Business context and reporting period
The supplied filing is MoSys, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2014—not a Peraso Inc. filing. MoSys develops and sells fabless semiconductor integrated circuits and licenses semiconductor IP, including its Bandwidth Engine and LineSpeed product lines. Its future profitability depends on building a market for its IC products.
Key financial results
Amounts below are in U.S. dollars; financial statement figures are in millions unless otherwise noted.
| Metric | Q1 2014 | Q1 2013 | Change / context |
|---|---|---|---|
| Net revenue | $1.332 | $1.335 | Essentially flat |
| Product revenue | $0.581 | $0.061 | Up 852%; higher customer production shipments |
| Royalty and other revenue | $0.751 | $1.274 | Down 41%; lower licensee shipment volumes |
| Gross profit / margin | $0.755 / 57% | $1.316 / 99% | Profit down 43%; mix shifted toward product sales, which carry costs |
| Research and development | $7.054 | $5.320 | Up 33% |
| Selling, general and administrative | $1.797 | $1.623 | Up 11% |
| Operating loss | $(8.096) | $(4.997) | Loss widened |
| Net loss / diluted loss per share | $(8.087) / $(0.16) | $(4.997) / $(0.12) | Loss widened |
| Operating cash flow | $(6.337) | $(4.987) | Cash used increased |
At March 31, 2014, cash and cash equivalents were $2.113 million; short- and long-term investments totaled $43.563 million. Management reported combined cash, cash equivalents and investments of $45.7 million and working capital of $34.4 million. Total assets were $73.445 million, and stockholders’ equity was $70.396 million. The balance sheet lists $2.825 million of current liabilities and $0.224 million of long-term liabilities; it does not identify borrowings or provide a clear total-debt figure.
Material changes and notable items
- Product revenue rose sharply as customers began production, but the decline in royalty revenue offset that increase, leaving total revenue nearly unchanged.
- Gross margin fell from 99% to 57%, reflecting both lower royalty revenue, which had no associated costs, and increased product material and testing costs.
- R&D spending increased by $1.734 million, mainly from stock-based compensation, design software, personnel, and product-development costs. Stock-based compensation totaled $1.491 million, versus $0.888 million a year earlier.
- Cash and cash equivalents decreased by $2.251 million during the quarter. Financing provided $1.624 million, primarily from stock-option exercises and the employee stock purchase plan; investment purchases and maturities largely reflect transfers within the investment portfolio.
- Two customers represented 93% of net accounts receivable at quarter-end. Customer A represented 38% of quarterly revenue; Customers B and C represented 24% and 20%, respectively.
Outlook, risks and contingencies
- Management expected cash expenditures to exceed cash receipts in 2014 because revenue would not cover operating expenses, including significant IC development and fabrication costs. It believed available cash and investments would meet capital requirements for the foreseeable future, while cautioning there was no assurance that capital would last until positive cash flow.
- MoSys expected to file a new shelf registration statement to enable future capital raising; availability and terms of any financing were uncertain.
- Management identified revenue levels, product-development outcomes and timing, inventory and collections, fabrication and mask costs, manufacturing yields and material costs, acquisitions, and profitability as factors affecting future liquidity needs.
- Revenue timing is uncertain: royalties depend on licensee production and sales and can be affected by seasonality in end markets. Longer-term product pricing remained subject to customer negotiation.
- Contractual obligations totaled $10.862 million: operating leases of $4.819 million, software licenses of $5.169 million, and wafer purchases of $0.874 million. The filing disclosed no material legal proceeding believed likely to materially harm financial position or results; indemnification obligations’ maximum potential amount was not estimated.
- The company was under tax examination in India. It reported no liability for unrecognized tax benefits at March 31, 2014 and maintained a full valuation allowance against net deferred tax assets.
- Management concluded disclosure controls and procedures were effective as of March 31, 2014 and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm issuer identity: the request metadata names Peraso Inc., but the supplied 10-Q identifies MoSys, Inc.
- Track whether product shipments and design wins grow enough to offset declining royalties and support improved gross margins.
- Assess the pace of operating cash use, liquidity runway, and whether external financing is required or obtained.
- Monitor customer concentration, licensee shipment trends, product pricing, and manufacturing costs and yields.
- Review the referenced 2013 Form 10-K for the full risk-factor discussion; this filing refers readers there but does not reproduce those risks.