What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-04-27 compared with 2021-11-01 · 163 added, 189 removed, 42 unchanged (89% of the section changed)

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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.

The following discussion

and analysis of the financial condition and results of operations of Atomera Incorporated should be read in conjunction with our financial

statements and the accompanying notes that appear elsewhere in this Quarterly Report.

Statements in this Quarterly Report on Form 10-Q

include forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives,

expectations and intentions.

We use words such as “anticipate,” “estimate,” “plan,” “project,”

“continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,”

“will,” “should,” “could,” and similar expressions to identify forward-looking statements.

forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based

on facts and factors currently known by us.

Consequently, forward-looking statements are inherently subject to risks, uncertainties, and

changes in condition, significance, value and effect, including those risk factors set forth in this Quarterly Report.

Such risks, uncertainties

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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

of developing, commercializing and licensing proprietary processes and technologies for the $550+ billion semiconductor industry.

lead technology, named Mears Silicon Technology™, or MST ® , is a thin film of reengineered silicon, typically 100

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

3 unchanged sentences

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

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

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

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

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

semiconductor manufacturing.

We believe that MST can 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 incorporated into a wide range of the most common types of semiconductor products, including

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.

We 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.

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, that manufacture the epitaxial, or EPI, 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 performance of semiconductor products using different

materials, design structures and process technologies.

Our commercialization strategy is to generate

revenue through licensing arrangements whereby foundries, IDMs and fabless semiconductor manufacturers pay us a license fee for their

right to use MST technology in the manufacture of silicon wafers as well as a royalty for each silicon wafer or device that incorporates

our MST technology.

To date we have generated revenue from (i) licensing agreements with two IDMs, one fabless manufacturer and one foundry,

(ii) a joint development agreement, or JDA, with a leading semiconductor provider and (ii) engineering services provided to foundries,

IDMs and fabless companies.

We were organized as a Delaware limited liability

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

On March 13, 2007, we converted to a Delaware 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 announced 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

Between September 2020 and January 2021, we conducted

an at-the-market offering of our common shares through Craig-Hallum Capital Group LLC, as agent, pursuant to which we sold 2,221,575 shares

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 we delivered the recipe.

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 each of the three

months ended September 30, 2021 and 2020 was $0.

Revenue for the nine months ended September 30, 2021 and 2020 was approximately $400,000

and $62,000, respectively.

we have only generated limited revenue from customer engagements for integration engineering services, integration license agreements

and a manufacturing license granted under a JDA.

In the future, we expect to collect increased fees from license agreements and JDAs as

well as royalties from customer sales of products that incorporate our MST technology, subject to our ability to enter into manufacturing

and distribution license agreements with our current and future licensees.

Our integration services consist of depositing our MST film

on semiconductor wafers, delivering such wafers to customers to finalize building devices, and performing tests for customers evaluating

The integration license agreements we have entered into 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 MST-enabled wafers

in their facilities or to sell products incorporating MST.

Our JDA included the grant of a manufacturing license to our customer and we

were paid for such license upon delivery of our IP transfer package which enabled our customer to install MST in a tool in their facility

and to use it to manufacture wafers for internal use.

This JDA also contained targeted technical specifications that, if met, would result

in payment of a success fee to us.

Those technical objectives have been met and we have invoiced our JDA customer for the success fee.

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.

We have also determined that the grant of our manufacturing license under the JDA confers a right to

use our technology and accordingly revenue was recognized at the point in time when we delivered our IP transfer package.

fee under our JDA was treated as engineering services revenue and recognized upon our customer’s confirmation that the JDA’s

technical objectives had been met.

Revenue for the three months

ended March 31, 2022 and 2021 was $375,000 and $400,000, respectively.

Our revenue in 2022 consisted of a success fee pursuant to our

JDA and a license fees paid under an integration license agreement.

Our revenue in 2021 consisted of a manufacturing license fee pursuant

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 $0 for each of the three months ended September 30, 2021 and 2020.

Cost of revenue was approximately $0 and $13,000

for the nine months ended September 30, 2021 and 2020, respectively.

We anticipate that our cost of revenue will vary substantially depending

on the mix of integration license and integration engineering services and the nature of products and/or services delivered in each customer

of revenue consists of costs of materials, as well as direct compensation and expenses incurred to provide support for our success fee

and wafers delivered as part of the integration license agreement.

Cost of revenue was approximately $81,000 and $0 for the three months

ended March 31, 2022 and 2021, respectively.

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

and engineering services revenues we receive and the nature of products and/or services delivered in each customer engagement.

Operating expenses.

Operating expenses consist of research and development, general and administrative, and selling and marketing expenses.

For the three

months ended September 30, 2021 and 2020 our operating expenses totaled approximately $4.1 million and $3.6 million, respectively.

the nine months ended September 30, 2021 and 2020, our operating expenses totaled approximately $11.9 million and $11.1 million, respectively.

For the months

ended March 31, 2022 and 2021 our operating expenses totaled approximately $4.3 million and $4.0 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.

To date, our operations have focused on the research, development, patent prosecution, and commercialization of our MST technology

and related technologies such as MSTcad.

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.

Research and development

costs were approximately $2.2 and $2.0 million for the three months ended September 30, 2021 and 2020, respectively representing an increase

of approximately $183,000, or 9%.

This increase in primarily due to our new tool lease that began in August 2021.

For the nine months

ended September 30, 2021 and 2020, we incurred approximately $6.5 million and $6.2 million, respectively, of research and development

expense, an increase of approximately $333,000 or 5%.

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

headcount and the new tool lease, offset by a decrease in outsourced research and development costs.

staff and costs of outsourced fabrication (including epi tool leases) and metrology of semiconductor wafers incorporating our MST technology.

For the three months ended

March 31, 2022 and 2021, we incurred approximately $2.3 million and $2.2 million, respectively, of research and development expense, an

increase of approximately $110,000, or 5%.

The increase was primarily due to approximately $400,000 of tool lease expense as the tool

lease commenced in August 2021, offset by a reduction in payroll related expense of approximately $215,000 and reduction of approximately

$120,000 in outsourced research and development expenses.

General and administrative

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costs and professional fees.

General and administrative costs were approximately $1.6 and $1.3 million for the three months ended September

30, 2021 and 2020, respectively.

The increase of approximately $315,000, or 24% is primarily due to increases in patent-related legal

fees and higher insurance costs.

General and administrative

costs for the nine months ended September 30, 2021 and 2020 were approximately $4.7 million and $4.2 million, respectively, representing

an increase of approximately $409,000, or 10%.

The increase in costs was primarily due to increases of approximately $214,000 in insurance

costs, approximately $90,000 in rent costs and approximately $182,000 in stock-based compensation, offset in part by a decrease of approximately

$111,000 in 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 September 30, 2021 and 2020 were approximately $267,000 and $208,000, respectively,

representing an increase of approximately $59,000, or 28%.

The increase in costs is primarily related to increased spending in new marketing

Selling and marketing

expenses for the nine months ended September 30, 2021 and 2020 were approximately $670,000 and $648,000, respectively, representing an

increase of approximately $22,000, or 3%.

The increase in costs is primarily related to increased spending in new marketing initiatives

offset by lower payroll and related expenses.

General and administrative costs for the three months ended March 31, 2022 and 2021 were approximately $1.6

million and $1.5 million, respectively, representing an increase of approximately $135,000, or 9%.

The increase in costs was primarily

due to increases of approximately $122,000 in professional fees that include legal and patent fees and approximately $87,000 in insurance

expenses, offset in part by a decrease of approximately $52,000 in payroll related expenses

Selling and marketing expense.

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

consulting services.

Selling and marketing expenses for the three months ended March 31, 2022 and 2021 were approximately $325,000 and

$266,000, respectively, representing an increase of approximately $59,000, or 22%.

The increase in costs is primarily related to increased

spending in new marketing initiatives including a new PR firm.

Interest income.

Interest income for the three months ended September 30, 2021 and 2020 was approximately $2,000 and $1,000, respectively.

income for the nine months ended September 30, 2021 and 2020 was approximately $7,000 and $41,000, respectively.

Interest income for each

period related to interest earned on our cash and cash equivalents.

The decrease in interest income was due to the fall in interest rates

during 2020 and into 2021.

income for three months ended March 31, 2022 and 2021 was approximately $3,000 and $2,000, respectively.

Interest income for each period

related to interest earned on our cash and cash equivalents.

Interest expense.

expense for the three and nine months ended September 30, 2021 and 2021 was approximately $52,000 for each period.

There was no interest

expense recorded for the three and nine months ended September 30, 2020.

Interest expense is related to the new tool financing lease

entered into in August 2021.

Provision for income

The provision for income taxes for the three months ended September 30, 2021 and 2020 was approximately $17,000 and $0,

respectively.

The provision for income taxes for the nine months ended September 30, 2021 and 2020 was approximately $48,000 and $0, respectively.

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

expense for March 31, 2022 was approximately $71,000 and related to the new tool financing lease entered into in August 2021.

no interest expense recorded for the three months ended March 31, 2021.

Provision for income taxes .

The provision for income for March 31, 2021 was approximately $14,000 and related to income taxes due to a foreign country arising from

withholding taxes imposed on payments received for revenue.

There was no provision for income tax recorded for the three months ended

March 31, 2022.

Cash Flows from Operating, Investing and Financing

Net cash used in operating

activities of approximately $9.4 million for the nine months ended September 30, 2021 resulted primarily from our net loss of approximately

$11.5 million and an increase of approximately $297,000 in prepaid expenses and other assets, offset by approximately $2.3 million of

stock-based compensation.

Net cash used in operating

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

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

in prepaids and other assets.

Net cash used in investing

activities of approximately $102,000 for the nine months ended September 30, 2021 and approximately $56,000 for the nine months ended

September 30, 2020 consisted of the purchase of computers, lab tools and leasehold improvements for the remodeled Los Gatos office space

and new Tempe office space.

Net cash provided by

financing activities of approximately $3.4 million for the nine months ended September 30, 2021 related to the exercise of approximately

506,000 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 $19.6 million for the nine months ended September 30, 2020 was primarily related to the net proceeds from

our underwritten public offering in May 2020, proceeds from our ATM program in September 2020 and the exercise of approximately 386,000

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

Net cash used in operating activities of approximately

$4.1 million for the three months ended March 31, 2022 resulted primarily from our

net loss of approximately $4.1 million and an increase in prepaid assets

offset by stock-based compensation.

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 investing activities of approximately

$16,000 for the three months ended March 31, 2022 and approximately $24,000 for

the three months ended March 31, 2021 consisted of the purchase of

computers, lab tools and leasehold improvements for the remodeled Los Gatos

office space and lab tools to use with the new equipment lease in Tempe,

Net cash used by financing activities of approximately

$121,000 for the three months ended March 31, 2022 related to principal payments on our financing lease offset by proceeds from the exercise

of stock options.

Net cash provided by financing activities of approximately

$2.8 million for the three months ended March 31, 2021 related to proceeds from the exercise of stock options and net proceeds from our

at-the-market offering which began in September 2020 and concluded in January

Liquidity and Capital Resources

As of September 30, 2021,

we had cash and cash equivalents of approximately $31.8 million and working capital of approximately $29.3 million.

For the nine months

ended September 30, 2021, we had a net loss of approximately $11.5 million and used approximately $9.4 million of cash and cash equivalents

in operations.

As of March 31, 2022, we had

cash and cash equivalents of approximately $24.5 million and working capital of approximately $23.1 million.

For the three months ended

March 31, 2022, we had a net loss of approximately $4.1 million and used approximately $4.1 million of cash and cash equivalents in operations.

Since inception, we have incurred recurring operating losses.

Between September 2020 and

January 2021, we conducted an at-the-market offering of our common shares through Craig-Hallum Capital Group LLC, as agent, pursuant to

which we sold 2,221,575 shares 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.

We believe that our available

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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

However, our future capital requirements and the adequacy of our available funds will depend on

many factors, including our ability to successfully commercialize our MST technology, competing technological and market developments,

and the need to enter into collaborations with other companies or acquire technologies to enhance or complement our current offerings.

If we are not able to generate sufficient revenue from license fees and royalties in a timeframe that satisfies our cash needs, we will

need to raise more capital.

In the event we require additional capital, we will endeavor to acquire additional funds through various

financing sources, including 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.

Critical Accounting Estimates

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

to our critical accounting estimates from those included in our Annual Report on Form 10-K for the year ended December 31, 2021 filed

with the SEC on February 15, 2022.

Quantitative and Qualitative Disclosure about Market Risk.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis