Atomera Incorporated 10-Q Summary
Business context and reporting period
Atomera develops, commercializes and licenses semiconductor process technologies, principally Mears Silicon Technology (MST®), a thin-film transistor performance-enhancement technology. The company does not design or manufacture integrated circuits directly. This Form 10-Q covers the quarter and six months ended June 30, 2017, and was filed August 8, 2017.
Atomera had not commenced revenue-producing operations and had generated no revenue from its planned principal operations since inception.
Financial condition and results
| Metric | Three months ended June 30, 2017 | Three months ended June 30, 2016 | Six months ended June 30, 2017 | Six months ended June 30, 2016 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $3.664 million | $1.853 million | $7.232 million | $3.782 million |
| Operating loss | $3.664 million | $1.853 million | $7.232 million | $3.782 million |
| Net loss | $3.630 million | $2.599 million | $7.174 million | $5.090 million |
| Net loss per share | $0.30 | $1.61 | $0.59 | $3.15 |
| Cash used in operating activities | Not separately provided | Not separately provided | $4.980 million | $3.294 million |
At June 30, 2017, cash and cash equivalents were $21.725 million, compared with $26.718 million at December 31, 2016. Working capital was approximately $21.2 million. Total assets were $21.985 million, total liabilities were $673,000, and stockholders’ equity was $21.312 million. The accumulated deficit was $103.171 million.
Atomera had no debt outstanding at June 30, 2017. Previously issued secured convertible notes and accrued interest were converted into common stock upon completion of the August 2016 IPO.
Six-month investing cash usage was $13,000, primarily for property and equipment. There was no financing cash flow in the first six months of 2017, compared with $5.378 million of net financing cash inflow in the prior-year period, primarily from secured notes.
Material changes versus the prior comparable period
- Research and development expense increased 67% in the quarter to $1.444 million and 60% for the six months to $2.900 million, primarily due to higher outsourced fabrication and metrology, engineering headcount, technical consulting and stock-based compensation.
- General and administrative expense increased 91% in the quarter to $1.712 million and 89% for the six months to $3.315 million. The principal driver was increased stock-based compensation associated with awards to officers and directors after the IPO.
- Selling and marketing expense increased 458% in the quarter to $508,000 and 384% for the six months to $1.017 million, reflecting increased headcount, consulting and stock-based compensation for prospective customer engagements.
- Net loss increased 40% for the quarter and 41% for the six months, although loss per share declined substantially because the weighted-average share count increased from 1.617 million to 12.137 million for the quarter and from 1.617 million to 12.086 million for the six months.
- Interest expense declined to zero from $748,000 in the quarter and $1.310 million for the six months, following conversion of the secured notes in August 2016.
- Stock-based compensation increased to $2.638 million for the six months from $109,000 in the prior-year period, substantially offsetting the higher reported net loss in operating cash flow reconciliation.
Guidance, outlook, risks and unusual items
Management expected increased research and development headcount during the second half of 2017. Based on available funds at the filing date, management believed capital was sufficient to fund current plans and obligations for at least 12 months and support efforts to have customers license, qualify and begin full-scale industrial production using MST®. No specific revenue, earnings or production timetable guidance was provided.
The company cautioned that semiconductor customers typically require lengthy testing and qualification processes, which Atomera has limited ability to control. Additional capital may be required through equity or debt financing, licensing fees, joint ventures or other sources; availability on acceptable terms was not assured. Failure to obtain financing could prevent execution of the business plan or continuation of operations.
Key unusual items included $2.638 million of stock-based compensation for the six months and the absence of prior-year interest expense related to debt converted after the IPO. The company had approximately $5.6 million of unrecognized share-based compensation expected to be recognized over a weighted-average period of 2.4 years.
The MST® technology remains under development and commercialization. The company’s principal risks include lack of revenue, recurring operating losses, dependence on successful customer adoption and qualification, need for additional financing, technology and patent risks, and delays in achieving industrial-scale production. Management stated that the risk factors had not materially changed from the 2016 Form 10-K.
The company reported no off-balance-sheet arrangements or third-party guarantees. Its Los Gatos office lease expires January 31, 2018, with approximately $91,000 of remaining minimum payments disclosed. The ASM license requires royalties on qualifying future revenue and expires January 8, 2019; no royalty obligation had been incurred as of June 30, 2017.
Important facts for investors to verify
- Whether and when Atomera begins generating licensing or royalty revenue from MST®.
- The rate of cash burn relative to the $21.7 million cash balance and the timing of any required financing.
- Progress of customer testing, qualification and adoption, including any transition to full-scale industrial production.
- The sustainability and dilution impact of increased stock-based compensation, options and restricted stock.
- Whether increased research, sales and marketing spending produces commercial agreements or meaningful revenue.
- The terms and potential dilution of future equity or debt financing, if required.
- Expiration and commercial implications of the ASM patent license in January 2019.