Filing identity and reporting period
Important mismatch: The request identifies Peraso Inc., but the supplied Form 10-Q is for MoSys, Inc. It reports the quarter and nine months ended September 30, 2017. Confirm the intended company before relying on this summary.
MoSys described itself as a fabless semiconductor company. In the quarter, it announced plans to discontinue its LineSpeed product line, support existing customers and accept final orders, while focusing on Bandwidth Engine products. Dollar figures below are in U.S. dollars and rounded to millions unless stated otherwise.
Financial results and position
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $2.45m | $1.57m | $5.05m | $4.66m |
| Gross profit / margin | $1.20m / 49% | $0.92m / 58% | $2.46m / 49% | $2.17m / 47% |
| Operating expenses | $2.73m | $5.38m | $11.95m | $19.26m |
| Operating loss | $(1.53)m | $(4.46)m | $(9.49)m | $(17.09)m |
| Net loss | $(1.74)m | $(4.70)m | $(10.14)m | $(17.57)m |
| Loss per share, basic and diluted | $(0.22) | $(0.71) | $(1.43) | $(2.66) |
- Product revenue rose 85% year over year in Q3 and 19% for the nine-month period, primarily on higher Bandwidth Engine shipments. Royalty and other revenue fell 40% in Q3 and 28% for nine months, attributed to lower licensee shipment volumes.
- Q3 gross margin declined to 49% from 58%, although nine-month margin improved to 49% from 47%. Management cited higher product shipment volumes and lower manufacturing costs as supporting gross profit.
- Research and development expense fell 63% in Q3 and 48% year to date; SG&A fell 14% and 19%, respectively. Lower personnel, development, stock compensation and related costs contributed to the reductions.
- At September 30, cash and cash equivalents were $2.78m, versus $8.77m at December 31, 2016; short-term investments were nil. Current assets were $7.56m and current liabilities $13.77m, a reported working capital deficit of $6.2m.
- Nine-month operating cash use was $8.96m, compared with $14.97m in 2016. Investing activities provided $0.99m, principally from net investment maturities; financing provided $1.99m, primarily from the July stock offering. Cash declined by $5.98m over the period.
- Convertible notes were reported as $9.15m current at September 30, with approximately $9.2m outstanding before the unamortized discount, due in August 2018. They bear 10% interest and are secured by company assets. Interest payments were made in kind.
Changes, outlook and risks
- MoSys raised approximately $1.99m net through a July 2017 stock sale at $1.70 per share and issued warrants for 662,500 shares, exercisable at $2.35 from January 2018. The share sale increased outstanding common shares; conversion of notes and warrant exercise could add dilution.
- Restructuring included an approximately 60% workforce reduction, closure of the Japanese branch and Iowa locations, and further expense reductions. Nine-month restructuring charges were $1.05m; $0.48m remained accrued at September 30. Management expected another $0.2m–$0.3m of restructuring charges in Q4 2017.
- Management expected operating losses and cash expenditures to exceed receipts for the foreseeable future, and said additional financing would be needed. The filing states that recurring losses, negative cash flows, limited liquidity and the 2018 note repayment raise substantial doubt about MoSys’s ability to continue as a going concern. No assurance was given that financing would be available on acceptable terms.
- Management expected R&D expense to continue declining as it focused on producing and selling existing products and substantially curtailed new product development. No specific revenue, earnings or cash-flow guidance was provided.
- Revenue concentration was significant: three customers represented 78% of Q3 revenue, and three customers represented 78% of accounts receivable at quarter end. Customer identities are anonymized in the filing.
- Subsequent to quarter end, MoSys terminated its Santa Clara headquarters lease effective October 31, incurring about $250,000 in fees, mostly payable in Q4. It subleased a San Jose facility for 36 months at approximately $21,600 monthly, compared with about $88,930 monthly for the prior facility.
- The filing reported no material legal proceeding expected to materially harm financial position or results. Management concluded disclosure controls were effective as of September 30, 2017.
Most important facts to verify
- Confirm whether MoSys, Inc.—rather than Peraso Inc.—is the intended filing and issuer.
- Review the company’s subsequent financing, cash burn and ability to meet the August 2018 note maturity; the filing disclosed substantial going-concern doubt.
- Check whether Bandwidth Engine shipments and customer demand can sustain or grow revenue after the LineSpeed discontinuation.
- Assess customer concentration, receivable collections and the potential dilution from note conversion and warrants.
- Verify actual restructuring and lease-termination costs against management’s estimates and expected savings.