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Item 7. Management’s Discussion and Analysis

2026-02-24 compared with 2025-03-04 · 147 added, 134 removed, 128 unchanged (69% 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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fabless semiconductor manufacturers, which are designers of integrated circuits that outsource the manufacturing of their chips to foundries;

Manufacturers of semiconductor wafers, which provide

the substrates upon which integrated circuits are fabricated:;

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;

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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, 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.

On May 31, 2022, we entered

into an Equity Distribution Agreement with Oppenheimer & Co.

and Craig-Hallum Capital Group LLC (“Craig-Hallum”),

as agents, under which we offered and sold, from time to time at our sole discretion, shares of our common stock in an at the market offering

to or through the agents, having aggregate offering proceeds of up to $50.0 million (the “2022 ATM”).

The 2022 ATM expired

on March 18, 2025.

On May 27, 2025, we entered

into an Equity Distribution Agreement with Craig-Hallum as agent, under which we may offer and sell, from time to time at our sole discretion,

shares of our common stock in an “at-the-market” offering to or through the agent, having aggregate offering proceeds of up

to $50.0 million (the “2025 ATM”).

During the year ended December

31, 2025, we sold approximately 1.6 million shares pursuant to the 2022 ATM and the 2025 ATM at an average price per share of approximately

$5.15, resulting in approximately $7.6 million of net proceeds to us after deducting commissions and other offering expenses.

On February 23, 2026, we entered

into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors pursuant to which we

agreed to issue and sell, in a registered direct offering (the “Offering”), an aggregate of 5,000,000 shares of our common

stock, at a purchase price of $5.00 per share, for gross proceeds from the Offering of $25 million, before deducting the placement agent

fee and estimated offering expenses.

On February 24, 2026 we closed the Offering, resulting in net proceeds to us of approximately

$23.6 million after commissions and expenses.

Results of Operations for the Years Ended December

31, 2025 and 2024

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

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 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.

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.

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

licenses granted under a JDA and under our license agreement with ST and licensing of MSTcad.

Our MSTcad licenses grant customers the

right to use MSTcad software to simulate the effects of incorporating MST technology into their semiconductor manufacturing process.

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

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, 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.

Our engineering service 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 agreements is not distinct from the obligation to deliver wafers and accordingly, revenue from

these agreements is recognized at the time we deliver wafers.

For R&D licenses, revenue is recognized at the point in time when we

deliver our MST recipe because the license to manufacture products 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 R&D license grants include a customer acceptance requirement,

revenue is recognized over time.

Likewise, we recognize revenue from HVM licenses at the point in time when process qualification is complete

because the license to sell MST-enabled products is a right to use the Company’s technology and not a right to access the technology

Revenue for the years ended

December 31, 2025 and 2024 was approximately $65,000 and $135,000, respectively.

Our revenue in 2025 and 2024 consisted of MSTcad licensing

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

Cost of Revenue.

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years ended December 31, 2025 and 2024, 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 is recorded when incurred and may not coincide with the recognition

of revenue based on revenue recognition policies and guidance.

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

Operating Expenses.

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.

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

years ended December 31, 2025 and 2024, our operating expenses totaled approximately $20.9 million and $19.3 million, respectively.

Research and development

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For the years ended December

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

31, 2025 and 2024, we incurred approximately $12.3 million and $11.0 million, respectively, of research and development expense, an increase

of approximately $1.3 million, or 12%.

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.

This increase was primarily due to an increase of approximately $676,000 in outsourced fabrication

costs as well as increases of approximately $487,000 in stock-based compensation expenses and approximately $124,000 in employee-related

Stock-based compensation expenses increased primarily due to our adoption of performance-based RSUs for executives, which have

a higher valuation than time-based RSUs and options which had been our primary type of executive equity compensation issued in 2024.

General and administrative

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The increase in costs was primarily due to

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.

an increase in stock-based compensation expense of approximately $810,000 and an approximately $114,000 increase in corporate legal fees,

partially offset by a decline of approximately $421,000 in employee-related costs.

Stock-based compensation expenses increased primarily

due to an increase in the valuation of performance based

RSUs newly issued this year compared to time-based RSUs and options.

The decrease in employee-related costs is primarily due to a reduction

in executive annual bonus accrual.

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, 2025 and 2024 were approximately $758,000

and $1.1 million, respectively, representing a decrease of approximately $295,000, or 28%.

The decrease in costs is primarily related

to a reduction in headcount which decreased employee-related costs, stock-based compensation and travel expenses, partially offset by

increases in recruiting costs to fill open positions.

Interest income.

income for the years ended December 31, 2024 and 2023 was approximately $779,000 and $723,000, 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 and cash balances during these periods.

income for the years ended December 31, 2025 and 2025 was approximately $931,000 and $779,000, respectively, an increase of approximately

$152,000, or 20%.

Interest income reflects interest earned on our cash, cash equivalents and short-term investments and are impacted by

current interest rates and average balances over the periods presented.

Accretion income.

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

Other income/expense, net.

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

As of December

31, 2025, our cash and cash equivalents were held as cash and mutual funds.

Other income/expense,

Other income for the years December 31, 2025 and 2024 was approximately $72,000 and $73,000, 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.

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, 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.

As of December 31, 2025, we

had cash and cash equivalents of approximately $19.2 million and working capital of approximately $17.6 million.

For the year ended December

31, 2025, we had a net loss of approximately $20.2 million and used approximately $14.9 million of cash and cash equivalents in operations.

Since inception, we have incurred recurring operating losses.

On February 24, 2026, we closed on the sale of 5,000,000 shares of our common

stock, at a price of $5.00 per share, in a registered direct offering for the net proceeds of approximately $23.6 million after commissions

and offering expenses.

During the year ended December

31, 2024, we sold approximately 4.1 million shares pursuant to our ATM 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.

31, 2025, we sold approximately 1.6 million shares of our common stock pursuant to our 2022 and 2025 ATM facilities at an average price

per share of approximately $5.15, resulting in approximately $7.6 million of net proceeds to us after deducting commissions and other

offering expenses.

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 time frame 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.

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.

working capital as of the date of this report, and after giving effect to our February 2026 registered direct offering, is sufficient

to fund our presently forecasted working capital requirements for, at least, the next 24 months following the date of the filing of this

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 time frame that satisfies our cash needs, we will need to raise more capital.

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

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 our cash.

Cash Flows from Operating, Investing and Financing

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 used in operating

activities of approximately $14.9 million for year ended December 31, 2025 resulted primarily from our net loss of approximately $20.2

million, adjusted by approximately $5.0 million of stock-based compensation expense.

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 provided in investing

activities of approximately $951,000 for year ended December 31, 2025 consisted primarily of the maturity of short-term available-for-sale

investments, offset by the acquisition of property and equipment.

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 provided by financing

activities of approximately $7.4 million for the year ended December 31, 2025 related primarily to net proceeds from our ATM Facility

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

and the exercise of stock options, offset in part by approximately $1.2 million in principal payments on our financing lease.

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,

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.

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 judgment 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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Stock-based Compensation

have stock-based compensation programs, which include restricted stock awards (“RSAs”) and stock options and an employee stock

purchase plan.

We account for stock-based compensation expense, including the expense for grants of RSAs and stock options that may be

settled in shares of our common stock, based on the fair values of the equity instruments issued.

The fair value is determined on the

measurement date, which is the date of grant.

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

date amortized over the vesting period of the award.

The fair value for our stock option awards is determined at the grant date using

the Black-Scholes Option Pricing Model and amortized over the vesting period of the option.

We have stock-based compensation

programs, which include restricted stock awards (“RSAs”), Restricted stock Units (“RSUs”) and stock options and

an employee stock purchase plan.

We account for stock-based compensation expense, including the expense for grants of RSAs and stock options

that may be settled in shares of our common stock, based on the fair values of the equity instruments issued.

The fair value is determined

on the measurement date, which is the date of grant.

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

the measurement date amortized over the vesting period of the award.

The fair value of our time-based RSUs is based on the closing price

on the day of grant and they vest over zero to four years.

Awards of performance-based restricted stock units we issue have a performance

period of one, two and three years with the vesting of each award tranche dependent on our Total Shareholder Return (“TSR”)

relative to the TSR of companies in the Russell 2000 Index over that tranche’s performance period.

The fair value for performance-based

awards is fixed at the grant date using a Monte Carlo simulation and the amount of compensation expense is not adjusted during the performance

period regardless of changes in the level of TSR achievement.

The fair value for our stock option awards is determined at the grant date

using the Black-Scholes Option Pricing Model and amortized over the vesting period of the option.

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

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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