# Atomera Inc: Form 10-Q for the period ended Jun 30, 2018

- Company: [Atomera Inc](/companies/atom.md) (CIK 1420520)
- Form: 10-Q
- Filed: 2018-08-09
- Accepted by EDGAR: Aug 9, 2018, 16:01 ET
- Period: 2018-06-30
- Accession: 0001683168-18-002236
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1420520/000168316818002236/atomera_10q-063018.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1420520/000168316818002236/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2018-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2018-04-01 to 2018-06-30 | $96.0k | us-gaap:Revenues |
| Revenue | 6 months, 2018-01-01 to 2018-06-30 | $96.0k | us-gaap:Revenues |
| Cost of revenue | 3 months, 2018-04-01 to 2018-06-30 | $113.0k | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2018-01-01 to 2018-06-30 | $113.0k | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2018-04-01 to 2018-06-30 | −$17.0k | us-gaap:GrossProfit |
| Gross profit | 6 months, 2018-01-01 to 2018-06-30 | −$17.0k | us-gaap:GrossProfit |
| Research and development | 3 months, 2018-04-01 to 2018-06-30 | $1.7m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2018-01-01 to 2018-06-30 | $3.4m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2018-04-01 to 2018-06-30 | −$3.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2018-01-01 to 2018-06-30 | −$6.4m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2018-04-01 to 2018-06-30 | −$3.2m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2018-01-01 to 2018-06-30 | −$6.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2018-04-01 to 2018-06-30 | −$0.26 | us-gaap:EarningsPerShareBasicAndDiluted |
| Diluted EPS | 6 months, 2018-01-01 to 2018-06-30 | −$0.52 | us-gaap:EarningsPerShareBasicAndDiluted |
| Operating cash flow | 6 months, 2018-01-01 to 2018-06-30 | −$5.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2018-01-01 to 2018-06-30 | $14.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2018-06-30 | $12.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2018-06-30 | $12.6m | us-gaap:AssetsCurrent |
| Total assets | at 2018-06-30 | $12.7m | us-gaap:Assets |
| Current liabilities | at 2018-06-30 | $962.0k | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2018-06-30 | $11.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 15,623 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, 2017 filed with the SEC on March 6, 2018 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 $400+ 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, we believe 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 we believe 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 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.

### Results of Operations

***Revenues and cost of revenues.*** Revenue for the three and six months ended June 30, 2018 was $96,000 and was generated from providing engineering services. We did not generate revenue in the three and six months ended June 30, 2017. We have only generated limited revenues since inception, all of which was engineering services revenue recognized in the quarter ended June 30, 2018 and the fourth quarter of 2017.

***Cost of revenue.*** Cost of revenue consists of materials as well as direct compensation and expenses incurred to provide engineering services. Cost of revenue was approximately $113,000 for the three and six months ended June 30, 2018 and $0 for the three and six months ended June 30, 2017. We anticipate that our cost of revenue will vary substantially depending on the nature of services delivered in each customer engagement. Accordingly, our gross margin for engineering services may vary significantly among customer engagements and from period to period and is not indicative of margins we expect to obtain from license fees and royalties.

***Operating expenses.*** Operating expenses consist of research and development, general and administrative, and selling and marketing expenses. For the three months ended June 30, 2018 and 2017, our operating expenses totaled approximately $3.2 million and approximately $3.7 million, respectively. The decline in operating expense was primarily due to a decrease of approximately $807,000 in stock compensation expense, which was partly offset by an approximate $194,000 increase in payroll and related and an approximate $178,000 increase in outsourced fabrication and testing expenses. For the six months ended June 30, 2018 and 2017, our operating expenses totaled approximately $6.3 million and approximately $7.2 million, respectively. The decline in operating expense was primarily due to an approximate $1.5 million decrease in stock compensation expense, which was partly offset by an approximate $336,000 increase in payroll and related costs and an approximate $315,000 increase in outsourced fabrication and testing expenses.

***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.

For the three months ended June 30, 2018 and 2017, we incurred approximately $1.7 million and $1.4 million, respectively, of research and development expense, an increase of approximately $294,000 or 20%. The increase in research and development expense is primarily due to an increase of approximately $178,000 in spending on outsourced fabrication and metrology to support increased engagements with potential customers evaluating MST and an increase of approximately $120,000 in payroll and related expense reflecting an increase in engineering headcount.

For the six months ended June 30, 2018 and 2017, we incurred approximately $3.4 million and $2.9 million, respectively, of research and development expense, an increase of approximately $528,000 or 18%. The increase in research and development expense is primarily due to an increase of approximately $315,000 in spending on outsourced fabrication and metrology to support increased engagements with potential customers evaluating MST, an increase of approximately $209,000 in payroll expense reflecting an increase in engineering headcount and an increase in consulting costs of approximately $39,000 which was offset by a $64,000 decrease in professional fees for recruiting.

***General and administrative expenses.*** 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, 2018 and 2017 were approximately $1.3 million and $1.7 million, respectively, representing a decrease of approximately $458,000 or 27%. The decrease in costs was primarily due to a decrease of approximately $551,000 in stock compensation expense. This decrease was partially offset by an approximate $57,000 increase in payroll and related costs due to an increase in the expected bonus accrued for this quarter compared to the same quarter last year.

For the six months ended June 30, 2018 and 2017, we incurred approximately $2.5 million and $3.3 million, respectively, of general and administrative expense, a decrease of approximately $858,000 or 26%. The decrease in costs was primarily due to a decrease of approximately $1.0 million in stock compensation expense. This decrease was partially offset by an approximate $95,000 increase in payroll and related costs due to an increase in salaries and projected bonus. Professional fees also increased by approximately $60,000 primarily due to increased fees related to patent filings and maintenance.

***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. Selling and marketing expenses for the three months ended June 30, 2018 and 2017 were approximately $212,000 and $508,000, respectively, representing a decrease of approximately $296,000, or 58%. Approximately $269,000 of the decrease is due to lower stock-based compensation. The remaining decrease is due to an approximate $45,000 decrease in consulting expense.

For the six months ended June 30, 2018 and 2017, we incurred approximately $458,000 and $1.0 million, respectively, of selling and marketing expense, a decrease of approximately $559,000 or 55%. The decrease primarily related to an approximate $505,000 decrease in stock compensation expense and an approximate $76,000 decrease in consulting expense. These decreases were offset in part by an increase of approximately $31,000 in payroll and related costs due to the increase in bonus accrued for the six months ended June 30, 2018 compared to the same period of 2017

***Interest income and expenses.*** Interest income for the three months ended June 30, 2018 and 2017 was approximately $50,000 and $36,000, respectively. Interest income for the six months ended June 30, 2018 and 2017 was approximately $97,000 and $64,000, respectively. Interest income for each period related to interest earned on our cash and cash equivalents.

### Liquidity and Capital Resources

As of June 30, 2018, we had cash and cash equivalents of approximately $12.3 million and a working capital of approximately $11.7 million. For the six months ended June 30, 2018, we had a net loss of approximately $6.3 million and used approximately $5.1 million of cash in operations. Since inception, we have incurred recurring operating losses. At June 30, 2018, we had an accumulated deficit of approximately $115.3 million.

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, and there can be no assurance of the timing of our receipt of meaningful amounts of revenue. If we are not able to generate sufficient revenue from licensing our technology in a timeframe that satisfies our cash needs, we will need to raise more capital. In the event we require additional capital, we will endeavor to acquire additional funds through various financing sources, including follow-on equity offerings, debt financing and joint ventures with industry partners. On October 13, 2017, the SEC declared effective our Registration Statement on Form S-3 which enables us to issue equity and/or debt instruments in one or more offerings. 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, whether under the S-3 Registration Statement or otherwise, 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.

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

Net cash used in operating activities of approximately $5.1 million for the six months ended June 30, 2018 resulted primarily from our net loss of approximately $6.3 million adjusted by approximately $1.2 million for stock-based compensation expense.

Net cash used in operating activities of approximately $5.0 million for the six months ended June 30, 2017 resulted primarily from our net loss of approximately $7.2 million and a decrease of approximately $319,000 in accrued payroll expenses, adjusted by approximately $2.6 million for stock-based compensation

Net cash used in investing activities of approximately $14,000 for the six months ended June 30, 2018 and approximately $13,000 for six months ended June 30, 2017 consisted of the purchase of property and equipment.

No cash was used in or provided by financing activities for the six months ended June 30, 2018 or 2017.

### 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 3 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, 2017 filed with the SEC on March 6, 2018.

## Controls and procedures

As filed, 876 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 June 30, 2018.

### 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 June 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

## Risk factors

As filed, 215 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, 2017 filed with the SEC on March 6, 2018.

Filed Aug 9, 2018.
Source: SEC EDGAR, the filing index for accession 0001683168-18-002236. Last ingested by Listed: Nov 5, 2026, 02:11 ET. No prices; not investment advice.