Atomera Inc

Previous wording

The following discussion and analysis of the financial condition and results of operations of Atomera Incorporated should be read in conjunction with our financial statements and the accompanying notes that appear elsewhere in this Quarterly Report. 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, 2023 filed with the SEC on February 15, 2024. 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.

Current wording

The following discussion and analysis of the financial condition and results of operations of Atomera Incorporated should be read in conjunction with our financial statements and the accompanying notes that appear elsewhere in this Quarterly Report on Form 10-Q. Statements in this Quarterly Report 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, 2023 filed with the SEC on February 15, 2024. 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.

Previous wording

In April 2023, we entered into a license agreement with ST Microelectronics (“ST”) that authorizes ST to manufacture and distribute MST-enabled products to its customers. This agreement provides for payment of license fees payable upon reaching milestones consistent with Atomera’s standard business model. Our standard model is based around two major milestones, namely the installation of MST in a customer’s fab and qualification of an MST-enabled process. After process qualification is completed, ST will have the right to commercially distribute MST-enabled products and, assuming ST brings such products to market, we will receive royalties on all MST-enabled products manufactured for commercial purposes. This license agreement with ST is our first grant of commercial manufacturing and distribution rights. In the fourth quarter of 2023, we completed the first major milestone under the ST license agreement by delivering our MST film recipe and ST accepting the film, resulting in our recognizing license revenue associated with that milestone. ST is currently performing testing to optimize their integration of MST as part of their qualification process. Upon qualification, we will earn additional license fees for the distribution license, after which ST will be entitled to MST-enabled products and royalties will be payable to us for every product sold. There can be no assurance, however, that ST will complete its process qualification and pursue the licensed rights through development to the manufacture and commercial sale of MST-enabled products.

Current wording

In April 2023, we entered into a license agreement with ST Microelectronics (“ST”) that authorizes ST to manufacture and distribute MST-enabled products to its customers. This agreement provides for payment of license fees payable upon reaching milestones consistent with Atomera’s standard business model. Our standard model is based around two major milestones, namely the installation of MST in a customer’s fab and qualification of an MST-enabled process. Our license agreement with ST is our first grant of commercial manufacturing and distribution rights. In the fourth quarter of 2023, we completed the first major milestone under the ST license agreement by delivering our MST film recipe and ST accepting the film, resulting in our recognizing license revenue associated with that milestone. ST is currently performing testing to optimize their integration of MST as part of their qualification process. Upon qualification, we will earn additional license fees for the distribution license, after which ST will be entitled to MST-enabled products and royalties will be payable to us for every product sold. There can be no assurance, however, that ST will complete its process qualification and pursue the licensed rights through development to the manufacture and commercial sale of MST-enabled products.

Previous wording

On May 31, 2022, we entered into an Equity Distribution Agreement with Oppenheimer & Co. Inc and Craig-Hallum Capital Group LLC, as agents, under which we may offer and sell, from time to time at our sole discretion, shares of our common stock having an aggregate offering price of up to $50.0 million in an “at-the-market” offering or “ATM”, to or through the agents. During the three-month period ended June 30, 2024, we sold approximately 669,000 shares pursuant to the ATM at an average price per share of approximately $3.82, resulting in approximately $2.4 million of net proceeds to the Company after deducting commissions and other offering expenses. During the six-month period ended June 30, 2024, we sold approximately 1.2 million shares pursuant to the ATM at an average price per share of approximately $5.66, resulting in approximately $6.4 million of net proceeds to the Company after deducting commissions and other offering expenses.

Current wording

On May 31, 2022, we entered into an Equity Distribution Agreement with Oppenheimer & Co. Inc and Craig-Hallum Capital Group LLC, as agents, under which we may offer and sell, from time to time at our sole discretion, shares of our common stock having an aggregate offering price of up to $50.0 million in an “at-the-market” offering or “ATM”, to or through the agents. During the three-month period ended September 30, 2024, we sold approximately 691,000 shares pursuant to the ATM at an average price per share of approximately $3.18, resulting in approximately $2.1 million of net proceeds to the Company after deducting commissions and other offering expenses. During the nine-month period ended September 30, 2024, we sold approximately 1.9 million shares pursuant to the ATM at an average price per share of approximately $4.74, resulting in approximately $8.5 million of net proceeds to the Company after deducting commissions and other offering expenses.

Previous wording

Revenues. To date, we have only generated limited revenue from customer engagements for engineering services, integration license agreements, a manufacturing license granted under a JDA and licensing of MSTcad. Our license agreement with ST, which was executed in April 2023, is our first commercial manufacturing and distribution agreement and, assuming successful completion of contractual milestones and payments of associated fees, will entitle us to royalties on all MST-enabled products manufactured for commercial purposes. Our MSTcad licenses grant customers the right to use MSTcad software to simulate the effects of incorporating MST technology into their semiconductor manufacturing process. MSTcad licenses are granted on a monthly or yearly basis and revenue is recognized over time.

Current wording

Revenues. To date, we have only generated limited revenue from customer engagements for engineering services, integration license agreements, a manufacturing license granted under a JDA, our license agreement with ST and licensing of MSTcad. Our license agreement with ST, which was executed in April 2023, is our first commercial manufacturing and distribution agreement and, assuming successful completion of contractual milestones and payments of associated fees, will entitle us to royalties on all MST-enabled products manufactured for commercial purposes. Our MSTcad licenses grant customers the right to use MSTcad software to simulate the effects of incorporating MST technology into their semiconductor manufacturing process. MSTcad licenses are granted on a monthly or yearly basis and revenue is recognized over time.

Previous wording

Revenue for the three and six months ended June 30, 2024 was approximately $72,000 and $90,000 respectively. Our revenue in 2024 consisted of MSTcad license revenue, consulting services related to MSTcad and the delivery of MST wafers. Revenue was not recorded during the three and six months ended June 30, 2023.

Current wording

Revenue for the three and nine months ended September 30, 2024 was approximately $22,000 and $112,000 respectively. Our revenue in 2024 consisted of MSTcad licensing and related consulting services revenue, and engineering services revenue from the delivery of MST wafers. Revenue was not recorded during the three and nine months ended September 30, 2023.

Previous wording

Cost of revenue. Cost of revenue consists of costs of materials, as well as direct compensation and expenses incurred to provide deliverables that result in payment of success fees, delivery of wafers delivered as part of integration license agreements and consulting services provided for our MSTcad licenses. Cost of revenue is expensed when incurred and may not correspond with revenue earned. Cost of revenue for the three and six months ended June 30, 2024 was approximately $74,000 and $107,000, respectively. We anticipate that our cost of revenue will vary substantially depending on the mix of license and engineering services revenues we receive and the nature of products and/or services delivered in each customer engagement. Cost of revenue was not recorded during the three and six months ended June 30, 2023.

Current wording

Cost of revenue. Cost of revenue consists of costs of materials, as well as direct compensation and expenses incurred to provide deliverables that result in payment of success fees, delivery of wafers delivered as part of integration license agreements and consulting services provided for our MSTcad licenses. Cost of revenue is expensed when incurred and may not correspond with revenue earned. Cost of revenue for the three and nine months ended September 30, 2024 was approximately $3,000 and $110,000, respectively. We anticipate that our cost of revenue will vary substantially depending on the mix of license and engineering services revenues we receive and the nature of products and/or services delivered in each customer engagement. Cost of revenue was not recorded during the three and nine months ended September 30, 2023.

Previous wording

Operating expenses. Operating expenses consist of research and development, general and administrative, and selling and marketing expenses. For the three months ended June 30, 2024 and 2023, our operating expenses totaled approximately $4.6 million and $5.4 million, respectively. For the six months ended June 30, 2024 and 2023, our operating expenses totaled approximately $9.6 million and $10.5 million, respectively.

Current wording

Operating expenses. Operating expenses consist of research and development, general and administrative, and selling and marketing expenses. For the three months ended September 30, 2024 and 2023, our operating expenses totaled approximately $4.8 million and $5.4 million, respectively. For the nine months ended September 30, 2024 and 2023, our operating expenses totaled approximately $14.5 million and $15.9 million, respectively.

Previous wording

For the three months ended June 30, 2024 and 2023, we incurred approximately $2.6 million and $3.2 million, respectively, of research and development expenses, a decrease of approximately $600,000, or 19%. This decrease was primarily due to decrease of approximately $535,000 in outsourced research and development as we discontinued working with our foundry services provider, TSI Semiconductor, as of January 31. 2024. We are currently seeking a replacement provider of foundry services. Additionally, there were decreases of approximately $101,000 in payroll and benefits costs for reduced headcount and bonus accrual.

Current wording

For the three months ended September 30, 2024 and 2023, we incurred approximately $2.8 million and $3.3 million, respectively, of research and development expenses, a decrease of approximately $546,000, or 17%. This decrease was primarily due to decrease of approximately $540,000 in outsourced research and development as our foundry services provider, TSI Semiconductor, ceased providing these services as of January 31, 2024 after it was acquired by Robert Bosch LLC.

Previous wording

For the six months ended June 30, 2024 and 2023, we incurred approximately $5.4 million and $6.2 million, respectively, of research and development expenses, a decrease of approximately $781,000, or 13%. This decrease was primarily due to a decline of approximately $776,000 in outsourced research and development as we discontinued working with TSI Semiconductor as of January 31. 2024.

Current wording

For the nine months ended September 30, 2024 and 2023, we incurred approximately $8.2 million and $9.5 million, respectively, of research and development expenses, a decrease of approximately $1.3 million, or 14%. This decrease was primarily due to a decline of approximately $1.4 million in outsourced research and development as we discontinued working with TSI Semiconductor as of January 31, 2024.

Previous wording

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 were approximately $1.8 million for each of the three-month periods ended June 30, 2024 and 2023, representing an increase of approximately $57,000, or 3%. The increase is primarily related to increases of approximately $101,000 in professional fees, related primarily to legal costs and fees related to our patent portfolio. These costs are partially offset by a decrease of approximately $44,000 in stock-based compensation costs.

Current wording

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 were approximately $1.8 million and $1.7 million for the three-month periods ended September 30, 2024 and 2023, respectively, representing an increase of approximately $129,000, or 8%. The increase is primarily related to increases of approximately $108,000 in employee costs and approximately $67,000 in legal costs and fees related to our patent portfolio. These costs are partially offset by a decrease of approximately $82,000 in stock-based compensation costs.

Previous wording

General and administrative costs were approximately $3.6 million and $3.5 million for the six months ended June 30, 2024 and 2023, respectively, representing an increase of approximately $126,000, or 4%. The increase is primarily related to increases of approximately $99,000 in payroll and benefits costs and approximately $158,000 in legal costs and fees related to our patent portfolio. These increases were partly offset by a decrease of approximately $89,000 in corporate legal expenses and approximately $42,000 in director and officer insurance.

Current wording

General and administrative costs were approximately $5.5 million and $5.2 million for the nine months ended September 30, 2024 and 2023, respectively, representing an increase of approximately $255,000, or 5%. The increase is primarily related to increases of approximately $207,000 in payroll and benefits costs and approximately $226,000 in legal costs and fees related to our patent portfolio. These increases were partly offset by decreases of approximately $85,000 in corporate legal expenses and approximately $69,000 in stock-based compensation expense.

Previous wording

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 three months ended June 30, 2024 and 2023 were approximately $207,000 and $393,000, respectively, representing a decrease of approximately $186,000, or 47%. Selling and marketing expenses for the six months ended June 30, 2024 and 2023 were approximately $557,000 and $782,000, respectively, representing a decrease of approximately $225,000, or 29%. The decrease in costs for both the three and six-month periods is primarily due to a reduction in headcount.

Current wording

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 three months ended September 30, 2024 and 2023 were approximately $248,000 and $365,000, respectively, representing a decrease of approximately $117,000, or 32%. Selling and marketing expenses for the nine months ended September 30, 2024 and 2023 were approximately $805,000 and $1.1 million, respectively, representing a decrease of approximately $342,000, or 30%. The decrease in costs for both the three and nine month periods is primarily due to a reduction in headcount.

Previous wording

Interest income. Interest income for three months ended June 30, 2024 and 2023 was approximately $185,000 and $152,000, respectively. Interest income for six months ended June 30, 2024 and 2023 was approximately $390,000 and $351,000, respectively. Interest income for the periods presented was due to interest earned on our cash, cash equivalents and short-term investments.

Current wording

Interest income. Interest income for three months ended September 30, 2024 and 2023 was approximately $176,000 and $177,000, respectively. Interest income for nine months ended September 30, 2024 and 2023 was approximately $566,000 and $528,000, respectively. Interest income for the periods presented reflected interest earned on our cash, cash equivalents and short-term investments.

Previous wording

**Accretion income.**Accretion income for the three months ended June 30, 2024 and 2023 was approximately $47,000 and $107,000, respectively. Accretion income for the six months ended June 30, 2024 and 2023 was approximately $93,000 and $109,000, respectively. Accretion income relates to the increase in value of our available-for-sale securities from the purchase date through the maturity date.

Current wording

**Accretion income.**Accretion income for the three months ended September 30, 2024 and 2023 was approximately $59,000 and $112,000, respectively. Accretion income for the nine months ended September 30, 2024 and 2023 was approximately $152,000 and $221,000, respectively. Accretion income relates to the increase in value of our available-for-sale securities from the purchase date through the maturity date.

Previous wording

Interest expense. Interest expense for the three months ended June 30, 2024 and 2023 was approximately $35,000 and $51,000, respectively. Interest expense for the six months ended June 30, 2024 and 2023 was approximately $74,000 and $104,000, respectively. Interest expense is related to the tool financing lease entered into in August 2021.

Current wording

Interest expense. Interest expense for the three months ended September 30, 2024 and 2023 was approximately $30,000 and $47,000, respectively. Interest expense for the nine months ended September 30, 2024 and 2023 was approximately $104,000 and $151,000, respectively. Interest expense is related to the tool financing lease entered into in August 2021.

Previous wording

**Other income, net.**Other income for the three and six months ended June 30, 2024 of approximately $72,000, consisted primarily of a refundable state research and development tax credit, net of filing costs and tax consulting services.

Current wording

**Other income, net.**Other income for the three and nine months ended September 30, 2024 of approximately $0 and $72,000, consisted of a refundable state research and development tax credit, net of filing costs and tax consulting services received in the second quarter of 2024. Other income for the three and nine months ended September 30, 2023 of approximately $72,000 also consisted of a refundable state research and development tax credit, net of filing costs and tax consulting services received in the third quarter of 2023.

Previous wording

Net cash used in operating activities of approximately $8.2 million for the six months ended June 30, 2023 resulted primarily from our net loss of approximately $10.2 million offset by approximately $2.0 million of stock-based compensation.

Current wording

Net cash used in operating activities of approximately $10.2 million for the nine months ended September 30, 2024 resulted primarily from our net loss of approximately $13.8 million offset by approximately $2.9 million of stock-based compensation and the amortization of our right of use assets of approximately $1.0 million offset by increases in our payroll-related accruals.

Previous wording

Net cash used in operating activities of approximately $7.3 million for the six months ended June 30, 2024 resulted primarily from our net loss of approximately $9.2 million offset by approximately $2.0 million of stock-based compensation.

Current wording

Net cash used in operating activities of approximately $11.6 million for the nine months ended September 30, 2023 resulted primarily from our net loss of approximately $15.2 million offset by approximately $3.0 million of stock-based compensation and approximately $1.0 million of amortization of right-of-use assets.

Previous wording

Net cash provided by investing activities of approximately $3.2 million and for the six months ended June 30, 2024 consisted primarily of the maturity of short-term available-for-sale investments, offset by the purchase of short-term available-for-sale investments.

Current wording

Net cash provided by investing activities of approximately $3.5 million and for the nine months ended September 30, 2024 consisted primarily of the maturity of short-term available-for-sale investments, offset by the purchase of short-term available-for-sale investments.

Previous wording

Net cash used in investing activities of approximately $10.9 million and for the six months ended June 30, 2023 consisted primarily of the purchase of short-term investments.

Current wording

Net cash used in investing activities of approximately $7.6 million and for the nine months ended September 30, 2023 consisted primarily of the purchase of short-term available-for-sale investments, offset by the maturity of short-term available-for-sale investments

Previous wording

Net cash provided by financing activities of approximately $6.0 million for the six months ended June 30, 2024 primarily related to the net proceeds from our ATM offering, offset by the principal payments on our financing lease.

Current wording

Net cash provided by financing activities of approximately $7.9 million for the nine months ended September 30, 2024 primarily related to the net proceeds from our ATM offering, offset by the principal payments on our financing lease.

Previous wording

Net cash provided by financing activities of approximately $10.8 million for the six months ended June 30, 2023 primarily related to the net proceeds from our ATM offering, offset by the principal payments on our financing lease.

Current wording

Net cash provided by financing activities of approximately $10.7 million for the nine months ended September 30, 2023 primarily related to the net proceeds from our ATM offering, offset by the principal payments on our financing lease.

Previous wording

As of June 30, 2024, we had cash and cash equivalents of approximately $14.5 million, short-term investments of approximately $3.8 million and working capital of approximately $15.8 million. For six months ended June 30, 2024, we had a net loss of approximately $9.2 million and used approximately $7.3 million of cash and cash equivalents in operations. Since inception, we have incurred recurring operating losses.

Current wording

As of September 30, 2024, we had cash and cash equivalents of approximately $13.8 million, short-term investments of approximately $3.6 million and working capital of approximately $14.4 million. For the nine months ended September 30, 2024, we had a net loss of approximately $13.8 million and used approximately $10.2 million of cash and cash equivalents in operations. Since inception, we have incurred recurring operating losses.

Previous wording

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 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 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 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 cash.

Current wording

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 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 our ATM, 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 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 cash.