Atomera Incorporated — FY2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020. The filing is an annual Form 10-K, not a standalone fourth-quarter report.
Business Context
Atomera is an early-stage semiconductor technology company developing and licensing Mears Silicon Technology (MST), a proprietary thin-film silicon enhancement intended to improve transistor performance, power efficiency, reliability and scaling. The company does not manufacture integrated circuits; it seeks revenue from integration and engineering services, upfront manufacturing and distribution license fees, and future royalties.
As of December 31, 2020, MST remained primarily in customer integration and testing. Atomera reported 16 engagements in the integration phase and had not moved any customer beyond that phase as of the filing date. The company had 21 full-time employees and 112 U.S. and 75 foreign patents granted.
Financial Results and Key Metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $62,000 | $533,000 | Down 88% |
| Cost of revenue | $13,000 | $253,000 | Down 95% |
| Gross profit | $49,000 | $280,000 | Down 83% |
| Gross margin | Approximately 79% | Approximately 53% | Improved |
| Research and development | $8.424 million | $7.748 million | Up 9% |
| General and administrative | $5.624 million | $5.203 million | Up 8% |
| Selling and marketing | $921,000 | $954,000 | Down 4% |
| Operating loss | $14.920 million | $13.625 million | Loss increased 10% |
| Net loss | $14.878 million | $13.300 million | Loss increased 12% |
| Basic and diluted loss per share | $0.79 | $0.84 | Improved on share dilution |
| Cash used in operating activities | $12.067 million | $10.408 million | Use increased 16% |
| Cash and cash equivalents | $37.942 million | $14.871 million | Up 155% |
| Working capital | Approximately $36.6 million | Not clearly provided | Not comparable from filing text |
Revenue consisted entirely of integration services and integration license arrangements. One customer represented 100% of 2020 revenue, compared with six customers contributing varying percentages in 2019. Revenue concentration and the limited scale of commercial activity remain material considerations.
Stock-based compensation expense was $3.041 million in 2020, compared with $2.929 million in 2019. The accumulated deficit was approximately $150.1 million at year-end. No income tax expense was recorded because of operating losses, and deferred tax assets were fully offset by a valuation allowance.
Liquidity, Capital Resources and Debt
Atomera had total assets of $39.395 million, total liabilities of $2.050 million and stockholders’ equity of $37.345 million at December 31, 2020. The filing does not report conventional debt or borrowings. Liabilities consisted principally of operating lease obligations, accounts payable, accrued expenses and payroll-related liabilities.
Financing activities provided $35.269 million in 2020, including approximately $9.4 million from an underwritten offering, $24.0 million from an at-the-market offering, $889,000 from stock-option exercises and $994,000 from warrant exercises. The company stated that available capital was sufficient to fund current plans and obligations for at least the 12 months following the filing, but warned that additional financing may be required before meaningful royalty revenue is generated.
Investing cash outflows were $131,000, primarily for property and laboratory equipment. The company reported no off-balance-sheet arrangements or third-party guarantees.
Material Changes Versus 2019
- Revenue declined from $533,000 to $62,000, reflecting the limited and timing-dependent nature of customer integration work.
- Research and development expense increased 9%, primarily because of higher headcount, payroll and stock-based compensation, partly offset by lower travel costs during the COVID-19 pandemic.
- Total operating expenses increased from $13.9 million to $15.0 million, driving a larger operating and net loss.
- Operating cash use increased from $10.4 million to $12.1 million.
- Cash increased substantially because of equity financing, while shares outstanding increased from 17.117 million to 22.375 million during the year.
- In December 2020, Atomera announced availability of MSTcad V1.0, a software tool designed to help semiconductor engineers simulate MST integration.
- AKM’s Nobeoka, Japan fab suffered a significant fire in October 2020 and remained closed as of the filing date, disrupting MST testing and creating uncertainty regarding the timing of future licensing progress.
Outlook, Commentary and Risks
In January 2021, Atomera entered into a joint development agreement with a leading semiconductor provider. The agreement included an upfront paid manufacturing license allowing the customer to install the MST recipe in a fab and manufacture wafers for internal product use. Additional revenue is tied to development milestones. The agreement did not provide commercial distribution rights or commit the customer to production, so future royalties remain uncertain.
Management expects semiconductor technology qualification and commercialization cycles to take approximately 18 to 36 months or longer. The company’s strategy depends on converting current integration engagements into manufacturing and distribution licenses and ultimately royalty-bearing shipments. No royalty-based manufacturing or distribution agreement had been executed as of the filing date.
- Atomera expects continued operating losses and negative operating cash flow until it obtains meaningful manufacturing and distribution license revenue.
- Customer testing may be delayed by COVID-19 restrictions, limited access to manufacturing facilities and tight semiconductor production capacity.
- Commercial adoption depends on demonstrating MST benefits at high volume and on customers’ willingness to incorporate MST into products.
- The business is dependent on a small number of potential customers, and 2020 revenue was fully concentrated in one customer.
- Core MST patents begin expiring in August 2023; validity, enforceability and scope may be challenged.
- The company may need additional equity or other financing if commercialization is delayed or royalty revenue is insufficient.
- Potential risks include intellectual-property litigation, infringement claims, equipment downtime, loss of key personnel, customer insolvency or nonpayment, and volatility in the common stock.
Management reported effective disclosure controls and internal control over financial reporting as of December 31, 2020. The independent auditor issued an unqualified opinion on the financial statements; auditor attestation of internal controls was not required because Atomera qualified for emerging-growth-company exemptions.
Important Facts for Investors to Verify
- Whether the January 2021 joint development agreement generates milestone revenue and progresses to commercial distribution rights or royalty-bearing production.
- Whether AKM, STMicroelectronics and the fabless RF customer advance from integration licenses to manufacturing and distribution licenses.
- The timing and scale of any commercial MST-enabled shipments and related royalty streams.
- Cash burn, remaining liquidity and the potential need for additional capital before commercialization.
- Customer concentration and the effect of delays caused by the AKM fab fire, COVID-19 and semiconductor manufacturing capacity constraints.
- The status, enforceability and remaining life of Atomera’s MST patent portfolio, particularly patents beginning to expire in 2023.
- Dilution from outstanding options, warrants and future equity offerings; approximately 3.8 million shares were reserved for outstanding options and warrants at year-end.
- The additional January 2021 ATM proceeds of approximately $243,000 and the subsequent cashless exercise of warrants for 223,487 shares.