Business context and reporting period
This filing is MoSys, Inc.’s Form 10-K for the fiscal year ended December 31, 2016, filed March 30, 2017. It is not a Peraso Inc. filing, and it reports annual—not standalone fourth-quarter—results. MoSys was a fabless semiconductor company developing and selling Bandwidth Engine memory ICs and LineSpeed networking PHY ICs, while collecting royalties from legacy IP licenses.
Unless stated otherwise, financial amounts below are in U.S. dollars. The filing presents share and per-share figures adjusted for the 1-for-10 reverse stock split effected February 16, 2017.
Financial results and liquidity
| Metric | FY 2016 | FY 2015 | Change |
|---|---|---|---|
| Revenue | $6.024 million | $4.390 million | Up 37% |
| Product revenue | $4.604 million | $2.400 million | Up 92% |
| Royalty and other revenue | $1.420 million | $1.990 million | Down 29% |
| Gross profit / margin | $2.949 million / 49% | $1.916 million / 44% | Margin up 5 percentage points |
| Operating expenses | $34.313 million | $33.407 million | Up 3% |
| Operating loss | $(31.364) million | $(31.491) million | Slightly narrower |
| Net loss | $(32.048) million | $(31.483) million | Loss increased |
| Net loss per share | $(4.86) | $(5.04) | Improved |
| Cash used in operating activities | $17.943 million | $27.474 million | Cash use decreased |
At December 31, 2016, cash, cash equivalents and short-term investments totaled $9.768 million, versus $20.238 million a year earlier. Working capital was $8.917 million; current liabilities were $3.334 million. Total assets were $27.145 million and stockholders’ equity was $15.328 million. The company reported $8.250 million of convertible notes payable and total liabilities of $11.817 million.
MoSys raised $8 million principal through 10% senior secured convertible notes in March 2016; net proceeds were $7.877 million. The notes are secured by substantially all company assets and mature August 15, 2018. Interest could be paid in cash or in kind; the company elected in-kind payments. It reported approximately $0.8 million of additional notes issued for interest through February 2017.
Material changes and unusual items
- Product revenue rose substantially as additional IC design wins entered production, while legacy royalty revenue continued to decline. Product sales were 76% of 2016 revenue, compared with 55% in 2015.
- Fourth-quarter 2016 included a non-cash goodwill impairment charge of $9.858 million, following a sustained share-price decline and reduced market capitalization. This contributed to a quarterly net loss of $14.478 million on revenue of $1.367 million.
- First-quarter restructuring charges were $0.676 million, following a U.S. workforce reduction and closure of the Hyderabad subsidiary; the actions reduced U.S. headcount by 12 and ended the Indian subsidiary’s 18 positions.
- Research and development expense fell 33% to $18.086 million, primarily reflecting lower salaries, mask tooling, software license and stock-compensation costs. SG&A decreased 10% to $5.693 million.
Outlook, commentary and principal risks
Management expected product revenue to increase as more customer designs ramped, but expected royalties and other revenue to decline in 2017 as licensed products approached end of life. The filing states MoSys did not expect sufficient IC revenue to achieve profitability in 2017 and expected operating losses and cash expenditures to continue. Management anticipated lower R&D spending, including from reduced headcount and a reduced emphasis on new product development.
The auditor’s report and management’s disclosures state that recurring losses, negative cash flows, the need for further financing and the 2018 note repayment raise substantial doubt about MoSys’s ability to continue as a going concern. Management was seeking financing and evaluating cost reductions; it warned that financing might not be available on acceptable terms or at all and that further cuts or cessation or sale of business activities could be necessary.
- Revenue was highly concentrated: three customers accounted for 47%, 21% and 13% of 2016 revenue. One customer represented 72% of year-end trade receivables.
- Design wins do not guarantee commercial production or revenue; the sales cycle can take years, and customers may delay, cancel or change designs. MoSys reported over 85 design wins and approximately 25 customers, but said revenue per design win could not be estimated.
- MoSys relied on third parties for manufacturing and identified TSMC as its sole foundry. The filing cites yield, quality, supply, cost and future process-transition risks; it also says 1T-SRAM was unavailable below 40-nanometer process nodes and funding for anticipated next-generation development was lacking.
- In 2016, Alcatel-Lucent, Kogent and TSMC represented 47%, 21% and 13% of revenue, respectively. The filing also disclosed a Nasdaq audit-committee composition deficiency and stated the company needed to regain compliance by the earlier of its next annual meeting or June 24, 2017.
- As of December 31, 2016, contractual operating lease and software license payments totaled $3.908 million, including $1.513 million due within one year. The company reported no material legal proceedings or material off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm the issuer: this source is MoSys, Inc. (NASDAQ: MOSY), not Peraso Inc.; confirm the intended reporting period is fiscal 2016.
- Review the complete audited statements and going-concern disclosures, including the company’s financing runway, cash burn and ability to repay or refinance secured notes due in 2018.
- Check subsequent financing, note conversions or interest additions, dilution and the operative conversion-price terms. The filing describes the notes’ conversion price and related adjustments; verify the governing documents and post-split terms.
- Track customer and receivables concentration, production ramps from design wins, product gross margins, and the expected decline in royalty revenue.
- Verify Nasdaq listing and audit-committee compliance developments, as well as whether planned cost reductions affected product development and commercialization.