Business Context and Reporting Period
Atomera Incorporated filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2017. The company develops, commercializes, and licenses semiconductor process technologies, principally Mears Silicon Technology (MST). Atomera had not generated revenue from planned principal operations since inception.
Financial Highlights
| Metric | Three Months Ended September 30, 2017 | Nine Months Ended September 30, 2017 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $3.326 million | $10.558 million |
| Net loss | $3.284 million | $10.458 million |
| Net loss per share | $0.27 | $0.86 |
| Operating cash flow | Not separately provided | $(7.095) million |
- Cash and cash equivalents were $19.606 million at September 30, 2017, compared with $26.718 million at December 31, 2016.
- Working capital was approximately $18.9 million and accumulated deficit was approximately $106.5 million.
- Total liabilities were $862,000; the filing indicates no interest-bearing debt remained after the secured notes and accrued interest converted into common stock in August 2016.
- Because the company had no revenue, gross margin and operating margin were not meaningful. Operating expenses represented the company’s continuing investment in development and commercialization.
- Stock-based compensation was $3.554 million for the first nine months of 2017, compared with $1.140 million in the comparable 2016 period.
Material Changes Versus the Prior Comparable Period
- Third-quarter research and development expense increased 70% to $1.602 million, primarily because of increased outsourced fabrication, testing, materials, engineering headcount, and stock-based compensation.
- Nine-month research and development expense increased 63% to $4.502 million.
- Third-quarter general and administrative expense decreased 15% to $1.374 million, primarily due to lower stock-based compensation and the absence of a 2016 IPO-related bonus, partly offset by a 2017 bonus accrual.
- Nine-month general and administrative expense increased 39% to $4.689 million, mainly due to stock-based compensation and professional fees.
- Third-quarter selling and marketing expense increased 53% to $350,000; nine-month expense increased 211% to $1.367 million, reflecting higher headcount, consulting, customer engagement activity, and stock-based compensation.
- Nine-month net loss increased from $9.197 million to $10.458 million, while operating cash use increased from $5.331 million to $7.095 million.
- Interest expense declined from $2.640 million in the first nine months of 2016 to zero in 2017 because the secured notes were converted into equity in August 2016.
- No cash was provided by financing activities during the first nine months of 2017, compared with $30.333 million in the comparable 2016 period, which included IPO and secured-note proceeds.
Guidance, Outlook, Risks, and Unusual Items
- Management planned increased research and development headcount and additional outsourced fabrication and testing. It believed available capital was sufficient to fund current plans and obligations for at least 12 months from the financial statement issuance date.
- Management also stated that additional capital may be required because semiconductor customers typically undertake lengthy testing and qualification processes. Potential funding sources include equity, debt, and joint ventures, but availability and terms are not assured.
- Atomera’s business depends on licensing and customer adoption of MST. The company’s ability to reach full-scale industrial production remains subject to customer evaluations, qualification timelines, and broader semiconductor industry adoption.
- The company had no off-balance-sheet arrangements or third-party guarantees.
- The company had approximately $4.6 million of unrecognized stock-based compensation expected to be recognized over a weighted-average period of 2.6 years.
- Outstanding potentially dilutive securities included approximately 2.111 million stock options and 765,000 warrants, although they were excluded from diluted loss per share because they were anti-dilutive.
- The filing states that the primary risk factors had not materially changed from those disclosed in the 2016 Form 10-K. Disclosure controls and procedures were deemed effective as of September 30, 2017.
- The ASM licensing agreement requires royalties on qualifying future revenue and runs through January 8, 2019; no royalty obligation had been incurred as of September 30, 2017.
Key Facts for Investors to Verify
- Whether Atomera converts prospective customer engagements into signed licenses, qualification milestones, and recurring royalty revenue.
- Whether the $19.6 million cash balance and stated 12-month liquidity assessment remain adequate given the company’s operating cash burn and planned spending increases.
- The timing and terms of any future equity, debt, or strategic financing and the resulting dilution or financing risk.
- Progress toward commercial production and the duration of customer testing and semiconductor qualification cycles.
- The impact of stock-based compensation, outstanding options, warrants, and the 2017 incentive plan on future dilution and reported expenses.
- Expiration and economic terms of the ASM license and any future royalty obligations.