What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-03 compared with 2020-08-07 · 145 added, 152 removed, 87 unchanged (77% of the section changed)

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

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.

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under the heading “Risk Factors” within our Prospectus Supplement filed pursuant to Rule 424(b)(5) with the SEC on

May 13, 2020 and other documents we subsequently file from time to time with the SEC, such as our Annual Report on Form 10-K filed

with the SEC on March 13, 2020, 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.

September 2, 2020 and other documents we subsequently file from time to time with the SEC, such as our Annual Report on Form 10-K

filed with the SEC on March 13, 2020, 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.

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 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

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We believe that by incorporating MST, transistors can be made smaller, with increased speed, reliability

and energy efficiency.

and power efficiency.

In addition, since MST is an additive and low-cost technology, we believe it can be deployed on an industrial

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common types of semiconductor products, including analog, logic, optical and memory integrated circuits.

We do not intend to

design or manufacture integrated circuits directly.

Instead, we develop and license technologies and processes that we believe

offer the designers and manufacturers of integrated circuits a low-cost solution to the industry’s need for greater performance

and lower power consumption.

We do not intend to design

or manufacture integrated circuits directly.

Instead, we develop and license technologies and processes that we believe offer the

designers and manufacturers of integrated circuits a low-cost solution to the industry’s need for greater performance and

lower power consumption.

Our customers and partners include:

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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.

Our commercialization

strategy is to generate revenue through licensing arrangements whereby foundries, IDMs and fabless semiconductor manufacturers

pay us a license fee for their right to use MST technology in the manufacture of silicon wafers as well as a royalty for each silicon

wafer or device that incorporates our MST technology.

To date we have generated revenue from (i) licensing agreements with two

IDMs and one fabless manufacturer and (ii) engineering services provided to foundries, IDMs and fabless companies.

We were organized as

a Delaware limited liability company under the name Nanovis LLC on November 26, 2001.

Our commercialization strategy

is to generate revenue through licensing arrangements whereby foundries, IDMs and fabless semiconductor manufacturers pay us a

license fee for their right to use MST technology in the manufacture of silicon wafers as well as a royalty for each silicon wafer

or device that incorporates our MST technology.

To date we have generated revenue from (i) licensing agreements with two IDMs and

one fabless manufacturer and (ii) engineering services provided to foundries, IDMs and fabless companies.

We were organized as a

Delaware limited liability company under the name Nanovis LLC on November 26, 2001.

On March 13, 2007, we converted to a Delaware

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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.

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

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

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.

On May 15, 2020, we

closed an underwritten public offering of 2,024,000 shares of common stock at a public offering price of $5.00 per share, resulting

in approximately $9.4 million of net proceeds to us after deducting underwriting commission and other offering expenses.

On May 15, 2020, we closed

an underwritten public offering of 2,024,000 shares of common stock at a public offering price of $5.00 per share, resulting in

approximately $9.4 million of net proceeds to us after deducting underwriting commission and other offering expenses.

On September 2, 2020, we

entered into an Equity Distribution Agreement with Craig-Hallum Capital Group LLC, as agent, under which we 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 $25.0 million

in an “at-the-market” or ATM offering, to or through the agent.

As of September 30, 2020, 845,730 shares have been

sold at an average price of approximately $10.48 million, resulting in approximately $8.5 million of net proceeds to us after deducting

commissions and other offering expenses.

Between October 1, 2020 and the date of tiling this report, we sold an additional 484,148

shares of our common stock at average price of $10.62 resulting in net proceeds of approximately $5.0 million

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 slowdowns due to the COVID-19

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

The outbreak 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 concerning the

severity and duration of the pandemic, 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

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the period of time of which we anticipate delivering an estimated quantity of wafers.

Revenue for the three

months ended June 30, 2020 and 2019 was approximately $0 and $70,000, respectively.

Revenue for the six months ended June 30, 2019

Revenue for the three months

ended September 30, 2020 and 2019 was approximately $0 and $254,000, respectively.

Revenue for the nine months ended September

30, 2019 was approximately $62,000 and $395,000, respectively.

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engineering services.

Cost of revenue was approximately $0 and $20,000 for the three months ended June 30, 2020 and 2019, respectively.

Cost of revenue was approximately $13,000 and $20,000 for the six months ended June 30, 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.

Cost of revenue was approximately $0 and $204,000 for the three months ended September 30, 2020 and 2019,

respectively.

Cost of revenue was approximately $13,000 and $224,000 for the nine months ended September 30, 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 June 30, 2020 and 2019 our operating expenses totaled approximately $3.8 million in each period.

the six months ended June 30, 2020 and 2019 our operating expenses totaled approximately $7.5 million in each period.

development expense.

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

of our processes and technologies related to MST.

For the three months ended September 30, 2020 and 2019 our operating expenses totaled approximately $3.6 million and $3.2 million,

respectively.

For the nine months ended September 30, 2020 and 2019 our operating expenses totaled approximately $11.1 million

and $10.7 million, respectively.

Research and development

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

our processes and technologies related to MST.

Our research and development costs primarily consist of payroll and benefit costs

for our engineering staff and costs of outsourced fabrication and metrology of semiconductor wafers incorporating our MST technology.

For the three months

ended June 30, 2020 and 2019, we incurred approximately $2.1 million and $2.1 million, respectively, of research and development

For the three months ended

September 30, 2020 and 2019, we incurred approximately $2.0 million and $1.7 million, respectively, of research and development

expense, an increase of approximately $303,000 or 17%.

The increase in research and development expense is primarily due to the addition

of two engineers offset by savings due to reduced travel and lower outsourced research and development costs.

For the six months

ended June 30, 2020 and 2019, we incurred approximately $4.1 million and $4.2 million, respectively, of research and development

expense, a decrease of approximately $36,000 or 1%.

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

of approximately $328,000 in outsourced research and development offset by an increase of approximately $188,000 in payroll expense

reflecting an increase in engineering headcount and an increase in stock-based compensation expense of approximately $125,000.

The increase in research and development expense is primarily due to additional

headcount and an increase in outsourced research and development costs.

For the nine months ended

September 30, 2020 and 2019, we incurred approximately $6.2 million and $5.9 million, respectively, of research and development

expense, an increase of approximately $267,000 or 5%.

The increase in research and development expense is primarily due to additional

headcount offset by a decrease in outsourced research and development costs.

General and administrative

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office-related costs and professional fees.

General and administrative costs for the three months ended June 30, 2020 and 2019

were approximately $1.5 million and $1.5 million, respectively, representing a decrease of approximately $8,000 or 1%.

General and administrative costs for the three months ended September 30, 2020 and

2019 were approximately $1.3 million and $1.2 million, respectively, representing an increase of approximately $83,000 or 7%.

increase in general and administrative expenses is primarily the due the increase in legal expenses related to increasing and maintaining

our patent portfolio.

General and administrative

costs for the six months ended June 30, 2020 and 2019 were approximately $2.9 million and $2.8 million, respectively, representing

costs for the nine months ended September 30, 2020 and 2019 were approximately $4.2 million and $4.0 million, respectively, representing

an increase of approximately $199,000 or 5%.

The increase is costs was primarily due to an increase of approximately $196,000 in

professional fees and the expense resulting from the modification of expiring warrants of approximately $139,000 (see note 7 to

our condensed financial statements included elsewhere in this report).

These increases were offset by a decrease in stock-based

compensation expense of approximately $216,000.

The increase in costs was primarily due to an increase of approximately $384,000 in

professional fees primarily for patent expenses, director fees related to the addition of a new independent board member and an

approximately $139,000 expense resulting from the modification of expiring warrants (see note 7 to 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.

Selling and marketing expenses for the three months ended June 30, 2020 and 2019 were approximately $215,000 and $225,000, respectively,

representing a decrease of approximately $10,000, or 4%.

Selling and marketing

expenses for the six months ended June 30, 2020 and 2019 were approximately $440,000 and $472,000, respectively, representing a

decrease of approximately $32,000, or 7%.

The decrease in costs is primarily related to a reduction of approximately $33,000 in

travel expenses.

Selling and marketing expenses for the three months ended September 30, 2020 and 2019 were approximately $208,000 and $240,000,

respectively, representing a decrease of approximately $32,000, or 13%.

The decrease in costs is primarily related to a lower bonus

Selling and marketing expenses

for the nine months ended September 30, 2020 and 2019 were approximately $648,000 and $712,000, respectively, representing a decrease

of approximately $64,000, or 9%.

The decrease in costs is primarily related to a reduction of approximately $22,000 in payroll

related expenses and a decline of $47,000 in travel expenses.

Interest income.

Interest income for the three months ended June 30, 2020 and 2019 was approximately $2,000 and $86,000, respectively.

income for the six months ended June 30, 2020 and 2019 was approximately $40,000 and $176,000, respectively.

Interest income for

each period related to interest earned on our cash and cash equivalents and decreased as our average cash balances declined and

interest rates continued to fall during 2020.

Cash Flows from Operating, Investing

and Financing Activities

Interest income for the three months ended September 30, 2020 and 2019 was approximately $1,000 and $89,000, respectively.

Interest income for the nine months ended September 30, 2020 and 2019 was approximately $41,000 and $265,000, respectively.

income for each period related to interest earned on our cash and cash equivalents and decreased as our average cash balances declined

and interest rates continued to fall during 2020.

While we finished the quarter with a higher cash balance, most of the cash was

received at the end of the period.

Cash Flows from Operating, Investing and

Financing Activities

Net cash used in operating

activities of approximately $6.6 million for the six months ended June 30, 2020 resulted primarily from our net loss of approximately

activities of approximately $9.1 million for the nine months ended September 30, 2020 resulted primarily from our net loss of approximately

$11.0 million adjusted by approximately $2.2 million in stock-based compensation expense offset by increase of approximately $499,000

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Net cash used in operating

activities of approximately $6.2 million for the six months ended June 30, 2019 resulted primarily from our net loss of approximately

activities of approximately $8.5 million for the nine months ended September 30, 2019 resulted primarily from our net loss of approximately

$10.3 million adjusted by approximately $2.3 million for stock-based compensation expense and a decrease in liabilities of approximately

Net cash used in investing

activities of approximately $11,000 for the six months ended June 30, 2020 and approximately $51,000 for six months ended June

30, 2019 consisted of the purchase of computers and lab equipment.

Net cash provided by

financing activities of approximately $9.7 million for the six months ended June 30, 2020 was primarily related to the net proceeds

from our underwritten public offering in May 2020 and the exercise of approximately 189,000 warrants and approximately 33,000 stock

options during this six-month period.

Net cash provided by

financing activities of approximately $6.4 million for the six months ended June 30, 2019 related to the net proceeds from our

registered direct offering of common stock in May 2019.

activities of approximately $56,000 for the nine months ended September 30, 2020 and approximately $51,000 for nine months ended

September 30, 2019 consisted of the purchase of computers and lab equipment.

Net cash provided by financing

activities of approximately $19.6 million for the nine months ended September 30, 2020 was primarily related to the net proceeds

from our underwritten public offering in May 2020, proceeds from our ATM program in September 2020 and the exercise of approximately

386,000 warrants and approximately 136,000 stock options during this nine-month period.

Net cash provided by financing

activities of approximately $6.4 million for the nine months ended September 30, 2019 related to the net proceeds from our registered

direct offering of common stock in May 2019.

Liquidity and Capital Resources

As of June 30, 2020,

As of September 30, 2020,

we had cash and cash equivalents of approximately $25.3 million and working capital of approximately $24.1 million.

months ended June 30, 2020, we had a net loss of approximately $7.5 million and used approximately $6.6 million of cash and cash

equivalents in operations.

months ended September 30, 2020, we had a net loss of approximately $11.0 million and used approximately $9.1 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 delayed some engineering work by our customers.

Accordingly, 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.

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 delayed engineering work by some of our customers.

Accordingly, 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.

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

If we are unable to secure additional capital, we may be required to curtail our research and development initiatives,

change our business strategy 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.

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.

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,

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.

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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 2. Management’s Discussion and Analysis