What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-11-09 compared with 2023-08-08 · 161 added, 89 removed, 396 unchanged (39% of the section changed)

4 unchanged sentences

(In thousands, except par value)

September 30,

Current Assets:

35 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Cost of sales

5 unchanged sentences

Operating loss

Other income (expense), net:

Other income, net:

Interest income, net

Other expense, net

Total other income (expense), net

Other income, net

Total other income, net

Loss before provision for income taxes

21 unchanged sentences

Balance, July 1, 2023

Issuance of common stock, net

Exercise of stock options

Stock-based compensation

Restricted stock units vested and distributed

Balance, September 30, 2023

See accompanying Notes to the Condensed Consolidated Statements.

NETLIST, INC.

AND SUBSIDIARIES

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

(In thousands)

Stockholders'

12 unchanged sentences

Balance, July 2, 2022

Exercise of stock options

Stock-based compensation

Restricted stock units vested and distributed

Tax withholdings related to net share settlements of equity awards

Balance, October 1, 2022

See accompanying Notes to the Condensed Consolidated Statements.

3 unchanged sentences

(In thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash flows from operating activities:

46 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 1, 2023 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 September 30, 2023 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

9 unchanged sentences

GAAP requires management to make estimates and assumptions that affect the amounts reported.

Significant items subject to such estimates and assumptions made by management include, but not limited to, the determination of inventory reserves, allowance for doubtful accounts, and the discount rate used for lease obligation.

Actual results may differ materially from those estimates.

Recently Adopted Accounting Guidance

Currently, there are no Accounting Standards Updates that the Company is required to adopt that are likely to have a material effect on its financial statements that have not been previously discussed in the Company's 2022 Annual Report.

Currently, there are no Accounting Standards Updates that the Company is required to adopt that are likely to have a material effect on its consolidated financial statements that have not been previously discussed in the Company's 2022 Annual Report.

Note 3—Supplemental Financial Information

Inventories consisted of the following (in thousands):

September 30,

Raw materials

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Weighted-average basic shares outstanding - basic and diluted

Net loss per share - basic and diluted

The table below shows potentially dilutive weighted average common share equivalents, consisting of shares issuable upon the exercise of outstanding stock options using the treasury stock method and the shares vesting of issuable upon the restricted stock units (“RSUs”).

The table below shows potentially dilutive weighted average common share equivalents, consisting of shares issuable upon the exercise of outstanding stock options and warrants using the treasury stock method and the shares vesting of issuable upon the restricted stock units (“RSUs”).

These potential weighted average common share equivalents have been excluded from the diluted net loss per share calculations above as their effect would be anti-dilutive (in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Weighted average common share equivalents

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Resales of third-party products

5 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Less than 10% of net sales during the period.

As of July 1, 2023, four customers represented approximately 20 %, 18 %, 13 % and 10 % of aggregated gross accounts receivables, respectively.

As of September 30, 2023, two customers represented approximately 31 % and 25 % of aggregated gross accounts receivables, respectively.

As of December 31, 2022, one customer represented approximately 69 % of aggregate gross accounts receivables.

2 unchanged sentences

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 1, 2023, resales of these products represented approximately 86 % and 81 % of net product sales, respectively.

For the three and six months ended July 2, 2022, resales of these products represented approximately 89 % and 90 % of net product sales, respectively.

Note 4—Credit Agreement and Standby Letters of Credit

SVB 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 provided for a revolving line of credit up to $ 10.0 million, as amended.

The SVB Credit Agreement was most recently amended on April 29, 2022 to add 50 % of eligible inventory to the previous borrowing base limited to 85 % of eligible accounts receivable, subject to certain adjustments.

Borrowings accrued interest on advance at a per annum rate equal to the greater of 0.75 % above the Wall Street Journal prime rate (“Prime Rate”).

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

As of December 31, 2022, (i) outstanding letters of credit were $ 18.6 million, (ii) outstanding borrowings were $ 4.9 million, and (iii) availability under the revolving line of credit was $ 0 .

On the maturity date, April 28, 2023, the SVB Credit Agreement terminated in accordance with its terms.

In connection with the termination of the SVB Credit Agreement, all outstanding obligations for principal, interest, and fees were paid in full and all liens securing such obligations were released.

For both the three and nine months ended September 30, 2023, resales of these products represented approximately 82 % of net product sales.

For the three and nine months ended October 1, 2022, resales of these products represented approximately 75 % and 86 % of net product sales, respectively.

Note 4—Standby Letters of Credit

Standby Letters of Credit

On December 1, 2022, Silicon Valley Bank issued on our behalf to a third party an irrevocable letter of credit in the amount of $ 100,000 .

On May 15, 2023 and June 6, 2023, Citibank, N.A.

issued on our behalf to third parties irrevocable letters of credit in the amount of $ 5.0 million and $ 2.0 million, respectively.

issued on the Company’s behalf to third parties irrevocable letters of credit in the amount of $ 5.0 million and $ 2.0 million, respectively.

The standby letters of credit are valid for a one-year term.

As of July 1, 2023, the amount of outstanding letters of credit was approximately $ 7.0 million, and no amount has

been drawn from the letters of credit.

As of September 30, 2023, the amount of outstanding letters of credit was approximately $ 7.1 million, and no amount has been drawn from the letters of credit.

A standby letter of credit is a guarantee of payment issued by a bank on our behalf that is used as payment of last resort should we fail to fulfill a contractual commitment with a third party.

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

September 30,

Notes payable

2 unchanged sentences

Insurance Policy Finance Agreement

As of July 1, 2023 and December 31, 2022, we had $ 0.2 million and $ 0.4 million, respectively, in short-term notes payable for the financing of insurance policies.

As of December 31, 2022, we had $ 0.4 million in short-term notes payable for the financing of insurance policies.

On January 4, 2023, we entered into a short-term note payable for $ 0.4 million bearing interest at 7.2 % to finance insurance policies.

Principal and interest payments on this note began January 15, 2023 and are made evenly based on a straight line amortization over a 9-month period.

Principal and interest payments on this note began January 15, 2023 and were made evenly based on a straight line amortization over a 9-month period with the final payment made on September 15, 2023.

As a result, as of September 30, 2023, there was no outstanding balance for the financing of insurance policies.

Note 6—Leases

3 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Operating lease cost

7 unchanged sentences

Lease modification to increase operating lease assets

For the three and six months ended July 1, 2023 and July 2, 2022, finance lease costs were immaterial.

For the three and nine months ended September 30, 2023 and October 1, 2022, finance lease costs were immaterial.

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

September 30,

Operating Leases

11 unchanged sentences

The following table includes supplemental information:

September 30,

Weighted Average Remaining Lease Term (in years)

4 unchanged sentences

Finance leases

Maturities of lease liabilities as of July 1, 2023, were as follows (in thousands):

Maturities of lease liabilities as of September 30, 2023, were as follows (in thousands):

2023 (remainder of the year)

22 unchanged sentences

Chief Judge Seeborg, entered an order via stipulation on October 17, 2022 staying the NDCA Google case until the resolution of a pending case filed by Netlist, Inc.

against Samsung Electronics Co., Ltd.

in the United States District Court for the Eastern District of Texas (“EDTX”) ( Netlist, Inc.

against Samsung Electronics Co., Ltd., Samsung Semiconductor Inc., and Samsung Electronics America Inc.

(collectively, “Samsung”) in the United States District Court for the Eastern District of Texas (“EDTX”) ( Netlist, Inc.

Samsung Elecs.

2 unchanged sentences

As of the reporting date, Google has submitted its statements of defense.

As of the reporting date, the date for oral hearings before the Dusseldorf Court is currently scheduled for November 9, 2023.

On October 15, 2021, Samsung initiated a declaratory judgement action against Netlist in the U.S.

As of the reporting date, the date for oral hearings before the Dusseldorf Court is currently scheduled for April 11, 2024.

On October 15, 2021, Samsung Electronics Co., Ltd.

(“SEC”) and Samsung Semiconductor Inc.

(“SSI”) initiated a declaratory judgement action against Netlist in the U.S.

District Court for the District of Delaware (“DDE”) ( Samsung Elecs.

2 unchanged sentences

1:21-cv-01453-RGA).

On September 12, 2022, Netlist amended its Counterclaims to include counterclaims against Google, LLC and Alphabet, Inc.

On November 15, 2022, Google, LLC and Alphabet, Inc.

responded to Netlist’s Counterclaims by filing a Motion to Dismiss or alternatively to sever and stay the counterclaims.

As of the reporting date, the Court has heard oral arguments for Google’s Motion to Dismiss or alternatively, Sever and Stay and Dismiss Willfulness and Indirect Infringement Allegations.

As of the reporting date, the case remains active and set for a claim construction hearing on October 20, 2023, and the Jury Trial is scheduled to begin on February 3, 2025.

On September 12, 2022, Netlist amended its Counterclaims to include counterclaims against Google, LLC and Alphabet, Inc (together, “Google”).

On November 15, 2022, Google responded to Netlist’s Counterclaims by filing a Motion to Dismiss or alternatively to sever and stay the counterclaims.

As of the reporting date, the Court heard oral arguments for Google’s Motion to Dismiss or alternatively, Sever and Stay and Dismiss Willfulness and Indirect Infringement Allegations.

On October 10, 2023, the DDE Court entered an order granting-in-part and denying-in-part SECL and SSI’s prior motion to stay the matter in light of pending IPRs and a Ninth Circuit appeal, in effect staying claims with respect to the ‘218 and ‘595 patents, while allowing claims under the ‘523 patent to proceed.

On October 20, 2023, the Court held a claim construction hearing involving all parties.

As part of the hearing, the Court also sought feedback from parties as to the issue of whether the matter should be stayed pending review of the Ninth Circuit’s recent unpublished decision on the underlying Central District of California action.

As of the reporting date, the case remains set for Jury Trial to commence on February 3, 2025.

Micron Litigations

6 unchanged sentences

patents – U.S.

10,489,314 (the “‘314 Patent”), 9,824,035 (the “‘035 Patent”), 10,268,608 (the “‘608 Patent”),

and 8,301,833 (the “‘833 Patent”).

10,489,314 (the “‘314 Patent”), 9,824,035 (the “‘035 Patent”), 10,268,608 (the “‘608 Patent”), and 8,301,833 (the “‘833 Patent”).

The case was assigned to Hon.

3 unchanged sentences

Judge Yeakel’s retirement.

As of the reporting date, the matter remains stayed pending the outcome of the related IPR proceedings and assigned to Docket II pending reassignment to an Article III Judge.

As of the reporting date, the matter remains and assigned to Docket II pending reassignment to an Article III Judge.

As noted above, Micron filed requests to bring IPR proceedings against Netlist’s ‘314, ‘035, ‘608, and ‘833 Patents.

The PTAB has granted Micron’s request for the ‘035, ‘833, and ‘314 Patents, but denied its request for the ‘608 Patent.

The PTAB granted Micron’s request for the ‘035, ‘833, and ‘314 Patents, but denied its request for the ‘608 Patent.

The PTAB further denied Micron’s request for rehearing on the ‘608 Patent’s institution denial.

Oral arguments were presented for the ‘035 Patent IPR on April 19, 2023, with the PTAB entering a Final Written Decision finding claims 2, 6, and 22 of the ‘035 Patent patentable.

As of the reporting date, the IPR trials under the ‘833 and ‘314 Patents are proceeding.

Oral arguments for the ‘833 Patent occurred as scheduled on June 7, 2023.

The ‘314 Patent IPRs are still set for a consolidated oral argument on August 15, 2023.

Oral arguments were presented for the ‘035 Patent IPR on April 19, 2023, with the PTAB finding claims 2 and 6 of the ‘035 Patent patentable.

On August 28, 2023, the PTAB determined that all challenged claims of the ‘833 patent were unpatentable.

On October 30, 2023, the PTAB determined that all challenged claims of the ‘314 patent were patentable.

On March 31, 2022, Netlist filed patent infringement claims against Micron in Dusseldorf, Germany (“Micron Dusseldorf Action”), seeking damages based on their infringement of EP735 and EP660.

2 unchanged sentences

Primary briefing in the Micron Dusseldorf Action has concluded, while the German Federal Patent Court entered a preliminary opinion on EP735 and EP660 in a related invalidity proceedings that have been consolidated as of the reporting date.

Currently, the Micron Dusseldorf Action is scheduled for oral hearings in April 2024.

As of the reporting date, the Micron Dusseldorf Action is scheduled for oral hearings April 11, 2024.

On June 10, 2022, Netlist filed a complaint for patent infringement against Micron in the EDTX, Marshall Division (Case No.

4 unchanged sentences

The claim construction hearing took place before Hon.

Magistrate Judge Roy Payne on July 26, 2023, and as of the reporting date, the Court has not entered an Order confirming the Claim Construction outcome.

Magistrate Judge Roy Payne on July 26, 2023, and on October 30, 3023 the Court entered an Order confirming the Claim Construction outcome.

The Jury Trial is scheduled to begin on January 22, 2024.

4 unchanged sentences

On October 21, 2022, Hon.

Chief Judge Gilstrap ordered that this Micron action and a parallel action by Netlist against defendants Samsung Electronics Co.

Ltd., Samsung Semiconductor Inc., and Samsung Electronics America Inc.

(“Samsung”) on the same patents (Case No.

Chief Judge Gilstrap ordered that this Micron action and a parallel action by Netlist against defendants Samsung on the same patents (Case No.

2:22-cv-00293-JRG) be consolidated and set for a joint scheduling conference on November 17, 2022, further instructing that the Samsung action be considered the “LEAD CASE” and that any further filings from either action be submitted in that case for all pretrial matters.

As of the reporting date, the consolidated case stands ready to proceed with a claim construction hearing set for October 5, 2023 and trial beginning on April 15, 2024.

The claim construction hearing was advanced and took place before Hon.

Chief Judge Gilstrap on September 26, 2023.

As of the reporting date, the Court has not yet entered an Order confirming the Claim Construction outcomes, but the consolidated case has a docket control order listing trial beginning on April 15, 2024.

On November 18, 2022, Micron filed IPR requests contesting the validity of the ‘912, ‘339, and ‘506 Patents, along with motions requesting joinder to the pending Samsung IPRs related to the same patents (see below).

2 unchanged sentences

On June 30, 2023, the PTAB resumed the trial on the Samsung ‘912 Patent IPR (which included Micron’s claims via joinder) following USPTO Director Katherine Vidal’s sua sponte Director Review and scheduled the ‘912 Patent IPR for an oral hearing on January 31, 2024.

On October 17, 2023 and October 18, 2023, the PTAB issued final written decisions stating that all challenged claims of the ‘506 and ‘339 Patents were unpatentable, respectively.

On January 6, 2023, Micron filed IPR requests contesting the validity of the ‘918 and ‘054 Patents, along with motions requesting joinder to the pending Samsung IPRs related to the same patents (see below).

On June 23, 2023, the

matters were joined with the corresponding Samsung IPRs on the same patents.

As of the reporting date, the ‘918 and ‘054 Patent IPRs are scheduled for an oral hearing on September 11, 2023.

On June 23, 2023, the matters were joined with the corresponding Samsung IPRs on the same patents.

On September 5, 2023, oral hearings for the ‘918 and ‘054 Patent IPRs were held.

The matters are set for final written decisions, which may issue on or before December 7, 2023.

On May 8, 2023, Micron filed IPR requests contesting the validity of the ‘060 and ‘160 Patents, along with motions requesting joinder to the pending Samsung IPRs related to the same patents (see below).

As of the reporting date, Netlist’s deadline to provide its preliminary response to each of these Micron IPRs is August 24, 2023.

On October 26, 2023, the PTAB instituted the Micron ‘060 and ‘160 Patent IPRs and joined them with the earlier-filed ‘060 and ‘160 IPRs.

Samsung Litigations

1 unchanged sentence

District Court for the Central District of California for Samsung’s breach of the parties’ Joint Development and License Agreement (“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 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 the licenses granted by Netlist under the JDLA were terminated.

On February 15, 2022, the Court entered a final judgment in favor of Netlist on each of its three claims and confirmed that the licenses granted by Netlist 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 Court of Appeals issued a Time Schedule Order on February 28, 2022.

1 unchanged sentence

On June 8, 2023, the Ninth Circuit Court of Appeals heard oral arguments from both parties on the matter following completion of all briefing.

As of the reporting date, the Ninth Circuit Court of Appeals has not yet entered its Order on the matter.

On October 17, 2023, the Ninth Circuit panel issued an unpublished memorandum affirming-in-part and reversing-and-remanding-in-part the District Court’s rulings.

On November 8, 2023, the Ninth Circuit issued a mandate to the California Central District Court.

On October 15, 2021, Samsung initiated a declaratory judgement action against Netlist in the DDE ( Samsung Elecs.

6 unchanged sentences

Judge Andrews dismissed all of Samsung’s counts related to Netlist’s ‘912, ‘506, ‘339, and ‘918 Patents, and denied Samsung’s request to bring its ‘054 claims in Delaware.

On September 12, 2022, Netlist amended its Counterclaims to include counterclaims tying Google, LLC and Alphabet, Inc.

(jointly “Google”) to the action.

On September 12, 2022, Netlist amended its Counterclaims to include counterclaims tying Google to the action.

On November 15, 2022, Google responded to Netlist’s Counterclaims by filing a Motion to Dismiss or alternatively to Sever and Stay the counterclaims.

On May 22, 2023, the Court heard oral arguments on Google’s Motion to Dismiss or alternatively, Sever and Stay and Dismiss Willfulness and Indirect Infringement Allegations.

As of the reporting date, the Court has not entered an Order on Google’s motion, the Claim Construction hearing is still set for October 20, 2023, and the Jury Trial is still scheduled to begin on February 3, 2025.

On October 10, 2023, the Court entered an order granting-in-part and denying-in-part Samsung’s prior motion to stay the matter in light of pending IPRs and a Ninth Circuit appeal, staying claims with respect to the ‘218 and ‘595 patents, while allowing claims under the ‘523 patent to proceed.

As of the reporting date, the Court has not entered an Order on Google’s motion, but the Claim Construction hearing was held on October 20, 2023, and the Jury Trial is still scheduled to begin on February 3, 2025.

Samsung has since filed another Motion to Stay given the recent Ninth Circuit decision.

As of the reporting date, the parties are briefing the issues for the Court.

On November 19, 2021, Samsung filed IPR requests contesting the validity of the ‘218, the ‘595, and the ‘523 Patents.

8 unchanged sentences

The jury awarded Netlist, Inc.

a total of $ 303 million for Samsung’s infringement.

a total of approximately $ 303 million for Samsung’s infringement.

On May 30, 2023, Hon.

Chief Judge Gilstrap conducted a bench trial to assess the merits of Samsung’s affirmative defenses excusing its infringement of only the ‘339, ‘918, and ‘054 Patents.

As of the reporting date, the Court has not yet entered an Order regarding the outcome the May Bench Trial, or a Judgement contemplating both the Jury and Bench Trial.

On August 11, 2023, Chief Judge Gilstrap issued a memorandum and Order denying Samsung’s requested relief and finding that the ‘918 and ‘054 patents were not unenforceable due to equitable estoppel, prosecution laches, or unclean hands, and that the ‘339 patent was not unenforceable due to unclean hands.

The same day, the Court entered a Final Judgment against the Samsung Defendants for $ 303 million for Samsung’s willful infringement through the date of trial, but declined awarding enhanced damages.

As of the reporting date, the parties have filed post-judgment motions., including a motion by Samsung to vacate the final judgment in light of the Ninth Circuit’s recent decision.

The parties are briefing all of the post-judgment motions, and as of the reporting date the Court has not yet entered its final order.

On February 17, 2022, Samsung filed an IPR request contesting the validity of only claim 16 within the ‘912 Patent.

8 unchanged sentences

On February 3, 2023, Director Vidal entered a decision requiring the assigned Board to reevaluate Netlist’s request for discovery on the admitted relationship between Samsung and Google and reassess whether Google is a “Real Party in Interest.” On June 30, 2023, the Board resumed the trial on the Samsung ‘912 Patent IPR, which now also includes Micron’s claims via joinder (see above), and scheduled the ‘912 Patent IPR for further substantive briefing and an oral hearing on January 31, 2024.

Oral arguments for the joined Samsung ‘339 and ‘506 Patent IPRs were heard on July 19, 2023 and July 20, 2023, respectively.

As of the reporting date, the Board has not issued a final written decision regarding Samsung’s IPRs of the ‘339 and ‘506 Patents.

On October 17, 2023 and October 18, 2023, the PTAB issued final written decisions stating that all challenged claims of the ‘506 and ‘339 Patents were unpatentable, respectively.

On May 17, 2022, Samsung filed two IPR petitions contesting the validity of Netlist’s ‘918 and ‘054 Patents.

On December 6, 2022, the Board instituted an IPR trial for the ‘054 Patent, and then instituted an IPR trial for the ‘918 Patent the next day.

As of the reporting date, Micron has joined these Samsung IPRs on the ‘918 and ‘054 Patents, and oral arguments are set to be heard on September 11, 2023.

Micron has joined these Samsung IPRs on the ‘918 and ‘054 Patents, and oral arguments were heard on September 7, 2023.

As of the reporting date, the Board has not issued a final written decision regarding Samsung’s IPR of either the ‘918 Patent or ‘054 Patent, which Micron has joined.

On June 3, 2022, Netlist filed patent infringement lawsuits against Samsung in Dusseldorf, Germany, seeking damages for Samsung’s infringement of Netlist’s Patents EP735 and EP660.

As of the reporting date, the infringement matters are set for an Oral Hearing in the Dusseldorf Court on September 5, 2023.

An Oral Hearing was held in the Dusseldorf Court on September 5, 2023 to determine the question of infringement specifically.

The Court confirmed at the hearing that an Order would issue either staying the matter until a decision was reached on validity by the German Federal Patent Court, or a dismissal of the case if there were no infringement.

On September 25, 2023, the Dusseldorf Court entered a stay of the matter until the German Federal Patent Court renders a decision in the nullity actions currently pending for the EP735 Patent and EP660 Patent.

As of the reporting date, the German Federal Patent Court’s oral hearing on the EP735 Patent is set for March 2024, while the hearing on the EP660 Patent is set for July 2024.

On August 1, 2022, Netlist filed a complaint for patent infringement against Samsung in the EDTX (Case No.

3 unchanged sentences

Chief Judge Gilstrap ordered that this action and a parallel action by Netlist against Micron on the same patents (22-cv-00294-JRG) be consolidated and set for a joint scheduling conference on November 17, 2022, further instructing that this Samsung action be considered the “LEAD CASE” and that any further filings from either action be submitted in therefore all pretrial matters.

As of the reporting date, the consolidated case stands ready to proceed with a claim construction hearing set for October 5, 2023 and trial beginning on April 15, 2024.

The claim construction hearing was advanced and took place before Hon.

Chief Judge Gilstrap on September 26, 2023.

As of the reporting date, the Court has not yet entered an Order confirming the Claim Construction outcomes, and the consolidated case still has a docket control order listing trial beginning on April 15, 2024.

On August 26, 2022, Samsung filed two IPR petitions contesting the validity of Netlist’s ‘060 and ‘160 Patents.

On January 19, 2023, Netlist filed its Patent Owner Preliminary Responses in those proceedings.

As of the reporting date, the Board instituted trials for both IPRs, set substantive briefing deadlines, and ultimately the date for oral argument on January 11, 2024.

As of the reporting date, the Board instituted trials for both IPRs and set substantive briefing deadlines, including the date for oral argument on both IPRs as January 11, 2024.

On January 10, 2023, Samsung filed two IPR petitions contesting the validity of the ‘215 and ‘417 Patents.

The Board accorded these IPRs a filing date of January 10, 2023 and Netlist filed its Patent Owner Preliminary Responses by the May 9, 2023 deadline.

As of the reporting date, the Board has not yet entered an institution decision on either of Samsung’s IPR petitions here.

On August 1, 2023, the Board entered an Order instituting a trial for both of Samsung’s IPR petitions.

The Board simultaneously set a schedule for briefing deadlines, and the date for oral arguments on May 3, 2024.

On April 27, 2023, Samsung filed an IPR petition contesting the validity of the ‘608 Patent.

The Board accorded Samsung’s IPR petition a filing date on June 14, 2023.

As of the reporting date, Netlist’s deadline to submit its preliminary response to the petition is September 14, 2023.

As of the reporting date, Netlist’s has submitted its preliminary response to the petition.

The PTAB will enter its institution decision on or before December 14, 2023.

On October 9, 2023, Samsung initiated a declaratory judgement action against Netlist in the District of Delaware ( Samsung Elecs.

Co., Ltd., et.

Netlist, Inc.

1:23-cv-01122-RGA), where it requested in relevant part that the DDE declare that Samsung does not infringe Netlist’s U.S.

11,386,024 (the “‘024 Patent”) and that Netlist allegedly breached its contractual obligations to JEDEC and thus harmed Samsung as a third-party beneficiary.

Other Contingent Obligations

4 unchanged sentences

(iii) indemnities involving the accuracy of representations and warranties in certain contracts;

indemnities to our directors and officers to the maximum extent permitted under the laws of the State of Delaware;

(iv) indemnities to our directors and officers to the maximum extent permitted under the laws of the State of Delaware;

(v) indemnities pertaining to all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with transactions contemplated by applicable investment or loan documents, as applicable;

6 unchanged sentences

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 1, 2023 or December 31, 2022.

No shares of preferred stock were outstanding as of September 30, 2023 or December 31, 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.

7 unchanged sentences

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

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 rata basis in connection with any additional purchases.

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 rata basis in connection with any additional purchases.

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

6 unchanged sentences

In connection with the purchases, we issued to Lincoln Park an aggregate of 8,502 shares of our common stock as additional commitment shares in noncash transactions.

During the six months ended July 1, 2023, Lincoln Park purchased an aggregate of 7,300,000 shares of our common stock for a net purchase price of $ 21.6 million under the September 2021 Purchase Agreement.

In connection with the purchases, we issued to Lincoln Park an aggregate of 41,500 shares of our common stock as additional commitment shares in noncash transactions.

Subsequently, from July 2, 2023 through August 3, 2023, Lincoln Park purchased an aggregate of 160,000 shares of our common stock for a net purchase price of $ 0.5 million under the September 2021 Purchase Agreement.

During the nine months ended September 30, 2023, Lincoln Park purchased an aggregate of 7,865,000 shares of our common stock for a net purchase price of $ 23.4 million under the September 2021 Purchase Agreement.

In connection with the purchases, we issued to Lincoln Park an aggregate of 44,939 shares of our common stock as additional commitment shares in noncash transactions.

2023 Offering

On August 14, 2023, the Company entered into a Securities Purchase Agreement (the “2023 Purchase Agreement”) with certain investors, pursuant to which the Company agreed to issue and sell to the investors in a registered offering (the “2023 Offering”) an aggregate of 11,111,112 shares of our common stock and warrants to purchase up to an aggregate of 11,111,112 shares of our common stock at a per share purchase price of $ 2.70 per share.

The 2023 Offering closed on August 17, 2023.

The net proceeds to the Company from the 2023 Offering were approximately $ 28.6 million, after deducting placement agent fees and offering costs paid by the Company.

The warrants are exercisable at any time on or after the issuance date, have a term of five years from the issuance date, and have an exercise price of $ 3.20 per share and contain customary 4.99 %/ 9.99 % blocker provisions.

In addition, pursuant to the 2023 Purchase Agreement, the Company and our director and executive officers entered into lock-up agreements (the “Lock-Up Agreements”), pursuant to which they agreed not to offer for sale,

contract to sell, or sell any shares of the Company’s common stock or any securities convertible into, or exercisable or exchangeable for, shares of the Company’s common stock, for a period of 90 days from the closing of the 2023 Offering, subject to certain customary exceptions.

The 2023 Purchase Agreement also provides that the Company may not effect or enter into any Variable Rate Transactions (as defined in the 2023 Purchase Agreement) until the six month anniversary of the closing date of the 2023 Offering.

Sales of the Company’s common stock pursuant to the September 2021 Purchase Agreement are permitted after 90 days following the closing of the 2023 Offering.

Note 9—Stock-Based Awards

As of July 1, 2023, the Company had 113,836 shares of common stock reserved for future issuance under its Amended and Restated 2006 Incentive Plan (“Amended 2006 Plan”).

As of September 30, 2023, the Company had 131,596 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 1, 2023:

The following table summarizes the activity related to stock options during the nine months ended September 30, 2023:

(in thousands)

1 unchanged sentence

Expired or forfeited

Outstanding as of July 1, 2023

Outstanding as of September 30, 2023

Restricted Stock Units

The following table summarizes the activity related to RSUs during the six months ended July 1, 2023:

The following table summarizes the activity related to RSUs during the nine months ended September 30, 2023:

(in thousands)

Balance nonvested as of December 31, 2022

Balance nonvested as of July 1, 2023

Balance nonvested as of September 30, 2023

Stock-Based Compensation

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Cost of sales

1 unchanged sentence

Selling, general and administrative

As of July 1, 2023, the Company had approximately $ 11.3 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 September 30, 2023, the Company had approximately $ 10.5 million, net of estimated forfeitures, of unearned stock-based compensation, which it expects to recognize over a weighted-average period of approximately 2.7 years.

Note 10—Warrants

Warrant activity for the nine months ended September 30, 2023 is as follows:

(in thousands)

Outstanding as of December 31, 2022

Outstanding as of September 30, 2023

Note 11—Subsequent Events

2023 SVB Credit Agreement

On November 7, 2023, we entered into a loan and security agreement (the “2023 SVB Credit Agreement”) with Silicon Valley Bank, a division of First-Citizen Bank & Trust Company, which provides for a revolving line of credit up to $ 10.0 million.

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

Borrowings accrue interest on advance at a per annum rate equal to the greater of 8.50 % and the Wall Street Journal prime rate (“Prime Rate”).

The maturity date is November 7, 2025.

The 2023 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 November 9, 2023, outstanding borrowings were $ 0 , and availability under the revolving line of credit was $ 10.0 million.

The 2023 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 November 9, 2023, the Company was in compliance with its covenants under the 2023 SVB Credit Agreement.

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