# Atomera Inc: Form 10-Q for the period ended Sep 30, 2017

- Company: [Atomera Inc](/companies/atom.md) (CIK 1420520)
- Form: 10-Q
- Filed: 2017-11-08
- Accepted by EDGAR: Nov 8, 2017, 12:43 ET
- Period: 2017-09-30
- Accession: 0001683168-17-002869
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1420520/000168316817002869/atomera_10q-093017.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1420520/000168316817002869/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2017-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Research and development | 3 months, 2017-07-01 to 2017-09-30 | $1.6m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2017-01-01 to 2017-09-30 | $4.5m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2017-07-01 to 2017-09-30 | −$3.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2017-01-01 to 2017-09-30 | −$10.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2017-07-01 to 2017-09-30 | $0 | us-gaap:InterestExpense |
| Interest expense | 9 months, 2017-01-01 to 2017-09-30 | $0 | us-gaap:InterestExpense |
| Net income | 3 months, 2017-07-01 to 2017-09-30 | −$3.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2017-01-01 to 2017-09-30 | −$10.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2017-07-01 to 2017-09-30 | −$0.27 | us-gaap:EarningsPerShareBasicAndDiluted |
| Diluted EPS | 9 months, 2017-01-01 to 2017-09-30 | −$0.86 | us-gaap:EarningsPerShareBasicAndDiluted |
| Operating cash flow | 9 months, 2017-01-01 to 2017-09-30 | −$7.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2017-01-01 to 2017-09-30 | $17.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2017-09-30 | $19.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2017-09-30 | $19.7m | us-gaap:AssetsCurrent |
| Total assets | at 2017-09-30 | $19.8m | us-gaap:Assets |
| Current liabilities | at 2017-09-30 | $862.0k | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2017-09-30 | $18.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 15,694 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 condensed financial statements and the accompanying notes that appear elsewhere in this filing. Statements in this Quarterly Report on Form 10-Q include forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. Although forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks, uncertainties, and changes in condition, significance, value and effect, including those risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 31,2017 and referenced under the heading “Risk Factors” within Part II, Item 1A of this Quarterly Report and other documents we subsequently file from time to time with the Securities and Exchange Commission (the “SEC”), such as our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K. Such risks, uncertainties and changes in condition, significance, value and effect could cause our actual results to differ materially from those expressed herein and in ways not readily foreseeable. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report and are based on information currently and reasonably known to us. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Quarterly Report. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.*

### 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 TechnologyTM, 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’s 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 that outsource the manufacture of their chips to foundries;
- original equipment manufacturers, or OEMs, which manufacture the epitaxial, or EPI, deposition machines used to deposit semiconductor layers, such as the MST® film onto the base silicon wafer; and
- electronic design automation companies, which make tools used throughout the industry to simulate the effects of using different materials, design structures and process technologies on the performance of semiconductor products.

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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.

### Results of Operations

### Revenues

We have not commenced revenue-producing operations.

***Research and development expenses.*** 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 September 30, 2017 and 2016, we incurred approximately $1.6 million and $941,000, respectively, of research and development expense, an increase of approximately $661,000 or 70%. The increase in research and development expense is primarily due to an increase of approximately $461,000 in outsourced fabrication, testing and materials to support expanded customer engagements. The remaining increase in research and development expense is due to an increase of approximately $98,000 in payroll related expenses due to increased engineering headcount and an approximate $64,000 increase in stock-based compensation expense.

For the nine months ended September 30, 2017 and 2016, we incurred research and development expense of approximately $4.5 million and $2.8 million, respectively, an increase of approximately $1.7 million or 63%. The increase in research and development expense is primarily due to an increase of approximately $947,000 in outsourced fabrication, testing and materials to support expanded customer engagements and approximately $79,000 of additional professional fees for technical consulting and recruiting. The remaining increase in research and development expense is due to an increase of approximately $368,000 in payroll related expenses due to increased engineering headcount, and an approximate $274,000 increase in stock-based compensation expense reflecting stock option and restricted stock grants made in connection with and subsequent to our Initial Public Offering (“IPO”).

***General and administrative expenses.*** General and administrative expenses consist primarily of payroll and benefit costs for administrative personnel, professional fees and office-related costs. General and administrative expenses for the three months ended September 30, 2017 and 2016 were approximately $1.4 million and $1.6 million, respectively, representing a decrease of approximately $239,000 or 15%. The decrease in general and administrative expenses is primarily due to a decrease of approximately $185,000 in stock based compensation which was due to vesting of management bonuses and stock options issued in connection with our IPO in August 2016. The remaining decrease can be attributed to approximately $194,000 decrease in payroll and payroll related expense due to a bonus of $250,000 that was paid in the third quarter of 2016 related to the IPO. This decrease is offset by a $269,000 bonus accrual during 2017.

General and administrative expense for the nine months ended September 30, 2017 and 2016 were approximately $4.7 million and $3.4 million, respectively, representing an increase of approximately $1.3 million or 39%. The increase was primarily due to an increase of approximately $1.6 million in stock-based compensation reflecting grants made in connection with and after our IPO and an approximate $348,000 increase in professional fees primarily related to investor relations consulting and payments to our independent directors. We commenced compensating our non-employee directors in the third quarter of 2016. These costs were offset by a decrease of approximately $447,000 in payroll and payroll related expenses due to severance costs of approximately $195,000 associated with the departure of former executives in 2016 as well as the payment of a bonus of $250,000 to our Chief Executive Officer in September 2016 resulting from the completion of our IPO.

***Selling and marketing expenses.*** Selling and marketing expenses consist primarily of salary and benefits for our sales and marketing personnel and business development consulting services. For the three months ended September 30, 2017 and 2016 selling and marketing expenses were approximately $350,000 and $229,000, respectively, representing an increase of approximately $121,000 or 53%. Approximately $90,000 of the increase is due an increase in headcount and consulting expenses for engagement with prospective customers engagements. The remaining increase is due to an increase in bonus expense and travel resulting from the additional headcount as we continue to expand our customer partnerships.

Selling and marketing expenses for the nine months ended September 30, 2017 and 2016 were approximately $1.4 million and $439,000, respectively, representing an increase of approximately $928,000 or 211%. Approximately $574,000 of the increase is due to stock based compensation expense. The remaining increase is due to an increase in head count and consulting expenses for engagement with prospective customers engagements.

***Interest income and expenses.*** Interest income and interest expense for the three and nine months ended September 30, 2017 and 2016 consisted of the following (dollars in thousands):

|  | Three Months ended September 30, 2017 | 2016 | Nine Months ended September 30, 2017 | 2016 |
| --- | ---: | ---: | ---: | ---: |
| Interest income | $42 | $6 | $106 | $8 |
| Interest expense | – | (1,330) | – | (2,640) |
|  | 42 | (1,324) | 106 | (2,632) |

Interest income for the three and nine months ended September 30, 2017 and 2016 related to interest earned on our cash and cash equivalents. Interest expense for the three and nine months ended September 30, 2016 related to accrued interest on our Secured Notes. The principal amount and accrued interest on these notes converted into shares of common stock upon the completion of our IPO in August of 2016. Accordingly, we have not incurred interest expense after August 2016.

### Liquidity and Capital Resources

At September 30, 2017, we had cash and cash equivalents of approximately $19.6 million and working capital of approximately $18.9 million. For the nine months ended September 30, 2017, we had a net loss of approximately $10.5 million and used approximately $7.1 million of cash in operations. We have not generated revenues since inception and have incurred recurring operating losses. At September 30, 2017, we had an accumulated deficit of approximately $106.5 million.

### Cash Flows from Operating, Investing and Financing Activities

We believe that our available working capital is 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. 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®. In the event we require additional capital over and above the amount we have on hand and any amounts generated from licensing our MST® technology, we will endeavor to acquire additional funds through various financing sources, including follow-on equity offerings, debt financing 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 additional capital 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.

Net cash used in operating activities of approximately $7.1 million for the nine months ended September 30, 2017 resulted primarily from our net loss of approximately $10.5 million adjusted by approximately $3.6 million for stock-based compensation expense and a decrease of approximately $233,000 in accrued payroll expenses.

Net cash used in operating activities of approximately $5.3 million for the nine months ended September 30, 2016 resulted primarily from our net loss of approximately $9.2 million, adjusted by approximately $1.5 million for non-cash amortization of debt issuance costs, $1.1 million in non-cash interest expense, and approximately $1.1 million for stock compensation expense.

Net cash used in investing activities of approximately $17,000 for the nine months ended September 30, 2017 consisted of the purchase of property and equipment. Net cash used in investing activities of approximately $10,000 for the nine months ended September 30, 2016 consisted of approximately $25,000 for the purchase of property and equipment offset by $15,000 release of a restricted investment.

No cash was used in or provided by financing activities in the nine months ended September 30, 2017. Net cash provided by financing activities in the nine months ended September 30, 2016 related primarily to the net proceeds of approximately $24.8 million from our initial public offering in August 2016 along with our Secured Notes issued in April 2016 with proceeds of approximately $5.5 million.

### Off-Balance Sheet Arrangements

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

### Recent Accounting Pronouncements

We are required to adopt certain new accounting pronouncements. See note 2 to the condensed financial statements included in Item 1 of this Form 10-Q.

### Critical Accounting Policies

There have been no changes to our critical accounting policies from those included in our Annual Report on Form 10-K for the year ended December 31, 2016.

## Controls and procedures

As filed, 886 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(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based on this evaluation, management concluded that our disclosure controls and procedures were effective as of September 30, 2017.

### Changes in Internal Control over Financial Reporting

There have not been any changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15(d)-15(f) under the Exchange Act) during the three-month period ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

## Risk factors

As filed, 216 characters.

The primary risk factors affecting our business have not changed materially from the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 31, 2017.

Filed Nov 8, 2017.
Source: SEC EDGAR, the filing index for accession 0001683168-17-002869. Last ingested by Listed: Nov 5, 2026, 02:11 ET. No prices; not investment advice.