What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-28 compared with 2024-02-23 · 71 added, 61 removed, 110 unchanged (55% of the section changed)

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The following discussion should be read in conjunction with our consolidated financial statements and accompanying notes included in Item 8 of this Form 10-K.

This section of this Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.

Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 are not included in this Form 10-K and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

This discussion and analysis contain forward looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of this annual report on Form 10-K.

Actual results may differ materially from those contained in any forward-looking statements.

For a discussion on forward-looking statements, see the information set forth in the introductory note to this annual report on Form 10-K under the caption “Cautionary Note About Forward-Looking Statements,” which information is incorporated herein by reference .

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.

Our fiscal year 2024 ended on December 28, 2024 and fiscal year 2023 ended on December 30, 2023.

All fiscal years presented in this Form 10-K included 52 weeks.

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Unless otherwise stated, all information presented herein is based on our fiscal calendar, and references to particular years, quarters, months or periods refer to our fiscal years ended in January or December and the associated quarters, months and periods of those fiscal years.

Netlist 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.

We are a leading innovator in advanced memory and storage solutions, pushing the boundaries of technology to deliver unparalleled performance and reliability.

With a rich portfolio of patented technologies, we have consistently driven innovation in the field of cutting-edge enterprise memory and storage, advancing AI and empowering businesses and industries to thrive in the digital age.

Economic Conditions, Challenges and Risks

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See the discussion of certain risks that we face under “Risk Factors” in Item 1A of this report.

In recent periods, there has been a significant increase in worldwide supply of semiconductor memory and storage that has led to declines in demand and average selling prices for our products, which could materially and adversely affect our business, results of operations, or financial condition.

Our suppliers generally seek to increase wafer output, improve yields, and reduce die size, which could result in further increases in worldwide supply and downward pressure on prices.

Recent Development

On March 13, 2025, we entered into the March 2025 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 March 2025 Purchase Agreement.

Concurrent with the execution of the March 2025 Purchase Agreement, we also entered into a registration rights agreement with Lincoln Park relating to the common stock to be sold to Lincoln Park.

As consideration for entering into the March 2025 Purchase Agreement, we issued to Lincoln Park 1,123,023 shares of our common stock as initial commitment shares in a noncash transaction on March 13, 2025 and will issue up to 1,123,023 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.

These issuances of our common stock were registered pursuant to a prospectus supplement to our existing Registration Statement on Form S-3 originally declared effective by the SEC on August 14, 2024.

Subsequently, from March 14, 2025 through March 21, 2025, Lincoln Park purchased an aggregate of 460,000 shares of our common stock for a net purchase price of $0.5 million under the March 2025 Purchase Agreement.

In connection with the purchase, we issued to Lincoln Park an aggregate of 866 shares of our common stock as additional commitment shares in noncash transactions.

Fiscal Year Highlights

2023 SVB Credit Agreement

On November 7, 2023, we entered into a loan and security agreement (the “2023 SVB Credit Agreement”) with 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 Wall Street Journal prime rate (“Prime Rate”).

The maturity date is November 7, 2025.

2023 Offering

On August 14, 2023, we entered into a Securities Purchase Agreement (the “2023 Purchase Agreement”) with certain investors, pursuant to which we 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 us from the 2023 Offering were approximately $28.6 million, after deducting placement agent fees and offering costs paid by us.

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.

On August 14, 2023 and in connection with the 2023 Offering, we entered into a Placement Agency Agreement (the “Placement Agreement”) with Roth Capital Partners, LLC (“Roth”), pursuant to which Roth agreed to act as the Company’s placement agent in connection with the 2023 Offering.

In addition, pursuant to the 2023 Purchase Agreement, the Company and its 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.

Jury Verdict and Judgment Against Samsung

On August 11, 2023, a judgment was entered in the United States District Court for the Eastern District of Texas, which upheld the jury trial verdict on April 21, 2023 that awarded Netlist approximately $303 million in damages against Samsung for their willful infringement of five Netlist patents:

10,949,339, 11,016,918, 11,232,054, 8,787,060, and 9,318,160.

The products found to infringe these patents were Samsung DDR4 LRDIMMs, DDR5 UDIMMs, DDR5 SODIMMs, and DDR5 RDIMMs, and HBM2, HBM2E, and HBM3 components.

Post-judgment motions are pending before the Court.

Following entry of an Order regarding that post-judgment briefing, an appeal may be filed before the U.S.

Court of Appeals for the Federal Circuit.

Should any party file an appeal, that could cause a lengthy delay in our ability to collect a damages award from Samsung, lead to a reduction of the damages award, or lead to a remand or reversal of the jury’s verdict.

Additionally, as of the reporting date, all of the patents confirmed as being infringed on the jury verdict are either subject to Inter Partes Review (“IPR”) final written decisions, or an active IPR trial.

The outcome of each of the IPR proceedings related to each of these patents may affect the underlying collectability of the jury award in this matter.

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 over the 36-month term of the September 2021 Purchase Agreement subject to the conditions and limitations set forth in the September 2021 Purchase Agreement.

On September 28, 2021, we entered into the September 2021 Purchase Agreement with Lincoln Park, pursuant to which we had the right to sell to Lincoln Park up to an aggregate of $75 million in shares of our common stock over the 36-month term of the September 2021 Purchase Agreement subject to the conditions and limitations set forth in the September 2021 Purchase Agreement.

During 2024, Lincoln Park purchased an aggregate of 3,195,889 shares of our common stock for a net purchase price of $5.2 million under the September 2021 Purchase Agreement.

In connection with the purchases, we issued to Lincoln Park an aggregate of 10,046 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.

On October 1, 2024, the September 2021 Purchase Agreement terminated on its terms.

2024 Offering

On October 11, 2024, we entered into a Securities Purchase Agreement (the “2024 Purchase Agreement”) with certain investors, pursuant to which we issued and sold to the investors in a registered offering (the “2024 Offering”) an aggregate of (i) 13,636,364 shares of our common stock, (ii) Series A Common Stock Purchase Warrants (the “Series A Warrants”) to purchase up to an aggregate of 13,636,364 shares of our common stock at a purchase price of $1.30 per share, and (iii) Series B Common Stock Purchase Warrants (the “Series B Warrants,” collectively, the “Warrants”) to purchase up to 13,636,364 shares of our common stock, at a purchase price of $1.10 per share and accompanying warrants.

The 2024 Offering closed on October 15, 2024.

The net proceeds to us were approximately $14.2 million, after deducting placement agent fees and offering costs paid by us.

The Warrants are exercisable at any time on or after the issuance date.

The Series A Warrants have a term of five years from the issuance date, have an exercise price of $1.30 per share and provide for the cash payment of the value of the Series A Warrants based on the Black-Scholes pricing model upon the occurrence of certain fundamental transactions.

The Series B Warrants had a term of 100 days and an exercise price of $1.10 per share.

None of the Series B Warrants were exercised prior to their expiration.

On October 11, 2024, we entered into a Placement Agency Agreement (the “Placement Agreement”) with Roth Capital Partners, LLC (“Roth”), pursuant to which Roth agreed to act as our placement agent in connection with the 2024 Offering.

Pursuant to the terms of the Placement Agreement, in consideration for its placement agent services, we agreed to pay Roth a cash fee in an amount equal to 4% of the aggregate gross proceeds received by us in connection with the closing of the 2024 Offering and upon the cash exercise of the Series B Warrants.

Pursuant to the 2024 Purchase Agreement, our director and executive officers entered into lock-up agreements with us, pursuant to which they agreed not to offer for sale, contract to sell, or sell any shares of our common stock or any securities convertible into, or exercisable or exchangeable for, shares of our common stock, for a period of 100 days from the closing of the 2024 Offering, subject to certain customary exceptions.

The 2024 Purchase Agreement also provides that we may not, subject to the exceptions described in the 2024 Purchase Agreement, effect or enter into any Variable Rate Transactions (as defined in the 2024 Purchase Agreement) until the one-year anniversary of the closing date of the 2024 Offering.

Fourth Amendment to Rights Agreement

On April 17, 2024, the Company entered into a fourth amendment (the “Fourth Amendment”) to the Company’s rights agreement dated as of April 17, 2017 (as amended from time to time, the “Rights Agreement”).

The Fourth Amendment appointed Equiniti Trust Company, LLC as rights agent and amended the definition of “Expiration Date” in the Rights Agreement to extend the term for an additional three-year period which extended the final expiration of the Rights issued pursuant to the Rights Agreement from April 17, 2024 to April 17, 2027.

As a result and pursuant to the Fourth Amendment, the Rights will expire and become unexercisable on or before the close of business on April 17, 2027, in accordance with the terms of the Rights Agreement.

Second Amended and Restated Bylaws

On November 4, 2024, our board of directors adopted and approved, effective immediately, the second amended and restated bylaws (the “Second Amended and Restated Bylaws”).

The Second Amended and Restated Bylaws, among other things, (i) decreases the quorum requirement for stockholder meetings from a majority to one-third of the outstanding shares of stock entitled to vote, (ii) conforms to the SEC’s universal proxy card rules, and (iii) updates for certain other administrative and conforming changes.

The foregoing summary of the Second Amended and Restated Bylaws does not purport to be complete and is qualified in its entirety by reference to the full text of the Second Amended and Restated Bylaws, which is attached as Exhibit 3.2 and incorporated herein by reference.

Ineffective Internal Control over Financial Reporting

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

In performing their audit of our internal control over financial reporting as required by Section 404, our independent registered public accounting firm concluded that

our internal control over financial reporting was ineffective as of December 30, 2023 due to one material weakness.

As of December 28, 2024, management concluded that our internal control over financial reporting was ineffective due to one material weakness.

The identified material weakness, at December 28, 2024, relates to the lack of an independent board and audit committee.

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Net Sales and Gross Margin

Net sales and gross margin for 2023 and 2022 were as follows (dollars in thousands):

Net sales and gross margin for fiscal years 2024 and 2023 were as follows (dollars in thousands):

Cost of sales

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Net sales also include sales of Netlist’s own products.

Net sales decreased by approximately $92.4 million during 2023 compared to 2022, primarily as a result of a $56.6 million decrease in the sale of RDIMM and discrete component products, a $14.6 million decrease in the sale of Netlist’s flash and SSD products, and a $21.2 million decrease in sales of low-profile memory subsystem products.

Net sales increased by approximately $77.9 million during fiscal year 2024 compared to fiscal year 2023, primarily as a result of a $74.8 million increase in the sale of RDIMM and discrete component products, a $1.9 million increase in the sale of Netlist’s flash and SSD products, and a $1.2 million increase in sales of low-profile memory subsystem products.

Gross Profit and Gross Margin

Gross profit and gross margin percentage decreased in 2023 compared to 2022 due primarily to lower sales across all product groups and the change in our product mix.

Gross profit increased in fiscal year 2024 compared to fiscal year 2023 due primarily to higher sales across all product groups.

Gross margin percentage decreased in fiscal year 2024 compared to fiscal year 2023 primarily as a result of the change in our product mix.

Operating Expenses

Operating expenses for 2023 and 2022 were as follows (dollars in thousands):

Operating expenses for fiscal years 2024 and 2023 were as follows (dollars in thousands):

Research and development

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Research and Development

Research and development expenses decreased in 2023 compared to 2022 due primarily to a decrease in outside services and new product research.

Research and development expenses decreased in fiscal year 2024 compared to fiscal year 2023 due primarily to a decrease in employee headcount and outside services.

Intellectual Property Legal Fees

Intellectual property legal fees consist of legal fees incurred for enforcement, protection and patent filings and prosecution.

Although we expect intellectual property legal fees to generally increase over time as we continue to protect, defend and enforce and seek to expand our patent portfolio, these increases may not be linear but may occur in lump sums depending on the due dates of patent filings and their associated fees and the arrangements we may make with our legal advisors in connection with enforcement proceedings, which may include fee arrangements or contingent fee arrangements in which we would pay these legal advisors on a scaled percentage of any negotiated fees, settlements or judgments awarded to us based on if, how and when the fees, settlements or judgments are obtained.

when the fees, settlements or judgments are obtained.

See Note 6 — Commitments and Contingencies of the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K for further discussion.

Intellectual property legal fees increased during 2023 compared to 2022 due primarily to higher legal expenses incurred to defend and enforce our patent portfolio.

Intellectual property legal fees decreased during fiscal year 2024 compared to fiscal year 2023 due primarily to lower legal expenses incurred to defend and enforce our patent portfolio.

Selling, General and Administrative

Selling, general and administrative expenses decreased in 2023 compared to 2022 due primarily to a decrease in employee headcount and overhead and outside services.

Selling, general and administrative expenses decreased in fiscal year 2024 compared to fiscal year 2023 due primarily to a decrease in employee headcount.

Other Income, Net

Other income, net for 2023 and 2022 was as follows (dollars in thousands):

Other income, net for fiscal years 2024 and 2023 was as follows (dollars in thousands):

Interest income, net

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Total other income, net

Interest income, net increased during 2023 compared to 2022, primarily as a result of higher interest rate earned on higher cash balances.

Other income, net during 2023 was consistent compared to 2022.

Interest income, net decreased during fiscal year 2024 compared to fiscal year 2023, primarily as a result of interests earned on lower cash balances.

Other income, net increased during fiscal year 2024 compared to fiscal year 2023, primarily as a result of a reversal of the reserve to cover flood damage in our former manufacturing facility located in the PRC and full year of sublease income for our warehouse space located in Irvine, California during fiscal year 2024.

Other income, net included partial year of sublease income for our warehouse space located in Irvine, California during fiscal year 2023.

Provision for Income Taxes

For 2023 and 2022, our effective tax rate was 0% due primarily to our net loss and valuation allowances.

For fiscal years 2024 and 2023, our effective tax rate was 0% due primarily to our net loss and valuation allowances.

Liquidity and Capital Resources

We believe our existing balance of cash and cash equivalents (including restricted cash balances), which totaled $52.8 million as of December 30, 2023, along with cash receipts from revenues, borrowing availability under the 2023 SVB Credit Agreement, proceeds raised from 2023 Offering, the equity financing available under the September 2021 Lincoln Park Purchase Agreement, funds raised through other future debt and equity offerings and taking into account cash expected to be used in our operations, will be sufficient to meet our anticipated cash needs for at least the next 12 months.

We believe our existing balance of cash and cash equivalents (including restricted cash balances), which totaled $34.6 million as of December 28, 2024, along with cash receipts from revenues, borrowing availability under the 2023 SVB Credit Agreement (as defined below), proceeds raised from the 2024 Offering, funds raised through the March 2025 Purchase Agreement and other future debt and equity offerings and taking into account cash expected to be used in our operations, will be sufficient to meet our anticipated cash needs for at least the next 12 months.

In addition, on April 5, 2021, we entered into a Product Purchase and Supply Agreement (the “Supply Agreement”) with SK hynix and the Strategic Agreement.

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In addition, the parties have agreed to collaborate on certain technology development activities.

For a description of contractual obligations, see Note 4 — Debt and Note 5 — Leases of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.

For a description of contractual obligations, see Note 3 — Financing Arrangements and Note 4 — Leases of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.

Cash Flow Summary

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Net change in cash, cash equivalents and restricted cash

Net cash used in operating activities for 2023 was primarily a result of net loss of $60.4 million, non-cash adjustments to net loss of $5.3 million, partially offset by net cash inflows from changes in operating assets and liabilities of $13.5 million driven predominantly by an increase in accounts payable and a decrease in accounts receivable and prepaid expenses and other assets, partially offset by a decrease in accrued expenses and other liabilities and an increase in inventories.

Net cash provided by financing activities for 2023 primarily consisted of $23.4 million in net proceeds from issuance of common stock under the September 2021 Lincoln Park Purchase Agreement, $28.6 million in net proceeds from the 2023 Offering, and $0.5 million in proceeds from exercise of stock options, $3.8 million in net borrowings under the 2023 SVB Credit Agreement partially offset by $4.9 million in net repayments under the credit agreement between the Company and SVB, dated October 31, 2009, as amended, which was terminated on April 28, 2023 (the “2009 SVB Credit Agreement”), and $0.4 million in payments of note payable to finance insurance policies.

Net cash used in operating activities for 2022 was primarily a result of net loss of $33.4 million, non-cash adjustments to net loss of $4.2 million, partially offset by net cash inflows from changes in operating assets and liabilities of $14.2 million driven predominantly by an increase in accounts payable and accrued expenses and other liabilities and a decrease in accounts receivable and inventories.

Net cash provided by financing activities for 2022 primarily consisted of $4.4 million in net proceeds from issuance of common stock under the September 2021 Lincoln Park Purchase Agreement and $0.3 million in proceeds from exercise of stock options, partially offset by $2.1 million in net payments under the 2009 SVB Credit Agreement, $0.6 million in payments of note payable to finance insurance policies, and $1.4 million in payments for taxes related to net share settlement of equity awards.

Net cash used in operating activities for fiscal year 2024 was primarily a result of net loss of $53.9 million, non-cash adjustments to net loss of $4.9 million, partially offset by net cash inflows from changes in operating assets and liabilities of $14.4 million driven predominantly by an increase in accounts payable, a decrease in accounts receivable, and a decrease in inventories, partially offset by a decrease in accrued payroll and related liabilities.

Net cash provided by financing activities for fiscal year 2024 primarily consisted of $5.2 million in net proceeds from issuance of common stock under the September 2021 Purchase Agreement, $14.2 million in net proceeds from the 2024 Offering, and $0.2 million in proceeds from exercise of stock options, partially offset by $2.6 million in net repayments under the 2023 SVB Credit Agreement and $0.5 million in payments of note payable to finance insurance policies.

Net cash used in operating activities for fiscal year 2023 was primarily a result of net loss of $60.4 million, non-cash adjustments to net loss of $5.3 million, partially offset by net cash inflows from changes in operating assets and liabilities of $13.5 million driven predominantly by an increase in accounts payable and a decrease in accounts receivable and prepaid expenses and other assets, partially offset by a decrease in accrued expenses and other liabilities and an increase in inventories.

Net cash provided by financing activities for fiscal year 2023 primarily consisted of $23.4 million in net proceeds from issuance of common stock under the September 2021 Purchase Agreement, $28.6 million in net proceeds from the 2023 Offering (as defined below), and $0.5 million in proceeds from exercise of stock options, $3.8 million in net borrowings under the 2023 SVB Credit Agreement partially offset by $4.9 million in net repayments under the credit agreement between the Company and SVB, dated October 31, 2009, as amended, which was terminated on April 28, 2023, and $0.4 million in payments of note payable to finance insurance policies.

Capital Resources

2024 Offering

On October 11, 2024, we entered into the 2024 Purchase Agreement with certain investors, pursuant to which we issued and sold to the investors in the 2024 Offering an aggregate of 13,636,364 shares of our common stock and Series A Warrants and Series B Warrants, each to purchase up to an aggregate of 13,636,364 shares of our common stock (totaling 27,272,728 shares of our common stock) at a per share purchase price of $1.30 per share and $1.10 per share, respectively.

The 2024 Offering closed on October 15, 2024.

The net proceeds to us from the 2024 Offering were approximately $14.2 million, after deducting placement agent fees and offering costs paid by us.

2023 SVB Credit Agreement

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

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

Borrowings accrue interest on advance at a per annum rate equal to the greater of 8.50% and the Wall Street Journal prime rate.

The maturity date is November 7, 2025.

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2023 Offering

On August 14, 2023, we entered into the 2023 Purchase Agreement with certain investors, pursuant to which we agreed to issue and sell to the investors an aggregate of 11,111,112 shares of our common stock and warrants 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.

On August 14, 2023, we entered into a Securities Purchase Agreement (the “2023 Offering”) with certain investors, pursuant to which we issued and sold to the investors an aggregate of 11,111,112 shares of our common stock and warrants 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.

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September 2021 Lincoln Park Purchase Agreement

On September 28, 2021, we entered into 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 $75.0 million in shares of our common stock over the 36-month term of the September 2021 Purchase Agreement subject to the conditions and limitations set forth in the September 2021 Purchase Agreement.

As of December 30, 2023, $36.3 million remains available under the September 2021 Purchase Agreement with Lincoln Park.

On September 28, 2021, we entered into the September 2021 Purchase Agreement with Lincoln Park, pursuant to which we had the right to sell to Lincoln Park up to an aggregate of $75.0 million in shares of our common stock over the 36-month term of the September 2021 Purchase Agreement subject to the conditions and limitations set forth in the September 2021 Purchase Agreement.

As of September 28, 2024, $31.0 million remained available under the September 2021 Purchase Agreement with Lincoln Park.

On October 1, 2024, the September 2021 Purchase Agreement terminated on its terms.

Critical Accounting Estimates

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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.

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.

Inventories are valued at the lower of cost or the net realizable value.

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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.

The grant-date fair value of restricted stock units (“RSUs”) equals the closing price of our common stock on the grant date.

Uncertain Tax Positions

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See Note 1 — Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K for further discussion.

Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis