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Item 2. Management’s Discussion and Analysis

2022-08-02 compared with 2022-04-27 · 133 added, 118 removed, 87 unchanged (74% of the section changed)

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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

and changes in condition, significance, value and effect could cause our actual results to differ materially from those expressed herein

and in ways not readily foreseeable.

Readers are urged not to place undue reliance on these forward-looking statements, which speak only

as of the date of this Quarterly Report and are based on information currently and reasonably known to us.

We undertake no obligation

to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this

Quarterly Report.

Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report, which attempt

to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

changes in condition, significance, value and effect, including those risk factors set forth in our Annual Report on Form 10-K for the

year ended December 31, 2021 filed with the SEC on February 15, 2022.

Such risks, uncertainties and changes in condition, significance,

value and effect could cause our actual results to differ materially from those expressed herein and in ways not readily foreseeable.

Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report

and are based on information currently and reasonably known to us.

We undertake no obligation to revise or update any forward-looking

statements in order to reflect any event or circumstance that may arise after the date of this Quarterly Report.

Readers are urged to

carefully review and consider the various disclosures made in this Quarterly Report, which attempt to advise interested parties of the

risks and factors that may affect our business, financial condition, results of operations and prospects.

We are engaged in the business

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

MST can be applied as a transistor channel enhancement

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

MST can be applied as a transistor channel enhancement to

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

MST is our proprietary and patent-protected

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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, 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.

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 (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 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.

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.

On May 31, 2022, we entered

into an Equity Distribution Agreement with Oppenheimer & Co.

Inc and Craig-Hallum Capital Group LLC, as agents, under which we may

offer and sell, from time to time at our sole discretion, shares of our common stock having an aggregate offering price of up to $50.0

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

As of June 30, 2022, 31,652 shares had been sold

at an average price per share of approximately $11.24, resulting in approximately $185,000 of net proceeds to us after deducting commissions

and other offering expenses.

Results of Operations

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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

Those technical objectives were met and we have collected 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.

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.

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.

The success 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 was not recorded for

the three months ended June 30, 2022 or 2021.

Revenue for the six months ended June 30, 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 fee paid under an integration license agreement.

revenue in 2021 consisted of a manufacturing license fee pursuant to our JDA.

Cost of revenue .

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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.

Cost of revenue was not recorded for the three months ended June 30,

2022 or 2021.

Cost of revenue was approximately $81,000 and $0 for the six months ended June 30, 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 months

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

For the three

months ended June 30, 2022 and 2021, our operating expenses totaled approximately $4.4 million and $3.7 million, respectively.

six months ended June 30, 2022 and 2021 our operating expenses totaled approximately $8.8 million and $7.7 million respectively.

Research and development

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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

June 30, 2022 and 2021, we incurred approximately $2.4 million and $2.1 million, respectively, of research and development expense, an

increase of approximately $364,000, or 18%.

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.

lease commenced in August 2021, offset by a reduction in payroll related expense of approximately $45,000.

For the six months ended June

30, 2022 and 2021, we incurred approximately $4.8 million and $4.3 million, respectively, of research and development expense, an increase

of approximately $474,000, or 11%.

The increase was primarily due to approximately $810,000 of tool lease expense as the tool lease commenced

in August 2021, offset by a reduction in payroll related expense of approximately $194,000 and reduction of approximately $287,000 in

outsourced research and development expenses.

General and administrative

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costs and professional fees.

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

General and administrative costs for the three months ended June 30, 2022 and 2021 were approximately $1.7

million and $1.5 million, respectively, representing an increase of approximately $161,000, or 11%.

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

due to increases of approximately $92,000 in employee-related costs and legal and approximately $115,000 in patent fees, offset in part

by a decrease of approximately $55,000 in stock-based compensation.

General and administrative

costs for the six months ended June 30, 2022 and 2021 were approximately $3.3 million and $3.0 million, respectively, representing an

increase of approximately $296,000, or 10%.

The increase in costs was primarily due to increases of approximately $40,000 in employee

related costs, $211,000 in legal and patent fees and $94,000 in insurance expenses, offset in part by a decrease of approximately $80,000

in stock-based compensation.

Selling and marketing expense.

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consulting services.

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

Selling and marketing expenses for the three months ended June 30, 2022 and 2021 were approximately $347,000 and

$137,000, respectively, representing an increase of approximately $210,000, or 153%.

The increase in costs is primarily related to increased

spending in new marketing initiatives including a new PR firm.

spending in employee related costs of approximately $87,000, an increase in outsourced marketing expenses of approximately $39,000 and

an increase in stock-based compensation of approximately $38,000.

Selling and marketing expenses

for the six months ended June 30, 2022 and 2021 were approximately $672,000 and $403,000, respectively, representing an increase of approximately

$269,000, or 67%.

The increase in costs is primarily related to increased spending in employee related costs of approximately $83,000,

an increase in outsourced marketing expenses of approximately $79,000 and an increase in stock-based compensation of approximately $39,000.

Interest income.

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.

income for three months ended June 30, 2022 and 2021 was approximately $35,000 and $3,000, respectively.

Interest income for the six months

ended June 30, 2022 was approximately $38,000 and $5,000, respectively.

Interest income for each period related to interest earned on

our cash and cash equivalents.

Interest expense.

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.

expense for the three and six months ended June 30, 2022 was approximately $69,000 and $140,000 respectively and related to the new tool

financing lease entered into in August 2021.

There was no interest expense recorded for the three or six months ended June 30, 2021 because

the tool financing lease commenced after those periods.

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.

The provision for income tax for the three and six months ended June 30, 2021 was approximately $17,000 and $31,000, respectively, and

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

provision for income tax recorded for the three or six months ended June 30, 2022.

Cash Flows from Operating, Investing and Financing

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 used in operating

activities of approximately $6.6 million for the six months ended June 30, 2022 resulted primarily from our net loss of approximately

$8.6 million and an increase in prepaid assets offset by stock-based compensation and amortization of right-of-use assets.

Net cash used in operating

activities of approximately $6.6 million for the six months ended June 30, 2021 resulted primarily from our net loss of approximately

$7.3 million, an increase of approximately $527,000 in prepaid expenses and other assets and a decrease in accrued payroll expenses of

approximately $383,000, offset by approximately $1.6 million of stock-based compensation.

Net cash used in investing

activities of approximately $19,000 for the six months ended June 30, 2022 and approximately $79,000 for the six months ended June 30,

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, Arizona.

Net cash used by financing

activities of approximately $227,000 for the six months ended June 30, 2022 primarily related to principal payments on our financing lease

offset by proceeds from the exercise of stock options and net proceeds from our ATM offering.

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

$3.1 million for the six months ended June 30, 2021 related to the exercise of approximately 458,000 stock options and net proceeds from

a previous at-the-market offering which began in September 2020 and concluded in January 2021.

Liquidity and Capital Resources

As of March 31, 2022, we had

As of June 30, 2022, we had

cash and cash equivalents of approximately $21.8 million and working capital of approximately $19.7 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.

For the six months ended

June 30, 2022, we had a net loss of approximately $8.6 million and used approximately $6.6 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.

In June 2022, we conducted

an at-the-market offering of our common shares through Oppenheimer & Co.

Inc and Craig-Hallum Capital Group LLC, as agents, pursuant

to which we sold 31,652 shares at an average price per share of approximately $11.24, resulting in approximately $185,000 of net proceeds

to us after deducting commissions and other offering expenses.

We believe that our available

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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.

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

sources, including our ATM Facility, follow-on equity offerings, debt financing and joint ventures with industry partners.

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

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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