Atomera Incorporated 10-Q Summary
Reporting period: Three and nine months ended September 30, 2022, compared with the corresponding 2021 periods. Financial statement amounts are in thousands except per-share data. Atomera is an early-stage semiconductor technology developer and licensor focused on Mears Silicon Technology (MST) and MSTcad software.
Business Context and Reporting Period
Atomera develops and licenses semiconductor process technologies rather than manufacturing integrated circuits. Its commercialization model is based on license fees, engineering services, joint development agreements and future royalties from products incorporating MST. The company has generated only limited revenue and continues to devote substantial resources to research, development and commercialization.
Key Financial Metrics
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Revenue | $2 | $0 | $377 | $400 |
| Gross margin | $2 | $0 | $296 | $400 |
| Total operating expenses | $4,657 | $4,136 | $13,416 | $11,856 |
| Loss from operations | $(4,655) | $(4,136) | $(13,120) | $(11,456) |
| Net loss | $(4,602) | $(4,203) | $(13,169) | $(11,549) |
| Basic and diluted loss per share | $(0.20) | $(0.19) | $(0.57) | $(0.52) |
| Net cash used in operating activities | Not provided | Not provided | $(9,581) | $(9,404) |
The Q3 gross margin was effectively 100% because no cost of revenue was recorded. The nine-month gross margin was approximately 78.5%, compared with 100% in the prior-year period, primarily because 2022 included approximately $81 of cost of revenue.
- Revenue mix: Q3 revenue consisted of $2 from MSTcad licensing. Nine-month 2022 revenue consisted of a joint development agreement success fee, an integration license fee and MSTcad licensing. Nine-month 2021 revenue was a manufacturing license fee under the joint development agreement.
- Operating expenses: Research and development increased 23% in Q3 to $2,743 and 15% for nine months to $7,515. General and administrative expense was $1,567 in Q3 and $4,882 for nine months. Selling and marketing expense increased 30% in Q3 to $347 and 52% for nine months to $1,019.
- Cash and liquidity: Cash and cash equivalents were $23.3 million at September 30, 2022, compared with $28.7 million at December 31, 2021. Working capital was approximately $21.1 million.
- Lease obligations: Total liabilities were $6.7 million, including $4.3 million of financing lease liabilities and $0.9 million of operating lease liabilities. The company paid $798 of financing lease principal during the first nine months.
- Equity financing: Nine-month financing cash inflows were $4,195, including $4,788 of net ATM proceeds and $205 from stock-option exercises, partially offset by financing lease principal payments.
- Share-based compensation: Expense was $889 in Q3 and $2,474 for nine months. Approximately $7.2 million of unrecognized compensation expense remained at September 30, 2022, expected to be recognized over a weighted-average period of 2.1 years.
Material Changes Versus Prior Comparable Period
- Q3 revenue increased from zero to $2, but nine-month revenue declined 6% from $400 to $377 because the prior-year period included a larger manufacturing license fee.
- Q3 net loss increased from $4,203 to $4,602, while nine-month net loss increased from $11,549 to $13,169.
- Operating expenses increased 13% in Q3 and 13% for the first nine months, driven mainly by higher research and development and selling and marketing costs.
- Research and development spending increased due to outsourced development, recruiting, consulting and tool lease costs. Selling and marketing spending increased due to employee-related, outsourced marketing, travel and stock-based compensation costs.
- Cash used in operations increased modestly to $9.6 million for the first nine months from $9.4 million in the prior-year period.
- During Q3, Atomera sold approximately 386,000 shares under its ATM facility at an average price of approximately $12.34 per share, generating approximately $4.6 million of net proceeds. The facility permits aggregate sales of up to $50.0 million.
- Common shares outstanding increased to 23.854 million at September 30, 2022 from 23.207 million at December 31, 2021.
Outlook, Commentary, Risks and Unusual Items
Management stated that available capital was sufficient to fund current business plans and obligations for at least 12 months from the issuance of the financial statements. The company expects increased research and development expenses and anticipates relying on its ATM facility for capital needs beyond the next 12 months. Future financing availability and terms are not assured and may depend on market conditions and business performance.
Atomera remains dependent on successfully commercializing MST, entering additional licensing and joint development arrangements, and eventually generating royalties. If license fees and royalties do not provide sufficient cash, management may seek additional equity, debt or strategic financing and may need to curtail research and development or reduce costs.
The filing identifies recurring operating losses, limited revenue, cash burn, dependence on external financing, technology and market competition, commercialization uncertainty and the need for industry collaborations as principal risks. Management reported no material change to the risk factors in the 2021 Form 10-K, no material litigation, and effective disclosure controls as of September 30, 2022.
An unusual lease item was the reduction of the financing lease payment for the development tool to $100.824 per month from August 1, 2022 through July 31, 2023, resulting in a $458 reduction in the related right-of-use asset and liability.
Important Facts for Investors to Verify
- Whether Atomera converts its development and licensing pipeline into recurring license fees, royalties or material joint development revenue.
- The pace of cash consumption relative to the $23.3 million cash balance and the company’s projected research and development spending.
- Future use and remaining capacity of the $50.0 million ATM facility, including potential shareholder dilution.
- The timing and commercial significance of customer qualifications, manufacturing adoption and any MST-enabled product launches.
- Total future financing lease payments of $4.752 million and operating lease payments of $0.940 million before imputed interest, excluding future variable lease payments.
- The effect of approximately 3.4 million potentially dilutive options and restricted shares, which were excluded from diluted loss per share because they were anti-dilutive.