What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-05 compared with 2025-05-08 · 120 added, 83 removed, 104 unchanged (66% of the section changed)

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of developing, commercializing and licensing proprietary processes and technologies for the $550+ billion semiconductor industry.

lead technology, named Mears Silicon Technology™, 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 is our proprietary and patent-protected performance

enhancement technology that we believe addresses a number of key engineering challenges facing the semiconductor industry.

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

lead technology, named Mears Silicon Technology™, 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 is our proprietary

and patent-protected performance enhancement technology that we believe addresses a number of key engineering challenges facing the semiconductor

We believe that by incorporating MST, transistors can be made smaller, with increased speed, reliability and power 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 design or manufacture

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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 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 ST Microelectonics (ST) and Asahi

Kasei Microdevices (AKM), both of which are 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

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 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 ST Microelectonics

(ST) and Asahi Kasei Microdevices (AKM), both of which are 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

We were organized as a Delaware

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into an Equity Distribution Agreement with Oppenheimer & Co.

Inc and Craig-Hallum Capital Group LLC, as agents, under which we may

offer and sell, from time to time at our sole discretion, shares of our common stock having aggregate offering proceeds of up to $50.0

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

During the three months ended March 31, 2025, we

sold approximately 164,000 shares pursuant to the ATM at an average price per share of approximately $15.19, resulting in approximately

$2.4 million of net proceeds after deducting commissions and other offering expenses.

and Craig-Hallum Capital Group LLC (“Craig-Hallum”),

as agents, under which we offered and sold, from time to time at our sole discretion, shares of our common stock in an at the market offering

to or through the agents, having aggregate offering proceeds of up to $50.0 million (the “2022 ATM”).

The 2022 ATM expired

on March 18, 2025.

On May 27, 2025, we entered

into an Equity Distribution Agreement Craig-Hallum as agent, under which we may offer and sell, from time to time at our sole discretion,

shares of our common stock in an “at-the-market” offering, (“2025 ATM”) to or through the agent, having aggregate

offering proceeds of up to $50.0 million.

During the three months ended June 30, 2025, we sold approximately 185,000 shares pursuant to

the 2025 ATM at an average price per share of approximately $5.21, resulting in approximately $792,000 of net proceeds to us after deducting

commissions and other offering expenses.

During the six months ended

June 30, 2025, we sold approximately 349,000 shares pursuant to the 2022 ATM and the 2025 ATM at an average price per share of approximately

$9.89, resulting in approximately $3.2 million of net proceeds to us after deducting commissions and other offering expenses.

Results of Operations

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

Revenue for the three months

ended March 31, 2025 and 2024 was approximately $4,000 and $18,000 respectively.

Our revenue consisted of MSTcad licensing and related

consulting services revenue.

Revenue for the three and

six months ended June 30, 2025 was approximately $0 and $4,000, respectively.

Our revenue consisted of MSTcad licensing and related consulting

services revenue.

Revenue for the three and six months ended June 30, 2024 was approximately $72,000 and $90,000, respectively.

in 2024 consisted of MSTcad license revenue, consulting services related to MSTcad and the delivery of MST wafers.

Cost of revenue .

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 in connection with integration license agreements and consulting services provided for our

MSTcad licenses.

Cost 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 in connection with integration license agreements and consulting services provided for

our MSTcad licenses.

Cost of revenue is expensed when incurred and may not correspond with revenue earned in the same period.

Cost of revenue

was not recorded during the three months ended March 31, 2025.

Cost of revenue for the three months ended March 31, 2025 and 2024 was

$0 and approximately $3,000, 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.

revenue for the three and six months ended June 30, 2025 was $62,000 for each period.

Cost of revenue for the three and six months ended

June 30, 2024 was $74,000 and $107,000, 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 March 31, 2025 and 2024, our operating expenses totaled approximately $5.5 million and $5.0 million, respectively.

months ended June 30, 2025 and 2024, our operating expenses totaled approximately $5.2 million and $4.6 million, respectively.

six months ended June 30, 2025 and 2024, our operating expenses totaled approximately $10.7 million and $9.6 million, respectively.

Research and development

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For the three months ended

March 31, 2025 and 2024, we incurred approximately $3.3 million and $2.9 million, respectively, of research and development expenses,

an increase of approximately $397,000, or 14%.

June 30, 2025 and 2024, we incurred approximately $3.0 million and $2.6 million, respectively, of research and development expenses, an

increase of approximately $415,000, or 16%.

This increase was primarily due to increases in device fabrication costs of approximately

$182,000, employee costs of approximately $90,000 and outside metrology increases of approximately $84,000.

$136,000, employee costs of approximately $125,000 and stock-based compensation expenses of approximately $137,000.

For the six months ended

June 30, 2025 and 2024, we incurred approximately $6.3 million and $5.4 million, respectively, of research and development expenses, an

increase of approximately $812,000, or 15%.

This increase was primarily due to increases in device fabrication costs of approximately

$317,000, employee costs of approximately $216,000 and stock-based compensation expenses of approximately $219,000.

administrative expense.

General and administrative expenses consist primarily of payroll and benefit costs for administrative personnel,

office-related costs and professional fees.

General and administrative costs were approximately $2.0 million and $1.8 million for the

three months ended June 30, 2025 and 2024, respectively, representing an increase of approximately $216,000, or 12%.

The increase is primarily

related to increases of approximately $215,000 in stock-based compensation expenses.

General and administrative

General and administrative expenses consist primarily of payroll and benefit costs for administrative personnel, office-related

costs and professional fees.

General and administrative costs were approximately $2.1 million and $1.8 million for the three months ended

March 31, 2025 and 2024, respectively, representing an increase of approximately $277,000, or 15%.

The increase is primarily related to

increases of approximately $174,000 in legal costs and fees related to our patent portfolio and approximately $56,000 in corporate legal

Selling and marketing expense.

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, 2025 and 2024 were approximately $124,000 and

$350,000, respectively, representing a decrease of approximately $226,000, or 65%.

costs were approximately $4.1 million and $3.6 million for the six months ended June 30, 2025 and 2024, respectively, representing an

increase of approximately $493,000, or 14%.

The increase is primarily related to increases of approximately $231,000 in stock-based compensation

expenses, approximately $97,000 in corporate legal fees and approximately $80,000 in intellectual property related expenses related to

our patent portfolio.

Selling and marketing

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 June 30, 2025 and 2024 were approximately $141,000

and $207,000, respectively, representing a decrease of approximately $66,000, or 32%.

The decrease in costs is primarily due to a reduction

in headcount.

Selling and marketing expenses

for the six months ended June 30, 2025 and 2024 were approximately $265,000 and $557,000, respectively, representing a decrease of approximately

$292,000, or 52%.

The decrease in costs is primarily due to a reduction in headcount.

Interest income.

income for three months ended March 31, 2025 and 2024 was approximately $270,000 and $205,000, respectively.

Interest income for the periods

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

income for the three months ended June 30, 2025 and 2024 was approximately $234,000 and $185,000, respectively.

Interest income for the

six months ended June 30, 2025 and 2024 was approximately $504,000 and $390,000, respectively.

Interest income reflects interest earned

on our cash, cash equivalents and short-term investments and are impacted by current interest rates and average balances over the periods

Accretion income.

income for the three months ended March 31, 2025 and 2024 was approximately $6,000 and $46,000, respectively.

Accretion income relates

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

Accretion income for the three and six months ended June 30, 2025 was approximately $0 and $6,000, respectively.

Accretion income for

the three and six months ended June 30, 2024 was approximately $47,000 and $93,000, respectively.

Accretion income relates to the increase

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

As of June 30, 2025, our cash and cash

equivalents are held as cash and mutual funds.

Interest expense.

expense for the three months ended March 31, 2025 and 2024 was approximately $21,000 and $39,000, respectively.

Interest expense is related

to the tool financing lease entered into in August 2021.

Interest expense for the three months ended June 30, 2025 and 2024 was approximately $18,000 and $35,000, respectively.

Interest expense

for the six months ended June 30, 2025 and 2024 was approximately $39,000 and $74,000, respectively.

Interest expense is related to the

tool financing lease entered into in August 2021.

Other income (expense),

Other expense for the three months ended March 31, 2025 and 2024 was approximately $1,000 and $0, respectively, and consisted

of losses on foreign currency between the date of receipt of goods or services and the date the payment was made.

Other income for the three months ended June 30, 2025 and 2024 was approximately $71,000 and $72,000 respectively, and for the

six months ended June 30, 2025 and 2024 was approximately $71,000 and $72,000, respectively.

For all periods presented, these amounts

consist 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 $4.8 million for the three months ended March 31, 2025 resulted primarily from our net loss of approximately

activities of approximately $8.3 million for the six months ended June 30, 2025 resulted primarily from our net loss of approximately

$10.2 million and a decrease in our accrued payroll expenses of approximately $979,000, offset by approximately $2.3 million of stock-based

compensation and an increase of approximately $269,000 in accounts payable.

Net cash used in operating 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

and payment of accrued payroll expenses of approximately $928,000, offset by approximately $1.0 million of stock-based compensation and

approximately $550,000 of collected contracts receivable.

compensation.

Net cash used in operating

activities of approximately $7.3 million for the six months ended June 30, 2024 resulted primarily from our net loss of approximately

$9.2 million offset by approximately $2.0 million of stock-based compensation.

Net cash provided by investing

activities of approximately $996,000 for the three months ended March 31, 2025 consisted primarily of the maturity of short-term available-for-sale

activities of approximately $986,000 for the six months ended June 30, 2025 consisted primarily of the maturity of short-term available-for-sale

Net cash provided by investing

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

activities of approximately $3.2 million for the six months ended June 30, 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 provided by financing

activities of approximately $2.1 million for the three months ended March 31, 2025 primarily related to the net proceeds from sales under

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

Net cash provided by

financing activities of approximately $3.5 million for the six months ended June 30, 2025 primarily related to the net proceeds from sales

under our ATM and stock option exercises, offset by the principal payments on our financing lease.

Net cash provided by financing

activities of approximately $3.8 million for the three months ended March 31, 2024 primarily related to the net proceeds from sales under

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

activities of approximately $6.0 million for the six months ended June 30, 2024 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 March 31, 2025, we had

cash and cash equivalents of approximately $24.1 million and working capital of approximately $21.7 million.

For the three months ended

March 31, 2025 we had a net loss of approximately $5.2 million and used approximately $4.8 million of cash and cash equivalents in operations.

As of June 30, 2025,

we had cash and cash equivalents of approximately $22.0 million and working capital of approximately $20.0 million.

For the six months

ended June 30, 2025 we had a net loss of approximately $10.2 million and used approximately $8.3 million of cash and cash equivalents

in operations.

Since inception, we have incurred recurring operating losses.

During the three months ended

March 31, 2025, we sold approximately 164,000 shares of common stock pursuant to the ATM at an average price per share of approximately

$15.19, resulting in approximately $2.4 million of net proceeds to the Company after deducting commissions and other offering expenses.

June 30, 2025, we sold approximately 185,000 shares of commons stock pursuant to the 2025 ATM at an average price per share of approximately

$5.21, resulting in approximately $792,000 of net proceeds to the Company after deducting commissions and other offering expenses.

During the six months

ended June 30, 2025, we sold approximately 349,000 shares pursuant to the 2022 ATM and the 2025 ATM at an average price per share of approximately

$9.89, resulting in approximately $3.2 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