Atomera Inc 10-Q

Item 1. Financial Statements Atomera Incorporated Condensed Balance Sheets (in thousands, except per share data) June 30, December 31, 2021 2020 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 34,341 $ 37,942 Prepaid expenses and other current assets 659 132 Total current assets 35,000 38,074 Property and equipment, net 206 153 Operating lease right-of-use asset 998 705 Long-term prepaid rent 450 450 Security deposit 14 13 Total assets $ 36,668 $ 39,395 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 411 $ 442 Accrued expenses 184 211 Accrued payroll related expenses 322 705 Current operating lease liability 213 90 Total current liabilities 1,130 1,448 Long term operating lease liability 849 602 Total liabilities 1,979 2,050 Commitments and contingencies (see Note 10) – – Stockholders’ equity: Preferred stock $ 0.001 par value, authorized 2,500 shares; none issued and outstanding at June 30, 2021 and December 31, 2020 – – Common stock: $ 0.001 par value, authorized 47,500 shares; 23,104 and 22,375 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively; 23 22 Additional paid-in capital 192,152 187,463 Accumulated deficit ( 157,486 ) ( 150,140 ) Total stockholders’ equity 34,689 37,345 Total liabilities and stockholders’ equity $ 36,668 $ 39,395 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, 2021 2020 2021 2020 Revenue $ – $ – $ 400 $ 62 Cost of revenue – – – ( 13 ) Gross margin $ – $ – $ 400 $ 49 Operating expenses Research and development 2,069 2,086 4,298 4,148 General and administrative 1,506 1,480 3,019 2,925 Selling and marketing 137 215 403 440 Total operating expenses 3,712 3,781 7,720 7,513 Loss from operations ( 3,712 ) ( 3,781 ) ( 7,320 ) ( 7,464 ) Other income Interest income 3 2 5 40 Total other income 3 2 5 40 Net loss before income taxes ( 3,709 ) ( 3,779 ) ( 7,315 ) ( 7,424 ) Provision for income taxes 17 – 31 – Net loss $ ( 3,726 ) ( 3,779 ) $ ( 7,346 ) ( 7,424 ) Net loss per common share, basic and diluted $ ( 0.17 ) ( 0.21 ) $ ( 0.33 ) ( 0.43 ) Weighted average number of common shares outstanding, basic and diluted 22,492 17,975 22,292 17,367 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, 2021 and 2020 (Unaudited) (in thousands) Common Stock Additional Paid-in Accumulated Total Stockholders’ Shares Amount Capital Deficit Equity Balance January 1, 2021 22,375 $ 22 $ 187,463 $ ( 150,140 ) $ 37,345 Stock-based compensation 71 – 731 – 731 At-the-market sale of stock, net of commissions and expenses 14 – 243 – 243 Stock option exercise 398 1 2,514 – 2,515 Warrant Exercise 223 – – – – Forfeited restricted stock awards ( 54 ) – – – – Net loss – – – ( 3,620 ) ( 3,620 ) Balance March 31, 2021 23,027 $ 23 $ 190,951 $ ( 153,760 ) $ 37,214 Stock-based compensation 18 – 847 – 847 Stock option exercise 59 – 354 – 354 Net loss ( 3,726 ) ( 3,726 ) Balance at June 30, 2021 23,104 $ 23 $ 192,152 $ ( 157,486 ) $ 34,689 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 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, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES Net Loss $ ( 7,346 ) $ ( 7,424 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 26 21 Right of use asset amortization 88 72 Stock-based compensation 1,578 1,395 Warrant modification expense – 139 Changes in operating assets and liabilities: Prepaid expenses and other current assets ( 527 ) ( 123 ) Long-term prepaid rent – ( 450 ) Accounts payable ( 31 ) 271 Accrued expenses ( 27 ) 33 Accrued payroll expenses ( 383 ) ( 414 ) Lease liability ( 12 ) ( 74 ) Deferred revenue – ( 37 ) Net cash used in operating activities ( 6,634 ) ( 6,591 ) CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property and equipment ( 79 ) ( 11 ) Net cash used in investing activities ( 79 ) ( 11 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from underwritten public offering, net of commission and expenses – 9,395 Proceeds from at-the-market sale of stock, net of commissions and expenses 243 – Proceeds from exercise of warrants – 164 Proceeds from exercise of stock options 2,869 137 Net cash provided by financing activities 3,112 9,696 Net increase (decrease) in cash and cash equivalents ( 3,601 ) 3,094 Cash and cash equivalents at beginning of period 37,942 14,871 Cash and cash equivalents at end of period $ 34,341 $ 17,968 Supplemental information: Cash paid for interest $ – $ – Cash paid for taxes $ 66 $ – Non-cash investing and financing activities Exercise of warrants-cashless $ – $ – 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, 2021 and 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. Atomera is an early-stage company, having only recently begun limited revenue-generating activities, and is devoting substantially all of its efforts toward technology research and development and to commercially licensing its technology to manufacturers and designers of integrated circuits. The Company has primarily financed operations through private placements of equity and debt securities, the Company’s Initial Public Offering (the “IPO”) which was consummated on August 10, 2016, and subsequent public offerings of its common stock. 2. LIQUIDITY AND MANAGEMENT PLANS At June 30, 2021, the Company had cash and cash equivalents of approximately $ 34.3 million and working capital of approximately $ 33.9 million. The Company has generated only limited revenues since inception and has incurred recurring operating losses. The Company’s operating plans for the next 12 months include increased spending on research and development headcount, outsourced fabrication and testing, and sales and marketing expenses to drive customer adoption of the Company’s MST technology. 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, as the Company has generated only limited revenue, it is subject to all the risks inherent in the initial organization, financing, expenditures, complications and delays in a new business. 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, 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 February 19, 2021. 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, 2021 and 2020 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 its 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, 2020, was derived from the audited financial statements included in the Company's financial statements as of and for the year ended December 31, 2020, included in the Company’s Annual Report on Form 10-K filed with the SEC on February 19, 2021. These unaudited condensed financial statements should be read in conjunction with that report. 7 Adoption of recent accounting standards In December 2019, the FASB issued ASU No. 2019-12, Simplifying Accounting for Income Taxes . This is part of the FASB’s overall initiative to reduce complexity in accounting standards. Amendments include removal of certain exceptions to the general principles of Accounting Standard Codification (“ASC”) 740, Income taxes , and simplification in several other areas such as accounting for a franchise tax (or similar tax) that is partially based on income. The Company adopted this standard on January 1, 2021 and it did not have a material impact on its financial position, results of operations or financial statement disclosure. Recent accounting standards In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, Debt with Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). The new guidance eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. This guidance is effective as of January 1, 2022 (Early adoption is permitted effective January 1, 2021). The Company is currently evaluating the effect the updated standard will have on its financial position, results of operations or financial statement disclosure. 4. REVENUE The Company recognizes revenue in accordance with ASC 606. The amount of revenue that the Company recognizes reflects the consideration it expects to receive in exchange for goods or services and such revenue is recognized at the time when goods or services are transferred and/or delivered to its customers. Revenue is recognized when the Company satisfies a performance obligation by transferring the product or service to the customer. The Company generates revenues from engineering service contracts, integration license agreements and joint development agreements. When the Company’s performance obligation is the promise to grant a license, revenue is recognized either at a point in time or over time. The following table provides information about disaggregated revenue by primary geographical markets and timing of revenue recognition (in thousands): Information about disaggregated revenue and timing of revenue Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Primary geographic markets North America $ – $ – $ – $ 62 Asia Pacific – – 400 – Total $ – $ – $ 400 $ 62 Timing of revenue recognition Products and services transferred at a point in time $ – $ – $ 400 $ 62 Products and services transferred over time – – – – Total $ – $ – $ 400 $ 62 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. 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. 8 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): Schedule of anti dilutive shares Three and Six Months Ended June 30, 2021 2020 Stock Options 3,033 3,560 Unvested restricted stock 515 782 Warrants 2 566 Total 3,550 4,908 6. LEASES The Company leases corporate office space in Los Gatos, California. In August 2020, the Company and its landlord amended the lease for this office. This amendment extends the expiration date of the operating lease from January 2021 to January 2026 and increases the space from 3,396 square feet to 4,101 square feet. Under ASC 842, the lease amendment was treated as a separate lease for the new space and a modification of the lease for the original space. An additional right-of-use (“ROU”) asset and lease liability of approximately $ 681,000 were recorded during at the time of the amendment. In January 2021 the additional space became available for use, and the Company recorded an additional ROU asset and corresponding liability of approximately $ 144,000 . The lease liability is based on the present value of the minimum lease payments, discounted using the Company’s estimated incremental borrowing rate of 5.5 %. The lease contains escalating payments on the anniversary of the original commencement which 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 property taxes and insurance, are recorded as a period expense when incurred. In March 2021, the Company began leasing 474 square feet of office space in Tempe, Arizona. The new lease is classified as an operating lease with an initial term of two years and an option to extend for an additional three years through February 2026. The lease also contains a performance standard for research collaboration with Arizona State University. The agreement requires a minimum value of collaborative research in each year of the lease. The lease is accounted for under ASC 842 and accordingly, the research payments are included in the ROU and lease liability at the commencement. In March 2021, the Company recorded an ROU and associated lease liability of approximately $ 238,000 . The lease liability is based on the present value of the minimum lease payments, discounted using the Company’s estimated incremental borrowing rate of 5.5 % over five years, as the Company expects to lease the through the three-year extension. The lease also contains escalating payments on the anniversary of the original commencement which are included in the measurement of the initial lease liability. Lease expense for operating leases consists of the lease payments recognized on a straight-line basis over the lease term. The components of operating lease costs were as follows (in thousands): Components of lease costs Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Fixed lease costs $ 62 $ 26 $ 114 $ 53 Variable lease costs – 14 – 27 Short-term lease costs 11 7 22 17 Total operating lease costs $ 73 $ 47 $ 136 $ 97 9 Future minimum payments under non-cancellable leases as of June 30, 2021 were as follows (in thousands): Schedule of future minimum lease payments For the Year Ended December 31, Amount Remaining 2021 $ 112 2022 239 2023 271 2024 278 2025 & thereafter 305 Total future minimum lease payments 1,205 Less imputed interest ( 143 ) Total lease liability $ 1,062 The following table provides supplemental information and non-cash activity related to the Company’s operating leases (in thousands): Supplemental non-cash activity related to operating leases Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Operating cash flow information: Cash paid for amounts included in the measurement of lease liabilities $ 36 $ 41 $ 38 $ 82 Non-cash activity: Right-of-use assets obtained in exchange for the lease obligations $ – $ – $ 382 $ – 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 5 years at $150,000 per month. The lease commencement date is anticipated to be in August 2021, 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, 2021 is as follows (in thousands except per share amounts and contractual term): Schedule of warrant activity Number of Shares Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (In Years) Outstanding at January 1, 2021 320 $ 9.47 Exercised ( 318 ) $ 9.38 Outstanding at June 30, 2021 2 $ 24.81 0.5 The warrants outstanding at June 30, 2021 had an intrinsic value of approximately $ 9,000 based on a per-share stock price of $ 21.44 as of June 30, 2021. 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. All of the modified warrants were exercised on August 6, 2020. In January 2021, warrants for 317,488 shares were presented for cashless exercises resulting in the issuance of 223,487 shares of common stock. 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, 2021 and 2020 for stock options and restricted stock granted under the 2017 Plan and the 2007 Plan (in thousands): Schedule of stock-based compensation expense Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Research and development $ 267 $ 297 $ 490 $ 524 General and administrative 554 430 1,009 799 Selling and Marketing 26 39 79 72 Total $ 847 $ 766 $ 1,578 $ 1,395 As June 30, 2021, there was approximately $ 7.0 million of total unrecognized compensation expense related to unvested share-based compensation arrangements. This cost is expected to be recognized over a weighted-average period of 2.4 years. The weighted average grant date fair value per share of the options granted under the Company’s 2017 Plan was $ 14.78 and $ 15.36 for the three and six months ended June 30, 2021, respectively. The weighted average grant date fair value per share of the options granted under Company’s 2017 plan was $ 5.86 and $ 2.75 for the three and six months ended June 30, 2020, respectively. The following table summarizes stock option activity during the three months ended June 30, 2021 (in thousands except exercise prices and contractual terms): Schedule of stock option activity Number of Shares Weighted- Average Exercise Prices per Share Weighted- Average Remaining Contractual Term (In Years) Intrinsic Value Outstanding at January 1, 2021 3,446 $ 5.97 Granted 148 $ 21.86 Exercised ( 458 ) $ 6.27 Forfeited ( 103 ) $ 4.17 Outstanding at June 30, 2021 3,033 $ 6.76 6.23 $ 44,801 Exercisable at June 30, 2021 2,277 $ 6.47 5.46 $ 34,170 During the six months ended June 30, 2021, the Company granted options under the 2017 Plan to purchase approximately 148,000 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, 2021 (in thousands except per share data): Schedule of restricted stock option activity Number of Shares Weighted- Average Grant Date Fair Value per Share Outstanding at January 1, 2021 642 $ 4.43 Granted 89 $ 21.02 Vested ( 162 ) $ 6.67 Forfeited ( 54 ) $ 4.81 Outstanding non-vested shares at June 30, 2021 515 $ 6.56 During the six months ended June 30, 2021 the Company granted approximately 89,000 restricted stock awards under the 2017 Plan to its employees and directors. The fair value of these awards was approximately $ 1.9 million at the time of grant. During the six months ended June 30, 2021, approximately 54,000 restricted stock awards were forfeited and reissued under the Company’s equity compensation plan. 9. PROVISION FOR INCOME TAXES The Company recorded a provision for income taxes of approximately $ 17,000 and $ 31,000 during the three and six months ended June 30, 2021, respectively. The provision is for withholding of income taxes accrued in foreign jurisdictions where we have income. The Company recorded the provision in accordance with ASC 740 using its estimated annual tax rate and applied it to the net loss for the three and six months ended June 30, 2021. 10. 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, 2021, or through the date these financial statements have been issued. 11. SUBSEQUENT EVENTS Management has evaluated subsequent events and transactions through the date these financial statements were issued. 12