Atomera Incorporated 2017 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2017, filed March 6, 2018. Atomera is an early-stage semiconductor technology company developing and licensing Mears Silicon Technology (MST), a thin engineered-silicon film intended to improve transistor speed, reliability, power efficiency and scalability. The company does not manufacture integrated circuits and expects revenue primarily from license fees and royalties.
Atomera remained in the development stage. Six potential customers were in the MST integration phase, but no customer had progressed beyond integration, no commercial customer license had been executed, and no MST-enabled product had been qualified or manufactured at commercial scale.
Financial performance and position
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue | $110,000 | $0 |
| Cost of revenue | $39,000 | $0 |
| Gross profit | $71,000 | $0 |
| Research and development | $5.826 million | $3.993 million |
| General and administrative | $5.796 million | $5.105 million |
| Selling and marketing | $1.659 million | $901,000 |
| Total operating expenses | $13.281 million | $9.999 million |
| Loss from operations | $(13.210) million | $(9.999) million |
| Net loss | $(13.068) million | $(12.610) million |
| Basic and diluted loss per share | $(1.08) | $(2.22) |
| Cash used in operating activities | $(9.289) million | $(6.799) million |
| Cash and cash equivalents at year-end | $17.369 million | $26.718 million |
Revenue consisted entirely of engineering services rather than license or royalty revenue. The gross margin was approximately 64.5%, but revenue was immaterial relative to operating costs. Stock-based compensation was $4.018 million, compared with $2.468 million in 2016.
Total assets were $17.807 million and total liabilities were $949,000 at December 31, 2017. Working capital was approximately $16.8 million and accumulated deficit was $109.065 million. The former secured convertible notes had converted into common stock in connection with the 2016 IPO; the filing reports no debt balance or interest expense in 2017.
Material changes versus the prior comparable period
- Revenue increased from zero to $110,000, but the company had not begun license- or royalty-producing operations.
- Research and development expense increased 46% to $5.826 million, primarily from higher outsourced fabrication and metrology, engineering headcount and stock compensation.
- General and administrative expense increased 14% to $5.796 million, largely because of higher stock-based compensation.
- Selling and marketing expense increased 84% to $1.659 million because of higher headcount, consulting and stock-based compensation.
- Net loss increased modestly by $458,000, while loss per share improved because the weighted-average share count increased from 5.682 million to 12.124 million following the IPO and debt conversion.
- Operating cash use increased 37% to $9.289 million, and year-end cash declined $9.349 million to $17.369 million. There was no financing cash flow in 2017, compared with $30.333 million of financing inflows in 2016.
- Atomera entered into an engineering-services arrangement with TSI Semiconductors and a collaboration with Synopsys to support MST testing, modeling and customer integration.
Guidance, outlook, commentary and risks
Management expected 2018 engineering headcount and related research and development costs to remain at or above 2017 levels, with general and administrative expense expected to increase. The company believed available capital would fund its current plans and obligations for at least 12 months from the filing date, but acknowledged that additional financing could be required before a commercial license or royalty stream is achieved.
Management’s near-term objective was to secure one or more licensee-customers and enable full-scale industrial production of an MST-enabled device. Customer qualification can take 18 to 36 months or longer, and delays were occurring because potential customers prioritized production use of their manufacturing equipment.
- Atomera has a history of substantial operating losses and negative operating cash flow and expects losses to continue in the near term.
- Commercial success depends on adoption by at least one foundry, integrated device manufacturer or fabless semiconductor company.
- MST has not yet been qualified or produced at commercial scale; preliminary testing may not translate into expected performance or economics in volume production.
- The intended royalty-based model depends on customer adoption, product demand, royalty reporting and the company’s ability to verify and collect payments.
- Revenue is expected to be concentrated among a small number of customers if commercialization occurs.
- Patent validity, enforcement and potential third-party intellectual-property claims could materially affect commercialization and financial results. Core MST patents begin expiring in 2023, while the ASM license expires January 8, 2019.
- Cash balances exceeded FDIC-insured limits, creating concentration-of-credit risk.
- The company had no pending legal proceedings reported as of the filing date and no off-balance-sheet arrangements or third-party guarantees.
- Management reported effective disclosure controls and internal control over financial reporting; the auditor was not required to attest to internal controls because Atomera was an emerging growth company.
Important facts for investors to verify
- Whether any customer has since executed a commercial MST license or advanced beyond integration and qualification.
- Current cash burn, remaining liquidity and the timing or terms of any subsequent equity or debt financing.
- Whether recurring license or royalty revenue has begun and whether revenue remains concentrated in one customer.
- Commercial-scale performance, cost savings and qualification results for MST-enabled products.
- Patent status and expiration timelines, including the impact of the ASM license expiration.
- Potential dilution from approximately 2.141 million outstanding stock options and 765,000 warrants at year-end 2017, plus subsequent awards of 200,432 restricted shares and 335,424 options approved on March 2, 2018.