NETLIST INC, 10-Q filed on 5/14/2019
Quarterly Report
v3.19.1
Document And Entity Information - shares
3 Months Ended
Mar. 30, 2019
May 10, 2019
Document And Entity Information [Abstract]    
Entity Registrant Name NETLIST INC  
Entity Central Index Key 0001282631  
Document Type 10-Q  
Document Period End Date Mar. 30, 2019  
Amendment Flag false  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q1  
Entity Current Reporting Status Yes  
Current Fiscal Year End Date --12-28  
Entity Filer Category Non-accelerated Filer  
Entity Common Stock, Shares Outstanding   140,833,130
v3.19.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 30, 2019
Dec. 29, 2018
ASSETS    
Cash and cash equivalents $ 9,991 $ 14,802
Restricted cash 1,850 1,850
Accounts receivable, net of reserves of $56 (2019) and $39 (2018) 2,402 2,917
Inventories 2,449 2,946
Prepaid expenses and other current assets 639 677
Total current assets 17,331 23,192
Property and equipment, net 256 279
Operating lease right-of-use assets 1,399  
Other assets 1,394 1,394
Total assets 20,380 24,865
LIABILITIES AND STOCKHOLDERS' DEFICIT    
Accounts payable 7,625 9,497
Revolving line of credit 2,024 2,293
Accrued payroll and related liabilities 487 604
Accrued expenses and other current liabilities 770 343
Note payable 252 376
Total current liabilities 11,158 13,113
Convertible promissory note and accrued interest, net of debt discount 17,226 17,346
Operating lease liabilities 908  
Long-term warranty liability 77 78
Total liabilities 29,369 30,537
Commitments and contingencies
Stockholders' deficit:    
Preferred stock, $0.001 par value - 10,000 shares authorized: Series A preferred stock, $0.001 par value; 1,000 shares authorized; none issued and outstanding
Common stock, $0.001 par value—300,000 shares authorized; 140,708 (2019) and 139,283 (2018) shares issued and outstanding 140 139
Additional paid-in capital 170,087 169,355
Accumulated deficit (179,216) (175,166)
Total stockholders' deficit (8,989) (5,672)
Total liabilities and stockholders' deficit $ 20,380 $ 24,865
v3.19.1
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Mar. 30, 2019
Dec. 29, 2018
Accounts receivable, allowance for doubtful accounts $ 56 $ 39
Preferred stock, par value $ 0.001 $ 0.001
Preferred stock, shares authorized 10,000,000 10,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 300,000,000 300,000,000
Common stock, shares issued 140,708,000 139,283,000
Common stock, shares outstanding 140,708,000 139,283,000
Series A Preferred Stock    
Preferred stock, par value $ 0.001 $ 0.001
Preferred stock, shares authorized 1,000,000 1,000,000
v3.19.1
Condensed Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended
Mar. 30, 2019
Mar. 31, 2018
Condensed Consolidated Statements Of Operations    
Net sales $ 5,105 $ 8,879
Cost of sales 4,826 8,500
Gross profit 279 379
Operating expenses:    
Research and development 590 1,008
Intellectual property legal fees 1,495 2,211
Selling, general and administrative 1,973 1,691
Total operating expenses 4,058 4,910
Operating loss (3,779) (4,531)
Other expense, net:    
Interest expense, net (272) (147)
Other income, net 1 5
Total other expense, net (271) (142)
Loss before (benefit) provision for income taxes (4,050) (4,673)
Net loss $ (4,050) $ (4,673)
Net loss per common share:    
Basic and diluted $ (0.03) $ (0.06)
Weighted-average common shares outstanding:    
Basic and diluted 139,039 82,461
v3.19.1
Condensed Consolidated Statements of Operations (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended
Mar. 30, 2019
Mar. 31, 2018
Stock-based compensation expense $ 342 $ 241
Cost of sales    
Stock-based compensation expense 7 6
Research and development    
Stock-based compensation expense 51 80
Selling, general and administrative    
Stock-based compensation expense $ 284 $ 155
v3.19.1
Condensed Consolidated Statements Of Stockholders' Equity - USD ($)
shares in Thousands, $ in Thousands
Common Stock
Additional Paid-In Capital
Accumulated Deficit
Total
Balance at Dec. 30, 2017 $ 80 $ 152,640 $ (158,046) $ (5,326)
Balance, shares at Dec. 30, 2017 79,314      
Stock-based compensation   241   241
Issuance of common stock, net $ 5 1,789   1,794
Issuance of common stock, shares 6,101      
Net loss     (4,673) (4,673)
Balance at Mar. 31, 2018 $ 85 154,670 (162,719) (7,964)
Balance, shares at Mar. 31, 2018 85,415      
Balance at Dec. 30, 2017 $ 80 152,640 (158,046) (5,326)
Balance, shares at Dec. 30, 2017 79,314      
Net loss       17,100
Balance at Dec. 29, 2018 $ 139 169,355 (175,166) $ (5,672)
Balance, shares at Dec. 29, 2018 139,283      
Exercise of stock options, shares       43
Restricted stock units vested and distributed, shares 340      
Net loss       $ (4,050)
Balance at Mar. 30, 2019       (8,989)
Balance at Dec. 29, 2018 $ 139 169,355 (175,166) (5,672)
Balance, shares at Dec. 29, 2018 139,283      
Stock-based compensation   342   342
Exercise of stock options $ 43 16   16
Issuance of common stock, net $ 1 374   375
Issuance of common stock, shares 1,042      
Net loss     (4,050) (4,050)
Balance at Dec. 28, 2019 $ 140 $ 170,087 $ (179,216) $ (8,989)
Balance, shares at Dec. 28, 2019 140,708      
v3.19.1
Condensed Consolidated Statements Of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
Mar. 30, 2019
Mar. 31, 2018
Cash flows from operating activities:    
Net loss $ (4,050) $ (4,673)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 48 67
Interest accrued on convertible promissory notes 118 75
Amortization of debt discounts and issuance costs 137 54
Non-cash lease expense 151  
Stock-based compensation 342 241
Changes in operating assets and liabilities:    
Accounts receivable 515 236
Inventories 497 698
Prepaid expenses and other assets 38 (137)
Accounts payable (1,872) 499
Accrued payroll and related liabilities (117) (137)
Accrued expenses and other liabilities (216) (33)
Net cash used in operating activities (4,409) (3,110)
Cash flows from investing activities:    
Acquisition of property and equipment (25) (34)
Net cash used in investing activities (25) (34)
Cash flows from financing activities:    
Net borrowings under line of credit (269) (44)
Payments on debt (124) (114)
Proceeds from issuance of common stock, net   1,794
Proceeds from exercise of stock options and warrants 16  
Net cash provided by financing activities (377) 1,636
Net change in cash, cash equivalents and restricted cash (4,811) (1,508)
Cash, cash equivalents and restricted cash at beginning of period 16,652 9,520
Cash, cash equivalents and restricted cash at end of period $ 11,841 $ 8,012
v3.19.1
Condensed Consolidated Statements Of Cash Flows (Parenthetical) - USD ($)
$ in Thousands
Mar. 30, 2019
Mar. 31, 2018
Reconciliation of cash, cash equivalents and restricted cash at end of period:    
Cash and cash equivalents $ 9,991 $ 6,912
Restricted cash 1,850 1,100
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Total $ 11,841 $ 8,012
v3.19.1
Description of Business
3 Months Ended
Mar. 30, 2019
Description of Business  
Description of Business

Note 1—Description of Business

 

Netlist, Inc. and its wholly owned subsidiaries (collectively the “Company” or “Netlist”) provides high-performance modular memory subsystems to customers in diverse industries that require enterprise and storage class memory solutions to empower critical business decisions. The Company has a history of introducing disruptive new products, such as one of the first load-reduced dual in-line memory modules (“LRDIMM”) based on its distributed buffer architecture, which has been adopted by the industry for DDR4 LRDIMM. The Company was also one of the first to bring NAND flash memory (“NAND flash”) to the memory channel with its NVvault non-volatile dual in-line memory modules (“NVDIMM”) using software-intensive controllers and merging dynamic random access memory integrated circuits (“DRAM ICs” or “DRAM”) and NAND flash to solve data bottleneck and data retention challenges encountered in high-performance computing environments. The Company recently introduced a new generation of storage class memory products called HybriDIMM to address the growing need for real-time analytics in Big Data applications, in-memory databases, high performance computing and advanced data storage solutions. The Company also resells NAND flash, DRAM products and other component 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.

 

Due to the ground-breaking product development of its engineering teams, Netlist has built a robust portfolio of over 100 issued and pending U.S. and foreign patents, many seminal, in the areas of hybrid memory, storage class memory, rank multiplication and load reduction. Since its inception, the Company has dedicated substantial resources to the development, protection and enforcement of technology innovations it believes are essential to its business. The Company’s early pioneering work in these areas has been broadly adopted in industry-standard registered dual in-line memory module (“RDIMM”) LRDIMM and NVDIMM. Netlist’s objective is to continue to innovate in its field and invest further in its intellectual property portfolio, with the goal of monetizing its intellectual property through a combination of product sales and licensing, royalty or other revenue-producing arrangements, which may result from joint development or similar partnerships or defense of the Company’s patents through enforcement actions against parties it believes are infringing them.

 

Netlist was incorporated in June 2000 and is headquartered in Irvine, California. The Company has established a manufacturing facility in the People’s Republic of China (“PRC”), which became operational in July 2007. The Company operates in one reportable segment, which is the design and manufacture of high-performance memory subsystems for the server, high-performance computing and communications markets.    

 

Liquidity

 

The Company incurred net losses of $4.1 million for the three months ended March 30, 2019, and $17.1 million and $13.4 million for the fiscal years ended December 29,  2018 and December 30, 2017, respectively. The Company has historically financed its operations primarily with revenues generated from operations, including product sales and proceeds from issuances of equity and debt securities including convertible debt (see Note 6). The Company has also funded its operations with a revolving line of credit under a bank credit facility, and a funding arrangement for costs associated with certain of its legal proceedings (see Notes 5, 6 and 8).

 

Inadequate working capital would have a material adverse effect on the Company’s business and operations and could cause the Company to fail to execute its business plan, fail to take advantage of future opportunities or fail to respond to competitive pressures or customer requirements. A lack of sufficient funding may also require the Company to significantly modify its business model and/or reduce or cease its operations, which could include implementing cost-cutting measures or delaying, scaling back or eliminating some or all of its ongoing and planned investments in corporate infrastructure, research and development projects, business development initiatives and sales and marketing activities, among other activities. While the Company’s estimates of its operating revenues and expenses and working capital requirements could be incorrect and the Company may use its cash resources faster than it anticipates, management believes the Company’s existing cash balance, together with cash generated from the Company’s business operations and borrowing availability under a bank credit facility (see Note 5) and funds raised through the debt and equity offerings, will be sufficient to meet the Company’s anticipated cash needs for at least the next 12 months.

 

v3.19.1
Summary of Significant Accounting Policies
3 Months Ended
Mar. 30, 2019
Summary of Significant Accounting Policies  
Summary of Significant Accounting Policies

Note 2—Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to the Securities and Exchange Commission’s (“SEC”) Form 10-Q and Article 8 of the SEC’s Regulation S-X. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. Therefore, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of and for the year ended December 29, 2018, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 22, 2019.

 

The accompanying condensed consolidated financial statements as of and for the three months ended March 30, 2019 are unaudited. In the opinion of management, all adjustments for the fair presentation of the Company’s condensed consolidated financial statements have been made. The adjustments are of a normal recurring nature except as otherwise noted. The results of operations for the interim periods are not necessarily indicative of the results to be expected for other periods or the full fiscal year.

 

Principles of Consolidation

 

The accompanying condensed consolidated financial statements include the accounts of Netlist, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

 

Fiscal Year

 

The Company operates under a 52 or 53 week fiscal year ending on the Saturday closest to December 31. For 2019, the Company’s fiscal year is scheduled to end on December 28, 2019 and will consist of 52 weeks, and each of the Company’s quarters within such fiscal year will be comprised of 13 weeks.

 

Use of Estimates

 

The preparation of the accompanying condensed consolidated financial statements in conformity with 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 revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include provisions for uncollectible receivables and sales returns, warranty liability, valuation of inventories, fair value of financial instruments, useful lives and impairment of property and equipment, the fair value of the Company’s equity-based compensation awards and convertible debt instruments and the realization of deferred tax assets. Actual results may differ materially from these estimates. On an ongoing basis, the Company evaluates its estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities.

 

Revenue Recognition

 

The Company recognizes revenues when control is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods and services. Revenue recognition is evaluated through the five steps outlined within the guidance. See Note 3 for further discussion on revenues.

 

Cash and Cash Equivalents

 

Cash and cash equivalents consist of cash and short-term investments with original maturities of three months or less.

 

Restricted Cash

 

The Company’s restricted cash consists of cash to secure standby letters of credit (see Note 5).

 

Fair Value of Financial Instruments

 

The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement, to account for the fair value of certain assets and liabilities. ASC Topic 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC Topic 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC Topic 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

 

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. An active market is defined as a market in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

 

The Company’s financial instruments consist principally of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses, a revolving line of credit, and convertible promissory notes. The Company considers the carrying values of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued expenses to approximate the fair value for these financial instruments based upon an evaluation of the underlying characteristics, market data and because of the short period of time between origination of the instruments and their expected realization. The Company estimates the fair values of its revolving line of credit and convertible promissory notes by using current applicable rates for similar instruments as of the balance sheet date and an assessment of its credit rating. The carrying value of the Company’s revolving line of credit at March 30, 2019 and December 29, 2018 approximates fair value because the Company’s interest rate yield is near current market rates for comparable debt instruments. The Company estimates the fair value of its convertible promissory notes by using a discounted cash flow analysis using borrowing rates available to the Company for debt instruments with similar terms and maturities. The Company has determined that the valuation of its convertible promissory notes is classified in Level 2 of the fair value hierarchy. The carrying value and estimated fair value of a senior secured convertible promissory note as of March 30, 2019 were $14.4 million and $11.6 million, respectively. The carrying value and estimated fair value of a senior secured convertible promissory note as of December 29, 2018 were $14.3 million and $11.7 million, respectively. The carrying value and estimated fair value of an unsecured convertible note were $1.8 million and $1.5 million as of March 30, 2019, respectively. The carrying value and estimated fair value of the unsecured convertible note were $2.0 million and $1.7 million as of December 29, 2018, respectively.

 

Allowance for Doubtful Accounts

 

The Company extends credit to its customers. An allowance for doubtful accounts is maintained for estimated losses resulting from the inability of the Company’s customers to make required payments. The Company specifically analyzes the age of customer balances, historical bad debt experiences, customer credit-worthiness and changes in customer payment terms when making estimates of the collectability of the Company’s accounts receivable balances. If the Company determines that the financial condition of any of its customers has deteriorated, whether due to customer specific or general economic issues, an increase in the allowance may be made. After all attempts to collect a receivable have failed, the receivable is written off.

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents, and accounts receivable. The Company invests its cash equivalents primarily in money market mutual funds. Cash equivalents are maintained with high quality institutions, the composition and maturities of which are regularly monitored by management. At times, deposits held with financial institutions may exceed the amount of insurance provided by the Federal Deposit Insurance Corporation and the Securities Investor Protection Corporation.

 

The Company’s trade accounts receivable are primarily derived from sales to original equipment manufacturers (“OEMs”) in the server, high-performance computing and communications markets, as well as from sales to storage customers, appliance customers, system builders and cloud and datacenter customers. The Company performs credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary, but generally requires no collateral. The Company believes the concentration of credit risk in its trade receivables is moderated by its credit evaluation process, relatively short collection terms, a high level of credit worthiness of its customers (see Note 4), foreign credit insurance, and letters of credit issued in its favor. Reserves are maintained for potential credit losses, and such losses historically have not been significant and have been within management’s expectations.

 

Inventories

 

Inventories are valued at the lower of actual cost to purchase or manufacture the inventory or the net realizable value of the inventory. Cost is determined on an average cost basis which approximates actual cost on a first-in, first-out basis and includes raw materials, labor and manufacturing overhead. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. At each balance sheet date, the Company evaluates its ending inventory quantities on hand and on order and records a provision for excess quantities and obsolescence. Among other factors, the Company considers historical demand and forecasted demand in relation to inventory on hand, competitiveness of product offerings, market conditions and product life cycles when determining obsolescence and net realizable value. In addition, the Company considers changes in the market value of components in determining the net realizable value of its inventory. At the point of the write-down recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

 

Impairment of Long-Lived Assets

 

The Company evaluates the recoverability of the carrying value of long-lived assets held and used by the Company in its operations for impairment on at least an annual basis or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future net cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. These projected future cash flows may vary significantly over time as a result of increased competition, changes in technology, fluctuations in demand, consolidation of the Company’s customers and reductions in average sales prices. If the carrying value is determined not to be recoverable from future operating cash flows, the asset is deemed impaired and an impairment loss is recognized to the extent the carrying value exceeds the estimated fair value of the asset. The fair value of the asset or asset group is based on market value when available, or when unavailable, on discounted expected cash flows. The Company’s management believes there is no impairment of long-lived assets as of March 30, 2019.

 

Leases

 

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, accrued expenses and other current liabilities, and operating lease liabilities on its condensed consolidated balance sheets. The Company does not have finance leases. 

 

ROU assets represent the right of the Company to use an underlying asset for the lease term and lease liabilities represent the obligation of the Company to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

 

The Company elected certain practical expedients and as permitted did not reassess whether existing contracts are or contain leases, the lease classification and initial direct costs for any existing leases.  As part of practical expedients selected the Company also used hindsight in determining lease terms. The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component.  Leases with an initial term of twelve months or less are not recorded on the balance sheet as we recognize lease expense for these leases on a straight-line basis over the lease term.

 

Warranty Liability

 

The Company offers standard product warranties generally ranging from one to three years to its memory subsystem products customers, depending on the negotiated terms of any purchase agreements, and has no other post-shipment obligations or separately priced extended warranty or product maintenance contracts. These warranties require the Company to repair or replace defective product returned to the Company during the warranty period at no cost to the customer. Warranties are not offered on sales of component products. The Company records an estimate for warranty related costs at the time of sale based on its historical and estimated future product return rates and expected repair or replacement costs (see Note 4). Estimated future warranty costs are recorded in the period in which the sale is recorded and are included in cost of sales in the accompanying consolidated statements of operations.

 

Stock-Based Compensation

 

Stock-based awards are comprised principally of stock options and restricted stock. Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense over the requisite service period, which is the vesting period, on a straight-line basis, net of estimated forfeitures. The Company uses the Black-Scholes option pricing model to determine the grant date fair value of stock options. The model requires the Company to estimate the expected volatility and expected term of the stock options, which are highly complex and subjective variables. The expected volatility is based on the historical volatility of the Company’s common stock. The expected term is computed using the simplified method as the Company’s best estimate given its lack of actual exercise history. The risk-free rate selected to value any particular grant is based on the U.S. Treasury rate that corresponds to the expected term of the grant effective as of the date of the grant. The expected dividend assumption is based on the Company’s history and management’s expectation regarding dividend payouts. The grant-date fair value of restricted stocks equals the closing price of the Company’s common stock on the grant date.

Income Taxes

 

Deferred income tax assets and liabilities are recognized for temporary differences between the financial statement carrying amounts of assets and liabilities and the amounts that are reported in the income tax returns. Deferred taxes are evaluated for realization on a jurisdictional basis. The Company records valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. In making this assessment, management analyzes future taxable income, reversing temporary differences and ongoing tax planning strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, the Company will adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income.

 

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities based on the technical merits of the Company’s position. The tax benefit recognized in the financial statements for a particular tax position is based on the largest benefit that is more likely than not to be realized. The amount of unrecognized tax benefits is adjusted as appropriate for changes in facts and circumstances, such as significant amendments to existing tax laws, new regulations or interpretations by the taxing authorities, new information obtained during a tax examination, or resolution of an examination. The Company recognizes both accrued interest and penalties associated with uncertain tax positions as a component of provision for income taxes in the condensed consolidated statements of operations.

 

The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations may change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability for U.S. or foreign taxes may be materially different from the Company’s estimates, which could require the Company to record additional tax liabilities or to reduce previously recorded tax liabilities, as applicable.

 

Contingent Legal Expense

 

Contingent legal fees are expensed in the condensed consolidated statements of operations in the period that the related revenues are recognized. In instances where there are no recoveries from potential infringers, no contingent legal fees are paid; however, the Company may be liable for certain out of pocket legal costs incurred pursuant to the underlying legal services agreement.

 

Research and Development Expenses

 

Research and development expenditures are expensed in the period incurred.

 

Foreign Currency Remeasurement

 

The functional currency of the Company’s foreign subsidiaries is the U.S. dollar. Local currency financial statements are remeasured into U.S. dollars at the exchange rate in effect as of the balance sheet date for monetary assets and liabilities and the historical exchange rate for nonmonetary assets and liabilities. Expenses are remeasured using the average exchange rate for the period, except items related to nonmonetary assets and liabilities, which are remeasured using historical exchange rates. All remeasurement gains and losses are included in determining net loss. Transaction gains and losses were not significant during the three months ended March 30, 2019 and March 31, 2018.

 

Net Loss Per Share

 

The Company computes net loss per share using the two-class method required for participating securities. The Company considers restricted stock awards to be participating securities because holders of such shares have nonforfeitable dividend rights in the event of the Company’s declaration of a dividend for common shares. Under the two-class method, undistributed earnings are allocated to common stock and the participating securities according to their respective participating rights in undistributed earnings, as if all the earnings for the period had been distributed. No allocation of undistributed earnings to participating securities was performed for periods with net losses as such securities do not have a contractual obligation to share in the losses of the Company.

 

Basic net loss per share is calculated by dividing net loss by the weighted-average common shares outstanding during the period following the two-class method. Diluted net loss per share is calculated by dividing the net loss by the weighted-average shares and dilutive potential common shares outstanding during the period. Dilutive potential shares consist of dilutive shares issuable upon the exercise of outstanding stock options and warrants computed using the treasury stock method, shares issuable under the conversion feature of convertible notes using the “if-converted” method, and shares issuable upon the vesting of restricted stock awards. In periods of losses, basic and diluted loss per share are the same, as the effect of stock options, warrants, convertible notes and unvested restricted stock awards on loss per share is anti-dilutive.

 

Adoption of New Accounting Pronouncements

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), as amended ("ASC 842"), which modifies lease accounting for lessees to increase transparency and comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements. The Company adopted ASC 842 effective December 30, 2018 using a modified retrospective method and did not restate comparative periods. As permitted under the transition guidance, the Company carried forward the assessment of whether its contracts contain or are leases, classification of its leases and remaining lease terms. Based on the lease portfolio as of December 30, 2018, the Company recognized approximately $1.5 million of operating lease right-of-use assets and operating lease liabilities on its condensed consolidated balance sheet upon adoption, primarily relating to real estate. No adjustments were required to be made to accumulated deficit upon adoption. See Note 4 for further discussion.

 

Recently Issued Accounting Pronouncements

 

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force), which amends the accounting for implementation, setup, and other upfront costs in a hosting arrangement that is a service contract. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted including adoption in any interim period. The Company does not expect a significant impact as a result of adopting this update on its consolidated financial statements.

 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which removes, modifies, and adds various disclosure requirements on fair value measurements in Topic 820. ASU 2018-13 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this update and delay adoption of the additional disclosures until their effective date. The Company does not expect a significant impact as a result of adopting this update on its consolidated financial statements.

 

v3.19.1
Revenue Recognition
3 Months Ended
Mar. 30, 2019
Revenue Recognition  
Revenue Recognition

Note 3—Revenue Recognition

 

Nature of Goods and Services

 

The Company derives revenue primarily from: (i) resales of NAND flash, DRAM products and other component 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 and (ii) sales of high-performance modular memory subsystems primarily to OEMs in the server, high-performance computing and communications markets.

 

Substantially all of the Company’s net sales relate to products sold at a point in time through ship-and-bill performance obligations. At contract inception, an assessment of the goods and services promised in the contracts with customers is performed and a performance obligation is identified for each distinct promise to transfer to the customer a good or service (or bundle of goods or services). To identify the performance obligations, the Company considers all of the goods or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. Contracts with customers are comprised of customer purchase orders, invoices (including the Company’s standard terms and conditions) and written contracts.

 

Disaggregation of Net Sales

 

The following table shows disaggregates net sales by major source (in thousands):

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 30,

 

March 31,

 

    

2019

 

2018

Resales of third-party products

 

$

3,953

 

$

7,108

Sale of the Company's modular memory subsystems

 

 

1,152

 

 

1,771

Total net sales

 

$

5,105

 

$

8,879

 

Performance Obligations

 

Net product revenues and related cost of sales are primarily the result of promises to transfer products to customers. For performance obligations related to substantially all of the ship-and-bill products, control transfers at a point in time when title transfers upon shipment of the product to the customer, and for some sales, control transfers when title is transferred at time of receipt by the customer. Once a product has shipped or has been delivered, the customer is able to direct the use of, and obtain substantially all of the remaining benefits from, the asset. The Company considers control to have transferred upon shipment or delivery, because the Company has a present right to payment at that time, the customer has legal title to the asset, the Company has transferred physical possession of the asset, and the customer has the significant risks and rewards of ownership of the asset.

 

Amounts billed to its customers for shipping and handling are recorded in net product revenues. Shipping and handling costs incurred by the Company are included in cost of sales in the accompanying condensed consolidated statements of operations.

 

Significant Payment Terms

 

For ship-and-bill type contracts with customers, the invoice states the final terms of the sale, including the description, quantity, and price of each product purchased. Payment terms are typically due within 30 days after delivery but, in limited instances, can range up to 60 days after delivery. Accordingly, the Company’s contracts with customers do not include a significant financing component.

 

Variable Consideration

 

Customers are generally allowed limited rights of return for up to 30 days, except for sales of excess component inventories, which contain no right-of-return privileges. Product returns give rise to variable consideration that decreases the transaction price. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the anticipated performance and all information (historical, current and forecasted) that is reasonably available.

 

Returns for products sold are estimated using the expected value method and are recorded as a reduction in reported revenues at the time of sale based upon historical product return experience and is adjusted for known trends to arrive at the amount of consideration to which the Company expects to receive. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.

 

Contract Assets and Liabilities

 

Typically, the Company invoices the customer and recognizes revenue once the Company has satisfied its performance obligation. Generally, the Company does not have material amounts of contract assets since revenue is recognized as control of goods is transferred or as services are performed. Contract liabilities are recorded when cash payments are received in advance of the Company’s performance. There were no such contract liabilities as of March 30, 2019.

 

v3.19.1
Supplemental Financial Information
3 Months Ended
Mar. 30, 2019
Supplemental Financial Information  
Supplemental Financial Information

Note 4—Supplemental Financial Information

 

Inventories

 

Inventories consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

March 30,

 

December 29,

 

    

2019

    

2018

Raw materials

 

$

925

 

$

1,072

Work in process

 

 

49

 

 

25

Finished goods

 

 

1,475

 

 

1,849

 

 

$

2,449

 

$

2,946

 

Warranty Liabilities

 

The following table summarizes activities related to warranty liabilities (in thousands):

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 30,

 

March 31,

 

    

2019

    

2018

Beginning balance

 

$

194

 

$

152

Estimated cost of warranty claims charged to cost of sales

 

 

39

 

 

81

Cost of actual warranty claims

 

 

(41)

 

 

(75)

Ending balance

 

 

192

 

 

158

Less: current portion

 

 

(115)

 

 

(95)

Long-term warranty liability

 

$

77

 

$

63

 

The allowance for warranty liabilities expected to be incurred within one year is included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheets. The allowance for warranty liability expected to be incurred after one year is classified as long-term warranty liability in the accompanying condensed consolidated balance sheets.

 

Leases

 

The Company has non-cancellable operating leases primarily associated with office facilities, manufacturing facility and certain equipment. The determination of which discount rate to use when measuring the lease obligation was deemed a significant judgment.

 

Lease cost and supplemental cash flow information related to operating leases was as follows (in thousands):

 

 

 

 

 

 

 

Three Months Ended

 

 

March 30,

 

    

2019

Lease cost

 

 

 

Operating lease cost

 

$

159

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities

 

 

 

Operating cash flows from operating leases

 

$

147

 

Supplemental balance sheet information related to operating leases was as follows:

 

 

 

 

 

 

 

March 30,

 

(in thousands)

 

2019

 

Operating lease right-of-use assets

 

$

1,399

 

Accrued expenses and other current liabilities

 

$

523

 

Operating lease liabilities

 

 

908

 

Total operating lease liabilities

 

$

1,431

 

 

 

 

 

 

Weighted average remaining lease term (in years)

 

 

 

 

Operating lease

 

 

2.7

 

 

 

 

 

 

Weighted Average Discount Rate

 

 

 

 

Operating lease

 

 

7.7

%

 

Maturities of operating lease liabilities as of March 30, 2019 were as follows (in thousands):

 

 

 

 

 

Fiscal Year

 

Amount

2019 (remaining 9 months)

 

$

459

2020

 

 

596

2021

 

 

376

2022

 

 

163

Total lease payments

 

 

1,594

Less: imputed interest

 

 

(163)

Total

 

$

1,431

 

A summary of future minimum lease payments under operating lease as of December 29, 2018 was as follows (in thousands):

 

 

 

 

 

 

 

 

Fiscal Year

 

 

 

    

Amount

2019

 

 

 

 

$

399

2020

 

 

 

 

 

208

Total minimum lease payments

 

 

 

 

$

607

 

Computation of Net Loss Per Share

 

The following table sets forth the computation of basic and diluted net loss per share of common stock (in thousands, except per share data):

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 30,

 

March 31,

 

    

2019

    

2018

Net loss per sharebasic and diluted:

 

 

 

 

 

 

Numerator: Net loss

 

$

(4,050)

 

$

(4,673)

Denominator: Weighted-average common shares outstanding—basic and diluted

 

 

139,039

 

 

82,461

Net loss per share—basic and diluted

 

$

(0.03)

 

$

(0.06)

 

No allocation of undistributed earnings to participating securities was performed for periods with net losses as such securities do not have a contractual obligation to share in the losses of the Company.

 

The table below sets forth potentially dilutive weighted average common share equivalents, consisting of shares issuable upon the exercise of outstanding stock options and warrants using the treasury stock method, shares issuable upon conversion of the SVIC Note and the Iliad Note (see Note 6) using the “if-converted” method, and the vesting of restricted stock awards. These potential weighted average common share equivalents have been excluded from the diluted net loss per share calculations above as their effect would be anti-dilutive (in thousands):

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 30,

 

March 31,

 

    

2019

    

2018

Weighted average common share equivalents

 

 

19,083

 

 

12,784

 

Major Customers and Products

 

The Company’s net sales have historically been concentrated in a small number of customers. The following table sets forth the percentage of the net revenues made to customers that each comprise 10% or more of the net revenues:

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 30,

 

March 31,

 

 

    

2019

 

2018

 

Customer:

 

 

 

 

 

Customer A

 

11

%  

13

%

Customer B

 

*

%

10

%


*Less than 10% of net revenues during the period.

 

The Company’s accounts receivable are concentrated with two customers  as of March 30, 2019 representing 16%  and 15% of aggregate gross receivables, respectively. As of December 29, 2018,  two customers represented 22% and 15% of aggregate gross receivables, respectively. The loss of any of the significant customers or a reduction in revenues to or difficulties collecting payments from any of these customers could significantly reduce the net sales and adversely affect its operating results. The Company tries to mitigate risks associated with foreign receivables by purchasing comprehensive foreign credit insurance.

 

The Company resells certain component 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. For the three months ended March 30, 2019 and March 31, 2018, resales of these products represented approximately 77% and 77%, respectively, of net sales.

 

Cash Flow Information

 

The following table sets forth supplemental disclosures of cash flow information and non-cash financing activities for the periods presented:

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 30,

 

March 31,

 

    

2019

    

2018

Supplemental disclosure of non-cash financing activities:

 

 

 

 

 

 

Common stock issued on conversion of convertible note payable

 

$

375

 

 

 —

Debt financing of insurance

 

$

 —

 

$

344

 

v3.19.1
Credit Agreements
3 Months Ended
Mar. 30, 2019
Credit Agreements  
Credit Agreements

Note 5—Credit Agreement

 

SVB Credit Agreement

 

On October 31, 2009, the Company and Silicon Valley Bank (“SVB”) entered into a credit agreement (as amended, the “SVB Credit Agreement”). Pursuant to the terms of the SVB Credit Agreement, the Company is eligible to borrow, in a revolving line of credit, up to the lesser of (i) 85% of its eligible accounts receivable (increased from 80% as of August 29, 2018), or (ii) $5.0 million, subject to certain adjustments as set forth in the SVB Credit Agreement. The SVB Credit Agreement requires letters of credit to be secured by cash, which is classified as restricted cash in the accompanying condensed consolidated balance sheets. As of March 30, 2019 and December 29, 2018, (i) outstanding letters of credit were $1.9 million and $1.9 million, respectively, (ii) outstanding borrowings were $2.0 million and $2.3 million, respectively, and (iii) availability under the revolving line of credit was $0.01 million and $0.2 million, respectively.

 

On January 29, 2016, the Company and SVB entered into an amendment to the SVB Credit Agreement to, among other things, adjust the rate at which advances under the SVB Credit Agreement accrue interest to the Wall Street Journal “prime rate” plus 2.75% (prior to such amendment, advances accrued interest at a rate equal to SVB’s most recently announced “prime rate” plus 2.75%).

 

On March 27, 2017, the Company and SVB entered into another amendment to the SVB Credit Agreement to, among other things, (i) extend the maturity date of advances under the SVB Credit Agreement to April 1, 2018, (ii) modify the Company’s financial covenants under the SVB Credit Agreement to remove all prior financial standards and replace them with a liquidity ratio standard, (iii) remove or amend certain termination, anniversary and unused facility fees payable by the Company under the SVB Credit Agreement, and (iv) make certain other administrative changes. On April 12, 2017, the Company and SVB entered into a further amendment to the SVB Credit Agreement to, among other things, obtain SVB’s consent in connection with the Company’s rights agreement with Computershare Trust Company, N.A., as rights agent (see Note 9), and make certain administrative changes in connection with the Company’s funding arrangement with TR Global Funding V, LLC, an affiliate of TRGP Capital Management, LLC (“TRGP”) (see Note 8). On March 20, 2018, the Company and SVB entered into another amendment to the SVB Credit Agreement to among other things, (i) extend the maturity date of advances under the SVB Credit Agreement to March 31, 2019 and (ii) revise certain inventory reporting requirements under the SVB Credit Agreement. On August 29, 2018, the SVB Credit Agreement was amended further to increase the borrowing based of accounts receivable to 85% from 80% or $5.0 million, subject to certain adjustments set forth in the SVB Credit Agreement. On March 21, 2019, the SVB Credit Agreement was amended further to (i) extend the maturity date of the advances to March 30, 2020 and (ii) delete the inventory reporting requirements.

 

For all periods before April 20, 2017, all obligations under the SVB Credit Agreement were secured by a first priority security interest in the Company’s tangible and intangible assets, other than its patent portfolio, which was subject to a first priority security interest held by SVIC (see Note 6). Certain of these lien priorities were modified in April and May 2017 in connection with the Company’s establishment of a funding arrangement with TRGP for certain of the Company’s litigation expenses in connection with certain of its legal proceedings against SK hynix, a South Korean memory semiconductor supplier (“SK hynix”). On May 3, 2017, TRGP entered into an intercreditor agreement with each of SVIC and SVB, and on April 20, 2017, SVIC and SVB entered into an intercreditor agreement with each other (such intercreditor agreements, collectively, the “Intercreditor Agreements”). Pursuant to the terms of the Intercreditor Agreements, SVB’s security interests in the Company’s assets have been modified as follows: SVB has a first priority security interest in all of the Company’s tangible and intangible assets other than its patent portfolio and its claims underlying and any proceeds it may receive from the SK hynix proceedings; a second priority security interest in the Company’s patent portfolio other than the patents that are the subject of the SK hynix proceedings; and a third priority security interest in the Company’s patents that are the subject of the SK hynix proceedings. See Note 8 for additional information about the funding arrangement with TRGP, the Intercreditor Agreements and the Company’s legal proceedings against SK hynix.

 

The SVB Credit Agreement subjects the Company to certain affirmative and negative covenants, including financial covenants with respect to the Company’s liquidity and restrictions on the payment of dividends. As of March 30, 2019, the Company was in compliance with its covenants under the SVB Credit Agreement.

 

v3.19.1
Debt
3 Months Ended
Mar. 30, 2019
Debt  
Debt

Note 6—Debt

 

The Company’s debt consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

March 30,

 

December 29,

 

    

2019

    

2018

Senior secured convertible note, due December 2025, including accrued interest of $1,009 and $934 at 2019 and 2018, respectively

 

$

16,009

 

$

15,934

Unsecured convertible note, due August 2020, including accrued interest of $4 and $62 at 2019 and 2018, respectively

 

 

2,000

 

 

2,332

Note payable

 

 

252

 

 

376

Unamortized debt discounts and issuance costs

 

 

(783)

 

 

(920)

 

 

 

17,478

 

 

17,722

Less: current portion

 

 

(252)

 

 

(376)

 

 

$

17,226

 

$

17,346

 

Senior Secured Convertible Note

 

On November 18, 2015, in connection with entering into the JDLA with Samsung, the Company issued to SVIC a Senior Secured Convertible Note (“SVIC Note”) and Stock Purchase Warrant (“SVIC Warrant”). The SVIC Note has an original principal amount of $15.0 million, accrues interest at a rate of 2.0% per year, is due and payable in full on December 31, 2021, and is convertible into shares of the Company’s common stock at a conversion price of $1.25 per share, subject to certain adjustments, on the maturity date of the SVIC Note. Upon a change of control of the Company prior to the maturity date of the SVIC Note, the SVIC Note may, at the Company’s option, be assumed by the surviving entity or be redeemed upon the consummation of such change of control for the principal and accrued but unpaid interest as of the redemption date. The SVIC Warrant grants SVIC a right to purchase 2,000,000 shares of the Company’s common stock at an exercise price of $0.30 per share, subject to certain adjustments, is only exercisable in the event the Company exercises its right to redeem the SVIC Note prior to its maturity date, and expires on December 31, 2025.

 

The SVIC Warrant was valued at $1.2 million, based on its relative fair value, and was recorded as a debt discount. The Company also recorded $0.2 million of debt issuance costs as a debt discount for professional services fees rendered in connection with the transaction. These amounts are being amortized to interest expense over the term of the SVIC Note using the interest method. During the three months ended March 30, 2019 and March 31, 2018, interest expense related to the amortization of the issuance costs associated with the liability component was not material. As of March 30, 2019, the outstanding principal and accrued interest on the SVIC Note was $16.0 million, and the outstanding SVIC Note balance, net of unamortized debt discounts and issuance costs, was $15.4 million. 

 

In connection with the SVIC Note, SVIC was granted a first priority security interest in the Company’s patent portfolio and a second priority security interest in all of the Company’s other tangible and intangible assets. Upon issuance of the SVIC Note, the Company, SVB and SVIC entered into an Intercreditor Agreement pursuant to which SVB and SVIC agreed to their relative security interests in the Company’s assets. In May 2017, SVIC, SVB and TRGP entered into additional Intercreditor Agreements to modify certain of these lien priorities (see Note 8). Additionally, upon issuance of the SVIC Note and the SVIC Warrant, the Company and SVIC entered into a Registration Rights Agreement pursuant to which the Company is obligated to register with the SEC, upon demand by SVIC, the shares of the Company’s common stock issuable upon conversion of the SVIC Note or upon exercise of the SVIC Warrant.

 

The SVIC Note subjects the Company to certain affirmative and negative operating covenants. As of March 30, 2019, the Company was in compliance with its covenants under the SVIC Note.

 

Unsecured Convertible Note

 

On August 27, 2018, the Company entered into the Iliad Purchase Agreement, pursuant to which the Company issued the $2.3 million Iliad Note with an original issue discount of $0.2 million. The Iliad Note bears interest at an annual rate of 8% and matures on August 27, 2020, unless earlier repurchased, redeemed or converted in accordance with its terms.

 

The Iliad Note provides Iliad with the right to convert, at any time, all or any part of the outstanding principal and accrued but unpaid interest into shares of the Company’s common stock at a conversion price of $0.36 per share (“Lender Conversion Price”). Further, beginning on April 1, 2019, the Iliad Note also provides Iliad with the right to redeem all or any portion of the Iliad Note (“Redemption Amount”) up to a maximum monthly amount of $0.35 million. The payments of each Redemption Amount may either be made in cash, by converting such Redemption Amount into shares of the Company’s common stock (“Redemption Conversion Shares”), or a combination thereof, at the Company’s election.

 

The number of Redemption Conversion Shares equals the portion of the applicable Redemption Amount being converted divided by the lesser of the Lender Conversion Price or the Market Price, that is 85% of the Company’s lowest closing bid price during the 20 trading days immediately preceding the applicable redemption date, provided that the Market Price shall not be less than $0.11 per share (the “Redemption Price Floor”). In the event any applicable redemption conversion price is below the Redemption Price Floor then either: (i) the Company will honor the redemption conversion at the then effective redemption conversion price for a Redemption Amount not to exceed $0.15 million if the redemption conversion price is equal to or greater than $0.06 per share or (ii) the Company will pay the applicable Redemption Amount up to $0.15 million in cash and not in Redemption Conversion Shares.

 

The $2.1 million of proceeds received from the issuance of the Iliad Note was initially allocated between long-term debt (the liability component) at $1.9 million and additional paid-in capital (the equity component) at $0.2 million, within the condensed consolidated balance sheet. The carrying amount of the liability component was calculated using the fair value of a similar liability without a conversion feature. The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability component from the proceeds received. The amount allocated to the equity component along with the original issue discount and fees paid to Iliad is amortized to interest expense over the expected life of 14 months using the interest method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. The issuance costs incurred related to the issuance of the Iliad Note were not material.

 

As of March 30, 2019, the outstanding principal and accrued interest on the Iliad Note was $2.0 million, and the outstanding Iliad Note balance, net of unamortized debt discounts and issuance costs, was $1.8 million.  

 

During the quarter ended March 30, 2019, Iliad converted $0.4 million of the outstanding principal and accrued interest on the Iliad Note to 1,041,667 shares of the Company’s common stock at the Lender Conversion Price. Subsequent to March 30, 2019, Iliad converted $0.1 million of the outstanding principal and accrued interest on the Iliad Note to 347,223 shares of the Company’s common stock at the Lender Conversion Price.

 

The Iliad Note is not secured and does not have any financial covenants requirements for which the Company needs to comply. The Company makes certain customary representations and warranties and has agreed to customary covenants and obligations. The Iliad Purchase Agreement and Iliad Note contain customary events of default upon the occurrence and during the continuance of which all obligations under the Iliad Purchase Agreement and Iliad Note may be declared immediately due and payable.

v3.19.1
Income Taxes
3 Months Ended
Mar. 30, 2019
Income Taxes  
Income Taxes

Note 7—Income Taxes

 

The following table sets forth the Company’s provision for income taxes, along with the corresponding effective tax rates (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 30,

 

March 31,

 

 

    

2019

    

2018

    

Provision for income taxes

 

$

 -

 

$

 -

 

Effective tax rate

 

 

 -

%  

 

 -

%  

 

The Company evaluates whether a valuation allowance should be established against its deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. In making such judgments, significant weight is given to evidence that can be objectively verified. Due to uncertainty of future utilization, the Company has provided a full valuation allowance as of March 30, 2019 and December 29, 2018. Accordingly, no benefit has been recognized for net deferred tax assets. The Company’s effective tax rate differs from the federal statutory tax rate of 21% for the three months ended March 30, 2019 and March 31, 2018 due to providing the full valuation allowance against net deferred tax assets.

 

The Company did not have any unrecognized tax benefits as of March 30, 2019 and December 29, 2018.

v3.19.1
Commitments and Contingencies
3 Months Ended
Mar. 30, 2019
Commitments and Contingencies  
Commitments and Contingencies

Note 8—Commitments and Contingencies

 

TRGP Agreement and Related Intercreditor Agreements

 

On May 3, 2017, the Company and TRGP entered into an investment agreement (the “TRGP Agreement”), which generally provides that TRGP will directly fund the costs incurred by or on behalf of the Company in connection with certain legal proceedings against SK hynix (see “Litigation and Patent Reexaminations” in this Note 8 below), including costs incurred since January 1, 2017 and costs to be incurred in the future in the Company’s first action in the U.S. International Trade Commission (“ITC”) and its U.S. district court proceedings, but excluding the Company’s second ITC action and its proceedings in international courts (all such funded costs, collectively, the “Funded Costs”). In exchange for such funding, the Company has agreed that, if the Company recovers any proceeds in connection with the funded SK hynix proceedings, it will pay to TRGP the amount of the Funded Costs paid by TRGP plus an escalating premium based on when any such proceeds are recovered, such that the premium will equal a specified low-to-mid double-digit percentage of the amount of the Funded Costs and such percentage will increase by a specified low double-digit amount each quarter after a specified date until any such proceeds are recovered. In addition, pursuant to the terms of a separate security agreement between the Company and TRGP dated May 3, 2017 (the “Security Agreement”), the Company has granted to TRGP (i) a first priority lien on, and security in, the claims underlying the funded SK hynix proceedings and any proceeds that may be received by the Company in connection with these proceedings, and (ii) a second priority lien on, and security in, the Company’s patents that are the subject of the funded SK hynix proceedings.

 

The TRGP Agreement does not impose financial covenants on the Company. Termination events under the TRGP Agreement include, among others, any failure by the Company to make payments to TRGP thereunder upon receipt of recoveries in the SK hynix proceedings; the occurrence of certain bankruptcy events; certain breaches by the Company of its covenants under the TRGP Agreement or the related Security Agreement; and the occurrence of a change of control of the Company. If any such termination event occurs, subject to certain cure periods for certain termination events, TRGP would have the right to terminate its obligations under the TRGP Agreement, including its obligation to make any further payments of Funded Costs after the termination date. In the event of any such termination by TRGP, the Company would continue to be obligated to pay TRGP the portion of any proceeds the Company may recover in connection with the SK hynix proceedings that TRGP would have been entitled to receive absent such termination, as described above, and TRGP may also be entitled to seek additional remedies pursuant to the dispute resolution provisions of the TRGP Agreement.

 

In connection with the TRGP Agreement, in May 2017, TRGP, SVIC and SVB entered into the Intercreditor Agreements. Pursuant to the terms of the Intercreditor Agreements, TRGP, SVB and SVIC have agreed to their relative security interest priorities in the Company’s assets, such that: (i) TRGP has a first priority security interest in the Company’s claims underlying the funded SK hynix proceedings and any proceeds that may be received by the Company in connection with these proceedings, and a second priority security interest in the Company’s patents that are the subject of the funded SK hynix proceedings, (ii) SVIC has a first priority security interest in the Company’s complete patent portfolio and a second priority security interest in all of the Company’s other tangible and intangible assets (other than the Company’s claims underlying and any proceeds it may receive from the SK hynix proceedings funded under the TRGP Agreement), and (iii) SVB has a first priority security interest in all of the Company’s tangible and intangible assets other than its patent portfolio and its claims underlying and any proceeds it may receive from the SK hynix proceedings funded under the TRGP Agreement, a second priority security interest in the Company’s patent portfolio other than the patents that are the subject of the SK hynix proceedings funded under the TRGP Agreement, and a third priority security interest in the Company’s patents that are the subject of the SK hynix proceedings funded under the TRGP Agreement. The Company consented and agreed to the terms of each of the Intercreditor Agreements.

 

Legal expenses incurred by the Company but paid by TRGP pursuant to the terms of the TRGP Agreement are excluded from the Company’s consolidated financial statements in each period in which the TRGP Agreement remains in effect. During the years ended December 29, 2018 and December 30, 2017, the Company excluded legal expenses of $1.8 million and $10.2 million, respectively, as a result of TRGP’s payment of these expenses under the TRGP Agreement. The Company does not anticipate any further legal expenses will be paid by TRGP under this agreement. During the three months ended March 30, 2019, there were no legal expenses excluded as a result of TRGP’s payment of these expenses under the TRGP Agreement. Any settlement or other cash proceeds the Company may recover in the future in connection with the funded SK hynix proceedings would be reduced by the aggregate amount of legal expenses excluded by the Company as a result of TRGP’s payment of these expenses under the TRGP Agreement, plus the premium amount due to TRGP under the terms of the TRGP Agreement at the time of any such recovery. 

 

Litigation and Patent Reexaminations

 

The Company owns numerous patents and continues to seek to grow and strengthen its patent portfolio, which covers various aspects of the Company’s innovations and includes various claim scopes. The Company plans to pursue avenues to monetize its intellectual property portfolio, in which it would generate revenue by selling or licensing its technology, and it intends to vigorously enforce its patent rights against alleged infringers of such rights. The Company dedicates substantial resources to protecting and enforcing its intellectual property rights, including with patent infringement proceedings it files against third parties and defense of its patents against challenges made by way of reexamination and review proceedings at the U.S. Patent and Trademark Office (“USPTO”) and Patent Trial and Appeal Board (“PTAB”). The Company expects these activities to continue for the foreseeable future, with no guarantee that any ongoing or future patent protection or litigation activities will be successful, or that the Company will be able to monetize its intellectual property portfolio. The Company is also subject to litigation based on claims that it has infringed on the intellectual property rights of others.

 

Any litigation, regardless of its outcome, is inherently uncertain, involves a significant dedication of resources, including time and capital, and diverts management’s attention from other activities of the Company. As a result, any current or future infringement claims or patent challenges by or against third parties, whether or not eventually decided in the Company’s favor or settled, could materially adversely affect the Company’s 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 the Company’s ability to continue to sell its products, protect against competition in the current and expected markets for its products or license or otherwise monetize its intellectual property rights in the future.

 

Google Litigation

 

On December 4, 2009, the Company filed a patent infringement lawsuit against Google, Inc. (“Google”) in the U.S. District Court for the Northern District of California (the “Northern District Court”), seeking damages and injunctive relief based on Google’s alleged infringement of the Company’s U.S. Patent No. 7,619,912 (the “‘912 patent”), which relates generally to technologies to implement rank multiplication. In February 2010, Google answered the Company’s complaint and asserted counterclaims against the Company seeking a declaration that the patent is invalid and not infringed, and claiming that the Company committed fraud, negligent misrepresentation and breach of contract based on the Company’s activities in the Joint Electron Device Engineering Council (“JEDEC”) standard-setting organization. The counterclaim seeks unspecified compensatory damages. Accruals have not been recorded for loss contingencies related to Google’s counterclaim because it is not probable that a loss has been incurred and the amount of any such loss cannot be reasonably estimated. In October 2010, Google requested and was later granted an Inter Partes Reexamination of the ‘912 patent by the USPTO. The reexamination proceedings are described below. In connection with the reexamination request, the Northern District Court granted the Company’s and Google’s joint request to stay the ‘912 patent infringement lawsuit against Google until the completion of the reexamination proceedings. On January 31, 2019, the PTAB, in response to Google’s rehearing request, denied rehearing of the PTAB’s previous decision upholding the validity of claims in Netlist’s ‘912 patent. On April 16, 2019, Google filed an appeal to this decision.

 

Inphi Litigation

 

On September 22, 2009, the Company filed a patent infringement lawsuit against Inphi Corporation (“Inphi”) in the U.S. District Court for the Central District of California (the “Central District Court”). The complaint, as amended, alleges that Inphi is contributorily infringing and actively inducing the infringement of U.S. patents owned by the Company, including the ‘912 patent, U.S. Patent No. 7,532,537 (the “‘537 patent”), which relates generally to memory modules with load isolation and memory domain translation capabilities, and U.S. Patent No. 7,636,274 (the “‘274 patent”), which is related to the ‘537 patent and relates generally to load isolation and memory domain translation technologies. The Company is seeking damages and injunctive relief based on Inphi’s use of the Company’s patented technology. Inphi denied infringement and claimed that the three patents are invalid. In June 2010, Inphi requested and was later granted Inter Partes Reexaminations of the ‘912, ‘537 and ‘274 patents by the USPTO. The reexamination proceedings are described below (except for the reexamination proceeding related to the ‘537 patent, which have concluded with the confirmation of all of the claims of such patent). In connection with the reexamination requests, Inphi filed a motion to stay the patent infringement lawsuit with the Central District Court until completion of the reexamination proceedings, which was granted. On April 16, 2019, Inphi filed an appeal to the PTAB’s January 31, 2019 decision upholding the validity of claims in Netlist’s ‘912 patent.

 

‘912 Patent Reexamination

 

As noted above, in April 2010, June 2010 and October 2010, Google and Inphi submitted requests for an Inter Partes Reexamination of the ‘912 patent by the USPTO, claiming that the ‘912 patent is invalid and requesting that the USPTO reject the patent’s claims and cancel the patent. Additionally, in October 2010, Smart Modular, Inc. (“Smart Modular”) submitted another such reexamination request. On January 18, 2011, the USPTO granted such reexamination requests, and in February 2011, the USPTO merged the Inphi, Google and Smart Modular ‘912 patent reexaminations into a single proceeding. On March 21, 2014, the USPTO issued an Action Closing Prosecution (“ACP”), an office action that states the USPTO examiner’s position on patentability and closes further prosecution, and on June 18, 2014 the USPTO issued a Right of Appeal Notice (“RAN”), a notice that triggers the rights of the involved parties to file a notice of appeal to the ACP, each of which confirmed the patentability of 92 of the ‘912 patent’s claims and rejected the patent’s 11 other claims. The parties involved filed various notices of appeal, responses and requests, and on November 24, 2015, the PTAB held a hearing on such appeals. On May 31, 2016, the PTAB issued a decision affirming certain of the examiner’s decisions and reversing others. On February 9, 2017, the PTAB granted the Company’s request to reopen prosecution before the USPTO examiner and remanded the consolidated proceeding to the examiner to consider the patentability of certain of the pending claims in view of the PTAB’s May 31, 2016 decision and comments from the parties. On October 3, 2017, the examiner issued a determination as to the patentability of certain of the pending claims, which were found to be unpatentable. On June 1, 2018, the PTAB reversed the Examiner and found the pending amended claims to be patentable. On July 2, 2018, Google requested rehearing of the PTAB’s decision. On January 31, 2019 the PTAB, in response to Google’s rehearing request, denied rehearing of the PTAB’s previous decision upholding the validity of claims in Netlist’s ‘912 patent. On April 16, 2019, Inphi and Google filed an appeal to the ‘912 patent decision. Accruals have not been recorded for loss contingencies related to the ‘912 patent reexamination proceedings because it is not probable that a loss has been incurred and the amount of any such loss cannot be reasonably estimated.

 

‘627 Patent Reexamination

 

In September 2011, Smart Modular submitted a request for an Inter Partes Reexamination by the USPTO of the Company’s U.S. Patent No. 7,864,627 (the “‘627 patent”), related to the ‘912 patent, alleging that the ‘627 patent is invalid and requesting that the USPTO reject the patent’s claims. On November 16, 2011, the USPTO granted Smart Modular’s request and initiated reexamination. By June 27, 2014, the USPTO’s patent examiner had rejected all of the ‘627 patent’s claims. The Company appealed the examiner’s rejections to the PTAB, and on May 31, 2016, the PTAB issued a decision affirming some of the examiner’s rejections. On July 31, 2016, the Company submitted a request to the PTAB to reopen prosecution before the examiner to amend the claims. On February 9, 2017, the PTAB granted the Company’s request to reopen prosecution and remanded the proceeding to the examiner to consider the patentability of the amended claims in view of the PTAB’s May 31, 2016 decision and comments from Smart Modular. On October 2, 2017, the examiner issued a determination that the amended claims should also be rejected. On June 1, 2018, the PTAB reversed the examiner and found the amended claims to be patentable. Smart Modular did not appeal this latest PTAB decision to the Federal Circuit. On October 3, 2018, the USPTO issued a Notice of Intent to Issue a Reexam Certificate, and on November 5, 2018, the USPTO issued Reexamination Certificate No.  7,864,627 concluding the reexamination. The original ‘627 patent had eighteen claims, and during the reexamination, five were canceled (claims 1, 4, 15, 19, 20) and the remaining fifteen were amended (claims 2, 3, 5-12, 14-18) into their current form as issued in the reexamination certificate. Accruals have not been recorded for loss contingencies related to the ‘627 patent reexamination proceedings because it is not probable that a loss has been incurred and the amount of any such loss cannot be reasonably estimated.

 

‘274 Patent Reexamination

 

As noted above, in April 2010 and June 2010, Inphi submitted requests for an Inter Partes Reexamination of the ‘274 patent by the USPTO. On August 27, 2010, the request was granted. In March 2012 and June 2012, the USPTO issued an ACP and a RAN, respectively, each of which confirmed the patentability of many of the ‘274 patent’s claims. The parties involved filed various notices of appeal, responses and requests, and on November 20, 2013, the PTAB held a hearing on such appeals. On January 16, 2014, the PTAB issued a decision affirming the examiner in part but reversing the examiner on new grounds and rejecting all of the patent’s claims. On September 11, 2015, the USPTO examiner issued a determination rejecting the amended claims. On January 23, 2017, the USPTO granted-in-part the Company’s petition to enter comments in support of its positions in the proceeding. On May 9, 2017, the PTAB issued a decision on appeal affirming the rejection of all claims. Netlist requested rehearing of the PTAB’s decision on June 6, 2017. The PTAB denied the rehearing request on August 8, 2017. On October 6, 2017, Netlist appealed the decision to the Court of Appeals for the Federal Circuit, which Netlist dismissed on March 19, 2018, thereby terminating the proceedings with the rejection of all ‘274 patent claims becoming final. Accruals have not been recorded for loss contingencies related to the ‘274 patent reexamination proceedings because it is not probable that a loss has been incurred and the amount of any such loss cannot be reasonably estimated.

 

Smart Modular ‘295 Patent Litigation and Reexamination

 

On September 13, 2012, Smart Modular filed a patent infringement lawsuit against the Company in the U.S. District Court for the Eastern District of California (the “Eastern District Court”). The complaint alleges that the Company willfully infringes and actively induces the infringement of certain claims of U.S. Patent No. 8,250,295 (“the ‘295 patent”) issued to Smart Modular and seeks damages and injunctive relief. The Company answered Smart Modular’s complaint in October 2012, denying infringement of the ‘295 patent, asserting that the ‘295 patent is invalid and unenforceable, and asserting counterclaims against Smart Modular. Accruals have not been recorded for loss contingencies related to Smart Modular’s complaint because it is not probable that a loss has been incurred and the amount of any such loss cannot be reasonably estimated.

 

On December 7, 2012, the USPTO granted the Company’s request for the reexamination of the ‘295 patent. On April 29, 2014, the USPTO examiner issued an ACP confirming some claims and rejecting others, and on August 4, 2015, the examiner issued a RAN confirming all pending claims. On September 4, 2015, the Company appealed to the PTAB. The parties involved filed various notices of appeal, responses and requests, and on September 22, 2016, the PTAB held a hearing on such appeals. On November 14, 2016, the PTAB issued a decision reversing the examiner and rejected all of the pending claims. On January 23, 2017, Smart Modular filed a request to reopen prosecution. The parties had the opportunity present evidence and arguments and the examiner issued a determination on May 8, 2017, which found all pending claims to be unpatentable. On December 12, 2017, the PTAB agreed with the examiner and found all pending claims to be unpatentable. Smart Modular appealed the PTAB’s decision to the Court of Appeals for the Federal Circuit. On March 28, 2018, the Eastern District Court stayed the proceedings related to the ‘295 patent. On January 18, 2019, the Company and Smart Modular filed a Joint Motion to Dismiss with Prejudice, terminating the proceedings related to the ‘295 patent in the Eastern District Court.

 

Smart Modular and SanDisk Litigation

 

On July 1 and August 23, 2013, the Company filed complaints against Smart Modular, SMART Storage Systems (which was subsequently acquired by SanDisk Corporation (“SanDisk”)), Smart Worldwide Holdings (“Smart Worldwide”) and Diablo Technologies (“Diablo”) in the Central District Court, seeking, among other things, damages and other relief for alleged infringement of several of the Company’s patents by the defendants based on the manufacture and sale of the ULLtraDIMM memory module, alleged antitrust violations by Smart Modular and Smart Worldwide, and alleged trade secret misappropriation and trademark infringement by Diablo. More particularly, the Company asserted claims from U.S. Patent Nos. 7,881,150; 8,001,434; 8,081,536; 8,301,833; 8,359,501; 8,516,185; and 8,516,187 (the “Asserted Patents”).

 

On August 23, 2013, Smart Modular and Diablo each filed a complaint in the Oakland Division of the Northern District Court seeking declaratory judgment of non-infringement and invalidity of the Asserted Patents. Based on various motions filed by the parties, on November 26, 2013, the Central District Court severed and transferred the patent claims related to the ULLtraDIMM memory module to the Northern District Court. On February 12, 2014, the Northern District Court granted the parties’ joint stipulation dismissing all claims against Smart Modular without prejudice. On April 15, 2014, the Northern District Court granted the parties’ joint stipulation dismissing all claims against Smart Worldwide without prejudice.

 

Between June 18, 2014 and August 23, 2014, SanDisk, Diablo, and Smart Modular filed numerous petitions in the USPTO requesting Inter Partes Review (“IPR”) of the Company’s Asserted Patents. On April 9, 2015, the Northern District Court stayed the proceedings as to the Company’s patent infringement claims pending resolution of all outstanding IPRs. The trade secret misappropriation and trademark infringement claims against Diablo were fully adjudicated on August 17, 2016 (during the pendency of the IPR’s) and are no longer pending. 

 

All of the IPRs filed by SanDisk, Diablo and SMART Modular associated with the Asserted Patents with Patent Nos. ending in ‘185, ‘187 and ‘833 have been resolved in the Company’s favor and are no longer pending. The IPRs associated with the Asserted Patents with Patent Nos. ending in ‘150, ‘434, ‘501 and ‘536, and the appeals therefrom, have also concluded, with the Board confirming the patentability of several asserted claims. The litigation, however, remains stayed pending resolution of IPRs filed by Hynix on the same or related patents. On December 8, 2017, Diablo filed for bankruptcy, and on November 9, 2018, the Northern District Court dismissed all claims against Diablo without prejudice. The Company’s patent infringement claims as to all Asserted Patents remain pending against SMART Storage Systems and SanDisk, subject to the stay.

 

SK hynix Litigation

 

On September 1, 2016, the Company filed legal proceedings for patent infringement against SK hynix in the ITC (the “First ITC Action”) and the Central District Court. These proceedings are based on the alleged infringement by SK hynix’s RDIMM and LRDIMM enterprise memory products of six of the Company’s U.S. patents. On October 31, 2017, the Company filed additional legal proceedings for patent infringement against SK hynix in the ITC (the “Second ITC Action”) based on the alleged infringement by SK hynix’s RDIMM and LRDIMM products of two additional U.S. patents owned by the Company. In all of the ITC proceedings, the Company has requested exclusion orders that direct U.S. Customs and Border Protection to stop allegedly infringing SK hynix RDIMM and LRDIMM products from entering the United States. In the Central District Court proceedings, the Company is primarily seeking damages.

 

On October 3, 2016, the ITC instituted an investigation of the trade practices of SK hynix and certain of its subsidiaries in connection with the First ITC Action, and held a hearing on the merits of the investigation from May 8, 2017 until May 11, 2017. On November 14, 2017, the ITC issued a final initial determination for the First ITC Action, finding no infringement of the asserted patents and no violation of Section 337 of the Tariff Act, and on January 16, 2018, the ITC issued a final determination for the First ITC Action, affirming the findings of no infringement and no violation and terminating the investigation. The Company is appealing this final determination to the Court of Appeals for the Federal Circuit.

 

On January 11, 2018, the ITC set a 19-month target date of July 3, 2019 for an investigation related to the Second ITC Action, with a final initial determination for the Second ITC Action being filed no later than March 1, 2019. Based on this target date, the ITC scheduled a hearing on the merits of the investigation related to the Second ITC Action to begin on November 9, 2018 and conclude on November 19, 2018. On April 12, 2018, the ITC granted SK hynix’s motion for summary determination of non-infringement and terminated the Second ITC Action in its entirety. On April 23, 2018, the Company filed a petition seeking ITC review of this decision. On May 29, 2018, the ITC Commission remanded the Second ITC Action back to the Administrative Law Judge (“ALJ”) to resolve the parties’ claim construction disputes and continue the investigation. On June 14, 2018, the ITC extended the target date for the final determination to August 5, 2019, with a final initial determination due by April 5, 2019. Based on this extended target date, the ITC scheduled a hearing on the merits to begin on December 14, 2018 and conclude on December 21, 2018. On September 13, 2018, the ITC rescheduled the hearing on the merits to begin on January 14, 2019 and conclude on January 18, 2019. On January 29, 2019, due to the government shutdown, the ITC again rescheduled the hearing on the merits to begin on March 11, 2019 and conclude on March 15, 2019. On February 8, 2019 Chief Administrative Law Judge of the ITC issued an Order in Investigation No. 337-TA-1089 denying SK hynix’s motion for “Summary Determination of Non Infringement of Netlist’s U.S. Patent No. 9,535,623 Based On Issue Preclusion.” On March 12, 2019, the ALJ postponed the trial due to reasons unrelated to the dispute between the parties. The trial is now scheduled to recommence on July 15, 2019 ending July 19, 2019.

 

Between December 30, 2016 and January 20, 2017, SK hynix filed numerous petitions in the USPTO requesting IPR of certain of the Company’s patents, including the patents asserted in the First ITC Action and the Central District Court proceedings, which have now concluded and certain of which are now on appeal to the Court of Appeals for the Federal Circuit. Between December 19, 2017 and February 7, 2018, SK hynix filed additional petitions in the USPTO requesting IPR of the patents asserted in the Second ITC Action which are now proceeding. On March 21, 2019, the PTAB issued a Final Written Decision finding Netlist’s U.S. Patent No. 9,535,623 invalid. Netlist has filed notice of intent to appeal.

 

On July 17, 2017, the Central District Court granted in part SK hynix’s request to stay the infringement proceedings pending further order of the court.

 

On July 11, 2017, the Company filed legal proceedings for patent infringement against SK hynix and certain of its distributors in the courts of Germany and the PRC based on the alleged infringement by SK hynix’s LRDIMM products of certain of the Company’s patents in those jurisdictions. On January 25, 2018, the court in Germany held a preliminary hearing and then held the trial on December 6, 2018. In December 2017, SK hynix filed petitions challenging the validity of the patents asserted by the Company in Germany and the PRC. On June 3, 2018, the patent asserted in the PRC was found to be invalid. On June 19, 2018, the Company withdrew the patent infringement suits filed in the PRC. On January 31, 2019, the court in Germany dismissed the infringement action, and ordered the Company to bear the costs of the action. On March 5, 2019, Netlist filed an Appeal Notice of the German courts finding.

   

Other Contingent Obligations

 

In the ordinary course of its business, the Company has made certain indemnities, commitments and guarantees pursuant to which it may be required to make payments in relation to certain transactions. These include, among others: (i) intellectual property indemnities to the Company’s customers and licensees in connection with the use, sale and/or license of Company products; (ii) indemnities to vendors and service providers pertaining to claims based on the Company’s negligence or willful misconduct; (iii) indemnities involving the accuracy of representations and warranties in certain contracts; (iv) indemnities to directors and officers of the Company to the maximum extent permitted under the laws of the State of Delaware; (v) indemnities to TRGP, SVIC, SVB and Iliad pertaining to all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with transactions contemplated by the applicable investment or loan documents, as applicable; and (vi) indemnities or other claims related to certain real estate leases, under which the Company may be required to indemnify property owners for environmental and other liabilities or may face other claims arising from the Company’s use of the applicable premises. The duration of these indemnities, commitments and guarantees varies and, in certain cases, may be indefinite. The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential for future payments the Company could be obligated to make. Historically, the Company has not been obligated to make significant payments as a result of these obligations, and no liabilities have been recorded for these indemnities, commitments and guarantees in the accompanying condensed consolidated balance sheets.  

 

v3.19.1
Stockholders' Equity
3 Months Ended
Mar. 30, 2019
Stockholders' Equity  
Stockholders' Equity

Note 9—Stockholders’ Equity

 

Serial Preferred Stock

 

The Company’s authorized capital stock includes 10,000,000 shares of serial preferred stock, with a par value of $0.001 per share. No shares of preferred stock were outstanding at March 30, 2019 or December 29, 2018.  

 

On April 17, 2017, the Company entered into a rights agreement (the “Rights Agreement”) with Computershare Trust Company, N.A., as rights agent. In connection with the adoption of the Rights Agreement and pursuant to its terms, the Company’s board of directors authorized and declared a dividend of one right (each, a “Right”) for each outstanding share of the Company’s common stock to stockholders of record at the close of business on May 18, 2017 (the “Record Date”), and authorized the issuance of one Right for each share of the Company’s common stock issued by the Company (except as otherwise provided in the Rights Agreement) between the Record Date and the Distribution Date (as defined below).  

 

Each Right entitles the registered holder, subject to the terms of the Rights Agreement, to purchase from the Company, when exercisable and subject to adjustment, one unit consisting of one one-thousandth of a share (a “Unit”) of Series A Preferred Stock of the Company (the “Preferred Stock”), at a purchase price of $6.56 per Unit, subject to adjustment. Subject to the provisions of the Rights Agreement, including certain exceptions specified therein, a distribution date for the Rights (the “Distribution Date”) will occur upon the earlier of (i) 10 business days following a public announcement that a person or group of affiliated or associated persons (an “Acquiring Person”) has acquired or otherwise obtained beneficial ownership of 15% or more of the then‑outstanding shares of the Company’s common stock, and (ii) 10 business days (or such later date as may be determined by the Company’s board of directors) following the commencement of a tender offer or exchange offer that would result in a person or group becoming an Acquiring Person. The Rights are not exercisable until the Distribution Date and, unless earlier redeemed or exchanged by the Company pursuant to the terms of the Rights Agreement, will expire on the earlier of (i) the close of business on April 17, 2018, the first anniversary of the adoption of the Rights Agreement, and (ii) the date of any settlement, adjudication, dismissal with prejudice, abandonment by the Company or other conclusive and final resolution of the Company’s legal proceedings against SK hynix (see Note 8).

 

In connection with the adoption of the Rights Agreement, the Company’s board of directors approved a Certificate of Designation of the Series A Preferred Stock (the “Certificate of Designation”) designating 1,000,000 shares of its serial preferred stock as Series A Preferred Stock and setting forth the rights, preferences and limitations of the Preferred Stock. The Company filed the Certificate of Designation with the Secretary of State of the State of Delaware on April 17, 2017.

 

On April 16, 2018, the Company entered into an amendment (the “Amendment”) to the Rights Agreement. The Amendment amends the definition of “Expiration Date” in the Rights Agreement to incorporate all of the Company’s legal proceedings against SK hynix, and amends the definition of “Final Expiration Date” in the Rights Agreement to mean the close of business on April 17, 2019. Accordingly, the Amendment extends the final expiration of the Rights issued pursuant to the Rights Agreement from April 17, 2018 to April 17, 2019. As a result, and pursuant to the Amendment, the Rights will expire and become unexercisable on or before, in accordance with the terms of the Rights Agreement, the close of business on April 17, 2019. On April 17, 2019, the Company entered into a second amendment (the “Second Amendment”) to the Rights Agreement. The Second Amendment amends the definition of “Expiration Date” in the Rights Agreement to extend the term for an additional two year period which extends the final expiration of the Rights issued pursuant to the Rights Agreement from April 17, 2019 to April 17, 2021. As a result and pursuant to the Second Amendment, the Rights will expire and become unexercisable on or before, in accordance with the terms of the Rights Agreement, the close of business on April 17, 2021.

 

Stock-Based Compensation

 

The Company has stock-based compensation awards outstanding pursuant to its Amended and Restated 2006 Equity Incentive Plan, as re-approved by its stockholders on June 8, 2016 (the “Amended 2006 Plan”), under which a variety of stock-based awards, including stock options, may be granted to employees and non-employee service providers of the Company. In addition to awards granted pursuant to the Amended 2006 Plan, the Company periodically grants equity-based awards outside the Amended 2006 Plan to certain new hires as an inducement to enter into employment with the Company.

 

Subject to certain adjustments, as of March 30, 2019, the Company was authorized to issue a maximum of 13,805,566 shares of its common stock pursuant to awards granted under the Amended 2006 Plan. Beginning January 1, 2017, the automatic annual increase to the number of shares of common stock that may be issued pursuant to awards granted under the Amended 2006 Plan is equal to the lesser of (i) 2.5% of the number of shares of common stock issued and outstanding as of the first day of the applicable calendar year, and (ii) 1,200,000 shares of common stock, subject to adjustment for certain corporate actions. As of March 30, 2019, the Company had 920,197 shares of common stock available for issuance pursuant to future awards to be granted under the Amended 2006 Plan. Stock options granted under the Amended 2006 Plan generally vest at a rate of at least 25% per year over four years and expire 10 years from the date of grant.

 

The following table summarizes the Company’s stock option activities during the three months ended March 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

Number of

 

 

Average

 

 

 

Shares

 

 

Exercise

 

 

    

(in thousands)

    

 

Price

Outstanding at December 29, 2018

 

 

8,186

 

$

1.18

 Granted

 

 

 —

 

 

 —

 Exercised

 

 

(43)

 

 

0.37

 Expired or forfeited

 

 

(461)

 

 

1.46

Outstanding at March 30, 2019

 

 

7,682

 

$

1.17

 

 The grant-date fair value of restricted stock equals the closing price of the Company’s common stock on the grant date. Restricted stock awards vest annually on each anniversary of the grant date over a two-year term. Restricted stock awards activities during the three months ended March 30, 2019 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

Average

 

 

 

Number of

 

 

Grant-Date

 

 

 

Shares

 

 

Fair Value

 

 

 

(in thousands)

 

 

per Share

Outstanding at December 29, 2018

 

 

525

 

$

0.25

 Granted

 

 

3,727

 

 

0.55

 Vested

 

 

(340)

 

 

0.54

 Forfeited

 

 

 —

 

 

 —

Outstanding at March 30, 2019

 

 

3,912

 

$

0.51

 

 As of March 30, 2019, the Company had approximately $2.2 million, net of estimated forfeitures, of unearned stock-based compensation, which it expects to recognize over a weighted-average period of approximately 3.3 years.

 

Warrants

 

The following is a summary of the Company’s warrant activity during the three months ended March 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Number of

 

Average

 

 

Shares

 

Exercise

 

   

(in thousands)

   

Price

Outstanding at December 29, 2018

 

 

15,010

 

$

0.62

 Granted

 

 

 —

 

 

 —

 Exercised

 

 

 —

 

 

 —

 Expired

 

 

 —

 

 

 —

Outstanding at March 30, 2019

 

 

15,010

 

$

0.62

 

v3.19.1
Subsequent Events
3 Months Ended
Mar. 30, 2019
Subsequent Events  
Subsequent Events

Note 10—Subsequent Events

 

The Company has performed an evaluation of events occurring subsequent to March 30, 2019, through the filing date of this Quarterly Report on Form 10-Q. Based on its evaluation, there are no events, except for the matters discussed elsewhere in the notes hereto, which require recognition or disclosure in the condensed consolidated financial statements.

 

v3.19.1
Summary of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 30, 2019
Summary of Significant Accounting Policies  
Basis of Presentation

Basis of Presentation

 

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to the Securities and Exchange Commission’s (“SEC”) Form 10-Q and Article 8 of the SEC’s Regulation S-X. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. Therefore, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of and for the year ended December 29, 2018, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 22, 2019.

 

The accompanying condensed consolidated financial statements as of and for the three months ended March 30, 2019 are unaudited. In the opinion of management, all adjustments for the fair presentation of the Company’s condensed consolidated financial statements have been made. The adjustments are of a normal recurring nature except as otherwise noted. The results of operations for the interim periods are not necessarily indicative of the results to be expected for other periods or the full fiscal year.

Principles of Consolidation

Principles of Consolidation

 

The accompanying condensed consolidated financial statements include the accounts of Netlist, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Fiscal Year

Fiscal Year

 

The Company operates under a 52 or 53 week fiscal year ending on the Saturday closest to December 31. For 2019, the Company’s fiscal year is scheduled to end on December 28, 2019 and will consist of 52 weeks, and each of the Company’s quarters within such fiscal year will be comprised of 13 weeks.

Use of Estimates

Use of Estimates

 

The preparation of the accompanying condensed consolidated financial statements in conformity with 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 revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include provisions for uncollectible receivables and sales returns, warranty liability, valuation of inventories, fair value of financial instruments, useful lives and impairment of property and equipment, the fair value of the Company’s equity-based compensation awards and convertible debt instruments and the realization of deferred tax assets. Actual results may differ materially from these estimates. On an ongoing basis, the Company evaluates its estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities.

 

Revenue Recognition

Revenue Recognition

 

The Company recognizes revenues when control is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods and services. Revenue recognition is evaluated through the five steps outlined within the guidance. See Note 3 for further discussion on revenues.

Cash and Cash Equivalents

Cash and Cash Equivalents

 

Cash and cash equivalents consist of cash and short-term investments with original maturities of three months or less.

Restricted Cash

Restricted Cash

 

The Company’s restricted cash consists of cash to secure standby letters of credit (see Note 5).

Fair Value of Financial Instruments

Fair Value of Financial Instruments

 

The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement, to account for the fair value of certain assets and liabilities. ASC Topic 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC Topic 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC Topic 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

 

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. An active market is defined as a market in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

 

The Company’s financial instruments consist principally of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses, a revolving line of credit, and convertible promissory notes. The Company considers the carrying values of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued expenses to approximate the fair value for these financial instruments based upon an evaluation of the underlying characteristics, market data and because of the short period of time between origination of the instruments and their expected realization. The Company estimates the fair values of its revolving line of credit and convertible promissory notes by using current applicable rates for similar instruments as of the balance sheet date and an assessment of its credit rating. The carrying value of the Company’s revolving line of credit at March 30, 2019 and December 29, 2018 approximates fair value because the Company’s interest rate yield is near current market rates for comparable debt instruments. The Company estimates the fair value of its convertible promissory notes by using a discounted cash flow analysis using borrowing rates available to the Company for debt instruments with similar terms and maturities. The Company has determined that the valuation of its convertible promissory notes is classified in Level 2 of the fair value hierarchy. The carrying value and estimated fair value of a senior secured convertible promissory note as of March 30, 2019 were $14.4 million and $11.6 million, respectively. The carrying value and estimated fair value of a senior secured convertible promissory note as of December 29, 2018 were $14.3 million and $11.7 million, respectively. The carrying value and estimated fair value of an unsecured convertible note were $1.8 million and $1.5 million as of March 30, 2019, respectively. The carrying value and estimated fair value of the unsecured convertible note were $2.0 million and $1.7 million as of December 29, 2018, respectively.

Accounts Receivable, net

Allowance for Doubtful Accounts

 

The Company extends credit to its customers. An allowance for doubtful accounts is maintained for estimated losses resulting from the inability of the Company’s customers to make required payments. The Company specifically analyzes the age of customer balances, historical bad debt experiences, customer credit-worthiness and changes in customer payment terms when making estimates of the collectability of the Company’s accounts receivable balances. If the Company determines that the financial condition of any of its customers has deteriorated, whether due to customer specific or general economic issues, an increase in the allowance may be made. After all attempts to collect a receivable have failed, the receivable is written off.

 

Concentration of Credit Risk

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents, and accounts receivable. The Company invests its cash equivalents primarily in money market mutual funds. Cash equivalents are maintained with high quality institutions, the composition and maturities of which are regularly monitored by management. At times, deposits held with financial institutions may exceed the amount of insurance provided by the Federal Deposit Insurance Corporation and the Securities Investor Protection Corporation.

 

The Company’s trade accounts receivable are primarily derived from sales to original equipment manufacturers (“OEMs”) in the server, high-performance computing and communications markets, as well as from sales to storage customers, appliance customers, system builders and cloud and datacenter customers. The Company performs credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary, but generally requires no collateral. The Company believes the concentration of credit risk in its trade receivables is moderated by its credit evaluation process, relatively short collection terms, a high level of credit worthiness of its customers (see Note 4), foreign credit insurance, and letters of credit issued in its favor. Reserves are maintained for potential credit losses, and such losses historically have not been significant and have been within management’s expectations.

Inventories

Inventories

 

Inventories are valued at the lower of actual cost to purchase or manufacture the inventory or the net realizable value of the inventory. Cost is determined on an average cost basis which approximates actual cost on a first-in, first-out basis and includes raw materials, labor and manufacturing overhead. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. At each balance sheet date, the Company evaluates its ending inventory quantities on hand and on order and records a provision for excess quantities and obsolescence. Among other factors, the Company considers historical demand and forecasted demand in relation to inventory on hand, competitiveness of product offerings, market conditions and product life cycles when determining obsolescence and net realizable value. In addition, the Company considers changes in the market value of components in determining the net realizable value of its inventory. At the point of the write-down recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

 

The Company evaluates the recoverability of the carrying value of long-lived assets held and used by the Company in its operations for impairment on at least an annual basis or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future net cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. These projected future cash flows may vary significantly over time as a result of increased competition, changes in technology, fluctuations in demand, consolidation of the Company’s customers and reductions in average sales prices. If the carrying value is determined not to be recoverable from future operating cash flows, the asset is deemed impaired and an impairment loss is recognized to the extent the carrying value exceeds the estimated fair value of the asset. The fair value of the asset or asset group is based on market value when available, or when unavailable, on discounted expected cash flows. The Company’s management believes there is no impairment of long-lived assets as of March 30, 2019.

 

Leases

 

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, accrued expenses and other current liabilities, and operating lease liabilities on its condensed consolidated balance sheets. The Company does not have finance leases. 

 

ROU assets represent the right of the Company to use an underlying asset for the lease term and lease liabilities represent the obligation of the Company to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

 

The Company elected certain practical expedients and as permitted did not reassess whether existing contracts are or contain leases, the lease classification and initial direct costs for any existing leases.  As part of practical expedients selected the Company also used hindsight in determining lease terms. The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component.  Leases with an initial term of twelve months or less are not recorded on the balance sheet as we recognize lease expense for these leases on a straight-line basis over the lease term.

Warranty Liability

Warranty Liability

 

The Company offers standard product warranties generally ranging from one to three years to its memory subsystem products customers, depending on the negotiated terms of any purchase agreements, and has no other post-shipment obligations or separately priced extended warranty or product maintenance contracts. These warranties require the Company to repair or replace defective product returned to the Company during the warranty period at no cost to the customer. Warranties are not offered on sales of component products. The Company records an estimate for warranty related costs at the time of sale based on its historical and estimated future product return rates and expected repair or replacement costs (see Note 4). Estimated future warranty costs are recorded in the period in which the sale is recorded and are included in cost of sales in the accompanying consolidated statements of operations.

Stock-Based Compensation

Stock-Based Compensation

 

Stock-based awards are comprised principally of stock options and restricted stock. Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense over the requisite service period, which is the vesting period, on a straight-line basis, net of estimated forfeitures. The Company uses the Black-Scholes option pricing model to determine the grant date fair value of stock options. The model requires the Company to estimate the expected volatility and expected term of the stock options, which are highly complex and subjective variables. The expected volatility is based on the historical volatility of the Company’s common stock. The expected term is computed using the simplified method as the Company’s best estimate given its lack of actual exercise history. The risk-free rate selected to value any particular grant is based on the U.S. Treasury rate that corresponds to the expected term of the grant effective as of the date of the grant. The expected dividend assumption is based on the Company’s history and management’s expectation regarding dividend payouts. The grant-date fair value of restricted stocks equals the closing price of the Company’s common stock on the grant date.

Income Taxes

Income Taxes

 

Deferred income tax assets and liabilities are recognized for temporary differences between the financial statement carrying amounts of assets and liabilities and the amounts that are reported in the income tax returns. Deferred taxes are evaluated for realization on a jurisdictional basis. The Company records valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. In making this assessment, management analyzes future taxable income, reversing temporary differences and ongoing tax planning strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, the Company will adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income.

 

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities based on the technical merits of the Company’s position. The tax benefit recognized in the financial statements for a particular tax position is based on the largest benefit that is more likely than not to be realized. The amount of unrecognized tax benefits is adjusted as appropriate for changes in facts and circumstances, such as significant amendments to existing tax laws, new regulations or interpretations by the taxing authorities, new information obtained during a tax examination, or resolution of an examination. The Company recognizes both accrued interest and penalties associated with uncertain tax positions as a component of provision for income taxes in the condensed consolidated statements of operations.

 

The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations may change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability for U.S. or foreign taxes may be materially different from the Company’s estimates, which could require the Company to record additional tax liabilities or to reduce previously recorded tax liabilities, as applicable.

Contingent Legal Expenses

Contingent Legal Expense

 

Contingent legal fees are expensed in the condensed consolidated statements of operations in the period that the related revenues are recognized. In instances where there are no recoveries from potential infringers, no contingent legal fees are paid; however, the Company may be liable for certain out of pocket legal costs incurred pursuant to the underlying legal services agreement.

Research and Development Expenses

Research and Development Expenses

 

Research and development expenditures are expensed in the period incurred.

 

Foreign Currency Remeasurement

 

Foreign Currency Remeasurement

 

The functional currency of the Company’s foreign subsidiaries is the U.S. dollar. Local currency financial statements are remeasured into U.S. dollars at the exchange rate in effect as of the balance sheet date for monetary assets and liabilities and the historical exchange rate for nonmonetary assets and liabilities. Expenses are remeasured using the average exchange rate for the period, except items related to nonmonetary assets and liabilities, which are remeasured using historical exchange rates. All remeasurement gains and losses are included in determining net loss. Transaction gains and losses were not significant during the three months ended March 30, 2019 and March 31, 2018.

Net Loss Per Share

Net Loss Per Share

 

The Company computes net loss per share using the two-class method required for participating securities. The Company considers restricted stock awards to be participating securities because holders of such shares have nonforfeitable dividend rights in the event of the Company’s declaration of a dividend for common shares. Under the two-class method, undistributed earnings are allocated to common stock and the participating securities according to their respective participating rights in undistributed earnings, as if all the earnings for the period had been distributed. No allocation of undistributed earnings to participating securities was performed for periods with net losses as such securities do not have a contractual obligation to share in the losses of the Company.

 

Basic net loss per share is calculated by dividing net loss by the weighted-average common shares outstanding during the period following the two-class method. Diluted net loss per share is calculated by dividing the net loss by the weighted-average shares and dilutive potential common shares outstanding during the period. Dilutive potential shares consist of dilutive shares issuable upon the exercise of outstanding stock options and warrants computed using the treasury stock method, shares issuable under the conversion feature of convertible notes using the “if-converted” method, and shares issuable upon the vesting of restricted stock awards. In periods of losses, basic and diluted loss per share are the same, as the effect of stock options, warrants, convertible notes and unvested restricted stock awards on loss per share is anti-dilutive.

Recent Accounting Pronouncements

Adoption of New Accounting Pronouncements

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), as amended ("ASC 842"), which modifies lease accounting for lessees to increase transparency and comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements. The Company adopted ASC 842 effective December 30, 2018 using a modified retrospective method and did not restate comparative periods. As permitted under the transition guidance, the Company carried forward the assessment of whether its contracts contain or are leases, classification of its leases and remaining lease terms. Based on the lease portfolio as of December 30, 2018, the Company recognized approximately $1.5 million of operating lease right-of-use assets and operating lease liabilities on its condensed consolidated balance sheet upon adoption, primarily relating to real estate. No adjustments were required to be made to accumulated deficit upon adoption. See Note 4 for further discussion.

 

Recently Issued Accounting Pronouncements

 

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force), which amends the accounting for implementation, setup, and other upfront costs in a hosting arrangement that is a service contract. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted including adoption in any interim period. The Company does not expect a significant impact as a result of adopting this update on its consolidated financial statements.

 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which removes, modifies, and adds various disclosure requirements on fair value measurements in Topic 820. ASU 2018-13 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this update and delay adoption of the additional disclosures until their effective date. The Company does not expect a significant impact as a result of adopting this update on its consolidated financial statements.

v3.19.1
Revenue Recognition (Tables)
3 Months Ended
Mar. 30, 2019
Revenue Recognition  
Schedule of Disaggregation of Sales by Major Source

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 30,

 

March 31,

 

    

2019

 

2018

Resales of third-party products

 

$

3,953

 

$

7,108

Sale of the Company's modular memory subsystems

 

 

1,152

 

 

1,771

Total net sales

 

$

5,105

 

$

8,879

 

v3.19.1
Supplemental Financial Information (Tables)
3 Months Ended
Mar. 30, 2019
Supplemental Financial Information  
Schedule Of Inventories

 

 

 

 

 

 

 

 

 

March 30,

 

December 29,

 

    

2019

    

2018

Raw materials

 

$

925

 

$

1,072

Work in process

 

 

49

 

 

25

Finished goods

 

 

1,475

 

 

1,849

 

 

$

2,449

 

$

2,946

 

Schedule Of Warranty Liability Activity

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 30,

 

March 31,

 

    

2019

    

2018

Beginning balance

 

$

194

 

$

152

Estimated cost of warranty claims charged to cost of sales

 

 

39

 

 

81

Cost of actual warranty claims

 

 

(41)

 

 

(75)

Ending balance

 

 

192

 

 

158

Less: current portion

 

 

(115)

 

 

(95)

Long-term warranty liability

 

$

77

 

$

63

 

Lease Cost and Supplemental Cash Flow

 

 

 

 

 

 

Three Months Ended

 

 

March 30,

 

    

2019

Lease cost

 

 

 

Operating lease cost

 

$

159

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities

 

 

 

Operating cash flows from operating leases

 

$

147

 

Leases Supplemental Balance Sheet Information

 

 

 

 

 

 

 

March 30,

 

(in thousands)

 

2019

 

Operating lease right-of-use assets

 

$

1,399

 

Accrued expenses and other current liabilities

 

$

523

 

Operating lease liabilities

 

 

908

 

Total operating lease liabilities

 

$

1,431

 

 

 

 

 

 

Weighted average remaining lease term (in years)

 

 

 

 

Operating lease

 

 

2.7

 

 

 

 

 

 

Weighted Average Discount Rate

 

 

 

 

Operating lease

 

 

7.7

%

 

Maturities of Operating Lease Liabilities

 

 

 

 

Fiscal Year

 

Amount

2019 (remaining 9 months)

 

$

459

2020

 

 

596

2021

 

 

376

2022

 

 

163

Total lease payments

 

 

1,594

Less: imputed interest

 

 

(163)

Total

 

$

1,431

 

Summary of Future Lease Payments Under Operating Lease

 

 

 

 

 

 

 

Fiscal Year

 

 

 

    

Amount

2019

 

 

 

 

$

399

2020

 

 

 

 

 

208

Total minimum lease payments

 

 

 

 

$

607

 

Schedule Of Computation Of Net Loss Per Share

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 30,

 

March 31,

 

    

2019

    

2018

Net loss per sharebasic and diluted:

 

 

 

 

 

 

Numerator: Net loss

 

$

(4,050)

 

$

(4,673)

Denominator: Weighted-average common shares outstanding—basic and diluted

 

 

139,039

 

 

82,461

Net loss per share—basic and diluted

 

$

(0.03)

 

$

(0.06)

 

Schedule Of Potential Common Shares Excluded From The Diluted Net Loss Per Share Calculations

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 30,

 

March 31,

 

    

2019

    

2018

Weighted average common share equivalents

 

 

19,083

 

 

12,784

 

Schedules Of Concentration Of Risk, By Risk Factor

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 30,

 

March 31,

 

 

    

2019

 

2018

 

Customer:

 

 

 

 

 

Customer A

 

11

%  

13

%

Customer B

 

*

%

10

%


*Less than 10% of net revenues during the period.

 

Schedule Of Supplemental Disclosures Of Cash Flow Information And Non-Cash Financing Activities

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 30,

 

March 31,

 

    

2019

    

2018

Supplemental disclosure of non-cash financing activities:

 

 

 

 

 

 

Common stock issued on conversion of convertible note payable

 

$

375

 

 

 —

Debt financing of insurance

 

$

 —

 

$

344

 

v3.19.1
Debt (Tables)
3 Months Ended
Mar. 30, 2019
Debt  
Schedule Of Long-Term Debt

 

 

 

 

 

 

 

 

 

March 30,

 

December 29,

 

    

2019

    

2018

Senior secured convertible note, due December 2025, including accrued interest of $1,009 and $934 at 2019 and 2018, respectively

 

$

16,009

 

$

15,934

Unsecured convertible note, due August 2020, including accrued interest of $4 and $62 at 2019 and 2018, respectively

 

 

2,000

 

 

2,332

Note payable

 

 

252

 

 

376

Unamortized debt discounts and issuance costs

 

 

(783)

 

 

(920)

 

 

 

17,478

 

 

17,722

Less: current portion

 

 

(252)

 

 

(376)

 

 

$

17,226

 

$

17,346

 

v3.19.1
Income Taxes (Tables)
3 Months Ended
Mar. 30, 2019
Income Taxes  
Schedule Of Effective Income Tax Rate Reconciliation

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 30,

 

March 31,

 

 

    

2019

    

2018

    

Provision for income taxes

 

$

 -

 

$

 -

 

Effective tax rate

 

 

 -

%  

 

 -

%  

 

v3.19.1
Stockholders' Equity (Tables)
3 Months Ended
Mar. 30, 2019
Stockholders' Equity  
Schedule Of Common Stock Options Activity

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

Number of

 

 

Average

 

 

 

Shares

 

 

Exercise

 

 

    

(in thousands)

    

 

Price

Outstanding at December 29, 2018

 

 

8,186

 

$

1.18

 Granted

 

 

 —

 

 

 —

 Exercised

 

 

(43)

 

 

0.37

 Expired or forfeited

 

 

(461)

 

 

1.46

Outstanding at March 30, 2019

 

 

7,682

 

$

1.17

 

Schedule Of Restricted Stock Awards

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

Average

 

 

 

Number of

 

 

Grant-Date

 

 

 

Shares

 

 

Fair Value

 

 

 

(in thousands)

 

 

per Share

Outstanding at December 29, 2018

 

 

525

 

$

0.25

 Granted

 

 

3,727

 

 

0.55

 Vested

 

 

(340)

 

 

0.54

 Forfeited

 

 

 —

 

 

 —

Outstanding at March 30, 2019

 

 

3,912

 

$

0.51

 

Schedule Of Warrant Activity

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Number of

 

Average

 

 

Shares

 

Exercise

 

   

(in thousands)

   

Price

Outstanding at December 29, 2018

 

 

15,010

 

$

0.62

 Granted

 

 

 —

 

 

 —

 Exercised

 

 

 —

 

 

 —

 Expired

 

 

 —

 

 

 —

Outstanding at March 30, 2019

 

 

15,010

 

$

0.62

 

v3.19.1
Description of Business (Details) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended 12 Months Ended
Mar. 30, 2019
Mar. 31, 2018
Dec. 28, 2019
Dec. 29, 2018
Dec. 30, 2017
Aug. 27, 2018
Apr. 17, 2017
Net loss $ (4,050) $ (4,673) $ (4,050) $ 17,100 $ 13,400    
Share purchase price             $ 6.56
Proceeds from issuance of common stock   $ 1,794          
Exercise price of warrants (in dollars per share) $ 0.62     $ 0.62      
Unsecured Convertible Note Due August 2020              
Interest rate (as a percent)           8.00%  
v3.19.1
Summary of Significant Accounting Policies (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 30, 2019
Dec. 29, 2018
Carrying value of convertible note   $ 2,000
Estimated fair value of convertible note   1,700
Impairment of long-lived assets $ 0  
Restricted cash 1,850 1,850
Operating lease assets 1,399  
Operating lease liabilities 1,431  
Secured Debt [Member]    
Carrying value of convertible note 14,400 14,300
Estimated fair value of convertible note 11,600 $ 11,700
Unsecured Debt [Member]    
Carrying value of convertible note 1,800  
Estimated fair value of convertible note $ 1,500  
v3.19.1
Revenue Recognition (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 30, 2019
Mar. 31, 2018
Revenue Recognition    
Total net product sales $ 5,105 $ 8,879
Resales of third-party products    
Revenue Recognition    
Total net product sales 3,953 7,108
Specialty DIMMs [member]    
Revenue Recognition    
Total net product sales $ 1,152 $ 1,771
v3.19.1
Supplemental Financial Information (Schedule Of Inventories) (Details) - USD ($)
$ in Thousands
Mar. 30, 2019
Dec. 29, 2018
Supplemental Financial Information    
Raw materials $ 925 $ 1,072
Work in process 49 25
Finished goods 1,475 1,849
Inventories $ 2,449 $ 2,946
v3.19.1
Supplemental Financial Information (Schedule Of Warranty Liability Activity) (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 30, 2019
Mar. 31, 2018
Supplemental Financial Information    
Beginning balance $ 194 $ 152
Estimated cost of warranty claims charged to cost of sales 39 81
Cost of actual warranty claims (41) (75)
Ending balance 192 158
Less current portion (115) (95)
Long-term warranty liability $ 77 $ 63
v3.19.1
Supplemental Financial Information (Lease Cost and Supplemental Cash Flow) (Details)
$ in Thousands
3 Months Ended
Mar. 30, 2019
USD ($)
Supplemental Financial Information  
Operating lease cost $ 159
Operating cash flows from operating leases $ 147
v3.19.1
Supplemental Financial Information (Leases Supplemental Balance Sheet Information) (Details)
$ in Thousands
3 Months Ended
Mar. 30, 2019
USD ($)
Supplemental Financial Information  
Operating lease right-of-use assets $ 1,399
Accrued expenses and other current liabilities 523
Operating lease liabilities 908
Total operating lease liabilities $ 1,431
Weighted average remaining lease term - Operating lease 2 years 8 months 12 days
Weighted Average Discount Rate - Operating lease 7.70%
v3.19.1
Supplemental Financial Information (Maturities of Operating Lease Liabilities) (Details)
$ in Thousands
Mar. 30, 2019
USD ($)
Supplemental Financial Information  
2019 (remaining 9 months) $ 459
2020 596
2021 376
2022 163
Total lease payments 1,594
Less: imputed interest (163)
Total operating lease liabilities $ 1,431
v3.19.1
Supplemental Financial Information (Summary of Future Lease Payments Under Operating Lease) (Details)
$ in Thousands
Dec. 29, 2018
USD ($)
Supplemental Financial Information  
2019 $ 399
2020 208
Total minimum lease payments $ 607
v3.19.1
Supplemental Financial Information (Schedule Of Computation Of Net Loss Per Share) (Details) - USD ($)
$ / shares in Units, shares in Thousands, $ in Thousands
3 Months Ended 12 Months Ended
Mar. 30, 2019
Mar. 31, 2018
Dec. 28, 2019
Dec. 29, 2018
Dec. 30, 2017
Basic and diluted net loss per share:          
Numerator: Net loss $ (4,050) $ (4,673) $ (4,050) $ 17,100 $ 13,400
Weighted-average common shares outstanding, basic and diluted 139,039 82,461      
Basic and diluted net loss per share $ (0.03) $ (0.06)      
Common share equivalents 19,083 12,784      
v3.19.1
Supplemental Financial Information (Major Customers and Products) (Details) - customer
3 Months Ended 12 Months Ended
Mar. 30, 2019
Mar. 31, 2018
Dec. 29, 2018
Sales Revenue, Resale of Products      
Concentration Risk [Line Items]      
Concentration Risk, Percentage 77.00% 77.00%  
Accounts Receivable | Customer Concentration Risk      
Concentration Risk [Line Items]      
Concentration Risk, Number of Customers 2   2
Customer A | Sales Revenue, Product Line | Customer Concentration Risk      
Concentration Risk [Line Items]      
Concentration Risk, Percentage 11.00% 13.00%  
Customer A | Accounts Receivable | Customer Concentration Risk      
Concentration Risk [Line Items]      
Concentration Risk, Percentage 16.00%   22.00%
Customer B | Sales Revenue, Product Line | Customer Concentration Risk      
Concentration Risk [Line Items]      
Concentration Risk, Percentage   10.00%  
Customer C | Accounts Receivable | Customer Concentration Risk      
Concentration Risk [Line Items]      
Concentration Risk, Percentage 15.00%   15.00%
v3.19.1
Supplemental Financial Information (Schedule Of Supplemental Disclosures Of Cash Flow Information And Non-Cash Financing Activities) (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 30, 2019
Mar. 31, 2018
Supplemental Financial Information    
Common stock issued on conversion of convertible note payable $ 375  
Debt financing of insurance   $ 344
v3.19.1
Credit Agreements (SVB Credit Agreement) (Narrative) (Details) - Silicon Valley Bank - USD ($)
$ in Thousands
3 Months Ended 12 Months Ended
Oct. 31, 2009
Mar. 30, 2019
Dec. 29, 2018
Line of Credit Facility      
Borrowing capacity as a percentage of eligible accounts receivable 80.00% 85.00%  
Maximum borrowing capacity   $ 5,000  
Outstanding borrowings   2,000 $ 2,300
Availability remaining   $ 10 200
Prime Rate      
Line of Credit Facility      
Debt instrument, basis spread on variable rate   2.75%  
Letter of Credit      
Line of Credit Facility      
Outstanding borrowings   $ 1,900 $ 1,900
v3.19.1
Debt (Schedule Of Long-Term Debt) (Details) - USD ($)
$ in Thousands
Mar. 30, 2019
Dec. 29, 2018
Debt    
Notes Payable $ 252 $ 376
Unamortized debt discounts and issuance costs (783) (920)
Debt outstanding 17,478 17,722
Less: current portion (252) (376)
Long-term debt 17,226 17,346
Senior Secured Convertible Note Due December 2025 [member]    
Debt    
Debt outstanding, noncurrent portion 16,009 15,934
Unsecured Convertible Note Due August 2020    
Debt    
Debt outstanding, noncurrent portion $ 2,000 $ 2,332
v3.19.1
Debt (Narrative) (Details) - USD ($)
$ / shares in Units, $ in Thousands
1 Months Ended 3 Months Ended
Aug. 27, 2018
May 14, 2019
Mar. 30, 2019
Mar. 31, 2018
Dec. 29, 2018
Nov. 18, 2015
Long-term debt            
Exercise price of warrants (in dollars per share)     $ 0.62   $ 0.62  
Amortization of debt discounts and issuance costs     $ 137 $ 54    
Outstanding principal and accrued interest     252   $ 376  
Debt outstanding     17,478   $ 17,722  
Subsequent Event            
Long-term debt            
Conversion of shares   347,223        
SVIC Warrant            
Long-term debt            
Number of shares which may be purchased under warrant           2,000,000
Exercise price of warrants (in dollars per share)           $ 0.30
Fair value of warrants     1,200      
Senior Secured Convertible Note Due December 2025 [member]            
Long-term debt            
Face amount           $ 15,000
Interest rate (as a percent)           2.00%
Debt conversion price (in dollars per share)           $ 1.25
Debt, net of discounts and costs     15,400      
Unsecured Convertible Note Due August 2020            
Long-term debt            
Interest rate (as a percent) 8.00%          
Debt conversion price (in dollars per share) $ 0.36          
Debt, net of discounts and costs $ 1,800          
Maximum Monthly Redemption Amount $ 350          
Lowest closing bid, percentage 85.00%          
Redemption price floor, per share $ 0.11          
Maximum redemption amount honored $ 150          
Redemption conversion price $ 0.06          
Debt issuance, equity component $ 200          
Iliad Note [Member]            
Long-term debt            
Conversion of principal and accrued interest     $ 400      
Conversion of shares     1,041,667      
Iliad Note [Member] | Subsequent Event            
Long-term debt            
Conversion of principal and accrued interest   $ 100        
v3.19.1
Income Taxes (Provision for Income Taxes) (Details)
3 Months Ended
Mar. 30, 2019
Income Taxes  
U.S. federal statutory tax 21.00%
v3.19.1
Income Taxes (Narrative) (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 30, 2019
Dec. 29, 2018
Income Taxes    
U.S. federal statutory tax 21.00%  
Unrecognized Tax Benefits $ 0 $ 0
v3.19.1
Commitments and Contingencies (Litigations and Patent Reexaminations) (Details)
3 Months Ended 12 Months Ended
Oct. 31, 2017
patent
Sep. 01, 2016
patent
Mar. 30, 2019
USD ($)
claim
patent
Dec. 29, 2018
USD ($)
Dec. 30, 2017
USD ($)
Commitments and Contingencies          
Legal expenses excluded as a result of TRGP's payment of these expenses under the TRGP Agreement | $     $ 0 $ 1,800,000 $ 10,200,000
Inphi Litigation          
Commitments and Contingencies          
Number of patents claimed to be invalid     3    
912 Patent Reexamination          
Commitments and Contingencies          
Number of claims rejected | claim     11    
SK Hynix Litigation          
Commitments and Contingencies          
Number of patents infringed upon 2 6      
v3.19.1
Stockholders' Equity (Narrative) (Details) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended 12 Months Ended
Apr. 17, 2017
Jan. 01, 2017
Mar. 30, 2019
Mar. 31, 2018
Dec. 28, 2019
Dec. 29, 2018
Serial Preferred Stock            
Preferred Stock, Shares Authorized     10,000,000     10,000,000
Preferred Stock, Par or Stated Value Per Share     $ 0.001     $ 0.001
Preferred Stock, Shares Outstanding     0     0
Number of Rights Authorized for Each Outstanding Share of Stock 1          
Number of Shares Issued when Right is Exercised 0.001          
Purchase price per share $ 6.56          
Number of Days Rights are to be Distributed 10 days          
Minimum Beneficial Ownership Percentage for Rights to be Distributed 15.00%          
Common Stock            
Common stock, shares authorized     300,000,000     300,000,000
Common stock, par value     $ 0.001     $ 0.001
Proceeds from issuance of common stock       $ 1,794    
Exercise price of warrants     $ 0.62     $ 0.62
Stock-Based Compensation            
Shares available for issuance     920,197      
Shares authorized for issuance     13,805,566      
Automatic annual increase in shares authorized as percentage of common stock outstanding   2.50%        
Rate of vesting of options granted     25.00%      
Vesting period of options granted, in years     4 years      
Expiration of vested options, period from date of grant     10 years      
Unearned stock-based compensation related to unvested common stock options and restricted stock awards     $ 2,200      
Weighted-average period over which unearned stock-based compensation is expected to be recognized     3 years 3 months 18 days      
Series A Preferred Stock            
Serial Preferred Stock            
Preferred Stock, Shares Authorized     1,000,000     1,000,000
Preferred Stock, Par or Stated Value Per Share     $ 0.001     $ 0.001
Stock-Based Compensation            
Shares available for issuance 1,000,000          
Common Stock            
Common Stock            
Common stock shares issued       6,101,000 1,042,000  
v3.19.1
Stockholders' Equity (Schedule Of Stock Option Activity) (Details)
shares in Thousands
3 Months Ended
Mar. 30, 2019
$ / shares
shares
Number of Shares  
Options outstanding, Number of Shares, Beginning Balance | shares 8,186
Options exercised, Number of Shares | shares (43)
Options expired/forfeited, Number of Shares | shares (461)
Options outstanding, Number of Shares, Ending Balance | shares 7,682
Weighted-Average Exercise Price  
Options outstanding, Weighted-Average Exercise Price, Beginning Balance | $ / shares $ 1.18
Options exercised, Weighted-Average Exercise Price | $ / shares 0.37
Options expired/forfeited, Weighted Average Exercise Price | $ / shares 1.46
Options outstanding, Weighted-Average Exercise Price, Ending Balance | $ / shares $ 1.17
v3.19.1
Stockholders' Equity (Schedule Of Restricted Stock Awards) (Details) - Restricted Stock
3 Months Ended
Mar. 30, 2019
$ / shares
shares
Share-based Compensation Arrangement by Share-based Payment Award  
Balance nonvested, Number of Shares, Beginning Balance | shares 525,000
Granted, Number of Shares | shares 3,727,000
Forfeited, Number of Shares | shares (340,000)
Balance nonvested, Number of Shares, Ending Balance | shares 3,912,000
Balance nonvested, Weighted-Average Grant-Date Fair Value per Share, Beginning Balance | $ / shares $ 0.25
Granted, weighted-average grant date fair value | $ / shares 0.55
Forfeited, Weighted-Average Grant-Date Fair Value per Share | $ / shares 0.54
Balance nonvested, Weighted-Average Grant-Date Fair Value per Share, Ending Balance | $ / shares $ 0.51
v3.19.1
Stockholders' Equity (Schedule Of Warrants) (Details)
shares in Thousands
Mar. 30, 2019
$ / shares
shares
Number of Shares  
Outstanding, Number of Shares, Beginning balance | shares 15,010
Outstanding, Number of Shares, Ending balance | shares 15,010
Weighted-Average Exercise Price  
Outstanding, Weighted-Average Exercise Price, Beginning balance | $ / shares $ 0.62
Outstanding, Weighted-Average Exercise Price, Ending balance | $ / shares $ 0.62