What changed in this filing

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Item 9A. Controls and Procedures

2024-02-23 compared with 2023-02-28 · 68 added, 42 removed, 465 unchanged (19% of the section changed)

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Our management conducted an evaluation, with the participation of our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of the end of the period covered by this report.

Based on this evaluation, due to the material weaknesses in our internal control over financial reporting described below, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were not effective as of December 31, 2022.

Based on this evaluation, due to the material weakness in our internal control over financial reporting described below, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were not effective as of December 30, 2023.

Management’s Annual Report on Internal Control Over Financial Reporting

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We engage all departments groups to identify risks to the achievement of our goals as a basis for determining how the risks should be managed.

Our CEO and sole director will oversee the process to ensure all required disclosures are made in our consolidated financial statements on a quarterly and annual basis.

Our Chief Executive Officer and sole director will oversee the process to ensure all required disclosures are made in our consolidated financial statements on a quarterly and annual basis.

Other Information

Insider Trading Arrangements

During the fiscal quarter ended December 30, 2023, none of our directors or officers (as defined in Rule 16a-1 under the Exchange Act) adopted, modified or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 105b-1 trading arrangement" (as those terms are defined in Item 408 of Regulation S-K), except as follows:

On November 7, 2023 , Chun K.

Hong , the Company’s President, Chief Executive Officer and sole director , terminated a trading arrangement on behalf of Mr.

Hong and the Chun Ki Hong Won Kyung Cha Community Property Trust dated 8/16/2004 (the “Trust”) that was intended to satisfy the affirmative defense in Rule 10b5 - 1 (c) under the Exchange Act (the “Prior Hong 10b5-1 Sales Plan”), with respect to the sale of up to 936,270 shares of the Company’s common stock held by the Trust and the net shares of the Company’s common stock (not currently determinable) that will be received by Mr.

Hong after the withholding of shares to satisfy tax obligations upon the vesting of 124,750 RSUs.

The Prior Hong 10b5-1 Sales Plan was adopted on September 14, 2023 and had a term that expires on December 31, 2024 .

On the date of termination of the Prior Hong 10b5-1 Sales Plan, Mr.

Hong adopted a trading arrangement (the “Hong 10b5-1 Sales Plan”) that is intended to satisfy the affirmative defense in Rule 10b5 - 1 (c) under the Exchange Act.

The Hong 10b5-1 Sales Plan, which has a term that expires on December 31, 2024 , provides for the sale of up to 936,270 shares of the Company’s common stock held by Mr.

Hong and the net shares of the Company’s common stock (not currently determinable) that will be received by Mr.

Hong after the withholding of shares to satisfy tax obligations upon the vesting of 124,750 RSUs.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

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Each member of the Board is elected annually at a meeting of our stockholders and serves for a one-year term until the next annual meeting of our stockholders and until his or her successor is elected and qualified, or until an earlier resignation or removal.

Each of our executive officers is appointed by, and serves at the direction of, our Board, subject to the terms of our employment agreement with our President and CEO, which is described under “Employment Agreements” in Item 11 of this Form 10-K, and which establishes, among other things, such executive officer’s term of office.

Each of our executive officers is appointed by, and serves at the direction of, our Board, subject to the terms of our employment agreement with our President and Chief Executive Officer, which is described under “Employment Agreements” in Item 11 of this Form 10-K, and which establishes, among other things, such executive officer’s term of office.

The table and narrative below provide, for our current director and executive officers, each such individual’s name;

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Executive Vice President, Chief Financial Officer and Secretary

Hong is one of the founders of Netlist and has been our President and CEO and a director since our inception in June 2000.

Hong assumed the title of Chairman of the Board of Directors in January 2004 and became a sole member of the Board of Directors in August 2020.

Hong is one of the founders of Netlist and has been our President and Chief Executive Officer (“CEO”) and a director since our inception in June 2000.

Hong assumed the title of Chairman of the Board of Directors in January 2004 and became the sole member of the Board of Directors in August 2020.

Prior to his tenure at Netlist, Mr.

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Hong received his Bachelor of Science degree in economics from Virginia Commonwealth University and his Master of Science degree in technology management from Pepperdine University’s Graduate School of Management.

As one of our founders and as our Chief Executive Officer, Mr.

As one of our founders and as our CEO, Mr.

Hong brings to the Board extensive knowledge of our organization and our market.

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CFO, Senior Vice President of Finance, Secretary and Treasurer of eMotion, Inc.

(a Kodak subsidiary and formerly Cinebase Software), a developer of business-to-business media management software and services, and CFO of MicroNet Technology, Inc., a leader in storage technology.

(a Kodak subsidiary and formerly Cinebase Software), a developer of business-to-business media management software and services;

and CFO of MicroNet Technology, Inc., a leader in storage technology.

Sasaki also spent seven years in public accounting leaving as an audit manager with Arthur Young (now known as Ernst &Young LLP).

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We recognize that the goals of employee attraction, retention and motivation must be balanced against the necessity of controlling compensation expense, with the ultimate objective of building shareholder value.

With respect to the compensation of our named executive officers, our President, CEO and Sole Director, who has the responsibility to design a compensation program and set levels of compensation that attempt to achieve the optimal balance between employee attraction, retention and motivation, adjusted the executive officers’ compensation for 2022.

With respect to the compensation of our named executive officers, our President, Chief Executive Officer and sole director, who has the responsibility to design a compensation program and set levels of compensation that attempt to achieve the optimal balance between employee attraction, retention and motivation, adjusted the executive officers’ compensation for 2023.

Key Factors in Determining Executive Compensation

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At the 2022 annual meeting, our stockholders overwhelmingly approved the compensation of our named executive officers, with over 85% of our stockholders present and entitled to vote at the meeting voting in favor of our compensation policies for our named executive officers.

Given this result, and following consideration of them, the former Compensation Committee had decided to retain our overall approach to executive compensation while continuing to evaluate our practices frequently, including in response to future say-on-pay votes.

Given this result, and following consideration of them, the former Compensation Committee of the Board had decided to retain our overall approach to executive compensation while continuing to evaluate our practices frequently, including in response to future say-on-pay votes.

Moreover, we are required to hold a vote at least every six years regarding how often to hold a stockholder advisory vote on the compensation of our named executive officers.

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We combine these elements in order to formulate compensation packages that provide competitive pay and align the interests of our named executive officers with long-term stockholder interests by rewarding the achievement of financial, operational and strategic objectives.

In 2022, our full-year accomplishments under our executive leadership included the following:

● Total net product sales of $161.6 million, representing an increase of $59.3 million compared to the prior year;

● Total product gross profit of $11.9 million, representing an increase of $3.0 million compared to the prior year.

The following table sets forth information regarding the annualized base salary rates at the end of 2023 for our named executive officers:

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instead, the Board or our sole director exercises judgment and discretion.

The sole Director considers, among other things, the role and responsibility

of the named executive officer, competitive factors, the amount of stock-based equity compensation already held by the named executive officer, and the cash-based compensation received by the named executive officer, to determine the level and types of equity awards that it approves.

The sole director considers, among other things, the role and responsibility of the named executive officer, competitive factors, the amount of stock-based equity compensation already held by the named executive officer, and the cash-based compensation received by the named executive officer, to determine the level and types of equity awards that it approves.

Our bonuses are discretionary with substantial weight given to financial performance during the year and the enhancement of long-term stockholder value.

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Hong, without his consent, of duties inconsistent with his position so as to constitute a diminution of status with our Company, including an assignment of Mr.

Hong to a position other than President and CEO of our Company, (ii) our reduction of Mr.

Hong to a position other than President and Chief Executive Officer of our Company, (ii) our reduction of Mr.

Hong’s base salary as in effect at any time without Mr.

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Hong’s behalf and (b) for Ms.

Sasaki, the amount is for a health club membership.

Sasaki, the amount consists of $2,757 for a health club membership and $3,000 for matching contributions under the 401(k) defined contribution plan.

For 2022, the amount consists of (a) for Mr.

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Hong’s behalf and (b) for Ms.

Sasaki, the amount is for a health club membership.

Sasaki, the amount consists of $855 for a health club membership and $3,000 for matching contributions under the 401(k) defined contribution plan.

For 2021, the amount consists of (a) for Mr.

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Hong’s behalf and (b) for Ms.

Sasaki, the amount is for weekly fitness training.

Sasaki, the amount consists of $22,007 for a health club membership and $3,000 for matching contributions under the 401(k) defined contribution plan.

Hong received no additional compensation for his service as a director.

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We then applied this measure to our global employee population as of December 30, 2023 (the last day of our 2023 fiscal year).

For the calculation, approximately 56% of the global employee population was based in the United States and 44% was based in our Suzhou, China factory.

For the calculation, approximately 49% of the global employee population was based in the United States and 51% was based in China.

Retirement Benefits

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All of these employee contributions are fully vested upon contribution.

In addition, we may make matching contributions on the contributions of our employees on a discretionary basis.

addition, we may make matching contributions on the contributions of our employees on a discretionary basis.

In 2023, 2022, and 2021, we made matching contributions of $115,733, $135,411, and $105,161, respectively.

In 2020, we did not make matching contributions.

Grants of Plan-Based Awards – 2023

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(1) The amounts shown in these columns represent the threshold, target, and maximum payout levels.

The actual bonus amount paid to each named executive officer is reported under the "Bonus"

column of the Summary Compensation Table.

The actual bonus amount paid to each named executive officer is reported under the “Bonus” column of the Summary Compensation Table.

The material terms of each stock option award granted in 2023 are described below under “Outstanding Equity Awards at Fiscal Year End.”

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Shares That Have Not

Represents stock option awards granted under the Netlist, Inc.

Amended 2006 Plan.

Represents stock option awards granted under the Amended and Restated 2006 Equity Incentive Plan (the “Amended 2006 Plan”).

These stock option awards that are not fully exercisable vest in 16 equal quarterly installments, subject to continued service on each vesting date, subject to accelerated vesting in certain circumstances as described under “Employment Agreements” above.

Represents RSUs granted under the Equity Plan.

Represents RSUs granted under the Amended 2006 Plan.

Restrictions on RSUs lapse in eight equal semi-annual installments from the grant date.

2023 Option Exercised and Stock Vested

The following table show information regarding the vesting during 2022 of stock options and RSUs previously granted to the named executive offers.

The following table show information regarding the vesting during 2023 of stock options and RSUs previously granted to the named executive officers.

Option Awards

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(2) Reflects the product of the number of shares of stock vested multiplied by the market price of our common stock on the vesting date.

Director Compensation

Our sole director receives no additional compensation for his service as director.

Employee Compensation Risks

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Cha, as co-trustees of the Hong-Cha Community Property Trust.

Cha possess shared voting and investment power over the shares of common stock held by the Hong-Cha

Community Property Trust, and each disclaims beneficial ownership of such shares except to the extent of his or her pecuniary interest therein.

Cha possess shared voting and investment power over the shares of common stock held by the Hong-Cha Community Property Trust, and each disclaims beneficial ownership of such shares except to the extent of his or her pecuniary interest therein.

(3) Represents 59,375 shares of common stock from restricted stock that will vest within 60 days after the Table date and 48,305 shares of common stock outstanding.

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For 2023, Mr.

Hong earned cash salary of $182,500, received $34,067 for weekly fitness training, and was granted 200,000 shares of restricted stock units with the grant-date fair value of $674,000 measured in accordance with ASC 718.

Hong earned cash salary of $233,334, received $14,950 for weekly fitness training, $3,000 for matching contributions under the 401(k) defined contribution plan, and was granted 50,000 shares of RSUs with the grant-date fair value of $182,500 measured in accordance with ASC 718.

The grant-date fair value was determined using the fair value of the underlying shares of our common stock.

For 2022, Mr.

Hong earned cash salary of $250,000 and cash bonus of $175,000 and received $19,098 for weekly fitness training.

We have entered into indemnification agreements with each of our director and executive officers.

Hong earned cash salary of $182,500, received $34,067 for weekly fitness training, $3,000 for matching contributions under the 401(k) defined contribution plan, and was granted 200,000 shares of RSUs with the grant-date fair value of $674,000 measured in accordance with ASC 718.

The grant-date fair value was determined using the fair value of the underlying shares of our common stock.

We have entered into indemnification agreements with each of our sole director and executive officers.

In general, these agreements require us to indemnify each such individual to the fullest extent permitted under Delaware law against certain liabilities that may arise by reason of their service for us, and to advance expenses incurred as a result of any such proceeding as to which any such individual could be indemnified.

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All Other Fees (2)

Audit fees consist of fees billed to us for professional services rendered for the audit of our annual consolidated financial statements, the review of our interim condensed consolidated financial statements included in our quarterly reports and the audit of our internal control over financial reporting as required by Section 404 of SOX.

These fees also include fees billed to us for professional services that are normally provided in connection with statutory and regulatory filings or engagements, including the review of our registration statements on Form S-3 and Form S-8 and certain other related matters, such as the delivery of comfort letters and consents in connection with these registration statements.

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January 1, 2022

December 31, 2022

December 30, 2023

All other financial statement schedules have been omitted, as they are not required, not applicable, or the required information is otherwise included.

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August 17, 2018

Certificate of Amendment of the Restated Certificate of Incorporation of Netlist, Inc.

August 10, 2020

Certificate of Designation of the Series A Preferred Stock of Netlist, Inc.

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December 29, 2017

Amendment to Amended and Restated Bylaws of Netlist, Inc.

August 10, 2020

Description of the Registrant’s Securities

March 10, 2020

Incorporated by Reference

Filed Herewith

Rights Agreement, dated as of April 17, 2017, by and between Netlist, Inc.

1 unchanged sentence

April 17, 2017

Incorporated by Reference

Filed Herewith

Amendment No.

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September 14, 2018

Form of Warrant

August 15, 2023

Form of Indemnity Agreement for officers and directors

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Amendment to Loan Documents, dated March 24, 2010, between Silicon Valley Bank and Netlist, Inc.

Amendment to Loan Documents, dated June 30, 2010, between Silicon Valley Bank and Netlist, Inc.

August 12, 2010

Incorporated by Reference

Filed Herewith

Amendment to Loan Documents, dated June 30, 2010, between Silicon Valley Bank and Netlist, Inc.

August 12, 2010

Amendment to Loan Documents, dated September 30, 2010, between Silicon Valley Bank and Netlist, Inc.

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March 26, 2018

Incorporated by Reference

Filed Herewith

Amendment to Loan and Security Agreement, dated March 21, 2019, by and between Netlist, Inc.

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March 22, 2019

Incorporated by Reference

Filed Herewith

Amendment to Loan and Security Agreement, dated February 27, 2020, by and between Netlist, Inc.

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and University Research Park, LLC

Form of Securities Purchase Agreement, dated August 14, 2023, by and among Netlist, Inc.

and the purchasers identified therein

August 15, 2023

Placement Agency Agreement, dated August 14, 2023, by and between Netlist, Inc.

and Roth Capital Partners, LLC.

August 15, 2023

Form of Lock-Up Agreement

August 15, 2023

Loan and Security Agreement, dated November 7, 2023, between Silicon Valley Bank, a division of First-Citizens Bank & Trust Company and Netlist, Inc.

November 9, 2023

Subsidiaries of Netlist, Inc.

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Consent of KMJ Corbin & Company LLP

Incorporated by Reference

Filed Herewith

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

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Inline XBRL Taxonomy Extension Presentation Linkbase Document

Incorporated by Reference

Filed Herewith

Inline XBRL Taxonomy Extension Definition Linkbase Document

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Confidential treatment has been granted with respect to portions of this exhibit.

Certain exhibits and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K.

The Company hereby undertakes to furnish supplementally a copy of any omitted exhibit or schedule upon request by the SEC.

Form 10-K Summary.

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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-K

Item 9A. Controls and Procedures