What changed in this filing

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Item 1. Financial Statements

2021-05-18 compared with 2020-11-10 · 118 added, 250 removed, 336 unchanged (52% of the section changed)

4 unchanged sentences

(in thousands, except par value)

September 26,

Current Assets:

6 unchanged sentences

Operating lease right-of-use assets

LIABILITIES AND STOCKHOLDERS' DEFICIT

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current Liabilities:

3 unchanged sentences

Accrued expenses and other current liabilities

Current portion of long-term debt and note payable

Long-term debt due within one year

Total current liabilities

Long-term debt

Operating lease liabilities

Other liabilities

1 unchanged sentence

Commitments and contingencies

Stockholders' deficit:

Stockholders' equity (deficit):

Preferred stock, $0.001 par value—10,000 shares authorized:

6 unchanged sentences

Accumulated deficit

Total stockholders' deficit

Total liabilities and stockholders' deficit

Total stockholders' equity (deficit)

Total liabilities and stockholders' equity (deficit)

See accompanying notes.

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 26,

September 28,

September 26,

September 28,

Cost of sales

7 unchanged sentences

Interest expense, net

Other income (expense), net

Other expense, net

Total other expense, net

8 unchanged sentences

AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Deficit (Unaudited)

Condensed Consolidated Statements of Stockholders’ Equity (Deficit ) (Unaudited)

(in thousands)

Preferred Stock

Stockholders'

Balance, December 28, 2019

Stock-based compensation

Restricted stock units vested and distributed

Tax withholdings related to net share settlements of equity awards

Issuance of commitment shares

Balance, March 28, 2020

Stock-based compensation

Tax withholdings related to net share settlements of equity awards

Equity (Deficit)

Balance, January 2, 2021

Issuance of common stock, net

Balance, June 27, 2020

Stock-based compensation

Exercise of stock options

Exercise of warrants

Stock-based compensation

Restricted stock units vested and distributed

Tax withholdings related to net share settlements of equity awards

Issuance of common stock, net

Balance, September 26, 2020

See accompanying notes.

NETLIST, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Deficit (Unaudited) (Continued)

(in thousands)

Preferred Stock

Balance, April 3, 2021

Stockholders'

Balance, December 28, 2019

Stock-based compensation

Exercise of stock options

Restricted stock units vested and distributed

Common stock issued on conversion of Iliad Note

Balance, March 30, 2019

Stock-based compensation

Exercise of stock options

Tax withholdings related to net share settlements of equity awards

Issuance of commitment shares

Common stock issued on conversion of Iliad Note

Balance, June 29, 2019

Stock-based compensation

1 unchanged sentence

Tax withholdings related to net share settlements of equity awards

Issuance of common stock, net

Common stock issued on conversion of Iliad Note

Balance, September 28, 2019

Balance, March 28, 2020

See accompanying notes.

3 unchanged sentences

(in thousands)

Nine Months Ended

September 26,

September 28,

Three Months Ended

Cash flows from operating activities:

7 unchanged sentences

Accounts receivable

Prepaid expenses and other current assets

Prepaid expenses and other assets

Accounts payable

Accrued payroll and related liabilities

Accrued expenses and other current liabilities

Accrued expenses and other liabilities

Net cash used in operating activities

3 unchanged sentences

Cash flows from financing activities:

Net borrowings (repayments) under line of credit

Proceeds from issuance of long-term debt

Net borrowings under line of credit

Payments on note payable

Proceeds from issuance of common stock, net

Proceeds from exercise of stock options

Proceeds from exercise of stock options and warrants

Payments for taxes related to net share settlement of equity awards

15 unchanged sentences

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 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 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.

The Company incurred net loss of $2.1 million and $5.5 million for the three and nine months ended September 26, 2020 and $12.5 million and $17.1 million for the fiscal years ended December 28, 2019 and December 29, 2018, 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 8).

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 7).

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 8).

On March 5, 2020, the Company entered into another purchase agreement (the “2020 Purchase Agreement”) with Lincoln Park, pursuant to which the Company has 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 8).

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 Lincoln Park arrangements (see Note 8) 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.

The Company's NVMe SSD portfolio provides industry-leading performance offered in multiple capacities and form factors.

The Company also resells SSD, NAND flash, DRAM products and other component products to end-customers that are not reached in the distribution models of the component manufacturers, including storage customers, appliance customers, system builders and cloud and datacenter customers.

Note 2—Summary of Significant Accounting Policies

3 unchanged sentences

GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto as of and for the year ended December 28, 2019, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 10, 2020 (the “2019 Annual Report”).

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto as of and for the year ended January 2, 2021, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 26, 2021 (the “2020 Annual Report”).

In the opinion of management, all adjustments for the fair presentation of the Company’s condensed consolidated financial statements have been made.

1 unchanged sentence

The results of operations for the interim periods are not necessarily indicative of the results to be expected for other periods or the full fiscal year.

The Company has evaluated events occurring subsequent to September 26, 2020, through the filing date of this Quarterly Report on Form 10-Q and concluded that there were no events that required recognition and disclosures, other than those discussed elsewhere in the notes hereto.

The Company has evaluated events occurring subsequent to April 3, 2021, through the filing date of this Quarterly Report on Form 10-Q and concluded that there were no events that required recognition and disclosures, other than those discussed elsewhere in the notes hereto.

Principles of Consolidation

3 unchanged sentences

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 will include 53 weeks and ends 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.

The Company’s fiscal year 2021 will include 52 weeks and ends on January 1, 2022 and its fiscal year 2020 included 53 weeks and ended on January 2, 2021.

The four quarters of fiscal year 2021 each includes 13 weeks.

The first three quarters of fiscal year 2020 each included 13 weeks and the fourth quarter included 14 weeks.

Unless otherwise stated,

references to particular years, quarters, months and periods refer to the Company’s fiscal years ended in January and the associated quarters, months and periods of those fiscal years.

Use of Estimates

4 unchanged sentences

In the first quarter of 2021, 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 condensed 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 condensed 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 is currently evaluating the impact this guidance will have on its condensed consolidated financial statements.

The adoption of this ASU did not have an impact on the Company’s condensed consolidated financial statements.

Recently Issued Accounting Guidance

In August 2020, the FASB issued ASU No.

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The Company is currently evaluating the impact this guidance will have on its condensed consolidated financial statements.

Fair Value Measurements

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, PPP Loan and convertible promissory notes.

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 value of the revolving line of credit as of September 26, 2020 and December 28, 2019 and the PPP Loan as of September 26, 2020 approximates 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 secured convertible promissory note as of September 26, 2020 were $14.7 million and $12.2 million, respectively.

The carrying value and estimated fair value of the secured convertible promissory note as of December 28, 2019 were $14.6 million and $11.7 million, respectively.

Other Significant Accounting Policies

The Company’s other significant accounting policies were reported in the 2019 Annual Report and have not changed materially from the policies previously reported.

Note 3—Supplemental Financial Information

Inventories consisted of the following (in thousands):

September 26,

Raw materials

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 26,

September 28,

September 26,

September 28,

Weighted-average common shares outstanding—basic and diluted

Net loss per share—basic and diluted

The table below shows 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 and the Iliad Note (see Note 5) using the “if-converted” method, and the vesting of restricted stock awards (“RSAs”) and restricted stock units (“RSUs”).

The table below shows 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 restricted stock units (“RSUs”).

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):

Three Months Ended

Nine Months Ended

September 26,

September 28,

September 26,

September 28,

Weighted average common share equivalents

2 unchanged sentences

Three Months Ended

Nine Months Ended

September 26,

September 28,

September 26,

September 28,

Resales of third-party products

5 unchanged sentences

Three Months Ended

Nine Months Ended

September 26,

September 28,

September 26,

September 28,

Less than 10% of net sales during the period.

As of September 26, 2020, four customers represented 27%, 19%, 11% and 10% of aggregate gross receivables, respectively.

As of December 28, 2019, one customer represented approximately 25% of aggregate gross receivables.

As of April 3, 2021, two customers represented 26% and 17% of aggregate gross receivables, respectively.

As of January 2, 2021, one customer represented approximately 50% of aggregate gross receivables.

The loss of the significant customers or a reduction in sales to or difficulties collecting payments from these customers could significantly reduce the Company’s net sales and adversely affect its operating results.

1 unchanged sentence

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 the three and nine months ended September 26, 2020, resales of these products represented approximately 67% and 68% of net sales, respectively.

For the three and nine months ended September 28, 2019, they represented approximately 85% and 82% of net sales, respectively.

Cash Flow Information

The following table sets forth supplemental disclosure of non-cash financing activities:

Nine Months Ended

September 26,

September 28,

Common stock issued on conversion of convertible note payable and accrued interest

For the three months ended April 3, 2021 and March 28, 2020, resales of these products represented approximately 76% and 74% of net sales, respectively.

Note 4—Credit Agreement

1 unchanged sentence

The borrowing base is limited to 85% of the eligible accounts receivable, subject to certain adjustments.

As of September 26, 2020, 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.

As of April 3, 2021, the borrowings under the SVB Credit Agreement bore interest based on the Wall Street Journal prime rate (“Prime Rate”) plus 2.75%.

On April 9, 2021, the Company entered into an amendment to the SVB Credit Agreement to accrue interest on borrowings at a per annum rate equal to the greater of 2.25% above the Prime Rate or 5.50% and to extend the maturity date to December 30, 2021.

available for borrowing may be increased to $7.0 million and the maturity date will be extended to April 29, 2022 upon the Company’s request, if the Company meets certain conditions.

The SVB Credit Agreement requires letters of credit to be secured by cash, which is classified as restricted cash in the accompanying condensed consolidated balance sheets.

As of September 26, 2020 and December 28, 2019, (i) outstanding letters of credit were $3.2 million and $2.8 million, respectively, (ii) outstanding borrowings were $3.4 million and $3.0 million, respectively, and (iii) availability under the revolving line of credit was $0.1 million and $0.2 million, respectively.

As of April 3, 2021 and January 2, 2021, (i) outstanding letters of credit were $4.9 million and $3.2 million, respectively, (ii) outstanding borrowings were $4.6 million and $3.7 million, respectively, and (iii) availability under the revolving line of credit was $0.4 million and $0.1 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 8), 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 7).

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 South Korean memory semiconductor supplier (“SK hynix”);

a second priority security interest in the Company’s patent portfolio other than the patents that are the subject of the SK hynix proceedings;

1 unchanged sentence

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 September 26, 2020, the Company was in compliance with its covenants under the SVB Credit Agreement.

As of April 3, 2021, the Company was in compliance with its covenants under the SVB Credit Agreement.

The Company’s debt consisted of the following (in thousands):

September 26,

Secured convertible note, due December 2021, including accrued interest of $1,613 (2021) and $1,538 (2020), respectively

Paycheck protection program loan, due April 2022, including accrued interest of $2

Paycheck protection program loan, due April 2022, including accrued interest of $6 (2021) and $4 (2020), respectively

Notes payable

Unamortized debt discounts and issuance costs

current portion

amounts due within one year

Long-term debt

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”).

On November 18, 2015, in connection with entering into the Joint Development and License Agreement 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 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 on or 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.

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These amounts are being amortized to interest expense over the term of the SVIC Note using the interest method.

For the three and nine months ended September 26, 2020, interest expense related to the amortization of the issuance costs associated with the liability component was not material.

For the three months ended April 3, 2021, interest expense related to the amortization of the issuance costs associated with the liability component was not material.

The effective interest rate, including accretion of the SVIC Note to par and amortization of debt issuance costs, was approximately 3.4%.

As of September 26, 2020, the outstanding principal and accrued interest on the SVIC Note was $16.5 million, and the outstanding SVIC Note balance, net of unamortized debt discounts and issuance costs, was $16.2 million.

As of April 3, 2021, the outstanding principal and accrued interest on the SVIC Note was $16.6 million, and the outstanding SVIC Note balance, net of unamortized debt discounts and issuance costs, was $16.4 million.

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.

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The SVIC Note subjects the Company to certain affirmative and negative operating covenants.

As of September 26, 2020, the Company was in compliance with its covenants under the SVIC Note.

Unsecured Convertible Note

On August 27, 2018, the Company entered into a Securities Purchase Agreement with Iliad Research and Trading, L.P.

(“Iliad”) (the “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 mature on August 27, 2020, unless earlier repurchased, redeemed or converted in accordance with its terms.

During the year ended December 28, 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.

As of April 3, 2021, the Company was in compliance with its covenants under the SVIC 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.

The PPP Loan bore interest at 1.0% per annum and would mature on April 23, 2022 with the first six months of interest and principal payments deferred.

The amount borrowed under the PPP Loan was guaranteed by the SBA and was 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 contained customary events of default, and the occurrence of an event of default might result in a claim for the immediate repayment of all amounts outstanding under the PPP Loan.

In May 2021, the full amounts outstanding under the PPP Loan was forgiven.

Note 6—Leases

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Three Months Ended

Nine Months Ended

September 26,

September 28,

September 26,

September 28,

Operating lease cost

1 unchanged sentence

Operating cash flows from operating leases

Right-of-use assets obtained in exchange for lease obligations

Finance leases

Lease modification to decrease ROU assets

For the three and nine months ended September 26, 2020 and September 28, 2019, finance lease costs and cash flows from finance lease were immaterial.

Supplemental balance sheet information related to leases was as follows:

September 26,

(in thousands)

For the three months ended April 3, 2021 and March 28, 2020, finance lease costs and cash flows from finance lease were immaterial.

Supplemental balance sheet information related to leases was as follows (in thousands):

Operating Leases

8 unchanged sentences

Accrued expenses and other current liabilities

Other long-term liabilities

Other liabilities

Total finance lease liabilities

The following table includes supplemental information:

Weighted Average Remaining Lease Term (in years)

4 unchanged sentences

Finance lease

Maturities of lease liabilities as of September 26, 2020 were as follows (in thousands):

Maturities of lease liabilities as of April 3, 2021 were as follows (in thousands):

Operating Leases

Finance Leases

2020 (remaining 3 months)

2021 (remainder of the year)

Total lease payments

imputed interest

On April 28, 2021, the Company entered into a lease agreement for its corporate headquarters with a term of five years in Irvine, CA with future payments of approximately $2.0 million.

The lease is estimated to commence during 2021 and provides one three-year renewal option.

Note 7—Commitments and Contingencies

4 unchanged sentences

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.

Agreement and its amendment do not impose financial covenants on the Company.

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 of certain patents 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 (ii) a second priority lien on, and security in, certain of 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.

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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.

(i) TRGP has a first priority security interest in the Company’s claims underlying the funded SK hynix proceedings related to certain patents and any proceeds that may be received by the Company in connection with these proceedings related to certain patents, and a second priority security interest in certain of 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.

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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.

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.

The Company believes that the SK hynix License Agreement falls outside the scope of the TRGP Agreement (see below SK hynix Litigation ).

Litigation and Patent Reexaminations

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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

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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.

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.

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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

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.

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.

These proceedings are based on the alleged infringement by SK hynix’s registered dual in-line memory module (“RDIMM”) and LRDIMM enterprise memory products of six of the Company’s U.S.

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.

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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 proceedings pending further order of the court.

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.

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10,474,595 by SK hynix RDIMM and LRDIMM memory products.

The case has been assigned to the Hon.

The case was assigned to the Hon.

Albright and is Case No.

6:20-cv-00194-ADA.

The Markman hearing in this case is scheduled for March 2021 and the trial is scheduled for December 2021.

The Markman hearing in this case occurred on March 4, 2021 and the trial was scheduled for July 6, 2021.

6:20-cv-00194-ADA was dismissed on April 20, 2021 following Netlist’s settlement with SK hynix set forth below.

On June 15, 2020, Netlist filed a second round of legal proceedings alleging patent infringement against SK hynix in the U.S.

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10,217,523 by SK hynix LRDIMM memory products.

The case has been assigned to the Hon.

The case was assigned to the Hon.

Albright and is Case No.

6:20-cv-00525-ADA.

The Markman hearing in this case is scheduled for March 2021 and the trial is scheduled for December 2021.

The Markman hearing in this case occurred on March 4, 2021 and the trial was scheduled for July 6, 2021.

6:20-cv-00525-ADA was dismissed on April 20, 2021 following Netlist’s settlement with SK hynix set forth below.

On April 5, 2021, Netlist entered into a Strategic Product Supply and License Agreement (the “License Agreement”) and Product Purchase and Supply Agreement with SK hynix.

Both agreements have a term of 5 years.

Under the License Agreement, (a) Netlist has granted to SK hynix fully paid, worldwide, non-exclusive, non-assignable licenses to certain of its patents covering memory technologies and (b) SK hynix has granted to Netlist fully paid, worldwide, non-exclusive, non-assignable licenses to its patent portfolio.

In addition, the License Agreement provides for the settlement of all pending intellectual property proceedings between Netlist and SK hynix with the settlement fee of $40 million payable to us by SK hynix, and the parties have agreed to collaborate on certain technology development activities.

Other Contingent Obligations

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(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, SVB and Iliad 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;

(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.

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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 September 26, 2020 or December 28, 2019.

No shares of preferred stock were outstanding as of April 3, 2021 or January 2, 2021.

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.

5 unchanged sentences

The Company filed the Certificate of Designation with the Secretary of State of the State of Delaware on April 17, 2017.

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.

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 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.

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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.

During the nine months ended September 26, 2020, Lincoln Park did not purchase shares of the Company’s common stock under the 2019 Purchase Agreement.

The Company controls the timing and amount of any sales of its common stock to Lincoln Park.

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The Company has the right to terminate the 2019 Purchase Agreement at any time, at no cost to the Company.

During the three months ended April 3, 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 has 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 will 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 will 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 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;

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 2020 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 2020 Purchase Agreement.

Under certain circumstances and in accordance with the 2020 Purchase Agreement, the Company may direct Lincoln Park to purchase shares in multiple accelerated purchases on the same trading day.

During the three and nine months ended September 26, 2020, Lincoln Park purchased an aggregate of 13,748,158 shares and 23,400,122 shares of the Company’s common stock for a net purchase price of $9.4 million and

$12.2 million, respectively, under the 2020 Purchase Agreement.

In connection with the purchases, during the three and nine months ended September 26, 2020, the Company issued to Lincoln Park an aggregate of 431,798 shares and 560,588 shares of its common stock, respectively, as additional commitment shares in noncash transactions.

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 2020 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 2020 Purchase Agreement.

In all instances, the Company may not sell shares of its common stock to Lincoln Park under the 2020 Purchase Agreement if that will result in Lincoln Park beneficially owning more than 9.99% of its common stock.

The 2020 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 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 has the right to terminate the 2020 Purchase Agreement at any time, at no cost to the Company.

Warrant activity for the nine months ended September 26, 2020 is as follows:

On March 5, 2020, the Company entered into a 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.

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 the three months ended April 3, 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, during the three months ended April 3, 2021, 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.

Warrant activity for the three months ended April 3, 2021 is as follows:

(in thousands)

Outstanding as of December 28, 2019

Outstanding as of September 26, 2020

During the nine months ended September 26, 2020, the Company issued 255,813 shares of its common stock upon the cashless exercise of 300,000 of its warrants.

Outstanding as of January 2, 2021

Outstanding as of April 3, 2021

During the three months ended April 3, 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 $4.0 million and (ii) 429,496 shares of its common stock upon the cashless exercise of 500,000 of its warrants.

Note 9—Stock-Based Awards

As of September 26, 2020, the Company had 1,794,072 shares of common stock reserved for future issuance under its Amended and Restated 2006 Incentive Plan (“Amended 2006 Plan”).

As of April 3, 2021, the Company had 982,822 shares of common stock reserved for future issuance under its Amended and Restated 2006 Incentive Plan (“Amended 2006 Plan”).

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 grant date.

RSAs granted under the 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-vest on the grant date.

Stock Options

The following table summarizes the activity related to stock options during the nine months ended September 26, 2020:

The following table summarizes the activity related to stock options during the three months ended April 3, 2021:

(in thousands)

Outstanding as of December 28, 2019

Outstanding as of January 2, 2021

Expired or forfeited

Outstanding as of September 26, 2020

Restricted Stock Awards and Restricted Stock Units

The following table summarizes the activity related to RSAs and RSUs during the nine months ended September 26, 2020:

Outstanding as of April 3, 2021

Restricted Stock Units

The following table summarizes the activity related to RSUs during the nine months ended April 3, 2021:

(in thousands)

Outstanding as of December 28, 2019

Outstanding as of September 26, 2020

Outstanding as of January 2, 2021

Outstanding as of April 3, 2021

Stock-Based Compensation

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Three Months Ended

Nine Months Ended

September 26,

September 28,

September 26,

September 28,

Cost of sales

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Selling, general and administrative

As of September 26, 2020, the Company had approximately $1.6 million, net of estimated forfeitures, of unearned stock-based compensation, which it expects to recognize over a weighted-average period of approximately 2.4 years.

As of April 3, 2021, the Company had approximately $2.8 million, net of estimated forfeitures, of unearned stock-based compensation, which it expects to recognize over a weighted-average period of approximately 2.9 years.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements