mram_Current_Folio_10Q

Table of Contents

 

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 March 31, 2020

 

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.)

 

5670 W. Chandler Boulevard, Suite 100

Chandler, Arizona 85226

(Address of principal executive offices including zip code)

 

Registrant’s telephone number, including area code: (480) 347-1111


Securities registered pursuant to Section 12(b) of the Act:

 

 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001

MRAM

The Nasdaq Stock Market

 

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 every Interactive Data File required to be submitted 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 such files).    YES      NO  

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

  

 

Small reporting company

 

 

 

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the Registrant 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 May 1, 2020 was 18,664,804.  

 

 

 

Table of Contents

Table of Contents

 

 

 

 

 

 

    

 

Page

 

 

PART I—FINANCIAL INFORMATION

 

Item 1. 

 

Financial Statements 

3

 

 

Condensed Balance Sheets as of March 31, 2020 (unaudited) and December 31, 2019

3

 

 

Condensed Statements of Operations and Comprehensive Loss for the three months ended March 31, 2020 and 2019 (unaudited)

4

 

 

Condensed Statements of Stockholders’ Equity for the three months ended March 31, 2020 and 2019 (unaudited)

5

 

 

Condensed Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (unaudited)

6

 

 

Notes to Condensed Financial Statements (unaudited)

7

Item 2. 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

Item 3. 

 

Quantitative and Qualitative Disclosures About Market Risk

22

Item 4. 

 

Controls and Procedures

22

 

 

 

 

 

 

PART II—OTHER INFORMATION

 

Item 1. 

 

Legal Proceedings

23

Item 1A. 

 

Risk Factors

23

Item 2. 

 

Unregistered Sales of Equity Securities and Use of Proceeds

40

Item 3. 

 

Defaults Upon Senior Securities

40

Item 4. 

 

Mine Safety Disclosures

40

Item 5. 

 

Other Information

40

Item 6. 

 

Exhibits

41

EXHIBIT INDEX 

41

SIGNATURES 

42

 

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.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

 

EVERSPIN TECHNOLOGIES, INC.

Condensed Balance Sheets

(In thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31,

 

 

2020

 

2019

Assets

 

 

  

 

 

  

Current assets:

 

 

  

 

 

  

Cash and cash equivalents

 

$

13,950

 

$

14,487

Accounts receivable, net

 

 

6,320

 

 

5,799

Inventory

 

 

7,944

 

 

7,863

Prepaid expenses and other current assets

 

 

518

 

 

539

Total current assets

 

 

28,732

 

 

28,688

Property and equipment, net

 

 

3,077

 

 

3,479

Right-of-use assets

 

 

2,770

 

 

3,132

Other assets

 

 

73

 

 

73

Total assets

 

$

34,652

 

$

35,372

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

  

 

 

  

Current liabilities:

 

 

  

 

 

  

Accounts payable

 

$

1,761

 

$

2,873

Accrued liabilities

 

 

1,965

 

 

2,727

Current portion of long-term debt

 

 

1,271

 

 

670

Operating lease liabilities

 

 

1,613

 

 

1,582

Other liabilities

 

 

34

 

 

42

Total current liabilities

 

 

6,644

 

 

7,894

Long-term debt, net of current portion

 

 

6,621

 

 

7,149

Operating lease liabilities, net of current portion

 

 

1,426

 

 

1,840

Total liabilities

 

 

14,691

 

 

16,883

Commitments and contingencies

 

 

  

 

 

  

Stockholders’ equity:

 

 

  

 

 

  

Preferred stock, $0.0001 par value per share; 5,000,000 shares authorized; no shares issued and outstanding as of March 31, 2020 and December 31, 2019

 

 

 —

 

 

 —

Common stock, $0.0001 par value per share; 100,000,000 shares authorized; 18,638,555 and 18,081,753 shares issued and outstanding as of March 31, 2020 and December 31, 2019

 

 

 2

 

 

 2

Additional paid-in capital

 

 

170,353

 

 

167,149

Accumulated deficit

 

 

(150,394)

 

 

(148,662)

Total stockholders’ equity

 

 

19,961

 

 

18,489

Total liabilities and stockholders’ equity

 

$

34,652

 

$

35,372

 

The accompanying notes are an integral part of these condensed financial statements.

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EVERSPIN TECHNOLOGIES, INC.

Condensed Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

2020

    

2019

    

Product sales

$

9,635

 

$

9,023

 

Licensing, royalty, and other revenue

 

473

 

 

1,003

 

Total revenue

 

10,108

 

 

10,026

 

Cost of sales

 

4,757

 

 

5,241

 

Gross profit

 

5,351

 

 

4,785

 

Operating expenses:1

 

  

 

 

  

 

Research and development

 

3,030

 

 

3,998

 

General and administrative

 

2,800

 

 

3,595

 

Sales and marketing

 

1,103

 

 

1,364

 

Total operating expenses

 

6,933

 

 

8,957

 

Loss from operations

 

(1,582)

 

 

(4,172)

 

Interest expense

 

(172)

 

 

(211)

 

Other income, net

 

22

 

 

127

 

Net loss and comprehensive loss

$

(1,732)

 

$

(4,256)

 

Net loss per common share, basic and diluted

$

(0.10)

 

$

(0.25)

 

Weighted-average shares used to compute net loss per common share, basic and diluted

 

18,055,693

 

 

17,097,999

 

 

 

 

 

 

 

 

1Operating expenses include stock-based compensation as follows:

 

 

 

 

 

 

Research and development

$

162

 

$

147

 

General and administrative

 

585

 

 

509

 

Sales and marketing

 

58

 

 

48

 

Total stock-based compensation

$

805

 

$

704

 

 

The accompanying notes are an integral part of these condensed financial statements.

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EVERSPIN TECHNOLOGIES, INC.

Condensed Statements of Stockholders’ Equity

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2020

 

 

 

 

 

 

 

Additional

 

 

 

 

Total

 

 

Common Stock

 

Paid-In

 

Accumulated

 

Stockholders’

 

  

Shares

  

Amount

  

Capital

  

Deficit

  

Equity

Balance at December 31, 2019

 

18,081,753

 

$

 2

 

$

167,149

 

$

(148,662)

 

$

18,489

Issuance of common stock in at-the-market offering, net of issuance costs (Note 7)

 

468,427

 

 

 —

 

 

2,084

 

 

 —

 

 

2,084

Issuance of common stock under stock incentive plans

 

88,375

 

 

 —

 

 

315

 

 

 —

 

 

315

Stock-based compensation expense

 

 —

 

 

 —

 

 

805

 

 

 —

 

 

805

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(1,732)

 

 

(1,732)

Balance at March 31, 2020

 

18,638,555

 

$

 2

 

$

170,353

 

$

(150,394)

 

$

19,961

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2019

 

 

 

 

 

 

 

Additional

 

 

 

 

Total

 

 

Common Stock

 

Paid-In

 

Accumulated

 

Stockholders’

 

  

Shares

  

Amount

  

Capital

  

Deficit

  

Equity

Balance at December 31, 2018

 

17,095,456

 

$

 2

 

$

158,912

 

$

(133,993)

 

$

24,921

Issuance of common stock under stock incentive plans

 

12,607

 

 

 —

 

 

13

 

 

 —

 

 

13

Stock-based compensation expense

 

 —

 

 

 —

 

 

704

 

 

 —

 

 

704

Net loss

 

 —

 

 

 —

 

 

 

 

 

(4,256)

 

 

(4,256)

Balance at March 31, 2019

 

17,108,063

 

$

 2

 

$

159,629

 

$

(138,249)

 

$

21,382

 

The accompanying notes are an integral part of these condensed financial statements.

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EVERSPIN TECHNOLOGIES, INC.

Condensed Statement of Cash Flows

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

    

2020

    

2019

 

Cash flows from operating activities

 

 

  

 

 

  

 

Net loss

 

$

(1,732)

 

$

(4,256)

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

409

 

 

393

 

Loss on disposal of property and equipment

 

 

 —

 

 

20

 

Stock-based compensation

 

 

805

 

 

704

 

Non-cash gain on warrant revaluation

 

 

(6)

 

 

 —

 

Non-cash interest expense

 

 

73

 

 

81

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(521)

 

 

1,540

 

Inventory

 

 

(81)

 

 

(562)

 

Prepaid expenses and other current assets

 

 

21

 

 

93

 

Accounts payable

 

 

(1,067)

 

 

(955)

 

Accrued liabilities

 

 

(435)

 

 

(187)

 

Lease liabilities

 

 

(21)

 

 

(20)

 

Net cash used in operating activities

 

 

(2,555)

 

 

(3,149)

 

Cash flows from investing activities

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(64)

 

 

(225)

 

Net cash used in investing activities

 

 

(64)

 

 

(225)

 

Cash flows from financing activities

 

 

 

 

 

 

 

Payments on debt

 

 

 —

 

 

(1,500)

 

Payments on finance lease obligation

 

 

(2)

 

 

(3)

 

Proceeds from exercise of stock options and purchase of shares in employee stock purchase plan

 

 

 —

 

 

13

 

Proceeds from issuance of common stock in at-the-market offering, net of issuance costs

 

 

2,084

 

 

 —

 

Net cash provided by (used in) financing activities

 

 

2,082

 

 

(1,490)

 

Net decrease in cash and cash equivalents

 

 

(537)

 

 

(4,864)

 

Cash and cash equivalents at beginning of period

 

 

14,487

 

 

23,379

 

Cash and cash equivalents at end of period

 

$

13,950

 

$

18,515

 

Supplementary cash flow information:

 

 

 

 

 

 

 

Interest paid

 

$

99

 

$

135

 

Operating cash flows paid for operating leases

 

$

486

 

$

416

 

Financing cash flows paid for finance leases

 

$

 2

 

$

 3

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

Purchase of property and equipment in accounts payable and accrued liabilities

 

$

 —

 

$

20

 

Bonus settled in shares of common stock

 

$

315

 

$

 —

 

 

The accompanying notes are an integral part of these condensed financial statements.

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EVERSPIN TECHNOLOGIES, INC.

 

Notes to Unaudited 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 magnetoresistive random-access memory (MRAM) solutions offer the persistence of non-volatile memory with the speed and endurance of random-access memory (RAM) and enable the protection of mission critical data particularly in the event of power interruption or failure. The Company’s MRAM solutions allow its customers in the industrial, automotive, 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 March  31, 2020, coupled with its anticipated growth and sales levels will be sufficient to meet its anticipated cash requirements for at least the next twelve months from the financial statement issuance date. The Company’s future capital requirements will depend on many factors, including its growth rate, the timing and extent of its spending to support research and development activities, the timing and cost of establishing additional sales and marketing capabilities, and the introduction of new products. The Company may be required at some point in the future to seek additional equity or debt financing, to sustain operations beyond that point, and such additional financing may not be available on acceptable terms or at all. If the Company is unable to raise additional capital or generate sufficient cash from operations to adequately fund its operations, it will need to curtail planned activities to reduce costs. Doing so will likely harm its ability to execute on its business plan. 

2. Summary of Significant Accounting Policies

 

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, 2019 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 months ended March 31, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 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, 2019, 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 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 reserves, product warranty reserves, deferred tax assets and related valuation allowances, and stock-based compensation. The Company believes its estimates and assumptions are reasonable; however, actual results may differ from the Company’s estimates.

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Accounts receivable, net

 

The Company establishes an allowance for product returns. The Company analyzes historical returns, current economic trends and changes in customer demand and acceptance of products when evaluating the adequacy of sales returns. Returns are processed as credits on future purchases, as a result, the allowance is recorded against the balance of trade accounts receivable. In addition, the Company establishes an allowance for estimated price concessions related to its distributor agreements. The Company estimates credits to distributors based on the historical rate of credits provided to distributors relative to sales. 

 

Accounts receivable, net consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31, 

 

 

2020

 

2019

Trade accounts receivable

 

$

5,780

 

$

5,454

Unbilled accounts receivable

 

 

653

 

 

576

Allowance for product returns and price concessions

 

 

(113)

 

 

(231)

Accounts receivable, net

 

$

6,320

 

$

5,799

 

Concentration of Credit Risk

 

Financial instruments that potentially expose the Company to a concentration of credit risk consist principally of cash and cash equivalents that are held by a financial institution in the United States and accounts receivable. Amounts on deposit with a financial institution may at times exceed federally insured limits. The Company maintains its cash accounts with high credit quality financial institutions and, accordingly, minimal credit risk exists with respect to the financial institutions.

 

Significant customers are those which represent more than 10% of the Company’s total revenue or net accounts receivable balance at each respective balance sheet date. For the purposes of this disclosure, the Company defines “customer” as the entity that is purchasing the products or licenses directly from the Company, which includes the distributors of the Company’s products in addition to end customers that the Company sells to directly. For each significant customer, revenue as a percentage of total revenue and accounts receivable as a percentage of total accounts receivable, net are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

Accounts Receivable, net

 

 

 

Three Months Ended

 

 

As of

 

 

 

March 31, 

 

 

March 31, 

 

December 31, 

 

Customers

    

2020

    

2019

    

 

2020

    

2019

 

Customer A

 

22

%

*

 

 

35

%

41

%  

Customer B

 

12

%

*

 

 

11

%

11

%  

Customer C

 

11

%

12

%

 

*

 

 *

 

Customer D

 

11

%

15

%

 

*

    

 *

 

Customer E

 

*

    

11

%

 

*

    

 *

 

Customer F

 

*

    

11

%

 

*

    

 *

 

Customer G

 

*

 

 *

 

 

10

%

 *

 


*Less than 10%

 

Fair Value of Financial Instruments

 

Fair value is defined as an exit price, representing the amount that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. The framework for measuring fair value provides a three-tier hierarchy prioritizing inputs to valuation techniques used in measuring fair value as follows:

 

Level 1— Observable inputs such as quoted prices for identical assets or liabilities in active markets;

 

Level 2— Inputs, other than quoted prices for identical assets or liabilities in active markets, which are observable either directly or indirectly; and

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Level 3— Unobservable inputs in which there is little or no market data requiring the reporting entity to develop its own assumptions

 

As of March 31, 2020, based on Level 2 inputs and the borrowing rates available to the Company for loans with similar terms and consideration of the Company’s credit risk, the carrying value of the Company’s variable interest rate debt, excluding unamortized debt issuance costs, approximates fair value. The Company’s financial instruments consist of Level 1 assets and a Level 3 liability. Where quoted prices are available in an active market, securities are classified as Level 1. Level 1 assets consist of highly liquid money market funds that are included in cash equivalents. The Company’s Level 3 liability consists of warrants issued in connection with the 2019 Credit Facility (Note 6).

 

The following tables sets forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

 

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

 

 

 

  

 

 

  

 

 

  

 

 

Money market funds

 

$

14,144

  

$

 —

  

$

 —

  

$

14,144

Total assets measured at fair value

 

$

14,144

  

$

 —

  

$

 —

  

$

14,144

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

  

 

 

  

 

 

  

 

 

Warrant liability

 

$

 —

  

$

 —

  

$

27

  

$

27

Total liabilities measured at fair value

 

$

 —

  

$

 —

  

$

27

  

$

27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

 

 

 

  

 

 

  

 

 

  

 

 

Money market funds

 

$

12,367

  

$

  

$

  

$

12,367

Total assets measured at fair value

 

$

12,367

  

$

 —

  

$

 —

  

$

12,367

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

  

 

 

  

 

 

  

 

 

Warrant liability

 

$

  

$

  

$

33

  

$

33

Total liabilities measured at fair value

 

$

 —

  

$

 —

  

$

33

  

$

33

 

 

Recently Issued Pronouncements

 

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. As the Company is a smaller reporting company, ASU 2016-13 is effective for the Company’s annual reporting periods, and interim periods within those years, beginning after December 15, 2022, and requires a cumulative effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements Financial Instruments-Credit Losses (Topic 326). The new ASU provides narrow-scope amendments to help apply ASU No. 2016-13. The Company is evaluating the impact of the adoption of ASU 2016-13 on its financial statements.

 

 

 

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3. Revenue

 

The Company sells the majority of its products to its distributors, but also to original equipment manufacturers (OEMs). The Company also recognizes revenue under licensing and royalty agreements with some customers. The following table presents the Company’s revenues disaggregated by sales channel (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

    

2020

    

2019

    

Distributor

 

$

6,990

 

$

7,185

 

Non-distributor

 

 

3,118

 

 

2,841

 

Total revenue

 

$

10,108

 

$

10,026

 

 

The following table presents the Company’s revenues disaggregated by timing of recognition (in thousands):

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

    

2020

    

2019

    

Point in time

 

$

10,043

 

$

9,451

 

Over time

 

 

65

 

 

575

 

Total revenue

 

$

10,108

 

$

10,026

 

 

The following table presents the Company’s revenues disaggregated by type (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

    

2020

    

2019

    

Product sales

 

$

9,635

 

$

9,023

 

Royalties

 

 

408

 

 

428

 

Other revenue

 

 

65

 

 

575

 

Total revenue

 

$

10,108

 

$

10,026

 

 

The Company recognizes revenue in three primary geographic regions: North America; Europe, Middle East and Africa (EMEA); and Asia-Pacific and Japan (APJ). The following table presents the Company’s revenues disaggregated by the geographic region to which the product is delivered or licensee is located (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

    

2020

    

2019

    

North America

 

$

1,104

 

$

2,189

 

EMEA

 

 

2,108

 

 

2,634

 

APJ

 

 

6,896

 

 

5,203

 

Total revenue

 

$

10,108

 

$

10,026

 

 

 

 

4. Balance Sheet Components

 

Inventory

 

Inventory consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31,

 

    

2020

    

2019

Raw materials

 

$

490

 

$

119

Work-in-process

 

 

5,757

 

 

6,329

Finished goods

 

 

1,697

 

 

1,415

Total inventory

 

$

7,944

 

$

7,863

 

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Accrued Liabilities

 

Accrued liabilities consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31,

 

    

2020

    

2019

Accrued payroll-related expenses

 

$

819

 

$

1,236

Accrued joint development agreement expenses

 

 

 —

 

 

170

Accrued inventory

 

 

267

 

 

87

Restructuring expenses

 

 

409

 

 

782

Other

 

 

470

 

 

452

Total accrued liabilities

 

$

1,965

 

$

2,727

 

 

 

 

 

As of March 31, 2020, the Company completed the corporate restructuring activity initiated during the year ended December 31, 2019. Cash paid for employee severance and benefit arrangements in connection with the restructuring activity were $373,000 during the period ended March 31, 2020.

 

5. Leases

 

Operating leases consist primarily of office space expiring at various dates through 2022. 

 

The undiscounted future non-cancellable lease payments under the Company’s operating leases were as follows (in thousands):

 

 

 

 

 

 

As of March 31, 2020

    

Amount

 

2020 (remaining nine months)

    

$

1,305

    

2021

 

 

1,763

 

2022

 

 

133

 

Total undiscounted lease payments

 

 

3,201

 

 

 

 

 

6. Debt

 

 

2019 Credit Facility

 

In August 2019, the Company executed an Amended and Restated Loan and Security Agreement (the 2019 Credit Facility), which amended and restated the 2017 Credit Facility, providing for a formula revolving line of credit (Line of Credit) and a term loan (2019 Term Loan) with Silicon Valley Bank (SVB) to refinance in full the outstanding principal balance of $8.0 million under the 2017 Credit Facility. In August 2019, the Company paid the final payment of $0.8 million, which was due upon the refinancing of the 2017 Credit Facility.

 

The Line of Credit allows for a maximum draw of $5.0 million, subject to a formula borrowing base, has a two-year term and bears interest at a floating rate equal to the Wall Street Journal (WSJ) prime rate plus 1.5%, per annum, subject to a floor of 6.75%. As of March 31, 2020, the interest rate was 6.75%. The Line of Credit provides for a commitment fee of 1.6% of the maximum availability of the Line of Credit, which was paid in August 2019 upon closing, and was accounted for as a debt discount. The Line of Credit also provides for a termination fee equal to 1% of the maximum availability under the Line of Credit, which is due in case of a termination of the Line of Credit prior to the scheduled maturity date, and an unused facility fee equal to 0.125% per annum of the average unused portion of the Line of Credit, which is expensed as incurred. At execution, $2.0 million from the Line of Credit was used to refinance a portion of the outstanding balance of the 2017 Credit Facility, and $3.0 million remains available under the Line of Credit, subject to borrowing base availability. As of March 31, 2020, the effective interest rate under the Line of Credit was 10.57% and the outstanding balance was $2.0 million.

 

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The 2019 Term Loan provides for a $6.0 million term loan, which was used to refinance the remaining balance of the 2017 Credit Facility. The 2019 Term Loan has a term of 42 months, and a 12-month interest only period followed by 30 months of equal principal payments, plus accrued interest. The 2019 Term Loan bears interest at a floating rate equal to the WSJ prime rate minus 0.75%, subject to a floor of 4.75%. As of March 31, 2020, the interest rate was 4.75%. A final payment of 7% of the original principal amount of the 2019 Term Loan must be made when the 2019 Term Loan is prepaid or repaid, whether at maturity or as a result of a prepayment or acceleration or otherwise. The additional payment, which is accounted for as a debt discount, is being accreted using the effective interest method. The 2019 Term Loan has a prepayment fee equal to 2% of the total commitment, which is due only if the 2019 Term Loan is prepaid prior to the scheduled maturity date for any reason. As of March 31, 2020, the effective interest rate under the 2019 Term Loan was 8.66%.

 

In conjunction with entering into the 2019 Credit Facility, on August 5, 2019, the Company and SVB amended and restated the warrant issued to SVB in connection with the First Amendment, which was a warrant to purchase 9,375 shares of the Company’s common stock at $8.91 per share, to add an option by SVB to put the warrant back to the Company for $50,000 upon expiration or a liquidity event, to be prorated if SVB exercises a portion of the warrant. The warrant expires on July 6, 2023. As of August 5, 2019, the warrant was classified as a liability and recorded at fair value within other liabilities in the Company’s condensed balance sheet. Due to the put right, the warrant is subject to fair value remeasurement at each subsequent reporting date until the exercise or expiration of the warrant. Any resulting change in the fair value of the warrant will be recorded as other income, net in the Company’s condensed statement of operations and comprehensive loss.

 

Collateral for the 2019 Credit Facility includes all of the Company’s assets except for intellectual property. The Company is required to comply with certain covenants under the 2019 Credit Facility, including requirements to maintain a minimum liquidity ratio, and restrictions on certain actions without the consent of the lender, such as limitations on its ability to engage in mergers or acquisitions, sell assets, incur indebtedness or grant liens or negative pledges on its assets, make loans or make other investments. Under these covenants, the Company is prohibited from paying cash dividends with respect to its capital stock. The Company was in compliance with all covenants at March 31, 2020. The 2019 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 March 31, 2020, management does not believe that it is probable that the clause will be triggered within the next 12 months, and therefore the term loan is classified as long-term.

 

The carrying value of the Company’s 2019 Credit Facility at March 31, 2020 was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

    

Current

    

Long-Term

    

 

 

 

 

Portion

 

Debt

 

Total

Credit Facility

 

$

1,400

 

$

7,020

 

$

8,420

Unamortized debt discounts

 

 

(129)

 

 

(399)

 

 

(528)

Net carrying value

 

$

1,271

 

$

6,621

 

$

7,892

 

The carrying value of the Company’s 2019 Credit Facility at December 31, 2019 was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

    

Current

    

Long-Term

    

 

 

 

 

Portion

 

Debt

 

Total

Credit Facility

 

$

800

 

$

7,620

 

$

8,420

Unamortized debt discounts

 

 

(130)

 

 

(471)

 

 

(601)

Net carrying value

 

$

670

 

$

7,149

 

$

7,819

 

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The table below includes the principal repayments due under the 2019 Credit Facility (in thousands):

 

 

 

 

 

 

 

 

 

    

Principal Repayment as of March 31, 2020

2020 (remaining nine months)

 

$

800

2021

 

 

4,400

2022

 

 

2,400

2023

 

 

820

Total principal repayments

 

$

8,420

 

 

 

7. Stockholders’ Equity

 

At-the-Market Sales Agreement

 

In August 2019, the Company entered into an Open Market Sale Agreement, or the 2019 Sales Agreement, with Jefferies, LLC, or Jefferies, for the offer and sale of shares of its common stock having an aggregate offering of up to $25.0 million from time to time through Jefferies, acting as the Company’s sales agent. The issuance and sale of these shares by the Company pursuant to the 2019 Sales Agreement are deemed an “at-the-market” offering under the Securities Act of 1933, as amended. Under the 2019 Sales Agreement, the Company agreed to pay Jefferies a commission of up to 3% of the gross proceeds of any sales made pursuant to the Sales Agreement. During the three months ended March 31, 2020, the Company received net proceeds of $2.1 million after deducting commissions and expenses payable by the Company, from the sale of 468,427 shares of common stock pursuant to the 2019 Sales Agreement. As of March 31, 2020, the Company had an aggregate of $17.7 million available for future sales under the 2019 Sales Agreement. 

 

8. Stock-Based Compensation

 

The following table summarizes the stock option and award activity for the three months ended March 31, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options Outstanding

 

 

 

 

 

 

Weighted-

 

Weighted-

 

 

 

 

 

Options and

 

 

 

Average

 

Average

 

 

 

 

 

Awards

 

 

 

Exercise

 

Remaining

 

Aggregate

 

 

Available for

 

Number of

 

Price Per

 

Contractual

 

Intrinsic

 

 

Grant

    

Options

    

Share

    

Life (years)

    

Value

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Balance—December 31, 2019

 

638,227

 

1,931,903

 

$

7.17

 

6.5

 

$

188

Authorized

 

542,452

 

 

 

 

 

 

 

 

 

 

RSUs granted

 

(228,013)

 

 

 

 

 

 

 

 

 

 

RSUs cancelled/forfeited

 

24,697

 

 

 

 

 

 

 

 

 

 

Options granted

 

(631,055)

 

631,055

 

$

2.30

 

 

 

 

 

Options cancelled/forfeited

 

120,313

 

(125,834)

 

$

8.08

 

 

 

 

 

Balance—March 31, 2020

 

466,621

 

2,437,124

 

$

5.86

 

7.5

 

$

225

Options exercisable—March 31, 2020

 

 

 

1,133,244

 

$

7.08

 

5.6

 

$

 —

 

The total grant date fair value of options vested was $799,000 and $710,000 during the three months ended March 31, 2020 and 2019, respectively.

 

The weighted-average grant date fair value of employee options granted was $1.52 and $4.00 per share during the three months ended March 31, 2020 and 2019, respectively.

 

2016 Employee Stock Purchase Plan

 

In January 2020, there was an increase of 180,817 shares reserved for issuance under the Company’s Employee Stock Purchase Plan (ESPP). The Company had 576,817 shares available for future issuance under the Company’s ESPP as of March 31, 2020. Employees did not purchase any shares during the three months ended March 31, 2020 and 2019.

 

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Restricted Stock Units

 

The following table summarizes Restricted Stock Units (RSUs) activity for the three months ended March 31, 2020:

 

 

 

 

 

 

 

 

 

RSUs Outstanding

 

 

 

    

Weighted-

 

 

 

    

Average

 

 

Number of

    

Grant Date

 

 

Restricted Stock

    

Fair Value Per

 

    

Units

    

Share

Balance—December 31, 2019

 

211,962

    

$

6.97

Granted

 

228,013

    

 

3.08

Vested

 

(88,375)

    

 

5.90

Cancelled/forfeited

 

(24,697)

    

 

7.59

Balance—March 31, 2020

 

326,903

    

$

4.50

 

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 March 31, 2020, there was $1.1 million of unrecognized stock-based compensation expense related to RSUs to be recognized over a weighted-average period of 2.9 years.

 

Stock-based Compensation Expense

 

As of March 31, 2020, there was $4.2 million of total unrecognized compensation expense related to unvested options which is expected to be recognized over a weighted-average period of 3.1 years. Compensation cost capitalized within inventory at March 31, 2020 and at December 31, 2019 was not material.

 

9. Significant Agreements

 

GLOBALFOUNDRIES, Inc. Joint Development Agreement

 

Since October 17, 2014, the Company has participated in a joint development agreement with GLOBALFOUNDRIES Inc., a semiconductor foundry, for the joint development of STT-MRAM technology to produce of a family of discrete and embedded MRAM technologies. The term of the agreement is until the completion, termination, or expiration of the last statement of work entered into pursuant to the joint development agreement. The agreement was extended on December 31, 2019 to include a new phase of support for 12nm MRAM development. 

 

Under the current JDA extension terms, each party licenses its relevant intellectual property to the other party. For certain jointly developed works, the parties have agreed to follow an invention allocation procedure to determine ownership. In addition, GF possesses the exclusive right to manufacture the Company’s discrete and embedded STT-MRAM devices developed pursuant to the agreement until the earlier of three years after the qualification of the MRAM device for a particular technology node or four years after the completion of the relevant statement of work under which the device was developed. For the same exclusivity period associated with the relevant device, GF agreed not to license intellectual property developed in connection with the JDA to named competitors of the Company.

 

Generally, unless otherwise specified in the agreement or a statement of work, the Company and GF share project costs, which do not include personnel or production qualification costs, under the JDA. If GF manufactures, sells or transfers to customers wafers containing production quantified STT-MRAM devices that utilize certain design information, GF will be required to pay the Company a royalty.

 

The Company incurred project costs of $0.8 million for the three months ended March 31, 2019, which were recognized in research and development expense. No project costs were incurred during the three months ended March 31, 2020. The Company entered into a Statement of Work (SOW) and an Amendment to the SOW, under the JDA with GF effective August 2016 and June 2018, respectively. The Company is entitled to revenues under the SOW and its Amendment upon delivery and acceptance of product. The Company did not recognize any revenue from GF during the three months ended March 31, 2020 and 2019.

 

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Silterra Malaysia Sdn. Bhd. Joint Collaboration Agreement

 

In September 2018, the Company entered into a Joint Collaboration Agreement (JCA) with Silterra Malaysia Sdn. Bhd. (Silterra), and another third party. The JCA will create additional manufacturing capacity for the Company’s Toggle MRAM products. Initial production is expected to start in 2020. Under the JCA the Company will pay non-recurring engineering costs of $1.0 million. As of March 31, 2020, the Company has paid $600,000 of JCA costs. There were no JCA costs paid for during the three months ended March 31, 2020.

 

10. Net Loss Per Common Share

 

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 March 31, 

 

 

    

2020

    

2019

 

Options to purchase common stock

 

2,437,124

 

1,796,103

 

Restricted stock units

 

326,903

 

168,408

 

Common stock warrants

 

27,836

 

27,836

 

Total

 

2,791,863

 

1,992,347

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Table of Contents

 

 

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, 2019.

 

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

 

Everspin is a pioneer in the successful commercialization of Magnetoresistive Random Access Memory (MRAM) technology. Our portfolio of MRAM technologies, including Toggle MRAM and Spin-transfer Torque MRAM (STT-MRAM), is delivering superior performance, persistence and reliability in non-volatile memories that transform how mission-critical data is protected against power loss. With over 10 years of MRAM technology and manufacturing leadership, our memory solutions deliver significant value to our customers in key markets such as industrial, medical, automotive/transportation, aerospace and data center. We are the leading supplier of discrete MRAM components and a successful licensor of our broad portfolio of related technology IP.

 

We sell our products directly and through our established distribution channel to industry-leading original equipment manufacturers (OEMs) and original design manufacturers (ODMs).

We manufacture our MRAM products using both captive and third-party manufacturing capabilities. We purchase industry-standard complementary metal-oxide semiconductor (CMOS) wafers from semiconductor foundries and perform back end of line (BEOL) processing that includes our magnetic-bit technology at our 200mm fabrication facility in Chandler, Arizona. We also manufacture full-flow 300mm STT-MRAM products as part of our strategic relationship with GLOBALFOUNDRIES.

Key Metrics

 

We monitor a variety of key financial metrics to help us evaluate trends, establish budgets, measure the effectiveness of our business strategies and assess operational efficiencies. These financial metrics include revenue, gross margin, operating expenses and operating income determined in accordance with GAAP. 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, and Design Wins. We define Adjusted EBITDA as net income or loss adjusted for interest expense, tax, depreciation and amortization, stock-based compensation expense, and restructuring costs.

ADJUSTED EBITDA. Our management and board of directors use Adjusted EBITDA to understand and evaluate our operating performance and trends, to prepare and approve our annual budget and to develop short-term and long-term operating and financing plans. Accordingly, we believe that Adjusted EBITDA provides useful information for investors in understanding and evaluating our operating results in the same manner as our management and our board of

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directors. Adjusted EBITDA was $(0.3) million and $(2.9) million for the three months ended March 31, 2020 and 2019, respectively. The following table presents a reconciliation of net loss, the most directly comparable GAAP measure, to Adjusted EBIDTA for the periods indicated:

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

    

2020

    

2019

Adjusted EBITDA reconciliation:

 

 

  

 

 

  

Net loss

 

$

(1,732)

 

$

(4,256)

Depreciation and amortization

 

 

409

 

 

393

Stock-based compensation expense

 

 

805

 

 

704

Interest expense

 

 

172

 

 

211

Adjusted EBITDA

 

$

(346)

 

$

(2,948)

 

Design wins. To continue to grow our revenue, we must continue to achieve design wins for our MRAM products. We consider a design win to occur when an OEM or contract manufacturer notifies us that it has qualified one of our products as a component in a product or system for production. Because the life cycles for our customers’ products can last for many years, if these products have successful commercial introductions, we expect to continue to generate revenues over an extended period of time for each successful design win. New design wins in the first quarter of 2020 were 37 compared to 14 in the first quarter of 2019. 

 

 Effect of the COVID-19 Pandemic on our Business

 

The full long-term impact of the coronavirus 2019 (COVID-19) on our business is uncertain and we are unable to predict the impacts it will have going forward. Recent impacts included the extended China factory shutdowns that resulted from the  COVID-19 outbreak, which created a longer than usual pause in new orders and we believe also slowed Toggle demand growth in the weeks since then. We continue to see an impact as reflected in reduced demand from some customers and distributors. Overall, our business remains operational in the midst of the pandemic, and we continue to work closely with our manufacturing partners and suppliers to support the demand for our products. In an effort to protect the health and safety of our employees, we transitioned most employees and contractors to working from home, suspended all business travel, and implemented social distancing guidelines for our employees and contractors who must work in our manufacturing and laboratory locations. The remote working environment has had some impact on manufacturing yield improvement projects given delays in data gathering, analysis and inefficiencies of teams solving technical problems via remote-only means, which impacts our cost of sales. We will continue to monitor the situation and take further actions, which may include further altering our operations, in order to protect the best interests of our employees, customers and suppliers and comply with government requirements.

 

Results of Operations

 

The following table sets forth our results of operations for the periods indicated: