What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-08-17 compared with 2021-05-18 · 131 added, 119 removed, 335 unchanged (43% of the section changed)

41 unchanged sentences

Three Months Ended

Six Months Ended

Net product sales

Cost of sales

4 unchanged sentences

Total operating expenses

Operating loss

Other expense, net:

Operating income (loss)

Other income (expense), net:

Interest expense, net

Other expense, net

Total other expense, net

Loss before provision for income taxes

Other income (expense), net

Total other income (expense), net

Income (loss) before provision for income taxes

Provision for income taxes

Net loss per common share:

Basic and diluted

Net income (loss)

Earnings (loss) per share:

Weighted-average common shares outstanding:

Basic and diluted

See accompanying notes.

13 unchanged sentences

Balance, April 3, 2021

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

Balance, July 3, 2021

Stockholders'

5 unchanged sentences

Balance, March 28, 2020

Issuance of common stock, net

Stock-based compensation

Tax withholdings related to net share settlements of equity awards

Balance, June 27, 2020

See accompanying notes.

3 unchanged sentences

(In thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization

2 unchanged sentences

Non-cash lease expense

Gain on extinguishment of debt

Stock-based compensation

5 unchanged sentences

Accrued expenses and other liabilities

Net cash used in operating activities

Net cash provided by (used in) operating activities

Cash flows from investing activities:

2 unchanged sentences

Cash flows from financing activities:

Net borrowings under line of credit

Net repayments under line of credit

Proceeds from issuance of long-term debt

Payments on note payable

31 unchanged sentences

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 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.

The Company has evaluated events occurring subsequent to July 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

29 unchanged sentences

Finished goods

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):

Earnings (Loss) Per Share

The following table shows the computation of basic and diluted earnings (loss) per share of common stock (in thousands, except per share data):

Three Months Ended

Weighted-average common shares outstanding—basic and diluted

Net loss per share—basic and diluted

Six Months Ended

Net income (loss)

Weighted-average basic shares outstanding

Effect of dilutive securities

Weighted-average diluted shares

Basic earnings (loss) per share

Diluted earnings (loss) per share

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):

The potential weighted average common share equivalents for the three and six months ended June 27, 2020 have been excluded from the diluted net loss per share calculations above as their effect would be anti-dilutive (in thousands):

Three Months Ended

Six Months Ended

Weighted average common share equivalents

2 unchanged sentences

Three Months Ended

Six Months Ended

Resales of third-party products

1 unchanged sentence

Total net sales

During the three months ended July 3, 2021, the Company received an upfront non-refundable license fee of $ 40 million as a consideration to enter into a license agreement with SK hynix, Inc.

a South Korean memory semiconductor supplier, (“SK hynix”).

The license fee was recognized when the Company granted the license of its patents to SK hynix, since the performance obligation was satisfied at a point in time.

In connection with the receipt of the license fee, during the three months ended July 3, 2021, the Company recorded a provision for income taxes of $ 6.6 million related to the Korean withholding tax incurred.

Major Customers 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:

The Company’s net product sales have historically been concentrated in a small number of customers.

The following table sets forth the percentage of net product sales made to customers that each comprise 10% or more of total net sales:

Three Months Ended

Six Months Ended

Less than 10% of net sales during the period.

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

As of July 3, 2021, two customers represented 31 % and 12 % 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.

The Company mitigates risks associated with foreign receivables by purchasing comprehensive foreign credit insurance.

The loss of a major customer 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.

The Company mitigates risks associated with foreign and domestic receivables by purchasing comprehensive 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 the three months ended April 3, 2021 and March 28, 2020, resales of these products represented approximately 76% and 74% of net sales, respectively.

For the three and six months ended July 3, 2021, resales of these products represented approximately 60 % and 66 % of net product sales, respectively.

For the three and six months ended June 27, 2020, they represented approximately 58 % and 68 % of net product sales, respectively.

Cash Flow Information

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

Six Months Ended

Gain on extinguishment of debt

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 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.

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 Wall Street Journal prime rate (“Prime Rate”) or 5.50 % from the Prime Rate plus 2.75 % previously and to extend the maturity date to December 30, 2021.

The amount 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 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).

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 its legal proceedings against SK hynix, Inc.

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;

and a third priority security interest in the Company’s patents that are the subject of the SK hynix proceedings (see Note 7).

As of July 3, 2021 and January 2, 2021, (i) outstanding letters of credit were $ 9.9 million and $ 3.2 million, respectively, (ii) outstanding borrowings were $ 0.8 million and $ 3.7 million, respectively, and (iii) availability under the revolving line of credit was $ 3.9 million and $ 0.1 million, respectively.

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).

As of July 3, 2021, 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).

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

As of July 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):

Secured convertible note, due December 2021, including accrued interest of $ 1,687 (2021) and $ 1,538 (2020), respectively

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

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

Notes payable

3 unchanged sentences

Secured Convertible Note

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”).

On November 18, 2015, in connection with entering into the Joint Development and License Agreement with Samsung Electronics Co., Ltd.

(“Samsung”), the Company issued to Samsung Venture Investment Co.

(“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.

4 unchanged sentences

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

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.

For the three and six months ended July 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 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.

As of July 3, 2021, the outstanding principal and accrued interest on the SVIC Note was $ 16.7 million, and the outstanding SVIC Note balance, net of unamortized debt discounts and issuance costs, was $ 16.6 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.

3 unchanged sentences

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

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

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

Paycheck Protection Program Loan

3 unchanged sentences

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.

In May 2021, the full amount outstanding under the PPP Loan was forgiven, resulting in a gain of $ 0.6 million for the three months ended July 3, 2021.

Note 6—Leases

3 unchanged sentences

Three Months Ended

Six Months Ended

Operating lease cost

1 unchanged sentence

Operating cash flows from operating leases

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

Lease modification to increase (decrease) lease assets

For the three and six months ended July 3, 2021 and June 27, 2020, finance lease costs and cash flows from finance lease were immaterial.

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

2 unchanged sentences

Accrued expenses and other current liabilities

Operating lease liabilities

Total operating lease liabilities

13 unchanged sentences

Finance lease

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

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

Operating Leases

6 unchanged sentences

Note 7—Commitments and Contingencies

TRGP Agreement and Related Intercreditor Agreements

TRGP Agreement

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.

1 unchanged sentence

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 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.

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 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.

Legal expenses incurred by the Company but paid by TRGP pursuant to the terms of the TRGP Agreement are excluded from the condensed 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.

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

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.

The Company believes that the SK hynix License Agreement entered into on April 5, 2021 falls outside the scope of the TRGP Agreement and the First Amendment to the TRGP Agreement.

Litigation and Patent Reexaminations

26 unchanged sentences

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.

8 unchanged sentences

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.

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 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.

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.

9,858,218 and U.S.

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

The case was assigned to the Hon.

Albright and is Case No.

6:20-cv-00194-ADA.

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.

District Court for the Western District of Texas based on the infringement of Netlist U.S.

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

The case was assigned to the Hon.

Albright and is Case No.

6:20-cv-00525-ADA.

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.

Micron Litigation

On April 28, 2021, the Company filed legal proceedings for patent infringement against Micron Technology, Inc.

(“Micron”) in the United States District Court for the Western District of Texas (Case No.

6:21-cv-00431 & Case No.

6:21-cv-00430).

These proceedings are based on the alleged infringement by Micron’s load-reduced dual in-line memory modules (“LRDIMM”) and Micron’s non-volatile dual in-line memory modules (“NVDIMM”) enterprise memory products of four of the Company’s U.S.

patents – US Pat.

Case schedules for these cases have not yet been set.

Samsung Litigation

On May 28, 2020, the Company filed legal proceedings against Samsung in the United States District Court for the Central District of California seeking damages for breach of contract of the Joint Development and License Agreement (the “JDLA”) entered into between Netlist and Samsung on November 12, 2015.

On July 22, 2020, the Company amended its complaint to further seek a Declaratory Judgment that Netlist terminated the JDLA including the patent license under the JDLA.

These proceedings are based on the alleged material breach by Samsung of the JDLA.

This case has been assigned case number Case 8:20-cv-00993-MCS-ADS and has been assigned to the Honorable Mark C.

Trial for the case is set to begin on November 30, 2021.

Other Contingent Obligations

5 unchanged sentences

(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;

(v) indemnities to 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.

1 unchanged sentence

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 condensed consolidated balance sheets.

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 condensed consolidated balance sheets.

Note 8—Stockholders’ Equity

1 unchanged sentence

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 April 3, 2021 or January 2, 2021.

No shares of preferred stock were outstanding as of July 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.

6 unchanged sentences

2019 Lincoln Park 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.

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.

2 unchanged sentences

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.

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.

4 unchanged sentences

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.

During the six months ended July 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, during the six months ended July 3, 2021, the Company issued to Lincoln Park an aggregate of 129,468 shares of its common stock as additional commitment shares in noncash transactions.

Subsequent to July 3, 2021, Lincoln Park purchased an aggregate of 406,074 shares of the Company’s common stock for a net purchase price of $ 2.0 million under the 2019 Purchase Agreement.

In connection with the purchases, the Company issued to Lincoln Park an aggregate of 165,319 shares of its common stock as additional commitment shares in noncash transactions.

In July 2021, the Company completed the sales under the 2019 Purchase Agreement.

2020 Lincoln Park Purchase Agreement

2 unchanged sentences

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.

1 unchanged sentence

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:

2021 Lincoln Park Purchase Agreement

On July 12, 2021, the Company entered into a purchase agreement (the “2021 Purchase Agreement”) with Lincoln Park, pursuant to which the Company has the right to sell to Lincoln Park up to an aggregate of $ 17.4 million in shares of its common stock subject to the conditions and limitations set forth in the 2021 Purchase Agreement.

As consideration for entering into the 2021 Purchase Agreement, the Company issued to Lincoln Park 80,000 shares of its common stock as initial commitment shares in a noncash transaction on July 12, 2021 and will issue up to 120,500

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 2021 Purchase Agreement, on any business day and as often as every other business day over the 36-month term of the 2021 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 750,000 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 $ 3.0 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 2021 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 2021 Purchase Agreement.

Under certain circumstances and in accordance with the 2021 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 2021 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 2021 Purchase Agreement.

In all instances, the Company may not sell shares of its common stock to Lincoln Park under the 2021 Purchase Agreement if that would result in Lincoln Park beneficially owning more than 9.99 % of its common stock.

The 2021 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 2021 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 2021 Purchase Agreement.

The Company has the right to terminate the 2021 Purchase Agreement at any time, at no cost to the Company.

Subsequent to July 12, 2021, Lincoln Park purchased an aggregate of 2,000,000 shares of the Company’s common stock for a net purchase price of $ 14.9 million under the 2021 Purchase Agreement.

In connection with the purchases, the Company issued to Lincoln Park an aggregate of 103,292 shares of its common stock as additional commitment shares in noncash transactions.

Warrant activity for the six months ended July 3, 2021 is as follows:

(in thousands)

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.

Outstanding as of July 3, 2021

Note 9—Stock-Based Awards

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”).

As of July 3, 2021, the Company had 767,822 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.

1 unchanged sentence

Stock Options

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

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

(in thousands)

1 unchanged sentence

Expired or forfeited

Outstanding as of April 3, 2021

Outstanding as of July 3, 2021

Restricted Stock Units

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

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

(in thousands)

Outstanding as of January 2, 2021

Outstanding as of April 3, 2021

Outstanding as of July 3, 2021

Stock-Based Compensation

1 unchanged sentence

Three Months Ended

Six Months Ended

Cost of sales

1 unchanged sentence

Selling, general and administrative

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.

As of July 3, 2021, the Company had approximately $ 3.3 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