What changed in this filing

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Item 1A. Risk Factors

2021-11-10 compared with 2021-08-17 · 26 added, 23 removed, 623 unchanged (7% of the section changed)

7 unchanged sentences

● We have historically incurred losses and may continue to incur losses;

● The vast majority of our net product sales in recent periods have been generated from resales of component products, including products sourced from Samsung, and any decline in these product resales could significantly harm our performance;

● The vast majority of our net product sales in recent periods have been generated from resales of component products, including products sourced from Samsung and SK hynix, and any decline in these product resales could significantly harm our performance;

● We are subject to risks relating to our focus on developing our HybriDIMM and NVvault products for our target customer markets;

5 unchanged sentences

● Our operating results may be adversely impacted by worldwide economic and political uncertainties and specific conditions in the markets we address and in which we or our strategic partners or competitors do business, including ongoing effects of the COVID-19 pandemic and the cyclical nature of and volatility in the memory market and semiconductor industry;

● Our lack of a significant backlog of unfilled orders and the difficulty inherent in estimating customer demand makes it difficult to forecast our short-term requirements, and any failure to optimally calibrate our production capacity and inventory levels to meet customer demand could adversely affect our revenues, gross margins and earnings;

● Declines in our average sale prices, driven by volatile prices for components and other factors, may result in declines in our revenues and gross profit;

● Declines in our average sale prices, driven by volatile prices for components and other factors, may result in declines in our revenues and gross margin;

● Our manufacturing operations involve significant risks;

43 unchanged sentences

Since the inception of our business in 2000, we have only experienced one fiscal year (2006) with profitable results.

In order to regain profitability, or to achieve and sustain positive cash flows from operations, we must reduce operating expenses and/or increase our revenues and gross margins.

In order to regain profitability, or to achieve and sustain positive cash flows from operations, we must reduce operating expenses and/or increase our revenues and gross margin.

Although we have in the past engaged in a series of cost reduction actions, such expense reductions alone will not make us profitable or allow us to sustain profitability if it is achieved, and eliminating or reducing strategic initiatives could limit our opportunities and prospects.

17 unchanged sentences

Because the cost of the component products we purchase for resale is added to our cost of sales for these products, our gross margin on resales of component products is significantly lower than our gross margin on sales of our own memory subsystem products.

As a result, increased resales of component products as a percentage of our total product sales have a significant negative impact on our gross margin and gross profit.

This gross margin and gross profit differential between memory product sales and component product resales would be amplified if our costs to purchase component products were to increase.

As a result, increased resales of component products as a percentage of our total product sales have a significant negative impact on our gross margin and gross margin percentage.

This gross margin and gross margin percentage differential between memory product sales and component product resales would be amplified if our costs to purchase component products were to increase.

The occurrence of any one or more of these risks could cause our performance to materially suffer.

34 unchanged sentences

Further, there are a relatively small number of suppliers of these components, and we typically purchase from only a subset of these suppliers.

As a result, our inventory purchases have historically been concentrated in a small number of suppliers, including an affiliate of Samsung, from which we obtained a large portion of our component products purchased for resale and our total inventory purchases in 2017 and 2019.

As a result, our inventory purchases have historically been concentrated in a small number of suppliers, Samsung and SK hynix, from which we obtained a large portion of our component products purchased for resale.

We also use consumables and other components, including PCBs, to manufacture our memory subsystems, which we sometimes procure from single or limited sources to take advantage of volume pricing discounts.

From time to time, shortages in SSDs, DRAM ICs and NAND flash have required some suppliers to limit the supply of these components.

In the past, we have experienced supply chain disruptions and shortages of SSDs, DRAM and NAND flash required to create certain of our memory subsystem products, and we have been forced to procure the component products we resell from other suppliers to the extent sufficient product is not available from Samsung to meet customer demand or in the event of other Samsung supply issues.

In the past, we have experienced supply chain disruptions and shortages of SSDs, DRAM and NAND flash required to create certain of our memory subsystem products, and we have been forced to procure the component products we resell from other suppliers to the extent sufficient product is not available from Samsung and SK hynix to meet customer demand or in the event of other Samsung and SK hynix supply issues.

We are continually working to secure adequate supplies of the components necessary to fill customers’ orders in a timely manner.

72 unchanged sentences

During these downturns, product demand diminishes, production capacity exceeds demand, inventory levels increase and average sale prices decline, all of which would materially adversely impact our business and operating results.

In addition, because many of our costs and operating expenses are relatively fixed, if we are unable to control our expenses adequately in response to reduced product demand and sales, our gross margins and cash flows would be negatively impacted.

Further, such a downturn could decrease the perceived value of our intellectual property portfolio and reduce our ability to pursue our intellectual property monetization objectives.

5 unchanged sentences

The combination of our lengthy sales cycle coupled with any challenging macroeconomic conditions could compound the negative impact of any such downturn on the results of our operations.

Our lack of a significant backlog of unfilled orders and the difficulty inherent in estimating customer demand makes it difficult to forecast our short-term requirements, and any failure to optimally calibrate our production capacity and inventory levels to meet customer demand could adversely affect our revenues, gross margins and earnings.

We make significant decisions regarding the levels of business we will seek and accept, production schedules, component procurement, personnel needs and other resource requirements based on our estimates of customer demand.

17 unchanged sentences

If our inventories are determined to be overvalued, we would be required to recognize additional expense in our cost of sales at the time of the determination.

Conversely, if our inventories are determined to be undervalued, we may have over-reported our costs of sales in previous periods and would be required to recognize additional gross profit at the time the inventories are sold.

Declines in our average sale prices, driven by volatile prices for components and other factors, may result in declines in our revenues and gross profit.

Declines in our average sale prices, driven by volatile prices for components and other factors, may result in declines in our revenues and gross margin.

Our industry has historically been characterized by declines in average sale prices.

5 unchanged sentences

As a result, if market prices for essential components increase, we generally cannot pass the price increases through to our customers for products purchased under an existing purchase order.

Consequently, we are exposed to the risks associated with the volatility of prices for these components and our cost of sales could increase and our gross margins could decrease in the event of sudden price increases.

Consequently, we are exposed to the risks associated with the volatility of prices for these components and our cost of sales could increase and our gross margin could decrease in the event of sudden price increases.

Alternatively, if there are declines in the prices of these components, we may be required to reduce our selling prices for subsequent purchase orders, which may result in a decline in our net product sales.

160 unchanged sentences

In addition, the United States or foreign countries may implement quotas, duties, tariffs, taxes or other charges or restrictions on the importation or exportation of our products or the component products we resell, which could lead to a reduction in sales and profitability in that country.

The implementation of tariffs by the United States on goods manufactured in other countries, including PRC, could cause the costs of our products to increase, which could significantly impair the gross profit we receive and thereby harm our operating results significantly.

The implementation of tariffs by the United States on goods manufactured in other countries, including PRC, could cause the costs of our products to increase, which could significantly impair the gross margin we receive and thereby harm our operating results significantly.

In addition, international turmoil and the threat of future terrorist attacks have contributed to an uncertain political and economic climate, both in the United States and globally, and have negatively impacted the worldwide economy.

30 unchanged sentences

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

As described in Part I, Item 4, Controls and Procedures, we have concluded that our internal control over financial reporting was ineffective as of July 3, 2021 due to a material weakness.

The identified material weakness, at July 3, 2021, relates to the lack of an independent audit committee.

As described in Part I, Item 4, Controls and Procedures, we have concluded that our internal control over financial reporting was ineffective as of October 2, 2021 due to a material weakness.

The identified material weakness, at October 2, 2021, relates to the lack of an independent audit committee.

While the control deficiency identified did not result in any identified misstatements, a reasonable possibility exists that a material misstatement to the annual or interim consolidated financial statements and disclosures will not be prevented or detected on a timely basis.

141 unchanged sentences

If an event of default were to occur under any of these instruments or agreements and we were unable to obtain a waiver for the default, the counterparties could, among other remedies, accelerate our obligations under the debt instrument or other agreement and exercise their rights to foreclose on their security interests, which would cause substantial harm to our business and prospects.

We believe that the SK hynix License Agreement falls outside the scope of the TRGP Agreement and the First Amendment to the TRGP Agreement, and we do not anticipate that we will be obligated to make payments to TRGP under the TRGP Agreement and the First Amendement to the TRGP Agreement.

Additionally, incurrence and maintenance of this or other debt could have material adverse consequences on our business and financial condition, such as:

18 unchanged sentences

Sales of our common stock, or the perception that such sales could occur, could cause the market price of our stock to drop significantly, regardless of the state of our business.

As of July 3, 2021, there were 215,986,964 shares of our common stock outstanding.

As of October 2, 2021, there were 225,969,636 shares of our common stock outstanding.

In addition, 6,044,151 shares of our common stock are subject to outstanding stock options, 2,169,469 shares of our common stock are subject to outstanding unvested restricted stock units, 2,000,000 shares of our common stock are subject to outstanding warrants, and 13,409,753 shares of our common stock subject to an outstanding convertible note.

23 unchanged sentences

Exhibit Description

Purchase Agreement dated as of September 28, 2021, between Netlist, Inc.

and Lincoln Park Capital Fund, LLC

September 28, 2021

Registration Rights Agreement, dated as of September 28, 2021, between Netlist, Inc.

and Lincoln Park Capital Fund, LLC

September 28, 2021

Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer

6 unchanged sentences

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Inine XBRL Taxonomy Extension Definition Linkbase Document

Inline XBRL Taxonomy Extension Definition Linkbase Document

Cover Page Interactive Data File (embedded within the Inline XBRL document)

Furnished herewith.

Portions of this Exhibit have been omitted in accordance with Regulation S-K Item 601(b)(10)(iv).

The Registrant

agrees to furnish an unredacted copy of this Exhibit to the SEC upon its request.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

August 17, 2021

November 10, 2021

Netlist, Inc.

5 unchanged sentences

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

What changed 10-Q

Item 1A. Risk Factors