What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-29 compared with 2023-03-02 · 67 added, 99 removed, 603 unchanged (22% of the section changed)

14 unchanged sentences

(the Company) as of December 31, 2023 and 2022, the related statements of income and comprehensive income, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with U.S.

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with U.S.

generally accepted accounting principles.

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Phoenix, Arizona

March 2, 2023

February 29, 2024

EVERSPIN TECHNOLOGIES, INC.

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5,000,000 shares authorized;

no shares issued and outstanding as of December 31, 2022 and 2021

no shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively

Common stock, $ 0.0001 par value per share;

100,000,000 shares authorized;

20,374,288 and 19,858,460 shares issued and outstanding as of December 31, 2022 and 2021

21,080,472 and 20,374,288 shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively

Additional paid-in capital

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Interest expense

Other income (expense), net

Other income, net

Net income before income taxes

Income tax expense

Income tax benefit (expense)

Net income and comprehensive income

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Issuance of common stock under stock incentive plans and exercise of stock options

Exercise of warrant

Stock-based compensation expense

1 unchanged sentence

Issuance of common stock under stock incentive plans and exercise of stock options

Exercise of warrants

Stock-based compensation expense

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Stock-based compensation

Loss on prepayment and termination of credit facility

Non-cash warrant revaluation

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Deferred revenue

Lease liabilities

Lease liabilities, net

Net cash provided by operating activities

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Purchases of property and equipment in accounts payable and accrued liabilities

Bonus settled in shares of common stock

Cashless exercise of warrants

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

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The preparation of the 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 financial statements and the reported amounts of revenues and expenses during the reporting period.

On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, fair value of assets and liabilities, inventory net realizable value, product warranty reserves, deferred tax assets and related valuation allowances, and stock-based compensation.

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;

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Amounts on deposit with a financial institution may at times exceed federally insured limits.

The Company maintains its cash accounts with high credit quality financial institutions and accordingly, minimal credit risk exists with respect to the financial institutions.

Significant customers are those which represent more than 10% of the Company’s total revenue or net accounts receivable balance at each respective balance sheet date.

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The carrying value of accounts receivable, accounts payable, and other accruals readily convertible into cash approximate fair value because of the short-term nature of the instruments.

As of December 31, 2022, based on Level 2 inputs and the borrowing rates available to the Company for loans with similar terms and consideration of the Company’s credit risk, the carrying value of the Company’s variable interest rate debt, excluding unamortized debt issuance costs, approximates fair value.

The Company’s financial instruments consist of Level 1 assets and a Level 3 liability.

1 unchanged sentence

Level 1 assets consist of highly liquid money market funds that are included in cash equivalents.

The Company’s Level 3 liability consists of warrants issued in connection with the 2019 Credit Facility (as defined in Note 6).

The Company’s Level 3 liability consisted of warrants issued in connection with the 2019 Credit Facility (as defined in Note 6).

These warrants were extinguished as of December 31, 2023.

The change in the fair value of the warrant liability during the year ended December 31, 2023, was immaterial.

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Total assets measured at fair value

Warrant liability

Total liabilities measured at fair value

December 31, 2022

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Impairment of Long-lived Assets

The Company evaluates its long-lived assets, including property and equipment, at the asset group level, for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable.

If such events or changes in circumstances occur, for purposes of this assessment, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

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Debt Issuance Costs

The Company defers and amortizes issuance costs, underwriting fees, end of term payments, and related expenses incurred in connection with the issuance of debt instruments using the effective interest method over the terms of the respective instruments.

Debt issuance costs are reflected as a direct reduction of the carrying amount of the related debt liability.

The Company deferred and amortized issuance costs, underwriting fees, end of term payments, and related expenses incurred in connection with the issuance of debt instruments using the effective interest method over the terms of the respective instruments.

Debt issuance costs were reflected as a direct reduction of the carrying amount of the related debt liability.

Government Tax Credits, Incentives and Grants

From time to time, the Company may receive government funding in the form of tax credits, operating-related grants, capital-related grants, or other incentives to support various business activities, including capital development, research and development, and other activities as defined by the relevant government agency awarding the tax credit, incentive, or grant.

The amount received is typically based on the amount of qualifying costs incurred.

The Company typically has to meet certain requirements to retain the government funding.

The Company records operating-related

grants and non-income related tax credits as other income in the statements of income and comprehensive income when there is reasonable assurance that the grant will be received, and the Company will comply with the conditions specified in the grant agreement.

The Company received Employee Retention Tax Credit (“ERTC”) refunds from the United States Treasury totaling $ 2.0 million, relating to the payroll periods from October 1, 2020 through September 30, 2021.

The amounts were received pursuant to provisions within the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), the Taxpayer Certainty and Disaster Tax Relief Act of 2020 enacted as part of the Consolidated Appropriations Act, 2021 (“Relief Act”), the American Rescue Plan Act of 2021 (“ARPA”) which provide tax relief and other stimulus measures, including the ERTC.

The ERTC program allows for employers to claim a refundable tax credit against a portion of the employer share of Social Security tax for qualified wages paid to employees from March 13, 2020 through September 30, 2021.

The Company recognized the $ 2.0 million tax credit within other income, net in the statements of income and comprehensive income in the second quarter of 2023, which is when the amount was received and it was determined that those amounts were reasonably assured to be retained by the Company.

The Company’s compliance with the program’s qualifications may be subject to audit through the year ended December 31, 2025, which is when the statute of limitation expires.

The Company has received all expected ERTC refunds based on applications that have been submitted.

Revenue Recognition

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Product Revenue

For products sold in their discrete form, the Company either sells its products directly to original equipment manufacturers (OEMs), original design manufacturers (ODMs) and contract manufacturers (CMs), or through a network of distributors, who in turn sell to those customers.

For products sold in their discrete form, the Company either sells its products directly to OEMs, ODMs and CMs, or through a network of distributors, who in turn sell to those customers.

For sales directly to OEMs, ODMs and CMs, revenue is recognized when the OEM, ODM or CM obtains control of the product, which occurs at a point in time, generally upon shipment to the customer.

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The Company estimates its product return liability by analyzing its historical returns, current economic trends and changes in customer demand and acceptance of products.

The Company has received insignificant returns to date and believes that returns of its products will continue to be minimal.

The Company has received insignificant returns to date and believes that returns of its products will continue to not be material.

Upon the transfer of control, generally at shipment, the Company records a trade receivable for the selling price as there is a legally enforceable obligation of the distributor to pay for the product delivered, an allowance is recorded for the estimated discount that will be provided to the distributor, and the net of these amounts is recorded as revenue on the statements of income and comprehensive income.

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Revenue from non-refundable upfront payments is recognized when the license is transferred to the customer and the Company has no other performance obligations.

The Company entered into a contractual agreement with a customer in 2021 for the development of a RAD-Hard product, consisting of a technology license, a design license agreement and development contract, and a separate contractual agreement with a customer in 2022 for the development of a strategic radiation hardened field programmable gate array product, consisting of a technology license to provide design and development services under the contractual agreement.

The Company entered into a contractual agreement with a customer in 2021 for the development of a RAD-Hard product, consisting of a technology license, a design license agreement and development contract, and separate contractual agreements with a customer in 2022 and 2023 for the development of a strategic radiation hardened field programmable gate array product, consisting of a technology license to provide design and development services under the contractual agreement.

The Company applies a five-step approach in determining the amount and timing of revenue to be recognized:

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Stock-based compensation arrangements include stock option grants and restricted stock unit (RSU) awards under the Company’s equity incentive plans, as well as shares issued under the Company’s Employee Stock Purchase Plan (ESPP), through which employees may purchase the Company’s common stock at a discount to the market price.

The Company uses RSUs with a service condition as its primary equity incentive compensation instrument for employees.

Share-based compensation expense for RSUs is measured on the grant date based on the fair market value of the Company’s common stock and is recognized over the requisite service period using the straight-line method.

The Company accounts for forfeitures as they occur.

The Company measures its stock option grants based on the estimated fair value of the options as of the grant date using the Black-Scholes option-pricing model.

Stock-based compensation expense is recognized over the requisite service period using the straight-line method.

Stock-based compensation expense for stock option grants is recognized over the requisite service period using the straight-line method.

The Company accounts for forfeitures as they occur.

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Recently Issued Pronouncements

In June 2016, the Financial Accounting Standards Board (FASB) issued ASU No.

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2016-13, Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , which amends the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

As the Company is a smaller reporting company, ASU 2016-13 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2022, and requires a cumulative effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective.

In April 2019, the FASB issued ASU No.

2019-04, Codification Improvements Financial Instruments-Credit Losses (Topic 326).

2019-04 provides narrow-scope amendments to help apply ASU No.

2016-13, and is effective with the adoption of ASU No.

The Company is evaluating the impact of the adoption of ASU 2016-13 and ASU No.

2019-04 on its financial statements.

As the Company is a smaller reporting company, ASU 2016-13 is effective for the Company’s annual reporting periods, and interim periods within those years, beginning after December 15, 2022, and requires a cumulative effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective.

In April 2019, the FASB issued ASU 2019-04, Codification Improvements Financial Instruments-Credit Losses (Topic 326) .

ASU 2019-04 provides narrow-scope amendments to help apply ASU 2016-13, and is effective with the adoption of ASU 2016-13.

The Company adopted ASU 2016-13 and ASU 2019-04 on January 1, 2023, and it did not have a material impact on its 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 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 financial statements.

Subsequent Events

The Company evaluated events after December 31, 2023, and through the date the financial statements were issued, and determined any events or transactions occurring during this period that would require recognition or disclosure are appropriately addressed in these financial statements.

The Company sells products to its distributors and OEMs.

The Company sells products to its distributors, ODMs and OEMs.

The Company also recognizes revenue under licensing, patent, and royalty agreements with some customers.

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Total revenue

In September 2021, the Company entered into an intellectual property monetization deal to sell five patents to a customer for a total contract value of $ 5.25 million.

Two of the patents were assigned to the customer in September 2021, and the remaining three patents were assigned to the customer in October 2021.

Control is transferred when the patents are assigned to the customer.

As a result, all $ 5.25 million of patent revenue was recognized during the year ended December 31, 2021, related to the patent sales.

There were no patent sales for the year ended December 31, 2022.

The Company licenses its intellectual property and is entitled to consideration based on the customer’s sales.

1 unchanged sentence

The estimates are based on historical trends in the customer’s activity and current market conditions.

In the year ended December 31, 2022, the Company recognized $ 0.3 million of royalty revenue related to activity occurring in the year ended December 31, 2021.

In the year ended December 31, 2023, the Company recognized less than $ 0.1 million of royalty revenue related to activity occurring in the year ended December 31, 2022.

In the year ended December 31, 2022, the Company recognized $ 0.3 million of royalty revenue related to activity occurring in the year ended December 31, 2021.

1 unchanged sentence

The amounts are reported in licensing, royalty, patent and other revenue in the statements of income and comprehensive income.

The Company recognizes revenue in three geographic regions:

Asia-Pacific (APAC);

North America;

and Europe, Middle East and Africa (EMEA).

We recognize revenue by geography based on the region in which our products are sold, and not to where the end products in which they are assembled are shipped.

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As a result, the Company has recorded $ 0.3 million in deferred revenue as of December 31, 2023.

The Company expects to

recognize the remaining $ 1.5 million of the transaction price as services are performed throughout the contractual period and performance is expected to be complete in the year ended December 31, 2024.

During the year ended December 31, 2022, the Company executed a contractual arrangement with a customer for the development of a strategic radiation hardened field programmable gate array product, consisting of a technology license to provide design and development services under the contractual agreement (RAD-Hard 2).

The Company does not share in the rights to future revenues or royalties.

The total arrangement is for $ 6.5 million in consideration and services are expected to be performed through the year ended December 31, 2024, subject to certain termination and extension provisions defined in the arrangement.

The accounting for this contract follows the same revenue recognition as the RAD-Hard 1 contractual agreements.

For the year ended December 31, 2022, the Company has billed $ 0.3 million for the performance under the RAD-Hard 2 contractual agreement.

Under the input method of recognition, the Company has recognized $ 0.3 million in revenue for the year ending December 31, 2022.

As a result, the Company does no t have a deferred revenue balance as of December 31, 2022 related to the RAD-Hard 2 contractual agreement.

The Company expects to recognize the remaining $ 0.8 million of the transaction price as services are performed throughout the contractual period and performance is expected to be complete in the year ended December 31, 2024.

As of December 31, 2022, the Company had recorded $ 0.8 million in deferred revenue, of which $ 0.7 million was recognized as revenue during the year ending December 31, 2023.

Commitments and Contingencies

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Weighted-average discount rate

Lease costs for the Company’s operating leases were $ 1.4 million and $ 1.5 million for the years ended December 31, 2022 and 2021, respectively.

Lease costs for the Company’s operating leases were $ 1.4 million for the years ended December 31, 2023 and 2022, respectively.

Lease costs for the Company’s finance lease were immaterial for the years ended December 31, 2023 and 2022.

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The Company currently has directors’ and officers’ insurance.

In May 2017, we executed the 2017 Credit Facility with SVB for a $ 12.0 million term loan, which we subsequently amended in January 2019 and June 2019.

In August 2019, the 2019 Credit Facility amended and restated the 2017 Credit Facility, providing for a Line of Credit and the 2019 Term Loan with SVB to refinance in full the outstanding principal balance of $ 8.0 million under the 2017 Credit Facility.

In July 2020, we executed the first amendment to the 2019 Credit Facility with SVB.

The amendment, among other things, extended the initial 12-month interest-only period for the term loan to a 16-month interest-only period and lowered the floor interest rate.

The floor interest rates for 2019 Term Loan and the Line of Credit Facility were reduced from 4.75 % and 6.75 % to 3.75 % and 4.75 %, respectively.

The amended Line of Credit allows for a maximum draw of $ 5.0 million, subject to a formula borrowing base, has a two-year term and bears interest at a floating rate equal to the WSJ prime rate plus 1.5 %, per annum, subject to a floor of 4.75 %.

As of December 31, 2022, the interest rate was 9.00 %.

The Line of Credit required a commitment fee of 1.6 % of the maximum availability of the Line of Credit, which was paid in August 2019 upon closing, and was accounted for as a debt discount.

The Line of Credit also provides for a termination fee equal to 1 % of the maximum availability under the Line of Credit, which is due in case of a termination of the Line of Credit prior to the scheduled maturity date, and an unused facility fee equal to 0.125 % per annum of the average unused portion of the Line of Credit, which is expensed as incurred.

Currently, $ 4.0 million remains available under the Line of Credit, subject to borrowing base availability.

As of December 31, 2022, the effective interest rate under the Line of Credit was 9.36 % and the outstanding balance was $ 1.0 million.

The Line of Credit was set to mature on August 5, 2022.

The third amendment entered into on July 22, 2022, extended the maturity date of the Line of Credit to August 5, 2023.

The amended 2019 Term Loan provides for a $ 6.0 million term loan.

The amended 2019 Term Loan has a term of 46 months , and a 16-month interest-only period followed by 30 months of equal principal payments of $ 200,000 per month, plus accrued interest.

The 2019 Term Loan bears interest at a floating rate equal to the WSJ prime rate minus 0.75 %, subject to a floor of 3.75 %.

As of December 31, 2022, the interest rate was 6.75 %.

A final payment of 7 % of the original principal amount of the 2019 Term Loan must be made when the 2019 Term Loan is prepaid or repaid, whether at maturity or as a result of a prepayment or acceleration or otherwise.

The additional payment, which is accounted for as a debt discount, is being accreted using the effective interest method.

The 2019 Term Loan has a prepayment fee equal to 2 % of the total commitment, which is due only if the 2019 Term Loan is prepaid prior to the scheduled maturity date for any reason.

As of December 31, 2022, the effective interest rate under the 2019 Term Loan was 6.94 % and the outstanding balance was $ 1.6 million.

The 2019 Term Loan matures on June 1, 2023.

Collateral for the 2019 Credit Facility includes all of our assets except for intellectual property.

We are required to comply with certain covenants under the 2019 Credit Facility, including requirements to maintain a minimum cash balance and availability under the Line of Credit, and restrictions on certain actions without the consent of the lender,

such as limitations on our ability to engage in mergers or acquisitions, sell assets, incur indebtedness, or grant liens or negative pledges on our assets, make loans or make other investments.

Under these covenants, we are prohibited from paying cash dividends with respect to our capital stock.

We were in compliance with all covenants at December 31, 2022.

The carrying value of the Company’s 2019 Credit Facility at December 31, 2022, was as follows (in thousands):

Credit Facility

Unamortized debt discounts

Net carrying value

In March 2023, the 2019 Credit Facility, consisting of the Company’s Term Loan and Line of Credit, was paid in full, and there was no outstanding balance as of December 31, 2023.

The Company paid an early termination and prepayment fee of $ 170,000 , which was recorded within other income (expense) within the statements of income and comprehensive income for the year ended December 31, 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 statements of income and comprehensive income and included in non-cash interest expense within the statement of cash flows.

The carrying value of the Company’s 2019 Credit Facility at December 31, 2022, was as follows (in thousands):

2 unchanged sentences

Net carrying value

The table below includes the principal repayments due under the 2019 Credit Facility as of December 31, 2022 (in thousands):

Principal Repayment as of December 31, 2022

Total principal repayments

Stockholders’ Equity

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RSUs cancelled/forfeited

Warrants exercised

Options granted

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Employees purchased 87,718 shares for $ 394,000 during the year ended December 31, 2023, and 77,221 shares for $ 342,000 during the year ended December 31, 2022.

The following table summarizes the assumptions used in the Black-Scholes option-pricing model to determine fair value of the Company’s common shares issued under the ESPP:

Expected volatility

Risk-free interest rate

Expected term (in years)

Dividend yield

Restricted Stock Units

In September 2017, the Company’s board of directors authorized the issuance of restricted stock units (RSUs), under the 2016 Plan and adopted a form of Restricted Stock Unit Award Agreement, which is intended to serve as a standard form agreement for RSU grants issued to employees, executive officers, directors, and consultants.

The fair value of the RSUs is recognized as expense ratably over the vesting period, as determined by the board of directors on the date of grant.

value of the RSUs is recognized as expense ratably over the vesting period, as determined by the board of directors on the date of grant.

The following table summarizes RSU activity for the year ended December 31, 2023:

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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.

(GF), a semiconductor foundry, for the joint development of STT-MRAM technology to produce a family of discrete and embedded MRAM technologies.

The term of the agreement is until the completion, termination, or expiration of the last statement of work entered into pursuant to the joint development agreement.

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For the same exclusivity period associated with the relevant device, GF agreed not to license intellectual property developed in connection with the JDA to named competitors of the Company.

Generally, unless otherwise specified in the agreement or a statement of work, the Company and GF share project costs, which do not include personnel or production qualification costs, under the JDA.

If GF manufactures, sells, or transfers to customers wafers containing production quantified STT-MRAM devices that utilize certain design information, GF will be required to pay the Company a royalty.

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In determining the need for and amount of the valuation allowance, if any, the Company assesses the likelihood that it will be able to recover its deferred tax assets using historical levels of income, estimates of future income and tax planning strategies.

As a result of historical cumulative losses, the Company determined that, based on all available evidence, there was substantial uncertainty as to whether it will recover recorded net deferred taxes in future periods.

Accordingly, the Company recorded a valuation allowance against all of its net deferred tax assets as of December 31, 2022 and 2021.

As a result of projected taxable income, the Company determined that, based on all available evidence, there was substantial certainty as to whether it will recover recorded net deferred taxes for certain state jurisdictions in future periods.

However, as it pertains to the federal, Arizona, and Colorado net deferred tax assets, based on all the available evidence, there is substantial uncertainty as to whether it will recover recorded net deferred taxes in future periods.

Accordingly, the Company recorded a partial and full valuation allowance against all of its net deferred tax assets as of December 31, 2023 and 2022, respectively.

The net valuation allowance decreased by $ 2.6 million in 2023.

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Internal Revenue Code of 1986, as amended (the Code)) that could limit the Company’s ability to utilize these carryforwards.

Further, a portion of the carryforwards may expire before utilized to reduce future income tax liabilities as a result of the annual limitation.

The Company experienced an ownership change in October 2016 and as a result, $ 43.8 million ($ 9.2 million tax effected) of the federal NOLs are expected to expire unutilized due to limitation under

Section 382 of the Code.

Further, a portion of the carryforwards may expire before utilized to reduce future income tax liabilities

as a result of the annual limitation.

The Company experienced an ownership change in October 2016 and as a result, $ 43.8 million ($ 9.2 million tax effected) of the federal NOLs are expected to expire unutilized due to limitation under Section 382 of the Code.

The NOLs expected to expire unutilized are included in the NOL carryforward amounts disclosed, subject to a valuation allowance.

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Decrease related to prior year tax positions

Increase related to prior year tax positions

Increase related to current year tax positions

Unrecognized tax expense, end of year

The total balance of unrecognized tax benefits as of December 31, 2022 would impact the effective tax rate, if recognized.

Included in the balance of unrecognized tax benefits as of December 31, 2023, are $ 105,000 of tax benefit that, if recognized, would affect the effective tax rate.

Included in the balance of uncertain tax benefits as of December 31, 2023 is $ 368,000 of tax benefits that, if recognized, would result in adjustments to deferred taxes.

The Company's policy is to recognize interest and penalties accrued on any unrecognized tax benefit as a component of income tax expense.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data