United States Court of Appeals for the Federal Circuit affirmed the PTAB’s previous decision upholding the validity of claims in Netlist’s ‘912 patent. The Google litigation is now resuming with issuance of the ‘912 reexamination certificate and the scheduling of a Markman hearing for March 9, 2022. ​ Inphi Litigation ​ On September 22, 2009, the Company filed a patent infringement lawsuit against Inphi Corporation (“Inphi”) in the U.S. District Court for the Central District of California (the “Central District Court”). The complaint, as amended, alleges that Inphi is contributorily infringing and actively inducing the infringement of U.S. patents owned by the Company, including the ‘912 patent, U.S. Patent No. 7,532,537 (the “‘537 patent”), which relates generally to memory modules with load isolation and memory domain translation capabilities, and U.S. Patent No. 7,636,274 (the “‘274 patent”), which is related to the ‘537 patent and relates generally to load isolation and memory domain translation technologies. The Company is seeking damages and injunctive relief based on Inphi’s use of the Company’s patented 70 Table of Contents technology. Inphi denied infringement and claimed that the three patents are invalid. In June 2010, Inphi requested and was later granted Inter Partes Reexaminations of the ‘912, ‘537 and ‘274 patents by the USPTO. The reexamination proceedings are described below (except for the reexamination proceeding related to the ‘537 patent, which have concluded with the confirmation of all of the claims of such patent). In connection with the reexamination requests, Inphi filed a motion to stay the patent infringement lawsuit with the Central District Court until completion of the reexamination proceedings, which was granted. On April 16, 2019, Inphi filed an appeal to the PTAB’s January 31, 2019 decision upholding the validity of claims in Netlist’s ‘912 patent. On June 15, 2020, the United States Court of Appeals for the Federal Circuit affirmed the PTAB’s previous decision upholding the validity of claims in Netlist’s ‘912 patent. ​ ‘912 Patent Reexamination ​ As noted above, in April 2010, June 2010 and October 2010, Google and Inphi submitted requests for an Inter Partes Reexamination of the ‘912 patent by the USPTO, claiming that the ‘912 patent is invalid and requesting that the USPTO reject the patent’s claims and cancel the patent. Additionally, in October 2010, Smart Modular, Inc. (“Smart Modular”) submitted another such reexamination request. On January 18, 2011, the USPTO granted such reexamination requests, and in February 2011, the USPTO merged the Inphi, Google and Smart Modular ‘912 patent reexaminations into a single proceeding. On March 21, 2014, the USPTO issued an Action Closing Prosecution (“ACP”), an office action that states the USPTO examiner’s position on patentability and closes further prosecution, and on June 18, 2014 the USPTO issued a Right of Appeal Notice (“RAN”), a notice that triggers the rights of the involved parties to file a notice of appeal to the ACP, each of which confirmed the patentability of 92 of the ‘912 patent’s claims and rejected the patent’s 11 other claims. The parties involved filed various notices of appeal, responses and requests, and on November 24, 2015, the PTAB held a hearing on such appeals. On May 31, 2016, the PTAB issued a decision affirming certain of the examiner’s decisions and reversing others. On February 9, 2017, the PTAB granted the Company’s request to reopen prosecution before the USPTO examiner and remanded the consolidated proceeding to the examiner to consider the patentability of certain of the pending claims in view of the PTAB’s May 31, 2016 decision and comments from the parties. On October 3, 2017, the examiner issued a determination as to the patentability of certain of the pending claims, which were found to be unpatentable. On June 1, 2018, the PTAB reversed the Examiner and found the pending amended claims to be patentable. On July 2, 2018, Google requested rehearing of the PTAB’s decision. On January 31, 2019 the PTAB, in response to Google’s rehearing request, denied rehearing of the PTAB’s previous decision upholding the validity of claims in Netlist’s ‘912 patent. On April 16, 2019, Inphi and Google filed an appeal to the ‘912 patent decision. On June 15, 2020, the United States Court of Appeals for the Federal Circuit affirmed the PTAB’s previous decision upholding the validity of claims in Netlist’s ‘912 patent. The reexamination certificate for the ‘912 issued on February 8, 2021. Accruals have not been recorded for loss contingencies related to the ‘912 patent reexamination proceedings because it is not probable that a loss has been incurred and the amount of any such loss cannot be reasonably estimated. ​ SK hynix Litigation ​ On September 1, 2016, the Company filed legal proceedings for patent infringement against SK hynix in the ITC (the “First ITC Action”) and the Central District Court. These proceedings are based on the alleged infringement by SK hynix’s RDIMM and LRDIMM enterprise memory products of six of the Company’s U.S. patents. On October 31, 2017, the Company filed additional legal proceedings for patent infringement against SK hynix in the ITC (the “Second ITC Action”) based on the alleged infringement by SK hynix’s RDIMM and LRDIMM products of two additional U.S. patents owned by the Company. In all of the ITC proceedings, the Company has 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. In the Central District Court proceedings, the Company is primarily seeking damages. The First and Second ITC Actions are no longer pending and the parallel Central District Court infringement proceedings are currently stayed pending further order of the court. ​ On March 17, 2020, Netlist filed legal proceedings alleging patent infringement against SK hynix in the U.S. District Court for the Western District of Texas based on the infringement of Netlist U.S. Patent No. 9,858,218 and U.S. Patent No. 10,474,595 by SK hynix RDIMM and LRDIMM memory products. The case has been assigned to 71 Table of Contents the Hon. Alan D. Albright and is Case No. 6:20-cv-00194-ADA. The Markman hearing in this case occurred on March 4, 2021 and the trial is scheduled for July 6, 2021. ​ On June 15, 2020, Netlist filed a second round of legal proceedings alleging patent infringement against SK hynix in the U.S. District Court for the Western District of Texas based on the infringement of Netlist U.S. Patent No. 10,217,523 by SK hynix LRDIMM memory products. The case has been assigned to the Hon. Alan D. Albright and is Case No. 6:20-cv-00525-ADA. The Markman hearing in this case occurred on March 4, 2021 and the trial is scheduled for July 6, 2021. ​ Other Contingent Obligations ​ In the ordinary course of its business, the Company has made certain indemnities, commitments and guarantees pursuant to which it may be required to make payments in relation to certain transactions. These include, among others: (i) intellectual property indemnities to the Company’s customers and licensees in connection with the use, sale and/or license of Company products; (ii) indemnities to vendors and service providers pertaining to claims based on the Company’s negligence or willful misconduct; (iii) indemnities involving the accuracy of representations and warranties in certain contracts; (iv) indemnities to directors and officers of the Company to the maximum extent permitted under the laws of the State of Delaware; (v) indemnities to TRGP, SVIC and SVB pertaining to all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with transactions contemplated by the applicable investment or loan documents, as applicable; and (vi) indemnities or other claims related to certain real estate leases, under which the Company may be required to indemnify property owners for environmental and other liabilities or may face other claims arising from the Company’s use of the applicable premises. The duration of these indemnities, commitments and guarantees varies and, in certain cases, may be indefinite. The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential for future payments the Company could be obligated to make. Historically, the Company has not been obligated to make significant payments as a result of these obligations, and no liabilities have been recorded for these indemnities, commitments and guarantees in the accompanying consolidated balance sheets. ​ Note 9—Stockholders’ Equity ​ Serial Preferred Stock ​ The Company’s authorized capital stock includes 10,000,000 shares of serial preferred stock, with a par value of $0.001 per share. No shares of preferred stock were outstanding as of January 2, 2021 or December 28, 2019. ​ On April 17, 2017, the Company entered into a rights agreement (as amended from time to time, the “Rights Agreement”) with Computershare Trust Company, N.A., as rights agent. In connection with the adoption of the Rights Agreement and pursuant to its terms, the Company’s board of directors authorized and declared a dividend of one right (each, a “Right”) for each outstanding share of the Company’s common stock to stockholders of record at the close of business on May 18, 2017 (the “Record Date”), and authorized the issuance of one Right for each share of the Company’s common stock issued by the Company (except as otherwise provided in the Rights Agreement) between the Record Date and the Distribution Date (as defined below). ​ Each Right entitles the registered holder, subject to the terms of the Rights Agreement, to purchase from the Company, when exercisable and subject to adjustment, one unit consisting of one one-thousandth of a share (a “Unit”) of Series A Preferred Stock of the Company (the “Preferred Stock”), at a purchase price of $6.56 per Unit, subject to adjustment. Subject to the provisions of the Rights Agreement, including certain exceptions specified therein, a distribution date for the Rights (the “Distribution Date”) will occur upon the earlier of (i) 10 business days following a public announcement that a person or group of affiliated or associated persons (an “Acquiring Person”) has acquired or otherwise obtained beneficial ownership of 15% or more of the then-outstanding shares of the Company’s common stock, and (ii) 10 business days (or such later date as may be determined by the Company’s board of directors) following the commencement of a tender offer or exchange offer that would result in a person or group becoming an Acquiring Person. The Rights are not exercisable until the Distribution Date and, unless earlier redeemed or exchanged by 72 Table of Contents the Company pursuant to the terms of the Rights Agreement (as amended on April 16, 2018, April 16, 2019 and August 14, 2020) will expire on the close of business on April 17, 2024. ​ In connection with the adoption of the Rights Agreement, the Company’s board of directors approved a Certificate of Designation of the Series A Preferred Stock (the “Certificate of Designation”) designating 1,000,000 shares of the Company’s serial preferred stock as Series A Preferred Stock and setting forth the rights, preferences and limitations of the Preferred Stock. The Company filed the Certificate of Designation with the Secretary of State of the State of Delaware on April 17, 2017. ​ Common Stock ​ The Company has one class of common stock with a par value of $0.001 per share. On August 7, 2020, the Company’s stockholders approved an amendment to the Restated Certificate of Incorporation to increase the number of shares of the common stock authorized for issuance from 300,000,000 to 450,000,000. ​ 2019 Lincoln Park Purchase Agreement ​ On June 24, 2019, the Company entered into the 2019 Purchase Agreement with Lincoln Park, pursuant to which the Company has the right to sell to Lincoln Park up to an aggregate of $10 million in shares of its common stock subject to the conditions and limitations set forth in the 2019 Purchase Agreement. As consideration for entering into the 2019 Purchase Agreement, the Company issued to Lincoln Park 818,420 shares of its common stock as initial commitment shares in a noncash transaction on June 24, 2019 and will issue up to 818,420 additional shares of its common stock as additional commitment shares on a pro rata basis in connection with any additional purchases. The Company will not receive any cash proceeds from the issuance of these additional commitment shares. ​ Pursuant to the 2019 Purchase Agreement, on any business day and as often as every other business day over the 36-month term of the 2019 Purchase Agreement, the Company has the right, from time to time, at its sole discretion and subject to certain conditions, to direct Lincoln Park to purchase up to 400,000 shares of its common stock, with such amount increasing as the closing sale price of its common stock increases; provided Lincoln Park’s obligation under any single such purchase will not exceed $1.0 million, unless the Company and Lincoln Park mutually agree to increase the maximum amount of such single regular purchase. If the Company directs Lincoln Park to purchase the maximum number of shares of common stock it then may sell in a regular purchase, then in addition to such regular purchase, and subject to certain conditions and limitations in the 2019 Purchase Agreement, the Company may direct Lincoln Park to purchase an additional amount of common stock that may not exceed the lesser of (i) 300% of the number of shares purchased pursuant to the corresponding regular purchase or (ii) 30% of the total number of shares of its common stock traded during a specified period on the applicable purchase date as set forth in the 2019 Purchase Agreement. Under certain circumstances and in accordance with the 2019 Purchase Agreement, the Company may direct Lincoln Park to purchase shares in multiple accelerated purchases on the same trading day. ​ The Company controls the timing and amount of any sales of its common stock to Lincoln Park. There is no upper limit on the price per share that Lincoln Park must pay for the Company’s common stock under the 2019 Purchase Agreement, but in no event will shares be sold to Lincoln Park on a day the closing price is less than the floor price specified in the 2019 Purchase Agreement. In all instances, the Company may not sell shares of its common stock to Lincoln Park under the 2019 Purchase Agreement if that would result in Lincoln Park beneficially owning more than 9.99% of its common stock. ​ The 2019 Purchase Agreement does not limit the Company’s ability to raise capital from other sources at the Company’s sole discretion, except that, subject to certain exceptions, the Company may not enter into any Variable Rate Transaction (as defined in the 2019 Purchase Agreement, including the issuance of any floating conversion rate or variable priced equity-like securities) during the 36 months after the date of the 2019 Purchase Agreement. The Company has the right to terminate the 2019 Purchase Agreement at any time, at no cost to the Company. ​ During 2019, Lincoln Park purchased an aggregate of 19,044,762 shares of the Company’s common stock for a net purchase price of $6.4 million under the 2019 Purchase Agreement. In connection with the purchases, the Company 73 Table of Contents issued to Lincoln Park an aggregate of 523,633 shares of its common stock as additional commitment shares in noncash transactions. During 2020, Lincoln Park did not purchase shares of the Company’s common stock under the 2019 Purchase Agreement. Subsequent to January 2, 2021, Lincoln Park purchased an aggregate of 1,669,429 shares of the Company’s common stock for a net purchase price of $1.6 million under the 2019 Purchase Agreement. In connection with the purchases, the Company issued to Lincoln Park an aggregate of 129,468 shares of its common stock as additional commitment shares in noncash transactions. ​ 2020 Lincoln Park Purchase Agreement ​ On March 5, 2020, the Company entered into the 2020 Purchase Agreement with Lincoln Park, pursuant to which the Company had the right to sell to Lincoln Park up to an aggregate of $20 million in shares of its 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, the Company issued to Lincoln Park 1,529,052 shares of its common stock as initial commitment shares in a noncash transaction on March 6, 2020 and would issue up to 917,431 additional shares of its common stock as additional commitment shares on a pro rata basis in connection with any additional purchases. The Company would not receive any cash proceeds from the issuance of these additional commitment shares. ​ Pursuant to the 2020 Purchase Agreement, on any business day and as often as every other business day over the 36-month term of the 2020 Purchase Agreement, the Company had the right, from time to time, at its sole discretion and subject to certain conditions, to direct Lincoln Park to purchase up to 400,000 shares of its common stock, with such amount increasing as the closing sale price of its common stock increases; provided Lincoln Park’s obligation under any single such purchase would not exceed $1.0 million, unless the Company and Lincoln Park mutually agreed to increase the maximum amount of such single regular purchase. If the Company directed Lincoln Park to purchase the maximum number of shares of common stock it then might sell in a regular purchase, then in addition to such regular purchase, and subject to certain conditions and limitations in the 2020 Purchase Agreement, the Company might direct Lincoln Park to purchase an additional amount of common stock that might not exceed the lesser of (i) 300% of the number of shares purchased pursuant to the corresponding regular purchase or (ii) 30% of the total number of shares of its common stock traded during a specified period on the applicable purchase date as set forth in the 2020 Purchase Agreement. Under certain circumstances and in accordance with the 2020 Purchase Agreement, the Company might direct Lincoln Park to purchase shares in multiple accelerated purchases on the same trading day. ​ The Company controlled the timing and amount of any sales of its common stock to Lincoln Park. There was no upper limit on the price per share that Lincoln Park must pay for the Company’s common stock under the 2020 Purchase Agreement, but in no event would shares be sold to Lincoln Park on a day the closing price was less than the floor price specified in the 2020 Purchase Agreement. In all instances, the Company might not sell shares of its common stock to Lincoln Park under the 2020 Purchase Agreement if that would result in Lincoln Park beneficially owning more than 9.99% of its common stock. ​ The 2020 Purchase Agreement did not limit the Company’s ability to raise capital from other sources at the Company’s sole discretion, except that, subject to certain exceptions, the Company might not enter into any Variable Rate Transaction (as defined in the 2020 Purchase Agreement, including the issuance of any floating conversion rate or variable priced equity-like securities) during the 36 months after the date of the 2020 Purchase Agreement. The Company had the right to terminate the 2020 Purchase Agreement at any time, at no cost to the Company. ​ During 2020, Lincoln Park purchased an aggregate of 23,400,122 shares of the Company’s common stock for a net purchase price of $12.2 million, under the 2020 Purchase Agreement. In connection with the purchases, during 2020, the Company issued to Lincoln Park an aggregate of 560,588 shares of its common stock, as additional commitment shares in noncash transactions. Subsequent to January 2, 2021, Lincoln Park purchased an aggregate of 9,544,595 shares of the Company’s common stock for a net purchase price of $7.8 million under the 2020 Purchase Agreement. In connection with the purchases, the Company issued to Lincoln Park an aggregate of 356,843 shares of its common stock as additional commitment shares in noncash transactions. In February 2021, the Company completed the sales under the 2020 Purchase Agreement. ​ 74 Table of Contents Warrants ​ Warrant activity during 2020 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ Number of ​ Average ​ ​ Shares ​ Exercise ​ (in thousands) Price Outstanding as of December 28, 2019 ​ ​ 15,010 ​ $ 0.62 Granted ​ ​ 300 ​ ​ 0.33 Exercised ​ ​ (300) ​ ​ 0.11 Expired ​ ​ (1,099) ​ ​ 1.00 Outstanding as of January 2, 2021 ​ ​ 13,911 ​ ​ 0.59 ​ In August and December 2020, the Company issued warrants to purchase up to 175,000 and 125,000 shares of its common stock at exercise prices of $0.20 and $0.50 per share, respectively, to a consulting firm as partial consideration for their services rendered. During 2020, the Company issued 255,813 shares of its common stock upon the cashless exercise of 300,000 of its warrants. Subsequent to January 2, 2021, the Company issued (i) 6,078,754 shares of its common stock upon the exercise of 6,078,754 of its warrants for total cash proceeds of $3.6 million and (ii) 429,496 shares of its common stock upon the cashless exercise of 500,000 of its warrants. ​ ​ Note 10—Stock-Based Awards ​ The Company’s Amended and Restated 2006 Equity Incentive Plan (the “Amended 2006 Plan”) provides for broad-based equity grants to its employees and non-employee service providers. The Company also periodically grants equity-based awards outside the Amended 2006 Plan to certain new hires as an inducement to enter into employment with the Company. Subject to certain adjustments, as of January 2, 2021, the Company was authorized to issue a maximum of 16,205,566 shares of its common stock pursuant to awards granted under the Amended 2006 Plan. Pursuant to the terms of the Amended 2006 Plan, beginning January 1, 2017, the automatic annual increase to the number of shares of common stock that may be issued pursuant to awards granted under the Amended 2006 Plan is equal to the lesser of (i) 2.5% of the number of shares of common stock issued and outstanding as of the first day of the applicable calendar year, and (ii) 1,200,000 shares of common stock, subject to adjustment for certain corporate actions. As of January 2, 2021, the Company had 1,852,822 shares of common stock available for issuance pursuant to future awards to be granted under the Amended 2006 Plan. ​ Stock Options ​ Stock options granted under the Amended 2006 Plan generally vest at a rate of at least 25% per year over four years and expire 10 years from the date of grant. The weighted-average assumptions used in the Black-Scholes option pricing model and the resulting weighted-average grant date fair value of stock options granted were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ January 2, ​ December 28, ​ 2021 2019 Expected term (in years) ​ ​ 6.26 ​ ​ 6.06 Expected volatility ​ ​ 117% ​ ​ 108% Risk-free interest rate ​ ​ 0.46% ​ ​ 1.92% Expected dividends ​ $ — ​ $ — Weighted-average grant date fair value per share ​ $ 0.44 ​ $ 0.29 ​ 75 Table of Contents The following table summarizes the activity related to stock options during 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ Remaining ​ Aggregate ​ ​ ​ Number of ​ Average ​ Contractual ​ Intrinsic ​ ​ ​ Shares ​ Exercise ​ Life ​ Value ​ ​ (in thousands) Price (in years) (in thousands) ​ Outstanding as of December 28, 2019 ​ ​ 7,357 ​ $ 1.17 ​ ​ 5.54 ​ $ 127 ​ Granted ​ ​ 1,620 ​ $ 0.51 ​ ​ ​ ​ ​ ​ ​ Exercised ​ ​ (226) ​ $ 0.14 ​ ​ ​ ​ ​ ​ ​ Expired or forfeited ​ ​ (1,232) ​ $ 0.80 ​ ​ ​ ​ ​ ​ ​ Outstanding as of January 2, 2021 ​ ​ 7,519 ​ $ 1.12 ​ ​ 5.21 ​ $ 430 ​ Exercisable as of January 2, 2021 ​ ​ 5,693 ​ $ 1.33 ​ ​ 3.88 ​ $ 156 ​ Vested and expected to vest as of January 2, 2021 ​ ​ 7,128 ​ $ 1.16 ​ ​ 4.97 ​ $ 378 ​ ​ There was no significant intrinsic value of options exercised during 2020 and 2019. ​ Restricted Stock Awards and Restricted Stock Units ​ RSAs granted under the Amended 2006 Plan vest annually on each anniversary of the grant date over a two-year term. RSUs granted for employees and consultants generally vest semi-annually from the grant date over a four-year term, and RSUs granted for independent directors fully-vested on the grant date. The following table summarizes the activity related to RSAs and RSUs during 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ ​ Average ​ ​ Number of ​ Grant-Date ​ ​ Shares ​ Fair Value ​ (in thousands) per Share Balance nonvested as of December 28, 2019 ​ ​ 3,066 ​ $ 0.52 Granted ​ ​ 1,125 ​ $ 0.49 Vested ​ ​ (1,064) ​ $ 0.47 Forfeited ​ ​ (90) ​ $ 0.42 Balance nonvested as of January 2, 2021 ​ ​ 3,037 ​ $ 0.53 ​ Stock-Based Compensation ​ The following table summarizes the stock-based compensation expense by line item in the consolidated statements of operations (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ January 2, ​ December 28, ​ ​ 2021 ​ 2019 Cost of sales ​ $ 10 ​ $ 26 Research and development ​ ​ 196 ​ ​ 213 Selling, general and administrative ​ ​ 557 ​ ​ 750 Total ​ $ 763 ​ $ 989 ​ As of January 2, 2021, the Company had approximately $1.9 million, net of estimated forfeitures, of unearned stock-based compensation, which it expects to recognize over a weighted-average period of approximately 2.6 years. 76 Table of Contents ​ ​ ​ Note 11—Defined Contribution Plan ​ The Company has a defined contribution plan under Section 401(k) of the Code (“401(k)”) covering full-time domestic employees who meet certain eligibility requirements. Under the 401(k) plan, eligible employees may contribute up to 100% of their eligible compensation on either a pre-tax or after-tax Roth 401(k) basis, or up to the annual maximum allowed by the IRS. The Company may make matching contributions on the contributions of a participant on a discretionary basis. During 2020 and 2019, the Company did not make any matching contributions. ​ ​ Note 12—Major Customers, Suppliers and Products ​ The Company’s net sales have historically been concentrated in a small number of customers. The following table sets forth the percentage of net sales made to customers that each comprise 10% or more of total net sales: ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ January 2, ​ December 28, ​ 2021 ​ 2019 Customer A ​ 17% ​ * * Less than 10% of total net sales ​ As of January 2, 2021, one customer represented approximately 50% of aggregate gross accounts receivable. As of December 28, 2019, one customer represented approximately 25% of aggregate gross accounts receivable. The loss of any of the Company’s significant customers or a reduction in sales to or difficulties collecting payments from any of these customers could significantly reduce the Company’s net sales and adversely affect its operating results. The Company mitigates risks associated with foreign receivables by purchasing comprehensive foreign credit insurance. ​ The Company resells certain 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. For 2020 and 2019, resales of these products represented approximately 66% and 77%, respectively, of the Company’s net sales. ​ The Company’s purchases are typically concentrated in a small number of suppliers. The following table shows the percentage of purchases made from suppliers that each comprise 10% or more of total purchases: ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ January 2, ​ December 28, ​ 2021 ​ 2019 Supplier A ​ 28% ​ 37% Supplier B ​ 14% ​ * Supplier C ​ 11% ​ 17% * Less than 10% of purchases during the period ​ While the Company believes alternative suppliers may be available, its dependence on a small number of suppliers and the lack of any guaranteed sources for the essential components of its products and the components it resells exposes the Company to several risks, including the inability to obtain an adequate supply of these components, increases in their costs, delivery delays and poor quality. If the Company is not able to obtain these components in the amounts needed on a timely basis and at commercially reasonable prices, it may not be able to develop or introduce new products, it may experience significant increases in its cost of sales if it is forced to procure components from alternative suppliers and is not able to negotiate favorable terms with these suppliers, it may experience interruptions or failures in the delivery of its products, or it may be forced to cease sales of products dependent on the components or resales of the components it resells to customers directly. Any of these events could have a material adverse effect on the Company’s business, operating results and financial condition. ​ 77 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ​ To the Stockholders and Sole Member of the Board of Directors Netlist, Inc. ​ Opinion on the Financial Statements ​ We have audited the accompanying consolidated balance sheets of Netlist, Inc. and subsidiaries (the “Company”) as of January 2, 2021 and December 28, 2019, the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January 2, 2021 and December 28, 2019, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America. ​ Basis for Opinion ​ These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. ​ We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. ​ Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. ​ Critical Audit Matter ​ The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the sole member of the board of directors and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. ​ Inventory Valuation ​ Critical Audit Matter Description ​ As described in Note 2 to the consolidated financial statements, inventories are valued at the lower of cost or the net realizable value. Management evaluates inventory balances for excess quantities and obsolescence on a regular basis by analyzing estimated demand, inventory on hand, sales levels and other information. 78 Table of Contents ​ Auditing management’s assessment of net realizable value for inventory was challenging because the determination of lower of cost or net realizable value and excess and obsolete inventory reserves is judgmental and considers a number of factors that are affected by market and economic conditions, such as forecasted product demand, dynamic pricing environments, product life cycles and industry supply and demand. Additionally, for certain newer products there is limited historical data with which to evaluate forecasts. ​ How the Critical Audit Matter Was Addressed in the Audit ​ We tested management’s process for developing the estimates of the net realizable value of inventories and excess and obsolete inventory reserves, including evaluating management’s assumptions of forecasted product demand and testing the completeness and accuracy of the underlying data used in the analyses. Evaluating management’s product demand forecast for reasonableness involved considering historical sales by product, comparing prior period estimates to actual results of the same period, and considering macroeconomic trends within the industry that could impact the movement of the products provided by the Company. We performed procedures to compare recent sales transactions or market data to cost of inventories to assess that the carrying value of inventories was the lower of cost or net realizable value. ​ ​ /s/ KMJ Corbin & Company LLP ​ We have served as the Company's auditor since 2005. ​ Irvine, California March 26, 2021 ​ ​ ​ 79 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ​ None. ​