Business context and reporting period
Filing identity mismatch: The supplied filing is MoSys, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2012—not a Peraso Inc. filing. The summary below reflects the filing text provided.
MoSys designs and licenses semiconductor intellectual property and is shifting its business toward developing and selling Bandwidth Engine integrated circuits for networking applications. It reported its three- and six-month results through June 30, 2012; balance-sheet comparisons are to December 31, 2011. Amounts below are in U.S. dollars.
Key financial metrics
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Revenue | $1.736 million | $3.292 million | $3.160 million | $6.831 million |
| Gross profit / margin | $1.557 million / 90% | $2.823 million / 86% | $2.924 million / 93% | $5.672 million / 83% |
| Operating loss | $6.559 million | $5.660 million | $13.768 million | $11.680 million |
| Net loss | $6.553 million | $5.652 million | $13.768 million | $11.681 million |
| Loss per share, diluted | $0.17 | $0.15 | $0.36 | $0.31 |
| Cash used in operating activities | Not presented quarterly | $11.212 million | $7.286 million |
- At June 30, cash and cash equivalents were $3.970 million; short- and long-term investments totaled $44.969 million. Management reported $48.9 million in cash, cash equivalents and investments and $28.7 million in working capital.
- Total assets were $78.429 million, down from $89.637 million at December 31, 2011. Stockholders’ equity was $74.533 million.
- Current liabilities were $3.752 million; long-term liabilities were $0.144 million. The filing reports $0.040 million in capital lease obligations due within one year and no other borrowings identified in the provided text.
- Six-month operating expenses were $16.692 million, including research and development of $14.194 million. A $1.856 million asset-sale gain was recorded as a reduction of operating expenses.
Material changes versus prior comparable periods
- Revenue fell 47% in Q2 and 54% in the first half year over year. Licensing and other revenue declined 47% and 66%, respectively; royalties declined 47% and 46%.
- Management attributed the royalty decline mainly to lower shipments of a licensee’s product used in Nintendo Wii and lower royalties from a major foundry partner. Licensing revenue declined primarily because of fewer and smaller new license agreements.
- Gross profit declined in dollars, but gross margin rose to 90% in Q2 and 93% for the half, reflecting fewer customized licensing engagements and, for the half, a greater royalty share of revenue.
- First-half R&D expense increased 12% to $14.194 million, while SG&A decreased 6% to $4.354 million. The net loss widened 18% to $13.768 million.
- Cash and cash equivalents declined from $40.025 million to $3.970 million, while investments increased. Management said much of the investing cash outflow reflected transfers from cash into marketable securities, not a reduction in overall liquidity.
Outlook, risks, contingencies and unusual items
- Management said it did not expect new license agreements during the rest of 2012, expected lower licensing and royalty revenue, and anticipated minimal IC revenue in 2012. It did not expect significant Bandwidth Engine revenue until 2013 at the earliest, and expected operating losses to increase in the near term.
- The company reported its first Bandwidth Engine design wins in May 2012, for low-volume applications. Management said future profitability depends on establishing a market for these products and that IC revenue would not offset the decline in legacy IP revenue and gross margin until later.
- Management expected cash expenditures to exceed receipts in 2012, but believed available cash, investments and other resources would cover operating requirements through the remainder of 2012 and the foreseeable future. It also disclosed a shelf registration permitting sales of up to approximately $30 million of securities through November 2013, while noting that additional funding may not be available on favorable terms or at all.
- In March 2012, MoSys agreed to an approximately $4.3 million exclusive license of part of its high-speed serial I/O IP. It received approximately $2.2 million net of transaction costs at signing; $1.3 million of a $1.9 million holdback was received in July. Remaining holdback-related gains depended on milestones and the indemnity period.
- An arbitration award resulted in approximately $1.4 million paid in Q2. The disputed shares were repurchased and retired; $0.8 million was recorded as a reduction to equity and $0.6 million as SG&A expense.
- A strategic development and marketing agreement with Credo Semiconductor calls for up to approximately $1.4 million of milestone payments. Two MoSys executive officers were Credo investors; $0.3 million was paid and expensed in the first half. After MoSys retains the first $1.2 million of gross profit from related IC sales, gross profits are to be shared equally.
- Four customers accounted for 95% of receivables at June 30, and two customers each represented at least 10% of first-half revenue. The filing also notes investment interest-rate and credit risks and ongoing indemnification obligations; no material legal proceeding was reported as likely to materially harm financial position or results.
- Management stated that disclosure controls were effective as of June 30, 2012, with no material second-quarter change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing names MoSys, Inc., while the request metadata names Peraso Inc.
- Track Bandwidth Engine design-win conversion, production timing, customer adoption and the company’s forecast that meaningful IC revenue would not begin before 2013.
- Monitor legacy licensing and royalty revenue, customer and receivable concentration, and the effect of lower revenue on cash burn and operating losses.
- Confirm receipt and recognition of remaining asset-sale holdback proceeds, subject to milestones and indemnification terms.
- Review the Credo agreement’s milestone payments, related-party disclosures and gross-profit-sharing terms.
- Assess liquidity against operating cash use, contractual commitments of $8.509 million, and the availability and potential dilution or cost of additional financing.