Atomera(ATOM) - 2020 Q2 - Quarterly Report

Filing Information This section provides essential filing details for Atomera Incorporated's Form 10-Q, including registrant information, trading symbol, and outstanding shares Filing Details | Detail | Value | | :----- | :---- | | Filing Type | Form 10-Q | | Period Ended | June 30, 2020 | | Registrant | ATOMERA INCORPORATED | | Trading Symbol | ATOM | | Exchange | Nasdaq Capital Market | | Outstanding Common Shares (July 31, 2020) | 19,825,845 | PART I. Financial Information This part encompasses the unaudited condensed financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures for the reporting period Item 1. Financial Statements This section presents Atomera Incorporated's unaudited condensed financial statements for the three and six months ended June 30, 2020 and 2019, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with accompanying notes detailing significant accounting policies, revenue recognition, liquidity, and other financial disclosures Condensed Balance Sheets Condensed Balance Sheet Data (in thousands) | Metric | June 30, 2020 (Unaudited) | December 31, 2019 | | :-------------------------------- | :------------------------ | :---------------- | | Cash and cash equivalents | $17,965 | $14,871 | | Prepaid expenses and other current assets | $255 | $132 | | Total current assets | $18,220 | $15,003 | | Property and equipment, net | $53 | $63 | | Operating lease right-of-use asset | $89 | $161 | | Long-term prepaid rent | $450 | – | | Security deposit | $13 | $13 | | Total assets | $18,825 | $15,240 | | Accounts payable | $586 | $315 | | Accrued expenses | $178 | $145 | | Accrued payroll related expenses | $405 | $819 | | Current operating lease liability | $78 | $152 | | Deferred revenue | – | $37 | | Total liabilities | $1,247 | $1,468 | | Common stock, $0.001 par value | $20 | $17 | | Additional paid-in capital | $160,244 | $149,017 | | Accumulated deficit | $(142,686) | $(135,262) | | Total stockholders' equity | $17,578 | $13,772 | | Total liabilities and stockholders' equity | $18,825 | $15,240 | Unaudited Condensed Statements of Operations Condensed Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $0 | $70 | $62 | $141 | | Cost of revenue | $0 | $(20) | $(13) | $(20) | | Gross margin | $0 | $50 | $49 | $121 | | Research and development | $2,086 | $2,057 | $4,148 | $4,184 | | General and administrative | $1,480 | $1,488 | $2,925 | $2,809 | | Selling and marketing | $215 | $225 | $440 | $472 | | Total operating expenses | $3,781 | $3,770 | $7,513 | $7,465 | | Loss from operations | $(3,781) | $(3,720) | $(7,464) | $(7,344) | | Interest income | $2 | $86 | $40 | $176 | | Total other income | $2 | $86 | $40 | $176 | | Net loss | $(3,779) | $(3,634) | $(7,424) | $(7,168) | | Net loss per common share, basic and diluted | $(0.21) | $(0.24) | $(0.43) | $(0.47) | | Weighted average number of common shares outstanding, basic and diluted | 17,975 | 15,423 | 17,367 | 15,104 | Unaudited Condensed Statements of Stockholders' Equity Stockholders' Equity Changes (in thousands) | Item | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Balance January 1 | $13,772 | $17,746 | | Stock-based compensation | $1,395 (total for 6 months) | $1,482 (total for 6 months) | | Warrant exercise | $164 | – | | Warrant modification | $139 | – | | Underwritten public offering, net | $9,395 | $6,397 (Registered direct offering) | | Stock option exercise | $137 | – | | Net loss | $(7,424) | $(7,168) | | Balance June 30 | $17,578 | $18,457 | Unaudited Condensed Statements of Cash Flows Condensed Statements of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Net Loss | $(7,424) | $(7,168) | | Depreciation and amortization | $21 | $21 | | Right of use asset amortization | $72 | $65 | | Stock-based compensation | $1,395 | $1,482 | | Warrant modification expense | $139 | – | | Changes in operating assets and liabilities (net) | $(884) | $(483) | | Net cash used in operating activities | $(6,591) | $(6,161) | | Acquisition of property and equipment | $(11) | $(51) | | Net cash used in investing activities | $(11) | $(51) | | Proceeds from underwritten public offering, net | $9,395 | – | | Proceeds from registered direct offering, net | – | $6,397 | | Proceeds from exercise of warrant | $164 | – | | Proceeds from exercise of stock options | $137 | – | | Net cash provided by financing activities | $9,696 | $6,397 | | Net increase in cash and cash equivalents | $3,094 | $185 | | Cash and cash equivalents at beginning of period | $14,871 | $18,933 | | Cash and cash equivalents at end of period | $17,965 | $19,118 | Notes to the Unaudited Condensed Financial Statements This section provides detailed disclosures and explanations for the unaudited condensed financial statements, covering the company's nature of operations, liquidity, significant accounting policies, revenue recognition, loss per share calculations, lease obligations, warrant activity, stock-based compensation, and commitments 1. Nature of Operations This note describes Atomera Incorporated's business, focus on semiconductor technology, and financing activities - Atomera Incorporated, formerly MEARS Technologies, Inc., incorporated in Delaware in March 2007, focuses on developing, commercializing, and licensing proprietary processes and technologies for the semiconductor industry[13] - The company is in the development stage with limited revenue-generating activities, primarily financing operations through equity and debt securities placements and public offerings[14] 2. Liquidity and Management Plans This note addresses the company's financial liquidity, operating losses, and plans for future capital management - As of June 30, 2020, the Company had $18.0 million in cash and cash equivalents and $17.0 million in working capital[15] - Despite recurring operating losses and limited revenue, management believes current capital is sufficient for at least 12 months, but slow adoption of new semiconductor technologies and COVID-19 impacts pose risks, potentially requiring additional capital[16] 3. Summary of Significant Accounting Policies This note outlines the company's key accounting principles and recent accounting standard adoptions - No material changes to significant accounting policies were reported, except for the adoption of ASU No. 2016-13 (Credit Losses) on January 1, 2020, which did not materially impact the financial statements[17][19] - The unaudited condensed financial statements adhere to GAAP for interim reporting and Regulation S-X[19] 4. Revenue This note details the company's revenue recognition policies and disaggregated revenue by geographic market - Revenue is recognized when performance obligations are satisfied, either at a point in time (integration service agreements) or over time (integration license agreements)[20][53] - Revenue from integration licenses and services is recognized proportionally to the delivery of MST processed wafers[20] Disaggregated Revenue by Geographic Market (in thousands) | Geographic Market | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | North America | $0 | $0 | $62 | $0 | | Europe | $0 | $33 | $0 | $83 | | Asia Pacific | $0 | $37 | $0 | $58 | | Total | $0 | $70 | $62 | $141 | - The Company recognized approximately $37,000 of revenue during the six months ended June 30, 2020, which was previously included in deferred revenue as of December 31, 2019[24] 5. Basic and Diluted Loss Per Share This note explains the calculation of loss per share and the impact of anti-dilutive securities - Due to recurring net losses, all potentially dilutive securities (stock options, unvested restricted stock, and warrants) are anti-dilutive, resulting in basic and diluted net loss per share being equal for all periods presented[25] Anti-Dilutive Common Stock Equivalents (in thousands) | Item | June 30, 2020 | June 30, 2019 | | :-------------------- | :------------ | :------------ | | Stock Options | 3,560 | 2,935 | | Unvested restricted stock | 782 | 521 | | Warrants | 566 | 765 | | Total | 4,908 | 4,221 | 6. Leases This note describes the company's lease obligations and related costs - The Company leases corporate office space, accounted for under ASC Topic 842, with a remaining term of seven months as of June 30, 2020[27] - A new five-year lease for a development tool, with payments of $150,000 per month, is anticipated to commence in August 2020, with a $450,000 prepayment made in the first half of 2020[31] Operating Lease Costs (in thousands) | Lease Cost Type | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :---------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Fixed lease costs | $26 | $27 | $53 | $54 | | Variable lease costs | $14 | $13 | $27 | $26 | | Short term lease costs | $7 | $8 | $17 | $16 | | Total operating lease costs | $47 | $48 | $97 | $96 | 7. Warrants This note provides details on warrant activity, including exercises, expirations, and modifications Warrant Activity (in thousands, except per share amounts and contractual term) | Metric | Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (In Years) | | :----------------------- | :--------------- | :------------------------------ | :----------------------------------------------------- | | Outstanding at January 1, 2020 | 765 | $5.75 | | | Exercised | (189) | $0.87 | | | Expired | (10) | $0.15 | | | Outstanding at June 30, 2020 | 566 | $7.48 | 0.8 | - Warrants outstanding at June 30, 2020, had an intrinsic value of $1.0 million[32] - A modification of 196,602 warrants in March 2020 extended their expiration date to September 17, 2020, in exchange for removing a cashless exercise provision, resulting in a $139,000 modification expense[32][33] 8. Stock Based Compensation This note outlines the company's stock incentive plan, compensation expense, and option/restricted stock activity - The 2017 Stock Incentive Plan, approved in May 2017, allows for the grant of stock options and restricted shares, generally vesting over one to four years[34] - As of June 30, 2020, approximately $6.5 million of unrecognized compensation expense related to unvested share-based awards is expected to be recognized over a weighted-average period of 2.9 years[35] Stock-Based Compensation Expense (in thousands) | Expense Category | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $297 | $221 | $524 | $399 | | General and administrative | $430 | $534 | $799 | $1,016 | | Selling and Marketing | $39 | $33 | $72 | $67 | | Total | $766 | $788 | $1,395 | $1,482 | Stock Option Activity (in thousands, except exercise prices and contractual terms) | Metric | Number of Shares | Weighted Average Exercise Prices | Weighted Average Remaining Contractual Term (In Years) | Intrinsic Value | | :----------------------- | :--------------- | :------------------------------- | :----------------------------------------------------- | :-------------- | | Outstanding at January 1, 2020 | 2,935 | $6.36 | | | | Granted | 658 | $4.13 | | | | Exercised | (33) | $4.18 | | | | Outstanding at June 30, 2020 | 3,560 | $5.97 | 7.02 | $10,956 | | Exercisable at June 30, 2020 | 2,370 | $6.74 | 6.09 | $5,647 | Restricted Stock Activity (in thousands, except per share data) | Metric | Number of Shares | Weighted Average Grant Date Fair Value | | :--------------------------------------- | :--------------- | :------------------------------------- | | Outstanding at January 1, 2020 | 486 | $4.50 | | Granted | 463 | $4.43 | | Vested | (167) | $4.46 | | Outstanding non-vested shares at June 30, 2020 | 782 | $4.47 | 9. Commitments and Contingencies This note confirms the absence of material litigation or claims against the company - As of June 30, 2020, and through the date of financial statement issuance, the Company is not party to any material litigation, claims, or assessments[39] 10. Subsequent Events This note states that no material subsequent events were identified through the financial statement issuance date - Management has evaluated subsequent events and transactions through the date the financial statements were issued and found no material events requiring disclosure[40] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Atomera's financial condition and operational results for the three and six months ended June 30, 2020, discussing business overview, revenue generation, operating expenses, cash flows, and liquidity, while also highlighting the impact of the COVID-19 pandemic and future capital requirements Overview This section provides a business overview, commercialization strategy, capital raising efforts, and the impact of COVID-19 - Atomera develops, commercializes, and licenses proprietary processes and technologies for the semiconductor industry, with its lead technology, Mears Silicon Technology (MST), designed to enhance CMOS-type transistors for increased speed, reliability, and energy efficiency[43] - The company's commercialization strategy involves licensing MST technology to foundries, IDMs, and fabless semiconductor manufacturers for license fees and royalties, and it has generated limited revenue from integration service agreements and integration license agreements[44][46][53] - Atomera has raised capital through several public offerings, including an IPO in August 2016 ($24.7M net proceeds), an underwritten public offering in October 2018 ($11.4M net proceeds), a registered direct offering in May 2019 ($6.4M net proceeds), and another underwritten public offering in May 2020 ($9.4M net proceeds)[48][49][50][51] - The COVID-19 pandemic has caused some slowdowns in customer engagements, contract negotiations, and engineering work, potentially affecting future technology evaluations, contract negotiations, and revenues, though no engagements have stopped entirely[52] Results of Operations This section analyzes the company's revenue, cost of revenue, operating expenses, and interest income for the reporting periods Revenues This section details revenue sources and future expectations for license fees and royalties Revenue (in thousands) | Period | Revenue | | :------------------------------- | :------ | | Three months ended June 30, 2020 | $0 | | Three months ended June 30, 2019 | $70 | | Six months ended June 30, 2020 | $62 | | Six months ended June 30, 2019 | $141 | - Revenue in all periods was generated from integration license agreements and integration engineering services[54] - The company expects increased fees from license agreements and royalties in the future, contingent on securing manufacturing and distribution license agreements[53][54] Cost of Revenue This section explains the components of cost of revenue and its expected variability Cost of Revenue (in thousands) | Period | Cost of Revenue | | :------------------------------- | :-------------- | | Three months ended June 30, 2020 | $0 | | Three months ended June 30, 2019 | $20 | | Six months ended June 30, 2020 | $13 | | Six months ended June 30, 2019 | $20 | - Cost of revenue, comprising materials, direct compensation, and expenses for integration engineering services, is expected to vary significantly based on the mix of integration license and engineering services provided[55] Operating Expenses This section provides an overview of total operating expenses and their drivers Total Operating Expenses (in thousands) | Period | Total Operating Expenses | | :------------------------------- | :----------------------- | | Three months ended June 30, 2020 | $3,781 | | Three months ended June 30, 2019 | $3,770 | | Six months ended June 30, 2020 | $7,513 | | Six months ended June 30, 2019 | $7,465 | Research and development expense This section analyzes changes in research and development expenses, including headcount and outsourced costs Research and Development Expense (in thousands) | Period | R&D Expense | Change YoY | | :------------------------------- | :---------- | :--------- | | Three months ended June 30, 2020 | $2,086 | +1% | | Three months ended June 30, 2019 | $2,057 | | | Six months ended June 30, 2020 | $4,148 | -1% | | Six months ended June 30, 2019 | $4,184 | | - The 1% increase in Q2 2020 R&D expense was due to adding two engineers, partially offset by reduced travel and outsourced R&D costs[58] - The 1% decrease for the six months ended June 30, 2020, was primarily due to a $328,000 decrease in outsourced R&D, offset by a $188,000 increase in payroll (headcount) and a $125,000 increase in stock-based compensation[59] General and administrative expense This section details the factors influencing general and administrative expenses, such as professional fees and warrant modification General and Administrative Expense (in thousands) | Period | G&A Expense | Change YoY | | :------------------------------- | :---------- | :--------- | | Three months ended June 30, 2020 | $1,480 | -1% | | Three months ended June 30, 2019 | $1,488 | | | Six months ended June 30, 2020 | $2,925 | +4% | | Six months ended June 30, 2019 | $2,809 | | - The 4% increase in G&A for the six months ended June 30, 2020, was driven by a $196,000 rise in professional fees and a $139,000 warrant modification expense, partially offset by a $216,000 decrease in stock-based compensation[61] Selling and marketing expense This section explains the changes in selling and marketing expenses, primarily due to travel reductions Selling and Marketing Expense (in thousands) | Period | S&M Expense | Change YoY | | :------------------------------- | :---------- | :--------- | | Three months ended June 30, 2020 | $215 | -4% | | Three months ended June 30, 2019 | $225 | | | Six months ended June 30, 2020 | $440 | -7% | | Six months ended June 30, 2019 | $472 | | - The decrease in selling and marketing expenses for both periods was primarily due to a reduction of approximately $33,000 in travel expenses for the six months ended June 30, 2020[63] Interest income This section discusses the decline in interest income due to lower cash balances and interest rates Interest Income (in thousands) | Period | Interest Income | | :------------------------------- | :-------------- | | Three months ended June 30, 2020 | $2 | | Three months ended June 30, 2019 | $86 | | Six months ended June 30, 2020 | $40 | | Six months ended June 30, 2019 | $176 | - Interest income decreased significantly due to declining average cash balances and falling interest rates during 2020[64] Cash Flows from Operating, Investing and Financing Activities This section summarizes cash flows from operating, investing, and financing activities for the reporting periods Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(6,591) | $(6,161) | | Net cash used in investing activities | $(11) | $(51) | | Net cash provided by financing activities | $9,696 | $6,397 | - Operating cash outflow for H1 2020 was primarily due to a net loss of $7.4 million, partially offset by $1.4 million in stock-based compensation[65] - Financing activities in H1 2020 were significantly boosted by $9.4 million from a public offering and proceeds from warrant and stock option exercises[67] Liquidity and Capital Resources This section assesses the company's liquidity position, capital sufficiency, and potential future funding needs Liquidity Position (in thousands) | Metric | As of June 30, 2020 | | :----------------------- | :------------------ | | Cash and cash equivalents | $18,000 | | Working capital | $17,000 | | Net loss (six months) | $(7,500) | | Cash used in operations (six months) | $(6,600) | - Management believes current working capital is sufficient for at least the next 12 months, but acknowledges risks from slow technology adoption, long qualification processes, and the COVID-19 pandemic's impact on revenue generation[70] - Additional capital may be required, potentially through equity offerings, debt financing, or joint ventures, or by curtailing R&D and reducing costs[71] Off-Balance Sheet Arrangements This section confirms the absence of off-balance sheet arrangements or third-party guarantees - The Company has not entered into any off-balance sheet arrangements or issued guarantees to third parties[72] Recent Accounting Standards This section refers to disclosures regarding the adoption of new accounting standards - The Company is required to adopt certain new accounting standards, as detailed in Note 3 to the condensed financial statements[73] Critical Accounting Policies This section states that no changes have occurred in the company's critical accounting policies - There have been no changes to the Company's critical accounting policies from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2019[75] Item 3. Quantitative and Qualitative Disclosure about Market Risk This section states that the information regarding quantitative and qualitative disclosures about market risk is not applicable to the Company for the reporting period - This item is marked as "Not applicable"[75] Item 4. Controls and Procedures This section details management's evaluation of the Company's disclosure controls and procedures, concluding their effectiveness as of June 30, 2020, and reports no material changes to internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures This section reports management's conclusion on the effectiveness of disclosure controls and procedures - Management, including the CEO and principal financial and accounting officer, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2020[76] Changes in Internal Control over Financial Reporting This section confirms no material changes to internal control over financial reporting during the quarter - There were no changes to internal control over financial reporting during the three-month period ended June 30, 2020, that materially affected, or are reasonably likely to materially affect, the Company's internal controls[77] PART II. Other Information This part includes disclosures on risk factors and a comprehensive list of exhibits filed with the report Item 1A. Risk Factors This section states that there have been no material changes to the Company's primary risk factors since those disclosed in its Prospectus Supplement filed on May 13, 2020, or its Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes to the primary risk factors were reported compared to previous filings (Prospectus Supplement May 13, 2020, and Annual Report on Form 10-K for December 31, 2020)[79] Item 6. Exhibits This section lists the exhibits filed as part of the Form 10-Q report, including certifications under the Sarbanes-Oxley Act and various XBRL taxonomy documents List of Exhibits | Exhibit No. | Description | Method of Filing | | :---------- | :---------- | :--------------- | | 31.1 | Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | Filed electronically herewith | | 31.2 | Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | Filed electronically herewith | | 32.1 | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350). | Filed electronically herewith | | 101.INS | XBRL Instance Document | Filed electronically herewith | | 101.SCH | XBRL Taxonomy Extension Schema Document | Filed electronically herewith | | 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | Filed electronically herewith | | 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | Filed electronically herewith | | 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | Filed electronically herewith | | 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | Filed electronically herewith | Signatures This section provides the official signatures and date of filing for the report - The report was signed by Scott A. Bibaud (Chief Executive Officer) and Francis B. Laurencio (Chief Financial Officer) on August 7, 2020[83]