What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-04-30 compared with 2023-11-01 · 87 added, 129 removed, 120 unchanged (64% of the section changed)

47 unchanged sentences

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.

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.

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 (r) 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

8 unchanged sentences

for commercial purposes.

This license agreement with ST is our first grant of commercial manufacturing and distribution rights and, assuming

the successful installation of MST and related process qualification, would result in our first revenue from commercial use of MST-enabled

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

sale of MST-enabled products.

This license agreement with ST is our first grant of commercial manufacturing and distribution rights.

fourth quarter of 2023, we completed the first major milestone under the ST license agreement by delivering our MST film recipe and ST

accepting the film, resulting in our recognizing license revenue associated with that milestone.

We expect that ST will now proceed to

completing process qualification with MST which would result in additional license fees for the distribution license upon completion of

qualification, at which time ST would commence paying royalties on MST-enabled products they sell.

There can be no assurance, however,

that ST will complete its process qualification and pursue the licensed rights through development to the manufacture and commercial sale

of MST-enabled products.

We were organized as a Delaware

8 unchanged sentences

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

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.

During the three months ended March

31, 2024, we sold approximately 510,000 shares pursuant to our ATM at an average price per share of approximately $8.06, resulting in

approximately $4.0 million of net proceeds to us after deducting commissions and other offering expenses.

Results of Operations

4 unchanged sentences

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

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.

For revenue recognition purposes,

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.

have also determined that the grant of our manufacturing license under the JDA confers a right to use our technology and accordingly revenue

was recognized at the point in time when we delivered our IP transfer package.

The success fee under our JDA was treated as engineering

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

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

manufacturing process.

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

Revenue was not recorded for

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.

Our MSTcad licenses grant customers the

right to use MSTcad software to simulate the effects of incorporating MST technology into their semiconductor manufacturing process.

licenses are granted on a monthly or yearly basis and revenue is recognized over time.

Revenue for the three months

ended March 31, 2024 and 2023 was approximately $18,000 and $0, respectively.

Our revenue in 2024 consisted of MSTcad License revenue

and consulting services related to MSTcad.

Cost of revenue .

of revenue consists of costs of materials, as well as direct compensation and expenses incurred to provide deliverables that resulted

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

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.

of revenue consists of costs of materials, as well as direct compensation and expenses incurred to provide deliverables that result in

payment of success fees, delivery of wafers delivered as part of integration license agreements and consulting services provided for our

MSTcad License.

Cost of revenue is expensed when incurred and may not correspond with revenue earned.

Cost of revenue for the three months

ended March 31, 2024 and 2023 was approximately $33,000 and $0, 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.

1 unchanged sentence

For the three

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.

months ended March 31, 2024 and 2023, our operating expenses totaled approximately $5.0 million and $5.2 million, respectively.

Research and development

4 unchanged sentences

For the three months ended

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

and development mainly due to price increases for outsourced foundry services combined with an increase in the number of wafers processed.

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

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.

March 31, 2024 and 2023, we incurred approximately $2.9 million and $3.0 million, respectively, of research and development expenses,

a decrease of approximately $178,000, or 6%.

This decrease was primarily due to decrease of approximately $241,000 in outsourced research

as we discontinued working with our foundry services provider, TSI Semiconductor, as of January 31.

We are currently seeking a replacement

provider of foundry services.

This decrease was offset by increases in both employee related expenses and stock-based compensation totaling

approximately $92,000.

General and administrative

1 unchanged sentence

costs and professional fees.

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

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 $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

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

General and administrative costs were approximately $1.8 million and $1.7 million for the three months March

31, 2024 and 2023, respectively, representing an increase of approximately $69,000, or 4%.

The increase is primarily related to increases

of approximately $107,000 in payroll and benefits costs and approximately $57,000 in stock-based compensation.

These increases were partly

offset by a decrease of approximately $74,000 in corporate legal expenses.

Selling and marketing expense.

1 unchanged sentence

consulting services.

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 offset by a decrease in employee-related expenses.

Selling and marketing expenses

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

Selling and marketing expenses for the three months ended March 31, 2024 and 2023 were approximately $350,000 and

$389,000, respectively, representing a decrease of approximately $39,000, or 10%.

The decrease in costs is primarily related to a reduction

in head count.

Interest income.

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

income for three months ended March 31, 2024 and 2023 was approximately $205,000 and $199,000, respectively.

Interest income for the periods

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

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.

income for the three months ended March 31, 2024 and 2023 was approximately $46,000 and $2,000, respectively.

Accretion income relates

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

Interest expense.

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.

expense for the three months ended March 31, 2024 and 2023 was approximately $39,000 and $53,000, respectively.

Interest expense is related

to the tool financing lease entered into in August 2021.

Cash Flows from Operating, Investing and Financing

Net cash used in operating

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.

activities of approximately $4.1 million for the three months ended March 31, 2024 resulted primarily from our net loss of approximately

$4.8 million offset by approximately $1.0 million of stock-based compensation and approximately $550,000 of collected contracts receivable

offset by the payment of accrued payroll expenses of approximately $928,000.

Net cash used in operating

activities of approximately $4.2 million for the three months ended March 31, 2023 resulted primarily from our net loss of approximately

$5.0 million offset by approximately $927,000 stock-based compensation.

Net cash provided by investing

activities of approximately $2.5 million and for the three months ended March 31, 2024 consisted primarily of the maturity of short-term

available-for-sale investments, offset by the purchase of short-term available-for-sale investments.

Net cash used in investing

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.

activities of approximately $5.0 million and for the three months March 31, 2023 consisted primarily of the purchase of short-term investments.

Net cash provided by financing

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.

activities of approximately $3.8 million for the three months ended March 31, 2024 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 $125,000 for the three months ended March 31, 2023 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 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

As of March 31, 2024, we had

cash and cash equivalents of approximately $14.8 million, short-term investments of approximately $4.5 million and working capital of

approximately $16.8 million.

For three months ended March 31, 2024, we had a net loss of approximately $4.8 million and used approximately

$4.1 million of cash and cash equivalents in operations.

Since inception, we have incurred recurring operating losses.

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.

During the three months ended

March 31, 2024, we sold approximately 510,000 shares pursuant to our ATM at an average price per share of approximately $8.06, resulting

in approximately $4.0 million of net proceeds to us after deducting commissions and other offering expenses.

We believe that our available

19 unchanged sentences

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