What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-02-15 compared with 2021-02-19 · 657 added, 556 removed, 250 unchanged (83% of the section changed)

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Statements of Operations for the years ended December 31, 2021 and 2020

Statements of Stockholders’

Equity for the years ended December 31, 2020 and 2019

Statements of Stockholders’ Equity for the years ended December 31, 2021 and 2020

Statements of Cash Flows for the years ended December 31, 2021 and 2020

Notes to the Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM

To the Shareholders and Board of Directors

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

To the Shareholders and Board of Directors of

Atomera Incorporated

Opinion on the Financial Statements

We have audited the accompanying balance

sheets of Atomera Incorporated (the “Company”) as of December 31, 2020 and 2019, the related statements of operations,

stockholders’

equity and cash flows for each of the two years in the period ended December 31, 2020, and the related notes

(collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly,

in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations

and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally

accepted in the United States of America.

We have audited the accompanying balance sheets

of Atomera Incorporated (the “Company”) as of December 31, 2021 and 2020, the related statements of operations, stockholders’

equity and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to

as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial

position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years

in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")

and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with

the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether

the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have,

nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required

to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the

effectiveness of the Company's internal control over financial reporting.

are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are

required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and

regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the

standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial

statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged

to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding

of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal

control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures

to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures

that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures

in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made

by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a

reasonable basis for our opinion.

Our audits included performing procedures to assess

the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond

to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating

the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below

are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to

the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our

especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion

on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions

on the critical audit matters or on the accounts or disclosures to which they relate.

Description of the Matter

As described in Note 7, during the year ended

December 31, 2021, the Company recorded a right-of-use (“ROU”) asset of approximately $6.4 million and a corresponding lease

liability of approximately $6 million related to the leasing of an equipment tool in accordance with provisions of Accounting Standards

Codification 842, Leases (“ASC 842”).

In connection with the application of ASC 842, the Company was required to (a) determine

the classification of the lease as an operating or finance lease and (b) develop an estimate pertaining to collateralized incremental

borrowing rates (“IBR”) in order to determine the present value of the lease payments when the discount rate is not implicit

in the lease.

The determination of an IBR required management to evaluate its credit rating, adjustments for the impact of collateral,

and the overall economic environment.

We identified the application of ASC 842 as a

critical audit matter because of the (a) overall material amount of the transaction, (b) significant impact of management’s assumptions

and estimates in determining the selected IBRs and their related impact on the ROU asset and liability recorded, (c) impact that the initial

classification of the lease has on the Company’s current and future results from operations and (d) the associated presentation

and disclosure requirements associated with new leases accounted for under ASC 842.

How We Addressed the Matter in Our Audit

Our audit procedures related to the application

of ASC 842 to address this critical audit matter included the following:

· We evaluated the classification of the lease in the financial statement and footnotes based on the terms

of the lease and guidance in ASC 842.

· We assessed the reasonableness of the methodology used by the Company to estimate the IBR based on the

definition and guidance in ASC 842.

· With the assistance of our internal valuation specialists, we assessed the reasonableness of the inputs

used to estimate the IBRs by comparing to Company specific benchmarks, comparable companies and other market information.

Such evaluation

involved the performing of a sensitivity analysis on the IBR and evaluation of the impact of such analysis on the financial statements

and disclosures.

· We evaluated the disclosures and financial statement presentation made by the Company to ensure they complied

with the guidance in ASC 842.

/s/ Marcum LLP

We have served as the Company’s auditor since 2015.

Los Angeles, CA

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Property and equipment, net

Operating lease right of use asset

Long-term prepaid rent

Long-term prepaid maintenance and supplies

Security deposit

LIABILITIES AND STOCKHOLDERS’

Operating lease right-of-use-asset

Financing lease right-of-use-asset

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

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Current operating lease liability

Deferred revenue

Current financing lease liability

Total current liabilities

Long-term operating lease liability

Long-term financing lease liability

Total liabilities

Commitments and contingencies (see Note 8)

Stockholders’

Stockholders’ equity:

Preferred stock, $0 .001 par value, authorized 2,500 shares:

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Accumulated deficit

Total stockholders’

Total liabilities and stockholders’

The accompanying notes are an integral part

of these financial statements.

Total stockholders’ equity

Total liabilities and stockholders’ equity

The accompanying notes are an integral part of

these financial statements.

Atomera Incorporated

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Loss from operations

Other income:

Other income (expense):

Interest income

Total other income

Interest expense

Total other income (expense), net

Net loss before income taxes

Provision for income taxes

Net loss per common share, basic and diluted

Weighted average number of common shares outstanding, basic and diluted

The accompanying notes are an integral part

of these financial statements.

The accompanying notes are an integral part of

these financial statements.

Atomera Incorporated

Statements of Stockholders’

(in thousands)

Stockholders’

Total Stockholders’

Balance January 1, 2020

$ ( 135,262 )

Stock-based compensation

Registered direct offering

of common stock, net of commissions and other offering expenses

Warrant modification

Warrant exercises

Stock option exercises

Underwritten public offering of common stock, net of commissions

At-the-market sale of stock, net of commissions and expenses

Balance December 31, 2020

$ ( 150,140 )

Stock-based compensation

Warrant modification

Warrant exercises

Stock option exercises

Underwritten public offering

of common stock, net of commissions

At-the-market sale of

stock, net of commissions and expenses

Forfeited restricted stock awards

At-the-market sale of stock, net of commissions and expenses

Balance December 31, 2021

The accompanying notes are an integral part

of these financial statements.

$ ( 165,854 )

The accompanying notes are an integral part of

these financial statements.

Atomera Incorporated

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Depreciation and amortization

Right of use asset amortization

Operating lease right of use asset amortization

Financing lease right of use asset amortization

Stock-based compensation

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Accrued payroll expenses

Lease liability

Operating lease liability

Deferred revenue

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Proceeds from underwritten public offering, net of commission and expenses

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

Proceeds from exercise of stock options

Proceeds from exercise of warrants

Payments of principal for financing lease

Net cash provided by financing activities

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Cash paid for taxes

The accompanying notes are an integral part

of these financial statements.

The accompanying notes are an integral part of

these financial statements.

Atomera Incorporated

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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.

and is engaged in the development, commercialization and licensing of proprietary processes and technologies

for the semiconductor industry.

On January 12, 2016, the Company changed its name to Atomera Incorporated.

Atomera is an early

stage company, having only recently begun limited revenue-generating activities, and is devoting substantially all of its efforts

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

The Company 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.

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

in the development, commercialization and licensing of proprietary processes and technologies for the semiconductor industry.

12, 2016, the Company changed its name to Atomera Incorporated.

Atomera is an early-stage

company, having only recently begun limited revenue-generating activities, and is devoting substantially all of its efforts toward technology

research and development and to commercially licensing its technology to designers and manufacturers 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.

LIQUIDITY AND MANAGEMENT PLANS

At December 31, 2020,

the Company had cash and cash equivalents of approximately $37.9 million and working capital of approximately $36.6 million.

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 research and development headcount and increased spending on outsourced

fabrication and testing.

Based on the funds it has available as of the date of the filing of this report, the Company believes

that it has sufficient capital to fund its current business plans and obligations over, at least, 12 months from the date that

these financial statements have been issued.

However, as the Company has generated only limited revenue from its principal operations,

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.

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.

At December 31, 2021, the

Company had cash and cash equivalents of approximately $ 28.7 million and working capital of approximately $ 26.3 million.

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 research and development headcount and increased spending on outsourced fabrication and

Based on the funds it has available as of the date of the filing of this report, the Company believes that it has sufficient

capital to fund its current business plans and obligations over, at least, 12 months from the date that these financial statements have

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.

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, 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

Basis of presentation

The financial statements

are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”)

and reflect the financial position, results of operations and cash flows for all periods presented.

The financial statements are

presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and reflect

the financial position, results of operations and cash flows for all periods presented.

Fair Value of Financial Instruments

Authoritative guidance

requires disclosure of the fair value of financial instruments.

The Company’s financial instruments consist of cash and cash

equivalents, accounts receivable and accounts payable, the carrying amounts of which approximate their estimated fair values primarily

due to the short-term nature of the instruments or based on information obtained from market sources and management estimates.

The Company measures the fair value of certain of its financial assets and liabilities on a recurring basis.

A fair value hierarchy

is used to rank the quality and reliability of the information used to determine fair values.

Financial assets and liabilities

carried at fair value which is not equivalent to cost will be classified and disclosed in one of the following three categories:

Level 1 —

prices (unadjusted) in active markets for identical assets and liabilities.

Level 2 —

other than Level 1 that are observable, either directly or indirectly, such as unadjusted quoted prices for similar assets and

liabilities, unadjusted quoted prices in the markets that are not active, or other inputs that are observable or can be corroborated

by observable market data for substantially the full term of the assets or liabilities.

Level 3 —

inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Authoritative guidance requires

disclosure of the fair value of financial instruments.

The Company’s financial instruments consist of cash and cash equivalents,

accounts receivable and accounts payable, the carrying amounts of which approximate their estimated fair values primarily due to the short-term

nature of the instruments or based on information obtained from market sources and management estimates.

The Company measures the fair

value of certain of its financial assets and liabilities on a recurring basis.

A fair value hierarchy is used to rank the quality and

reliability of the information used to determine fair values.

Financial assets and liabilities carried at fair value which is not equivalent

to cost will be classified and disclosed in one of the following three categories:

Level 1 — Quoted prices (unadjusted) in active markets

for identical assets and liabilities.

Level 2 — Inputs other than Level 1 that are observable,

either directly or indirectly, such as unadjusted quoted prices for similar assets and liabilities, unadjusted quoted prices in the markets

that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term

of the assets or liabilities.

Level 3 — Unobservable inputs that are supported by

little or no market activity and that are significant to the fair value of the assets or liabilities.

Cash and cash equivalents

The Company maintains

its operating accounts in a single reputable financial institution.

The Company maintains its

operating accounts in a single reputable financial institution.

The balances are insured by the U.S.

Federal Deposit Insurance

Corporation (“FDIC”) up to specified limits.

The Company’s cash and cash equivalents are maintained in checking

accounts and money market funds with maturities of less than three months when purchased, which are readily convertible to known

amounts of cash.

Federal Deposit Insurance Corporation

(“FDIC”) up to specified limits.

The Company’s cash and cash equivalents are maintained in checking accounts and money

market funds with maturities of less than three months when purchased, which are readily convertible to known amounts of cash.

Concentration of Credit Risk and Major Customers

Financial instruments,

which potentially subject the Company to concentrations of credit risk, consist principally of cash, cash equivalents and accounts

During the year ended December 31, 2020, one customer represented 100% of revenue and, no customer represented a balance

of accounts receivable at December 31, 2020.

During the year ended December 31, 2019, six customers each represented approximately

26%, 19%, 16%, 16%, 13% and 9% of revenues.

No customers represented a balance of accounts receivable at December 31, 2019.

At times, the amounts

on deposit at the financial institution exceed the federally insured limits.

Management believes that the financial institutions

which hold the Company’s cash is financially sound and, accordingly, minimal credit risk exists.

As of December 31, 2020

and 2019, the Company’s cash balances were in excess of insured limits maintained at the financial institution.

Financial instruments, which

potentially subject the Company to concentrations of credit risk, consist principally of cash, cash equivalents and accounts receivable.

One customer represented 100% of revenue during the year ended December 31, 2021 and a separate single customer represented 100% of revenue

during the year ended December 31, 2020.

No customer represented a balance of accounts receivable at December 31, 2021 or 2020.

At times, the amounts on deposit

at the financial institution exceed the federally insured limits.

Management believes that the financial institutions which hold the Company’s

cash is financially sound and, accordingly, minimal credit risk exists.

As of December 31, 2021 and 2020, the Company’s cash balances

were in excess of insured limits maintained at the financial institution.

Accounts Receivable

The Company grants

credit to its business customers.

The Company grants credit

to its business customers.

Collateral is generally not required for trade receivables.

The Company maintains allowances

for potential credit losses when necessary.

Trade accounts receivable are recorded net of allowances for cash discounts for prompt

payment, doubtful accounts, and sales returns.

The Company’s

policy is to reserve for uncollectible accounts based on its best estimate of the amount of probable credit losses in its existing

accounts receivable.

The Company periodically reviews its accounts receivable to determine whether an allowance for doubtful accounts

is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may

Other factors that the Company considers include its existing contractual obligations, historical payment patterns

of its customers and individual customer circumstances, and an analysis of days sales outstanding by customer.

Account balances

deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for

recovery is considered remote.

At December 31, 2020 and 2019, there were no allowances for doubtful accounts since the balances

were either collected during the year or subsequently collected.

Any allowances recorded are included in Accounts Receivable, net

in the accompanying balance sheets.

The Company maintains allowances for potential

credit losses when necessary.

Trade accounts receivable are recorded net of allowances for cash discounts for prompt payment, doubtful

accounts, and sales returns.

The Company’s policy

is to reserve for uncollectible accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable.

The Company periodically reviews its accounts receivable to determine whether an allowance for doubtful accounts is necessary based on

an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt.

Other factors

that the Company considers include its existing contractual obligations, historical payment patterns of its customers and individual customer

circumstances, and an analysis of days sales outstanding by customer.

Account balances deemed to be uncollectible are charged to the allowance

after all means of collection have been exhausted and the potential for recovery is considered remote.

At December 31, 2021 and 2020,

there were no allowances for doubtful accounts since the balances were collected during the year.

Any allowances recorded are included

in Accounts Receivable, net in the accompanying balance sheets.

Impairment of long-lived assets

Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that it is more likely than

not that the asset’s carrying amount may not be recoverable.

The Company conducts its long-lived asset impairment analyses

in accordance with authoritative guidance which requires the Company to group assets and liabilities at the lowest level for which

identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group

against the sum of the undiscounted future cash flows.

If the undiscounted cash flows do not indicate the carrying amount of the

asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its

fair value based on discounted cash flow analysis or appraisals.

During the years ended December 31, 2020 and 2019,

the Company had noted no indicators of impairment.

The Company reviews

long-lived assets for impairment whenever events or changes in circumstances indicate that it is more likely than not that the

asset’s carrying amount may not be recoverable.

The Company conducts its long-lived asset impairment analyses in accordance

with authoritative guidance which requires the Company to group assets and liabilities at the lowest level for which identifiable

cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of

the undiscounted future cash flows.

If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable,

an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on

discounted cash flow analysis or appraisals.

During the years ended December 31, 2021 and 2020, the Company had noted no indicators

of impairment.

Property and equipment

Items capitalized as

property and equipment are stated at cost.

Maintenance and routine repairs are charged to operations when incurred, while

betterments and renewals are capitalized.

Depreciation and amortization are computed using he straight-line method over the

estimated useful lives of the respective assets starting when the asset is placed in service.

Items capitalized as property

and equipment are stated at cost.

Maintenance and routine repairs are charged to operations when incurred, while betterments and

renewals are capitalized.

Depreciation and amortization are computed using the straight-line method over the estimated useful lives

of the respective assets starting when the asset is placed in service.

Common stock warrants

The Company classifies

as equity any warrants that (i) require physical settlement or net-share settlement or (ii) provide the Company with a choice of

net-cash settlement or settlement in its own shares (physical settlement or net-share settlement).

The Company classifies as assets

or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an

event occurs and if that event is outside the Company’s control), (ii) gives the counterparty a choice of net-cash settlement

or settlement in shares (physical settlement or net-share settlement) or (iii) that contain reset provisions that do not qualify

for the scope exception.

The Company assesses classification of its common stock warrants and other freestanding derivatives at

each reporting date to determine whether a change in classification between assets and liabilities is required.

The Company’s

freestanding derivatives consist of warrants to purchase common stock.

The Company evaluated these warrants to assess their proper

classification and determined that the common stock warrants meet the criteria for equity classification in the balance sheet.

Such warrants are measured at fair value, which the Company determines using the Black-Scholes-Merton option-pricing model.

The Company generates

revenue from integration services which it delivers either pursuant to integration license agreements or delivery of engineering

The Company classifies as

equity any warrants that (i) require physical settlement or net-share settlement or (ii) provide the Company with a choice of net-cash

settlement or settlement in its own shares (physical settlement or net-share settlement).

The Company classifies as assets or liabilities

any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if

that event is outside the Company’s control), (ii) gives the counterparty a choice of net-cash settlement or settlement in shares

(physical settlement or net-share settlement) or (iii) that contain reset provisions that do not qualify for the scope exception.

Company assesses classification of its common stock warrants and other freestanding derivatives at each reporting date to determine whether

a change in classification between assets and liabilities is required.

The Company’s freestanding derivatives consist of warrants

to purchase common stock.

The Company evaluated these warrants to assess their proper classification and determined that the common stock

warrants meet the criteria for equity classification in the balance sheet.

Such warrants are measured at fair value, which the Company

determines using the Black-Scholes-Merton option-pricing model.

The Company generates revenue

from integration engineering services, which it delivers either pursuant to integration license agreements or delivery of engineering

services and from the grant of manufacturing licenses to customers to use its technology in the manufacture of semiconductor wafers and/or

devices for the customer’s internal use.

Revenue is recognized based on the following steps:

(i) identification of the contract, or contracts, with a customer,

(ii) identification of the performance obligations in the contract, (iii) determination of the transaction price, (iv) allocation

of the transaction price to the performance obligations of the contract, and (v) recognition of revenue when, or as, the Company

satisfies a performance obligation.

The Company’s integration services generally consist of depositing its proprietary technology

onto the customer’s semiconductor wafers and delivering such wafers back to the customer.

(i) identification of the contract,

or contracts, with a customer, (ii) identification of the performance obligations in the contract, (iii) determination of the transaction

price, (iv) allocation of the transaction price to the performance obligations of the contract, and (v) recognition of revenue when, or

as, the Company satisfies a performance obligation.

The Company’s integration services generally consist of depositing its proprietary

technology onto the customer’s semiconductor wafers and delivering such wafers back to the customer.

Revenue from integration services

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upon shipment).

Revenue from manufacturing licenses is recognized as the performance obligations are satisfied, which is upon delivery

of the Company’s MST recipe to the customer for the customer’s internal use.

For recognizing integration

service revenue from integration license agreements, the Company assesses (i) whether the license grant is distinct from or combined

with the transfer of goods or services and (ii) whether the license is a right to access intellectual property or a right to use

the intellectual property.

For licenses that are not distinct, but combined with other goods or services, the revenue is recognized

at a point in time or over time as the obligations to perform the combined services and/or deliver the combined goods are satisfied.

The Company’s integration license agreements contain a technology grant as well as a performance obligation to deliver wafers

with its technology deposited on them.

The Company has determined the grant of rights in these integration license agreements is

not distinct from the integration service.

Accordingly, revenue from integration license agreements is recognized as the service

is provided to the customer.

service revenue from integration license agreements, the Company assesses (i) whether the license grant is distinct from or combined with

the transfer of goods or services and (ii) whether the license is a right to access intellectual property or a right to use the intellectual

For licenses that are not distinct, but combined with other goods or services, the revenue is recognized at a point in time

or over time as the obligations to perform the combined services and/or deliver the combined goods are satisfied.

The Company’s

integration license agreements contain a technology grant as well as a performance obligation to deliver wafers with its technology deposited

The Company has determined the grant of rights in these integration license agreements is not distinct from the integration service.

Accordingly, revenue from integration license agreements is recognized as the service is provided to the customer.

For manufacturing licenses,

revenue is recognized at the point in time when the Company delivers its MST recipe because this license confers a right to use the Company’s

technology and not a right to access the technology over time.

Deferred revenues consist

of unearned amounts that have been billed to the customer in advance of the Company’s performance obligations.

These amounts

have not yet been recognized as revenue.

Revenue for these items will be recognized in accordance with the Company’s revenue

of unearned amounts that have been billed to the customer in advance of the Company’s performance obligations.

These amounts have

not yet been recognized as revenue.

Revenue for these items will be recognized in accordance with the Company’s revenue policy.

Research and development expenses

In accordance with

authoritative guidance, the Company charges research and development costs to operations as incurred.

Research and development

expenses consist of personnel costs for the design, development, testing and enhancement of the Company’s technology, and

certain other allocated costs, such as depreciation and other facilities related expenditures.

The Company accounts

for leases in accordance with the authoritative guidance.

On January 1, 2019, the Company adopted the Financial Accounting Standards

Board (“FASB”) issued Accounting Standards Update (“ASU”) No 2016-02, Leases (Topic 842).

In accordance with authoritative

guidance, the Company charges research and development costs to operations as incurred.

Research and development expenses consist of personnel

costs for the design, development, testing and enhancement of the Company’s technology, and certain other allocated costs, such

as depreciation and other facilities related expenditures.

The Company accounts for leases

in accordance with the authoritative guidance.

On January 1, 2019, the Company adopted the Financial Accounting Standards Board (“FASB”)

issued Accounting Standards Update (“ASU”) No 2016-02, Leases (Topic 842).

The Company determines if a contract contains

a lease in whole or in part at the inception of the contract.

Right-of-use (“ROU”) assets represent its right to use an underlying

asset for the lease term while lease liabilities represent its obligation to make lease payments arising from the lease.

All leases greater

than 12 months result in the recognition of a ROU asset and a liability at the lease commencement date based on the present value of the

lease payments over the lease term.

Leases are accounted for as operating leases unless it meets one of the following criteria:

lease term accounts for most of the remaining economic life of the underlying asset;

(b) the present value of the lease payments is over

90% of the fair value of the underlying asset;

or (d) ownership of the underlying assets transfers to the Company at the end of the lease term.

If the lease meets one of these

criteria, then it would be accounted for as financing lease and the ROU assets would be amortized over the life of the lease and interest

expense is recognized on the liability.

Stock-based compensation

The Company computes

stock-based compensation in accordance with authoritative guidance.

The Company uses the Black-Scholes-Merton option-pricing model

to determine the fair value of its stock options.

The Black-Scholes-Merton option-pricing model includes various assumptions, including

the fair market value of the common stock of the Company, expected life of stock options, the expected volatility and the expected

risk-free interest rate, among others.

These assumptions reflect the Company’s best estimates, but they involve inherent

uncertainties based on market conditions generally outside the control of the Company.

The Company computes stock-based

compensation in accordance with authoritative guidance.

The Company uses the Black-Scholes-Merton option-pricing model to determine the

fair value of its stock options.

The Black-Scholes-Merton option-pricing model includes various assumptions, including the fair market

value of the common stock of the Company, expected life of stock options, the expected volatility and the expected risk-free interest

rate, among others.

These assumptions reflect the Company’s best estimates, but they involve inherent uncertainties based on market

conditions generally outside the control of the Company.

Forfeitures are recorded when they occur.

As a result, if other

assumptions had been used, stock-based compensation cost, as determined in accordance with authoritative guidance, could have been

materially impacted.

Furthermore, if the Company uses different assumptions on future grants, stock-based compensation cost could

be materially affected in future periods.

In accordance with

authoritative guidance, deferred tax assets and liabilities are recorded for temporary differences between the financial reporting

and tax bases of assets and liabilities using the current enacted tax rate expected to be in effect when the differences are expected

A valuation allowance is recorded on deferred tax assets unless realization is considered more likely than not.

The Company evaluates

its tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether

the tax positions are “more-likely-than-not”

of being sustained by the applicable tax authority.

Tax positions not

deemed to meet the “more-likely-than-not”

As a result, if other assumptions

had been used, stock-based compensation cost, as determined in accordance with authoritative guidance, could have been materially impacted.

Furthermore, if the Company uses different assumptions on future grants, stock-based compensation cost could be materially affected in

future periods.

In accordance with authoritative

guidance, deferred tax assets and liabilities are recorded for temporary differences between the financial reporting and tax bases of

assets and liabilities using the current enacted tax rate expected to be in effect when the differences are expected to reverse.

allowance is recorded on deferred tax assets unless realization is considered more likely than not.

The Company evaluates its

tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions

are “more-likely-than-not” of being sustained by the applicable tax authority.

Tax positions not deemed to meet the “more-likely-than-not”

threshold are not recorded as a tax benefit or expense in the current year.

The Company recognizes interest and penalties, if any, related to uncertain tax positions in interest expense.

No interest and

penalties related to uncertain tax positions were accrued at either December 31, 2020 or 2019.

The Company follows

authoritative guidance which requires the evaluation of existing tax positions.

Management has analyzed all open tax years, as

defined by the statute of limitations, for all major jurisdictions, which includes both federal and states where the Company has

Open tax years are those that are open for examination by taxing authorities.

The Company recognizes interest and penalties, if any, related

to uncertain tax positions in interest expense.

No interest and penalties related to uncertain tax positions were accrued at either December

31, 2021 or 2020.

The Company follows authoritative

guidance which requires the evaluation of existing tax positions.

Management has analyzed all open tax years, as defined by the statute

of limitations, for all major jurisdictions, which includes both federal and states where the Company has operations.

Open tax years are

those that are open for examination by taxing authorities.

Use of estimates

The preparation of

financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect

the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial

statements and the reported amounts of revenue and expenses during the reporting period.

Significant estimates are used when accounting

for revenue recognition, fair value of stock-based compensation and warrants, borrowing rates used for lease accounting and valuation

allowance against deferred tax assets.

The preparation of financial

statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported

amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the

reported amounts of revenue and expenses during the reporting period.

Significant estimates are used when accounting for revenue recognition,

fair value of stock-based compensation and warrants, borrowing rates used for lease accounting and valuation allowance against deferred

Actual results could differ from those estimates.

Subsequent events

Management has evaluated

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

Management has evaluated subsequent

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

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):

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

financial assets in scope.

The new guidance represents significant changes to accounting for credit losses:

(i) full lifetime expected

credit losses will be recognized upon initial recognition of an asset in scope;

(ii) the current incurred loss impairment model

that recognizes losses when a probable threshold is met will be replaced with the expected credit loss impairment method without

recognition threshold;

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).

2016-13 is effective for public entities

for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

The Company adopted this

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

statement disclosure.

In December 2019, the FASB

issued ASU No.

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.

The Company adopted this standard on January 1, 2021 and it did not have a material

impact on its financial position, results of operations or financial statement disclosure.

In August 2020, the FASB issued

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 adopted this standard on January 1, 2022 and

it did not have a material impact on its financial position, results of operations or financial statement disclosure.

Recent accounting standards

The Company has evaluated

all issued but not yet effective accounting pronouncements and determined that they are either immaterial or not relevant to the

Company except as noted below.

In December 2019, the

FASB issued ASU No.

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.

While not required to be adopted until 2021 for most calendar

year public business entities, early adoption is permitted for any financial statements not yet issued to take advantage of the

simplifications.

The Company is still evaluating the impact of the ASU but does not expect the ASU to have a significant impact

on its tax provision when adopted.

In August 2020, the

FASB issued 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).

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.

Revenue is recognized when the Company satisfies a performance obligation by transferring the product

or service to the customer, either at a point in time or over time.

The Company usually recognizes revenue from integration service

agreements at a point in time and integration license agreements over a period of time.

The following table provides information

about disaggregated revenue by primary geographical markets and timing of revenue recognition for the years ended December 31,

2020 and 2019 (in thousands):

all issued but not yet effective accounting pronouncements and determined that they are either immaterial or not relevant to the Company.

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.

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

at a point in time or over time.

The Company usually recognizes revenue from integration service agreements and from manufacturing licenses

at a point in time and integration license agreements over a period of time.

The following table provides information about

disaggregated revenue by primary geographical markets and timing of revenue recognition for the years ended December 31, 2021 and 2020

(in thousands):

Schedule of information about disaggregated revenue and timing of revenue

Year Ended December 31,

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Accounts receivable includes amounts billed and currently due from customers.

Unbilled contracts receivable represents unbilled amounts expected to be received from customers in future periods, where the revenue

recognized to date exceeds the amount billed, and the right to receive payment is subject to the underlying contractual terms.

Unbilled contracts receivable amounts may not exceed their net realizable value and are classified as long-term assets if the payments

are expected to be received more than one year from the reporting date.

The Company records

deferred revenue when revenue will be recognized after invoicing.

During the year ended December 31, 2020, the Company recognized

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

contracts receivable represents unbilled amounts expected to be received from customers in future periods, where the revenue recognized

to date exceeds the amount billed, and the right to receive payment is subject to the underlying contractual terms.

Unbilled contracts

receivable amounts may not exceed their net realizable value and are classified as long-term assets if the payments are expected to be

received more than one year from the reporting date.

The Company records deferred

revenue when revenue will be recognized after invoicing.

During the year ended December 31, 2020, the Company recognized approximately

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

BASIC AND DILUTED LOSS PER SHARE`

Basic net loss per

share is calculated by dividing the net loss by the weighted-average number of shares outstanding for the period.

Diluted net loss

per share is computed by dividing the net loss by the weighted-average number of shares and dilutive share equivalents outstanding

for the period, determined using the treasury-stock and if-converted methods.

Since the Company has had net losses for all periods

presented, all potentially dilutive securities are anti-dilutive.

Basic net loss per share is

calculated by dividing the net loss by the weighted-average number of shares outstanding for the period.

Diluted net loss per share is

computed by dividing the net loss by the weighted-average number of shares and dilutive share equivalents outstanding for the period,

determined using the treasury-stock and if-converted methods.

Since the Company has had net losses for all periods presented, all potentially

dilutive securities are anti-dilutive.

Accordingly, basic and diluted net loss per share are equal.

The following potential

common stock equivalents were not included in the calculation of diluted net loss per common share because the inclusion thereof

would be anti-dilutive (in thousands):

The following potential common

stock equivalents were not included in the calculation of diluted net loss per common share because the inclusion thereof would be anti-dilutive

(in thousands):

Schedule of anti-dilutive shares

Year Ended December 31,

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PROPERTY AND EQUIPMENT

Property and equipment

consisted of the following (in thousands):

Property and equipment consisted

of the following (in thousands):

Schedule of property and equipment

Laboratory equipment

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Depreciation and amortization

expense relating to property and equipment was approximately $41,000 and $44,000 for the years ended December 31, 2020 and 2019,

respectively.

The Company depreciates computer equipment, laboratory equipment and office equipment on straight-line basis over

Furniture and fixtures are depreciated on a straight-line basis over five years.

The Company amortizes software on

straight-line basis over three years.

expense relating to property and equipment was approximately $ 67,000 and $ 41,000 for the years ended December 31, 2021 and 2020, respectively.

The Company depreciates computer equipment, laboratory equipment and office equipment on straight-line basis over three years.

and fixtures are depreciated on a straight-line basis over five years.

The Company amortizes software on straight-line basis over three

Leasehold improvements are amortized over the remaining life of the lease.

The Company leases

corporate office space in Los Gatos, California.

In August 2020, the Company and its landlord amended the lease of this office.

This amendment extends the expiration date of the lease from January 2021 to January 2026 and increases the space from 3,396 square

feet to 4,101 square feet.

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 the year ended December 31, 2020.

The lease liability is based on the present value of the minimum

lease payments, discounted using an 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.

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.

Lease expense for operating leases consists of the lease payments recognized on a straight-line

basis over the lease term.

In January 2021, the Company recorded an additional ROU asset and corresponding liability of approximately

$144,000 when the additional space became available for use.

The components of operating

lease costs were as follows (in thousands):

The Company leases corporate

office space in Los Gatos, California.

In August 2020, the Company and its landlord amended the lease for this office.

This amendment

extends the expiration date of the operating lease from January 2021 to January 2026 and increases the space from 3,396 square feet to

4,101 square feet.

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 ROU asset and lease liability of approximately $681,000 were recorded 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.

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.

In March 2021, the Company

began leasing 474 square feet of office space in Tempe, Arizona.

The new lease is classified as an operating lease with an initial term

of two years and an option to extend for an additional three years through February 2026.

The lease also contains a performance standard

for research collaboration with Arizona State University.

The agreement requires a minimum value of collaborative research in each year

of the lease.

The lease is accounted for under ASC 842 and accordingly, the research payments are included in the ROU and lease liability

at the commencement.

In March 2021, the Company recorded an ROU and associated lease liability of approximately $ 238,000 .

The lease liability

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

of 5.25 % over five years, as the Company expects to lease the space through the three-year extension.

The lease also contains escalating

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

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 and commenced on August 1, 2021.

A prepayment of $ 450,000 was made in year ended December 31, 2020 which represents

the final three monthly payments under the lease and was recorded as a long-term prepaid until the lease commencement.

At commencement,

the Company recorded an ROU asset of approximately $ 6.4 million and a corresponding lease liability of approximately $ 6 .0 million.

lease was classified as a financing lease and accordingly, amortization is recorded as a research and development expense in the Company’s

statement of operations.

Interest expense is also recorded and included in other income or expense in the Company’s statement of

The lease liability is based on the present value of the minimum lease payments, discounted using the Company’s estimated

incremental borrowing rate of 5.25 % at the time of commencement.

The lease payment of $150,000 per month includes approximately $ 30,000

in supplies and maintenance that is recorded as an operating expense and is not included in the valuation of the lease liability.

Company elected to exclude these costs from the asset and related lease liability valuation for this class of assets.

These costs will

be expensed as operating expenses in the period incurred.

Lease expense for operating

leases consists of the lease payments recognized on a straight-line basis over the lease term.

Expenses for financing leases consists

of the amortization expenses recognized on a straight-line basis over the lease term and interest expense.

The components of lease costs

were as follows (in thousands):

Schedule of components of lease costs

Year Ended December 31,

Financing lease costs:

Amortization of ROU assets

Interest on lease liabilities

Total financing lease costs

Operating lease costs

Fixed lease costs

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Short-term lease costs

Total operating costs

Future minimum payments

under non-cancellable leases as of December 31, 2020 were as follows (in thousands) and do not include the additional space that

the Company took use of in January 2021:

Total operating lease costs

Future minimum payments under non-cancellable

leases as of December 31, 2021 were as follows (in thousands):

Schedule of future minimum lease payments

For the Year Ended December 31,

Financing leases

Operating leases

2026 & thereafter

1 unchanged sentence

Less imputed interest

The below table provides

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

Total lease liability

The below table provides supplemental

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

Supplemental non-cash activity related to operating leases

Year Ended December 31,

Operating cash flow information:

Cash paid for amounts included in the measurement of lease liabilities

Cash paid for amounts included in the measurement of operating lease liabilities

Cash paid for amounts included in the measurement of financing lease liabilities

Non-cash activity:

Right-of-use assets obtained in exchange for the lease obligations

In October 2016, the

Company entered into lease agreement for approximately 200 square feet of office space in Cambridge, Massachusetts.

with current monthly payments of $2,942 per month, commenced on October 24, 2016.

Because the lease is month to month and can be

cancelled with a 30-day notice, the future lease payments are not included in the Company’s lease accounting under ASC Topic

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.

A prepayment of $450,000 was made in the year ended December 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 ASC 842.

Right-of-use assets obtained in exchange for operating lease obligations

Right-of-use assets obtained in exchange for financing lease obligations

The weighted average remaining

discount rate is 5.25 % for the Company’s operating and financing leases.

The weighted average remaining lease term is 4.1 years

for operating leases and 4.6 years for financing lease.

In October 2016, the Company

entered into lease agreement for approximately 200 square feet of office space in Cambridge, Massachusetts.

The lease, with current monthly

payments of $2,942 per month, commenced on October 24, 2016.

Because the lease is month to month and can be cancelled with a 30-day notice,

the future lease payments are not included in the Company’s lease accounting under ASC Topic 842.

COMMITMENTS AND CONTINGENCIES

The Company may be

involved, from time to time, in legal proceedings and claims arising in the ordinary course of its business.

Such matters are subject

to many uncertainties and outcomes and are not predictable with assurance.

While management believes that such matters are currently

insignificant, matters arising in the ordinary course of business for which the Company is or could become involved in litigation

may have a material adverse effect on its business and financial condition.

The Company is not party to any material litigation

as of December 31, 2020 or through the date these financial statements have been issued.

STOCKHOLDERS’

The Company may be involved,

from time to time, in legal proceedings and claims arising in the ordinary course of its business.

Such matters are subject to many uncertainties

and outcomes and are not predictable with assurance.

While management believes that such matters are currently insignificant, matters

arising in the ordinary course of business for which the Company is or could become involved in litigation may have a material adverse

effect on its business and financial condition.

The Company is not party to any material litigation as of December 31, 2021 or through

the date these financial statements have been issued.

STOCKHOLDERS’ EQUITY

The Company is authorized

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preferences, or both, and may have full or limited voting rights.

On May 29, 2019, the

Company closed a registered direct offering of 1,675,000 shares of common stock at a price of $4.00 per share.

The Company received

approximately $6.4 million of net proceeds after deducting commissions and other offering expenses.

On May 15, 2020, the

Company 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 after deducting underwriting commission and other offering expenses.

On September 2, 2020,

Atomera entered into an Equity Distribution Agreement with Craig-Hallum Capital Group LLC, as agent, under which the Company offered

and sold, from time to time at its sole discretion, shares of its common stock having an aggregate offering price of up to $25.0

million in an “at-the-market”

On May 15, 2020, the Company

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 after deducting underwriting commission and other offering expenses.

On September 2, 2020, Atomera

entered into an Equity Distribution Agreement with Craig-Hallum Capital Group LLC, as agent, under which the Company offered and sold,

from time to time at its sole discretion, shares of its 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 December 31, 2020, 2,206,895 shares

had been sold at an average price of approximately $11.22, resulting in approximately $24.0 million of net proceeds to the Company

after deducting commissions and other offering expenses.

On January 5, 2021 we announced the completion of this offering after 2,221,575 shares were

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

and other offering expenses.

As of December

31, 2020, the Company has reserved approximately 3.8 million shares of common stock for issuance pursuant to outstanding stock

options and warrants.

The Company estimated

the fair value of warrants using the Black-Scholes option pricing model.

31, 2021, the Company has reserved approximately 2.9 million shares of common stock for issuance pursuant to outstanding stock options

and warrants.

The Company estimated the

fair value of warrants using the Black-Scholes option pricing model.

There were no warrants issued in the year ending December 31, 2021

31, 2020 or 2019.

A summary of warrant activity for the year ended December 31, 2020 is as follows (shares in thousands except

per share and contractual term):

A summary of warrant activity for the year ended December 31, 2021 is as follows (shares in thousands except per share and contractual

Schedule of warrant activity

Weighted-Average

2 unchanged sentences

Outstanding and exercisable at December 31, 2021

The warrants outstanding at December 31,

2020 had an intrinsic value of approximately $2.1 million based on a per-share stock price of $16.09 as of December 31, 2020.

The warrants outstanding at

December 31, 2020 had an intrinsic value of $ 0 based on a per-share stock price of $ 20.12 as of December 31, 2020.

On March 17, 2020, 196,602

warrants with an exercise price of $3.75 were set to expire.

Prior to the expiration, the Company entered into an agreement

with the warrant holders, whereby it modified the terms of the warrants to extend the expiration date until September 17, 2020

in exchange for the removal of a cashless exercise provision.

Prior to the expiration, the Company entered into an agreement with the

warrant holders, whereby it modified the terms of the warrants to extend the expiration date until September 17, 2020 in exchange for

the removal of a cashless exercise provision.

No other terms were modified.

Due to this modification, the Company

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

of Operations for the year ended December 31, 2020.

Due to this modification, the Company incurred a modification

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

ended December 31, 2020.

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

3, 2020, the Company modified 12,200 warrants with an original exercise price of $9.375 and an expiration date August 4, 2021.

The warrants were modified to decrease the exercise price to $7.50 and change the expiration date to December 31, 2020.

were then exercised December 4, 2020.

Due to the modification, the Company incurred a modification expense of approximately $2,000

that is included in general and administrative expenses on the Statement of Operations for the year ended December 31, 2020.

December 2020, a warrant for 37,562 shares was presented for cashless exercise resulting in the issuance of 13,165 shares of common

On December 3, 2020, the Company modified 12,200

warrants with an original exercise price of $9.375 and an expiration date August 4, 2021.

The warrants were modified to decrease the

exercise price to $7.50 and change the expiration date to December 31, 2020.

The warrants were then exercised December 4, 2020.

the modification, the Company incurred a modification expense of approximately $ 2,000 that is included in general and administrative

expenses on the Statement of Operations for the year ended December 31, 2020.

In December 2020, a warrant for 37,562 shares was presented

for cashless exercise resulting in the issuance of 13,165 shares of common stock.

In January 2021, warrants for 317,488 shares were presented

for cashless exercises resulting in the issuance of 223,487 shares of common stock.

STOCK-BASED COMPENSATION

On March 14, 2007,

the Company’s stockholders approved the 2007 Equity Incentive Plan (the “2007 Plan”).

The 2007 Plan expired in

March 2017, however all options and warrants outstanding at the time of the expiration remained outstanding and exercisable by

At the time of the expiration of the 2007 plan, options to purchase 2,106,637 shares of common stock were outstanding.

In May 2017, the Company’s

shareholders approved its 2017 Stock Incentive Plan (“2017 Plan”).

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 share grants.

On March 14, 2007, the Company’s

stockholders approved the 2007 Equity Incentive Plan (the “2007 Plan”).

The 2007 Plan expired in March 2017, however all options

and warrants outstanding at the time of the expiration remained outstanding and exercisable by their term.

At the time of the expiration

of the 2007 plan, options to purchase 2,106,637 shares of common stock were outstanding.

In May 2017, the Company’s

shareholders approved its 2017 Stock Incentive Plan (“2017 Plan”).

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

share grants.

The Company reserved a total of 3,750,000 shares of common stock for issuance under the 2017 Plan.

All employees, officers, directors, consultants, advisors and other persons who provide services to the Company or any subsidiaries

of the Company are eligible to receive incentive awards under the 2017 Plan.

As of December 31, 2020, awards aggregate of 2,669,760

shares of common stock had been granted under the 2017 Plan and total of 1,080,240 shares of common stock are reserved for issuance.

The following table

summarizes the stock-based compensation expense recorded in the Company’s results of operations during the years ended December

31, 2020 and 2019 for stock options and restricted stock (in thousands):

All employees, officers,

directors, consultants, advisors and other persons who provide services to the Company or any subsidiaries of the Company are eligible

to receive incentive awards under the 2017 Plan.

As of December 31, 2021, awards of 2,686,343 shares of common stock had been granted

under the 2017 Plan, net of forfeited restricted stock and option awards and a total of 1,063,657 shares of common stock are reserved

for issuance.

The following table summarizes

the stock-based compensation expense recorded in the Company’s results of operations during the years ended December 31, 2021 and

2020 for stock options and restricted stock (in thousands):

Schedule of stock-based compensation expense

Year Ended December 31,

2 unchanged sentences

Selling and Marketing

As of December 31,

2020, there was approximately $4.9 million of total unrecognized compensation expense related to non-vested share-based compensation

arrangements that are expected to vest.

As of December 31, 2021, there

was approximately $ 4.9 million of total unrecognized compensation expense related to non-vested share-based compensation arrangements

that are expected to vest.

This cost is expected to be recognized over a weighted-average period of 2.1 years.

The Company records

compensation expense for employee awards with graded vesting using the straight-line method.

The Company records compensation expense

for nonemployee awards with graded vesting using the accelerated expense attribution method.

The Company recognizes compensation

expense over the requisite service period applicable to each individual award, which generally equals the vesting term.

estimates the fair value of each option award using the Black-Scholes-Merton option pricing model.

Forfeitures are recognized when

The Company records compensation

expense for employee awards with graded vesting using the straight-line method.

The Company records compensation expense for nonemployee

awards with graded vesting using the accelerated expense attribution method.

The Company recognizes compensation expense over the requisite

service period applicable to each individual award, which generally equals the vesting term.

The Company estimates the fair value of each

option award using the Black-Scholes-Merton option pricing model.

Forfeitures are recognized when realized.

The fair value of employee

stock options issued was estimated using the following weighted-average assumptions:

Schedule of employee

stock options

Year Ended December 31,

5 unchanged sentences

Expected dividend yield

The risk-free interest

rate was obtained from U.S.

The risk-free interest rate

was obtained from U.S.

Treasury rates for the applicable periods.

The Company’s expected volatility was based upon the

historical volatility of the Company.

The expected life of the Company’s options was determined using the simplified method

as a result of limited historical data regarding the Company’s activity.

The dividend yield considers that the Company has

not historically paid dividends and does not expect to pay dividends in the foreseeable future.

The following table

summarizes stock option activity during the year ended December 31, 2020 (in thousands except exercise prices and contractual terms):

The Company’s expected volatility was based upon the historical

volatility of the Company.

The expected life of the Company’s options was determined using the simplified method as a result of

limited historical data regarding the Company’s activity.

The dividend yield considers that the Company has not historically paid

dividends and does not expect to pay dividends in the foreseeable future.

The following table summarizes

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

Schedule of stock option activity

Weighted-Average

4 unchanged sentences

Exercisable at December 31, 2021

During the year ended

December 31, 2020, the Company granted options under its 2017 Plan purchase 664,128 shares of its common stock to its employees.

The fair value of these options was approximately $1.9 million.

The Company issues

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 year ended December 31, 2020 (in thousands except

per share data):

During the year ended December

31, 2021, the Company granted options under its 2017 Plan purchase 158,352 shares of its common stock to its employees.

The fair value

of these options was approximately $ 2.5 million.

The Company issues restricted

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

The following

table summarizes all restricted stock activity during the year ended December 31, 2020 (in thousands except per share data):

Schedule of restricted stock option activity

Number of Shares

2 unchanged sentences

Outstanding non-vested shares at December 31, 2021

During 2002, the Company

established a plan under Section 401(k) of the Internal Revenue Code (the 401(k) Plan).

The 401(k) Plan covers substantially all

of its employees who have attained 18 years of age.

Employees may elect to contribute part of their annual compensation to the

401(k) Plan, up to the maximum deferral allowance for individuals by the Internal Revenue Service under Code Section 401(k), and

the Company may make a matching contribution.

During the years ended December 31, 2020 and 2019, there were no matching contributions

made by the Company.

During 2002, the Company established

a plan under Section 401(k) of the Internal Revenue Code (the 401(k) Plan).

The 401(k) Plan covers substantially all of its employees

who have attained 18 years of age.

Employees may elect to contribute part of their annual compensation to the 401(k) Plan, up to the maximum

deferral allowance for individuals by the Internal Revenue Service under Code Section 401(k), and the Company may make a matching contribution.

During the years ended December 31, 2021 and 2020, there were no matching contributions made by the Company.

The loss before provision

for income taxes consisted of the following (in thousands):

Schedule of provision

for income taxes

Year Ended December 31,

International

The Company had no

income tax expense due to operating losses incurred for the years ended December 31, 2020 and 2019.

The Company accounts for income

taxes in accordance with ASC 740, which requires that the tax benefit of net operating losses, temporary differences and credit

carryforwards be recorded as an asset to the extent that management assesses that realization is "more likely than not."

Realization of the future tax benefits is dependent on the Company's ability to generate sufficient taxable income within the carryforward

Because of the Company's recent history of operating losses, management believes that recognition of the deferred tax assets

arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a full

valuation allowance.

The valuation allowance increased by approximately $3.8 million during the year ended December 31, 2020 and

increased by approximately $2.6 million during the year ended December 31, 2019.

The Company’s

deferred tax assets are as follows (in thousands):

The Company had $66,000 and

$0 of current income tax expense for the years ended December 31, 2021 and 2020, respectively.

The Company accounts for income taxes in

accordance with ASC 740, which requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be

recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future

tax benefits is dependent on the Company's ability to generate sufficient taxable income within the carryforward period.

Because of the

Company's recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned

future tax benefits is currently not likely to be realized and, accordingly, has provided a full valuation allowance.

The valuation allowance

decreased by approximately $ 1.8 million during the year ended December 31, 2021 and increased by approximately $ 3.8 million during the

year ended December 31, 2020.

The Company’s deferred

tax assets are as follows (in thousands):

Schedule of deferred

Year Ended December 31,

Deferred tax assets:

10 unchanged sentences

Net deferred tax asset

Net operating losses

and tax credit carryforwards as of December 31, 2020, are as follows (in thousands):

Net operating losses and

tax credit carryforwards as of December 31, 2021, are as follows (in thousands):

Schedule of operating losses

Expiration in years

7 unchanged sentences

Tax credits, state

The effective tax rate

of the Company’s provision (benefit) for income taxes differs from the federal statutory rate as follows:

The effective tax rate of

the Company’s provision (benefit) for income taxes differs from the federal statutory rate as follows:

Schedule of effective tax rate

Year ending December 31,

3 unchanged sentences

Change in tax credits

Foreign withholding tax

Section 382 limitation

Section 162(m) limitation

Stock based compensation excess windfall

Utilization of U.S.

net operating losses and tax credit carryforwards may be limited by “ownership change”

rules, as defined in Section 382

net operating

losses and tax credit carryforwards may be limited by “ownership change” rules, as defined in Section 382 and Section

383 of the Internal Revenue Code.

Similar rules may apply under state tax laws.

The Company has not conducted a study to-date to assess

whether a limitation would apply under Section 382 of the Internal Revenue Code as and when it starts utilizing its net operating

losses and tax credits.

The Company will continue to monitor activities in the future.

In the event the Company previously experienced

an ownership change, or should experience an ownership change in the future, the amount of net operating losses and research and

development credit carryovers available in any taxable year could be limited and may expire unutilized.

The Company establishes

reserves for uncertain tax positions based on the largest amount that is more-likely-than-not to be sustained.

An uncertain income

tax position will not be recognized if it has less than a 50% likelihood of being sustained.

It is the Company’s policy to

recognize interest and penalties related to income tax matters in income tax expense.

As of December 31, 2020 and 2019, respectively,

the Company has no accrued interest or penalties related to uncertain tax positions.

The Company files income

tax returns in the U.S.

Under those sections of the Code, if a corporation undergoes

an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change

attributes, such as research tax credits, to offset its post-change income or tax may be limited.

In general, an “ownership change”

will occur if there is a cumulative change in ownership by “5% stockholders” that exceeds 50 percentage points over a rolling

three-year period.

During the fourth quarter

of 2021, the Company performed an analysis to assess whether an “ownership change,” as defined by Section 382 of the Code,

has occurred from its inception through December 31, 2021.

Based on this analysis, the Company has experienced “ownership changes,”

limiting the utilization of the net operating loss carryforwards or research and development tax credit carryforwards under Section 382

The limitation is calculated by first multiplying the value of the Company’s stock at the time of the ownership change

by the applicable long-term tax-exempt rate, and then applying additional adjustments, as required.

As a result of the analysis, the Company

has determined that approximately $ 31 million of federal net operating loss and $ 0.7 million of federal R&D credit carryforwards are

limited and will expire unutilized.

Additionally, approximately $ 2.6 million of state net operating loss and $ 0.5 million of state tax

credits are also limited and will expire unutilized.

The Company’s tax disclosures as of December 31, 2021 reflect the impairment

of the above-mentioned tax attributes.

The Company establishes reserves

for uncertain tax positions based on the largest amount that is more-likely-than-not to be sustained.

An uncertain income tax position

will not be recognized if it has less than a 50% likelihood of being sustained.

It is the Company’s policy to recognize interest

and penalties related to income tax matters in income tax expense.

As of December 31, 2021 and 2020, respectively, the Company has no

accrued interest or penalties related to uncertain tax positions.

The Company files income tax

returns in the U.S.

federal jurisdiction and various state jurisdictions.

In the normal course of business, the Company is

subject to examination by their respective taxing authorities.

The Company is not currently under audit by the Internal Revenue

Service or other similar state or local authority.

The statute of limitations remains effectively open for all tax years since

inception (2007).

Tax years outside the normal statute of limitations remain open to examination by tax authorities due to tax

attributes generated in earlier years which have been carried forward and may be examined and adjusted in subsequent years when

The following table

summarizes the activity related to the Company’s gross unrecognized tax benefits for the years ended December 31, 2020 and

2019 (in thousands):

January 1 –

unrecognized tax benefits

Increases (decreases) –

prior year tax positions

Increases –

current year tax positions

In the normal course of business, the Company is subject to

examination by their respective taxing authorities.

The Company is not currently under audit by the Internal Revenue Service or other

similar state or local authority.

The statute of limitations remains effectively open for all tax years since inception (2007).

outside the normal statute of limitations remain open to examination by tax authorities due to tax attributes generated in earlier years

which have been carried forward and may be examined and adjusted in subsequent years when utilized.

The following table summarizes

the activity related to the Company’s gross unrecognized tax benefits for the years ended December 31, 2021 and 2020 (in thousands):

Schedule of unrecognized tax benefits

January 1 – unrecognized tax benefits

Increases (decreases) – prior year tax positions

Increases – current year tax positions

December 31 - unrecognized tax benefits

The following table

summarizes the activity in the Company’s Valuation Allowance and Qualifying Accounts for the years ended December 31, 2020

and 2019 (in thousands):

The following table summarizes

the activity in the Company’s Valuation Allowance and Qualifying Accounts for the years ended December 31, 2021 and 2020 (in thousands):

Schedule of valuation allowance

Deferred tax assets valuation allowance

2 unchanged sentences

SUBSEQUENT EVENTS

On January 5, 2021

the Company announced the completion of its ATM offering after an additional 14,680 shares were sold for an average price per share

of $16.97 in January 2021 resulting in additional net proceeds of approximately $243,000.

In January 2021, warrants

for 317,488 shares were presented for cashless exercises resulting in the issuance of 223,487 shares of common stock.

Management has evaluated subsequent

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

Integration License Agreement.

On February 3, 2022 the Company entered into an Integration License Agreement granting its licensee the right to evaluate MST technology,

complete the manufacturing process and to provide limited samples to their customers.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

1 unchanged sentence

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-K

Item 8. Financial Statements and Supplementary Data