Overview

We are a provider of high-performance semiconductor memory solutions for in-place associative computing applications in high growth markets such as artificial intelligence and high-performance computing. Our revenue is currently generated from the design, development and marketing of static random access memories (SRAMs) that operate at very fast speeds, primarily for the networking and telecommunications and the military/defense and aerospace markets.

The company has faced several challenges in recent years:

• The networking and telecommunications market, which has accounted for a significant portion of our net revenues, has declined during the past several years and is expected to continue declining.
• Worldwide inflationary pressures, higher interest rates, increasing geopolitical tensions and the decline in the global economic environment have had an adverse impact on the business.
• Supply chain shortages and prior buffer stock purchases from significant customers led to a decrease in revenues in the second half of fiscal 2023 and during fiscal 2024.

To address these challenges, the company has been using the revenue generated by SRAM sales to finance the development of new in-place associative computing solutions, such as the Gemini® Associative Processing Unit (APU) products. The company has also taken measures to reduce operating expenses by approximately $3.5 million on an annualized basis, primarily through salary reductions and targeted reductions in R&D spending.

Despite these headwinds, the company has had some recent successes:

• In June 2023, the company announced the receipt of a prototype agreement with the Space Development Agency for the development of a Next-Generation Associative Processing Unit-2 (APU2).
• In January 2024, the company announced that it had been selected by AFWERX for an SBIR Direct-to-Phase II contract to demonstrate high-data computation use cases leveraging the APU-2.
• The company has a strong balance sheet with $15.1 million in cash and cash equivalents as of December 31, 2024 and no debt. The recent sale of the company’s Sunnyvale, California property has provided further financial flexibility.

The company believes that continued inflationary pressures, higher interest rates and increasing geopolitical tensions will continue to negatively impact general economic activity and demand in its end markets in fiscal 2025 and beyond. However, the company is focused on advancing its proprietary APU technology and expects an increase in orders from an existing customer over the next 12 months for a cutting-edge product for a leading AI chip developer.

Results of Operations

The key financial highlights for the company are:

Revenues:

• Net revenues increased by 1.8% in the three months ended December 31, 2024 compared to the prior year period, but decreased by 11.9% in the nine months ended December 31, 2024 compared to the prior year period.
• The changes were due to a decrease in the overall average selling price, partially offset by an increase in the number of units shipped.
• Direct and indirect sales to Nokia decreased significantly, while sales to KYEC increased and are expected to be the largest end user customer in fiscal 2025.

Gross Profit:

• Gross profit decreased by 1.8% in the three months ended December 31, 2024 and by 25.4% in the nine months ended December 31, 2024 compared to the prior year periods.
• Gross margin decreased from 55.9% to 54.0% in the three months ended December 31, 2024 and from 55.2% to 46.7% in the nine months ended December 31, 2024.
• The decreases were primarily due to the impact of fixed overhead on lower shipment levels and severance-related payments from the cost reduction initiative.

Operating Expenses:

• Research and development expenses decreased significantly in both the three and nine month periods, primarily due to a decrease in pre-production mask costs and payroll-related expenses.
• Selling, general and administrative expenses increased in the three month period but were flat in the nine month period, with changes driven by fluctuations in professional fees and contingent consideration.
• The company recorded a gain of $5.8 million from the sale and leaseback of its headquarters building.

Net Loss:

• Net loss improved from $6.6 million in the three months ended December 31, 2023 to $4.0 million in the three months ended December 31, 2024, and from $15.8 million in the nine months ended December 31, 2023 to $8.4 million in the nine months ended December 31, 2024.

Liquidity and Capital Resources

• As of December 31, 2024, the company had $15.1 million in cash and cash equivalents, with no debt.
• Net cash used in operating activities was $11.3 million for the nine months ended December 31, 2024, primarily due to the net loss.
• Net cash provided by investing activities was $11.4 million, primarily from the proceeds of the sale and leaseback transaction.
• The company believes its existing cash and cash flow from operations will be sufficient to meet its needs for at least the next 12 months.
• The company has a $25 million at-the-market equity offering program in place, but did not utilize it during the nine months ended December 31, 2024.

Overall, the company is facing a challenging macroeconomic environment, but is taking steps to reduce costs and invest in its new associative computing technology. The company’s strong balance sheet and liquidity position provide it with the financial flexibility to weather the current conditions and continue pursuing its strategic initiatives.