What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-01 compared with 2023-08-02 · 111 added, 108 removed, 138 unchanged (61% of the section changed)

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We believe that by incorporating MST, transistors can be made smaller, with increased speed, reliability and power efficiency.

since MST is an additive and low-cost technology, we believe it can be deployed on an industrial scale, with machines commonly used in

since MST is an additive and low-cost technology, we believe it can be deployed on an industrial scale, with equipment 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.

analog, logic, memory and optical integrated circuits.

We do not intend to design

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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;

original equipment manufacturers, or OEMs, that manufacture the epitaxial, or epi, equipment 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.

Our commercialization strategy

is to generate revenue through licensing arrangements whereby foundries, IDMs and fabless semiconductor manufacturers pay us a license

fee for their right to use MST technology in the manufacture of silicon wafers as well as a royalty for each silicon wafer or device that

incorporates our MST technology.

We also license our MSTcad 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.

commercialization strategy is to generate revenue through licensing arrangements whereby foundries, IDMs and fabless semiconductor manufacturers

pay us a license fee for their right to use MST technology in the manufacture of silicon wafers as well as a royalty for each silicon

wafer or device that incorporates our MST technology.

We also license our MSTcad 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.

In April 2023, we entered

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There can be no assurance, however, that ST will pursue the licensed rights through development to the manufacture and commercial

sale of MST-enabled wafers.

sale of MST-enabled products.

We were organized as a Delaware

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

During the three months ended June

During the nine months ended September

30, 2023, we sold approximately 1.4 million shares pursuant to our ATM at an average price per share of approximately $8.11, resulting

in approximately $11.2 million of net proceeds to us after deducting commissions and other offering expenses.

These sales include approximately

24,000 shares sold during the three months ended September 30, 2023 at an average price of $9.17, resulting in net proceeds of approximately

$185,000 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,

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

Our license agreement with ST, which was executed in April 2023,

is our first commercial manufacturing and distribution agreement and, assuming successful completion of contractual milestones and payments

of associated fees, will entitle us to royalties on all MST-enabled products manufactured for commercial purposes.

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.

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

license granted under a JDA and licensing of MSTcad.

Our license agreement with ST, which was executed in April 2023, is our first commercial

manufacturing and distribution agreement and, assuming successful completion of contractual milestones and payments of associated fees,

will entitle us to royalties on all MST-enabled products manufactured for commercial purposes.

Our engineering 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 first JDA included the grant of a manufacturing license

to our customer and we were paid for such license when we delivered 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

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For revenue recognition purposes,

we have determined that the grant of rights in integration licenses is not distinct from the delivery of integration services, and therefore

revenue from both integration licenses and integration services is recognized as the services are provided to the customer.

this is proportionate to the delivery of MST processed wafers to the customer, but if the agreements do not specify a time and quantity

we have determined that the grant of rights in integration licenses is not distinct from the delivery of engineering services, and therefore

revenue from both integration licenses and engineering services is recognized as the services are provided to the customer.

this is proportionate to the delivery to the customer of wafers processed with MST, but if the agreements do not specify a time and quantity

of wafer delivery, we will record revenue over the period of time in which we anticipate delivering an estimated quantity of wafers.

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

Our licensing

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

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

manufacturing process.

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Revenue was not recorded for

the three months ended June 30, 2023 and 2022.

Revenue for the six month period ended June 30, 2023 and 2022 was $0 and $375,000, respectively.

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

the three months or nine months ended September 30, 2023.

Revenue for the three and nine months ended September 30, 2022 was $2,000 and

$377,000, respectively.

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

license agreement.

Cost of revenue .

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in payment of our success fee and wafers delivered as part of the integration license agreement.

Cost of revenue for the six months ended

June 30, 2023 and 2022 was $0 and approximately $81,000, respectively.

We anticipate that our cost of revenue will vary substantially

depending on the mix of license and engineering services revenues we receive and the nature of products and/or services delivered in each

customer engagement.

Cost of revenue expenses were not recorded for the three months ended June 30, 2023 and 2022.

No costs of revenue were recorded for

the three months ended September 30, 2023 and 2022.

Cost of revenue for the nine months ended September 30, 2023 and 2022 was $0 and approximately

$81,000, respectively.

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

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

Operating expenses.

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For the three

months ended June 30, 2023 and 2022, our operating expenses totaled approximately $5.4 million and $4.4 million, respectively.

six months ended June 30, 2023 and 2022, our operating expenses totaled approximately $10.5 million and $8.8 million, respectively.

months ended September 30, 2023 and 2022, our operating expenses totaled approximately $5.4 million and $4.7 million, respectively.

the nine months ended September 30, 2023 and 2022, our operating expenses totaled approximately $15.9 million and $13.4 million, respectively.

Research and development

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and related technologies such as MSTcad.

Our research and development costs primarily consist of payroll and benefit costs for our engineering

Our research and development costs primarily consist of payroll and benefits costs for our engineering

staff and costs of outsourced fabrication (including epi tool leases) and metrology of semiconductor wafers incorporating our MST technology.

For the three months ended

June 30, 2023 and 2022, we incurred approximately $3.2 million and $2.4 million, respectively, of research and development expenses, an

increase of approximately $759,000, or 31%.

September 30, 2023 and 2022, we incurred approximately $3.3 million and $2.7 million, respectively, of research and development expenses,

an increase of approximately $562,000, or 20%.

This increase was primarily due to increases of approximately $355,000 in outsourced research

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The increase in research and development expenses also reflected increases of approximately $81,000 in employee-related expenses resulting

from new hires, and approximately $78,000 in stock-based compensation costs.

For the six months ended June

30, 2023 and 2022, we incurred approximately $6.2 million and $4.8 million, respectively, of research and development expense, an increase

of approximately $1.5 million, or 31%.

The increase was primarily due to outsourced research and development of approximately $622,000

due to price increases and increased number of wafers processed.

Additional increases were due to approximately $413,000 in employee costs

for new hires and approximately $111,000 in wafer purchases to support our research efforts.

The price increases by our outsourced foundry

service provider will continue to affect our research and development expenses going forward, but the magnitude of the increase seen in

the first half of 2023 should not recur in the second half due to the larger number of wafer lot starts as cycle time improved.

from new hires, and approximately $82,000 in technical consulting expenses.

For the nine months ended

September 30, 2023 and 2022, we incurred approximately $9.5 million and $7.5 million, respectively, of research and development expense,

an increase of approximately $2.0 million, or 27%.

The increase was primarily due to outsourced research and development which increased

by approximately $977,000 due to price increases and a higher number of wafers processed.

The other main factors that drove the increase

in research and development expense were increases of approximately $495,000 in employee costs for new hires, approximately $227,000 in

technical consulting and approximately $100,000 in wafer purchases to support our research efforts.

General and administrative

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General and administrative costs were approximately $1.7 million and $1.6 million for the three months ended

June 30, 2023 and 2022, respectively, representing an increase of approximately $108,000, or 6%.

The increase is primarily related to

an increase in stock-based compensation costs of approximately $71,000 and an increase of approximately $26,000 in IT support services.

September 30, 2023 and 2022, respectively, representing an increase of approximately $116,000, or 7%.

The increase is primarily related

to an increase of approximately $123,000 in legal fees related to our intellectual property portfolio offset by a decrease in employee-related

General and administrative

costs were approximately $3.5 million and $3.3 million for the six months ended June 30, 2023 and 2022, respectively, representing an

increase of approximately $202,000, or 6%.

costs were approximately $5.2 million and $4.9 million for the nine months ended September 30, 2023 and 2022, respectively, representing

an increase of approximately $318,000, or 7%.

The increase is primarily related to an increase in stock-based compensation costs of approximately

$167,000 and an increase of approximately $53,000 in IT support services.

$237,000 and an increase of approximately $83,000 in legal fees.

Selling and marketing expense.

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consulting services.

Selling and marketing expenses for the three months ended June 30, 2023 and 2022 were approximately $393,000 and

$347,000, respectively, representing an increase of approximately $46,000, or 13%.

Selling and marketing expenses for the three months ended September 30, 2023 and 2022 were approximately $365,000

and $347,000, respectively, representing an increase of approximately $18,000, or 5%.

The increase in costs is primarily related to increased

travel and stock-based compensation costs.

travel and stock-based compensation costs offset by a decrease in employee-related expenses.

Selling and marketing expenses

for the six months ended June 30, 2023 and 2022 were approximately $782,000 and $672,000, respectively, representing an increase of approximately

$110,000, or 16%.

The increase in costs is primarily related to increased travel and stock-based compensation costs.

for the nine months ended September 30, 2023 and 2022 were approximately $1.1 million and $1.0 million, respectively, representing an

increase of approximately $128,000, or 13%.

The increase in costs is primarily related to increased travel and stock-based compensation

Interest income.

income for three months ended June 30, 2023 and 2022 was approximately $152,000 and $35,000, respectively.

Interest income for six months

ended June 30, 2023 and 2022 was approximately $351,000 and $38,000, respectively.

Interest income for the periods presented related to

interest earned on our cash, cash equivalents and short-term investments.

income for three months ended September 30, 2023 and 2022 was approximately $177,000 and $113,000, respectively.

Interest income for nine

months ended September 30, 2023 and 2022 was approximately $528,000 and $151,000, respectively.

Interest income for the periods presented

related to interest earned on our cash, cash equivalents and short-term investments.

Accretion income.

income for the three and six months ended June 30, 2023, was approximately $107,000 and $109,000 respectively.

Accretion income relates

to the increase in value of our available-for-sale securities from the purchase date through the maturity date.

There was no income from

accretion for the three or six months ended June 30, 2022.

income for the three and nine months ended September 30, 2023, was approximately $112,000 and $221,000, respectively.

Accretion income

relates to the increase in value of our available-for-sale securities from the purchase date through the maturity date.

There was no income

from accretion for the three or nine months ended September 30, 2022.

Interest expense.

expense for the three months June 30, 2023 and 2022 was approximately $51,000 and $69,000, respectively.

Interest expense for the six

months June 30, 2023 and 2022 was approximately $104,000 and $140,000, respectively.

Interest expense is related to the tool financing

lease entered into in August 2021.

expense for the three months ended September 30, 2023 and 2022 was approximately $47,000 and $60,000, respectively.

Interest expense for

the nine months September 30, 2023 and 2022 was approximately $151,000 and $200,000, respectively.

Interest expense is related to the

tool financing lease entered into in August 2021.

Other income/expense, net.

Other income for the three and nine months ended September 30, 2023 of approximately $72,000, consisted primarily of a refundable

state research and development tax credit, net of filing costs and tax consulting services.

Cash Flows from Operating, Investing and Financing

Net cash used in operating

activities of approximately $8.2 million for the six months ended June 30, 2023 resulted primarily from our net loss of approximately

$10.2 million offset by approximately $2.0 million of stock-based compensation.

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 expenses, offset by stock-based compensation and amortization of right-of-use assets.

activities of approximately $11.6 million for the nine months ended September 30, 2023 resulted primarily from our net loss of approximately

$15.2 million offset by approximately $3.0 million of stock-based compensation and approximately $1.0 million of amortization of right-of-use

cash used in operating 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 assets.

Net cash used in investing

activities of approximately $10.9 million and for the six months ended June 30, 2023 consisted primarily of the purchase of short-term

Net cash used in investing activities of approximately $19,000 for the six months ended June 30, 2022 consisted of the purchase

of computers and lab tools in Tempe, AZ.

activities of approximately $7.6 million and for the nine months ended September 30, 2023 consisted primarily of the purchase of short-term

available-for-sale investments, offset by the maturity of short-term available-for-sale investments Net cash used in investing activities

of approximately $26,000 for the nine months ended September 30, 2022 consisted of the purchase of computers and lab tools in Tempe, AZ.

Net cash provided by financing

activities of approximately $10.8 million for the six months ended June 30, 2023 primarily related to the net proceeds from our ATM offering,

offset by the principal payments on our financing lease.

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.

activities of approximately $10.7 million for the nine months ended September 30, 2023 primarily related to the net proceeds from our

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

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.

Liquidity and Capital Resources

As of June 30, 2023, we had

cash and cash equivalents of approximately $12.9 million, short-term investments of approximately $11.0 million and working capital of

approximately $21.6 million.

For six months ended June 30, 2023, we had a net loss of approximately $10.2 million and used approximately

As of September 30, 2023,

we had cash and cash equivalents of approximately $12.6 million, short-term investments of approximately $7.7 million and working capital

of approximately $17.9 million.

For nine months ended September 30, 2023, we had a net loss of approximately $15.2 million and used approximately

$11.6 million of cash and cash equivalents in operations.

Since inception, we have incurred recurring operating losses.

During the six months ended

June 30, 2023, we sold approximately 1.4 million shares pursuant to our ATM at an average price per share of approximately $8.09, resulting

in approximately $11.1 million of net proceeds to us after deducting commissions and other offering expenses.

Since June 30, 2023 we have

issued approximately 24,000 additional shares through our ATM offering at an average price per share of $9.17 resulting in additional

net proceeds of approximately $214,000.

During the nine months ended

September 30, 2023, we sold approximately 1.4 million shares pursuant to our ATM at an average price per share of approximately $8.11,

resulting in approximately $11.2 million of net proceeds to us after deducting commissions and other offering expenses.

Since September

30, 2023 we have sold approximately 15,000 additional shares through our ATM offering at an average price per share of $7.13 resulting

in additional net proceeds of approximately $104,000.

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