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, 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 revenues, has declined over the past several years and is expected to continue declining.
• We have experienced significant fluctuations in sales to our largest end user customers, Nokia and KYEC, which has substantially impacted our revenues.
• Worldwide inflationary pressures, higher interest rates, increasing geopolitical tensions, and the decline in the global economic environment have had an adverse impact on our business and financial condition.

To address these challenges, the company has been using the revenue from 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.

Looking ahead, the company expects that the continued inflationary pressures, higher interest rates, and increasing geopolitical tensions will continue to negatively impact general economic activity and demand in its end markets. However, the company believes its focus on developing innovative in-place associative computing solutions, combined with its cost reduction measures and strong financial position, will position it to weather the current economic challenges.

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 in revenue were primarily due to fluctuations in sales to the company’s largest customers, Nokia and KYEC.

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 decrease in gross profit and margin was primarily due to the decline in revenues and the impact of fixed overhead on lower shipment levels.

Operating Expenses:

• Research and development expenses decreased by 42.1% in the three months ended December 31, 2024 and by 22.7% in the nine months ended December 31, 2024 compared to the prior year periods.
• The decreases were primarily due to reductions in pre-production mask costs and payroll-related expenses as a result of the company’s cost reduction initiatives.
• Selling, general and administrative expenses increased by 11.7% in the three months ended December 31, 2024 but were flat in the nine months ended December 31, 2024 compared to the prior year periods.

Net Loss:

• Net loss was $4.0 million in the three months ended December 31, 2024, compared to $6.6 million in the prior year period.
• Net loss was $8.4 million in the nine months ended December 31, 2024, compared to $15.8 million in the prior year period.
• The improvements in net loss were primarily due to the changes in revenues, gross profit, and operating expenses discussed above.

Liquidity and Capital Resources

As of December 31, 2024, the company had $15.1 million in cash and cash equivalents, with no debt. The company believes its existing cash and cash flow from operations will be sufficient to meet its cash needs for the next 12 months.

Key liquidity highlights:

• Net cash used in operating activities was $11.3 million for the nine months ended December 31, 2024, compared to $10.2 million in the prior year period.
• Net cash provided by investing activities was $11.4 million in the nine months ended December 31, 2024, primarily from the sale and leaseback of the company’s Sunnyvale property.
• The company has $14.6 million in purchase obligations, of which $1.4 million are payable in the next 12 months.

Overall, the company’s financial position has been strengthened by the recent sale of its Sunnyvale property, providing additional financial flexibility. However, the company expects the continued macroeconomic challenges to have an adverse effect on its results of operations, financial position, and liquidity in fiscal 2025 and beyond.