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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
June 30, 2024
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 (I.R.S. Employer
of incorporation or organization) Identification No.)
5670 W. Chandler Boulevard
,
Suite 130
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 LLC
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 ((s)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 Smaller 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 the Registrant's Common Stock outstanding as of August
1, 2024, was
21,743,166
.
Table of Contents
Table of Contents
Page
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of June 30, 3
2024 (unaudited) and December 31, 2023
Condensed Statements of Operations and Comprehensive (Loss) Income for 4
the three and six months ended June 30, 2024 and 2023 (unaudited)
Condensed Statements of Stockholders' Equity for the three 5
and six months ended June 30, 2024 and 2023 (unaudited)
Condensed Statements of Cash Flows for the six 6
months ended June 30, 2024 and 2023 (unaudited)
Notes to Condensed Financial 7
Statements (unaudited)
Item 2. Management's Discussion and Analysis of 15
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative 23
Disclosures About Market Risk
Item 4. Controls and Procedures 23
PART II-OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 1A. Risk Factors 24
Item 2. Unregistered Sales of Equity 40
Securities and Use of Proceeds
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 43
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
Table of Contents
PART I-FINANCIAL INFORMATIO
N
Item 1. Financial Statement
s
EVERSPIN TECHNOLOGIES, INC.
Condensed Balance Sheet
s
(In thousands, except share and per share amounts)
(Unaudited)
June 30, December 31,
2024 2023
Assets
Current assets:
Cash and cash equivalents $ 36,764 $ 36,946
Accounts receivable, net 10,114 11,554
Inventory 7,987 8,391
Prepaid expenses and other current assets 517 988
Total current assets 55,382 57,879
Property and equipment, net 3,790 3,717
Right-of-use assets 5,182 5,495
Other assets 211 212
Total assets $ 64,565 $ 67,303
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,950 $ 2,916
Accrued liabilities 1,760 4,336
Deferred revenue - 336
Lease liabilities, current portion 1,275 1,190
Total current liabilities 4,985 8,778
Lease liabilities, net of current portion 3,996 4,390
Long-term income tax liability 162 214
Total liabilities $ 9,143 $ 13,382
Commitments and contingencies (Note 5)
Stockholders' equity:
Preferred stock, $ - -
0.0001
par value per share;
5,000,000
shares authorized;
no
shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively
Common stock, $ 2 2
0.0001
par value per share;
100,000,000
shares authorized;
21,656,683
and
21,080,472
shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively
Additional paid-in capital 195,774 191,569
Accumulated deficit ( (
140,354 137,650
) )
Total stockholders' equity 55,422 53,921
Total liabilities and stockholders' equity $ 64,565 $ 67,303
The accompanying notes are an integral part of these condensed financial
statements.
3
Table of Contents
EVERSPIN TECHNOLOGIES, INC.
Condensed Statements of Operations and Comprehensive (Loss) Income
(In thousands, except share and per share amounts)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2024 2023 2024 2023
Product sales $ 9,887 $ 13,406 $ 20,747 $ 27,183
Licensing, royalty, patent, and other revenue 749 2,341 4,319 3,410
Total revenue 10,636 15,747 25,066 30,593
Cost of product sales 5,235 6,090 11,238 12,213
Cost of licensing, royalty, patent, and other revenue 185 464 452 757
Total cost of sales 5,420 6,554 11,690 12,970
Gross profit 5,216 9,193 13,376 17,623
Operating expenses:
1
Research and development 3,457 2,708 6,875 5,907
General and administrative 3,254 3,507 7,290 6,727
Sales and marketing 1,324 1,355 2,630 2,670
Total operating expenses 8,035 7,570 16,795 15,304
(Loss) income from operations ( 1,623 ( 2,319
2,819 3,419
) )
Interest expense - - - (
63
)
Other income, net 393 2,262 791 2,390
Net (loss) income before income taxes ( 3,885 ( 4,646
2,426 2,628
) )
Income tax (expense) benefit ( - ( -
76 76
) )
Net (loss) income and comprehensive (loss) income $ ( $ 3,885 $ ( $ 4,646
2,502 2,704
) )
Net (loss) income per common share:
Basic $ ( $ 0.19 $ ( $ 0.23
0.12 0.13
) )
Diluted $ ( $ 0.18 $ ( $ 0.22
0.12 0.13
) )
Weighted average shares of common stock outstanding:
Basic 21,566,863 20,657,404 21,409,611 20,554,769
Diluted 21,566,863 21,234,253 21,409,611 21,068,059
1
Operating expenses include stock-based compensation as follows:
Research and development $ 689 $ 503 $ 1,269 $ 949
General and administrative 980 624 1,960 1,235
Sales and marketing 193 133 347 236
Total stock-based compensation $ 1,862 $ 1,260 $ 3,576 $ 2,420
The accompanying notes are an integral part of these condensed financial
statements.
4
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EVERSPIN TECHNOLOGIES, INC.
Condensed Statements of Stockholders' Equity
(In thousands, except share and per share amounts)
(Unaudited)
Six Months Ended June 30, 2024
Additional Total
Common Stock Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Equity
Balance at December 31, 2023 21,080,472 $ 2 $ 191,569 $ ( $ 53,921
137,650
)
Exercise of stock options 96,116 - 353 - 353
Issuance of common stock under stock incentive plans 229,923 - - - -
Stock-based compensation expense - - 1,714 - 1,714
Net loss - - - ( (
202 202
) )
Balance at March 31, 2024 21,406,511 $ 2 $ 193,636 $ ( $ 55,786
137,852
)
Exercise of stock options 9,549 - 35 - 35
Issuance of common stock under stock incentive plans 240,623 - 241 - 241
Stock-based compensation expense - - 1,862 - 1,862
Net loss - - - ( (
2,502 2,502
) )
Balance at June 30, 2024 21,656,683 $ 2 $ 195,774 $ ( $ 55,422
140,354
)
Six Months Ended June 30, 2023
Additional Total
Common Stock Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Equity
Balance at December 31, 2022 20,374,288 $ 2 $ 185,364 $ ( $ 38,664
146,702
)
Exercise of stock options 3,020 - 13 - 13
Issuance of common stock under stock incentive plans 157,436 - - - -
Stock-based compensation expense - - 1,160 - 1,160
Net income - - - 761 761
Balance at March 31, 2023 20,534,744 $ 2 $ 186,537 $ ( $ 40,598
145,941
)
Exercise of stock options 36,353 - 148 - 148
Issuance of common stock under stock incentive plans 172,325 - 181 - 181
Stock-based compensation expense - - 1,260 - 1,260
Net income - - - 3,885 3,885
Balance at June 30, 2023 20,743,422 $ 2 $ 188,126 $ ( $ 46,072
142,056
)
The accompanying notes are an integral part of these condensed financial
statements.
5
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EVERSPIN TECHNOLOGIES, INC.
Condensed Statements of Cash Flow
s
(In thousands)
(Unaudited)
Six Months Ended June 30,
2024 2023
Cash flows from operating activities
Net (loss) income $ ( $ 4,646
2,704
)
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization 795 617
Gain on sale of property and equipment - (
15
)
Stock-based compensation 3,576 2,420
Loss on prepayment and termination of credit facility - 170
Non-cash warrant revaluation - 23
Non-cash interest expense - 26
Changes in operating assets and liabilities:
Accounts receivable 1,440 1,639
Inventory 404 (
662
)
Prepaid expenses and other current assets 471 193
Other assets 1 -
Accounts payable ( (
595 741
) )
Accrued liabilities ( (
2,628 701
) )
Deferred revenue ( (
336 96
) )
Lease liabilities, net 4 12
Net cash provided by operating activities 428 7,531
Cash flows from investing activities
Purchases of property and equipment ( (
1,239 1,063
) )
Proceeds received from sale of property and equipment - 15
Net cash used in investing activities ( (
1,239 1,048
) )
Cash flows from financing activities
Payments on long-term debt - (
2,790
)
Proceeds from exercise of stock options and purchase of shares in employee stock purchase plan 629 342
Net cash provided by (used in) financing activities 629 (
2,448
)
Net (decrease) increase in cash and cash equivalents ( 4,035
182
)
Cash and cash equivalents at beginning of period 36,946 26,795
Cash and cash equivalents at end of period $ 36,764 $ 30,830
Supplementary cash flow information:
Interest paid $ - $ 37
Operating cash flows paid for operating leases $ 699 $ 692
Financing cash flows paid for finance leases $ 28 $ 6
Non-cash investing and financing activities:
Right-of-use assets obtained in exchange for finance lease liabilities $ 297 $ -
Purchases of property and equipment in accounts payable and accrued liabilities $ 75 $ -
The accompanying notes are an integral part of these condensed financial
statements.
6
Table of Contents
EVERSPIN TECHNOLOGIES, INC.
Notes to Unaudited Condensed Financial Statement
s
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 key markets, such as industrial, medical,
automotive/transportation, aerospace and data center markets to design high
performance, power efficient and reliable systems without the need for bulky
batteries or capacitors.
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, 2023, 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
six months ended June 30, 2024, are not necessarily indicative of the results
to be expected for the year ending December 31, 2024 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, 2023,
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 net
realizable value, 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.
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 and, as a result, the allowance
is recorded against the balance of trade accounts receivable. In addition, the
Company, from time to time, may establish an allowance for estimated price
adjustments related to its distributor agreements. The Company estimates
credits to distributors based on the historical rate of credits provided to
distributors relative to sales and evaluation of current market conditions.
7
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Accounts receivable, net consisted of the following (in thousands):
June 30, December 31,
2024 2023
Trade accounts receivable $ 10,193 $ 11,489
Unbilled accounts receivable 281 475
Allowance for product returns and price adjustments ( (
360 410
) )
Accounts receivable, net $ 10,114 $ 11,554
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.
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 Six Months Ended As of
June 30, June 30, June 30, December 31,
Customers 2024 2023 2024 2023 2024 2023
Customer A * 17 % * 16 % * 13 %
Customer B * 13 % * 14 % * *
Customer C * 10 % 12 % * * 22 %
Customer D 26 % 13 % 25 % 15 % 53 % 37 %
Customer E 14 % 13 % * 12 % 11 % *
*
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
Level 3- Unobservable inputs in which there is little or no market data
requiring the reporting entity to develop its own assumptions.
The carrying value of accounts receivable, accounts payable, and other
accruals readily convertible into cash approximate fair value because of the
short-term nature of the instruments. 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.
8
Table of Contents
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):
June 30, 2024
Level 1 Level 2 Level 3 Total
Assets:
Money market funds $ 36,764 $ - $ - $ 36,764
Total assets measured at fair value $ 36,764 $ - $ - $ 36,764
December 31, 2023
Level 1 Level 2 Level 3 Total
Assets:
Money market funds $ 36,946 $ - $ - $ 36,946
Total assets measured at fair value $ 36,946 $ - $ - $ 36,946
Recently Issued Accounting Pronouncements Under Evaluation
In November 2023, the FASB issued ASU No. 2023-07,
Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures
, which improves reportable segment disclosure requirements, primarily through
enhanced disclosures about significant segment expenses. This ASU also expands
disclosure requirements to enable users of financial statements to better
understand the entity's measurement and assessment of segment performance and
resource allocation. This guidance is effective for fiscal years beginning
after December 15, 2023, and interim periods within fiscal years beginning
after December 15, 2024, with early adoption permitted. The Company is
currently evaluating the impact that the standard will have on its condensed
financial statements.
In December 2023, the FASB issued ASU No. 2023-09
, Income Taxes (Topic 740): Improvements to Income Tax Disclosures
, which is intended to improve an entity's income tax disclosures, primarily
through disaggregated information about an entity's effective income tax rate
reconciliation and additional disclosures regarding income taxes paid. ASU
2023-09 is effective for the Company's annual reporting periods, and interim
periods within those years, beginning after December 15, 2024, on a
prospective basis. The Company is currently evaluating the impact that the
standard will have on its condensed financial statements.
The Company
reviewed
all other recently issued accounting pronouncements and concluded that they
were either not applicable or not expected to have a significant impact to the
condensed financial statements.
3. Revenue
The Company sells products to its distributors, original design manufacturers
(ODMs), and original equipment manufacturers (OEMs). The Company also
recognizes revenue under licensing, patent, and royalty agreements with some
customers.
The following table presents the Company's revenues disaggregated by sales
channel (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2024 2023 2024 2023
Distributor $ 9,227 $ 12,365 $ 19,514 $ 25,207
Non-distributor 1,409 3,382 5,552 5,386
Total revenue $ 10,636 $ 15,747 $ 25,066 $ 30,593
9
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The following table presents the Company's revenues disaggregated by timing of
recognition (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2024 2023 2024 2023
Point in time $ 10,062 $ 13,790 $ 21,029 $ 27,660
Over time 574 1,957 4,037 2,933
Total revenue $ 10,636 $ 15,747 $ 25,066 $ 30,593
The following table presents the Company's revenues disaggregated by type (in
thousands):
Three Months Ended June 30, Six Months Ended June 30,
2024 2023 2024 2023
Product sales $ 9,887 $ 13,406 $ 20,747 $ 27,183
Licensing 306 1,899 3,527 2,817
Royalties 175 236 282 329
Patents - - - -
Other revenue 268 206 510 264
Total revenue $ 10,636 $ 15,747 $ 25,066 $ 30,593
The Company recognizes revenue in
three
primary geographic regions: Asia-Pacific (APAC); North America; and Europe,
Middle East and Africa (EMEA). The Company recognizes revenue by geography
based on the region in which the Company's products are sold, and not to where
the end products in which they are assembled are shipped. The Company's
revenue by region for the periods indicated was as follows (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2024 2023 2024 2023
APAC $ 6,310 $ 7,964 $ 13,240 $ 15,555
North America 3,051 4,517 5,843 8,847
EMEA 1,275 3,266 5,983 6,191
Total revenue $ 10,636 $ 15,747 $ 25,066 $ 30,593
4. Balance Sheet Components
Inventory
Inventory consisted of the following (in thousands):
June 30, December 31,
2024 2023
Raw materials $ 105 $ 189
Work-in-process 6,754 6,724
Finished goods 1,128 1,478
Total inventory $ 7,987 $ 8,391
Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
June 30, December 31,
2024 2023
Payroll-related expenses $ 1,093 $ 3,347
Inventory 259 317
Other 408 672
Total accrued liabilities $ 1,760 $ 4,336
10
Table of Contents
Deferred Revenue
During the year ended December 31, 2021, the Company executed contractual
arrangements with a customer for the development of a RAD-Hard product,
consisting of a technology license, design license agreement and development
subcontract (RAD-Hard 1). The Company does not share in the rights to future
revenues or royalties. The total arrangements are for $
6.5
million in consideration.
The Company concluded these contractual arrangements represent one arrangement
and evaluated its promises to the customer and whether the performance
obligations granted under the arrangement were distinct. The licenses provided
to the customer are not transferable, are of limited value without the
promised development services, and the customer cannot benefit from the
license agreements without the specific obligated services in the development
subcontract, as there is strong interdependency between the licenses and the
development subcontract. Accordingly, the Company determined the licenses were
not distinct within the context of the contract and combined the license with
other performance obligations. The total transaction price of $
6.5
million was allocated to the single performance obligation.
The Company recognizes revenue related to the performance obligations over
time using the input method based on costs incurred to date relative to the
total expected costs of the contract and began recognizing revenue in the
second quarter of 2021 over the contract period. This method depicts
performance under the contract and requires the Company to make estimates
about the future costs expected to be incurred to perform under the contact,
including labor and material costs.
The Company has recognized $
0.3
million and $
0.5
million in revenue for the three and six months ended June 30, 2024,
respectively, and $
6.2
million in revenue since inception of the contractual agreements. The Company
expects to recognize the remaining $
0.3
million of the transaction price as services are performed throughout the
contractual period and performance is expected to be complete in the year
ending December 31, 2024.
5. Leases
Operating leases consist primarily of office space expiring at various dates
through 2029. Finance leases relate to server leases expiring at various dates
through 2029. The Company's lease agreements do not contain any material
residual value guarantees or material restrictive covenants.
The undiscounted future non-cancellable lease payments under the Company's
operating and finance leases were as follows (in thousands):
As of June 30, 2024 Amount
2024 $ 739
2025 1,482
2026 1,497
2027 1,380
2028 595
Thereafter 48
Total lease payments 5,741
Less: imputed interest (
470
)
Total lease liabilities 5,271
Less: current portion of lease liabilities (
1,275
)
Total lease liabilities, net of current portion $ 3,996
Other information related to the Company's operating lease liabilities was as
follows:
June 30, December 31,
2024 2023
Weighted-average remaining lease term (years) 3.88 4.37
Weighted-average discount rate 4.50 % 4.50 %
11
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Other information related to the Company's finance lease liabilities was as
follows:
June 30, December 31,
2024 2023
Weighted-average remaining lease term (years) 4.57 1.09
Weighted-average discount rate 3.91 % 4.50 %
6. Debt
2019 Credit Facility
In March 2023, our credit facility with a lender pursuant to an Amended and
Restated Loan and Security Agreement (the 2019 Credit Facility), consisting of
a term loan and line of credit, was paid in full, and there was
no
outstanding balance as of June 30, 2024. The Company paid an early termination
and prepayment fee of $
170,000
, which was recorded within other income (expense) within the condensed
statements of operations and comprehensive (loss) income for the six months
ended June 30, 2023.
The Company was in compliance with all covenants throughout the 2019 Credit
Facility payoff date in March 2023.
The amortization of the debt issuance costs and accretion of the debt discount
is included in interest expense within the condensed statements of operations
and comprehensive (loss) income and included in non-cash interest expense
within the statement of cash flows.
7. Stock-Based Compensation
Summary of Stock Option and Award Activity
The following table summarizes the stock option and award activity for the six
months ended June 30, 2024:
Options Outstanding
Weighted- Weighted-
Options and Average Average Aggregate
Awards Exercise Remaining Intrinsic
Available for Number of Price Per Contractual Value
Grant Options Share Life (years) (In thousands)
Balance-December 31, 2023 598,397 1,829,428 $ 5.96 6.9 $ 5,676
Authorized 632,414
RSUs granted (
977,783
)
RSUs cancelled/forfeited 10,007
Warrants exercised -
Options granted - - -
Options exercised - ( $ 3.67 $ 498
106,741
)
Options cancelled/forfeited 3,951 ( $ 6.22
4,565
)
Balance-June 30, 2024 266,986 1,718,122 $ 6.10 6.5 $ 1,255
Options exercisable-June 30, 2024 1,369,585 $ 5.86 6.2 $ 1,197
The total grant date fair value of options vested was $
0.3
million and $
0.4
million during the three months ended June 30, 2024 and 2023, respectively,
and $
0.7
million and $
1.3
million during the six months ended June 30, 2024 and 2023, respectively.
The weighted-average grant date fair value of options granted was $
4.43
per share during the three months ended June 30, 2023 and $
3.85
per share during the six months ended June 30, 2023.
No
shares were granted in the three and six months ended June 30, 2024.
As of June 30, 2024, there was $
1.6
million of total unrecognized stock-based compensation expense related to
unvested options which is expected to be recognized over a weighted-average
period of
1.28
years. Stock-based compensation cost for options capitalized within inventory
at June 30, 2024 and 2023 was not material.
12
Table of Contents
2016 Employee Stock Purchase Plan
In January 2024, there was an increase of
210,804
shares reserved for issuance under the Company's Employee Stock Purchase Plan
(ESPP) pursuant to the terms of the ESPP. The Company had
1,063,270
shares available for future issuance under the Company's ESPP as of June 30,
2024. Employees purchased
37,696
shares for $
241,000
during the three and six months ended June 30, 2024. Employees purchased
40,894
shares for $
181,000
during the three and six months ended June 30, 2023.
Restricted Stock Units
The following table summarizes restricted stock units (RSUs) activity for the
six months ended June 30, 2024:
RSUs Outstanding
Weighted-
Average
Number of Grant Date
Restricted Stock Fair Value Per
Units Share
Balance-December 31, 2023 905,781 $ 6.59
Granted 977,783 $ 8.62
Vested ( $ 6.69
433,100
)
Cancelled/forfeited ( $ 7.12
10,007
)
Balance-June 30, 2024 1,440,457 $ 7.93
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 June 30, 2024,
there was
$
10.1
million of unrecognized stock-based compensation expense related to RSUs to be
recognized over a weighted-average period of
2.6
years. Stock-based compensation cost related to RSUs capitalized within
inventory at June 30, 2024 and 2023 was not material.
8. Significant Agreements
GLOBALFOUNDRIES, Inc. Joint Development Agreement
Since October 17, 2014, the Company has participated in a joint development
agreement (JDA) with GLOBALFOUNDRIES Inc. (GF), a semiconductor foundry, for
the joint development of Spin-transfer Torque MRAM (STT-MRAM), technology to
produce a family of discrete and embedded MRAM technologies. The term of the
JDA is until the completion, termination, or expiration of the last statement
of work entered into pursuant to the JDA. The JDA 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 JDA 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.
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.
9. Net (Loss) Income Per Common Share
Basic net (loss) income per common share is calculated by dividing the net
income by the weighted-average number of shares of common stock outstanding
for the period less shares subject to repurchase, without consideration of
potentially dilutive securities. Diluted earnings per share is calculated
using the treasury stock method by dividing net income by the
13
Table of Contents
total weighted average shares of common stock outstanding in addition to the
potential impact of dilutive securities including restricted stock units,
warrants, and options. In periods with a net loss, potentially dilutive
securities are excluded from the Company's calculation of earnings per share
as their inclusion would have an antidilutive effect.
The following tables set forth the computation of basic and diluted net (loss)
income per share attributable to common stockholders (in thousands, except
share and per share amounts):
Basic EPS
Three Months Ended June 30, Six Months Ended June 30,
2024 2023 2024 2023
Numerator:
Net (loss) income $ ( $ 3,885 $ ( $ 4,646
2,502 2,704
) )
Denominator:
Weighted-average shares of common stock outstanding, basic 21,566,863 20,657,404 21,409,611 20,554,769
Net (loss) income per common share, basic $ ( $ 0.19 $ ( $ 0.23
0.12 0.13
) )
Diluted EPS
Three Months Ended June 30, Six Months Ended June 30,
2024 2023 2024 2023
Numerator:
Net (loss) income $ ( $ 3,885 $ ( $ 4,646
2,502 2,704
) )
Warrant liability fair value loss recognized - - - 23
Net (loss) income attributable to common stockholders, diluted $ ( $ 3,885 $ ( $ 4,669
2,502 2,704
) )
Denominator:
Weighted-average shares of common stock outstanding, basic 21,566,863 20,657,404 21,409,611 20,554,769
Dilutive effect of stock options and RSUs - 576,849 - 513,290
Weighted-average shares of common stock outstanding, diluted 21,566,863 21,234,253 21,409,611 21,068,059
Net (loss) income per common share, diluted $ ( $ 0.18 $ ( $ 0.22
0.12 0.13
) )
Potentially dilutive securities representing
2.1
million and
0.9
million stock options and RSUs that were outstanding during the three months
ended June 30, 2024, and 2023, respectively, and
1.7
million and
1.3
million stock options and RSUs outstanding during the six months ended June
30, 2024 and 2023, respectively, were excluded from the computation of diluted
earnings per common share during these periods as their inclusion would have
an antidilutive effect.
14
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Item 2. Management's Discussion and Analysi
s 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, 2023.
Forward-Looking Statements
This discussion contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended (Securities Act), and
Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act).
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, among other things, our industry,
business, future plans, strategies, objectives, expectations, intentions and
financial performance. 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, as well as in our other filings with the Securities and Exchange
Commission (SEC). 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.
In addition, statements that "we believe" and similar statements reflect our
beliefs and opinions on the relevant subject. These statements are based on
information available to us as of the date of this Quarterly Report on Form
10-Q. While we believe that information provides a reasonable basis for these
statements, that information may be limited or incomplete. Our statements
should not be read to indicate that we have conducted an exhaustive inquiry
into or review of, all relevant information. These statements are inherently
uncertain and investors are cautioned not to unduly rely on these statements.
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 15 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 intellectual property.
We sell our products directly and through our established distribution
channels to industry-leading OEMs and 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 CMOS wafers with our STT-MRAM magnetic-bit
technology integrated in BEOL 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
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for interest expense, taxes, depreciation and amortization, stock-based
compensation expense, and restructuring costs, if any.
Adjusted EBITDA.
Our management and board of directors use Adjusted EBITDA to understand and
evaluate our operating performance and trends, to prepare and approve our
annual budget and to develop short-term and long-term operating and financing
plans. Accordingly, we believe that Adjusted EBITDA provides useful
information for investors in understanding and evaluating our operating
results in the same manner as our management and our board of directors.
Adjusted EBITDA is a non-GAAP financial measure and should be considered in
addition to, not as superior to, or as a substitute for, net income reported
in accordance with GAAP. The following table presents a reconciliation of net
income, the most directly comparable GAAP measure, to Adjusted EBITDA for the
periods indicated:
Three Months Ended June 30, Six Months Ended June 30,
2024 2023 2024 2023
Adjusted EBITDA reconciliation:
Net (loss) income $ (2,502) $ 3,885 $ (2,704) $ 4,646
Depreciation and amortization 397 284 795 617
Stock-based compensation expense 1,862 1,260 3,576 2,420
Interest expense - - - 63
Income tax (benefit) expense 76 - 76 -
Adjusted EBITDA $ (167) $ 5,429 $ 1,743 $ 7,746
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Results of Operations
The following tables set forth our results of operations for the periods
indicated:
Three Months Ended June 30,
2024 2023 2024 2023
(In thousands) (As a percentage of revenue)
Product sales $ 9,887 $ 13,406 93 % 85 %
Licensing, royalty, patent, and other revenue 749 2,341 7 15
Total revenue 10,636 15,747 100 100
Cost of product sales 5,235 6,090 49 39
Cost of licensing, royalty, patent, and other revenue 185 464 2 3
Total cost of sales 5,420 6,554 51 42
Gross profit 5,216 9,193 49 58
Operating expenses:
Research and development 3,457 2,708 33 17
General and administrative 3,254 3,507 31 22
Sales and marketing 1,324 1,355 12 9
Total operating expenses 8,035 7,570 76 48
(Loss) income from operations (2,819) 1,623 (27) 10
Other income, net 393 2,262 4 14
Net (loss) income before income taxes (2,426) 3,885 (23) 25
Income tax (expense) benefit (76) - (1) -
Net (loss) income and comprehensive (loss) income $ (2,502) $ 3,885 (24) % 25 %
Six Months Ended June 30,
2024 2023 2024 2023
(In thousands) (As a percentage of revenue)
Product sales $ 20,747 $ 27,183 83 % 89 %
Licensing, royalty, patent, and other revenue 4,319 3,410 17 11
Total revenue 25,066 30,593 100 100
Cost of product sales 11,238 12,213 45 40
Cost of licensing, royalty, patent, and other revenue 452 757 2 2
Total cost of sales 11,690 12,970 47 42
Gross profit 13,376 17,623 53 58
Operating expenses:
Research and development 6,875 5,907 27 19
General and administrative 7,290 6,727 29 22
Sales and marketing 2,630 2,670 10 9
Total operating expenses 16,795 15,304 67 50
(Loss) income from operations (3,419) 2,319 (14) 8
Interest expense - (63) - -
Other income, net 791 2,390 3 8
Net (loss) income before income taxes (2,628) 4,646 (10) 15
Income tax (expense) benefit (76) - - -
Net (loss) income and comprehensive (loss) income $ (2,704) $ 4,646 (11) % 15 %
Comparison of the three months ended June 30, 2024 and 2023
Revenue
We generated 87% and 79% of our revenue from products sold to distributors for
the three months ended June 30, 2024 and 2023, respectively.
In addition to selling our products to our distributors, we maintain a direct
selling relationship, for strategic purposes, with several key customer
accounts. We have organized our sales team and representatives into three
primary
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regions: North America; EMEA; and APAC. We recognize revenue by geography
based on the region in which our customer is located and to which our products
are sold, and not to where the end products in which they are assembled are
shipped. Our revenue by region and by type of revenue for the periods
indicated were as follows (in thousands):
Three Months Ended June 30,
2024 2023
APAC $ 6,310 $ 7,964
North America 3,051 4,517
EMEA 1,275 3,266
Total revenue $ 10,636 $ 15,747
Three Months Ended
June 30, Change
2024 2023 Amount %
(Dollars in thousands)
Product sales $ 9,887 $ 13,406 $ (3,519) (26.2) %
Licensing, royalty, patent, and other revenue 749 2,341 (1,592) (68.0) %
Total revenue $ 10,636 $ 15,747 $ (5,111) (32.5) %
Total revenue decreased by $5.1 million, or 32.5%, from $15.7 million during
the three months ended June 30, 2023 to $10.6 million during the three months
ended June 30, 2024. The decrease was primarily due to a decrease in product
sales of $3.5 million due to timing of customer demand, and a decrease in
licensing revenue generated from our RAD-Hard projects of $1.5 million, along
with a decrease of $0.1 million in other revenue related to foundry services.
Licensing, royalty, patent, and other revenue is a highly variable revenue
item characterized by a small number of transactions annually with revenue
based on size and terms of each transaction. Our best estimate of royalty
revenue earned is made throughout the year for royalty contracts with an
annual performance period, with an annual adjustment recognized for actual
sales in the first quarter of each fiscal year. Licensing, royalty, patent,
and other revenue decreased by $1.6 million, or 68.0% from $2.3 million during
the three months ended June 30, 2023, to $0.7 million during the three months
ended June 30, 2024. The decrease was driven by a decrease of $1.5 million in
licensing revenue generated from our RAD-Hard projects, along with a decrease
of $0.1 million of other revenue related to foundry services.
Cost of Sales and Gross Margin
Three Months Ended
June 30, Change
2024 2023 Amount %
(Dollars in thousands)
Cost of product sales $ 5,235 $ 6,090 $ (855) (14.0) %
Cost of licensing, royalty, patent, and other revenue 185 464 (279) (60.1) %
Total cost of sales $ 5,420 $ 6,554 $ (1,134) (17.3) %
Gross margin 49.0 % 58.4 %
Cost of product sales decreased by $0.9 million, or 14.0%, from $6.1 million
during the three months ended June 30, 2023, to $5.2 million during the three
months ended June 30, 2024. The decrease was primarily due to a reduction in
product sales, partially offset by increased yields on our toggle products.
Cost of licensing, royalty, patent, and other revenue decreased by $0.3
million, or 60.1% from $0.5 million during the three months ended June 30,
2023, to $0.2 million during the three months ended June 30, 2024. The
decrease was primarily due to a decrease in licensing costs related to labor
and materials associated with the progression of our RAD-Hard projects.
Gross margin decreased from 58.4% during the three months ended June 30, 2023,
to 49.0% during the three months ended June 30, 2024. Gross margin decreased
as a result of a decrease in product sales and licensing revenue, partially
offset by increased yields on our toggle products.
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Operating Expenses
Our operating expenses consist of research and development, general and
administrative and sales and marketing expenses. Personnel-related expenses,
including salaries, benefits, bonuses and stock-based compensation, are among
the most significant components of each of our operating expense categories.
Three Months Ended
June 30, Change
2024 2023 Amount %
(Dollars in thousands)
Research and development $ 3,457 $ 2,708 $ 749 27.7 %
Research and development as a % of revenue 33 % 17 %
Research and Development Expenses.
Research and development expenses increased by $0.7 million, or 27.7%, from
$2.7 million during the three months ended June 30, 2023, to $3.5 million
during the three months ended June 30, 2024. The primary driver of research
and development expenses relates to our new Extended Serial Peripheral
Interface (xSPI) family of STT-MRAM products. Our xSPI products offer
high-performance, multiple I/O, SPI-compatibility and feature a high-speed,
low pin count SPI compatible interface.
Three Months Ended
June 30, Change
2024 2023 Amount %
(Dollars in thousands)
General and administrative $ 3,254 $ 3,507 $ (253) (7.2) %
General and administrative as a % of revenue 31 % 22 %
General and Administrative Expenses.
General and administrative expenses decreased by $0.3 million, or 7.2%, from
$3.5 million during the three months ended June 30, 2023, to $3.2 million
during the three months ended June 30, 2024. The decrease is primarily due to
reduced professional services costs.
Three Months Ended
June 30, Change
2024 2023 Amount %
(Dollars in thousands)
Sales and marketing $ 1,324 $ 1,355 $ (31) (2.3) %
Sales and marketing as a % of revenue 12 % 9 %
Sales and Marketing Expenses.
Sales and marketing expenses remained consistent at $1.3 million during the
three months ended June 30, 2024 and 2023, respectively. Sales and marketing
expenses relate primarily to compensation costs and contract labor.
Other Income (Expense), Net
Three Months Ended
June 30, Change
2024 2023 Amount %
(Dollars in thousands)
Other income, net $ 393 $ 2,262 $ (1,869) (82.6) %
Other income, net decreased by $1.9 million in income for the three months
ended June 30, 2024. The change was primarily due to an employee retention tax
credit of $2.0 million during the three months ended June 30, 2023, partially
offset by interest income.
Comparison of the six months ended June 30, 2024 and 2023
Revenue
We generated 78% and 82% of our revenue from products sold to distributors for
the six months ended June 30, 2024 and 2023, respectively.
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Our revenue by region and by type of revenue for the periods indicated were as
follows (in thousands).
Six Months Ended June 30,
2024 2023
APAC $ 13,240 $ 15,555
North America 5,843 8,847
EMEA 5,983 6,191
Total revenue $ 25,066 $ 30,593
Six Months Ended
June 30, Change
2024 2023 Amount %
(Dollars in thousands)
Product sales $ 20,747 $ 27,183 $ (6,436) (23.7) %
Licensing, royalty, patent, and other revenue 4,319 3,410 909 26.7 %
Total revenue $ 25,066 $ 30,593 $ (5,527) (18.1) %
Total revenue decreased by $5.5 million, or 18.1%, from $30.6 million during
the six months ended June 30, 2023 to $25.1 million during the six months
ended June 30, 2024. The decrease was primarily due to a decrease in product
sales of $6.4 million due to timing of customer demand, offset by an increase
in licensing revenue generated from our RAD-Hard projects of $0.7 million,
along with an increase of $0.2 million in other revenue related to foundry
services.
Licensing, royalty, patent and other revenue is a highly variable revenue item
characterized by a small number of transactions annually with revenue based on
size and term of each transaction Our best estimate of royalty revenue earned
is made through the year, with an annual adjustment recognized for actual
sales in the first quarter of each fiscal year. Licensing, royalty, patent,
and other revenue increased by $0.9 million, or 26.7%, from $3.4 million
during the six months ended June 30, 2023, to $4.3 million during the six
months ended June 30, 2024. The increase was driven by an increase of $0.7
million in licensing revenue generated from our RAD-Hard projects, along with
an increase of $0.2 million of other revenue related to foundry services.
Cost of Sales and Gross Margin
Six Months Ended
June 30, Change
2024 2023 Amount %
(Dollars in thousands)
Cost of product sales $ 11,238 $ 12,213 $ (975) (8.0) %
Cost of licensing, royalty, patent, and other revenue 452 757 (305) (40.3) %
Total cost of sales $ 11,690 $ 12,970 $ (1,280) (9.9) %
Gross margin 53.4 % 57.6 %
Cost of product sales decreased by $1.0 million, or 8.0%, from $12.2 million
during the six months ended June 30, 2023, to $11.2 million during the six
months ended June 30, 2024. The decrease was primarily due to a reduction in
product sales and increased yields on our toggle products.
Cost of licensing, royalty, patent, and other revenue decreased by $0.3
million, or 40.3% from $0.8 million during the six months ended June 30, 2023,
to $0.5 million during the six months ended June 30, 2024. The decrease was
due to a decrease in licensing costs related to labor and materials associated
with the progression of our RAD-Hard projects.
Gross margin decreased from 57.6% during the six months ended June 30, 2023,
to 53.4% during the six months ended June 30, 2024. Gross margin decreased as
a result of a decrease in product sales and increased yields on our toggle
products, partially offset by increased licensing revenue.
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Operating Expenses
Our operating expenses consist of research and development, general and
administrative and sales and marketing expenses. Personnel-related expenses,
including salaries, benefits, bonuses and stock-based compensation, are among
the most significant components of each of our operating expense categories.
Six Months Ended June 30, Change
2024 2023 Amount %
(Dollars in thousands)
Research and development $ 6,875 $ 5,907 $ 968 16.4 %
Research and development as a % of revenue 27 % 19 %
Research and Development Expenses.
Research and development expenses increased by $1.0 million, or 16.4%, from
$5.9 million during the six months ended June 30, 2023, to $6.9 million during
the six months ended June 30, 2024. The primary driver of research and
development expenses relates to our new xSPI family of STT-MRAM products.
Six Months Ended June 30, Change
2024 2023 Amount %
(Dollars in thousands)
General and administrative $ 7,290 $ 6,727 $ 563 8.4 %
General and administrative as a % of revenue 29 % 22 %
General and Administrative Expenses.
General and administrative expenses increased by $0.6 million, or 8.4%, from
$6.7 million during the six months ended June 30, 2023, to $7.3 million during
the six months ended June 30, 2024. The increase is primarily due to increases
related to stock-based compensation and professional services.
Six Months Ended June 30, Change
2024 2023 Amount %
(Dollars in thousands)
Sales and marketing $ 2,630 $ 2,670 $ (40) (1.5) %
Sales and marketing as a % of revenue 10 % 9 %
Sales and Marketing Expenses.
Sales and marketing expenses remained consistent at $2.6 million during the
six months ended June 30, 2024 and 2023, respectively.
Interest Expense
Six Months Ended
June 30, Change
2024 2023 Amount %
(Dollars in thousands)
Interest expense $ - $ 63 $ (63) (100.0) %
Interest expense decreased by $0.1 million, or 100.0%, from $0.1 million
during the six months ended June 30, 2023, to $0 during the six months ended
June 30, 2024. The decrease was due to having no outstanding balance under our
2019 Credit Facility that we paid off in full in March 2023, resulting in no
interest incurred during the six months ended June 30, 2024.
Other Income (Expense), Net
Six Months Ended
June 30, Change
2024 2023 Amount %
(Dollars in thousands)
Other income, net $ 791 $ 2,390 $ (1,599) (66.9) %
Other income, net decreased by $1.6 million in income for the six months ended
June 30, 2024. The change was primarily due to an employee retention tax
credit of $2.0 million during the six months ended June 30, 2023, partially
offset by interest income.
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Liquidity and Capital Resources
As of June 30, 2024, we had $36.8 million of cash and cash equivalents,
compared to $36.9 million as of December 31, 2023. As of June 30, 2024, we
have no outstanding debt as we paid off our 2019 Credit Facility in full in
March 2023. We believe our cash and cash equivalents are sufficient to meet
our anticipated capital requirements in the next 12 months. Our future capital
requirements will depend on many factors, including, among other things, 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.
Cash Flows
The following table summarizes our cash flows for the periods indicated (in
thousands):
Six Months Ended June 30,
2024 2023
(In thousands)
Cash provided by operating activities $ 428 $ 7,531
Cash used in investing activities (1,239) (1,048)
Cash provided by (used in) financing activities 629 (2,448)
Cash Flows From Operating Activities
During the six months ended June 30, 2024, cash provided by operating
activities was
$0.4 million
, which consisted of net loss of
$2.7 million
, non-cash charges of
$4.4 million
and changes of net operating assets and liabilities of
$1.2 million
. The non-cash charges consisted of stock-based compensation of
$3.6 million
and depreciation and amortization of
$0.8 million
. The change in our net operating assets and liabilities was primarily due to
a decrease in accounts receivable of
$1.4 million
due to timing of cash receipts for outstanding balances, a decrease in prepaid
and other current assets of
$0.5 million
, and a decrease in inventory of
$0.4 million
offset by a decrease in accounts payable of
$0.6 million
, a decrease in accrued liabilities of
$2.6 million
and a decrease in deferred revenue of $
0.3 million
.
During the six months ended June 30, 2023, cash provided by operating
activities was $7.5 million, which consisted of net income of $4.6 million,
non-cash charges of $3.2 million and changes of net operating assets and
liabilities of $0.3 million. The non-cash charges primarily consisted of
stock-based compensation of $ 2.4 million, depreciation and amortization of
$0.6 million, and a loss on prepayment and termination of our 2019 Credit
Facility of $0.2 million.
The
change in our net operating assets and liabilities was primarily due to an
increase in inventory of $0.7 million, a decrease in accounts payable of $0.7
million, a decrease in accrued liabilities of $0.7 million primarily due to
timing of variable compensation costs, and a decrease in deferred revenue of
$0.1 million, offset by a decrease in accounts receivable of $1.6 million due
to timing of cash receipts for outstanding balances and a decrease in prepaid
and other current assets of $0.2 million.
Cash Flows From Investing Activities
Cash used in investing activities during the six months ended June 30, 2024,
was $1.2 million, reflecting purchases of manufacturing equipment.
Cash used in investing activities during the six months ended June 30, 2023
was $1.0 million, reflecting $1.1 million for the purchases of manufacturing
equipment offset by a nominal amount in proceeds received on the sale of
property and equipment.
Cash Flows From Financing Activities
Cash provided by financing activities during the six months ended June 30,
2024, was $0.6 million, consisting of proceeds from the exercise of employee
stock options and purchase of shares under our employee stock purchase plan.
Cash used in financing activities during the six months ended June 30, 2023,
was $2.5 million, consisting mainly of $2.8 million of payments to pay off our
2019 Credit Facility, offset by $0.3 million in proceeds from the exercise of
employee stock options.
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Critical Accounting Policies and Significant Judgements and Estimates
Our condensed financial statements have been prepared in accordance with 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. We base our estimates on
our historical experience and on various other factors that we believe are
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
There have been no changes to our critical accounting policies and estimates
described in the Annual Report on Form 10-K for the year ended December 31,
2023, filed with the SEC on February 29, 2024, that have had a material impact
on our condensed financial statements and related notes.
Item 3. Quantitative and Qualitativ
e Disclosures About Market Risk
Not required for a smaller reporting company.
Item 4. Controls and Procedure
s
Evaluation of disclosure controls and procedures.
Our management, including our Chief Executive Officer (CEO) and Chief
Financial Officer (CFO), evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act), as of June 30, 2024, the end
of the period covered by this Quarterly Report on Form 10-Q.
Based on this evaluation, our CEO and CFO concluded that our disclosure
controls and procedures were effective at the reasonable assurance level as of
June 30, 2024.
There have been no changes in our internal control over financial reporting
that occurred during the six months ended June 30, 2024 that materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
Inherent limitation on the effectiveness of internal control.
The effectiveness of any system of internal control over financial reporting,
including ours, is subject to inherent limitations, including the exercise of
judgment in designing, implementing, operating, and evaluating the controls
and procedures, and the inability to eliminate misconduct completely.
Accordingly, any system of internal control over financial reporting,
including ours, no matter how well designed and operated, can only provide
reasonable, not absolute assurances. In addition, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate. We
intend to continue to monitor and upgrade our internal controls as necessary
or appropriate for our business, but cannot assure you that such improvements
will be sufficient to provide us with effective internal control over
financial reporting.
PART II-O
THER INFORMATIO
N
Item 1. Legal Proceedings
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.
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Item 1A. Risk Factors
The following are important factors that could cause actual results or events
to differ materially from those contained in any forward-looking statements
made by us or on our behalf. The risks and uncertainties described below are
not the only ones we face. Additional risks and uncertainties not presently
known to us or that we deem immaterial also may impair our business
operations. If any of the following risks or such other risks actually occurs,
our business, financial condition, results of operations and cash flows could
be harmed.
Risk Factor Summary
We are subject to a variety of risks and uncertainties, including risks
related to our financial condition, risks related to our business and our
industry, risks related to our intellectual property and technology, risks
related to regulatory matters and compliance, risks related to our common
stock and certain general risks, which could have a material adverse effect on
our business, financial condition, results of operations and cash flows. These
risks include, but are not limited to, the following principal risks:
We may need additional funding and may be unable to raise capital when needed,
which could force us to delay, reduce, or eliminate planned activities.
We cannot be certain that we will sustain profitability.
The limited history of STT-MRAM adoption makes it difficult to evaluate our current business and future prospects.
We may be unable to match production with customer demand for a variety of reasons including
macroeconomic factors due to the cyclical nature of the semiconductor industry, our
inability to accurately forecast customer demand, supply chain constraints, or the
capacity constraints of our suppliers, which could adversely affect our operating results.
As we expand into new potential markets, we expect to face intense competition, including from our customers
and potential customers, and may not be able to compete effectively, which could harm our business.
We rely on third parties to distribute, manufacture, package, assemble and
test our products, which exposes us to a number of risks, including reduced
control over manufacturing and delivery timing and potential exposure to price
fluctuations, which could result in a loss of revenue or reduced profitability.
Disruptions in our supply chain and increased cost of components used in our products may adversely impact our
business, results of operations and financial condition, including our ability to fulfill customer demand.
Our joint development agreement and strategic relationships involve numerous risks.
We must continuously develop new and enhanced products, and if we
are unable to successfully market our new and enhanced products for
which we incur significant expenses to develop, our results of operations
and financial condition will be materially adversely affected.
Our success and future revenue depend on our ability to secure design wins and on our
customers' ability to successfully sell the products that incorporate our solutions.
Securing design wins is a lengthy, expensive, and competitive process, and may
not result in actual orders and sales, which could cause our revenue to decline.
The loss of one or several of our customers or reduced orders or pricing from existing
customers may have a significant adverse effect on our operations and financial results.
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.
Our costs may increase substantially if we or our third-party manufacturing
contractors do not achieve satisfactory product yields or quality.
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The complexity of our products may lead to defects, which could
negatively impact our reputation with customers and result in liability.
We may experience difficulties in transitioning to new wafer fabrication process technologies or in achieving higher levels
of design integration, which may result in reduced manufacturing yields, delays in product deliveries and increased expenses.
Changes to industry standards and technical requirements relevant to our products and
markets could adversely affect our business, results of operations, and prospects.
Our success depends on our ability to attract and retain key employees, and our failure
to do so could harm our ability to grow our business and execute our business strategies.
We currently maintain, and are seeking to expand, operations outside the United States which exposes us to significant risks.
For a more complete discussion of the material risk factors applicable to us,
see below.
Risk Factors Related to Our Financial Condition
We may need additional funding and may be unable to raise capital when needed,
which could force us to delay, reduce, or eliminate planned activities.
Our total revenue was approximately $25.1 million for the six months ended
June 30, 2024, and $63.8 million for the year ended December 31, 2023. As of
June 30, 2024, we had cash and cash equivalents of approximately $36.8
million. Based on our current operating plan, we believe our existing cash and
cash equivalents, coupled with our anticipated growth and sales levels, will
be sufficient to meet our anticipated cash requirements for at least the next
12 months. However, our existing capital may be insufficient to meet our
long-term requirements. We have no committed sources of funding and there is
no assurance that additional funding will be available to us in the future or
be secured on acceptable terms. If adequate funding is not available when
needed, we may be forced to curtail operations, including our commercial
activities and research and development programs, or cease operations
altogether, file for bankruptcy, or undertake any combination of the
foregoing. In such event, our stockholders may lose their entire investment in
our company.
Further, we may need to raise additional funds through financings or
borrowings in order to accomplish our long-term planned objectives. If we
raise additional funds through issuances of equity, convertible debt
securities or other securities convertible into equity, our existing
stockholders could suffer significant dilution in their percentage ownership
of our company, and any new equity securities we issue could have rights,
preferences, and privileges senior to those of holders of our common stock.
In addition, if we do not meet our payment obligations to third parties as
they become due, we may be subject to litigation claims and our creditworthiness
would be adversely affected. Even if we are successful in defending against
these claims, litigation could result in substantial costs and would be a
distraction to management, and may have other unfavorable results that could
further adversely impact our financial condition. Stockholders should not rely
on our balance sheet as an indication of the amount of proceeds that would be
available to satisfy claims of creditors, and potentially be available for
distribution to stockholders, in the event of liquidation.
We cannot be certain that we will sustain profitability.
While our products offer unique benefits over other industry memory
technologies, the rate of adoption of our products and our ability to capture
market share from legacy technologies is uncertain. Our revenue may also be
adversely impacted by a number of other possible reasons, many of which are
outside our control, including business conditions that adversely affect the
semiconductor memory industry resulting in a decline in end market demand for
our products, adverse impacts resulting from pandemics or endemics, increased
competition, ongoing supply chain constraints, or our failure to capitalize on
growth opportunities. We also rely on achieving specific cost reduction
targets that have uncertainty in their timing and magnitude. We may also incur
unforeseen expenses in the ongoing operation of our business that cause us to
exceed our operational spending plan. As a result, our ability to generate
sufficient revenue growth and/or control expenses to transition to
profitability and generate consistent positive cash flows is uncertain.
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Risk Factors Related to Our Business and Our Industry
The limited history of STT-MRAM adoption makes it difficult to evaluate our
current business and future prospects.
We have been in existence as a stand-alone company since 2008, when Freescale
Semiconductor, Inc. (subsequently acquired by NXP Semiconductor) spun-out its
MRAM business as Everspin. We have been shipping magnetoresistive
random-access memory (MRAM) products since our incorporation in 2008. However,
we only began to manufacture and ship our STT-MRAM products in the fourth
quarter of 2017. We began to manufacture our second set of STT-MRAM products
targeting the NVSRAM markets in the fourth quarter of 2022.
Our limited experience in selling our STT-MRAM products, combined with the
rapidly evolving and competitive nature of our markets, 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, transportation, and data center market segments
and changes in macroeconomic conditions. If we do not manage these risks and
overcome these difficulties successfully, our business will suffer.
We may be unable to match production with customer demand for a variety of
reasons including macroeconomic factors due to the cyclical nature of the
semiconductor industry, our inability to accurately forecast customer demand,
supply chain constraints, or the capacity constraints of our suppliers, which
could adversely affect our operating results.
We make planning and spending decisions, including determining production
levels, production schedules, component procurement commitments, personnel
needs, and other resource requirements, based on our estimates of product
demand and customer requirements. Our products are typically purchased
pursuant to individual purchase orders. While our customers may provide us
with their demand forecasts, they are not contractually committed to buy any
quantity of products beyond purchase orders. Furthermore, many of our
customers may increase, decrease, cancel, or delay purchase orders already in
place without significant penalty. The short-term nature of commitments by our
customers and the possibility of unexpected changes in demand for their
products reduce our ability to accurately estimate future customer
requirements. On occasion, customers may require rapid increases in
production, which can strain our resources, necessitate more onerous
procurement commitments, and reduce our gross margin. If we overestimate
customer demand, we may purchase products that we may not be able to sell,
which could result in decreases in our prices or write-downs of unsold
inventory. Conversely, we could lose sales opportunities and could lose market
share or damage our customer relationships if, for example, we underestimate
customer demand, are affected by supply chain constraints, or sufficient
manufacturing is unavailable. We manufacture MRAM products at our 200mm
facility we lease in Chandler, Arizona and use a single foundry, GLOBALFOUNDRIES
, for production of higher density products on advanced technology nodes,
which may not have sufficient capacity to meet customer demand. The rapid pace
of innovation in our industry could also render significant portions of our
inventory obsolete. Excess or obsolete inventory levels could result in
unexpected expenses or write-downs of inventory values that could adversely
affect our business, operating results, and financial condition.
As we expand into new potential markets, we expect to face intense
competition, including from our customers and potential customers, and may not
be able to compete effectively, which could harm our business.
We expect that our new and future MRAM products will be applicable to markets
in which we are not currently operating. The markets in which we operate and
may operate in the future are extremely competitive and are characterized by
rapid technological change, continuous evolving customer requirements and
declining average selling prices. We may not be able to compete successfully
against current or potential competitors, which include our current or
potential customers as they seek to internally develop solutions competitive
with ours or as we develop products potentially competitive with their
existing products. If we do not compete successfully, our market share and
revenue may decline. We compete with large semiconductor manufacturers and
designers and others, and our current and potential competitors have longer
operating histories, significantly greater resources and name recognition and
a larger base of customers than we do. This may allow them to respond more
quickly than we can to new or emerging
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technologies or changes in customer requirements. In addition, these
competitors may have greater credibility with our existing and potential
customers. Some of our current and potential customers with their own
internally developed solutions may choose not to purchase products from
third-party suppliers like us.
We rely on third parties to distribute, manufacture, package, assemble and
test our products, which exposes us to a number of risks, including reduced
control over manufacturing and delivery timing and potential exposure to price
fluctuations, which could result in a loss of revenue or reduced profitability.
Although we operate an integrated magnetic fabrication line located in
Chandler, Arizona, we purchase wafers from third parties and outsource the
manufacturing, packaging, assembly and testing of our products to third-party
foundries and assembly and testing service providers. We use a single foundry,
GLOBALFOUNDRIES Singapore Pte. Ltd., for production of higher density products
on advanced technology nodes. Our primary product package and test operations
are located in China, Taiwan and other Asian countries. We also use standard
CMOS wafers from third-party foundries, which we process at our Chandler,
Arizona facility.
Relying on third-party distribution, manufacturing, assembly, packaging, and
testing presents a number of risks, including but not limited to:
our interests could diverge from those of our foundries, or we may not be able
to agree with them on ongoing development, manufacturing and operational
activities, or on the amount, timing, or nature of further investments in our
joint development;
capacity and materials shortages during periods of high demand or supply
constraints;
reduced control over delivery schedules, inventories and quality;
the unavailability of, or potential delays in obtaining access to, key process
technologies;
the inability to achieve required production or test capacity and acceptable
yields on a timely basis;
misappropriation of our intellectual property;
the third party's ability to perform its obligations due to bankruptcy or
other financial constraints;
exclusive representatives for certain customer engagements;
limited warranties on wafers or products supplied to us; and
potential increases in prices including due to inflation.
Our manufacturing agreement with GLOBALFOUNDRIES includes a customary forecast
and ordering mechanism for the supply of certain of our wafers, and we are
obligated to order and pay for, and GLOBALFOUNDRIES is obligated to supply,
wafers consistent with the binding portion of our forecast. However, our
manufacturing arrangement is also subject to both a minimum and maximum order
quantity that while we believe currently addresses our projected foundry
capacity needs, may not address our maximum foundry capacity requirements in
the future. We may also be obligated to pay for unused capacity if our demand
decreases in the future, or if our estimates prove inaccurate. GLOBALFOUNDRIES
also has the ability to discontinue its manufacture of any of our wafers upon
due notice and completion of the notice period. This could cause us to have to
find another foundry to manufacture those wafers or redesign our core
technology and would mean that we may not have products to sell until such
time. Any time spent engaging a new manufacturer or redesigning our core
technology could be costly and time consuming and may allow potential
competitors to take opportunities in the marketplace. Moreover, if we are
unable to find another foundry to manufacture our products or if we have to
redesign our core technology, this could cause material harm to our business
and operating results.
If we need other foundries or packaging, assembly, and testing contractors, or
if we are unable to obtain timely and adequate deliveries from our providers,
we might not be able to cost-effectively and quickly retain other vendors to
satisfy our requirements. Because the lead time needed to establish a
relationship with a new third-party supplier could
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be several quarters, there is no readily available alternative source of
supply for any specific component. In addition, the time and expense to
qualify a new foundry could result in additional expense, diversion of
resources or lost sales, any of which would negatively impact our financial
results.
If any of our current or future foundries or packaging, assembly and testing
subcontractors significantly increases the costs of wafers or other materials
or services, interrupts or reduces our supply, including for reasons outside
of their control, such as due to pandemics or epidemics, or if any of our
relationships with our suppliers is terminated, our operating results could be
adversely affected. Such occurrences could also damage our customer
relationships, result in lost revenue, cause a loss in market share, or damage
our reputation.
Disruptions in our supply chain and increased cost of components used in our
products may adversely impact our business, results of operations and
financial condition, including our ability to fulfill customer demand.
If we fail to procure sufficient components used in our products, we may be
unable to deliver our products to our customers on a timely basis, which could
lead to customer dissatisfaction and could harm our reputation and ability to
compete. We would likely experience significant delays or cessation in
producing some of our products if a labor strike, natural disaster, public
health crisis, geopolitical event, or other supply disruption were to occur,
including as a result of public health issues, such as pandemics and
epidemics, or the ongoing military conflict between Russia and Ukraine, at any
of our main suppliers.
Further, the upturn in the semiconductor industry has stretched the supply
chain, and we are subject to supply shortages, as well as higher costs as
suppliers opportunistically raise prices. For example, there is currently a
worldwide shortage of semiconductor, memory and other electronic components
affecting many industries. Our products are dependent on some of these
electronic components. A continued shortage of electronic components may
impact us significantly and could cause us to experience extended lead times
and increased prices from our suppliers, which could be significant. Extended
lead times and decreased availability of key components could result in a
significant disruption to our production schedule, all of which would have an
adverse effect on our business, results of operations and financial condition.
Additionally, the military conflict between Russia and Ukraine creates
additional uncertainty and risks relating to our supply chain and the cost of
components. See "-General Risk Factors-Unfavorable economic, market and
geopolitical conditions, domestically and internationally, may adversely
affect our business, financial condition, results of operations and cash
flows" for additional information.
We do not have any guarantees of supply from our third-party suppliers, and in
certain cases we have limited contractual arrangements or are relying on
standard purchase orders or on component parts available on the open market,
which may further result in increased costs combined with reduced
availability. A continued delay in our ability to produce and deliver our
products could also cause our customers to purchase alternative products from
our competitors and/or harm our reputation.
Our joint development agreement and strategic relationships involve numerous
risks.
We have entered into strategic relationships to manufacture products and
develop new manufacturing process technologies and products. These
relationships include our joint development agreement with GLOBALFOUNDRIES to
develop advanced MTJ technology and STT-MRAM. These relationships are subject
to various risks that could adversely affect the value of our investments and
our results of operations. These risks include the following:
our interests could diverge from those of our foundries, or we may not be able
to agree with them on ongoing development, manufacturing and operational
activities, or on the amount, timing, or nature of further investments in our
joint development;
we may experience difficulties in transferring technology to a foundry;
we may experience difficulties and delays in getting to and/or ramping
production at foundries;
our control over the operations of foundries is limited;
due to financial constraints, our joint development collaborators may be
unable to meet their commitments to us and may pose credit risks for our
transactions with them;
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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.
The term of the agreement, as amended, is the completion, termination, or
expiration of the last statement of work
entered into pursuant to the joint development agreement.
If our strategic relationships are unsuccessful, our business, results of
operations, or financial condition may be materially adversely affected.
We must continuously develop new and enhanced products, and if we are unable
to successfully market our new and enhanced products for which we incur
significant expenses to develop, our results of operations and financial
condition will be materially adversely affected.
To compete effectively in our markets, we must continually design, develop,
and introduce new and improved technology and products with improved features
in a cost-effective manner in response to changing technologies and market
demand. This requires us to devote substantial financial and other resources
to research and development. We are developing new technology and products,
which we expect to be one of the drivers of our revenue growth in the future.
We also face the risk that customers may not value or be willing to bear the
cost of incorporating our new and enhanced products into their products,
particularly if they believe their customers are satisfied with current
solutions. Regardless of the improved features or superior performance of our
new and enhanced products, customers may be unwilling to adopt our solutions
due to design or pricing constraints, or because they do not want to rely on a
single or limited supply source. Because of the extensive time and resources
that we invest in developing new and enhanced products, if we are unable to
sell customers our new products, our revenue could decline and our business,
financial condition, results of operations and cash flows would be negatively
affected. For example, if we are unable to generate more customer adoption of
our 1Gb product and address new growth opportunities with subsequent STT-MRAM
products, we may not be able to materially increase our revenue. If we are
unable to successfully develop and market our new and enhanced products that
we have incurred significant expenses developing, our results of operations
and financial condition will be materially and adversely affected.
Our success and future revenue depend on our ability to secure design wins and
on our customers' ability to successfully sell the products that incorporate
our solutions. Securing design wins is a lengthy, expensive, and competitive
process, and may not result in actual orders and sales, which could cause our
revenue to decline.
We sell to customers, including OEMs and ODMs, that incorporate MRAM into
their products. A design win occurs after a customer has tested our product,
verified that it meets the customer's requirements and qualified our solutions
for their products. We believe we are dependent, among other things, on the
adoption of our 256Mb and 1Gb MRAM products by our customers to secure design
wins. 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.
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If a current or prospective customer incorporates 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.
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
two largest end customers together accounted for 32% of our total revenue for
the six months ended June 30, 2024, and each of these customers accounted for
more than 10% of our revenue during that period. Our two largest end customers
together accounted for 22% of our total revenue for the year ended December
31, 2023, and one of those 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.
We face competition and expect competition to increase in the future. If we
fail to compete effectively, our revenue growth and results of operations will
be materially and adversely affected.
The global semiconductor market in general, and the semiconductor memory
market in particular, are highly competitive. We expect competition to
increase and intensify as other semiconductor companies enter our markets,
many of which have greater financial and other resources with which to pursue
technology development, product design, manufacturing, marketing and sales and
distribution of their products. Increased competition could result in price
pressure, reduced revenue, and profitability and loss of market share, any of
which could materially and adversely affect our business, revenue, and
operating results. Currently, our competitors range from large, international
companies offering a wide range of traditional memory technologies to
companies specializing in other alternative, specialized emerging memory
technologies. Our primary memory competitors include Fujitsu, Infineon,
Integrated Silicon Solution, Intel, Macronix, Microchip, Micron, Renesas,
Samsung, and Toshiba. In addition, as the MRAM market opportunity grows, we
expect new entrants may enter this market and existing competitors, including
leading semiconductor companies, may make significant investments to compete
more effectively against our products. These competitors could develop
technologies or architectures that make our products or technologies obsolete.
Our ability to compete successfully depends on factors both within and outside
of our control, including:
the functionality and performance of our products and those of our competitors;
our relationships with our customers and other industry participants;
prices of our products and prices of our competitors' products;
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.
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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 costs may increase substantially if we or our third-party manufacturing
contractors do not achieve satisfactory product yields or quality.
The fabrication process is extremely complicated and small changes in design,
specifications or materials can result in material decreases in product yields
or even the suspension of production. From time to time, we and/or the
third-party foundries that we contract to manufacture our products may
experience manufacturing defects and reduced manufacturing yields. In some
cases, we and/or our third-party foundries may not be able to detect these
defects early in the fabrication process or determine the cause of such
defects in a timely manner. There may be a higher risk of product yield issues
in newer STT-MRAM products.
Generally, in pricing our products, we assume that manufacturing yields will
continue to improve, even as the complexity of our products increases. Once
our products are initially qualified either internally or with our third-party
foundries, minimum acceptable yields are established. We are responsible for
the costs of the units if the actual yield is above the minimum set with our
third-party foundries. If actual yields are below the minimum, we are not
required to purchase the units. Typically, minimum acceptable yields for our
new products are generally lower at first and gradually improve as we achieve
full production but yield issues can occur even in mature processes due to
break downs in mechanical systems, equipment failures or calibration errors.
Unacceptably low product yields or other product manufacturing problems could
substantially increase overall production time and costs and adversely impact
our operating results. Product yield losses may also increase our costs and
reduce our gross margin. In addition to significantly harming our results of
operations and cash flow, poor yields may delay shipment of our products and
harm our relationships with existing and potential customers.
The complexity of our products may lead to defects, which could negatively
impact our reputation with customers and result in liability.
Products as complex as ours may contain defects when first introduced to
customers or as new versions are released. Delivery of products with
production defects or reliability, quality or compatibility problems could
significantly delay or hinder market acceptance of the products or result in a
costly recall and could damage our reputation and adversely affect our ability
to retain existing customers and attract new customers. Defects could cause
problems with the functionality of our products, resulting in interruptions,
delays, or cessation of sales of these products to our customers. We may also
be required to make significant expenditures of capital and resources to
resolve such problems. We cannot assure our stockholders that problems will
not be found in new products, both before and after commencement of commercial
production, despite testing by us, our suppliers, or our customers. For
example, any such problems could result in:
delays in development, manufacture and roll-out of new products;
additional development costs;
loss of, or delays in, market acceptance;
diversion of technical and other resources from our other development efforts;
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.
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We aim to use the most advanced manufacturing process technology appropriate
for our solutions that is available from our third-party foundries. As a
result, we periodically evaluate the benefits of migrating our solutions to
other technologies to improve performance and reduce costs. These ongoing
efforts require us from time to time to modify the manufacturing processes for
our products and to redesign some products, which in turn may result in delays
in product deliveries.
For example, as smaller line width geometry manufacturing processes become
more prevalent, we intend to move our future products to increasingly smaller
geometries to integrate greater levels of memory capacity and/or functionality
into our products. This transition will require us and our third-party
foundries to migrate to new designs and manufacturing processes for smaller
geometry products.
We may face difficulties, delays, and increased expense as we transition our
products to new processes, and potentially to new foundries. We will depend on
our third-party foundries as we transition to new processes. We cannot assure
our stockholders that our third-party foundries will be able to effectively
manage such transitions or that we will be able to maintain our relationship
with our third-party foundries or develop relationships with new third-party
foundries. If we or any of our third-party foundries experience significant
delays in transitioning to new processes or fail to efficiently implement
transitions, we could experience reduced manufacturing yields, delays in
product deliveries and increased expenses, any of which could harm our
relationships with our customers and our operating results.
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, data storage, and other
markets. As a result, we could be required to invest significant time and
effort and to incur significant expense to redesign our products to ensure
compliance with relevant standards and requirements. If our products are not
in compliance with prevailing industry standards and technical requirements
for a significant period of time, we could miss opportunities to achieve
crucial design wins, our revenue may decline and we may incur significant
expenses to redesign our products to meet the relevant standards, which could
adversely affect our business, results of operations and prospects.
Our success depends on our ability to attract and retain key employees, and
our failure to do so could harm our ability to grow our business and execute
our business strategies.
Our success depends on our ability to attract and retain our key employees,
including our management team and experienced engineers. Competition for
personnel in the semiconductor memory technology field, and in the MRAM space
in particular, is intense, and the availability of suitable and qualified
candidates is limited. We compete to attract and retain qualified research and
development personnel with other semiconductor companies, universities, and
research institutions. Given our experience as an early entrant in the MRAM
space, our employees are frequently contacted by MRAM startups and MRAM groups
within larger companies seeking to employ them. The members of our management
and our key employees are at-will. If we lose the services of any key senior
management member or employee, we may not be able to locate suitable or
qualified replacements, and may incur additional expenses to recruit and train
new personnel, which could severely impact our business and prospects. The
loss of the services of one or more of our key employees, especially our key
engineers, or our inability to attract and retain qualified engineers, could
harm our business, financial condition, and results of operations.
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We currently maintain and are seeking to expand operations outside of the
United States which exposes us to significant risks.
The success of our business depends, in large part, on our ability to operate
successfully from geographically disparate locations and to further expand our
international operations and sales. Operating in international markets
requires significant resources and management attention and subjects us to
regulatory, economic, and political risks that are different from those we
face in the United States. We cannot be sure that further international
expansion will be successful. In addition, we face risks in doing business
internationally that could expose us to reduced demand for our products, lower
prices for our products or other adverse effects on our operating results. The
success and profitability, as well as the expansion, of our international
operations are subject to numerous risks and uncertainties, many of which are
outside of our control, such as the following:
public health issues, such as pandemics and epidemics, which can result in
varying impacts to our business, employees, partners, customers, distributors
or suppliers internationally as discussed elsewhere in this "Risk Factors"
section;
difficulties, inefficiencies and costs associated with staffing and managing
foreign operations;
longer and more difficult customer qualification and credit checks;
greater difficulty collecting accounts receivable and longer payment cycles;
the need for various local approvals to operate in some countries;
difficulties in entering some foreign markets without larger-scale local
operations;
changes in import/export laws, trade restrictions, regulations and customs and
duties and tariffs (foreign and domestic);
compliance with local laws and regulations;
unexpected changes in regulatory requirements, including the elimination of
tax holidays;
reduced protection for intellectual property rights in some countries;
adverse tax consequences as a result of repatriating cash generated from
foreign operations to the United States;
adverse tax consequences, including potential additional tax exposure if we
are deemed to have established a permanent establishment outside of the United
States;
the effectiveness of our policies and procedures designed to ensure compliance
with the Foreign Corrupt Practices Act of 1977 and similar regulations;
fluctuations in currency exchange rates, which could increase the prices of
our products to customers outside of the United States, increase the expenses
of our international operations by reducing the purchasing power of the U.S.
dollar and expose us to foreign currency exchange rate risk if, in the future,
we denominate our international sales in currencies other than the U.S. dollar;
new and different sources of competition;
political, economic, and social instability;
terrorism and acts of war, such as ongoing military conflict between Russia
and Ukraine, which could have a negative impact on the operations of our
business or the businesses of our customers; and
US Department of Commerce regulations or restrictions on exports of certain
semiconductor technologies and equipment to China.
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Our failure to manage any of these risks successfully could harm our
operations and reduce our revenue.
Risk Factors Related to Our Intellectual Property and Technology
Failure to protect our intellectual property could substantially harm our
business.
Our success and ability to compete depend in part upon our ability to protect
our intellectual property. We rely on a combination of intellectual property
rights, including patents, mask work protection, copyrights, trademarks, trade
secrets and know-how, in the United States and other jurisdictions. The steps
we take to protect our intellectual property rights may not be adequate,
particularly in foreign jurisdictions such as China. Any patents we hold may
not adequately protect our intellectual property rights or our products
against competitors, and third parties may challenge the scope, validity, or
enforceability of our issued patents, which third parties may have
significantly more financial resources with which to litigate their claims
than we have to defend against them. In addition, other parties may
independently develop similar or competing technologies designed around any
patents or patent applications that we hold. Some of our products and
technologies are not covered by any patent or patent application, as we do not
believe patent protection of these products and technologies is critical to
our business strategy at this time. A failure to timely seek patent protection
on products or technologies generally precludes us from seeking future patent
protection on these products or technologies.
In addition to patents, we also rely on contractual protections with our
customers, suppliers, distributors, employees, and consultants, and we
implement security measures designed to protect our trade secrets and
know-how. However, we cannot assure our stockholders that these contractual
protections and security measures will not be breached, that we will have
adequate remedies for any such breach or that our customers, suppliers,
distributors, employees, or consultants will not assert rights to intellectual
property or damages arising out of such contracts.
We may initiate claims against third parties to protect our intellectual
property rights if we are unable to resolve matters satisfactorily through
negotiation. Litigation brought to protect and enforce our intellectual
property rights could be costly, time-consuming, and distracting to
management. It could also result in the impairment or loss of portions of our
intellectual property, as an adverse decision could limit our ability to
assert our intellectual property rights, limit the value of our technology or
otherwise negatively impact our business, financial condition, and results of
operations. Additionally, any enforcement of our patents or other intellectual
property may provoke third parties to assert counterclaims against us. Our
failure to secure, protect and enforce our intellectual property rights could
materially harm our business.
We may face claims of intellectual property infringement, which could be
time-consuming, costly to defend or settle, result in the loss of significant
rights, harm our relationships with our customers and distributors, or
otherwise materially adversely affect our business, financial condition, and
results of operations.
The semiconductor memory industry is characterized by companies that hold
patents and other intellectual property rights and that vigorously pursue,
protect, and enforce intellectual property rights. These companies include
patent holding companies or other adverse patent owners who have no relevant
product revenue and against whom our own patents may provide little or no
deterrence. From time to time, third parties may assert against us and our
customers' patent and other intellectual property rights to technologies that
are important to our business. We have in the past, and may in the future,
face such claims.
Claims that our products, processes, or technology infringe third-party
intellectual property rights, regardless of their merit or resolution, could
be costly to defend or settle and could divert the efforts and attention of
our management and technical personnel. We may also be obligated to indemnify
our customers or business partners in connection with any such litigation,
which could result in increased costs. Infringement claims also could harm our
relationships with our customers or distributors and might deter future
customers from doing business with us. If any such proceedings result in an
adverse outcome, we could be required to:
cease the manufacture, use or sale of the infringing products, processes or
technology;
pay substantial damages for infringement;
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expend significant resources to develop non-infringing products, processes or
technology, which may not be successful;
license technology from the third-party claiming infringement, which license
may not be available on commercially reasonable terms, or at all;
cross-license our technology to a competitor to resolve an infringement claim,
which could weaken our ability to compete with that competitor; or
pay substantial damages to our customers to discontinue their use of or to
replace infringing technology sold to them with non-infringing technology, if
available.
Any of the foregoing results could have a material adverse effect on our
business, financial condition, and results of operations. Furthermore, our
exposure to the foregoing risks may also be increased if we acquire other
companies or technologies. For example, we may have a lower level of
visibility into the development process with respect to intellectual property
or the care taken to safeguard against infringement risks with respect to the
acquired company or technology. In addition, third parties may make
infringement and similar or related claims after we have acquired technology
that had not been asserted prior to the acquisition.
We make significant investments in new technologies and products that may not
achieve technological feasibility or profitability or that may limit our
revenue growth.
We have made and will continue to make significant investments in research and
development of new technologies and products, including new and more
technically advanced versions of our MRAM technology.
Investments in new technologies are speculative and technological feasibility
may not be achieved. Commercial success depends on many factors including
demand for innovative technology, availability of materials and equipment,
selling price the market is willing to bear, competition and effective
licensing or product sales. We may not achieve significant revenue from new
product investments for a number of years, if at all. Moreover, new
technologies and products may not be profitable, and even if they are
profitable, operating margins for new products and businesses may not be as
high as the margins we have experienced historically or originally
anticipated. Our inability to capitalize on or realize substantial revenue
from our significant investments in research and development could harm our
operating results and distract management, harming our business.
Interruptions in or other compromises of our information technology systems or
data or that of third parties upon whom we rely could adversely affect our
business.
We rely on the efficient, uninterrupted and uncompromised operation of complex
information technology systems and networks (and those of third parties) to
operate our business. Any significant disruption to or other compromise of our
systems, networks or data (or those of third parties upon whom we rely),
including, but not limited to, due to new system implementations, computer
viruses, social-engineering attacks, personnel (including former personnel)
misconduct or error, supply-chain attacks, ransomware attacks, software bugs,
software or hardware failure, security breaches, facility issues, natural
disasters, terrorism, war, telecommunication failures, energy blackouts, loss,
theft or similar threats, could have a material adverse impact on our
operations, sales, and financial results. Such disruption or other compromise
could result in a loss of our intellectual property or the release of
sensitive competitive information or supplier, customer, personnel or other
relevant stakeholder's personal data. Additionally, future or past business
transactions (such as acquisitions or integrations) could expose us to
additional cybersecurity risks and vulnerabilities, as our systems could be
negatively affected by vulnerabilities present in acquired or integrated
entities' systems and technologies. Furthermore, we may discover security
issues that were not found during due diligence of such acquired or integrated
entities, and it may be difficult to integrate companies into our information
technology environment and security program. Any loss of such information
could harm our competitive position, result in a loss of customer confidence,
result in breaches of applicable obligations (such as laws and contracts) 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, bans on processing personal
data or orders not to use or destroy data, enforcement actions, remediation
obligations, litigation, fines, and other actions.
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We may experience attacks on our data and/or information systems, attempts to
breach our security and attempts to introduce malicious software into our IT
systems. Such threats are prevalent and continue to rise, are increasingly
difficult to detect, and come from a variety of sources. During times of war
and other major conflicts, we and the third parties upon which we rely may be
vulnerable to a heightened risk of these attacks. 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. Attempts to gain unauthorized access to our
IT systems or other attacks have in the past, in certain instances and to
certain degrees, been successful (but have not caused significant harm), and
may in the future be successful, and in some cases, we might be unaware of an
incident or its magnitude and effects.
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. Our ability to monitor these third
parties' information security practices is limited, and these third parties
may not have adequate information security measures in place. 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.
While we have implemented security measures designed to protect against
security incidents, there can be no assurance that these measures will be
effective. We take steps designed to detect, mitigate, and remediate
vulnerabilities in our information systems (such as our hardware and/or
software, including that of third parties upon which we rely). We may not,
however, detect and remediate all such vulnerabilities including on a timely
and effective basis. Further, we may experience delays in developing and
deploying remedial measures and patches designed to address identified
vulnerabilities. Vulnerabilities could be exploited and result in a security
incident.
We may expend significant resources or modify our business activities to try
to protect against security incidents. Additionally, certain data privacy and
security obligations may require us to implement and maintain specific
security measures or industry-standard or reasonable security measures to
protect our information technology systems and sensitive data.
Risk Factors Related to Regulatory Matters and Compliance
To comply with environmental laws and regulations, we may need to modify our
activities or incur substantial costs, and if we fail to comply with
environmental regulations, we could be subject to substantial fines or be
required to have our suppliers alter their processes.
The semiconductor memory industry is subject to a variety of international,
federal, state, and local governmental regulations directed at preventing or
mitigating environmental harm, as well as to the storage, discharge, handling,
generation, disposal and labeling of toxic or other hazardous substances.
Failure to comply with environmental regulations could subject us to civil or
criminal sanctions and property damage or personal injury claims. Compliance
with current or future environmental laws and regulations could restrict our
ability to expand our business or require us to modify processes or incur
other substantial expenses which could harm our business. In response to
environmental concerns, some customers and government agencies impose
requirements for the elimination of hazardous substances, such as lead (which
is widely used in soldering connections in the process of semiconductor
packaging and assembly), from electronic equipment. For example, the European
Union adopted its Restriction on Hazardous Substance Directive which
prohibits, with specified exceptions, the sale in the EU market of new
electrical and electronic equipment containing more than agreed levels of lead
or other hazardous materials and China has enacted similar regulations.
Environmental laws and regulations such as these could become more stringent
over time, causing a need to redesign technologies, imposing greater
compliance costs, and increasing risks and penalties associated with
violations, which could seriously harm our business.
Increasing public attention has been focused on the environmental impact of
electronic manufacturing operations. While we have not experienced any
materially adverse effects on our operations from recently adopted
environmental regulations, our business and results of operations could suffer
if for any reason we fail to control the storage or use of, or to adequately
restrict the discharge or disposal of, hazardous substances under present or
future environmental regulations.
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Regulations related to "conflict minerals" may force us to incur additional
expenses, may make our supply chain more complex and may result in damage to
our reputation with customers.
Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the
SEC has adopted requirements for companies that use certain minerals and
metals, known as conflict minerals, in their products, whether or not these
products are manufactured by third parties. These requirements require
companies to perform diligence and disclose and report whether or not such
minerals originate from the Democratic Republic of Congo and adjoining
countries. 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 incur additional
costs in complying with the disclosure requirements, including costs related
to determining the source of any of the relevant minerals and metals used in
our products. Since our supply chain is complex, we have not been able to
sufficiently verify the origins for these minerals and metals used in our
products through the due diligence procedures that we implement, which may
harm our reputation. In such event, we may also face difficulties in
satisfying customers who require that all of the components of our products
are certified as conflict mineral free and these customers may discontinue, or
materially reduce, purchases of our products, which could result in a material
adverse effect on our results of operations and our financial condition may be
adversely affected.
Our ability to use net operating losses to offset future taxable income may be
subject to certain limitations.
In general, under Section 382 of the U.S. Internal Revenue Code of 1986, as
amended, or the Code, a corporation that undergoes an "ownership change" is
subject to limitations on its ability to utilize its pre-change net operating
losses, or NOLs, to offset future taxable income and tax credits to offset
tax. As of December 31, 2023, we had gross federal net operating loss
carryforwards of approximately $96.2 million, of which $55.8 million will
expire in 2028 through 2037 if not utilized, and $40.5 million will carryover
indefinitely. As of December 31, 2023, we had state net operating loss
carryforwards of approximately $48.7 million, of which $45.9 million will
expire in 2028 through 2043 if not utilized, and $2.8 million will carryover
indefinitely. The federal NOLs generated prior to 2018 will continue to be
governed by the NOL tax rules as they existed prior to the adoption of the
2017 Tax
Cuts and Jobs Act (2017 Tax Act)
, which means that generally they will expire 20 years after they were
generated if not used prior thereto. The 2017 Tax Act repealed the 20-year
carryforward and two-year carryback of NOLs originating after December 31,
2017, and also limits the NOL deduction to 80% of taxable income for tax years
beginning after December 31, 2017. Any NOLs generated in 2018 and forward will
be carried forward and will not expire. There is no current impact to us as
the NOLs that we are utilizing in the current year were generated prior to
2018, and therefore, are not subject to the 80% limitation. 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. The ability to utilize our
net operating losses and tax credits could also be impaired under state law.
As a result, we might not be able to utilize a material portion of our state
NOLs and tax credits.
Risks Related to Our Common Stock
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;
announcements by us or our competitors of significant acquisitions, strategic
partnerships, joint ventures, capital commitments or restructurings;
disputes or other developments with respect to our or others' intellectual
property rights;
product liability claims or other litigation;
quarterly variations in our results of operations or those of others in our
industry;
sales of large blocks of our common stock, including sales by our executive
officers and directors;
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changes in senior management or key personnel;
changes in earnings estimates or recommendations by securities analysts; and
general market conditions and other factors, including factors unrelated to
our operating performance or the operating performance of our competitors,
including the effects of pandemics and epidemics and ongoing military conflict
between Russia and Ukraine.
Stock markets generally have experienced extreme price and volume fluctuations
that have often been unrelated or disproportionate to the operating
performance of those companies. Further, 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. Fluctuations in our
revenue and operating results could also cause our stock price to decline.
In addition, in the past, class action litigation has often been instituted
against companies whose securities have experienced periods of volatility in
market price, or for other reasons. Securities litigation brought against us
following volatility in our stock price or otherwise, regardless of the merit
or ultimate results of such litigation, could result in substantial costs,
which would hurt our financial condition and operating results and divert
management's attention and resources from our business.
These and other factors may make the price of our stock volatile and subject
to unexpected fluctuation.
Provisions in our corporate charter documents and under Delaware law could
make an acquisition of us more difficult and may prevent attempts by our
stockholders to replace or remove our current management.
Provisions in our amended and restated certificate of incorporation and our
amended and restated bylaws may discourage, delay, or prevent a merger,
acquisition, or other change in control of us that stockholders may consider
favorable, including transactions in which stockholders might otherwise
receive a premium for their shares. These provisions could also limit the
price that investors might be willing to pay in the future for shares of our
common stock, thereby depressing the market price of our common stock. In
addition, these provisions may frustrate or prevent any attempts by our
stockholders to replace or remove our current management by making it more
difficult for stockholders to replace members of our board of directors.
Because our board of directors is responsible for appointing the members of
our management team, these provisions could in turn affect any attempt by our
stockholders to replace current members of our management team. Among others,
these provisions include that:
our board of directors has the right to expand the size of our board of
directors and to elect directors to fill a vacancy created by the expansion of
the board of directors or the resignation, death or removal of a director,
which prevents stockholders from being able to fill vacancies on our board of
directors;
our stockholders may not act by written consent or call special stockholders'
meetings; as a result, a holder, or holders, controlling a majority of our
capital stock would not be able to take certain actions other than at annual
stockholders' meetings or special stockholders' meetings called by the board
of directors pursuant to a resolution adopted by a majority of the total
number of authorized directors, the chairman of the board or the chief
executive officer;
our amended and restated certificate of incorporation prohibits cumulative
voting in the election of directors, which limits the ability of minority
stockholders to elect director candidates;
the affirmative vote of holders of at least 66-2/3% of the voting power of all
of the then outstanding shares of voting stock, voting as a single class, will
be required (a) to amend certain provisions of our certificate of
incorporation, including provisions relating to the size of the board, special
meetings, actions by written consent and cumulative voting and (b) to amend or
repeal our amended and restated bylaws, although such bylaws may be amended by
a simple majority vote of our board of directors;
stockholders must provide advance notice and additional disclosures to
nominate individuals for election to the board of directors or to propose
matters that can be acted upon at a stockholders' meeting, which may discourage
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or deter a potential acquiror from conducting a solicitation of proxies to
elect the acquiror's own slate of directors or otherwise attempting to obtain
control of our company; and
our board of directors may issue, without stockholder approval, shares of
undesignated preferred stock; the ability to issue undesignated preferred
stock makes it possible for our board of directors to issue preferred stock
with voting or other rights or preferences that could impede the success of
any attempt to acquire us.
Moreover, because we are incorporated in Delaware, we are governed by the
provisions of Section 203 of the Delaware General Corporation Law, which
prohibits a person who owns in excess of 15% of our outstanding voting stock
from merging or combining with us for a period of three years after the date
of the transaction in which the person acquired in excess of 15% of our
outstanding voting stock, unless the merger or combination is approved in a
prescribed manner.
Our amended and restated certificate of incorporation provides that the Court
of Chancery of the State of Delaware and the federal district courts of the
United States of America will be the exclusive forums for substantially all
disputes between us and our stockholders, which could limit our stockholders'
ability to obtain a favorable judicial forum for disputes with us or our
directors, officers, or employees.
Our amended and restated certificate of incorporation provides that the Court
of Chancery of the State of Delaware is the exclusive forum for the following
types of actions or proceedings under Delaware statutory or common law:
any derivative action or proceeding brought on our behalf;
any action asserting a claim of breach of a fiduciary duty owed by any
director, officer or other employee to us or our stockholders;
any action asserting a claim against us arising under the Delaware General
Corporation Law, our amended and restated certificate of incorporation or our
amended and restated bylaws; and
any action asserting a claim against us that is governed by the internal-affairs
doctrine.
This provision would not apply to suits brought to enforce a duty or liability
created by the Exchange Act. Furthermore, Section 22 of the Securities Act
creates concurrent jurisdiction for federal and state courts over all such
Securities Act actions. Accordingly, both state and federal courts have
jurisdiction to entertain such claims. To prevent having to litigate claims in
multiple jurisdictions and the threat of inconsistent or contrary rulings by
different courts, among other considerations, our amended and restated
certificate of incorporation provides
that, unless we consent in writing to the selection of an alternative forum,
the federal district courts of the United States will be the exclusive forum
for resolving any complaint asserting a cause of action arising under the
Securities Act. While the Delaware courts have determined that such choice of
forum provisions are facially valid, a stockholder may nevertheless seek to
bring a claim in a venue other than those designated in the exclusive forum
provisions. In such instance, we would expect to vigorously assert the
validity and enforceability of the exclusive forum provisions of our amended
and restated certificate of incorporation. This may require significant
additional costs associated with resolving such action in other jurisdictions
and there can be no assurance that the provisions will be enforced by a court
in those other jurisdictions.
These exclusive forum provisions may limit a stockholder's ability to bring a
claim in a judicial forum that it finds favorable for disputes with us or our
directors, officers, or other employees, which may discourage lawsuits against
us and our directors, officers, and other employees. If a court were to find
either exclusive-forum provision in our amended and restated certificate of
incorporation to be inapplicable or unenforceable in an action, we may incur
further significant
additional costs associated with resolving the dispute in other jurisdictions,
all of
which could seriously harm our business.
General Risk Factors
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 United States and internationally
. We also rely on domestic and international suppliers, manufacturing partners
and distributors. We are therefore susceptible to adverse U.S. and
international economic and market conditions. If any of our manufacturing
partners, customers, distributors or suppliers experience slowdowns in their
business, serious financial difficulties or cease operations, our business
will be adversely affected. In addition, the adverse impact of general
economic factors that are beyond our control, including, but not
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limited to, housing markets, recession, inflation, deflation, consumer credit
activity, consumer debt levels, exchange rate volatility, fuel and energy
costs, interest rates, bank failures, tax rates and policy, unemployment
trends, potential industry downturn, the impact of natural disasters such as
pandemics, civil disturbances, terrorist activities and acts of war, including
ongoing military conflict between Russia and Ukraine, may adversely impact
consumer spending, which may adversely impact our customers' spending and
demand for our products. As an example, in the United States, capital markets
have experienced and continue to experience volatility and disruption.
Furthermore, inflation rates in the United States have recently increased to
levels not seen in decades resulting in federal action to increase interest
rates, affecting capital markets. In addition to the foregoing, adverse
developments that affect financial institutions, transactional counterparties
or other third parties, such as bank failures, or concerns or speculation
about any similar events or risks, could lead to market-wide liquidity
problems, which in turn may cause third parties, including customers, to
become unable to meet their obligations under various types of financial
arrangements as well as general disruptions or instability in the financial
markets. Additionally, the military conflict in Ukraine and escalating
geopolitical tensions resulting from such conflict have resulted and may
continue to result in sanctions, tariffs, and import-export restrictions
which, when combined with retaliatory actions taken by Russia, could cause
further inflationary pressures and economic and supply chain disruptions, as
well as cause us to experience extended lead times and increased prices from
our suppliers. Any of the foregoing could adversely affect our business,
financial condition, results of operations and cash flows.
Our business may be adversely impacted by natural disasters and other
catastrophic events.
Our operations and business, and those of our manufacturing partners,
customers, distributors, or suppliers, can be disrupted by natural disasters;
industrial accidents; public health issues, such as pandemics and epidemics;
cybersecurity incidents; interruptions of service from utilities,
transportation, telecommunications, or IT systems providers; manufacturing
equipment failures; or other catastrophic events. For example, some of our
foundries and suppliers' facilities in Asia are located near known earthquake
fault zones and, therefore, are vulnerable to damage from earthquakes. We are
also vulnerable to damage from other types of disasters, such as power loss,
fire, floods, and similar events. If any such natural disasters or other
catastrophic events were to occur, our ability to operate our business could
be seriously impaired. In addition, we may not have adequate insurance to
cover our losses resulting from disasters or other similar significant
business interruptions. Any significant losses that are not recoverable under
our insurance policies could seriously impair our business and financial
condition.
Item 2. Unregistered Sales of Equity Securitie
s and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Trading Arrangements of Directors and Executive Officers.
None of our directors or executive officers
adopted
, modified, or
terminated
a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as
defined under Item 408(a) of Regulation S-K) during the quarter ended June 30,
2024.
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Item 6. Exhibit
s
EXHIBIT INDE
X
Incorporation By Reference
Exhibit Description Form SEC File No. Exhibit/ Filing Date
Number Reference
3.1 Amended and Restated 8-K 001-37900 3.1 10/13/2016
Certificate of
Incorporation
3.1.1 A 8-K 001-37900 3.
mendment
to Amended
and Restated
Certificate
of
Incorporation
3.1.2 Amendment to Amended 8-K 001-37900 3.1 5/27/2020
and Restated
Certificate of
Incorporation
3.1.3 Amendment 8-K 001-37900 3.
to Amended
and Restated
Certificate
of
Incorporation
3.2 Amended and 8-K 001-37900 3.
Restated
Bylaws
31.1* Certification
of Principal
Executive
Officer
Pursuant
to Rules
13a-14(a)
and 15d-14(a)
under the
Exchange Act
31.2* Certification of Principal Financial Officer Pursuant
to Rules 13a-14(a) and 15d-14(a) under the Exchange Act
32.1** Certification of Principal Executive Officer
and Principal Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
101.INS* Inline XBRL Instance Document - the instance
document does not appear in the Interactive
Data File because its XBRL tags are
embedded within the Inline XBRL document
101.SCH* Inline XBRL Taxonomy Extension Schema Document
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document
104* Cover Page Interactive Data File (formatted
as Inline XBRL and contained in Exhibit 101)
* Filed herewith.
** Furnished herewith. Exhibit 32.1 is being furnished and shall not be
deemed to be "filed" for purposes of Section 18 of the Exchange Act, or
otherwise subject to the liability of that section, nor shall such exhibit be
deemed to be incorporated by reference in any registration statement or other
document filed under the Securities Act or the Exchange Act, except as
otherwise specifically stated in such filing.
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SIGNATURE
S
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.
Everspin Technologies, Inc.
Date: August 2, 2024 By: /s/ Sanjeev Aggarwal
Sanjeev Aggarwal
Chief Executive Officer
(Principal Executive Officer)
Date: August 2, 2024 By: /s/ Matthew Tenorio
Matthew Tenorio
Interim Chief Financial Officer
(Principal Financial and Accounting Officer)
43
{graphic omitted}
{graphic omitted}