Atomera Incorporated — 2021 Q1 Form 10-Q Summary
Business context and reporting period
Atomera develops, commercializes and licenses Mears Silicon Technology (MST), a proprietary semiconductor process technology intended to improve transistor performance, power efficiency and scaling. The company does not design or manufacture integrated circuits. Revenue is generated from engineering services, integration licenses and joint development agreements.
This filing covers the three months ended March 31, 2021, compared with the three months ended March 31, 2020. The financial statements are unaudited and prepared under U.S. GAAP.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $0.4 million | $0.1 million |
| Gross margin | $0.4 million; 100.0% | $0.05 million; approximately 79.0% |
| Research and development | $2.2 million | $2.1 million |
| General and administrative | $1.5 million | $1.4 million |
| Selling and marketing | $0.3 million | $0.2 million |
| Total operating expenses | $4.0 million | $3.7 million |
| Loss from operations | $3.6 million | $3.7 million |
| Net loss | $3.6 million | $3.6 million |
| Basic and diluted loss per share | $0.16 loss | $0.22 loss |
| Net cash used in operating activities | $3.9 million | $3.6 million |
| Cash and cash equivalents at period end | $36.7 million | $11.4 million |
Q1 2021 revenue consisted of a manufacturing license payment under a joint development agreement and was generated in the Asia-Pacific region. No revenue was recognized over time during either period.
At March 31, 2021, working capital was approximately $36.4 million. The company had no reported conventional debt. Total liabilities were $2.1 million, including $1.1 million of operating lease liabilities. Future minimum lease payments totaled $1.2 million, and the company anticipated commencing a five-year, $150,000-per-month equipment lease in May 2021.
Material changes versus the prior comparable period
- Revenue increased approximately 545%, from $62,000 to $400,000, primarily because of the Q1 2021 manufacturing license payment.
- Gross margin increased to 100% from approximately 79%, as Q1 2021 cost of revenue was zero compared with $13,000 in Q1 2020.
- Operating expenses increased 7%, to $4.0 million, driven primarily by higher research and development headcount and related costs.
- Research and development expense increased 8% to $2.2 million; general and administrative expense increased 5% to $1.5 million.
- Net loss was broadly stable at $3.6 million, while loss per share improved because weighted-average shares increased to 22.1 million from 16.8 million.
- Operating cash use increased to $3.9 million from $3.6 million, partly due to a $679,000 increase in prepaid expenses and other assets and a $417,000 reduction in accrued payroll expenses.
- Financing activities provided $2.8 million, primarily from stock-option exercises and remaining proceeds from the at-the-market offering. The ATM program had concluded in January 2021 after generating approximately $24.2 million of net proceeds in total.
- Common shares outstanding increased to 23.0 million at March 31, 2021 from 21.0 million at December 31, 2020, reflecting equity compensation, option exercises and warrant activity.
- Approximately 318,000 warrants were exercised during the quarter, leaving approximately 2,000 warrants outstanding at March 31, 2021.
Guidance, outlook, commentary and risks
Management expects increased spending on research and development headcount, outsourced fabrication and testing, and sales and marketing to support adoption of MST. Management believes available capital is sufficient to fund current plans and obligations for at least 12 months from the issuance of the financial statements.
The company remains an early-stage business with limited revenue and recurring operating losses. Semiconductor customers typically require lengthy testing and qualification processes, and Atomera has limited control over the timing of commercial adoption and meaningful license or royalty revenue.
Management stated that additional capital may be required if license fees and royalties do not develop sufficiently. Potential sources include equity offerings, debt financing and joint ventures, but financing may not be available on commercially reasonable terms. If capital cannot be raised, the company may need to reduce costs and curtail research and development.
- MST commercialization and customer adoption remain uncertain.
- Revenue is concentrated in limited customer engagements and may fluctuate substantially based on license and engineering-service activity.
- Competition, technological developments and the need for collaborations or complementary technologies could affect future capital requirements.
- The company reported no material litigation as of March 31, 2021 and no off-balance-sheet arrangements or third-party guarantees.
- Management reported effective disclosure controls as of March 31, 2021 and no material changes to internal control over financial reporting.
Important facts for investors to verify
- Whether the Q1 manufacturing license payment is non-recurring and when additional license, engineering and royalty revenue may be recognized.
- The pace of MST customer testing, qualification and commercial deployment.
- Quarterly cash burn, planned research and development expansion, and the expected impact of the new equipment lease.
- Available liquidity after the January 2021 completion of the ATM program and the timing or likelihood of future capital raises.
- Dilution from outstanding options, restricted stock and other equity awards; approximately 3.0 million options and 0.6 million unvested restricted shares were outstanding at March 31, 2021.
- The effect of the planned adoption of ASU 2020-06 on the company’s financial statements and disclosures; management was still evaluating the standard.