2.
|
LIQUIDITY AND MANAGEMENT PLANS
|
At March 31, 2019,
the Company had cash and cash equivalents of approximately $15.1 million and working capital of approximately $14.7 million. The
Company has only generated limited revenues since inception and has incurred recurring operating losses. At March 31, 2019, the
Company had an accumulated deficit of approximately $125.5 million.
The Company’s
operating plans for the next 12 months include increased headcount in research and development 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 planned 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.
3.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Significant accounting policies
There have been no
material changes in the Company’s significant accounting policies to those previously disclosed in the Company’s Annual
Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 11, 2019 except those noted
below under the caption “Adoption of recent accounting standards”.
Basis of presentation of unaudited condensed financial information
The unaudited condensed
financial statements of the Company for the three months ended March 31, 2019 and 2018 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, 2018 was derived from the audited financial
statements included in the Company's financial statements as of and for the year ended December 31, 2018 included in the Company’s
Annual Report on Form 10-K filed with the SEC on March 11, 2019. These financial statements should be read in conjunction with
that report.
Adoption of recent accounting standards
In February 2016, the
Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No 2016-02,
Leases
(Topic 842)
, establishing Accounting Standard Codification (“ASC”) Topic 842, which requires the recognition of
the right-of-use assets and related operating and finance lease liabilities on the balance sheet. As permitted by ASC Topic 842,
the Company elected the adoption date of January 1, 2019, which is the date of initial application, using a modified retrospective
approach for all leases existing at January 1, 2019 and elected to apply the available practical expedients and implemented internal
controls and key system functionality to enable the preparation of financial information on adoption. ASC Topic 842 requires the
Company to make significant judgments and estimates. As a result, the Company implemented changes to its internal controls related
to lease evaluation for the three months ended March 31, 2019. These changes include updated accounting policies affected by ASC
Topic 842 as well as redesigned internal controls over financial reporting related to ASC Topic 842 implementation. Additionally,
the Company has expanded data gathering procedures to comply with the additional disclosure requirements and ongoing contract review
requirements. As a result, the consolidated balance sheet prior to January 1, 2019 was not restated, continues to be reported under
ASC Topic 840,
Leases
, which did not require the recognition of operating lease liabilities on the balance sheet, and
is not comparative. Under ASC Topic 842, all leases are required to be recorded on the balance sheet and are classified as either
operating leases or finance leases. The Company elected not to recognize right-of-use assets and lease liabilities for short-term
leases that have a term of 12 months or less. The adoption of ASC Topic 842 had an impact on the Company’s balance sheet,
but did not have an impact on the Company’s statements of operations or statements of cash flows upon adoption. See Note
6 for more information.
In June 2018, the FASB
issued ASU No. 2018-07,
Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment
Accounting
. The guidance in this ASU expands the scope of ASC Topic 718 to include all share-based payment arrangements related
to the acquisition of goods and services from both nonemployees and employees. The Company adopted ASU No. 2018-07 effective January
1, 2019. The Company’s adoption of ASU No. 2018-07 did not have a material impact on its financial position, results of operations
or financial statement disclosure.
The Company recognizes
revenue when it satisfies a performance obligation by transferring the product or service to the customer, either at a point in
time or over time. The Company usually recognizes revenue from integration service agreements at a point in time and integration
license service agreements over a period of time.
The Company has estimated that it will recognize
approximately $84,000 during the rest of 2019 related to performance obligations that are partially unsatisfied at the end of the
reporting period.
Disaggregation of revenue:
The following table provides information
about disaggregated revenue by primary geographical markets and timing of revenue recognition for the three months ended March
31, 2019 (in thousands):
|
|
Integration
Services
|
|
Primary geographic markets
|
|
|
|
|
Europe
|
|
$
|
50
|
|
Asia Pacific
|
|
|
21
|
|
Total
|
|
$
|
71
|
|
|
|
|
|
|
Timing of revenue recognition
|
|
|
|
|
Products and services transferred at a point in time
|
|
$
|
–
|
|
Products and services transferred over time
|
|
|
71
|
|
Total
|
|
$
|
71
|
|
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 right to 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 has approximately $50,000 of unbilled contracts receivable
as of March 31, 2019.
The Company records
deferred revenue when revenue will be recognized after invoicing. During the three months ended March 31, 2019, the Company recognized
approximately $21,000 of revenue that was included in deferred revenue as of December 31, 2018. The Company has approximately $34,000
in deferred revenue related to invoiced customers, but revenue has not yet been recognized as of March 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,
|
|
|
|
2019
|
|
|
2018
|
|
Stock Options
|
|
|
2,935
|
|
|
|
2,476
|
|
Unvested restricted stock
|
|
|
537
|
|
|
|
316
|
|
Warrants
|
|
|
765
|
|
|
|
765
|
|
Total
|
|
|
4,237
|
|
|
|
3,557
|
|
The Company leases
corporate office space in Los Gatos, California. This lease has a remaining term of 22 months as of March 31, 2019. This lease
is accounted for under ASC Topic 842 and as a result, the most significant impact was the recognition of the operating lease right-of-use
assets and the liability for operating leases. Upon adoption the Company recorded an operating lease right-of-use asset and the
related lease liability. The lease liability is based on the present value of the remaining minimum lease payments, discounted
using the Company’s estimated incremental borrowing rate of 10% at the effective date of January 1, 2019. As permitted under
ASC Topic 842, the Company elected several practical expedients that permit it to not reassess (1) whether a contract is or contains
a lease, (2) the classification of existing leases, and (3) whether previously capitalized costs continue to qualify as initial
indirect costs.
The impact of the adoption
of ASC Topic 842 on the balance sheet at January 31, 2019 was (in thousands):
|
|
As reported December 31, 2018
|
|
|
Adoption of ASC Topic 842
|
|
|
Balance January 1, 2019
|
|
Prepaid expenses and other current assets
|
|
$
|
170
|
|
|
$
|
(13
|
)
|
|
$
|
157
|
|
Operating lease of right-of-use assets
|
|
|
–
|
|
|
|
295
|
|
|
|
295
|
|
Total assets
|
|
|
19,357
|
|
|
|
282
|
|
|
|
19,639
|
|
Other current liabilities
|
|
|
1,611
|
|
|
|
129
|
|
|
|
1,740
|
|
Long-term liabilities operating leases
|
|
|
–
|
|
|
|
152
|
|
|
|
152
|
|
Total liabilities
|
|
|
1,611
|
|
|
|
281
|
|
|
|
1,892
|
|
The current lease accounted
for under ASC Topic 842 contains escalating payments on the anniversary of the commencement. These additional lease components
are included in the measurement of the initial lease liability. Additional payments based on a change in the Company’s share
of the operating expenses, including real estate taxes and insurance, are recorded as a period expense when incurred. Lease modifications
result in remeasurement of the lease liability. Lease expense for operating leases consists of the lease payments plus any initial
direct costs, primarily brokerage commissions, and is recognized on a straight-line basis over the lease term.
Future minimum payments
under non-cancellable leases as of March 31, 2019 were as follows (in thousands):
For the Year Ended December 31,
|
|
Amount
|
|
Remaining 2019
|
|
$
|
107
|
|
2020
|
|
|
165
|
|
2021
|
|
|
14
|
|
Total future minimum lease payments
|
|
|
286
|
|
Less imputed interest
|
|
|
(32
|
)
|
Total lease liability
|
|
|
254
|
|
The below table provides
supplemental information and non-cash activity related to our operating leases are as follows (in thousands):
|
|
Three Month Ended March 31, 2019
|
|
Operating cash flow information:
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
$
|
40
|
|
Non-cash activity:
|
|
|
|
|
Right-of-use assets obtained in exchange for the lease obligations
(1)
|
|
$
|
295
|
|
|
(1)
|
Represents the initial right-of-use asset valuation of the Los Gatos lease on January 1, 2019
|
In October 2016, the
Company entered into lease agreement for approximately 200 square feet of office space in Cambridge, Massachusetts. The lease with
monthly payments of $2,074 per month commenced on October 24, 2016. The lease rate increased to $2,619 on January 1, 2019. 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.
A summary of warrant
activity for the three months ended March 31, 2019 is as follows (in thousands except per share amounts and contractual term):
|
|
Number of
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term (In Years)
|
|
Outstanding at January 1, 2019
|
|
|
765
|
|
|
$
|
5.75
|
|
|
|
–
|
|
Outstanding at March 31, 2019
|
|
|
765
|
|
|
$
|
5.75
|
|
|
|
1.6
|
|
The warrants outstanding
at March 31, 2019 had an intrinsic value of approximately $361,000 based on a per-share stock price of $2.65 as of March 31, 2019.
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 vest over a one to four-year period from the date of grant under the 2017
Plan.
The following table
summarizes the stock-based compensation expense recorded in the Company’s results of operations during the three months ended
March 31, 2019 and 2018 for stock options and restricted stock granted under the 2017 Plan and the 2007 Plan (in thousands):
|
|
Three Months Ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Research and development
|
|
$
|
178
|
|
|
$
|
112
|
|
General and administrative
|
|
|
482
|
|
|
|
400
|
|
Selling and marketing
|
|
|
34
|
|
|
|
34
|
|
Total stock-based compensation expense
|
|
$
|
694
|
|
|
$
|
546
|
|
As March 31, 2019,
there was approximately $5.9 million of total unrecognized compensation expense related to unvested share-based compensation arrangements
that are expected to vest. This cost is expected to be recognized over a weighted-average period of 2.7 years.
The weighted average
grant date fair value per share of the options granted under the Company’s 2017 Plan was $2.50 and $3.63 for the three months
ended March 31, 2019 and 2018, respectively
The following table
summarizes stock option activity during the three months ended March 31, 2019 (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, 2019
|
|
|
2,477
|
|
|
$
|
6.81
|
|
|
|
–
|
|
|
|
|
|
Granted
|
|
|
458
|
|
|
$
|
3.90
|
|
|
|
–
|
|
|
|
|
|
Outstanding at March 31, 2019
|
|
|
2,935
|
|
|
$
|
6.36
|
|
|
|
7.68
|
|
|
$
|
–
|
|
Exercisable at March 31, 2019
|
|
|
1,680
|
|
|
$
|
6.96
|
|
|
|
6.96
|
|
|
$
|
–
|
|
During the three months
ended March 31, 2019 the Company granted options under the 2017 Plan to purchase approximately 458,000 shares of its common stock
to its employees. The fair value of these options was approximately $1.1 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, 2019 (in thousands
except per share data):
|
|
Number of
Shares
|
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
Outstanding at January 1, 2019
|
|
|
258
|
|
|
$
|
6.04
|
|
Granted
|
|
|
298
|
|
|
$
|
3.90
|
|
Vested
|
|
|
(19
|
)
|
|
$
|
5.99
|
|
Outstanding non-vested shares at March 31, 2019
|
|
|
537
|
|
|
$
|
6.04
|
|
During the three months
ended March 31, 2019 the Company granted approximately 298,000 restricted stock awards under the 2017 Plan to its employees and
directors. The fair value of these awards was approximately $1.2 million at the time of grant.
9.
|
COMMITMENTS AND CONTINGENCIES
|
Litigation, Claims and Assessments
The Company is 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, 2019.
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
in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 11, 2019 and referenced under
the heading “Risk Factors” within Part II, Item 1A of this Quarterly Report and other documents we subsequently file
from time to time with the SEC, such as our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports
on Form 8-K. Such risks, uncertainties and changes in condition, significance, value and effect could cause our actual results
to differ materially from those expressed herein and in ways not readily foreseeable. Readers are urged not to place undue reliance
on these forward-looking statements, which speak only as of the date of this Quarterly Report and are based on information currently
and reasonably known to us. We undertake no obligation to revise or update any forward-looking statements in order to reflect any
event or circumstance that may arise after the date of this Quarterly Report. Readers are urged to carefully review and consider
the various disclosures made in this Quarterly Report, which attempt to advise interested parties of the risks and factors that
may affect our business, financial condition, results of operations and prospects.
Overview
We are engaged in the
business of developing, commercializing and licensing proprietary processes and technologies for the $450+ billion semiconductor
industry. Our lead technology, named Mears Silicon Technology
TM
, 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 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 intend to develop and license technologies and processes that we
believe will 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 are expected to 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 who outsource the manufacture of their chips to foundries;
|
|
·
|
original equipment manufacturers, or OEMs, that manufacture the epitaxial, or EPI, machines used to deposit semiconductor layers, such as the MST, onto the base silicon wafer; and
|
|
·
|
electronic design automation companies, which make tools used throughout the industry to simulate performance of semiconductor products using different materials, design structures and process technologies.
|
We intend to generate revenue through licensing
arrangements whereby foundries and IDMs 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 intend to enter into
licensing arrangements with fabless semiconductor manufacturers pursuant to which we will charge them a royalty for each device
they sell that incorporates our MST technology.
We were organized as a Delaware limited
liability company under the name Nanovis LLC on November 26, 2001. On March 13, 2007, we converted to a Delaware corporation under
the name Mears Technologies, Inc. On January 12, 2016, we changed our name to Atomera Incorporated.
On August 10, 2016, we closed our initial
public offering of 3,680,000 shares of common stock at a public offering price of $7.50 per share. We received approximately $24.7
million in net proceeds after deducting underwriting discounts and commission and other offering expenses.
On October 15, 2018, we closed an underwritten
public offering of 2,625,000 shares of common stock at a public offering price of $4.75 per share, resulting in approximately $11.4
million of net proceeds to us after deducting underwriting discounts and commission and other offering expenses.
Results of Operations
Revenues
.
To date, we have only generated limited revenue from customer engagements for integration engineering services and integration
license agreements. In the future, we expect to collect increased fees from license agreements 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. Revenue is recognized upon transfer of control of promised products, services
or intellectual property (IP) rights in an amount that reflects the consideration that we expect to receive in exchange for those
products, services or licensing of IP rights. The integration license agreements that we currently have in place do not specify
the number of wafers to be delivered by us, so we recognize revenue over the period during which we estimate that we will deliver
wafers under each contract.
Revenue for the three
months ended March 31, 2019 and 2018 was approximately $71,000 and $0, respectively. Our revenue in 2019 was generated from integration
license agreements.
Cost of Revenue.
Cost of revenue from integration service agreements consists of costs of materials, as well as direct compensation and expenses
incurred to provide such services. Cost of revenue from integration license agreements consists of third-party royalties, if any,
incurred to grant such licenses. Because all revenue for the three months ended March 31, 2019 was generated from integration license
agreements and no royalties were payable, we did not incur any cost of revenue in that period. We did not generate any revenue
in the three months ended March 31, 2018 and as such we incurred no cost of revenue.
Operating Expenses
.
Operating expenses consist of research and development, general and administrative, and selling and marketing expenses. For the
three months ended March 31, 2019 and 2018 our operating expenses totaled approximately $3.7 million and $3.1 million, respectively.
The increase in operating expenses was due to an increase of approximately $437,000 in research and development expense and an
increase of approximately $118,000 in general and administrative expense.
Research and
development expense.
To date, our operations have focused on the research, development, patent protection, and commercialization
of our processes and technologies, including our proprietary and patent-protected MST performance enhancement technology. 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, 2019 and 2018, we incurred approximately $2.1 million and $1.7 million, respectively, of research and development
expense, an increase of approximately $437,000 or 26%. The increase in research and development expense is primarily due to an
increase of approximately $299,000 in spending on outsourced fabrication and metrology to support increased engagements with customers
evaluating MST, an increase of approximately $72,000 in payroll expense reflecting an increase in engineering headcount and accrued
bonuses and an increase in stock-based compensation expense of approximately $66,000.
General and
administrative expense.
General and administrative expenses consist primarily of payroll and benefit costs for administrative
personnel, office-related costs and professional fees. General and administrative costs for the three months ended March 31, 2019
and 2018 were approximately $1.3 million and $1.2 million, respectively, representing an increase of approximately $118,000 or
10%. The increase in costs was primarily due to an increase of approximately $83,000 in stock-based compensation expense and an
increase of approximately $16,000 in payroll related costs due to an increase in salaries and benefits as compared to the three
months ended March 31, 2018. In addition, corporate insurance in the first three months of 2019 increased by approximately $17,000
over the same period of 2018.
Selling and
marketing expense.
Selling and marketing expenses consist primarily of salary and benefits for our sales and marketing
personnel and business development services. Selling and marketing expenses for the three months ended March 31, 2019 and 2018
were approximately $247,000 and $246,000, respectively, representing an increase of approximately $1,000, or 0%.
Interest income.
Interest income for the three months ended March 31, 2019 and 2018 was approximately $90,000 and $47,000, respectively.
Interest income for each period related to interest earned on our cash and cash equivalents.
Liquidity and Capital Resources
On October 15, 2018
we closed an underwritten public offering of 2,625,000 shares of our common stock at a public offering price of $4.75 per share,
pursuant to our Registration Statement on Form S-3. We received approximately $11.4 million of net proceeds, after deducting underwriting
discounts and commissions and other offering expenses.
As of March 31, 2019,
we had cash and cash equivalents of approximately $15.1 million and working capital of approximately $14.7 million. For the three
months ended March 31, 2019, we had a net loss of approximately $3.5 million and used approximately $3.8 million of cash and cash
equivalents in operations. Since inception, we have incurred recurring operating losses. At March 31, 2019, we had an accumulated
deficit of approximately $125.5 million.
As of the date of this
report, 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.
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. However, there can be no guarantees that additional capital, whether under the S-3 Registration
Statement or otherwise, will be available on commercially reasonable terms, if at all. If such financing is not available on satisfactory
terms, we may be unable to further pursue our business plan and we may be unable to continue operations.
Cash Flows from Operating, Investing
and Financing Activities
Net cash used in operating
activities of approximately $3.8 million for the three months ended March 31, 2019 resulted primarily from our net loss of approximately
$3.5 million adjusted by approximately $694,000 for stock-based compensation expense and a decrease in liabilities of approximately
$847,000.
Net cash used in operating
activities of approximately $2.8 million of the three months ended March 31, 2018 resulted primarily from our net loss of approximately
$3.1 million adjusted by approximately $546,000 for stock-based compensation expense and an increase of approximately $43,000 in
accounts receivable and prepaids offset by a decrease in approximately $232,000 in accounts payable and other accrued liabilities.
Our quarterly use of
cash in operations has been highest in the first quarter of each year due to the payment of annual bonuses and other annual payments
such as insurance premiums and exchange listing fees. We expect this seasonally higher use of cash during the first quarter of
each year to continue in future years.
Net cash used in investing
activities of approximately $42,000 for the three months ended March 31, 2019 and approximately $10,000 for three months ended
March 31, 2018 consisted of the purchase of computers and lab equipment.
No cash was used in
or provided by financing activities for the three months ended March 31, 2019 or 2018.
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 including Accounting Standards Update (“ASU”) No 2016-02,
Leases (Topic 842)
.
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,
2018 filed with the SEC on March 11, 2019 except for the adoption of ASC Topic 842 as noted above under the caption “Recent
Accounting Standards.”