Atomera Incorporated — Form 10-Q Summary
Business context and reporting period
Atomera develops, commercializes and licenses proprietary semiconductor materials, processes and technologies, principally Mears Silicon Technology (MST). The company does not manufacture integrated circuits and expects revenue primarily from license fees, engineering services, joint development agreements and future royalties. The filing covers the quarter and nine months ended September 30, 2021; financial statements are unaudited.
Financial performance and position
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | $0 | $400,000 versus $62,000 in 2020 |
| Gross margin | Not meaningful because revenue was $0 | $400,000, or approximately 100%, versus $49,000 in 2020 |
| Operating expenses | $4.1 million versus $3.6 million | $11.9 million versus $11.1 million |
| Operating loss | $4.1 million versus $3.6 million | $11.5 million versus $11.0 million |
| Net loss | $4.2 million versus $3.6 million | $11.5 million versus $11.0 million |
| Loss per share | $0.19 | $0.52 versus $0.61 |
| Cash used in operating activities | Not separately provided | $9.4 million versus $9.1 million |
At September 30, 2021, cash and cash equivalents were $31.8 million, working capital was approximately $29.3 million and total assets were $39.7 million. Stockholders’ equity was $31.5 million, down from $37.3 million at December 31, 2020. The company had total liabilities of $8.2 million, including $6.1 million of financing lease liabilities and $1.0 million of operating lease liabilities. The filing does not identify traditional funded debt.
Cash declined by $6.2 million during the first nine months, from $37.9 million to $31.8 million. Financing activities provided $3.4 million, primarily from stock-option exercises and $243,000 of net ATM proceeds. Investing activities used $102,000. Stock-based compensation was $2.3 million for the nine-month period.
Material changes versus the prior comparable period
- Quarterly revenue remained at $0, while nine-month revenue increased to $400,000 from $62,000, primarily reflecting customer activity in Asia Pacific.
- Quarterly operating expenses increased 16% to $4.1 million; nine-month expenses increased 7% to $11.9 million.
- Research and development expense increased 9% for the quarter and 5% for the nine months, primarily due to additional headcount and a new tool lease, partly offset by lower outsourced research and development costs.
- General and administrative expense increased 24% for the quarter and 10% for the nine months, driven primarily by higher patent-related legal fees, insurance, rent and stock-based compensation.
- Selling and marketing expense increased 28% for the quarter, reflecting new marketing initiatives; the nine-month increase was 3%.
- A five-year financing lease for a development tool commenced in August 2021. The company recorded approximately $6.4 million of right-of-use assets and approximately $6.0 million of lease liabilities. The lease carries payments of $150,000 per month, including approximately $30,000 for supplies and maintenance.
- Interest expense of $52,000 was recognized in the three- and nine-month periods, compared with none in 2020, due to the financing lease.
- Shares outstanding increased to 23.1 million at September 30, 2021 from 22.4 million at December 31, 2020, reflecting stock-option exercises and other equity activity.
Guidance, outlook, risks and unusual items
Management expects increased spending on research and development headcount, outsourced fabrication and testing, and sales and marketing to drive customer adoption of MST. Based on available funds at the filing date, management believes capital is sufficient to fund current plans and obligations for at least 12 months. The company has generated only limited revenue since inception and expects semiconductor customer testing and qualification processes to be lengthy and difficult to control.
Management states that additional capital may be required if commercialization and license or royalty revenue do not develop quickly enough. Potential sources include equity offerings, debt financing and joint ventures, but financing may not be available on acceptable terms. If additional capital cannot be obtained, the company may need to curtail research and development and reduce costs.
Key risks include the early stage of commercialization, dependence on customer adoption and qualification of MST, competition and technological change, uncertain timing and amount of license and royalty revenue, continued operating losses and cash burn, and potential future dilution or financing obligations. The filing reports no material litigation and no off-balance-sheet arrangements. Risk factors were stated to be materially unchanged from the 2020 Form 10-K.
The company adopted ASU 2019-12 on January 1, 2021 without a material impact. It was evaluating the effect of ASU 2020-06, effective January 1, 2022, concerning convertible instruments and contracts in the company’s own equity.
Important facts for investors to verify
- Whether MST customer engagements progress from development and qualification into commercial licenses, production and royalty-generating agreements.
- The expected duration of the $31.8 million cash balance under planned spending, including the new financing lease and anticipated research and development investments.
- Potential future equity issuance, dilution and the company’s need for additional capital.
- The amount, timing and concentration of future revenue, given $0 of quarterly revenue and only $400,000 of revenue for the first nine months.
- The total economic commitment and operating impact of the five-year development-tool lease.
- The effect of pending accounting guidance, particularly ASU 2020-06, on future financial statements.