Atomera Incorporated 2020 Q1 Form 10-Q Summary
Business Context and Reporting Period
Atomera develops, commercializes, and licenses Mears Silicon Technology (MST), a semiconductor process technology intended to improve transistor performance, speed, reliability, and energy efficiency. The company does not manufacture integrated circuits and remains in the development stage, with limited revenue-generating activity.
This report covers the three months ended March 31, 2020, compared with the three months ended March 31, 2019. The financial statements are unaudited and presented in accordance with U.S. GAAP for interim reporting.
Key Financial Metrics
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $62,000 | $71,000 | Down $9,000, or 13% |
| Gross profit | $49,000 | $71,000 | Down $22,000 |
| Gross margin | Approximately 79% | 100% | Lower due to cost of revenue |
| Operating expenses | $3.732 million | $3.695 million | Up $37,000, or 1% |
| Loss from operations | $(3.683) million | $(3.624) million | Loss increased $59,000 |
| Net loss | $(3.645) million | $(3.534) million | Loss increased $111,000 |
| Basic and diluted loss per share | $(0.22) | $(0.24) | Improved on higher share count |
| Cash used in operating activities | $(3.642) million | $(3.754) million | Cash use improved $112,000 |
Revenue in both periods was generated from integration license agreements. Q1 2020 revenue was recognized at a point in time and was generated in North America; Q1 2019 revenue was recognized over time and was generated in Europe and Asia Pacific.
At March 31, 2020, cash and cash equivalents were $11.390 million, compared with $14.871 million at December 31, 2019. Working capital was approximately $10.4 million. Total liabilities were $1.093 million, including $116,000 of current operating lease liabilities. The filing does not disclose outstanding interest-bearing debt; no debt balance is presented in the condensed balance sheet.
Total assets were $12.152 million and stockholders’ equity was $11.059 million at March 31, 2020. The company had 17.726 million shares outstanding at quarter-end and 17.725 million shares outstanding as of May 2, 2020.
Material Changes Versus the Prior Comparable Period
- Revenue declined 13% to $62,000, while cost of revenue increased to $13,000 from zero, reducing gross margin to approximately 79% from 100%.
- Research and development expense decreased 3% to $2.062 million, primarily because outsourced research and development costs fell by approximately $180,000, partly offset by higher payroll and stock-based compensation.
- General and administrative expense increased 9% to $1.445 million, reflecting approximately $120,000 of higher legal and patent fees and $139,000 of warrant modification expense, partly offset by lower stock-based compensation.
- Selling and marketing expense decreased 9% to $225,000.
- Cash used in operating activities improved modestly, but the company continued to report recurring operating losses and negative operating cash flow.
- The company received $164,000 from the exercise of approximately 189,000 warrants and issued approximately 609,000 additional common shares through warrant exercise, stock-based compensation, and related activity.
- The company prepaid $450,000 of rent for a semiconductor development tool. The five-year lease is expected to commence in June 2020 at $150,000 per month.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management stated that available capital is expected to fund current business plans and obligations for at least 12 months from the financial statement issuance date. However, the company has generated limited revenue and may require additional capital. If financing or meaningful licensing revenue is unavailable, management may need to curtail research and development and reduce costs.
Management expects future revenue to come primarily from license fees and royalties associated with MST, but semiconductor customers generally require lengthy testing and qualification processes. The timing and amount of meaningful revenue remain uncertain.
COVID-19 caused minor slowdowns in customer engagements and internal research and development as of the filing date. No customer engagement had stopped entirely, but contract negotiations, technology evaluations, future revenue, and financial condition could be materially affected. The ultimate financial impact could not be reasonably estimated.
Unusual items included $139,000 of warrant modification expense, $450,000 of long-term prepaid rent, and $629,000 of stock-based compensation expense. The company reported approximately $6.9 million of unrecognized stock-based compensation expected to be recognized over a weighted-average period of three years.
The company had no material litigation as of March 31, 2020 and through the financial statement issuance date, and disclosed no off-balance-sheet arrangements or third-party guarantees. Management concluded that disclosure controls and procedures were effective as of March 31, 2020.
Important Facts for Investors to Verify
- Whether Atomera converts limited integration-license revenue into recurring manufacturing licenses and royalties.
- The pace of customer testing, qualification, and commercialization of MST, particularly in light of COVID-19-related delays.
- Cash burn and remaining liquidity relative to the expected $150,000-per-month tool lease and ongoing research and development spending.
- The timing and terms of any future equity, debt, or strategic financing, if additional capital is required.
- The economic effect of the company’s substantial stock option and restricted stock overhang, including approximately 5.016 million anti-dilutive potential common shares at March 31, 2020.
- Whether the warrant modification, prepaid lease, and other unusual items materially affect subsequent-quarter cash requirements and operating results.