Atomera Incorporated 10-Q Summary
Business Context and Reporting Period
Atomera develops, commercializes, and licenses proprietary semiconductor processes, principally Mears Silicon Technology (MST). The company does not manufacture integrated circuits and remains in the development stage with limited revenue. This filing covers the three and six months ended June 30, 2019, compared with the corresponding 2018 periods.
Financial Performance and Position
- Revenue: Second-quarter revenue was $70,000, compared with $96,000 in the prior-year quarter. First-half revenue was $141,000, compared with $96,000 in the first half of 2018.
- Gross profit: Second-quarter gross profit was $50,000, versus a $17,000 gross loss in the prior-year quarter. First-half gross profit was $121,000, versus a $17,000 gross loss in the prior-year period.
- Operating expenses: Second-quarter expenses were $3.8 million, up from $3.2 million; first-half expenses were $7.5 million, up from $6.3 million. Increases primarily reflected research and development, outsourced fabrication and metrology, headcount, patent-related legal costs, and stock-based compensation.
- Net loss: Second-quarter net loss was $3.6 million, compared with $3.2 million. First-half net loss was $7.2 million, compared with $6.3 million. Basic and diluted loss per share was $0.24 for the quarter and $0.47 for the first half, compared with $0.26 and $0.52, respectively.
- Cash flow: First-half cash used in operating activities was $6.2 million, compared with $5.1 million in 2018. Investing cash use was $51,000, primarily for equipment. Financing provided $6.4 million from a May 2019 registered direct offering.
- Liquidity: Cash and cash equivalents were $19.1 million at June 30, 2019, versus $18.9 million at December 31, 2018. Working capital was approximately $18.2 million.
- Capitalization: Stockholders’ equity was $18.5 million, compared with $17.7 million at year-end. The accumulated deficit was $129.1 million. The filing does not disclose conventional debt; reported liabilities primarily consist of operating lease liabilities and accrued obligations.
- Lease obligations: Adoption of ASC 842 resulted in recognition of a $229,000 operating lease right-of-use asset and $221,000 of lease liabilities at June 30, 2019. Remaining future minimum lease payments totaled $246,000 before $25,000 of imputed interest.
Material Changes Versus the Prior Comparable Period
- First-half revenue increased by $45,000, while quarterly revenue declined by $26,000.
- Gross profitability improved because cost of revenue declined to $20,000 from $113,000 in both comparable periods.
- First-half research and development expense increased 22% to $4.2 million, driven by increased outsourced fabrication and metrology, engineering headcount, and stock-based compensation.
- First-half general and administrative expense increased 15% to $2.8 million, primarily due to stock-based compensation, payroll, and patent-related legal fees.
- Cash remained broadly stable because the $6.4 million equity offering substantially offset $6.2 million of operating cash use.
- Shares outstanding increased to 17.074 million at June 30, 2019 from 15.034 million at December 31, 2018, primarily reflecting the registered direct offering and equity compensation.
- The company adopted ASC 842 for leases on January 1, 2019, increasing recognized assets and liabilities without affecting reported earnings or cash flow at adoption.
Guidance, Outlook, Risks, and Unusual Items
- Management expects available capital to fund current business plans and obligations for at least 12 months from the filing date, including increased research and development headcount and outsourced fabrication and testing.
- The company expects approximately $32,000 of revenue to be recognized during the remainder of 2019 from partially unsatisfied performance obligations at June 30, 2019.
- Atomera expects future revenue primarily from license fees and royalties, but meaningful commercialization depends on customers entering manufacturing and distribution license agreements and completing lengthy semiconductor testing and qualification processes.
- Management states that additional capital may be required if meaningful revenue is not generated. Potential sources include equity offerings, debt financing, and joint ventures, but availability and terms are not assured.
- The company has recurring operating losses, limited revenue, and an accumulated deficit of $129.1 million. These conditions create a continuing dependence on external financing or commercialization success.
- No material litigation was reported as of June 30, 2019 or through the financial statement issuance date. The filing reports no off-balance-sheet arrangements or third-party guarantees.
- Risk factors were stated to be materially unchanged from those in the May 30, 2019 prospectus supplement.
- Stock-based compensation expense was $1.5 million in the first half of 2019, with approximately $5.4 million of unrecognized compensation expense expected to be recognized over a weighted-average period of 2.6 years.
Important Facts for Investors to Verify
- Whether MST progresses from evaluation and integration services to manufacturing licenses and recurring royalty revenue.
- The pace of cash consumption relative to the $19.1 million cash balance and the company’s stated 12-month funding horizon.
- Whether additional equity or other financing will be required and the potential dilution to existing shareholders.
- Customer concentration, contract terms, revenue timing, and the conversion of the $33,000 unbilled receivable and $16,000 deferred revenue balances.
- The effect of increased research and development spending and outsourced fabrication costs on future operating losses.
- Outstanding dilution from approximately 2.935 million stock options, 521,000 unvested restricted shares, and 765,000 warrants.