What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-08-07 compared with 2020-05-11 · 140 added, 334 removed, 240 unchanged (66% of the section changed)

12 unchanged sentences

Security deposit

LIABILITIES AND STOCKHOLDERS’

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

6 unchanged sentences

Commitments and contingencies (see Note 9)

Stockholders’

Stockholders’ equity:

Preferred stock, $ 0.001 par value, authorized 2,500 shares;

none issued and outstanding at March 31, 2020 and December 31, 2019.

none issued and outstanding at June 30, 2020 and December 31, 2019.

Common stock, $ 0.001 par value, authorized 47,500 shares;

17,726 and 17,117 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively.

19,826 and 17,117 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively.

Additional paid-in capital

Accumulated deficit

Total stockholders’

Total liabilities and stockholders’

Total stockholders’ equity

Total liabilities and stockholders’ equity

The accompanying notes are an integral part

4 unchanged sentences

Three Months ended

Six Months ended

Cost of revenue

12 unchanged sentences

Atomera Incorporated

Statements of Stockholders’

For the Three Months Ended March 31,

Statements of Stockholders’ Equity

For the Three and Six Months Ended June

30, 2020 and 2019

(in thousands)

Total Stockholders’

Stockholders’

Balance January 1, 2020

3 unchanged sentences

Balance March 31, 2020

Total Stockholders’

public offering of common stock, net of commissions and expenses

Stock option exercise

Stock-based compensation

Balance June 30, 2020

Stockholders’

Balance January 1, 2019

$ ( 121,962 )

Stock-based compensation

Balance March 31, 2019

Registered direct

offering of common stock, net of commissions and expenses

Stock-based compensation

Balance June 30, 2019

$ ( 129,130 )

The accompanying notes are an integral part

3 unchanged sentences

(in thousands)

Three Months Ended

Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES

18 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from underwritten public offering, net of commissions and expenses

Proceeds from registered direct offering of common stock, net of commissions and expenses

Proceeds from exercise of warrant

Net cash provided by/ (used in) financing activities

Net decrease in cash and cash equivalents

Proceeds from exercise of stock options

Net cash provided by financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

7 unchanged sentences

NOTES TO THE UNAUDITED CONDENSED FINANCIAL

For the Three Months Ended March 31,

For the Three and Six Months Ended June

NATURE OF OPERATIONS

Atomera Incorporated

(“Atomera”

or the “Company”) was incorporated in the state of Delaware in March 2007 under the name MEARS

(“Atomera” or the “Company”) was incorporated in the state of Delaware in March 2007 under the name MEARS

Technologies, Inc.

6 unchanged sentences

The Company has primarily financed operations through

private placements of equity and debt securities and the Company’s Initial Public Offering (the “IPO”) which

was consummated on August 10, 2016, its underwritten public offering of common stock consummated on October 15, 2018 and a registered

direct offering of common stock consummated on May 30, 2019.

private placements of equity and debt securities and the Company’s Initial Public Offering (the “IPO”) which

was consummated on August 10, 2016, its underwritten public offering of common stock consummated on October 15, 2018, a registered

direct offering of common stock consummated on May 30, 2019, and its underwritten public offering of common stock consummated on

May 15, 2020.

LIQUIDITY AND MANAGEMENT PLANS

At March 31, 2020,

the Company had cash and cash equivalents of approximately $11.4 million and working capital of approximately $10.4 million.

Company has only generated limited revenues since inception and has incurred recurring operating losses.

At June 30, 2020,

the Company had cash and cash equivalents of approximately $18.0 million 17,965 and working capital of approximately $ 17.0

The Company has generated only limited revenue since inception and has incurred recurring operating losses.

Based on the funds

1 unchanged sentence

business plans and obligations over, at least, 12 months from the date that these financial statements have been issued.

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, in the near term 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.

the semiconductor industry is generally slow to adopt new manufacturing process technologies and conducts long testing and qualification

processes which have limited the Company’s ability to control, and there can be no assurances of the timing of receipt of

meaningful amounts of revenue.

In addition, the COVID-19 pandemic has impacted some of the Company’s customer contract negotiations

and delayed some engineering work by its customers.

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 in the near

term, 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.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1 unchanged sentence

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 13, 2020 except those noted

below under the caption “Adoption of recent accounting standards”.

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 13, 2020 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, 2020 and 2019 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, 2019 was derived from the audited financial

statements included in the Company's financial statements as of and for the year ended December 31, 2019 included in the Company’s

Annual Report on Form 10-K filed with the SEC on March 13, 2020.

These financial statements should be read in conjunction with

financial statements of the Company for the three and six months ended June 30, 2020 and 2019 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, 2019 was derived

from the audited financial statements included in the Company's financial statements as of and for the year ended December 31,

2019 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 13, 2020.

These financial statements

should be read in conjunction with that report.

Adoption of recent accounting standards

In June 2016, the Financial

Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016-13, Financial

Instruments –

Credit Losses (Topic 326):

Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

The standard’s

main goal is to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other

6 unchanged sentences

recognition threshold;

and (iii) the expected credit losses estimate will be based upon historical information, current conditions,

and (iii) the estimate of expected credit losses will be based upon historical information, current conditions,

and reasonable and supportable forecasts.

2016-13 introduces two distinctive credit loss impairment models:

expected credit losses (“CECL”) impairment model (Subtopic 326-20) applicable to financial assets measured at amortized

and (ii) available-for-sale debt securities impairment model (Subtopic 326-30).

2 unchanged sentences

The Company adopted this

standard on January 1, 2020 and it did not have an impact on its financial position, results of operations or financial statement

standard on January 1, 2020 and it did not have a material impact on its financial position, results of operations or financial

statement disclosure.

The Company recognizes

5 unchanged sentences

The following table provides information

about disaggregated revenue by primary geographical markets and timing of revenue recognition for the three months March 31, 2020

and 2019 (in thousands):

Three Months Ended March 31,

about disaggregated revenue by primary geographical markets and timing of revenue recognition for the three and six month periods

ended June 30, 2020 and 2019 (in thousands):

Information about disaggregated revenue and timing of revenue

Three Months Ended June 30,

Six Months Ended June 30,

Primary geographic markets

13 unchanged sentences

deferred revenue when revenue will be recognized after invoicing.

During the three months ended March 31, 2020, the Company recognized

During the six months ended June 30, 2020, the Company recognized

approximately $ 37,000 of revenue that was included in deferred revenue as of December 31, 2019.

5 unchanged sentences

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

7 unchanged sentences

would be anti-dilutive (in thousands):

Three Months Ended

of anti dilutive shares

Three and Six Months Ended

Stock Options

2 unchanged sentences

corporate office space in Los Gatos, California.

This lease has a remaining term of 10 months as of March 31, 2020.

This lease has a remaining term of seven months as of June 30, 2020.

is accounted for under ASC Topic 842 and as a result, the Company recorded an operating lease right-of-use asset and the related

1 unchanged sentence

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%.

discounted using the Company’s estimated incremental borrowing rate of 10 %.

The lease contains escalating payments on the

1 unchanged sentence

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.

5 unchanged sentences

lease costs were as follows (in thousands):

Three Months Ended March 31,

Components of lease costs

Three Months Ended June 30,

Six Months Ended June 30,

Fixed lease costs

3 unchanged sentences

Future minimum payments

under non-cancellable leases as of March 31, 2020 were as follows (in thousands):

under non-cancellable leases as of June 30, 2020 were as follows (in thousands):

Schedule of future minimum lease payments

For the Year Ended December 31,

4 unchanged sentences

The below table provides

supplemental information and non-cash activity related to the Company’s operating leases are as follows (in thousands):

Three Months Ended March 31,

supplemental information and non-cash activity related to the Company’s operating leases are as follows (in thousands):

Supplemental non-cash activity related to operating leases

Three Months Ended June 30,

Six Months Ended June 30,

Operating cash flow information:

3 unchanged sentences

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 June 2020, at which time the Company will

The lease commencement date is anticipated to be in August 2020, at which time the Company will

account for the lease under ASC 842.

A prepayment of rent of $450,000 was made in the three months ended March 31, 2020, this payment

represents that 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 prepayment of $ 450,000 was made in the six months ended June 30, 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, 2020 is as follows (in thousands except per share amounts and contractual term):

activity for the six months ended June 30, 2020 is as follows (in thousands except per share amounts and contractual term):

Schedule of warrant activity

Term (In Years)

Outstanding at January 1, 2020

Outstanding at March 31, 2020

Outstanding at June 30, 2020

The warrants outstanding

at March 31, 2020 had an intrinsic value of $0 based on a per-share stock price of $3.50 as of March 31, 2020.

at June 30, 2020 had an intrinsic value of $ 1.0 million based on a per-share stock price of $9.00 as of June 30, 2020.

On March 17, 2020,

5 unchanged sentences

Due to this modification, the Company

incurred a modification expense of approximately $139,000 that is included in general and administration expense on the Condensed

Statement of Operations.

incurred a modification expense of approximately $ 139,000 that is included in general and administrative expenses on the Condensed

Statement of Operations for the six months ended June 30, 2020.

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.

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.

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

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

Generally, stock options and restricted stock vest over a one to four-year period from the date of grant under the 2017

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, 2020 and 2019 for stock options and restricted stock granted under the 2017 Plan and the 2007 Plan (in thousands):

Three Months Ended

summarizes the stock-based compensation expense recorded in the Company’s results of operations during the three and six

months ended June 30, 2020 and 2019 for stock options and restricted stock granted under the 2017 Plan and the 2007 Plan (in thousands):

Schedule of stock-based compensation expense

Three Months Ended June 30,

Six Months Ended June 30,

Research and development

1 unchanged sentence

Selling and Marketing

As March 31, 2020,

there was approximately $6.9 million of total unrecognized compensation expense related to unvested share-based compensation arrangements

As June 30, 2020, there

was approximately $ 6.5 million of total unrecognized compensation expense related to unvested share-based compensation arrangements

that are expected to vest.

1 unchanged sentence

The weighted average

grant date fair value per share of the options granted under the Company’s 2017 Plan was $2.70 and $2.50 for the three months

ended March 31, 2020 and 2019, respectively.

grant date fair value per share of the options granted under the Company’s 2017 Plan was $ 5.86 and $ 2.75 for the three and

six months ended June 30, 2020, respectively.

The weighted average grant date fair value per share of the options granted under

the Company’s 2017 Plan was $ 2.50 for the six months ended June 30, 2019.

The following table

summarizes stock option activity during the three months ended March 31, 2020 (in thousands except exercise prices and contractual

summarizes stock option activity during the six months ended June 30, 2020 (in thousands except exercise prices and contractual

Schedule of stock option activity

Term (In Years)

Outstanding at January 1, 2020

Outstanding at March 31, 2020

Exercisable at March 31, 2020

During the three months

ended March 31, 2020, the Company granted options under the 2017 Plan to purchase approximately 646,000 shares of its common stock

Outstanding at June 30, 2020

Exercisable at June 30, 2020

During the six months

ended June 30, 2020, the Company granted options under the 2017 Plan to purchase approximately 658,000 shares of its common stock

to its employees.

2 unchanged sentences

restricted stock to employees, directors and consultants and estimates the fair value based on the closing price on the day of

The following table summarizes all restricted stock activity during the three months ended March 31, 2020 (in thousands

except per share data):

The following table summarizes all restricted stock activity during the six months ended June 30, 2020 (in thousands except

per share data):

Schedule of restricted stock option activity

Outstanding at January 1, 2020

Outstanding non-vested shares at March 31, 2020

During the three months

ended March 31, 2020, the Company granted approximately 420,000 restricted stock awards under the 2017 Plan to its employees and

Outstanding non-vested shares at June 30, 2020

During the six months

ended June 30, 2020, the Company granted approximately 463,000 restricted stock awards under the 2017 Plan to its employees and

The fair value of these awards was approximately $ 2.1 million at the time of grant.

4 unchanged sentences

The Company is not party

to any material litigation as of March 31, 2020, or through the date these financial statements have been issued.

to any material litigation as of June 30, 2020, or through the date these financial statements have been issued.

SUBSEQUENT EVENTS

1 unchanged sentence

subsequent events and transactions through the date these financial statements were issued.

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

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 Part I, Item 1A of our Annual Report on Form 10-K filed with the SEC on March

13, 2020 and other documents we subsequently file from time to time with the SEC, such as 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.

We are engaged in the

business of developing, commercializing and licensing proprietary processes and technologies for the $450+ billion semiconductor

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 made 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;

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.

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.

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.

On May 30, 2019, we

closed a registered direct offering of 1,675,000 shares of common stock at a price of $4.00 per share, resulting in approximately

$6.4 million of net proceeds to us after deducting placement agent fees and other offering expenses.

Results of Operations

In December 2019, a

novel strain of coronavirus, known as COVID-19, was reported to have surfaced in Wuhan, China.

In January 2020, this coronavirus

spread to other countries, including the United States, and efforts to contain the spread of this coronavirus intensified.

in March 2020, much of the United States and certain other countries have been the subject of lock-downs and self-isolation procedures,

which have significantly limited business operations and restricted internal and external meetings.

As of the date of this report,

we continue to progress on our customer engagements and internal research and development, with some minor slowdowns due to the

COVID-19 pandemic.

However, as of the date of this report, none of our customer engagements have stopped entirely.

and any future preventative or protective actions that we or our customers may take in respect of this coronavirus may result in

a period of disruption to work in progress.

Our customers’

businesses could be disrupted, and our ongoing and future technology

evaluations, contract negotiations and revenues could be negatively affected.

Any resulting financial impact cannot be reasonably

estimated at this time but may materially affect our business and financial condition.

The extent to which the coronavirus impacts

our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which

may emerge concerning the severity of the coronavirus, future government-mandated restrictions, and our customers’

and partners’

responses to such new information and restrictions, among others.

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 and 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.

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, 2020 and 2019 was approximately $62,000 and $71,000, respectively.

Revenue in both periods was generated

from integration license agreements.

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 $13,000 and $0 for three months ended March 31, 2020 and 2019, respectively.

We anticipate that our cost of revenue will vary substantially depending on the mix of integration license and integration engineering

services and the nature of 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, 2020 and 2019 our operating expenses totaled approximately $3.7 million and $3.7 million,

respectively.

development expense.

To date, our operations have focused on the research, development, patent protection, and commercialization

of our processes and technologies related to our MST 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, 2020 and 2019, we incurred approximately $2.1 million and $2.1 million, respectively, of research and development

expense, a decrease of approximately $65,000 or 3%.

The decrease in research and development expense is primarily due to decrease

in outsourced research and development of approximately $180,000 offset by an increase in payroll related expenses and stock-based

compensation expense of approximately $113,000 as we continue to increase our headcount in this area.

General and administrative

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, 2020 and 2019

were approximately $1.4 million and $1.3 million, respectively, representing an increase of approximately $124,000 or 9%.

is costs was primarily due to an increase of approximately $120,000 in professional fees related to legal and patent fees and the

expense resulting from the modification of expiring warrants of approximately $139,000 (see note 7 in our condensed financial statements

included elsewhere in this report).

These increases were offset by a decrease in stock-based compensation expense of approximately

Selling and marketing

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 March 31, 2020 and 2019

were approximately $225,000 and $247,000, respectively, representing a decrease of approximately $22,000, or 9%.

Interest income.

Interest income for the three months ended March 31, 2020 and 2019 was approximately $38,000 and $90,000, respectively.

Interest income for each period related to interest earned on our cash and cash equivalents.

Cash Flows from Operating, Investing

and Financing Activities

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 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

Net cash used in investing

activities of approximately $3,000 for the three months ended March 31, 2020 and approximately $42,000 for the three months ended

March 31, 2019 consisted of the purchase of computers and lab tools.

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.

We did not have any cashflows from financing activities for the three months ended

March 31, 2019.

Liquidity and Capital Resources

As of March 31, 2020,

we had cash and cash equivalents of approximately $11.4 million and working capital of approximately $10.4 million.

For the three

months ended March 31, 2020, we had a net loss of approximately $3.6 million and used approximately $3.6 million of cash and cash

equivalents in operations.

Since inception, we have incurred recurring operating losses.

As of the date of this

report, we believe that our available working capital is sufficient to fund our 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.

In addition, the ongoing COVID-19

pandemic has impacted some customer contract negotiations and the economic uncertainty caused by the pandemic may negatively impact

our ability to generate revenue.

Our future capital

requirements and the adequacy of our available funds will depend on many factors, including our ability, in the near term,

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.

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 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,

2019 filed with the SEC on March 13, 2020.

Quantitative and Qualitative Disclosure about Market

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements