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Item 2. Management’s Discussion and Analysis

2025-05-08 compared with 2024-10-29 · 98 added, 149 removed, 89 unchanged (74% of the section changed)

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

The following discussion

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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, 2023 filed with the SEC on February 15, 2024.

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.

year ended December 31, 2024 filed with the SEC on March 4, 2025.

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.

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.

We are engaged in the business

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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 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:

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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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;

original equipment manufacturers, or OEMs, that manufacture the epitaxial, or epi, machines used to deposit semiconductor layers, such as the MST film, onto silicon wafers;

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.

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incorporates our MST technology.

We also license our MSTcad (R) 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.

Our license agreement with ST is our first grant of commercial manufacturing and distribution

In the fourth quarter of 2023, we completed the first major milestone under the ST license agreement by delivering our MST film

recipe and ST accepting the film, resulting in our recognizing license revenue associated with that milestone.

ST is currently performing

testing to optimize their integration of MST as part of their qualification process.

Upon qualification, we will earn additional license

fees for the distribution license, after which ST will be entitled to MST-enabled products and royalties will be payable to us for every

product sold.

There can be no assurance, however, that ST will complete its process qualification and pursue the licensed rights through

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

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 Microelectonics (ST) and Asahi

Kasei Microdevices (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

We were organized as a Delaware

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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 three-month period ended

September 30, 2024, we sold approximately 691,000 shares pursuant to the ATM at an average price per share of approximately $3.18, resulting

in approximately $2.1 million of net proceeds to the Company after deducting commissions and other offering expenses.

During the nine-month

period ended September 30, 2024, we sold approximately 1.9 million shares pursuant to the ATM at an average price per share of approximately

$4.74, resulting in approximately $8.5 million of net proceeds to the Company after deducting commissions and other offering expenses.

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 three months ended March 31, 2025, we

sold approximately 164,000 shares pursuant to the ATM at an average price per share of approximately $15.19, resulting in approximately

$2.4 million of net proceeds after deducting commissions and other offering expenses.

Results of Operations

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

Revenue for the three and

nine months ended September 30, 2024 was approximately $22,000 and $112,000 respectively.

Our revenue in 2024 consisted of MSTcad licensing

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

Revenue was not recorded during

the three and nine months ended September 30, 2023.

Revenue for the three months

ended March 31, 2025 and 2024 was approximately $4,000 and $18,000 respectively.

Our revenue consisted of MSTcad licensing and related

consulting services revenue.

Cost of revenue .

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

payment of success fees, delivery of wafers delivered as part of integration license agreements and consulting services provided for our

payment of success fees, delivery of wafers in connection with integration license agreements and consulting services provided for our

MSTcad licenses.

Cost of revenue is expensed when incurred and may not correspond with revenue earned.

Cost of revenue for the three and

nine months ended September 30, 2024 was approximately $3,000 and $110,000, 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.

Cost of revenue was not recorded during the three and nine months ended September 30, 2023.

Cost of revenue is expensed when incurred and may not correspond with revenue earned in the same period.

Cost of revenue

was not recorded during the three months ended March 31, 2025.

Cost of revenue for the three months ended March 31, 2025 and 2024 was

$0 and approximately $3,000, respectively.

We anticipate that our cost of revenue will vary substantially depending on the mix of license

and engineering services revenues we receive and the nature of products and/or services delivered in each customer engagement.

Operating expenses.

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For the three

months ended September 30, 2024 and 2023, our operating expenses totaled approximately $4.8 million and $5.4 million, respectively.

the nine months ended September 30, 2024 and 2023, our operating expenses totaled approximately $14.5 million and $15.9 million, respectively.

months ended March 31, 2025 and 2024, our operating expenses totaled approximately $5.5 million and $5.0 million, respectively.

Research and development

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

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

and related technologies such as MSTcad.

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For the three months ended

September 30, 2024 and 2023, we incurred approximately $2.8 million and $3.3 million, respectively, of research and development expenses,

a decrease of approximately $546,000, or 17%.

This decrease was primarily due to decrease of approximately $540,000 in outsourced research

and development as our foundry services provider, TSI Semiconductor, ceased providing these services as of January 31, 2024 after it was

acquired by Robert Bosch LLC.

For the nine months ended

September 30, 2024 and 2023, we incurred approximately $8.2 million and $9.5 million, respectively, of research and development expenses,

a decrease of approximately $1.3 million, or 14%.

This decrease was primarily due to a decline of approximately $1.4 million in outsourced

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

March 31, 2025 and 2024, we incurred approximately $3.3 million and $2.9 million, respectively, of research and development expenses,

an increase of approximately $397,000, or 14%.

This increase was primarily due to increases in device fabrication costs of approximately

$182,000, employee costs of approximately $90,000 and outside metrology increases of approximately $84,000.

General and administrative

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costs and professional fees.

General and administrative costs were approximately $1.8 million and $1.7 million for the three-month periods

ended September 30, 2024 and 2023, respectively, representing an increase of approximately $129,000, or 8%.

The increase is primarily

related to increases of approximately $108,000 in employee costs and approximately $67,000 in legal costs and fees related to our patent

These costs are partially offset by a decrease of approximately $82,000 in stock-based compensation costs.

General and administrative

costs were approximately $5.5 million and $5.2 million for the nine months ended September 30, 2024 and 2023, respectively, representing

an increase of approximately $255,000, or 5%.

The increase is primarily related to increases of approximately $207,000 in payroll and

benefits costs and approximately $226,000 in legal costs and fees related to our patent portfolio.

These increases were partly offset

by decreases of approximately $85,000 in corporate legal expenses and approximately $69,000 in stock-based compensation expense.

General and administrative costs were approximately $2.1 million and $1.8 million for the three months ended

March 31, 2025 and 2024, respectively, representing an increase of approximately $277,000, or 15%.

The increase is primarily related to

increases of approximately $174,000 in legal costs and fees related to our patent portfolio and approximately $56,000 in corporate legal

Selling and marketing expense.

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consulting services.

Selling and marketing expenses for the three months ended September 30, 2024 and 2023 were approximately $248,000

and $365,000, respectively, representing a decrease of approximately $117,000, or 32%.

Selling and marketing expenses for the nine months

ended September 30, 2024 and 2023 were approximately $805,000 and $1.1 million, respectively, representing a decrease of approximately

$342,000, or 30%.

The decrease in costs for both the three and nine month periods is primarily due to a reduction in headcount.

Selling and marketing expenses for the three months ended March 31, 2025 and 2024 were approximately $124,000 and

$350,000, respectively, representing a decrease of approximately $226,000, or 65%.

The decrease in costs is primarily due to a reduction

in headcount.

Interest income.

income for three months ended September 30, 2024 and 2023 was approximately $176,000 and $177,000, respectively.

Interest income for nine

months ended September 30, 2024 and 2023 was approximately $566,000 and $528,000, respectively.

Interest income for the periods presented

reflected interest earned on our cash, cash equivalents and short-term investments.

income for three months ended March 31, 2025 and 2024 was approximately $270,000 and $205,000, respectively.

Interest income for the periods

presented reflected interest earned on our cash, cash equivalents and short-term investments.

Accretion income.

income for the three months ended September 30, 2024 and 2023 was approximately $59,000 and $112,000, respectively.

Accretion income for

the nine months ended September 30, 2024 and 2023 was approximately $152,000 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.

income for the three months ended March 31, 2025 and 2024 was approximately $6,000 and $46,000, respectively.

Accretion income relates

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

Interest expense.

expense for the three months ended September 30, 2024 and 2023 was approximately $30,000 and $47,000, respectively.

Interest expense for

the nine months ended September 30, 2024 and 2023 was approximately $104,000 and $151,000, respectively.

Interest expense is related to

the tool financing lease entered into in August 2021.

Other income, net.

income for the three and nine months ended September 30, 2024 of approximately $0 and $72,000, consisted of a refundable state research

and development tax credit, net of filing costs and tax consulting services received in the second quarter of 2024.

Other income for the

three and nine months ended September 30, 2023 of approximately $72,000 also consisted of a refundable state research and development

tax credit, net of filing costs and tax consulting services received in the third quarter of 2023.

expense for the three months ended March 31, 2025 and 2024 was approximately $21,000 and $39,000, respectively.

Interest expense is related

to the tool financing lease entered into in August 2021.

Other income (expense),

Other expense for the three months ended March 31, 2025 and 2024 was approximately $1,000 and $0, respectively, and consisted

of losses on foreign currency between the date of receipt of goods or services and the date the payment was made.

Cash Flows from Operating, Investing and Financing

Net cash used in operating

activities of approximately $10.2 million for the nine months ended September 30, 2024 resulted primarily from our net loss of approximately

$13.8 million offset by approximately $2.9 million of stock-based compensation and the amortization of our right of use assets of approximately

$1.0 million offset by increases in our payroll-related accruals.

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

activities of approximately $4.8 million for the three months ended March 31, 2025 resulted primarily from our net loss of approximately

$5.2 million and a decrease in our accrued payroll expenses of approximately $926,000, offset by approximately $1.0 million of stock-based

compensation and an increase of approximately $269,000 in accounts payable.

Net cash used in operating activities of

approximately $4.1 million for the three months ended March 31, 2024 resulted primarily from our net loss of approximately $4.8 million

and payment of accrued payroll expenses of approximately $928,000, offset by approximately $1.0 million of stock-based compensation and

approximately $550,000 of collected contracts receivable.

Net cash provided by investing

activities of approximately $3.5 million and for the nine months ended September 30, 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 $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

activities of approximately $996,000 for the three months ended March 31, 2025 consisted primarily of the maturity of short-term available-for-sale

Net cash provided by investing

activities of approximately $2.5 million for the three months ended March 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 provided by financing

activities of approximately $7.9 million for the nine months ended September 30, 2024 primarily related to the net proceeds from our ATM

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

activities of approximately $2.1 million for the three months ended March 31, 2025 primarily related to the net proceeds from sales under

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

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.

activities of approximately $3.8 million for the three months ended March 31, 2024 primarily related to the net proceeds from sales under

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

Liquidity and Capital Resources

As of September 30, 2024,

we had cash and cash equivalents of approximately $13.8 million, short-term investments of approximately $3.6 million and working capital

of approximately $14.4 million.

For the nine months ended September 30, 2024, we had a net loss of approximately $13.8 million and used

approximately $10.2 million of cash and cash equivalents in operations.

As of March 31, 2025, we had

cash and cash equivalents of approximately $24.1 million and working capital of approximately $21.7 million.

For the three months ended

March 31, 2025 we had a net loss of approximately $5.2 million and used approximately $4.8 million of cash and cash equivalents in operations.

Since inception, we have incurred recurring operating losses.

During the nine-month period

ended September 30, 2024, we sold approximately 1.9 million shares of common stock pursuant to the ATM at an average price per share of

approximately $4.74, resulting in approximately $8.5 million of net proceeds to the Company after deducting commissions and other offering

Since September 30, 2024, we sold approximately 489,000 additional shares through the ATM offering at an average price

per share of $3.27 resulting in additional net proceeds of approximately $1.6 million.

During the three months ended

March 31, 2025, we sold approximately 164,000 shares of common stock pursuant to the ATM at an average price per share of approximately

$15.19, resulting in approximately $2.4 million of net proceeds to the Company after deducting commissions and other offering expenses.

We believe that our available

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to our critical accounting estimates from those included in our Annual Report on Form 10-K for the year ended December 31, 2024 filed

with the SEC on February 15, 2024.

with the SEC on March 4, 2025.

Quantitative and Qualitative Disclosure 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-Q

Item 2. Management’s Discussion and Analysis