What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-13 compared with 2024-11-07 · 69 added, 74 removed, 89 unchanged (62% of the section changed)

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● our beliefs regarding the market and demand for our products or the component products we resell;

● our ability to collect any damages awarded to us in our litigation with Samsung Electronics Co., Ltd., Samsung Semiconductor Inc., and Samsung Electronics America Inc.

(collectively, “Samsung”) in the event of an appeal;

● our ability to collect any damages awarded to us in our litigation with Micron Technology, Inc.

● our ability to collect any damages awarded to us, including in our litigation with Samsung Electronics Co., Ltd., Samsung Semiconductor Inc., and Samsung Electronics America Inc.

(collectively, “Samsung”) and/or in our litigation with Micron Technology, Inc.

● our beliefs and estimates regarding potential intellectual property suits or claims in process under current litigation;

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● our expectations regarding our future operations and financial position, including revenues, costs and prospects, and our liquidity and capital resources, including cash flows, sufficiency of cash resources, efforts to reduce expenses and the potential for future financings;

● our ability to remediate any material weakness, maintain effective internal control over financial reporting;

● our ability to remediate any material weakness and maintain effective internal control over financial reporting;

● the impact of the above factors and other future events on the market price and trading volume of our common stock.

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All forward-looking statements reflect our assumptions, expectations and beliefs only as of the date they are made, and except as required by law, we undertake no obligation to revise or update any forward-looking statements for any reason.

The following MD&A should be read in conjunction with our condensed consolidated financial statements and the related notes included in Part I, Item 1 of this report, as well as our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 23, 2024 (the “Annual Report”).

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.

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.

Each of the terms the “Company,” “Netlist,” “we,” “us,” or “our” as used herein refers collectively to Netlist, Inc.

and its consolidated subsidiaries, unless otherwise stated.

We are a leading innovator in 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, empowering businesses and industries to thrive in the digital age.

During the third quarter of 2024, we recorded net sales of $40.2 million, gross profit of $1.1 million and net loss of $9.4 million.

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 artificial intelligence (“AI”) and empowering businesses and industries to thrive in the digital age.

During the first quarter of 2025, we recorded net sales of $29.0 million, gross profit of $1.3 million and net loss of $9.5 million.

We have historically financed our operations primarily with proceeds from issuances of equity and debt securities and cash receipts from revenues.

We have also funded our operations with a revolving line of credit under a bank credit facility with Silicon Valley Bank (“SVB”).

We have also funded our operations with a revolving line of credit under a bank credit facility with Silicon Valley Bank, a division of First-Citizens Bank & Trust Company (“SVB”).

See “Liquidity and Capital Resources” below for more information.

Recent Developments

September 2021 Lincoln Park Purchase Agreement

On September 28, 2021, we entered into a purchase agreement (the “September 2021 Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“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 the nine months ended September 28, 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.

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 agreed to issue and sell 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, 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 per share 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 have a term of 100 days and have an exercise price of $1.10 per share.

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.

March 2025 Lincoln Park Purchase Agreement

On March 13, 2025, we entered into a purchase agreement (the “March 2025 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 $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 30, 2025 through May 9, 2025, Lincoln Park purchased an aggregate of 201,000 shares of our common stock for a net purchase price of $0.2 million under the March 2025 Purchase Agreement.

In connection with the purchase, we issued to Lincoln Park an aggregate of 2,250 shares of our common stock as additional commitment shares in noncash transactions.

Economic Conditions, Challenges and Risks

Our performance, financial condition and prospects are affected by a number of factors and are exposed to a number of risks and uncertainties.

government has recently implemented significant tariff increases on imports from the People’s Republic of China (“PRC”).

While we do not believe we have been materially affected by the recent tariffs or changes in U.S.

trade policy, tariffs, quotas, trade agreements or other trade restrictions could increase our operating expenses and reduce gross margins.

The scope, duration, and broader economic impact of such measures remain uncertain and will depend on several factors, including ongoing negotiations between the U.S.

and the PRC and/or other countries, their respective responses, and any possible exemptions or exclusions that may be granted or other countries targeted with tariffs.

Our performance, financial condition and prospects are also affected by a number of factors and are exposed to a number of other risks and uncertainties.

We operate in a competitive and rapidly evolving industry in which new risks emerge from time to time, and it is not possible for us to predict all of the risks we may face, nor can we assess the impact of all factors on our business or the extent to which any factor or combination of factors could cause actual results to differ from our expectations.

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Net Sales and Gross Profit

Net sales and gross profit for the three and nine months ended September 28, 2024 and September 30, 2023 were as follows (dollars in thousands):

Net sales and gross profit for the three months ended March 29, 2025 and March 30, 2024 were as follows (dollars in thousands):

Three Months Ended

Nine Months Ended

September 28,

September 30,

September 28,

September 30,

Cost of sales

Gross margin percentage

Net sales increased by approximately $23.5 million during the third quarter of 2024 compared to the same period of 202 3, primarily as a result of a $23.9 million increase in the sale of registered DIMM (“RDIMM”) and discrete memory component products, partially offset by $1.1 million decrease in sales of our flash and solid-state drives (“SSD”) products.

Net sales increased by approximately $77.1 million during the first nine months of 2024 compared to the same period of 2023, primarily as a result of a $71.7 million increase in the sale of RDIMM and discrete memory component products and a $4.6 million increase in sales of our flash and SSD products.

Net sales decreased by approximately $6.8 million during the first quarter of 2025 compared to the same period of 2024, primarily as a result of a $2.9 million decrease in the sale of registered DIMM (“RDIMM”), discrete memory component products, a $2.6 million decrease in sales of our flash and solid-state drives (“SSD”) products, and a $1.4 million decrease in sales of low-profile memory subsystem products.

Gross Profit and Gross Margin

Gross profit increased during the third quarter and first nine months of 2024 compared to the same periods of 2023, primarily as a result of higher sales across all product groups.

Gross margin percentage was consistent during the first nine months of 2024 compared to the same period in 2023.

Gross profit and gross margin percentage increased during the first quarter of 2025 compared to the same periods of 2024, primarily as a result of product sales mix.

Operating Expenses

Operating expenses for the three and nine months ended September 28, 2024 and September 30, 2023, were as follows (dollars in thousands):

Operating expenses for the three months ended March 29, 2025 and March 30, 2024, were as follows (dollars in thousands):

Three Months Ended

Nine Months Ended

September 28,

September 30,

September 28,

September 30,

Research and development

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Research and Development

Research and development expenses slightly decreased during the third quarter of 2024 compared to the same period of 2023, primarily due to a decrease in the use of outside services.

Research and development expenses slightly increased during the first nine months of 2024 compared to the same periods of 2023 due primarily to an increase in the use of outside services.

Research and development expenses decreased during the first quarter of 2025 compared to the same period of 2024, primarily due to a reduction in employee headcount and the associated decrease in overhead costs.

Intellectual Property Legal Fees

Intellectual property legal fees consist of fees incurred for patent enforcement and licensing, appeals, patent drafting and prosecution, and opposition to third-party post-grant patent proceedings.

Although we expect intellectual property legal fees to generally increase over time as we continue to expand, protect and enforce our patent portfolio, these increases may not be linear but may occur in lump sums depending on jury trial management, due dates of various 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.

management, due dates of various 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.

See Note 6 to the condensed consolidated financial statements included in Part I, Item 1 of this report for further discussion.

Intellectual property legal fees decreased during the third quarter and first nine months of 2024 compared to the same periods of 2023 due primarily to lower legal expenses incurred to protect and enforce our patent portfolio.

Intellectual property legal fees decreased during the first quarter of 2025 compared to the same period of 2024 due primarily to lower legal expenses incurred to protect and enforce our patent portfolio.

Selling, General and Administrative

Selling, general and administrative expenses slightly increased during the third quarter compared to the same periods of 2023 due primarily to a higher audit and public company related fees.

Selling, general and administrative expenses decreased during the first nine months of 2024 compared to the same periods of 2023 due primarily to a decrease in employee headcount and the related overhead, partially offset by outside services.

Selling, general and administrative expenses were consistent during the first quarter of 2025 compared to the same period of 2024.

Other Income, Net

Other income, net for the three months ended March 29, 2025 and March 30, 2024 was as follows (dollars in thousands):

Three Months Ended

Interest income, net

Other income, net

Total other income, net

Interest income, net decreased during the first quarter of 2025 compared to the same period of 2024, primarily as a result of interest earned on lower cash balances.

Other income, net slightly increased during the first quarter of 2025 compared to the same period of 2024, primarily as a result of deposit returned for our former manufacturing facility located in the PRC.

Liquidity and Capital Resources

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In addition, we have received proceeds from our entry into a Strategic Product Supply and License Agreement with SK hynix, Inc., a South Korean memory semiconductor supplier (“SK hynix”), on April 5, 2021 (the “Strategic Agreement”), which we used to support our operations.

We have also funded our operations with a revolving line of credit under a bank credit facility with SVB.

The following tables present selected financial information as of September 28, 2024 and December 30, 2023 and for the first nine months of 2024 and 2023 (in thousands):

September 28,

We have also funded our operations with a revolving line of credit under a bank credit facility with SVB, proceeds raised from the 2024 Offering (as defined below) and funds raised through the March 2025 Purchase Agreement.

The following tables present selected financial information as of March 29, 2025 and December 28, 2024 and for the first three months of 2025 and 2024 (in thousands):

Cash, cash equivalents and restricted cash

Working capital

Nine Months Ended

September 28,

September 30,

Three Months Ended

Net cash used in operating activities

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Net cash provided by financing activities

During the nine months ended September 28, 2024, net cash used in operating activities was primarily a result of net loss of $41.2 million, non-cash adjustments to net loss of $4.3 million, and net cash inflows from changes in operating assets and liabilities of $11.4 million driven predominantly by a decrease in inventories due to higher turnovers, increase in deferred revenue related to an advance payment received on an order shipped in October 2024 and decrease in accounts receivable due to faster cash collections, partially offset by the decrease in accounts payable due to the payments made for the legal fees incurred to defend our patent portfolio.

Net cash provided by financing activities during the nine months ended September 28, 2024 primarily consisted of $5.2 million in net proceeds from issuance of common stock under the September 2021 Purchase Agreement, partially offset by $2.3 million in net repayments under the 2023 SVB Credit Agreement and by $0.5 million in payments of notes payable to finance insurance policies.

During the nine months ended September 30, 2023, net cash used in operating activities was primarily a result of net loss of $47.2 million, non-cash adjustments to net loss of $4.2 million, and net cash inflows from changes in operating assets and liabilities of $2.9 million due to a decrease in accounts receivable and in inventories, partially offset by a decrease in accounts payable and a decrease in accrued expenses and other liabilities.

Net cash provided by financing activities during the nine months ended September 30, 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, $0.5 million in proceeds from exercise of stock options, partially offset by $4.9 million in net repayments under the credit agreement between us and Silicon Valley Bank, dated October 31, 2009, which was terminated on April 28, 2023 (the “2009 SVB Credit Agreement”), and $0.4 million in payments of notes payable to finance insurance policies..

During the three months ended March 29, 2025, net cash used in operating activities was primarily a result of net loss of $9.5 million, non-cash adjustments to net loss of $0.9 million, and net cash outflows from changes in operating assets and liabilities of $1.5 million driven predominantly by a decrease in accounts payable due to the payments made for the legal fees incurred to defend our patent portfolio, partially offset by a decrease in inventories due to higher turnovers and an increase in deferred revenue related to advance payments received on orders shipped in April 2025.

Net cash provided by financing activities during the three months ended March 29, 2025 primarily consisted of $0.9 million in net proceeds from issuance of common stock under the March 2025 Purchase Agreement and $0.3 million in net borrowings under the 2023 SVB Credit Agreement (as defined below), partially offset by $0.2 million in payments of notes payable to finance insurance policies.

During the three months ended March 30, 2024, net cash used in operating activities was primarily a result of net loss of $17.0 million, non-cash adjustments to net loss of $1.6 million, and net cash inflows from changes in operating assets and liabilities of $1.1 million driven predominantly by an increase in accounts payable due to higher legal fees to defend our patent portfolio and an increase in accrued expenses and other liabilities, partially offset by an increase in inventories due to higher purchases to support increased sales.

Net cash provided by financing activities during the three months ended March 30, 2024 primarily consisted of $0.5 million in net borrowings under the 2023 SVB Credit Agreement (as defined below), $2.1 million in net proceeds from issuance of common stock under the September 2021 Purchase Agreement (as defined below), offset by $0.1 million in payments of notes payable to finance insurance policies.

Capital Resources

March 2025 Lincoln Park Purchase Agreement

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 over the 36-month term of the March 2025 Purchase Agreement subject to the conditions and limitations set forth in the March 2025 Purchase Agreement.

As of March 29, 2025, $74.1 million remains available under the March 2025 Purchase Agreement with Lincoln Park.

2024 Offering

On October 11, 2024, we entered into the 2024 Purchase Agreement with certain investors, pursuant to which we agreed to issue and sell 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 $1.10 per share.

On October 11, 2024, we entered into a Securities 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 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 to purchase up to 13,636,364 shares of our common stock, at a per share purchase price of $1.10 per share and accompanying warrants.

The 2024 Offering closed on October 15, 2024.

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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.

As of September 28, 2024, the outstanding borrowings under the 2023 SVB Credit Agreement were $1.6 million with no availability under the revolving line of credit.

During the nine months ended September 28, 2024, we made net repayments of $2.3 million under the 2023 SVB Credit Agreement.

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 $28.6 million, after deducting placement agent fees and offering costs paid by us.

As of March 29, 2025, the outstanding borrowings under the 2023 SVB Credit Agreement were $1.6 million with no availability under the revolving line of credit.

During the three months ended March 29, 2025, we made net borrowings of $0.3 million under the 2023 SVB Credit Agreement.

September 2021 Lincoln Park Purchase Agreement

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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.

During fiscal year 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.

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

Sufficiency of Cash Balances and Potential Sources of Additional Capital

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Recent Accounting Pronouncement

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which updates reportable segment disclosure requirements on an annual and interim basis.

This ASU is effective for the annual period ending December 31, 2024, and the interim period thereafter.

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosure, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

This ASU is effective for the annual periods beginning January 1, 2024, and becomes effective for interim periods within fiscal years beginning January 1, 2025.

We adopted this guidance on December 28, 2024.

The adoption only impacted our disclosure and has no material impact on the Company’s consolidated financial statements as of and for the quarter ended March 29, 2025.

In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses, which updates expense disclosure requirements on an annual and interim basis.

This ASU is effective for the annual periods beginning after December 15, 2026, and the interim reporting periods beginning after December 15, 2027.

Early adoption is permitted.

We will adopt this ASU using a retrospective transition method.

We are currently evaluating the impact of adopting this ASU.

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There have been no significant changes to our critical accounting policies since our Annual Report.

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-Q

Item 2. Management’s Discussion and Analysis