What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-09 compared with 2022-08-02 · 104 added, 95 removed, 125 unchanged (61% of the section changed)

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

fabless semiconductor manufacturers, which are designers of integrated circuits that outsource the 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 film, onto the silicon wafer;

fabless semiconductor manufacturers, which are designers of integrated circuits that outsource the manufacturing 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 film, onto silicon wafers;

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.

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incorporates our MST technology.

To date we have generated revenue from (i) licensing agreements with two IDMs, one fabless manufacturer

and one foundry, (ii) a joint development agreement, or JDA, with a leading semiconductor provider and (iii) engineering services provided

to foundries, IDMs and fabless companies.

We also license our MSTcad TM software to our customers for use in simulating the effects of

using MST technology on their wafers and/or devices.

To date, we have generated revenue from (i) licensing agreements with two IDMs, one

fabless manufacturer and one foundry, (ii) a joint development agreement, or JDA, with a leading semiconductor provider, (iii) engineering

services provided to foundries, IDMs and fabless companies and (iv) licensing MSTcad.

We were organized as a Delaware

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million in an “at-the-market” or ATM offering, to or through the agents.

As of June 30, 2022, 31,652 shares had been sold

at an average price per share of approximately $11.24, resulting in approximately $185,000 of net proceeds to us after deducting commissions

and other offering expenses.

During the three months ended September 30, 2022,

approximately 386,000 shares were sold at an average price per share of approximately $12.34, resulting in approximately $4.6 million

of net proceeds to us after deducting commissions and other offering expenses.

Results of Operations

we have only generated limited revenue from customer engagements for integration engineering services, integration license agreements,

and a manufacturing license granted under a JDA.

In the future, we expect to collect increased fees from license agreements and JDAs as

well as royalties from customer sales of products that incorporate our MST technology, subject to our ability to enter into manufacturing

and distribution license agreements with our current and future licensees.

Our integration services consist of depositing our MST film

on semiconductor wafers, delivering such wafers to customers to finalize building devices, and performing tests for customers evaluating

The integration license agreements we have entered into grant the licensees the right to build products that integrate our MST technology

deposited by us onto their semiconductor wafers, but the agreements do not grant the licensees the rights to manufacture MST-enabled wafers

in their facilities or to sell products incorporating MST.

Our JDA included the grant of a manufacturing license to our customer and we

were paid for such license upon delivery of our IP transfer package which enabled our customer to install MST in a tool in their facility

and to use it to manufacture wafers for internal use.

This JDA also contained targeted technical specifications that, if met, would result

in payment of a success fee to us.

a manufacturing license granted under a JDA and licensing of MSTcad.

In the future, we expect to collect increased fees from license agreements

and JDAs as well as royalties from customer sales of products that incorporate our MST technology, subject to our ability to enter into

manufacturing and distribution license agreements with our current and future licensees.

Our integration services consist of depositing

our MST film on semiconductor wafers, delivering such wafers to customers to finalize building devices, and performing tests for customers

evaluating MST.

The integration license agreements we have entered into grant the licensees the right to build products that integrate

our MST technology deposited by us onto their semiconductor wafers, but the agreements do not grant the licensees the rights to manufacture

MST-enabled wafers in their facilities or to sell products incorporating MST.

Our JDA included the grant of a manufacturing license to

our customer and we were paid for such license upon delivery of our IP transfer package which enabled our customer to install MST in a

tool in their facility and to use it to manufacture wafers for internal use.

This JDA also contained targeted technical specifications

that, if met, would result in payment of a success fee to us.

Those technical objectives were met and we have collected the success fee.

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services revenue and recognized upon our customer’s confirmation that the JDA’s technical objectives had been met.

Revenue was not recorded for

the three months ended June 30, 2022 or 2021.

Revenue for the six months ended June 30, 2022 and 2021 was $375,000 and $400,000, respectively.

Our revenue in 2022 consisted of a success fee pursuant to our JDA and a license fee paid under an integration license agreement.

revenue in 2021 consisted of a manufacturing license fee pursuant to our JDA.

Our licensing

of MSTcad grants customers the right to use MSTcad software to simulate the effects of incorporating MST technology into their semiconductor

manufacturing process.

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

Revenue for the three months

ended September 30, 2022 and 2021 was $2,000 and $0, respectively.

Revenue for the three months ended September 30, 2022 consisted of

MSTcad licensing.

Revenue for the nine months ended September 30, 2022 and 2021 was $377,000 and $400,000, respectively.

Our revenue for

the nine months ended September 30, 2022 consisted of a success fee pursuant to our JDA, a license fee paid under an integration license

agreement and MSTcad license revenue.

Our revenue for the nine months ended September 30, 2021 consisted of a manufacturing license fee

pursuant to our JDA.

Cost of revenue .

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and wafers delivered as part of the integration license agreement.

Cost of revenue was not recorded for the three months ended June 30,

Cost of revenue was not recorded for the three months ended September

30, 2022 or 2021.

Cost of revenue was approximately $81,000 and $0 for the six months ended June 30, 2022 and 2021, respectively.

We anticipate

that our cost of revenue will vary substantially depending on the mix of license and engineering services revenues we receive and the

nature of products and/or services delivered in each customer engagement.

Cost of revenue was approximately $81,000 and $0 for the nine months ended September 30, 2022 and 2021, respectively.

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

and the nature of products and/or services delivered in each customer engagement.

Operating expenses.

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For the three

months ended June 30, 2022 and 2021, our operating expenses totaled approximately $4.4 million and $3.7 million, respectively.

six months ended June 30, 2022 and 2021 our operating expenses totaled approximately $8.8 million and $7.7 million respectively.

months ended September 30, 2022 and 2021, our operating expenses totaled approximately $4.7 million and $4.1 million, respectively.

the nine months ended September 30, 2022 and 2021, our operating expenses totaled approximately $13.4 million and $11.9 million respectively.

Research and development

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For the three months ended

June 30, 2022 and 2021, we incurred approximately $2.4 million and $2.1 million, respectively, of research and development expense, an

increase of approximately $364,000, or 18%.

The increase was primarily due to approximately $400,000 of tool lease expense as the tool

lease commenced in August 2021, offset by a reduction in payroll related expense of approximately $45,000.

For the six months ended June

30, 2022 and 2021, we incurred approximately $4.8 million and $4.3 million, respectively, of research and development expense, an increase

of approximately $474,000, or 11%.

The increase was primarily due to approximately $810,000 of tool lease expense as the tool lease commenced

in August 2021, offset by a reduction in payroll related expense of approximately $194,000 and reduction of approximately $287,000 in

outsourced research and development expenses.

September 30, 2022 and 2021, we incurred approximately $2.7 million and $2.2 million, respectively, of research and development expense,

an increase of approximately $511,000, or 23%.

The increase was primarily due to approximately $315,000 of outsourced research and development,

approximately $110,000 in recruiting fees for newly-hired employees and approximately $64,000 in consulting fees.

For the nine months ended

September 30, 2022 and 2021, we incurred approximately $7.5 million and $6.5 million, respectively, of research and development expense,

an increase of approximately $985,000, or 15%.

The increase was primarily due to approximately $908,000 of tool lease related expenses

as the tool lease commenced in August 2021, an increase of approximately $70,000 in recruiting costs for newly-hired employees and an

increase in stock-based compensation of approximately $86,000 The increases in these costs was partly offset by a reduction in payroll-related

expense of approximately $183,000.

General and administrative

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costs and professional fees.

General and administrative costs for the three months ended June 30, 2022 and 2021 were approximately $1.7

million and $1.5 million, respectively, representing an increase of approximately $161,000, or 11%.

The increase in costs was primarily

due to increases of approximately $92,000 in employee-related costs and legal and approximately $115,000 in patent fees, offset in part

by a decrease of approximately $55,000 in stock-based compensation.

General and administrative costs were approximately $1.6 million in both the three months ended September

30, 2022 and 2021, representing a decrease of approximately $70,000, or 4%.

The decrease is primarily related to reduced patent-related

costs offset by higher payroll-related costs and stock-based compensation.

General and administrative

costs for the six months ended June 30, 2022 and 2021 were approximately $3.3 million and $3.0 million, respectively, representing an

increase of approximately $296,000, or 10%.

The increase in costs was primarily due to increases of approximately $40,000 in employee

related costs, $211,000 in legal and patent fees and $94,000 in insurance expenses, offset in part by a decrease of approximately $80,000

in stock-based compensation.

costs for the nine months ended September 30, 2022 and 2021 were approximately $4.9 million and $4.7 million, respectively, representing

an increase of approximately $226,000, or 5%.

The increase in costs was primarily due to increases of approximately $107,000 in employee-related

costs and $95,000 in insurance expenses.

Selling and marketing expense.

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consulting services.

Selling and marketing expenses for the three months ended June 30, 2022 and 2021 were approximately $347,000 and

$137,000, respectively, representing an increase of approximately $210,000, or 153%.

Selling and marketing expenses for the three months ended September 30, 2022 and 2021 were approximately $347,000

and $267,000, respectively, representing an increase of approximately $80,000, or 30%.

The increase in costs is primarily related to increased

spending in employee related costs of approximately $87,000, an increase in outsourced marketing expenses of approximately $39,000 and

an increase in stock-based compensation of approximately $38,000.

costs related to payroll, travel and stock-based compensation.

Selling and marketing expenses

for the six months ended June 30, 2022 and 2021 were approximately $672,000 and $403,000, respectively, representing an increase of approximately

$269,000, or 67%.

for the nine months ended September 30, 2022 and 2021 were approximately $1.0 million and $670,000, respectively, representing an increase

of approximately $349,000, or 52%.

The increase in costs is primarily related to increased spending in employee-related costs of approximately

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Interest income.

income for three months ended June 30, 2022 and 2021 was approximately $35,000 and $3,000, respectively.

Interest income for the six months

ended June 30, 2022 was approximately $38,000 and $5,000, respectively.

Interest income for each period related to interest earned on

our cash and cash equivalents.

income for three months ended September 30, 2022 and 2021 was approximately $113,000 and $2,000, respectively.

Interest income for the

nine months ended September 30, 2022 and 2021 was approximately $151,000 and $7,000, respectively.

Interest income for each period related

to interest earned on our cash and cash equivalents.

Interest expense.

expense for the three and six months ended June 30, 2022 was approximately $69,000 and $140,000 respectively and related to the new tool

financing lease entered into in August 2021.

There was no interest expense recorded for the three or six months ended June 30, 2021 because

the tool financing lease commenced after those periods.

expense for the three and nine months ended September 30, 2022 was approximately $60,000 and $200,000, respectively.

Interest expense

was approximately $52,000 for each of the three and nine months ended September 30, 2021.

Interest expense is related to the tool financing

lease entered into in August 2021.

Provision for income taxes .

The provision for income tax for the three and six months ended June 30, 2021 was approximately $17,000 and $31,000, respectively, and

related to income taxes due to a foreign country arising from withholding taxes imposed on payments received for revenue.

provision for income tax recorded for the three or six months ended June 30, 2022.

The provision for income tax for the three and nine months ended September 30, 2021 was approximately $17,000 and $48,000, respectively,

and related to income taxes due to a foreign country arising from withholding taxes imposed on payments received for revenue.

no provision for income tax recorded for the three or nine months ended September 30, 2022.

Cash Flows from Operating, Investing and Financing

Net cash used in operating

activities of approximately $6.6 million for the six months ended June 30, 2022 resulted primarily from our net loss of approximately

$8.6 million and an increase in prepaid assets offset by stock-based compensation and amortization of right-of-use assets.

activities of approximately $9.6 million for the nine months ended September 30, 2022 resulted primarily from our net loss of approximately

$13.2 million offset by approximately $2.5 million stock-based compensation and approximately $1.1 million in amortization of right-of-use

Net cash used in operating

activities of approximately $6.6 million for the six months ended June 30, 2021 resulted primarily from our net loss of approximately

$7.3 million, an increase of approximately $527,000 in prepaid expenses and other assets and a decrease in accrued payroll expenses of

approximately $383,000, offset by approximately $1.6 million of stock-based compensation.

activities of approximately $9.4 million for the nine months ended September 30, 2021 resulted primarily from our net loss of approximately

$11.5 million and an increase of approximately $297,000 in prepaid expenses and other assets, offset by approximately $2.3 million of

stock-based compensation.

Net cash used in investing

activities of approximately $19,000 for the six months ended June 30, 2022 and approximately $79,000 for the six months ended June 30,

2021 consisted of the purchase of computers, lab tools and leasehold improvements for the remodeled Los Gatos office space and lab tools

to use with the new equipment lease in Tempe, Arizona.

Net cash used by financing

activities of approximately $227,000 for the six months ended June 30, 2022 primarily related to principal payments on our financing lease

offset by proceeds from the exercise of stock options and net proceeds from our ATM offering.

Net cash provided by financing activities of approximately

$3.1 million for the six months ended June 30, 2021 related to the exercise of approximately 458,000 stock options and net proceeds from

a previous at-the-market offering which began in September 2020 and concluded in January 2021.

activities of approximately $26,000 for the nine months ended September 30, 2022 and approximately $102,000 for the nine months ended

September 30, 2021 consisted of the purchase of computers, lab tools and leasehold improvements for the remodeled Los Gatos office space

and lab tools to use with the epi tool leased in Tempe, Arizona.

Net cash provided by financing

activities of approximately $4.2 million for the nine months ended September 30, 2022 primarily related to the net proceeds from our ATM

offering, offset by the principal payments on our financing lease.

Net cash provided by financing

activities of approximately $3.4 million for the nine months ended September 30, 2021 related to the exercise of approximately 506,000

stock options and net proceeds from our at-the-market offering which began in September 2020 and concluded in January 2021.

Liquidity and Capital Resources

As of June 30, 2022, we had

cash and cash equivalents of approximately $21.8 million and working capital of approximately $19.7 million.

For the six months ended

June 30, 2022, we had a net loss of approximately $8.6 million and used approximately $6.6 million of cash and cash equivalents in operations.

As of September 30, 2022,

we had cash and cash equivalents of approximately $23.3 million and working capital of approximately $21.1 million.

For the nine months

ended September 30, 2022, we had a net loss of approximately $13.2 million and used approximately $9.6 million of cash and cash equivalents

in operations.

Since inception, we have incurred recurring operating losses.

In June 2022, we conducted

an at-the-market offering of our common shares through Oppenheimer & Co.

Inc and Craig-Hallum Capital Group LLC, as agents, pursuant

to which we sold 31,652 shares at an average price per share of approximately $11.24, resulting in approximately $185,000 of net proceeds

to us after deducting commissions and other offering expenses.

During the three months ended

September 30, 2022, we sold approximately 386,000 shares pursuant to our ATM at an average price per share of approximately $12.34, resulting

in approximately $4.6 million of net proceeds to us after deducting commissions and other offering expenses.

We believe that our available

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis