What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-06 compared with 2026-05-05 · 162 added, 133 removed, 117 unchanged (72% 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

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

statements and the accompanying notes that appear elsewhere in this Quarterly Report on Form 10-Q.

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integrated device manufacturers, or IDMs, which are the fully-integrated designers and manufacturers of integrated circuits;

fabless semiconductor manufacturers, which are designers

of integrated circuits that outsource the manufacturing of their chips to foundries;

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;

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electronic design automation companies, which make tools used throughout the industry to simulate performance of semiconductor products using different materials, design structures and process technologies.

Our principal business objective

is to enter into commercial license agreements that enable our customers to manufacture and sell MST-enabled products, generating license

revenues and ongoing royalties.

We also license our MSTcad ® software to customers, enabling them to simulate the effects

of MST on their products using Synopsys, Inc.’s technology computer-aided design, or TCAD, software.

In addition, we offer fee-based

integration engineering services to customers to evaluate the effects of MST as integrated into their manufacturing flow.

Typically, we

offer these services through paid evaluation arrangement, joint development agreements (“JDAs”) or integration license agreements.

principal business objective is to enter into commercial license agreements that enable our customers to manufacture and sell MST-enabled

products, generating license revenues and ongoing royalties.

We also license our MSTcad ® software to customers, enabling

them to simulate the effects of MST on their products using Synopsys, Inc.’s technology computer-aided design, or TCAD, software.

In addition, we offer fee-based integration engineering services to customers to evaluate the effects of MST as integrated into their

manufacturing flow.

Typically, we offer these services through paid evaluation arrangements, joint development agreements (“JDAs”)

or integration license agreements.

Our goal is that MSTcad licensing

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licensing components.

To date, applications of our MST

technology have primarily been for power devices, RFSOI devices and advanced CMOS integrated circuits including logic and memory.

integrated circuits are the most widely used type of integrated circuits in the semiconductor industry.

To date, applications of

our MST technology have primarily been for power devices, RFSOI devices and advanced CMOS integrated circuits including logic and memory.

CMOS integrated circuits are the most widely used type of integrated circuits in the semiconductor industry.

We believe MST has the potential

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efficiency, without significantly altering the current fabrication process or cost of production.

Starting in 2024, we began applying

our technology to wafers used for fabrication of “compound semiconductors” which are devices built using materials other than

silicon, such as gallium nitride (GaN), which have properties especially attractive to the power and radio frequency markets.

materials such as GaN suffer from a tradeoff between high-cost specialized wafers and defective, low-yielding wafers resulting from the

crystal lattice mismatch between heterogeneous materials.

We believe MST can offer a cost-effective solution to these tradeoffs by serving

as a buffer layer between different materials, such as between GaN and a silicon wafer substrate.

Starting in 2024, we began

applying our technology to wafers used for fabrication of “compound semiconductors” which are devices built using materials

other than silicon, such as gallium nitride (GaN), which have properties especially attractive to the power and radio frequency markets.

Currently, materials such as GaN suffer from a tradeoff between high-cost specialized wafers and defective, low-yielding wafers resulting

from the crystal lattice mismatch between heterogeneous materials.

We believe MST can offer a cost-effective solution to these tradeoffs

by serving as a buffer layer between different materials, such as between GaN and a silicon wafer substrate.

We were organized as a Delaware

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on the NASDAQ Capital Market under the symbol “ATOM”.

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 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, (the “2025 ATM”) to or through the agent, having aggregate

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 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, (the “2025 ATM”) to or through the agent, having aggregate

offering proceeds of up to $50.0 million.

During the three months ended March 31, 2026, we sold approximately 1.3 million shares pursuant

to the 2025 ATM at an average price per share of approximately $2.47 resulting in approximately $3.1 million of net proceeds to us after

deducting commissions and other offering expenses.

On February 24, 2026, we completed

a registered direct offering (the “Offering”) of 5,000,000 shares of our common stock at a purchase price of $5.00 per share

pursuant to a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors.

In connection

with the Offering, the Company entered into a 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 actually incurred.

Net proceeds to the

Company after deducting the placement agent fee and expenses were approximately $23.6 million.

During the three months ended June 30, 2026, no shares were sold pursuant to the 2025 ATM.

the six months ended June 30, 2026, approximately 1.3 million shares were sold pursuant to the 2025 ATM at an average price per share

of approximately $2.47 resulting in approximately $3.1 million of net proceeds to us after deducting commissions and other offering expenses.

On February 24, 2026, we

completed a registered direct offering (the “Offering”) of 5,000,000 shares of our common stock at a purchase price of $5.00

per share pursuant to a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors.

connection with the Offering, the Company entered into a 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 actually incurred.

Net proceeds to

the Company after deducting the placement agent fee and expenses were approximately $23.6 million.

Results of Operations

To 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 Microelectronics 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.

Revenue for the three months ended

March 31, 2026 and 2025 was approximately $11,000 and $4,000, respectively.

Our revenue for the period ended March 31, 2026, consisted

of engineering services revenue from the delivery of MST wafers.

Revenue for the period ended March 31, 2025 consisted of MSTcad licensing

and related consulting services revenue.

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 Microelectronics 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.

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

Revenue for the three and

six months ended June 30, 2026 was approximately $158,000 and $169,000, respectively.

Revenue consisted of engineering services revenue

from the delivery of MST wafers.

Revenue for the three and six months ended June 30, 2025 consisted of approximately $0 and $4,000 and

consisted of MSTcad licensing and related consulting services revenue.

Cost of revenue .

revenue consists of costs of materials, as well as direct compensation and expenses incurred to deliver wafers and perform services, and

consulting services provided for our MSTcad licenses.

Cost of revenue for the three months ended March 31, 2026 was approximately $126,000.

No cost of revenue was recorded for the three months ended March 31, 2025.

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

of revenue in the three months ended March 31, 2026 is an example of this timing mismatch because our labor, wafer processing and metrology

costs were incurred in advance of anticipated wafer shipments that will result in recognizing engineering services revenue in future periods.

of revenue consists of costs of materials, as well as direct compensation and expenses incurred to deliver wafers and perform services,

and consulting services provided for our MSTcad licenses.

Cost of revenue for the three and six months ended June 30, 2026 was approximately

$26,000 and $152,000, respectively.

Cost of revenue for the three and six months ended June 30, 2025 was approximately $62,000 and $62,000,

respectively.

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

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

Cost of revenue is expensed

when incurred and may not correspond with revenue earned in the same period.

Operating expenses.

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For the three

months ended March 31, 2026 and 2025, our operating expenses totaled approximately $6.2 million and $5.5 million, respectively.

Research and development expense .

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

technologies such as MSTcad.

Our research and development costs primarily consist of payroll and benefits costs for our engineering staff

and costs of outsourced fabrication (including epi tool leases) and metrology of semiconductor wafers incorporating our MST technology.

For the three months ended March

31, 2026 and 2025, we incurred approximately $3.5 million and $3.3 million, respectively, of research and development expenses, an increase

of approximately $202,000, or 6%.

This increase was primarily due to increases in payroll and benefits costs of approximately $79,000

and stock-based compensation expenses of approximately $75,000.

months ended June 30, 2026 and 2025, our operating expenses totaled approximately $6.9 million and $5.2 million, respectively.

six months ended June 30, 2026 and 2025, our operating expenses totaled approximately $13.1 million and $10.7 million, respectively.

Research and development

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

and related technologies such as MSTcad.

Our research and development costs primarily consist of payroll and benefits costs for our engineering

staff and costs of outsourced fabrication (including epi tool leases) and metrology of semiconductor wafers incorporating our MST technology.

For the three months ended

June 30, 2026 and 2025, we incurred approximately $3.3 million and $3.0 million, respectively, of research and development expenses, an

increase of approximately $283,000, or 9%.

This increase was primarily due to increases in bonus accrual of approximately $146,000, stock-based

compensation cost of approximately $96,000 and tool lease costs of approximately $40,000.

For the six months ended

June 30, 2026 and 2025, we incurred approximately $6.8 million and $6.3 million, respectively, of research and development expenses, an

increase of approximately $485,000, or 8%.

This increase was primarily due to increases in bonus accrual of approximately $251,000, stock-based

compensation cost of approximately $171,000 and an increase of approximately $52,000 in severance costs.

General and administrative

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General and administrative costs were approximately $3.2 million and $2.0 million for the three months ended

March 31, 2026 and 2025, respectively, representing an increase of approximately $245,000, or 12%.

The increase is primarily related to

increases of approximately $229,000 in stock-based compensation expenses and payroll and benefits costs of approximately $168,000 offset

by a decrease of approximately $121,000 in intellectual property related expenses.

Selling and marketing expense.

Selling and marketing expenses consist primarily of salary and benefits for our sales and marketing personnel and business development

consulting services.

Selling and marketing expenses for the three months ended March 31, 2026 and 2025 were approximately $419,000 and

$124,000, respectively, representing an increase of approximately $295,000, or 238%.

The increase is primarily related to a $136,000 increase

in employee related expenses, approximately $92,000 increase in stock based compensation and recruiting fees all related to an increase

in headcount over the prior year.

June 30, 2026 and 2025, respectively, representing an increase of approximately $1.1 million, or 55%.

The increase is primarily related

to increases of approximately $541,000 in bonus accrual, stock-based compensation expenses of approximately $298,000 and an increase in

legal costs and filing fees related to our patent portfolio of approximately $296,000.

For the six months ended

June 30, 2026 and 2025, general and administrative costs were approximately $5.5 million and $4.1 million, respectively, representing

an increase of approximately $1.4 million, or 33%.

The increase is primarily related to increases of approximately $670,000 in bonus accrual,

stock-based compensation expenses of approximately $528,000 and an increase in legal costs and filing fees related to our patent portfolio

of approximately $176,000.

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 three months ended June 30, 2026 and 2025 were approximately $437,000

and $141,000, respectively, representing an increase of approximately $296,000, or 210%.

The increase is primarily related to a $273,000

increase in employee-related expenses and approximately $70,000 increase in stock-based compensation, all related to an increase in headcount

over the prior year.

Selling and marketing expenses

for the six months ended June 30, 2026 and 2025 were approximately $856,000 and $265,000, respectively, representing an increase of approximately

$591,000, or 223%.

The increase is primarily related to a $409,000 increase in employee-related expenses, approximately $162,000 increase

in stock-based compensation and recruiting fees all related to an increase in headcount over the prior year.

Interest income.

income for the three months ended March 31, 2026 and 2025 was approximately $197,000 and $270,000, respectively.

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.

income for the three months ended June 30, 2026 and 2025 was approximately $172,000 and $234,000, respectively.

Interest income for the

six months ended June 30, 2026 and 2025 was approximately $369,000 and $504,000, respectively.

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

Accretion income.

income for the three months ended March 31, 206 and 2025 was approximately $57,000 and $6,000, respectively.

Accretion income relates

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

Accretion income for the three and six months ended June 30, 2026 was approximately $178,000 and $235,000, respectively.

Accretion income

for the three and six months ended June 30, 2025 was approximately $0 and $6,000, respectively.

Accretion income relates to the increase

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

Interest expense.

expense for the three months ended March 31, 2026 and 2025, was approximately $4,000 and $21,000, respectively.

Interest expense is related

to the tool financing lease entered into in August 2021.

Interest expenses for the three months ended June 30, 2026 and 2025 were approximately $1,000 and $18,000, respectively.

Interest expenses

for the six months ended June 30, 2026 and 2025 were approximately $5,000 and $39,000, respectively.

Interest expense is related to the

tool financing lease entered into in August 2021.

Other income (expense), net.

Other income for the three months ended March 31, 2026 and 2025 was approximately $1,000 and ($1,000), respectively.

for the three months ended June 30, 2026 and 2025 was approximately $74,000 and $72,000

respectively, and for the six months ended June 30, 2026 and 2025 was

approximately $75,000 and $71,000, respectively.

For all periods presented, these amounts consist primarily of a refundable state research

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

Cash Flows from Operating, Investing and Financing

Net cash used in operating activities

of approximately $4.6 million for the three months ended March 31, 2026 resulted primarily from our net loss of approximately $6.1 million

offset by approximately $1.4 million of stock-based compensation.

Net cash used in operating activities

of approximately $4.8 million for the three months ended March 31, 2025 resulted primarily from our net loss of approximately $5.2 million

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

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

Net cash used in investing activities

of approximately $27.0 million for the three months ended March 31, 2026 consisted of the purchase of short-term available-for-sale investments.

Net cash used in operating

activities of approximately $8.5 million for the six months ended June 30, 2026 resulted primarily from our net loss of approximately

$12.4 million offset by approximately $3.2 million of stock-based compensation, amortization of our operating right-of-use assets of approximately

$422,000 and an increase of approximately $468,000 in accrued payroll which primarily consists of our annual bonus accrual.

Net cash used in operating

activities of approximately $8.3 million for the six months ended June 30, 2025 resulted primarily from our net loss of approximately

$10.2 million and a decrease in our accrued payroll expenses of approximately $979,000, offset by approximately $2.3 million of stock-based

compensation.

Net cash used in investing

activities of approximately $23.1 million for the six months ended June 30, 2026 consisted primarily of the purchase of short-term available-for-sale

investments offset by the maturity of short-term investments.

Net cash provided by investing

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

activities of approximately $986,000 for the six months ended June 30, 2025 consisted primarily of the maturity of short-term available-for-sale

Net cash provided by financing

activities of approximately $26.5 million for the three months ended March 31, 2026 primarily related to the net proceeds from sales under

activities of approximately $27.6 million for the six months ended June 30, 2026 primarily related to the net proceeds from sales under

our registered direct offering of common stock, sales under the 2025 ATM and stock option exercises, offset by the principal payments

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Net cash provided by financing

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

our 2022 ATM, offset by the principal payments on our financing lease.

activities of approximately $3.5 million for the six months ended June 30, 2025 primarily related to the net proceeds from sales under

our ATM and stock option exercises, offset by the principal payments on our financing lease.

Liquidity and Capital Resources

As of March 31, 2026, we had cash,

cash equivalents and short-term investments of approximately $41.1 million and working capital of approximately $39.9 million.

three months ended March 31, 2026 we had a net loss of approximately $6.1 million and used approximately $4.6 million of cash and cash

As of June 30, 2026, we had

cash, cash equivalents and short-term investments of approximately $38.4 million and working capital of approximately $36.7 million.

the six months ended June 30, 2026 we had a net loss of approximately $12.4 million and used approximately $8.5 million of cash and cash

equivalents in operations.

Since inception, we have incurred recurring operating losses.

During the three months ended

March 31, 2026, we sold approximately 1.3 million shares of commons stock pursuant to the 2025 ATM at an average price per share of approximately

$2.47, resulting in approximately $3.1 million of net proceeds to the Company after deducting commissions and other offering expenses.

During the three months ended

March 31, 2026, we sold five million shares of common stock in a registered direct offering, at a purchase price of $5.00 per share.

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.

proceeds to the Company after deducting the placement agent fee and expenses were approximately $23.6 million.

During the six months ended

June 30, 2026, we sold approximately 1.3 million shares of common stock pursuant to 2025 ATM at an average price per share of approximately

$2.47 resulting in approximately $3.1 million in net proceeds after deducting commissions and other offering expenses.

No shares were

sold under the 2025 ATM in the three months ended June 30, 2026.

On February 24, 2026, we

sold five million shares of common stock in a registered direct offering, at a purchase price of $5.00 per share.

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.

We believe that our available

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Critical Accounting Estimates

There have been no changes to

our critical accounting estimates from those included in our Annual Report on Form 10-K for the year ended December 31, 2025 filed with

the SEC on February 24, 2026.

Quantitative and Qualitative Disclosure about Market Risk.

There have been no changes

to our critical accounting estimates from those included in our Annual Report on Form 10-K for the year ended December 31, 2025 filed

with the SEC on February 24, 2026.

Quantitative and Qualitative Disclosures about Market Risk.

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis