Business context and reporting period
This is MoSys, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2021. The company sells semiconductor IC products and licenses related IP, including its Bandwidth Engine products and developing Virtual Accelerator Engine (VAE) IP. The filing describes a proposed acquisition of Peraso Technologies; it is not a filing by Peraso Inc. MoSys traded as MOSY.
Financial performance and position
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $1.337 | $1.971 | $3.843 | $5.199 |
| Gross profit | $0.961 | $1.294 | $2.528 | $3.388 |
| Gross margin | 72% | 66% | 66% | 65% |
| Operating loss | $(1.718) | $(0.633) | $(4.890) | $(2.584) |
| Net loss | $(1.714) | $(0.707) | $(4.288) | $(2.751) |
| Basic and diluted loss per share | $(0.20) | $(0.20) | $(0.63) | $(1.03) |
- Q3 product revenue was $1.210 million and royalty and other revenue was $0.127 million. Revenue fell 32% year over year, primarily due to lower Bandwidth Engine 2 and LineSpeed IC sales. Nine-month revenue declined 26%.
- Q3 R&D expense rose 32% to $1.281 million; nine-month R&D rose 25% to $3.662 million, mainly from higher personnel and VAE IP development costs. Q3 SG&A increased 46% to $1.398 million; nine-month SG&A rose 23% to $3.756 million, including $0.7 million of Peraso transaction costs year to date.
- For the nine months, operating cash use was $4.571 million, versus $1.616 million in 2020. Investing activities used $11.441 million, largely reflecting investment purchases; financing provided $19.943 million. Cash and cash equivalents increased to $9.820 million from $5.889 million at year-end.
- At September 30, cash, cash equivalents and investments totaled $21.2 million; working capital was $18.6 million. Total liabilities were $2.031 million, with no debt outstanding. The remaining $3.027 million of convertible-note principal was repaid in March; the PPP loan was forgiven in May.
- Total assets were $24.094 million, stockholders’ equity $22.063 million, and accumulated deficit $246.907 million. The company reported no material off-balance-sheet arrangements.
Material changes, outlook and risks
- MoSys raised approximately $18.8 million net from two 2021 stock offerings and received $4.2 million from warrant exercises. These financings strengthened liquidity but increased share count and diluted existing holders.
- Management said cash expenditures were expected to exceed receipts in 2021, but believed available liquidity would meet short- and long-term needs for the foreseeable future. The company acknowledged that sustainable profitability requires substantial revenue growth and that it may need additional capital.
- Management expected R&D expense to increase in 2021 as VAE development continued, and SG&A to remain relatively consistent for the rest of the year. It expected COVID-19 to negatively affect revenue for the remainder of 2021 but could not quantify the impact.
- COVID-19-related component shortages and longer lead times could constrain production or delay shipments. Management said customer orders had been met to date, while warning that supplier disruptions could harm results and cash flows.
- The proposed Peraso arrangement was expected to close in Q4 2021, subject to shareholder, court, regulatory, Nasdaq-listing and other conditions. Former Peraso holders were expected to own about 61% of the combined company on a fully diluted basis, including escrowed earnout shares; MoSys holders were expected to own about 39%. Termination fees could reach $3.5 million in specified circumstances, or $0.75 million for failure to obtain shareholder approval.
- Other notable items include $0.579 million of PPP-loan forgiveness income and a $0.632 million year-to-date net other-income benefit. Revenue and receivables were concentrated: four customers represented 88% of accounts receivable at quarter-end, and individual customers accounted for significant shares of sales.
- Management reported disclosure controls and procedures were effective as of September 30, 2021. The filing disclosed no legal proceedings believed likely to have a material adverse effect.
Key facts for investors to verify
- Confirm the status and final terms of the Peraso arrangement, including closing conditions, exchange ratio, dilution, earnout provisions and any termination obligations.
- Track product demand, customer concentration, and whether lower IC and royalty revenue stabilizes or continues to decline.
- Assess VAE development spending, commercialization progress and its contribution to future revenue relative to ongoing losses and cash use.
- Monitor component availability, supplier lead times and any resulting effects on production, shipments and customer programs.
- Reconcile future cash burn and financing needs against the reported $21.2 million of cash and investments; assess the effects of further equity issuance on existing shareholders.