Filing identity and period
The supplied filing is MoSys, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2018, filed November 6, 2018. It is not identified as a Peraso Inc. filing, despite the request metadata naming Peraso.
MoSys develops and sells fabless semiconductor integrated circuits, primarily its Bandwidth Engine products, and licenses related intellectual property. Following 2017 restructuring, the company substantially curtailed new product development and focused on existing products.
Financial performance
| Metric | Three months ended September 30, 2018 | Nine months ended September 30, 2018 |
|---|---|---|
| Revenue | $4.343 million, up 77% year over year | $13.149 million, up 160% year over year |
| Gross profit and margin | $2.395 million; 55%, versus $1.197 million and 49% | $7.767 million; 59%, versus $2.459 million and 49% |
| Operating loss | $2.706 million, versus $1.533 million | $1.614 million, versus $9.486 million |
| Net loss | $2.812 million, or $0.34 per share, versus $1.743 million, or $0.22 per share | $2.149 million, or $0.26 per share, versus $10.142 million, or $1.43 per share |
| Operating cash flow | $0.411 million provided for the nine months, versus $8.959 million used in the prior-year period |
Revenue growth primarily reflected higher Bandwidth Engine shipment volumes and average selling prices. Gross margin improved with higher product shipments, lower manufacturing costs, and non-recurring license and engineering services revenue. Nine-month R&D expense fell 58% to $3.064 million and SG&A fell 14% to $3.158 million, principally due to cost reductions. Q3 net loss increased year over year largely because of a $3.159 million non-cash goodwill impairment charge; the impairment followed a decline in the company’s share price and market capitalization.
Financial position and capital
At September 30, 2018, cash and cash equivalents were $4.176 million, working capital was $4.9 million, and total assets were $19.409 million. Current liabilities were $3.540 million. Convertible notes payable were $10.036 million, with a stated maturity in August 2019 before subsequent amendments. Cash increased $0.308 million from year-end 2017. The company reported no cash borrowing in the period; interest was paid in kind through additional notes.
After quarter-end, an October public offering generated approximately $11.1 million gross proceeds. Approximately $7.4 million was used to repay note principal. The amended remaining debt was approximately $2.7 million, with maturity extended to August 15, 2023 and the conversion price reduced to $0.5717 per share. The offering included common shares, pre-funded warrants and common stock warrants, creating substantial potential dilution. Shares outstanding were 8.274 million at September 30; the filing reports 41.641 million common shares outstanding as of October 31.
Outlook, risks, and other matters
- Management said existing cash was expected to cover anticipated cash needs for the next 12 months, while noting that additional capital might be needed and might not be available on acceptable terms.
- MoSys expected R&D and SG&A to remain approximately at then-current levels for the rest of 2018. It gave no quantified revenue or earnings guidance.
- Management expected Bandwidth Engine 2 to remain a primary revenue source through at least 2019. Bandwidth Engine 3 production was expected to begin in late 2018, with meaningful revenue expected in late 2019.
- A large customer informed MoSys it would phase out Bandwidth Engine products over 24 months. MoSys expected final shipments to that customer in the first half of 2019 and said the change would materially reduce its revenue outlook beginning in Q4 2018. The customer’s share of nine-month revenue was 34%; four customers represented 83% of receivables at quarter-end.
- Revenue and gross profit benefited from non-recurring license and engineering services for a development project. The company also recorded $0.1 million of inventory write-downs in Q3.
- A former sales representative’s commission lawsuit was settled in April 2018; MoSys paid approximately $450,000 in Q2. The filing states disclosure controls were effective as of September 30, 2018.
Most important facts for investors to verify
- Confirm issuer identity: the supplied document is for MoSys, Inc., not Peraso Inc.
- Assess the large customer phase-out, shipment completion timing, customer concentration, and resulting revenue outlook.
- Review the October offering and amended note terms, including warrant overhang, conversion terms, and resulting share dilution.
- Evaluate cash runway against operating needs and debt obligations, especially given management’s stated reliance on potential additional capital.
- Track whether Bandwidth Engine 3 reaches production and generates meaningful revenue on the expected schedule, and distinguish recurring revenue from non-recurring project fees.