NETLIST INC 10-Q

Item 1. Financial Statements NETLIST, INC. AND SUBSIDIARIES ​ Condensed Consolidated Balance Sheets (In thousands, except par value) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ April 2, ​ January 1, ​ 2022 2022 ​ ​ ​ (unaudited) ​ ​ ​ ASSETS Current Assets: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 37,530 ​ $ 47,679 Restricted cash ​ ​ 20,800 ​ ​ 10,800 Accounts receivable, net of allowances of $ 207 (2022) and $ 283 (2021) ​ ​ 5,777 ​ ​ 12,727 Inventories ​ ​ 19,503 ​ ​ 15,670 Prepaid expenses and other current assets ​ ​ 1,167 ​ ​ 1,126 Total current assets ​ ​ 84,777 ​ ​ 88,002 Property and equipment, net ​ ​ 1,129 ​ ​ 989 Operating lease right-of-use assets ​ ​ 2,279 ​ ​ 1,891 Other assets ​ ​ 287 ​ ​ 294 Total assets ​ $ 88,472 ​ $ 91,176 ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 28,963 ​ $ 25,887 Revolving line of credit ​ ​ 4,732 ​ ​ 7,000 Accrued payroll and related liabilities ​ ​ 1,345 ​ ​ 1,308 Accrued expenses and other current liabilities ​ ​ 709 ​ ​ 632 Long-term debt due within one year ​ ​ 376 ​ ​ 562 Total current liabilities ​ ​ 36,125 ​ ​ 35,389 Operating lease liabilities ​ ​ 1,994 ​ ​ 1,593 Other liabilities ​ ​ 187 ​ ​ 152 Total liabilities ​ ​ 38,306 ​ ​ 37,134 Commitments and contingencies ​ ​ ​ ​ ​ ​ Stockholders' equity : ​ ​ ​ ​ ​ ​ Preferred stock, $ 0.001 par value— 10,000 shares authorized: Series A preferred stock, $ 0.001 par value; 1,000 shares authorized; none issued and outstanding ​ ​ — ​ ​ — Common stock, $ 0.001 par value— 450,000 shares authorized; 231,029 (2022) and 230,113 (2021) shares issued and outstanding ​ ​ 232 ​ ​ 231 Additional paid-in capital ​ ​ 245,861 ​ ​ 243,866 Accumulated deficit ​ ​ ( 195,927 ) ​ ​ ( 190,055 ) Total stockholders' equity ​ ​ 50,166 ​ ​ 54,042 Total liabilities and stockholders' equity ​ $ 88,472 ​ $ 91,176 ​ See accompanying Notes to Condensed Consolidated Financial Statements. ​ ​ 3 Table of Contents NETLIST, INC. AND SUBSIDIARIES ​ Condensed Consolidated Statements of Operations (Unaudited) (In thousands, except per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ April 2, ​ April 3, ​ ​ 2022 2021 Net product sales ​ ​ $ 50,200 ​ $ 14,897 Cost of sales ​ ​ ​ 46,837 ​ ​ 13,396 Gross margin ​ ​ ​ 3,363 ​ ​ 1,501 Operating expenses: ​ ​ ​ ​ ​ ​ ​ Research and development ​ ​ ​ 2,457 ​ ​ 1,124 Intellectual property legal fees ​ ​ ​ 2,826 ​ ​ 2,287 Selling, general and administrative ​ ​ ​ 3,938 ​ ​ 1,957 Total operating expenses ​ ​ ​ 9,221 ​ ​ 5,368 Operating loss ​ ​ ​ ( 5,858 ) ​ ​ ( 3,867 ) Other expense, net: ​ ​ ​ ​ ​ ​ ​ Interest expense, net ​ ​ ​ ( 11 ) ​ ​ ( 147 ) Other expense, net ​ ​ ​ ( 2 ) ​ ​ ( 2 ) Total other expense, net ​ ​ ​ ( 13 ) ​ ​ ( 149 ) Loss before provision for income taxes ​ ​ ​ ( 5,871 ) ​ ​ ( 4,016 ) Provision for income taxes ​ ​ ​ 1 ​ ​ 1 Net loss ​ ​ $ ( 5,872 ) ​ $ ( 4,017 ) ​ ​ ​ ​ ​ ​ ​ ​ Loss per share: ​ ​ ​ ​ ​ ​ ​ Basic and diluted ​ ​ $ ( 0.03 ) ​ $ ( 0.02 ) Weighted-average common shares outstanding: ​ ​ ​ ​ ​ ​ ​ Basic and diluted ​ ​ ​ 230,546 ​ ​ 205,680 ​ See accompanying Notes to the Condensed Consolidated Statements. ​ 4 Table of Contents B NETLIST, INC. AND SUBSIDIARIES ​ Condensed Consolidated Statements of Stockholders Equity (Unaudited) (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ Total ​ ​ Common Stock ​ Paid-in ​ Accumulated ​ Stockholders' ​ Shares Amount Capital Deficit Equity Balance, January 1, 2022 ​ 230,113 ​ $ 231 ​ $ 243,866 ​ $ ( 190,055 ) ​ $ 54,042 Net loss ​ — ​ ​ — ​ ​ — ​ ​ ( 5,872 ) ​ ​ ( 5,872 ) Issuance of common stock, net ​ 303 ​ ​ — ​ ​ 1,767 ​ ​ — ​ ​ 1,767 Exercise of stock options ​ 197 ​ ​ — ​ ​ 138 ​ ​ — ​ ​ 138 Stock-based compensation ​ — ​ ​ — ​ ​ 682 ​ ​ — ​ ​ 682 Restricted stock units vested and distributed ​ 533 ​ ​ 1 ​ ​ ( 1 ) ​ ​ — ​ ​ — Tax withholdings related to net share settlements of equity awards ​ ( 117 ) ​ ​ — ​ ​ ( 591 ) ​ ​ — ​ ​ ( 591 ) Balance, April 2, 2022 ​ 231,029 ​ $ 232 ​ $ 245,861 ​ $ ( 195,927 ) ​ $ 50,166 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ Total ​ ​ Common Stock ​ Paid-in ​ Accumulated ​ Stockholders' ​ Shares Amount Capital Deficit Equity (Deficit) Balance, January 2, 2021 ​ 195,978 ​ $ 195 ​ $ 192,071 ​ $ ( 194,886 ) ​ $ ( 2,620 ) Net loss ​ — ​ ​ — ​ ​ — ​ ​ ( 4,017 ) ​ ​ ( 4,017 ) Issuance of common stock, net ​ 11,700 ​ ​ 12 ​ ​ 9,349 ​ ​ — ​ ​ 9,361 Exercise of stock options ​ 476 ​ ​ — ​ ​ 376 ​ ​ — ​ ​ 376 Exercise of warrants ​ 6,508 ​ ​ 7 ​ ​ 3,975 ​ ​ — ​ ​ 3,982 Stock-based compensation ​ — ​ ​ — ​ ​ 338 ​ ​ — ​ ​ 338 Restricted stock units vested and distributed ​ 501 ​ ​ 1 ​ ​ ( 1 ) ​ ​ — ​ ​ — Tax withholdings related to net share settlements of equity awards ​ ( 150 ) ​ ​ — ​ ​ ( 276 ) ​ ​ — ​ ​ ( 276 ) Balance, April 3, 2021 ​ 215,013 ​ $ 215 ​ $ 205,832 ​ $ ( 198,903 ) ​ $ 7,144 ​ ​ ​ ​ See accompanying Notes to the Condensed Consolidated Statements 5 Table of Contents ​ NETLIST, INC. AND SUBSIDIARIES ​ Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ April 2, ​ April 3, ​ 2022 2021 Cash flows from operating activities: ​ ​ ​ ​ ​ ​ Net loss ​ $ ( 5,872 ) ​ $ ( 4,017 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ ​ 81 ​ ​ 33 Interest accrued on convertible promissory notes ​ ​ — ​ ​ 76 Amortization of debt discounts ​ ​ — ​ ​ 53 Non-cash lease expense ​ ​ 167 ​ ​ 112 Stock-based compensation ​ ​ 682 ​ ​ 338 Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ Accounts receivable ​ ​ 6,950 ​ ​ ( 998 ) Inventories ​ ​ ( 3,833 ) ​ ​ ( 5,358 ) Prepaid expenses and other assets ​ ​ ( 34 ) ​ ​ ( 196 ) Accounts payable ​ ​ 3,076 ​ ​ 5,777 Accrued payroll and related liabilities ​ ​ 37 ​ ​ ( 13 ) Accrued expenses and other liabilities ​ ​ ( 37 ) ​ ​ ( 98 ) Net cash provided by (used in) operating activities ​ ​ 1,217 ​ ​ ( 4,291 ) Cash flows from investing activities: ​ ​ ​ ​ ​ ​ Acquisition of property and equipment ​ ​ ( 221 ) ​ ​ ( 41 ) Net cash used in investing activities ​ ​ ( 221 ) ​ ​ ( 41 ) Cash flows from financing activities: ​ ​ ​ ​ ​ ​ Net (payments) borrowings under line of credit ​ ​ ( 2,268 ) ​ ​ 962 Principal repayments under finance lease ​ ​ ( 5 ) ​ ​ — Repayments on notes payable ​ ​ ( 186 ) ​ ​ ( 83 ) Proceeds from issuance of common stock, net ​ ​ 1,767 ​ ​ 9,361 Proceeds from exercise of stock options and warrants ​ ​ 138 ​ ​ 4,358 Payments for taxes related to net share settlement of equity awards ​ ​ ( 591 ) ​ ​ ( 276 ) Net cash (used in) provided by financing activities ​ ​ ( 1,145 ) ​ ​ 14,322 Net change in cash, cash equivalents and restricted cash ​ ​ ( 149 ) ​ ​ 9,990 Cash, cash equivalents and restricted cash at beginning of period ​ ​ 58,479 ​ ​ 16,526 Cash, cash equivalents and restricted cash at end of period ​ $ 58,330 ​ $ 26,516 ​ ​ ​ ​ ​ ​ ​ Reconciliation of cash, cash equivalents and restricted cash at end of period: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 37,530 ​ $ 21,616 Restricted cash ​ ​ 20,800 ​ ​ 4,900 Cash, cash equivalents and restricted cash at end of period ​ $ 58,330 ​ $ 26,516 ​ ​ See accompanying Notes to the Condensed Consolidated Statements. ​ ​ 6 Table of Contents NETLIST, INC. AND SUBSIDIARIES ​ Notes to Condensed Consolidated Financial Statements (Unaudited) ​ Note 1—Description of Business ​ Netlist, Inc. 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 ​ Basis of Presentation ​ The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Certain information and footnote disclosures normally included in the condensed consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These condensed consolidated financial statements should be read in conjunction with the condensed consolidated financial statements and notes thereto as of and for the year ended January 1, 2022, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 1, 2022 (the “2021 Annual Report”). ​ In the opinion of management, all adjustments for the fair presentation of the Company’s condensed consolidated financial statements have been made. The adjustments are of a normal recurring nature except as otherwise noted. 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 2, 2022 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 ​ The accompanying condensed consolidated financial statements include the accounts of Netlist, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. ​ Fiscal Year ​ The Company’s fiscal year is the 52 - or 53 -week period that ends on the Saturday nearest to December 31. The Company’s fiscal year 2022 will include 52 weeks and ends on December 31, 2022. Each quarter of fiscal year 2022 will be comprised of 13 weeks. Unless otherwise stated, references to particular years, quarters, months and periods refer to the Company’s fiscal years ended in January and the associated quarters, months and periods of those fiscal years. ​ Use of Estimates ​ The preparation of the accompanying condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported. Actual results may differ materially from those estimates. ​ ​ 7 Table of Contents Recently Issued Accounting Guidance ​ In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity . This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity's own equity, and also improves and amends the related earnings per share guidance for both Subtopics. The ASU was effective for the three months ended April 2, 2022. The adoption of this ASU did not have an impact on the Company’s condensed consolidated financial statements as the Company paid off its convertible debt in December 2021. ​ Note 3—Supplemental Financial Information ​ Inventories ​ Inventories consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ April 2, ​ January 1, ​ 2022 2022 Raw materials ​ $ 8,448 ​ $ 4,208 Work in process ​ ​ 219 ​ ​ 154 Finished goods ​ ​ 10,836 ​ ​ 11,308 ​ ​ $ 19,503 ​ $ 15,670 ​ Loss Per Share ​ The following table shows the computation of basic and diluted loss per share of common stock (in thousands, except per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ April 2, ​ April 3, ​ 2022 2021 Numerator: Net loss ​ $ ( 5,872 ) ​ $ ( 4,017 ) Denominator: Weighted-average common shares outstanding—basic and diluted ​ 230,546 ​ 205,680 Net loss per share—basic and diluted ​ $ ( 0.03 ) ​ $ ( 0.02 ) ​ 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 feature of a convertible note using the “if-converted” method, and the shares vesting of issuable upon the RSAs and RSUs. These potential weighted average common share equivalents have been excluded from the diluted net loss per share calculations above as their effect would be anti-dilutive (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ April 2, ​ April 3, ​ 2022 2021 Weighted average common share equivalents $ 6,369 ​ $ 17,082 ​ 8 Table of Contents Disaggregation of Net Sales ​ The following table shows disaggregated net sales by major source (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ April 2, ​ April 3, ​ 2022 2021 Resales of third-party products $ 45,585 $ 11,358 Sale of the Company's modular memory subsystems 4,615 3,539 Total net sales $ 50,200 $ 14,897 ​ 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 product sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ April 2, ​ April 3, ​ ​ 2022 2021 ​ Customer A * % 10 % Customer B * % 10 % Customer C ​ 53 % * % ​ * Less than 10% of net sales during the period. ​ As of April 2, 2022, one customer represented 36 % of aggregated gross receivables. As of January 1, 2022, four customers represented 26 %, 16 %, 13 %, and 13 % 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. 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 2, 2022 and April 3, 2021, resales of these products represented approximately 91 % and 76 % of net product sales, respectively. ​ ​ Note 4—Credit Agreement ​ On October 31, 2009, the Company and Silicon Valley Bank (“SVB”) entered into a credit agreement (as the same may from time to time be amended, modified, supplemented or restated, (the “SVB Credit Agreement”), which provides for a revolving line of credit up to $ 5.0 million. The borrowing base is limited to 85 % of the eligible accounts receivable, subject to certain adjustments. On April 9, 2021, we 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 % and to extend the maturity date to December 30, 2021. In December 2021, after meeting the conditions set forth in the amendment, the amount available for borrowing was increased to $ 7.0 million and the maturity date was extended to April 29, 2022, upon our request. ​ On April 29, 2022, the Company entered into an amendment to the SVB Credit Agreement to accrue interest on advance at a per annum rate equal to the greater of 0.75 % above the Prime Rate or 4.25 %. The borrowing base is limited 9 Table of Contents to 85 % of eligible accounts receivable, subject to certain adjustments, and 50% of eligible inventory. The maximum amount available for borrowing was increased to $ 10.0 million and the maturity date to April 28, 2023. ​ 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 2, 2022 and January 1, 2022, (i) outstanding letters of credit were $ 20.8 million and $ 10.8 million, respectively, (ii) outstanding borrowings were $ 4.7 million and $ 7.0 million, respectively, and (iii) availability under the revolving line of credit was $ 0.1 million and none , respectively. ​ Note 5—Debt ​ The Company’s debt consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ April 2, ​ January 1, ​ 2022 2022 Note payable ​ ​ 376 ​ ​ 562 Less: amounts due within one year ​ ​ ( 376 ) ​ ​ ( 562 ) Long-term debt ​ $ — ​ $ — ​ . ​ Note 6—Leases ​ The Company has operating and finance leases primarily associated with office and manufacturing facilities and certain equipment. The determination of which discount rate to use when measuring the lease obligation was deemed a significant judgment. ​ Lease cost and supplemental cash flow information related to operating leases was as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ April 2, ​ April 3, ​ ​ 2022 2021 Lease cost: ​ ​ ​ ​ ​ ​ Operating lease cost ​ $ 198 ​ $ 119 Cash paid for amounts included in the measurement of lease liabilities: ​ ​ ​ ​ ​ ​ Operating cash flows from operating leases ​ $ 149 ​ $ 119 Right-of-use assets obtained in exchange for lease obligations: ​ ​ ​ ​ ​ ​ Operating leases ​ $ 555 ​ $ — ​ For the three months ended April 2, 2022, and April 3, 2021, finance lease costs and cash flows from finance lease were immaterial. ​ 10 Table of Contents Supplemental balance sheet information related to leases was as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ April 2, ​ January 1, ​ ​ 2022 ​ 2022 Operating Leases ​ ​ ​ ​ ​ ​ Operating lease right-of-use assets ​ $ 2,279 ​ $ 1,891 Accrued expenses and other current liabilities ​ $ 352 ​ $ 318 Operating lease liabilities ​ ​ 1,994 ​ ​ 1,593 Total operating lease liabilities ​ $ 2,346 ​ $ 1,911 ​ ​ ​ ​ ​ ​ ​ Finance Leases ​ ​ ​ ​ ​ ​ Property and equipment, at cost ​ $ 116 ​ $ 116 Accumulated depreciation ​ ​ ( 60 ) ​ ​ ( 54 ) Property and equipment, net ​ $ 56 ​ $ 62 Accrued expenses and other current liabilities ​ $ 24 ​ $ 24 Other liabilities ​ ​ 35 ​ ​ 41 Total finance lease liabilities ​ $ 59 ​ $ 65 ​ The following table includes supplemental information: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ April 2, ​ January 1, ​ ​ 2022 ​ 2022 Weighted Average Remaining Lease Term (in years) ​ ​ ​ ​ ​ ​ Operating lease ​ ​ 4.7 ​ ​ 4.8 Finance lease ​ ​ 2.7 ​ ​ 2.9 ​ ​ ​ . ​ ​ ​ Weighted Average Discount Rate ​ ​ ​ ​ ​ ​ Operating lease ​ ​ 5.5 % ​ ​ 5.5 % Finance lease ​ ​ 5.2 % ​ ​ 5.2 % ​ Maturities of lease liabilities as of April 2, 2022, were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating ​ Finance Fiscal Year ​ Leases ​ Leases 2022 (remainder of the year) ​ $ 362 ​ $ 20 2023 ​ ​ 452 ​ ​ 26 2024 ​ ​ 601 ​ ​ 10 2025 ​ ​ 621 ​ ​ 5 2026 ​ ​ 639 ​ ​ 3 2027 ​ ​ 23 ​ ​ — Total lease payments ​ ​ 2,698 ​ ​ 64 Less: imputed interest ​ ​ ( 352 ) ​ ​ ( 5 ) Total ​ $ 2,346 ​ $ 59 ​ ​ ​ Note 7 – Commitments and Contingencies ​ Contingent Legal Expenses ​ We may retain the services of law firms that specialize in patent licensing and enforcement and patent law in connection with our licensing and enforcement activities. These law firms may be retained on a contingent fee basis 11 Table of Contents whereby such law firms are paid on a scaled percentage of any negotiated fee, settlements or judgments awarded based on how and when the fees, settlements or judgments are obtained. ​ Litigation and Patent Reexaminations ​ We own numerous patents and continue to seek to grow and strengthen our patent portfolio, which covers various aspects of our innovations and includes various claim scopes. We plan to pursue avenues to monetize our intellectual property portfolio, in which we would generate revenue by selling or licensing our technology, and we intend to vigorously enforce our patent rights against alleged infringers of such rights. We dedicate substantial resources to protecting and enforcing our intellectual property rights, including with patent infringement proceedings we file against third parties and defense of our patents against challenges made by way of reexamination and review proceedings at the U.S. Patent and Trademark Office (“USPTO”) Patent Trial and Appeal Board (“PTAB”). We expect these activities to continue for the foreseeable future, with no guarantee that any ongoing or future patent protection or litigation activities will be successful, or that we will be able to monetize our intellectual property portfolio. We are also subject to litigation based on claims that we have infringed on the intellectual property rights of others. ​ Any litigation, regardless of its outcome, is inherently uncertain, involves a significant dedication of resources, including time and capital, and diverts management’s attention from our other activities. As a result, any current or future infringement claims or patent challenges by or against third parties, whether eventually decided in our favor or settled, could materially adversely affect our business, financial condition and results of operations. Additionally, the outcome of pending or future litigation and related patent reviews and reexaminations, as well as any delay in their resolution, could affect our ability to continue to sell our products, protect against competition in the current and expected markets for our products or license or otherwise monetize our intellectual property rights in the future. ​ Google Litigation ​ On December 4, 2009, Netlist filed a patent infringement lawsuit against Google, Inc. (“Google”) in the U.S. District Court for the Northern District of California (the “NDCA”), seeking damages and injunctive relief based on Google’s alleged infringement of our U.S. Patent No. 7,619,912 (the “‘912 patent”) which relates generally to technologies to implement rank multiplication. The NDCA case was stayed, pending challenges to the ‘912 patent before the United States Patent and Trademark Office. Eventually, the United States Court of Appeals for the Federal Circuit confirmed the ‘912 patent’s validity on June 15, 2020, and the NDCA case stay was lifted. the case proceeded before Senior Judge Armstrong, where the parties entered cross motions for summary judgment. Of the issues in play, the parties contested the application of the defense of intervening rights to the claims at issue in the case. Afterward, the NDCA case was re-assigned to Chief Judge Seeborg of the NDCA, and the hearing for the parties’ cross motions took place on March 3, 2022. On May 5, 2022, Chief Judge Seeborg entered an Order granting Netlist, Inc.’s Motion for Summary Judgement that Claim 16 of the ‘912 patent is not subject to Google’s pleaded defense of Intervening Rights, while also entering orders on other issues, including setting a remote case management conference for June 23, 2022 at 10:00am pacific time. ​ Micron Litigation ​ On April 28, 2021, Netlist filed a complaint for patent infringement against Micron Technology, Inc. (“Micron”) in the United States District Court for the Western District of Texas, Waco Division (Case No. 6:21-cv00431 & 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 modules under four U.S. patents – US Pat. No. 10,489,314; US Pat. No. 9,824,035; US Pat. No. 10,268,608; & US Pat. No. 8,301,833. As of the reporting date, the case has been assigned to Hon. Judge Lee Yeakel, and the parties completed briefing on their claim construction arguments. The matter is set for a Claim Construction hearing on May 12, 2022. ​ In parallel, Micron filed requests to bring Inter Partes Review (“IPR”) proceedings against all four asserted patents: U.S. Patents 8,301,833, 9,854,035, 10,268,608, and 10,489,314. As of the reporting date, the PTAB has not made a decision with respect any of these IPR requests. 12 Table of Contents ​ Samsung Litigations ​ On May 28, 2020, Netlist filed a complaint against Samsung in the United States District Court for the Central District of California for Samsung’s breach of the parties’ JDLA. On July 22, 2020, Netlist amended its complaint to seek a Declaratory Judgment that it properly terminated the JDLA in light of Samsung’s material breaches. On October 14, 2021, the Court entered summary judgment in Netlist’s favor and confirmed Netlist properly terminated the JDLA as of July 15, 2020. On February 15, 2022, the Court entered a Final Judgment in favor of Netlist on each of its three claims and confirmed conclusively that all licenses granted under the JDLA were terminated. On February 25, 2022, Samsung filed a Notice of Appeal, and the Federal Court of Appeals for the Ninth Circuit issued a Time Schedule Order on February 28, 2022, setting Samsung’s deadline to file an opening appeal brief as June 6, 2022. Netlist noticed its intention to file a cross-appeal and the Ninth Circuit confirmed a contemporaneous briefing deadline of June 6, 2022, for the same. ​ On October 15, 2021, Samsung filed a declaratory judgement action against Netlist in the United States District Court for the District of Delaware (“DDE”), requesting in relevant part that the Delaware District Court declare that Samsung does not infringe Netlist’s U.S. Patent Nos. 7,619,912, 9,858,218, 10,217,523, 10,474,595, 10,860,506, 10,949,339, and 11,016,918. As of the reporting date, Samsung seeks leave to add U.S. Pat. 11,232,054 (issued Jan. 25, 2022) to the action. Netlist believes Samsung’s claims levied in the DDE action meritless, and the relief Samsung requests unjustified. As of the reporting date, Netlist filed a motion seeking dismissal of Samsung’s DDE complaint, and an opposition contesting the inclusion of U.S. Pat. 11,232,054 as part of a second amended complaint filing. The matter is fully briefed, and Netlist awaits an order from the Court. ​ On November 19, 2021, Samsung filed IPR proceedings contesting the validity of U.S. Patents 9,858,218 (the “’218 patent”), 10,474,595 (the “’595 patent”), and 10,217,523 (the “’523 patent”). Netlist filed its initial responses to Samsung’s petitions on February 18, 2022, contesting the institution of any IPR on the grounds propounded. As of the reporting date, the PTAB has not yet made decision with respect to the IPR requests related to the ‘218 or ‘595 patents, but did enter an order instituting IPR proceedings for the ‘523 patent on May 5, 2022. On February 17, 2022, Samsung filed a separate IPR request contesting the validity of only claim 16 within Netlist’s U.S. Patent 7,619,912. The PTAB issued a filing date for this challenge of the ‘912 patent, making Netlist’s Patent Owner Preliminary Response due on July 21, 2022. As of the reporting date, Samsung has filed two additional IPR proceedings contesting the validity of Netlist’s U.S. Patents 10,860,506 and 10,949,339. The PTAB issued filing dates for both, making Netlist’s deadline to file its Preliminary Responses to each on July 21, 2022 and July 28, 2022, respectively, ​ On December 20, 2021, Netlist filed for a complaint for patent infringement against Samsung in the United States Court for the Eastern District of Texas (Case No. 2:21-cv-463) under US Pat. No. 10,860,506; US Pat. No. 10,949,339; & US Pat. No. 11,016,918. Samsung responded to Netlist’s complaint on April 12, 2022, and Judge Gilstrap ordered a scheduling conference be set for May 18, 2022. On May 3, 2022, Netlist entered a First Amended Complaint pursuant to FRCP Rule 15, adding claims for infringement under three additional patents: U.S. Patents 8,787,060, 9,318,160, and 11,232,054. On May 4, 2022, Netlist complied with the EDTX local patent rules and served its preliminary infringement contentions on Samsung. As of the reporting date, Netlist awaits its opportunity to appear in Judge Gilstrap’s ordered case management conference. ​ Other Contingent Obligations ​ In the ordinary course of our business, we have made certain indemnities, commitments and guarantees pursuant to which we may be required to make payments in relation to certain transactions. These include, among others: (i) intellectual property indemnities to our customers and licensees in connection with the use, sale and/or license of our products; (ii) indemnities to vendors and service providers pertaining to claims based on our negligence or willful misconduct; (iii) indemnities involving the accuracy of representations and warranties in certain contracts; (iv) indemnities to our directors and officers to the maximum extent permitted under the laws of the State of Delaware; (v) indemnities to 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 we may be required to indemnify property 13 Table of Contents owners for environmental and other liabilities or may face other claims arising from our use of the applicable premises. The duration of these indemnities, commitments and guarantees varies and, in certain cases, may be indefinite. The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential for future payments we could be obligated to make. Historically, we have not been obligated to make significant payments as a result of these obligations, and no liabilities have been recorded for these indemnities, commitments and guarantees in the accompanying consolidated balance sheets. ​ ​ Note 8—Stockholders’ Equity ​ Serial Preferred Stock ​ The Company’s authorized capital stock includes 10,000,000 shares of serial preferred stock, with a par value of $ 0.001 per share. No shares of preferred stock were outstanding as of April 2, 2022 or January 2, 2022. ​ On April 17, 2017, the Company entered into a rights agreement (as amended from time to time, the “Rights Agreement”) with Computershare Trust Company, N.A., as rights agent. In connection with the adoption of the Rights Agreement and pursuant to its terms, the Company’s board of directors authorized and declared a dividend of one right (each, a “Right”) for each outstanding share of the Company’s common stock to stockholders of record at the close of business on May 18, 2017 (the “Record Date”), and authorized the issuance of one Right for each share of the Company’s common stock issued by the Company (except as otherwise provided in the Rights Agreement) between the Record Date and the Distribution Date (as defined below). ​ Each Right entitles the registered holder, subject to the terms of the Rights Agreement, to purchase from the Company, when exercisable and subject to adjustment, one unit consisting of one one -thousandth of a share (a “Unit”) of Series A Preferred Stock of the Company (the “Preferred Stock”), at a purchase price of $ 6.56 per Unit, subject to adjustment. Subject to the provisions of the Rights Agreement, including certain exceptions specified therein, a distribution date for the Rights (the “Distribution Date”) will occur upon the earlier of (i) 10 business days following a public announcement that a person or group of affiliated or associated persons (an “Acquiring Person”) has acquired or otherwise obtained beneficial ownership of 15 % or more of the then-outstanding shares of the Company’s common stock, and (ii) 10 business days (or such later date as may be determined by the Company’s board of directors) following the commencement of a tender offer or exchange offer that would result in a person or group becoming an Acquiring Person. The Rights are not exercisable until the Distribution Date and, unless earlier redeemed or exchanged by the Company pursuant to the terms of the Rights Agreement (as amended on April 16, 2018, April 16, 2019 and August 14, 2020) will expire on the close of business on April 17, 2024. ​ In connection with the adoption of the Rights Agreement, the Company’s board of directors approved a Certificate of Designation of the Series A Preferred Stock (the “Certificate of Designation”) designating 1,000,000 shares of its serial preferred stock as Series A Preferred Stock and setting forth the rights, preferences and limitations of the Preferred Stock. The Company filed the Certificate of Designation with the Secretary of State of the State of Delaware on April 17, 2017. ​ Common Stock ​ September 2021 Lincoln Park Purchase Agreement ​ On September 28, 2021, the Company entered into a purchase agreement (the “September 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 September 2021 Purchase Agreement. Concurrent with the execution of the September 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 September 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 14 Table of Contents 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 September 2021 Purchase Agreement, on any business day and as often as every other business day over the 36-month term of the September 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 September 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 September 2021 Purchase Agreement. Under certain circumstances and in accordance with the September 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 September 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 September 2021 Purchase Agreement. In all instances, the Company may not sell shares of its common stock to Lincoln Park under the September 2021 Purchase Agreement if that would result in Lincoln Park beneficially owning more than 9.99 % of its common stock. ​ The September 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 September 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 September 2021 Purchase Agreement. The Company has the right to terminate the September 2021 Purchase Agreement at any time, at no cost to the Company. ​ During 2021, Lincoln Park purchased an aggregate of 1,550,000 shares of our common stock for a net purchase price of $ 10.9 million under the September 2021 Purchase Agreement. In connection with the purchases, we issued to Lincoln Park an aggregate of 20,809 shares of our common stock as additional commitment shares in noncash transactions. During the first quarter of 2022, Lincoln Park purchased an aggregate of 300,000 shares of our common stock for a net purchase price of $ 1.8 million under the September 2021 Purchase Agreement. In connection with the purchases, we issued to Lincoln Park an aggregate of 3,387 shares of our common stock as additional commitment shares in noncash transactions. ​ ​ ​ ​ ​ Note 9—Stock-Based Awards ​ As of April 2, 2022, the Company had 487,512 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. RSUs granted for employees and consultants generally vest in equal installments annually and fully vest over a four-year term from the grant date. ​ 15 Table of Contents Stock Options ​ The following table summarizes the activity related to stock options during the three months ended April 2, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ Number of ​ Average ​ ​ Shares ​ Exercise ​ ​ (in thousands) Price Outstanding as of January 1, 2022 ​ ​ 5,899 ​ $ 0.88 Granted ​ ​ — ​ ​ — Exercised ​ ​ ( 197 ) ​ ​ 0.70 Expired or forfeited ​ ​ ( 372 ) ​ ​ 0.76 Outstanding as of April 2, 2022 ​ ​ 5,330 ​ $ 0.90 ​ Restricted Stock Units ​ The following table summarizes the activity related to RSUs during the three months ended April 2, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ ​ Average ​ ​ Number of ​ Grant-Date ​ ​ Shares ​ Fair Value ​ ​ (in thousands) ​ per Share Outstanding as of January 1, 2022 ​ ​ 2,228 ​ $ 1.36 Granted ​ ​ 1,446 ​ ​ 3.65 Vested ​ ​ ( 533 ) ​ ​ 0.76 Forfeited ​ ​ ( 2 ) ​ ​ 0.54 Outstanding as of April 2, 2022 ​ ​ 3,139 ​ $ 2.52 ​ Stock-Based Compensation ​ The following table summarizes the stock-based compensation expense by line item in the condensed consolidated statements of operations (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ April 2, ​ April 3, ​ ​ ​ 2022 ​ 2021 Cost of sales ​ ​ $ 3 ​ $ 3 Research and development ​ ​ ​ 176 ​ ​ 110 Selling, general and administrative ​ ​ ​ 503 ​ ​ 225 Total ​ ​ $ 682 ​ $ 338 ​ As of April 2, 2022, the Company had approximately $ 8.0 million, net of estimated forfeitures, of unearned stock-based compensation, which it expects to recognize over a weighted-average period of approximately 3.4 years. ​ ​ 16 Table of Contents