We intend to continue making significant expenditures associated with research and development, sales and marketing and general and administrative activities, and expect that costs of revenues and these expenses will continue to be a significant percentage of revenues in future periods. These charges are recorded based on the difference between the deemed fair value of the common stock and the exercise price of such options at the date of grant. This amount is presented as a reduction of stockholders' equity and is being amortized using the graded-vesting method over the vesting period of the applicable options, generally four years. The increase in revenues is primarily attributable to an expanding customer base and license fees from existing customers of our 0.13 micron and 0.18 micron embedded memory technologies. No royalty revenues were received during the first six months of fiscal year 2000.
Gross profit is revenues less cost of revenues.
Cost of revenues consists primarily of personnel expenses and the allocated portion of facilities and equipment expenses. These increases were attributable to increased licensing to fabless semiconductor companies of higher margin embedded memory technologies that required no additional customization. Research and Development Expense. Research and development expense includes personnel and other costs associated with the development of successive generations of embedded memory technologies and of new technologies. These efforts required hiring additional personnel.