Atomera Inc 10-Q

Item 1. Financial Statements Atomera Incorporated Condensed Balance Sheets (in thousands, except per share data) March 31, December 31, 2022 2021 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 24,451 $ 28,699 Accounts receivable 300 – Prepaid expenses and other current assets 846 309 Total current assets 25,597 29,008 Property and equipment, net 192 196 Long-term prepaid maintenance and supplies 91 91 Security deposit 14 14 Operating lease right-of-use asset 850 900 Financing lease right-of-use-asset 5,532 5,851 Total assets $ 32,276 $ 36,060 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 380 $ 338 Accrued expenses 241 203 Accrued payroll related expenses 260 601 Current operating lease liability 217 216 Current financing lease liability 1,396 1,395 Total current liabilities 2,494 2,753 Long-term operating lease liability 725 768 Long-term financing lease liability 3,870 4,158 Total liabilities 7,089 7,679 Commitments and contingencies (see Note 10) – – Stockholders’ equity: Preferred stock $ 0.001 par value, authorized 2,500 shares; none issued and outstanding at March 31, 2022 and December 31, 2021 – – Common stock: $ 0.001 par value, authorized 47,500 shares; 23,393 and 23,207 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively; 23 23 Additional paid-in capital 195,104 194,212 Accumulated deficit ( 169,940 ) ( 165,854 ) Total stockholders’ equity 25,187 28,381 Total liabilities and stockholders’ equity $ 32,276 $ 36,060 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 March 31, 2022 2021 Revenue $ 375 $ 400 Cost of revenue 81 – Gross margin 294 400 Operating expenses Research and development 2,339 2,229 General and administrative 1,648 1,513 Selling and marketing 325 266 Total operating expenses 4,312 4,008 Loss from operations ( 4,018 ) ( 3,608 ) Other income (expense) Interest income 3 2 Interest expense ( 71 ) – Total other income (expense), net ( 68 ) 2 Net loss before income taxes ( 4,086 ) ( 3,606 ) Provision for income taxes – 14 Net loss $ ( 4,086 ) ( 3,620 ) Net loss per common share, basic and diluted (in dollars per share) $ ( 0.18 ) ( 0.16 ) Weighted average number of common shares outstanding, basic and diluted 22,853 22,090 The accompanying notes are an integral part of these condensed financial statements. 4 Atomera Incorporated Statements of Stockholders’ Equity For the Three Months Ended March 31, 2022 and 2021 (Unaudited) (in thousands) Common Stock Additional Paid-in Accumulated Total Stockholders’ Shares Amount Capital Deficit Equity Balance January 1, 2022 23,207 $ 23 $ 194,212 $ ( 165,854 ) $ 28,381 Stock-based compensation 161 – 726 – 726 Stock option exercise 25 – 166 – 166 Net loss – – – ( 4,086 ) ( 4,086 ) Balance March 31, 2022 23,393 $ 23 $ 195,104 $ ( 169,940 ) $ 25,187 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 The accompanying notes are an integral part of these condensed financial statements. 5 Atomera Incorporated Condensed Statements of Cash Flows (Unaudited) (in thousands) Three Months Ended March 31, 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES Net Loss $ ( 4,086 ) $ ( 3,620 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 20 13 Operating lease right of use asset amortization 50 40 Financing lease right of use asset amortization 319 – Stock-based compensation 726 731 Changes in operating assets and liabilities: Accounts receivable ( 300 ) ( 66 ) Prepaid expenses and other current assets ( 537 ) ( 679 ) Accounts payable 42 66 Accrued expenses 38 ( 16 ) Accrued payroll expenses ( 341 ) ( 417 ) Operating lease liability ( 42 ) 10 Net cash used in operating activities ( 4,111 ) ( 3,938 ) CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property and equipment ( 16 ) ( 24 ) Net cash used in investing activities ( 16 ) ( 24 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from at-the-market sale of stock, net of commissions and expenses – 243 Proceeds from exercise of stock options 166 2,515 Payments on principal of financing lease ( 287 ) – Net cash provided (used) by financing activities ( 121 ) 2,758 Net decrease in cash and cash equivalents ( 4,248 ) ( 1,204 ) Cash and cash equivalents at beginning of period 28,699 37,942 Cash and cash equivalents at end of period $ 24,451 $ 36,738 Supplemental information: Cash paid for interest $ 71 $ – 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 Months Ended March 31, 2022 and 2021 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 its efforts toward technology research and development and to commercially licensing its technology to designers and manufacturers 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 March 31, 2022, the Company had cash and cash equivalents of approximately $ 24.5 million and working capital of approximately $ 23.1 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 research and development headcount and increased spending on outsourced fabrication and testing. 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 from its principal operations, it is subject to all the risks inherent in the initial organization, financing, expenditures, and scaling of a new business that is not generating positive cashflow. 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 15, 2022. Basis of presentation of unaudited condensed financial information The unaudited condensed financial statements of the Company for the three months ended March 31, 2022 and 2021 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, 2021, was derived from the audited financial statements included in the Company's financial statements as of and for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K filed with the SEC on February 15, 2022. These unaudited condensed financial statements should be read in conjunction with that report. 7 Adoption of 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 earnings per share computation The Company adopted this standard on January 1, 2022 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 in accordance with Accounting Standards Codification (“ASC”) No. 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): Schedule of disaggregated revenue and timing of revenue Three Months Ended March 31, 2022 2021 Primary geographic markets North America $ 75 $ – Asia Pacific 300 400 Total $ 375 $ – Timing of revenue recognition Products and services transferred at a point in time $ 375 $ 400 Products and services transferred over time – – Total $ 375 $ 400 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 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 Months Ended March 31, 2022 2021 Stock Options 3,008 3,018 Unvested restricted stock 493 596 Warrants 1 2 Total 3,502 3,616 6. LEASES The Company accounts for leases over one year under ASC 842. Lease expense for the Company’s operating leases consists of the lease payments recognized on a straight-line basis over the lease term. Expenses for the Company’s financing leases consists of the amortization expenses recognized on a straight-line basis over the lease term and interest expense. The components of lease costs were as follows (in thousands): Components of lease costs Three Months Ended March 31, 2022 2021 Financing lease costs: Amortization of ROU assets $ 319 $ – Interest on lease liabilities 71 – Total financing lease costs $ 390 $ – Operating lease costs Fixed lease costs 62 52 Variable lease costs – – Short-term lease costs 11 11 Total operating lease costs $ 73 $ 63 9 Future minimum payments under non-cancellable leases as of March 31, 2022 were as follows (in thousands): Schedule of future minimum lease payments For the Year Ended December 31, Financing leases Operating leases Remaining 2022 $ 1,077 $ 168 2023 1,436 296 2024 1,436 278 2025 1,435 284 2026 & thereafter 478 21 Total future minimum lease payments $ 5,862 $ 1,047 Less imputed interest ( 596 ) ( 105 ) Total lease liability $ 5,266 $ 942 The below table provides supplemental information and non-cash activity related to the Company’s operating and financing leases are as follows (in thousands): Supplemental non-cash activity related to operating leases Three Months Ended December 31, 2022 2021 Operating cash flow information: Cash paid for amounts included in the measurement of operating lease liabilities $ 54 $ 2 Cash paid for amounts included in the measurement of financing lease liabilities $ 359 $ – Non-cash activity: Right-of-use assets obtained in exchange for operating lease obligations $ – $ 382 Right-of-use assets obtained in exchange for financing lease obligations $ – $ – The weighted average remaining discount rate is 5.25 % for the Company’s operating and financing leases. The weighted average remaining lease term is 3.9 years for operating leases and 4.3 years for the financing lease. In October 2016, the Company entered into a lease agreement for approximately 200 square feet of office space in Cambridge, Massachusetts. The lease, with current monthly payments of $ 2,942 per month, commenced on October 24, 2016. Because the lease is month to month and can be cancelled with a 30-day notice, the future lease payments are not included in the Company’s lease accounting under ASC Topic 842. 7. WARRANTS A summary of warrant activity for three months ended March 31, 2022 is as follows (in thousands except per share amounts and contractual term): Schedule of warrant activity Number of Shares Weighted Average Exercise Prices per Share Weighted Average Remaining Contractual Term (In Years) Intrinsic Value Outstanding at January 1, 2022 1 $ 33.75 Outstanding and exercisable at March 31, 2022 1 $ 33.75 .02 – 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 months ended March 31, 2022 and 2021 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 March 31, 2022 2021 Research and development $ 244 $ 223 General and administrative 429 455 Selling and Marketing 53 53 Total $ 726 $ 731 As of March 31, 2022, there was approximately $ 8.4 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 2.5 years. The weighted average grant date fair value per share of the options granted under the Company’s 2017 Plan was $ 10.60 and $ 15.94 for the three months ended March 31, 2022 and 2021, respectively. The following table summarizes stock option activity during the three months ended March 31, 2022 (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, 2022 2,869 $ 6.64 Granted 175 $ 14.54 Exercised ( 26 ) $ 6.55 Forfeited ( 3 ) $ 28.66 Expired ( 7 ) $ 33.75 Outstanding at March 31, 2022 3,008 $ 7.02 5.8 $ 19,404 Exercisable at March 31, 2022 2,373 $ 6.32 5.1 $ 16,165 During the three months ended March 31, 2022, the Company granted options under the 2017 Plan to purchase approximately 175,000 shares of its common stock to its employees. The fair value of these options was approximately $ 1.9 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 three months ended March 31, 2022 (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, 2022 386 $ 6.75 Granted 161 $ 14.73 Vested ( 54 ) $ 5.53 Outstanding non-vested shares at March 31, 2022 493 $ 9.49 During the three months ended March 31, 2022 the Company granted approximately 161,000 restricted stock awards under the 2017 Plan to its employees and directors. The fair value of these awards was approximately $ 2.4 million at the time of grant. 9. PROVISION FOR INCOME TAXES The Company recorded a provision for income taxes of approximately $ 14,000 during the months ended March 31, 2021. 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 months ended March 31, 2021. The Company did not incur withholding of income taxes for the three months ended March 31, 2022. 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 March 31, 2022, 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