Filing summary
Entity discrepancy: The supplied filing is MoSys, Inc. (NASDAQ: MOSY), not Peraso Inc. It is a Form 10-Q for the quarter ended September 30, 2019, filed November 13, 2019. Financial amounts below are in U.S. dollars; statements present most amounts in thousands.
Business context and reporting period
MoSys describes itself as an IP-focused fabless semiconductor company. Its principal product family is Bandwidth Engine ICs; it also earns royalties and other revenue from IP licensing. The filing says Bandwidth Engine 2 was expected to remain its primary revenue source through at least 2020. In August 2019, the company effected a 1-for-20 reverse stock split.
Financial performance and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $1.206 million | $4.343 million | $7.792 million | $13.149 million |
| Gross profit (margin) | $0.799 million (66%) | $2.395 million (55%) | $4.803 million (62%) | $7.767 million (59%) |
| Operating loss | $1.777 million | $2.706 million | $1.811 million | $1.614 million |
| Net loss | $1.801 million | $2.812 million | $1.894 million | $2.149 million |
| Net loss per share | $0.83 | $6.83 | $0.88 | $5.25 |
At September 30, cash and cash equivalents were $6.170 million and short-term investments were $0.650 million; working capital was $7.8 million. Nine-month operating cash flow was negative $0.226 million, compared with positive $0.411 million in 2018. Cash and cash equivalents declined from $7.104 million at year-end 2018. Investing cash flow was negative $0.704 million, mainly reflecting purchases of short-term investments; financing cash flow was negative $0.004 million.
Total liabilities were $4.600 million, including $2.858 million of convertible notes payable. The notes bear 8% interest, are secured by company assets, and are due August 2023. Interest may be paid in kind; the company issued approximately $0.187 million of additional notes for accrued interest during the nine months.
Changes versus the prior comparable period
- Revenue fell 72% in Q3 and 41% for the first nine months, principally because Bandwidth Engine shipments declined. Increased LineSpeed sales did not offset the decline.
- Royalty and other revenue fell 41% in Q3 and 58% year to date, reflecting the completion of a non-recurring 2018 licensing and engineering project and lower licensee shipments.
- Gross margin improved year over year, but gross profit dollars decreased with lower revenue. Q3 net loss narrowed, while the nine-month operating loss increased despite lower goodwill impairment.
- The company recorded a $0.420 million non-cash goodwill impairment in 2019, reducing goodwill to zero; the comparable 2018 impairment was $3.159 million.
Outlook, risks, and unusual items
- Management expected product revenue to increase in the remainder of 2019 versus Q3, primarily on higher Bandwidth Engine shipments. It expected cost of revenue to rise as a percentage of revenue, R&D expense to decline slightly, and SG&A to remain flat.
- Management said 2019 cash expenditures were expected to exceed receipts and that revenue would not cover working-capital needs. The company may need additional capital; inability to raise it on acceptable terms could force it to curtail operations or product development.
- The company reported nearly a decade of significant negative cash flows, an accumulated deficit of approximately $237.8 million, and a need to increase revenue substantially to achieve sustainable operating profit and cash flow.
- Customer concentration is significant: three customers represented 76% of accounts receivable at quarter-end. Four customers each accounted for at least 15% of Q3 revenue.
- The 2019 goodwill impairment followed a decline in share price and market capitalization. The filing notes further stock-price weakness could contribute to future impairment risk.
- The company adopted lease accounting in 2019, recognizing a right-of-use asset and lease liabilities; it reported no material impact on operating results or cash flows. Its corporate-facility lease expires in October 2020.
- Management said disclosure controls were effective as of September 30, 2019, and reported no material legal proceeding expected to adversely affect the company.
Important facts for investors to verify
- Confirm issuer identity: this source is MoSys, Inc., not Peraso Inc.
- Assess whether the expected recovery in Bandwidth Engine shipments occurred and whether revenue concentration or customer demand changed.
- Review cash use, funding needs, and the terms and security provisions of the $2.858 million convertible notes, including in-kind interest and potential dilution.
- Check the effects of the reverse split and reconcile the filing’s split-adjusted share and per-share figures with other data sources.
- Monitor product gross margins, ongoing operating losses, and any further goodwill or inventory impairment.