Business context and reporting period
Entity discrepancy: The supplied filing identifies the registrant as MoSys, Inc. (Nasdaq: MOSY), not Peraso Inc. This summary reflects the filing text provided. It is a Form 10-Q for the quarter ended March 31, 2019; financial statement amounts below are in U.S. dollars unless stated otherwise.
MoSys describes itself as an IP-rich fabless semiconductor company. Its principal product line and substantially all of its revenue come from Bandwidth Engine integrated circuits, alongside licensing and royalty revenue.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $3.520 million | $4.208 million |
| Gross profit / margin | $2.166 million / 61.5% | $2.607 million / 62.0% |
| Operating income | $0.041 million | $0.567 million |
| Net income | $0.010 million | $0.348 million |
| Operating cash flow | $(0.726) million | $(0.317) million |
| Investing cash flow | $(1.612) million | $0 |
At March 31, 2019, cash and cash equivalents were $4.765 million, short-term investments were $1.564 million, and working capital was $8.8 million. Cash plus short-term investments totaled $6.329 million. Total liabilities were $4.643 million, including $2.749 million of convertible notes payable. The notes bear 8% interest, are secured by company assets, and mature in August 2023; interest may be paid in kind. The company reported $11.805 million in total assets and $7.162 million in stockholders’ equity.
Material changes versus the prior period
- Revenue declined 16% year over year. Product revenue fell 9% to $3.386 million, mainly due to lower Bandwidth Engine 2 sales; royalty and other revenue fell 73% to $0.134 million, reflecting nonrecurring prior-year development services and lower licensee shipments.
- Gross margin remained broadly stable, while lower revenue reduced gross profit by 17%. Operating expenses increased 4% to $2.125 million, including higher R&D spending, and operating income declined to $0.041 million.
- Net income was nearly break-even, compared with $0.348 million in the prior-year quarter. Cash used in operations increased to $0.726 million, largely reflecting working-capital movements.
- Cash and cash equivalents fell from $7.104 million at December 31, 2018 to $4.765 million. The company purchased $1.564 million of short-term investments during the quarter.
Outlook, risks, and unusual items
- Management expected Bandwidth Engine 2 products to remain the primary revenue source through at least 2020. It expected Bandwidth Engine 3 and Programmable Hyperspeed Engine products to begin production and generate meaningful revenue in late 2019; these are forward-looking expectations, not reported results.
- The company expected 2019 cash expenditures to exceed receipts and stated it may need additional capital. It warned that financing could dilute shareholders or impose restrictive debt terms, and that unavailable or unacceptable financing could force it to curtail operations or R&D.
- The company reported accumulated deficits of approximately $236 million and losses of approximately $11 million in each of 2017 and 2018. Customer concentration is significant: five customers represented 91% of Q1 2019 revenue, and three customers represented 94% of receivables at quarter-end.
- Potential dilution is substantial: 37.6 million warrants were outstanding, including 36.9 million common-stock warrants exercisable at $0.30; convertible notes could convert into approximately 4.8 million shares, subject to stated limitations. The filing reported 43.139 million common shares outstanding at March 31.
- Adoption of the new lease standard added a right-of-use asset and lease liabilities; management said it did not materially affect earnings or cash flows. No legal proceeding was identified as likely to have a material adverse effect. Management concluded disclosure controls were effective as of March 31, 2019.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing is for MoSys, Inc. (MOSY), not Peraso Inc.
- Assess whether the expected late-2019 product ramp occurred and how much revenue depends on Bandwidth Engine 2 and a small number of customers.
- Review cash burn, available liquidity, and the company’s need and ability to raise capital.
- Evaluate the secured convertible debt terms and potential dilution from warrants, note conversion, and equity awards.
- Compare subsequent-period operating cash flow and customer collections with the quarter-end concentration and working-capital movements.