Atomera Incorporated — 2016 Third-Quarter Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016; comparative periods ended September 30, 2015. The interim financial statements are unaudited.
Business Context
Atomera is a development-stage semiconductor technology company focused on developing, commercializing and licensing its proprietary Mears Silicon Technology (MST). The company has not commenced revenue-producing operations and intends to generate revenue through technology licenses and royalties. Its principal activities remain research and development, patent protection and customer qualification efforts.
Key Financial Metrics
| Metric | Three months ended September 30, 2016 | Three months ended September 30, 2015 | Nine months ended September 30, 2016 | Nine months ended September 30, 2015 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $0.9 million | $0.4 million | $2.8 million | $1.5 million |
| General and administrative expense | $1.6 million | $0.3 million | $3.4 million | $2.5 million |
| Selling and marketing expense | $0.2 million | $0.0 million | $0.4 million | $0.0 million |
| Net loss | $4.1 million | $1.3 million | $9.2 million | $5.4 million |
| Net loss per share | $0.55 | $1.09 | $2.58 | $4.37 |
| Operating cash flow | Not separately provided | Not separately provided | $(5.3) million | $(3.1) million |
No meaningful revenue or operating margin was reported because the company has not begun commercial operations.
- Cash and cash equivalents: $28.2 million at September 30, 2016, compared with $3.2 million at December 31, 2015.
- Working capital: Approximately $27.9 million surplus at September 30, 2016.
- Total assets: $28.4 million at September 30, 2016, versus $3.4 million at year-end 2015.
- Debt: No senior secured convertible notes remained outstanding at September 30, 2016. Approximately $23.5 million of principal and accrued interest converted into 6,264,659 common shares upon the IPO.
- Accumulated deficit: $92.6 million at September 30, 2016, compared with $83.4 million at December 31, 2015.
- Stock-based compensation: $1.1 million for the first nine months of 2016, compared with $0.4 million in the prior-year period.
Material Changes Versus the Prior Comparable Period
- Third-quarter net loss increased approximately 204% to $4.1 million, while the nine-month loss increased approximately 70% to $9.2 million.
- Third-quarter research and development expense increased 117% to $0.9 million, primarily from higher engineering headcount and outsourced fabrication and metrology costs.
- Third-quarter general and administrative expense increased 370% to $1.6 million, driven by IPO-related stock compensation, executive compensation and additional personnel costs.
- Selling and marketing expense increased to $0.2 million in the quarter and $0.4 million year to date as the company expanded commercialization and business-development activities.
- Interest expense increased to $1.3 million in the quarter and $2.6 million year to date. The expense included accrued interest, amortization of debt issuance costs and a $0.7 million increase in the fair value of a placement-agent warrant.
- The August 2016 IPO issued 3,680,000 shares at $7.50 per share and generated approximately $24.7 million of net proceeds. The IPO materially improved liquidity and eliminated the secured-note liability through conversion to equity.
- Operating cash use increased 71% to $5.3 million for the first nine months, while financing cash inflow increased to $30.3 million, principally from the IPO and additional secured notes issued earlier in 2016.
Guidance, Outlook, Risks and Unusual Items
Management expects to use available capital to increase research and development and sales/business-development headcount, expand its patent portfolio, and secure one or more foundries, integrated device manufacturers or fabless semiconductor companies to qualify MST and begin full-scale industrial production. The company expected to hire up to eight additional employees over the following 12 months.
Management believes existing funds will support its current plans for at least 12 months from the filing date. However, the company may require additional capital because semiconductor technology adoption and qualification cycles are lengthy and largely outside its control. Additional financing may not be available on acceptable terms or at all.
- The company has no commercial agreements for licensing or sale of MST and no revenue history.
- Technology development, customer qualification and industrial adoption remain uncertain.
- Risks include the ability to protect intellectual property, raise additional capital, commercialize MST and achieve revenue-producing operations.
- IPO-related items included approximately $3.5 million of restricted stock issued as a management bonus and substantially higher option and restricted-stock compensation.
- As of September 30, 2016, outstanding warrants covered approximately 765,000 shares and stock options covered approximately 1.4 million shares, creating potential future dilution.
- The company reported no off-balance-sheet arrangements or third-party guarantees.
Investor Verification Checklist
- Verify the company’s progress toward its first commercial MST license, customer qualification and full-scale production.
- Assess cash burn, planned hiring and whether the stated liquidity runway remains adequate as commercialization spending increases.
- Review potential dilution from 1.4 million outstanding options, 765,000 warrants and future equity financing.
- Confirm the terms and remaining value of IPO-related equity awards and placement-agent warrants.
- Review intellectual-property protection, patent litigation exposure and the risk factors incorporated from the IPO prospectus.
- Reconcile the filing’s stated IPO and debt-conversion share counts and dates against subsequent filings, because portions of the text contain apparent typographical inconsistencies.