Business context and reporting period
This is MoSys, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2016, filed November 9, 2016. The filing identifies MoSys—not Peraso Inc.—as the registrant; verify that this is the intended filing. MoSys develops and sells fabless semiconductor ICs, including Bandwidth Engine and LineSpeed products, and licenses semiconductor IP.
Financial results and liquidity
Dollar amounts below are in millions except per-share data. The three-month and nine-month comparisons are against the respective 2015 periods.
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $1.57 | $1.02 | $4.66 | $2.79 |
| Gross profit (margin) | $0.92 (58%) | $0.23 (22%) | $2.17 (47%) | $1.20 (43%) |
| Operating loss | $(4.46) | $(10.11) | $(17.09) | $(24.99) |
| Net loss | $(4.70) | $(10.11) | $(17.57) | $(24.98) |
| Net loss per share, basic and diluted | $(0.07) | $(0.15) | $(0.27) | $(0.41) |
- Q3 revenue rose 54%; nine-month revenue rose 67%. Product revenue increased to $1.21 million in Q3 and $3.61 million year to date, while royalty and other revenue declined to $0.37 million and $1.05 million, respectively.
- For the first nine months, operating cash use was $14.97 million, down from $23.12 million. Investing activities provided $11.22 million, mainly from net maturities of investments; financing activities provided $8.12 million, primarily from notes issued.
- At September 30, cash and cash equivalents were $10.01 million and short-term investments were $2.75 million. Working capital was $12.9 million. Current liabilities were $2.45 million.
- Total liabilities were $10.93 million, including $8.24 million of convertible notes payable; total stockholders’ equity was $29.44 million. The notes carry 10% interest, are secured by company assets, and mature August 15, 2018. Interest may be paid in cash or in kind at the company’s option.
Material changes versus the prior comparable period
- Higher Bandwidth Engine shipment volumes and lower manufacturing costs drove stronger product revenue and gross profit. Lower royalty revenue reflected reduced shipment volumes by licensees.
- Research and development expense fell 55% in Q3 and 35% year to date, mainly due to lower tooling, equipment, personnel, software, and stock-compensation costs. SG&A declined modestly.
- MoSys recorded $0.68 million of restructuring charges in the first quarter. The restructuring reduced U.S. headcount by 12 and closed the Hyderabad subsidiary, which had 18 employees; substantially all related cash costs had been paid by September 30.
- In March 2016, MoSys issued $8.0 million principal amount of secured convertible notes. It paid the first semiannual interest in kind, issuing an additional note of approximately $0.34 million.
Outlook, commentary, and risks
- The filing provides no specific revenue or earnings guidance. Management expects annualized restructuring savings of approximately $3.3 million and lower 2016 R&D expense than in 2015; it expects SG&A to decline slightly.
- Management expects cash expenditures to exceed receipts for the foreseeable future and says additional funding will be needed to continue operating at current expenditure levels. There is no assurance capital will be available on acceptable terms; equity financing could dilute shareholders, while debt financing could impose restrictive terms.
- Profitability depends on successful marketing and sales of IC products. Management cites revenue, product-development costs, manufacturing yields, shipment timing, and interest-payment choices as factors affecting liquidity needs.
- Customer concentration is significant: Customer A represented 41% of Q3 revenue, and two customers accounted for 81% of net receivables at quarter end. Goodwill was $23.13 million; the September 2016 annual impairment assessment found no impairment indicators.
- MoSys reported no material legal proceeding believed likely to materially adversely affect its financial position or results. Management concluded disclosure controls were effective as of September 30, 2016.
Important facts for investors to verify
- Confirm the registrant mismatch: the supplied filing is for MoSys, Inc., not Peraso Inc.
- Assess the pace of cash burn, financing needs, and ability to obtain additional capital, including the secured-note terms and potential dilution from conversion.
- Track whether product shipment growth can offset declining royalties and the company’s continuing operating losses.
- Review customer concentration, future product demand, and the potential impact of manufacturing or development costs on liquidity.