Atomera Inc 10-Q

Item 2. 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. Statements in this Quarterly Report include forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. Although forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks, uncertainties, and changes in condition, significance, value and effect, including those risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2025 filed with the SEC on February 24, 2026. Such risks, uncertainties and changes in condition, significance, value and effect could cause our actual results to differ materially from those expressed herein and in ways not readily foreseeable. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report and are based on information currently and reasonably known to us. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Quarterly Report. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects. Overview We are engaged in the business of developing, commercializing and licensing proprietary processes and technologies for the $700+ billion semiconductor industry. Our lead technology, named Mears Silicon Technology™, or MST ® , is a thin film of reengineered silicon. MST is our proprietary and patent-protected performance enhancement technology that we believe addresses a number of key engineering challenges facing the semiconductor industry. MST provides multiple benefits to the semiconductor manufacturing process, enabling transistors to be made smaller, with increased speed, reliability and power efficiency. In addition, since MST is an additive and low-cost technology, we believe it can be deployed on an industrial scale, with machines commonly used in semiconductor manufacturing. We believe that MST can be widely incorporated into the most common types of semiconductor products, including analog, logic, optical and memory integrated circuits. We do not design or manufacture wafers or integrated circuits directly. Instead, we develop and license technologies and processes that we believe offer the designers and manufacturers of wafers and integrated circuits a low-cost solution to the industry’s need for greater performance and lower power consumption. Our customers and partners include: · foundries, which manufacture integrated circuits on behalf of fabless manufacturers; · 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; · manufacturers of semiconductor wafers, which provide the substrates upon which integrated circuits are fabricated; · original equipment manufacturers, or OEMs, that manufacture the epitaxial, or epi, machines used to deposit semiconductor layers, such as the MST film, onto silicon wafers; and · 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. 18 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 arrangements, joint development agreements (“JDAs”) or integration license agreements. Our goal is that MSTcad licensing and engineering service arrangements will be tools that demonstrate the benefits of MST when integrated into customers’ manufacturing processes and will lead customers to enter into commercial license agreements. A “commercial license” consists of (i) an R&D license, which grants our customer the rights to install MST on a tool in their fab and to manufacture MST-enabled products, but only for internal use and limited customer sampling and (ii) a high-volume manufacturing, or HVM, license which grants the rights to manufacture and sell MST-enabled products to their customers. Depending upon our customers’ business needs and how we initially engaged with them, we may make these license grants in one or more separate contracts. Our preferred model is to charge our customers upfront license fees for each license grant. Under our licensing model, the R&D license fee is due upon installation of MST in a tool at our customer’s fab and a larger HVM license fee will be due when our customer completes qualification of MST in their process and before they can sell MST -enabled products to their customers. Upon the grant of an HVM license, our licensees are also required to make royalty payments to us based on the number and/or sales price of MST-enabled products they sell. We have engaged with certain customers under joint development agreements, or JDAs. Our JDAs include development, technology transfer, manufacturing and 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. CMOS integrated circuits are the most widely used type of integrated circuits in the semiconductor industry. We believe MST has the potential to overcome the key challenges found in the implementation of next-generation nano-scale semiconductor devices incorporating CMOS type transistors, namely enhancing drive current, reducing leakage and reducing variability. In addition, we believe that MST has the potential to deliver these benefits through a single technology that requires relatively minor modifications to the industry-standard CMOS manufacturing flow. Consequently, we believe that by incorporating MST, designers can make transistors with increased speed, reliability and energy 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. 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 limited liability company under the name Nanovis LLC on November 26, 2001. On March 13, 2007, we converted to a Delaware corporation under the name Mears Technologies, Inc. On January 12, 2016, we changed our name to Atomera Incorporated. Shares of our common stock are listed on the NASDAQ Capital Market under the symbol “ATOM”. On May 31, 2022, we entered into an Equity Distribution Agreement with Oppenheimer & Co. Inc. 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 June 30, 2026, no shares were sold pursuant to the 2025 ATM. During 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. 19 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. Results of Operations Revenues . 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. 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 . Cost 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. Operating expenses consist of research and development, general and administrative, and selling and marketing expenses. For the three months ended June 30, 2026 and 2025, our operating expenses totaled approximately $6.9 million and $5.2 million, respectively. For the six months ended June 30, 2026 and 2025, our operating expenses totaled approximately $13.1 million and $10.7 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 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. 20 General and administrative expense. General and administrative expenses consist primarily of payroll and benefit costs for administrative personnel, office-related costs and professional fees. General and administrative costs were approximately $3.2 million and $2.0 million for the three months ended 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 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 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. Interest 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 presented. Accretion income. 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. 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 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 Activities 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. 21 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 $986,000 for the six months ended June 30, 2025 consisted primarily of the maturity of short-term available-for-sale investments. Net cash provided by financing 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 on our financing lease. Net cash provided by financing 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 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. For 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 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 working capital is sufficient to fund our presently forecasted working capital requirements for, at least, the next 12 months following the date of the filing of this report. However, our future capital requirements and the adequacy of our available funds will depend on many factors, including our ability to successfully commercialize our MST technology, competing technological and market developments, and the need to enter into collaborations with other companies or acquire technologies to enhance or complement our current offerings. If we are not able to generate sufficient revenue from license fees and royalties in a timeframe that satisfies our cash needs, we will need to raise more capital. In the event we require additional capital, we will endeavor to acquire additional funds through various financing sources, including our ATM, follow-on equity offerings, debt financing and joint ventures with industry partners. In addition, we will consider alternatives to our current business plan that may enable us to achieve revenue-producing operations and meaningful commercial success with a smaller amount of capital. If we are unable to secure additional capital, we may be required to curtail our research and development initiatives and take additional measures to reduce costs in order to conserve cash. 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. Item 3. Quantitative and Qualitative Disclosures about Market Risk. Not applicable. 22