UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-37900
Everspin Technologies, Inc.
(Exact name of Registrant as specified in its Charter)
Delaware |
|
26-2640654 |
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
1347 N. Alma School Road, Suite 220
Chandler, Arizona 85224
(Address of principal executive offices including zip code)
Registrant’s telephone number, including area code: (480) 347-1111
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). YES ☒ NO ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |
☐ |
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Accelerated filer |
☐ |
Non-accelerated filer |
☒ (Do not check if a small reporting company) |
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Small reporting company |
☐ |
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|
|
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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
The number of shares of Registrant’s Common Stock outstanding as of November 6, 2017 was 12,766,546.
In this Quarterly Report on Form 10-Q, “we,” “our,” “us,” “Everspin Technologies,” and “the Company” refer to Everspin Technologies, Inc. The Everspin logo and other trade names, trademarks or service marks of Everspin Technologies are the property of Everspin Technologies, Inc. This report contains references to our trademarks and to trademarks belonging to other entities. Trade names, trademarks and service marks of other companies appearing in this report are the property of their respective holders. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
2
EVERSPIN TECHNOLOGIES, INC.
(In thousands, except share and per share amounts)
|
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September 30, |
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December 31, |
||
|
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2017 |
|
2016 |
||
|
|
(Unaudited) |
|
(See Note 2) |
||
Assets |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
17,842 |
|
$ |
29,727 |
Accounts receivable, net |
|
|
3,700 |
|
|
3,170 |
Amounts due from related parties |
|
|
483 |
|
|
486 |
Inventory |
|
|
7,697 |
|
|
5,069 |
Prepaid expenses and other current assets |
|
|
730 |
|
|
1,050 |
Total current assets |
|
|
30,452 |
|
|
39,502 |
Property and equipment, net |
|
|
4,017 |
|
|
1,920 |
Other assets |
|
|
61 |
|
|
50 |
Total assets |
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$ |
34,530 |
|
$ |
41,472 |
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Accounts payable |
|
$ |
2,093 |
|
$ |
1,502 |
Accrued liabilities |
|
|
2,090 |
|
|
1,811 |
Amounts due to related parties |
|
|
2,029 |
|
|
1,359 |
Deferred income on shipments to distributors |
|
|
2,150 |
|
|
1,827 |
Current portion of long-term debt |
|
|
1,649 |
|
|
3,884 |
Total current liabilities |
|
|
10,011 |
|
|
10,383 |
Long-term debt, net of current portion |
|
|
10,414 |
|
|
4,218 |
Total liabilities |
|
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20,425 |
|
|
14,601 |
Commitments and contingencies |
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
Preferred stock, $0.0001 par value per share; 5,000,000 shares authorized as of September 30, 2017 and December 31, 2016; no shares issued and outstanding as of September 30, 2017 and December 31, 2016 |
|
|
— |
|
|
— |
Common stock, $0.0001 par value per share; 100,000,000 shares authorized as of September 30, 2017 and December 31, 2016; 12,746,399 and 12,498,128 shares issued and outstanding as of September 30, 2017 and December 31, 2016 |
|
|
1 |
|
|
1 |
Additional paid-in capital |
|
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127,262 |
|
|
123,309 |
Accumulated deficit |
|
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(113,158) |
|
|
(96,439) |
Total stockholders’ equity |
|
|
14,105 |
|
|
26,871 |
Total liabilities and stockholders’ equity |
|
$ |
34,530 |
|
$ |
41,472 |
The accompanying notes are an integral part of these condensed financial statements.
3
EVERSPIN TECHNOLOGIES, INC.
Condensed Statements of Operations and Comprehensive Loss
(In thousands, except share and per share amounts)
(Unaudited)
|
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Three Months Ended |
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Nine Months Ended |
|
||||||||
|
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September 30, |
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September 30, |
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||||||||
|
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2017 |
|
2016 |
|
2017 |
|
2016 |
|
||||
Product sales |
|
$ |
8,323 |
|
$ |
6,346 |
|
$ |
22,405 |
|
$ |
18,335 |
|
Product sales - related party |
|
|
610 |
|
|
662 |
|
|
1,810 |
|
|
1,396 |
|
Licensing and royalty revenue |
|
|
75 |
|
|
156 |
|
|
379 |
|
|
299 |
|
Licensing and royalty revenue - related party |
|
|
— |
|
|
— |
|
|
1,219 |
|
|
— |
|
Total revenue |
|
|
9,008 |
|
|
7,164 |
|
|
25,813 |
|
|
20,030 |
|
Cost of sales |
|
|
3,753 |
|
|
2,859 |
|
|
10,549 |
|
|
8,563 |
|
Gross profit |
|
|
5,255 |
|
|
4,305 |
|
|
15,264 |
|
|
11,467 |
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Operating expenses: |
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|
|
|
|
|
|
|
|
|
|
|
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Research and development |
|
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6,420 |
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3,111 |
|
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19,236 |
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14,342 |
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General and administrative |
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3,031 |
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1,586 |
|
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8,669 |
|
|
4,881 |
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Sales and marketing |
|
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1,112 |
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|
788 |
|
|
3,331 |
|
|
2,476 |
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Total operating expenses |
|
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10,563 |
|
|
5,485 |
|
|
31,236 |
|
|
21,699 |
|
Loss from operations |
|
|
(5,308) |
|
|
(1,180) |
|
|
(15,972) |
|
|
(10,232) |
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Interest expense |
|
|
(178) |
|
|
(798) |
|
|
(584) |
|
|
(1,982) |
|
Other income, net |
|
|
40 |
|
|
534 |
|
|
83 |
|
|
814 |
|
Loss on extinguishment of debt |
|
|
— |
|
|
— |
|
|
(246) |
|
|
— |
|
Net loss and comprehensive loss |
|
$ |
(5,446) |
|
$ |
(1,444) |
|
$ |
(16,719) |
|
$ |
(11,400) |
|
Net loss per common share, basic and diluted |
|
$ |
(0.43) |
|
$ |
(0.54) |
|
$ |
(1.35) |
|
$ |
(4.40) |
|
Weighted-average shares used to compute net loss per common share, basic and diluted |
|
|
12,559,812 |
|
|
2,657,574 |
|
|
12,425,390 |
|
|
2,589,704 |
|
The accompanying notes are an integral part of these condensed financial statements.
4
EVERSPIN TECHNOLOGIES, INC.
Condensed Statement of Cash Flows
(In thousands)
(Unaudited)
|
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Nine Months Ended |
|
||||
|
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September 30, |
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||||
|
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2017 |
|
2016 |
|
||
Cash flows from operating activities |
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|
|
|
|
|
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Net loss |
|
$ |
(16,719) |
|
$ |
(11,400) |
|
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
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Depreciation and amortization |
|
|
837 |
|
|
598 |
|
Loss on disposal of property and equipment |
|
|
— |
|
|
80 |
|
Stock-based compensation |
|
|
1,511 |
|
|
520 |
|
Change in fair value of redeemable convertible preferred stock warrant liability |
|
|
— |
|
|
(32) |
|
Non-cash loss on extinguishment of debt |
|
|
185 |
|
|
— |
|
Change in fair value of derivative liability |
|
|
— |
|
|
(798) |
|
Non-cash interest expense |
|
|
188 |
|
|
1,066 |
|
Compensation expense related to vesting of common stock to GLOBALFOUNDRIES |
|
|
1,224 |
|
|
751 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
Accounts receivable |
|
|
(530) |
|
|
(417) |
|
Amounts due from related parties |
|
|
3 |
|
|
(55) |
|
Inventory |
|
|
(2,628) |
|
|
(1,127) |
|
Prepaid expenses and other current assets |
|
|
320 |
|
|
(277) |
|
Other assets |
|
|
(11) |
|
|
(21) |
|
Accounts payable |
|
|
574 |
|
|
598 |
|
Accrued liabilities |
|
|
279 |
|
|
204 |
|
Amounts due to related parties |
|
|
(77) |
|
|
2,959 |
|
Deferred income on shipments to distributors |
|
|
323 |
|
|
206 |
|
Deferred revenue |
|
|
— |
|
|
(187) |
|
Net cash used in operating activities |
|
|
(14,521) |
|
|
(7,332) |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(2,170) |
|
|
(596) |
|
Net cash used in investing activities |
|
|
(2,170) |
|
|
(596) |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
Proceeds from convertible promissory notes-related party |
|
|
— |
|
|
8,500 |
|
Proceeds from debt |
|
|
12,000 |
|
|
1,500 |
|
Payments on debt |
|
|
(8,356) |
|
|
(598) |
|
Payments of debt issuance costs |
|
|
(49) |
|
|
(40) |
|
Payments on capital lease obligation |
|
|
(7) |
|
|
(179) |
|
Payments of deferred offering costs |
|
|
— |
|
|
(1,611) |
|
Proceeds from exercise of stock options and purchase of shares in employee stock purchase plan |
|
|
1,218 |
|
|
48 |
|
Net cash provided by financing activities |
|
|
4,806 |
|
|
7,620 |
|
Net decrease in cash and cash equivalents |
|
|
(11,885) |
|
|
(308) |
|
Cash and cash equivalents at beginning of period |
|
|
29,727 |
|
|
2,307 |
|
Cash and cash equivalents at end of period |
|
$ |
17,842 |
|
$ |
1,999 |
|
Supplementary cash flow information: |
|
|
|
|
|
|
|
Interest paid |
|
$ |
396 |
|
$ |
916 |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
Purchase of property and equipment in accounts payable and amounts due to related parties |
|
$ |
764 |
|
$ |
— |
|
Purchase of property and equipment under capital lease obligations |
|
$ |
— |
|
$ |
34 |
|
Deferred offering costs recorded in accounts payable and accrued liabilities |
|
$ |
— |
|
$ |
1,490 |
|
The accompanying notes are an integral part of these condensed financial statements.
5
EVERSPIN TECHNOLOGIES, INC.
Notes to Condensed Financial Statements
1. Organization and Nature of Business
Everspin Technologies, Inc. (the “Company”) was incorporated in Delaware on May 16, 2008. The Company’s 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 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.
Ability to continue as a going concern
The Company believes that its existing cash and cash equivalents as of September 30, 2017, coupled with its anticipated growth and sales levels will be sufficient to meet its anticipated cash requirements through November 30, 2018. The Company’s future capital requirements beyond November 30, 2018 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 to seek additional equity or debt financing, 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.
If the Company raises additional funds through issuances of equity, convertible debt securities or other securities convertible into equity, its existing stockholders could suffer significant dilution in their percentage ownership of the Company, and any new equity securities issued could have rights, preferences and privileges senior to those of holders of common stock. If the Company is unable to obtain adequate financing or financing on satisfactory terms, when required, its ability to continue to grow or support its business and to respond to business challenges could be significantly limited.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP have been condensed or omitted, and accordingly the balance sheet as of December 31, 2016 has been derived from the audited financial statements at that date but does not include all of the information required by GAAP for complete financial statements. These unaudited interim condensed financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair statement of the Company’s financial information. The results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the year ending December 31, 2017 or for any other interim period or for any other future year.
The accompanying condensed financial statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2016, included in the Company’s Annual Report on Form 10-K filed with the SEC.
Use of Estimates
The preparation of the condensed financial statements in conformity with 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 condensed financial statements and the reported amounts of revenues and expenses
6
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, income taxes, common stock, and stock-based compensation. Actual results could differ from those estimates and assumptions.
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 gross 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 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:
|
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Revenue |
|
Accounts Receivable, net |
|
|
||||||||
|
|
Three Months Ended |
|
Nine Months Ended |
|
As of |
|
As of |
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|
||||
|
|
September 30, |
|
September 30, |
|
September 30, |
|
December 31, |
|
|
||||
Customers |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
Customer A |
|
18 |
% |
22 |
% |
17 |
% |
23 |
% |
15 |
% |
12 |
% |
|
Customer B |
|
* |
% |
* |
% |
* |
% |
* |
% |
11 |
% |
13 |
% |
|
Customer C |
|
* |
% |
* |
% |
10 |
% |
* |
% |
* |
% |
10 |
% |
|
Customer D |
|
16 |
% |
11 |
% |
14 |
% |
11 |
% |
* |
% |
18 |
% |
|
*Less than 10%
Fair Value of Financial Instruments
The Company discloses and recognizes the fair value of its assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). The guidance establishes three levels of the fair value hierarchy as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2—Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
The carrying value of accounts receivable, accounts payable, and other accruals approximate fair value because of the short-term nature of the instruments. 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. 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.
7
The following table sets forth the fair value of the Company’s financial assets measured at fair value on a recurring basis based on the three-tier fair value hierarchy (in thousands):
|
|
September 30, 2017 |
||||||||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
|
Total |
|||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
18,254 |
|
$ |
— |
|
$ |
— |
|
$ |
18,254 |
Total assets measured at fair value |
|
$ |
18,254 |
|
$ |
— |
|
$ |
— |
|
$ |
18,254 |
|
|
December 31, 2016 |
||||||||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
|
Total |
|||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
29,869 |
|
$ |
— |
|
$ |
— |
|
$ |
29,869 |
Total assets measured at fair value |
|
$ |
29,869 |
|
$ |
— |
|
$ |
— |
|
$ |
29,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Recognition
The Company recognizes revenue when the following criteria are met: persuasive evidence of an arrangement exists; the price is fixed or determinable; delivery has occurred and title passed; and collectability is reasonably assured. For sales to original equipment manufacturers (“OEMs”) and contract manufacturers, this occurs generally upon shipment. Provisions for product returns and allowances are recorded in the same period as related revenues. The Company analyzes historical returns, current economic trends and changes in customer demand and acceptance of product when evaluating the adequacy of sales returns and other allowances, which are netted against accounts receivable, as these are processed as credits against future purchases or balances outstanding.
The Company sells the majority of its products to its distributors at a uniform list price. However, distributors resell the Company’s products to end customers at a very broad range of individually negotiated price points. Distributors are provided with price concessions subsequent to delivery of product to them depending on their end customer and sales price. These concessions are 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. Revenue on shipments to distributors is deferred as the price is not fixed or determinable until delivery has been made by the distributor to its customer and the final sales price has been established.
At the time of 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, inventory is reduced by the carrying value of goods shipped, and the net of these amounts, the gross profit, is recorded as deferred income on shipments to distributors on the balance sheet. The amount of gross profit that will be ultimately recognized in the statements of operations on such sales could be lower than the deferred income recorded on the balance sheets as a result of credits granted to distributors from the price protection rights. The Company is unable to estimate the credits to the distributors due to the wide variability of negotiated price concessions granted to them.
Thus, a portion of the “deferred income on shipments to distributors” balance represents the amount of distributors’ original purchase price that will be credited back to the distributor in the future. The wide range and variability of negotiated price concessions granted to distributors does not allow the Company to accurately estimate the portion of the balance in the deferred income on shipments to distributor accounts that will be credited back to the distributor. Therefore, the Company does not reduce deferred income on shipments to distributors or accounts receivable by anticipated future price concessions rather, price concessions are recorded against deferred income on shipments to distributors when incurred, which is generally at the time the distributor sells the product.
At September 30, 2017, the Company had $3.3 million of deferred revenue and $1.1 million of deferred cost of sales, resulting in the recognition of $2.2 million of deferred income on shipments to distributors. At December 31, 2016, the Company had $2.9 million of deferred revenue and $1.1 million of deferred cost of sales, resulting in the recognition of $1.8 million of deferred income on shipments to distributors.
8
Products returned by distributors and subsequently scrapped have historically been immaterial to the Company’s results of operations. The Company routinely evaluates the risk of impairment of the deferred cost of sales component of the deferred income on shipments to distributors account. Because of the historically immaterial amounts of inventory that have been scrapped, and historically rare instances where discounts given to a distributor result in a price less than our cost, the Company believes the deferred costs are recorded at their approximate carrying values.
For licenses of technology, recognition of revenue is dependent upon whether the Company delivered rights to the technology, and whether there are future performance obligations. In some instances, the license agreements call for future milestones to be met for amounts to be due from the customer. In such scenarios, revenue is recognized using the milestone method, whereby revenue is recognized upon the completion of substantive milestones once the customers acknowledge the milestones have been met and the collection of the amounts are reasonably assured. Royalties received are recognized when reported to the Company, which generally coincides with the receipt of payment.
Net Loss per Common Share
Basic net loss per common share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period, without consideration of potentially dilutive securities. 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.
Recently Issued Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014‑09, Revenue from Contracts with Customers. 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, with early adoption permitted for annual reporting periods beginning after December 15, 2016. As described in the Company's significant accounting policies, the Company currently defers the revenue and cost of sales on shipments to distributors until the distributor sells the product to their end customer. Upon adoption of ASU 2014-09, and subsequent improvements including ASU 2015-14, Deferral of Effective Date, ASU 2016-08, Principal versus Agent Considerations, ASU 2016-10, Identifying Performance Obligations and Licensing, and ASU 2016-12, Narrow Scope Improvements and Practical Expedients, the Company will no longer defer revenue until sale by the distributor to the end customer, but rather, will be required to estimate the effects of returns and allowances provided to distributors and record revenue at the time of sale to the distributor. The Company plans on adopting this standard on January 1, 2018 retrospectively, applying the guidance to each prior period presented. The Company has determined that the most significant change will be related to the accounting for distributor arrangements whereby revenue will be recognized at the time of sale to the distributor at amounts equal to the estimate of the final selling price.
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 is permitted. The Company plans on adopting this standard on January 1, 2018 and is currently evaluating the impact that the adoption of the standard will have on its financial statements.
9
Recently Adopted Pronouncements
In July 2015, the FASB issued ASU No. 2015‑11, Simplifying the Measurement of Inventory, which requires an entity to measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2016. The Company adopted this standard as of January 1, 2017 and the impact of its adoption on the Company’s financial statements was not material.
In November 2015, FASB issued ASU No. 2015‑17, Balance Sheet Classification of Deferred Taxes, which is intended to simplify and improve how deferred taxes are classified on the balance sheet. The guidance in this ASU eliminates the current requirement to present deferred tax assets and liabilities as current and noncurrent in a classified balance sheet and now requires entities to classify all deferred tax assets and liabilities as noncurrent. The guidance is effective for annual periods beginning after December 15, 2016, and for interim periods within those annual periods. Early adoption is permitted. The Company adopted this standard as of January 1, 2017 and the impact of its adoption on the Company’s financial statements was not material.
In March 2016, the FASB issued ASU No. 2016‑09, Compensation-Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting, which is intended to simplify several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, the determination of forfeiture rates, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2016, and early adoption is permitted. The Company adopted this standard as of January 1, 2017 and the impact of its adoption on the Company’s financial statements was not material.
3. Balance Sheet Components
Inventory
Inventory consisted of the following (in thousands):
|
|
September 30, |
|
December 31, |
||
|
|
2017 |
|
2016 |
||
Raw materials |
|
$ |
644 |
|
$ |
853 |
Work-in-process |
|
|
5,362 |
|
|
3,152 |
Finished goods |
|
|
1,691 |
|
|
1,064 |
Total inventory |
|
$ |
7,697 |
|
$ |
5,069 |
Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
|
|
September 30, |
|
December 31, |
||
|
|
2017 |
|
2016 |
||
Accrued payroll-related expenses |
|
$ |
1,075 |
|
$ |
1,045 |
Deferred licensing revenue |
|
|
42 |
|
|
229 |
Deferred rent |
|
|
221 |
|
|
248 |
Accrued sales commissions payable to sales representatives |
|
|
136 |
|
|
193 |
Other |
|
|
616 |
|
|
96 |
Total accrued liabilities |
|
$ |
2,090 |
|
$ |
1,811 |
10
4. Commitments and Contingencies
Operating Leases
The Company leases office space for its corporate headquarters located in Chandler, Arizona and for its design facility located in Austin, Texas. The leases expire in October 2018 and January 2022, respectively. 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 January 2017, the Company entered into a five-year sublease agreement with Freescale, a related party, to rent 6,560 square feet of office and laboratory space in Chandler, Arizona, and in March 2017, the Company amended the sublease to increase the space to 10,023 square feet.
The Company has an operating lease for its Arizona manufacturing facility, as amended, for certain of the fabrication, laboratory and office premises of Freescale. In March 2017, the Company extended the lease through January 28, 2019 and amended the premises covered to remove laboratory space, decrease fabrication space and expand office space.
5. Debt
Prior Facilities
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 condensed statements of operations and comprehensive loss.
2017 Credit Facility
On May 4, 2017, the Company entered into a Loan and Security Agreement with Silicon Valley Bank (“2017 Credit Facility”) for a $12.0 million term loan. The term loan provides for interest at a floating rate equal to the prime rate minus 0.75%. As of September 30, 2017, the interest rate was 3.50%. The term loan provides for a period 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 meets certain sales milestones. The Company is required to comply with certain covenants under the 2017 Credit Facility, including requirements to maintain a minimum liquidity ratio, meet certain revenue targets, and restrictions on certain actions without the consent of the lender, such as the disposal and acquisition of its business or property, changes in business, and mergers or acquisitions. An end of term fee of 6% of the amount borrowed must be made when the loan is prepaid or repaid, whether at maturity or as a result of a prepayment or acceleration or otherwise. The additional payment is being accreted using the effective interest method.
Security for the 2017 Credit Facility includes all of the Company’s assets except for intellectual property. The 2017 Credit Facility contains customary covenants restricting the Company’s activities, including limitations on its ability to sell assets, engage in mergers and acquisitions, 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 dividends with respect to its capital stock. The Company was in compliance with all covenants at September 30, 2017. The 2017 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. As of September 30, 2017, management does not believe that it is probable that the clause will be triggered within the next twelve months, and therefore the term loan is classified as long-term.
11
The carrying value of the Company’s 2017 Credit Facility at September 30, 2017 was as follows (in thousands):
|
|
Current |
|
Long-Term |
|
|
|
||
|
|
Portion |
|
debt |
|
Total |
|||
Debt, including end of term fee |
|
$ |
1,667 |
|
$ |
11,053 |
|
$ |
12,720 |
Less: |
|
|
|
|
|
|
|
|
|
Discount attributable to end of term fee and debt issuance costs |
|
|
(18) |
|
|
(639) |
|
|
(657) |
Net carrying value of debt |
|
$ |
1,649 |
|
$ |
10,414 |
|
$ |
12,063 |
The carrying value of the Company’s Prior Facilities at December 31, 2016 was as follows (in thousands):
|
|
Current |
|
Long-Term |
|
|
|
||
|
|
Portion |
|
debt |
|
Total |
|||
Debt, including end of term fee |
|
$ |
4,054 |
|
$ |
4,301 |
|
$ |
8,355 |
Less: |
|
|
|
|
|
|
|
|
|
Discount attributable to warrants, end of term fee and debt issuance cost |
|
|
(177) |
|
|
(83) |
|
|
(260) |
Net carrying value of debt |
|
$ |
3,877 |
|
$ |
4,218 |
|
$ |
8,095 |
6. Stock-Based Compensation
The following table summarizes the stock option activity for the nine months ended September 30, 2017:
|
|
|
|
Options Outstanding |
||||||||
|
|
|
|
|
|
Weighted- |
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Average |
|
Average |
|
|
|
|
|
|
Options |
|
|
|
Exercise |
|
Remaining |
|
Aggregate |
||
|
|
Available for |
|
Number of |
|
Price Per |
|
Contractual |
|
Intrinsic |
||
|
|
Grant |
|
Options |
|
Share |
|
Life (years) |
|
Value |
||
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Balance—December 31, 2016 |
|
342,500 |
|
1,414,730 |
|
$ |
5.28 |
|
7.6 |
|
$ |
4,267 |
Options authorized |
|
374,944 |
|
— |
|
|
|
|
|
|
|
|
RSUs granted |
|
(10,000) |
|
— |
|
|
|
|
|
|
|
|
Options granted |
|
(646,900) |
|
646,900 |
|
|
13.87 |
|
|
|
|
|
Options exercised |
|
— |
|
(230,347) |
|
|
4.76 |
|
|
|
|
1,981 |
Options cancelled/forfeited |
|
234,973 |
|
(235,868) |
|
|
6.26 |
|
|
|
|
|
Balance—September 30, 2017 |
|
295,517 |
|
1,595,415 |
|
|
8.69 |
|
6.9 |
|
$ |
13,406 |
Options exercisable—September 30, 2017 |
|
|
|
760,459 |
|
|
4.93 |
|
4.1 |
|
$ |
9,247 |
Options vested and expected to vest—September 30, 2017 |
|
|
|
1,595,415 |
|
|
8.69 |
|
6.9 |
|
$ |
13,406 |
The total grant date fair value of options vested was $236,000 and $129,000 during the three months ended September 30, 2017 and 2016, respectively, and $1.1 million and $415,000 for the nine months ended September 30, 2017 and 2016, respectively.
The weighted-average grant date fair value of employee options granted during the three months ended September 30, 2017 and 2016 was $9.22 and $3.86 per share, respectively, and during the nine months ended September 30, 2017 and 2016 was $7.80 and $3.86 per share, respectively.
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 registration statement was declared effective by the SEC. No further grants will be made under the Company’s 2008 Equity Incentive Plan (the “2008 Plan”). However, any outstanding stock awards granted under the 2008 Plan will remain outstanding, subject to the terms of the Company’s
12
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.
The Company’s 2016 Plan provides for the grant of incentive stock options (“ISOs”), non-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 is 500,000. The number of shares of common stock reserved for issuance under the Company’s 2016 Plan will automatically increase on January 1 of each year, beginning on January 1, 2017, and continuing through and including January 1, 2024, 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.
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 Internal Revenue 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. Additionally, 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. 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. The first purchase period under the 2016 ESPP commenced on October 12, 2016 and ended on April 12, 2017. The second purchase period began on April 13, 2017 and ended on October 12, 2017. The Company had 203,210 shares available for future issuance under the Company’s ESPP as of September 30, 2017. Employees purchased 17,924 shares for $122,000 during the nine months ended September 30, 2017.
Modification of Stock Awards
During the three months ended September 30, 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 three months ended September 30, 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 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.
13
The following table summarizes RSU activity for the nine months ended September 30, 2017:
|
|
RSUs Outstanding |
|||
|
|
|
|
Weighted- |
|
|
|
|
|
Average |
|
|
|
Number of |
|
Exercise |
|
|
|
Restricted Stock |
|
Price Per |
|
|
|
Units |
|
Share |
|
|
|
|
|
|
|
Balance—December 31, 2016 |
|
— |
|
$ |
— |
Granted |
|
10,000 |
|
|
16.25 |
Balance—September 30, 2017 |
|
10,000 |
|
$ |
16.25 |
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 September 30, 2017, there was $149,000 of unrecognized stock-based compensation expense related to RSUs to be recognized over a weighted-average period of 0.9 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):
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
||||
Research and development |
|
$ |
122 |
|
$ |
99 |
|
$ |
367 |
|
$ |
188 |
|
General and administrative |
|
|
499 |
|
|
182 |
|
|
938 |
|
|
282 |
|
Sales and marketing |
|
|
51 |
|
|
28 |
|
|
206 |
|
|
50 |
|
Total |
|
$ |
672 |
|
$ |
309 |
|
$ |
1,511 |
|
$ |
520 |
|
As of September 30, 2017, there was $6.2 million of total unrecognized compensation expense related to unvested options which is expected to be recognized over a weighted-average period of 3.3 years.
Employee Stock-based Compensation
Stock-based compensation expense for employees was $685,000 and $279,000 for the three months ended September 30, 2017 and 2016, respectively, and $1.4 million and $480,000 for the nine months ended September 30, 2017 and 2016, respectively.
The Company estimated the fair value of each option 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. Each of these inputs is subjective and its determination generally requires significant judgment.
|
|
2016 Plan |
|
2016 ESPP |
|
|
||||
|
|
Nine Months Ended |
|
Nine Months Ended |
|
|
||||
|
|
September 30, |
|
September 30, |
|
|
||||
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
Expected volatility |
|
47.2-61.1 |
% |
44.4-45.1 |
% |
49.3- 66.2 |
% |
— |
% |
|
Risk-free interest rate |
|
1.93-2.10 |
% |
1.12-1.36 |
% |
0.5-1.0 |
% |
— |
% |
|
Expected term (in years) |
|
5.8-6.1 |
|
5.2-6.1 |
|
0.5-0.6 |
|
— |
|
|
Dividend yield |
|
— |
% |
— |
% |
— |
% |
— |
% |
|
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 three and nine months ended September 30, 2017, the Company granted 12,800 stock options to non-employees. During the three and nine months ended September 30, 2016, the Company granted 21,633 stock
14
options to non-employees. As of September 30, 2017, options to purchase 24,453 shares of common stock were outstanding with a weighted-average exercise price of $5.57 per share. Stock-based compensation expense for non-employees was $(13,000) and $30,000 for the three months ended September 30, 2017 and 2016, respectively, and $86,000 and $40,000 for the nine months ended September 30, 2017 and 2016, respectively.
7. Related Party Transactions
Joint Development Agreement—GLOBALFOUNDRIES
On October 17, 2014, the Company entered into a Joint Development Agreement (“JDA”) with GF, a related party due to its equity ownership in the Company, for the joint development of the Company’s Spin Torque MRAM (“ST-MRAM”) technology. 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. The JDA also states that the specific terms and conditions for the production and supply of the developed ST-MRAM technology would be pursuant to a separate manufacturing agreement entered into between the parties.
Under the JDA, 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 ST-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, equally under the JDA. If GF manufactures, sells or transfers to customers wafers containing production quantified ST-MRAM devices that utilize certain design information, GF will be required to pay the Company a royalty. The term of the agreement is four years and is extended until the completion of any development work, if later.
As of September 30, 2017, $25,000 was receivable from GF. There were no amounts receivable from GF as of December 31, 2016. As of September 30, 2017 and December 31, 2016, $1.6 million and $979,000, respectively, were payable to GF for the Company’s share of the project costs under the JDA. During the three and nine months ended September 30, 2017, the Company purchased research and development equipment from GF for $485,000 and $747,000, respectively, which were included in Property and equipment, net as of September 30, 2017. There were no such purchases from GF as of December 31, 2016. The Company incurred project costs, recognized as research and development expense, of $850,000 and $480,000 for the three months ended September 30, 2017 and 2016 respectively, and $4.1 million and $2.4 million for the nine months ended September 30, 2017 and 2016, respectively. The Company entered into a Statement of Work #4B (the “SOW 4B”) under the JDA with GF effective August 31, 2016. Under SOW 4B, the Company will collaborate with GF in planning, designing and supporting evaluation of 22nm embedded MRAM arrays. The Company is eligible to receive three substantive milestone payments from this collaboration: (a) $569,000 was due upon the delivery of the Company’s database of bias system schematics; (b) $650,000 was due upon the delivery of a Graphic Design Database System package; and (c) $406,000 is due upon demonstration that the embedded MRAM array meets the specifications agreed upon by the two parties. Two of the milestones were achieved during the nine months ended September 30, 2017. There was no revenue recognized from GF for the three months ended September 30, 2017. The Company recognized revenue of $1.2 million from GF in the nine months ended September 30, 2017. There was no revenue from GF for the three and nine months ended September 30, 2016.
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 unvested common shares are subject to repurchase by the Company, if the JDA is terminated for any reason, for a one-year period after such termination, at a price that is the lower of the original price paid by GF or the fair value of the Company’s common stock as of the date of repurchase. 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
15
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. Although the shares issued do not commence vesting until the achievement of the product qualification (the “Initial Measurement Date”), the Company has deemed it probable that the qualification requirement will be met and compensation expense related to the shares issued is being recognized prior to the Initial Measurement Date. Due to the vesting conditions, there will be multiple measurement dates, occurring on the Initial Measurement Date and at the end of each month thereafter. The fair value of vesting shares is effectively fixed at each measurement date while the fair value of the remaining unvested shares will be remeasured each subsequent measurement date until the shares are fully vested. During the year ended December 31, 2016, GF achieved the product qualification as set forth under the SOW. As such, a total of 211,538 shares of common stock became vested on August 21, 2016, the designated Initial Measurement Date. Subsequent to the Initial Measurement Date through September 30, 2017, an additional 125,000 shares of common stock became vested. As of September 30, 2017, there were 125,000 shares unvested that were subject to repurchase.
The Company recognized non-cash compensation expense of $508,000 and $(691,000) during the three months ended September 30, 2017 and 2016, respectively, and $1.2 million and $751,000 for the nine months ended September 30, 2017 and 2016, respectively, in research and development expense related to the vesting of the shares of common stock. The Company recognizes compensation expense based on the estimated fair value of the common stock at each reporting period, which was $17.09 and $8.29 per share as of September 30, 2017 and December 31, 2016, respectively.
Transactions with Freescale
The Company has entered into various transactions with Freescale (a wholly-owned subsidiary of NXP), a related party due to its equity ownership in the Company. The Company leases its manufacturing facility in Chandler, Arizona, from Freescale and total rent expense was $250,000 and $268,000 during the three months ended September 30, 2017 and 2016, respectively, and $718,000 and $803,000 for the nine months ended September 30, 2017 and 2016, respectively. Freescale also performs processing of the Company’s products in its facility which are capitalized as part of the cost of inventory. The total processing costs incurred by the Company were $786,000 and $702,000 for the three months ended September 30, 2017 and 2016, respectively, and $2.4 million and $2.0 million for the nine months ended September 30, 2017 and 2016, respectively. In addition, Freescale is one of the Company’s largest customers for the sale of embedded wafers, and total revenue from Freescale was $610,000 and $662,000 during the three months ended September 30, 2017 and 2016, respectively, and $1.8 million and $1.4 million for the nine months ended September 30, 2017 and 2016, respectively. In the three and nine months ended September 30, 2017, the Company purchased wafers for its Condor product from Freescale for $317,000 and $708,000, respectively, which are included in inventory as of September 30, 2017. Amounts due from Freescale were $458,000 and $486,000 at September 30, 2017 and December 31, 2016, respectively. Amounts due to Freescale were $469,000 and $380,000 at September 30, 2017 and December 31, 2016, respectively.
8. Net Loss Per Common Share
The following table sets forth the computation of basic and diluted net loss per share (in thousands, except share and per share amounts):
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(5,446) |
|
$ |
(1,444) |
|
$ |
(16,719) |
|
$ |
(11,400) |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
|
12,700,802 |
|
|
3,023,794 |
|
|
12,595,015 |
|
|
3,019,238 |
|
Less: weighted-average unvested common shares subjected to repurchase |
|
|
(140,990) |
|
|
(366,220) |
|
|
(169,625) |
|
|
(429,534) |
|
Weighted-average common shares outstanding used to calculate net loss per common share, basic and diluted |
|
|
12,559,812 |
|
|
2,657,574 |
|
|
12,425,390 |
|
|
2,589,704 |
|
Net loss per common share, basic and diluted |
|
$ |
(0.43) |
|
$ |
(0.54) |
|
$ |
(1.35) |
|
$ |
(4.40) |
|
16
The following outstanding shares of potentially dilutive securities have been excluded from diluted net loss per common share for the periods presented, because their inclusion would be anti-dilutive:
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||
|
|
September 30, |
|
September 30, |
|
||||
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
Redeemable convertible preferred stock on an as-converted basis |
|
— |
|
2,486,199 |
|
— |
|
2,486,199 |
|
Options to purchase common stock |
|
1,595,415 |
|
1,262,294 |
|
1,595,415 |
|
1,262,294 |
|
Restricted stock units |
|
10,000 |
|
— |
|
10,000 |
|
— |
|
Common stock subject to repurchase |
|
125,000 |
|
240,385 |
|
125,000 |
|
240,385 |
|
Redeemable convertible preferred stock warrants on an as-converted basis |
|
— |
|
27,690 |
|
— |
|
27,690 |
|
Common stock warrants |
|
27,690 |
|
— |
|
27,690 |
|
— |
|
Total |
|
1,758,105 |
|
4,016,568 |
|
1,758,105 |
|
4,016,568 |
|
9. Subsequent Events
In October 2017, the Company entered into an amendment to its lease with Freescale in Chandler, Arizona to add 17,951 square feet of office space. The initial term of this amendment to the lease ends on January 31, 2022. The amendment provides the Company with 11 months free rent for the additional space, and total additional lease payments under the amendment will be $1.1 million over the initial lease term.
17
Item 2. 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 our condensed financial statements and related notes included in Part I, Item 1 of this report and with our audited financial statements and related notes thereto included as part of our Annual Report on Form 10-K for the year ended December 31, 2016.
Forward-Looking Statements
This discussion contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are identified by words such as “believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “could,” “potentially” or the negative of these terms or similar expressions. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward-looking” information. These statements relate to our future plans, strategies, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this report in Part II, Item 1A — “Risk Factors,” and elsewhere in this report. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. 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. We caution investors that our business and financial performance are subject to substantial risks and uncertainties.
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), and enable 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 are the only provider of commercially available MRAM solutions, and over the past eight years we have shipped over 60 million MRAM units.
We drive our revenue from the sale of our MRAM-based products in discrete unit form, as embedded technology, and through licensing and royalties of our MRAM technology.
We work directly with our 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 majority of our products to those customers through distributors. We generated 80% and 76% for the three months ended September 30, 2017 and 2016, respectively, and 75% and 79% for the nine months ended September 30, 2017 and 2016, respectively, of our revenue from products sold through distributors.
We maintain a direct selling relationship, for strategic purposes, with several key customer accounts. Our direct sales personnel and representatives are organized into three primary regions: North America; Europe, Middle East and Africa (EMEA); and Asia-Pacific (APAC). In North America, our revenue was $1.7 million and $2.1 million for the three months ended September 30, 2017 and 2016, and $4.5 million and $5.0 million for the nine months ended September 30, 2017 and 2016, respectively. In EMEA, our revenue was $2.0 million and $1.5 million for the three months ended September 30, 2017 and 2016, respectively, and $5.4 million and $4.1 million for the nine months ended September 30, 2017 and 2016, respectively. In APAC, our revenue was $5.3 million and $3.6 million for the three months ended September 30, 2017 and 2016, respectively, and $15.9 million and $10.9 million for the nine months ended September 30, 2017 and 2016, respectively. We recognize revenue by geography based on the region in which our products are sold, and not to where the end products are shipped.
18
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 intend to utilize leading semiconductor foundries, including GLOBALFOUNDRIES, to support high-volume production of our high density MRAM products on 300mm wafers at advanced process nodes.
During the three and nine months ended September 30, 2017, we continued to invest in research and development to support the development and production of our second generation of MRAM technology. We believe our continued investment will allow us to continue to develop and deploy products based on our Spin-Torque MRAM (“ST-MRAM”) technology. Our research and development expenses were $6.4 million and $3.1 million for the three months ended September 30, 2017 and 2016, respectively, and $19.2 million and $14.3 million for the nine months ended September 30, 2017 and 2016, 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.
Our principal executive offices are located in Chandler, Arizona. The facility accommodates our principal sales, marketing and research and development. Also in Chandler, we lease office space, clean room space, and laboratory space for our 200mm production and research and development functions. Our primary product design personnel are located in our office in Austin, Texas.
We recorded revenue of $9.0 million and $7.2 million for the three months ended September 30, 2017 and 2016, respectively, and $25.8 million and $20.0 million for the nine months ended September 30, 2017 and 2016, respectively; gross margin was 58.3% and 60.1% for the three months ended September 30, 2017 and 2016, respectively and 59.1% and 57.2% for the nine months ended September 30, 2017 and 2016, respectively; and our net loss was $5.4 million and $1.4 million for the three months ended September 30, 2017 and 2016, respectively, and $16.7 million and $11.4 million for the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, we had 94 employees, approximately half of whom are engaged in research and development.
Key Metrics
We monitor a variety of key financial metrics to help us evaluate growth 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. 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. We define Adjusted EBITDA as net income or loss adjusted for interest expense, tax, 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.
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.
19
The following table presents a reconciliation of net loss, the most directly comparable GAAP measure, to Adjusted EBITDA for each of the periods indicated:
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA reconciliation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(5,446) |
|
$ |
(1,444) |
|
$ |
(16,719) |
|
$ |
(11,400) |
|
Depreciation and amortization |
|
|
327 |
|
|
218 |
|
|
837 |
|
|
598 |
|
Stock-based compensation expense |
|
|
672 |
|
|
309 |
|
|
1,511 |
|
|
520 |
|
Compensation expense related to vesting of GLOBALFOUNDRIES common stock |
|
|
508 |
|
|
(691) |
|
|
1,224 |
|
|
751 |
|
Interest expense |
|
|
178 |
|
|
798 |
|
|
584 |
|
|
1,982 |
|
Adjusted EBITDA |
|
$ |
(3,761) |
|
$ |
(810) |
|
$ |
(12,563) |
|
$ |
(7,549) |
|
Factors Affecting Our Results of Operations
Design wins. In order 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”) or contract manufacturer notifies us that it has selected one of our products to be incorporated into a product or system under development. Because the life cycles for our customers’ products can last for several 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.
Customer acceptance of our technology and customer product success. In order for our customers to use our products, they may have to redesign certain components of their existing designs. We have established relationships with several controller companies, including Broadcom (formerly LSI and Avago) and Microsemi (formerly PMC-Sierra), and IP core companies, including Cadence, Northwest Logic and Altera (now part of Intel), to accelerate the implementation of our MRAM solutions into our customers end products. Delays in our customers’ design cycles may have adverse effects on the demand, and therefore sales, of our products.
Customer concentration. A relatively small number of end customers have historically accounted for a significant percentage of our revenue. Revenue, including through distributors, from NXP, STMicroelectronics, Novomatic Gaming Industries, Broadcom and Dell, collectively, accounted for approximately 32% and 34% of our total revenue in the three and nine months ended September 30, 2017, respectively. None of these customers accounted for in excess of 10% of our total revenue in the three and nine months ended September 30, 2017. Revenue, including through distributors, from Dell, Broadcom, STMicroelectronics, NXP, and Hyundai Mobis, collectively, accounted for 39% and 36% of our total revenue in the three and nine months ended September 30, 2016, respectively. None of these customers accounted for in excess of 10% of our total revenue in the three and nine months ended September 30, 2016. It would be difficult to replace lost revenue resulting from the loss, reduction, cancellation or delay in purchase orders by any one of these 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, and will continue to be, affected by a variety of factors, including the timing of changes 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, tend to be priced higher than older, more mature products. Average selling prices in the semiconductor industry typically decline as products mature. Consistent with this historical trend, we expect that the average selling prices of our products will decline as they mature. In 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.
20
Gross margin impact of licensing revenue. Our licensing revenue, which we collect as licensing fees and royalty payments, generates significantly higher gross margin than product revenue. Due to the high gross margin profile of this revenue stream, fluctuations in licensing revenue may have a greater impact on gross margin than a corresponding change in the demand for our products. Therefore, as licensing revenue fluctuates, we may see significant variations in gross margin.
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 segments of the market where we believe the densities 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.
Financial Operations Overview
Revenue
We derive our revenue from the sale of our MRAM-based products in discrete unit form, as embedded technology, and through licensing of and royalties on our MRAM technology. For sales through distributors, we defer recognition of revenue and the related expenses of our discrete MRAM products until the distributor has sold the products to its end customer. We recognize license fees when the applicable development milestones have been met in accordance with the terms of the licensing agreement. Our licensing revenue is largely dependent on a small number of transactions during a given year. We recognize revenue for royalties resulting from our licensing agreements in accordance with the terms of the licensing agreement.
Cost of Sales and Gross Margin
Cost of sales primarily includes the cost of our products including costs to purchase wafers, costs paid for wafer fabrication, costs associated with the assembly and testing of our products, shipping costs and costs of our manufacturing personnel. Cost of sales also includes indirect costs, such as warranty, inventory valuation reserves and overhead costs.
Gross profit is revenue less cost of sales. Gross margin is gross profit expressed as a percentage of total revenue. We expect that our gross margin may fluctuate from period to period, primarily as a result of changes in average selling price, revenue mix among our products, 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.
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 the most significant component of each of our operating expense categories. In addition, we expect to increase research and development expenditures, hire additional personnel necessary to support our growth, and incur additional expenses associated with being a public company.
Research and Development Expenses
Our research and development expenses consist primarily of personnel-related expenses for the design and development of our products and technologies, test wafers required to characterize our technology, and expenses associated with our joint development agreement with GLOBALFOUNDRIES. 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 expect our research and development expenses to increase as we hire additional personnel to develop new products and product enhancements. We recognize research and development expenses as they are incurred.
21
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 to incur additional general and administrative expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the Securities and Exchange Commission, or SEC, and those of any national securities exchange on which our securities are traded, additional insurance expenses, investor relations activities and other administrative and professional services.
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 to increase as we hire additional sales personnel and representatives and increase our 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 warrants and debt issuance costs capitalized on our balance sheets as a reduction of the debt balance. The non-cash component also includes interest expense on our convertible promissory notes as well as the amortization of debt discounts from the bifurcation of an embedded derivative related to the notes. These notes were converted into shares of our common stock upon the completion of our initial public offering, (“IPO”) in October 2016. The cash component of interest expense is attributable to our borrowings under our loan agreements.
Other Income, Net
Other income, net consists primarily of the change in fair value of our convertible preferred stock warrant liability. Prior to the completion of our IPO, our convertible preferred stock warrants were exercisable into shares that were contingently redeemable. As such, these warrants were classified as a liability on our balance sheets at their estimated fair value and were marked to market at each reporting period. We continued to record adjustments to the estimated fair values of the convertible preferred stock warrants until they converted into common stock warrants upon the closing of the IPO.
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 the unamortized balance of the debt discount and a prepayment penalty for the term loan were recognized as a loss on extinguishment of debt.
22
Results of Operations
The following table sets forth our results of operations for the periods indicated:
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
||||
|
|
(In thousands) |
|
||||||||||
Product sales |
|
$ |
8,933 |
|
$ |
7,008 |
|
$ |
24,215 |
|
$ |
19,731 |
|
Licensing and royalty revenue |
|
|
75 |
|
|
156 |
|
|
1,598 |
|
|
299 |
|
Total revenue |
|
|
9,008 |
|
|
7,164 |
|
|
25,813 |
|
|
20,030 |
|
Cost of sales |
|
|
3,753 |
|
|
2,859 |
|
|
10,549 |
|
|
8,563 |
|
Gross profit |
|
|
5,255 |
|
|
4,305 |
|
|
15,264 |
|
|
11,467 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
6,420 |
|
|
3,111 |
|
|
19,236 |
|
|
14,342 |
|
General and administrative |
|
|
3,031 |
|
|
1,586 |
|
|
8,669 |
|
|
4,881 |
|
Sales and marketing |
|
|
1,112 |
|
|
788 |
|
|
3,331 |
|
|
2,476 |
|
Total operating expenses |
|
|
10,563 |
|
|
5,485 |
|
|
31,236 |
|
|
21,699 |
|
Loss from operations |
|
|
(5,308) |
|
|
(1,180) |
|
|
(15,972) |
|
|
(10,232) |
|
Interest expense |
|
|
(178) |
|
|
(798) |
|
|
(584) |
|
|
(1,982) |
|
Other income, net |
|
|
40 |
|
|
534 |
|
|
83 |
|
|
814 |
|
Loss on extinguishment of debt |
|
|
— |
|
|
— |
|
|
(246) |
|
|
— |
|
Net loss |
|
$ |
(5,446) |
|
$ |
(1,444) |
|
$ |
(16,719) |
|
$ |
(11,400) |
|
The following table sets forth the statements of operations data for each of the periods presented as a percentage of revenue:
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
||||
|
|
September 30, |
|
September 30, |
|
|
||||
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
Total revenue |
|
100 |
% |
100 |
% |
100 |
% |
100 |
% |
|
Cost of sales |
|
42 |
|
40 |
|
41 |
|
43 |
|
|
Gross profit |
|
58 |
|
60 |
|
59 |
|
57 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
Research and development |
|
71 |
|
43 |
|
75 |
|
72 |
|
|
General and administrative |
|
34 |
|
22 |
|
34 |
|
24 |
|
|
Sales and marketing |
|
12 |
|
11 |
|
13 |
|
12 |
|
|
Total operating expenses |
|
117 |
|
76 |
|
122 |
|
108 |
|
|
Loss from operations |
|
(59) |
|
(16) |
|
(63) |
|
(51) |
|
|
Interest expense |
|
(2) |
|
(11) |
|
(2) |
|
(10) |
|
|
Other income, net |
|
— |
|
7 |
|
— |
|
4 |
|
|
Loss on extinguishment of debt |
|
— |
|
— |
|
(1) |
|
— |
|
|
Net loss |
|
(61) |
% |
(20) |
% |
(66) |
% |
(57) |
% |
|
Comparison of the Three Months Ended September 30, 2017 and 2016
Revenue
|
|
Three Months Ended |
|
|
|
|
|
|
||||
|
|
September 30, |
|
Change |
|
|||||||
|
|
2017 |
|
2016 |
|
Amount |
|
% |
|
|||
|
|
(Dollars in thousands) |
|
|||||||||
Product sales |
|
$ |
8,933 |
|
$ |
7,008 |
|
$ |
1,925 |
|
27 |
% |
Licensing and royalty revenue |
|
|
75 |
|
|
156 |
|
|
(81) |
|
(52) |
% |
Total revenue |
|
$ |
9,008 |
|
$ |
7,164 |
|
$ |
1,844 |
|
26 |
% |
Total revenue increased by $1.8 million or 26%, from $7.2 million during the three months ended September 30, 2016, to $9.0 million during the three months ended September 30, 2017. Product sales increased by $1.9 million or
23
27%, from $7.0 million during the three months ended September 30, 2016, to $8.9 million during the three months ended September 30, 2017. The increase in product sales was due to increased sales volume and mix in our first generation MRAM products.
Licensing and royalty revenue is a highly variable revenue item characterized by a small number of transactions annually with revenues based on size and terms of each transaction. Licensing and royalty revenue decreased by $0.1 million, from $0.2 million during the three months ended September 30, 2016, to $0.1 million during the three months ended September 30, 2017. The decrease was primarily due to decreased royalty revenue due to a decline in customer usage.
Cost of Sales and Gross Margin
|
|
Three Months Ended |
|
|
|
|
|
|
||||
|
|
September 30, |
|
Change |
|
|||||||
|
|
2017 |
|
2016 |
|
Amount |
|
% |
|
|||
|
|
(Dollars in thousands) |
|
|||||||||
Cost of sales |
|
$ |
3,753 |
|
$ |
2,859 |
|
$ |
894 |
|
31 |
% |
Gross margin |
|
|
58.3 |
% |
|
60.1 |
% |
|
|
|
|
|
Cost of sales increased by $0.9 million or 31%, from $2.9 million during the three months ended September 30, 2016, to $3.8 million during the three months ended September 30, 2017. The increase was due to the significant increase in product sales in the three months ended September 30, 2017.
Gross margin decreased from 60.1% during the three months ended September 30, 2016, to 58.3% during the three months ended September 30, 2017. The decrease was primarily due to product mix.
Operating Expenses
|
|
Three Months Ended |
|
|
|
|
|
|
||||
|
|
September 30, |
|
Change |
|
|||||||
|
|
2017 |
|
2016 |
|
Amount |
|
% |
|
|||
|
|
(Dollars in thousands) |
|
|||||||||
Research and development |
|
$ |
6,420 |
|
$ |
3,111 |
|
$ |
3,309 |
|
106 |
% |
General and administrative |
|
|
3,031 |
|
|
1,586 |
|
|
1,445 |
|
91 |
% |
Sales and marketing |
|
|
1,112 |
|
|
788 |
|
|
324 |
|
41 |
% |
Total operating expenses |
|
$ |
10,563 |
|
$ |
5,485 |
|
$ |
5,078 |
|
93 |
% |
Research and Development Expenses. Research and development expenses increased by $3.3 million or 106%, from $3.1 million during the three months ended September 30, 2016, to $6.4 million during the three months ended September 30, 2017. The increase was primarily due to a $1.6 million increase in supplies and maintenance, a $1.2 million increase in the amount attributable to the vesting of shares of common stock issued to GLOBALFOUNDRIES driven by the stock price component of the expense, a $0.4 million increase in expenses from our joint development agreement with GLOBALFOUNDRIES due to the use of more technologically advanced materials, and a $0.1 million increase in employee and contract labor costs due to increased headcount.
General and Administrative Expenses. General and administrative spending increased by $1.4 million or 91%, from $1.6 million during the three months ended September 30, 2016, to $3.0 million during the three months ended September 30, 2017. The increase was primarily due to a $0.5 million increase in professional services incurred due to becoming a publicly traded company, such as accounting services, insurance, legal and investor relations, and a $0.8 million increase in employee and contract labor costs primarily due to our change in Chief Executive Officer.
Sales and Marketing Expenses. Sales and marketing expenses increased by $0.3 million or 41%, from $0.8 million during the three months ended September 30, 2016, to $1.1 million during the three months ended September 30, 2017. The increase was primarily attributable to a $0.1 million increase in employee and contract labor costs and a $0.2 million increase in travel expenses as a result of increased headcount to drive growth.
24
Interest Expense
|
|
Three Months Ended |
|
|
|
|
|
|
||||
|
|
September 30, |
|
Change |
|
|||||||
|
|
2017 |
|
2016 |
|
Amount |
|
% |
|
|||
|
|
(Dollars in thousands) |
|
|||||||||
Interest expense |
|
$ |
178 |
|
$ |
798 |
|
$ |
(620) |
|
(78) |
% |
Interest expense decreased by $0.6 million or 78%, from $0.8 million during the three months ended September 30, 2016, to $0.2 million during the three months ended September 30, 2017. The decrease was primarily related to an overall $0.6 million decrease in the interest payable to GLOBALFOUNDRIES, interest on our 2016 convertible promissory notes and lower interest expense on our 2017 Credit Facility with Silicon Valley Bank, compared to our prior facility with Ares Venture Finance.
Other Income, Net
|
|
Three Months Ended |
|
|
|
|
|
|
||||
|
|
September 30, |
|
Change |
|
|||||||
|
|
2017 |
|
2016 |
|
Amount |
|
% |
|
|||
|
|
(Dollars in thousands) |
|
|||||||||
Other income, net |
|
$ |
40 |
|
$ |
534 |
|
$ |
(494) |
|
(93) |
% |
Other income, net was $40,000 during the three months ended September 30, 2017 compared to $0.5 million during the three months ended September 30, 2016. The change was primarily related to the fair value remeasurement of our warrant liabilities which were reclassified to equity upon the IPO in October 2016.
Comparison of the Nine Months Ended September 30, 2017 and 2016
Revenue
|
|
Nine Months Ended |
|
|
|
|
|
|
||||
|
|
September 30, |
|
Change |
|
|||||||
|
|
2017 |
|
2016 |
|
Amount |
|
% |
|
|||
|
|
(Dollars in thousands) |
|
|||||||||
Product sales |
|
$ |
24,215 |
|
$ |
19,731 |
|
$ |
4,484 |
|
23 |
% |
Licensing and royalty revenue |
|
|
1,598 |
|
|
299 |
|
|
1,299 |
|
* |
% |
Total revenue |
|
$ |
25,813 |
|
$ |
20,030 |
|
$ |
5,783 |
|
29 |
% |
*Not meaningful
Total revenue increased by $5.8 million or 29%, from $20.0 million during the nine months ended September 30, 2016, to $25.8 million during the nine months ended September 30, 2017. Product sales increased by $4.5 million or 23%, from $19.7 million during the nine months ended September 30, 2016, to $24.2 million during the nine months ended September 30, 2017. The increase was primarily due to $3.9 million in increased sales volume and mix in our first generation MRAM products and a $0.6 million increase in sales of our Legacy products.
Licensing and royalty revenue is a highly variable revenue item characterized by a small number of transactions annually with revenues based on size and terms of each transaction. Licensing and royalty revenue increased by $1.3 million from $0.3 million during the nine months ended September 30, 2016, to $1.6 million during the nine months ended September 30, 2017. The increase was primarily due to $1.2 million in milestones earned for the achievement of specified events during the nine months ended September 30, 2017, from GLOBALFOUNDRIES.
25
Cost of Sales and Gross Margin
|
|
Nine Months Ended |
|
|
|
|
|
|||||
|
|
September 30, |
|
Change |
|
|||||||
|
|
2017 |
|
2016 |
|
Amount |
|
% |
|
|||
|
|
(Dollars in thousands) |
|
|||||||||
Cost of sales |
|
$ |
10,549 |
|
$ |
8,563 |
|
$ |
1,986 |
|
23 |
% |
Gross margin |
|
|
59.1 |
% |
|
57.2 |
% |
|
|
|
|
|
Cost of sales increased by $2.0 million or 23%, from $8.6 million during the nine months ended September 30, 2016, to $10.6 million during the nine months ended September 30, 2017. The increase was primarily due to increased sales volume offset in part by higher yields on our Gen 1 MRAM products.
Gross margin increased from 57.2 % during the nine months ended September 30, 2016, to 59.1% during the nine months ended September 30, 2017. The increase was primarily due to increased sales, product mix and higher yields on our Gen 1 MRAM products.
Operating Expenses
|
|
Nine Months Ended |
|
|
|
|
|
|
||||
|
|
September 30, |
|
Change |
|
|||||||
|
|
2017 |
|
2016 |
|
Amount |
|
% |
|
|||
|
|
(Dollars in thousands) |
|
|||||||||
Research and development |
|
$ |
19,236 |
|
$ |
14,342 |
|
$ |
4,894 |
|
34 |
% |
General and administrative |
|
|
8,669 |
|
|
4,881 |
|
|
3,788 |
|
78 |
% |
Sales and marketing |
|
|
3,331 |
|
|
2,476 |
|
|
855 |
|
35 |
% |
Total operating expenses |
|
$ |
31,236 |
|
$ |
21,699 |
|
$ |
9,537 |
|
44 |
% |
Research and Development Expenses. Research and development expenses increased by $4.9 million or 34%, from $14.3 million during the nine months ended September 30, 2016, to $19.2 million during the nine months ended September 30, 2017. The increase was primarily due to a $2.6 million increase in equipment maintenance and supplies expenses related to the move to our new office and laboratory space in March 2017 and more purchases in the nine months ended September 30, 2017 compared to the same period in 2016, a $1.6 million increase in expenses incurred in our joint development agreement with GLOBALFOUNDRIES due to the use of more technologically advanced materials, a $0.6 million increase in employee and contact labor costs due to an increase in headcount, bonuses and stock-based compensation expense, and a $0.5 million increase in the amount attributable to the vesting of shares of common stock issued to GLOBALFOUNDRIES due to revaluing shares. The increases were partially offset by an increase in the allocation of expenses to cost of goods sold due to an increase in production in 2017.
General and Administrative Expenses. General and administrative spending increased by $3.8 million or 78%, from $4.9 million during the nine months ended September 30, 2016, to $8.7 million during the nine months ended September 30, 2017. The increase was primarily due to a $2.1 million increase in professional services incurred due to becoming a publicly traded company, such as accounting services, insurance, legal and investor relations, and a $1.6 million increase in employee and contract labor costs due to an increase in headcount, of which $0.6 million was due to our change in Chief Executive Officer and $1.0 million was due to increases in headcount and stock-based compensation expense.
Sales and Marketing Expenses. Sales and marketing expenses increased by $0.9 million or 35%, from $2.5 million during the nine months ended September 30, 2016, to $3.3 million during the nine months ended September 30, 2017. The increase was primarily due to a $0.9 million increase in employee and contract labor costs as a result of higher headcount and an increase in salaries, bonuses and stock-based compensation expense.
Interest Expense
|
|
Nine Months Ended |
|
|
|
|
|
|
||||
|
|
September 30, |
|
Change |
|
|||||||
|
|
2017 |
|
2016 |
|
Amount |
|
% |
|
|||
|
|
(Dollars in thousands) |
|
|||||||||
Interest expense |
|
$ |
584 |
|
$ |
1,982 |
|
$ |
(1,398) |
|
(71) |
% |
26
Interest expense decreased by $1.4 million or 71%, from $2.0 million during the nine months ended September 30, 2016, to $0.6 million during the nine months ended September 30, 2017. The decrease was primarily related to a $0.9 million decrease in interest expense on our 2016 convertible promissory notes and a $0.5 million decrease due to lower interest expense on our 2017 Credit Facility with Silicon Valley Bank, compared to our prior facility with Ares Venture Finance.
Other Income, Net
|
|
Nine Months Ended |
|
|
|
|
|
|
||||
|
|
September 30, |
|
Change |
|
|||||||
|
|
2017 |
|
2016 |
|
Amount |
|
% |
|
|||
|
|
(Dollars in thousands) |
|
|||||||||
Other income, net |
|
$ |
83 |
|
$ |
814 |
|
$ |
(731) |
|
(90) |
% |
Other income, net was $83,000 during the nine months ended September 30, 2017 compared to $0.8 million during the nine months ended September 30, 2016. The decrease was primarily related to the fair value remeasurement of our warrant liabilities which were reclassified to equity upon the IPO in October 2016.
Loss on extinguishment of debt
|
|
Nine Months Ended |
|
|
|
|
|
||||
|
|
September 30, |
|
Change |
|||||||
|
|
2017 |
|
2016 |
|
Amount |
|
% |
|||
|
|
(Dollars in thousands) |
|||||||||
Loss on extinguishment of debt |
|
$ |
246 |
|
$ |
— |
|
$ |
246 |
|
* |
*Not meaningful
Loss on extinguishment of debt was $0.2 million during the nine months ended September 30, 2017 due to the payoff of our prior facility with Ares Venture Finance in May 2017. There was no such loss during the nine months ended September 30, 2016.
Liquidity and Capital Resources
We have generated significant losses since our inception and had an accumulated deficit of $113.2 million as of September 30, 2017. As of September 30, 2017, we had $17.8 million of cash and cash equivalents, compared to $29.7 million as of December 31, 2016.
In October 2016, we completed our IPO in which we sold 5,000,000 shares at a price of $8.00 per share for net proceeds of $33.9 million, net of underwriting discounts and commissions, and offering costs. Concurrent with the IPO, we issued 625,000 shares of our common stock in a private placement for net proceeds of $4.7 million, after deducting the placement agent fee.
In May 2017, we executed a Loan and Security Agreement with Silicon Valley Bank for a $12.0 million term loan. The term of the loan is three years, which would be extended by one year if we achieve a revenue target of $4.0 million for our Spin-Torque product. The loan bears interest at a floating rate equal to the prime rate minus 0.75% and is payable monthly. The outstanding balance of the loan is to be repaid monthly beginning on May 1, 2018 over the remaining term of the loan. The loan is secured by a first priority perfected security interest in our assets excluding any intellectual property.
We believe that our existing cash and cash equivalents as of September 30, 2017, coupled with our anticipated growth and sales levels will be sufficient to meet our anticipated cash requirements through November 30, 2018. 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 our operations, we may be required to seek additional equity or debt financing, and such additional financing may not be available to us on
27
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 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.
Cash Flows
The following table summarizes our cash flows for the periods indicated (in thousands):
|
|
Nine Months Ended |
||||
|
|
September 30, |
||||
|
|
2017 |
|
2016 |
||
|
|
(In thousands) |
||||
Cash used in operating activities |
|
$ |
(14,521) |
|
$ |
(7,332) |
Cash used in investing activities |
|
|
(2,170) |
|
|
(596) |
Cash provided by financing activities |
|
|
4,806 |
|
|
7,620 |
Cash Flows From Operating Activities
During the nine months ended September 30, 2017, cash used in operating activities was $14.5 million, which consisted of a net loss of $16.7 million, adjusted by non-cash charges of $3.9 million and a change of $1.7 million in our net operating assets and liabilities. The non-cash charges primarily consisted of stock-based compensation of $1.5 million, compensation expense related to vesting of common stock issued to GLOBALFOUNDRIES under our joint development agreement of $1.2 million, depreciation and amortization of $0.8 million, loss on extinguishment of debt of $0.2 million, and interest expense related to the amortization of debt issuance costs of $0.2 million. The change in our net operating assets and liabilities was primarily due to an increase in inventory of $2.6 million to meet demands of future sales and growing backlog and an increase of $0.5 million in accounts receivable due to timing of cash receipts for outstanding balances. These changes were partially offset by an increase in accounts payable and accrued liabilities of $0.9 million due to the timing of payments, an increase of $0.3 million in deferred income on shipments to distributors, and a decrease of $0.3 million in prepaid and other current assets.
During the nine months ended September 30, 2016, cash used in operating activities was $7.3 million, which consisted of a net loss of $11.4 million, adjusted by non-cash charges of $2.2 million and a change of $1.9 million in our net operating assets and liabilities. The non-cash charges primarily consisted of depreciation and amortization of $0.6 million, stock-based compensation of $0.5 million, change in fair value of the derivative liabilities of $(0.8) 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 of $1.1 million. The change in our net operating assets and liabilities was primarily due to a net increase of $2.7 million in the related party amount due to GLOBALFOUNDRIES in connection with the joint development agreement, an increase of $0.8 million in accounts payable and accrued liabilities due to timing of payments and an increase of $0.2 million in the deferred income on shipments to distributors due to an increase in such activity since year end. These changes were partially offset by an increase of $1.1 million inventory in anticipation of shipments in the fourth quarter, an increase of $0.4 million in accounts receivable due to timing of cash receipts for outstanding balances, and an increase of $0.3 million in prepaid expenses and other assets for advances made for the purchase of wafers.
Cash Flows From Investing Activities
Cash used in investing activities during the nine months ended September 30, 2017, was $2.2 million, primarily for the purchase of manufacturing equipment and capitalized costs related to the move to our new office and laboratory space in Chandler, Arizona.
Cash used in investing activities during the nine months ended September 30, 2016, was $0.6 million, which consisted of capital expenditures primarily for the purchase of manufacturing equipment.
28
Cash Flows From Financing Activities
During the nine months ended September 30, 2017, cash provided by financing activities was $4.8 million consisting of proceeds of $12.0 million in borrowings, and $1.2 million from stock option exercises and purchases of shares in employee stock purchase plan, offset in part by payments of long-term debt of $8.4 million.
During the nine months ended September 30, 2016, cash provided by financing activities was $7.6 million consisting of proceeds of $8.5 million in borrowings from convertible promissory notes obtained from certain stockholders and a $1.5 million draw down against the revolving loan. These increases were partially offset by payments of offering costs in connection with our IPO of $1.6 million, and payments on long-term debt of $0.6 million and capital lease obligations of $0.2 million.
Contractual Obligations
The following table summarizes our contractual obligations as of September 30, 2017 (in thousands):
|
|
Payments Due by Period |
|||||||||||||
|
|
Less Than |
|
1 to 3 |
|
3 to 5 |
|
More Than |
|
|
|
||||
|
|
1 Year |
|
Years |
|
Years |
|
5 Years |
|
Total |
|||||
|
|
(In thousands) |
|||||||||||||
Long-term debt, current and non-current, including interest(1) |
|
$ |
2,083 |
|
$ |
8,795 |
|
$ |
3,081 |
|
$ |
— |
|
$ |
13,959 |
Operating leases |
|
|
1,510 |
|
|
1,153 |
|
|
552 |
|
|
— |
|
|
3,215 |
|
|
$ |
3,593 |
|
$ |
9,948 |
|
$ |
3,633 |
|
$ |
— |
|
$ |
17,174 |
|
(1) |
|
The interest charges have been calculated using a rate of 3.50%, the 2017 Credit Facility borrowing rate. The debt bears interest at a variable rate and interest charges in future periods may be higher. |
There were no material changes in our contractual obligations from December 31, 2016, other than the refinancing of our long-term debt.
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, we repaid the outstanding balance of our revolving loan of $1.1 million. In May 2017, we used a portion of the proceeds of the term loan executed with Silicon Valley Bank to pay off the outstanding principal balance of $6.2 million on the June 2015 term loan.
2017 Credit Facility
On May 4, 2017, we entered into a Loan and Security Agreement with Silicon Valley Bank (“2017 Credit Facility”) for a $12.0 million term loan. The term loan provides for interest at a floating rate equal to the prime rate minus 0.75%. The term loan provides for a period 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 meet certain sales milestones, and an additional payment of 6% of the Loan Amount when the loan is prepaid or repaid, whether at maturity or as a result of a prepayment or acceleration or otherwise.
Security for the 2017 Credit Facility includes all of our assets except for Intellectual Property. The 2017 Credit Facility contains customary covenants restricting our activities, including limitations on our ability to sell assets, engage in mergers and acquisitions, enter into transactions involving related parties, 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 dividends with respect to our capital stock. The 2017 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 at September 30, 2017.
29
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.
Critical Accounting Policies and Significant Judgments and Estimates
Our condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The preparation of these condensed 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. Our estimates are based 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.
There have been no material changes to our critical accounting policies and significant judgments and estimates as compared to the critical accounting policies and significant judgments and estimates disclosed in the Form 10-K filed with the SEC for the year ended December 31, 2016.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks in the ordinary course of our business, including the effects of interest rate changes and foreign currency fluctuations. Information relating to quantitative and qualitative disclosures about these markets risks is described below.
Interest Rate Risk
We are primarily exposed to interest rate risk from variable rate borrowings under our 2017 Credit Facility, and to a lesser extent, from our cash position. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. A hypothetical 10% increase in our borrowing rates would not have a material impact on interest expense on our principal balances as of September 30, 2017 and December 31, 2016.
Foreign Currency Risk
Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates.
Substantially all of our revenue is denominated in United States dollars. Our expenses are generally denominated in United States dollars; however, we do incur expenses in the currencies of our subcontracted manufacturing suppliers, which are located in Europe and in Asia. Our results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. The effect of a hypothetical 10% change in foreign currency exchanges rates applicable to our business would not have a material impact on our historical financial statements.
We have not hedged exposures denominated in foreign currencies or used any other derivative financial instruments. Although we transact the substantial majority of our business in U.S. dollars, future fluctuations in the value of the U.S. dollar may affect the competitiveness of our products and thus may impact our results of operations and cash flows.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures.
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, have evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
30
Exchange Act of 1934, as amended) prior to the filing of this quarterly report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of the period covered by this quarterly report, our disclosure controls and procedures were effective at the reasonable assurance level.
Material weakness in internal control over financial reporting.
In connection with the audit of our financial statements for the years ended December 31, 2016, 2015 and 2014, 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. Our management has determined that we had a material weakness in our internal control over financial reporting as of December 31, 2014 and 2015, relating to the design and operation of our financial reporting processes. We have concluded that this material weakness was due to the fact that we did not yet have the appropriate resources with the appropriate level of experience and technical expertise to oversee our closing and financial reporting processes. Our management also determined that we had an additional material weakness in our internal control over financial reporting as of December 31, 2016, relating to information technology general and application controls. We have concluded that this material weakness is due to the current configuration of our ERP system, which is undergoing additional integration.
Our management implemented a plan that contains the following elements to remediate the identified weaknesses:
We have hired additional accounting and finance staff members to augment our current staff and to improve the effectiveness of our closing and financial reporting processes;
We have completed the transition of our financials to SAP to facilitate the integration with other company data and systems;
In May of 2016, we added an independent board member with significant semiconductor CFO experience to chair our audit committee;
· |
We have hired an IT Director who has extensive industry experience; |
· |
We have engaged an external IT Security firm to complete an unbiased Information Security Assessment and execute internal security scans to identify risks and mitigation plan; |
· |
We have engaged external consultants to assist us with preparation of the financial statements; and |
We are formalizing our accounting policies and internal controls, including the information technology general controls, and strengthening supervisory reviews by our management;
We expect to complete the last noted measure prior to the year end and will continue to implement measures to remedy our internal control deficiencies in order to meet the deadline imposed by Section 404 of the Sarbanes-Oxley Act of 2002. Our independent registered public accounting firm has not assessed the effectiveness of our internal control over financial reporting and, under the JOBS Act, will not be required to provide an attestation report on the effectiveness of our internal control over financial reporting so long as we qualify as an “emerging growth company”.
Changes in internal control over financial reporting.
Other than the changes intended to remediate the material weakness noted above, there were no changes in our internal control over financial reporting during the quarter ended September 30, 2017, that have 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
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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.
We are not party to any material legal proceedings at this time. From time to time, we may become involved in various legal proceedings that arise in the ordinary course of our business.
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 could be harmed.
Risk Factors Related to Our Business and Our Industry
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 have incurred net losses since our inception. We incurred net losses of $16.7 million and $16.7 million for the year ended December 31, 2016 and the nine months ended September 30, 2017, respectively. As of September 30, 2017, we had an accumulated deficit of $113.2 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. Our ability to generate sufficient revenue and to transition to profitability and generate consistent positive cash flows is uncertain. In addition, as a public company, we will incur significant additional legal, accounting and other expenses that we did not incur as a private company. We do not know whether our revenue will grow rapidly enough to absorb these costs, and our limited operating history makes it difficult to assess the extent of these expenses, or their impact on our results of operations.
Further, our revenue may not increase or may decline for a number of possible reasons, many of which are outside 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.
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 September 30, 2017, coupled with our anticipated growth and sales levels will be sufficient to meet our anticipated cash requirements through November 30, 2018. 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,
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our ability to continue to grow or support our business and to respond to business challenges could be significantly limited.
Our limited operating history 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. spun-out its MRAM business as Everspin. We have been shipping magnetoresistive random access memory “(MRAM”) products since our incorporation in 2008, and we have experienced a high rate of growth for our products. However, we may not be able to sustain the growth rate for sales of these products and our revenue could decline. We have also been developing our next-generation of Spin-Torque MRAM (“ST-MRAM”) products. Adoption of these products is important to the future growth of our business, but revenue associated with these products has not been material to date.
Our limited operating history and limited experience selling 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 industries 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 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. We manufacture MRAM products at our 200mm facility we lease in Chandler, Arizona and use a single foundry, GLOBALFOUNDRIES Singapore Pte. Ltd., 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.
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 generation MRAM products will be applicable to markets in which we are not currently operating. Selling into these markets, including higher density memory markets and the module business 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
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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 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 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;
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;
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”), Advanced Semiconductor Engineering (“ASE”), 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 and tight inventories, our third-party foundries and packaging, assembly and testing contractors may allocate capacity 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.
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.
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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. 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-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, 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.
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 ST-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.
Further, 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
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for 45 or more days from the date of invoice, and fail to remedy the breach within 60 days after receiving notice from GLOBALFOUNDRIES. If GLOBALFOUNDRIES terminates the joint development agreement, our ability to continue to develop our MRAM technology will be significantly impaired.
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 expect the average selling price of our products to 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.
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 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 next-generation products, which we expect to be one of the drivers of our revenue growth in the future. However, we may not succeed in developing and marketing these 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 new generations of our products, our revenue could decline and our business, financial condition, results of operations
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and cash flows would be negatively affected. For example, we generated limited revenue from sales of our ST-MRAM products to date. While we expect revenue from our ST-MRAM products to increase, if we are unable to scale MRAM to gigabit densities to address applications currently served by DRAM, 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 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 on the adoption of our 256Mb and 1Gb MRAM products by our customers to secure design wins. 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 delay in the development of our 256Mb and 1Gb MRAM products, or failure of our customers to adopt our 256Mb and 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 designs 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 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 OEMs and 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, 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, 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 five largest end customers together accounted for 34% of our total revenue for the nine months ended September 30,
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2017, but none of these customers accounted for more than 10% of our revenue during the period. Our four largest end customers together accounted for 32% of our total revenue for the year ended December 31, 2016, but none 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;
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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;
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 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, Integrated Silicon Solution, Macronix,
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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, 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 will 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;
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
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. 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 more 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
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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 ST-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 will 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 you 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. 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;
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. 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 you 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.
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As smaller line width geometry manufacturing processes become more prevalent, we intend to move our future products to increasingly smaller geometries to reduce costs while integrating greater levels of 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 reduce our costs and increase performance. 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, transportation, industrial, 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.
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 you 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
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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.
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
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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 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 key employees are at-will employees and although we issued refresh equity awards to our personnel in connection with our initial public offering, and repriced options in mid-December 2016 to reflect our then current stock price, there can be no assurance that these awards will be effective to retain our key employees. 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 new ERP system that we have recently implemented. 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.
We may engage in acquisitions 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 necessary to operate our business.
We may in the future seek to acquire or invest in businesses, products or technologies that we believe could complement or expand our business, enhance 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. Even if we were allowed 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.
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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, we may be required to take charges to our earnings based on this impairment assessment process, which 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 ability 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 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. 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 reduce our revenue.
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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 of the facilities of 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 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 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 impair 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, except 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;
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 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
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become immediately due and payable or increase by five percent of the interest rate charged during the period of the unremedied breach.
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. 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.
We will incur significantly increased costs and devote substantial management time as a result of operating as a public company.
As a public company since October 2016, we are incurring significant legal, accounting and other expenses that we did not incur as a private company. For example, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and are required to comply with the applicable requirements of the Sarbanes-Oxley Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, as well as rules and regulations subsequently implemented by the SEC and the NASDAQ Stock Market, including the establishment and maintenance of effective disclosure and internal controls and the establishment corporate governance practices. Compliance with these requirements has increased our legal and financial compliance costs and is making some activities more time consuming and costly.
If we fail to retain finance personnel and strengthen our financial reporting systems and infrastructure, we may not be able to timely and accurately report our financial results or comply with the requirements of being a public company, including compliance with the Sarbanes-Oxley Act and SEC reporting requirements.
We have hired additional accounting and finance staff members to augment our current staff and to improve 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 increased demands as a result 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.
If we fail to strengthen our financial reporting systems, infrastructure and internal control over financial reporting to meet the demands placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, we may be unable to report our financial results timely and accurately and prevent fraud. We expect to incur significant expense and devote substantial management effort toward ensuring compliance with Section 404.
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, transfer or disposal of personal data of employees and customers may result in regulatory penalties, enforcement actions, remediation obligations, litigation, fines and other sanctions.
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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 fail to remediate a material weakness in our internal control over financial reporting, or experience any additional 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.
As a result of being a public company, we will be 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 beginning with our Annual Report on Form 10‑K for the year ended December 31, 2017. This assessment will need to include 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, 2016, 2015 and 2014, 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. Our management has determined that we had a material weakness in our internal control over financial reporting as of December 31, 2014 and 2015, relating to the design and operation of our financial reporting processes. We have concluded that this material weakness was due to the fact that we did not yet have the appropriate resources with the appropriate level of experience and technical expertise to oversee our closing and financial reporting processes. Our management also determined that we had an additional material weakness in our internal control over financial reporting as of December 31, 2016, relating to information technology general and application controls. We have concluded that this material weakness is due to the current configuration of our ERP system, which has undergone additional integration in 2017.
We are enhancing our internal controls, processes and related documentation necessary to remediate our material weakness and to perform the evaluation needed to comply with Section 404. We may not be able to complete our remediation, evaluation and testing in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, such as the one we identified as described above, we will be unable to conclude that our internal controls are effective. The effectiveness of our controls and procedures may be limited by a variety of factors, including:
faulty human judgment and simple errors, omissions or mistakes;
fraudulent action of an individual or collusion of two or more people;
inappropriate management override of procedures; and;
the possibility that any enhancements to controls and procedures may still not be adequate to assure timely and accurate financial control.
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
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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. 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 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 will 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 these 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 comply 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 may not be 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.
Risks Related to Our Common Stock
An active trading market may not be sustained.
Prior to the initial public offering of our common stock in October 2016, there was no public market for our common stock. 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;
product liability claims or other litigation;
quarterly variations in our results of operations or those of others in our industry;
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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.
In recent years, the 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 market and industry factors may significantly affect the market 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.
In addition, in the past, class action litigation has often been instituted against companies whose securities have experienced periods of volatility in market price. Securities litigation brought against us following volatility in our stock price, 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 will be 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. As a newly public company, we may be slow to attract research coverage and the analysts who publish information about our common stock will have had relatively little experience with our company or industry, which could affect their ability to accurately forecast our results and could make it more likely that we fail to meet their estimates. In the event we obtain securities or industry analyst coverage, 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, the fiscal year-end following the fifth anniversary of the completion of our initial public offering, 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.
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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, 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.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
We are subject to the periodic reporting requirements of the Exchange Act. We have designed our disclosure controls and procedures to provide reasonable assurance that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.
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, 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;
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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;
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.
Item 2. Recent Sales of Unregistered Securities and Use of Proceeds
(a) Recent Sales of Unregistered Securities
None.
(b) Use of Proceeds
Shares of our common stock began trading on the NASDAQ Global Select Market on October 7, 2016. The shares were registered under the Securities Act on registration statement on Form S-1 (Registration No. 333-213569) declared effective October 7, 2016.
There has been no material change in the planned use of proceeds from the IPO from that described in the prospectus filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act on October 7, 2016. As of September 30, 2017, we had used approximately $26.0 million of the proceeds from our IPO.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
On August 17, 2017, we and Phillip LoPresti, our former President and Chief Executive Officer, mutually agreed that Mr. LoPresti would resign as our President and Chief Executive Officer effective August 31, 2017. In connection with his resignation, we entered into a transition and separation agreement with Mr. LoPresti on August 23, 2017 providing that Mr. LoPresti’s last date of employment would be August 31, 2017, following which Mr. LoPresti would no longer serve as President and Chief Executive Officer or as a member of our board of directors, and following such date, Mr. LoPresti would serve as a consultant until February 28, 2018, or such earlier date that his employment is terminated by either him or us. The agreement provides that: (a) Mr. LoPresti would work approximately 10 hours per week during the period from the date of the agreement until his employment terminated; (b) during this period his base salary would be $10,000 per month; and (c) Mr. LoPresti would be entitled to the severance benefits, if Mr. LoPresti
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signed a liability release in favor of us and allowed the release to become effective: (1) cash severance of twelve months of Mr. LoPresti’s annual base salary to be paid on our regular payroll schedule, plus an amount equal to Mr. LoPresti’s 2017 annual target bonus, pro-rated for the period of employment in 2017; (2) continued health care coverage for up to twelve months consistent with what we currently provide, so long as Mr. LoPresti timely elects such continued coverage; and (3) accelerated vesting of 25,799 shares subject to outstanding stock options as though Mr. LoPresti remained an employee through August 31, 2018, and the ability to exercise all of his vested stock options for a period of twelve months following the effective date of his resignation.
In October 2017, we entered into an amendment to our lease with Freescale in Chandler, Arizona to add 17,951 square feet of office space. The initial term of this amendment to the lease ends on January 31, 2022. The amendment provides us with 11 months free rent for the additional space, and total additional lease payments under the amendment will be $1.1 million over the initial lease term.
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Incorporation By Reference |
||||||||||
Exhibit |
Description |
Form |
SEC File No. |
Exhibit/ Reference |
Filing Date |
|||||
3.1 |
8-K |
001-37900 |
3.1 |
10/13/2016 |
||||||
3.2 |
S-1 |
333-213569 |
3.6 |
9/09/2016 |
||||||
4.1 |
S-1 |
333-213569 |
4.1 |
9/09/2016 |
||||||
4.2 |
Reference is made to Exhibits 3.1 and 3.2. |
|||||||||
10.1 |
8-K |
001-37900 |
10.1 |
8/23/2017 |
||||||
10.2* |
||||||||||
10.3* |
Form of Restricted Stock Unit Award Agreement under the 2016 Equity Incentive Plan |
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31.1* |
||||||||||
31.2* |
||||||||||
32.1** |
||||||||||
101.INS* |
XBRL Instance Document |
|||||||||
101.SCH* |
XBRL Taxonomy Extension Schema Document |
|||||||||
101.CAL* |
XBRL Taxonomy Extension Calculation Linkbase Document |
|||||||||
101.DEF* |
XBRL Taxonomy Extension Definition Linkbase Document |
|||||||||
101.LAB* |
XBRL Taxonomy Extension Label Linkbase Document |
|||||||||
101.PRE* |
XBRL Taxonomy Extension Presentation Linkbase Document |
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* Filed herewith.
** Furnished herewith.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Everspin Technologies, Inc. |
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|
|
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Date: November 13, 2017 |
By: |
/s/ Kevin Conley |
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Kevin Conley |
|
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President and Chief Executive Officer |
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(Principal Executive Officer) and Director |
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|
|
|
Everspin Technologies, Inc. |
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|
|
|
Date: November 13, 2017 |
By: |
/s/ Jeffrey Winzeler |
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|
Jeffrey Winzeler |
|
|
Chief Financial Officer |
|
|
(Principal Financial and Accounting Officer) |
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Exhibit 10.2
August 23, 2017
Phillip LoPresti
Everspin Technologies
1347 North Alma School Road # 220
Chandler, AZ 85224
Dear Phill:
This letter sets forth the substance of the separation and consulting agreement (the “Agreement”) that Everspin Technologies, Inc. (the “Company”) is offering to you.
1. SEPARATION. Your last day of work with the Company and your employment termination date will be August 31, 2017 (the “Separation Date”). |
2. ACCRUED SALARY. On the Separation Date, the Company will pay you all accrued salary earned through the Separation Date, subject to standard payroll deductions and withholdings. You are entitled to this payment by law. |
3. SEVERANCE BENEFITS. If you sign this Agreement, allow it to become effective, and remain in compliance with your legal and contractual obligations to the Company, then the Company will provide you with the following severance benefits: |
a. Cash Severance. The Company will pay you, as severance, the equivalent of twelve (12) months of your base salary in effect as of the Separation Date, subject to standard payroll deductions and withholdings. This amount will be paid in equal installments on the Company’s normal payroll cycle beginning on the first regular payday no earlier than one week after the Effective Date, as defined in paragraph 13 below. |
b. Pro-Rata Bonus. You will receive a prorated bonus for 2017 (the “Pro-Rata Bonus”), to be paid at the same time as when bonuses are paid to the remaining executive team, but no later than March 15, 2018. |
c. Accelerated Vesting. During your employment, you were granted certain equity interests (the “Awards”). The Company will accelerate the vesting of the Awards such that, as of the Separation Date, you will be deemed vested in those Awards that would have vested in the twelve (12) months following the Separation Date had you remained employed. |
d. Extension of Post-Termination Exercise Period. The Company will amend the Awards such that the Awards will remain exercisable through August 31, 2018 (but in no event beyond the term of the applicable Award). This amendment may affect the tax treatment of the Awards, and thus you are encouraged to seek independent tax advice. Except as expressly set forth in Sections 3.c and 3.d of this Agreement, the Awards shall continue to be governed in all respects by the terms of the applicable equity plans and Award agreements. |
4. HEALTH INSURANCE. To the extent provided by the federal COBRA law or, if applicable, state insurance laws, and by the Company’s current group health insurance policies, you will be eligible to continue your group health insurance benefits at your own expense following the Separation Date. Later, you may be able to convert to an individual policy through the provider of the Company’s health insurance, if you wish. You will be provided with a separate notice describing your rights and obligations under COBRA. As an additional benefit under this Agreement, provided that you timely elect continued coverage under COBRA, then the Company shall reimburse you for the COBRA premiums to continue your health insurance coverage (including coverage for eligible dependents, if applicable) through the period starting on the Separation Date and ending on the earliest to occur of: (a) twelve (12) months following the Separation Date; (b) the date you become eligible for group health insurance coverage through a new employer; or (c) the date you cease to be eligible for COBRA coverage for any reason. You must timely pay your premiums, and then provide the Company with proof of same, to obtain reimbursement for your COBRA premiums under this Section 4. Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot pay the COBRA premiums without a substantial risk of violating applicable law, then the Company instead shall pay you a fully taxable cash payment equal to the remaining COBRA premiums due under this Section 4, subject to applicable tax withholdings, which you may, but are not obligated to, use toward the cost of COBRA premiums. |
5. CONSULTING AGREEMENT. If you timely sign this Agreement and allow it to become effective, then the Company will engage you as a consultant under the terms set forth below. |
a. Consulting Period. You will serve as a consultant to the Company beginning on September 1, 2017, and ending on February 28, 2018 (the “Consulting Period”), unless terminated earlier pursuant to Section 5(j). |
b. Consulting Services. As a consultant, you will be responsible for assisting the Company in any area of your expertise, as reasonably requested by the Board of Directors and the Chief Executive Officer (the “Consulting Services”). It is anticipated that you will provide eight hours of Consulting Services per week. You will conduct the Consulting Services offsite, unless otherwise requested by the Company. You will exercise the highest degree of professionalism and utilize your expertise and creative talents in performing the Consulting Services. |
c. Consulting Fee. Provided that you (i) perform the Consulting Services to the Company’s satisfaction (as determined by the Board of Directors in its sole discretion), and (ii) comply with your continuing legal and contractual obligations to the Company (including, without limitation, the obligations set forth herein), then the Company will pay you consulting fees equal to $10,000 per month. You will also be reimbursed for any reasonable business expenses incurred during the Consulting Period, provided that you must obtain pre-approval in writing of any expense over $1,000. |
d. Equity. You and the Company agree that during the Consulting Period, the Awards will cease vesting, however you will remain in continuous service for purposes of exercisability. |
e. Tax Treatment. The Company will not make any withholdings or deductions, and will issue you a form 1099, with respect to any consulting fees paid to you. You will be responsible for all taxes with respect to the consulting fees, and you agree to indemnify, hold harmless and defend the Company from any and all claims, liabilities, damages, taxes, fines or penalties sought or recovered by any governmental entity, including but not limited to the Internal Revenue Service or any state taxing authority, arising out of or in connection with the consulting fees. |
f. Independent Contractor Status. You agree that during the Consulting Period, (i) you will be an independent contractor to the Company and not an employee of the Company, and (ii) the Company will not make payments for state or federal income tax, FICA (social security and Medicare), make unemployment insurance or disability insurance contributions, or obtain workers’ compensation insurance on your behalf. |
g. Protection of Information. You agree that during the Consulting Period and thereafter, you will not use or disclose any confidential or proprietary information or materials of the Company that you obtain or develop in the course of performing consulting services for the Company. Any and all work product you create in the course of performing consulting services for the Company will be the sole and exclusive property of the Company. You hereby assign to the Company all right, title, and interest in all inventions, techniques, processes, materials, and other intellectual property developed in the course of performing consulting services for the Company. |
h. Limitations on Authority. You will have no responsibilities or authority as a consultant to the Company other than as provided above. You agree not to represent or purport to represent the Company in any manner whatsoever to any third party except with my prior written consent. |
i. Standards of Conduct; Noncompetition. You agree not to engage in any conduct during the Consulting Period that is detrimental to the interests of the Company. You further agree during the Consulting Period that you will not, directly or indirectly, as an officer, director, employee, consultant, owner, manager, member, partner, or in any other capacity solicit, perform, or provide, or attempt to perform or provide Conflicting Services in the United States, nor will you assist another person to solicit, perform or provide or attempt to perform or provide Conflicting Services in the United States. You and the Company agree that for purposes of this Agreement, “Conflicting Services” means any product, service, or process or the research and development thereof, of any person or organization other than the Company that is substantially similar to or competitive with a product, service, or process, including the research and development thereof, of the Company. |
j. Termination of Consulting Period. You may terminate the Consulting Period, at any time and for any reason, upon ten (10) days written notice to the Company. The Company may only terminate the Consulting Period upon your material breach of any of the obligations in this Agreement. Upon termination of the Consulting Period by either party, the Company will have no further obligations to you, including any obligation to pay you further consulting fees. |
6. OTHER COMPENSATION OR BENEFITS. You acknowledge that, except as expressly provided in this Agreement, you will not receive any additional compensation, severance, or benefits after the Separation Date. You further expressly acknowledge and agree that the severance benefits being provided to you under this Agreement are more generous than the severance benefits you are eligible to receive under the terms of your Executive Employment Agreement with the Company dated April 25, 2016 (the “Employment Agreement”), and are being provided in lieu of such benefits. As such, you acknowledge and agree that you are not entitled to, and will not receive, any severance benefits under the Employment Agreement. |
7. EXPENSE REIMBURSEMENTS. You agree that, within ten (10) days after the Separation Date, you will submit your final documented expense reimbursement statement reflecting all business expenses you incurred through the Separation Date, if any, for which you seek reimbursement. The Company will reimburse you for these expenses pursuant to its regular business practice. |
8. RETURN OF COMPANY PROPERTY. By the Separation Date, you agree to return to the Company all Company documents (and all copies thereof) and other Company property within your possession, custody or control, including, but not limited to, Company files, notes, drawings, records, business plans and forecasts, financial information, specifications, computer-recorded information, tangible property (including, but not limited to), credit cards, entry cards, identification badges, and keys; and, any materials of any kind that contain or embody any proprietary or confidential information of the Company (and all reproductions thereof); provided, however, that you are permitted to retain any Company property that is necessary for the performance of your services under the Consulting Agreement (including your Company laptop, which you may retain during the Consulting Period, but will be required to return to the Company upon the termination of the Consulting Period). |
9. PROPRIETARY INFORMATION OBLIGATIONS. You acknowledge your continuing obligations under your Employee Proprietary Information and Inventions Assignment Agreement, a copy of which is attached hereto as Exhibit A. |
10. NONDISPARAGEMENT. You agree not to disparage the Company, its officers, directors, employees, shareholders, and agents, in any manner likely to be harmful to its or their business, business reputation or personal reputation; and the Company (through its directors) agrees not to disparage you in any manner likely to be harmful to you or your business, business reputation or personal reputation; provided that you and the Company will respond accurately and fully to any question, inquiry or request for information when required by legal process. |
11. NO ADMISSIONS. You understand and agree that the promises and payments in consideration of this Agreement shall not be construed to be an admission of any liability or obligation by the Company to you or to any other person, and that the Company makes no such admission. |
12. RELEASE OF CLAIMS. In exchange for the consideration under this Agreement to which you would not otherwise be entitled, you hereby generally and completely release the Company and its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns from any |
and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date you sign this Agreement. This general release includes, but is not limited to: (a) all claims arising out of or in any way related to your employment with the Company or the termination of that employment; (b) all claims related to your compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (c) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (d) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (e) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the Age Discrimination in Employment Act (“ADEA”) the Arizona Wage Act, the Arizona Employment Protection Act, the Arizona Civil Rights Act, the Arizona Revised Statutes, and the Arizona Administrative Rules. Notwithstanding the foregoing, you are not releasing the Company hereby from any obligation to indemnify you pursuant to the Articles and Bylaws of the Company, any valid fully executed indemnification agreement with the Company, applicable law, or applicable directors and officers liability insurance. Also, excluded from this Agreement are any claims that cannot be waived by law.
13. ADEA RELEASE. You acknowledge that you are knowingly and voluntarily waiving and releasing any rights you have under the ADEA, and that the consideration given for the waiver and releases you have given in this Agreement is in addition to anything of value to which you were already entitled. You further acknowledge that you have been advised, as required by the ADEA, that: (a) your waiver and release does not apply to any rights or claims that arise after the date you sign this Agreement; (b) you should consult with an attorney prior to signing this Agreement (although you may choose voluntarily not to do so); (c) you have twenty-one (21) days to consider this Agreement (although you may choose voluntarily to sign it sooner); (d) you have seven (7) days following the date you sign this Agreement to revoke this Agreement (in a written revocation sent to me); and (e) this Agreement will not be effective until the date upon which the revocation period has expired, which will be the eighth day after you sign this Agreement provided that you do not revoke it (the “Effective Date”). |
14. PROTECTED RIGHTS. You understand that nothing in this Agreement limits your ability to file a charge or complaint with the Equal Employment Opportunity Commission, the Department of Labor, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission or any other federal, state or local governmental agency or commission (“Government Agencies”). You further understand this Agreement does not limit your ability to communicate with any Government Agencies or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including providing documents or other information, without notice to the Company. While this Agreement does not limit your right to receive an award for information provided to the Securities and Exchange Commission, you understand and agree that, to maximum extent permitted by law, you are otherwise waiving any and all rights you may have to individual relief based on any claims that you have released and any rights you have waived by signing this Agreement. |
15. REPRESENTATIONS. You hereby represent that you have been paid all compensation owed and for all hours worked, have received all the leave and leave benefits and protections for which you are eligible pursuant to the Family and Medical Leave Act or otherwise, and have not suffered any on-the-job injury for which you have not already filed a workers’ compensation claim. |
16. MISCELLANEOUS. This Agreement, including Exhibit A, constitutes the complete, final and exclusive embodiment of the entire agreement between you and the Company with regard to its subject matter. It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties or representations. This Agreement may not be modified or amended except in a writing signed by both you and a duly authorized officer of the Company. This Agreement will bind the heirs, personal representatives, successors and assigns of both you and the Company, and inure to the benefit of both you and the Company, their heirs, successors and assigns. If any provision of this Agreement is determined to be invalid or unenforceable, in whole or in part, this determination will not affect any other provision of this Agreement and the provision in question will be modified so as to be rendered enforceable. This Agreement will be deemed to have been entered into and will be construed and enforced in accordance with the laws of the State of Arizona without regard to conflict of laws principles. Any ambiguity in this Agreement shall not be construed against either party as the drafter. Any waiver of a breach of this Agreement shall be in writing and shall not be deemed to be a waiver of any successive breach. This Agreement may be executed in counterparts and facsimile signatures will suffice as original signatures. |
If this Agreement is acceptable to you, please sign below and return the original to me. You have twenty-one (21) calendar days to decide whether you would like to accept this Agreement, and the Company’s offer contained herein will automatically expire if you do not sign and return it within this timeframe.
We wish you the best in your future endeavors.
Sincerely,
By: |
/s/ Stephen Socolof |
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Stephen Socolof |
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Exhibit A – Employee Proprietary Information and Inventions Assignment Agreement
I HAVE READ, UNDERSTAND AND AGREE FULLY TO THE FOREGOING AGREEMENT:
/s/ Phillip LoPresti |
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September 5, 2017 |
Phillip LoPresti |
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Date |
EXHIBIT A
Employee Proprietary Information and Inventions Assignment Agreement
EMPLOYEE PROPRIETARY INFORMATION AND INVENTIONS ASSIGNMENT AGREEMENT
In consideration of my employment or continued employment by Everspin Technologies, Inc. (“Company”), and the compensation paid to me now and during my employment with the Company, I agree to the terms of this Agreement as follows:
1. Confidential Information Protections.
1.1 Nondisclosure; Recognition of Company’s Rights. At all times during and after my employment, I will hold in confidence and will not disclose, use, lecture upon, or publish any of Company’s Confidential Information (defined below), except as may be required in connection with my work for Company, or as expressly authorized by the Board of Directors (the “Board”) of Company. I will obtain the Board’s written approval before publishing or submitting for publication any material (written, oral, or otherwise) that relates to my work at Company and/or incorporates any Confidential Information. I hereby assign to Company any rights I may have or acquire in any and all Confidential Information and recognize that all Confidential Information shall be the sole and exclusive property of Company and its assigns.
1.2 Confidential Information. The term “Confidential Information” shall mean any and all confidential knowledge, data or information related to Company’s business or its actual or demonstrably anticipated research or development, including without limitation (a) trade secrets, inventions, ideas, processes, computer source and object code, data, formulae, programs, other works of authorship, know-how, improvements, discoveries, developments, designs, and techniques; (b) information regarding products, services, plans for research and development, marketing and business plans, budgets, financial statements, contracts, prices, suppliers, and customers; (c) information regarding the skills and compensation of Company’s employees, contractors, and any other service providers of Company; and (d) the existence of any business discussions, negotiations, or agreements between Company and any third party.
1.3 Third Party Information. I understand that Company has received and in the future will receive from third parties confidential or proprietary information (“Third Party Information”) subject to a duty on Company’s part to maintain the confidentiality of such information and to use it only for certain limited purposes. During and after the term of my employment, I will hold Third Party Information in strict confidence and will not disclose to anyone (other than Company personnel who need to know such information in connection with their work for Company) or use, Third Party Information, except in connection with my work for Company or unless expressly authorized by an officer of Company in writing.
1.4 No Improper Use of Information of Prior Employers and Others. I represent that my employment by Company does not and will not breach any agreement with any former employer, including any noncompete
agreement or any agreement to keep in confidence or refrain from using information acquired by me prior to my employment by Company. I further represent that I have not entered into, and will not enter into, any agreement, either written or oral, in conflict with my obligations under this Agreement. During my employment by Company, I will not improperly make use of, or disclose, any information or trade secrets of any former employer or other third party, nor will I bring onto the premises of Company or use any unpublished documents or any property belonging to any former employer or other third party, in violation of any lawful agreements with that former employer or third party. I will use in the performance of my duties only information that is generally known and used by persons with training and experience comparable to my own, is common knowledge in the industry or otherwise legally in the public domain, or is otherwise provided or developed by Company.
2. Inventions.
2.1 Inventions and Intellectual Property Rights. As used in this Agreement, the term “Invention” means any ideas, concepts, information, materials, processes, data, programs, know-how, improvements, discoveries, developments, designs, artwork, formulae, other copyrightable works, and techniques and all Intellectual Property Rights in any of the items listed above. The term “Intellectual Property Rights” means all trade secrets, copyrights, trademarks, mask work rights, patents and other intellectual property rights recognized by the laws of any jurisdiction or country.
2.2 Prior Inventions. I have disclosed on Exhibit A a complete list of all Inventions that (a) I have, or I have caused to be, alone or jointly with others, conceived, developed, or reduced to practice prior to the commencement of my employment by Company; (b) in which I have an ownership interest or which I have a license to use; (c) and that I wish to have excluded from the scope of this Agreement (collectively referred to as “Prior Inventions”). If no Prior Inventions are listed in Exhibit A, I warrant that there are no Prior Inventions. I agree that I will not incorporate, or permit to be incorporated, Prior Inventions in any Company Inventions (defined below) without Company’s prior written consent. If, in the course of my employment with Company, I incorporate a Prior Invention into a Company process, machine or other work, I hereby grant Company a non-exclusive, perpetual, fully-paid and royalty-free, irrevocable and worldwide license, with rights to sublicense through multiple levels of sublicensees, to reproduce, make derivative works of, distribute, publicly perform, and publicly display in any form or medium, whether now known or later developed, make, have made,
use, sell, import, offer for sale, and exercise any and all present or future rights in, such Prior Invention.
2.3 Assignment of Company Inventions. Inventions assigned to the Company or to a third party as directed by the Company pursuant to the section titled “Government or Third Party” are referred to in this Agreement as “Company Inventions.” Subject to the section titled “Government or Third Party” and except for Inventions that I can prove qualify fully under the provisions of a Specific Inventions Law (as defined below) and I have set forth in Exhibit A, I hereby assign and agree to assign in the future (when any such Inventions or Intellectual Property Rights are first reduced to practice or first fixed in a tangible medium, as applicable) to Company all my right, title, and interest in and to any and all Inventions (and all Intellectual Property Rights with respect thereto) made, conceived, reduced to practice, or learned by me, either alone or with others, during the period of my employment by Company.
2.4 Specific Inventions Law. I recognize that, in the event of a specifically applicable state law, regulation, rule or public policy (“Specific Inventions Law”), this Agreement will not be deemed to require assignment of any invention which qualifies fully for protection under a Specific Inventions Law by virtue of the fact that any such invention was, for example, developed entirely on my own time without using the company’s equipment, supplies, facilities, or trade secrets and neither related to the company’s actual or anticipated business, research or development, nor resulted from work performed by me for the Company. Examples of Specific Inventions Laws include California Labor Code Section 2870 and the Revised Code of Washington Section 49.44.140.
2.5 Obligation to Keep Company Informed. While employed with the Company and for one (1) year after my employment ends, I will promptly and fully disclose to the Company in writing (a) all Inventions I author, conceive or reduce to practice, either alone or with others and including any that might be covered under a Specific Inventions Law, and (b) all patent applications I file or in which I am named as an inventor or co-inventor.
2.6 Government or Third Party. I agree that, as directed by the Company, I will assign to a third party, including without limitation the United States, all my right, title, and interest in and to any particular Company Invention.
2.7 Enforcement of Intellectual Property Rights and Assistance. During and after the period of my employment, I will assist Company in every proper way to obtain and enforce United States and foreign Intellectual Property Rights relating to Company Inventions in all countries. If the Company is unable to secure my signature on any document needed in connection with such purposes,
I hereby irrevocably designate and appoint Company and its duly authorized officers and agents as my agent and attorney in fact, which appointment is coupled with an interest, to act on my behalf to execute and file any such documents and to do all other lawfully permitted acts to further such purposes with the same legal force and effect as if executed by me.
2.8 Incorporation of Software Code. I agree that I will not incorporate into any Company software or otherwise deliver to Company any software code licensed under the GNU General Public License or Lesser General Public License or any other license that, by its terms, requires or conditions the use or distribution of such code on the disclosure, licensing, or distribution of any source code owned or licensed by Company.
3. Records. I agree to keep and maintain adequate and current records (in the form of notes, sketches, drawings and in any other form that is required by the Company) of all Inventions made by me during the period of my employment by the Company, which records shall be available to, and remain the sole property of, the Company at all times.
4. Additional Activities. I agree that (a) during the term of my employment by Company, I will not, without Company’s express written consent, engage in any employment or business activity that is competitive with, or would otherwise conflict with my employment by, Company, and (b) for the period of my employment by Company and for one (l) year thereafter, I will not, either directly or indirectly, solicit or attempt to solicit any employee, independent contractor, or consultant of Company to terminate his, her or its relationship with Company in order to become an employee, consultant, or independent contractor to or for any other person or entity.
5. Return Of Company Property. Upon termination of my employment or upon Company’s request at any other time, I will deliver to Company all of Company’s property, equipment, and documents, together with all copies thereof, and any other material containing or disclosing any Inventions, Third Party Information or Confidential Information and certify in writing that I have fully complied with the foregoing obligation. I agree that I will not copy, delete, or alter any information contained upon my Company computer or Company equipment before I return it to Company. In addition, if I have used any personal computer, server, or e-mail system to receive, store, review, prepare or transmit any Company information, including but not limited to, Confidential Information, I agree to provide the Company with a computer-useable copy of all such Confidential Information and then permanently delete and expunge such Confidential Information from those systems; and I agree to provide the Company access to my system as reasonably requested to verify that the necessary copying and/or deletion is completed. I further agree that any property
situated on Company’s premises and owned by Company is subject to inspection by Company’s personnel at any time with or without notice. Prior to the termination of my employment or promptly after termination of my employment, I will cooperate with Company in attending an exit interview and certify in writing that I have complied with the requirements of this section.
6. Notification Of New Employer. If I leave the employ of Company, I consent to the notification of my new employer of my rights and obligations under this Agreement, by Company providing a copy of this Agreement or otherwise.
7. General Provisions.
7.1 Governing Law and Venue. This Agreement and any action related thereto will be governed and interpreted by and under the laws of the State of Arizona, without giving effect to any conflicts of laws principles that require the application of the law of a different state. I expressly consent to personal jurisdiction and venue in the state and federal courts for the county in which Company’s principal place of business is located for any lawsuit filed there against me by Company arising from or related to this Agreement.
7.2 Severability. If any provision of this Agreement is, for any reason, held to be invalid or unenforceable, the other provisions of this Agreement will remain enforceable and the invalid or unenforceable provision will be deemed modified so that it is valid and enforceable to the maximum extent permitted by law.
7.3 Survival. This Agreement shall survive the termination of my employment and the assignment of this Agreement by Company to any successor or other assignee and be binding upon my heirs and legal representatives.
7.4 Employment. I agree and understand that nothing in this Agreement shall give me any right to continued employment by Company, and it will not interfere in any way with my right or Company’s right to terminate my employment at any time, with or without cause and with or without advance notice.
7.5 Notices. Each party must deliver all notices or other communications required or permitted under this Agreement in writing to the other party at the address listed on the signature page, by courier, by certified or registered mail (postage prepaid and return receipt requested), or by a nationally-recognized express mail service. Notice will be
effective upon receipt or refusal of delivery. If delivered by certified or registered mail, notice will be considered to have been given five (5) business days after it was mailed, as evidenced by the postmark. If delivered by courier or express mail service, notice will be considered to have been given on the delivery date reflected by the courier or express mail service receipt. Each party may change its address for receipt of notice by giving notice of the change to the other party.
7.6 Injunctive Relief. I acknowledge that, because my services are personal and unique and because I will have access to the Confidential Information of Company, any breach of this Agreement by me would cause irreparable injury to Company for which monetary damages would not be an adequate remedy and, therefore, will entitle Company to injunctive relief (including specific performance). The rights and remedies provided to each party in this Agreement are cumulative and in addition to any other rights and remedies available to such party at law or in equity.
7.7 Waiver. Any waiver or failure to enforce any provision of this Agreement on one occasion will not be deemed a waiver of that provision or any other provision on any other occasion.
7.8 Export. I agree not to export, directly or indirectly, any U.S. technical data acquired from Company or any products utilizing such data, to countries outside the United States, because such export could be in violation of the United States export laws or regulations.
7.9 Entire Agreement. If no other agreement governs nondisclosure and assignment of inventions during any period in which I was previously employed or am in the future employed by Company as an independent contractor, the obligations pursuant to sections of this Agreement titled “Confidential Information Protections” and “Inventions” shall apply. This Agreement is the final, complete and exclusive agreement of the parties with respect to the subject matter hereof and supersedes and merges all prior communications between us with respect to such matters. No modification of or amendment to this Agreement, or any waiver of any rights under this Agreement, will be effective unless in writing and signed by me and an authorized representative of Company. Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement.
This Employee Proprietary Information and Inventions Assignment Agreement shall be effective as of the first day of my employment with Company.
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Company: EVERSPIN TECHNOLOGIES, INC. |
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I have read, understand, and Accept this agreement and have been given the opportunity to Review it with independent legal counsel. |
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Accepted and agreed: |
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/s/ Phillip LoPresti |
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/s/ Amy McKillip |
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Phillip LoPresti |
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Amy McKillip |
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CEO |
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Accountant |
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Date: |
May 23, 2010 |
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May 23, 2010 |
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205 Vailco Lane, Austin, TX |
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1300 N Alma School, Chandler AZ 85224 |
Exhibit A
INVENTIONS
1.Prior Inventions Disclosure. The following is a complete list of all Prior Inventions (as provided in Section 2.2 of the attached Employee Proprietary Information and Inventions Assignment Agreement, defined herein as the “Agreement”):
☒None
☐See immediately below:
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2.Limited Exclusion Notification.
This is to notify you in accordance with any applicable Specific Inventions Law that the foregoing Agreement between you and Company does not require you to assign or offer to assign to Company any Invention that you develop entirely on your own time without using Company’s equipment, supplies, facilities or trade secret information, except for those Inventions that either:
a.Relate at the time of conception or reduction to practice to Company’s business, or actual or demonstrably anticipated research or development; or
b.Result from any work performed by you for Company.
To the extent a provision in the foregoing Agreement purports to require you to assign an Invention otherwise excluded from the preceding paragraph, the provision is against the public policy of this state and is unenforceable.
This limited exclusion does not apply to any patent or Invention covered by a contract between Company and the United States or any of its agencies requiring full title to such patent or Invention to be in the United States.
Exhibit 10.3
EVERSPIN TECHNOLOGIES, INC.
RESTRICTED STOCK UNIT GRANT NOTICE
(2016 EQUITY INCENTIVE PLAN)
Everspin Technologies, Inc. (the “Company”), pursuant to its 2016 Equity Incentive Plan (the “Plan”), hereby awards to Participant a Restricted Stock Unit Award for the number of shares of the Company’s Common Stock (“Restricted Stock Units”) set forth below (the “Award”). The Award is subject to all of the terms and conditions as set forth in this notice of grant (this “Restricted Stock Unit Grant Notice”), and in the Plan and the Restricted Stock Unit Award Agreement (the “Award Agreement”), both of which are attached hereto and incorporated herein in their entirety. Capitalized terms not explicitly defined herein shall have the meanings set forth in the Plan or the Award Agreement. In the event of any conflict between the terms in this Restricted Stock Unit Grant Notice or the Award Agreement and the Plan, the terms of the Plan shall control.
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Date of Grant: |
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Vesting Commencement Date: |
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Number of Restricted Stock Units: |
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Vesting Schedule: [ , subject to Participant’s Continuous Service through each such vesting date.]
Issuance Schedule: Subject to any Capitalization Adjustment, one share of Common Stock (or its cash equivalent, at the discretion of the Company) will be issued for each Restricted Stock Unit that vests at the time set forth in Section 6 of the Award Agreement.
Sell to Cover Election: By accepting this Award, Participant hereby: (1) elects, effective on the date Participant accepts this Award, to sell shares of Common Stock issued in respect of the Award in an amount determined in accordance with Section 11(b) of the Award Agreement, and to allow the Agent to remit the cash proceeds of such sale to the Company as more specifically set forth in Section 11(b) of the Award Agreement (a “Sell to Cover”); (2) directs the Company to make a cash payment to satisfy the Withholding Obligation from the cash proceeds of such sale directly to the appropriate taxing authorities; and (3) represents and warrants that (i) Participant has carefully reviewed Section 11(b) of the Award Agreement, (ii) on the date Participant accepts this Award he or she is not aware of any material, nonpublic information with respect to the Company or any securities of the Company, is not subject to any legal, regulatory or contractual restriction that would prevent the Agent from conducting sales,
does not have, and will not attempt to exercise, authority, influence or control over any sales of Common Stock effected by the Agent pursuant to the Award Agreement, and is entering into the Restricted Stock Unit Grant Notice and Award Agreement and this election to Sell to Cover in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b5-1 (regarding trading of the Company's securities on the basis of material nonpublic information) under the Exchange Act, and (iii) it is Participant’s intent that this election to Sell to Cover and Section 11(b) of the Award Agreement comply with the requirements of Rule 10b5-1(c)(1) under the Exchange Act and be interpreted to comply with the requirements of Rule 10b5-1(c) under the Exchange Act. The Participant further acknowledges that by accepting this Award, Participant is adopting a 10b5-1 Plan (as defined in Section 11(b) of the Award Agreement) to permit Participant to conduct a Sell to Cover sufficient to satisfy the Withholding Obligation as more specifically set forth in Section 11(b) of the Award Agreement.
Additional Terms/Acknowledgements: Participant acknowledges receipt of, and understands and agrees to, this Restricted Stock Unit Grant Notice, the Award Agreement and the Plan. Participant further acknowledges that as of the Date of Grant, this Restricted Stock Unit Grant Notice, the Award Agreement and the Plan set forth the entire understanding between Participant and the Company regarding the acquisition of the Common Stock pursuant to the Award specified above and supersede all prior oral and written agreements on the terms of this Award, with the exception, if applicable, of (i) restricted stock unit awards or options previously granted and delivered to Participant, (ii) the written employment agreement, offer letter or other written agreement entered into between the Company and Participant specifying the terms that should govern this specific Award, and (iii) any compensation recovery policy that is adopted by the Company or is otherwise required by applicable law.
By accepting this Award, Participant acknowledges having received and read the Restricted Stock Unit Grant Notice, the Award Agreement and the Plan and agrees to all of the terms and conditions set forth in these documents. Participant consents to receive Plan documents by electronic delivery and to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.
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ATTACHMENTS: Award Agreement and 2016 Equity Incentive Plan
ATTACHMENT I
EVERSPIN TECHNOLOGIES, INC.
2016 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT
Pursuant to the Restricted Stock Unit Grant Notice (the “Grant Notice”) and this Restricted Stock Unit Award Agreement (the “Agreement”), Everspin Technologies, Inc. (the “Company”) has awarded you (“Participant”) a Restricted Stock Unit Award (the “Award”) pursuant to Section 6(b) of the Company’s 2016 Equity Incentive Plan (the “Plan”) for the number of Restricted Stock Units/shares indicated in the Grant Notice. Capitalized terms not explicitly defined in this Agreement or the Grant Notice shall have the same meanings given to them in the Plan. The terms of your Award, in addition to those set forth in the Grant Notice, are as follows.
1. GRANT OF THE AWARD. This Award represents the right to be issued on a future date one (1) share of Common Stock for each Restricted Stock Unit that vests on the applicable vesting date(s) (subject to any adjustment under Section 3 below) as indicated in the Grant Notice. As of the Date of Grant, the Company will credit to a bookkeeping account maintained by the Company for your benefit (the “Account”) the number of Restricted Stock Units/shares of Common Stock subject to the Award. Notwithstanding the foregoing, the Company reserves the right to issue you the cash equivalent of Common Stock, in part or in full satisfaction of the delivery of Common Stock in connection with the vesting of the Restricted Stock Units, and, to the extent applicable, references in this Agreement and the Grant Notice to Common Stock issuable in connection with your Restricted Stock Units will include the potential issuance of its cash equivalent pursuant to such right. This Award was granted in consideration of your services to the Company. Except as otherwise provided herein, you will not be required to make any payment to the Company (other than past and future services to the Company) with respect to your receipt of the Award, the vesting of the Restricted Stock Units or the delivery of the Common Stock to be issued in respect of the Award.
2. VESTING. Subject to the limitations contained herein, your Award will vest, if at all, in accordance with the vesting schedule provided in the Grant Notice. Vesting will cease upon the termination of your Continuous Service and the Restricted Stock Units credited to the Account that were not vested on the date of such termination will be forfeited at no cost to the Company and you will have no further right, title or interest in or to such Award or the shares of Common Stock to be issued in respect of such portion of the Award.
3. NUMBER OF SHARES. The number of Restricted Stock Units subject to your Award may be adjusted from time to time for Capitalization Adjustments, as provided in the Plan. Any additional Restricted Stock Units, shares, cash or other property that becomes subject to the Award pursuant to this Section 3, if any, shall be subject, in a manner determined by the Board, to the same forfeiture restrictions, restrictions on transferability, and time and manner of delivery as applicable to the other Restricted Stock Units and shares covered by your Award. Notwithstanding the provisions of this Section 3, no fractional shares or rights for fractional shares of Common Stock shall be created pursuant to this Section 3. Any fraction of a share will be rounded down to the nearest whole share.
4. SECURITIES LAW COMPLIANCE. You may not be issued any Common Stock under your Award unless the shares of Common Stock underlying the Restricted Stock Units are either (i) then
registered under the Securities Act, or (ii) the Company has determined that such issuance would be exempt from the registration requirements of the Securities Act. Your Award must also comply with other applicable laws and regulations governing the Award, and you shall not receive such Common Stock if the Company determines that such receipt would not be in material compliance with such laws and regulations.
5. TRANSFER RESTRICTIONS. Prior to the time that shares of Common Stock have been delivered to you, you may not transfer, pledge, sell or otherwise dispose of this Award or the shares issuable in respect of your Award, except as expressly provided in this Section 5. For example, you may not use shares that may be issued in respect of your Restricted Stock Units as security for a loan. The restrictions on transfer set forth herein will lapse upon delivery to you of shares in respect of your vested Restricted Stock Units.
(a) Death. Your Award is transferable by will and by the laws of descent and distribution. At your death, vesting of your Award will cease and your executor or administrator of your estate shall be entitled to receive, on behalf of your estate, any Common Stock or other consideration that vested but was not issued before your death.
(b) Domestic Relations Orders. Upon receiving written permission from the Board or its duly authorized designee, and provided that you and the designated transferee enter into transfer and other agreements required by the Company, you may transfer your right to receive the distribution of Common Stock or other consideration hereunder, pursuant to a domestic relations order, marital settlement agreement or other divorce or separation instrument as permitted by applicable law that contains the information required by the Company to effectuate the transfer. You are encouraged to discuss the proposed terms of any division of this Award with the Company General Counsel prior to finalizing the domestic relations order or marital settlement agreement to verify that you may make such transfer, and if so, to help ensure the required information is contained within the domestic relations order or marital settlement agreement.
(a) The issuance of shares in respect of the Restricted Stock Units is intended to comply with Treasury Regulations Section 1.409A-1(b)(4) and will be construed and administered in such a manner. Subject to the satisfaction of the Withholding Obligation set forth in Section 11 of this Agreement, in the event one or more Restricted Stock Units vests, the Company shall issue to you one (1) share of Common Stock for each Restricted Stock Unit that vests on the applicable vesting date(s) (subject to any adjustment under Section 3 above). Each issuance date determined by this paragraph is referred to as an “Original Issuance Date”.
(b) If the Original Issuance Date falls on a date that is not a business day, delivery shall instead occur on the next following business day. In addition, if:
(i) the Original Issuance Date does not occur (1) during an “open window period” applicable to you, as determined by the Company in accordance with the Company’s then-effective policy on trading in Company securities, or (2) on a date when you are otherwise permitted to sell shares of Common Stock on an established stock exchange or stock market, and
(ii) either (1) a Withholding Obligation does not apply, or (2) the Company decides, prior to the Original Issuance Date, (A) not to satisfy the Withholding Obligation by withholding shares of Common Stock from the shares otherwise due, on the Original Issuance Date, to you under this Award, and (B) not to permit you to then effect a Sell to Cover under the 10b5-1 Plan (as defined in Section
11(b) of this Agreement) to satisfy the Withholding Obligation, if applicable, and (C) not to permit you to pay your Withholding Obligation in cash,
then the shares that would otherwise be issued to you on the Original Issuance Date will not be delivered on such Original Issuance Date and will instead be delivered on the first business day when you are not prohibited from selling shares of the Company’s Common Stock in the open public market, but in no event later than December 31 of the calendar year in which the Original Issuance Date occurs (that is, the last day of your taxable year in which the Original Issuance Date occurs), or, if and only if permitted in a manner that complies with Treasury Regulations Section 1.409A-1(b)(4), no later than the date that is the 15th day of the third calendar month of the applicable year following the year in which the shares of Common Stock under this Award are no longer subject to a “substantial risk of forfeiture” within the meaning of Treasury Regulations Section 1.409A-1(d).
(c) The form of delivery (e.g., a stock certificate or electronic entry evidencing such shares) shall be determined by the Company.
7. DIVIDENDS. You shall receive no benefit or adjustment to your Award with respect to any cash dividend, stock dividend or other distribution that does not result from a Capitalization Adjustment; provided, however, that this sentence will not apply with respect to any shares of Common Stock that are delivered to you in connection with your Award after such shares have been delivered to you.
8. RESTRICTIVE LEGENDS. The shares of Common Stock issued in respect of your Award shall be endorsed with appropriate legends as determined by the Company.
9. EXECUTION OF DOCUMENTS. You hereby acknowledge and agree that the manner selected by the Company by which you indicate your consent to your Grant Notice is also deemed to be your execution of your Grant Notice and of this Agreement. You further agree that such manner of indicating consent may be relied upon as your signature for establishing your execution of any documents to be executed in the future in connection with your Award.
10. AWARD NOT A SERVICE CONTRACT.
(a) Nothing in this Agreement (including, but not limited to, the vesting of your Award or the issuance of the shares in respect of your Award), the Plan or any covenant of good faith and fair dealing that may be found implicit in this Agreement or the Plan shall: (i) confer upon you any right to continue in the employ or service of, or affiliation with, the Company or an Affiliate; (ii) constitute any promise or commitment by the Company or an Affiliate regarding the fact or nature of future positions, future work assignments, future compensation or any other term or condition of employment or affiliation; (iii) confer any right or benefit under this Agreement or the Plan unless such right or benefit has specifically accrued under the terms of this Agreement or Plan; or (iv) deprive the Company of the right to terminate you at will and without regard to any future vesting opportunity that you may have.
(b) By accepting this Award, you acknowledge and agree that the right to continue vesting in the Award pursuant to the vesting schedule provided in the Grant Notice may not be earned unless (in addition to any other conditions described in the Grant Notice and this Agreement) you continue as an employee, director or consultant at the will of the Company and affiliate, as applicable (not through the act of being hired, being granted this Award or any other award or benefit) and that the Company has the right to reorganize, sell, spin-out or otherwise restructure one or more of its businesses or Affiliates at any time or from time to time, as it deems appropriate (a “reorganization”). You acknowledge and agree that such a reorganization could result in the termination of your Continuous Service, or the termination of Affiliate status of your employer and the loss of benefits available to you under this Agreement, including
but not limited to, the termination of the right to continue vesting in the Award. You further acknowledge and agree that this Agreement, the Plan, the transactions contemplated hereunder and the vesting schedule set forth herein or any covenant of good faith and fair dealing that may be found implicit in any of them do not constitute an express or implied promise of continued engagement as an employee or consultant for the term of this Agreement, for any period, or at all, and shall not interfere in any way with the Company’s right to terminate your Continuous Service at any time, with or without your cause or notice, or to conduct a reorganization.
11. WITHHOLDING OBLIGATION.
(a) On or before the time you receive a distribution of Common Stock pursuant to your Award, or at any time thereafter as requested by the Company, you hereby authorize any required withholding from the Common Stock issuable to you and/or otherwise agree to make adequate provision in cash for any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or any Affiliate which arise in connection with your Award (the “Withholding Obligation”).
(b) By accepting this Award, you hereby (i) acknowledge and agree that you have elected a Sell to Cover (as defined in the Grant Notice) to permit you to satisfy the Withholding Obligation and that the Withholding Obligation shall be satisfied pursuant to this Section 11(b) to the fullest extent not otherwise satisfied pursuant to the provisions of Section 11(c) hereof and (ii) further acknowledge and agree to the following provisions:
(i) You hereby irrevocably appoint [ ], or such other registered broker-dealer that is a member of the Financial Industry Regulatory Authority as the Company may select, as your agent (the “Agent”), and you authorize and direct the Agent to:
(1) Sell on the open market at the then prevailing market price(s), on your behalf, as soon as practicable on or after the date on which the shares of Common Stock are delivered to you pursuant to Section 6 hereof in connection with the vesting of the Restricted Stock Units, the number (rounded up to the next whole number) of shares of Common Stock sufficient to generate proceeds to cover (A) the satisfaction of the Withholding Obligation arising from the vesting of those Restricted Stock Units and the related issuance of shares of Common Stock to you that is not otherwise satisfied pursuant to Section 11(c) hereof and (B) all applicable fees and commissions due to, or required to be collected by, the Agent with respect thereto;
(2) Remit directly to the Company and/or any Affiliate the proceeds necessary to satisfy the Withholding Obligation;
(3) Retain the amount required to cover all applicable fees and commissions due to, or required to be collected by, the Agent, relating directly to the sale of the shares of Common Stock referred to in clause (1) above; and
(4) Remit any remaining funds to you.
(ii) You acknowledge that your election to Sell to Cover and the corresponding authorization and instruction to the Agent set forth in this Section 11(b) to sell Common Stock to satisfy the Withholding Obligation is intended to comply with the requirements of Rule 10b5-1(c)(1) under the Exchange Act and to be interpreted to comply with the requirements of Rule 10b5-1(c) under the Exchange Act (your election to Sell to Cover and the provisions of this Section 11(b), collectively, the “10b5-1 Plan”). You acknowledge that by accepting this Award, you are adopting the 10b5-1 Plan to permit you to satisfy the Withholding Obligation. You hereby authorize the Company and the Agent to
cooperate and communicate with one another to determine the number of shares of Common Stock that must be sold pursuant to Section 11(b)(i) to satisfy your obligations hereunder.
(iii) You acknowledge that the Agent is under no obligation to arrange for the sale of Common Stock at any particular price under this 10b5-1 Plan and that the Agent may effect sales as provided in this 10b5-1 Plan in one or more sales and that the average price for executions resulting from bunched orders may be assigned to your account. You further acknowledge that you will be responsible for all brokerage fees and other costs of sale associated with this 10b5-1 Plan, and you agree to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any such sale. In addition, you acknowledge that it may not be possible to sell shares of Common Stock as provided for in this 10b5-1 Plan due to (i) a legal or contractual restriction applicable to you or the Agent, (ii) a market disruption, (iii) a sale effected pursuant to this 10b5-1 Plan that would not comply (or in the reasonable opinion of the Agent’s counsel is likely not to comply) with the Securities Act, (iv) the Company’s determination that sales may not be effected under this 10b5-1 Plan or (v) rules governing order execution priority on the national exchange where the Common Stock may be traded. In the event of the Agent’s inability to sell shares of Common Stock, you will continue to be responsible for the timely payment to the Company of all federal, state, local and foreign taxes that are required by applicable laws and regulations to be withheld, including but not limited to those amounts specified in Section 11(b)(i)(1) above.
(iv) You acknowledge that regardless of any other term or condition of this 10b5-1 Plan, the Agent will not be liable to you for (A) special, indirect, punitive, exemplary, or consequential damages, or incidental losses or damages of any kind, or (B) any failure to perform or for any delay in performance that results from a cause or circumstance that is beyond its reasonable control.
(v) You hereby agree to execute and deliver to the Agent any other agreements or documents as the Agent reasonably deems necessary or appropriate to carry out the purposes and intent of this 10b5-1 Plan. The Agent is a third-party beneficiary of this Section 11(b) and the terms of this 10b5-1 Plan.
(vi) Your election to Sell to Cover and to enter into this 10b5-1 Plan is irrevocable. Upon acceptance of the Award, you have elected to Sell to Cover and to enter into this 10b5-1 Plan, and you acknowledge that you may not change this election at any time in the future. This 10b5-1 Plan shall terminate not later than the date on which the Withholding Obligation arising from the vesting of your Restricted Stock Units and the related issuance of shares of Common Stock has been satisfied.
(c) Alternatively, or in addition to or in combination with the Sell to Cover provided for under Section 11(b), you authorize the Company, at its discretion, to satisfy the Withholding Obligation by the following means (or by a combination of the following means):
(i) Requiring you to pay to the Company any portion of the Withholding Obligation in cash;
(ii) Withholding from any compensation otherwise payable to you by the Company; and/or
(iii) Withholding shares of Common Stock from the shares of Common Stock issued or otherwise issuable to you in connection with the Award with a Fair Market Value (measured as of the date shares of Common Stock are issued pursuant to Section 6) equal to the amount of the Withholding Obligation; provided, however, that the number of such shares of Common Stock so withheld shall not exceed the amount necessary to satisfy the Company’s required tax withholding obligations using
the maximum statutory withholding rates for federal, state, local and foreign tax purposes, including payroll taxes, that are applicable to supplemental taxable income.
(d) Unless the Withholding Obligation of the Company and/or any Affiliate are satisfied, the Company shall have no obligation to deliver to you any Common Stock.
(e) In the event the Withholding Obligation of the Company arises prior to the delivery to you of Common Stock or it is determined after the delivery of Common Stock to you that the amount of the Withholding Obligation was greater than the amount withheld by the Company, you agree to indemnify and hold the Company harmless from any failure by the Company to withhold the proper amount.
12. TAX CONSEQUENCES. The Company has no duty or obligation to minimize the tax consequences to you of this Award and shall not be liable to you for any adverse tax consequences to you arising in connection with this Award. You are hereby advised to consult with your own personal tax, financial and/or legal advisors regarding the tax consequences of this Award and by signing the Grant Notice, you have agreed that you have done so or knowingly and voluntarily declined to do so. You understand that you (and not the Company) shall be responsible for your own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement.
13. UNSECURED OBLIGATION. Your Award is unfunded, and as a holder of a vested Award, you shall be considered an unsecured creditor of the Company with respect to the Company’s obligation, if any, to issue shares or other property pursuant to this Agreement. You shall not have voting or any other rights as a stockholder of the Company with respect to the shares to be issued pursuant to this Agreement until such shares are issued to you pursuant to Section 6 of this Agreement. Upon such issuance, you will obtain full voting and other rights as a stockholder of the Company. Nothing contained in this Agreement, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind or a fiduciary relationship between you and the Company or any other person.
14. NOTICES. Any notice or request required or permitted hereunder shall be given in writing (including electronically) and will be deemed effectively given upon receipt or, in the case of notices delivered by mail by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company. The Company may, in its sole discretion, decide to deliver any documents related to participation in the Plan and this Award by electronic means or to request your consent to participate in the Plan by electronic means. By accepting this Award, you consent to receive such documents by electronic delivery and to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.
15. HEADINGS. The headings of the Sections in this Agreement are inserted for convenience only and shall not be deemed to constitute a part of this Agreement or to affect the meaning of this Agreement.
16. MISCELLANEOUS.
(a) Participation in the Plan is voluntary and therefore you must accept the terms and conditions of the Plan and this Agreement and Grant Notice as a condition to participating in the Plan and receipt of this Award. This Award and any other awards under the Plan are voluntary and occasional and do not create any contractual or other right to receive future awards or other benefits in lieu of future awards, even if similar awards have been granted repeatedly in the past. All determinations with respect to any such future awards, including, but not limited to, the time or times when such awards are made, the size of such awards and performance and other conditions applied to the awards, will be at the sole discretion of the
Company.
(b) The future value of your Award is unknown and cannot be predicted with certainty. You do not have, and will not assert, any claim or entitlement to compensation, indemnity or damages arising from the termination of this Award or diminution in value of this Award and you irrevocably release the Company, its Affiliates and, if applicable, your employer, if different from the Company, from any such claim that may arise.
(c) The rights and obligations of the Company under your Award shall be transferable by the Company to any one or more persons or entities, and all covenants and agreements hereunder shall inure to the benefit of, and be enforceable by, the Company’s successors and assigns.
(d) You agree upon request to execute any further documents or instruments necessary or desirable in the sole determination of the Company to carry out the purposes or intent of your Award.
(e) You acknowledge and agree that you have reviewed your Award in its entirety, have had an opportunity to obtain the advice of counsel prior to executing and accepting your Award and fully understand all provisions of your Award.
(f) This Agreement shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
(g) All obligations of the Company under the Plan and this Agreement shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
17. GOVERNING PLAN DOCUMENT. Your Award is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your Award, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. Your Award (and any compensation paid or shares issued under your Award) is subject to recoupment in accordance with The Dodd–Frank Wall Street Reform and Consumer Protection Act and any implementing regulations thereunder, any clawback policy adopted by the Company and any compensation recovery policy otherwise required by applicable law. No recovery of compensation under such a clawback policy will be an event giving rise to a right to voluntarily terminate employment upon a resignation for “good reason,” or for a “constructive termination” or any similar term under any plan of or agreement with the Company.
18. EFFECT ON OTHER EMPLOYEE BENEFIT PLANS. The value of the Award subject to this Agreement shall not be included as compensation, earnings, salaries, or other similar terms used when calculating benefits under any employee benefit plan (other than the Plan) sponsored by the Company or any Affiliate except as such plan otherwise expressly provides. The Company expressly reserves its rights to amend, modify, or terminate any or all of the employee benefit plans of the Company or any Affiliate.
19. SEVERABILITY. If all or any part of this Agreement or the Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not invalidate any portion of this Agreement or the Plan not declared to be unlawful or invalid. Any Section of this Agreement (or part of such a Section) so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such Section or part of a Section to the fullest extent possible while remaining lawful and valid.
20. OTHER DOCUMENTS. You hereby acknowledge receipt or the right to receive a document providing the information required by Rule 428(b)(1) promulgated under the Securities Act. In addition, you acknowledge receipt of the Company’s policy permitting certain individuals to sell shares only during certain "window" periods and the Company's insider trading policy, in effect from time to time.
21. AMENDMENT. This Agreement may not be modified, amended or terminated except by an instrument in writing, signed by you and by a duly authorized representative of the Company. Notwithstanding the foregoing, this Agreement may be amended solely by the Board by a writing which specifically states that it is amending this Agreement, so long as a copy of such amendment is delivered to you, and provided that, except as otherwise expressly provided in the Plan, no such amendment materially adversely affecting your rights hereunder may be made without your written consent. Without limiting the foregoing, the Board reserves the right to change, by written notice to you, the provisions of this Agreement in any way it may deem necessary or advisable to carry out the purpose of the Award as a result of any change in applicable laws or regulations or any future law, regulation, ruling, or judicial decision, provided that any such change shall be applicable only to rights relating to that portion of the Award which is then subject to restrictions as provided herein.
22. COMPLIANCE WITH SECTION 409A OF THE CODE. This Award is intended to be exempt from the application of Section 409A of the Code, including but not limited to by reason of complying with the “short-term deferral” rule set forth in Treasury Regulation Section 1.409A-1(b)(4) and any ambiguities herein shall be interpreted accordingly. Notwithstanding the foregoing, if it is determined that the Award fails to satisfy the requirements of the short-term deferral rule and is otherwise not exempt from, and determined to be deferred compensation subject to Section 409A of the Code, this Award shall comply with Section 409A to the extent necessary to avoid adverse personal tax consequences and any ambiguities herein shall be interpreted accordingly. If it is determined that the Award is deferred compensation subject to Section 409A and you are a “Specified Employee” (within the meaning set forth in Section 409A(a)(2)(B)(i) of the Code) as of the date of your Separation from Service, then the issuance of any shares that would otherwise be made upon the date of your Separation from Service or within the first six (6) months thereafter will not be made on the originally scheduled date(s) and will instead be issued in a lump sum on the date that is six (6) months and one day after the date of the Separation from Service, with the balance of the shares issued thereafter in accordance with the original vesting and issuance schedule set forth above, but if and only if such delay in the issuance of the shares is necessary to avoid the imposition of adverse taxation on you in respect of the shares under Section 409A of the Code. Each installment of shares that vests is intended to constitute a “separate payment” for purposes of Treasury Regulation Section 1.409A-2(b)(2).
* * * * *
This Restricted Stock Unit Award Agreement shall be deemed to be signed by the Company and the Participant upon the signing by the Participant of the Restricted Stock Unit Grant Notice to which it is attached.
ATTACHMENT II
2016 EQUITY INCENTIVE PLAN
Exhibit 31.1
Certification of the Principal Executive Officer
I, Kevin Conley, certify that:
1. |
I have reviewed this Form 10-Q of Everspin Technologies, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 13, 2017
/s/ Kevin Conley |
|
Kevin Conley |
|
President, Chief Executive Officer and Director |
Exhibit 31.2
Certification of Principal Financial Officer
I, Jeffrey Winzeler, certify that:
1. |
I have reviewed this Form 10-Q of Everspin Technologies, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(c) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: November 13, 2017
/s/ Jeffrey Winzeler |
|
Jeffrey Winzeler |
|
Chief Financial Officer |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Kevin Conley, President and Chief Executive Officer of Everspin Technologies, Inc. (the “Company”), and Jeffrey Winzeler, Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge:
1. The Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2017, to which this Certification is attached as Exhibit 32.1 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and
2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 13, 2017
|
/s/ Kevin Conley |
|
Kevin Conley |
|
President, Chief Executive Officer and Director |
|
|
|
/s/ Jeffrey Winzeler |
|
Jeffrey Winzeler |
|
Chief Financial Officer |
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Everspin Technologies, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.