What changed in this filing

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Item 1. Financial Statements

2021-11-10 compared with 2021-08-17 · 141 added, 102 removed, 364 unchanged (40% of the section changed)

41 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 26,

Net product sales

5 unchanged sentences

Total operating expenses

Operating income (loss)

Other income (expense), net:

Operating (loss) income

Other (expense) income, net:

Interest expense, net

Other income (expense), net

Total other income (expense), net

Income (loss) before provision for income taxes

Other (expense) income, net

Total other (expense) income, net

(Loss) income before provision for income taxes

Provision for income taxes

Net income (loss)

Earnings (loss) per share:

Net (loss) income

(Loss) earnings per share:

Weighted-average common shares outstanding:

20 unchanged sentences

Balance, July 3, 2021

Issuance of common stock, net

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, October 2, 2021

See accompanying notes.

NETLIST, INC.

AND SUBSIDIARIES

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

(In thousands)

Stockholders'

9 unchanged sentences

Balance, June 27, 2020

Issuance of common stock, net

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, September 26, 2020

See accompanying notes.

3 unchanged sentences

(In thousands)

Six Months Ended

Nine Months Ended

September 26,

Cash flows from operating activities:

18 unchanged sentences

Cash flows from financing activities:

Net repayments under line of credit

Net borrowings under line of credit

Proceeds from issuance of long-term debt

17 unchanged sentences

Netlist, Inc.

and its wholly-owned subsidiaries (collectively the “Company” or “Netlist”) provides high-performance modular memory subsystems to customers in diverse industries that require enterprise and storage class memory solutions to empower critical business decisions.

The Company has a history of introducing disruptive new products, such as one of the first load-reduced dual in-line memory modules (“LRDIMM”) based on its distributed buffer architecture, which has been adopted by the industry for DDR4 LRDIMM.

The Company was also one of the first to bring NAND flash memory (“NAND flash”) to the memory channel with its NVvault non-volatile dual in-line memory modules 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'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.

and its wholly-owned subsidiaries (collectively the “Company” or “Netlist”) provides high-performance solid state drives and modular memory solutions to enterprise customers in diverse industries.

The Company's NVMe SSDs in various capacities and form factors and the line of custom and specialty memory products bring industry-leading performance to server and storage appliance customers and cloud service providers.

Netlist licenses its portfolio of intellectual property including patents, in server memory, hybrid memory and storage class memory, to companies that implement Netlist’s technology.

Note 2—Summary of Significant Accounting Policies

7 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 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.

The Company has evaluated events occurring subsequent to October 2, 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

6 unchanged sentences

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.

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

19 unchanged sentences

Finished goods

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):

(Loss) Earnings Per Share

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

Three Months Ended

Six Months Ended

Net income (loss)

Nine Months Ended

September 26,

Net (loss) income

Weighted-average basic shares outstanding

1 unchanged sentence

Weighted-average diluted shares

Basic earnings (loss) per share

Diluted earnings (loss) per share

Basic (loss) earnings per share

Diluted (loss) earnings 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”).

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):

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

Six Months Ended

Nine Months Ended

September 26,

Weighted average common share equivalents

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 26,

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.

During the second quarter of 2021, the Company received an upfront non-refundable license fee of $ 40 million as 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.

In connection with the receipt of the license fee, during the second quarter of 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 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:

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

Three Months Ended

Six Months Ended

Nine Months Ended

September 26,

Less than 10% of net sales during the period.

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.

As of October 2, 2021 and January 2, 2021, one customer represented 28 % and 50 % of aggregate gross receivables, respectively.

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.

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 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.

For the three and nine months ended October 2, 2021, resales of these products represented approximately 75 % and 77 % of net product sales, respectively.

For the three and nine months ended September 26, 2020, they represented approximately 67 % 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

Nine Months Ended

September 26,

Gain on extinguishment of debt

5 unchanged sentences

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 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.

As of October 2, 2021 and January 2, 2021, (i) outstanding letters of credit were $ 10.9 million and $ 3.2 million, respectively, (ii) outstanding borrowings were $ 4.5 million and $ 3.7 million, respectively, and (iii) availability under the revolving line of credit was $ 0.1 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).

As of October 2, 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 July 3, 2021, the Company was in compliance with its covenants under the SVB Credit Agreement.

As of October 2, 2021, the Company was in compliance with its covenants under the SVB Credit Agreement.

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

15 unchanged sentences

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

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.

For the three and nine months ended October 2, 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 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.

As of October 2, 2021, the outstanding principal and accrued interest on the SVIC Note was $ 16.8 million, and the outstanding SVIC Note balance, net of unamortized debt discounts and issuance costs, was $ 16.7 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.

Upon issuance of the SVIC Note, the Company, SVB and SVIC entered into an Intercreditor Agreement pursuant to which SVB and SVIC agreed to their relative security interests in the Company’s assets.

issuance of the SVIC Note, the Company, SVB and SVIC entered into an Intercreditor Agreement pursuant to which SVB and SVIC agreed to their relative security interests in the Company’s assets.

In May 2017, SVIC, SVB and TRGP entered into additional Intercreditor Agreements to modify certain of these lien priorities (see Note 7).

1 unchanged sentence

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

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

As of October 2, 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 amount outstanding under the PPP Loan was forgiven, resulting in a gain of $ 0.6 million for the three months ended July 3, 2021.

In May 2021, the full amount outstanding under the PPP Loan was forgiven, resulting in a gain of $ 0.6 million during the second quarter of 2021.

Note 6—Leases

3 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 26,

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 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.

For the three and nine months ended October 2, 2021 and September 26, 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

Total operating lease liabilities

Finance Leases

12 unchanged sentences

Finance lease

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

Operating Leases

Finance Leases

Maturities of lease liabilities as of October 2, 2021 were as follows (in thousands):

2021 (remainder of the year)

1 unchanged sentence

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.

As of October 2, 2021, the Company had $ 2.4 million of future payments under additional leases, primarily for corporate facilities, that had not yet commenced.

These leases will commence during 2021, with lease terms ranging from two to five years .

Note 7—Commitments and Contingencies

2 unchanged sentences

International Trade Commission (“ITC”) and its U.S.

district court proceedings, but excluding all other proceedings (all such funded costs, collectively, the “Funded Costs”).

In exchange for such funding, the Company agreed that, if the Company recovered any proceeds in connection with the funded SK hynix

proceedings relating to certain patents, it would pay to TRGP the amount of the Funded Costs paid by TRGP plus an escalating premium based on when any such proceeds are recovered.

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.

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 (the “First Amendment”).

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.

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 and does not anticipate that it will be obligated to make payments to TRGP under the TRGP Agreement or the First Amendment.

Litigation and Patent Reexaminations

37 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.

On August 18, 2021, Netlist dismissed this lawsuit without prejudice.

Micron Litigation

10 unchanged sentences

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.

On October 14, 2021, the court entered summary judgment in favor of Netlist on Samsung’s material breach of the supply obligation and material breach of tax withholding claims.

The court further held that Netlist had properly terminated the JDLA on July 15, 2020.

Finally, the court held that Netlist could not recover consequential damages.

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

Other Contingent Obligations

8 unchanged sentences

The duration of these indemnities, commitments and guarantees varies and, in certain cases, may be indefinite.

The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential for future payments the Company could be obligated to make.

Historically, the Company has not been obligated to make significant payments as

a result of these obligations, and no liabilities have been recorded for these indemnities, commitments and guarantees in the accompanying condensed consolidated balance sheets.

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.

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 July 3, 2021 or January 2, 2021.

No shares of preferred stock were outstanding as of October 2, 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.

9 unchanged sentences

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

Pursuant to the 2019 Purchase Agreement, on any business day and as often as every other business day over the 36-month term of the 2019 Purchase Agreement, the Company has the right, from time to time, at its sole discretion and subject to certain conditions, to direct Lincoln Park to purchase up to 400,000 shares of its common stock, with such amount increasing as the closing sale price of its common stock increases;

provided Lincoln Park’s obligation under any single such purchase will not exceed $ 1.0 million, unless the Company and Lincoln Park mutually agree to increase the maximum amount of such single regular purchase.

If the Company directs Lincoln Park to purchase the maximum

number of shares of common stock it then may sell in a regular purchase, then in addition to such regular purchase, and subject to certain conditions and limitations in the 2019 Purchase Agreement, the Company may direct Lincoln Park to purchase an additional amount of common stock that may not exceed the lesser of (i) 300 % of the number of shares purchased pursuant to the corresponding regular purchase or (ii) 30 % of the total number of shares of its common stock traded during a specified period on the applicable purchase date as set forth in the 2019 Purchase Agreement.

Under certain circumstances and in accordance with the 2019 Purchase Agreement, the Company may direct Lincoln Park to purchase shares in multiple accelerated purchases on the same trading day.

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

There is no upper limit on the price per share that Lincoln Park must pay for the Company’s common stock under the 2019 Purchase Agreement, but in no event will shares be sold to Lincoln Park on a day the closing price is less than the floor price specified in the 2019 Purchase Agreement.

In all instances, the Company may not sell shares of its common stock to Lincoln Park under the 2019 Purchase Agreement if that would result in Lincoln Park beneficially owning more than 9.99 % of its common stock.

The 2019 Purchase Agreement does not limit the Company’s ability to raise capital from other sources at the Company’s sole discretion, except that, subject to certain exceptions, the Company may not enter into any Variable Rate Transaction (as defined in the 2019 Purchase Agreement, including the issuance of any floating conversion rate or variable priced equity-like securities) during the 36 months after the date of the 2019 Purchase Agreement.

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

During 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.

During the three and nine months ended October 2, 2021, Lincoln Park purchased an aggregate of 406,074 shares and 2,075,503 shares of the Company’s common stock for a net purchase price of $ 2.0 million and $ 3.6 million, respectively, under the 2019 Purchase Agreement.

In connection with the purchases, during the three and nine months ended October 2, 2021, the Company issued to Lincoln Park an aggregate of 165,319 shares and 294,787 shares of its

common stock, respectively, as additional commitment shares in noncash transactions.

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

3 unchanged sentences

The Company would not receive any cash proceeds from the issuance of these additional commitment shares.

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.

During the nine months ended October 2, 2021, Lincoln Park purchased an aggregate of 9,544,595 shares of the Company’s common stock for a net purchase price of $ 7.8 million under the 2020 Purchase Agreement.

In connection with the purchases, during the nine months ended October 2, 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.

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.

First 2021 Lincoln Park Purchase Agreement

On July 12, 2021, the Company entered into a purchase agreement (the “First 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 First 2021 Purchase Agreement.

As consideration for entering into the First 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;

Pursuant to the First 2021 Purchase Agreement, on any business day and as often as every other business day over the 36-month term of the First 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.

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 First 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 and (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 First 2021 Purchase Agreement.

Under certain circumstances and in accordance with the First 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.

There is no upper limit on the price per share that Lincoln Park must pay for the Company’s common stock under the First 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 First 2021 Purchase Agreement.

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

The First 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 First 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 First 2021 Purchase Agreement at any time, at no cost to the Company.

During the three months ended October 2, 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 First 2021 Purchase Agreement.

In connection with the purchases, during the three months ended October 2, 2021, the Company issued to Lincoln Park an aggregate of 103,292 shares of its common stock as additional commitment shares in noncash transactions.

Subsequent to October 2, 2021, Lincoln Park purchased an aggregate of 383,748 shares of the Company’s common stock for a net purchase price of $ 2.5 million under the First 2021 Purchase Agreement.

In connection with the purchases, the Company issued to Lincoln Park an aggregate of 17,208 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 October 2021, the Company completed the sales under the First 2021 Purchase Agreement.

Second 2021 Lincoln Park Purchase Agreement

On September 28, 2021, the Company entered into a purchase agreement (the “Second 2021 Purchase Agreement”) with Lincoln Park, pursuant to which the Company has the right to sell to Lincoln Park up to an aggregate of $ 75 million in shares of its common stock subject to the conditions and limitations set forth in the Second 2021 Purchase Agreement.

Concurrent with the execution of the Second 2021 Purchase Agreement, the Company also entered into a registration rights agreement with Lincoln Park relating to the Company’s common stock to be sold to Lincoln Park.

As consideration for entering into the Second 2021 Purchase Agreement, the Company issued to Lincoln Park 218,750 shares of its common stock as initial commitment shares in a noncash transaction on September 28, 2021 and will issue up to 143,750 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 Second 2021 Purchase Agreement, on any business day and as often as every other business day over the 36-month term of the Second 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, provided Lincoln Park’s obligation under any single such purchase will not exceed $ 4.0 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 Second 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 Second 2021 Purchase Agreement.

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

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

The Second 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 Second 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 Second 2021 Purchase

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

During the three months ended October 2, 2021, Lincoln Park did not purchase shares of the Company’s common stock under the Second 2021 Purchase Agreement.

Subsequent to October 2, 2021, Lincoln Park purchased an aggregate of 650,000 shares of the Company’s common stock for a net purchase price of $ 4.8 million under the Second 2021 Purchase Agreement.

In connection with the purchases, the Company issued to Lincoln Park an aggregate of 9,111 shares of its common stock as additional commitment shares in noncash transactions.

Warrant activity for the nine months ended October 2, 2021 is as follows:

(in thousands)

Outstanding as of January 2, 2021

Outstanding as of July 3, 2021

Outstanding as of October 2, 2021

Note 9—Stock-Based Awards

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”).

As of October 2, 2021, the Company had 630,323 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 six months ended July 3, 2021:

The following table summarizes the activity related to stock options during the nine months ended October 2, 2021:

(in thousands)

1 unchanged sentence

Expired or forfeited

Outstanding as of July 3, 2021

Outstanding as of October 2, 2021

Restricted Stock Units

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

The following table summarizes the activity related to RSUs during the nine months ended October 2, 2021:

(in thousands)

Outstanding as of January 2, 2021

Outstanding as of July 3, 2021

Outstanding as of October 2, 2021

Stock-Based Compensation

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

September 26,

Cost of sales

1 unchanged sentence

Selling, general and administrative

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.

As of October 2, 2021, the Company had approximately $ 3.9 million, net of estimated forfeitures, of unearned stock-based compensation, which it expects to recognize over a weighted-average period of approximately 3.0 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