| | | | | | Large accelerated filer | | ☐◻
| | Accelerated filer | | ☒◻
| | | | | Non-accelerated filer | | ☐⌧
| | SmallSmaller reporting company
| | ☒ | | |
| | Emerging growth company | | ☒☐
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐ | | ☒
|
Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b‑212b-2 of the Exchange Act). YES ◻☐ NO ☒ As of June 29, 2018,30, 2021, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the common stock of the Registrant held by non-affiliates, based upon the closing sales price for the Registrant’s common stock for such date, as quoted on the Nasdaq Global Market, was approximately $116.6$118.4 million. Shares of common stock held by each officer, director and entities affiliated with directors have been excluded because such persons may be deemed to be “affiliates” as that term is defined under the rules and regulations of the Exchange Act. This determination of affiliate status is not necessarily a conclusive determination for any other purpose. The number of shares of Registrant’s Common Stockcommon stock outstanding as of March 6, 20197, 2022 was 17,095,552. 19,892,838. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant’s Definitive Proxy Statement relating to the 2022 Annual Meeting of Shareholders,Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after the end of the Registrant’s fiscal year ended December 31, 2018,2021, are incorporated by reference into Part III of this Annual Report. on Form 10-K. Forward-Looking Statements This Annual Report on Form 10‑K10-K contains forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business operations and financial performance and condition. Any statements contained herein that are statements of events or results that may occur in the future are deemed to be forward-looking statements. In some cases, youforward-looking statements can identify forward-looking statementsbe identified by terminology such as “aim,” “anticipate,” “assume,” “believe,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “will,” “would,” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These forward-looking statements include, but are not limited to, statements about: | ·
● | | estimates of our future revenue, expenses, capital requirements and our needs for additional financing; |
| ·
● | | the implementation of our business model and strategic plans for our products, technologies and businesses; |
| ·
● | the anticipated impacts from the novel coronavirus (COVID-19) global pandemic on the Company, including to our business, results of operations, cash flows and financial position, as well as our future responses to the COVID-19 pandemic; |
| ● | our expectations regarding current supply constraints; |
| ● | competitive companies and technologies and our industry; |
| ·
● | | our ability to manage and grow our business by expanding our sales to existing customers or introducing our products to new customers; |
| ·
● | | our ability to establish and maintain intellectual property (IP) protection for our products or avoid claims of infringement; |
| ·
● | | our ability to hire and retain key personnel; |
| ·
● | | our financial performance; |
| ·
● | | our estimates of the MRAM market opportunity; and |
| ·
● | | the volatility of our share price. |
Forward-looking statements are based on management’s current expectations, estimates, forecasts, and projections about our business and the industry in which we operate, and management’s beliefs and assumptions are not guarantees of future performance or development and involve known and unknown risks, uncertainties, and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this report may turn out to be inaccurate. Furthermore, if the forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, youthese statements should not regard these statementsbe regarded as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” and elsewhere in this report. These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments. Additionally, there may be other risks that are otherwise described from time to time in the reports that we file with the Securities and Exchange Commission (SEC). We caution investors that our business and financial performance are subject to substantial risks and uncertainties. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. Risk Factor Summary We are subject to a variety of risks and uncertainties, including risks related to our financial condition and our indebtedness, risks related to our business and our industry, risks related to our intellectual property and technology, risks related to regulatory matters and compliance, risks related to our common stock and certain general risks, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. These risks include, but are not limited to, the following principal risks: | ● | We may need additional funding and may be unable to raise capital when needed, which could force us to delay, reduce, or eliminate planned activities. |
| ● | We have a history of losses, and we cannot be certain that we will sustain profitability. |
| ● | The ongoing COVID-19 global pandemic has adversely affected, and is expected to continue to adversely affect, our business, results of operations and financial condition. The widespread outbreak of any other illnesses or communicable diseases could also adversely affect our business, results of operations and financial condition. |
| ● | The limited history of STT-MRAM adoption makes it difficult to evaluate our current business and future prospects. |
| ● | We may be unable to match production with customer demand for a variety of reasons including our inability to accurately forecast customer demand or the capacity constraints of our suppliers, which could adversely affect our operating results. |
| ● | As we expand into new potential markets, we expect to face intense competition, including from our customers and potential customers, and may not be able to compete effectively, which could harm our business. |
| ● | We rely on third parties to distribute, manufacture, package, assemble and test our products, which exposes us to a number of risks, including reduced control over manufacturing and delivery timing and potential exposure to price fluctuations, which could result in a loss of revenue or reduced profitability. |
| ● | Disruptions in our supply chain may adversely impact our ability to fulfill customer demand which, in turn, may adversely impact our business, results of operations, and financial condition. |
| ● | Our joint development agreement and strategic relationships involve numerous risks. |
| ● | The market for semiconductor memory products is characterized by declines in average selling prices, which we expect to continue, and which could negatively affect our revenue and margins. |
| ● | We must continuously develop new and enhanced products, and if we are unable to successfully market our new and enhanced products for which we incur significant expenses to develop, our results of operations and financial condition will be materially adversely affected. |
| ● | Our success and future revenue depend on our ability to secure design wins and on our customers’ ability to successfully sell the products that incorporate our solutions. Securing design wins is a lengthy, expensive, and competitive process, and may not result in actual orders and sales, which could cause our revenue to decline. |
| ● | The loss of one or several of our customers or reduced orders or pricing from existing customers may have a significant adverse effect on our operations and financial results. |
| ● | Our costs may increase substantially if we or our third-party manufacturing contractors do not achieve satisfactory product yields or quality. |
| ● | The complexity of our products may lead to defects, which could negatively impact our reputation with customers and result in liability. |
| ● | We may experience difficulties in transitioning to new wafer fabrication process technologies or in achieving higher levels of design integration, which may result in reduced manufacturing yields, delays in product deliveries and increased expenses. |
| ● | We currently maintain and are seeking to expand operations outside of the United States which exposes us to significant risks. |
For a more complete discussion of the material risk factors applicable to us, see “Risk Factors” in Part I, Item 1A of this report. PART I Item 1. Business. OverviewGeneral
Everspin is a pioneer in the successful commercialization of Magnetoresistive Random Access Memory (MRAM) technology. Our portfolio of MRAM technologies, including Toggle MRAM and Spin-transfer Torque MRAM (STT-MRAM), is delivering superior performance, persistence and reliability in non-volatile memories that transform how mission-critical data is protected against power loss. With over 10 years of MRAM technology and manufacturing leadership, our memory solutions deliver significant value to our customers in key markets such as industrial, medical, automotive/transportation, aerospace, and data center. We are the leading providersupplier of magnetoresistive random access memory (MRAM) solutions. Ourdiscrete MRAM solutions offer the persistence of non-volatile memory,components and a type of memory that retains information even in the absence of power, with the speed and endurance of random access memory (RAM). This enables the protection of mission critical data particularly in the event of power interruption or failure. Our MRAM solutions allow our customers in the industrial, automotive and transportation, and enterprise storage markets to design high performance, power efficient and reliable systems without the need for bulky batteries or capacitors. Our MRAM technology, unlike traditional semiconductor memory technologies, stores data as a magnetic state rather than an electrical charge, and is offered as either a discrete or embedded solution. Our products read and write data at speeds on par with most dynamic RAM (DRAM) and static RAM (SRAM). Our products offer the non-volatility of flash memory but with significantly superior endurance. We offer our MRAM products with different densities and interfaces to address the various needssuccessful licensor of our customers. Our lower-density MRAM products, which we define as having bit densities from 128kb to 16Mb, offer write-speeds on par with SRAM, with virtually unlimited endurance. Our higher density products, which we define as having bit densities at or greater than 256Mb, offer write-speeds on par with DRAM and have superior endurance compared to most other non-volatile memory technologies.broad portfolio of related technology intellectual property.
Our lower-density products are optimized for use in industrial, automotive and transportation applications, while our higher-density products are optimized for use in enterprise storage applications. In the enterprise storage market, we collaborate with industry-leading memory controller companies to enable compatibility of their controllers with our MRAM products, facilitating the adoption of our solutions into our customers’ existing end products. We sell our products directly and through our established distribution channelchannels to industry-leading original equipment manufacturers (OEMs) and original design manufacturers (ODMs).
We leverage both internal and outsourced manufacturing capabilities to producemanufacture our MRAM products.products using both captive and third-party manufacturing capabilities. We purchase industry-standard complementary metal-oxide semiconductor (CMOS) wafers from semiconductor foundries and complete theperform back end of line (BEOL) processing of our products by insertingthat includes our magnetic-bit technology at our 200mm fabrication facility in Chandler, Arizona. We have entered into a manufacturing agreementalso manufacture full-flow 300mm CMOS wafers with GLOBALFOUNDRIES for 300mm high-volume productionour STT-MRAM magnetic-bit technology integrated in BEOL as part of our higher-density products. We believe our strategic relationship with GLOBALFOUNDRIES accelerates the development of our MRAM solutions, provides us with leading-edge outsourced manufacturing capabilities, and a financial model with higher variable cost. In addition, GLOBALFOUNDRIES has the ability to embed our technology in its products for sale to its customers, from which we would earn licensing or royalty revenue.GLOBALFOUNDRIES. For the years ended December 31, 20182021 and 20172020, we recorded revenue of $49.4$55.1 million and $35.9$42.0 million, gross margin of 51.3%60.0% and 59.8%43.0%, and anet income of $4.3 million and net loss of $17.8 million and $21.1$8.5 million, respectively. As of December 31, 2018, we had 95 employees, more than half of whom are engaged in research and development. Our headquarters areis located in Chandler, Arizona. Our principal design center is in Austin, Texas, and we have additional sales operations in the Americas, Europe, and Asia-Pacific regions. The Opportunity for Fast, Persistent MemoryMRAM
Traditional memory technologies have either fast write-speeds or are non-volatile, but not both. MRAM combines both features into a single solution, making it an ideal memory to protect data in the event of power interruption or failure, and to store data that is frequently written and accessed. We believe customers that employ MRAM in their systems are able to design higher performance, lower power, more reliable and simpler systems than they would be able to design using other existing memory technologies. The following attributes make MRAM an increasingly important application specific memory solution for system architectures that require non-volatile memory with the speed and endurance of RAM:
Non-volatile. MRAM can retain data in the event of power interruption or failure, which enables end-system designers to create products without costly and bulky power-loss protection systems, such as batteries and capacitors.
Fast Write- Speeds. MRAM offers write-speeds that are on par with the fastest available volatile memory technologies, including most DRAM and SRAM and is significantly faster than other non-volatile memories used today. For example, MRAM writes a block over 100,000 times faster than NAND flash, a type of non-volatile flash memory.
Superior Write- Cycle Endurance. MRAM offers superior write-cycle endurance to existing non-volatile solutions, enabling end-systems designers to offer products that are not limited by memory wear-out. For example, MRAM write-cycle endurance is nearly 10 million times greater than NAND flash.
Scalable to Greater Densities and Smaller Process Geometries. MRAM’s write-speed and endurance are scalable with increasing bit densities and smaller geometries, which we believe will allow system designers to employ MRAM in applications that require more memory and smaller form factors.
Proven to be Manufacturable at High Volumes. MRAM can be manufactured in high volumes and in advanced nodes, and is compatible with standard CMOS processes.
Low Energy Requirement. MRAM utilizes energy efficiently over the duration of its write and read cycles. It has the ability to be completely powered down, consuming no energy while still retaining data, which data can be accessed quickly once power is restored.
These attributes enable MRAM to be used as a true Persistent Memory, by which we mean a form of memory that has non-volatility that is similar to storage but with performance that is similar to DRAM or SRAM. MRAM has already proven its commercial viability as a discrete and embedded solution in application-specific memory markets and we believe it will become a mainstream memory technology in the future.
Discrete MRAM Market Opportunity
We expect the introduction of increasingly higher density MRAM solutions will result in greater adoption of MRAM technology into a wider range of applications and end markets.
We expect our Toggle MRAM solutions, which have lower bit densities ranging from 128kb to 16Mb, to continue to serve customers in the industrial, automotive and transportation end markets, where products tend to have long product life cycles. As MRAM bit densities increase, MRAM solutions will be well-suited to address a wider range of large and growing markets, such as server and storage, increasing the overall market opportunity for MRAM. We believe our Spin-torque Transfer (STT) MRAM solutions, which are designed to have bit densities at or greater than 256Mb, will drive the rapid adoption of our products into enterprise storage applications. Further, the introduction of MRAM solutions with bit densities of 1Gb or greater should expand the opportunity for MRAM into additional adjacent markets such as server and mobile computing.
Embedded MRAM Technology
In addition to use as a discrete product, MRAM can serve as embedded memory in a variety of CMOS technologies. Memory accounts for a significant portion of the area of System-on-a-Chips (SoCs), application-specific integrated circuits (ASICs), application-specific standard products, microcontrollers, baseband processors, storage controllers, application processors and field-programmable gate arrays. Memory that is integrated in these products is called embedded memory and offers similar performance to its discrete counterparts.
Today’s mainstream embedded memory solutions include embedded SRAM (eSRAM), embedded Flash (eFlash), and embedded DRAM (eDRAM). We believe these technologies have process and cost challenges in scaling to advanced CMOS processing nodes at 28nm and below. Embedded MRAM’s (eMRAM) compatibility with CMOS processes, combined with its lower leakage, byte addressability, small cell size and high write-cycle endurance make it well-suited as a replacement for eSRAM, eFlash and eDRAM. We believe the use of eMRAM will be more cost effective for foundries by maintaining compatibility with standard CMOS, thus improving manufacturing efficiency.
eSRAM, which uses six transistors (6‑T) to construct a memory bit, requires more silicon area and additional power due to leakage current from its multiple-transistor architecture. Embedded MRAM, which uses a single transistor architecture, results in less leakage current and requires a smaller area on an integrated circuit to achieve equivalent or better performance than eSRAM.
eFlash requires relatively high voltage and area overhead to program the memory bits, which is contrary to the trend of scaling down the CMOS process for lower power and less chip area. eFlash also has a limited number of write cycles, which can render it ineffective as working memory on the chip. Compared to eFlash, eMRAM requires lower voltage to program bits, which results in greater power efficiency and it has higher write-cycle endurance. eMRAM is byte-addressable and has symmetric read and write timing, which makes it suitable as working memory. eFlash must be erased and programmed in pages, which is less efficient for intensive writing applications.
eDRAM is a volatile memory that does not retain data when power is off. eDRAM manufacturing requires additional process steps and costs to build a capacitor to store the data. This manufacturing process could diminish the functionality of the memory or logic components in the integrated circuit. eMRAM, however, can be added towards the end of the manufacturing process, which does not impact the overall performance of the integrated circuit.
The versatility of eMRAM can simplify the design and architecture of the overall integrated circuit by providing the ability to have one memory type serve as both working memory and code storage memory.
Our SolutionsProduct Overview
We have a strong track record of innovation in MRAM technology, as demonstrated by our successive introduction of MRAM products that address an increasingly broad spectrum of applications. Our MRAM discrete solutions as well as other offerings are described as follows.follows: Toggle MRAM Our Toggle MRAM products which we have been shippingin production since 2008 and are currently shipping in 128kb to 32Mb densities. These high performance, non-volatile memories are designed primarily designed to address applications in the industrial, medical, automotive/transportation, and automotive and transportationdata center markets. Our customers inWe offer these markets require memory technology that is non-volatile, writes continuously at high speeds to limit data loss, operates in harsh environments, and maintains endurance over long product lifecycles. To address these requirements, we designed our Toggle MRAM products to offer the persistence of non-volatile memory, speeds comparable to SRAM, reliability across a wide temperature range, and virtually unlimited write-cycles. We have designed our Toggle products to be compatible with industry standard interfaces, including standard SRAM,Parallel, Serial Peripheral Interface (SPI) and Quad SPI (QSPI) interfaces, enabling our customers to easily replace incumbentlegacy memory solutionscomponents like Static Random Access Memory (SRAM) and Ferroelectric Random Access Memory (FRAM) with Toggle MRAM. We have never had an end of life event for any of our Toggle MRAM solutions. We believe this has been importantproducts which enables our customers to design in a product with the assurance that it will be available for the initial success and early adoption of our Toggle products.many years to come. Spin-TransferSpin-transfer Torque MRAM
Our STT-MRAM products whichstarted production in 2017 and are currently shipping in 256Mb densities, are initially targeted for enterprise storage market, which includesand 1Gb densities. These high density, high performance Solid-State Drives (SSDs), Redundant array of independent disks (RAID) and server applications. Our customers require low latency, protection of data against power interruption and failure, high density and reliability. Our STT-MRAM products offer performance comparablepersistent memories are delivering significant value to DRAM, and are up to five orders of magnitude faster than flash block writes, non-volatile to protect against power loss, and offer endurance superior to Flash memory. We use our Perpendicular Magnetic Tunnel Junction (PMTJ) technology to deliver bit density and power efficiency increases to create a trueSSD, Persistent Memory solution. Our STT-MRAMCards, Fabric Accelerator, and other applications in the data center market. We offer these products are designed with derivative standard DDR3 and DDR4 derivative interfaces, whichfacilitating the replacement of battery-backed Dynamic Random Access Memory (DRAM) with STT-MRAM. In addition to having the capability to deliver STT-MRAM products into both SRAM and DRAM applications that require more robust data retention, STT-MRAM products can be used in traditional NOR markets with standardized SPI, QSPI, and Parallel interfaces. Due to the limitations of NOR scaling past 45nm and the fact that STT-MRAM is already available on a 22nm technology, we believe will facilitate market adoption of our products in the enterprise storagethere is potential for STT-MRAM to enter multiple non-volatile memory (NVM) markets where fast reads/writes, high cycle counts and server markets. extended data retention are required. Today, no viable single chip solution exists except STT-MRAM. TMR Sensors Our 1Gb density offering is currently in development. Embedded MRAM
We offer eMRAM to our customers for integration in their SoC solutions. We also enable GLOBALFOUNDRIES to offer eMRAM in the solutions they manufacture for their customers. Our embedded memory solutions offer3D Tunnel Magneto Resistance (TMR) sensors provide extremely high performance, low cost and low power and can be manufactured using standard CMOS. eMRAM offers significant advantages over existing embedded memory solutions, particularly in endurance, bandwidth, energy and area requirements, leakage and persistence. We believe our eMRAM solutions offer the performance benefits and process compatibility to become the embedded memory of choice for our current and future foundry partners.
Sensors
We have developed and are currently shipping a high performance, high-reliability magnetic sensor based on our Magnetic Tunnel Junction (MTJ) technology, which is at the core of our memory technology. Our magnetic sensor offers three-axis orientationsensitivity in a single die, and iscomponent that performs 3D magnetic field measurements in a monolithic solution. We offer these die-level devices to be integrated into consumer electronicselectronic applications as an electronic compass. that utilize a high sensitivity 3D compass function.
Licensing, Royalty, and Patent Overview We believeleverage our magneticbroad IP portfolio to enable licensing, royalty revenue streams, and patent sales from non-core applications that can derive valuable differentiation through the use of Everspin MRAM and TMR sensor technology can be usedIP. For example, this includes the following: | ● | We have licensed GLOBALFOUNDRIES to offer embedded MRAM in the solutions they manufacture for their customers providing high-performance non-volatile embedded memory. |
| ● | We have licensed base MRAM design technology (EAR99) for use in radiation tolerant aerospace applications to customers for their custom designs. |
| ● | We have licensed TMR sensor IP in 3D magnetic field sensing. |
| ● | We have evaluated patent sales by transferring, assigning, and delivering patents to customers. |
Foundry Services Overview In our Chandler facility, we perform BEOL manufacturing services for additional power management applications in the industrial,customers who want to add MRAM and automotive and transportation end markets. We currently license our magneticTMR sensor technologyfunctionality to third parties for their commercial use and plan to continue this strategy. Aerospace
Aerospacememory or application base circuits. These services allow aerospace and satellite electronic systems require memorysystem manufacturers to integrate our EAR99 technology that is able to withstand exposure to the levels of radiation encountered in avionics and space applications. MRAM is notapplications by virtue of such technology being magnetic rather than electrical charge based which would be susceptible to radiation induced errors because data is stored as a magnetic state rather than as an electrical charge. Aerospace and satellite equipment manufacturers license our technology for use in their electronic systems. Through license agreements, we provide manufacturing service and technology access to certain of our customers, and we sell products to value added subcontractors.alpha particles.
Our Technology
Memory Architecture
Our MRAM solutions are based on our MTJ technology, which writes data by establishing a stable magnetic state, and reads data by measuring the resistance of the MTJ. MTJ devices are multilayered structures, including thin metal and dielectric layers, which are fabricated with methods commonly used in semiconductor manufacturing. The resistance is determined by the orientation of the magnetic field in the free layer relative to the fixed layer.
Toggle MRAM Technology
Our Toggle MRAM technology uses a magnetic field to program, or write, bits. A significant advantage of this “field switching” is virtually unlimited write endurance, as reversing the free-layer magnetization with a magnetic field does not have any wear-out mechanism. Field Switched MRAM products are currently in production at the 180nm and 130nm nodes.
Field Switched MRAM bit cell. Each bit cell comprises an MTJ connected in series with a select transistor.
STT-MRAM Technology
Our STT-MRAM technologies use the spin-torque transfer property, which is the manipulation of the spin of electrons with a polarizing current, to establish the desired magnetic state of the free layer to program, or write, the bits in the memory array. Spin-transfer torque MRAM (STT-MRAM), provides a significant reduction in switching energy compared to Field-switched (Toggle) MRAM, and is highly scalable, enabling higher density memory products. Our STT-MRAM uses a Perpendicular MTJ. We have developed materials and Perpendicular MTJ stack designs with high perpendicular magnetic anisotropy, which provides long data retention, small cell size, greater density, high endurance and low power.
Schematic depiction of the Perpendicular MTJ bit cell
Embedded MRAM Technology
MRAM technology is more easily embedded than most other memory technologies, due to the way the MRAM module is integrated in standard CMOS. Since the MRAM module is inserted between metal layers in the back-end-of-line part of the fabrication process, above the transistor layers, it does not disturb the CMOS fabrication process. Integrating MRAM in standard CMOS for SoC applications does not impact the performance of the integrated circuit.
Sales and Marketing Our MRAM products are used by top-tier customers in the industrial, automotive and transportation, and enterprise storage markets.
We consider our customer to be the end customer purchasing either directly from a distributor, a contract manufacturer or us. An end customer purchasing through a contract manufacturer typically instructs the contract manufacturer to obtain our products and to incorporate our products with other components for sale by the contract manufacturer to the end customer. Although we actually sell the products to, and are paid by the distributors and contract manufacturers, we refer to the end customer as our customer.
During the year ended December 31, 2018, more than 800 end customers purchased our products. One customer accounted for more than 10% of our revenue during 2018. No end customers accounted for more than 10% of our revenue during 2017.
We sell our products through a direct sales channel and a network of representatives and distributors. The majority of our customers, and their associated contract manufacturers, buy our products through our distributors. We maintain sales, support, supply chain and logistics operations and have distributors in Asia to service the production needs of contract manufacturers such as Flextronics, Foxconn, Inventec and Sanmina.manufacturers. We also maintain direct selling relationships with several strategic customers. Our direct sales representatives are located in North America, the United Kingdom, Germany, Italy, Japan, Hong Kong, and Taiwan. Our typical sales cycle consists of a sales and development process in which our field engineers and sales personnel work closely with our customers’ design engineers. This process can take from three to 18 months to complete, and a successful sales cycle culminates in a design win. Note that some customers forof our newer STT-MRAM products may need to modify their controllers to integrate our technology, adding additional time to the cycle. Once we establish a relationship with a customer, we continue a sales process to maintain our position and to secure subsequent new design wins at the customer. Each customer lead, whether new or existing, is tracked through our CRM tool and followed in stages of prospect, design in, design win and production. This tracking results in a design win pipeline that provides a measure of the future business potential of the opportunities. We have established relationships with several storage controller and Field Programmable Gate Array (FPGA) companies, including Phison Electronics, Sage Micro, and Xilinx as well as IP core companies, including Cadence and Northwest Logic, to facilitate the integration of our MRAM solutions into our customers’ end products. Our technical support personnel have expertise in hardware and software, and have access to our development team to ensure proper service and support for our OEM customers. Our field application and engineering team provides technical training and design support to our customers. We consider our customer to be an end customer purchasing either directly from a distributor or a contract manufacturer, or a customer purchasing directly from us. An end customer purchasing through a contract manufacturer typically instructs the contract manufacturer to obtain our products and to incorporate our products with other components for sale by the contract manufacturer to the end customer. Although we actually sell the products to, and are paid by, the distributors and contract manufacturers, we refer to the end customer as our customer. our total revenue for the year ended December 31, 2021, and one of these customers accounted for more than 10% of our revenue during that period. Our four largest end customers together accounted for 45% of our total revenue for the year ended December 31, 2020, and one of these customers individually accounted for more than 10% of our total revenue during the period. Manufacturing We rely on third-party suppliers for most phases of the manufacturing process, including initial fabrication, final test, and assembly. Wafer Manufacturing We manufactureperform BEOL manufacturing for our Toggle MRAM products and provide foundry services for embedded MRAM, licensed MRAM products and MTJ-basedMagnetic Tunnel Junction (MTJ)-based sensors in our 200mm manufacturing facility. Our facility is in an ISO‑4ISO-4 clean room and our manufacturing line is ISO 9001:2015 certified. We actively manage inventory, including automated process flows, process controls and recipe management, and we use standard equipment to manufacture our products. Our STT-MRAM products are produced in a 300mm GLOBALFOUNDRIES fabrication facility.facilities operated by GLOBALFOUNDRIES. Assembly and Test We have designedOur product and test protocols to maximize yields at assemblyengineering teams develop and implement wafer-level and final test reduce manufacturing costs and improve quality. Our design and product engineering teams have developed and implemented wafer-level test programs to characterizefor the behaviormanufacture of our MRAM devices.
We create predictive modelsutilize third-party industry-leading assembly and test each of our parts to assure the reliability of the products in the field. We also add unique electronic part identification numbers to provide material traceability. To protect the Toggle MRAM devices from stray magnetic fields, we developed packaging solutions, which we have qualified at independent, industry-leading sub-contractors, including Amkor, OSE, GTC, ChipMos and UTAC. We have successfully qualified our MRAM devices in various packages at temperatures ranging from commercial to automotive grade. As part of our commitment to quality, our quality management system has been certified to ISO 9001:2015 and ISO 1400014001:2015 standards. Our foundry vendors and sub-contractors are also ISO 9001 and ISO 14001 certified.
STT-MRAM Arrangements with GLOBALFOUNDRIES
Joint Development Agreement OnSince October 17, 2014, we entered intohave participated in a joint development agreement with GLOBALFOUNDRIES Inc., a semiconductor foundry, for the joint development of our STT-MRAM technology.technology to produce a family of discrete and embedded MRAM technologies. The term of the agreement is the later of four years from the effective date or until the completion, termination, or expiration of the last statement of work entered into pursuant to the joint development agreement. The agreement was extended on December 31, 2019 to include a new phase of support for 12nm MRAM development.
The joint development agreement also states that the specific terms and conditions for the production and supply of the developed MRAM technology would be pursuant to a separate manufacturing agreement entered into between the parties. See “���STT-MRAM Manufacturing“Manufacturing Agreement” below. Under the joint development agreement, each party granted licenses to its relevant intellectual property to the other party. For certain jointly developed works, the parties have agreed to follow an invention allocation procedure to determine ownership. In addition, GLOBALFOUNDRIES possesses the exclusive right to manufacture our discrete and embedded Spin Transfer Torque MRAMSTT-MRAM devices developed pursuant to the agreement until the earlier of three years after the qualification of the MRAM device for a particular technology node or four years after the completion of the relevant statement of work under which the device was developed. For the same exclusivity period associated with the relevant device, GLOBALFOUNDRIES agreed not to license intellectual property developed in connection with the agreement to named competitors of ours. Generally, unless otherwise specified in the agreement or a statement of work, we and GLOBALFOUNDRIES share defined project costs equally under the joint development agreement. If GLOBALFOUNDRIES manufactures, sells, or transfers wafers containing production qualified MRAM devices that utilized certain Everspin design information to its customers, GLOBALFOUNDRIES will pay royalties to us for each such wafer transferred or sold to a customer.
Except for breaches of confidentiality provisions and each party’s indemnification obligations to one another under the agreement, liability under the agreement is capped at a range depending on project costs and royalty amounts. Either party may terminate the agreement if the other party materially breaches a term of the agreement, and fails to remedy the breach after receiving notice from the non-breaching party. If a party terminates the manufacturing agreement for material breach in accordance with its terms, that party may also terminate the joint development agreement. On May 27, 2016, we entered into an amendment to the joint development agreement to modify the payment schedule and to clarify our payment obligations for certain past project costs. Under the amendment, GLOBALFOUNDRIES may terminate the joint development agreement with us if we materially breach a term of the agreement, such as, but not limited to, by our failing to pay any undisputed sum which has been outstanding for 45 or more days from the date of invoice, and fail to remedy the breach within 60 days after receiving notice from GLOBALFOUNDRIES. In October 2018, we entered into the third amendment to the joint development agreement. The third amendment was effective as of January 1, 2018 and extended the term of the joint development agreement until December 2019. This extended agreement also modified our payment obligations for certain ongoing project costs. See “Risk Factors” for further discussion of our agreements with GLOBALFOUNDRIES.
STT-MRAM Manufacturing Agreement
On October 23, 2014, we entered into a manufacturing agreement with GLOBALFOUNDRIES Singapore Pte. Ltd. that sets forth the specific terms and conditions for the production and supply of wafers manufactured using our Spin Transfer Torque MRAMSTT-MRAM technology developed under the joint development agreement with GLOBALFOUNDRIES. Pursuant to that joint development agreement, GLOBALFOUNDRIES possesses certain exclusive rights to manufacture such wafers for our discrete and embedded STT-MRAM devices. Our manufacturing agreement with GLOBALFOUNDRIES includes a customary forecast and ordering mechanism for the supply of certain of our wafers, and we are obligated to order and pay for, and GLOBALFOUNDRIES is obligated to supply, wafers consistent with the binding portion of our forecast. GLOBALFOUNDRIES also has the ability to discontinue its manufacture of any of our wafers upon due notice and completion of the notice period. The initial term of the manufacturing agreement is for three years, which automatically renews for successive one year periods thereafter unless either party provides sufficient advance notice of non-renewal. Except for breaches of confidentiality provisions and each party’s indemnification obligations to one another under the agreement, liability under the agreement is capped at the lesser of a set amount or the total purchase price received by GLOBALFOUNDRIES from us in the twelve12 months immediately preceding the claim for the specific product that caused the damages. Either party may terminate the agreement if the other party materially breaches a term of the agreement, and fails to remedy the breach after receiving notice from the non-breaching party. GLOBALFOUNDRIES may terminate the agreement if we fail to pay any undisputed sum which has been outstanding for sixty or more days from the date of invoice. Backlog As of December 31, 2018,2021, our backlog was $13.0$47.4 million, compared to $13.7$17.7 million as of December 31, 2017,2020, and includes all purchase orders scheduled for delivery within the subsequent 12 months. Our business and, to a large extent, that of the entire semiconductor industry, is characterized by short-term orders and shipment schedules. Orders constituting our current backlog are subject to changes in delivery schedules, or to cancellation at the customer's option without significant penalty. Thus, while backlog is useful for scheduling production, backlog as of any particular date may not be a reliable measure of sales for any future period. CompetitionProduct Warranty
OurBecause the design and manufacturing process for semiconductor products allis highly complex, it is possible that we may produce products that do not comply with applicable specifications, contain defects, or are otherwise incompatible with end uses. In accordance with industry practice, we generally provide a limited warranty that our products are in compliance with applicable specifications existing at the time of which offer the persistencedelivery and will operate to those specifications during
a stated warranty period. Under our standard terms and conditions of sale, liability for certain failures of product during a stated warranty period is usually limited to repair or replacement of defective items or return of, or a credit with respect to, amounts paid for such items. Under certain circumstances, we provide more extensive limited warranty coverage than that provided under our standard terms and conditions. Competition As an emerging specialty memory with the speed and enduranceproduct supplier, we face intense competition from a wide variety of random accessother memory enable the protection of mission critical data particularly in the event of power interruption or failure. Our solutions are designed for use in applications in the industrial, automotive and transportation, and enterprise storage markets where the combination of high write-cycle endurance and fast write-speeds are of critical importance.technology manufacturers. Our principal competitors to our Toggle Field Switched MRAM products which are tailored primarily for the industrial, automotive and transportation, and enterprise storage markets, include companies that offer nonvolatile SRAM (NVSRAM), SRAM, and ferroelectric RAM (FRAM)FRAM products, such as Cypress,Infineon, Fujitsu, Integrated Silicon Solution (ISSI), Macronix, Microchip, Micron, Renesas, Samsung and Toshiba. Our STT-MRAM products are designed primarily for the enterprise storage market, which includes high performance SSDs, RAID systems and servers. Our STT-MRAM products are intended to replace DRAM-based solutions, which comprised DRAM and additional back-up power supply components,SRAM where persistence is required and thus compete with DRAM and SRAM suppliers such as super capacitors and batteries that are required to make DRAM persistent. Customers typically purchase DRAM and super capacitors and batteries from separate vendors, and pair them together in order to create a DRAM-based solution capable of protecting data against power interruption or loss. Companies that offer DRAM devices include Hynix, Micron, Samsung, and several other smaller companies. In the future we may also face competition from companies developing MRAM technologies, such as Avalanche, Spin Transfer Technologies, Samsung and other larger and smaller semiconductor companies. We may also face indirect competition from RRAM, 3D XPointresistive random-access memory (RRAM), NOR and NAND Flash manufacturers in some market applications.
Our sensor products compete with giant magnetoresistive (GMR), anisotropic magnetoresistive (AMR) and Hall effect sensors supplied by Alps, Asahi Kasei Microdevices, Crocus, Fairchild, Invensys (now Schneider), Kionix and Micronix.Micronix and TMR sensors from TDK. Our ability to compete successfully in the market for our products is based on a number of factors, including: | ·
● | | our productproducts’ attributes and specifications; |
| ·
● | | customer adoption of MRAM technology despite the price per bit premium of our products versesversus competing technologies; |
| ·
● | | successful controller supplier and customer engagements throughout the product life cycle; |
| ·
● | | high quality and reliability as measured by our customers; |
| ·
● | | the ease of implementation of our products by customers; |
| ·
● | | preferred supplier status at numerous customers and ODMs ODMs; |
| ·
● | | manufacturing expertise and strength; |
| ·
● | product manufacturing yield analysis and testing; |
| ● | manufacturing capacity and allocation; |
| ● | reputation and strength of customer relationships; |
| ·
● | | competitive pricing in the market against the competition while maintaining our gross margin profile; and |
and
| ·
● | | our success in meeting the needs of future customer requirements through continued development of new products. |
We believe we compete favorably with respect to each of these factors.
Intellectual Property Our success depends, in part, on our ability to protect our products and technologies from unauthorized third-party copying and use. To accomplish this, we rely on a combination of intellectual property rights, including patents, trade secrets, copyrights, and trademarks, as well as customary contractual protections. As of December 31, 2018,2021, we held 426534 issued patents that expire at various times between January 20192022 and December 2037,2038 and had 162124 patent applications pending. Included in our issued patents and pending applications are patents/applications in the United States, China, Europe, France, Germany, Ireland, Italy, Japan, the Netherlands, the Republic of Korea, Singapore, Taiwan, and the United Kingdom. We seek to file for patents that have broad application in the semiconductor industry and that would be helpful in the magnetoresistive memory and sensor markets. However, there can be no assurance that our pending patent applications or any future applications will be approved, that any issued patents will provide us with competitive advantages or will not be challenged by third parties, or that the patents or applications of others will not have an adverse effect on our ability to do business. In addition, there can be no assurance that others will not independently develop substantially equivalent intellectual property or otherwise gain access to our trade secrets or intellectual property, or disclose such intellectual property or trade secrets, or that we can effectively protect our intellectual property. We seek to enforce our IP and to monetize our patent portfolio through licensing of third parties and patent sales in return for cash remuneration, patent cross licenses or both. We recognized revenue from licensing our IP during the first quarter of 2018. See “Licensing, Royalty, and Patent Overview” for additional information. We generally control access to and use of our confidential information through employing internal and external controls, including contractual protections with employees, contractors, and customers. We rely in part on U.S. and international copyright laws to protect our mask work.intellectual property. All employees and consultants are required to execute confidentiality agreements in connection with their employment and consulting relationships with us. We also require them to agree to disclose and assign to us all inventions conceived or made in connection with the employment or consulting relationship. Environmental Regulation We must comply with many different federal, state, local and foreign governmental regulations related to the use, storage, discharge and disposal of certain chemicals and gases used in our manufacturing processes. Our facilities have been designed to comply with these regulations and we believe that our activities are conducted in material compliance with such regulations. Any changes in such regulations or in their enforcement could require us to acquire costly equipment or to incur other significant expenses to comply with environmental regulations. Any failure by us to adequately control the storage, use, discharge, and disposal of regulated substances could result in significant future liabilities. Increasing public attention has been focused on the environmental impact of electronic manufacturing operations. While we have not experienced any materially adverse effects on our operations from recently adopted environmental regulations, our business and results of operations could suffer if for any reason we fail to control the storage or use of, or to adequately restrict the discharge or disposal of, hazardous substances under present or future environmental regulations.
Employees At December 31, 2018,2021, we had 9575 total employees in the United States, all of which were full-time employees, and 27 full time16 full-time equivalent and 3 part-time equivalent contractors and consultants in China, Germany, Italy, Japan, Singapore, China, Taiwan, Japan, the Republic of Korea, the United Kingdom, the United States and Italy.Taiwan. None of our employees are either represented by a labor union or subject to a collective bargaining agreement. We have not experienced any work stoppages, and we consider our relations with our employees and contractors to be good. Corporate Information We were incorporated in Delaware in May 2008. In June 2008, Freescale Semiconductor, Inc. (now a wholly-owned subsidiary of NXP Semiconductors N.V.), spun-out its MRAM business as Everspin. Our offices are located at 5670 W. Chandler Boulevard, Suite 100,130, Chandler, Arizona 85226. Our telephone number is (480) 347-1111. Our corporate website is at www.Everspin.com. Available Information Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (Exchange Act), are available free of charge on our website.website, as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. The information contained on or that can be accessed through our website is not incorporated by reference into this report, and you should not consider information on our website should not be considered to be part of this report. ItemITEM 1A. Risk Factors.Factors
The following are important factors that could cause actual results or events to differ materially from those contained in any forward-looking statements made by us or on our behalf. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we deem immaterial also may impair our business operations. If any of the following risks or such other risks actually occurs, our business, financial condition, results of operations and cash flows could be harmed.In addition, many of the following risks and uncertainties may be exacerbated by the ongoing COVID-19 pandemic, including any new variants that may become predominant, and any worsening of the global business and economic environment as a result. Risk Factors Related to Our BusinessFinancial Condition and Our IndustryIndebtedness We may need additional funding and may be unable to raise capital when needed, which could force us to delay, reduce, or eliminate planned activities. Our total revenue was approximately $55.1 million for the year ended December 31, 2021, and $42.0 million for the year ended December 31, 2020. As of December 31, 2021, we had cash and cash equivalents of approximately $21.4 million. Based on our current operating plan, we believe our existing cash and cash equivalents, coupled with availability under our credit facility and our anticipated growth and sales levels, will be sufficient to meet our anticipated cash requirements for at least the next 12 months. However, our existing capital may be insufficient to meet our long-term requirements. We have no committed sources of funding other than our revolving line of credit facility and there is no assurance that additional funding will be available to us in the future or be secured on acceptable terms. If adequate funding is not available when needed, we may be forced to curtail operations, including our commercial activities and research and development programs, or cease operations altogether, file for bankruptcy, or undertake any combination of the foregoing. In such event, our stockholders may lose their entire investment in our company. Further, we may need to raise additional funds through financings or borrowings in order to accomplish our long-term planned objectives. If we raise additional funds through issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences, and privileges senior to those of holders of our common stock. In addition, if we do not meet our payment obligations to third parties as they become due, we may be subject to litigation claims and our creditworthiness would be adversely affected. Even if we are successful in defending against these claims, litigation could result in substantial costs and would be a distraction to management, and may have other unfavorable results that could further adversely impact our financial condition. Stockholders should not rely on our balance sheet as an indication of the amount of proceeds that would be available to satisfy claims of creditors, and potentially be available for distribution to stockholders, in the event of liquidation. We have a history of losses, which may continue in the future, and we cannot be certain that we will achieve or sustain profitability. We
Although we generated net income of $4.3 million for the year ended December 31, 2021, we have historically incurred net losses since our inception. We incurred net losses of $17.8 million and $21.1 million forFor the yearsyear ended December 31, 2018 and 2017, respectively.2020, we incurred a net loss of $8.5 million. As of December 31, 2018,2021, we had an accumulated deficit of $134.0$152.8 million. We expect to incur significant expenses related to the continued development and expansion of our business, including in connection with our efforts to develop and improve upon our products and technology, maintain and enhance our research and development and sales and marketing activities and hire additional personnel. While our products offer unique benefits over other industry memory technologies, the rate of adoption of our per-bitproducts and our ability to capture market share from legacy technologies is uncertain. Our revenue may also be adversely impacted by a number of other possible reasons, many of which are outside our control, including business conditions that adversely affect the semiconductor memory industry resulting in a decline in end market demand for our products, adverse impacts resulting from the COVID-19 pandemic, increased competition, ongoing supply chain constraints, or our failure to capitalize on growth opportunities. We also rely on achieving specific cost reduction targets that have uncertainty in their timing and magnitude. We may also incur unforeseen expenses in the ongoing operation of our business that cause us to productexceed our product is currently higher than competing technologies.operational spending plan. As a result, our ability to capture market share and generate sufficient revenue growth and/or controlling expenses to transition to profitability and generate consistent positive cash flows is uncertain. We do not know whether Provisions of our revenue will grow rapidly enoughcredit facility may restrict our ability to absorb these costs,pursue our business strategies. Borrowings under our existing credit facility are secured by substantially all of our assets, except for intellectual property. Additionally, the operating restrictions and covenants relating to our limited operating history makes it difficultexisting credit facility restrict, and any future financing agreements that we may enter into may further restrict, our ability to assess the extentfinance our operations, engage in business activities or their impactexpand or fully pursue our business strategies. For example, our existing credit facility prohibits our ability to, among other things: ● dispose of or sell assets; ● consolidate or merge with other entities; ● incur additional indebtedness; ● create liens on our resultsassets; ● pay dividends; ● make investments; ● enter into transactions with affiliates; and ● redeem subordinated indebtedness. These restrictions are subject to certain exceptions. In addition, our existing credit facility requires that we meet certain operating covenants, such as maintaining insurance on the collateral and meeting certain financial covenants, such as maintaining a minimum cash balance and availability under our revolving line of operations. Further, our revenuecredit facility. Our ability to comply with these covenants may not increase or may decline for a number of possible reasons, many of which are outsidebe affected by events beyond our control, including a decline in demand for our products, increased competition, business conditions that adversely affect the semiconductor memory industry, including reduced demand for products in the end markets that we serve, or our failure to capitalize on growth opportunities. If we fail to generate sufficient revenue to support our operations, we may not be able to achieve or sustain profitability. If revenue does not grow sufficiently,and we may not be able to meet those covenants. A breach of any of these covenants could result in an event of default under the credit facility. We are required to make mandatory prepayments of the outstanding loan upon the acceleration by lender following the occurrence of an event of default, along with a payment of the end of term fee, the prepayment fee and any other obligations that are due and payable at the time of prepayment. In the event of default, the interest rate in effect will increase by 5.0% per annum.
Risk Factors Related to Our Business and Our Industry The ongoing COVID-19 global pandemic has adversely affected, and is expected to continue to adversely affect, our debt covenants,business, results of operations and financial condition. The widespread outbreak of any other illnesses or communicable diseases could also adversely affect our business, results of operations and financial condition. We could be negatively impacted by the widespread outbreak of an illness, any other communicable disease or any other public health crisis that results in economic and trade disruptions, including the liquidity ratiodisruption of global supply chains. In late 2019, there was an outbreak of a new strain of coronavirus, COVID-19, which has since spread globally. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. Further, the COVID-19 outbreak has resulted in government authorities around the world implementing numerous measures to try to reduce the spread of COVID-19, such as travel bans and sales targets.restrictions, quarantines, “shelter-in-place,” “stay-at-home,” total lock-down orders, business limitations or shutdowns and similar orders. More recently, new variants of COVID-19, such as the Omicron variant, that are significantly more contagious than previous strains have emerged. The spread of these new strains have caused many government authorities and businesses to reimplement the aforementioned measures to try to reduce the spread that had become less prevalent. The COVID-19 pandemic and its variants have negatively impacted the global economy, disrupted global supply chains and workforce participation, and initially created significant volatility and disruption of financial markets. Our
As a result of the COVID-19 pandemic and the related responses from government authorities, our business, results of operations and financial condition have been adversely impacted. For example, we have experienced electronics supply chain and demand disruptions from extended factory shutdowns, particularly in some Asian countries, which created unusual order patterns, and subsequently slowed Toggle MRAM demand, particularly from our industrial customers. Further, in an effort to protect the health and safety of our employees, we took the following actions: transitioned most of our office and support employees and contractors to working from home; suspended all non-essential business travel; and implemented social distancing guidelines for our employees and contractors who must work in our manufacturing and laboratory locations. Additionally, our business, results of operations and financial condition have been and may be further impacted in several ways, including, but not limited to, the following: | ● | further disruptions to our operations, including due to additional facility closures, restrictions on our operations and sales, marketing and distribution efforts and/or interruptions to our research and development activities, product development and other important business activities; |
| ● | further reduced demand for our products, particularly due to disruptions to the businesses and operations of our customers; |
| ● | interruptions, availability or delays in global shipping to transport our products; |
| ● | further slowdowns, stoppages or other limitations in the supply chain for our products, in addition to higher costs, such as due to suppliers raising prices; |
| ● | limitations on employee resources and availability, including due to sickness, government restrictions, labor supply shortages, and the desire of employees to avoid contact with large groups of people or mass transit disruptions; |
| ● | a continuation or worsening of general economic conditions, including increased inflation; |
| ● | greater difficulty in collecting customer receivables; |
| ● | a fluctuation in foreign currency exchange rates or interest rates could result from market uncertainties; and |
| ● | an increase in the cost or the difficulty to obtain debt or equity financing could affect our financial condition or our ability to fund operations or future investment opportunities. |
Additionally, COVID-19 could impact our internal controls over financial reporting as a portion of our workforce is required to work from home and therefore new processes, procedures, and controls could be required to respond to changes in our business environment. Further, should any key employees become ill from COVID-19 and unable to work, the attention of the management team could be diverted. The emergence of different variants of COVID-19 and the prevalence of breakthrough cases of infection among fully vaccinated people adds additional uncertainty and could result in further impacts to our business and operations, including those discussed above. Although we will continue to monitor the situation and take further actions, which may include further altering our operations, in order to protect the best interests of our employees, customers and suppliers and comply with government requirements, there is no certainty that such measures will be enough to mitigate the risks posed by the virus, and our ability to perform critical functions could be harmed. Any of the foregoing could adversely affect our business, results of operations and financial condition. The potential effects of COVID-19 may also impact many of our other risk factors discussed in this “Risk Factors” section. The ultimate extent of the impact of the COVID-19 pandemic on our business, results of operations and financial condition will depend on future developments, which are highly uncertain, continuously evolving and cannot be predicted, including, but not limited to, the duration and spread of the COVID-19 outbreak and its severity; the emergence and severity of its variants; the actions to contain the virus or treat its impact, such as the availability and efficacy of vaccines (particularly with respect to emerging strains of the virus) and potential hesitancy to use them; general economic factors, such as increased inflation; supply chain restraints; labor supply issues; and how quickly and to what extent normal economic and operating conditions can resume. The limited history of making our STT-MRAM productsadoption makes it difficult to evaluate our current business and future prospects. We have been in existence as a stand-alone company since 2008, when Freescale Semiconductor, Inc. (subsequently acquired by NXP Semiconductor) spun-out its MRAM business as Everspin. We have been shipping magnetoresistive random accessrandom-access memory (MRAM) products since our incorporation in 2008. However, we only began to manufacture and ship our Spin Transfer Torque MRAM (STT-MRAM) products in the fourth quarter of 2017. Our limited experience selling our STT-MRAM products, combined with the rapidly evolving and competitive nature of our market, makes it difficult to evaluate our current business and future prospects. In addition, we have limited insight into emerging trends that may adversely affect our business, financial condition, results of operations and prospects. We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly changing industries, including unpredictable and volatile revenue and increased expenses as we continue to grow our business. The viability and demand for our products may be affected by many factors outside of our control, such as the factors affecting the growth of the industrial, automotive, and transportation, and enterprise storage industriesdata center market segments and changes in macroeconomic conditions. If we do not manage these risks and overcome these difficulties successfully, our business will suffer. We may be unable to match production with customer demand for a variety of reasons including our inability to accurately forecast customer demand, supply chain constraints, or the capacity constraints of our suppliers, which could adversely affect our operating results. We make planning and spending decisions, including determining production levels, production schedules, component procurement commitments, personnel needs, and other resource requirements, based on our estimates of product demand and customer requirements. Our products are typically purchased pursuant to individual purchase orders. While our customers may provide us with their demand forecasts, they are not contractually committed to buy any quantity of products beyond purchase orders. Furthermore, many of our customers may increase, decrease, cancel, or delay purchase orders already in place without significant penalty. The short-term nature of commitments by our customers and the possibility of unexpected changes in demand for their products reduce our ability to accurately estimate future customer requirements. On occasion, customers may require rapid increases in production, which can strain our resources, necessitate more onerous procurement commitments, and reduce our gross margin. If we overestimate customer demand, we may purchase products that we may not be able to sell, which could result in decreases in our prices or write-downs of unsold inventory. Conversely, if we underestimate customer demand or if sufficient manufacturing capacity is unavailable, we could lose sales opportunities and could lose market share or damage our customer relationships.relationships if, for example, we underestimate customer demand, are affected by supply chain constraints, or sufficient manufacturing is unavailable. We manufacture MRAM products at our 200mm facility we lease in Chandler, Arizona and use a single foundry, GLOBALFOUNDRIES, for production of higher density products on advanced technology nodes, which may not have sufficient capacity to meet customer demand. The rapid pace of innovation in our industry could also render significant portions of our inventory obsolete. Excess or obsolete inventory levels could result in unexpected expenses or write-downs of inventory values that could adversely affect our business, operating results, and financial condition. We may require additional capital to fund our business, which may not be available to us on favorable terms or at all.
We believe that our existing cash and cash equivalents as of December 31, 2018, coupled with our anticipated growth and sales levels will be sufficient to meet our anticipated cash requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of our spending to support research and development activities, the timing and cost of establishing additional sales and marketing capabilities, and the introduction of new products. We may be required to seek additional equity or debt financing, and we cannot assure you that any such additional financing will be available to us on acceptable terms or at all. If we are unable to raise additional capital or generate sufficient cash from operations to adequately fund our operations, we will need to curtail planned activities to reduce costs. Doing so will likely harm our ability to execute on our business plan.
If we raise additional funds through issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited.
As we expand into new potential markets, we expect to face intense competition, including from our customers and potential customers, and may not be able to compete effectively, which could harm our business. We expect that our new and future MRAM products will be applicable to markets in which we are not currently operating. Selling into such new markets, could put us into direct competition with our current or potential customers or other competitors with substantially more resources and experience than us. The markets in which we operate and may operate in the future are extremely competitive and are characterized by rapid technological change, continuous evolving customer requirements and declining average selling prices. We may not be able to compete successfully against current or potential competitors, which include our current or potential customers as they seek to internally develop solutions competitive with ours or as we develop products potentially competitive with their existing products. If we do not compete successfully, our market share and revenue may decline. We compete with large semiconductor manufacturers and designers and others, and our current and potential competitors have longer operating histories, significantly greater resources and name recognition and a larger base of customers than we do. This may allow them to respond more quickly than we can to new or emerging technologies or changes in customer requirements. In addition, these competitors may have greater credibility with our existing and potential customers. Some of our current and potential customers with their own internally developed solutions may choose not to purchase products from third-party suppliers like us. We rely on third parties to distribute, manufacture, package, assemble and test our products, which exposes us to a number of risks, including reduced control over manufacturing and delivery timing and potential exposure to price fluctuations, which could result in a loss of revenue or reduced profitability. Although we operate an integrated magnetic fabrication line located in Chandler, Arizona, we purchase wafers from third parties and outsource the manufacturing, packaging, assembly and testing of our products to third-party foundries and assembly and testing service providers. We use a single foundry, GLOBALFOUNDRIES Singapore Pte. Ltd., for production of higher density products on advanced technology nodes. Our primary product package and test operations are located in China, Taiwan and other Asian countries. We also use standard CMOS wafers from third-party foundries, which we process at our Chandler, Arizona facility. Relying on third-party distribution, manufacturing, assembly, packaging, and testing presents a number of risks, including but not limited to: | ·
| | our interests could diverge from those of our foundries, or we may not be able to agree with them on ongoing development, manufacturing and operational activities, or on the amount, timing, or nature of further investments in our joint development;
|
| ·
| | ● our interests could diverge from those of our foundries, or we may not be able to agree with them on ongoing development, manufacturing and operational activities, or on the amount, timing, or nature of further investments in our joint development; ●capacity and materials shortages during periods of high demand; |
| ·
| | reduced control over delivery schedules, inventories and quality;
|
| ·
| | the unavailability of, or potential delays in obtaining access to, key process technologies;
|
| ·
| | the inability to achieve required production or test capacity and acceptable yields on a timely basis;
|
| ·
| | misappropriation of our intellectual property;
|
| ·
| | the third party’s ability to perform its obligations due to bankruptcy or other financial constraints;
|
| ·
| | exclusive representatives for certain customer engagements;
|
| ·
| | limited warranties on wafers or products supplied to us; and
|
| ·
| | potential increases in prices.
|
We currently do not have long-term supply contracts with our third-party contract manufacturers for our MRAM products, including NXP, United Microelectronics Corporation, Taiwan Semiconductor Manufacturing Company, Limited (TSMC), United Test and Assembly Center (UTAC), Global Testing Corporation (GTC), ChipMos, OSE Taiwan, and Amkor, and we typically negotiate pricing on a per-purchase order basis and in some cases on an annual basis. Therefore, they are not obligated to perform services or supply components to us for any specific period, in any specific quantities, or at any specific price, except as may be provided in a particular purchase order. During periods of high demand or supply constraints;
● reduced control over delivery schedules, inventories and tight inventories,quality; ● the unavailability of, or potential delays in obtaining access to, key process technologies; ● the inability to achieve required production or test capacity and acceptable yields on a timely basis; ● misappropriation of our third-party foundriesintellectual property; ● the third party’s ability to perform its obligations due to bankruptcy or other financial constraints; ● exclusive representatives for certain customer engagements; ● limited warranties on wafers or products supplied to us; and packaging, assembly and testing contractors may allocate capacity ●potential increases in prices including due to the production of other companies’ products while reducing deliveries to us, or significantly raise their prices. In particular, they may allocate capacity to other customers that are larger and better financed than us or that have long-term agreements, decreasing the capacity available to us. Shortages of capacity available to us may be caused by the actions of their other, large customers that may be difficult to predict, such as major product launches.inflation. Our manufacturing agreement with GLOBALFOUNDRIES includes a customary forecast and ordering mechanism for the supply of certain of our wafers, and we are obligated to order and pay for, and GLOBALFOUNDRIES is obligated to supply, wafers consistent with the binding portion of our forecast. However, our manufacturing arrangement is also subject to both a minimum and maximum order quantity that while we believe currently addresses our projected foundry capacity needs, may not address our maximum foundry capacity requirements in the future. We may also be obligated to pay for unused capacity if our demand decreases in the future, or if our estimates prove inaccurate. GLOBALFOUNDRIES also has the ability to discontinue its manufacture of any of our wafers upon due notice and completion of the notice period. This could cause us to have to find another foundry to manufacture those wafers or redesign our core technology and would mean that we may not have products to sell until such time. Any time spent engaging a new manufacturer or redesigning our core technology could be costly and time consuming and may allow potential competitors to take opportunities in the market place.marketplace. Moreover, if we are unable to find another foundry to manufacture our products or if we have to redesign our core technology, this could cause material harm to our business and operating results. If we need other foundries or packaging, assembly, and testing contractors, or if we are unable to obtain timely and adequate deliveries from our providers, we might not be able to cost-effectively and quickly retain other vendors to satisfy our requirements. Because the lead-timelead time needed to establish a relationship with a new third-party supplier could be several quarters, there is no readily available alternative source of supply for any specific component. In addition, the time and expense to qualify a new foundry could result in additional expense, diversion of resources or lost sales, any of which would negatively impact our financial results. If any of our current or future foundries or packaging, assembly and testing subcontractors significantly increases the costs of wafers or other materials or services, interrupts or reduces our supply, including for reasons outside of their control, such as due to the COVID-19 pandemic, or if any of our relationships with our suppliers is terminated, our operating results could be adversely affected. Such occurrences could also damage our customer relationships, result in lost revenue, cause a loss in market share, or damage our reputation. Disruptions in our supply chain may adversely impact our ability to fulfill customer demand which, in turn, may adversely impact our business, results of operations and financial condition. If we fail to procure sufficient components used in our products, we may be unable to deliver our products to our customers on a timely basis, which could lead to customer dissatisfaction and could harm our reputation and ability to compete. We would likely experience significant delays or cessation in producing some of our products if a labor strike, natural disaster, public health crisis or other supply disruption were to occur, including as a result of the COVID-19 pandemic, at any of our main suppliers. In particular, the upturn in the semiconductor industry has stretched the supply chain, and we are subject to supply shortages, as well as higher costs as suppliers opportunistically raise prices. For example, there is currently a worldwide shortage of semiconductor, memory and other electronic components affecting many industries. Our products are dependent on some of these electronic components. A continued shortage of electronic components may impact us significantly and could cause us to experience extended lead times and increased prices from our suppliers, which could be significant. Extended lead times and decreased availability of key components could result in a significant disruption to our production schedule, all of which would have an adverse effect on our business, results of operations and financial condition. We do not have any guarantees of supply from our third-party suppliers, and in certain cases we have limited contractual arrangements or are relying on standard purchase orders or on component parts available on the open market, which may further result in increased costs combined with reduced availability. A continued delay in our ability to produce and deliver our products could also cause our customers to purchase alternative products from our competitors and/or harm our reputation. Our joint development agreement and strategic relationships involve numerous risks. We have entered into strategic relationships to manufacture products and develop new manufacturing process technologies and products. These relationships include our joint development agreement with GLOBALFOUNDRIES to develop advanced MTJ technology and STT-MRAM. These relationships are subject to various risks that could adversely affect the value of our investments and our results of operations. These risks include the following: | ·
| | our interests could diverge from those of our foundries, or we may not be able to agree with them on ongoing development, manufacturing and operational activities, or on the amount, timing, or nature of further investments in our joint development;
|
| ·
| | we may experience difficulties in transferring technology to a foundry;
|
| ·
| | we may experience difficulties and delays in getting to and/or ramping production at foundries;
|
| ·
| | our control over the operations of foundries is limited;
|
| ·
| | due to financial constraints, our joint development collaborators may be unable to meet their commitments to us and may pose credit risks for our transactions with them;
|
| ·
| | due to differing business models or long-term business goals, our collaborators may decide not to join us in funding capital investment, which may result in higher levels of cash expenditures by us;
|
| ·
| | our cash flows may be inadequate to fund increased capital requirements;
|
| ·
| | we may experience difficulties or delays in collecting amounts due to us from our collaborators;
|
| ·
| | the terms of our arrangements may turn out to be unfavorable;
|
| ·
| | we are migrating toward a fabless model as 300mm production becomes required and this increases risks related to less control over our critical production processes; and
|
| ·
| | changes in tax, legal, or regulatory requirements may necessitate changes in our agreements.
|
In addition, under
● our interests could diverge from those of our foundries, or we may not be able to agree with them on ongoing development, manufacturing and operational activities, or on the amount, timing, or nature of further investments in our joint development; ● we may experience difficulties in transferring technology to a foundry; ● we may experience difficulties and delays in getting to and/or ramping production at foundries; ● our control over the operations of foundries is limited; ● due to financial constraints, our joint development collaborators may be unable to meet their commitments to us and may pose credit risks for our transactions with them; ● due to differing business models or long-term business goals, our collaborators may decide not to join us in funding capital investment, which may result in higher levels of cash expenditures by us; ● our cash flows may be inadequate to fund increased capital requirements; ● we may experience difficulties or delays in collecting amounts due to us from our collaborators; ● the terms of our joint developmentarrangements may turn out to be unfavorable; ● we are migrating toward a fabless model as 300mm production becomes required and this increases risks related to less control over our critical production processes; and ● changes in tax, legal, or regulatory requirements may necessitate changes in our agreements. The term of the agreement, with GLOBALFOUNDRIES, we shareas amended, is the development costs. Further, our joint development agreement expires in December 2019 unless a statementcompletion, termination, or expiration of work is in place at that time, in which case it expires on the date the last statement of work is finished. If GLOBALFOUNDRIES fails entered into pursuant to extend or terminates the joint development agreement, our ability to continue to develop our MRAM technology will be significantly impaired.agreement. If our strategic relationships are unsuccessful, our business, results of operations, or financial condition may be materially adversely affected. The market for semiconductor memory products is characterized by declines in average selling prices, which we expect to continue, and which could negatively affect our revenue and margins. Our customers for some of our products may see the average selling price of competitive products decrease year-over-year and we expect this trend to continue. When such pricing declines occur, we may not be able to mitigate the effects by selling more or higher margin units, or by reducing our manufacturing costs. In such circumstances, our operating results could be materially and adversely affected. Our stand-alone and embedded MRAM products have experienced declining average selling prices over their life cycle. The rate of decline may be affected by a number of factors, including relative supply and demand, the level of competition, production costs and technological changes. As a result of the decreasing average selling prices of our products following their launch, our ability to increase or maintain our margins depends on our ability to introduce new or enhanced products with higher average selling prices and to reduce our per-unit cost of sales and our operating costs. We may not be able to reduce our costs as rapidly as companies that operate their own manufacturing, assembly and testing facilities, and our costs may even increase because we rely in part on third parties to manufacture, assemble and test our products, which could also reduce our gross margins. In addition, our new or enhanced products may not be as successful or enjoy as high margins as we expect. If we are unable to offset any reductions in average selling prices by introducing new products with higher average selling prices or reducing our costs, our revenue and margins will be negatively affected and may decrease. The semiconductor memory market is highly cyclical and has experienced severe downturns in the past, generally as a result of wide fluctuations in supply and demand, constant and rapid technological change, continuous new product introductions and price erosion. During downturns, periods of intense competition, or the presence of oversupply in the industry, the selling prices for our products may decline at a high rate over relatively short time periods as compared to historical rates of decline. We are unable to predict selling prices for any future periods and may experience unanticipated, sharp declines in selling prices for our products. Unfavorable economic and market conditions, domestically and internationally, may adversely affect our business, financial condition, results of operations and cash flows.
We have significant customer sales both in the U.S. and internationally. We also rely on domestic and international suppliers, manufacturing partners and distributors. We are therefore susceptible to adverse U.S. and international economic and market conditions. If any of our manufacturing partners, customers, distributors or suppliers experience serious financial difficulties or cease operations, our business will be adversely affected. In addition, the adverse impact of an unfavorable economy may adversely impact customer spending, which may adversely impact demand for our products.
Further, increasing trade tensions and tariffs, particularly with China, may increase the costs we incur to produce our products. Although we are seeking to qualify alternative suppliers and facilities in the event that it becomes necessary to obtain materials from other sources to limit the effect of tariffs, there is no guarantee that we will be able to do so or, if we are, that these alternative sources will fully mitigate the effect that tariffs and other trade restrictions will have on our business, which may have an adverse effect on our financial condition and results of operations.
We must continuously develop new and enhanced products, and if we are unable to successfully market our new and enhanced products for which we incur significant expenses to develop, our results of operations and financial condition will be materially adversely affected. To compete effectively in our markets, we must continually design, develop, and introduce new and improved technology and products with improved features in a cost-effective manner in response to changing technologies and market demand. This requires us to devote substantial financial and other resources to research and development. We are developing new technology and products, which we expect to be one of the drivers of our revenue growth in the future. However, as it is taking us longer than we expected to develop our 1Gb STT-MRAM product, we may not succeed in developing and marketing this and other new and enhanced products. We also face the risk that customers may not value or be willing to bear the cost of incorporating our new and enhanced products into their products, particularly if they believe their customers are satisfied with current solutions. Regardless of the improved features or superior performance of our new and enhanced products, customers may be unwilling to adopt our solutions due to design or pricing constraints, or because they do not want to rely on a single or limited supply source. Because of the extensive time and resources that we invest in developing new and enhanced products, if we are unable to sell customers our new products, our revenue could decline and our business, financial condition, results of operations and cash flows would be negatively affected. For example, we generated limited revenue from sales of our STT-MRAM products to date. While we expect revenue from our STT-MRAM products to increase, if we are unable to generate more customer adoption of our 256Mb1Gb product and scale MRAM to gigabit densities to address applications currently served by DRAM,new growth opportunities with subsequent STT-MRAM products, we may not be able to materially increase our revenue. If we are unable to successfully develop and market our new and enhanced products that we have incurred significant expenses developing, our results of operations and financial condition will be materially and adversely affected. Our success and future revenue depend on our ability to secure design wins and on our customers’ ability to successfully sell the products that incorporate our solutions. Securing design wins is a lengthy, expensive, and competitive process, and may not result in actual orders and sales, which could cause our revenue to decline. We sell to customers, including OEMs and ODMs, that incorporate MRAM into their products. A design win occurs after a customer has tested our product, verified that it meets the customer’s requirements and qualified our solutions for their products. We believe we are dependent, among other things, on the adoption of our 256Mb and 1Gb MRAM products by our customers to secure design wins. In the fourth quarter of 2017, we recorded revenue for our first sale of 40nm 256Mb STT-MRAM products and we ramped up production in 2018 and into 2019. To date we have not sold any of our 1Gb MRAM products. Our customers may need several months to years to test, evaluate, and adopt our product and additional time to begin volume production of the product that incorporates our solution. Due to this generally lengthy design cycle, we may experience significant delays from the time we increase our operating expenses and make investments in our products to the time that we generate revenue from sales of these products. Moreover, even if a customer selects our solution, we cannot guarantee that this will result in any sales of our products, as the customer may ultimately change or cancel its product plans, or efforts by our customer to market and sell its product may not be successful. We may not generate any revenue from design wins after incurring the associated costs, which would cause our business and operating results to suffer. Any further delay in the development of our 1Gb MRAM product, or failure of our customers to adopt our 1Gb MRAM products, could inhibit revenue growth or cause declines, which would significantly harm our business and prevent us from becoming profitable.
If a current or prospective customer designsincorporates a competitor’s solution into its product, it becomes significantly more difficult for us to sell our solutions to that customer because changing suppliers involves significant time, cost, effort, and risk for the customer even if our solutions are superior to other solutions and remain compatible with their product design. Our ability to compete successfully depends on customers viewing us as a stable and reliable supplier to mission criticalmission-critical customer applications when we have less production capacity and less financial resources compared to most of our larger competitors. If current or prospective customers do not include our solutions in their products and we fail to achieve a sufficient number of design wins, our results of operations and business may be harmed. We rely on our relationships with original equipment manufacturers (OEMs) and original design manufacturers (ODMs) to enhance our solutions and market position, and our failure to continue to develop or maintain such relationships in the future would harm our ability to remain competitive.
We develop our products for leading OEMs and ODMs that serve a variety of end markets and are developing devices for automotive and transportation, industrial and storage applications. For each application, manufacturers create products that incorporate specialized semiconductor technology, which makers of memory products use as the basis for their products. These manufacturers set the specifications for many of the key components to be used on each generation of their products and, in the case of memory components, generally qualify only a few vendors to provide memory components for their products. As each new generation of their products is released, vendors are validated in a similar fashion. We must work closely with OEMs and ODMs to ensure our products become qualified for use in their products. As a result, maintaining close relationships with leading OEMs and ODMs that are developing devices for automotive and transportation, industrial and storage applications is crucial to the long-term success of our business. We could lose these relationships for a variety of reasons, including our failure to qualify as a vendor, our failure to demonstrate the value of our new solutions, declines in product quality, or if OEMs or ODMs seek to work with vendors with broader product suites, greater production capacity or greater financial resources. If our relationships with key industry participants were to deteriorate or if our solutions were not qualified by our customers, our market position and revenue could be materially and adversely affected.
The loss of one or several of our customers or reduced orders or pricing from existing customers may have a significant adverse effect on our operations and financial results. We have derived and expect to continue to derive a significant portion of our revenues from a small group of customers during any particular period due in part to the concentration of market share in the semiconductor industry. Our four largest end customers together accounted for 29%47% of our total revenue for the year ended December 31, 2018,2021, and one of these customers individually accounted for more than 10% of our total revenue during thethat period. Our four largest end customers together accounted for 28%45% of our total revenue for the year ended December 31, 2017, but none2020, and one of these customers individually accounted for more than 10% of our total revenue during the period. The loss of a significant customer, a business combination among our customers, a reduction in orders or decrease in price from a significant customer or disruption in any of our commercial or distributor arrangements may result in a significant decline in our revenues and could have a material adverse effect on our business, liquidity, results of operations, financial condition, and cash flows. Our results of operations can fluctuate from period to period, which could cause our share price to fluctuate.
Our results of operations have fluctuated in the past and may fluctuate from period to period in the future due to a variety of factors, many of which are beyond our control. Factors relating to our business that may contribute to these fluctuations include the following factors, as well as other factors described elsewhere in this report:
| ·
| | the receipt, reduction, delay or cancellation of orders by large customers;
|
| ·
| | the gain or loss of significant customers or distributors;
|
| ·
| | the timing and success of our launch of new or enhanced products and those of our competitors;
|
| ·
| | market acceptance of our products and our customers’ products;
|
| ·
| | the level of growth or decline in the industrial, automotive and transportation, enterprise storage and other markets;
|
| ·
| | the timing and extent of research and development and sales and marketing expenditures;
|
| ·
| | the amount and timing of operating expenses related to the maintenance and expansion of our business, operations and infrastructure;
|
| ·
| | changes in our product mix;
|
| ·
| | our ability to reduce the manufacturing costs of our products;
|
| ·
| | competitive pressures resulting in lower than expected average selling prices;
|
| ·
| | fluctuations in sales by and inventory levels of OEMs and ODMs that incorporate our memory products in their products;
|
| ·
| | cyclical and seasonal fluctuations in our markets;
|
| ·
| | fluctuations in the manufacturing yields of our third-party manufacturers;
|
| ·
| | quality issues that arise from manufacturing issues at our third-party manufacturers;
|
| ·
| | events that impact the availability of production capacity at our third-party subcontractors and other interruptions in the supply chain including due to geopolitical events, natural disasters, materials shortages, bankruptcy or other causes;
|
| ·
| | supply constraints for and changes in the cost of the other components incorporated into our customers’ products;
|
| ·
| | the timing of expenses related to the acquisition of technologies or businesses;
|
| ·
| | product rates of return or price concessions in excess of those expected or forecasted;
|
| ·
| | costs associated with the repair and replacement of defective products;
|
| ·
| | unexpected inventory write-downs or write-offs;
|
| ·
| | costs associated with litigation over intellectual property rights and other litigation;
|
| ·
| | the length and unpredictability of the purchasing and budgeting cycles of our customers;
|
| ·
| | changes in accounting standards, such as revenue recognition, which we are required to adopt beginning in 2018;
|
| ·
| | changes in tax laws, such as the Tax Cuts and Jobs Act of 2017 recently enacted;
|
| ·
| | loss of key personnel or the inability to attract qualified engineers; and
|
| ·
| | geopolitical events, such as war, threat of war or terrorist actions, or the occurrence of natural disasters.
|
The semiconductor memory industry is highly cyclical and our markets may experience significant cyclical fluctuations in demand as a result of changing economic conditions, budgeting and buying patterns of customers and other factors. As a result of these and other factors affecting demand for our products and our results of operations in any
given period, the results of any prior quarterly or annual periods should not be relied upon as indicative of our future revenue or operating performance. Fluctuations in our revenue and operating results could also cause our stock price to decline.
If sales of our customers’ products decline or if their products do not achieve market acceptance, our business and operating results could be adversely affected.
Our revenue depends on our customers’ ability to commercialize their products successfully. The markets for our customers’ products are extremely competitive and are characterized by rapid technological change. Competition in our customers’ markets is based on a variety of factors including price, performance, product quality, marketing and distribution capability, customer support, name recognition and financial strength. As a result of rapid technological change, the markets for our customers’ products are characterized by frequent product introductions, short product life cycles, fluctuating demand and increasing product capabilities. As a result, our customers’ products may not achieve market success or may become obsolete. We cannot assure you that our customers will dedicate the resources necessary to promote and commercialize their products, successfully execute their business strategies for such products, or be able to manufacture such products in quantities sufficient to meet demand or cost-effectively manufacture products at a high volume. Our customers do not have contracts with us that require them to manufacture, distribute or sell any products. Moreover, our customers may develop internally, or in collaboration with our competitors, technology that they may utilize instead of the technology available to them through us. Our customers’ failure to achieve market success for their products, including as a result of general declines in our customers’ markets or industries, could negatively affect their willingness to utilize our products, which may result in a decrease in our revenue and negatively affect our business and operating results.
Our revenue also depends on the timely introduction, quality and market acceptance of our customers’ products that incorporate our solutions. Our customers’ products are often very complex and subject to design complexities that may result in design flaws, as well as potential defects, errors and bugs. We incur significant design and development costs in connection with designing our solutions for customers’ products. If our customers discover design flaws, defects, errors or bugs in their products, or if they experience changing market requirements, failed evaluations or field trials, or issues with other vendors, they may delay, change or cancel a project. If we have already incurred significant development costs, we may not be able to recoup those costs, which in turn would adversely affect our business and financial results.
We face competition and expect competition to increase in the future. If we fail to compete effectively, our revenue growth and results of operations will be materially and adversely affected. The global semiconductor market in general, and the semiconductor memory market in particular, are highly competitive. We expect competition to increase and intensify as other semiconductor companies enter our markets, many of which have greater financial and other resources with which to pursue technology development, product design, manufacturing, marketing and sales and distribution of their products. Increased competition could result in price pressure, reduced revenue, and profitability and loss of market share, any of which could materially and adversely affect our business, revenue, and operating results. Currently, our competitors range from large, international companies offering a wide range of traditional memory technologies to companies specializing in other alternative, specialized emerging memory technologies. Our primary memory competitors include Cypress, Fujitsu, Infineon, Integrated Silicon Solution, Intel, Macronix, Microchip, Micron, Renesas, Samsung, and Toshiba. The main competition for sensor products includes AMR, Crocus, GMR and Hall Effect. These technologies directly compete with our products and are supplied by ALPS Electric, Asahi Kasei Microdevices, Fairchild, Invensys (now Schneider), Kionix and Micronas. In addition, as the MRAM market opportunity grows, we expect new entrants such as Avalanche Technologies may enter this market and existing competitors, including leading semiconductor companies, may make significant investments to compete more effectively against our products. These competitors could develop technologies or architectures that make our products or technologies obsolete. Our ability to compete successfully depends on factors both within and outside of our control, including: | ·
| | the functionality and performance of our products and those of our competitors;
|
| ·
| | our relationships with our customers and other industry participants;
|
| ·
| | prices of our products and prices of our competitors’ products;
|
● the functionality and performance of our products and those of our competitors;
● our relationships with our customers and other industry participants; ● prices of our products and prices of our competitors’ products; ● our ability to develop innovative products; ● our competitors’ greater resources to make acquisitions; | ·
| | our ability to develop innovative products;
|
| ·
| | our competitors’ greater resources to make acquisitions;
|
| ·
| | our ability to obtain adequate capital to finance operations;
|
| ·
| | our ability to retain high-level talent, including our management team and engineers; and
|
| ·
| | ● our ability to obtain adequate capital to finance operations; ● our ability to retain high-level talent, including our management team and engineers; and ●the actions of our competitors, including merger and acquisition activity, launches of new products and other actions that could change the competitive landscape. |
Competition could result in pricing pressure, reduced revenue and loss of market share, any of which could materially and adversely affect our business, results of operations and prospects. change the competitive landscape.
In the event of a market downturn, competition in the markets in which we operate may intensify as our customers reduce their purchase orders. Our competitors that are significantly larger and have greater financial, technical, marketing, distribution, customer support and other resources or more established market recognition than us may be better positioned to accept lower prices and withstand adverse economic or market conditions. Our customers require our products and our third-party contractors to undergo a lengthy and expensive qualification process. If we are unsuccessful or delayed in qualifying any of our products with a customer, our business and operating results would suffer.
Prior to selecting and purchasing our products, our customers typically require that our products undergo extensive qualification processes, which involve testing of our products in the customers’ systems, as well as testing for reliability. This qualification process may continue for several months or years. However, obtaining the requisite qualifications for a memory product does not assure any sales of the product. Even after successful qualification and sales of a product to a customer, a subsequent revision in our third-party contractors’ manufacturing process or our selection of a new contract manufacturer may require a new qualification process, which may result in delays and excess or obsolete inventory. After our products are qualified and selected, it can and often does take several months or years before the customer commences volume production of systems that incorporate our products. Despite these uncertainties, we devote substantial resources, including design, engineering, sales, marketing and management efforts, to qualify our products with customers in anticipation of sales. If we are unsuccessful or delayed in qualifying any of our products with a customer, sales of those products may be precluded or delayed, which may impede our growth and harm our business.
Our costs may increase substantially if we or our third-party manufacturing contractors do not achieve satisfactory product yields or quality. The fabrication process is extremely complicated and small changes in design, specifications or materials can result in material decreases in product yields or even the suspension of production. From time to time, we and/or the third-party foundries that we contract to manufacture our products may experience manufacturing defects and reduced manufacturing yields. In some cases, we and/or our third-party foundries may not be able to detect these defects early in the fabrication process or determine the cause of such defects in a timely manner. There may be a higher risk of product yield issues in newer STT-MRAM products. Generally, in pricing our products, we assume that manufacturing yields will continue to improve, even as the complexity of our products increases. Once our products are initially qualified either internally or with our third-party foundries, minimum acceptable yields are established. We are responsible for the costs of the units if the actual yield is above the minimum set with our third-party foundries. If actual yields are below the minimum, we are not required to purchase the units. Typically, minimum acceptable yields for our new products are generally lower at first and gradually improve as we achieve full production, but yield issues can occur even in mature processes due to break downs in mechanical systems, equipment failures or calibration errors. Unacceptably low product yields or other product manufacturing problems could substantially increase overall production time and costs and adversely impact our operating results. Product yield losses willmay also increase our costs and reduce our gross margin. In addition to significantly harming our results of operations and cash flow, poor yields may delay shipment of our products and harm our relationships with existing and potential customers. The complexity of our products may lead to defects, which could negatively impact our reputation with customers and result in liability. Products as complex as ours may contain defects when first introduced to customers or as new versions are released. Delivery of products with production defects or reliability, quality or compatibility problems could significantly delay or hinder market acceptance of the products or result in a costly recall and could damage our reputation and adversely affect our ability to retain existing customers and attract new customers. Defects could cause problems with the functionality of our products, resulting in interruptions, delays, or cessation of sales of these products to our customers. We may also be required to make significant expenditures of capital and resources to resolve such problems. We cannot assure youour stockholders that problems will not be found in new products, both before and after commencement of commercial production, despite testing by us, our suppliers, or our customers. AnyFor example, any such problems could result in: ● delays in development, manufacture and roll-out of new products; ● additional development costs; ● loss of, or delays in, market acceptance; ● diversion of technical and other resources from our other development efforts; | ·
| | delays in development, manufacture and roll-out of new products;
|
| ·
| | additional development costs;
|
| ·
| | loss of, or delays in, market acceptance;
|
| ·
| | diversion of technical and other resources from our other development efforts;
|
● claims for damages by our customers or others against us; and ● loss of credibility with our current and prospective customers. | ·
| | claims for damages by our customers or others against us; and
|
| ·
| | loss of credibility with our current and prospective customers.
|
Any such event could have a material adverse effect on our business, financial condition, and results of operations. We may experience difficulties in transitioning to new wafer fabrication process technologies or in achieving higher levels of design integration, which may result in reduced manufacturing yields, delays in product deliveries and increased expenses. We aim to use the most advanced manufacturing process technology appropriate for our solutions that is available from our third-party foundries. As a result, we periodically evaluate the benefits of migrating our solutions to other technologies to improve performance and reduce costs. These ongoing efforts require us from time to time to modify the manufacturing processes for our products and to redesign some products, which in turn may result in delays in product deliveries. For example, as smaller line width geometry manufacturing processes become more prevalent, we intend to move our future products to increasingly smaller geometries to integrate greater levels of memory capacity and/or functionality into our products. This transition will require us and our third-party foundries to migrate to new designs and manufacturing processes for smaller geometry products. We may face difficulties, delays, and increased expense as we transition our products to new processes, and potentially to new foundries. We will depend on our third-party foundries as we transition to new processes. We cannot assure youour stockholders that our third-party foundries will be able to effectively manage such transitions or that we will be able to maintain our relationship with our third-party foundries or develop relationships with new third-party foundries. If we or any of our third-party foundries experience significant delays in transitioning to new processes or fail to efficiently implement transitions, we could experience reduced manufacturing yields, delays in product deliveries and increased expenses, any of which could harm our relationships with our customers and our operating results. As smaller line width geometry manufacturing processes become more prevalent, we intend to move our future products to increasingly smaller geometries to integrate greater levels of memory capacity and/or functionality into our products. This transition will require us and our third-party foundries to migrate to new designs and manufacturing processes for smaller geometry products. We may not be able to achieve smaller geometries with higher levels of design integration or to deliver new integrated products on a timely basis. We periodically evaluate the benefits, on a product-by-product basis, of migrating to smaller geometry process technologies to increase product value. We are dependent on our relationships with our third-party foundries to transition to smaller geometry processes successfully. We cannot assure you that our third-party foundries will be able to effectively manage any such transition. If we or our third-party foundries experience significant delays in any such transition or fail to implement a transition, our business, financial condition and results of operations could be materially harmed.
Changes to industry standards and technical requirements relevant to our products and markets could adversely affect our business, results of operations and prospects. Our products are only a part of larger electronic systems. All products incorporated into these systems must comply with various industry standards and technical requirements created by regulatory bodies or industry participants to operate efficiently together. Industry standards and technical requirements in our markets are evolving and may change significantly over time. For our products, the industry standards are developed by the Joint Electron Device Engineering Council, an industry trade organization. In addition, large industry-leading semiconductor and electronics companies play a significant role in developing standards and technical requirements for the product ecosystems within which our products can be used. Our customers also may design certain specifications and other technical requirements specific to their products and solutions. These technical requirements may change as the customer introduces new or enhanced products and solutions. Our ability to compete in the future will depend on our ability to identify and comply with evolving industry standards and technical requirements. The emergence of new industry standards and technical requirements could render our products incompatible with products developed by other suppliers or make it difficult for our products to meet the requirements of certain of our customers in automotive, and transportation, industrial, data storage, and other markets. As a result, we could be required to invest significant time and effort and to incur significant expense to redesign our products to ensure compliance with relevant standards and requirements. If our products are not in compliance with prevailing industry standards and technical requirements for a significant period of time, we could miss opportunities to achieve crucial design wins, our revenue may decline and we may incur significant expenses to redesign our products to meet the relevant standards, which could adversely affect our business, results of operations and prospects. Our success depends on our ability to attract and retain key employees, and our failure to do so could harm our ability to grow our business and execute our business strategies. Our success depends on our ability to attract and retain our key employees, including our management team and experienced engineers. Competition for personnel in the semiconductor memory technology field, and in the MRAM space in particular, is intense, and the availability of suitable and qualified candidates is limited. We compete to attract and retain qualified research and development personnel with other semiconductor companies, universities, and research institutions. Given our experience as an early entrant in the MRAM space, our employees are frequently contacted by MRAM startups and MRAM groups within larger companies seeking to employ them. The members of our management and our key employees are at-will. If we lose the services of any key senior management member or employee, we may not be able to locate suitable or qualified replacements, and may incur additional expenses to recruit and train new personnel, which could severely impact our business and prospects. The loss of the services of one or more of our key employees, especially our key engineers, or our inability to attract and retain qualified engineers, could harm our business, financial condition, and results of operations. We currently maintain and are seeking to expand operations outside of the United States which exposes us to significant risks. The success of our business depends, in large part, on our ability to operate successfully from geographically disparate locations and to further expand our international operations and sales. Operating in international markets requires significant resources and management attention and subjects us to regulatory, economic, and political risks that are different from those we face in the United States. We cannot be sure that further international expansion will be successful. In addition, we face risks in doing business internationally that could expose us to reduced demand for our products, lower prices for our products or other adverse effects on our operating results. The success and profitability, as well as the expansion, or our international operations are subject to numerous risks and uncertainties, many of which are outside of our control, such as the following: ● public health issues, such as the COVID-19 pandemic, which can result in varying impacts to our business, employees, partners, customers, distributors or suppliers internationally as discussed elsewhere in this “Risk Factors” section; ● difficulties, inefficiencies and costs associated with staffing and managing foreign operations; ● longer and more difficult customer qualification and credit checks; ● greater difficulty collecting accounts receivable and longer payment cycles; ● the need for various local approvals to operate in some countries; ● difficulties in entering some foreign markets without larger-scale local operations; ● changes in import/export laws, trade restrictions, regulations and customs and duties and tariffs (foreign and domestic); ● compliance with local laws and regulations; ● unexpected changes in regulatory requirements, including the elimination of tax holidays; ● reduced protection for intellectual property rights in some countries; ● adverse tax consequences as a result of repatriating cash generated from foreign operations to the United States; ● adverse tax consequences, including potential additional tax exposure if we are deemed to have established a permanent establishment outside of the United States; ● the effectiveness of our policies and procedures designed to ensure compliance with the Foreign Corrupt Practices Act of 1977 and similar regulations; ● fluctuations in currency exchange rates, which could increase the prices of our products to customers outside of the United States, increase the expenses of our international operations by reducing the purchasing power of the U.S. dollar and expose us to foreign currency exchange rate risk if, in the future, we denominate our international sales in currencies other than the U.S. dollar; ● new and different sources of competition; ● political, economic, and social instability; ● terrorism and acts of war, such as the recent Russian invasion of Ukraine, which could have a negative impact on sales throughout Europe and Asia. Our failure to manage any of these risks successfully could harm our operations and reduce our revenue. We may not successfully manage the transitions associated with certain of our executive officers, which could have an adverse impact on us. In December 2020, Kevin Conley notified our board of directors of his decision to resign as President and Chief Executive Officer of the Company. In connection with Mr. Conley’s resignation, our board of directors appointed Darin Billerbeck to serve as Interim Chief Executive Officer of the Company until a permanent successor could be named. On February 28, 2022, our board of directors appointed Sanjeev Aggarwal to serve as the Company’s permanent President and Chief Executive Officer, effective March 14, 2022. Sanjeev Aggarwal current serves as Chief Technology Officer and Vice President, Operations & Technology R&D. Although our board of directors is confident in the leadership of Sanjeev Aggarwal, leadership transitions can be inherently difficult to manage. An inadequate transition to a permanent Chief Executive Officer or with respect to other executive officer transitions, including the appointment of Anuj Aggarwal as the Company’s permanent Chief Financial Officer in September 2021, may cause disruption within the Company. Additionally, our financial performance and ability to meet operational goals and strategic plans may be adversely impacted, as well as our ability to retain and hire other key members of management. Risk Factors Related to Our Intellectual Property and Technology
Failure to protect our intellectual property could substantially harm our business. Our success and ability to compete depend in part upon our ability to protect our intellectual property. We rely on a combination of intellectual property rights, including patents, mask work protection, copyrights, trademarks, trade secrets and know-how, in the United States and other jurisdictions. The steps we take to protect our intellectual property rights may not be adequate, particularly in foreign jurisdictions such as China. Any patents we hold may not adequately protect our intellectual property rights or our products against competitors, and third parties may challenge the scope, validity, or enforceability of our issued patents, which third parties may have significantly more financial resources with which to litigate their claims than we have to defend against them. In addition, other parties may independently develop similar or competing technologies designed around any patents or patent applications that we hold. Some of our products and technologies are not covered by any patent or patent application, as we do not believe patent protection of these products and technologies is critical to our business strategy at this time. A failure to timely seek patent protection on products or technologies generally precludes us from seeking future patent protection on these products or technologies. In addition to patents, we also rely on contractual protections with our customers, suppliers, distributors, employees, and consultants, and we implement security measures designed to protect our trade secrets and know-how. However, we cannot assure youour stockholders that these contractual protections and security measures will not be breached, that we will have adequate remedies for any such breach or that our customers, suppliers, distributors, employees, or consultants will not assert rights to intellectual property or damages arising out of such contracts. We may initiate claims against third parties to protect our intellectual property rights if we are unable to resolve matters satisfactorily through negotiation. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming, and distracting to management. It could also result in the impairment or loss of portions of our intellectual property, as an adverse decision could limit our ability to assert our intellectual property rights, limit the value of our technology or otherwise negatively impact our business, financial condition, and results of operations. Additionally, any enforcement of our patents or other intellectual property may provoke third parties to assert counterclaims against us. Our failure to secure, protect and enforce our intellectual property rights could materially harm our business. We may face claims of intellectual property infringement, which could be time-consuming, costly to defend or settle, result in the loss of significant rights, harm our relationships with our customers and distributors, or otherwise materially adversely affect our business, financial condition, and results of operations. The semiconductor memory industry is characterized by companies that hold patents and other intellectual property rights and that vigorously pursue, protect, and enforce intellectual property rights. These companies include patent holding companies or other adverse patent owners who have no relevant product revenue and against whom our own patents may provide little or no deterrence. From time to time, third parties may assert against us and our customers’ patent and other intellectual property rights to technologies that are important to our business. We have in the past, and may in the future, face such claims. Claims that our products, processes, or technology infringe third-party intellectual property rights, regardless of their merit or resolution, could be costly to defend or settle and could divert the efforts and attention of our management and technical personnel. We may also be obligated to indemnify our customers or business partners in connection with any such litigation, which could result in increased costs. Infringement claims also could harm our relationships with our customers or distributors and might deter future customers from doing business with us. If any such proceedings result in an adverse outcome, we could be required to: ● cease the manufacture, use or sale of the infringing products, processes or technology; ● pay substantial damages for infringement; ● expend significant resources to develop non-infringing products, processes or technology, which may not be successful; ● license technology from the third-party claiming infringement, which license may not be available on commercially reasonable terms, or at all; ● cross-license our technology to a competitor to resolve an infringement claim, which could weaken our ability to compete with that competitor; or ● pay substantial damages to our customers to discontinue their use of or to replace infringing technology sold to them with non-infringing technology, if available. | ·
| | cease the manufacture, use or sale of the infringing products, processes or technology;
|
| ·
| | pay substantial damages for infringement;
|
| ·
| | expend significant resources to develop non-infringing products, processes or technology, which may not be successful;
|
| ·
| | license technology from the third-party claiming infringement, which license may not be available on commercially reasonable terms, or at all;
|
| ·
| | cross-license our technology to a competitor to resolve an infringement claim, which could weaken our ability to compete with that competitor; or
|
| ·
| | pay substantial damages to our customers to discontinue their use of or to replace infringing technology sold to them with non-infringing technology, if available.
|
Any of the foregoing results could have a material adverse effect on our business, financial condition, and results of operations. Furthermore, our exposure to the foregoing risks may also be increased if we acquire other companies or technologies. For example, we may have a lower level of visibility into the development process with respect to intellectual property or the care taken to safeguard against infringement risks with respect to the acquired company or technology. In addition, third parties may make infringement and similar or related claims after we have acquired technology that had not been asserted prior to the acquisition. We make significant investments in new technologies and products that may not achieve technological feasibility or profitability or that may limit our revenue growth. We have made and will continue to make significant investments in research and development of new technologies and products, including new and more technically advanced versions of our MRAM technology. Investments in new technologies are speculative and technological feasibility may not be achieved. Commercial success depends on many factors including demand for innovative technology, availability of materials and equipment, selling price the market is willing to bear, competition and effective licensing or product sales. We may not achieve significant revenue from new product investments for a number of years, if at all. Moreover, new technologies and products may not be profitable, and even if they are profitable, operating margins for new products and businesses may not be as high as the margins we have experienced historically or originally anticipated. Our inability to capitalize on or realize substantial revenue from our significant investments in research and development could harm our operating results and distract management, harming our business. Our success depends on
Interruptions in our ability to attract and retain key employees, and our failure to do so could harm our ability to grow our business and execute our business strategies. Our success depends on our ability to attract and retain our key employees, including our management team and experienced engineers. Competition for personnel in the semiconductor memoryinformation technology field, and in the MRAM space in particular, is intense, and the availability of suitable and qualified candidates is limited. We compete to attract and retain qualified research and development personnel with other semiconductor companies, universities and research institutions. Given our experience as an early entrant in the MRAM space, our employees are frequently contacted by MRAM startups and MRAM groups within larger companies seeking to employ them. The members of our management and key employees are at-will. If we lose the services of any key senior management member or employee, we may not be able to locate suitable or qualified replacements, and may incur additional expenses to recruit and train new personnel, which could severely impact our business and prospects. The loss of the services of one or more of our key employees, especially our key engineers, or our inability to attract and retain qualified engineers, could harm our business, financial condition and results of operations.
We may not be able to effectively manage our growth, and we may need to incur significant expenditures to address the additional operational and control requirements of our growth, either of which could harm our business and operating results.
As we continue to expand our business, we expect our headcount and overall size of our operations to grow significantly. To effectively manage our growth, we must continue to expand our operational, engineering and financial systems procedures and controls and to improve our accounting and other internal management systems, such as our ERP system. This may require substantial managerial and financial resources, and our efforts in this regard may not be successful. Our current systems, procedures and controls may not be adequate to support our future operations. If we fail to adequately manage our growth, or to improve our operational, financial and management information systems, or fail to effectively motivate or manage our new and future employees, the quality of our products and the management of our operations could suffer, which could adversely affect our operating results.business.
We may engage in acquisitionsrely on the efficient and uninterrupted operation of or investments in, other companies, each of which may divert our management’s attention, result in additional dilution to stockholders or use resources that are necessarycomplex information technology systems and networks to operate our business. Any significant disruption to our systems or networks, including, but not limited to, new system implementations, computer viruses, security breaches, facility issues, natural disasters, terrorism, war, telecommunication failures or energy blackouts, could have a material adverse impact on our operations, sales, and financial results. Such disruption could result in a loss of our intellectual property or the release of sensitive competitive information or supplier, customer, or employee personal data. Any loss of such information could harm our competitive position or reputation, result in a loss of customer confidence, and cause us to incur significant costs to remedy the damages caused by any such disruptions or security breaches. Additionally, any failure to properly manage the collection, handling, transfer, or disposal of personal data of employees and customers may result in regulatory penalties, enforcement actions, remediation obligations, litigation, fines, and other sanctions. We may in the future seekexperience attacks on our data, attempts to acquire or invest in businesses, products or technologies that we believe could complement or expandbreach our business, enhancesecurity and attempts to introduce malicious software into our technical capabilities or otherwise offer growth opportunities. However, our term loan and revolving credit facility prohibits our ability to merge with or acquire any other entity and so we could only do so with the lender’s consent.IT systems. If we were to pursue such acquisitions or investments, they could create risks for us, including: | ·
| | difficulties in assimilating acquired personnel, operations and technologies or realizing synergies expected in connection with an acquisition, particularly with acquisitions of companies with large and widespread operations, complex products or that operate in markets in which we historically have had limited experience;
|
| ·
| | unanticipated costs or liabilities, including possible litigation, associated with the acquisition;
|
| ·
| | incurrence of acquisition-related costs;
|
| ·
| | diversion of management’s attention from other business concerns;
|
| ·
| | use of resources that are needed in other parts of our business; and
|
| ·
| | use of substantial portions of our available cash to consummate an acquisition.
|
A significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill, which must be assessed for impairment at least annually. If such acquisitions do not yield expected returns,attacks are successful, we may be required to take charges to our earnings based on this impairment assessment process, whichunaware of the incident, its magnitude, or its effects until significant harm is done. Any such attack or disruption could harm our results of operations.
We may be unable to complete acquisitions at all or on commercially reasonable terms, which could limit our future growth. Acquisitions could also result in dilutive issuances of equity securities or the incurrence of additional debt, which could adversely affect our operating results and result in a decline in our stock price and further restrict our abilitycosts related to pursue business opportunities, including potential acquisitions. In addition, if an acquired business fails to meet our expectations, our operating results may suffer.
We maintain operations outside of the United States and intend to expand our international operations, which exposes us to significant risks.
We have limited operations in Europe and Asia. We intend to expand our operations internationally. The successrebuilding of our business depends, in large part,internal systems, defending litigation, responding to regulatory actions, or paying damages. Such attacks or disruptions could have a material adverse impact on our ability to operate successfully from geographically disparate locations and to further expand our internationalbusiness, operations, and sales. Operating in international markets requires significant resourcesfinancial results.
Third-party service providers, such as wafer foundries, assembly and management attentiontest contractors, distributors and subjects usother vendors have access to regulatory, economiccertain portions of our and political risksour customers’ sensitive data. In the event that are different from those we face inthese service providers do not properly safeguard the United States. We cannot be suredata that further international expansion will be successful. In addition, we face risks in doingthey hold, security breaches and loss of data could result. Any such loss of data by our third-party service providers could negatively impact our business, internationally that could expose us to reduced demand for our products, lower prices for our products or other adverse effects on our operating results. Among the risks we believe are most likely to affect us are: | ·
| | difficulties, inefficiencies and costs associated with staffing and managing foreign operations;
|
| ·
| | longer and more difficult customer qualification and credit checks;
|
| ·
| | greater difficulty collecting accounts receivable and longer payment cycles;
|
| ·
| | the need for various local approvals to operate in some countries;
|
| ·
| | difficulties in entering some foreign markets without larger-scale local operations;
|
| ·
| | compliance with local laws and regulations;
|
| ·
| | unexpected changes in regulatory requirements, including the elimination of tax holidays;
|
| ·
| | reduced protection for intellectual property rights in some countries;
|
| ·
| | adverse tax consequences as a result of repatriating cash generated from foreign operations to the United States;
|
| ·
| | adverse tax consequences, including potential additional tax exposure if we are deemed to have established a permanent establishment outside of the United States;
|
| ·
| | the effectiveness of our policies and procedures designed to ensure compliance with the Foreign Corrupt Practices Act of 1977 and similar regulations;
|
| ·
| | fluctuations in currency exchange rates, which could increase the prices of our products to customers outside of the United States, increase the expenses of our international operations by reducing the purchasing power of the U.S. dollar and expose us to foreign currency exchange rate risk if, in the future, we denominate our international sales in currencies other than the U.S. dollar;
|
| ·
| | new and different sources of competition; and
|
| ·
| | political and economic instability, and terrorism.
|
Our failure to manage any of these risks successfully could harm our operations, and reducefinancial results, as well as our revenue.relationship with our customers.
Risk Factors Related to Regulatory Matters and Compliance To comply with environmental laws and regulations, we may need to modify our activities or incur substantial costs, and if we fail to comply with environmental regulations, we could be subject to substantial fines or be required to have our suppliers alter their processes. The semiconductor memory industry is subject to a variety of international, federal, state, and local governmental regulations directed at preventing or mitigating environmental harm, as well as to the storage, discharge, handling, generation, disposal and labeling of toxic or other hazardous substances. Failure to comply with environmental regulations could subject us to civil or criminal sanctions and property damage or personal injury claims. Compliance with current or future environmental laws and regulations could restrict our ability to expand our business or require us to modify processes or incur other substantial expenses which could harm our business. In response to environmental concerns, some customers and government agencies impose requirements for the elimination of hazardous substances, such as lead (which is widely used in soldering connections in the process of semiconductor packaging and assembly), from electronic equipment. For example, the European Union adopted its Restriction on Hazardous Substance Directive which prohibits, with specified exceptions, the sale in the EU market of new electrical and electronic equipment containing more than agreed levels of lead or other hazardous materials and China has enacted similar regulations. Environmental laws and regulations such as these could become more stringent over time, causing a need to redesign technologies, imposing greater compliance costs, and increasing risks and penalties associated with violations, which could seriously harm our business. Some
Increasing public attention has been focused on the environmental impact of the facilities ofelectronic manufacturing operations. While we have not experienced any materially adverse effects on our suppliers are located near known earthquake fault zones, and the occurrence of an earthquake or other catastrophic disaster could damage our facilities, which could cause us to curtail our operations. Some of our foundries and suppliers’ facilities in Asia are located near known earthquake fault zones and, therefore, are vulnerable to damageoperations from earthquakes. We are also vulnerable to damage from other types of disasters, such as power loss, fire, floods and similar events. If any such disaster were to occur, our ability to operate our business could be seriously impaired. In addition, we may not have adequate insurance to cover our losses resulting from disasters or other similar significant business interruptions. Any significant losses that are not recoverable under our insurance policies could seriously impairrecently adopted environmental regulations, our business and financial condition.
Provisions of our credit facility may restrict our ability to pursue our business strategies.
Borrowings under our existing credit facility are secured by substantially all of our assets, exceptoperations could suffer if for intellectual property. Our term loan facility prohibits our ability to, among other things:
| ·
| | dispose of or sell assets;
|
| ·
| | consolidate or merge with other entities;
|
| ·
| | incur additional indebtedness;
|
| ·
| | create liens on our assets;
|
| ·
| | enter into transactions with affiliates; and
|
| ·
| | redeem subordinated indebtedness.
|
These restrictions are subject to certain exceptions. In addition, our existing credit facility requires that we meet certain operating covenants, such as maintaining insurance on the collateral and meeting certain financial covenants, such as a minimum liquidity ratio. The operating restrictions and covenants in the term loan facility, as well as any future financing agreements that we may enter into, may restrict our ability to finance our operations, engage in business activities or expand or fully pursue our business strategies. Our ability to comply with these covenants may be affected by events beyond our control, and we may not be able to meet those covenants. A breach of any of these covenants could result in a default under the credit facility, which could cause all of the outstanding indebtedness thereunder to either become immediately due and payable or increase by five percent of the interest rate charged during the period of the unremedied breach.
The Tax Cuts and Jobs Act could adversely affect our business and financial condition.
In December 2017 the Tax Cuts and Jobs Act (“2017 Tax Act”) became law, which significantly amended the Internal Revenue Code of 1986. The 2017 Tax Act, among other things, reduced the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limits the tax deduction for interest expense to 30% of adjusted earnings, eliminates net operating loss carrybacks, imposes a one-time tax on offshore earnings at reduced rates regardless of whether they are repatriated, allows immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifies or repeals many business deductions and credits. The rate reduction took effect on January 1, 2018. Interpretations of this legislation are being released by various regulatory agencies and it is possible that there could be significant changes in interpretations that we may not be yet aware of, and which could adversely impact our financial results.
Our ability to use net operating losses to offset future taxable income may be subject to certain limitations.
In general, under Section 382 of the U.S. Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses, or NOLs, to offset future taxable income, and tax credits to offset tax. As of December 31, 2018, we had federal net operating loss carryforwards of approximately $112.3 million, of which $99.7 million will begin to expire in 2028 if not utilized, and $12.6 million will carryover indefinitely. As of December 31, 2018, we had state net operating loss carryforwards of approximately $44.3 million, of which $43.5 million will begin to expire in 2023 if not utilized, and $0.8 million will carryover indefinitely. The federal NOLs generated prior to 2018 will continue to be governed by the NOL tax rules as they existed prior to the adoption of the new Tax Act, which means that generally they will expire 20 years after they were generated if not used prior thereto. The 2017 Tax Act repealed the 20-year carryforward and two-year carryback of NOLs originating after December 31, 2017 and also limits the NOL deduction to 80% of taxable income for tax years beginning after December 31, 2017. Any NOLs generated in 2018 will be carried forward and will not expire. There is no current impact to the us as we continue to be in a tax loss position for US tax purposes. We may experience an ownership change in the future, and our ability to utilize our NOLs and tax credits could be further limited by Section 382 of the Code. Future changes in our stock ownership, many of which are outside of our control, could result in an ownership change under Section 382 of the Code. Our net operating losses and tax credits could also be
impaired under state laws. As a result, we might not be able to utilize a material portion of our state NOLs and tax credits.
Ifreason we fail to retain finance personnel and strengthen our financial reporting systems and infrastructure, we may not be ablecontrol the storage or use of, or to timely and accurately report our financial results or comply withadequately restrict the requirements of being a public company, including compliance with the Sarbanes-Oxley Act and SEC reporting requirements.
We have accounting and finance staff members to maintain the effectiveness of our closing and financial reporting processes. Any inability to retain such personnel would have an adverse impact on our ability to accurately and timely prepare our financial statements. We may be unable to locate and hire qualified professionals with requisite technical and public company experience when and as needed. In addition, new employees will require time and training to learn our business and operating processes and procedures. If our finance and accounting organization is unable for any reason to respond adequately to the demands of being a public company, the quality and timeliness of our financial reporting may suffer, which could result in the identification of material weaknesses in our internal controls. Any consequences resulting from inaccuracies or delays in our reported financial statements could cause the trading price of our common stock to decline and could harm our business, operating results and financial condition.
Interruptions in our information technology systems could adversely affect our business.
We rely on the efficient and uninterrupted operation of complex information technology systems and networks to operate our business. Any significant disruption to our systems or networks, including, but not limited to, new system implementations, computer viruses, security breaches, facility issues, natural disasters, terrorism, war, telecommunication failures or energy blackouts, could have a material adverse impact on our operations, sales and financial results. Such disruption could result in a loss of our intellectual property or the release of sensitive competitive information or supplier, customer or employee personal data. Any loss of such information could harm our competitive position, result in a loss of customer confidence, and cause us to incur significant costs to remedy the damages caused by any such disruptions or security breaches. Additionally, any failure to properly manage the collection, handling, transferdischarge or disposal of, personal data of employees and customers may result in regulatory penalties, enforcement actions, remediation obligations, litigation, fines and other sanctions.hazardous substances under present or future environmental regulations.
We may experience attacks on our data, attempts to breach our security and attempts to introduce malicious software into our IT systems. If attacks are successful, we may be unaware of the incident, its magnitude, or its effects until significant harm is done. Any such attack or disruption could result in additional costs related to rebuilding of our internal systems, defending litigation, responding to regulatory actions, or paying damages. Such attacks or disruptions could have a material adverse impact on our business, operations and financial results.
Third-party service providers, such as wafer foundries, assembly and test contractors, distributors and other vendors have access to certain portions of our and our customers’ sensitive data. In the event that these service providers do not properly safeguard the data that they hold, security breaches and loss of data could result. Any such loss of data by our third-party service providers could negatively impact our business, operations and financial results, as well as our relationship with our customers.
If we experience material weaknesses in the future or otherwise fail to maintain an effective system of internal controls in the future, we may not be able to accurately report our financial condition or results of operations which may adversely affect investor confidence in us and, as a result, the value of our common stock.
We are required, under Section 404 of the Sarbanes-Oxley Act to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting. A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual and interim financial statements will not be detected or prevented on a timely basis. In connection with the audit of our financial statements as of and for the years ended December 31, 2018, 2016 and 2015, we identified material weaknesses in our internal control over financial reporting, as defined in the standards established by the Public Company Accounting Oversight Board of the United States. Although we enhanced our internal controls, processes and related documentation necessary to remediate our material weakness and to perform the evaluation needed to comply with Section 404, and have concluded that we do not currently have any material weaknesses, there can be no assurances that we will not have any material weaknesses in the future.
When we cease to be an “emerging growth company” under the federal securities laws, our auditors will be required to express an opinion on the effectiveness of our internal controls. If we are unable to confirm that our internal control over financial reporting is effective, or if our auditors are unable to express an opinion on the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which could cause the price of our common stock to decline.
The issuance of new accounting standards or future interpretations of existing accounting standards could adversely affect our operating results.
We prepare our financial statements in accordance with accounting principles generally accepted in the United States of America, or GAAP. A change in those principles could have a significant effect on our reported results and might affect our reporting of transactions completed before a change is announced. GAAP is issued and subject to interpretation by the Financial Accounting Standards Board, the SEC and various other bodies formed to promulgate and interpret accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change. For example, beginning with our first quarter of 2018, we adopted the new revenue recognition standard, which changed the way we recognize revenue. The issuance of new accounting standards or future interpretations of existing accounting standards, or changes in our business practices or estimates, could result in future changes in our revenue recognition or other accounting policies that could have a material adverse effect on our results of operations.
Regulations related to “conflict minerals” may force us to incur additional expenses, may make our supply chain more complex and may result in damage to our reputation with customers. Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC has adopted requirements for companies that use certain minerals and metals, known as conflict minerals, in their products, whether or not these products are manufactured by third parties. These requirements require companies to perform diligence and disclose and report whether or not such minerals originate from the Democratic Republic of Congo and adjoining countries. The implementation of theseThese requirements could adversely affect the sourcing, availability and pricing of minerals used in the manufacture of our products, and affect our costs and relationships with customers, distributors, and suppliers as we must obtain additional information from them to ensure our compliance with the disclosure requirement. In addition, we will incur additional costs to complyin complying with the disclosure requirements, including costs related to determining the source of any of the relevant minerals and metals used in our products. Since our supply chain is complex, we mayhave not bebeen able to sufficiently verify the origins for these minerals and metals used in our products through the due diligence procedures that we implement, which may harm our reputation. In such event, we may also face difficulties in satisfying customers who require that all of the components of our products are certified as conflict mineral free and these customers may discontinue, or materially reduce, purchases of our products, which could result in a material adverse effect on our results of operations and our financial condition may be adversely affected. Our ability to use net operating losses to offset future taxable income may be subject to certain limitations. In general, under Section 382 of the U.S. Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses, or NOLs, to offset future taxable income and tax credits to offset tax. As of December 31, 2021, we had gross federal net operating loss carryforwards of approximately $136.0 million, of which $95.2 million will expire in 2028 through 2037 if not utilized, and $40.8 million that will carryover indefinitely. The Company experienced an ownership change in October 2016 and as a result, $43.8 million of the federal NOLs are expected to expire unutilized due to limitation under Section 382 of the Code. Consistent with prior years, the NOLs expected to expire unutilized are included in the NOL carryforward amounts disclosed, subject to a valuation allowance. As of December 31, 2021, we had state net operating loss carryforwards of approximately $52.1 million, of which $49.3 million will expire in 2023 through 2042 if not utilized, and $2.8 million that will carry over indefinitely. The federal NOLs generated prior to 2018 will continue to be governed by the NOL tax rules as they existed prior to the adoption of the 2017 Tax Cuts and Jobs Act (2017 Tax Act), which means that generally they will expire 20 years after they were generated if not used prior thereto. The 2017 Tax Act repealed the 20-year carryforward and two-year carryback of NOLs originating after December 31, 2017 and also limits the NOL deduction to 80% of taxable income for tax years beginning after December 31, 2017. Any NOLs generated in 2018 and forward will be carried forward and will not expire. Future changes in our stock ownership, many of which are outside of our control, could result in additional ownership changes under Section 382 of the Code. The ability to utilize our net operating losses and tax credits could also be impaired under state law. As a result, we might not be able to utilize a material portion of our state NOLs and tax credits. Risks Related to Our Common Stock An active trading market may not be sustained.
Although our stock is currently traded on the Nasdaq Stock Market, an active trading market may not be sustained. The lack of an active market may impair the value of your shares and your ability to sell your shares at the time you wish to sell them. An inactive market may also impair our ability to both raise capital by selling shares and acquire other complementary products, technologies or businesses by using our shares as consideration.
We expect that the price of our common stock will fluctuate substantially. The market price of our common stock is likely to be highly volatile and may fluctuate substantially due to many factors, including: | ·
| | the introduction of new products or product enhancements by us or others in our industry;
|
| ·
| | disputes or other developments with respect to our or others’ intellectual property rights;
|
| ·
| | ● the duration and severity of the COVID-19 pandemic and its effects on our business, financial condition, results of operations and cash flows; ● the introduction of new products or product enhancements by us or others in our industry; ● announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, capital commitments or restructurings; ● disputes or other developments with respect to our or others’ intellectual property rights; ●product liability claims or other litigation; |
| ·
| | quarterly variations in our results of operations or those of others in our industry;
|
● quarterly variations in our results of operations or those of others in our industry; ● sales of large blocks of our common stock, including sales by our executive officers and directors; ● changes in senior management, board members, or key personnel; ● changes in earnings estimates or recommendations by securities analysts; and ● general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors, including those due to the duration and severity of the COVID-19 pandemic. | ·
| | sales of large blocks of our common stock, including sales by our executive officers and directors;
|
| ·
| | changes in earnings estimates or recommendations by securities analysts; and
|
| ·
| | general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors.
|
Stock markets generally have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad marketFurther, the semiconductor memory industry is highly cyclical and industry factorsour markets may significantly affect the marketexperience significant cyclical fluctuations in demand as a result of changing economic conditions, budgeting and buying patterns of customers and other factors. Fluctuations in our revenue and operating results could also cause our stock price of our common stock, regardless of our actual operating performance. These fluctuations may be even more pronounced in the trading market for our common stock.to decline. In addition, in the past, class action litigation has often been instituted against companies whose securities have experienced periods of volatility in market price, or for other reasons. Securities litigation brought against us following volatility in our stock price or otherwise, regardless of the merit or ultimate results of such litigation, could result in substantial costs, which would hurt our financial condition and operating results and divert management’s attention and resources from our business. These and other factors may make the price of our stock volatile and subject to unexpected fluctuation. Securities analysts may not publish favorable research or reports about our business or may publish no information at all, which could cause our stock price or trading volume to decline.
The trading market for our common stock is influenced to some extent by the research and reports that industry or financial analysts publish about us and our business. We do not control these analysts. If any of the analysts who cover us provide inaccurate or unfavorable research or issue an adverse opinion regarding our stock price, our stock price could decline. If one or more of these analysts cease coverage of our company or fail to publish reports covering us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.
We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to “emerging growth companies” will make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” In particular, while we are an “emerging growth company” (1) we will not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, (2) we will be exempt from any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotations or a supplement to the auditor’s report on financial statements, (3) we will be subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and (4) we will not be required to hold nonbinding advisory votes on executive compensation or stockholder approval of any golden parachute payments not previously approved.
We may remain an “emerging growth company” until as late as December 31, 2021, though we may cease to be an “emerging growth company” earlier under certain circumstances, including (1) if the market value of our common stock that is held by nonaffiliates exceeds $700 million as of any June 30, in which case we would cease to be an “emerging growth company” as of the following December 31, or (2) if our gross revenue exceeds $1.07 billion in any fiscal year.
Investors may find our common stock less attractive if we rely on the exemptions and relief granted by the JOBS Act. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may decline or become more volatile.
Sales of a substantial number of shares of our common stock in the public market by our existing stockholders could cause our stock price to fall.
Sales of a substantial number of shares of our common stock in the public market by our existing stockholders, or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our common stock.
Our directors, officers and principal stockholders have significant voting power and may take actions that may not be in the best interests of our other stockholders.
Our officers, directors and principal stockholders each holding more than 5% of our common stock, collectively, control a significant percentage of our outstanding common stock. As a result, these stockholders, if they act together, will be able to control the management and affairs of our company and most matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change of control and might adversely affect the market price of our common stock. This concentration of ownership may not be in the best interests of our other stockholders.
Provisions in our corporate charter documents and under Delaware law could make an acquisition of us more difficult and may prevent attempts by our stockholders to replace or remove our current management. Provisions in our amended and restated certificate of incorporation and our amended and restated bylaws may discourage, delay, or prevent a merger, acquisition, or other change in control of us that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management team. Among others, these provisions include that: ● our board of directors has the right to expand the size of our board of directors and to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; ● our stockholders may not act by written consent or call special stockholders’ meetings; as a result, a holder, or holders, controlling a majority of our capital stock would not be able to take certain actions other than at annual stockholders’ meetings or special stockholders’ meetings called by the board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors, the chairman of the board or the chief executive officer; ● our amended and restated certificate of incorporation prohibits cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; | ·
| | our board of directors has the right to expand the size of our board of directors and to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;
|
| ·
| | our stockholders may not act by written consent or call special stockholders’ meetings; as a result, a holder, or holders, controlling a majority of our capital stock would not be able to take certain actions other than at annual stockholders’ meetings or special stockholders’ meetings called by the board of directors, the chairman of the board, the chief executive officer or the president;
|
| ·
| | our certificate of incorporation prohibits cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
|
| ·
| | the affirmative vote of holders of at least 66‑2/3% of the voting power of all of the then outstanding shares of voting stock, voting as a single class, will be required (a) to amend certain provisions of our certificate of incorporation, including provisions relating to the size of the board, removal of directors, special meetings, actions by written consent and cumulative voting and (b) to amend or repeal our bylaws, although our bylaws may be amended by a simple majority vote of our board of directors;
|
● the affirmative vote of holders of at least 66-2/3% of the voting power of all of the then outstanding shares of voting stock, voting as a single class, will be required (a) to amend certain provisions of our certificate of incorporation, including provisions relating to the size of the board, special meetings, actions by written consent and cumulative voting and (b) to amend or repeal our amended and restated bylaws, although such bylaws may be amended by a simple majority vote of our board of directors; ● stockholders must provide advance notice and additional disclosures to nominate individuals for election to the board of directors or to propose matters that can be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of our company; and ● our board of directors may issue, without stockholder approval, shares of undesignated preferred stock; the ability to issue undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us. | ·
| | stockholders must provide advance notice and additional disclosures to nominate individuals for election to the board of directors or to propose matters that can be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of our company; and
|
| ·
| | our board of directors may issue, without stockholder approval, shares of undesignated preferred stock; the ability to issue undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us.
|
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware and the federal district courts of the United States of America will be the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees. Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: ● any derivative action or proceeding brought on our behalf; ● any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee to us or our stockholders; ● any action asserting a claim against us arising under the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws; and ● any action asserting a claim against us that is governed by the internal-affairs doctrine. This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act. Furthermore, Section 22 of the Securities Act of 1933, as amended (Securities Act) creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated certificate of incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions. These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees. If a court were to find either exclusive-forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving the dispute in other jurisdictions, all of which could seriously harm our business. Effective December 31, 2021, we ceased to be an “emerging growth company,” and certain reduced reporting requirements applicable to emerging growth companies no longer apply us, which is expected to increase our costs as a public company and place additional demands on management. Effective December 31, 2021, we ceased to be classified as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (the JOBS Act). We have previously taken advantage of certain reduced reporting requirements pursuant to the JOBS Act specifically applicable to emerging growth companies, including exemptions from the requirements of holding advisory “say-on-pay” and the related “say-on frequency” votes on executive compensation. Since we are no longer classified as an emerging growth company, we are now required to comply with those additional reporting requirements for which we were previously exempt. For example, we will be required to hold a say-on-pay vote and a say-on frequency vote at our 2022 annual meeting of stockholders. As a result, we expect that we will require additional attention from management with respect to our additional reporting requirements and will incur increased costs, which could include higher legal fees, accounting fees, consultant fees and fees associated with investor relations activities, among others. General Risk Factors Unfavorable economic, market and geopolitical conditions, domestically and internationally, may adversely affect our business, financial condition, results of operations and cash flows. We have significant customer sales both in the United States and internationally. We also rely on domestic and international suppliers, manufacturing partners and distributors. We are therefore susceptible to adverse U.S. and international economic, market and geopolitical conditions. If any of our manufacturing partners, customers, distributors or suppliers experience slowdowns in their business, serious financial difficulties or cease operations, including as a result of the COVID-19 pandemic, our business will be adversely affected. In addition, the adverse impact of general economic, market and geopolitical factors that are beyond our control, including, but not limited to, housing markets, recession, inflation, deflation, consumer credit activity, consumer debt levels, fuel and energy costs, interest rates, tax rates and policy, unemployment trends, the impact of natural disasters such as pandemics, civil disturbances, terrorist activities and acts of war, including the recent Russian invasion of Ukraine, may adversely impact consumer spending, which may adversely impact our customers’ spending and demand for our products. Any of the foregoing could adversely affect our business, financial condition, results of operations and cash flows. Our business may be adversely impacted by natural disasters and other catastrophic events. Our operations and business, and those of our manufacturing partners, customers, distributors, or suppliers, can be disrupted by natural disasters; industrial accidents; terrorism; acts of war; public health issues, such as the COVID-19 pandemic; cybersecurity incidents; interruptions of service from utilities, transportation, telecommunications, or IT systems providers; manufacturing equipment failures; or other catastrophic events. For example, some of our foundries and suppliers’ facilities in Asia are located near known earthquake fault zones and, therefore, are vulnerable to damage from earthquakes. We are also vulnerable to damage from other types of disasters, such as power loss, fire, floods, and similar events. If any such natural disasters or other catastrophic events were to occur, our ability to operate our business could be seriously impaired. In addition, we may not have adequate insurance to cover our losses resulting from disasters or other similar significant business interruptions. Any significant losses that are not recoverable under our insurance policies could seriously impair our business and financial condition. Item 1B1B. Unresolved Staff Comments. None. Item 2. Properties. We lease office space for our corporate headquarters located in Chandler, Arizona and for our design facility located in Austin, Texas. The leases expire in January 2022. We have an operatingChandler, Arizona lease is for our Arizona manufacturing facility, which includes a total of 18,327 square feet of office and fabrication space, which has a term through January 2021.
We have an operating lease for 27,97418,815 square feet of office and laboratory spacespace. The prior lease for the Chandler, Arizona facility expired in Arizona,January 2022, upon which a new lease was entered into , with an initial term that ends on January 31, 2022, with2029 and an option to renew the lease through AugustJanuary 31, 2024.2034.The Austin, Texas lease is for 6,171 square feet of space for our design facility. The prior lease for the Austin, Texas facility expired in January 2022, upon which a new lease was entered into with an initial term that ends on April 15, 2027 and an option to renew the lease through April 15, 2030.
We believe our existing facilities are well maintained and in good operating condition and they are adequate for our foreseeable business needs. Item 3. Legal Proceedings. From time to time, we may become involved in legal proceedings arising from the ordinary course of our business. Management is currently not aware of any matters that will have a material adverse effect on our financial position, results of operations or cash flows. Item 4. Mine Safety Disclosures. Not applicable. PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Trading Market for our Common Stock Our common stock has been listed on the Nasdaq Global Market under the symbol “MRAM” since October 7, 2016. Prior to that date, there was no public trading market for our common stock. Holders of Record As of March 6, 2019,7, 2022, we had 2724 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities. Dividend PolicyDividends
We have never declared or paid any cash dividends on our capital stock, and we do not currently intend to pay any cash dividends on our capital stock in the foreseeable future. In addition, our existing credit facility prohibits our ability to pay dividends on our capital stock. We currently intend to retain all available funds and any future earnings if any, to fundsupport operations and to finance the developmentgrowth and expansiondevelopment of our business and we do not anticipate paying any cash dividends in the foreseeable future.business. Any future determination related to dividend policypay dividends will be made at the discretion of our board of directors. Underdirectors subject to applicable laws, and will depend upon, among other factors, our Loanresults of operations, financial condition, contractual restrictions, and Security Agreement with Silicon Valley Bank entered into in May 2017, we are not allowedcapital requirements. Our future ability to pay any cash dividends withouton our capital stock may also be limited by the consentterms of Silicon Valley Bank.any future debt or preferred securities or future credit facility. Item 6. Selected Financial Data. [Reserved].
Not required for a smaller reporting company.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with the “Selected Financial Data” and our audited financial statements and related notes included elsewhere in this report. This discussion and other parts of this report contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations, and intentions. As a result of many factors, including those factors set forth in the “Risk Factors” section of this report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Overview
We are the leading provider of MRAM solutions. Our MRAM solutions offer the persistence of non-volatile memory, a type of memory that retains information even in the absence of power, with the speed and endurance of random access memory (RAM). This enables the protection of mission critical data particularly in the event of power interruption or failure. Our MRAM solutions allow our customers in the industrial, automotive and transportation, and enterprise storage markets to design high performance, power efficient and reliable systems without the need for bulky batteries or capacitors.
We derive our revenue from the sale of MRAM-based products in discrete unit form, the sale of services, licenses of and royalties on our MRAM and magnetic sensor technology, the sale of backend foundry services and design services to third parties.
We work directly with our distributors and customers to have our MRAM devices designed into and qualified for their products. Although we maintain direct sales, support, and development relationships with our customers, once our products are designed into a customer’s product, we sell a majorityFor an overview of our products to those customers through distributors. We generated 71% and 74% of our revenue from products sold through distributors for the years ended December 31, 2018 and 2017, respectively.business, see “Part I – Item 1. Business.”
We maintain a direct selling relationship, for strategic purposes, with several key customer accounts. Our sales team and representatives are organized into three primary regions: North America; Europe, Middle East and Africa (EMEA); and Asia-Pacific and Japan (APJ). We recognize revenue by geography based on the region in which our products are sold, and not to where the end products in which they are assembled are shipped. Our revenue by region for the periods indicated was as follows (in thousands):
| | | | | | | | | Year Ended December 31, | | | 2018 | | 2017 | North America | | $ | 9,124 | | $ | 6,340 | EMEA | | | 11,175 | | | 8,031 | APJ | | | 29,118 | | | 21,565 | | | $ | 49,417 | | $ | 35,936 |
Our revenue increased across all regions for the year ended December 31, 2018, compared to the same period in 2017, primarily due to volume growth and new customer wins.
We leverage both internal and outsourced capabilities to manufacture our MRAM products. We purchase industry-standard complementary metal-oxide semiconductor (CMOS) wafers from semiconductor foundries and complete the fabrication by inserting our magnetic-bit technology at our 200mm fabrication facility in Chandler, Arizona. We believe this allows us to streamline research and development, rapidly prototype new products, and bring new products to market quickly and cost effectively. This strategy significantly reduces the capital investment that would otherwise be required to operate manufacturing facilities of our own. We utilize leading semiconductor foundry GLOBALFOUNDRIES to support full turnkey high-volume production of our high density MRAM products on 300mm wafers at advanced process nodes.
During the years ended December 31, 2018 and 2017, we continued to invest in research and development to support the development and production of our Spin Transfer Torque MRAM (STT-MRAM) technology. We believe our continued investment will allow us to continue to develop and deploy products based on our STT-MRAM
technology. For the years ended December 31, 2018 and 2017, our research and development expenses were $23.6 million and $25.4 million, respectively. We expect that our research and development expenses will increase in the future as we continue to develop our MRAM technology internally and through our joint development agreement with GLOBALFOUNDRIES.
For the years ended December 31, 2018 and 2017, we recorded revenue of $49.4 million and $35.9, million, gross margin of 51.3% and 59.8%, and a net loss of $17.8 million and $21.1 million, respectively.
Key Metrics We monitor a variety of key financial metrics to help us evaluate trends, establish budgets, measure the effectiveness of our business strategies, and assess operational efficiencies. These financial metrics include revenue, gross margin, operating expenses, and operating income determined in accordance with GAAP.generally accepted accounting principles in the United States (GAAP). Additionally, we monitor and project cash flow to determine our sources and uses for working capital to fund our operations. We also monitor Adjusted EBITDA, a non-GAAP financial measure.measure, and design wins. We define Adjusted EBITDA as net income or loss adjusted for interest expense, tax,taxes, depreciation and amortization, stock-based compensation expense, and compensation expense related to the vesting of common stock held by GLOBALFOUNDRIES resulting from our joint development agreement.restructuring costs, if any. Adjusted EBITDA.Our management and board of directors use Adjusted EBITDA to understand and evaluate our operating performance and trends, to prepare and approve our annual budget and to develop short-term and long-term operating and financing plans. Accordingly, we believe that Adjusted EBITDA provides useful information for investors in understanding and evaluating our operating results in the same manner as our management and our board of directors. Adjusted EBITDA was $(12.0) millionis a non-GAAP financial measure and $(15.6) millionshould be considered in 2018 and 2017, respectively.addition to, not as superior to, or as a substitute for, net income (loss) reported in accordance with GAAP. The changes were primarilyfollowing table presents a resultreconciliation of increased personnel-related costs, excluding stock-based compensation, contract labor and expenses resulting from our joint development agreement with GLOBALFOUNDRIES. Personnel-related costs and contract labor costs were $20.0 million in 2018 and $18.8 million in 2017. The increase in personnel-related and contract labor is consistent with our strategynet income (loss), the most directly comparable GAAP measure, to expand our operations and develop our MRAM technologies and products to support future growth. Expenses from our joint development agreement were $5.8 million in 2018 and $5.2 million in 2017. Adjusted EBITDA for the periods indicated: | | | | | | | | | | Year Ended December 31, | | | | 2018 | | 2017 | | | | | | | | | | | | | Year Ended December 31, | | | | 2021 | | 2020 | Adjusted EBITDA reconciliation: | | | | | | | | | | | | | Net loss | | $ | (17,754) | | $ | (21,100) | | Net income (loss) | | | $ | 4,343 | | $ | (8,512) | Depreciation and amortization | | | 1,450 | | | 1,191 | | | 1,455 | | | 1,982 | Stock-based compensation expense | | | 2,668 | | | 2,048 | | | 3,227 | | | 3,968 | Compensation expense related to vesting of GLOBALFOUNDRIES common stock | | | 753 | | | 1,472 | | Interest expense | | | 890 | | | 764 | | | 547 | | | 665 | Income tax expense | | | | 4 | | | 260 | Adjusted EBITDA | | $ | (11,993) | | $ | (15,625) | | $ | 9,576 | | $ | (1,637) |
Factors Affecting Our Results of Operations
Design wins. To continue to grow our revenue, we must continue to achieve design wins for our MRAM products. We consider a design win to occur when an original equipment manufacturer (OEM)OEM or contract manufacturer notifies us that it has qualified one of our products as a component in a product or system for production. Because the life cycles for our customers’ products can last for many years, if these products have successful commercial introductions, we expect to continue to generate revenues over an extended period of time for each successful design win. Any delayNew design wins in each successive quarter of 2021 were 40, 37, 40, and 64, respectively, compared to 37, 43, 52, and 43 in each successive quarter of 2020, respectively. Effect of the COVID-19 Pandemic on our Business The COVID-19 outbreak has resulted in government authorities around the world implementing numerous measures to try to reduce the spread of COVID-19, such as travel bans and restrictions, quarantines, “shelter-in-place,” “stay-at-home,” total lock-down orders, business limitations or shutdowns and similar orders. More recently, new variants of COVID-19, such as the Omicron variant, that are more contagious than previous strains have emerged. The spread of these new strains have caused many government authorities and businesses to reimplement the aforementioned measures to try to reduce the spread that had become less prevalent. The COVID-19 pandemic and its variants have negatively impacted the global economy, disrupted global supply chains and workforce participation, and initially created significant volatility and disruption of financial markets. Overall, our business remains operational in the developmentmidst of the pandemic. However, as a result of the ongoing COVID-19 outbreak and the related responses from government authorities, our business, results of operations and financial condition have been, and continue to be, adversely impacted. For example, we have experienced electronics supply chain and demand disruptions from extended factory shutdowns, particularly in some Asian countries, which created unusual order patterns, and subsequently slowed Toggle MRAM demand, particularly from our industrial customers. We continue to see an impact as reflected in reduced demand from some customers and distributors. While we are working closely with our manufacturing partners and suppliers to support demand for our products, the full impact on our demand from customers remains unknown. Management is thus planning for a broad range of possible demand outcomes in an effort to ensure the success of our products, or failurebusiness under a variety of end market conditions. Further, in an effort to protect the health and safety of our customersemployees, we transitioned most of our office and support employees and contractors to adopt our products, could inhibit revenue growth or cause declines, which would significantly harm our business. In the fourth quarter of 2017, we recorded revenueworking from home; suspended all non-essential business travel; and implemented social distancing guidelines for our first sale of 40nm 256Mb STT-MRAM productsemployees and we ramped up production in 2018. Customer acceptance of our technology and customer product success. For our customers to use our products, they may have to redesign certain components of their existing designs. We have established relationships with several storage controller and Field Programmable Gate Array (FPGA) companies, including Xilinx, Lattice and Rizwan as well as IP core companies, including Cadence, Synopsys, and Northwest Logic, to facilitate the integration of our MRAM solutions into our customers end products. Delayscontractors who must work in our customers’ design cycles maymanufacturing and laboratory locations. Consequently, the remote working environment we have adverse effects onimplemented for our employees has adversely impacted manufacturing operations given delays in data gathering, analysis and inefficiencies of teams solving technical problems via remote-only means, which has impacted, and continues to impact, our cost of sales.
The emergence of different variants of COVID-19 and the demand,prevalence of breakthrough cases of infection among fully vaccinated people adds additional uncertainty and therefore sales,could result in further impacts to our business and operations, including those discussed above and in “Risk Factors” in Part II, Item 1A of our products.this report. Customer concentration. A relatively small number of end customers have historically accounted for a significant percentage of our revenue. Revenue, including through distributors, from our four largest end customers, collectively, accounted for 29% and 28% of our total revenue in 2018 and 2017, respectively. One of these customers individually accounted for more than 10% of our total revenue in 2018 and none of these customers individually accounted for more than 10% of our total revenue in 2017. It would be difficult to replace lost revenue resulting from the loss, reduction, cancellation or delay in purchase orders by any one of these end customers. Consolidation among our customers may further concentrate our customer base and expose us to increased risks relating to increased customer concentration. In addition, any significant pricing pressure exerted by a significant customer could adversely affect our operating results.
Pricing, product cost and gross margins of our products. Our gross margin has been, andWe will continue to be, affected by a variety of factors, includingmonitor the timing of changessituation and take additional actions as warranted. These actions may include further altering our operations in pricing, shipment volumes, new product introductions, changes in product mix, changes in our purchase price of fabricated wafers, assembly and test service expenses, manufacturing yields and inventory write downs, if any. In general, newly introduced products, and products with higher densities and performance, tendorder to be priced higher than older, more mature products. Average selling prices inprotect the semiconductor industry typically decline as products mature. Consistent with this historical trend, we expect that the average selling pricesbest interests of our products will decline as they mature. Inemployees, customers and suppliers, and to comply with government requirements, while also planning and executing our business to best support our customers, suppliers, and partners.
The ultimate extent of the normal course of business, we seek to offset the effect of declining average selling prices on existing products by reducing manufacturing expenses and introducing newer, higher value-added products. If we are unable to maintain overall average selling prices or to offset any declines in average selling prices with savings on product costs, our gross margin will decline. Gross margin impact of licensing revenue. Our licensing revenue,the COVID-19 pandemic on our business, results of operations and financial condition will depend on future developments, which we collect as licensing feesare highly uncertain, continuously evolving and royalty payments, generates significantly higher gross margin than product revenue. Duecannot be predicted, including, but not limited to, the high gross margin profileduration and spread of the COVID-19 outbreak and its severity; the emergence and severity of its variants; the actions to contain the virus or treat its impact, such as the availability and efficacy of vaccines (particularly with respect to emerging strains of the virus) and potential hesitancy to use them; general economic factors, such as increased inflation; supply chain restraints; labor supply issues; and how quickly and to what extent normal economic and operating conditions can resume. Accordingly, our current results and financial condition discussed herein may not be indicative of future operating results and trends. See “Risk Factors” in Part II, Item 1A of this revenue stream, fluctuations in licensing revenue may have a greater impact on gross margin than a corresponding change inreport for additional risks we face due to the demandCOVID-19 pandemic.
Results of Operations Below are factors we want to highlight for understanding our products. Therefore, as licensing revenue fluctuates, we may see significant variations in gross margin.2021 annual results and year over year comparison with proper historical perspective: | ● | 2021 represented a year of broad semiconductor market demand challenges driven by factors that included challenges from the COVID-19 pandemic and international trade conflicts, which had a significant impact on our results; |
| ● | Our manufacturing yields improved throughout 2021 resulting in significantly higher product margins compared to 2020. |
The following table sets forth our results of operations for the periods indicated: | | | | | | | | | | | | | | | | Year Ended December 31, | | | | 2021 | | 2020 | | 2021 | | 2020 | | | | (In thousands) | | (As a percentage of revenue) | | Product sales | | $ | 43,931 | | $ | 39,848 | | | 80 | % | | 95 | % | Licensing, royalty, patent, and other revenue | | | 11,215 | | | 2,183 | | | 20 | | | 5 | | Total revenue | | | 55,146 | | | 42,031 | | | 100 | | | 100 | | Cost of product sales | | | 21,045 | | | 23,746 | | | 38 | | | 56 | | Cost of licensing, royalty, patent, and other revenue | | | 1,029 | | | 196 | | | 2 | | | — | | Total cost of sales | | | 22,074 | | | 23,942 | | | 40 | | | 57 | | Gross profit | | | 33,072 | | | 18,089 | | | 60 | | | 43 | | Operating expenses: | | | | | | | | | | | | | | Research and development | | | 12,628 | | | 10,896 | | | 23 | | | 26 | | General and administrative | | | 10,949 | | | 10,773 | | | 20 | | | 26 | | Sales and marketing | | | 4,460 | | | 3,983 | | | 8 | | | 9 | | Total operating expenses | | | 28,037 | | | 25,652 | | | 51 | | | 61 | | Income (loss) from operations | | | 5,035 | | | (7,563) | | | 9 | | | (18) | | Interest expense | | | (547) | | | (665) | | | (1) | | | (2) | | Other expense, net | | | (141) | | | (24) | | | — | | | — | | Net income (loss) before income taxes | | | 4,347 | | | (8,252) | | | 8 | | | (20) | | Income tax expense | | | (4) | | | (260) | | | — | | | (1) | | Net income (loss) and comprehensive income (loss) | | $ | 4,343 | | $ | (8,512) | | | 8 | % | | (21) | % |
Technology, process, and product development investment. We invest heavily to develop our MRAM technology, including the core MRAM technology, the joint development agreement with GLOBALFOUNDRIES, and the design of new and innovative products based on MRAM, to provide solutions to our current and future customers. We anticipate that we will continue to invest in our research and development to achieve our technology and product roadmaps. Our product development is targeted to specific segmentsComparison of the market where we believe the densitiesYears Ended December 31, 2021 and performance of our products can provide the most benefit. We believe our close coordination with our customers regarding their future product requirements enhances the efficiency of our research and development expenditures.2020
Components of Results of Operations
Revenue We derivegenerated 66% and 62% of our revenue from products sold through distributors for the sale ofyears ended December 31, 2021 and 2020, respectively. We maintain a direct selling relationship, for strategic purposes, with several key customer accounts. We have organized our MRAM-based products in discrete unit form, the licensing of our MRAMsales team and magnetic sensor technologyrepresentatives into three primary regions: Asia-Pacific (APAC); North America; and related royalties, the sale of backend foundry services,Europe, Middle East and design services to third parties.Africa (EMEA). We recognize sales of products in discrete unit form at a point in time, we recognize revenue related to licensing agreements when we have delivered rights to the technology, we recognize revenue related to royalty agreements in the period in which sales generated from products sold using our technology occurs, and we recognize sales of backend foundry services and design services to third parties over time. For some our products, we provide price protection and product return rights. As such, for sales through distributors of our discrete MRAM products, at the time of revenue recognition, which occurs when control of the products has been transferred to the distributor, we estimate product returns and the expected price concessions that will be provided to the distributor, which is included in the transaction price. We estimate the credits to the distributorsby geography based on the historical rateregion in which our products are sold, and not to where the end products in which they are assembled are shipped. Our revenue by region for the periods indicated was as follows (in thousands):
| | | | | | | | | Year Ended December 31, | | | 2021 | | 2020 | APAC | | $ | 32,327 | | $ | 29,480 | North America | | | 15,813 | | | 9,253 | EMEA | | | 7,006 | | | 3,298 | Total revenue | | $ | 55,146 | | $ | 42,031 |
| | | | | | | | | | | | | | | Year Ended December 31, | | Change | | | | 2021 | | 2020 | | Amount | | % | | | | | (Dollars in thousands) | | Product sales | | $ | 43,931 | | $ | 39,848 | | $ | 4,083 | | 10.2 | % | Licensing, royalty, patent, and other revenue | | | 11,215 | | | 2,183 | | | 9,032 | | 413.7 | % | Total revenue | | $ | 55,146 | | $ | 42,031 | | $ | 13,115 | | 31.2 | % |
Total revenue increased by $13.1 million, or 31.2%, from $42.0 million during the year ended December 31, 2020, to distributors relative$55.1 million during the year ended December 31, 2021. Product sales increased by $4.1 million or 10.2%, from $39.8 million to sales or, for some customers the credit is based on$43.9 million. The increase was primarily driven by a previously negotiated fixed rate. Our licensinghigher volume of Toggle MRAM product sales. Licensing, royalty, patent, and other revenue is largely dependent ona highly variable revenue item characterized by a small number of transactions annually with revenue based on size and terms of each transaction. Licensing, royalty, patent, and other revenue increased by $9.0 million, from $2.2 million during the year ended December 31, 2020 to $11.2 million during the year ended December 31, 2021. The increase was primarily due to the intellectual property monetization deal to sell five patents to a given year.customer for a total contract value of $5.3 million combined with $3.7 million in license revenues from a contractual agreement with a customer for the development of a RAD-Hard product, consisting of a technology license, a design license agreement and development contract entered into during the year ended December 31, 2021. Cost of Sales and Gross Margin | | | | | | | | | | | | | | | Year Ended December 31, | | Change | | | | 2021 | | 2020 | | Amount | | % | | | | | (Dollars in thousands) | | Cost of sales | | $ | 21,045 | | $ | 23,746 | | $ | (2,701) | | (11.4) | % | Cost of licensing, royalty, patent, and other revenue | | | 1,029 | | | 196 | | | 833 | | 425.0 | % | Total cost of sales | | $ | 22,074 | | $ | 23,942 | | $ | (1,868) | | (7.8) | % | Gross margin | | | 60.0 | % | | 43.0 | % | | * | | * | |
Cost of product sales decreased by $2.7 million, or 11.4%, from $23.7 million during the year ended December 31, 2020, to $21.0 million during the year ended December 31, 2021. The decrease primarily includesreflects improved toggle manufacturing yields during the cost of our products including costsyear ended December 31, 2021, and a reduction due to purchase wafers, costs paida $1.9 million reserve charge for wafer fabrication, costs associated withexcess and obsolete inventory for the assembly and testing of our products, shipping costs and costs of our manufacturing personnel. year ended December 31, 2020. Cost of sales also includes indirect costs, such as warranty, inventory valuation reserveslicensing, royalty, patent, and overhead costs.other revenue increased by $0.8 million, or 425.0%, from $0.2 million during the year ended December 31, 2020, to $1.0 million during the year ended December 31, 2021. The increase was due primarily to increases in foundry and licensing activities. Gross profit is revenue less cost of sales. Gross margin is gross profit expressed as a percentage of total revenue. We expect that ourOur gross margin may fluctuateincreased from period43.0% during the year ended December 31, 2020 to period, primarily60.0% during the year ended December 31, 2021. Our product margins increased as a result of changesimprovements of manufacturing yields throughout 2021, along with an increase in average selling price,licensing, royalty, patent, and other revenue, mix amongwhich typically have higher margins than our products,product sales. We continually look for alternative uses for previously reserved inventory and in certain instances we may receive discounted wafers based on product yields, and manufacturing costs. In addition, we may reserve against the value at which we carry our inventory based upon the product’s life cycle and conditions in the markets in which we sell. Declines in average selling prices may be paired with improvements in our cost of sales, which may offset some of the gross margin reduction that could result from lower selling prices.impact individual product margin.
Operating Expenses Our operating expenses consist of research and development, general and administrative and sales and marketing expenses. Personnel-related expenses, including salaries, benefits, bonuses, and stock-based compensation, are among the most significant component of each of our operating expense categories. Research and Development Expenses Expenses. Our research and development expenses consist primarily of personnel-related expenses for the design and development of our products and technologies, development wafers required to validate and characterize our technology, and expenses associated with our joint development agreement with GLOBALFOUNDRIES.activities. Research and development expenses also include consulting services, circuit design costs, materials and laboratory supplies, fabrication and new packaging technology, and an allocation of related facilities and equipment costs. We are also incurring costs associated with our new 28nm product development. We recognize research and development expenses as they are incurred. We expect our research | | | | | | | | | | | | | | | Year Ended | | | | | | | | | December 31, | | Change | | | | 2021 | | 2020 | | Amount | | % | | | | (Dollars in thousands) | | Research and development | | $ | 12,628 | | $ | 10,896 | | $ | 1,732 | | 15.9 | % | Research and development as a % of revenue | | | 23 | % | | 26 | % | | | | | |
Research and development expenses to decrease as a result of less spending in the future in connection with our joint development agreement with GLOBAL FOUNDRIES. General and Administrative Expenses
Our general and administrative expenses consist primarily of personnel expenses, allocated facilities costs, expenses for outside professional services, and expenses for personnel and consultants engaged in executive, finance, legal, information technology and administrative activities. We expect our general and administrative expenses to remain flat as we have reached a level of stabilization in staffing and costs of being a public company.
Sales and Marketing Expenses
Our sales and marketing expenses consist primarily of compensation for our sales, marketing, and business development personnel, including bonuses and commissions for our sales representatives. We expect our sales and marketing expenses, excluding variable commissions, to remain flat as we have reached a level of stabilization for staffing of sales personnel and representatives and marketing activities.
Interest Expense
Interest expense consists of cash and non-cash components. The non-cash component consists of interest expense recognized from the amortization of debt discounts derived from the issuance of a warrant, the end of term fee and debt issuance costs capitalized on our balance sheets as a reduction of the debt balance. Interest expense is due to our borrowings under our loan agreements.
Other Income, Net
Other income, net consists primarily of the interest income earned on our cash equivalents and foreign currency exchange gains and losses. Our foreign currency exchange gains and losses relate to transactions and asset and liability balances denominated in currencies other than the U.S. dollar.
Loss on Extinguishment of Debt
In the second quarter of 2017, we repaid the outstanding balance of our revolving loan and term loan at which time we recognized the unamortized balance of the debt discount and a prepayment penalty for the term loan as a loss on extinguishment of debt.
Results of Operations
The following table sets forth our results of operations for the periods indicated:
| | | | | | | | | | | | | | Year Ended December 31, | | 2018 | | 2017 | | 2018 | | 2017 | | | (In thousands) | (As a percentage of revenue) | Product sales | $ | 39,514 | | $ | 30,838 | | | 80 | % | | 86 | % | Licensing, royalty, and other revenue | | 9,903 | | | 5,098 | | | 20 | | | 14 | | Total revenue | | 49,417 | | | 35,936 | | | 100 | | | 100 | | Cost of sales | | 24,083 | | | 14,451 | | | 49 | | | 40 | | Gross profit | | 25,334 | | | 21,485 | | | 51 | | | 60 | | Operating expenses: | | | | | | | | | | | | | Research and development | | 23,637 | | | 25,437 | | | 48 | | | 71 | | General and administrative | | 12,551 | | | 11,516 | | | 25 | | | 32 | | Sales and marketing | | 6,467 | | | 4,740 | | | 13 | | | 13 | | Total operating expenses | | 42,655 | | | 41,693 | | | 86 | | | 116 | | Loss from operations | | (17,321) | | | (20,208) | | | (35) | | | (56) | | Interest expense | | (890) | | | (764) | | | (2) | | | (2) | | Other income, net | | 457 | | | 118 | | | 1 | | | — | | Loss on extinguishment of debt | | — | | | (246) | | | — | | | (1) | | Net loss | $ | (17,754) | | $ | (21,100) | | | (36) | % | | (59) | % |
Comparison of the Years Ended December 31, 2018 and 2017
Revenue
| | | | | | | | | | | | | | | Year Ended December 31, | | Change | | | | 2018 | | 2017 | | Amount | | % | | | | (Dollars in thousands) | | Product sales | | $ | 39,514 | | $ | 30,838 | | $ | 8,676 | | 28.1 | % | Licensing, royalty, and other revenue | | | 9,903 | | | 5,098 | | | 4,805 | | 94.3 | % | Total revenue | | $ | 49,417 | | $ | 35,936 | | $ | 13,481 | | 37.5 | % |
Total revenue increased by $13.5$1.7 million, or 37.5%15.9%, from $35.9$10.9 million during the year ended December 31, 2017, to $49.4 million during the year ended December 31, 2018. Product sales increased by $8.7 million or 28.1% from $30.8 million, to $39.5 million. The increase was primarily due to $10.8 million in increased sales volume and mix in our MRAM products partially offset by a $2.1 million decrease in sales of our legacy products as a result of a decrease in demand for our legacy products.
Licensing, royalty, and other revenue is a highly variable revenue item characterized by a small number of transactions annually with revenue based on size and terms of each transaction. Licensing, royalty, and other revenue increased by $4.8 million in 2018, from $5.1 million to $9.9 million. The increase was due to a non-refundable license fee related to a cross-license agreement entered into with a customer in March 2018, an increase of $0.5 million in royalty revenue, and an increase of $0.3 million in sales of our backend foundry service. These increases were offset in part by a $0.7 million decrease in milestone payments earned for research and development activities performed on behalf of GLOBALFOUNDRIES.
The increase in revenue is also due in part to our adoption of the new revenue accounting standard whereby revenue from sales to distributors is recognized upon delivery of the product to the distributor. In 2017, revenue from
sales in which distributors were granted concessions or price protection credits was deferred until the sale of the products to the end customer was completed. This change resulted in a $0.6 million increase in revenue in 2018.
Cost of Sales and Gross Margin
| | | | | | | | | | | | | | | Year Ended December 31, | | Change | | | | 2018 | | 2017 | | Amount | | % | | | | (Dollars in thousands) | | Cost of sales | | $ | 24,083 | | $ | 14,451 | | $ | 9,632 | | 66.7 | % | Gross margin | | | 51.3 | % | | 59.8 | % | | * | | * | |
*Not meaningful.
Cost of sales increased by $9.6 million, or 66.7%, from $14.5 million during the year ended December 31, 2017, to $24.1 million during the year ended December 31, 2018. The increase was primarily due to increased sales volume and lower yields on our MRAM products, as well as one time scrapping events in which we scrapped $1.6 million of inventory items, partially offset by lower sales volume of backend foundry services and legacy products.
Gross margin decreased from 59.8% during the year ended December 31, 2017, to 51.3% during the year ended December 31, 2018. The decrease was primarily due to inventory items that were scrapped during 2018, as well as lower yields on our MRAM products that were partially offset by a onetime licensing event in the first quarter of 2018.
Operating Expenses
| | | | | | | | | | | | | | | Year Ended December 31, | | Change | | | | 2018 | | 2017 | | Amount | | % | | | | (Dollars in thousands) | | Research and development | | $ | 23,637 | | $ | 25,437 | | $ | (1,800) | | (7.1) | % | Research and development as a % of revenue | | | 48 | % | | 71 | % | | | | | |
Research and Development Expenses. Research and development expenses decreased by $1.8 million, or 7.1%, from $25.4 million during the year ended December 31, 2017, to $23.6 million during the year ended December 31, 2018. The decrease was due to a $1.7 million decrease in spending on direct materials and supplies used in research and development activities due to the timing of purchases, a $1.3 million decrease in employee and contract labor costs due to a decrease in headcount, a $0.7 million decrease in the amount attributable to the vesting of shares of common stock issued to GLOBALFOUNDRIES due to revaluing shares, and a $0.5 million decrease in equipment maintenance due to less repairs on machinery. These decreases were partially offset by a $0.8 million increase in process engineering costs due to increasing production capacity, a $0.6 million increase in expenses incurred in our joint development agreement with GLOBALFOUNDRIES due to the use of more technologically advanced materials, a $0.5 million increase in software expenses due to the purchase of software to improve simulations, a $0.2 million increase in rent expense due to increased rent expense for our new headquarters, which we moved into in December 2017, and a $0.2 million dollar increase in depreciation expense.
| | | | | | | | | | | | | | | Year Ended December 31, | | Change | | | | 2018 | | 2017 | | Amount | | % | | | | (Dollars in thousands) | | General and administrative | | $ | 12,551 | | $ | 11,516 | | $ | 1,035 | | 9.0 | % | General and administrative as a % of revenue | | | 25 | % | | 32 | % | | | | | |
General and Administrative Expenses. General and administrative expenses increased by $1.0 million, or 9.0%, from $11.5 million during the year ended December 31, 2017,2020, to $12.6 million during the year ended December 31, 2018.2021. The increase was primarily due a $1.4 million increase in employeeto higher expenses relating to the development of our 28 nm product.
| | | | | | | | | | | | | | | Year Ended | | | | | | | | | December 31, | | Change | | | | 2021 | | 2020 | | Amount | | % | | | | (Dollars in thousands) | | General and administrative | | $ | 10,949 | | $ | 10,773 | | $ | 176 | | 1.6 | % | General and administrative as a % of revenue | | | 20 | % | | 26 | % | | | | | |
General and contract labor costs due to an increase in headcount, of which $0.5 million was due to increased stock-based compensation expenseAdministrative Expenses. General and the repricing of certain stock options in the year ended December 31, 2018, and an increase of $0.1 million in software expenses. These increases were partially offset by a decrease of $0.5 million in professional services due to costs incurred in 2017 related to recently becoming a public company. | | | | | | | | | | | | | | | Year Ended December 31, | | Change | | | | 2018 | | 2017 | | Amount | | % | | | | (Dollars in thousands) | | Sales and marketing | | $ | 6,467 | | $ | 4,740 | | $ | 1,727 | | 36.4 | % | Sales and marketing as a % of revenue | | | 13 | % | | 13 | % | | | | | |
Sales and Marketing Expenses. Sales and marketingadministrative expenses increased by $1.7$0.2 million, or 36.4%1.6%, from $4.7$10.8 million during the year ended December 31, 2017,2020, to $6.5$10.9 million during the year ended December 31, 2018.2021. The increase was primarily due to a $1.7 million increaseincreases in employeeexpenses related to profit sharing and contract labor costs as a result of higher headcountprofessional service fees.
| | | | | | | | | | | | | | | Year Ended | | | | | | | | | December 31, | | Change | | | | 2021 | | 2020 | | Amount | | % | | | | (Dollars in thousands) | | Sales and marketing | | $ | 4,460 | | $ | 3,983 | | $ | 477 | | 12.0 | % | Sales and marketing as a % of revenue | | | 8 | % | | 9 | % | | | | | |
Sales and an increase in salaries, bonusesMarketing Expenses. Sales and stock-based compensation expense Interest Expense
| | | | | | | | | | | | | | | Year Ended December 31, | | Change | | | | 2018 | | 2017 | | Amount | | % | | | | (Dollars in thousands) | | Interest expense | | $ | 890 | | $ | 764 | | $ | 126 | | 16.5 | % |
Interest expensemarketing expenses increased by $0.1$0.5 million, or 16.5%12.0%, from $0.8$4.0 million during the year ended December 31, 2017,2020, to $0.9$4.5 million during the year ended December 31, 2018.2021. The increase was primarily due to higher interest expense on our 2017 Credit Facility and Amended Credit Facility with Silicon Valley Bank, compared to our prior facility with Ares Venture Finance, due to an increase in the principal outstanding and an increase in the prime rate during the period.variable compensation costs.
Other Income, NetInterest Expense
| | | | | | | | | | | | | | | Year Ended December 31, | | Change | | | | 2018 | | 2017 | | Amount | | % | | | | (Dollars in thousands) | Other income, net | | $ | 457 | | $ | 118 | | $ | 339 | | 287.3 | % |
| | | | | | | | | | | | | | | Year Ended December 31, | | Change | | | | 2021 | | 2020 | | Amount | | % | | | | | (Dollars in thousands) | | Interest expense | | $ | 547 | | $ | 665 | | $ | (118) | | (17.7) | % |
Other income, net increasedInterest expense decreased by $0.3$0.1 million, or 287.3%17.7%, from $0.1$0.7 million during the year ended December 31, 2017,2020, to $0.5 million during the year ended December 31, 2018.2021. The decrease was due to lower outstanding balances under the credit facility during the year resulting in less interest incurred.
Other Expense, Net | | | | | | | | | | | | | | | Year Ended December 31, | | Change | | | | 2021 | | 2020 | | Amount | | % | | | | | (Dollars in thousands) | Other expense, net | | $ | (141) | | $ | (24) | | $ | (117) | | 487.5 | % |
Other expense, net increased by $117,000, or 487.5%, from $24,000 during the year ended December 31, 2020 to $141,000 during the year ended December 31, 2021. The increase was primarily relateddue to an increasea decrease in interest income earned on our cash balances as a result of the increase in our cash balances from the follow-on public offering in February 2018. Loss on extinguishment of debt
| | | | | | | | | | | | | | Year Ended December 31, | | Change | | | 2018 | | 2017 | | Amount | | % | | | (Dollars in thousands) | Loss on debt extinguishment | | $ | — | | $ | 246 | | $ | (246) | | * |
*Not meaningful.
Loss on extinguishment of debt was $0.2 million during the year ended December 31, 2017, due tofrom the payoff of our prior facilitylower interest rate environment, along with Ares Venture Financeincreases in May 2017. There was no such loss during the year ended December 31, 2018.non-income-based tax charges.
Liquidity and Capital Resources We have generated significant losses since our inception and had an accumulated deficit of $134.0 million as of December 31, 2018. We have financed our operations primarily through the sale of our common stock in our initial public offering (IPO), sales of our redeemable convertible preferred stock, debt financing and the sale of our products. As of December 31, 2018, we had $23.4 million of cash and cash equivalents, compared to $13.0 million as of December 31, 2017.
In November 2017, we filed a Registration Statement (File No. 333-221331) registering the offer and sale of up to $100.0 million of our securities, and in February 2018 we completed a follow-on underwritten public offering of our common stock under the Registration Statement, completing the sale of 3,722,447 shares at an offering price of $7.00 per share for proceeds of $24.5 million, net of $1.9 million of underwriting discounts and commissions and other offering costs.
In May 2017, we executed a Loan and Security Agreement with Silicon Valley Bank for a $12.0 million term loan, which we amended in July 2018 to extend the interest only payment period until December 31, 2018. The term of the amended loan is two years following the interest only payment period, which would be extended by one year if we achieve certain milestones. The outstanding balance of the loan is to be repaid monthly beginning on January 1, 2019 over the remaining two-year term of the amended loan with an end of term fee of $0.8 million due upon maturity. The amended loan is secured by a first priority perfected security interest in our assets excluding any intellectual property, as described further below under “Credit Facilities.”
As of December 31, 2018,2021, and as of March 15, 2019,9, 2022 we believe that our existing cash and cash equivalents, coupled with the amount available under our credit facility and our anticipated growth and sales levels, will be sufficient to meet our anticipated cash requirements for at least the next twelve12 months. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of our spending to support research and development activities, the timing and cost of establishing additional sales and marketing capabilities, and the introduction of new products. If we need to raise additional capital to fund We have generated significant losses since our inception and had an accumulated deficit of $152.8 million as of December 31, 2021. We have historically financed our operations we may be required to seek additional equity orprimarily through the sale of our common stock in our initial public offering (IPO) and follow-on public offering, sales of our common stock under our at-the-market sales agreement, sales of our redeemable convertible preferred stock, debt financing and such additional financing may not be availablethe sale of our products. As of December 31, 2021, we had $21.4 million of cash and cash equivalents, compared to us on acceptable terms or at all. If$14.6 million as of December 31, 2020. For the year ended December 31, 2021, we are unable to raise additional capital or generate sufficientalso generated cash flows from operations of $9.4 million. In August 2019, we entered into an open market sale agreement (2019 Sales Agreement) with Jefferies, LLC (Jefferies) for the offer and sale of shares of our common stock having an aggregate offering of up to adequately fund$25.0 million from time to time through Jefferies, acting as sales agent. The issuance and sale of these shares by us pursuant to the 2019 Sales Agreement were deemed an “at-the-market” (ATM) offering under the Securities Act. Under the 2019 Sales Agreement, we agreed to pay Jefferies a commission of up to 3% of the gross proceeds of any sales made pursuant to the 2019 Sales Agreement. During the year ended December 31, 2020, we received net proceeds of $2.1 million after deducting commissions and expenses payable by us, from the sale of 468,427 shares of common stock pursuant to the 2019 Sales Agreement. We suspended sales under the 2019 Sales Agreement in March 2020 and terminated the ATM program in November 2020. Additionally, see “Credit Facilities” below for information regarding our operations, we will need to curtail planned activities to reduce costs and extend the time period over which our current resources will be able to fund operations. Doing so will likely harm our ability to execute on our business plan.debt financing. Cash Flows The following table summarizes our cash flows for the periods indicated (in thousands): | | | | | | | | | Year Ended December 31, | | | 2018 | | 2017 | | | (In thousands) | Cash used in operating activities | | $ | (14,673) | | $ | (18,888) | Cash used in investing activities | | | (1,914) | | | (3,070) | Cash provided by financing activities | | | 27,016 | | | 5,181 |
| | | | | | | | | Year Ended | | | December 31, | | | 2021 | | 2020 | | | | (In thousands) | Cash provided by (used in) operating activities | | $ | 9,359 | | $ | (2,923) | Cash used in investing activities | | | (1,030) | | | (320) | Cash (used in) provided by financing activities | | | (1,519) | | | 3,355 |
Cash Used inFlows From Operating Activities During the year ended December 31, 2018,2021, cash used inprovided by operating activities was $14.7$9.4 million, which primarily consisted of a net lossincome of $17.8$4.3 million, adjusted by non-cash charges of $5.3$5.0 million and a change of $2.2 million$4,000 in our net operating assets and liabilities. The non-cash charges primarily consisted of stock-based compensation of $2.7$3.2 million, depreciation and amortization of $1.5 million, compensation expense related to vesting of common stock issued to GLOBALFOUNDRIES under our joint development agreement of $0.8 million, and non-cash interest expense of $0.4$0.3 million. The change in our net operating assets and liabilities was primarily due to an increase of $3.8$1.7 million of accrued liabilities and an increase in deferred revenue of $0.8 million related to timing of RAD-Hard licensing revenue recognition. These were offset by a decrease of $0.7 million in inventory, an increase of $0.5 million in prepaid expenses and other current assets, an increase of $0.6 million in accounts receivable due to an increased sales volume and timing of cash receipts for outstanding balances, and a decrease of $0.2$0.6 million in accounts payable due to the timingincreased cash flow and increased efforts on timely payments, a decrease of payments. These were partially offset by$0.2 million in lease liabilities, and an increase of $1.3 million$11,000 in accrued liabilities primarily due to an increase in inventory purchases in connection with the joint development agreement with GLOBALFOUNDRIES, an increase in accrued payroll, and the timingother assets. During the year ended December 31, 2017,2020, cash used in operating activities was $18.9$2.9 million, which primarily consisted of a net loss of $21.1$8.5 million, adjusted by non-cash charges of $5.2$6.3 million and a change of $3.0$0.7 million in our net operating assets and liabilities. The non-cash charges primarily consisted of stock-based compensation of $2.0 million, compensation expense related to vesting of common stock issued to GLOBALFOUNDRIES under our joint development agreement of $1.5$4.0 million, depreciation and amortization of $1.2$2.0 million, and non-cash interest expense of $0.3 million and loss on debt extinguishment of $0.2 million. The change in our net operating assets and liabilities was primarily due to an increase in inventory of $3.9 million to meet demands of future sales and growing backlog, an increase of $0.4$1.8 million in accounts receivable due to theincreased sales volume and timing of cash receipts for outstanding balances, and a $0.1 million decrease in deferred income on shipments to distributors. These were partially offset by an increase of $2.1 million in prepaid expensesfuture sales and other current assets,growing backlog, a decrease of $0.8 million in accounts payable and accrued liabilities, of $1.4 million due to the timing of payments.payments, and a decrease of $0.3 million in accrued liabilities primarily due to timing of payments on inventory purchases.
Cash Used inFlows From Investing Activities Cash used in investing activities during the years ended December 31, 20182021 and 20172020 was $1.9$1.1 million and $3.1$0.3 million, respectively, which consisted of capital expenditures primarily for the purchase of manufacturing equipment and purchased software. Cash Provided byFlows From Financing Activities During the year ended December 31, 2018,2021, cash provided byused in financing activities was $27.0$1.5 million, consistingwhich primarily consisted of net proceeds from the issuance of common stock in our February 2018 follow-on underwritten public offering of $24.5 million, proceeds of $1.0$3.4 million in borrowings, and $2.5payments on long-term debt offset by $1.9 million in proceeds from stock option exercises and purchases of shares inunder our employee stock purchase plan, offset in part by payments of long-term debt of $1.0 million.plan. During the year ended December 31, 2017,2020, cash provided by financing activities was $5.2$3.4 million, consistingwhich primarily consisted of $12.0$2.1 million in net proceeds from borrowingsthe sale of our common stock through our ATM program under our 2017 long-term debt facility,the 2019 Sales Agreement, and $1.6$1.3 million in proceeds from the exercise of stock optionsoption exercises and purchasepurchases of shares under theour employee stock purchase plan, partially offset by $8.4 million in payments on our 2015 long-term debt facility and capital lease obligations.plan. Off-Balance Sheet Arrangements We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities. Credit Facilities Prior Facilities
In June 2015, we entered into a loan and security agreement with Ares Venture Finance for a term loan of $8.0 million and a $4.0 million revolving loan for working capital purposes and to repay our existing debt to another lender. In April 2017, the loan was terminated and we repaid the outstanding balance of $1.1 million on the revolving loan. In May 2017, we repaidexecuted a Loan and Security Agreement (2017 Credit Facility) with Silicon Valley Bank (SVB) for a $12.0 million term loan, which we subsequently amended in January 2019 and June 2019. In August 2019, we executed an Amended and Restated Loan and Security Agreement (2019 Credit Facility), which amended and restated the 2017 Credit Facility, providing for a formula revolving line of credit (Line of Credit) and a term loan (2019 Term Loan) with SVB to refinance in full the outstanding principal balance of $6.2$8.0 million onunder the 2017 Credit Facility.
In July 2020, we executed the first amendment to the 2019 Credit Facility with SVB. The amendment, among other things, extended the initial 12-month interest-only period for the term loan. 2017loan to a 16-month interest-only period and lowered the floor interest rate. The floor interest rates for 2019 Term Loan and the Line of Credit Facility were reduced from 4.75% and 6.75% to 3.75% and 4.75%, respectively.
In May 2017, we entered into a Loan and Security Agreement with Silicon Valley BankThe amended Line of Credit allows for a maximum draw of $5.0 million, subject to a formula borrowing base, has a two-year term loan of $12.0 million. The term loanand bears for interest at a floating rate equal to the Wall Street Journal (WSJ) prime rate minus 0.75%plus 1.5%, per annum, subject to a floor of 4.75%. The term loan provided for a periodCurrently, $4.0 million remains available under the Line of interest-only payments through April 30, 2018, followed by fixed principal and interest payments based on either a 24-month amortization schedule or a 36-month amortization schedule if we met certain sales milestones, and an additional payment of 6% of the Loan Amount when the loan was prepaid or repaid, whether at maturity or as a result of a prepayment or acceleration or otherwise.Credit, subject to borrowing base availability. As of December 31, 2017, we determined we would not meet2021, the sales milestoneseffective interest rate under the Line of Credit was 10.18% and as such the term loanoutstanding balance was based$1.0 million. The Line of Credit was set to mature on a 24-month amortization schedule.
In July 2018, weAugust 5, 2021. The second amendment entered into on July 28, 2021 extended the First Amendmentmaturity date of the Line of Credit to August 5, 2022.
The amended 2019 Term Loan provides for a $6.0 million term loan. The amended 2019 Term Loan has a term of 46 months, and a 16-month interest-only period followed by 30 months of equal principal payments, plus accrued interest. The 2019 Term Loan bears interest at a floating rate equal to the Loan and Security Agreement with Silicon Valley BankWSJ prime rate minus 0.75%, subject to extend the interest only payment period untila floor of 3.75%. As of December 31, 2018.2021, the effective interest rate under the 2019 Term Loan was 7.85% and the outstanding balance was $4.0 million. The term2019 Term Loan matures on June 1, 2023. In conjunction with entering into the 2019 Credit Facility, on August 5, 2019, we and SVB amended and restated the warrant issued to SVB in connection with the first amendment to the 2017 Credit Facility, which was a warrant to purchase 9,375 shares of our common stock at an exercise price of $8.91 per share, to add an option by SVB to put the warrant back to us for $50,000 upon expiration or a liquidity event, to be prorated if SVB exercises a portion of the amended loan is two years followingwarrant. The warrant expires on July 6, 2023. Additionally, in conjunction with entering into the first amendment to the 2019 Credit Facility, on July 15, 2020, we issued an additional warrant to SVB to purchase 21,500 shares of our common stock at an exercise price of $0.01 per share, which was to expire on July 15, 2025. The warrant was classified as equity and was recorded as a debt discount that was amortized to interest only payment period, which would be extended by one year if we achieve certain milestones.expense using the effective interest method. The outstanding balancefair value of the loan iswarrant was $152,000 on the date of issuance using the Black-Scholes option-pricing model. On July 22, 2021, SVB elected to be repaid monthly beginning on January 1,exercise the warrant associated with the first amendment to the 2019 over the remaining two-year termCredit Facility, which resulted in a net cashless exercise of the amended loan with an endwarrant and the issuance of term fee of 7%21,463 shares of the Loan Amount due upon maturity. Borrowings under the Amended Credit Facility mature in December 2020.Company’s common stock. Security
Collateral for the Amended2019 Credit Facility includes all of our assets except for intellectual property. The AmendedWe are required to comply with certain covenants under the 2019 Credit Facility, contains customary covenants restricting our activities, including requirements to maintain a minimum cash balance and availability under the Line of Credit, and restrictions on certain actions without the consent of the lender, such as limitations on our ability to sell assets, engage in mergers andor acquisitions, enter into transactions involving related parties,sell assets, incur indebtedness, or grant liens or negative pledges on our assets, make loans or make other investments. Under these covenants, we are prohibited from paying cash dividends with respect to our capital stock. We were in compliance with all covenants at December 31, 2021. The Amended2019 Credit Facility also contains a material adverse effect clause which provides that an event of default will occur if, among other triggers, an event occurs that could reasonably be expected to result in a material adverse effect on our business, operations, or condition, or on our ability to perform our obligations under the term loan. We were in compliance with all covenants at2019 Term Loan. As of December 31, 2018.2021, we do not believe that it is probable that the clause will be triggered within the next 12 months. For additional information about the 2019 Credit Facility, see Note 6 to our financial statements in Part II, Item 8 of this report. Critical Accounting Policies and Significant Judgements and Estimates Our financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. We base our estimates on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Revenue Recognition On January 1, 2018, we adopted Accounting Standards Update, or ASU, No. 2014-09, Revenue from Contracts with Customers (Topic 606) using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. We present results for reporting periods beginning after January 1, 2018 under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with Topic 605, Revenue.
We recognize revenue when a customer obtains control of the promised products or services, in an amount that reflects the consideration we expect to receive in exchange for those products or services. We recognize revenue net of allowances for returns and price concessions, and any taxes collected from customers,imposed on revenue transactions, which are subsequently remitted to governmental authorities. Topic 606 permits the application of certain practical expedients. Our billing practices approximate our performance as measured by an output method, where each output represents the completion of a performance obligation. Accordingly, we utilize the invoice practical expedient as defined in Topic 606, resulting in recognition of revenue in the amount that we have the right to invoice.
We incur direct and incremental costs of obtaining contracts and expense such costs as incurred asbecause the life of the underlying contract for product sales is typically less than one year. Accordingly, we have concluded, based on the structure of ouryear and incremental costs to obtain contracts no adjustmentsfor licenses, royalties and patent sales are necessary under Topic 606.not significant. Nature of Products and Services We derive our revenue from the sale of MRAM-based products in discrete unit form, licenses of and royalties on our MRAM and magnetic sensor technology, the sale of backend foundry services, and design services to third parties. We recognize sales of products in discrete unit form at a point in time, revenue related to licensing agreements when we have delivered control of the technology, revenue related to royalty agreements in the period in which sales generated from products sold using our technology occurs, sales of backend foundry services over time, and design services to third parties either at a point in time or over time, depending on the nature of the services. Product Revenue For products sold in their discrete form, we either sell our products directly to OEMs, original design manufacturers (ODMs),ODMs, contract manufacturers (CMs), or through a network of distributors, who in turn sell to those customers. For sales directly to OEMs, ODMs and CMs, we recognize revenue when the OEM, ODM or CM obtains control of the product, which occurs at a point in time, generally upon shipment to the customer. We sell a majority of our products to our distributors at a uniform list price. However, distributors may resell our products to end customers at a very broad range of individually negotiated price points. WeFrom time to time, we may provide distributors with price concessionsadjustments subsequent to the delivery of product to them and such amounts are dependent on the end customer and product sales price. We base the price concessionsPrice adjustments can be based on a variety of factors, including customer, product, quantity, geography, and competitive differentiation. Price protection rights grant distributors the right to a credit in the event of declines in the price of ourthe Company’s products. Under these circumstances, we remit back to the distributor a portion of their original purchase price after the resale transaction is completed in the form of a credit against the distributors’ outstanding accounts receivable balance. The credits are on a per unit basis and are not given to the distributor until the distributor provides information regarding the sale to their end customer. We estimate these credits and record such estimates in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of an allowance for price concessionsadjustments for amounts due to distributors. We estimate credits to distributors based on the historical rate of credits provided to distributors relative to sales.sales and evaluation of current market conditions. Revenue on shipments to distributors is recorded when control of the products has been transferred to the distributor. We estimate the amount of our product sales that may be returned by our customers and record this estimate as a reduction of revenue in the period the related product revenue is recognized. We estimate our product return liability by analyzing our historical returns, current economic trends and changes in customer demand and acceptance of products. We have received insignificant returns to date and believe that returns of our products will continue to be minimal. AtUpon the timetransfer of control, generally at shipment, to distributors, we record a trade receivable for the selling price as there is a legally enforceable obligation of the distributor to pay for the product delivered, an allowance is recorded for the estimated discount that will be provided to the distributor, and the net of these amounts is recorded as revenue on the statement of operations.
License Revenue For licenses of technology, recognition of revenue is dependent upon whether we have delivered rights to the technology, and whether there are future performance obligations under the contract. In some instances, the license agreements call for future events or activities to occur in order for milestones amounts to become due from the customer. The terms of such agreements include payment to us of one or more of the following: non-refundable upfront fees; and royalties on net sales of licensed products. Historically, these license agreements have not included other future performance obligations once the license has been transferred to the customer. We allocate the transaction price in each agreement to the identified performance obligations based on the standalone selling price (SSP) of each distinct performance obligation. Judgment is required to determine SSP. In instances where SSP is not directly observable, such as when a license or service is not sold separately, SSP is determined using information that may include market conditions and other observable inputs.
We recognize revenue from non-refundable up-frontupfront payments when the license is transferred to the customer and we have no other performance obligations. RoyaltiesWe also entered into a contractual agreement with a customer during the year ended December 31, 2021 for the development of a RAD-Hard product, consisting of a technology license, a design license agreement and development contract. We applied a five-step approach in determining the amount and timing of revenue to be recognized: (1) identifying the contract with a customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations in the contract; and (5) recognizing revenue when the performance obligation is satisfied.
We concluded these contractual arrangements represent one arrangement and evaluated our promises to the customer and whether the performance obligations granted under the arrangement were distinct. The licenses provided to the customer are not transferable, are of limited value without the promised development services, and the customer cannot benefit from the license agreements without the specific obligated services in the development subcontract, as there is strong interdependency between the licenses and the development subcontract. Accordingly, we determined the licenses were not distinct within the context of the contract and combined the license with other performance obligations. As a result, we are recognizing revenue related to the performance obligations over time using the input method based on costs incurred to date relative to the total expected costs of the contract over the performance obligation period. Patents In an effort to monetize on our intellectual property, we may sell patents to customers. The performance obligations are satisfied at the point in time at which the customer obtains control of the patents. Royalties We recognize revenue from sales-based royalties from licenses of our technology at the later of when (1) the sale occurs or (2) the performance obligation to which some or all of the sales-based royalty has been allocated is satisfied (in whole or in part). We record an unbilled receivable (within accounts receivable, net) for the portion of sales-based royalties that have been earned, but not invoiced at the end of each reporting period. The unbilled accounts receivable is an estimate of consideration to which we expect to be entitled for uses of our intellectual property. Certain customers report on a lagged basis and actual information is not available timely. The estimates recorded are based on historical trends in the customer’s usage and current market conditions. Other Revenue For certain revenue streams, we recognize revenue based on the pattern of transfer of the services. We use the input method of measuring costs incurred to date compared to total estimated costs to be incurred under the contract as this method most faithfully depicts its performance. We record an unbilled receivable (within accounts receivable, net) for the portion of the work that has been completed but not invoiced at the end of each reporting period. Revenue from milestone payments must be estimated using either the expected value method or the most likely amount method. At the inception of each agreement that includes milestone payments, we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price by using the most likely amount method. If it is probable that a significant reversal of cumulative revenue would not occur, the associated milestone value is included in the transaction price. At the end of each subsequent reporting period, we re-evaluate the probability or achievement of each such milestone and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.
Inventory We record inventories at the lower of cost, determined on a first-in, first-out basis or specific identification method,net realizable value. We write down inventory for estimated excess or market. We routinely evaluate quantitiesobsolete inventory equal to the difference between cost and values ofestimated net realizable value. Inventory write downs establish a new cost basis for inventory on hand and inventorycharges are not subsequently reversed even if circumstances subsequently indicate that may be returned from distributors in light ofincreased carrying amounts are recoverable. In estimating these reserves, our evaluation takes into consideration historical and expected future demand considering current market conditions and market trends, and record provisions for inventories in excess of demand and subject to obsolescence. This evaluation may take into consideration expected demand, the effect new products may have on the sale of existing products, technological obsolescence, and other factors. We record inventory write-downs for the valuation of inventory when required based on the analysis of the information immediately aboveour analyses and inventory balances are not readjusted until sold. Unanticipated changes in technology or customer demand couldany write-downs result in a decrease in demandnew cost basis for the affected item. Recent Accounting Pronouncements See Note 2 to our products, which may require additional inventory write-downs that could materially affectfinancial statements for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one yet, of their potential impact on our financial condition of results of operations. Stock-based Compensation
We recognize compensation costs related to stock options granted to employees and directors based on the estimated fair value of the awards on the date of grant. We have made an accounting policy election to account for forfeitures as they occur, rather than estimate expected forfeitures. We estimate the grant date fair value and the resulting stock-based compensation expense using the Black-Scholes option-pricing model. We expense the grant date fair value of stock-based awards on a straight-line basis over the period during which the employee is required to provide service in exchange for the award (generally the vesting period).
We estimate the fair value of our stock-based awards using the Black-Scholes option-pricing model, which requires the input of highly subjective assumptions. Our assumptions are as follows:
Expected Term. The expected term represents the period we expect the stock-based awards to be outstanding. We use the simplified method to determine the expected term, which is calculated as the average of the time to vesting and the contractual life of the options.
Expected Volatility. Since we do not have a long trading history for our common stock, we derive the expected volatility from the average historical volatilities of publicly traded companies within our industry that we consider to be comparable to our business over a period approximately equal to the expected term for employees’ options and the remaining contractual life for non-employees’ options. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available.
Risk-free Interest Rate. We base the risk-free interest rate on the U.S. Treasury yield with a maturity equal to the expected term of the option in effect at the time of grant.
Dividend Yield. We assume the expected dividend to be zero as we have never paid dividends and have no current plans to pay any dividends on our common stock.
In addition to the assumptions used in the Black-Scholes option-pricing model. We will continue to use judgment in evaluating the expected volatility and expected terms utilized for our stock-based compensation calculations on a prospective basis.
We recorded stock-based compensation expense of $2.7 million and $2.0 million for the years ended December 31, 2018 and 2017, respectively.
Historically, for all periods prior to the IPO, the fair value of the shares of common stock underlying our stock-based awards was estimated on each grant date by our board of directors. In order to determine the fair value of our common stock underlying option grants, our board of directors considered, among other things, contemporaneous valuations of our common stock prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Given the absence of a public trading market for our common stock, our board of directors exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of our common stock, including: the rights, preferences and privileges of our preferred stock relative to those of our common stock; our operating results and financial condition; our levels of available capital resources; equity market conditions affecting comparable public companies; general U.S. market conditions; and the lack of marketability of our common stock.
After the completion of the IPO, our board of directors determined the fair value of each share of underlying common stock based on the closing price of our common stock as reported on the date of grant.
JOBS Act Accounting Election
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, and therefore we may take advantage of certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments. We may take advantage of these exemptions until we are no longer an “emerging growth company.” We will cease to be an “emerging growth company” upon the earliest of: (1) December 31, 2021, (2) the last day of the first fiscal year in which our annual gross revenues are $1.07 billion or more, (3) the date on which we have, during the previous rolling three-year period, issued more than $1.0 billion in non-convertible debt securities, and (4) the date on which we are deemed to be a “large accelerated filer” as defined in the Securities Exchange Act of 1934, as amended, or the Exchange Act.
Recently Adopted Pronouncements
ASU No. 2014-09, Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014‑09, Revenue from Contracts with Customers (Topic 606). Areas of revenue recognition that will be affected include, but are not limited to, transfer of control, variable consideration, allocation of transfer pricing, licenses, time value of money, contract costs and disclosures. The new standard permits adoption either by using (i) a full retrospective approach for all periods presented in the period of adoption or (ii) a modified retrospective approach with the cumulative effect of initially applying the new standard recognized at the date of initial application and providing certain additional disclosures. The new standard is effective for annual reporting periods beginning after December 15, 2017. We adopted this standard on January 1, 2018 using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of its accumulated deficit. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
Topic 606 permits the application of certain practical expedients. Our billing practices approximate our performance as measured by an output method, where each output represents the completion of a performance obligation. Accordingly, we utilize the invoice practical expedient as defined in Topic 606, resulting in recognition of revenue in the amount that we have the right to invoice.
We incur direct and incremental costs of obtaining contracts and such costs are expensed as incurred, as the life of the underlying contract is less than one year. Accordingly, we have concluded, based on the structure of our contracts, no adjustments are necessary under Topic 606.
As a result of the adoption of the new standard, we changed our accounting policy for revenue recognition and the details of the significant changes and quantitative impact of the changes are disclosed below.
Distributor sales- Some of our contracts with distributors provide the distributor with certain concessions and price protection credits. Under Topic 605, Revenue, these concessions and price protection credits were not fixed or determinable and, as a result, the associated revenue was deferred until delivery of the product to the end customer. At the time of shipment to distributors, we recorded a trade receivable for the selling price as there was a legally enforceable obligation of the distributor to pay for the product delivered, inventory was reduced by the carrying value of goods shipped, and the net of these amounts, the gross profit, was recorded as deferred income on shipments to distributors on the balance sheet. Under Topic 606, we recognize revenue from sales to distributors when control of the product is transferred to the distributor and estimate the amount of concessions and price protection credits at the point of revenue recognition. Accordingly, the balance of the deferred income on shipments to distributors was eliminated as a cumulative effect adjustment of implementing Topic 606 as of January 1, 2018, net of our estimate of concessions and price protection credits for those contracts.
Performance obligations delivered over time- Topic 605 permitted straight-line recognition of revenue for performance obligations that were delivered over time. The new revenue standard requires an entity to recognize revenue based on the pattern of transfer of the services. Entities must use either an input method or an output method to measure progress toward complete satisfaction of a performance obligation. We determined that the input method of measuring time elapsed to date compared to total estimated time to be incurred under the contract most faithfully depicts our performance. Under Topic 606, we will record an unbilled receivable (within accounts receivable, net) for the portion of the service that has been completed but not invoiced at the end of each reporting period.
Milestone payments – Topic 605 permitted recognition using the milestone method, whereby revenue was recognized upon the completion of substantive milestones once the customers acknowledge the milestones have been met and the collection of the amounts is reasonably assured. The milestone method no longer exists under the new revenue standard. Revenue from milestone payments must be estimated using either the expected value method or the most likely amount method. If it is probable that a significant reversal of cumulative revenue would not occur, the associated milestone value is included in the transaction price. The adoption of Topic 606 did not have an impact on milestone revenue recorded to date as the practical expedient adopted for a single contract resulted in revenue recognition similar to milestone revenue under Topic 605.
Sales-based royalties – Topic 605 permitted recognition of royalties when reported to us, which generally coincided with the receipt of payment. Under the new revenue standard, we record revenue generated from sales-based royalties from licenses of our technology at the later of when (1) the sale occurs or (2) the performance obligation to which some or all of the sales-based royalty has been allocated is satisfied (in whole or in part).
ASU No. 2017-09, Compensation-Stock Compensation
In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718) Scope of Modification Accounting, which is intended to amend the scope of modification accounting for share-based payment arrangements. The amendments in the update provide guidance on types of changes to the terms or conditions of share-based payment awards that would require us to apply modification accounting under ASC 718, Compensation-Stock Compensation. This ASU is effective for annual reporting periods beginning after December 15, 2017, and early adoption was permitted. We adopted this standard on January 1, 2018 and the impact of its adoption on our financial statements was not material.
ASU No. 2016-15, Statement of Cash Flows
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 identifies how certain cash receipts and cash payments are presented and classified in the Statement of Cash Flows. The standard is effective for fiscal years and interim periods beginning after December 15, 2017. The standard should be applied retrospectively and early adoption was permitted, including adoption in an interim period. We adopted this standard on January 1, 2018, and the impact of its adoption on our financial statements was not material.
Recently Issued Pronouncements
In February 2016, the FASB issued ASU No. 2016‑02, Leases, which establishes a comprehensive new lease accounting model. The new standard: (a) clarifies the definition of a lease; (b) requires a dual approach to lease classification similar to current lease classifications; and (c) causes lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for leases with a lease-term of more than twelve months. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2018. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842 Leases and ASU No. 2018-11, Leases (Topic 842) Targeted Improvements. ASU 2018-10 clarifies how to apply certain aspects of ASU 2016-02. We will adopt this standard on January 1, 2019 using the modified retrospective method. We are substantially complete with our analysis as to the impact of adoption and estimate that the adoption will result in the recognition of right-of-use assets and lease liabilities for operating leases within the range of approximately $3.6 million to $4.0 million on our balance sheet, with no material impact to our statement of operations.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments, which amends the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019, and requires a cumulative effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective. We are evaluating the impact of the adoption of ASU 2016-13 on our financial statements.
In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 is intended to reduce the cost and complexity and to improve financial reporting for nonemployee share-based payments. The ASU expands the scope of Topic 718, (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606. We adopted this standard on January 1, 2019, and the impact of its adoption on our financial statements was not material.
In August 2018, the Securities and Exchange Commission (SEC) adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. This final rule is effective on November 5, 2018; however, in light of the proximity of the effective date to the filing date for most filers’ quarterly reports, the SEC will allow a filer’s first presentation of the changes in stockholders’ equity to be included in its Form 10-Q for the quarter that begins after the effective date. We will begin to present a statement of changes in stockholders’ equity in our quarterly financial statements beginning on January 1, 2019.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not required for a smaller reporting company. Item 8. Financial Statements and Supplementary Data. EVERSPIN TECHNOLOGIES, INC. INDEX TO FINANCIAL STATEMENTS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Everspin Technologies, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of Everspin Technologies, Inc. (the Company) as of December 31, 20182021 and 2017, and2020, the related statements of operations and comprehensive loss,income (loss), stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2018,2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20182021 and 2017,2020, and the results of its operations and its cash flows for each of the two years in the periodthen ended, December 31, 2018, in conformity with U.S. generally accepted accounting principles. Adoption of ASU No. 2014-09
As discussed in Note 2 to the financial statements, the Company changed its method of accounting for revenue from sales to customers in 2018 due to the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).
Basis for Opinion These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’sCompany's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates. Accounting for Inventory Description of the Matter | | As discussed in Note 2 to the financial statements, Inventory is valued at the lower of cost or net realizable value using the first-in, first-out method. At December 31, 2021 the Company’s inventory balance was $6.4 million. Auditing the Company's accounting for inventory was challenging and complex primarily due to the high volume of transactions and multiple data sources involved in the Company’s process which uses several data sources in the initiation, processing, and recording of inventory transactions. The data sources include information received from the Company’s several third-party suppliers involved in the manufacturing process. | How We Addressed the Matter in Our Audit | | To test the Company’s accounting for inventory, we performed audit procedures that included, among others, direct confirmations of inventory held at third-party suppliers, testing a sample of inventory transactions and performing physical observations. |
/s/ Ernst & Young LLP We have served as the Company’s auditor since 2008. Phoenix, Arizona March 15, 20199, 2022 EVERSPIN TECHNOLOGIES, INC. Balance Sheets (In thousands, except share and per share amounts) | | | | | | | | | December 31, | | | 2018 | | 2017 | Assets | | | | | | | Current assets: | | | | | | | Cash and cash equivalents | | $ | 23,379 | | $ | 12,950 | Accounts receivable, net | | | 7,522 | | | 4,041 | Inventory | | | 9,097 | | | 9,837 | Prepaid expenses and other current assets | | | 688 | | | 590 | Total current assets | | | 40,686 | | | 27,418 | Property and equipment, net | | | 4,286 | | | 3,946 | Other assets | | | 73 | | | 73 | Total assets | | $ | 45,045 | | $ | 31,437 | | | | | | | | Liabilities and Stockholders’ Equity | | | | | | | Current liabilities: | | | | | | | Accounts payable | | $ | 2,637 | | $ | 2,920 | Accrued liabilities | | | 5,001 | | | 3,748 | Deferred income on shipments to distributors | | | — | | | 1,720 | Current portion of long-term debt | | | 5,977 | | | 3,987 | Total current liabilities | | | 13,615 | | | 12,375 | Long-term debt, net of current portion | | | 6,509 | | | 8,178 | Total liabilities | | | 20,124 | | | 20,553 | Commitments and contingencies | | | | | | | Stockholders’ equity: | | | | | | | Preferred stock, $0.0001 par value per share; 5,000,000 shares authorized; no shares issued and outstanding as of December 31, 2018 and December 31, 2017 | | | — | | | — | Common stock, $0.0001 par value per share; 100,000,000 shares authorized; 17,095,456 and 12,817,201 shares issued and outstanding as of December 31, 2018 and December 31, 2017 | | | 2 | | | 1 | Additional paid-in capital | | | 158,912 | | | 128,422 | Accumulated deficit | | | (133,993) | | | (117,539) | Total stockholders’ equity | | | 24,921 | | | 10,884 | Total liabilities and stockholders’ equity | | $ | 45,045 | | $ | 31,437 |
| | | | | | | | | December 31, | | | 2021 | | 2020 | Assets | | | | | | | Current assets: | | | | | | | Cash and cash equivalents | | $ | 21,409 | | $ | 14,599 | Accounts receivable, net | | | 8,193 | | | 7,607 | Inventory | | | 6,396 | | | 5,721 | Prepaid expenses and other current assets | | | 762 | | | 270 | Total current assets | | | 36,760 | | | 28,197 | Property and equipment, net | | | 973 | | | 1,946 | Right-of-use assets | | | 913 | | | 2,313 | Other assets | | | 734 | | | 73 | Total assets | | $ | 39,380 | | $ | 32,529 | | | | | | | | Liabilities and Stockholders’ Equity | | | | | | | Current liabilities: | | | | | | | Accounts payable | | $ | 1,776 | | $ | 2,224 | Accrued liabilities | | | 3,579 | | | 2,232 | Deferred revenue | | | 832 | | | — | Current portion of long-term debt | | | 3,370 | | | 4,242 | Operating lease liabilities | | | 724 | | | 1,508 | Other liabilities | | | 50 | | | 31 | Total current liabilities | | | 10,331 | | | 10,237 | Long-term debt, net of current portion | | | 1,529 | | | 3,748 | Operating lease liabilities, net of current portion | | | 68 | | | 903 | Long-term income tax liability | | | 214 | | | 229 | Total liabilities | | $ | 12,142 | | $ | 15,117 | Commitments and contingencies | | | | | | | Stockholders’ equity: | | | | | | | Preferred stock, $0.0001 par value per share; 5,000,000 shares authorized; 0 shares issued and outstanding as of December 31, 2021 and 2020 | | | — | | | — | Common stock, $0.0001 par value per share; 100,000,000 shares authorized; 19,858,460 and 19,031,556 shares issued and outstanding as of December 31, 2021 and 2020 | | | 2 | | | 2 | Additional paid-in capital | | | 180,067 | | | 174,584 | Accumulated deficit | | | (152,831) | | | (157,174) | Total stockholders’ equity | | | 27,238 | | | 17,412 | Total liabilities and stockholders’ equity | | $ | 39,380 | | $ | 32,529 |
The accompanying notes are an integral part of these financial statements. EVERSPIN TECHNOLOGIES, INC. Statements of Operations and Comprehensive Loss Income (Loss)
(In thousands, except share and per share amounts) | | | | | | | | | Year Ended December 31, | | | 2018 | | 2017 | Product sales | | $ | 39,514 | | $ | 30,838 | Licensing, royalty, and other revenue | | | 9,903 | | | 5,098 | Total revenue | | | 49,417 | | | 35,936 | Cost of sales | | | 24,083 | | | 14,451 | Gross profit | | | 25,334 | | | 21,485 | Operating expenses: | | | | | | | Research and development | | | 23,637 | | | 25,437 | General and administrative | | | 12,551 | | | 11,516 | Sales and marketing | | | 6,467 | | | 4,740 | Total operating expenses | | | 42,655 | | | 41,693 | Loss from operations | | | (17,321) | | | (20,208) | Interest expense | | | (890) | | | (764) | Other income, net | | | 457 | | | 118 | Loss on extinguishment of debt | | | — | | | (246) | Net loss and comprehensive loss | | $ | (17,754) | | $ | (21,100) | Net loss per common share, basic and diluted | | $ | (1.08) | | $ | (1.69) | Weighted-average shares used to compute net loss per common share, basic and diluted | | | 16,372,638 | | | 12,484,984 |
| | | | | | | | | Year Ended December 31, | | | 2021 | | 2020 | Product sales | | $ | 43,931 | | $ | 39,848 | Licensing, royalty, patent, and other revenue | | | 11,215 | | | 2,183 | Total revenue | | | 55,146 | | | 42,031 | Cost of product sales | | | 21,045 | | | 23,746 | Cost of licensing, royalty, patent, and other revenue | | | 1,029 | | | 196 | Total cost of sales | | | 22,074 | | | 23,942 | Gross profit | | | 33,072 | | | 18,089 | Operating expenses:1 | | | | | | | Research and development | | | 12,628 | | | 10,896 | General and administrative | | | 10,949 | | | 10,773 | Sales and marketing | | | 4,460 | | | 3,983 | Total operating expenses | | | 28,037 | | | 25,652 | Income (loss) from operations | | | 5,035 | | | (7,563) | Interest expense | | | (547) | | | (665) | Other expense, net | | | (141) | | | (24) | Net income (loss) before income taxes | | | 4,347 | | | (8,252) | Income tax expense | | | (4) | | | (260) | Net income (loss) and comprehensive income (loss) | | $ | 4,343 | | $ | (8,512) | Net income (loss) per common share: | | | | | | | Basic | | $ | 0.22 | | $ | (0.45) | Diluted | | $ | 0.22 | | $ | (0.45) | Weighted average common shares used to compute net income (loss) per common share: | | | | | | | Basic | | | 19,400,124 | | | 18,782,287 | Diluted | | | 19,972,145 | | | 18,782,287 | | | | | | | | 1Operating expenses include stock-based compensation as follows: | Research and development | | $ | 1,280 | | $ | 903 | General and administrative | | | 1,465 | | | 2,710 | Sales and marketing | | | 482 | | | 355 | Total stock-based compensation | | $ | 3,227 | | $ | 3,968 |
The accompanying notes are an integral part of these financial statements. EVERSPIN TECHNOLOGIES, INC. Statements of Stockholders’ Equity (In thousands, except share amounts) | | | | | | | | | | | | | | | | | | | | | | Additional | | | | | Total | | | Common Stock | | Paid-In | | Accumulated | | Stockholders’ | | | Shares | | Amount | | Capital | | Deficit | | Equity | Balance at December 31, 2016 | | 12,498,128 | | $ | 1 | | $ | 123,309 | | $ | (96,439) | | $ | 26,871 | Issuance of common stock upon exercise of stock options | | 281,483 | | | — | | | 1,337 | | | — | | | 1,337 | Issuance of common stock under Employee Stock Purchase Plan | | 37,590 | | | — | | | 256 | | | — | | | 256 | Compensation expense related to vesting of common stock issued to GLOBALFOUNDRIES | | — | | | — | | | 1,472 | | | — | | | 1,472 | Stock-based compensation expense | | — | | | — | | | 2,048 | | | — | | | 2,048 | Net loss | | — | | | — | | | — | | | (21,100) | | | (21,100) | Balance at December 31, 2017 | | 12,817,201 | | | 1 | | | 128,422 | | | (117,539) | | | 10,884 | Adjustment to opening balance for adoption of new accounting standard | | — | | | — | | | — | | | 1,300 | | | 1,300 | Issuance of common stock in secondary offering, net of issuance costs | | 3,772,447 | | | 1 | | | 24,523 | | | — | | | 24,524 | Issuance of common stock under stock incentive plans | | 505,808 | | | — | | | 2,503 | | | — | | | 2,503 | Issuance of warrant | | — | | | — | | | 43 | | | — | | | 43 | Compensation expense related to vesting of common stock issued to GLOBALFOUNDRIES | | — | | | — | | | 753 | | | — | | | 753 | Stock-based compensation expense | | — | | | — | | | 2,668 | | | — | | | 2,668 | Net loss | | — | | | — | | | — | | | (17,754) | | | (17,754) | Balance at December 31, 2018 | | 17,095,456 | | $ | 2 | | $ | 158,912 | | $ | (133,993) | | $ | 24,921 |
| | | | | | | | | | | | | | | | | | | | | | Additional | | | | | Total | | | Common Stock | | Paid-In | | Accumulated | | Stockholders’ | | | Shares | | Amount | | Capital | | Deficit | | Equity | Balance at December 31, 2019 | | 18,081,753 | | $ | 2 | | $ | 167,149 | | $ | (148,662) | | $ | 18,489 | Issuance of common stock under stock incentive plans | | 481,376 | | | — | | | 1,595 | | | — | | | 1,595 | Issuance of common stock in at-the- market offering, net of issuance costs (Note 7) | | 468,427 | | | — | | | 2,084 | | | — | | | 2,084 | Issuance of warrant | | — | | | — | | | 152 | | | — | | | 152 | Stock-based compensation expense | | — | | | — | | | 3,604 | | | — | | | 3,604 | Net loss | | — | | | — | | | — | | | (8,512) | | | (8,512) | Balance at December 31, 2020 | | 19,031,556 | | $ | 2 | | $ | 174,584 | | $ | (157,174) | | $ | 17,412 | Issuance of common stock under stock incentive plans | | 805,441 | | | — | | | 2,256 | | | — | | | 2,256 | Exercise of warrant | | 21,463 | | | — | | | — | | | — | | | — | Stock-based compensation expense | | — | | | — | | | 3,227 | | | — | | | 3,227 | Net income | | — | | | — | | | — | | | 4,343 | | | 4,343 | Balance at December 31, 2021 | | 19,858,460 | | $ | 2 | | $ | 180,067 | | $ | (152,831) | | $ | 27,238 |
The accompanying notes are an integral part of these financial statements. EVERSPIN TECHNOLOGIES, INC. Statement of Cash Flows Flows
(In thousands) | | | | | | | | | Year Ended December 31, | | | 2018 | | 2017 | Cash flows from operating activities | | | | | | | Net loss | | $ | (17,754) | | $ | (21,100) | Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | Depreciation and amortization | | | 1,450 | | | 1,191 | Loss on disposal of property and equipment | | | 19 | | | — | Stock-based compensation | | | 2,668 | | | 2,048 | Non-cash loss on extinguishment of debt | | | — | | | 185 | Non-cash interest expense | | | 375 | | | 297 | Compensation expense related to vesting of common stock to GLOBALFOUNDRIES | | | 753 | | | 1,472 | Changes in operating assets and liabilities: | | | | | | | Accounts receivable | | | (3,816) | | | (385) | Inventory | | | 694 | | | (3,871) | Prepaid expenses and other current assets | | | (98) | | | 460 | Other assets | | | — | | | (23) | Accounts payable | | | (178) | | | 809 | Accrued liabilities | | | 1,253 | | | 136 | Deferred income on shipments to distributors | | | — | | | (107) | Shipping term reversal | | | (39) | | | — | Net cash used in operating activities | | | (14,673) | | | (18,888) | Cash flows from investing activities | | | | | | | Purchases of property and equipment | | | (1,914) | | | (3,070) | Net cash used in investing activities | | | (1,914) | | | (3,070) | Cash flows from financing activities | | | | | | | Proceeds from the issuance of common stock, net of offering costs | | | 24,524 | | | — | Proceeds from debt | | | 1,000 | | | 12,000 | Payments on debt | | | (1,000) | | | (8,356) | Payments of debt issuance costs | | | — | | | (49) | Payments on capital lease obligation | | | (11) | | | (7) | Proceeds from exercise of stock options and purchase of shares in employee stock purchase plan | | | 2,503 | | | 1,593 | Net cash provided by financing activities | | | 27,016 | | | 5,181 | Net increase (decrease) in cash and cash equivalents | | | 10,429 | | | (16,777) | Cash and cash equivalents at beginning of period | | | 12,950 | | | 29,727 | Cash and cash equivalents at end of period | | $ | 23,379 | | $ | 12,950 | Supplementary cash flow information: | | | | | | | Interest paid | | $ | 504 | | $ | 467 | Non-cash investing and financing activities: | | | | | | | Purchases of property and equipment in accounts payable | | $ | 11 | | $ | 116 | Purchases of property and equipment under capital lease obligations | | $ | — | | $ | 31 | Issuance of warrant in lieu of financing costs | | $ | 43 | | $ | — |
| | | | | | | | | Year Ended December 31, | | | 2021 | | 2020 | Cash flows from operating activities | | | | | | | Net income (loss) | | $ | 4,343 | | $ | (8,512) | Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | | | Depreciation and amortization | | | 1,455 | | | 1,982 | Loss on disposal of property and equipment | | | — | | | 30 | Stock-based compensation | | | 3,227 | | | 3,968 | Non-cash warrant revaluation | | | 19 | | | (2) | Non-cash interest expense | | | 319 | | | 323 | Changes in operating assets and liabilities: | | | | | | | Accounts receivable | | | (586) | | | (1,808) | Inventory | | | (675) | | | 2,142 | Prepaid expenses and other current assets | | | (492) | | | 269 | Other assets | | | 11 | | | — | Accounts payable | | | (571) | | | (820) | Accrued liabilities | | | 1,696 | | | (303) | Deferred revenue | | | 832 | | | — | Lease liabilities | | | (219) | | | (192) | Net cash provided by (used in) operating activities | | | 9,359 | | | (2,923) | Cash flows from investing activities | | | | | | | Purchases of property and equipment | | | (1,030) | | | (320) | Net cash used in investing activities | | | (1,030) | | | (320) | Cash flows from financing activities | | | | | | | Payments on long-term debt | | | (3,400) | | | — | Payments of debt issuance costs | | | (11) | | | — | Payments on finance lease obligation | | | — | | | (9) | Proceeds from exercise of stock options and purchase of shares in employee stock purchase plan | | | 1,892 | | | 1,280 | Proceeds from issuance of common stock in at-the-market offering, net of issuance costs | | | — | | | 2,084 | Net cash (used in) provided by financing activities | | | (1,519) | | | 3,355 | Net increase in cash and cash equivalents | | | 6,810 | | | 112 | Cash and cash equivalents at beginning of period | | | 14,599 | | | 14,487 | Cash and cash equivalents at end of period | | $ | 21,409 | | $ | 14,599 | Supplementary cash flow information: | | | | | | | Interest paid | | $ | 228 | | $ | 342 | Operating cash flows paid for operating leases | | $ | 1,603 | | $ | 1,736 | Financing cash flows paid for finance leases | | $ | — | | $ | 9 | Non-cash investing and financing activities: | | | | | | | Increase of right-of-use asset and lease liability due to lease modification | | $ | — | | $ | 545 | Purchases of property and equipment in accounts payable and accrued liabilities | | $ | 340 | | $ | 216 | Bonus settled in shares of common stock | | $ | 364 | | $ | 315 | Issuance of warrant with debt | | $ | — | | $ | 152 |
The accompanying notes are an integral part of these financial statements. EVERSPIN TECHNOLOGIES, INC. Notes to Financial Statements 1. Organization and Operations Everspin Technologies, Inc. (the Company) was incorporated in Delaware on May 16, 2008. The Company’s magnetoresistive random access memory (MRAM) solutions offer the persistence of non-volatile memory with the speed and endurance of random access memory (RAM) and enable the protection of mission critical data particularly in the event of power interruption or failure. The Company’s MRAM solutions allow its customers in thekey markets, such as industrial, automotivemedical, automotive/transportation, aerospace, and transportation, and enterprise storage marketsdata center, to design high performance, power efficientpower-efficient and reliable systems without the need for bulky batteries or capacitors. Ability to continue as a going concern The Company believes that its existing cash and cash equivalents as of December 31, 20182021, coupled with its anticipated growth and sales levels and availability under its credit facility, will be sufficient to meet its anticipated cash requirements for at least the next 12 months from the financial statement issuance date. The Company’s future capital requirements will depend on many factors, including its growth rate, the timing and extent of its spending to support research and development activities, the timing and cost of establishing additional sales and marketing capabilities, and the introduction of new products. The Company may be required at some point in the future to seek additional equity or debt financing, to sustain operations beyond that point, and such additional financing may not be available on acceptable terms or at all. If the Company is unable to raise additional capital or generate sufficient cash from operations to adequately fund its operations, it will need to curtail planned activities to reduce costs. Doing so will likely harm its ability to execute on its business plan. 2. Summary of Significant Accounting Policies Use of Estimates The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The preparation of the 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 disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, fair value of assets and liabilities, inventory net realizable value, product warranty reserves, income taxes,deferred tax assets and related valuation allowances, and stock-based compensation. The Company believes its estimates and assumptions are reasonable; however, actual results may differ from the Company’s estimates.
Segments The Company’s chief operating decision maker is its Interim Chief Executive Officer who reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance for the entire Company. As a result, the Company has single operating and reportable segment..segment. Cash and Cash Equivalents The Company considers all highly liquid, short-term investments with maturity dates of 90 days or less at the date of purchase to be cash equivalents. The Company’s cash equivalents consist solely of money market funds. Accounts Receivable, Net Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company generally does not require collateral or other security in support of accounts receivable. Allowances arewould be provided for individual accounts receivable when the Company becomes aware of a customer’s inability to meet its financial obligations, such as in the case of bankruptcy, deterioration in the customer’s operating results or change in financial position. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted. The Company also considers a number of factors in evaluating the sufficiency of its allowance for doubtful accounts, including the length of time receivables are past due, significant one-time events, creditworthiness of customers and historical experience. Account balances arewould be charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company’s evaluation determined that no material allowance for doubtful accounts was necessary at December 31, 2021 and 2020. The unbilled accounts receivable is an estimate of consideration to which the Company expects to be entitled for uses of the Company’s intellectual property. Certain customers report on a lagged basis and actual information is not available timely. The estimates recorded are based on historical trends in the customer’s usage and current market conditions. At December 31, 20182021 and 2017, there2020, the unbilled accounts receivable balance was no allowance for doubtful accounts.$450,000 and $255,000, respectively. The Company establishes an allowance for product returns. The Company analyzes historical returns, current economic trends and changes in customer demand and acceptance of products when evaluating the adequacy of sales returns. As the returnsReturns are processed as credits on future purchases and, as a result, the allowance is recorded against the balance of trade accounts receivable. In addition, the Company establishesfrom time to time may establish an allowance for estimated price concessionsadjustments related to its distributerdistributor agreements. The Company estimates credits to distributors based on the historical rate of credits provided to distributors relative to sales. Thesales and evaluation of current market conditions. At December 31, 2021 and 2020, the allowance for product returns and the allowance for price concessions were $144,000adjustments was $397,000 and $569,000 at December 31, 2018, respectively, and $147,000 and $0 at December 31, 2017,$238,000, respectively. Accounts receivable, net consisted of the following (in thousands): | | | | | | | | | | December 31, | | | | 2018 | | 2017 | | | | | | | | | | | | | December 31, | | | | 2021 | | 2020 | Trade accounts receivable | | $ | 7,297 | | $ | 4,188 | | $ | 8,140 | | $ | 7,590 | Unbilled accounts receivable | | | 938 | | | — | | | 450 | | | 255 | Allowance for accounts receivable | | | (713) | | | (147) | | Allowance for product returns and price adjustments | | | | (397) | | | (238) | Accounts receivable, net | | $ | 7,522 | | $ | 4,041 | | $ | 8,193 | | $ | 7,607 |
Concentration of Credit Risk Financial instruments that potentially expose the Company to a concentration of credit risk consist principally of cash and cash equivalents that are held by a financial institution in the United States and accounts receivable. Amounts on deposit with a financial institution may at times exceed federally insured limits. The Company maintains its cash accounts with high credit quality financial institutions and accordingly, minimal credit risk exists with respect to the financial institutions. Significant customers are those which represent more than 10% of the Company’s total revenue or net accounts receivable balance at each respective balance sheet date. For the purposes of this disclosure, the Company defines “customer” as the entity that is purchasing the products or licenses directly from the Company, which includes the distributors of the Company’s products in addition to end customers that the Company sells to directly. For each significant customer, revenue as a percentage of total revenue and accounts receivable as a percentage of total accounts receivable, net are as follows: | | | | | | | | | | | | | | | Revenue | | Accounts Receivable | | | | | Year Ended December 31, | | December 31, | | Customers | | | 2021 | | 2020 | | | 2021 | | 2020 | | Customer A | % | | * | % | 29 | % | | * | % | 29 | % | Customer B | % | | 22 | % | 11 | % | | 54 | % | 25 | % |
| | | | | | | | | | | | Revenue | | Accounts Receivable, net | | | | Year Ended | | As of | | | | December 31, | | December 31, | | Customers | | 2018 | | 2017 | | 2018 | | 2017 | | Customer A | | 13 | % | 16 | % | * | | * | | Customer B | | 11 | % | * | | * | | * | | Customer C | | 10 | % | * | | * | | 11 | % | Customer D | | * | | 15 | % | * | | * | | Customer E | | * | | * | | 23 | % | * | | Customer F | | * | | * | | 21 | % | * | | Customer G | | * | | * | | 11 | % | 15 | % | Customer H | | * | | * | | 11 | % | * | | Customer I | | * | | * | | * | | 10 | % |
*Less than 10%
Inventory Inventory is valued at the lower of cost, using the first-in, first-out or specific identification method, or market.net realizable value. The carrying value of inventory is adjusted for excess and obsolete inventoryobsolescence based on the Company’s evaluation which takes into consideration historical and expected future demand, the effect new products may have on the sale of existing products, technological obsolescence, and other factors including inventory age shipment history and the forecast of demand over a specific future period.shipment. At the point of loss recognition, a new lower cost inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that new cost basis. Fair Value of Financial Instruments Fair value is defined as an exit price, representing the amount that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. The framework for measuring fair value provides a three-tier hierarchy prioritizing inputs to valuation techniques used in measuring fair value as follows: Level 1— Observable inputs such as quoted prices for identical assets or liabilities in active markets; Level 2— Inputs, other than quoted prices for identical assets or liabilities in active markets, which are observable either directly or indirectly; and Level 3— Unobservable inputs in which there is little or no market data requiring the reporting entity to develop its own assumptions. The carrying value of accounts receivable, accounts payable, and other accruals readily convertible into cash approximate fair value because of the short-term nature of the instruments. As of December 31, 2018,2021, based on Level 2 inputs and the borrowing rates available to the Company for loans with similar terms and consideration of the Company’s credit risk, the carrying value of the Company’s variable interest rate debt, excluding unamortized debt issuance costs, approximates fair value. The Company’s financial instruments consist of Level 1 assets.assets and a Level 3 liability. Where quoted prices are available in an active market, securities are classified as Level 1. Level 1 assets consist of highly liquid money market funds that are included in cash equivalents. The Company’s Level 3 liability consists of warrants issued in connection with the 2019 Credit Facility (as defined in Note 6). The change in the fair value of the warrant liability during the year ended December 31, 2021 was immaterial. The following tables sets forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis (in thousands): | | | | | | | | | | | | | | | December 31, 2021 | | | Level 1 | | Level 2 | | Level 3 | | Total | Assets: | | | | | | | | | | | | | Money market funds | | $ | 21,508 | | $ | — | | $ | — | | $ | 21,508 | Total assets measured at fair value | | $ | 21,508 | | $ | — | | $ | — | | $ | 21,508 | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | Warrant liability | | $ | — | | $ | — | | $ | 50 | | $ | 50 | Total liabilities measured at fair value | | $ | — | | $ | — | | $ | 50 | | $ | 50 |
| | | | | | | | | | | | | | | December 31, 2020 | | | Level 1 | | Level 2 | | Level 3 | | Total | Assets: | | | | | | | | | | | | | Money market funds | | $ | 14,669 | | $ | — | | $ | — | | $ | 14,669 | Total assets measured at fair value | | $ | 14,669 | | $ | — | | $ | — | | $ | 14,669 | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | Warrant liability | | $ | — | | $ | — | | $ | 31 | | $ | 31 | Total liabilities measured at fair value | | $ | — | | $ | — | | $ | 31 | | $ | 31 |
| | | | | | | | | | | | | | | December 31, 2018 | | | Level 1 | | Level 2 | | Level 3 | | Total | Assets: | | | | | | | | | | | | | Money market funds | | $ | 23,478 | | $ | — | | $ | — | | $ | 23,478 | Total assets measured at fair value | | $ | 23,478 | | $ | — | | $ | — | | $ | 23,478 |
| | | | | | | | | | | | | | | December 31, 2017 | | | Level 1 | | Level 2 | | Level 3 | | Total | Assets: | | | | | | | | | | | | | Money market funds | | $ | 13,369 | | $ | — | | $ | — | | $ | 13,369 | Total assets measured at fair value | | $ | 13,369 | | $ | — | | $ | — | | $ | 13,369 |
Property and Equipment Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation begins at the time the asset is placed in service. Maintenance and repairs are charged to operations as incurred. Depreciation is computed using the straight-line method over the following estimated useful lives of the assets: | | | | Useful Lives | Computer and network equipment | | 2 years | Manufacturing equipment | | 2 – 7 years | Furniture and fixtures | | 7 years | Software | | 3 years | Leasehold improvements | | 2 years (not to exceed the lease life) |
Leasehold improvementsCosts incurred to develop software for internal use during the application development phase are capitalized and amortized over the shorter of the lease term orsuch software’s estimated useful life. Costs related to the design or maintenance of internal-use software are included in operating expenses as incurred. Upon sale or retirement of assets, the cost and related accumulated depreciation are removed from the balance sheet and theany resulting gain or loss is reflected in operations. Amortization expense of assets acquired through capitalfinance leases is included in the statements of operations and comprehensive loss.income (loss).
Impairment of Long-lived Assets The Company evaluates its long-lived assets, including property and equipment, at the asset group level, for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. If such events or changes in circumstances occur, for purposes of this assessment, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of these assets is measured by comparison of the carrying amount of each asset group to the future undiscounted cash flows the asset group is expected to generate over its remaining life. If the asset group is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. There have been no0 impairments of the Company’s long-lived assets during anyeither of the periods presented. Leases The Company leases office, lab, and manufacturing space and equipment in various locations. Rentlocations with initial lease terms of up to seven years. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. The terms of these leases also include renewal options at the election of the Company to renew or extend the lease for a range of an additional two to five years. These optional periods have not been considered in the determination of the right-of-use-assets (ROU) or lease liabilities associated with these leases as the Company did not consider it reasonably certain it would exercise the options. The Company determines if an arrangement is a lease at inception. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The classification of the Company’s leases as operating or finance leases along with the initial measurement and recognition of the associated ROU assets and lease liabilities is performed at the lease commencement date. The measurement of lease liabilities is based on the present value of future lease payments over the lease term. The Company uses its incremental borrowing rate, based on the information available at commencement date, to determine the present value of lease payments when its leases do not provide an implicit rate. The Company uses the implicit rate when readily determinable. The ROU asset is based on the measurement of the lease liability, includes any lease payments made prior to or on lease commencement and excludes lease incentives and initial direct costs incurred, as applicable. Lease expense underfor the Company’s operating leases is recognized on a straight-line basis over the lease term. Amortization expense for ROU assets associated with finance leases is recognized on a straight-line basis over the shorter of the useful life of the asset or the lease term taking into consideration rent abatements, scheduled rent increases and interest expense associated with finance leases is recognized on the balance of the lease liability using the effective interest method based on the estimated incremental borrowing rate. The Company has lease agreements with lease and non-lease components. The Company has elected to not separate lease and non-lease components for any leases involving real estate and office equipment classes of assets and, as a result, accounts for the lease incentives.and non-lease components as a single lease component. The Company has elected to separate lease and non-lease components for any leases involving manufacturing facility classes of assets. Further, the Company elected the short-term lease exception policy, permitting it to not apply the recognition requirements of this standard to leases with terms of 12 months or less (short-term leases) for all classes of assets. As of December 31, 2021, the Company did not have any short-term leases. Operating leases are included in right-of-use assets, operating lease liabilities, and operating lease liabilities, net of current portion in the Company’s balance sheet. Finance leases are included in property and equipment, net, other liabilities, and other long-term liabilities in the Company’s balance sheet. Debt Issuance Costs The Company defers and amortizes issuance costs, underwriting fees, end of term payments, and related expenses incurred in connection with the issuance of debt instruments using the effective interest method over the terms of the respective instruments. Debt issuance costs are reflected as a direct reduction of the carrying amount of the related debt liability. Revenue Recognition The Company recognizes revenue when a customer obtains control of the promised products or services, in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. Revenue is recognized net of allowances for returns and price concessions,adjustments, and any taxes collected from customers,imposed on specific revenue-producing transactions, which are subsequently remitted to governmental authorities. Nature of Products and Services The Company’s revenue is derived from the sale of MRAM-based products in discrete unit form, licenses of and royalties on its MRAM and magnetic sensor technology, the sale of backend foundry services and design services to third parties. Sales of products in discrete unit form are recognized at a point in time, revenue related to licensing agreements is recognized when the Company has delivered control of the technology, revenue related to royalty agreements is recognized in the period in which sales generated from products sold using the Company’s technology occurs, sales of backend foundry services are recognized over time, and design services to third parties are recognized either at a point in time or over time, depending on the nature of the services. Product Revenue For products sold in their discrete form, the Company either sells its products directly to original equipment manufacturers (OEMs), original design manufacturers (ODMs) and contract manufacturers (CMs), or through a network of distributors, who in turn sell to those customers. For sales directly to OEMs, ODMs and CMs, revenue is recognized when the OEM, ODM or CM obtains control of the product, which occurs at a point in time, generally upon shipment to the customer. Contracts for sales of products are generally less than one year. The Company sells thea majority of its products to itstheir distributors at a uniform list price. However, distributors may resell the Company’s products to end customers at a very broad range of individually negotiated price points. Distributors are providedFrom time to time, the Company may provide distributors with price concessionsadjustments subsequent to the delivery of product to them and such amounts are dependent on the end customer and product sales price. The price concessions arePrice adjustments can be based on a variety of factors, including customer, product, quantity, geography, and competitive differentiation. Price protection rights grant distributors the right to a credit in the event of declines in the price of the Company’s products. Under these circumstances, the Company remits back to the distributor a portion of their original purchase price after the resale transaction is completed in the form of a credit against the distributors’ outstanding accounts receivable balance. The credits are on a per unit basis and are not given to the distributor until the distributor provides information regarding the sale to their end customer. The Company estimates these credits and recordsrecord such estimates in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of an allowance for price concessionsadjustments for amounts due to distributors. The Company estimates credits to distributors based on the historical rate of credits provided to distributors relative to sales.sales and evaluation of current market conditions. Revenue on shipments to distributors is recorded when control of the products has been transferred to the distributor. The Company estimates the amount of itsour product sales that may be returned by its customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized. The Company estimates its product return liability by analyzing its historical returns, current economic trends and changes in customer demand and acceptance of products. The Company has received insignificant returns to date and believes that returns of its products will continue to be minimal. AtUpon the timetransfer of control, generally at shipment, to distributors, the Company records a trade receivable for the selling price as there is a legally enforceable obligation of the distributor to pay for the product delivered, an allowance is recorded for the estimated discount that will be provided to the distributor, and the net of these amounts is recorded as revenue on the statement of operations.
License Revenue For licenses of technology, recognition of revenue is dependent upon whether the Company has delivered rights to the technology, and whether there are future performance obligations under the contract. In some instances, the license agreements call for future events or activities to occur in order for milestones amounts to become due from the customer. The terms of such agreements include payment to the Company of one or more of the following: non-refundable upfront fees; and royalties on net sales of licensed products. Historically, these license agreements have not included other future performance obligations for the Company once the license has been transferred to the customer. Revenue from non-refundable up-frontupfront payments is recognized when the license is transferred to the customer and the Company has no other performance obligations. The Company also entered into a contractual agreement with a customer in 2021 for the development of a RAD-Hard product, consisting of a technology license, a design license agreement and development contract. The Company applies a five-step approach in determining the amount and timing of revenue to be recognized: (1) identifying the contract with a customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations in the contract; and (5) recognizing revenue when the performance obligation is satisfied. The Company concluded these contractual arrangements represent one arrangement and evaluated its promises to the customer and whether the performance obligations granted under the arrangement were distinct. The licenses provided to the customer are not transferable, are of limited value without the promised development services, and the customer cannot benefit from the license agreements without the specific obligated services in the development subcontract, as there is strong interdependency between the licenses and the development subcontract. Accordingly, the Company determined the licenses were not distinct within the context of the contract and combined the license with other performance obligations. As a result, the Company is recognizing revenue related to the performance obligations over time using the input method based on costs incurred to date relative to the total expected costs of the contract over the performance obligation period. Patents In an effort to monetize on its intellectual property, the Company may sell patents to customers. The performance obligations are satisfied at the point in time at which the customer obtains control of the patents. Royalties Revenue from sales-based royalties from licenses of the Company’s technology are recognized at the later of when (1) the sale occurs or (2) the performance obligation to which some or all of the sales-based royalty has been allocated is satisfied (in whole or in part). The Company will record an unbilled receivable (within accounts receivable, net) for the portion of sales-based royalties that have been earned, but not invoiced at the end of each reporting period. Other Revenue For certain revenue streams, the Company recognizes revenue based on the pattern of transfer of the services. The Company uses the input method of measuring costs incurred to date compared to total estimated costs to be incurred under the contract as this method most faithfully depicts its performance. The Company will record an unbilled receivable (within accounts receivable, net) for the portion of the work that has been completed but not invoiced at the end of each reporting period. Revenue from milestone payments must be estimated using either the expected value method or the most likely amount method. At the inception of each agreement that includes milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price by using the most likely amount method. If it is probable that a significant reversal of cumulative revenue would not occur, the associated milestone value is included in the transaction price. At the end of each subsequent reporting period, the Company re-evaluates the probability or achievement of each such milestone and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.
Product Warranty The Company generally sells products with a limited warranty of product quality and a limited indemnification of customers against intellectual property infringement claims related to the Company’s products. The Company accrues for known warranty and indemnification issues if a loss is probable and can be reasonably estimated and accrues for estimated losses incurred for unidentified issues based on historical experience. A warranty liability was not recorded at December 31, 20182021 and 2017,2020, as the estimated future warranty costs were not material based on the Company’s historical experience. Research and Development Research and development expenses are incurred in support of internal development programs or as part of ourthe Company’s joint development agreement with GLOBALFOUNDRIES and joint collaboration agreement with Silterra Malaysia Sdn. Bhd. (see Note 10). Research and development expenses include personnel-related costs (including stock-based compensation), circuit design costs, purchases of materials and laboratory supplies, fabrication and packaging of experimental integrated circuit products, depreciation of research and development related capital equipment and overhead and are expensed as incurred. Stock-based Compensation Stock-based compensation arrangements include stock option grants and restricted stock unit (RSU) awards under the Company’s equity incentive plans, as well as shares issued under the Company’s Employee Stock Purchase Plan (ESPP), through which employees may purchase the Company’s common stock at a discount to the market price. The Company measures its stock option grants made to employees based on the estimated fair value of the options as of the grant date using the Black-Scholes option-pricing model. Stock-based compensation expense is recognized over the requisite service period using the straight-line method. The Company has made an accounting policy election to accountaccounts for forfeitures as they occur, rather than estimatingoccur. Expected volatility. The Company determines the expected forfeituresstock price volatility based on the historical volatility of its common stock and the historical volatilities of a peer group. Industry peers consist of several public companies in the technology industry similar in size, stage of life cycle and financial leverage. If circumstances change such that the identified companies are no longer similar, the Company will revise its peer group to substitute more suitable companies in this calculation. Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield with a maturity equal to the expected term of the option in effect at the time of the grant. Stock-based compensation expense for options grantedExpected term. The expected term represents the period that the stock-based awards are expected to non-employeesbe outstanding. The Company used the simplified method to determine the expected term, which is calculated as consideration for services received is measured on the date of performance at the fair valueaverage of the consideration received ortime to vesting and the fair valuecontractual life of the equity instruments issued, usingoptions.
Dividend yield. The Company has never paid dividends on its common stock and is prohibited from paying dividends on its common stock. Therefore, the Black-Scholes option-pricing model, whichever can be more reliably measured. Compensation expense for options granted to non-employees is periodically remeasured as the underlying options vest.Company used an expected dividend yield of zero. Income Taxes The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company must then assess the likelihood that the resulting deferred tax assets will be realized. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The Company recognizes benefits of uncertain tax positions if it is more likely than not that such positions will be sustained upon examination based solely on their technical merits, as the largest amount of benefit that is more likely than not to be realized upon the ultimate settlement. The Company’s policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. The Company does not have any unrecognized tax benefits. Net LossIncome (Loss) per Common Share Basic net lossincome (loss) per common share is calculated by dividing the net lossincome (loss) by the weighted-average number of shares of common stock outstanding for the period less shares subject to repurchase, without consideration of potentially dilutive securities. Diluted earnings per share is calculated using the treasury stock method by dividing net income by the total weighted average shares of common stock outstanding in addition to the potential impact of dilutive securities including restricted stock units, warrants, and options. In periods with a net loss, diluted net loss per common share is the same as basic net loss per common share since the effect of potentially dilutive securities is anti-dilutive. Prior Period ReclassificationsRecently Adopted Accounting Pronouncements
Certain amountsThe Company adopted Accounting Standards Update (ASU) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes in the prior periodyear ended December 31, 2021. The adoption of this standard did not have been reclassified to conform with current period presentation. There was noa material impact on total revenue or net loss for the prior period.financial statements.
Recently AdoptedIssued Pronouncements ASU No. 2014-09, Revenue from Contracts with Customers
In May 2014,June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014‑09, Revenue from Contracts with Customers (Topic 606). Areas of revenue recognition that will be affected include, but are not limited to, transfer of control, variable consideration, allocation of transfer pricing, licenses, time value of money, contract costs and disclosures. The new standard permits adoption either by using (i) a full retrospective approach for all periods presented in the period of adoption or (ii) a modified retrospective approach with the cumulative effect of initially applying the new standard recognized at the date of initial application and providing certain additional disclosures. The new standard is effective for annual reporting periods beginning after December 15, 2017. The Company adopted this standard on January 1, 2018 using the modified retrospective method. The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of its accumulated deficit. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. Topic 606 permits the application of certain practical expedients. The Company’s billing practices approximate the Company’s performance as measured by an output method, where each output represents the completion of a performance obligation. Accordingly, the Company utilizes the invoice practical expedient as defined in Topic 606, resulting in recognition of revenue in the amount that the Company has the right to invoice.
Unsatisfied performance obligations primarily represent contracts for products with future delivery dates and with an original expected duration of one year or less. As allowed under Topic 606, the Company has opted to not disclose the amount of unsatisfied performance obligations as these contracts have original expected durations of less than one year.
The Company incurs direct and incremental costs of obtaining contracts and such costs are expensed as incurred, as the life of the underlying contract is less than one year. Accordingly, the Company has concluded, based on the structure of its contracts, no adjustments are necessary under Topic 606.
As a result of the adoption of the new standard, the Company changed its accounting policy for revenue recognition and the details of the significant changes and quantitative impact of the changes are disclosed below.
Distributor sales – Some of the Company's contracts with distributors provide the distributor with certain concessions and price protection credits. Under Topic 605, Revenue, these concessions and price protection credits were not fixed or determinable and, as a result, the associated revenue was deferred until delivery of the product to the end customer. At the time of shipment to distributors, the Company recorded a trade receivable for the selling price as there was a legally enforceable obligation of the distributor to pay for the product delivered, inventory was reduced by the carrying value of goods shipped, and the net of these amounts, the gross profit, was recorded as deferred income on shipments to distributors on the balance sheet. Under Topic 606, the Company recognizes revenue from sales to distributors when control of the product is transferred to the distributor and estimates the amount of the concessions and price protection credits at the point of revenue recognition. Accordingly, the balance of the deferred income on shipments to distributors was eliminated as a cumulative effect adjustment of implementing Topic 606 as of January 1, 2018, net of the Company’s estimate of concessions and price protection credits for those contracts.
Performance obligations delivered over time – Topic 605 permitted straight-line recognition of revenue for performance obligations that were delivered over time. The new revenue standard requires an entity to recognize revenue based on the pattern of transfer of the services. Entities must use either an input method or an output method to measure progress toward complete satisfaction of a performance obligation. The Company determined that the input method of measuring time elapsed to date compared to total estimated time to be incurred under the contract most faithfully depicts its performance. Under Topic 606, the Company will record an unbilled receivable (within accounts receivable, net) for the portion of the service that has been completed but not invoiced at the end of each reporting period.
Milestone payments – Topic 605 permitted recognition using the milestone method, whereby revenue was recognized upon the completion of substantive milestones once the customers acknowledge the milestones have been met and the collection of the amounts is reasonably assured. The milestone method no longer exists under the new revenue standard. Revenue from milestone payments must be estimated using either the expected value method or the most likely amount method. If it is probable that a significant reversal of cumulative revenue would not occur, the associated milestone value is included in the transaction price. The adoption of Topic 606 did not have an impact on milestone revenue recorded to date as the practical expedient adopted for a single contract resulted in revenue recognition similar to milestone revenue under Topic 605.
Sales-based royalties – Topic 605 permitted recognition of royalties when reported to the Company, which generally coincided with the receipt of payment. Under the new revenue standard, revenue generated from sales-based royalties from licenses of technology are recognized at the later of when (1) the sale occurs or (2) the performance obligation to which some or all of the sales-based royalty has been allocated is satisfied (in whole or in part).
There was no impact to the recognition of revenue for non-refundable, up-front payments for licenses of the Company’s technology, which occurs when the license is transferred to the customer and there are no other performance obligations.
The change in revenue recognition upon adoption of Topic 606 resulted in a decrease in the accumulated deficit balance of $1.3 million on January 1, 2018.
The following table summarizes the impact of adopting Topic 606 on select balance sheet line items (in thousands):
| | | | | | | | | | | | | | | | Balances without | | | | | | | the adoption of | December 31, 2018 | | As reported | | Adjustments | | Topic 606 | Accounts receivable, net | | $ | 7,522 | | $ | (1,211) | | $ | 6,311 | Inventory | | | 9,097 | | | 190 | | | 9,287 | Total current assets | | | 40,686 | | | (1,021) | | | 39,665 | Total assets | | | 45,045 | | | (1,021) | | | 44,024 | Deferred income on shipments to distributors | | | — | | | 3,017 | | | 3,017 | Total current liabilities | | | 13,615 | | | 3,017 | | | 16,632 | Total liabilities | | | 20,124 | | | 3,017 | | | 23,141 | Accumulated deficit | | | (133,993) | | | (4,038) | | | (138,031) | Total liabilities and stockholders’ equity | | | 45,045 | | | (1,021) | | | 44,024 |
The following table summarizes the impact of adopting Topic 606 on select statement of operations line items (in thousands, except per share data):
| | | | | | | | | | | | | | | | Results without | | | | | | | the adoption of | Year Ended December 31, 2018 | | As reported | | Adjustments | | Topic 606 | Product sales | | $ | 39,514 | | $ | (2,915) | | $ | 36,599 | Licensing, royalty, and other revenue | | | 9,903 | | | (577) | | | 9,326 | Total revenue | | | 49,417 | | | (3,492) | | | 45,925 | Cost of sales | | | 24,083 | | | (754) | | | 23,329 | Gross profit | | | 25,334 | | | (2,738) | | | 22,596 | Loss from operations | | | (17,321) | | | (2,738) | | | (20,059) | Net loss and comprehensive loss | | | (17,754) | | | (2,738) | | | (20,492) | Net loss per common share, basic and diluted | | | (1.08) | | | (0.17) | | | (1.25) |
The adoption had no impact to cash used in operating, investing or financing activities in the statement of cash flows.
ASU No. 2017-09, Compensation-Stock Compensation
In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718) Scope of Modification Accounting, which is intended to amend the scope of modification accounting for share-based payment arrangements. The amendments in the update provide guidance on types of changes to the terms or conditions of share-based payment awards that would require the Company to apply modification accounting under ASC 718, Compensation-Stock Compensation. This ASU is effective for annual reporting periods beginning after December 15, 2017, and early adoption was permitted. The Company adopted this standard on January 1, 2018, and the impact of its adoption on the Company’s financial statements was not material.
ASU No. 2016-15, Statement of Cash Flows
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 identifies how certain cash receipts and cash payments are presented and classified in the Statement of Cash Flows. The standard is effective for fiscal years and interim periods beginning after December 15, 2017. The standard should be applied retrospectively and early adoption was permitted, including adoption in an interim period. The Company adopted this standard on January 1, 2018, and the impact of its adoption on the Company’s financial statements was not material.
Recently Issued Pronouncements
In February 2016, the FASB issued ASU No. 2016‑02, Leases, which establishes a comprehensive new lease accounting model. The new standard: (a) clarifies the definition of a lease; (b) requires a dual approach to lease classification similar to current lease classifications; and (c) causes lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for leases with a lease-term of more than twelve months. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2018. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842 Leases and ASU No. 2018-11, Leases (Topic 842) Targeted Improvements. ASU 2018-10 clarifies how to apply certain aspects of ASU 2016-02. The Company will adopt this standard on January 1, 2019 using the modified retrospective method. The Company is substantially complete with its analysis as to the impact of adoption and estimates that the adoption will result in the recognition of right-of-use assets and lease liabilities for operating leases within the range of approximately $3.6 million to $4.0 million on its balance sheet, with no material impact to its statement of operations.
In June 2016, the FASB issued ASU No. 2016-13, "FinancialFinancial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. As the Company is a smaller reporting company, ASU 2016-13 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019,2022, and requires a cumulative effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements Financial Instruments-Credit Losses (Topic 326). ASU No. 2019-04 provides narrow-scope amendments to help apply ASU No. 2016-13, and is effective with the adoption of ASU No. 2016-13. The Company is evaluating the impact of the adoption of ASU 2016-13 and ASU No. 2019-04 on its financial statements.
In June 2018, the FASB issued ASU No. 2018‑07,Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 is intended to reduce the cost and complexity and to improve financial reporting for nonemployee share based payment. Subsequent Events
The ASU expands the scope of Topic 718, (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The standard is effective for fiscal years beginningCompany evaluated events after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than a company’s adoption31, 2021, and through the date of Topic 606. The Company adopted this standard on January 1, 2019, and the impact of its adoption on the Company’s financial statements was not material. In August 2018, the Securitieswere issued, and Exchange Commission (SEC) adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certaindetermined any events or transactions occurring during this period that would require recognition or disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity for interimare appropriately addressed in these financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a
statement of comprehensive income is required to be filed. This final rule is effective on November 5, 2018, however in light of the proximity of the effective date to the filing date for most filers’ quarterly reports, the SEC will allow a filer’s first presentation of the changes in stockholders’ equity to be included in its Form 10-Q for the quarter that begins after the effective date. The Company will begin to present a statement of changes in stockholders’ equity in its quarterly financial statements beginning on January 1, 2019.
3. Revenue The Company sells the majority of its products to its distributors but does recognize someand OEMs. The Company also recognizes revenue under licensing, patent, and royalty agreements.agreements with some customers. The following table presents the Company’s revenues disaggregated by sales channel (in thousands): | | | | Year Ended | | December 31, 2018 | Distributor | $ | 35,126 | Non-distributor | | 14,291 | Total revenue | $ | 49,417 |
| | | | | | | | | Year Ended December 31, | | | 2021 | | 2020 | Distributor | | $ | 36,479 | | $ | 26,027 | Non-distributor | | | 18,667 | | | 16,004 | Total revenue | | $ | 55,146 | | $ | 42,031 |
The following table presents the Company’s revenues disaggregated by timing of recognition (in thousands): | | | | | Year Ended | | | December 31, 2018 | | | | | | | | | | | | | Year Ended December 31, | | | | 2021 | | 2020 | Point in time | $ | 45,102 | | $ | 51,204 | | $ | 40,846 | Over time | | 4,315 | | | 3,942 | | | 1,185 | Total revenue | $ | 49,417 | | $ | 55,146 | | $ | 42,031 |
The following table presents the Company’s revenues disaggregated by type (in thousands): | | | | | Year Ended | | | December 31, 2018 | | | | | | | | | | | | | Year Ended December 31, | | | | 2021 | | 2020 | Product sales | $ | 39,514 | | $ | 43,931 | | $ | 39,848 | License fees | | 5,000 | | Royalties | | 588 | | | 2,021 | | | 998 | Patents | | | | 5,250 | | | — | Other revenue | | 4,315 | | | 3,944 | | | 1,185 | Total revenue | $ | 49,417 | | $ | 55,146 | | $ | 42,031 |
In September 2021, the Company entered into an intellectual property monetization deal to sell 5 patents to a customer for a total contract value of $5.25 million. NaN of the patents were assigned to the customer in September 2021, and the remaining 3 patents were assigned to the customer in October 2021. Control is transferred when the patents are assigned to the customer. As a result, all $5.25 million of patent revenue was recognized during the year ended December 31, 2021, related to the patent sales. The Company licenses its intellectual property and is entitled to consideration based on the customer’s sales. The Company makes estimates in instances when the customer reports sales on a lagged basis and actual information is not available timely. The estimates are based on historical trends in the customer’s activity and current market conditions. In the year ended December 31, 2021 the Company recognized $0.8 million of royalty revenue related to activity occurring in the year ended December 31, 2020. This is a change in estimate and is based on actual information received from the customer. The amounts are reported in licensing, royalty, patent and other revenue in the statements of operations and comprehensive income (loss). The Company recognizes revenue in three primary3 geographic regions: Asia-Pacific (APAC); North America; and Europe, Middle East and Africa (EMEA);. We recognize revenue by geography based on the region in which our products are sold, and Asia-Pacific and Japan (APJ). The following table presentsnot to where the Company’s revenues disaggregatedend products in which they are assembled are shipped. Our revenue by region for the geographic region to which the product is delivered or licensee is locatedperiods indicated was as follows (in thousands): | | | | Year Ended | | December 31, 2018 | North America | $ | 9,124 | EMEA | | 11,175 | APJ | | 29,118 | Total revenue | $ | 49,417 |
| | | | | | | | | Year Ended December 31, | | | 2021 | | 2020 | APAC | | $ | 32,327 | | $ | 29,480 | North America | | | 15,813 | | | 9,253 | EMEA | | | 7,006 | | | 3,298 | Total revenue | | $ | 55,146 | | $ | 42,031 |
4. Balance Sheet Components Inventory Inventory consisted of the following (in thousands): | | | | | | | | | | December 31, | | | | 2018 | | 2017 | | | | | | | | | | | | | December 31, | | | | 2021 | | 2020 | Raw materials | | $ | 288 | | $ | 682 | | $ | 464 | | $ | 329 | Work-in-process | | | 6,759 | | | 7,970 | | | 4,620 | | | 4,910 | Finished goods | | | 2,050 | | | 1,185 | | | 1,312 | | | 482 | Total inventory | | $ | 9,097 | | $ | 9,837 | | $ | 6,396 | | $ | 5,721 |
Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): | | | | | | | | | | December 31, | | | | 2018 | | 2017 | | | | | | | | | | | | | December 31, | | | | 2021 | | 2020 | Manufacturing equipment | | $ | 11,723 | | $ | 10,465 | | $ | 12,608 | | $ | 12,296 | Computer and network equipment | | | 820 | | | 710 | | | 1,008 | | | 917 | Furniture and fixtures | | | 110 | | | 218 | | | 187 | | | 112 | Software | | | 680 | | | 455 | | | 929 | | | 925 | Leasehold improvements | | | 1,432 | | | 1,474 | | | 1,444 | | | 1,444 | Total property and equipment, gross | | | 14,765 | | | 13,322 | | | 16,176 | | | 15,694 | Less: accumulated depreciation | | | (10,479) | | | (9,376) | | | (15,203) | | | (13,748) | Total property and equipment, net | | $ | 4,286 | | $ | 3,946 | | $ | 973 | | $ | 1,946 |
Depreciation and amortization expense during the years ended December 31, 20182021 and 20172020 was $1.5 million and $1.2$2.0 million, respectively. Accrued Liabilities Accrued liabilities consisted of the following (in thousands): | | | | | | | | | December 31, | | | 2018 | | 2017 | Accrued payroll-related expenses | | $ | 1,558 | | $ | 1,331 | Accrued joint development agreement expenses | | | 661 | | | 749 | Accrued inventory | | | 1,678 | | | 897 | Deferred rent | | | 390 | | | 230 | Accrued sales commissions payable to sales representatives | | | 51 | | | 75 | Other | | | 663 | | | 466 | Total accrued liabilities | | $ | 5,001 | | $ | 3,748 |
| | | | | | | | | December 31, | | | 2021 | | 2020 | Payroll-related expenses | | $ | 2,845 | | $ | 1,274 | Inventory | | | 177 | | | 416 | Other | | | 557 | | | 542 | Total accrued liabilities | | $ | 3,579 | | $ | 2,232 |
Deferred Revenue During the year ended December 31, 2021, the Company executed contractual arrangements with a customer for the development of a RAD-Hard product, consisting of a technology license, design license agreement and development subcontract. The Company does not share in the rights to future revenues or royalties. The total arrangements are for $6.5 million in consideration. The Company concluded these contractual arrangements represent one arrangement and evaluated its promises to the customer and whether the performance obligations granted under the arrangement were distinct. The licenses provided to the customer are not transferable, are of limited value without the promised development services, and the customer cannot benefit from the license agreements without the specific obligated services in the development subcontract, as there is strong interdependency between the licenses and the development subcontract. Accordingly, the Company determined the licenses were not distinct within the context of the contract and combined the license with other performance obligations. The total transaction price of $6.5 million was allocated to the single performance obligation. The Company recognizes revenue related to the performance obligations over time using the input method based on costs incurred to date relative to the total expected costs of the contract and began recognizing revenue in the second quarter of 2021 over the performance obligation period. This method depicts performance under the contract and requires the Company to make estimates about the future costs expected to be incurred to perform under the contact, including labor and material costs. For the year ended December 31, 2021, the Company has billed $4.1 million for the performance under the contractual agreements. Under the input method of recognition, the Company has recognized $3.3 million in revenue for the year ending December 31, 2021. As a result, the Company has recorded $0.8 million in deferred revenue as of December 31, 2021. The Company expects to recognize the remaining $3.2 million of the transaction price as services are performed throughout the contractual period and performance is expected to be complete in the year ended December 31, 2024. 5. Commitments and Contingencies Operating Leases
During 2017, the Company entered into a lease for 27,974 square feet of office space for its corporate headquarters located in Chandler, Arizona. The lease expires in January 2022, however the Company has the option to renew the lease through August 2024. Rent expense is recognized on a straight-line basis over the term of the leases and, accordingly, the Company records the difference between cash rent payments and the recognition of rent expense as a deferred rent liability.
In April 2018, the Company entered into a lease termination agreement that released the Company from any further obligations on its previous headquarters’ space in Chandler, Arizona. The remaining unamortized balance of deferred
rent of $18,000 was written off and a lease termination fee of $43,000 was recognized as rent expense on the statement of operations and comprehensive loss.
The Company leases office and lab space for its design facility located in Austin, Texas. Theundiscounted future non-cancellable lease expires in January 2022. The Company has another operating lease for its Arizona manufacturing facility, which includes office and fabrication space. This lease is cancellable upon 24 months’ notice by either of the parties. In March 2017, the Company amended the premises covered to remove laboratory space, decrease fabrication space and expand office space. In October 2017, the Company extended the lease through January 31, 2020, which could be further extended through January 31, 2021 if an option to extend is initiated by the lessor. In August 2018, the Company amended its lease agreement for its Arizona manufacturing facility to extend the lease term through January 2021.
The following is a schedule of minimum rental commitmentspayments under the Company’s operating leases atwere as follows (in thousands):
| | | | As of December 31, 2021 | | Amount | 2022 | | $ | 746 | 2023 | | | 68 | Thereafter | | | — | Total lease payments | | | 814 | Less: imputed interest | | | (22) | Total operating lease liabilities | | | 792 | Less: current portion of operating lease liabilities | | | (724) | Total operating lease liabilities, net of current portion | | $ | 68 |
Other information related to the Company's operating lease liabilities was as follows: | | | | | | | | | December 31, | | | 2021 | | 2020 | Weighted-average remaining lease term (years) | | 1.08 | | | 1.74 | | Weighted-average discount rate | | 6.00 | % | | 6.00 | % |
Lease costs for the Company’s operating leases were $1.5 million for both the years ended December 31, 2018 (in thousands): | | | | Year Ending December 31, | | Amount | 2019 | | $ | 1,645 | 2020 | | | 1,701 | 2021 | | | 846 | 2022 | | | 47 | 2023 | | | — | Thereafter | | | — | Total minimum lease payments | | $ | 4,239 |
Total rent expense was $1.6 million2021 and $1.4 million2020, respectively. Variable lease payments for operating leases were immaterial for the years ended December 31, 20182021 and 2017, respectively.2020. Lease costs for the Company’s finance lease were immaterial for the years ended December 31, 2021 and 2020.
Subsequent to December 31, 2021, the Company’s office space lease in Chandler, Arizona and design facility lease in Austin, Texas expired. Both leases expired in January 2022 and were replaced with new leases expiring at various dates through 2029. The Company signed the new leases in 2021 and the leases commenced in January and February 2022. The Company’s lease liability and right-of-use assets will be recognized when the leases commence, and the underlying assets are available for use, which was during the first quarter of 2022. The undiscounted future non-cancellable lease payments under these 2 operating leases are as follows (in thousands): | | | | As of December 31, 2021 | | Amount | 2022 | | $ | 531 | 2023 | | | 579 | 2024 | | | 594 | 2025 | | | 610 | 2026 | | | 626 | Thereafter | | | 964 | Total | | $ | 3,904 |
Legal Proceedings From time to time, the Company may become involved in legal proceedings arising from the ordinary course of its business. Management is currently not aware of any matters that it expects will have a material adverse effect on the financial position, results of operations or cash flows of the Company. Indemnifications In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless and defend an indemnified party for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable. The Company has never incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. The Company has also entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted by Delaware corporate law. The Company currently has directors’ and officers’ insurance. 6. Debt and Related Warrants Prior Facilities2019 Credit Facility
In June 2015,August 2019, the Company executed aan Amended and Restated Loan and Security Agreement with Ares Venture Finance (2015(2019 Credit Facility) comprising an $8.0 million, which amended and restated the Company’s prior loan and security agreement (2017 Credit Facility), providing for a formula revolving line of credit (Line of Credit) and a term loan and a $4.0 million revolving loan. In April 2017, the Company repaid the outstanding balance of $1.1 million on the revolving loan at which time the unamortized balance of the debt discount of $10,000 was recognized as a loss on extinguishment of debt. In May 2017, the Company repaid the outstanding principal balance of $6.2 million on the term loan at which time the unamortized balance of the debt discount was $175,000, and paid a prepayment penalty of $61,000. The unamortized debt discount balance and the prepayment penalty were recognized as a loss on extinguishment of debt in the statements of operations and comprehensive loss.
2017 Credit Facility
On May 4, 2017, the Company entered into a Loan and Security Agreement(2019 Term Loan) with Silicon Valley Bank (2017(SVB).
In July 2020, the Company executed the first amendment to the 2019 Credit Facility)Facility with SVB. The amendment, among other things, extended the initial 12-month interest-only period for the 2019 Term Loan to a 16-month interest-only period and lowered the floor interest rate. The floor interest rates for the 2019 Term Loan and the Line of Credit were reduced from 4.75% and 6.75% to 3.75% and 4.75%, respectively. The amended Line of Credit allows for a $12.0maximum draw of $5.0 million, subject to a formula borrowing base, has a two-year term loan. The term loan provided forand bears interest at a floating rate equal to the Wall Street Journal (WSJ) prime rate minus 0.75%. The term loan provided forplus 1.5%, per annum, subject to a periodfloor of interest-only payments through April 30, 2018, followed by fixed principal and interest payments based on either a 24-month amortization schedule or a 36-month amortization schedule if the Company met certain sales milestones.4.75%. As of December 31, 2017,2021, the Company determined it would not meet the sales milestones and as such the term loaninterest rate was based on4.75%. The Line of Credit required a 24-month amortization schedule. An end of termcommitment fee of 6%1.6% of the amount borrowed must be made whenmaximum availability of the loan is prepaid or repaid, whether at maturity orLine of Credit, which was paid in August 2019 upon closing, and was accounted for as a resultdebt discount. The Line of Credit also provides for a termination fee equal to 1% of the maximum availability under the Line of Credit, which is due in case of a prepayment or acceleration or otherwise. On July 6, 2018,termination of the CompanyLine of Credit prior to the scheduled maturity date, and an unused facility fee equal to 0.125% per annum of the average unused portion of the Line of Credit, which is expensed as incurred. Currently, $4.0 million remains available under the Line of Credit, subject to borrowing base availability. As of December 31, 2021, the effective interest rate under the Line of Credit was 10.18% and the outstanding balance was $1.0 million. The Line of Credit was set to mature on August 5, 2021. The second amendment, entered into on July 28, 2021, extended the First Amendmentmaturity date of the Line of Credit to the 2017 Credit Facility (the Amended Credit Facility). August 5, 2022.
The Amended Credit Facility extends theamended 2019 Term Loan provides for a $6.0 million term loan. The 2019 Term Loan has a term of 46 months, and a 16-month interest-only period of interest-only payments through December 31, 2018, followed by fixed30 months of equal principal and interest payments, based on either a 24-month or a 36-month amortization schedule if the Company achieves certain milestones.plus accrued interest. The Company determined it would not meet the milestones, as such the Amended Credit Facility is based on a 24-month amortization schedule. The Amended Credit Facility provides for2019 Term Loan bears interest at a floating rate equal to the WSJ prime rate minus 0.75%, subject to a floor of 3.75%. As of December 31, 2018,2021, the interest rate was 4.75%3.75%. The terms of the Amended Credit Facility include the refund of $1.0 million in principal payments previously made by the Company. An end of term feeA final payment of 7% of the original principal amount borrowedof the 2019 Term Loan must be made when the loan2019 Term Loan is prepaid or repaid, whether at maturity or as a result of a prepayment or acceleration or otherwise. The additional payment, which is accounted for as a debt discount, is being accreted using the effective interest method. The 2019 Term Loan has a prepayment fee equal to 2% of the total commitment, which is due only if the 2019 Term Loan is prepaid prior to the scheduled maturity date for any reason. As of December 31, 2018,2021, the effective interest rate under the Amended2019 Term Loan was 7.85% and the outstanding balance was $4.0 million. The 2019 Term Loan matures on June 1, 2023. In conjunction with entering into the 2019 Credit Facility, was 7.77%. Borrowings underon August 5, 2019, the AmendedCompany and SVB amended and restated the warrant issued to SVB in connection with the first amendment to the 2017 Credit Facility, maturewhich was a warrant to purchase 9,375 shares of the Company’s common stock at an exercise price of $8.91 per share, to add an option by SVB to put the warrant back to the Company for $50,000 upon expiration or a liquidity event, to be prorated if SVB exercises a portion of the warrant. The warrant expires on July 6, 2023. The warrant is classified as a liability and recorded at fair value within other liabilities in December 2020.the Company’s condensed balance sheet. Due to the put right, the warrant is subject to fair value remeasurement at each subsequent reporting date until the exercise or expiration of the warrant. Any resulting change in the fair value of the warrant will be recorded as other (expense) income, net in the Company’s statements of operations and comprehensive income (loss). The Company recognized an expense of $19,000 and income of $2,000 for years ended 2021 and 2020, respectively, related to the change in fair value of the warrant within other (expense) income, net in the statements of operations and comprehensive income (loss). SecurityAdditionally, in conjunction with entering into the first amendment to the 2019 Credit Facility, on July 15, 2020, the Company issued an additional warrant to SVB to purchase 21,500 shares of its common stock at an exercise price of $0.01 per share, which was to expire on July 15, 2025. The warrant was classified as equity and was recorded as a debt discount that was amortized to interest expense using the effective interest method. The fair value of the warrant was $152,000 on the date of issuance using the Black-Scholes option-pricing model.
On July 22, 2021, SVB elected to exercise the warrant associated with the first amendment to the 2019 Credit Facility, which resulted in a net cashless exercise of the warrant and the issuance of 21,463 shares of the Company’s common stock. Collateral for the Amended2019 Credit Facility includes all of the Company’s assets except for intellectual property. The Company is required to comply with certain covenants under the Amended2019 Credit Facility, including requirements to maintain a minimum liquidity ratio, meet certain revenue targets,cash balance and availability under the Line of Credit, and restrictions on certain actions without the consent of the lender, such as limitations on its ability to engage in mergers or acquisitions, sell assets, enter into transactions involving related parties, incur indebtedness, or grant liens or negative pledges on its assets, make loans or make other investments. Under these covenants, the Company is prohibited from paying cash dividends with respect to its capital stock. The Company was in compliance with all covenants at December 31, 2018.2021. The Amended2019 Credit Facility contains a material adverse effect clause which provides that an event of default will occur if, among other triggers, an event occurs that could reasonably be expected to result in a material adverse effect on the Company’s business, operations, or condition, or on the Company’s ability to perform its obligations under the term loan.2019 Term Loan. As of December 31, 2018,2021, management believesdoes not believe that it is remoteprobable that the clause will be triggered within the next twelve12 months, and therefore the term loan2019 Term Loan is classified as long-term. long-term debt. The amortization of the debt issuance costs and accretion of the debt discount is included in interest expense within the statements of operations and comprehensive income (loss) and included in non-cash interest expense within the statement of cash flows. The carrying value of the Company’s Amended2019 Credit Facility at December 31, 2018,2021, was as follows (in thousands): | | | | | | | | | | | | | Current | | Long-Term | | | | | | | Portion | | Debt | | Total | | | | | | | | | | | | | | | | Current | | Long-Term | | | | | | | Portion | | Debt | | Total | Credit Facility | | $ | 6,000 | | $ | 6,840 | | $ | 12,840 | | $ | 3,400 | | $ | 1,620 | | $ | 5,020 | Unamortized debt discounts | | | (33) | | | (341) | | | (374) | | | (30) | | | (91) | | | (121) | Net carrying value | | $ | 5,967 | | $ | 6,499 | | $ | 12,466 | | $ | 3,370 | | $ | 1,529 | | $ | 4,899 |
The carrying value of the Company’s 20172019 Credit Facility at December 31, 2017,2020, was as follows (in thousands): | | | | | | | | | | | | | Current | | Long-Term | | | | | | | Portion | | Debt | | Total | | | | | | | | | | | | | | Current | | Long-Term | | | | | | | Portion | | Debt | | Total | Credit Facility | | $ | 4,000 | | $ | 8,720 | | $ | 12,720 | | $ | 4,400 | | $ | 4,020 | | $ | 8,420 | Unamortized debt discounts | | | (23) | | | (563) | | | (586) | | | (158) | | | (272) | | | (430) | Net carrying value | | $ | 3,977 | | $ | 8,157 | | $ | 12,134 | | $ | 4,242 | | $ | 3,748 | | $ | 7,990 |
The table below includes the principal repayments due under the Amended2019 Credit Facility as of December 31, 20182021 (in thousands): | | | | | | | Principal Repayment | | | | as of December 31, 2018 | | 2019 | | $ | 6,000 | | 2020 | | | 6,840 | | 2021 | | | — | | | | | | | | | | | | | | Principal Repayment as of December 31, 2021 | 2022 | | | — | | | 3,400 | 2023 | | | — | | | 1,620 | Total principal repayments | | $ | 12,840 | | $ | 5,020 |
Capital Lease Obligations
The Company leases certain equipment under capital lease obligations expiring in October 2020. The balance of the capital lease obligations was $20,000 and $31,000 at December 31, 2018 and 2017, respectively.
Property and equipment under capital leases amounted to $31,000 at December 31, 2018 and 2017. Accumulated depreciation and amortization on these assets was $13,000 and$2,000 at December 31, 2018 and 2017, respectively.
Future minimum rental commitments under the Company’s capital lease obligations are $10,000 for each of the years ended December 31, 2019 and 2020.
7. Stockholders’ Equity Common Stock Common stockholders are entitled to dividends if and when declared by the board of directors. As of December 31, 2018, no2021, 0 dividends on common stock had been declared by the board of directors. At-the-Market Sales Agreement In February 2018,August 2019, the Company completed a follow-on underwritten public offeringentered into an Open Market Sale Agreement (2019 Sales Agreement) with Jefferies, LLC (Jefferies) for the offer and sale of its common stock under its Registration Statement filed in November 2017 (File No. 333-221331), selling 3,772,447 shares of its common stock athaving an aggregate offering price of $7.00 per share forup to $25.0 million from time to time through Jefferies, acting as the Company’s sales agent. The issuance and sale of these shares by the Company pursuant to the 2019 Sales Agreement are deemed an “at-the-market” (ATM) offering under the Securities Act of 1933, as amended. Under the 2019 Sales Agreement, the Company agreed to pay Jefferies a commission of up to 3% of the gross proceeds of $24.5any sales made pursuant to the 2019 Sales Agreement. During the year ended December 31, 2020, the Company received net proceeds of $2.1 million net of $1.9 million of underwriting discounts andafter deducting commissions and other offering costs.expenses payable by the Company, from the sale of 468,427 shares of common stock pursuant to the 2019 Sales Agreement. The Company suspended sales under the 2019 Sales Agreement in March 2020 and terminated the ATM program in November 2020. Reserved Shares of Common Stock The Company had reserved shares of common stock for future issuance as follows: | | | | | | | December 31, | | | 2018 | | 2017 | Options issued and outstanding | | 1,475,299 | | 1,593,195 | Shares available for future option grants | | 764,145 | | 83,929 | RSUs subject to future vesting | | 93,560 | | 30,680 | Common stock warrants | | 27,836 | | 27,690 | Total | | 2,360,840 | | 1,735,494 |
| | | | | | | December 31, | | | 2021 | | 2020 | Options issued and outstanding | | 1,783,298 | | 2,272,905 | Shares available for future option grants | | 1,038,956 | | 179,219 | RSUs subject to future vesting | | 384,307 | | 416,742 | Common stock warrants | | 27,836 | | 49,336 | Total | | 3,234,397 | | 2,918,202 |
Warrants In connection with a credit facility, Silicon Valley Bank held warrants to purchase 9,229 shares of the Company’s common stock at an exercise price of $26.00 per share. These warrants were cancelled when the Company entered into the Amended Credit Facility (see Note 6) and the Company subsequently issued a warrant to SVB for the purchase of 9,375 shares of the Company’s common stock at an exercise price of $8.91 per share. The warrant can be exercised at any time and expires five years after the date of issuance. The Company estimated the fair value of the warrant as $43,000 on the date of issuance using the Black-Scholes option pricing model. The warrant was recorded as a discount to the debt and will be amortized into interest expense over the remaining term of the loan using the effective interest method.
In connection with the 2015 Credit Facility,Company’s credit facility, the Company has issued warrants to Silicon Valley Bank. For more details see Note 6 to the financial statements. In connection with the Company’s prior credit facility with Ares Venture Finance holdsentered into in June 2015, the Company issued Ares Venture Finance a warrant to purchase 18,461 shares of the Company’s common stock at an exercise price of $26.00 per share. The warrant can be exercised at any time and expires 10 years after the dateon June 5, 2025. 8. Stock-Based Compensation 2016 Employee Incentive Plan The Company’s board of directors adopted the 2016 Equity Incentive Plan (the 2016 Plan) on April 25, 2016, which was subsequently approved on September 20, 2016 by the Company’s stockholders. The 2016 Plan became effective on October 7, 2016, the date the Company’s S-8 registration statement relating to the 2016 Plan was declared effective by the SEC. The Company’s 2016 Plan provides for the grant of incentive stock options, nonstatutorynon-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance-based stock awards, and other forms of equity compensation to employees, directors, and consultants. In addition, the Company’s 2016 Plan provides for the grant of performance cash awards to employees, directors, and consultants. The maximum number of shares of common stock that may be issued under the Company’s 2016 Plan iswas initially 500,000 subject to an automatic increase on January 1 of each year, beginning on January 1, 2017, and continuing through and including January 1, 2026, by 3% of the total number of shares of capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by the Company’s board of directors. On May 20, 2021, the Company’s stockholders approved an amendment to the 2016 Plan to increase the total number of authorized shares of common stock available for grant thereunder by an additional 550,000 shares. At December 31, 2021, of the 3,206,561 shares of common stock reserved and available for grant under the 2016 Plan, 1,038,956 shares of common stock remain available for grant under the 2016 Plan. 2008 Employee Incentive Plan The 2008 Equity Incentive Plan (the 2008 Plan) provided for the issuance of incentive stock options (ISO), nonqualified stock options, and other stock compensation awards. Under Due to the termsadoption of the 20082016 Plan, the exercise price of an ISO shall be not less than 100% of the fair value of the stock at the date of grant, as determined by the board of directors, or in the case of certain ISOs, at 110% of the fair market value at the date of grant. The term and vesting periods for options granted under the 2008 Plan were determined by the Company’s board of directors. Options granted generally vest over four years. Options must be exercised within a 10‑year period or sooner if so specified within the option agreement.
No0 further grants will be made under the Company’s 2008 Plan. However, any outstanding stock awards granted under the 2008 Plan will remain outstanding, subject to the terms of the Company’s 2008 Plan and the applicable stock award agreements, until such outstanding stock awards that are stock options are exercised or until they terminate or expire by their terms, or until such stock awards are fully settled, terminated, or forfeited. At December 31, 2018, 407,7802021, 79,910 options under the 2008 Plan remained outstanding.
Summary of Stock Option Activity The following table summarizes the stock option and award activity for all grants under the 2008 Plan and 2016 Plan: | | | | | | | | | | | | | | | | | Options Outstanding | | | | | | | Weighted- | | Weighted- | | | | | | Options and | | | | Average | | Average | | Aggregate | | | Awards | | | | Exercise | | Remaining | | Intrinsic | | | Available for | | Number of | | Price Per | | Contractual | | Value | | | Grant | | Options | | Share | | Life (years) | | (In thousands) | Balance—December 31, 2020 | | 179,219 | | 2,272,905 | | $ | 5.58 | | 7.9 | | $ | 1,640 | Authorized | | 1,120,946 | | | | | | | | | | | RSUs granted | | (522,814) | | | | | | | | | | | RSUs cancelled/forfeited | | 135,909 | | | | | | | | | | | Options granted | | (788,441) | | 766,978 | | $ | 5.63 | | | | | | Options exercised | | — | | (321,694) | | $ | 5.15 | | | | $ | 1,783 | Options cancelled/forfeited | | 914,137 | | (934,891) | | $ | 6.47 | | | | | | Balance—December 31, 2021 | | 1,038,956 | | 1,783,298 | | $ | 5.21 | | 8.0 | | $ | 10,891 | Options exercisable—December 31, 2021 | | | | 609,459 | | $ | 5.77 | | 6.3 | | $ | 3,400 |
| | | | | | | | | | | | | | | | | Options Outstanding | | | | | | | Weighted- | | Weighted- | | | | | | Options and | | | | Average | | Average | | | | | | Awards | | | | Exercise | | Remaining | | Aggregate | | | Available for | | Number of | | Price Per | | Contractual | | Intrinsic | | | Grant | | Options | | Share | | Life (years) | | Value | | | | | | | | | | | | (In thousands) | Balance—December 31, 2017 | | 83,929 | | 1,593,195 | | $ | 8.88 | | 6.6 | | $ | 1,997 | Immaterial prior period adjustment | | (1,026) | | 11,477 | | | 4.84 | | | | | | Authorized | | 1,084,516 | | — | | | — | | | | | | RSUs granted | | (80,950) | | — | | | — | | | | | | RSUs cancelled/forfeited | | 3,000 | | — | | | — | | | | | | Options granted | | (434,665) | | 434,665 | | | 8.52 | | | | | | Options exercised | | — | | (448,411) | | | 4.99 | | | | $ | 1,915 | Options cancelled/forfeited | | 109,341 | | (115,627) | | | 8.68 | | | | | | Balance—December 31, 2018 | | 764,145 | | 1,475,299 | | $ | 7.60 | | 7.8 | | $ | 284 | Options exercisable—December 31, 2018 | | | | 617,718 | | $ | 6.79 | | 6.4 | | $ | 276 |
During the years ended December 31, 20182021 and 2017,2020, the Company granted options with a weighted-average grant date fair value of $4.45$3.60 and $6.48$1.81 per share, respectively. The total fair value of options vested during the year was $1.9$0.9 million and $1.5$2.2 million, for the years ended December 31, 2018,2021, and 2017,2020, respectively. 2016 Employee Stock Purchase Plan The Company’s board of directors adopted the 2016 Employee Stock Purchase Plan (the ESPP) on April 25, 2016, which was subsequently approved on September 20, 2016 by the Company’s stockholders. The purpose of the ESPP is to secure the services of new employees, to retain the services of existing employees and to provide incentives for such individuals to exert maximum efforts toward the Company’s success and that of the Company’s affiliates. The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code. The board of directors, or a duly authorized committee thereof, will administer the Company’s ESPP. The maximum aggregate number of shares of common stock that may be issued pursuant to the exercise of purchase rights under the Company’s ESPP that are granted to employees or to employees of any of the Company’s designated affiliates is 96,153 shares, subject to annual increases. The number of shares of common stock reserved for issuance under the Company’s ESPP will increase automatically each year, beginning on January 1, 2017, and continuing through and including January 1, 2026, by 1% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, or a lesser number as determined by the board of directors. In 2018 and 2017, there was an increase of 128,172 and 124,981 shares, respectively, reserved for issuance under the Company’s ESPP due to this provision. Shares subject to purchase rights granted under the Company’s ESPP that terminate without having been exercised in full will not reduce the number of shares available for issuance under the Company’s ESPP. There are two offering periods each year and each offering under the ESPP will consist of two purchase periods of approximately six months in duration and will run concurrently. The Company had 269,389652,771 shares available for issuance under the Company’s ESPP as of December 31, 2018.2021. Employees purchased 42,32764,407 shares for $266,000$236,000 during the year ended December 31, 20182021 and 37,59049,951 shares for $256,000$112,000 during the year ended December 31, 2017.
2020. The following table summarizes the assumptions used in the Black-Scholes option-pricing model to determine fair value of the Company’s common shares issued under the ESPP: | | | | | | | | Year Ended December 31, | | | | 2018 | | 2017 | | Expected volatility | | 59.5 – 87.8 | % | 49.3 – 72.7 | % | Risk-free interest rate | | 0.94 – 2.11 | % | 0.49 – 1.02 | % | Expected term (in years) | | 0.5 – 1.0 | | 0.5 – 1.0 | | Dividend yield | | — | % | — | % |
| | | | | | Year Ended | | | December 31, | | | 2021 | | 2020 | | Expected volatility | 40.7 - 100.7 | % | 44.7 - 100.7 | % | Risk-free interest rate | 0.05 - 0.13 | % | 0.12 - 1.68 | % | Expected term (in years) | 0.5 - 1.0 | | 0.5 - 1.0 | | Dividend yield | — | % | — | % |
Modification of Stock-Based Awards
In February 2018, the Company modified the terms of 400,000 vested and unvested stock option awards granted to the Chief Executive Officer, by reducing their exercise price from $16.25 per share to $7.64 per share. There was no change to any of the other terms of the option awards. The modification resulted in an incremental value of $600,000 being allocated to the options, of which $63,000 was recognized to expense immediately based on options that were vested at the time of the modification. The remaining incremental value of $537,000 attributable to unvested options will be recognized over the remaining vesting term through September 2021.
In August 2017, the Company entered into a Separation Agreement with its former Chief Executive Officer which resulted in the acceleration in the vesting of certain unvested stock options as well as the extension of the exercise period for all vested options. As a result of the modification, the Company recorded stock-based compensation expense of $310,000 during the year ended December 31, 2017 to reflect the revised service period for the stock options and related vesting of shares that would otherwise not have vested.
Restricted Stock Units In September 2017, the Company’s board of directors authorized the issuance of Restricted Stock Unitsrestricted stock units (RSUs), under the 2016 Plan and adopted a form of Restricted Stock Unit Award Agreement, which is intended to serve as a standard form agreement for RSU grants issued to employees, executive officers, directors, and consultants. The fair value of the RSUs is recognized as expense ratably over the vesting period, as determined by the board of directors on the date of grant. The following table summarizes RSU activity for the year ended December 31, 2018: | | | | | | | | RSUs Outstanding | | | | | Weighted- | | | | | Average | | | Number of | | Grant Date | | | Restricted Stock | | Fair Value Per | | | Units | | Share | Balance—December 31, 2017 | | 30,680 | | $ | 10.55 | Granted | | 80,950 | | | 8.48 | Vested | | (15,070) | | | 13.41 | Cancelled/forfeited | | (3,000) | | | 8.10 | Balance—December 31, 2018 | | 93,560 | | $ | 8.38 |
2021: | | | | | | | | RSUs Outstanding | | | | | Weighted- | | | | | Average | | | Number of | | Grant Date | | | Restricted Stock | | Fair Value Per | | | Units | | Share | Balance—December 31, 2020 | | 416,742 | | $ | 4.89 | Granted | | 522,814 | | $ | 5.52 | Vested | | (419,340) | | $ | 5.61 | Cancelled/forfeited | | (135,909) | | $ | 4.77 | Balance—December 31, 2021 | | 384,307 | | $ | 5.00 |
The fair value of RSUs is determined on the date of grant based on the market price of the Company’s common stock on that date. As of December 31, 2018,2021, there was $594,000$1.4 million of unrecognized stock-based compensation expense related to RSUs to be recognized over a weighted-average period of 2.72.3 years. Stock-based Compensation Expense The Company recognized stock-based compensation expense from awards granted to employees and non-employees under its equity incentive plans and from its ESPP as follows, excluding amounts related to GLOBALFOUNDRIES, Inc. (GF) (in thousands):
| | | | | | | | | Year Ended December 31, | | | 2018 | | 2017 | Research and development | | $ | 492 | | $ | 488 | General and administrative | | | 1,811 | | | 1,297 | Sales and marketing | | | 365 | | | 263 | Total | | $ | 2,668 | | $ | 2,048 |
As of December 31, 2018,2021, there was $4.8$3.2 million of total unrecognized compensation expense related to unvested options which the Company expects recognizeis expected to be recognized over a weighted-average period of 2.72.8 years. Compensation cost capitalized within inventory at December 31, 20182021 and 20172020 was not material. Employee Stock-based Compensation64
Stock-based compensation expense for employees was $2.6 million and $2.0 million, for the years ended December 31, 2018 and 2017, respectively.Table of Contents
The Company estimated the fair value of each option grant using the Black-Scholes option-pricing model. The fair value of employee stock options is being amortized on a straight-line basis over the requisite service period of the awards. The fair value of employee stock options was estimated using the assumptions below. | | | | | | | | Year Ended December 31, | | | | 2018 | | 2017 | | Expected volatility | | 51.9 – 56.6 | % | 46.7 – 52.0 | % | Risk-free interest rate | | 2.64 - 2.94 | % | 1.85 - 2.14 | % | Expected term (in years) | | 5.7 – 6.1 | | 5.3 – 6.1 | | Dividend yield | | — | % | — | % |
| | | | | | Year Ended | | | December 31, | | | 2021 | | 2020 | | Expected volatility | 72.6 - 74.1 | % | 74.4 - 79.3 | % | Risk-free interest rate | 0.62 - 1.30 | % | 0.22 - 1.63 | % | Expected term (in years) | 5.9 - 6.1 | | 6.07 - 6.08 | | Dividend yield | — | % | — | % |
Expected volatility. Since the Company does not have a sufficient trading history for its common stock, the expected volatility was derived from the average historical volatilities of publicly traded companies within a similar industry that are considered to be comparable to the Company’s business over a period approximately equal to the expected term for employees’ options.
Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield with a maturity equal to the expected term of the option in effect at the time of grant.
Expected term. The expected term represents the period that the stock-based awards are expected to be outstanding. The Company used the simplified method to determine the expected term, which is calculated as the average of the time to vesting and the contractual life of the options.
Dividend yield. The Company has never paid dividends on its common stock and is prohibited from paying dividends on its common stock. Therefore, the Company used an expected dividend yield of zero.
Non-employee Stock-based Compensation
Stock-based compensation expense related to stock options granted to non-employees is recognized as the stock options vest. During the year ended December 31, 2018, the Company granted options to purchase 8,400 shares of common stock to non-employees with a weighted-average exercise price of $8.91 per share. During the year ended December 31, 2017, the Company granted options to purchase 16,800 shares of common stock to non-employees with a weighted-average exercise price of $13.74 per share.
Options to purchase 43,865 shares and 37,872 shares of common stock were outstanding with a weighted-average exercise price of $9.25 and $9.16 per share as of December 31, 2018 and 2017, respectively. Stock-based compensation expense for non-employees was $31,000 and $69,000 for the years ended December 31, 2018 and 2017, respectively.
The Company believes that the fair value of the stock options is more reliably measurable than the fair value of services received. The fair value of the stock options granted is calculated at each reporting date using the Black-Scholes option pricing model with the following assumptions:
| | | | | | | | Year Ended December 31, | | | | 2018 | | 2017 | | Expected volatility | | 52.9 – 54.8 | % | 46.7 – 60.5 | % | Risk-free interest rate | | 2.68 - 2.97 | % | 2.09 – 2.44 | % | Expected term (in years) | | 8.0 – 8.8 | | 7.2 – 9.6 | | Dividend yield | | — | % | — | % |
9. 401(k) Plan The Company has a defined contribution employee benefit plan pursuant to Section 401(k) of the Internal Revenue Code. The plan allows eligible employees to defer a portion of their annual compensation up to certain statutory limits. At the election of the Board of Directors, the Company may elect to match employee contributions but has not done so to date. 10. Significant Agreements GLOBALFOUNDRIES, Inc. Joint Development Agreement OnSince October 17, 2014, the Company entered intohas participated in a Joint Development Agreementjoint development agreement (JDA) with GFGLOBALFOUNDRIES Inc. (GF), a semiconductor foundry, for the joint development of the Company’s Spin TransferSpin-transfer Torque MRAM (STT-MRAM) technology.technology to produce a family of discrete and embedded MRAM technologies. The term of the agreement is the later of four years from the effective date or until the completion, termination, or expiration of the last statement of work entered into pursuant to the JDA.joint development agreement. The JDA also states that the specific terms and conditionsagreement was extended on December 31, 2019 to include a new phase of support for the production and supply of the developed STT-MRAM technology would be pursuant to a separate manufacturing agreement entered into between the parties. In October 2018, the Company entered into the Third Amendment to the JDA with GF, which extended the term of the JDA until December 2019.12nm MRAM development.
Under the current JDA extension terms, each party licenses its relevant intellectual property to the other party. For certain jointly developed works, the parties have agreed to follow an invention allocation procedure to determine ownership. In addition, GF possesses the exclusive right to manufacture the Company’s discrete and embedded STT-MRAM devices developed pursuant to the agreement until the earlier of three years after the qualification of the MRAM device for a particular technology node or four years after the completion of the relevant statement of work under which the device was developed. For the same exclusivity period associated with the relevant device, GF agreed not to license intellectual property developed in connection with the JDA to named competitors of the Company. Generally, unless otherwise specified in the agreement or a statement of work, the Company and GF share project costs, which do not include personnel or production qualification costs, under the JDA. If GF manufactures, sells, or transfers to customers wafers containing production quantified STT-MRAM devices that utilize certain design information, GF will be required to pay the Company a royalty. The Company incurred project costs, recognized as research and development expense, of $5.8 million and $5.2 million during the years ended December 31, 2018 and 2017, respectively. The Company entered into a Statement of Work (SOW) and an Amendment to the SOW, under the JDA with GF effective August 2016 and June 2018 respectively. The Company is entitled to revenues under the SOW and its Amendment upon delivery and acceptance of product. The Company recognized revenue from GF of $1.0 million and $1.6 million for the year ended December 31, 2018 and 2017 respectively.
On October 21, 2014, GF participated, along with other investors, in the Company’s Series B redeemable convertible preferred stock financing and purchased 192,307 shares at $26.00 per share. Contemporaneously, the Company sold 461,538 shares of its common stock to GF at a discounted price of $0.00026 per share. The common
shares vest upon the achievement of a goal as set forth in the Statement of Work #1 (the SOW) under the JDA. The Company has determined that the issuance of these shares of common stock to GF represents compensation for services to be provided under the JDA. Accordingly, the shares are accounted for similar to a stock award granted to a non-employee of the Company and are remeasured to their fair value as they vest. A total of 211,538 shares of common stock became vested on August 21, 2016, the designated Initial Measurement Date. The remaining shares vest on a monthly basis thereafter through October 21, 2018. As of December 31, 2018, all shares issued to GF were fully vested.
During the years ended December 31, 2018 and 2017, the Company recognized non-cash compensation expense of $0.8 million and $1.5 million, respectively, in research and development expense, related to the vesting of the shares of common stock.
Silterra Malaysia Sdn. Bhd. Joint Collaboration Agreement In September 2018, the Company entered into a Joint Collaboration Agreement (JCA) with Silterra Malaysia Sdn. Bhd. (Silterra), and another third party. The JCA willwas intended to create additional manufacturing capacity for the Company’s Toggle MRAM products. InitialThe Company had previously anticipated initial production is expected to startstarting in 2020.2020, which was subsequently delayed. Under the JCA, the Company willwas required to pay non-recurring engineering costs of $1.0 million. DuringAs of December 31, 2021, the yearCompany has paid $600,000 of these JCA costs. On October 23, 2021, the Company executed a termination of the JCA. As a result, the Company does not expect to incur additional JCA costs. There were 0 JCA costs paid during the years ended December 31, 2018, the Company paid $0.8 million of JCA costs. License Agreement
In March 2018, the Company entered into2021 and 2020. As a global cross-license agreement with a customer pursuant to which the Company granted a worldwide, non-exclusive, non-transferable, irrevocable, royalty-bearing license under the Company’s patents to use, sell, import and export the Company’s products. Under the cross-license agreement, the Company received a non-refundable license fee and is entitled to quarterly royalty payments based upon low single digitsresult of the average selling price ofJCA, Silterra Malaysia Sdn. Bhd., successfully became a second source for Toggle MRAM products covered under the license agreement. The license was transferred to the customer and the Company recognized revenue related to the non-refundable license fee during the year ended December 31, 2018. The cross-license agreement will remain in effect until the licensed patents have expired, been abandoned, or ruled invalid.Company.
11. Geographic Information Property and equipment, net by country was as follows (in thousands): | | | | | | | | | | December 31, | | | | 2018 | | 2017 | | | | | | | | | | | | | December 31, | | | | 2021 | | 2020 | United States | | $ | 2,714 | | $ | 2,594 | | $ | 825 | | $ | 1,415 | Singapore | | | 912 | | | 696 | | | 88 | | | 287 | Taiwan | | | 258 | | | 656 | | Other | | | 402 | | | — | | | 60 | | | 244 | | | $ | 4,286 | | $ | 3,946 | | | | | $ | 973 | | $ | 1,946 |
Revenue from customers is designated based on the geographic region or country to which the product is delivered or the licensee is located. Revenue by country was as follows (in thousands): | | | | | | | | | | Year Ended December 31, | | | | 2018 | | 2017 | | | | | | | | | | | | | Year Ended December 31, | | | | 2021 | | 2020 | Hong Kong | | | $ | 17,403 | | $ | 18,258 | United States | | | | 15,662 | | | 5,743 | Japan | | $ | 10,254 | | $ | 4,128 | | | 7,315 | | | 5,403 | Germany | | | 6,724 | | | 2,964 | | United States | | | 6,746 | | | 4,759 | | Canada | | | | 3,797 | | | 3,423 | China | | | 5,083 | | | 2,588 | | | 2,731 | | | 2,403 | Singapore | | | 3,818 | | | 8,067 | | All other | | | 16,792 | | | 13,430 | | | 8,238 | | | 6,801 | Total revenue | | $ | 49,417 | | $ | 35,936 | | $ | 55,146 | | $ | 42,031 |
12. Income Taxes For the years ended December 31, 20182021 and 2017,2020, the Company recorded noCompany’s provision or benefit for income taxes primarily due to losses incurred. The Company has incurred net operating losses for all the periods presented.tax consisted of: | | | | | | | | | Year Ended December 31, | | | 2021 | | 2020 | Current: | | | | | | | Federal | | $ | — | | $ | — | State | | | 4 | | | — | Foreign | | | — | | | 260 | Total Current | | $ | 4 | | $ | 260 | | | | | | | | Deferred: | | | | | | | Federal | | $ | — | | $ | — | State | | | — | | | — | Foreign | | | — | | | — | Total Deferred | | $ | — | | $ | — | | | | | | | | Provision for income taxes | | $ | 4 | | $ | 260 |
The reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows: | | | | | | | | Year Ended December 31, | | | | 2018 | | 2017 | | Tax at statutory federal rate | | (21.0) | % | (34.0) | % | State taxes, net of federal benefit | | (1.7) | | (1.4) | | Stock-based compensation | | 1.5 | | (0.8) | | Nondeductible executive compensation | | 0.9 | | — | | Change in valuation allowance | | 20.6 | | (34.2) | | Federal tax rate change | | — | | 70.2 | | Other | | (0.3) | | 0.2 | | Provision for income taxes | | (0.0) | % | (0.0) | % |
| | | | | | | | Year Ended December 31, | | | | 2021 | | 2020 | | Tax at statutory federal rate | | 21.0 | % | (21.0) | % | State taxes, net of federal benefit | | 1.8 | | (1.5) | | Stock-based compensation | | 4.7 | | 5.4 | | Change in uncertain tax benefits | | — | | 3.1 | | Change in valuation allowance | | (27.5) | | 17.0 | | Other | | 0.1 | | — | | Provision for income taxes | | 0.1 | % | 3.0 | % |
The tax effects of temporary differences and carryforwards that give rise to significant portions of the deferred tax assets are as follows (in thousands): | | | | | | | | | | December 31, | | | | 2018 | | 2017 | | | | | | | | | | | | | December 31, | | | | 2021 | | 2020 | Deferred tax assets: | | | | | | | | | | | | | Net operating loss carryforwards | | $ | 25,359 | | $ | 22,586 | | $ | 30,658 | | $ | 31,683 | Inventory | | | 1,442 | | | 1,520 | | | 278 | | | 147 | Accruals | | | 760 | | | 401 | | | 801 | | | 254 | Depreciation and amortization | | | 88 | | | 60 | | | 240 | | | 240 | Limitation on business interest | | | 96 | | | — | | | — | | | 268 | Stock-based compensation | | | 1,416 | | | 1,228 | | | 177 | | | 676 | Right of use liability | | | | 206 | | | 549 | Gross deferred tax assets | | | 29,161 | | | 25,795 | | | 32,360 | | | 33,817 | Valuation allowance | | | (29,073) | | | (25,721) | | | (32,047) | | | (33,265) | Deferred tax assets | | | 88 | | | 74 | | | 313 | | | 552 | Deferred tax liabilities: | | | | | | | | | | | | | Prepaid expenses | | | (88) | | | (74) | | Right of use asset | | | | (209) | | | (527) | Other | | | | (104) | | | (25) | Deferred tax liabilities | | | (88) | | | (74) | | | (313) | | | (552) | Net deferred tax assets | | $ | — | | $ | — | | $ | — | | $ | — |
The Company is required to reduce its deferred tax assets by a valuation allowance if it is more likely than not that some or all of its deferred tax assets will not be realized. Management must use judgment in assessing the potential need for a valuation allowance, which requires an evaluation of both negative and positive evidence. The weight given to the potential effect of negative and positive evidence should be commensurate with the extent to which it can be objectively verified. In determining the need for and amount of the valuation allowance, if any, the Company assesses the likelihood that it will be able to recover its deferred tax assets using historical levels of income, estimates of future income and tax planning strategies. As a result of historical cumulative losses, the Company determined that, based on all available evidence, there was substantial uncertainty as to whether it will recover recorded net deferred taxes in future periods. Accordingly, the Company recorded a valuation allowance against all of its net deferred tax assets as of December 31, 20182021 and 2017. In 2018, there was no utilization of the valuation allowance and the2020. The net valuation allowance increased by $3.4 million. In 2017, the valuation allowance decreased by $7.1$1.2 million from the December 31, 2016 balance of $32.8 million, due to the Tax Cuts and Jobs Act, which was enacted in December 2017 and reduced the corporate tax rate from 34% to 21%. The rate reduction took effect on January 1, 2018. The carrying value of the Company’s deferred tax assets is also determined by the enacted US corporate income tax rate.2021. As of December 31, 2018,2021, the Company hadhas federal net operating loss carryforwards of approximately $112.3$136.0 million, of which $99.7$95.2 million will begin to expire in the year of 2028 through 2037 if not utilized, and $12.6$40.8 million that will carryover indefinitely. In addition, the Company hadhas state net operating loss carryforwards of approximately $44.3$52.1 million, of which $43.5$49.3 million will begin to expire in 2023 through 2041 if not utilized, and $0.8$2.8 million that will carryover indefinitely. The Tax Reform Act of 1986 (the Act) provides for a limitation on the annual use of net operating loss and research and development tax credit carryforwards following certain ownership changes (as defined by the Act)Act and codified under Section 382 of the U.S. Internal Revenue Code of 1986, as amended (the Code)) that could limit the Company’s ability to utilize these carryforwards. Further, a portion of the carryforwards may expire before utilized to reduce future income tax liabilities as a result of the annual limitation. The Company experienced an ownership change in October 2016 and as a result, $43.8 million ($9.2 million tax effected) of the federal NOLs are expected to expire unutilized due to limitation under Section 382 of the Code. The NOLs expected to expire unutilized are included in the NOL carryforward amounts disclosed, subject to a valuation allowance. The Company files income tax returns in the U.S. federal and various state jurisdictions. The Company is generally subject to U.S. federal and state income tax examinations by authoritiesexamination for all tax years beginning in 2008, due to the accumulated net operating losses that are being carried forwardforward. A summary of changes in the Company’s gross unrecognized tax benefits for tax purposes.the years ended December 31, 2021 and 2020 was as follows (in thousands): | | | | | | | | | Year Ended December 31, | | | 2021 | | 2020 | Unrecognized tax expense, beginning of the year | | $ | 104 | | $ | — | (Decrease)/increase related to prior year tax positions | | | (12) | | | 91 | Increase related to current year tax positions | | | 13 | | | 13 | Unrecognized tax expense, end of year | | $ | 105 | | $ | 104 |
The Company has not identified anytotal balance of unrecognized tax benefits as of December 31, 20182021 would impact the effective tax rate, if recognized. The Company's policy is to recognize interest and 2017. As the Company has a full valuation allowancepenalties accrued on its deferred tax assets, any unrecognized tax benefits would reduce the deferredbenefit as a component of income tax assets and the valuation allowance in the same amount.expense. The Company does not expect the amounthas accrued penalties and interest of unrecognized tax benefits to materially change in the next twelve months.$155,000 and $156,000, as of December 31, 2021 and December 31, 2020, respectively. 13. Net LossIncome (Loss) Per Common Share The following table sets forth the computation of basic and diluted net lossincome (loss) per share (in thousands, except share and per share amounts): | | | | | | | | | | | Year Ended December 31, | | | | 2021 | | 2020 | Numerator: | | | | | | | | Net income (loss) | | | $ | 4,343 | | $ | (8,512) | Denominator: | | | | | | | | Weighted-average common shares outstanding used to calculate net income (loss) per common share, basic | | | | 19,400,124 | | | 18,782,287 | Net income (loss) per common share, basic | | | $ | 0.22 | | $ | (0.45) |
| | | | | | | | | | | Year Ended December 31, | | | | 2021 | | 2020 | Numerator: | | | | | | | | Net income (loss) | | | $ | 4,343 | | $ | (8,512) | Denominator: | | | | | | | | Weighted-average common shares outstanding used to calculate net income (loss) per common share, basic | | | | 19,400,124 | | | 18,782,287 | Effect of dilutive securities | | | | 572,021 | | | — | Weighted-average common shares outstanding used to calculate net income (loss) per common share, diluted | | | | 19,972,145 | | | 18,782,287 | Net income (loss) per common share, diluted | | | $ | 0.22 | | $ | (0.45) |
| | | | | | | | | Year Ended December 31, | | | 2018 | | 2017 | Numerator: | | | | | | | Net loss | | $ | (17,754) | | $ | (21,100) | Denominator: | | | | | | | Weighted-average common shares outstanding | | | 16,413,733 | | | 12,640,094 | Less: weighted-average unvested common shares subjected to repurchase | | | (41,095) | | | (155,110) | Weighted-average common shares outstanding used to calculate net loss per common share, basic and diluted | | | 16,372,638 | | | 12,484,984 | Net loss per common share, basic and diluted | | $ | (1.08) | | $ | (1.69) |
The following outstanding shares of potentially dilutive securities have been excluded from diluted net lossincome (loss) per common share for the periods presented, because their inclusion would be anti-dilutive: | | | | | | | Year Ended December 31, | | | 2018 | | 2017 | Options to purchase common stock | | 1,475,299 | | 1,593,195 | Restricted stock units | | 93,560 | | 30,680 | Common stock subject to repurchase | | — | | 96,153 | Common stock warrants | | 27,836 | | 27,690 | Total | | 1,596,695 | | 1,747,718 |
| | | | | Year Ended December 31, | | 2021 | | 2020 | Options to purchase common stock | 1,221,720 | | 2,272,905 | RSUs | 9,815 | | 416,742 | Common stock warrants | 27,836 | | 49,336 | Total | 1,259,371 | | 2,738,983 |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None. Item 9A. Controls and Procedures. Procedures.
Evaluation of disclosure controls and procedures. Our management, with the participation of our management team, including our Interim Chief Executive Officer (CEO)(Interim CEO) and Chief Financial Officer (CFO) evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a‑15(e)13a-15(e) and 15d‑15(e)15d-15(e) under the Securities Exchange Act of 1934, as amended)Act) as of December 31, 2018.2021. Based on this evaluation, our Interim CEO and CFO concluded that, our disclosure controls and procedures were not effective at the reasonable assurance level as of December 31, 2018,2021, based on the material weakness in internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) described below. Management’s Annual Report on Internal Control Over Financial Reporting This Annual Report on Form 10-K includes a report of management’s assessment regarding internal control over financial reporting.reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm because, as an “emerging growtha “smaller reporting company” under the JOBS Act,, and non-accelerated filer, our independent registered public accounting firm is not required to issue such an attestation report. The following report is provided by management in respect of our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act): reporting: Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our management used the Committee of Sponsoring Organizations of the Treadway CommissionCommission’s Internal Control - Integrated Framework (2013), or the COSO framework, to evaluate the effectiveness of internal control over financial reporting. Management believes that the COSO framework is a suitable framework for its evaluation of financial reporting because it is free from bias, permits reasonably consistent qualitative and quantitative measurements of our internal control over financial reporting, is sufficiently complete so that those relevant factors that would alter a conclusion about the effectiveness of our internal control over financial reporting are not omitted and is relevant to an evaluation of internal control over financial reporting. Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 20182021 and has concluded that such internal control over financial reporting was not effective, based on the material weakness described below. Material weakness in internal control over financial reporting. In connection with the preparation of our unaudited condensed financial statements for the quarter ended September 30, 2018, we identified an error in the previously filed financial statements that caused us to restate and amend our previously issued condensed financial statements and related financial information as of and for the three and six months ended June 30, 2018. This error was the result of aA material weakness is a deficiency, or a combination of deficiencies, in our internal control over financial reporting which continued to exist at December 31, 2018. Specifically, (i)such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. We determined our information technology systems didcontrols around inventory, including unit level cost allocation and communication protocols between operations and accounting were not provide management the ability to accurately monitor inventory movements and quantities at third-party locations, (ii) internal processes to provide for clear communication between operational and financial personnel within the company were insufficient, and (iii) we had insufficient personnel with the appropriate level of experiencesufficiently designed to prevent and detect errors on a timely basis in our financial statements.material misstatement. We have established a plan to remediate this material weakness outlined below.
Management’s steps taken to remediate the material weakness. To remediate this material weakness, we are takinghave taken the following actions: | ·
● | | We are currently updating our information technology tools, including our ERP system to enhance our ability to monitor inventory and its movement through our manufacturing process and provide checks and balances to third-party reports.
|
| ·
| | We have, and continue to put in place, management dashboard tools to alert all involved as to the performance of inventory against our business goals.
|
| ·
| | We are establishing multi-discipline processes to actively manage and make decisions regarding our inventory to support our business objectives. |
| ·
● | We are establishing reconciliations by product family based on unit cost at each stage of the wafer manufacturing process. |
| ● | We are taking steps to identify unit pricing variances between each stage of the wafer manufacturing process to ensure cost allocation amounts are appropriately reflected at both the unit and product family level. |
| ● | We are providing additional training to our Operations Teamsteams and updating procedures with our third-party Assembly Houses. |
| ·
● | | We have hired additional qualified personnel during the year ended December 31, 2021, to assist management with its financial statement close process and provide oversight of our financial reporting. reporting and inventory costing processes. |
We will continue to monitor stability of the platform and further enhance the business controls around inventory management. We continue to assess our accounting policies and internal controls documentation to ensure they are effective in helping us manage the business and to prevent and detect material misstatements. Our management has concluded that the financial statements included elsewhere in this Annual Report on Form 10-K present fairly, in all material respects, our financial position, results of operations and is in conformity with GAAP. Changes in internal control over financial reporting. Except forwith respect to the remediation actions to remediate the material weakness described above, there werehave been no changes in our internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that occurred during the yearquarter ended December 31, 20182021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Inherent limitation on the effectiveness of internal control. The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting. Item 9B. Other Information.Information. None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. PART III Item 10. Directors, Executive Officers and Corporate Governance. Information required by this item will be contained in our definitive proxy statement to be filed with the Securities and Exchange CommissionSEC on Schedule 14A in connection with our 20192022 Annual Meeting of Stockholders, or the Proxy Statement, which will be filed not later than 120 days after the end of our fiscal year ended December 31, 2018,2021, under the headings “Management,” “Proposal 1 - Election of Directors,” “Board Committees and Meetings,” and “Section“Delinquent Section 16(a) Beneficial Ownership Reporting Compliance,Reports,” and is incorporated herein by reference. We have adopted a Code of Business Conduct and Ethics that applies to our officers, directors and employees which is available on our website at www.everspin.com. The Code of Business Conduct and Ethics is intended to qualify as a “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and Item 406 of Regulation S-K. In addition, we intend to promptly disclose (1) the nature of any substantive amendment to our Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions and (2) the nature of any waiver, including an implicit waiver, from a provision of our code of ethics that is granted to one of these specified officers, the name of such person who is granted the waiver and the date of the waiver, on our website in the future. Item 11. Executive Compensation. Compensation.
The information required by this item regarding executive compensation is incorporated by reference to the information set forth in the sections titled “Executive Compensation” and “Compensation of Non-Employee Board Members” in our Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item regarding security ownership of certain beneficial owners and management is incorporated by reference to the information set forth in the sections titled “Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance Under Equity Compensation Plans” in our Proxy Statement. Item 13. Certain Relationships and RelatedRelated Transactions, and Director Independence.
The information required by this item regarding certain relationships and related transactions and director independence is incorporated by reference to the information set forth in the sections titled “Certain Relationships and Related Party Transactions” and “Proposal 1 - Election of Directors”“Corporate Governance”, respectively, in our Proxy Statement. Item 14. Principal AccountingAccountant Fees and Services.
The information required by this item regarding principal accountant fees and services is incorporated by reference to the information set forth in the section titled “Principal Accountant Fees and Services” in our Proxy Statement. PART IV Item 15. Exhibits,Exhibits and Financial Statement Schedules. (a) The following documents are filed as part of this report: 1. Financial Statements Information in response to this Item is included in Part II, Item 8 of this Annual Report on Form 10‑K.10-K. 2. Financial Statement Schedules All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 3. Exhibits EXHIBIT INDEX † | | | | | | | | | | | | | | | Incorporation By Reference | | | Exhibit
Number | | Description | | Form | | SEC File No. | | Exhibit | | Filing Date | | | | | | | | | | | | 3.1 | | Amended and Restated Certificate of Incorporation. | | 8-K | | 001-37900 | | 3.1 | | 10/13/2016 | | | | | | | | | | | | 3.1.1 | | Amendment to Amended and Restated Certificate of Incorporation. | | 8-K | | 001-37900 | | 3.1 | | 5/22/2019 | | | | | | | | | | | | 3.1.2 | | Amendment to Amended and Restated Certificate of Incorporation. | | 8-K | | 001-37900 | | 3.1 | | 5/27/2020 | | | | | | | | | | | | 3.2 | | Bylaws. | | 8-K | | 001-37900 | | 3.2 | | 5/22/2019 | | | | | | | | | | | | 4.1 | | Form of Common Stock Certificate of the registrant. | | S-1 | | 333-213569 | | 4.1 | | 9/09/2016 | | | | | | | | | | | | 4.2 | | Amended and Restated Warrant to Purchase Common Stock, dated as of August 5, 2019, between the registrant and Silicon Valley Bank. | | 10-Q | | 001-37900 | | 4.2 | | 11/07/2019 | | | | | | | | | | | | 4.3 | | Warrant to Purchase Common Stock, dated as of July 15, 2020, between the registrant and Silicon Valley Bank. | | 10-Q | | 001-37900 | | 4.3 | | 8/06/2020 | | | | | | | | | | | | 4.4 | | Description of Common Stock. | | 10-K | | 001-37900 | | 4.4 | | 3/4/2021 | | | | | | | | | | | | 10.1† | | Form of Indemnity Agreement between the registrant and its directors and officers. | | S-1 | | 333-213569 | | 10.1 | | 9/09/2016 | | | | | | | | | | | | 10.2† | | 2008 Equity Incentive Plan, as amended, and Form of Stock Option Grant Notice, Option Agreement and Form of Notice of Exercise. | | S-1/A | | 333-213569 | | 10.2 | | 9/26/2016 | | | | | | | | | | | | 10.3† | | Amended and Restated 2016 Equity Incentive Plan. | | 8-K | | 001-37900 | | 10.1 | | 5/22/2018 | | | | | | | | | | | | 10.3.1† | | First Amendment to the Amended and Restated 2016 Equity Incentive Plan. | | 8-K | | 001-37900 | | 10.1 | | 5/25/2021 | | | | | | | | | | | | 10.4† | | Form of Stock Option Grant Notice, Option Agreement and Form of Notice of Exercise used with the 2016 Equity Incentive Plan. | | S-1/A | | 333-213569 | | 10.3 | | 9/26/2016 | | | | | | | | | | | | 10.5† | | Form of Restricted Stock Unit Award Agreement under the 2016 Equity Incentive Plan. | | 10-Q | | 001-37900 | | 10.3 | | 11/13/2017 | | | | | | | | | | | | 10.6† | | 2016 Employee Stock Purchase Plan. | | S-1/A | | 333-213569 | | 10.4 | | 9/26/2016 | | | | | | | | | | | |
† | | | | | | | | | | | | | | | Incorporation By Reference | | | Exhibit
Number | | Description | | Form | | SEC File No. | | Exhibit | | Filing Date | | | | | | | | | | | | 3.1 | | Amended and Restated Certificate of Incorporation. | | 8‑K | | 001‑37900 | | 3.1 | | 10/13/2016 | | | | | | | | | | | | 3.2 | | Amended and Restated Bylaws. | | S‑1 | | 333‑213569 | | 3.6 | | 9/09/2016 | | | | | | | | | | | | 4.1 | | Form of Common Stock Certificate of the registrant. | | S‑1 | | 333‑213569 | | 4.1 | | 9/09/2016 | | | | | | | | | | | | 4.2 | | Warrant to Purchase Common Stock, dated as of July 6, 2018, between the registrant and Silicon Valley Bank. | | 10-Q | | 001-37900 | | 4.2 | | 08/09/2018 | | | | | | | | | | | | 4.3 | | Reference is made to Exhibits 3.1 and 3.2. | | | | | | | | | | | | | | | | | | | | 10.1† | | Form of Indemnity Agreement between the registrant and its directors and officers. | | S‑1 | | 333‑213569 | | 10.1 | | 9/09/2016 | | | | | | | | | | | | 10.2† | | 2008 Equity Incentive Plan, as amended, and Form of Stock Option Grant Notice, Option Agreement and Form of Notice of Exercise. | | S-1/A | | 333‑213569 | | 10.2 | | 9/26/2016 | | | | | | | | | | | | 10.3† | | Amended and Restated 2016 Equity Incentive Plan. | | 8-K | | 001-37900 | | 10.1 | | 5/22/2018 | | | | | | | | | | | | 10.4† | | Form of Stock Option Grant Notice, Option Agreement and Form of Notice of Exercise used with the 2016 Equity Incentive Plan. | | S-1/A | | 333‑213569 | | 10.3 | | 9/26/2016 | | | | | | | | | | | | 10.5† | | Form of Restricted Stock Unit Award Agreement under the 2016 Equity Incentive Plan. | | 10-Q | | 001‑37900 | | 10.3 | | 11/13/2017 | | | | | | | | | | | | 10.6† | | 2016 Employee Stock Purchase Plan. | | S-1/A | | 333‑213569 | | 10.4 | | 9/26/2016 | | | | | | | | | | | | 10.7 | | Lease, dated as of June 6, 2008, by and between the registrant and Freescale Semiconductor, Inc. | | S-1 | | 333‑213569 | | 10.5 | | 9/09/2016 | | | | | | | | | | | | 10.8 | | Amendment No. 1 to Lease, dated as of February 2, 2009, by and between the registrant and Freescale Semiconductor, Inc. | | S-1 | | 333‑213569 | | 10.6 | | 9/09/2016 | | | | | | | | | | | | 10.9 | | Amendment No. 2 to Lease, dated as of February 18, 2010, by and between the registrant and Freescale Semiconductor, Inc. | | S-1 | | 333‑213569 | | 10.7 | | 9/09/2016 | | | | | | | | | | | | 10.10 | | Amendment No. 3 to Lease, dated as of July 20, 2011, by and between the registrant and Freescale Semiconductor, Inc. | | S-1 | | 333‑213569 | | 10.8 | | 9/09/2016 | | | | | | | | | | | | 10.11 | | Amendment No. 4 to Lease, dated as of June, 2014 by and between the registrant and Freescale Semiconductor, Inc. | | S-1 | | 333‑213569 | | 10.9 | | 9/09/2016 | | | | | | | | | | | | 10.12 | | Amendment No. 5 to Lease, dated as of March 22, 2017 by and between the registrant and Freescale Semiconductor, Inc. | | 8-K | | 001‑37900 | | 10.1 | | 3/28/2017 | | | | | | | | | | | | 10.13 | | Amendment No. 6 to Lease, dated as of October 31, 2017 by and between the registrant and NXP USA, Inc. (formerly Freescale Semiconductor, Inc.) | | 10-K | | 001‑37900 | | 10.40 | | 3/15/2018 | | | | | | | | | | | |
10.7 | | Lease, dated as of June 6, 2008, by and between the registrant and Freescale Semiconductor, Inc. | | S-1 | | 333-213569 | | 10.5 | | 9/09/2016 | | | | | | | | | | | | 10.7.1 | | Amendment No. 1 to Lease, dated as of February 2, 2009, by and between the registrant and Freescale Semiconductor, Inc. | | S-1 | | 333-213569 | | 10.6 | | 9/09/2016 | | | | | | | | | | | | 10.7.2 | | Amendment No. 2 to Lease, dated as of February 18, 2010, by and between the registrant and Freescale Semiconductor, Inc. | | S-1 | | 333-213569 | | 10.7 | | 9/09/2016 | | | | | | | | | | | | 10.7.3 | | Amendment No. 3 to Lease, dated as of July 20, 2011, by and between the registrant and Freescale Semiconductor, Inc. | | S-1 | | 333-213569 | | 10.8 | | 9/09/2016 | | | | | | | | | | | | 10.7.4 | | Amendment No. 4 to Lease, dated as of June, 2014 by and between the registrant and Freescale Semiconductor, Inc. | | S-1 | | 333-213569 | | 10.9 | | 9/09/2016 | | | | | | | | | | | | 10.7.5 | | Amendment No. 5 to Lease, dated as of March 22, 2017 by and between the registrant and Freescale Semiconductor, Inc. | | 8-K | | 001-37900 | | 10.1 | | 3/28/2017 | | | | | | | | | | | | 10.7.6 | | Amendment No. 6 to Lease, dated as of October 31, 2017 by and between the registrant and NXP USA, Inc. (formerly Freescale Semiconductor, Inc.). | | 10-K | | 001-37900 | | 10.40 | | 3/15/2018 | | | | | | | | | | | | 10.7.7 | | Amendment No. 7 to Lease, effective as of June 30, 2018 by and between the registrant and NXP USA, Inc. (formerly Freescale Semiconductor, Inc.). | | 10-Q | | 001-37900 | | 10.1 | | 11/14/2018 | | | | | | | | | | | | 10.7.8 | | Amendment No. 8 to Lease, effective as of November 30, 2019 by and between the registrant and NXP USA, Inc. (formerly Freescale Semiconductor, Inc.). | | 10-K | | 001-37900 | | 10.15 | | 3/13/2020 | | | | | | | | | | | | 10.7.9 | | Amendment No. 9 to Lease, effective as of March 31, 2020 by and between the registrant and NXP USA, Inc. (formerly Freescale Semiconductor, Inc.). | | 10-Q | | 001-37900 | | 10.2 | | 8/06/2020 | | | | | | | | | | | | 10.8 | | Amended and Restated Loan and Security Agreement, dated as of August 5, 2019, between the registrant and Silicon Valley Bank. | | 10-Q | | 001-37900 | | 10.1 | | 11/7/2019 |
10.14 | | Amendment No. 7 to Lease, effective as of June 30, 2018 by and between the registrant and NXP USA, Inc. (formerly Freescale Semiconductor, Inc.) | | 10-Q | | 001-37900 | | 10.1 | | 11/14/2018 | | | | | | | | | | | | 10.15 | | Loan and Security Agreement, dated as of May 4, 2017 by and between the registrant and Silicon Valley Bank. | | 8-K | | 001‑37900 | | 10.1 | | 5/9/2017 | | | | | | | | | | | | 10.16 | | First Amendment to Loan and Security Agreement, dated as of July 6, 2018 by and between the registrant and Silicon Valley Bank. | | 10-Q | | 001-37900 | | 10.2 | | 8/9/2018 | | | | | | | | | | | | 10.17 | | Office Lease Agreement, dated as of January 7, 2011 by and between the registrant and Jutland 4141 Investments, Ltd dba Chandler Office Center. | | S-1 | | 333‑213569 | | 10.16 | | 9/09/2016 | | | | | | | | | | | | 10.18 | | Lease Termination Agreement, dated as of April 12, 2018, by and between the registrant and Jutland 4141 Investments, Ltd. | | 10-Q | | 001-37900 | | 10.4 | | 8/9/2018 | | | | | | | | | | | | 10.19 | | Commercial Industrial Lease Agreement, dated as of May 18, 2012 by and between the registrant and Principal Life Insurance Company. | | S-1 | | 333‑213569 | | 10.17 | | 9/09/2016 | | | | | | | | | | | | 10.20 | | Amendment No. 1 to Commercial Industrial Lease Agreement, dated August 12, 2016 by and between the registrant and Legacy Stonelake JV-T, LLC, successor in interest to Principal Life Insurance Company. | | S-1 | | 333‑213569 | | 10.22 | | 9/09/2016 | | | | | | | | | | | | 10.21 | | Sublease Agreement, dated January 31, 2017 by and between the registrant and NXP USA, Inc. and Consent to of Landlord to Sublease, dated March 10, 2017, by and among the registrant, NXP USA, Inc. and VWP-BV CM 5670, LLC. | | 8-K | | 001‑37900 | | 10.1 | | 3/28/2017 | | | | | | | | | | | | 10.22 | | First Amendment to Sublease Agreement, dated February 13, 2017, by and between the registrant and NXP USA, Inc. and Consent to of Landlord to Amendment to Sublease, dated March 10, 2017, by and among the registrant, NXP USA, Inc. and VWP-BV CM 5670, LLC. | | 8-K | | 001‑37900 | | 10.2 | | 3/28/2017 | | | | | | | | | | | | 10.23 | | Second Amendment to Sublease Agreement dated March 2, 2017 by and between the Company and NXP USA, Inc. and Consent of Landlord to Sublease, dated March 10, 2017, by and among the registrant, NXP USA, Inc. and VWP-BV CM 5670, LLC. | | 8-K | | 001‑37900 | | 10.3 | | 3/28/2017 | | | | | | | | | | | | 10.24 | | Third Amendment to Sublease Agreement, dated October 17, 2017 by and between the registrant and NXP USA, Inc. and Consent of Landlord to Sublease, dated March 10, 2017, by and among the registrant, NXP USA, Inc. and VWP-BV CM 5670, LLC. | | 10-K | | 001‑37900 | | 10.39 | | 3/15/2018 | | | | | | | | | | | | 10.25+ | | STT-MRAM Joint Development Agreement, dated as of October 17, 2014 by and between the registrant and GLOBALFOUNDRIES Inc. | | S-1 | | 333‑213569 | | 10.18 | | 9/09/2016 | | | | | | | | | | | | 10.26+ | | Amendment No. 1 to the STT-MRAM Joint Development Agreement, dated as of May 27, 2016 by and between the registrant and GLOBALFOUNDRIES Inc. | | S-1 | | 333‑213569 | | 10.19 | | 9/09/2016 |
| | | | | | | | | | | 10.8.1 | | First Amendment to Amended and Restated Loan and Security Agreement, dated as of July 15, 2020, by and between the registrant and Silicon Valley Bank. | | 10-Q | | 001-37900 | | 10.3 | | 8/06/2020 | | | | | | | | | | | | 10.8.2 | | Second Amendment to Amended and Restated Loan and Security Agreement, dated as of July 28, 2021, by and between the registrant and Silicon Valley Bank. | | 10-Q | | 001-37900 | | 10.5 | | 8/12/2021 | | | | | | | | | | | | 10.9 | | Commercial Industrial Lease Agreement, dated as of May 18, 2012 by and between the registrant and Principal Life Insurance Company. | | S-1 | | 333-213569 | | 10.17 | | 9/09/2016 | | | | | | | | | | | | 10.9.1 | | Amendment No. 1 to Commercial Industrial Lease Agreement, dated August 12, 2016 by and between the registrant and Legacy Stonelake JV-T, LLC, successor in interest to Principal Life Insurance Company. | | S-1 | | 333-213569 | | 10.22 | | 9/09/2016 | | | | | | | | | | | | 10.10 | | Sublease Agreement, dated January 31, 2017 by and between the registrant and NXP USA, Inc. and Consent to of Landlord to Sublease, dated March 10, 2017, by and among the registrant, NXP USA, Inc. and VWP-BV CM 5670, LLC. | | 8-K | | 001-37900 | | 10.1 | | 3/28/2017 | | | | | | | | | | | | 10.10.1 | | First Amendment to Sublease Agreement, dated February 13, 2017, by and between the registrant and NXP USA, Inc. and Consent of Landlord to Amendment to Sublease, dated March 10, 2017, by and among the registrant, NXP USA, Inc. and VWP-BV CM 5670, LLC. | | 8-K | | 001-37900 | | 10.2 | | 3/28/2017 | | | | | | | | | | | | 10.10.2 | | Second Amendment to Sublease Agreement dated March 2, 2017 by and between the registrant and NXP USA, Inc. and Consent of Landlord to Sublease, dated March 10, 2017, by and among the registrant, NXP USA, Inc. and VWP-BV CM 5670, LLC. | | 8-K | | 001-37900 | | 10.3 | | 3/28/2017 | | | | | | | | | | | | 10.10.3 | | Third Amendment to Sublease Agreement, dated October 17, 2017 by and between the registrant and NXP USA, Inc. and Consent of Landlord to Sublease, dated March 10, 2017, by and among the registrant, NXP USA, Inc. and VWP-BV CM 5670, LLC. | | 10-K | | 001-37900 | | 10.39 | | 3/15/2018 |
| | | | | | | | | | | 10.27*++ | | Amendment No. 3 to the STT-MRAM Joint Development Agreement, effective as of January 1, 2018 by and between the registrant and GLOBALFOUNDRIES Inc. | | | | | | | | | | | | | | | | | | | | 10.28+ | | Manufacturing Agreement, dated as of October 23, 2014 by and between the registrant and GLOBALFOUNDRIES Singapore Pte. Ltd. | | S-1 | | 333‑213569 | | 10.20 | | 9/09/2016 | | | | | | | | | | | | 10.29 | | Restricted Stock Purchase Agreement, dated as of October 21, 2014 by and between the registrant and GLOBALFOUNDRIES Inc. | | S-1 | | 333‑213569 | | 10.21 | | 9/09/2016 | | | | | | | | | | | | 10.30 | | Common Stock Purchase Agreement, dated as of September 23, 2016 by and between the registrant and GigaDevice (HK) Limited. | | S-1/A | | 333‑213569 | | 10.23 | | 9/26/2016 | | | | | | | | | | | | 10.31† | | Non-employee Director Compensation. | | 10-Q | | 001‑37900 | | 10.4 | | 11/18/2016 | | | | | | | | | | | | 10.32† | | Executive Compensation Information. | | 8-K | | 001‑37900 | | Item 5.02 | | 1/23/2017 | | | | | | | | | | | | 10.33† | | Executive Employment Agreement, dated as of April 25, 2016 by and between the registrant and Phillip LoPresti. | | S-1 | | 333‑213569 | | 10.14 | | 9/09/2016 | | | | | | | | | | | | 10.34† | | Separation and Consulting Agreement, dated as of August 23, 2017 by and between the registrant and Phillip LoPresti. | | 10-Q | | 001‑37900 | | 10.2 | | 11/13/2017 | | | | | | | | | | | | 10.35† | | Executive Employment Agreement, dated as of April 25, 2016 by and between the registrant and Dr. Jon Slaughter. | | 10-K | | 001‑37900 | | 10.25 | | 3/29/2017 | | | | | | | | | | | | 10.36† | | Executive Employment Agreement, dated as of April 26, 2017 by and between the registrant and Annie Flaig. | | 10-Q | | 001‑37900 | | 10.2 | | 8/11/2017 | | | | | | | | | | | | 10.37†* | | Separation Agreement, dated November 8, 2018 by and between the registrant and Annie Flaig. | | | | | | | | | | | | | | | | | | | | 10.38† | | Executive Employment Agreement, dated as of August 18, 2017 between the registrant and Kevin Conley. | | 8-K | | 001‑37900 | | 10.1 | | 8/23/2017 | | | | | | | | | | | | 10.39† | | Executive Employment Agreement, dated as of January 9, 2017 by and between the registrant and Patrick Patla. | | 10-K | | 001‑37900 | | 10.38 | | 3/15/2018 | | | | | | | | | | | | 10.40 | | Separation Agreement, dated as of June 6, 2018 by and between the registrant and Patrick Patla. | | 10-Q | | 001-37900 | | 10.3 | | 8/9/2018 | | | | | | | | | | | | 23.1* | | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. | | | | | | | | | | | | | | | | | | | | 31.1* | | Certification of Principal Executive Officer Pursuant to Rules 13a‑14(a) and 15d‑14(a) under the Securities Exchange Act of 1934, as amended. | | | | | | | | | | | | | | | | | | | | 31.2* | | Certification of Principal Financial Officer Pursuant to Rules 13a‑14(a) and 15d‑14(a) under the Securities Exchange Act of 1934, as amended. | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | 10.11+ | | STT-MRAM Joint Development Agreement, dated as of October 17, 2014 by and between the registrant and GLOBALFOUNDRIES Inc. | | S-1 | | 333-213569 | | 10.18 | | 9/09/2016 | | | | | | | | | | | | 10.11.1+ | | Amendment No. 1 to the STT-MRAM Joint Development Agreement, dated as of May 27, 2016 by and between the registrant and GLOBALFOUNDRIES Inc. | | S-1 | | 333-213569 | | 10.19 | | 9/09/2016 | | | | | | | | | | | | 10.11.2++ | | Amendment No. 2 to the STT-MRAM Joint Development Agreement, effective as of July 25, 2017 by and between the registrant and GLOBALFOUNDRIES Inc. | | 10-K | | 001-37900 | | 10.11.2 | | 3/4/2021 | | | | | | | | | | | | 10.11.3+ | | Amendment No. 3 to the STT-MRAM Joint Development Agreement, effective as of January 1, 2018 by and between the registrant and GLOBALFOUNDRIES Inc. | | 10-K | | 001-37900 | | 10.27 | | 3/15/2019 | | | | | | | | | | | | 10.11.4++ | | Amendment No. 4 to the STT-MRAM Joint Development Agreement, effective as of December 31, 2019 by and between the registrant and GLOBALFOUNDRIES, Inc. | | 10-K | | 001-37900 | | 10.11.4 | | 3/4/2021 | | | | | | | | | | | | 10.12+ | | Manufacturing Agreement, dated as of October 23, 2014 by and between the registrant and GLOBALFOUNDRIES Singapore Pte. Ltd. | | S-1 | | 333-213569 | | 10.20 | | 9/09/2016 | | | | | | | | | | | | 10.13 | | Restricted Stock Purchase Agreement, dated as of October 21, 2014 by and between the registrant and GLOBALFOUNDRIES Inc. | | S-1 | | 333-213569 | | 10.21 | | 9/09/2016 | | | | | | | | | | | | 10.14 | | Common Stock Purchase Agreement, dated as of September 23, 2016 by and between the registrant and GigaDevice (HK) Limited. | | S-1/A | | 333-213569 | | 10.23 | | 9/26/2016 | | | | | | | | | | | | 10.15† | | Executive Employment Agreement, dated as of April 25, 2016 by and between the registrant and Dr. Jon Slaughter. | | 10-K | | 001-37900 | | 10.25 | | 3/29/2017 | | | | | | | | | | | | 10.16† | | Executive Employment Agreement, dated as of April 25, 2016 by and between the registrant and Jeff Winzeler. | | 10-Q | | 001-37900 | | 10.2 | | 5/8/2019 | | | | | | | | | | | |
10.17† | 32.1**
| Executive Employment Agreement, dated as of August 18, 2017 between the registrant and Kevin Conley. | | 8-K | | 001-37900 | | 10.1 | | 8/23/2017 | | | | | | | | | | | | 10.18† | | Offer Letter, dated as of March 6, 2019 by and between the registrant and Troy Winslow. | | 10-Q | | 001-37900 | | 10.3 | | 5/8/2019 | | | | | | | | | | | | 10.19† | | Offer Letter, dated as of July 10, 2019 by and between the registrant and Matthew Tenorio. | | 10-K | | 001-37900 | | 10.35 | | 3/13/2020 | | | | | | | | | | | | 10.20† | | Executive Severance and Change in Control Plan. | | 10-K | | 001-37900 | | 10.36 | | 3/13/2020 | | | | | | | | | | | | 10.21† | | Separation Agreement, dated January 8, 2020, by and between the registrant and Jeffrey Winzeler. | | 10-Q | | 001-37900 | | 10.2 | | 5/08/2020 | | | | | | | | | | | | 10.22† | | Separation Agreement, dated April 7, 2021, by and between the registrant and Daniel Berenbaum. | | 10-Q | | 001-37900 | | 10.1 | | 5/7/2021 | | | | | | | | | | | | 10.23† | | Separation Agreement and Release, dated December 22, 2020, by and between the registrant and Kevin Conley. | | 10-K | | 001-37900 | | 10.25 | | 3/4/2021 | | | | | | | | | | | | 10.24† | | Offer Letter, dated December 30, 2020, by and between the registrant and Darin Billerbeck. | | 10-K | | 001-37900 | | 10.26 | | 3/4/2021 | | | | | | | | | | | | 10.25† | | Executive Employment Agreement, effective as of April 3, 2021, between the registrant and Sanjeev Aggarwal | | 8-K | | 001-37900 | | 10.1 | | 7/22/2021 | | | | | | | | | | | | 10.26† | | Executive Employment Agreement, effective as of July 2, 2021, between the registrant and Anuj Aggarwal | | 8-K | | 001-37900 | | 10.2 | | 7/22/2021 | | | | | | | | | | | | 23.1* | | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. | | | | | | | | | | | | | | | | | | | | 24.1* | | Power of Attorney (included on the Signatures page of this Annual Report on Form 10-K). | | | | | | | | | | | | | | | | | | | | 31.1* | | Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended. | | | | | | | | | | | | | | | | | | | | 31.2* | | Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended. | | | | | | | | |
| | | | | | | | | | | | 32.1** | | Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | | | | | | | | | | | | | | | | | | | 101.INS* | | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | | | | | | | | | | | | | | | | | | | | | 101.SCH* | | Inline XBRL Taxonomy Extension Schema Document. | | | | | | | | | | | | | | | | | | | | | | 101.CAL* | | | | | | | | | | | 101.INS
| | XBRL Instance Document
| | | | | | | | | | | | | | | | | | | | 101.SCH
| | XBRL Taxonomy Extension Schema Document
| | | | | | | | | | | | | | | | | | | | 101.CAL
| | Inline XBRL Taxonomy Extension Calculation Linkbase DocumentDocument. | | | | | | | | | | | | | | | | | | | | | | 101.DEF* | | | | | | | | | | | 101.DEF
| | Inline XBRL Taxonomy Extension Definition Linkbase DocumentDocument. | | | | | | | | | | | | | | | | | | | | | | 101.LAB* | | | | | | | | | | | 101.LAB
| | Inline XBRL Taxonomy Extension Label Linkbase DocumentDocument. | | | | | | | | | | | | | | | | | | | | | | 101.PRE* | | | | | | | | | | | 101.PRE
| | Inline XBRL Taxonomy Extension Presentation Linkbase DocumentDocument. | | | | | | | | | | | | | | | | | | | | | | 104* | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | | | | | | | | | |
*Filed herewith. **Furnished herewith. Exhibit 32.1 is being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, nor shall such exhibit be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as otherwise specifically stated in such filing.
+Confidential treatment has been granted for certain portions of this exhibit.
++Confidential treatment has been requested for certain portions of this exhibit.
†Indicates a management contract or compensatory plan.
| Filed herewith. |
** | Furnished herewith. Exhibit 32.1 is being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, nor shall such exhibit be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as otherwise specifically stated in such filing. |
+ | Confidential treatment has been granted for certain portions of this exhibit. |
++ | Portions of the exhibit, marked by brackets, have been omitted because the omitted information (i) is not material and (ii) would likely cause competitive harm if publicly disclosed. |
† | Indicates a management contract or compensatory plan. |
(b) We have filed, or incorporated into this Annual Report on Form 10‑K10-K by reference, the exhibits listed on the Exhibit Index immediately above. (c) See Item 15(a)2 above. Item 16. Form 10-K Summary Not provided. SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in Chandler, Arizona, on March 15, 2019.9, 2022. | Everspin Technologies, Inc. | | | | | By: | /s/ Kevin ConleyDarin Billerbeck | | | Kevin ConleyDarin Billerbeck
| | | President andInterim Chief Executive Officer
| | | (Duly Authorized Officer and Principal Executive Officer) | | | | | | | | By: | /s/ Jeffrey WinzelerAnuj Aggarwal | | | Jeffrey WinzelerAnuj Aggarwal
| | | Chief Financial Officer | | | (Principal Financial and Accounting Officer) |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kevin ConleyDarin Billerbeck and Jeffrey Winzeler,Anuj Aggarwal, and each of them, as his true and lawful attorneys-in-fact and agents, each with the full power of substitution, for him and in his name, place or stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10‑K,10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. | | | | | Signature | | Title | | Date | Signature
| | Title
| | Date
| | | | | | /s/ Kevin ConleyDarin Billerbeck | | President andInterim Chief Executive Officer, and Executive Chairman of the Board
| | March 15, 20199, 2022 | Kevin ConleyDarin Billerbeck
| | (Principal Executive Officer) | | | | | | | | /s/ Jeffrey WinzelerAnuj Aggarwal | | Chief Financial Officer | | March 15, 20199, 2022 | Jeffrey WinzelerAnuj Aggarwal
| | (Principal Financial and Accounting Officer) | | | | | | | | /s/ Lawrence G. Finch | | Director | | March 15, 20199, 2022 | Lawrence G. Finch | | | | | | | | | | /s/ Ronald C. Foster
| | Director
| | March 15, 2019
| Ronald C. Foster
| | | | | | | | | | /s/ Stephen J. Socolof
| | Director
| | March 15, 2019
| Stephen J. Socolof
| | | | | | | | | | /s/ Peter Hébert
| | Director
| | March 15, 2019
| Peter Hébert
| | | | | | | | | | /s/ Geoffrey R. Tate
| | Director, Lead Director
| | March 15, 2019
| Geoffrey R. Tate
| | | | | | | | | | /s/ Mike Gustafson | | Director | | March 15, 20199, 2022 | Mike Gustafson | | | | | | | | | | /s/ Darin Billerbeck
| | Director
| | March 15, 2019
| Darin Billerbeck
| | | | | | | | | | /s/ Geoff Ribar | | Director | | March 15, 20199, 2022 | Geoff Ribar | | | | |
|