Quarterly Report for Quarter Ending June 28, 2025 (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 II, Item 1A of this Quarterly 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 Quarterly Report, as well as our Annual Report on Form 10-

K filed with the Securities and Exchange Commission (the "SEC") on March 28, 2025 (the "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, pushing the boundaries of technology to deliver unparalleled performance and reliability. With a rich portfolio of patented technologies, we have consistently driven innovation in the field of cutting-edge enterprise memory and storage, advancing artificial intelligence ("AI") and empowering businesses and industries to thrive in the digital age.

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During the second quarter of 2025, we recorded net sales of $41.7 million, gross profit of $1.4 million and net loss of $6.1 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), and proceeds raised from the June 2025 Offering (as defined below). See "Liquidity and Capital Resources" and "Recent Developments" below for more information.

Recent Developments

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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 "Purchasers"), pursuant to which we issued and sold to the Purchasers in a registered offering (the "June 2025 Offering") (i) 17,142,860 shares of our common stock, and (ii) 34,285,720 Common Stock Purchase Warrants (the "June 2025 Warrants") to purchase up to an aggregate of 34,285,720 shares (the "June 2025 Warrant Shares") of our common stock 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 $11.3 million, after deducting placement agent fees and offering costs paid by us.

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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 split, share dividend, share combination recapitalization or other similar transaction involving our common stock (each, a "Share Combination Event") and the lowest daily volume weighted average price of the 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 the common stock during such period.

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On June 24, 2025, we entered into the Placement Agreement with Roth Capital Partners, LLC ("Roth"), pursuant to which Roth agreed to act our placement agent in connection with the June 2025 Offering. Pursuant to the terms of the Placement Agreement, in consideration for its placement agent services, we paid Roth a cash fee in an amount equal to 4.0% of the aggregate gross proceeds received by us in connection with the closing of the June 2025 Offering, excluding the gross proceeds received by us from the sale of securities to Mr. Hong.

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In addition, pursuant to the June 2025 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 90 days from the closing of the June 2025 Offering, subject to certain customary exceptions.

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Further, pursuant to the terms of the June 2025 Purchase Agreement, we have agreed for a period of 90 days from the closing of the June 2025 Offering not to (i) issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of common stock or Common Stock Equivalents (as defined in the June 2025 Purchase Agreement) or (ii) file any registration statement or amendment or supplement to any registration statement. The June 2025 Purchase Agreement also provides that we may 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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Economic Conditions, Challenges and Risks

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The U.S. government has recently implemented significant tariff increases on imports from the People's Republic of China ("PRC") and the PRC has retaliated with its own tariffs. While we do not believe we have been materially affected by the recent tariffs or changes in trade policy, tariffs, quotas, trade agreements or other trade restrictions could affect our supply and manufacturing capabilities in the PRC, increase our operating expenses and reduce gross margins and could reduce our sales to customers located in the PRC, which, as of the quarter ended June 28, 2025, accounted for a majority of our net sales. These net sales were significantly concentrated between three large customers. The scope, duration, and broader economic impact of such measures remain uncertain and will depend on several factors, including ongoing negotiations between the U.S. and the PRC and/or other countries, their respective responses, and any possible exemptions or exclusions that may be granted or other countries targeted with tariffs.

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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 II, Item 1A of this 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 and six months ended June 28, 2025 and June 29, 2024 were as follows (dollars in thousands):

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Net Sales

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Net sales increased by approximately $4.9 million during the second quarter of 2025 compared to the same period of 2024, primarily as a result of a $8.5 million increase in the sale of registered DIMM ("RDIMM") and discrete memory component products, partially offset by a $2.6 million decrease in sales of our flash and solid-state drives ("SSD") products, and a $1.0 million decrease in sales of low-profile memory subsystem products.

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Net sales decreasedby approximately $2.0 million during the first six months of 2025 compared to the same period of 2024, primarily as a result of a $5.1 million decrease in sales of our flash and SSD products, and a $2.5 million decrease in sales of low-profile memory subsystem products, partially offset by a $5.6 million increase in the sale of RDIMM and discrete memory component products

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Gross Profit and Gross Margin

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

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Operating Expenses

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Operating expenses for the three and six months ended June 28, 2025 and June 29, 2024, were as follows (dollars in thousands):

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Research and Development

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Research and development expenses decreased during the second quarter and first six months of 2025 compared to the same periods of 2024, primarily due to a reduction in employee headcount and the associated decrease 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 6 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 decreased during the second quarter and first six months of 2025 compared to the same periods of 2024 due primarily to lower 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 second quarter and first six months of 2025 compared to the same periods of 2024, due primarily to an increase in employee headcount and the related overhead and outside services.

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Other Income, Net

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Other income, net for the three months and six ended June 28, 2025 and June 29, 2024 was as follows (dollars in thousands):

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Interest income, net decreased during the second quarter and first six months of 2025 compared to the same periods of 2024, primarily as a result of interest earned on lower cash balances. Other income, net was consistent during the second quarter and first six months of 2025 compared to the same periods of 2024.

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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 have received proceeds from our entry into a Strategic Product Supply and License Agreement with SK hynix, Inc., a South Korean memory semiconductor supplier ("SK hynix"), on April 5, 2021 (the "Strategic Agreement"), which we used to support our operations. We have also funded our operations with a revolving line of credit under a bank credit facility with SVB, funds raised through the March 2025 Purchase Agreement, and proceeds raised from the June 2025 Offering.

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

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During the six months ended June 28, 2025, net cash used in operating activities was primarily a result of net loss of $15.6 million, non-cash adjustments to net loss of $2.1 million, and net cash outflows from changes in operating assets and liabilities of $4.2 million driven predominantly by a decrease in accounts payable, an increase in inventories due to orders not shipped in June 2025, partially offset by an increase in deferred revenue related to advance payments received on orders shipped in July 2025. Net cash provided by financing activities during the six months ended June 28, 2025 primarily consisted of $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 June 2025 Purchase Agreement, partially offset by $0.1 million in net repayments under the 2023 SVB Credit Agreement (as defined below), and $0.4 million in payments of notes payable to finance insurance policies.

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During the six months ended June 29, 2024, net cash used in operating activities was primarily a result of net loss of $31.7million, non-cash adjustments to net loss of $3.0 million, and net cash inflows from changes in operating assets and liabilities of $6.7million driven predominantly by an increase in deferred revenue related to an advance payment received on an order shipped in July 2024 and decrease in inventories due to higher

turnovers, partially offset by the decrease in accounts payable due to the payments made for the legal fees incurred to defend our patent portfolio. Net cash provided by financing activities during the six months ended June 29, 2024 primarily consisted of $5.2 million in net proceeds from issuance of common stock under our purchase agreement with Lincoln Park dated September 28, 2021, $0.7 million in net borrowings under the 2023 SVB Credit Agreement, offset by $0.3 million in payments of notes payable to finance insurance policies.

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Capital Resources

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June 2025 Offering

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On June 24, 2025, we entered into the June 2025 Purchase Agreement pursuant to which the we issued and sold to the Purchasers in the June 2025 Offering an aggregate of (i) 17,142,860 shares of our common stock, and (ii) 34,285,720 June 2025 Warrants to purchase the June 2025 Warrant Shares at a combined purchase price of $0.70 per share and accompanying 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 $11.3 million, after deducting placement agent fees and offering costs paid by us.

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Further, pursuant to the terms of the June 2025 Purchase Agreement, we have agreed for a period of 90 days from the closing of the June 2025 Offering not to (i) issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of common stock or Common Stock Equivalents (as defined in the June 2025 Purchase Agreement) or (ii) file any registration statement or amendment or supplement to any registration statement. The June 2025 Purchase Agreement also provides that we may 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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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 June 28, 2025, $73.9 million remains available under the March 2025 Purchase Agreement with Lincoln Park. Pursuant to the June 2025 Purchase Agreement, we may not effect any sale under the March 2025 Purchase Agreement for a period of 90 days from the closing 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 (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 is November 7, 2025.

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As of June 28, 2025, the outstanding borrowings under the 2023 SVB Credit Agreement were $1.1 million with no availability under the revolving line of credit. During the six months ended June 28, 2025, we made net repayments of $0.1 million under the 2023 SVB Credit Agreement.

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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 together with the cash received under the Strategic Agreement with SK hynix, proceeds from issuances of debt and equity securities, including our equity line with Lincoln Park, cash receipts from net sales, borrowing availability under the 2023 SVB Credit Agreement, funds raised through future 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. 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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Pursuant to a Definitive Proxy Statement on Schedule 14A, filed with the SEC on July 24, 2025, an annual meeting of the stockholders will be held to address certain proposals, including a proposal to increase the authorized number of shares of our common stock from 450,000,000 to 675,000,000. If we are unsuccessful in securing stockholder approval to increase the authorized shares of our common stock, this could impede our ability to issue shares of our common stock for corporate purposes, including any equity-based financing to support the execution of our business strategy.

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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 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This ASU is effective for the annual periods beginning January 1, 2024, and becomes effective for interim periods within fiscal years beginning January 1, 2025. Weadopted this guidance on December 28, 2024.The adoption only impacted our disclosure and has no material impact on the Company's condensed consolidated financial statements as of and for the quarter ended June 28, 2025.

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

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In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which will require us to disclose specified additional information in its income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. This ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. We will adopt this ASU using either a prospective or retrospective transition method. 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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