ATOMERA INCORPORATED The following discussion and analysis of the financial condition and results of
operations of
Overview
We are engaged in the business of developing, commercializing and licensing proprietary processes and technologies for the $550+ billion semiconductor industry. Our lead technology, named Mears Silicon Technology™, 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 power 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 manufacturing 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 silicon wafers; 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.
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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. We also license our MSTcadTM software to our customers for use in simulating the effects of using MST technology on their wafers and/or devices. To date, we have generated revenue from (i) licensing agreements with two IDMs, one fabless manufacturer and one foundry, (ii) a joint development agreement, or JDA, with a leading semiconductor provider, (iii) engineering services provided to foundries, IDMs and fabless companies and (iv) licensing MSTcad.
We were organized as a
Between
On
Results of Operations for the Years Ended
Revenues. To date, we have only generated limited revenue from customer engagements for integration engineering services, integration license agreements, a manufacturing license granted under a JDA, a success fee for achievement of milestones under that JDA and licensing our MSTcad software. In the future, we expect to collect increased fees from license agreements and JDAs as well as 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. Our first JDA included the grant of a manufacturing license to our customer and we were paid for such license upon delivery of our IP transfer package which enabled our customer to install MST in a tool in their facility and to use it to manufacture wafers for internal use. This JDA also contained targeted technical specifications that, if met, would result in payment of a success fee to us. Those technical objectives were met and we have collected the success fee.
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. We have also determined that the grant of our manufacturing license under the JDA confers a right to use our technology and accordingly revenue was recognized at the point in time when we delivered our IP transfer package. The success fee under our JDA was treated as engineering services revenue and recognized upon our customer's confirmation that the JDA's technical objectives had been met. Our licensing of MSTcad grants customers the right to use MSTcad software to simulate the effects of incorporating MST technology into their semiconductor manufacturing process. Such MSTcad licenses are granted on a monthly basis and revenue is recognized over time.
Revenue for the years ended
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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
Operating Expenses. Operating expenses consist of research and development,
general and administrative, and selling and marketing expenses. For the years
ended
Research and development expense. To date, our operations have focused on the research, development, patent prosecution, and commercialization of our MST technology and related technologies such as MSTcad. Our research and development costs primarily consist of payroll and benefit costs for our engineering staff and costs of outsourced fabrication (including epi tool leases) and metrology of semiconductor wafers incorporating our MST technology.
For the years ended
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 years ended
Selling and marketing expense. Selling and marketing expenses consist primarily
of salary and benefits for our sales and marketing personnel and business
development consulting services. Selling and marketing expenses for the years
ended
Interest income. Interest income for the years ended
Interest expense. Interest expense for the years ended
Provision for income taxes. The provision for income tax for the year ended
Liquidity and Capital Resources
As of
22
During the year ended
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, 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 time frame 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 our ATM Facility, 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.
Cash Flows from Operating, Investing and Financing Activities:
Net cash used in operating activities of approximately
Net cash used in operating activities of approximately
Net cash used by investing activities of approximately
Gatos office space and our new Tempe office space.
Net cash provided by financing activities of approximately
Net cash provided by financing activities of approximately
Critical Accounting Estimates
Our financial statements are prepared in accordance with accounting principles
generally accepted in
Revenue
We generate revenue from integration engineering services, which we deliver either pursuant to integration license agreements or delivery of engineering services and from the grant of manufacturing licenses to customers to use its technology in the manufacture of semiconductor wafers and/or devices for the customer's internal use. Revenue is recognized based on the following steps: (i) identification of the contract, or contracts, with a customer, (ii) identification of the performance obligations in the contract, (iii) determination of the transaction price, (iv) allocation of the transaction price to the performance obligations of the contract, and (v) recognition of revenue when, or as, we satisfy a performance obligation. Integration services generally consist of depositing our proprietary technology onto the customer's semiconductor wafers and delivering such wafers back to the customer. Revenue from integration services is recognized as the performance obligations are satisfied, which is upon transfer of control of the wafers to the customer (generally upon shipment). Revenue from manufacturing licenses is recognized as the performance obligations are satisfied, which is upon delivery of the Company's MST recipe to the customer.
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For recognizing integration service revenue from integration license agreements, we assess (i) whether the license grant is distinct from or combined with the transfer of goods or services and (ii) whether the license is a right to access intellectual property or a right to use the intellectual property. For licenses that are not distinct, but combined with other goods or services, the revenue is recognized at a point in time or over time as the obligations to perform the combined services and/or deliver the combined goods are satisfied. Integration license agreements contain a technology grant as well as a performance obligation to deliver wafers with our technology deposited on them. We have determined the grant of rights in these integration license agreements is not distinct from the integration service. Accordingly, revenue from integration license agreements is recognized as the service is provided to the customer. For manufacturing licenses, revenue is recognized at the point in time when we deliver our MST recipe as the license to manufacture using MST technology is a right to use the Company's technology and not a right to access the technology over time.
Leases
We account for leases in accordance with
Stock-based Compensation
We have stock-based compensation programs, which include restricted stock awards ("RSAs") and stock options and an employee stock purchase plan. We account for stock-based compensation expense, including the expense for grants of RSAs and stock options that may be settled in shares of our common stock, based on the fair values of the equity instruments issued. The fair value is determined on the measurement date, which is the date of grant. The fair value of our RSAs is measured at the market price of our common stock on the measurement date amortized over the vesting period of the award. The fair value for our stock option awards is determined at the grant date using the Black-Scholes Option Pricing Model and amortized over the vesting period of the option.
Assumptions for the Black-Scholes valuation model used for employee stock awards include:
· Expected term - We derived the expected term for employee stock awards using
limited historical information to develop expectations about future exercise
patterns and post vesting employment termination behavior.
· Expected volatility - Volatility is estimated using Atomera's historical
volatility for similar terms.
· Expected dividend rate - We have not declared or paid dividends to our
stockholders and have no plans to pay dividends; therefore, we have assumed an
expected dividend yield of 0%.
· Risk-free interest rate - The risk-free interest rate is based on the yields
of U.S. Treasury securities with maturities similar to the expected terms of
the associated awards.
· The fair value of our common stock is measured at the market price on the
measurement date.© Edgar Online, source
