Business context and reporting period
The filing is MoSys, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2011; the request metadata names Peraso Inc., which does not match the registrant identified in the filing. MoSys licensed embedded-memory and high-speed interface IP and was developing Bandwidth Engine integrated circuits (ICs). It reported no Bandwidth Engine IC sales revenue to date.
Financial performance and position
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Net revenue | $2.107m | $3.776m | $8.938m | $11.595m |
| Gross profit / margin | $1.751m / 83% | $3.041m / 81% | $7.423m / 83% | $9.537m / 82% |
| Operating expenses | $8.600m | $9.214m | $25.952m | $26.997m |
| Operating loss | ($6.849m) | ($6.173m) | ($18.529m) | ($17.460m) |
| Net loss | ($6.863m) | ($6.198m) | ($18.544m) | ($17.351m) |
| Net loss per share | ($0.18) | ($0.19) | ($0.49) | ($0.55) |
Revenue declined 44% in Q3 and 23% for the first nine months year over year. Q3 licensing revenue was $0.756m, down 49%, and royalties were $1.351m, down 41%. Nine-month licensing revenue fell 34% to $3.319m; royalties fell 14% to $5.619m. Gross margin improved modestly, but lower revenue and continued development spending contributed to larger operating and net losses for the nine-month period.
For the first nine months, operating cash flow was negative $12.879m, versus negative $10.580m in 2010. Investing activities provided $1.253m net and financing provided $3.067m; cash and cash equivalents decreased $8.559m to $5.781m. At September 30, cash, cash equivalents and investments totaled approximately $26.4m; working capital was $16.9m. The balance sheet showed no conventional borrowings; disclosed capital-lease obligations totaled $0.202m, and long-term liabilities were $0.108m.
Material changes and management commentary
- Management attributed lower licensing revenue to weaker global economic conditions, increased competition, delays in proving SerDes IP at advanced foundry nodes, delayed customer acceptance, and the absence of large prior-period technology agreements.
- Royalty revenue was affected by reduced shipments from an IDM licensee whose product was used in Nintendo Wii, including a Q3 inventory correction, and lower shipments by other licensees. Management believed the correction was complete and expected royalties to increase in Q4 2011.
- MoSys was shifting engineering resources and emphasis from IP licensing toward Bandwidth Engine IC development. It said IC revenue was not expected to be significant until the second half of 2012 or later, and might not approach licensing and royalty revenue until at least 2013. Management expected future licensing revenue to be lower than in 2011 and did not expect royalties to grow.
- In November 2011, after the reporting period, MoSys announced two low-volume design wins. The filing does not report resulting revenue.
- Management expected research and development spending to rise as it developed new technologies and future Bandwidth Engine products, and expected sales and marketing expense to increase to build an IC sales channel.
Liquidity, risks, and contingencies
Management expected cash expenditures to exceed receipts through 2012 but believed available cash, investments and other resources would cover requirements for at least the next 12 months. It noted that additional financing, spending reductions, or both could be needed if resources proved inadequate; availability and terms of financing were not assured. Near-term contractual obligations totaled $4.530m due within one year, including operating leases, purchase commitments and capital leases; total disclosed obligations were $10.748m.
Revenue and receivables were concentrated: three customers contributed 67% of Q3 revenue, and five customers represented 100% of net receivables at quarter-end. The company also identified dependence on a major gaming-device licensee, customer shipment variability, product-market acceptance, manufacturing yields, and the ability to secure large-volume IC orders as important risks. No material legal proceeding likely to have a material adverse effect was reported. The September 2011 goodwill impairment test found no impairment; fair value exceeded carrying value by approximately 61%, but management noted stock-price volatility could affect future tests. Disclosure controls were deemed effective as of September 30, 2011.
Most important facts to verify
- Confirm the intended issuer: this source is a MoSys, Inc. filing, not a Peraso Inc. filing.
- Check subsequent filings for actual Bandwidth Engine order volumes, shipments, revenue, and customer acceptance after the two design wins.
- Monitor cash burn, liquidity, financing needs, and the timing and amount of contractual commitments.
- Track customer concentration, especially royalties tied to gaming products and the largest customers’ receivables and shipments.
- Compare management’s Q4 2011 royalty expectation and longer-term revenue outlook with reported results in later periods.