What changed in this filing

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Item 1A. Risk Factors

2025-05-13 compared with 2024-11-07 · 189 added, 143 removed, 528 unchanged (39% of the section changed)

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● We have historically incurred losses and may continue to incur losses;

● We may not be able to collect the damages awarded to us in our litigation with Samsung and Micron, which could have an adverse impact on our business, financial condition and operating results;

● We may not be able to collect or otherwise receive value for the damages awarded to us in any of our litigations, including with Samsung and Micron, which could have an adverse impact on our business, financial condition and operating results;

● We are involved in multiple lawsuits and administrative actions in multiple jurisdictions to protect and assert our intellectual property rights against large, well-capitalized companies, which requires that we continue to expend substantial financial and management resources, and we may not be successful in these proceedings;

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● We are subject to risks relating to our focus on developing our compute express link (“CXL”) products for our target customer markets;

● Sales to a small number of customers have historically represented a significant portion of our net product sales, and the loss of, or a significant reduction in sales to, any one of these customers could materially harm our business;

● Sales to a small number of customers currently and have historically represented a significant portion of our net product sales, and the loss of, or a significant reduction in sales to, any one of these customers could materially harm our business;

● We are subject to risks of disruption in the supply of component products;

● Our customers require that our products undergo a lengthy and expensive qualification process without any assurance of sales;

● If we are unable to timely and cost-effectively develop new or enhanced products that achieve customer and market acceptance or technologies we can monetize, our revenues and prospects could be materially harmed;

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● Our lack of a significant backlog of unfilled orders and the difficulty inherent in estimating customer demand makes it difficult to forecast our short-term requirements, and any failure to optimally calibrate our production capacity and inventory levels to meet customer demand could adversely affect our revenues, gross margin and earnings;

● Declines in our average sale prices, driven by volatile prices for components and other factors, may result in declines in our revenues and gross margin;

● Our manufacturing operations involve significant risks;

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● If our products or the component products we resell do not meet quality standards or are defective or used in defective systems, we may be subject to quality holds, warranty claims, recalls or liability claims;

● Our indemnification obligations for the infringement by our products of the rights of others could require us to pay substantial damages;

● We depend on certain key employees, and our business could be harmed if we lose the services of any of these employees or are unable to attract and retain other qualified personnel;

● We rely on our internal and third-party sales representatives to market and sell our products and the component products we resell, and any failure by these representatives to perform as expected could reduce our sales;

● Our operations could be disrupted by power outages, natural disasters, cyber-attacks or other factors;

● Difficulties with our global information technology systems, including any unauthorized access or cyber-attacks, could harm our business;

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● Increased prices and inflation could negatively impact our margin performance and our financial results;

● Geopolitical risks associated with the ongoing conflicts between Russia and Ukraine and Israel and Palestine could result in increased market volatility and uncertainty, which could negatively impact our business, financial condition, and results of operations;

● We are exposed to additional business, regulatory, political, operational, financial and economic risks related to our international sales and operations;

● Geopolitical risks associated with the ongoing conflicts between Russia and Ukraine and Israel and Palestine continue to contribute to heightened market volatility and uncertainty, which could negatively impact our business, financial condition, and results of operations;

● Our failure to comply with environmental and other applicable laws and regulations could subject us to significant fines and liabilities or cause us to incur significant costs;

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If we are unable to remediate the material weakness, or if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect our business;

● We are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (“Section 404”), that place significant demands on our resources, and the transition to the higher reporting and control standards that applies to us as a “large accelerated filer” may cause management distraction and increased costs;

● We may be unsuccessful in monetizing our intellectual property portfolio;

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● The price and trading volume of our common stock has and may continue to fluctuate significantly in reaction to real or perceived developments in our business;

● We expect to incur additional indebtedness to support the growth of our business and to facilitate effective working capital.

Our level of indebtedness and the terms of such indebtedness could adversely affect our operations and liquidity;

● Adverse developments affecting financial institutions, companies in the financial services industry or the financial services industry generally could adversely affect our operations and liquidity;

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Hong has significant control over all corporate decisions that may not be in the best interest of our other stockholders;

● Anti-takeover provisions under our charter documents and Delaware law, as well as our rights agreement, could delay or prevent a change of control and could also limit the market price of our common stock;

● We do not currently intend to pay dividends on our common stock, and any return to investors is expected to result, if at all, only from potential increases in the price of our common stock.

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We may not be successful in any of these pursuits, and we may not be able to sustain profitability if achieved.

We may not be able to collect the damages awarded to us in our litigation with Samsung, which could have an adverse impact on our business, financial condition and operating results.

As previously reported, in our litigation with Samsung, we were awarded damages of approximately $303 million.

As of the reporting date, all of the patents confirmed as being infringed on the jury verdict are subject 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.

The outcome of the trial is subject to appeal, though we have no knowledge as to whether Samsung will or will not appeal the judgment.

An appeal by Samsung would likely cause a lengthy delay in our ability to collect the award and could result in a reversal or reduction of the award.

With or without an appeal, we would need to successfully collect damages awarded to us.

In addition, if the judgment is appealed and we are unable to sustain our operations through an appeal process, we may be required to raise additional capital through proceeds from other litigated matters or debt or equity financing.

We may not be able to collect the damages awarded to us in any of our litigations with Samsung, which could have an adverse impact on our business, financial condition and operating results.

As previously reported, in our litigation with Samsung, we were awarded approximately $303 million and $118 million in damages in two separate cases.

As of the reporting date, all Netlist patents found to be infringed in the respective jury verdicts and judgments remain subject to final written decisions by the U.S.

Patent and Trademark Office and Patent Trial & Appeal Board (“PTAB”) in their corresponding inter partes reviews (“IPRs”), which are subject to appeals before the U.S.

Court of Appeals for the Federal Circuit (“CAFC”).

The first case (approximately $303 million) is also on appeal before the CAFC.

In the second case (approximately $118 million), Samsung has filed post-trial motions for judgment as a matter of law and for a new trial.

These motions may cause a lengthy delay in our ability to collect the damages award and could also result in a reversal or reduction of the damages award.

Even if these post-trial motions are ultimately unsuccessful, we would still need to successfully collect the damages awarded to us.

Following the resolution of these post-trial motions, this case may be subject to further appeals.

The outcomes of the pending IPR appeals and the two cases (including appeals) may impact our ability to collect the respective damages awards and/or the amounts collected.

In addition, if we are unable to sustain our operations through the post-trial phase of the second case or the appeals, we may be required to raise additional capital through proceeds from other litigated matters or debt or equity financing.

We cannot be certain that we will prevail or settle in any other ongoing litigation, or that any additional financing we may need will be available on terms acceptable to us, or at all.

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We may not be able to collect the damages awarded to us in our litigation with Micron, which could have an adverse impact on our business, financial condition and operating results.

As previously reported, in our litigation with Micron, we were awarded damages of approximately $445 million.

As of the reporting date, the two patents confirmed as being infringed on the jury verdict are either subject to 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.

The outcome of the trial is subject to appeal, though we have no knowledge as to whether Micron will or will not appeal the judgment.

An appeal by Micron would likely cause a lengthy delay in our ability to collect the award and could result in a reversal or reduction of the award.

With or without an appeal, we would need to successfully collect damages awarded to us.

As previously reported, in our litigation with Micron, we were awarded approximately $445 million in damages.

As of the reporting date, both Netlist patents found infringed in the jury verdict and judgment are subject to final written decisions by the PTAB in their corresponding IPRs, which are subject to appeals before the CAFC.

In the litigation, Micron has filed post-trial motions for judgment as a matter of law and for a new trial.

These motions may cause a lengthy delay in our ability to collect the damages award and could also result in a reversal or reduction of the damages award.

Even if these post-trial motions are ultimately unsuccessful, we would still need to successfully collect the damages awarded to us.

Following the resolution of these post-trial motions, the litigation may be subject to further appeals.

The outcomes of the IPR appeals and the litigation may affect our ability to collect the damages award and the amount collected.

In addition, if we are unable to sustain our operations through the post-trial phase of the litigation or the appeals, we may be required to raise additional capital through proceeds from other litigated matters or debt or equity financing.

We cannot be certain that we will prevail or settle in any other ongoing litigation, or that any additional financing we may need will be available on terms acceptable to us, or at all.

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We are involved in multiple lawsuits and administrative actions in multiple jurisdictions to protect and assert our intellectual property rights against large, well-capitalized companies, which requires that we continue to expend substantial financial and management resources, and we may not be successful in these proceedings.

We are currently involved in a variety of proceedings in multiple jurisdictions against large, well-capitalized companies, including Samsung, Google Inc.

(“Google”), and Micron, which have been ongoing for many years and have required substantial investments of financial and management resources.

We are currently involved in a variety of proceedings in multiple jurisdictions against large, well-capitalized companies, including Samsung, Google Inc., and Micron, which have been ongoing for many years and have required substantial investments of financial and management resources.

We anticipate that these and other similar proceedings will continue to require similar investments over an extended period of time.

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As is common in the semiconductor industry, we have experienced substantial litigation regarding patent and other intellectual property rights.

We are currently involved in litigation and proceedings at the Patent Trial and Appeal Board (“PTAB” or the “Board”) based on alleged third-party infringement of our patents, and lawsuits claiming we are infringing others’ intellectual property rights also have been and may in the future be brought against us.

Our business strategy includes litigating claims against others, such as our competitors and customers, to enforce our intellectual property, contractual and commercial rights, including, in particular, our patent portfolio and our trade secrets, as well as to challenge the validity and scope of the proprietary rights of others.

This or other similar proceedings could also subject us to counterclaims or countersuits against us, or the parties we sue could seek to invalidate our patents or other intellectual property rights through

reexamination or similar processes at the U.S.

We are currently involved in litigation and proceedings at the PTAB based on alleged third-party infringement of our patents, and lawsuits claiming we are infringing others’ intellectual property rights also have been and may in the future be brought against us.

portfolio and our trade secrets, as well as to challenge the validity and scope of the proprietary rights of others.

This or other similar proceedings also have and may again subject us to counterclaims or countersuits against us, or the parties we sue have and may again seek to invalidate our patents or other intellectual property rights through reexamination or similar processes at the U.S.

Patent and Trademark Office (“USPTO”) or similar bodies.

Further, any legal disputes with customers could cause them to cease buying or using our products or the component products we resell or delay their purchase of these products and could substantially damage our relationship with them.

Moreover, our ability to continue to pursue this strategy depends on our ability to obtain and protect patents, which is governed by an uncertain process.

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As a result, a number of our existing employees have worked for our existing or potential competitors at some point during their careers, and we anticipate a number of our future employees will have similar work histories.

We have been the subject of such claims in the past and may again be subject to these types of claims.

Moreover, lawsuits of this type may be brought, even if there is no merit to the claim, as a strategy to prevent us from hiring qualified candidates, drain our financial resources and divert management’s attention away from our business.

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An adverse outcome in existing or any future litigation could force us to, among other things:

● relinquish patents or other protections of our technologies if they are invalidated, which would enable our competitors and others to freely use this technology;

● relinquish material patents or other protections of our technologies if they are invalidated, which would enable our competitors and others to freely use this technology;

● compete with products that rely on technologies and other intellectual property rights that we believe we have the right to protect from third-party use;

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The vast majority of our net product sales in recent periods have been generated from resales of products, including products sourced from SK hynix, and any decline in these product resales could significantly harm our performance.

The vast majority of our net product sales in recent periods have been generated from resales of computer memory and storage components and products, including but not limited to SSDs, NAND flash and DIMMs.

We resell 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.

These resales are subject to a number of risks.

For example, demand for any computer memory or storage products could decline at any time for a number of reasons, including, among others, changing customer requirements or preferences, product obsolescence, introduction of more advanced or otherwise superior competing products by our competitors, the ability of our customers to obtain these products or substitute products from alternate sources (including from the manufacturer directly), customers reducing their need for these products generally, or the other risk factors described in this report.

For example, demand for any computer memory or storage products could decline at any time for a number of reasons, including, among others, international tariffs, changing customer requirements or preferences, product obsolescence, introduction of more advanced or otherwise superior competing products by our competitors, the ability of our customers to obtain these products or substitute products from alternate sources (including from the manufacturer directly), customers reducing their need for these products generally, or the other risk factors described in this report.

We have no long-term agreements or other commitments with respect to sales of these or any of the other products we sell.

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Additionally, opportunistic purchases of products for resale, when coupled with a decrease in demand, may cause us to write off excess inventory which would adversely affect our operating performance.

We may experience supply shortages at any time and for a variety of reasons, including, among others, spikes in customer demand that cannot be satisfied, any problems that arise with SK hynix’s manufacturing operations or facilities that cause disruptions or delays, or any failure to comply with the terms of the agreements regarding the supply of these products.

We may experience supply shortages at any time and for a variety of reasons, including, among others, spikes in customer demand that cannot be satisfied or shortages due to international tariffs, and any problems that arise with SK hynix’s manufacturing operations or facilities that cause disruptions or delays, or any failure to comply with the terms of the agreements regarding the supply of these products.

If we choose, or if we are forced, to seek to supply the component products we resell from other suppliers, we may not be able to identify other suppliers that are available and able to produce the particular components with the specific product specifications and in the quantities our customers require, or we may not be able to make arrangements with any other suppliers in a timely manner to avoid delays in satisfying customer orders.

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As a result, increased resales of component products as a percentage of our total product sales have a significant negative impact on our gross margin and gross margin percentage.

We may experience lower margins compared to prior periods as a result of international tariffs.

This gross margin and gross margin percentage differential between memory product sales and component product resales would be amplified if our costs to purchase component products were to increase.

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We are subject to risks relating to our focus on developing our CXL products for our target customer markets.

We have historically derived revenues from sales of our high - performance memory products to original equipment manufacturer (“OEMs”) in the server, high-performance computing and communications markets.

intensify in the future.

We have historically derived revenues from sales of our high - performance memory products to original equipment manufacturers (“OEMs”) in the server, high-performance computing and communications markets.

Although we expect these memory products to continue to account for a portion of our revenues, we have experienced declines in sales of these products in recent periods, and these declines could continue or intensify in the future particularly as a result of newly enacted international tariffs.

We believe market acceptance of these products or derivative products that incorporate our technology is critical to our success, and any continued decline in sales of these products could have a material adverse impact on our performance and long-term prospects.

We have invested significant research and development time and capital in the design of application-specific integrated circuits (“ASICs”) and hybrid devices, including our CXL technology-based memory expansion controller.

These products are subject to significant risks, including:

● we are dependent on a limited number of suppliers for the non-volatile memory, volatile memory, ASICs, and other components that are essential to the functionality of these products, and in the past, we have experienced supply chain disruptions and shortages of volatile and non-volatile memory components required to create these products as a result of issues that are specific to our suppliers or the industry as a whole;

These products are subject to significant risks, including the following:

● CXL and some of our other next-generation products may require additional time including the services and attention of key employees who have competing demands on their available time and may require capital investment to bring the products to market;

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We may not be able to achieve this diversification, and any inability to do so may adversely affect our business, operating performance and prospects.

Sales to a small number of customers have historically represented a significant portion of our net product sales, and the loss of, or a significant reduction in sales to, any one of these customers could materially harm our business.

Sales to a small number of customers currently and have historically represented a significant portion of our net product sales, and the loss of, or a significant reduction in sales to, any one of these customers could materially harm our business.

Our target markets are characterized by a limited number of large companies, and consolidation in one or more of these markets may further increase this concentration.

As a result, sales to small numbers of customers have historically represented a substantial portion of our net product sales, and we expect this concentration to continue.

As a result, sales to small numbers of customers have historically represented and currently represent a substantial portion of our net product sales, and we expect this concentration to continue.

Additionally, the composition of major customers and their respective contributions to our net product sales have fluctuated and will likely continue to fluctuate from period to period as our existing and prospective customers progress through the life cycle of the products they produce and sell and experience resulting fluctuations in their product demand.

We believe our performance depends in significant part on our ability to establish and maintain relationships with and effect substantial sales to our large customers.

We believe our performance

depends in significant part on our ability to establish and maintain relationships with and effect substantial sales to our large customers.

We do not have long-term agreements with any of our customers and, as result, any or all of them could decide at any time to decrease, delay or discontinue their purchase of our products or the component products we resell.

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From time to time, shortages in SSDs, volatile memory components, and/or non-volatile memory components have required some suppliers to limit the supply of these components.

In the past, we have experienced supply chain disruptions and shortages of SSDs, volatile memory components, and/or non-volatile memory components required to create certain of our memory subsystem products, and we have been forced to procure the component products we resell from other suppliers to the extent sufficient product is not available from SK hynix to meet customer demand or in the event of other SK hynix supply issues.

We have experienced supply chain disruptions and shortages of SSDs, volatile memory components, and/or non-volatile memory components required to create certain of our memory subsystem products, and we have been forced to procure the component products we resell from other suppliers to the extent sufficient product is not available from SK hynix to meet customer demand or in the event of other SK hynix supply issues.

We are continually working to secure adequate supplies of the components necessary to fill customers’ orders in a timely manner.

If we are unable to obtain a sufficient supply of SSDs, volatile memory components, non-volatile memory components and/or other essential components, as a result of a natural disaster, political unrest, military conflict, labor disruptions, medical epidemics, climate change, economic instability, equipment failure or other cause, to avoid interruptions or failures in the delivery of our products as required by our customers or the delivery of these components to customers to whom we resell them directly, these customers may reduce future orders for these products or not purchase these products from us at all, which could cause our net product sales to decline and harm our operating results.

In addition, our reputation could be harmed due to failures to meet our customers’ demands and, even assuming we are successful in resolving supply chain disruptions, we may not be able to replace any lost business and we may lose market share to our

These circumstances may be adversely affected by the recently imposed international tariffs.

If we are unable to obtain a sufficient supply of SSDs, volatile memory components, non-volatile memory components and/or other essential components, as a result of the global tariff environment, a natural disaster, political unrest, military conflict, labor disruptions, medical epidemics, climate change, economic instability, equipment failure or other cause, to avoid interruptions or failures in the delivery of our products as required by our customers or the delivery of these components to customers to whom we resell them directly, these customers may

reduce future orders for these products or not purchase these products from us at all, which could cause our net product sales to decline and harm our operating results.

Further, if our suppliers are unable to produce qualification samples of our products on a timely basis or at all, we could experience delays in the qualification process with existing or prospective customers, which could have a significant impact on our ability to sell our products.

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For example, if our SSD, volatile memory component, and non-volatile memory component suppliers discontinue production of these products or components, it may be necessary for us to design and qualify new products for our customers.

As a result, some customers may

require us, or we may decide, to purchase an estimated quantity of discontinued memory components necessary to ensure a steady supply of existing products until products with new components can be qualified.

As a result, some customers may require us, or we may decide, to purchase an estimated quantity of discontinued memory components necessary to ensure a steady supply of existing products until products with new components can be qualified.

Purchases of this nature may affect our liquidity.

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As a result, continuous development of new technology, processes and product innovations is necessary in order to be successful.

For example, the emergence of new tools such as machine learning and AI that capitalize on the availability of large data sets is leading semiconductor manufacturers to pursue new products and approaches that exploit those tools to advance technology development.

We believe the continued and timely development of new products and technologies and improvement of existing products and technologies are critical to our business and prospects for growth.

In order to develop and introduce new or enhanced products and technologies, we need to:

In the face of uncertainty on which new technology solutions will become successful, we endeavor to focus our efforts on developing the technology changes that are ultimately successful in supporting our customers’ requirement s.

In order to continue to develop and introduce new or enhanced products and technologies, we need to:

● retain and continue to attract new engineers with expertise in memory subsystems and our other key technology competencies;

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● design and introduce cost-effective, innovative and performance-enhancing features that differentiate our products and technologies from those of our competitors;

● secure licenses to enable us to use any technologies, processes or other rights needed for the manufacture or use of any new products or product enhancements we may develop, which licenses may not be available when needed, on acceptable terms or at all;

● secure licenses as needed to enable us to use any technologies, processes or other rights needed for the manufacture or use of any new products or product enhancements we may develop, which licenses may not be available when needed, on acceptable terms or at all;

● maintain or develop new relationships with suppliers of components required for any new or enhanced products and technologies;

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As a result, we may not be able to successfully develop new or enhanced products or technology or we may experience delays in this process.

Our failure to develop and offer the correct technology solutions in a timely manner with productive and cost-effective products could adversely affect our business in a material way.

Failures or delays in product development and introduction could result in the loss of, or delays in generating, net products sales or other revenues and the loss of key customer relationships.

Even if we develop new or enhanced products or technologies, they may not meet our customers’ requirements, gain market acceptance or attract monetization opportunities, as our product and technology development efforts are inherently risky due to the challenges of foreseeing changes or developments in technology, predicting changes in customer requirements or preferences or anticipating the adoption of new industry standards.

Moreover, we have invested significant resources in our product and technology development efforts, which would be lost if we

fail to generate revenues from these efforts.

Moreover, we have invested significant resources in our product and technology development efforts, which would be lost if we fail to generate revenues from these efforts.

If any of these risks occur, our revenues, prospects and reputation could be materially adversely affected.

The use of artificial intelligence could adversely affect our business and operating results.

Certain of our products and technology utilize AI, including third-party generative AI models.

Our business operations also utilize third-party platforms that leverage AI.

The use of AI inherently carries a broad range of risks typical to emerging technologies, and requires an investment of resources in the development, integration, and procurement of the technology.

These investments may be costly and could impact our operating results as we continue to incorporate AI into our products and services and leverage AI in our operations.

The integration of these AI models within our products and services means that the performance of our products and services is, in part, reliant on third-party developers of the underlying AI models.

Moreover, the pricing arrangements with third-party developers associated with integrating these AI models can result in large or unpredictable costs due to excess or non-standard customer usage, which we may not be able to pass through to our customers and which could adversely impact our business.

The AI tools we offer or use could also generate content that infringes upon or misappropriates third-party intellectual property rights.

This risk is intensified by the current trend of entities seeking patents and other intellectual property protections in AI to gain a competitive edge.

While we have made efforts to mitigate risk under our terms of service, our deployment and use of AI tools may still expose us to increased litigation risk associated with intellectual property infringement claims.

Further, the probabilistic nature of AI technologies can result in unwanted, inaccurate, or offensive outputs.

In the event the AI tools we provide to customers do not perform reliably or in accordance with stated expectations, we may need to disable user access to such AI tools;

similarly, if the AI tools that we use for internal business purposes do not perform in accordance with expectations, we may be forced to discontinue or restrict the use of such tools.

Any mitigation efforts related to the foregoing may negatively affect our business and operations.

Additionally, government regulation related to AI may also increase the risks and costs in developing and leveraging AI tools in our products and services and to support our operations.

For example, the EU recently approved the Artificial Intelligence Act, which requires that users of AI technology be made aware that they are interacting with AI or that they are facing an AI generated output.

Continued legal and regulatory updates related to AI may occur quickly and could restrict or delay our ability to utilize AI, require significant cost and resources to support compliance, and harm our operating results.

We face intense competition in our industry, and we may not be able to compete successfully in our target markets.

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We face competition from volatile memory component suppliers, memory module providers, and logic suppliers for many of our products.

We also face competition from the manufacturers and distributors of the component products we resell to customers, as these manufacturers and distributors could decide at any time to sell these component products to these customers directly.

We also face competition from the manufacturers and distributors of the component products we resell to customers, as these manufacturers and distributors could decide at any time to sell

these component products to these customers directly.

Additionally, if and to the extent we enter new markets or pursue licensing arrangements to monetize our technologies and intellectual property portfolio, we may face competition from a large number of competitors that produce solutions utilizing similar or competing technologies.

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Our operating results may be adversely impacted by worldwide economic and political uncertainties and specific conditions in the markets we address and in which we or our strategic partners or competitors do business, including the cyclical nature of and volatility in the memory market and semiconductor industry.

Changes in domestic and global economic and political conditions make it difficult for our customers, our vendors and us to accurately forecast and plan future business activities, and these conditions have caused and could continue to cause United States and foreign businesses to slow or decrease spending on our products and the products we resell.

Changes in domestic and global economic and political conditions, including the recently enacted changes in international tariff policies, make it difficult for our customers, our vendors and us to accurately forecast and plan future business activities, and these conditions have caused and could continue to cause United States and foreign businesses to slow or decrease spending on our products and the products we resell.

In addition, sales of our products and the products we resell are dependent on demand by customers in our target markets.

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In addition, these markets have in the past experienced significant downturns, often connected with or in anticipation of maturing product cycles, reductions in technology spending and declines in general economic conditions.

During these downturns, product demand diminishes, production capacity exceeds demand, inventory levels increase and average sale prices decline, all of which would materially adversely impact our business and operating results.

During these downturns, product demand diminishes, production capacity exceeds demand, inventory levels increase and average sale prices decline, all of which would materially adversely

impact our business and operating results.

In addition, because many of our costs and operating expenses are relatively fixed, if we are unable to control our expenses adequately in response to reduced product demand and sales, our gross margin and cash flows would be negatively impacted.

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The short-term nature of the commitments by many of our customers and our customers’ ability to cancel or defer purchase orders for any reason reduces our backlog of firm orders and our ability to accurately estimate future customer requirements for our products or the component products we resell.

These facts, combined with the short turnaround times that apply to most orders, makes it difficult to predict our production and inventory needs and allocate production capacity and capital for inventory

purchases effectively.

As a result, we attempt to forecast the demand for the components needed to manufacture our products and to resell to customers directly, but any such forecasts could turn out to be wrong.

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If sale price declines are not offset by corresponding decreases in costs or increases in sales volume or sales of products with higher margins, these sale price declines could have a material adverse effect on our operating results.

The prices customers pay for the products we sell can fluctuate due to many factors, including, among others, competitive conditions in our key customer markets, changes in customer requirements or preferences, volatility in the market prices for SSDs, volatile memory components, non-volatile memory components, and other components or products, and changes in manufacturing efficiencies or capacities related to the aforementioned.

The prices customers pay for the products we sell can fluctuate due to many factors, including, among others, competitive conditions in our key customer markets, international tariff policies, changes in customer requirements or preferences, volatility in the market prices for SSDs, volatile memory components, non-volatile memory components, and other components or products, and changes in manufacturing efficiencies or capacities related to the aforementioned.

Market prices for component products have historically constituted a substantial portion of the total cost of our memory subsystems and in recent periods have constituted the vast majority of the cost of resales of these products to customers directly.

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As a result, if market prices for essential components increase, we generally cannot pass the price increases through to our customers for products purchased under an existing purchase order.

Consequently, we are exposed to the risks associated with the volatility of prices for these components and our cost of sales could increase and our gross margin could decrease in the

event of sudden price increases.

Consequently, we are exposed to the risks associated with the volatility of prices for these components and our cost of sales could increase and our gross margin could decrease in the event of sudden price increases.

Alternatively, if there are declines in the prices of these components, we may be required to reduce our selling prices for subsequent purchase orders, which may result in a decline in our net product sales.

Our manufacturing operations involve significant risks.

We maintain a manufacturing facility in the PRC at which we produce a portion of our products.

These manufacturing activities require significant resources to maintain.

For instance, we must continuously review and improve our manufacturing processes in order to maintain satisfactory manufacturing yields and product performance, try to lower our costs and otherwise remain competitive.

We manufacture our products in Suzhou, PRC and also utilize third-party manufacturing facilities in the PRC, Taiwan and Korea where we produce our products.

As we manufacture new and more complex products, the risk of encountering delays, difficulties or higher costs increases.

In addition, the start-up costs associated with implementing new manufacturing technologies, methods and processes, including the purchase of new equipment and any resulting manufacturing delays and inefficiencies, could negatively impact our results of operations.

Additionally, we could experience a prolonged disruption, material malfunction, interruption or other loss of operations at our manufacturing facility for any number of reasons, including the occurrence of a contagious disease or illness, or cyber-attacks, or catastrophic weather events, labor disruptions, or we may need to add manufacturing capacity to satisfy any increased demand for our products.

Under these circumstances, we may be forced to rely on third parties for our manufacturing needs, which could increase our manufacturing costs, decrease our gross margin, decrease our control over manufacturing processes, limit our ability to satisfy customer requirements and demand and delay new product development until we could secure a relationship with a third-party manufacturer, which we may not be able to do in a timely manner, on acceptable terms or at all.

Additionally, we could experience prolonged disruption, material malfunction, interruption or other loss of operations at any manufacturing facility for any number of reasons, including the occurrence of a contagious

disease or illness, international tariffs or trade wars, such as the recent tariffs between the United States and PRC, or cyber-attacks, or catastrophic weather events, labor disruptions, or we may need to add manufacturing capacity to satisfy any increased demand for our products.

Under these circumstances, our manufacturing costs may increase, decrease our gross margin, decrease our control over manufacturing processes, limit our ability to satisfy customer requirements and demand and delay new product development until we secure additional manufacturing capacity, which we may not be able to do in a timely manner, on acceptable terms or at all.

If any of these risks occur, our operations, performance and customer relationships could be severely harmed.

We also may need to expand our existing manufacturing facility or establish a new facility in the future.

Any need to expand or replace our manufacturing facility would be expensive and time-consuming and could also subject us to factory audits by our customers that could themselves result in delays, unexpected costs or customer losses if we cannot meet the standards of any such audits.

We may experience a decline in our gross margin and supply disruptions as a result of the recent international tariffs between the United States and China and this trend may continue.

We also may need to expand our existing manufacturing capacity or establish additional capacity in the future.

Any need to expand or replace our manufacturing capacity would be expensive and time-consuming and could also subject us to factory audits by our customers that could themselves result in delays, unexpected costs or customer losses if we cannot meet the standards of any such audits.

Further, we may not be able to replace or increase our manufacturing capacity at all.

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Additionally, even if an alternative manufacturer is available, we may not be able to engage the manufacturer on acceptable terms, which could result in increased costs, timing requirements or other adverse changes.

Further, we may not be able to redesign the customized components used in our

products to be manufactured by a new manufacturer, in which case we could infringe on the intellectual property of our current design or manufacturing partner when we manufacture the products with a new design or manufacturing partner.

Further, we may not be able to redesign the customized components used in our products to be manufactured by a new manufacturer, in which case we could infringe on the intellectual property of our current design or manufacturing partner when we manufacture the products with a new design or manufacturing partner.

Such an occurrence could force us to stop selling certain of our products or could expose us to lawsuits, license payments or other liabilities.

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However, these component manufacturers may not be able to achieve these tasks.

Additionally, our manufacturing partners may not continue to devote adequate resources to produce our products or the component products we resell or continue to advance the process design technologies on which the customer qualifications of our products are based.

Any of these risks could limit our ability to meet customer demand and materially adversely affect our business and operating results.

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Warranty and product liability claims, product “quality holds,” product recalls, safety alerts or advisory notices, regardless of their coverage by insurance or their ultimate outcome, could have a material adverse effect on our business, performance and financial condition, as well as our ability to attract and retain customers.

Our indemnification obligations for the infringement by our products of the rights of others could require us to pay substantial damages.

The scope of these indemnities varies, the duration of these indemnities is generally perpetual after execution of an agreement, and the maximum potential amount of future payments we could be required to make under these indemnities is often unlimited.

Any indemnification claims by customers could require us to incur significant legal fees and could potentially result in our payment of substantial damages, and our insurance generally would not cover these fees or damages.

As a result, the occurrence of any of these risks could have a material adverse effect on our business and results of operations.

Our indemnification obligations, including our indemnification obligations for the infringement by our products of the rights of others, could require us to pay substantial damages.

As is common in our industry, we have a number of agreements in which we have agreed to defend, indemnify and hold harmless our customers and suppliers from damages and costs that may arise from the infringement by our products of third-party patents, trademarks or other proprietary rights, claims based on our negligence or willful misconduct and indemnities involving the accuracy of representations and warranties.

We also have indemnification obligations (i) to our director and officers to the maximum extent permitted under the laws of the State of Delaware, (ii) pertaining to obligations, demands, claims, relating to liabilities claimed or asserted by other parties in connection with transactions contemplated by applicable investment or loan documents, and (iii) arising from 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 scope of these indemnities varies, the duration of these indemnities is often perpetual after execution of an agreement, and the maximum potential amount of future payments we could be required to make under these indemnities is often unlimited.

Any indemnification claims could require us to incur significant legal fees and could potentially result in our payment of substantial damages, and our insurance, depending on the circumstances or claims, generally would not or may not cover these fees or damages.

As a result, the occurrence of any of these circumstances could have a material adverse effect on our business and results of operations.

We depend on certain key employees, and our business could be harmed if we lose the services of any of these employees or are unable to attract and retain other qualified personnel.

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We believe our future success will be dependent on our ability to retain the services of these key employees, develop their successors and properly manage the transition of their roles should departures occur.

The loss of these key employees or their inability to continue to provide their services could delay the development and introduction of new or enhanced products or technologies, negatively impact our ability to sell our existing products, limit our ability to pursue our other business goals and strategies and otherwise harm our business.

harm our business.

We do not have employment agreements with any of our employees other than Chun K.

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Our sales representatives generally may terminate their relationships with us at any time.

As a result, our performance depends in part on our ability to retain existing and attract additional sales representatives that

will be able to effectively market and support our products or the component products we resell, especially in markets in which we have not previously distributed these products.

As a result, our performance depends in part on our ability to retain existing and attract additional sales representatives that will be able to effectively market and support our products or the component products we resell, especially in markets in which we have not previously distributed these products.

Our efforts to attract, train and retain these sales representatives to be knowledgeable about our industry, products and technologies are costly and time-consuming.

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Further, our reliance on independent sales representatives subjects us to risks, as we have very little control over their activities and they are generally free to market and sell other, potentially competing, products.

As a result, these independent sales representatives could devote insufficient time or resources to marketing our products or the component products we resell, could market them in an ineffective manner or could otherwise be unsuccessful in selling adequate quantities of these products.

As a result, these independent sales representatives could devote insufficient time or resources to marketing our products or

the component products we resell, could market them in an ineffective manner or could otherwise be unsuccessful in selling adequate quantities of these products.

Our operations could be disrupted by power outages, natural disasters, cyber-attacks or other factors.

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Any of these outcomes could have a material adverse effect on our business and results of operations.

Difficulties with our global information technology systems, including any unauthorized access or cyber-attacks, could harm our business.

Difficulties with our global information technology systems, including any unauthorized access or cyber-attacks, could materially and adversely harm our business.

We store key data about our business, including certain customer data, information about our and our customers’ intellectual property and other proprietary information, on our global information technology systems.

Any failure or malfunctioning of our global information technology systems, errors or misuse by system users, cyber-attacks, difficulties migrating stand-alone systems to our centralized systems or inadequacy of the systems in addressing the needs of our operations could disrupt our ability to timely and accurately manufacture and ship products, divert management’s and key employees’ attention from other business matters and involve significant costs and other resources to repair or otherwise resolve, any of which could have a material adverse effect on our business, financial condition and results of operations.

Any such event could also disrupt our ability to timely and accurately process, report and evaluate key operating metrics and key components of our results of operations, financial position and cash flows and could adversely affect our ability to complete other important business processes, such as maintenance of our disclosure controls and procedures and internal control over financial reporting.

While our information technology systems include security measures designed to prevent unauthorized access, employee error, employee malfeasance, or other causes including intentional misconduct by computer hackers, could circumvent these measures and result in unauthorized access to these systems.

Any material failure or malfunctioning of our global information technology systems, errors or misuse by system users, cyber-attacks, difficulties migrating stand-alone systems to our centralized systems or inadequacy of the systems in addressing the needs of our operations could disrupt our ability to timely and accurately manufacture and ship products, divert management’s and key employees’ attention from other business matters and involve significant costs and other resources to repair or otherwise resolve, any of which could have a material adverse effect on our business, financial condition and results of operations.

Any such event could also materially disrupt our ability to timely and accurately process, report and evaluate key operating metrics and key components of our results of operations, financial position and cash flows and could adversely affect our ability to complete other important business processes, such as maintenance of our disclosure controls and procedures and internal control over financial reporting.

Because the techniques used to gain unauthorized access to information technology systems evolve frequently and often are not recognized until successful, we may be unable to anticipate these techniques or implement adequate preventative measures in a timely manner.

Any security breach could require significant

resources to correct, if correction is possible, and could result in disruption to our business, misappropriation or loss of data, loss of confidence in us by our customers, damage to our reputation, and legal liability.

Any security breach could require significant resources to correct, if correction is possible, and could result in a material disruption to our business, misappropriation or loss of data, loss of confidence in us by our customers, damage to our reputation, and legal liability.

Further, any failure to implement appropriate security measures to protect our information or any breach or other failure of our systems that results in unauthorized access, manipulation, disclosure or loss of this information could result in our violation of any U.S.

or foreign data protection laws that are applicable to us, including the California Consumer Privacy Act (“CCPA”) which went into effect in January 2020.

Further, the California Privacy Rights Act (“CPRA”), which became effective in 2023 and amends the CCPA, creates additional obligations with respect to processing and storing personal information, as well as establishes a new regulatory authority to enforce the CCPA and CPRA.

the CCPA and CPRA which is in the process of drafting and implementing new regulations.

Unlike other state privacy laws, the CCPA also regulates personal information collected in a business to business and in human resources contexts which impacts our business operations.

Further, there continues to be some uncertainly about how certain provisions of the CCPA will be interpreted and how the law will be enforced.

These laws and their interpretation and application are constantly evolving, and they could be interpreted and applied in a manner that is inconsistent with our current practices or they could become more stringent over time.

These laws, the regulations, and their interpretation and application are constantly evolving, and they could be interpreted and applied in a manner that is inconsistent with our current practices or they could become more stringent over time.

Efforts to comply with applicable data protection laws or any new interpretations of their application could involve significant time and substantial costs or require us to change our business practices and compliance procedures, and any failures to so comply could subject us to substantial civil or criminal fines or sanctions.

Any of these outcomes could have a material negative impact on our business, performance and prospects.

Our operations in China could also be subject to recent significant developments concerning privacy and data security.

The Data Security Law of the People’s Republic of China (“Data Security Law”), which took effect on September 1, 2021, requires data processing (which includes the collection, storage, use, processing, transmission, provision and publication of data), to be conducted in a legitimate and proper manner.

Our operations in the PRC could also be subject to recent significant developments concerning privacy and data security.

The Data Security Law of the PRC (“Data Security Law”), which took effect on September 1, 2021, requires data processing (which includes the collection, storage, use, processing, transmission, provision and publication of data), to be conducted in a legitimate and proper manner.

The Data Security Law imposes data security and privacy obligations on entities and individuals carrying out data processing activities and also introduces a data classification and hierarchical protection system based on the importance of data in economic and social development and the degree of harm it may cause to national security, public interests, or legitimate rights and interests of individuals or organizations if such data are tampered with, destroyed, leaked, illegally acquired or illegally used.

The appropriate level of protection measures is required to be taken for each respective category of data.

Also in China, the Personal Information Protection Law, which took effect on November 1, 2023, introduced stringer protection measures for processing personal information.

We may be required to make further adjustments to our business practices to comply with the data security and data protection laws in China, and such regulations may interfere with intended business activities, or cause us to incur additional costs.

Also in the PRC, the Personal Information Protection Law, which took effect on November 1, 2023, introduced stringer protection measures for processing personal information.

We may be required to make further adjustments to our business practices to comply with the data security and data protection laws in the PRC, and such regulations may interfere with intended business activities, or cause us to incur additional costs.

If we do not effectively manage any future growth we may experience, our resources, systems and controls may be strained and our results of operations may suffer.

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Increased prices and inflation could negatively impact our margin performance and our financial results.

Increased inflation, including rising prices for raw materials, parts and components, freight, packaging, labor and energy increases, the costs to manufacture and distribute our products, and we may be unable to pass these costs on to our customers.

Additionally, we are exposed to fluctuations in other costs such as packaging, freight, labor and energy prices.

We may experience inflation in connection with the newly enacted and proposed international tariffs.

If inflation in these costs increases beyond our ability to control for them through measures such as implementing operating efficiencies, we may not be able to increase prices to sufficiently offset the effect of various cost increases without negatively impacting customer demand, thereby negatively impacting our margin performance and results of operations.

Geopolitical risks associated with the ongoing conflicts between Russia and Ukraine and Israel and Palestine could result in increased market volatility and uncertainty, which could negatively impact our business, financial condition, and results of operations.

The uncertain nature, scope, magnitude, and duration of hostilities stemming from Russia’s military invasion of Ukraine, including the potential effects of such hostilities as well as sanctions, embargoes, asset freezes, cyber-attacks and other actions taken in response to such hostilities on the world economy and markets, and the ongoing conflict between Israel and Palestine have disrupted global markets and contributed to increased market volatility and uncertainty, which could have an adverse impact on macroeconomic and other factors that affect our business and supply chain.

Geopolitical risks associated with the ongoing conflicts between Russia and Ukraine and Israel and Palestine continue to contribute to heightened market volatility and uncertainty, which could negatively impact our business, financial condition, and results of operations.

The uncertain nature, scope, magnitude, and duration of hostilities stemming from the conflict between Ukraine and Russia- including the potential effects of such hostilities as well as sanctions, embargoes, asset freezes, cyber-attacks and other actions taken in response to such hostilities on the world economy and markets- along with the ongoing conflict between Israel and Palestine have disrupted global markets and contributed to increased market volatility and uncertainty.

These developments could have an adverse impact on macroeconomic and other factors that affect our business and supply chain.

Any disruption in our supply chain could reduce our revenue and adversely impact our financial results.

Such a disruption could occur as a result of any number of events, including, but not limited to, military conflicts, geopolitical developments, war or terrorism, including the ongoing conflicts between Russia and Ukraine and Israel and Palestine, regional or global pandemics, and

disruptions in utility and other services.

Any inability to obtain adequate deliveries or any other circumstance that would require us to seek alternative sources of supply or to manufacture, assemble, and test such components internally could significantly delay our ability to ship our products, which could damage relationships with current and prospective customers and could harm our reputation and brand and could adversely affect our business, financial condition, and results of operations.

In February 2022, in response to the military conflict between Russia and Ukraine, the United States and other North Atlantic Treaty Organization member states, as well as non-member states, announced targeted economic sanctions on Russia, including certain Russian citizens and enterprises, and the continuation of the conflict may trigger additional economic and other sanctions.

The potential impacts of the conflict and related sanctions could include supply chain and logistics disruptions, macro financial impacts resulting from the exclusion of Russian financial institutions from the global banking system, volatility in foreign exchange rates and interest rates, inflationary pressures on raw materials and energy and heightened cybersecurity threats.

We do not and cannot know if the conflict, which remains ongoing, could escalate and result in broader economic and security concerns which could adversely affect our supply chain, suppliers, customers, and potential customers.

It is not possible to predict the broader consequences of this conflict, which could include further sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, the availability and cost of materials, supplies, labor, currency exchange rates and financial markets, all of which could have a material adverse effect on our business, financial condition and results of operations.

The continuation and potential escalation of this conflict may trigger additional economic and other sanctions.

The potential impacts of the conflict and related sanctions could include disruptions to supply chain and logistics, macro financial impacts resulting from the exclusion of Russian financial institutions from the global banking system, volatility in foreign exchange rates and interest rates, inflationary pressures on raw materials and energy, and heightened cybersecurity threats.

In addition, the ongoing conflict between Israel and Palestine, which has expanded into a broader regional crisis involving multiple state and non-state actors, presents additional geopolitical risks.

This conflict could destabilize key global trade routes, increase energy prices, further strain international relations, and contribute to inflationary and security pressures.

We do not and cannot know if either or both of these conflicts will further escalate, nor can we predict the resulting global economic, political or security consequences.

These could include additional sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, the availability and cost of materials, supplies, labor, currency exchange rates and financial markets.

Any of these developments could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Laws and Regulations

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We sell products to foreign corporations and deliver products to facilities located in foreign countries.

To facilitate this process and to meet the long-term projected demand for our products, we have established a manufacturing facility in the PRC that performs most of the manufacturing activities for our memory subsystem products.

To facilitate this process and to meet the long-term projected demand for our products, we utilize manufacturing facilities in the PRC, Taiwan and Korea where we produce our products.

Selling and manufacturing in foreign countries subjects us to additional risks not present with our domestic operations, as we are operating in business and regulatory environments in which we have limited experience and that may impose materially different requirements.

Further, the geographic distance from our headquarters in Irvine, California, compounds the difficulties of maintaining a manufacturing operation in the PRC.

Further, the geographic distance from our headquarters in Irvine, California, compounds the difficulties of maintaining a manufacturing operation in the PRC, Taiwan and Korea.

For instance, we may not be able to maintain the desired amount of control over production capacity and timing, inventory levels, product quality, delivery schedules, manufacturing yields or costs.

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Failures in any of these areas could result in legal consequences or production delays and increased turnaround times, which could adversely affect our business.

In addition, changes to the labor or other laws of the PRC or the economic and political conditions in the PRC, including increased industrialization in recent years, natural disasters, public health crises, including the occurrence of a contagious disease or illness, and other catastrophic events, could increase the costs of employing a local workforce or conducting our manufacturing operations in the PRC.

Any of these factors could negatively impact any cost savings we experience from locating our manufacturing facility in the PRC.

In addition, changes to the labor or other laws of the PRC, Taiwan and Korea or the economic and political conditions in the PRC, Taiwan and Korea, including recent heightened tensions between the PRC and Taiwan, increased industrialization in recent years, natural disasters, public health crises, including the occurrence of a contagious disease or illness, and other catastrophic events, could increase the costs of employing a local workforce or conducting our manufacturing facilities in the PRC, Taiwan and Korea.

Any of these factors could negatively impact any cost savings we experience from locating our manufacturing facilities in the PRC, Taiwan and Korea.

For example, in December 2021, the United States adopted the Uyghur Forced Labor Prevention Act (“UFLPA”) which creates a rebuttable presumption that any goods, wares, articles, and merchandise mined, produced, or manufactured in whole or in part in the Xinjiang Uyghur Administrative Region of the PRC or that are produced by certain entities are prohibited from importation into the United States.

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While we are not presently aware of any direct impacts of these restrictions on our supply chain, the UFLPA may have an adverse effect on global supply chains which could adversely impact our business and results of operations.

Additionally, our management has limited experience creating or overseeing foreign operations generally, and the ongoing administration and operation

of our PRC facility may require substantial amounts of time and attention by our management team, particularly if we encounter operational, legal or cultural difficulties or disruptions at our PRC facility.

In addition, there are uncertainties regarding the interpretation and application of PRC laws, rules, and regulations, including, but not limited to, the laws, rules and regulations governing our manufacturing facility in the PRC.

Additionally, our management has limited experience creating or overseeing foreign operations generally, and the ongoing administration and operation of our PRC facility may require substantial amounts of time and attention by our

management team, particularly if we encounter operational, legal or cultural difficulties or disruptions at our PRC, Taiwan and Korea facilities.

In addition, under its current leadership, the government of the PRC has been pursuing economic reform policies, including by encouraging foreign trade and investment.

However, there is no assurance that the PRC government will continue to pursue such policies, that such policies will be successfully implemented, that such policies will not be significantly altered, or that such policies will be beneficial to our activities in the PRC.

A large part of the PRC’s economy is still being operated under varying degrees of control by the PRC government.

By imposing industrial policies and other economic measures, such as control of foreign exchange, taxation, import and export tariffs, environmental regulations, land use rights, intellectual property and restrictions on foreign participation in the domestic market of various industries, the PRC government exerts considerable direct and indirect influence on the development of the PRC economy.

Many of the economic reforms carried out by the PRC government are unprecedented or experimental and could change further.

The PRC’s system of laws can be unpredictable, especially with respect to foreign investment and foreign trade.

government has called for substantial changes to foreign trade policy with PRC and has raised, and has proposed to further raise in the future, tariffs on several PRC goods.

The PRC has retaliated with increased tariffs on U.S.

Moreover, the PRC’s legislature has adopted a national security law to substantially change the way Hong Kong has been governed since the territory was handed over by the United Kingdom to the PRC in 1997.

This law increases the power of the central government in Beijing over Hong Kong, limits the civil liberties of residents of Hong Kong and could restrict the ability of businesses in Hong Kong to continue to conduct business or to continue to with business as previously conducted.

State Department has indicated that the United States no longer considers Hong Kong to have significant autonomy from the PRC.

State Department has enacted sanctions related to the PRC’s governing of Hong Kong.

Any further changes in U.S.

trade policy could trigger retaliatory actions by affected countries, including the PRC, resulting in trade wars.

Any regulatory changes and changes in United States and China relations may have a material adverse effect on our activities in the PRC, which could materially harm our business and financial condition.

These matters will likely continue to develop and change.

In particular, we may be exposed to risks related to changes in trade relations, tariffs, export controls, and other regulatory restrictions that may be imposed on U.S.

companies with operations in the PRC.

Notably, the U.S.

government has recently implemented significant tariff increases on imports from the PRC.

If maintained and if extended to other countries, tariffs and the potential escalation of trade disputes with PRC and other countries could pose a significant risk to our operations and could result in higher operating expenses and lower gross margins.

The extent and duration of any tariffs and the resulting impact on general economic conditions and on our business are uncertain and depend on various factors, such as negotiations between the United States and the PRC and/or other countries, the response of such countries and possible exemptions or exclusions that may be granted or other countries targeted with tariffs.

Additionally, the escalating trade conflicts between the United States and its trading partners, including PRC, could also cause/has caused the costs of components to increase or fluctuate, which could materially harm our business/has negatively affected our results of operations.

Those conflicts could also interfere with the ability of our customers to make and sell products to their customers, which could reduce demand for the products we sell and therefore adversely affect our business and operating results.

Moreover, economic uncertainty arising from rapidly changing trade policies may lead to a global economic slowdown that could increase costs of our products and/or reduce demand for our products.

Further, there are uncertainties regarding the interpretation and application of PRC, Taiwan and Korea laws, rules, and regulations, including, but not limited to, the laws, rules and regulations governing our manufacturing facilities in the PRC, Taiwan and Korea.

Because many laws and regulations are relatively new, the interpretations of many laws, regulations and rules are not always uniform.

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Enforcement of existing laws or contracts based on existing law may be uncertain and sporadic.

We cannot assure you that the PRC regulatory authorities will not determine that our manufacturing facility in China does not violate PRC laws, rules or regulations.

The PRC has broad discretion in dealing with violations of laws and regulations, including levying fines, revoking business and other licenses and requiring actions necessary for compliance.

We cannot assure you that the PRC, Taiwan and Korea regulatory authorities will not determine that our

manufacturing facilities in PRC, Taiwan and Korea do not violate the local laws, rules or regulations.

The PRC, Taiwan and Korea have broad discretion in dealing with violations of laws and regulations, including levying fines, revoking business and other licenses and requiring actions necessary for compliance.

In particular, licenses and permits issued or granted by relevant governmental agencies may be revoked at a later time by other regulatory agencies.

We cannot predict the effect of the interpretation of existing or new PRC laws or regulations on our business.

We cannot predict the effect of the interpretation of existing or new PRC, Taiwan and Korea laws or regulations on our business.

Any of these or similar actions could significantly disrupt our operations or restrict us from conducting a substantial portion of our operations, which could materially and adversely affect our business, financial condition and results of operations.

To date, the majority of our net product sales have been denominated in U.S.

In the future, however, some of our net product sales may be denominated in RMB.

The Chinese government controls the procedures by which RMB is converted into other currencies, which generally requires government consent.

In the future, however, some of our net product sales may be denominated in Chinese Renminbi (“RMB”).

The PRC government controls the procedures by which RMB is converted into other currencies, which generally requires government consent.

As a result, RMB may not be freely convertible into other currencies at all times.

If the Chinese government institutes changes in currency conversion procedures or imposes additional restrictions on currency conversion, our operations and our operating results could be negatively impacted.

In addition, Chinese law imposes restrictions on the movement of funds outside of the PRC.

If we need or decide to repatriate funds from our Chinese operations, we would be required to comply with the procedures and regulations of applicable Chinese law, and any failure to so comply could adversely affect our liquidity and financial condition.

Further, if we are able to repatriate funds from our Chinese operations, these funds would be subject to U.S.

If the PRC government institutes changes in currency conversion procedures or imposes additional restrictions on currency conversion, our operations and our operating results could be negatively impacted.

In addition, PRC law imposes restrictions on the movement of funds outside of the PRC.

If we need or decide to repatriate funds from our PRC operations, we would be required to comply with the procedures and regulations of applicable PRC law, and any failure to so comply could adversely affect our liquidity and financial condition.

Further, if we are able to repatriate funds from our PRC operations, these funds would be subject to U.S.

In addition, fluctuations in the exchange rate between RMB and U.S.

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In addition, the United States or foreign countries may implement quotas, duties, tariffs, taxes or other charges or restrictions on the importation or exportation of our products or the component products we resell, which could lead to a reduction in sales and profitability in that country.

The implementation of tariffs by the United States on goods manufactured in other countries, including PRC, could cause the costs of our products to increase, which could significantly impair the gross margin we receive and thereby harm our operating results significantly.

The United States is in the process of designing and imposing tariffs on international commerce, the ultimate scope of these tariffs is somewhat uncertain.

The implementation of tariffs, or additional tariffs, by the United States on goods manufactured in other countries, including PRC, could cause the costs of our products to increase, which could significantly impair the gross margin we receive and thereby harm our operating results significantly.

In addition, international turmoil and the threat of future terrorist attacks have contributed to an uncertain political and economic climate, both in the United States and globally, and have negatively impacted the worldwide economy.

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In particular, some of our manufacturing processes may require us to handle and dispose of hazardous materials from time to time.

For example, in the past our manufacturing operations have used lead-based solder in the assembly of our products.

For example, in the past our manufacturing operations have

used lead-based solder in the assembly of our products.

Today, we use lead-free soldering technologies in our manufacturing processes, as this is required for products entering the European Union.

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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 and the related rules and regulations of the SEC, 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.

The identified material weakness, as of December 30, 2023, relates to the lack of an independent board and audit committee and ineffective risk assessment and monitoring controls.

As of March 29, 2025,

management concluded that our internal control over financial reporting was ineffective due to one material weakness.

The identified material weakness, as of March 29, 2025, relates to the lack of an independent board and audit committee and ineffective risk assessment and monitoring controls.

While the control deficiency identified did not result in any identified misstatements, a reasonable possibility exists that a material misstatement to the annual or interim condensed consolidated financial statements and disclosures will not be prevented or detected on a timely basis.

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We can give no assurance that the measures we have taken and plan to take in the future will remediate the material weakness identified or that any additional material weaknesses will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting.

We are required to comply with certain provisions of Section 404 that place significant demands on our resources, and the transition to the higher reporting and control standards that applies to us as a “large accelerated filer” may cause management distraction and increased costs.

Section 404 require us to evaluate our internal control over financial reporting and require management to report on the effectiveness of this internal control as of the end of each fiscal year.

Our Section 404 evaluations confirmed that enhancements, modifications and changes to our internal control over financial reporting are necessary and desirable.

Implementing changes to comply with Section 404 may divert the attention of management, involve significant time and costs and could negatively impact our financial reporting functions during the transition, any of which could have a material negative effect on our results of operations and financial condition.

Risks Related to Intellectual Property and Litigation

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We may not have sufficient working capital to fund our planned operations, and, as a result, we may need to raise additional capital in the future, which may not be available when needed, on acceptable terms or at all.

To support our activities in the near term, we expect to rely on cash generated from our business, the cash received under the Strategic Agreement with SK hynix, proceeds from issuances of debt and equity securities, including our equity line with Lincoln Park, funds raised from the 2023 Offering, the equity financing available under the September 2021 Purchase Agreement, and borrowing availability under the 2023 SVB Credit Agreement.

To support our activities in the near term, we expect to rely on cash generated from our business, the cash received under the Strategic Product and License Agreement (the “Strategic Agreement”) entered into on April 5, 2021 with SK hynix, proceeds from issuances of debt and equity securities, proceeds from our registered offering with certain investors, the equity financing available under the March 2025 Purchase Agreement entered into with Lincoln Park on March 13, 2025, and borrowing availability under our credit facility with SVB.

Taking into account our planned activities and sources of capital, we believe we have sufficient cash resources to satisfy our capital needs for at least the next 12 months.

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Inadequate working capital would have a material adverse effect on our business and operations and could cause us to fail to execute our business plan, fail to take advantage of future opportunities or fail to respond to competitive pressures or customer requirements.

A lack of sufficient funding may also require us to significantly modify our business model and/or reduce or cease our operations, which could include implementing cost-cutting measures or delaying, scaling back or eliminating some or all of our ongoing and planned investments in corporate infrastructure, research and development projects, legal proceedings,

business development initiatives and sales and marketing activities, among other activities.

A lack of sufficient funding may also require us to again significantly modify our business model and/or reduce or cease our operations, which could include implementing cost-cutting measures or delaying, scaling back or eliminating some or all of our ongoing and planned investments in corporate infrastructure, research and development projects, legal proceedings, business development initiatives and sales and marketing activities, among other activities.

Modification of our business model and operations could result in an impairment of assets, the effects of which cannot be determined.

Furthermore, if we continue to issue equity or convertible debt securities to raise additional funds, our existing stockholders may experience significant dilution, and the new equity or debt securities may have rights, preferences and privileges that are superior to those of our existing stockholders.

Additionally, because our common stock is no longer listed on the Nasdaq Capital Market, the challenges and risks of equity financings may significantly increase, including potentially increasing the dilution of any such financing or decreasing our ability to affect such a financing at all.

If we incur additional debt, it may increase our leverage relative to our earnings or to our equity capitalization or have other material consequences.

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The balance held in these accounts may exceed the Federal Deposit Insurance Corporation (“FDIC”) standard deposit insurance limit or similar government guarantee schemes.

If a financial institution in which we hold such funds fails or is subject to significant adverse conditions in the financial or credit markets, we could be subject to a risk of loss of all or a portion of such uninsured funds or be subject to a delay in accessing all or a portion of such uninsured funds.

a delay in accessing all or a portion of such uninsured funds.

Any such loss or lack of access to these funds could adversely impact our short-term liquidity and ability to meet our obligations.

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Netlist common shares began trading on the Over-the-Counter market in October 2018, following the decision to move trading of our common stock from the Nasdaq Capital Market.

Because our stock is no longer listed on a registered national securities exchange, we are subject to certain “blue sky” laws of the various states

which impose restrictions on our ability to offer and sell our securities.

Because our stock is no longer listed on a registered national securities exchange, we are subject to certain “blue sky” laws of the various states which impose restrictions on our ability to offer and sell our securities.

These “blue sky” laws may make it more difficult for us to raise capital or to issue our common stock for equity compensation or other strategic purposes, which could adversely affect our ability to fund our operations or to attract and retain employees.

In addition, our stock may be defined as a “penny stock” under Rule 3a51-1 under the Exchange Act.

In addition and depending on our results of operations, our stock may be defined as a “penny stock” under Rule 3a51-1 under the Exchange Act.

“Penny stocks” are subject to Rule 15g-9 of the Exchange Act, which imposes additional sales practice requirements on broker-dealers that sell low-priced securities to persons other than established customers and institutional accredited investors.

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Future issuances of our common stock or rights to purchase our common stock, including pursuant to our equity incentive plans, could result in additional dilution to the percentage ownership of our stockholders and could cause the price of our common stock to decline.

We have historically funded our operations in large part with proceeds from equity and convertible debt financings, and we expect to continue to do so in the future.

We have historically funded our operations in large part with proceeds from equity and convertible debt financings, and we expect to continue to do so in the future, including through the issuance of up to $75 million in shares of common stock pursuant to the March 2025 Purchase Agreement.

In addition to capital-raising purposes, we may also issue securities from time to time at prices and on other terms as we determine for acquiring other businesses or assets in exchange for shares of our common stock or other securities, issuing securities to collaborators in connection with strategic partnerships, attracting and retaining employees with equity compensation, or other purposes.

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Sales of our common stock, or the perception that such sales could occur, could cause the market price of our stock to drop significantly, regardless of the state of our business.

As of September 28, 2024, there were 258,191,376 shares of our common stock outstanding.

As of March 29, 2025, there were 274,573,383 shares of our common stock outstanding.

In addition, 2,841,764 shares of our common stock are subject to outstanding stock options, 3,396,052 shares of our common stock are subject to outstanding unvested restricted stock units, and 24,747,476 shares of our common stock are subject to outstanding warrants.

All outstanding shares of our common stock are eligible for sale in the public market under applicable federal securities laws, subject in certain cases to the requirements of Rule 144 under the Securities Act of 1933, as amended, and shares issued upon the exercise or conversion of outstanding stock options, warrants or convertible notes may also be eligible for sale in the public market, to the extent permitted by Rule 144 or other applicable securities laws and the provisions of the applicable stock option, warrant and convertible note agreements.

If these shares are sold, or if it is perceived that they may be sold, in the public market, the trading price of our common stock could fall.

We may also issue up to $75 million shares of common stock pursuant to the March 2025 Purchase Agreement.

All outstanding shares of our common stock and stock issuable pursuant to the March 2025 Purchase Agreement are eligible for sale in the public market under applicable federal securities laws, subject in certain cases to the requirements of Rule 144 under the Securities Act of 1933, as amended, and shares issued upon the exercise or conversion of outstanding stock options, or warrants may also be eligible for sale in the public market, to the extent permitted by Rule 144 or other applicable securities laws and the provisions of the applicable stock option, and warrant agreements.

these shares are sold, or if it is perceived that they may be sold, in the public market, the trading price of our common stock could fall.

As the sole director, Chun K.

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Anti-takeover provisions under our charter documents and Delaware law, as well as our rights agreement, could delay or prevent a change of control and could also limit the market price of our common stock.

Our certificate of incorporation and bylaws contain provisions that could delay or prevent a change of control of Netlist or changes in our board of directors that our stockholders might consider favorable, including:

Our certificate of incorporation and bylaws contain provisions that could delay or prevent a change of control of our Company or changes in our board of directors that our stockholders might consider favorable, including:

● our board of directors is authorized, without prior stockholder approval, to designate and issue preferred stock, commonly referred to as “blank check” preferred stock, which may have rights senior to those of our common stock;

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In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock.

Further, we adopted a rights agreement that would, under certain specified circumstances and for so long as the rights issued under the rights agreement are outstanding, give the holders of our common stock the right to acquire additional shares of our capital stock, which would make it more difficult for a third party to acquire a significant percentage of our outstanding capital stock or attempt a hostile takeover.

These and other provisions in our certificate of incorporation and bylaws and of Delaware law, as well as the existence of our rights agreement, could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by our board of directors, including a merger, tender offer, proxy contest or other change of control transaction involving Netlist.

Any delay or prevention of a change of control transaction or changes in our board of directors could prevent the consummation of a transaction in which our stockholders could receive a substantial premium over the then-current market price for our common stock.

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

What changed 10-Q

Item 1A. Risk Factors