So NLST is gonna slammed today because this carcass company is up 600% within a few weeks and they just got sued for patent infringement….if I’ve told TIMalert subscribers and PennyStocking DVD students, I’ve told them a million times:

PENNY STOCKS HAVE THE WORST MANAGEMENT & 999 OUT OF 1,000 HAVE SKELETONS IN THE CLOSET…GO WITH THE ODDS, BET AGAINST THEM EVER SUCCEEDING, ESPECIALLY AFTER THEY ARE PUMPED UP PARABOLICALLY!

The cool thing is that when I blogged about NLST 2 weeks ago (and TIMalert subscribers made $40,000+ shorting and covering NLST from the 5s to the 4s), I mentioned I had started PUMP Research, the first REAL penny stock research outlet which for $447/month is the steal of a lifetime considering subscribers get 6-10 REAL research reports per month.

And a lot of people said it was too much, especially since stock promoters give their “research” away for free. My response: their “research” is paid-for advertising, never to be trusted, usually good to trade against. $447 per month for REAL research is a good deal as too many have learned the hard way that misinformation costs thousands, if not tens of thousands of dollars per month.

So as you watch NLST get crushed today, read the 2-week-old report below and see that my PUMP Research team (not just me, I’m already busy enough) NAILED NLST’s litigation risk:

…and think bout how much money you could’ve made or how many losses you could’ve prevented if you knew such information? Yeah I thought so: subscribe to PUMP Research for $447/month right now and get penny stock wise!

Here’s most of the NLST research report (not gonna bother formatting it since you’re getting this info for free!):

Netlist Inc. (NLST) describes itself as: “…the leading provider of high-performance modular memory subsystems to the world’s premier OEMs. Netlist specializes in bridging the widening gap between the system OEM’s requirements and the capabilities of the IC manufacturer. Our patented memory subsystem technologies overcome density, performance, and cost limitations, effectively blending commodity components with their inherent deficiencies into highly reliable, optimized memory solutions.”

However, Netlist (NLST) since the initial IPO in 2006 has experienced significant setbacks and business deterioration in part due to playing in an oversaturated computer memory market. The company’s relationship with investors appears strained after a volume of class action and civil lawsuits alleging securities fraud. The suits detail that “problems which existed at the time of the IPO would result in extremely disappointing results for the first quarter of 2007. Defendants admitted that the Company was performing well below guidance that earnings would be almost 75% lower than previous forecasts, and that expenses were higher than expected. This, after defendants and other Company insiders liquidated over $6.5625 million of their personally held shares in connection with the IPO. ”

Since hitting an intra-day high of $12.64 on January 16th 2007 shares of Netlist Inc. (NLST) have precipitously declined in value spending every trading day in 2009 under $1 per share. Then on November 11th, 2009 the Company issued a press release touting the launch of the “World’s First 16GB, 2 Virtual Rank Memory Module.” The release highlighted the strengths and cost savings of the product for HPC (high-powered computing) datacenters responsible for much of today’s emerging cloud computing done at government and academic data research centers. The company also announced that it will debut the HyperCloud product at the Supercomputing tradeshow, taking place in Portland, Oregon November 17-19, 2009.

After the release shares of Netlist (NLST) have more than sextupled to close on Monday November 16th at $6.24 representing one of the highest percentage gainers on the U.S. stock market for the second session in a row with over 25.7 million shares traded, some 141% of its float. For historical perspective, over 43% of the entire volume since the stock IPO on 12/11/2006 has occurred since the press release on November 11th.

The Company plans to roll out the HyperCloud product in December 2009. The chips are a virtualized, dense memory DDR3 module that will essentially trick servers into having more main memory than they are supposed to. Currently, Cisco’s B250-M1 blade server and C250-M1server accomplish the same task allowing use of more capacious and cheaper memory. The difference is Netlist solves the capacity limitations on the memory module rather than on the motherboard. The memory modules will be able to plug into any existing server and allow system administrators to avoid the costs of newer expensive Cisco servers – just buy the memory and plug it in.

Current server processor designs limit the number of ranks of memory each channel can address. A typical new server today will have a 96GB memory capacity, larger 18 slot servers allow as much as 144GB. The problem is the memory controllers that connect to the processors can only allow a maximum of 800 MT/sec which means the process must be run at 800MHz instead of 1.33GHz, a 30% reduction! Netlists forthcoming HyperCloud 2 vRank DDR3 product will allow the doubling-up of memory modules per channel, the construction will allow twice as much memory per slot. What’s more because the modules trick memory controllers into thinking they are one entity they can run at full speed or 1.33GHz. A server full of the new Netlist memory will allow a maximum memory capacity of 384GB!

While Netlist (NLST) holds a patent for the new exciting Hypercloud product significant risk factors exist for the company going forward. These factors have existed since the company filed a Prospectus in 2006 during the underwriting of the IPO transaction. A surprising number of these factors have become reality:

“WE MAY LOSE OUR COMPETITIVE POSITION IF WE ARE UNABLE TO TIMELY AND COST-EFFECTIVELY DEVELOP NEW OR ENHANCED PRODUCTS THAT MEET OUR CUSTOMERS’ REQUIREMENTS AND ACHIEVE MARKET ACCEPTANCE.”

“WE MAY NOT BE ABLE TO MAINTAIN OUR COMPETITIVE POSITION BECAUSE OF THE INTENSE COMPETITION IN OUR TARGET MARKETS.”

“OUR COMMON STOCK PRICE MAY FLUCTUATE SUBSTANTIALLY, AND YOUR INVESTMENT COULD SUFFER A DECLINE IN VALUE.”

YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE NET TANGIBLE BOOK VALUE OF THE SHARES YOU PURCHASE IN THIS OFFERING.

Going forward the chief risk factor for Netlist (NLST) is the ability for the company to defend the U.S. Patent No. 7,532,537 (http://www.pat2pdf.org/patents/pat7532537.pdf) the company received in May 2008. The 2006 prospectus highlighted the following intellectual property risks:

WE MAY BE INVOLVED IN COSTLY LEGAL PROCEEDINGS TO DEFEND AGAINST CLAIMS THAT WE INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS OR TO ENFORCE OR PROTECT OUR INTELLECTUAL PROPERTY RIGHTS.

IF WE FAIL TO PROTECT OUR PROPRIETARY RIGHTS, OUR CUSTOMERS OR OUR COMPETITORS MIGHT GAIN ACCESS TO OUR PROPRIETARY DESIGNS, PROCESSES AND TECHNOLOGIES, WHICH COULD ADVERSELY AFFECT OUR OPERATING RESULTS.

The company already faces serious patent litigation from the likes of Google, who were once a potential customer. Google’s court filing says the Netlist patent is invalid because it fails to comply with various conditions and requirements set forth in patent law. See Google Inc v Netlist (http://docs.justia.com/cases/federal/district-courts/california/candce/3:2008cv04144/206724/1/)
In the above filing Google Inc. explains in 2006 they considered business proposals from Netlist to supply it with server memory hardware for some of its servers. Google ultimately ended up buying from a different supplier. While no assurances can be had related to the specific negotiations, the fact that Google walked is not exactly confidence inspiring for any Netlist (NLST) shareholder.

Netlist (NLST) CEO Chun Hong, wrote to Google and claimed that the memory modules Google had chosen infringed Netlist’s patent. Netlist’s outside counsel, Morrison & Foerster, sent two follow-up letters in June.

Google Inc (GOOG), believing that litigation was imminent, responded by asking the California Northern District Court to issue a declaratory judgment that it is not infringing Netlist’s patent and that Netlist’s patent isn’t valid.

The patent suits do not end with Google.

“On March 17, 2009, the Company filed a complaint for patent infringement against MetaRAM, Inc. for its infringement of one of the Company’s patents. On March 26, 2009, MetaRAM filed a complaint against the Company for patent infringement. The parties are currently discussing an amicable settlement of these claims. If these discussions are unsuccessful, the Company expects to vigorously pursue its claim against MetaRAM and to vigorously defend against MetaRAMs separate claim.”

“On September 22, 2009, the Company filed a patent infringement lawsuit against Inphi Corporation in the U.S. District Court for the Central District of California. The suit alleges that Inphi is contributorily infringing and actively inducing the infringement of a US patent assigned to the Company which is directed to memory modules with load isolation and memory domain translation capabilities. The Company is seeking damages and injunctive relief based on Inphi’s use of its patented technology. Inphi has not yet answered the Company’s complaint.”

Netlist (NLST) for good measure also has a trade secrets claim against Texas Instruments (TI).
On November 18, 2008, the Company filed a claim for trade secret misappropriation against Texas Instruments (TI) in Santa Clara County Superior Court, based in TI’s disclosure of confidential Company materials to the JEDEC standard-setting body. On February 20, 2009, TI filed its answer. The parties are currently engaged in settlement discussions. If those discussions are unsuccessful, the Company expects to vigorously pursue its claims against TI.

Netlist (NLST) in the past two years can be characterized as a bit of a “patent troll”.

Wikipedia defines a “Patent troll as [sic] a pejorative term used for a person or company that enforces its patents against one or more alleged infringers in a manner considered unduly aggressive or opportunistic, often with no intention to manufacture or market the patented invention.”

“Patent Trolls plague the IT industry. They hold innovation hostage by exploiting our antiquated patent system to thwart IT development,”- Computing Technology Association, an IT business group.
While Netlist (NLST) intends to manufacture the HyperCloud chips in December at its Suzhou, China facility and management stated on the Q3 Earnings Confrence Call sufficient manufacturing capacity to “…handle expected demand to 2010 and beyond” , the Company has a long history of poor product execution. The last time as many shares were bought and sold of Netlist (NLST) on product news was during the IPO in Q4 2006. The offering priced on 11/30/2006 between $7.00 and $9.00 a share and proved to have a nice run to a closing high of $12.40 on January 16th 2006 three days before the Company would report earnings for the first time.

The Company’s first earnings report press release was glowing “Netlist Reports 2006 Fourth Quarter, Year-End Results; Revenue Growth, Rising Margins Drive Profits for Quarter and Year.” Revenues for the fourth quarter rose 80 percent to $42.0 million from $23.3 million in the 2005 fourth quarter, and gross margin for the quarter increased to 16.2 percent from 8.1 percent in the corresponding prior-year period. Net income for the 2006 fourth quarter was $2.0 million, or $0.12 per diluted share, compared to a net loss of $304,000, or a $0.02 loss per diluted share, in the corresponding prior-year period.

The CFO at the time Lee Kim, February 1, 2007 proudly announced on the investor conference call:

“Let me now take you through our outlook for the first quarter of 2007. We currently expect revenues for the first quarter of 2007 to be in the range of 40 to $42 million with gross margin remaining approximately flat with the fourth quarter of 2006. Fully diluted earnings per share are expected in the range of $0.07 to $0.08 per share. This earnings per share estimate includes the impact of estimated stock based compensation expense of $300,000. Estimated fully diluted shares for Q1 are $22 million.”

Shares of Netlist (NLST) responded favorably in the next two trading sessions following by investors taking profits for much of the next quarter as shares declined to $5.97/share during the session before the 2007 Q1 Earnings release. The truth about Netlist would severely hurt investors:

“Netlist, Inc. (Nasdaq: NLST), a leading supplier of high performance memory subsystems, today announced preliminary results for the first quarter ended March 31, 2007 . The Company expects to report net sales of approximately $37 million to $38 million, versus the previous guidance of $40 million to $42 million, and fully diluted earnings per share of approximately $0.02 to $0.03 per share, including estimated stock-based compensation expense of $325,000, versus the previous guidance of $0.07 to $0.08 per share. The Company expects gross margin for the quarter will be approximately 14.5 percent. ”

CEO Chuck Hong attempted to console shocked investors: “Our operating results for the first quarter were adversely impacted by the oversupply of DRAM during the quarter which in turn affected the pricing and gross margin on some of the lower-ASP, high-volume products in our portfolio. We also experienced lower than expected volume of high-end products from two large customers due to reduced demand across those customers’ server platforms into which our products are incorporated. Finally, our operating expenses increased as we invested in our sales, marketing and engineering teams consistent with our long-term strategy of expanding within current customers and into new markets. “While we are disappointed in our estimated results for the first quarter, we remain committed to our long-term strategy of developing high-performance memory subsystems that offer a superior value proposition to our OEM customers and targeting new application markets,” added Hong. “We are adequately capitalized and well positioned to push forward with numerous programs that will bring high-end memory subsystem products to market though our OEM customer platforms in the second half of 2007 and we expect to return to a pattern of growth and growing margins as those products come on line.”

On this news, shares of the Company’s stock declined over 28%, or $1.68 per share, to close on April 17, 2007 at $4.29 per share, on unusually heavy trading volume. Little has gone Netlist’s (NLST) way since the 2007 Q2 Earnings Release, as the company has reported negative EPS (earnings per share) in every subsequent quarter to date. Revenue has sequentially declined each year from $151M in 2006, 100M in 2007, 67M in 2008. Netlist (NLST) this quarter (Q4 2009) would have to break the previous quarterly revenue record from Q4 2006 by nearly 40% simply to equal last year’s dismal revenue number on the year.

The industry outlook does look brighter after a previous period of oversupply of DRAM has lead to semiconductor inventories returning to more normal levels in the third quarter after chip suppliers shed stockpiles. They did this by slashing costs dramatically in order to reduce unsold inventory they’d been carrying since the beginning of 2009. Although global semiconductor revenue is set to decline in 2009 for the second consecutive year, quarterly year-over-year growth is expected to finally return to the market in the fourth quarter, signaling the start of the industry recovery, according to iSuppli Corp .

Netlist (NLST) since 2006 has failed to capture any more than de minimis marketshare in the DRAM Modules space and ranks well outside the Top 10. The industry as a whole is extremely fragmented as shown in the table below where no player controls more than 20% of the market.
Global DRAM Modules: Top-10 Third-Party Suppliers by Revenues, 2007 (US$m)

2007 Rank 2006 Rank Company Name 2007 Revenue

($ millions) 2007 Marketshare 2006 Revenue 2006 Marketshare Y/Y Sales Growth
1 1 Kingston Technology 2,235 27.5% 2,210 18.1% 1.1%
2 2 Smart Modular 645 7.9% 668 5.5% (3.5%)
3 3 A-Data 621 7.6% 618 5.1% 0.5%
4 4 Ramaxel 561 6.9% 602 4.9% (6.8%)
5 6 Transcend 478 5.9% 476 3.9% 0.4%
6 9 Apacer 474 5.8% 381 3.1% 24.4%
7 5 MA Labs 468 5.8% 494 4.0% (5.3%)
8 7 Crucial 398 4.8% 431 3.5% (7.7%)
9 8 Corsair Memory 380 4.7% 425 3.5% (10.6%)
10 11 PQI 258 3.2% 278 2.3% (7.1%)
Others 1615 19.9% 5,646 46.2% (71.4%)
Total 8133 100% 12,229 100% (33.5%)

Netlist (NLST) despite the odds has a chance to make a run at a revival. The closest competitor in size and product offering MetaRAM Inc., a semiconductor company that boasted some high-profile executives and investors, shut down over the summer. Yes, the same MetaRam that Netlist (NLST) has sued and was counter sued by! “Founded in 2006, MetaRAM had hired as chief executive Fred Weber, who was chief technology officer of Advanced Micro Devices Inc. from 1995 to 2005. Weber provided big-name credibility to the start-up as it sought to compete against some larger competitors. ” The company was well funded by Kleiner Perkins Caufield & Byers, Intel Capital, Khosla Ventures and Storm Ventures. The closure doesn’t exactly leave a giant void for Netlist (NLST) to fill, however the event should be regarded as a positive as MetaRam had 8-Gbyte R-DIMMs through both Hynix Semiconductor and Smart Modular Technologies in full production, and was hammering out a 16-Gbyte version with the chip-set qualification phase already completed.

The opportunity also comes at a time Netlist (NLST) appears to have access to additional working capital as the company on November 2, 2009 announced it had entered into a new revolving Credit facility with Silicon Valley Bank.

“On October 31, 2009 Netlist Inc. entered into a new revolving credit agreement with Silicon Valley Bank. Under this revolving credit agreement, the company may borrow up to the lesser of (i) 80% of eligible accounts receivable, minus $1.0 million, or (ii) $5.0 million. This revolving credit agreement contains an overall sublimit of $2.5 million to collateralize contingent obligations under letters of credit, foreign exchange contracts and cash management services. Amounts outstanding under the overall sublimit reduce the amount available pursuant to this revolving credit agreement. This revolving credit agreement subjects to certain affirmative and negative covenants, including financial covenants with respect to liquidity and profitability. Interest is payable monthly at either (i) prime plus 1.25%, as long as the company maintain $8.5 million in revolving credit availability plus unrestricted cash on deposit with the financial institution, or (ii) prime plus 2.25%. This revolving credit agreement matures on October 30, 2010, at which time all advances and interest are due and payable. Obligations under this revolving credit agreement are secured by a first priority lien on tangible and intangible assets. ”

A perfect storm could be in order for a Netlist (NLST) turnaround given the short-term outlook of the DRAM market, the exit of key competitors and the above credit facility – that is if the management can stay out of the way! CEO Chun Ki Hong has served as CEO since the Company’s inception, and assumed the title of Chairman of the Board in January 2004. From September 2000 to September 2001, Mr. Hong served as President and Chief Operating Officer of Infinilink Corporation, a DSL equipment company that ended up filing for Chapter 7 bankruptcy. There is of course no shame in cutting losses and moving on, but the 2006 IPO prospectus highlights the fact that Mr. Hong while “rome burned” over at Infinilink “he assisted Netlist [sic] on a part-time basis until his departure from Infinilink, at which time he assumed full-time responsibilities with Netlist [sic].” By itself, this doesn’t seem to raise many concerns except when one considers the story told by The Orange County Business Jornal in 2002 about the venture capital fund San Vincente Group which was a principal investor in Infilink back in 2001. The feature story explains how a handful of angry rouge shareholders took over the sinking fund due in part because of the funds organization as a corporation rather than the traditional limited partnership formation. The group ousted the board after getting word of a pending registration of the fund’s shares. The new shareholder formed board sought $20 M and the dissolution of a separate partnership that controlled the sale of all the fund’s investments. The old board had used San Vicente Group funds to “buy back” shares of GlobalFinancial.com and NewMarkMedia PLC that they owned, but had not paid anything for. What’s more several of these fund executives received “golden parachutes” totally over $1.9 M. While the story does not mention Mr. Hong or Infilink investments directly the stigma amongst institutional investors around Orange County tied to San Vicente Group, the portfolio investments and underlying management teams is not beneficial.

Netlist (NLST) seems to have a penchant for opportunistic management. Just over one year on November 10,2008 the Company included this item in a 8-K SEC filing:

ON NOVEMBER 4, 2008, DAVID RICKEY RESIGNED AS A DIRECTOR OF NETLIST, INC., FOR PERSONAL REASONS. HIS RESIGNATION WILL TAKE EFFECT ON NOVEMBER 18, 2008.

David M. Rickey had been a Netlist (NLST) Director since inception the following bio was taken from the 2006 IPO prospectus:

David M. Rickey has served as a member of our board of directors since March 2004. Mr. Rickey served as Chairman of Applied Micro Circuits Corporation, or AMCC, from August 2000 to March 2005 and as the President and Chief Executive Officer from February 1996 to March 2005. From 1993 to 1995, he served as the Vice President of Operations of AMCC. During his time away from AMCC, Mr. Rickey served as the Vice President of Operations of NexGen, Inc. For eight years beginning in 1985, Mr. Rickey was employed by Northern Telecom, Inc. Mr. Rickey began his career at International Business Machines Corporation. Mr. Rickey presently serves on the board at Cytori.

David M. Rickey was best known in the late 1990’s for among other boastful statements as CEO of Applied Micro Circuits, he told Ms. Maria Bartiromo of CNBC when reminded of him of the “dare” he had made to investors a year earlier he reaffirmed the audience. ”I dare you not to own my stock,” he said. ”I’m kind of a gutsy guy, and I have a lot of confidence in what we’re doing.” Important is the fact that prior to David again making his “dare” to investors, shares of Applied Mirco Circuits had fallen 67 percent in six weeks. So a bullish CEO, a true general! Not so fast, as the New York Times reported in 2001, “…what Mr. Rickey did not say was that he had already come close to accepting his own dare. Between July 2000, when Applied Micro Circuits’ stock was trading at $100, and March 2, when it was trading at $29, Mr. Rickey had sold 800,000 shares in the company, or more than 90 percent of his stake. Since 1999, he had sold more than 99 percent of his stock, making $170 million in the process, according to Securities and Exchange Commission filings. ”

More good fortune courtesy of the New York Times article:

“Perhaps most worrisome, management experts say, he has exercised tens of thousands of options that did not expire for another eight or nine years and then immediately sold the shares he acquired. In general, finance theory holds that people should hold onto options for most of their 10-year terms, because stocks tend to rise over long periods.”

The mouth it seems stayed open as long as did the wallet:

“All along, Mr. Rickey continued to offer brash predictions. After other technology manufacturers warned of earnings shortfalls late last year, stocks for the entire sector fell, and Mr. Rickey complained that Applied Micro Circuits was being unfairly tarnished. ”There are all these negative perceptions going on, but our business is booming,” he said in the Jan. 16 issue of Investors Business Daily. Two days later, he sold 167,000 shares of his company’s stock.”

Mr. Rickey wasn’t always so quick. In the early years he won praise for his comparatively modest salary. Even humbly stating in interviews: “I don’t feel undernourished by the company…”

“Graef Crystal, a former pay consultant who often criticizes executive compensation, praised him in an interview in December 1999 with a columnist for The San Diego Union-Tribune. The column called Mr. Rickey ”a paragon of virtue” amidst a sea of greed.”
Oh how the star that burns brightest burns fastest…

“Less than two years later, Mr. Crystal soured on Mr. Rickey. ”He seems to have two jobs,” Mr. Crystal told The San Diego Union-Tribune in August. ”By day he runs the company, and by night he plans the stock sales he will make the next day.”

All this makes one wonder, after the recent run in Netlist (NLST) last week, how many of the 10,000 $1.93 Call options that David M. Rickey was given on 8/1/08 one month before resigning from the board has he already exercised?

Much of Netlist (NLST) mismanagement is detailed in court filings in two different suits one federal class action suit which was dismissed for lack of prosecution by Judge David O. Carter On August 21, 2008, the Judge David O. Carter and another before the Superior Court for County of Orange, CA. A settlement in The Orange County case was reached on in July 2009 and on November 5th after a Settlement Hearing the case was DISPOSED WITH DISPOSITION OF STIPULATED JUDGMENT.
In August 2007, a derivative lawsuit was filed in California Superior Court for County of Orange—Smith v. Hong, Case No. 07CC01359—against certain of the Company’s officers and directors. This action contains factual allegations similar to those of the federal class action lawsuit described above, but the plaintiff in this case asserts claims for violations of California’s insider trading laws, breaches of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, and unjust enrichment. The plaintiff seeks unspecified damages, equitable and/or injunctive relief and disgorgement of all profits, benefits and other compensation obtained by the defendants. The defendants to this action have not responded to the complaint. Pursuant to a stipulation, the parties agreed to temporarily stay the action pending a decision on the defendants’ motions to dismiss in the federal securities class action. The parties also agreed that twenty days after the court in the federal securities class action issues a final ruling as to the motions to dismiss brought in that action, the parties will meet and confer regarding the time for defendants to respond to the complaint in this derivative action. At this time, the Company is unable to form a professional judgment that an unfavorable outcome is either probable or remote. Moreover, if an unfavorable outcome should eventually occur, the Company is not at this time able to estimate the amount or range of possible loss. In addition, the Company has received correspondence from counsel for a purported shareholder requesting that the Company take actions to investigate and remedy alleged wrongdoing by unidentified former and current officers and/or directors based on allegations similar to those in the Smith v. Hong case. The Company is evaluating its response to this request.

The lawsuits as a defendant are behind Netlist (NLST) for now. David M. Rickey no longer serves on the board. The company has an opportunity to create value for shareholders once again. Unfortunately, much of the same management is in place and has no demonstrative ability to successfully lead a distressed company back to profitability in such a fragmented hyper-competitive industry like semi-conductors. TheHyperCloud product without a doubt represents a monumental opportunity for Netlist (NLST) going forward to expand market share and make a run, but not in the way most would think. The future prospects of the company have more to do with the ability of the company’s lawyers to extract royalties and successfully defend U.S. Patent No. 7,532,537 than any material event related to DRAM supply, market conditions or management effectiveness. After years of fraud, waste and mismanagement characterized by a -52.83% return on equity, time has come for the esquires to deliver the EPS in the form of windfall judgments! Management of course can even mess up this part. The company has used Morrison & Foerster as counsel since 2007. While Morrison & Foerster is a Top 10 ranked Intellectual Property firm by Lexus Nexus, Netlist (NLST) is facing Google’s Fish & Richardson P.C. A top firm for the last 2 years not the last 5 minutes. This is the equivalent of the Yankees v Phillies in IP litigation. Netlist (NLST), if it wants to survive needs to set up a new profit center on the U.S. Federal docket! The Company needs to hire top ranking counsel that has had more than a cup of coffee in the big show.
Updated – March 2009

Rank Top 10 Law Firms: Intellectual Property Change in Rank Last Month Months on list
1 Holme Roberts & Owen LLP
1 24
2 Gardere Wynne Sewell LLP
2 24
3 Greenberg Traurig
3 24
4 Fish & Richardson P.C.
4 6
5 Howrey LLP
5 14
6 DLA Piper
6 22
7 Perkins Coie LLP

8 4
8 Alston & Bird LLP
8 2
9 Morrison & Foerster LLP

10 5
10 Jones Day

1

For entertainment purposes only I would consider Netlist (NLST) to trade accordingly:
A continued run up from the close on Friday November 13th, consolidating through the afternoon followed by a run up into the close as brave intraday shorts are squeezed. An important indication of the power of the move will be the volume that comes into Netlist (NLST) on Monday. The stock needs to trade through the float several times to shake out weak hands and have some legs into the $7 level. The $7-$9 range to the 2006 IPO pricing at $7 a share and subsequent decline in equity value has made for a ton of bitter shareholders (and plaintiffs), who will be more than happy to break even or eek out a bit of profit out of their years of misery. Additionally, management disclosed via SEC filings form 10-Q that several 923,000 shares in stock options exist with exercise prices between $7.00 – $8.45 as shown in the table below:

The following table summarizes information about stock options outstanding and exercisable at January 3, 2009:

Options Outstanding Options Exercisable
Range of Exercise Prices Number of
shares Weighted
Average
Remaining
Contractual
Life Weighted
Average
Exercise
Price Number of
shares Weighted
Average
Exercise
Price
(in thousands) (in years) (in thousands)
$0.20 – $0.31 1,231 4.3 $ 0.22 1,011 $ 0.20
$0.59 – $1.25 189 8.2 $ 0.78 54 $ 1.25
$1.29 – $1.95 884 8.9 $ 1.64 163 $ 1.79
$2.05 – $3.20 986 7.4 $ 2.54 576 $ 2.58
$3.26 – $6.94 68 8.3 $ 6.35 19 $ 6.04
$7.00 – $8.45 923 7.6 $ 7.04 348 $ 7.02

4,281 6.9 $ 2.64 2,171 $ 2.12

The large amount of stock options in the $7-9$ range will serve as major resistance going forward into rest of the week. Look out for several news or press releases surrounding the Company’s appearance at the Supercomputing 09 Conference in Portland, Oregon. The event could provide spikes that take out key levels. Ultimately, I suspect by Thanksgiving the $7 level will fail, as will $5 and $4.50 will fade by and $NLST will bottom around $1.80-2$ per share.

Tags: NLST Pump & Dump, Pump Research