Atomera Inc. (NASDAQ:ATOM) Q4 2020 Earnings Conference Call February 10, 2021 5:00 PM ET Company Participants Mike Bishop - Investor Relations Scott Bibaud - President & Chief Executive Officer Francis Laurencio - Chief Financial Officer Conference Call Participants Cody Acree - Loop Capital Mike Bishop Okay, I think we're ready to begin. Hello everyone and welcome to Atomera's Fourth Quarter and Fiscal Year 2020 Earnings Webinar. I'd like to remind everyone that this call and webinar are being recorded and ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q x Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2020. or ¨ Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the transition period from __________ to __________ Commission file number: 001-37850 ATOMERA INCORPORATED (Exact name of registrant as specified in its charter) Delaware ...

Financial Data and Key Metrics Changes - The GAAP net loss for Q3 2020 was $3.6 million or $0.19 per share, compared to a loss of $3.1 million or $0.19 per share in Q3 2019 [24] - The increase in net loss was attributed to a rise in GAAP operating expenses by $354,000 and $50,000 less in gross margin, with no revenue recognized in Q3 2020 compared to $254,000 in Q3 2019 [24][25] - Non-GAAP adjusted EBITDA for Q3 2020 was a loss of $2.7 million, compared to a loss of $2.4 million in Q3 2019 [25] - Cash balance at September 30, 2020, was $25.3 million, up from $18 million on June 30 [27] Business Line Data and Key Metrics Changes - The company maintained 25 engagements with the same number of customers as the previous quarter, indicating stability in customer relationships despite the pandemic [9] - The company is focusing on joint development agreements (JDAs) with several large companies, although negotiations have been slowed by COVID-19 [11] Market Data and Key Metrics Changes - The semiconductor industry has seen an acceleration in R&D spending, with prospective customers financially capable of more expensive projects [8] - The company is experiencing challenges in acquiring new customers due to the inability to hold in-person meetings, which have historically been effective for customer acquisition [10] Company Strategy and Development Direction - The company is prioritizing engagements that have a better chance of advancing into Phase 4 over adding new customers into Phase 1 [10] - The introduction of MST CAD version 1.0 to beta customers is a significant technological achievement, aimed at optimizing semiconductor processes and reducing development cycles [15] - The company is excited about the opportunities presented by a new 300 millimeter Epi deposition tool, which is expected to enhance customer integration and accelerate time to revenue [19][20] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about customer engagement and the potential for licensing opportunities, despite the challenges posed by COVID-19 [34] - The company is well-positioned for growth, with a strong balance sheet and ongoing negotiations for JDAs that could lead to revenue recognition [23][29] Other Important Information - The company has received net proceeds of $8.5 million from an At-The-Market (ATM) equity program during Q3, totaling $13.5 million to date [28] - A fire at one of the company's partner's fabs may impact the completion schedule for integration wafer runs, but the extent of the impact is still uncertain [36] Q&A Session Summary Question: Cash generation from the ATM program - The cash generation from the ATM program was $8.5 million in Q3 and $13.5 million total to date [32] Question: Visibility on customer engagements - The company continues to move forward with customers in the pipeline, with delays primarily attributed to COVID-19 and normal operational timelines [34] Question: Impact of the fire at a partner's fab - The fire occurred in a facility with multiple fabs involved with the company, and the impact on scheduled wafers is still being assessed [36]

Financial Data and Key Metrics Changes - The GAAP net loss for Q2 2020 was $3.8 million or $0.21 per share, compared to a net loss of $3.6 million or $0.24 per share in Q2 2019, reflecting a larger net loss due to a $70,000 difference in revenue and lower interest income [23][24] - Non-GAAP adjusted EBITDA in Q2 2020 was a loss of $3 million, compared to a loss of $2.9 million in Q2 2019 [24] - Cash balance at June 30, 2020, was $18 million, up from $11.4 million on March 31, 2020, due to a public offering that netted approximately $9.4 million [27] Business Line Data and Key Metrics Changes - The company has 26 engagements with 19 customers, with 17 customers in the critical Phase 3 stage [9][30] - Non-GAAP research and development expenses were $1.8 million in both Q2 2020 and Q2 2019, indicating stable R&D spending despite the pandemic [25] Market Data and Key Metrics Changes - The analogue semiconductor segment accounts for 15% to 20% of the total revenue in the $400 billion semiconductor market, representing a significant opportunity for the company [44] Company Strategy and Development Direction - The company is focusing on developing joint development agreements (JDAs) with larger customers to enhance strategic relationships and accelerate technology adoption [11][12] - The installation of a new 300 millimeter EPI Deposition Tool is expected to enhance capabilities and accelerate time to revenue [19][21] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about ongoing customer engagements and technical progress, despite minor delays caused by the pandemic [30] - The company is prioritizing existing customer engagements over new customer acquisition due to high demand from current clients [10][40] Other Important Information - The company has grown its patent portfolio to 244, which is seen as a strong asset for protecting its technology [18] - The company is taking a conservative approach to growing operating expenses, reiterating guidance for 2020 non-GAAP operating expenses in the range of $12.75 million to $13.25 million [28] Q&A Session Summary Question: Implementation of the 300 millimeter tool and its impact on customer licenses - Management explained that the new tool will allow for faster experimentation and results for customers, which is expected to lead to earlier licenses [33][34] Question: Timeline for using the new tool after acceptance - It was indicated that once the tool is accepted, it would take about three to four weeks to qualify and calibrate it for customer wafers [37] Question: Conditions for prioritizing new customer acquisition - Management noted that the current focus is on existing customers due to high workload, but additional engineers have been hired to eventually allow for new customer acquisition [40][41] Question: Market opportunities for MST SP technology - The analogue semiconductor segment is highlighted as a significant market opportunity, with many customers in the pipeline working on related technologies [44] Question: Impact of JDAs on typical engagement phases - Management clarified that JDAs do not significantly alter the phased approach but may expedite the licensing process for subsequent engagements [46][48]

[Filing Information](index=1&type=section&id=Filing%20Information) This section provides essential filing details for Atomera Incorporated's Form 10-Q, including registrant information, trading symbol, and outstanding shares Filing Details | Detail | Value | | :----- | :---- | | Filing Type | Form 10-Q | | Period Ended | June 30, 2020 | | Registrant | ATOMERA INCORPORATED | | Trading Symbol | ATOM | | Exchange | Nasdaq Capital Market | | Outstanding Common Shares (July 31, 2020) | 19,825,845 | [PART I. Financial Information](index=2&type=section&id=PART%20I.%20Financial%20Information) This part encompasses the unaudited condensed financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures for the reporting period [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Atomera Incorporated's unaudited condensed financial statements for the three and six months ended June 30, 2020 and 2019, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with accompanying notes detailing significant accounting policies, revenue recognition, liquidity, and other financial disclosures [Condensed Balance Sheets](index=3&type=section&id=Condensed%20Balance%20Sheets) Condensed Balance Sheet Data (in thousands) | Metric | June 30, 2020 (Unaudited) | December 31, 2019 | | :-------------------------------- | :------------------------ | :---------------- | | Cash and cash equivalents | $17,965 | $14,871 | | Prepaid expenses and other current assets | $255 | $132 | | Total current assets | $18,220 | $15,003 | | Property and equipment, net | $53 | $63 | | Operating lease right-of-use asset | $89 | $161 | | Long-term prepaid rent | $450 | – | | Security deposit | $13 | $13 | | Total assets | $18,825 | $15,240 | | Accounts payable | $586 | $315 | | Accrued expenses | $178 | $145 | | Accrued payroll related expenses | $405 | $819 | | Current operating lease liability | $78 | $152 | | Deferred revenue | – | $37 | | Total liabilities | $1,247 | $1,468 | | Common stock, $0.001 par value | $20 | $17 | | Additional paid-in capital | $160,244 | $149,017 | | Accumulated deficit | $(142,686) | $(135,262) | | Total stockholders' equity | $17,578 | $13,772 | | Total liabilities and stockholders' equity | $18,825 | $15,240 | [Unaudited Condensed Statements of Operations](index=4&type=section&id=Unaudited%20Condensed%20Statements%20of%20Operations) Condensed Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $0 | $70 | $62 | $141 | | Cost of revenue | $0 | $(20) | $(13) | $(20) | | Gross margin | $0 | $50 | $49 | $121 | | Research and development | $2,086 | $2,057 | $4,148 | $4,184 | | General and administrative | $1,480 | $1,488 | $2,925 | $2,809 | | Selling and marketing | $215 | $225 | $440 | $472 | | Total operating expenses | $3,781 | $3,770 | $7,513 | $7,465 | | Loss from operations | $(3,781) | $(3,720) | $(7,464) | $(7,344) | | Interest income | $2 | $86 | $40 | $176 | | Total other income | $2 | $86 | $40 | $176 | | Net loss | $(3,779) | $(3,634) | $(7,424) | $(7,168) | | Net loss per common share, basic and diluted | $(0.21) | $(0.24) | $(0.43) | $(0.47) | | Weighted average number of common shares outstanding, basic and diluted | 17,975 | 15,423 | 17,367 | 15,104 | [Unaudited Condensed Statements of Stockholders' Equity](index=4&type=section&id=Unaudited%20Condensed%20Statements%20of%20Stockholders'%20Equity) Stockholders' Equity Changes (in thousands) | Item | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Balance January 1 | $13,772 | $17,746 | | Stock-based compensation | $1,395 (total for 6 months) | $1,482 (total for 6 months) | | Warrant exercise | $164 | – | | Warrant modification | $139 | – | | Underwritten public offering, net | $9,395 | $6,397 (Registered direct offering) | | Stock option exercise | $137 | – | | Net loss | $(7,424) | $(7,168) | | Balance June 30 | $17,578 | $18,457 | [Unaudited Condensed Statements of Cash Flows](index=5&type=section&id=Unaudited%20Condensed%20Statements%20of%20Cash%20Flows) Condensed Statements of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Net Loss | $(7,424) | $(7,168) | | Depreciation and amortization | $21 | $21 | | Right of use asset amortization | $72 | $65 | | Stock-based compensation | $1,395 | $1,482 | | Warrant modification expense | $139 | – | | Changes in operating assets and liabilities (net) | $(884) | $(483) | | Net cash used in operating activities | $(6,591) | $(6,161) | | Acquisition of property and equipment | $(11) | $(51) | | Net cash used in investing activities | $(11) | $(51) | | Proceeds from underwritten public offering, net | $9,395 | – | | Proceeds from registered direct offering, net | – | $6,397 | | Proceeds from exercise of warrant | $164 | – | | Proceeds from exercise of stock options | $137 | – | | Net cash provided by financing activities | $9,696 | $6,397 | | Net increase in cash and cash equivalents | $3,094 | $185 | | Cash and cash equivalents at beginning of period | $14,871 | $18,933 | | Cash and cash equivalents at end of period | $17,965 | $19,118 | [Notes to the Unaudited Condensed Financial Statements](index=7&type=section&id=Notes%20to%20the%20Unaudited%20Condensed%20Financial%20Statements) This section provides detailed disclosures and explanations for the unaudited condensed financial statements, covering the company's nature of operations, liquidity, significant accounting policies, revenue recognition, loss per share calculations, lease obligations, warrant activity, stock-based compensation, and commitments [1. Nature of Operations](index=7&type=section&id=1.%20Nature%20of%20Operations) This note describes Atomera Incorporated's business, focus on semiconductor technology, and financing activities - Atomera Incorporated, formerly MEARS Technologies, Inc., incorporated in Delaware in March 2007, focuses on developing, commercializing, and licensing proprietary processes and technologies for the semiconductor industry[13](index=13&type=chunk) - The company is in the development stage with limited revenue-generating activities, primarily financing operations through equity and debt securities placements and public offerings[14](index=14&type=chunk) [2. Liquidity and Management Plans](index=7&type=section&id=2.%20Liquidity%20and%20Management%20Plans) This note addresses the company's financial liquidity, operating losses, and plans for future capital management - As of June 30, 2020, the Company had **$18.0 million in cash and cash equivalents** and **$17.0 million in working capital**[15](index=15&type=chunk) - Despite recurring operating losses and limited revenue, management believes current capital is sufficient for at least 12 months, but slow adoption of new semiconductor technologies and COVID-19 impacts pose risks, potentially requiring additional capital[16](index=16&type=chunk) [3. Summary of Significant Accounting Policies](index=7&type=section&id=3.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the company's key accounting principles and recent accounting standard adoptions - No material changes to significant accounting policies were reported, except for the adoption of ASU No. 2016-13 (Credit Losses) on January 1, 2020, which did not materially impact the financial statements[17](index=17&type=chunk)[19](index=19&type=chunk) - The unaudited condensed financial statements adhere to GAAP for interim reporting and Regulation S-X[19](index=19&type=chunk) [4. Revenue](index=8&type=section&id=4.%20Revenue) This note details the company's revenue recognition policies and disaggregated revenue by geographic market - Revenue is recognized when performance obligations are satisfied, either at a point in time (integration service agreements) or over time (integration license agreements)[20](index=20&type=chunk)[53](index=53&type=chunk) - Revenue from integration licenses and services is recognized proportionally to the delivery of MST processed wafers[20](index=20&type=chunk) Disaggregated Revenue by Geographic Market (in thousands) | Geographic Market | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | North America | $0 | $0 | $62 | $0 | | Europe | $0 | $33 | $0 | $83 | | Asia Pacific | $0 | $37 | $0 | $58 | | Total | $0 | $70 | $62 | $141 | - The Company recognized approximately **$37,000 of revenue** during the six months ended June 30, 2020, which was previously included in deferred revenue as of December 31, 2019[24](index=24&type=chunk) [5. Basic and Diluted Loss Per Share](index=9&type=section&id=5.%20Basic%20and%20Diluted%20Loss%20Per%20Share) This note explains the calculation of loss per share and the impact of anti-dilutive securities - Due to recurring net losses, all potentially dilutive securities (stock options, unvested restricted stock, and warrants) are anti-dilutive, resulting in basic and diluted net loss per share being equal for all periods presented[25](index=25&type=chunk) Anti-Dilutive Common Stock Equivalents (in thousands) | Item | June 30, 2020 | June 30, 2019 | | :-------------------- | :------------ | :------------ | | Stock Options | 3,560 | 2,935 | | Unvested restricted stock | 782 | 521 | | Warrants | 566 | 765 | | Total | 4,908 | 4,221 | [6. Leases](index=9&type=section&id=6.%20Leases) This note describes the company's lease obligations and related costs - The Company leases corporate office space, accounted for under ASC Topic 842, with a remaining term of seven months as of June 30, 2020[27](index=27&type=chunk) - A new five-year lease for a development tool, with payments of **$150,000 per month**, is anticipated to commence in August 2020, with a **$450,000 prepayment** made in the first half of 2020[31](index=31&type=chunk) Operating Lease Costs (in thousands) | Lease Cost Type | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :---------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Fixed lease costs | $26 | $27 | $53 | $54 | | Variable lease costs | $14 | $13 | $27 | $26 | | Short term lease costs | $7 | $8 | $17 | $16 | | Total operating lease costs | $47 | $48 | $97 | $96 | [7. Warrants](index=10&type=section&id=7.%20Warrants) This note provides details on warrant activity, including exercises, expirations, and modifications Warrant Activity (in thousands, except per share amounts and contractual term) | Metric | Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (In Years) | | :----------------------- | :--------------- | :------------------------------ | :----------------------------------------------------- | | Outstanding at January 1, 2020 | 765 | $5.75 | | | Exercised | (189) | $0.87 | | | Expired | (10) | $0.15 | | | Outstanding at June 30, 2020 | 566 | $7.48 | 0.8 | - Warrants outstanding at June 30, 2020, had an intrinsic value of **$1.0 million**[32](index=32&type=chunk) - A modification of **196,602 warrants** in March 2020 extended their expiration date to September 17, 2020, in exchange for removing a cashless exercise provision, resulting in a **$139,000 modification expense**[32](index=32&type=chunk)[33](index=33&type=chunk) [8. Stock Based Compensation](index=11&type=section&id=8.%20Stock%20Based%20Compensation) This note outlines the company's stock incentive plan, compensation expense, and option/restricted stock activity - The 2017 Stock Incentive Plan, approved in May 2017, allows for the grant of stock options and restricted shares, generally vesting over one to four years[34](index=34&type=chunk) - As of June 30, 2020, approximately **$6.5 million of unrecognized compensation expense** related to unvested share-based awards is expected to be recognized over a weighted-average period of **2.9 years**[35](index=35&type=chunk) Stock-Based Compensation Expense (in thousands) | Expense Category | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $297 | $221 | $524 | $399 | | General and administrative | $430 | $534 | $799 | $1,016 | | Selling and Marketing | $39 | $33 | $72 | $67 | | Total | $766 | $788 | $1,395 | $1,482 | Stock Option Activity (in thousands, except exercise prices and contractual terms) | Metric | Number of Shares | Weighted Average Exercise Prices | Weighted Average Remaining Contractual Term (In Years) | Intrinsic Value | | :----------------------- | :--------------- | :------------------------------- | :----------------------------------------------------- | :-------------- | | Outstanding at January 1, 2020 | 2,935 | $6.36 | | | | Granted | 658 | $4.13 | | | | Exercised | (33) | $4.18 | | | | Outstanding at June 30, 2020 | 3,560 | $5.97 | 7.02 | $10,956 | | Exercisable at June 30, 2020 | 2,370 | $6.74 | 6.09 | $5,647 | Restricted Stock Activity (in thousands, except per share data) | Metric | Number of Shares | Weighted Average Grant Date Fair Value | | :--------------------------------------- | :--------------- | :------------------------------------- | | Outstanding at January 1, 2020 | 486 | $4.50 | | Granted | 463 | $4.43 | | Vested | (167) | $4.46 | | Outstanding non-vested shares at June 30, 2020 | 782 | $4.47 | [9. Commitments and Contingencies](index=12&type=section&id=9.%20Commitments%20and%20Contingencies) This note confirms the absence of material litigation or claims against the company - As of June 30, 2020, and through the date of financial statement issuance, the Company is not party to any material litigation, claims, or assessments[39](index=39&type=chunk) [10. Subsequent Events](index=12&type=section&id=10.%20Subsequent%20Events) This note states that no material subsequent events were identified through the financial statement issuance date - Management has evaluated subsequent events and transactions through the date the financial statements were issued and found no material events requiring disclosure[40](index=40&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=13&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Atomera's financial condition and operational results for the three and six months ended June 30, 2020, discussing business overview, revenue generation, operating expenses, cash flows, and liquidity, while also highlighting the impact of the COVID-19 pandemic and future capital requirements [Overview](index=13&type=section&id=Overview) This section provides a business overview, commercialization strategy, capital raising efforts, and the impact of COVID-19 - Atomera develops, commercializes, and licenses proprietary processes and technologies for the semiconductor industry, with its lead technology, Mears Silicon Technology (MST), designed to enhance CMOS-type transistors for increased speed, reliability, and energy efficiency[43](index=43&type=chunk) - The company's commercialization strategy involves licensing MST technology to foundries, IDMs, and fabless semiconductor manufacturers for license fees and royalties, and it has generated limited revenue from integration service agreements and integration license agreements[44](index=44&type=chunk)[46](index=46&type=chunk)[53](index=53&type=chunk) - Atomera has raised capital through several public offerings, including an IPO in August 2016 (**$24.7M net proceeds**), an underwritten public offering in October 2018 (**$11.4M net proceeds**), a registered direct offering in May 2019 (**$6.4M net proceeds**), and another underwritten public offering in May 2020 (**$9.4M net proceeds**)[48](index=48&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk)[51](index=51&type=chunk) - The COVID-19 pandemic has caused some slowdowns in customer engagements, contract negotiations, and engineering work, potentially affecting future technology evaluations, contract negotiations, and revenues, though no engagements have stopped entirely[52](index=52&type=chunk) [Results of Operations](index=14&type=section&id=Results%20of%20Operations) This section analyzes the company's revenue, cost of revenue, operating expenses, and interest income for the reporting periods [Revenues](index=14&type=section&id=Revenues) This section details revenue sources and future expectations for license fees and royalties Revenue (in thousands) | Period | Revenue | | :------------------------------- | :------ | | Three months ended June 30, 2020 | $0 | | Three months ended June 30, 2019 | $70 | | Six months ended June 30, 2020 | $62 | | Six months ended June 30, 2019 | $141 | - Revenue in all periods was generated from integration license agreements and integration engineering services[54](index=54&type=chunk) - The company expects increased fees from license agreements and royalties in the future, contingent on securing manufacturing and distribution license agreements[53](index=53&type=chunk)[54](index=54&type=chunk) [Cost of Revenue](index=15&type=section&id=Cost%20of%20Revenue) This section explains the components of cost of revenue and its expected variability Cost of Revenue (in thousands) | Period | Cost of Revenue | | :------------------------------- | :-------------- | | Three months ended June 30, 2020 | $0 | | Three months ended June 30, 2019 | $20 | | Six months ended June 30, 2020 | $13 | | Six months ended June 30, 2019 | $20 | - Cost of revenue, comprising materials, direct compensation, and expenses for integration engineering services, is expected to vary significantly based on the mix of integration license and engineering services provided[55](index=55&type=chunk) [Operating Expenses](index=15&type=section&id=Operating%20Expenses) This section provides an overview of total operating expenses and their drivers Total Operating Expenses (in thousands) | Period | Total Operating Expenses | | :------------------------------- | :----------------------- | | Three months ended June 30, 2020 | $3,781 | | Three months ended June 30, 2019 | $3,770 | | Six months ended June 30, 2020 | $7,513 | | Six months ended June 30, 2019 | $7,465 | [Research and development expense](index=15&type=section&id=Research%20and%20development%20expense) This section analyzes changes in research and development expenses, including headcount and outsourced costs Research and Development Expense (in thousands) | Period | R&D Expense | Change YoY | | :------------------------------- | :---------- | :--------- | | Three months ended June 30, 2020 | $2,086 | +1% | | Three months ended June 30, 2019 | $2,057 | | | Six months ended June 30, 2020 | $4,148 | -1% | | Six months ended June 30, 2019 | $4,184 | | - The **1% increase in Q2 2020 R&D expense** was due to adding two engineers, partially offset by reduced travel and outsourced R&D costs[58](index=58&type=chunk) - The **1% decrease for the six months ended June 30, 2020**, was primarily due to a **$328,000 decrease in outsourced R&D**, offset by a **$188,000 increase in payroll** (headcount) and a **$125,000 increase in stock-based compensation**[59](index=59&type=chunk) [General and administrative expense](index=15&type=section&id=General%20and%20administrative%20expense) This section details the factors influencing general and administrative expenses, such as professional fees and warrant modification General and Administrative Expense (in thousands) | Period | G&A Expense | Change YoY | | :------------------------------- | :---------- | :--------- | | Three months ended June 30, 2020 | $1,480 | -1% | | Three months ended June 30, 2019 | $1,488 | | | Six months ended June 30, 2020 | $2,925 | +4% | | Six months ended June 30, 2019 | $2,809 | | - The **4% increase in G&A for the six months ended June 30, 2020**, was driven by a **$196,000 rise in professional fees** and a **$139,000 warrant modification expense**, partially offset by a **$216,000 decrease in stock-based compensation**[61](index=61&type=chunk) [Selling and marketing expense](index=15&type=section&id=Selling%20and%20marketing%20expense) This section explains the changes in selling and marketing expenses, primarily due to travel reductions Selling and Marketing Expense (in thousands) | Period | S&M Expense | Change YoY | | :------------------------------- | :---------- | :--------- | | Three months ended June 30, 2020 | $215 | -4% | | Three months ended June 30, 2019 | $225 | | | Six months ended June 30, 2020 | $440 | -7% | | Six months ended June 30, 2019 | $472 | | - The decrease in selling and marketing expenses for both periods was primarily due to a reduction of approximately **$33,000 in travel expenses** for the six months ended June 30, 2020[63](index=63&type=chunk) [Interest income](index=15&type=section&id=Interest%20income) This section discusses the decline in interest income due to lower cash balances and interest rates Interest Income (in thousands) | Period | Interest Income | | :------------------------------- | :-------------- | | Three months ended June 30, 2020 | $2 | | Three months ended June 30, 2019 | $86 | | Six months ended June 30, 2020 | $40 | | Six months ended June 30, 2019 | $176 | - Interest income decreased significantly due to declining average cash balances and falling interest rates during 2020[64](index=64&type=chunk) [Cash Flows from Operating, Investing and Financing Activities](index=16&type=section&id=Cash%20Flows%20from%20Operating,%20Investing%20and%20Financing%20Activities) This section summarizes cash flows from operating, investing, and financing activities for the reporting periods Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(6,591) | $(6,161) | | Net cash used in investing activities | $(11) | $(51) | | Net cash provided by financing activities | $9,696 | $6,397 | - Operating cash outflow for H1 2020 was primarily due to a **net loss of $7.4 million**, partially offset by **$1.4 million in stock-based compensation**[65](index=65&type=chunk) - Financing activities in H1 2020 were significantly boosted by **$9.4 million from a public offering** and proceeds from warrant and stock option exercises[67](index=67&type=chunk) [Liquidity and Capital Resources](index=16&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's liquidity position, capital sufficiency, and potential future funding needs Liquidity Position (in thousands) | Metric | As of June 30, 2020 | | :----------------------- | :------------------ | | Cash and cash equivalents | $18,000 | | Working capital | $17,000 | | Net loss (six months) | $(7,500) | | Cash used in operations (six months) | $(6,600) | - Management believes current working capital is sufficient for at least the next 12 months, but acknowledges risks from slow technology adoption, long qualification processes, and the COVID-19 pandemic's impact on revenue generation[70](index=70&type=chunk) - Additional capital may be required, potentially through equity offerings, debt financing, or joint ventures, or by curtailing R&D and reducing costs[71](index=71&type=chunk) [Off-Balance Sheet Arrangements](index=16&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of off-balance sheet arrangements or third-party guarantees - The Company has not entered into any off-balance sheet arrangements or issued guarantees to third parties[72](index=72&type=chunk) [Recent Accounting Standards](index=16&type=section&id=Recent%20Accounting%20Standards) This section refers to disclosures regarding the adoption of new accounting standards - The Company is required to adopt certain new accounting standards, as detailed in Note 3 to the condensed financial statements[73](index=73&type=chunk) [Critical Accounting Policies](index=17&type=section&id=Critical%20Accounting%20Policies) This section states that no changes have occurred in the company's critical accounting policies - There have been no changes to the Company's critical accounting policies from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2019[75](index=75&type=chunk) [Item 3. Quantitative and Qualitative Disclosure about Market Risk](index=17&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosure%20about%20Market%20Risk) This section states that the information regarding quantitative and qualitative disclosures about market risk is not applicable to the Company for the reporting period - This item is marked as "Not applicable"[75](index=75&type=chunk) [Item 4. Controls and Procedures](index=17&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details management's evaluation of the Company's disclosure controls and procedures, concluding their effectiveness as of June 30, 2020, and reports no material changes to internal control over financial reporting during the quarter [Evaluation of Disclosure Controls and Procedures](index=17&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section reports management's conclusion on the effectiveness of disclosure controls and procedures - Management, including the CEO and principal financial and accounting officer, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2020[76](index=76&type=chunk) [Changes in Internal Control over Financial Reporting](index=17&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section confirms no material changes to internal control over financial reporting during the quarter - There were no changes to internal control over financial reporting during the three-month period ended June 30, 2020, that materially affected, or are reasonably likely to materially affect, the Company's internal controls[77](index=77&type=chunk) [PART II. Other Information](index=18&type=section&id=PART%20II.%20Other%20Information) This part includes disclosures on risk factors and a comprehensive list of exhibits filed with the report [Item 1A. Risk Factors](index=18&type=section&id=Item%201A.%20Risk%20Factors) This section states that there have been no material changes to the Company's primary risk factors since those disclosed in its Prospectus Supplement filed on May 13, 2020, or its Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes to the primary risk factors were reported compared to previous filings (Prospectus Supplement May 13, 2020, and Annual Report on Form 10-K for December 31, 2020)[79](index=79&type=chunk) [Item 6. Exhibits](index=18&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Form 10-Q report, including certifications under the Sarbanes-Oxley Act and various XBRL taxonomy documents List of Exhibits | Exhibit No. | Description | Method of Filing | | :---------- | :---------- | :--------------- | | 31.1 | Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | Filed electronically herewith | | 31.2 | Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | Filed electronically herewith | | 32.1 | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350). | Filed electronically herewith | | 101.INS | XBRL Instance Document | Filed electronically herewith | | 101.SCH | XBRL Taxonomy Extension Schema Document | Filed electronically herewith | | 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | Filed electronically herewith | | 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | Filed electronically herewith | | 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | Filed electronically herewith | | 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | Filed electronically herewith | [Signatures](index=19&type=section&id=SIGNATURES) This section provides the official signatures and date of filing for the report - The report was signed by Scott A. Bibaud (Chief Executive Officer) and Francis B. Laurencio (Chief Financial Officer) on August 7, 2020[83](index=83&type=chunk)

Table of Contents Delaware 30-0509586 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Title of each class Trading Symbol(s) Name of each exchange on which registered Common stock: Par value $0.001 ATOM Nasdaq Capital Market UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q x Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2020. or ¨ Transition ...

Atomera Incorporated (NASDAQ:ATOM) Q1 2020 Earnings Conference Call April 30, 2020 5:00 PM ET Company Participants Mike Bishop - Investor Relations Scott Bibaud - President and Chief Executive Officer Francis Laurencio - Chief Financial Officer Conference Call Participants Cody Acree - Loop Capital Suji Desilva - Roth Capital Operator Good afternoon. And welcome to the Atomera First Quarter 2020 Earnings Conference Call. All participants will be in listen-only model. [Operator Instructions] After today’s pr ...