Quarterly Report for Quarter Ending March 28, 2026 (Form 10-Q)

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Note Regarding Forward-Looking Statements

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This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") and other parts of this report include "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements other than historical facts and often address future events or our future performance. Words such as "anticipate," "estimate," "expect," "project," "intend," "may," "will," "might," "plan," "predict," "believe," "should," "could" and similar words or expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

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Forward-looking statements contained in this MD&A and the condensed consolidated financial statements and the related notes included in Part I, Item 1 of this report include statements about, among other things:

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All forward-looking statements reflect management's present assumptions, expectations and beliefs regarding future events and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed in or implied by any forward-looking statements. These risks and uncertainties include those described under "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 19, 2026 (the "Annual Report"). In light of these risks and uncertainties, our forward-looking statements should not be relied on as predictions of future events. All forward-looking statements reflect our assumptions, expectations and beliefs only as of the date they are made, and except as required by law, we undertake no obligation to revise or update any forward-looking statements for any reason.

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The following MD&A should be read in conjunction with our condensed consolidated financial statements and the related notes included in Part I, Item 1 of this report, as well as our Annual Report. All information presented herein is based on our fiscal calendar, and references to particular years, quarters, months or periods refer to our fiscal years ended in January or December and the associated quarters, months and periods of those fiscal years. Each of the terms the "Company," "Netlist," "we," "us," or "our" as used herein refers collectively to Netlist, Inc. and its consolidated subsidiaries, unless otherwise stated.

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Overview

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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 first quarter of 2026, we recorded net sales of $104.9 million, gross profit of $22.4 million and net income of $8.6 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.

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Economic Conditions, Challenges and Risks

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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, this capacity timing and end-market demand may differ from our expectations. Increased industry fabrication capacity could improve component availability, place downward pressure on pricing, and shift product mix, which may moderate our volumes, pricing, and margins. Future demand for our products is inherently unpredictable, and our current results of operations may not be indicative of our future results.

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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.

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We are party to ongoing intellectual property litigation. Although certain matters have resulted in favorable and significant court judgments in our favor, these judgements remain subject to appeal and other proceedings, and any ultimate recovery may be less than the amounts awarded or may not be realized. We account for potential recoveries as gain contingencies and do not recognize them until realization is probable and reasonably estimable. 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.

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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.

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Results of Operations

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Net Sales and Gross Profit

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Net sales and gross profit for the three months ended March 28, 2026 and March 29, 2025 were as follows (dollars in thousands):

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Net Sales

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Net sales increased by approximately $75.9 million during the first quarter of 2026 compared to the same period of 2025, primarily as a result of a $63.7 million increase in the sale of registered DIMM ("RDIMM") and discrete memory component products, a $0.2 million increase 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.

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Gross Profit and Gross Margin

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Gross profit and gross margin percentage increased significantly during the first quarter of 2026 compared to the same period of 2025, primarily as a result of higher sales prices due to the current supply demand environment discussed above and product sales mix.

Operating Expenses

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Operating expenses for the three months ended March 28, 2026 and March 29, 2025, were as follows (dollars in thousands):

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Research and Development

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Research and development expenses increased during the first quarter of 2026 compared to the same period of 2025, primarily due to higher employee headcount and the associated increase in overhead costs.

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Intellectual Property Legal Fees

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Intellectual property legal fees consist of fees incurred for patent enforcement and licensing, appeals, patent drafting and prosecution, and opposition to third-party post-grant patent proceedings. Although we expect intellectual property legal fees to generally increase over time as we continue to expand, protect and enforce our patent portfolio, these increases may not be linear but may occur in lump sums depending on jury trial management, due dates of various filings and their associated fees, and the arrangements we may make with our legal advisors in connection with enforcement proceedings, which may include fee arrangements or contingent fee arrangements in which we would pay these legal advisors on a scaled percentage of any negotiated fees, settlements or judgments awarded to us based on if, how and when the fees, settlements or judgments are obtained. See Note 5 to the condensed consolidated financial statements included in Part I, Item 1 of this report for further discussion.

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Intellectual property legal fees increased during the first quarter of 2026 compared to the same period of 2025 due primarily to higher legal expenses incurred to protect and enforce our patent portfolio.

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Selling, General and Administrative

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Selling, general and administrative expenses increased during the first quarter of 2026 compared to the same period of 2025 due primarily to increase in public company related fees and reporting costs and increased commissions due to higher sales that were completed in the first quarter of 2026 as compared to the first quarter of 2025.

Other Income, Net

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Other income, net for the three months ended March 28, 2026 and March 29, 2025 was as follows (dollars in thousands):

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Interest income, net decreased during the first quarter of 2026 compared to the same period of 2025, primarily as a result of lower interest earned on lower cash balances. Other income, net included a deposit returned for our former manufacturing facility located in the PRC during the first quarter of 2025.

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Liquidity and Capital Resources

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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 used 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.

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The following tables present selected financial information as of March 28, 2026 and December 27, 2025 and for the first three months of 2026 and 2025 (in thousands):

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During the three months ended March 28, 2026, net cash used in operating activities was primarily a result of net income of $8.6 million, non-cash adjustments to net income of $1.1 million, and net cash outflows from changes in operating assets and liabilities of $31.5 million driven predominantly by an increase in accounts receivable, an increase in inventories due to orders not shipped in March 2026, an increase in prepaid expenses and other assets, partially offset by an increase in accounts payable and an increase in deferred revenue related to advance payments received on orders shipped in April 2026. Net cash provided by financing activities during the three months ended March 28, 2026 primarily consisted of $6.0 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 million in payments of notes payable to finance insurance policies.

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

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

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Capital Resources

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March 2025 Lincoln Park Purchase Agreement

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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 March 28, 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.

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October 2025 Offering

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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 of our common stock (the "October 2025 Warrant Shares") 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.

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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.

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June 2025 Offering

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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.

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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.

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2023 SVB Credit Agreement

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On November 7, 2023, we entered into a loan and security agreement (as amended to date, the "2023 SVB Credit Agreement") with SVB, which provides for a revolving line of credit up to $10.0 million. The borrowing base is limited to 85% of eligible accounts receivable, subject to certain adjustments. Borrowings accrue interest on advance at a per annum rate equal to the greater of 8.50% and the Wall Street Journal prime rate. The maturity date was originally November 7, 2025. On November 7, 2025, we entered into a first amendment to the loan and security agreement (the "2023 SVB Credit Agreement Amendment") to, among other things, extend the maturity date from November 7, 2025 to November 7, 2027.

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As of March 28, 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 three months ended March 28, 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.

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Warrant Exercises

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During the quarter ended March 28, 2026, we received $5.8 million in proceeds from the cash exercise of issued and outstanding warrants to purchase 9,642,860 shares of common stock. Since March 28, 2026 and through May 8, 2026, we received $10.5 million in proceeds from the cash exercise of issued and outstanding warrants to purchase 15,395,749 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.

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Sufficiency of Cash Balances and Potential Sources of Additional Capital

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We believe our existing balance of cash and cash equivalents (including restricted cash balances), which totaled $27 million as of March 28, 2026, along with cash receipts from revenues, borrowing availability under the 2023 SVB Credit Agreement, 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. 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.

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Off-Balance Sheet Arrangements

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We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditure or capital resources that is material to investors.

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Recent Accounting Pronouncements

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In November 2024, the Financial Accounting Standards Board issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which updates expense disclosure requirements on an annual and interim basis. This ASU is effective for the annual periods beginning after December 15, 2026, and the interim reporting periods beginning after December 15, 2027. Early adoption is permitted. We are currently evaluating the impact of adopting this ASU.

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Critical Accounting Policies and Use of Estimates

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The preparation of our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of net sales and expenses during the reporting period. By their nature, these estimates and assumptions are subject to an inherent degree of uncertainty. We base our estimates and assumptions on our historical experience, knowledge of current conditions and our beliefs of what could occur in the future considering available information. We review our estimates and assumptions on an ongoing basis. Actual results may differ from our estimates, which may result in material adverse effects on our consolidated operating results and financial position.

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Our critical accounting policies and estimates are discussed in Note 1 to the condensed consolidated financial statements in this report and in the notes to consolidated financial statements in Part II, Item 8 of our Annual Report and in the MD&A in our Annual Report. There have been no significant changes to our critical accounting policies since our Annual Report.

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