Atomera Incorporated — FY2018 Form 10-K Summary
Business context and reporting period
Atomera develops and licenses Mears Silicon Technology (MST), a proprietary thin-film silicon technology intended to improve semiconductor transistor speed, reliability, energy efficiency and variability. The company does not manufacture integrated circuits and expects to generate revenue primarily from license fees and royalties.
This filing covers the fiscal year ended December 31, 2018, with comparative information for fiscal 2017. The filing does not provide separate fourth-quarter financial statements or metrics.
Financial results and liquidity
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Revenue | $246,000 | $110,000 | +124% |
| Cost of revenue | $148,000 | $39,000 | +279% |
| Gross profit | $98,000 | $71,000 | +38% |
| Gross margin | 39.8% | 64.5% | Down 24.7 percentage points |
| Operating expenses | $13.231 million | $13.281 million | -0.4% |
| Operating loss | $13.133 million | $13.210 million | Improved $77,000 |
| Net loss | $12.897 million | $13.068 million | Improved $171,000 |
| Basic and diluted loss per share | $1.02 | $1.11 | Improved $0.09 |
| Cash used in operating activities | $9.773 million | $9.289 million | Use increased $484,000 |
Research and development expense increased 26% to $7.318 million, reflecting higher outsourced fabrication and metrology costs, engineering headcount and bonuses. General and administrative expense declined 14% to $4.956 million, and selling and marketing expense declined 42% to $957,000, primarily because of lower stock-based compensation and consulting costs.
At December 31, 2018, cash and cash equivalents were $18.933 million, working capital was approximately $17.7 million, total assets were $19.357 million and total liabilities were $1.611 million. The company reported stockholders’ equity of $17.746 million and an accumulated deficit of $121.962 million. No outstanding debt is disclosed at year-end; prior secured convertible notes had converted into common stock in 2016.
Cash increased by $1.564 million during 2018, primarily because $11.360 million of net proceeds from an October 2018 public offering exceeded operating and investing cash uses. Investing cash use was $23,000. The company had no off-balance-sheet arrangements or third-party guarantees.
Material changes versus the prior comparable period
- Revenue increased to $246,000 from $110,000, but remained limited and was derived from integration services and integration license agreements rather than commercial royalty streams.
- In September and October 2018, Atomera entered into integration license agreements with Asahi Kasei Microdevices and STMicroelectronics. These agreements permit evaluation of MST but do not authorize on-site manufacturing or product sales.
- Operating and net losses improved modestly, while operating cash burn increased.
- Research and development spending increased substantially, consistent with expanded customer evaluation activity.
- The company issued 2.625 million common shares in October 2018 and received approximately $11.4 million in net proceeds.
- The company revised its 2017 loss-per-share presentation for an immaterial error involving unvested restricted stock. Revised 2017 diluted loss per share was $1.11 versus $1.08 previously reported; net loss was unchanged.
Guidance, outlook, risks and unusual items
Management stated that available capital was expected to fund current plans and obligations for at least 12 months from the filing date. Plans include increased research and development headcount and spending on outsourced fabrication and testing. Management cautioned that additional financing may be required before royalty-based licenses generate sufficient cash flow.
Atomera had 13 MST engagements in the integration phase at the filing date and had not advanced any customer beyond that phase. Management described the typical semiconductor qualification and licensing cycle as 18 to 36 months or longer. The principal near-term objective is to secure manufacturing or distribution licenses and enable full-scale production of an MST-enabled device.
- There is no assurance that the AKM or ST integration agreements will convert into manufacturing or distribution licenses or royalty streams.
- MST has not yet been qualified and manufactured at commercial scale; preliminary test results may not be replicated in high-volume production.
- Customer access to manufacturing equipment and facilities may be delayed because of industry capacity constraints.
- The business depends on adoption of a royalty-based model, with potential revenue concentration among a small number of customers.
- Patent validity, enforceability and potential intellectual-property litigation remain material risks. Core MST patent expirations begin in August 2023.
- Cash balances exceeded FDIC-insured limits, and the company has a history of recurring losses and negative operating cash flow.
- The company had approximately $22.276 million of deferred tax assets fully offset by a valuation allowance and reported no income tax expense for 2018.
- Stock-based compensation was $2.425 million in 2018, and approximately $4.3 million of unrecognized compensation expense remained at year-end.
Important facts for investors to verify
- Whether AKM, ST or another customer progresses from integration testing to manufacturing and distribution licenses.
- The timing and commercial scale of the first MST-enabled product and the commencement of royalty-bearing shipments.
- Cash burn, remaining liquidity and the potential need for additional equity or debt financing.
- Customer concentration: three customers represented 72%, 20% and 8% of 2018 revenue.
- The effect of future stock-based compensation, option dilution and the 765,000 outstanding warrants.
- The status and enforceability of MST patents, particularly as the portfolio approaches its first expirations in 2023.