Palomino Laboratories Inc. Annual Report: A Simple Guide

I am writing this guide to help you understand how Palomino Laboratories performed this year. My goal is to cut through the corporate jargon so you can decide if this company belongs in your portfolio.

1. The Big Picture

Palomino Laboratories is currently transforming. They went public on September 29, 2025, raising $9.7 million. Their mission is high-tech: they want to replace copper wires in data centers with light-based connections. This helps overcome the "bandwidth wall" that currently limits AI infrastructure.

2. What They Actually Do

Palomino is a "pre-revenue" company, meaning they made $0 in sales for the year ending December 31, 2025. They are still in the research phase, focusing on microLED optical transceivers.

Modern AI servers struggle because copper wires lose signal quality and move data slowly at scale. Palomino’s technology aims to move data at 800 Gbps—100 times faster than copper—while using 40% less power. They use a "fabless" model, meaning they hire outside factories to build their chips. This saves them from spending billions to build their own manufacturing plants.

3. The Competitive Edge

Palomino targets tech giants like Amazon, Microsoft, and Google. Their secret weapon is Gallium Nitride (GaN) integration. Traditional silicon chips struggle with heat, but GaN allows Palomino’s devices to run hotter and more efficiently. This could let data centers pack more power into the same space.

4. The Money Talk

Because they are a startup, the company is currently losing money.

• Cash Injection: They raised $9.7 million by selling 6.46 million stock units at $1.50 each.
• Debt Conversion: They cleared $1.8 million in debt by turning old notes into 1.2 million shares of stock. This removes interest payments from their books.
• The Bottom Line: The company spent about $4.2 million this year, mostly on research staff and testing prototypes. They are seeking federal grants, but they face a hurdle: the CHIPS Act prioritizes companies that own their own factories. Because Palomino is fabless, they currently miss out on these tax credits.

5. The "Watch Out" List

• High Risk: Moving from a lab prototype to a finished product is difficult. If they cannot produce functional chips reliably, they could face penalties from customers.
• Internal Controls: The company reported a "material weakness" in their accounting. They lack enough staff with experience in SEC reporting, which could lead to errors or delayed filings.
• Cybersecurity: As a developer of high-tech designs, they are a target for hackers. If their design files are stolen, they lose their only advantage.
• Dilution: There are 5.2 million warrants outstanding. If these are used, the company will issue more shares, reducing your ownership percentage by about 25%.
• Competition: They face giants like Broadcom and Marvell. These companies have massive budgets and established supply chains that Palomino cannot match.
• Dependency: They rely on one factory partner. If that partner has delays or prioritizes other clients, Palomino’s roadmap could stall for over a year.

With $5.5 million in the bank and monthly spending of $350,000, the company has about 15 months of cash left before they likely need to raise more money, which would further dilute your shares.

Final Thoughts for Investors

When considering this investment, weigh the high-growth potential of their light-based data technology against the reality of a pre-revenue startup. You are betting on their ability to scale production and secure major tech partners before their current cash reserves run dry. Keep a close eye on their next quarterly update to see if they have secured a manufacturing partner or made progress on their accounting controls.