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Wednesday, December 1, 2021

Netlist, Inc. (OTCMKTS: NLST) Aggressive Move Towards All Time Highs as CO Wins Another Lawsuit and Reports Record Q3 Revenues

Netlist, Inc. (OTCMKTS: NLST) has seen a spectacular rise over the past 2 years from pennies to over $10 per share. The stock is among the most heavily traded in small caps and trades more like a big board stock. Microcapdaily has been covering NLST since it was below $0.25 per share and investor sentiment was very low. Everything changed in July of last year when the U.S. Court of Appeals for the Federal Circuit affirmed the U.S. Patent Trial and Appeal Board’s decision upholding the validity of Netlist’s U.S. 7,619,912 (‘912) patent that applies to DDR server memory modules. The (‘912) patent is a seminal patent; an invention so impactful that it creates or shifts the technology space. This ruling has much larger implications than just GOOG which will more than likely set the tone for other settlements long overdue here.  

NLST continues its win streak with the Company being granted summary judgements by the Federal District Court for the Central District of California (the Court) against Samsung for breach of various obligations under the Joint Development and License Agreement (JDLA), which the parties executed in November 2015. The Court also held that Netlist properly terminated the JDLA and confirmed that Samsung no longer has a valid license to Netlist’s patent portfolio. The jury is left to decide on direct damages related to the breach of contract during the trial set to commence on November 30, 2021 in the Central District of California. On November 2 Netlist reported financial results for the third quarter ended October 2, 2021. Revenue for the third quarter ended October 2, 2021 was $26.7 million which was up 162% year over year. Net loss for the third quarter ended October 2, 2021 was ($10.7) million, or loss per share of ($0.05), compared to a net loss in the prior year’s period of ($2.1) million, or a loss per share of ($0.01). These results include stock-based compensation expense of $0.4 million for the quarter ended October 2, 2021 and $0.2 million for the quarter ended September 26, 2020.  

Image result for netlist patentNetlist (NLST) headquartered in Irvine, California provides high-performance SSDs and modular memory subsystems to enterprise customers in diverse industries. The Company’s NVMe™ SSD portfolio provides industry-leading performance offered in multiple capacities and form factors. HybriDIMM™, Netlist’s next-generation storage class memory product, addresses the growing need for real-time analytics in Big Data applications, in-memory databases, high-performance computing and advanced data storage solutions. Netlist also manufactures a line of specialty and legacy memory products to storage customers, appliance customers, system builders and cloud and datacenter customers. Netlist holds a portfolio of patents in the areas of server memory, hybrid memory, storage class memory, rank multiplication and load reduction.  Netlist continues this tradition with the introduction of HybriDIMM, the industry’s first Storage Class Memory product built on commodity DRAM and flash. HybriDIMM is the first SCM product to operate in current Intel® x86 servers without BIOS and hardware changes, and the first unified DRAM-NAND solution that scales memory to terabyte storage capacities and accelerates storage to nanosecond memory speeds. Netlist first gained attention back in 2015 when the Company announced a partnership with Samsung to produce and commercialize its NVDIMM-N solution, HyperVault / NVvault. At the time the product was considered as a potential 3D XPoint alternative.

Netlist holds a portfolio of patents, many seminal, in the areas of hybrid memory, storage class memory, rank multiplication and load reduction, among others. The strength of Netlist’s patent portfolio reflects its many years of research and development and track record of bringing disruptive new products to market. The Company has over 130 issued and pending U.S. and foreign patents. Netlist has been monetizing its intellectual property through a combination of product sales and licensing, royalty and other revenue-producing arrangements. With state-of-the-art, wholly owned, ISO- and OSHAS-certified manufacturing and testing facilities in Suzhou, China, Netlist’s strategy is to marry its unique board-level intellectual property with a thorough understanding of semiconductor building blocks and system-level applications to deliver performance, cost, and time-to-market advantages to OEMs. 

NLST is ex Nasdaq having been delisted on January 3, 2018 and we have been reporting on the Company for years. OTC speculators love ex big board stocks for their ready liquidity and proven ability to make spectacular moves once on the bb’s and NLST is proving to be no exception as investors look ahead and a return to a higher exchange. 

The Company is led by founder and CEO Chun K. Hong. Prior to Netlist, Mr. Hong was president and chief operating officer of Infinilink Corp., a communications software company based in Irvine, CA. Prior to that, he was executive vice president of Viking Components, Inc., a memory manufacturing company based in RSM, CA. From 1983 to 1998, Mr. Hong held various management positions at LG subsidiaries in South Korea and in the U.S. He received a B.S. degree in economics from Virginia Commonwealth University and an M.S. degree in technology management from Pepperdine University’s Graduate School of Management. Mr. Hong has assembled an impressive management team including Gail Sasaki, the Company’s VP and CFO who joined netlist in 2006 and helped take the Company public. Prior to Netlist, Ms. Sasaki served as Senior VP of Finance and Treasurer at eMotion, Inc., previously a subsidiary of Eastman Kodak. The Companys Chief Licensing Officer is Marc Frechette who has more than eighteen years of licensing and patent prosecution experience and most recently served as Senior Vice President and Senior Counsel at WiLAN, where he managed their U.S.-based licensing business unit. Other executives in Netlist are Paik Ki Hong, Todd Levy, Scott Milton, Tinh Ngo, and Jerry Alston. 

The first time Microcapdaily reported on NLST was November 19, 2018 when NLST was under $0.25 per share. We stated at the time: “The stock is quickly emerging as the darling of small caps, attracting legions of shareholders ever since the U.S. Court of Appeals for the Federal Circuit affirmed the U.S. Patent Trial and Appeal Board’s decision upholding the validity of Netlist’s U.S. 7,619,912 (‘912) patent that applies to DDR server memory modules. The decision is final and binding on future cases and represents a resounding win for Netlist. The (‘912) patent is a seminal patent; an invention so impactful that it creates or shifts the technology space. This ruling has much larger implications than just GOOG which will more than likely set the tone for other settlements long overdue here. 

NLST CEO C.K. Hong who fired his BOD giving him full control of the Company and the ability to make big decisions quickly stated at the time of the U.S. Court of Appeals decision: “For ten years Netlist has steadfastly opposed Google’s misguided campaign to invalidate the ‘912 patent,” said Netlist’s CEO, C.K. Hong. “We are very pleased that in the end the appellate court made it clear that the claims of this seminal patent are indeed valid and in so doing, further vindicate our decade-long defense of the company’s strategic intellectual property. We will now move to lift the stay in the patent infringement lawsuit against Google in the U.S. District Court for the Northern District of CA., in order to recover current and past damages related to the ‘912 patent.” 

Netlist also recently was granted summary judgements by the Federal District Court for the Central District of California (the Court) Fvfor material breach of various obligations under the Joint Development and License Agreement (JDLA), which the parties executed in November 2015. A summary judgment is a final determination rendered by the judge and has the same force and effect as a final ruling after a jury trial in litigation. The Court also held that Netlist properly terminated the JDLA and confirmed that Samsung no longer has a valid license to Netlist’s patent portfolio. The jury is left to decide on direct damages related to the breach of contract during the trial set to commence on November 30, 2021 in the Central District of California. 

Earlier this year NLST reported the availability and shipment of its N1962 Gen4 Enterprise NVMe™ Solid State Drives (SSDs) to server and storage users. This next generation SSD utilizes the PCIe Gen4 protocol with backward compatibility to Gen3, best-in-class firmware, and a wide array of enterprise feature sets. Netlist’s N1962 delivers ultra-fast performance and superior reliability to handle the toughest computational & read / write intensive enterprise application workloads, including high-frequency trading, artificial intelligence, content delivery, and database acceleration. Also in April Netlist and SK hynix Inc. formed an agreement for a patent cross license covering memory technologies of both companies and an agreement for the supply of SK hynix products and technical cooperation on Netlist’s CXL HybriDIMM technology. The agreements provide SK hynix with access to Netlist’s portfolio of U.S. and foreign patents. Netlist will receive a royalty from SK hynix, a cross license to SK hynix’s patent portfolio and supply of SK hynix’s memory and storage products. The companies also plan to collaborate on Netlist’s HD CXL technology for future commercialization.

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On November 2 Netlist reported financial results for the third quarter ended October 2, 2021. Revenue for the third quarter ended October 2, 2021 was $26.7 million which was up 162% year over year. Net loss for the third quarter ended October 2, 2021 was ($10.7) million, or loss per share of ($0.05), compared to a net loss in the prior year’s period of ($2.1) million, or a loss per share of ($0.01). These results include stock-based compensation expense of $0.4 million for the quarter ended October 2, 2021 and $0.2 million for the quarter ended September 26, 2020. 

As of October 2, 2021, cash, cash equivalents and restricted cash was $73.2 million, total assets were $98.9 million, working capital was $47.2 million, total debt and accrued interest, net of debt discount, was $21.2 million, and stockholders’ equity was $47.9 million. 

Netlist CEO C.K. Hong. stated: “Third quarter revenue more than doubled compared to the prior year period, while investments in sales, research and development, and legal activities tempered bottom line results. The recent summary judgement in the case against Samsung was a major victory for Netlist. We look forward to the hearing on November 10th in the case against Google which will address the question of intervening rights.”  Microcapdaily back in November 2018 reporting on NLST when the stock was $0.30 per share.

The Company held an investor conference call on November 2, 2021 at 12:00 p.m. Eastern Time to review Netlist’s results for the third quarter 2021. The live webcast and archived replay of the call can be accessed for 90 days in the Investors section of Netlist’s website at www.netlist.com. 

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NLST has seen a spectacular rise over the past 2 years from pennies to over $10 per share. The stock is among the most heavily traded in small caps and trades more like a big board stock. Microcapdaily has been covering NLST since it was below $0.25 per share and investor sentiment was very low. Everything changed in July of last year when the U.S. Court of Appeals for the Federal Circuit affirmed the U.S. Patent Trial and Appeal Board’s decision upholding the validity of Netlist’s U.S. 7,619,912 (‘912) patent that applies to DDR server memory modules. The (‘912) patent is a seminal patent; an invention so impactful that it creates or shifts the technology space. This ruling has much larger implications than just GOOG which will more than likely set the tone for other settlements long overdue here. NLST continues its win streak with the Company being granted summary judgements by the Federal District Court for the Central District of California (the Court) against Samsung for breach of various obligations under the Joint Development and License Agreement (JDLA), which the parties executed in November 2015. The Court also held that Netlist properly terminated the JDLA and confirmed that Samsung no longer has a valid license to Netlist’s patent portfolio. The jury is left to decide on direct damages related to the breach of contract during the trial set to commence on November 30, 2021 in the Central District of California. On November 2 Netlist reported financial results for the third quarter ended October 2, 2021. Revenue for the third quarter ended October 2, 2021 was $26.7 million which was up 162% year over year. Net loss for the third quarter ended October 2, 2021 was ($10.7) million, or loss per share of ($0.05), compared to a net loss in the prior year’s period of ($2.1) million, or a loss per share of ($0.01). These results include stock-based compensation expense of $0.4 million for the quarter ended October 2, 2021 and $0.2 million for the quarter ended September 26, 2020. A break over $10.20 per share and its blue skies ahead for NLST. The first time Microcapdaily reported on NLST was November 19, 2018 when NLST was under $0.25 per share.  We will be updating on Netlist when more details emerge so make sure you are subscribed to Microcapdaily so you know what’s going on with Netlist.

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Disclosure: we hold no position in NLST either long or short and we have not been compensated for this article.

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