Atomera Incorporated — Q2 2020 Form 10-Q Summary
Business Context and Reporting Period
Atomera develops, commercializes, and licenses proprietary semiconductor process technologies, principally Mears Silicon Technology (MST), a thin-film transistor enhancement technology. The company does not manufacture integrated circuits and remains in the development stage with limited revenue-generating activity.
The filing covers the quarter and six months ended June 30, 2020, compared with the corresponding 2019 periods. The financial statements are unaudited. Atomera had 19.8 million common shares outstanding as of July 31, 2020.
Financial Performance and Position
| Metric | Three Months Ended June 30 | Six Months Ended June 30 | ||
|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | |
| Revenue | $0 | $70,000 | $62,000 | $141,000 |
| Gross profit | $0 | $50,000 | $49,000 | $121,000 |
| Operating expenses | $3.8 million | $3.8 million | $7.5 million | $7.5 million |
| Loss from operations | $(3.8) million | $(3.7) million | $(7.5) million | $(7.3) million |
| Net loss | $(3.8) million | $(3.6) million | $(7.4) million | $(7.2) million |
| Basic and diluted loss per share | $(0.21) | $(0.24) | $(0.43) | $(0.47) |
The six-month gross margin was approximately 79% in 2020 versus approximately 86% in 2019; quarterly gross margin was not meaningful because revenue was zero. Research and development expense was $2.1 million in the quarter and $4.1 million year to date. General and administrative expense was $1.5 million in the quarter and $2.9 million year to date, while selling and marketing expense was $215,000 in the quarter and $440,000 year to date.
Cash and cash equivalents were $18.0 million at June 30, 2020, compared with $14.9 million at December 31, 2019. Working capital was approximately $17.0 million. Total assets were $18.8 million and total liabilities were $1.2 million. The filing does not report conventional debt; liabilities primarily consisted of accounts payable, accrued expenses, payroll obligations, and operating lease liabilities.
Operating activities used $6.6 million of cash in the first six months of 2020, compared with $6.2 million in the prior-year period. Investing activities used $11,000. Financing activities provided $9.7 million, principally from a May 2020 underwritten public offering, plus warrant and stock option exercises. Cash increased by $3.1 million during the period.
Material Changes Versus the Prior Comparable Period
- Second-quarter revenue fell to zero from $70,000; first-half revenue declined 56% to $62,000 from $141,000.
- First-half net loss increased to $7.4 million from $7.2 million, although loss per share improved because of the larger weighted-average share count.
- Operating expenses were broadly unchanged year over year. First-half research and development expense decreased modestly, while general and administrative expense increased approximately 4%.
- General and administrative expense included approximately $139,000 of warrant modification expense related to extending certain warrant expirations.
- Atomera raised approximately $9.4 million net through a May 2020 public offering and issued approximately 2.0 million shares, increasing dilution.
- The company prepaid $450,000 for a five-year equipment lease expected to commence in August 2020 at $150,000 per month.
- Stock-based compensation was $1.4 million for the first six months of 2020, and approximately $6.5 million of additional unrecognized compensation expense remained at June 30, 2020.
Guidance, Outlook, Risks, and Unusual Items
Management believes available capital is sufficient to fund current plans and obligations for at least 12 months from the filing date. Atomera continues to incur recurring operating losses and expects future revenue to depend on licensing agreements, engineering services, and eventual royalties from products incorporating MST. The filing provides no specific revenue, earnings, or cash-flow guidance.
Management stated that semiconductor customers generally require lengthy testing and qualification processes, limiting the company’s control over the timing of meaningful revenue. COVID-19 affected some customer contract negotiations and delayed certain customer engineering work, although no customer engagement had stopped entirely as of the filing date. The financial impact of the pandemic could not be reasonably estimated.
If licensing and royalty revenue do not develop sufficiently, Atomera may require additional capital through equity, debt, or strategic transactions. Failure to obtain financing could require reductions in research and development and other cost-saving measures. The company reported no material litigation and no off-balance-sheet arrangements. It adopted the current expected credit loss standard on January 1, 2020 without a material impact.
Important Facts for Investors to Verify
- Whether Atomera can convert customer evaluations and integration work into recurring manufacturing licenses and royalties.
- The duration of the company’s cash runway given approximately $6.6 million of first-half operating cash use and continuing operating losses.
- The effect of COVID-19 and semiconductor customer qualification timelines on contract execution and revenue timing.
- The dilution implications of the May 2020 equity offering, outstanding options, restricted stock, and warrants.
- The financial and operational impact of the planned equipment lease, including the stated $150,000 monthly payment.
- The filing presents differing share counts in certain financial statement disclosures; investors should reconcile the June 30 balance-sheet share count with the July 31 outstanding share count and equity activity.