Business context and reporting period
The supplied filing is MoSys, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2016, filed August 9, 2016. This does not match the request metadata naming Peraso Inc.; the summary below reflects the filing text. MoSys develops and sells fabless semiconductor ICs for networking and communications markets, principally Bandwidth Engine and LineSpeed products, alongside legacy IP licensing.
Financial results and position
Amounts are in millions of dollars unless stated otherwise. Q2 refers to the three months ended June 30; first half refers to the six months ended June 30.
| Metric | Q2 2016 | Q2 2015 | First half 2016 | First half 2015 |
|---|---|---|---|---|
| Revenue | $1.63 | $0.99 | $3.08 | $1.77 |
| Gross profit / margin | $0.67 / 41% | $0.43 / 43% | $1.26 / 41% | $0.97 / 55% |
| Operating loss | $(5.79) | $(6.91) | $(12.63) | $(14.88) |
| Net loss | $(6.00) | $(6.91) | $(12.87) | $(14.87) |
| Net loss per share | $(0.09) | $(0.11) | $(0.20) | $(0.25) |
| Operating cash flow | Not presented separately | Not presented separately | $(11.11) | $(13.07) |
Q2 product revenue was $1.29 million, up 137% year over year; first-half product revenue was $2.41 million, up 233%, primarily on higher Bandwidth Engine shipments. Royalty and other revenue fell 23% in Q2 and 35% for the first half, reflecting lower licensee shipment volumes. Product revenue was 79% of Q2 revenue and 78% of first-half revenue. Although gross profit increased, gross margin declined, particularly for the first half, as product sales grew while higher-margin royalty revenue decreased.
At June 30, cash and cash equivalents were $10.98 million and short-term investments were $5.54 million, totaling $16.52 million; working capital was $16.2 million. Current assets were $19.69 million and current liabilities $3.46 million. Total assets were $44.93 million. Convertible notes payable were $7.89 million, compared with none at December 31, 2015; total liabilities were $11.59 million. The $8.0 million principal notes bear 10% interest, mature August 15, 2018, and are secured by all company assets. The notes are convertible at $0.90 per share, subject to adjustment. First-half cash increased $5.34 million to $10.98 million, supported by $7.99 million of financing proceeds, primarily the notes issuance.
Material changes versus the prior comparable period
- Revenue rose 64% in Q2 and 74% in the first half, while operating and net losses narrowed year over year.
- Research and development expense declined 16% in Q2 and 20% in the first half. First-half SG&A decreased 2%; Q2 SG&A increased 2%.
- First-half gross margin declined to 41% from 55%, and interest expense increased following the convertible note issuance.
- Cash and cash equivalents rose from $5.64 million at year-end 2015, while short-term investments fell from $14.60 million to $5.54 million, reflecting investment maturities and transfers into cash.
- Stockholders’ equity declined to $33.33 million from $44.84 million, primarily alongside the accumulated deficit increase.
Outlook, commentary, and risks
Management said cash expenditures are expected to exceed receipts in 2016 because revenue is not expected to cover operating expenses. It believed existing cash, cash equivalents, investments, and any operating cash generation would fund requirements for at least the next 12 months, while cautioning that there is no assurance of adequate capital until positive cash flow is achieved. The company may raise additional capital; availability and terms are uncertain and equity issuance could dilute shareholders.
MoSys said it had substantially concluded development of new products, including its third-generation Bandwidth Engine family, and was bringing them to market in 2016. A first-quarter restructuring reduced U.S. headcount by 12 and closed the Hyderabad subsidiary, which had 18 employees. Charges totaled approximately $0.7 million; management expected approximately $3.3 million in annualized savings. Research and development and SG&A expenses were expected to decrease in 2016, though increased product revenue could raise commissions.
Key risks include continuing losses and cash burn; dependence on successful commercialization of IC products; uncertain and declining royalty revenue; customer concentration (one customer represented 54% of Q2 revenue and two represented 73%); manufacturing yield, cost, and shipment risks; and debt terms, including asset security, conversion dilution, and restrictions on additional borrowing. Three customers represented 82% of accounts receivable at quarter-end. The filing reports no material legal proceedings expected to materially adversely affect financial position or results. Disclosure controls were assessed as effective, with no material second-quarter change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer: the source is a MoSys, Inc. filing, not a Peraso Inc. filing.
- Track product shipment growth, customer concentration, distributor sell-through, and the sustainability of product gross margins as royalties decline.
- Assess cash burn against management’s stated 12-month liquidity expectation and the timing or need for additional financing.
- Review the secured convertible notes’ interest, conversion and adjustment provisions, maturity, and potential dilution.
- Monitor whether the restructuring delivers the expected annualized savings and whether new products achieve market adoption.