What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-15 compared with 2023-02-15 · 140 added, 153 removed, 126 unchanged (70% of the section changed)

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

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 Annual Report.

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analog, logic, optical and memory integrated circuits.

We do not intend to design or

manufacture integrated circuits directly.

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

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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

We also license our MSTcad 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 ST and AKM, both of which are 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.

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On January 12, 2016, we changed our name to Atomera Incorporated.

Between September 2020 and January

2021,we conducted an at-the-market offering of our common shares through Craig-Hallum Capital Group LLC, as agent, pursuant to which we

sold 2,221,575 shares at an average price per share of approximately $11.25, resulting in approximately $24.2 million of net proceeds

to us after deducting commissions and other offering expenses.

On May 31, 2022, we entered into

an Equity Distribution Agreement with Oppenheimer & Co.

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

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

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

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 aggregate offering proceeds of up to $50.0

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

During the year ended December 31, 2022, approximately

shares were sold at an average price per share of approximately $11.68, resulting in approximately $5.8 million of net proceeds to us

after deducting commissions and other offering expenses.

527,000 shares were sold at an average price per share of approximately $11.68, resulting in approximately $5.8 million of net proceeds

to us after deducting commissions and other offering expenses.

During the year ended December 31, 2023, approximately 1.8 million shares

were sold at an average price per share of approximately $7.97, resulting in approximately $13.5 million of net proceeds to us after deducting

commissions and other offering expenses.

Results of Operations for the Years Ended December

31, 2023 and 2022

we have only generated limited revenue from customer engagements for integration engineering services, integration license agreements,

a manufacturing license granted under a JDA, a success fee for achievement of milestones under that JDA and licensing our MSTcad software.

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

to date 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 on their site or to sell products incorporating MST.

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 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 integration services, and therefore

revenue from both integration licenses and integration services is recognized as the services are provided to the customer.

this is proportionate to the delivery of MST processed wafers to the customer, but if the agreements do not specify a time and quantity

of wafer delivery, we will record revenue over the period of time of which we anticipate delivering an estimated quantity of wafers.

have also determined that the grant of our manufacturing license under the JDA confers a right to use our technology and accordingly revenue

was recognized at the point in time when we delivered our IP transfer package.

The success fee under our JDA was treated as engineering

services revenue and recognized upon our customer’s confirmation that the JDA’s technical objectives had been met.

Our licensing

of MSTcad grants customers the right to use MSTcad software to simulate the effects of incorporating MST technology into their semiconductor

manufacturing process.

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

Revenue for the years ended December

31, 2022 and 2021 was approximately $382,000 and $400,000, respectively.

Our revenue for 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 2021 consisted of a manufacturing

license fee pursuant to our JDA.

date, we have only generated limited revenue.

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 (i) to enter into manufacturing

and distribution license agreements with our current and future licensees and (ii) to advance such licensees, including ST, through licensing

phases to royalty-bearing product shipments.

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 to date grant the licensees the right to build products

that integrate our MST technology deposited by us onto their semiconductor wafers, but these agreements do not grant the licensees the

rights to manufacture on their site 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 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

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.

Our license agreement with ST, which we executed in April 2023, was our first full commercial license agreement and provided for grants

of a manufacturing license enabling ST to install MST in a tool in their fab and to manufacture wafers for internal development use only

as well as a distribution license granted upon completion of process qualification.

The ST license agreement provides for payments of

license fees, payable upon reaching milestones for MST installation and acceptance, in the case of the manufacturing license, and upon

reaching process qualification milestones.

After process qualification is complete and associated payments are made, ST will be required

to pay royalties for all products they sell that utilize MST.

For recognizing integration

service revenue from integration license agreements, we assess (i) whether the license grant is distinct from or combined with the transfer

of goods or services and (ii) whether the license is a right to access intellectual property or a right to use the intellectual property.

For licenses that are not distinct, but combined with other goods or services, the revenue is recognized at a point in time or over time

as the obligations to perform the combined services and/or deliver the combined goods are satisfied.

Integration license agreements contain

a technology grant as well as a performance obligation to deliver wafers with our technology deposited on them.

We have historically determined

the grant of rights in these integration license agreements is not distinct from the integration service.

Accordingly, revenue from integration

license agreements is recognized as the service is provided to the customer.

For manufacturing licenses, revenue is recognized at the

point in time when we deliver our MST recipe as the license to manufacture using MST technology is a right to use the Company’s

technology and not a right to access the technology over time.

However, in cases where our manufacturing license grants include a customer

acceptance requirement, revenue is recognized over time.

Revenue for the years ended

December 31, 2023 and 2022 was approximately $550,000 and $382,000, respectively.

Our revenue for 2023 consisted of revenue from a manufacturing

Our revenue for 2022 consisted of a success fee pursuant to our JDA, a license fee paid under an integration license agreement

and MSTcad license revenue.

Cost of Revenue.

of revenue consists of costs of materials, as well as direct compensation and expenses incurred to provide integration engineering services,

Cost of revenue was approximately $81,000 and $0 for the years ended December 31, 2022 and 2021, respectively.

We anticipate that our

cost of revenue will vary substantially depending on the mix of license and engineering services revenues we receive and the nature of

products and/or services delivered in each customer engagement.

support for customer installation and qualification and MSTcad support.

Cost of revenue was approximately $28,000 and $81,000 for the

years ended December 31, 2023 and 2022, 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.

expenses consist of research and development, general and administrative, and selling and marketing expenses.

For the years ended December

31, 2022 and 2021 our operating expenses totaled approximately $17.8 million and $15.9 million, respectively.

Operating expenses consist of research and development, general and administrative, and selling and marketing expenses.

years ended December 31, 2023 and 2022 our operating expenses totaled approximately $21.2 million and $17.8 million, respectively.

Research and development

To date, our operations have focused on the research, development, patent prosecution, and commercialization of our MST

technology and related technologies such as MSTcad.

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 benefit costs

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of approximately $2.5 million, or 25%.

The increase was primarily due to approximately $850,000 of increased tool lease related expenses

as the tool lease commenced in August 2021, and increase of approximately $246,000 in stock-based compensation and an increase of approximately

The increase was primarily due to outsourced research and development costs, which increased by

approximately $1.1 million due to price increases and a higher number of wafers processed.

The other main factors that drove the increase

in research and development expenses were increases of approximately $739,000 in employee costs reflecting new hires and an increase in

the annual bonus accrual, an approximately $255,000 increase in stock-based compensation expense and an increase of approximately $266,000

in technical consulting expenses.

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The increase in costs was primarily due to

an increase of approximately $103,000 in patent fees and legal fees associated with our patents, an increase of approximately $95,000

in insurance costs and increase of approximately $86,000 in payroll related expenses.

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 years ended December 31, 2022 and 2021 were approximately $1.3 million and

$986,000, respectively, representing an increase of approximately $362,000, or 37%.

The increase in costs is primarily related to increased

spending in employee-related costs of approximately $104,000, an increase in outsourced marketing expenses of approximately $83,000 and

an increase in stock-based compensation of approximately $77,000.

an increase in employee-related costs of approximately $166,000, an increase of approximately $116,000 in patent fees and legal fees associated

with our patents, an increase of approximately $100,000 in other legal fees and an increase of approximately $301,000 in stock-based compensation

Selling and marketing

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 years ended December 31, 2023 and 2022 were approximately $1.6

million and $1.3 million, respectively, representing an increase of approximately $251,000, or 19%.

The increase in costs is primarily

related to increased spending on employee-related costs of approximately $72,000, an increase in stock-based compensation of approximately

$91,000 and an increase of approximately $62,000 in travel-related expenses.

Interest income.

income for the years ended December 31, 2023 and 2022 was approximately $723,000 and $340,000, respectively.

Interest income for each period

related to interest earned on our cash and cash equivalents and the increase was primarily due to progressively higher interest rates

during these periods.

Interest income for each

period related to interest earned on our cash and cash equivalents and the increase was primarily due to progressively higher interest

rates during these periods.

Accretion income.

Accretion income for the year ended December 31, 2023 was approximately $283,000.

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 year ended

December 31, 2022 because our active cash management program, which involves investment of a portion of our cash in short-term fixed-income

securities commenced in the first quarter of 2023.

Other income/expense,

Other income for the year December 31, 2023 of approximately $75,000, consisted primarily of a refundable state research

and development tax credit, net of filing costs and tax consulting services.

There was no other income/expenses for the year ended December

Interest expense.

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Interest expense is related

to the new tool financing lease entered into in August 2021.

Provision for income taxes .

The provision for income tax for the year ended December 31, 2021 was $66,000 and related to income taxes due to a foreign country arising

from withholding taxes imposed on payments received for revenue.

There was no provision for income tax recorded for the year ended December

to the tool financing lease entered into in August 2021.

Liquidity and Capital Resources

As of December 31, 2022, we had

cash and cash equivalents of approximately $21.2 million and working capital of approximately $18.7 million.

For the year ended December

31, 2022, we had a net loss of approximately $17.4 million and used approximately $12.5 million of cash and cash equivalents in operations.

As of December 31, 2023, we

had cash, cash equivalents and short-term investments of approximately $19.5 million and working capital of approximately $16.6 million.

For the year ended December 31, 2023, we had a net loss of approximately $19.8 million and used approximately $14.6 million of cash and

cash equivalents in operations.

Since inception, we have incurred recurring operating losses.

During the year ended December

31, 2022, we sold approximately 527,000 shares pursuant to our ATM at an average price per share of approximately $11.68, resulting in

approximately $5.8 million of net proceeds to us after deducting commissions and other offering expenses

31, 2023, we sold approximately 1.8 million shares pursuant to our ATM at an average price per share of approximately $7.97, resulting

in approximately $13.5 million 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 its cash.

Cash Flows from Operating, Investing and Financing

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million, adjusted by approximately $4.0 million of stock-based compensation expense and amortization of right-of-use assets of approximately

$1.4 million.

Net cash used in operating

activities of approximately $12.5 million for year ended December 31, 2022 resulted primarily from our net loss of approximately $17.4

million adjusted by approximately $3.0 million of stock-based compensation expense.

Net cash used by investing activities

of approximately $39,000 and approximately $109,000 for the years ended December 31, 2022 and 2021, respectively, consisted of the purchase

of computers, lab tools and leasehold improvements for the remodeled Los

Gatos office space and our new Tempe office space.

million, adjusted by approximately $3.4 million of stock-based compensation expense and amortization of right-of-use assets of approximately

$1.4 million.

Net cash used in investing

activities of approximately $6.8 million and for year ended December 31, 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 by investing activities of approximately

$39,000 for the year ended December 31, 2022, consisted of the purchase of computers and lab tools for our Tempe office space.

Net cash provided by financing

activities of approximately $5.0 million for the year ended December 31, 2022.

related primarily to net proceeds from our at-the-market

offering during the year ended December 31, 2022 offset in part by approximately $984,000 in principal payments on our financing lease.

activities of approximately $12.7 million for the year ended December 31, 2023 related primarily to net proceeds from our ATM Facility

during the year ended December 31, 2023, offset in part by approximately $918,000 in principal payments on our financing lease.

Net cash provided by financing

activities of approximately $3.3 million for the year ended December 31, 2021 related to the exercise of approximately 571,000 stock options

and net proceeds from our at-the-market offering in January 2021.

These amounts were offset in part by approximately $470,000 in principal

payments on our financing lease.

activities of approximately $5.0 million for the year ended December 31, 2022 related primarily to net proceeds from our ATM Facility

during the year ended December 31, 2022, offset in part by approximately $984,000 in principal payments on our financing lease.

Critical Accounting Estimates

Our financial statements are prepared

in accordance with accounting principles generally accepted in the United States.

The preparation of financial statements in conformity

with those accounting principles requires us to use judgement in making estimates and assumptions based on the relevant information available

at the end of each period.

These estimates and assumptions have a significant effect on reported amounts of assets, liabilities, sales

and expenses as well as the disclosure of contingent assets and liabilities because they result primarily from the need to make estimates

and assumptions on matters that are inherently uncertain.

Our financial statements are

prepared in accordance with accounting principles generally accepted in the United States.

The preparation of financial statements in

conformity with those accounting principles requires us to use judgement in making estimates and assumptions based on the relevant information

available at the end of each period.

These estimates and assumptions have a significant effect on reported amounts of assets, liabilities,

sales and expenses as well as the disclosure of contingent assets and liabilities because they result primarily from the need to make

estimates and assumptions on matters that are inherently uncertain.

Actual results could differ from our estimates.

We generate revenue from integration

engineering services, which we deliver either pursuant to integration license agreements or delivery of engineering services and from

the grant of manufacturing licenses to customers to use its technology in the manufacture of semiconductor wafers and/or devices for the

customer’s internal use.

Revenue is recognized based on the following steps:

(i) identification of the contract, or contracts, with

a customer, (ii) identification of the performance obligations in the contract, (iii) determination of the transaction price, (iv) allocation

of the transaction price to the performance obligations of the contract, and (v) recognition of revenue when, or as, we satisfy a performance

Integration services generally consist of depositing our proprietary technology onto the customer’s semiconductor wafers

and delivering such wafers back to the customer.

Revenue from integration services is recognized as the performance obligations are satisfied,

which is upon transfer of control of the wafers to the customer (generally upon shipment).

Revenue from manufacturing licenses is recognized

as the performance obligations are satisfied, which is upon delivery of the Company’s MST recipe to the customer.

For recognizing integration service

revenue from integration license agreements, we assess (i) whether the license grant is distinct from or combined with the transfer of

goods or services and (ii) whether the license is a right to access intellectual property or a right to use the intellectual property.

For licenses that are not distinct, but combined with other goods or services, the revenue is recognized at a point in time or over time

as the obligations to perform the combined services and/or deliver the combined goods are satisfied.

Integration license agreements contain

a technology grant as well as a performance obligation to deliver wafers with our technology deposited on them.

We have determined the

grant of rights in these integration license agreements is not distinct from the integration service.

Accordingly, revenue from integration

license agreements is recognized as the service is provided to the customer.

For manufacturing licenses, revenue is recognized at the

point in time when we deliver our MST recipe as the license to manufacture using MST technology is a right to use the Company’s

technology and not a right to access the technology over time.

We account for leases in accordance

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on a straight-line-basis over the lease term.

Lease expenses for financing leases is amortization of the he ROU assets over the life of

the lease and interest expense is recognized on the liability.

Lease expenses for financing leases is amortization of the ROU assets over the life of the

lease and interest expense is recognized on the liability.

Stock-based Compensation

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for the Black-Scholes valuation model used for employee stock awards include:

· Expected term – We derived the expected term for employee stock awards

using limited historical information to develop expectations about future exercise patterns and post vesting employment termination behavior.

· Expected volatility – Volatility is estimated using Atomera’s

historical volatility for similar terms.

· Expected dividend rate – We have not declared or paid dividends to

our stockholders and have no plans to pay dividends;

Expected term – We derived the expected term for employee stock awards using historical information to develop expectations about future exercise patterns and behavior after employment termination.

Expected volatility – Volatility is estimated using Atomera’s historical volatility for similar terms.

Expected dividend rate – We have not declared or paid dividends to our stockholders and have no plans to pay dividends;

therefore, we have assumed an expected dividend yield of 0%.

· Risk-free interest rate – The risk-free interest rate is based on the

yields of U.S.

Risk-free interest rate – The risk-free interest rate is based on the yields of U.S.

Treasury securities with maturities similar to the expected terms of the associated awards.

· The fair value of our common stock is measured at the market price on the

measurement date.

The fair value of our common stock is measured at the market price on the measurement date.

Quantitative and Qualitative Disclosures About Market Risk

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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-K

Item 7. Management’s Discussion and Analysis