Peraso Inc. — 2020 Q2 Form 10-Q summary
Important filing-identity discrepancy: The supplied filing is for MoSys, Inc. (NASDAQ: MOSY), not Peraso Inc. This summary reflects the filing text provided. The quarter ended June 30, 2020; financial statements are unaudited. Amounts below are in U.S. dollars; financial statement amounts are generally shown in millions.
Business context and reporting period
MoSys describes itself as an IP-focused fabless semiconductor company selling integrated circuits, software, firmware, and licensed IP. Its principal products include Bandwidth Engine ICs. Management said it was not developing new IC products and was extending its portfolio through software, firmware, and IP offerings, including its Virtual Accelerator Engine platform.
Financial results and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $1.968m | $3.066m | $3.228m | $6.586m |
| Gross profit / margin | $1.364m / 69% | $1.838m / 60% | $2.094m / 65% | $4.004m / 61% |
| Operating loss | $0.585m | $0.075m | $1.951m | $0.034m |
| Net loss | $0.639m | $0.103m | $2.044m | $0.093m |
| Net loss attributable to common stockholders | $1.031m | $0.103m | $2.436m | $0.093m |
Q2 product revenue was $1.679m, down 40% year over year; royalty and other revenue was $0.289m, up 13%. For the first half, product revenue fell 56% to $2.747m, while royalty and other revenue rose 23% to $0.481m. Gross margin improved, reflecting higher product margins and a greater contribution from royalty revenue, which generally carries little associated cost.
At June 30, cash and cash equivalents were $7.375m, with no short-term investments, versus cash and short-term investments totaling $6.353m at year-end 2019. Working capital was $7.7m. Current assets were $9.303m and current liabilities $1.611m. Total liabilities were $4.965m; stockholders’ equity was $4.546m. Debt included approximately $2.970m of secured convertible notes due in 2023 and a $0.579m Paycheck Protection Program (PPP) loan, of which $0.195m was current and $0.384m noncurrent.
Operating cash flow was negative $1.165m in the first half of 2020, compared with positive $0.391m in the first half of 2019. Investing activities provided $0.288m; financing activities provided $2.199m, mainly from an equity offering and PPP loan. Cash increased $1.322m to $7.375m during the half-year.
Material changes versus comparable periods
- Revenue declined substantially, primarily because of lower Bandwidth Engine product sales. Management said approximately $0.7m of shipments shifted from Q1 to Q2 due to COVID-19 shelter-in-place orders.
- Operating and net losses widened as lower revenue left operating expenses comparatively high. First-half R&D was down 9% to $1.946m; SG&A rose 10% to $2.099m.
- First-half 2020 included a $0.1m inventory write-down for lead-based Bandwidth Engine 2 products amid customer transitions to lead-free products.
- The April registered direct offering raised approximately $1.6m net and issued 1.218m shares. It also reduced the exercise price of outstanding warrants from $6.00 to $2.40, creating a $0.392m deemed dividend that increased loss attributable to common stockholders.
- Shares issued and outstanding increased from 2.179m at December 31, 2019 to 3.534m at June 30, 2020. The filing reports 3,536,512 shares outstanding as of August 5, 2020.
Outlook, risks, and unusual items
- Management expected cash expenditures to exceed receipts in 2020 and said revenue would not cover working-capital needs. It expected R&D and SG&A expenses 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. It cited vendor closures, longer component lead times, limits on customer and vendor visits, and constraints on testing and development.
- Management said additional capital may be needed; future financing could be unavailable or materially dilutive or otherwise restrictive. The company reported a long history of losses and an accumulated deficit of $240.9m.
- The $0.579m PPP loan bears 1% interest, has a two-year term, and may be eligible for forgiveness; the company gave no assurance that forgiveness would be obtained. If not forgiven, scheduled principal payments were $49,000 in 2020, $292,000 in 2021, and $238,330 in 2022.
- Four customers accounted for 99% of accounts receivable at quarter-end. Customer A and B represented 44% and 29% of Q2 revenue, respectively, indicating significant concentration.
- The filing states that no legal proceeding was believed likely to have a material adverse effect. Management concluded disclosure controls were effective as of June 30, 2020 and reported no material change in internal control over financial reporting.
Reporting inconsistency to note: The MD&A overview says the company incurred a net loss of approximately $0.6m for the six months ended June 30, 2020, whereas the financial statements report a $2.044m net loss for that period. The statements show Q2 net loss of approximately $0.6m.
Important facts for investors to verify
- Confirm the intended issuer: the provided 10-Q identifies MoSys, Inc., not Peraso Inc.
- Reconcile the six-month net-loss figure in the MD&A with the financial statements.
- Track product revenue, shipment timing, COVID-19 effects, and customer and receivables concentration.
- Assess cash burn and financing needs against available cash, the convertible notes, and PPP loan forgiveness or repayment.
- Review dilution and potential warrant exercises following the April offering and warrant repricing.