Atomera Inc 10-K

Item 8. Financial Statements and Supplementary Data Index to Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID Number 199 ) 28 Report of Independent Registered Public Accounting Firm (PCAOB ID Number 688 ) 29 Balance Sheets at December 31, 2025 and 2024 30 Statements of Operations for the years ended December 31, 2025 and 2024 31 Statements of Comprehensive loss for the years ended December 31, 2025 and 2024 32 Statements of Stockholders’ Equity for the years ended December 31, 2025 and 2024 33 Statements of Cash Flows for the years ended December 31, 2025 and 2024 34 Notes to the Financial Statements 35 27 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of Atomera Incorporated Opinion on the Financial Statements We have audited the accompanying balance sheet of Atomera Incorporated (the “Company”) as of December 31, 2025, the related statements of operations, comprehensive loss , stockholders’ equity and cash flows for the year ended December 31, 2025, and the related notes (collectively referred to as the “financial statements”). In our opinion, based on our audit, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025, and the results of its operations and its cash flows for the year ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ CBIZ CPAs P.C. CBIZ CPAs P.C. We have served as the Company’s auditor since 2015 (such date takes into account the acquisition of the attest business of Marcum llp by CBIZ CPAs P.C. effective November 1, 2024). Melville, NY February 24, 2026 28 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of Atomera Incorporated Opinion on the Financial Statements We have audited the accompanying balance sheet of Atomera Incorporated (the “Company”) as of December 31, 2024 , the related statements of operations, comprehensive loss, stockholders’ equity and cash flows for the year ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the year ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ Marcum llp Marcum LLP We have served as the Company’s auditor from 2015 through 2025. Melville, NY March 4, 2025 29 Atomera Incorporated Balance Sheets (in thousands, except per share data) December 31, 2025 2024 ASSETS Current Assets: Cash and cash equivalents $ 19,210 $ 25,778 Short-term investments – 995 Accounts receivable – 6 Interest receivable 54 73 Prepaid expenses and other current assets 338 240 Total current assets 19,602 27,092 Property and equipment, net 60 59 Long-term prepaid maintenance and supplies – 91 Security deposit 14 14 Operating lease right-of-use-asset 884 280 Financing lease right-of-use-asset 533 1,588 Total assets $ 21,093 $ 29,124 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 608 $ 492 Accrued expenses 168 239 Accrued payroll related expenses 650 1,328 Current operating lease liability 147 260 Current financing lease liability 420 1,253 Deferred revenue 7 4 Total current liabilities 2,000 3,576 Long-term operating lease liability 712 22 Long-term financing lease liability – 449 Total liabilities 2,712 4,047 Commitments and contingencies (see Note 9) – – Stockholders’ equity: Preferred stock, $ 0.001 par value, authorized 2,500 shares: none issued and outstanding at December 31, 2025 and 2024 – – Common stock, $ 0.001 par value, authorized 47,500 shares; 32,354 shares issued and outstanding at December 31, 2025 and 30,540 shares issued and outstanding at December 31, 2024 32 31 Additional paid-in capital 260,043 246,565 Other comprehensive income – 1 Accumulated deficit ( 241,694 ) ( 221,520 ) Total stockholders’ equity 18,381 25,077 Total liabilities and stockholders’ equity $ 21,093 $ 29,124 The accompanying notes are an integral part of these financial statements. 30 Atomera Incorporated Statements of Operations (in thousands, except per share data) Years Ended December 31, 2025 2024 Revenue: $ 65 $ 135 Cost of revenue ( 321 ) ( 123 ) Gross margin ( 256 ) 12 Operating Expenses: Research and development 12,303 11,029 General and administrative 7,806 7,266 Selling and marketing 758 1,053 Total operating expenses 20,867 19,348 Loss from operations ( 21,123 ) ( 19,336 ) Other income (expense): Interest income 931 779 Accretion income 6 178 Other income, net 72 73 Interest expense ( 60 ) ( 129 ) Total other income, net 949 901 Net loss $ ( 20,174 ) $ ( 18,435 ) Net loss per common share, basic $ ( 0.65 ) $ ( 0.68 ) Net loss per common share, diluted $ ( 0.65 ) $ ( 0.68 ) Weighted average number of common shares outstanding, basic 30,844 27,217 Weighted average number of common shares outstanding, diluted 30,844 27,217 The accompanying notes are an integral part of these financial statements. 31 Atomera Incorporated Statements of Comprehensive Loss (in thousands) Years Ended December 31, 2025 2024 Net loss $ ( 20,174 ) $ ( 18,435 ) Unrealized gain (loss) on available-for-sale securities ( 1 ) 1 Net comprehensive loss $ ( 20,175 ) $ ( 18,434 ) The accompanying notes are an integral part of these financial statements. 32 Atomera Incorporated Statements of Stockholders’ Equity (in thousands) Common Stock Additional Paid-in Other Comprehensive Accumulated Total Stockholders’ Shares Amount Capital Loss Deficit Equity Balance January 1, 2024 26,107 $ 26 $ 221,229 $ – $ ( 203,085 ) $ 18,170 Stock-based compensation 340 – 3,867 – – 3,867 Stock option exercises 31 – 197 – – 197 Forfeiture of restricted stock issuance ( 43 ) – – – – – At-the-market sale of stock, net of commissions and expenses 4,103 5 21,262 – – 21,267 Other sale 2 – 10 – – 10 Net loss – – – – ( 18,435 ) ( 18,435 ) Unrealized gain on available-for-sale securities – – – 1 – 1 Balance December 31, 2024 30,540 $ 31 $ 246,565 $ 1 $ ( 221,520 ) $ 25,077 Stock-based compensation 78 – 4,963 – – 4,963 Stock option exercises 173 – 905 – – 905 At-the-market sale of stock, net of commissions and expenses 1,563 1 7,610 – – 7,611 Net loss – – – ( 20,174 ) ( 20,174 ) Unrealized gain on available-for-sale securities – – – ( 1 ) – ( 1 ) Balance December 31, 2025 32,354 $ 32 $ 260,043 $ – $ ( 241,694 ) $ 18,381 The accompanying notes are an integral part of these financial statements. 33 Atomera Incorporated Statements of Cash Flows (in thousands) Years Ended December 31, 2025 2024 CASH FLOWS FROM OPERATING ACTIVITIES Net Loss $ ( 20,174 ) $ ( 18,435 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 48 54 Operating lease right of use asset amortization 252 237 Financing lease right of use asset amortization 937 1,074 Stock-based compensation 4,963 3,867 Accretion of discounts on available-for-sales securities ( 6 ) ( 161 ) Changes in operating assets and liabilities: Accounts receivable 6 ( 6 ) Unbilled contracts receivable – 550 Interest receivable 20 16 Prepaid expenses and other current assets ( 7 ) 4 Accounts payable 115 ( 126 ) Accrued expenses ( 71 ) 17 Accrued payroll expenses ( 678 ) ( 54 ) Operating lease liability ( 279 ) ( 277 ) Deferred revenue 3 4 Net cash used in operating activities ( 14,871 ) ( 13,236 ) CASH FROM INVESTING ACTIVITIES Acquisition of property and equipment ( 49 ) ( 14 ) Purchase of available-for-sale securities – ( 5,268 ) Maturity of available-for-sale securities 1,000 11,366 Net cash provided by investing activities 951 6,084 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from at-the-market sale of stock, net of commissions and expenses 7,611 21,267 Proceeds from exercise of stock options 905 197 Proceeds from stock sales – 10 Payments of principal for financing lease ( 1,164 ) ( 1,135 ) Net cash provided by financing activities 7,352 20,339 Net increase (decrease) in cash and cash equivalents ( 6,568 ) 13,187 Cash and cash equivalents at beginning of year 25,778 12,591 Cash and cash equivalents at end of year $ 19,210 $ 25,778 Supplemental information: Cash paid for interest $ 60 $ 129 Cash paid for taxes $ – $ – The accompanying notes are an integral part of these financial statements. 34 Atomera Incorporated Notes to the Financial Statements 1. NATURE OF OPERATIONS Atomera Incorporated (“Atomera” or the “Company”) was incorporated in the state of Delaware in March 2007 under the name MEARS Technologies, Inc. and is engaged in the development, commercialization and licensing of proprietary processes and technologies for the semiconductor industry. On January 12, 2016, the Company changed its name to Atomera Incorporated. Atomera is an early-stage company, having only recently begun limited revenue-generating activities, and is devoting substantially all its efforts toward technology research and development and to commercially licensing its technology to designers and manufacturers of integrated circuits. 2. LIQUIDITY AND MANAGEMENT PLANS At December 31, 2025, the Company had cash and cash equivalents of approximately $ 19.2 million and working capital of approximately $ 17.6 million. The Company has generated only limited revenues since inception and has incurred recurring operating losses. Accordingly, it is subject to all the risks inherent in the initial organization, financing, expenditures, and scaling of a new business that is not generating positive cashflow. On May 31, 2022, Atomera entered into an Equity Distribution Agreement with Oppenheimer & Co. Inc. and Craig-Hallum Capital Group LLC (“Craig-Hallum”), as agents, under which the Company offered and sold, from time to time at its sole discretion, shares of its $0.001 par value common stock (“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 Facility expired on March 18, 2025. On May 27, 2025, Atomera entered into an Equity Distribution Agreement with Craig-Hallum as agent, under which the Company may offer and sell, from time to time at its sole discretion, shares of its 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, the Company sold approximately 1.6 million shares of common stock 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 the Company after deducting commissions and other offering expenses. Based on the funds it has available as of the date of the filing of this report, the Company believes that it has sufficient capital to fund its current business plans and obligations over, at least, 12 months from the date that these financial statements have been issued. The Company’s future capital requirements and the adequacy of its available funds will depend on many factors, including the Company’s ability to successfully commercialize its technology, competing technological and market developments, and the need to enter into collaborations with other companies or acquire technologies to enhance or complement its current offerings. The Company’s operating plans for the next 12 months include increased research and development expenses. 35 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and reflect the financial position, results of operations and cash flows for all periods presented. The Company operates as one business segment. Fair Value of Financial Instruments Authoritative guidance requires disclosure of the fair value of financial instruments. The Company’s financial instruments consist of cash and cash equivalents, short-term investments, accounts receivable and accounts payable, the carrying amounts of which approximate their estimated fair values primarily due to the short-term nature of the instruments or based on information obtained from market sources and management estimates. The Company measures the fair value of certain of its financial assets and liabilities on a recurring basis. A fair value hierarchy is used to rank the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value which is not equivalent to cost will be classified and disclosed in one of the following three categories: Level 1 — Quoted prices (unadjusted) in active markets for identical assets and liabilities. Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as unadjusted quoted prices for similar assets and liabilities, unadjusted quoted prices in the markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Cash, Cash Equivalents, and Short-Term Investments The Company considers all highly-liquid investments with an original maturity of three months or less, when purchased, to be cash equivalents. Cash equivalents may be invested in money market funds or U.S. agency bonds. Cash and cash equivalents are carried at cost, which approximates their fair value. The Company's portfolio of short-term investments is comprised solely of U.S. treasury bills and agency bonds with maturities of more than three months, but less than one year. The Company classifies these as available-for-sale at purchase date and will reevaluate such designation at each period end date. The Company may sell these marketable debt securities prior to their stated maturities depending upon changing liquidity requirements. These debt securities are classified as current assets in the balance sheets and recorded at fair value, with unrealized gains or losses included in accumulated other comprehensive income (loss). Gains and losses are recognized when realized. Gains and losses are determined using the specific identification method and are reported in other income, net in the statements of operations when incurred. Unrealized gains and losses are included in other comprehensive income (loss) on the balance sheets. 36 Concentration of Credit Risk and Major Customers Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash, cash equivalents, short-term investments and accounts receivable. One customer represented 77 % of revenue and another customer represented 23 % of the Company’s revenue during the year ended December 31, 2025. One customer represented 63 % of revenue and another customer represented 37 % of the Company’s revenue during the year ended December 31, 2024. At times, the amounts on deposit at the financial institution exceed the federally insured limits. Management believes that the financial institution which holds the Company’s cash is financially sound and, accordingly, that minimal credit risk exists. As of December 31, 2025 and 2024, the Company’s cash balances were in excess of insured limits maintained at the financial institution. Accounts Receivable and Unbilled Contracts Receivable The Company grants credit to its business customers. Collateral is generally not required for trade receivables. The Company maintains allowances for potential credit losses when necessary. Trade accounts receivable and unbilled contracts receivable are recorded net of allowances for cash discounts for prompt payment, doubtful accounts, and sales returns. The Company’s policy is to reserve for uncollectible accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable and unbilled contracts receivable accounts under Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . The Company periodically reviews these receivables to determine whether an allowance for doubtful accounts is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Other factors that the Company considers include its existing contractual obligations, historical payment patterns of its customers and individual customer circumstances, and an analysis of days sales outstanding by customer. Due to the Company’s low volume of customers, management reviews the receivable balances on a customer by customer basis. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The accounts receivable balance at December 31, 2025 was zero . At December 31, 2024, there were no allowances for doubtful accounts as the Company deemed the balance fully collectible. Impairment of Long-lived Assets The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that it is more likely than not that the asset’s carrying amount may not be recoverable. The Company conducts its long-lived asset impairment analyses in accordance with authoritative guidance which requires the Company to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals. At December 31, 2025 and 2024, the Company had noted no indicators of impairment. Property and Equipment Items capitalized as property and equipment are stated at cost. Maintenance and routine repairs are charged to operations when incurred, while betterments and renewals are capitalized. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the respective assets starting when the asset is placed in service. 37 Revenue The Company generates revenue from integration engineering services, which it delivers either pursuant to integration license agreements or delivery of engineering services and from the grant of R&D 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, the Company satisfies a performance obligation. The Company’s integration services generally consist of depositing its 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 generally upon delivery of the Company’s MST recipe to the customer but is recognized over time if the performance obligation related to the grant of the license includes customer acceptance. For recognizing integration service revenue from integration license agreements, the Company assesses (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. The Company’s integration license agreements contain a technology grant as well as a performance obligation to deliver wafers with its technology deposited on them. The Company has 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 the Company delivers its MST recipe because this license confers a right to use the Company’s technology and not a right to access the technology over time. However, in cases where the Company’s grant of a manufacturing license includes a customer acceptance requirement, revenue is recognized over time. The Company’s MSTcad licenses grant 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. Deferred revenues consist of unearned amounts that have been billed to the customer in advance of the Company’s performance obligations. These amounts have not yet been recognized as revenue. Revenue for these items will be recognized in accordance with the Company’s revenue policy. Research and Development Expenses In accordance with authoritative guidance, the Company charges research and development costs to operations as incurred. Research and development expenses consist of personnel costs for the design, development, testing and enhancement of the Company’s technology, and certain other allocated costs, such as depreciation and other facilities related expenditures. Leases The Company accounts for leases in accordance with ASU No 2016-02, Leases (Topic 842). The Company determines if a contract contains a lease in whole or in part at the inception of the contract. 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 payments arising from the lease. All leases greater than 12 months result in the recognition of a ROU asset and a liability at the lease commencement date based on the present value of the lease payments over the lease term. Leases are accounted for as operating leases unless it meets one of the following criteria: (a) the lease term accounts for most of the remaining economic life of the underlying asset; (b) the present value of the lease payments is over 90% of the fair value of the underlying asset; (c) the underlying asset would have no alternative use for the lessor at the end of the lease; or (d) ownership of the underlying assets transfers to the Company at the end of the lease term. If the lease meets one of these criteria, then it would be accounted for as financing lease and the ROU assets would be amortized over the life of the lease and interest expense is recognized on the liability. 38 Stock-based Compensation The Company computes stock-based compensation in accordance with authoritative guidance. The Company uses the Black-Scholes-Merton option-pricing model to determine the fair value of its stock options. The Black-Scholes-Merton option-pricing model includes various assumptions, including the fair market value of the common stock of the Company, expected life of stock options, the expected volatility and the expected risk-free interest rate, among others. The fair value for performance-based restricted stock units is fixed at the grant date using a Monte Carlo simulation. These assumptions reflect the Company’s best estimates, but they involve inherent uncertainties based on market conditions generally outside the control of the Company. Forfeitures are recorded when they occur. As a result, if other assumptions had been used, stock-based compensation cost, as determined in accordance with authoritative guidance, could have been materially impacted. Furthermore, if the Company uses different assumptions on future grants, stock-based compensation cost could be materially affected in future periods. Income Taxes In accordance with authoritative guidance, deferred tax assets and liabilities are recorded for temporary differences between the financial reporting and tax bases of assets and liabilities using the current enacted tax rate expected to be in effect when the differences are expected to reverse. A valuation allowance is recorded on deferred tax assets unless realization is considered more likely than not. The Company evaluates its tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are not recorded as a tax benefit or expense in the current year. The Company recognizes interest and penalties, if any, related to uncertain tax positions in interest expense. No interest and penalties related to uncertain tax positions were accrued at either December 31, 2025 or 2024. The Company follows authoritative guidance which requires the evaluation of existing tax positions. Management has analyzed all open tax years, as defined by the statute of limitations, for all major jurisdictions, which includes both federal and states where the Company has operations. Open tax years are those that are open for examination by taxing authorities. Use of Estimates The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates are used when accounting for the fair value of stock-based compensation, borrowing rates used for lease accounting and valuation allowance against deferred tax assets. Actual results could differ from those estimates. Subsequent Events Management has evaluated subsequent events and transactions occurring through the date these financial statements were issued. See Note 15. 39 Adoption of Recent Accounting Standards In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). This new guidance requires entities on an annual basis disclose specific categories in the income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. The guidance applies to annual periods beginning after December 15, 2024 on a prospective basis. The Company adopted this ASU on January 1, 2025 and it did not have a material impact on its financial position, results of operations or financial statement disclosure. Recent Accounting Standards In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses , requiring public entities to disclose additional information about specific expense categories in the notes to the financial statements on an interim and annual basis. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods beginning after December 15, 2027, with early adoption permitted. The Company does not believe ASU 2024-03 will have a material impact on its financial position, results of operations or financial statement disclosure. In May 2025, the FASB issued ASU 2025-04 Compensation - Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Clarifications to Share-Based Consideration Payable to a Customer (“ASU 2025-04”) which clarifies the guidance on the accounting for share-based payment awards that are granted by an entity as consideration payable to its customer, with the intent to reduce diversity in practice and improve existing guidance by revising the definition of a “performance condition” and eliminating a forfeiture policy election for service conditions associated with share-based consideration payable to a customer. It also clarifies the guidance in Topic 606 on the variable consideration constraint does not apply to share-based consideration payable to a customer “regardless of whether an award’s grant date has occurred”. ASU 2025-04 will be effective for the annual periods beginning after December 15, 2026 with early adoption permitted. The Company does not believe ASU 2025-04 will have a material impact on its financial position, results of operations or financial statement disclosure. In September 2025, the FASB issued ASU 2025-06 Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software (“ASU 2025-06”) . The amendments require that an entity capitalize software costs when both: management has authorized and committed to funding the software project; and it is probable that the project will be completed and the software will be used to perform the function intended (referred to as the “probable-to-complete recognition threshold”). In evaluating the probable-to-complete recognition threshold, an entity is required to consider whether there is significant uncertainty associated with the development activities of the software. ASU 2025-06 will be effective for the annual periods beginning after December 15, 2027. The Company does not expect ASU 2025-04 will have a material impact on its financial position, results of operations or financial statement disclosure. In December 2025, the FASB issued ASU 2025-11: Interim Reporting (Topic 270): Narrow-Scope Improvements . The guidance was issued to improve the guidance in Topic 270, Interim Reporting, by improving the navigability of the required interim disclosures and clarifying when that guidance is applicable. The guidance also provides additional guidance on what disclosures should be provided in interim reporting periods. The guidance is effective on a prospective or retrospective basis for financial statements issued for fiscal years beginning after December 15, 2027, and interim reporting periods within fiscal years beginning after December 15, 2028. Early adoption of the guidance is permitted. The Company does not expect ASU 2025-11 will have a material impact on its financial position, results of operations or financial statement disclosure. 40 4. CASH EQUIVALENTS AND INVESTMENTS The Company’s cash, cash equivalents and short-term investments that were measured at fair value on a recurring basis as Level 1 assets, classified by security type as of December 31, 2025 and 2024 consisted of the following (in thousands): Schedule of cash equivalents and short-term investments December 31, 2025 Cost Unrealized Gain/(Loss) Accretion of Discount Fair Value Cash $ 279 $ – $ – $ 279 Mutual funds 18,931 – – 18,931 Total $ 19,210 $ – $ – $ 19,210 December 31, 2024 Cost Unrealized Gain/(Loss) Accretion of Discount Fair Value Cash $ 1 $ – $ – $ 1 Mutual funds 25,777 – – 25,777 US agency bonds 976 1 18 995 Total $ 26,754 $ 1 $ 18 $ 26,773 5. REVENUE The Company recognizes revenue in accordance with ASC 606. The amount of revenue that the Company recognizes reflects the consideration it expects to receive in exchange for goods or services and such revenue is recognized at the time when goods or services are transferred and/or delivered to its customers. Revenue is recognized when the Company satisfies a performance obligation by transferring the product or service to the customer, either at a point in time or over time. Revenue from MSTcad licenses is recognized over a period of time. The following table provides information about disaggregated revenue by primary geographical markets and timing of revenue recognition for the years ended December 31, 2025 and 2024 (in thousands): Schedule of disaggregated revenue by primary geographical markets and timing of revenue recognition Year Ended December 31, 2025 2024 Primary geographic markets North America $ 65 $ 135 Europe – – Total $ 65 $ 135 Timing of revenue recognition Products and services transferred at a point in time $ 61 $ 50 Products and services transferred over time 4 85 Total $ 65 $ 135 41 Unbilled contracts receivable Timing of revenue recognition may differ from the timing of invoicing customers. Accounts receivable includes amounts billed and currently due from customers. Unbilled contracts receivable represents unbilled amounts expected to be received from customers in future periods, where the revenue recognized to date exceeds the amount billed, and the right to receive payment is subject to the underlying contractual terms. Unbilled contracts receivable amounts may not exceed their net realizable value and are classified as long-term assets if the payments are expected to be received more than one year from the reporting date. The Company had no unbilled contracts receivable as of December 31, 2025. Deferred Revenue The Company records deferred revenue for customers that were issued invoices, but from which the Company has not yet recognized the revenue based on its revenue recognition policy. As of December 31, 2025, the Company has approximately $ 7,000 in deferred revenue that is expected to be recognized in the next 12 months. 6. BASIC AND DILUTED LOSS PER SHARE Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares outstanding for the period. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the sum of the weighted average number of shares of common stock outstanding and the dilutive common stock equivalent shares outstanding during the period. The Company’s potentially dilutive common stock equivalent shares, which include incremental common shares issuable upon (i) the exercise of outstanding stock options and warrants and (ii) vesting of restricted stock units and restricted stock awards, are only included in the calculation of diluted net loss per share when their effect is dilutive. Since the Company has had net losses for all periods presented, all potentially dilutive securities are anti-dilutive. Accordingly, basic and diluted net loss per share are equal. The following potential common stock equivalents were not included in the calculation of diluted net loss per common share because the inclusion thereof would be anti-dilutive (in thousands): Schedule of anti-dilutive shares Year Ended December 31, 2025 2024 Stock Options 2,907 3,793 Unvested restricted stock units 234 – Unvested restricted stock awards 608 469 Total 3,749 4,262 42 7. PROPERTY AND EQUIPMENT Property and equipment consisted of the following (in thousands): Schedule of property and equipment December 31, 2025 2024 Laboratory equipment $ 187 $ 163 Computers equipment 176 169 Furniture and fixtures 92 92 Leasehold improvements 24 24 Office equipment 7 4 Software 4 4 490 456 Less: Accumulated depreciation and amortization ( 430 ) ( 397 ) Total net assets $ 60 $ 59 Depreciation and amortization expense relating to property and equipment was approximately $ 48,000 and $ 54,000 for the years ended December 31, 2025 and 2024, respectively. The Company depreciates computer equipment, laboratory equipment and office equipment on straight-line basis over three years. Furniture and fixtures are depreciated on a straight-line basis over five years. The Company amortizes software on straight-line basis over three years. Leasehold improvements are amortized over the remaining life of the lease. 8. LEASES The Company accounts for leases over one year under ASC 842. Lease expense for the Company’s operating leases consists of the lease payments recognized on a straight-line basis over the lease term. Expenses for the Company’s financing leases consists of the amortization expenses recognized on a straight-line basis over the lease term and interest expense. The Company’s lease agreement for an epitaxial deposition tool used in the development and marketing of the Company’s technology established a monthly lease payment of $150,000 per month. The lease contains a provision for an annual adjustment of lease payments based on tool availability and usage during the preceding 12 months and the adjusted payment is calculated on August 1 of each year of the lease. Effective August 1, 2023, the lease payments for this tool were adjusted to $137,650 per month for the period August 1, 2023 through July 31, 2024. This adjustment to the lease payments also resulted in a reduction in the ROU and corresponding lease liability. Effective August 1, 2024, the lease payments for this tool were adjusted to $124,071 per month for the period August 1, 2024 through July 31, 2025. This adjustment to the lease payments also resulted in a reduction in the ROU and corresponding lease liability. Effective August 1, 2025, the lease payments for this tool were adjusted to $133,125 per month for the period August 1, 2025 through April 30, 2026. The final three months of the lease were prepaid at the commencement of the lease. This adjustment to the lease payments also resulted in a reduction in the ROU and corresponding lease liability. In December 2025, the Company and its landlord amended the lease of the corporate headquarters in Los Gatos, California. The amendment extends the expiration date of the lease from January 2026 to March 2031. An additional ROU asset and lease liability of approximately $ 856,000 were recorded during the year ended December 31, 2025. The lease liability is based on the present value of the minimum lease payments, discounted using an estimated incremental borrowing rate of 8.75 %. The lease contains escalating payments on the anniversary of the original commencement of the lease which are included in the measurement of the lease liability. Additional payments based on a change in the Company’s share of the operating expenses, including property taxes and insurance are recorded as a period expense when incurred. In December 2025, the Company entered into a lease agreement for an epitaxial deposition tool in Tempe, Arizona, distinct from the tool previously mentioned. The term of this lease is for 12 months beginning on January 1, 2026 for $95,000 per month. Since the lease term is not for more than one year and there are no extension provisions in the lease, the future lease payments are not included in the lease obligations on the Company’s balance sheets. 43 Lease expense for operating leases consists of the lease payments recognized on a straight-line basis over the lease term. Expenses for financing leases consists of the amortization expenses recognized on a straight-line basis over the lease term and interest expense. The components of lease costs were as follows (in thousands): Schedule of lease costs Year Ended December 31, 2025 2024 Financing lease costs: Amortization of ROU assets $ 937 $ 1,074 Interest on lease liabilities 60 129 Total financing lease costs $ 997 $ 1,203 Operating lease costs Fixed lease costs $ 262 $ 262 Variable lease costs 10 3 Short-term lease costs 1,143 1,044 Total operating lease costs $ 1,415 $ 1,309 Future minimum payments under non-cancellable leases as of December 31, 2025 were as follows (in thousands): Schedule of future minimum payments For the Year Ended December 31, Financing leases Operating leases 2026 $ 425 $ 155 2027 – 210 2028 – 216 2029 – 223 2030 & thereafter – 288 Total future minimum lease payments 425 1,092 Less imputed interest ( 5 ) ( 233 ) Total lease liability $ 420 $ 859 The below table provides supplemental information and non-cash activity related to the Company’s operating and financing leases (in thousands): Schedule of supplemental information and non-cash activity Year Ended December 31, 2025 2024 Operating cash flow information: Cash paid for amounts included in the measurement of operating lease liabilities $ 289 $ 302 Cash paid for amounts included in the measurement of financing lease liabilities $ 1,224 $ 1,263 Non-cash activity: Right-of-use assets obtained in exchange for operating lease obligations $ 856 $ – Remeasurement of right-of use asset and liability in financing lease obligations $ ( 119 ) $ ( 241 ) The table above does not include short-term leases that are one-year or less. The weighted average remaining discount rate is 5.25 % for the Company’s financing leases and 8.74 % for the Company’s operating leases. The weighted average remaining lease term is. .7 months for the financing lease and 4.6 years for operating leases. 44 9. COMMITMENTS AND CONTINGENCIES Legal The Company may be involved, from time to time, in legal proceedings and claims arising in the ordinary course of its business. Such matters are subject to many uncertainties and outcomes and are not predictable with assurance. While management believes that such matters are currently insignificant, matters arising in the ordinary course of business for which the Company is or could become involved in litigation may have a material adverse effect on its business and financial condition. The Company is not party to any material litigation as of December 31, 2025 or through the date these financial statements have been issued. 10. STOCKHOLDERS’ EQUITY The Company is authorized to issue up to 2,500,000 shares of preferred stock, $ 0.001 par value. As of December 31, 2025, and 2024, no shares have been designated and no shares are issued and outstanding. Preferred stock may rank prior to common stock with respect to dividends rights, liquidation preferences, or both, and may have full or limited voting rights. On May 31, 2022, Atomera entered into an Equity Distribution Agreement with Oppenheimer & Co. Inc. and Craig-Hallum Capital Group LLC (“Craig-Hallum”), as agents, under which the Company offered and sold, from time to time at its sole discretion, shares of its 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 Facility expired on March 18, 2025. On May 27, 2025, Atomera entered into an Equity Distribution Agreement with Craig-Hallum as agent, under which the Company may offer and sell, from time to time at its sole discretion, shares of its 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, the Company sold approximately 1.6 million shares of common stock 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 the Company after deducting commissions and other offering expenses. As of December 31, 2025, the Company has remaining gross capacity on the ATM of approximately $ 44.4 million and proceeds to the Company would be reduced by commissions and other offering costs. On April 28, 2024, the Company sold 2,247 shares of its common stock to the Chief Executive Officer, Scott Bibaud, at a price of $ 4.45 per share, which was determined to be the fair market value on the date of the transaction. The total proceeds from the sale amounted to approximately $ 10,000 . As of December 31, 2025, the Company has reserved approximately 6 .0 million shares of common stock for issuance pursuant to outstanding stock options and restricted stock units. 45 11. SEGMENT REPORTING The Company operates as a single operating segment. The Company's chief operating decision maker (“CODM”) is its chief executive officer and chief financial officer who review financial information. The CODM uses total operating expense, operating margin and related impact on cash consumption to assess financial performance and allocate resources. These financial metrics are used by the CODM to make key operating decisions, such as the determination of the overall headcount, allocation of headcount, research and development expenditures, licensing and royalty rates offered to customers and capital expenditure commitments. The measure of assets are reported on the accompanying balance sheets as total assets. The following table presents selected financial information with respect to the Company’s single operating segment for the years ended December 31, 2025 and 2024 (in thousands): Schedule of selected financial information Year Ended December 31, 2025 2024 Revenue: $ 65 $ 135 Less expenses (1) : Employee related expenses 5,825 6,407 Stock-based compensation 4,963 3,867 Travel and entertainment 313 368 Tool related expenses 2,388 2,438 Consulting expenses 591 725 Metrology and other outsourced research expenses 1,989 1,099 Intellectual property related expenses 1,319 1,312 Other operating items (2) 3,800 3,255 Operating margin ( 21,123 ) ( 19,336 ) Other income (expense), net 949 901 Net loss $ ( 20,174 ) $ ( 18,435 ) (1) Expenses classified as cost of revenue are included in the line items presented and not as a separate category. (2) Other operating expenses include items not listed above separately. These include travel and entertainment, professional development, information technology costs, office related costs, depreciation, other research and development costs, other sales and marketing costs and other general and administrative costs. 12. STOCK-BASED COMPENSATION The Company’s 2007 Equity Incentive Plan (the “2007 Plan) expired in March 2017, however all options and warrants outstanding at the time of the expiration remained outstanding and exercisable by their term. As of December 31, 2025, options to purchase approximately 668,000 shares of common stock remain outstanding under the 2007 Plan. In May 2017, the Company’s shareholders approved its 2017 Stock Incentive Plan (the “2017 Plan”). The 2017 Plan provides for the grant of non-qualified stock options and incentive stock options to purchase shares of the Company’s common stock and for the grant of restricted and unrestricted share grants. The Company reserved a total of 3,750,000 shares of common stock for issuance under the 2017 Plan. All employees, officers, directors, consultants, advisors and other persons who provide services to the Company or any subsidiaries of the Company are eligible to receive incentive awards under the 2017 Plan. As of December 31, 2025, awards of approximately 3.7 million shares of common stock had been granted under the 2017 Plan, net of forfeited restricted stock and option awards and approximately 15,000 shares of common stock are reserved for issuance. 46 In May 2023, the Company’s shareholders approved its 2023 Stock Incentive Plan (the “2023 Plan”). The 2017 Plan provides for the grant of non-qualified stock options and incentive stock options to purchase shares of the Company’s common stock and for the grant of restricted and unrestricted share grants. The Company originally reserved a total of 2,000,000 shares of common stock for issuance under the 2023 Plan. In May 2025, Company’s shareholders approved an amendment to the 2023 Plan, adding an additional 1,750,000 shares to this plan. All employees, officers, directors, consultants, advisors and other persons who provide services to the Company or any subsidiaries of the Company are eligible to receive incentive awards under the 2023 Plan. As of December 31, 2025, awards of approximately 1.5 million shares of common stock had been granted under the 2023 Plan, net of forfeited restricted stock and option awards and approximately 2.2 million shares of common stock are reserved for issuance. The following table summarizes the stock-based compensation expense recorded in the Company’s results of operations during the years ended December 31, 2025 and 2024 for stock options and restricted stock (in thousands): Schedule of stock-based compensation expense Year Ended December 31, 2025 2024 Research and development $ 2,053 $ 1,566 General and administrative 2,930 2,120 Selling and Marketing ( 20 ) 181 Total $ 4,963 $ 3,867 As of December 31, 2025, there was approximately $ 6.6 million of total unrecognized compensation expense related to non-vested share-based compensation arrangements that are expected to vest. This cost is expected to be recognized over a weighted-average period of 2.0 years. Stock Options: The Company records compensation expense for employee stock options over the vesting term using the straight-line method. The fair value of employee stock options issued was estimated using the following weighted-average assumptions: Schedule of weighted-average assumptions Year Ended December 31, 2025 2024 Exercise price: $ 3.25 $ 5.39 Grant date fair value per share: $ 2.65 $ 4.16 Assumptions: Expected volatility 90.92 % 84.42 % Weighted average expected term (in years) 7.55 7.00 Risk-free interest rate 3.82 4.29 Expected dividend yield 0.0 % 0.0 % The risk-free interest rate was obtained from U.S. Treasury rates for the applicable periods. The Company’s expected volatility was based upon the historical volatility of the Company. The expected life of the Company’s options was estimated using historical data of the Company’s option activity. The dividend yield considers that the Company has not historically paid dividends and does not expect to pay dividends in the foreseeable future. 47 The fair value of options issued during the year ended December 31, 2025 was approximately $ 517,000 . The following table summarizes stock option activity during the year ended December 31, 2025 (in thousands except exercise prices and contractual terms): Schedule of stock option activity Number of Shares Weighted- Average Exercise Prices per Share Weighted- Average Remaining Contractual Term (In Years) Intrinsic Value Outstanding at January 1, 2025 3,793 $ 6.64 Granted 195 $ 3.25 Exercised ( 173 ) $ 5.23 Forfeited ( 167 ) $ 3.50 Expired ( 741 ) $ 7.23 Outstanding at December 31, 2025 2,907 $ 6.53 4.55 $ – Exercisable at December 31, 2025 2,383 $ 6.78 4.55 $ – Restricted Stock Awards: The Company has issued restricted stock awards to employees, directors and consultants and estimates the fair value based on the closing price on the day of grant. Time based awards are expenses using the straight-line method. . The following table summarizes all restricted stock award activity during the year ended December 31, 2025 (in thousands except per share data): Schedule of restricted stock activity Number of Shares Weighted-Average Grant Date Fair Value per Share Outstanding at January 1, 2025 469 $ 7.17 Vested ( 231 ) $ 7.41 Forfeited ( 4 ) $ 8.77 Outstanding non-vested shares at December 31, 2025 234 $ 6.90 Restricted Stock Units: Beginning in January 2025, the Company began issuing restricted stock units (“RSUs”) to employees, directors and consultants and a portion of the RSUs issued are subject to time-based vesting and a portion are subject to performance-based vesting criteria. The fair value of time-based RSUs is based on the closing price on the day of grant and compensation expenses are recorded on a straight-line method. Awards of performance-based restricted stock units by the Company have a performance period of one, two and three years with the vesting of each award tranche dependent on the Company’s 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 RSUs are 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 compensation expense is recognized using the accelerated expense attribution method for each award, which generally equals the vesting term for each performance period. 48 The following table summarizes all restricted stock unit activity during the year ended December 31, 2025 (in thousands except per share prices data): Schedule of restricted stock unit activity Time-Based Units Performance- Based Units Total Restricted Stock Units Weighted-Average Grant Date Fair Value per Share Outstanding at January 1, 2025 – – – $ – Granted 503 251 754 $ 7.52 Vested ( 82 ) – ( 82 ) $ 6.34 Forfeited ( 34 ) ( 30 ) ( 64 ) $ 8.08 Outstanding at December 31, 2025 387 221 608 $ 7.62 13. 401(k) PLAN During 2002, the Company established a plan under Section 401(k) of the Internal Revenue Code (the 401(k) Plan). The 401(k) Plan covers substantially all of its employees who have attained 18 years of age. Employees may elect to contribute part of their annual compensation to the 401(k) Plan, up to the maximum deferral allowance for individuals by the Internal Revenue Service under Code Section 401(k), and the Company may make a matching contribution. During the years ended December 31, 2025 and 2024, the Company made matching contributions of approximately $ 72,000 and $ 83,000 , respectively. 14. INCOME TAXES The loss before provision for income taxes consisted of the following (in thousands): Schedule of provision for income taxes Year Ended December 31, 2025 2024 Domestic $ ( 20,174 ) $ ( 18,435 ) International – – Total $ ( 20,174 ) $ 18,435 ) The Company had $ 0 current income tax expense for the years ended December 31, 2025 and 2024, respectively. The Company accounts for income taxes in accordance with ASC 740, which requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company's ability to generate sufficient taxable income within the carryforward period. Because of the Company's recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a full valuation allowance. The valuation allowance increased by approximately $ 4 .0 million and $ 3.6 million during the years ended December 31, 2025 and 2024, respectively. 49 The Company’s deferred tax assets are as follows (in thousands): Schedule of deferred tax assets Year Ended December 31, 2025 2024 Deferred tax assets: Net operating loss carryforwards $ 33,206 $ 29,678 Tax credit 3,123 2,742 Fixed assets and intangibles 345 427 Stock compensation 1,556 1,471 Accruals and other 136 284 Lease liability 273 428 Capitalized research and development 4,964 4,714 Total deferred tax assets 43,603 39,744 Deferred tax liabilities: Right of use asset ( 303 ) ( 403 ) Total deferred tax assets ( 303 ) ( 403 ) Valuation allowance ( 43,300 ) ( 39,341 ) Net deferred tax asset $ – $ – Net operating losses and tax credit carryforwards as of December 31, 2025, are as follows (in thousands): Schedule of net operating losses and tax credit carryforwards Amount Expiration in years Net operating losses, federal $ 112,763 No expiration Net operating losses, federal $ 34,791 2027-2037 Net operating losses, state $ 40,653 2030-2044 Tax credits, federal $ 2,709 2036-2044 Tax credits, state $ 1,204 No expiration Tax credits, state $ 974 2031-2040 The effective tax rate of the Company’s provision (benefit) for income taxes differs from the federal statutory rate after adoption of ASU 2023-09 as follows (dollars in thousands): Schedule of effective tax rate Year Ending December 31, 2025 $ % Statutory rate $ ( 4,237 ) 21.00 % State and local income taxes, net of federal income tax ( 68 ) 0.34 % Enactment of new tax laws – – % Enactment of cross-border tax laws – – % Tax Credits ( 335 ) 1.66 % Change in valuation allowance 3,843 ( 19.05 ) % Stock based compensation 625 ( 3.10 ) % Officer’s compensation 33 ( 0.16 ) % Other 5 ( 0.03 ) % Worldwide changes in unrecognized tax benefits 134 ( 0.66 ) % Total $ – – % 50 The effective tax rate of the Company’s provision (benefit) for income taxes differs from the federal statutory rate before the adoption of ASU 2023-09 as follows: Year Ending December 31, 2024 Statutory rate 21.00 % State rate ( 0.37 ) % Change in valuation allowance ( 19.55 ) % Other non-deductible items 0.04 % Change in tax credits 0.95 % Section 162(m) limitation – % Stock based compensation excess windfall ( 2.07 ) % Total – % Utilization of U.S. net operating losses and tax credit carryforwards may be limited by “ownership change” rules, as defined in Section 382 and Section 383 of the Internal Revenue Code. Similar rules may apply under state tax laws. Under those sections of the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change attributes, such as research tax credits, to offset its post-change income or tax may be limited. In general, an “ownership change” will occur if there is a cumulative change in ownership by “5% stockholders” that exceeds 50 percentage points over a rolling three-year period. The Company rolled forward its Section 382 study through the period ended December 31, 2024. The Company did not trigger an ownership change through this period. Although the Company has not rolled its Section 382 through December 31, 2025, an ownership change during the 2025 is not expected as there have been limited amounts of equity activity. The Company establishes reserves for uncertain tax positions based on the largest amount that is more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. It is the Company’s policy to recognize interest and penalties related to income tax matters in income tax expense. As of December 31, 2025 and 2024, respectively, the Company has no accrued interest or penalties related to uncertain tax positions. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. In the normal course of business, the Company is subject to examination by their respective taxing authorities. The Company is not currently under audit by the Internal Revenue Service or other similar state or local authority. The statute of limitations remains effectively open for all tax years since inception (2007). Tax years outside the normal statute of limitations remain open to examination by tax authorities due to tax attributes generated in earlier years which have been carried forward and may be examined and adjusted in subsequent years when utilized. The following table summarizes the activity related to the Company’s gross unrecognized tax benefits for the years ended December 31, 2025 and 2024 (in thousands): Schedule of unrecognized tax benefits 2025 2024 Balance at beginning of year $ 1,298 $ 1,219 Increases (decreases) – prior year tax positions ( 29 ) ( 72 ) Increases – current year tax positions 177 151 Balance at end of year $ 1,446 $ 1,298 51 The following table summarizes the activity in the Company’s Valuation Allowance and Qualifying Accounts for the years ended December 31, 2025 and 2024 (in thousands): Schedule of valuation allowance 2025 2024 Balance at beginning of year $ 39,341 $ 35,738 Additions 4,496 3,816 Deductions ( 537 ) ( 213 ) Balance at end of year $ 43,300 $ 39,341 15. SUBSEQUENT EVENTS Management has evaluated subsequent events and transactions through the date these financial statements were issued. Since December 31, 2025, the Company has issued 1.3 million additional shares of common stock through its ATM offering at an average price per share of $2.47 resulting in additional net proceeds of approximately $3.2 million, after deduction of commissions and expenses. On February 24, 2026, the Company completed a registered direct offering (the “Offering”) of 5,000,000 shares of the Company’s common stock, par value $0.001 per share common stock at a purchase price of $5.00 per share (the “Shares”) pursuant to a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors (the “Investors”). In connection with the Offering, the Company entered into a placement agent agreement (the “Placement Agent Agreement”) with Craig-Hallum, pursuant to which Craig-Hallum served as the exclusive placement agent for the issuance and sale of securities of the Company pursuant to the Purchase Agreement. As compensation for such placement agent services, the Company paid Craig-Hallum an aggregate cash fee equal to 5.0% of the gross proceeds received by the Company from the Offering and agreed to reimburse up to $75,000 of legal and other expenses as actually incurred. Net proceeds to the Company after deducting the placement agent fee and expenses were approximately $23.6 million. 52 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable.