Atomera Incorporated 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2018; filed November 5, 2018. Atomera is a development-stage semiconductor technology company focused on commercializing and licensing its proprietary Mears Silicon Technology (MST). The company has not commenced planned principal operations and continues to devote substantially all efforts to research and development.
Financial Position and Results
| Metric | Q3 2018 | Q3 2017 | 9M 2018 | 9M 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $96,000 | $0 |
| Cost of revenue | $0 | $0 | $113,000 | $0 |
| Operating expenses | $3.483 million | $3.326 million | $9.826 million | $10.558 million |
| Operating loss | $3.483 million | $3.326 million | $9.843 million | $10.558 million |
| Net loss | $3.435 million | $3.284 million | $9.698 million | $10.458 million |
| Basic and diluted loss per share | $0.28 | $0.28 | $0.80 | $0.90 |
Gross margin was negative for the nine-month period because cost of revenue exceeded limited engineering-services revenue. Management stated that engineering-services margins may vary substantially and are not indicative of expected margins on future license fees and royalties.
- Cash and liquidity: Cash and cash equivalents were $9.957 million at September 30, 2018, versus $17.369 million at December 31, 2017. Working capital was approximately $8.8 million to $8.9 million, and the accumulated deficit was approximately $118.8 million.
- Cash flow: Cash used in operating activities was $7.356 million for the first nine months of 2018, compared with $7.095 million in 2017. Investing cash use was $21,000, primarily for equipment; financing cash use was $35,000 for offering costs.
- Expenses: Nine-month research and development expense increased 19% to $5.350 million, while general and administrative expense declined 19% to $3.781 million and selling and marketing expense declined 49% to $695,000.
- Stock compensation: Stock-based compensation expense declined to $1.796 million from $3.554 million in the prior-year period. Approximately $4.5 million of unrecognized compensation expense remained at September 30, 2018, expected to be recognized over 2.3 years.
- Debt: The filing does not report debt or borrowings; liabilities were $1.451 million, primarily current operating liabilities.
Material Changes Versus Prior Comparable Period
- Revenue began during the first nine months of 2018, consisting of $96,000 of engineering services, but no revenue was generated in the third quarter.
- Third-quarter operating expenses increased 5% year over year, primarily from higher payroll and outsourced fabrication and testing costs, partly offset by lower stock compensation.
- Year-to-date operating expenses decreased 7%, mainly because of lower stock compensation following the prior-year vesting of restricted stock granted in connection with the IPO.
- Research and development spending increased as customer engagements and engineering headcount expanded.
- Cash declined by $7.412 million during the first nine months, reflecting continuing operating losses.
- The company adopted ASC Topic 606 using the full retrospective method; management reported no impact on historical results or financial condition.
Outlook, Liquidity, Risks, and Subsequent Events
Management believes available capital, including proceeds from the October 2018 equity offering, is sufficient to fund current plans and obligations for at least 12 months from issuance of the financial statements. Atomera continues to incur recurring losses and may require additional capital if meaningful license and royalty revenue is delayed. Management cautioned that financing may not be available on acceptable terms, or at all.
- In September and October 2018, Atomera entered integration license agreements with Asahi Kasei Microdevices and STMicroelectronics. These agreements permit integration of MST into products but do not provide rights to sell MST-enabled products or guarantee subsequent manufacturing and distribution licenses.
- The company expects semiconductor qualification and licensing cycles to take 18 to 36 months or longer. Future royalty revenue depends on technology performance, successful high-volume integration, and customers entering later-stage agreements.
- On October 15, 2018, Atomera completed an underwritten offering of approximately 2.625 million common shares at $4.75 per share. The filing reports net proceeds of approximately $11.3 million in Note 9 and approximately $11.5 million in the MD&A discussion; the source text does not provide a clear explanation for the difference. An underwriter also received a 30-day option for up to 393,750 additional shares.
- The ASM license expires January 8, 2019. Royalties are payable on certain products incorporating licensed patents; approximately $5,000 had been paid through September 30, 2018.
- Future minimum operating lease payments totaled approximately $362,000, primarily through 2021.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting.
Key Investor Verification Items
- Verify the final net proceeds and exact share count for the October 2018 offering, given inconsistencies in the filing text.
- Monitor whether the AKM and ST integration agreements progress to manufacturing and distribution licenses and ultimately royalty-bearing arrangements.
- Assess cash burn and the duration of liquidity in light of recurring losses, limited revenue, and the company’s stated potential need for additional financing.
- Track customer qualification results and evidence that MST can be integrated successfully into high-volume semiconductor production.
- Review the January 2019 expiration of the ASM license and its potential effect on future product and royalty arrangements.