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Item 7. Management’s Discussion and Analysis

2025-03-04 compared with 2024-02-15 · 112 added, 116 removed, 150 unchanged (60% 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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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.

since MST is an additive and low-cost technology, we believe it can be deployed on an industrial scale, with machines commonly used in

semiconductor manufacturing.

We believe that MST can be widely incorporated into the most common types of semiconductor products, including

analog, logic, optical and memory 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:

MST is our proprietary and patent-protected performance

enhancement technology that we believe addresses a number of key engineering challenges facing the semiconductor industry.

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 machines commonly used in semiconductor

manufacturing.

We believe that MST can be widely incorporated into the most common types of semiconductor products, including analog,

logic, optical and memory integrated circuits.

We do not 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;

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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 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

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.

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, 2023, we sold approximately

1.8 million shares 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.

During the year ended December 31, 2024, we sold approximately 4.1 million shares

at an average price per share of approximately $5.38, resulting in approximately $21.3 million of net proceeds to us after deducting commissions

and other offering expenses.

Results of Operations for the Years Ended December

31, 2024 and 2023

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.

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

license granted under a JDA, our license agreement with ST 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.

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 or yearly basis and revenue is recognized over time.

Our integration services consist

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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.

Our first JDA included the grant of an R&D 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

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

a license enabling ST to install MST in a tool in their fab and to manufacture wafers for internal development use only as well as an

HVM 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 R&D license, and upon reaching process qualification

After process qualification is complete and associated payments are made, ST will obtain an HVM license and 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 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

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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.

Revenue for the years ended December

31, 2024 and 2023 was approximately $135,000 and $550,000, respectively.

Our revenue in 2024 consisted of MSTcad licensing and related

consulting services revenue, and engineering services revenue from the delivery of MST wafers.

Our revenue for 2023 consisted of revenue

from a manufacturing license.

Cost of Revenue.

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Operating Expenses.

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.

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

For the years ended December

31, 2024 and 2023, our operating expenses totaled approximately $19.3 million and $21.2 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.

Our research and development costs primarily consist of payroll and benefit costs

for our engineering staff and costs of outsourced fabrication (including epi tool leases) and metrology of semiconductor wafers incorporating

our MST technology.

To date, our operations have focused on the research, development, and commercialization of our MST technology and related

technologies such as MSTcad.

Our research and development costs primarily consist of payroll and benefit 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 years ended December 31,

31, 2023 and 2022, we incurred approximately $12.5 million and $10.0 million, respectively, of research and development expense, an increase

2024 and 2023, we incurred approximately $11.0 million and $12.5 million, respectively, of research and development expense, a decrease

of approximately $1.5 million, or 12%.

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.

This decrease was primarily due to a decline of approximately $1.6 million in outsourced research

and development as we discontinued working with TSI Semiconductor as of January 31, 2024.

General and administrative

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The increase in costs was primarily due to

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.

an increase in employee-related costs of approximately $136,000 and an increase of approximately $332,000 in patent fees and legal fees

associated with our patents.

These costs were partially offset by a decrease of approximately $144,000 in stock-based compensation and

approximately $90,000 in corporate legal expenses.

Selling and marketing expenses.

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, 2024 and 2023 were approximately $1.1 million and

$1.6 million, respectively, representing a decrease of approximately $546,000, or 34%.

The decrease in costs is primarily related to a

reduction in headcount which decreased employee related costs, stock-based compensation and travel expenses.

Interest income.

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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.

rates and cash balances 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

Accretion income for the years ended December 31, 2024 and 2023 was approximately $178,000 and $283,000, respectively.

Accretion income

relates to the increase in value of our available-for-sale securities from the purchase date through the maturity date.

Other income/expense, net.

Other income for the years December 31, 2024 and 2023 was approximately $73,000 and $75,000, respectively.

Other income consisted primarily

of a refundable state research and development tax credit, net of filing costs and tax consulting services for both years.

Interest expense.

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Liquidity and Capital Resources

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.

As of December 31, 2024, we had

cash, cash equivalents and short-term investments of approximately $26.8 million and working capital of approximately $23.5 million.

the year ended December 31, 2024, we had a net loss of approximately $18.4 million and used approximately $13.2 million of cash and cash

equivalents in operations.

Since inception, we have incurred recurring operating losses.

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Cash Flows from Operating, Investing and Financing

Net cash used in operating

activities of approximately $14.6 million for year ended December 31, 2023 resulted primarily from our net loss of approximately $19.8

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 $3.4 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

Net cash used in operating activities

of approximately $13.2 million for year ended December 31, 2024 resulted primarily from our net loss of approximately $18.4 million, adjusted

by approximately $3.9 million of stock-based compensation expense and amortization of right-of-use assets of approximately $1.3 million.

Net cash used in operating activities

of approximately $14.6 million for year ended December 31, 2023 resulted primarily from our net loss of approximately $19.8 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 provided in investing

activities of approximately $6.1 million and for year ended December 31, 2024 consisted primarily of the maturity of short-term available-for-sale

investments, offset by the purchase of short-term available-for-sale investments.

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 $20.3 million for the year ended December 31, 2024 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.

offset in part by approximately $1.1 million in principal payments on our financing lease.

Net cash provided by financing

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, 2022, offset in part by approximately $984,000 in principal payments on our financing lease.

offset in part by approximately $918,000 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.

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Right-of-use (“ROU”)

assets represent its right to use an underlying asset for the lease term while lease liabilities represent its obligation to make lease

assets represent our right to use an underlying asset for the lease term while lease liabilities represent our obligation to make lease

payments arising from the lease.

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

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.

Lease expenses for financing leases consists of 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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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