Peraso Inc. quarterly report, Q2 FY2014

Business context and reporting period

Issuer discrepancy: The supplied filing is MoSys, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2014—not a Peraso Inc. filing. The summary below reflects the filing text provided. MoSys described itself as a fabless semiconductor company developing and selling Bandwidth Engine and LineSpeed ICs, alongside licensing semiconductor IP.

Financial performance

Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.

• Q2 product revenue was $0.975 million versus $0.060 million; royalty and other revenue was $0.774 million versus $1.060 million. Six-month product revenue rose to $1.556 million from $0.121 million, while royalty and other revenue fell to $1.525 million from $2.334 million.
• R&D expense was $6.432 million in Q2 and $13.486 million for the half, up 8% and 19%, respectively. SG&A was $1.490 million in Q2 and $3.287 million for the half.
• Cash used in operating activities was $11.924 million for the first half, versus $11.461 million a year earlier. Investing activities provided $8.911 million, mainly from net investment maturities and sales; financing provided $1.689 million, primarily from stock-option exercises and employee stock purchases.
• At June 30, cash and cash equivalents were $3.040 million and short- and long-term investments totaled $37.100 million. The company reported working capital of $30.4 million. Total assets were $67.507 million and stockholders’ equity was $64.380 million. No borrowings or debt balance is reported in the supplied balance sheet.

Material changes versus the prior comparable period

• Revenue increased, driven by higher IC product shipments and more customers, but the mix shifted away from high-margin royalties toward products with associated material and testing costs. Gross margin fell from 93% to 42% in Q2 and from 96% to 48% for the half.
• Management attributed lower royalty and other revenue to reduced shipment volumes by licensees. Product revenue included reversals of prior-period sales-return reserves of $0.2 million in Q2 and $0.4 million for the half.
• The net loss widened by $0.765 million in Q2 and $3.855 million for the first half. R&D spending increased, partly due to higher staffing, design software, consulting and stock-based compensation.
• Cash and investments decreased from $50.482 million at year-end 2013 to $40.140 million at June 30, 2014. The prior-year first half included $27.890 million in net proceeds from a public stock offering; there was no comparable offering in 2014.

Outlook, risks and unusual items

• Management expected product revenue to fluctuate during the remainder of 2014 because customers had not yet begun full production of systems using MoSys ICs. It expected new-product tape-outs in both Q3 and Q4, with related R&D costs varying by timing.
• Management expected cash expenditures to continue to exceed receipts in 2014, but believed cash and investments would fund requirements for the foreseeable future. It cautioned that there was no assurance capital would last until positive cash flow, and disclosed an effective shelf registration statement permitting sales of up to approximately $50 million of securities.
• Key risks include the ability to establish a market for its IC products, uncertain product ramp and customer demand, manufacturing yields and costs, revenue and collection timing, and possible need for additional financing. Three customers accounted for 93% of net accounts receivable at quarter-end; major customers also represented substantial revenue.
• MoSys had $9.957 million in disclosed contractual obligations, including operating leases, software licenses and wafer purchase obligations. It was under tax examination in India. The filing reported no material legal proceeding believed likely to have a material adverse effect.
• For Credo-developed ICs, MoSys had paid $2.9 million for development milestones, mask costs and wafer purchases; it retained the first $2.6 million of gross profits from sales under the arrangement, with subsequent gross profits shared equally.

Important facts for investors to verify

• Confirm the intended issuer: the source document identifies MoSys, Inc., not Peraso Inc.
• Verify whether IC customer production and revenue growth materialized, and whether product margins improved as product sales scaled.
• Assess cash burn against the $40.1 million cash-and-investment balance, contractual commitments and potential financing needs.
• Review customer concentration, distributor return rights, sales-return reserve reversals and the timing of royalty reports.
• Evaluate potential dilution from equity financing and outstanding stock awards; the filing excluded approximately 10.226 million potentially dilutive awards from diluted loss per share as anti-dilutive.