Atomera Incorporated — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2020; filed November 3, 2020. Financial statements are unaudited and presented under U.S. GAAP. Atomera develops, commercializes, and licenses Mears Silicon Technology (MST) for the semiconductor industry and remains in the development stage with limited revenue.
Key Financial Metrics
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $0 | $254,000 | $62,000 | $395,000 |
| Gross margin | $0 | $50,000 | $49,000 | $171,000 |
| Operating expenses | $3.579 million | $3.225 million | $11.092 million | $10.690 million |
| Loss from operations | $(3.579) million | $(3.175) million | $(11.043) million | $(10.519) million |
| Net loss | $(3.578) million | $(3.086) million | $(11.002) million | $(10.254) million |
| Basic and diluted loss per share | $(0.19) | $(0.19) | $(0.61) | $(0.66) |
- Cash and liquidity: Cash and cash equivalents were $25.297 million at September 30, 2020, versus $14.871 million at December 31, 2019. Working capital was approximately $24.1 million.
- Cash flow: Operating cash use was $9.117 million for the first nine months of 2020, compared with $8.479 million in the prior-year period. Investing cash use was $56,000. Financing activities provided $19.599 million.
- Capital resources: Financing proceeds included $9.395 million from a May 2020 public offering, $8.520 million from the ATM program, $902,000 from warrant exercises, and $782,000 from stock-option exercises.
- Debt and leases: The filing does not report conventional debt. Operating lease liabilities totaled $723,000, including $631,000 classified as long-term. The company also prepaid $450,000 for a five-year equipment lease expected to commence in November 2020 at $150,000 per month.
- Equity and dilution: Common shares outstanding were 20.971 million at September 30, 2020 and 21.455 million as of October 28, 2020. Anti-dilutive securities totaled approximately 4.548 million shares, including options, restricted stock, and warrants.
Material Changes Versus the Prior Comparable Period
- Q3 revenue declined to zero from $254,000; nine-month revenue declined to $62,000 from $395,000. The filing attributes revenue to integration license agreements and engineering services and does not provide a clear customer-specific explanation for the quarterly decline.
- Q3 operating expenses increased 11% to $3.579 million, primarily due to higher research and development expense. Nine-month operating expenses increased 4% to $11.092 million.
- Research and development expense increased 17% in Q3 and 5% for the nine-month period, reflecting additional headcount and changes in outsourced development costs.
- General and administrative expense increased 7% in Q3 and 5% for the nine-month period, driven primarily by patent-related legal and professional expenses, director fees, and a $139,000 warrant-modification expense.
- Selling and marketing expense decreased 13% in Q3 and 9% for the nine-month period, primarily due to lower bonus accruals and reduced travel expenses.
- Net loss increased from $3.086 million to $3.578 million in Q3 and from $10.254 million to $11.002 million for the first nine months, although loss per share improved for the nine-month period because of the higher share count.
- In August 2020, the office lease was extended to January 2026 and expanded from 3,396 to 4,101 square feet, resulting in approximately $681,000 of additional right-of-use assets and lease liabilities.
Outlook, Risks, and Unusual Items
- Management believes available capital is sufficient to fund current plans and obligations for at least 12 months from the filing date.
- Atomera expects future revenue from license fees, engineering services, and royalties, but meaningful revenue timing remains uncertain because semiconductor customers require lengthy testing and qualification processes.
- COVID-19 affected customer contract negotiations and delayed engineering work by certain customers, potentially delaying revenue generation.
- If revenue does not develop sufficiently, the company may need additional capital through equity offerings, debt financing, or strategic arrangements. Additional financing may not be available on acceptable terms, or at all; without it, Atomera may need to reduce research and development or change its strategy.
- On September 2, 2020, the company established an ATM program allowing sales of up to $25.0 million of common stock. It had sold 845,730 shares for approximately $8.5 million of net proceeds by September 30.
- Between October 1 and the filing date, Atomera sold an additional 484,148 shares through the ATM program for approximately $5.0 million of net proceeds.
- There was no material litigation reported as of September 30, 2020, and management stated that the principal risk factors had not materially changed from prior filings.
- Stock-based compensation was $2.224 million for the first nine months, with approximately $5.8 million of additional unrecognized compensation expense expected to be recognized over a weighted-average period of 2.7 years.
Investor Verification Items
- Verify the timing and probability of commercial licensing, royalty generation, and customer qualification milestones for MST.
- Assess the sustainability of cash resources relative to the approximately $9.1 million nine-month operating cash burn and the company’s stated 12-month runway.
- Review further ATM issuance and other equity financing for dilution risk.
- Evaluate the impact of COVID-19-related customer delays and the semiconductor industry’s lengthy adoption cycle.
- Confirm the commencement and ongoing cost of the five-year equipment lease, including the stated $150,000 monthly payments.
- Monitor the large population of options, restricted shares, and warrants that could dilute future shareholders.