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MicrochipTable of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10‑K(Mark One)☒☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934For the fiscal year ended December 31, 2016OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File Number 001‑37900Everspin Technologies, Inc.(Exact name of Registrant as specified in its Charter)Delaware26‑2640654(State or other jurisdictionof incorporation or organization)(I.R.S. EmployerIdentification No.)1347 N. Alma School Road, Suite 220Chandler, Arizona 85224(Address of principal executive offices including zip code)Registrant’s telephone number, including area code: (480) 347‑1111Securities registered pursuant to Section 12(b) of the Act: Common Stock, Par Value $0.0001 Per Share; Common stock traded on the NASDAQ Stock MarketSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ NO ☒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 thepreceding 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 thepast 90 days. YES ☒ NO ☐Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that theRegistrant was required to submit and post such files). YES ☒ NO ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to thebest of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to thisForm 10‑K. ☒Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See thedefinition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b‑2 of the Exchange Act. (Check one):Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ (Do not check if a small reporting company) Small reporting company ☐Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). YES NO ☒The registrant’s common stock was not publicly traded as of the last business day of the registrant’s most recently completed second fiscal quarter. The number ofshares of Registrant’s Common Stock outstanding as of March 23, 2017 was 12,500,178.Portions of the Registrant’s Definitive Proxy Statement relating to the Annual Meeting of Shareholders, which will be filed with the Securities and ExchangeCommission within 120 days after the end of the Registrant’s fiscal year ended December 31, 2016, are incorporated by reference into Part III of this Report. Table of ContentsTable of ContentsPagePART I Item 1. Business4 Item 1A. Risk Factors14 Item 1B. Unresolved Staff Comments34 Item 2. Properties34 Item 3. Legal Proceedings34 Item 4. Mine Safety Disclosures34 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities35 Item 6. Selected Financial Data37 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations39 Item 7A. Quantitative and Qualitative Disclosures About Market Risk52 Item 8. Financial Statements and Supplementary Data54 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure82 Item 9A. Controls and Procedures82 Item 9B. Other Information83 PART III Item 10. Directors, Executive Officers and Corporate Governance84 Item 11. Executive Compensation84 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters84 Item 13. Certain Relationships and Related Transactions, and Director Independence84 Item 14. Principal Accounting Fees and Services84 PART IV Item 15. Exhibits, Financial Statement Schedules85 Item 16. Form 10-K Summary85 Signatures86 2 Table of ContentsForward-Looking StatementsThis Annual Report on Form 10‑K contains forward-looking statements concerning our business, operations andfinancial performance and condition, as well as our plans, objectives and expectations for our business operations andfinancial performance and condition. Any statements contained herein that are not statements of historical facts may bedeemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology suchas “aim,” “anticipate,” “assume,” “believe,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,”“objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “will,” “would,” and other similar expressionsthat are predictions of or indicate future events and future trends, or the negative of these terms or other comparableterminology, although not all forward-looking statements contain these words. These forward-looking statements include,but are not limited to, statements about:·estimates of our future revenue, expenses, capital requirements and our needs for additional financing;·the implementation of our business model and strategic plans for our products, technologies and businesses;·competitive companies and technologies and our industry;·our ability to manage and grow our business by expanding our sales to existing customers or introducing ourproducts to new customers;·our ability to establish and maintain intellectual property protection for our products or avoid claims ofinfringement;·our ability to hire and retain key personnel;·our financial performance;·our estimates of the MRAM market opportunity; and·the volatility of our share price.Forward-looking statements are based on management’s current expectations, estimates, forecasts, and projectionsabout our business and the industry in which we operate, and management’s beliefs and assumptions are not guarantees offuture performance or development and involve known and unknown risks, uncertainties, and other factors that are in somecases beyond our control. As a result, any or all of our forward-looking statements in this report may turn out to be inaccurate.Furthermore, if the forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of thesignificant uncertainties in these forward-looking statements, you should not regard these statements as a representation orwarranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. Factorsthat may cause actual results to differ materially from current expectations include, among other things, those listed under“Risk Factors” and elsewhere in this report. These statements, like all statements in this report, speak only as of their date,and we undertake no obligation to update or revise these statements in light of future developments. We caution investorsthat our business and financial performance are subject to substantial risks and uncertainties. Except as required by law, weassume no obligation to update or revise these forward-looking statements for any reason, even if new information becomesavailable in the future.3 Table of Contents PART I Item 1. Business.OverviewWe are the leading provider of magnetoresistive random access memory (MRAM) products. Our MRAM products offerthe persistence of non-volatile memory, a type of memory that retains information even in the absence of power, with thespeed and endurance of random access memory (RAM), and enable the protection of mission critical data particularly in theevent of power interruption or failure. Our MRAM products allow our customers in the industrial, automotive andtransportation, and enterprise storage markets to design high performance, power efficient and reliable systems without theneed for bulky batteries or capacitors. We are the only provider of commercially available MRAM solutions, and over thepast eight years we have shipped over 60 million MRAM units.Our MRAM technology, unlike traditional semiconductor memory technologies, stores data as a magnetic state ratherthan an electrical charge, and is offered as either a discrete or embedded solution. Our products read and write data at speedson par with most dynamic RAM (DRAM) and static RAM (SRAM). Our products offer the non-volatility of flash memory butwith significantly superior endurance. We offer our MRAM products with different densities and interfaces to address thevarious needs of our customers. Our lower-density MRAM products, which we define as having bit densities from 128kb to16Mb, offer write-speeds on par with SRAM, with virtually unlimited endurance. Our higher density products, which wedefine as having bit densities at or greater than 64Mb, offer write-speeds on par with DRAM and have superior endurancecompared to most other non-volatile memory technologies.Our lower-density products are optimized for use in industrial, and automotive and transportation applications, whileour higher-density products are optimized for use in enterprise storage applications. In the enterprise storage market, wecollaborate with industry-leading memory controller companies to enable compatibility of their controllers with our MRAMproducts, facilitating the adoption of our solutions into our customers’ existing end products. We have over 600 customersworldwide, including Honeywell, ifm, Nikkiso and Siemens in the industrial market, Airbus and Hyundai Mobis in theautomotive and transportation market, and Broadcom, Dell, IBM and Lenovo in the enterprise storage market. We sell ourproducts directly and through our established distribution channel to industry-leading original equipment manufacturers(OEMs) and original design manufacturers (ODMs)We leverage both internal and outsourced manufacturing capabilities to produce our MRAM products. We purchaseindustry-standard complementary metal-oxide semiconductor (CMOS) wafers from semiconductor foundries and completethe processing of our products by inserting our magnetic-bit technology at our 200mm fabrication facility in Chandler,Arizona. We have entered into a manufacturing agreement with GLOBALFOUNDRIES for 300mm high-volume productionof our higher-density products. We believe our strategic relationship with GLOBALFOUNDRIES accelerates thedevelopment of our MRAM solutions, provides us with leading-edge outsourced manufacturing capabilities, and enables usto operate a variable cost financial model. In addition, GLOBALFOUNDRIES has the ability to embed our technology in itsproducts for sale to its customers, from which we would earn licensing or royalty revenue.For the years ended December 31, 2016, 2015, and 2014 we recorded revenue of $27.1 million, $26.5 million,$24.9 million, gross margin of 54.3%, 52.7%, and 52.6%, and a net loss of $16.7 million, $18.2 million, and $10.2 million,respectively. As of December 31, 2016, we had 90 employees, more than half of whom are engaged in research anddevelopment. Our headquarters are located in Chandler, Arizona. Our principal design center is in Austin, Texas, and we haveadditional sales operations in the Americas, Europe and Asia-Pacific regions.4 Table of ContentsThe Opportunity for Fast, Persistent MemoryMRAMTraditional memory technologies have either fast write-speeds or are non-volatile, but not both. MRAM combines bothfeatures into a single solution, making it an ideal memory to protect data in the event of power interruption or failure, and tostore data that is frequently written and accessed. We believe customers that employ MRAM in their systems are better ableto design higher performance, lower power, more reliable and simpler systems than they would be able to design using otherexisting memory technologies. The following attributes make MRAM an increasingly important application specificmemory solution for system architectures that require non-volatile memory with the speed and endurance of RAM:Non-volatile. MRAM can retain data in the event of power interruption or failure, which enables end-system designersto create products without costly power-loss protection systems, such as batteries and capacitors.Fast Write- Speeds. MRAM offers write-speeds that are on par with the fastest available volatile memory technologies,including most DRAM and SRAM and is significantly faster than other non-volatile memories used today. For example,MRAM writes a block over 100,000 times faster than NAND flash, a type of non-volatile flash memory.Superior Write- Cycle Endurance. MRAM offers superior write-cycle endurance to existing non-volatile solutions,enabling end-systems designers to offer products that are not limited by memory wear-out. For example, MRAM write-cycleendurance is nearly 10 million times greater than NAND flash.Scalable to Greater Densities and Smaller Process Geometries. MRAM’s write-speed and endurance are scalable withincreasing bit densities and smaller geometries, which we believe will allow system designers to employ MRAM inapplications that require more memory and smaller form factors.Proven to be Manufacturable at High Volumes. MRAM can be manufactured in high volumes and in advanced nodes,and is compatible with standard CMOS.Low Energy Requirement. MRAM utilizes energy efficiently over the duration of its write and read cycles. It has theability to be completely powered down, consuming no energy while still retaining data, which data can be accessed quicklyonce power is restored.These attributes enable MRAM to be used as a true Storage Class Memory, by which we mean a form of memory thathas non-volatility that is similar to storage but with performance that is similar to DRAM or SRAM. MRAM has alreadyproven its commercial viability as a discrete and embedded solution in application-specific memory markets and we believeit will become a mainstream memory technology in the future.Discrete MRAM Market OpportunityWe estimate the market opportunity for application specific MRAM products to be approximately $1.8 billion by 2018,growing approximately at a 19% compound annual growth rate (CAGR) from approximately $1 billion in 2015. We expectthe introduction of increasingly higher density MRAM solutions will result in greater adoption of MRAM technology into awider range of applications and end markets.We expect our first generation MRAM solutions, which have lower bit densities ranging from 128kb to 16Mb, tocontinue to serve customers in the industrial, automotive and transportation end markets, where products tend to have longproduct life cycles. As MRAM bit densities increase, we believe MRAM solutions will be well-suited to address a widerrange of large and growing markets, such as server and storage, increasing the overall market opportunity for MRAM. Webelieve our second and third generation MRAM solutions, which are designed to have bit densities at or greater than 64Mb,will drive the rapid adoption of our products into enterprise storage applications. We believe the introduction of MRAMsolutions with bit densities greater than 1Gb will extend the opportunity for MRAM into additional adjacent markets such asserver and mobile computing.5 Table of ContentsEmbedded MRAM TechnologyIn addition to use as a discrete product, MRAM can serve as embedded memory in a variety of CMOS technologies.Memory accounts for a significant portion of the area of System-on-a-Chips (SoCs), application-specific integrated circuits(ASICs), application-specific standard products, microcontrollers, baseband processors, storage controllers, applicationprocessors and field-programmable gate arrays. Memory that is integrated in these products is called embedded memory andoffers similar performance to its discrete counterparts.Today’s embedded memory solutions include embedded SRAM (eSRAM), embedded Flash (eFlash), and embeddedDRAM (eDRAM). We believe these technologies have difficulties scaling to advanced CMOS processing nodes. EmbeddedMRAM’s (eMRAM) compatibility with CMOS processes, combined with its lower leakage, byte addressability and highwrite-cycle endurance make it well-suited as a replacement for eSRAM, eFlash and eDRAM. We believe the use of eMRAMwill be more cost effective for foundries by maintaining compatibility with standard CMOS, thus improving manufacturingefficiency.eSRAM, which uses six transistors (6‑T) to construct a memory bit, requires more silicon area and additional power dueto leakage current from its multiple-transistor architecture. Embedded MRAM, which uses a single transistor architecture,results in less leakage current and requires a smaller area on an integrated circuit to achieve equivalent or better performancethan eSRAM.eFlash requires relatively high voltage and area overhead to program the memory bits, which is contrary to the trend ofscaling down the CMOS process for lower power and less chip area. eFlash also has a limited number of write cycles, whichcan render it ineffective as working memory on the chip. Compared to eFlash,eMRAM requires lower voltage to program bits, which results in greater power efficiency and it has higher write-cycleendurance. eMRAM is byte-addressable and has symmetric read and write timing, which makes it suitable as workingmemory. eFlash must be erased and programmed in pages, which is less efficient for intensive writing applications.eDRAM is a volatile memory that does not retain data when power is off. eDRAM manufacturing requires additionalprocess steps and costs to build a capacitor to store the data. This manufacturing process could diminish the functionality ofthe memory or logic components in the integrated circuit. eMRAM, however, can be added towards the end of themanufacturing process, which does not impact the overall performance of the integrated circuit.6 Table of ContentsThe versatility of eMRAM can simplify the design and architecture of the overall integrated circuit by providing theability to have one memory type serve as both working memory and code storage memory.Our SolutionsWe are the only commercial provider of MRAM products. We have a strong track record of innovation in MRAMtechnology, as demonstrated by our successive introduction of MRAM products that address an increasingly broad spectrumof applications. Our three generations of MRAM discrete solutions are set forth in the following table.First GenerationOur first generation products, which we have been shipping since 2008, are primarily designed to address applicationsin the industrial, automotive and transportation markets. Our customers in these markets require memory technology that isnon-volatile, writes continuously at high speeds to limit data loss, operates in harsh environments, and maintains enduranceover long product lifecycles. To address these requirements, we designed our first generation of MRAM products to offer thepersistence of non-volatile memory, speeds comparable to SRAM, reliability across a wide temperature range, and virtuallyunlimited write-cycles. We have designed our first generation products to be compatible with industry standard interfaces,including standard SRAM, SPI (Serial Peripheral Interface) and QSPI (Quad SPI) interfaces, enabling our customers to replaceincumbent memory solutions with our first generation MRAM solutions. We believe this has been important for the initialsuccess and early adoption of our first generation products.Second GenerationOur second generation products, which began shipping in 2014, are principally designed to address the requirements ofthe enterprise storage market, which includes high performance Solid-State Drives (SSDs), Redundant array of independentdisks (RAID) systems and servers. Our customers require low latency, protection of data against power interruption andfailure, high density and reliability. Our second generation products offer performance comparable to DRAM, and are up tofive orders of magnitude faster than flash block writes, non-volatile to protect against power loss, four times the density ofour largest first generation product, and offer endurance superior to flash. We have designed our second generation productsto be compatible with industry standard DDR3 interfaces, enabling our customers to realize the benefits of higherperformance and power efficiency as compared to traditional memory products requiring batteries or super capacitors.Third GenerationOur third generation products, which are currently in development, are initially targeted for enterprise-class storage andserver applications. We use our Perpendicular Magnetic Tunnel Junction (PMTJ) technology to deliver further bit densityand power efficiency increases to create a true Storage Class Memory solution. Our third generation products are designed tobe compatible with standard DDR3, DDR4, SPI, and QSPI interfaces, which we believe will facilitate market adoption of ourproducts in the enterprise storage and server markets.7 Table of ContentsEmbedded MRAMWe offer embedded MRAM (eMRAM) to our customers for integration in their SoC solutions. We also enableGLOBALFOUNDRIES to offer eMRAM in the solutions they manufacture for their customers. Our embedded memorysolutions offer high performance, low cost and low power and can be manufactured using standard CMOS. eMRAM offerssignificant advantages over existing embedded memory solutions, particularly in endurance, bandwidth, energy and arearequirements, leakage and persistence. We believe our eMRAM solutions offer the performance benefits and processcompatibility to become the embedded memory of choice for our current and future foundry partners.SensorsWe have developed and are currently shipping a high performance, high-reliability magnetic sensor, which is based onour Magnetic Tunnel Junction (MTJ) technology, which is at the core of our memory technology. Our magnetic sensor offersthree-axis orientation in a single die, and is integrated into consumer electronics applications as an electronic compass. Webelieve our magnetic sensor technology can be used for additional power management applications in the industrial, andautomotive and transportation, end markets. We currently license our magnetic sensor technology to third parties for theircommercial use and plan to continue this strategy.AerospaceAerospace and satellite electronic systems require memory that is able to withstand exposure to the levels of radiationencountered in avionics and space applications. MRAM is not susceptible to radiation induced errors because data is storedas a magnetic state rather than as an electrical charge. Aerospace and satellite equipment manufacturers license ourtechnology for use in their electronic systems. Through license agreements, we provide manufacturing service andtechnology access to certain of our customers, and we sell products to value added subcontractors.Our TechnologyMemory ArchitectureOur MRAM solutions are based on our MTJ technology, which writes data by establishing a stable magnetic state, andreads data by measuring the resistance of the MTJ. MTJ devices are multilayered structures, including thin metal anddielectric layers, which are fabricated with methods commonly used in semiconductor manufacturing. The resistance isdetermined by the orientation of the magnetic field in the free layer relative to the fixed layer.First Generation MRAM TechnologyOur first generation MRAM technology uses a magnetic field to program, or write, bits. A significant advantage of this“field switching” is virtually unlimited write endurance, as reversing the free-layer magnetization with a magnetic field doesnot have any wear-out mechanism. Field Switched MRAM products are currently in production at the 180nm and 130nmnodes.Field Switched MRAM bit cell. Each bit cell comprises an MTJ connected in series with a select transistor.Second and Third Generation MRAM TechnologyOur second and third generations of MRAM technologies use the spin-torque transfer property, which is themanipulation of the spin of electrons with a polarizing current, to establish the desired magnetic state of the free layer toprogram, or write, the bits in the memory array. Spin-torque MRAM, or ST-MRAM, provides a significant reduction in8 Table of Contentsswitching energy compared to Field-switched MRAM, and is highly scalable, enabling higher density memory products. Oursecond generation MRAM technology uses an In-Plane MTJ structure, while our third generation uses a Perpendicular MTJ.We have developed materials and Perpendicular MTJ stack designs with high perpendicular magnetic anisotropy, whichprovides long data retention, small cell size, greater density, high endurance and low power.Embedded MRAM TechnologyMRAM technology is more easily embedded than most other memory technologies, due to the way the MRAM moduleis integrated in standard CMOS. Since the MRAM module is inserted between metal layers in the back-end-of-line part of thefabrication process, above the transistor layers, it does not disturb the CMOS fabrication process. Integrating MRAM instandard CMOS for SoC applications does not impact the performance of the integrated circuit.CustomersOur MRAM products are used by industry-leading customers in the industrial, automotive and transportation, andenterprise storage markets. Representative customers using our discrete products in these end markets include:Industrial Automotive and Transportation Enterprise StorageHoneywell Airbus Broadcomifm Hyundai Mobis DellNikkiso IBMSiemens Lenovo We sell our products through our direct sales force and through a network of distributors and contract manufacturers.Direct, distributor and contract manufacturer customers purchase our solutions on an individual purchase order basis, ratherthan pursuant to long-term agreements.We consider our customer to be the end customer purchasing either directly from a distributor, a contract manufactureror us. An end customer purchasing through a contract manufacturer typically instructs the contract manufacturer to obtainour products and to incorporate our products with other components for sale by the contract manufacturer to the endcustomer. Although we actually sell the products to, and are paid by, the distributors and contract manufacturers, we refer tothe end customer as our customer.During the year ended December 31, 2016, more than 600 end customers purchased our products. No end customersaccounted for more than 10% of our revenue during 2016. Sales to NXP Semiconductors N.V. (NXP) and AvagoTechnologies Ltd. (Broadcom) whether directly by us or through distributors or contract manufacturers, each accounted for13% of our revenue for the year ended December 31, 2015. No other end customers accounted for more than 10% of ourrevenue during 2015. Sales to NXP and Dell accounted for 12% and 10%, respectively, of our revenue for the year endedDecember 31, 2014. NXP is a customer for our embedded and sensor solutions. Broadcom and Dell are customers for our Gen1 MRAM products.9 Table of ContentsSales and MarketingWe sell our products through a direct sales channel and a network of representatives and distributors. The majority ofour customers, and their associated contract manufacturers, buy our products through our distributors. We maintain sales,supply chain and logistics operations and have distributors in Asia to service the production needs of contract manufacturerssuch as us Flextronics, Foxconn, Inventec and Sanmina. We also maintain direct selling relationships with several strategiccustomers. Our direct sales representatives are located in North America, the United Kingdom, Germany, Hong Kong, andTaiwan.Our typical sales cycle consists of a sales and development process in which our field engineers and sales personnelwork closely with our customers’ design engineers. This process can take from three to 12 months to complete, and asuccessful sales cycle culminates in a design win. Once we establish a relationship with a customer, we continue a salesprocess to maintain our position and to secure subsequent new design wins at the customer. Each customer lead, whether newor existing, is tracked through our CRM tool and followed in stages of prospect, design in, design win and production. Thistracking results in a design win pipeline that provides a measure of the future business potential of the opportunities.Our technical support personnel have expertise in hardware and software, and have access to our development team toensure proper service and support for our OEM customers. Our field application and engineering team provides technicaltraining and design support to our customers.ManufacturingWe rely on third-party suppliers for most phases of the manufacturing process, including initial fabrication andassembly.Wafer ManufacturingWe manufacture our first generation and second generation MRAM discrete products, and provide foundry services forembedded MRAM, licensed MRAM products and MTJ-based sensors in our 200mm manufacturing facility. Our facility is inan ISO‑4 clean room and is qualified for the production of automotive grade products. We actively manage inventory,including automated process flows, process controls and recipe management, and we use standard equipment to manufactureour products.For our second generation products, GLOBALFOUNDRIES will manufacture our 256Mb in-plane MTJ discrete memoryon 40nm CMOS on 300mm wafers. Our third generation of ST-MRAM, based on perpendicular MTJ, is in development inour 200mm fabrication facility and at GLOBALFOUNDRIES. Volume production of our third generation of ST-MRAMproducts is planned to be at more advanced process nodes at GLOBALFOUNDRIES on 300mm wafers.Assembly and TestWe have designed test protocols to maximize yields at assembly and final test, reduce manufacturing costs and improvequality. Our design and product engineering teams have developed and implemented wafer-level test programs tocharacterize the behavior of our MRAM devices. We create predictive models and test each of our parts to assure thereliability of the products in the field. We also add unique electronic part identification numbers to provide materialtraceability.To protect the MRAM devices from stray magnetic fields, we developed packaging solutions, which we have qualifiedat independent, industry-leading sub-contractors, including Amkor, ASE and UTAC. We have successfully qualified ourMRAM devices in various packages at temperatures ranging from commercial to automotive grade. As part of ourcommitment to quality, our quality management system has been certified to ISO 9001:2000 standards. Our foundry vendorsand sub-contractors are also ISO 9001 certified.10 Table of ContentsST-MRAM Joint Development AgreementOn October 17, 2014, we entered into a joint development agreement with GLOBALFOUNDRIES Inc., a semiconductorfoundry, for the joint development of our ST-MRAM technology. The term of the agreement is the later of four years from theeffective date or until the completion, termination, or expiration of the last statement of work entered into pursuant to thejoint development agreement.The joint development agreement also states that the specific terms and conditions for the production and supply of thedeveloped MRAM technology would be pursuant to a separate manufacturing agreement entered into between the parties.See “—ST-MRAM Manufacturing Agreement” below.Under the joint development agreement, each party granted licenses to its relevant intellectual property to the otherparty. For certain jointly developed works, the parties have agreed to follow an invention allocation procedure to determineownership. In addition, GLOBALFOUNDRIES possesses the exclusive right to manufacture our discrete and embedded spintorque MRAM devices developed pursuant to the agreement until the earlier of three years after the qualification of theMRAM device for a particular technology node or four years after the completion of the relevant statement of work underwhich the device was developed. For the same exclusivity period associated with the relevant device, GLOBALFOUNDRIESagreed not to license intellectual property developed in connection with the agreement to named competitors of ours.Generally, unless otherwise specified in the agreement or a statement of work, we and GLOBALFOUNDRIES sharedefined project costs equally under the joint development agreement. If GLOBALFOUNDRIES manufactures, sells ortransfers wafers containing production qualified MRAM devices that utilized certain Everspin design information to itscustomers, GLOBALFOUNDRIES will pay royalties to us for each such wafer transferred or sold to a customer.Except for breaches of confidentiality provisions and each party’s indemnification obligations to one another under theagreement, liability under the agreement is capped at a range depending on project costs and royalty amounts. Either partymay terminate the agreement if the other party materially breaches a term of the agreement, and fails to remedy the breachafter receiving notice from the non-breaching party. If a party terminates the manufacturing agreement for material breach inaccordance with its terms, that party may also terminate the joint development agreement.On May 27, 2016, we entered into an amendment to the joint development agreement to modify the payment scheduleand to clarify our payment obligations for certain past project costs. Under the amendment, GLOBALFOUNDRIES mayterminate the joint development agreement with us if we materially breach a term of the agreement, such as, but not limitedto, by our failing to pay any undisputed sum which has been outstanding for 45 or more days from the date of invoice, andfail to remedy the breach within 60 days after receiving notice from GLOBALFOUNDRIES. See “Risk Factors” for furtherdiscussion of our agreements with GLOBALFOUNDRIES.ST-MRAM Manufacturing AgreementOn October 23, 2014, we entered into a manufacturing agreement with GLOBALFOUNDRIES Singapore Pte. Ltd. thatsets forth the specific terms and conditions for the production and supply of wafers manufactured using our spin torqueMRAM technology developed under the joint development agreement with GLOBALFOUNDRIES. Pursuant to that jointdevelopment agreement, GLOBALFOUNDRIES possesses certain exclusive rights to manufacture such wafers for our discreteand embedded spin torque MRAM devices. Our manufacturing agreement with GLOBALFOUNDRIES includes a customaryforecast and ordering mechanism for the supply of certain of our wafers, and we are obligated to order and pay for, andGLOBALFOUNDRIES is obligated to supply, wafers consistent with the binding portion of our forecast.GLOBALFOUNDRIES also has the ability to discontinue its manufacture of any of our wafers upon due notice andcompletion of the notice period. The initial term of the manufacturing agreement is for three years, which automaticallyrenews for successive one year periods thereafter unless either party provides sufficient advance notice of non-renewal.Except for breaches of confidentiality provisions and each party’s indemnification obligations to one another under theagreement, liability under the agreement is capped at the lesser of a set amount or the total purchase price received byGLOBALFOUNDRIES from us in the twelve months immediately preceding the claim for the specific product that caused thedamages. Either party may terminate the agreement if the other party materially breaches a term of the11 Table of Contentsagreement, and fails to remedy the breach after receiving notice from the non-breaching party. GLOBALFOUNDRIES mayterminate the agreement if we fail to pay any undisputed sum which has been outstanding for sixty or more days from thedate of invoice.BacklogAs of December 31, 2016, our backlog was $7.4 million and includes all purchase orders scheduled for delivery withinthe subsequent 12 months. Our business and, to a large extent, that of the entire semiconductor industry, is characterized byshort-term orders and shipment schedules. Orders constituting our current backlog are subject to changes in deliveryschedules, or to cancellation at the customer's option without significant penalty. Thus, while backlog is useful forscheduling production, backlog as of any particular date may not be a reliable measure of sales for any future period.CompetitionOur products, all of which offer the persistence of non-volatile memory with the speed and endurance of random accessmemory, enable the protection of mission critical data particularly in the event of power interruption or failure. Our solutionsare designed for use in applications in the industrial, automotive and transportation, and enterprise storage markets where thecombination of high write-cycle endurance and fast write-speeds are of critical importance.Our principal competitors to our first generation Field Switched MRAM products, which are tailored primarily for theindustrial, automotive and transportation, and enterprise storage markets, include companies that offer nonvolatile SRAM(NVSRAM), SRAM, and ferroelectric RAM (FRAM) products, such as Cypress, Fujitsu, Integrated Silicon Solution (ISSI),Macronix, Microchip, Micron, Renesas, Samsung and Toshiba. Our second and third generation STMRAM products aredesigned primarily for the enterprise storage market, which includes high performance SSDs, RAID systems and servers. Oursecond and third generation ST-MRAM products are intended to replace DRAM-based solutions, which comprised DRAMand additional back-up power supply components, such as super capacitors and batteries that are required to make DRAMpersistent. Customers typically purchase DRAM and super capacitors and batteries from separate vendors, and pair themtogether in order to create a DRAM-based solution capable of protecting data against power interruption or loss. Companiesthat offer DRAM devices include Hynix, Micron, Samsung, and several other smaller companies. In the future we may alsoface competition from companies developing MRAM technologies, such as Avalanche, Spin Transfer Technologies,Samsung and other larger and smaller semiconductor companies.Our sensor products compete with giant magnetoresistive (GMR), anisotropic magnetoresistive (AMR) and Hall effectsensors supplied by Alps, Asahi Kasei Microdevices, Crocus, Fairchild, Invensys (now Schneider), Kionix and Micronix.Our ability to compete successfully in the market for our products is based on a number of factors, including:·our product attributes and specifications;·successful customer engagements from throughout the product life cycle;·high quality and reliability as measured by our customers;·the ease of implementation of our products by customers;·preferred supplier status at numerous customers and ODMs·manufacturing expertise and strength;·reputation and strength of customer relationships;·competitive pricing in the market against the competition while maintaining our gross margin profile;and·our success in meeting the needs of future customer requirements through continued development of new products.12 Table of ContentsWe believe we compete favorably with respect to each of these factors.Intellectual PropertyOur success depends, in part, on our ability to protect our products and technologies from unauthorized third-partycopying and use. To accomplish this, we rely on a combination of intellectual property rights, including patents, tradesecrets, copyrights and trademarks, as well as customary contractual protections. As of December 31, 2016, we held 341issued patents that expire at various times between December 31, 2016 and September 2034, and had 157 patent applicationspending. Included in our issued patents and pending applications are patents/applications in the United States, China,Europe, France, Germany, Japan, the Republic of Korea, Italy, Singapore, Taiwan, and the United Kingdom.We seek to file for patents that have broad application in the semiconductor industry and that would be helpful in themagnetoresistive memory and sensor markets. However, there can be no assurance that our pending patent applications orany future applications will be approved, that any issued patents will provide us with competitive advantages or will not bechallenged by third parties, or that the patents or applications of others will not have an adverse effect on our ability to dobusiness. In addition, there can be no assurance that others will not independently develop substantially equivalentintellectual property or otherwise gain access to our trade secrets or intellectual property, or disclose such intellectualproperty or trade secrets, or that we can effectively protect our intellectual property.We generally control access to and use of our confidential information through employing internal and externalcontrols, including contractual protections with employees, contractors and customers. We rely in part on U.S. andinternational copyright laws to protect our mask work. All employees and consultants are required to execute confidentialityagreements in connection with their employment and consulting relationships with us. We also require them to agree todisclose and assign to us all inventions conceived or made in connection with the employment or consulting relationship.Environmental RegulationWe must comply with many different federal, state, local and foreign governmental regulations related to the use,storage, discharge and disposal of certain chemicals and gases used in our manufacturing processes. Our facilities have beendesigned to comply with these regulations and we believe that our activities are conducted in material compliance with suchregulations. Any changes in such regulations or in their enforcement could require us to acquire costly equipment or to incurother significant expenses to comply with environmental regulations. Any failure by us to adequately control the storage,use, discharge and disposal of regulated substances could result in significant future liabilities.Increasing public attention has been focused on the environmental impact of electronic manufacturing operations.While we have not experienced any materially adverse effects on our operations from recently adopted environmentalregulations, our business and results of operations could suffer if for any reason we fail to control the storage or use of, or toadequately restrict the discharge or disposal of, hazardous substances under present or future environmental regulations.EmployeesAt December 31, 2016, we had 90 employees in the United States and 19 full time equivalent contractors andconsultants in Singapore, China, Taiwan, the United Kingdom, the United States and Germany. None of our employees areeither represented by a labor union or subject to a collective bargaining agreement. We have not experienced any workstoppages, and we consider our relations with our employees to be good.Financial InformationRevenue from customers is designated based on the geographic region or country to which the product is delivered orlicensee is located are set forth in Note 10 to our financial statements, which information is incorporated by reference13 Table of Contentshere. All of our assets are located in the United States. Our research and development expenses were $19.2 million, $21.1million and $12.7 million for the years ended December 31, 2016, 2015 and 2014, respectively.Corporate InformationWe were incorporated in Delaware in May 2008. In June 2008, Freescale Semiconductor, Inc. (now a wholly-ownedsubsidiary of NXP Semiconductors N.V.), spun-out its MRAM business as Everspin. Our offices are located at 1347 N. AlmaSchool Road, Suite 220, Chandler, Arizona 85224. Our telephone number is (480) 347-1111. Our corporate website is atwww.Everspin.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, andamendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free ofcharge on our website. The information contained on or that can be accessed through our website is not incorporated byreference into this report, and you should not consider information on our website to be part of this report. Item 1A. Risk Factors.The following are important factors that could cause actual results or events to differ materially from those containedin any forward-looking statements made by us or on our behalf. The risks and uncertainties described below are not the onlyones we face. Additional risks and uncertainties not presently known to us or that we deem immaterial also may impair ourbusiness operations. If any of the following risks or such other risks actually occurs, our business could be harmed. Risk Factors Related to Our Business and Our IndustryWe have a history of losses which may continue in the future, and we cannot be certain that we will achieve or sustainprofitability.We have incurred net losses since our inception. We incurred net losses of $16.7 million, $18.2 million and $10.2million for the years ended December 31, 2016, 2015 and 2014, respectively. As of December 31, 2016, we had anaccumulated deficit of $96.4 million. We expect to incur significant expenses related to the continued development andexpansion of our business, including in connection with our efforts to develop and improve upon our products andtechnology, maintain and enhance our research and development and sales and marketing activities and hire additionalpersonnel. Our ability to generate sufficient revenue and to transition to profitability and generate consistent positive cashflows is uncertain. In addition, as a public company, we will incur significant additional legal, accounting and otherexpenses that we did not incur as a private company. We do not know whether our revenue will grow rapidly enough toabsorb these costs, and our limited operating history makes it difficult to assess the extent of these expenses, or their impacton our results of operations.Further, our revenue may not increase or may decline for a number of possible reasons, many of which are outside ourcontrol, including a decline in demand for our products, increased competition, business conditions that adversely affect thesemiconductor memory industry, including reduced demand for products in the end markets that we serve, or our failure tocapitalize on growth opportunities. If we fail to generate sufficient revenue to support our operations, we may not be able toachieve or sustain profitability.Our limited operating history makes it difficult to evaluate our current business and future prospects.We have been in existence as a stand-alone company since 2008, when Freescale Semiconductor, Inc. spun-out itsMRAM business as Everspin. We have been shipping magnetoresistive random access memory (MRAM) products since ourincorporation in 2008, and we have experienced a high rate of growth for our products. However, we may not be able tosustain the growth rate for sales of these products and our revenue could decline. We have also been developing our next-generation of Spin-Torque MRAM (ST-MRAM) products. Adoption of these products is important to the future growth of ourbusiness, but revenue associated with these products has not been material to date.Our limited operating history and limited experience selling products, combined with the rapidly evolving andcompetitive nature of our market, makes it difficult to evaluate our current business and future prospects. In addition, wehave limited insight into emerging trends that may adversely affect our business, financial condition, results of14 Table of Contentsoperations and prospects. We have encountered and will continue to encounter risks and difficulties frequently experiencedby growing companies in rapidly changing industries, including unpredictable and volatile revenue and increased expensesas we continue to grow our business. The viability and demand for our products may be affected by many factors outside ofour control, such as the factors affecting the growth of the industrial, automotive and transportation, and enterprise storageindustries and changes in macroeconomic conditions. If we do not manage these risks and overcome these difficultiessuccessfully, our business will suffer.We may be unable to match production with customer demand for a variety of reasons including our inability to accuratelyforecast customer demand or the capacity constraints of our suppliers, which could adversely affect our operating results.We make planning and spending decisions, including determining production levels, production schedules,component procurement commitments, personnel needs and other resource requirements, based on our estimates of productdemand and customer requirements. Our products are typically purchased pursuant to individual purchase orders. While ourcustomers may provide us with their demand forecasts, they are not contractually committed to buy any quantity of productsbeyond purchase orders. Furthermore, many of our customers may increase, decrease, cancel or delay purchase orders alreadyin place without significant penalty. The short-term nature of commitments by our customers and the possibility ofunexpected changes in demand for their products reduce our ability to accurately estimate future customer requirements. Onoccasion, customers may require rapid increases in production, which can strain our resources, necessitate more onerousprocurement commitments and reduce our gross margin. If we overestimate customer demand, we may purchase products thatwe may not be able to sell, which could result in decreases in our prices or write-downs of unsold inventory. Conversely, ifwe underestimate customer demand or if sufficient manufacturing capacity is unavailable, we could lose sales opportunitiesand could lose market share or damage our customer relationships. We manufacture MRAM products at our 200mm facilitywe lease in Chandler, Arizona and use a single foundry, GLOBALFOUNDRIES Singapore Pte. Ltd., for production of higherdensity products on advanced technology nodes, which may not have sufficient capacity to meet customer demand. Therapid pace of innovation in our industry could also render significant portions of our inventory obsolete. Excess or obsoleteinventory levels could result in unexpected expenses or write-downs of inventory values that could adversely affect ourbusiness, operating results and financial condition.We may require additional capital to fund our business, which may not be available to us on favorable terms or at all.We believe that our existing cash and cash equivalents as of December 31, 2016, together with the additionalborrowings available under our credit facility, will be sufficient to meet our anticipated cash requirements through March 31,2018. Our ability to access the revolving loan under our credit facility depends upon levels of our accounts receivable and,therefore, the full amount may not be available to us at any specific time. Our future capital requirements will depend onmany factors, including our growth rate, the timing and extent of our spending to support research and developmentactivities, the timing and cost of establishing additional sales and marketing capabilities, and the introduction of newproducts. We may be required to seek additional equity or debt financing, and we cannot assure you that any such additionalfinancing will be available to us on acceptable terms or at all. If we are unable to raise additional capital or generatesufficient cash from operations to adequately fund our operations, we will need to curtail planned activities to reduce costs.Doing so will likely harm our ability to execute on our business plan.If we raise additional funds through issuances of equity, convertible debt securities or other securities convertible intoequity, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and anynew equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. Ifwe are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability tocontinue to grow or support our business and to respond to business challenges could be significantly limited.The audit report from our independent registered public accounting firm for the year ended December 31, 2015, statesthat our recurring losses raise substantial doubt about our ability to continue as a going concern. This report does not takeinto account the net proceeds received in our initial public offering and the concurrent private placement or our ability todraw down amounts under our line of credit. If we are unable to grow our revenue substantially to achieve and sustainprofitability, we may not be able to continue as a going concern.15 Table of ContentsAs we expand into new potential markets, we expect to face intense competition, including from our customers andpotential customers, and may not be able to compete effectively, which could harm our business.We expect that our new and future generation MRAM products will be applicable to markets in which we are notcurrently operating. Selling into these markets, including higher density memory markets and the module business could putus into direct competition with our current or potential customers or other competitors with substantially more resources andexperience than us. The markets in which we operate and may operate in the future are extremely competitive and arecharacterized by rapid technological change, continuous evolving customer requirements and declining average sellingprices. We may not be able to compete successfully against current or potential competitors, which include our current orpotential customers as they seek to internally develop solutions competitive with ours or as we develop products potentiallycompetitive with their existing products. If we do not compete successfully, our market share and revenue may decline. Wecompete with large semiconductor manufacturers and designers and others, and our current and potential competitors havelonger operating histories, significantly greater resources and name recognition and a larger base of customers than we do.This may allow them to respond more quickly than we can to new or emerging technologies or changes in customerrequirements. In addition, these competitors may have greater credibility with our existing and potential customers. Some ofour current and potential customers with their own internally developed solutions may choose not to purchase products fromthird-party suppliers like us.We rely on third parties to manufacture, package, assemble and test our products, which exposes us to a number of risks,including reduced control over manufacturing and delivery timing and potential exposure to price fluctuations, whichcould result in a loss of revenue or reduced profitability.Although we operate an integrated magnetic fabrication line located in Chandler, Arizona, we purchase wafers fromthird parties and outsource the manufacturing, packaging, assembly and testing of our products to third-party foundries andassembly and testing service providers. We use a single foundry, GLOBALFOUNDRIES Singapore Pte. Ltd., for productionof higher density products on advanced technology nodes. Our primary product package and test operations are located inChina, Taiwan and other Asian countries. We also use standard CMOS wafers from third-party foundries, which we process atour Chandler, Arizona, facility.Relying on third-party manufacturing, assembly, packaging and testing presents a number of risks, including but notlimited to:·capacity and materials shortages during periods of high demand;·reduced control over delivery schedules, inventories and quality;·the unavailability of, or potential delays in obtaining access to, key process technologies;·the inability to achieve required production or test capacity and acceptable yields on a timely basis;·misappropriation of our intellectual property;·the third party’s ability to perform its obligations due to bankruptcy or other financial constraints;·limited warranties on wafers or products supplied to us; and·potential increases in prices.We currently do not have long-term supply contracts with our third-party contract manufacturers for our MRAMproducts, including NXP, United Microelectronics Corporation, Taiwan Semiconductor Manufacturing Company, Limited(TSMC), United Test and Assembly Center (UTAC), Advanced Semiconductor Engineering (ASE), and Amkor, and wetypically negotiate pricing on a per-purchase order basis and in some cases on an annual basis. Therefore, they are notobligated to perform services or supply components to us for any specific period, in any specific quantities, or at any specificprice, except as may be provided in a particular purchase order. During periods of high demand and tight inventories, ourthird-party foundries and packaging, assembly and testing contractors may allocate capacity to the production of othercompanies’ products while reducing deliveries to us, or significantly raise their prices. In particular, they may allocatecapacity to other customers that are larger and better financed than us or that have long-term agreements, decreasing thecapacity available to us. Shortages of capacity available to us may be caused by the actions of their other, large customersthat may be difficult to predict, such as major product launches.16 Table of ContentsOur manufacturing agreement with GLOBALFOUNDRIES includes a customary forecast and ordering mechanism forthe supply of certain of our wafers, and we are obligated to order and pay for, and GLOBALFOUNDRIES is obligated tosupply, wafers consistent with the binding portion of our forecast. However, our manufacturing arrangement is also subject toboth a minimum and maximum order quantity that while we believe currently addresses our projected foundry capacityneeds, may not address our maximum foundry capacity requirements in the future. We may also be obligated to pay forunused capacity if our demand decreases in the future, or if our estimates prove inaccurate. GLOBALFOUNDRIES also hasthe ability to discontinue its manufacture of any of our wafers upon due notice and completion of the notice period. Thiscould cause us to have to find another foundry to manufacture those wafers or redesign our core technology and would meanthat we may not have products to sell until such time. Any time spent engaging a new manufacturer or redesigning our coretechnology 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 coretechnology, 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 andadequate deliveries from our providers, we might not be able to cost-effectively and quickly retain other vendors to satisfyour requirements. Because the lead-time needed to establish a relationship with a new third-party supplier could be severalquarters, there is no readily available alternative source of supply for any specific component. In addition, the time andexpense to qualify a new foundry could result in additional expense, diversion of resources or lost sales, any of which wouldnegatively impact our financial results.If any of our current or future foundries or packaging, assembly and testing subcontractors significantly increases thecosts of wafers or other materials or services, interrupts or reduces our supply, including for reasons outside of their control, orif any of our relationships with our suppliers is terminated, our operating results could be adversely affected. Suchoccurrences could also damage our customer relationships, result in lost revenue, cause a loss in market share or damage ourreputation.Our joint development agreement and strategic relationships involve numerous risks.We have entered into strategic relationships to manufacture products and develop new manufacturing processtechnologies and products. These relationships include our joint development agreement with GLOBALFOUNDRIES todevelop advanced MTJ technology and ST-MRAM. These relationships are subject to various risks that could adverselyaffect 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 ongoingdevelopment, manufacturing and operational activities, or on the amount, timing, or nature of further investmentsin 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 usand may pose credit risks for our transactions with them;·due to differing business models or long-term business goals, our collaborators may decide not to join us in fundingcapital 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 toless control over our critical production processes; and·changes in tax, legal, or regulatory requirements may necessitate changes in our agreements.17 Table of ContentsFurther, GLOBALFOUNDRIES may terminate the joint development agreement with us if we materially breach a termof the agreement, such as, but not limited to, by our failing to pay any undisputed sum which has been outstanding for 45 ormore days from the date of invoice, and fail to remedy the breach within 60 days after receiving notice fromGLOBALFOUNDRIES. If GLOBALFOUNDRIES terminates the joint development agreement, our ability to continue todevelop our MRAM technology will be significantly impaired.If our strategic relationships are unsuccessful, our business, results of operations, or financial condition may bematerially adversely affected.The market for semiconductor memory products is characterized by declines in average selling prices, which we expect tocontinue, and which could negatively affect our revenue and margins.Our customers expect the average selling price of our products to decrease year-over-year and we expect this trend tocontinue. When such pricing declines occur, we may not be able to mitigate the effects by selling more or higher marginunits, or by reducing our manufacturing costs. In such circumstances, our operating results could be materially and adverselyaffected. Our stand-alone and embedded MRAM products have experienced declining average selling prices over their lifecycle. The rate of decline may be affected by a number of factors, including relative supply and demand, the level ofcompetition, production costs and technological changes. As a result of the decreasing average selling prices of our productsfollowing their launch, our ability to increase or maintain our margins depends on our ability to introduce new or enhancedproducts with higher average selling prices and to reduce our per-unit cost of sales and our operating costs. We may not beable to reduce our costs as rapidly as companies that operate their own manufacturing, assembly and testing facilities, andour costs may even increase because we rely in part on third parties to manufacture, assemble and test our products, whichcould also reduce our gross margins. In addition, our new or enhanced products may not be as successful or enjoy as highmargins as we expect. If we are unable to offset any reductions in average selling prices by introducing new products withhigher average selling prices or reducing our costs, our revenue and margins will be negatively affected and may decrease.The semiconductor memory market is highly cyclical and has experienced severe downturns in the past, generally as aresult of wide fluctuations in supply and demand, constant and rapid technological change, continuous new productintroductions and price erosion. During downturns, periods of intense competition, or the presence of oversupply in theindustry, the selling prices for our products may decline at a high rate over relatively short time periods as compared tohistorical rates of decline. We are unable to predict selling prices for any future periods and may experience unanticipated,sharp declines in selling prices for our products.Unfavorable economic and market conditions, domestically and internationally, may adversely affect our business,financial condition, results of operations and cash flows.We have significant customer sales both in the U.S. and internationally. We also rely on domestic and internationalsuppliers, manufacturing partners and distributors. We are therefore susceptible to adverse U.S. and international economicand market conditions. If any of our manufacturing partners, customers, distributors or suppliers experience serious financialdifficulties or cease operations, our business will be adversely affected. In addition, the adverse impact of an unfavorableeconomy may adversely impact customer spending, which may adversely impact demand for our products.We must continuously develop new and enhanced products, and if we are unable to successfully market our new andenhanced products for which we incur significant expenses to develop, our results of operations and financial conditionwill be materially adversely affected.To compete effectively in our markets, we must continually design, develop and introduce new and improved productswith improved features in a cost-effective manner in response to changing technologies and market demand. This requires usto devote substantial financial and other resources to research and development. We are developing next-generationproducts, which we expect to be one of the drivers of our revenue growth in the future. However, we may not succeed indeveloping and marketing these new and enhanced products. We also face the risk that customers may not value or bewilling to bear the cost of incorporating our new and enhanced products into their products, particularly if they believe theircustomers are satisfied with current solutions. Regardless of the improved features or superior performance of our new andenhanced products, customers may be unwilling to adopt our solutions due to design or pricing constraints, or because theydo not want to rely on a single or limited supply source. Because of the18 Table of Contentsextensive time and resources that we invest in developing new and enhanced products, if we are unable to sell customers newgenerations of our products, our revenue could decline and our business, financial condition, results of operations and cashflows would be negatively affected. For example, we generated limited revenue from sales of our ST-MRAM products to date.While we expect revenue from our ST-MRAM products to increase, if we are unable to scale MRAM to gigabit densities toaddress applications currently served by DRAM, we may not be able to materially increase our revenue. If we are unable tosuccessfully develop and market our new and enhanced products that we have incurred significant expenses developing, ourresults 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 successfullysell the products that incorporate our solutions. Securing design wins is a lengthy, expensive and competitive process, andmay not result in actual orders and sales, which could cause our revenue to decline.We sell to customers that incorporate MRAM into their products. A design win occurs after a customer has tested ourproduct, verified that it meets the customer’s requirements and qualified our solutions for their products. We believe we aredependent on the adoption of our 256Mb and 1Gb MRAM products by our customers to secure design wins. Our customersmay need several months to years to test, evaluate and adopt our product and additional time to begin volume production ofthe product that incorporates our solution. Due to this generally lengthy design cycle, we may experience significant delaysfrom the time we increase our operating expenses and make investments in our products to the time that we generate revenuefrom sales of these products. Moreover, even if a customer selects our solution, we cannot guarantee that this will result inany sales of our products, as the customer may ultimately change or cancel its product plans, or efforts by our customer tomarket and sell its product may not be successful. We may not generate any revenue from design wins after incurring theassociated costs, which would cause our business and operating results to suffer. Any delay in the development of our 256Mband 1Gb MRAM products, or failure of our customers to adopt our 256Mb and 1Gb MRAM products, could inhibit revenuegrowth or cause declines, which would significantly harm our business and prevent us from becoming profitable.If a current or prospective customer designs a competitor’s solution into its product, it becomes significantly moredifficult for us to sell our solutions to that customer because changing suppliers involves significant time, cost, effort and riskfor the customer even if our solutions are superior to other solutions and remain compatible with their product design. Ourability to compete successfully depends on customers viewing us as a stable and reliable supplier to mission critical customerapplications 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 ofdesign wins, our results of operations and business may be harmed.We rely on our relationships with OEMs and ODMs to enhance our solutions and market position, and our failure tocontinue to develop or maintain such relationships in the future would harm our ability to remain competitive.We develop our products for leading OEMs and ODMs that serve a variety of end markets and are developing devicesfor automotive, transportation, industrial and storage applications. For each application, manufacturers create products thatincorporate specialized semiconductor technology, which makers of memory products use as the basis for their products.These manufacturers set the specifications for many of the key components to be used on each generation of their productsand, in the case of memory components, generally qualify only a few vendors to provide memory components for theirproducts. As each new generation of their products is released, vendors are validated in a similar fashion. We must workclosely with OEMs and ODMs to ensure our products become qualified for use in their products. As a result, maintainingclose relationships with leading OEMs and ODMs that are developing devices for automotive, transportation, industrial andstorage applications is crucial to the long-term success of our business. We could lose these relationships for a variety ofreasons, including our failure to qualify as a vendor, our failure to demonstrate the value of our new solutions, declines inproduct quality, or if OEMs or ODMs seek to work with vendors with broader product suites, greater production capacity orgreater financial resources. If our relationships with key industry participants were to deteriorate or if our solutions were notqualified by our customers, our market position and revenue could be materially and adversely affected.19 Table of ContentsThe loss of one or several of our customers or reduced orders or pricing from existing customers may have a significantadverse 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 customersduring any particular period due in part to the concentration of market share in the semiconductor industry. Our four largestend customers together accounted for 32% of our total revenue for the year ended December 31, 2016, but none of thesecustomers individually accounted for more than 10% of our total revenue during the period. Our four largest end customerstogether accounted for 41% of our total revenue for the year ended December 31, 2015, and two customers each accountedfor more than 10% of our total revenue during the period. Our four largest end customers together accounted for 37% of ourtotal revenue for the year ended December 31, 2014, and two customers each accounted for more than 10% of our totalrevenue during the period. The loss of a significant customer, a business combination among our customers, a reduction inorders or decrease in price from a significant customer or disruption in any of our commercial or distributor arrangements mayresult in a significant decline in our revenues and could have a material adverse effect on our business, liquidity, results ofoperations, financial condition and cash flows.Our results of operations can fluctuate from period to period, which could cause our share price to fluctuate.Our results of operations have fluctuated in the past and may fluctuate from period to period in the future due to avariety of factors, many of which are beyond our control. Factors relating to our business that may contribute to thesefluctuations include the following factors, as well as other factors described elsewhere in this report:·the receipt, reduction, delay or cancellation of orders by large customers;·the gain or loss of significant customers or distributors;·the timing and success of our launch of new or enhanced products and those of our competitors;·market acceptance of our products and our customers’ products;·the level of growth or decline in the industrial, automotive and transportation, enterprise storage and other markets;·the timing and extent of research and development and sales and marketing expenditures;·the amount and timing of operating expenses related to the maintenance and expansion of our business, operationsand infrastructure;·changes in our product mix;·our ability to reduce the manufacturing costs of our products;·competitive pressures resulting in lower than expected average selling prices;·fluctuations in sales by and inventory levels of OEMs and ODMs that incorporate our memory products in theirproducts;·cyclical and seasonal fluctuations in our markets;·fluctuations in the manufacturing yields of our third-party manufacturers;·quality issues that arise from manufacturing issues at our third-party manufacturers;·events that impact the availability of production capacity at our third-party subcontractors and other interruptionsin the supply chain including due to geopolitical events, natural disasters, materials shortages, bankruptcy or othercauses;·supply constraints for and changes in the cost of the other components incorporated into our customers’ products;·the timing of expenses related to the acquisition of technologies or businesses;·product rates of return or price concessions in excess of those expected or forecasted;·costs associated with the repair and replacement of defective products;·unexpected inventory write-downs or write-offs;20 Table of Contents·costs associated with litigation over intellectual property rights and other litigation;·the length and unpredictability of the purchasing and budgeting cycles of our customers;·loss of key personnel or the inability to attract qualified engineers; and·geopolitical events, such as war, threat of war or terrorist actions, or the occurrence of natural disasters.The semiconductor memory industry is highly cyclical and our markets may experience significant cyclicalfluctuations in demand as a result of changing economic conditions, budgeting and buying patterns of customers and othersfactors. As a result of these and other factors affecting demand for our products and our results of operations in any givenperiod, the results of any prior quarterly or annual periods should not be relied upon as indicative of our future revenue oroperating performance. Fluctuations in our revenue and operating results could also cause our stock price to decline.If sales of our customers’ products decline or if their products do not achieve market acceptance, our business andoperating results could be adversely affected.Our revenue depends on our customers’ ability to commercialize their products successfully. The markets for ourcustomers’ products are extremely competitive and are characterized by rapid technological change. Competition in ourcustomers’ markets is based on a variety of factors including price, performance, product quality, marketing and distributioncapability, customer support, name recognition and financial strength. As a result of rapid technological change, the marketsfor our customers’ products are characterized by frequent product introductions, short product life cycles, fluctuating demandand increasing product capabilities. As a result, our customers’ products may not achieve market success or may becomeobsolete. We cannot assure you that our customers will dedicate the resources necessary to promote and commercialize theirproducts, successfully execute their business strategies for such products, or be able to manufacture such products inquantities sufficient to meet demand or cost-effectively manufacture products at a high volume. Our customers do not havecontracts with us that require them to manufacture, distribute or sell any products. Moreover, our customers may developinternally, or in collaboration with our competitors, technology that they may utilize instead of the technology available tothem through us. Our customers’ failure to achieve market success for their products, including as a result of general declinesin our customers’ markets or industries, could negatively affect their willingness to utilize our products, which may result in adecrease in our revenue and negatively affect our business and operating results.Our revenue also depends on the timely introduction, quality and market acceptance of our customers’ products thatincorporate our solutions. Our customers’ products are often very complex and subject to design complexities that may resultin design flaws, as well as potential defects, errors and bugs. We incur significant design and development costs inconnection with designing our solutions for customers’ products. If our customers discover design flaws, defects, errors orbugs in their products, or if they experience changing market requirements, failed evaluations or field trials, or issues withother vendors, they may delay, change or cancel a project. If we have already incurred significant development costs, we maynot be able to recoup those costs, which in turn would adversely affect our business and financial results.We face competition and expect competition to increase in the future. If we fail to compete effectively, our revenue growthand results of operations will be materially and adversely affected.The global semiconductor market in general, and the semiconductor memory market in particular, are highlycompetitive. We expect competition to increase and intensify as other semiconductor companies enter our markets, many ofwhich have greater financial and other resources with which to pursue technology development, product design,manufacturing, marketing and sales and distribution of their products. Increased competition could result in price pressure,reduced profitability and loss of market share, any of which could materially and adversely affect our business, revenue andoperating results. Currently, our competitors range from large, international companies offering a wide range of traditionalmemory technologies to companies specializing in other alternative, specialized emerging memory technologies. Ourprimary memory competitors include Cypress, Fujitsu, Integrated Silicon Solution, Macronix, Microchip, Micron, Renesas,Samsung, and Toshiba. The main competition for sensor products includes AMR, Crocus, GMR and Hall Effect. Thesetechnologies directly compete with our products and are supplied by Alps, Asahi Kasei Microdevices, Fairchild, Invensys(now Schneider), Kionix and Micronas. In addition, as the MRAM market opportunity grows, we expect new entrants such asAvalanche will enter this market and existing competitors, including leading21 Table of Contentssemiconductor companies, may make significant investments to compete more effectively against our products. Thesecompetitors 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 otheractions that could change the competitive landscape.Competition could result in pricing pressure, reduced revenue and loss of market share, any of which could materiallyand adversely affect our business, results of operations and prospects. In the event of a market downturn, competition in themarkets in which we operate may intensify as our customers reduce their purchase orders. Our competitors that aresignificantly larger and have greater financial, technical, marketing, distribution, customer support and other resources ormore established market recognition than us may be better positioned to accept lower prices and withstand adverse economicor market conditions.Our customers require our products and our third-party contractors to undergo a lengthy and expensive qualificationprocess. If we are unsuccessful or delayed in qualifying any of our products with a customer, our business and operatingresults would suffer.Prior to selecting and purchasing our products, our customers typically require that our products undergo extensivequalification processes, which involve testing of our products in the customers’ systems, as well as testing for reliability. Thisqualification process may continue for several months or years. However, obtaining the requisite qualifications for a memoryproduct does not assure any sales of the product. Even after successful qualification and sales of a product to a customer, asubsequent revision in our third-party contractors’ manufacturing process or our selection of a new contract manufacturermay require a new qualification process, which may result in delays and excess or obsolete inventory. After our products arequalified and selected, it can and often does take several months or more before the customer commences volume productionof systems that incorporate our products. Despite these uncertainties, we devote substantial resources, including design,engineering, sales, marketing and management efforts, to qualify our products with customers in anticipation of sales. If weare unsuccessful or delayed in qualifying any of our products with a customer, sales of those products may be precluded ordelayed, which may impede our growth and harm our business.Our costs may increase substantially if we or our third-party manufacturing contractors do not achieve satisfactory productyields or quality.The fabrication process is extremely complicated and small changes in design, specifications or materials can result inmaterial decreases in product yields or even the suspension of production. From time to time, we and/or the third-partyfoundries that we contract to manufacture our products may experience manufacturing defects and reduced manufacturingyields. In some cases, we and/or our third-party foundries may not be able to detect these defects early in the fabricationprocess or determine the cause of such defects in a timely manner. There may be a higher risk of product yield issues in newerST-MRAM products.Generally, in pricing our products, we assume that manufacturing yields will continue to improve, even as thecomplexity of our products increases. Once our products are initially qualified either internally or with our third-partyfoundries, minimum acceptable yields are established. We are responsible for the costs of the units if the actual yield is abovethe minimum set with our third-party foundries. If actual yields are below the minimum we are not required to purchase theunits. Typically, minimum acceptable yields for our new products are generally lower at first and gradually22 Table of Contentsimprove as we achieve full production, but yield issues can occur even in mature processes due to break downs in mechanicalsystems, equipment failures or calibration errors. Unacceptably low product yields or other product manufacturing problemscould substantially increase overall production time and costs and adversely impact our operating results. Product yieldlosses will increase our costs and reduce our gross margin. For example, cost of sales increased in the third and fourth quartersof 2015 due to product yield issues in our fabrication line. In addition to significantly harming our results of operations andcash 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 andresult 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 orhinder market acceptance of the products or result in a costly recall and could damage our reputation and adversely affect ourability to retain existing customers and attract new customers. Defects could cause problems with the functionality of ourproducts, resulting in interruptions, delays or cessation of sales of these products to our customers. We may also be requiredto make significant expenditures of capital and resources to resolve such problems. We cannot assure you that problems willnot be found in new products, both before and after commencement of commercial production, despite testing by us, oursuppliers or our customers. Any such problems could result in:·delays in development, manufacture and roll-out of new products;·additional development costs;·loss of, or delays in, market acceptance;·diversion of technical and other resources from our other development efforts;·claims for damages by our customers or others against us; and·loss of credibility with our current and prospective customers.Any such event could have a material adverse effect on our business, financial condition and results of operations.We may experience difficulties in transitioning to new wafer fabrication process technologies or in achieving higher levelsof design integration, which may result in reduced manufacturing yields, delays in product deliveries and increasedexpenses.We aim to use the most advanced manufacturing process technology appropriate for our solutions that is available fromour third-party foundries. As a result, we periodically evaluate the benefits of migrating our solutions to other technologies toimprove performance and reduce costs. These ongoing efforts require us from time to time to modify the manufacturingprocesses for our products and to redesign some products, which in turn may result in delays in product deliveries. We mayface difficulties, delays and increased expense as we transition our products to new processes, and potentially to newfoundries. We will depend on our third-party foundries as we transition to new processes. We cannot assure you that ourthird-party foundries will be able to effectively manage such transitions or that we will be able to maintain our relationshipwith our third-party foundries or develop relationships with new third-party foundries. If we or any of our third-partyfoundries experience significant delays in transitioning to new processes or fail to efficiently implement transitions, we couldexperience reduced manufacturing yields, delays in product deliveries and increased expenses, any of which could harm ourrelationships with our customers and our operating results.As smaller line width geometry manufacturing processes become more prevalent, we intend to move our future productsto increasingly smaller geometries to reduce costs while integrating greater levels of functionality into our products. Thistransition will require us and our third-party foundries to migrate to new designs and manufacturing processes for smallergeometry products. We may not be able to achieve smaller geometries with higher levels of design integration or to delivernew integrated products on a timely basis. We periodically evaluate the benefits, on a product-by-product basis, of migratingto smaller geometry process technologies to reduce our costs and increase performance. We are dependent on ourrelationships with our third-party foundries to transition to smaller geometry processes successfully. We cannot assure youthat our third-party foundries will be able to effectively manage any such transition. If we or our third-party foundriesexperience significant delays in any such transition or fail to implement a transition, our business, financial condition andresults of operations could be materially harmed.23 Table of ContentsChanges to industry standards and technical requirements relevant to our products and markets could adversely affect ourbusiness, results of operations and prospects.Our products are only a part of larger electronic systems. All products incorporated into these systems must comply withvarious industry standards and technical requirements created by regulatory bodies or industry participants to operateefficiently together. Industry standards and technical requirements in our markets are evolving and may change significantlyover time. For our products, the industry standards are developed by the Joint Electron Device Engineering Council, anindustry trade organization. In addition, large industry-leading semiconductor and electronics companies play a significantrole 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 andsolutions. 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 standardsand technical requirements. The emergence of new industry standards and technical requirements could render our productsincompatible with products developed by other suppliers or make it difficult for our products to meet the requirements ofcertain of our customers in automotive, transportation, industrial, storage and other markets. As a result, we could be requiredto invest significant time and effort and to incur significant expense to redesign our products to ensure compliance withrelevant standards and requirements. If our products are not in compliance with prevailing industry standards and technicalrequirements for a significant period of time, we could miss opportunities to achieve crucial design wins, our revenue maydecline and we may incur significant expenses to redesign our products to meet the relevant standards, which couldadversely affect our business, results of operations and prospects.Failure to protect our intellectual property could substantially harm our business.Our success and ability to compete depend in part upon our ability to protect our intellectual property. We rely on acombination of intellectual property rights, including patents, mask work protection, copyrights, trademarks, trade secretsand know-how, in the United States and other jurisdictions. The steps we take to protect our intellectual property rights maynot be adequate, particularly in foreign jurisdictions such as China. Any patents we hold may not adequately protect ourintellectual property rights or our products against competitors, and third parties may challenge the scope, validity orenforceability of our issued patents, which third parties may have significantly more financial resources with which tolitigate their claims than we have to defend against them. In addition, other parties may independently develop similar orcompeting technologies designed around any patents or patent applications that we hold. Some of our products andtechnologies are not covered by any patent or patent application, as we do not believe patent protection of these productsand technologies is critical to our business strategy at this time. A failure to timely seek patent protection on products ortechnologies 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 andconsultants, and we implement security measures designed to protect our trade secrets and know-how. However, we cannotassure you that these contractual protections and security measures will not be breached, that we will have adequate remediesfor any such breach or that our customers, suppliers, distributors, employees or consultants will not assert rights tointellectual 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 matterssatisfactorily 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 intellectualproperty, as an adverse decision could limit our ability to assert our intellectual property rights, limit the value of ourtechnology or otherwise negatively impact our business, financial condition and results of operations. Additionally, anyenforcement of our patents or other intellectual property may provoke third parties to assert counterclaims against us. Ourfailure to secure, protect and enforce our intellectual property rights could materially harm our business.24 Table of ContentsWe may face claims of intellectual property infringement, which could be time-consuming, costly to defend or settle, resultin the loss of significant rights, harm our relationships with our customers and distributors, or otherwise materiallyadversely affect our business, financial condition and results of operations.The semiconductor memory industry is characterized by companies that hold patents and other intellectual propertyrights and that vigorously pursue, protect and enforce intellectual property rights. These companies include patent holdingcompanies or other adverse patent owners who have no relevant product revenue and against whom our own patents mayprovide little or no deterrence. From time to time, third parties may assert against us and our customers’ patent and otherintellectual property rights to technologies that are important to our business. We have in the past, and may in the future, facesuch claims.Claims that our products, processes or technology infringe third-party intellectual property rights, regardless of theirmerit or resolution, could be costly to defend or settle and could divert the efforts and attention of our management andtechnical personnel. We may also be obligated to indemnify our customers or business partners in connection with any suchlitigation, which could result in increased costs. Infringement claims also could harm our relationships with our customers ordistributors and might deter future customers from doing business with us. If any such proceedings result in an adverseoutcome, we could be required to:·cease the manufacture, use or sale of the infringing products, processes or technology;·pay substantial damages for infringement;·expend significant resources to develop non-infringing products, processes or technology, which may not besuccessful;·license technology from the third-party claiming infringement, which license may not be available oncommercially reasonable terms, or at all;·cross-license our technology to a competitor to resolve an infringement claim, which could weaken our ability tocompete with that competitor; or·pay substantial damages to our customers to discontinue their use of or to replace infringing technology sold tothem with non-infringing technology, if available.Any of the foregoing results could have a material adverse effect on our business, financial condition and results ofoperations. Furthermore, our exposure to the foregoing risks may also be increased if we acquire other companies ortechnologies. For example, we may have a lower level of visibility into the development process with respect to intellectualproperty or the care taken to safeguard against infringement risks with respect to the acquired company or technology. Inaddition, third parties may make infringement and similar or related claims after we have acquired technology that had notbeen asserted prior to the acquisition.We make significant investments in new technologies and products that may not achieve technological feasibility orprofitability or that may limit our revenue growth.We have made and will continue to make significant investments in research and development of new technologies andproducts, including new and more technically advanced versions of our MRAM technology.Investments in new technologies are speculative and technological feasibility may not be achieved. Commercialsuccess 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 achievesignificant revenue from new product investments for a number of years, if at all. Moreover, new technologies and productsmay not be profitable, and even if they are profitable, operating margins for new products and businesses may not be as highas the margins we have experienced historically or originally anticipated. Our inability to capitalize on or realize substantialrevenue from our significant investments in research and development could harm our operating results and distractmanagement, harming our business.25 Table of ContentsOur success depends on our ability to attract and retain key employees, and our failure to do so could harm our ability togrow our business and execute our business strategies.Our success depends on our ability to attract and retain our key employees, including our management team andexperienced engineers. Competition for personnel in the semiconductor memory technology field, and in the MRAM spacein particular, is intense, and the availability of suitable and qualified candidates is limited. We compete to attract and retainqualified 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 startupsand MRAM groups within larger companies seeking to employ them. The members of our management and key employeesare at-will employees and although we recently issued refresh equity awards to our personnel in connection with our initialpublic offering, and recently repriced options in mid-December 2016 to reflect our then current stock price, there can be noassurance that these awards will be effective to retain our key employees. If we lose the services of any key seniormanagement member or employee, we may not be able to locate suitable or qualified replacements, and may incur additionalexpenses to recruit and train new personnel, which could severely impact our business and prospects. The loss of the servicesof one or more of our key employees, especially our key engineers, or our inability to attract and retain qualified engineers,could harm our business, financial condition and results of operations.We may not be able to effectively manage our growth, and we may need to incur significant expenditures to address theadditional operational and control requirements of our growth, either of which could harm our business and operatingresults.As we continue to expand our business, we expect our headcount and overall size of our operations to growsignificantly. To effectively manage our growth, we must continue to expand our operational, engineering and financialsystems, procedures and controls and to improve our accounting and other internal management systems, such as our newERP system that we have recently implemented. This may require substantial managerial and financial resources, and ourefforts in this regard may not be successful. Our current systems, procedures and controls may not be adequate to support ourfuture operations. If we fail to adequately manage our growth, or to improve our operational, financial and managementinformation systems, or fail to effectively motivate or manage our new and future employees, the quality of our products andthe management of our operations could suffer, which could adversely affect our operating results.We may engage in acquisitions of, or investments in, other companies, each of which may divert our management’sattention, result in additional dilution to stockholders or use resources that are necessary to operate our business.We may in the future seek to acquire or invest in businesses, products or technologies that we believe couldcomplement or expand our business, enhance our technical capabilities or otherwise offer growth opportunities. However,our term loan and revolving credit facility prohibits our ability to merge with or acquire any other entity. Even if we wereallowed to pursue such acquisitions or investments, they could create risks for us, including:·difficulties in assimilating acquired personnel, operations and technologies or realizing synergies expected inconnection with an acquisition, particularly with acquisitions of companies with large and widespread operations,complex products or that operate in markets in which we historically have had limited experience;·unanticipated costs or liabilities, including possible litigation, associated with the acquisition;·incurrence of acquisition-related costs;·diversion of management’s attention from other business concerns;·use of resources that are needed in other parts of our business; and·use of substantial portions of our available cash to consummate an acquisition.A significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill, which mustbe assessed for impairment at least annually. If such acquisitions do not yield expected returns, we may be required to takecharges to our earnings based on this impairment assessment process, which could harm our results of operations.We may be unable to complete acquisitions at all or on commercially reasonable terms, which could limit our futuregrowth. Acquisitions could also result in dilutive issuances of equity securities or the incurrence of additional debt, whichcould adversely affect our operating results and result in a decline in our stock price and further restrict our26 Table of Contentsability to pursue business opportunities, including potential acquisitions. In addition, if an acquired business fails to meetour expectations, our operating results may suffer.We maintain operations outside of the United States and intend to expand our international operations, which exposes usto significant risks.We have limited operations in Europe and Asia. We intend to expand our operations internationally. The success of ourbusiness depends, in large part, on our ability to operate successfully from geographically disparate locations and to furtherexpand our international operations and sales. Operating in international markets requires significant resources andmanagement attention and subjects us to regulatory, economic and political risks that are different from those we face in theUnited States. We cannot be sure that further international expansion will be successful. In addition, we face risks in doingbusiness internationally that could expose us to reduced demand for our products, lower prices for our products or otheradverse effects on our operating results. Among the risks we believe are most likely to affect us are:·difficulties, inefficiencies and costs associated with staffing and managing foreign operations;·longer and more difficult customer qualification and credit checks;·greater difficulty collecting accounts receivable and longer payment cycles;·the need for various local approvals to operate in some countries;·difficulties in entering some foreign markets without larger-scale local operations;·compliance with local laws and regulations;·unexpected changes in regulatory requirements, including the elimination of tax holidays;·reduced protection for intellectual property rights in some countries;·adverse tax consequences as a result of repatriating cash generated from foreign operations to the United States;·adverse tax consequences, including potential additional tax exposure if we are deemed to have established apermanent establishment outside of the United States;·the effectiveness of our policies and procedures designed to ensure compliance with the Foreign Corrupt PracticesAct of 1977 and similar regulations;·fluctuations in currency exchange rates, which could increase the prices of our products to customers outside of theUnited 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 salesin currencies other than the U.S. dollar;·new and different sources of competition; and·political and economic instability, and terrorism.Our failure to manage any of these risks successfully could harm our operations and reduce our revenue.To comply with environmental laws and regulations, we may need to modify our activities or incur substantial costs, and ifwe fail to comply with environmental regulations we could be subject to substantial fines or be required to have oursuppliers alter their processes.The semiconductor memory industry is subject to a variety of international, federal, state and local governmentalregulations 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 regulationscould subject us to civil or criminal sanctions and property damage or personal injury claims. Compliance with current orfuture environmental laws and regulations could restrict our ability to expand our business or require us to modify processesor incur other substantial expenses which could harm our business. In response to environmental concerns, some customersand government agencies impose requirements for the elimination of hazardous substances, such as lead (which is widelyused in soldering connections in the process of semiconductor packaging and assembly), from electronic equipment. Forexample, the European Union adopted its Restriction on Hazardous Substance Directive27 Table of Contentswhich prohibits, with specified exceptions, the sale in the EU market of new electrical and electronic equipment containingmore than agreed levels of lead or other hazardous materials and China has enacted similar regulations. Environmental lawsand regulations such as these could become more stringent over time, causing a need to redesign technologies, imposinggreater compliance costs and increasing risks and penalties associated with violations, which could seriously harm ourbusiness.Some of the facilities of our suppliers are located near known earthquake fault zones, and the occurrence of an earthquakeor other catastrophic disaster could damage our facilities, which could cause us to curtail our operations.Some of our foundries and suppliers’ facilities in Asia are located near known earthquake fault zones and, therefore, arevulnerable to damage from earthquakes. We are also vulnerable to damage from other types of disasters, such as power loss,fire, floods and similar events. If any such disaster were to occur, our ability to operate our business could be seriouslyimpaired. In addition, we may not have adequate insurance to cover our losses resulting from disasters or other similarsignificant business interruptions. Any significant losses that are not recoverable under our insurance policies couldseriously impair our business and financial condition.Provisions of our credit facility may restrict our ability to pursue our business strategies.Borrowings under our existing credit facility are secured by substantially all of our assets. Our term loan facilityprohibits our ability to, among other things:·dispose of or sell assets;·consolidate or merge with other entities;·incur additional indebtedness;·create liens on our assets;·pay dividends;·make investments;·enter into transactions with affiliates; and·redeem subordinated indebtedness.These restrictions are subject to certain exceptions. The operating restrictions and covenants in the term loan facility, aswell as any future financing agreements that we may enter into, may restrict our ability to finance our operations, engage inbusiness activities or expand or fully pursue our business strategies. Our ability to comply with these covenants may beaffected by events beyond our control, and we may not be able to meet those covenants. A breach of any of these covenantscould result in a default under the credit facility, which could cause all of the outstanding indebtedness thereunder to eitherbecome immediately due and payable or increase by five percent of the interest rate charged during the period of theunremedied breach.Our ability to use net operating losses to offset future taxable income may be subject to certain limitations.In general, under Section 382 of the U.S. Internal Revenue Code of 1986, as amended, or the Code, a corporation thatundergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses, orNOLs, to offset future taxable income, and tax credits to offset tax. We may experience an ownership change in the future,and our ability to utilize our NOLs and tax credits could be further limited by Section 382 of the Code. Future changes in ourstock ownership, many of which are outside of our control, could result in an ownership change under Section 382 of theCode. Our net operating losses and tax credits could also be impaired under state laws. As a result, we might not be able toutilize a material portion of our state NOLs and tax credits.We will incur significantly increased costs and devote substantial management time as a result of operating as a publiccompany.As a public company since October 2016, we are incurring significant legal, accounting and other expenses that we didnot incur as a private company. For example, we are subject to the reporting requirements of the Securities Exchange28 Table of ContentsAct of 1934, as amended, or the Exchange Act, and are required to comply with the applicable requirements of the Sarbanes-Oxley Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, as well asrules and regulations subsequently implemented by the SEC and the NASDAQ Stock Market, including the establishmentand maintenance of effective disclosure and internal controls and the establishment corporate governance practices.Compliance with these requirements has increased our legal and financial compliance costs and is making some activitiesmore time consuming and costly.If we fail to hire additional finance personnel and strengthen our financial reporting systems and infrastructure, we maynot be able to timely and accurately report our financial results or comply with the requirements of being a publiccompany, including compliance with the Sarbanes-Oxley Act and SEC reporting requirements.We intend to hire additional accounting and finance staff with technical accounting, SEC reporting and Sarbanes-OxleyAct compliance expertise. Any inability to recruit and retain such personnel would have an adverse impact on our ability toaccurately and timely prepare our financial statements. We may be unable to locate and hire qualified professionals withrequisite technical and public company experience when and as needed. In addition, new employees will require time andtraining to learn our business and operating processes and procedures. If our finance and accounting organization is unablefor any reason to respond adequately to the increased demands as a result of being a public company, the quality andtimeliness of our financial reporting may suffer, which could result in the identification of material weaknesses in our internalcontrols. Any consequences resulting from inaccuracies or delays in our reported financial statements could cause the tradingprice of our common stock to decline and could harm our business, operating results and financial condition.If we fail to strengthen our financial reporting systems, infrastructure and internal control over financial reporting tomeet the demands placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, we may beunable to report our financial results timely and accurately and prevent fraud. We expect to incur significant expense anddevote substantial management effort toward ensuring compliance with Section 404.Interruptions in our information technology systems could adversely affect our business.We rely on the efficient and uninterrupted operation of complex information technology systems and networks tooperate our business. Any significant disruption to our systems or networks, including, but not limited to, new systemimplementations, computer viruses, security breaches, facility issues, natural disasters, terrorism, war, telecommunicationfailures or energy blackouts, could have a material adverse impact on our operations, sales and financial results. Suchdisruption could result in a loss of our intellectual property or the release of sensitive competitive information or supplier,customer or employee personal data. Any loss of such information could harm our competitive position, result in a loss ofcustomer confidence, and cause us to incur significant costs to remedy the damages caused by any such disruptions orsecurity breaches. Additionally, any failure to properly manage the collection, handling, transfer or disposal of personal dataof employees and customers may result in regulatory penalties, enforcement actions, remediation obligations, litigation, finesand other sanctions.We may experience attacks on our data, attempts to breach our security and attempts to introduce malicious softwareinto our IT systems. If attacks are successful, we may be unaware of the incident, its magnitude, or its effects until significantharm 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 materialadverse impact on our business, operations and financial results.Third-party service providers, such as wafer foundries, assembly and test contractors, distributors and other vendorshave access to certain portions of our and our customers’ sensitive data. In the event that these service providers do notproperly 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 withour customers.29 Table of ContentsIf we fail to remediate material weaknesses in our internal control over financial reporting, or experience any additionalmaterial weaknesses in the future or otherwise fail to maintain an effective system of internal controls in the future, we maynot be able to accurately report our financial condition or results of operations which may adversely affect investorconfidence in us and, as a result, the value of our common stock.As a result of being a public company, we will be required, under Section 404 of the Sarbanes-Oxley Act to furnish areport by management on, among other things, the effectiveness of our internal control over financial reporting beginningwith our Annual Report on Form 10‑K for the year ended December 31, 2017. This assessment will need to include disclosureof any material weaknesses identified by our management in our internal control over financial reporting. A materialweakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is areasonable possibility that a material misstatement of our annual and interim financial statements will not be detected orprevented on a timely basis.In connection with the audit of our financial statements as of and for the years ended December 31, 2016, 2015 and2014, we identified material weaknesses in our internal control over financial reporting, as defined in the standardsestablished by the Public Company Accounting Oversight Board of the United States. Our management has determined thatwe had a material weakness in our internal control over financial reporting as of December 31, 2014 and 2015, relating to thedesign and operation of our financial reporting processes. We have concluded that this material weakness was due to the factthat we did not yet have the appropriate resources with the appropriate level of experience and technical expertise to overseeour closing and financial reporting processes. Our management also determined that we had an additional material weaknessin our internal control over financial reporting as of December 31, 2016, relating to information technology general andapplication controls. We have concluded that this material weakness is due to the current configuration of our ERP system,which is scheduled for additional integration in 2017.We are enhancing our internal controls, processes and related documentation necessary to remediate our materialweakness and to perform the evaluation needed to comply with Section 404. We may not be able to complete ourremediation, evaluation and testing in a timely fashion. During the evaluation and testing process, if we identify one or morematerial weaknesses in our internal control over financial reporting, such as the one we identified as described above, we willbe unable to conclude that our internal controls are effective. The effectiveness of our controls and procedures may belimited by a variety of factors, including:·faulty human judgment and simple errors, omissions or mistakes;·fraudulent action of an individual or collusion of two or more people;·inappropriate management override of procedures; and·the possibility that any enhancements to controls and procedures may still not be adequate to assure timely andaccurate financial control.When we cease to be an “emerging growth company” under the federal securities laws, our auditors will be required toexpress an opinion on the effectiveness of our internal controls. If we are unable to confirm that our internal control overfinancial reporting is effective, or if our auditors are unable to express an opinion on the effectiveness of our internalcontrols, we could lose investor confidence in the accuracy and completeness of our financial reports, which could cause theprice of our common stock to decline.The issuance of new accounting standards or future interpretations of existing accounting standards could adversely affectour operating results.We prepare our financial statements in accordance with accounting principles generally accepted in the United States ofAmerica, or GAAP. A change in those principles could have a significant effect on our reported results and might affect ourreporting of transactions completed before a change is announced. GAAP is issued and subject to interpretation by theFinancial Accounting Standards Board, the SEC and various other bodies formed to promulgate and interpret accountingprinciples. A change in these principles or interpretations could have a significant effect on our reported financial results, andcould affect the reporting of transactions completed before the announcement of a change. The issuance of new accountingstandards or future interpretations of existing accounting standards, or changes in our business practices or estimates, couldresult in future changes in our revenue recognition or other accounting policies that could have a material adverse effect onour results of operations.30 Table of ContentsRegulations related to “conflict minerals” may force us to incur additional expenses, may make our supply chain morecomplex and may result in damage to our reputation with customers.Pursuant to the Dodd-Frank Act, the SEC has adopted requirements for companies that use certain minerals and metals,known as conflict minerals, in their products, whether or not these products are manufactured by third parties. Theserequirements will require companies to perform diligence and disclose and report whether or not such minerals originate fromthe Democratic Republic of Congo and adjoining countries. The implementation of these requirements could adverselyaffect the sourcing, availability and pricing of minerals used in the manufacture of our products, and affect our costs andrelationships with customers, distributors and suppliers as we must obtain additional information from them to ensure ourcompliance with the disclosure requirement. In addition, we will incur additional costs to comply with the disclosurerequirements, including costs related to determining the source of any of the relevant minerals and metals used in ourproducts. Since our supply chain is complex, we may not be able to sufficiently verify the origins for these minerals andmetals used in our products through the due diligence procedures that we implement, which may harm our reputation. In suchevent, we may also face difficulties in satisfying customers who require that all of the components of our products arecertified as conflict mineral free and these customers may discontinue, or materially reduce, purchases of our products, whichcould result in a material adverse effect on our results of operations and our financial condition may be adversely affected.Risks Related to Our Common StockAn active trading market may not be sustained.Prior to the initial public offering of our common stock in October 2016, there was no public market for our commonstock. Although our stock is currently traded on the NASDAQ Stock Market, an active trading market may not be sustained.The lack of an active market may impair the value of your shares and your ability to sell your shares at the time you wish tosell them. An inactive market may also impair our ability to both raise capital by selling shares and acquire othercomplementary products, technologies or businesses by using our shares as consideration.We expect that the price of our common stock will fluctuate substantially.The market price of our common stock is likely to be highly volatile and may fluctuate substantially due to manyfactors, including:·the introduction of new products or product enhancements by us or others in our industry;·disputes or other developments with respect to our or others’ intellectual property rights;·product liability claims or other litigation;·quarterly variations in our results of operations or those of others in our industry;·sales of large blocks of our common stock, including sales by our executive officers and directors;·changes in earnings estimates or recommendations by securities analysts; and·general market conditions and other factors, including factors unrelated to our operating performance or theoperating performance of our competitors.In recent years, the stock markets generally have experienced extreme price and volume fluctuations that have oftenbeen unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors maysignificantly affect the market price of our common stock, regardless of our actual operating performance. These fluctuationsmay be even more pronounced in the trading market for our common stock.In addition, in the past, class action litigation has often been instituted against companies whose securities haveexperienced periods of volatility in market price. Securities litigation brought against us following volatility in our stockprice, regardless of the merit or ultimate results of such litigation, could result in substantial costs, which would hurt ourfinancial 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.31 Table of ContentsSecurities analysts may not publish favorable research or reports about our business or may publish no information at all,which could cause our stock price or trading volume to decline.The trading market for our common stock will be influenced to some extent by the research and reports that industry orfinancial analysts publish about us and our business. We do not control these analysts. As a newly public company, we maybe slow to attract research coverage and the analysts who publish information about our common stock will have hadrelatively little experience with our company or industry, which could affect their ability to accurately forecast our resultsand could make it more likely that we fail to meet their estimates. In the event we obtain securities or industry analystcoverage, if any of the analysts who cover us provide inaccurate or unfavorable research or issue an adverse opinionregarding our stock price, our stock price could decline. If one or more of these analysts cease coverage of our company orfail to publish reports covering us regularly, we could lose visibility in the market, which in turn could cause our stock priceor trading volume to decline.We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to“emerging growth companies” will make our common stock less attractive to investors.We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptionsand relief from various reporting requirements that are applicable to other public companies that are not “emerging growthcompanies.” In particular, while we are an “emerging growth company” (1) we will not be required to comply with theauditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, (2) we will be exempt from any rules that maybe adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotations or a supplement tothe auditor’s report on financial statements, (3) we will be subject to reduced disclosure obligations regarding executivecompensation in our periodic reports and proxy statements, and (4) we will not be required to hold nonbinding advisoryvotes on executive compensation or stockholder approval of any golden parachute payments not previously approved.We may remain an “emerging growth company” until as late as December 31, 2021, the fiscal year-end following thefifth anniversary of the completion of our initial public offering, though we may cease to be an “emerging growth company”earlier under certain circumstances, including (1) if the market value of our common stock that is held by nonaffiliatesexceeds $700 million as of any June 30, in which case we would cease to be an “emerging growth company” as of thefollowing December 31, or (2) if our gross revenue exceeds $1.0 billion in any fiscal year.Investors may find our common stock less attractive if we rely on the exemptions and relief granted by the JOBS Act. Ifsome investors find our common stock less attractive as a result, there may be a less active trading market for our commonstock and our stock price may decline or become more volatile.Sales of a substantial number of shares of our common stock in the public market by our existing stockholders could causeour stock price to fall.Sales of a substantial number of shares of our common stock in the public market, or the perception that these salesmight occur, could depress the market price of our common stock and could impair our ability to raise capital through thesale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price ofour common stock.Our directors, officers and principal stockholders have significant voting power and may take actions that may not be inthe best interests of our other stockholders.Our officers, directors and principal stockholders each holding more than 5% of our common stock, collectively,control a significant percentage of our outstanding common stock. As a result, these stockholders, if they act together, will beable to control the management and affairs of our company and most matters requiring stockholder approval, including theelection of directors and approval of significant corporate transactions. This concentration of ownership may have the effectof delaying or preventing a change of control and might adversely affect the market price of our common stock. Thisconcentration of ownership may not be in the best interests of our other stockholders.32 Table of ContentsOur disclosure controls and procedures may not prevent or detect all errors or acts of fraud.We are subject to the periodic reporting requirements of the Exchange Act. We have designed our disclosure controlsand procedures to provide reasonable assurance that information we must disclose in reports we file or submit under theExchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported withinthe time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures, nomatter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of thecontrol system are met.These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdownscan occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of somepersons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of theinherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.Provisions in our corporate charter documents and under Delaware law could make an acquisition of us more difficult andmay 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 maydiscourage, 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 alsolimit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing themarket price of our common stock. In addition, these provisions may frustrate or prevent any attempts by our stockholders toreplace or remove our current management by making it more difficult for stockholders to replace members of our board ofdirectors. Because our board of directors is responsible for appointing the members of our management team, these provisionscould 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 avacancy created by the expansion of the board of directors or the resignation, death or removal of a director, whichprevents 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, orholders, controlling a majority of our capital stock would not be able to take certain actions other than at annualstockholders’ meetings or special stockholders’ meetings called by the board of directors, the chairman of theboard, the chief executive officer or the president;·our certificate of incorporation prohibits cumulative voting in the election of directors, which limits the ability ofminority 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 ofvoting stock, voting as a single class, will be required (a) to amend certain provisions of our certificate ofincorporation, including provisions relating to the size of the board, removal of directors, special meetings, actionsby written consent and cumulative voting and (b) to amend or repeal our bylaws, although our bylaws may beamended by a simple majority vote of our board of directors;·stockholders must provide advance notice and additional disclosures to nominate individuals for election to theboard of directors or to propose matters that can be acted upon at a stockholders’ meeting, which may discourage ordeter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors orotherwise attempting to obtain control of our company; and·our board of directors may issue, without stockholder approval, shares of undesignated preferred stock; the abilityto issue undesignated preferred stock makes it possible for our board of directors to issue preferred stock withvoting 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 DelawareGeneral Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock frommerging or combining with us for a period of three years after the date of the transaction in which the person acquired inexcess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.33 Table of Contents Item 1B Unresolved Staff Comments.None. Item 2. Properties.We lease office space for our corporate headquarters located in Chandler, Arizona and for our design facility located inAustin, Texas. The leases expire in October 2018 and January 2022, respectively.We have an operating lease for our Arizona manufacturing facility, as amended, for certain of the fabrication, laboratoryand office premises of Freescale, a related party. This lease is cancellable upon 24 months’ notice by either of the parties. Inthe first quarter of 2017, we extended the lease through January 28, 2019 and amended the premises covered to removelaboratory space, decrease fabrication space and expand office space. In the first quarter of 2017, we entered into a five-yearoperating lease with Freescale for 10,023 square feet of office and laboratory space.We believe our existing facilities are well maintained and in good operating condition and they are adequate for ourforeseeable business needs. Item 3. Legal Proceedings.From time to time, we may become involved in legal proceedings arising from the ordinary course of our business.Management is currently not aware of any matters that will have a material adverse effect on our financial position, results ofoperations or cash flows. Item 4. Mine Safety DisclosuresNot applicable.34 Table of Contents PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities.Market Price of Common StockOur common stock has been listed on the NASDAQ Global Select Market under the symbol “MRAM” since October 7,2016. Prior to that date, there was no public trading market for our common stock. The following table sets forth for theperiod indicated the high and low sales prices per share of our common stock as reported on the NASDAQ Global SelectMarket: Prices High Low2016 Quarter ended December 31, 2016 (from October 7, 2016) $9.99 $6.15 Holders of RecordAs of March 23, 2017, we had 52 holders of record of our common stock. The actual number of stockholders is greaterthan this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in streetname by brokers and other nominees. This number of holders of record also does not include stockholders whose shares maybe held in trust by other entities.Dividend PolicyWe have never declared or paid cash dividends on our capital stock. We intend to retain all available funds and anyfuture earnings, if any, to fund the development and expansion of our business and we do not anticipate paying any cashdividends in the foreseeable future. Any future determination related to dividend policy will be made at the discretion of ourboard of directors.Stock Performance GraphThis performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes ofSection 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liabilities underthat Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act of1933, as amended, or the Exchange Act.The graph below shows the cumulative total stockholder return for Everspin Technologies, Inc., the NASDAQComposite Index and the PHLX Semiconductor Index, assuming the investment of $100.00 in our common stock on the datespecified. The comparisons in the graph are required by the Securities and Exchange Commission and are not intended toforecast or be indicative of future performance of our common stock.35 Table of ContentsRecent Sales of Unregistered SecuritiesNone. Use of Proceeds from our Public Offering of Common StockOn October 7, 2016, our registration statement on Form S‑1 (File No. 333‑213569) relating to our initial public offering(IPO) of common stock became effective. The IPO closed on October 13, 2016 at which time we issued 5,000,000 shares ofour common stock at an initial offering price of $8.00 per share for gross proceeds of $40.0 million. We received net proceedsfrom the IPO of $33.9 million, after deducting the underwriting discount and other offering-related expenses paid by us.There has been no material change in the planned use of proceeds from the IPO from that described in the prospectusfiled with the SEC pursuant to Rule 424(b)(4) under the Securities Act on October 7, 2016. As of December 31, 2016, we hadused approximately $14.1 million of the proceeds from our IPO.Repurchases of Shares or of Company Equity SecuritiesNone. 36 Table of Contents Item 6. Selected Financial Data.The information set forth below should be read together with "Item 7. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations" and our financial statements and related notes included elsewhere in thisreport. The selected balance sheet data at December 31, 2016 and 2015, and the selected statements of operations data foreach of the years ended December 31, 2016, 2015, and 2014, have been derived from our audited financial statements thatare included elsewhere in this report. The selected balance sheet data at December 31, 2014 has been derived from ouraudited financial statements not included in this report. Historical results are not necessarily indicative of results to beexpected in any future period. Year Ended December 31, Statement of Operations Data: 2016 2015 2014 (In thousands, except share and per shareamounts)Product sales $26,611 $25,875 $23,071Licensing and royalty revenue 483 671 1,825Total revenue 27,094 26,546 24,896Cost of sales 12,395 12,568 11,806Gross profit 14,699 13,978 13,090Operating expenses: Research and development 19,233 21,126 12,664General and administrative 7,281 6,565 7,085Sales and marketing 3,706 3,823 3,259Total operating expenses 30,220 31,514 23,008Loss from operations (15,521) (17,536) (9,918)Interest expense (2,347) (653) (263)Other income (expense), net 1,160 6 (2)Net loss $(16,708) $(18,183) $(10,183)Net loss per common share, basic and diluted $(3.53) $(7.12) $(4.00)Shares used to compute net loss per common share, basic and diluted 4,738,496 2,552,205 2,544,578Other Financial Data: Adjusted EBITDA $(11,429) $(14,013) $(7,497)(1)Includes stock-based compensation as follows: Year Ended December 31, 2016 2015 2014 (In thousands)Research and development $403 $169 $304General and administrative 637 190 392Sales and marketing 101 57 103Total $1,141 $416 $799 (2)We define Adjusted EBITDA as net income or loss adjusted for depreciation and amortization, stock-basedcompensation expense, compensation expense related to the vesting of common stock held by GLOBALFOUNDRIESresulting from our joint development agreement and interest expense. We use Adjusted EBITDA in conjunction withtraditional GAAP operating performance measures to understand and evaluate our operating performance and trends, toprepare 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 andevaluating our operating results in the same manner as our management and our board of directors.Adjusted EBITDA has limitations as a financial measure and should not be considered a substitute for other measures offinancial performance reported in accordance with GAAP. These limitations include the following:·Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;37 (1)(1)(1)(2) Table of Contents·Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us or theimpact of deferred income tax;·Adjusted EBITDA does not reflect cash expenditure requirements for replacements or for new capitalexpenditures;·Adjusted EBITDA excludes some recurring costs, such as the dilutive impact of non-cash stock-basedcompensation and depreciation and amortization; and·other companies, including companies in our industry, may calculate Adjusted EBITDA differently from howwe calculate this measure or not at all, which reduces its usefulness as a comparative measure.Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures,including net loss and our financial results presented in accordance with GAAP. The following table presents areconciliation of net loss, the most directly comparable GAAP measure, to Adjusted EBITDA for each of the periodsindicated: Year Ended December 31, 2016 2015 2014 (In thousands)Adjusted EBITDA reconciliation: Net loss $(16,708) $(18,183) $(10,183)Depreciation and amortization 826 1,340 1,517Stock-based compensation expense 1,141 416 799Compensation expense related to vesting of GLOBALFOUNDRIES common stock 965 1,761 107Interest expense 2,347 653 263Adjusted EBITDA $(11,429) $(14,013) $(7,497) As of December 31, 2016 2015 2014 (In thousands)Balance Sheet Data: Cash and cash equivalents $29,727 $2,307 $9,624Working capital (deficit) 29,119 (198) 8,940Total assets 41,472 10,961 17,775Total long-term debt, current and non-current 8,102 7,914 2,874Redeemable convertible preferred stock warrant liability — 437 145Redeemable convertible preferred stock — 64,642 64,642Total stockholders’ equity (deficit) 26,871 (70,430) (54,428)38 Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.You should read the following discussion and analysis of our financial condition and results of operations togetherwith the “Selected Financial Data” and our audited financial statements and related notes included elsewhere in thisreport. This discussion and other parts of this report contain forward-looking statements that involve risk and uncertainties,such as statements of our plans, objectives, expectations and intentions. As a result of many factors, including those factorsset forth in the “Risk Factors” section of this report, our actual results could differ materially from the results described inor implied by the forward-looking statements contained in the following discussion and analysis.OverviewWe are the leading provider of MRAM products. Our MRAM products offer the persistence of non-volatile memory, atype of memory that retains information even in the absence of power, with the speed and endurance of random accessmemory (RAM), and enable the protection of mission critical data particularly in the event of power interruption or failure.Our MRAM products allow our customers in the industrial, automotive and transportation, and enterprise storage markets todesign high performance, power efficient and reliable systems without the need for bulky batteries or capacitors. We are theonly provider of commercially available MRAM solutions, and over the past eight years we have shipped over 60 millionMRAM units.Our revenue is derived from the sale of our MRAM-based products in discrete unit form, as embedded technology, andthrough licensing and royalties of our MRAM technology.We work directly with our customers to have our MRAM devices designed into and qualified for their products.Although we maintain direct sales, support, and development relationships with our customers, once our products aredesigned into a customer’s product, we sell a majority of our products to those customers through distributors. We generated79%, 66%, and 71% of our revenue from products sold through distributors for the years ended December 31, 2016, 2015 and2014, respectively.We maintain a direct selling relationship, for strategic purposes, with several key customer accounts. Our direct salespersonnel and representatives are organized into three primary regions: North America; Europe, Middle East and Africa(EMEA); and Asia-Pacific (APAC). In North America, our revenue was $5.7 million, $6.1 million and $7.0 million forthe years ended December 31, 2016, 2015, and 2014, respectively. Our revenue in North America decreased for the yearsended December 31, 2016 and 2015, compared to the same period in 2014 primarily due to our licensing revenuedecreasing each year as a result of more subscription type licensing in 2016 and a non-recurring engineering payment of $1.0million in 2014 from one of our customers related to a technology transfer agreement. In EMEA, our revenue was $5.1million, $4.3 million, and $3.5 million for the years ended December 31, 2016, 2015, and 2014, respectively. In APAC, ourrevenue was $16.3 million, $16.1 million, and $14.5 million for the years ended December 31, 2016, 2015, and 2014,respectively. We recognize revenue by geography based on the region in which our products are sold, and not to where theend products are shipped.We leverage both internal and outsourced capabilities to manufacture our MRAM products. We purchase industry-standard complementary metal-oxide semiconductor (CMOS) wafers from semiconductor foundries and complete thefabrication by inserting our magnetic-bit technology at our 200mm fabrication facility in Chandler, Arizona. We believe thisallows us to streamline research and development, rapidly prototype new products, and bring new products to market quicklyand cost effectively. This strategy significantly reduces the capital investment that would otherwise be required to operatemanufacturing facilities of our own. We intend to utilize leading semiconductor foundries, including GLOBALFOUNDRIES,to support high-volume production of our high density MRAM products on 300mm wafers at advanced process nodes.During the years ended December 31, 2016, 2015 and 2014, we continued to invest in research and development tosupport the development and production of our second generation of MRAM technology. We believe our continuedinvestment will allow us to continue to develop and deploy products based on our Spin-Torque MRAM (ST-MRAM)technology. For the years ended December 31, 2016, 2015, and 2014, our research and development expenses were $19.2million, $21.1 million, and $12.7 million, respectively. We expect that our research and development expenses will increasein the future as we continue to develop our MRAM technology internally and through our joint development agreement withGLOBALFOUNDRIES.39 Table of ContentsOur principal executive offices are located in Chandler, Arizona. The facility accommodates our principal sales,marketing and research and development. Also in Chandler, we lease office space, clean room space, and laboratory space forour 200mm production and research and development functions. Our primary product design personnel are located in ouroffice in Austin, Texas.For the years ended December 31, 2016, 2015, and 2014, we recorded revenue of $27.1 million, $26.5, million, and$24.9 million, gross margin of 54.3%, 52.7%, and 52.6%, and a net loss of $16.7 million, $18.2 million, and $10.2 million,respectively. In the fourth quarter of 2016 we had a gross margin of 45.8%, which differs from gross margin as previouslyreported of 50.7% due to the additional recognition of cost of goods sold in the fourth quarter that we had previouslyidentified as recognizable in the first quarter of 2017.Key MetricsWe monitor a variety of key financial metrics to help us evaluate growth trends, establish budgets, measure theeffectiveness of our business strategies and assess operational efficiencies. These financial metrics include revenue, grossmargin, operating expenses and operating income determined in accordance with GAAP. Additionally, we monitor andproject cash flow to determine our sources and uses for working capital to fund our operations. We also monitor AdjustedEBITDA, a non-GAAP financial measure.Our management and board of directors use Adjusted EBITDA to understand and evaluate our operating performanceand trends, to prepare and approve our annual budget and to develop short-term and long-term operating and financingplans. Accordingly, we believe that Adjusted EBITDA provides useful information for investors in understanding andevaluating our operating results in the same manner as our management and our board of directors. Adjusted EBITDA was$(11.4) million, $(14.0) million, and $(7.5) million in 2016, 2015, and 2014, respectively. The changes were primarily aresult of increased personnel-related costs, excluding stock-based compensation, contract labor and expenses resulting fromour joint development agreement with GLOBALFOUNDRIES. Personnel-related costs and contract labor costs increased from$12.4 million in 2014 to $15.2 million in 2015, and to $15.8 million in 2016. Expenses from our joint developmentagreement were $0 in 2014, $3.6 million in 2015, and $2.9 million in 2016. The increase in personnel-related and contractlabor is consistent with our strategy to expand our operations and develop our MRAM technologies and products to supportfuture growth.See “Selected Financial Data” for more information and reconciliation of Adjusted EBITDA to net loss, the mostdirectly comparable financial measure calculated in accordance with GAAP.Factors Affecting Our Results of OperationsDesign wins. In order to continue to grow our revenue, we must continue to achieve design wins for our MRAMproducts. We consider a design win to occur when an original equipment manufacturer (OEM) or contract manufacturernotifies us that it has selected one of our products to be incorporated into a product or system under development. Webelieve we are dependent on the adoption of our 256Mb and 1Gb MRAM products by our customers to secure design wins.Because the life cycles for our customers’ products can last for several years, if these products have successful commercialintroductions, we expect to continue to generate revenues over an extended period of time for each successful design win.Any delay in the development of our 256Mb and 1Gb MRAM products, or failure of our customers to adopt our 256Mb and1Gb MRAM products, could inhibit revenue growth or cause declines, which would significantly harm our business andprevent us from becoming profitable.Customer acceptance of our technology and customer product success. In order for our customers to use our products,they may have to redesign certain components of their existing designs. We have established relationships with severalcontroller companies, including Broadcom (formerly LSI and Avago) and Microsemi (formerly PMC-Sierra), and IP corecompanies, including Cadence, Northwest Logic and Altera (now part of Intel), to accelerate the implementation of ourMRAM solutions into our customers’ end products. Delays in our customers’ design cycles may have adverse effects on thedemand, and therefore sales, of our products.40 Table of ContentsCustomer concentration. A relatively small number of end customers have historically accounted for asignificant percentage of our revenue. Revenue, including through distributors, from Broadcom, NXP, STMicroelectronics,and Dell, collectively, accounted for 32%, 41%, and 37% of our total revenue in 2016, 2015, and 2014, respectively. Two ofthese customers accounted for more than 10% of our revenue in 2015 and 2014. None of these customers individuallyaccounted for more than 10% of our total revenue in 2016. It would be difficult to replace lost revenue resulting from theloss, reduction, cancellation or delay in purchase orders by any one of these customers. Consolidation among our customersmay further concentrate our customer base and expose us to increased risks relating to increased customer concentration. Inaddition, any significant pricing pressure exerted by a significant customer could adversely affect our operating results.Pricing, product cost and gross margins of our products. Our gross margin has been, and will continue to be, affectedby a variety of factors, including the timing of changes in pricing, shipment volumes, new product introductions, changes inproduct mix, changes in our purchase price of fabricated wafers, assembly and test service expenses, manufacturing yieldsand inventory write downs, if any. In general, newly introduced products, and products with higher densities andperformance, tend to be priced higher than older, more mature products. Average selling prices in the semiconductor industrytypically decline as products mature. Consistent with this historical trend, we expect that the average selling prices of ourproducts will decline as they mature. In the normal course of business, we seek to offset the effect of declining average sellingprices on existing products by reducing manufacturing costs and introducing newer, higher value-added products. If we areunable to maintain overall average selling prices or to offset any declines in average selling prices with savings on productcosts, our gross margin will decline.Gross margin impact of licensing revenue. Our licensing revenue, which we collect as licensing fees and royaltypayments, generates significantly higher gross margin than product revenue. Due to the high gross margin profile of thisrevenue stream, fluctuations in licensing revenue may have a greater impact on gross margin than a corresponding change inthe demand for our products. Therefore, as licensing revenue fluctuates, we may see significant variations in gross margin.Technology, process, and product development investment. We invest heavily to develop our MRAM technology,including the core MRAM technology, the joint development agreement with GLOBALFOUNDRIES, and the design of newand innovative products based on MRAM, to provide solutions to our current and future customers. We anticipate that wewill continue to invest in our research and development to achieve our technology and product roadmaps. Our productdevelopment is targeted to specific segments of the market where we believe the densities and performance of our productscan provide the most benefit. We believe our close coordination with our customers regarding their future productrequirements enhances the efficiency of our research and development expenditures.Components of Results of OperationsRevenueWe derive our revenue from the sale of our MRAM-based products in discrete unit form, as embedded technology, andthrough licensing of and royalties on our MRAM technology. For sales through distributors, we defer recognition of revenueand the related expenses of our discrete MRAM products until the distributor has sold the products to its end customer. Werecognize license fees when the applicable development milestones have been met in accordance with the terms of thelicensing agreement. Our licensing revenue is largely dependent on a small number of transactions during a given year. Werecognize revenue for royalties resulting from our licensing agreements in accordance with the terms of the licensingagreement.Cost of Sales and Gross MarginCost of sales primarily includes the cost of our products including costs to purchase wafers, costs paid for waferfabrication, costs associated with the assembly and testing of our products, shipping costs and costs of our manufacturingpersonnel. Cost of sales also includes indirect costs, such as warranty, inventory valuation reserves and overhead costs.Gross profit is revenue less cost of sales. Gross margin is gross profit expressed as a percentage of total revenue. Weexpect that our gross margin may fluctuate from period to period, primarily as a result of changes in average selling price,revenue mix among our products, product yields and manufacturing costs. In addition, we may reserve against the value atwhich we carry our inventory based upon the product’s life cycle and conditions in the markets in which we sell.41 Table of ContentsDeclines in average selling prices may be paired with improvements in our cost of sales, which may offset some of the grossmargin reduction that could result from lower selling prices.Operating ExpensesOur operating expenses consist of research and development, general and administrative and sales and marketingexpenses. Personnel-related expenses, including salaries, benefits, bonuses and stock-based compensation, are the mostsignificant component of each of our operating expense categories. In addition, we expect to increase research anddevelopment expenditures, hire additional personnel necessary to support our growth, and incur additional expensesassociated with being a public company.Research and Development ExpensesOur research and development expenses consist primarily of personnel-related expenses for the design and developmentof our products and technologies, test wafers required to characterize our technology, and expenses associated with our jointdevelopment agreement with GLOBALFOUNDRIES. Research and development expenses also include consulting services,circuit design costs, materials and laboratory supplies, fabrication and new packaging technology, compensation chargesrelated to the vesting of the shares of common stock issued to GLOBALFOUNDRIES, and an allocation of related facilitiesand equipment costs. We expect our research and development expenses to increase as we hire additional personnel todevelop new products and product enhancements. We recognize research and development expenses as they are incurred.General and Administrative ExpensesOur general and administrative expenses consist primarily of personnel expenses, allocated facilities costs, expenses foroutside professional services, and expenses for personnel and consultants engaged in executive, finance, legal, informationtechnology and administrative activities. We expect our general and administrative expenses will increase as a result ofoperating as a public company following our IPO in October 2016, including expenses related to compliance with therules and regulations of the Securities and Exchange Commission, or SEC, and those of the NASDAQ Global Select Marketexchange, additional insurance expenses, investor relations activities and other administrative and professional services.Sales and Marketing ExpensesOur sales and marketing expenses consist primarily of compensation for our sales, marketing, and business developmentpersonnel, including bonuses and commissions for our sales representatives. We expect our sales and marketing expenses toincrease as we hire additional sales personnel and representatives and increase our marketing activities.Interest ExpenseInterest expense consists of cash and non-cash components. The non-cash component consists of interest expenserecognized from the amortization of debt discounts derived from the issuance of warrants and debt issuance costs capitalizedon our balance sheets as a reduction of the debt balance. The non-cash component also includes interest expense on ourconvertible promissory notes as well as the amortization of debt discounts from the bifurcation of an embedded derivativerelated to the notes. These notes were converted into shares of our common stock upon the completion of our IPO inOctober 2016.The cash component of interest expense is attributable to our borrowings under our loan agreements.Other Income (Expense), NetOther income (expense), net consists primarily of the change in fair value of our convertible preferred stock warrantliability. Prior to the completion of our IPO, our convertible preferred stock warrants were exercisable into shares that werecontingently redeemable. As such, these warrants were classified as a liability on our balance sheets at their estimated fairvalue and were marked to market at each reporting period. We continued to record adjustments to the estimated fair values ofthe convertible preferred stock warrants until they converted into common stock warrants upon the closing of the IPO.42 Table of ContentsResults of OperationsThe following table sets forth our results of operations for the periods indicated: Year Ended December 31, 2016 2015 2014 (In thousands)Product sales $26,611 $25,875 $23,071Licensing and royalty revenue 483 671 1,825Total revenue 27,094 26,546 24,896Cost of sales 12,395 12,568 11,806Gross profit 14,699 13,978 13,090Operating expenses: Research and development 19,233 21,126 12,664General and administrative 7,281 6,565 7,085Sales and marketing 3,706 3,823 3,259Total operating expenses 30,220 31,514 23,008Loss from operations (15,521) (17,536) (9,918)Interest expense (2,347) (653) (263)Other income (expense), net 1,160 6 (2)Net loss $(16,708) $(18,183) $(10,183) The following table set forth the statements of operations data for each of the periods presented as a percentage ofrevenue: Year Ended December 31, 2016 2015 2014 Total revenue 100%100% 100%Cost of sales 46 47 47 Gross profit 54 53 53 Operating expenses: Research and development 71 80 51 General and administrative 27 25 28 Sales and marketing 14 14 13 Total operating expenses 112 119 92 Loss from operations (58) (66) (40) Interest expense (9) (2) (1) Other income (expense), net 4 0 (0) Net loss (63)%(68)% (41)% Comparison of the Years Ended December 31, 2016 and 2015Revenue Year Ended December 31, Change 2016 2015 Amount % (Dollars in thousands) Product sales $26,611 $25,875 $736 2.8%Licensing and royalty revenue 483 671 (188) (28.0)%Total revenue $27,094 $26,546 $548 2.1% Total revenue increased by $0.6 million, or 2.1%, from $26.5 million for the year ended December 31, 2015, to $27.1million during the year ended December 31, 2016. Product sales increased by $0.7 million or 2.8% from $25.9 million, to$26.6 million. The increase in product sales was primarily due to increased sales volume in our Gen1 MRAM productsresulting in $1.4 million in additional sales, partially offset by a decrease of $0.7 million in legacy product sales.43 Table of ContentsLicensing and royalty revenue is a highly variable revenue item characterized by a small number of transactions annuallywith revenues based on size and terms of each transaction. Licensing and royalty revenue decreased by $0.2 million due tothe change in the type of licensing activity. In 2015 we received primarily one time, lump sum payments for the transfer of IPwhile 2016 licensing royalty revenue has been from subscription type licensing and royalty payments. Cost of Sales and Gross Margin Year Ended December 31, Change 2016 2015 Amount % (Dollars in thousands) Cost of sales$12,395$12,568$(173)(1.4)% Gross margin 54.3% 52.7% * * *Not meaningful.Cost of sales decreased by $0.2 million, or 1.4%, from $12.6 million during the year ended December 31, 2015, to $12.4million during the year ended December 31, 2016. The decrease was primarily due to the decreased volume in our legacyproducts and favorable pricing on Gen 1 MRAM raw materials.Gross margin increased from 52.7% during the year ended December 31, 2015, to 54.3% during the year endedDecember 31, 2016. The increase was primarily due to increased sales volume related to our Gen1 MRAM products and thebenefit of favorable pricing on raw materials.Operating Expenses Year Ended December 31, Change 2016 2015 Amount % (Dollars in thousands) Research and development$19,233$21,126$(1,893)(9.0)% General and administrative7,2816,56571610.9% Sales and marketing3,7063,823(117)(3.1)% Total operating expenses$30,220$31,514$(1,294)(4.1)% Research and Development. Research and development expenses decreased by $1.9 million, or 9.0%, from $21.1million during the year ended December 31, 2015, to $19.2 million during the year ended December 31, 2016. The decreasewas primarily due to a $1.9 million decrease in direct materials for technology development, a decrease of $0.8 million in theamount attributable to the vesting of shares of common stock issued to GLOBALFOUNDRIES, $0.7 million in lowerexpenses incurred in our joint development agreement with GLOBALFOUNDRIES and a $0.6 million decrease in equipmentmaintenance. These decreases were partially offset by an increase of $1.9 million in personnel-related expenses and contractlabor due to an increase in headcount and redeployment of personnel from general and administrative operationsGeneral and Administrative. General and administrative expenses increased by $0.7 million, or 10.9%, from $6.6million during the year ended December 31, 2015, to $7.3 million during the year ended December 31, 2016. The increasewas primarily attributable to an increase of $0.9 million in professional services incurred due to becoming a publicly tradedcompany such as accounting services, insurance, legal and investor relations, partially offset by a net decrease of $0.4million in personnel-related and contract labor due to the redeployment of existing general and administrative operationspersonnel to research and development.Sales and Marketing. Sales and marketing expenses decreased by $0.1 million, or 3.1%, from $3.8 million duringthe year ended December 31, 2015, to $3.7 million during the year ended December 31, 2016. The decrease was primarilyattributable to a decrease in personnel-related expenses as a result of lower headcount.44 Table of ContentsInterest Expense Year Ended December 31, Change 2016 2015 Amount % (Dollars in thousands) Interest expense $2,347 $653 $1,694 259.4%Interest expense increased by $1.7 million, from $0.7 million during the year ended December 31, 2015, to $2.3 millionduring the year ended December 31, 2016. The increase was primarily due to the increase in our outstanding debt balanceduring 2016 and amortization of debt discounts.Other Income (Expense), Net Year Ended December 31, Change 2016 2015 Amount % (Dollars in thousands) Other income (expense), net $1,160 $6 $1,154 * *Not meaningful.Other income (expense), net increased by $1.2 million, from $6,000 during the year ended December 31, 2015 to $1.2million during the year ended December 31, 2016. The increase was primarily due to the gain related to fair valuemeasurement of our warrant liabilities at each balance sheet date and the fair value remeasurement of our derivative liability,which was initially recognized in the first quarter of 2016.Comparison of the Years Ended December 31, 2015 and 2014Revenue Year Ended December 31, Change 2015 2014 Amount % (Dollars in thousands) Product sales $25,875 $23,071 $2,804 12.2%Licensing and royalty revenue 671 1,825 (1,154) (63.2)%Total revenue $26,546 $24,896 $1,650 6.6% Total revenue increased by $1.7 million, or 6.6%, from $24.9 million during the year ended December 31, 2014 to$26.5 million during the year ended December 31, 2015. The increase was attributable to increased customer adoption ofdiscrete MRAM products, partially offset by a decrease in licensing and royalty revenue primarily related to the timing ofmilestone payments under existing or new licensing arrangements.Cost of Sales and Gross Margin Year Ended December 31, Change 2015 2014 Amount % (Dollars in thousands) Cost of sales $12,568 $11,806 $762 6.5%Gross margin 52.7% 52.6% * * *Not meaningful.Cost of sales increased by $0.8 million, or 6.5%, from $11.8 million during the year ended December 31, 2014, to $12.6million during the year ended December 31, 2015. The increase was primarily due to an increase in the volume of productsproduced and sold.Gross margin increased from 52.6% during the year ended December 31, 2014, to 52.7% during the year endedDecember 31, 2015. The increase was not material in comparing the results of 2014 to 2015.45 Table of ContentsOperating Expenses Year Ended December 31, Change 2015 2014 Amount % (Dollars in thousands) Research and development $21,126 $12,664 $8,462 66.8%General and administrative 6,565 7,085 (520) (7.3)%Sales and marketing 3,823 3,259 564 17.3%Total operating expenses $31,514 $23,008 $8,506 37.0% Research and Development. Research and development expenses increased $8.5 million, or 66.8%, from $12.7 millionfor the year ended December 31, 2014, to $21.1 million during the year ended December 31, 2015. The increase wasprimarily attributable to spending to develop ST-MRAM technology, including $5.3 million in support of the jointdevelopment agreement with GLOBALFOUNDRIES, which included a non-cash charge of $1.8 million related to the vestingof common stock issued to GLOBALFOUNDRIES, and $2.8 million of additional payroll, contract labor, and direct materialsfor technology, process, design and systems development.General and Administrative. General and administrative expenses decreased $0.5 million, or 7.3%, from $7.1 millionduring the year ended December 31, 2014, to $6.6 million during the year ended December 31, 2015. The decrease wasprimarily attributable to the redeployment of existing general and administrative operations headcount to research anddevelopment functions.Sales and Marketing. Sales and marketing expenses increased $0.6 million, or 17.3%, from $3.3 million for the yearended December 31, 2014, to $3.8 million during the year ended December 31, 2015. The increase was attributable toadditional payroll expense due to increased headcount and increased commissions to sales representatives.Interest Expense Year Ended December 31, Change 2015 2014 Amount % (Dollars in thousands) Interest expense $653 $263 $390 * Interest expense increased $0.4 million from $0.3 million for the year ended December 31, 2014 to $0.7 million duringthe year ended December 31, 2015. The increase was attributable to the increase in our outstanding debt balance yearover year.Other Income (Expense), Net Year Ended December 31, Change 2015 2014 Amount % (Dollars in thousands)Other income (expense), net $6 $(2) $8 **Not meaningful.Other income (expense), net was expense of $2,000 during the year ended December 31, 2014, compared to income of$6,000 during the year ended December 31, 2015. The change was primarily related to the fair value remeasurement of ourwarrant liabilities at each balance sheet date.Liquidity and Capital ResourcesWe have generated significant losses since our inception and had an accumulated deficit of $96.4 million as ofDecember 31, 2016. We have financed our operations primarily through the sale of our common stock in our initial publicoffering, (“IPO”), sales of our redeemable convertible preferred stock, debt financing and the sale of our products. As ofDecember 31, 2016, we had $29.7 million of cash and cash equivalents, compared to $2.3 million as of December 31, 2015.46 Table of ContentsIn October 2016 we completed our IPO in which we sold 5,000,000 shares at a price of $8.00 per share for net proceedsof $33.9 million, net of underwriting discounts and commissions, and offering costs. Concurrent with the IPO, we issued625,000 shares of our common stock in a private placement for net proceeds of $4.7 million, after deducting the placementagent fee.In June 2015, we refinanced our existing indebtedness and entered into a loan and security agreement with AresVenture Finance (the 2015 Credit Facility) for a term loan of $8.0 million and a $4.0 million revolving loan, which increasedour borrowing costs and extended the maturity of our debt to June 2019 for the term loan and June 2017 for the revolvingloan. The facility is collateralized by substantially all of our assets and contains various covenants as described in “—Contractual Obligations—2015 Credit Facility” below. We were in compliance with the financial covenants at December 31,2016. Our ability to access the revolving loan depends upon levels of our accounts receivable and, therefore, the full amountmay not be available to us at any specific time.We believe that our existing cash and cash equivalents as of December 31, 2016, together with the additionalborrowings available under our 2015 Credit Facility, will be sufficient to meet our anticipated cash requirements throughMarch 31, 2018. Our future capital requirements will depend on many factors, including our growth rate, the timing andextent of our spending to support research and development activities, the timing and cost of establishing additional salesand marketing capabilities, and the introduction of new products. If we need to raise additional capital to fund ouroperations, we may be required to seek additional equity or debt financing, and such additional financing may not beavailable to us on acceptable terms or at all. If we are unable to raise additional capital or generate sufficient cash fromoperations to adequately fund our operations, we will need to curtail planned activities to reduce costs and extend the timeperiod over which our current resources will be able to fund operations. Doing so will likely harm our ability to execute onour business plan.The following table summarizes our cash flows for the periods indicated: Year Ended December 31, 2016 2015 2014 (In thousands)Cash used in operating activities $(18,539) $(10,670) $(7,938)Cash used in investing activities (1,040) (1,295) (525)Cash provided by financing activities 46,999 4,648 13,712 Cash Used in Operating ActivitiesDuring the year ended December 31, 2016, cash used in operating activities was $18.5 million, which consisted of a netloss of $16.7 million, adjusted by non-cash charges of $3.0 million and a change of $4.8 million in our net operating assetsand liabilities. The non-cash charges primarily consisted of non-cash interest expense of $1.2 million, stock-basedcompensation of $1.1 million, compensation expense related to vesting of common stock issued to GLOBALFOUNDRIESunder our joint development agreement of $1.0 million, and depreciation and amortization of $0.8 million partially offset bya change from the remeasurement to fair value of our warrant and derivative liabilities of $1.2 million. The change in our netoperating assets and liabilities was primarily due to payments of $2.5 million associated with the joint developmentagreement, an increase in inventory of $0.9 million to meet demands of future sales and growing backlog, an increase of $1.3million in accounts receivable due to the timing of cash receipts for outstanding balances, and an increase in prepaid andother current assets of $0.9 million for advances made for the purchase of wafers. These were partially offset by an increase inaccounts payable of $0.4 million due to the timing of payments.During the year ended December 31, 2015, cash used in operating activities was $10.7 million, which consisted of a netloss of $18.2 million, adjusted by non-cash charges of $3.7 million and a change of $3.8 million in our net operating assetsand liabilities. The non-cash charges primarily consisted of compensation expense related to vesting of common stock issuedto GLOBALFOUNDRIES under our joint development agreement of $1.8 million, depreciation and amortization of$1.3 million, stock-based compensation of $0.4 million and non-cash interest expense of $0.2 million. The change in our netoperating assets and liabilities was primarily due to $3.3 million in accrued expenses associated with the joint developmentagreement.47 Table of ContentsDuring the year ended December 31, 2014, cash used in operating activities was $7.9 million, which consisted of a netloss of $10.2 million, adjusted by non-cash charges of $2.5 million and a change of $0.3 million in our net operating assetsand liabilities. The non-cash charges primarily consisted of depreciation and amortization of $1.5 million, stock-basedcompensation of $0.8 million, compensation expense related to vesting of common stock issued to GLOBALFOUNDRIES of$0.1 million and non-cash interest expense of $0.1 million. The change in our net operating assets and liabilities wasprimarily due to an increase in trade and related parties receivables resulting from an increase in our revenue in 2014.Cash Used in Investing ActivitiesCash used in investing activities during the years ended December 31, 2016, 2015, and 2014 was $1.0 million, $1.3million, and $0.5 million, respectively, which consisted of capital expenditures primarily for the purchase of manufacturingequipment, and purchased software.Cash Provided by Financing ActivitiesDuring the year ended December 31, 2016, cash provided by financing activities was $47.0 million consisting of $38.5million of net proceeds from our IPO and concurrent private placement, and $10.0 million from borrowings under our long-term debt facility, partially offset by $1.5 million in payments on long-term debt and capital lease obligations.During the year ended December 31, 2015, cash provided by financing activities was $4.6 million consisting ofproceeds of $8.0 million from borrowings under our long-term debt facility partially offset by $3.2 million in payments onlong-term debt and capital lease obligations.During the year ended December 31, 2014, cash provided by financing activities was $13.7 million consisting primarilyof net proceeds of $10.0 million from the issuance of redeemable convertible preferred stock and proceeds of $4.0 millionfrom borrowing under our debt facility.Off-Balance Sheet ArrangementsWe have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.Contractual ObligationsThe following table summarizes our contractual obligations as of December 31, 2016 (in thousands): Payments Due by Period Less Than 1 to 3 3 to 5 More Than 1 Year Years Years 5 Years Total (In thousands)Long-term debt, current and non-current, including interest $4,611 $4,580 $ — $ — $9,191Capital lease obligation 7 — — — 7Operating leases 1,511 2,897 933 — 5,341 $6,129 $7,477 $933 $ — $14,539(1)The interest charges have been calculated using a rate of 8.75%, which was the rate in effect for 2016. The debt bearsinterest at a variable rate and interest charges in future periods may be higher.2015 Credit FacilityIn June 2015, we entered into a loan and security agreement with Ares Venture Finance for a term loan of $8.0 millionand a $4.0 million revolving loan for working capital purposes and to repay our existing debt to another lender. The termloan bears interest at a floating rate equal to the greater of (i) 8.75% or (ii) LIBOR plus 7.75%, and matures in June 2019. Therevolving loan bears interest at a floating rate equal to the prime rate plus 3.75% and matures on June 5, 2017. Theoutstanding balance on our revolving loan is limited to the lesser of $4.0 million or 85% of the outstanding balance of ourreceivables. Our obligations under the 2015 Credit Facility are secured by substantially all of our assets.48 (1) Table of ContentsThe 2015 Credit Facility contains customary covenants restricting our activities, including limitations on our ability to sellassets, engage in mergers and acquisitions, enter into transactions involving related parties, incur indebtedness or grant liensor negative pledges on our assets, make loans or make other investments. Under these covenants, we are prohibited frompaying dividends with respect to our capital stock. We were in compliance with all covenants at December 31, 2016.Critical Accounting Policies and EstimatesOur financial statements and related notes have been prepared in accordance with generally accepted accountingprinciples in the United States, or U.S. GAAP. The preparation of these financial statements requires our management to makejudgments and estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets andliabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during thereporting periods. Our estimates are based on our historical experience and on various other factors that we believe arereasonable under the circumstances, the results of which form the basis for making judgments about the carrying value ofassets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments andestimates under different assumptions or conditions and any such differences may be material. We believe that theaccounting policies discussed below are critical to understanding our historical and future performance, as these policiesrelate to the more significant areas involving management’s judgments and estimates.Revenue Recognition—DistributorsWe sell the majority of our products to our distributors at a uniform list price. Price protection rights grant distributorsthe right to a credit in the event of declines in the price of our products. Distributors are provided with price concessionssubsequent to delivery of product to them depending on their end customer and sales price. These concessions are based on avariety of factors, including customer, product, quantity, geography and competitive differentiation. We defer revenue onshipments to distributors as the price is not fixed or determinable until delivery has been made by the distributor to itscustomer and the final sales price has been established. At the time of shipment to distributors, we record a trade receivablefor the selling price as there is a legally enforceable obligation of the distributor to pay for the product delivered, we relieveinventory for the carrying value of goods shipped, and the net of these amounts, the gross profit, we record as deferredincome on shipments to distributors on the balance sheet. The amount of gross profit that will be ultimately recognized inour statements of operations on such sales could be lower than the deferred income recorded on our balance sheet as a resultof (a) credits granted to distributors on specifically identified products and customers to allow the distributors to earn acompetitive gross profit on the sale of our products to the end customer and (b) price protection concessions related to marketpricing conditions. We are unable to estimate the credits to the distributors due to the wide variability of negotiated priceconcessions granted to them. Therefore, we record the price concessions against deferred income at the time the distributorsells the product to its customers. The recognition of revenue from deferred income on shipments to distributors is ultimatelycontingent upon delivery of product to the distributor’s customer, at which point the price is fixed or determinable.At December 31, 2016, we had $2.9 million of deferred revenue and $1.1 million of deferred cost of sales, resulting inthe recognition of $1.8 million of deferred income on shipments to distributors. At December 31, 2015, we had $2.6 millionof deferred revenue and $1.2 million of deferred cost of sales, resulting in the recognition of $1.4 million of deferred incomeon shipments to distributors.Products returned by distributors and subsequently scrapped have historically been immaterial to our results ofoperations. We routinely evaluate the risk of impairment of the deferred cost of sales component of deferred income onshipments to distributors. Because of the historically immaterial amounts of inventory that have been scrapped, andhistorically rare instances where discounts given to a distributor result in a price less than our cost, we believe the deferredcosts are recorded at their approximate carrying values.InventoryWe record inventories at the lower of cost, determined on a first-in, first-out basis or specific identification method, ormarket. We routinely evaluate quantities and values of inventory on hand and inventory that may be returned fromdistributors in light of current market conditions and market trends, and record provisions for inventories in excess ofdemand and subject to obsolescence. This evaluation may take into consideration expected demand, the effect new productsmay have on the sale of existing products, technological obsolescence and other factors. We record inventory49 Table of Contentswrite-downs for the valuation of inventory when required based on the analysis of the information immediately above andinventory balances are not readjusted until sold. Unanticipated changes in technology or customer demand could result in adecrease in demand for our products, which may require additional inventory write-downs that could materially affect ourresults of operations.Derivative LiabilityOur convertible promissory notes payable contained certain redemption features that meet the definition of a derivative.We estimated the fair value of the derivative liability using a with-and without-model and the probability-weighted expectedreturn method, which estimates a discounted value based upon an analysis of various future outcomes. The with-and without-model calculates the value of our convertible debt with features being evaluated for separate accounting, and an identicalinstrument without those features. The outcomes of each scenario in the probability-weighted expected return method arebased on a market multiple approach. The derivative liability is subject to re-measurement at each balance sheet date and thechange in fair value, if any, was recognized as other income (expense), net in the statements of operations. We adjusted theliability for changes in fair value until the completion of our IPO in October 2016 at which time the convertible promissorynotes payable were converted into shares of our common stock.Stock-based CompensationWe recognize compensation costs related to stock options granted to employees and directors based on the estimatedfair value of the awards on the date of grant, net of estimated forfeitures. We estimate the grant date fair value and theresulting stock-based compensation expense using the Black-Scholes option-pricing model. We expense the grant date fairvalue of stock-based awards on a straight-line basis over the period during which the employee is required to provide servicein exchange for the award (generally the vesting period).We estimate the fair value of our stock-based awards using the Black-Scholes option-pricing model, which requires theinput of highly subjective assumptions. Our assumptions are as follows:Expected Term. The expected term represents the period we expect the stock-based awards to be outstanding. We usethe simplified method to determine the expected term, which is calculated as the average of the time to vesting and thecontractual life of the options.Expected Volatility. Since we do not have a long trading history for our common stock, we derive the expectedvolatility from the average historical volatilities of publicly traded companies within our industry that we consider tobe comparable to our business over a period approximately equal to the expected term for employees’ options and theremaining contractual life for non-employees’ options. We will continue to apply this process until a sufficient amountof historical information regarding the volatility of our own stock price becomes available.Risk-free Interest Rate. We base the risk-free interest rate on the U.S. Treasury yield with a maturity equal to theexpected term of the option in effect at the time of grant.Dividend Yield. We assume the expected dividend to be zero as we have never paid dividends and have no current plansto pay any dividends on our common stock.In addition to the assumptions used in the Black-Scholes option-pricing model, we also estimate a forfeiture rate tocalculate the stock-based compensation for our equity awards. We will continue to use judgment in evaluating the expectedvolatility, expected terms and forfeiture rates utilized for our stock-based compensation calculations on a prospective basis.We recorded stock-based compensation expense of $1.1 million, $0.4 million, and $0.8 million, for the years endedDecember 31, 2016, 2015, and 2014, respectively.Historically, for all periods prior to the IPO, the fair value of the shares of common stock underlying our stock-basedawards was estimated on each grant date by our board of directors. In order to determine the fair value of our common stockunderlying option grants, our board of directors considered, among other things, contemporaneous valuations of ourcommon stock prepared by an unrelated third-party valuation firm in accordance with the guidance provided by theAmerican Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity SecuritiesIssued as Compensation. Given the absence of a public trading market for our common50 Table of Contentsstock, our board of directors exercised reasonable judgment and considered a number of objective and subjective factors todetermine the best estimate of the fair value of our common stock, including: the rights, preferences and privileges of ourpreferred stock relative to those of our common stock; our operating results and financial condition; our levels of availablecapital resources; equity market conditions affecting comparable public companies; general U.S. market conditions; and thelack of marketability of our common stock.After the completion of the IPO, our board of directors determined the fair value of each share of underlying commonstock based on the closing price of our common stock as reported on the date of grant.JOBS Act Accounting ElectionWe are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, andtherefore we may take advantage of certain exemptions from various public company reporting requirements, including notbeing required to have our internal control over financial reporting audited by our independent registered public accountingfirm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligationsregarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements ofholding a nonbinding advisory vote on executive compensation and any golden parachute payments. We may takeadvantage of these exemptions until we are no longer an “emerging growth company.” We may remain an “emerging growthcompany” for up to five years. We will cease to be an “emerging growth company” upon the earliest of: (1) December 31,2021, (2) the last day of the first fiscal year in which our annual gross revenues are $1.0 billion or more, (3) the date on whichwe have, during the previous rolling three-year period, issued more than $1.0 billion in non-convertible debt securities, and(4) the date on which we are deemed to be a “large accelerated filer” as defined in the Securities Exchange Act of 1934, asamended, or the Exchange Act. We have chosen to irrevocably opt out of the extended transition periods available under theJOBS Act for complying with new or revised accounting standards.Recent Accounting PronouncementsIn May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)No. 2014‑09, Revenue from Contracts with Customers. Areas of revenue recognition that will be affected include, but are notlimited to, transfer of control, variable consideration, allocation of transfer pricing, licenses, time value of money, contractcosts and disclosures. The new standard permits adoption either by using (i) a full retrospective approach for all periodspresented in the period of adoption or (ii) a modified retrospective approach with the cumulative effect of initially applyingthe new standard recognized at the date of initial application and providing certain additional disclosures. The new standardis effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted for annualreporting periods beginning after December 15, 2016. As described in our significant accounting policies, we currently deferthe revenue and cost of sales on shipments to distributors until the distributor sells the product to their end customer. Uponadoption of ASU 2014-09, and subsequent improvements including ASU 2015-14, Deferral of Effective Date, ASU 2016-08,Principal versus Agent Considerations, ASU 2016-10, Identifying Performance Obligations and Licensing, and ASU 2016-12, Narrow Scope Improvements and Practical Expedients, we will no longer defer revenue until sale by the distributor to theend customer, but rather, we will be required to estimate the effects of returns and allowances provided to distributors andrecord revenue at the time of sale to the distributor. We plan on adopting this standard on January 1, 2018 and are currentlyevaluating the impact that the adoption of the standard will have on our financial statements. We have not yet elected atransition method.In July 2015, the FASB issued ASU No. 2015‑11, Simplifying the Measurement of Inventory, which requires an entityto measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling pricein the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This ASU iseffective for fiscal years and interim periods within those years beginning after December 15, 2016. We do not expect theadoption of this ASU to have a material impact on our financial statements and related disclosures.In November 2015, FASB issued ASU No. 2015‑17, Balance Sheet Classification of Deferred Taxes, which is intendedto simplify and improve how deferred taxes are classified on the balance sheet. The guidance in this ASU eliminates thecurrent requirement to present deferred tax assets and liabilities as current and noncurrent in a classified balance sheet andnow requires entities to classify all deferred tax assets and liabilities as noncurrent. The guidance is effective for annualperiods beginning after December 15, 2016, and for interim periods within those annual periods.51 Table of ContentsEarly adoption is permitted. We do not expect the adoption of this standard to have a material impact on our financialstatements and related disclosures.In February 2016, the FASB issued ASU No. 2016‑02, Leases, which establishes a comprehensive new lease accountingmodel. The new standard: (a) clarifies the definition of a lease; (b) requires a dual approach to lease classification similar tocurrent lease classifications; and (c) causes lessees to recognize leases on the balance sheet as a lease liability with acorresponding right-of-use asset for leases with a lease-term of more than twelve months. This ASU is effective for fiscal yearsand interim periods within those years beginning after December 15, 2018. We are currently evaluating the impact that theadoption of ASU 2016‑02 will have on our financial statements and related disclosures.In March 2016, the FASB issued ASU No. 2016‑09, Compensation-Stock Compensation (Topic 718) Improvements toEmployee Share-Based Payment Accounting, which is intended to simplify several aspects of the accounting for employeeshare-based payment transactions, including the income tax consequences, the determination of forfeiture rates, classificationof awards as either equity or liabilities, and classification on the statement of cash flows. This ASU is effective for fiscal yearsand interim periods within those years beginning after December 15, 2016, and early adoption is permitted. We are currentlyevaluating the impact that the adoption of ASU 2016‑09 will have on our financial statements and related disclosures.In June 2016, the FASB issued ASU No. 2016‑13, Financial Instruments – Credit Losses (Topic 326), which is intendedto provide financial statement users with more useful information about expected credit losses on financial assets held by areporting entity at each reporting date. The new standard replaces the existing incurred loss impairment methodology with amethodology that requires consideration of a broader range of reasonable and supportable forward-looking information toestimate all expected credit losses. The amended guidance is effective for fiscal years and interim periods within those yearsbeginning after December 15, 2019, and early adoption is permitted. We are currently evaluating the impact that theadoption of ASU 2016‑13 will have on our financial statements and related disclosures.In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of CertainCash Receipts and Cash Payments. ASU 2016-15 identifies how certain cash receipts and cash payments are presented andclassified in the Statement of Cash Flows. The standard is effective for fiscal years and interim periods beginning afterDecember 15, 2017. The standard should be applied retrospectively and early adoption is permitted, including adoption inan interim period. We are currently in the process of evaluating the impact that the standard will have on our financialstatements and related disclosures. Item 7A. Quantitative and Qualitative Disclosures About Market Risk.We are exposed to market risks in the ordinary course of our business, including the effects of interest rate changes andforeign currency fluctuations. Information relating to quantitative and qualitative disclosures about these markets risks isdescribed below.Interest Rate RiskWe are primarily exposed to interest rate risk from variable rate borrowings under our 2015 Credit Facility, and to alesser extent, from our cash position. We do not enter into investments for trading or speculative purposes and have not usedany derivative financial instruments to manage our interest rate risk exposure. We have not been exposed to, nor do weanticipate being exposed to, material risks due to changes in interest rates. A hypothetical 10% increase in our borrowingrates would not have a material impact on interest expense on our principal balances as of December 31, 2016 and 2015.Foreign Currency RiskOur results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates.Substantially all of our revenue is denominated in United States dollars. Our expenses are generally denominated in UnitedStates dollars; however, we do incur expenses in the currencies of our subcontracted manufacturing suppliers, which arelocated in Europe and in Asia. Our results of operations and cash flows are, therefore, subject to fluctuations due to changesin foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. Theeffect of a hypothetical 10% change in foreign currency exchanges rates applicable to our business would not have a materialimpact on our historical financial statements.52 Table of ContentsWe have not hedged exposures denominated in foreign currencies or used any other derivative financial instruments.Although we transact the substantial majority of our business in U.S. dollars, future fluctuations in the value of the U.S. dollarmay affect the competitiveness of our products and thus may impact our results of operations and cash flows.53 Table of ContentsItem 8. Financial Statements and Supplementary Data.EVERSPIN TECHNOLOGIES, INCINDEX TO FINANCIAL STATEMENTS PageReport of Independent Registered Public Accounting Firm 55 Financial Statements: Balance Sheets 56 Statements of Operations and Comprehensive Loss 57 Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) 58 Statements of Cash Flows 59 Notes to Financial Statements 60 54 Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofEverspin Technologies, Inc.We have audited the accompanying balance sheets of Everspin Technologies, Inc. as of December 31, 2016 and 2015, andthe related statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders’ equity(deficit) and cash flows for each of the three years in the period ended December 31, 2016. These financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements basedon our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internalcontrol over financial reporting. Our audits included consideration of internal control over financial reporting as a basis fordesigning audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in thefinancial statements, assessing the accounting principles used and significant estimates made by management, andevaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position ofEverspin Technologies, Inc. as of December 31, 2016 and 2015, and the results of its operations and its cash flows for each ofthe three years in the period ended December 31, 2016, in conformity with U.S. generally accounting principles./s/ ERNST & YOUNG LLPPhoenix, ArizonaMarch 29, 201755 Table of ContentsEVERSPIN TECHNOLOGIES, INC.Balance Sheets(In thousands, except share and per share amounts) December 31, 2016 2015Assets Current assets: Cash and cash equivalents $29,727 $2,307Accounts receivable, net 3,170 1,909Amounts due from related parties 486 564Inventory 5,069 4,176Prepaid expenses and other current assets 1,050 190Total current assets 39,502 9,146Property and equipment, net 1,920 1,654Intangible assets, net — 132Other assets 50 29Total assets $41,472 $10,961 Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) Current liabilities: Accounts payable $1,502 $1,162Accrued liabilities 1,811 1,755Amounts due to related parties 1,359 3,812Deferred income on shipments to distributors 1,827 1,440Current portion of long-term debt 3,884 1,175Total current liabilities 10,383 9,344Redeemable convertible preferred stock warrant liability — 437Deferred revenue — 229Long-term debt, net of current portion 4,218 6,739Total liabilities 14,601 16,749Commitments and contingencies Redeemable convertible preferred stock, $0.0001 par value per share; zero and 68,080,000 sharesauthorized as of December 31, 2016 and 2015; zero and 2,486,199 shares issued and outstandingas of December 31, 2016 and 2015 — 64,642Stockholders’ equity (deficit): Preferred stock, $0.0001 par value per share; 5,000,000 and zero shares authorized as ofDecember 31, 2016 and 2015; zero shares issued and outstanding as of December 31, 2016 and2015 — —Common stock, $0.0001 par value per share; 100,000,000 and 175,000,000 shares authorized asof December 31, 2016 and 2015; 12,498,128 and 3,015,281 shares issued and outstanding as ofDecember 31, 2016 and 2015 1 —Additional paid-in capital 123,309 9,301Accumulated deficit (96,439) (79,731)Total stockholders’ equity (deficit) 26,871 (70,430)Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit) $41,472 $10,961 The accompanying notes are an integral part of these financial statements.56 Table of ContentsEVERSPIN TECHNOLOGIES, INC.Statements of Operations and Comprehensive Loss(In thousands, except share and per share amounts) Year Ended December 31, 2016 2015 2014Product sales (including related party sales of $2,378, $3,472 and $3,191 forthe years ended December 31, 2016, 2015 and 2014) $26,611 $25,875 $23,071Licensing and royalty revenue 483 671 1,825Total revenue 27,094 26,546 24,896Cost of sales 12,395 12,568 11,806Gross profit 14,699 13,978 13,090Operating expenses: Research and development 19,233 21,126 12,664General and administrative 7,281 6,565 7,085Sales and marketing 3,706 3,823 3,259Total operating expenses 30,220 31,514 23,008Loss from operations (15,521) (17,536) (9,918)Interest expense (2,347) (653) (263)Other income (expense), net 1,160 6 (2)Net loss and comprehensive loss $(16,708) $(18,183) $(10,183)Net loss per common share, basic and diluted $(3.53) $(7.12) $(4.00)Weighted-average shares used to compute net loss per common share, basicand diluted 4,738,496 2,552,205 2,544,578 The accompanying notes are an integral part of these financial statements.57 Table of ContentsEVERSPIN TECHNOLOGIES, INCStatements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)(In thousands, except share amounts) Redeemable Additional Total Convertible Preferred Stock Common Stock Paid-In Accumulated Stockholders’ Shares Amount Shares Amount Capital Deficit Equity (Deficit)Balance at December 31, 2013 2,023,040 $52,599 2,542,337 $ — $6,172 $(51,365) $(45,193)Issuance of Series B redeemableconvertible stock 385,641 10,027 — — — — —Conversion of convertiblepromissory notes 77,518 2,016 — — — — —Issuance of shares toGLOBALFOUNDRIES subjectto vesting provisions — — 461,538 — 1 — 1Issuance of common stock uponexercise of stock options — — 9,848 — 41 — 41Compensation expense relatedto vesting of common stockissued to GLOBALFOUNDRIES — — — — 107 — 107Stock-based compensationexpense — — — — 799 — 799Net loss — — — — — (10,183) (10,183)Balance at December 31, 2014 2,486,199 64,642 3,013,723 — 7,120 (61,548) (54,428)Issuance of common stock uponexercise of stock options — — 1,558 — 4 — 4Compensation expense relatedto vesting of common stockissued to GLOBALFOUNDRIES — — — — 1,761 — 1,761Stock-based compensationexpense — — — — 416 — 416Net loss — — — — — (18,183) (18,183)Balance at December 31, 2015 2,486,199 64,642 3,015,281 — 9,301 (79,731) (70,430)Conversion of redeemableconvertible preferred stock tocommon stock (2,486,199) (64,642) 2,486,199 — 64,642 — 64,642Conversion of convertiblepromissory notes to commonstock — — 1,361,009 — 8,634 — 8,634Reclassification of redeemableconvertible preferred stockwarrant liability to additionalpaid in capital — — — — 65 — 65Issuance of common stock ininitial public offering — — 5,000,000 1 33,863 — 33,864Issuance of common stock inprivate placement — — 625,000 — 4,650 — 4,650Issuance of common stock uponexercise of stock options — — 10,639 — 48 — 48Compensation expense relatedto vesting of common stockissued to GLOBALFOUNDRIES — — — — 965 — 965Stock-based compensationexpense — — — — 1,141 — 1,141Net loss — — — — — (16,708) (16,708)Balance at December 31, 2016 — $ — 12,498,128 $1 $123,309 $(96,439) $26,871 The accompanying notes are an integral part of these financial statements.58 Table of ContentsEVERSPIN TECHNOLOGIES, INC.Statement of Cash Flows(In thousands) Year Ended December 31, 2016 2015 2014Cash flows from operating activities Net loss $(16,708) $(18,183) $(10,183)Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 826 1,340 1,517Loss on disposal of property and equipment 80 — —Stock-based compensation 1,141 416 799Change in fair value of redeemable convertible preferred stock warrant liability (372) (15) (6)Change in fair value of derivative liability (798) — —Non-cash interest expense 1,183 232 98Compensation expense related to vesting of common stock toGLOBALFOUNDRIES 965 1,761 107Changes in operating assets and liabilities: Accounts receivable (1,261) 339 (579)Amounts due from related parties 78 102 (455)Prepaid expenses and other current assets (860) (77) 52Inventory (893) (431) (297)Other assets (21) (10) 63Accounts payable 340 233 514Accrued liabilities 56 428 73Amounts due to related parties (2,453) 3,328 (142)Deferred income on shipments to distributors 387 (362) 501Deferred revenue (229) 229 —Net cash used in operating activities (18,539) (10,670) (7,938)Cash flows from investing activities Purchases of property and equipment (1,040) (1,295) (525)Net cash used in investing activities (1,040) (1,295) (525)Cash flows from financing activities Proceeds from convertible promissory notes-related party 8,500 — —Proceeds from debt 1,500 8,000 4,000Payments on debt (1,325) (3,000) (281)Payments of debt issuance costs (40) (130) (76)Payments on capital lease obligation (198) (226) —Proceeds from issuance of convertible preferred stock — — 10,027Proceeds from exercise of stock options 48 4 41Proceeds from issuance of common stock — — 1Proceeds from issuance of common stock in connection with initial public offering, netof offering costs 33,864 — —Proceeds from issuance of common stock in private placement, net of issuance costs 4,650 — —Net cash provided by financing activities 46,999 4,648 13,712Net increase (decrease) in cash and cash equivalents 27,420 (7,317) 5,249Cash and cash equivalents at beginning of period 2,307 9,624 4,375Cash and cash equivalents at end of period $29,727 $2,307 $9,624Supplementary cash flow information: Interest paid $806 $421 $165Interest paid to related party $359 $ — $ —Non-cash investing and financing activities: Purchase of property and equipment under capital lease obligations $ — $431 $ —Conversion of convertible promissory notes into common stock $8,634 $ — $2,016Issuance of warrants with debt $ — $307 $106Conversion of redeemable convertible preferred stock into common stock $64,642 $ — $ —Reclassification of warrant liability to additional paid-in capital $65 $ — $ — The accompanying notes are an integral part of these financial statements.59 Table of ContentsEVERSPIN TECHNOLOGIES, INCNotes to Financial Statements1. Organization and OperationsEverspin Technologies, Inc. (the “Company”) was incorporated in Delaware on May 16, 2008. The Company’smagnetoresistive random access memory (MRAM) solutions offer the persistence of non-volatile memory with the speed andendurance of random access memory (RAM) and enable the protection of mission critical data particularly in the event ofpower interruption or failure. The Company’s MRAM products allow its customers in the industrial, automotive andtransportation, and enterprise storage markets to design high performance, power efficient and reliable systems without theneed for bulky batteries or capacitors.Reverse Stock SplitIn September 2016, the Company effected a 1-for-26 reverse stock split of all outstanding shares of the Company’scapital stock, including common stock and redeemable convertible preferred stock. All share, option, convertible promissorynotes, warrant, and per share information presented in the financial statements has been adjusted to reflect the stock split on aretroactive basis for all periods presented and all share information is rounded down to the nearest whole share after reflectingthe stock split.Initial Public Offering and Concurrent Private PlacementOn October 7, 2016, the Company’s Registration Statement on Form S‑1 (File No. 333‑213569) relating to the initialpublic offering, (“IPO”), of its common stock was declared effective by the Securities and Exchange Commission (“SEC”).Pursuant to such Registration Statement, the Company sold 5,000,000 shares at an initial public offering price of $8.00 pershare for net proceeds of $33.9 million to the Company, net of underwriting discounts and commissions, and offering costs.Concurrent with the IPO, the Company issued 625,000 shares of its common stock in a private placement for net proceeds of$4.7 million, after deducting the placement agent fee.In connection with the IPO, the following events occurred:·An aggregate of 2,486,199 shares of the Company’s common stock were issued to the holders of the redeemableconvertible preferred stock upon the conversion of all shares of redeemable convertible preferred stock intocommon stock immediately prior to the closing of the IPO.·The outstanding balance of the convertible promissory notes payable including accrued interest was convertedinto 1,361,009 shares of common stock.·All of the outstanding redeemable convertible preferred stock warrants converted to warrants to purchase shares ofcommon stock upon the closing of the IPO.Ability to continue as a going concernThe Company believes that its existing cash and cash equivalents as of December 31, 2016, together with theadditional borrowings available under its credit facility, will be sufficient to meet its anticipated cash requirements throughMarch 31, 2018. The Company’s ability to access the revolving loan under its credit facility depends upon levels of itsaccounts receivable and, therefore, the full amount may not be available at any specific time. The Company’s future capitalrequirements beyond March 2018 will depend on many factors, including its growth rate, the timing and extent of itsspending to support research and development activities, the timing and cost of establishing additional sales and marketingcapabilities, and the introduction of new products. The Company may be required to seek additional equity or debtfinancing, and such additional financing may not be available on acceptable terms or at all. If the Company is unable to raiseadditional capital or generate sufficient cash from operations to adequately fund its operations, it will need to curtail plannedactivities to reduce costs. Doing so will likely harm its ability to execute on its business plan.60 Table of ContentsIf the Company raises additional funds through issuances of equity, convertible debt securities or other securitiesconvertible into equity, its existing stockholders could suffer significant dilution in their percentage ownership of theCompany, and any new equity securities issued could have rights, preferences and privileges senior to those of holders ofcommon stock. If the Company is unable to obtain adequate financing or financing on satisfactory terms, when required, itsability to continue to grow or support its business and to respond to business challenges could be significantly limited.2. Summary of Significant Accounting PoliciesUse of EstimatesThe accompanying financial statements have been prepared in accordance with accounting principles generallyaccepted in the United States of America (“U.S. GAAP”). The preparation of the financial statements in conformity with U.S.GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenuesand expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including those relatedto revenue recognition, fair value of assets and liabilities, inventory, income taxes, redeemable convertible preferred stockand related warrants, common stock, and stock-based compensation. Actual results could differ from those estimates andassumptions.SegmentsThe Company’s chief operating decision maker is its Chief Executive Officer. The Company operates its business asone operating segment for purposes of assessing performance and making operating decisions. All of the Company’s assetsare maintained in the United States. The Company derives its revenue from domestic and international markets, based on thebilling address of the customer.Cash and Cash EquivalentsThe Company considers all highly liquid, short-term investments with maturity dates of three months or less at the dateof purchase to be cash equivalents. The Company’s cash equivalents consist of money market funds.Accounts ReceivableAccounts receivable are recorded at the invoiced amount and do not bear interest. The Company generally does notrequire collateral or other security in support of accounts receivable. Allowances are provided for individual accountsreceivable when the Company becomes aware of a customer’s inability to meet its financial obligations, such as in the case ofbankruptcy, deterioration in the customer’s operating results or change in financial position. If circumstances related tocustomers change, estimates of the recoverability of receivables would be further adjusted. The Company also considers anumber of factors in evaluating the sufficiency of its allowance for doubtful accounts, including the length of timereceivables are past due, significant one-time events, creditworthiness of customers and historical experience. Accountbalances are charged off against the allowance after all means of collection have been exhausted and the potential forrecovery is considered remote. At December 31, 2016 and 2015, there was no allowance for doubtful accounts.The Company also establishes an allowance for product returns. The Company analyzes historical returns, currenteconomic trends and changes in customer demand and acceptance of products when evaluating the adequacy of sales returns.As the returns are processed as credits on future purchases, the allowance is recorded against the balance of trade accountsreceivable. The allowance was $188,000 and $344,000 at December 31, 2016 and 2015, respectively.Concentration of Credit RiskFinancial instruments that potentially expose the Company to a concentration of credit risk consist principally of cashand cash equivalents that are held by a financial institution in the United States and accounts receivable. Amounts ondeposit with a financial institution may at times exceed federally insured limits. The Company maintains its cash accountswith high credit quality financial institutions and accordingly, minimal credit risk exists with respect to the financialinstitutions.61 Table of ContentsSignificant customers are those which represent more than 10% of the Company’s total revenue or gross accountsreceivable balance at each respective balance sheet date. For the purposes of this disclosure, we define “customer” as theentity that is purchasing the products directly from the Company, which includes the distributors of our products in additionto end customers that we sell to directly. For each significant customer, revenue as a percentage of total revenue and accountsreceivable as a percentage of total accounts receivable, net are as follows: Revenue Accounts Receivable Year Ended December 31, December 31, Customers 2016 2015 2014 2016 2015 Customer A 22% 26% 26% 12%28%Customer B * 13 13 13 23 Customer C * * 15 * * Customer D * * * 10 * Customer E 12 * * 18 * *Less than 10%InventoryInventory is valued at the lower of cost, using the first-in, first-out or specific identification method, or market. Thecarrying value of inventory is adjusted for excess and obsolete inventory based on inventory age, shipment history and theforecast of demand over a specific future period. At the point of loss recognition, a new lower cost basis for that inventory isestablished and subsequent changes in facts and circumstances do not result in the restoration or increase in that new costbasis.Fair Value of Financial InstrumentsThe Company discloses and recognizes the fair value of its assets and liabilities using a hierarchy that prioritizes theinputs to valuation techniques used to measure fair value. Fair value is defined as the price that would be received to sell anasset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date.The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identicalassets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that aresignificant to the valuation (Level 3 measurements). The guidance establishes three levels of the fair value hierarchy asfollows:Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.Level 2—Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for theasset or liability through correlation with market data at the measurement date and for the duration of the instrument’santicipated life.Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset orliability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the riskinherent in the inputs to the model.The carrying value of accounts receivable, accounts payable, and other accruals readily convertible into cashapproximate fair value because of the short-term nature of the instruments. The carrying value of the Company’s variableinterest rate debt, excluding unamortized debt issuance costs, approximates fair value. The Company’s financial instrumentsconsist of Level 1 assets and Level 3 liabilities. Where quoted prices are available in an active market, securities areclassified as Level 1. Level 1 assets consist primarily of highly liquid money market funds that are included in cashequivalents. Level 3 liabilities consist of the redeemable convertible preferred stock warrant liability and derivative liability.Generally, increases or decreases in the fair value of the underlying redeemable convertible preferred stock would result in adirectionally similar impact in the fair value measurement of the warrant liability.62 Table of ContentsThe following table sets forth the fair value of the Company’s financial assets and liabilities measured at fair value on arecurring basis based on the three-tier fair value hierarchy (in thousands): December 31, 2016 Level 1 Level 2 Level 3 TotalAssets: Money market funds $29,869 $ — $ — $29,869Total assets measured at fair value $29,869 $ — $ — $29,869 December 31, 2015 Level 1 Level 2 Level 3 TotalAssets: Money market funds $2,354 $— $— $2,354Total assets measured at fair value $2,354 $ — $ — $2,354 Liabilities: Redeemable convertible preferred stock warrant liability $— $— $437 $437Total liabilities measured at fair value $ — $ — $437 $437 The following table sets forth a summary of the changes in the fair value of the redeemable convertible preferred stockwarrant liability, a Level 3 financial liability, which is measured on a recurring basis (in thousands): December 31, 2016 2015 2014Beginning balance $437 $145 $45Issuance of redeemable convertible preferred stock warrants — 307 106Change in fair value recorded in other income (expense), net (372) (15) (6)Reclassification to additional paid-in capital (65) — —Ending balance $ — $437 $145 The key assumptions used in the Black-Scholes option-pricing model for the valuation of the redeemable convertiblepreferred stock warrants were: Year Ended December 31, 2016 2015 2014 Expected volatility 42.4 – 52.0% 43.6 – 52.9% 52.8 - 53.8%Risk-free interest rate 1.22 – 1.86% 1.76 – 2.27% 1.81 – 2.17%Expected term (in years) 4 – 9 5 – 10 6 – 10 Exercise price $26.00 $26.00 $26.00 Dividend yield —% —% —% The following table sets forth a summary of the changes in the fair value of the derivative liability, a Level 3 financialliability, which is measured on a recurring basis (in thousands):Balance at December 31, 2015 $ —Issuance of derivative liability 918Change in fair value recorded in other income (expense), net (798)Reclassification to additional paid-in capital (120)Balance at December 31, 2016 $ — The Company estimates the fair value of the derivative liability using a with- and without-model and the probability-weighted expected return method, which estimates a discounted value based upon analyses of various future outcomes, suchas an equity financing with proceeds greater than $5.0 million, an IPO, a merger or sale, and staying private. The with- andwithout-model calculates the value of the Company’s convertible debt with the features being evaluated for separateaccounting, and an identical instrument without those features. The outcomes of each scenario in the probability-weightedexpected return method are based upon a market multiple approach, that involves various63 Table of Contentsmarket multiples and projected financial information, as well as option-pricing models, to reflect optionality within featuresof the convertible debt instrument. The change in fair value is recognized as a gain or loss in the other income (expense), netline on the statements of operations and comprehensive loss. See Note 9 for additional information regarding the derivativeliability in connection with the convertible promissory notes.Property and EquipmentProperty and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation begins at thetime the asset is placed in service. Maintenance and repairs are charged to operations as incurred. Depreciation is computedusing the straight-line method over the following estimated useful lives of the assets: Useful LivesComputer and network equipment 2 yearsManufacturing equipment 2 – 7 yearsFurniture and fixtures 7 yearsSoftware 3 years Leasehold improvements are amortized over the shorter of the lease term or useful life. Upon sale or retirement of assets,the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reflected inoperations. Amortization expense of assets acquired through capital leases is included in the statements of operations andcomprehensive loss.Impairment of Long-lived AssetsThe Company evaluates its long-lived assets, including property and equipment, for impairment whenever events orchanges in circumstances indicate that the carrying value of these assets may not be recoverable. Recoverability of theseassets is measured by comparison of the carrying amount of each asset to the future undiscounted cash flows the asset isexpected to generate over its remaining life. If the asset is considered to be impaired, the amount of any impairment ismeasured as the difference between the carrying value and the fair value of the impaired asset. There have been noimpairments of the Company’s long-lived assets during any of the periods presented.Intangible AssetsIntangible assets consist of the cost of acquired technology for use in research and development activities. Costsassociated with patent applications, patent prosecution, patent defense and maintenance of patents are charged to expense asincurred. Intangible assets were fully amortized as of December 31, 2016.Redeemable Convertible Preferred Stock Warrant LiabilityWarrants for shares that were contingently redeemable were classified as liabilities on the balance sheet at theirestimated fair value because the shares underlying the warrants may have obligated the Company to transfer assets to theholders at a future date under certain circumstances such as a deemed liquidation event. The warrants were subject to re-measurement at each balance sheet date and the change in fair value, if any, was recognized as other income (expense), net inthe statements of operations. The Company adjusted the liability for changes in fair value until the completion of the IPO inOctober 2016, at which time all redeemable convertible preferred stock warrants were converted into warrants to purchasecommon stock and the liability was reclassified to additional paid-in capital and no longer subject to remeasurement.Revenue RecognitionThe Company recognizes revenue when the following criteria are met: persuasive evidence of an arrangement exists;the price is fixed or determinable; delivery has occurred and title passed; and collectibility is reasonably assured. For sales tooriginal equipment manufacturers (OEMs) and contract manufacturers, this occurs generally upon shipment. Provisions forproduct returns and allowances are recorded in the same period as related revenues. The Company analyzes historical returns,current economic trends and changes in customer demand and acceptance of product when evaluating the adequacy of salesreturns and other allowances, which are netted against accounts receivable, as these are processed as credits against futurepurchases or balances outstanding.64 Table of ContentsThe Company sells the majority of its products to its distributors at a uniform list price. However, distributors resell theCompany’s products to end customers at a very broad range of individually negotiated price points. Distributors are providedwith price concessions subsequent to delivery of product to them depending on their end customer and sales price. Theseconcessions are based on a variety of factors, including customer, product, quantity, geography and competitivedifferentiation. Price protection rights grant distributors the right to a credit in the event of declines in the price of theCompany’s products. Under these circumstances, the Company remits back to the distributor a portion of their originalpurchase price after the resale transaction is completed in the form of a credit against the distributors’ outstanding accountsreceivable balance. The credits are on a per unit basis and are not given to the distributor until the distributor providesinformation regarding the sale to their end customer. Revenue on shipments to distributors is deferred as the price is not fixedor determinable until delivery has been made by the distributor to its customer and the final sales price has been established.At the time of shipment to distributors, the Company records a trade receivable for the selling price as there is a legallyenforceable obligation of the distributor to pay for the product delivered, inventory is reduced by the carrying value of goodsshipped, and the net of these amounts, the gross profit, is recorded as deferred income on shipments to distributors on thebalance sheet. The amount of gross profit that will be ultimately recognized in the statements of operations on such salescould be lower than the deferred income recorded on the balance sheets as a result of credits granted to distributors from theprice protection rights. The Company is unable to estimate the credits to the distributors due to the wide variability ofnegotiated price concessions granted to them.Thus, a portion of the “deferred income on shipments to distributors” balance represents the amount of distributors’original purchase price that will be credited back to the distributor in the future. The wide range and variability of negotiatedprice concessions granted to distributors does not allow the Company to accurately estimate the portion of the balance in thedeferred income on shipments to distributor accounts that will be credited back to the distributor. Therefore, the Companydoes not reduce deferred income on shipments to distributors or accounts receivable by anticipated future price concessionsrather, price concessions are recorded against deferred income on shipments to distributors when incurred, which is generallyat the time the distributor sells the product.At December 31, 2016, the Company had $2.9 million of deferred revenue and $1.1 million of deferred cost of salesrecognized as $1.8 million of deferred income on shipments to distributors. At December 31, 2015, the Company had $2.6million of deferred revenue and $1.2 million of deferred cost of sales recognized as $1.4 million of deferred income onshipments to distributors.Products returned by distributors and subsequently scrapped have historically been immaterial to the Company’s resultsof operations. The Company routinely evaluates the risk of impairment of the deferred cost of sales component of thedeferred income on shipments to distributors account. Because of the historically immaterial amounts of inventory that havebeen scrapped, and historically rare instances where discounts given to a distributor result in a price less than our cost, theCompany believes the deferred costs are recorded at their approximate carrying values.For licenses of technology, recognition of revenue is dependent upon whether the Company delivered rights to thetechnology, and whether there are future performance obligations. In some instances, the license agreements call for futuremilestones to be met for amounts to be due from the customer. In such scenarios, revenue is recognized using the milestonemethod, whereby revenue is recognized upon the completion of substantive milestones once the customers acknowledge themilestones have been met and the collection of the amounts are reasonably assured. Royalties received are recognized whenreported to the Company, which generally coincides with the receipt of payment.Product WarrantyThe Company generally sells products with a limited warranty of product quality and a limited indemnification ofcustomers against intellectual property infringement claims related to the Company’s products. The Company accrues forknown warranty and indemnification issues if a loss is probable and can be reasonably estimated, and accrues for estimatedlosses incurred for unidentified issues based on historical experience. A warranty liability was not recorded at December 31,2016 and 2015, as the estimated future warranty costs were insignificant based on the Company’s historical experience.65 Table of ContentsResearch and DevelopmentResearch and development expenses are incurred in support of internal development programs or as part of our jointdevelopment agreement with GLOBALFOUNDRIES (see Note 9). Research and development expenses include personnel-related costs (including stock-based compensation), circuit design costs, purchases of materials and laboratory supplies,fabrication and packaging of experimental integrated circuit products, depreciation of research and development relatedcapital equipment and overhead, and are expensed as incurred.Stock-based CompensationThe Company measures its stock-based awards made to employees based on the estimated fair value of the awards as ofthe grant date using the Black-Scholes option-pricing model. Stock-based compensation expense is recognized over therequisite service period using the straight-line method and is based on the value of the portion of stock-based paymentawards that is ultimately expected to vest. As such, the Company’s stock-based compensation is reduced for the estimatedforfeitures at the date of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.Stock-based compensation expense for options granted to non-employees as consideration for services received ismeasured on the date of performance at the fair value of the consideration received or the fair value of the equity instrumentsissued, using the Black-Scholes option-pricing model, whichever can be more reliably measured. Compensation expense foroptions granted to non-employees is periodically remeasured as the underlying options vest.Income TaxesThe Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets andliabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilitiesand are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. TheCompany must then assess the likelihood that the resulting deferred tax assets will be realized. A valuation allowance isprovided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. Due to theCompany’s lack of earnings history, the net deferred tax assets have been fully offset by a valuation allowance.The Company recognizes benefits of uncertain tax positions if it is more likely than not that such positions will besustained upon examination based solely on their technical merits, as the largest amount of benefit that is more likely thannot to be realized upon the ultimate settlement. The Company’s policy is to recognize interest and penalties related to theunderpayment of income taxes as a component of income tax expense or benefit. To date, there have been no interest orpenalties charged in relation to the unrecognized tax benefits.Comprehensive LossComprehensive loss represents all changes in stockholders’ equity (deficit) except those resulting from anddistributions to stockholders. The Company’s comprehensive loss was equal to its net loss for all periods presented.Net Loss per Common ShareBasic net loss per common share is calculated by dividing the net loss by the weighted-average number of shares ofcommon stock outstanding for the period less shares subject to repurchase, without consideration of potentially dilutivesecurities. Diluted net loss per common share is the same as basic net loss per common share since the effect of potentiallydilutive securities is anti-dilutive.66 Table of ContentsRecent Accounting PronouncementsIn May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)No. 2014‑09, Revenue from Contracts with Customers. Areas of revenue recognition that will be affected include, but are notlimited to, transfer of control, variable consideration, allocation of transfer pricing, licenses, time value of money, contractcosts and disclosures. The new standard permits adoption either by using (i) a full retrospective approach for all periodspresented in the period of adoption or (ii) a modified retrospective approach with the cumulative effect of initially applyingthe new standard recognized at the date of initial application and providing certain additional disclosures. The new standardis effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted for annualreporting periods beginning after December 15, 2016. As described in the Company's significant accounting policies, theCompany currently defers the revenue and cost of sales on shipments to distributors until the distributor sells the product totheir end customer. Upon adoption of ASU 2014-09, and subsequent improvements including ASU 2015-14, Deferral ofEffective Date, ASU 2016-08, Principal versus Agent Considerations, ASU 2016-10, Identifying Performance Obligationsand Licensing, and ASU 2016-12, Narrow Scope Improvements and Practical Expedients, the Company will no longer deferrevenue until sale by the distributor to the end customer, but rather, will be required to estimate the effects of returns andallowances provided to distributors and record revenue at the time of sale to the distributor. The Company plans on adoptingthis standard on January 1, 2018 and is currently evaluating the impact that the adoption of the standard will have on itsfinancial statements. The Company has not yet elected a transition method.In July 2015, the FASB issued ASU No. 2015‑11, Simplifying the Measurement of Inventory, which requires an entityto measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling pricein the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This ASU iseffective for fiscal years and interim periods within those years beginning after December 15, 2016. The adoption of thisstandard is not expected to have a material impact on the Company’s financial statements.In November 2015, FASB issued ASU No. 2015‑17, Balance Sheet Classification of Deferred Taxes, which is intendedto simplify and improve how deferred taxes are classified on the balance sheet. The guidance in this ASU eliminates thecurrent requirement to present deferred tax assets and liabilities as current and noncurrent in a classified balance sheet andnow requires entities to classify all deferred tax assets and liabilities as noncurrent. The guidance is effective for annualperiods beginning after December 15, 2016, and for interim periods within those annual periods. Early adoption is permitted.The adoption of this standard is not expected to have a material impact on the Company’s financial statements.In February 2016, the FASB issued ASU No. 2016‑02, Leases, which establishes a comprehensive new lease accountingmodel. The new standard: (a) clarifies the definition of a lease; (b) requires a dual approach to lease classification similar tocurrent lease classifications; and (c) causes lessees to recognize leases on the balance sheet as a lease liability with acorresponding right-of-use asset for leases with a lease-term of more than twelve months. This ASU is effective for fiscal yearsand interim periods within those years beginning after December 15, 2018. The Company is currently evaluating the impactthat the adoption of ASU 2016‑02 will have on its financial statements and related disclosures.In March 2016, the FASB issued ASU No. 2016‑09, Compensation-Stock Compensation (Topic 718) Improvements toEmployee Share-Based Payment Accounting, which is intended to simplify several aspects of the accounting for employeeshare-based payment transactions, including the income tax consequences, the determination of forfeiture rates, classificationof awards as either equity or liabilities, and classification on the statement of cash flows. This ASU is effective for fiscal yearsand interim periods within those years beginning after December 15, 2016, and early adoption is permitted. The Company iscurrently evaluating the impact that the adoption of ASU 2016‑09 will have on its financial statements and relateddisclosures.In June 2016, the FASB issued ASU No. 2016‑13, Financial Instruments – Credit Losses (Topic 326), which is intendedto provide financial statement users with more useful information about expected credit losses on financial assets held by areporting entity at each reporting date. The new standard replaces the existing incurred loss impairment methodology with amethodology that requires consideration of a broader range of reasonable and supportable forward-looking information toestimate all expected credit losses. The amended guidance is effective for fiscal years and interim periods within those yearsbeginning after December 15, 2019, and early adoption is permitted. The Company is67 Table of Contentscurrently evaluating the impact that the adoption of ASU 2016‑13 will have on its financial statements and relateddisclosures.In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of CertainCash Receipts and Cash Payments. ASU 2016-15 identifies how certain cash receipts and cash payments are presented andclassified in the Statement of Cash Flows. The standard is effective for fiscal years and interim periods beginning afterDecember 15, 2017. The standard should be applied retrospectively and early adoption is permitted, including adoption inan interim period. The Company is currently in the process of evaluating the impact that the standard will have on itsfinancial statements. 3. Balance Sheet ComponentsInventoryInventory consisted of the following (in thousands): December 31, 2016 2015Raw materials $853 $361Work-in-process 3,152 2,205Finished goods 1,064 1,610Total inventory $5,069 $4,176 Property and Equipment, NetProperty and equipment, net consisted of the following (in thousands): December 31, 2016 2015Manufacturing equipment $8,983 $8,256Computer and network equipment 588 546Furniture and fixtures 188 184Software 333 227Leasehold improvements 13 13Total property and equipment, gross 10,105 9,226Less: accumulated depreciation (8,185) (7,572)Total property and equipment, net $1,920 $1,654 Depreciation and amortization expense during the years ended December 31, 2016, 2015 and 2014 was $0.7 million,$1.2 million and $1.3 million, respectively.Intangible Assets, NetIn 2008, the Company spun-out of Freescale Semiconductor, Inc. (“Freescale,” a wholly-owned subsidiary of NXPSemiconductors N.V.) and acquired certain intellectual property assets and related licenses used in the MRAM business ofFreescale. The value assigned to these acquired intangible assets was $910,000. Intangible assets, net consisted of thefollowing (in thousands): December 31, 2016 2015Acquired technology $910 $910Less: accumulated amortization (910) (778)Total intangible assets, net $ — $132 Amortization expense was $132,000, $150,000 and $182,000 for the years ended December 31, 2016, 2015 and 2014,respectively.68 Table of ContentsAccrued LiabilitiesAccrued liabilities consisted of the following (in thousands): December 31, 2016 2015Accrued payroll-related expenses $1,045 $636Accrued manufacturing-related costs — 339Deferred licensing revenue 229 250Deferred rent 248 220Accrued sales commissions payable to sales representatives 193 165Other 96 145Total accrued liabilities $1,811 $1,755 4. Commitments and ContingenciesOperating LeasesThe Company leases office space for its corporate headquarters located in Chandler, Arizona and for its design facilitylocated in Austin, Texas. The leases expire in October 2018 and January 2022, respectively. Rent expense is recognized on astraight-line basis over the term of the leases and accordingly, the Company records the difference between cash rentpayments and the recognition of rent expense as a deferred rent liability.The Company has an operating lease for its Arizona manufacturing facility lease, as amended, for certain of the fabrication,laboratory and office premises of Freescale, a related party. This lease is cancellable upon 24 months’ notice by either of theparties. In 2017, the Company extended the lease through January 28, 2019 and amended the premises covered to removelaboratory space, decrease fabrication space and expand office space. The following is a schedule of minimum rental commitments under the Company’s operating leases at December 31,2016 (in thousands):Year Ending December 31, Amount2017 $1,5112018 1,5252019 1,3722020 7092021 224Total minimum lease payments $5,341 Total rent expense was $1.5 million, $1.4 million and $1.3 million for the years ended December 31, 2016, 2015 and2014, respectively.Legal ProceedingsFrom time to time, the Company may become involved in legal proceedings arising from the ordinary course of itsbusiness. Management is currently not aware of any matters that will have a material adverse effect on the financial position,results of operations or cash flows of the Company.IndemnificationsIn the ordinary course of business, the Company enters into agreements that may include indemnification provisions.Pursuant to such agreements, the Company may indemnify, hold harmless and defend an indemnified party for losses sufferedor incurred by the indemnified party. Some of the provisions will limit losses to those arising from third party actions. Insome cases, the indemnification will continue after the termination of the agreement. The maximum potential amount offuture payments the Company could be required to make under these provisions is not determinable. The Company has neverincurred material costs to defend lawsuits or settle claims related to these indemnification provisions. The Company has alsoentered into indemnification agreements with its directors and69 Table of Contentsofficers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason oftheir status or service as directors or officers to the fullest extent permitted by Delaware corporate law. The Companycurrently has directors’ and officers’ insurance.5. Debt and Related WarrantsPrior FacilitiesIn December 2010, the Company executed a Loan and Security Agreement with Silicon Valley Bank (“SVB CreditFacility”). The SVB Credit Facility included a $2.0 million term loan and a $2.0 million revolving line of credit. The termloan had a term of four years and the line of credit had a term of two years.In connection with the SVB Credit Facility, the Company issued to Silicon Valley Bank a warrant to purchase 3,076shares of the Company’s Series A redeemable convertible preferred stock at an exercise price of $26.00 per share. The warrantcould be exercised at any time and would expire, if not exercised, on December 14, 2019. At the date of issuance, theCompany recorded the warrant as a debt discount of $63,000 and as a liability on the balance sheet at its fair value. At thedate of the IPO of the Company’s common stock, the warrant was converted into a warrant to purchase 3,076 shares of theCompany’s common stock. The warrant was remeasured to its fair value of $1,600 and the carrying value of the warrant of$1,600 was reclassified to additional paid in capital during the year ended December 31, 2016.In February 2014, the Company executed an Amended and Restated Loan and Security Agreement (“Amended SVBCredit Facility”). The Amended SVB Credit Facility included a $4.0 million term loan and a $4.0 million revolving line ofcredit. The term loan provided for interest at a floating rate equal to the greater of (a) 5% or (b) the prime rate plus 3.75%, andhad a term of four years. The revolving line of credit loan provided for interest at a floating rate equal to the greater of (a) 5%or (b) the prime rate plus 1.75% and had a term of two years.In connection with the Amended SVB Credit Facility, the Company issued to Silicon Valley Bank a warrant to purchase6,153 shares of the Company’s Series B redeemable convertible preferred stock at an exercise price of $26.00 per share. Thewarrant can be exercised at any time and expires 10 years after the date of issuance. The Company recorded the warrant as adebt discount and as a liability on the balance sheet at its fair value of $106,000 on the date of issuance using the Black-Scholes option-pricing model. At the date of the IPO of the Company’s common stock, the warrant was converted into awarrant to purchase 6,153 shares of the Company’s common stock. The warrant was remeasured to its fair value of $14,900and carrying value of the warrant of $14,900 was reclassified to additional paid in capital during the year ended December31, 2016.In June 2015, the outstanding principal balance on the Amended SVB Credit Facility of $2.8 million was repaid, atwhich time the unamortized balance of the debt discount of $114,000 and a prepayment penalty of $20,000 were recognizedas interest expense.2015 Credit FacilityIn June 2015, the Company executed a Loan and Security Agreement with Ares Venture Finance (“2015 CreditFacility”) comprising an $8.0 million term loan and a $4.0 million revolving loan. The term loan provides for interest at afloating rate equal to the greater of (a) 8.75% or (b) LIBOR plus 7.75% and has a term of four years. The term loan is payablein 15 monthly installments of interest only and 33 payments of principal and interest with an end-of-term fee of $180,000due upon maturity. The revolving loan provides for interest at a floating rate equal to the prime rate plus 3.75% and has aterm of two years. The Company may draw upon the loan facility for working capital purposes as required depending uponaccounts receivable balances and other required conditions. In January 2016, the Company borrowed $1.5 million from therevolving loan. A portion of the proceeds was used to pay off the outstanding balance on the Amended SVB 2014 CreditFacility.Security for the 2015 Credit Facility includes all of the Company’s assets except for leased equipment. The 2015 CreditFacility contains customary covenants restricting the Company’s activities, including limitations on its ability to sell assets,engage in mergers and acquisitions, enter into transactions involving related parties, incur indebtedness or grant liens ornegative pledges on its assets, make loans or make other investments. Under these covenants, the Company is prohibitedfrom paying dividends with respect to its capital stock. The Company was in compliance with all covenants at December 31,2016 and 2015.70 Table of ContentsIn connection with the 2015 Credit Facility, the Company issued to Ares Venture Finance a warrant to purchase 18,461shares of the Company’s Series B redeemable convertible preferred stock at an exercise price of $26.00 per share. The warrantcan be exercised at any time and expires 10 years after the date of issuance. The Company recorded the warrant as a debtdiscount and as a liability on the balance sheet at its fair value of $307,000 on the date of issuance using the Black-Scholesoption-pricing model. The fair value of the warrant was $307,000 at December 31, 2015. At the date of the IPO of theCompany’s common stock, the warrant was converted into a warrant to purchase 18,461 shares of the Company’s commonstock. The warrant was remeasured to its fair value of $48,900 and the carrying value of the warrant of $48,900 wasreclassified to additional paid-in capital during the year ended December 31, 2016.The carrying value of the Company’s 2015 Credit Facility at December 31, 2016, was as follows (in thousands): Current Long-Term Portion debt TotalDebt, including end of term fee $4,054 $4,301 $8,355Less: Discount attributable to warrants, end of term fee and debt issuance costs (177) (83) (260)Net carrying value of debt $3,877 $4,218 $8,095 The carrying value of the Company’s 2015 Credit Facility at December 31, 2015, was as follows (in thousands): Current Long-Term Portion debt TotalDebt, including end of term fee $970 $7,210 $8,180Less: Discount attributable to warrants, end of term fee and debt issuance cost — (471) (471)Net carrying value of debt $970 $6,739 $7,709 The table below shows the principal repayments due under the 2015 Credit Facility as of December 31, 2016 (inthousands): Principal Repayment as of December 31, 2017 $4,0542018 2,9092019 1,392Total principal repayments $8,355 Capital Lease ObligationsThe Company leases certain equipment under capital lease obligations expiring in March 2017. The balance of thecapital lease obligations was $7,000 and $205,000 at December 31, 2016 and 2015, respectively.Property and equipment under capital leases amounted to $440,000 and $431,000 at December 31,2016 and 2015, respectively. Accumulated depreciation and amortization on these assets was $433,000and $256,000 at December 31, 2016 and 2015, respectively.6. Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)In October 2016, the Company’s Board of Directors and stockholders approved the Certificate of Amendment ofAmended and Restated Certificate of Incorporation which revised the authorized capital stock of the Company to a total of105,000,000 shares, consisting of 100,000,000 shares of common stock, par value $0.0001, and 5,000,000 shares of preferredstock, par value $0.0001. 71 Table of ContentsRedeemable Convertible Preferred StockThere were no outstanding shares of redeemable convertible preferred stock at December 31, 2016 as the shares had allconverted into common stock as part of the IPO in October 2016. At December 31, 2015, redeemable convertible preferredstock consisted of the following (in thousands, except share amounts): Shares Shares Issued and Carrying Liquidation Authorized Outstanding Value PreferenceSeries A 35,580,000 1,365,379 $35,500 $35,500Series B 32,500,000 1,120,820 29,142 29,142Total 68,080,000 2,486,199 $64,642 $64,642 ClassificationThe Company had classified the redeemable convertible preferred stock as mezzanine equity on the balance sheet as ofDecember 31, 2015 as the shares could have been redeemed by the Company after receipt by the Company, at any time on orafter July 17, 2018, of written notice requesting redemption of such stock by the holders. The carrying values of theredeemable convertible preferred stock had been adjusted to their redemption value.Common StockCommon stockholders are entitled to dividends if and when declared by the board of directors subject to the prior rightsof the preferred stockholders. As of December 31, 2016, no dividends on common stock had been declared by the board ofdirectors.The Company had reserved shares of common stock for future issuance as follows: December 31, 2016 2015Redeemable convertible preferred stock — 2,486,199Options issued and outstanding 1,414,730 927,175Shares available for future option grants 342,500 55,330Redeemable convertible preferred stock warrants — 27,690Common stock warrants 27,690 —Total 1,784,920 3,496,3947. Stock-Based Compensation2016 Employee Incentive PlanThe Company’s board of directors adopted the 2016 Equity Incentive Plan (the “2016 Plan”) on April 25, 2016, whichwas subsequently approved on September 20, 2016 by the Company’s stockholders. The 2016 Plan became effective onOctober 7, 2016, the date the Company’s registration statement was declared effective by the SEC. No further grants will bemade under the Company’s 2008 Equity Incentive Plan (the “2008 Plan”). However, any outstanding stock awards grantedunder the 2008 Plan will remain outstanding, subject to the terms of the Company’s 2008 Plan and the applicable stockaward agreements, until such outstanding stock awards that are stock options are exercised or until they terminate or expireby their terms, or until such stock awards are fully settled, terminated or forfeited. At December 31, 2016, 1,257,230 optionsunder the 2008 Plan remained outstanding.The Company’s 2016 Plan provides for the grant of incentive stock options (“ISOs”), nonstatutory stock options, stockappreciation rights, restricted stock awards, restricted stock unit awards, performance-based stock awards, and other forms ofequity compensation to employees, directors and consultants. In addition, the Company’s 2016 Plan provides for the grant ofperformance cash awards to employees, directors and consultants.72 Table of ContentsThe maximum number of shares of common stock that may be issued under the Company’s 2016 Plan is 500,000. Thenumber of shares of common stock reserved for issuance under the Company’s 2016 Plan will automatically increase onJanuary 1 of each year, beginning on January 1, 2017, and continuing through and including January 1, 2026, by 3% of thetotal number of shares of capital stock outstanding on December 31 of the preceding calendar year, or a lesser number ofshares determined by the Company’s board of directors. The maximum number of shares that may be issued upon the exerciseof ISOs under the Company’s 2016 Plan is 500,000.2008 Employee Incentive PlanThe 2008 Plan provides for the issuance of incentive stock options (“ISO”), nonqualified stock options, and other stockcompensation awards. Under the terms of the 2008 Plan, the exercise price of an ISO shall be not less than 100% of the fairvalue of the stock at the date of grant, as determined by the board of directors, or in the case of certain ISOs, at 110% of thefair market value at the date of grant.The term and vesting periods for options granted under the 2008 Plan were determined by the Company’s board ofdirectors. Options granted generally vest over four years. Options must be exercised within a 10‑year period or sooner if sospecified within the option agreement.Summary of Stock Option ActivityThe following table summarizes the stock option activity for all grants under the 2008 Plan and 2016 Plan: Options Outstanding Weighted- Weighted- Average Average Options Exercise Remaining Aggregate Available for Number of Price Per Contractual Intrinsic Grant Options Share Life (years) Value (In thousands)Balance—December 31, 2014 106,468 852,639 $4.42 8.0 $-Options authorized 24,956 — Options granted (123,830) 123,830 4.50 Options exercised — (1,558) 4.42 $11Options cancelled/forfeited 47,736 (47,736) 4.42 Balance—December 31, 2015 55,330 927,175 4.43 7.3 $6,500Options authorized 785,364 — Options granted (563,523) 563,523 13.20 Options exercised — (10,639) 4.43 $114Options cancelled/forfeited 65,329 (65,329) 4.71 Balance—December 31, 2016 342,500 1,414,730 5.28 7.6 $4,267Options exercisable—December 31, 2016 729,746 4.52 6.1 $2,752Options vested and expected to vest—December 31, 2016 1,414,732 5.28 7.6 $4,267 During the years ended December 31, 2016, 2015, and, 2014, the Company granted options with a weighted-averagegrant date fair value of $4.52, $4.42 and $1.82 per share, respectively.The total fair value of options vested during the year was $622,000, $353,000, and $332,000 for the years endedDecember 31, 2016, 2015, and, 2014, respectively.73 Table of Contents2016 Employee Stock Purchase PlanThe Company’s board of directors adopted the 2016 Employee Stock Purchase Plan (the “ESPP”) on April 25, 2016,which was subsequently approved on September 20, 2016 by the Company’s stockholders. The purpose of the ESPP is tosecure the services of new employees, to retain the services of existing employees and to provide incentives for suchindividuals to exert maximum efforts toward the Company’s success and that of the Company’s affiliates. The ESPP isintended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code. The board ofdirectors, or a duly authorized committee thereof, will administer the Company’s ESPP.The maximum aggregate number of shares of common stock that may be issued pursuant to the exercise of purchaserights under the Company’s ESPP that are granted to employees or to employees of any of the Company’s designatedaffiliates is 96,153 shares. Additionally, the number of shares of common stock reserved for issuance under the Company’sESPP will increase automatically each year, beginning on January 1, 2017, and continuing through and including January 1,2026, by 1% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, or alesser number as determined by the board of directors. Shares subject to purchase rights granted under the Company’s ESPPthat terminate without having been exercised in full will not reduce the number of shares available for issuance under theCompany’s ESPP. The first offering period (“First Offering”) under the ESPP began on October 7, 2016 and will end onOctober 12, 2017. Each offering under the ESPP will consist of two purchase periods of approximately six months induration. The first purchase period in the First Offering will end on April 12, 2017. There was no employee participation inthe First Offering during 2016.Stock-based Compensation ExpenseThe Company recognized stock-based compensation expense as follows (in thousands): Year Ended December 31, 2016 2015 2014Research and development $403 $169 $304General and administrative 637 190 392Sales and marketing 101 57 103Total $1,141 $416 $799 As of December 31, 2016, there was $3.4 million of total unrecognized compensation expense related to unvestedoptions which the Company expects recognize over a weighted-average period of 3.1 years.Employee Stock-based CompensationStock-based compensation expense for employees was $1.1 million, $407,000, and $776,000 for the years endedDecember 31, 2016, 2015, and 2014, respectively. In May 2014, the Company modified the terms of 333,774 vested andunvested stock option awards, affecting 75 employees, by reducing their exercise price from $7.54 and $13.52 per share to$4.42 per share. There was no change in any of the other terms of the option awards. The modification resulted in anincremental value of $939,000 being allocated to the options, of which $207,000 was recognized to expense immediatelybased on options that were vested at the time of the modification. The remaining incremental value of $732,000 attributableto unvested options is being recognized over their remaining vesting term.In December 2016, the Company modified the terms of 396,028 vested and unvested stock option awards, affecting 77employees, by reducing their exercise price from $15.86 per share to $6.63 per share. There was no change to any of the otherterms of the option awards. The modification resulted in an incremental value of $629,000 being allocated to the options, ofwhich $140,000 was recognized to expense immediately based on options that were vested at the time of the modification.The remaining incremental value of $489,000 attributable to unvested options is being recognized over their remainingvesting term.74 Table of ContentsThe Company estimated the fair value of each option grant using the Black-Scholes option-pricing model. The fairvalue of employee stock options is being amortized on a straight-line basis over the requisite service period of the awards.The fair value of employee stock options was estimated using the assumptions below. Each of these inputs is subjective andits determination generally requires significant judgment. Year Ended December 31, 2016 2015 2014 Expected volatility 42.6 – 45.3% 44.1 – 48.9% 36.4 – 53.2%Risk-free interest rate 1.12 – 2.26% 1.51 – 1.79% 0.43 – 2.04%Expected term (in years) 4.8 – 6.1 5.6 – 6.1 2.1 – 6.1 Dividend yield —% —% —% Expected term. The expected term represents the period that the stock-based awards are expected to be outstanding. TheCompany used the simplified method to determine the expected term, which is calculated as the average of the time tovesting and the contractual life of the options.Expected volatility. Since the Company does not have a long trading history for its common stock, the expectedvolatility was derived from the average historical volatilities of publicly traded companies within a similar industry that areconsidered to be comparable to the Company’s business over a period approximately equal to the expected term foremployees’ options.Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield with a maturity equal to theexpected term of the option in effect at the time of grant.Dividend yield. The Company has never paid dividends on its common stock and is prohibited from paying dividendson its common stock. Therefore, the Company used an expected dividend yield of zero.Non-employee Stock-based CompensationStock-based compensation expense related to stock options granted to non-employees is recognized as the stockoptions vest. During the year ended December 31, 2016, the Company granted options to purchase 8,073 shares of commonstock to non-employees with a weighted-average exercise price of $7.51 per share. During the year ended December 31,2015, the Company did not grant any options to non-employees. During the year ended December 31, 2014, the Companygranted options to purchase 23,606 shares of common stock to non-employees with a weighted-average exercise price of$4.42 per share.Options to purchase 31,990 shares, 15,498 shares and 15,498 shares of common stock were outstanding with aweighted-average exercise price of $5.26, $4.42 and $4.42 per share as of December 31, 2016, 2015 and 2014, respectively.Stock-based compensation expense for non-employees was $23,000, $9,000, and 23,000 for the years ended December 31,2016, 2015, and 2014, respectively.The Company believes that the fair value of the stock options is more reliably measurable than the fair value of servicesreceived. The fair value of the stock options granted is calculated at each reporting date using the Black-Scholes optionpricing model with the following assumptions: Year Ended December 31, 2016 2015 2014 Expected volatility 52.3 - 52.7% 51.6 - 52.9% 52.8 - 53.8%Risk-free interest rate 1.94 - 2.41% 1.72 - 2.02% 2.17 - 2.48%Expected term (in years) 9.5 - 9.8 6.6 - 9.1 7.3 - 9.8 Dividend yield —% —% —%75 Table of Contents8. 401(k) PlanThe Company has a defined contribution employee benefit plan pursuant to Section 401(k) of the Internal RevenueCode. The plan allows eligible employees to defer a portion of their annual compensation up to certain statutory limits. Atthe election of the Board of Directors, the Company may elect to match employee contributions but has not done so to date.9. Related Party TransactionsConvertible Promissory NotesIn August 2014, the Company entered into a Note Purchase Agreement with several of its stockholders for the issuanceof convertible promissory notes (the “2014 Notes”) for an aggregate amount of $2.0 million. On October 21, 2014,contemporaneously with the Series B redeemable convertible preferred stock issuance, the outstanding principal balance ofthe 2014 Notes, including accrued interest of $2.0 million, was converted into 77,518 shares of Series B redeemableconvertible preferred stock.In January 2016, the Company entered into a Note Purchase Agreement with several of its stockholders for the issuanceof convertible promissory notes (the “2016 Notes”) for an aggregate amount of $5.0 million. The 2016 Notes bear interest at5.0% per annum and have a maturity date of December 15, 2016, extended from the original maturity date of September 30,2016. The outstanding principal amount and accrued interest on the 2016 Notes were convertible into shares of Series Bredeemable convertible preferred stock, at any time, upon written election of the holders of at least a majority of theoutstanding principal balance of the 2016 Notes. In the event of an equity financing with proceeds in excess of $5.0 million(“Qualified Financing”) prior to the maturity of the 2016 Notes, the outstanding principal and accrued interest convert intoshares of stock issued in the equity financing based on a price per share equal to the price per share paid by investors in saidfinancing. In the event of an IPO, the outstanding principal and accrued interest convert into shares of common stock at aprice per share equal to 80% of the per share price of the common stock issued in the IPO. In the event of a deemedliquidation event occurring before the maturity date, the 2016 Notes will be repaid in cash in an amount equal to three timesthe outstanding principal amount. The redemption of the 2016 Notes upon a deemed liquidation event and in the event of anIPO were contingent redemption features that are not clearly and closely related to the debt instrument and thus werebifurcated and recognized as a derivative liability on the balance sheet at the date of issuance. The compound derivative wasrecorded as a debt discount at fair value of $653,000 on the issuance date of the 2016 Notes and was being amortized overthe term of the 2016 Notes using the effective interest method. Upon the completion of the IPO, the outstanding principalbalance of the 2016 Notes, including accrued interest of $176,000, was converted into 808,747 shares of common stock.Accordingly, the outstanding balance of the 2016 Notes of $5.2 million, the unamortized debt discount of $74,000 and thederivative liability of $70,000 were reclassified to additional paid-in capital. No gain or loss from the extinguishment of thedebt was recognized in the statement of the operations as the holders of the 2016 Notes are related parties.In August 2016, the Company entered into a Note Purchase Agreement with existing stockholders for the issuance ofsubordinated convertible promissory notes (the “2016 Bridge Notes”) for an aggregate principal amount of $3.5 million. The2016 Bridge Notes bear interest at 5.0% per annum and have a maturity date of December 15, 2016, extended from theoriginal maturity date of September 30, 2016. In the event of an equity financing with proceeds in excess of $5.0 million(“Qualified Financing”) prior to the maturity of the 2016 Bridge Notes, the outstanding principal and accrued interestconvert into shares of stock issued in the Qualified Financing based on a price per share equal to the price per share paid byinvestors in such financing. In the event of an IPO, the outstanding principal and accrued interest convert into shares ofcommon stock at a price per share equal to 80% of the per share price of the common stock issued in the IPO. In the event of adeemed liquidation event occurring before the maturity date, the 2016 Bridge Notes will be repaid in cash in an amountequal to three times the outstanding principal amount. The Company may not prepay the 2016 Bridge Notes without theconsent of the Company and the majority holders of the outstanding balance of the promissory notes. The redemption of the2016 Bridge Notes upon a deemed liquidation event and in the event of an IPO are contingent redemption features that arenot clearly and closely related to the debt instrument and thus were bifurcated and recognized as a derivative liability on thebalance sheet at the date of issuance. The compound derivative was recorded as a debt discount at fair value of $264,000 onthe issuance date of the 2016 Bridge Notes and was being amortized over the term of the 2016 Bridge Notes using theeffective interest method. Upon completion of the IPO, the outstanding principal balance of the 2016 Bridge Notes,including accrued interest of $35,000, was converted into 552,262 shares of common stock. Accordingly, the carrying valueof the 2016 Bridge Notes of $3.5 million, the76 Table of Contentsunamortized debt discount of $122,000 and the derivative liability of $50,000 were reclassified to additional paid-in capital.No gain or loss from the extinguishment of the debt was recognized in the statement of the operations as the holders of the2016 Bridge Notes are related parties.Joint Development Agreement—GLOBALFOUNDRIESOn October 17, 2014, the Company entered into a Joint Development Agreement (“JDA”) withGLOBALFOUNDRIES, Inc. (“GF”), a related party due to its equity ownership in the Company, for the joint development ofthe Company’s Spin Torque MRAM (“ST-MRAM”) technology. The term of the agreement is the later of four years from theeffective date or until the completion, termination or expiration of the last statement of work entered into pursuant to theJDA. The JDA also states that the specific terms and conditions for the production and supply of the developed ST-MRAMtechnology would be pursuant to a separate manufacturing agreement entered into between the parties.Under the JDA, each party licenses its relevant intellectual property to the other party. For certain jointly developedworks, the parties have agreed to follow an invention allocation procedure to determine ownership. In addition, GF possessesthe exclusive right to manufacture the Company’s discrete and embedded ST-MRAM devices developed pursuant to theagreement until the earlier of three years after the qualification of the MRAM device for a particular technology node orfour years after the completion of the relevant statement of work under which the device was developed. For the sameexclusivity period associated with the relevant device, GF agreed not to license intellectual property developed inconnection with the JDA to named competitors of the Company.Generally, unless otherwise specified in the agreement or a statement of work, the Company and GF share project costs,which do not include personnel or production qualification costs, equally under the JDA. If GF manufactures, sells ortransfers to customers wafers containing production quantified ST-MRAM devices that utilize certain design information, GFwill be required to pay the Company a royalty. The term of the agreement is four years and is extended until the completionof any development work, if later.In May 2016, the Company entered into an amendment to the JDA to modify the payment schedule and clarify itspayment obligations for certain past project costs. Under the amendment, GF had the right to terminate the JDA if theCompany did not pay the past project costs, with interest, by December 15, 2016. Such project costs were paid inDecember 2016.As of December 31, 2016 and 2015, $979,000 and $3.5 million, respectively, were payable to GF for the Company’sshare of the project costs under the JDA. The Company incurred project costs, recognized as research and developmentexpense, of $2.9 million, $3.6 million, and $0 during the years ended December 31, 2016, 2015, and 2014, respectively.On October 21, 2014, GF participated, along with other investors, in the Company’s Series B redeemable convertiblepreferred stock financing and purchased 192,307 shares at $26.00 per share. Contemporaneously, the Company sold 461,538shares of its common stock to GF at a discounted price of $0.00026 per share. The common shares vest upon the achievementof a goal as set forth in the Statement of Work #1 (the “SOW”) under the JDA. The unvested common shares are subject torepurchase by the Company, if the JDA is terminated for any reason, for a one-year period after such termination, at a pricethat is the lower of the original price paid by GF or the fair value of the Company’s common stock as of the date ofrepurchase. The Company has determined that the issuance of these shares of common stock to GF represents compensationfor services to be provided under the JDA. Accordingly, the shares are accounted for similar to a stock award granted to anon-employee of the Company and are remeasured to their fair value as they vest. Although the shares issued do notcommence vesting until the achievement of the product qualification (the “Initial Measurement Date”), the Company hasdeemed it probable that the qualification requirement will be met and compensation expense related to the shares issued isbeing recognized prior to the Initial Measurement Date. Due to the vesting conditions, there will be multiple measurementdates, occurring on the Initial Measurement Date and at the end of each month thereafter. The fair value of vesting shares iseffectively fixed at each measurement date while the fair value of the remaining unvested shares will be remeasured eachsubsequent measurement date until the shares are fully vested. During the year ended December 31, 2016, GF achieved theproduct qualification as set forth under the SOW. As such, a total of 211,538 shares of common stock became vested onAugust 21, 2016, the designated Initial Measurement Date. Subsequent to the Initial Measurement Date throughDecember 31, 2016, an additional 38,462 shares of common stock became vested. As of December 31, 2016, there were211,538 shares unvested that were subject to repurchase.77 Table of ContentsDuring the years ended December 31, 2016, 2015, and 2014, the Company recognized non-cash compensation expenseof $965,000, $1.8 million, and $107,000, respectively, in research and development expense, related to the vesting of theshares of common stock. The Company recognizes compensation expense based on the fair value of the common stock ateach reporting period, which was $8.29, $13.52, and $4.68 per share as of December 31, 2016, 2015, and 2014, respectively.The decrease in the fair value of the common stock during the year ended December 31, 2016 resulted in a reversal ofcompensation expense previously recognized on the unvested shares.Transactions with FreescaleThe Company has entered into various transactions with Freescale (a wholly-owned subsidiary of NXP), a related partydue to its equity ownership in the Company. The Company leases its manufacturing facility in Chandler, Arizona, fromFreescale and total rent payments made during the years ended December 31, 2016, 2015, and 2014 were $1.1 million, $1.0million, and $1.0 million, respectively. Freescale also performs processing of the Company’s products in its facility which arecapitalized as part of the cost of inventory. The total processing costs incurred by the Company were $2.5 million, $3.9million, and $3.3 million, for the years ended December 31, 2016, 2015, and 2014, respectively. In addition, Freescale is oneof the Company’s largest customers for the sale of embedded wafers, and total revenue from Freescale was $2.4 million,$3.5 million, and $3.2 million for the years ended December 31, 2016, 2015, and 2014, respectively. Amounts due fromFreescale were $486,000 and $564,000 at December 31, 2016 and 2015, respectively. Amounts due to Freescale were$380,000 and $207,000 at December 31, 2016 and 2015, respectively.10. Geographic InformationRevenue from customers is designated based on the geographic region or country to which the product is delivered orlicensee is located. Revenue by country was as follows (in thousands): Year Ended December 31, 2016 2015 2014United States $4,321 $5,362 $6,055Singapore 5,467 4,614 3,399Japan 3,285 2,280 4,408Germany 3,013 3,546 2,933Taiwan 2,161 3,759 3,097Hong Kong 2,122 2,744 3,133All other 6,725 4,241 1,871Total revenue $27,094 $26,546 $24,89611. Income TaxesFor the years ended December 31, 2016, 2015 and 2014, the Company recorded no provision for income taxes primarilydue to losses incurred. The Company has incurred net operating losses for all the periods presented. The Company has notreflected any benefit of the net operating loss carryforwards in the accompanying financial statements. The Company hasestablished a full valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization ofsuch assets.The reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows: Year Ended December 31, 2016 2015 2014 Tax at statutory federal rate (34.0)% (34.0)% (34.0)%State taxes, net of federal benefit (1.5) (1.9) (2.7) Stock-based compensation 1.3 0.8 2.8 Nondeductible fair value adjustment (2.5) — — Nondeductible interest 2.0 — — Change in valuation allowance 33.3 34.3 37.9 Other 1.4 0.8 (4.0) Provision for income taxes (0.0)% (0.0)% (0.0)% 78 Table of ContentsThe tax effects of temporary differences and carryforwards that give rise to significant portions of the deferred tax assetsare as follows (in thousands): December 31, 2016 2015Deferred tax assets: Net operating loss carryforwards $29,469 $23,526Inventory 1,187 1,309Accruals 902 1,693Depreciation and amortization 105 290Other 1,312 752Gross deferred tax assets 32,975 27,570Valuation allowance (32,850) (27,554)Deferred tax assets 125 16Deferred tax liabilities: Prepaid expenses (125) (16)Deferred tax liabilities (125) (16)Net deferred tax assets $ — $ — The Company is required to reduce its deferred tax assets by a valuation allowance if it is more likely than not thatsome or all of its deferred tax assets will not be realized. Management must use judgment in assessing the potential need for avaluation allowance, which requires an evaluation of both negative and positive evidence. The weight given to the potentialeffect of negative and positive evidence should be commensurate with the extent to which it can be objectively verified. Indetermining the need for and amount of the valuation allowance, if any, the Company assesses the likelihood that it will beable 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 wassubstantial uncertainty as to whether it will recover recorded net deferred taxes in future periods. Accordingly, the Companyrecorded a valuation allowance against all of its net deferred tax assets as of December 31, 2016 and 2015. The net valuationallowance increased by $5.3 million and $6.2 million in 2016 and 2015, respectively.As of December 31, 2016, the Company had federal net operating loss carryforwards of approximately $83.5 millionwhich will begin to expire in the year of 2028 if not utilized. In addition, the Company had state net operating losscarryforwards of approximately $32.5 million, which will begin to expire in 2023 if not utilized.The Tax Reform Act of 1986 (the “Act”) provides for a limitation on the annual use of net operating loss and researchand development tax credit carryforwards following certain ownership changes (as defined by the Act) that could limit theCompany’s ability to utilize these carryforwards.The Company files income tax returns in the U.S. federal and various state jurisdictions. The Company is subject to U.S.federal and state income tax examinations by authorities for all tax years due to the accumulated net operating losses that arebeing carried forward for tax purposes.The Company has not identified any unrecognized tax benefits as of December 31, 2016 and 2015. As the Companyhas a full valuation allowance on its deferred tax assets, any unrecognized tax benefits would reduce the deferred tax assetsand the valuation allowance in the same amount. The Company does not expect the amount of unrecognized tax benefits tomaterially change in the next twelve months.79 Table of Contents12. Net Loss Per ShareThe following table sets forth the computation of basic and diluted net loss per share (in thousands, except share andper share amounts): Year Ended December 31, 2016 2015 2014Numerator: Net loss $(16,708) $(18,183) $(10,183)Denominator: Weighted-average common shares outstanding 5,117,226 3,013,743 2,635,621Less: weighted-average unvested common shares subjected torepurchase (378,730) (461,538) (91,043)Weighted-average common shares outstanding used to calculate net lossper common share, basic and diluted 4,738,496 2,552,205 2,544,578Net loss per common share, basic and diluted $(3.53) $(7.12) $(4.00) The following outstanding shares of potentially dilutive securities have been excluded from diluted net loss percommon share for the periods presented, because their inclusion would be anti-dilutive: Year Ended December 31, 2016 2015 2014Redeemable convertible preferred stock on an as-converted basis — 2,486,199 2,486,199Options to purchase common stock 1,414,730 927,175 852,639Common stock subject to repurchase 211,538 461,538 461,538Redeemable convertible preferred stock warrants on an as-converted basis — 27,690 9,229Common stock warrants 27,690 — —Total 1,653,958 3,902,602 3,809,60513. Selected Quarterly Financial Data (Unaudited)Selected quarterly financial results from operations for the years ended December 31, 2016 and 2015 were as follows (inthousands, except per share amounts): Quarter Ended March 31, June 30, September 30, December 31, 2016 2016 2016 2016Total revenue $6,207 $6,659 $7,164 $7,064Gross profit 3,662 3,500 4,305 3,232Net loss (4,540) (5,416) (1,444) (5,308)Net loss per common share, basic and diluted (1.78) (2.12) (0.54) (0.48) Quarter Ended March 31, June 30, September 30, December 31, 2015 2015 2015 2015Total revenue $6,305 $6,349 $7,092 $6,800Gross profit 3,792 3,631 3,634 2,921Net loss (4,153) (3,268) (4,509) (6,253)Net loss per common share, basic and diluted (1.63) (1.28) (1.77) (2.45)80 Table of Contents14. Subsequent EventsIn January 2017, the Company entered into a five-year sublease agreement with Freescale to rent 6,560 square feet ofoffice and laboratory space in Chandler, Arizona, and in March 2017, the Company amended the lease to increase the spaceto 10,023 square feet. The aggregate rent expense under the lease is $871,000. In March 2017, the Company amended its lease agreement with Freescale to extend the lease term through January2019, to remove laboratory space, decrease fabrication space and expand office space from the premises covered under thelease. The aggregate rent expense under the amendment is $1.8 million. 81 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.None Item 9A. Controls and Procedures.Evaluation of disclosure controls and procedures.Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, have evaluatedour disclosure controls and procedures (as defined in Rules 13a‑15(e) and 15d‑15(e) under the Securities Exchange Act of1934, as amended) as of December 31, 2016. Based on that evaluation, our Chief Executive Officer and our Chief FinancialOfficer have concluded that, as of December 31, 2016, our disclosure controls and procedures were effective at the reasonableassurance level. Additionally, our management has concluded that the financial statements included elsewhere in this reportpresent fairly, in all material respects, our financial position, results of operations and cash flows in conformity with GAAP.Exemption from management’s report on internal control over financial reporting for the fiscal year endedDecember 31, 2016.This Annual Report on Form 10‑K does not include a report of management’s assessment regarding internal controlover financial reporting or an attestation report of our independent registered public accounting firm due to a transitionperiod established by the rules of the SEC for newly public companies.Material weaknesses in internal control over financial reporting.In connection with the audit of our financial statements as of and for the years ended December 31, 2016, 2015 and2014, we identified material weaknesses in our internal control over financial reporting, as defined in the standardsestablished by the Public Company Accounting Oversight Board of the United States. Our management has determined thatwe had a material weakness in our internal control over financial reporting as of December 31, 2014 and 2015, relating to thedesign and operation of our financial reporting processes. We have concluded that this material weakness was due to the factthat we did not yet have the appropriate resources with the appropriate level of experience and technical expertise to overseeour closing and financial reporting processes. Our management also determined that we had an additional material weaknessin our internal control over financial reporting as of December 31, 2016, relating to information technology general andapplication controls. We have concluded that this material weakness is due to the current configuration of our ERP system,which is scheduled for additional integration in 2017.Our management implemented a plan that contains the following elements to remediate the identified weaknesses:·We have hired additional accounting and finance staff members to augment our current staff and to improve theeffectiveness of our closing and financial reporting processes;·We have completed the transition of our financials to SAP to facilitate the integration with other company data andsystems;·In May of 2016, we added an independent board member with significant semiconductor CFO experience to chairour audit committee;·We have engaged external consultants to assist us with preparation of the financial statements; and·We are formalizing our accounting policies and internal controls, including the I.T. general controls, andstrengthening supervisory reviews by our management;We expect to complete the last noted measure above as soon as practicable and will continue to implement measures toremedy our internal control deficiencies in order to meet the deadline imposed by Section 404 of the Sarbanes-Oxley Act of2002, until such time the material weakness identified in the prior year remains outstanding. Our independent registeredpublic accounting firm has not assessed the effectiveness of our internal control over financial reporting and, under the JOBSAct, will not be required to provide an attestation report on the effectiveness of our internal control over financial reportingso long as we qualify as an “emerging growth company”.82 Table of Contents Changes in internal control over financial reporting.Other than the changes intended to remediate the material weakness noted above, there were no changes in our internalcontrol over financial reporting during the year ended December 31, 2016, that have materially affected, or are reasonablylikely 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 inherentlimitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls andprocedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financialreporting, 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 becomeinadequate because of changes in conditions, or that the degree of compliance with the policies or procedures maydeteriorate. 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 financialreporting. Item 9B. Other Information.None.83 Table of Contents PART III Item 10. Directors, Executive Officers and Corporate Governance.Information required by this item will be contained in our definitive proxy statement to be filed with the Securities andExchange Commission on Schedule 14A in connection with our 2017 Annual Meeting of Stockholders, or the ProxyStatement, which will be filed not later than 120 days after the end of our fiscal year ended December 31, 2016, under theheadings “Management,” “Proposal 1 - Election of Directors,” “Board Committees and Meetings,” and“Section 16(a) Beneficial Ownership Reporting Compliance,” and is incorporated herein by reference.We have adopted a Code of Business Conduct and Ethics that applies to our officers, directors and employees which isavailable on our website at www.everspin.com. The Code of Business Conduct and Ethics is intended to qualify as a “code ofethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and Item 406 of Regulation S-K. In addition,we intend to promptly disclose (1) the nature of any substantive amendment to our Code of Business Conduct and Ethics thatapplies to our principal executive officer, principal financial officer, principal accounting officer or controller or personsperforming similar functions and (2) the nature of any waiver, including an implicit waiver, from a provision of our code ofethics that is granted to one of these specified officers, the name of such person who is granted the waiver and the date of thewaiver, on our website in the future. Item 11. Executive Compensation.The information required by this item regarding executive compensation will be incorporated by reference to theinformation set forth in the sections titled “Executive Compensation” and “Compensation of Non-Employee BoardMembers” in our Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.The information required by this item regarding security ownership of certain beneficial owners and management willbe incorporated by reference to the information set forth in the sections titled “Security Ownership of Certain BeneficialOwners and Management” and “Securities Authorized for Issuance Under Equity Compensation Plans” in our ProxyStatement. Item 13. Certain Relationships and Related Transactions, and Director Independence.The information required by this item regarding certain relationships and related transactions and directorindependence will be incorporated by reference to the information set forth in the sections titled “Certain Relationships andRelated Party Transactions” and “Proposal 1 - Election of Directors”, respectively, in our Proxy Statement. Item 14. Principal Accounting Fees and Services.The information required by this item regarding principal accountant fees and services will be incorporated by referenceto the information set forth in the section titled “Principal Accountant Fees and Services” in our Proxy Statement.84 Table of Contents PART IV Item 15. Exhibits, Financial Statement Schedules.(a) The following documents are filed as part of this report:1. Financial StatementsInformation in response to this Item is included in Part II, Item 8 of this Annual Report on Form 10‑K.2. Financial Statement SchedulesAll schedules are omitted because they are not applicable or the required information is shown in the financialstatements or notes thereto.3. ExhibitsSee Item 15(b) below.(b) We have filed, or incorporated into this Annual Report on Form 10‑K by reference, the exhibits listed on theExhibit Index immediately following the Signatures page of this Annual Report on Form 10‑K.(c) See Item 15(a)2 above.Item 16. Form 10-K SummaryNone.85 Table of Contents SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registranthas duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in Chandler, Arizona,on March 29, 2017. Everspin Technologies, Inc. By:/s/ Phillip LoPresti Phillip LoPresti President and Chief Executive Officer (Principal Executive Officer) and Director By:/s/ Jeffrey Winzeler Jeffrey Winzeler Chief Financial Officer (Principal Financial and Accounting Officer) 86 Table of ContentsKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes andappoints Phillip LoPresti and Jeffrey Winzeler, and each of them, as his true and lawful attorneys-in-fact and agents, eachwith the full power of substitution, for him and in his name, place or stead, in any and all capacities, to sign any and allamendments to this Annual Report on Form 10‑K, and to file the same, with all exhibits thereto and other documents inconnection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, andeach of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done inand about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying andconfirming all that said attorneys-in-fact and agents, or their or his substitute or substitutes, may lawfully do or cause to bedone by virtue hereof.Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below bythe following persons on behalf of the Registrant in the capacities and on the dates indicated.Signature Title Date /s/ Phillip LoPresti President and Chief Executive Officer March 29, 2017Phillip LoPresti (Principal Executive Officer) and Director /s/ Jeffrey Winzeler Chief Financial Officer March 29, 2017Jeffrey Winzeler (Principal Accounting Officer) /s/ Robert W. England Director March 29, 2017Robert W. England /s/ Lawrence G. Finch Director March 29, 2017Lawrence G. Finch /s/ Ronald C. Foster Director March 29, 2017Ronald C. Foster /s/ Stephen J. Socolof Director March 29, 2017Stephen J. Socolof /s/ Peter Hébert Director March 29, 2017Peter Hébert /s/ Geoffrey R. Tate Director March 29, 2017Geoffrey R. Tate /s/ Kevin Conley Director March 29, 2017Kevin Conley /s/ Mike Gustafson Director March 29, 2017Mike Gustafson 87 Table of Contents EXHIBIT INDEX Incorporation By Reference ExhibitNumber Description Form SEC File No. Exhibit Filing Date 3.1 Amended and Restated Certificate of Incorporation. 8‑K 001‑37900 3.1 10/13/2016 3.2 Bylaws. S‑1 333‑213569 3.6 9/09/2016 4.1 Form of Common Stock Certificate of the Company. S‑1 333‑213569 4.1 9/09/2016 4.2 Reference is made to Exhibits 3.1 and 3.2. 10.1† Form of Indemnity Agreement between the registrant and itsdirectors and officers. S‑1 333‑213569 10.1 9/09/2016 10.2† 2008 Equity Incentive Plan, as amended, and Form of StockOption Grant Notice, Option Agreement and Form of Notice ofExercise. S-1/A 333‑213569 10.2 9/26/2016 10.3† 2016 Equity Incentive Plan and Form of Stock Option GrantNotice, Option Agreement and Form of Notice of Exercise. S-1/A 333‑213569 10.3 9/26/2016 10.4† 2016 Employee Stock Purchase Plan. S-1/A 333‑213569 10.4 9/26/2016 10.5 Lease, dated as of June 5, 2008, by and between the registrant andFreescale Semiconductor, Inc. S-1 333‑213569 10.5 9/09/2016 10.6 Amendment No. 1 to Lease, dated as of February 2, 2009, by andbetween the registrant and Freescale Semiconductor, Inc. S-1 333‑213569 10.6 9/09/2016 10.7 Amendment No. 2 to Lease, dated as of March 1, 2010, by andbetween the registrant and Freescale Semiconductor, Inc. S-1 333‑213569 10.7 9/09/2016 10.8 Amendment No. 3 to Lease, dated as of July 20, 2011, by andbetween the registrant and Freescale Semiconductor, Inc. S-1 333‑213569 10.8 9/09/2016 10.9 Amendment No. 4 to Lease, dated as of June, 2014 by andbetween the registrant and Freescale Semiconductor, Inc. S-1 333‑213569 10.9 9/09/2016 10.10 Loan and Security Agreement, dated as of June 6, 2015 by andbetween the registrant and Ares Venture Finance, L.P. S-1 333‑213569 10.10 9/09/2016 10.11 Amendment to Loan and Security Agreement, dated as of January29, 2016, by and between the registrant and Ares VentureFinance, L.P. S-1 333‑213569 10.11 9/09/2016 10.12 Second Amendment to Loan and Security Agreement, dated as ofAugust 1, 2016, by and between the registrant and Ares VentureFinance, L.P. S-1 333‑213569 10.12 9/09/2016 10.13† Executive Employment Agreement, dated as of April 25, 2016, byand between registrant and Terry Hulett. S-1 333‑213569 10.13 9/09/2016 10.14† Executive Employment Agreement, dated as of April 25, 2016, byand between registrant and Phillip LoPresti. S-1 333‑213569 10.14 9/09/2016 88 Table of Contents10.15† Executive Employment Agreement, dated as of April 25, 2016, byand between registrant and Scott Sewell. S-1 333‑213569 10.15 9/09/2016 10.16 Office Lease Agreement, dated as of January 7, 2011, by andbetween the registrant and Jutland 4141 Investments, Ltd dbaChandler Office Center. S-1 333‑213569 10.16 9/09/2016 10.17 Commercial Industrial Lease Agreement, dated as of May 18,2012, by and between the registrant and Principal Life InsuranceCompany. S-1 333‑213569 10.17 9/09/2016 10.18+ STT-MRAM Joint Development Agreement, dated as of October17, 2014, by and between registrant and GLOBALFOUNDRIESInc. S-1 333‑213569 10.18 9/09/2016 10.19+ Amendment No. 1 to the STT-MRAM Joint DevelopmentAgreement, dated as of May 27, 2016, by and between registrantand GLOBALFOUNDRIES Inc. S-1 333‑213569 10.19 9/09/2016 10.20+ Manufacturing Agreement, dated as of October 23, 2014, by andbetween the registrant and GLOBALFOUNDRIES Singapore Pte.Ltd. S-1 333‑213569 10.20 9/09/2016 10.21 Restricted Stock Purchase Agreement, by and between theregistrant and GLOBALFOUNDRIES Inc. S-1 333‑213569 10.21 9/09/2016 10.22 Amendment No. 1 to Commercial Industrial Lease Agreement,dated August 12, 2016, by and between the registrant and LegacyStonelake JV-T, LLC, successor in interest to Principal LifeInsurance Company. S-1 333‑213569 10.22 9/09/2016 10.23 Common Stock Purchase Agreement by and between theregistrant and GigaDevice (HK) Limited, dated September 23,2016. S-1/A 333‑213569 10.23 9/26/2016 10.24 Non-employee Director Compensation 10-Q 001‑37900 10.4 11/18/2016 10.25†* Executive Employment Agreement, dated as of April 25, 2016, byand between registrant and Jon Slaughter, Ph.D. 23.1* Consent of Ernst & Young LLP, Independent Registered PublicAccounting Firm 31.1* Certification of Principal Executive Officer Pursuant toRules 13a‑14(a) and 15d‑14(a) under the Securities Exchange Actof 1934, as amended. 31.2* Certification of Principal Financial Officer Pursuant toRules 13a‑14(a) and 15d‑14(a) under the Securities Exchange Actof 1934, as amended. 32.1** Certification of Principal Executive Officer and PrincipalFinancial Officer Pursuant to 18 U.S.C. Section 1350, as AdoptedPursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS XBRL Instance Document 89 Table of Contents 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document *Filed herewith.**Furnished herewith. Exhibit 32.1 is being furnished and shall not be deemed to be “filed” for purposes of Section 18 ofthe Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of thatsection, nor shall such exhibit be deemed to be incorporated by reference in any registration statement or otherdocument filed under the Securities Act of 1933, as amended, or the Exchange Act, except as otherwise specificallystated in such filing.+Confidential treatment has been granted for certain portions of this exhibit.†Indicates a management contract or compensatory plan. 90 Exhibit 10.25 EXECUTIVE EMPLOYMENT AGREEMENTforDr. Jon SlaughterThis Executive Employment Agreement (“Agreement”), made between Everspin Technologies, Inc.(the “Company”) and Dr. Jon Slaughter (“Executive”) (collectively, the “Parties”), is effective as of April25, 2016. WHEREAS, Executive has been performing services for the Company pursuant to the terms of anoffer letter from the Company dated June 4, 2008 (the “Offer Letter”); andWHEREAS, the Company desires for Executive to continue providing services to the Company, andExecutive is willing to continue such employment by the Company, on the amended and restated terms andconditions set forth in this Agreement, which terms shall replace and supersede the terms of the Offer Letter intheir entirety;NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein andfor other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, theParties hereto agree as follows:1. Employment by the Company.1.1 Position. Executive shall continue to serve as the Company’s Vice President,Technology Research and Development. During Executive’s employment with the Company, Executivewill devote Executive’s best efforts and substantially all of Executive’s business time and attention to thebusiness of the Company, except for approved vacation periods and reasonable periods of illness or otherincapacities permitted by the Company’s general employment policies. 1.2 Duties and Location. Executive shall continue to perform such duties as are requiredby the Company’s President and Chief Executive Officer, to whom Executive will report. Executive’sprimary work location shall continue to be the Company’s headquarters in Chandler, Arizona. The Companyreserves the right to reasonably require Executive to perform Executive’s duties at places other thanExecutive’s primary office location from time to time, and to require reasonable business travel. TheCompany may modify Executive’s job title and duties as it deems necessary and appropriate in light of theCompany’s needs and interests from time to time.1.3 Policies and Procedures. The employment relationship between the Parties shallcontinue to be governed by the general employment policies and practices of the Company, except that whenthe terms of this Agreement differ from or are in conflict with the Company’s general employment policies orpractices, this Agreement shall control.1. 2. Compensation.2.1 Salary. For services to be rendered hereunder, Executive shall continue to receive abase salary at the rate of two hundred twenty three thousand four hundred thirty nine dollars ($223,439) peryear (the “Base Salary”), subject to standard payroll deductions and withholdings and payable in accordancewith the Company’s regular payroll schedule. Effective upon the Company’s initial public offering of itscommon stock, Executive’s Base Salary shall be increased to two hundred twenty five thousand dollars($225,000) per year. Thereafter, Executive’s Base Salary shall be reviewed by the Board of Directors (the“Board”) for possible adjustment annually. 2.2 Bonus. Executive will be eligible for an annual discretionary bonus of up to 25% ofExecutive’s Base Salary. Executive’s annual target bonus percentage, whether Executive receives an annualbonus for any given year, and the amount of any such annual bonus, will be determined by the Board in itssole discretion based upon the Company’s and Executive’s achievement of objectives and milestones to bedetermined on an annual basis by the Board in consultation with Executive. Bonuses are generally paid byMarch 15 following the applicable bonus year, and Executive must be an active employee on the date anyAnnual Bonus is paid in order to earn any such Annual Bonus. Executive will not be eligible for, and willnot earn, any Annual Bonus (including a prorated bonus) if Executive’s employment terminates for anyreason before the date Annual Bonuses are paid.2.3 Standard Company Benefits. Executive shall continue to be entitled to participate inall employee benefit programs for which Executive is eligible under the terms and conditions of the benefitplans that may be in effect from time to time. The Company reserves the right to cancel or change the benefitplans or programs it offers to its employees at any time. 2.4 Expenses. The Company will reimburse Executive for reasonable travel,entertainment or other expenses incurred by Executive in furtherance or in connection with the performanceof Executive’s duties hereunder, in accordance with the Company’s expense reimbursement policy andrequirements of the Internal Revenue Service as in effect from time to time.2.5 Equity. Executive has been granted options to purchase shares of the Company’sCommon Stock (the “Options”), the terms of which shall continue to be governed in all respects by thegoverning plan documents, grant notices and stock option agreements. Executive shall be eligible to receivefurther stock grants and/or stock option awards in the sole discretion of the Board.3. Termination of Employment; Severance. 3.1 At-Will Employment. Executive’s employment relationship is at-will. EitherExecutive or the Company may terminate the employment relationship at any time, with or without Cause oradvance notice. 2. 3.2 Termination Without Cause; Resignation for Good Reason. (i) The Company may terminate Executive’s employment with the Company atany time without Cause (as defined below). Further, Executive may resign at any time for Good Reason (asdefined below).(ii) In the event Executive’s employment with the Company is terminated by theCompany without Cause, or Executive resigns for Good Reason, then provided such termination constitutes a“separation from service” (as defined under Treasury Regulation Section 1.409A-1(h), without regard to anyalternative definition thereunder, a “Separation from Service”), and provided Executive remains incompliance with all contractual obligations to the Company, then the Company shall provide Executive withthe following severance benefits, subject to the terms and conditions set forth in Section 4:(a) The Company shall pay Executive severance in the form of continuationof Executive’s Base Salary for six (6) months after the date of Executive’s Separation from Service. Thesesalary continuation payments will be paid on the Company’s regular payroll schedule, subject to standarddeductions and withholdings, over the six (6) month period following Executive’s Separation from Service;provided, however, that no payments will be made prior to the 60th day following Executive’s Separationfrom Service. On the 60th day following Executive’s Separation from Service, the Company will payExecutive in a lump sum the salary continuation payments that Executive would have received on or prior tosuch date under the original schedule with the balance of the cash severance being paid as originallyscheduled. (b) Provided that Executive timely elects continued coverage underCOBRA, the Company shall pay Executive’s COBRA premiums to continue Executive’s coverage(including coverage for eligible dependents, if applicable) (“COBRA Premiums”) through the period (the“COBRA Premium Period”) starting on the Executive’s Separation from Service and ending on the earliestto occur of: (i) six (6) months following Executive’s Separation from Service; (ii) the date Executive becomeseligible for group health insurance coverage through a new employer; or (iii) the date Executive ceases to beeligible for COBRA continuation coverage for any reason, including plan termination. In the event Executivebecomes covered under another employer's group health plan or otherwise cease to be eligible for COBRAduring the COBRA Premium Period, Executive must immediately notify the Company of suchevent. Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot pay theCOBRA Premiums without a substantial risk of violating applicable law, the Company instead shall pay toExecutive, on the first day of each calendar month remaining in the COBRA Premium Period, a fully taxablecash payment equal to the applicable COBRA premiums for that month, subject to applicable taxwithholdings, which Executive may, but is not obligated to, use toward the cost of COBRA premiums. (c) The vesting of Executive’s Options shall be accelerated such that theshares subject to the Options that would have vested in the six (6) month period following Executive’sSeparation from Service shall be deemed immediately vested and exercisable as of Executive’s last day ofemployment. 3. 3.3 Termination for Cause; Resignation Without Good Reason; Death or Disability.(i) The Company may terminate Executive’s employment with the Company atany time for Cause. Further, Executive may resign at any time without Good Reason. Executive’semployment with the Company may also be terminated due to Executive’s death or disability. (ii) If Executive resigns without Good Reason, or the Company terminatesExecutive’s employment for Cause, or upon Executive’s death or disability, then (i) Executive will no longervest in the Options, (ii) all payments of compensation by the Company to Executive hereunder will terminateimmediately (except as to amounts already earned), and (c) Executive will not be entitled to any severancebenefits, including (without limitation) the Severance, COBRA Premiums, Special Cash Payments orAccelerated Vesting. In addition, Executive shall resign from all positions and terminate any relationships asan employee, advisor, officer or director with the Company and any of its affiliates, each effective on the dateof termination. 4. Conditions to Receipt of Severance Benefits. Executive’s receipt of the severance benefitsdescribed in Section 3.2 is contingent upon Executive signing and not revoking a separation agreement andrelease of claims in a form reasonably satisfactory to the Company (the “Separation Agreement”). Noseverance benefits will be paid or provided until the Separation Agreement becomes effective. Executiveshall also resign from all positions and terminate any relationships as an employee, advisor, officer or directorwith the Company and any of its affiliates, each effective on the date of termination.5. Section 409A. It is intended that all of the severance benefits and other payments payableunder this Agreement satisfy, to the greatest extent possible, the exemptions from the application of InternalRevenue Code Section 409A provided under Treasury Regulations 1.409A‑1(b)(4), 1.409A‑1(b)(5) and1.409A‑1(b)(9), and this Agreement will be construed to the greatest extent possible as consistent with thoseprovisions, and to the extent no so exempt, this Agreement (and any definitions hereunder) will be construedin a manner that complies with Section 409A. For purposes of Code Section 409A (including, withoutlimitation, for purposes of Treasury Regulation Section 1.409A‑2(b)(2)(iii)), Executive’s right to receive anyinstallment payments under this Agreement (whether severance payments, reimbursements or otherwise) shallbe treated as a right to receive a series of separate payments and, accordingly, each installment paymenthereunder shall at all times be considered a separate and distinct payment. Notwithstanding any provision tothe contrary in this Agreement, if Executive is deemed by the Company at the time of Executive’s Separationfrom Service to be a “specified employee” for purposes of Code Section 409A(a)(2)(B)(i), and if any of thepayments upon Separation from Service set forth herein and/or under any other agreement with the Companyare deemed to be “deferred compensation”, then to the extent delayed commencement of any portion of suchpayments is required in order to avoid a prohibited distribution under Code Section 409A(a)(2)(B)(i) and therelated adverse taxation under Section 409A, such payments shall not be provided to Executive prior to theearliest of (i)4. the expiration of the six-month period measured from the date of Executive’s Separation from Service withthe Company, (ii) the date of Executive’s death or (iii) such earlier date as permitted under Section 409Awithout the imposition of adverse taxation. Upon the first business day following the expiration of suchapplicable Code Section 409A(a)(2)(B)(i) period, all payments deferred pursuant to this Paragraph shall bepaid in a lump sum to Executive, and any remaining payments due shall be paid as otherwise provided hereinor in the applicable agreement. No interest shall be due on any amounts so deferred.6. Definitions.6.1 Cause. For purposes of this Agreement, “Cause” for termination of Executive’semployment will mean: (a) commission of any felony or crime involving fraud, dishonesty or moral turpitudeunder the laws of the United States or any state thereof; (b) attempted commission of, or participation in, afraud or act of dishonesty against the Company; (c) intentional, material violation of any contract oragreement between Executive and the Company or of any statutory duty owed to the Company; (d)unauthorized use or disclosure of the Company’s confidential information or trade secrets; or (e) grossmisconduct.6.2 Good Reason. For purposes of this Agreement, Executive shall have “Good Reason”for resignation from employment with the Company if any of the following actions are taken by the Companyor a successor corporation or entity without Executive’s prior written consent: (a) a material reduction inExecutive’s base salary, which the Parties agree is a reduction of at least 10% of Executive’s Base Salary(unless pursuant to a salary reduction program applicable generally to the Company’s similarly situatedemployees); (b) a material reduction in Executive’s duties (including responsibilities and/or authorities),provided, however, that a change in job position (including a change in title) shall not be deemed a “materialreduction” in and of itself unless Executive’s new duties are materially reduced from the prior duties; or (c)relocation of Executive’s principal place of employment to a place that increases Executive’s one-waycommute by more than thirty-five (35) miles as compared to Executive’s principal place of employmentimmediately prior to such relocation. In order to resign for Good Reason, Executive must provide writtennotice to the Board within 30 days after the first occurrence of the event giving rise to Good Reason settingforth the basis for Executive’s resignation, allow the Company at least 30 days from receipt of such writtennotice to cure such event, and if such event is not reasonably cured within such period, Executive must resignfrom all positions Executive then holds with the Company not later than 30 days after the expiration of thecure period.7. Proprietary Information Obligations. Executive shall remain bound by the terms of theEmployee Proprietary Information and Inventions Assignment Agreement that Executive previouslyexecuted.8. Outside Activities During Employment.8.1 Non-Company Business. Except with the prior written consent of the Board,Executive will not during Executive’s employment with the Company5. undertake or engage in any other employment, occupation or business enterprise, other than ones in whichExecutive is a passive investor. Executive may engage in civic and not-for-profit activities so long as suchactivities do not materially interfere with the performance of Executive’s duties hereunder. 8.2 No Adverse Interests. Executive agrees not to acquire, assume or participate in,directly or indirectly, any position, investment or interest known to be adverse or antagonistic to theCompany, its business or prospects, financial or otherwise.9. Dispute Resolution. To ensure timely and economical resolution of any disputes that mayarise in connection with Executive’s employment with the Company, as a condition of Executive’semployment, Executive and the Company hereby agree that any and all claims, disputes or controversies ofany nature whatsoever arising out of, or relating to, this letter, or its interpretation, enforcement, breach,performance or execution, Executive’s employment with the Company, or the termination of suchemployment, shall be resolved, to the fullest extent permitted by law, by final, binding and confidentialarbitration conducted before a single arbitrator by the American Arbitration Association (“AAA”) under thethen-applicable AAA employment arbitration rules (which can be found at http://www.adr.org/). Thearbitration shall take place in Phoenix, Arizona; provided, however, that if the arbitrator determines there willbe an undue hardship to Executive to have the arbitration in such location, the arbitrator will choose analternative appropriate location. Executive and the Company each acknowledge that by agreeing to thisarbitration procedure, both Executive and the Company waive the right to resolve any such dispute,claim or demand through a trial by jury or judge or by administrative proceeding. Executive will havethe right to be represented by legal counsel at Executive’s expense at any arbitration proceeding. Thearbitrator shall: (i) have the authority to compel adequate discovery for the resolution of the dispute and toaward such relief as would otherwise be available under applicable law in a court proceeding; and (ii) issue awritten statement signed by the arbitrator regarding the disposition of each claim and the relief, if any,awarded as to each claim, the reasons for the award, and the arbitrator’s essential findings and conclusions onwhich the award is based. The arbitrator, and not a court, shall also be authorized to determine whether theprovisions of this paragraph apply to a dispute, controversy, or claim sought to be resolved in accordance withthese arbitration procedures. The Company shall pay all costs and fees in excess of the amount of court feesthat Executive would be required to incur if the dispute were filed or decided in a court of law. Nothing inthis Agreement is intended to prevent either Executive or the Company from obtaining injunctive relief incourt to prevent irreparable harm pending the conclusion of any arbitration.10. General Provisions.10.1 Notices. Any notices provided must be in writing and will be deemed effective uponthe earlier of personal delivery (including personal delivery by fax) or the next day after sending by overnightcarrier, to the Company at its primary office location and to Executive at the address as listed on the Companypayroll.6. 10.2 Severability. Whenever possible, each provision of this Agreement will be interpretedin such manner as to be effective and valid under applicable law, but if any provision of this Agreement isheld to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction,such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, butthis Agreement will be reformed, construed and enforced in such jurisdiction to the extent possible in keepingwith the intent of the parties.10.3 Waiver. Any waiver of any breach of any provisions of this Agreement must be inwriting to be effective, and it shall not thereby be deemed to have waived any preceding or succeeding breachof the same or any other provision of this Agreement.10.4 Complete Agreement. This Agreement constitutes the entire agreement betweenExecutive and the Company with regard to this subject matter and is the complete, final, and exclusiveembodiment of the Parties’ agreement with regard to this subject matter. This Agreement is entered intowithout reliance on any promise or representation, written or oral, other than those expressly contained herein,and it supersedes any other such promises, warranties or representations, including (without limitation) theOffer Letter. It is entered into without reliance on any promise or representation other than those expresslycontained herein, and it cannot be modified or amended except in a writing signed by a duly authorizedofficer of the Company.10.5 Counterparts. This Agreement may be executed in separate counterparts, any one ofwhich need not contain signatures of more than one party, but all of which taken together will constitute oneand the same Agreement.10.6 Headings. The headings of the paragraphs hereof are inserted for convenience onlyand shall not be deemed to constitute a part hereof nor to affect the meaning thereof.10.7 Successors and Assigns. This Agreement is intended to bind and inure to the benefitof and be enforceable by Executive and the Company, and their respective successors, assigns, heirs,executors and administrators, except that Executive may not assign any of his duties hereunder and he maynot assign any of his rights hereunder without the written consent of the Company, which shall not bewithheld unreasonably.10.8 Tax Withholding and Indemnification. All payments and awards contemplated ormade pursuant to this Agreement will be subject to withholdings of applicable taxes in compliance with allrelevant laws and regulations of all appropriate government authorities. Executive acknowledges and agreesthat the Company has neither made any assurances nor any guarantees concerning the tax treatment of anypayments or awards contemplated by or made pursuant to this Agreement. Executive has had the opportunityto retain a tax and financial advisor and fully understands the tax and economic consequences of all paymentsand awards made pursuant to the Agreement.7. 10.9 Choice of Law. All questions concerning the construction, validity and interpretationof this Agreement will be governed by the laws of the State of Arizona.IN WITNESS WHEREOF, the Parties have executed this Agreement on the day and year firstwritten above. EVERSPIN TECHNOLOGIES, INC. By:/s/ Phillip LoPresti Phillip LoPresti President and Chief Executive Officer EXECUTIVE /s/ Dr. Jon Slaughter Dr. Jon Slaughter 8. Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-214018) pertaining to theEverspin Technologies, Inc. 2008 Equity Incentive Plan, Everspin Technologies, Inc. 2016 Equity Incentive Plan, and theEverspin Technologies, Inc. 2016 Employee Stock Purchase Plan of our report dated March 29, 2017, with respect to thefinancial statements of Everspin Technologies, Inc. included in this Annual Report (Form 10-K) for the year ended December31, 2016. /s/ Ernst & Young LLP Phoenix, ArizonaMarch 29, 2017 Exhibit 31.1 Certification of the Principal Executive Officer I, Phillip LoPresti, certify that: 1.I have reviewed this Form 10-K of Everspin Technologies, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly presentin all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, theperiods presented in this report; 4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designedunder our supervision, to ensure that material information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularly during the period in which this report isbeing prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by thisreport based on such evaluation; and (c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred duringthe registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that hasmaterially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;and 5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or personsperforming the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financialreporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and reportfinancial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant's internal control over financial reporting. Date: March 29, 2017 /s/ Phillip LoPrestiPhillip LoPrestiPresident, Chief Executive Officer and Director Exhibit 31.2 Certification of Principal Financial Officer I, Jeffrey Winzeler, certify that: 1.I have reviewed this Form 10-K of Everspin Technologies, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly presentin all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, theperiods presented in this report; 4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designedunder our supervision, to ensure that material information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularly during the period in which this report isbeing prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by thisreport based on such evaluation; and (c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred duringthe registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that hasmaterially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;and 5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or personsperforming the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financialreporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and reportfinancial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant's internal control over financial reporting. Date: March 29, 2017 /s/ Jeffrey WinzelerJeffrey WinzelerChief Financial Officer /s/ Phillip LoPresti Phillip LoPresti President, Chief Executive Officer and Director /s/ Jeffrey Winzeler Jeffrey Winzeler Chief Financial OfficerExhibit 32.1 Certification Pursuant to18 U.S.C. Section 1350,As Adopted Pursuant toSection 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report of Everspin Technologies, Inc. (the “Company”) on Form 10-K for the year endedDecember 31, 2016 (the “Report”), Phillip LoPresti, President, Chief Executive Officer and Director of the Company, andJeffrey Winzeler, Chief Financial Officer of the Company, each hereby certifies, pursuant to the requirement set forth in Rule13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title18 of the United States Code (18 U.S.C. Section 1350), as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002, that, to the best of his knowledge: 1.The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and 2.The information contained in the Report fairly presents, in all material respects, the financial condition and results ofoperations of the Company. Date: March 29, 2017 This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and ExchangeCommission and is not to be incorporated by reference into any filing of Everspin Technologies, Inc. under the Securities Actof 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form10-K), irrespective of any general incorporation language contained in such filing.
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