Atomera Incorporated — Form 10-Q Summary
Business context and reporting period
Atomera develops, commercializes and licenses semiconductor process technologies, primarily Mears Silicon Technology (MST). The company does not manufacture integrated circuits and had not generated revenue from planned operations through March 31, 2017. This report covers the three months ended March 31, 2017, compared with the same period in 2016.
Financial results and liquidity
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | No revenue generated |
| Research and development expense | $1.456 million | $0.949 million | Up 53% |
| General and administrative expense | $1.603 million | $0.861 million | Up 86% |
| Selling and marketing expense | $0.509 million | $0.119 million | Up 328% |
| Total operating expenses | $3.568 million | $1.929 million | Up 85% |
| Operating loss | $3.568 million | $1.929 million | Loss increased |
| Net loss | $3.544 million | $2.491 million | Loss increased 42% |
| Basic and diluted loss per share | $0.29 loss | $1.54 loss | Improved due primarily to higher share count |
| Net cash used in operating activities | $2.898 million | $1.651 million | Use increased |
Because the company had no revenue, gross profit and operating margins were not meaningful or clearly calculable. Cash and cash equivalents were $23.812 million at March 31, 2017, down from $26.718 million at December 31, 2016. Working capital was approximately $23.4 million. Total assets were $24.188 million and total liabilities were $674,000.
The company reported no debt at March 31, 2017. Previously outstanding secured convertible notes and accrued interest were converted into common stock in August 2016. Capital expenditures were $8,000, and there was no financing cash flow in Q1 2017.
Material changes versus the prior comparable period
- Operating expenses increased by $1.639 million, driven by expanded research and development, administrative staffing and commercialization activities.
- Research and development expense increased $507,000, including higher engineering compensation, stock-based compensation, outsourced testing and materials.
- General and administrative expense increased $742,000, primarily because of stock-based compensation related to awards issued to officers and directors in connection with the IPO, as well as public-company director fees.
- Selling and marketing expense increased $390,000, reflecting stock-based compensation and the hiring of a vice president of business development and sales.
- Stock-based compensation increased to $1.210 million from $60,000 in the prior-year quarter and represented a significant non-cash component of operating expenses.
- Interest expense declined from $562,000 to zero because the secured notes were converted in August 2016. Interest income was $28,000 in Q1 2017.
- Weighted-average shares outstanding increased to 12.034 million from 1.617 million, largely reflecting the company’s IPO and subsequent capital structure changes.
Guidance, outlook, risks and unusual items
Management expects to increase research and development, sales and business development headcount during 2017. Based on available funds, management believes capital is sufficient to fund current plans and obligations for at least 12 months from issuance of the financial statements and to support customer licensing and qualification efforts.
Atomera remains pre-revenue, has incurred recurring losses and had an accumulated deficit of approximately $99.5 million. Management cautions that semiconductor customers often require lengthy testing and qualification processes that the company cannot control. Additional capital may be required, but financing may not be available on commercially reasonable terms, or at all.
Unusual or potentially nonrecurring items included substantial IPO-related stock-based compensation, the prior-year cancellation of an officer promissory note recognized as compensation, and the conversion of secured notes into equity in August 2016. The company reported approximately $6.6 million of unrecognized compensation expense expected to be recognized over a weighted-average period of 2.5 years.
The company had an operating lease with approximately $131,000 of remaining minimum payments as of March 31, 2017. No royalty obligation had been incurred under the ASM license. Management stated that its principal risk factors had not materially changed from the 2016 Form 10-K. Disclosure controls were reported effective as of March 31, 2017.
Important facts for investors to verify
- Whether and when Atomera converts MST into customer licenses, production qualifications and recurring royalty revenue.
- The cash-burn rate and expected cash runway as research, sales and business development spending increase.
- The availability, timing and potential dilution or cost of future financing.
- The magnitude and duration of stock-based compensation and its effect on future diluted share count.
- The status of customer testing, qualification timelines and adoption risks in the semiconductor industry.
- The terms and potential dilution associated with 2.107 million outstanding stock options and 765,000 outstanding warrants at March 31, 2017.
- The company’s accumulated deficit, continued pre-revenue status and ability to reach full-scale industrial production.