Atomera Inc 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of the financial condition and results of operations of Atomera Incorporated should be read in conjunction with our financial statements and the accompanying notes that appear elsewhere in this Quarterly Report. Statements in this Quarterly Report on Form 10-Q include forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. Although forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks, uncertainties, and changes in condition, significance, value and effect, including those risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 15, 2023. 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. Overview We are engaged in the business of developing, commercializing and licensing proprietary processes and technologies for the $550+ billion semiconductor industry. Our lead technology, named Mears Silicon Technology™, or MST ® , is a thin film of reengineered silicon, typically 100 to 300 angstroms (or approximately 20 to 60 silicon atomic unit cells) thick. 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 performance enhancement technology that we believe addresses a number of key engineering challenges facing the semiconductor industry. We believe that by incorporating MST, transistors can be made smaller, with increased speed, reliability and power efficiency. In addition, since MST is an additive and low-cost technology, we believe it can be deployed on an industrial scale, with equipment commonly used in semiconductor manufacturing. We believe that MST can be widely incorporated into the most common types of semiconductor products, including analog, logic, memory and optical 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 manufacturing of their chips to foundries; · original equipment manufacturers, or OEMs, that manufacture the epitaxial, or epi, equipment used to deposit semiconductor layers, such as the MST film, onto silicon wafers; and · 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. 16 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. We also license our MSTcad TM software to our customers for use in simulating the effects of using MST technology on their wafers and/or devices. 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, (iii) engineering 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 fees payable upon reaching milestones consistent with Atomera’s standard business model. Our standard model is based around two major milestones, namely the installation of MST in a customer’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 license agreement with ST 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 to the manufacture and commercial sale of MST-enabled products. We were organized as a Delaware limited liability company under the name Nanovis LLC on November 26, 2001. On March 13, 2007, we converted to a Delaware corporation under the name Mears Technologies, Inc. On January 12, 2016, we changed our name to Atomera Incorporated. On May 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” offering or “ATM”, to or through the agents. During the nine months ended September 30, 2023, we sold approximately 1.4 million shares pursuant to our ATM at an average price per share of approximately $8.11, resulting in approximately $11.2 million of net proceeds to us after deducting commissions and other offering expenses. These sales include approximately 24,000 shares sold during the three months ended September 30, 2023 at an average price of $9.17, resulting in net proceeds of approximately $185,000 after deducting commissions and other offering expenses. Results of Operations Revenues . To date, we have only generated limited revenue from customer engagements for engineering services, integration license agreements, a manufacturing license granted under a JDA and licensing of MSTcad. 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 engineering 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 first JDA included the grant of a manufacturing license to our customer and we were paid for such license when we delivered our IP transfer package which enabled our customer to install MST in a tool in their facility and to use it to manufacture wafers for internal use. This JDA also contained targeted technical specifications that, if met, would result in payment of a success fee to us. Those technical objectives 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 engineering services, and therefore revenue from both integration licenses and engineering services is recognized as the services are provided to the customer. In general, this is proportionate to the delivery to the customer of wafers processed with MST, but if the agreements do not specify a time and quantity of wafer delivery, we will record revenue over the period of time in 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. 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. Our MSTcad licenses grant customers the right to use MSTcad software to simulate the effects of incorporating MST technology into their semiconductor manufacturing process. MSTcad licenses are granted on a monthly basis and revenue is recognized over time. Revenue was not recorded for the three months or nine months ended September 30, 2023. Revenue for the three and nine months ended September 30, 2022 was $2,000 and $377,000, respectively. Our revenue in 2022 consisted of a success fee pursuant to our first JDA and a license fee paid under an integration license agreement. 17 Cost of revenue . Cost 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. No costs of revenue were recorded for the three months ended September 30, 2023 and 2022. Cost of revenue for the nine months ended September 30, 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. Operating expenses consist of research and development, general and administrative, and selling and marketing expenses. For the three months ended September 30, 2023 and 2022, our operating expenses totaled approximately $5.4 million and $4.7 million, respectively. For the nine months ended September 30, 2023 and 2022, our operating expenses totaled approximately $15.9 million and $13.4 million, respectively. Research and development expense . To date, our operations have focused on the research, development, patent prosecution, and commercialization of our MST technology and related technologies such as MSTcad. Our research and development costs primarily consist of payroll and benefits costs for our engineering staff and costs of outsourced fabrication (including epi tool leases) and metrology of semiconductor wafers incorporating our MST technology. For the three months ended September 30, 2023 and 2022, we incurred approximately $3.3 million and $2.7 million, respectively, of research and development expenses, an increase of approximately $562,000, or 20%. This increase was primarily due to increases of approximately $355,000 in outsourced research and development mainly due to price increases for outsourced foundry services combined with an increase in the number of wafers processed. The increase in research and development expenses also reflected increases of approximately $81,000 in employee-related expenses resulting from new hires, and approximately $82,000 in technical consulting expenses. For the nine months ended September 30, 2023 and 2022, we incurred approximately $9.5 million and $7.5 million, respectively, of research and development expense, an increase of approximately $2.0 million, or 27%. The increase was primarily due to outsourced research and development which increased by approximately $977,000 due to price increases and a higher number of wafers processed. The other main factors that drove the increase in research and development expense were increases of approximately $495,000 in employee costs for new hires, approximately $227,000 in technical consulting and approximately $100,000 in wafer purchases to support our research efforts. General and administrative expense. General and administrative expenses consist primarily of payroll and benefit costs for administrative personnel, office-related costs and professional fees. General and administrative costs were approximately $1.7 million and $1.6 million for the three months ended September 30, 2023 and 2022, respectively, representing an increase of approximately $116,000, or 7%. The increase is primarily related to an increase of approximately $123,000 in legal fees related to our intellectual property portfolio offset by a decrease in employee-related expenses. General and administrative costs were approximately $5.2 million and $4.9 million for the nine months ended September 30, 2023 and 2022, respectively, representing an increase of approximately $318,000, or 7%. The increase is primarily related to an increase in stock-based compensation costs of approximately $237,000 and an increase of approximately $83,000 in legal fees. Selling and marketing expense. Selling and marketing expenses consist primarily of salary and benefits for our sales and marketing personnel and business development consulting services. Selling and marketing expenses for the three months ended September 30, 2023 and 2022 were approximately $365,000 and $347,000, respectively, representing an increase of approximately $18,000, or 5%. The increase in costs is primarily related to increased travel and stock-based compensation costs offset by a decrease in employee-related expenses. Selling and marketing expenses for the nine months ended September 30, 2023 and 2022 were approximately $1.1 million and $1.0 million, respectively, representing an increase of approximately $128,000, or 13%. The increase in costs is primarily related to increased travel and stock-based compensation costs. 18 Interest income. Interest income for three months ended September 30, 2023 and 2022 was approximately $177,000 and $113,000, respectively. Interest income for nine months ended September 30, 2023 and 2022 was approximately $528,000 and $151,000, respectively. Interest income for the periods presented related to interest earned on our cash, cash equivalents and short-term investments. Accretion income. Accretion income for the three and nine months ended September 30, 2023, was approximately $112,000 and $221,000, respectively. Accretion income relates to the increase in value of our available-for-sale securities from the purchase date through the maturity date. There was no income from accretion for the three or nine months ended September 30, 2022. Interest expense. Interest expense for the three months ended September 30, 2023 and 2022 was approximately $47,000 and $60,000, respectively. Interest expense for the nine months September 30, 2023 and 2022 was approximately $151,000 and $200,000, respectively. Interest expense is related to the tool financing lease entered into in August 2021. Other income/expense, net. Other income for the three and nine months ended September 30, 2023 of approximately $72,000, consisted primarily of a refundable state research and development tax credit, net of filing costs and tax consulting services. Cash Flows from Operating, Investing and Financing Activities Net cash used in operating activities of approximately $11.6 million for the nine months ended September 30, 2023 resulted primarily from our net loss of approximately $15.2 million offset by approximately $3.0 million of stock-based compensation and approximately $1.0 million of amortization of right-of-use assets. 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 assets. Net cash used in investing activities of approximately $7.6 million and for the nine months ended September 30, 2023 consisted primarily of the purchase of short-term available-for-sale investments, offset by the maturity of short-term available-for-sale investments Net cash used in investing activities of approximately $26,000 for the nine months ended September 30, 2022 consisted of the purchase of computers and lab tools in Tempe, AZ. Net cash provided by financing activities of approximately $10.7 million for the nine months ended September 30, 2023 primarily related to the net proceeds from our ATM offering, offset by the principal payments on our financing lease. 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. Liquidity and Capital Resources As of September 30, 2023, we had cash and cash equivalents of approximately $12.6 million, short-term investments of approximately $7.7 million and working capital of approximately $17.9 million. For nine months ended September 30, 2023, we had a net loss of approximately $15.2 million and used approximately $11.6 million of cash and cash equivalents in operations. Since inception, we have incurred recurring operating losses. 19 During the nine months ended September 30, 2023, we sold approximately 1.4 million shares pursuant to our ATM at an average price per share of approximately $8.11, resulting in approximately $11.2 million of net proceeds to us after deducting commissions and other offering expenses. Since September 30, 2023 we have sold approximately 15,000 additional shares through our ATM offering at an average price per share of $7.13 resulting in additional net proceeds of approximately $104,000. We believe that our available working capital is sufficient to fund our presently forecasted working capital requirements for, at least, the next 12 months following the date of the filing of this report. However, our future capital requirements and the adequacy of our available funds will depend on many factors, including our ability to successfully commercialize our MST technology, competing technological and market developments, and the need to enter into collaborations with other companies or acquire technologies to enhance or complement our current offerings. If we are not able to generate sufficient revenue from license fees and royalties in a timeframe that satisfies our cash needs, we will need to raise more capital. In the event we require additional capital, we will endeavor to acquire additional funds through various financing sources, including our ATM Facility, 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 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 There have been no changes to our critical accounting estimates from those included in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 15, 2023. Item 3. Quantitative and Qualitative Disclosure about Market Risk. Not applicable.