What changed in this filing

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Item 1. Financial Statements

2021-08-04 compared with 2021-05-07 · 155 added, 340 removed, 267 unchanged (65% of the section changed)

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Condensed Balance Sheets

(in thousands, except

per share data)

(in thousands, except per share data)

Current assets:

Cash and cash equivalents

Accounts receivable, net

Prepaid expenses and other current assets

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Security deposit

LIABILITIES AND STOCKHOLDERS’

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

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Commitments and contingencies (see Note 10)

Stockholders’

Stockholders’ equity:

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

none issued and outstanding at March 31, 2021 and December 31, 2020

none issued and outstanding at June 30, 2021 and December 31, 2020

Common stock:

$ 0.001 par value, authorized 47,500 shares;

23,073 and 20,971 shares issued March 31, 2021 and December 31, 2020, respectively;

23,027 and 20,971 shares outstanding at March 31, 2021 and December 31, 2020, respectively

23,104 and 22,375 shares issued and outstanding as of June 30, 2021 and December 31, 2020, 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 of

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Three Months Ended

Six Months Ended

Cost of revenue

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Total other income

Net loss before taxes

Net loss before income taxes

Provision for income taxes

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Atomera Incorporated

Statements of Stockholders’

For the Three Months Ended March 31, 2021 and

Statements of Stockholders’ Equity

For the Three and Six Months Ended June 30,

2021 and 2020

(in thousands)

Stockholders’

Balance January 1, 2021

$ ( 150,140 )

Stock-based compensation

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Balance March 31, 2021

Stockholders’

$ ( 153,760 )

Stock-based compensation

Stock option exercise

Balance at June 30, 2021

$ ( 157,486 )

Total Stockholders’

Balance January 1, 2020

$ ( 135,262 )

Stock-based compensation

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Balance March 31, 2020

Underwritten public offering of common stock, net of commissions and expenses

Stock option exercise

Stock-based compensation

Balance June 30, 2020

$ ( 142,686 )

The accompanying notes are an integral part of

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(in thousands)

Three Months Ended

Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES

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Changes in operating assets and liabilities:

Accounts receivable

Prepaid expenses and other current assets

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CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from underwritten public offering, net of commission and expenses

Proceeds from at-the-market sale of stock, net of commissions and expenses

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Net cash provided by financing activities

Net (decrease) in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

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NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2021 and

For the Three and Six Months Ended June 30,

2021 and 2020

NATURE OF OPERATIONS

Atomera Incorporated (“Atomera”

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

Atomera Incorporated (“Atomera”

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

and is engaged

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research and development and to commercially licensing its technology to manufacturers and designers of integrated circuits.

has primarily financed operations through private placements of equity and debt securities, the Company’s Initial Public Offering

(the “IPO”) which was consummated on August 10, 2016, and subsequent public offerings of its common stock.

has primarily financed operations through private placements of equity and debt securities, the Company’s Initial Public Offering

(the “IPO”) which was consummated on August 10, 2016, and subsequent public offerings of its common stock.

LIQUIDITY AND MANAGEMENT PLANS

At March 31, 2021, the Company

had cash and cash equivalents of approximately $36.7 million and working capital of approximately $36.4 million.

The Company has generated

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

The Company’s operating

At June 30, 2021, the

Company had cash and cash equivalents of approximately $ 34.3

million and working capital of approximately $ 33.9

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

The Company’s operating

plans for the next 12 months include increased spending on research and development headcount, outsourced fabrication and testing, and

sales and marketing expenses to drive customer adoption of the Company’s MST technology.

Based on the funds it has available as

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However, 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.

revenue, it is subject to all the risks inherent in the initial organization, financing, expenditures, complications and delays in a new

Accordingly, the Company may require additional capital, the receipt of which cannot be assured.

event the Company requires additional capital, there can be no guarantee that funds will be available on commercially reasonable terms,

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, 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.

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, 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

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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 February 19, 2021.

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 February 19, 2021.

Basis of presentation of unaudited condensed

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The unaudited condensed financial

statements of the Company for the three months ended March 31, 2021 and 2020 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

statements of the Company for the three and six months ended June 30, 2021 and 2020 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.

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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

which are, in the opinion of management, necessary for the fair presentation of the Company’s financial position and its results

of operations.

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The balance sheet information as of December 31, 2020, was derived from the audited financial statements included in the Company's financial

statements as of and for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K filed with the SEC

statements as of and for the year ended December 31, 2020, included in the Company’s Annual Report on Form 10-K filed with the SEC

on February 19, 2021.

These financial statements should be read in conjunction with that report.

These unaudited condensed financial statements should be read in conjunction with that report.

Adoption of recent accounting standards

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2019-12, Simplifying Accounting for Income Taxes .

This is part of the FASB’s overall initiative to reduce

complexity in accounting standards.

Amendments include removal of certain exceptions to the general principles of Accounting Standard

Codification (“ASC”) 740, Income taxes , and simplification in several other areas such as accounting for a franchise

tax (or similar tax) that is partially based on income.

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Recent accounting standards

In August 2020, the Financial

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

2020-06, Debt with Conversion

and other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40).

The new guidance eliminates the beneficial conversion and cash conversion accounting models for convertible instruments.

It also amends

the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific

settlement provisions.

In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be

settled in cash or shares impact the diluted EPS computation.

This guidance is effective as of January 1, 2022 (Early adoption

is permitted effective January 1, 2021).

The Company is currently evaluating the effect the updated standard will have on its financial

position, results of operations or financial statement disclosure.

In August 2020, the

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

2020-06, Debt

with Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic

The new guidance eliminates the beneficial conversion and cash conversion accounting models for convertible

It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as

derivatives because of specific settlement provisions.

In addition, the new guidance modifies how particular convertible instruments

and certain contracts that may be settled in cash or shares impact the diluted EPS computation.

This guidance is effective as of

January 1, 2022 (Early adoption is permitted effective January 1, 2021).

The Company is currently evaluating the effect the

updated standard will have on its financial position, results of operations or financial statement disclosure.

The Company recognizes revenue

in accordance with ASC 606.

The amount of revenue that the Company recognizes reflects the consideration it expects to receive in exchange

for goods or services and such revenue is recognized at the time when goods or services are transferred and/or delivered to its customers.

The amount of revenue that the Company recognizes reflects the consideration it expects to receive in

exchange for goods or services and such revenue is recognized at the time when goods or services are transferred and/or delivered to its

Revenue is recognized when the Company satisfies a performance obligation by transferring the product or service to the customer.

Company generates revenues from engineering service contracts, integration license agreements and joint development agreements.

Company’s performance obligation is the promise to grant a license, revenue is recognized either at a point in time or over time.

The Company generates revenues from engineering service contracts, integration license agreements and joint development agreements.

the Company’s performance obligation is the promise to grant a license, revenue is recognized either at a point in time or over

The following table provides information about

disaggregated revenue by primary geographical markets and timing of revenue recognition (in thousands):

Three Months Ended

Information about disaggregated revenue and timing of revenue

Three Months Ended June 30,

Six Months Ended June 30,

Primary geographic markets

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revenue when revenue will be recognized after invoicing.

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

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.

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outstanding and the dilutive common stock equivalent shares outstanding during the period.

The Company’s potentially dilutive common

stock equivalent shares, which include incremental common shares issuable upon (i) the exercise of outstanding stock options and warrants

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(in thousands):

Three Months Ended

Schedule of anti dilutive shares

Three and Six Months Ended

Stock Options

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4,101 square feet.

Under Accounting Standard Codification (“ASC”) 842, the lease amendment was treated as a separate lease

for the new space and a modification of the lease for the original space.

An additional right-of-use (“ROU”) asset and lease

liability of approximately $681,000 were recorded during at the time of the amendment.

In January 2021 the additional space became available

for use, and the Company recorded an additional ROU asset and corresponding liability of approximately $144,000.

The lease liability is

based on the present value of the minimum lease payments, discounted using the Company’s estimated incremental borrowing rate of

The lease contains escalating payments on the anniversary of the original commencement which 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 property

taxes and insurance, are recorded as a period expense when incurred.

Under ASC 842, the lease amendment was treated as a separate lease for the new space and a modification of the

lease for the original space.

An additional right-of-use (“ROU”) asset and lease liability of approximately $ 681,000 were

recorded during at the time of the amendment.

In January 2021 the additional space became available for use, and the Company recorded

an additional ROU asset and corresponding liability of approximately $ 144,000 .

The lease liability is based on the present value of the

minimum lease payments, discounted using the Company’s estimated incremental borrowing rate of 5.5 %.

The lease contains escalating

payments on the anniversary of the original commencement which are included in the measurement of the initial lease liability.

payments based on a change in the Company’s share of the operating expenses, including property taxes and insurance, are recorded

as a period expense when incurred.

In March 2021, the Company

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The lease liability

is based on the present value of the minimum lease payments, discounted using the Company’s estimated incremental borrowing rate

of 5.5 % over five years, as the Company expects to lease the through the three-year extension.

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were as follows (in thousands):

Three Months Ended

Components of lease costs

Three Months Ended June 30,

Six Months Ended June 30,

Fixed lease costs

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Future minimum payments under

non-cancellable leases as of March 31, 2021 were as follows (in thousands):

non-cancellable leases as of June 30, 2021 were as follows (in thousands):

Schedule of future minimum lease payments

For the Year Ended December 31,

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The following table provides

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

Three Months Ended

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

Supplemental non-cash activity related to operating leases

Three Months Ended June 30,

Six Months Ended June 30,

Operating cash flow information:

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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 May 2021, at which time the Company will account for the lease

under ASC 842.

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

entered into an agreement to lease a tool for use in the development of the Company’s technology.

The lease is for five 5

years at $150,000 per month.

The lease commencement date is anticipated to be in August 2021, at which time the Company will account

for the lease under 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, 2021 is as follows (in thousands except per share amounts and contractual term):

for the six months ended June 30, 2021 is as follows (in thousands except per share amounts and contractual term):

Schedule of warrant activity

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Outstanding at January 1, 2021

Outstanding at March 31, 2021

Outstanding at June 30, 2021

The warrants outstanding at

March 31, 2021 had an intrinsic value of approximately $11,000 based on a per-share stock price of $24.50 as of March 31, 2021.

June 30, 2021 had an intrinsic value of approximately $ 9,000 based on a per-share stock price of $ 21.44 as of June 30, 2021.

On March 17, 2020, 196,602

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Due to this modification, the Company incurred a modification expense

of approximately $139,000 that is included in general and administrative expenses on the Condensed Statement of Operations for the three

months ended March 31, 2020.

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.

All of the modified warrants were exercised on August 6, 2020.

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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”)

In May 2017, the Company’s

shareholders approved its 2017 Stock Incentive Plan (“2017 Plan”) after its 2007 Stock Incentive Plan (“2007 Plan”)

had expired in March 2017.

The 2017 Plan provides for the grant of non-qualified stock options and incentive stock options to purchase

shares of the Company’s common stock and for the grant of restricted and unrestricted shares.

The 2017 Plan provides for the issuance

of 3,750,000 shares of common stock.

All of the Company’s employees and any subsidiary employees (including officers and directors

who are also employees), as well as all of the Company’s nonemployee directors and other consultants, advisors and other persons

All of the Company’s employees and any subsidiary employees (including officers and directors

who are also employees), as well as all of the Company’s nonemployee directors and other consultants, advisors and other persons

who provide services to the Company are eligible to receive incentive awards under the 2017 Plan.

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The following table summarizes

the stock-based compensation expense recorded in the Company’s results of operations during the three months ended March 31, 2021

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

30, 2021 and 2020 for stock options and restricted stock granted under the 2017 Plan and the 2007 Plan (in thousands):

Three Months Ended

Schedule of stock-based compensation expense

Three Months Ended June 30,

Six Months Ended June 30,

Research and development

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Selling and Marketing

As March 31, 2021, there was

As June 30, 2021, there was

approximately $ 7.0 million of total unrecognized compensation expense related to unvested share-based compensation arrangements.

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The weighted average grant

date fair value per share of the options granted under the Company’s 2017 Plan was $15.94 and $2.70 for the three months ended March

31, 2021 and 2020, respectively.

date fair value per share of the options granted under the Company’s 2017 Plan was $ 14.78 and $ 15.36 for the three and six months

ended June 30, 2021, respectively.

The weighted average grant date fair value per share of the options granted under Company’s 2017

plan was $ 5.86 and $ 2.75 for the three and six months ended June 30, 2020, respectively.

The following table summarizes

stock option activity during the three months ended March 31, 2021 (in thousands except exercise prices and contractual terms):

stock option activity during the three months ended June 30, 2021 (in thousands except exercise prices and contractual terms):

Schedule of stock option activity

Prices per Share

Term (In Years)

Outstanding at January 1, 2021

Outstanding at March 31, 2021

Exercisable at March 31, 2021

During the three months ended

March 31, 2021, the Company granted options under the 2017 Plan to purchase approximately 73,000 shares of its common stock to its employees.

Outstanding at June 30, 2021

Exercisable at June 30, 2021

During the six months ended

June 30, 2021, the Company granted options under the 2017 Plan to purchase approximately 148,000 shares of its common stock to its employees.

The fair value of these options was approximately $ 1.8 million at the time of grant.

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The following

table summarizes all restricted stock activity during the three months ended March 31, 2021 (in thousands except per share data):

table summarizes all restricted stock activity during the six months ended June 30, 2021 (in thousands except per share data):

Schedule of restricted stock option activity

Fair Value per Share

Outstanding at January 1, 2021

Outstanding non-vested shares at March 31, 2021

During the three months ended

March 31, 2021 the Company granted approximately 71,000 restricted stock awards under the 2017 Plan to its employees and directors.

Outstanding non-vested shares at June 30, 2021

During the six months ended

June 30, 2021 the Company granted approximately 89,000 restricted stock awards under the 2017 Plan to its employees and directors.

fair value of these awards was approximately $ 1.9 million at the time of grant.

During the quarter ended March

31, 2021, approximately 54,000 restricted stock awards were forfeited.

Approximately 9,000 of these shares were then reissued as restricted

stock awards.

The remaining approximately 45,000 shares can be reissued in the future under its equity compensation plan.

During the six months ended

June 30, 2021, approximately 54,000

restricted stock awards were forfeited and reissued under the Company’s equity compensation plan.

PROVISION FOR INCOME TAXES

The Company recorded a provision

for income taxes of approximately $14,000 and $0 during the three months ended March 31, 2021, respectively.

The provision is withholding

income taxes accrued in foreign jurisdictions where we have income.

The Company recorded the provision in accordance with ASC 740 using

its estimated annual tax rate and applied it to the net loss for the three months ended March 31, 2021.

for income taxes of approximately $ 17,000 and $ 31,000 during the three and six months ended June 30, 2021, respectively.

The provision

is for withholding of income taxes accrued in foreign jurisdictions where we have income.

The Company recorded the provision in accordance

with ASC 740 using its estimated annual tax rate and applied it to the net loss for the three and six months ended June 30, 2021.

COMMITMENTS AND CONTINGENCIES

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The Company is not party to any material

litigation as of March 31, 2021, or through the date these financial statements have been issued.

litigation as of June 30, 2021, or through the date these financial statements have been issued.

SUBSEQUENT EVENTS

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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 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 under the heading “Risk Factors”

within our Annual Report on Form 10-K

filed with the SEC on February 19, 2021, 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 materials, processes and technologies for the $450+ billion semiconductor industry.

Our lead technology, named Mears Silicon Technology TM , or MST ®

, is a thin film of reengineered silicon, typically

100 to 300 angstroms (or approximately 20 to 60 silicon atomic unit cells) thick.

MST can be applied as a transistor channel enhancement

to CMOS-type transistors, the most widely used transistor type in the semiconductor industry.

MST is our proprietary and patent-protected

performance enhancement technology that we believe addresses a number of key engineering challenges facing the semiconductor industry.

We believe that by incorporating MST, transistors can be smaller, with increased speed, reliability and energy efficiency.

since MST is an additive and low-cost technology, we believe it can be deployed on an industrial scale, with equipment commonly used in

semiconductor manufacturing.

We believe that MST can improve existing products due to the physical properties of the film and can also

enable customers to design products with performance, power and scaling characteristics that are not possible using their current process

technologies.

We believe that MST can be widely incorporated into the most common types of semiconductor products, including analog, logic,

optical and memory integrated circuits.

We do not intend to design

or manufacture integrated circuits directly.

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

and manufacturers of integrated circuits a low-cost solution to the industry’s need for greater performance and lower power consumption.

Our customers and partners include:

foundries, which manufacture integrated circuits on behalf of fabless manufacturers;

integrated device manufacturers, or IDMs, which are the fully integrated designers and manufacturers of integrated circuits;

fabless semiconductor manufacturers, which are designers of integrated circuits that outsource the manufacture of their chips to foundries;

original equipment manufacturers, or OEMs, which manufacture the epitaxial, or EPI, deposition machines used to deposit semiconductor layers, such as the MST film onto the silicon wafer;

electronic design automation companies, which

make tools used throughout the industry to simulate the 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) a joint development agreement, or JDA, with a leading semiconductor

provider that includes license grants and engineering services, (ii) licensing agreements with two IDMs and one fabless manufacturer and

(iii) engineering services provided to foundries, IDMs and fabless companies.

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

On March 14, 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 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 could 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.

We announce the completion of this offering on January 5, 2021 after 2,221,575 shares had been

sold at an average price per share of approximately $11.25, resulting in approximately $24.2 million of net proceeds to us after deducting

commissions and other offering expenses.

Results of Operations

date, we have only generated limited revenue from customer engagements through a JDA, integration engineering services and integration

license agreements.

In the future, we expect to collect increased fees from license agreements, which in some cases may be part of a JDA,

and royalties from customer sales of products that incorporate our MST technology.

Our JDA includes the grant of an upfront, paid manufacturing

license allowing the customer to install the recipe for our MST film into a tool in their fab and to fabricate semiconductor wafers incorporating

MST, as well as development milestones that, if achieved, could result in additional revenue to Atomera.

However, the JDA does not confer

commercial distribution rights.

Revenue from the grant of licenses to MST is recognized either at a point in time or over time, depending

on the nature of the grant.

We have determined that the limited manufacturing license granted to our JDA customer when we delivered the

MST recipe was distinct from any obligations to provide other goods or services and was a right to use our intellectual property and therefore

recognized revenue at the point in time when the recipe was delivered.

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, 2021 and 2020 was approximately $400,000 and $62,000, respectively.

Revenue for the first quarter of 2021 consisted of

a manufacturing license payment under our JDA.

Cost of Revenue.

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 $0 and $13,000 for the three months ended March 31, 2021 and 2020, respectively.

We anticipate that

our cost of revenue will vary substantially depending on the mix of license and engineering services and the nature of license grants,

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.

three months ended March 31, 2021 and 2020 our operating expenses totaled approximately $4.0 million and $3.7 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

March 31, 2021 and 2020, we incurred approximately $2.2 million and $2.1 million, respectively, of research and development expense, an

increase of approximately $167,000, or 8%.

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

by a decrease in outsources research and development costs, recruiting and travel.

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, 2021 and 2020 were approximately $1.5

million and $1.4 million, respectively, representing an increase of approximately $68,000, or 5%.

The increase in general and administrative

expenses is primarily due to higher payroll related expenses and stock-based compensation offset by a decrease in costs related to a warrant

modification incurred in the first quarter of 2020 and lower professional fees.

Selling and marketing

Selling and marketing expenses consist primarily of salary and benefits for our sales and marketing personnel.

and marketing expenses for the three months ended March 31, 2021 and 2020 were approximately $266,000 and $225,000, respectively, representing

a decrease of approximately $41,000, or 18%.

The increase is primarily related to increases in payroll and related expenses and stock-based

compensation, offset by lower travel expenses.

Interest income.

income for the three months ended March 31, 2021 and 2020 was approximately $2,000 and $38,000, respectively.

Interest income for each

period related to interest earned on our cash and cash equivalents and declined as interest rates continued to fall during 2020 and into

Provision for income

The provision for income taxes for the three months ended March 31, 2021 and 2020 was approximately $14,000 and $0, respectively.

Our provision is income taxes due to a foreign country arising from withholding taxes imposed on payments received for revenue.

Cash Flows from Operating, Investing and Financing

Net cash used in operating

activities of approximately $3.9 million for the three months ended March 31, 2021 resulted primarily from our net loss of approximately

$3.6 million, an increase of approximately $679,000 in prepaids and other assets and a decrease in accrued payroll, partly offset by $731,000

of stock-based compensation.

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 investing

activities of approximately $24,000 for the three months ended March 31, 2021 and approximately $3,000 for the three months ended March

31, 2020 consisted of the purchase of computers, lab tools and leasehold improvements for the remodeled Los Gatos office space.

Net cash provided by

financing activities of approximately $2.8 million for the three months ended March 31, 2021 related to the exercise of approximately

398,000 stock options and net proceeds from our at-the-market offering which began in September 2020 and concluded in January 2021.

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.

Liquidity and Capital Resources

As of March 31, 2021, we had

cash and cash equivalents of approximately $36.7 million and working capital of approximately $36.4 million.

For the three months ended

March 31, 2021, we had a net loss of approximately $3.6 million and used approximately $3.9 million of cash and cash equivalents in operations.

Since inception, we have incurred recurring operating losses.

We believe that our available

working capital is sufficient to fund our presently forecasted working capital requirements for, at least, the next 12 months following

the date of the filing of this report.

However, the semiconductor industry is generally slow to adopt new manufacturing process technologies

and conducts long testing and qualification processes which we have limited ability to control, and there can be no assurance of the timing

of our receipt of meaningful amounts of revenue.

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 follow-on equity offerings, debt financing and joint ventures

with industry partners.

In addition, we will consider alternatives to our current business plan that may enable to us to achieve revenue-producing

operations and meaningful commercial success with a smaller amount of capital.

If we are unable to secure additional capital, we may be

required to curtail our research and development initiatives and take additional measures to reduce costs in order to conserve its cash.

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, 2020 filed with

the SEC on February 19, 2021

Quantitative and Qualitative Disclosure about Market Risk.

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