MoSys, Inc. — Form 10-Q summary
Filing identity: The supplied filing is for MoSys, Inc. (NASDAQ: MOSY), not Peraso Inc. It covers the quarter and nine months ended September 30, 2020; the financial statements are unaudited. Financial amounts below are in millions unless stated otherwise.
Business context and reporting period
MoSys describes itself as a fabless semiconductor and IP company. Its main product line is Accelerator Engine ICs, including Bandwidth Engine 2; it also earns licensing and royalty revenue and is developing a software, firmware, and IP-based Virtual Accelerator Engine product line. Management said Bandwidth Engine 2 was expected to remain its primary revenue source through at least 2021. The company reported that it was not developing new IC products.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Net revenue | $1.971 | $1.206 | $5.199 | $7.792 |
| Gross profit / margin | $1.294 / 66% | $0.799 / 66% | $3.388 / 65% | $4.803 / 62% |
| Operating expenses | $1.927 | $2.576 | $5.972 | $6.614 |
| Operating loss | $(0.633) | $(1.777) | $(2.584) | $(1.811) |
| Net loss | $(0.707) | $(1.801) | $(2.751) | $(1.894) |
| Net loss per share | $(0.20) | $(0.83) | $(1.03) | $(0.88) |
Q3 product revenue was $1.803 million, up 74% year over year, primarily on higher Bandwidth Engine 2 sales; nine-month product revenue was $4.550 million, down 37%, reflecting lower Bandwidth Engine and LineSpeed sales. Nine-month royalty and other revenue rose 16% to $0.649 million, including new licensing revenue. The Q3 loss narrowed year over year, while the nine-month net loss widened. The 2020 nine-month common-stockholder loss included a $0.392 million deemed dividend from a warrant exercise-price adjustment; it did not increase the reported net loss.
For the nine months, operating cash flow was $(1.616) million versus $(0.226) million in 2019. Investing cash flow was $0.286 million, mainly investment maturities; financing cash flow was $2.198 million, including $1.619 million net stock-offering proceeds and $0.579 million of PPP loan proceeds. Cash and cash equivalents at September 30 were $6.921 million, compared with $6.053 million at year-end 2019; working capital was $7.1 million. The filing reports no quarterly cash flow value.
Total assets were $9.238 million and stockholders’ equity was $3.901 million at September 30. Total liabilities were $5.337 million, including $3.092 million of secured convertible notes and $0.579 million of PPP borrowing. The convertible notes bear 8% interest, mature in 2023, and had interest paid in kind. The PPP loan bears 1% interest; forgiveness was not assured. Management expected 2020 cash expenditures to exceed receipts and stated the company would need substantially higher revenue to achieve sustainable operating profit and cash flow.
Material changes, outlook, and risks
- Q3 revenue and gross profit improved year over year, but year-to-date revenue and gross profit declined. Nine-month operating loss increased despite lower operating expenses, primarily reflecting reduced gross profit.
- R&D fell 10% year to date to $2.918 million; SG&A rose 3% to $3.054 million. Management expected both expense categories to remain relatively consistent for the rest of 2020.
- Management expected COVID-19 to negatively affect revenue for the remainder of 2020 but could not quantify the impact. The filing cites supply-chain disruption, longer component lead times, restricted customer and vendor access, and possible delays or reduced demand.
- The company raised capital through an April 2020 stock offering of 1.218 million shares at $1.56 per share, netting approximately $1.6 million. The offering reduced the exercise price of outstanding warrants from $6.00 to $2.40, with potential dilution. Common shares outstanding were 3.553 million as of November 5, 2020.
- Customer concentration was significant: four customers represented 79% of accounts receivable at quarter-end; three individually accounted for at least 10% of Q3 revenue, together representing 74%. The filing reports no legal proceeding believed likely to have a material adverse effect.
Important facts for investors to verify
- Confirm the issuer: the source is a MoSys 10-Q, despite the request identifying Peraso Inc.
- Assess whether cash and working capital can support operations given continued losses, negative operating cash flow, and management’s expectation that 2020 cash expenditures would exceed receipts.
- Check PPP loan forgiveness status and repayment obligations, and monitor the secured convertible notes due in 2023 and their in-kind interest accrual.
- Evaluate customer concentration, COVID-19-related supply and demand exposure, and the company’s ability to sustain Bandwidth Engine 2 sales while developing its Virtual Accelerator Engine offering.
- Review potential dilution from outstanding warrants, convertible notes, equity awards, and any future capital raises.