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Item 2. Management’s Discussion and Analysis

2025-10-29 compared with 2025-08-05 · 100 added, 104 removed, 120 unchanged (63% 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

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.

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.

We do not design or manufacture

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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;

manufacturers of semiconductor materials, principally 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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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

During the three months ended September 30, 2025, we sold approximately 393,000 shares pursuant

to the 2025 ATM at an average price per share of approximately $5.23, resulting in approximately $2.0 million of net proceeds to us after

deducting commissions and other offering expenses.

During the nine months ended

September 30, 2025, we sold approximately 742,000 shares pursuant to the 2022 ATM and the 2025 ATM at an average price per share of approximately

$7.42, resulting in approximately $5.2 million of net proceeds to us after deducting commissions and other offering expenses.

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license granted under a JDA, our license agreement with ST 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.

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 or yearly basis and revenue is recognized over time.

Our MSTcad 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 or yearly basis and revenue is recognized over time.

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.

nine months ended September 30, 2025 was approximately $11,000 and $15,000, respectively, and our revenue for the three and nine months

ended September 30, 2024 was approximately $22,000 and $112,000, respectively.

Our revenue for all periods consisted of MSTcad licensing

and related consulting services revenue and engineering services revenue from the delivery of MST wafers.

Cost of revenue .

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.

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.

Cost of revenue consists of costs of materials, as well as direct compensation and expenses incurred to deliver wafers and perform services,

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 for the three and nine months ended September 30, 2025 was $128,000 and $190,000, respectively.

Cost of revenue for the three and nine months ended September 30, 2024 was $3,000 and $110,000, 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, 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.

months ended September 30, 2025 and 2024, our operating expenses totaled approximately $5.7 million and $4.8 million, respectively.

the nine months ended September 30, 2025 and 2024, our operating expenses totaled approximately $16.3 million and $14.5 million, respectively.

Research and development

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For the three months ended

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

$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.

September 30, 2025 and 2024, we incurred approximately $3.3 million and $2.8 million, respectively, of research and development expenses,

an increase of approximately $545,000, or 20%.

This increase was primarily due to increases in outsourced engineering costs of approximately

$212,000, payroll and benefits costs of approximately $119,000 and stock-based compensation expenses of approximately $163,000.

For the nine months ended

September 30, 2025 and 2024, we incurred approximately $9.6 million and $8.2 million, respectively, of research and development expenses,

an increase of approximately $1.4 million, or 17%.

This increase was primarily due to increases in outsourced engineering costs of approximately

$627,000, payroll and benefits costs of approximately $335,000 and stock-based compensation expenses of approximately $381,000.

General and administrative

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.

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 $2.2 million and $1.8 million for the three months ended

September 30, 2025 and 2024, respectively, representing an increase of approximately $353,000, or 19%.

The increase is primarily related

to increases of approximately $289,000 in stock-based compensation expenses and payroll and benefits costs of approximately $101,000.

General and administrative

costs were approximately $6.3 million and $5.5 million for the nine months ended September 30, 2025 and 2024, respectively, representing

an increase of approximately $846,000, or 16%.

The increase is primarily related to increases of approximately $521,000 in stock-based

compensation expenses, approximately $162,000 in legal fees and payroll and benefits costs of approximately $167,000.

Selling and marketing

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development consulting services.

Selling and marketing expenses for the three months ended June 30, 2025 and 2024 were approximately $141,000

Selling and marketing expenses for the three months ended September 30, 2025 and 2024 were approximately

$207,000 and $248,000, respectively, representing a decrease of approximately $41,000, or 17%.

The decrease in costs is primarily due to a reduction

in headcount.

The decrease in costs is primarily due

to a reduction in headcount offset by recruiting fees for the open positions.

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.

for the nine months ended September 30, 2025 and 2024 were approximately $472,000 and $805,000, respectively, representing a decrease

of approximately $333,000, or 41%.

The decrease in costs is primarily due to a reduction in headcount offset by an increase in recruiting

Interest income.

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

Interest income for the three months ended September 30, 2025 and 2024 was approximately $232,000 and $176,000, respectively.

income for the nine months ended September 30, 2025 and 2024 was approximately $736,000 and $566,000, 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 presented.

Accretion income.

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.

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

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

Accretion income

for the three and nine months ended September 30, 2024 was approximately $59,000 and $152,000, 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 and for the three

months ended September 30, 2025, our cash and cash equivalents were held as cash and mutual funds.

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.

Interest expense for the three months ended September 30, 2025 and 2024 was approximately $12,000 and $30,000, respectively.

expense for the nine months ended September 30, 2025 and 2024 was approximately $51,000 and $104,000, respectively.

Interest expense is

related to the tool financing lease entered into in August 2021.

Other income (expense),

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.

Other income for the nine months ended September 30, 2025 and 2024 was approximately $71,000 and $72,000, respectively.

amounts consist primarily of a refundable state research and development tax credit, net of filing costs and tax consulting services.

There was no other income (expense), net for the three months ended September 30, 2025 or 2024.

Cash Flows from Operating, Investing and Financing

Net cash used in operating

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.

activities of approximately $11.6 million for the nine months ended September 30, 2025 resulted primarily from our net loss of approximately

$15.7 million offset by approximately $3.6 million of stock-based compensation and approximately $914,000 in amortization of right-of-use

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.

activities of approximately $10.2 million for the nine months ended September 30, 2024 resulted primarily from our net loss of approximately

$13.8 million offset by approximately $2.9 million of stock-based compensation and the amortization of our right-of-use assets of approximately

$1.0 million offset by increases in our payroll-related accruals.

Net cash provided by investing

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

activities of approximately $973,000 for the nine months ended September 30, 2025 consisted primarily of the maturity of short-term available-for-sale

Net cash provided by investing

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

activities of approximately $3.5 million and for the nine months ended September 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 $5.2 million for the nine months ended September 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 $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.

activities of approximately $7.9 million for the nine months ended September 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 June 30, 2025,

As of September 30, 2025,

we had cash and cash equivalents of approximately $20.3 million and working capital of approximately $18.1 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

For the nine months

ended September 30, 2025 we had a net loss of approximately $15.7 million and used approximately $11.6 million of cash and cash equivalents

in operations.

Since inception, we have incurred recurring operating losses.

During the three months ended

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

During the three months

ended September 30, 2025, we sold approximately 393,000 shares of commons stock pursuant to the 2025 ATM at an average price per share

of approximately $5.23, resulting in approximately $2.0 million of net proceeds to the Company after deducting commissions and other offering

During the nine months ended

September 30, 2025, we sold approximately 742,000 shares pursuant to the 2022 ATM and the 2025 ATM at an average price per share of approximately

$7.42, resulting in approximately $5.2 million of net proceeds to us after deducting commissions and other offering expenses.

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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