Filing summary
Entity and period: The supplied filing is MoSys, Inc.’s Form 10-K for the fiscal year ended December 31, 2017, filed March 12, 2018. This does not match the request metadata identifying Peraso Inc. or “2017 Q4”; the filing reports annual results, not standalone fourth-quarter results.
Business context
MoSys was a fabless semiconductor company selling high-speed networking memory ICs, primarily Bandwidth Engine products, and receiving royalties from legacy IP licenses. In April 2017, it cut workforce by about 60%, closed locations, moved to a smaller headquarters, and substantially curtailed new product development. It reported 24 employees at year-end.
Key financial metrics
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue | $8.842 million | $6.024 million |
| Product revenue | $7.833 million | $4.604 million |
| Royalty and other revenue | $1.009 million | $1.420 million |
| Gross profit / margin | $4.148 million / 47% | $2.949 million / 49% |
| Operating loss | $10.033 million | $31.364 million |
| Net loss | $10.668 million | $32.048 million |
| Operating cash flow | $(7.579) million | $(17.943) million |
| Cash and cash equivalents at year-end | $3.868 million | $8.766 million |
| Convertible notes payable at year-end | $9.160 million | $8.250 million |
Year-end current assets were $8.662 million and current liabilities were $6.615 million, for working capital of approximately $2.047 million. Total assets were $23.139 million, total liabilities $15.793 million, and stockholders’ equity $7.346 million. The company reported an accumulated deficit of $224.688 million. Interest expense was $0.927 million. The filing does not provide a standalone Q4 financial summary in the supplied text.
Changes versus prior period
- Revenue grew 47%, driven by a 70% rise in product revenue as customer design wins entered production; royalties and other revenue fell 29%.
- Gross profit increased 41%, but gross margin declined from 49% to 47%, partly because product sales replaced higher-margin royalty revenue and inventory write-downs were recorded.
- Operating loss narrowed substantially, chiefly as R&D expense fell 55% and SG&A fell 17% following restructuring. FY2016 included a $9.858 million goodwill impairment; FY2017 did not.
- Operating cash use improved from $17.943 million to $7.579 million, but cash and cash equivalents fell by $4.898 million during 2017.
Outlook, risks and unusual items
- Management expected product revenue to increase in 2018 as customer production ramps continued, while royalty revenue was expected to decline. It expected lower R&D costs and slightly lower SG&A; it did not provide numeric revenue or earnings guidance.
- Management said cash expenditures would continue to exceed receipts in 2018 and that additional capital would be needed. The company had previously identified substantial doubt about its ability to continue as a going concern; after restructuring and a subsequent debt amendment, it said it expected to meet liquidity needs for at least 12 months from issuance of the financial statements, while acknowledging financing and profitability remained uncertain.
- The February 18, 2018 amendment to the secured convertible notes, a subsequent event, reduced the interest rate from 10% to 8%, extended maturity from August 2018 to August 15, 2019, lowered the optional conversion price to $4.25 per share, and reduced certain change-of-control redemption terms. The notes are secured by substantially all company assets; management said it lacked funds to repay them at maturity.
- Revenue was concentrated: the three largest customers accounted for 46%, 17%, and 11% of FY2017 revenue. One customer represented 63% of year-end receivables.
- Key operating risks include dependence on customer design wins and long sales cycles, reliance on sole foundry TSMC, limited funding and curtailed development, product obsolescence, and competition. First-generation Bandwidth Engine products were scheduled for end-of-life, with last-time orders expected to be fulfilled by December 31, 2018; meaningful revenue from newer products was not expected until 2019 or later.
- A former sales representative filed a California lawsuit in October 2017 alleging unpaid commissions. The case was described as being in its early stages; the company said it would vigorously defend itself. The filing gives no clear amount for the claim.
- FY2017 restructuring charges were $1.321 million. Inventory write-downs were $0.3 million. The company also completed a $1.987 million net equity offering in July 2017 and issued warrants covering 662,500 shares.
Investor verification points
- Confirm the issuer and period: the filing is MoSys FY2017, not Peraso or a standalone 2017 fourth quarter.
- Review subsequent financing, cash burn, note terms and the company’s ability to repay or refinance the secured debt due in August 2019.
- Track customer production ramps, customer concentration, receivable collections, and whether expected 2018 product growth offset declining royalties.
- Assess the feasibility and funding of future product development and the transition beyond the 40-nanometer 1T-SRAM process and current foundry arrangements.
- Monitor the former sales representative litigation and potential dilution from convertible notes, warrants, and future capital raises.