Business context and reporting period
The supplied filing is MoSys, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2012—not a filing identified as Peraso Inc. Investors should verify the issuer and filing-period match. MoSys was shifting from licensing semiconductor IP toward developing and selling Bandwidth Engine integrated circuits (ICs), targeting networking systems companies.
Financial results
Amounts below are in millions of dollars unless noted.
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $1.327 | $2.107 | $4.487 | $8.938 |
| Gross profit / margin | $1.274 / 96% | $1.751 / 83% | $4.198 / 94% | $7.423 / 83% |
| Operating loss | $(6.055) | $(6.849) | $(19.823) | $(18.529) |
| Net loss | $(6.073) | $(6.863) | $(19.841) | $(18.544) |
| Basic and diluted loss per share | $(0.15) | $(0.18) | $(0.51) | $(0.49) |
| Cash used in operating activities | Not presented quarterly | Not presented quarterly | $(17.484) | $(12.879) |
At September 30, cash and cash equivalents were $5.967 million; short- and long-term investments totaled $39.297 million. Working capital was $34.8 million. Total liabilities were $3.591 million, including $16,000 of capital-lease obligations; the filing reports no significant conventional debt. The company had 39.810 million common shares outstanding at quarter-end and 39.907 million as of November 1, 2012.
Material changes versus the prior comparable period
- Q3 revenue fell 37% year over year; nine-month revenue fell 50%. Licensing and other revenue declined 67% and 66%, respectively, while royalties declined 20% and 40%.
- Gross margin improved, principally because royalty revenue—which has no related cost—represented a larger share of lower total revenue. Gross profit dollars nevertheless declined.
- Nine-month R&D expense rose 10% to $21.220 million as the company increased IC development investment; SG&A fell 7% to $6.092 million.
- Nine-month operating cash use increased to $17.484 million from $12.879 million. Cash and cash equivalents declined from $40.025 million at year-end 2011, while investments increased.
Outlook, risks, contingencies and unusual items
- Management said significant Bandwidth Engine revenue was not expected before 2013 at the earliest, and did not expect IC revenue growth to offset declining IP revenue and gross margin until later. It expected operating losses to increase in the near term and cash expenditures to exceed receipts through the remainder of 2012 and into 2013.
- Management believed available cash and investments were sufficient for operating requirements through the remainder of 2012 and the foreseeable future, but noted it could seek financing; a shelf registration allowed sales of up to approximately $30 million through November 2013. Future funding availability and terms were not assured.
- A March 2012 sale of a portion of high-speed serial I/O IP generated a $3.3 million nine-month gain, including a $1.4 million Q3 gain. Additional holdback proceeds and related gain depended on support, milestones and expiry of an indemnity period.
- An arbitration award led to an approximately $1.4 million cash payment in Q2 2012 and repurchase and retirement of disputed shares; $0.6 million was recorded as SG&A expense.
- The company disclosed a related-party development and marketing agreement with Credo Semiconductor, in which two MoSys executive officers were investors. MoSys recorded $1.0 million of R&D expense after milestone payments and had $0.1 million payable at quarter-end.
- Customer concentration was significant: two customers represented 70% of Q3 revenue, and one customer accounted for all net accounts receivable at September 30. The filing also notes an India tax examination and ordinary-course indemnification exposures; it reports no material legal proceeding believed likely to materially harm financial position or results.
- Goodwill impairment testing in September indicated fair value exceeded carrying value by approximately 44%; management cautioned that stock-price fluctuations could affect future impairment assessments.
Important facts to verify
- Confirm that this MoSys 2012 Q3 filing is the intended filing for the Peraso Inc. request.
- Review the assumptions behind management’s liquidity runway and the timing and commercial prospects for IC products and design wins.
- Assess the continued decline in licensing and royalty revenue, including dependence on a small number of customers and royalty sources.
- Check the conditions, remaining holdback and indemnity exposure associated with the IP asset sale.
- Review the Credo related-party agreement, milestone payments and profit-sharing terms, as well as the arbitration settlement accounting.