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Item 2. Management’s Discussion and Analysis

2023-04-26 compared with 2022-11-09 · 88 added, 100 removed, 129 unchanged (59% of the section changed)

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services provided to foundries, IDMs and fabless companies and (iv) licensing MSTcad.

In April 2023 we entered into

a license agreement with ST Microelectronics (“ST”), that authorizes ST to manufacture and distribute MST-enabled products

to its customers.

This agreement provides for payment of license fee payable upon reaching milestones consistent

with Atomera’s standard business model.

Our standard model is based around the two major milestones, namely the installation of

MST in a cu stomer’s fab and qualification of an MST-enabled process.

After process qualification is completed, ST will have

the right to commercially distribute MST-enabled products and, assuming ST brings such products to market, we will receive royalties on

all MST-enabled products manufactured for commercial purposes.

This ST license agreement is our first grant of commercial manufacturing

and distribution rights and, assuming the successful installation of MST and related process qualification, would result in our first

revenue from commercial use of MST-enabled products.

There can be no assurance, however, that ST will pursue the licensed rights through

development and to the manufacture and commercial sale of MST-enabled wafers.

We were organized as a Delaware

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

During the three months ended September 30, 2022,

approximately 386,000 shares were sold at an average price per share of approximately $12.34, resulting in approximately $4.6 million

of net proceeds to us after deducting commissions and other offering expenses.

During the three months ended March 31, 2023, approximately

50,000 shares were sold at an average price per share of approximately $6.40, resulting in approximately $274,000 of net proceeds to us

after deducting commissions and other offering expenses.

Results of Operations

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a manufacturing license granted under a JDA and licensing of MSTcad.

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 MST.

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.

Our license agreement with ST, which was executed in April 2023,

is our first commercial manufacturing and distribution agreement and, assuming successful completion of contractual milestones and payments

of associated fees, will entitle us to royalties on all MST-enabled products manufactured for commercial purposes.

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 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

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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.

of wafer delivery, we will record revenue over the period of time in 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

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manufacturing process.

Such MSTcad licenses are granted on a monthly basis and revenue is recognized over time.

MSTcad licenses are granted on a monthly basis and revenue is recognized over time.

Revenue for the three months

ended September 30, 2022 and 2021 was $2,000 and $0, respectively.

Revenue for the three months ended September 30, 2022 consisted of

MSTcad licensing.

Revenue for the nine months ended September 30, 2022 and 2021 was $377,000 and $400,000, respectively.

Our revenue for

the nine months ended September 30, 2022 consisted of a success fee pursuant to our JDA, a license fee paid under an integration license

agreement and MSTcad license revenue.

Our revenue for the nine months ended September 30, 2021 consisted of a manufacturing license fee

pursuant to our JDA.

March 31, 2023 and 2023 was $0 and $375,000, respectively.

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

fee paid under an integration license agreement.

Cost of revenue .

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 not recorded for the three months ended September

30, 2022 or 2021.

Cost of revenue was approximately $81,000 and $0 for the nine months ended September 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.

of revenue consists of costs of materials, as well as direct compensation and expenses incurred to provide deliverables that resulted

in payment of our success fee and wafers delivered as part of the integration license agreement.

Cost of revenue for the three months

ended March 31, 2023 and 2022 was $0 and approximately $81,000, 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.

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For the three

months ended September 30, 2022 and 2021, our operating expenses totaled approximately $4.7 million and $4.1 million, respectively.

the nine months ended September 30, 2022 and 2021, our operating expenses totaled approximately $13.4 million and $11.9 million respectively.

months ended March 31, 2023 and 2022, our operating expenses totaled approximately $5.2 million and $4.3 million, respectively.

Research and development

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For the three months ended

September 30, 2022 and 2021, we incurred approximately $2.7 million and $2.2 million, respectively, of research and development expense,

an increase of approximately $511,000, or 23%.

The increase was primarily due to approximately $315,000 of outsourced research and development,

approximately $110,000 in recruiting fees for newly-hired employees and approximately $64,000 in consulting fees.

For the nine months ended

September 30, 2022 and 2021, we incurred approximately $7.5 million and $6.5 million, respectively, of research and development expense,

an increase of approximately $985,000, or 15%.

The increase was primarily due to approximately $908,000 of tool lease related expenses

as the tool lease commenced in August 2021, an increase of approximately $70,000 in recruiting costs for newly-hired employees and an

increase in stock-based compensation of approximately $86,000 The increases in these costs was partly offset by a reduction in payroll-related

expense of approximately $183,000.

March 31, 2023 and 2022, we incurred approximately $3.0 million and $2.3 million, respectively, of research and development expense, an

increase of approximately $697,000, or 30%.

This increase was primarily due to increases of approximately $330,000 in outsourced research

and development mainly related to the purchase of a greater quantity of wafers and a more expensive mix of wafer types, along with associated

outside metrology costs in research and development.

Research and development expenses also increased by approximately $204,000 in employee-related

expenses resulting from new hires, approximately $84,000 in stock-based compensation costs, and travel costs increased by approximately

$53,000 over the prior year.

General and administrative

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costs and professional fees.

General and administrative costs were approximately $1.6 million in both the three months ended September

30, 2022 and 2021, representing a decrease of approximately $70,000, or 4%.

The decrease is primarily related to reduced patent-related

costs offset by higher payroll-related costs and stock-based compensation.

General and administrative

costs for the nine months ended September 30, 2022 and 2021 were approximately $4.9 million and $4.7 million, respectively, representing

an increase of approximately $226,000, or 5%.

The increase in costs was primarily due to increases of approximately $107,000 in employee-related

costs and $95,000 in insurance expenses.

General and administrative costs were approximately $1.7 million and $1.6 million for the three months ended

March 31, 2023 and 2022, respectively, representing an increase of approximately $94,000, or 6%.

The increase is primarily related to

higher stock-based compensation costs.

Selling and marketing expense.

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consulting services.

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

and $267,000, respectively, representing an increase of approximately $80,000, or 30%.

Selling and marketing expenses for the three months ended March 31, 2023 and 2022 were approximately $389,000 and

$325,000, respectively, representing an increase of approximately $64,000, or 20%.

The increase in costs is primarily related to increased

costs related to payroll, travel and stock-based compensation.

Selling and marketing expenses

for the nine months ended September 30, 2022 and 2021 were approximately $1.0 million and $670,000, respectively, representing an increase

of approximately $349,000, or 52%.

The increase in costs is primarily related to increased spending in employee-related costs of approximately

$117,000, an increase in outsourced marketing expenses of approximately $88,000 and an increase in stock-based compensation of approximately

travel and stock-based compensation costs.

Interest income.

income for three months ended September 30, 2022 and 2021 was approximately $113,000 and $2,000, respectively.

income for three months ended March 31, 2023 and 2022 was approximately $199,000 and $3,000, respectively.

Interest income for the three

months ended March 31, 2023 related to interest earned on our cash, cash equivalents and short-term investments.

Interest income for the

nine months ended September 30, 2022 and 2021 was approximately $151,000 and $7,000, 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, 2022 was approximately $60,000 and $200,000, respectively.

three months ended March 31, 2022 related to interest earned on our cash and cash equivalents.

Interest expense.

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

Interest expense is related to the tool financing

lease entered into in August 2021.

Provision for income taxes .

The provision for income tax for the three and nine months ended September 30, 2021 was approximately $17,000 and $48,000, respectively,

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

no provision for income tax recorded for the three or nine months ended September 30, 2022.

expense for the three months ended March 31, 2023 and 2022 was approximately $53,000 and $71,000, respectively.

Interest expense is related

to the tool financing lease entered into in August 2021.

Cash Flows from Operating, Investing and Financing

Net cash used in operating

activities of approximately $9.6 million for the nine months ended September 30, 2022 resulted primarily from our net loss of approximately

$13.2 million offset by approximately $2.5 million stock-based compensation and approximately $1.1 million in amortization of right-of-use

activities of approximately $4.2 million for the three months ended March 31, 2023 resulted primarily from our net loss of approximately

$5.0 million offset by approximately $927,000 million stock-based compensation.

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.

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 investing

activities of approximately $26,000 for the nine months ended September 30, 2022 and approximately $102,000 for the nine months ended

September 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 epi tool leased in Tempe, Arizona.

Net cash provided by financing

activities of approximately $4.2 million for the nine months ended September 30, 2022 primarily related to the net proceeds from our ATM

offering, offset by the principal payments on our financing lease.

activities of approximately $5.0 million and for the three months March 31, 2023 consisted primarily of the purchase of short-term investments.

Net cash used in investing activities of approximately $16,000 for the three months ended March 31, 2022 consisted of the purchase of

computers and lab tools in Tempe, AZ.

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.

activities of approximately $125,000 for the three months ended March 31, 2023 primarily related to the net proceeds from our ATM offering,

offset by the principal payments on our financing lease.

Net cash used in 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.

Liquidity and Capital Resources

As of September 30, 2022,

we had cash and cash equivalents of approximately $23.3 million and working capital of approximately $21.1 million.

For the nine months

ended September 30, 2022, we had a net loss of approximately $13.2 million and used approximately $9.6 million of cash and cash equivalents

in operations.

As of March 31, 2023, we had

cash and cash equivalents of approximately $12.1 million, short-term investments of approximately $5.0 million and working capital of

approximately $14.9 million.

For three months ended March 31, 2023, we had a net loss of approximately $5.0 million and used approximately

$4.2 million of cash and cash equivalents in operations.

Since inception, we have incurred recurring operating losses.

During the three months ended

September 30, 2022, we sold approximately 386,000 shares pursuant to our ATM at an average price per share of approximately $12.34, resulting

in approximately $4.6 million of net proceeds to us after deducting commissions and other offering expenses.

March 31, 2023, we sold approximately 50,000 shares pursuant to our ATM at an average price per share of approximately $6.40, resulting

in approximately $274,000 of net proceeds to us after deducting commissions and other offering expenses.

We believe that our available

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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.

we will consider alternatives to our current business plan that may enable 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 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