10-Q

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, 2018.

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	30-0509586
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

750 University Avenue, Suite 280

Los Gatos, California 95032

(Address, including zip code, of registrant’s principal executive offices)

(408) 442-5248

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one)

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company x
	Emerging Growth Company x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x

Indicate by checkmark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act: Yes ¨ No x

The number of outstanding shares of the Registrant’s Common Stock, par value $.001 per share, as of May 4, 2018 was 12,361,069.

Atomera Incorporated

Index

		Page
PART I. Financial Information
Item 1.	Financial Statements	3
	Condensed Balance Sheets – March 31, 2018 (unaudited) and December 31, 2017	3
	Unaudited Condensed Statements of Operations - For the Three Months Ended March 31, 2018 and 2017	4
	Unaudited Condensed Statements of Cash Flows - For the Three Months Ended March 31, 2018 and 2017	5
	Notes to the Unaudited Condensed Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	13
Item 4.	Controls and Procedures	13
PART II. Other Information
Item 1A.	Risk Factors	14
Item 6.	Exhibits	14
Signatures		15

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PART I. Financial Information

Item 1. Financial Statements

Atomera Incorporated

Condensed Balance Sheets

(in thousands, except per share data)

	March 31,			December 31,
	2018			2017
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	14,547		$	17,369
Accounts receivable		–			110
Prepaid expenses and other current assets		401			248
Total current assets		14,948			17,727
Property and equipment, net		68			67
Security deposit		13			13
Total assets	$	15,029		$	17,807
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	283		$	198
Accrued expenses		208			239
Accrued payroll related expenses		226			512
Total liabilities		717			949
Commitments and contingencies (see Note 7)
Stockholders’ equity:
Preferred stock, $0.001 par value, authorized 2,500 shares; none issued and outstanding at March 31, 2018 and December 31, 2017		–			–
Common stock, $0.001 par value, authorized 47,500 shares; 12,361 and 12,161 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively.		12			12
Additional paid-in capital		126,457			125,911
Accumulated deficit		(112,157	)		(109,065	)
Total stockholders’ equity		14,312			16,858
Total liabilities and stockholders’ equity	$	15,029		$	17,807

The accompanying notes are an integral part of these condensed financial statements.

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Atomera Incorporated

Condensed Statements of Operations

(Unaudited)

(in thousands, except per share data)

	Three Months ended March 31,
	2018			2017
Operating expenses:
Research and development	$	1,690		$	1,456
General and administrative		1,203			1,603
Selling and marketing		246			509
Total operating expenses		3,139			3,568
Loss from operations		(3,139	)		(3,568	)
Other income/(expense):
Interest income		47			28
Other expense		–			(4	)
Total other income, net		47			24
Net loss	$	(3,092	)	$	(3,544	)
Net loss per common share, basic and diluted	$	(0.26	)	$	(0.31	)
Weighted average number of common shares outstanding, basic and diluted		12,041			11,572

The accompanying notes are an integral part of these condensed financial statements.

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Atomera Incorporated

Condensed Statements of Cash Flows

(Unaudited)

(in thousands)

	Three Months Ended March 31,
	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss	$	(3,092	)	$	(3,544	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		8			5
Stock-based compensation		546			1,210
Loss on disposal of equipment		1			–
Changes in operating assets and liabilities:
Accounts receivable		110			–
Prepaid expenses and other current assets		(153	)		(212	)
Accounts payable		85			(58	)
Accrued expenses		(31	)		32
Accrued payroll expenses		(286	)		(331	)
Net cash used in operating activities		(2,812	)		(2,898	)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment		(10	)		(8	)
Net cash used in investing activities		(10	)		(8	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash provided by financing activities		–			–
Net decrease in cash and cash equivalents		(2,822	)		(2,906	)
Cash and cash equivalents at beginning of period		17,369			26,718
Cash and cash equivalents at end of period	$	14,547		$	23,812

The accompanying notes are an integral part of these condensed financial statements.

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ATOMERA INCORPORATED

NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

Periods Ended March 31, 2018 and 2017

1. NATURE OF OPERATIONS

Atomera Incorporated (“Atomera” or the “Company”) was incorporated in the state of Delaware in March 2007 under the name MEARS Technologies, Inc. and is engaged in the development, commercialization and licensing of proprietary processes and technologies for the semiconductor industry. On January 12, 2016, the Company changed its name to Atomera Incorporated.

The Company is in the development stage, having not yet started planned principal operations, and is devoting substantially all of its efforts toward technology research and development. The Company has primarily financed operations through private placements of equity and debt securities and the Company’s Initial Public Offering (the “IPO”) which was consummated on August 10, 2016.

2. LIQUIDITY AND MANAGEMENT PLANS

At March 31, 2018, the Company had cash and cash equivalents of approximately $14.5 million and working capital of approximately $14.2 million. The Company has only generated limited revenues since inception, all of which was non-recurring revenue recognized in the fourth quarter of 2017, and has incurred recurring operating losses. At March 31, 2018 the Company had an accumulated deficit of approximately $112.2 million.

The Company’s operating plans for the next 12 months include increased spending on outsourced fabrication and testing and increased headcount in research and development. Based on the funds it has available as of the date of the filing of this report, the Company believes that it has sufficient capital to fund its current business plans and obligations over, at least, 12 months from the date that these financial statements have been issued. However, as the Company has not yet generated recurring revenue from planned principal operations, it is subject to all the risks inherent in the initial organization, financing, expenditures, complications and delays in a new business. Accordingly, the Company may require additional capital, the receipt of which cannot be assured. In the event the Company requires additional capital, there can be no guarantee that funds will be available on commercially reasonable terms, if at all.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies

There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 6, 2018 other than the adoption of Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606), which was adopted utilizing the full retrospective method. As a result, the Company has updated its Revenue policy.

The Company generates revenue from sales of its products and delivery of services to its customers. Revenue is recognized based on the following steps (i) identification of the contract, or contracts, with a customer, (ii) identification of the performance obligations in the contract, (iii) determination of the transaction price, (iv) allocation of the transaction price to the performance obligations of the contract, and (v) recognition of revenue when, or as, the Company satisfies a performance obligation.

Basis of presentation of unaudited condensed financial information

The unaudited condensed financial statements of the Company for the three months ended March 31, 2018 and 2017 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2017 was derived from the audited financial statements included in the Company's financial statements as of and for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 6, 2018. These financial statements should be read in conjunction with that report.

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Adoption of recent accounting standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance in this ASU requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company has adopted Topic 606 as of January 1, 2018 utilizing the full retrospective method of adoption. The adoption of Topic 606 did not have any impact on its results of operations and financial condition.

In May 2017, the FASB issued ASU No. 2017-09, Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting, clarifying when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. The new guidance is effective for the Company on a prospective basis beginning on January 1, 2018, with early adoption permitted. The adoption of this update and did not to have a material impact on its financial position, results of operations or financial statement disclosure.

4. BASIC AND DILUTED LOSS PER SHARE

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares outstanding for the period. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of shares and dilutive share equivalents outstanding for the period, determined using the treasury-stock and if-converted methods. Since the Company has had net losses for all periods presented, all potentially dilutive securities are anti-dilutive. Accordingly, basic and diluted net loss per share are equal.

The following potential common stock equivalents were not included in the calculation of diluted net loss per common share because the inclusion thereof would be anti-dilutive (in thousands):

	Three Months Ended March 31
	2018		2017
Stock Options		2,476		2,107
Unvested restricted stock		316		518
Warrants		765		765
		3,557		3,390

The calculation for basic and diluted loss per share excludes unvested restricted stock awards which are subject to forfeiture. 

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5. WARRANTS

A summary of warrant activity for the three months ended March 31, 2018 is as follows (shares in thousands except per share and contractual term):

	Number of Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (In Years)
Outstanding at January 1, 2018		765	$	5.75
Outstanding at March 31, 2018		765	$	5.75		2.61

The warrants outstanding at March 31, 2018 had an intrinsic value of approximately $1.6 million based on a per-share stock price of $6.24 as of March 31, 2018.

6. STOCK BASED COMPENSATION

In May 2017, the Company’s shareholders approved its 2017 Stock Incentive Plan (“2017 Plan”). The 2017 Plan provides for the grant of non-qualified stock options and incentive stock options to purchase shares of the Company’s common stock and for the grant of restricted and unrestricted share grants. The 2017 Plan provides for the issuance of 3,750,000 shares of common stock. All of the Company’s employees and any subsidiary employees (including officers and directors who are also employees), as well as all of the Company’s nonemployee directors and other consultants, advisors and other persons who provide services to the Company will be eligible to receive incentive awards under the 2017 Plan. Generally stock options and restricted stock vest over a one to four-year period from the date of grant under the 2017 Plan.

The following table summarizes the stock-based compensation expense recorded in the Company’s results of operations during the three months ended March 31, 2018 and 2017 for stock options and restricted stock from the 2017 Plan and 2007 Plan, the 2007 Plan expired in March 2017 (in thousands):

	Three Months Ended March 31,
	2018		2017
Research and development	$	112	$	88
General and administrative		400		852
Selling and Marketing		34		270
	$	546	$	1,210

As of March 31, 2018, there was approximately $5.5 million of total unrecognized compensation expense related to non-vested share-based compensation arrangements that are expected to vest. This cost is expected to be recognized over a weighted-average period of 2.7 years.

The weighted average grant date fair value per share of the options granted under the plan was $2.16 and $3.01 for the three months ended March 31, 2018 and 2017, respectively.

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The following table summarizes stock option activity during the three months ended March 31, 2018 (in thousands except exercise prices and contractual terms):

	Number of Shares		Weighted- Average Exercise Prices		Weighted- Average Remaining Contractual Term (In Years)		Intrinsic Value
Outstanding at January 1, 2018		2,141	$	7.03
Granted		335	$	5.64
Outstanding at March 31, 2018		2,476	$	6.84		8.3	$	493
Exercisable at March 31, 2018		1,105	$	7.15		7.71	$	119

During the three months ended March 31, 2018 the Company granted options under its 2017 Stock Incentive Plan to purchase 335,424 shares of its common stock to its employees. The fair value of these options was approximately $725,000.

The Company issues restricted stock to employees, directors and consultants and estimates the fair value based on the closing price on the day of grant. The following table summarizes all restricted stock activity during the three months ended March 31, 2018 (in thousands except per share data):

	Number of Shares			Weighted- Average Grant Date Fair Value
Outstanding at January 1, 2018		121		$	6.90
Granted		200		$	5.64
Vested		(5	)	$	7.01
Outstanding non-vested shares at March 31, 2018		316		$	6.10

During the three months ended March 31, 2018 the Company granted restricted stock awards under its 2017 Stock Incentive Plan to purchase 200,432 shares of its common stock to its employees. The fair value of these options was approximately $1.1 million at the time of grant.

7. COMMITMENTS AND CONTINGENCIES

Operating Leases

On January 19, 2016, the Company entered into a real estate lease agreement for a 3,396 square foot office facility in Los Gatos, California as its new corporate headquarters. The lease commenced on February 1, 2016 and expiring January 31, 2018. The lease was amended in December 2017 to extend the lease terms for three years through January 31, 2021. The lease rate is $12,735 per month with annual increases of 3%.

Approximate future minimum lease payments required under the operating leases are as follows (in thousands):

Years ending December 31,		Amount
	Remaining period in 2018	$	115
	2019		157
	2020		162
	2021		13
	Total	$	447

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Licensing agreement

In December 2006, the Company entered into a licensing agreement with ASM International N.V., a vendor or semiconductor manufacturing equipment located in Almere, The Netherlands, pursuant to which ASM has granted to the Company a non-exclusive, worldwide license to make, and sublicense others to make, semiconductor devices using certain ASM patents. The ASM license restricts the Company and its sublicensees from using the ASM licensed rights in the manufacture of epitaxial deposition machines or any other machines used to manufacture semiconductors. The ASM license, which is coterminous with patents licensed by ASM, expires on January 8, 2019, and requires the Company to pay ASM a royalty of 5% of net royalty revenue, generally defined as gross royalty revenue less certain customer offsets and credits, from the sale of any product incorporating the ASM licensed patents not manufactured on ASM equipment and a royalty of 2.5% of net revenue from the sale of any product incorporating ASM licensed patents manufactured on ASM equipment. All semiconductor devices incorporating the Company’s MST^® technology manufactured prior to January 8, 2019 will be subject to the ASM license royalty. The Company has incurred and paid a royalty obligation of approximately $3,000 under this license agreement through March 31, 2018.

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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 unaudited condensed financial statements and the accompanying notes that appear elsewhere in this filing. Statements in this Quarterly Report on Form 10-Q 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, 2017 filed with the SEC on March 6, 2018 and referenced under the heading “Risk Factors” within Part II, Item 1A of this Quarterly Report and other documents we subsequently file from time to time with the Securities and Exchange Commission (the “SEC”), such as our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K. 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 $400+ billion semiconductor industry. Our lead technology, named Mears Silicon Technology^TM, 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 can be applied as a transistor channel enhancement to CMOS-type transistors, the most widely used transistor type in the semiconductor industry. 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 smaller, with increased speed, reliability and energy 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 intend to design or manufacture integrated circuits directly. Instead, we intend to develop and license technologies and processes that we believe will 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 are expected to 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 who outsource the manufacture of their chips to foundries;

· original equipment manufacturers, or OEMs, that manufacture the epitaxial, or EPI, machines used to deposit semiconductor layers, such as the MST, onto the base silicon wafer; 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.

We intend to generate revenue through licensing arrangements whereby foundries and IDMs pay us a license fee for their use of 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 intend to enter into licensing arrangements with fabless semiconductor manufacturers pursuant to which we will charge them a royalty for each device they sell that incorporates our MST technology.

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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.

Results of Operations

Revenues and Cost of Revenues. We did not generate revenue in the three months ended March 31, 2018 or 2017. We have only generated limited revenues since inception, all of which was non-recurring revenue recognized in the fourth quarter of 2017.

Operating Expenses. Operating expenses consist of research and development, general and administrative, and selling and marketing expenses. For the three months ended March 31, 2018 and 2017, our operating expenses totaled approximately $3.1 million and $3.6 million, respectively. The decrease in operating expenses was primarily due to a decrease of approximately $665,000 in stock compensation expense.

Research and development expenses. To date, our operations have focused on the research, development, patent protection, and commercialization of our processes and technologies, including our proprietary and patent-protected MST performance enhancement technology. Our research and development costs primarily consist of payroll and benefit costs for our engineering staff and costs of outsourced fabrication and metrology of semiconductor wafers incorporating our MST technology.

For the three months ended March 31, 2018 and 2017, we incurred approximately $1.7 million and $1.5 million, respectively, of research and development expense, an increase of approximately $234,000 or 16%. The increase in research and development expense is primarily due to an increase of approximately $136,000 in spending on outsourced fabrication and metrology to support increased engagements with potential customers evaluating our MST, an increase of approximately $89,000 in payroll expense reflecting an increase in engineering headcount and an increase of approximately $24,000 in stock compensation expenses.

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 three months ended March 31, 2018 and 2017 were approximately $1.2 million and $1.6 million, respectively, representing a decrease of approximately $400,000 or 25%. The decrease in costs was primarily due to a decrease of approximately $452,000 in stock compensation expense. This cost was offset by an approximate $40,000 increase in professional fees primarily due to fees related to patent filings and maintenance.

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 three months ended March 31, 2018 and 2017 were approximately $246,000 and $509,000, respectively, representing a decrease of approximately $263,000, or 52%. Approximately $236,000 of the decrease is due to lower stock-based compensation. The remaining decrease is due to an approximately $31,000 decrease in consulting expense.

Interest income and expenses. Interest income for the three months ended March 31, 2018 and 2017 was approximately $47,000 and $28,000, respectively. Interest income for each period related to interest earned on our cash and cash equivalents.

Liquidity and Capital Resources

As of March 31, 2018, we had cash and cash equivalents of approximately $14.5 million and a working capital of approximately $14.2 million. For the three months ended March 31, 2018, we had a net loss of approximately $3.1 million and used approximately $2.8 million of cash in operations. Since inception, we have incurred recurring operating losses. At March 31, 2018, we had an accumulated deficit of approximately $112.2 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, the semiconductor industry is generally slow to adopt new manufacturing process technologies and conducts long testing and qualification processes which we have limited ability to control. In the event we require additional capital, we will endeavor to acquire additional funds through various financing sources, including follow-on equity offerings, debt financing and joint ventures with industry partners. On October 13, 2017, the SEC declared effective our Registration Statement on Form S-3 which enables us to issue equity and/or debt instruments in one or more offerings. In addition, we will consider alternatives to our current business plan that may enable to us to achieve revenue-producing operations and meaningful commercial success with a smaller amount of capital. However, there can be no guarantees that additional capital, whether under the S-3 Registration Statement or otherwise, will be available on commercially reasonable terms, if at all. If such financing is not available on satisfactory terms, we may be unable to further pursue our business plan and we may be unable to continue operations.

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Cash Flows from Operating, Investing and Financing Activities

Net cash used in operating activities of approximately $2.8 million for the three months ended March 31, 2018 resulted primarily from our net loss of approximately $3.1 million adjusted by approximately $545,000 for stock-based compensation expense and an increase of approximately $43,000 in accounts receivable and prepaids offset by a decrease of approximately $232,000 in accounts payable and other accrued expenses.

Net cash used in operating activities of approximately $2.9 million for the three months ended March 31, 2017 resulted primarily from our net loss of approximately $3.5 million adjusted by approximately $1.2 million for stock-based compensation expense, a decrease of approximately $331,000 in accrued payroll expense and an approximate $212,000 decrease in prepaid expenses.

Net cash used in investing activities of approximately $10,000 for the three months ended March 31, 2018 and approximately $8,000 for three months ended March 31, 2017 consisted of the purchase of property and equipment.

No cash was used in or provided by financing activities for the three months ended March 31, 2018 or 2017.

 Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements or issued guarantees to third parties.

Recent Accounting Pronouncements

We are required to adopt certain new accounting pronouncements. See note 3 to the condensed financial statements included in Item 1 of this Form 10-Q.

Critical Accounting Policies

There have been no changes to our critical accounting policies from those included in our Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on March 6, 2018.

Item 3. Quantitative and Qualitative Disclosure about Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and principal financial and accounting officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based on this evaluation, management concluded that our disclosure controls and procedures were effective as of March 31, 2018.

Changes in Internal Control over Financial Reporting

There have not been any changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15(d)-15(f) under the Exchange Act) during the three-month period ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II. Other Information

Item 1A. Risk Factors

The primary risk factors affecting our business have not changed materially from the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on March 6, 2018.

Item 6. Exhibits

The following is a list of exhibits files as part of this Report on Form 10-Q:

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

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and the on the date indicated.

	ATOMERA INCORPORATED.
Date: May 15, 2018	By:	/s/ Scott A. Bibaud
		Scott A. Bibaud Chief Executive Officer,
		(Principal Executive Officer)
		and Director
Date: May 15, 2018	By:	/s/ Francis B. Laurencio
		Francis B. Laurencio
		Chief Financial Officer
		(Principal Financial and
		Accounting Officer)

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EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Scott A. Bibaud, certify that:

(1) I have reviewed this Form 10-Q of Atomera Incorporated (the “Company”);

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

(4) The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d- 15(f)) for the company and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; And

(5) The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

	ATOMERA INCORPORATED
Date: May 15, 2018	By: /s/ Scott A. Bibaud
	Scott A. Bibaud, Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Francis B. Laurencio, certify that:

(6) I have reviewed this Form 10-Q of Atomera Incorporated (the “Company”);

(7) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(8) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

(9) The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d- 15(f)) for the company and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; And

(10) The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

	ATOMERA INCORPORATED
Date: May 15, 2018	By: /s/ Francis B. Laurencio
	Francis B. Laurencio, Chief Financial Officer (Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18

U.S.C. 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Atomera Incorporated (the “Company”) on Form 10-Q for the period ended March 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Scott A. Bibaud, the Chief Executive Officer, and Francis B. Laurencio, the Chief Financial Officer, of the Company, respectively, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ Scott A. Bibaud	Dated:  May 15, 2018
	Scott A. Bibaud
	Title: President and Chief Executive Officer
By:	/s/ Francis B. Laurencio	Dated:  May 15, 2018
	Francis B. Laurencio
	Title: Chief Financial Officer

This certification is made solely for the purposes of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose.

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Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2018	May 04, 2018
Document And Entity Information
Entity Registrant Name	Atomera Inc
Entity Central Index Key	0001420520
Document Type	10-Q
Trading Symbol	ATOM
Document Period End Date	Mar. 31, 2018
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity a Well-known Seasoned Issuer	No
Entity a Voluntary Filer	No
Entity's Reporting Status Current	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		12,361,069
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2018
Entity Small Business	true
Entity Emerging Growth Company	true

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Condensed Balance Sheets (Unaudited) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Current Assets:
Cash and cash equivalents	$ 14,547	$ 17,369
Accounts receivable	0	110
Prepaid expenses and other current assets	401	248
Total current assets	14,948	17,727
Property and equipment, net	68	67
Security deposit	13	13
Total assets	15,029	17,807
Current liabilities:
Accounts payable	283	198
Accrued expenses	208	239
Accrued payroll related expenses	226	512
Total liabilities	717	949
Stockholders' equity:
Preferred stock, $0.001 par value, authorized 2,500 shares; none issued and outstanding at March 31, 2018 and December 31, 2017	0	0
Common stock, $0.001 par value, authorized 47,500 shares; 12,361 and 12,161 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively	12	12
Additional paid-in capital	126,457	125,911
Accumulated deficit	(112,157)	(109,065)
Total stockholders' equity	14,312	16,858
Total liabilities and stockholders' equity	$ 15,029	$ 17,807

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Condensed Balance Sheets (Unaudited) (Parenthetical) - $ / shares shares in Thousands	Mar. 31, 2018	Dec. 31, 2017
Statement of Financial Position [Abstract]
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, authorized	2,500	2,500
Preferred stock, issued	0	0
Preferred stock, outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, authorized	47,500	47,500
Common stock, issued	12,361	12,161
Common stock, oustanding	12,361	12,161

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Condensed Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Operating Expenses:
Research and development	$ 1,690	$ 1,456
General and administrative	1,203	1,603
Selling and marketing	246	509
Total operating expenses	3,139	3,568
Loss from operations	(3,139)	(3,568)
Other income/(expense):
Interest income	47	28
Other expense	0	(4)
Total other income, net	47	24
Net loss	$ (3,092)	$ (3,544)
Net loss per common share, basic and diluted	$ (.26)	$ (.31)
Weighted average number of common shares outstanding, basic and diluted	12,041	11,572

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Condensed Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss	$ (3,092)	$ (3,544)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	8	5
Stock-based compensation	546	1,210
Loss on disposal of equipment	1	0
Changes in operating assets and liabilities:
Accounts receivable	110	0
Prepaid expenses and other current assets	(153)	(212)
Accounts payable	85	(58)
Accrued expenses	(31)	32
Accrued payroll expenses	(286)	(331)
Net cash used in operating activities	(2,812)	(2,898)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment	(10)	(8)
Net cash used in investing activities	(10)	(8)
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash provided by financing activities	0	0
Net decrease in cash and cash equivalents	(2,822)	(2,906)
Cash and cash equivalents at beginning of period	17,369	26,718
Cash and cash equivalents at end of period	$ 14,547	$ 23,812

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1. NATURE OF OPERATIONS

3 Months Ended

Mar. 31, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

NATURE OF OPERATIONS

1. NATURE OF OPERATIONS

Atomera Incorporated (“Atomera” or the “Company”) was incorporated in the state of Delaware in March 2007 under the name MEARS Technologies, Inc. and is engaged in the development, commercialization and licensing of proprietary processes and technologies for the semiconductor industry. On January 12, 2016, the Company changed its name to Atomera Incorporated.

The Company is in the development stage, having not yet started planned principal operations, and is devoting substantially all of its efforts toward technology research and development. The Company has primarily financed operations through private placements of equity and debt securities and the Company’s Initial Public Offering (the “IPO”) which was consummated on August 10, 2016.

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2. LIQUIDITY AND MANAGEMENT PLANS

3 Months Ended

Mar. 31, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

LIQUIDITY AND MANAGEMENT PLANS

2. LIQUIDITY AND MANAGEMENT PLANS

At March 31, 2018, the Company had cash and cash equivalents of approximately $14.5 million and working capital of approximately $14.2 million. The Company has only generated limited revenues since inception, all of which was non-recurring revenue recognized in the fourth quarter of 2017, and has incurred recurring operating losses. At March 31, 2018 the Company had an accumulated deficit of approximately $112.2 million.

The Company’s operating plans for the next 12 months include increased spending on outsourced fabrication and testing and increased headcount in research and development. Based on the funds it has available as of the date of the filing of this report, the Company believes that it has sufficient capital to fund its current business plans and obligations over, at least, 12 months from the date that these financial statements have been issued. However, as the Company has not yet generated recurring revenue from planned principal operations, it is subject to all the risks inherent in the initial organization, financing, expenditures, complications and delays in a new business. Accordingly, the Company may require additional capital, the receipt of which cannot be assured. In the event the Company requires additional capital, there can be no guarantee that funds will be available on commercially reasonable terms, if at all.

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3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2018

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies

There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 6, 2018 other than the adoption of Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606), which was adopted utilizing the full retrospective method. As a result, the Company has updated its Revenue policy.

The Company generates revenue from sales of its products and delivery of services to its customers. Revenue is recognized based on the following steps (i) identification of the contract, or contracts, with a customer, (ii) identification of the performance obligations in the contract, (iii) determination of the transaction price, (iv) allocation of the transaction price to the performance obligations of the contract, and (v) recognition of revenue when, or as, the Company satisfies a performance obligation.

Basis of presentation of unaudited condensed financial information

The unaudited condensed financial statements of the Company for the three months ended March 31, 2018 and 2017 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2017 was derived from the audited financial statements included in the Company's financial statements as of and for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 6, 2018. These financial statements should be read in conjunction with that report.

Adoption of recent accounting standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance in this ASU requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company has adopted Topic 606 as of January 1, 2018 utilizing the full retrospective method of adoption. The adoption of Topic 606 did not have any impact on its results of operations and financial condition.

In May 2017, the FASB issued ASU No. 2017-09, Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting, clarifying when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. The new guidance is effective for the Company on a prospective basis beginning on January 1, 2018, with early adoption permitted. The adoption of this update and did not to have a material impact on its financial position, results of operations or financial statement disclosure.

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4. BASIC AND DILUTED LOSS PER SHARE

3 Months Ended

Mar. 31, 2018

Earnings Per Share [Abstract]

BASIC AND DILUTED LOSS PER SHARE

4. BASIC AND DILUTED LOSS PER SHARE

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares outstanding for the period. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of shares and dilutive share equivalents outstanding for the period, determined using the treasury-stock and if-converted methods. Since the Company has had net losses for all periods presented, all potentially dilutive securities are anti-dilutive. Accordingly, basic and diluted net loss per share are equal.

The following potential common stock equivalents were not included in the calculation of diluted net loss per common share because the inclusion thereof would be anti-dilutive (in thousands):

	Three Months Ended March 31
	2018		2017
Stock Options		2,476		2,107
Unvested restricted stock		316		518
Warrants		765		765
		3,557		3,390

The calculation for basic and diluted loss per share excludes unvested restricted stock awards which are subject to forfeiture. 

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5. WARRANTS

3 Months Ended

Mar. 31, 2018

Equity [Abstract]

WARRANTS

5. WARRANTS

A summary of warrant activity for the three months ended March 31, 2018 is as follows (shares in thousands except per share and contractual term):

	Number of Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (In Years)
Outstanding at January 1, 2018		765	$	5.75
Outstanding at March 31, 2018		765	$	5.75		2.61

The warrants outstanding at March 31, 2018 had an intrinsic value of approximately $1.6 million based on a per-share stock price of $6.24 as of March 31, 2018.

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6. STOCK BASED COMPENSATION

3 Months Ended

Mar. 31, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK BASED COMPENSATION

6. STOCK BASED COMPENSATION

In May 2017, the Company’s shareholders approved its 2017 Stock Incentive Plan (“2017 Plan”). The 2017 Plan provides for the grant of non-qualified stock options and incentive stock options to purchase shares of the Company’s common stock and for the grant of restricted and unrestricted share grants. The 2017 Plan provides for the issuance of 3,750,000 shares of common stock. All of the Company’s employees and any subsidiary employees (including officers and directors who are also employees), as well as all of the Company’s nonemployee directors and other consultants, advisors and other persons who provide services to the Company will be eligible to receive incentive awards under the 2017 Plan. Generally stock options and restricted stock vest over a one to four-year period from the date of grant under the 2017 Plan.

The following table summarizes the stock-based compensation expense recorded in the Company’s results of operations during the three months ended March 31, 2018 and 2017 for stock options and restricted stock from the 2017 Plan and 2007 Plan, the 2007 Plan expired in March 2017 (in thousands):

	Three Months Ended March 31,
	2018		2017
Research and development	$	112	$	88
General and administrative		400		852
Selling and Marketing		34		270
	$	546	$	1,210

As of March 31, 2018, there was approximately $5.5 million of total unrecognized compensation expense related to non-vested share-based compensation arrangements that are expected to vest. This cost is expected to be recognized over a weighted-average period of 2.7 years.

The weighted average grant date fair value per share of the options granted under the plan was $2.16 and $3.01 for the three months ended March 31, 2018 and 2017, respectively.

The following table summarizes stock option activity during the three months ended March 31, 2018 (in thousands except exercise prices and contractual terms):

	Number of Shares		Weighted- Average Exercise Prices		Weighted- Average Remaining Contractual Term (In Years)		Intrinsic Value
Outstanding at January 1, 2018		2,141	$	7.03
Granted		335	$	5.64
Outstanding at March 31, 2018		2,476	$	6.84		8.3	$	493
Exercisable at March 31, 2018		1,105	$	7.15		7.71	$	119

During the three months ended March 31, 2018 the Company granted options under its 2017 Stock Incentive Plan to purchase 335,424 shares of its common stock to its employees. The fair value of these options was approximately $725,000.

The Company issues restricted stock to employees, directors and consultants and estimates the fair value based on the closing price on the day of grant. The following table summarizes all restricted stock activity during the three months ended March 31, 2018 (in thousands except per share data):

	Number of Shares			Weighted- Average Grant Date Fair Value
Outstanding at January 1, 2018		121		$	6.90
Granted		200		$	5.64
Vested		(5	)	$	7.01
Outstanding non-vested shares at March 31, 2018		316		$	6.10

During the three months ended March 31, 2018 the Company granted restricted stock awards under its 2017 Stock Incentive Plan to purchase 200,432 shares of its common stock to its employees. The fair value of these options was approximately $1.1 million at the time of grant.

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7. COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2018

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

7. COMMITMENTS AND CONTINGENCIES

Operating Leases

On January 19, 2016, the Company entered into a real estate lease agreement for a 3,396 square foot office facility in Los Gatos, California as its new corporate headquarters. The lease commenced on February 1, 2016 and expiring January 31, 2018. The lease was amended in December 2017 to extend the lease terms for three years through January 31, 2021. The lease rate is $12,735 per month with annual increases of 3%.

Approximate future minimum lease payments required under the operating leases are as follows (in thousands):

Years ending December 31,		Amount
	Remaining period in 2018	$	115
	2019		157
	2020		162
	2021		13
	Total	$	447

Licensing agreement

In December 2006, the Company entered into a licensing agreement with ASM International N.V., a vendor or semiconductor manufacturing equipment located in Almere, The Netherlands, pursuant to which ASM has granted to the Company a non-exclusive, worldwide license to make, and sublicense others to make, semiconductor devices using certain ASM patents. The ASM license restricts the Company and its sublicensees from using the ASM licensed rights in the manufacture of epitaxial deposition machines or any other machines used to manufacture semiconductors. The ASM license, which is coterminous with patents licensed by ASM, expires on January 8, 2019, and requires the Company to pay ASM a royalty of 5% of net royalty revenue, generally defined as gross royalty revenue less certain customer offsets and credits, from the sale of any product incorporating the ASM licensed patents not manufactured on ASM equipment and a royalty of 2.5% of net revenue from the sale of any product incorporating ASM licensed patents manufactured on ASM equipment. All semiconductor devices incorporating the Company’s MST^® technology manufactured prior to January 8, 2019 will be subject to the ASM license royalty. The Company has incurred and paid a royalty obligation of approximately $3,000 under this license agreement through March 31, 2018.

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3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2018

Accounting Policies [Abstract]

Significant accounting policies

Significant accounting policies

There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 6, 2018 other than the adoption of Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606), which was adopted utilizing the full retrospective method. As a result, the Company has updated its Revenue policy.

The Company generates revenue from sales of its products and delivery of services to its customers. Revenue is recognized based on the following steps (i) identification of the contract, or contracts, with a customer, (ii) identification of the performance obligations in the contract, (iii) determination of the transaction price, (iv) allocation of the transaction price to the performance obligations of the contract, and (v) recognition of revenue when, or as, the Company satisfies a performance obligation.

Basis of presentation of unaudited condensed financial information

Basis of presentation of unaudited condensed financial information

The unaudited condensed financial statements of the Company for the three months ended March 31, 2018 and 2017 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2017 was derived from the audited financial statements included in the Company's financial statements as of and for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 6, 2018. These financial statements should be read in conjunction with that report.

Adoption of recent accounting standards

Adoption of recent accounting standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance in this ASU requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company has adopted Topic 606 as of January 1, 2018 utilizing the full retrospective method of adoption. The adoption of Topic 606 did not have any impact on its results of operations and financial condition.

In May 2017, the FASB issued ASU No. 2017-09, Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting, clarifying when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. The new guidance is effective for the Company on a prospective basis beginning on January 1, 2018, with early adoption permitted. The adoption of this update and did not to have a material impact on its financial position, results of operations or financial statement disclosure.

Recent accounting standards

Recent accounting standards

In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This update allows companies the option to reclassify to retained earnings the tax effects related to items in Accumulated other comprehensive income (loss) as a result of the Tax Cuts and Jobs Act that was enacted on December 22, 2017. This update is effective in fiscal years, including interim periods, beginning after December 15, 2018, and early adoption is permitted. This guidance should be applied either in the period of adoption or retrospectively to each period in which the effects of the change in the U.S. federal income tax rate in the Tax Cuts and Jobs Act is recognized. Since the Company currently does not have accumulated other comprehensive income, this update does not have an impact on its financial position, results of operations or financial statement disclosure.

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4. BASIC AND DILUTED LOSS PER SHARE (Tables)

3 Months Ended

Mar. 31, 2018

Earnings Per Share [Abstract]

Schedule of potential common stock equivalents not included in the calculation of diluted net loss per common share

	Three Months Ended March 31
	2018		2017
Stock Options		2,476		2,107
Unvested restricted stock		316		518
Warrants		765		765
		3,557		3,390

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5. WARRANTS (Tables)

3 Months Ended

Mar. 31, 2018

Equity [Abstract]

Schedule of warrant activity

	Number of Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (In Years)
Outstanding at January 1, 2018		765	$	5.75
Outstanding at March 31, 2018		765	$	5.75		2.61

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6. STOCK BASED COMPENSATION (Tables)

3 Months Ended

Mar. 31, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of stock-based compensation expense

	Three Months Ended March 31,
	2018		2017
Research and development	$	112	$	88
General and administrative		400		852
Selling and Marketing		34		270
	$	546	$	1,210

Schedule of stock option activity

	Number of Shares		Weighted- Average Exercise Prices		Weighted- Average Remaining Contractual Term (In Years)		Intrinsic Value
Outstanding at January 1, 2018		2,141	$	7.03
Granted		335	$	5.64
Outstanding at March 31, 2018		2,476	$	6.84		8.3	$	493
Exercisable at March 31, 2018		1,105	$	7.15		7.71	$	119

Schedule of restricted stock option activity

	Number of Shares			Weighted- Average Grant Date Fair Value
Outstanding at January 1, 2018		121		$	6.90
Granted		200		$	5.64
Vested		(5	)	$	7.01
Outstanding non-vested shares at March 31, 2018		316		$	6.10

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7. COMMITMENTS AND CONTINGENCIES (Tables)

3 Months Ended

Mar. 31, 2018

Commitments and Contingencies Disclosure [Abstract]

Schedule of future minimum lease payments required under operating leases

Years ending December 31,		Amount
	Remaining period in 2018	$	115
	2019		157
	2020		162
	2021		13
	Total	$	447

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2. LIQUIDITY AND MANAGEMENT PLANS (Details Narrative) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2017	Dec. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Cash and cash equivalents	$ 14,547	$ 17,369	$ 23,812	$ 26,718
Working capital	14,200
Accumulated deficit	$ (112,157)	$ (109,065)

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4. BASIC AND DILUTED LOSS PER SHARE (Details) - shares shares in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Potential common stock equivalents	3,557	3,390
Stock Options [Member]
Potential common stock equivalents	2,476	2,107
Unvested Restricted Stock [Member]
Potential common stock equivalents	316	518
Warrants [Member]
Potential common stock equivalents	765	765

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5. WARRANTS (Details) - Warrants [Member] shares in Thousands	3 Months Ended
	Mar. 31, 2018 $ / shares shares
Warrants and Rights Note Disclosure, Shares Outstanding [Roll Forward]
Outstanding at beginning | shares	765
Outstanding at ending | shares	765
Warrants and Rights Note Disclosure, Weighted Average Exercise Price [Roll Forward]
Outstanding at beginning | $ / shares	$ 5.75
Outstanding at ending | $ / shares	$ 5.75
Warrants and Rights Note Disclosure, Weighted Average Remaining Contractual Term [Roll Forward]
Outstanding at ending	2 years 7 months 10 days

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5. WARRANTS (Details Narrative) - Warrants [Member] $ / shares in Units, $ in Thousands	Mar. 31, 2018 USD ($) $ / shares
Intrinsic value | $	$ 1,600
Stock price | $ / shares	$ 6.24

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6. STOCK BASED COMPENSATION (Details - Compensation Expense) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Allocated stock-based compensation	$ 546	$ 1,210
Research and Development [Member]
Allocated stock-based compensation	112	88
General and Administrative [Member]
Allocated stock-based compensation	400	852
Selling and Marketing [Member]
Allocated stock-based compensation	$ 34	$ 370

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6. STOCK BASED COMPENSATION (Details - Stock Option Activity) - Options [Member] $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2018 USD ($) $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Options outstanding, beginning balance | shares	2,141,000
Options granted | shares	335,000
Options outstanding, ending balance | shares	2,476,000
Options exercisable | shares	1,105,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Prices [Roll Forward]
Weighted average exercise price, options outstanding beginning balance | $ / shares	$ 7.03
Weighted average exercise price, options granted | $ / shares	5.64
Weighted average exercise price, options outstanding, ending balance | $ / shares	6.84
Weighted average exercise price, options exercisable | $ / shares	$ 7.15
Share-based Compensation Arrangement by Share-based Payment Award, Options, Weighted-Average Remaining Contractual Term [Roll Forward]
Weighted average remaining contractual term, options outstanding	8 years 3 months 18 days
Weighted average remaining contractual term, options exercisable	7 years 8 months 16 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Intrinsic Value [Roll Forward]
Intrinsic value, options outstanding ending balance | $	$ 493
Intrinsic value, options exercisable | $	$ 119

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6. STOCK BASED COMPENSATION (Details - Restricted stock) - Restricted Stock [Member] shares in Thousands	3 Months Ended
	Mar. 31, 2018 $ / shares shares
Number of shares
Restricted stock outstanding, beginning balance | shares	121
Restricted stock granted | shares	200
Restricted stock vested | shares	(5)
Restricted stock outstanding, ending balance | shares	316
Weighted-Average Grant Date Fair Value
Restricted stock outstanding, beginning balance | $ / shares	$ 6.90
Restricted stock granted | $ / shares	5.64
Restricted stock vested | $ / shares	7.01
Restricted stock outstanding, ending balance | $ / shares	$ 6.10

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6. STOCK BASED COMPENSATION (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Options [Member]
Unrecognized compensation expense	$ 5,500
Unrecognized compensation weighted average period	2 years 8 months 12 days
Options granted	335,000
Fair value of options granted	$ 725
Weighted average grant date fair value per share	$ 2.16	$ 3.01
Restricted Stock [Member]
Restricted stock granted	200,000
2017 Plan [Member]
Shares authorized for issuance	3,750,000
2007 Plan [Member] | Options [Member]
Options granted	335,424
Fair value of options granted	$ 725
2007 Plan [Member] | Restricted Stock [Member]
Restricted stock granted	200,432
Fair value of restricted stock granted	$ 1,100

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7. COMMITMENTS AND CONTINGENCIES (Details) $ in Thousands	Mar. 31, 2018 USD ($)
Commitments and Contingencies Disclosure [Abstract]
Remaining period in 2018	$ 115
2019	157
2020	162
2021	13
Total future minimum payments due	$ 447

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7. COMMITMENTS AND CONTINGENCIES (Details Narrative) - Office Space [Member] - California (Los Gatos) [Member] - Real Estate Lease Agreement [Member]	3 Months Ended
	Mar. 31, 2018 USD ($)
Monthly lease payment	$ 12,735
Frequency of payment	Monthly
Lease expiration date	Jan. 31, 2021