Atomera Inc 10-Q

Item 1. Financial Statements Atomera Incorporated Condensed Balance Sheets (in thousands, except per share data) March 31, December 31, 2023 2022 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 12,118 $ 21,184 Short-term investments 4,934 – Prepaid expenses and other current assets 303 418 Total current assets 17,355 21,602 Property and equipment, net 153 158 Long-term prepaid maintenance and supplies 91 91 Security deposit 14 14 Operating lease right-of-use asset 648 700 Financing lease right-of-use-asset 3,874 4,164 Total assets $ 22,135 $ 26,729 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 423 $ 397 Accrued expenses 242 173 Accrued payroll related expenses 292 967 Current operating lease liability 247 245 Current financing lease liability 1,240 1,126 Total current liabilities 2,444 2,908 Long-term operating lease liability 475 521 Long-term financing lease liability 2,683 2,986 Total liabilities 5,602 6,415 Commitments and contingencies (see Note 9) – – Stockholders’ equity: Preferred stock $ 0.001 par value, authorized 2,500 shares; none issued and outstanding at March 31, 2023 and December 31, 2022 – – Common stock: $ 0.001 par value, authorized 47,500 shares; 24,330 and 23,973 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively; 24 24 Additional paid in capital 204,825 203,585 Other comprehensive income (loss) ( 2 ) – Accumulated deficit ( 188,314 ) ( 183,295 ) Total stockholders’ equity 16,533 20,314 Total liabilities and stockholders’ equity $ 22,135 $ 26,729 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 March 31, 2023 2022 Revenue $ – $ 375 Cost of revenue – 81 Gross margin – 294 Operating expenses Research and development 3,036 2,339 General and administrative 1,742 1,648 Selling and marketing 389 325 Total operating expenses 5,167 4,312 Loss from operations ( 5,167 ) ( 4,018 ) Other income (expense) Interest income 199 3 Interest expense ( 53 ) ( 71 ) Other income (expense), net 2 – Total other income (expense), net 148 ( 68 ) Net loss $ ( 5,019 ) $ ( 4,086 ) Net loss per common share, basic $ ( 0.21 ) $ ( 0.18 ) Net loss per common share, diluted $ ( 0.21 ) $ ( 0.18 ) Weighted average number of common shares outstanding, basic 23,660 22,853 Weighted average number of common shares outstanding, diluted 23,660 22,853 The accompanying notes are an integral part of these condensed financial statements. 4 Atomera Incorporated Condensed Statements of Comprehensive Loss (Unaudited) (in thousands, except per share data) Three Months Ended March 31, 2023 2022 Net loss $ ( 5,019 ) $ ( 4,086 ) Other comprehensive income (loss): Unrealized gain (loss) on available-for-sale securities ( 2 ) – Comprehensive income (loss) $ ( 5,021 ) $ ( 4,086 ) The accompanying notes are an integral part of these condensed financial statements. 5 Atomera Incorporated Statements of Stockholders’ Equity For the Three Months Ended March 31, 2023 and 2022 (Unaudited) (in thousands) Common Stock Additional Paid-in Other Comprehensive Accumulated Total Stockholders’ Shares Amount Capital Loss Deficit Equity Balance January 1, 2023 23,973 $ 24 $ 203,585 $ – $ ( 183,295 ) $ 20,314 Stock-based compensation 297 – 927 – – 927 Stock option exercise 10 – 39 – – 39 At-the-market sale of stock, net of commissions and expenses 50 – 274 – – 274 Net loss – – – – ( 5,019 ) ( 5,019 ) Unrealized gain (loss) on available-for-sale securities – – – ( 2 ) – ( 2 ) Balance March 31, 2023 24,330 $ 24 $ 204,825 $ ( 2 ) $ ( 18,314 ) $ 16,533 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 The accompanying notes are an integral part of these condensed financial statements. 6 Atomera Incorporated Condensed Statements of Cash Flows (Unaudited) (in thousands) Three Months Ended March 31, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES Net Loss $ ( 5,019 ) $ ( 4,086 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 20 20 Operating lease right of use asset amortization 52 50 Financing lease right of use asset amortization 291 319 Stock-based compensation 927 726 Net accretion of discounts on available-for-sale securities ( 3 ) – Changes in operating assets and liabilities: Accounts receivable – ( 300 ) Prepaid expenses and other current assets 122 ( 537 ) Accounts payable 26 42 Accrued expenses 69 38 Accrued payroll expenses ( 675 ) ( 341 ) Operating lease liability ( 44 ) ( 42 ) Net cash used in operating activities ( 4,234 ) ( 4,111 ) CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property and equipment ( 15 ) ( 16 ) Purchase of available-for-sale securities ( 4,942 ) – Net cash used in investing activities ( 4,957 ) ( 16 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from at-the-market sale of stock, net of commissions and expenses 274 – Proceeds from exercise of stock options 39 166 Payments on principal of financing lease ( 188 ) ( 287 ) Net cash provided (used) by financing activities 125 ( 121 ) Net decrease in cash and cash equivalents ( 9,066 ) ( 4,248 ) Cash and cash equivalents at beginning of period 21,184 28,699 Cash and cash equivalents at end of period $ 12,118 $ 24,451 Supplemental information: Cash paid for interest $ 53 $ 71 Cash paid for taxes $ – $ – The accompanying notes are an integral part of these condensed financial statements. 7 ATOMERA INCORPORATED NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS For the Three Months Ended March 2023 and 2022 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 March 31, 2023, the Company had cash, cash equivalents and short-term investments of approximately $ 17.1 million and working capital of approximately $ 14.9 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, (“ATM”), to or through the agent as its sales agent, having an aggregate offering price of up to $50.0 million. During the three months ended March 31, 2023, the Company 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. 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. If the Company is not able to generate sufficient revenue from license fees and royalties in a timeframe that satisfies its cash needs, it will need to raise more capital. In the event it requires additional capital, it will endeavor to acquire additional funds through various financing sources, including the ATM Facility, follow-on equity offerings, debt financing and joint ventures with industry partners. In addition to use of the ATM Facility and other capital raising alternatives, the Company will consider alternatives to our current business plan that may enable it to achieve revenue-producing operations and meaningful commercial success with a smaller amount of capital. If the Company is unable to secure sufficient additional capital, it may be required to curtail our research and development initiatives and take additional measures to reduce costs in order to conserve cash. 8 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, 2023. Basis of presentation of unaudited condensed financial information The unaudited condensed financial statements of the Company for the three months ended March 31, 2023 and 2022 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, 2022 was derived from the audited financial statements included in the Company's financial statements as of and for the year ended December 31, 2022, included in the Company’s Annual Report on Form 10-K filed with the SEC on February 15, 2023. These unaudited condensed financial statements should be read in conjunction with that report. Cash, cash equivalents, and short-term investments The Company considers all highly liquid investments with an original maturity of three months or less, when purchased, to be cash equivalents. Cash equivalents may be invested in money market funds or U.S. agency bonds. Cash and cash equivalents are carried at cost, which approximates their fair value. The Company's portfolio of short-term investments is comprised solely of U.S. treasury bills and agency bonds with maturities of more than three months, but less than one year. The Company classifies these as available-for-sale at purchase date and will reevaluate such designation at each period end date. The Company may sell these marketable debt securities prior to their stated maturities depending upon changing liquidity requirements. These debt securities are classified as current assets in the consolidated balance sheet and recorded at fair value, with unrealized gains or losses included in accumulated other comprehensive income (loss). Gains and losses are recognized when realized. Gains and losses are determined using the specific identification method and are reported in other income (expense), net in the consolidated statements of operations. Adoption of recent accounting standards From time to time, new accounting standards are issued by the FASB that are adopted by the Company as of the specified effective date. No new accounting standards, issued or effective during the period ended March 31, 2023, have had or are expected to have a significant impact on the Company’s financial statements. 9 4. FAIR VALUE MEASUREMENTS ASC 820, Fair Value Measurements (“ASC 820”) states that fair value represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. The three-tiered fair value hierarchy, which prioritizes which inputs should be used in measuring fair value, is comprised of: Level 1 — Quoted prices (unadjusted) in active markets for identical assets and liabilities. Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as unadjusted quoted prices for similar assets and liabilities, unadjusted quoted prices in the markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Company’s cash equivalents and short-term investments that were measured at fair value on a recurring basis as Level 1 assets. The Company’s cash, cash equivalents and short-term investments classified by security type as of March 31, 2023 and December 31, 2022 consisted of the following (in thousands): Fair value measurements March 31, 2023 December 31, 2022 Cost Unrealized Gain/(Loss) Fair Value Cost Unrealized Gain/Loss Fair Value Cash $ 167 $ – $ 167 $ 1 $ – $ 1 Money market funds 10,957 – 10,957 21,183 – 21,183 US treasury bills 1,963 – 1,963 – – – US agency bonds 3,967 ( 2 ) 3,965 – – – Total $ 17,054 $ ( 2 ) $ 17,052 $ 21,184 $ – $ 21,184 Interest receivable of approximately $ 46,000 as of March 31, 2023 is recorded in prepaids and other current assets in the condensed consolidated balance sheets. This includes approximately $ 14,000 of purchased accrued interest. For the period ended December 31, 2022, there was $ 0 interest receivable recorded in the condensed consolidated balance sheets. 10 5. 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 March 31, 2023 2022 Primary geographic markets North America $ – $ 75 Asia Pacific – 300 Total $ – $ 375 Timing of revenue recognition Products and services transferred at a point in time $ – $ 375 Products and services transferred over time – – Total $ – $ 375 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. 11 6. 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. 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 Months Ended March 31, 2023 2022 Stock Options 3,374 3,008 Unvested restricted stock 582 493 Warrants – 1 Total 3,956 3,502 7. 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 March 31, 2023 2022 Financing lease costs: Amortization of ROU assets $ 291 $ 319 Interest on lease liabilities 53 71 Total financing lease costs $ 344 $ 390 Operating lease costs: Fixed lease costs $ 62 $ 62 Short-term lease costs 297 11 Total operating lease costs $ 359 $ 73 12 Future minimum payments under non-cancellable leases as of March 31, 2023 were as follows (in thousands): Schedule of future minimum lease payments For the Year Ended December 31, Financing leases Operating leases Remaining 2023 $ 839 $ 198 2024 1,436 278 2025 1,436 284 2026 478 21 2027 & thereafter – – Total future minimum lease payments $ 4,189 $ 781 Less imputed interest ( 266 ) ( 59 ) Total lease liability $ 3,923 $ 722 The table above does not include our short-term leases that are one-year or less. 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 and financing leases Three Months Ended March 31, 2023 2022 Operating cash flow information: Cash paid for amounts included in the measurement of operating lease liabilities $ 56 $ 54 Cash paid for amounts included in the measurement of financing liabilities $ 241 $ 359 Non-cash activity: Right-of-use assets obtained in exchange for operating lease obligations $ – $ – Right-of-use assets obtained in exchange for financing lease obligations $ – $ – The weighted average remaining discount rate is 5.25 % for the Company’s operating and financing leases. The weighted average remaining lease term is 2.9 years for operating leases and 3.3 years for the financing lease. Effective May 1, 2023, the Company will lease an additional 404 square feet at its Tempe office location under an amendment to its current lease. The monthly rent payment will increase from $1,277 per month to $2,365 per month and will be accounted for as a modification to the lease under ASC 842 at the time of commencement. The Company recently terminated its office lease in Cambridge, Massachusetts as of March 31, 2023. The cost of the lease was $2,942 per month. In December 2022, the Company entered into a lease agreement for a tool in Tempe, Arizona. The term of this lease is for six months beginning on January 1, 2023 with an option to extend the lease for an additional six months. The initial lease terms were $96,000 per month. In March 2023, the Company elected to extend the lease through December 31, 2023, the remaining lease payments will be reduced to $84,000 over the remainder of the lease. Since the lease and extension are not for more than one year, the future lease payments are not included in the lease obligations on the Company’s condensed balance sheets. 13 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 months ended March 31, 2023 and 2022 for stock options and restricted stock granted under the Company’s incentive plans (in thousands): Schedule of stock-based compensation expense Three Months Ended March 31, 2023 2022 Research and development $ 328 $ 244 General and administrative 525 429 Selling and Marketing 74 53 Total $ 927 $ 726 As of March 31, 2023, there was approximately $ 9.2 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 2.9 years. The weighted average grant date fair value per share of the options granted under the Company’s 2017 Plan was $ 4.95 and $ 10.60 for the three months ended March 31, 2023 and 2022, respectively. The following table summarizes stock option activity during the three months ended March 31, 2023 (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, 2023 3,009 $ 7.07 Granted 375 $ 6.56 Exercised ( 10 ) $ 3.90 Outstanding at March 31, 2023 3,374 $ 7.02 5.38 $ 2,430 Exercisable at March 31, 2023 2,649 $ 6.49 4.40 $ 2,121 14 During the three months ended March 31, 2023, the Company granted options under the 2017 Plan to purchase approximately 375 ,000 shares of its common stock to its employees. The fair value of these options was approximately $ 1.9 million at the time of grant. 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 three months ended March 31, 2023 (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, 2023 340 $ 10.78 Granted 297 $ 6.56 Vested ( 55 ) $ 7.62 Outstanding non-vested shares at March 31, 2023 582 $ 8.93 During the three months ended March 31, 2023, the Company granted approximately 297 ,000 restricted stock awards under the 2017 Plan to its employees and directors. The fair value of these awards was approximately $ 2.0 million at the time of grant. On February 23, 2023, the Company’s Board of Directors approved the Atomera Incorporated 2023 Stock Incentive Plan (“2023 Plan”). The 2023 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 2023 Plan, as amended in April 2023, provides for the issuance of 2,000 ,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 will be eligible to receive incentive awards under the 2023 Plan. The 2023 Plan has been submitted to the stockholders for approval at the Company’s 2023 annual meeting of stockholders to be held on May 4, 2023. 9. 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 March 31, 2023, or through the date these financial statements have been issued. 15 10. SUBSEQUENT EVENTS Management has evaluated subsequent events and transactions through the date these financial statements were issued. Since March 31, 2023 the Company has issued an additional 82,322 shares through its ATM offering at an average price per share of $5.73 resulting in additional net proceeds of approximately $458,000. On April 17, 2023 the Company amended the lease agreement related to its office space in Tempe, Arizona to add 404 square feet to its existing office lease effective on May 1, 2023 through February 28, 2026 (coterminous with the current Tempe lease) and will bring the total leased office space in Tempe to 878 square feet. License Agreement. On April 26, 2023, the Company announced the execution of a commercial license agreement with STMicroelectronics (“ST”). This agreement enables ST to install the Company’s Mears Silicon Technology™, or MST ® , in its facilities and authorizes ST to manufacture and distribute MST-enabled products to its customers. The license agreement with ST provides for license fees payable upon reaching milestones consistent with Atomera’s standard business model. After those milestones are reached, ST will pay a royalty to Atomera based on the number of MST-enabled products manufactured for commercial purposes. 16