Atomera Incorporated: 2018 Q2 Form 10-Q Summary
Business Context and Reporting Period
Quarterly report for the three and six months ended June 30, 2018, filed August 9, 2018. Atomera develops, commercializes, and licenses semiconductor process technologies, principally Mears Silicon Technology (MST). The company remains in the development stage and has not commenced planned principal operations. Its business model is expected to rely primarily on license fees and royalties from semiconductor manufacturers and related industry participants.
Financial Performance and Liquidity
| Metric | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2018 |
|---|---|---|
| Revenue | $96,000 | $96,000 |
| Cost of revenue | $113,000 | $113,000 |
| Gross margin | $(17,000) | $(17,000) |
| Operating expenses | $3.204 million | $6.343 million |
| Loss from operations | $(3.221) million | $(6.360) million |
| Net loss | $(3.171) million | $(6.263) million |
| Net loss per share | $(0.26) | $(0.52) |
- Revenue consisted entirely of engineering services and was non-recurring. The filing does not report recurring license or royalty revenue.
- Gross margin was negative because engineering-service costs exceeded revenue. Management stated that service margins may vary materially and are not indicative of expected margins on future license fees and royalties.
- Research and development expense was $1.738 million in the quarter and $3.428 million for the six months, reflecting increased engineering headcount and outsourced fabrication and metrology.
- Cash and cash equivalents were $12.254 million at June 30, 2018, compared with $17.369 million at December 31, 2017. Working capital was approximately $11.7 million.
- Cash used in operating activities was $5.101 million for the six months. Investing cash use was $14,000, primarily for property and equipment. Financing activities provided no cash.
- Accumulated deficit was $115.328 million. Total liabilities were $962,000, and the filing does not report debt outstanding.
- Stock-based compensation was $1.166 million for the six months, compared with $2.638 million in the prior-year period.
Material Changes Versus Prior Comparable Period
- Revenue increased from zero to $96,000 in both the three-month and six-month comparisons, but remained limited to engineering services and non-recurring.
- Net loss improved to $3.171 million from $3.630 million for the quarter and to $6.263 million from $7.174 million for the six-month period.
- Operating expenses declined 13% for the quarter and 12% for the six months, primarily because of lower stock-based compensation. These reductions were partly offset by higher payroll and outsourced fabrication and testing costs.
- Research and development expense increased approximately 20% for the quarter and 18% for the six months, as the company expanded engineering resources and customer-evaluation activities.
- General and administrative expense declined approximately 27% for the quarter and 26% for the six months, while selling and marketing expense declined approximately 58% and 55%, respectively.
- Operating cash usage increased modestly from $4.980 million to $5.101 million despite the lower net loss, principally because of the lower noncash stock-based compensation adjustment.
- Shares outstanding increased to 12.409 million at June 30, 2018 from 12.161 million at December 31, 2017. Potential dilution included 2.477 million stock options, 299,000 unvested restricted shares, and 765,000 warrants, all excluded from diluted loss per share as anti-dilutive.
Guidance, Outlook, Risks, and Unusual Items
- Management believes available capital is sufficient to fund current plans and obligations for at least 12 months from issuance of the financial statements.
- The company has not generated recurring revenue and may require additional capital. Potential sources include equity offerings, debt financing, and joint ventures, but availability and terms are not assured.
- Management highlighted the semiconductor industry's lengthy testing and qualification cycles, slow adoption of new process technologies, and limited control over the timing of meaningful revenue.
- If additional financing is unavailable on satisfactory terms, the company may be unable to continue pursuing its business plan or operations.
- The company adopted ASC Topic 606 using the full retrospective method; management reported no impact on results of operations or financial condition.
- The ASM licensing agreement expires January 8, 2019 and requires royalties on qualifying revenue. The company had incurred approximately $5,000 of royalty obligations through June 30, 2018.
- Future minimum office lease payments totaled approximately $408,000 through January 2021.
- Management reported effective disclosure controls as of June 30, 2018 and no material change in internal control over financial reporting. Reported risk factors were not materially different from those in the 2017 Form 10-K.
Important Facts for Investors to Verify
- Whether engineering-service revenue converts into recurring MST licensing or royalty revenue.
- Cash-burn trends and the timing and terms of any required capital raise.
- Progress of customer testing, qualification, commercialization, and licensing engagements.
- Renewal, replacement, or business impact of the ASM license expiring in January 2019.
- Potential dilution from outstanding options, restricted shares, warrants, and future equity financing.
- Whether research and development spending produces commercially material customer adoption.