NLST 10-K & 10-Q changes, risk factors and insider trading
Netlist Inc. · OTC · Semiconductors & Related Devices · CIK 1282631 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “We have, and may again, be subject to claims that our employees, consultants, or those working on our behalf, have violated the intellectual property rights of others.”
New heading “Net product sales from resales of products, including products sourced from SK hynix, have in certain historic periods comprised a large portion of our net product sales. Material declines in resales, increases in our costs for the products we resell and disruption in the supply of the products we resell, could materially and adversely harm our business and results of operations.”
New heading “Our customers require that our products undergo a lengthy and expensive pre-sale qualification process without any assurance of sales. Even once a customer begins purchasing our products, 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.”
New heading “We or any of our third-party partners may fail to comply with our or their contractual obligations under our third-party contracts.”
New heading “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 and the ongoing effects and changes to international trade and tariff policies.”
New heading “A significant portion of our sales are to customers located in the PRC. Sales to these customers may be adversely affected as a result of international trade policies or the tariff environment between the United States and the PRC.”
New heading “Our actual or perceived failure to comply with data protection laws and regulations could lead to government enforcement actions, private litigation and/or adverse publicity and could negatively affect our business.”
New heading “As our shares of common stock are not listed on a national securities exchange, it may be more difficult for stockholders to dispose of their shares and our shares of common stock may be less liquid when compared to securities that are listed on a national securities exchange.”
New heading “A large portion of our warrants contain anti-dilution provisions for certain dilutive issuances of our securities at prices lower than the exercise prices set forth in such warrants.”
Removed heading “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.”
Removed heading “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.”
Removed heading “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.”
Removed heading “We are subject to risks of disruption in the supply of component products.”
Removed heading “Our customers require that our products undergo a lengthy and expensive qualification process without any assurance of sales.”
Removed heading “The use of artificial intelligence could adversely affect our business and operating results.”
Removed heading “Semiconductor memory and storage markets are highly competitive which could materially and adversely affect our business, results of operations, or financial condition.”
Removed heading “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.”
Removed heading “Our manufacturing operations involve significant risks.”
Removed heading “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.”
Removed heading “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.”
Removed heading “There is a limited market for our common shares, and the trading price of our common shares is subject to volatility.”
Removed heading “As the sole director, Chun K. Hong has significant control over all corporate decisions that may not be in the best interest of our other stockholders.”
Largest changes
“To the extent that any disruption or cybersecurity incident were to result in a loss of, or damage to, our or our third-party vendors’, collaborators’ or other contractors’ or consultants’ data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability including litigation exposure, penalties and fines, we could become the subject of regulatory actions or investigations, our competitive position could be harmed and the further development and commercialization of our products could be delayed. …”see in full comparison
“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. …”see in full comparison
“Numerous other countries have, or are developing, laws governing the collection, use and transmission of personal information as well. For example, the General Data Protection Regulation ("GDPR") governs the collection and use of personal data in the European Union, including by companies outside of the European Union. …”see in full comparison
“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, 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. …”see in full comparison
“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 in a manner that materially and adversely affects our operations. …”see in full comparison
“We are subject to domestic and international data protection laws and regulations that address privacy and data security and may affect our collection, use, storage, and transfer of personal information. The legislative and regulatory landscape for data protection continues to evolve, and in recent years there has been an increasing focus on privacy and data security issues with the potential to affect our business. …”see in full comparison
Full comparison: every changed paragraph (145)
Since the inception of our business in 2000, we have only experienced two fiscal years (2006 and 2021) with profitable results. In order to sustain or again achieve profitability, or to achieve and sustain positive cash flows from operations, we must reduce operating expenses and/or increase our revenues and gross margin. Although we have in the past engaged in a series of cost reduction actions, such expense reductions alone will not make us profitable or allow us to sustain profitability if it is achieved, and eliminating or reducing strategic initiatives could limit our opportunities and prospects. Our ability to sustain profitability will depend on increased revenue growth from, among other things, increased demand for our product offerings and our ability to monetize our intellectual property. 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 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 litigations with Samsung, we were awarded damages of approximately $303 million and $118 million in separate jury verdicts in April 2023 and November 2024, respectively. As of the reporting date, each Netlist patent found infringed by Samsung in the respective jury verdict is subject to a Final Written Decision (“FWD”) in an Inter Partes Review (“IPR”) which is on appeal before the U.S. Court of Appeals for the Federal Circuit (“CAFC”); see Note 6 below. The appeals would likely cause a lengthy delay in our ability to collect each award and could result in a reversal or reduction of such award. With or without an appeal, we would need to successfully collect damages awarded to us. In addition, if either verdict 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 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. If we do not receive funds from other litigation matters or secure financing in the future, we may be forced to liquidate our assets or discontinue our operations altogether.
We may not be able to collect the substantial amount in damages previously awarded to us in our litigation with Micron,litigations, which couldwould likely have an adverse impact on our business, financial condition and operating results.
We have been awarded a substantial amount of damages in connection with certain ongoing litigation. However, we may not be able to collect all or any portion of the damages awarded to us. Collection efforts are often lengthy, costly, and unpredictable, and are typically subject to legal challenges, settlement negotiations, appeals, or enforcement proceedings in various jurisdictions. Failure to collect these damages could adversely affect our financial condition, results of operations, and cash flows. If we are unable to collect on the damages previously awarded to us, or if these damages awards are materially reduced or overturned, this would likely have an adverse impact on our business, prospects, 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. 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. 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 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. If we do not receive funds from other litigation matters or secure financing in the future, we may be forced to liquidate our assets or discontinue our operations altogether.
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., 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. Each of the proceedings is subject to substantial uncertainty regarding their outcomes because of the unpredictable nature of the litigation and appeal process, which is highly dependent upon specific factual matters and legal interpretations. We believe that it is critical to our future success to continue to pursue these actions, and we intend to do so. Each action will result in court rulings and decisions about significant issues, such as claim construction, patent validity, infringement, jurisdiction and other matters, almost all of which are subject to an appeal process that are typically lengthy and unpredictable. Moreover, the ruling or decision in one proceeding is not necessarily indicative of rulings or decisions that may be issued in another proceeding, even if the factual and legal matters are similar. We expect that various courts and agencies will issue significant rulings in several of our proceedings within the next year, and the disclosure of those rulings may cause substantial volatility in our stock price. Regardless of the outcome of our actions to enforce our intellectual property rights, we expect to continue to invest financial and management resources in pursuing the actions and related appeals, which may require that we obtain additional capital.
We are and expect to continue to be involved in other legal and administrative proceedings to enforce or protect our intellectual property rights and to defend against claims that we infringe the intellectual property rights of others. Our opponents in these matters are often large, well-capitalized companies, and we expect to continue to expend substantial financial and management resources in connection with these claims. We may not be successful in these matters such that our business, results of operations and prospects may be materially and adversely affected.
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”) 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,property rights. These claims involve our contractual and commercial rights, including, in particular, our patent portfolio and our trade secrets, as well as to challengechallenging the validity and scope of the proprietary rights of others. ThisIn orconnection otherwith similarthese proceedingsmatters, alsowe haveare and may againoften subject us to counterclaims or countersuits against us,us alleging that we, or our employees and agents, have violated the intellectual property rights of others. The parties that we sue havealso and may againoften 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 these customers.
Moreover,Our ourpursuit ability to continue to pursueof this strategy depends on our ability to obtain and protect our patents, which is governed by an uncertain process. In addition to the patent issuance process established by law and the procedures of the USPTO, we must also comply with administrative procedures of the Joint Electron Device Engineering Council (“JEDEC”) to protect our intellectual property within its industry standard-setting process.. These procedures evolve over time, are subject to variability in their application and may be inconsistent with each other. AnyA failure to comply with the USPTO’s or JEDEC’s administrative procedures could materially and adversely jeopardize our ability to pursue our patent infringement claims.
Making use of new technologies and entering new markets increases the likelihood that others might allege that our products or the component products we resell infringe their intellectual property rights. The likelihood of this type of lawsuit may also be increased due to the limited pool of experienced technical personnel that we can draw on to meet our hiring needs. 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.
Litigation is also inherently uncertain. An adverse outcome in existing or any future litigation could force us to, among other things:
Moreover, anyAny litigation, regardless of its outcome, involves a significant dedication of resources, including time and capital, and diverts management’s attention from our other activities. AsMany aof result,our anyopponents are substantially more capitalized and have more resources than we do, which may limit our ability to prevail in these matters. Any current or future infringement claims or patent challenges by or against third parties, whether or not eventually decided in our favor or settled, could materially adversely affect our business, financial condition and results of operations. Additionally, the outcome of pending or future litigation and related patent reviews and reexaminations, as well as any delay in their resolution, could affect our ability to continue to sell our products, protect against competition in the current and expected markets for our products or license or otherwise monetize our intellectual property rights in the future. 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 these customers. These circumstances and our inability to prevail in our litigation efforts may materially and adversely affect our business, prospects and results of operations.
We have, and may again, be subject to claims that our employees, consultants, or those working on our behalf, have violated the intellectual property rights of others.
There is a limited pool of experienced technical personnel that we can draw on to meet our hiring needs. As a result, a number of our existing employees, consultants or agents have worked for our existing or potential competitors at some point during their careers, and we anticipate this trend will continue. We have, and may again, be subject to claims that these persons have violated the intellectual property rights of others. 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. These claims may materially and adversely affect our business, prospects and results of operations.
Net product sales from resales of products, including products sourced from SK hynix, have in certain historic periods comprised a large portion of our net product sales. Material declines in resales, increases in our costs for the products we resell and disruption in the supply of the products we resell, could materially and adversely harm our business and results of operations.
In recent periods, a large portion of our net product sales were generated from resales of computer memory and storage components and products. We often 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. In particular, a large portion of our resales in certain historic periods were generated from resales of products sourced from SK hynix pursuant to a Product Purchase and Supply Agreement with SK hynix, which was entered into on April 5, 2021 (the “Supply Agreement”) and expires in April 2026. If we are unable to renew supply arrangements with SK hynix on acceptable terms in a timely manner, our access to product for resale could be disrupted or more expensive; even if renewed, changes in commercial terms, allocation decisions, or delays in supply could adversely affect our resales and margins.
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.
TheseOur product resales are subject to a number of risks. For example, the current supply-demand imbalance may not continue, 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), and customers reducing their need for these products generally,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. As a result, any decrease in demand for these products from us would reduce our sale levels and could materially adversely impact our revenues. Additionally,Our opportunistic purchases of products for resale, when coupled with a decrease in demand, may cause us to materially write offoff, or again materially write off, excess inventory which wouldcould materially and adversely affect our operating performance. Further, because the cost of the component products we purchase for resale is added to our cost of sales for these products, our gross margin on resales of component products is typically lower than our gross margin on sales of our own memory subsystem products. Thus, increased resales of component products as a percentage of our total product sales typically has a negative impact on our gross margin and gross margin percentage.
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 materially increase, which occurs, or may occur, for a variety of reasons, including as a result of international tariffs and trade policies, supply shortages and disruption in supply from the third party manufacturers or suppliers of our products for resale. There are a small number of manufacturers and suppliers of the products we resell, and shortages of these products do occur from time to time for a variety of reasons beyond our control. During periods of tight supply, suppliers may allocate limited capacity among other customers, require prepayments or letters of credit, or raise prices, which could restrict our ability to fulfill demand, increase our working-capital needs and reduce unrestricted cash. In addition, our customers have quality standards that the products we produce or resell must meet. If our resale product suppliers deliver products that do not comply with these standards or fail to supply these products on a timely basis or on terms favorable to us, our product resales can be delayed, cancelled or otherwise materially and adversely affected. In particular, if we are unable to renew our supply arrangements with SK hynix, or are unable to renew them in the near term, or are unable to renew them on favorable terms, our costs to obtain products for resale from SK hynix may increase or be disrupted. Even if we are successful in renewing our arrangements with SK hynix, our costs and resale sales may be disrupted or delayed if SK hynix were to fail to comply or was unable to comply with the terms of our agreed-upon arrangements. Declines in resales, delays in supply of quality product for resale or increases in our costs for the products that we resell may materially and adversely affect our business and results of operations.
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. 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. Further, even if we are able to make arrangements with other suppliers for sufficient component products to replace any undersupply from SK hynix, we may not be able to make these arrangements on financial and other terms comparable to those we have negotiated with SK hynix. As a result, any inability to obtain sufficient component products from SK hynix could increase our cost of sales for component product resales if we are forced to pay higher prices to obtain the products from other suppliers. Moreover, all of our supply arrangements for these component products and any arrangements we may establish with other suppliers, are subject to the other supply and manufacturing risks discussed elsewhere in these risk factors.
Increased reliance on product resales also has a substantial impact on our results of operations. Because the cost of the component products we purchase for resale is added to our cost of sales for these products, our gross margin on resales of component products is significantly lower than our gross margin on sales of our own memory subsystem products. 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. 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. The occurrence of any one or more of these risks could cause our performance to materially suffer.
We are subject to risks relating to our focus on developing our CXLnew products for our target customer markets.
We have historically derived revenues from sales of our high-performance memory products to OEMOEMs 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.future, particularly as a result of newly enacted or evolving international trade policies and 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 ASICs and hybrid devices, including our CXL technology-based memory expansion controller.devices. These products are subject to significant risks, including the following:
Additionally, if the demand for servers deteriorates, if the demand for our products to be incorporated in servers continuesagain to decline,declines, or if demand for our products deteriorates because customers in our other target markets change their requirements or preferences or otherwise reduce their need for these types of products generally, our operating results would be adversely affected, and we would be forced to diversify our product portfolio and our target customer markets in order to try to replace revenues lost from the further decreases in product sales. 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 currentlycurrently, and have historicallyhistorically, 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 and currently represent a substantial portion of our net product sales, and we expect this concentration to continue. For example, for the year ended December 27, 2025, two customers represented approximately 30% and 13% of our net product sales, respectively. 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 generally do not have long-term agreements with 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. In addition, the prices customers pay for products are subject to fluctuations, and large or key customers exert pressure on us to make concessions in the prices at which we sell products to them.
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. In addition, the prices customers pay for products are subject to fluctuations, and large or key customers may exert pressure on us to make concessions in the prices at which we sell products to them. Further, we may not be able to sell some of our products developed for one customer to a different customer because our products are often customized to address specific customer requirements, and even if we are able to sell these products to another customer, our margin on these products may be reduced. Additionally, although customers are generally allowed only limited rights of return after purchasing our products or the component products we resell, we may determine that it is in our best interest to accept returns from certain large or key customers even if we are not contractually obligated to accept them in order to maintain good relations with these customers. Any returns beyond our expectations could negatively impact our operating results. Moreover, because a few customers often account for a substantial portion of our net product sales, the failure of any one of these customers to pay on a timely basis would negatively impact our cash flows. As a result, ourOur net product sales and operating results could be materially and adversely affected by the loss of any of our customers, particularly our large or key customers,customers. aA decrease in product sales to any of our customers, including as a result of normal fluctuations in demand or other factors, reductions in the prices at which we sell products to any of our customers, including as a result of price concessions or general declines in average sale prices, or difficulties collecting payments from any of our customers.customers could materially and adversely harm our business and results of operations. In periods of tight supply, customers may adjust ordering behavior and pricing expectations; as supply improves, concentrated customers may seek price reductions or other concessions, which could adversely affect revenue and margins.
Our ability to maintain or increase our product sales to our large or key customers also depends on a variety of factors, many of which are beyond our control. These factors include our customers’ continued sales of servers and other computing systems that incorporate our memory subsystems, our customers’ continued incorporation of our products or the component products we resell into their systems, and our customers’ sales activity and business results. Because of these and other factors, sales to these customers may not continue and the amount of such sales may not reach or exceed historical levels in any future period. The loss of a major customer or a reduction in sales to or difficulties in collecting payments from these customers could significantly reduce our net sales and adversely affect our operating results.
Our customers require that our products undergo a lengthy and expensive pre-sale qualification process without any assurance of sales. Even once a customer begins purchasing our products, 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.
We are subject to risks of disruption in the supply of component products.
Our ability to fulfill customer orders for or produce qualification samples of our products, as well as orders for the components and/or products we resell, is dependent on a sufficient supply of SSDs, field programmable gate arrays, ASICs, volatile memory components, and non-volatile memory components. Further, there are a relatively small number of suppliers of these components, and we typically purchase from only a subset of these suppliers. As a result, our inventory purchases have historically been concentrated in a small number of suppliers, including SK hynix, from which we obtained a large portion of our products purchased for resale. We also use consumables and other components, including printed circuit boards, to manufacture our memory subsystems, which we sometimes procure from single or limited sources to take advantage of volume pricing discounts.
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 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 competitors. 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. Moreover, if we are not able to obtain these components in the amounts needed on a timely basis and at commercially reasonable prices, we may not be able to develop or introduce new products, we may experience significant increases in our cost of sales if we are forced to procure components from alternative suppliers and are not able to negotiate favorable terms with these suppliers, or we may be forced to cease our sales of products dependent on the components or resales of the components we sell to customers directly.
Our dependence on a small number of suppliers and the components we resell expose us to several risks, including the inability to obtain an adequate supply of these components, increases in their costs, delivery delays and poor quality. Additionally, our customers qualify certain of the components provided by our suppliers for use in their systems. If one of our suppliers experiences quality control or other problems, it may be disqualified by one or more of our customers. This would disrupt our supplies of these components and would also reduce the number of suppliers available to us and may require that we qualify a new supplier, which we may not be able to do.
Declines in customer demand for our products in recent periods have caused us to reduce our purchases of SSDs, volatile memory components, and non-volatile memory components for use in our products. Such declines or other fluctuations could continue in the future. If we fail to maintain sufficient purchase levels with some suppliers, our ability to obtain supplies of these raw materials may be impaired due to the practice of some suppliers of allocating their products to customers with the highest regular demand.
Frequent technology changes and the introduction of next-generation versions of component products may also result in the obsolescence of our inventory on-hand, which could involve significant time and costs to replace, reduce our net product sales and gross margin and adversely affect our operating performance and financial condition.
Our customers require that our products undergo a lengthy and expensive qualification process without any assurance of sales.
Our prospectivecustomers require our products and the component products we resell to meet strict quality standards. Prospective customers generally test and evaluate our memory subsystems before purchasing our products and integrating them into their systems. ThisPre-purchase qualification is typically an extensive qualification process involvesinvolving rigorous reliability testing and evaluation of our products, which may continue for nine months or longer and is often subject to delays. In addition to the qualification of specific products,products for sale, some of our customers may also require us to undergo a technology qualification if our product designs incorporate innovative technologies that the customer may not have previously encountered. Such technology qualifications often take substantially longer than product qualifications and can take over a year to complete. Even after our products are qualified with existing or new customers, the customer may take several months to begin purchasing the product or may decide not to purchase the product at all, as qualification does not ensure product sales. AsIf our products are not qualified by a result,prospective customer, we could receive no or limited revenues from athat customerprospective sale even after our investment of time and resources in the qualification process. Even assuming successful qualification and sales of our products to a customer, because the qualification process is both product-specific and platform-specific, our existing customers sometimes require us to re-qualify our products or to qualify our new products for use in new platforms or applications. For example, as our OEM customers transition from prior generation architectures to current generation architectures, we must design and qualify new products for use by these customers. Our net product sales to these customers can decline significantly during this re-qualification process. Likewise, changes in our products, our manufacturing facilities, our production processes or our component suppliers may require a new qualification process. For example, if our Solid State Drive (“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. Purchases of this customer,nature whichcan couldmaterially and adversely affect our operatingliquidity. results.Additionally, our forecasts of quantities required during the transition may be materially incorrect, which could materially and adversely impact our results of operations through lost revenue opportunities or charges related to excess and obsolete inventory.
Even once a customer has qualified and begins purchasing our products, if the products fail to meet applicable quality standards, our customers may discontinue purchases from us until we are able to resolve the quality issues that are causing these failures, which we may not be able to do. These “quality holds” can be costly and time-consuming to resolve. In addition, if the products we sell are defectively manufactured, contain defective components or are used in defective or malfunctioning systems, we could be subject to warranty and product liability claims, product recalls, safety alerts or advisory notices. Although we attempt to contractually limit our exposure to incidental and consequential damages, if these contract provisions are not enforced or if liabilities arise that are not effectively limited, we could incur substantial and material costs in defending or settling product liability claims. While we currently have product liability insurance, it may not provide coverage under certain circumstances, and it may not be adequate to satisfy claims made against us. We also may be unable to maintain this insurance in the future at satisfactory rates or in adequate amounts. 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 and adverse effect on our business, performance and financial condition, as well as our ability to attract and retain customers.
If we are unable to timely and cost-effectively pre-qualify our products for sale or, if our products that have been qualified for sale fail to adequately perform, our business, reputation, prospects and results of operations may be materially and adversely affected.
Even after successful qualification and sales of our products to a customer, because the qualification process is both product-specific and platform-specific, our existing customers sometimes require us to re-qualify our products or to qualify our new products for use in new platforms or applications. For example, as our OEM customers transition from prior generation architectures to current generation architectures, we must design and qualify new products for use by these customers. Our net product sales to these customers can decline significantly during this re-qualification process.
Likewise, changes in our products, our manufacturing facilities, our production processes or our component suppliers may require a new qualification process. 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. Purchases of this nature may affect our liquidity. Additionally, our forecasts of quantities required during the transition may be incorrect, which could adversely impact our results of operations through lost revenue opportunities or charges related to excess and obsolete inventory.
We must devote substantial resources, including design, engineering, sales, marketing and management efforts, to qualify our products with prospective customers in anticipation of sales. Significant delays or other difficulties in the qualification process could result in an inability to keep pace with rapid technology change or new competitive products. If we experience delays or do not succeed in qualifying a product with an existing or prospective customer, we would not be able to sell that product to that customer, which may result in excess and obsolete inventory that we may not be able to sell to another customer and could reduce our net product sales and customer base, any of which could materially harm our operating results and business.
Our industry is characterized by rapid technological change, evolving industry standards and rapid product obsolescence. 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 the face of uncertainty onabout 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’ requirements.
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.
Our products are primarily targeted to OEMs in the server, high-performance computing and communications markets. In addition, we resell certain component products to storage customers, appliance customers, system builders and cloud and datacenter customers. These markets are intensely competitive, as numerous companies vie for business opportunities at a limited number of large OEMs and other customers. 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.directly, Additionally,which ifcould materially and adversely affect our ability to theresell extentthese we enter new marketsproducts or pursuemay licensing arrangementschoose to monetizemanufacture competitive memory subsystem products themselves or reduce our technologiessupply of essential components of our products. These circumstances could materially and intellectualadversely propertyaffect portfolio,our weability mayto facemanufacture competitionand fromsell aour largememory number of competitors that produce solutions utilizing similar or competing technologies.subsystems..
Some of our customers and suppliers may have proprietary products or technologies that are competitive with our products or the components we resell to them or could develop internal solutions or enter into strategic relationships with, or acquire, other high-density memory module or component providers. Any of these actions could reduce our customers’ demand for our products or the component products we resell. Additionally, some of our significant suppliers could choose to sell component products to customers directly, which would adversely affect our ability to resell these products or may choose to manufacture competitive memory subsystem products themselves or reduce our supply of essential components of our products, which could adversely affect our ability to manufacture and sell our memory subsystems.
We believe our ability to compete in our current target markets and potential future markets will depend in part on our ability to successfully and timely develop, introduce and sell at attractive prices new and enhanced products or technologies and otherwise respond to changing market requirements, which we may not be able to do faster and better than our competitors. Moreover, many of our competitors have substantially greater financial, technical, marketing, distribution and other resources, broader product lines, lower cost structures, greater brand recognition, more influence on industry standards, more extensive or established patent portfolios and longer standing relationships with customers and suppliers. We may not be able to compete effectively against any of these organizations. If we are unable to compete effectively, then our market position and prospects could deteriorate and our revenues could decline.
Semiconductor memory and storage markets are highly competitive which could materially and adversely affect our business, results of operations, or financial condition.
TheIn addition, the semiconductor memory and storage markets are generallyalso highly competitive and companies may use aggressive pricing to obtain market share. Our suppliers may seek to increase wafer output, improve yields, and reduce die size, which could result in significant increases in worldwide supply and downward pressure on prices. Increases in worldwide supply of semiconductor memory and storage also result from fabrication capacity expansions, either by way of new facilities, increased capacity utilization, or reallocation of other semiconductor production to semiconductor memory and storage production. Increases in worldwide supply of semiconductor memory and storage could lead to declines in average selling prices and a decrease in short-term and/or long-term demand resulting in industry oversupplyoversupply. andAs additional third-party fabrication capacity becomes available, competitors may reduce prices to gain share or move excess inventory, which could materially adverselynegatively affect our business,average resultsselling prices, competitive position and profitability. 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 operations,competitors that produce solutions utilizing similar or financialcompeting condition.technologies. Some of our customers and suppliers have proprietary products or technologies that are competitive with our products or the components we resell to them or could develop internal solutions or enter into strategic relationships with, or acquire, other high-density memory module or component providers. Any of these actions could reduce our customers’ demand for our products or the component products we resell.
We believe our ability to compete in our current target markets and potential future markets will depend in part on our ability to successfully and timely develop, introduce and sell at attractive prices new and enhanced products or technologies and otherwise respond to changing market requirements, which we may not be able to do faster and better than our competitors. Many of our competitors have substantially greater financial, technical, marketing, distribution and other resources, broader product lines, lower cost structures, greater brand recognition, more influence on industry standards, more extensive or established patent portfolios and longer standing relationships with customers and suppliers. We may not be able to compete effectively against any of these organizations. If we are unable to compete effectively in the markets we target or seek to target, for any reason, then our market position, business, prospects and results of operations may be materially and adversely harmed.
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.
Management's Discussion & Analysis (MD&A)
New heading “October 2025 Offering”
New heading “Amendment to Securities Purchase Agreements and Warrants”
New heading “Amendment to Restated Certificate of Incorporation”
New heading “Netlist, Inc. 2025 Equity Incentive Plan”
New heading “June 2025 Offering”
New heading “March 2025 Lincoln Park Purchase Agreement”
New heading “June 2025 Offering”
New heading “March 2025 Lincoln Park Purchase Agreement”
Removed heading “Recent Development”
Removed heading “September 2021 Lincoln Park Purchase Agreement”
Removed heading “Second Amended and Restated Bylaws”
Removed heading “Ineffective Internal Control over Financial Reporting”
Removed heading “September 2021 Lincoln Park Purchase Agreement”
Largest changes
“In an effort to address the identified material weakness related to the lack of an independent board and audit committee and to enhance our internal controls, our finance and accounting personnel are continuing to follow all of the same procedures that they undertook in preparation for independent audit committee meetings on a quarterly and annual basis. Our Chief Executive Officer and sole director will oversee these processes and review materials prepared by the finance and accounting staff as well as our independent registered public accounting firm on a quarterly and annual basis. …”see in full comparison
“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. As of December 28, 2024, management concluded that our internal control over financial reporting was ineffective due to one material weakness. The identified material weakness, at December 28, 2024, relates to the lack of an independent board and audit committee.”see in full comparison
Net cash used in operating activities for fiscal yearsee in full comparison20232024 was primarily a result of net loss of$60.4$53.9 million, non-cash adjustments to net loss of$5.3$4.9 million, partially offset by net cash inflows from changes in operating assets and liabilities of$13.5$14.4 million driven predominantly by an increase in accountspayablepayable, a decrease in accounts receivable, and a decrease inaccounts receivable and prepaid expenses and other assets,inventories, partially offset by a decrease in accruedexpensespayroll andotherrelatedliabilities and an increase in inventories.liabilities. Net cash provided by financing activities for fiscal year20232024 primarily consisted of$23.4$5.2 million in net proceeds from issuance of common stock under the purchase agreement entered into with Lincoln on September202128,Purchase2021,Agreement,which$28.6has been terminated, $14.2 million in net proceeds from the2023issuance and sale of securities under the securities purchase agreement we entered into with certain investors, dated October 11, 2024, in a registered direct offering (the “2024 Offering(as defined below”), and$0.5$0.2 million in proceeds from exercise of stock options,$3.8partially offset by $2.6 million in netborrowingsrepayments under the 2023 SVB Credit Agreementpartially offset by $4.9 million in net repayments under the credit agreement between the CompanyandSVB, dated October 31, 2009, as amended, which was terminated on April 28, 2023, and $0.4$0.5 million in payments of note payable to finance insurance policies. The increase in deferred revenue produced a favorable timing effect on 2025 operating cash flows that may not repeat, and the level and timing of any future customer prepayments may vary period to period based on contract terms and ordering patterns.
Full comparison: every changed paragraph (69)
We are a leading innovator in advanced memory and storage solutions, pushing the boundaries of technology to deliver unparalleled performance and reliability.solutions. With a rich portfolio of patented technologies, weour haveinventions consistentlyare drivenfoundational innovation into the fieldadvancement of cutting-edge enterprise memory and storage, advancing AI and empowering businesses and industries to thrive in the digital age.computing.
Our performance improved in the second half of 2025, driven by increased demand for our memory products and disciplined commercial execution. In our view, accelerated AI adoption has tightened industry supply relative to demand, contributing to broad-based price increases. We currently expect these dynamics to continue until incremental third-party fabrication capacity becomes available, potentially beginning in late 2026 or 2027; however, capacity timing and end-market demand may differ from our expectations due to factors beyond our control.
In addition, the vast majority of our net product sales in recent periods have been generated from resales of products sourced from SK hynix pursuant to the Supply Agreement. The term of the supply provisions of this Supply Agreement officially expires in April 2026. We presently intend to continue to purchase products from SK hynix following expiration of the term, but SK hynix may not continue to supply us with products for resale on similar terms to our existing arrangements or at all. In such circumstances, our revenue in future periods may be adversely affected.
Our performance, financial condition and prospects are also affected by a number of factors and are exposed to a number of risks and uncertainties. We operate in a competitive and rapidly evolving industry in which new risks emerge from time to time, and it is not possible for us to predict all of the risks we may face, nor can we assess the impact of all factors on our business or the extent to which any factor or combination of factors could cause actual results to differ from our expectations. See the discussion of certain risks that we face under “Risk Factors” in Item 1A of this report.
Recent Development
On March 13, 2025, we entered into the March 2025 Purchase Agreement with Lincoln Park, pursuant to which we have the right to sell to Lincoln Park up to an aggregate of $75 million in shares of our common stock, subject to the conditions and limitations set forth in the March 2025 Purchase Agreement. Concurrent with the execution of the March 2025 Purchase Agreement, we also entered into a registration rights agreement with Lincoln Park relating to the common stock to be sold to Lincoln Park. As consideration for entering into the March 2025 Purchase Agreement, we issued to Lincoln Park 1,123,023 shares of our common stock as initial commitment shares in a noncash transaction on March 13, 2025 and will issue up to 1,123,023 additional shares of our common stock as additional commitment shares on a pro rata basis in connection with any additional purchases. We will not receive any cash proceeds from the issuance of these additional commitment shares. These issuances of our common stock were registered pursuant to a prospectus supplement to our existing Registration Statement on Form S-3 originally declared effective by the SEC on August 14, 2024.
Subsequently, from March 14, 2025 through March 21, 2025, Lincoln Park purchased an aggregate of 460,000 shares of our common stock for a net purchase price of $0.5 million under the March 2025 Purchase Agreement. In connection with the purchase, we issued to Lincoln Park an aggregate of 866 shares of our common stock as additional commitment shares in noncash transactions.
September 2021 Lincoln Park Purchase Agreement
On September 28, 2021, we entered into the September 2021 Purchase Agreement with Lincoln Park, pursuant to which we had the right to sell to Lincoln Park up to an aggregate of $75 million in shares of our common stock over the 36-month term of the September 2021 Purchase Agreement subject to the conditions and limitations set forth in the September 2021 Purchase Agreement.
During 2024, Lincoln Park purchased an aggregate of 3,195,889 shares of our common stock for a net purchase price of $5.2 million under the September 2021 Purchase Agreement. In connection with the purchases, we issued to Lincoln Park an aggregate of 10,046 shares of our common stock as additional commitment shares in noncash transactions. On October 1, 2024, the September 2021 Purchase Agreement terminated on its terms.
2024 Offering
On October 11, 2024, we entered into a Securities Purchase Agreement (the “2024 Purchase Agreement”) with certain investors, pursuant to which we issued and sold to the investors in a registered offering (the “2024 Offering”) an aggregate of (i) 13,636,364 shares of our common stock, (ii) Series A Common Stock Purchase Warrants (the “Series A Warrants”) to purchase up to an aggregate of 13,636,364 shares of our common stock at a purchase price of $1.30 per share, and (iii) Series B Common Stock Purchase Warrants (the “Series B Warrants,” collectively, the “Warrants”) to purchase up to 13,636,364 shares of our common stock, at a purchase price of $1.10 per share and accompanying warrants. The 2024 Offering closed on October 15, 2024. The net proceeds to us were approximately $14.2 million, after deducting placement agent fees and offering costs paid by us.
The Warrants are exercisable at any time on or after the issuance date. The Series A Warrants have a term of five years from the issuance date, have an exercise price of $1.30 per share and provide for the cash payment of the value of the Series A Warrants based on the Black-Scholes pricing model upon the occurrence of certain fundamental transactions. The Series B Warrants had a term of 100 days and an exercise price of $1.10 per share. None of the Series B Warrants were exercised prior to their expiration.
On October 11, 2024, we entered into a Placement Agency Agreement (the “Placement Agreement”) with Roth Capital Partners, LLC (“Roth”), pursuant to which Roth agreed to act as our placement agent in connection with the 2024 Offering. Pursuant to the terms of the Placement Agreement, in consideration for its placement agent services, we agreed to pay Roth a cash fee in an amount equal to 4% of the aggregate gross proceeds received by us in connection with the closing of the 2024 Offering and upon the cash exercise of the Series B Warrants.
Pursuant to the 2024 Purchase Agreement, our director and executive officers entered into lock-up agreements with us, pursuant to which they agreed not to offer for sale, contract to sell, or sell any shares of our common stock or any securities convertible into, or exercisable or exchangeable for, shares of our common stock, for a period of 100 days from the closing of the 2024 Offering, subject to certain customary exceptions.
The 2024 Purchase Agreement also provides that we may not, subject to the exceptions described in the 2024 Purchase Agreement, effect or enter into any Variable Rate Transactions (as defined in the 2024 Purchase Agreement) until the one-year anniversary of the closing date of the 2024 Offering.
Fourth Amendment to Rights2023 SVB Credit Agreement
On November 7, 2025, we entered into a first amendment to the 2023 SVB Credit Agreement (the “2023 SVB Credit Agreement Amendment”) to, among other things, extend the maturity date from November 7, 2025 to November 7, 2027.
October 2025 Offering
On October 6, 2025, we entered into a Securities Purchase Agreement (the “October 2025 Purchase Agreement”) with certain investors (collectively, the “October 2025 Purchasers”), pursuant to which we issued and sold to the October 2025 Purchasers in a registered offering (the “October 2025 Offering”) an aggregate of (i) 14,285,716 shares of our common stock and (ii) Common Stock Purchase Warrants (the “October 2025 Warrants”) to purchase up to an aggregate of 28,571,432 shares (the “October 2025 Warrant Shares”) of our common stock at a combined purchase price of $0.70 per share and accompanying October 2025 Warrant. The October 2025 Offering closed on October 7, 2025. The net proceeds to us from the October 2025 Offering were approximately $9.3 million, after deducting placement agent fees and offering costs paid by us.
The October 2025 Warrants are exercisable at any time on or after the issuance date, have a term of five years from the issuance date, have an exercise price of $0.70 per share, contain customary 4.99%/9.99% blocker provisions and provide for the cash payment of the Black-Scholes value of the October 2025 Warrants upon the occurrence of certain fundamental transactions. The exercise price and the number of October 2025 Warrant Shares issuable upon exercise of the October 2025 Warrants are subject to adjustment in the event of, among other things, certain transactions affecting our common stock (including without limitation stock splits and stock dividends). In addition, the exercise price of the October 2025 Warrants is subject to reduction in the event of certain common stock and common stock equivalent issuances, other than certain agreed exempt issuances, at a price lower than the exercise price of the October 2025 Warrants then in effect.
The October 2025 Purchase Agreement also provided that we could not, subject to the exceptions described in the October 2025 Purchase Agreement (including an exception permitting us to utilize the March 2025 Purchase Agreement following the expiration of the 90-day period following the closing of the October 2025 Offering), effect or enter into any Variable Rate Transactions (as defined in the October 2025 Purchase Agreement) until the six-month anniversary of the closing date of the October 2025 Offering.
Amendment to Securities Purchase Agreements and Warrants
Some of the purchasers pursuant to the October 2025 Purchase Agreement are also holders of the June 2025 Warrants and were purchasers pursuant a securities purchase agreement dated October 11, 2024 (the “October 2024 Purchase Agreement”). Pursuant to the terms of the October 2025 Purchase Agreement, these holders agreed to waive certain variable rate prohibitions and participation rights set forth in the October 2024 Purchase Agreement relating to the October 2025 Offering and to, among other things, revise certain anti-dilution provisions relating to the June 2025 Warrants in exchange for our reduction of the exercise price of the June 2025 Warrants to an exercise price equal to the lesser of $0.60 and the lowest VWAP of the shares of common stock on any trading day during the period commencing on October 6, 2025 and including, the fourth trading day immediately following October 7, 2025 (such waivers and amendments, collectively the “Waiver and Amendment”). Additionally, on October 6, 2025, the remaining holders of the June 2025 Warrants who are not party to the October 2025 Purchase Agreement also entered into waiver and amendment agreements, pursuant to which they agreed to the Waiver and Amendment. The adjusted exercise price of the June 2025 Warrants is now $0.60. The June 2025 Warrants may be further adjusted for future dilutive issuances.
Amendment to Restated Certificate of Incorporation
On September 24, 2025, our stockholders approved the Certificate of Amendment to the Certificate of Incorporation to increase the number of authorized shares of our common stock from 450,000,000 to 675,000,000.
Netlist, Inc. 2025 Equity Incentive Plan
On September 9, 2025, our stockholders approved the Netlist, Inc. 2025 Equity Incentive Plan at our 2025 Annual Meeting of Stockholders.
June 2025 Offering
On June 24, 2025, we entered into a Securities Purchase Agreement (the “June 2025 Purchase Agreement”) with certain investors, including Chun K. Hong, Chairperson of our board of directors, President and Chief Executive Officer (collectively, the “June 2025 Purchasers”), pursuant to which we issued and sold to the June 2025 Purchasers in a registered offering (the “June 2025 Offering”) an aggregate of (i) 17,142,860 shares of our common stock and (ii) Common Stock Purchase Warrants (the “June 2025 Warrants”) to purchase up to an aggregate of 34,285,720 shares of our common stock (the “June 2025 Warrant Shares”) at a combined purchase price of $0.70 per share and accompanying June 2025 Warrant. Mr. Hong purchased $3.0 million of shares and accompanying June 2025 Warrants in the June 2025 Offering. The June 2025 Offering closed on June 25, 2025. The net proceeds to us from the June 2025 Offering were approximately $11.6 million, after deducting placement agent fees and offering costs paid by us.
The June 2025 Warrants are exercisable at any time on or after the issuance date, have a term of five years from the issuance date, have an exercise price of $0.70 per share, contain customary 4.99%/9.99% blocker provisions and provide for the cash payment of the Black-Scholes value of the June 2025 Warrants upon the occurrence of certain fundamental transactions. The exercise price and the number of June 2025 Warrant Shares issuable upon exercise of the June 2025 Warrants are subject to adjustment in the event of, among other things, certain transactions affecting our common stock (including without limitation stock splits and stock dividends). In addition, the exercise price of the June 2025 Warrants is subject to reduction in the event of certain common stock and common stock equivalent issuances, other than certain agreed exempt issuances, at a price lower than the exercise price of the June 2025 Warrants then in effect. Furthermore, if at any time on or after the date of issuance there occurs any Share Combination Event and the lowest daily volume weighted average price of our common stock during the period commencing on the trading day immediately following the applicable Share Combination Event and ending on the fifth trading day immediately following the applicable Share Combination Event is less than the exercise price of the June 2025 Warrants then in effect, then the exercise price of the June 2025 Warrants will be reduced to the lowest daily volume weighted average price of our common stock during such period. On October 6, 2025, we amended the June 2025 Warrants.
The June 2025 Purchase Agreement provided that we could not, subject to the exceptions described in the June 2025 Purchase Agreement (including an exception permitting us to utilize the March 2025 Purchase Agreement following the expiration of the 90-day period following the closing of the June 2025 Offering), effect or enter into any Variable Rate Transactions (as defined in the June 2025 Purchase Agreement) until the six-month anniversary of the closing date of the June 2025 Offering.
March 2025 Lincoln Park Purchase Agreement
On March 13, 2025, we entered into the March 2025 Purchase Agreement with Lincoln Park, pursuant to which we have the right to sell to Lincoln Park up to an aggregate of $75 million in shares of our common stock, subject to the conditions and limitations set forth in the March 2025 Purchase Agreement. Concurrent with the execution of the March 2025 Purchase Agreement, we also entered into a registration rights agreement with Lincoln Park relating to the common stock to be sold to Lincoln Park. As consideration for entering into the March 2025 Purchase Agreement, we issued to Lincoln Park 1,123,023 shares of our common stock as initial commitment shares in a noncash transaction on March 13, 2025 and agreed to issue up to 1,123,023 additional shares of our common stock as additional commitment shares on a pro rata basis in connection with any additional purchases. We will not receive any cash proceeds from the issuance of these additional commitment shares. These issuances of our common stock were registered pursuant to a prospectus supplement to our existing Registration Statement on Form S-3 originally declared effective by the SEC on August 14, 2024.
During the fiscal year ended December 27, 2025, Lincoln Park purchased an aggregate of 1,496,009 shares of our common stock for a net purchase price of approximately $1.3 million under the March 2025 Purchase Agreement.
On April 17, 2024, the Company entered into a fourth amendment (the “Fourth Amendment”) to the Company’s rights agreement dated as of April 17, 2017 (as amended from time to time, the “Rights Agreement”). The Fourth Amendment appointed Equiniti Trust Company, LLC as rights agent and amended the definition of “Expiration Date” in the Rights Agreement to extend the term for an additional three-year period which extended the final expiration of the Rights issued pursuant to the Rights Agreement from April 17, 2024 to April 17, 2027. As a result and pursuant to the Fourth Amendment, the Rights will expire and become unexercisable on or before the close of business on April 17, 2027, in accordance with the terms of the Rights Agreement.
Second Amended and Restated Bylaws
On November 4, 2024, our board of directors adopted and approved, effective immediately, the second amended and restated bylaws (the “Second Amended and Restated Bylaws”). The Second Amended and Restated Bylaws, among other things, (i) decreases the quorum requirement for stockholder meetings from a majority to one-third of the outstanding shares of stock entitled to vote, (ii) conforms to the SEC’s universal proxy card rules, and (iii) updates for certain other administrative and conforming changes. The foregoing summary of the Second Amended and Restated Bylaws does not purport to be complete and is qualified in its entirety by reference to the full text of the Second Amended and Restated Bylaws, which is attached as Exhibit 3.2 and incorporated herein by reference.
Ineffective Internal Control over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. As of December 28, 2024, management concluded that our internal control over financial reporting was ineffective due to one material weakness. The identified material weakness, at December 28, 2024, relates to the lack of an independent board and audit committee.
While the control weaknesses identified did not result in any identified misstatements, a reasonable possibility exists that a material misstatement to the annual or interim consolidated financial statements and disclosures will not be prevented or detected on a timely basis.
In an effort to address the identified material weakness related to the lack of an independent board and audit committee and to enhance our internal controls, our finance and accounting personnel are continuing to follow all of the same procedures that they undertook in preparation for independent audit committee meetings on a quarterly and annual basis. Our Chief Executive Officer and sole director will oversee these processes and review materials prepared by the finance and accounting staff as well as our independent registered public accounting firm on a quarterly and annual basis. If our measures are insufficient to address the material weakness, or if additional material weaknesses or significant deficiencies in our internal control over financial reporting occur in the future, we may not be able to timely or accurately report our results of operations or maintain effective disclosure controls and procedures. If we are unable to report financial information timely or accurately, or to maintain effective disclosure controls and procedures, we could be required to restate our financial statements and be subject to, among other things, regulatory or enforcement actions, securities litigation, limitations on our ability to access capital markets, debt rating agency downgrades or rating withdrawals, or loss in confidence of our investors, any one of which could adversely affect the valuation of our common stock and our business prospects. 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.
Net sales increased by approximately $77.9$41.5 million during fiscal year 20242025 compared to fiscal year 2023,2024, primarily as a result of a $74.8$43.2 million increase in the sale of RDIMM and discrete component products, a $1.9 million increase in the sale of Netlist’s flash and SSD products,products and a $1.2$4.3 million increase in sales of low-profile memory subsystem products, partially offset by a $6.0 million decrease in sales of Netlist’s flash and SSD products.
Gross profit and gross margin percentage increased in fiscal year 20242025 compared to fiscal year 20232024 due primarily to higher sales across all product groups.groups Grossdriven margin percentage decreased in fiscal year 2024 compared to fiscal year 2023 primarily as a result ofby the changecurrent indemand our product mix.environment.
Intellectual property legal fees decreased duringin fiscal year 20242025 compared to fiscal year 20232024 due primarily to lower legal expenses incurred to defend and enforce our patent portfolio.
Selling, general and administrative expenses decreasedincreased in fiscal year 20242025 compared to fiscal year 20232024 due primarily to aan decreaseincrease in employeeoutside headcount.services.
Interest income, net decreased duringin fiscal year 20242025 compared to fiscal year 2023,2024, primarily as a result of interests earned on lower cash balances.balances and lower interest rate. Other income, net increaseddecreased duringin fiscal year 20242025 compared to fiscal year 2023,2024, primarily as a result of a one-time reversal of the reserve to cover flood damage in our former manufacturing facility located in the PRC and full year of sublease income for our warehouse space located in Irvine, California during fiscal year 2024. Other income, net included partial year of sublease income for our warehouse space located in Irvine, California during fiscal year 2023.
We believe our existing balance of cash and cash equivalents (including restricted cash balances), which totaled $34.6$42.1 million as of December 28,27, 2024,2025, along with cash receipts from revenues, borrowing availability under the 2023 SVB Credit Agreement (as defined below), proceeds raised from the 2024June 2025 Offering and October 2025 Offering, funds raised through the March 2025 Purchase Agreement and other future debt and equity offerings and taking into account cash expected to be used in our operations, will be sufficient to meet our anticipated cash needs for at least the next 12 months. This belief reflects our current assessment of known trends and uncertainties that could affect near-term liquidity, including the timing of cash effects from customer advance payments, fluctuations in borrowing-base availability and letters-of-credit usage and market conditions that affect our ability to utilize the March 2025 Purchase Agreement. For the long term (i.e., beyond the next 12 months), based on our current plans and assumptions, we believe our sources of liquidity and access to capital will be adequate to meet our cash requirements as they come due, and we are not currently aware of material cash requirements beyond 12 months other than those described in the Notes to Consolidated Financial Statements.
In addition, on April 5, 2021, we entered into a Product Purchase and Supply Agreement (the “Supply Agreement”) with SK hynix which expires in April 2026. If we are unable to renew this agreement, or renew on acceptable terms in a timely manner, our revenues and liquidity may be adversely affected.
In addition, on April 5, 2021, we entered into a Product Purchase and Supply Agreement (the “Supply Agreement”) with SK hynix and the Strategic Agreement. Both agreements have a term of 5 years. Under the Strategic Agreement, (a) we have granted to SK hynix worldwide, non-exclusive, non-assignable licenses to certain of our patents covering memory technologies and (b) SK hynix has granted to us worldwide, non-exclusive, non-assignable licenses to its patent portfolio. In addition, the Strategic Agreement provided for the settlement of all intellectual property proceedings between us and SK hynix and a settlement fee of $40 million paid to us by SK hynix. In addition, the parties have agreed to collaborate on certain technology development activities.
Net cash used in operating activities for fiscal year 20242025 was primarily a result of net loss of $53.9$24.8 million, non-cash adjustments to net loss of $4.9$3.6 million, partially offset by net cash inflows from changes in operating assets and liabilities of $14.4$6.4 million driven predominantly by an increase in accountsdeferred payable,revenue arelated decreaseto advance payments received on orders shipped in accountsJanuary receivable, and a decrease in inventories,2026, partially offset by a decrease in accruedaccounts payrollpayable and relatedother liabilities.liabilities, and an increase in accounts receivable and inventories. The level and timing of any future customer prepayments may vary period to period based on contract terms and ordering patterns. Net cash provided by financing activities for fiscal year 20242025 primarily consisted of $5.2$1.3 million in net proceeds from issuance of common stock under the SeptemberMarch 20212025 Purchase Agreement, $14.2$11.6 million in net proceeds from the 2024June 2025 Offering, and $0.2 million in proceeds from exercise of stock options, partially offset by $2.6$9.3 million in net repaymentsproceeds from the October 2025 Offering, and $0.6 million in net borrowings under the 2023 SVB Credit AgreementAgreement, andpartially offset by $0.5 million in payments of note payable to finance insurance policies.
Net cash used in operating activities for fiscal year 20232024 was primarily a result of net loss of $60.4$53.9 million, non-cash adjustments to net loss of $5.3$4.9 million, partially offset by net cash inflows from changes in operating assets and liabilities of $13.5$14.4 million driven predominantly by an increase in accounts payablepayable, a decrease in accounts receivable, and a decrease in accounts receivable and prepaid expenses and other assets,inventories, partially offset by a decrease in accrued expensespayroll and otherrelated liabilities and an increase in inventories.liabilities. Net cash provided by financing activities for fiscal year 20232024 primarily consisted of $23.4$5.2 million in net proceeds from issuance of common stock under the purchase agreement entered into with Lincoln on September 202128, Purchase2021, Agreement,which $28.6has been terminated, $14.2 million in net proceeds from the 2023issuance and sale of securities under the securities purchase agreement we entered into with certain investors, dated October 11, 2024, in a registered direct offering (the “2024 Offering (as defined below”), and $0.5$0.2 million in proceeds from exercise of stock options, $3.8partially offset by $2.6 million in net borrowingsrepayments under the 2023 SVB Credit Agreement partially offset by $4.9 million in net repayments under the credit agreement between the Company and SVB, dated October 31, 2009, as amended, which was terminated on April 28, 2023, and $0.4$0.5 million in payments of note payable to finance insurance policies. The increase in deferred revenue produced a favorable timing effect on 2025 operating cash flows that may not repeat, and the level and timing of any future customer prepayments may vary period to period based on contract terms and ordering patterns.
2024October 2025 Offering
On October 11,6, 2024,2025, we entered into the 2024October 2025 Purchase Agreement with certainthe investors,October 2025 Purchasers, pursuant to which we issued and sold to the investorsOctober 2025 Purchasers in the 2024October 2025 Offering an aggregate of 13,636,364(i) 14,285,716 shares of our common stock and Series(ii) A28,571,432 October 2025 Warrants and Series B Warrants, each to purchase upthe toOctober an2025 aggregateWarrant of 13,636,364 shares of our common stock (totaling 27,272,728 shares of our common stock)Shares at a per sharecombined purchase price of $1.30$0.70 per share and $1.10accompanying perOctober share,2025 respectively.Warrant. The 2024October 2025 Offering closed on October 15,7, 2024.2025. The net proceeds to us from the 2024October 2025 Offering were approximately $14.2$9.3 million, after deducting placement agent fees and offering costs paid by us.
The October 2025 Purchase Agreement also provided that we could not, subject to the exceptions described in the October 2025 Purchase Agreement (including an exception permitting us to utilize the March 2025 Purchase Agreement following the expiration of the 90-day period following the closing of the October 2025 Offering), effect or enter into any Variable Rate Transactions (as defined in the October 2025 Purchase Agreement) until the six-month anniversary of the closing date of the October 2025 Offering.
June 2025 Offering
On June 24, 2025, we entered into the June 2025 Purchase Agreement with the June 2025 Purchasers, pursuant to which we issued and sold to the June 2025 Purchasers in the June 2025 Offering an aggregate of (i) 17,142,860 shares of our common stock and (ii) the June 2025 Warrants to purchase the June 2025 Warrant Shares at a combined purchase price of $0.70 per share and accompanying June 2025 Warrant. Mr. Hong purchased $3.0 million of shares and accompanying June 2025 Warrants in the June 2025 Offering. The June 2025 Offering closed on June 25, 2025. The net proceeds to us from the June 2025 Offering were approximately $11.6 million, after deducting placement agent fees and offering costs paid by us.
The June 2025 Purchase Agreement also provided that we could not, subject to the exceptions described in the June 2025 Purchase Agreement (including an exception permitting us to utilize the March 2025 Purchase Agreement following the expiration of the 90-day period following the closing of the June 2025 Offering), effect or enter into any Variable Rate Transactions (as defined in the June 2025 Purchase Agreement) until the six-month anniversary of the closing date of the June 2025 Offering.
March 2025 Lincoln Park Purchase Agreement
On March 13, 2025, we entered into the March 2025 Purchase Agreement with Lincoln Park, pursuant to which we have the right to sell to Lincoln Park up to an aggregate of $75 million in shares of our common stock over the 36-month term of the March 2025 Purchase Agreement subject to the conditions and limitations set forth in the March 2025 Purchase Agreement. As of December 27, 2025, $73.7 million remains available under the March 2025 Purchase Agreement with Lincoln Park. Sales under the March 2025 Purchase Agreement are subject to daily volume-based limits and a contractual floor price, and our ability to access the remaining capacity at any point in time depends on prevailing market prices and trading volumes.
What changed in the latest 10-Q
Risk Factors
New heading “We entered into a Supply Agreement with Samsung Semiconductor with the right to purchase from Samsung Semiconductor for an aggregate of up to $1.5 billion of DRAM and NAND products, subject to certain limitations, and if Samsung Semiconductor breaches or is unable to honor its obligations under the Supply Agreement, our business could be adversely impacted. In addition, the quarterly license fee payments we expect to receive under the Samsung License Agreement are subject to adjustment, reduction, and potential refund obligations, which could reduce the amounts we ultimately retain.”
Largest changes
“In August 2026, we entered into the Supply Agreement with Samsung Semiconductor for a term of five years, which grants us the right to purchase from Samsung Semiconductor up to $300 million of DRAM and NAND products each year for an aggregate of up to $1.5 billion during the term of the Supply Agreement, subject to certain limitations. There can be no assurance that Samsung Semiconductor will fulfill its obligations under the Supply Agreement. …”see in full comparison
“We entered into a Supply Agreement with Samsung Semiconductor with the right to purchase from Samsung Semiconductor for an aggregate of up to $1.5 billion of DRAM and NAND products, subject to certain limitations, and if Samsung Semiconductor breaches or is unable to honor its obligations under the Supply Agreement, our business could be adversely impacted. In addition, the quarterly license fee payments we expect to receive under the Samsung License Agreement are subject to adjustment, reduction, and potential refund obligations, which could reduce the amounts we ultimately retain.”see in full comparison
“In addition, under the Samsung License Agreement, the quarterly license fee payments payable by Samsung are calculated based on a revenue-based formula and are subject to a per-quarter cap and to certain adjustment and refund rights that may apply to royalties received in years four and five of the license term. As a result, the aggregate amounts we ultimately receive under the Samsung License Agreement may be less than the maximum amounts payable thereunder. …”see in full comparison
“If the Supply Agreement is terminated or if Samsung Semiconductor is otherwise unable or unwilling to supply the products upon our exercise of purchase rights thereunder, we may experience supply shortages for certain of our products, increased lead times and delays in the delivery of our products to customers. We may also be unable to procure substitute products on comparable terms or at all. …”see in full comparison
Full comparison: every changed paragraph (5)
ThereExcept as set forth below, there have been no material changes to the risk factors set forth in “Risk Factors” in Part I, Item 1A of our Annual Report.
We entered into a Supply Agreement with Samsung Semiconductor with the right to purchase from Samsung Semiconductor for an aggregate of up to $1.5 billion of DRAM and NAND products, subject to certain limitations, and if Samsung Semiconductor breaches or is unable to honor its obligations under the Supply Agreement, our business could be adversely impacted. In addition, the quarterly license fee payments we expect to receive under the Samsung License Agreement are subject to adjustment, reduction, and potential refund obligations, which could reduce the amounts we ultimately retain.
In August 2026, we entered into the Supply Agreement with Samsung Semiconductor for a term of five years, which grants us the right to purchase from Samsung Semiconductor up to $300 million of DRAM and NAND products each year for an aggregate of up to $1.5 billion during the term of the Supply Agreement, subject to certain limitations. There can be no assurance that Samsung Semiconductor will fulfill its obligations under the Supply Agreement. Samsung Semiconductor may breach or fail to honor its obligations under the Supply Agreement for a number of reasons, including as a result of financial difficulties, operational disruptions, changes in its business strategy or priorities, disputes regarding pricing or product specifications, regulatory restrictions (including export controls, sanctions, or trade restrictions) affecting Samsung Semiconductor’s ability to transact with us, or a determination by Samsung Semiconductor that performance under the Supply Agreement is no longer commercially viable. In addition, Samsung Semiconductor may experience manufacturing constraints, production delays, or quality control issues that prevent it from delivering products in accordance with the terms of the Supply Agreement. The Supply Agreement also contains significant limitations on our remedies in the event of Samsung Semiconductor's breach or non-performance. As a result, even if Samsung Semiconductor fails to perform, our ability to recover damages may be substantially limited.
If the Supply Agreement is terminated or if Samsung Semiconductor is otherwise unable or unwilling to supply the products upon our exercise of purchase rights thereunder, we may experience supply shortages for certain of our products, increased lead times and delays in the delivery of our products to customers. We may also be unable to procure substitute products on comparable terms or at all. Any such disruption could adversely affect our ability to satisfy customer demand, result in lost revenue, and cause us to incur additional costs, any of which could have a material adverse effect on our business, results of operations and financial condition.
In addition, under the Samsung License Agreement, the quarterly license fee payments payable by Samsung are calculated based on a revenue-based formula and are subject to a per-quarter cap and to certain adjustment and refund rights that may apply to royalties received in years four and five of the license term. As a result, the aggregate amounts we ultimately receive under the Samsung License Agreement may be less than the maximum amounts payable thereunder. If we fail to receive the amounts expected or due to us pursuant to the Samsung License Agreement, our business, prospects and results of operations and financial condition may be adversely affected.
Management's Discussion & Analysis (MD&A)
New heading “Recent Developments”
Largest changes
During thesee in full comparisonthreesix months endedMarchJune29,28, 2025, net cash used in operating activities was primarily a result of net loss of$9.5$15.6 million, non-cash adjustments to net loss of$0.9$2.1 million, and net cash outflows from changes in operating assets and liabilities of$1.5$4.2 million driven predominantly by a decrease in accountspayablepayable,dueanto the payments made for the legal fees incurred to defend our patent portfolio, partially offset by a decreaseincrease in inventories due tohigherordersturnoversnotandshipped in June 2025, partially offset by an increase in deferred revenue related to advance payments received on orders shipped inAprilJuly 2025. Net cash provided by financing activities during thethreesix months endedMarchJune29,28, 2025 primarily consisted of$0.9$1.1 million in net proceeds from the issuance of common stock under the March 2025 Purchase Agreement and $11.6 million in net proceeds from issuance of common stock under theMarchJune 2025 Purchase Agreementand(as$0.3defined below), partially offset by $0.1 million in netborrowingsrepayments under the 2023 SVB CreditAgreement,Agreementpartially(asoffsetdefinedbybelow),$0.2and $0.4 million in payments of notes payable to finance insurance policies.
Intellectual property legal fees consist of fees incurred for patent enforcement and licensing, appeals, patent drafting and prosecution, and opposition to third-party post-grant patent proceedings.see in full comparisonAlthough we expect intellectual property legalThese feesto generally increase over time as we continue to expand, protect and enforce our patent portfolio, these increasesmay not be linear but may occur in lump sums depending on jury trial management, due dates of various filings and their associated fees, and the arrangements we may make with our legal advisors in connection with enforcement proceedings, which may include fee arrangements or contingent fee arrangements in which we would pay these legal advisors on a scaled percentage of any negotiated fees, settlements or judgments awarded to us based on if, how and when the fees, settlements or judgments are obtained. See Note 5 to the condensed consolidated financial statements included in Part I, Item 1 of this report for further discussion. In addition, in connection with the settlement of our patent litigations with Samsung (see Note 9 to the condensed consolidated financial statements), we expect to incur legal fees payable to outside counsel retained on a partial contingent fee basis, calculated as a percentage of amounts received under the Settlement Agreement and Samsung License Agreement. Such fees may be material to our results of operations and cash flows in the periods in which they become payable.
We are party to ongoing intellectual property litigation.see in full comparisonAlthoughWhilecertain matterswe haveresultedenteredinintofavorabletheandSettlementsignificantAgreementcourtwithjudgmentsSamsunginto resolve ourfavor,pendingthesepatentjudgementslitigations with Samsung, other matters, including our litigation with Micron, remain subject to appeal and other proceedings, and any ultimate recovery from these matters may be less than the amounts awarded or may not berealized.realized, including as a result of negotiated resolution, appeals, post-trial proceedings, patent office proceedings or other developments. We account for potential recoveries as gain contingencies and do not recognize them until realization is probable and reasonably estimable. The timing and amount of any recovery from these matters are inherently uncertain, and any resolution could materially affect our results of operations or cash flows in the period in which it occurs. See “Legal Proceedings” in Part II, Item 1 of this report and See Note 5 to the condensed consolidated financial statements included in Part I, Item 1 of this report for more information.
Interest income, net decreased during the second quarter and firstsee in full comparisonquartersix months of 2026 compared to the sameperiodperiods of 2025, primarily as a result of lower interest earned onlowerour cash balances. Other income, net included a deposit returned for our former manufacturing facility located in thePRCPeople’s Republic of China during the firstquartersix months of 2025.
“Our performance, financial condition and prospects are also affected by a number of factors and are exposed to a number of other risks and uncertainties. We operate in a competitive and rapidly evolving industry in which new risks emerge from time to time, and it is not possible for us to predict all of the risks we may face, nor can we assess the impact of all factors on our business or the extent to which any factor or combination of factors could cause actual results to differ from our expectations. …”see in full comparison
Full comparison: every changed paragraph (28)
We are a leading innovator in advanced memory and storage solutions. With a rich portfolio of patented technologies, our inventions are foundational to the advancement of artificial intelligence (“AI”) computing. During the firstsecond quarter of 2026, we recorded net sales of $104.9$109.8 million, gross profit of $22.4$22.9 million and net income of $8.6$1.4 million. We have historically financed our operations primarily with proceeds from issuances of equity and debt securities and cash receipts from revenues. We have also funded our operations with a revolving line of credit under a bank credit facility with Silicon Valley Bank, a division of First-Citizens Bank & Trust Company (“SVB”), funds raised through our equity line arrangement under the March 2025 Purchase Agreement (as defined below), proceeds raised from the June 2025 Offering (as defined below) and the October 2025 Offering (as defined below) and through the cash exercise of our outstanding warrants to purchase common stock. See “Liquidity and Capital Resources” below for more information.
Recent Developments
On August 4, 2026, we entered into a Patent Cross License Agreement, Settlement and Release Agreement, Supply Agreement, and ITC Cooperation Agreement with Samsung Electronics Co., Ltd. and/or its affiliate Samsung Semiconductor, Inc., effective as of July 31, 2026. In connection with the Supply Agreement, we also entered into a Securities Purchase Agreement and Lock-Up and Release Agreement with Samsung Semiconductor, Inc. See Note 9 to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report for additional information regarding these agreements and their terms.
Our performance improved since the second half of 2025, driven by increased demand for our memory products and disciplined commercial execution. In our view, accelerated AI adoption has tightened industry supply relative to demand, contributing to broad-based price increases. We currently expect these dynamics to continue until additional industry fabrication capacity becomes available, potentially beginning in late 2027 or 2028; however, thisthe capacitytiming, timingscale and effectiveness of any additional capacity, and the level of end-market demand when such capacity becomes available, may differ materially from our expectations. Increased industry fabrication capacity could improve component availability, place downward pressure on pricing, and shift product mix, any of which may moderate or adversely affect our volumes, pricing, margins and margins.results Futureof operations. The semiconductor industry is cyclical and subject to rapid changes in supply and demand, and future demand for our products is inherently unpredictable,unpredictable. and ourOur current results of operations may not be indicative of our future results.
In addition, the vast majority of our net product sales in recent periods have been generated from resales of products sourced from SK hynix pursuant to the Product Purchase and Supply Agreement with SK hynix, which was entered into on April 5, 2021 (the “Supply Agreement”). The term of the supply provisions of this Supply Agreement expired in April 2026. We continue to purchase products from SK hynix following expiration of the Supply Agreement on a purchase order basis on similar terms to the prior Supply Agreement, but SK hynix ultimately may not continue to supply us with products for resale on similar terms or at all. In such circumstances, our financial results, including our revenue, profits and margins in future periods may be adversely affected. In August 2026 and as noted above, we entered into a Supply Agreement with Samsung Semiconductor providing us with the right to purchase up to $300 million of DRAM and NAND products per year for an aggregate of up to $1.5 billion over a five-year term. Should Samsung fail to comply with the terms of this agreement and the related arrangements, our financial results of operation would be adversely affected. See Note 9 to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report for additional information.
We are party to ongoing intellectual property litigation. AlthoughWhile certain matterswe have resultedentered ininto favorablethe andSettlement significantAgreement courtwith judgmentsSamsung into resolve our favor,pending thesepatent judgementslitigations with Samsung, other matters, including our litigation with Micron, remain subject to appeal and other proceedings, and any ultimate recovery from these matters may be less than the amounts awarded or may not be realized.realized, including as a result of negotiated resolution, appeals, post-trial proceedings, patent office proceedings or other developments. We account for potential recoveries as gain contingencies and do not recognize them until realization is probable and reasonably estimable. The timing and amount of any recovery from these matters are inherently uncertain, and any resolution could materially affect our results of operations or cash flows in the period in which it occurs. See “Legal Proceedings” in Part II, Item 1 of this report and See Note 5 to the condensed consolidated financial statements included in Part I, Item 1 of this report for more information.
Our performance, financial condition and prospects are also affected by a number of factors and are exposed to a number of other risks and uncertainties. We operate in a competitive and rapidly evolving industry in which new risks emerge from time to time, and it is not possible for us to predict all of the risks we may face, nor can we assess the impact of all factors on our business or the extent to which any factor or combination of factors could cause actual results to differ from our expectations. See the discussion of certain risks that we face under “Risk Factors” in Part I, Item 1A of our Annual Report.
Net sales and gross profit for the three and six months ended MarchJune 28,27, 2026 and MarchJune 29,28, 2025 were as follows (dollars in thousands):
Net sales increased by approximately $75.9$68.1 million during the firstsecond quarter of 2026 compared to the same period of 2025, primarily as a result of a $63.7$58.5 million increase in the sale of registered DIMMDual Inline Memory Module (“RDIMM”) and discrete memory component products,products and a $0.2$9.7 million increase in sales of low-profile memory subsystem products, partially offset by a $0.1 million decrease in sales of our flash and solid-state drives products, and a $12.0 million increase in sales of low-profile memory subsystem products. These increases are primarily due to the current supply-demand environment we discussed above.
Net sales increased by approximately $144.1 million during the first six months of 2026 compared to the same period of 2025, primarily as a result of a $122.3 million increase in the sale of RDIMM and discrete memory component products, a $0.2 million increase in sales of our flash and solid-state drives products, and a $21.6 million increase in sales of low-profile memory subsystem products.
These increases are primarily due to the current supply-demand environment we discussed above.
Gross profit and gross margin percentage increased significantly during the second quarter and first quartersix months of 2026 compared to the same periodperiods of 2025, primarily as a result of higher sales prices due to the current supply demandsupply-demand environment discussed above and product sales mix.
Operating expenses for the three and six months ended MarchJune 28,27, 2026 and MarchJune 29,28, 2025, were as follows (dollars in thousands):
Research and development expenses increased during the second quarter and first quartersix months of 2026 compared to the same periodperiods of 2025, primarily due to higher employee headcount and the associated increase in overhead costs.
Intellectual property legal fees consist of fees incurred for patent enforcement and licensing, appeals, patent drafting and prosecution, and opposition to third-party post-grant patent proceedings. Although we expect intellectual property legalThese fees to generally increase over time as we continue to expand, protect and enforce our patent portfolio, these increases may not be linear but may occur in lump sums depending on jury trial management, due dates of various filings and their associated fees, and the arrangements we may make with our legal advisors in connection with enforcement proceedings, which may include fee arrangements or contingent fee arrangements in which we would pay these legal advisors on a scaled percentage of any negotiated fees, settlements or judgments awarded to us based on if, how and when the fees, settlements or judgments are obtained. See Note 5 to the condensed consolidated financial statements included in Part I, Item 1 of this report for further discussion. In addition, in connection with the settlement of our patent litigations with Samsung (see Note 9 to the condensed consolidated financial statements), we expect to incur legal fees payable to outside counsel retained on a partial contingent fee basis, calculated as a percentage of amounts received under the Settlement Agreement and Samsung License Agreement. Such fees may be material to our results of operations and cash flows in the periods in which they become payable.
Intellectual property legal fees increased during the second quarter and first quartersix months of 2026 compared to the same periodperiods of 2025 due primarily to higher legal expenses incurred to protect and enforce our patent portfolio.
Selling, general and administrative expenses increased during the second quarter and first quartersix months of 2026 compared to the same periodperiods of 2025 due primarily to an increase in public company related fees and reporting costs and increased commissions due to higher sales that were completed in the second quarter and first quartersix months of 2026 as compared to the firstsame quarterperiods of 2025.
Other income, net for the three and six months ended MarchJune 28,27, 2026 and MarchJune 29,28, 2025 was as follows (dollars in thousands):
Interest income, net decreased during the second quarter and first quartersix months of 2026 compared to the same periodperiods of 2025, primarily as a result of lower interest earned on lowerour cash balances. Other income, net included a deposit returned for our former manufacturing facility located in the PRCPeople’s Republic of China during the first quartersix months of 2025.
Our primary sources of cash are historically proceeds from issuances of equity and receipts from revenues. In addition, we previously received proceeds from our entry into a Strategic Product Supply and License Agreement with SK hynix on April 5, 2021, which we usedused, to support our operations. We have also funded our operations with our revolving line of credit under a bank credit facility with SVB and funds raised through the March 2025 Purchase Agreement.
The following tables present selected financial information as of MarchJune 28,27, 2026 and December 27, 2025 and for the first threesix months of 2026 and 2025 (in thousands):
During the threesix months ended MarchJune 28,27, 2026, net cash used in operating activities was primarily a result of net income of $8.6$10 million, non-cash adjustments to net income of $1.1$2.1 million, and net cash outflows from changes in operating assets and liabilities of $31.5$30.6 million driven predominantly by an increase in accounts receivable, an increase in inventoriesinventories, duea decrease in deferred revenue related to ordersadvance notpayments shippedfrom in March 2026, an increase in prepaid expenses and other assets,customers, partially offset by an increase in accounts payable and an increase in deferredaccrued revenuepayroll and related to advance payments received on orders shipped in April 2026.liabilities. Net cash provided by financing activities during the threesix months ended MarchJune 28,27, 2026 primarily consisted of $6.0$16.6 million in net proceeds from exercise of stock options and warrants, and $0.8 million in net borrowings under the 2023 SVB Credit Agreement (as defined below), partially offset by $0.1$0.3 million in payments of notes payable to finance insurance policies.
During the threesix months ended MarchJune 29,28, 2025, net cash used in operating activities was primarily a result of net loss of $9.5$15.6 million, non-cash adjustments to net loss of $0.9$2.1 million, and net cash outflows from changes in operating assets and liabilities of $1.5$4.2 million driven predominantly by a decrease in accounts payablepayable, duean to the payments made for the legal fees incurred to defend our patent portfolio, partially offset by a decreaseincrease in inventories due to higherorders turnoversnot andshipped in June 2025, partially offset by an increase in deferred revenue related to advance payments received on orders shipped in AprilJuly 2025. Net cash provided by financing activities during the threesix months ended MarchJune 29,28, 2025 primarily consisted of $0.9$1.1 million in net proceeds from the issuance of common stock under the March 2025 Purchase Agreement and $11.6 million in net proceeds from issuance of common stock under the MarchJune 2025 Purchase Agreement and(as $0.3defined below), partially offset by $0.1 million in net borrowingsrepayments under the 2023 SVB Credit Agreement,Agreement partially(as offsetdefined bybelow), $0.2and $0.4 million in payments of notes payable to finance insurance policies.
On March 13, 2025, we entered into a purchase agreement (the “March 2025 Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which we have the right to sell to Lincoln Park up to an aggregate of $75 million in shares of our common stock over the 36-month term of the March 2025 Purchase Agreement subject to the conditions and limitations set forth in the March 2025 Purchase Agreement. As of MarchJune 28,27, 2026, $73.7 million remains available under the March 2025 Purchase Agreement with Lincoln Park. Sales under the March 2025 Purchase Agreement are subject to daily volume-based limits and a contractual floor price, and our ability to access the remaining capacity at any point in time depends on prevailing market prices and trading volumes.
On June 24, 2025, we entered into a Securities Purchase Agreement (the “June 2025 Purchase Agreement”) with certain investors, including Chun K. Hong, Chairperson of our boardBoard of directors,Directors (the “Board” or “Board of Directors”), President and Chief Executive Officer (collectively, the “June 2025 Purchasers”), pursuant to which we issued and sold to the June 2025 Purchasers in a registered offering (the “June 2025 Offering”) an aggregate of (i) 17,142,860 shares of our common stock and (ii) Common Stock Purchase Warrants (the “June 2025 Warrants”) to purchase up to an aggregate of 34,285,720 shares of our common stock (the “June 2025 Warrant Shares”) at a combined purchase price of $0.70 per share and accompanying June 2025 Warrant. Mr. Hong purchased $3.0 million of shares and accompanying June 2025 Warrants in the June 2025 Offering. The June 2025 Offering closed on June 25, 2025. The net proceeds to us from the June 2025 Offering were approximately $11.6 million, after deducting placement agent fees and offering costs paid by us.
As of MarchJune 28,27, 2026, the outstanding borrowings under the 2023 SVB Credit Agreement were $2.6 million with no availability under the revolving line of credit. During the threesix months ended MarchJune 28,27, 2026, we had net borrowings of $0.8 million under the 2023 SVB Credit Agreement; because borrowing capacity is driven by eligible receivables and reserve adjustments, availability may fluctuate with collections and sales mix, and letters of credit issued under the facility and with other banks are secured by cash and reduce unrestricted liquidity.
During the quartersix months ended MarchJune 28,27, 2026, we received $5.8$16.3 million in proceeds from the cash exercise of issued and outstanding warrants to purchase 9,642,86025,038,609 shares of common stock. SinceFrom MarchJune 28, 2026 and through MayAugust 8,6, 2026, we received $10.5$5.5 million in proceeds from the cash exercise of issued and outstanding warrants to purchase 15,395,7495,676,949 shares of common stock. Future warrant exercises will likely depend on market conditions, the strategies of the individual warrant holders, and are ultimately at the discretion of the individual warrant holders. As such, future warrant exercises (if any) may be unpredictable and may not be representative of recent exercise activity.
We believe our existing balance of cash and cash equivalents (including restricted cash balances), which totaled $27$40.7 million as of MarchJune 28,27, 2026, along with cash receipts from revenues, payments pursuant to the Samsung License Agreement (with the upfront payment expected in August 2026), potential borrowing availabilityavailability, if any, under the 2023 SVB Credit Agreement, funds raised through the March 2025 Purchase AgreementAgreement, proceeds received from warrant exercises, and other future debt and equity offerings and taking into account cash expected to be used in our operations, will be sufficient to meet our anticipated cash needs for at least the next 12 months. This belief reflects our current assessment of known trends and uncertainties that could affect near-term liquidity, including the timing of cash effects from customer advance payments, fluctuations in borrowing-base availability and letters-of-credit usage and market conditions that affect our ability to utilize the March 2025 Purchase Agreement. However, this estimate may ultimately be incorrect and we may use our cash resources faster than we expect as a result of many factors, including costs to defend our intellectual property portfolio, the results of ongoing litigation and legal proceedings, demand and acceptance of our products, whether our current customers continue purchasing our products, costs of developing and improving our products, our results of operations, including our level of net product sales that we receive which can vary based on a number of factors, including the amount and timing of vendor payments, the timing of customer orders, the effects of changes in international trade policy, non-reoccurring items and changing projected inventory needs and estimates.
NLST insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 8 filings (4 insiders, 8 trade dates, 281,376 shares, about $1.2M; 7 of these filings say the sales were made under a Rule 10b5-1 trading plan). Net open-market shares: -281,376 (purchases minus sales); net value about -$1.2M.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-08-17 | Sasaki Gail M |
Open-market sale |
100,000 | $6.91 | $691.0K |
| 2026-08-12 | Sasaki Gail M |
Open-market sale |
25,000 | $4.49 | $112.2K |
| 2026-08-05 | Sasaki Gail M |
Open-market sale |
25,000 | $3.99 | $99.8K |
| 2026-07-16 | Hong Chun K |
Grant/award | 4,000,000 | — | — |
| 2026-06-08 | Hong Chun K |
Open-market sale | 40,000 | $2.72 | $108.8K |
| 2026-06-05 | Sasaki Gail M |
Grant/award | 200,000 | — | — |
| 2026-06-05 | Cho Jun |
Grant/award | 100,000 | — | — |
| 2026-06-05 | Welcher Blake |
Grant/award | 100,000 | — | — |
| 2026-06-05 | Hong Chun K |
Grant/award | 856,500 | — | — |
| 2026-05-15 | Sasaki Gail M |
Open-market sale |
8,876 | $2.63 | $23.3K |
| 2026-05-11 | Sasaki Gail M |
Open-market sale |
25,000 | $3.49 | $87.2K |
| 2026-04-23 | Cho Jun |
Open-market sale |
10,000 | $2.18 | $21.8K |
| 2026-04-22 | Cho Jun |
Open-market sale |
10,000 | $1.98 | $19.8K |
| 2026-04-22 | Welcher Blake |
Open-market sale |
37,500 | $2.00 | $75.0K |
Well-known investors holding NLST (13F)
None of the 59 investors we track reported a position in their latest 13F.