Atomera Incorporated — Q2 2021 Form 10-Q Summary
Business context and reporting period
Atomera develops, commercializes and licenses proprietary semiconductor materials and process technologies, primarily Mears Silicon Technology (MST). The company does not manufacture integrated circuits and expects revenue from license fees, engineering services and royalties. This filing covers the three and six months ended June 30, 2021; financial statements are unaudited.
Key financial metrics
| Metric | Three months ended June 30, 2021 | Six months ended June 30, 2021 | Comparable prior period |
|---|---|---|---|
| Revenue | $0 | $400,000 | $0 and $62,000, respectively |
| Gross margin | Not meaningful with no revenue | $400,000; 100% reported gross margin | $49,000 in the prior-year six-month period |
| Operating expenses | $3.712 million | $7.720 million | $3.781 million and $7.513 million, respectively |
| Net loss | $3.726 million | $7.346 million | $3.779 million and $7.424 million, respectively |
| Net loss per share | $0.17 | $0.33 | $0.21 and $0.43, respectively |
| Cash flow from operations | Not separately reported | $(6.634) million | $(6.591) million |
Cash and cash equivalents were $34.341 million at June 30, 2021, compared with $37.942 million at December 31, 2020. Working capital was approximately $33.9 million. Total liabilities were $1.979 million, consisting primarily of operating lease liabilities; the filing does not report funded debt. Future minimum operating lease payments totaled $1.205 million, with a recorded lease liability of $1.062 million.
Financing activities provided $3.112 million during the first six months, including $2.869 million from stock-option exercises and $243,000 from the at-the-market offering. Capital expenditures were $79,000. Stock-based compensation was $1.578 million for the six-month period.
Material changes versus the prior comparable period
- Second-quarter revenue was unchanged at zero, while six-month revenue increased to $400,000 from $62,000, reflecting customer engagement activity in Asia Pacific.
- Six-month net loss improved modestly to $7.346 million from $7.424 million, although operating expenses increased to $7.720 million from $7.513 million.
- Research and development expense increased by approximately $150,000 to $4.298 million for the six-month period, primarily from additional headcount, partly offset by lower outsourced research and development costs.
- General and administrative expense increased approximately $94,000 to $3.019 million, primarily due to higher insurance costs and stock-based compensation, partly offset by lower professional fees.
- Selling and marketing expense declined approximately 8% to $403,000 for the six-month period, primarily because of lower headcount and bonus accruals.
- Cash declined $3.601 million during the first six months, compared with a $3.094 million increase in the prior-year period, as operating cash use exceeded financing proceeds.
- Common shares outstanding increased to 23.104 million at June 30, 2021 from 22.375 million at December 31, 2020, primarily from option exercises and other equity activity.
Guidance, outlook, risks and unusual items
Management expects increased spending on research and development headcount, outsourced fabrication and testing, and sales and marketing to drive adoption of MST. Based on available funds at the filing date, management believed capital was sufficient to fund current plans and obligations for at least 12 months. No quantitative revenue or earnings guidance was provided.
Atomera remains an early-stage company with limited revenue and recurring operating losses. Semiconductor customers may require lengthy testing and qualification periods, and the timing of meaningful license, engineering-service and royalty revenue is uncertain. If commercialization does not generate sufficient cash, the company may need additional equity or debt financing, joint ventures, cost reductions or curtailed research and development; additional capital may not be available on acceptable terms.
The company reported no material litigation as of June 30, 2021 and no off-balance-sheet arrangements or third-party guarantees. A five-year equipment lease at $150,000 per month was expected to commence in August 2021. The filing also notes that 318,000 warrants were exercised during the first six months, leaving approximately 2,000 warrants outstanding.
Management concluded that disclosure controls and procedures were effective as of June 30, 2021, and reported no material change in internal control over financial reporting. The filing states that principal business risks were not materially different from those in the 2020 Form 10-K.
Important facts for investors to verify
- Whether MST customer testing, qualification and licensing activities convert into recurring license fees and royalties.
- The timing and commercial terms of the company’s joint development and integration-license engagements.
- Cash burn relative to the $34.3 million cash balance and the company’s need for additional financing.
- The impact of planned hiring, outsourced fabrication and testing, sales and marketing spending, and the anticipated equipment lease on future cash use.
- Potential dilution from approximately 3.033 million outstanding stock options, 515,000 unvested restricted shares and future equity financings.
- Whether the increase in six-month revenue is repeatable, given that second-quarter revenue was zero and the company has generated limited revenue since inception.