Atomera Incorporated — Q1 2019 Form 10-Q Summary
Business Context and Reporting Period
Atomera develops, commercializes and licenses proprietary semiconductor processes, principally Mears Silicon Technology (MST), a thin-film transistor performance-enhancement technology. The company does not manufacture integrated circuits directly and remains in the development stage with limited revenue-generating activity.
The filing covers the three months ended March 31, 2019, compared with the three months ended March 31, 2018. The financial statements are unaudited.
Financial Results and Key Metrics
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $71,000 | $0 |
| Gross profit | $71,000 | $0 |
| Operating expenses | $3.695 million | $3.139 million |
| Loss from operations | $3.624 million | $3.139 million |
| Interest income | $90,000 | $47,000 |
| Net loss | $3.534 million | $3.092 million |
| Basic and diluted loss per share | $0.24 | $0.26 |
| Net cash used in operating activities | $3.754 million | $2.812 million |
| Cash and cash equivalents at period end | $15.137 million | $14.547 million |
Revenue was generated from integration license agreements, with $50,000 from Europe and $21,000 from Asia Pacific. No cost of revenue was incurred because no royalties were payable. The resulting gross margin was 100%, but is not meaningful given the very small revenue base. Operating profitability remained deeply negative.
At March 31, 2019, total assets were $15.920 million, total liabilities were $1.014 million, and stockholders’ equity was $14.906 million. The company reported working capital of approximately $14.7 million and an accumulated deficit of approximately $125.5 million. No debt financing was reported; liabilities primarily included accounts payable, accrued expenses, deferred revenue and operating lease liabilities.
Material Changes Versus the Prior Comparable Period
- Revenue increased from zero to $71,000, but remained insufficient to offset operating expenses.
- Operating expenses increased 18% to $3.695 million. Research and development expense increased 26% to $2.127 million, primarily due to higher outsourced fabrication and metrology costs, increased engineering headcount and higher stock-based compensation.
- General and administrative expense increased 10% to $1.321 million, while selling and marketing expense was substantially unchanged at $247,000.
- Net loss increased from $3.092 million to $3.534 million.
- Operating cash use increased from $2.812 million to $3.754 million, partly reflecting annual bonuses and other first-quarter payments.
- Cash declined by $3.796 million during the quarter, from $18.933 million to $15.137 million. No financing cash flows occurred in either comparable period.
- Common shares outstanding increased to 15.332 million from 15.034 million at December 31, 2018, primarily reflected in equity activity and stock-based compensation.
- Effective January 1, 2019, the company adopted ASC 842 for leases, recognizing a $263,000 operating lease right-of-use asset and $254,000 of lease liabilities at March 31, 2019. The adoption did not affect reported operating results or cash flows.
Outlook, Risks, Contingencies and Unusual Items
Management expects increased research and development headcount and higher spending on outsourced fabrication and testing. Based on available funds at the filing date, management believed capital was sufficient to fund current plans and obligations for at least 12 months.
The company expects future revenue from license fees and royalties, but semiconductor customers generally require lengthy testing and qualification processes. Management cautioned that the timing of meaningful revenue is uncertain and that additional capital may be required through equity, debt, joint ventures or other financing. Additional financing may not be available on commercially reasonable terms, which could impair the company’s ability to continue its business plan.
Stock-based compensation expense was $694,000 in Q1 2019, compared with $546,000 in Q1 2018. Approximately $5.9 million of unrecognized compensation expense remained at March 31, 2019, expected to be recognized over a weighted-average period of 2.7 years. Potentially dilutive securities were excluded from diluted loss per share because they were anti-dilutive.
The company reported no material litigation, no off-balance-sheet arrangements and no material change in its previously disclosed risk factors. Disclosure controls were deemed effective as of March 31, 2019.
Important Facts for Investors to Verify
- Whether integration license agreements convert into recurring license fees, manufacturing rights or royalty-bearing commercial contracts.
- The pace of customer testing and qualification of MST and the timing of meaningful commercial revenue.
- Quarterly cash burn relative to the approximately $15.1 million cash balance and the need for future financing.
- Research and development spending, outsourced fabrication costs and planned headcount increases.
- The effect of ongoing stock-based compensation and potential dilution from approximately 2.935 million options, 537,000 unvested restricted shares and 765,000 warrants.
- Operating lease commitments totaling approximately $286,000 in future minimum payments as of March 31, 2019.