NETLIST INC 10-K

Item 8. Financial Statements and Supplementary Dat a ​ ​ ​ ​ ​ Index to Consolidated Financial Statements Page Consolidated Balance Sheets ​ 50 Consolidated Statements of Operations ​ 51 Consolidated Statements of Stockholders’ Equity (Deficit ) ​ 52 Consolidated Statements of Cash Flows ​ 53 Notes to Consolidated Financial Statements ​ 54 Reports of Independent Registered Public Accounting Firm (PCAOB ID No. 170 ) ​ 81 Schedule II – Valuation and Qualifying Accounts ​ 98 ​ ​ ​ ​ ​ ​ ​ ​ ​ 49 Table of Contents Netlist, Inc. and Subsidiaries ​ CONSOLIDATED BALANCE SHEETS (in thousands, except par value amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 30, ​ December 31, ​ 2023 2022 ASSETS ​ ​ ​ ​ ​ ​ Current Assets: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 40,445 ​ $ 25,011 Restricted cash ​ ​ 12,400 ​ ​ 18,600 Accounts receivable, net of allowances of $ 68 (2023) and $ 137 (2022) ​ ​ 4,562 ​ ​ 8,242 Inventories ​ ​ 12,031 ​ ​ 10,686 Prepaid expenses and other current assets ​ ​ 441 ​ ​ 1,308 Total current assets ​ ​ 69,879 ​ ​ 63,847 Property and equipment, net ​ ​ 770 ​ ​ 1,138 Operating lease right-of-use assets ​ ​ 1,590 ​ ​ 2,043 Other assets ​ ​ 560 ​ ​ 295 Total assets ​ $ 72,799 ​ $ 67,323 ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND STOCKHOLDERS' EQUITY ​ ​ ​ ​ ​ ​ Current Liabilities: ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 39,831 ​ $ 28,468 Revolving line of credit ​ ​ 3,844 ​ ​ 4,935 Accrued payroll and related liabilities ​ ​ 1,346 ​ ​ 1,588 Accrued expenses and other current liabilities ​ ​ 2,569 ​ ​ 2,635 Long-term debt due within one year ​ ​ — ​ ​ 447 Total current liabilities ​ ​ 47,590 ​ ​ 38,073 Operating lease liabilities ​ ​ 1,213 ​ ​ 1,744 Other liabilities ​ ​ 237 ​ ​ 270 Total liabilities ​ ​ 49,040 ​ ​ 40,087 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; 253,593 (2023) and 232,557 (2022) shares issued and outstanding ​ ​ 254 ​ ​ 233 Additional paid-in capital ​ ​ 307,328 ​ ​ 250,428 Accumulated deficit ​ ​ ( 283,823 ) ​ ​ ( 223,425 ) Total stockholders' equity ​ ​ 23,759 ​ ​ 27,236 Total liabilities and stockholders' equity ​ $ 72,799 ​ $ 67,323 ​ See accompanying Notes to Consolidated Financial Statements. ​ ​ ​ 50 Table of Contents Netlist, Inc. and Subsidiaries ​ CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ December 30, ​ December 31, ​ January 1, ​ ​ 2023 2022 2022 ​ Net product sales ​ $ 69,205 ​ $ 161,637 ​ $ 102,355 ​ License fee ​ ​ — ​ ​ — ​ ​ 40,000 ​ Net sales ​ ​ 69,205 ​ ​ 161,637 ​ ​ 142,355 ​ Cost of sales ​ ​ 66,812 ​ ​ 149,745 ​ ​ 93,458 ​ Gross profit ​ ​ 2,393 ​ ​ 11,892 ​ ​ 48,897 ​ Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Research and development ​ ​ 9,164 ​ ​ 10,624 ​ ​ 7,241 ​ Intellectual property legal fees ​ ​ 42,572 ​ ​ 20,421 ​ ​ 19,494 ​ Selling, general and administrative ​ ​ 12,414 ​ ​ 14,347 ​ ​ 10,779 ​ Total operating expenses ​ ​ 64,150 ​ ​ 45,392 ​ ​ 37,514 ​ Operating (loss) income ​ ​ ( 61,757 ) ​ ​ ( 33,500 ) ​ ​ 11,383 ​ Other income (expense), net: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest income (expense), net ​ ​ 1,300 ​ ​ 57 ​ ​ ( 568 ) ​ Other income, net ​ ​ 60 ​ ​ 74 ​ ​ 643 ​ Total other income, net ​ ​ 1,360 ​ ​ 131 ​ ​ 75 ​ (Loss) income before provision for income taxes ​ ​ ( 60,397 ) ​ ​ ( 33,369 ) ​ ​ 11,458 ​ Provision for income taxes ​ ​ 1 ​ ​ 1 ​ ​ 6,627 ​ Net (loss) income ​ $ ( 60,398 ) ​ $ ( 33,370 ) ​ $ 4,831 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Loss) earnings per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ ( 0.25 ) ​ $ ( 0.14 ) ​ $ 0.02 ​ Diluted ​ $ ( 0.25 ) ​ $ ( 0.14 ) ​ $ 0.02 ​ Weighted-average common shares outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ ​ 244,118 ​ ​ 231,487 ​ ​ 218,171 ​ Diluted ​ ​ 244,118 ​ ​ 231,487 ​ ​ 225,589 ​ ​ ​ See accompanying Notes to Consolidated Financial Statements. 51 Table of Contents ​ Netlist, Inc. and Subsidiaries ​ CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 income ​ — ​ ​ — ​ ​ — ​ ​ 4,831 ​ ​ 4,831 Issuance of common stock, net ​ 16,646 ​ ​ 17 ​ ​ 39,552 ​ ​ — ​ ​ 39,569 Exercise of stock options ​ 2,865 ​ ​ 4 ​ ​ 3,946 ​ ​ — ​ ​ 3,950 Exercise of warrants ​ 13,808 ​ ​ 14 ​ ​ 7,854 ​ ​ — ​ ​ 7,868 Stock-based compensation ​ — ​ ​ — ​ ​ 1,580 ​ ​ — ​ ​ 1,580 Restricted stock units vested and distributed ​ 1,140 ​ ​ 1 ​ ​ ( 1 ) ​ ​ — ​ ​ — Tax withholdings related to net share settlements of equity awards ​ ( 324 ) ​ ​ — ​ ​ ( 1,136 ) ​ ​ — ​ ​ ( 1,136 ) Balance, January 1, 2022 ​ 230,113 ​ ​ 231 ​ ​ 243,866 ​ ​ ( 190,055 ) ​ ​ 54,042 Net loss ​ — ​ ​ — ​ ​ — ​ ​ ( 33,370 ) ​ ​ ( 33,370 ) Issuance of common stock, net ​ 1,059 ​ ​ 1 ​ ​ 4,435 ​ ​ — ​ ​ 4,436 Exercise of stock options ​ 414 ​ ​ — ​ ​ 284 ​ ​ — ​ ​ 284 Stock-based compensation ​ — ​ ​ — ​ ​ 3,214 ​ ​ — ​ ​ 3,214 Restricted stock units vested and distributed ​ 1,358 ​ ​ 1 ​ ​ ( 1 ) ​ ​ — ​ ​ — Tax withholdings related to net share settlements of equity awards ​ ( 387 ) ​ ​ — ​ ​ ( 1,370 ) ​ ​ — ​ ​ ( 1,370 ) Balance, December 31, 2022 ​ 232,557 ​ ​ 233 ​ ​ 250,428 ​ ​ ( 223,425 ) ​ ​ 27,236 Net loss ​ — ​ ​ — ​ ​ — ​ ​ ( 60,398 ) ​ ​ ( 60,398 ) Issuance of common stock, net ​ 19,021 ​ ​ 20 ​ ​ 52,038 ​ ​ — ​ ​ 52,058 Exercise of stock options ​ 661 ​ ​ — ​ ​ 526 ​ ​ — ​ ​ 526 Stock-based compensation ​ — ​ ​ — ​ ​ 4,337 ​ ​ — ​ ​ 4,337 Restricted stock units vested and distributed ​ 1,354 ​ ​ 1 ​ ​ ( 1 ) ​ ​ — ​ ​ — Balance, December 30, 2023 ​ 253,593 ​ $ 254 ​ $ 307,328 ​ $ ( 283,823 ) ​ $ 23,759 ​ See accompanying Notes to Consolidated Financial Statements. ​ 52 Table of Contents Netlist, Inc. and Subsidiaries ​ CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ December 30, ​ December 31, ​ January 1, ​ ​ 2023 2022 2022 Cash flows from operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) ​ $ ( 60,398 ) ​ $ ( 33,370 ) ​ $ 4,831 ​ Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ ​ 368 ​ ​ 340 ​ ​ 127 ​ Interest accrued on convertible promissory notes ​ ​ — ​ ​ — ​ ​ 300 ​ Amortization of debt discounts ​ ​ — ​ ​ — ​ ​ 228 ​ Non-cash lease expense ​ ​ 640 ​ ​ 640 ​ ​ 375 ​ Gain on extinguishment of debt ​ ​ — ​ ​ — ​ ​ ( 643 ) ​ Stock-based compensation ​ ​ 4,337 ​ ​ 3,214 ​ ​ 1,580 ​ Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accounts receivable ​ ​ 3,680 ​ ​ 4,485 ​ ​ ( 8,047 ) ​ Inventories ​ ​ ( 1,345 ) ​ ​ 4,984 ​ ​ ( 12,472 ) ​ Prepaid expenses and other assets ​ ​ 602 ​ ​ 264 ​ ​ ( 286 ) ​ Accounts payable ​ ​ 11,363 ​ ​ 2,581 ​ ​ 20,166 ​ Accrued payroll and related liabilities ​ ​ ( 242 ) ​ ​ 280 ​ ​ 502 ​ Accrued expenses and other liabilities ​ ​ ( 606 ) ​ ​ 1,587 ​ ​ ( 654 ) ​ Net cash provided by (used in) operating activities ​ ​ ( 41,601 ) ​ ​ ( 14,995 ) ​ ​ 6,007 ​ Cash flows from investing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Acquisition of property and equipment ​ ​ — ​ ​ ( 467 ) ​ ​ ( 520 ) ​ Net cash used in investing activities ​ ​ — ​ ​ ( 467 ) ​ ​ ( 520 ) ​ Cash flows from financing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net borrowings (repayments) under line of credit ​ ​ ( 1,091 ) ​ ​ ( 2,065 ) ​ ​ 3,322 ​ Principal repayments under finance lease ​ ​ ( 211 ) ​ ​ ( 129 ) ​ ​ ( 20 ) ​ Payments on notes payable and long-term debt ​ ​ ( 447 ) ​ ​ ( 562 ) ​ ​ ( 17,087 ) ​ Proceeds from issuance of common stock, net ​ ​ 52,058 ​ ​ 4,436 ​ ​ 39,569 ​ Proceeds from exercise of stock options and warrants ​ ​ 526 ​ ​ 284 ​ ​ 11,818 ​ Payments for taxes related to net share settlement of equity awards ​ ​ — ​ ​ ( 1,370 ) ​ ​ ( 1,136 ) ​ Net cash provided by financing activities ​ ​ 50,835 ​ ​ 594 ​ ​ 36,466 ​ Net change in cash, cash equivalents and restricted cash ​ ​ 9,234 ​ ​ ( 14,868 ) ​ ​ 41,953 ​ Cash, cash equivalents and restricted cash at beginning of period ​ ​ 43,611 ​ ​ 58,479 ​ ​ 16,526 ​ Cash, cash equivalents and restricted cash at end of period ​ $ 52,845 ​ $ 43,611 ​ $ 58,479 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Reconciliation of cash, cash equivalents and restricted cash at end of period: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 40,445 ​ $ 25,011 ​ $ 47,679 ​ Restricted cash ​ ​ 12,400 ​ ​ 18,600 ​ ​ 10,800 ​ Cash, cash equivalents and restricted cash at end of period ​ $ 52,845 ​ $ 43,611 ​ $ 58,479 ​ ​ See accompanying Notes to Consolidated Financial Statements. ​ 53 Table of Contents ​ Netlist, Inc. and Subsidiaries ​ Notes to Consolidated Financial Statements ​ Note 1—Summary of Significant Accounting Policies ​ Basis of Presentation ​ Netlist, Inc. and its wholly owned subsidiaries (collectively the “Company,” “Netlist,” “we,” “us,” or “our”) provides high-performance memory solutions to enterprise customers in diverse industries. Our products, in various capacities and form factors, including our line of custom and specialty memory products bring leading performance to customers in a variety of industries globally. Netlist also licenses its intellectual property. ​ The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include the accounts of Netlist, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and expenses. Actual results may differ materially from those estimates. We have evaluated events occurring subsequent to December 30, 2023 through the filing date of this Form 10-K and concluded that there were no events that required recognition and disclosures, other than those discussed elsewhere in the notes hereto. Certain prior period amounts have been reclassified to conform to the current period’s presentation. ​ Our fiscal year is the 52 - or 53 -week period that ends on the Saturday nearest to December 31. Our fiscal year 2023 ended on December 30, 2023, fiscal year 2022 ended on December 31, 2022, and fiscal year 2021 ended on January 1, 2022. All fiscal years presented in this Form 10-K included 52 weeks. Additionally, all quarters included 13 weeks. Unless otherwise stated, references to particular years, quarters, months and periods refer to our fiscal years ended in January or December and the associated quarters, months and periods of those fiscal years. ​ Recently Issued Accounting Standards ​ In December 2023, the FASB issued Update 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This update applies to all entities that are subject to Topic 740. The amendments in this update improve income tax disclosures primarily related to the rate reconciliation and income taxes paid information as well as the effectiveness of certain other income tax disclosures. The new standard is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. This standard should be applied on a prospective basis, but retrospective application is permitted. The Company is currently evaluating the impact of adopting this new standard. ​ Revenue Recognition ​ Product Revenue ​ Revenue is recognized when control is transferred to customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods and services. Revenue recognition is evaluated through the five steps outlined within the accounting guidance. Substantially all of our product sales relate to products sold at a point in time through ship-and-bill performance obligations. At contract inception, an assessment of the goods and services promised in the contracts with customers is performed and a performance obligation is identified for each distinct promise to transfer to the customer a good or service (or bundle of goods or services). To identify the performance obligations, we consider all of the goods or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. Contracts with customers are comprised of customer purchase orders, invoices (including our standard terms and conditions) and written contracts. ​ 54 Table of Contents License Revenue ​ For licenses of technology, recognition of revenue is dependent upon whether we have delivered rights to the technology, and whether there are future performance obligations under the contract. In some instances, the license agreements call for future events or activities to occur in order for milestone amounts to become due from the customer. The terms of such agreements include payments to us of one or more of the following: non-refundable upfront fees and royalties on net sales of licensed products. Historically, these license agreements have not included other future performance obligations for us once the license has been transferred to the customer. ​ Revenue from non-refundable upfront payments is recognized when the license is transferred to the customer and we have no other performance obligations. ​ Performance Obligations ​ Net product sales and related cost of sales are primarily the result of promises to transfer products to customers. For performance obligations related to substantially all of the ship-and-bill products, control transfers at a point in time when title transfers upon shipment of the product to the customer, and for some sales, control transfers when title is transferred at time of receipt by the customer. Once a product has shipped or has been delivered, the customer is able to direct the use of, and obtain substantially all of the remaining benefits from, the asset. We consider control to have transferred upon shipment or delivery, because we have a present right to payment at that time, the customer has legal title to the asset, we have transferred physical possession of the asset, and the customer has the significant risks and rewards of ownership of the asset. ​ Amounts billed to our customers for shipping and handling are recorded in net sales. Shipping and handling costs incurred by us are included in cost of sales in the accompanying consolidated statements of operations. ​ Significant Payment Terms ​ For ship-and-bill type contracts with customers, the invoice states the final terms of the sale, including the description, quantity, and price of each product purchased. Payment terms are typically due within 30 days after delivery but, in limited instances, can range up to 90 days after delivery. Accordingly, our contracts with customers do not include a significant financing component. ​ Variable Consideration ​ Our revenue generating activities include variable consideration which is recorded as a reduction of the transaction price based upon expected amounts at the time revenue for the corresponding product sale is recognized. Common forms of variable consideration include limited rights of return for up to 30 days, except for sales of excess component inventories, which contain no right-of-return privileges and volume rebates for meeting established sales targets. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the anticipated performance and all information (historical, current and forecasted) that is reasonably available. ​ Returns for products sold are estimated using the expected value method and are recorded as a reduction in reported revenues at the time of sale based upon historical product return experience and is adjusted for known trends to arrive at the amount of consideration to which we expect to receive. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. ​ Contract Assets and Liabilities ​ We continually evaluate whether the revenue generating activities and advanced payment arrangements with customers result in the recognition of contract assets or liabilities. Generally, we do not have material amounts of 55 Table of Contents contract assets since revenue is recognized as control of goods is transferred or as services are performed. As of December 30, 2023 and December 31, 2022, there were no contract liabilities. ​ Warranties ​ We offer standard product warranties generally ranging from one to three years to our memory subsystem products customers, depending on the negotiated terms of any purchase agreements, and have no other post-shipment obligations or separately priced extended warranty or product maintenance contracts. These warranties require us to repair or replace defective product returned to us during the warranty period at no cost to the customer. Warranties are not offered on sales of component products. We record an estimate for warranty related costs at the time of sale based on our historical and estimated future product return rates and expected repair or replacement costs. Estimated future warranty costs are recorded in the period in which the sale is recorded and are included in cost of sales in the consolidated statements of operations. ​ Cash and Cash Equivalents ​ Cash and cash equivalents consist of cash and short-term investments with original maturities of three months or less. ​ Restricted Cash ​ Our restricted cash consists of cash to secure standby letters of credit (see Note 3 —Credit Agreement and Standby Letters of Credit ). ​ Fair Value Measurements ​ Certain assets and liabilities are accounted for at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of those three levels based on the lowest level input that is significant to the fair value measurement in its entirety. ​ ● Level 1 – inputs are based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. An active market is defined as a market in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis. ● Level 2 – inputs are based on quoted prices of similar instruments in active markets, quoted prices for identical or similar instruments in market that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. ● Level 3 – inputs are generally unobservable inputs for the asset or liability, which are typically based on management’s estimates of assumptions that market participants would use in pricing the assets and liabilities. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. ​ Our financial instruments consist principally of cash and cash equivalents, restricted cash, and a revolving line of credit. Cash equivalents consist of short-term investments with original maturities of three months or less and restricted cash consists of cash to secure standby letters of credit (see Note 3 — Credit Agreement and Standby Letters of Credit). The carrying value of these instruments approximates their fair value due to their short-term nature. The fair value of the revolving line of credit is estimated by using current applicable rates for similar instruments as of the balance sheet date and an assessment of the credit rating. The carrying values of the revolving line of credit as of December 30, 2023 and December 31, 2022 and the note payable as of December 31, 2022 approximate fair value because the interest rate yield is near current market rates for comparable debt instruments. ​ 56 Table of Contents Accounts Receivable, net ​ We extend credit to our customers. An allowance for doubtful accounts is maintained for estimated losses resulting from the inability of our customers to make required payments. We specifically analyze the age of customer balances, historical bad debt experiences, customer creditworthiness and changes in customer payment terms when making estimates of the collectability of our accounts receivable balances. If we determine that the financial condition of any of our customers has deteriorated, whether due to customer specific or general economic issues, an increase in the allowance may be made. After all attempts to collect a receivable have failed, the receivable is written off. ​ Concentration of Credit Risk ​ Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents, and accounts receivable. We invest our cash equivalents primarily in money market mutual funds. Cash equivalents are maintained with high quality institutions, the composition and maturities of which are regularly monitored by management. At times, deposits held with financial institutions may exceed the amount of insurance provided by the Federal Deposit Insurance Corporation and the Securities Investor Protection Corporation. ​ Our accounts receivable are primarily derived from sales to original equipment manufacturers in the server, high-performance computing and communications markets, as well as from sales to storage customers, appliance customers, system builders and cloud and datacenter customers. We perform credit evaluations of our customers’ financial condition and limit the amount of credit extended when deemed necessary, but generally require no collateral. We believe the concentration of credit risk in our accounts receivable is moderated by our credit evaluation process, relatively short collection terms, a high level of credit worthiness of our customers (see Note 10 — Major Customers, Suppliers and Products), foreign credit insurance, and letters of credit issued in our favor. The allowance for credit losses is maintained, and such losses historically have not been significant and have been within management’s expectations. ​ Inventories ​ Inventories are valued at the lower of cost or the net realizable value. Cost is determined on an average cost basis which approximates actual cost on a first-in, first-out basis and includes raw materials, labor and manufacturing overhead. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We evaluate inventory balances for excess quantities and obsolescence on a regular basis by analyzing estimated demand, inventory on hand, sales levels and other information and reduce inventory balances to net realizable value for excess and obsolete inventory based on this analysis. At the point of the write-down recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. ​ Property and Equipment ​ Property and equipment are recorded at cost and depreciated on a straight-line basis over their estimated useful lives, which generally range from three to seven years . Leasehold improvements are recorded at cost and amortized on a straight-line basis over the shorter of their estimated useful lives or the remaining lease term. Expenditures for repairs and maintenance are expensed as incurred. Upon retirement or sale, the cost and related accumulated depreciation and amortization of disposed assets are removed from the accounts and any resulting gain or loss is included in other income (expense), net in the consolidated statements of operations. ​ Impairment of Long-Lived Assets ​ We evaluate the recoverability of the carrying value of long-lived assets held and used by us in our operations for impairment on at least an annual basis or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. When such factors and circumstances exist, we compare the projected undiscounted future net cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. These projected future cash flows may vary significantly over time as a result of increased competition, changes in technology, fluctuations in demand, consolidation of our customers and reductions in average 57 Table of Contents sales prices. If the carrying value is determined not to be recoverable from future operating cash flows, the asset is deemed impaired and an impairment loss is recognized to the extent the carrying value exceeds the estimated fair value of the asset. The fair value of the asset or asset group is based on market value when available, or when unavailable, on discounted expected cash flows. Management believes there is no impairment of long-lived assets as of December 30, 2023 and December 31, 2022. ​ Leases ​ We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, accrued expenses and other current liabilities, and operating lease liabilities on our consolidated balance sheets. Finance leases are included in property and equipment, accrued expenses and other current liabilities, and other liabilities in our consolidated balance sheets. ​ ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. ​ We have lease agreements with lease and non-lease components, which are accounted for as a single lease component. We do not present short-term leases on the balance sheet, as those leases have a lease term of twelve months or less at inception and do not contain purchase options or renewal terms that we are reasonably certain to exercise. ​ Stock-Based Compensation ​ Stock-based awards are comprised principally of stock options and restricted stock units (“RSUs”). Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense over the requisite service period, which is the vesting period, on a straight-line basis, net of estimated forfeitures. We use the Black-Scholes option pricing model to determine the grant date fair value of stock options. The model requires us to estimate the expected volatility and expected term of the stock options, which are highly complex and subjective variables. The expected volatility is based on the historical volatility of our common stock. The expected term is computed using the simplified method as our best estimate given our lack of actual exercise history. The risk-free rate selected to value any particular grant is based on the U.S. Treasury rate that corresponds to the expected term of the grant effective as of the date of the grant. The expected dividend assumption is based on our history and management’s expectation regarding dividend payouts. The grant-date fair value of RSUs equals the closing price of our common stock on the grant date. ​ Income Taxes ​ Deferred income tax assets and liabilities are recognized for temporary differences between the financial statement carrying amounts of assets and liabilities and the amounts that are reported in the income tax returns. Deferred taxes are evaluated for realization on a jurisdictional basis. We record valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. In making this assessment, management analyzes future taxable income, reversing temporary differences and ongoing tax planning strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, we will adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income. ​ We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities based on the technical merits of our position. The tax benefit recognized in the financial statements for a particular tax position is based on the largest benefit that is more 58 Table of Contents likely than not to be realized. The amount of unrecognized tax benefits is adjusted as appropriate for changes in facts and circumstances, such as significant amendments to existing tax laws, new regulations or interpretations by the taxing authorities, new information obtained during a tax examination, or resolution of an examination. We recognize both accrued interest and penalties associated with uncertain tax positions as a component of provision for income taxes in the consolidated statements of operations. ​ The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations may change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability for U.S. or foreign taxes may be materially different from our estimates, which could require us to record additional tax liabilities or to reduce previously recorded tax liabilities, as applicable. ​ Contingent Legal Expenses ​ Contingent legal fees are expensed in the consolidated statements of operations in the period that the related revenues are recognized. In instances where there are no recoveries from potential infringers, no contingent legal fees are paid; however, we may be liable for certain out of pocket legal costs incurred pursuant to the underlying legal services agreement. ​ Research and Development Expenses ​ Research and development expenditures are expensed in the period incurred. ​ Foreign Currency Remeasurement ​ The functional currency of our foreign subsidiaries is the U.S. dollar. Local currency financial statements are remeasured into U.S. dollars at the exchange rate in effect as of the balance sheet date for monetary assets and liabilities and the historical exchange rate for nonmonetary assets and liabilities. Expenses are remeasured using the average exchange rate for the period, except items related to nonmonetary assets and liabilities, which are remeasured using historical exchange rates. All remeasurement gains and losses are included in determining net loss. Transaction gains and losses were not significant during 2023, 2022 or 2021. ​ Earnings (Loss) Per Share ​ Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted-average common shares outstanding during the period. Diluted earnings (loss) per share is calculated by dividing the net income (loss) by the weighted-average shares and dilutive potential common shares outstanding during the period. Dilutive potential shares consist of dilutive shares issuable upon the exercise of outstanding stock options and warrants computed using the treasury stock method, shares issuable under the conversion feature of a convertible note using the “if-converted” method, and shares issuable upon the vesting of RSUs. In periods of net loss, basic and diluted loss per share are the same, as the effect of dilutive potential shares on loss per share is anti-dilutive. ​ ​ ​ 59 Table of Contents Note 2—Supplemental Financial Information ​ Inventories ​ Inventories consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 Raw materials ​ $ 4,133 ​ $ 8,223 Work in process ​ ​ 274 ​ ​ 185 Finished goods ​ ​ 7,624 ​ ​ 2,278 ​ ​ $ 12,031 ​ $ 10,686 ​ ​ Property and Equipment, net ​ Property and equipment, net consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 Machinery and equipment $ 7,684 ​ $ 7,881 Computer equipment and software ​ 2,015 ​ ​ 2,477 Leasehold improvements ​ 770 ​ ​ 781 Furniture and fixtures ​ 614 ​ ​ 620 Construction in progress ​ 8 ​ ​ 6 ​ ​ 11,091 ​ ​ 11,765 Less: accumulated depreciation and amortization ​ ( 10,321 ) ​ ​ ( 10,627 ) ​ $ 770 ​ $ 1,138 ​ Substantially all our property and equipment are located within the United States as of December 30, 2023 and December 31, 2022. ​ Disaggregation of Net Sales ​ The following table shows disaggregated net sales by major source (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 ​ 2021 Resales of third-party products ​ $ 58,900 ​ $ 136,403 ​ $ 81,309 Sale of the Company's modular memory subsystems ​ ​ 10,305 ​ ​ 25,234 ​ ​ 21,046 License fee ​ ​ — ​ ​ — ​ ​ 40,000 Total net sales ​ $ 69,205 ​ $ 161,637 ​ $ 142,355 ​ During the second quarter of 2021, we received and recognized an upfront non-refundable license fee of $ 40 million as consideration to enter into a Strategic Product Supply and License Agreement (the “Strategic Agreement”) with SK hynix, Inc., a South Korean memory semiconductor supplier, (“SK hynix”). The license fee revenue was recognized when we granted the license of our patents to SK hynix, since the performance obligation was satisfied at a point in time. In connection with the receipt of this fee, during the second quarter of 2021, we recorded a provision for income taxes of $ 6.6 million related to the Korean withholding tax incurred. ​ 60 Table of Contents Net product sales by country presented below are based on the billing location of the customer (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 ​ 2021 United States ​ $ 15,253 ​ $ 39,545 ​ $ 53,519 People's Republic of China (1) ​ ​ 50,292 ​ ​ 114,480 ​ ​ 39,480 Other countries ​ ​ 3,660 ​ ​ 7,612 ​ ​ 9,356 Total net sales ​ $ 69,205 ​ $ 161,637 ​ $ 102,355 (1) People’s Republic of China includes Hong Kong and Taiwan. ​ The United States and China accounted for more than 10 % of our net product sales for 2023, 2022 and 2021. ​ Earnings (Loss) Per Share ​ The following table shows the computation of basic and diluted earnings (loss) per share of common stock (in thousands, except per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 ​ 2021 Numerator: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net (loss) income ​ $ ( 60,398 ) ​ $ ( 33,370 ) ​ $ 4,831 ​ Denominator: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average basic shares outstanding ​ ​ 244,118 ​ ​ 231,487 ​ ​ 218,171 ​ Effect of dilutive securities ​ ​ — ​ ​ — ​ ​ 7,418 ​ Weighted-average diluted shares ​ ​ 244,118 ​ ​ 231,487 ​ ​ 225,589 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic (loss) earnings per share ​ $ ( 0.25 ) ​ $ ( 0.14 ) ​ $ 0.02 ​ Diluted (loss) earnings per share ​ $ ( 0.25 ) ​ $ ( 0.14 ) ​ $ 0.02 ​ ​ No allocation of undistributed earnings to participating securities was performed for periods with net loss as such securities do not have a contractual obligation to share in our loss. ​ The table below sets forth potentially dilutive weighted average common share equivalents, consisting of shares issuable upon the exercise of outstanding stock options and warrants using the treasury stock method, shares issuable upon conversion of the SVIC Note (see Note 4 — Debt) using the “if-converted” method, and the vesting of RSUs. These potential weighted average common share equivalents have been excluded from the diluted net loss per share for 2023 and 2022 calculations above, as their effect would be anti-dilutive (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 ​ 2021 Weighted average common share equivalents ​ ​ 3,017 ​ ​ 4,848 ​ ​ 7,418 ​ ​ 61 Table of Contents Cash Flow Information ​ The following table shows supplemental disclosures of cash flow information and non-cash financing activities (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 ​ 2021 Supplemental disclosure of cash flow information: ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash paid during the year for: ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest ​ $ 47 ​ $ 90 ​ $ 56 Income taxes ​ $ 1 ​ $ 1 ​ $ 6,601 Supplemental disclosure of non-cash investing and financing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Acquisition of property and equipment included in liabilities ​ $ — ​ $ 22 ​ $ 414 Gain on extinguishment of debt ​ $ — ​ $ — ​ $ 643 Debt financing of insurance ​ $ — ​ $ 447 ​ $ 562 ​ ​ Note 3—Credit Agreement and Standby Letters of Credit ​ SVB Credit Agreements ​ On October 31, 2009, Netlist and Silicon Valley Bank entered into a credit agreement, which may from time to time be amended, modified, supplemented or restated, (“the 2009 SVB Credit Agreement”), which provides for a revolving line of credit up to $ 10.0 million, as amended. The 2009 SVB Credit Agreement was amended on April 29, 2022, and the borrowing base is limited to 85 % of eligible accounts receivable, subject to certain adjustments, and 50 % of eligible inventory. 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”) or 4.25 %. ​ On the maturity date, April 28, 2023, the 2009 SVB Credit Agreement terminated in accordance with its terms. In connection with the termination of the 2009 SVB Credit Agreement, all outstanding obligations for principal, interest, and fees were paid in full and all liens securing such obligations were released. ​ 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 (“SVB”), 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 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 consolidated balance sheets. As of December 30, 2023, (i) outstanding letters of credit were $ 12.4 million, (ii) outstanding borrowings were $ 3.8 million, and (iii) availability under the revolving line of credit was $ 0 . ​ As of December 30, 2023, all obligations under the 2023 SVB Credit Agreement were secured by a first priority security interest in our tangible and intangible assets. The 2023 SVB Credit Agreement subjects us to certain affirmative and negative covenants, including financial covenants with respect to our liquidity and restrictions on the payment of dividends. As of December 30, 2023, we were in compliance with our covenants under the 2023 SVB Credit Agreement. ​ Standby Letters of Credit ​ As of December 30, 2023, the amount of outstanding letters of credit was approximately $ 12.1 million, consisting of an irrevocable letter of credit issued by Silicon Valley Bank on our behalf to a third party expiring on December 31, 2023, which was subsequently amended on January 4, 2024 to extend the term to December 31, 2024, and two irrevocable letters of credit issued by Citibank, N.A. on our behalf to third parties expiring on May 15, 2024 and 62 Table of Contents June 6, 2024, respectively. As of December 30, 2023, 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. ​ Note 4—Debt ​ Our debt consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 Notes payable ​ $ — ​ $ 447 Less: amounts due within one year ​ ​ — ​ ​ ( 447 ) Long-term debt ​ $ — ​ $ — ​ Secured Convertible Note ​ On November 18, 2015, in connection with entering into the Joint Development and License Agreement (the “JDLA”) with Samsung Electronics Co., Ltd. (“SECL”), we issued to SVIC No. 28 New Technology Business Investment L.L.P., a Korean limited liability partnership (“SVIC”) a secured convertible note (the “SVIC Note”) and stock purchase warrant (the “SVIC Warrant”). The SVIC Note had an original principal amount of $ 15.0 million, accrued interest at a rate of 2.0 % per year, was due and payable in full on December 31, 2021, and was convertible into shares of our common stock at a conversion price of $ 1.25 per share, subject to certain adjustments, on the maturity date of the SVIC Note. Upon our change of control prior to the maturity date of the SVIC Note, the SVIC Note might, at our option, be assumed by the surviving entity or be redeemed upon the consummation of such change of control for the principal and accrued but unpaid interest as of the redemption date. The SVIC Warrant granted SVIC a right to purchase 2,000,000 shares of our common stock at an exercise price of $ 0.30 per share, subject to certain adjustments, was only exercisable in the event we would exercise our right to redeem the SVIC Note prior to its maturity date, and would expire on December 31, 2025. In December 2021, we repaid the full amounts outstanding under the SVIC Note and issued 2,000,000 shares of our common stock upon the exercise of 2,000,000 of our warrants by SVIC for cash proceeds of $ 0.6 million. ​ The SVIC Warrant was valued at $ 1.2 million, based on its relative fair value, and was recorded as a debt discount. We also recorded $ 0.2 million of debt issuance costs as a debt discount for professional services fees rendered in connection with the transaction. These amounts were being amortized to interest expense over the term of the SVIC Note using the interest method. For 2021, we amortized $ 0.2 million, to interest expense in the accompanying consolidated statements of operations. The effective interest rate, including accretion of the SVIC Note to par and amortization of debt issuance costs, was approximately 3.4 %. ​ In connection with the SVIC Note, SVIC was granted a first priority security interest in our patent portfolio and a second priority security interest in all of our other tangible and intangible assets. Upon issuance of the SVIC Note, Netlist, SVB and SVIC entered into an Intercreditor Agreement pursuant to which SVB and SVIC agreed to their relative security interests in our assets. Additionally, upon issuance of the SVIC Note and the SVIC Warrant, Netlist and SVIC entered into a Registration Rights Agreement pursuant to which we were obligated to register with the Securities and Exchange Commission, upon demand by SVIC, the shares of our common stock issuable upon conversion of the SVIC Note or upon exercise of the SVIC Warrant. The SVIC Note subjected us to certain affirmative and negative operating covenants. We made the repayment of $ 16.8 million on December 27, 2021 and SVIC purchased 2,000,000 shares of common stock at an exercise price of $ 0.30 per share on December 28, 2021. As a result, neither the SVIC Note nor the SVIC Warrant remained outstanding as of December 30, 2023 and December 31, 2022. ​ Paycheck Protection Program Loan ​ On April 23, 2020, we entered into an unsecured promissory note with a principal amount of $ 0.6 million through Hanmi Bank under the Paycheck Protection Program (“PPP”) (the “PPP Loan”) administered by the Small Business Administration (“SBA”) and established as part of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The PPP Loan bore interest at 1.0 % per annum and would mature on April 23, 2022 with the first six 63 Table of Contents months of interest and principal payments deferred. The amount borrowed under the PPP Loan was guaranteed by the SBA and was eligible for forgiveness in an amount equal to the sum of the eligible costs, including payroll, benefits, rent and utilities, incurred by us during the 24-week period beginning on the date we received the proceeds. The PPP Loan contained customary events of default, and the occurrence of an event of default might result in a claim for the immediate repayment of all amounts outstanding under the PPP Loan. In May 2021, the full amount outstanding under the PPP Loan was forgiven, resulting in a gain of $ 0.6 million during the second quarter of 2021. ​ Insurance Policy Finance Agreement ​ As of December 30, 2023 and December 31, 2022, we had $ 0 and $ 0.4 million, respectively, 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 on 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. ​ Note 5—Leases ​ We have 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 consolidated cash flow information related to operating and finance leases were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 2021 Lease cost: ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating lease cost ​ $ 772 ​ $ 786 ​ $ 422 Finance lease cost ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortization of right-of-use assets ​ $ 98 ​ $ 67 ​ $ 21 Interest on lease liabilities ​ ​ 9 ​ ​ 11 ​ ​ 3 Total finance lease cost ​ $ 107 ​ $ 78 ​ $ 24 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash paid for amounts included in the measurement of lease liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating cash flows from operating leases ​ $ 684 ​ $ 653 ​ $ 403 Operating cash flows from finance leases ​ ​ 9 ​ ​ 11 ​ ​ 3 Financing cash flows from finance leases ​ ​ 211 ​ ​ 129 ​ ​ 20 Right-of-use assets obtained in exchange for lease obligations: ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating leases ​ $ — ​ $ 588 ​ $ 2,152 Finance leases ​ ​ — ​ ​ 372 ​ ​ 20 Lease modification to increase operating lease assets ​ ​ 187 ​ ​ 204 ​ ​ — 64 Table of Contents ​ Supplemental balance sheet information related to leases was as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 Operating Leases ​ ​ ​ ​ ​ ​ Operating lease right-of-use assets ​ $ 1,590 ​ $ 2,043 Accrued expenses and other current liabilities ​ $ 617 ​ $ 451 Operating lease liabilities ​ ​ 1,213 ​ ​ 1,744 Total operating lease liabilities ​ $ 1,830 ​ $ 2,195 ​ ​ ​ ​ ​ ​ ​ Finance Leases ​ ​ ​ ​ ​ ​ Property and equipment, at cost ​ $ 488 ​ $ 488 Accumulated depreciation ​ ​ ( 219 ) ​ ​ ( 121 ) Property and equipment, net ​ $ 269 ​ $ 367 Accrued expenses and other current liabilities ​ $ 90 ​ $ 211 Other liabilities ​ ​ 7 ​ ​ 96 Total finance lease liabilities ​ $ 97 ​ $ 307 ​ The following table includes supplemental information: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 Weighted Average Remaining Lease Term (in years) ​ ​ ​ ​ ​ ​ Operating leases ​ ​ 2.9 ​ ​ 3.9 Finance leases ​ ​ 0.7 ​ ​ 1.5 ​ ​ ​ ​ ​ ​ ​ Weighted Average Discount Rate ​ ​ ​ ​ ​ ​ Operating leases ​ ​ 5.6 % ​ ​ 5.5 % Finance leases ​ ​ 4.4 % ​ ​ 4.4 % ​ ​ Maturities of lease liabilities as of December 30, 2023 were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating ​ Finance Fiscal Year ​ Leases ​ Leases 2024 ​ $ 702 ​ $ 91 2025 ​ ​ 624 ​ ​ 5 2026 ​ ​ 639 ​ ​ 3 2027 ​ ​ 22 ​ ​ — 2028 ​ ​ — ​ ​ — Total lease payments ​ ​ 1,987 ​ ​ 99 Less: imputed interest ​ ​ ( 157 ) ​ ​ ( 2 ) Total ​ $ 1,830 ​ $ 97 ​ ​ Note 6—Income Taxes ​ United States and foreign income (loss) before provision for income taxes was as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 2021 United States ​ $ ( 59,868 ) ​ $ ( 32,857 ) ​ $ 12,016 Foreign ​ ​ ( 529 ) ​ ​ ( 512 ) ​ ​ ( 558 ) ​ ​ $ ( 60,397 ) ​ $ ( 33,369 ) ​ $ 11,458 ​ 65 Table of Contents The provision for income taxes consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 2021 Current: ​ ​ ​ ​ ​ ​ ​ ​ ​ Federal ​ $ — ​ $ — ​ $ — State ​ ​ 1 ​ ​ 1 ​ ​ 27 Foreign ​ ​ — ​ ​ — ​ ​ 6,600 Total current ​ ​ 1 ​ ​ 1 ​ ​ 6,627 Deferred: ​ ​ ​ ​ ​ ​ ​ ​ ​ Federal ​ ​ ( 12,833 ) ​ ​ ( 7,822 ) ​ ​ ( 1,897 ) State ​ ​ ( 1,189 ) ​ ​ ( 1,006 ) ​ ​ ( 1,913 ) Foreign ​ ​ 4 ​ ​ 17 ​ ​ 15 Change in valuation allowance ​ ​ 14,018 ​ ​ 8,811 ​ ​ 3,795 Total deferred ​ ​ — ​ ​ — ​ ​ — Provision for income taxes ​ $ 1 ​ $ 1 ​ $ 6,627 ​ Income taxes differ from the amounts computed by applying the statutory federal income tax rate of 21 % for 2023, 2022 and 2021. The reconciliation of this difference is as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 2021 Statutory federal income tax rate ​ ​ ( 21 %) ​ ​ ( 21 %) ​ ​ 21 % Foreign withholding taxes ​ ​ —% ​ ​ —% ​ ​ 46 % Excess tax benefits from equity awards ​ ​ —% ​ ​ ( 3 %) ​ ​ ( 27 %) Change in valuation allowance ​ ​ 21 % ​ ​ 24 % ​ ​ 15 % Other ​ ​ —% ​ ​ —% ​ ​ 3 % Effective tax rate ​ ​ —% ​ ​ —% ​ ​ 58 % ​ Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the deferred tax assets and liabilities are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 Deferred tax assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating loss carryforward ​ ​ ​ ​ $ 54,762 ​ $ 42,306 Tax credit carryforwards ​ ​ ​ ​ ​ 5,028 ​ ​ 4,828 Capitalized research and development expenses ​ ​ ​ ​ ​ 3,049 ​ ​ 1,767 Reserves and allowances ​ ​ ​ ​ ​ 1,028 ​ ​ 1,022 Foreign operating loss carryforward ​ ​ ​ ​ ​ 658 ​ ​ 662 Stock-based compensation ​ ​ ​ ​ ​ 806 ​ ​ 784 Other ​ ​ ​ ​ ​ 1,074 ​ ​ 1,470 Total deferred tax assets ​ ​ ​ ​ ​ 66,405 ​ ​ 52,839 Deferred tax liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating lease right-of-use assets ​ ​ ​ ​ ​ ( 365 ) ​ ​ ( 473 ) Prepaid expenses ​ ​ ​ ​ ​ ( 48 ) ​ ​ ( 218 ) Depreciation and amortization ​ ​ ​ ​ ​ ( 124 ) ​ ​ ( 195 ) Total deferred tax liabilities ​ ​ ​ ​ ​ ( 537 ) ​ ​ ( 886 ) Net deferred tax assets ​ ​ ​ ​ ​ 65,868 ​ ​ 51,953 Valuation allowance ​ ​ ​ ​ ​ ( 65,868 ) ​ ​ ( 51,953 ) ​ ​ ​ ​ ​ $ — ​ $ — ​ We evaluate whether a valuation allowance should be established against our deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. In making such judgments, significant weight is given to evidence that can be objectively verified. As of December 30, 2023 and December 31, 2022, a 66 Table of Contents valuation allowance of $ 65.9 million and $ 52.0 million, respectively, has been provided based on our assessment that it is more likely than not that sufficient taxable income will not be generated to realize the tax benefits of the temporary differences. The valuation allowance increased by $ 13.9 million, $ 8.9 million and $ 3.8 million during 2023, 2022, and 2021, respectively. These increases in these years primarily relate to the increases in the net operating loss (“NOL”) carryforward and tax credit carryforwards. ​ As of December 30, 2023, we had $ 219.9 million of federal NOL carryforwards, of which $ 104.2 million will expire from 2029 through 2037, and $ 115.7 million of which will be carried forward indefinitely, and $ 97.1 million of state NOL carryforwards that will expire from 2029 through 2042. We had federal and state tax credit carryforwards of $ 2.7 million and $ 2.3 million, respectively, at December 30, 2023. Federal tax credit carryforwards began to expire in 2023 and state tax credits carryforward indefinitely. In addition, we had $ 0.5 million of NOL in the People’s Republic of China (“PRC”) that expired in 2023, with a remaining amount of $ 2.6 million of NOL carryforward in the PRC at December 30, 2023. Utilization of the NOL and tax credit carryforwards is subject to an annual limitation due to the ownership percentage change limitations provided by Section 382 of the Internal Revenue Code (the “Code”) and similar state and foreign law provisions. Under Section 382 of the Code, substantial changes in our ownership may limit the amount of NOL and tax credit carryforwards that are available to offset taxable income. The annual limitation would not automatically result in the loss of NOL and tax credit carryforwards but may limit the amount available in any given future period. Additional limitations on the use of these tax attributes could occur in the event of possible disputes arising in examination from various taxing authorities. ​ We file income tax returns with federal, state and foreign jurisdictions. We are no longer subject to Internal Revenue Service (“IRS”) or state examinations for periods prior to 2019, although certain carryforward attributes that were generated prior to 2019 may still be adjusted by the IRS. ​ We include interest and penalties related to uncertain tax positions within the provision for income taxes. As of December 30, 2023 and December 31, 2022, the interest or penalties accrued related to unrecognized tax benefits were insignificant, and during 2023, 2022 and 2021, the interest and penalties related to uncertain tax position recorded were insignificant. As of December 30, 2023, we had no unrecognized tax benefits that would significantly change in the next 12 months. ​ 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 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 ​ The Company is, from time to time, a party to litigation that arises in the normal course of its business operations. 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”) and Patent Trial and Appeal Board (“PTAB” or the “Board”). 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. ​ 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 67 Table of Contents future claims, allegations, or 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/or 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 Litigations ​ On December 4, 2009, Netlist filed a patent infringement lawsuit against 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”). The current judge assigned to the case, Hon. 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., 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. v. Samsung Elecs. Co., Ltd. et al. , Case No. 2:22-cv-00293-JRG). ​ On July 26, 2022, Netlist filed patent infringement claims against Google Cloud EMEA Limited, Google Germany GmbH, Redtec Computing GmbH, and Google, seeking damages based on those defendants’ infringement of European Patents EP 2,454,735 (“EP735”) and EP 3,404,660 (“EP660”), which both generally relate to load reduced dual in line memory modules (“LRDIMM”) technologies. 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 April 11, 2024. ​ On October 15, 2021, SECL 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. Co., Ltd., et. al. v. Netlist, Inc. , Case No. 1:21-cv-01453-RGA). 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 Inter Partes Reviews (“IPRs”) and a Ninth Circuit appeal, in effect staying claims with respect to Netlist’s U.S. Patent Nos. 9,858,218 (the “‘218 Patent”) and 10,474,595 (the “‘595 Patent”), while allowing claims under Netlist’s U.S. Patent No. 10,217,523 (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. On December 1, 2023, the Court entered an Oral Order staying the matter until the development of any action by any other court pertaining to Samsung’s and Netlist’s rights under the JDLA that may merit lifting the stay. ​ Micron Litigations ​ On April 28, 2021, Netlist filed a complaint for patent infringement against Micron in the U.S. District Court for the Western District of Texas, Waco Division (“WDTX”) (Case No. 6:21-cv00431 & Case No. 6:21-cv-00430). These proceedings are based on the alleged infringement by Micron’s LRDIMM and Micron’s non-volatile dual in line memory modules (“NVDIMM”) enterprise memory modules under four U.S. patents – U.S. Patent Nos. 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 consolidated case was assigned to Hon. Judge Lee Yeakel (new Case No. 1:22-cv-00134, and 1:22-cv-00136), and the parties have completed briefing on their claim construction arguments. On May 11, 2022, Judge Yeakel entered a stay of the case pending the resolution of Micron’s requested IPR proceedings against the four patents asserted by Netlist in these consolidated cases (the ‘833, ‘035, ‘608, and ‘314 Patents). On May 4, 2023, the consolidated cases were reassigned to Docket II in the WDTX Austin Division, given Hon. Judge Yeakel’s retirement. As of the reporting date, the parties have filed a status report with Austin District Court Judge Robert Pitman, and the matter remains assigned to Judicial Docket II pending reassignment to an Article III Judge. 68 Table of Contents ​ As noted above, Micron filed requests to bring IPR proceedings against Netlist’s ‘314, ‘035, ‘608, and ‘833 Patents. The PTAB granted Micron’s request for the ‘035, ‘833, and ‘314 Patents, but denied its request for instituting an IPR trial 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 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 December 29, 2023, Micron filed a Notice of Appeal for the ‘314 Patent IPR decisions, indicating its intent to challenge the PTAB’s validity findings at the United States Court of Appeals for the Federal Circuit. As of the reporting date, Micron has not yet submitted its opening appeal brief. ​ 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. On June 24, 2022, Netlist requested injunctive relief. Micron initiated a nullity proceeding against the asserted EP patents in this action, making Netlist’s response to the same as November 19, 2022. 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. 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. 2:22-cv-00203-JRG-RSP). These proceedings are based on the alleged infringement by Micron for the sale of its LRDIMMs, its memory modules utilizing on-board power management (“PMIC”), and its high bandwidth memory (“HBM”) components, under six U.S. Netlist patents: U.S. Patent Nos. 8,787,060 (the “‘060 Patent”), 9,318,160 (the “‘160 Patent), 10,860,506 (the “‘506 Patent”), 10,949,339 (the “‘339 Patent”), 11,016,918 (the “‘918 Patent”), and 11,232,054 (the “‘054 Patent”). The claim construction hearing took place before Hon. 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 was initially scheduled to begin on January 22, 2024, but as of the reporting date the Court has stayed the matter pending the outcome of the ‘060 and ‘160 Patent IPRs. ​ On August 1, 2022, Netlist filed a complaint for patent infringement against Micron in the EDTX (Case No. 2:22-cv-00294) under the ‘912 Patent, for Micron’s alleged infringement by the sale of its LRDIMMs and RDIMMs. On August 15, 2022, Netlist filed its first amended complaint, further addressing Micron’s infringement of U.S. Patent Nos. 9,858,215 (the “‘215 Patent”) and 11,093,417 (the “‘417 Patent”). On October 21, 2022, Hon. 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. The claim construction hearing was advanced and took place before Hon. Chief Judge Gilstrap on September 26, 2023. On November 21, 2023, the Court entered its Claim Construction Order. As of the reporting date, the consolidated case is set for a final pretrial conference on March 6, 2024, with jury trial beginning on April 22, 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). As of the reporting date, Micron’s ‘912, ‘339, and ‘506 Patent IPRs have been joined with the corresponding Samsung IPR proceedings for the same respective patents. Oral hearings for the joined Samsung ‘339 and ‘506 Patents IPRs were held on July 19, 2023 and July 20, 2023, respectively. 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. Netlist filed Requests for Rehearing of the ‘506 and ‘339 Patent IPRs final written decisions on November 16, 2023 and November 17, 2023, respectively. On December 20, 2023, the Board denied Netlist’s Request for Rehearing on the ‘506 Patent IPR result. As of the reporting date, Netlist has filed a Notice of Appeal challenging the Board’s final written decision for the ‘506 Patent, and the PTAB denied Netlist’s Request for Rehearing on the ‘339 Patent IPR result. On January 31, 2024, an oral hearing was conducted for the Samsung ‘912 69 Table of Contents Patent IPR proceeding joined by Micron. As of the reporting date, the PTAB has not yet entered its final written decision for the ‘912 Patent IPR. ​ 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. On September 5, 2023, oral hearings for the ‘918 and ‘054 Patent IPRs were held. On December 5, 2023 and December 6, 2023, the PTAB entered final written decisions for the ‘918 and ‘054 Patent IPRs, respectively, finding in both instances that all challenged claims were unpatentable. On January 5, 2024 and January 6, 2024, Netlist filed requests for USPTO Director Review of the ‘918 and ‘054 Patents final written decisions, respectively. As of the reporting date, the PTAB and USPTO has not responded to Netlist’s requests. ​ 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). On October 26, 2023, the PTAB instituted the Micron ‘060 and ‘160 Patent IPRs and joined them with the earlier-filed ‘060 and ‘160 Patent IPRs. An oral hearing was held on January 11, 2024, and as of the reporting date the PTAB has not issued its final written decisions. ​ On July 28, 2023, Micron filed two IPR petitions contesting the validity of the ‘215 and ‘417 Patents. On January 3, 2024, the PTAB granted institution and joinder to Samsung’s earlier-filed IPRs for the same two patents. ​ On December 11, 2023, Micron filed a complaint in the District Court for the Fourth Judicial District of the State of Idaho alleging Netlist violated Idaho Code § 48-1703 through its assertion of the ‘833 Patent in the WDTX (hereafter the “First Idaho Complaint”). Netlist removed the matter from State Court to the Federal District Court for the District of Idaho on January 2, 2024. On January 18, 2024, the matter was assigned to Judge David C. Nye for all proceedings. On February 7, 2024, Netlist moved to dismiss Micron’s First Idaho Complaint, and on February 8, 2024 responded to a motion from Micron to remand the matter back to Idaho State Court. Micron’s reply in support of its remand motion is due February 22, 2024, and its response to Netlist’s Motion to Dismiss the case is due February 28, 2024. ​ On December 22, 2023, Netlist filed a Declaratory Judgment action in the Federal District Court for the EDTX, Marshall Division, seeking confirmation from the Court that Netlist has not made a bad-faith assertion of patent infringement against Micron. On January 19, 2024, Micron filed a Motion to Dismiss. On February 7, 2024, Netlist amended its complaint, which set Micron’s responsive pleading to be due February 21, 2024. The Court has set a scheduling conference for this matter on March 25, 2024. ​ On January 16, 2024, Micron filed a second complaint in the District Court for the Fourth Judicial District of the State of Idaho alleging Netlist violated Idaho Code § 48-1703, this time for Netlist’s assertion of the ‘918 and ‘054 Patents in the EDTX. As of the reporting date, Netlist removed the matter from State Court to the Federal District Court for the District of Idaho. ​ Samsung Litigations ​ On May 28, 2020, Netlist filed a complaint against Samsung in the U.S. 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 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. On August 4, 2022, Netlist filed a cross-appeal seeking the Appeal Court’s reconsideration of the District Court’s finding that the fees Netlist paid to PwC were consequential damages, rather than recoverable general damages. On June 8, 2023, the Ninth Circuit Court of Appeals heard oral arguments from both parties on the matter following completion of all briefing. On October 17, 2023, the Ninth Circuit panel issued an 70 Table of Contents 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, whereupon the Court issued an Order reopening the case as of November 13, 2023. After collecting a joint statement of the case from the parties, the Court ordered the parties to rebrief the remaining issues in the summary judgment proceedings based only on the existing record. On February 5, 2024, the Court held a hearing on the remaining summary judgment issues, and on February 6, 2024 issued an Order denying all of the parties’ various pending motions. In the same Order, the Court set the matter for a jury trial to begin on March 26, 2024, with a final pretrial conference set for March 18, 2024. ​ On October 15, 2021, Samsung initiated a declaratory judgement action against Netlist in the DDE ( Samsung Elecs. Co., Ltd., et. al. v. Netlist, Inc. , Case No. 1:21-cv-01453-RGA), where it requested in relevant part that the DDE declare that Samsung does not infringe the ‘218, ‘523, ‘595, ‘506, ‘339, ‘912 and ‘918 Patents, while later seeking leave to add the ‘054 Patent (issued Jan. 25, 2022) to its action. On August 1, 2022, Hon. 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 Patent claims in Delaware. 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. 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. On December 1, 2023, the Court entered an Oral Order staying the matter entirely until the development of any action by any other court pertaining to Samsung’s and Netlist’s rights under the JDLA that may merit lifting the stay. ​ On November 19, 2021, Samsung filed IPR requests contesting the validity of the ‘218, ‘595, and ‘523 Patents. Netlist filed its initial responses to Samsung’s IPR petitions on February 18, 2022, contesting the institution of any IPR on the grounds propounded. On May 3, 2023, the PTAB issued a final written decision finding all of the claims of the ‘523 Patent valid and patentable, while on May 8, 2023 and May 9, 2023, it found all of the claims of the ‘218 and ‘595 Patents, respectively, unpatentable. ​ On December 20, 2021, Netlist filed a complaint for patent infringement against Samsung in the EDTX (Case No. 2:21-cv-00463-JRG) under the ‘506, ‘339, and ‘918 Patents. On May 3, 2022, Netlist entered a First Amended Complaint pursuant to the Federal Rules of Civil Procedure (“FRCP”) Rule 15, adding claims for infringement under three additional patents: the ‘060, ‘160, and ‘054 Patents. The ‘506, ‘339, ‘918, ‘060, ‘160, and ‘054 Patents are hereafter collectively referred to as the “EDTX1 Patents.” Netlist brought claims under the ‘339, ‘918, ‘054, ‘060, and ‘160 Patents in its Jury Trial, which concluded on April 21, 2023, with the entry of the jury’s verdict into the public record. The jury unanimously found that Samsung willfully infringed Netlist’s ‘339, ‘918, ‘054, ‘060, and ‘160 Patents through the sale of their DDR4 LRDIMMs, DDR5 DIMMs, and HBMs, and that none of the patent claims asserted at trial were invalid. The jury awarded Netlist, Inc. 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. 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 have briefed all of the post-judgment motions, and as of the reporting date the Court has not yet entered its final order. Additionally, as of the reporting date, all of the EDTX1 Patents are either subject to IPR final written decisions, or an IPR trial. The outcome of each of the IPR proceedings related to each of the EDTX1 Patents may affect the underlying collectability of the jury award in this matter. ​ On February 17, 2022, Samsung filed an IPR request contesting the validity of only claim 16 within the ‘912 Patent. Samsung then filed two additional IPR requests contesting the validity of the ‘506 and ‘339 Patents. Netlist filed its Patent Owner’s Preliminary Response for the ‘912 and ‘339 Patent IPRs on July 21, 2022, and for the ‘506 Patent IPR 71 Table of Contents on July 28, 2022. On January 19, 2023, the PTAB instituted IPR trials on both the ‘912 and ‘339 Patents. The following day, the PTAB instituted an IPR trial on the ‘506 Patent. On October 19, 2022, the PTAB instituted IPR trials on the ‘912 and ‘339 Patents, while two days later it instituted an IPR trial on the ’506 Patent. On January 5, 2023, USPTO Director Katherine K. Vidal entered an Order in the ‘912 Patent proceeding mandating a sua sponte Director review of the Board’s decision granting institution of the ‘912 Patent and staying the underlying proceedings in lieu of a supplemental briefing schedule set by the Director herself. 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. 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. Netlist filed Requests for Rehearing of the ‘506 and ‘339 Patent IPR final written decisions on November 16, 2023 and November 17, 2023, respectively. On December 20, 2023, the Board denied Netlist’s Request for Rehearing on the ‘506 Patent IPR result. As of the reporting date, Netlist has filed a Notice of Appeal challenging the Board’s final written decision for the ‘506 Patent, and the PTAB denied Netlist’s Request for Rehearing on the ‘339 Patent IPR result. On January 31, 2024, an oral hearing was conducted for the Samsung ‘912 Patent IPR proceeding joined by Micron. As of the reporting date, the PTAB has not yet entered its final written decision for the ‘912 Patent IPR. ​ 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. Micron has joined these Samsung IPRs on the ‘918 and ‘054 Patents, and oral arguments were heard on September 7, 2023. On December 5, 2023 and December 6, 2023, the PTAB entered final written decisions for the ‘918 and ‘054 Patent IPRs, respectively, finding in both instances that all challenged claims were unpatentable. On January 5, 2024 and January 6, 2024, Netlist filed requests for USPTO Director Review of the ‘918 and ‘054 Patents, respectively, final written decisions. As of the reporting date, the PTAB and USPTO have not responded to Netlist’s requests for rehearing on these IPR final written decisions. ​ 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. 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 EP735 and EP660. As of the reporting date, the German Federal Patent Court’s oral hearing on EP735 is set in March 2024, while the hearing on EP660 is set for July 2024. ​ On August 1, 2022, Netlist filed a complaint for patent infringement against Samsung in the EDTX (Case No. 2:22-cv-00293) under the ‘912 Patent, which relates generally to technologies to implement rank multiplication. On August 15, 2022, Netlist filed its first amended complaint here, further addressing Samsung’s infringement of the ‘215 and ‘417 Patents. On October 21, 2022, Hon. 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. The claim construction hearing was advanced and took place before Hon. Chief Judge Gilstrap on September 26, 2023. On November 21, 2023, the Court entered its Claim Construction Order. As of the reporting date, the consolidated case has a docket control order listing the final pretrial conference on March 6, 2024, with jury trial beginning on April 22, 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. An oral hearing was held on January 11, 2024, and as of the reporting date the PTAB has not issued its final written decisions. ​ 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 72 Table of Contents the May 9, 2023 deadline. 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 January 3, 3024, the PTAB joined the later-filed and substantially-identical Micron IPRs for the ‘215 and ‘417 Patents to Samsung’s IPRs. As of the reporting date, Netlist has filed its Patent Owner Response, and awaits further briefing by Petitioner Samsung. ​ 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. On December 12, 2023, the PTAB instituted an IPR trial for the ‘608 Patent, despite having previously denied institution from Micron’s earlier-filed IPR petition of the same Patent. On December 26, 2023, Netlist filed a request for review of the institution decision by the Director of the USPTO. As of the reporting date, the PTAB and USPTO Director have denied Netlist’s requests. Netlist’s deadline to file a Patent Owner’s Response is currently set for March 29, 2024. ​ On October 9, 2023, Samsung initiated a second declaratory judgement action against Netlist in the DDE ( Samsung Elecs. Co., Ltd., et. al. v. Netlist, Inc. , Case No. 1:23-cv-01122-RGA), where it requested in relevant part that the DDE declare that Samsung does not infringe Netlist’s U.S. Patent No. 11,386,024 (the “‘024 Patent”) and that Netlist allegedly breached its contractual obligations to the Joint Electron Device Engineering Council and thus harmed Samsung as a third-party beneficiary. Netlist filed a motion to dismiss the action on November 6, 2023. As of the reporting date, the parties have completed briefing on Netlist’s motion and the Court has yet to enter an order. ​ 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 may 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 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; and (vi) indemnities or other claims related to certain real estate leases, under which we may be required to indemnify property 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 ​ Our 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 December 30, 2023 or December 31, 2022. ​ On April 17, 2017, we 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, our board of directors authorized and declared a dividend of one right (each, a “Right”) for each outstanding share of our 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 our common stock issued by us (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 us, when exercisable and subject to adjustment, one unit consisting of one one -thousandth of a share (a “Unit”) of our 73 Table of Contents Series A Preferred Stock (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 our common stock, and (ii) 10 business days (or such later date as may be determined by our 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 us 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, our board of directors approved a Certificate of Designation of the Series A Preferred Stock (the “Certificate of Designation”) designating 1,000,000 shares of our serial preferred stock as Series A Preferred Stock and setting forth the rights, preferences and limitations of the Preferred Stock. We filed the Certificate of Designation with the Secretary of State of the State of Delaware on April 17, 2017. ​ Common Stock ​ We have one class of common stock with a par value of $ 0.001 per share. The number of shares of the common stock authorized for issuance is 450,000,000 . ​ 2019 Lincoln Park Purchase Agreement ​ On June 24, 2019, we entered into a purchase agreement (“the 2019 Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which we have the right to sell to Lincoln Park up to an aggregate of $ 10 million in shares of our common stock subject to the conditions and limitations set forth in the 2019 Purchase Agreement. As consideration for entering into the 2019 Purchase Agreement, we issued to Lincoln Park 818,420 shares of our common stock as initial commitment shares in a noncash transaction on June 24, 2019 and would issue up to 818,420 additional shares of our common stock as additional commitment shares on a pro rata basis in connection with any additional purchases. We would not receive any cash proceeds from the issuance of these additional commitment shares. ​ During 2021, Lincoln Park purchased an aggregate of 2,075,503 shares of our common stock for a net purchase price of $ 3.6 million under the 2019 Purchase Agreement. In connection with the purchases, during 2021, we issued to Lincoln Park an aggregate of 294,787 shares of our common stock as additional commitment shares in noncash transactions. In July 2021, we completed the sales under the 2019 Purchase Agreement. ​ 2020 Lincoln Park Purchase Agreement ​ On March 5, 2020, we entered into another purchase agreement (“the 2020 Purchase Agreement”) with Lincoln Park, pursuant to which we had the right to sell to Lincoln Park up to an aggregate of $ 20 million in shares of our common stock over the 36 -month term of the 2020 Purchase Agreement subject to the conditions and limitations set forth in the 2020 Purchase Agreement. As consideration for entering into the 2020 Purchase Agreement, we issued to Lincoln Park 1,529,052 shares of our common stock as initial commitment shares in a noncash transaction on March 6, 2020 and would issue up to 917,431 additional shares of our common stock as additional commitment shares on a pro rata basis in connection with any additional purchases. We would not receive any cash proceeds from the issuance of these additional commitment shares. ​ During 2021, Lincoln Park purchased an aggregate of 9,544,595 shares of our common stock for a net purchase price of $ 7.8 million under the 2020 Purchase Agreement. In connection with the purchases, during 2021, we issued to Lincoln Park an aggregate of 356,843 shares of our common stock as additional commitment shares in noncash transactions. In February 2021, we completed the sales under the 2020 Purchase Agreement. ​ ​ ​ 74 Table of Contents ​ July 2021 Lincoln Park Purchase Agreement ​ On July 12, 2021, we entered into a purchase agreement (the “July 2021 Purchase Agreement”) with Lincoln Park, pursuant to which we have the right to sell to Lincoln Park up to an aggregate of $ 17.4 million in shares of our common stock subject to the conditions and limitations set forth in the July 2021 Purchase Agreement. As consideration for entering into the July 2021 Purchase Agreement, we issued to Lincoln Park 80,000 shares of our common stock as initial commitment shares in a noncash transaction on July 12, 2021 and would issue up to 120,500 additional shares of our common stock as additional commitment shares on a pro rata basis in connection with any additional purchases. We would not receive any cash proceeds from the issuance of these additional commitment shares. ​ During 2021, Lincoln Park purchased an aggregate of 2,383,748 shares of our common stock for a net purchase price of $ 17.4 million under the July 2021 Purchase Agreement. In connection with the purchases, during 2021, we issued to Lincoln Park an aggregate of 120,500 shares of our common stock as additional commitment shares in noncash transactions. In October 2021, we completed the sales under the July 2021 Purchase Agreement. ​ September 2021 Lincoln Park Purchase Agreement ​ On September 28, 2021, we entered into a purchase agreement (the “September 2021 Purchase Agreement”) with Lincoln Park, pursuant to which we have the right to sell to Lincoln Park up to an aggregate of $ 75 million in shares of our 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, we also entered into a registration rights agreement with Lincoln Park relating to our common stock to be sold to Lincoln Park. As consideration for entering into the September 2021 Purchase Agreement, we issued to Lincoln Park 218,750 shares of our common stock as initial commitment shares in a noncash transaction on September 28, 2021 and will issue up to 143,750 additional shares of our common stock as additional commitment shares on a pro rata basis in connection with any additional purchases. We 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, we have the right, from time to time, at our sole discretion and subject to certain conditions, to direct Lincoln Park to purchase up to 750,000 shares of our common stock, provided Lincoln Park’s obligation under any single such purchase will not exceed $ 4.0 million, unless we and Lincoln Park mutually agree to increase the maximum amount of such single regular purchase. If we direct Lincoln Park to purchase the maximum number of shares of common stock we 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, we 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 our 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, we may direct Lincoln Park to purchase shares in multiple accelerated purchases on the same trading day. ​ We control the timing and amount of any sales of our common stock to Lincoln Park. There is no upper limit on the price per share that Lincoln Park must pay for our 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, we may not sell shares of our 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 our common stock. ​ The September 2021 Purchase Agreement does not limit our ability to raise capital from other sources at our sole discretion, except that, subject to certain exceptions, we 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 75 Table of Contents priced equity-like securities) during the 36 months after the date of the September 2021 Purchase Agreement. We have the right to terminate the September 2021 Purchase Agreement at any time and at no cost to us. ​ 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 2022, Lincoln Park purchased an aggregate of 1,050,000 shares of our common stock for a net purchase price of $ 4.4 million under the September 2021 Purchase Agreement. 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 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. ​ Subsequently, from December 31, 2023 through February 19, 2024, Lincoln Park purchased an aggregate of 1,235,000 shares of our common stock for a net purchase price of $ 2.1 million under the September 2021 Purchase Agreement. In connection with the purchases, we issued to Lincoln Park an aggregate of 4,068 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, 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. ​ 76 Table of Contents Warrants ​ Warrant activity during 2023, 2022, and 2021 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ Number of ​ Average ​ ​ Shares ​ Exercise ​ (in thousands) Price Outstanding as of January 2, 2021 ​ ​ 13,911 ​ $ 0.59 Granted ​ ​ — ​ ​ — Exercised ​ ​ ( 13,911 ) ​ ​ 0.59 Expired ​ ​ — ​ ​ — Outstanding as of January 1, 2022 ​ ​ — ​ ​ — Granted ​ ​ — ​ ​ — Exercised ​ ​ — ​ ​ — Expired ​ ​ — ​ ​ — Outstanding as of December 31, 2022 ​ ​ — ​ ​ — Granted ​ ​ 11,111 ​ ​ 3.20 Exercised ​ ​ — ​ ​ — Expired ​ ​ — ​ ​ — Outstanding as of December 30, 2023 ​ ​ 11,111 ​ $ 3.20 ​ During 2021, we issued (i) 13,111,110 shares of our common stock upon the exercise of 13,111,110 of our warrants for total cash proceeds of $ 7.9 million and (ii) 697,387 shares of our common stock upon the cashless exercise of 800,000 of our warrants. During 2023, in connection with the 2023 Offering, we issued warrants to purchase up to 11,111,112 shares of our common stock with an exercise price of $ 3.20 . ​ ​ Note 9—Benefit Plans ​ Equity Incentive Plan ​ Our Amended and Restated 2006 Equity Incentive Plan (the “Amended 2006 Plan”) provides for broad-based equity grants to our employees and non-employee service providers. We also periodically grant equity-based awards outside the Amended 2006 Plan to certain new hires as an inducement to enter into employment with us. Subject to certain adjustments, as of December 30, 2023, we were authorized to issue a maximum of 18,605,566 shares of our common stock pursuant to awards granted under the Amended 2006 Plan. Pursuant to the terms of the Amended 2006 Plan, beginning January 1, 2017, the automatic annual increase to the number of shares of common stock that may be issued pursuant to awards granted under the Amended 2006 Plan is equal to the lesser of (i) 2.5 % of the number of shares of our common stock issued and outstanding as of the first day of the applicable calendar year, and (ii) 1,200,000 shares of our common stock, subject to adjustment for certain corporate actions. As of December 30, 2023, we had 226,174 shares of our common stock available for issuance pursuant to future awards to be granted under the Amended 2006 Plan. ​ 77 Table of Contents Stock Options ​ 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 date of grant. The weighted-average assumptions used in the Black-Scholes option pricing model and the resulting weighted-average grant date fair value of stock options granted were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 ​ 2021 ​ Expected term (in years) ​ ​ — ​ ​ — ​ ​ 6.06 ​ Expected volatility ​ ​ — % ​ — % ​ 121 % Risk-free interest rate ​ ​ — % ​ — % ​ 0.64 % Expected dividends ​ $ — ​ $ — ​ $ — ​ Weighted-average grant date fair value per share ​ $ — ​ $ — ​ $ 0.87 ​ ​ The following table summarizes the activity related to stock options during 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ Remaining ​ Aggregate ​ ​ ​ Number of ​ Average ​ Contractual ​ Intrinsic ​ ​ ​ Shares ​ Exercise ​ Life ​ Value ​ ​ (in thousands) Price (in years) (in thousands) ​ Outstanding as of December 31, 2022 ​ ​ 4,866 ​ $ 0.93 ​ ​ 5.11 ​ $ 1,836 ​ Granted ​ ​ - ​ $ - ​ ​ ​ ​ ​ ​ ​ Exercised ​ ​ ( 661 ) ​ $ 0.80 ​ ​ ​ ​ ​ ​ ​ Expired or forfeited ​ ​ ( 166 ) ​ $ 2.03 ​ ​ ​ ​ ​ ​ ​ Outstanding as of December 30, 2023 ​ ​ 4,039 ​ $ 0.90 ​ ​ 4.44 ​ $ 4,038 ​ Exercisable as of December 30, 2023 ​ ​ 3,414 ​ $ 0.92 ​ ​ 3.96 ​ $ 3,354 ​ Vested and expected to vest as of December 30, 2023 ​ ​ 4,013 ​ $ 0.90 ​ ​ 4.42 ​ $ 4,012 ​ ​ The total intrinsic value of stock options exercised during 2023, 2022 and 2021 was $ 1.1 million, $ 1.5 million and $ 10.8 million, respectively. ​ Restricted Stock Units ​ RSUs granted for employees and consultants generally vest semi-annually from the grant date over a four -year term and RSUs granted for independent directors fully-vested on the grant date. The following table summarizes the activity related to RSUs during 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ ​ Average ​ ​ Number of ​ Grant-Date ​ ​ Shares ​ Fair Value ​ (in thousands) per Share Balance nonvested as of December 31, 2022 ​ ​ 3,442 ​ $ 3.36 Granted ​ ​ 1,816 ​ $ 3.10 Vested ​ ​ ( 1,354 ) ​ $ 2.50 Forfeited ​ ​ ( 301 ) ​ $ 4.08 Balance nonvested as of December 30, 2023 ​ ​ 3,603 ​ $ 3.49 ​ 78 Table of Contents Stock-Based Compensation ​ The following table summarizes the stock-based compensation expense by line item in the consolidated statements of operations (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 ​ 2021 ​ Cost of sales ​ $ 110 ​ $ 63 ​ $ 12 ​ Research and development ​ ​ 875 ​ ​ 903 ​ ​ 570 ​ Selling, general and administrative ​ ​ 3,352 ​ ​ 2,248 ​ ​ 998 ​ Total ​ $ 4,337 ​ $ 3,214 ​ $ 1,580 ​ ​ As of December 30, 2023, we had approximately $ 9.7 million, net of estimated forfeitures, of unearned stock-based compensation, which we expect to recognize over a weighted-average period of approximately 2.5 years. ​ 401(k) Plan ​ We have a defined contribution plan under Section 401(k) of the Code (“401(k)”) covering full-time domestic employees who meet certain eligibility requirements. Under the 401(k) plan, eligible employees may contribute up to 100% of their eligible compensation on either a pre-tax or after-tax Roth 401(k) basis, or up to the annual maximum allowed by the IRS. We may make matching contributions on the contributions of a participant on a discretionary basis. During 2023, 2022 and 2021, our matching contributions totaled $ 0.1 million, $ 0.1 million and $ 0.1 million, respectively. ​ ​ Note 10—Major Customers, Suppliers and Products ​ Our net product sales have historically been concentrated in a small number of customers. The following table sets forth the percentage of net product sales made to customers that each comprise 10% or more of total net product sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 ​ 2021 Customer A ​ 30 % ​ 39 % ​ 16 % Customer B ​ 12 % ​ 14 % ​ * ​ * Less than 10 % of total net product sales ​ As of December 30, 2023, two customers represented approximately 60 % and 10 %, respectively, of aggregate gross accounts receivable. As of December 31, 2022, one customer represented approximately 69 % of aggregate gross accounts receivable. The loss of any of our significant customers or a reduction in sales to or difficulties collecting payments from any of these customers could significantly reduce our net product sales and adversely affect our operating results. We mitigate risks associated with foreign receivables by purchasing comprehensive foreign credit insurance. We resell 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 2023, 2022 and 2021, resales of these products represented approximately 85 %, 84 % and 79 %, respectively, of our net product sales. ​ Our purchases are typically concentrated in a small number of suppliers. The following table shows the percentage of purchases made from suppliers that each comprise 10% or more of total purchases: ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 ​ 2021 Supplier A ​ * ​ * ​ 40 % Supplier B ​ 75 % ​ 73 % ​ 30 % Supplier C ​ * ​ 11 % ​ 10 % * Less than 10 % of purchases during the year 79 Table of Contents ​ While we believe alternative suppliers may be available, our dependence on a small number of suppliers and the lack of any guaranteed sources for the essential components of our products and the components we resell exposes us to several risks, including the inability to obtain an adequate supply of these components, increases in their costs, delivery delays and poor quality. If we cannot obtain these components in the amounts needed on a timely basis and at commercially reasonable prices, we may not be able to develop or introduce new products, we may experience significant increases in our cost of sales if we are forced to procure components from alternative suppliers and are not able to negotiate favorable terms with these suppliers, we may experience interruptions or failures in the delivery of our products, or we may be forced to cease sales of products dependent on the components or resales of the components we resell to customers directly. Any of these events could have a material adverse effect on our business, operating results and financial condition. ​ ​ ​ 80 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ​ To the Stockholders and Sole Member of the Board of Directors Netlist, Inc. ​ Opinion on the Financial Statements ​ We have audited the accompanying consolidated balance sheets of Netlist, Inc. and subsidiaries (the “Company”) as of December 30, 2023 and December 31, 2022, the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 30, 2023, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 30, 2023 and December 31, 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 30, 2023, in conformity with accounting principles generally accepted in the United States of America. ​ We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 30, 2023, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 23, 2024 expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting. ​ Basis for Opinion ​ These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. ​ We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. ​ Critical Audit Matter ​ The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the sole member of the board of directors and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. ​ ​ ​ ​ ​ ​ 81 Table of Contents Inventory Valuation ​ Critical Audit Matter Description ​ As described in Note 1 to the consolidated financial statements, inventories are valued at the lower of cost or the net realizable value. Management evaluates inventory balances for excess quantities and obsolescence on a regular basis by analyzing estimated demand, inventory on hand, sales levels and other information. ​ Auditing management’s assessment of net realizable value for inventory was challenging because the determination of lower of cost or net realizable value and excess and obsolete inventory reserves is judgmental and considers a number of factors that are affected by market and economic conditions, such as forecasted product demand, dynamic pricing environments, product life cycles and industry supply and demand. Additionally, for certain newer products there is limited historical data with which to evaluate forecasts. ​ How the Critical Audit Matter Was Addressed in the Audit ​ We tested the effectiveness of internal controls related to management’s process for developing the estimates of the net realizable value of inventories and excess and obsolete inventory reserves, including evaluating management’s assumptions of forecasted product demand and testing the completeness and accuracy of the underlying data used in the analyses. Evaluating management’s product demand forecast for reasonableness involved considering historical sales by product, comparing prior period estimates to actual results of the same period, and considering macroeconomic trends within the industry that could impact the movement of the products provided by the Company. We performed procedures to compare recent sales transactions or market data to cost of inventories in order to assess that the carrying value of inventories was the lower of cost or net realizable value. ​ ​ ​ /s/ KMJ Corbin & Company LLP ​ We have served as the Company's auditor since 2005. ​ Irvine, California February 23, 2024 ​ 82 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ​ To the Stockholders and Sole Member of the Board of Directors Netlist, Inc. ​ Opinion on Internal Control over Financial Reporting ​ We have audited the internal control over financial reporting of Netlist, Inc. and subsidiaries (the “Company”) as of December 30, 2023, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, because of the effect of the material weakness, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 30, 2023, based on the COSO criteria. ​ We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements of the Company as of December 30, 2023 and December 31, 2022, the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 30, 2023, and the related notes and the schedule listed in the Index at Item 15 (collectively, “the consolidated financial statements”) , and our report dated February 23, 2024 expressed an unqualified opinion on those consolidated financial statements. ​ A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment: ​ ● The Company’s sole member of the board of directors also serves in an executive management role at the Company. As a result, the Company has ineffective oversight of the financial reporting process due to the lack of an audit committee and the lack of an independent board of directors to ensure adequate monitoring and oversight of internal controls. Additionally, the Company did not have effective monitoring as it did not implement effective monitoring controls that were responsive to changes in the business. ​ The material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the fiscal year 2023 consolidated financial statements, and this report does not affect our report on those consolidated financial statements. ​ Basis for Opinion ​ The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. ​ We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. ​ ​ ​ ​ 83 Table of Contents Definition and Limitations of Internal Control over Financial Reporting ​ A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. ​ Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. ​ ​ ​ /s/ KMJ Corbin & Company LLP ​ We have served as the Company's auditor since 2005. ​ Irvine, California February 23, 2024 ​ ​ ​ ​ 84 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ​ None. ​