What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-11 compared with 2026-02-06 · 81 added, 136 removed, 114 unchanged (66% of the section changed)

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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, including natural language processing and computer vision.

Our initial associative processing unit (“APU”) products are focused on applications using similarity search, but have not resulted in material revenues to date.

Our initial APU products are focused on applications using similarity search, but have not resulted in material revenues to date.

Similarity search is used in visual search queries for ecommerce, computer vision, drug discovery, cybersecurity and service markets such as NoSQL, Elasticsearch, and OpenSearch.

We have solutions to accelerate multimodal vector search as an on-prem or SaaS solution for OpenSearch and general Fast Vector Search, and for processing large area SAR images in real-time at high resolution.

We have solutions to accelerate multimodal vector search for OpenSearch and general Fast Vector Search, and for processing large area SAR images in real-time at high resolution.

Our revenue is currently generated from the design, development and marketing of static random access memories, or SRAMs, that operate at speeds of less than 10 nanoseconds, which we refer to as Very Fast SRAMs, primarily for the networking and telecommunications, test equipment and the military/defense and aerospace markets.

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In anticipation of the decline of the networking and telecommunications market, we have been using the revenue generated by the sales of high-speed synchronous SRAM products to finance the development of our new in-place associative computing solutions and the marketing and sale of new types of SRAM products such as radiation-hardened and radiation-tolerant SRAMs.

In June 2023, we announced the receipt of an award of a prototype agreement with the Space Development Agency for the development of a Next-Generation Associative Processing Unit-2 (“APU2”) for Enhanced Space-

Based Capabilities.

Our next-generation non-Von-Neumann Associative Processing Unit compute in-memory integrated circuit (“IC”) offers unique capabilities to address the challenges faced by the United States Space Force in processing extensive sets of big data in space.

Our overarching objective is to enable and enhance current and future mission capabilities through the deployment of compute in-memory integrated systems that can efficiently handle vast amounts of data in real-time at the edge.

The APU, featuring a scalable format, compact footprint, and low power consumption, presents an ideal solution for edge applications where prompt and precise responses are crucial.

These capabilities empower the U.S.

Space Force to swiftly detect, warn, analyze, attribute, and forecast potential and actual threats in space, ultimately bolstering the ability of the United States to maintain and leverage space superiority.

Space Force is actively seeking solutions to address current limitations in processing big data that is needed to execute the mission objectives of the Space Development Agency within the evolving and challenging space environment.

This award is funded by the Small Business Innovation Research program, a competitive program funded by various U.S.

government agencies, that encourages small businesses to engage in federal research and development with the potential for commercialization.

Under the terms of this Direct to Phase II award, we are developing an advanced non-Von-Neumann Associative Processing Unit-2, compute in-memory IC, and design and fabricate an APU2 Evaluation Board.

Pursuant to an agreed-upon schedule, we are to receive milestone payments totaling an estimated $1.25 million upon the successful completion of predetermined milestones, of which $435,000, $318,000 and $496,000 were received in fiscal 2024, 2025 and 2026, respectively.

In September 2025, the prototype agreement was amended to increase the total award amount to $2.0 million by adding milestones related to determining the radiation hardened capability of the APU2 device.

In January 2024, we announced that GSI was selected by AFWERX, the innovation arm of the U.S.

Department of the Air Force for an SBIR Direct-to-Phase II contract in the amount of $1.1 million to demonstrate high-data computation use cases leveraging the distinct compute in-memory architecture of our APU2.

We are creating specialized algorithms for the U.S.

Air Force Research Laboratory (“AFRL”) to leverage the compute-in-memory architecture of the Gemini® APU.

This chip is designed for various AI applications to tackle key challenges in the Department of the Air Force, including in-aircraft search and rescue, object detection, moving target indication, change detection, and structural similarity index measure (“SSIM“) in GPS-absent situations.

We are also developing algorithms using data from the U.S.

Space Force to showcase the performance benefits of our compute-in-memory APU2 integrated circuit.

We received milestone payments totaling an estimated $1.1 million upon the successful completion of predetermined milestones, of which $157,000 was received in fiscal 2025 and $936,000 was received in fiscal 2026.

In January 2025, we announced that GSI was selected by the U.S.

Army for a potential contract award of up to $250,000 under the Department of Defense SBIR program.

The contract represents a significant opportunity for GSI to develop advanced, Army-specific edge computing AI solutions using our groundbreaking Gemini-II technology.

The project will focus on two critical objectives that showcase the potential of our innovative architecture.

First, we will determine the feasibility of integrating Gemini-II with AI models specifically tailored for the Army’s edge computing needs.

This determination will involve a comprehensive assessment of operational challenges, optimization with the Gemini-II architecture, and establishing key performance metrics through detailed customer discovery and technical specifications for edge AI development.

The second objective centers on identifying and validating the most suitable AI algorithms for the Gemini-II platform.

We will conduct in-depth research to select efficient edge AI models, develop a detailed integration plan, and evaluate performance metrics for low-latency and high-throughput applications of value in military environments.

Particularly noteworthy is the project’s focus on developing 1-bit Large Language Models (LLMs) for the U.S.

Army that maintain high accuracy while providing exceptionally low power consumption and minimal latency.

This innovation not only promises to benefit warfighters but also presents compelling application opportunities across multiple dual-use markets, including complex computer vision recognition, autonomous vehicle navigation and mobile data computation.

Milestone payments of $82,000 and $165,000 were received in fiscal 2025 and 2026, respectively for this contract which is now completed.

In January 2026, we announced a new proof-of-concept (“POC”) engagement with two government agencies.

GSI is partnering with G2 Tech, an Israeli

deep-tech AI company, on Sentinel, a program to develop an autonomous perimeter security system that manages drones and cameras in real time for advanced monitoring, detection, and response.

GSI is partnering with G2 Tech, an Israeli deep-tech AI company, on Sentinel, a program to develop an autonomous perimeter security system that manages drones and cameras in real time for advanced monitoring, detection, and response.

The project is jointly backed by the U.S.

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Total governmental funding for the POC is expected to be in the millions of dollars.

GSI expects to receive roughly $1 million dollars to support software optimization and integration of the Gemini-II platform into the Sentinel system.

As of December 31, 2025, we had cash and cash equivalents of $70.7 million, with no debt.

GSI expects to receive roughly $1.0 million to support software optimization and integration of the Gemini-II platform into the Sentinel system.

In May 2026, we announced that we were awarded Phase I of a Smart City project by a local government agency in Taiwan.

The completion of Phase I will mark our first smart city deployment of the Gemini-II APU.

In April 2026, we announced that we were awarded a Phase II award under the U.S.

Army’s xTech Small Business Innovation Research (SBIR) program to develop a ruggedized edge AI platform using our Gemini-II APU for the tactical edge.

Pursuant to an agreed-upon schedule, we will receive milestone payments which total an estimated $2.0 million upon successful completion of each milestone.

These funds will offset the cost of designing and developing a ruggedized edge-processing platform based on the Gemini-II APU, with testing in representative operational environments intended to validate performance across real-time AI workloads, such as sensor data processing, object detection, and command-and-control analytics.

During the first fiscal quarter, we made progress validating Gemini-II’s performance-per-watt advantages.

We completed radiation testing on a standard commercial Gemini-II device, and confirmed that the device continued to operate normally under radiation levels representative of harsh aerospace environments.

The Gemini-II device is production ready.

As a result of these successful validation efforts, we have shifted our focus to commercializing Gemini-II, including expanding the range of applications Gemini-II can address and pursuing broader customer adoption.

We also continued development of our AI-assisted Software Development Kit (“SDK”), which currently remains on track for release in September 2026.

The SDK is expected to accelerate software development, simplify application deployment and provide a foundation for working with a broader network of partners and system integrators.

As of June 30, 2026, we had cash and cash equivalents of $77.0 million, with no debt.

We have a team in-place with tremendous depth and breadth of experience and knowledge, with a legacy business that is providing an ongoing source of funding for the development of new product lines.

Our balance sheet and liquidity position was strengthened by the sale of our Sunnyvale, California property in June 2024.

In addition, between May and August 2025, we sold 4,508,350 shares of common stock pursuant to an At-the-Market offering, at an average price of $3.29 for net proceeds of $14.3 million.

On October 21, 2025, we entered into a securities purchase agreement with an institutional investor pursuant to which we agreed to issue and sell, in a registered direct offering (the “Registered Direct Offering”) an aggregate of (i)1,508,462 shares of our common stock, $0.001 par value per share, at a price of $10.00 per share and (ii) Pre-Funded Warrants to purchase 3,491,538 shares of Common Stock.

Each of the Pre-Funded Warrants is exercisable for one share of Common Stock at the exercise price of $0.01 per Pre-Funded Warrant, immediately exercisable, and may be exercised at any time.

The Purchaser’s ability to exercise its Pre-Funded Warrants in exchange for shares of Common Stock is subject to certain beneficial ownership limitations set forth therein.

The gross proceeds to the Company from the Registered Direct Offering were $50.0 million, before deducting the placement agents’ fees and other offering expenses payable by the Company of $3.1 million.

The Registered Direct Offering closed on October 22, 2025.

All of the Pre-Funded Warrants were exercised in October 2025.

In May 2026, we sold 950,401 shares of common stock pursuant to an At-the-Market offering, at an average price of $10.10 for net proceeds of $9.3 million.

Generally, our primary source of liquidity is cash equivalents.

Our level of cash equivalents has historically been sufficient to meet our current and longer-term operating and capital needs.

We believe that during the next 12 months, continued inflationary pressures, increased or new tariffs, export controls and other trade barriers, and increasing geopolitical tensions will continue to negatively impact general economic activity and demand in our end markets.

Although it is difficult to estimate the length or gravity of the continued inflationary pressures, increased or new tariffs, export controls and other trade barriers, trade disputes, increasing geopolitical tensions and the challenging global economic environment, are expected to have an adverse effect on our results of operations, financial position, including potential impairments, and liquidity through the remainder of fiscal 2026 and into fiscal 2027.

We believe that during the next 12 months, continued inflationary pressures, increased or new tariffs, export controls and other trade barriers, trade disputes, and increasing geopolitical tensions will continue to negatively impact general economic activity and demand in our end markets.

Although it is difficult to estimate the length or severity of these conditions, we expect them to have an adverse effect on our results of operations, financial position, including potential impairments, and liquidity through the remainder of fiscal 2027.

Substantially all of our revenues are derived from sales of our Very Fast SRAM products.

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The average selling price of our products has increased or remained unchanged in recent years.

However, as is typical in the semiconductor industry, the selling prices of our products has historically declined over the life of the product.

However, as is typical in the semiconductor industry, the selling prices of our products have historically declined over the life of the product.

If prices decline, our ability to increase net revenues, therefore, is dependent upon our ability to increase unit sales volumes of existing products and to introduce and sell new products with higher average selling prices in quantities sufficient to compensate for the anticipated declines in selling prices of our more mature products.

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In addition, the timing of product releases, purchase orders and product availability could result in significant product shipments at the end of a quarter.

Failure to ship

these products by the end of the quarter may adversely affect our operating results.

Failure to ship these products by the end of the quarter may adversely affect our operating results.

Furthermore, our customers may delay scheduled delivery dates and/or cancel orders within specified timeframes without significant penalty.

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Thus, we will recognize revenue upon shipment of the product for direct sales and sales to our distributors.

KYEC was our largest end user customer in fiscal 2025.

Nokia was our largest end user customer in fiscal 2024 and 2023.

KYEC was our largest end user customer in fiscal 2026 and 2025.

Nokia was our largest end user customer in fiscal 2024.

KYEC purchases product through contract manufacturers and distributors.

Based on information provided to us by KYEC’s contract manufacturers and distributors, purchases by KYEC represented approximately 11%, 23%, 3% and 2% of our net revenues in the nine months ended December 31, 2025, and in fiscal 2025, 2024 and 2023, respectively.

Based on information provided to us by KYEC’s contract manufacturers and distributors, purchases by KYEC represented approximately 16%, 14%, 23% and 3% of our net revenues in the three months ended June 30, 2026, and in fiscal 2026, 2025 and 2024, respectively.

Nokia purchases products directly from us and through contract manufacturers and distributors.

Based on information provided to us by its contract manufacturers and our distributors, purchases by Nokia represented approximately 8%, 12%, 21% and 17% of our net revenues in the nine months ended December 31, 2025, and in fiscal 2025, 2024 and 2023, respectively.

Based on information provided to us by its contract manufacturers and our distributors, purchases by Nokia represented approximately 5%, 6%, 12% and 21% of our net revenues in the three months ended June 30, 2026, and in fiscal 2026, 2025 and 2024, respectively.

Cadence Design Systems purchases products through contract manufacturers and distributors.

Based on information provided to us by its contract manufacturers and our distributors, purchases by Cadence Design Systems represented approximately 17%, 8%, 8% and 0% of our net revenues in the nine months ended December 31, 2025, and in fiscal 2025, 2024 and 2023, respectively.

Based on information provided to us by its contract manufacturers and our distributors, purchases by Cadence Design Systems represented approximately 7%, 12%, 8% and 8% of our net

revenues in the three months ended June 30, 2026, and in fiscal 2026, 2025 and 2024, respectively.

Our revenues have been substantially impacted by significant fluctuations in sales to Nokia, KYEC and Cadence Design Systems, and we expect that future direct and indirect sales to Nokia, KYEC and Cadence Design Systems will continue to fluctuate substantially on a quarterly basis and that such fluctuations may significantly affect our operating results in future periods.

To our knowledge, none of our other OEM customers accounted for more than 10% of our net revenues in the nine months ended December 31, 2025 or in fiscal 2025, 2024 or 2023.

To our knowledge, none of our other OEM customers accounted for more than 10% of our net revenues in the three months ended June 30, 2026 or in fiscal 2026, 2025 or 2024.

Cost of Revenues.

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However, we charge costs related to pre-production mask sets, which are not used in production, to research and development expenses at the time they are incurred.

These charges often arise as we transition to new process technologies and, accordingly, can cause research and development expenses to fluctuate on a quarterly basis.

We incurred charges of $2.4 million for a pre-production mask set for our APU2 during the quarter ended December 31, 2023.

We incurred charges of

$3.2 million for intellectual property rights that we purchased for our Plato project during the quarter ended December 31, 2025.

We believe that continued investment in research and development is critical to our long-term success, and we expect to continue to devote significant resources to product development activities.

In particular, we are devoting substantial resources to the development of our in-place associative computing products.

Accordingly, we expect that our research and development expenses will increase in future periods as we expand our hardware and software development teams to complete development of our Gemini-II and Plato product offerings.

Accordingly, we expect that our research and development expenses will increase in future periods as we expand our hardware and software development teams to commercialize our Gemini-II product offerings and develop Plato product offerings.

Research and development expenses will be substantial in future periods and may lead to operating losses in some periods.

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We also expect that, in support of any future growth that we are able to achieve, general and administrative expenses will generally increase in absolute dollars.

We had a goodwill balance of $8.0 million as of both December 31, 2025 and March 31, 2025.

We had a goodwill balance of $8.0 million as of both June 30, 2026 and March 31, 2026.

The goodwill resulted from the acquisition of MikaMonu Group Ltd.

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Measurement of any impairment loss is based on the excess of the carrying value of the asset over its fair value.

There were no impairment indicators noted as of December 31, 2025 and March 31, 2025 .

There were no impairment indicators noted as of June 30, 2026 and March 31, 2026 .

Based on the uncertainty of forecasts inherent with a new product, events such as the failure to generate forecasted revenue from the APU product, could result in a non-cash impairment charge in future periods.

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The following table sets forth statement of operations data as a percentage of net revenues for the periods indicated:

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

Cost of revenues

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Selling, general and administrative

Gain from sale of assets

Total operating expenses

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Net Revenues .

Net revenues increased by 12.2% from $5.4 million in the three months ended December 31, 2024 to $6.1 million in the three months ended December 31, 2025 and by 28.5% from $14.6 million in the nine months ended December 31, 2024 to $18.8 million in the nine months ended December 31, 2025.

average selling price of all units shipped in the quarter ended December 31, 2025 increased by 9.0% compared to the quarter ended December 31, 2024 and the number of units shipped increased by 2.5% in the quarter ended December 31, 2025 compared to the quarter ended December 31, 2024.

The overall average selling price of all units shipped in the nine months ended December 31, 2025 increased by 20.5% compared to the nine months ended December 31, 2024 and the number of units shipped increased 6.6% in the nine months ended December 31, 2025 compared to the nine months ended December 31, 2024.

Net revenues were $6.3 million in each of the three months ended June 30, 2025 and 2026.

The overall average selling price of all units shipped in the quarter ended June 30, 2026 decreased by 17.7% compared to the quarter ended June 30, 2025 and the number of units shipped increased by 21.2% in the quarter ended June 30, 2026 compared to the quarter ended June 30, 2025.

The change in the average selling price was due to changes in product mix.

KYEC, which is a leading provider in the test and measurement market, was our largest end user customer in fiscal 2026.

Direct and indirect sales to KYEC decreased by $139,000 from $1.2 million in the three months ended December 31, 2024 to $1.1 million in the three months ended December 31, 2025 and decreased by $740,000 from $2.9 million in the nine months ended December 31, 2024 to $2.2 million in the nine months ended December 31, 2025.

Direct and indirect sales to Nokia increased from $239,000 in the three months ended December 31, 2024 to $675,000 in the three months ended December 31, 2025 and decreased from $2.0 million in the nine months ended December 31, 2024 to $1.4 million in the nine months ended December 31, 2025.

Direct and indirect sales to Cadence Design Systems decreased by $738,000 from $971,000 in the three months ended December 31, 2024 to $233,000 in the three months ended December 31, 2025 and increased by $2.2 million from $971,000 in the nine months ended December 31, 2024 to $3.1 million in the nine months ended December 31, 2025.

Direct and indirect sales to KYEC increased by $749,000 from $267,000 in the three months ended June 30, 2025 to $1.0 million in the three months ended June 30, 2026.

Direct and indirect sales to Nokia decreased by $229,000 from $536,000 in the three months ended June 30, 2025 to $307,000 in the three months ended June 30, 2026.

Direct and indirect sales to Cadence Design Systems decreased by $1.0 million from $1.5 million in the three months ended June 30, 2025 to $465,000 in the three months ended June 30, 2026.

Shipments to KYEC, Nokia and Cadence Design Systems will continue to fluctuate on a quarterly basis as a result of demand and shipments to their end customers.

While recent customer order patterns have been particularly variable, these fluctuations are related to economic and external factors, which include worldwide inflationary pressures, increased or new tariffs, export controls and other trade barriers and trade disputes, increasing geopolitical tensions and the challenging global economic environment.

Cost of Revenues.

Cost of revenues increased by 15.5% from $2.5 million in the three months ended December 31, 2024 to $2.9 million in the three months ended December 31, 2025 and increased by 8.0% from $7.8 million in the nine months ended December 31, 2024 to $8.4 million in the nine months ended December 31, 2025.

Cost of revenues included a provision for excess and obsolete inventories of $245,000 in the nine months ended December 31, 2024 compared to $232,000 in the nine months ended December 31, 2025.

Cost of revenues includes $203,000 in severance related payments in the nine months ended December 31, 2024 related to our August 2024 cost reduction initiative.

Cost of revenues included stock-based compensation expense of $50,000 and $61,000 for the three months ended December 31, 2024 and 2025, respectively, and $175,000 and $163,000 for the nine months ended December 31, 2024 and 2025, respectively.

Cost of revenues increased by 11.8% from $2.6 million in the three months ended June 30, 2025 to $2.9 million in the three months ended June 30, 2026.

The increase in cost of revenues was primarily related to changes in the mix of products and customers.

Cost of revenues included a provision for excess and obsolete inventories of $124,000 in the three months ended June 30, 2026 compared to $70,000 in the three months ended June 30, 2025.

Cost of revenues included stock-based compensation expense of $70,000 and $44,000 in the three months ended June 30, 2026 and 2025, respectively.

Gross Profit.

Gross profit increased by 9.5% from $2.9 million in the three months ended December 31, 2024 to $3.2 million in the three months ended December 31, 2025 and by 51.8% from $6.8 million in the nine months ended December 31, 2024 to $10.4 million in the nine months ended December 31, 2025.

Gross margin decreased from 54.0% in the three months ended December 31, 2024 to 52.7% in the three months ended December 31, 2025 and increased from 46.7% in the nine months ended December 31, 2024 to 55.2% in the nine months ended December 31, 2025.

The changes in gross profit are primarily related to the increases in net revenues discussed above.

The changes in gross margin were primarily related to changes in the mix of products and customers.

Gross margin in the nine months ended December 31, 2024 was also impacted by the severance related payments related to our August 2024 cost reduction initiative discussed above.

Gross profit decreased by 7.7% from $3.7 million in the three months ended June 30, 2025 to $3.4 million in the three months ended June 30, 2026.

Gross margin decreased from 58.1% in the three months

ended June 30, 2025 to 53.4% in the three months ended June 30, 2026.

The change in gross margin was primarily related to changes in the mix of products and customers.

Research and Development Expenses.

Research and development expenses increased by 84.7% from $4.0 million in the three months ended December 31, 2024 to $7.5 million in the three months ended December 31, 2025 .

The increase in research and development spending was primarily related charges of $3.2 million for intellectual property rights that we purchased for our Plato project during the quarter ended December 31, 2025 and lesser increases in payroll related expenses and outside consulting expenses for our Plato project.

Research and development expenses in the three months ended December 31, 2025 were also offset by $180,000 of funding received under the Direct to Phase II award from the Space Development Agency for the development of a Next-Generation Associative Processing Unit-2 (“APU2”) for Enhanced Space-Based Capabilities discussed above.

The decrease in payroll related expenses was due to reductions in headcount in the quarter ended September 30, 2024.

Research and development expenses included stock-based compensation expense of $121,000 and $358,000 for the three months ended December 31, 2024 and 2025, respectively.

Research and development expenses increased by 9.8% from $13.0 million in the nine months ended December 31, 2024 to $14.3 million in the nine months ended December 31, 2025.

The increase in research and development spending was primarily related to charges of $3.2 million for intellectual property rights that we purchased for our Plato project during the quarter ended December

31, 2025 and a lesser increase in outside consulting expenses, partially offset by decreases of $800,000 in software maintenance expenses and a lesser decrease in payroll related expenses.

Research and development expenses in the nine months ended December 31, 2024 were also offset by $318,000 of funding received under the government contracts discussed above compared to $1.0 million in the nine months ended December 31, 2025.

Research and development expenses included stock-based compensation expense of $747,000 and $599,000 for the nine months ended December 31, 2024 and 2025, respectively.

Research and development expenses increased 90.5% from $3.1 million in the three months ended June 30, 2025 to $5.9 million in the three months ended June 30, 2026.

The increase in research and development spending was primarily related to increases of $1.1 million in outside design consulting expenses for our Plato project, $916,000 in payroll related expenses and $322,000 in stock-based compensation.

Research and development expense also reflects higher software development costs from our Israeli-based team, primarily due to the strengthening of the Israeli shekel relative to the U.S.

Research and development expenses in the three months ended June 30, 2026 and 2025 were also offset by $336,000 and $543,000, respectively, of funding received under the government contracts discussed above.

Research and development expenses included stock-based compensation expense (credit to expense) of $260,000 and ($62,000) in the three months ended June 30, 2026 and 2025, respectively.

Selling, General and Administrative Expense.

Selling, general and administrative expenses decreased by 11.6% from $3.0 million in the three months ended December 31, 2024 to $2.6 million in the three months ended December 31, 2025.

Selling, general and administrative expenses included decreases of $521,000 in professional fees and a lesser decrease in payroll related expenses, partially offset by an increase of $105,000 in stock-based compensation.

Selling, general and administrative expenses included stock-based compensation expense of $258,000 and $363,000 for the three months ended December 31, 2024 and 2025, respectively.

Selling, general and administrative expenses increased by 2.2% from $8.2 million in the nine months ended December 31, 2024 to $8.3 million in the nine months ended December 31, 2025.

Selling general and administrative expenses primarily included increases of $372,000 in stock-based compensation and $275,000 in facilities related expense partially offset by a decrease of $379,000 in professional fees .

Selling, general and administrative expenses included a decrease of $160,000 in the value of contingent consideration in the nine months ended December 31, 2025.

Selling, general and administrative expenses included stock-based compensation expense of $846,000 and $1.2 million for the nine months ended December 31, 2024 and 2025, respectively.

Gain from Sale of Assets .

Gain from sale of assets includes the gain from the sale of our headquarters building located at 1213 Elko Drive in Sunnyvale, California.

The sale and leaseback transaction was completed on June 6, 2024.

For further discussion of the sale and leaseback transaction, see Note - 8 Leases to the Condensed Consolidated Financial Statements contained elsewhere in this report.

Selling, general and administrative expenses increased 4.6% from $2.7 million in the three months ended June 30, 2025 to $2.9 million in the three months ended June 30, 2026.

The increase in selling, general and administrative expenses was primarily due to an increase of $198,000 in stock-based compensation expense which was partially offset by a $132,000 decrease in payroll related expense.

Selling, general and administrative expenses included stock-based compensation expense of $557,000 and $359,000 in the three months ended June 30, 2026 and the three months ended June 30, 2025, respectively.

Interest Income and Other Expense, Net.

Interest and other income, net increased by $3.6 million from $70,000 in the three months ended December 31, 2024 to $3.6 million in the three months ended December 31, 2025.

Interest income increased by $165,000 primarily due to changes in interest rates received on our cash invested in money market funds and changing levels of invested cash.

Foreign exchange losses were $62,000 for the three months ended December 31, 2024 compared to $41,000 for the three months ended December 31, 2025.

Interest and other income, net increased by $3.4 million from $274,000 in the nine months ended December 31, 2024 to $3.7 million in the nine months ended December 31, 2025.

Interest income increased by $90,000, primarily due to changes in interest rates received on our cash invested in money market funds and changing levels of invested cash, in the nine months ended December 31, 2024 compared to the nine months ended December 31, 2025.

Foreign exchange losses were $107,000 for the nine months ended December 31, 2024 compared to $159,000 for the nine months ended December 31, 2025.

The three month and nine month periods ended December 31, 2025 included a gain on the change in the fair value of warrants of $6.2 million and offering costs associated with the issuance of warrants of $2.8 million.

Interest income and other income expense, net increased from income of $13,000 in the three months ended June 30, 2025 to $517,000 in the three months ended June 30, 2026.

Interest income increased by $454,000 primarily due to higher cash balances invested in money market funds, reflecting proceeds from stock option exercises under our employee stock option plans and sales of common stock under our At-the-Market offering during the quarter.

The foreign currency exchange loss decreased from ($53,000) in the three months ended June 30, 2025 to ($3,000) in the three months ended June 30, 2026.

The exchange loss in each period was primarily related to our Taiwan operations and operations in Israel.

Provision (benefit) for Income Taxes.

The provision (benefit) for income taxes was $44,000 in the three months ended December 31, 2024 compared to ($251,000) in the three months ended December 31, 2025 and was $124,000 in the nine months ended December 31, 2024 compared to ($156,000) in the nine months ended December 31, 2025.

The provision for income taxes decreased from $54,000 in the three months ended June 30, 2025 to a benefit of ($76,000) in the three months ended June 30, 2026.

This change was primarily due to fluctuations in the relative mix of income among our operating jurisdictions and changes in deferred tax assets.

Net loss was $4.0 million in the three months ended December 31, 2024 compared to $3.0 million in the three months ended December 31, 2025 and was $8.4 million in the nine months ended December 31, 2024 compared to $8.4 million in the nine months ended December 31, 2025.

These fluctuations were primarily due to the changes in net revenues, gross profit, operating expenses, the gain from sale of assets, the gain on the change in fair value of warrants and the issuance costs for the warrants discussed above.

Net loss increased from $2.2 million in the three months ended June 30, 2025 to $4.8 million in the three months ended June 30, 2026.

This fluctuation was primarily due to the changes in net revenues, gross profit and operating expenses discussed above.

Liquidity and Capital Resources

As of December 31, 2025, our principal sources of liquidity were cash and cash equivalents of $70.7 million compared to cash and cash equivalents $13.4 million as of March 31, 2025.

Net cash used in operating activities was $10.5 million for the nine months ended December 31, 2025 compared to $11.3 million for the nine months ended December 31, 2024.

The primary use of cash in the nine months ended December 31, 2025 was the net loss of $8.4 million.

Cash from operations in the nine months ended December 31, 2025 was adjusted for the non-cash gain on the change in fair value of warrants in the amount of $6.2 million.

The primary uses of cash in the nine months ended December 31, 2024 were the net loss of $8.4 million and a decrease of $1.2 million in accrued expenses and other liabilities.

The primary sources of cash in the nine months ended December 31, 2024 were reductions in inventories and prepaid expenses and other current assets.

Cash from operations in the nine months ended December 31, 2024 was adjusted for the non-cash gain on the sale of assets in the amount of $5.8 million.

Net cash provided by (used in) investing activities was ($336,000) in the nine months ended December 31, 2025 compared to $11.4 million in the nine months ended December 31, 2024.

Investment activities in the nine months ended December 31, 2025 primarily consisted of the purchase of property and equipment of $336,000.

Investment activities in the nine months ended December 31, 2024 primarily consisted of the net proceeds of $11.3 million from the sale and leaseback transaction discussed above, partially offset by the purchase of property and equipment of $41,000.

Net cash provided by financing activities in the nine months ended December 31, 2025 consisted of the proceeds from issuance of common stock and warrants of $49.7 million, proceeds from the sale of common stock pursuant to an At-the-Market offering of $14.3 million and the proceeds from the sale of common stock pursuant to our employee stock plans of $4.1 million.

Net cash provided by financing activities in the nine months ended December 31, 2024 consisted of the proceeds from the sale of common stock pursuant to our employee stock plans of $622,000.

As of June 30, 2026, our principal sources of liquidity were cash and cash equivalents of $77.0 million compared to cash and cash equivalents of $67.2 million as of March 31, 2026.

Net cash used in operating activities was $3.9 million and $1.7 million in the three months ended June 30, 2026 and 2025, respectively.

The primary uses of cash in the three months ended June 30, 2026 were the net loss of $4.8 million and an increase of $2.2 million in prepaid expenses and other assets.

The increase in prepaid expenses and other assets was primarily due to prepayments related to design consulting services for our Plato project.

The primary source of cash in the three months ended June 30, 2026 was a reduction in accounts receivable of $1.7 million.

Inventory increased from $4.1 million at March 31, 2026 to approximately $4.5 million at June 30, 2026.

This increase was primarily attributable to a build of inventory undertaken in response to extended and increasingly unpredictable manufacturing lead times and rising minimum order quantity requirements imposed by our back-end manufacturing suppliers.

We expect that we may continue to carry higher levels of inventory for the foreseeable future in order to mitigate the risk of supply disruptions and meet customer delivery commitments in light of these industry-wide constraints.

The primary uses of cash in the three months ended June 30, 2025 were the net loss of $2.2 million and a decrease of $1.7 million in accrued expenses and other liabilities.

The decrease in accrued expenses and other liabilities was primarily related to payment made for a production mask set for our APU2 that was accrued at March 31, 2025.

The primary source of cash in the three months ended June 30, 2025 was a reduction in accounts receivable of $1.6 million.

Net cash used in investing activities was $358,000 in the three months ended June 30, 2026 compared to $21,000 in the three months ended June 30, 2025.

Investment activities in the three months ended June 30, 2026 and 2025 primarily consisted of the purchase of property and equipment.

Net cash provided by financing activities in the three months ended June 30, 2026 primarily consisted of the net proceeds from the sale of common stock pursuant to an At-the-Market offering of $9.3 million and the proceeds from the sale of common stock pursuant to our employee stock plans of $4.8 million.

Net cash provided by financing activities in the three months ended June 30, 2025 primarily consisted of the net proceeds from the sale of common stock pursuant to an At-the-Market offering of $10.8 million and the proceeds from the sale of common stock pursuant to our employee stock plans of $226,000.

We believe that our existing balances of cash and cash equivalents will be sufficient to meet our cash needs for working capital and capital expenditures for at least the next 12 months.

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The Sales Agreement provides that we may offer and sell our common stock having an aggregate offering price of up to $25.0 million from time to time (the “Offering”) through Needham, acting as our sales agent.

Between May and August 2025, we sold 4,508,350 shares pursuant to the Offering at an average price of $3.29 for proceeds of $14.8 million, less offering costs of $573,000.

On October 21, 2025, we entered into a securities purchase agreement (the “Purchase Agreement”) with an investor (the “Purchaser”) pursuant to which we agreed to issue and sell, in a registered direct offering (the “Registered Direct Offering”) an aggregate of (i) 1,508,462 shares (the “Shares”) of our common stock, $0.001 par value per share (the “Common Stock”) at a price of $10.00 per Share and (ii) pre-funded warrants to purchase 3,491,538 shares of Common Stock (the “Pre-Funded Warrants” and, collectively with the Shares, the “Offered Securities”).

Each of the Pre-Funded Warrants is exercisable for one share of Common Stock at the exercise price of $0.01 per Pre-Funded Warrant, immediately exercisable, and may be exercised at any time.

The Purchaser’s ability to exercise its Pre-Funded Warrants in exchange for shares of Common Stock is subject to certain beneficial ownership limitations set forth therein.

The gross proceeds to us from the Registered Direct Offering were approximately $50 million, before deducting offering expenses payable of approximately $3.1 million.

The Registered Direct Offering closed on October 22, 2025.

All of the Pre-Funded Warrants were exercised in October 2025.

In May 2026, we sold 950,401 shares pursuant to the Offering at an average price of $10.10 for proceeds of $9.6 million, less offering costs of $321,000.

The registration statement expired in July 2026.

We cannot assure you that additional equity financing or debt financing, if required, will be available on terms that are acceptable or at all.

As of December 31, 2025, we had $20.5 million in purchase obligations for facility leases, wafer, software and design services obligations that are binding commitments of which $2.9 million are payable in the next twelve months and $17.6 million are committed in the long term.

As of June 30, 2026, we had $16.8 million in purchase obligations for facility leases, wafer, software and design services obligations that are binding commitments of which $7.4 million are payable in the next twelve months and $9.4 million are committed in the long term.

Critical Accounting Estimates

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Off-Balance Sheet Arrangements

At December 31, 2025, we did not have any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

At June 30, 2026, we did not have any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Accordingly, we are not exposed to the type of financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

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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