# Atomera Inc: Form 10-Q for the period ended Jun 30, 2016

- Company: [Atomera Inc](/companies/atom.md) (CIK 1420520)
- Form: 10-Q
- Filed: 2016-09-19
- Accepted by EDGAR: Sep 19, 2016, 16:11 ET
- Period: 2016-06-30
- Accession: 0001615774-16-007250
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1420520/000161577416007250/s104121_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1420520/000161577416007250/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2016-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Research and development | 3 months, 2016-04-01 to 2016-06-30 | $867.0k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2016-01-01 to 2016-06-30 | $1.8m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2016-04-01 to 2016-06-30 | −$1.9m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2016-01-01 to 2016-06-30 | −$3.8m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2016-04-01 to 2016-06-30 | −$2.6m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2016-01-01 to 2016-06-30 | −$5.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2016-04-01 to 2016-06-30 | −$1.61 | us-gaap:EarningsPerShareBasicAndDiluted |
| Diluted EPS | 6 months, 2016-01-01 to 2016-06-30 | −$3.14 | us-gaap:EarningsPerShareBasicAndDiluted |
| Operating cash flow | 6 months, 2016-01-01 to 2016-06-30 | −$3.3m | us-gaap:NetCashProvidedByUsedInOperatingActivitiesContinuingOperations |
| Capital expenditure | 6 months, 2016-01-01 to 2016-06-30 | $14.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Current assets | at 2016-06-30 | $5.4m | us-gaap:AssetsCurrent |
| Total assets | at 2016-06-30 | $5.7m | us-gaap:Assets |
| Current liabilities | at 2016-06-30 | $23.6m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2016-06-30 | −$17.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 17,282 characters.

*The following discussion and analysis of the financial condition and results of operations of Atomera Incorporated should be read in conjunction with our unaudited consolidated condensed financial statements and the accompanying notes that appear elsewhere in this filing. Statements in this Quarterly Report on Form 10-Q contain “forward-looking statements” under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 Words such as “expects,” “anticipates,” “plans,” “believes,” “seeks,” “estimates,” “could,” “would,” “may,” “intends,” “targets” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this Quarterly Report. The identification of certain statements as “forward-looking” is not intended to mean that other statements not specifically identified are not forward-looking. All statements other than statements about historical facts are statements that could be deemed forward-looking statements. Those forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause actual results to differ materially. Among those factors are: (1) the fact that Atomera has not yet commenced revenue producing operations; (2) Atomera has not entered into its initial commercial agreement for the licensing or sale of its MST technology; (3) risks related to Atomera’s capitalization and ability to raise additional capital, as and when needed, to develop and commercialize its MST technology; (4) the Company's ability to protect its proprietary technology, trade secrets and know-how and (5) those other risks disclosed in the section "Risk Factors" included in the final prospectus dated August 5, 2016 filed with the SEC on August 8, 2016. Atomera cautions readers not to place undue reliance on any forward-looking statements. The Company does not undertake, and specifically disclaims any obligation, to update or revise such statements to reflect new circumstances or unanticipated events as they occur.*

### Overview

We are engaged in the business of developing, commercializing and licensing proprietary processes and technologies for the $350+ billion semiconductor industry. Our lead technology, named Mears Silicon Technology™, or MST®, is a thin film of reengineered silicon, typically 100 to 300 angstroms (or approximately 20 to 60 silicon atomic unit cells) thick. MST® can be applied as a transistor channel enhancement to CMOS-type transistors, the most widely used transistor type in the semiconductor industry. MST® is our proprietary and patent-protected performance enhancement technology that we believe addresses a number of key engineering challenges facing the semiconductor industry. We believe that by incorporating MST®, transistors can be smaller, with increased speed, reliability and energy efficiency. In addition, since MST® is an additive and low cost technology, it can be deployed on an industrial scale, with machines commonly used in semiconductor manufacturing. We believe that MST® can be widely incorporated into the most common types of semiconductor products, including analog, logic, optical and memory integrated circuits.

We do not intend to design or manufacture integrated circuits directly. Instead, we intend to develop and license technologies and processes that will offer the designers and manufacturers of integrated circuits a low-cost solution to the industry need for greater performance and lower power consumption. Our customers and partners are expected to include:

- foundries, which manufacture integrated circuits on behalf of fabless manufacturers;
- integrated device manufacturers, or IDMs, which are the fully integrated designers and manufacturers of integrated circuits;
- fabless semiconductor manufacturers, which are designers of integrated circuits who outsource the manufacture of their chips to foundries;
- original equipment manufacturers, or OEMs, that manufacture the epitaxial, or EPI, machines used to deposit semiconductor layers, such as the MST® onto the base silicon wafer; and
- electronic design automation companies, which make tools used throughout the industry to simulate performance of semiconductor products using different materials, design structures and process technologies.

We intend to generate revenue through licensing arrangements whereby foundries and IDMs pay us a license fee for their use of MST® technology in the manufacture of silicon wafers as well as a royalty for each silicon wafer or device that incorporates our MST® technology. We also intend to enter into licensing arrangements with fabless semiconductor manufacturers pursuant to which we will charge them a royalty for each device they sell that incorporates our MST® technology.

We were organized as a Delaware limited liability company under the name Nanovis LLC on November 26, 2001. On March 13, 2007, we converted to a Delaware corporation under the name Mears Technologies, Inc. On January 12, 2016, we changed our name to Atomera Incorporated.

On March 17, 2015, we completed the private placement of $14.75 million in senior secured convertible promissory notes and on April 1, 2016 we completed the private placement of an additional $5.96 million in senior secured convertible notes on the same terms as the promissory notes placed in March 2015. We refer to these promissory notes in Quarterly Report as our “Secured Notes.” We issued the March 2015 Secured Notes for cash consideration of $7.4 million and the exchange for previously issued promissory notes that at the time of exchange had principal and accrued interest in the aggregate amount of $7.35 million. As a result, as of June 30, 2016, we had issued and outstanding Secured Notes in the aggregate principal amount of $20.71 million, with accrued and unpaid interest in the amount of $2.55 million.

During October 2015, we conducted a recapitalization of our outstanding options and warrants to purchase shares of our common stock. Pursuant to the recapitalization, we offered all holders of our options and warrants as of December 31, 2014 a one-time opportunity to exchange their options and warrants for shares of our common stock at a ratio of two options or warrants for one share of common stock regardless of exercise price. The offer resulted in 166,230 options and 601,861 warrants converting to a total of 384,045 shares of common stock. In connection with the recapitalization, we incurred a one-time non-cash charge of approximately $2.09 million in the fourth quarter of 2015 relating to our loss on the exchange of the options and warrants for the common stock.

On December 11, 2015, we effected a 1-for-15 reverse stock split of our common stock. All historical share amounts and share price information presented in this report have been proportionally adjusted to reflect the impact of this reverse stock split.

On August 10, 2016, we announced the closing of our initial public offering of 3,680,000 share of common stock at a public offering price of $7.50 per share. The common stock included 480,000 shares sold as a result of the underwriter’s exercise in full of its overallotment option. Gross proceeds to us from this offering were $27,600,000 before deducting underwriting discounts, commissions and other offering expenses. In accordance with the terms of the Secured Notes, all principal plus accrued interest (totaling approximately $23.5 million) converted automatically upon consummation of the IPO into 6,264,659 million shares of common stock.

### Plan of Operations

Our plan of operations for the next 12 months will focus on securing one or more foundries, IDMs or fabless semiconductor manufacturers to qualify and license our MST® technology and start full-scale industrial production of a device that incorporates our MST® technology. We will also continue our research into new applications and materials. We intend to develop marketing tools to expand our potential customer base. These tools will include process and product simulation models which will help potential customers understand the benefits of MST® and how to implement it in their factories, as well as more comprehensive data showing the improvements that MST® can bring to specific classes of semiconductor devices. During next 12 months we expect to hire up to six additional employees, including four additional development engineers and two additional business development and sales persons in order to support the increased marketing and qualification of our MST® technology to a wider set of customers and markets. We also intend to expand our patent portfolio through additional patent applications, both US and foreign.

### Results of Operations

### Revenues

We have not commenced revenue-producing operations.

### Research and development

To date, our operations have focused on the research, development, patent protection, and commercialization of our processes and technologies, including our proprietary and patent-protected MST® performance enhancement technology. Our research and development costs primarily consist of payroll and benefit costs for our engineering staff and costs of outsourced fabrication and metrology of semiconductor wafers incorporating our MST® technology.

The timing and amount of our outsourced fabrication and metrology is highly dependent on evaluations by our prospective customers and partners. As a result, the level of our research and development costs can vary significantly among accounting periods.

For the three months ended June 30, 2016 and 2015, we incurred $867,370 and $576,124, respectively, of research and development expense, an increase of $291,246 or 51%. The increase was primarily related to increased headcount and increased spending on outsourced fabrication and metrology.

For the six months ended June 30, 2016 and 2015, we incurred research and development costs of approximately $1.81 million and $1.10 million, respectively, an increase of $717,684 or 66%. The increase in research and development costs is primarily due to increased engineering headcount as well as increased spending on outsourced fabrication and metrology.

### General and administrative

General and administrative expenses consist primarily of payroll and benefit costs for administrative personnel, office-related costs and professional fees. General and administrative costs for the three months ended June 30, 2016 and 2015 were $893,015 and $440,657, respectively representing an increase of $452,358 or 103%. The increase in costs was due severance costs incurred in the three months ended June 30, 2016 relating to employees who were employed during that period and were terminated prior to June 30, 2016 in connection with the relocation of our headquarters from Wellesley Hills Massachusetts to Los Gatos, California, as well as increased payroll expenses due to the hiring of our Chief Executive Officer in October 2016 and Chief Financial Officer in February 2016.

General and administrative costs for the six months ended June 30, 2016 and 2015 were approximately $1.75 million and $2.14 million, respectively, representing a decrease $385,304 or 18%. The decrease in costs resulted from recognition in March 2015 of the approximately $1.0 million fair value of a warrant issued to Liquid Patent Advisors for strategic consulting services, offset in part by increased payroll expenses resulting from the hiring of our Chief Executive and Chief Financial Officers and the severance costs described above.

### Selling and marketing

Selling and marketing expenses consist primarily of salary and benefits for our sales and marketing personnel and consulting services. For the three months ended June 30, 2016 and 2015, selling and marketing expenses were $90,603 and $0, respectively. Selling and marketing expenses for the six months ended June 30, 2016 and 2015 were $209,618 and $0, respectively. The increases for both the three and six month periods were due to our former Chief Executive Officer moving to the role of Executive Vice President of Business Development effective January 1, 2016 as well as increased marketing consulting expenses resulting from our increased focus on customer-facing efforts to commercialize our MST® technology.

### Interest expense, net

Interest income and interest expense for the three and six months ended June 30, 2016 and 2015 consisted of the following (dollars in thousands):

|  | Three Months ended June 30, 2016 | 2015 | Six Months ended June 30, 2016 | 2015 |
| --- | ---: | ---: | ---: | ---: |
| Interest income | $2 | $1 | $2 | $3 |
| Interest expense | (748) | (562) | (1,310) | (795) |
|  | $(746) | $(561) | $(1,308) | $(792) |

Interest expense consists of interest accrued on our Secured Notes. We made no interest payments in the periods presented. The increases in interest expense in the three and six month periods ended June 30, 2016 compared to the three and six month periods ended June 30, 2015 were due to our issuance of approximately $5.96 million principal amount of Secured Notes on April 1, 2016.

### Liquidity and Capital Resources

As of June 30, 2016, we had total assets of approximately $5.68 million and a working capital deficit of approximately $18.21 million, including principal and accrued interest on our Secured Notes of $23.26 million. On August 10, 2016 we consummated our IPO of 3,680,000 shares of common stock through which we raised net proceeds of approximately $24.7 million. In connection with the completion of the IPO, our Secured Notes were converted into 6,264,659 shares of common stock, thus extinguishing the debt associated with the Secured Notes. Based on our cash balance as of the date of the filing of this report, including proceeds of our IPO, we believe that we have sufficient capital to fund our current business plans over, at least, 12 months from the date of filing this quarterly report, and to enable one or more customers to license and qualify our MST® technology and start full-scale industrial production of devices that incorporate MST® technology.

The following table sets forth, for the periods indicated, a year-over-year comparison of our cash flows from operating, investing and financing activities (dollars in thousands)

|  | Six Months ended June 30, 2016 | 2015 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Operating cash flows | $(3,294) | $(2,375) | $(919) | 39% |
| Investing cash flows | $(14) | $(2) | $(12) | 550% |
| Financing cash flows | $5,378 | $7,712 | $(2,334) | (30)% |

15

***Operating activities.*** Cash used in operating activities increased during the six months ended June 30, 2016 compared to the same period of 2015 due primarily to increased losses from operations.

***Investing activities.*** Cash used in operating activities increased during the six months ended June 30, 2016 compared to the same period of 2015 due primarily increased purchases of property and equipment to support our operations.

***Financing activities***. Cash provided by financing activities in the six months ended June 30, 2016 related primarily to our Secured Notes issued in April 2016. Cash provided by financing activities in the six months ended June 30, 2015 related primarily to the Secured Notes issued in in March 2015. See Note 6 to our unaudited condensed financial statements.

We believe that the net proceeds of our IPO and the conversion of approximately $23.49 million of debt to equity concurrent with the close of the IPO, will be sufficient to fund our presently forecasted working capital requirements for, at least, the next 12 months following the date of the filing of this report, including securing one or more foundries, IDMs or fabless semiconductor manufacturers to qualify and license our MST® technology and start full-scale industrial production of a device that incorporates our MST® technology. However, the semiconductor industry is generally slow to adopt new manufacturing process technologies and conducts long testing and qualification processes which we have limited ability to control. Accordingly, we may require additional capital in order to get to full-scale industrial production of a device that incorporates our MST® technology the receipt of which there can be no assurance. In the event we require additional capital over and above the amount raised and on hand, we will endeavor to acquire additional funds through various financing sources, including follow-on equity offerings, debt financing, licensing fees for our technology and joint ventures with industry partners. In addition, we will consider alternatives to our current business plan that may enable to us to achieve revenue producing operations and meaningful commercial success with a smaller amount of capital. However, there can be no guarantees that such funds will be available on commercially reasonable terms, if at all. If such financing is not available on satisfactory terms, we may be unable to further pursue our business plan and we may be unable to continue operations.

### Off-Balance Sheet Arrangements

We have not entered into off-balance sheet arrangements or issued guarantees to third parties.

## Controls and procedures

As filed, 780 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and principal financial and accounting officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934. Based on this evaluation, management concluded that our disclosure controls and procedures were effective as of June 30, 2016.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the three-month period ended June 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

## Risk factors

As filed, 257 characters.

In addition to the other information included in this report, you should carefully consider the factors discussed under “Risk Factors” in our final IPO prospectus filed with the SEC Pursuant to Rule 424(b)(4) of the Securities Act of 1933 on August 8, 2016.

Filed Sep 19, 2016.
Source: SEC EDGAR, the filing index for accession 0001615774-16-007250. Last ingested by Listed: Nov 5, 2026, 02:11 ET. No prices; not investment advice.