# Atomera Inc: Form 10-Q for the period ended Sep 30, 2019

- Company: [Atomera Inc](/companies/atom.md) (CIK 1420520)
- Form: 10-Q
- Filed: 2019-11-05
- Accepted by EDGAR: Nov 5, 2019, 17:00 ET
- Period: 2019-09-30
- Accession: 0001683168-19-003445
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1420520/000168316819003445/atomera_10q-093019.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1420520/000168316819003445/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2019-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Cost of revenue | 3 months, 2019-07-01 to 2019-09-30 | $204.0k | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2019-01-01 to 2019-09-30 | $224.0k | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2019-07-01 to 2019-09-30 | $50.0k | us-gaap:GrossProfit |
| Gross profit | 9 months, 2019-01-01 to 2019-09-30 | $171.0k | us-gaap:GrossProfit |
| Research and development | 3 months, 2019-07-01 to 2019-09-30 | $1.7m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2019-01-01 to 2019-09-30 | $5.9m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2019-07-01 to 2019-09-30 | −$3.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2019-01-01 to 2019-09-30 | −$10.5m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2019-07-01 to 2019-09-30 | −$3.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2019-01-01 to 2019-09-30 | −$10.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2019-07-01 to 2019-09-30 | −$0.19 | us-gaap:EarningsPerShareBasicAndDiluted |
| Diluted EPS | 9 months, 2019-01-01 to 2019-09-30 | −$0.66 | us-gaap:EarningsPerShareBasicAndDiluted |
| Operating cash flow | 9 months, 2019-01-01 to 2019-09-30 | −$8.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2019-01-01 to 2019-09-30 | $51.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2019-09-30 | $16.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2019-09-30 | $17.2m | us-gaap:AssetsCurrent |
| Total assets | at 2019-09-30 | $17.4m | us-gaap:Assets |
| Current liabilities | at 2019-09-30 | $1.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2019-09-30 | $1.3m | us-gaap:Liabilities |
| Shareholders' equity | at 2019-09-30 | $16.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 17,344 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 Prospectus Supplement with the SEC on May 30, 2019 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 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 $450+ 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 made 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 right to use 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 August 10, 2016, we closed our initial public offering of 3,680,000 shares of common stock at a public offering price of $7.50 per share. We received approximately $24.7 million in net proceeds after deducting underwriting discounts and commission and other offering expenses.

On October 15, 2018, we closed an underwritten public offering of 2,625,000 shares of common stock at a public offering price of $4.75 per share, resulting in approximately $11.4 million of net proceeds to us after deducting underwriting discounts and commission and other offering expenses.

On May 30, 2019, we closed a registered direct offering of 1,675,000 shares of common stock at a price of $4.00 per share, resulting in approximately $6.4 million of net proceeds to us after deducting placement agent fees and other offering expenses.

### Results of Operations

***Revenues***. To date, we have only generated limited revenue from customer engagements for integration engineering services and integration license agreements. In the future, we expect to collect increased fees from license agreements as well as royalties from customer sales of products that incorporate our MST technology, subject to our ability to enter into manufacturing and distribution license agreements with our current and future licensees. Our integration services consist of depositing our MST film on semiconductor wafers, delivering such wafers to customers to finalize building devices, and performing tests for customers evaluating MST. The integration license agreements we have entered into to date grant the licensees the right to build products that integrate our MST technology deposited by us onto their semiconductor wafers, but the agreements do not grant the licensees the rights to manufacture on their site or to sell products incorporating MST. Revenue is recognized upon transfer of control of promised products, services or intellectual property (IP) rights in an amount that reflects the consideration that we expect to receive in exchange for those products, services or licensing of IP rights. The integration license agreements that we currently have in place do not specify the number of wafers to be delivered by us, so we recognize revenue over the period during which we estimate that we will deliver wafers under each contract.

Revenue for the three months ended September 30, 2019 and 2018 was approximately $254,000 and $0, respectively. Revenue for the nine months ended September 30, 2019 and 2018 was approximately $395,000 and $96,000, respectively. Our revenue during these periods was generated from integration license agreements and integration services agreements.

***Cost of Revenue.*** Cost of revenue from integration service agreements consists of costs of materials, as well as direct compensation and expenses incurred to provide such services. Cost of revenue from integration license agreements consists of third-party royalties, if any, incurred to grant such licenses. Cost of revenue for the three and nine months ended September 30, 2019 approximately $204,000 and $224,000, respectively. Cost of revenue for the three and nine months ended September 30, 2018 was approximately $0 and $113,000, respectively.

***Operating Expenses***. Operating expenses consist of research and development, general and administrative, and selling and marketing expenses. For the three months ended September 30, 2019 and 2018 our operating expenses totaled approximately $3.2 million and $3.5 million, respectively. The decrease in operating expenses was due to a decrease of approximately $176,000 in research and development expense and a decrease of approximately $85,000 in general and administrative expense. For the nine months ended September 30, 2019 and 2018 our operating expenses totaled approximately $10.7 million and $9.8 million, respectively. The increase in operating expenses was due to an increase of approximately $580,000 in research and development expense and an increase of approximately $267,000 in general and administrative expense.

***Research and development expense.*** 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 September 30, 2019 and 2018, we incurred approximately $1.7 million and $1.9 million, respectively, of research and development expense, a decrease of approximately $176,000 or 9%. The decrease in research and development expense is primarily due to a decrease of approximately $220,000 in spending on outsourced fabrication and metrology and a decrease of approximately $40,000 in payroll expense reflecting a decrease in accrued bonuses. The decreases are partly offset by an approximately $74,000 increase in stock-based compensation expense.

For the nine months ended September 30, 2019 and 2018, we incurred approximately $5.9 million and $5.4 million, respectively, of research and development expense, an increase of approximately $580,000 or 11%. The increase in research and development expense is primarily due to an increase of approximately $267,000 in spending on outsourced fabrication and metrology to support increased engagements with customers evaluating MST, an increase of approximately $104,000 in payroll expense reflecting an increase in engineering headcount and accrued bonuses and an increase in stock-based compensation expense of approximately $213,000.

***General and administrative expense.*** 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 September 30, 2019 and 2018 were approximately $1.2 million and $1.3 million, respectively, representing a decrease of approximately $85,000 or 6%. The decrease in costs was primarily due to a decrease of approximately $110,000 in legal expenses and a decrease in bonus accrual of approximately $69,000, offset in part by an increase of approximately $93,000 in stock-based compensation as compared to the three months ended September 30, 2018.

General and administrative costs for the nine months ended September 30, 2019 and 2018 were approximately $4.0 million and $3.8 million, respectively, representing an increase of approximately $267,000 or 7%. The increase in costs was primarily due to an increase of approximately $266,000 in stock-based compensation expense compared to the nine months ended September 30, 2018.

***Selling and marketing expense.*** Selling and marketing expenses consist primarily of salary and benefits for our sales and marketing personnel and business development services. Selling and marketing expenses for the three months ended September 30, 2019 and 2018 were approximately $240,000 and $237,000, respectively.

Selling and marketing expenses for the nine months ended September 30, 2019 and 2018 were approximately $712,000 and $695,000, respectively, representing an increase of approximately $17,000, or 2%.

***Interest income.*** Interest income for the three months ended September 30, 2019 and 2018 was approximately $89,000 and $48,000, respectively. Interest income for the nine months ended September 30, 2019 and 2018 was approximately $265,000 and $145,000, respectively. Interest income for each period related to interest earned on our cash and cash equivalents.

### Liquidity and Capital Resources

On May 30, 2019, we closed a registered direct offering of 1,675,000 shares of common stock at a price of $4.00 per share, resulting in approximately $6.4 million of net proceeds to us after deducting commission and other offering expenses.

As of September 30, 2019, we had cash and cash equivalents of approximately $16.8 million and working capital of approximately $15.9 million. For the nine months ended September 30, 2019, we had a net loss of approximately $10.3 million and used approximately $8.5 million of cash and cash equivalents in operations. Since inception, we have incurred recurring operating losses. At September 30, 2019, we had an accumulated deficit of approximately $132.2 million.

As of the date of this report, 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. If we are unable to generate meaningful revenue from manufacturing license fees and royalty-based distribution agreements or otherwise, we may need to raise additional capital. 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 engineering services, license fees and royalties 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. 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.

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

Net cash used in operating activities of approximately $8.5 million for the nine months ended September 30, 2019 resulted primarily from our net loss of approximately $10.3 million adjusted by approximately $2.3 million for stock-based compensation expense and a decrease in liabilities of approximately $514,000.

Net cash used in operating activities of approximately $7.4 million for the nine months ended September 30, 2018 resulted primarily from out net loss of approximately $9.7 million adjusted by approximately $1.8 million for stock-based compensation expense.

Net cash used in investing activities of approximately $51,000 for the nine months ended September 30, 2019 and approximately $21,000 for nine months ended September 30, 2018 consisted of the purchase of computers and lab tools.

Net cash provided by financing activities of approximately $6.4 million for the nine months ended September 30, 2019 related to the net proceeds from our registered direct offering of common stock in May 2019. Net cash used in financial activities of approximately $35,000 for the nine months ended September 30, 2018 related to the October 2018 underwritten public offering.

### Off-Balance Sheet Arrangements

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

### Recent Accounting Standards

We are required to adopt certain new accounting standards including Accounting Standards Update (“ASU”) No 2016-02, *Leases (Topic 842)*. 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, 2018 filed with the SEC on March 11, 2019 except for the adoption of ASC Topic 842 as noted above under the caption “Recent Accounting Standards.”

## Controls and procedures

As filed, 872 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, 2019.

### Changes in Internal Control over Financial Reporting

There have not been any changes to our internal controls over financial reporting (as defined by Rule 13a-15(f) and 15(d)-15(f) under the Exchange Act) during the three-month period ended September 30, 2019 that have material affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

## Risk factors

As filed, 172 characters.

The primary risk factors affecting our business have not changed materially from the risk factors set forth in our Prospectus Supplement filed with the SEC on May 30, 2019.

Filed Nov 5, 2019.
Source: SEC EDGAR, the filing index for accession 0001683168-19-003445. Last ingested by Listed: Nov 5, 2026, 02:11 ET. No prices; not investment advice.