Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

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 Annual Report. Statements in this Annual Report on Form 10-K 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 Annual 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 this Annual Report. 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 Annual 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 Annual Report. Readers are urged to carefully review and consider the various disclosures made in this Annual 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, typically 100 to 300 angstroms (or approximately 20 to 60 silicon atomic unit cells) thick. MST is our proprietary and patent-protected performance enhancement technology that we believe addresses a number of key engineering challenges facing the semiconductor industry. We believe that by incorporating MST, transistors can be made smaller, with increased speed, reliability and power efficiency. In addition, since MST is an additive and low-cost technology, we believe it can be deployed on an industrial scale, with machines commonly used in semiconductor manufacturing. We believe that MST can be widely incorporated into the most common types of semiconductor products, including analog, logic, optical and memory integrated circuits.

We do not design or manufacture integrated circuits directly. Instead, we develop and license technologies and processes that we believe offer the designers and manufacturers of integrated circuits a low-cost solution to the industry's need for greater performance and lower power consumption. Our customers and partners include:

	·	foundries, which manufacture integrated circuits on behalf of fabless manufacturers;
	·	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.

Our commercialization strategy is to generate revenue through licensing arrangements whereby foundries, IDMs and fabless semiconductor manufacturers pay us a license fee for their right to use MST technology in the manufacture of silicon wafers as well as a royalty for each silicon wafer or device that incorporates our MST technology. We also license our MSTcad software to our customers for use in simulating the effects of using MST technology on their wafers and/or devices. To date, we have generated revenue from (i) licensing agreements with ST and AKM, both of which are IDMs, one fabless manufacturer and one foundry, (ii) a joint development agreement, or JDA, with a leading semiconductor provider, (iii) engineering services provided to foundries, IDMs and fabless companies and (iv) licensing MSTcad.

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.

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 with Craig-Hallum as agent, under which we may offer and sell, from time to time at our sole discretion, shares of our common stock in an "at-the-market" offering to or through the agent, having aggregate offering proceeds of up to $50.0 million (the "2025 ATM").

During the year ended December 31, 2025, we sold approximately 1.6 million shares pursuant to the 2022 ATM and the 2025 ATM at an average price per share of approximately $5.15, resulting in approximately $7.6 million of net proceeds to us after deducting commissions and other offering expenses.

On February 23, 2026, we entered into a Securities Purchase Agreement (the "Purchase Agreement") with certain institutional investors pursuant to which we agreed to issue and sell, in a registered direct offering (the "Offering"), an aggregate of 5,000,000 shares of our common stock, at a purchase price of $5.00 per share, for gross proceeds from the Offering of $25 million, before deducting the placement agent fee and estimated offering expenses. On February 24, 2026 we closed the Offering, resulting in net proceeds to us of approximately $23.6 million after commissions and expenses.

Results of Operations for the Years Ended December 31, 2025 and 2024

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 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.

For recognizing integration service revenue from integration license agreements, we assess (i) whether the license grant is distinct from or combined with the transfer of goods or services and (ii) whether the license is a right to access intellectual property or a right to use the intellectual property. For licenses that are not distinct, but combined with other goods or services, the revenue is recognized at a point in time or over time as the obligations to perform the combined services and/or deliver the combined goods are satisfied. Our engineering service agreements contain a technology grant as well as a performance obligation to deliver wafers with our technology deposited on them. We have historically determined the grant of rights in these agreements is not distinct from the obligation to deliver wafers and accordingly, revenue from these agreements is recognized at the time we deliver wafers. For R&D licenses, revenue is recognized at the point in time when we deliver our MST recipe because the license to manufacture products using MST technology is a right to use the Company's technology and not a right to access the technology over time. However, in cases where our R&D license grants include a customer acceptance requirement, revenue is recognized over time. Likewise, we recognize revenue from HVM licenses at the point in time when process qualification is complete because the license to sell MST-enabled products is a right to use the Company's technology and not a right to access the technology over time.

Revenue for the years ended December 31, 2025 and 2024 was approximately $65,000 and $135,000, respectively. Our revenue in 2025 and 2024 consisted of MSTcad licensing and related consulting services revenue, and engineering services revenue from the delivery of MST wafers.

Cost of Revenue. Cost of revenue consists of costs of materials, as well as direct compensation and expenses incurred to provide integration engineering services, support for customer installation and qualification and MSTcad support. Cost of revenue was approximately $321,000 and $123,000 for the years ended December 31, 2025 and 2024, respectively. Cost of revenue is recorded when incurred and may not coincide with the recognition of revenue based on revenue recognition policies and guidance. We anticipate that our cost of revenue will vary substantially depending on the mix of license and engineering services revenues we receive and the nature of products and/or services delivered in each customer engagement.

Operating Expenses. Operating expenses consist of research and development, general and administrative, and selling and marketing expenses. For the years ended December 31, 2025 and 2024, our operating expenses totaled approximately $20.9 million and $19.3 million, respectively.

Research and development expenses. To date, our operations have focused on the research, development, and commercialization of our MST technology and related technologies such as MSTcad. Our research and development costs primarily consist of payroll and benefit 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 years ended December 31, 2025 and 2024, we incurred approximately $12.3 million and $11.0 million, respectively, of research and development expense, an increase of approximately $1.3 million, or 12%. This increase was primarily due to an increase of approximately $676,000 in outsourced fabrication costs as well as increases of approximately $487,000 in stock-based compensation expenses and approximately $124,000 in employee-related expenses. Stock-based compensation expenses increased primarily due to our adoption of performance-based RSUs for executives, which have a higher valuation than time-based RSUs and options which had been our primary type of executive equity compensation issued in 2024.

General and administrative expenses. General and administrative expenses consist primarily of payroll and benefit costs for administrative personnel, office-related costs and professional fees. General and administrative costs for the years ended December 31, 2025 and 2024 were approximately $7.8 million and $7.3 million, respectively, representing an increase of approximately $540,000, or 7%. The increase in costs was primarily due to an increase in stock-based compensation expense of approximately $810,000 and an approximately $114,000 increase in corporate legal fees, partially offset by a decline of approximately $421,000 in employee-related costs. Stock-based compensation expenses increased primarily due to an increase in the valuation of performance based
RSUs newly issued this year compared to time-based RSUs and options. The decrease in employee-related costs is primarily due to a reduction in executive annual bonus accrual.

Selling and marketing expenses. Selling and marketing expenses consist primarily of salary and benefits for our sales and marketing personnel and business development consulting services. Selling and marketing expenses for the years ended December 31, 2025 and 2024 were approximately $758,000 and $1.1 million, respectively, representing a decrease of approximately $295,000, or 28%. The decrease in costs is primarily related to a reduction in headcount which decreased employee-related costs, stock-based compensation and travel expenses, partially offset by increases in recruiting costs to fill open positions.

Interest income. Interest income for the years ended December 31, 2025 and 2025 was approximately $931,000 and $779,000, respectively, an increase of approximately $152,000, or 20%. Interest income reflects interest earned on our cash, cash equivalents and short-term investments and are impacted by current interest rates and average balances over the periods presented.

Accretion income. Accretion income for the years ended December 31, 2025 and 2024 was approximately $6,000 and $178,000, 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 relates to the increase in value of our available-for-sale securities from the purchase date through the maturity date. As of December 31, 2025, our cash and cash equivalents were held as cash and mutual funds.

Other income/expense, net. Other income for the years December 31, 2025 and 2024 was approximately $72,000 and $73,000, respectively. Other income consisted primarily of a refundable state research and development tax credit, net of filing costs and tax consulting services for both years.

Interest expense. Interest expense for the years ended December 31, 2025 and 2024 was approximately $60,000 and $129,000, respectively. Interest expense is related to the tool financing lease entered into in August 2021.

Liquidity and Capital Resources

As of December 31, 2025, we had cash and cash equivalents of approximately $19.2 million and working capital of approximately $17.6 million. For the year ended December 31, 2025, we had a net loss of approximately $20.2 million and used approximately $14.9 million of cash and cash equivalents in operations. Since inception, we have incurred recurring operating losses. On February 24, 2026, we closed on the sale of 5,000,000 shares of our common stock, at a price of $5.00 per share, in a registered direct offering for the net proceeds of approximately $23.6 million after commissions and offering expenses.

During the year ended December 31, 2025, we sold approximately 1.6 million shares of our common stock pursuant to our 2022 and 2025 ATM facilities at an average price per share of approximately $5.15, resulting in approximately $7.6 million of net proceeds to us after deducting commissions and other offering expenses.

We believe that our available working capital as of the date of this report, and after giving effect to our February 2026 registered direct offering, is sufficient to fund our presently forecasted working capital requirements for, at least, the next 24 months following the date of the filing of this report. However, our future capital requirements and the adequacy of our available funds will depend on many factors, including our ability to successfully commercialize our MST technology, competing technological and market developments, and the need to enter into collaborations with other companies or acquire technologies to enhance or complement our current offerings. If we are not able to generate sufficient revenue from license fees and royalties in a time frame that satisfies our cash needs, we will need to raise more capital. In the event we require additional capital, we will endeavor to acquire additional funds through various financing sources, including our ATM Facility, follow-on equity offerings, debt financing and joint ventures with industry partners. 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 our cash.

Cash Flows from Operating, Investing and Financing Activities:

Net cash used in operating activities of approximately $14.9 million for year ended December 31, 2025 resulted primarily from our net loss of approximately $20.2 million, adjusted by approximately $5.0 million of stock-based compensation expense.

Net cash used in operating activities of approximately $13.2 million for year ended December 31, 2024 resulted primarily from our net loss of approximately $18.4 million, adjusted by approximately $3.9 million of stock-based compensation expense and amortization of right-of-use assets of approximately $1.3 million.

Net cash provided in investing activities of approximately $951,000 for year ended December 31, 2025 consisted primarily of the maturity of short-term available-for-sale investments, offset by the acquisition of property and equipment.

Net cash provided in investing activities of approximately $6.1 million and for year ended December 31, 2024 consisted primarily of the maturity of short-term available-for-sale investments, offset by the purchase of short-term available-for-sale investments.

Net cash provided by financing activities of approximately $7.4 million for the year ended December 31, 2025 related primarily to net proceeds from our ATM Facility and the exercise of stock options, offset in part by approximately $1.2 million in principal payments on our financing lease.

Net cash provided by financing activities of approximately $20.3 million for the year ended December 31, 2024 related primarily to net proceeds from our ATM Facility, offset in part by approximately $1.1 million in principal payments on our financing lease.

Critical Accounting Estimates

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with those accounting principles requires us to use judgment in making estimates and assumptions based on the relevant information available at the end of each period. These estimates and assumptions have a significant effect on reported amounts of assets, liabilities, sales and expenses as well as the disclosure of contingent assets and liabilities because they result primarily from the need to make estimates and assumptions on matters that are inherently uncertain. Actual results could differ from our estimates.

Leases

We account for leases in accordance with Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No 2016-02, Leases (Topic 842). We determine if a contract contains a lease in whole or in part at the inception of the contract. Right-of-use ("ROU") assets represent our right to use an underlying asset for the lease term while lease liabilities represent our 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. Lease expenses for operating leases is recognized on a straight-line-basis over the lease term. Lease expenses for financing leases consists of amortization of the ROU assets over the life of the lease and interest expense is recognized on the liability.

Stock-based Compensation

We have stock-based compensation programs, which include restricted stock awards ("RSAs"), Restricted stock Units ("RSUs") and stock options and an employee stock purchase plan. We account for stock-based compensation expense, including the expense for grants of RSAs and stock options that may be settled in shares of our common stock, based on the fair values of the equity instruments issued. The fair value is determined on the measurement date, which is the date of grant. The fair value of our RSAs is measured at the market price of our common stock on the measurement date amortized over the vesting period of the award. The fair value of our time-based RSUs is based on the closing price on the day of grant and they vest over zero to four years. Awards of performance-based restricted stock units we issue have a performance period of one, two and three years with the vesting of each award tranche dependent on our Total Shareholder Return ("TSR") relative to the TSR of companies in the Russell 2000 Index over that tranche's performance period. The fair value for performance-based awards is fixed at the grant date using a Monte Carlo simulation and the amount of compensation expense is not adjusted during the performance period regardless of changes in the level of TSR achievement. The fair value for our stock option awards is determined at the grant date using the Black-Scholes Option Pricing Model and amortized over the vesting period of the option.

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

	·	Expected term - We derived the expected term for employee stock awards using historical information to develop expectations about future exercise patterns and behavior after employment termination.
	·	Expected volatility - Volatility is estimated using Atomera's historical volatility for similar terms.
	·	Expected dividend rate - We have not declared or paid dividends to our stockholders and have no plans to pay dividends; therefore, we have assumed an expected dividend yield of 0%.
	·	Risk-free interest rate - The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected terms of the associated awards.
	·	The fair value of our common stock is measured at the market price on the measurement date.