2.
|
LIQUIDITY AND MANAGEMENT PLANS
|
At March 31, 2021, the Company
had cash and cash equivalents of approximately $36.7 million and working capital of approximately $36.4 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 from its principal operations, 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 months ended March 31, 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 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, 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 financial statements should be read in conjunction with that report.
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.
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):
|
|
Three Months Ended
March 31,
|
|
|
|
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 three months ended March 31, 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 Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Stock options
|
|
|
3,018
|
|
|
|
3,581
|
|
Unvested restricted stock
|
|
|
596
|
|
|
|
869
|
|
Warrants
|
|
|
2
|
|
|
|
566
|
|
Total
|
|
|
3,616
|
|
|
|
5,016
|
|
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 Accounting Standard Codification (“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):
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Fixed lease costs
|
|
$
|
52
|
|
|
$
|
27
|
|
Variable lease costs
|
|
|
–
|
|
|
|
13
|
|
Short term lease costs
|
|
|
11
|
|
|
|
10
|
|
Total operating lease costs
|
|
$
|
63
|
|
|
$
|
50
|
|
Future minimum payments under
non-cancellable leases as of March 31, 2021 were as follows (in thousands):
For the Year Ended December 31,
|
|
Amount
|
|
Remaining 2021
|
|
$
|
148
|
|
2022
|
|
|
239
|
|
2023
|
|
|
271
|
|
2024
|
|
|
278
|
|
2025 & thereafter
|
|
|
305
|
|
Total future minimum lease payments
|
|
|
1,241
|
|
Less imputed interest
|
|
|
(158
|
)
|
Total lease liability
|
|
$
|
1,083
|
|
The following table provides
supplemental information and non-cash activity related to the Company’s operating leases (in thousands):
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Operating cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
$
|
2
|
|
|
$
|
41
|
|
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 years at
$150,000 per month. The lease commencement date is anticipated to be in May 2021, at which time the Company will account for the lease
under ASC 842. A prepayment of $450,000 was made in the three months ended March 31, 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.
A summary of warrant activity
for the three months ended March 31, 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 March 31, 2021
|
|
|
2
|
|
|
$
|
24.81
|
|
|
|
0.8
|
|
The warrants outstanding at
March 31, 2021 had an intrinsic value of approximately $11,000 based on a per-share stock price of $24.50 as of March 31, 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 three
months ended March 31, 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.
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, 2021
and 2020 for stock options and restricted stock granted under the 2017 Plan and the 2007 Plan (in thousands):
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Research and development
|
|
$
|
223
|
|
|
$
|
227
|
|
General and administrative
|
|
|
455
|
|
|
|
369
|
|
Selling and Marketing
|
|
|
53
|
|
|
|
33
|
|
|
|
$
|
731
|
|
|
$
|
629
|
|
As March 31, 2021, there was
approximately $6.5 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 $15.94 and $2.70 for the three months ended March
31, 2021 and 2020, respectively.
The following table summarizes
stock option activity during the three months ended March 31, 2021 (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, 2021
|
|
|
3,446
|
|
|
$
|
5.97
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
73
|
|
|
$
|
22.72
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(398
|
)
|
|
$
|
6.32
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(103
|
)
|
|
$
|
4.17
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2021
|
|
|
3,018
|
|
|
$
|
6.39
|
|
|
|
6.46
|
|
|
$
|
54,736
|
|
Exercisable at March 31, 2021
|
|
|
2,250
|
|
|
$
|
6.50
|
|
|
|
5.73
|
|
|
$
|
40,564
|
|
During the three months ended
March 31, 2021, the Company granted options under the 2017 Plan to purchase approximately 73,000 shares of its common stock to its employees.
The fair value of these options was approximately $1.2 million at the time of grant.
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, 2021 (in thousands except per share data):
|
|
Number of
Shares
|
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
Outstanding at January 1, 2021
|
|
|
642
|
|
|
$
|
4.43
|
|
Granted
|
|
|
71
|
|
|
$
|
22.38
|
|
Vested
|
|
|
(63
|
)
|
|
$
|
4.54
|
|
Forfeited
|
|
|
(54
|
)
|
|
$
|
4.81
|
|
Outstanding non-vested shares at March 31, 2021
|
|
|
596
|
|
|
$
|
6.53
|
|
During the three months ended
March 31, 2021 the Company granted approximately 71,000 restricted stock awards under the 2017 Plan to its employees and directors. The
fair value of these awards was approximately $1.6 million at the time of grant.
During the quarter ended March
31, 2021, approximately 54,000 restricted stock awards were forfeited. Approximately 9,000 of these shares were then reissued as restricted
stock awards. The remaining approximately 45,000 shares can be reissued in the future under its equity compensation plan.
9.
|
PROVISION FOR INCOME TAXES
|
The Company recorded a provision
for income taxes of approximately $14,000 and $0 during the three months ended March 31, 2021, respectively. The provision is withholding
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.
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, 2021, or through the date these financial statements have been issued.
Management has evaluated subsequent
events and transactions through the date these financial statements were issued.
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 Annual Report on Form 10-K
filed with the SEC on February 19, 2021, 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 materials, 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 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 equipment commonly used in
semiconductor manufacturing. We believe that MST can improve existing products due to the physical properties of the film and can also
enable customers to design products with performance, power and scaling characteristics that are not possible using their current process
technologies. 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, which manufacture the epitaxial, or EPI, deposition 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 the performance of semiconductor products using different materials, design structures
and process technologies.
|
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) a joint development agreement, or JDA, with a leading semiconductor
provider that includes license grants and engineering services, (ii) licensing agreements with two IDMs and one fabless manufacturer and
(iii) 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 14, 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 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.
On September 2, 2020, we entered
into an Equity Distribution Agreement with Craig-Hallum Capital Group LLC, as agent, under which we could offer and sell, from time to
time at our sole discretion, shares of our common stock having an aggregate offering price of up to $25.0 million in an “at-the-market”
or ATM offering, to or through the agent. We announce the completion of this offering on January 5, 2021 after 2,221,575 shares had been
sold at an average price per share of approximately $11.25, resulting in approximately $24.2 million of net proceeds to us after deducting
commissions and other offering expenses.
Results of Operations
Revenues. To
date, we have only generated limited revenue from customer engagements through a JDA, integration engineering services and integration
license agreements. In the future, we expect to collect increased fees from license agreements, which in some cases may be part of a JDA,
and royalties from customer sales of products that incorporate our MST technology. Our JDA includes the grant of an upfront, paid manufacturing
license allowing the customer to install the recipe for our MST film into a tool in their fab and to fabricate semiconductor wafers incorporating
MST, as well as development milestones that, if achieved, could result in additional revenue to Atomera. However, the JDA does not confer
commercial distribution rights. Revenue from the grant of licenses to MST is recognized either at a point in time or over time, depending
on the nature of the grant. We have determined that the limited manufacturing license granted to our JDA customer when we delivered the
MST recipe was distinct from any obligations to provide other goods or services and was a right to use our intellectual property and therefore
recognized revenue at the point in time when the recipe was delivered.
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.
Revenue for the three months
ended March 31, 2021 and 2020 was approximately $400,000 and $62,000, respectively. Revenue for the first quarter of 2021 consisted of
a manufacturing license payment under our JDA.
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 $13,000 for the three months ended March 31, 2021 and 2020, respectively. We anticipate that
our cost of revenue will vary substantially depending on the mix of license and engineering services and the nature of license grants,
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 March 31, 2021 and 2020 our operating expenses totaled approximately $4.0 million and $3.7 million, respectively.
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
March 31, 2021 and 2020, we incurred approximately $2.2 million and $2.1 million, respectively, of research and development expense, an
increase of approximately $167,000, or 8%. The increase in research and development expense is primarily due to additional headcount offset
by a decrease in outsources research and development costs, recruiting and travel.
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 March 31, 2021 and 2020 were approximately $1.5
million and $1.4 million, respectively, representing an increase of approximately $68,000, or 5%. The increase in general and administrative
expenses is primarily due to higher payroll related expenses and stock-based compensation offset by a decrease in costs related to a warrant
modification incurred in the first quarter of 2020 and lower professional fees.
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 March 31, 2021 and 2020 were approximately $266,000 and $225,000, respectively, representing
a decrease of approximately $41,000, or 18%. The increase is primarily related to increases in payroll and related expenses and stock-based
compensation, offset by lower travel expenses.
Interest income. Interest
income for the three months ended March 31, 2021 and 2020 was approximately $2,000 and $38,000, respectively. Interest income for each
period related to interest earned on our cash and cash equivalents and declined as interest rates continued to fall during 2020 and into
2021.
Provision for income
taxes. The provision for income taxes for the three months ended March 31, 2021 and 2020 was approximately $14,000 and $0, respectively.
Our provision is income taxes due to a foreign country arising from withholding taxes imposed on payments received for revenue.
Cash Flows from Operating, Investing and Financing
Activities
Net cash used in operating
activities of approximately $3.9 million for the three months ended March 31, 2021 resulted primarily from our net loss of approximately
$3.6 million, an increase of approximately $679,000 in prepaids and other assets and a decrease in accrued payroll, partly offset by $731,000
of stock-based compensation.
Net cash used in operating
activities of approximately $3.6 million for the three months ended March 31, 2020 resulted primarily from our net loss of approximately
$3.6 million.
Net cash used in investing
activities of approximately $24,000 for the three months ended March 31, 2021 and approximately $3,000 for the three months ended March
31, 2020 consisted of the purchase of computers, lab tools and leasehold improvements for the remodeled Los Gatos office space.
Net cash provided by
financing activities of approximately $2.8 million for the three months ended March 31, 2021 related to the exercise of approximately
398,000 stock options and net proceeds from our at-the-market offering which began in September 2020 and concluded in January 2021.
Net cash provided by financing
activities of approximately $164,000 for the three months ended March 31, 2020 was related to the exercise of approximately 189,000 warrants
at an exercise price of $3.75.
Liquidity and Capital Resources
As of March 31, 2021, we had
cash and cash equivalents of approximately $36.7 million and working capital of approximately $36.4 million. For the three months ended
March 31, 2021, we had a net loss of approximately $3.6 million and used approximately $3.9 million of cash and cash equivalents in operations.
Since inception, we have incurred recurring operating losses.
We believe that our available
working capital is sufficient to fund our presently forecasted working capital requirements for, at least, the next 12 months following
the date of the filing of this report. 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.
Our future capital requirements
and the adequacy of our available funds will depend on many factors, including our ability 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 its 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.
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, 2020 filed with
the SEC on February 19, 2021