Atomera Inc 10-Q

Item 1. Financial Statements Atomera Incorporated Condensed Balance Sheets (in thousands, except per share data) September 30, December 31, 2022 2021 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 23,287 $ 28,699 Prepaid expenses and other current assets 597 309 Total current assets 23,884 29,008 Property and equipment, net 164 196 Long-term prepaid maintenance and supplies 91 91 Security deposit 14 14 Operating lease right-of-use asset 751 900 Financing lease right-of-use-asset 4,455 5,851 Total assets $ 29,359 $ 36,060 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 524 $ 338 Accrued expenses 205 203 Accrued payroll related expenses 794 601 Current operating lease liability 245 216 Current financing lease liability 1,043 1,395 Deferred revenue 1 – Total current liabilities 2,812 2,753 Long-term operating lease liability 614 768 Long-term financing lease liability 3,254 4,158 Total liabilities 6,680 7,679 Commitments and contingencies (see Note 10) – – Stockholders’ equity: Preferred stock $ 0.001 par value, authorized 2,500 shares; none issued and outstanding at September 30, 2022 and December 31, 2021 – – Common stock: $ 0.001 par value, authorized 47,500 shares; 23,854 and 23,207 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively; 24 23 Additional paid-in capital 201,678 194,212 Accumulated deficit ( 179,023 ) ( 165,854 ) Total stockholders’ equity 22,679 28,381 Total liabilities and stockholders’ equity $ 29,359 $ 36,060 The accompanying notes are an integral part of these condensed financial statements. 3 Atomera Incorporated Condensed Statements of Operations (Unaudited) (in thousands, except per share data) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Revenue $ 2 $ – $ 377 $ 400 Cost of revenue – – ( 81 ) – Gross margin 2 – 296 400 Operating expenses Research and development 2,743 2,232 7,515 6,530 General and administrative 1,567 1,637 4,882 4,656 Selling and marketing 347 267 1,019 670 Total operating expenses 4,657 4,136 13,416 11,856 Loss from operations ( 4,655 ) ( 4,136 ) ( 13,120 ) ( 11,456 ) Other income (expense) Interest income 113 2 151 7 Interest expense ( 60 ) ( 52 ) ( 200 ) ( 52 ) Total other income (expense), net 53 ( 50 ) ( 49 ) ( 45 ) Net loss before income taxes ( 4,602 ) ( 4,186 ) ( 13,169 ) ( 11,501 ) Provision for income taxes – 17 – 48 Net loss $ ( 4,602 ) $ ( 4,203 ) $ ( 13,169 ) $ ( 11,549 ) Net loss per common share, basic $ ( 0.20 ) $ ( 0.19 ) $ ( 0.57 ) $ ( 0.52 ) Net loss per common share, diluted $ ( 0.20 ) $ ( 0.19 ) $ ( 0.57 ) $ ( 0.52 ) Weighted average number of common shares outstanding, basic 23,294 22,629 23,029 22,405 Weighted average number of common shares outstanding, diluted 23,294 22,629 23,029 22,405 The accompanying notes are an integral part of these condensed financial statements. 4 Atomera Incorporated Statements of Stockholders’ Equity For the Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited) (in thousands) Common Stock Additional Paid-in Accumulated Total Stockholders’ Shares Amount Capital Deficit Equity Balance January 1, 2022 23,207 $ 23 $ 194,212 $ ( 165,854 ) $ 28,381 Stock-based compensation 161 – 726 – 726 Stock option exercise 25 – 166 – 166 Net loss – – – ( 4,086 ) ( 4,086 ) Balance March 31, 2022 23,393 $ 23 $ 195,104 $ ( 169,940 ) $ 25,187 Stock-based compensation 33 – 859 – 859 At-the-market sale of stock, net of commissions and expenses 31 – 185 – 185 Net loss – – – ( 4,481 ) ( 4,481 ) Balance June 30, 2022 23,457 $ 23 $ 196,148 $ ( 174,421 ) $ 21,750 Stock-based compensation – – 889 – 889 Stock option exercise 10 – 39 39 At-the-market sale of stock, net of commissions and expenses 387 1 4,602 – 4,603 Net loss – – – ( 4,602 ) ( 4,602 ) Balance September 30, 2022 23,854 $ 24 $ 201,678 $ ( 179,023 ) $ 22,679 Common Stock Additional Paid-in Accumulated Total Stockholders’ Shares Amount Capital Deficit Equity Balance January 1, 2021 22,375 $ 22 $ 187,463 $ ( 150,140 ) $ 37,345 Stock-based compensation 71 – 731 – 731 At-the-market sale of stock, net of commissions and expenses 14 – 243 – 243 Stock option exercise 398 1 2,514 – 2,515 Warrant Exercise 223 – – – – Forfeited restricted stock awards ( 54 ) – – – – Net loss – – – ( 3,620 ) ( 3,620 ) Balance March 31, 2021 23,027 $ 23 $ 190,951 $ ( 153,760 ) $ 37,214 Stock-based compensation 18 – 847 – 847 Stock option exercise 59 – 354 – 354 Net loss – – – ( 3,726 ) ( 3,726 ) Balance at June 30, 2021 23,104 $ 23 $ 192,152 $ ( 157,486 ) $ 34,689 Stock-based compensation – – 756 – 756 Stock option exercise 49 – 240 – 240 Forfeited restricted stock awards ( 8 ) – – – – Net loss – – – ( 4,203 ) ( 4,203 ) Balance at September 30, 2021 23,145 $ 23 $ 193,148 $ ( 161,689 ) $ 31,482 The accompanying notes are an integral part of these condensed financial statements. 5 Atomera Incorporated Condensed Statements of Cash Flows (Unaudited) (in thousands) Nine Months Ended September 30, 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES Net Loss $ ( 13,169 ) $ ( 11,549 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 58 47 Operating lease right of use asset amortization 149 136 Financing lease right of use asset amortization 938 211 Stock-based compensation 2,474 2,334 Non cash interest expense – 52 Changes in operating assets and liabilities: Prepaid expenses and other current assets ( 288 ) ( 297 ) Accounts payable 186 ( 121 ) Accrued expenses 2 104 Accrued payroll expenses 193 ( 271 ) Operating lease liability ( 125 ) ( 50 ) Deferred revenue 1 – Net cash used in operating activities ( 9,581 ) ( 9,404 ) CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property and equipment ( 26 ) ( 102 ) Net cash used in investing activities ( 26 ) ( 102 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from at-the-market sale of stock, net of commissions and expenses 4,788 243 Proceeds from exercise of stock options 205 3,110 Payments on principal of financing lease ( 798 ) – Net cash provided (used) by financing activities 4,195 3,353 Net decrease in cash and cash equivalents ( 5,412 ) ( 6,153 ) Cash and cash equivalents at beginning of period 28,699 37,942 Cash and cash equivalents at end of period $ 23,287 $ 31,789 Supplemental information: Cash paid for interest $ 200 $ – Cash paid for taxes $ – $ 66 The accompanying notes are an integral part of these condensed financial statements. 6 ATOMERA INCORPORATED NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS For the Three and Nine Months Ended September 30, 2022 and 2021 1. 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 its efforts toward technology research and development and to commercially licensing its technology to designers and manufacturers of integrated circuits. 2. LIQUIDITY AND MANAGEMENT PLANS At September 30, 2022, the Company had cash and cash equivalents of approximately $ 23.3 million and working capital of approximately $ 21.1 million. The Company has generated only limited revenues since inception and has incurred recurring operating losses. Accordingly, it is subject to all the risks inherent in the initial organization, financing, expenditures, and scaling of a new business that is not generating positive cashflow. 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. On May 31, 2022, Atomera entered into an Equity Distribution Agreement with Oppenheimer & Co. Inc. and Craig-Hallum Capital Group LLC, as agents, under which the Company may offer and sell, from time to time at its sole discretion, shares of its $0.001 par value common stock, in “at the market” offerings to or through the agent as its sales agent, having an aggregate offering price of up to $ 50.0 million (the “ATM Facility”). 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. 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. The Company’s operating plans for the next 12 months include increased research and development expenses. For capital needs beyond the next 12 months, the Company currently expects to rely on its ATM, but the terms on which any future stock sales will occur will depend on both market conditions and the Company’s business performance, so there can be no guarantee that funds will be available on commercially reasonable terms. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 15, 2022. Basis of presentation of unaudited condensed financial information The unaudited condensed financial statements of the Company for the three and nine months ended September 30, 2022 and 2021 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for the fair presentation of the Company’s financial position and its results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2021, was derived from the audited financial statements included in the Company's financial statements as of and for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K filed with the SEC on February 15, 2022. These unaudited condensed financial statements should be read in conjunction with that report. 7 Adoption of recent accounting standards In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, Debt with Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). The new guidance eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted earnings per share computation 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. 4. REVENUE The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) No. 606. The Company generates revenues from engineering service contracts, license agreements and joint development agreements. 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 when the Company satisfies a performance obligation by transferring the product or service to the customer. When the Company’s performance obligation is the promise to grant a license, revenue is recognized either at a point in time (such as a right to use licensed technology that is under the customer’s control). Or over time (typically a right to access technology without obtaining control). The following table provides information about disaggregated revenue by primary geographical markets and timing of revenue recognition (in thousands): Schedule of disaggregated revenue and timing of revenue Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Primary geographic markets North America $ 2 $ – $ 77 $ – Asia Pacific – – 300 400 Total $ 2 $ – $ 377 $ 400 Timing of revenue recognition Products and services transferred at a point in time $ – $ – $ 375 $ 400 Products and services transferred over time 2 – 2 – Total $ 2 $ – $ 377 $ 400 Unbilled contracts receivable and deferred revenue Timing of revenue recognition may differ from the timing of invoicing customers. 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. 5. 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 attributable to common stockholders by the sum of the weighted average number of shares of common stock outstanding and the dilutive common stock equivalent shares outstanding during the period. The Company’s potentially dilutive common stock equivalent shares, which include incremental common shares issuable upon (i) the exercise of outstanding stock options and warrants and (ii) vesting of restricted stock units and restricted stock awards, are only included in the calculation of diluted net loss per share when their effect is dilutive. 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. 8 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 Three and Nine Months Ended September 30, 2022 2021 Stock Options 3,019 2,975 Unvested restricted stock 403 452 Warrants – 1 Total 3,422 3,428 6. LEASES The Company accounts for leases over one year under ASC 842. Lease expense for the Company’s operating leases consists of the lease payments recognized on a straight-line basis over the lease term. Expenses for the Company’s financing leases consists of the amortization expenses recognized on a straight-line basis over the lease term, variable lease costs and interest expense. The Company’s lease agreement for a tool used in the development and marketing of the Company’s technology contains a provision for an annual adjustment of lease payments based on tool availability and usage. The potential lease payment adjustment is determined on August 1 of each year of the lease and is calculated based on the tool availability and usage for the preceding 12 months. Effective August 1, 2022, the lease payments for this tool were reduced to $ 100,824 per month for the period August 1, 2022 through July 31, 2023. This adjustment to the variable lease payments resulted in a reduction in ROU and corresponding lease liability. The components of lease costs were as follows (in thousands): Components of lease costs Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Financing lease costs: Amortization of ROU assets $ 300 $ 211 $ 938 $ 211 Interest on lease liabilities 60 52 200 52 Total financing lease costs $ 360 $ 263 $ 1,138 $ 263 Operating lease costs: Fixed lease costs $ 62 $ 63 $ 186 $ 177 Short-term lease costs 9 10 29 32 Total operating lease costs $ 71 $ 73 $ 215 $ 209 Future minimum payments under non-cancellable leases as of September 30, 2022 were as follows (in thousands): Schedule of future minimum lease payments For the Year Ended December 31, Financing leases Operating leases Remaining 2022 $ 240 $ 86 2023 1,161 271 2024 1,436 278 2025 1,436 284 2026 & thereafter 479 21 Total future minimum lease payments $ 4,752 $ 940 Less imputed interest ( 455 ) ( 81 ) Total lease liability $ 4,297 $ 859 9 The table above reflects minimum payments used to calculate our liability under our leases but do not reflect future variable lease payment such as the modified monthly payment under the terms of the financing lease for our tool, as discussed above. 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 Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Operating cash flow information: Cash paid for amounts included in the measurement of operating lease liabilities $ 53 $ 52 $ 161 $ 90 Cash paid for amounts included in the measurement of financing liabilities $ 280 $ – $ 998 $ – Non-cash activity: Right-of-use assets obtained in exchange for operating lease obligations $ – $ – $ – $ 382 Right-of-use assets obtained in exchange for financing lease obligations $ – $ 6,383 $ – $ 6,383 Remeasurement of right-of-use asset and liability in financing lease obligations $ ( 458 ) $ – $ ( 458 ) $ – The weighted average remaining discount rate is 5.25 % for the Company’s operating and financing leases. The weighted average remaining lease term is 3.4 years for operating leases and 3.8 years for the financing lease. In October 2016, the Company entered into a 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. 7. WARRANTS A summary of warrant activity for nine months ended September 30, 2022 is as follows (in thousands except per share amounts and contractual term): Schedule of warrant activity Number of Shares Weighted Average Exercise Prices per Share Weighted Average Remaining Contractual Term (In Years) Intrinsic Value Outstanding at January 1, 2022 1 $ 33.75 Forfeited ( 1 ) $ 33.75 Outstanding and exercisable at September 30, 2022 – $ – – – 10 8. STOCK BASED COMPENSATION In May 2017, the Company’s shareholders approved its 2017 Stock Incentive Plan (“2017 Plan”) after its 2007 Stock Incentive Plan (“2007 Plan”) had expired in March 2017. The 2017 Plan provides for the grant of non-qualified stock options and incentive stock options to purchase shares of the Company’s common stock and for the grant of restricted and unrestricted shares. The 2017 Plan provides for the issuance of 3,750 ,000 shares of common stock. All of the Company’s employees and any subsidiary employees (including officers and directors who are also employees), as well as all of the Company’s nonemployee directors and other consultants, advisors and other persons who provide services to the Company are eligible to receive incentive awards under the 2017 Plan. Generally, stock options and restricted stock issued under the 2017 Plan vest over a period of one to four years from the date of grant. The following table summarizes the stock-based compensation expense recorded in the Company’s results of operations during the three and nine months ended September 30, 2022 and 2021 for stock options and restricted stock granted under the 2017 Plan and 2007 Plan (in thousands): Schedule of stock-based compensation expense Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Research and development $ 305 $ 267 $ 844 $ 757 General and administrative 518 442 1,446 1,451 Selling and Marketing 66 47 184 126 Total $ 889 $ 756 $ 2,474 $ 2,334 As of September 30, 2022, there was approximately $ 7.2 million of total unrecognized compensation expense related to unvested share-based compensation arrangements. This cost is expected to be recognized over a weighted-average period of 2.1 years. The weighted average grant date fair value per share of the options granted under the Company’s 2017 Plan was $ 8.48 and $ 10.37 for the three and nine months ended September 30, 2022, respectively. The weighted average grant date fair value per share of the options granted under Company’s 2017 Plan was $ 13.77 and $ 15.29 for the three and nine months ended September 30, 2021, respectively. The following table summarizes stock option activity during the nine months ended September 30, 2022 (in thousands except exercise prices and contractual terms): Schedule of stock option activity Number of Shares Weighted- Average Exercise Prices per Share Weighted- Average Remaining Contractual Term (In Years) Intrinsic Value Outstanding at January 1, 2022 2,869 $ 6.64 Granted 196 $ 14.21 Exercised ( 35 ) $ 5.80 Forfeited ( 3 ) $ 28.66 Expired ( 8 ) $ 33.09 Outstanding at September 30, 2022 3,019 $ 7.05 5.32 $ 11,393 Exercisable at September 30, 2022 2,519 $ 6.41 4.75 $ 9,894 During the nine months ended September 30, 2022, the Company granted options under the 2017 Plan to purchase approximately 196 ,000 shares of its common stock to its employees. The fair value of these options was approximately $ 2.0 million at the time of grant. 11 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 nine months ended September 30, 2022 (in thousands except per share data): Schedule of restricted stock option activity Number of Shares Weighted-Average Grant Date Fair Value per Share Outstanding at January 1, 2022 386 $ 6.75 Granted 194 $ 14.41 Vested ( 177 ) $ 7.47 Outstanding non-vested shares at September 30, 2022 403 $ 10.11 During the nine months ended September 30, 2022 the Company granted approximately 194 ,000 restricted stock awards under the 2017 Plan to its employees and directors. The fair value of these awards was approximately $ 2.8 million at the time of grant. 9. PROVISION FOR INCOME TAXES The Company recorded a provision for income taxes of approximately $ 17,000 and $ 48,000 during the three and nine months ended September 30, 2021, respectively. The provision is for withholding of income taxes accrued in foreign jurisdictions where we have income. The Company recorded the provision in accordance with ASC 740 using its estimated annual tax rate and applied it to the net loss for the three and nine months ended September 30, 2021. The Company did not incur withholding of income taxes for the three or nine months ended September 30, 2022. 10. COMMITMENTS AND CONTINGENCIES Litigation, Claims and Assessments The Company may be subject to periodic lawsuits, investigations and claims that arise in the ordinary course of business. The Company is not party to any material litigation as of September 30, 2022, or through the date these financial statements have been issued. 11. SUBSEQUENT EVENTS Management has evaluated subsequent events and transactions through the date these financial statements were issued. 12