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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2020.

 

or

 

¨ Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the transition period from __________ to __________

 

Commission file number: 001-37850

 

ATOMERA INCORPORATED

(Exact name of registrant as specified in its charter)

 

Delaware

30-0509586

(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

 

750 University Avenue, Suite 280

Los Gatos, California 95032

(Address, including zip code, of registrant’s principal executive offices)

 

(408) 442-5248

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common stock: Par value $0.001 ATOM Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨ Accelerated Filer x
Non-accelerated filer ¨ Smaller reporting company x
  Emerging Growth Company x

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x

 

Indicate by checkmark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act: Yes ¨ No x

 

The number of outstanding shares of the Registrant’s Common Stock, par value $.001 per share, as of July 31, 2020 was 19,825,845.

 

 

   

 

 

Atomera Incorporated

 

Index

 

    Page
PART I. Financial Information  
     
Item 1. Financial Statements 3
     
  Condensed Balance Sheets – June 30, 2020 (unaudited) and December 31, 2019 3
     
  Unaudited Condensed Statements of Operations - For the Three and Six Months Ended June 30, 2020 and 2019 4
     
  Unaudited Condensed Statements of Stockholders’ Equity - For the Three and Six Months Ended June 30, 2020 and 2019 5
     
  Unaudited Condensed Statements of Cash Flows - For the Six Months Ended June 30, 2020 and 2019 6
     
  Notes to the Unaudited Condensed Financial Statements 7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 13
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
     
Item 4. Controls and Procedures 17
     
PART II. Other Information  
   
Item 1A. Risk Factors 18
     
Item 6. Exhibits 18
     
Signatures 19

 

 

 

 

 2 

 

 

PART I. Financial Information

 

Item 1. Financial Statements

 

Atomera Incorporated

Condensed Balance Sheets

(in thousands, except per share data)

 

   June 30,   December 31, 
   2020   2019 
   (Unaudited)      
ASSETS          
           
Current assets:          
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 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
Current liabilities:          
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 
           
Commitments and contingencies (see Note 9)          
           
Stockholders’ equity:          
Preferred stock, $0.001 par value, authorized 2,500 shares; none issued and outstanding at June 30, 2020 and December 31, 2019.        
Common stock, $0.001 par value, authorized 47,500 shares; 19,826 and 17,117 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively.   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 

 

The accompanying notes are an integral part of these condensed financial statements.

 

 

 3 

 

 

Atomera Incorporated

Condensed Statements of Operations

(Unaudited)

(in thousands, except per share data)

 

                     
  

Three Months ended

June 30,

  

Six Months ended

June 30,

 
   2020   2019   2020   2019 
Revenue  $   $70   $62   $141 
Cost of revenue       (20)   (13)   (20)
Gross margin       50    49    121 
                     
Operating expenses                    
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)
                     
Other income                    
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 

 

 

 

The accompanying notes are an integral part of these condensed financial statements.

 

 

 

 

 4 

 

Atomera Incorporated

Statements of Stockholders’ Equity

For the Three and Six Months Ended June 30, 2020 and 2019

(Unaudited)

(in thousands)

 

 

                          
   Common Stock   Additional
Paid-in
   Accumulated    Total Stockholders’  
   Shares   Amount   Capital   Deficit   Equity 
Balance January 1, 2020   17,117   $17   $149,017    (135,262)  $13,772 
Stock-based compensation   420    1    628        629 
Warrant exercise   189        164        164 
Warrant modification           139        139 
Net loss               (3,645)   (3,645)
Balance March 31, 2020   17,726    18    149,948    (138,907)   11,059 
Underwritten public offering of common stock, net of commissions and expenses    2,024    2    9,393        9,395 
Stock option exercise   33        137        137 
Stock-based compensation           766        766 
Net loss               (3,779)   (3,779)
Balance June 30, 2020   19,783   $20   $160,244    (142,686)  $17,578 

 

 

 

   Common Stock   Additional
Paid-in
   Accumulated    Total Stockholders’  
   Shares   Amount   Capital   Deficit   Equity 
Balance January 1, 2019   15,034   $15   $139,693   $(121,962)  $17,746 
Stock-based compensation   298        694        694 
Net loss               (3,534)   (3,534)
Balance March 31, 2019   15,332    15    140,387    (125,496)   14,906 
Registered direct offering of common stock, net of commissions and expenses   1,675    2    6,395        6,397 
Stock-based compensation   67        788        788 
Net loss               (3,634)   (3,634)
Balance June 30, 2019   17,074   $17   $147,570   $(129,130)  $18,457 

 

The accompanying notes are an integral part of these condensed financial statements.

 

 

 

 

 5 

 

Atomera Incorporated

Condensed Statements of Cash Flows

(Unaudited)

(in thousands)

 

           
   Six Months Ended
June 30,
 
   2020   2019 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net Loss  $(7,424)  $(7,168)
Adjustments to reconcile net loss to net cash used in operating activities:          
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:          
Accounts receivable       167 
Prepaid expenses and other current assets   (123)   (180)
Long-term prepaid rent   (450)    
Accounts payable   271    (136)
Accrued expenses   33    291 
Accrued payroll expenses   (414)   (599)
Lease liability   (74)   (65)
Deferred revenue   (37)   (39)
Net cash used in operating activities   (6,591)   (6,161)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Acquisition of property and equipment   (11)   (51)
Net cash used in investing activities   (11)   (51)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Proceeds from underwritten public offering, net of commissions and expenses   9,395     
Proceeds from registered direct offering of common stock, net of commissions and expenses       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 
           
Supplemental information:          
Cash paid for interest  $   $ 
Cash paid for taxes  $   $ 

 

The accompanying notes are an integral part of these condensed financial statements.

 

 

 6 

 

 

ATOMERA INCORPORATED

NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

For the Three and Six Months Ended June 30, 2020

 

1. NATURE OF OPERATIONS

 

Atomera Incorporated (“Atomera” or the “Company”) was incorporated in the state of Delaware in March 2007 under the name MEARS Technologies, Inc. and is engaged in the development, commercialization and licensing of proprietary processes and technologies for the semiconductor industry. On January 12, 2016, the Company changed its name to Atomera Incorporated.

 

The Company is in the development stage, having only recently begun limited revenue-generating activities, and is devoting substantially all of its efforts toward technology research and development and to obtaining initial customers. The Company has primarily financed operations through private placements of equity and debt securities and the Company’s Initial Public Offering (the “IPO”) which was consummated on August 10, 2016, its underwritten public offering of common stock consummated on October 15, 2018, a registered direct offering of common stock consummated on May 30, 2019, and its underwritten public offering of common stock consummated on May 15, 2020.

 

2. LIQUIDITY AND MANAGEMENT PLANS

 

At June 30, 2020, the Company had cash and cash equivalents of approximately $18.0 million and working capital of approximately $17.0 million. The Company has generated only limited revenue since inception and has incurred recurring operating losses.

 

Based on the funds it has available as of the date of the filing of this report, the Company believes that it has sufficient capital to fund its current business plans and obligations over, at least, 12 months from the date that these financial statements have been issued. However, the semiconductor industry is generally slow to adopt new manufacturing process technologies and conducts long testing and qualification processes which have limited the Company’s ability to control, and there can be no assurances of the timing of receipt of meaningful amounts of revenue. In addition, the COVID-19 pandemic has impacted some of the Company’s customer contract negotiations and delayed some engineering work by its customers. Accordingly, the Company may require additional capital, the receipt of which cannot be assured. In the event the Company requires additional capital, there can be no guarantee that funds will be available on commercially reasonable terms, if at all. The Company’s future capital requirements and the adequacy of its available funds will depend on many factors, including the Company’s ability to successfully commercialize its technology in the near term, competing technological and market developments, and the need to enter into collaborations with other companies or acquire technologies to enhance or complement its current offerings. If the Company is unable to secure additional capital, it may be required to curtail its research and development initiatives and take additional measures to reduce costs in order to conserve its cash.

 

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Significant accounting policies

 

There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 13, 2020 except those noted below under the caption “Adoption of recent accounting standards”.

 

Basis of presentation of unaudited condensed financial information

 

The unaudited condensed financial statements of the Company for the three and six months ended June 30, 2020 and 2019 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for the fair presentation of the Company’s financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2019 was derived from the audited financial statements included in the Company's financial statements as of and for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 13, 2020. These financial statements should be read in conjunction with that report.

 

 

 

 7 

 

 

Adoption of recent accounting standards

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard’s main goal is to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope. The new guidance represents significant changes to accounting for credit losses: (i) full lifetime expected credit losses will be recognized upon initial recognition of an asset in scope; (ii) the current incurred loss impairment model that recognizes losses when a probable threshold is met will be replaced with the expected credit loss impairment method without recognition threshold; and (iii) the estimate of expected credit losses will be based upon historical information, current conditions, and reasonable and supportable forecasts. ASU No. 2016-13 introduces two distinctive credit loss impairment models: (i) current expected credit losses (“CECL”) impairment model (Subtopic 326-20) applicable to financial assets measured at amortized cost; and (ii) available-for-sale debt securities impairment model (Subtopic 326-30). ASU No. 2016-13 is effective for public entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted this standard on January 1, 2020 and it did not have a material impact on its financial position, results of operations or financial statement disclosure.

 

4. REVENUE

 

The Company recognizes revenue when it satisfies a performance obligation by transferring the product or service to the customer, either at a point in time or over time. The Company usually recognizes revenue from integration service agreements at a point in time and integration license agreements over a period of time.

 

Disaggregation of revenue:

 

The following table provides information about disaggregated revenue by primary geographical markets and timing of revenue recognition for the three and six month periods ended June 30, 2020 and 2019 (in thousands):

 

                    
   Three Months Ended June 30,   Six Months Ended June 30, 
   2020   2019   2020   2019 
Primary geographic markets                    
North America  $   $   $62   $ 
Europe       33        83 
Asia Pacific       37        58 
Total  $   $70   $62   $141 
                     
Timing of revenue recognition                    
Products and services transferred at a point in time  $   $18   $62   $18 
Products and services transferred over time       52        123 
Total  $   $70   $62   $141 

 

Unbilled contracts receivable and deferred revenue:

 

Timing of revenue recognition may differ from the timing of invoicing customers. Accounts receivable includes amounts billed and currently due from customers. Unbilled contracts receivable represents unbilled amounts expected to be received from customers in future periods, where the revenue recognized to date exceeds the amount billed, and the right to receive payment is subject to the underlying contractual terms. Unbilled contracts receivable amounts may not exceed their net realizable value and are classified as long-term assets if the payments are expected to be received more than one year from the reporting date.

 

 

 

 8 

 

 

The Company records deferred revenue when revenue will be recognized after invoicing. During the six months ended June 30, 2020, the Company recognized approximately $37,000 of revenue that was included in deferred revenue as of December 31, 2019.

  

5. BASIC AND DILUTED LOSS PER SHARE

 

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares outstanding for the period. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the sum of the weighted average number of shares of common stock outstanding and the dilutive common stock equivalent shares outstanding during the period. The Company’s potentially dilutive common stock equivalent shares, which include incremental common shares issuable upon (i) the exercise of outstanding stock options and warrants and (ii) vesting of restricted stock units and restricted stock awards, are only included in the calculation of diluted net loss per share when their effect is dilutive. Since the Company has had net losses for all periods presented, all potentially dilutive securities are anti-dilutive. Accordingly, basic and diluted net loss per share are equal.

  

The following potential common stock equivalents were not included in the calculation of diluted net loss per common share because the inclusion thereof would be anti-dilutive (in thousands):

 

          
  

Three and Six Months Ended

June 30,

 
   2020   2019 
Stock Options   3,560    2,935 
Unvested restricted stock   782    521 
Warrants   566    765 
Total   4,908    4,221 

 

6. LEASES

 

The Company leases corporate office space in Los Gatos, California. This lease has a remaining term of seven months as of June 30, 2020. This lease is accounted for under ASC Topic 842 and as a result, the Company recorded an operating lease right-of-use asset and the related lease liability at January 1, 2019. The lease liability is based on the present value of the remaining minimum lease payments, discounted using the Company’s estimated incremental borrowing rate of 10%. The lease contains escalating payments on the anniversary of the commencement. These additional lease components are included in the measurement of the initial lease liability. Additional payments based on a change in the Company’s share of the operating expenses, including real estate taxes and insurance, are recorded as a period expense when incurred. Lease modifications result in remeasurement of the lease liability. Lease expense for operating leases consists of the lease payments plus any initial direct costs, primarily brokerage commissions, and is recognized on a straight-line basis over the lease term.

 

The components of operating lease costs were as follows (in thousands):

 

                    
  

 

Three Months Ended June 30,

   Six Months Ended June 30, 
   2020   2019   2020   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 

 

 

 

 9 

 

 

Future minimum payments under non-cancellable leases as of June 30, 2020 were as follows (in thousands):

 

     
For the Year Ended December 31,  Amount 
Remaining 2020  $67 
2021   14 
Total future minimum lease payments   81 
Less imputed interest   (3)
Total lease liability  $78 

 

The below table provides supplemental information and non-cash activity related to the Company’s operating leases are as follows (in thousands):

 

                    
  Three Months Ended June 30,   Six Months Ended June 30, 
   2020   2019   2020   2019 
Operating cash flow information:                    
Cash paid for amounts included in the measurement of lease liabilities  $41   $40   $82   $80 
Non-cash activity:                    
Right-of-use assets obtained in exchange for the lease obligations  $   $   $   $295 

 

 

In October 2019, the Company entered into an agreement to lease a tool for use in the development of the Company’s technology. The lease is for five years at $150,000 per month. The lease commencement date is anticipated to be in August 2020, at which time the Company will account for the lease under ASC 842. A prepayment of $450,000 was made in the six months ended June 30, 2020, this payment represents the final three payments under the lease and is recorded as a long-term prepaid until the lease commencement, at which time it will be record in accordance with ASC 842.

 

7. WARRANTS

 

A summary of warrant activity for the six months ended June 30, 2020 is as follows (in thousands except per share amounts and contractual term):

 

 

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 

  

The warrants outstanding at June 30, 2020 had an intrinsic value of $1.0 million based on a per-share stock price of $9.00 as of June 30, 2020.

 

On March 17, 2020, 196,602 warrants with an exercise price of $3.75 were set to expire. Prior to the expiration, the Company entered into an agreement with the warrant holders, whereby it modified the terms of the warrants to extend the expiration date until September 17, 2020 in exchange for the removal of a cashless exercise provision. No other terms were modified. Due to this modification, the Company incurred a modification expense of approximately $139,000 that is included in general and administrative expenses on the Condensed Statement of Operations for the six months ended June 30, 2020.

 

 

 

 10 

 

  

8. STOCK BASED COMPENSATION

 

In May 2017, the Company’s shareholders approved its 2017 Stock Incentive Plan (“2017 Plan”) after its 2007 Stock Incentive Plan (“2007 Plan”) had expired in March 2017. The 2017 Plan provides for the grant of non-qualified stock options and incentive stock options to purchase shares of the Company’s common stock and for the grant of restricted and unrestricted shares. The 2017 Plan provides for the issuance of 3,750,000 shares of common stock. All of the Company’s employees and any subsidiary employees (including officers and directors who are also employees), as well as all of the Company’s nonemployee directors and other consultants, advisors and other persons who provide services to the Company are eligible to receive incentive awards under the 2017 Plan. Generally, stock options and restricted stock issued under the 2017 Plan vest over a period of one to four years from the date of grant.

 

The following table summarizes the stock-based compensation expense recorded in the Company’s results of operations during the three and six months ended June 30, 2020 and 2019 for stock options and restricted stock granted under the 2017 Plan and the 2007 Plan (in thousands):

 

  Three Months Ended June 30,   Six Months Ended June 30, 
   2020   2019   2020   2019 
Research and development  $297   $221   $524   $399 
General and administrative   430    534    799    1,016 
Selling and Marketing   39    33    72    67 
   $766   $788   $1,395   $1,482 

  

As June 30, 2020, there was approximately $6.5 million of total unrecognized compensation expense related to unvested share-based compensation arrangements that are expected to vest. This cost is expected to be recognized over a weighted-average period of 2.9 years.

 

The weighted average grant date fair value per share of the options granted under the Company’s 2017 Plan was $5.86 and $2.75 for the three and six months ended June 30, 2020, respectively. The weighted average grant date fair value per share of the options granted under the Company’s 2017 Plan was $2.50 for the six months ended June 30, 2019.

  

The following table summarizes stock option activity during the six months ended June 30, 2020 (in thousands except exercise prices and contractual terms):

 

 

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 

 

During the six months ended June 30, 2020, the Company granted options under the 2017 Plan to purchase approximately 658,000 shares of its common stock to its employees. The fair value of these options was approximately $1.8 million at the time of grant.

 

 

 

 11 

 

  

The Company issues restricted stock to employees, directors and consultants and estimates the fair value based on the closing price on the day of grant. The following table summarizes all restricted stock activity during the six months ended June 30, 2020 (in thousands except per share data):

 

 

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 

  

During the six months ended June 30, 2020, the Company granted approximately 463,000 restricted stock awards under the 2017 Plan to its employees and directors. The fair value of these awards was approximately $2.1 million at the time of grant.

 

9. COMMITMENTS AND CONTINGENCIES

  

Litigation, Claims and Assessments

 

The Company may be subject to periodic lawsuits, investigations and claims that arise in the ordinary course of business. The Company is not party to any material litigation as of June 30, 2020, or through the date these financial statements have been issued.

 

10. SUBSEQUENT EVENTS

 

Management has evaluated subsequent events and transactions through the date these financial statements were issued.

 

 

 

 

 

 

 

 

 

 12 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

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 under the heading “Risk Factors” within our Prospectus Supplement filed pursuant to Rule 424(b)(5) with the SEC on May 13, 2020 and other documents we subsequently file from time to time with the SEC, such as our Annual Report on Form 10-K filed with the SEC on March 13, 2020, 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 develop and license technologies and processes that we believe 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 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, that manufacture the epitaxial, or EPI, machines used to deposit semiconductor layers, such as the MST film, onto the 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.

 

 

 

 13 

 

  

Our commercialization strategy is to generate revenue through licensing arrangements whereby foundries, IDMs and fabless semiconductor manufacturers 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. To date we have generated revenue from (i) licensing agreements with two IDMs and one fabless manufacturer and (ii) engineering services provided to foundries, IDMs and fabless companies.

 

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.

 

On May 15, 2020, we closed an underwritten public offering of 2,024,000 shares of common stock at a public offering price of $5.00 per share, resulting in approximately $9.4 million of net proceeds to us after deducting underwriting commission and other offering expenses.

 

   

Results of Operations

 

In December 2019, a novel strain of coronavirus, known as COVID-19, was reported to have surfaced in Wuhan, China. In January 2020, this coronavirus spread to other countries, including the United States, and efforts to contain the spread of this coronavirus intensified. Commencing in March 2020, much of the United States and certain other countries have been the subject of lock-downs and self-isolation procedures, which have significantly limited business operations and restricted internal and external meetings. As of the date of this report, we continue to progress on our customer engagements and internal research and development, with some slowdowns due to the COVID-19 pandemic. However, as of the date of this report, none of our customer engagements have stopped entirely. The outbreak and any future preventative or protective actions that we or our customers may take in respect of this coronavirus may result in a period of disruption to work in progress. Our customers’ businesses could be disrupted, and our ongoing and future technology evaluations, contract negotiations and revenues could be negatively affected. Any resulting financial impact cannot be reasonably estimated at this time but may materially affect our business and financial condition. The extent to which the coronavirus impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information concerning the severity and duration of the pandemic, future government-mandated restrictions, and our customers’ and partners’ responses to such new information and restrictions, among others.

 

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 and 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. For revenue recognition purposes, we have determined that the grant of rights in integration licenses is not distinct from the delivery of integration services, and therefore revenue from both integration licenses and integration services is recognized as the services are provided to the customer. In general, this is proportionate to the delivery of MST processed wafers to the customer, but if the agreements do not specify a time and quantity of wafer delivery, we will record revenue over the period of time of which we anticipate delivering an estimated quantity of wafers.

 

 

 

 14 

 

   

Revenue for the three months ended June 30, 2020 and 2019 was approximately $0 and $70,000, respectively. Revenue for the six months ended June 30, 2019 was approximately $62,000 and $141,000, respectively. Revenue in all periods was generated from integration license agreements and integration engineering services.

 

Cost of Revenue. Cost of revenue consists of costs of materials, as well as direct compensation and expenses incurred to provide integration engineering services. Cost of revenue was approximately $0 and $20,000 for the three months ended June 30, 2020 and 2019, respectively. Cost of revenue was approximately $13,000 and $20,000 for the six months ended June 30, 2020 and 2019, respectively. We anticipate that our cost of revenue will vary substantially depending on the mix of integration license and integration engineering services and the nature of products and/or services delivered in each customer engagement.

 

Operating Expenses. Operating expenses consist of research and development, general and administrative, and selling and marketing expenses. For the three months ended June 30, 2020 and 2019 our operating expenses totaled approximately $3.8 million in each period. For the six months ended June 30, 2020 and 2019 our operating expenses totaled approximately $7.5 million in each period.

  

Research and development expense. To date, our operations have focused on the research, development, patent protection, and commercialization of our processes and technologies related to MST. 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, 2020 and 2019, we incurred approximately $2.1 million and $2.1 million, respectively, of research and development expense, an increase of approximately $29,000 or 1%. The increase in research and development expense is primarily due to the addition of two engineers offset by savings due to reduced travel and lower outsourced research and development costs.

 

For the six months ended June 30, 2020 and 2019, we incurred approximately $4.1 million and $4.2 million, respectively, of research and development expense, a decrease of approximately $36,000 or 1%. The decrease in research and development expense is primarily due to a decrease of approximately $328,000 in outsourced research and development offset by an increase of approximately $188,000 in payroll expense reflecting an increase in engineering headcount and an increase in stock-based compensation expense of approximately $125,000.

 

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 June 30, 2020 and 2019 were approximately $1.5 million and $1.5 million, respectively, representing a decrease of approximately $8,000 or 1%.

 

General and administrative costs for the six months ended June 30, 2020 and 2019 were approximately $2.9 million and $2.8 million, respectively, representing an increase of approximately $116,000 or 4%. The increase is costs was primarily due to an increase of approximately $196,000 in professional fees and the expense resulting from the modification of expiring warrants of approximately $139,000 (see note 7 to our condensed financial statements included elsewhere in this report). These increases were offset by a decrease in stock-based compensation expense of approximately $216,000.

 

Selling and marketing expense. Selling and marketing expenses consist primarily of salary and benefits for our sales and marketing personnel. Selling and marketing expenses for the three months ended June 30, 2020 and 2019 were approximately $215,000 and $225,000, respectively, representing a decrease of approximately $10,000, or 4%.

 

Selling and marketing expenses for the six months ended June 30, 2020 and 2019 were approximately $440,000 and $472,000, respectively, representing a decrease of approximately $32,000, or 7%. The decrease in costs is primarily related to a reduction of approximately $33,000 in travel expenses.

 

Interest income. Interest income for the three months ended June 30, 2020 and 2019 was approximately $2,000 and $86,000, respectively. Interest income for the six months ended June 30, 2020 and 2019 was approximately $40,000 and $176,000, respectively. Interest income for each period related to interest earned on our cash and cash equivalents and decreased as our average cash balances declined and interest rates continued to fall during 2020.

 

 

 

 15 

 

 

Cash Flows from Operating, Investing and Financing Activities

  

Net cash used in operating activities of approximately $6.6 million for the six months ended June 30, 2020 resulted primarily from our net loss of approximately $7.4 million adjusted by approximately $1.4 million in stock-based compensation expense offset by increase of approximately $573,000 in prepaids and other assets.

 

Net cash used in operating activities of approximately $6.2 million for the six months ended June 30, 2019 resulted primarily from our net loss of approximately $7.2 million adjusted by approximately $1.5 million for stock-based compensation expense and a decrease in liabilities of approximately $483,000.

Net cash used in investing activities of approximately $11,000 for the six months ended June 30, 2020 and approximately $51,000 for six months ended June 30, 2019 consisted of the purchase of computers and lab equipment.

 

Net cash provided by financing activities of approximately $9.7 million for the six months ended June 30, 2020 was primarily related to the net proceeds from our underwritten public offering in May 2020 and the exercise of approximately 189,000 warrants and approximately 33,000 stock options during this six-month period.

 

Net cash provided by financing activities of approximately $6.4 million for the six months ended June 30, 2019 related to the net proceeds from our registered direct offering of common stock in May 2019.

 

Liquidity and Capital Resources

 

As of June 30, 2020, we had cash and cash equivalents of approximately $18.0 million and working capital of approximately $17.0 million. For the six months ended June 30, 2020, we had a net loss of approximately $7.5 million and used approximately $6.6 million of cash and cash equivalents in operations. Since inception, we have incurred recurring operating losses.

 

As of the date of this report, we believe that our available working capital is sufficient to fund our 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. In addition, the ongoing COVID-19 pandemic has impacted some customer contract negotiations and delayed some engineering work by our customers. Accordingly, the economic uncertainty caused by the pandemic may negatively impact our ability to generate revenue.

  

Our future capital requirements and the adequacy of our available funds will depend on many factors, including our ability, in the near term, to successfully commercialize our MST technology, competing technological and market developments; and the need to enter into collaborations with other companies or acquire technologies to enhance or complement our current offerings. If we are not able to generate sufficient revenue from 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. If we are unable to secure additional capital, we may be required to curtail our research and development initiatives and take additional measures to reduce costs in order to conserve cash.

 

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, see note 3 to the condensed financial statements included in Item 1 of this Form 10-Q.

 

 

 

 16 

 

 

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, 2019 filed with the SEC on March 13, 2020.

  

Item 3. Quantitative and Qualitative Disclosure about Market Risk.

 

Not applicable.

  

Item 4. Controls and Procedures.

 

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, 2020.

 

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 June 30, 2020 that have material affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

 

 

 17 

 

 

PART II. Other Information

 

Item 1A. Risk Factors

 

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 13, 2020 or our Annual Report on Form 10-K for the year ended December 31, 2020.

 

Item 6. Exhibits

 

The following is a list of exhibits filed as part of this Report on Form 10-Q:

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 18 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and the on the date indicated.

 

  ATOMERA INCORPORATED.  
     
Date: August 7, 2020 By:   /s/ Scott A. Bibaud  
    Scott A. Bibaud
Chief Executive Officer,
 
    (Principal Executive Officer)  
    and Director  
       
       
Date: August 7, 2020 By: /s/ Francis B. Laurencio  
    Francis B. Laurencio  
    Chief Financial Officer  
    (Principal Financial and  
    Accounting Officer)  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 19 

 

Exhibit 31.1

 

CERTIFICATIONS

 

I, Scott A. Bibaud, certify that:

 

  (1) I have reviewed this Form 10-Q of Atomera Incorporated (the “Company”);

 

  (2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  (3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

 

  (4) The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d- 15(f)) for the company and have:

 

  (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the period covered by this report based on such evaluation; and

 

  (d) disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; And

 

  (5) The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

 

  (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

 

  (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

 

  ATOMERA INCORPORATED
     
     
Date: August 7, 2020 By: /s/ Scott A. Bibaud
    Scott A. Bibaud, Chief Executive Officer

 

 

Exhibit 31.2

 

CERTIFICATIONS

 

I, Francis B. Laurencio, certify that:

 

  (1) I have reviewed this Form 10-Q of Atomera Incorporated (the “Company”);

 

  (2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  (3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

 

  (4) The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d- 15(f)) for the company and have:

 

  (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the period covered by this report based on such evaluation; and

 

  (d) disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; And

 

  (5) The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

 

  (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

 

  (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

 

  ATOMERA INCORPORATED
     
     
Date: August 7, 2020 By: /s/ Francis B. Laurencio
   

Francis B. Laurencio, Chief Financial Officer

(Principal Financial Officer)

 

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO 18

U.S.C. 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Atomera Incorporated (the “Company”) on Form 10-Q for the period ended June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Scott A. Bibaud, the Chief Executive Officer, and Francis B. Laurencio, the Chief Financial Officer, of the Company, respectively, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

  1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

By: /s/ Scott A. Bibaud   Dated:  August 7, 2020
  Scott A. Bibaud    
  Title: President and Chief Executive Officer    
       
By: /s/ Francis B. Laurencio   Dated:  August 7, 2020
  Francis B. Laurencio    
  Title:  Chief Financial Officer    

 

This certification is made solely for the purposes of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose.